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BankUnited (BKU) Q3 Earnings Beat on Lower Costs, Stock Down

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BankUnited, Inc.’s (BKU - Free Report) third-quarter 2020 earnings per share of 70 cents surpassed the Zacks Consensus Estimate of 62 cents. However, the bottom line represents a decline of 9.1% from the prior-year quarter.

Results benefited from a decline in expenses along with a marginal improvement in net interest income (NII).  Moreover, solid loan and deposit balances were positives. However, a decline in non-interest income and significantly higher provisions were the undermining factors, which hurt results to an extent. Probably, because of these negatives, shares of the company lost 4.4% following the earnings release.

Net income was $66.6 million, down 12.7% from the prior-year quarter.

Revenues Improve Marginally, Expenses Decline

Net revenues of $223.8 million lagged the consensus estimate of $233.8 million. However, the top line improved marginally year over year.

NII totaled $187.5 million, which improved nearly 1% year over year.

Net interest margin contracted 9 basis points (bps) year over year to 2.32%.

Non-interest income was $36.3 million, down 4.1% from the year-ago quarter. The downside stemmed from a fall in deposit service charges and fees, net gain on sale of loans and lease financing.

Non-interest expenses fell 10.5% from the year-ago quarter to $108.6 million. The decline resulted from a fall in almost all expense components except for deposit insurance expenses, technology and telecommunications costs, and costs related to the depreciation of operating lease equipment.

As of Sep 30, 2020, net loans were $23.5 billion, up from $23 billion recorded as of Dec 31, 2019. Total deposits amounted to $26.6 billion, up from $24.4 billion recorded as of Dec 31, 2019.

Credit Quality Worsens

In the reported quarter, provision for credit losses totaled $29.2 million, up significantly from $1.8 million recorded in the prior-year quarter. As of Sep 30, 2020, the ratio of net charge-offs to average loans was 0.25%, up from 0.05% as of Dec 31, 2019.

However, the ratio of non-performing loans to total loans was 0.84%, down from 0.88% as of Dec 31, 2019.

Capital Ratios Mixed

As of Sep 30, 2020, Tier 1 leverage ratio was 8.6%, 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% as of the end of December 2019.

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) third-quarter 2020 net earnings per share of $1.01 surpassed the Zacks Consensus Estimate of 86 cents. However, the bottom line compares unfavorably with the year-ago quarter’s $1.17.

Washington Federal’s (WAFD - Free Report) fourth-quarter fiscal 2020 (ended Sep 30) earnings were 45 cents per share, surpassing the Zacks Consensus Estimate of 42 cents. However, the figure reflects a year-over-year plunge of 31.8%.

Associated Banc-Corp’s (ASB - Free Report) third-quarter 2020 adjusted earnings of 24 cents per share topped the Zacks Consensus Estimate of 19 cents. The bottom line, nevertheless, slumped 51% year over year.

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