Moody's Investor Service, the rating services arm of Moody's Corporation MCO, affirmed the ratings of BankUnited, Inc. BKU, and its subsidiary BankUnited, NA. The outlook for the company also remains stable.
BankUnited, Inc.'s senior unsecured debt rating is Ba1. Its subsidiary’s deposit rating is Baa1/Prime-2 and Baseline Credit Assessment (BCA) is baa3. Further, its issuer rating is Ba1 and counterparty risk assessments are Baa2/Prime-2.
Looking at BankUnited’s price performance, the stock underperformed the Zacks categorized Major Regional Banks industry in the last six months due to concerns related to elevated expenses and pressurized margins. However, the rating affirmation, backed by its fundamental strength, should help it perform better in the quarters ahead.
Over the years, BankUnited has made significant efforts to transform its business model into a commercial bank, which reflects solid financials. Per the rating agency, this key positive completely balances the risks to creditors arising from the rapid loan growth strategy, which the bank pursued to achieve this transformation.
The company has been changing its deposit mix over the last few years. It has transformed itself from an entity that use high cost deposits to fund mortgages into one that generates low cost deposits for its funding. This is also expected to positively impact its net interest margin, going forward.
However, in order to accomplish this, it has also grown loans at a very rapid pace. Though loan growth slowed down in 2016, it still remains impressive. Moreover, in recent years, loan growth has outpaced core deposit growth. Currently, only 80% of loans are funded by core deposits as against 100% in 2014.
Further, its rapid commercial real estate (CRE) loan growth has also led to a CRE concentration at 3.3 times BankUnited's tangible common equity (TCE) base. This is among the highest of U.S.-rated banks.
Thus, in the future, the company plans to concentrate more on core deposit growth and moderate loan growth so that it can improve its liquidity and funding profile.
However, in order to get a positive rating, the company needs to provide evidence of firm asset quality performance, a moderate pace of loan growth and improved core funding as its portfolio matures.
Currently, BankUnited carries a Zacks Rank #3 (Hold).
A couple of better-ranked stocks in the finance space include Carolina Financial Corporation CARO and Comerica Incorporated CMA.
Carolina has witnessed an upward earnings estimate revision of 12.9% for the current year over the past 60 days. Its share price has risen 47.1% year to date. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Comerica carries a Zacks Rank #2 (Buy). It has witnessed an upward earnings estimate revision of 9.2% for the current year over the past 60 days, while its share price is up 46.1% year to date.
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