Will Expenses Continue To Drag On BankUnited's Growth?

On Jun 20, 2016, we issued an updated research report on BankUnited, Inc. (NYSE:BKU) . High expense level and persistent margin compression remain matters of concern, while consistent loan growth and improvement in revenues remain the primary growth drivers.

The constantly mounting expenses remain a challenge for BankUnited. The 24% increase in non-interest expenses in the first three months of 2016 emphasized on the need for better cost control. However, management’s forecast of non-interest expenses (excluding the FDIC asset amortization) to be around 7%–9% on a year-over-year basis reduces any chance to attain the same in the near term.

Also, the bank’s net interest margin (NIM) continues to be under pressure owing to a still low interest rate scenario. NIM declined 19 basis points year over year to 3.83% in the first quarter of 2016. For 2016, management expects NIM in the range of 3.60–3.80% as the covered loans continue to run-off.

On the positive side, BankUnited continues to report appreciable growth in loan and deposits. The bank has been changing its deposit mix to ease top-line pressure along with lowering exposure to risky residential loans. This has resulted in a 19% increase in revenues in the first three months of 2016 compared to the year-ago period.

Moreover, the loan growth momentum is expected to continue with management anticipating new loan growth in the range of $4.5–$5 billion going forward.

Though BankUnited has healthy growth prospects supported by a sound capital base and strong liquidity level, the 11% year-to-date decline in its share price reveal the skepticism among investors regarding the company’s performance in the future.

This can also be observed in the Zacks Consensus Estimate for 2016 and 2017, which declined by a penny to $2.20 per share and $2.60 per share, respectively, over the last 30 days.

BankUnited currently holds a Zacks Rank #4 (Sell).

Some better-ranked stocks in banking sector include Bank of Marin Bancorp (NASDAQ:BMRC) , Central Pacific Financial Corp. (NYSE:CPF) and PrivateBancorp, Inc. (NASDAQ:PVTB) . All these stocks carry a Zacks Rank #2 (Buy).