Huntington aims to contain energy exposure and increase consumer lending
Huntington Bancshares reported substantial increases in the second quarter in non-performing assets, net write-offs and its allowance for loan losses, but the company expressed confidence that it had succeeded in getting around oil and gas issues, the asset class that caused it the most problems. .
Huntington, in Columbus, Ohio, stopped making energy loans about a year ago and sold or pledged to sell $ 170 million in credits during the quarter, leaving about $ 1 billion in books as of June 30.
“We really think we have things in the box and fully booked,” President and CEO Steve Steinour said on a conference call with analysts Thursday.
Huntington’s oil and gas loans have created disproportionate problems for the company with $ 118 billion in assets. Of the $ 713 million in non-productive assets, 40%, or $ 288 million, resides in the energy portfolio.
Huntington, who has said further loan sales are possible, has divided the energy portfolio into core and non-core segments, with non-core loans accounting for nearly 60% of the overall, chief credit officer Rich Pohle said at the conference call.
“The focus is really on reducing this non-core part of the portfolio by whatever methods we have,” said Pohle. “You saw in the second quarter that we sold about $ 170 million. To the extent that we have opportunities where we believe the sale price is better than what a recovery could be, we would certainly consider additional sales.
“We will be looking to maximize the portfolio, especially the non-core ones, over time,” added Steinour.
Last week, Hancock Whitney said he report a big quarterly loss after agreeing to sell $ 500 million in energy loans at a discount.
To keep pace with the rise in non-performing assets, Huntington added $ 327 million to its allowance for credit losses, bringing total reserves to $ 1.8 billion, or 2.27% of total loans. Excluding $ 6 billion in paycheck protection program loans, the allowance jumped to 2.4% of loans.
Although Huntington’s provision in the second quarter was down 25% from the first quarter, it was a significant increase from the $ 59 million recorded a year earlier. At the same time, revenue of $ 1.9 billion was at the same level as the previous year, so net profit fell to $ 131 million, down 62% from the same period in 2019.
Net write-offs totaled $ 117 million, or 0.54% of total loans.
Huntington’s $ 38 billion consumer loan portfolio proved to be a strength in the first half of 2020. Consumption deferrals stood at $ 1.8 billion as of June 30, down nearly $ 500. million dollars from March 31. Trade deferrals totaled $ 5 billion.
Huntington’s core indirect auto portfolio originates and total loans were $ 1.2 billion and $ 12.7 billion as of June 30, down 2% and 3%, respectively. Steinour attributed the decline in activity to stockouts at dealerships.
“Demand exceeds supply,” Steinour said in an interview after Thursday’s conference call. “You see it in the prices of used cars. In some cases, you need to order from your dealership to have a car built to your specifications for delivery.
Huntington’s $ 3.8 billion marine and recreational vehicle portfolio grew 6% from the first quarter, with trends pointing to additional strong performance over the next several years.
“Recreational vehicle manufacturers say they have a three, four or five year application window because of concerns about air travel,” Steinour said. “It was a booming business until 12 months ago. Now it’s booming again.
“In the boat market, frankly, you can’t buy a new boat now in many parts of the country,” Steinour said. “It makes sense because people can’t travel to their destination. You cannot fly to Europe. Right now, you can’t even fly to Florida and come back. You must quarantine for 14 days in Ohio. “
“These companies look really good,” Steinour said.