BKU Q1 Deep Dive: Loan Growth Lags, Deposit Mix and Margin Expansion Remain in Focus

Regional banking company BankUnited (NYSE: BKU) missed Wall Street’s revenue expectations in Q1 CY2025, but sales rose 5.7% year on year to $255.4 million. Its non-GAAP profit of $0.77 per share was in line with analysts’ consensus estimates.

Is now the time to buy BKU? Find out in our full research report (it’s free).

StockStory’s Take

BankUnited’s first quarter results showed revenue growth but failed to meet Wall Street’s expectations, while non-GAAP profit was in line with consensus. Management attributed the quarter’s performance to a combination of stable deposit growth, moderated by a decline in average loan balances, and lower funding costs. CEO Raj Singh highlighted that net interest margin (NIM) compression was primarily the result of expiring hedges, which was anticipated. He also noted robust core deposit trends and described the quarter as seasonally slow for new loan production, with the expectation of stronger growth in subsequent quarters.

Looking ahead, BankUnited’s management maintained its previous guidance for loan and deposit growth, margin expansion, and expenses, but acknowledged increased macroeconomic uncertainty. Singh described the current environment as having a “wider cone of uncertainty” due to volatility in interest rates and economic policy, yet said that the bank is prepared to adapt to various scenarios. CFO Leslie Lunak emphasized that margin expansion will depend on continued improvements in deposit mix and higher-yielding loan growth, while remaining cautious about the unpredictable rate environment and potential credit normalization.

Key Insights from Management’s Remarks

Management pointed to a mix of internal and external factors shaping the quarter, including shifts in deposit composition, competitive lending conditions, and a focus on credit discipline.

• Core deposit growth strength: Excluding brokered deposits, BankUnited achieved notable growth in core deposits, which management attributes to relationship-oriented client strategies and the prioritization of deposit gathering alongside loan origination.
• Loan production seasonal dip: The first quarter is typically BankUnited’s slowest for new loan growth, as the company waits for updated client financials. Management expects stronger loan production in the second and third quarters, driven by a robust pipeline in commercial and industrial (C&I) lending.
• Competitive loan environment: CEO Raj Singh and COO Tom Cornish highlighted increased competition in commercial real estate (CRE) and C&I, with tighter spreads and more banks re-entering the CRE market. However, they noted that incoming loan relationships are more deposit-rich and favorably priced.
• NIM and funding cost trends: Net interest margin compressed slightly due to expiring hedges, but average funding costs for deposits declined. Management expects future margin expansion, provided the deposit mix continues to improve and higher-cost funding runs off.
• Credit quality stable: CFO Leslie Lunak reported that credit metrics remained steady, with charge-offs largely tied to previously identified problem loans. The reserve for credit losses was maintained, with additional qualitative reserves added in response to rising uncertainty in the broader economic environment.

Drivers of Future Performance

BankUnited’s outlook is shaped by expectations for improved loan growth, further deposit mix enhancements, and continued caution around macroeconomic and rate uncertainties.

• Deposit mix improvement: Management believes further growth in core, lower-cost deposits will support margin expansion, provided the broader rate environment does not deteriorate. The shift away from higher-cost wholesale funding remains a central focus.
• Loan growth timing: While Q1 was seasonally light, management expects loan growth to accelerate in the coming quarters as pipelines in core lending segments remain healthy. However, actual pull-through will depend on the economic outlook and market competition.
• Interest rate and credit risk: The team flagged ongoing market volatility, tariff discussions, and the slope of the yield curve as key risks. Management is closely monitoring interest rate movements and credit trends, adding qualitative reserves to buffer against potential challenges.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will watch (1) core deposit growth trends as a driver of margin expansion, (2) the pace and composition of new loan originations, particularly in C&I and CRE, and (3) credit quality developments, especially within the office and New York CRE portfolio. Uncertainty around interest rates and the broader macro environment will also be important factors to monitor.

BankUnited currently trades at $34.50, down from $36.35 just before the earnings. Is there an opportunity in the stock?See for yourself in our full research report (it’s free).

High Quality Stocks for All Market Conditions

Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.

While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.