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Lower Fee Income to Hurt Huntington (HBAN) in Q1 Earnings
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Huntington Bancshares (HBAN - Free Report) is slated to report first-quarter 2022 results on Apr 21, before the opening bell. Although the company’s earnings are expected to have declined year over year, revenues are anticipated to have improved.
In the last-reported quarter, the bank reported an earnings surprise of -2.7%. Elevated expenses, due to exit of a strategic distribution relationship and the TCF Financial acquisition-related expenses, affected the results. Declining capital ratios created another headwind. Nonetheless, provision benefits and net interest income (“NII”) growth were positives.
Huntington has a mixed earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in two and lagged the same in the other two of the trailing four quarters, the average beat being 12.3%.
Huntington Bancshares Incorporated Price and EPS Surprise
The Zacks Consensus Estimate for first-quarter earnings of 31 cents has moved 3.2% downward over the past month, reflecting bearish sentiments of analysts. Also, the figure indicates a 35.4% decline from the year-ago reported number. The consensus estimate of $1.62 billion for revenues suggests a year-over-year jump of 18.1%.
Key Factors at Play
Loans: Per the Fed’s latest data, there was considerable strength in commercial real estate loans and consumer loans, besides commercial and industrial loan growth, in the first quarter. This is likely to have aided the company’s first-quarter performance as the majority of its loan portfolio comprises total commercial loans (commercial and industrial lending, as well as commercial real estate lending).
As for the company’s consumer lending portfolio, growth in residential real estate loans is expected to have been aided by lower home equity paydowns.
Momentum in the commercial and consumer businesses, along with strong pipelines, is likely to have supported HBAN’s loan balances in the first quarter.
This is likely to have driven an increase in interest-earnings assets. The Zacks Consensus Estimate of $160.5 billion for average interest-earning assets in the quarter implies a marginal improvement on a sequential basis.
NII: The overall lending scenario continued to improve in the first quarter. While interest rates continued to remain low, there was a hike in the same in mid-March. The actual impact of the rate hike is not expected to have had a material impact in the to-be-reported quarter.
Thus, despite loan growth, fewer days in the quarter, low interest rates and the flattening of the yield curve are expected to have negatively impacted Huntington’s NII.
Further, the consensus estimate for NII indicates a decline of 1.1% to $1.12 billion from the prior quarter’s reported figure.
Non-Interest Revenues: Mortgage originations, both purchase and refinancing, continued to normalize in the first quarter. Mortgage banking revenues, which were propelled by low mortgage rates in the prior year, are now facing tough competition.
Mortgage rates increased in the first quarter, with the average rate on the 30-year loan rising to 4.67%, in sharp contrast to last year’s record-low mortgage rates of around 3%.
Hence, mortgage origination activities are estimated to have decreased dramatically, with rising rates discouraging refinancing activity. This is expected to have affected the company’s mortgage banking net revenues.
Mortgage banking fees in the to-be-reported quarter are estimated to be $52 million, suggesting a 14.8% dip on a sequential basis.
The Zacks Consensus Estimate for capital market fees is pegged at $39 million, indicating 17% fall from the prior quarter’s reported figure.
While improvement in the consumer spending scenario due to higher employee compensation is expected to have favorably impacted card fees in the quarter, the consensus mark for cards and payment-processing revenues of $93 million is flat compared with the prior quarter’s reported figure.
Overall, the consensus mark of $497 million for non-interest income indicates a 3.5% sequential fall.
Expenses: Huntington’s investments in digital capabilities, marketing and hiring of new personnel to aid its revenue growth might have pushed its costs up.
Nonetheless, the company has closed 62 branches in February in its cost-saving efforts. Huntington also completed its merger with TCF Financial Corporation, and management expects to achieve cost savings related to the merger in the first half of 2022. These initiatives are likely to have decreased expenses in the quarter under review.
Asset Quality: In the last two quarters, HBAN had been releasing reserves that it built to cover losses from the effects of the coronavirus pandemic. However, with the rise in loan balance and expectations of economic slowdown due to geopolitical and inflation concerns, the company might have built reserves in the first quarter.
Key Developments
In early March, Huntington had inked an agreement to acquire Capstone Partners, an investment banking firm. The transaction, expected to be closed in the second quarter of 2022, is subject to regulatory approval. The deal is in sync with Huntington’s efforts to expand its capital markets business and grow its footprint across the country.
What Our Quantitative Model Reveals
Huntington does not have 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 this time around.
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 -1.16%.
Zacks Rank: Huntington currently has a Zacks Rank of 3.
Stocks That Warrant A Look
Associated Bancorp (ASB - Free Report) , Independent Bank Corporation (IBCP - Free Report) and M&T Bank (MTB - Free Report) are a few stocks from the banking space that you might want to consider, as these have the right combination of elements to post an earnings beat in their upcoming releases, per our model.
The Earnings ESP for ASB is +0.81% and the company carries a Zacks Rank #2 (Buy) at present. ASB is slated to report first-quarter 2022 results on Apr 21.
The Zacks Consensus Estimate for ASB’s first-quarter earnings has moved 2.7% south over the past week.
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Lower Fee Income to Hurt Huntington (HBAN) in Q1 Earnings
Huntington Bancshares (HBAN - Free Report) is slated to report first-quarter 2022 results on Apr 21, before the opening bell. Although the company’s earnings are expected to have declined year over year, revenues are anticipated to have improved.
In the last-reported quarter, the bank reported an earnings surprise of -2.7%. Elevated expenses, due to exit of a strategic distribution relationship and the TCF Financial acquisition-related expenses, affected the results. Declining capital ratios created another headwind. Nonetheless, provision benefits and net interest income (“NII”) growth were positives.
Huntington has a mixed earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in two and lagged the same in the other two of the trailing four quarters, the average beat being 12.3%.
Huntington Bancshares Incorporated Price and EPS Surprise
Huntington Bancshares Incorporated price-eps-surprise | Huntington Bancshares Incorporated Quote
The Zacks Consensus Estimate for first-quarter earnings of 31 cents has moved 3.2% downward over the past month, reflecting bearish sentiments of analysts. Also, the figure indicates a 35.4% decline from the year-ago reported number. The consensus estimate of $1.62 billion for revenues suggests a year-over-year jump of 18.1%.
Key Factors at Play
Loans: Per the Fed’s latest data, there was considerable strength in commercial real estate loans and consumer loans, besides commercial and industrial loan growth, in the first quarter. This is likely to have aided the company’s first-quarter performance as the majority of its loan portfolio comprises total commercial loans (commercial and industrial lending, as well as commercial real estate lending).
As for the company’s consumer lending portfolio, growth in residential real estate loans is expected to have been aided by lower home equity paydowns.
Momentum in the commercial and consumer businesses, along with strong pipelines, is likely to have supported HBAN’s loan balances in the first quarter.
This is likely to have driven an increase in interest-earnings assets. The Zacks Consensus Estimate of $160.5 billion for average interest-earning assets in the quarter implies a marginal improvement on a sequential basis.
NII: The overall lending scenario continued to improve in the first quarter. While interest rates continued to remain low, there was a hike in the same in mid-March. The actual impact of the rate hike is not expected to have had a material impact in the to-be-reported quarter.
Thus, despite loan growth, fewer days in the quarter, low interest rates and the flattening of the yield curve are expected to have negatively impacted Huntington’s NII.
Further, the consensus estimate for NII indicates a decline of 1.1% to $1.12 billion from the prior quarter’s reported figure.
Non-Interest Revenues: Mortgage originations, both purchase and refinancing, continued to normalize in the first quarter. Mortgage banking revenues, which were propelled by low mortgage rates in the prior year, are now facing tough competition.
Mortgage rates increased in the first quarter, with the average rate on the 30-year loan rising to 4.67%, in sharp contrast to last year’s record-low mortgage rates of around 3%.
Hence, mortgage origination activities are estimated to have decreased dramatically, with rising rates discouraging refinancing activity. This is expected to have affected the company’s mortgage banking net revenues.
Mortgage banking fees in the to-be-reported quarter are estimated to be $52 million, suggesting a 14.8% dip on a sequential basis.
The Zacks Consensus Estimate for capital market fees is pegged at $39 million, indicating 17% fall from the prior quarter’s reported figure.
While improvement in the consumer spending scenario due to higher employee compensation is expected to have favorably impacted card fees in the quarter, the consensus mark for cards and payment-processing revenues of $93 million is flat compared with the prior quarter’s reported figure.
Overall, the consensus mark of $497 million for non-interest income indicates a 3.5% sequential fall.
Expenses: Huntington’s investments in digital capabilities, marketing and hiring of new personnel to aid its revenue growth might have pushed its costs up.
Nonetheless, the company has closed 62 branches in February in its cost-saving efforts. Huntington also completed its merger with TCF Financial Corporation, and management expects to achieve cost savings related to the merger in the first half of 2022. These initiatives are likely to have decreased expenses in the quarter under review.
Asset Quality: In the last two quarters, HBAN had been releasing reserves that it built to cover losses from the effects of the coronavirus pandemic. However, with the rise in loan balance and expectations of economic slowdown due to geopolitical and inflation concerns, the company might have built reserves in the first quarter.
Key Developments
In early March, Huntington had inked an agreement to acquire Capstone Partners, an investment banking firm. The transaction, expected to be closed in the second quarter of 2022, is subject to regulatory approval. The deal is in sync with Huntington’s efforts to expand its capital markets business and grow its footprint across the country.
What Our Quantitative Model Reveals
Huntington does not have 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 this time around.
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 -1.16%.
Zacks Rank: Huntington currently has a Zacks Rank of 3.
Stocks That Warrant A Look
Associated Bancorp (ASB - Free Report) , Independent Bank Corporation (IBCP - Free Report) and M&T Bank (MTB - Free Report) are a few stocks from the banking space that you might want to consider, as these have the right combination of elements to post an earnings beat in their upcoming releases, per our model.
The Earnings ESP for ASB is +0.81% and the company carries a Zacks Rank #2 (Buy) at present. ASB is slated to report first-quarter 2022 results on Apr 21.
The Zacks Consensus Estimate for ASB’s first-quarter earnings has moved 2.7% south over the past week.
IBCP is scheduled to release first-quarter results on Apr 26. IBCP currently has a Zacks Rank #2 and an Earnings ESP of +10%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for IBCP’s first-quarter earnings has remained flat over the past 30 days.
MTB is scheduled to release first-quarter results on Apr 20. MTB currently has a Zacks Rank #3 and an Earnings ESP of +5.43%.
The Zacks Consensus Estimate for MTB’s first-quarter earnings has moved marginally south over the past week.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.