Huntington's (HBAN) Q4 Earnings Beat on Top-Line Growth

Driven by higher revenues, Huntington Bancshares Inc. HBAN reported fourth-quarter 2015 earnings per share of 22 cents, which beat the Zacks Consensus Estimate by a penny. Also, the figure came in above the prior-year quarter earnings of 21 cents.

Including certain one-time items, Huntington reported net income of $178 million or 21 cents per share compared with $164 million or 19 cents per share in the prior-year quarter.

Huntington's results were driven by top-line growth, partially offset by elevated expenses. The quarter witnessed growth in both loans and deposits balances, along with a strong capital position.

For full-year 2015, net income was $693 million or 81 cents per share compared with $632 million or 72 cents per share in the prior year. Results missed the Zacks Consensus Estimate by a penny.
 

Performance in Detail

For full-year 2015, the company reported revenues of $3 billion on a fully taxable-equivalent FTE basis, up 6% year over year. However, the figure came in line with the Zacks Consensus Estimate.

Huntington's total revenue on FTE basis was $777 million in the quarter, surpassing the Zacks Consensus Estimate of $762 million. Moreover, total revenue was up 9% year over year.

Huntington's net interest income (NII) stood at $505 million on a FTE basis, up 5% from the prior-year quarter. The rise was driven by an increase in average earnings assets, partially offset by a 9 basis points (bps) decline in net interest margin NIM to 3.09%.

Huntington's non-interest income climbed 17% year over year to $272 million. The rise was primarily due to higher mortgage banking income, cards and payment processing and other income, along with gains on sale of loans. These were partially offset by Bank-owned life insurance income, trust services and brokerage income.

Excluding certain non-recurring items, non-interest expense increased 5% year over year to $488 million. The rise was mainly due to higher personnel costs and outside data processing and other services costs. These were partially offset by lower professional services costs, amortization of intangibles and deposit and other insurance expense.

As of Dec 31, 2015, average loans and leases at Huntington increased 6% year over year to $49.8 billion and average deposits rose 9% to $55.3 billion.

Credit Quality

Credit quality metrics recorded mixed results in the reported quarter. Net charge-offs (NCOs) were $21.8 million or an annualized 0.18% of average total loans and leases in the reported quarter, down from $23.0 million or an annualized 0.20% of average total loans and leases in the prior-year quarter.

Moreover, the quarter-end allowance for credit losses (ACL) as a percentage of total loans and leases, declined to 1.33% from 1.40% in the prior-year quarter.

However, total non-performing assets (NPAs), including non-accrual loans and leases (NALs) stood at $398.9 million as of Dec 31, 2015, up from $337.7 million as of Dec 31, 2014. Provision for credit losses increased significantly to $36.5 million from $2.5 million in the prior-year quarter.

Capital Ratios

Huntington's capital position was strong during the quarter. As of Dec 31, 2015, Common Equity Tier 1 risk-based capital ratio and Tier 1 risk-based capital ratio under Basel III was 9.79% and 10.53%, respectively.  

Tangible common equity to tangible assets ratio was 7.81% versus 8.17% in the prior-year quarter.

The Tier 1 common risk-based capital ratio under Basel I was 10.23% and the regulatory Tier 1 risk-based capital ratio was 11.50%.

During 2015, the company repurchased 23 million shares of common stock at an average price of $10.93. Notably, during fourth-quarter 2015, the company repurchased 2.5 million shares of common stock at an average price of $11.59.

Outlook for 2016

Excluding significant items and net MSR activity, management expects revenue growth to be consistent in 2016 and within the long-term financial goal of 4–6%.  

Overall, management anticipates credit quality metrics to remain at current levels, with moderate quarterly volatility based on macroeconomic conditions. NCOs are expected to remain below the company's long-term normalized range of 35–55 bps.

Our Viewpoint

Huntington's results reflect a decent performance. The company has a solid franchise in the Midwest and is focused on capitalizing on growth opportunities. Further, it exhibits continued efforts in increasing loan and deposit balances, and revenue growth. Also, we remain encouraged by the company's numerous strategic actions, including acquisitions and consolidation of branches.

However, a tepid economic recovery, low interest rate environment and a stringent regulatory environment are headwinds for the company's financials.

Huntington currently carries a Zacks Rank #3 (Hold).

Other Midwest Banks

Among other Midwest banks, MainSource Financial Group, Inc. MSFG is expected to report fourth-quarter results on Jan 27, Enterprise Financial Services Corp. EFSC on Jan 28, and Old National Bancorp. ONB on Feb 1.

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