Huntington Bancshares Inc.
) reported earnings of 19 cents per share in the fourth quarter
of 2012, beating the Zacks Consensus Estimate by 2 cents. Results
also compared favorably with the prior-year's earnings of 14
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For the full year 2012, the company reported earnings per share
of 71 cents, outpacing the Zacks Consensus Estimate by 3 cents.
Earnings increased 20% year over year from 59 cents per share.
Huntington's results reflected growth in revenue. The company
experienced an increase in mortgage banking revenue and average
earning assets, though the continued pressure on net interest
margin partly offset that benefit. Moreover, expenses increased
in the quarter.
Huntington reported net income applicable to shareholders of
$159.3 million in the reported quarter that surged 34% year over
year. For the full year 2012, net income applicable to
shareholders was $609 million, up 19% year over year.
Performance in Detail
For the reported quarter, Huntington's total revenues on a
fully-taxable-equivalent (FTE) basis were $737.2 million, up 14%
from the year-ago quarter. Moreover, the revenue figure surpassed
the Zacks Consensus Estimate of $702 million.
For full year 2012, the company reported revenues of $2.8
billion, up 8% year over year. However, results were in line with
the Zacks Consensus Estimate.
Huntington's net interest income (NII) grew 5% from the
prior-year quarter to $439.5 million on FTE basis in the reported
quarter. Results reflect the impact of growth in average earning
assets and rise in net interest margin (NIM).
NIM ascended 7 basis points year over year to 3.45% in the
reported quarter as a result of the decline in total deposit
costs. This was partially mitigated by a dip in the yield on
Huntington's non-interest income moved ahead 30% year over year
to $297.7 million. The increase was driven by significant growth
in mortgage banking income, rise in securities gains as well as
gain on sale of loans. These positives were partly offset by a
decrease in other income.
However, non-interest expenses at Huntington ascended 9% year
over year to $470.6 million. The company experienced an
escalation in personnel costs mainly due to higher salaries and
benefits along with an increase in professional services.
Credit quality metrics improved in the reported quarter.
Huntington's provision for credit losses decreased 13% from the
prior-year quarter to $39.5 million. This reflected a decrease in
net charge-offs (NCOs) which were $70.1 million, or an annualized
0.69% of average total loans and leases in the reported quarter,
down 16%, from $83.9 million, or an annualized 0.85%, in the
Moreover, the quarter-end allowance for credit losses (ACL) as a
percentage of total loans and leases decreased to 1.99% from
2.60% in the prior-year quarter.
Total non-performing assets (NPAs), including nonaccrual loans
and leases at Huntington were $445.8 million as of Dec 31, 2012
and represented 1.09% of related assets. This reflected a 24%
decrease from $590.3 million, or 1.51% of related assets, at the
end of the prior-year quarter.
Average loans and leases at Huntington increased 2% year over
year. The rise reflected growth in average commercial and
industrial (C&I) loans, partially mitigated by decrease in
average automobile loans and average commercial real estate (CRE)
Average total core deposits increased 7% year over year. This
reflected growth in money market deposits and average
non-interest bearing demand deposits, partially offset by
decrease in average core certificates of deposit.
Huntington's capital ratios were mixed in the quarter. As of Dec
31, 2012, the tangible common equity to tangible assets ratio was
8.76%, up 46 basis points year over year. Tier 1 common
risk-based capital ratio at quarter end was 10.47%, inching ahead
of the 10.00% reported at the end of the prior-year quarter.
However, the regulatory Tier 1 risk-based capital ratio as of Dec
31, 2012 was 12.01%, down from 12.11% as of Dec 31, 2012, mainly
due to the redemption of $230 million in trust preferred
securities and the buying back of 23.3 million shares during the
According to Huntington's management, though improving trends in
the Midwest region is being witnessed, customers are more
concerned owing to the uncertainties in the broader economy.
During the course of 2013, average net interest income is
projected to be modestly up, after recording first quarter
seasonal decline. An increase in total loans excluding any impact
of future loan securitizations is also expected. Such benefits
are likely to be offset by the downward pressure on NIM.
Regarding loans, management expects its C&I portfolio to
continue to exhibit growth in 2013. However, growth is expected
to increase significantly in the second half of the year.
Residential mortgages and home equity loan balances are
anticipated to increase modestly while CRE loans would likely
experience declines from the current levels, though these are
expected to remain in the $5.0 - $5.5 billion range. Excluding
any possible future automobile loan securitizations, an increase
in total loans is likely to modestly surpass growth in total
During 2013, non-interest income is projected to be relatively
stable at current levels, after excluding the impact of any
automobile loan sale or security gains and any net mortgage
servicing right impact and first quarter seasonality.
Huntington's expenses are expected to escalate above long-term
expectations, in relation to revenue. However, management
continues to expect positive operating leverage in 2013.
Moreover, a continued improvement in the credit quality of
Huntington is anticipated, with expectation of NCOs to reach
normalized levels by the end of 2013. However, with the level of
provision for credit losses in 2012 being at the lower end of
management's long-term expectation, given the uncertain and
uneven nature of the economic recovery and the absolute low level
of the provision for credit losses, they expect some quarterly
Capital Deployment Update
Concurrent with the earnings release, Huntington's board of
directors declared a quarterly cash dividend of 4 cents per share
on its common stock. The dividend will be paid on Apr 1, 2013, to
shareholders of record on Mar 18, 2013.
During 2012, the company bought back 23.3 million shares at an
average price of $6.36. Notably, in the quarter under review, the
company repurchased 13.2 million shares at an average price of
Huntington has a solid franchise in the Midwest and is focused on
capitalizing on its growth opportunities. The Fidelity Bank
acquisition and the in-store banking deal augur well going
forward. Capital deployment initiatives are encouraging.
Yet, revenue headwinds are a concern amidst a tepid economic
recovery, low interest rate and a tough regulatory environment.
Further, with an expanding expense base, we remain somewhat
skeptical about its ability to augment earnings in the quarters
Notably, one of Huntington's peers,
TCF Financial Corporation
) is scheduled to report its earnings on Jan 30.
Huntington currently retains a Zacks Rank #2 (Buy). We believe
such strong results might lead to positive earnings estimate