Huntington Posts Q3 Earnings With Net Interest Income Growth Coming in Strong

Narrow-moat-rated Huntington Bancshares (HBAN) reported third-quarter earnings per share of $0.39, in line with the FactSet consensus estimate of $0.38 and a bit ahead of our own estimate of $0.35. Revenue came in at $1.9 billion, just ahead of our own estimate of $1.8 billion. As we’ve said in the past, we felt simply hitting expectations was going to be a key catalyst to help close the bank’s valuation gap, and it’s nice to see that gap finally closing to a point where the bank is less undervalued than our average regional bank under coverage.

Similar to what we’ve seen throughout bank earnings this quarter, net interest income growth is coming in ahead of our forecasts and is expected to keep growing. This is not completely surprising given the Fed’s aggressive rate hike path. Management is now looking for year-over-year growth of high 20s to low 30s for Q4 NII, up from low- to mid-20s previously. We also liked that the bank’s deposit beta came in at less than 20% for the quarter, better than some peers.

On fees, the bank roughly met expectations, and the Q4 guide implies that the bank can maintain roughly stable fees next quarter, a solid result in the current backdrop. While this is a bit lower than the $510 million run rate we wanted for the bank by the end of the year, the current pressures are cyclical, and management was optimistic on underlying growth for Capstone and the ne segment, a key area of investment for Huntington recently.

Expenses were tracking largely as expected. Adjusted expenses next quarter are expected to be up low single digits from Q3 levels, which puts the bank on track with the “up modestly from Q2 plus $25 million for Capstone and Torana acquisitions” that management was shooting for last quarter. Given current results, we don’t expect a material change to our fair value estimate of $16 per share. Huntington remains the highest dividend yielding stock under our traditional U.S. bank coverage.