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Will Fee Income Growth Support Huntington (HBAN) Q4 Earnings?

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Zacks Equity Research
·5 min read
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Huntington Bancshares HBAN is slated to report fourth-quarter 2020 results on Jan 22, before the opening bell. The company’s revenues and earnings are expected to have improved year over year.

In the last reported quarter, the bank’s earnings beat the Zacks Consensus Estimate. Increase in revenues aided by high net interest and non-interest income drove the results. However, elevated expenses were an undermining factor. Also, pressure on margin, due to low rates, was a major drag.

The Zacks Consensus Estimate for fourth-quarter earnings of 30 cents has moved 3.4% upward over the past 30 days. Further, it indicates 7.1% growth from the year-ago reported number.

Also, the consensus estimate for sales of $1.25 billion suggests a rise of 8.48% from the year-earlier quarter’s reported figure. Management expects total revenues to increase 7-8% sequentially.

Huntington Bancshares Incorporated Price and EPS Surprise

Huntington Bancshares Incorporated Price and EPS Surprise
Huntington Bancshares Incorporated Price and EPS Surprise

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

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

Key Factors at Play

Soft Net Interest Income (NII) Growth: The overall lending scenario was muted during the quarter, with commercial and industrial, along with real estate loan portfolios having offered little support. Also, as consumer sentiments remained subdued amid the coronavirus crisis, demand for consumer loans declined.

Further, the near-zero interest rates are likely to have hurt Huntington’s NII in the fourth quarter. This is likely to have resulted in a contraction in NIM.

Nevertheless, low deposit costs and higher average interest earning assets might have been offsetting factors. The Zacks Consensus Estimate for average interest earning assets of $111.7 billion for the quarter implies a nearly 1% sequential improvement.

The consensus estimate for NII (tax equivalent basis) indicates a 2.6% rise to $843 million.

On a sequential basis, management anticipates NII to increase 1-2%. GAAP NIM is expected to remain flat or rise moderately, driven primarily by further reductions to the cost of interest-bearing deposits.

High Non-Interest Revenues: Historically low mortgage rates led to a significant rise in refinancing activities during the December quarter with growth in new originations. Rise in deposits in the quarter is expected to have driven fees from service charge on deposits. The Zacks Consensus Estimate for same is pegged at $79 million, suggesting 3.9% growth sequentially.

Also, improved consumer spending is likely to have supported the company’s card fees. The Zacks Consensus Estimate for cards and payment processing revenues of $68 million suggests a 3% rise from the prior quarter. The consensus estimate for insurance income is pegged at $25.3 million, indicating 5.5% growth on a sequential basis.

Moreover, a substantial rise in client activity and higher market volatility supported trading revenues during the to-be-reported quarter. Investment banking performance also remained impressive. Thus, the company’s capital markets fees are likely to have witnessed growth. The Zacks Consensus Estimate of $29.8 million for the same suggests a 10.3% rise from the prior quarter.

Management anticipates fee income to rise 8-10%, driven by robust mortgage banking income. The fourth-quarter outlook includes moderation in mortgage banking, an uptick in capital markets fees as well as several other fee lines.

High Expenses: Despite expense control initiatives, investments in technology and marketing, as well as the return of customer and sales activity closer to pre pandemic levels, are likely to have resulted in higher expenses.

Management expects expenses for the fourth quarter to have flared up 3-5% on a linked quarter basis.

Asset Quality: Having built significant reserves in the first half of 2020, Huntington is less likely to have recorded substantial increase in provision for loan losses in the fourth quarter. However, non-performing loans might have escalated. The Zacks Consensus Estimate for same of $683 million indicates rise of 20% from the prior quarter.

What Our Quantitative Model Reveals

Our proven model shows that Huntington is likely to beat estimates this quarter. This is because it has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing 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 Earnings ESP for Huntington is +3.39%.

Zacks Rank: Huntington currently sports a Zacks Rank of 1 (Strong Buy).

Other Banks Worth a Look

Here are a few other bank stocks that you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this time around:

The Earnings ESP for CullenFrost Bankers, Inc. CFR is +4.50% and the stock sports a Zacks Rank of 1, at present. The company is slated to report fourth-quarter 2020 numbers on Jan 28. You can see the complete list of today’s Zacks #1 Rank stocks here.

Bank of Hawaii Corporation BOH is set to release earnings figures on Jan 25. The company, which carries a Zacks Rank of 2 (Buy) at present, has an Earnings ESP of +4.72%.

The Earnings ESP for Hilltop Holdings Inc. HTH is +9.80% and the company carries a Zacks Rank #1, currently. It is scheduled to report quarterly numbers on Jan 28.

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Huntington Bancshares Incorporated (HBAN) : Free Stock Analysis Report
Hilltop Holdings Inc. (HTH) : Free Stock Analysis Report
CullenFrost Bankers, Inc. (CFR) : Free Stock Analysis Report
Bank of Hawaii Corporation (BOH) : Free Stock Analysis Report
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