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Why Is Huntington Bancshares (HBAN) Up 5.4% Since Last Earnings Report?
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A month has gone by since the last earnings report for Huntington Bancshares (HBAN - Free Report) . Shares have added about 5.4% 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 the most recent earnings report in order to get a better handle on the important drivers.
Huntington Q4 Earnings Lag Estimates as Expenses Rise
Huntington’s 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.
In 2020, revenues were $4.84 billion, up 3% year over year. Also, the top line marginally lagged 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 (excluding acquisition of TCF Financial)
Revenues are expected to increase about 1-3% from 2020. Net interest income is anticipated to be flat to modestly up, driven by average earning asset growth and a relatively stable NIM compared with the fourth quarter of 2020 level.The company assumes the positive impact from the acceleration of PPP fees in the first half of 2021 before settling back down in the second half.
Non-interest income is expected to be flat to modestly down due to the challenging mortgage banking comparisons, partially offset by continued growth in capital markets, cards and payments and wealth and investment management business lines.
Non-interest expenses are anticipated to be up 3-5% year over year. Expense growth in 2021 is expected to be driven by ongoing investments in digital and technology development, marketing and select personnel ads directly related to the company’s strategic initiatives. Management seeks to bring the expense run rate to a level that is lower than the growth rate of revenue during the second half of 2021.
Management expects average loans and leases to climb 2% to 4% year over year, reflecting modestly higher commercial loans (inclusive of PPP) and mid???single digit growth in consumer loans. Excluding PPP, mid???single digit growth in both commercial and consumer loans is expected.
Average total deposits are expected to jump 5-7%, due to the elevated levels of commercial and consumer core deposits, which the company expects to persist for several more quarters. Compared to the fourth-quarter 2020 average balances, management expects modest deposit growth, primarily among consumers during the first half of 2021 before stabilizing in the second half.
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%.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision flatlined during the past month.
VGM Scores
At this time, Huntington Bancshares has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
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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Why Is Huntington Bancshares (HBAN) Up 5.4% Since Last Earnings Report?
A month has gone by since the last earnings report for Huntington Bancshares (HBAN - Free Report) . Shares have added about 5.4% 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 the most recent earnings report in order to get a better handle on the important drivers.
Huntington Q4 Earnings Lag Estimates as Expenses Rise
Huntington’s 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 marginally lagged 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 (excluding acquisition of TCF Financial)
Revenues are expected to increase about 1-3% from 2020. Net interest income is anticipated to be flat to modestly up, driven by average earning asset growth and a relatively stable NIM compared with the fourth quarter of 2020 level.The company assumes the positive impact from the acceleration of PPP fees in the first half of 2021 before settling back down in the second half.
Non-interest income is expected to be flat to modestly down due to the challenging mortgage banking comparisons, partially offset by continued growth in capital markets, cards and payments and wealth and investment management business lines.
Non-interest expenses are anticipated to be up 3-5% year over year. Expense growth in 2021 is expected to be driven by ongoing investments in digital and technology development, marketing and select personnel ads directly related to the company’s strategic initiatives. Management seeks to bring the expense run rate to a level that is lower than the growth rate of revenue during the second half of 2021.
Management expects average loans and leases to climb 2% to 4% year over year, reflecting modestly higher commercial loans (inclusive of PPP) and mid???single digit growth in consumer loans. Excluding PPP, mid???single digit growth in both commercial and consumer loans is expected.
Average total deposits are expected to jump 5-7%, due to the elevated levels of commercial and consumer core deposits, which the company expects to persist for several more quarters. Compared to the fourth-quarter 2020 average balances, management expects modest deposit growth, primarily among consumers during the first half of 2021 before stabilizing in the second half.
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%.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision flatlined during the past month.
VGM Scores
At this time, Huntington Bancshares has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Huntington Bancshares has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.