Huntington Bancshares (HBAN) is a multi-state diversified regional bank holding company headquartered in Columbus, Ohio. Its underlying banking business is growing at the same time it has increased its dividend. The stock has appreciated, but is not expensive relative to its peers. 
For these reasons, I recommend investors looking for regional bank exposure buy HBAN stock.
A Closer Look at Huntington Bancshares
HBAN has four main banking businesses:
- Retail and business banking. This segment accounts for 11% of 2013 revenue and involves serving consumers and small businesses.
- Regional and commercial banking. It accounts for 18% of 2013 revenue and involves serving middle market and large corporate customers.
- Automobile finance and commercial real estate. These lines of business account for 31% of 2013 revenue. The bank finances automobiles through dealerships and commercial real estate projects.
- Wealth advisory services, government finance and home lending. This segment accounts for 10% of 2013 revenue. Here the bank provides private wealth management, financial products and services to public sector entities and consumer home lending products and services.
In addition to the four business segments above, HBAN has a Treasury function, which accounts for 29% of 2013 revenue). It includes an insurance brokerage, technology and operations, plus other unallocated assets, liabilities, revenue, and expense.
HBAN Acquisition History
As stated in my earlier article, HBAN made an untimely acquisition of Sky Financial in 2007 for a steep price that resulted in significant losses. These losses led HBAN to raise $920 million in 2010 which allowed it to repay the $1.4 billion in TARP preferred shares to the U.S. Treasury.
In March, HBAN closed on its purchase of Camco Financial a small bank in southeast Ohio that added 22 branches to its footprint. It also announced the acquisition of 11 branches from Bank of America (BAC) in central and east Michigan in April. With Camco having only $800 million in assets, these purchases should not have a significant impact on the bank’s overall performance, either positive or negative.
HBAN Earnings Summary
HBAN 2013 full-year earnings were flat compared to 2012, but the bank showed modest improvements in efficiency and a decline in non-accrual loans. In the first quarter of 2014, HBAN reported good loan growth of 6% from the prior year, but a 6% decrease in net income. In the second quarter, HBAN reported profits increased by 6% and revenue increased by 4.9% to $719.8 million.
At the same time, HBAN also announced it was getting back into the credit card business after having outsourced them for many years. In the third quarter, HBAN saw continued improvement in overall loan growth with 10% increase in average loans and leases from the same time in the previous year. Excluding charges related to the closing of branches related to the Bank of America acquisition, net income was flat.
HBAN Valuation and Analysis
HBAN is making more loans and increasing deposits. Even as HBAN stock continues to move closer to the analyst consensus price of $10.75, but it is not expensive. HBAN’s price-to-earnings ratio of 14.3 is below the industry average of 16 and the S&P’s 18.6.
Investors take note: HBAN has recently increased its dividend by 20%, effective next year. This increases HBAN’s dividend yield to about 2.4%. This is a big show of confidence that the bank is expecting a good 2015. HBAN’s current dividend payout ratio is about 30% so there is room for additional dividend growth as well.
Consistent with my previous opinion, I think HBAN is a regional bank stock to buy because of its focus on organic growth, increasing market share and strong capital position.
As of this writing, Kenneth Fick did not hold a position in any of the aforementioned securities. Write him at kfick@piercethefog.com or follow him on his blog at www.piercethefog.com.
