DBRS Ratings on Huntington Bancshares Unchanged after 4Q12 Results – Senior at BBB, Stable 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 4Q12 results. The trend on all ratings is Stable. Huntington reported net income applicable to common shareholders of $159.3 million for 4Q12, down slightly from $159.8 million for 3Q12. Specifically, the relatively flat earnings reflected a 92.1% increase in provisions for income taxes, a 2.7% increase in noninterest expense and a 6.6% increase in provisions for credit losses, offset mostly by a 5.8% increase in total revenues. Overall, performance was in-line with expectations.

Linked-quarter results reflected several lumpy items. During 4Q12, the Company reported a $17.3 million automobile securitization gain and a $10.0 million net MSR hedging gain. Meanwhile, during 3Q12, Huntington had recorded a $4.1 million hedging related loss and a $19.5 million state deferred tax valuation allowance benefit, which had driven down its effective tax rate to 14.4% for 3Q12 as compared to 24.5% for 4Q12.

The sizable increase in QoQ revenues mostly reflected the Company’s automobile securitization and MSR net hedge gains. Nonetheless, 4Q12 revenues also benefited from higher linked-quarter trust, brokerage and deposit service charges. Furthermore, spread income benefited from a wider margin. Specifically, higher linked-quarter revenues were attributable to a 14.0% increase in noninterest income and a 0.9% increase in net interest income. Improved noninterest income mostly reflected a $17.1 million, or a 38.3%, increases in mortgage banking income and a $14.1 million, or a 2.1x increase in gain on sale of loans. Higher mortgage banking income was mostly attributable to the positive $14.1 million swing in the aforementioned MSR net hedge. Additionally, higher QoQ fee income reflected increased levels of trust services income (up 5.7%), brokerage income (up 5.4%) and service charges on deposit accounts (up 0.4%).

Meanwhile, net interest income continues to trend positively. Higher 4Q12 spread income, QoQ, reflected a 7 bps widening of net interest margin (NIM) to 3.45%, partially offset by a 1.3% decline in average earning assets. The wider margin was mostly due to purchase accounting accretion related to the Fidelity Bank acquisition (acquired on March 30, 2012). Meanwhile, lower average earning assets were driven by the aforementioned automobile securitization, as loans held for sale declined by 54%.

Expenses were impacted by Huntington’s growth initiatives. Higher QoQ expenses mostly reflected a $6.3 million, or 2.5%, increase in personnel costs and a $5.0 million, or 28.6% increase in professional services costs. The higher personnel costs were driven by an increase in the number of FTE employees, spurred by in-store branch expansion and higher commission expenses.

Despite the difficult operating environment, Huntington’s asset quality remains sound, evidencing continuing improvement. At December 31, 2012, the Company’s non-performing assets (NPAs) represented 1.09% of loans and OREO, down from 1.26% at September 30, 2012. Meanwhile, net charge-offs for the Company declined 33% to $70.1 million and represented a moderate 0.69% of average loans for 4Q12. Finally, DBRS views Huntington’s loan loss reserves as adequate at 1.89% of total loans and 173% of NPAs.

Huntington maintains a solid funding profile, underpinned by a sizable core deposit base that fully funds its loans. Average deposits increased 1.0%, QoQ, and the mix improved, as non-interest bearing demand deposits increased 6.4%, money market deposits were up 1.6% and core certificates of deposits decreased by 8.0%. Huntington’s securities portfolio representing 16.6% of total assets, and access to the Federal Home Loan Bank and the Federal Reserve round out its liquidity profile.

The Company’s capital position remains sound and provides solid loss absorption capacity, as well as opportunity for growth. At December 31, 2012, the Company’s tangible common equity ratio was a high 8.76%, and estimated risk-based capital ratios were Tier 1 Common at 10.47%, Tier 1 at 12.01% and Total at 14.51%.

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

[Amended on June 25, 2014 to remove unnecessary disclosures.]