Huntington returned to the acquisition front in a big way in 2016 with the purchase of FirstMerit

Business Strategy & Outlook

Huntington Bancshares did not fare well in the aftermath of the financial crisis, largely because of the poorly timed acquisition of Sky Financial in 2007. Although it seemed a reasonable combination at the time with significant footprint overlap, the potential for considerable synergies turned into massive losses due to the subprime mortgage business and bad commercial loans. Under its new leader, Stephen Steinour, Huntington embarked on a strategy shift in 2010 that focused on delivering strong customer service to middle-market businesses and retail clients. The bank also took steps to improve its internal credit procedures and shore up its balance sheet. This strategy has been successful. Commercial and consumer relationships have grown, Huntington has been successful at expanding relationships across multiple product lines, and overall fee income has improved. In 2016, the bank stated that 47% of its commercial clients used four or more of its products or services, up from 22% in 2010, while 52% of retail customers used at least six or more services, up from 43% in 2013. Huntington returned to the acquisition front in a big way in 2016 with the purchase of FirstMerit. This added much-needed scale and efficiency while improving market share. After cutting over 40% of FirstMerit’s original cost base, Huntington sold its more expensive product set in new and underpenetrated markets. Growth in home lending in Chicago and growth from the RV/boat financing unit have been very strong, indicating that the merger worked. Meanwhile, Huntington’s auto financing franchise remains strong as ever.

Since FirstMerit, Huntington has completed several bolt-on acquisitions, including HSE in 2018 and Capstone Partners in 2022 to help further build out their capital markets unit. Huntington also completed another sizable banking acquisition in 2021 with TCF Financial, in a classic cost-saving, market-overlap play. Beginning to get a true feel for more normalized financials following the acquisition. The initial impression is that the bank may struggle to reach its goal of 17%-plus returns on tangible common equity through the cycle.

Financial Strengths

Huntington is in solid financial health. The bank has been generating profits since 2010, with returns on tangible equity handily exceeding its 9% cost of capital. Huntington reported a common equity Tier 1 capital ratio of 9.3% as of September 2022, and given the bank’s moderate to low appetite for risk, this seems very reasonable to us

Bulls Say

A strong economy and higher rates are all positives for the banking sector and should propel revenue and profitability even higher.
Huntington’s recent acquisitions have improved the bank’s scale and share, and more revenue growth could be right around the corner.
Huntington has taken advantage of new markets and product sets from its acquisitions, growing fee income and taking some share along the way. This could continue, potentially allowing Huntington to grow revenue faster than peers.

Company Description

Huntington Bancshares is a regional bank holding company headquartered in Columbus, Ohio. The bank has a network of branches and ATMs across eight Midwestern states. Founded in 1866, Huntington National Bank and its affiliates provide consumer, small-business, commercial, treasury management, wealth management, brokerage, trust, and insurance services. Huntington also provides auto dealer, equipment finance, national settlement, and capital market services that extend beyond its core states.

(Source: Morningstar)

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