I enjoy investing in and writing about regional banks because these banks' key metrics, such as their loan and deposit growth, are often simply more associated with the performance of their underlying stock versus their larger counterparts. One of the names I have liked for some time is Huntington Bancshares Incorporated (NASDAQ:HBAN). The stock has been hammered in the last month or so, a huge turn-around from when the surpassed my original price target in 2015. Recall that I had previously set an $11.50 price target on the name, and assigned a buy rating following a recent acquisition. I then reassessed the company last quarter and continued to believe this stock would surpass $11.50, but I have to say that I did not amend my price target, nor did I expect such a significant selloff. So what to should you do now?
Well, as you may have seen the company just announced its Q4 2015 results this morning. This quarter was rather decent and surpassed expectation. It wasn't a fantastic quarter, but was solid. Some of the data were as strong and some I would like to have seen perform better. The company reported a top line beat and a bottom line the met expectations. Huntington reported net income of $178 million, a 9% increase from Q4 2014. Earnings per share came in at $0.21 for Q4 2015, up 11% from the year-ago quarter, and was up $0.03 from Q3 2015. Revenues were higher year-over-year to $777 million, up 8.8%. That said, revenues beat versus estimates coming in $15.8 million ahead of consensus.
I love to see top and bottom beats, so with a beat on the top line and meeting of estimates on the bottom line I am please. The key here is that they are only part of the story. You need to dig deeper. In addition to growing revenues and earnings per share, the company's total loans and deposits are critical. This is what I really look for in banks like this as I alluded to in the opening paragraph. These metrics are among the greatest strengths of the company. The bank saw a $4.6 billion, or 9%, increase in average deposits year-over-year. Further, loans were up $2.7 billion versus Q4 2014, or up 6%. This is impressive growth, and increasing loans and deposits is a key indicator when I examine a regional bank. If these aren't growing, the bank isn't either and I'm willing to bet the stock isn't going anywhere either. With these numbers I have to say Huntington's growth is incredibly strong for a regional bank of this size. Its impressive.
Then there is the all-important efficiency ratio. It is something that many analysts here at Seeking Alpha often overlook, but I will tell you that this is a mistake. It is a key indicator that measures the costs expended to generate a dollar of revenue, and net interest yield measures the basis points the company earns over the cost of funds. The strongest banks have an efficiency ratio under 60%, with the ideal being around 50%. Well in 2014 Huntington was not the strongest on this metric and was moving in the wrong direction. Back in Q3 2015 it spiked to 69.1% up from 62.7% in Q2 2015. Here in Q4 the company rebounded on the metric and it came in at 63.7%. What is important to note that overall, from 2014 to 2015 the efficiency ratio improved from 65.1% to 64.5%.
Overall, I think this report is strong. I was pleased particularly with the loan and deposit growth demonstrated by the company. Further, the company turned it around by delivering a top line beat and meeting expectations for earnings. I was really pleased with the company controlling expenses helping to improve the efficiency ratio. Recall that in 2015 the bank made some consolidation moves to improve efficiencies, and has made acquisitions, which should lead to further loan and deposit growth as time moves on. We are starting to see that already. Finally, let's not forget the shareholder friendly nature of the company. That is a critical point for me. In fall 2015 the company raised its dividend to $0.07 quarterly, a 16.7% hike. This is $0.28 annually and the stock offers a yield of 3%. It also has been buying back shares. In 2015 the company bought back 23 million common shares repurchased at an average price of $10.93 per share. Shares are now at $9.30, down almost 20% from when it hit my price target. I think now is the time to do some more buying.
Note from the author: Christopher F. Davis has been a leading contributor with Seeking Alpha since early 2012. If you like his material and want to see more, scroll to the top of the article and hit "follow." He also writes a lot of "breaking" articles that are time sensitive. If you would like to be among the first to be updated, be sure to check the box for "Real-time alerts on this author" under "Follow."
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.