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Huntington (HBAN) Q4 Earnings Lag Estimates as Expenses Rise

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Huntington Bancshares’ (HBAN - Free Report) fourth-quarter 2020 earnings per share of 27 cents lagged the Zacks Consensus Estimate of 30 cents. Also, the bottom line fell 3.6% from the prior-year quarter reported figure.

Increase in revenues aided by high net interest and non-interest income supported the results. Notably, rise in mortgage banking revenues and increase in average earnings assets acted as driving factors. Improvement in loans and deposits was another positive.

However, results were adversely impacted by higher credit provisioning due to the bleak economic conditions. Moreover, elevated expenses were an undermining factor.

The company reported net income of $316 million in the quarter, which slipped marginally year over year.

In full-year 2020, Huntington reported net income of $817 million or 69 cents per share compared with $1.42 billion or $1.27 in 2019. Also, full-year earnings missed the Zacks Consensus Estimate of 72 cents.

Revenues Up, Expenses Escalate, Loans & Deposits Rise

In 2020, revenues were $4.84 billion, up 3% year over year. Also, the top line matched the Zacks Consensus Estimate.

Total revenues climbed 7% year over year to $1.24 billion in the fourth quarter. However, the top line lagged the consensus estimate of $1.25 billion.

Net interest income (FTE basis) was $830 million, up 6% from the prior-year quarter. This upside resulted from an increase in average earnings assets, partly offset by a lower net interest margin (NIM), which contracted 18 basis points (bps) to 2.94%.

Non-interest income climbed 10% year over year to $409 million. This upside mainly stemmed from an increase mortgage banking income, capital markets fees along with trust and investment management services income.

Non-interest expenses rose 8% on a year-over-year basis to $756 million. This was chiefly due to higher professional services costs, outside data processing and other service costs, occupancy and equipment expenses, and marketing expenses.

Efficiency ratio was 60.2%, up from the prior-year quarter’s 58.4%. A rise in ratio indicates a fall in profitability.

As of Dec 31, 2020, average loans and leases at Huntington increased 1% on a sequential basis to $81.1 billion. Moreover, average total deposits increased 2% from the prior quarter to $96.6 billion.

Credit Quality Disappoints

Net charge-offs were $112 million or an annualized 0.55% of average total loans in the reported quarter, up from the $73 million or an annualized 0.39% recorded in the prior year. Furthermore, the quarter-end allowance for credit losses rose significantly to $1.87 billion.

Provision for credit losses went up 30.4% on a year-over year basis to $103 million. In addition, total non-performing assets totaled $563 million as of Dec 31, 2020, up 13.1%.

Capital Ratios

Common equity tier 1 risk-based capital ratio and regulatory Tier 1 risk-based capital ratio were 10% and 12.47%, respectively, compared with the 9.88% and 11.26% reported in the year-ago quarter.

Tangible common equity to tangible assets ratio was 7.16%, down from 7.88% as of Dec 31, 2019. Return on average assets and average common equity was 1.04% and 10.4%, respectively, compared with the 1.15% and 11.1% recorded in the prior-year quarter.

Outlook for 2021

Revenues are expected to increase about 1-3% from 2020. Non-interest expenses are anticipated to be up 3-5% year over year.

Management expects average loans and leases to climb 2% to 4% year over year. Average total deposits are expected to jump 5-7%.

Asset quality is anticipated to remain strong.  Net charge-offs are expected to be 35-55 bps, with some moderate quarterly volatility.

The effective tax rate for 2021 is expected to be in the range of 16% to 17%.

Our Viewpoint

Huntington put up a decent performance during the October-December period. Though the company displayed continued efforts in increasing loan and deposit balances, margin pressure and elevated expenses remain concerns. Deteriorating credit metrics on higher provisions due to the coronavirus crisis is another headwind.

Nevertheless, the acquisition of TCF Financial is expected to boost the company’s long-term growth. Additionally, higher net interest income, despite low rates, and mortgage banking income will likely continue being driving factors.

Currently, Huntington sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings Results of Other Banks

Webster Financial (WBS - Free Report) reported fourth-quarter 2020 adjusted earnings per share of 99 cents, which surpassed the Zacks Consensus Estimate of 72 cents. The reported figure excluded noteworthy items such as charges related to strategic optimization initiatives.

Signature Bank (SBNY - Free Report) reported fourth-quarter 2020 earnings per share of $3.26, beating the Zacks Consensus Estimate of $2.91. Also, the bottom line increased 18.1% from the prior-year quarter’s reported number.

Fifth Third Bancorp (FITB - Free Report) has reported fourth-quarter 2020 adjusted earnings of 88 cents per share, surpassing the Zacks Consensus Estimate of 69 cents. Also, the bottom line compared favorably with the prior-year quarter’s 68 cents per share.

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