BankUnited, Inc. (BKU) has experienced a 1.6% decline in its stock since announcing its third-quarter 2023 results on October 19. The company reported earnings per share of 63 cents, missing the Zacks Consensus Estimate of 71 cents and marking a 43.8% decrease from the prior-year quarter.
Several factors contributed to the results, including increased non-interest expenses, lower deposit and loan balances, and a decline in net interest income (NII). However, there was a positive impact from higher non-interest income.
Revenues Decline, Expenses Rise
Net revenues for the quarter came in at $242.6 million, a 6.3% decrease from the previous year. Despite the decline, the top line was able to surpass the Zacks Consensus Estimate of $239 million.
NII saw a decrease of 8.9% year over year, reaching $214.8 million. This decline was due to higher interest expenses, resulting in a 20 basis-point decrease in net interest margin (NIM) to 2.56%. Non-interest income, on the other hand, increased by 20.2% to $27.7 million. The rise was attributed to net gains on investment securities, lease financing, and other non-interest income.
Non-interest expenses grew by 6.5% to $141.1 million, primarily due to higher employee compensation and benefits costs, deposit insurance expenses, and other non-interest expenses.
Credit Quality: A Mixed Bag
In the third quarter, BankUnited recorded a provision of credit losses worth $33 million, significantly up from $3.7 million in the previous year’s quarter. The ratio of net charge-offs to average loans decreased by 15 basis points to 0.07%.
Capital Ratios Improve, Profitability Ratios Deteriorate
As of September 30, 2023, BankUnited’s Tier 1 leverage ratio improved to 7.9% from 7.5% at the end of December 2022. The Common Equity Tier 1 risk-based capital ratio also increased to 11.4% from 11%. However, the total risk-based capital ratio saw a slight increase to 13.4% from 12.7% at the end of 2022.
The company’s return on average assets decreased to 0.52% from 0.96% in the same period last year, while return on average stockholders’ equity declined to 7.2% from 13.5%.
BankUnited did not repurchase any shares during the third quarter.
Our View
BankUnited’s focus on organic growth, driven by higher fee income, is expected to support its financials. However, concerns remain regarding higher expenses and a decline in NII. Any deterioration in the balance sheet could negatively impact the company’s financials.
Performance of Other Banks
Texas Capital Bancshares, Inc. (TCBI) reported third-quarter 2023 earnings per share of $1.18, surpassing the Zacks Consensus Estimate of $1.03. The company’s results were aided by a rise in non-interest income and lower expenses. Meanwhile, East West Bancorp, Inc. (EWBC) reported third-quarter earnings per share of $2.02, slightly exceeding the Zacks Consensus Estimate. Higher net interest income and non-interest income contributed to the positive results, despite increased expenses and provisions.
Overall, BankUnited’s Q3 earnings falling short of estimates have led to a decline in its stock. Investors and traders interested in financial markets should closely monitor the company’s financial performance and keep an eye on key factors such as NII, non-interest expenses, and credit quality to make informed decisions.
Disclaimer: The views and opinions expressed herein are solely those of the author and do not necessarily reflect those of Nasdaq, Inc.
