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BankUnited (BKU) Q3 Earnings Lag Estimates as Costs Rise
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BankUnited, Inc. (BKU - Free Report) delivered a negative earnings surprise of 11.3% in the third quarter of 2016. Earnings per share of 47 cents lagged the Zacks Consensus Estimate of 53 cents. Moreover, the bottom line declined 6% from the year-ago-quarter.
Lower-than-expected results were primarily due to escalated expenses and provisions and a fall in non-interest income. Moreover, deteriorating credit quality and profitability ratios acted as major headwinds. Nonetheless, higher net interest income was a positive. Further, improvement in loans and deposits acted as a tailwind.
Net income for the quarter fell 5.6% year over year to $50.8 million.
Total net revenue surged nearly 12% year over year to $246.8 million. Moreover, it marginally surpassed the Zacks Consensus Estimate of $246.3 million.
Net interest income climbed 17.4% year over year to $221.7 million led by higher interest income, partially offset by increase in interest expense. However, net interest margin declined 19 basis points (bps) year over year to 3.69%.
Non-interest income was $25.1 million, down 19.6% from the year-ago quarter. The decline was triggered by lower net income from resolution of covered assets, lease financing, other non-interest income and a loss on sale of loans. These were, however, partially offset by higher service charges and fees, net gain on investment securities available for sale and a net gain on FDIC indemnification
Non-interest expenses were up 11.9% from the year-ago quarter to $148.0 million due to a rise in all the components, except professional fees, employee compensation and benefits, and occupancy and equipment.
Credit Quality Deteriorates
As of Sep 30, 2016, the ratio of total nonperforming loans to total loans was 0.61%, compared with 0.43% as of Dec 31, 2015. Similarly, net charge-offs to average loans was 0.11%, compared with 0.10% as of Dec 31, 2015.
Moreover, provision for loan losses increased 37% year over year to $24.4 million. It reflected an increase in qualitative reserves and an increase in the reserve related to the taxi medallion portfolio.
Strong Balance Sheet & Capital Ratios
As of Sep 30, 2016, net loans totaled $18.9 billion, compared with $16.5 billion as of Dec 31, 2015. Further, total deposits amounted to $18.8 billion, up from $16.9 billion as of Dec 31, 2015.
As of Sep 30, 2016, Tier 1 leverage ratio was 8.5% while the Tier 1 risk-based capital ratio came in at 11.6%. Further, total risk-based capital ratio was 12.4% as of Sep 30, 2016.
Profitability Ratios Worsen
The return on average assets fell 1.1% year over year to 0.76% as of Sep 30, 2016 and return on average stockholders’ equity was 8.52%, considerably down from 18.64% as of Sep 30, 2015.
Our Take
BankUnited’s mounting costs due to higher funding costs and M&A activities will likely keep bottom line under pressure in the near term. Moreover, the low interest rate environment continues to strain the net interest margin. Also, the company’s high dependence on residential mortgage loans increases its exposure to risks related to rising interest rates.
Nonetheless, the company remains well positioned to capitalize on available opportunities and grow inorganically on the back of its healthy balance sheet position.
BankUnited currently carries a Zacks Rank #4 (Sell).
Performance of Other Major Regional Banks
The PNC Financial Services Group, Inc.’s (PNC - Free Report) third-quarter 2016 earnings per share of $1.84 handily beat the Zacks Consensus Estimate of $1.78. Better-than-expected results were aided by increased net interest income as well as non-interest income. Also, continued growth in loans and deposits were among other positives. However, on the downside, the quarter recorded higher expenses and provisions. It carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
Buoyed by strong top-line growth, Wells Fargo & Company’s (WFC - Free Report) third-quarter 2016 recorded a positive earnings surprise of about 1%. Specifically, the company’s earnings of $1.03 per share beat the Zacks Consensus Estimate by a penny. Wells Fargo witnessed organic growth in revenues. Moreover, a strong capital position acted as a tailwind. However, higher provisions and expenses were the dampeners.
Driven by improved trading and mortgage banking revenues, JPMorgan Chase & Co.’s (JPM - Free Report) third-quarter 2016 earnings of $1.58 per share handily surpassed the Zacks Consensus Estimate of $1.40.Improved fixed income and equity trading revenues, higher mortgage banking fees and growth in investment banking income drove the results. Further, higher net interest income, perhaps attributable to the rise in loan supported top line.
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BankUnited (BKU) Q3 Earnings Lag Estimates as Costs Rise
BankUnited, Inc. (BKU - Free Report) delivered a negative earnings surprise of 11.3% in the third quarter of 2016. Earnings per share of 47 cents lagged the Zacks Consensus Estimate of 53 cents. Moreover, the bottom line declined 6% from the year-ago-quarter.
Lower-than-expected results were primarily due to escalated expenses and provisions and a fall in non-interest income. Moreover, deteriorating credit quality and profitability ratios acted as major headwinds. Nonetheless, higher net interest income was a positive. Further, improvement in loans and deposits acted as a tailwind.
Net income for the quarter fell 5.6% year over year to $50.8 million.
Rising Revenues Fail to Offset Higher Expenses
Total net revenue surged nearly 12% year over year to $246.8 million. Moreover, it marginally surpassed the Zacks Consensus Estimate of $246.3 million.
Net interest income climbed 17.4% year over year to $221.7 million led by higher interest income, partially offset by increase in interest expense. However, net interest margin declined 19 basis points (bps) year over year to 3.69%.
Non-interest income was $25.1 million, down 19.6% from the year-ago quarter. The decline was triggered by lower net income from resolution of covered assets, lease financing, other non-interest income and a loss on sale of loans. These were, however, partially offset by higher service charges and fees, net gain on investment securities available for sale and a net gain on FDIC indemnification
Non-interest expenses were up 11.9% from the year-ago quarter to $148.0 million due to a rise in all the components, except professional fees, employee compensation and benefits, and occupancy and equipment.
Credit Quality Deteriorates
As of Sep 30, 2016, the ratio of total nonperforming loans to total loans was 0.61%, compared with 0.43% as of Dec 31, 2015. Similarly, net charge-offs to average loans was 0.11%, compared with 0.10% as of Dec 31, 2015.
Moreover, provision for loan losses increased 37% year over year to $24.4 million. It reflected an increase in qualitative reserves and an increase in the reserve related to the taxi medallion portfolio.
Strong Balance Sheet & Capital Ratios
As of Sep 30, 2016, net loans totaled $18.9 billion, compared with $16.5 billion as of Dec 31, 2015. Further, total deposits amounted to $18.8 billion, up from $16.9 billion as of Dec 31, 2015.
As of Sep 30, 2016, Tier 1 leverage ratio was 8.5% while the Tier 1 risk-based capital ratio came in at 11.6%. Further, total risk-based capital ratio was 12.4% as of Sep 30, 2016.
Profitability Ratios Worsen
The return on average assets fell 1.1% year over year to 0.76% as of Sep 30, 2016 and return on average stockholders’ equity was 8.52%, considerably down from 18.64% as of Sep 30, 2015.
Our Take
BankUnited’s mounting costs due to higher funding costs and M&A activities will likely keep bottom line under pressure in the near term. Moreover, the low interest rate environment continues to strain the net interest margin. Also, the company’s high dependence on residential mortgage loans increases its exposure to risks related to rising interest rates.
Nonetheless, the company remains well positioned to capitalize on available opportunities and grow inorganically on the back of its healthy balance sheet position.
BANKUNITED INC Price, Consensus and EPS Surprise
BANKUNITED INC Price, Consensus and EPS Surprise | BANKUNITED INC Quote
BankUnited currently carries a Zacks Rank #4 (Sell).
Performance of Other Major Regional Banks
The PNC Financial Services Group, Inc.’s (PNC - Free Report) third-quarter 2016 earnings per share of $1.84 handily beat the Zacks Consensus Estimate of $1.78. Better-than-expected results were aided by increased net interest income as well as non-interest income. Also, continued growth in loans and deposits were among other positives. However, on the downside, the quarter recorded higher expenses and provisions. It carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
Buoyed by strong top-line growth, Wells Fargo & Company’s (WFC - Free Report) third-quarter 2016 recorded a positive earnings surprise of about 1%. Specifically, the company’s earnings of $1.03 per share beat the Zacks Consensus Estimate by a penny. Wells Fargo witnessed organic growth in revenues. Moreover, a strong capital position acted as a tailwind. However, higher provisions and expenses were the dampeners.
Driven by improved trading and mortgage banking revenues, JPMorgan Chase & Co.’s (JPM - Free Report) third-quarter 2016 earnings of $1.58 per share handily surpassed the Zacks Consensus Estimate of $1.40.Improved fixed income and equity trading revenues, higher mortgage banking fees and growth in investment banking income drove the results. Further, higher net interest income, perhaps attributable to the rise in loan supported top line.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>