BankUnited Beats, Top Line Up

Zacks

BankUnited, Inc. (BKU) reported its fourth quarter 2012 earnings of 61 cents per share, substantially beating the Zacks Consensus Estimate of 48 cents. This also compares favorably with the year-ago earnings of 41 cents.

For full year 2012, BankUnited recorded earnings per share of $2.05, exceeding the earnings of 62 cents recorded in 2011. Moreover, the earnings were ahead of the Zacks Consensus Estimate of $1.92.

Better-than-expected results were primarily aided by augmented top line, partly offset by elevated operating expenses. Further, the company witnessed loan and deposit growth. Yet, a marginal decline in capital ratios was on the downside.

Net income for the reported quarter came in at $61.4 million, up 48.7% from $41.3 million in the year-ago period.  For 2012, net income stood at $207.4 million, rising substantially from $63.2 million in 2011.

Performance Details

BankUnited’s total revenue reached $207.8 million, improving 10.6% from $188.0 million in the year-ago quarter. Moreover, total revenue surpassed the Zacks Consensus Estimate of $165.0 million by 26.0%

For 2012, total revenue came in at $810.1 million, rising 1.1% from $801.3 million in 2011. However, total revenue surpassed the Zacks Consensus Estimate of $670 million by 20.9%.

Net interest income (before provision for loan losses) surged 24.1% year over year to $174.6 million. The elevation was mainly attributable to higher interest income and lower interest expenses. Also, net interest margin increased 16 basis points (bps) from the prior-year quarter to 6.70%.

Non-interest income stood at $5.5 million, declining 58.8% from the prior-year quarter. The fall was primarily due to lower accretion of discount on the Federal Deposit Insurance Corporation (:FDIC) indemnification asset along with reduced FDIC reimbursement of costs of resolution of covered assets, net gain on indemnification asset and lower mortgage insurance income. These were partly offset by higher income from resolution of covered assets, service charges and fees along with other income.

Non-interest expense was $78.7 million, up 3.8% from the prior-year quarter. The rise was mainly a result of higher occupancy and equipment expenses, deposit insurance costs, telecommunications and data processing expenditure along with other expenses. However, lower employee compensation and benefits, impairment of other real estate owned costs, other real estate owned expenses, foreclosure expenses and professional fees were the partially offsetting factors.

Asset Quality

Asset quality remained robust during the quarter. The ratio of total nonperforming loans to total loans dipped 8 bps year over year to 0.62%. Likewise, net charge offs plunged 72.6% year over year to nearly $3.0 million. On the other hand, provision for loan losses decreased 75.0% to $1.0 million from $4.0 million in the year-ago quarter.

Loans and Deposits

BankUnited’s total loans, net of discount and deferred fees and costs, in the reported quarter stood at $5.6 billion, up 36.6% from $4.1 billion as of Dec 31, 2011. The augmentation largely came from increases in new loans, partly offset by reduced covered loans.

Total deposits for the quarter stood at $8.5 billion, up 14.9% from $7.4 billion as of Dec 31, 2011. The increase was primarily due to the higher levels of demand deposits as well as savings and money market deposits.

Profitability and Capital Ratios

BankUnited’s profitability and capital ratios were mixed. As of Dec 31, 2012, tier 1 leverage ratio was 13.16%, up from 13.06% as of Dec 31, 2011. However, Tier 1 risk-based capital ratio was 33.60%, down from 41.62% as of Dec 31, 2011. Total risk-based capital ratio came in at 34.88%, dipping from 42.89% as of Dec 31, 2011.

Profitability ratios show improvement. The annualized return on average assets was 1.95%, increasing from 1.45% in the prior-year quarter. As of Dec 31, 2012, annualized return on average stockholders' equity came in at 13.80%, rising from 10.80% as of Dec 31, 2011.
 
Performance of Other Major Regional Banks

KeyCorp’s (KEY) fourth-quarter earnings came in line with the Zacks Consensus Estimate. Top-line growth, continued improvement in credit quality and robust capital ratios were the primary highlights of the quarter. However, higher operating expenses marginally subdued the results.

The fourth-quarter earnings of SunTrust Banks Inc. (STI) and Fifth Third Bancorp (FITB) marginally surpassed the Zacks Consensus Estimate. Better-than-expected quarterly results benefited primarily from the growth in top line.

Our Viewpoint

The company continues to grow organically with the opening of new branches. Moreover, we are quite impressed with the company’s decent top-line growth as well as efforts to contain its expenses. Nevertheless, unsettling macro economic factors remain a challenge.

BankUnited currently retains a Zacks Rank #2 (Buy).

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