Huntington puts itself on M&A sidelines

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Huntington Bancshares in Columbus, Ohio, is disinclined to jump back into the M&A pool.

The $104 billion-asset company is content to sit idle for the next few months, even though it has completed its integration of FirstMerit. Management will instead focus its efforts on drafting a revised strategic plan to guide expansion in coming years.

“The priority for us in 2018 is getting the strategic planning process really robustly and well completed, and secondarily delivering our revenue metrics,” Stephen Steinour, Huntington's chairman and CEO, said during a conference call to review the company's fourth-quarter results.

“We’re in a cautious posture," Steinour added. "As we advance the strategic plan, the emphasis is on core [operations], not M&A. That’s the focus.”

Such caution also applies to Chicago, which Huntington entered in August 2016. While the company has leading positions in most of its major markets, it is merely a middle-of-the-pack player in the Windy City. It barely cracked the top 20 in terms of deposit market share last year, based on data from the Federal Deposit Insurance Corp.

“We’ve got a very select focus in Chicago,” Steinour said. “We’re not trying to play a broad-based, consumer strategy given our limited distribution there. We like the niches we have in Chicago and that’s how we’re playing.”

An M&A hiatus by Huntington, a previously active acquirer that completed five deals in the past decade, mirrors the situation at many other regional banks. The $21.3 billion-asset Bank of the Ozarks in Little Rock, Ark., recently said a recent slump in its share price would likely sideline it over the short term.

“Our long-term commitment to do triple-accretive transactions is undiminished," George Gleason, Bank of the Ozarks' CEO, said during his company's recent earnings call. "And we certainly have a better prospect of doing triple-accretive transactions when our stock price is trading at a more appropriate level than it has been recently."

Gleason also made it clear that Bank of the Ozarks could achieve top-tier growth without an acquisition.

Huntington's quarterly results seemed to make a case for organic growth. Revenue increased 22% in 2017 from a year earlier, to $4.4 billion, and management believes it can rise by another 4% to 6% this year. The forecast includes $100 million of revenue expected to come from the FirstMerit deal.

Huntington is also forecasting 2018 loan growth of 4% to 6%.

Those projections could be conservative, John Pancari, an analyst at Evercore, suggested in a research note release after Huntington reported its results. The company's customer base has been energized by recent tax reform, but “management has not included any of this optimism in its formal growth outlook,” he said.

Huntington is already seeing a "surge in activity" following the tax overhaul, Steinour said in an interview after the conference call. At the same time, he is fully aware that the U.S. economy is overdue for a correction.

“We do think we’re in later innings here,” Steinour said. “It looks like the recovery has been pushed out a bit with tax reform, but we’re trying to stay disciplined.”

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