HBANM - Huntington Bancshares Is Still A Good Buy

Summary

• Huntington Bancshares Incorporated is growing revenues and has strong margins.
• While all banks are preparing for recession, the allowance for credit losses is only marginally higher here with Huntington Bancshares Incorporated.
• Loan growth is a strength and there are lots of deposits on hand to lend for further strong loan opportunities.
• A nice 4.5% dividend yield pays you to wait.

Today we check back in on Huntington Bancshares Incorporated (HBAN), which continues to see growth. We recommended this as a buy at $8, and again in the fall at $14 . HBAN shares have retraced back to the $14 level, and we believe that the stock remains a buy. Although we are facing some macro headwinds and a possible mild recession, our coverage of the regional banks strongly suggests that the industry is healthy. There are loan loss provisions that are growing, which are a concern given the economic woes stemming from high inflation and the battle against it. Huntington is also a very efficient bank with strong asset quality metrics.

The company has just reported earnings . In this column, we check back in with this sizable regional bank, and we rate Huntington Bancshares Incorporated shares a buy.

Top line growing

The company continues to grow loans, and the bank has strong net interest income. As a result of loan growth and ongoing strong opportunity, the bank saw revenues continue to reach new highs. In Q4, Huntington Bancshares reported a top line revenue figure that surpassed consensus estimates slightly, and rose from Q4 2021.

The bank reported revenues of $1.97 billion, a 19.4% increase in this metric year-over-year. The $20 million beat wasn't huge but was above consensus. That said, many banks we have covered thus far have been preparing for an economic downturn by increasing loan loss provisions. These weighed on earnings, though Huntington also beat expectations on this metric.

Strong earnings spark a repurchase program

The spike in revenues as well as strong margins led to year-over-year earnings growth. We continue to watch expenditures and the allowance for credit losses, which was up to 1.90% of total loans, a total of $2.3 billion. As a whole, Huntington Bancshares reported Q4 net income of $645 million, a nice increase from a year ago, which saw net income of $244 million. This is a huge increase from Q4 2021. On a per share basis, earnings hit $0.42, up from Q4 2021's $0.16. This is stellar growth. We see strength continuing this year.

With the strength of the quarter and consistent with the company's capital priorities, Huntington Bancshares Incorporated announced a $1 billion share repurchase program. The bank is only getting stronger, growing its capital base, and has a strong reserve profile. What is more, loans and total deposits are growing.

Loans and deposits show growth

The best banks are growing loans and deposits. Huntington is delivering here. The bank delivered total deposit growth of $1.6 billion from the prior quarter. Average total commercial loans and leases were up $1.8 billion, or 3%, and average total consumer loans increased $184 million from Q3. These results for Huntington are strong.

Asset quality metrics improve

Most banks are preparing for a recession and have been increasing their provision for losses. A recession is widely believed to hit here in 2023, and though it may be mild, it could result in loans not being repaid. But for now, asset quality continues to improve. This comes as Huntington is a relatively conservative lender, not taking too much risk on their loans, with strict underwriting standards. The allowance for credit losses increased to $2.3 billion, or 1.90% of total loans and leases as we mentioned. Net charge-offs have increased. Net charge-offs were upped to 0.17% of average total loans and leases for the quarter, but nonperforming assets declined for the 6th quarter in a row.

The efficiency ratio remains impressive

The efficiency ratio is a key metric that we continue to monitor for all regional banks. We believe the strongest banks have an efficiency ratio under 60%, with the textbook 50% being the level we like to see banks come in around on this metric. Well, efficiency is a strength of the bank. The efficiency ratio hit 54.0%, which is very strong. We still anticipate this metric will remain under 60% in 2023.

Valuation

The Huntington Bancshares Incorporated $14 share price is still relatively attractive on valuation metrics that we follow. Further, the bank stock is yielding over 4.5%, well above what bonds can pay. We are at 9X FWD earnings here. We are also at 1.2X book value, while tangible book is about $8.22. Right now, it is hard to find a bank trading near tangible book, but the premium for Huntington Bancshares Incorporated is justified based on the outperformance.

Take-home

Huntington Bancshares Incorporated is in great shape after its Q4 earnings report. Let this thing pull back more and do some buying. Huntington Bancshares still pays a solid dividend, with a yield above 4.5% now. The economy is a bit shaky here, and banks are preparing for some loan losses, but Huntington is also growing its loans and has a strong net interest margin. We think that you should have some yield in your portfolio, and Huntington Bancshares Incorporated stock offers just that, along with some stability in share prices. We like a buy here.

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