A month has gone by since the last earnings report for Huntington Bancshares (HBAN). Shares have added about 6.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Huntington Bancshares due for a pullback? 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 drivers.
Huntington Q4 Earnings Lag Estimates, Expenses Rise
Huntington Bancshares 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.
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.
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. Notably, in regards to deposits, management plans to remain focused on acquiring core checking accounts and deepening core deposit relationships
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%.
Long-Term Financial Targets
Total revenues are projected to be up in the range of 4-6%, with positive operating leverage.
Further, efficiency ratio is projected to be 53-56%.
Net charge-offs are expected to remain in the range of 35-55 bps. ROTCE is projected to be 17-20%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, Huntington Bancshares has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile 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.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Huntington Bancshares has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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