BankUnited (BKU) Fails To Gain Despite Q2 Earnings Beat

BankUnited, Inc. BKU delivered a positive earnings surprise of 2% in the second quarter of 2016. Earnings per share of 52 cents beat the Zacks Consensus Estimate by a penny. Moreover, the bottom line exceeded the year-ago-quarter figure by 21%.

Results benefited from an increase in net interest and non-interest income. Further, improvement in loans and deposits was a positive sign. However, elevated expenses and a significant rise in provisions acted as headwinds, which probably led the stock to decline 6.4% in after-market trading.

Net income for the quarter climbed 22% year over year to $56.7 million.

Revenue Rises Higher than Expenses

Total net revenue surged nearly 20% year over year to $243.2 million. Moreover, it surpassed the Zacks Consensus Estimate of $236 million.

Net interest income climbed 18% year over year to $214.3 million led by higher interest income, partially pulled down by increases in interest expense. Nonetheless, net interest margin declined 20 basis points (bps) year over year to 3.8%.

Non-interest income was $28.9 million, up 37% from the year-ago quarter. The income drivers were reduction in net loss on FDIC indemnification, higher lease financing and net gain on investment securities available for sale. These were, however, reined in by lower net income from resolution of covered assets and net loss on sale of loans.

Non-interest expenses were up 17% from the year-ago quarter to $144.1 million due to a rise in all components, except occupancy and equipment.

Credit Quality Deteriorates

As of Jun 30, 2016, the ratio of total nonperforming loans to total loans was 0.5%, compared with 0.4% as of Mar 31, 2016. Similarly, net charge-offs to average loans was 0.10%, compared with 0.09% in the prior quarter.

Moreover, provision for loan losses increased 70% year over year to $14.3 million. It reflected increases in reserves related to the taxi medallion portfolio.

Balance Sheet Strengthens while Capital Ratios Deteriorate

As of Jun 30, 2016, net loans totaled $18.1 billion, compared with $17.0 billion as of Mar 31, 2016. Further, total deposits amounted to $18.2, up from $17.5 billion as of Mar 31, 2016.

As of Jun 30, 2016, Tier 1 leverage ratio was 8.7%, down from 9.0% at the end of the prior quarter. Tier 1 risk-based capital ratio came in at 11.8% compared with 12.1% as of Mar 31, 2016. Total risk-based capital ratio was12.6%, compared with 12.8% as of Mar 31, 2016.

Profitability Ratios: A Mixed Bag

While the return on average assets fell 2 basis points (bps) year over year to 0.9% as of Jun 30, 2016, return on average stockholders’ equity was 9.8%, up from 8.7% as of Jun 30, 2015.

Our Take

BankUnited’s strong balance sheet and liquidity position will allow it to capitalize on available opportunities and grow inorganically. Additionally, emphasis on the commercial loan portfolio will likely accelerate growth.

Nonetheless, persistent margin compression, increasing costs and exposure to risky residential loans will keep the company’s financials under pressure in the near term.

BANKUNITED INC Price, Consensus and EPS Surprise

BANKUNITED INC Price, Consensus and EPS Surprise | BANKUNITED INC Quote

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

Performance of Other Major Banks

Among other major regional banks, Comerica Incorporated (NYSE:CMA) CMA delivered a positive earnings surprise of 13.2% for the second quarter on higher interest income.

Additionally, The PNC Financial Services Group (NYSE:PNC), Inc’s. PNC second-quarter 2016 earnings per share of $1.82 surpassed the Zacks Consensus Estimate of $1.75. However, the bottom line declined 3% year over year.

Northern Trust Corporation NTRS delivered a positive earnings surprise of 1% for the second quarter on the back of higher revenues.

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