BankUnited (BKU) Beats On Q4 Earnings As Revenues Improve

BankUnited, Inc. (NYSE:BKU) released its fourth-quarter and full-year 2017 results. Adjusted earnings per share of 86 cents for the quarter surpassed the Zacks Consensus Estimate of 62 cents. Moreover, the bottom line compared favorably with the prior-year quarter’s earnings of 59 cents per share.

Results were primarily driven by an increase in both net interest income and non-interest income. Also, lower provisions supported results to quite an extent. Moreover, the company witnessed strong growth in loans and deposits. However, higher expenses remained an undermining factor.

After taking into consideration the impact of a discrete income tax benefit and related professional fees, net income for the quarter came in at $417.8 million or $3.79 per share.

Adjusted earnings per share of $2.65 for 2017 also surpassed the Zacks Consensus Estimate of $2.39. Moreover, the figure represents improvement of 26.8% from the previous year. After taking into consideration the impact of the discrete income tax benefit and related professional fees, net income for the full-year came in at $614.3 million or $5.58 per share.

Revenues Improve, Costs Escalate

Net revenues for the quarter came in at $285.4 million, surpassing the Zacks Consensus Estimate of $270.3 million. Further, the reported figure increased 11.1% year over year.

For 2017, net revenues came in at $1.11 billion, surpassing the Zacks Consensus Estimate of $1.08 billion. Also, the reported figure improved 13.4% from the prior year.

Net interest income for the quarter was $238.8 million, increasing nearly 5% year over year, led by higher interest income, partially offset by an increase in interest expenses.

Net interest margin decreased 15 basis points year over year to 3.52%.

Non-interest income was $46.5 million, increasing 58.9% from the year-ago quarter. The rise was primarily driven by a significant increase in net gain on sale of loans.

Non-interest expenses increased 3.2% from the year-ago quarter to $161.3 million, primarily due to a rise in employee compensation and benefits costs, deposit insurance expense and professional fees.

Credit Quality: Mixed Bag

As of Dec 31, 2017, the ratio of net charge-offs to average loans was 0.38%, increasing from 0.13% as of Dec 31, 2016. Also, nonperforming loans to total loans was 0.81%, increasing from 0.70% as of Dec 31, 2016.

However, provision for loan losses for the quarter was $5.2 million, down from $8.5 million in the prior-year quarter.

Solid Balance Sheet & Capital Ratios

As of Dec 31, 2017, net loans totaled $21.3 billion compared with $19.2 billion as of Dec 31, 2016. Further, total deposits amounted to $21.9 billion, increasing from $19.5 billion as of Dec 31, 2016.

As of Dec 31, 2017, Tier 1 leverage ratio was 9.7%, while Tier 1 risk-based capital ratio came in at 13.1%. 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 5.54%, increasing from 0.92% reported in the prior-quarter end. Also, return on average stockholders’ equity was 59.33%, up from 10.45% at the end of the prior-year quarter.

Share Repurchase Authorization

Given that the income tax benefit resulted in an increase in the company’s capital, its Board of Directors has authorized a share repurchase program under which the company may repurchase up to $150 million of its common stock.

Our Take

Supported by consistent growth in loans and deposits, BankUnited remains on track for top-line improvement in the future. Also, given a solid liquidity and balance sheet position, the bank is well poised to grow through acquisitions.

However, persistently increasing expenses and continued margin pressure (despite increase in interest rates) remain major near-term concerns.

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

Performance of Other Major Regional Banks

BB&T Corporation’s (NYSE:BBT) fourth-quarter 2017 adjusted earnings of 84 cents per share outpaced the Zacks Consensus Estimate of 80 cents. Results reflected a rise in revenues driven by higher rates and loan growth. However, an increase in operating expenses and higher credit costs were the undermining factors.

Comerica Incorporated (NYSE:CMA) pulled off a positive earnings surprise of 5.8% in fourth-quarter 2017. Adjusted earnings per share of $1.28 surpassed the Zacks Consensus Estimate of $1.21. Results reflected an increase in revenues supported by easing margin pressure and higher fee income. Strong capital position and improving credit quality were the positives. However, higher expenses and a decline in loans balance remained major headwinds.

KeyCorp’s (NYSE:KEY) fourth-quarter 2017 adjusted earnings of 36 cents per share came in line with the Zacks Consensus Estimate. Easing margin pressure on rising rates was witnessed in the quarter. Moreover, revenues improved on a year-over-year basis aided by revenue synergies from the First Niagara Financial Group acquisition deal (completed in August 2016). On the other hand, decrease in loans was on the downside.

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