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BankUnited (BKU) Stock Up 1.7% on Q3 Earnings Beat, Costs Down

Zacks Equity Research

Shares of BankUnited, Inc. BKU gained 1.7%, following the release of third-quarter 2019 results. Its earnings per share of 77 cents surpassed the Zacks Consensus Estimate of 71 cents. However, the bottom line compared unfavorably with the prior-year quarter’s earnings of 90 cents.

Results were aided by a decline in expenses. Moreover, the company’s overall loans and deposit balances remained strong. However, lower revenues and an increase in provisions were headwinds.

Net income was $76.2 million, down from $97.3 million recorded in the prior-year quarter.

Revenues & Expenses Decline

Net revenues were $223.5 million, lagging the Zacks Consensus Estimate of $224.9 million. Moreover, the top line declined 23.1% year over year.

Net interest income totaled $185.7 million, decreasing 26.3% year over year. The decline was due to a fall in interest income along with higher interest expenses.

Net interest margin contracted 110 basis points year over year to 2.41%.

Non-interest income was $37.9 million, down 2.3% from the year-ago quarter. The decline was due to a fall in net gain on sale of loans. Moreover, the company did not record net income from resolution of covered assets and net gain on FDIC indemnification in the quarter.

Non-interest expenses declined 29% from the year-ago quarter to $121.3 million. The decline resulted from a fall in employee compensation and benefits costs, deposit insurance expenses, and professional fees. Notably, the company did not record any amortization of FDIC indemnification assets.

Credit Quality: A Mixed Bag

As of Sep 30, 2019, the ratio of net charge-offs to average loans was 0.06%, down from 0.28% as of Dec 31, 2018. However, provision for loan losses was $1.8 million, up 53.3% year over year. Also, as of Sep 30, 2019, the ratio of non-performing loans to total loans was 0.60%, up from 0.59% as of Dec 31, 2018.

Balance Sheet Strong

As of Sep 30, 2019, net loans were $22.7 billion, up from $21.9 billion as of Dec 31, 2018. Total deposits amounted to $24 billion, up from $23.5 billion recorded as of Dec 31, 2018.

Capital Position Strong, Profitability Ratios Deteriorate

As of Sep 30, 2019, Tier 1 leverage ratio was 8.7%. Moreover, Common Equity Tier 1 risk-based capital ratio was 12.2%. Further, total risk-based capital ratio was 12.7%.

At the end of the third quarter, return on average assets was 0.91%, down from 1.24% reported at the prior-year quarter end. Additionally, return on average stockholders’ equity was 10.4%, down from 12.4% witnessed at the end of the year-ago quarter.

Share Repurchase Update

During the third quarter, the company repurchased 0.2 million shares for $8 million.

Our Take

Supported by continued growth in loans and deposits, BankUnited remains on track for top-line improvement. However, despite a decline in expenses in the third quarter, rise in overall costs over the past few years is likely to hinder the company’s bottom-line growth in the near term.

BankUnited, Inc. Price, Consensus and EPS Surprise
 

BankUnited, Inc. Price, Consensus and EPS Surprise

BankUnited, Inc. price-consensus-eps-surprise-chart | BankUnited, Inc. Quote

BankUnited currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Finance Companies

Washington Federal’s WAFD fourth-quarter fiscal 2019 (ended Sep 30) earnings of 66 cents per share were in line with the Zacks Consensus Estimate. The figure reflected year-over-year growth of 6.5%.

Hancock Whitney Corporation’s HWC third-quarter 2019 adjusted earnings per share of $1.03 surpassed the Zacks Consensus Estimate of $1.01. The bottom line was 2% higher than the year-ago figure.

Ally Financial Inc’s ALLY third-quarter 2019 adjusted earnings of $1.01 per share surpassed the Zacks Consensus Estimate of 98 cents. The bottom line was 11% higher than the year-ago quarter figure.

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