In its Q3 2023 earnings call, BankUnited (NYSE:BKU)'s CEO Raj Singh shared insights on the bank's performance, highlighting a rise in net interest margin (NIM), strong deposit growth, and a focus on regulatory compliance. The bank also reported a decrease in the loan-to-deposit ratio and an increase in reserves in anticipation of potential economic adjustments.
Key takeaways from the call include:
- The NIM increased by 9 basis points to 2.56%.
- Outside of brokered deposits, deposit growth was around $500 million.
- The loan-to-deposit ratio decreased to 93% from 95% in the previous quarter.
- BankUnited paid off FHLB balances and brokered CDs.
- The bank built reserves in anticipation of a potential economic slowdown or recession.
- The bank's pipeline remains strong, adding $484 million in new deposits during Q3.
- Commercial real estate (CRE) loans increased by $46 million, while residential loans declined by $225 million.
- The bank's capital ratios increased, and liquidity remains robust.
- The bank expects the margin to modestly improve in Q4 and sees continued momentum in deposit growth.
Singh stated that despite the challenges posed by lower interest rates and cap rates, the outlook for commercial real estate (CRE) loans remains strong. The bank's loan portfolio has remained relatively flat throughout the year, with the office sector of the CRE portfolio performing particularly well in Florida.
The bank's executives also discussed their focus on optimizing the balance sheet and growing the right areas. They expressed excitement about demand deposit growth and discussed the possibility of resuming stock buybacks in the future. They highlighted a decrease in residential loans, growth in commercial loans with higher spreads, and a decline in commercial finance subsidiaries.
The company is consistently making trade-offs to optimize its credit portfolio, aiming to maintain a flattish to slightly down loan balance while focusing on profitability. The total shared national credit exposure is approximately $4.7 billion, but the definition of shared national credit has expanded over the years. The company aims to reduce its exposure to residential real estate loans and increase its percentage of non-interest-bearing deposits.
Representative Leslie Lunak mentioned that their office properties in northern suburban markets are performing well. The company's reserve build is driven by Moody's (NYSE:MCO) economic forecast, which assumes higher interest rates might lead to stress on maturing and repricing loans. The company's models are done at a submarket level, meaning they take into account regional variations.
The company's deposit growth has been successful but slower in Texas. There has been a slight increase in special mention loans, but the company does not see any signs of trouble or significant loss content in those assets. The company feels positive about its progress and plans to provide more information in three months.
In conclusion, BankUnited expressed confidence in its Q3 performance and its ability to navigate potential economic changes, with a focus on maintaining strong deposit growth and optimizing its credit portfolio. The bank looks forward to sharing more information in the next quarter.
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