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Huntington (HBAN) Q3 Earnings & Revenues Beat Estimates

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Huntington Bancshares Incorporated (HBAN - Free Report) reported a positive earnings surprise of 4.8% in third-quarter 2016. Earnings per share of 22 cents outpaced the Zacks Consensus Estimate by a penny. Moreover, the figure was higher than the prior-year quarter adjusted earnings of 21 cents. The reported earnings figure excludes FirstMerit acquisition-related expenses of 11 cents per share.

Share of Huntington Bancshares gained more than 3% in the beginning of the trading session today, reflecting investors’ optimism on higher revenues. However, the price reaction during full trading session will give a better idea.

Huntington Bancshares’ revenues displayed growth. The quarter witnessed continual growth in both loan and deposit balances. Notably, the reported results reflect the benefit of the FirstMerit acquisition. However, elevated expenses and higher provision for credit losses were the primary headwinds.

Net income decreased nearly 17% year over year to $127 million during the quarter.

Revenues, Loans & Deposits Rise, Costs Increase

Huntington Bancshares’ total revenue on a fully taxable-equivalent (FTE) basis was $938 million in the quarter, surpassing the Zacks Consensus Estimate of $874 million. Moreover, total revenue was up 24% year over year.

Net interest income (NII) was $636 million on a FTE basis, up 26% from the prior-year quarter. The rise was driven by an increase in average earnings assets, along with an expansion of 2 basis points (bps) in net interest margin (NIM) to 3.18%.

Non-interest income increased 19% year over year to $302 million. The rise was mainly due to significantly higher mortgage banking income, higher service charges on deposit accounts, and cards and payment processing income.

Non-interest expense surged 35% year over year to $712 million. The improvement was primarily due to increased personnel costs, professional expense, and outside data processing along with other services expense. These were partly offset by lower other expenses, reflecting litigation reserve adjustments in the prior-year quarter. Excluding the impact of certain non-recurring items, non-interest expense increased 14% year over year.

As of Sep 30, 2016, average loans and leases at Huntington jumped nearly 24% year over year to $60.7 billion. Also, average total deposits rose 22% year over year to $66.5 billion.

Credit Quality: A Mixed Bag

Net charge-offs were $40 million or an annualized 0.26% of average total loans in the reported quarter, up from $16 million or an annualized 0.13% in the prior-year quarter.

Moreover, provision for credit losses increased significantly to $64 million, compared to $22 million in the year-ago quarter. Also, total non-performing assets totaled $475 million as of Sep 30, 2016, up from $381 million as of Sep 30, 2015.

However, the quarter-end allowance for credit losses, as a percentage of total loans and leases, declined to 1.06%, while it was 1.32% in the prior-year quarter.

Capital Ratios Declined

Huntington Bancshares 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 9.09% and 10.4%, respectively, as compared with 9.72% and 10.49% in the prior-year quarter.

Tangible common equity to tangible assets ratio was 7.14%, down from 7.89% as of Sep 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 the quarter.

Outlook for 2016

Excluding significant items, total revenue for the full-year 2016 is expected to increase 16%-18%.  While non-interest expenses are likely to be up 13%-15%.

Overall, credit quality is expected to remain at the current levels, with some moderate volatility on a quarterly basis. 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). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Performance of Other Banks

Among other banks, Regions Financial Corporation’s (RF - Free Report) third-quarter 2016 earnings from continuing operations came in at 24 cents per share, which surpassed the Zacks Consensus Estimate of 21 cents. Also, the figure was 26.3% higher than the prior-year quarter earnings. On an adjusted basis, earnings per share came in at 23 cents.

Results were driven by notable growth in fee income and a drastic fall in credit cost. Relatively stable net interest income also aided the results. However, these were partially offset by a rise in operating expenses.

U.S. Bancorp (USB - Free Report) reported earnings per share of 84 cents, which increased 3.7% year over year, driven by solid growth in mortgage banking revenues. Also, earnings came in line with the Zacks Consensus Estimate.

Notably, mortgage banking revenues increased a whopping 40.2% year over year, driven by solid refinancing activities due to lower longer-term interest rates in the reported quarter.

The PNC Financial Services Group, Inc.’s (PNC - Free Report) third-quarter 2016 earnings per share of $1.84 handily beat the Zacks Consensus Estimate of $1.78. However, the bottom line declined 3% year over year.

Results were aided by increased net interest income as well as non-interest income. Also, continued growth in loans and deposits were among other positives.  However, on the downside, the quarter recorded higher expenses and provisions.

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