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Huntington (HBAN) Q2 Earnings Beat Estimates, Revenues Up

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Huntington Bancshares (HBAN - Free Report) reported a positive earnings surprise of 3.1% in second-quarter 2019. Earnings per share of 33 cents surpassed the Zacks Consensus Estimate by a penny. The bottom-line figure also came in 10% higher than the prior-year quarter’s reported tally.

Results were supported by higher net interest income and fee income. Improvement in loans, along with margin expansion, was the driving factor. However, results were adversely impacted by rise in operating expenses and higher provisions for credit losses.

The company reported net income of $364 million for the quarter, up 3% year over year.

Revenues & Loans Improve, Expenses Rise

Total revenues increased 6% year over year to $1.19 billion. Further, the top-line figure outpaced the Zacks Consensus Estimate of $1.18 billion.

Net interest income (FTE basis) was $819 million, up 4% from the prior-year quarter. This upside was driven by an increase in average earnings assets. Also, net interest margin (NIM) expanded 2 basis points to 3.31%.

Non-interest income climbed 11% year over year to $374 million. This upsurge mainly stemmed from increase in almost all components of income, partly muted by lower bank owned life insurance income and gain on sale of loans and leases.

Non-interest expenses shot up 7% to $700 million. This was chiefly due to higher personnel costs, net occupancy and equipment costs, outside data processing and other service costs along with other expenses.

Efficiency ratio was 57.6%, up from the prior-year quarter’s 56.6%. A rise in ratio indicates fall in profitability.

As of Jun 30, 2019, average loans and leases at Huntington inched up slightly on a sequential basis to $74.9 billion. However, average core deposits decreased marginally from the prior quarter to $78.7 billion.

Credit Quality Disappoints

Net charge-offs were $48 million or an annualized 0.25% of average total loans in the reported quarter, up from the $28 million or an annualized 0.16% recorded a year ago. Also, the quarter-end allowance for credit losses increased 4.9% to $875 million.

Provision for credit losses went up 5.4% on a year-over year basis to $59 million. In addition, total non-performing assets totaled $460 million as of Jun 30, 2019, up 11.7%.

Capital Ratios

Common equity tier 1 risk-based capital ratio and regulatory Tier 1 risk-based capital ratio were 9.88% and 11.28%, respectively, compared with 10.53% and 11.99% reported in the year-ago quarter.

Tangible common equity to tangible assets ratio was 7.80%, up from 7.78% as of Jun 30, 2018.

Capital Deployment

During the June-end quarter, the company repurchased 11.3 million shares at an average cost of $13.40 for a total cost of $152 million.

Outlook for 2019

Based on the assumption of two interest rate cuts in the second half of 2019, total revenues will likely increase around 3-4.5%, year on year.

NIM is expected to be in the 3.25% to 3.30% range on a GAAP basis. Non-interest expense is anticipated to be up around 1% to 2.5%.

Average loans and leases are likely to escalate about 4-5% on an annual basis, while average total deposits are anticipated to increase around 2-3%.

Asset quality metrics are likely to improve, with some moderate quarterly volatility.

The effective tax rate for second-half 2019 is anticipated in the range of 15.5% to 16.5%.

Our Viewpoint

Huntington reported a decent quarter. The company, which has a solid franchise in the Midwest, is focused on capitalizing on its growth opportunities. Furthermore, it exhibits continued efforts in increasing loan and deposit balances, fueling revenue growth. Nevertheless, higher expenses and provisions are concerns.

Currently, Huntington carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Texas Capital Bancshares Inc. (TCBI - Free Report) reported earnings per share of $1.50 in second-quarter 2019, lagging the Zacks Consensus Estimate of $1.53. Results, however, compared favorably with the prior-year quarter’s $1.38. Elevated expenses were on the downside. However, rise in revenues was a positive factor. Further, organic growth was reflected, with significant rise in loans and deposit balances.

PNC Financial (PNC - Free Report) delivered a positive earnings surprise of 1.8% in the second quarter. Earnings per share of $2.88 outpaced the Zacks Consensus Estimate of $2.83. The bottom line also reflected a 5.9% jump from the prior-year quarter’s reported figure. Higher revenues, driven by higher net interest income and escalating fee income, aided the company’s results. However, rise in costs and provisions were headwinds.

Driven by top-line strength, Synovus Financial (SNV - Free Report) posted a positive earnings surprise of 1.01% in the June-end period. Adjusted earnings of $1.00 per share beat the Zacks Consensus Estimate of 99 cents. This apart, the reported figure came in 8.4% higher than the prior-year quarter tally. Higher revenues, backed by strong loan balances, stoked organic growth. Notably, lower efficiency ratio and rising fee income were tailwinds. Nonetheless, escalating expenses and provisions were undermining factors.

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