DBRS: HBAN’s QoQ Core Earnings (IBPT) Up Reflecting An Unexpected Loan Pay-off and Avg. Loan Growth

Summary:
• 3Q14 earnings applicable to common shareholders of $147.0 million, down 6.1% from $156.7 million for 2Q14.
• On an adjusted basis, excluding non-core items, Huntington’s income before provisions and taxes (IBPT) increased by 1.7%, QoQ, benefiting from the unexpected pay-off of an acquired commercial loan, and average loan growth.
• DBRS rates Huntington Bancshares Incorporated’s Issuer & Senior debt at BBB (high) with a Stable trend.

Reflecting $23 million of franchise repositioning and merger- and acquisition-related expense, Huntington Bancshares Incorporated’s (Huntington or the Company) earnings to common shareholders declined to $147 million in 3Q14, from $156.7 million in 2Q14. Excluding these items, as well as gains on securities, the Company’s adjusted IBPT improved 1.7%, driven by modestly higher adjusted revenues and slightly lower adjusted expenses. Importantly, loan growth was sustained in the quarter, especially within the Company’s commercial and automobile loan portfolios. Overall, Huntington’s balance sheet fundamentals remain solid, reflecting sound asset quality and solid capital and funding profiles.

Improved quarter-on-quarter (QoQ) adjusted revenues were driven by improved spread income, which reflected the unexpected pay-off of an acquired commercial loan, as well higher levels of average loans and average securities. Loan growth was sustained and on average up 2.4% sequentially, mostly reflecting increased levels of commercial and industrial loans (C&I) and automobile exposures. DBRS notes that the increase in securities was due to the Company continuing preparation for the Basel III liquidity coverage ratio.

Adjusted fee income was modestly down QoQ, due to lower levels of deposit service charges and trust services revenue. Meanwhile, adjusted expenses were well-managed, and slightly down QoQ.

Huntington’s asset quality remains sound, reflecting stabilizing non-performing assets and low net charge-offs, which likely have hit a floor. Meanwhile, funding remains solid, underpinned by a growing core deposit base, reflecting higher sequential levels of non-interest bearing demand deposits. Finally, capital remains adequate despite share repurchases during the quarter. At September 30, 2014, Huntington had a tangible common equity ratio of 8.35% and a Tier 1 common ratio of 10.3%.

DBRS rates Huntington Bancshares Incorporated Issuer & Senior debt at BBB (high) with a Stable trend.

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