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Analyst Blog

On Aug 14, 2013, we maintained our Neutral recommendation on Huntington Bancshares Inc. (HBAN - Analyst Report) based on its healthy capital position and improving credit quality. Yet, revenue headwinds are a concern amid a tepid economic recovery 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 second-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 improvement in provision for credit losses. Provision for credit losses decreased 32% from the prior-year quarter to $24.7 million. This reflected a decrease in net charge-offs (NCOs), which were $34.8 million or an annualized 0.34% of average total loans and leases in the reported quarter, down 59% from $84.2 million or an annualized 0.82% in the prior-year quarter.

However, declining revenues due to a drop in both net interest income and non-interest income was the headwind. Huntington’s total revenue on a fully-taxable-equivalent (FTE) basis was $680.2 million, down 1% year over year. Moreover, the revenue figure was below the Zacks Consensus Estimate of $690 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 second-quarter 2013 results, over the last 30 days, the Zacks Consensus Estimate for 2013 has gone up by 1.5% to 68 cents on the back of 9 of the 16 estimates moving north. For 2014, the Zacks Consensus Estimate increased 2.9% to 71 cents as 10 of the 15 estimates moved upward. Currently, Huntington carries a Zacks Rank #3 (Hold).

Other Stocks to Consider

Some Midwest banking stocks that are currently performing well include First Merchants Corporation (FRME - Snapshot Report), First Interstate Bancsystem Inc. (FIBK - Snapshot Report) and Firstbank Corporation . All these companies carry a Zacks Rank #1 (Strong Buy).

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