Lower Fee to Harm Huntington (HBAN) Revenue in Q1 – April 18, 2022

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Huntington Bancactions (HBAN Free Report) is expected to release first quarter 2022 results on April 21, before the opening bell. Although the company’s earnings are expected to have declined year over year, revenues are expected to have improved.

In the last reported quarter, the bank announced a surprise profit of -2.7%. High expenses, due to the severance of a strategic distribution relationship and expenses related to the acquisition of TCF Financial, affected the results. Falling capital ratios created another headwind. Nonetheless, provision benefits and net interest income (“NII”) growth were positive.

Huntington has a surprise history of mixed earnings. Its earnings have exceeded Zacks’ consensus estimate in two and have lagged in the other two of the past four quarters, averaging 12.3%.

Zacks’ consensus estimate for first-quarter earnings of 31 cents was down 3.2% over the past month, reflecting analysts’ bearish sentiments. Additionally, the figure indicates a 35.4% drop from the number reported a year ago. The consensus estimate of $1.62 billion for revenue suggests an 18.1% jump year-over-year.

Key factors at play

Loans: According to the latest news from the Fed Data, there was considerable strength in commercial real estate and consumer loans, in addition to growth in commercial and industrial loans, in the first quarter. This likely contributed to the company’s performance in the first quarter, as the majority of its loan portfolio comprises total commercial loans (commercial and industrial loans, as well as commercial real estate loans).

With respect to the company’s consumer loan portfolio, growth in residential real estate loans is expected to have been aided by lower home equity repayments.

Momentum in commercial and consumer activities, as well as strong pipelines, likely supported HBAN’s loan balances in the first quarter.

This likely led to an increase in interest-earning assets. The Zacks consensus estimate of $160.5 billion for average interest-earning assets during the quarter implies marginal improvement on a sequential basis.

TIN: The overall lending scenario continued to improve in the first quarter. While interest rates remained low, they rose in mid-March. The actual impact of the rate hike should not have had a significant impact in the quarter ahead.

So, despite loan growth, fewer days in the quarter, low interest rates and a flatter yield curve should have had a negative impact on the Huntington NII.

Additionally, the consensus estimate for NII indicates a decline of 1.1% to $1.12 billion from the prior quarter’s reported figure.

Non-interest income: Mortgage originations, both purchase and refinance, continued to normalize in the first quarter. Mortgage bank revenues, which were propelled by low mortgage rates the previous year, now face fierce competition.

Mortgage rates rose in the first quarter, with the average 30-year loan rate rising to 4.67%, in stark contrast to last year’s record high mortgage rates of around 3%.

As a result, mortgage origination activity is believed to have declined significantly, with rising rates discouraging refinancing activity. This should have affected the company’s mortgage banking net income.

Mortgage bank charges in the reportable quarter are estimated at $52 million, suggesting a decline of 14.8% on a sequential basis.

Zacks’ consensus estimate for capital market fees is set at $39 million, indicating a 17% decline from the figure reported in the prior quarter.

While the improving consumer spending scenario due to higher employee compensation is expected to have had a favorable impact on card fees in the quarter, the consensus score for cards and payment processing revenue of $93 million was stable compared to the figure reported in the prior quarter.

Overall, the consensus mark of $497 million for non-interest revenue indicates a 3.5% sequential decline.

Expenses: Huntington’s investments in digital capabilities, marketing and hiring new staff to support its revenue growth may have driven up its costs.

Nonetheless, the company closed 62 branches in February as part of its cost-cutting efforts. Huntington also completed its merger with TCF Financial Corporation, and management expects to realize merger-related cost savings in the first half of 2022. These initiatives are expected to have reduced expenses in the quarter under review.

Asset quality: Over the past two quarters, HBAN had released reserves it had built up to cover losses from the effects of the coronavirus pandemic. However, with the increase in loan balances and expectations of an economic slowdown due to geopolitical and inflation concerns, the company may have built up reserves in the first quarter.

Key developments

In early March, Huntington had signed an agreement to acquire Capstone Partners, an investment bank. The transaction, which is expected to close in the second quarter of 2022, is subject to regulatory approval. The deal is in line with Huntington’s efforts to expand its capital markets business and expand its presence across the country.

What our quantitative model reveals

Huntington doesn’t have the right combination of two key ingredients – a positive win ESP and Zacks rank #3 (Hold) or higher – to increase the odds of a beat win this time around.

You can discover the best stocks to buy or sell before they’re flagged with our earnings ESP filter.

ESP Earnings: The earnings PSE for Huntington is -1.16%.

Zacks Rank: Huntington currently has a Zacks rank of 3.

Actions worth a look

Associate Bancorp (BSA free report), Independent banking company (IBCP free report) and M&T Bank (MTB Free Report) are a few banking stocks you may want to consider as they have the right combination of elements to post a pace of earnings in their next releases, according to our model.

The earnings ESP for ASB is +0.81% and the company currently has a Zacks Rank #2 (Buy). ASB is expected to release its first quarter 2022 results on April 21.

The Zacks consensus estimate for ASB’s first-quarter earnings has moved 2.7% south over the past week.

The IBCP is expected to publish its first quarter results on April 26. The IBCP currently has a #2 Zacks ranking and +10% ESP gain. You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks consensus estimate for IBCP’s first quarter earnings has been flat for the past 30 days.

MTB is expected to release its first quarter results on April 20. MTB currently has a #3 Zacks ranking and +5.43% ESP gain.

The Zacks consensus estimate for MTB’s first quarter earnings has moved slightly south over the past week.

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