This story originally appeared on Zacks
Huntington Bancshares Inc. HBAN continues to gain from organic and inorganic growth strategies, and rising loans and deposit balances, while shrinking margins due to a low-rate environment and the lack of loan portfolio diversification remain near-term headwinds.
Shares of this Zacks Rank #3 (Hold) stock have fallen 2.9% in the past six months against 5.2% growth of the industry.
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The company has witnessed continued organic growth in the past few years. Also, it is focused on achieving the best deposit franchise, with the deposit balance increasing, witnessing a compound annual growth rate (CAGR) of 4.4% over the four years ended 2021. Moreover, loans improved, backed by its commendable performance in the commercial and consumer portfolio, seeing a six-year CAGR of 7.7% in 2021. We believe that loan and deposit balances are poised to rise in an improving economy.
Driven by a strong liquidity position, Huntington has been able to expand via a couple of mergers and acquisitions over the past couple of years, the latest being the one closed in June 2021 to acquire TCF Financial to form one of the top 10 regional banks in the nation.
In fourth-quarter 2021, Huntington completed the integration of TCF Financial. The company has already converted 1.5 million customers and consolidated 188 TCF Financial branches to its platform. The acquisition strengthened Huntington’s position in existing markets, established presence in new markets and combined complimentary businesses, further enabling the company to realize meaningful revenue synergies and fuel growth.
The company now plans on consolidating 62 branches in February 2022. It expects to achieve cost savings related to the merger in the first half of 2022. Thus, such inorganic efforts will help the company to gain significant market share and, thereby, enhance its profitability over the long run.
However, HBAN’sbottom-line growth remains affected by the pressure on margins due to the prevailing low interest-rate environment. With support from higher interest rates, margin pressure for Huntington eased in the three years (ended 2018) after witnessing a declining trend for years. However, net interest margin (NIM) declined in 2019, 2020 and 2021, each on account of lower interest rates. Though the Fed signaled a rise in the interest rates in the near future, the overall low-interest-rate environment is expected to keep NIM growth subdued.
Further, a bulk of Huntington’s loan portfolio — nearly 55% as of Dec 31, 2021 — comprises total commercial loans. Such a lack of diversification can be precarious for the company amid any unfavorable development in the economy and competitive markets.
Stocks to Consider
Some better-ranked stocks in the banking space are First Business Financial Services FBIZ, UBS Group AG UBS and PCB Bancorp PCB. At present, both FBIZ and UBS sport a Zacks Rank #1 (Strong Buy), while PCB carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Over the past year, shares of First Business have jumped 46.7%, whereas UBS and PCB have rallied 15.7% and 67%, respectively.
Over the past 30 days, the Zacks Consensus Estimate for First Business’ current-year earnings has been revised 9% upward, while the same for UBS has moved 8.5% north. Moreover, current-year earnings estimates for PCB Bancorp have moved 14.4% up over the past month.
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UBS Group AG (UBS): Free Stock Analysis Report
Huntington Bancshares Incorporated (HBAN): Free Stock Analysis Report
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PCB Bancorp (PCB): Free Stock Analysis Report
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