What's in the Cards for Huntington (HBAN) in Q3 Earnings?
Huntington Bancshares HBAN is slated to report third-quarter 2023 results on Oct 20 before the opening bell. The company’s quarterly revenues and earnings are expected to have declined year over year.
In the last reported quarter, the bank recorded a positive earnings surprise of 2.94%. The results benefited from increases in net interest income (“NII”) and non-interest income. However, increased expenses and higher provisions for credit losses were headwinds.
Huntington has an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 3.29%.
Huntington Bancshares Incorporated Price and EPS Surprise
Huntington Bancshares Incorporated price-eps-surprise | Huntington Bancshares Incorporated Quote
The Zacks Consensus Estimate for HBAN’s third-quarter earnings of 32 cents per share has been revised 3% downward over the past month, reflecting the bearish sentiments of analysts. The figure indicates an 18% decline from the year-ago reported number.
The consensus estimate for revenues of $1.82 billion suggests a year-over-year decrease of 4.6%.
Key Factors & Estimates for Q3
Loans: Banks’ lending activities are likely to have been affected in the third quarter amid a challenging macroeconomic backdrop and high interest rates. Specifically, demand for commercial and industrial loans stayed muted in the third quarter, per Fed’s latest data.
The demand for commercial real estate loans declined, whereas consumer loans experienced soft demand in the quarter under review compared with second-quarter 2023-end.
Given HBAN’s significant exposure to commercial loans, the company’s loan growth in the third quarter is likely to have been affected. This is likely to have negatively influenced the average earning assets balance for the quarter.
The Zacks Consensus Estimate for average earning assets of $174.33 billion indicates a marginal decline from the prior quarter’s reported figure.
NII: The Federal Reserve raised interest rates by another 25 basis points in the quarter under review. Thus, the policy rate reached 5-5.25% in July 2023, marking the 11th FOMC interest rate hike in a tightening process that began in March 2022.
In September, the rate hike was paused. With this, interest rates reached a target of 5.25-5.5% in the third quarter, marking the highest level in around 22 years. Such high rates are likely to have a positive impact on the company’s NII.
Despite this, softer loan demand and higher funding costs are anticipated to have negatively impacted NII and the net interest margin in the quarter to be reported.
The Zacks Consensus Estimate for NII is pegged at $1.32 billion, suggesting a sequential decline of 1.7%.
Non-Interest Income: In the third quarter, mortgage rates continued to increase, with the rate on a 30-year fixed mortgage reaching 7.31% in September, the highest level in nearly 23 years. The climb in mortgage rates, which kept home buyers on the sidelines, led to a smaller origination market, both purchase and refinancing, than the prior-year quarter. These factors are likely to have weighed on HBAN’s mortgage banking income.
A favorable change in the valuation of mortgage servicing rights is likely to have offered some support. The Zacks Consensus Estimate for mortgage banking revenues of $33.26 million suggests a 1% sequential rise.
Global merger and acquisition activities remained depressed in the third quarter, with total deal value declining from the prior year. High interest rates, increased antitrust scrutiny, fears of a global recession and the looming U.S. federal government shutdown are likely to have acted as headwinds for merger and acquisition deals.
Thus, the company’s capital markets fees are likely to have been negatively impacted. Nonetheless, the Zacks Consensus Estimate for the same of $61 million indicates 7% growth sequentially.
The high inflation is expected to have increased card transactions, thereby supporting HBAN’s card and payment processing income in the quarter. However, the Zacks Consensus Estimate for card and payment processing income of $100 million implies a sequential decline of 2%.
The consensus estimate for service charges on deposit accounts for the third quarter is pegged at $85 million, hinting at a decline of 2.3% on a sequential basis. The consensus mark for trust and investment management fees is pegged at $67 million, indicating a sequential decrease of 1.5%.
The Zacks Consensus Estimate for bank-owned life insurance income is pegged at $15.9 million, suggesting a sequential decline of 1%.
The consensus mark for insurance income of $31 million indicates a 3.2% sequential rise. The consensus estimate for leasing revenues is pegged at $26 million, indicating a sequential rise of 4%.
The Zacks Consensus Estimate for other non-interest income is pegged at $57 million, implying a plunge of 23% sequentially.
Overall, the consensus mark for total non-interest income of $486 million indicates a 1.8% sequential fall.
Expenses: Huntington’s long-term investments in digital capabilities, marketing and hiring personnel to aid growth are anticipated to have raised its costs during the third quarter.
Asset Quality: HBAN is expected to have set aside substantial money for potential bad loans, given expectations of a worsening macroeconomic outlook, growing recession risk, slower GDP growth and the likelihood of deteriorating employment conditions. Nonetheless, adequate reserves built during the quarter are expected to have weighed on HBAN’s bottom-line growth.
The Zacks Consensus Estimate for total non-performing assets of $560 million implies a 1% increase from the prior quarter.
What Our Quantitative Model Reveals
Our proven model predicts an earnings beat for Huntington this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is the case here.
Earnings ESP: The Earnings ESP for Huntington is +0.71%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Huntington currently has a Zacks Rank #3.
Stocks That Warrant a Look
First Citizens BancShares, Inc. FCNCA and Cullen/Frost Bankers, Inc. CFR are a couple of stocks you may want to consider, as they, too, have the right combination of elements to post an earnings beat in the upcoming release.
The Earnings ESP for FCNCA is +3.85% and the stock currently carries a Zacks Rank #2. It is slated to report third-quarter 2023 results on Oct 26. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for FCNCA’s third-quarter earnings has moved 2.7% north over the past 30 days.
CFR currently has an Earnings ESP of +1.00% and a Zacks Rank #3. It is scheduled to release third-quarter 2023 results on Oct 26.
The Zacks Consensus Estimate for CFR’s third-quarter earnings has increased marginally over the past week.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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Huntington Bancshares Incorporated (HBAN) : Free Stock Analysis Report
Cullen/Frost Bankers, Inc. (CFR) : Free Stock Analysis Report
First Citizens BancShares, Inc. (FCNCA) : Free Stock Analysis Report
