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Loan Growth Aids Huntington (HBAN) Amid Concentration Risk
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Huntington Bancshares Incorporated (HBAN - Free Report) has expanded its footprint and capabilities through acquisitions. Given the encouraging signs of an improving economy and growth in lending pipelines, loan and deposit balances are expected to continue driving its organic growth.Yet, rising expenses on technology and personnel, and significant exposure to commercial loans are concerning.
Shares of this Zacks Rank #3 (Hold) company have fallen 17.9% in the past six months compared with the 12.5% decline of the industry.
Image Source: Zacks Investment Research
It remains focused on acquiring the industry's best deposit franchise. The company’s total deposits saw a four-year compounded annual growth rate (CAGR) of 4.4% in 2021. Moreover, driven by a strong performance of the commercial and consumer portfolio, the total loan balance witnessed a six-year CAGR of 7.7% in 2021.
Average loans (excluding the Paycheck Protection Program or PPP) are expected to be up in the upcoming period on higher commercial as well as mortgage, auto and RV/marine loans. Given the encouraging signs of an improving economy and growth in lending pipelines, we believe that both loan and deposit balances will rise.
Over the past few years, Huntington has expanded its footprint and capabilities in a number of verticals through acquisitions. Recently, it completed an agreement to acquire Capstone Partners, an investment banking (IB) firm. The transaction is in sync with Huntington’s efforts to expand its capital markets business. In May 2022, the company acquired Torana to enhance its digital capabilities and enterprise payments strategy.
In June 2021, Huntington closed the merger with TCF Financial to form one of the top 25 U.S. bank holding companies. In the fourth quarter of 2021, Huntington completed the integration of TCF Financial. The acquisition strengthened Huntington’s position in existing markets, established a presence in new markets and combined complementary businesses. Such inorganic efforts will help the company to gain significant market share and, thereby, enhance its profitability over the long run.
Huntington’s credit quality continues to normalize, supported by a favorable economic outlook. Credit metrics have been gradually improving from the last quarter of 2009, except for the third quarter of 2012, as a result of the new regulatory guidance. In the first quarter of 2022, net charge-off ratio and non-performing asset ratio improved. Hence, Huntington’s credit quality is likely to continue witnessing improvement in the quarters ahead on the back of economic recovery.
Yet, its rising cost base keeps us apprehensive. The company intends to make investments in digital capabilities, marketing and hiring personnel to aid its revenue growth initiatives. These are likely to keep its expense base higher, impeding bottom-line growth.
The majority of Huntington’s loan portfolio (55% as of Mar 31, 2022) comprises total commercial loans. Such high exposure to commercial loans depicts a lack of diversification, which can be risky for the company amid any unfavorable development in the economy and competitive markets.
As of Mar 31, 2022, the company held a long-term debt of $7.16 billion, which declined from the 2020-end level. Also, cash and due from banks, as of the same date, were $1.71 billion and times interest earned of 8.8 declined sequentially. The company’s debt level seems unmanageable, given a comparatively low cash balance. Hence, we believe that Huntington carries a higher likelihood of defaulting interest and debt repayments if the economic situation worsens.
The consensus estimate for S&T Bancorp’s current-year earnings has been revised 1.4% upward over the past 30 days. Over the past year, STBA’s share price has declined 15%.
Arrow Financial’s current-year earnings estimates have been revised 3.2% upward over the past 60 days. AROW’s shares have lost 10.6% over the past year.
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Loan Growth Aids Huntington (HBAN) Amid Concentration Risk
Huntington Bancshares Incorporated (HBAN - Free Report) has expanded its footprint and capabilities through acquisitions. Given the encouraging signs of an improving economy and growth in lending pipelines, loan and deposit balances are expected to continue driving its organic growth.Yet, rising expenses on technology and personnel, and significant exposure to commercial loans are concerning.
Shares of this Zacks Rank #3 (Hold) company have fallen 17.9% in the past six months compared with the 12.5% decline of the industry.
Image Source: Zacks Investment Research
It remains focused on acquiring the industry's best deposit franchise. The company’s total deposits saw a four-year compounded annual growth rate (CAGR) of 4.4% in 2021. Moreover, driven by a strong performance of the commercial and consumer portfolio, the total loan balance witnessed a six-year CAGR of 7.7% in 2021.
Average loans (excluding the Paycheck Protection Program or PPP) are expected to be up in the upcoming period on higher commercial as well as mortgage, auto and RV/marine loans. Given the encouraging signs of an improving economy and growth in lending pipelines, we believe that both loan and deposit balances will rise.
Over the past few years, Huntington has expanded its footprint and capabilities in a number of verticals through acquisitions. Recently, it completed an agreement to acquire Capstone Partners, an investment banking (IB) firm. The transaction is in sync with Huntington’s efforts to expand its capital markets business. In May 2022, the company acquired Torana to enhance its digital capabilities and enterprise payments strategy.
In June 2021, Huntington closed the merger with TCF Financial to form one of the top 25 U.S. bank holding companies. In the fourth quarter of 2021, Huntington completed the integration of TCF Financial. The acquisition strengthened Huntington’s position in existing markets, established a presence in new markets and combined complementary businesses. Such inorganic efforts will help the company to gain significant market share and, thereby, enhance its profitability over the long run.
Huntington’s credit quality continues to normalize, supported by a favorable economic outlook. Credit metrics have been gradually improving from the last quarter of 2009, except for the third quarter of 2012, as a result of the new regulatory guidance. In the first quarter of 2022, net charge-off ratio and non-performing asset ratio improved. Hence, Huntington’s credit quality is likely to continue witnessing improvement in the quarters ahead on the back of economic recovery.
Yet, its rising cost base keeps us apprehensive. The company intends to make investments in digital capabilities, marketing and hiring personnel to aid its revenue growth initiatives. These are likely to keep its expense base higher, impeding bottom-line growth.
The majority of Huntington’s loan portfolio (55% as of Mar 31, 2022) comprises total commercial loans. Such high exposure to commercial loans depicts a lack of diversification, which can be risky for the company amid any unfavorable development in the economy and competitive markets.
As of Mar 31, 2022, the company held a long-term debt of $7.16 billion, which declined from the 2020-end level. Also, cash and due from banks, as of the same date, were $1.71 billion and times interest earned of 8.8 declined sequentially. The company’s debt level seems unmanageable, given a comparatively low cash balance. Hence, we believe that Huntington carries a higher likelihood of defaulting interest and debt repayments if the economic situation worsens.
Stocks Worth Considering
A couple of better-ranked stocks from the finance space are S&T Bancorp, Inc. (STBA - Free Report) and Arrow Financial Corporation (AROW - Free Report) . STBA currently sports a Zacks Rank of 1 (Strong Buy) and AROW carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The consensus estimate for S&T Bancorp’s current-year earnings has been revised 1.4% upward over the past 30 days. Over the past year, STBA’s share price has declined 15%.
Arrow Financial’s current-year earnings estimates have been revised 3.2% upward over the past 60 days. AROW’s shares have lost 10.6% over the past year.