Huntington aims to contain energy exposure, ride consumer lending

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Huntington Bancshares reported substantial second-quarter increases in nonperforming assets, net charge-offs and its loan-loss provision, but the company expressed confidence it has gotten its arms around problems in oil and gas, the asset class that has given it the most trouble.

Huntington, in Columbus, Ohio, stopped originating energy loans about a year ago and either sold or contracted to sell $170 million of credits during the quarter, leaving about $1 billion on the books at June 30.

“We really believe we’ve got things boxed in and fully reserved,” Chairman and CEO Steve Steinour said Thursday on a conference call with analysts.

Nonperforming loans at Hungtington

Huntington’s oil and gas loans have created outsize problems for the $118 billion-asset company. Of $713 million in nonperforming assets, fully 40%, or $288 million, reside in the energy portfolio.

Huntington, which said further loan sales are possible, has split the energy portfolio into core and noncore segments, with noncore loans making up nearly 60% of the whole, Chief Credit Officer Rich Pohle said on the conference call.

“The focus is really on getting that noncore piece of the portfolio down through whatever methods we have,” Pohle said. “You saw in the second quarter that we sold about $170 million. To the extent we’ve got opportunities where we think the sale price is better than what a recovery might be, we would certainly” consider additional sales.

“We’ll look to maximize the portfolio, particularly the noncore, over time,” Steinour added.

Last week, Hancock Whitney said it would report a big quarterly loss after agreeing to sell $500 million of energy loans at a discount.

To keep pace with the uptick in nonperforming assets, Huntington added $327 million to its provision 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 provision jumped to 2.4% of loans.

While Huntington’s second-quarter provision declined 25% from the first quarter, it represented a significant increase over the $59 million it recorded a year earlier. At the same time, revenue of $1.9 billion was level with the prior year, so net income dropped to $131 million, off 62% compared with the same period in 2019.

Net charge-offs totaled $117 million, or 0.54% of total loans.

Huntington’s $38 billion consumer lending portfolio has proved to be a strength through the first half of 2020. Consumer deferrals amounted to $1.8 billion at June 30, declining nearly $500 million from March 31. Commercial deferrals totaled $5 billion.

Originations and total loans in Huntington’s core indirect auto portfolio were $1.2 billion and $12.7 billion at June 30, declining 2% and 3%, respectively. Steinour attributed the drop in activity to inventory shortages at dealers.

“Demand is exceeding supply,” Steinour said in an interview after Thursday’s conference call. “You see it in used-car prices. In some cases, you have to order through your dealer for a car to be manufactured 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 performances over the next few years.

“The recreational vehicle builders are saying they have a three-, four- or five-year window of demand because of concerns over air travel,” Steinour said. “That was a booming business until 12 months ago. Now it’s booming again.”

“On the boat business, frankly, you can’t buy a new boat now in many parts of the country,” Steinour said. “That’s logical because people can’t destination travel. You can’t fly to Europe. Right now, you can’t even fly to Florida and back. You’ve got to quarantine for 14 days in Ohio.”

“Those businesses look really good,” Steinour said.

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Credit quality Regional banks Commercial lending Consumer lending Energy industry Auto lending Huntington Bancshares Steve Steinour