After reporting an in line result in the prior quarter,
Huntington Bancshares Inc.
) came up with better-than-expected results in the first quarter of
2012. The company reported earnings per share of 17 cents, 3 cents
above the Zacks Consensus Estimate. Results also compared favorably
with earnings of 14 cents per share both in the prior quarter and
the year-ago period.
Results in the reported quarter includes one cent per share gain
related to the recently announced Federal Deposit Insurance
Corporation (FDIC)-assisted purchase of Fidelity Bank in Dearborn,
Michigan. Moreover, it incorporates a negative impact of 2
cents per share for addition to its litigation reserves. Excluding
such items, the company reported 18 cents per share in the
Huntington's earnings were marked by an improvement in its
revenue, primarily driven by an expansion of its non-interest
income. Credit quality also continued to improve. However, increase
in expenses partly offset the positives.
Huntington reported net income of $153.3 million in the reported
quarter, up 21% both sequentially and year over year.
For the reported quarter, Huntington's total revenue on a
) basis was $706.5 million, up 9% from the prior quarter. The
revenue figure also surpassed the Zacks Consensus Estimate of
$657.0 million. The uptick was driven primarily by a rise in
Quarter in Detail
Net interest income (
) grew 1% sequentially to $417.2 million, primarily due to increase
in average earning assets and net interest margin (
NIM expanded 2 basis points sequentially to 3.40% in the
reported quarter, mainly due to improved deposit pricing and the
addition of low cost funding. However, the positives were partly
offset by lower earning asset yields and a shift to lower-yield,
higher quality credits as well as other items.
Huntington's non-interest income advanced 24% sequentially at
$285.3 million. The increase resulted from higher gain on loan
sales, increase in mortgage banking income and bargain purchase
gain associated with the Fidelity Bank acquisition.
Yet, non-interest expenses at Huntington inched up 8%
sequentially to $462.7 million. The increase was driven by an
increase in litigation reserves, higher personnel costs and gain on
the early extinguishment of debt. The increases were partially
offset by decrease in outside data processing and other services
and decline in professional services.
Credit quality continued to improve in the reported quarter. Net
charge-offs (NCOs) at Huntington were down 1% sequentially and 50%
year over year to $83.0 million. NCOs were 0.85% of average loans
and leases, unchanged from the prior quarter and down from 1.73% in
the year-ago quarter.
Total non-performing assets (NPA) also dropped 11% sequentially
and 24% year over year to $527.1 million. The NPA ratio improved to
1.29% from 1.51% reported in the prior quarter and 1.80% a year
Provision for credit losses was $34.4 million, down 24%
sequentially. Results were marked by lower provision for unfunded
commitments and a reduced level of NCOs.
Average loans and leases at Huntington decreased 1%
sequentially, primarily reflecting a fall in average automobile
loans, partially offset by growth in average commercial and
industrial (C&I) loans.
Average deposits were nearly flat sequentially. Decrease in
average money market deposits and core certificates of deposits
were mostly offset by increase in total demand deposits.
Huntington's capital levels continued to be strong. As of
March 31, 2012, Tier 1 common risk-based capital ratio was 10.15%,
up from 10.00% as of December 31, 2011, while tangible common
equity to asset ratio advanced 3 basis points over this same period
Further, the regulatory Tier 1 capital ratio was 12.22%, up from
12.11% at the end of the prior quarter, while Total risk-based
capital ratio was 14.76%, down slightly from 14.77% at the end of
last year. An increase in risk-weighted assets due to balance sheet
growth resulted in the decline.
While uncertainty and volatility surrounding the economy
continues, Huntington's management remains encouraged with some of
the positive signals. Revenue headwinds will continue, yet
management expects to combat that with strategic efforts and
Over 2012, net interest income is likely to show modest
improvement from the first quarter level. Though momentum in loan
and low cost deposit growth will likely persist, it is expected to
be mostly offset earlier in the year by a downward pressure on the
net interest margin due to the anticipated continued mix shift to
lower-rate higher quality loans and lower securities reinvestment
rates given the low absolute level of interest rates and shape of
the yield curve.
Excluding potential future automobile loan securitizations, the
company anticipates the increase in total loans to modestly outpace
growth in total deposits. Particularly, the strategic initiatives
of Huntington are expected to aid in C&I loan growth.
Residential mortgages and home equity loans are anticipated to show
modest growth, with commercial real estate loans likely to
experience slowing decreases.
Reflecting the impact of Huntington's cross-sell and product
penetration initiatives throughout the company, non-interest income
is expected to show a modest increase throughout 2012 from the
first quarter levels, driven by increased contribution from key fee
income categories. The modest increase, however, will exclude the
impacts of the automobile loan securitization gain, the Fidelity
Bank related bargain purchase gain, and any net mortgage servicing
Huntington's expenses are expected to increase slightly.
However, with the benefit of revenue growth, the company
anticipates positive operating leverage and modest improvement in
the expense efficiency ratio. Regulatory costs and expenses related
to strategic actions would result in an increase in expenses.
A continued improvement in the credit quality is anticipated
throughout the year. However, given the uncertain and uneven nature
of the economic recovery, there could be some quarterly volatility
in the credit metrics.
Capital Deployment Update
Concurrent with the earnings release, Huntington's Board of
Directors declared a quarterly cash dividend of $0.04 per share on
its common stock. The dividend is payable on July 2, 2012, to
shareholders of record on June 18, 2012.
Notably, in March 2012, Huntington announced that its capital
plan got Fed's approval. This allowed the company to maintain its
dividend level through the first quarter of 2013 and make share
buybacks of up to $182 million of common stock.
Similar to Huntington,
Northern Trust Corporation
) first-quarter 2012 earnings of 67 cents per share surpassed the
Zacks Consensus Estimate by a penny. Overall, results were marked
by higher non-interest income, strong new business and improved
Moreover, decline in non-interest expenses and improved credit
quality were the positives for the quarter. The fall in net
interest income acted as a headwind for the company.
The other company in its peer group,
TCF Financial Corporation
) will be releasing its earnings on April 19.
Huntingtonhas a solid franchise in the Midwest. The company is
focused on capitalizing its growth opportunities. Moreover,
its strategic efforts are right on track.
Recently, in an effort to expand its footprint in Southeast
Michigan, Huntingtonhas acquired Fidelity Bank in a Federal Deposit
Insurance Corporation (FDIC) assisted deal. The transaction adds
over Fidelity Bank 18,000 customers to Huntington. Though a smaller
one, the Fidelity Bank acquisition augurs well going forward.
The share buyback authorization following the Fed's approval
inspires investors' confidence in the stock. However, a sluggish
economic recovery, low interest rate environment and regulatory
issues will likely restrict any robust development in earnings in
the upcoming quarters.
Huntingtoncurrently retains a Zacks #2 Rank, which translates
into a short-term Buy rating. However, considering the
fundamentals, we have a long-term Neutral recommendation on the
HUNTINGTON BANC (
): Free Stock Analysis Report
NORTHERN TRUST (
): Free Stock Analysis Report
TCF FINL CORP (TCB): Free Stock Analysis Report
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