Shares of BankUnited, Inc. BKU declined more than 3% following the release of third-quarter 2015 results before the market opened yesterday. Adjusted earnings per share of 50 cents came in a penny ahead of the Zacks Consensus Estimate. However, the figure compared unfavorably with the prior-year quarter tally of 51 cents.
Results benefited from a rise in revenues. However, elevated operating expenses and higher provisions dragged the results marginally. While loans and deposits as well as profitability ratios improved, deterioration in credit quality and capital ratios were the undermining factors.
Results excluded the impact of a discrete income tax benefit and related professional fees of 45 cents per share. After considering this, net income came in at $102.3 million, up from $53.6 million in the year-ago quarter.
Performance Details
Net revenue grew 17% year over year to $220.124 million. Moreover, it surpassed the Zacks Consensus Estimate of $210.5 million.
Net interest income (excluding provision for loan losses) increased 9% year over year to $189.0 million. The rise was driven by an increase in interest income, partially offset by higher interest expense. Further, net interest margin plunged 70 basis points (bps) year over year to 3.88%.
Non-interest income rose substantially year over year to $31.2 million. The increase was mainly attributable to higher net gain on sale of loans, net gains on investment securities available for sale as well as lease financing. These were, nevertheless, partially offset by a reduction in FDIC reimbursement of costs related to resolution of covered assets and lower income from resolution of covered assets.
Non-interest expenses climbed 21% year over year to $132.3 million. The rise was primarily due to an increase in all components except net other real estate owned expense.
As of Sep 30, 2015, net loans summed $15.3 billion, up from $12.3 billion as of Dec 31, 2014. Further, total deposits amounted to $15.9 billion, up from $13.5 billion as of Dec 31, 2014.
Asset Quality
Asset quality deteriorated during the quarter. The ratio of total nonperforming loans to total loans was 0.66% as of Jun 30, 2015, up 36 bps from Dec 31, 2014. Also, provision for loan losses increased significantly year over year to $17.8 million.
Moreover, net charge-offs to average loans came in at 0.10%, up 4 bps from Dec 31, 2014.
Profitability and Capital Ratios
BankUnited’s capital ratios continued to deteriorate. As of Sep 30, 2015, Tier 1 leverage ratio was 9.7%, down from 10.7% as of Dec 31, 2014. Tier 1 risk-based capital ratio came in at 13.5% versus 15.5% as of Dec 31, 2014. Total risk-based capital ratio came in at 14.3% as against 16.3% as of Dec 31, 2014.
Profitability ratios improved during the quarter. The return on average assets rose 63 bps year over year to 1.86% as of Sep 30, 2015. Further, return on average stockholder equity stood at 18.64% as against 10.50% as of Sep 30, 2014.
Our Viewpoint
BankUnited has potential for growth based on its healthy liquidity levels as well as a sturdy balance sheet. While the company’s steady capital deployment activities remain impressive, we believe its increasing emphasis on commercial loan portfolio will prove accretive going forward.
Nonetheless, persistent margin compression owing to the prevailing low interest rate environment, weak cost management and exposure to risky residential loans are anticipated to keep the company’s financials under strain in the near term.
BankUnited currently holds a Zacks Rank #4 (Sell).
Performance of Other Major Regional Banks
BB&T Corp.’s BBT third-quarter 2015 earnings came in at 64 cents per share, down from the prior-year figure of 70 cents. The Zacks Consensus Estimate was pegged at 66 cents per share. Results were driven by a rise in revenues.
SunTrust Banks, Inc. STI third-quarter 2015 earnings came in at $1.00. The results included certain non-recurring items. The Zacks Consensus Estimate was pegged at 83 cents. Results were driven by higher non-interest income, lower provision for credit losses and an almost stable expense level.
The Bank of New York Mellon Corp.’s BK third-quarter 2015 earnings per share of 74 cents comfortably surpassed the Zacks Consensus Estimate of 71 cents, driven by a dip in costs and a slight improvement in top line.
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