Huntington Bancshares (HBAN) Q2 Earnings, Revenues Beat

Huntington Bancshares Incorporated HBAN reported yet another impressive quarter with earnings per share of 19 cents in second-quarter 2014, beating the Zacks Consensus Estimate by a penny. Also, the figure came in above the prior-year quarter earnings of 17 cents.

Huntington's results were driven by top-line growth, partially offset by higher expenses. Further, the quarter witnessed growth in both loan and deposit balance.

Net income came in at $164.6 million, up 9% year over year.

Quarter in Detail

Huntington's total revenue on a fully taxable-equivalent FTE basis was $716.8 million, surpassing the Zacks Consensus Estimate of $691.0 million. Further, total revenue was up 5% year over year.

Huntington's net interest income (NII) stood at $466.7 million on a FTE basis, up 8% from the prior-year quarter. The rise was driven by an increase in average earnings assets, partially offset by a 10-basis points (bps) decline in net interest margin NIM to 3.28%.

Huntington's non-interest income fell 1% year over year to $250.1 million. The decline was primarily due to a significant drop in mortgage banking income and lower income from insurance, brokerage and capital market fees. These were partly offset by increased service charges on deposit accounts and electronic banking income.

Including certain non-recurring items, non-interest expense increased 3% year over year to $458.6 million. The rise was mainly due to increased costs related to professional services, equipment, net occupancy, and outside data processing and other services. These factors were partly offset by fall in personnel costs and lower deposit and other insurance expenses as well as amortization of intangibles.

As of Jun 30, 2014, average loans and leases at Huntington increased 9% year over year to $45.0 billion, while average deposits rose 4% to $48.3 billion.

Credit Quality

Credit quality metrics remained a mixed bag the reported quarter. Total non-performing assets (NPAs), including non-accrual loans and leases stood at $362.1 million as of Jun 30, 2014, down 9% year over year.

Net charge-offs (NCOs) were $28.6 million or an annualized 0.25% of average total loans and leases in the reported quarter, down from $34.8 million or an annualized 0.34% 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 1.50% from 1.86% in the prior-year quarter.

However, provision for credit losses increased 19% from the prior-year quarter to $29.4 million due to significant loan growth and little improvement in the company's asset quality.

Capital Ratios

Huntington's capital position deteriorated during the quarter. As of Jun 30, 2014, Tier 1 common risk-based capital ratio was 10.26%, compared with 10.71% in the prior-year quarter.  

Tier 1 risk-based capital ratio stood at 11.56%, compared with 12.24% in the prior-year quarter. Tangible common equity to tangible assets ratio was 8.38%, versus 8.76% in the prior-year quarter.

The decline in the capital ratios resulted from balance-sheet growth and share buybacks in the last four quarters including the second quarter, which was partially offset by retained earnings and the stock issued in the Camco Financial acquisition.

Share Repurchase Update

In the reported quarter, the company repurchased 12.1 million shares of common stock at an average price of $9.17.

Outlook for 2014

With the improvement in the economy of the Midwest region, management expects overall growth in business in the upcoming quarters, though it remains cautious owing to uncertainties in the broader economy.

Net interest income is projected to grow modestly over the coming quarters owing to the expected rise in earning assets (as total loans are likely to show modest growth while investment securities are also expected to improve moderately).

However, the benefits to net interest income are expected to be partially offset by persistent pressure on NIM. While the company maintains an efficient approach to loan and deposit pricing, it expects asset yields to remain stressed with limited opportunity to reduce funding costs.

Non-interest income is expected to remain at current levels, excluding the impact of any net MSR activity. Further, owing to change in consumer checking accounts from Jul 2014, service charges on deposits are expected to be negatively impacted by $6 million per quarter.

Expenses, excluding one-time items, are expected to remain at the current levels. Huntington remains committed to posting positive operating leverage for the full-year 2014.

Overall, credit quality is expected to improve with some volatility on a quarter-to-quarter basis. NPAs are expected to exhibit continued improvement. NCOs will be in the expected normalized range of 35–55 bps.

Our Viewpoint

Results of Huntington reflected a decent performance. Though it remains a matter of time to see whether the bank can deliver positive earnings surprises in all four quarters of 2014 as it did in 2013, we remain encouraged owing to a number of positive traits.

Huntington 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.

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 #2 (Buy).

Other Midwest Banks

Among other Midwest banks, Commerce Bancshares, Inc. CBSH reported second-quarter earnings per share of 70 cents, beating the Zacks Consensus Estimate of 68 cents.

PrivateBancorp, Inc. PVTB reported earnings per share of 52 cents, which comfortably beat the Zacks Consensus Estimate of 44 cents.

Old National Bancorp. ONB is slated to report results on Aug 4.