Huntington Reports In Line - Analyst Blog

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Huntington Bancshares Inc. ( HBAN ) reported fourth-quarter 2011 earnings of 14 cents per share, in line with the Zacks Consensus Estimate. Results were slightly down from 16 cents earned in the prior quarter but significantly ahead of prior-year quarter's earnings of 5 cents.

Huntington's earnings were positively impacted by higher net-interest revenues and lower non-interest expenses. Yet, a fall in fee income and a modest rise in provision for loan losses offset the positives.

For full year 2011, Huntington's earnings per share came in at 59 cents per share, a penny below the Zacks Consensus Estimate of 60 cents but significantly up from 19 cents earned in 2011.


Huntington reported net income of $126.9 million in the reported quarter, down 12% from $143.4 million reported in the prior quarter. However, net income compared favorably with $122.9 million reported in the year-ago quarter. Results included a $9.7 million pre-tax gain on early extinguishment of debt and a $6.4 million pre-tax Visa-related derivative loss.

For full year 2011, Huntington reported net income of $542.6 million, substantially up from $312.3 million reported in 2010.

For the reported quarter, Huntington's total revenue on a fully-taxable-equivalent ( FTE ) basis was $647.9 million, down 3% from the prior quarter, driven by fall in non-interest income which was partly mitigated by a rise in interest income. The revenue figure also fell short of the Zacks Consensus Estimate of $653.0 million.

For full year 2011, Huntington total revenue on a FTE basis was $2.6 billion, down 2% year-over-year but consistent with the Zacks Consensus Estimate.

Quarter in Detail

Net interest income ( NII ) grew 2% sequentially to $415.0 million, primarily due to increase in average earning assets and net interest margin ( NIM ). Growth in average earnings assets were driven by an increase in average loans.

NIM was 3.38%, up 4 basis points (bps) sequentially mainly due to improved deposit pricing and the addition of low cost deposits. However, the positives were partly offset by lower loan and securities yields, reduced derivative income and a shift to lower yield, higher quality credits.

However, Huntington's non-interest income dipped 11% sequentially at $229.4 million. The decrease resulted from reduced gain on sale of loans, fall in electronic banking income and service charges on deposit accounts, primarily driven by the implementation of lower debit card interchange fee structure authorized in the Durbin Amendment of the Dodd-Frank Act. These were partly mitigated by a rise in mortgage banking income and other income.

Yet, non-interest expenses at Huntington inched down 2% sequentially to $430.3 million. The decrease was driven by a gain on the early extinguishment of debt and seasonal decrease in marketing expenses. However, these positives were partially offset by an increase in outside data processing and other services as well as a rise in equipment expenses.

Credit Quality

Credit quality continued to improve but at a slower rate. While net charge-offs, nonperforming assets and level of criticized commercial loans reported a decline, provision for credit losses slightly increased in the quarter.

Net charge-offs (NCOs) at Huntington were down 7% sequentially and 51% year over year to $83.9 million. NCOs were 0.85% of average loans and leases, down from 0.92% in the prior quarter and 1.82% in the year-ago quarter.

Total non-performing assets (NPA) also dropped 4% sequentially and 30% year over year to $590.3 million. The NPA ratio improved to 1.51% from 1.57% reported in the prior quarter and 2.21% a year earlier.

However, provision for credit losses was $45.3 million, up 4% sequentially. With the gradual migration toward normal levels, credit quality improved but at a slower pace. The company experienced a smaller reduction of the allowance for credit losses (ACL) than in the prior quarter. However, this was partly offset by the benefit from a lower level of net charge-offs.

Balance Sheet

Average loans and leases at Huntington increased 1% sequentially, primarily reflecting a rise in commercial and industrial loans (C&I), partly offset by lower automobile loans.

Average deposits increased 3% from the prior quarter as a result of a rise in demand deposits and average money market deposits, partially mitigated by decrease in core certificates of deposits.

Capital Ratios

Huntington's capital ratios reflected the impact of higher period end risk-weighted assets. The Tier 1 common risk-based capital ratio at quarter end was 10.00%, down from 10.17% at the end of the prior quarter.  Further, regulatory Tier 1 and Total risk-based capital ratios were 12.11% and 14.77%, respectively, down from 12.37% and 15.11%, respectively, at the end of the prior quarter.

Outlook

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 operating efficiencies.  

Over 2012, net interest income is likely to show modest improvement from the fourth 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.

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.

Increase in total loans is projected to modestly surpass growth in total deposits as result of the company's focus on overall cost of funding and the continued shift towards low- and no-cost demand deposits and money market deposit accounts.

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 fourth quarter levels, driven by increased contribution from key fee income categories.

Huntington's expenses are expected to increase slightly. While the company's focus on improving efficiencies will continue, additional regulatory costs and expenses related to strategic actions would offset that improvement.

Non-accrual loans and NCOs are expected to continue to decline throughout the year. However, given the uncertain and uneven nature of the economic recovery, there could be some quarterly volatility.

Dividend 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 April 2, 2012, to shareholders of record on March 19, 2012.

Peer Performance

One of the closest peers of Huntington, Northern Trust Corporation's ( NTRS ) fourth-quarter 2011 earnings of 67 cents per share missed the Zacks Consensus Estimate by a penny. In the quarter, earnings were impacted by restructuring, acquisition and integration related expenses, though partially offset by benefit from the reduction of an indemnification liability related to Visa Inc. ( V ).

The other company in its peer group, TCF Financial Corporation ( TCB ) will be releasing its earnings on January 24.

Our Take

Huntington remains focused on capitalizing on growth opportunities. Strategic initiatives are right on track and the company is poised to benefit from an economic rebound. Yet an unsettled economic environment coupled with regulatory issues will likely restrict earnings improvement in the upcoming quarters.

Huntington currently 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 stock.


 
HUNTINGTON BANC ( HBAN ): Free Stock Analysis Report
 
NORTHERN TRUST ( NTRS ): Free Stock Analysis Report
 
TCF FINL CORP (TCB): Free Stock Analysis Report
 
VISA INC-A (V): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: FTE , HBAN , NII , NIM , NTRS

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