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BankUnited, Inc.’s (BKU - Analyst Report) second-quarter 2013 earnings came in at 52 cents per share, beating the Zacks Consensus Estimate of 43 cents. Moreover, this compares favorably with the year-ago earnings of 48 cents.
Better-than-expected results were primarily aided by growth in net interest income and a decline in operating expenses, partially offset by a significant decline in non-interest income. Further, growth in loan and deposit balances was the tailwind for the quarter. Moreover, capital and profitability ratios as well as credit quality were a mixed bag.
Net income for the reported quarter came in at $54.0 million, up 10.4% from $48.9 million in the year-ago period.
BankUnited’s total revenue reached $192.2 million, declining 2.7% year over year. However, total revenue surpassed the Zacks Consensus Estimate of $182.0 million.
Net interest income surged 12.5% year over year to $164.1 million. The elevation was mainly attributable to higher interest income and lower interest expenses. Moreover, net interest margin increased 22 basis points (bps) from the prior-year quarter to 6.14%.
Non-interest income stood at $6.1 million, plunging 71.9% from the prior-year quarter. The fall was primarily due to amortization of Federal Deposit Insurance Corporation (FDIC) indemnification asset and net loss on indemnification asset along with reduced FDIC reimbursement of costs of resolution of covered assets, decline in mortgage interest income and other non-interest income. These were partly offset by higher gain on sale of available investment securities, rise in income from resolution of covered assets and higher service charges and fees.
Non-interest expense was $78.3 million, down 5.6% from the year-ago quarter. The decrease mainly resulted from a decline in employee compensation and benefits and impairment of other real estate owned costs, foreclosure expense, deposit insurance expense, and other non-interest expense. However, these were partially offset by higher occupancy and equipment expenses, other real estate owned (OREO) expense, professional fees, and telecommunication and data processing fees.
Asset quality was a mixed bag during the quarter. The ratio of total nonperforming loans to total loans stood at 0.54% as of Jun 30, 2013, down 8 bps from Dec 31, 2012.
However, net charge offs to average loans was 0.61% as of Jun 30, 2013, up 44 bps compared with 0.17% as of Dec 31, 2012. Further, provision for loan losses increased 79.1% from the prior-year quarter to $4.9 million.
Loans and Deposits
As of Jun 30, 2013, total loans, net of discount and deferred fees and costs, stood at $6.8 billion, up 21.4% from $5.6 billion as of Dec 31, 2012. The augmentation largely came from increases in new loans, partly offset by reduced covered loans.
Total deposits were $9.0 billion, up 5.9% from $8.5 billion as of Dec 31, 2012. The increase was primarily due to the higher levels of non-interest bearing deposits, interest bearing deposits as well as savings and money market deposits.
Profitability and Capital Ratios
BankUnited’s capital and profitability ratios were a mixed bag. As of Jun 30, 2013, tier 1 leverage ratio was 13.69%, up from 13.16% as of Dec 31, 2012. However, Tier 1 risk-based capital ratio was 27.93%, down from 33.60% as of Dec 31, 2012. Total risk-based capital ratio came in at 28.94%, falling from 34.88% as of Dec 31, 2012.
The return on average assets was 1.69%, rising from 1.59% as of Jun 30, 2012. As of Jun 30, 2013, return on average stockholder equity came in at 11.62%, declining from 11.76% as of Jun 30, 2012.
Performance of Other Major Regional Banks
M&T Bank Corporation (MTB - Analyst Report) and Comerica Incorporated (CMA - Analyst Report) reported better-than-expected second-quarter earnings. For M&T Bank, earnings were primarily aided by higher revenues on the back of increased net interest and non-interest income.
Comerica’s results reflected increased non-interest income and reduced expenses.
Nevertheless, U.S. Bancorp (USB - Analyst Report) was aided by reduced non-interest expenses and a lower provision for credit losses, as the company’s second-quarter earnings were in line with the Zacks Consensus Estimate.
BankUnited is favorably positioned to grow both organically and inorganically due to its strong liquidity levels. However, mounting expenses, exposure to perilous residential loans and competitive markets are expected to weigh upon the company’s financials in the near term.
BankUnited currently carries a Zacks Rank #4 (Sell).