It has been about a month since the last earnings report for Huntington Bancshares (HBAN Quick QuoteHBAN - Free Report) . Shares have lost about 6.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Huntington Bancshares due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Huntington Q2 Earnings Top Estimates, Provisions Up

Huntington second-quarter 2020 earnings per share of 13 cents outpaced the Zacks Consensus Estimate of 6 cents. The bottom-line figure, however, comes in 61% lower than the prior-year quarter reported tally.

Decline in operating expenses and a higher fee income were tailwinds. Notably, a rise in mortgage banking revenues acted as a driving factor. Further, improvement in loans and deposits was another positive.

However, results were adversely impacted by higher credit provisioning due to the bleak economic conditions. Also, a lower net interest income, along with pressure on margin, due to low rates, was a major drag.

The company reported net income of $150 million for the quarter, which slumped 59% year over year.

Revenues Down, Expenses Fall, Loans & Deposits Escalate

Total revenues edged down nearly 1% year over year to $1.19 billion in the second quarter. Yet, the top-line figure surpassed the Zacks Consensus Estimate of $1.15 billion.

Net interest income (FTE basis) was $797 million, down 3% from the prior-year quarter. This downside resulted from a lower NIM, partly offset by an increase in average earnings assets. Also, NIM contracted 37 basis points (bps) to 2.94%.

Non-interest income climbed 5% year over year to $391 million. This upswing mainly stemmed from an increase in almost all components of income, partly muted by lower gain on sale of loans and leases, capital market fees, service charges on deposit account and other non-interest income. Notably, mortgage banking income more than doubled.

Non-interest expenses slid 4% on a year-over-year basis to $675 million. This was chiefly due to lower personnel costs, professional services, amortization of intangibles, marketing, and other costs, partly negated by elevated outside data processing and other service costs, net occupancy and equipment expenses.

Efficiency ratio was 55.9%, down from the prior-year quarter’s 57.6%. A decline in ratio indicates a rise in profitability.

As of Jun 30, 2020, average loans and leases at Huntington increased 5.9% on a sequential basis to $80.2 billion. Moreover, average total deposits increased 13% from the prior quarter to $93.2 billion.

Credit Quality Disappoints

Net charge-offs were $107 million or an annualized 0.54% of average total loans in the reported quarter, up from the $48 million or an annualized 0.25% recorded in the prior year. Furthermore, the quarter-end allowance for credit losses more than doubled to $1.82 billion.

Provision for credit losses went up significantly on a year-over year basis to $327 million on the coronavirus crisis. In addition, total non-performing assets totaled $713 million as of Jun 30, 2020, up 55%.

Capital Ratios

Common equity tier 1 risk-based capital ratio and regulatory Tier 1 risk-based capital ratio were 9.84% and 11.79%, respectively, compared with the 9.88% and 11.28% reported in the year-ago quarter.

Tangible common equity to tangible assets ratio was 7.28%, down from 7.80% as of Jun 30, 2019. Return on average assets and average common equity was 0.51% and 5%, respectively, compared with the 1.36% and 13.5% recorded in the prior-year quarter.

Outlook for Q3

Total revenues are anticipated to increase about 2%, on a sequential basis, with net interest income increasing 2-4%. GAAP NIM is expected to expand 7-10 bps versus the second quarter NIM of 2.94% as a result of the hedging strategy and the elimination of notable items, which negatively impacted the second quarter. NIM expectation does not include material benefit from the acceleration of PPP fees from the repayment of forgiveness of those loans in the third quarter.

Fee income is expected to be flat as mortgage banking activity remains robust and pandemic impacted revenue lines rebound. Based on the debit card trends, the company expects a slight pickup in card related fees in the third quarter. Increasing Deposit account activity volumes might also aid.

Management expects average loans to remain flat on a linked quarter basis. Consumer loans are expected to increase 2%, driven by continued growth in the residential mortgage and RV and marine lending. Commercial loans are expected to decrease nearly 1% as the full quarter impact of PPP is more than offset by continued reductions in dealer floor plan and commercial loan utilization rates. The company assumes that the majority of PPP balances will remain on the balance sheet through the end of 2020.

Average total deposits are expected to decrease nearly 1% sequentially. Commercial deposits are expected to decrease 3%, assuming gradual usage of deposit inflows from the government stimulus.

The company expects non-interest expenses to increase 5% on a linked quarter basis. About 2% of this growth is driven by the $15 million restructuring costs associated with the expense management actions. The remaining 3% is driven by investments in technology and marketing, as well as the return of customer and sales activity closer to pre pandemic levels.

Net charge-offs are expected to be near 65 bps. This is reflective of the potential charge offs in the oil and gas portfolio, as well as broader economic considerations.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 8.11% due to these changes.

VGM Scores

Currently, Huntington Bancshares has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Huntington Bancshares has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.