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BankUnited, Inc.’s second-quarter 2014 earnings per share of 46 cents surpassed the Zacks Consensus Estimate of 44 cents, mainly aided by growth in top line. However, the reported figure came in lower than 52 cents earned in the prior-year quarter.

Better-than-expected results were primarily attributable to growth in non-interest income and net interest income, partially offset by higher operating expenses and a rise in the provision for loan losses. A continuous rise in loan and deposit balances acted as the tailwind. Credit quality was a mixed bag, while both capital and profitability ratios deteriorated in the quarter.

Net income came in at $48.5 million, down 10.1% from the year-ago quarter figure.

Performance Details

BankUnited’s total revenue was $212.2 million, up 6.5% year over year, driven by an increase in both interest income and non-interest income.

Net interest income (excluding provision for loan loses) inched down 0.3% year over year to $158.7 million. Further, net interest margin decreased 147 basis points (bps) from the prior-year quarter to 4.67%.

Non-interest income improved 54.8% from the prior-year quarter to $20.5 million. The rise was primarily attributable to a fall in the net loss on indemnification asset, and a rise in other non-interest income. These were, however, partly offset by a fall in net income from resolution of covered assets and no net gains on net investment securities available for sale.

Non-interest expense increased 24.7% year over year to $106.6 million. The rise was mainly due to an increase in all the components, except foreclosure and other real estate-owned expenditures, professional fees, as well as telecommunications and data processing expenses.

As of Jun 30, 2014, loans were $10.50 billion, up 16.9% from $8.98 billion as of Dec 31, 2013. Total deposits were $12.04 billion, up 14.3% from $10.53 billion as of Dec 31, 2013.

Asset Quality

Asset quality represented a mixed bag. The ratio of total nonperforming loans to total loans was 0.27% as of Jun 30, 2014, down 12 bps from Dec 31, 2013.

Net charge-offs to average loans was 0.20%, down 11 bps from 0.31% as of Dec 31, 2013. However, provision for loan losses increased 47.3% year over year to $7.2 million.

Profitability and Capital Ratios

BankUnited’s capital ratios deteriorated.  As of Jun 30, 2014, Tier 1 leverage ratio was 11.60%, down from 12.42% as of Dec 31, 2013. Tier 1 risk-based capital ratio was 17.70% versus 21.06% as of Dec 31, 2013. Total risk-based capital ratio came in at 18.51% against 21.93% as of Dec 31, 2013.

Profitability ratios also performed badly. The return on average assets came in at 1.19%, declining from 1.69% as of Jun 30, 2013. Further, as of Jun 30, 2014, return on average stockholder equity came in at 9.70%, down from 11.62% as of Jun 30, 2013.

Our Viewpoint

Rising expenses and intensely competitive markets are expected to weigh upon the company’s financials in the near term. However, with its steady balance sheet position, BankUnited is well poised to grow both organically and inorganically in the coming quarters.

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

Performance of Other Major Regional Banks

KeyCorp.’s second-quarter earnings from continuing operations came in at 27 cents per share, surpassing the Zacks Consensus Estimate of 25 cents.

State Street Corp. reported second-quarter operating earnings of $1.39 per share, outpacing the Zacks Consensus Estimate of $1.26, driven by an increased non-interest income.

The Bank of New York Mellon Corp.’s second-quarter adjusted earnings per share of 62 cents beat the Zacks Consensus Estimate of 56 cents, reflecting strong growth in assets under management (AUM).

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