Huntington Bancshares: Strong Loan Quality Makes Shares Attractive

Core Viewpoint - Huntington Bancshares has shown strong performance with a 24% increase in shares over the past year, attributed to its robust deposit franchise and effective management during the regional banking crisis [1][6][30] Financial Performance - In Q2, Huntington earned $0.30 per share, exceeding consensus estimates by $0.02, with adjusted earnings of $0.33 after accounting for a one-time FDIC special assessment of $6.2 million [6][30] - The company reported a net interest income (NII) of $1.33 billion, reflecting a sequential increase of $25 million, despite a slight compression in net interest margin (NIM) to 2.99% [24][30] - Average loans increased by $2 billion year-over-year, with a 4.7% annualized growth rate in Q2, particularly in business loans [16][30] Deposit and Loan Growth - Huntington's deposits grew by 4.9% year-over-year, with a sequential increase of 1.9%, indicating strong deposit gathering capabilities [3][7] - The loan-to-deposit ratio stands at 81%, down from 84% a year ago, showcasing a strong liquidity position [12][30] Capital and Reserves - The common equity tier one (CET1) capital ratio is at 10.4%, with an adjusted CET1 of 8.6%, above the regulatory minimum but below the target range [20][30] - The company maintains a reserve/loan coverage of 1.95%, providing approximately three times coverage of its delinquencies, indicating a conservative approach to credit risk [19][30] Market Position and Strategy - Huntington is expanding its wealth management capabilities and entering new markets, such as Florida and Texas, with adjusted noninterest expenses rising by 6% to $1.1 billion [13][30] - The company is positioned for modest earnings growth in 2025, with expectations of reaching $1.50 in earnings per share as its balance sheet expands [30][31] Valuation and Future Outlook - Shares are currently trading at 11 times forward earnings, with a tangible book value of $9.90, suggesting a valuation premium due to strong credit quality [23][30] - The potential for modest multiple expansion exists, with a target price of $16.80, reflecting a favorable long-term return outlook for investors [31]