Huntington Bancshares Incorporated HBAN is poised to see a continued rise in loan and deposit balances supported by an improving economy and growth in lending pipelines.Yet, shrinking margins due to low interest rates continue to hurt top-line growth.
Huntington’s total deposits witnessed a three-year compounded annual growth rate (CAGR) of 8% in 2020. Moreover, driven by the strong performance of the commercial and consumer portfolio, the total loan balance recorded a three-year CAGR of 4.4% in 2020. Both metrics continued to increase in the first half of 2021. Supported by economic recovery and government stimulus, the trend is likely to continue in the upcoming quarters as well, thereby, fortifying its balance sheet.
The bank has expanded its footprint with a number of acquisitions. In June 2021, it closed the merger with TCF Financial Corporation to form one of the top 25 U.S. bank holding companies. The acquisition strengthened its position in existing markets, established presence in new markets and combined complementary businesses, which will enable the company to realize meaningful synergies and fuel growth.
Backed by a favorable economic outlook, Huntington’s credit quality continues to normalize. Credit metrics have been gradually improving since the last quarter of 2009, except for the third quarter of 2012, as a result of the new regulatory guidance. Its credit quality is likely to witness improvement in the quarters ahead on the back of economic recovery.
With declining debt levels and decent liquidity, we believe that Huntington carries a lower likelihood of default of interest and debt repayments if the economic situation worsens.
The company’s shares have jumped 59.2% in the past year, outperforming the industry’s growth of 39.9%.
Image Source: Zacks Investment Research
The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
However, net interest margin (NIM) declined in 2019 and 2020 on account of a decline in interest rates. In the first half of 2021, NIM remained flat year over year. Nevertheless, given the near-zero interest rate environment along with almost no chance of a rate hike anytime soon, the company’s margin pressure is likely to persist in the quarters ahead.
Huntington’s non-interest expenses saw a CAGR of 7.7% over the last five years (ended 2020), with the trend continuing in the first half of 2021. The company intends to make investments in digital, data and technology enhancements, product differentiation and other initiatives, which will likely bolster its existing capabilities and infrastructure. Therefore, a rising expense base is expected to impede bottom-line growth of the company.
The majority of its loan portfolio — 55% as of Jun 30, 2021 — comprises total commercial loans (commercial and business lending as well as commercial real estate lending). Such high exposure to commercial loans depicts a lack of diversification, which can be concerning for the company amid any unfavorable development in the economy and competitive markets.
Associated BancCorp ASB has witnessed marginal upward estimate revision to $1.99 over the past seven days. It currently has a Zacks Rank of 2 (Buy).
Civista Bancshares, Inc.’s CIVB earnings estimates for the ongoing year have moved north to $2.54 in the past 30 days. It currently has a Zacks Rank of 2.
Heartland BancCorp.’s HLAN earnings estimates for the ongoing year have moved north to $8.39 in the past 30 days. It currently has a Zacks Rank of 2.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Huntington Bancshares Incorporated (HBAN) : Free Stock Analysis Report
Associated BancCorp (ASB) : Free Stock Analysis Report
Civista Bancshares, Inc. (CIVB) : Free Stock Analysis Report
Heartland BancCorp. (HLAN) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research