This article originally appeared Sept. 4, 2013, on Real Money. To read more content like this, + see inside Jim Cramer's multi-million dollar portfolio for FREE Click Here NOW.
Last week, in the column These Banks Have Profitability in the Cards, I briefly mentioned that Bank United (BKU - Get Report) 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.
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