Huntington Bancshares Incorporated (NASDAQ:HBAN) reported adjusted earnings per share of 21 cents, missing the Zacks Consensus Estimate by a penny. Also, the figure was 15% below the prior-year quarter. The reported earnings exclude FirstMerit acquisition-related net expenses of 4 cents per share.
Share of Huntington Bancshares lost around 2% at the beginning of the trading session today, reflecting investors’ bearish sentiments. However, the price reaction during the full-trading session will give a better idea.
Huntington Bancshares’ revenues displayed growth. The quarter witnessed continual growth in both loan and deposit balances. However, elevated expenses and higher provision for credit losses were the primary headwinds.
After considering the non-recurring items, net income jumped nearly 19.1% year over year to $208 million.
Revenues, Loans & Deposits Rise, Costs Increase
The company’s total revenue on a fully taxable-equivalent (FTE) basis was $1.05 billion in the quarter, in line with the Zacks Consensus Estimate. Moreover, the number was up 40% year over year.
Net interest income was $742 million on a FTE basis, up 45% from the prior-year quarter. The rise was driven by an increase in average earnings assets, along with a 19 basis points (bps) expansion in net interest margin to 3.30%.
Non-interest income climbed 29% year over year to $312 million. The rise was due to growth in almost all components of income. Excluding the impact of certain non-recurring items, non-interest income was $310 million, up 28% year over year.
Non-interest expense surged 44% year over year to $707 million. The increase was due to a rise in all components of expenses. Excluding the impact of certain non-recurring items, non-interest expenses increased 31% year over year.
As of Mar 31, 2017, average loans and leases at Huntington Bancshares jumped 32% year over year to $66.9 billion. Also, average total deposits surged 38% year over year to $76.0 billion.
Credit Quality: A Mixed Bag
Net charge-offs were $39 million or an annualized 0.24% of average total loans in the reported quarter, up from $9 million or an annualized 0.07% of average total loans in the year-ago quarter.
Moreover, provision for credit losses more than doubled on a year-over year basis to $68 million.
However, total non-performing assets totaled $458 million as of Mar 31, 2017, down from $525 million as of Mar 31, 2016. In addition, the quarter-end allowance for credit losses, as a percentage of total loans and leases, declined to 1.14% from 1.34% in the prior-year quarter.
Capital Ratios Declined
Huntington Bancshares 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 were 9.67% and 11.04%, respectively, compared with 9.73% and 10.99% in the year-ago quarter.
Tangible common equity to tangible assets ratio was 7.28%, down from 7.89% as of Mar 31, 2016.
Outlook for 2017
Including the synergies of FirstMerit acquisition, total revenue for full-year 2017 is expected to be over 20%. Management expects to implement all FirstMerit-related cost savings by third-quarter 2017.
Average balance sheet growth is estimated over 20%, driven mainly by the acquisition. On a period-end basis, loan growth is anticipated in the range of 4–6%.
Overall, asset quality metrics are likely to remain stable with moderate quarterly volatility, given the current low level of problem assets and credit costs.
Management anticipates net charge offs to remain below the long-term normalized range of 35–55 bps while provision expenses are expected to continue normalizing.
Excluding certain items, the effective tax rate for 2017 is anticipated in the range of 24–27%.
Our Viewpoint
Huntington Bancshares reported mixed results for the quarter. Though the expenses escalated significantly, its effect was offset by the growth in revenues. Also, the pressure on net interest margin has eased to some extent. The company exhibits consistent efforts to increase loan and deposit balance, aiding revenue growth. Additionally, we remain optimistic about the company’s several strategic actions, including acquisitions and consolidation of branches.
Huntington Bancshares Incorporated Price and EPS Surprise
Huntington Bancshares Incorporated Price and EPS Surprise | Huntington Bancshares Incorporated Quote
Currently, Huntington Bancshares carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
Performance of other Banks
Driven by net interest income, Wells Fargo & Company’s (NYSE:WFC) first-quarter 2017 earnings recorded a positive surprise of about 3.1%. Earnings of $1.00 per share outpaced the Zacks Consensus Estimate by 3 cents. Moreover, the figure compared favorably with the prior-year quarter’s earnings of 99 cents.
Citigroup Inc. (NYSE:C) delivered a positive earnings surprise of 8.9%, riding on higher revenues in first-quarter 2017 earnings. The company’s earnings per share of $1.35 for the quarter outpaced the Zacks Consensus Estimate of $1.24. Also, earnings compared favorably with the year-ago figure of $1.10 per share. Notably, results exclude one-time adjustments of 1 cent.
Driven by higher revenues, Comerica Inc. (NYSE:CMA) delivered a positive earnings surprise of 1% in first-quarter 2017. Adjusted earnings per share of $1.02 surpassed the Zacks Consensus Estimate by a penny. The adjusted figure excludes a restructuring charge of 4 cents per share and tax benefit from employee stock transactions of 13 cents per share.
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