Huntington (HBAN) Q4 Earnings Miss Estimates On Lower NII

Huntington Bancshares (NASDAQ:HBAN) reported a negative earnings surprise of 9.7% in fourth-quarter 2019. Earnings per share of 28 cents lagged the Zacks Consensus Estimate of 31 cents. The bottom-line figure also comes in 3.4% lower than the prior-year quarter reported tally.

Results were adversely impacted by lower net interest income and higher provisions, along with pressure on margin. However, decline in operating expenses and fee income was tailwinds. Further, improvement in loans and deposits was the driving factor.

The company reported net income of $317 million for the quarter, down 5.1% year over year.

For full-year 2019, net income was $1.41 billion or $1.27 per share compared with the $1.39 billion or $1.20 per share reported in the prior year. Results missed the Zacks Consensus Estimate of $1.29.

Revenues Decline, Expenses Fall, Loans & Deposits Escalate

Total revenues decreased marginally year over year to $1.15 billion in the fourth quarter. Further, the top-line figure missed the Zacks Consensus Estimate of $1.16 billion.

For full-year 2019, Huntington Bancshares reported revenues of $4.7 billion on a fully taxable-equivalent (FTE) basis, up 4.4% year over year. The figure came in line with the Zacks Consensus Estimate.

Net interest income (FTE basis) was $780 million, down 7% from the prior-year quarter. This downside resulted from lower net interest margin (NIM), partly offset by an increase in average earnings assets. Also, net interest margin (NIM) contracted 29 basis points to 3.12%.

Non-interest income climbed 13% year over year to $372 million. This upsurge mainly stemmed from increase in almost all components of income, partly muted by lower capital market fees and other non-interest income.

Non-interest expenses edged down 1% year over year to $701 million. This was chiefly due to lower equipment, marketing and net occupancy costs, mostly offset by elevated personnel costs, outside data processing and other service costs, along with other expenses.

Efficiency ratio was 58.4%, down from the prior-year quarter’s 58.7%. A decline in ratio indicates rise in profitability.

As of Dec 31, 2019, average loans and leases at Huntington inched up, on a sequential basis, to $75.1 billion. Also, average core deposits increased marginally from the prior quarter to $79.7 billion.

Credit Quality Disappoints

Net charge-offs were $73 million or an annualized 0.39% of average total loans in the reported quarter, up from the $50 million or an annualized 0.27% recorded in the prior year. Also, the quarter-end allowance for credit losses increased 2.2% to $887 million.

Provision for credit losses went up 32% on a year-over year basis to $79 million. In addition, total non-performing assets totaled $498 million as of Dec 31, 2019, up 28.7%.

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Capital Ratios

Common equity tier 1 risk-based capital ratio and regulatory Tier 1 risk-based capital ratio were 9.88% and 11.26%, respectively, compared with the 9.65% and 11.06% reported in the year-ago quarter.

Tangible common equity to tangible assets ratio was 7.88%, up from 7.21% as of Dec 31, 2018.

Capital Deployment

During 2019, the company repurchased 31.4 million shares at an average cost of $14 for a total cost of $441 million. Notably, during the December-end quarter, the company repurchased 13.1 million shares at an average cost of $14.96 for a total cost of $196 million.

Outlook for 2020

Total revenues will likely be up around 1.5-3.5%, year on year.

Non-interest expense is anticipated to be up around 1-3%.

Average loans and leases are likely to escalate about 3-4% on an annual basis, while average total deposits are anticipated to increase around 3-4%.

Asset quality metrics are likely to improve, with net charge???offs in the range of about 35 to 45 basis points, and some moderate quarterly volatility.

The effective tax rate for 2020 is anticipated in the range of 15.5% to 16.5%.

Our Viewpoint

Huntington put up a disappointing performance in the October-December quarter. Though the company exhibited continued efforts in increasing loan and deposit balances, lower revenues was a concern on declining interest income. Further, deteriorating credit metrics remains a headwind. Nevertheless, the company, which has a solid franchise in the Midwest, is focused on capitalizing on its growth opportunities. Also, lower expenses is a driving factor.