Huntington Bancshares stock continued to hover at its yearly low after several analysts reduced their ratings in the past week, citing interest rate exposure.

Henry C. "Chip" Dickson, a regional banking analyst at Smith Barney, changed his rating last week from "neutral" to "underperform." Jeffrey Nascheck of Salomon Brothers Inc. downgraded the stock Wednesday from "buy" to "hold."

The Columbus, Ohio-based regional bank traded Wednesday unchanged at $17.375, just above its yearly low of $17.125.

Analysts say that the bank's current difficulties are representative of problems many in the bank sector are encountering in the higher-interest-rate environment.

The bank's mortgage banking business and its liability sensitivity have led to narrower margin estimates for the fourth quarter and the first part of next year.

The bank's mortgage banking business lost approximately $10 million in the third quarter and is expected to lose about the same amount in the fourth quarter.

"The bank has had continuing difficulties with its mortgage banking business," said Joe Duwan, a regional bank analyst at Keefe, Bruyette & Woods Inc. "It's losses have been significant in the last couple of years."

Mike Diana, a regional bank analyst at Bear, Stearns & Co. says the mortgage banking problem has prompted him to keep a "neutral" rating on the stock since May 1993, when he first started covering it.

Problems in the mortgage banking business should wash out of the system in the first half of next year, say several analysts, as the bank contracts that part of its business.

Some bank followers think the company's liability sensitivity hasn't yet completely washed out of the stocks price. On the regional banking side, Huntington was up 6% in November, when the rest of the sector experienced a loss, says Mr. Dickson.

Mr. Dickson thinks this rise can be attributed to a less broadbased institutional ownership in the bank, which has meant fewer sellers throughout last month. Also, Huntington went through a stock repurchasing program last month.

[CHART OMITTED]

A sharper decline earlier in the year in the bank's stock price may account for its relatively positive performance in recent days.

However, "the company is liability sensitive. Other liability-sensitive banks have performed substantially less well than Huntington," said Mr. Dickson.

Earnings estimates for 1995 range from $1.80 to $2.10.

Analysts point out that the bank took a particularly low $1 million loan-loss provision in the third quarter of this year.

"They can't go much lower than that in their loan-loss provision," said Mr. Duwan. Nevertheless, he says that the bank has a high-quality asset mix, which has resulted in a nonperforming asset ratio of just 0.88% of loans. That ratio compares favorably with the 0.97% for the peer group.

Analysts generally consider anythig less than 1% attractive.

Asset quality, however, is not what concerns analysts. The issue is exposure to interest rates and revenue growth in 1995 and 1996, they say.

"The bad news for Huntington is that it's liability sensitive," said Brent Erensel, a regional banking analyst at UBS Securities.

Margin pressure and the volume of loans going forward will probably keep growth fairly flat in the next year.

To be sure, there are analysts who think that these problems are short term and that the bank has excellent fundamentals.

"Huntington is in the forefront of consumer banking," said Mr. Diana. He cites the ability of consumers to get mortgages, credit card loans, and home equity loans any day of the week from automated teller machines as evidence of the bank's ability to implement cutting-edge technology.

In other news, Salomon Brothers' analyst Andy Brown downgraded First Security Corp., sending its stock down $1.125 to a yearly low of $22.875.

Bank stocks generally were mixed Wednesday, while the Dow Jones industrial average fell 10.43 points to 3,745.95.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.