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BankUnited, Inc.’s (BKU - Analyst Report) third-quarter 2013 earnings per share came in at 52 cents, beating the Zacks Consensus Estimate of 46 cents. Moreover, results compares favorably with 48 cents earned in the year-ago quarter.

Better-than-expected results were primarily aided by growth in net interest income, partially offset by a decline in non-interest income and higher operating expenses. Further, growth in loan and deposit balances was a tailwind for the quarter. Moreover, capital ratios were strong and profitability ratios improved.  

Net income for the reported quarter came in at $54.3 million, up 9.5% from $49.6 million in the year-ago period.

Performance Details

BankUnited’s total revenue was $189.0 million, down 3.6% year over year.  

Net interest income rose 17.7% year over year to $164.1 million. The increase was attributable to higher interest income and lower interest expenses.  Moreover, net interest margin increased 23 basis points (bps) from the prior-year quarter to 5.70%.

Non-interest income decreased 95.0% from the prior-year quarter to $1.3 million. The fall was primarily due to amortization of Federal Deposit Insurance Corporation (FDIC) indemnification assets, net loss on indemnification assets, reduced FDIC reimbursement related to resolution costs of covered assets, loss in sale of loans as well as decline in mortgage income and investment securities gains.

These were partly offset by increase in gains from the sale of available investment securities, income from resolution of covered assets, service charges and fees as well as other non-interest income.

Non-interest expense increased 9.1% year over year to $84.3 million. The increase mainly resulted from a rise in employee compensation and benefits, occupancy and equipment expenses, as well as professional fees and other non-interest expense.

However, these were partially offset by higher gain on sale of other real estate owned, lower foreclosure expense, impairment of other real estate owned costs, deposit insurance cost, telecommunications and data processing charges, other real estate owned (OREO) expenditures, professional fees, telecommunication and data processing fees.  

Asset Quality

Asset quality was a mixed bag during the quarter. The ratio of total nonperforming loans to total loans was 0.50% as of Sep 30, 2013, down 12 bps from Dec 31, 2012.

Net charge offs to average loans was 0.40% as of Sep 30, 2013, up 23 bps from with 0.17% as of Dec 31, 2012. However, provision for loan losses decreased 59.4% from the prior-year quarter to $2.6 million.

Loans and Deposits

As of Sep 30, 2013, total loans, net of discount and deferred fees and costs, was $7.8 billion, up 39.3% from $5.6 billion as of Dec 31, 2012. The increase largely came from rise in new loans, partly offset by reduced covered loans.

Total deposits were $9.8 billion, up 15.3% from $8.5 billion as of Dec 31, 2012.

Profitability and Capital Ratios

In the reported quarter, BankUnited’s capital ratios were strong and profitability ratios showed improvement. As of Sep 30, 2013, Tier 1 leverage ratio was 13.11%, compared with 13.16% as of Dec 31, 2012. Tier 1 risk-based capital ratio was 24.10%, compared with 33.60% as of Dec 31, 2012. Total risk-based capital ratio came in at 24.97% versus 34.88% as of Dec 31, 2012.

The return on average assets came in at 1.58%, rising from 1.56% as of Sep 30, 2012. As of Sep 30, 2013, return on average stockholder equity came in at 11.49%, increasing from 11.41% as of Sep 30, 2012.

Performance of Other Major Regional Banks

M&T Bank Corp. (MTB - Analyst Report) and Comerica Inc. (CMA - Analyst Report) reported better-than-expected third-quarter earnings. While, M&T Bank’s earnings were primarily aided by rise in both net interest income and non-interest income, Comerica’s results were supported by increased non-interest income and lower provisions for credit losses.

However, U.S. Bancorp’s (USB - Analyst Report) earnings were in line with the Zacks Consensus Estimate. Results were benefited by reduced non-interest expenses and a lower provision for credit losses.

Our Viewpoint

BankUnited is well poised to grow both organically and inorganically due to its strong liquidity levels. However, rising expenses, exposure to perilous residential loans and intensely competitive markets are expected to weigh upon the company’s financials in the near term.  

BankUnited currently carries a Zacks Rank #3 (Hold).

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