No Surprises in Huntington’s Fourth-Quarter Results; Credit Still Looking Solid

Narrow-moat-rated Huntington Bancshares HBAN reported fourth-quarter earnings per share of $0.42, just ahead of the FactSet consensus estimate of $0.40 and essentially in line with our estimate of $0.41. Revenue was $1.96 billion, in line with our estimate of $1.93 billion, while expenses of $1.08 billion were also in line with our expectations.

The bank’s 2023 outlook held no surprises. Guidance for average loan growth of 5%-7% shows some of the slowdown we’ve been looking for, while deposits are likely to be slightly down to slightly up on an end-of-period basis as competition for deposits remains intense. The net interest income outlook of 8%-11% growth is just above what we had penciled in, while the flattish fee growth outlook is just below our previous forecast, resulting in a roughly neutral effect on our revenue outlook. Expense guidance for 2%-4% core growth, along with another $60 million for the Capstone and Torana acquisitions, fits squarely within our expectations. As such, we do not expect any material changes to our own forecasts or our $16 fair value estimate. The bank continues to meet our expectations; however, after the shares’ outperformance over the last six months, Huntington is no longer one of the cheaper regionals under our coverage.

Interest-bearing deposit costs came in roughly where we expected, at 88 basis points compared with our forecast of 86 basis points, although deposits are starting to shift into interest-bearing balances at an accelerated rate. There was not a lot of action on the credit side of things. The net charge-off ratio increased by only 2 basis points, while the reserve ratio increased by a single basis point. Nonaccrual assets were down in the quarter. Management believes net charge-offs will likely still be on the low end of their through-the-cycle range of 25-45 basis points. In other words, we aren’t seeing much credit strain yet.