Interest fee

Loan Growth, Fee Income at Buoy Huntington (HBAN) Q4 Earnings

Huntington Bancactions HBAN is expected to release its fourth quarter and 2021 results on January 31, before the opening bell. The company’s revenue and earnings are expected to improve year over year.

In the last reported quarter, the bank reported a negative earnings surprise of 2.8%. High expenses and expenses related to the acquisition of TCF Financial affected the results. Falling capital ratios created another headwind. Nonetheless, growth in fee income, particularly in wealth management, capital markets, and card and payment processing, drove revenue.

Huntington has a surprise history of mixed earnings. Its earnings beat the Zacks consensus estimate in half and lagged in the other two of the past four quarters, averaging 10.5%.

Huntington Bancshares Incorporated price and BPA surprise

Huntington Bancshares Incorporated price and BPA surprise

Huntington Bancshares Incorporated price-eps-surprise | Quote from Huntington Bancshares Incorporated

Zacks’ consensus estimate for fourth-quarter earnings of 37 cents indicates a 37% increase from the number reported a year ago. The consensus revenue estimate of $1.69 billion suggests a 36.4% year-over-year jump.

Key factors at play

Growth in net interest income (NII): In the fourth quarter, overall demand for commercial real estate loans was satisfactory, while growth in commercial and industrial loans was impressive. This likely contributed to the company’s performance in the fourth quarter, as the majority of its loan portfolio comprises total commercial loans (commercial and corporate loans as well as commercial real estate loans). On the consumer lending side, growth in residential real estate loans should have been offset by home equity repayments.

Management expects underlying loan balances (excluding Paycheck Protection Program) to increase slightly in the fourth quarter on a sequential basis.

Buoyancy in commercial and consumer businesses likely supported loan balances in the fourth quarter.

In addition, management anticipates purchases of additional investment securities. This likely resulted in an increase in profit assets and NII. Notably, the Zacks consensus estimate for average interest-earning assets of $159.67 billion for the quarter implies marginal improvement on a sequential basis.

The improved lending scenario and increased loan balance resulting from the TCF merger completed earlier this year likely offered some support for Huntington’s NII despite the near-zero interest rate environment.

The consensus estimate for NII shows a marginal increase to $1.17 billion from the reported figure for the prior quarter.

According to management, core net interest income is expected to increase sequentially in the fourth quarter.

High non-interest income: Mortgage production was probably relatively strong, but not as robust as last year. In addition, the moderation in refinancing activity due to the rise in rates should have weighed on HBAN’s mortgage banking income. A gradual slowdown in refinancing activity, prepayments and a decline in mortgage servicing activity are expected to have hampered HBAN’s mortgage banking business.

Mortgage bank fee growth in the quarter ahead is estimated at $72 million, suggesting an 11.1% fall on a sequential basis.

The disappearance of stimulus aid has likely forced consumers to rely on cards for their spending. Additionally, improved consumer confidence likely boosted consumer spending and debit card usage. This should have supported the company’s card charges. Zacks’ consensus estimate for cards and payment processing revenue of $99 million suggests a 3.13% increase over the prior quarter’s reported figure.

Zacks’ consensus estimate for the capital market fee is set at $40 million, remaining unchanged from the figure reported in the prior quarter.

Overall, the non-interest revenue consensus mark of $524 million indicates sequential growth of 2.1%.

Expenses increase: Investments in digital, data and technology improvements; product differentiation; front office extensions; and other initiatives to strengthen its existing capacity and infrastructure have likely resulted in increased expenditures. While the company recorded $500 million of the $900 million in TCF Financial merger-related expenses during the third quarter, the majority of the remaining expenses are expected to have been incurred in the fourth quarter. These likely pushed up spending, hampering earnings growth in the quarter under review.

Improved asset quality: The improved economic outlook and continued improvement in credit trends in the fourth quarter should have resulted in additional reserve releases in the fourth quarter for HBAN. These reserve releases should have resulted in substantial earnings growth.

What our quantitative model reveals

Huntington has 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 +1.46%.

Zack’s Ranking: Huntington currently has a Zacks rank of 3.

Other actions to consider

A few other financial stocks, which you may want to consider as they also have the right combination of elements to show a pace of earnings in their next releases according to our model, are Webster Financial WBS, United Bank BKU and Bancshares Prosperity PB.

Webster Financial has an ESP on Earnings of +0.16% and currently has a Zacks #1 ranking (Strong Buy). WBS is scheduled to release its fourth quarter and full year results on Jan. 20.

BankUnited is expected to release its quarterly results on January 20. BKU currently has an ESP on earnings of +42.98% and a Zacks rank of #2 (buy). You can see the full list of today’s Zacks #1 Rank stocks here.

Prosperity Bancshares is expected to publish its quarterly results on January 26. PB, which currently has a Zacks Rank of 3, has an Earnings ESP of +0.55%.

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