Do You Own This Best-of-Breed Regional Bank?

Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Huntington Bancshares (NASDAQ: HBAN) is one of the better turnaround stories in the regional banking industry. The bank has seen the largest decline in book value over the last five years at 15% when compared to its major peers. At the height of the financial crisis the bank decided to reorganize its business model, starting with an overhaul of management. The other fundamental change included a shift from geographical expansion to a focus on product quality.

Net revenues are expected to be up 6% by the end of this year, on the back of an 8% rise in fee income. 2013 revenues are expected to come in relatively flat. 3Q results yielded no major surprises and showed consistent loan growth and solid net interest margins. Huntington’s loan growth comes at a time when other peers are winding down their portfolios, as Huntington concentrates more on commercial and industrial lending.

Huntington received approval for its dividend and share repurchase plan earlier this year – allowing the plan to continue into 2013. These include its 2.6% dividend yield and $182 million share repurchase plan, of which is it has $116 million remaining. Huntington has only missed one quarterly dividend over the past ten years, during 4Q 2010.

Huntington is seeing growth in mortgage banking as its Midwest operations – spread across seven states – see a better rebound in mortgage-related business than other major areas. We are also very encouraged by Huntington’s industry-leading return on equity of 11%, versus top peers PNC (NYSE: PNC) (8%) and SunTrust (NYSE: STI) (8%).

BB&T (NYSE: BBT) is up nearly 15% year to date and pays a solid dividend yield of 2.7%. BB&T performed relatively well through the financial crisis and is expected to grow earnings at one of the fastest rates (10%) over the next five years. Despite also trading at the highest P/E of the five banks listed here (11.1X), BB&T has quickly grown into more than just a typical regional bank, as it used the financial crisis to expand into the western part of the U.S.

SunTrust is up over 50% year to date and still posts some of the most robust growth prospects of all the banks listed. This bank pays the lowest dividend yield at only 0.7%, but investors will be rewarded with superior growth; it's expected to grow earnings by 16% annually over the next five years. To boot, SunTrust also trades at the lowest P/B ratio, at only 0.75x. Billionaire George Soros is the top fund owner of SunTrust after a 70% increase in his stake last quarter (check out George Soros’ newest picks).

PNC is the largest of Huntington’s peers with a market value of close to $30 billion. Even with a top dividend yield of 2.9%, PNC trades with an industry-high forward P/E of 11.5x for no apparent reason, especially given the bank’s below-average 4% expected EPS growth rate over the next half-decade (annualized). PNC has managed to grow book value by the highest of the five banks at 10% over the last five years, but this has translated into no shareholder value creation, with the stock down over 20% during the same period. Billionaire Ken Griffin was one of PNC’s top owners last quarter (see Ken Griffin’s latest picks).

KeyCorp (NYSE: KEY) operates in twice as many states as Huntington and trades at one of the lowest P/B ratios (0.77x) of the stocks mentioned here. Even so, we find it hard to see the bank as a buy, with its forward-looking annual EPS growth rate rather mediocre (5%) and its underperformance of the S&P 500 by 50% year to date. Besides SunTrust, KeyCorp pays the lowest dividend yield of the bunch at 2.4%. Billionaire Steve Cohen of SAC Capital was selling his KeyCorp stake last quarter, dumping 95% of his shares (see Steven Cohen’s top bets).

We believe that Huntington’s market position and turnaround story are compelling. The bank is making strides to better penetrate its current markets with recent acquisitions. We also believe that Huntington’s diverse product mix will help the bank withstand potential near-term economic weakness. There are a number of billionaire investors that like Huntington, including Ken Griffin, D.E. Shaw and Ray Dalio; each upped his stake last quarter.

This article is written by Marshall Hargrave and edited by Jake Mann. They don't own shares in any of the stocks mentioned in this article. The Motley Fool owns shares of Huntington Bancshares, KeyCorp, and PNC Financial Services. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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