It has been about a month since the last earnings report for Huntington Bancshares (HBAN). Shares have lost about 2.5% 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 Q4 Earnings Miss Estimates on Lower NII
Huntington reported a negative earnings surprise of 9.7% in fourth-quarter 2019. Earnings per share of 28 cents lagged the Zacks Consensus Estimate of 31 cents. The bottom line also was 3.4% lower than the prior-year quarter reported figure.
Results were adversely impacted by lower net interest income and higher provisions, along with pressure on margin. However, decline in operating expenses and fee income was tailwinds. Further, improvement in loans and deposits was the driving factor.
The company reported net income of $317 million for the quarter, down 5.1% year over year.
In full-year 2019, net income was $1.41 billion or $1.27 per share compared with the $1.39 billion or $1.20 per share reported in the prior year. The bottom line missed the Zacks Consensus Estimate of $1.29.
Revenues Decline, Expenses Fall, Loans & Deposits Escalate
Total revenues decreased marginally year over year to $1.15 billion in the fourth quarter. Further, the top-line figure missed the Zacks Consensus Estimate of $1.16 billion.
In full-year 2019, Huntington Bancshares reported revenues of $4.7 billion on a fully taxable-equivalent (FTE) basis, up 4.4% year over year. The figure came in line with the Zacks Consensus Estimate.
Net interest income (FTE basis) was $780 million, down 7% from the prior-year quarter. This downside resulted from lower net interest margin (NIM), partly offset by an increase in average earnings assets. Also, net interest margin (NIM) contracted 29 basis points to 3.12%.
Non-interest income climbed 13% year over year to $372 million. This upsurge mainly stemmed from increase in almost all components of income, partly muted by lower capital market fees and other non-interest income.
Non-interest expenses dipped 1% year over year to $701 million. This was chiefly due to lower equipment, marketing and net occupancy costs, mostly offset by elevated personnel costs, outside data processing and other service costs, along with other expenses.
Efficiency ratio was 58.4%, down from the prior-year quarter’s 58.7%. A decline in ratio indicates rise in profitability.
As of Dec 31, 2019, average loans and leases at Huntington inched up on a sequential basis to $75.1 billion. Also, average core deposits increased marginally from the prior quarter to $79.7 billion.
Credit Quality Disappoints
Net charge-offs were $73 million or an annualized 0.39% of average total loans in the reported quarter, up from $50 million or an annualized 0.27% recorded in the prior year. Also, the quarter-end allowance for credit losses increased 2.2% to $887 million.
Provision for credit losses went up 32% on a year-over year basis to $79 million. In addition, total non-performing assets totaled $498 million as of Dec 31, 2019, up 28.7%.
Common equity tier 1 risk-based capital ratio and regulatory Tier 1 risk-based capital ratio were 9.88% and 11.26%, respectively, compared with the 9.65% and 11.06% reported in the year-ago quarter.
Tangible common equity to tangible assets ratio was 7.88%, up from 7.21% as of Dec 31, 2018.
During 2019, the company repurchased 31.4 million shares at an average cost of $14 per share for a total cost of $441 million. Notably, during the December-ended quarter, the company repurchased 13.1 million shares at an average cost of $14.96 for a total cost of $196 million.
Outlook for 2020
Total revenues will likely be up 1.5-3.5%, year over year, with growth in both NII and non-interest income. The company expects non-interest income on a GAAP basis to grow at a slightly higher pace than total revenues in 2020, driven by the continued focus on deepening customer relationships.
Non-interest expense is anticipated to be up 1-3%.
Average loans and leases are likely to escalate 3-4% on an annual basis. Continued growth in both consumer and commercial portfolios is expected, with consumer lending focused in home and auto finance to be on a modestly stronger side. The company anticipates a slightly more measured commercial loan growth, consistent with recent economic data.
Average total deposits are anticipated to increase 3-4%, on assumption that continued decline in CDs is more than offset by growth in checking and money markets. The company seeks to remain focused on acquiring or checking accounts and deepening customer relationships.
Net charge-offs are expected to be in the range of 35-45 basis points, with some moderate quarterly volatility.
The effective tax rate for 2020 is anticipated in the range of 15.5% to 16.5%.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
Currently, Huntington Bancshares has a poor Growth Score of F, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
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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