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BankUnited (BKU) Stock Gains on Q2 Earnings Beat, Costs Down

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BankUnited, Inc.’s (BKU - Free Report) shares gained 12.9%, following the release of its second-quarter 2020 results. Earnings per share of 80 cents hugely surpassed the Zacks Consensus Estimate of 21 cents. Nevertheless, the figure reflects a decline of 1.2% from the prior-year quarter.

Results primarily benefited from an improvement in fee income as well as lower expenses. Also, solid loan and deposit balances were positives. However, a marginal decline in net interest income and significantly higher provisions were headwinds.

Net income was $76.5 million, down 6.1% from the prior-year quarter.

Revenues Improve & Expenses Decline

Net revenues of $228.7 million surpassed the consensus estimate of $217.7 million. Also, the top line improved 1.1% year over year.

Net interest income totaled $190.3 million, which decreased marginally year over year. The decline was due to a fall in interest income.

Net interest margin contracted 13 basis points (bps) year over year to 2.39%.

Non-interest income was $38.4 million, up 8.5% from the year-ago quarter. The upside stemmed from an increase in net gain on sale of loans and net gain on investment securities.

Non-interest expenses fell 11.4% from the year-ago quarter to $106.4 million. The decline resulted from a fall in almost all expenses components except for technology and telecommunications costs, and costs related to the depreciation of operating lease equipment.

As of Jun 30, 2020, net loans were $23.6 billion, up from $23 billion recorded on Dec 31, 2019. Total deposits amounted to $26.1 billion, up from $24.4 billion recorded as of Dec 31, 2019.

Credit Quality Worsens

In the reported quarter, provision for credit losses totaled $25.4 million against recovery of credit losses of $2.7 million recorded in the prior-year quarter. As of Jun 30, 2020, the ratio of net charge-offs to average loans was 0.20%, up from 0.05% as of Dec 31, 2019.

However, the ratio of non-performing loans to total loans was 0.86%, down from 0.88% as of Dec 31, 2019.

Capital Ratios Mixed

As of Jun 30, 2020, Tier 1 leverage ratio was 8.5%, down from 8.9% as of Dec 31, 2019. Moreover, Common Equity Tier 1 risk-based capital ratio was 12.2%, down from 12.3% recorded as of Dec 31, 2019. However, total risk-based capital ratio was 14.3%, up from 12.8%.

Our Take

BankUnited’s continued efforts to strengthen fee income sources and a strong balance sheet position are expected to keep supporting profitability. However, due to near-zero interest rates, the company’s margins will likely remain under pressure in the near term, thus hurting the top line to an extent.

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 Banks

Zions Bancorporation’s (ZION - Free Report) second-quarter 2020 net earnings per share of 34 cents missed the Zacks Consensus Estimate of 37 cents. Moreover, the bottom line compared unfavorably with the year-ago quarter’s 99 cents.

Washington Federal’s (WAFD - Free Report) third-quarter fiscal 2020 (ended Jun 30) earnings were 46 cents per share, missing the Zacks Consensus Estimate by a penny. The figure also declined 31.3% year over year.

Associated Banc-Corp’s (ASB - Free Report) second-quarter 2020 adjusted earnings of 26 cents per share came in line with the Zacks Consensus Estimate. The bottom-line figure, nevertheless, slumped 49% year over year. Earnings excluded gain on the sale of Associated Benefits and Risk Consulting in the reported quarter.

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