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On Jun 25, 2013, we reaffirmed our long-term recommendation on BankUnited, Inc. (BKU - Analyst Report) at Neutral. This is based on the company’s first-quarter earnings, which beat the Zacks Consensus Estimate.

Why Neutral?

BankUnited’s first-quarter earnings were slightly ahead of the Zacks Consensus Estimate. Better-than-expected results were primarily aided by growth in net interest income and a decline in operating expenses, partially offset by lower fee income. Further, though there was deterioration in credit quality, growth in loan and deposit balances as well as strong capital and profitability ratios were the tailwinds.

Over the last 60 days, the Zacks Consensus Estimate for 2013 and 2014 has remained stable at $1.71 and $1.67 per share, respectively. Hence, BankUnited now carries a Zacks Rank #3 (Hold).

Given BankUnited’s strong capital and balance sheet position, it is well poised to expand organically as well as through acquisitions. The company is enhancing its growth by opening new branches across its footprints. Additionally, management intends to foray in the states of New York, New Jersey and Connecticut this year. Moreover, BankUnited is an attractive choice for yield-seeking investors. The company has been increasing its dividend on a yearly basis since it started paying dividends in 2011.

However, increased non-interest expenses and a low interest rate environment remain causes of concern for BankUnited. Management anticipates compensation costs to remain high with the company’s geographic expansion. Further, with the low rate environment likely to persist, we expect the company to experience considerable margin pressures in the near to mid-term.

Other Major Banks Worth Considering

Some better performing banks include JPMorgan Chase & Co. (JPM - Analyst Report), KeyCorp. (KEY - Analyst Report) and The PNC Financial Services Group, Inc. (PNC - Analyst Report), all of which carry a Zacks Rank #2 (Buy).

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