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BankUnited (BKU) Loans & Deposit Balances Aid, High Costs Ail
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BankUnited Inc. (BKU - Free Report) remains well-poised for growth on the back of high rates, decent loans and deposit balances, and solid fee income sources. However, rising expenses and weak asset quality are headwinds.
BankUnited’s organic growth is primarily driven by strong loans and deposit balances. Though the company’s revenues fell in 2020 and 2023, the metric witnessed a compound annual growth rate (CAGR) of 2.8% over the three years ending in 2023. Net loans experienced a 3.8% CAGR over the five years ended 2023.
BKU has also been strategically shifting its deposit mix to low-cost deposits in order to drive revenues further. As of Dec 31, 2023, non-interest-bearing demand deposits constituted 25.8% of total deposits. Decent loan demand and fee income expansion efforts are likely to support the top line. We project total revenues to rise 2.2%, 4.2% and 2.7% in 2024, 2025 and 2026, respectively. Moreover, total net loans are likely to be relatively stable this year, per our projections.
The Federal Reserve implemented 11 rate hikes between March 2022 and July 2023 to combat inflation, which is expected to remain high going forward. Thus, BKU is anticipated to witness an improvement in net interest margin (NIM), though higher funding costs will weigh on it. While the metric reduced to 2.56% in 2023 from 2.68% in 2022, attributed to high funding costs, the same is expected to benefit from higher rates. Management anticipates modest growth in NIM for 2024, with the first quarter being flattish. We estimate NIM to be 2.71%, 2.86% and 2.93% in 2024, 2025 and 2026, respectively.
However, BankUnited’s elevated cost base remains a challenge. Though expenses decreased in 2020, it experienced an 11.6% CAGR over the three years ending in 2023. The company’s overall expenses are expected to remain high amid ongoing technological investments and inflation. We project total non-interest expense to fall 1% in 2024, with a subsequent rise of 7.5% and 5.2% in 2025 and 2026, respectively.
BankUnited’s worsening asset quality over the years is another headwind. Though the bank recorded negative provisions in 2021, the metric surged in 2022 and 2023. The uptrend is likely to continue in the near term in light of the anticipated economic slowdown. Per our estimates, provision for credit losses will decline in the first quarter of 2024 but rise in the second quarter.
Shares of this Zacks Rank #3 (Hold) company have gained 13.2% over the past six months, underperforming the industry’s growth of 29%.
Image Source: Zacks Investment Research
Finance Stocks Worth Considering
Some better-ranked finance stocks are BlackRock, Inc. (BLK - Free Report) and Northern Trust Corporation (NTRS - Free Report) .
Estimates for BlackRock’s 2024 earnings have moved 1.6% north in the past seven days. The stock has gained 20.1% over the past six months. Currently, BLK sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.
Estimates for Northern Trust’s earnings for the current year have been revised upward by 1.9% in the past week. The company’s shares have gained 21.8% over the past six months. At present, NTRS also sports a Zacks Rank #1.
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BankUnited (BKU) Loans & Deposit Balances Aid, High Costs Ail
BankUnited Inc. (BKU - Free Report) remains well-poised for growth on the back of high rates, decent loans and deposit balances, and solid fee income sources. However, rising expenses and weak asset quality are headwinds.
BankUnited’s organic growth is primarily driven by strong loans and deposit balances. Though the company’s revenues fell in 2020 and 2023, the metric witnessed a compound annual growth rate (CAGR) of 2.8% over the three years ending in 2023. Net loans experienced a 3.8% CAGR over the five years ended 2023.
BKU has also been strategically shifting its deposit mix to low-cost deposits in order to drive revenues further. As of Dec 31, 2023, non-interest-bearing demand deposits constituted 25.8% of total deposits. Decent loan demand and fee income expansion efforts are likely to support the top line. We project total revenues to rise 2.2%, 4.2% and 2.7% in 2024, 2025 and 2026, respectively. Moreover, total net loans are likely to be relatively stable this year, per our projections.
The Federal Reserve implemented 11 rate hikes between March 2022 and July 2023 to combat inflation, which is expected to remain high going forward. Thus, BKU is anticipated to witness an improvement in net interest margin (NIM), though higher funding costs will weigh on it. While the metric reduced to 2.56% in 2023 from 2.68% in 2022, attributed to high funding costs, the same is expected to benefit from higher rates. Management anticipates modest growth in NIM for 2024, with the first quarter being flattish. We estimate NIM to be 2.71%, 2.86% and 2.93% in 2024, 2025 and 2026, respectively.
However, BankUnited’s elevated cost base remains a challenge. Though expenses decreased in 2020, it experienced an 11.6% CAGR over the three years ending in 2023. The company’s overall expenses are expected to remain high amid ongoing technological investments and inflation. We project total non-interest expense to fall 1% in 2024, with a subsequent rise of 7.5% and 5.2% in 2025 and 2026, respectively.
BankUnited’s worsening asset quality over the years is another headwind. Though the bank recorded negative provisions in 2021, the metric surged in 2022 and 2023. The uptrend is likely to continue in the near term in light of the anticipated economic slowdown. Per our estimates, provision for credit losses will decline in the first quarter of 2024 but rise in the second quarter.
Shares of this Zacks Rank #3 (Hold) company have gained 13.2% over the past six months, underperforming the industry’s growth of 29%.
Image Source: Zacks Investment Research
Finance Stocks Worth Considering
Some better-ranked finance stocks are BlackRock, Inc. (BLK - Free Report) and Northern Trust Corporation (NTRS - Free Report) .
Estimates for BlackRock’s 2024 earnings have moved 1.6% north in the past seven days. The stock has gained 20.1% over the past six months. Currently, BLK sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.
Estimates for Northern Trust’s earnings for the current year have been revised upward by 1.9% in the past week. The company’s shares have gained 21.8% over the past six months. At present, NTRS also sports a Zacks Rank #1.