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On May 27, 2013, we reiterated our Neutral recommendation on Huntington Bancshares Inc. (HBAN - Analyst Report) based on its healthy capital position and improving credit quality. But revenue headwinds are a concern amid a tepid economic recovery, low interest rate and a tough regulatory environment. Further, with the anticipation of an expanding expense base, we remain somewhat skeptical about its ability to augment earnings in the quarters ahead.

Why Neutral?

Huntington’s first-quarter 2013 earnings came in at 17 cents per share, beating the Zacks Consensus Estimate by a penny. However, results were stable compared with the prior-year quarter earnings.

Huntington’s results reflected growth in net interest income and reduced expenses. Net interest margin ascended 2 basis points year over year to 3.42% as a result of the decline in the cost of subordinated notes and other long-term debt along with reduced total deposit costs.

However, declining revenues due to a drop in the non-interest income was the headwind. Huntington’s total revenue on a fully-taxable-equivalent (FTE) basis was $682.3 million, down 3% year over year. Moreover, the revenue figure was below the Zacks Consensus Estimate of $693 million.

According to Huntington’s management, though improving trends in the Midwest region is being witnessed, customers are more concerned owing to the uncertainties in the broader economy.

Following first-quarter 2013 results, over the last 60 days, the Zacks Consensus Estimate for 2013 and 2014 remained stable at 67 cents and 69 cents per share, respectively. Hence, Huntington carries a Zacks Rank #3 (Hold).

Other Stocks to Consider

Some Midwest banking stocks that are currently performing well include Old Second Bancorp Inc. (OSBC - Snapshot Report), First Interstate Bancsystem Inc. (FIBK - Snapshot Report) and Enterprise Financial Services Corp. (EFSC - Snapshot Report). All these companies carry a Zacks Rank #1 (Strong Buy).

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