Huntington Beats as Revenue Rises (Update 1)

  • Fourth-quarter EPS of 19 cents "essentially unchanged" from previous quarter, as revenue gains are offset by a higher effective tax rate and a temporary expense increase for regulatory compliance.
  • EPS beats analyst consensus of a 19-cent profit.
  • Net interest margin expands.
  • Mortgage revenue rises 38% sequentially.

Updated with midday market action and comments from Jefferies analyst Ken Usdin.

NEW YORK ( TheStreet) -- Huntington Bancshares ( HBAN) on Thursday announced fourth-quarter earnings that were "essentially unchanged" from the third quarter, but underlying revenue trends were quite positive.

The Columbus, Ohio, lender reported fourth-quarter earnings of $159.3 million, or 19 cents a share, beating the consensus EPS estimate of 17 cents, among analysts polled by Thomson Reuters. In comparison, the company earned $167.8 million, or 19 cents a share, in the third quarter, and $119.2 million, or 14 cents a share, in the fourth quarter of 2011.
Huntington CEO Stephen Steinour

Huntington earned $641 million, or 71 cents a share, during 2012, increasing from $542.6 million, or 59 cents a share, during 2011. CEO Stephen Steinour said "this year's results clearly showed the continued benefit of our investments and our differentiated strategy," added Steinour. "These investments, coupled with adding over 133,000 consumer households, a 12% increase, and 12,700 commercial relationships, a 9% increase, has allowed Huntington to grow revenue and pretax income by more than $200 million and $117 million, respectively."

Huntington's shares were up 4% in midday trading, to $6.96, while the KBW Bank Index ( I:BKX) was up slightly to 53.60, with all 24 index components showing gains, except for five, including Bank of America ( BAC), which was down 4% to $11.33, and Citigroup ( C), which was down 3% to $41.25.

Bank of America reported a fourth-quarter profit of $700 million or $.03 a share, beating the consensus EPS estimate by a penny, after the company pre-announced a large mortgage putback settlement with Fannie Mae ( FNMA) and a major contribution to the $8.5 billion foreclosure settlement between federal regulators and the nation's largest loan servicers.

Citigroup reported fourth-quarter earnings of $1.2 billion, or 38 cents a share. Excluding credit valuation and debit valuation adjustments, Citi earned $2.2 billion or 69 cents a share, missing the consensus estimate of 96 cents. Citigroup's earnings were lowered by charges related to its restructuring announced in the fourth quarter, as well as a declining release of loan loss reserves.

Huntington's fourth-quarter net interest income totaled $434.1 million, increasing from $430.3 million the previous quarter, and $415.0 million a year earlier. The net interest margin -- the spread between the average yield on loans and investments and the average cost for deposits and borrowings -- expanded to 3.45% in the fourth quarter, from 3.38% in the third quarter, and also in the fourth quarter of 2011.

The year-over-year increase in net interest income reflected "the positive impact of a 29 basis point decline in total deposit costs that were partially offset by a 24 basis point decline in the yield on earnings assets and a 2 basis point decrease related to non-deposit funding and other items," the company said. Huntington's average noninterest bearing deposits grew by $3.5 billion, or 41%, year-over-year to $12.6 billion as of Dec. 31. Noninterest deposits grew by 6%, or $0.8 billion,

Meanwhile, average total loans grew by 2% year-over-year, to $40.4 billion as of Dec. 31, with average non-real estate commercial and industrial loans growing by 16% to $16.5 billion. C&I loans grew by 1% during the third quarter. When discussing the fourth-quarter slowdown in commercial loan volume, Steinour lays the blame in Washington: "There is a level of uncertainty that is thwarting business investment. There is a deferral in business investment that I think is going to continue in the first quarter," as the discussion has shifted from the fiscal cliff to the federal debt ceiling. Steinour says that the United States needs "a plan so that we are not going to relook at things every two months."

Looking ahead, Steinour says "our activities are showing that the underlying growth of the Midwest remains very sound. I think the Midwest will continue to lead. Our results for the year were many multiples of GDP growth, and that is with certain portfolios potentially being reduced.

Noninterest income increased to $297.7 million in the fourth quarter, from $261.1 million in the third quarter and $229.4 million in the fourth quarter of 2011, with mortgage banking revenue providing the bulk of the increase. Fourth-quarter mortgage revenue totaled $61.7 million, increasing from $44.6 million the previous quarter and $24.1 million a year earlier. The third-quarter mortgage income increase included a $10 million net benefit from the hedging of mortgage servicing rights.

The company also booked $20.7 million in gains on loan sales during the fourth quarter, including $14.1 million in gains from an auto loan securitization completed in October. In comparison, the company reported gains on loan sales of $6.6 million in the third quarter and $2.9 million in the fourth quarter of 2011.

Huntington's solid fourth-quarter revenue improvements were offset "by a $12.3 million, or 3%, increase in noninterest expense and $26.1 million, or 92%, increase in the provision for income taxes." During the third quarter, the company realized a state deferred tax valuation allowance benefit of $19.5 million. The company also said that "At December 31, 2012, we had a net deferred tax asset of $203.9 million," and that "was no disallowed deferred tax asset for regulatory capital purposes."

Steinour says that the increased expenses during the fourth quarter were tied to the company's efforts to comply with new regulatory requirements for annual stress tests. While the company will not have to file a full Comprehensive Capital Analysis and Review capital plan until 2014, Steinour says "we invested as if we had to file the CCAR this year," and "we will not have that expense going forward."

Summing up Huntington's 2012 performance, the CEO says "our goal is consistent performance. We're not doing things to boost earnings in any given year or quarter."

Huntington's shares closed at $6.72 Wednesday, trading for 1.2 times their reported Dec. 31 tangible book value of $5.78, and for 10.3 times the consensus 2013 EPS estimate of 65 cents. The consensus 2014 EPS estimate is 68 cents.

Based on a quarterly payout of four cents, the shares have a dividend yield of 2.38%. The company repurchased 23.3 million shares during 2012, at an average price of $6.36.

Jefferies analyst Ken Usdin said in a note following the earnings release that "We view the quarter as a touch soft, but the better guide for net interest income (modest growth) and management's trimming of the pace and size of planned investments in '13 should provide some solace."

Usdin rates Huntington a "Buy," with a price target of $7.50, estimating the company will earn 65 cents a share in 2013.

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Interested in more on Huntington Bancshares? See TheStreet Ratings' report card for this stock.


-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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