Huntington (HBAN) Undertakes Actions to Improve Q4 CET Ratio
Huntington Bancshares HBAN provided insights into actions undertaken in fourth-quarter 2023 to improve capital ratios.
On Dec 19, 2023, the bank completed a synthetic Credit Risk Transfer (CRT) transaction related to a $3-billion portfolio of on-balance sheet prime indirect auto loans. The transaction is expected to result in $4 million of related expenses, which will be recognized in the December-end quarter, and $19 million of premium expenses, which will be reflected as a contra-revenue in fee income for 2023.
Nonetheless, the transaction is expected to reduce risk-weighted assets by $2.4 billion. This is anticipated to increase common equity tier 1 (CET1) capital by 17 basis points (bps).
The bank projects to record $214 million of expenses in fourth-quarter 2023 for its share of the FDIC's Deposit Insurance Fund Special Assessment from the banking turmoil in March. This is expected to reduce HBAN's CET1 capital ratio by 12 bps.
The net of both moves is expected to benefit CET1 by 5 bps in fourth-quarter 2023.
The bank also terminated its pay-fixed swaption program, which started in March 2023 to protect its securities market value from rising interest rates. The program totaled $15.5 billion in notional exposure as of the third-quarter end and would have protected 35-45% of securities market value under rate shock scenarios.
However, given the Fed hinting to end the rate hike cycle, the bank fully terminated all of the notional exposure as of Dec 21, 2023.
Net of cumulative mark-to-market, the total economic cost of the program was $24 million at the close of the transaction.
Beside these, as announced in October, Huntington anticipates completing its staffing efficiencies and corporate real estate consolidation moves in the fourth quarter. This is projected to result in $12 million of non-recurring expenses in the to-be-reported quarter compared with the $10 million mentioned previously.
Over the past six months, shares of Huntington have gained 21.3% compared with the industry’s rise of 26.8%.
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HBAN currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Bank Stocks Worth a Look
A couple of better-ranked stocks from the banking space are Independent Bank IBCP and Park National PRK.
Earnings estimates for IBCP have been revised marginally upward to $2.87 for 2023 over the past week. The company’s shares have gained 55.9% over the past six months. IBCP currently carries a Zacks Rank #2 (Buy).
Park National’s earnings estimates have been unchanged for 2023 over the past 30 days at $8.21. In six months’ time, PRK shares have risen 31.6%. The company has a Zacks Rank #2 at present.
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