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Why Is BankUnited (BKU) Down 7.2% Since Last Earnings Report?

It has been about a month since the last earnings report for BankUnited (BKU). Shares have lost about 7.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is BankUnited due for a breakout? 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 catalysts.

BankUnited's Q1 Earnings Beat, Revenues & Expenses Down

BankUnited’s earnings per share of 65 cents in first-quarter 2019 surpassed the Zacks Consensus Estimate of 64 cents. The bottom line compared unfavorably with the prior-year quarter’s earnings of 77 cents per share.

Results were aided by a decline in expenses and higher non-interest income. However, lower net interest income and higher provisions were the undermining factors. Notably, the company’s overall loans and deposit balances remained strong.

Net income for the reported quarter was $66 million, down from $85.2 million recorded in the prior-year quarter.

Revenues & Expenses Decline

Net revenues were $227.2 million, surpassing the Zacks Consensus Estimate of $219 million. However, the top line decreased 17.6% year over year.

Net interest income totaled $190.9 million, decreasing 23% year over year. This decline was due to a fall in interest income along with higher interest expenses.

Net interest margin contracted 102 basis points year over year to 2.54%.

Non-interest income was $36.3 million, up 29.5% from the year-ago quarter. This rise was mainly due to an increase in lease financing fees, net gain on investment securities, and deposit service charges and fees.

Non-interest expenses declined 21.7% from the year-ago quarter to $126.7 million. This decrease was due to a fall in almost all cost components except for professional fees, technology and telecommunications costs, and depreciation of equipment under operating lease-related expenses.

Credit Quality: A Mixed Bag

As of Mar 31, 2019, the ratio of net charge-offs to average loans was 0.10%, down from 0.28% as of Dec 31, 2018.

However, provision for loan losses in the quarter under review was $10.3 million, up from $3.1 million in the prior-year quarter. In addition, ratio of non-performing loans to total loans was 0.60%, up from 0.59% as of Dec 31, 2018.

Loans & Deposits Up

As of Mar 31, 2019, net loans were $22.2 billion, up 1.7% from the Dec 31, 2018 level. Total deposits amounted to $23.7 billion, up nearly 1% from Dec 31, 2018 level.

Strong Capital Position, Profitability Ratios Deteriorate

As of Mar 31, 2019, Tier 1 leverage ratio was 8.8%. Moreover, Common Equity Tier 1 risk-based capital ratio was 12.3%. Further, total risk-based capital ratio was 12.8%.

At the end of the first quarter, return on average assets was 0.82%, down from 1.14% reported at the prior-year quarter end. Additionally, return on average stockholders’ equity was 9.05%, down from 11.28% witnessed at the end of the year-ago quarter.

2019 Outlook

Management expects both loan and deposit growth to be in the mid to high single-digit rate.

Further, the management revised its expectation for expenses (excluding the amortization in the indemnification asset) and now projects the same to remain stable year over year. Expenses were earlier 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 revised its projections for effective tax rate to 25% from the earlier guidance of 23.5-24% range.

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How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, BankUnited has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise BankUnited has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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