Driven by higher revenues, Huntington Bancshares Inc. (HBAN) reported fourth-quarter 2014 earnings per share of 21 cents, beating the Zacks Consensus Estimate by 2 cents. Also, the figure came in above the prior-year quarter adjusted earnings of 19 cents.
Including certain one-time items, Huntington reported net income of $164 million or 19 cents per share compared with $158 million or 18 cents per share.
Huntington’s results were driven by top-line growth, partially offset by elevated expenses. The quarter witnessed growth in both loans and deposits balances along with improvement in credit quality.
For full-year 2014, net income was $632.4 million or 72 cents per share compared with $641.3 million or 72 cents per share in the prior year. Results were in line with the Zacks Consensus Estimate.
Performance in Detail
For full-year 2014, the company reported revenues of $2.8 billion on a fully taxable-equivalent (FTE) basis, up 4% year over year. However, it came in line with the Zacks Consensus Estimate.
Huntington’s total revenue on a fully taxable-equivalent (FTE) basis was $714.1 million in the quarter, lagging the Zacks Consensus Estimate of $720 million. However, total revenue was up 4% year over year.
Huntington’s net interest income (NII) stood at $480.8 million on a FTE basis, up 10% from the prior-year quarter. The rise was driven by an increase in average earnings assets, partially offset by a 10 basis points (bps) decline in net interest margin (NIM) to 3.18%.
Huntington’s non-interest income fell 7% year over year to $233.3 million. The decline was primarily due to lower mortgage banking income and securities losses. These were partly offset by higher income from electronic banking and capital market fees.
Excluding certain non-recurring items, non-interest expense increased 5% year over year to $463 million. The rise was mainly due to increased personnel costs, professional services costs and deposit and other insurance expense. These factors were partly offset by lower net occupancy costs as well as marketing expenses.
As of Dec 31, 2014, average loans and leases at Huntington increased 9% year over year to $47.1 billion and average deposits rose 9% to $50.8 billion.
Credit Quality
Credit quality metrics showed a marked improvement in the reported quarter. Total non-performing assets (NPAs), including non-accrual loans and leases (NALs) stood at $337.7 million as of Dec 31, 2014, down from $352.2 million as of Dec 31, 2013.
Net charge-offs (NCOs) were $23 million or an annualized 0.20% of average total loans and leases in the reported quarter, down from $46.4 million or an annualized 0.43% of average total loans and leases in the prior-year quarter.
Moreover, the quarter-end allowance for credit losses (ACL) as a percentage of total loans and leases, declined to 1.40% from 1.65% in the prior-year quarter.
Provision for credit losses decreased significantly to $2.5 million from $24.3 million in the prior-year quarter. The quarter reflects higher-than-expected commercial recoveries level along with 19% decline in NALs within the CRE portfolio.
Capital Ratios
Huntington’s capital position deteriorated during the quarter. As of Dec 31, 2014, Tier 1 common risk-based capital ratio was 10.23%, compared with 10.90% in the prior-year quarter.
Tier 1 risk-based capital ratio stood at 11.50%, compared with 12.28% in the prior-year quarter. Tangible common equity to tangible assets ratio was 8.17%, versus 8.82% in the prior-year quarter.
The decline in capital ratios resulted from balance-sheet growth and share buybacks over the last four quarters including the fourth quarter, which was partially offset by retained earnings and stock issued in the Camco Financial acquisition.
Notably, a negative impact of about 40 bps on a fully phased-in basis to Tier 1 common risk-based capital is expected from the implementation of the Federal Reserve’s revised Basel III capital rules in first-quarter 2015.
During 2014, the company repurchased 35.7 million shares of common stock at an average price of $9.37.
Outlook for 2015
Based on anticipation of economic growth throughout 2015 and with the assumption of no change in interest rates, management expects to deliver positive operating leverage in 2015. Notably, excluding significant items and net MSR activity, it expects positive operating leverage with revenue growth exceeding noninterest expense growth of 2–4%.
Overall, credit quality is expected to remain at current levels with some volatility on a quarterly basis. NCOs will be within or below the company’s long-term expected normalized range of 35–55 basis points.
Our Viewpoint
Huntington’s results reflect a decent performance. Huntington has a solid franchise in the Midwest and is focused on capitalizing on growth opportunities. Further, the company exhibits continued efforts in increasing loan and deposit balances and improving asset quality. Also, we remain encouraged by the company’s several strategic actions including acquisitions and consolidation of branches.
However, a tepid economic recovery, low interest rate environment and a stringent regulatory environment are headwinds for the company’s financials.
Huntington currently carries a Zacks Rank #3 (Hold).
Other Midwest Banks
Among other Midwest banks, First Merchants Corporation (FRME) is expected to report fourth-quarter results on Jan 27, Old National Bancorp. (ONB) on Feb 2, while MainSource Financial Group, Inc. (MSFG) on Feb 4.
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