Huntington Bancshares profit falls on FDIC charge, interest income weakness
Huntington Bancshares reported a 62% fall in fourth-quarter profit on Friday, primarily due to a $214 million charge related to replenishing a government deposit insurance fund and a decline in the lender’s income from interest on loans.
FDIC charge and impact on profit
The Federal Deposit Insurance Corporation’s (FDIC) fund experienced a significant drain of about $16 billion after two mid-sized banks collapsed in early 2023. As a result, several financial institutions are required to refill the fund, which serves to insure customer deposits in the event of a bank failure.
Huntington Bancshares incurred a charge of $214 million to replenish the FDIC fund, significantly impacting its fourth-quarter profit. This charge reflects the bank’s commitment to maintaining the stability of the deposit insurance system and protecting customer deposits.
Weakness in interest income
Huntington Bancshares also experienced weakness in its income from interest on loans. The U.S. Federal Reserve’s monetary policy aimed at curbing inflation resulted in higher net interest income (NII) for most banks throughout the year. NII represents the difference between what banks earn on loans and what they pay out on deposits.
However, the high interest rates associated with this policy also pushed up deposit costs for banks. In order to retain clients, lenders had to pay more to prevent them from seeking higher returns in money market funds, which were benefiting from the high interest rate environment.
In the fourth quarter, Huntington Bancshares’ NII fell by 10% to $1.32 billion. The bank has forecasted its NII for 2024, expecting it to either rise or fall 2% from the $5.48 billion reported in 2023.
Provision for credit losses and loan losses anticipation
Along with other banking peers, Huntington Bancshares increased its provision for credit losses to $126 million in the fourth quarter, up from $91 million in the previous year’s fourth quarter. This increase reflects the bank’s anticipation of potential loan losses.
The provision for credit losses is a reserve set aside by banks to cover potential losses on loans. By increasing this provision, Huntington Bancshares is taking proactive measures to mitigate any potential impact from loan defaults or delinquencies.
Fourth-quarter financial performance
Huntington Bancshares posted a net profit of $243 million, or 15 cents per share, in the fourth quarter of 2023. This is a significant decline compared to the $645 million, or 42 cents per share, reported in the same period of the previous year.
The FDIC charge and weakness in interest income were the primary contributors to this decline in profit. However, the bank remains committed to its long-term growth strategy and expects improved performance in the future.
Frequently Asked Questions
What is the FDIC charge and how did it affect Huntington Bancshares’ profit?
The FDIC charge refers to the amount of money financial institutions are required to contribute to replenish the Federal Deposit Insurance Corporation’s deposit insurance fund. Huntington Bancshares had to incur a charge of $214 million to fulfill its obligation, which significantly impacted the bank’s fourth-quarter profit.
Why did Huntington Bancshares experience weakness in interest income?
Huntington Bancshares’ weakness in interest income is primarily attributed to the high interest rate environment. While the Federal Reserve’s monetary policy aimed to curb inflation resulted in higher net interest income for most banks, it also pushed up deposit costs for lenders. As a result, the bank’s income from interest on loans declined, impacting its overall interest income.
What is the provision for credit losses?
The provision for credit losses is a reserve set aside by banks to cover potential losses on loans. It serves as a buffer to absorb any potential impact from loan defaults or delinquencies. In the fourth quarter, Huntington Bancshares increased its provision for credit losses to $126 million, reflecting its anticipation of potential loan losses.
What is Huntington Bancshares’ outlook for 2024?
Huntington Bancshares has forecasted its net interest income (NII) for 2024 to either rise or fall 2% from the $5.48 billion reported in 2023. The bank remains committed to its long-term growth strategy and expects improved performance in the coming year.
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