DBRS: Huntington’s 1Q14 Earnings Contracted QoQ, Mostly Due to Non-core Expenses

Summary:
• 1Q14 earnings applicable to common shareholders of $141.2 million, down 6.0% from 4Q13, driven by a $14 million increase in non-core expenses, and to a lesser extent, pressured fee income which reflected some seasonality.
• Importantly, the Federal Reserve approved Huntington’s 2014 capital plan, which includes a 20% increase in the dividend per common share, and the potential repurchase of $250 million of common stock.
• DBRS rates Huntington Bancshares Incorporated’s Issuer & Senior debt at BBB with a Positive trend.

Although pressured by the difficult business environment, DBRS, Inc. (DBRS) views Huntington Bancshares Incorporated’s (Huntington or the Company) 1Q14 core earnings as sound. DBRS notes that the Company’s broad-based business lines provide diversity as well as stability to its bottom line. Importantly balance sheet fundamentals remain solid, reflecting sound asset quality and solid capital and funding profiles.

Overall, lower quarter-on-quarter (QoQ) earnings mostly reflected $12 million of non-core expense related to the Camco Financial Corporation acquisition, and $9 million in additions to litigation reserves. Excluding these two items, as well as franchise repositioning charges and securities gains and losses, Huntington’s DBRS-calculated adjusted income before provisions and taxes (IBPT) was moderately down, QoQ, and slightly down, year-on-year. Lower QoQ adjusted IBPT mostly reflected pressured fee income, partially offset by a moderate increase in spread income, which was driven by higher levels of average loans and average securities. The decline in QoQ adjusted non-interest income reflected decreases across many line items with a notable decline in deposit service charges, driven by seasonality. Meanwhile, operating expenses were well managed, QoQ.

During the quarter, Huntington’s asset quality remained sound, and net charge-offs declined, leading to continued loan loss reserve releases. Despite the releases, DBRS views the Company’s loan loss reserves as adequate.

Huntington’s funding and capital profiles remain solid. A sizable core deposit base fully funds loans. Meanwhile, the Company’s capital position provides sound loss absorption capacity, as well as opportunity for growth. Generally, capital metrics were slightly down QoQ.

DBRS rates Huntington Bancshares Incorporated Issuer & Senior debt at BBB with a Positive trend.

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

[Amended on December 23th, 2014 to remove unnecessary disclosures.]