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A month has gone by since the last earnings report for Huntington Bancshares Incorporated HBAN. Shares have added about 3.4% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is HBAN due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Huntington Q1 Earnings Meet Estimates, Costs Fall
Huntington reported first-quarter 2018 earnings per share of 28 cents, in line with the Zacks Consensus Estimate. However, the figure came in higher than the prior-year quarter adjusted earnings of 21 cents.
Results were driven by higher revenues and lower provisions. Continued growth in both loan and deposit balances was also recorded. Moreover, lower expenses were the primary tailwinds.
Net income jumped nearly 28.3% year over year to $326 million during the quarter.
Revenues, Loans & Deposits Rise, Expenses Drop
The company’s total revenues on a fully taxable-equivalent (FTE) basis came in at $1.09 billion in the quarter, missing the Zacks Consensus Estimate of $1.10 billion. However, total revenues were up 3% year over year.
Net interest income (NII) came in at $777 million on a FTE basis, up 5% from the prior-year quarter. The rise was driven by an increase in average earnings assets. Net interest margin (NIM) remained unchanged at 3.30%.
Non-interest income inched up 1% year over year to $314 million. The upsurge mainly stemmed from growth in capital-market fees, cards and payment processing income, along with trust and investment-management services.
Adjusted non-interest expenses declined slightly to $633 million on a year-over-year basis. The decrease stemmed from a fall in almost all components of expenses, partially offset by rise in personnel costs. Including the impact of certain non-recurring items, non-interest expenses dropped 10% year over year.
As of Mar 31, 2018, average loans and leases at Huntington jumped nearly 5% year over year to $70.5 billion. Also, average total deposits inched up 1% to $76.9 billion.
Credit Quality Improves
Net charge-offs were $38 million or an annualized 0.21% of average total loans in the reported quarter, down from $39 million or an annualized 0.24% recorded in the year-ago quarter.
Provision for credit losses was down 2.9% on a year-over year basis to $66 million. In addition, total non-performing assets totaled $420 million as of Mar 31, 2018, down from $458 million as of Mar 31, 2017.
Further, the quarter-end allowance for credit losses, as a percentage of total loans and leases, edged down to 1.13% from 1.14% in the year-earlier quarter.
Strong Capital Ratios
Huntington Bancshares’ capital ratios remained strong.
Common equity tier 1 risk-based capital ratio and regulatory Tier 1 risk-based capital ratio were 10.51% and 11.99%, respectively, compared with 9.74% and 13.26% reported in the year-ago quarter.
Tangible common equity to tangible assets ratio was 7.70%, up from 7.28% as of Mar 31, 2017.
Outlook for 2018
With improving macroeconomic environment and the company’s accomplishment of its core strategies, total revenues for full-year 2018 are projected to be up in the range of 4-6%. Non-interest expenses are expected to be down 2-4%.
NIM for 2018 is estimated to remain flat year over year, on a GAAP basis, as expansion in NIM might offset the reduced benefit of purchase accounting. Further, efficiency ratio is projected to be 55-57%.
Management predicts average loans and leases to increase in the 4-6% band on an annual basis, while average deposits are expected to be up 3-5%.
Overall, asset quality metrics are likely to remain stable with moderate quarterly volatility, given the current low level of problem assets and credit costs.
Management anticipates NCOs to remain below the long-term normalized range of 35-55 basis points.
The effective tax rate for 2018 is estimated in the range of 15.5-16.5%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to four lower.
Huntington Bancshares Incorporated Price and Consensus
Huntington Bancshares Incorporated Price and Consensus | Huntington Bancshares Incorporated Quote
At this time, HBAN has an average Growth Score of C, though it is lagging a bit on the momentum front with a D. The stock was also allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks style scores indicate that the company's stock is suitable for value and growth investors.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, HBAN has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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