Maintaining Our $15 Fair Value Estimate for Huntington After First-Quarter Earnings

Huntington Bancshares HBAN is a midsize U.S. regional bank concentrated in the Midwest. It did not fare well in the aftermath of the financial crisis, largely because of the poorly timed acquisition of Sky Financial in 2007. Although it seemed like a reasonable combination at the time with significant footprint overlap, the potential for considerable synergies turned into massive losses due to the subprime mortgage business and bad commercial loans, which nearly broke the bank.

Stephen Steinour joined as CEO in 2009, and Huntington embarked on a strategy shift in 2010 that focused on delivering strong customer service to middle-market businesses and retail clients. The bank also took steps to improve its internal credit procedures and shore up its balance sheet. This strategy has been successful. Commercial and consumer relationships have grown, Huntington has been successful at expanding relationships across multiple product lines, and overall fee income has improved.

Huntington returned to the acquisition front in a big way in 2016 with the purchase of FirstMerit. This added much-needed scale and efficiency while improving market share. After cutting over 40% of FirstMerit’s original cost base, Huntington sold its more expansive product set in new markets. Growth in home lending in Chicago and from the RV/boat financing unit has been very strong ever since. Meanwhile, Huntington’s auto financing franchise remains strong as ever.

Since FirstMerit, Huntington has completed several bolt-on acquisitions, including HSE in 2018 and Capstone Partners in 2022 to help further build out its capital markets unit. Huntington also completed another sizable banking acquisition in 2021, TCF Financial, in a classic cost-saving, market-overlap play. While this acquisition may not be as transformative as the FirstMerit deal, it increased Huntington’s size and market share nonetheless.

Amid the current banking industry turmoil, we expect Huntington will face increased funding costs, but nothing that poses any existential risks to the bank. In fact, the overall stability of the deposit base coming out of the first quarter was encouraging to us.