It has been about a month since the last earnings report for Huntington Bancshares (HBAN). Shares have added about 5.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Huntington Bancshares due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Huntington Q2 Earnings Beat Estimates, Revenues Rise
Huntington Bancshares reported second-quarter 2018 earnings per share of 30 cents, beating the Zacks Consensus Estimate by a penny. Also, the figure came in higher than the prior-year quarter adjusted earnings of 26 cents.
Results were driven by higher revenues. Continued growth in both loan and deposit balances was also recorded. However, higher expenses and provisions were the primary headwinds.
Net income surged nearly 30.5% year over year to $355 million during the quarter. Revenues, Loans & Deposits Improve
The company's total revenues on a fully taxable-equivalent (FTE) basis came in at $1,127 million, up 4% from the year-ago quarter. The Zacks Consensus Estimate was pegged at $1,129 million.
Net interest income (NII) came in at $791 million on a FTE basis, up 4% from the prior-year quarter. The rise was driven by an increase in average earnings assets. However, net interest margin (NIM) contracted 2 basis points (bps) to 3.29% year over year.
Non-interest income inched up 3% year over year to $336 million. The upsurge mainly stemmed from growth in capital-market fees, gain on sale of loans, cards and payment processing income, along with trust and investment-management services.
Adjusted non-interest expenses rose 1% to $652 million on a year-over-year basis. The increase stemmed from a rise in personnel and professional costs. Including the impact of certain non-recurring items, non-interest expense dropped 6% year over year.
As of Jun 30, 2018, average loans and leases at Huntington jumped nearly 2% sequentially to $71.9 billion. Also, average core deposits increased 2.7% from prior quarter to $75.4 billion. Credit Quality: A Mixed Bag
Net charge-offs were $28 million or an annualized 0.16% of average total loans in the reported quarter, down from $36 million or an annualized 0.21% recorded in the year-ago quarter. In addition, total non-performing assets totaled $412 million as of Jun 30, 2018, down nearly 1% from year-ago quarter.
However, the quarter-end allowance for credit losses, as a percentage of total loans and leases, increased to 1.15% from 1.11% in the year-earlier quarter. Also, provision for credit losses was up significantly on a year-over year basis to $56 million. Strong Capital Ratios
Huntington's capital ratios remained strong.
Common equity tier 1 risk-based capital ratio and regulatory Tier 1 risk-based capital ratio were 10.53% and 11.99%, respectively, compared with 9.88% and 11.24% reported in the year-ago quarter.
Tangible common equity to tangible assets ratio was 7.78%, up from 7.41% on Jun 30, 2017. Outlook for 2018
With improving macroeconomic environment and the company's accomplishment of its core strategies, total revenues for full-year 2018 are projected to be up in the range of 5-6%. Non-interest expenses are anticipated to be down 3-4%.
NIM for 2018 is estimated to expand 2-4 bps from the prior year, on a GAAP basis, as expansion in core NIM might offset the reduced benefit of purchase accounting. Further, efficiency ratio is projected to be 55.5-56.5%.
Management predicts average loans and leases to increase in the 5.5-6.5% band on an annual basis, while average deposits are expected to be up 3.5-4.5%.
Overall, asset quality metrics are likely to remain stable with moderate quarterly volatility, given the current low level of problem assets and credit costs. Net charge-offs is expected to remain below the target range of 35-55 bps.
The effective tax rate for remaining 2018 is estimated in the range of 15.5-16.5%. Long-term Financial Targets
Total revenues are projected to be up in the range of 4-6%, with positive operating leverage.
Further, efficiency ratio is projected to be 56-59%.
Net charge-offs is expected to remain in the range of 35-55 bps. ROTCE is projected to be 15-17%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
Currently, Huntington Bancshares has a subpar Growth Score of D, however its Momentum is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for momentum investors than value investors.
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. Notably, Huntington Bancshares has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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