Bank United's Impressive Balancing Act

 | Sep 04, 2013 | 6:00 PM EDT
  • Comment
  • Print Print
  • Print
Stock quotes in this article:








Last week, in the column "These Banks Have Profitability in the Cards," I briefly mentioned that Bank United (BKU) maintains net interest margins that are matched only by the credit card companies, and yet Bank United carries no credit card assets. 

Bank United's net interest margin at 6.14% is very high in comparison with almost all other banks and twice as high as the closest publicly traded banks of similar size. BancorpSouth (BXS) and Washington Federal (WAFD) have almost the same total assets as Bank United at about $13 billion, but their NIMs are 3.41% and 3.23% respectively.

In this column I'll explore the unique characteristics of Bank United.

The first thing that is unique is that Bank United yields about 15% on its $2.7 billion portfolio of first trust mortgages, compared with about 4.5% for similar sized banks carrying mortgages.

This portfolio of first trust mortgages also represents about 40% of its total loan assets. Even though Bank United is earning a 15% yield on that portfolio, that portfolio has not grown in three years. In fact, the company has shrunk this portion of its loan portfolio from about $3 billion to the $2.7 billion in that period of time and decreased it from about 80% of its loan assets to about 40%.

During the same time period, Bank United has increased its loan assets in commercial and industrial loans, in keeping with most of the rest of the banking industry. But it has also increased its commercial real estate loans and multi-family loans, entered the lease financing and auto loans sectors aggressively, and increased its construction and development loans.

This is almost the exact opposite of what other banks have been doing since the 2008 financial crisis.

The first takeaway is that over the past three years, Bank United has been aggressively repairing its balance sheet from the damage caused by the popping of the real estate bubble, while simultaneously and equally aggressively moving into lending sectors that other banks have been withdrawing from.

This is very unusual and difficult to do. As I've discussed, the general trend among banks has been to focus on balance sheet repair or growth but not both simultaneously.

The next issue to consider is how well Bank United is managing to do this.

On the residential mortgage side, Bank United has slashed its nonperforming loans from 30% of its portfolio to about 3% while also reducing its overall holdings of residential loan assets.

On the growth side, it has increased their C&I loans almost sixfold in three years, from $267 million to $1.56 billion, while reducing the nonperforming percentage of these loans from about 5% to 1.5%.

Bank United has done almost the same with its commercial real estate portfolio, increasing it almost 3.5 times, from about $390 million to $1.32 billion, and also reducing the nonperforming percentage from about 10% to about 0.2%.

Again, on multi-family dwellings too, the portfolio loans have increased 4.5 fold from $90 million to $410 million, while the nonperforming percentage has been reduced from 17% to about 0.5%.

The same pattern is exhibited across the other loan sectors the bank is in or has expanded into and diversified into within the past three years.

The Bank United experience reminds me of Capital One's (COF) turnaround. Capital One faced troubles about 20 years when it was concentrated in subprime credit cards, much of it to college students, and began to experience a high percentage of defaults.

Capital One quickly switched its focus from subprime to prime credit card lending, managing its legacy losses and growth simultaneously. 

Capital One has gone on to become very successful, and the managers of Bank United are exhibiting the same skills.

Columnist Conversations

volatility is quite low here, and we could see some downsides here in the short term. ...



News Breaks

Powered by


Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.