How a strong Midwest economy is stifling Huntington's growth

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Sometimes a good economy can create unexpected challenges for growth-minded banks.

Take Huntington Bancshares in Columbus, Ohio, for example. Executives Wednesday pointed to an unusual factor — low unemployment — as they explained why commercial loan growth has been muted. It turns out that labor shortages are keeping its business clients from expanding.

Low unemployment is "a restraining factor," Steve Steinour, the $105 billion-asset company's chairman and CEO, said during a conference call to discuss quarterly results. "The underlying strength [of the economy] makes me bullish long-term, but clearly it’s holding us back at some level.”

At the same time, Steinour said high bank valuations are making acquisitions unpalatable for Huntington. The company completed its last acquisition — the $3.4 billion purchase of the $26 billion-asset FirstMerit — nearly two years ago.

“We did a very large acquisition," he said of FirstMerit. "The integration has gone extraordinarily well, but it’s not like you announce these and you’re done. … We have momentum in our businesses and we’re going to keep pushing that — particularly while valuations are at this level.”

Huntington still found ways to boost the bottom line. Second-quarter profit rose 31% from a year earlier, to $355 million.

The performance, by and large, met expectations.

Huntington had “a generally in-line quarter marked by slightly better loan growth, better core net interest margin and well-contained expenses," John Pancari, an analyst at Evercore, wrote in a note to clients.

Total loans rose 8%, to $72 billion, even though commercial loans only increased by 3%.

The biggest gains came from consumer segments such as RV and marine finance, where loans increased by 31%, and mortgages, which rose by 21%. Auto loans, a business Huntington has stuck with as other banks pull back, rose by 8%.

Steinour credited Huntington’s strong relationships with dealerships for helping the company make more auto and recreational loans — even after it raised its lending rates.

“We have a really seasoned team here ... and then we’ve invested in technology, so the experience for the dealers gets rated No. 1 in the country,” Steinour said in an interview.

Huntington is also tracking how a potential trade war could hurt its clients.

“While I don’t think it’s impacted customers’ outlook yet, it’s something we’re keeping an eye on,” Daniel Neumeyer, Huntington’s chief credit officer, said during the earnings call. “Clients are monitoring the situation, they’re cautious, but they’re still going ahead with their plans.”

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