On-Track Q1 for Huntington; Fees Expected to Be Weaker

Narrow-moat-rated Huntington Bancshares HBAN reported decent first-quarter earnings per share of $0.29, in line with the FactSet consensus estimate of $0.29. Revenue came in at $1.65 billion, in line with consensus of $1.63 billion. After disappointing guidance for last year's fourth quarter, it was good to see the bank produce results as expected. We think simply hitting expectations is helping the shares outperform after this quarter's earnings release.

That said, there were some mixed updates to current guidance, with net interest income now expected to grow faster as a result of more-aggressive interest-rate hike expectations, while fee income is expected to grow less, largely due to a bigger slowdown in the mortgage market. While we also noticed some potential weakness in payments and capital markets, which we think are worth keeping an eye on, we’ve seen the same pattern across the industry this quarter, so this may not be too far out of the norm.

Expenses remained on track, as adjusted expenses were already essentially at the $1 billion run rate that management had predicted to occur by the second quarter. Given current results and the updated fee guidance, we expect the current fee run rate of roughly $500 million to be repeated for the rest of the year. This excludes the recently announced acquisition of Capstone Partners, which should drive an additional $20 million-$30 million in revenue during the fourth quarter of 2022.

While lower fees will exert slight downward pressure on our fair value estimate, pulling forward net interest income should partially offset this. We think the addition of revenue from Capstone will also be a net positive for the firm. As such, we do not expect a material change to our fair value estimate. There is the possibility, though, that as we further incorporate these results, our fair value estimate will either remain at $16 per share or decline by a low-single-digit percentage (roughly $0.50).

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