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Low Net Interest Income to Erode Huntington (HBAN) Q4 Earnings

Zacks Equity Research

Huntington Bancshares HBAN is scheduled to report fourth-quarter 2019 results on Jan 23, before the opening bell. The company’s results are projected to reflect year-over-year growth in earnings, though revenues are likely to witness a decline.

In the last reported quarter, the company’s earnings beat the Zacks Consensus Estimate. Results were supported by higher revenues on the back of rise in fee income. Improvement in loans was also a driving factor. However, results were adversely impacted by rise in operating expenses and higher provisions for credit losses. Also, contraction of margin was a negative.

Huntington’s activities in the fourth quarter were inadequate to impress analysts. As a result, the Zacks Consensus Estimate for earnings of 31 cents moved south slightly over the past 30 days. Nonetheless, it indicates growth of 6.9% from the year-ago reported figure.

Yet, the consensus estimate for revenues of $1.16 billion suggests a decline of 0.2%.

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

Factors At Play

Soft Loan Growth: Per the Fed’s latest data, rise in loans is likely to have been low on a sequential basis for the December-end quarter. Particularly, weakness in revolving home equity loans and commercial and industrial (C&I) are expected to have offset growth in consumer and commercial real estate loans. Also, trade-war concerns though subsided to an extent, hurt business sentiments across the industries, which might have had an adverse impact on loan demand.

Notably, management’s anticipations of loan growth in 2019 will likely be reflected in the quarterly results. The bank projects average loans and leases to have escalated about 4% on an annual basis, with continued growth in consumer business, including home lending and auto finance. Commercial loan portfolio is expected to have recorded marginal growth.

Net Interest Income (NII) Disappointing: A dismal lending scenario — mainly in the areas of commercial and industrial, and revolving home equity — during the fourth quarter might have adversely impacted net interest income (NII).

Further, the Federal Reserve’s accommodative monetary-policy stance, with decline in interest rates (three rate cuts in July, September and October), and its impact on the yield curve are likely to have dampened net interest margin in the to-be-reported quarter.

The Zacks Consensus Estimate for average interest earning assets of $100.1 billion for the quarter is stable.

Rise in Fee Income: Rise in components of income is anticipated to have aided non-interest income in the fourth quarter. Fixed income trading revenues are likely to have increased owing to rise in client activity.

Further, consumer spending trend was stronger during the October-December quarter, which will likely have bolstered the bank’s credit and debit card revenues. Mortgage banking performance is also projected to improve on the back of lower mortgage rates, which drove refinancing activities during the quarter.

Also, non-interest income is expected to have benefited from rise in service charge on deposits as deposit balances are likely to have increased in the quarter.

Expenses under Control: Management remains focused on expense management. Also, there were no major outflows during the quarter that might have impacted the firm’s earnings unusually in the to-be-reported quarter. Nevertheless, management expects expenses to be up around 2-2.5%, including the impact of net $15-$20 million of unusual expenses resulting from the previously-mentioned expense actions that the company might have taken during the period under consideration.

Here is what our quantitative model predicts:

Huntington doesn’t have the right combination of the two key ingredients — positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase 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 company has an Earnings ESP of -3.13%.

Zacks Rank: It carries a Zacks Rank #3, at present.

Stocks That Warrant a Look

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

Bank of Hawaii Corporation BOH is set to release results on Jan 27. The company has an Earnings ESP of +0.37% and carries a Zacks Rank of 2, at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cullen/Frost Bankers, Inc. CFR is slated to report earnings on Jan 30. The company has an Earnings ESP of +0.18% and currently carries a Zacks Rank of 3.

TD Ameritrade Holding Corporation AMTD has an Earnings ESP of +0.39% and at present, holds a Zacks Rank of 3. It is scheduled to report quarterly figures on Jan 21.

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Huntington Bancshares Incorporated (HBAN) : Free Stock Analysis Report
 
Cullen/Frost Bankers, Inc. (CFR) : Free Stock Analysis Report
 
Bank of Hawaii Corporation (BOH) : Free Stock Analysis Report
 
TD Ameritrade Holding Corporation (AMTD) : Free Stock Analysis Report
 
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