Huntington's Q4 Wasn't Bad; We Expect to Lower FVE

Narrow-moat rated Huntington Bank HBAN reported OK fourth-quarter earnings of $0.26, below the FactSet consensus of $0.30 but ahead of our own estimate of $0.23. The bank slightly beat our provisioning, expense, and fee income estimates for the quarter. The big disappointment, however, was the forward guidance. There are a lot of moving parts with Huntington given the midyear acquisition of TCF Financial in 2021; however, our read on the 2022 guidance suggests slight disappointments within fees, expenses, and net interest income, which wouldn’t have been as big a deal on their own but when combined add up to something more material.

For us, guidance implies higher expense growth than we had anticipated in 2023, where we had been hoping the roughly $4.06 billion core rate in 2022 would have held roughly steady in 2023 and grown from there. However, it appears that expenses will likely reach a nadir in the third quarter of 2022 and start rising in 2023, hopefully slower than revenue growth, but beginning to rise, nonetheless. The fee guidance of low single digits also came in a bit below where we were hoping 2022 would land. This is at least partially influenced by the loss of deposit service fees, with roughly 16% of these fees expected to disappear by the end of the year. Finally, while there are many moving parts for net interest income for Huntington, based on the 2022 guide, and considering all of the loan growth that is expected, we think the bank may be coming in less rate sensitive than we had anticipated. Adding up all of these adjustments, we are expecting roughly a 10% negative adjustment to our 2023 operating income and roughly an equal drop in our fair value estimate of $18.

With the current drop to roughly $15 per share on Jan. 21, we think the bank will still appear undervalued, even after our adjustments, although this highlights some of the risks when there are so many moving parts in a story.

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