CHICAGO, July 22, 2011 /PRNewswire/ -- Zacks.com announces
the list of stocks featured in the Analyst Blog. Every day the
Zacks Equity Research analysts discuss the latest news and events
impacting stocks and the financial markets. Stocks recently
featured in the blog include: Huntington Bancshares Inc.
(Nasdaq: HBAN), U.S. Bancorp (NYSE: USB), JPMorgan Chase
& Co. (NYSE: JPM), Wells Fargo & Co. (NYSE: WFC) and
Citigroup Inc. (NYSE: C).
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Here are highlights from Thursday's Analyst Blog:
Huntington Beats, Ups Dividend
Huntington Bancshares Inc. (Nasdaq: HBAN) reported second
quarter 2011 earnings of 16 per share, beating the Zacks Consensus
Estimate by a penny. Results also compare favorably with
14 cents earned in the prior quarter
and 3 cents in the year-ago
quarter.
Better-than-expected results reflected a significant improvement
in credit quality with a drop in loan loss provisions. The company
also posted an increase in net interest income. Huntington also
declared an increase in its dividend to 4
cents per share from 1 cent
paid in the prior quarter.
However, net-interest income remained subdued. Going forward,
only a modest expansion in revenue is projected by management in
the presence of several top-line headwinds. Yet, Huntington's
strategic efforts, cost containment initiatives and further
improvement in credit quality are likely to support its earnings
growth.
Performance in Detail
For the reported quarter, Huntington's total revenue on a
fully-taxable-equivalent (FTE) basis was $662.9 million, up 3% from the prior quarter,
driven by an 8% rise in non-interest income. The revenue figure
also surpassed the Zacks Consensus Estimate of $652.0 million.
Net interest income (FTE) dipped 0.2% sequentially to
$403.3 million, primarily due to a 1%
decline in average earning assets and 2 basis point (bps) decline
in the fully-taxable equivalent net interest margin to 3.40%.
Reduction in the derivatives income and lower loan yields
resulted in margin contraction. The impact was partially offset by
increases in low cost deposits and improved deposit pricing.
Average loans and leases at Huntington increased 1%
sequentially, reflecting a rise in commercial and industrial loans
(C&I), automobiles loans, and leases. These were partly offset
by lower commercial real estate loans, primarily as a result of the
ongoing strategy to reduce exposure to the commercial real estate
market.
Average deposits decreased 1% from the prior quarter as a result
of a decline in average core deposits, primarily due to a fall in
average money market deposits and average core certificates of
deposit. However, Huntington achieved an increase in both average
noninterest-bearing and interest-bearing demand deposits.
Huntington's non-interest income was up 8% sequentially at
$255.8 million, reflecting increases
in services charges on deposit accounts and electronic banking
income, primarily aided by seasonal factors. The company also
benefited from higher market-related gains and capital markets
income.
Non-interest expenses in the reported quarter declined 1%
sequentially to $428.4 million. This
reflected a decrease in other expenses, primarily due to the prior
quarter's $17.0 million addition to
litigation reserves. However, this benefit was partially offset by
an increase in professional services, deposit and other insurance
expenses, outside data processing and other services as well as
marketing costs.
Credit Quality
Credit quality continued to show improvement at Huntington. The
company experienced an upswing in the overall loan portfolio
related to net charge-off activity, as well as some improvement in
delinquency trends. The level of criticized commercial loans also
reported a drop.
Net charge-offs were down 41% sequentially and 65% year over
year at $97.5 million. Net
charge-offs were 1.01% of average loans and leases, down from 1.73%
in the prior quarter and 3.01% in the year-ago quarter. Provision
for credit losses was $35.8 million,
down 28% sequentially and 81% year over year.
Total non-performing assets (NPA) also dropped 5% sequentially
and 59% year over year to $652.9
million. The NPA ratio improved to 1.67% from 1.80% reported
in the prior quarter and 4.24% a year earlier. Huntington could
achieve an 11% decline in the level of criticized commercial loans
from the prior quarter.
Capital Ratios
Huntington continued to improve its capital levels. Its tangible
common equity-to-asset ratio as of June 30,
2011 was 8.22%, up from 7.81% at the end of the prior
quarter. The Tier 1 common risk-based capital ratio as of
June 30, was 9.92%, up from 9.75% at
the end of the prior quarter. Regulatory Tier 1 and Total
risk-based capital ratios were 12.14% and 14.89%, respectively, up
from 12.04% and 14.85%, at the end of the prior quarter.
Outlook 2011
Huntington's management expects a number of revenue headwinds
going forward. This includes the absence of prospects for
meaningful economic improvement, wider spreads between short- and
long-term interest rates, weak borrower and consumer confidence
level as well as the pending reduction in debit card interchange
fees, which will result in a reduction of fee income. Therefore, a
modest overall improvement in earnings is projected for the rest of
the year.
Huntington's management expects growth in net income from the
second quarter level throughout the remainder of the year,
primarily reflecting a moderate revenue expansion and disciplined
expense control.
The momentum in loan and low cost deposit growth will likely
continue and this combined with a stable net interest margin is
expected to generate modest growth in net interest income.
Particularly, the strategic initiatives of Huntington are
expected to aid in C&I loan growth. Also, continued growth in
consumer households and business relationships should uplift total
core deposits. Shift toward lower-cost noninterest-bearing and
interest-bearing demand deposit accounts will likely continue.
In the second half of 2011, non-interest income is anticipated
to expand modestly, with the primary driver being service charge
income, reflecting benefits of its "Fair Play" banking philosophy.
An increase in earnings contribution from other key fee income
activities including capital markets, treasury management services,
and brokerage business is also anticipated by Huntington's
management.
A relatively stable level of expenses is projected while
nonaccrual loans and net charge-offs are expected to continue to
decline throughout the year.
Peer Performance
Improvement in credit quality and a subsequent reduction in loan
losses have been a trend this quarter. Similar to Huntington, other
companies such as U.S. Bancorp (NYSE: USB), JPMorgan
Chase & Co. (NYSE: JPM), Wells Fargo & Co. (NYSE: WFC) and
Citigroup Inc. (NYSE: C) have benefited from credit quality
improvement and their results exceeded market expectations.
Our Take
Huntington remains focused on capitalizing on growth
opportunities. Strategic initiatives are right on track, and the
company is poised to benefit from an economic rebound. By making
active efforts to reduce its problem assets, the company has
lowered the level of its criticized commercial loans.
Additionally, the company is exhibiting growth in its loan
portfolio, which is encouraging. Disciplined expense control augurs
well. The dividend increase also inspires investors' confidence on
the stock.
Though issues related to a sluggish economic recovery along its
footprints and regulatory concerns remain, its solid capital
position and tactical efforts are expected to reduce those
impacts.
Huntington shares are maintaining a Zacks #3 Rank, which
translates into a short-term 'Hold' recommendation.
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