A month has gone by since the last earnings report for Huntington Bancshares (HBAN). Shares have added about 9.6% 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 catalysts.
Huntington Q3 Earnings Beat Estimates, Revenues Rise
Huntington Bancshares 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. Growth in 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% 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%.
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 expenses 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%.
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 56-59%.
Net charge-offs is expected to remain in the range of 35-55 bps. ROTCE is projected to be 15-17%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -9.71% due to these changes.
Currently, Huntington Bancshares has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, 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 these revisions 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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