BKU 10-K & 10-Q changes, risk factors and insider trading
BankUnited, Inc. · NYSE · Savings Institution, Federally Chartered · CIK 1504008 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “Failure to attract and retain employees may adversely impact our ability to successfully execute our business strategy”
Removed heading “We depend on our executive officers and other key and skilled personnel to execute our business strategy and could be harmed by the loss of their services or the inability to attract new talent.”
Removed heading “Evolving expectations of stakeholders including investors, customers, regulators, employees and ratings agencies with respect to our ESG practices and those of our customers may impose additional costs on us, impact our reputation in the market or expose us to emerging risks.”
Removed heading “Further downgrades of the U.S. credit rating or a government shutdown could negatively impact economic conditions generally and as a result, our business, results of operation and financial condition.”
Largest changes
“Further downgrades of the U.S. credit rating or a government shutdown could negatively impact economic conditions generally and as a result, our business, results of operation and financial condition.”see in full comparison
“The U.S. Government's sovereign credit rating was downgraded by a NRSRO in 2023. The impact of future downgrades of the U.S. sovereign credit rating or deterioration in its perceived creditworthiness could adversely affect the U.S. and global financial markets and economic conditions. In addition, disagreement over the federal budget has caused and may cause the U.S. federal government to essentially shut down for periods of time. Future events of this nature could have an adverse effect on our business, results of operations and financial condition.”see in full comparison
Our geographic markets in Florida and other coastal areas are particularly susceptible to severe weather, including hurricanes, flooding and damaging winds. The occurrence of a hurricane or other natural disaster, a man-made catastrophe such as terrorist activity, pandemic outbreaks and other health emergencies, political or social unrest, government shutdowns, U.S sovereign credit rating deterioration, geopolitical conflictssee in full comparisonsuch as those currently occurring in the Middle East or Ukraineor other man-made or natural disasters could disrupt our operations or those of our clients or our work-force, result in damage to our facilities, jeopardize our ability to continue to provide essential services to our customers and negatively affect our customers and the local economies in which we operate. These events may lead to a decline in loan originations, an increase in deposit outflows, strain our liquidity position, reduce or destroy the value of collateral for our loans, particularly real estate, negatively impact the business operations of our customers, and cause an increase in delinquencies, foreclosures and loan losses. Our business, financial condition and results of operations may be materially, adversely impacted by these and other negative effects of such events.
“Evolving expectations of stakeholders including investors, customers, regulators, employees and ratings agencies with respect to our ESG practices and those of our customers may impose additional costs on us, impact our reputation in the market or expose us to emerging risks.”see in full comparison
“Governmental efforts to mitigate climate change and shifting consumer and business preference resulting from climate change concerns may require us and our customers to respond to new laws and regulations which may lead to cost increases, asset value reductions and operating process changes, as well as negatively impact our reputation. …”see in full comparison
“Concerns over the long-term impacts of climate change have led and may continue to lead to governmental efforts to mitigate those impacts; that governmental response could directly or indirectly impact our business or that of our customers. Consumers and businesses may change their behavior as a result of their concerns about climate change or in response to governmental efforts to address it. We and our customers may need to respond to new laws and regulations as well as consumer and business preferences resulting from climate change concerns. …”see in full comparison
Full comparison: every changed paragraph (25)
The financial services industry is likely to become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. Increased competition among financial services companies may adversely affect our ability to market our products and services. Technology has lowered barriers to entry and made it possible for financial services providers to compete in our markets without a physical footprint and enabled non-bank providers to offer productsa growing variety of traditional and servicesnontraditional traditionallyalternatives, providedsuch byas banks.crowdfunding, digital wallets. cryptocurrencies, and money transfer services. Many of our competitors have fewer regulatory constraints and may have lower cost structures. Additionally, due to their size or particular technology capabilities, many competitors may offer a broader range of products and services or may be able to offer better pricing for certain products and services than we can.
Our geographic markets in Florida and other coastal areas are particularly susceptible to severe weather, including hurricanes, flooding and damaging winds. The occurrence of a hurricane or other natural disaster, a man-made catastrophe such as terrorist activity, pandemic outbreaks and other health emergencies, political or social unrest, government shutdowns, U.S sovereign credit rating deterioration, geopolitical conflicts such as those currently occurring in the Middle East or Ukraine or other man-made or natural disasters could disrupt our operations or those of our clients or our work-force, result in damage to our facilities, jeopardize our ability to continue to provide essential services to our customers and negatively affect our customers and the local economies in which we operate. These events may lead to a decline in loan originations, an increase in deposit outflows, strain our liquidity position, reduce or destroy the value of collateral for our loans, particularly real estate, negatively impact the business operations of our customers, and cause an increase in delinquencies, foreclosures and loan losses. Our business, financial condition and results of operations may be materially, adversely impacted by these and other negative effects of such events.
Both physical and transitional risks related to climate change or societal and governmental responses to climate changeresponses, could adversely affect our business reputation and performance, including indirectly through impacts on our customers.
Governmental efforts to mitigate climate change and shifting consumer and business preference resulting from climate change concerns may require us and our customers to respond to new laws and regulations which may lead to cost increases, asset value reductions and operating process changes, as well as negatively impact our reputation. These impacts will vary depending on the customers' specific attributes, including reliance on or role in carbon intensive activities and may also affect us directly through a drop in demand for our products and services, reductions in creditworthiness, declines in collateral values, and the rising property and casualty insurance costs related to physical risks brought on by weather events or climate change, particularly in one of our primary market areas in Florida coastal areas which may increase our vulnerability to the ultimate impacts of climate change as compared to some of our competitors and our efforts to account for these risks may not fully protect us from negative impacts of new laws, regulations, behavioral changes, or evolving expectations of stakeholders including investors, customers, regulators, employees, and ratings agencies regarding our ESG practices. Divergent ideological and social views may create competing stakeholder, legislative, and regulatory scrutiny around ESG practices, potentially increasing costs or affecting operations. While we strive to take a balanced approach, stakeholder expectations and externally imposed requirements continue to evolve, remain uncertain, and are sometimes conflicting. If our ESG practices fail to meet these evolving rules or expectations, our reputation and ability to attract or retain employees, customers, and investors could be negatively impacted.
Failure to attract and retain employees may adversely impact our ability to successfully execute our business strategy
Concerns over the long-term impacts of climate change have led and may continue to lead to governmental efforts to mitigate those impacts; that governmental response could directly or indirectly impact our business or that of our customers. Consumers and businesses may change their behavior as a result of their concerns about climate change or in response to governmental efforts to address it. We and our customers may need to respond to new laws and regulations as well as consumer and business preferences resulting from climate change concerns. We and our customers may face cost increases, asset value reductions and operating process changes. The impact on our customers will likely vary depending on their specific attributes, including reliance on or role in carbon intensive activities. Among the impacts to us could be a drop in demand for our products and services, particularly in certain sectors. In addition, we could face reductions in creditworthiness on the part of some customers or in the value of assets securing loans. In particular, our clients' operations may be adversely impacted by the rising cost of property and casualty insurance related to physical risks brought on by weather events or climate change. Our efforts to take these risks into account in making lending and other decisions may not be effective in protecting us from the negative impact of new laws and regulations or changes in consumer or business behavior. One of our primary market areas is the state of Florida, particularly in coastal areas; as such, we may have an increased vulnerability to the ultimate impacts of climate change as compared to some of our competitors.
We depend on our executive officers and other key and skilled personnel to execute our business strategy and could be harmed by the loss of their services or the inability to attract new talent.
We believe that our continued growth and future success will depend in large part on the skills of our senior management team and other key personnel. We believe our senior management team possesses valuable knowledge about and experience in the banking industry that could be challenging to replicate. The composition of our senior management team and our other key personnel may change over time. Although our Chairman, President and Chief Executive Officer has entered into an employment agreement with us, he may not complete the term of his employment agreement or renew upon expiration. Other members of our senior management team are not subject to employment agreements, and some members of our senior management team have reached or are approaching what might be considered normal retirement age. Our Board of Directors and senior management team are actively engaged in ongoing succession planning, however, our succession planning efforts may not be adequate to ensure continuity of qualified senior management. Our success also depends on the experience and skills of other key personnel and on their relationships with the customers and communities they serve. Competition, general labor market dynamics and the evolving transition around remote and hybrid work may also present challenges in recruiting and retaining talent. The loss of service of one or more of our executive officers or key personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business, financial condition or operating results.
BankUnited, Inc. as a BHC and BankUnited N.A. are required by Federal banking agencies to maintain specified levels of capital. At a minimum, our capital policy requires us to maintain capital sufficient to meet the “well-capitalized” standard established by capital adequacy guidelines and the regulatory framework for prompt corrective action. While we anticipate that our current capital resources will satisfy our capital requirements for the foreseeable future, we may, at some point need to raise additional capital to support current operations or continued growth. In addition, we may elect to raise capital for strategic reasons even when we are not required to do so. As a publicly traded company, the most likely source of additional capital is the issuance of equity or debt instruments in the capital markets. Our ability to raise capital on favorable terms, or at all, will depend on a variety of factors, many of which are outside of our control, including market conditions, credit availability, our credit rating and credit capacity, and marketability of our stock. Accordingly, we cannot be assured of being able to raise capital when needed or on favorable terms. In addition, if we needed to raise capital in the future, we may have to do so when many other financial institutions are also seeking to raise capital and would then have to compete with those institutions for investors. The inability to raise additional capital on favorable terms when needed could have a materially adverse effect on our business, financial condition and results of operations. In addition, the issuance of equity to raise capital may dilute the shares of our current shareholders.
Evolving expectations of stakeholders including investors, customers, regulators, employees and ratings agencies with respect to our ESG practices and those of our customers may impose additional costs on us, impact our reputation in the market or expose us to emerging risks.
Divergent ideological and social views may create competing stakeholder, legislative, and regulatory scrutiny around ESG practices that may impact our reputation or operations or result in increased costs. We believe we have taken a balanced approach to these practices in consideration of the views of various stakeholders; however, stakeholder expectations and priorities, and in some cases externally imposed requirements around ESG, continue to evolve, are uncertain, and sometimes conflicting. If our ESG practices do not meet evolving rules and regulations or stakeholder expectations, then our reputation or our ability to attract or retain employees, customers and investors could be negatively impacted.
Our business and financial performance are materially impacted by market interest rates and movements in those rates. Since a high percentage of our assets and liabilities are interest bearing or otherwise sensitive in value to changes in interest rates, changes in rates, in the shape of the yield curve or in spreads between different types of rates can have a material impact on our financial condition and results of operations and the values of our assets and liabilities. Changes in the value of investment securities available for sale and certain derivatives directly impact equity through adjustments of accumulated other comprehensive income and changes in the values of certain other assets and liabilities may directly or indirectly impact earnings. Changes in the values of assets and liabilities brought about by changes in interest rates, even those that do not directly impact reported GAAP or regulatory capital levels, may impactaffect investors'investors’ perceptions of the value of the Company, rating agency opinions, or customers'customers’ perceptions of the stabilityCompany’s offinancial thestrength Companyand leadingstability, towhich could result in unanticipated deposit outflows.outflows or other adverse effects. Interest rates are highly sensitive to many factors overbeyond which we have noour control and which we may not be able to anticipate, including general economic conditions and the monetary and fiscal policies of various governmental bodies,authorities, particularly the Federal Reserve Board. The impact of changes in interest rates on our business and financial performance may be exacerbated if the extentmagnitude, direction, or pace of those changes are beyondexceeds historical norms.experience or market expectations.
Our earnings and cash flows depend to a great extent upon the level of our net interest income. Net interest income isrepresents the difference between the interest income we earn on loans, investments and other interest earning assets, and the interest we pay on interest bearing liabilities, such as deposits and borrowings. A flat or inverted yield curve or tightening credit spreads may limitconstrain our ability to add higher yieldingdeploy assets toat thefavorable balance sheetyields and may reduce the spread between ratesthe paidyield on interest‑earning bearing liabilitiesassets and thosethe earnedcost onof interestinterest-bearing earning assets,liabilities, placing downward pressure on our net interest margin and net interest income. Our deposit costs tendare to begenerally correlated with short-termshort‑term interest rates; increases in short-term interest rates or generally tightening liquidity conditions may exert upward pressure on ourthe costrates ofwe must pay to attract and retain deposits. Changes in interest rates can increase or decrease our net interest income, because different types of assets and liabilities may react differently, and at different times, to market interest rate changes. IfIn a rising interest rate environment, if interest‑bearing liabilities mature or reprice more quicklyrapidly than interest ‑earning assetsassets, in a period of rising rates,our net interest income willmay bedecline. reduced.In Ifa declining interest rate environment, if interest‑earning assets mature or reprice more quicklyrapidly than interest ‑bearing liabilities, falling interest rates could reduceour net interest income.income may likewise be adversely affected. An increase in interest rates may also reduce the demand for loans and lower-pricedlower‑cost deposit products, decreaseslow loan repayment ratesactivity, and negatively affect borrowers'borrowers’ ability to meet their contractual obligations. A decrease in the general level of interest rates may affect us through, among other things, increased prepayments on higher-yieldinghigher‑yielding fixed ‑rate loans and mortgage-backedmortgage‑backed securities. Competitive conditions may also impact the interest rates we are able to earn on new loans or are required to pay on deposits, negatively impacting both our ability to grow loans and deposits and our net interest income. OurIn addition, our ability to manage interest rate risk couldmay be negativelyadversely impactedaffected by unpredictablechanges in depositor behavior ofthat depositorsdiffer from historical patterns, including changes in variousthe timing, magnitude, or sensitivity of deposit movements in response to interest rate environments.changes. A rapidRapid or unanticipated increase or decreasemovements in interest rates, changes in the shape of the yield curvecurve, or changes in spreads between different types of interest rates could have an adverse effect on our net interest margin and results of operations.
We attempt to manage interest rate risk by monitoring and managing the rates, maturity, repricing, mix and balances of the different types of interest earning assets and interest bearing liabilities and through the use of hedging instruments; however, interest rate risk management techniques are not precise, and we may not be able to successfully manage our interest rate risk. The modeling and measurement techniques we use to assess and manage interest rate risk rely on a variety of assumptions, many of which are based on a wide variety of assumptions generally derived from historical datarelationships, trends, and patterns,expectations, and may fail tonot accurately reflect or predict the impact of future interest rate movements inor interesteconomic rates on our financial performance.conditions. Assumptions aboutregarding depositor behavior are an integral tocomponent of our interest rate risk modelingmanagement processes, and management;changes in customer behavior, increased availability of alternative financial products, technological advances enablingthat depositorsfacilitate tothe movemovement moneyof more quicklyfunds, and toongoing do business with a wide variety of financial services providers notchanges in physical proximity to those depositors as well as the evolving landscape of the financial services industry hashave made predictive modeling of depositorsuch behavior increasinglymore difficult.difficult to predict. . See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations—Interest Rate Risk" for a discussion on the methodology and assumptions used by the Company in managing its interest rate risk.
The FRB and FHLB provide important sources of stable, reliable and specifically with respect to the FRB, emergency liquidity to banks including BankUnited. Should the availability, nature, design or provisions of the various liquidity facilities provided by these entities change materially, BankUnited's ability to access operating or contingent liquidity as needed could be adversely impacted. The availability of liquidity from these sources is also dependent on the nature and value, which could be negatively impacted by changes in interest rates or general economic and market conditions, of collateral BankUnited is able to provide and on their evaluation of the Bank's creditworthiness. A significant portion of collateral available to be pledged to the FHLB and FRB consists of loans and securities collateralized by residential and commercial real estate; the value of this collateral is subject to many of the same risks discussed above with respect to the value of real estate collateral for our loans. In 2023, theThe FHFA, the primary regulator of the FHLB system, completedis aactively implementing recommendations from its 2023 comprehensive review of the FHLB system. The review recommended a re-evaluation of many aspects of the regulatory and statutory framework governing the FHLB system and set forth some recommended revisions to that framework. Any future regulatory or legislative action resulting from the comprehensivecomprehensive, reviewmulti-year implementation effort could impact the future amount, terms and availability of liquidity provided by the FHLBs to their members, including BankUnited. Our ability to access funds on a timely basis from the FRB and FHLB also depends on our operational readiness; while we test operational readiness regularly and believe our processes and procedures are adequate in this regard, a failure of those processes and procedures could compromise our ability to access needed liquidity.
The processes we use to forecast future performance and estimate expected credit losses, fair values of certain assets and liabilities and other significant accounting estimates, including in hypothetical periods of stress, the effects of changing interest rates, sources and uses of liquidity, real estate values, and economic trends and indicators on our financial condition and results of operations depend upon the use of analytical and forecasting tools and models. These tools and models reflect assumptions that may prove inaccurate, particularly in times of market stress, volatility or other unforeseen or unprecedented circumstances. Furthermore, even if our assumptions are accurate predictors of future performance, the tools and models that utilize them may prove to be inadequate or inaccurate because of other flaws in their design or implementation. If these tools prove to be inadequate or inaccurate, our strategic planning processes, risk management and monitoring framework, earnings and capital may be adversely impacted.
Widespread adoption and rapid evolution of, as well as developments in the regulatory landscape relating to emerging technologies, including AI, automated decision-making, and digital assets, such as cryptocurrencies, including stablecoins, tokens and other crypto assets that utilize distributed ledger technology, create additional strategic risks, could negatively impact our ability to compete and require substantial expenditures to the extent we were to modify or adapt our existing products and services. As new technologies evolve and mature, our businesses and results of operations could be adversely impacted, including as a result of new competitors and increased volatility in deposits and/or significant long-term reduction in deposits. Our failure to keep pace with technological innovation, to successfully implement enhanced and emerging technologies or to fully realize their benefits could have a material adverse impact on our business, financial condition and results of operations.
Our failure to keep pace with technological innovation, to successfully implement enhanced and emerging technologies or to fully realize their benefits could have a material adverse impact on our business, financial condition and results of operations.
Changes in political administrations are likely to introduce new or modified regulations and related regulatory guidance and supervisory oversight. WeThe expectcurrent the newly elected Trump administration will seek to implement aadministration's regulatory reform agenda thathas isimpacted, significantlyand differentwe thanexpect thatit ofwill thecontinue previousto administration, impactingimpact, the rulemaking, supervision, examination and enforcement priorities of the federal banking agencies and at least temporarily injecting a heightened level of regulatory uncertainty.agencies. Newly enacted laws, regulations, or executive orders may significantly impact the regulatory framework in which we operate and may require material changes to our business processes in short time frames. Inability to meet new statutory requirements within the prescribed periods could adversely affect our business, financial condition and results of operations, as well as impact our reputation.
A number of new or modified rules or policies related to capital requirements for banks with more than $100 billion in assets, liquidity, and bank mergers and acquisitions have been proposed; if these or similar rules are enacted, there could be a material direct or indirect impact on our business including but not limited to our financial position, results of operations and capital. Given the initial posture of the incoming administration, there is significant uncertainty about whether certain of these proposed rules will be enacted in substantially their proposed forms, in modified form, or at all.
The FDIC's restoration plan and anyAny future related increasedFDIC assessments could adversely affect our earnings.
We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance. There is also a risk that BankUnited’s deposit insurance premiums will further increase if failures of insured depository institutions further deplete the DIF or if the FDIC changes its view of the risk BankUnited poses to the DIF or otherwise increases the assessment rate adjustment applicable to BankUnited’s deposits. Any future additional assessments or increases in FDIC insurance premiums or additional assessments may adversely affect our financial condition or results of operations.
Heightened levels of economic uncertainty, volatility or deterioration in business or economic conditions generally, or more specifically in the principal markets in which we do business could have material adverse effects on our business, financial condition and results of operations. These effects may include but are not necessarily limited to: (i) a decrease in demand for our products and services; (ii) an increase in delinquencies and defaults by borrowers or counterparties leading to increased credit losses; (iii) a decline in the value of our assets; (iv) a decrease in earnings; (v) a decline in liquidity and (vi) a decrease in our ability to access the capital markets. WhileWe may be negatively affected by the volatility and uncertainty related to inflation trended down inand the second halfeffects of 2024,inflation. itProlonged remainsperiods aof keyinflation economic concern. Inflationary trends and a higher sustained interest rate environment couldmay lead to an increase in our operating expenses or those of our clients, in turn impacting borrowers' ability to repay their obligations to us. Loan demand could also be negatively impacted. The imposition of tariffs or immigration reform could directly or indirectly adversely impact our clients businesses, and in turn demand for our loan and deposit products or borrowers' ability to repay their loans.
Further downgrades of the U.S. credit rating or a government shutdown could negatively impact economic conditions generally and as a result, our business, results of operation and financial condition.
The U.S. Government's sovereign credit rating was downgraded by a NRSRO in 2023. The impact of future downgrades of the U.S. sovereign credit rating or deterioration in its perceived creditworthiness could adversely affect the U.S. and global financial markets and economic conditions. In addition, disagreement over the federal budget has caused and may cause the U.S. federal government to essentially shut down for periods of time. Future events of this nature could have an adverse effect on our business, results of operations and financial condition.
Management's Discussion & Analysis (MD&A)
Removed heading “Macro-Environmental Considerations”
Removed heading “Stress Testing Results”
Removed heading “Operating Lease Equipment, net”
Largest changes
“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. …”see in full comparison
“•The ACL for the residential and MWL segments increased by $4.4 million for the year ended December 31, 2024, mainly attributable to updated modeling assumptions for minimum levels of loss given default.”see in full comparison
“(1) The interest rate collar consists of a combination of zero-premium interest rate options. The Company sold a pay-variable cap with a strike price of 5.58%; sold a 0% floor; and purchased a receive-variable floor with a strike price of 1.50%.”see in full comparison
“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. …”see in full comparison
Full comparison: every changed paragraph (167)
◦Grow NIDDA particularly in national deposit verticals, middle-market and small business;
◦Invest in payments technology and leverage treasury solutions to enhance deposit acquisition and promote customer retention;
◦Grow NIDDA as a percentage of total deposits
◦Pay down high-cost wholesale borrowings;
◦Rebalance the loan portfolio toward higher-yielding commercial lending as lower-yielding residential loans roll off, driving NIM expansion through mix shift;
◦Continue to de-emphasize the BFG portfolio;
•Focus on key markets and geographies, specifically Florida, Texas, Georgia and New Jersey;
◦As lower-yielding residential mortgages amortize and pay off, replace them with higher yielding core C&I and CRE loans within established risk parameters ◦Continue to de-emphasize the BFG and Pinnacle portfolios;
•Maintain robust liquidity and capital levelslevels, while returning excess capital to shareholders as appropriate;
Macro-Environmental Considerations
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.
We made significant progress executing on our strategic priorities in 2024:
•The funding mix improved considerably for the year ended December 31, 2024:
◦NIDDA grew by $781 million to 27% of total deposits.
◦Non-brokered deposits grew by $1.4 billion and total deposits grew by $1.3 billion.
◦Wholesale funding, including FHLB advances and brokered deposits, declined by $2.3 billion.
•The asset mix also improved in 2024:
◦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.
◦The residential, franchise, equipment and municipal finance portfolios declined by a combined $959 million.
•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.
•Capital and liquidity were robust:
◦Consolidated CET1 capital was 12.0% and pro-forma CET1, including accumulated other comprehensive income, was 10.9% at December 31, 2024.
◦Total same day available liquidity was $15.5 billion at December 31, 2024.
•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.
Overview
20242025 Performance Highlights:
In evaluating our financial performance, we consider improvement in(i) the funding mix and the composition of interest earning assets,assets; (ii) the level of and trends in net interest income and the net interest margin,margin; (iii) the cost of deposits, trends in non-interest income and non-interest expense,expense; (iv) performance ratios such as the return on average equity and return on average assets and trends in those metrics; and (v) asset quality ratios,metrics, including the ratiolevel of criticized and classified assets, the ratios of non-performing loans to total loans,loans and non-performing assets to total assets, delinquency and net charge-off rates, as well as trends in criticizedthose and classified assets and portfolio delinquency and charge-off trends.metrics. 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.
◦•Net income for the year ended December 31, 2024,2025 was $232.5$268.4 million, or $3.08$3.53 per diluted share, compared to $178.7$232.5 million, or $2.38$3.08 per diluted share for the year ended December 31, 2023.Results2024, an increase of 15%. PPNR increased by 16%, to $429.7 million for the year ended December 31, 20232025, werefrom negatively impacted by a $35.4$371.4 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, 2023.2024.
◦•ROAA improved to 0.77% for the year ended December 31, 2025, from 0.66% for the year ended December 31, 2024 from 0.49% for the year ended December 31, 2023; ROAE improved to 8.49%9.0% from 7.01%.8.5%.
◦•The net interest margin, calculated on a tax-equivalent basis, expanded by 0.17%,0.22%, to 2.95% for the year ended December 31, 2025 from 2.73% for the year ended December 31, 2024 from 2.56% for the year ended December 31, 2023.2024. The increase in the net interest margin was primarily a result of balance sheet repositioning, particularly an improved funding mix.mix, and re-pricing of deposit costs in line with a lower interest rate environment. Net interest income grew by $73.3 million, or 8%, for the year ended December 31, 2025. The following chart provides a comparison of net interest margin, the average yield on interest earning assetsassets, and the average rate paid on interest bearing liabilities for the years ended December 31, 20242025 and 20232024 (on a tax equivalent basis):
•The average cost of total deposits declined by 0.61% to 2.40% for the year ended December 31, 2025, from 3.01% for the year ended December 31, 2024. The spot APY of total deposits declined to 2.10% at December 31, 2025 from 2.63% at December 31, 2024.
◦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.
◦•The following charts illustrate the composition of deposits at the dates indicated:
◦•NIDDA grew by 11%,20%, or $781$1.5 millionbillion during the year ended December 31, 2024.2025, and represented 31% of total deposits at December 31, 2025. Total deposits grew by $1.3$1.5 billion and non-brokered deposits grew by $1.4$1.8 billion. Average NIDDA increased by $148$844 million for the year ended December 31, 2024.2025.
•Wholesale funding, including FHLB advances and brokered deposits, declined by $1.7 billion for the year ended December 31, 2025.
◦•Loan portfolio composition shiftedcontinued to shift from residential to core commercial categories during the year ended December 31, 2024.2025. Residential, franchise, equipment and municipal finance portfolios declined by a combined $959$810 million while the core C&I and CRE categoriesloans grew by $470$786 million for the year ended December 31, 2024, all2025, reflective of our balance sheet repositioning strategy.
◦•The loan to deposit ratio declined to 82.7% at December 31, 2025, from 87.2% at December 31, 2024, from 92.8% at December 31, 2023.2024.
◦•Total criticized and classified loans declined by $185 million while non-performing loans increased by $122 million for the year ended December 31, 2025. The net charge-off ratio for the year ended December 31, 2024,2025, was 0.16%, a level we consider to be relatively low.0.30%. The NPA ratio at December 31, 20242025 was 0.73%,1.08%, including 0.10%0.11% related to the guaranteed portion of non-performing SBA loans.
◦•The ratio of the ACL to total loans increaseddeclined to 0.91% at December 31, 2025, from 0.92% at December 31, 2024,2024. fromThe 0.82%ratio atof Decemberthe 31,ACL 2023.to non-performing loans was 58.99%. The ACL to loans ratio for commercial portfolio sub-segments including C&I, CRE, franchise finance and equipment finance was 1.37%1.30% at December 31, 20242025 and the ACL to loans ratio for CRE office loans was 2.30%.2.03%. The provision for credit losses was $67.9 million for the year ended December 31, 2025, compared to $55.1 million for the year ended December 31, 2024.
◦•At December 31, 2024,2025, CET1 was 12.0%12.3% andup pro-forma0.30% CET1,from includingDecember accumulated31, other2024. comprehensiveAOCI income,improved wasby 10.9%.$94.9 million from December 31, 2024. The ratio of tangible common equity/ to tangible assets increased to 7.8%.8.5%. The charts below presentrepresent the Company's and the Bank's regulatory capital ratios at the dates indicated:
◦•Book value and tangible book value per common share grewcontinued to accrete, to $41.19 and $40.14, respectively, at December 31, 2025, compared to $37.65 and $36.61, respectively, at December 31, 2024,2024. fromThis $34.66represents anda $33.62,10% respectively,year-over-year atincrease Decemberin 31,tangible 2023.book value per share.
•During the year ended December 31, 2025, the Company repurchased approximately 1.1 million shares of its common stock for an aggregate purchase price of $44.8 million. In January 2026, the Company's Board of Directors authorized the repurchase of up to an additional $200 million in shares of its outstanding common stock.
•In the first quarter of 2025, the Company increased its quarterly dividends by $0.02, to $0.31 per share, reflecting a 7% increase from the previous quarterly cash dividend of $0.29 per share and maintained that quarterly level through 2025. In January 2026, the Company's Board of Directors announced an increase of $0.02 in the Company's common stock dividend for future quarterly dividends to $0.33 per common share, an increase of 6%.
•In August 2025, the Company redeemed all of its outstanding senior notes due November 2025 at par value plus accrued interest.
The ACL represents management's estimate of current expected credit losses, or the amount of amortized cost basis not expected to be collected, on our loan portfolio and the amount of credit loss impairment on our AFS securities portfolio. Determining the amount of the ACL is considered a critical accounting estimate because of its complexity and because it requires extensive judgment and estimation. Estimates that are particularly susceptible to change that may have a material impact on the amount of the ACL include:
•the value of underlying collateral, which may impact loss severity and certain cash flow assumptions for collateral-dependent, criticized and classified loans; in the current environment, especially with respect to certain commercial real estate sectors like office, current and projected collateral values may be particularly challenging to estimate; and
•our selection and evaluation of qualitative factors; andfactors.
•our estimate of expected cash flows on AFS debt securities in unrealized loss positions.
The ACL estimates incorporate a probability‑weighted blend of macroeconomic scenarios, with weights determined by an evaluation of each scenario’s key assumptions and narrative, the projected paths of principal economic variables, such as real GDP growth and the unemployment rate, and other relevant market indicators and consensus forecasts. Scenarios include (i) a baseline forecast; (ii) an upside scenario reflecting above-baseline levels of output and lower unemployment rate; and (iii) a downside scenario reflecting softer business investment, depressed consumer sentiment, and generally weaker economic activity.
To illustrate directional sensitivity to the choice of scenario, excluding the impact of qualitative factors, the impact of using only the upside scenario would result in an estimated $21 million decrease in the ACL, while using only the downside scenario would result in an estimated increase of $111 million in the ACL. The sensitivity analysis result does not represent management’s view of expected credit losses nor is it intended to estimate future changes in ACL levels.
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 costlower-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.
Net interest income, calculated on a tax-equivalent basis, was $1.0 billion for the year ended December 31, 2025, compared to $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$71.6 million. The increase was comprised of increasesdecreases in tax-equivalent interest income and interest expense of $66.1$134.0 million and $27.1$205.6 million, respectively.
The net interest margin, calculated on a tax-equivalent basis, increased to 2.95% for the year ended December 31, 2025, from 2.73% for the year ended December 31, 2024. Both the yield on interest earning assets and the cost of interest bearing liabilities declined during the year, reflecting a lower interest rate environment. However, the decline in the cost of interest bearing liabilities outpaced the decline in the yield on interest earning assets, primarily as a result of balance sheet repositioning, particularly an improved funding mix.
For the year ended December 31, 2025 compared to the year ended December 31, 2024, average NIDDA grew by $844 million while average FHLB advances declined by $914 million. Within interest bearing deposits, there was a shift from generally higher priced time deposits to generally lower priced forms of interest bearing deposits. On the asset side of the balance sheet, average core loans increased to 65.9% of average loans for the year ended December 31, 2025, from 62.8% of average loans for the year ended December 31, 2024, while generally lower-yielding residential loans declined to 30.7% of average loans from 32.6% of average loans for the respective periods.
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.
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.
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.
•The tax-equivalent yield on loans increaseddecreased to 5.48% for the year ended December 31, 2025, from 5.78% for the year ended December 31, 2024, from 5.42% for the year ended December 31, 2023.2024. This increasedecrease reflected the originationimpact of newdeclining loansmarket atrates higheron rates,the paydownspredominantly offloating lower-raterate loanscommercial and balance sheet repositioning.portfolio.
•The tax-equivalent yield on investment securities increaseddecreased to 5.04% for the year ended December 31, 2025, from 5.53% for the year ended December 31, 2024, from 5.33% for the year ended December 31, 2023.2024. This increasedecrease 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.
•The average cost of interest bearing deposits increaseddecreased to 3.39% for the year ended December 31, 2025, from 4.10% for the year ended December 31, 2024, from 3.52% for the year ended December 31, 2023.2024. This increase primarilydecline reflected theactions ongoingtaken impactto proactively reduce deposit pricing in response to a lower Federal funds rate and re-pricing of higherterm prevailing market interest rates, which did not start to reverse until the latter part of 2024.deposits.
What changed in the latest 10-Q
Risk Factors
There have been no material changes in the risk factors disclosed by the Company in its 2025 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 26, 2026.
No wording changes found in this section.
Full comparison: every changed paragraph (0)
Management's Discussion & Analysis (MD&A)
New heading “Three and six months ended June 30, 2026 compared to the three and six months ended June 30, 2025”
Removed heading “Three months ended March 31, 2026 compared to the three months ended December 31, 2025”
Largest changes
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect the Company’s current views with respect to, among other things, future events and financial performance. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” "future", "could", and similar expressions identify forward-looking statements. These forward-looking statements are based on the historical performance of the Company or on the Company’s current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by the Company that the future plans, estimates or expectations so contemplated will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to the Company’s operations, financial results, financial condition, business prospects, growth strategy and liquidity, including as impacted by external circumstances outside the Company's direct control, such as (1) an inability to successfully execute our core business strategy; (2) adverse events or conditions impacting the financial servicessee in full comparisonindustry.industry, (3) our ability to access capital, including the impact of our credit rating; (4) credit risk inherent in the business of making loans and embedded in our securities portfolio, including inadequate allowance for credit losses and real estate market conditions and valuations; (5) interest rate risk, (6) liquidity risks, (7) risks related to the regulation of our industry, (8) operational risk, including dependence on information technology and third party service providers and the risk of systems failures, interruptions or breaches of security or inability to keep pace with technological change; (9) reputational risk, (10) the impact of conditions in the financial markets and economic conditions generally; (11) ineffective risk management or internal controls; and (12) the selection and application of accounting policies and methods and related assumptions and estimates. If one or more of these or other risks or uncertainties materialize, or if the Company’s underlying assumptions prove to be incorrect, the Company’s actual results may vary materially from those indicated in these statements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements, including, but not limited to, the risk factors described in Part I, Item 1A of the 2025 Annual Report on Form 10-K and any subsequent Quarterly Report on Form 10-Q or Current Report on Form 8-K. The Company does not undertake any obligation to publicly update or review any forward looking statement, whether as a result of new information, future developments or otherwise.
“Three and six months ended June 30, 2026 compared to the three and six months ended June 30, 2025”see in full comparison
“Three months ended March 31, 2026 compared to the three months ended December 31, 2025”see in full comparison
“The net interest margin, calculated on a tax-equivalent basis, increased to 2.99% for the three months ended March 31, 2026, from 2.81% for the three months ended March 31, 2025. The increase in the net interest margin for the three months ended March 31, 2026 compared to the three months ended March 31, 2025 was primarily a result of balance sheet repositioning, particularly an improved funding mix. For the three months ended March 31, 2026 compared to the three months ended March 31, 2025, average NIDDA grew by $1.1 billion while average FHLB advances declined by $797 million. …”see in full comparison
“For the three and six months ended June 30, 2026 compared to same periods in the prior year, average NIDDA grew by $1.0 billion while average interest bearing liabilities declined by $1.1 billion. Deposit pricing continued to improve, contributing to lower funding costs. The average cost of deposits declined to 2.05% and 2.08% from 2.47% and 2.52% for the three and six months ended June 30, 2026 and 2025, respectively, reflecting the maturity of higher-rate time deposits, reductions in higher cost brokered deposits and the continued execution of targeted deposit repricing initiatives. …”see in full comparison
“Net interest income, calculated on a tax-equivalent basis, was $252.4 million for the three months ended March 31, 2026, compared to $261.6 million for the three months ended December 31, 2025, a decrease of $9.3 million. The decrease was comprised of decreases in tax-equivalent interest income and interest expense of $20.3 million and $11.0 million, respectively. The quarter-over-quarter decline in interest income was primarily due to lower yields on earning assets as coupon rates on floating rate instruments reset down, and was further impacted by lower SOFR/Fed fund basis. …”see in full comparison
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The following discussion and analysis is intended to focus on significant matters impacting and changes in the financial condition and results of operations of the Company during the three and six months ended MarchJune 31,30, 2026 and should be read in conjunction with the consolidated financial statements and notes hereto included in this Quarterly Report on Form 10-Q and BKU's 2025 Annual Report on Form 10-K for the year ended December 31, 2025 (the "2025 Annual Report on Form 10-K").
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect the Company’s current views with respect to, among other things, future events and financial performance. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” "future", "could", and similar expressions identify forward-looking statements. These forward-looking statements are based on the historical performance of the Company or on the Company’s current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by the Company that the future plans, estimates or expectations so contemplated will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to the Company’s operations, financial results, financial condition, business prospects, growth strategy and liquidity, including as impacted by external circumstances outside the Company's direct control, such as (1) an inability to successfully execute our core business strategy; (2) adverse events or conditions impacting the financial services industry.industry, (3) our ability to access capital, including the impact of our credit rating; (4) credit risk inherent in the business of making loans and embedded in our securities portfolio, including inadequate allowance for credit losses and real estate market conditions and valuations; (5) interest rate risk, (6) liquidity risks, (7) risks related to the regulation of our industry, (8) operational risk, including dependence on information technology and third party service providers and the risk of systems failures, interruptions or breaches of security or inability to keep pace with technological change; (9) reputational risk, (10) the impact of conditions in the financial markets and economic conditions generally; (11) ineffective risk management or internal controls; and (12) the selection and application of accounting policies and methods and related assumptions and estimates. If one or more of these or other risks or uncertainties materialize, or if the Company’s underlying assumptions prove to be incorrect, the Company’s actual results may vary materially from those indicated in these statements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements, including, but not limited to, the risk factors described in Part I, Item 1A of the 2025 Annual Report on Form 10-K and any subsequent Quarterly Report on Form 10-Q or Current Report on Form 8-K. The Company does not undertake any obligation to publicly update or review any forward looking statement, whether as a result of new information, future developments or otherwise.
Executive Overview
Second quarter 2026 results compared to first quarter 2026:
•Net income was $70.7 million, or $0.97 per diluted share, up from $61.9 million, or $0.83, per diluted share.
•PPNR, a non-GAAP measure, increased by 3%, to $109.9 million from $106.3 million.
Quarterly Highlights include:
•Net income for the three months ended March 31, 2026 was $61.9 million, or $0.83 per diluted share, compared to $69.3 million, or $0.90, per diluted share for the immediately preceding three months ended December 31, 2025 and $58.5 million, or $0.78 per diluted share for the three months ended March 31, 2025. PPNR increased by 12%, to $106.3 million for the three months ended March 31, 2026, from $95.2 million for the three months ended March 31, 2025.
•For the three months ended March 31, 2026, the annualizedAnnualized ROAA wasincreased to 0.81% from 0.72% and annualized ROAE wasimproved to 9.3% from 8.1%.
•The net interest margin, calculated on a tax-equivalent basis, expanded to 3.06%, up 0.07%, from 2.99%.
•Total deposits, excluding brokered deposits, grew by $1 billion.
•NIDDA increased by $991 million, or 11%, and represented 34% of total deposits; average NIDDA was up 7% or $564 million.
•The net interest margin, calculated on a tax-equivalent basis, declined to 2.99% for the three months ended March 31, 2026 from 3.06% for the immediately preceding quarter, reflecting seasonal trends; however the net interest margin increased 18 bps from 2.81% for the three months ended March 31, 2025. The decrease in the net interest margin from the immediately preceding quarter was primarily a result of variable rate assets repricing faster than continued improvement in funding cost and funding mix dynamics.
•The average cost of total deposits declined to 2.12% for the three months ended March 31, 2026, from 2.18% for the immediately preceding quarter, and 2.58% for the three months ended March 31, 2025. The spot APY of total deposits declined to 2.09% at March 31, 2026 from 2.10% at December 31, 2025.
•Total deposits, excluding brokered deposits, grew by $277 million for the three months ended March 31, 2026. NIDDA declined by $166 million during the three months ended March 31, 2026, primarily due to seasonality, and represented 30% of total deposits at March 31, 2026. NIDDA grew by $875 million compared to March 31, 2025, one year ago.
•Wholesale funding, including FHLB advances and brokered deposits, declined by $70$1.4 millionbillion forreflecting thecontinued threebalance monthssheet ended March 31, 2026.repositioning.
•Total loans declined by $206 million due to continued purposeful runoff in non-core loans. Average core loans increased by $195 million.
•Total loans declined by $139 million for the three months ended March 31, 2026. Core loans increased by $9 million, impacted by seasonally low commercial volume in the first quarter. Residential, franchise, equipment and municipal finance portfolios declined by a combined $148 million reflective of our balance sheet repositioning strategy.
•The loan to deposit ratio declined to 82.3% at March 31, 2026, from 82.7% at December 31, 2025.
•Total criticized and classified loans declinedincreased by $146$7 million, or 12%,1%, while non-performing loans declined by $98$51 million, or 26%, for the three months ended March 31, 2026.19%. The NPA ratio at March 31, 2026 was 0.79%, including 0.10% relatedimproved to the0.66%, guaranteeddown portion of non-performing SBA loans, compared to 1.08% including 0.11% related to0.13%; the guaranteed portion of non-performing SBA loans at December 31, 2025. The annualized net charge-off ratio for the three months ended March 31, 2026, was 0.61%;0.11%, thedown net charge-off for the trailing twelve months was 0.37%.0.50%.
•The ratio of the ACL to total loans declinedincreased to 0.87% at March 31, 2026,0.91% from 0.91%0.87%; at December 31, 2025. Thethe ratio of the ACL to non-performing loans increased to 75.90% at March 31, 202697.14% from 58.99% at December 31, 2025, reflecting75.90%; the decline in non-performing loans. The provision for credit losses was $24.6down million$9 for the three months ended March 31, 2026, compared to $15.1 million for the three months ended March 31, 2025.million.
•At MarchJune 31,30, 2026, CET1 was 12.2%.12.3%; Thethe ratio of tangible common equity to tangible assets was 8.3%.8.4%.
•Book value and tangible book value per common share were, $41.55 and $40.48, respectively, at June 30, 2026, compared to $41.11 and $40.05, respectively, at March 31, 2026, compared to $41.19 and $40.14, respectively, at December 31, 2025.2026.
•During the three months ended March 31, 2026, theThe Company repurchased approximately 1.31.1 million shares of its common stock for an aggregate purchase price of $60.0$50.1 million. In January 2026, the Company's Board of Directors authorized the repurchase of up to an additional $200 million in shares of its outstanding common stock.
Our results for the second quarter of 2026 were driven primarily by continued balance sheet repositioning and improvements in funding mix. Growth in NIDDA and core deposits in general, together with lower brokered deposits and wholesale funding, contributed to lower funding costs and higher net interest margin. Profitability improved during the quarter, as reflected in increases in net income, pre-provision net revenue and returns on average assets and equity. Asset quality metrics also improved, including lower non-performing loan and net charge-off ratios, while capital and tangible book value metrics remained strong.
•The Company announced an increase of $0.02 per share in its common stock dividends for the three months ended March 31, 2026, to $0.33 per common share, a 6% increase from the previous level of $0.31 per share.
(1)On a tax-equivalent basis where applicable. The tax-equivalent adjustment for tax-exempt loans was $2.7$2.8 million for the three months ended June 30, 2026, and $2.7 million for both the three months ended March 31, 2026, December 31, 20252026 and MarchJune 31,30, 2025. The tax-equivalent adjustment for tax-exempt investment securities was $0.7$1.1 million for the three months ended MarchJune 31,30, 2026, Decemberand 31,$0.7 2025,million andfor both the three months ended March 31, 2026 and June 30, 2025.
(1)On a tax-equivalent basis where applicable. The tax-equivalent adjustment for tax-exempt loans was $5.4 million for the six months ended June 30, 2026 and 2025. The tax-equivalent adjustment for tax-exempt investment securities was $1.8 million and $1.4 million for the six months ended June 30, 2026 and 2025, respectively.
(2)Annualized.
(3) At fair value.
Three months ended March 31, 2026 compared to the three months ended December 31, 2025
Net interest income, calculated on a tax-equivalent basis, was $252.4 million for the three months ended March 31, 2026, compared to $261.6 million for the three months ended December 31, 2025, a decrease of $9.3 million. The decrease was comprised of decreases in tax-equivalent interest income and interest expense of $20.3 million and $11.0 million, respectively. The quarter-over-quarter decline in interest income was primarily due to lower yields on earning assets as coupon rates on floating rate instruments reset down, and was further impacted by lower SOFR/Fed fund basis. The decline in interest expense primarily related to a lower average cost of funds.
The net interest margin, calculated on a tax-equivalent basis, was 2.99% for the three months ended March 31, 2026, compared to 3.06% for the three months ended December 31, 2025. The decline reflected variable rate assets repricing faster than the continued improvement in funding cost and funding mix dynamics. Factors impacting the net interest margin for the three months ended March 31, 2026 compared to the three months ended December 31, 2025 included:
•The tax-equivalent yield on investment securities decreased to 4.55% for the three months ended March 31, 2026, from 4.93% for the three months ended December 31, 2025 primarily impacted by resets on variable rate securities.
•The tax-equivalent yield on loans decreased to 5.31% for the three months ended March 31, 2026, from 5.37% for the three months ended December 31, 2025, reflecting the impact of declining market rates on the predominantly floating-rate commercial loan portfolio.
•The average cost of interest bearing deposits decreased to 3.01% for the three months ended March 31, 2026, from 3.15% for the three months ended December 31, 2025 as we continued to reduce deposit pricing in response to a lower federal fund rate. The average cost of interest bearing deposits was impacted by seasonal declines in average NIDDA, which resulted in increased reliance on higher-cost wholesale funding, including brokered deposits.
•The average rate paid on FHLB advances decreased to 3.68% for the three months ended March 31, 2026, from 3.84% for the three months ended December 31, 2025, driven by repayment of higher rate short-term advances, partially offset by the maturities of some cash flow hedges.
Three months ended MarchJune 31,30, 2026 compared to the three months ended March 31, 20252026
Net interest income, calculatedincome on a tax-equivalenttaxable-equivalent basis,basis was $259.2 million for the three months ended June 30, 2026, compared to $252.4 million for the three months ended March 31, 2026 compared to $236.6 million for the three months ended March 31, 2025,2026, an increase of $15.8$6.8 million.million, or 2.7%. The increase was compriseddriven ofby decreasesa $4.8 million increase in tax-equivalent interest income and interesta expense of $21.6$2.0 million anddecrease $37.4in million,interest respectively.expense.
The net interest margin calculated on a tax-equivalent basis, increased to 3.06% for the three months ended June 30, 2026, compared to 2.99% for the immediately preceding three months ended March 31, 2026. Factors impacting the net interest margin for the three months ended June 30, 2026 compared to the three months ended March 31, 2026 included:
•The net interest margin was positively impacted by the increase in average NIDDA as a percentage of both total deposits and total funding. Average NIDDA grew by $564.1 million for the three months ended June 30, 2026, while average interest bearing deposits declined by $329.1 million.
•The average cost of deposits declined to 2.05% for the three months ended June 30, 2026, from 2.12% for the three months ended March 31, 2026. The decrease reflected a reduction of wholesale funding and continued pricing discipline.
•The tax-equivalent yield on investments increased to 4.64% for the three months ended June 30, 2026, from 4.55% for the three months ended March 31, 2026, primarily due to the benefit of securities purchased during the period when spreads widened and there was market volatility.
•The average rate paid on FHLB advances increased to 3.75% for the three months ended June 30, 2026 compared to 3.68% for the three months ended March 31, 2026 primarily due to the maturities of some cash flow hedges.
Three and six months ended June 30, 2026 compared to the three and six months ended June 30, 2025
Net interest income, calculated on a tax-equivalent basis, increased by $10 million and $25 million for the three and six months ended June 30, 2026, respectively. The increase from the prior year for both periods is primarily due to continued improvement in funding mix. Strong growth in NIDDA supported reductions in higher-cost wholesale funding, including brokered deposits and FHLB advances, lowering overall funding costs and improving margin. These benefits were partially offset by lower yields on loans and investments and to a lesser extent lower average balances of interest-earning assets.
The net interest margin, calculated on a tax-equivalent basis, expanded to 3.06% and 3.03% for the three and six months ended June 30, 2026, respectively, from 2.93% and 2.87% for the three and six months ended June 30, 2025, respectively. The increase in the net interest margin for both periods was primarily a result of balance sheet repositioning and particularly an improved funding mix.
For the three and six months ended June 30, 2026 compared to same periods in the prior year, average NIDDA grew by $1.0 billion while average interest bearing liabilities declined by $1.1 billion. Deposit pricing continued to improve, contributing to lower funding costs. The average cost of deposits declined to 2.05% and 2.08% from 2.47% and 2.52% for the three and six months ended June 30, 2026 and 2025, respectively, reflecting the maturity of higher-rate time deposits, reductions in higher cost brokered deposits and the continued execution of targeted deposit repricing initiatives. Partially offsetting these improvements was a decrease in tax-equivalent yields on investment securities and loans as variable rate assets repriced faster than continued improvement in funding cost and funding mix dynamics due to lower SOFR/Fed funds basis.
The decrease in tax-equivalent interest income for the three months ended March 31, 2026 compared to the three months ended three months ended March 31, 2025 was attributable to a decrease in the yields on interest earnings assets. The decrease in interest expense for the three months ended March 31, 2026 compared to the three months ended March 31, 2025, was attributable to decreases in both average balance and cost of interest bearing liabilities.
The net interest margin, calculated on a tax-equivalent basis, increased to 2.99% for the three months ended March 31, 2026, from 2.81% for the three months ended March 31, 2025. The increase in the net interest margin for the three months ended March 31, 2026 compared to the three months ended March 31, 2025 was primarily a result of balance sheet repositioning, particularly an improved funding mix. For the three months ended March 31, 2026 compared to the three months ended March 31, 2025, average NIDDA grew by $1.1 billion while average FHLB advances declined by $797 million. Average NIDDA was 29.7% of average total deposits for the three months ended March 31, 2026, up from 27.1% for the three months ended March 31, 2025. Within interest bearing deposits, there was a shift from generally higher priced time deposits to generally lower priced forms of interest bearing deposits. On the asset side of the balance sheet, average core loans increased to 67.9% of average loans from 64.8% of average loans, while residential loans declined to 29.1% of average loans from 31.4% of average loans.
Decreased yields on average interest earnings assets as well as the decrease in the cost of interest bearing liabilities were primarily attributable to rate cuts throughout the later part of 2025.
The most significant factorfactors impacting the provision for credit losses for the three months ended MarchJune 31,30, 2026 was an increase in specific reserves, primarily related to two C&I loanschanges in unrelatedthe industries.economic forecast, lower net charge-offs and improved asset quality. The most significant factors impacting the provision for credit losses for the six months ended June 30, 2026 was higher net charge-offs and an increase in specific reserves.
The more significant items included in other non-interest income in the table above typically may include commercial card revenue, lending related fees other than origination fees, and BOLI income. TheNon-interest increaseincome increased for the three months ended MarchJune 31,30, 2026, compared to the three months ended MarchJune 31,30, 2025, wasprimarily primarilyas a result of higher deposit service charges and capital markets revenue. For the six months ended June 30, 2026, the increase was primarily due to higher deposit service charges and gains on investment securities, partially offset by decrease in commerciallease cardfinancing revenue.revenue attributable to the continuing decline in the size of the operating lease equipment portfolio.
For the three months ended June 30, 2026, the increase in employee compensation and benefits was primarily attributable to increased head count as we invest in the growth of the franchise. In addition, in other non-interest expense were higher deposit related costs of $3.8 million, a loss associated with a single real estate owned asset disposition of $1.1 million and elevated operational losses of $1.3 million.
The increase in compensation was primarily attributable to increased head count as we invest in the growth of the franchise and routine salary increases. Employee compensation and benefits for the three months ended March 31, 2026 includes an additional $5.4 million compensation related expense.
For the six months ended June 30, 2026, higher employee compensation and benefits was primarily due to routine salary increases and increased employee headcount. The decrease in deposit insurance expense was primarily attributable to a $6.7 million release of FDIC special assessment accrual during the threesix months ended MarchJune 31,30, 2026. A lower base assessment rate for the threesix months ended MarchJune 31,30, 2026 compared to the threesix months ended MarchJune 31,30, 2025, also contributed to the decline in deposit insurance expense. In addition, included in other non-interest expense was $6.3 million in higher deposit related costs and higher operational losses of $1.1 million.
We have continued to execute on our organic balance sheet transformation strategy, focused on improving both the funding profile and asset mix. For the threesix months ended MarchJune 31,30, 2026, totalNIDDA deposits remained relatively stable, increasingincreased by $7$825 million,million from 31% to 34% of total deposits, while non-brokered deposits increased by $277$1.4 millionbillion over the same period. Wholesale funding, including FHLB advances and brokered deposits, declined by $70 million. NIDDA declined by $166 million representing 30% of total deposits, primarily due to seasonality. Year-over-year, for the threesix months ended MarchJune 31,30, 2026 compared to the threesix months ended MarchJune 31,30, 2025, average NIDDA increased by $1.1$1.0 billion, consistent with continued progress in improving our funding profile. Wholesale funding, including FHLB advances, brokered deposits, and federal funds purchased, declined by $1.5 billion for the six months ended June 30, 2026.
Total loans declined by $139$345 million for the threesix months ended MarchJune 31,30, 2026, primarily due to seasonally low commercial volume and continued runoff of non-core loans. Core loans increased by $9$14 million while the residential, franchise, equipmentresidential and municipalfranchise and equipment finance portfolios declined by $148a million.combined The$358 securitiesmillion, portfolioconsistent grewwith byour $242balance millionsheet forrepositioning the three months ended March 31, 2026.strategy. The loan-to-deposit ratio was 82.3%82.9% at MarchJune 31,30, 2026 compared to 82.7% at December 31, 2025. The securities portfolio grew by $54 million for the six months ended June 30, 2026.
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, CLOs, 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 1.932.02 years and the estimated weighted average life of the portfolio was 5.25.4 years as of MarchJune 31,30, 2026. Approximately 65% of the securities portfolio was floating rate at MarchJune 31,30, 2026.
The investment securities AFS portfolio was in a net unrealized loss position of $274.1$282.3 million at MarchJune 31,30, 2026, increasing by $6.9$15.2 million compared to a net unrealized loss position of $267.1 million at December 31, 2025. Net unrealized losses at MarchJune 31,30, 2026 included $23.1$22.1 million of gross unrealized gains and $297.1$304.4 million of gross unrealized losses. Investment securities available for sale in unrealized loss positions at MarchJune 31,30, 2026 had an aggregate fair value of $5.2 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.
BKU insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 3 filings (3 insiders, 3 trade dates, 8,000 shares, about $384.4K). Net open-market shares: -8,000 (purchases minus sales); net value about -$384.4K.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-08-20 | Mackey James G. |
Shares withheld for tax | 3,517 | $46.83 | $164.7K |
| 2026-08-20 | Mackey James G. |
Option exercise | 8,937 | — | — |
| 2026-08-13 | Pauls Douglas J |
Open-market sale | 3,000 | $47.90 | $143.7K |
| 2026-06-15 | Richards Jay D. |
Open-market sale | 4,000 | $48.67 | $194.7K |
| 2026-06-01 | Digiacomo John N. |
Open-market sale | 1,000 | $45.97 | $46.0K |
| 2026-05-21 | Rubenstein William S. |
Grant/award | 1,511 | — | — |
| 2026-05-21 | Pauls Douglas J |
Grant/award | 2,267 | — | — |
| 2026-05-21 | Digiacomo John N. |
Grant/award | 1,511 | — | — |
| 2026-05-21 | Blanca Tere |
Grant/award | 1,511 | — | — |
| 2026-05-21 | Smith-Baugh Germaine |
Grant/award | 1,511 | — | — |
| 2026-05-21 | Sobti Sanjiv |
Grant/award | 1,511 | — | — |
| 2026-05-21 | Dowling Michael J. |
Grant/award | 1,511 | — | — |
| 2026-05-21 | Wines Lynne |
Grant/award | 1,511 | — | — |
Well-known investors holding BKU (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| Millennium Management (Israel Englander) | 2026-06-30 | 963,758 | $46.7M | 0.03% | Reduced 37% |
| AQR Capital Management (Cliff Asness) | 2026-06-30 | 449,584 | $21.8M | 0.01% | Added 3% |
| Two Sigma Investments | 2026-06-30 | 446,968 | $21.7M | 0.02% | Added 11% |
| Point72 Asset Management (Steve Cohen) | 2026-06-30 | 302,065 | $14.6M | 0.02% | Reduced 35% |
| Bridgewater Associates | 2026-06-30 | 239,674 | $11.6M | 0.05% | Reduced 4% |
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 220,253 | $10.7M | 0.01% | Reduced 64% |
| Soros Fund Management | 2026-06-30 | 11,165 | $540.9K | 0.01% | Reduced 64% |
| D. E. Shaw & Co. | 2026-06-30 | 4,941 | $239.4K | 0.0% | New position |