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Solid Balance Sheet Supports BankUnited (BKU) Amid Low Rates

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On Mar 17, we issued an updated research report on BankUnited, Inc. (BKU - Free Report) . While the company’s net interest margin (NIM) is expected to be hurt to some extent in the near term due to lower interest rates, its revenues will likely continue to be positively impacted by rise in loan balances along with efforts to strengthen fee income sources.

Moreover, given a solid balance sheet position, it is well-poised to grow through acquisitions. It has rapidly expanded across the New York metropolitan market and Florida.

Over the past 30 days, the Zacks Consensus Estimate for the company’s 2020 earnings has been revised 2% lower, suggesting that analysts are not very optimistic regarding its earnings growth potential. Thus, BankUnited currently carries only a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Notably, shares of the company have lost 36.2% over the past year compared with 33.6% decline of the industry.

Looking at fundamentals, while BankUnited’s revenues declined in 2019, owing to lower rates, the same witnessed a five-year (2015-2019) CAGR of 1.5%. Given the continued rise in demand for loans along with the company’s efforts to improve fee income, its top line is expected to improve further.

Moreover, BankUnited’s loan portfolio is geographically well-diversified. The proportion of commercial loans in its loan portfolio has been increasing, which accounted for 75% of total loans as of Dec 31, 2019. The company 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.

Further, to ease top-line pressure, it has been concentrating on increasing the proportion of non-interest bearing demand deposits, which have improved, witnessing a CAGR of 18.3%, over the past three years (2017-2019).

However, the company’s NIM growth has remained muted over the past several years. NIM declined to 2.47% in 2019 from 4.61% in 2014. In fact, owing to the Federal Reserve’s accommodative monetary policy and near zero interest rates, margins are expected to remain under pressure, thus hurting the top line to some extent in the near term.

Moreover, the company has been witnessing a continued rise in expenses. Though costs declined in 2019, owing to the absence of amortization of FDIC indemnification assets, the same has been mounting over the past several years due to a rise in employee compensation and benefits costs, and professional fees. As BankUnited continues to invest in technology, overall costs will likely remain elevated, thus hurting the bottom line to an extent.

While the company’s capital deployment activities remain impressive and will likely enhance shareholder value, its decision to suspend buybacks till second-quarter 2020 to utilize the freed-up capital for lending activities amid the coronavirus-related slowdown might hamper its profitability in the near term.

Among the various companies that suspended buybacks to support the economy, a few of the big names include Citigroup (C - Free Report) , Goldman Sachs (GS - Free Report) and JPMorgan (JPM - Free Report) .

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