Huntington’s (HBAN) Q1 Earnings Outpace Revenue Growth, Rising Loans

Huntington Bancactions incorporated HBAN reported adjusted earnings per share of 32 cents for the first quarter of 2022, beating Zacks’ consensus estimate of 31 cents. This excluded certain notable after-tax items.

Results for the first quarter of 2022 benefited from the acquisition of TCF, which contributed to average earning assets and commission income. Strong financial market fees and net interest income (NII) boosted sales. However, lower capital adequacy ratios and credit quality have been a drag.

The company reported net income applicable to common shares of $432 million in the quarter, down 14% from the year-ago quarter.

Income increases, expenses increase

Total revenue (on a fully taxable equivalent, or FTE, basis) increased 20% year-over-year to $1.65 billion in the first quarter. Additionally, revenue exceeded the consensus estimate of $1.62 billion.

NII (FTE basis) was $1.15 million, up 18% from the prior year quarter. The rise was driven by an increase in average earning assets, partially offset by a lower ETP net interest margin (NIM), which contracted 60 basis points (bps) to 2.88%.

Non-interest revenue climbed 26% year over year to $499 million. The increase was primarily driven by higher service fees on deposit accounts, card and payment processing, rental income and capital market fees.

Non-interest expense increased 33% year over year to $1.05 billion. This was primarily due to higher costs for professional services, external data processing costs and other services, as well as marketing expenses.

The efficiency ratio was 62.9%, up from 57% in the prior year quarter. A rise in the ratio indicates a decline in profitability.

As of March 31, 2022, Huntington’s average loans and leases improved 1.5% on a sequential basis to $111.14 billion. Average total deposits increased slightly from the previous quarter to $142.9 billion.

Credit quality is deteriorating

Net write-offs were $19 million or 0.07% annualized of average total loans in the quarter, down from $64 million or 0.32% a year earlier.

However, the quarter-end provision for credit losses increased 21.1% to $2.11 billion. In the first quarter, the company recorded a provision for credit losses of $25 million compared to a profit of $60 million in the year-ago quarter. Additionally, total non-performing assets were $708 million as of March 31, 2022, compared to $544 million in the prior year quarter.

Lower capital ratios

The common equity Tier 1 risk-based capital ratio and Tier 1 regulatory risk-based capital ratio were 9.22% and 10.84%, respectively, compared to 10.32% and 13.32 % reported in the quarter of the previous year. The ratio of tangible common equity to tangible assets was 6.28%, down from 7.11% as of March 31, 2021.

Our point of view

Huntington performed decently in the late March quarter. The growth momentum of middle-income assets will boost the NII in the coming quarters. Huntington’s agreement to acquire Capstone Partners, an investment bank, will expand its capital markets business.

However, deteriorating credit metrics on provisions and elevated spending are headwinds.

Currently, Huntington wears a Zacks Rank #3 (Hold). You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Huntington Bancshares Incorporated price, consensus and EPS surprise

Huntington Bancshares Incorporated price-consensus-eps-surprise-chart | Quote from Huntington Bancshares Incorporated

Performance of other banks

first horizon National SocietyFHN’s first-quarter 2022 adjusted earnings per share of 38 cents beat Zacks’ consensus estimate of 34 cents. However, the figure was down 25% year-on-year. Results exclude after-tax impacts of 4 cents per share from notable items related to the IBERIABANK Corporation and TD-Bank merger transactions.

First Horizon’s results reflect a higher loan balance, profit on provisions and lower expenses. However, lower NII and commission income impacted revenue. In addition, pressure on margins due to low interest rates has been a spoilsport for FHN.

M&T Banking Corporation MTB reported net operating income per share of $2.73 in the first quarter of 2022, beating Zacks’ consensus estimate of $2.26. However, MTB’s net income compares unfavorably to the $3.41 per share reported a year ago.

Rising non-interest income and a strong capital position were tailwinds for M&T Bank. However, a decline in the NII, net interest margin and an increase in expenses were the main factors for the slowdown.

Fifth Third Bancorp FITB reported first-quarter 2022 earnings (excluding after-tax impacts of certain items) of 69 cents per share, excluding Zacks’ consensus estimate of 70 cents. Including the impact of these items, earnings per share were 68 cents, indicating a 27% year-over-year decline.

Fifth Third’s performance shows lower revenues mainly due to lower commission income. Shrinking margins and deteriorating capital position were spoilsports for FITB.

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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 Nasdaq, Inc.