Huntington Bancshares (HBAN) Q1 Earnings, Revenues Rise

Huntington Bancshares Incorporated HBAN reported first-quarter 2016 earnings per share of 20 cents, in line with the Zacks Consensus Estimate. However, the figure came a penny above the prior-year quarter earnings. The reported quarter earnings included certain merger and acquisition related costs.

Huntington's results reflected growth in net interest income as well as non interest income. However, the quarter recorded elevated expenses and higher provision for credit losses. The quarter witnessed continued growth in both loan and deposit balances along with a strong capital position.

Net income increased 3% year over year to $171.3 million in the first quarter 2016.

Performance in Detail

Huntington's total revenue was $744.9 million in the quarter, lagging the Zacks Consensus Estimate of $759 million. However, total revenue was up 7% year over year.

Huntington's net interest income (NII) was $512.2 million on a fully taxable-equivalent FTE basis, up 8% from the prior-year quarter. The rise was driven by an increase in average earnings assets, partially offset by a 4 basis points (bps) decline in net interest margin NIM to 3.11%.

Huntington's non-interest income increased 4% year over year to $241.9 million. The quarter witnessed an increase in service charges on deposit accounts, cards and payment processing income and bank owned life insurance income. However, mortgage banking income and revenues from trust services declined.

Non-interest expense increased 7% year over year to $491.1 million. The rise was mainly due to increased personnel costs, outside data processing and other services and equipment costs. These increases were partly offset by lower marketing expenses. Excluding the impact of certain non-recurring items, non-interest expense increased 6% year over year.

As of Mar 31, 2016, average loans and leases at Huntington increased 6% year over year to $50.6 billion. Also, average deposits rose 5% to $55.0 billion.

Credit Quality

Credit quality was a mixed bag in the reported quarter.  Net charge-offs (NCOs) were $8.6 million or an annualized 0.07% of average total loans and leases in the reported quarter, down from $24.4 million or an annualized 0.20% in the prior-year quarter.

Moreover, the quarter-end allowance for credit losses (ACL) as a percentage of total loans and leases, declined to 1.19% from 1.27% in the prior-year quarter.

However, provision for credit losses increased 34% year over year to $27.6 million. Also, total non-performing assets (NPAs), including non-accrual loans and leases (NALs) were $524.9 million as of Mar 31, 2016, up from $400.8 million as of Mar 31, 2015.

Capital Position

Huntington came under the Basel III capital rules beginning first-quarter 2015.

Common equity tier 1 risk-based capital ratio and regulatory Tier 1 risk-based capital ratio stood at 9.73% and 10.99%, respectively.

Share Repurchase

As the company intended to forgo its remaining $166 million share repurchase program under the 2015 CCAR capital plan owing to the proposed FirstMerit acquisition deal, Huntington did not repurchase any common shares during the first-quarter 2016.

Outlook for 2016

Excluding significant items, net MSR activity, and the incremental effect of the pending First Merit acquisition, Huntington expects 4-6% revenue growth and positive operating leverage in 2016.

Overall, credit quality is expected to remain at current levels with some volatility on a quarterly basis, given the changing macroeconomic conditions, volatility in commodities and currency market, and the low level of problem assets and credit costs. NCOs are expected below the company's long-term normalized range of 35–55 basis points.

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, the company exhibits continued efforts in increasing loan and deposit balances and improving asset quality. Also, we remain encouraged by the company's several strategic actions including acquisitions and consolidation of branches.

However, margin pressure, escalating costs and a stringent regulatory scenario remain headwinds for the company's financials.

Huntington currently carries a Zacks Rank #4 (Sell).

Among other Midwest banks, Commerce Bancshares, Inc. CBSH reported first-quarter 2016 earnings per share of 65 cents, which surpassed the Zacks Consensus Estimate of 63 cents. Moreover, the bottom line was up 12% from the year-ago tally. Better-than-expected results were driven by growth in revenues, partially mitigated by higher expenses and a substantial rise in provisions.

TCF Financial Corporation TCB and PrivateBancorp, Inc. PVTB will announce results on Apr 21.

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