It has been about a month since the last earnings report for BankUnited (BKU - Free Report) . Shares have added about 7.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is BankUnited due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
BankUnited's Q4 Earnings Miss, Costs & Provisions Rise
BankUnited’s fourth-quarter 2018 adjusted earnings per share of 59 cents missed the Zacks Consensus Estimate by a penny. The bottom line also compares unfavorably with the prior-year quarter’s adjusted figure of 86 cents per share.
Results were affected by higher expenses and provisions, and lower non-interest income. However, the company’s overall loans and deposit balances remained strong. Also, rise in net interest income was a support.
Net income for the reported quarter was $52.4 million or 50 cents per share, down from $417.8 million or $3.79 per share recorded in the prior-year quarter. Prior-year quarter figure included certain non-recurring item.
For 2018, earnings per share of $2.99 grew 12.8% year over year. Net income was $324.9 million compared to $614.3 million in the prior year. Prior-year figures included certain nonrecurring item.
Revenues Improve, Expenses Rise
Net revenues for the fourth quarter came in at $328.4 million, surpassing the Zacks Consensus Estimate of $286.6 million. The top line also increased 15.1% year over year.
Net revenues for 2018 came in at $1.18 billion, up 6.7% year-over-year growth.
Net interest income for the quarter totaled $295 million, increasing 23.5% year over year, backed by higher interest income, partially offset by rise in interest expenses.
Net interest margin expanded 49 basis points year over year to 4.01%.
Non-interest income was $33.3 million, down 28.4% from the year-ago quarter. The decline was mainly due to fall in net gain on investment securities and net gain on sale of loans.
Non-interest expenses flared up 53% from the year-ago quarter to $246.7 million, primarily due to rise in telecommunications and data processing costs, amortization of FDIC indemnification asset costs, and depreciation of equipment under operating lease.
Credit Quality: Mixed Bag
As of Dec 31, 2018, the ratio of net charge-offs to average loans was 0.28%, down from 0.38% as of Dec 31, 2017.
However, provision for loan losses in the quarter under review was $12.6 million, up from $5.2 million in the prior-year quarter. In addition, ratio of non-performing loans to total loans was 0.59%, down from 0.81% as of Dec 31, 2017.
Solid Balance Sheet
As of Dec 31, 2018, net loans were $21.9 billion, up 2.8% from the Dec 31, 2017 level. Total deposits amounted to $23.5 billion, up 7.3% from Dec 31, 2017 level.
Capital & Profitability Ratios Deteriorate
As of Dec 31, 2018, Tier 1 leverage ratio was 9% compared with 9.6% recorded at the end of the prior-year quarter. Moreover, Tier 1 risk-based capital ratio was 12.6% down from 13.5% recorded on Dec 31, 2017. Further, total risk-based capital ratio was 13.1% compared with 14% in the year-ago quarter.
At the end of the fourth quarter, return on average assets was 0.66%, down from 5.54% reported at the prior-year quarter end. Additionally, return on average stockholders’ equity was 6.85%, significantly down from 59.33% witnessed at the end of the year-ago quarter.
During the reported quarter, BankUnited repurchased nearly 4.7 million shares for $150 million.
Management expects both loan and deposit growth to be in the mid to high single-digit rate.
Further, expenses (excluding the amortization in the indemnification asset) are projected to rise in the low-single-digit range.
Core NIM is projected to be in the range of 2.50-2.60% (on the assumptions of no further rate hikes this year).
Further, the company projects an effective tax rate in the range of 23.5-24%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -7.99% due to these changes.
Currently, BankUnited has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, BankUnited has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.