Huntington Bancshares Reports 2008 Third Quarter Net Income of $115.2 Million, or $0.28 Per Common Share
- Stable net interest margin of 3.29%
- 4% annualized linked-quarter increase in average total core deposits
- Annualized net charge-offs of 0.82%
- $42 million net increase in the allowance for credit losses to 1.90%
- 5% increase in non-performing assets
- 8.86% Tier 1 capital ratio and 12.09% Total risk-based capital ratio
* 2008 FULL-YEAR REPORTED EARNINGS TARGET OF $1.12-$1.16 PER COMMON SHARE
COLUMBUS, Ohio, Oct. 16 /PRNewswire-FirstCall/ -- Huntington Bancshares Incorporated (Nasdaq: HBAN; www.huntington.com) reported 2008 third quarter net income of $115.2 million, or $0.28 per common share. This compared with net income of $101.4 million, or $0.25 per common share, in the 2008 second quarter and $138.2 million, or $0.38 per common share, in the year-ago quarter.
Huntington also revised its 2008 full-year reported earnings target to $1.12-$1.16 per common share. This is down from the previously targeted amount of $1.25-$1.35 per common share. The decline reflects an assumed continuation of economic deterioration in our markets, the more volatile and more competitive funding environment, and lower market-related fee income.
PERFORMANCE OVERVIEW
Performance compared with the 2008 second quarter included:
-- Net income of $0.28 per common share, or 12% higher than second quarter
net income of $0.25 per common share. Current quarter earnings were
positively impacted by a net $0.01 per common share, reflecting the
benefit of net market-related gains, partially offset by a Visa(R)-
related tax increase. The 2008 second quarter earnings were negatively
impacted by a net $0.03 per common share reflecting the significant
items detailed in Table 1 below.
-- $125.4 million of provision for credit losses, up from $120.8 million
in the second quarter, and $41.6 million higher than net charge-offs.
-- $83.8 million of net charge-offs, or an annualized 0.82% of average
total loans and leases, up from an annualized 0.64% in the second
quarter.
-- 3.29% net interest margin, unchanged from the 2008 second quarter.
-- 4% annualized linked-quarter growth in average total commercial loans
and a 5% annualized linked-quarter decline in average total consumer
loans, reflecting loan sales in the prior quarter.
-- 4% annualized linked-quarter increase in average total core deposits.
-- Significant linked-quarter declines in trust services, customer
derivative income, brokerage and insurance income, and mortgage banking
income, reflecting lower origination volume.
-- $38.8 million linked-quarter decrease in total non-interest expense,
including the positive impacts of a $21.4 million debt extinguishment
gain in the current quarter and no merger-costs.
-- 1.90% period-end allowance for credit losses (ACL) ratio, up from 1.80%
at the end of the second quarter.
-- 5% increase in non-performing assets (NPAs), primarily reflecting a 10%
increase in non-accrual loans (NALs) with most of the increase in
commercial real estate (CRE) loans and commercial and industrial (C&I)
loans. Period-end NALs represented 1.42% of total loans and leases, up
from 1.30% at June 30, 2008.
-- 8.86% and 12.09% period-end Tier 1 and Total risk-based capital ratios,
compared with 8.82% and 12.05%, respectively, at June 30, 2008, and
well above the regulatory "well capitalized" thresholds of 6.0% and
10.0%, respectively. The "well capitalized" level is the highest
regulatory capital designation.
"Huntington's third quarter results were quite solid during this period of unprecedented economic and capital markets turmoil," said Thomas E. Hoaglin, chairman, president, and chief executive officer. "This is a testimony to the soundness of our franchise, the strength of our balance sheet, and the advantage of being a local bank that knows its markets and customers, who, in turn, continue to demonstrate their confidence in us."
"With the economy weakening further, the most prevalent investor issue relates to our credit quality outlook," he continued. "Because of actions taken over the last several years to reduce the risk inherent in our credit underwriting practices, net charge-offs and problem assets are increasing, but at a manageable pace. Even so, this will continue to place pressure on earnings as we build our allowance for credit losses to assure it is sufficient to handle an environment that we expect will continue to be weak through next year. For the quarter, net charge-off performance was pretty much on target and we increased our allowance for credit losses by 10 basis points as expected. Reserve building will continue, though at a slightly slower pace."
"Investors are also concerned about capital levels," Hoaglin commented. "The $569 million of preferred stock we issued earlier this year was especially well-timed, adding to both capital and liquidity. Nevertheless, and even more important, the ability to deliver solid net income performance permitted us to build capital this quarter. At quarter end, our regulatory capital was $1 billion above the regulatory "well capitalized" threshold. "
Hoaglin further noted, "Contributing to the solid earnings performance was a stable net interest margin. We were pleased with this performance in a time of volatile interest rates and unprecedented swings in funding spreads, as well as an extremely competitive loan and deposit pricing environment. Average core deposits grew at a 4% annualized rate. Average commercial loans increased at a 4% annualized rate though average consumer loans declined, reflecting loan sales in the prior quarter. Fee income performance was not as good as expected since many fee-based activity levels have declined in this environment and lower market valuations decreased the value of managed assets. Expenses, however, continued to be very well controlled."
"As we head into the fourth quarter, our view is that difficult times will remain and challenges for our customers will increase. As we continue to serve them, we expect fourth quarter performance will mirror that of the third quarter in many ways: stable net interest margin, modest loan growth, good deposit growth, and stable fee income and expenses. The main variable to earnings performance is the degree of economic weakness, how that influences credit quality performance, and what that means regarding reserve levels. We expect net charge-offs to increase to 90-110 basis points in the fourth quarter, utilizing reserves already established. Such performance would result in full-year net charge-offs of 70-75 basis points. I think it is noteworthy that this is only a 10 basis point increase in the range we originally expected last January. We expect to continue to build reserves in the fourth quarter. Our current expectation is that fourth quarter earnings will likely be $0.25-$0.29 per common share, which would translate into 2008 full year earnings of $1.12-$1.16 per common share. Admittedly, this is below the expectations we had last July. However, 2008 has turned out to be a much more challenging year than anyone ever envisioned. Yet, we firmly believe our investors and customers will view this level of performance, in this environment, as a successful and profitable year," he concluded.
THIRD QUARTER PERFORMANCE DISCUSSION
Significant Items Influencing Financial Performance Comparisons
Specific significant items impacting 2008 third quarter performance included (see Table 1 below):
-- $11.8 million pre-tax ($0.02 per common share) positive impact of net
market-related gains consisting of:
- $21.4 million gain from debt extinguishment included in other
non-interest expense,
- $3.7 million of equity investment gains,
- $1.9 million net positive impact of mortgage servicing rights
(MSR) hedging consisting of an $8.4 million net interest income
benefit, partially offset by a $6.5 million net impairment loss,
Partially offset by:
- $15.2 million of securities losses, including $17.9 million of
other than temporary impairment on certain asset-backed
securities.
-- $3.7 million ($0.01 per common share) increase to provision for income
taxes, representing an increase to the previously established capital
loss carry-forward valuation allowance related to a decline in value of
Visa(R) shares held.
Table 1 - Significant Items Impacting Earnings Performance
Comparisons(1)
Three Months Ended Impact(2)
(in millions, except per share) Pre-tax EPS(3)
September 30, 2008 - GAAP earnings $115.2 (3) $0.28
-- Net market-related gains 11.8 0.02
-- Deferred tax valuation allowance adjustment (3.7)(3) (0.01)
June 30, 2008 - GAAP earnings $101.4 (3) $0.25
-- Deferred tax valuation allowance benefit 3.4 (3) 0.01
-- Merger/restructuring costs (14.6) (0.03)
-- Net market-related losses (6.8) (0.01)
September 30, 2007 - GAAP earnings $138.2 (3) $0.38
-- Merger costs (32.3) (0.06)
-- Net market-related losses (18.0) (0.03)
(1) Includes significant items with $0.01 EPS impact or greater
(2) Favorable (unfavorable) impact on GAAP earnings; pre-tax unless
otherwise noted
(3) After-tax; EPS reflected on a fully diluted basis
Net Interest Income, Net Interest Margin, and Average Balance Sheet
2008 Third Quarter versus 2008 Second Quarter
Compared with the 2008 second quarter, fully taxable equivalent net interest income decreased $1.4 million. This reflected a $0.6 billion, or 1%, decline in average earning assets as the net interest margin was unchanged at 3.29%.
Table 2 details the slight decrease in average loans and leases.
Table 2 - Loans and Leases - 3Q08 vs. 2Q08
Third Second
Quarter Quarter Change
(in billions) 2008 2008 Amount %
Average Loans and Leases
Commercial and industrial $13.6 $13.6 $(0.0) (0)%
Commercial real estate 9.8 9.6 0.2 2
Total commercial 23.4 23.2 0.2 1
Automobile loans and leases 4.6 4.6 0.1 2
Home equity 7.5 7.4 0.1 1
Residential mortgage 4.8 5.2 (0.4) (7)
Other consumer 0.7 0.7 (0.0) (4)
Total consumer 17.6 17.8 (0.2) (1)
Total loans and leases $41.0 $41.0 $(0.0) (0)%
Average total loans and leases were essentially unchanged between quarters. However, average total commercial loans increased 1%, reflecting 2% growth in CRE loans, as total average C&I loans were little changed. The third quarter CRE growth was comprised primarily of new or increased loan facilities to existing borrowers. This growth was not associated with the single family home builder segment as exposure to this segment declined during the quarter. Average total consumer loans decreased $0.2 billion, or 1%, reflecting a $0.4 billion, or 7%, decline in average residential mortgages due to a full quarter's impact of $473 million of the residential mortgages sold in the second quarter. Average automobile loans and leases increased 2%, with average home equity loans increasing 1%. We remain very comfortable with our origination strategies in the consumer segments, and are confident that we are continuing to lend to high quality borrowers.
Table 3 details the $0.2 billion decline in average total deposits.
Table 3 - Deposits - 3Q08 vs. 2Q08
Third Second
Quarter Quarter Change
(in billions) 2008 2008 Amount %
Average Deposits
Demand deposits - non-interest
bearing $5.1 $5.1 $0.0 0%
Demand deposits - interest
bearing 4.0 4.1 (0.1) (2)
Money market deposits 5.9 6.3 (0.4) (6)
Savings and other domestic
deposits 4.9 5.0 (0.1) (3)
Core certificates of deposit 11.9 11.0 0.9 9
Total core deposits 31.7 31.4 0.3 1
Other deposits 6.1 6.6 (0.6) (8)
Total deposits $37.8 $38.0 $(0.2) (1)%
Average total deposits were $37.8 billion, down $0.2 billion, or 1%, from the prior quarter and reflected:
-- $0.6 billion, or 8%, decrease in average non-core deposits, primarily
reflecting a decline in brokered deposits.
Partially offset by:
-- $0.3 billion, or 1%, increase in average total core deposits. The
primary driver of the change was growth in higher rate core
certificates of deposits, partially offset by a decline in lower rate
money market accounts.
2008 Third Quarter versus 2007 Third Quarter
Fully taxable equivalent net interest income decreased $21.3 million, or 5%, from the year-ago quarter. This reflected the unfavorable impact of a 23 basis point decline in the net interest margin to 3.29%, with 8 basis points of the decline reflecting the 2007 fourth quarter restructuring of the Franklin credit. The negative impact from the decline in the net interest margin was partially offset by a $0.8 billion, or 2%, increase in average earning assets. The increase in average earning assets, reflected growth in average loans and leases, partially offset by a decline in other earnings assets. Table 4 details the $1.2 billion increase in average loans and leases.
Table 4 - Loans and Leases - 3Q08 vs. 3Q07
Third Quarter Change
(in billions) 2008 2007 Amount %
Average Loans and Leases
Commercial and industrial $13.6 $13.0 $0.6 5%
Commercial real estate 9.8 9.0 0.8 9
Total commercial 23.4 22.0 1.4 6
Automobile loans and leases 4.6 4.4 0.3 6
Home equity 7.5 7.5 (0.0) (0)
Residential mortgage 4.8 5.5 (0.6) (12)
Other consumer 0.7 0.5 0.1 25
Total consumer 17.6 17.8 (0.3) (1)
Total loans and leases $41.0 $39.8 $1.2 3%
The $1.2 billion, or 3%, increase in average total loans and leases primarily reflected:
-- $1.4 billion, or 6%, increase in average total commercial loans, with
growth reflected in both C&I loans and CRE loans. The $0.8 billion,
or 9%, increase in average CRE loans was primarily to existing
borrowers with a focus on traditional income producing property types
and was not related to the single family residential developer segment.
The $0.6 billion, or 5%, growth in C&I loans reflected a combination of
originations to existing borrowers and originations to new high credit
quality customers. Given our consistent positioning in the market, we
have been able to attract new relationships that historically dealt
exclusively with competitors. These "house account" types of
relationships are typically the highest quality borrowers and bring
with them the added benefit of significant new deposit and other non-
credit relationships.
Partially offset by:
-- $0.3 billion, or 1%, decrease in average total consumer loans. This
reflected a $0.6 billion, or 12%, decline in residential mortgages,
reflecting loan sales in prior quarters. Average home equity loans
were unchanged. Partially offsetting the decline was a $0.3 billion,
or 6%, growth in average automobile loans and leases. The increase was
exclusively in the automobile loan segment, and we continue to feel
good about the origination strategies employed that generated the
growth.
Table 5 details the $0.2 billion reported increase in average total deposits.
Table 5 - Deposits - 3Q08 vs. 3Q07
Third Quarter Change
(in billions) 2008 2007 Amount %
Average Deposits
Demand deposits -
non-interest bearing $5.1 $5.4 $(0.3) (6)%
Demand deposits -
interest bearing 4.0 3.8 0.2 5
Money market deposits 5.9 6.9 (1.0) (15)
Savings and other domestic
deposits 4.9 5.1 (0.2) (4)
Core certificates of deposit 11.9 10.5 1.4 14
Total core deposits 31.7 31.6 0.1 0
Other deposits 6.1 6.0 0.1 1
Total deposits $37.8 $37.7 $0.2 0%
The $0.2 billion increase in average total deposits reflected growth in both average total core deposits, and to a lesser degree, other deposits. Changes from the year ago period reflected the continuation of customers transferring funds from lower rate to higher rate accounts like certificates of deposits as short-term rates have fallen. Specifically, average core certificates of deposit increased $1.4 billion, or 14%, whereas average money market deposits and savings and other domestic deposits decreased $1.0 billion and $0.2 billion, respectively. Average interest bearing demand deposits increased $0.2 billion, or 5%, whereas average non-interest bearing demand deposits declined $0.3 billion, or 6%, again reflecting customer preference for interest bearing accounts.
Provision for Credit Losses
The provision for credit losses in the 2008 third quarter was $125.4 million, up $4.6 million from the second quarter, and exceeded net charge-offs by $41.6 million. The provision for credit losses in the current quarter was $83.4 million higher than in the year-ago quarter. (See Credit Quality Discussion).
Non-Interest Income
2008 Third Quarter versus 2008 Second Quarter
Non-interest income decreased $9.9 million, or 4%, from the second quarter.
Table 6 - Non-interest Income - 3Q08 vs. 2Q08
Change attributable to:
Third Second Signi-
Quarter Quarter Change ficant Other
(in millions) 2008 2008 Amount % Items Amount %
Non-interest Income
Service charges on
deposit accounts $80.5 $79.6 $0.9 1% $- $0.9 1%
Trust services 31.0 33.1 (2.1) (6) - (2.1) (6)
Brokerage and
insurance income 34.3 35.7 (1.4) (4) - (1.4) (4)
Other service
charges and fees 23.4 23.2 0.2 1 - 0.2 1
Bank owned life
insurance income 13.3 14.1 (0.8) (6) - (0.8) (6)
Mortgage banking
income (loss) 10.3 12.5 (2.2) (18) 4.2(1) (6.4)(51)
Securities gains
(losses) (15.2) 2.1 (17.2) NM (17.2)(2) - 0
Other income 48.8 36.1 12.7 35 13.5(3) (0.7) (2)
Total non-interest
income $226.5 $236.4 $(9.9) (4)% $0.5 $(10.4) (4)%
(1) Net impact of MSR
hedging
MSR valuation
adjustment $(10.3) $39.0 $(49.3) NM%
Net trading
(losses) gains 3.8 (49.7) 53.5 NM
Impact to non
interest income (6.5) (10.7) 4.2 40
Net interest
income impact 8.4 9.4 (1.0) (11)
Net impact of MSR
hedging $1.9 $(1.3) $3.2 NM%
(2) Securities gains
(losses) $(15.2) $2.1 $(17.2) NM%
(3) Other income
Equity investment
gains (losses) $3.7 $(4.6) $8.3 NM%
Loss on loans
held for sale - (7.2) 7.2 NM
Gain on sale of
mortgage loans - 2.1 (2.1) NM
Impact to other
income $3.7 $(9.8) $13.5 NM%
The $9.9 million decrease in total non-interest income included a net benefit of $0.5 million from significant items (see Significant Item discussion). The remaining $10.4 million, or 4%, decline reflected:
-- $6.4 million, or 51%, decline in mortgage banking income, primarily
reflecting a 35% decline in origination activity.
-- $2.1 million, or 6%, decline in trust services income, reflecting the
impact of lower market values on asset management revenues.
-- $1.4 million, or 4%, decline in brokerage and insurance income,
primarily reflecting seasonally lower insurance contingency fees.
2008 Third Quarter versus 2007 Third Quarter
Non-interest income increased $21.8 million from the year-ago quarter.
Table 7 - Non-interest Income - 3Q08 vs. 3Q07
Change attributable to:
Signi-
Third Quarter Change ficant Other
(in millions) 2008 2007 Amount % Items Amount %
Non-interest Income
Service charges on
deposit accounts $80.5 $78.1 $2.4 3% $- $2.4 3%
Trust services 31.0 33.6 (2.6) (8) - (2.6) (8)
Brokerage and
insurance income 34.3 28.8 5.5 19 - 5.5 19
Other service charges
and fees 23.4 21.0 2.4 11 - 2.4 11
Bank owned life
insurance income 13.3 14.8 (1.5) (10) - (1.5) (10)
Mortgage banking
income (loss) 10.3 9.6 0.7 7 (0.5)(1) 1.1 12
Securities gains
(losses) (15.2) (13.2) (2.0) (15) (2.0)(2) - 0
Other income 48.8 31.8 17.0 53 8.1(3) 8.9 28
Total non-interest
income $226.5 $204.7 $21.8 11% $5.6 $16.2 8%
(1) Net impact of
MSR hedging
MSR valuation
adjustment $(10.3) $(9.9) $(0.4) (4)%
Net trading
(losses) gains 3.8 3.9 (0.1) (2)
Impact to non
interest income (6.5) (6.0) (0.5) (8)
Net interest
income impact 8.4 2.4 6.0 NM
Net impact of MSR
hedging $1.9 $(3.6) $5.5 NM%
(2) Securities gains
(losses) $(15.2) $(13.2) $(2.0) (15)%
(3) Equity investment
gains (losses) $3.7 $(4.4) $8.1 NM%
Of the $21.8 million increase in total non-interest income, $5.6 million came from significant items (see Significant Item discussion). The remaining $16.2 million, or 8%, increase reflected:
-- $8.9 million, or 28%, increase in other income, reflecting higher
operating lease income, partially offset by declines in official check
processing, merchant services, and derivatives income.
-- $5.5 million, or 19%, increase in brokerage and insurance income,
reflecting growth in annuity sales and the 2007 fourth quarter
acquisition of an insurance agency.
-- $2.4 million, or 3%, increase in service charges on deposit accounts,
primarily reflecting strong growth in commercial service charges,
partially offset by a decline in personal service charge income.
-- $2.4 million, or 11%, increase in other service charges and fees,
reflecting higher debit card volume.
Partially offset by:
-- $2.6 million, or 8%, decline in trust services income, reflecting the
impact of lower market values on asset management revenues.
Non-interest Expense
2008 Third Quarter versus 2008 Second Quarter
Non-interest expense decreased $38.8 million, or 10%, from the 2008 second quarter.
Table 8 - Non-interest Expense - 3Q08 vs. 2Q08
Third Second
Quarter Quarter Change
(in millions) 2008 2008 Amount %
Non-interest Expense
Personnel costs $184.8 $200.0 $(15.2) (8)%
Outside data processing
and other services 32.4 30.2 2.2 7
Net occupancy 25.2 27.0 (1.8) (7)
Equipment 22.1 25.7 (3.6) (14)
Amortization of intangibles 19.5 19.3 0.1 1
Marketing 7.0 7.3 (0.3) (4)
Professional services 13.4 13.8 (0.3) (3)
Telecommunications 6.0 6.9 (0.9) (12)
Printing and supplies 4.3 4.8 (0.4) (9)
Other expense 24.2 42.9 (18.7) (43)
Total non-interest expense $339.0 $377.8 $(38.8) (10)%
(1) Debt extinguishment
loss (gain) $(21.4) $(2.2) $(19.2) NM%
(2) Other / (prior period
+ merger-related)
Change attributable to:
Significant Restructuring/ Other
(in millions) Items Merger Costs Amount %(2)
Non-interest Expense
Personnel costs $- $(10.7) $(4.5) (2)%
Outside data processing
and other services - 0.9 1.3 4
Net occupancy - (1.8) 0.1 0
Equipment - (2.8) (0.8) (4)
Amortization of
intangibles - - 0.1 1
Marketing - (0.0) (0.3) (4)
Professional services - (0.1) (0.3) (2)
Telecommunications - (0.0) (0.9) (12)
Printing and supplies - (0.0) (0.4) (9)
Other expense (19.2)(1) (0.0) 0.6 1
Total non-interest expense $(19.2) $(14.6) $(5.1) (1)%
Of the $38.8 million decline, $14.6 million represented second quarter Sky Financial merger/restructuring costs and $19.2 million related to significant items (see Significant Item discussion). The remaining $5.1 million, or 1%, decline primarily reflected a $4.5 million, or 2%, decline in personnel costs, as full-time equivalent staff decreased by 360, or 3%.
2008 Third Quarter versus 2007 Third Quarter
Non-interest expense decreased $46.6 million, or 12%, from the year-ago quarter.
Table 9 - Non-interest Expense - 3Q08 vs. 3Q07
Third Quarter Change
(in millions) 2008 2007 Amount %
Non-interest Expense
Personnel costs $184.8 $202.1 $(17.3) (9)%
Outside data processing
and other services 32.4 40.6 (8.2) (20)
Net occupancy 25.2 33.3 (8.1) (24)
Equipment 22.1 23.3 (1.2) (5)
Amortization of intangibles 19.5 19.9 (0.5) (2)
Marketing 7.0 13.2 (6.1) (47)
Professional services 13.4 11.3 2.1 19
Telecommunications 6.0 7.3 (1.3) (18)
Printing and supplies 4.3 4.7 (0.4) (9)
Other expense 24.2 29.8 (5.5) (19)
Total non-interest expense $339.0 $385.6 $(46.6) (12)%
(1) Debt extinguishment loss
(gain) $(21.4) $(3.2) $(18.1) NM%
(2) Other / (prior period
+ merger-related)
Change attributable to:
Significant Restructuring/ Other
(in millions) Items Merger Costs Amount %(2)
Non-interest Expense
Personnel costs $- $(7.8) $(9.6) (5)%
Outside data processing
and other services - (6.9) (1.4) (4)
Net occupancy - (7.4) (0.7) (3)
Equipment - (1.8) 0.6 3
Amortization of
intangibles - - (0.5) (2)
Marketing - (5.0) (1.2) (14)
Professional services - (1.6) 3.7 38
Telecommunications - (0.2) (1.1) (15)
Printing and supplies - (0.5) 0.0 1
Other expense (18.1)(1) (1.3) 13.9 49
Total non-interest expense $(18.1) $(32.3) $3.8 1%
Of the $46.6 million decline, $32.3 million represented Sky Financial merger/restructuring costs in the year-ago quarter and $18.1 million reflected significant items (see Significant Item discussion). The remaining $3.8 million, or 1%, increase reflected:
-- $13.9 million, or 49%, increase in other expense, primarily reflecting
an increase in operating lease expense, with the remainder of the
increase spread over a number of miscellaneous expense categories
including franchise and other taxes and OREO losses.
-- $3.7 million, or 38%, increase in professional services expenses,
reflecting increased legal and collection costs.
Partially offset by:
-- $9.6 million, or 5%, decline in personnel costs reflecting the benefit
of merger and restructuring efficiencies, including the impact of 1,422
person reduction, or 12%, in full-time equivalent staff from the year-
ago period, as well as lower incentive compensation.
Income Taxes
The provision for income taxes in the 2008 third quarter was $35.5 million, resulting in an effective tax rate of 23.6%. The effective tax rate includes a $3.7 million addition to provision for income taxes, representing an increase to the previously established capital loss carry-forward valuation allowance related to the current quarter's decline in value of Visa(R) shares held. The effective tax rate for the 2008 fourth quarter is expected to be in a range of 22%-24%.
Franklin Credit Management Relationship
At September 30, 2008, total exposure to Franklin was $1.095 billion, down 3% from $1.130 billion at June 30, 2008. This relationship continued to perform and accrue interest. There were no Franklin-related net charge-offs or provision for credit losses in the current or prior quarter. At September 30, 2008, the specific allowance for loan and lease losses for Franklin was $115.3 million, unchanged from June 30, 2008. While the cash flow generated by the underlying collateral declined during the quarter due to the weakening economic environment, it continued to exceed the requirements of the 2007 fourth quarter restructuring agreement. Third quarter cash flows were also affected by lower OREO sales proceeds because of a slowdown in operational foreclosure resolution processes. The proceeds from completed sales continue to be consistent with our expectations. Franklin continued to actively restructure and modify existing delinquent loans in order to generate principal and interest payments in future periods. Franklin is also actively engaged in recovering against judgments they have filed in prior periods.
Credit Quality
Credit quality performance in the 2008 third quarter was generally consistent with our expectations, reflecting the negative impact of the continued economic weakness across our Midwest markets. These economic factors influenced the performance of net charge-offs (NCOs) and non-accrual loans (NALs), as well as an expected commensurate significant increase in the provision for credit losses (see Provision for Credit Losses discussion) that increased the absolute and relative levels of our allowance for credit losses (ACL).
Net Charge-Offs
Total net charge-offs for the 2008 third quarter were $83.8 million, or an annualized 0.82% of average total loans and leases. Total net charge-offs in the 2008 second quarter were $65.2 million, or an annualized 0.64%. Third quarter net charge-offs in the year-ago quarter were $47.1 million, or an annualized 0.47%.
Total commercial net charge-offs for the 2008 third quarter were $40.6 million, or an annualized 0.69%, up from $27.5 million, or an annualized 0.47% in the 2008 second quarter, and from $17.3 million, or an annualized 0.31%, a year ago. Of the current quarter's total commercial net charge-offs, C&I net charge-offs were $29.6 million, or an annualized 0.87%, up from $12.4 million, or an annualized 0.36%, in the second quarter. Current quarter C&I net charge-offs reflected the impact of two relationships totaling $11 million, with the rest of the increase spread among smaller loans across the portfolio. These two relationships had been included in our previous full year net charge-off forecast. Based on our ongoing portfolio review process, we do not anticipate additional losses associated with significant individual relationships in the near future. The rest of the increase compared with the prior period is consistent with our view of the deteriorating economic situation. Current quarter CRE net charge-offs were $11.0 million, or an annualized 0.45%, down from $15.1 million, or an annualized 0.63% in the prior quarter. Current quarter CRE net charge-offs were also consistent with our expectations and reflected smaller dollar activity and the resolution of previously identified NAL's.
Total consumer net charge-offs in the current quarter were $43.1 million, or an annualized 0.98%. This was higher than an annualized 0.85% in the prior quarter and an annualized 0.67% in the year-ago quarter.
Automobile loan and lease net charge-offs were $13.3 million, or an annualized 1.15% in the current quarter, up from 1.01% in the prior period and 0.73% in the year-ago period. Net charge-offs for automobile loans were an annualized 1.02% in the current quarter, up from 0.94% in the second quarter, with net-charge-offs for automobile leases also increasing to an annualized 1.84% from 1.28%. Both automobile loan and automobile lease net charge-offs continued to be negatively impacted by declines in used car prices. While there is some evidence of used car price stabilization, the overall market remained under stress as consumers pulled back on purchasing vehicles. Annualized automobile loan net charge-offs of 1.02% for the third quarter represented levels close to that anticipated. In contrast, automobile lease net charge-offs were significantly higher than expected. While both the loan and lease segments were negatively impacted by general economic weakness, reported automobile lease net charge-offs were also negatively affected by declining balances. Although we anticipate that automobile loan and lease net charge-offs will remain under pressure due to continued economic weakness in our markets, we believe that our focus on super-prime borrowers over the last several years will continue to result in better performance relative to other peer bank automobile portfolios.
Home equity net charge-offs in the 2008 third quarter were $15.8 million, or an annualized 0.85%, down from an annualized 0.94% in the prior quarter, but up from an annualized 0.58%, in the year-ago quarter. This portfolio continued to be negatively impacted by the general economic and housing market slowdown. The impact was evident across our footprint, but performance was relatively better in our Columbus and Cincinnati markets. Given that we have no exposure to the very volatile West Coast and Florida markets, less than 10% of the portfolio was originated via the broker channel, and our conservative assessment of the borrower's ability to repay at the time of underwriting, we continue to believe our home equity net charge-off experience will compare very favorably relative to the industry.
Residential mortgage net charge-offs were $6.7 million, or an annualized 0.56% of related average balances. This was up from an annualized 0.33% in the prior quarter and from 0.32% in the year-ago quarter. The residential portfolio is under the same economic and housing related pressures as the home equity portfolio, and we expect to see additional stress in our markets in future periods. However, as our origination strategy specifically excluded the more exotic mortgage structures, we believe that our performance throughout this cycle will compare favorably on a relative basis to the industry. In addition, loss mitigation strategies have been in place for over a year and are helping to successfully address risks in our ARM portfolio.
Non-accrual Loans and Non-performing Assets
Non-accrual loans (NALs) were $585.9 million at September 30, 2008, and represented 1.42% of total loans and leases. This was higher than $535.0 million, or 1.30%, at June 30, 2008, and $249.4 million, or 0.62%, at the end of the year-ago period. The $50.9 million, or 10%, increase in NALs from the end of the prior quarter, primarily reflected a $37.1 million, or 14%, increase in CRE NALs and a $12.9 million, or 8%, increase in C&I NALs. Residential mortgage NALs increased 3%, whereas home equity NALs declined 5%.
Non-performing assets (NPAs), which include NALs, were $1,040.3 million at September 30, 2008. This was higher than $993.1 million at June 30, 2008, and $435.0 million at the end of the year-ago period. The $47.1 million, or 5%, increase in NPAs from the end of the prior quarter reflected the $50.9 million increase in NALs, partially offset by a net decline in remaining NPAs.
The over 90-day delinquent, but still accruing, ratio was 0.46% at September 30, 2008, up from 0.33% at June 30, 2008, and from 0.29% at the end of the year-ago quarter. The 13 basis point increase in the 90-day delinquent ratio from June 30, 2008, reflected a 21 basis point increase in the total commercial loan 90-day delinquent ratio to 0.35% from 0.14%, and a 2 basis point increase in the total consumer loan 90-day delinquent ratio to 0.61% from 0.59%.
The significant increase in the over 90-day delinquent, but still accruing, C&I and CRE loans reflected a combination of both economic weakness, as well as our focus on serving the needs of our customer relationships. C&I 90-day delinquencies increased 11 basis points, with a 34 basis point increase in the CRE segment. The majority of the increase reflected matured loans in the process of being renewed. In many instances our position can be improved through a renewal process, but renewals take additional time to complete and thus result in elevated past due loans. We believe that the bulk of the restructurings currently under review will be resolved favorably.
We are also very pleased with the relative stability in consumer loan 90- day past due performance, with the home equity portfolio delinquencies declining 5 basis points. The increase in the automobile loan and lease portfolio delinquencies represented normal seasonal patterns. The increase in residential mortgage delinquencies was consistent with our performance expectations for the portfolio.
Allowances for Credit Losses (ACL)
We maintain two reserves, both of which are available to absorb probable credit losses: the allowance for loan and lease losses (ALLL) and the allowance for unfunded loan commitments and letters of credit (AULC). When summed together, these reserves constitute the total ACL.
At September 30, 2008, the ALLL was $720.7 million, up from $679.4 million at June 30, 2008, and from $454.8 million a year ago. Expressed as a percent of period-end loans and leases, the ALLL ratio at September 30, 2008, was 1.75%, up from 1.66% at June 30, 2008 and from 1.14% a year ago. The $41.3 million increase from the end of the prior quarter primarily reflected the impact of the continued economic weakness across our Midwest markets. Given the current market conditions, we believe the increase in the ALLL is prudent and appropriate. At September 30, 2008, the specific ALLL related to Franklin was $115.3 million, unchanged from June 30, 2008.
Table 10 shows the change in the ALLL ratio and each reserve component for the 2008 third quarter and for the 2008 second quarter and 2007 third quarter.
Table 10 - Components of ALLL as Percent of Total Loans and Leases
2Q08 change from
3Q08 2Q08 3Q07 2Q08 3Q07
Transaction reserve(1) 1.54% 1.45% 0.97% 0.09% 0.57%
Economic reserve 0.21 0.21 0.17 -- 0.04
Total ALLL 1.75% 1.66% 1.14% 0.09% 0.61%
(1) Includes specific reserve
The ALLL as a percent of NALs was 123% at September 30, 2008, down from 127% at June 30, 2008, and from 182% a year ago. At September 30, 2008, the AULC was $61.6 million, up from $61.3 million at June 30, 2008, and from $58.2 million at the end of the year-ago quarter.
On a combined basis, the ACL as a percent of total loans and leases at September 30, 2008, was 1.90%, up from 1.80% at June 30, 2008, and from 1.28% a year ago. The ACL as a percent of NALs was 134% at September 30, 2008, down from 138% at June 30, 2008, and from 206% a year ago.
Capital
At September 30, 2008, the regulatory Tier 1 and Total risk-based capital ratios were 8.86% and 12.09%, respectively, up from 8.82% and 12.05%, respectively, at June 30, 2008. Both ratios are well above the regulatory "well capitalized" thresholds of 6.0% and 10.0%, respectively. The "well capitalized" level is the highest regulatory capital designation. The tangible equity to asset ratio at September 30, 2008, was 6.00%, a 10 basis point increase from 5.90%. This improvement moved the tangible equity to assets ratio back into our targeted range of 6.00%-6.25%.
2008 FOURTH QUARTER OUTLOOK
When earnings guidance is given, it is our practice to do so on a GAAP basis, unless otherwise noted. Such guidance includes the expected results of all significant forecasted activities. However, guidance typically excludes selected items where the timing and financial impact is uncertain until the impact can be reasonably forecasted, as well as potential unusual or one-time items.
Our expectation is that the Midwest economic environment will remain weak. We will continue to target our interest rate risk position at our customary relatively neutral position.
The assumptions listed below form the basis for our 2008 fourth quarter earnings outlook.
-- Net interest margin that is relatively flat with the 2008 third
quarter's 3.29% level.
-- Modest growth in average annualized total loans from the 2008 third
quarter level, with commercial loans growing in the low-single digit
range and consumer loans down slightly.
-- Average annualized core deposit growth in the mid-single digit range
from the 2008 third quarter level.
-- Non-interest income that is relatively stable with the 2008 third
quarter non-interest income level adjusted for the significant items
noted earlier (see Significant Items Influencing Financial Performance
Comparisons discussion and Table 1).
-- Non-interest expenses that are also relatively stable with the 2008
third quarter non-interest expense level adjusted for the significant
items noted earlier (see Significant Items Influencing Financial
Performance Comparisons discussion and Table 1).
-- No other significant net market-related gains or losses.
5-10 basis point increase by year end in the ACL ratio from the 1.90%
level at the end of the 2008 third quarter, continuing to reflect the
general stress in the market. Annualized net charge-offs of 90-110
basis points, resulting in estimated 2008 full year net charge-offs in
the 70-75 basis point range.
-- The effective tax rate for the fourth quarter in a range of 22%-24%.
With the above assumptions, earnings for the 2008 fourth quarter are targeted for $0.25-$0.29 per common share, resulting in 2008 full year targeted earnings of $1.12-$1.16 per share.
Conference Call / Webcast Information
Huntington's senior management will host an earnings conference call on Thursday, October 16, 2008, at 1:00 p.m. (Eastern Daylight Time). The call may be accessed via a live Internet webcast at www.huntington-ir.com or through a dial-in telephone number at 800-223-1238; conference ID 67292430. Slides will be available at www.huntington-ir.com just prior to 1:00 p.m. (Eastern Daylight Time) on October 16, 2008 for review during the call. A replay of the webcast will be archived in the Investor Relations section of Huntington's web site www.huntington.com. A telephone replay will be available two hours after the completion of the call through October 31, 2008 at 800-642-1687; conference ID 67292430.
Forward-looking Statement
This press release contains certain forward-looking statements, including certain plans, expectations, goals, projections, and statements, which are subject to numerous assumptions, risks, and uncertainties. Actual results could differ materially from those contained or implied by such statements for a variety of factors including: (1) deterioration in the loan portfolio could be worse than expected due to a number of factors such as the underlying value of the collateral could prove less valuable than otherwise assumed and assumed cash flows may be worse than expected; (2) changes in economic conditions; (3) movements in interest rates; (4) competitive pressures on product pricing and services; (5) success and timing of other business strategies; (6) the nature, extent, and timing of governmental actions and reforms; and (7) extended disruption of vital infrastructure. The Emergency Economic Stabilization Act of 2008 (EESA) passed 10/3/08 could have an undetermined material impact on company performance depending on rules of participation that have yet to be finalized. Additional factors that could cause results to differ materially from those described above can be found in Huntington's 2007 Annual Report on Form 10-K, and documents subsequently filed by Huntington with the Securities and Exchange Commission. All forward-looking statements included in this release are based on information available at the time of the release. Huntington assumes no obligation to update any forward-looking statement.
Basis of Presentation
Use of Non-GAAP Financial Measures
This earnings release contains GAAP financial measures and non-GAAP financial measures where management believes it to be helpful in understanding Huntington's results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in this release, the Quarterly Financial Review supplement to this earnings release, or the 2008 third quarter earnings conference call slides, which can be found on Huntington's website at huntington-ir.com.
Significant Items
Certain components of the Income Statement are naturally subject to more volatility than others. As a result, analysts/investors may view such items differently in their assessment of performance compared with their expectations and/or any implications resulting from them on their assessment of future performance trends. It is a general practice of analysts/investors to try and determine their perception of what "underlying" or "core" earnings performance is in any given reporting period, as this typically forms the basis for their estimation of performance in future periods.
Therefore, Management believes the disclosure of certain "Significant Items" in current and prior period results aids analysts/investors in better understanding corporate performance so that they can ascertain for themselves what, if any, items they may wish to include/exclude from their analysis of performance; i.e., within the context of determining how that performance differed from their expectations, as well as how, if at all, to adjust their estimates of future performance accordingly.
To this end, Management has adopted a practice of listing as "Significant Items" in its external disclosure documents (e.g., earnings press releases, investor presentations, Forms 10-Q and 10-K) individual and/or particularly volatile items that impact the current period results by $0.01 per share or more. (The one exception is the provision for credit losses discussed below). Such "Significant Items" generally fall within one of two categories: timing differences and other items.
Timing Differences
Part of the company's regular business activities are by their nature volatile; e.g. capital markets income, gains and losses on the sale of loans, etc. While such items may generally be expected to occur within a full-year reporting period, they may vary significantly from period to period. Such items are also typically a component of an Income Statement line item and not, therefore, readily discernable. By specifically disclosing such items, analysts/investors can better assess how, if at all, to adjust their estimates of future performance.
Other Items
From time to time, an event or transaction might significantly impact revenues, expenses, or taxes in a particular reporting period that are judged to be one-time, short-term in nature, and/or materially outside typically expected performance. Examples would be (1) merger costs as they typically impact expenses for only a few quarters during the period of transition; e.g., restructuring charges, asset valuation adjustments, etc.; (2) changes in an accounting principle; (3) one-time tax assessments/refunds; (4) a large gain/loss on the sale of an asset; (5) outsized commercial loan net charge- offs related to fraud; etc. By disclosing such items, analysts/investors can better assess how, if at all, to adjust their estimates of future performance.
Provision for Credit Losses
While the provision for credit losses may vary significantly between periods, Management typically excludes it from the list of "Significant Items", unless in Management's view, there is a significant specific credit(s), which is causing distortion in the period.
Provision expense is always an assumption in analyst/investor expectations of earnings and there is apparent agreement among them that provision expense is included in their definition of "underlying" or "core" earnings unlike "timing differences" or "other items". In addition, provision expense is an individual Income Statement line item so its value is easily known and, except in very rare situations, the amount in any reporting period always exceeds $0.01 per share. In addition, the factors influencing the level of provision expense receive detailed additional disclosure and analysis so that analysts/investors have information readily available to understand the underlying factors that result in the reported provision expense amount.
In addition, provision expense trends usually increase/decrease in a somewhat orderly pattern in conjunction with credit quality cycle changes; i.e., as credit quality improves provision expense generally declines and vice versa. While they may have differing views regarding magnitude and/or trends in provision expense, every analyst and most investors incorporate a provision expense estimate in their financial performance estimates.
Other Exclusions
"Significant Items" for any particular period are not intended to be a complete list of items that may significantly impact future periods. A number of factors, including those described in Huntington's 2007 Annual Report on Form 10-K and other factors described from time to time in Huntington's other filings with the Securities and Exchange Commission, could significantly impact future periods.
Estimating the Impact on Balance Sheet and Income Statement Results Due to Acquisitions
The merger with Sky Financial Group Inc. (Sky Financial) was completed on July 1, 2007. At the time of acquisition, Sky Financial had assets of $16.8 billion, including $13.3 billion of loans, and total deposits of $12.9 billion. The impact of this acquisition has been included in our consolidated results since July 1, 2007. As such, the merger does not impact 2008 third quarter performance to 2008 second quarter or year-ago quarter comparisons. However, performance comparisons of 2008 nine-month performance to the comparable year-ago nine-month period are affected, as Sky Financial results were not included in the year-ago first and second quarter periods.
In addition, as a result of this acquisition, we have a significant loan relationship with Franklin Credit Management Corporation.
Given the significant impact of the merger on reported results, we believe that an understanding of the impacts of the merger and certain post-merger restructuring activities is necessary to understand better the underlying performance trends. When comparing post-merger period results to pre-merger periods, we use the following terms when discussing financial performance:
-- "Merger-related" refers to amounts and percentage changes representing
the impact attributable to the merger.
-- "Merger and restructuring costs" represent non-interest expenses
primarily associated with merger integration activities, including
severance expense for key executive personnel.
-- "Non-merger-related" refers to performance not attributable to the
merger, and includes "merger efficiencies", which represent non-
interest expense reductions realized because of the merger.
After completion of the merger, we combined Sky Financial's operations with ours, and as such, we could no longer separately monitor the subsequent individual results of Sky Financial. As a result, the following methodologies were implemented to estimate the approximate effect of the Sky Financial merger used to determine "merger-related" impacts. Certain tables and comments contained within our discussion and analysis provide detail of changes to reported results to quantify the estimated impact of the Sky Financial merger using this methodology.
Balance Sheet Items
For average loans and leases, as well as average deposits, Sky Financial's balances as of June 30, 2007, adjusted for purchase accounting adjustments, and transfers of loans to loans held-for-sale, were used in the comparison. To estimate the impact on 2008 average balances, it was assumed that the June 30, 2007 balances, as adjusted, remained constant over time.
Income Statement Items
Sky Financial's actual results for the first six months of 2007, adjusted for the impact of unusual items and purchase accounting adjustments, were determined. This six-month adjusted amount was divided by two to estimate a quarterly amount. This methodology does not adjust for any market-related changes, or seasonal factors in Sky Financial's 2007 six-month results. Nor does it consider any revenue or expense synergies realized since the merger date. The one exception to this methodology of holding the estimated annual impact constant relates to the amortization of intangibles expense where the amount is known and is therefore used.
Table 11 below provides detail of changes to selected reported results to quantify the impact of the Sky Financial merger using this methodology:
Table 11 - Estimated Impact of Sky Financial Merger
2008 Nine Month versus 2007 Nine Months
Change
attributable
Nine Months Ended to:
September 30, Change Merger Other
(in millions) 2008 2007 Amount % Related Amount %(1)
Average Loans and
Leases
Commercial and
industrial $13,535 $9,748 $3,787 38.8% $3,183 $604 4.7%
Commercial real
estate 9,568 6,051 3,517 58.1 2,647 870 10.0
Total commercial 23,103 15,799 7,304 46.2 5,830 1,474 6.8
Automobile loans and
leases 4,525 4,048 477 11.8 288 189 4.4
Home equity 7,364 5,794 1,570 27.1 1,590 (20) (0.3)
Residential mortgage 5,113 4,771 342 7.2 741 (399) (7.2)
Other consumer 695 461 234 50.8 95 139 25.0
Total consumer 17,697 15,074 2,623 17.4 2,714 (91) (0.5)
Total loans and
leases $40,800 $30,873 $9,927 32.2% $8,544 $1,383 3.5%
(1) Other / (prior period + merger-related)
Change
attributable
Nine Months Ended to:
September 30, Change Merger Other
(in millions) 2008 2007 Amount % Related Amount %(1)
Average Deposits
Demand deposits -
non-interest bearing $5,058 $4,175 $883 21.1% $1,219 $(336)(6.2)%
Demand deposits -
interest bearing 4,008 2,859 1,149 40.2 973 176 4.6
Money market deposits 6,292 5,946 346 5.8 664 (318) (4.8)
Savings and other
domestic deposits 4,987 3,660 1,327 36.3 1,729 (402) (7.5)
Core certificates of
deposit 11,210 7,183 4,027 56.1 3,087 940 9.2
Total core deposits 31,555 23,823 7,732 32.5 7,672 60 0.2
Other deposits 6,366 5,017 1,349 26.9 895 454 7.7
Total deposits $37,921 $28,840 $9,081 31.5% $8,567 $514 1.4%
(1) Other / (prior period + merger-related)
Nine Months Ended
September 30, Change
(in thousands) 2008 2007 Amount %
Net interest income - FTE $1,171,903 $932,465 $239,438 25.7%
Non-interest Income
Service charges on
deposit accounts $232,806 $172,917 $59,889 34.6%
Trust services 98,169 86,220 11,949 13.9
Brokerage and insurance
income 106,563 62,087 44,476 71.6
Other service charges and fees 67,429 49,176 18,253 37.1
Bank owned life insurance income 41,199 36,602 4,597 12.6
Mortgage banking income (loss) 15,741 26,102 (10,361) (39.7)
Securities gains (losses) (11,655) (18,187) 6,532 35.9
Other income 148,420 91,127 57,293 62.9
Total non-interest income $698,672 $506,044 $192,628 38.1%
(1) Net impact of MSR hedging
MSR valuation adjustment $10,687 $5,114 $5,573 NM%
Net trading (losses) gains (52,558) (18,132) (34,426) NM
Impact to non interest
income (41,871) (13,018) (28,853) NM
Net interest income impact 23,666 2,605 21,061 NM
Net impact of MSR hedging $(18,205) $(10,413) $(7,792) (74.8)%
(2) Securities gains (losses) $(11,655) $(18,187) $6,532 35.9%
(3) Other income
Equity investment gains
(losses) $(3,574) $(10,616) $7,042 66.3%
Loss on loans held for sale (7,200) - (7,200) NM
Gain on sale of mortgage loans 2,069 - 2,069 NM
Gain on sale of Visa/Master
Card stock 25,087 - 25,087 NM
Asset impairment (5,900) - (5,900) NM
Impact to other income $10,482 $(10,616) $21,098 NM%
(4) Other / (prior period
+ merger-related)
Change attributable to:
Merger Significant Other
(in thousands) Related Items Amount %(4)
Net interest income - FTE $303,184 $21,061(1) $(84,807 (6.9)%
Non-interest Income
Service charges on deposit
accounts $48,220 $- $11,669 5.3%
Trust services 14,018 - (2,069) (2.1)
Brokerage and insurance income 34,122 - 10,354 10.8
Other service charges and fees 11,600 - 6,653 10.9
Bank owned life insurance income 3,614 - 983 2.4
Mortgage banking income (loss) 12,512 (28,853)(1) 5,980 15.5
Securities gains (losses) 566 6,532 (2) (566) 3.2
Other income 12,780 21,098 (3) 23,415 22.5
Total non-interest income $137,432 $(1,223) $56,419 8.8%
Nine Months Ended
September 30, Change
(in thousands) 2008 2007 Amount %
Non-interest Expense
Personnel costs $586,761 $471,978 $114,783 24.3%
Outside data processing
and other services 96,933 88,115 8,818 10.0
Net occupancy 85,429 72,659 12,770 17.6
Equipment 71,636 58,666 12,970 22.1
Amortization of intangibles 57,707 24,988 32,719 NM
Marketing 23,307 29,868 (6,561) (22.0)
Professional services 36,247 25,856 10,391 40.2
Telecommunications 19,116 15,989 3,127 19.6
Printing and supplies 14,695 11,657 3,038 26.1
Other expense 95,449 72,514 22,935 31.6
Total non-interest expense $1,087,280 $872,290 $214,990 24.6%
(1) Asset impairment $5,100 $- $5,100 NM%
(2) Other expense
Visa anti-trust
indemnification $(12,435) $- $(12,435) NM%
Debt extinguishment
loss (gain) (23,541) (7,310) (16,231) NM
Litigation reserves - 1,867 (1,867) NM
Impact to other expense $(35,976) $(5,443) $(30,533) NM%
(3) Other / (prior period +
merger-related)
Change attributable to:
Merger Significant Restructuring/ Other
(in thousands) Related Items Merger Costs Amount %(3)
Non-interest Expense
Personnel costs $136,500 $- $5,147 $(26,864) (4.4)%
Outside data
processing and
other services 24,524 - (9,012) (6,694) (6.5)
Net occupancy 20,368 5,100(1) (5,283) (7,415) (8.5)
Equipment 9,598 - 1,117 2,255 3.3
Amortization of
intangibles 32,962 - - (243) (0.4)
Marketing 8,722 - (6,495) (8,788) (27.4)
Professional services 5,414 - (2,952) 7,929 28.0
Telecommunications 4,448 - 404 (1,725) (8.3)
Printing and supplies 2,748 - (390) 680 4.9
Other expense 26,096 (30,533)(2) (1,374) 28,746 29.6
Total non-interest
expense $271,380 $(25,433) $(18,838) $(12,119) (1.1)%
Annualized data
Certain returns, yields, performance ratios, or quarterly growth rates are "annualized" in this presentation to represent an annual time period. This is done for analytical and decision-making purposes to better discern underlying performance trends when compared to full year or year-over-year amounts. For example, loan and deposit growth rates are most often expressed in terms of an annual rate like 8%. As such, a 2% growth rate for a quarter would represent an annualized 8% growth rate.
Fully taxable equivalent interest income and net interest margin
Income from tax-exempt earnings assets is increased by an amount equivalent to the taxes that would have been paid if this income had been taxable at statutory rates. This adjustment puts all earning assets, most notably tax-exempt municipal securities and certain lease assets, on a common basis that facilitates comparison of results to results of competitors.
Earnings per share equivalent data
Significant income or expense items may be expressed on a per common share basis. This is done for analytical and decision-making purposes to better discern underlying trends in total corporate earnings per share performance excluding the impact of such items. Investors may also find this information helpful in their evaluation of the company's financial performance against published earnings per share mean estimate amounts, which typically exclude the impact of significant items. Earnings per share equivalents are usually calculated by applying a 35% effective tax rate to a pre-tax amount to derive an after-tax amount, which is divided by the average shares outstanding during the respective reporting period. Occasionally, when the item involves special tax treatment, the after-tax amount is disclosed separately, with this then being the amount used to calculate the earnings per share equivalent.
NM or nm
Percent changes of 100% or more are typically shown as "nm" or "not meaningful" unless required. Such large percent changes typically reflect the impact of unusual or particularly volatile items within the measured periods. Since the primary purpose of showing a percent change is for discerning underlying performance trends, such large percent changes are typically "not meaningful" for trend analysis purposes.
About Huntington
Huntington Bancshares Incorporated is a $55 billion regional bank holding company headquartered in Columbus, Ohio. Huntington has more than 142 years of serving the financial needs of its customers. Huntington's banking subsidiary, The Huntington National Bank, provides innovative retail and commercial financial products and services through over 600 regional banking offices in Indiana, Kentucky, Michigan, Ohio, Pennsylvania, and West Virginia. Huntington also offers retail and commercial financial services online at huntington.com; through its technologically advanced, 24-hour telephone bank; and through its network of almost 1,400 ATMs. Selected financial service activities are also conducted in other states including: Auto Finance and Dealer Services offices in Arizona, Florida, Nevada, New Jersey, New York, Tennessee, and Texas; Private Financial and Capital Markets Group offices in Florida; and Mortgage Banking offices in Maryland and New Jersey. Huntington Insurance offers retail and commercial insurance agency services in Ohio, Pennsylvania, Michigan, Indiana, and West Virginia. International banking services are made available through the headquarters office in Columbus, a limited purpose office located in the Cayman Islands, and another located in Hong Kong.
HUNTINGTON BANCSHARES INCORPORATED
Quarterly Key Statistics (1)
(Unaudited)
Percent Changes
(in thousands, except 2008 2007 vs.
per share amounts) Third Second Third 2Q08 3Q07
Net interest income $388,636 $389,866 $409,633 (0.3)% (5.1)%
Provision for credit
losses 125,392 120,813 42,007 3.8 N.M.
Non-interest income 226,490 236,430 204,674 (4.2) 10.7
Non-interest expense 338,996 377,803 385,563 (10.3) (12.1)
Income before income
taxes 150,738 127,680 186,737 18.1 (19.3)
Provision for income
taxes 35,535 26,328 48,535 35.0 (26.8)
Net Income $115,203 $101,352 $138,202 13.7% (16.6)%
Dividends declared on
preferred shares 12,091 11,151 --- 8.4 ---
Net income applicable
to common shares $103,112 $90,201 $138,202 14.3% (25.4)%
Net income per common
share - diluted $0.28 $0.25 $0.38 12.0% (26.3)%
Cash dividends declared
per common share 0.1325 0.1325 0.2650 --- (50.0)
Book value per common
share at end of period 15.88 15.87 17.08 0.1 (7.0)
Tangible book value
per common share at
end of period 6.87 6.82 8.10 0.7 (15.2)
Average common shares
- basic 366,124 366,206 365,895 --- 0.1
Average common shares
- diluted (2) 414,968 367,234 368,280 13.0 12.7
Return on average assets 0.84% 0.73% 1.02%
Return on average
shareholders' equity 7.2 6.4 8.8
Return on average
tangible shareholders'
equity (3) 16.9 15.0 19.7
Net interest margin (4) 3.29 3.29 3.52
Efficiency ratio (5) 50.3 56.9 57.7
Effective tax rate 23.6 20.6 26.0
Average loans and
leases $41,004,234 $41,025,088 $39,827,422 (0.1) 3.0
Average loans and
leases - linked
quarter annualized
growth rate. (0.2)% 6.5% N.M.%
Average earning
assets $47,644,331 $48,279,217 $46,870,957 (1.3) 1.7
Average total
assets 54,663,867 55,539,295 53,970,093 (1.6) 1.3
Average core
deposits (6) 31,738,625 31,410,981 31,639,919 1.0 0.3
Average core
deposits
- linked quarter
annualized growth
rate (6) 4.2% (1.3)% N.M.%
Average shareholders'
equity $6,324,362 $6,355,388 $6,205,783 (0.5) 1.9
Total assets at end
of period 54,671,350 55,333,841 55,303,927 (1.2) (1.1)
Total shareholders'
equity at end of
period 6,383,101 6,381,265 6,249,674 --- 2.1
Net charge-offs (NCOs) 83,751 65,247 47,106 28.4 77.8
NCOs as a % of average
loans and leases 0.82% 0.64% 0.47%
Nonaccrual loans and
leases (NALs) $585,941 $535,042 $249,396 9.5 N.M.
NAL ratio (7) 1.42% 1.30 0.62
Allowance for loan
and lease losses
(ALLL) as a % of
total loans and
leases at the end of
period 1.75 1.66 1.14
ALLL plus allowance
for unfunded loan
commitments and
letters of credit
as a % of total
loans and leases
at the end of period 1.90 1.80 1.28
ALLL as a % of NALs 123 127 182
Tier 1 risk-based
capital ratio (8) 8.86 8.82 8.35
Total risk-based
capital ratio (8) 12.09 12.05 11.58
Tier 1 leverage
ratio (8) 8.05 7.88 7.57
Average equity / assets 11.57 11.44 11.50
Tangible equity /
assets (9) 6.00 5.90 5.70
Tangible common
equity / assets 4.89 4.80 5.70
N.M., not a meaningful value.
(1) Comparisons for presented periods are impacted by a number of factors.
Refer to "Significant Items Influencing Financial Performance
Comparisons".
(2) For the three months ended September 30, 2008, the impact of the
convertible preferred stock issued in April of 2008 was included in
the diluted share calculation. It was included because the result was
less than basic earnings per common share (dilutive) for the period.
For the three months ended June 30, 2008, the impact of the
convertible preferred stock issued in April of 2008 was excluded from
the diluted share calculation. It was excluded because the result
would have been higher than basic earnings per common share (anti-
dilutive) for the period.
(3) Net income excluding expense for amortization of intangibles for the
period divided by average tangible shareholders' equity. Average
tangible shareholders' equity equals average total stockholders'
equity less average intangible assets and goodwill. Expense for
amortization of intangibles and average intangible assets are net of
deferred tax liability, and calculated assuming a 35% tax rate.
(4) On a fully taxable equivalent (FTE) basis assuming a 35% tax rate.
(5) Non-interest expense less amortization of intangibles ($19.5 million
in 3Q 2008, $19.3 million in 2Q 2008, and $19.9 million in 3Q 2007)
divided by the sum of FTE net interest income and non-interest income
excluding securities gains (losses).
(6) Includes non-interest bearing and interest bearing demand deposits,
money market deposits, savings and other domestic time deposits, and
core certificates of deposit.
(7) Nonaccruing loans and leases (NALs) divided by total loans and leases.
(8) September 30, 2008 figures are estimated. Based on an interim
decision by the banking agencies on December 14, 2006, Huntington has
excluded the impact of adopting Statement 158 from the regulatory
capital calculations.
(9) At end of period. Tangible equity (total equity less goodwill and
other intangible assets) divided by tangible assets (total assets less
goodwill and other intangible assets). Other intangible assets are
net of deferred tax.
HUNTINGTON BANCSHARES INCORPORATED
Year to Date Key Statistics (1)
(Unaudited)
(in thousands, except Nine Months Ended September 30, Change
per share amounts) 2008 2007 Amount Percent
Net interest income $1,155,326 $918,579 $236,747 25.8%
Provision for credit
losses 334,855 131,546 203,309 N.M.
Non-interest income 698,672 506,044 192,628 38.1
Non-interest expense 1,087,280 872,290 214,990 24.6
Income before income
taxes 431,863 420,787 11,076 2.6
Provision for income
taxes 88,240 106,338 (18,098) (17.0)
Net Income $343,623 $314,449 $29,174 9.3%
Dividends declared on
preferred shares 23,242 --- 23,242 ---
Net income applicable
to common shares $320,381 $314,449 5,932 1.9
Net income per common
share - diluted $0.87 $1.12 $(0.25) (22.3)%
Cash dividends declared
per common share 0.530 0.795 (0.265) (33.3)
Average common shares -
basic 366,188 279,171 87,017 31.2
Average common shares -
diluted (2) 396,457 282,014 114,443 40.6
Return on average
assets 0.83% 1.02%
Return on average
shareholders' equity 7.4 10.3
Return on average
tangible shareholders'
equity (3) 17.7 16.8
Net interest margin (4) 3.27 3.40
Efficiency ratio (5) 54.7 58.2
Effective tax rate 20.4 25.3
Average loans and
leases $40,799,635 $30,873,499 $9,926,136 32.2
Average earning assets 47,859,232 36,635,212 11,224,020 30.6
Average total assets 55,028,124 41,419,779 13,608,345 32.9
Average core deposits
(6) 31,555,426 23,823,200 7,732,226 32.5
Average shareholders'
equity 6,185,311 4,099,696 2,085,615 50.9
Net charge-offs (NCOs) 197,447 99,724 97,723 98.0
NCOs as a % of average
loans and leases 0.65% 0.43%
N.M., not a meaningful value.
(1) Comparisons for presented periods are impacted by a number of factors.
Refer to "Significant Items Influencing Financial Performance
Comparisons".
(2) For the nine months ended September 30, 2008, the impact of the
convertible preferred stock issued in April of 2008 was included in
the diluted share calculation. It was included because the result was
less than basic earnings per share (dilutive) on a year-to-date basis.
(3) Net income less expense excluding amortization of intangibles for the
period divided by average tangible shareholders' equity. Average
tangible shareholders' equity equals average total shareholders'
equity less average intangible assets and goodwill. Expense for
amortization of intangibles and average intangible assets are net of
deferred tax liability, and calculated assuming a 35% tax rate.
(4) On a fully taxable equivalent (FTE) basis assuming a 35% tax rate.
(5) Non-interest expense less amortization of intangibles ($57.7 million
for 2008 and $25.0 million for 2007) divided by the sum of FTE net
interest income and non-interest income excluding securities gains
(losses).
(6) Includes non-interest bearing and interest bearing demand deposits,
money market deposits, savings and other domestic time deposits, and
core certificates of deposit.
SOURCE Huntington Bancshares Incorporated
Released October 16, 2008