It has been about a month since the last earnings report for Huntington Bancshares (HBAN - Free Report) . Shares have lost about 3.4% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important drivers.
Huntington Q1 Earnings Meet Estimates, Revenues Rise
Huntington reported first-quarter 2019 earnings per share of 32 cents, in line with the Zacks Consensus Estimate. The bottom line was up 14% from the prior-year quarter.
Results were supported by higher net interest income and fee income. Improvement in loans and deposits along with margin expansion were the tailwinds. However, results were adversely impacted by rise in operating expenses and higher provisions for credit losses.
The company reported net income of $358 million for the quarter, up 10% year over year.
Revenues & Loans Improve, Expenses Rise
Total revenues increased 5% year over year to $1.14 billion. However, it lagged the Zacks Consensus Estimate of $1.15 billion.
Net interest income (FTE basis) was $829 million, up 7% from the prior-year quarter. The rise was driven by an increase in average earnings assets. Also, net interest margin expanded 9 basis points to 3.39%.
Non-interest income climbed 2% year over year to $319 million. The rise was mainly due to increase in card and payment processing income and gain on sale of loans and leases, partially offset by lower mortgage banking income.
Non-interest expenses increased 3% to $653 million. This was mainly due to higher personnel costs and outside data processing and other service costs.
As of Mar 31, 2019, average loans and leases at Huntington inched up 1% sequentially to $74.8 billion. However, average core deposits decreased marginally from the prior quarter to $79 billion.
Credit Quality Disappoints
Net charge-offs were $71 million or an annualized 0.38% of average total loans in the reported quarter, up from $38 million or an annualized 0.21% recorded a year ago. Also, the quarter-end allowance for credit losses increased 7% to $864 million.
Provision for credit losses inched up 2% on a year-over year basis to $67 million. In addition, total non-performing assets totaled $461 million as of Mar 31, 2019, up 10%.
Common equity tier 1 risk-based capital ratio and regulatory Tier 1 risk-based capital ratio were 9.84% and 11.25%, respectively, compared with 10.45% and 11.94% reported in the year-ago quarter.
Tangible common equity to tangible assets ratio was 7.57%, down from 7.70% as on Mar 31, 2018.
During the March-end quarter, the company repurchased 1.8 million shares at average cost of $13.64. Under the 2018 capital plan, share repurchase authorization of about $152 million remains outstanding.
With the expectations of no interest rate hikes in 2019, total revenues are projected to be up in the range of 4-7%.
NIM (GAAP basis) is estimated to remain relatively stable, as modest expansion in core NIM might offset the reduced benefit of purchase accounting.
Non-interest expenses are anticipated to be rise 2-4%.
Management predicts both average loans and leases, and average deposits to increase in 4-6% band on an annual basis. Notably, in regards to deposits, management plans to remain focused on acquiring core checking accounts and deepening core deposit relationships
Overall, asset quality metrics are likely to remain better than average despite some moderate quarterly volatility.
Effective tax rate is estimated in the range of 15.5-16.5%.
Long-Term Financial Targets
Total revenues are projected to be up in the range of 4-6%, with positive operating leverage.
Further, efficiency ratio is projected to be 53-56%.
Net charge-offs are expected to remain in the range of 35-55 bps. ROTCE is projected to be 17-20%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, Huntington Bancshares has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Huntington Bancshares has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.