Huntington Bancshares wasn't about to let a little thing like a $38.2 million addition to its litigation reserve stand in the way of progress. Despite the charge, the result of a recent decision in a decade-old fraud case, the $67.8 billion-asset Columbus, Ohio, company grew quarterly revenue 5% compared to the same period in 2014, thanks in large part to effective cross-selling to both consumer and commercial customers.
Net income for the three months ending Sept. 30 declined slightly to $152.6 million, off 2% year-over-year basis. Huntington's hopes for a bottom-line increase were dashed last month when a judge ordered it to repay a total of $72 million to victims of a fraud scheme. Huntington, which had already begun building its legal reserves, has promised to contest the ruling.
Overall revenue totaled $757 million.
"Our core results were quite good," Steve Steinour, Huntington's chairman, president and chief executive, said in an interview Thursday. "Loans were up and we enjoyed very strong deposit growth, reflective of an increase in customers and share of wallet."
According to Huntington, the percentage of consumer households using six or more products and services surpassed 50% for the first time in the third quarter. On the commercial side, about 44% of clients use four or more products and services. That penetration generated strong gains in electronic banking income and service charges on deposit accounts. Revenue from those sources totaled $106 million in the quarter, up 10% from a year earlier.
Those gains came as the customer count continued to grow. Consumer households banking with Huntington reached 1.5 million at Sept. 30, up 4% year over year, while total business relationships increased 3%, to about 170,000.
Deposits totaled $54.8 billion on Sept. 30, up 11% over 2014. Core deposits rose $4.8 billion, or 10%. The core deposit increase proved more than enough to fund the $2.9 billion of new loans Huntington added in the quarter, Steinour noted.
Noninterest income, which totaled $253.2 million in the quarter, got another sizeable boost from Huntington's February acquisition of Macquarie Equipment Finance. Fee income from equipment operating leases was up by nearly $10 million. The unit, renamed Huntington Technology Finance, "has performed better than expected," Steinour said, adding the acquisition has helped Huntington improve its performance in small-business equipment finance and in health care lending.
Huntington's third-quarter results also included $4.8 million of expenses related to the Macquarie purchase.
Huntington originated more than $1 billion in car loans for the seventh consecutive quarter, boosting the size of its automotive portfolio to $9.2 billion as of Sept. 30. In a speech Wednesday, Comptroller of the Currency Thomas Curry raised a concern credit quality might deteriorate as banks continue to ramp up auto lending.
"Although delinquency and losses are currently low, it doesn't require great foresight to see that this may not last," Curry said. "How these auto loans, and especially the nonprime segment, will perform over their life is a matter of real concern to regulators. It should be a real concern to the industry."
Steinour said Curry did the industry "a real service" by raising the point, but he and his team aren't expecting any problems from Huntington's book.
"The niche we play in is prime and super-prime," chief credit officer Dan Neumeyer said Thursday in conference call with analysts. "We've been very consistent…I don't see us sitting with any problems right now."
Credit quality across the portfolio remains strong. Huntington's nonperforming assets totaled $381 million, up 5% from a year ago, but still only 0.72% of total assets. Net chargeoffs, meanwhile, fell by 43% to $16.2 million, which represented a modest 0.13% of total loans. The company added $22.5 million to its allowance for loan losses in the third quarter.
Huntington's shares were up 3.25% in midday trading Thursday, to $10.97.