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Low Rates, Fee Income to Hurt Huntington (HBAN) Q1 Earnings

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Huntington Bancshares (HBAN - Free Report) is scheduled to report first-quarter 2020 results on Apr 23, before the opening bell. The company’s results are projected to reflect year-over-year growth in revenues, while earnings are likely to display a decline.

In the last reported quarter, the company’s earnings missed the Zacks Consensus Estimate. Results were adversely impacted by lower net interest income and higher provisions, along with pressure on margin. However, decline in operating expenses and fee income was a tailwind.

Huntington’s activities in the first quarter were inadequate to impress analysts. As a result, the Zacks Consensus Estimate for earnings of 11 cents moved 60.7% south over the past 30 days. Also, it indicates a 65.6% slump from the year-ago reported figure.

Yet, the consensus estimate for revenues of $1.15 billion suggests growth of 0.6%.
 

Before we take a look at what our quantitative model predicts, let’s check the factors that might have impacted the first-quarter results.

Key Factors

Soft Loan Growth: Per the Fed’s latest data, the loan balance is likely to have been high on a sequential basis during the March-end quarter, supported by rise in commercial and industrial (C&I), real estate and consumer loans in the first two months of the quarter. However, a marginal decline in the consumer loan demand in March due to the virus outbreak and the soft demand for corporate loans as an uncertain economic environment, which resulted in lower business activities, hurting new investments, might have played spoilsport.

Notably, management’s anticipations of loan growth in 2020 will likely be reflected in the quarterly results. The bank projects average loans and leases to be up 3-4% on an annual basis. Continued growth in both consumer and commercial portfolios is anticipated, with consumer lending focused on home and auto finance to be on a modestly stronger side. The company anticipates a slightly more measured commercial loan growth.

Muted Net Interest Income Growth: The Fed slashed interest rates to near zero this March, in order to shield the U.S. economy from the coronavirus-related mayhem. This is likely to have substantially hurt the company’s net interest margin and net interest income. Notably, low deposit costs might have been an offsetting factor for margins.

Moreover, a soft lending scenario is predicted to have curtailed growth in net interest income to some extent. However, the Zacks Consensus Estimate for average interest earning assets of $100.5 billion for the quarter indicates a marginal sequential improvement, while the NII is expected to decline slightly to $781 million.

Dismal Non-Interest Revenues: Due to the pandemic, a slowdown in economic activity in the quarter is likely to have strained fee income. Lower consumer spending might have hurt card fees toward the tail end of the quarter. The Zacks Consensus Estimate for cards and payment processing revenues of $63 million indicates a 1.6% decline from the prior-quarter reported number.

In addition, the Federal Reserve’s accommodative monetary policy and decline in mortgage rates during the first quarter drove refinancing activities, while growth in new originations was muted. Apart from this, a rise in demand for residential real estate loans is anticipated to have supported Huntington’s mortgage banking income. Notably, the consensus estimate of $38 million for mortgage banking revenues projects a decline of 34.5% sequentially.

Nevertheless, the impact of the coronavirus crisis on trading revenues is likely to have been moderate, as escalated volatility and volumes on uncertain markets might have been offsetting factors. Also, non-interest income is expected to have benefited from a rise in service charge on deposits, as deposit balances are likely to have increased in the quarter. Notably, the consensus estimate of $91 million for service charges projects a decline of 4.2%, sequentially.

Expenses under Control: Management remains focused on expense management. Also, there were no major outflows during the quarter that might have impacted the firm’s earnings unusually. Nevertheless, management expects expenses to be up around 1-3%, with planned investments in digital, data and technology enhancements that will bolster its existing capabilities and infrastructure.

Here is what our quantitative model predicts:

Huntington doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase 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 company has an Earnings ESP of -27.46%.

Zacks Rank: It carries a Zacks Rank #3, at present.

Stocks That Warrant a Look

Here are a few stocks you may want to consider, as according to our model these have the right combination of elements to post an earnings beat this quarter.

BCB Bancorp, Inc. (NJ) (BCBP - Free Report) is expected to release results around Apr 27. The company has an Earnings ESP of +4.17% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

SB One Bancorp (SBBX - Free Report) is likely to release earnings figures around Apr 28. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +0.85%.

The Earnings ESP for Carolina Financial Corporation is +1.43% and the stock currently carries a Zacks Rank of 3. The company is expected to report quarterly numbers around Apr 30.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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