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BankUnited's (BKU) Stock Falls 3.7% Despite Q3 Earnings Beat

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BankUnited, Inc.’s (BKU - Free Report) third-quarter 2018 earnings per share of 90 cents surpassed the Zacks Consensus Estimate of 86 cents. The bottom line also compared favorably with the prior-year quarter’s figure of 62 cents per share.

Results were primarily driven by an increase in net interest income and lower provisions. Moreover, the company’s overall loans and deposit balances remained strong. However, decline in non-interest income and higher expenses were the undermining factors. Probably due to these negatives shares of the company fell 3.7% following the release.

Net income for the reported quarter was $97.3 million, up from $67.8 million recorded in the prior-year quarter.

Revenues Decrease & Expenses Rise

Net revenues were $290.7 million, which lagged the Zacks Consensus Estimate of $292.6 million. The top line also decreased 1.3% year over year.

Net interest income totaled $252 million, increasing 4.4% year over year, owing to higher interest income, partially offset by rise in interest expenses.

Net interest margin contracted 11 basis points year over year to 3.51%.

Non-interest income was $38.7 million, decreasing 27.4% from the year-ago quarter. The downside was mainly due to fall in net gain on investment securities.

Non-interest expenses increased 9% from the year-ago quarter to $170.8 million, primarily due to rise in employee compensation and benefits costs, professional fees, telecommunications and data processing costs, amortization of FDIC indemnification asset costs, and depreciation of equipment under operating lease.

Credit Quality: Mixed Bag

As of Sep 30, 2018, the ratio of net charge-offs to average loans was 0.21%, decreasing from 0.38% as of Dec 31, 2017. Moreover, provision for loan losses in the quarter under review was $1.2 million, down from $37.9 million in the prior-year quarter.

However, ratio of non-performing loans to total loans was 0.94%, up from 0.81% as of Dec 31, 2017.

Solid Balance Sheet & Capital Ratios

As of Sep 30, 2018, net loans were $21.8 billion, up 2.5% from the Dec 31, 2017 level. Total deposits amounted to $22.3 billion, increasing from $21.9 billion as of Dec 31, 2017.

As of Sep 30, 2018, Tier 1 leverage ratio was 9.5% while Tier 1 risk-based capital ratio was 13.2%. Further, total risk-based capital ratio was 13.8% as of the same date.

Profitability Ratios Improve

At the end of the reported quarter, return on average assets was 1.24%, increasing from 0.92% reported in the prior-year quarter end. Moreover, return on average stockholders’ equity was 12.42%, up from 10.21% at the end of the prior-year quarter.

Our Take

Supported by consistent growth in loans and deposits, BankUnited remains on track for top-line improvement in the future. However, persistently increasing expenses are likely to hurt its bottom line in the near term. Moreover, continued margin pressure (despite increase in interest rates) remains a major near-term concern.

BankUnited, Inc. Price, Consensus and EPS Surprise
 

BankUnited, Inc. Price, Consensus and EPS Surprise | BankUnited, Inc. Quote

BankUnited currently has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Major Regional Banks

Comerica’s (CMA - Free Report) third-quarter 2018 adjusted earnings per share of $1.86 surpassed the Zacks Consensus Estimate of $1.76. Higher revenues and improved credit metrics were recorded. However, lower deposits and loans remained an undermining factor. Further, higher expenses were a headwind.

The PNC Financial Services Group (PNC - Free Report) delivered a positive earnings surprise of 3.3% in third-quarter 2018. Earnings per share of $2.82 beat the Zacks Consensus Estimate of $2.73. Continued easing of pressure on net interest margin led to higher net interest income during the reported quarter. Though mortgage banking revenues declined, overall non-interest income witnessed year-over-year growth.

Driven by expense management, Citigroup (C - Free Report) delivered a positive earnings surprise of 4.8% in third-quarter 2018. Earnings from continuing operations per share of $1.74 for the quarter handily outpaced the Zacks Consensus Estimate of $1.66. Though investment banking revenues disappointed as strong advisory business was more than offset by lower underwriting fees on low client activity, reduced expenses and credit costs acted as tailwinds.

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