Huntington Posts Decent Q2 2022 Earnings After a Rough Start to the Year

Narrow-moat Huntington Bancshares (HBAN) reported decent second-quarter earnings per share of $0.35, roughly in line with the FactSet consensus estimate of $0.34. Revenue came in at $1.7 billion, in line with consensus. After a rough start to the year, it is good to see the bank once again produce results that roughly match expectations. We think simply hitting expectations will be a key catalyst to help close the bank’s valuation gap.

Similar to what we’ve seen in other banks’ earnings this quarter, Huntington’s net interest income growth outlook is improving as a result of more-aggressive interest-rate hike expectations. Management is now looking for high-teens to low 20s NII growth for the year, up from the high teens previously. One area of outperformance for Huntington was on fees, as the guidance remained the same while many peers are seeing more pressure. The acquisition of Capstone Partners was not enough to explain this discrepancy. Capital markets fees actually grew organically quarter over quarter, a rare result in the industry. Taking out the swings in gain on sale and bank-owned life insurance, fees would have been up 2% sequentially, despite pressure on mortgage and wealth fees.

Expenses remained on track, as adjusted expenses came in several million below the $1 billion run rate that management had targeted for the second quarter. Expense guidance was maintained. Given current results and the relative stability of guidance, we don’t expect a material change to our $16 fair value estimate.

With acquisition of Capstone now closed and the additional acquisition of Torana also done, generating above-average fee growth will be worth watching for as 2022 and 2023 develop. We expect Huntington to start hitting quarterly fee run rates of $510 million or more by the end of the year and expect further growth thereafter. If the bank cannot accomplish this, we would expect disappointment from the market, and some of the valuation gap may then be justified.