BankUnited Inc
For the period ended Dec 31, 2024. Filed Feb 28, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Feb 28, 2025
BKU$44.02-1.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-02-20.
0001504008-24-000006
Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-02-28.
0001504008-25-000005
Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 305 previous paragraphs and 302 current paragraphs.
143 unchanged; 101 reworded; 56 added; 59 removed; 2 previous and 2 current paragraphs rearranged.
Tables are not compared: 53 previous and 53 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (56)
Current report
Our Vision and Strategic Priorities
Current report
•Continue to improve the funding profile - growth in core deposit relationships is paramount:
Current report
◦Grow NIDDA as a percentage of total deposits
Current report
◦Pay down high-cost wholesale borrowings;
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◦As lower-yielding residential mortgages amortize and pay off, replace them with higher yielding core C&I and CRE loans within established risk parameters
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◦Continue to de-emphasize the BFG and Pinnacle portfolios;
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•Innovate with solutions that solve customer pain points;
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•Continue to closely monitor and manage credit;
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Macro-Environmental Considerations
Current report
The macro-environment has been challenging for the banking industry over the last several years. The FRB rate hiking cycle that commenced in 2022 continued through the first half of 2023 before stabilizing. Although a series of FRB rate cuts totaling 1% in the aggregate took place beginning in September 2024, monetary policy remains generally restrictive. Three highly publicized regional bank closures in 2023 eroded confidence in the banking system, specifically with respect to regional and mid-size banks, leading to outflows of deposits from regional and mid-size banks, including BankUnited, to the largest money-center banks and to volatility in bank valuations. Deposit flows, liquidity and market perceptions have stabilized since those events, however, the impacts of those events and a volatile interest rate environment on bank balance sheets and margins, including those of BankUnited, are still evident and have influenced our Company's strategic priorities.
Current report
We made significant progress executing on our strategic priorities in 2024:
Current report
•The funding mix improved considerably for the year ended December 31, 2024:
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◦NIDDA grew by $781 million to 27% of total deposits.
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◦Non-brokered deposits grew by $1.4 billion and total deposits grew by $1.3 billion.
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◦Wholesale funding, including FHLB advances and brokered deposits, declined by $2.3 billion.
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•The asset mix also improved in 2024:
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◦The core CRE and C&I loan segments grew by $470 million and mortgage warehouse grew by $153 million. The pace of C&I growth over the course of 2024 was impacted by an increased level of payoffs and rationalization of non-relationship credits.
Current report
◦The residential, franchise, equipment and municipal finance portfolios declined by a combined $959 million.
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•Primarily due to those balance sheet compositional changes, for the year ended December 31, 2024, the net interest margin, calculated on a tax-equivalent basis, improved to 2.73% from 2.56% for the year ended December 31, 2023.
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•Capital and liquidity were robust:
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◦Total same day available liquidity was $15.5 billion at December 31, 2024.
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◦ROAA improved to 0.66% for the year ended December 31, 2024 from 0.49% for the year ended December 31, 2023; ROAE improved to 8.49% from 7.01%.
Current report
◦NIDDA grew by 11%, or $781 million during the year ended December 31, 2024. Total deposits grew by $1.3 billion and non-brokered deposits grew by $1.4 billion. Average NIDDA increased by $148 million for the year ended December 31, 2024.
Current report
◦The loan to deposit ratio declined to 87.2% at December 31, 2024, from 92.8% at December 31, 2023.
Current report
Increases in interest income for the year ended December 31, 2024 compared to the year ended December 31, 2023 reflected rising yields on interest earning assets that more than offset the decline in average interest earning assets. Similarly, increases in interest expense for the year ended December 31, 2024 compared to the year ended December 31, 2023, resulted from increases in the cost of interest bearing liabilities that more than offset the decline in average interest bearing liabilities.
Current report
The net interest margin, calculated on a tax-equivalent basis, increased to 2.73% for the year ended December 31, 2024, from 2.56% for the year ended December 31, 2023. The increase in the net interest margin for the year ended December 31, 2024 compared to the year ended December 31, 2023 was primarily a result of balance sheet repositioning, particularly an improved funding mix. For the year ended December 31, 2024 compared to the year ended December 31, 2023, average NIDDA grew by $148 million while average FHLB advances declined by $2.5 billion. Within interest bearing deposits, there was a shift from generally higher priced time deposits to generally lower priced forms of interest bearing deposits.
Current report
In part, increased yields on average interest earning assets as well as increases in the cost of deposits reflected the impact of a generally more sustained higher rate environment.
Current report
•The average cost of interest bearing deposits increased to 4.10% for the year ended December 31, 2024, from 3.52% for the year ended December 31, 2023. This increase primarily reflected the ongoing impact of higher prevailing market interest rates, which did not start to reverse until the latter part of 2024.
Current report
The decrease in lease financing revenue for the year ended December 31, 2024, compared to the year ended December 31, 2023, was primarily attributable to the continued decline in the size of the operating lease equipment portfolio. Expense related to the depreciation of operating lease equipment reflected a corresponding decrease over these comparative periods. These declines are expected to continue.
Current report
The most significant reason for the year-over-year increase in compensation was an increase in variable compensation expense. This increase was related to the improved performance of the Company for 2024 compared to 2023 as well as to the impact of an increase in the Company's stock price on the valuation of liability classified share awards. Increased head count and routine salary increases also contributed to this trend.
Current report
The provision for income taxes for the years ended December 31, 2024, 2023 and 2022 was$83.9 million, $58.4 million and $90.2 million, respectively. The Company's effective income tax rate was 26.52%, 24.64% and 24.03% for the years ended 2024,2023 and 2022, respectively.
Current report
As we continued to execute on our balance sheet transformation strategy over the course of theyear ended December 31, 2024, total deposits grew by $1.3 billion, $781 million of which was growth in NIDDA. Non-brokered deposits grew by $1.4 billion while wholesale funding, including FHLB advances and brokered deposits, declined by $2.3 billion. On the asset side of the balance sheet, although total loans declined by $336 million, the core C&I and CRE segments grew by $470 million and MWL grew by $153 million. Lower yielding residential loans declined by $628 million, and franchise, equipment, and municipal finance declined by a combined $331 million. The loan-to-deposit ratio improved to 87.2% at December 31, 2024 from 92.8% at December 31, 2023.
Current report
•Changes in external credit ratings;
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(1)BKU information as of December 31, 2024
Current report
(2)CRE peer median information based on September 30, 2024 Call Report data for banks with total assets between $10 billion and $100 billion
Current report
The following table presents information about CRE loans maturing in the next 12 months by property type at December 31, 2024 (dollars in thousands). Only 11% of the total CRE portfolio, with a weighted average coupon rate of 4.34%, is fixed rate to the borrower and maturing in the next 12 months.
Current report
The construction portfolio includes an additional $88 million in office related exposure, $85 million of which is in New York.
Current report
Non-performing loans included $77 million of office exposure, including office exposure of $32 million in the construction portfolio, at December 31, 2024. Also see the section entitled "Asset Quality" below.
Current report
The franchise and equipment finance portfolio is comprised of loans originated by Bridge including (i) franchise acquisition, expansion and equipment financing facilities and (ii) transportation equipment finance. We do not currently expect significant new loan originations in these segments.
Current report
Total criticized and classified commercial loans increased by $247 million for the year ended December 31, 2024. Criticized and classified CRE loans increased by $286 million; $245 million of this increase was office exposure (including office related construction loans). As expected in the current environment, there has been some further risk rating migration within the CRE office category. Rent abatement periods, delays in completing build-out of leased space and in some cases lower occupancy levels have contributed to risk rating migration in the office portfolio. When office space is leased to new tenants, landlords frequently provide initial rent abatement periods. During these rent abatement periods, we do not include pro-forma rental payments to be made in the future under the terms of new leases in operating cash flows for the purposes of determining risk ratings. We believe we have now identified the population of potential problem CRE office loans.
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Removed paragraphs (59)
Previous report
Our Vision and Long term- Strategic Priorities
Previous report
•Deposit growth is paramount, with particular emphasis on new non-interest bearing deposit relationships;
Previous report
•Maintaining an efficient, effective and scalable support model through operational excellence.
Previous report
Impact of Macro-Environmental Factors and Near-term Strategic Priorities
Previous report
Macro-Environmental Factors:
Previous report
During early 2023, three highly publicized regional bank closures created a crisis of confidence in the banking system, specifically with respect to regional and mid-size banks. This led to outflows of deposits from regional and mid-size banks, including BankUnited, to the largest money-center banks and to volatility in bank valuations. Deposit flows, liquidity and market perceptions have stabilized considerably since those events, however, pressure on bank margins and valuations, in part influenced by those events remains, as does a level of market uncertainty. The FRB has maintained its restrictive monetary policy stance, and a level of uncertainty remains about the overall trajectory of the economy. Despite these circumstances, loan and deposit pipelines are healthy, deposit flows are generally stable, our margin expanded during the second half of 2023, and non-performing asset and net charge-off ratios remain at what we consider to be low levels. We believe our liquidity position is strong and our capital levels robust.
Previous report
To provide context, over the course of 2020 and 2021, the COVID-19 pandemic, along with the response of the Federal government in the form of quantitative easing, low interest rates and fiscal stimulus had material, lingering impacts on the U.S. economy, the banking system and our Company. Systemic liquidity and levels of deposits in the banking system increased significantly while a high level of uncertainty remained about the overall trajectory of the U.S. economy, leading to muted demand and risk appetite for commercial lending. Subsequently, as the social health impacts of the pandemic waned, 2022 brought rising inflation; monetary policy response included quantitative tightening and an unprecedented and rapid rise in the Fed's benchmark interest rate, leading to an outflow of deposits and liquidity from the banking system.
Previous report
In summary, for BankUnited, the impact of the pandemic, accompanying economic uncertainty and the government response led to a balance sheet with a high level of lower-rate assets, particularly in the form of residential mortgages and securities. The subsequent rapid increase in interest rates and quantitative tightening led to deposit outflows, consistent with systemic trends, and an elevated level of more expensive wholesale funding. The events of early 2023 served to exacerbate the impact of deposit outflows and the increase in wholesale funding. A heightened level of focus on liquidity at regional and mid-size banks, while lessening considerably since the events of early 2023, remains.
Previous report
Near-Term Strategic Priorities:
Previous report
In response to the factors discussed above, we have established the following near-term strategic priorities:
Previous report
•Improve the Bank's funding profile by maintaining or growing non-interest bearing and other core deposits and paying down higher cost wholesale funding;
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•Improve the asset mix by re-positioning the balance sheet away from typically lower yielding transactional business such as residential mortgages and organically growing core commercial loans, which are generally higher-yielding, as a percent of total earning assets;
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•Improve the net interest margin, largely a function of improved balance sheet composition;
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•Continue to manage credit;
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•Manage the rate of growth in operating expenses.
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We have made progress executing on these near term strategic priorities:
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•Since March 31, 2023, following the market reaction to the high profile closures of Silicon Valley Bank and Signature Bank, total non-brokered deposits have grown by$703 million and we have paid down FHLB advances by $2.4 billion.
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•Since December 31, 2022, core commercial loan portfolio sub-segments have grown by $719 million while residential loans declined by $692 million and the amortized cost of investment securities declined by $959 million.
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•The net interest margin, after declining from 2.62% for the first quarter of 2023 to 2.47% for the quarter ended June 30, 2023, increased to 2.56% for the quarter ended September 30, 2023, and again to 2.60% for the quarter ended December 31, 2023.
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•Total same day available liquidity was $13.6 billion, the available liquidity to uninsured, uncollateralized deposits ratio was 152% and an estimated 66% of our deposits were insured or collateralized at December 31, 2023.
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•The ratio of non-performing assets to total assets was 0.37% at December 31, 2023, well below pre-pandemic levels. The net charge-off ratio for the year ended December 31, 2023, was 0.09%.
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•We anticipate there will be changes to the regulatory framework governing the banking industry, in part in response to the events of early 2023. Some proposed rules have been issued, and more may be forthcoming. It is difficult to predict the nature or impact of future regulatory changes on our ability to achieve our strategic priorities.
Previous report
•The yield on average interest earning assets increased to 5.39% for the year ended December 31, 2023, from 3.59% for the year ended December 31, 2022, due to re-pricing of floating rate assets and the addition of new assets at higher rates and wider spreads.
Previous report
Total deposits declined by $971 million during the year ended December 31, 2023, consistent with industry trends brought on by tighter liquidity conditions and the liquidity events of early 2023. Non-interest bearing demand deposits declined by $1.2 billion; this decline reflected the impact of higher interest rates on title industry balances and depositors generally seeking yield in a sustained higher rate environment. The shift from money market deposits to time deposits reflected deposit outflows immediately following the bank closures in March 2023 and our response.
Previous report
•The ratio of the ACL to total loans increased to 0.82% at December 31, 2023, from 0.59% at December 31, 2022. For the year ended December 31, 2023, the provision for credit losses was $87.6 million compared to a provision of $75.2 million for the year ended December 31, 2022. The most significant factors affecting the provision for credit losses and increase in the ACL for the year ended December 31, 2023 were changes in the economic forecast, risk rating migration, and increases in certain specific reserves. The increase in the ACL coverage ratio is consistent with the increase in criticized and classified assets, evolving commercial real estate market dynamics and shifts in portfolio composition.
Previous report
•Commercial real estate exposure is modest. Commercial real estate loans totaled 23.6% of loans at December 31, 2023, representing 169% of the Bank's total risk-based capital. At December 31, 2023, the weighted average LTV of the CRE portfolio was 56.0% and the weighted average DSCR was 1.80. 58% of the portfolio was secured by collateral properties located in Florida and 25% was secured by properties located in the New York tri-state area.
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•The net unrealized pre-tax loss on the securities portfolio improved by $141 million for the year ended December 31, 2023, now representing 6% of amortized cost. AOCI, net of tax, improved by $50 million. The duration of our AFS securities portfolio is short at 1.96 at December 31, 2023, HTM securities are not significant.
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•In the first quarter of 2023, the Company increased its quarterly cash dividend by $0.02, to $0.27 per share, reflecting an 8% increase from the previous quarterly cash dividend of $0.25 per share and maintained that quarterly dividend level through 2023.
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•During the year ended December 31, 2023, the Company repurchased approximately 1.6 million shares of its common stock for an aggregate purchase price of $55.0 million.
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•Liquidity is ample. Total same day available liquidity was $13.6 billion, the available liquidity to uninsured, uncollateralized deposits ratio was 152% and an estimated 66% of our deposits were insured or collateralized at December 31, 2023.
Previous report
The increase in interest income for theyear ended December 31, 2023, compared to the year ended December 31, 2022, reflected (i) an increase in both the average balances of and yields on loans; (ii) rising yields on investment securities that more than offset declines in average balances; and (iii) to a lesser extent, higher yields on and average balances of other interest earning assets. Increased yields on average interest earning assets were mainly reflective of the increase in market interest rates, which impacted both coupon rate resets on existing floating rate assets and the rates on new assets added to the balance sheet. The increase in interest expense for the year ended December 31, 2023, compared to the year ended December 31, 2022, reflected primarily (i) an increase in the cost of interest-bearing deposits and (ii) increases in both the cost and average balance of FHLB advances.
Previous report
•The most significant factor leading to the year-over-year decline in the net interest margin was an unfavorable shift in the funding mix for theyear ended December 31, 2023, as compared to theyear ended December 31, 2022. Average non-interest bearing demand deposits declined, both in absolute terms and as a percentage of average total liabilities, while FHLB advances grew, both in absolute terms and as a percentage of average total liabilities. Within interest-bearing deposits, there was a shift toward higher cost time deposits, largely in response to the events of March 2023. Two significant factors impacting the decline in average non-interest bearing deposits were (i) the impact of rising residential mortgage rates on levels of activity in the residential real estate sector leading to a decline in balances in the title insurance industry vertical and (ii) depositors seeking yield in a higher rate environment. In part, the increase in average FHLB advances reflected the impact of deposit outflows immediately following the events of March 2023.
Previous report
•The average rate paid on interest bearing deposits increased to 3.52% for the year ended December 31, 2023, from 0.96% for the year ended December 31, 2022, in response to the higher rate environment, tighter liquidity conditions and resulting competition for deposits.
Previous report
The decrease in lease financing revenue for the year ended December 31, 2023, compared to the year ended December 31, 2022, was attributable to (i) a net loss of $2.0 million on sale of operating lease equipment recognized during the year ended December 31, 2023, compared to a net gain of $2.3 million recognized during the year ended December 31, 2022, a variance of $4.3 million; and (ii) the impact of the sale of some operating lease equipment, reducing the size of the portfolio.
Previous report
Year-over-year increases in employee compensation and benefits reflected labor market dynamics.
Previous report
The provision for income taxes for the years ended December 31, 2023, 2022 and 2021 was$58.4 million, $90.2 million and $34.4 million, respectively. The Company's effective income tax rate was 24.64%, 24.03% and 7.66% for the years ended 2023,2022 and 2021, respectively. The effective income tax rate for the year ended December 31, 2021 was impacted by a settlement with the Florida Department of Revenue related to certain tax matters for the 2009-2019 tax years and a reduction in the liability for unrecognized tax benefits arising primarily from expiration of statues of limitations in federal and certain state jurisdictions.
Previous report
For the year ended December 31, 2023, compared to the year ended December 31, 2022, average non-interest bearing demand deposits declined by $1.8 billion, while average interest bearing deposits remained relatively flat, increasing by $28 million. Correspondingly, average FHLB advances grew by $1.9 billion. The year-over-year decline in average non-interest bearing demand deposits reflected the impact on the title insurance industry vertical of lower levels of activity in the residential mortgage sector brought on by rising mortgage rates, and was consistent with broader industry deposit trends evidencing restrictive monetary policy as customers sought higher yields on their cash balances. Within the interest-bearing categories, average interest bearing non-maturity deposits declined by $1.8 billion, while average time deposits increased by $1.8 billion. This shift reflected deposit outflows from a relatively small number of larger money-market relationships immediately after the initial regional bank closures in March 2023, followed by a strategic shift toward less volatile time deposits in a challenging liquidity environment. While average interest-earning assets remained relatively flat, increasing by $79 million for the year ended December 31, 2023, compared to the year ended December 31, 2022, average loans grew by $621 million and average investment securities declined by $853 million. This shift reflected our near-term strategic priorities with respect to improving the asset mix. The increase of $311 million in other interest earning assets was due to higher levels of cash held at the FRB in response to the events of March 2023.
Previous report
•Changes in credit ratings;
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Consistent with our near-term strategic objectives related to improving the asset mix, for the year ended December 31, 2023, the core C&I and CRE portfolio segments grew by $719 million, while residential loans declined by $692 million. In the aggregate, municipal, franchise and equipment finance declined by $187 million; growth in these segments has been de-emphasized due to their current risk/return profile. These trends are expected to continue over the course of 2024. Mortgage warehouse balances declined by $92 million over the course of 2023, mainly because of the sustained higher interest rate environment. If mortgage rates moderate over the course of 2024, we may see growth in this portfolio segment. Overall, we intend to strategically emphasize the origination of relationship-based loans that are accompanied by deposit business.
Previous report
The following table presents the maturity profile of the CRE portfolio over the next 12 months by property type at December 31, 2023 (dollars in thousands):
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Reworded paragraphs (101)
Previous wording
Our vision is to build a leading regional commercial and small business bank, with a distinctive value proposition based on strong service-oriented relationships, robust digital enabled customer experiences, and operational excellence with an entrepreneurial work environment that empowers employees to deliver their best. Our strategic priorities include:
Current wording
Our vision is to build a leading regional commercial and small business bank, with a distinctive value proposition based on strong service-oriented relationships, robust digital enabled customer experiences, and operational excellence with an entrepreneurial work environment that empowers employees to deliver their best. Our strategic priorities, focused on improving core profitability, include:
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•Growing core customer relationships on both sides of the balance sheet, building a scalable small business and middle-market franchise for the long-term;
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•Grow core customer relationships on both sides of the balance sheet;
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•Transitioning the left side of the balance sheet to a mix of assets with higher risk-adjusted returns;
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•Improve the asset mix, transitioning to a mix of assets with higher risk-adjusted returns:
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•Playing where we can win - focusing on sectors where our delivery model is a differentiator;
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•Play where we can win, focusing on sectors where our delivery model is a differentiator;
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•Investing in organic growth capabilities - people, processes, products and technology;
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•Invest in organic growth capabilities - people, processes, products and technology - while managing expense growth;
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•Using technology to enable success by investing in digital capabilities, nimble technology architecture and data;
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•Prioritize nimble technology architecture and digital capabilities;
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•Retaining the ability to pivot nimbly when opportunities arise;
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•Retain the ability to pivot nimbly when opportunities arise;
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•Maintain robust liquidity and capital;
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•Maintain robust liquidity and capital levels;
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•Consolidated CET1 capital was 11.4% and pro-forma CET1, including accumulated other comprehensive income, was 10.0% at December 31, 2023.
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◦Consolidated CET1 capital was 12.0% and pro-forma CET1, including accumulated other comprehensive income, was 10.9% at December 31, 2024.
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Some of the challenges we face in executing on both our near-term and longer-term strategic priorities, some of which may impact the banking industry more broadly, include:
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Some of the challenges we face in executing on our strategic priorities, some of which may impact the banking industry more broadly, include:
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•The future trajectories of the macro-economy, interest rates, and monetary and fiscal policy are uncertain. The impact of these macro factors on our customers and prospective customers also impacts us. If macro conditions are less supportive than we currently anticipate, we may be less successful in executing our strategic priorities.
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•The future trajectories of the macro-economy, interest rates, and monetary and fiscal policy are uncertain. Additionally, with a new administration in place, there is uncertainty around the impact of a variety of potential policy and regulatory changes. The impact of these macro factors on our customers and prospective customers also impacts us. If macro conditions are less supportive than we currently anticipate, we may be less successful in executing our strategic priorities.
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In evaluating our financial performance, we consider the level of and trends in net interest income, the net interest margin, the cost of deposits, trends in non-interest income and non-interest expense, performance ratios such as the return on average equity and return on average assets and asset quality ratios, including the ratio of non-performing loans to total loans, non-performing assets to total assets, trends in criticized and classified assets and portfolio delinquency and charge-off trends. We consider the composition of earning assets and the funding mix, the composition and level of available liquidity and our interest rate risk profile. We analyze these ratios and trends against our own historical performance, our expected performance, our risk appetite and the financial condition and performance of comparable financial institutions.
Current wording
In evaluating our financial performance, we consider improvement in the funding mix and the composition of earning assets, the level of and trends in net interest income and the net interest margin, the cost of deposits, trends in non-interest income and non-interest expense, performance ratios such as the return on average equity and return on average assets and asset quality ratios, including the ratio of non-performing loans to total loans, non-performing assets to total assets, trends in criticized and classified assets and portfolio delinquency and charge-off trends. We analyze these ratios and trends against our own historical performance, our expected performance, our risk appetite and the financial condition and performance of comparable financial institutions.
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•Net income for the year ended December 31, 2023, was $178.7 million, or $2.38 per diluted share, compared to $285.0 million, or $3.54 per diluted share for the year ended December 31, 2022. For the year ended December 31, 2023, the return on average stockholders' equity was 7.01% and the return on average assets was 0.49%. Income before income taxes for the year ended December 31, 2023, was negatively impacted by margin pressure and an FDIC special assessment of $35.4 million.
Current wording
◦Net income for the year ended December 31, 2024, was $232.5 million, or $3.08 per diluted share, compared to $178.7 million, or $2.38 per diluted share for the year ended December 31, 2023.Results for the year ended December 31, 2023 were negatively impacted by a $35.4 million FDIC special assessment, pre-tax. This item reduced net income by $26.2 million and EPS by $0.35 for the year ended December 31, 2023.
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•The net interest margin, calculated on a tax-equivalent basis was 2.56% for the year ended December 31, 2023, compared to 2.68% for the year ended December 31, 2022. An unfavorable shift in funding mix was the primary driver of a lower net interest margin. A sustained higher rate environment and quantitative tightening as well as events impacting the regional banking sector in early 2023 contributed to this shift. While lower year-over-year, the net interest margin expanded over the second half of 2023. The following chart provides a comparison of net interest margin, the interest rate spread, the average yield on interest earning assets and the average rate paid on interest bearing liabilities for the years ended December 31, 2023 and 2022 (on a tax equivalent basis):
Current wording
◦The net interest margin, calculated on a tax-equivalent basis, expanded by 0.17%, to 2.73% for the year ended December 31, 2024 from 2.56% for the year ended December 31, 2023. The increase in the net interest margin was primarily a result of balance sheet repositioning, particularly an improved funding mix. The following chart provides a comparison of net interest margin, the average yield on interest earning assets and the average rate paid on interest bearing liabilities for the years ended December 31, 2024 and 2023 (on tax equivalent basis):
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•Consistent with industry trends, higher interest rates and restrictive monetary policy, the average cost of total deposits increased to 2.55% for the year ended December 31, 2023, from 0.65% for the year ended December 31, 2022, although the rate of increase declined over the latter half of the year.
Current wording
◦Consistent with industry trends, higher prevailing interest rates and restrictive monetary policy, the average cost of total deposits increased by 0.46% to 3.01% for the year ended December 31, 2024, from 2.55% for the year ended December 31, 2023, although the average cost of deposits has declined over the latter half of the year. The spot APY of total deposits declined to 2.63% at December 31, 2024 from 3.18% at December 31, 2023, reflecting the declines in the fed funds rate in the latter half of the year and an improved deposit mix.
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•Loan portfolio composition shifted from residential to core commercial categories during the year ended December 31, 2023. Residential loans declined from 36% to 33% of the loan portfolio, while the core C&I and CRE categories grew from 56% to 60% of the portfolio.
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◦Loan portfolio composition shifted from residential to core commercial categories during the year ended December 31, 2024. Residential, franchise, equipment and municipal finance portfolios declined by a combined $959 million while the core C&I and CRE categories grew by $470 million for the year ended December 31, 2024, all reflective of our balance sheet repositioning strategy.
Previous wording
•The net charge-off ratio for the year ended December 31, 2023 was 0.09% compared to 0.22% for the year ended December 31, 2022. NPAs remained low, totaling $130.6 million at December 31, 2023, compared to $107.0 million at December 31, 2022. The NPA ratio at December 31, 2023 was 0.37%, including 0.12% related to the guaranteed portion of non-performing SBA loans. At December 31, 2022, the NPA ratio was 0.29%, including 0.11% related to the guaranteed portion of non-performing SBA loans.
Current wording
◦The net charge-off ratio for the year ended December 31, 2024, was 0.16%, a level we consider to be relatively low. The NPA ratio at December 31, 2024 was 0.73%, including 0.10% related to the guaranteed portion of non-performing SBA loans.
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(2)Includes Pinnacle, franchise finance and equipment finance
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◦The ratio of the ACL to total loans increased to 0.92% at December 31, 2024, from 0.82% at December 31, 2023. The ACL to loans ratio for commercial portfolio sub-segments including C&I, CRE, franchise finance and equipment finance was 1.37% at December 31, 2024 and the ACL to loans ratio for CRE office loans was 2.30%.
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•Our capital position is robust. At December 31, 2023, CET1 was 11.4% at a consolidated level and pro-forma CET1, including accumulated other comprehensive income, was 10.0%. The ratio of tangible common equity/tangible assets had increased to 7.0%. The charts below present the Company's and the Bank's regulatory capital ratios at the dates indicated:
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◦At December 31, 2024, CET1 was 12.0% and pro-forma CET1, including accumulated other comprehensive income, was 10.9%. The ratio of tangible common equity/tangible assets increased to 7.8%. The charts below present the Company's and the Bank's regulatory capital ratios at the dates indicated:
Previous wording
•Book value and tangible book value per common share grew to $34.66 and $33.62, respectively, at December 31, 2023, from $32.19 and $31.16, respectively, at December 31, 2022.
Current wording
◦Book value and tangible book value per common share grew to $37.65 and $36.61, respectively, at December 31, 2024, from $34.66 and $33.62, respectively, at December 31, 2023.
Previous wording
The mix of interest earning assets is influenced by loan demand, market and competitive conditions in our primary lending markets, by management's continual assessment of the rate of return and relative risk associated with various classes of earning assets and liquidity considerations. The mix of funding sources is influenced by the Company's liquidity profile, management's assessment of the desire for lower cost funding sources weighed against relationships with customers and growth expectations, our ability to attract and retain core deposit relationships, competition for deposits in the Company's markets and the availability and pricing of other sources of funds. For the year ended December 31, 2023, the funding mix and net interest margin were negatively impacted by the higher interest rate environment and restrictive monetary policy stance of the FRB which have led to a decline in deposit levels across the banking system, increased competition for deposits and higher deposit costs. Deposit outflows related to events that impacted the banking sector in March 2023 also negatively impacted the cost of funds and net interest margin. These factors contributed to declines in average non-interest bearing demand deposits and to an increase in higher cost funding sources, including higher cost time deposits and wholesale funding such as FHLB advances. Over the latter half of 2023, however, we have seen margin expansion as wholesale funding levels have declined and yields on interest earning assets have increased.
Current wording
The mix of interest earning assets is influenced by loan demand, market and competitive conditions in our primary lending markets, by management's continual assessment of the rate of return and relative risk associated with various classes of earning assets and liquidity considerations. The mix of funding sources is influenced by the Company's liquidity profile, management's assessment of the desire for lower cost funding sources weighed against relationships with customers, our ability to attract and retain core deposit relationships, competition for deposits in the Company's markets and the availability and pricing of other sources of funds.
Previous wording
(1)On a tax-equivalent basis where applicable. The tax-equivalent adjustment for tax-exempt loans was $13.4 million, $12.7 million and $13.3 million for the years ended December 31, 2023, 2022 and 2021, respectively. The tax-equivalent adjustment for tax-exempt investment securities was $3.6 million, $3.0 million and $2.7 million for the years ended December 31, 2023, 2022 and 2021, respectively.
Current wording
(1)On a tax-equivalent basis where applicable. The tax-equivalent adjustment for tax-exempt loans was $12.2 million, $13.4 million and $12.7 million for the years ended December 31, 2024, 2023 and 2022, respectively. The tax-equivalent adjustment for tax-exempt investment securities was $3.3 million, $3.6 million and $3.0 million for the years ended December 31, 2024, 2023 and 2022, respectively.
Previous wording
Net interest income, calculated on a tax-equivalent basis, was$890.8 million for theyear ended December 31, 2023, compared to$928.7 million for theyear ended December 31, 2022, a decrease of $37.9 million, comprised of increases in tax-equivalent interest income and interest expense of $628.4 million and $666.3 million, respectively.
Current wording
Net interest income, calculated on a tax-equivalent basis, was $929.8 million for the year ended December 31, 2024, compared to $890.8 million for the year ended December 31, 2023, an increase of $39.0 million. The increase was comprised of increases in tax-equivalent interest income and interest expense of $66.1 million and $27.1 million, respectively.
Previous wording
The net interest margin, calculated on a tax-equivalent basis, was 2.56% for the year ended December 31, 2023, compared to 2.68% for the year ended December 31, 2022. Offsetting factors impacting the net interest margin for the year ended December 31, 2023, compared to the year ended December 31, 2022, included:
Current wording
Further discussion of factors impacting the net interest margin for the year ended December 31, 2024 compared to the year ended December 31, 2023 follows:
Previous wording
•The tax-equivalent yield on loans expanded to 5.42% for theyear ended December 31, 2023, from 3.96% for theyear ended December 31, 2022. Factors contributing to this increase were the resetting of variable rate loans at higher coupon rates and originations of new loans at higher prevailing rates and wider spreads.
Current wording
•The tax-equivalent yield on loans increased to 5.78% for theyear ended December 31, 2024, from 5.42% for theyear ended December 31, 2023. This increase reflected the origination of new loans at higher rates, paydowns of lower-rate loans and balance sheet repositioning.
Previous wording
•The tax-equivalent yield on investment securities increased to 5.33% for theyear ended December 31, 2023, from 2.81% for theyear ended December 31, 2022. This increase resulted primarily from the reset of coupon rates on variable rate securities and to a lesser extent, purchases of higher-yielding securities, and paydowns and sales of lower-yielding securities.
Current wording
•The tax-equivalent yield on investment securities increased to 5.53% for the year ended December 31, 2024, from 5.33% for the year ended December 31, 2023. This increase resulted primarily from the reset of coupon rates on variable rate securities, purchases of higher-yielding securities and paydowns and sales of lower-yielding securities.
Previous wording
•The average rate paid on FHLB advances increased to 4.50% for theyear ended December 31, 2023, from 2.23% for theyear ended December 31, 2022, primarily due to rising rates.
Current wording
•The average rate paid on FHLB advances decreased to 4.15%for theyear ended December 31, 2024, from 4.50%for theyear ended December 31, 2023, primarily due to repayment of higher rate advances, partially offset by maturities of some cash flow hedges.
Previous wording
The following table presents the components of the provision for (recovery of) credit losses for the periods indicated (in thousands):
Current wording
The following table presents the components of the provision for credit losses for the periods indicated (in thousands):
Previous wording
The most significant factors impacting the provision for credit losses for the year ended December 31, 2023, included changes in the economic forecast, new commercial loan production, risk rating migration and an increase in certain specific reserves.
Current wording
The most significant factors impacting the provision for credit losses for the year ended December 31, 2024 included (i) risk rating migration and increases in certain specific reserves; and (ii) an increase in qualitative loss factors, partially offset by an improved economic forecast.
Previous wording
The determination of the amount of the ACL is complex and involves a high degree of judgment and subjectivity. See “Analysis of the Allowance for Credit Losses” below for more information about how we determine the appropriate level of the ACL and about factors that impacted the ACL and provision for credit losses.
Current wording
The determination of the amount of the ACL is complex and involves a high degree of judgment and subjectivity. See “Analysis of the Allowance for Credit Losses” below for more information about how we determine the appropriate level of the ACL and about factors that impacted the level of the ACL.
Previous wording
The most significant factors leading to the increase in other non-interest income for the year ended December 31, 2023, compared to the year ended December 31, 2022, were increases in BOLI income, particularly as related to the BOLI assets supporting our deferred compensation plan, lending related fees and revenue from our customer derivative program.
Current wording
The increase in other non-interest income for the year ended December 31, 2024, compared to the year ended December 31, 2023, reflected increases in BOLI income, higher loan-related and syndication fees and increased revenue from our customer derivative and commercial card businesses.
Previous wording
The following table presents the components of non-interest expense for the periods indicated (in thousands):
Current wording
The following table presents components of non-interest expense for the periods indicated (in thousands):
Previous wording
Increases in deposit insurance expense were primarily attributable to an increase in the assessment rate and a $35.4 million special assessment during the year ended December 31, 2023.
Current wording
The decrease in deposit insurance expense was primarily attributable to a $35.4 million FDIC special assessment incurred during the year ended December 31, 2023. An additional $5.2 million FDIC special assessment was incurred during the year ended December 31, 2024.
Previous wording
The decline in depreciation and impairment of operating lease equipment for the year ended December 31, 2023, compared to the year ended December 31, 2022, is primarily attributed to the decline in operating lease equipment.
Current wording
The decline in depreciation of operating lease equipment for the year ended December 31, 2024 was primarily attributable to the continued decline in the size of the operating lease equipment portfolio as discussed above.
Previous wording
The most significant factor impacting the increase in other non-interest expense for the year ended December 31, 2023, compared to the year ended December 31, 2022, was costs related to certain depositor rebate and commission programs, some of which are correlated with changes in interest rates. See Note 6 to the consolidated financial statements for more information about these costs.
Current wording
The most significant factor impacting the increase in other non-interest expense for the year ended December 31, 2024, compared to the year ended December 31, 2023 was an increase in costs related to certain customer rebate and commission programs. This increase resulted primarily from an increase in balances participating in these programs. See Note 6 to the consolidated financial statements for more information about these costs.
Previous wording
Our investment strategy is focused on ensuring adequate liquidity, maintaining a suitable balance of high credit quality, diverse assets, managing interest rate risk, and generating acceptable returns given our established risk parameters. We have sought to maintain liquidity by investing a significant portion of the portfolio in high quality liquid securities including U.S. Treasury and U.S. Government Agency and sponsored enterprise securities. Investment grade municipal securities provide liquidity and attractive tax-equivalent yields. We have also invested in highly-rated structured products, including private-label commercial and residential MBS, collateralized loan obligations, single family real estate-backed securities and non-mortgage asset-backed securities that, while somewhat less liquid, are generally pledgeable at either the FHLB or the FRB and provide us with attractive yields. We remain committed to keeping the duration of our securities portfolio short; relatively short effective portfolio duration helps mitigate interest rate risk. Based on the Company’s assumptions, the estimated weighted average life of the investment portfolio as of December 31, 2023 was 5.6 years and the effective duration of the investment portfolio was 1.97 years.
Current wording
Our investment strategy is focused on ensuring adequate liquidity, maintaining a suitable balance of high credit quality, diverse assets, managing interest rate risk, and generating acceptable returns given our established risk parameters. We have sought to maintain liquidity by investing a significant portion of the portfolio in high quality liquid securities including U.S. Treasury and U.S. Government Agency and sponsored enterprise securities. We have also invested in highly-rated structured products, including private-label commercial and residential MBS, collateralized loan obligations, single family real estate-backed securities and non-mortgage asset-backed securities that, while somewhat less liquid, are generally pledgeable at either the FHLB or the FRB and provide us with attractive yields. Investment grade municipal securities provide liquidity and attractive tax-equivalent yields. We remain committed to keeping the duration of our securities portfolio short; relatively short effective portfolio duration helps mitigate interest rate risk. The estimated effective duration of the investment portfolio was 1.85 years andthe estimated weighted average life of the portfolio was 5.6 yearsas of December 31, 2024. Approximately 69% of the securities portfolio is floating rate.
Previous wording
The investment securities AFS portfolio was in a net unrealized loss position of $534.8 million at December 31, 2023, compared to a net unrealized loss position of $674.2 million at December 31, 2022, improving by $139.4 million during the year ended December 31, 2023. Net unrealized losses at December 31, 2023 included $5.0 million of gross unrealized gains and $539.8 million of gross unrealized losses. Investment securities available for sale in unrealized loss positions at December 31, 2023 had an aggregate fair value of $8.4 billion. The unrealized losses resulted primarily from a sustained period of higher interest rates, and in some cases, wider spreads compared to the levels at which securities were purchased. Market volatility and yield curve dislocations have also contributed to unrealized losses. None of the unrealized losses were attributable to credit loss impairments.
Current wording
The investment securities AFS portfolio was in a net unrealized loss position of $405.6 million at December 31, 2024, compared to a net unrealized loss position of $534.8 million at December 31, 2023, improving by $129.2 million during the year ended December 31, 2024. Net unrealized losses at December 31, 2024 included $8.4 million of gross unrealized gains and $414.0 million of gross unrealized losses. Investment securities available for sale in unrealized loss positions at December 31, 2024 had an aggregate fair value of $6.7 billion. The unrealized losses resulted primarily from a sustained period of higher interest rates, and in some cases, wider spreads compared to the levels at which securities were purchased. None of the unrealized losses were attributable to credit loss impairments.
Previous wording
The ratings distribution of our AFS securities portfolio at the dates indicated are depicted in the charts below:
Current wording
The external ratings distribution of our AFS securities portfolio at the dates indicated is depicted in the charts below:
Previous wording
We do not intend to sell securities in significant unrealized loss positions at December 31, 2023. Based on an assessment of our liquidity position and internal and regulatory guidelines for permissible investments and concentrations, it is not more likely than not that we will be required to sell securities in significant unrealized loss positions prior to recovery of amortized cost basis, which may be at maturity. While the events of early 2023 impacting the banking sector have impacted the liquidity profile of many banks, including BankUnited, the substantial majority of our investment securities are pledgeable at either the FHLB or FRB. We have not sold, and do not anticipate the need to sell, securities in unrealized loss positions to generate liquidity.
Current wording
We do not intend to sell securities in significant unrealized loss positions at December 31, 2024. Based on an assessment of our liquidity position and internal and regulatory guidelines for permissible investments and concentrations, it is not more likely than not that we will be required to sell securities in significant unrealized loss positions prior to recovery of amortized cost basis, which may be at maturity. The substantial majority of our investment securities are eligible to be pledged at either the FHLB or FRB. We have not sold, and do not anticipate the need to sell, securities in unrealized loss positions to generate liquidity.
Previous wording
While for certain portfolio segments, we have seen an increase in stress scenario losses over the last year, the level of subordination continues to provide more than sufficient coverage of stress scenario collateral losses, further supporting our determination that none of our securities are credit loss impaired. The scenario used to project stress scenario losses is generally calibrated to the level of stress experienced in the Great Financial Crisis. For further discussion of our analysis of impaired investment securities AFS for credit loss impairment, see Note 3 to the consolidated financial statements.
Current wording
While we have seen an increase in stress scenario losses for some securities over the last year, the level of subordination continues to provide more than sufficient coverage of stress scenario collateral losses, further supporting our determination that none of our securities are credit loss impaired. The scenario used to project stress scenario losses is generally calibrated to the level of stress experienced in the Great Financial Crisis. For further discussion of our analysis of impaired investment securities AFS for credit loss impairment, see Note 3 to the consolidated financial statements.
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Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
Quarterly, prices obtained from primary third-party pricing services are validated by obtaining prices from an additional external source for most securities in the portfolio. We have established a robust price challenge process that includes a review by our treasury front office of all prices provided on a quarterly basis. Prices evidencing unexpected quarter over quarter fluctuations, deviations from our expectations based on recent observed trading activity and other information available in the marketplace that would impact the value of the security or deviations of primary prices from those provided by secondary sources beyond established parameters are challenged. Responses to the price challenges, which generally include specific information about inputs and assumptions incorporated in the valuation and their sources, are reviewed in detail. If considered necessary to resolve any discrepancies, a price will be obtained from additional independent valuation sources. We do not typically adjust the prices provided, other than through this established challenge process.
Current report — wording carried from elsewhere
See Note 13 to the consolidated financial statements for more information about the Company's and the Bank's regulatory capital ratios.
Rearranged previous paragraphs (2)
Previous report — wording carried elsewhere
(1)Includes Pinnacle, franchise finance and equipment finance
Previous report — wording carried elsewhere
The estimated amount of uninsured deposits at December 31, 2023 and 2022, was $12.4 billion and $18.2 billion, respectively. Collateralized and affiliate deposits are included in these amounts.