KBRA Downgrades Ratings for BankUnited, Inc.; Revises Outlook to Stable

KBRA downgrades the long-term ratings for BankUnited, Inc. (NYSE: BKU) ("BankUnited" or "the company"), including the senior unsecured debt rating to BBB+ from A- and the subordinated debt rating to BBB from BBB+. KBRA affirms the short-term debt rating of K2 for BKU. KBRA also downgrades the ratings for the company’s subsidiary, BankUnited, National Association, including the deposit and senior unsecured debt ratings to A- from A, the subordinated debt rating to BBB+ from A-, and the short-term deposit and debt ratings to K2 from K1. The Outlook for all long-term ratings is revised to Stable from Negative.

Key Credit Considerations

The downgrade of BankUnited’s ratings is principally based on weaker-than-rated-peer core operating performance in recent years (including RORWA). With core ROA having improved to >0.70% during 1H25 (including 0.78% as reported in 2Q25) from ~0.65% for 2024 and ~0.50% for 2023, BankUnited’s operating performance has definitely improved, driven principally by NIM expansion as well as a continuation of very manageable credit costs; though, not as much as that reflected by its previous rated peer group. Limited fee revenue contribution magnifies the importance of BankUnited’s spread income / NIM, and while a favorable remixing in deposit composition and related cost benefits have certainly helped, NIM remained <3.0% in 2Q25. With that noted, management currently expects a continued modest increase in NIM (to ~3% by YE25). Moderately lower loan leverage than most peers, as BankUnited’s loan-to-earning asset ratio has recently tracked in the ~70% range, has constrained relative NIM performance slightly.

BankUnited's improved deposit profile has benefitted most from positive flows in lower priced commercial and NIB balances, including (but not limited to) the company’s national verticals focused on title companies as well as HOAs. Acknowledging some positive seasonality associated with these customers in particular, BankUnited’s sequential quarter (as well as year-over-year growth in NIB), was quite favorable in 2Q25, and together with modest deposit yield reductions, facilitated an 11 bp decrease in total deposit costs from 1Q25 (to 2.47%). A sequential quarter increase in average loan yields (to 5.55%) also helped quarterly NIM, but, as noted, these positive company specific dynamics have trailed rated peers.

BankUnited’s credit performance has historically reflected its conservative underwriting and proactive credit administration with 5-year average NCOs of ~20 bps. While key asset quality measures have unsurprisingly slipped a bit in recent periods, including a 1H25 NCO ratio of 0.27% and a 2Q25 NPA ratio of 1.45%, such trends have not been inconsistent with most peers, and positively, criticized and classified levels seemingly ‘peaked’ in 1Q25; declining by $156 million (to ~$1.2 billion at 2Q25). We would note that while BankUnited continues to reflect lower-than-most-peer investor CRE exposure, reported NPLs have typically been a bit higher due to guaranteed SBA loans.

BankUnited has managed core capital with a conservative bias since 2023, with its CET1 measure tracking in the low-12% range. Together, with reserves representing 0.9% of total loans, total loss absorbing capacity is consistent with most peers.

Rating Sensitivities

Following the rating changes Outlook revision to Stable, additional near-term changes are not expected. Continued core funding improvements, further fee revenue diversification, and consistent financial management would be view positively. Unexpected asset quality deterioration and / or more aggressive financial management could negatively impact ratings.

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Methodologies