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Huntington (HBAN) Q3 Earnings Beat Estimates, Revenues Rise

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Huntington Bancshares HBAN reported third-quarter 2018 earnings per share of 33 cents, beating the Zacks Consensus Estimate by a penny. Also, the figure came in 43% higher than the prior-year quarter.

Results were driven by higher revenues and controlled expenses. Continued growth in both loan and deposit balances was also recorded. However, higher provisions were the primary headwinds.

Net income for the quarter surged nearly 37% year over year to $378 million.

Revenues, Loans & Deposits Improve

The company’s total revenues on a fully taxable-equivalent (FTE) basis came in at $1.15 billion, up 5% from the year-ago quarter. However, it lagged the Zacks Consensus Estimate of $1.16 billion.

Net interest income came in at $810 million on a FTE basis, up 5% from the prior-year quarter. The rise was driven by an increase in average earnings assets. Also, net interest margin (NIM) expanded 3 basis points (bps) to 3.32%.

Non-interest income inched up 4% year over year to $342 million. The rise mainly stemmed from growth in insurance income, gain on sale of loans, cards and payment processing income along with trust and investment-management services.

Non-interest expenses declined 4% to $651 million on a year-over-year basis. This was mainly due to the impact of certain non-recurring items that had occurred in third-quarter 2017. After considering those items, rise in personnel and professional costs was offset by lower marketing costs, which led to only a marginal rise in expenses in the quarter under review.

As of Sep 30, 2018, average loans and leases at Huntington jumped 6.6% year over year to $72.8 billion. Also, average core deposits increased 5.6% from the prior-year quarter to $77.7 billion.

Credit Quality: A Mixed Bag

Net charge-offs were $29 million or an annualized 0.16% of average total loans in the reported quarter, down from $43 million or an annualized 0.25% recorded a year ago.

However, the quarter-end allowance for credit losses, as a percentage of total loans and leases, increased to 1.17% from 1.10% in the year-earlier quarter. Also, provision for credit losses was up 23% on a year-over year basis to $53 million. In addition, total non-performing assets totaled $403 million as of Sep 30, 2018, up nearly 4% from year-ago quarter.

Strong Capital Ratios

Common equity tier 1 risk-based capital ratio and regulatory Tier 1 risk-based capital ratio were 9.89% and 11.33%, respectively, compared with 9.94% and 11.30% reported in the year-ago quarter.

Tangible common equity to tangible assets ratio was 7.25%, down from 7.42% on Sep 30, 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 4-4.5%. In the fourth quarter, Huntington expects to realize about $20 million of securities losses related to portfolio restructuring.

Non-interest expenses are anticipated to be down 2-2.5% in 2018. The company expects to realize nearly $40 million of expense on account of previously announced branch and corporate facility consolidations.

NIM for 2018 is estimated to expand 2-4 bps from the prior year, on a GAAP basis, as expansion in core NIM might offset the reduced benefit of purchase accounting. Further, efficiency ratio is projected to be 56.5-57%.

Management predicts average loans and leases to increase in the 5.5-6.5% band on an annual basis, while average deposits are expected to be up 3.5-4.5%. Average core deposit growth is projected to be 4.5-5.5%.

Overall, asset quality metrics are likely to remain better than average despite some moderate quarterly volatility.

Effective tax rate for full-year 2018 is estimated in the range of 14.5-15%.

Our Viewpoint

Huntington reported an impressive quarter. The company, which has a solid franchise in the Midwest, is focused on capitalizing on its growth opportunities. Furthermore, it exhibits consistent efforts in increasing loan and deposit balances, aiding revenue growth. Additionally, we remain optimistic about the company’s several strategic actions, including acquisitions and consolidation of branches.

Also, controlled costs and stable credit metrics act as tailwinds for its financials.

Huntington Bancshares Incorporated Price, Consensus and EPS Surprise

Huntington Bancshares Incorporated Price, Consensus and EPS Surprise | Huntington Bancshares Incorporated Quote

Currently, Huntington carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

TCF Financial Corp. TCF reported positive earnings surprise of 4.1% in third-quarter 2018. Earnings per share of 51 cents surpassed the Zacks Consensus Estimate of 49 cents. Further, the bottom line compares favorably with the prior-year quarter figure of 29 cents.

Sallie Mae SLM reported third-quarter 2018 core earnings of 23 cents per share, in line with the Zacks Consensus Estimate. Moreover, the figure surged 35% from the prior-year quarter.

People's United Financial Inc. PBCT delivered a negative earnings surprise of 2.9% in third-quarter 2018. Net earnings of 33 cents per share lagged the Zacks Consensus Estimate by a penny. However, the reported figure improved 26.9% year over year.

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