Huntington Continues Strong Growth

  • Huntington reports second-quarter earnings of 17 cents a share, beating the consensus estimate of 15 cents.
  • Net interest margin increases by two basis points, bucking industry trend.
  • Average loans grow at 21% pace during second quarter, including Fidelity acquisition; period-end loans grew 3%.

Updated with early market action and comment from Jefferies analyst Ken Usdin.

NEW YORK ( TheStreet) -- Huntington Bancshares ( HBAN) on Thursday reported that its average loans during the second quarter increased at an annualized pace of 21% from the first quarter.

The Columbus, Ohio, lender reported second-quarter earnings applicable to common shares of $144.7 million, or 17 cents a share, beating the 15-cent consensus estimate among analysts polled by Thomson Reuters.

In comparison, the company earned $153.3 million, or 17 cents a share, during the first quarter, and $145.9 million, or 16 cents a share, during the second quarter of 2011.

Huntington's shares were up over 2% in early trading, to $6.74.

Net interest income increased 3% sequentially, to $429 million, mainly reflecting Huntington's acquisition of the failed Fidelity Bank of Dearborn, Mich., which had roughly $818 million in total assets and $748 million in deposits. Huntington's net interest margin -- the difference between a bank's average yield on loans and investments and its average cost for deposits and borrowings -- expanded to 3.42% during the second quarter, from 3.40% in both the first quarter and the second quarter of 2011.

Second-quarter noninterest income totaled $253.8 million, declining from $285.3 million in the first quarter and $255.8 million in the second quarter of 2011. The first-quarter noninterest income included a $23 million auto loan securitization, and an $11.4 million bargain purchase gain from the Fidelity acquisition.

Second-quarter noninterest expense was $444.3 million, declining from $462.7 million the previous quarter, and $428.4 million a year earlier. The sequential expense decline reflected a $23 million addition to litigation reserves during the first quarter, which was partially offset by increases in costs for data processing and professional services, as well as a seasonal increase in marketing expenses, as well as $6.8 million in one-time integration expenses from the Fidelity acquisition.

Huntington's average loans increased at a 21% annualized pace during the second quarter, to $41.2 billion, reflecting in part the Fidelity acquisition. Period-end loans and leases grew 3% during the second quarter, to $40.0 billion. The Fidelity loans were included in the first-quarter period-end numbers, but not in the first quarter average loan numbers.

Period-end commercial and industrial loans grew 3% sequentially to $16.3 billion as of June 30, while commercial real estate loans declined 2% to $5.9 million.

Consumer loans held in portfolio declined 6% during the second quarter to $17.7 billion, mainly because the company "reclassified $1.3 billion of automobile loans into held for sale at the end of the quarter in preparation for an expected securitization in the second half of 2012."

Total period-end deposits increased 2% sequentially and 11% year-over-year, to $46.1 billion as of June 30, with coveted noninterest-bearing demand deposits growing 4% during the second quarter and 50% year-over-year, to $12.3 billion.

Huntington CEO Stephen Steinour said the company's second-quarter results "showed the benefit of 11.6% annualized growth in consumer checking account households and 11.9% annualized growth in commercial relationships, with both electronic banking and service charges on deposits up over 9%," adding that "not only are we gaining customers, we are selling deeper with 76.0% of consumer checking account households and 32.6% commercial relationships now with 4 or more products or services."

When asked about the company's lending success, Steinour says "our lending is a reflection of a better Midwest economy and our ability to compete and take market share." Most of Huntington's loan and deposit growth has been from commercial customers, and "the way we approach this is with the relationship."

Steinour says "we're not just trying to make a loan; we're trying to create a relationship through which other products are sold," and that Huntington is "very focused on small and medium sized businesses here." When asked about particular industries that are growing, the CEO says "the manufacturing sector has clearly gotten much better, and it is much broader than autos. There is a lot of export activity out of Michigan, Indiana and Ohio, and a fair amount of commercial construction going on, related to health care."

Steinour ads that "there is a gas play in western Pennsylvania, through Ohio and parts of Michigan, not just on the drilling side, but with lots of different supply elements coming together."

Huntington's second-quarter return on average assets was 1.10%, compared to 1.13% the previous quarter, and 1.11% a year earlier. The company's second-quarter return on average tangible common equity was 11.1%, declining from 11.4% in the first quarter, and 11.6% in the second quarter of 2011.

Huntington's shares closed at $6.60 Wednesday, returning 22% year-to-date, following a 19% decline during 2011.

HBAN Chart HBAN data by YCharts

The shares trade for 1.2 times their reports June 30 tangible book value of $5.49, and for 10 times the consensus 2013 earnings estimate of 65 cents. The consensus 2012 EPS estimate is 64 cents.

Based on a four-cent quarterly payout, the shares have a dividend yield of 2.42%.

Jefferies analyst Ken Usdin rates Huntington a "Buy," with a $7.50 price target, and said that "overall, results were solid for the quarter, with the one slight pushback likely to be credit quality," as "net charge-offs increased $1mm (to $84mm) and nonperformers fell $4mm (to $524mm)."

The analyst noted that "nonperforming inflows increased to $221mm (from $135mm), but HBAN expects credit quality to continue to experience improvement."

With Huntington buying back six million shares during the second quarter, the company is authorized to buy back another $140 million worth of shares, and Usdin expects "HBAN to use the majority of the buyback authorization over the next 9 months with the total payout (buyback and dividends) in the 50%-60% range."

Interested in more on Huntington Bancshares? See TheStreet Ratings' report card for this stock.


-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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