Back to top

Image: Bigstock

Is a Beat in the Cards for Huntington (HBAN) in Q2 Earnings?

Read MoreHide Full Article

Huntington Bancshares (HBAN - Free Report) is slated to report second-quarter 2021 results on Jul 29, before the opening bell. The company’s revenues and earnings are expected to have improved year over year.

In the last reported quarter, the bank reported an earnings surprise of 45.5%. An increase in revenues, aided by high net interest and non-interest income, supported its performance. However, results were adversely impacted by lower loan balances and elevated expenses.

Huntington has a decent earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in three and lagged in one of the trailing four quarters, the average beat being 40.03%.

The Zacks Consensus Estimate for second-quarter earnings of 32 cents indicates substantial growth from the year-ago reported number. The consensus estimate for sales of $1.32 billion suggests a year-over-year rise of 10.8%.

Key Factors at Play

Soft Net Interest Income (NII) Growth: The near-zero interest rates and flattening of the yield curve are likely to have hurt Huntington’s NII in the second quarter. This is expected to have resulted in a contraction in NIM.

In the second quarter, the overall demand for commercial real estate loans improved, while commercial and industrial loans demand has been soft. This is likely to have aided the company’s second-quarter performance as the majority of its loan portfolio comprises total commercial loans (commercial and business lending as well as commercial real estate lending).

The Zacks Consensus Estimate for average interest-earning assets of $127.7 billion for the quarter implies a 17.1% year-over-year improvement.

The consensus estimate for NII (on a tax-equivalent basis) indicates an 11.2% rise to $892 million.

High Non-Interest Revenues: Mortgage rates have been low since the past year. Hence, incentive for refinancing activities is likely to have subsided after strong activity in 2020, while flaring housing pricing has affected purchase origination growth in the second quarter. The factors are expected to have limited Huntington’s mortgage banking fee growth in the to-be-reported quarter. The Zacks Consensus Estimate for the same is pegged at $80 million, suggesting 16.7% year-over-year growth.

A rise in deposits in the quarter is expected to have driven fees from service charge on deposits. Economy re-opening and improvement in consumer confidence are likely to have boosted consumer spending. This is expected to have supported the company’s card fees. The Zacks Consensus Estimate for cards and payment-processing revenues of $72 million suggests a 22% rise from the prior-year quarter’s reported figure.

While strong deal-making scenario and robust equity markets are likely to have driven the investment banking performance, lower market volatility is expected to have hindered trading revenues in the June-end quarter.

Overall, the consensus mark for non-interest income of $425 million indicates 8.7% year-over-year growth.

High Expenses: Despite expense-control initiatives; investments in digital, data and technology enhancements, product differentiation, and other initiatives to bolster its existing capabilities and infrastructure are likely to have resulted in higher expenses, thereby, hindering earnings growth in the quarter under review.

Improved Asset Quality: Having built significant reserves in 2020 and reversing the same in the first quarter on the back of an improvement in the economic scenario, Huntington is likely to have released some more provisions for loan losses in the second quarter.

This is expected to have supported the company’s bottom-line growth in the to-be-reported quarter.

Key Development in the Quarter

In early June, Huntington winded up its merger with TCF Financial Corporation to form one of the top 25 U.S. bank holding companies.

The merger, which was announced last December, facilitated Huntington’s debut in markets of Minnesota and Colorado, and across new businesses, including inventory finance lending. With this, Huntington now operates more than 1,100 total branches, excluding the previously announced sale of 14 Michigan branches, and the consolidation of 189 branches in Michigan and Ohio.

This positions Huntington well to capture market opportunities and boost the client base. Moreover, the company’s expanded scale, technological advancement and increased product offerings will help capitalize on its market share. The combination offers scope for enhanced profitability and scale, top-line growth, and notable cost synergies.

What Our Quantitative Model Reveals

Huntington has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Huntington is +1.42%.

Zacks Rank: Huntington currently sports a Zacks Rank of 3.

Other Stocks to Consider

Here are a few other finance stocks that you may want to consider, as according to our model, these too have the right combination of elements to post an earnings beat in their upcoming releases.

The Earnings ESP for Prosperity Bancshares (PB - Free Report) is +1.52% and it carries a Zacks Rank #2 (Buy) at present. The company is slated to report quarterly numbers on Jul 28. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

T. Rowe Price Group (TROW - Free Report) is anticipated to release earnings on Jul 29. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +1.34%.

Evercore (EVR - Free Report) is slated to report quarterly results on Jul 28. The company currently has an Earnings ESP of +4.84% and a Zacks Rank of 2.

Published in