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Huntington Bancshares Incorporated (HBAN - Free Report) reported second-quarter 2016 earnings per share of 21 cents, in line with the Zacks Consensus Estimate. However, the figure was below the prior-year quarter earnings of 23 cents. The reported quarter's earnings excluded certain costs related to mergers and acquisitions.
Huntington’s revenues displayed growth. The quarter witnessed continual growth in both loan and deposit balances along with a strong capital position. However, elevated expenses and higher provision for credit losses were the primary headwinds.
Net income decreased 10.7% year over year to $175 million in second-quarter 2016.
Huntington’s total revenue on a fully taxable-equivalent (FTE) basis was $787 million in the quarter, ahead of the Zacks Consensus Estimate of $777 million. Moreover, total revenue was up 1% year over year.
Huntington’s net interest income (NII) was $516 million on a FTE basis, up 3% from the prior-year quarter. The rise was driven by an increase in average earnings assets, partially offset by a decline of 14 basis points (bps) in net interest margin (NIM) to 3.06%.
Huntington’s non-interest income decreased 4% year over year to $271 million. The decline was mainly due to lower mortgage banking income, trust services fees and insurance income as well as lesser gain on sale of loans. These negatives were partially mitigated by higher service charges on deposit accounts, and cards and payment processing income.
Non-interest expense increased 6% year over year to $524 million. The rise was primarily due to increased personnel costs, outside data processing along with other services and professional services. These were partly offset by lower marketing expenses and amortization of intangibles. Excluding the impact of certain non-recurring items, non-interest expense increased 3% year over year.
As of Jun 30, 2016, average loans and leases at Huntington increased 8% year over year to $51.9 billion. Also, average deposits rose 5% to $55.4 billion.
Credit Quality: A Mixed Bag
Net charge-offs were $16.8 million or an annualized 0.13% of average total loans and leases in the reported quarter, down from $25.4 million or an annualized 0.21% in the prior-year quarter.
Moreover, the quarter-end allowance for credit losses, as a percentage of total loans and leases, declined to 1.33% while it was 1.34% in the prior-year quarter.
However, provision for credit losses increased 20% year over year to $24.5 million. Also, total non-performing assets, including non-accrual loans and leases were $489.8 million as of Jun 30, 2016, up from $396.0 million as of Jun 30, 2015.
Strong Capital Position
Huntington came under the Basel III capital rules beginning first-quarter 2015.
Common equity tier 1 risk-based capital ratio and regulatory Tier 1 risk-based capital ratio were 9.80% and 11.37%, respectively, as compared with 9.65% and 10.41% in the prior-year quarter.
Tangible common equity to tangible assets ratio was 7.96%, up from 7.92% as of Jun 30, 2015.
Share Repurchase
As the company intended to give up its remaining $166 million share repurchase program under the 2015 CCAR capital plan owing to the proposed FirstMerit acquisition deal, it did not repurchase any common share during second-quarter 2016.
Outlook for 2016
Excluding significant items, net MSR activity, and the incremental effect of the pending First Merit acquisition, Huntington expects 4% to 6% revenue growth and positive operating leverage in 2016.
Overall, credit quality is expected to remain at the current levels with some moderate volatility on a quarterly basis due to macroeconomic woes, volatility in commodities and currency market, and the low level of problem assets and credit costs. NCOs are expected below the company’s long-term normalized range of 35–55 bps.
Our Viewpoint
Huntington reported a decent quarter. The company has a solid franchise in the Midwest and is focused on capitalizing on growth opportunities. Further, the company exhibits persistent efforts in increasing loan and deposit balances and improving asset quality. Also, we remain optimistic about the company’s several strategic actions including acquisitions and consolidation of branches.
However, margin pressure, escalating costs and a stringent regulatory scenario pose challenges to the company’s financials.
Huntington currently carries a Zacks Rank #3 (Hold).
Performance of Other Banks
Among other banks, Regions Financial Corporation’s (RF - Free Report) second-quarter 2016 earnings from continuing operations came in at 20 cents per share, in line with the Zacks Consensus Estimate and unchanged year over year. On an adjusted basis, earnings per share were 21 cents.
U.S. Bancorp (USB - Free Report) reported a positive surprise of 2.5% in second-quarter 2016. The company reported earnings per share of 83 cents, beating the Zacks Consensus Estimate by 2 cents. Results also exceeded the prior-year quarter earnings of 80 cents.
The PNC Financial Services Group, Inc.’s (PNC - Free Report) second-quarter 2016 earnings per share of $1.82 neatly beat the Zacks Consensus Estimate of $1.75. However, the bottom line declined 3% year over year.
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Huntington (HBAN) Reports In-Line Q2 Earnings, Costs Rise
Huntington Bancshares Incorporated (HBAN - Free Report) reported second-quarter 2016 earnings per share of 21 cents, in line with the Zacks Consensus Estimate. However, the figure was below the prior-year quarter earnings of 23 cents. The reported quarter's earnings excluded certain costs related to mergers and acquisitions.
Huntington’s revenues displayed growth. The quarter witnessed continual growth in both loan and deposit balances along with a strong capital position. However, elevated expenses and higher provision for credit losses were the primary headwinds.
Net income decreased 10.7% year over year to $175 million in second-quarter 2016.
Revenues, Loans & Deposits Rise, Costs Increase
Huntington’s total revenue on a fully taxable-equivalent (FTE) basis was $787 million in the quarter, ahead of the Zacks Consensus Estimate of $777 million. Moreover, total revenue was up 1% year over year.
Huntington’s net interest income (NII) was $516 million on a FTE basis, up 3% from the prior-year quarter. The rise was driven by an increase in average earnings assets, partially offset by a decline of 14 basis points (bps) in net interest margin (NIM) to 3.06%.
Huntington’s non-interest income decreased 4% year over year to $271 million. The decline was mainly due to lower mortgage banking income, trust services fees and insurance income as well as lesser gain on sale of loans. These negatives were partially mitigated by higher service charges on deposit accounts, and cards and payment processing income.
Non-interest expense increased 6% year over year to $524 million. The rise was primarily due to increased personnel costs, outside data processing along with other services and professional services. These were partly offset by lower marketing expenses and amortization of intangibles. Excluding the impact of certain non-recurring items, non-interest expense increased 3% year over year.
As of Jun 30, 2016, average loans and leases at Huntington increased 8% year over year to $51.9 billion. Also, average deposits rose 5% to $55.4 billion.
Credit Quality: A Mixed Bag
Net charge-offs were $16.8 million or an annualized 0.13% of average total loans and leases in the reported quarter, down from $25.4 million or an annualized 0.21% in the prior-year quarter.
Moreover, the quarter-end allowance for credit losses, as a percentage of total loans and leases, declined to 1.33% while it was 1.34% in the prior-year quarter.
However, provision for credit losses increased 20% year over year to $24.5 million. Also, total non-performing assets, including non-accrual loans and leases were $489.8 million as of Jun 30, 2016, up from $396.0 million as of Jun 30, 2015.
Strong Capital Position
Huntington came under the Basel III capital rules beginning first-quarter 2015.
Common equity tier 1 risk-based capital ratio and regulatory Tier 1 risk-based capital ratio were 9.80% and 11.37%, respectively, as compared with 9.65% and 10.41% in the prior-year quarter.
Tangible common equity to tangible assets ratio was 7.96%, up from 7.92% as of Jun 30, 2015.
Share Repurchase
As the company intended to give up its remaining $166 million share repurchase program under the 2015 CCAR capital plan owing to the proposed FirstMerit acquisition deal, it did not repurchase any common share during second-quarter 2016.
Outlook for 2016
Excluding significant items, net MSR activity, and the incremental effect of the pending First Merit acquisition, Huntington expects 4% to 6% revenue growth and positive operating leverage in 2016.
Overall, credit quality is expected to remain at the current levels with some moderate volatility on a quarterly basis due to macroeconomic woes, volatility in commodities and currency market, and the low level of problem assets and credit costs. NCOs are expected below the company’s long-term normalized range of 35–55 bps.
Our Viewpoint
Huntington reported a decent quarter. The company has a solid franchise in the Midwest and is focused on capitalizing on growth opportunities. Further, the company exhibits persistent efforts in increasing loan and deposit balances and improving asset quality. Also, we remain optimistic about the company’s several strategic actions including acquisitions and consolidation of branches.
However, margin pressure, escalating costs and a stringent regulatory scenario pose challenges to the company’s financials.
HUNTINGTON BANC Price, Consensus and EPS Surprise
HUNTINGTON BANC Price, Consensus and EPS Surprise | HUNTINGTON BANC Quote
Huntington currently carries a Zacks Rank #3 (Hold).
Performance of Other Banks
Among other banks, Regions Financial Corporation’s (RF - Free Report) second-quarter 2016 earnings from continuing operations came in at 20 cents per share, in line with the Zacks Consensus Estimate and unchanged year over year. On an adjusted basis, earnings per share were 21 cents.
U.S. Bancorp (USB - Free Report) reported a positive surprise of 2.5% in second-quarter 2016. The company reported earnings per share of 83 cents, beating the Zacks Consensus Estimate by 2 cents. Results also exceeded the prior-year quarter earnings of 80 cents.
The PNC Financial Services Group, Inc.’s (PNC - Free Report) second-quarter 2016 earnings per share of $1.82 neatly beat the Zacks Consensus Estimate of $1.75. However, the bottom line declined 3% year over year.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>