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Today we continue our coverage of regional banks from the first quarter with Huntington Bancshares Incorporated (NASDAQ:HBAN). We continue to monitor space closely. Macroeconomic concerns remain and pressures on net interest margins remain, while the quality of banking assets to date is declining. The banks we follow have been mixed.
The biggest concern is rising long-term rates, eroding demand for loans and keeping the cost of deposits high. That said, regional bank monitoring provides excellent insight into the true health of the economy. We now know that every bank is different, but taken collectively we get a sense of demand for loans, what’s happening with deposits and whether people are falling behind on loans.
We still like HBAN for revenue. We expect choppy trading over the coming months as rate cuts are now in question, but we still like to take advantage of weakness to invest in this bank with a large dividend. It offers a yield close to 5% while waiting for more stabilization. Let’s discuss the right-reported its first quarter results.
Overall Performance of Huntington Bancshares First Quarter Earnings
Huntington Bancshares saw its financial results fall 9.3% from last year to $1.75 billion, but that beat the consensus by $10 million. This is also a $30 million sequential increase from the fourth quarter of 2023. On the earnings front, Huntington Bancshares also beat expectations. The bank reported first-quarter net income of $419 million, down from $602 million a year ago but up $176 million from the sequential fourth quarter. Adjusted earnings per common share were $0.28, up $0.03.
Loan and deposit growth
Loans and total deposits are seeing healthy growth here, bucking the general trend we’ve seen so far for the regional banks we’ve looked at. One of the key indicators of a strong bank is its ability to grow its loans and deposits, and Huntington continues to enjoy growth in both of these key indicators. Average total deposits increased by $1.1 billion, or 1%, from the previous quarter and by $4.6 billion, or 3%, from the first quarter of last year. It’s awesome. Keep in mind that new loans issued come with higher rates, which will help margins in the long run, while deposit growth will help liquidity for future investments. While it is true that deposits are more expensive, when rates fall, the return on deposits decreases.
We like HBAN because loan balances continue to grow year over year. Average total loans and leases increased $701 million from the sequential fourth quarter to $121.9 billion, and increased $1.5 billion, or 1%, from the fourth quarter. the previous year.
We publicly state that margins have reached an industry low. So far, the situation has been mixed, with some net interest margins rising, others stable and others falling slightly, according to banks. And net interest income and margins suffered. Net interest income here in Huntington decreased $52 million, or 4%, from the prior quarter and $29 million, or 2%, from the fourth quarter. Unsurprisingly, this is a decrease of $122 million from the first quarter of last year. The net interest margin fell to 3.01% from 3.07% in the fourth quarter. However, in the first trimester presentationmanagement indicated that it now expects sequential dollar growth in net interest income throughout 2024. This is very positive.
HBAN Q1 Presentation
Huntington Bancshares Asset Quality
Asset quality indicators were mixed. Net charge-offs represented 0.30% of average total loans and leases for the quarter, improving from 0.31% in the fourth quarter. We continue to monitor this key metric and are pleased to see it improving. Non-performing assets declined for two consecutive years through the third quarter of 2023. That said, the provision for credit losses remained stable from the fourth quarter at $2.4 billion, or 1.97%, from total loans and leases at the end of the quarter. However, the ratio of non-performing assets to total assets increased from 0.58% in the fourth quarter to 0.60% in the first quarter.
Efficiency has always been strong here, although in the fourth quarter the bank’s efficiency ratio reached 77.0%. It improved significantly to 63.7% here in the first quarter. We expect this indicator to return below 60% this year, especially with expected sequential growth in net interest income.
Valuation of Huntington Bancshares
From a valuation perspective, Huntington Bancshares Incorporated’s stock price, at $13.0, remains relatively attractive based on the metrics we track. We have an attractive dividend yield of 4.7%, well above bond yields. HBAN trades at 10.5 times forward earnings and 1.33 adjusted body book value, which is quite attractive, but not as strong as we’ve seen in the past. We think new money should wait until $12 or less.
Bring back home
The rising cost of funds is coming to an end, while future loans will offer higher yields and drive up average yields on interest-earning assets as we move forward. This should improve margins. When rates fall, the cost of deposits goes down. We expect efficiency to improve and asset quality to be resilient despite a challenging macroeconomic environment.
Overall, we have a Hold rating on Huntington Bancshares stock, but we think new funds should consider buying at $12 and below. There are also many ways to increase your income using options. In summary, it was a strong quarter for Huntington Bancshares Incorporated.
