Huntington Bancshares Incorporated (NASDAQ:) has been benefiting from rising fee income, improving credit quality, rising margins and strategic investments through mergers and acquisitions (M&A). However, significant exposure to commercial loans, along with rising expenses, is on the downside.
Diversified fee-income base, strategic acquisitions, and rising loans and deposits balance aided the company to rally 20.6% year to date compared with 8.2% growth recorded by the industry.
The company’s earnings estimates for the current year and the next year have remained unchanged, in the last 30 days. Therefore, it currently carries a Zacks Rank #3 (Hold).
Huntington has witnessed continued growth in deposit balance in the last few years. Also, loans improved backed by its commendable performance in the commercial and consumer portfolio. Management predicts average loans and leases to escalate about 4-5% on an annual basis, while average total deposits will likely be up around 2-3%. The company remains particularly focused on growing core deposits through acquiring core checking accounts and strengthening customer relationships.
Supported by its strong liquidity position, Huntington continues to expand through acquisitions. In 2016, the company completed its acquisition of FirstMerit Corporation, resulting in a larger market presence and more diversified loan portfolio, along with a wider core deposit funding base.
Huntington’s non-interest expenses witnessed a CAGR of 8.9% over the last five years (ended 2018), with the trend continuing in the first six months of 2019 as well. The company is making investments in digital, data and technology enhancements that will bolster its existing capabilities and infrastructure. Therefore, a persistent uptrend in expenses is expected, which might limit the company’s profitability and operational efficiency. Notably, management expects expenses to rise 2-4% this year.
Additionally, Huntington’s loan portfolio consists of nearly 50% of commercial loans. Such high exposure to commercial loans depicts lack of diversification, which can be risky for the company amid challenging economy and competitive markets.Stocks to Consider
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