Will Huntington Bancshares (HBAN) Miss Q3 Earnings?

Huntington Bancshares Incorporated (HBAN) is scheduled to report its third-quarter 2014 results on Friday, Oct 17, before the market opens.

Huntington managed to deliver a positive earnings surprise of 5.6% in second-quarter 2014. Earnings per share came in at 19 cents, beating the Zacks Consensus Estimate by a penny. Results were supported by top-line growth, partially offset by higher expenses. Further, the quarter witnessed growth in both loan and deposit balance.

Will Huntington miss on earnings this quarter? Let’s see how things have shaped up.

Factors to Influence Q3 Results

The quarter experienced two notable events – commencement of expense reduction initiatives and completion of the acquisition of 24 branches – which are likely to impact results.

Per the 10Q for the second quarter, in July Huntington initiated “organizational actions” in order to trim down non-interest expense and enhance productivity. As a result, the company will achieve annualized expense savings of around $30 to $35 million primarily through cutback in personnel expense. The savings are intended to be invested in strategic areas for revenue generation.

Huntington also stated that owing to such actions the company expects to incur restructuring charges of around $15–20 million during third-quarter 2014 and $3–5 million during fourth-quarter 2014.

Further in September, in line with its strategy to boost footprint in Michigan, the company completed the acquisition of 24 branches of Bank of America Corporation in Michigan, which was announced earlier this year. According to the terms, Huntington assumed deposits worth around $750 million. However, the deal excluded loan balances. We believe the third quarter will reflect increased deposit balance that has already been exhibiting growth over the past few quarters.

What Management Expects?

Huntington, in its second-quarter earnings release, provided guidance for full-year 2014.

Net interest income is projected to grow modestly over the quarters ahead owing to the expected rise in earning assets (as total loans are likely to show modest growth while investment securities are also expected to improve moderately.

However, the benefits to net interest income are expected to be partially offset by persistent pressure on net interest margin. While the company maintains an efficient approach to loan and deposit pricing, it expects asset yields to remain stressed with limited opportunity to reduce funding costs.

Non-interest income is expected to remain at the second-quarter level in the following quarter, excluding the impact of any net MSR activity. Further, owing to change in consumer checking accounts from Jul 2014, service charges on deposits are expected to be negatively impacted by $6 million per quarter. However, continued organic consumer household and business relationship growth along with the completion of the Michigan branch acquisitions is expected to aid in offsetting this reduction.

Excluding one-time items, expenses are expected to remain at the second-quarter levels in the following quarters. Huntington remains committed to posting positive operating leverage for the full-year 2014.

Overall, credit quality is expected to improve with some volatility on a quarter-to-quarter basis. The effective tax rate for the remainder of 2014 is expected to be in the range of 25% to 28%.

Activities of Huntington during the quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter remained stable at 19 cents per share over the last 7 days.

Earnings Whispers

Our proven model does not conclusively show that Huntington is likely to beat the Zacks Consensus Estimate in the third quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: The Earnings ESP for Huntington is -15.79%. This is because the Most Accurate estimate of 16 cents stands below the Zacks Consensus Estimate of 19 cents per share.

Zacks Rank: Huntington’s Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise call.

Stocks That Warrant a Look

Here are some stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

BB&T Corporation (BBT) has an Earnings ESP of +1.41% and carries a Zacks Rank #3. It is scheduled to report results on Oct 16.

Capital One Financial Corporation (COF) has an Earnings ESP of +2.08% and carries a Zacks Rank #2. It is scheduled to report results on Oct 16.

CIT Group Inc. (CIT) has an Earnings ESP of +3.37% and a Zacks Rank #3. It is slated to report results on Oct 28.

Read the Full Research Report on BBT
Read the Full Research Report on COF
Read the Full Research Report on HBAN
Read the Full Research Report on CIT


Zacks Investment Research