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Can TCF Merger Buoy Huntington's (HBAN) Earnings in Q3?

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Huntington Bancshares HBAN is slated to report third-quarter 2021 results on Oct 28, 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 reported an earnings surprise of 9.4%. An increase in revenues, aided by high net interest and non-interest income, supported the results. A rise in leasing revenues and an increase in average earnings assets acted as the driving factors. An improvement in deposits and a decrease in credit provisions were other positives.

Huntington has a decent earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in three and lagged in one of the trailing four quarters, the average beat being 13.21%.

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

The Zacks Consensus Estimate for third-quarter earnings of 36 cents indicates a 33.3% rise from the year-ago reported number. The consensus estimate for revenues of $1.7 billion suggests a year-over-year jump of 35.7%.

In early June, the company closed the acquisition of TCF Financial Corporation, adding around $50 billion of total assets, $34 billion of total loans and leases, and $39 billion of total deposits. Hence, third-quarter 2021 will be the first full quarter of the company benefiting from the TCF acquisition.

Key Factors at Play

Net Interest Income (NII) Growth: In the third quarter, the overall demand for commercial real estate loans improved, while the commercial and industrial loan demand has been soft, with a decline in inventory finance utilization. This is likely to have aided the company’s third-quarter performance as the majority of its loan portfolio comprises total commercial loans (commercial and business lending as well as commercial real estate lending). On the consumer lending side, growth in residential mortgage is expected to have been offset by home equity paydowns.

Steepening of the yield curve in the quarter, moderate improvement in the lending scenario and higher loan balance from the TCF merger are likely to have offered some support to Huntington’s NII despite the near-zero interest rate environment.

The Zacks Consensus Estimate for average interest-earning assets of $158.6 billion for the quarter implies a 43.3% year-over-year improvement.

The consensus estimate for NII (on a tax-equivalent basis) indicates a 43.4% year-over-year rise to $1.2 billion.

Management expects NIM to be 2.90% for the third quarter, including Paycheck Protection Program fees and excluding purchase accounting benefits. The Zacks consensus estimate for the same is pegged at 2.94%.

High Non-Interest Revenues: While mortgage rates increased sequentially, it was still low in the third quarter. This along with the strong housing market conditions and higher homebuying activities is expected to have continued driving purchase originations. Yet, the origination boom in 2020, driven by the historically low rates, makes comparison tough for the quarter. A gradual slowdown in refinancing activities, prepayments and lower mortgage-servicing activities are expected to have hindered the mortgage banking business.

The factors are expected to have limited Huntington’s mortgage banking fee growth in the to-be-reported quarter. The Zacks Consensus Estimate for the same is pegged at $65 million, suggesting a 46.7% year-over-year plunge.

Deposit balances continued to rise in the third quarter, thereby, aiding deposit service charges.The consensus estimate for the same is pegged at $105 million, indicating a 38.2% rise on a sequential basis.

Improvement in consumer confidence is likely to have boosted consumer spending and debit card usage. This is expected to have supported the company’s card fees. The Zacks Consensus Estimate for cards and payment-processing revenues of $100 million suggests a 51.5% rise from the prior-year quarter’s reported figure.

The Zacks Consensus Estimate for capital market fees and trust service fees is pegged at $37 million and $60 million, suggesting increases of 37% and 25%, respectively, from the prior-year quarter’s reported figures.

Overall, the consensus mark for non-interest income of $527 million indicates 22.6% year-over-year growth.

High Expenses: Investments in digital, data and technology enhancements, product differentiation, front office expansions and other initiatives to bolster its existing capabilities and infrastructure are likely to have led to higher expenses, thereby, hindering earnings growth in the quarter under review.

Moreover, management projects third-quarter operating expense growth between $250 million and $1 billion, excluding one-time merger costs related to the TCF merger.

Improved Asset Quality: Driven by improving macroeconomic backdrop and stable credit market conditions, Huntington is likely to have reduced credit provisioning in the third quarter (similar to the prior quarter). This is expected to have supported the company’s earnings in the to-be-reported quarter.

What Our Quantitative Model Reveals

Huntington does not have 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 0.00%.

Zacks Rank: Huntington currently has a Zacks Rank of 3.

Stocks to Consider

Here are a few finance stocks that you may want to consider, as according to our model, these have the right combination of elements to post an earnings beat in their upcoming releases.

Capital One Financial Corporation COF is slated to report quarterly earnings on Oct 26. The company, with a Zacks Rank of 2 (Buy) at present, has an Earnings ESP of +4.66%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Civista Bancshares, Inc. CIVB is scheduled to release third-quarter results on Oct 27. The company currently has a Zacks Rank #2 and an Earnings ESP of +5.32%.

The Earnings ESP for First Interstate BancSystem, Inc. FIBK is +4.46%. This Zacks #3 Ranked company is scheduled to report quarterly numbers on Oct 26.


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Huntington Bancshares Incorporated (HBAN) : Free Stock Analysis Report

First Interstate BancSystem, Inc. (FIBK) : Free Stock Analysis Report

Civista Bancshares, Inc. (CIVB) : Free Stock Analysis Report

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