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Huntington Bancshares (HBAN) Rides on High Rates Amid Cost Woes
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Huntington Bancshares Incorporated’s (HBAN - Free Report) robust loans and deposits aid balance sheet growth. Further, high interest rates and interest-earning asset growth are expected to boost net interest income (NII). Strong liquidity is another positive. However, rising costs and declining mortgage banking income remain concerns.
Huntington Bancshares aims to acquire the industry’s best deposit franchise. Its total deposits witnessed a four-year compound annual growth rate (CAGR) of 16.4% (2019-2023). Concurrently, total loans saw a 12.8% CAGR on the back of robust performance in commercial and consumer portfolios. Management expects loan and deposit growth to be in the range of 3-5% and 2-4% in 2024, respectively.
Though Huntington Bancshares’ NII witnessed a drag in 2020 attributed to low interest rates, the metric recorded a four-year CAGR of 14.1% (ended 2023) as the Federal Reserve raised rates. Yet, increase in deposit costs weighed on it. Likewise, net interest margin (NIM) witnessed a downward trajectory in 2020 and 2021, with a subsequent recovery to pre-pandemic levels in 2022 at 3.25%. The metric gain declined in 2023 due to elevated funding costs.
Despite the central bank signaling rate cuts in 2024, rates are likely to remain at decent levels. Hence, HBAN’s NII and yield on interest-bearing assets are expected to grow modestly. Management expects to maintain modest asset sensitivity through down-rate protective hedging programs to support NIM and NII growth in a rate-cut scenario in 2024 while still maintaining an exposure to get the benefits of high interest rates.
Huntington Bancshares’ liquidity remains its strength. As of Dec 31, 2023, its cash and due from banks, including interest-bearing deposits, aggregated to $10.32 billion. Core deposits remain the primary source of liquidity, comprising 96% of total deposits at $151.2 billion as of the end of 2023. Total debt (comprising long-term debt and short-term borrowings) was $13 billion over the same period. HBAN has senior unsecured notes ratings of BBB+, Baa1 and A from Standard & Poor’s, Moody’s and Fitch, respectively. Hence, given the robust liquidity and credit strength, debt market accessibility seems feasible at lower rates, and makes the company likely to meet its debt obligations moving forward.
In the past six months, shares of this Zacks Rank #3 (Hold) company have gained 26.8% compared with the industry's 20.7% rise.
Image Source: Zacks Investment Research
However, an elevated expense base remains a challenge for the company. Non-interest expenses witnessed a CAGR of 13.9% over the last four years (ended 2023). HBAN expects to enhance efficiency through the consolidation of 34 branch locations by the first quarter of 2024. Nonetheless, long-term investments to boost growth prospects are likely to keep the expense base high, impeding bottom-line growth. Management projects expenses to grow 4.5% this year.
Huntington Bancshares’ mortgage banking business remains a challenge. High mortgage rates led to a subdued demand for such loans and refinancing activities, affecting mortgage origination volume. Mortgage banking income witnessed a 24.3% year-over-year decline in 2023. Given the high rate environment, origination volumes and refinancing activities are expected to witness a similar trend in the near term. Hence, HBAN’s mortgage banking income is expected to contract.
The Zacks Consensus Estimate for SRCE’s 2024 earnings has moved 7.1% north over the past 60 days. In the past six months, its shares have risen 17.1%.
The Zacks Consensus Estimate for EBMT’s 2024 earnings has moved upward by 20% over the past 60 days. Its shares have risen 5.4% in the past six months.
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Huntington Bancshares (HBAN) Rides on High Rates Amid Cost Woes
Huntington Bancshares Incorporated’s (HBAN - Free Report) robust loans and deposits aid balance sheet growth. Further, high interest rates and interest-earning asset growth are expected to boost net interest income (NII). Strong liquidity is another positive. However, rising costs and declining mortgage banking income remain concerns.
Huntington Bancshares aims to acquire the industry’s best deposit franchise. Its total deposits witnessed a four-year compound annual growth rate (CAGR) of 16.4% (2019-2023). Concurrently, total loans saw a 12.8% CAGR on the back of robust performance in commercial and consumer portfolios. Management expects loan and deposit growth to be in the range of 3-5% and 2-4% in 2024, respectively.
Though Huntington Bancshares’ NII witnessed a drag in 2020 attributed to low interest rates, the metric recorded a four-year CAGR of 14.1% (ended 2023) as the Federal Reserve raised rates. Yet, increase in deposit costs weighed on it. Likewise, net interest margin (NIM) witnessed a downward trajectory in 2020 and 2021, with a subsequent recovery to pre-pandemic levels in 2022 at 3.25%. The metric gain declined in 2023 due to elevated funding costs.
Despite the central bank signaling rate cuts in 2024, rates are likely to remain at decent levels. Hence, HBAN’s NII and yield on interest-bearing assets are expected to grow modestly. Management expects to maintain modest asset sensitivity through down-rate protective hedging programs to support NIM and NII growth in a rate-cut scenario in 2024 while still maintaining an exposure to get the benefits of high interest rates.
Huntington Bancshares’ liquidity remains its strength. As of Dec 31, 2023, its cash and due from banks, including interest-bearing deposits, aggregated to $10.32 billion. Core deposits remain the primary source of liquidity, comprising 96% of total deposits at $151.2 billion as of the end of 2023. Total debt (comprising long-term debt and short-term borrowings) was $13 billion over the same period. HBAN has senior unsecured notes ratings of BBB+, Baa1 and A from Standard & Poor’s, Moody’s and Fitch, respectively. Hence, given the robust liquidity and credit strength, debt market accessibility seems feasible at lower rates, and makes the company likely to meet its debt obligations moving forward.
In the past six months, shares of this Zacks Rank #3 (Hold) company have gained 26.8% compared with the industry's 20.7% rise.
Image Source: Zacks Investment Research
However, an elevated expense base remains a challenge for the company. Non-interest expenses witnessed a CAGR of 13.9% over the last four years (ended 2023). HBAN expects to enhance efficiency through the consolidation of 34 branch locations by the first quarter of 2024. Nonetheless, long-term investments to boost growth prospects are likely to keep the expense base high, impeding bottom-line growth. Management projects expenses to grow 4.5% this year.
Huntington Bancshares’ mortgage banking business remains a challenge. High mortgage rates led to a subdued demand for such loans and refinancing activities, affecting mortgage origination volume. Mortgage banking income witnessed a 24.3% year-over-year decline in 2023. Given the high rate environment, origination volumes and refinancing activities are expected to witness a similar trend in the near term. Hence, HBAN’s mortgage banking income is expected to contract.
Stocks to Consider
A couple of better-ranked stocks from the banking space are 1st Source Corporation, Inc. (SRCE - Free Report) and Eagle Bancorp Montana, Inc. (EBMT - Free Report) . SRCE and EBMT currently sport a Zacks Rank #1 (Strong Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for SRCE’s 2024 earnings has moved 7.1% north over the past 60 days. In the past six months, its shares have risen 17.1%.
The Zacks Consensus Estimate for EBMT’s 2024 earnings has moved upward by 20% over the past 60 days. Its shares have risen 5.4% in the past six months.