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Huntington (HBAN) Q4 Earnings Lag Estimates, Expenses Rise

Zacks Equity Research

Huntington Bancshares HBAN reported fourth-quarter 2018 earnings per share of 29 cents, which lagged the Zacks Consensus Estimate of 31 cents. However, the figure was up 12% from the prior-year quarter’s adjusted earnings.

Shares of Huntington tanked more than 7% in the pre-market trading, indicating that investors haven’t taken the results in their stride. The full-day trading session will depict a better picture.

Results were adversely impacted by rise in operating expenses and higher provisions for credit losses. Further, non-interest income declined, mainly due to weakness in mortgage banking business. However, higher net interest income and improvement in loans and deposits were the tailwinds.

Net income for the quarter declined 23% year over year to $334 million.

For 2018, earnings per share of $1.20 missed the Zacks Consensus Estimate of $1.22. Nonetheless, it improved 22% from the last year’s adjusted earnings. Net income grew 17% year over year to $1.4 billion.

Revenues, Loans & Deposits Improve, Expenses Rise

Total revenues on a fully taxable-equivalent (FTE) basis for the reported quarter increased 4% year over year to $1.17 billion. Also, it beat the Zacks Consensus Estimate of $1.16 billion.

Total revenues on FTE basis for 2018 were $4.54 billion, up 4% from the year-ago quarter. Further, it surpassed the Zacks Consensus Estimate of $4.51 billion.

Net interest income (FTE basis) was $841 million, up 8% from the prior-year quarter. The rise was driven by an increase in average earnings assets. Also, net interest margin (NIM) expanded 11 basis points to 3.41%.

Non-interest income declined 3% year over year to $329 million. The fall was mainly due to increase in security losses and lower mortgage banking income.

Non-interest expenses increased 11% to $711 million. This was mainly due to higher marketing costs, deposit and other insurance expenses and equipment costs.

As of Dec 31, 2018, average loans and leases at Huntington inched up 1% sequentially to $73.8 billion. Also, average core deposits increased 2% from the prior quarter to $79.1 billion.

Credit Quality: A Mixed Bag

Net charge-offs were $50 million or an annualized 0.27% of average total loans in the reported quarter, up from $41 million or an annualized 0.24% recorded a year ago. Also, the quarter-end allowance for credit losses increased 12% to $868 million.

However, provision for credit losses declined 8% on a year-over year basis to $60 million. In addition, total non-performing assets totaled $387 million as of Dec 31, 2018, falling marginally.

Strong Capital Ratios

Common equity tier 1 risk-based capital ratio and regulatory Tier 1 risk-based capital ratio were 9.65% and 11.06%, respectively, compared with 10.01% and 11.34% reported in the year-ago quarter.

Tangible common equity to tangible assets ratio was 7.21%, down from 7.34% as on Dec 31, 2017.

2019 Outlook

With the expectations of no interest rate hikes in 2019, total revenues are projected to be up in the range of 4-7%.

NIM (GAAP basis) is estimated to remain relatively stable, as modest expansion in core NIM might offset the reduced benefit of purchase accounting.

Non-interest expenses are anticipated to be rise 2-4%.

Management predicts both average loans and leases, and average deposits to increase in 4-6% band on an annual basis.

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

Effective tax rate is estimated in the range of 15.5-16.5%.

Our Viewpoint

Huntington reported a decent 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. However, increase in expenses and credit costs remain a concern.

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

Citizens Financial Group CFG delivered a positive earnings surprise of 4.3% in fourth-quarter 2018, riding on higher revenues. Adjusted earnings per share of 98 cents topped the Zacks Consensus Estimate of 94 cents. Also, the bottom line improved 38% from the prior-year quarter.

Signature Bank’s SBNY fourth-quarter 2018 earnings per share of $2.94 surpassed the Zacks Consensus Estimate of $2.79. Further, the bottom line compares favorably with $2.11 earned in the prior-year quarter.

People's United Financial Inc. PBCT reported fourth-quarter 2018 operating earnings of 36 cents per share, surpassing the Zacks Consensus Estimate of 34 cents. Also, the reported figure improved 16% year over year.

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