It has been about a month since the last earnings report for Huntington Bancshares (HBAN - Free Report) . Shares have lost about 13.6% in that time frame, underperforming 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 catalysts.
Huntington Q2 Earnings Beat Estimates, Revenues Up
Huntington delivered 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 also came in 10% higher than the prior-year quarter’s reported figure.
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 outpaced the Zacks Consensus Estimate of $1.18 billion.
Net interest income (FTE basis) was $819 million, up 4% from the prior-year quarter. The 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 jumped 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%.
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.
During the June-ended 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 are likely to increase around 3-4.5% year over year.
NIM is expected to be in the 3.25% to 3.30% range on a GAAP basis. Non-interest expenses are likely 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%. The company remains particularly focused on growing core deposits through acquiring core checking accounts and deepening customer relationships.
Asset quality metrics are likely to improve, with some moderate quarterly volatility. Net charge-offs are likely to remain below average through-the-cycle target range of 35-55 basis points.
The effective tax rate for second-half 2019 is anticipated in the range of 15.5% to 16.5%.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
Currently, Huntington Bancshares has a subpar Growth Score of D, a grade with the same score on the momentum front. 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 C. 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.