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BankUnited (BKU) Focuses on Improving Top Line, Costs a Woe

Zacks

On Sep 8, we issued an updated research report on BankUnited, Inc. BKU. The company remains committed to boost its top line by increasing the proportion of low-cost deposits. Also, it has a geographically well-diversified loan portfolio. However, increasing expenses and pressure on margins are major concerns.

Shares of BankUnited have lost 17.5% year to date, versus the industry’s marginal growth.

The Zacks Consensus Estimate for current-year earnings have remained stable at $2.40 over the last 30 days. Thus, the stock carries a Zacks Rank #3 (Hold).


In order to ease pressure on the top line, BankUnited has been concentrating on increasing the proportion of non-interest bearing demand deposits. These low-cost deposits have witnessed a compound annual growth rate (CAGR) of 12% over the last three years (ended 2016).

BankUnited’s loan portfolio is geographically well diversified. Further, it continues to take initiatives to maintain a healthy loan portfolio by reducing the concentration of risky residential loans, which are affected by volatility in the housing sector.

However, BankUnited’s mounting expenses remain a key concern. It witnessed a five-year (ended 2016) CAGR of 17.7%. Expenses are likely to remain high in the near term, on expectations of a rise in funding costs and M&A activities. Further, management expects operating expenses to rise at the high single-digit rate in 2017.

Also, the company’s net interest margin (NIM) continues to decline despite three rate hikes by the Fed since December 2016, because of its liability sensitive balance sheet. NIM declined to 3.73% in 2016 from 6.21% in 2011, with the trend continuing in first half of 2017. The company expects NIM to remain under pressure in 2017 due to run-off of the covered loans, rising deposits cost and a flatter yield curve.

Stocks to Consider

Some better-ranked stocks in the same space are The PNC Financial Services Group PNC, State Street Corporation STT and FB Financial Corporation FBK. All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

PNC Financial’s Zacks Consensus Estimate for current-year earnings was revised 1.8% upward for 2017, in the past 60 days. Also, its share price has increased 33.7% in the past 12 months.

State Street’s current-year earnings estimates were revised 3.6% upward, over the past 60 days. Further, the company’s shares have jumped 30.9% in a year.

FB Financial’s Zacks Consensus Estimate for current-year earnings was revised 2.7% upward, over the last 60 days. Moreover, in the past year, its shares have gained 64.1%.

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