Huntington Bancshares Inc.
) reported earnings per share of 20 cents in third-quarter 2013,
beating the Zacks Consensus Estimate of 17 cents. Further,
results surpassed the prior-year quarter figure by a penny.
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Huntington's results were driven by lower-than-expected provision
for credit losses and decrease in expenses. However, decline in
revenues due to fall in both net interest income and non-interest
income was the headwind.
The company reported net income applicable to shareholders of
$178.5 million in the reported quarter, up 6% from the year-ago
Performance in Detail
Huntington's total revenue on a fully taxable-equivalent (FTE)
basis was $682.0 million, down 2% year over year. Moreover, the
revenue figure was surpassed the Zacks Consensus Estimate of
$680.0 million of $690 million.
Huntington's net interest income (NII) dipped 1% from the
prior-year quarter to $431.5 million on FTE basis. This reflected
the impact of a 4-basis point decrease in fully taxable
equivalent net interest margin (NIM).
NIM fell 4 basis points (bps) year over year to 3.34% due to the
negative impact from the mix and yield of earning assets,
primarily reflecting a decrease in consumer loan yields. This was
partly offset by a positive impact from the mix and yield of
deposits, reflecting the strategic focus on changing the funding
sources to no-cost demand deposits and low cost money market
Huntington's non-interest income fell 4% year over year to $250.5
million. The decline was primarily due to a decrease in both
security gains and mortgage banking income.
Further, non-interest expenses at Huntington fell 8% year over
year to $423.3 million. The decline was mainly due to fall in
personnel costs, other expense, professional services expenses,
marketing expenses, deposit and other insurance expenses as well
as OREO and foreclosure expense. These factors were partly offset
by higher net occupancy costs.
Credit quality metrics improved in the reported quarter.
Huntington's provision for credit losses decreased 69% from the
prior-year quarter to $24.7 million, due to the continued decline
in classified, criticized and nonaccrual loans. Net charge-offs
(NCOs) were $55.7 million or an annualized 0.53% of average total
loans and leases in the reported quarter, down from $105.1
million or an annualized 1.05% in the prior-year quarter.
Moreover, the quarter-end allowance for credit losses (ACL) as a
percentage of total loans and leases, decreased to 1.72% from
2.09% in the prior-year quarter.
Total non-performing assets (NPAs), including non-accrual loans
and leases at Huntington were $374.3 million as of Sep 30, 2013
and represented 0.88% of related assets. This compared favorably
with $509.7 million or 1.26% of related assets at the prior year
Average loans and leases at Huntington increased 5% year over
year to $42.0 billion. The rise reflected growth in average
commercial and industrial (C&I) loans and average automobile
loans, partially mitigated by lower average commercial real
estate (CRE) loans.
However, average total core deposits dropped 1% year over year to
$46.0 billion. This reflected decrease in average core
certificates of deposit, partly offset by growth in money market
deposits and average non-interest bearing demand deposits.
Huntington's capital ratios were a mixed bag in the quarter. As
of Sep 30, 2013, the tangible common equity to tangible assets
ratio was 9.02%, up 28 bps year over year. Tier 1 common
risk-based capital ratio at the quarter-end was 10.85%, up 57 bps
from the prior-year quarter.
However, regulatory Tier 1 risk-based capital ratio as of Sep 30,
2013 was 12.36%, up from 11.88% as of Sep 30, 2012, due to an
increase in retained earnings, partially offset by the redemption
of qualifying trust preferred securities worth $36 million.
According to management, in spite of an improving trend in the
Midwest region, customers on the whole are affected by
uncertainties in the larger economy.
Net interest income is projected to grow modestly over the coming
quarters, owing to the expected increase in earning assets (as
total loans will likely grow modestly and investment securities
However, the benefits to net interest income are expected to be
mostly offset by persistent pressure on NIM till the short end of
the yield curve begins to move higher. Nevertheless, management
does not expect full-year 2013 NIM to fall below the mid 3.30%'s.
While the company maintains a disciplined approach to loan
pricing, asset yields remain under pressure. This is partially
offset by opportunities in deposit repricing and mix shift.
The C&I portfolio is expected to witness growth as customer
activity will likely increase and the company's pipeline is
expected to remain robust. Moreover, automobile loan originations
remain strong, and the company presently does not anticipate any
automobile securitizations in the near future. Residential
mortgages, home equity, and CRE loan balances are expected to
The company anticipates the increase in total loans to outpace
growth in total deposits. This will be owing to the focus on
overall cost of funds, the continued shift toward low and no-cost
demand deposits and money market deposit accounts.
Non-interest income is expected to be relatively flat from the
prior quarters, excluding the impact of any automobile loan
sales, any net MSR activity, and first-quarter seasonality.
Expenses, excluding the one-time items, are expected to modestly
increase due to rise in depreciation, personnel, occupancy, and
equipment expense, given the continuous investments. The company
continues to seek additional cost saving opportunities, but an
added $6 million of branch consolidation expense is expected in
the 2013 fourth quarter from previously announced actions.
Huntington remains committed to posting positive operating
leverage for the 2013 full year.
NPAs are expected to improve. NCOs are expected to be in the
range of 35 to 55 basis points. The level of provision for credit
losses are expected to be volatile on a quarter-to-quarter basis.
The effective tax rate for 2013 is expected to be in the range of
25% to 27%, primarily due to the impact of tax-exempt income,
tax-advantaged investments and general business credits.
Capital Deployment Update
Along with the earnings release, Huntington's board of directors
declared a quarterly cash dividend of 5 cents per share on its
common stock. The dividend will be paid on Jan 2, 2014, to
shareholders of record on Dec 19, 2013.
In the reported quarter, Huntington repurchased 2.0 million
shares at an average price of $8.18 per share.
Huntington has a solid franchise in the Midwest and is focused on
capitalizing on growth opportunities. The Fidelity Bank
acquisition and in-store banking deal bode well for the future.
The company's capital deployment initiatives are also
However, a tepid economic recovery, low interest rate environment
and a stringent regulatory environment are headwinds for revenue
growth. Further, with expectations of an expanding expense base,
we remain somewhat skeptical about Huntington's ability to drive
earnings in the quarters ahead.
Huntington currently carries a Zacks Rank #3 (Hold).
According to our model, the following Midwest bank is likely to
beat earnings this quarter as these have the right combination of
Lakeland Financial Corp.
) has an earnings ESP of +1.70% and carries a Zacks Rank #2
(Buy). It is expected to report third-quarter results on Oct 25.
Park National Corp.
) is expected to release its earnings results on Oct 28 while
Enterprise Financial Services Corp.
) will report on Oct 24.