DBRS Comments on Huntington Bancshares 3Q13 Results: Ratings Unchanged – Sr. at BBB, Positive Trend

DBRS, Inc. (DBRS) has today commented that its ratings for Huntington Bancshares Inc. (Huntington or the Company), including its BBB Issuer & Senior Debt rating are unchanged following the release of 3Q13 results. The trend on all ratings is Positive. For 3Q13, Huntington reported net income applicable to common shareholders of $170.5 million, up from $142.7 million for 2Q13 and $159.8 million for 3Q12. Overall, the sequential increase in quarterly earnings mostly reflected a drop in non-interest expenses and a lower provision for loan loss reserves. Specifically, higher linked-quarter earnings reflected a 5% decrease in non-interest expense and a 53.9% decrease in provisions for credit losses, partially offset by a 0.3% increase in total revenues.

Importantly, Huntington’s balance sheet fundamentals remained sound in 3Q13. Despite the difficult operating environment, the Company reported sustained loan growth, stabilizing asset quality, and the maintenance of a solid capital position, which DBRS views positively.

Lower sequential non-interest expense mostly reflected a $34 million one-time non-cash gain related to a pension curtailment, partially offset by $17 million of franchise repositioning related expense.

Linked-quarter net interest income was flat, as modest growth in average interest earning assets and an additional day in the quarter was offset by a 4 bps drop in the net interest margin (NIM). At the same time, non-interest income was up modestly as growth in many categories was mostly offset by a decline in mortgage banking revenue. Specifically, the decrease in mortgage banking income was due to lower origination volume and a narrower gain on sale margin. Of note, Huntington’s QoQ fee income benefited from an increase in deposit service charges, gain on sale of loans, and capital market fees.

Reflecting the improving operating environment, Huntington’s asset quality continued to stabilize and remained sound in 3Q13. During the quarter, non-performing assets (NPAs) declined while levels of net charge-offs (NCOs) increased yet stayed in a manageable range. As of September 30, 2013, the Company’s NPAs represented a manageable 0.88% of loans and OREO, down from 0.95% at June 30, 2013. Meanwhile, NCOs increased to $55.7 million and represented 0.53% of average loans for 3Q13. NCOs included $13 million of Chapter 7 home equity related NCOs that were not identified when the OCC regulatory guidance was issued last year. Finally, DBRS views Huntington’s loan loss reserves as adequate at 1.72% of total loans and 196% of NPAs.

The Company’s solid funding profile is underpinned by a sizable core deposit base that fully funds loans. Huntington’s cash and equivalents as well as the securities portfolio represent approximately 18.0% of total assets. Additionally, Federal Home Loan Bank membership and potential capital markets access round out its liquidity profile.

The Company’s capital position remains solid and provides sound loss absorption capacity, as well as opportunity for growth. At September 30, 2013, Huntington’s tangible common equity ratio was 9.02%, and estimated risk-based capital ratios were Tier 1 common at 10.85%, Tier 1 at 12.36% and Total at 14.67%. All capital ratios are up QoQ and YoY. Huntington has an active repurchase program and repurchased approximately $16.4 million worth of common stock during 3Q13.

During the quarter, Huntington announced its intent to acquire Cambridge, Ohio-based Camco Financial Corporation, a small ($757 million in assets) in-footprint banking organization. DBRS views this acquisition as consistent with Huntington’s strategy and sees the opportunity for significant cost saves.

Notes:
All figures are in U.S. dollars unless otherwise noted.

[Amended on May the 23rd, 2014 to remove unnecessary disclosures.]