Huntington Bancshares Reports:
- 2007 Fourth Quarter Net Loss of $239.3 Million, or $0.65 Per Common Share, as Previously Announced
- $0.265 Per Common Share Dividend Announced Yesterday
- 2008 Full Year Earnings Target of $1.57-$1.62 Per Common Share
COLUMBUS, Ohio, Jan. 17 /PRNewswire-FirstCall/ -- Huntington Bancshares Incorporated (Nasdaq: HBAN)(www.huntington.com) reported a 2007 fourth quarter net loss of $239.3 million, or $0.65 per common share. This was consistent with the announcement on January 10, 2008. Earnings in the year-ago fourth quarter were $87.7 million, or $0.37 per common share. Earnings in the current and year-ago quarters were impacted by several significant items (see Significant Items Influencing Financial Performance Comparisons discussion and Table 1).
Earnings for the full year 2007 were $75.2 million, or $0.25 per common share, compared with $461.2 million, or $1.92 per common share in 2006.
Huntington also announced yesterday that the board of directors has declared a quarterly cash dividend on its common stock of $0.265 per common share. The dividend is payable April 1, 2008, to shareholders of record on March 14, 2008.
PERFORMANCE OVERVIEW
Performance compared with the 2007 third quarter included:
* Net loss of $0.65 per common share, compared with $0.38 earnings per
common share.
* Current quarter earnings were negatively impacted by $1.00 per common
share consisting of costs associated with Franklin Credit Management
Corporation (Franklin), market-related losses, merger costs, a VISA(R)
indemnification charge, and increases to litigation reserves on
existing cases. The 2007 third quarter earnings were negatively
impacted by $0.09 per common share, reflecting the combination of
merger costs associated with the acquisition of Sky Financial Group
Inc. (Sky Financial) and net market-related losses.
* $512.1 million of total provision for credit losses, consisting of
$405.8 million for Franklin and $106.2 million non-Franklin-related.
This compares with $42.0 million of provision for credit losses in the
third quarter, of which $5.0 million was for Franklin, and $37.0
million non-Franklin. The $69.2 million increase in non-Franklin
provision for credit losses reflected higher non-Franklin net charge-
offs, due primarily to the continued weakness in the commercial real
estate markets, particularly among our borrowers in eastern Michigan
and northern Ohio, and an increased allowance for credit losses.
* 3.26% net interest margin, down from 3.52% in the 2007 third quarter,
reflecting a 15 basis point one time negative impact related to
Franklin, as well as continued intense competitive pricing in our
markets, mostly deposit related.
* 6% annualized linked-quarter growth in average total commercial loans,
with average total consumer loans little changed.
* Average total core deposits that were essentially unchanged.
* Strong linked-quarter growth in key fee income activities including
deposit service charges (4%), trust services (5%), brokerage and
insurance (5%), and other service charges and fees (4%). Fourth quarter
non-interest income also reflected $66.7 million of the $63.5 million of
net market-related losses, compared with $23.5 million of the $18.0
million of such net losses in the 2007 third quarter.
* Slight linked-quarter increase in non-interest expense, excluding the
impact of merger-related costs and automobile operating lease expenses
in both periods, the fourth quarter VISA(R) indemnification charge and
increases to litigation reserves on existing cases, and the third
quarter debt extinguishment gain. The slight linked quarter increase
reflected higher seasonal expenses partially offset by the benefit of
achieving almost 90% of the $115 million targeted total annualized
merger efficiencies.
* $377.9 million of net charge-offs, including $308.5 million related to
the Franklin restructuring, up from $47.1 million in the third quarter.
* 1.44% period-end allowance for loan and lease losses (ALLL) ratio, up
from 1.14% at the end of the third quarter.
* $319.8 million of non-accrual loans, up from $249.4 million at the end
of the third quarter with most of the increase in middle market
commercial real estate loans. Period end non-accrual loans represented
0.80% of total loans and leases, up from 0.62% at September 30, 2007.
* $1.660 billion of nonperforming assets, up $1.225 billion from $435
million at the end of the third quarter, with $1.187 billion of the
increase representing Franklin restructured loans.
* 5.08% period-end tangible common equity ratio, down from 5.70%. This
reduction primarily reflected the negative impact on capital due to the
current quarter's net loss.
"We are disappointed with these results," said Thomas E. Hoaglin, chairman, president, and chief executive officer. "Clearly the biggest setback was the significant negative impact associated with the previously announced restructuring of the Franklin relationship acquired in the Sky Financial merger. However, we firmly believe that the specific reserves we have established and the positive cash flow coverage resulting from the restructuring address fully the current and anticipated financial performance issues associated with this relationship. As such, we do not anticipate any further negative impact from this relationship. Also negatively impacting performance was the need to build non-Franklin-related loan loss reserves in view of the continued weakness in the residential real estate development markets."
He continued, "While not an excuse, many of the items negatively impacting fourth quarter performance were one-time in nature or reflected the volatile financial markets. The volatility of securities markets, and particularly the negative valuation performance of financial securities, resulted in our market-related losses. When these markets will stabilize is not known. The public equity investment funds and the investment securities portfolio where we have been most negatively impacted have now been written down to less than $25 million."
"Despite these developments, there were positive signs of the underlying strength of our franchise," he said. "The quarter's results included good growth in commercial loans and strong growth in a number of key fee income activities. Our underlying expenses were well controlled, and we have realized almost 90% of the merger efficiencies and are confident of achieving the rest."
"Even in this difficult environment, our 2008 expectations are for a net interest margin in the 3.35% range, and growth in loans and fee income. We expect no significant market-related losses and will remain focused on controlling expenses. Credit quality performance will remain under pressure. We expect meaningful progress in building capital ratios. This confidence was evidenced by the reaffirmation of the common stock dividend by our board of
directors. We will continue to focus on executing our business plan, and we believe 2008 will be a successful year," he concluded.
FOURTH QUARTER PERFORMANCE DISCUSSION
Significant Items Influencing Financial Performance Comparisons
Specific significant items impacting 2007 fourth quarter performance included (see Table 1 below):
* $423.6 million pre-tax ($0.75 per common share) negative impact related
to the Franklin relationship announced on January 3, 2008, consisting of
a $405.8 million provision for credit losses related to the completed
restructuring of the Franklin loans and a $17.9 million reduction of net
interest income. The net interest income reduction reflected the
placement of the Franklin loans on non-accrual status from November 16,
2007 until December 28, 2007. During this period, the loan payments
from Franklin remained current, with the interest received used to
reduce the exposure.
* $63.5 million pre-tax ($0.11 per common share) negative impact of
market-related losses consisting of:
* $34.0 million loss on loans held for sale,
* $11.6 million of impairment losses on certain investment securities,
* $9.4 million of equity investment losses, and
* $8.6 million net negative impact of mortgage servicing rights (MSR)
hedging consisting of a net impairment loss of $11.8 million
included in non-interest income, partially offset by related net
interest income of $3.2 million.
* $44.4 million pre-tax ($0.08 per common share) of merger-costs
consisting of:
* $31.0 million related to Sky Financial integration expenses, and
* $13.4 million related to the previously announced retirement of
Marty Adams, former president and chief operating officer,
consisting of a cash payment, the accelerated vesting of stock
awards, and retirement benefits.
* $24.9 million pre-tax ($0.04 per common share) VISA(R) indemnification
charge associated with its announced anti-trust settlement with American
Express(R) and pending VISA(R) litigation.
* $8.9 million pre-tax ($0.02 per common share) of increases to litigation
reserves on existing cases.
Table 1 - Significant Items Impacting Earnings Performance Comparisons (1)
Three Months Ended Impact (2)
(in millions, except per share) Pre-tax EPS (3)
December 31, 2007 - GAAP earnings (loss) $(239.3) (3) $(0.65)
* Franklin relationship restructuring (423.6) (0.75)
* Net market-related losses (63.5) (0.11)
* Merger costs (44.4) (0.08)
* VISA(R) indemnification charge (24.9) (0.04)
* Increases to litigation reserves (8.9) (0.02)
September 30, 2007 - GAAP earnings $138.2 (3) $0.38
* Sky Financial merger costs (32.3) (0.06)
* Net market-related losses (18.0) (0.03)
December 31, 2006 - GAAP earnings $87.7 (3) $0.37
* Gain on sale of MasterCard(R) stock 2.6 0.01
* Completion of balance sheet restructuring (20.2) (0.05)
* Huntington Foundation contribution (10.0) (0.03)
* Automobile lease residual value losses (5.2) (0.01)
* Severance and consolidation expenses (4.5) (0.01)
(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
Net Interest Income, Net Interest Margin, and Average Balance Sheet
2007 Fourth Quarter versus 2006 Fourth Quarter
Fully taxable equivalent net interest income increased $126.2 million from the year-ago quarter. This reflected the favorable impact of a $15.6 billion increase in average earning assets, of which $13.8 billion represented an increase in average loans and leases, partially offset by a slight decrease in the fully-taxable equivalent net interest margin of 2 basis points to 3.26%. The current quarter net interest margin included a one-time negative impact of 15 basis points, reflecting Franklin loans that were put on nonaccrual status from November 16, 2007 until December 28, 2007. The increases in average earning assets, as well as loans and leases, were primarily merger-related. Table 2 details the $13.8 billion reported increase in average loans and leases.
Table 2 - Loans and Leases - 4Q07 vs. 4Q06
Non-merger
Fourth Quarter Change Merger Related
(in billions) 2007 2006 Amount % Related Amount %(1)
Average Loans and Leases
Total commercial $22.3 $12.3 $10.0 81% $8.7 $1.3 6%
Automobile loans and
leases 4.3 3.9 0.4 9 0.4 (0.1) (1)
Home equity 7.3 5.0 2.3 47 2.4 (0.1) (1)
Residential mortgage 5.4 4.6 0.8 17 1.1 (0.3) (5)
Other consumer 0.7 0.4 0.3 69 0.1 0.2 27
Total consumer 17.8 14.0 3.8 27 4.1 (0.3) (2)
Total loans and leases $40.1 $26.3 $13.8 53% $12.8 $1.0 3%
(1) = non-merger related / (prior period + merger-related)
The $1.0 billion, or 3%, non-merger-related increase primarily reflected:
* $1.3 billion, or 6%, increase in average total commercial loans,
reflecting continued strong growth in middle-market commercial and
industrial (C&I) loans.
Partially offset by:
* $0.3 billion, or 2%, decrease in average total consumer loans. This
reflected a decline in residential mortgages due to loan sales over the
last 12-month period. The declines in home equity loans and automobile
loans and leases reflect weaker demand, a softer economy, as well as the
continued impact of competitive pricing.
Also contributing to the growth in average earning assets was a $1.0 billion increase in average trading account securities. The increase in these assets reflected a change in our strategy to use trading account securities to hedge the change in fair value of our mortgage servicing rights (MSR).
The 3.26% fully taxable net interest margin in the current period, which was below our expectations, reflected a one-time negative impact of 15 basis points as the Franklin loans were put on nonaccrual status from November 16, 2007 until December 28, 2007. The margin decline also reflected competitive deposit pricing in our markets.
Table 3 details the $13.0 billion reported increase in average total deposits.
Table 3 - Deposits - 4Q07 vs. 4Q06
Non-merger
Fourth Quarter Change Merger Related
(in billions) 2007 2006 Amount % Related Amount %(1)
Average Deposits
Demand deposits -
non-interest bearing $5.2 $3.6 $1.6 46% $1.8 $(0.2) (4)%
Demand deposits -
interest bearing 3.9 2.2 1.7 77 1.5 0.3 7
Money market deposits 6.8 5.5 1.3 23 1.0 0.3 5
Savings and other
domestic deposits 4.8 2.8 2.0 69 2.6 (0.6) (12)
Core certificates of
deposit 10.7 5.4 5.3 98 4.6 0.7 7
Total core deposits 31.5 19.6 11.9 61 11.5 0.4 1
Other deposits 6.2 5.1 1.1 21 1.3 (0.3) (4)
Total deposits $37.7 $24.7 $13.0 52% $12.9 $0.1 0%
(1) = non-merger related / (prior period + merger-related)
Virtually all of the increase in average total deposits was merger- related. The $0.1 billion non-merger-related increase reflected:
* $0.4 billion, or 1%, increase in average total core deposits, reflecting
strong growth in interest bearing demand deposits and money market
accounts. While there was strong growth in core certificates of
deposits, this was offset by the decline in savings and other domestic
deposits, as customers transferred funds from lower rate to higher rate
accounts.
Partially offset by:
* $0.3 billion, or 4%, decline in other non-core deposits.
2007 Fourth Quarter versus 2007 Third Quarter
Compared with the 2007 third quarter, fully taxable equivalent net interest income decreased $27.0 million. This reflected the negative impact of a lower fully taxable equivalent net interest margin, only partially offset by an increase in average earning assets, primarily loans. The fully-taxable net interest margin was 3.26% in the quarter, down 26 basis points, of which 15 basis points represented the $17.9 million reduction of interest income as the Franklin loans were put on nonaccrual status from November 16, 2007 until December 28, 2007. The remainder of the decline in the fully taxable net interest margin primarily reflected continued deposit pricing competition in our markets. These negatives were only partially offset by the $0.4 billion increase in average earning assets, of which $0.3 billion represented growth in average total loans and leases.
Table 4 details the $0.3 billion reported increase in average loans and leases.
Table 4 - Loans and Leases - 4Q07 vs. 3Q07
Fourth Third
Quarter Quarter Change
(in billions) 2007 2007 Amount %
Average Loans and Leases
Total commercial $22.3 $22.0 $0.3 1%
Automobile loans and leases 4.3 4.4 (0.0) (1)
Home equity 7.3 7.5 (0.2) (2)
Residential mortgage 5.4 5.5 (0.0) (0)
Other consumer 0.7 0.5 0.2 36
Total consumer 17.8 17.8 (0.0) (0)
Total loans and leases $40.1 $39.8 $0.3 1%
The $0.3 billion, or 1%, increase in average total loans and leases primarily reflected 1% growth in average total commercial loans due to strong growth in middle-market commercial real estate loans. Average total consumer loans were essentially unchanged.
While average total deposits were essentially unchanged, Table 5 details the changes in the various deposit categories.
Table 5 - Deposits - 4Q07 vs. 3Q07
Fourth Third
Quarter Quarter Change
(in billions) 2007 2007 Amount %
Average Deposits
Demand deposits - non-interest
bearing $5.2 $5.4 $(0.2) (3)%
Demand deposits - interest bearing 3.9 3.8 0.1 3
Money market deposits 6.8 6.9 (0.0) (0)
Savings and other domestic deposits 4.8 5.0 (0.2) (5)
Core certificates of deposit 10.7 10.4 0.2 2
Total core deposits 31.5 31.5 (0.1) (0)
Other deposits 6.2 6.1 0.1 1
Total deposits $37.7 $37.7 $0.0 0%
Average total deposits were $37.7 billion, essentially unchanged compared with the prior quarter. However, there were changes between the various deposit account categories consisting of:
* $0.1 billion, or 1%, increase in other non-core deposits, reflecting an
increase in wholesale deposits.
* $0.1 billion decline in average total core deposits, reflecting
anticipated merger-related deposit attrition. Within core deposits,
transfers from lower cost to higher cost deposit accounts continued.
Specifically, declines in savings and other domestic deposits and non-
interest bearing demand reflected customer transfers out of these lower
rate accounts and into higher rate interest bearing demand accounts and
certificates of deposit.
Provision for Credit Losses
The provision for credit losses in the 2007 fourth quarter was $512.1 million, up from $15.7 million in the year-ago quarter and from $42.0 million in the third quarter. Compared with the 2007 third quarter, the $470.1 million increase included $405.8 million related to Franklin. Reported 2007 net charge-offs were $377.9 million, including $308.5 million related to Franklin. As a result, the reported provision for credit losses exceed net charge-offs by $134.2 million. Adjusting for Franklin-related provision and net charge-offs, the non-Franklin-related provision for credit losses was $106.3 million, or $36.9 million greater than related net charge-offs of $69.4 million. (See Credit Quality Discussion).
Non-Interest Income
2007 Fourth Quarter versus 2006 Fourth Quarter
Non-interest income increased $30.0 million from the year-ago quarter. The $68.7 million of merger-related non-interest income drove the increase, as non-merger-related non-interest income declined. Table 6 details the $30.0 million increase in reported total non-interest income.
Table 6 - Non-interest Income - 4Q07 vs. 4Q06
Non-merger
Fourth Quarter Change Merger Related
(in millions) 2007 2006 Amount % Related Amount %(1)
Non-interest Income
Service charges on
deposit accounts $81.3 $48.5 $32.7 67% $24.1 $8.6 12%
Trust services 35.2 23.5 11.7 50 7.0 4.7 15
Brokerage and insurance
income 30.3 14.6 15.7 NM 17.1 (1.4) (4)
Other service charges
and fees 21.9 13.8 8.1 59 5.8 2.3 12
Bank owned life
insurance income 13.3 10.8 2.4 23 1.8 0.6 5
Mortgage banking income 3.7 6.2 (2.5) (40) 6.3 (8.7) (70)
Securities losses (11.6) (15.8) 4.3 (27) 0.3 4.0 (26)
Other income (3.5) 39.0 (42.5) NM 6.4 (48.9) NM
Total non-interest income $170.6 $140.6 $30.0 21% $68.7 $(38.8) (19)%
(1) = non-merger related / (prior period + merger-related)
The $38.8 million, or 19%, non-merger-related decline reflected:
* $48.9 million decline in other income, reflecting the current quarter's
$34.0 million loss on loans held for sale, $9.4 million of equity
investment losses in the current quarter compared with $3.3 million of
such gains in the year-ago quarter, and a $2.6 million gain on the sale
of MasterCard(R) stock in the year-ago quarter.
* $8.7 million, or 70%, decline in mortgage banking income, reflecting the
current quarter's $11.8 million net negative MSR valuation impact,
compared with a $2.5 million net negative MSR valuation impact in the
year ago quarter.
Partially offset by:
* $8.6 million, or 12%, increase in service charges on deposit accounts,
reflecting strong growth in personal service charge income.
* $4.7 million, or 15%, increase in trust services income, of which $2.5
million reflected fees associated with the acquisition of Unified Fund
Services at the end of the 2006 fourth quarter, as well as an increase
in Huntington Fund fees due to asset growth.
* $4.0 million less in investment securities losses. In the 2007 fourth
quarter, net investment securities impairment losses were $11.6 million.
This was less than the $15.8 million of such losses in the year-ago
quarter, which were included in that quarter's balance sheet
restructuring. (See Significant Items).
* $2.3 million, or 12%, increase in other service charges and fees,
reflecting higher debit card volume.
2007 Fourth Quarter versus 2007 Third Quarter
Non-interest income decreased $34.1 million from the 2007 third quarter.
Table 7 - Non-interest Income - 4Q07 vs. 3Q07
Fourth Third
Quarter Quarter Change
(in millions) 2007 2007 Amount %
Non-interest Income
Service charges on deposit accounts $81.3 $78.1 $3.2 4%
Trust services 35.2 33.6 1.6 5
Brokerage and insurance income 30.3 28.8 1.5 5
Other service charges and fees 21.9 21.0 0.8 4
Bank owned life insurance income 13.3 14.8 (1.6) (11)
Mortgage banking income 3.7 9.6 (5.9) (62)
Securities losses (11.6) (13.2) 1.6 (12)
Other income (3.5) 31.8 (35.3) NM
Total non-interest income $170.6 $204.7 $(34.1) (17)%
This $34.1 million, or 17%, decline reflected:
* $35.3 million decline in other income, reflecting the current quarter's
$34.0 million loss on loans held for sale and $9.4 million of equity
investment losses in the current quarter compared with $4.4 million of
such losses in the prior quarter, partially offset by higher derivative
trading fees and automobile operating lease income.
* $5.9 million, or 62%, decline in mortgage banking income, reflecting the
current quarter's $11.8 million net negative MSR valuation impact,
compared with a $6.0 million net negative MSR valuation impact in the
prior quarter.
Partially offset by:
* $3.2 million, or 4%, increase in service charges on deposit accounts,
primarily reflecting higher commercial service charge income.
* $1.6 million, or 5%, increase in trust services income, reflecting
higher Huntington Fund fees due to asset growth, growth in shareholder
servicing fees, and seasonal factors.
* $1.5 million, or 5%, increase in brokerage and insurance income,
reflecting higher insurance income, including the benefit from the
fourth quarter acquisition of the Archer-Meek-Weiler agency, as well as
higher brokerage fees.
Non-interest Expense
2007 Fourth Quarter versus 2006 Fourth Quarter
Non-interest expense increased $171.8 million from the year-ago quarter. The $136.6 million of merger-related expenses and $44.4 million of merger costs drove the increase, as non-merger-related expenses declined. Table 8 details the $171.8 million increase in reported total non-interest expense.
Table 8 - Non-interest Expense - 4Q07 vs. 4Q06
Non-merger
Fourth Quarter Change Merger Merger Related
(in millions) 2007 2006 Amount % Related Costs Amount %(1)
Non-interest
Expense
Personnel
costs $214.9 $137.9 $76.9 56% $68.3 $22.8 $(14.1) (6)%
Outside data
processing
and other
services 39.1 20.7 18.4 89 12.3 7.0 (0.8) (2)
Net occupancy 26.7 17.3 9.4 55 10.2 1.2 (2.0) (7)
Equipment 22.8 18.2 4.7 26 4.8 0.2 (0.3) (1)
Amortization
of intangibles 20.2 3.0 17.2 NM 17.4 - (0.3) (1)
Marketing 16.2 6.2 10.0 NM 4.4 6.9 (1.3) (7)
Professional
services 14.5 9.0 5.5 61 2.7 3.4 (0.6) (4)
Telecommun-
ications 8.5 4.6 3.9 84 2.2 1.0 0.7 9
Printing and
supplies 6.6 3.6 3.0 83 1.4 1.0 0.6 9
Other expense 70.1 47.3 22.8 48 13.0 0.9 8.9 14
Total non-
interest
expense $439.6 $267.8 $171.8 64% $136.6 $44.4 $(9.3) (2)%
(1) = non-merger related / (prior period + merger-related)
The $9.3 million, or 2%, non-merger-related decline reflected:
* $14.1 million, or 6%, decline in personnel expense, reflecting merger
efficiencies including the impact of the reduction of 828, or 6%, full-
time equivalent staff during the 2007 third quarter and a 387, or 3%,
reduction during the 2007 fourth quarter.
* $2.0 million, or 7%, decline in net occupancy expense, reflecting merger
efficiencies.
Partially offset by:
* $8.9 million, or 14%, increase in other expense. The increase reflected
the current quarter's $24.9 million VISA(R) indemnification charge and
$8.9 million of increases to litigation reserves on existing cases,
partially offset by a $10.0 million reduction in Huntington charitable
foundation contributions and merger efficiencies.
2007 Fourth Quarter versus 2007 Third Quarter
Non-interest expense increased $54.0 million, or 14%, from the 2007 third quarter, of which $12.2 million represented higher merger costs. Table 9 details the $54.0 million increase in reported total non-interest expense.
Table 9 - Non-interest Expense - 4Q07 vs. 3Q07
Fourth Third Non-merger
Quarter Quarter Change Merger Related
(in millions) 2007 2007 Amount % Costs Amount %(1)
Non-interest Expense
Personnel costs $214.9 $202.1 $12.7 6% $15.0 $(2.3) (1)%
Outside data processing
and other services 39.1 40.6 (1.5) (4) 0.2 (1.6) (4)
Net occupancy 26.7 33.3 (6.6) (20) (6.2) (0.4) (1)
Equipment 22.8 23.3 (0.5) (2) (1.6) 1.1 5
Amortization of
intangibles 20.2 19.9 0.2 1 - 0.2 1
Marketing 16.2 13.2 3.0 23 1.9 1.0 7
Professional services 14.5 11.3 3.2 28 1.9 1.3 10
Telecommunications 8.5 7.3 1.2 17 0.8 0.5 6
Printing and supplies 6.6 4.7 1.9 39 0.6 1.3 24
Other expense 70.1 29.8 40.4 NM (0.4) 40.7 NM
Total non-interest
expense $439.6 $385.6 $54.0 14% $12.2 $41.8 11%
(1) = non-merger related / (prior period + merger-related)
The $41.8 million, or 11%, non-merger-related increase reflected a $40.7 million increase in other expense. Contributing to the increase in other expense was the current quarter's $24.9 million VISA(R) indemnification charge, $8.9 million of increases to litigation reserves on existing cases, and higher automobile operating lease expense. In addition, the third quarter other expense was reduced by a $3.2 million debt extinguishment gain.
Income Taxes
The provision for income taxes in the 2007 fourth quarter was a benefit of $158.9 million. For the full year, the provision for income taxes was a benefit of $52.5 million. The effective tax rate for the 2007 fourth quarter was a tax benefit of 39.9%.
Credit Quality
In addition to the negative impact from the Franklin restructuring on credit quality performance measures, there was also deterioration in non- Franklin-related loans. This reflected the negative impact of the continued economic weakness in our Midwest markets, most notably among our borrowers in eastern Michigan and northern Ohio, and within the residential real estate development portfolio. Consumer loans also saw negative trends impacted by the softening economy, but less so. These factors resulted in significantly higher absolute and relative levels of net charge-offs (NCOs), non-accrual loans (NALs), and non-performing assets (NPAs). To maintain the adequacy of our reserves, there was a commensurate significant increase in the provision for credit losses (see Provision for Credit Losses discussion) in order to increase the absolute and relative levels of our allowances for loan and lease losses (ACL).
Since the Franklin restructuring impacted credit performance metrics significantly, tables in the discussion that follows detail the Franklin impact on those metrics, as well as the performance of the remaining non- Franklin-related loans and leases.
Net Charge-Offs
Total net charge-offs for the 2007 fourth quarter were $377.9 million, or an annualized 3.77% of average total loans and leases, including $308.5 million due to the Franklin restructuring. There were no Franklin-related net charge-offs in the third quarter. The remaining $69.4 million of net charge- offs that were non-Franklin-related represented an annualized 0.72% of related loans. This compared with net charge-offs of $23.0 million, or an annualized 0.35%, in the year-ago quarter, and $47.1 million, or an annualized 0.47%, in the 2007 third quarter. Table 10 details net charge-off performance:
Table 10 - Franklin Impact on Net Charge-offs
Third Fourth
Quarter Quarter
(in millions) Fourth Quarter 2007 2007 2006
Non-
Reported Franklin Franklin
Net charge-offs (recoveries)
by loan and lease type:
Middle-market C&I $318.5 $308.5 $10.0 $7.8 $(1.8)
Total commercial 344.6 308.5 36.1 17.3 6.8
Total net charge-offs 377.9 308.5 69.4 47.1 23.0
Net charge-offs (recoveries)
- annualized percentages:
Middle-market C&I 12.30% 81.08% 0.45% 0.30% (0.12)%
Total commercial 6.18 81.08 0.70 0.31 0.22
Total net charge-offs 3.77% 81.08% 0.72% 0.47% 0.35%
Average Loans and Leases
Middle-market C&I $10,359 $1,522 $8,837 $10,301 $5,882
Total commercial 22,323 1,522 20,801 22,016 12,312
Total loans and leases 40,109 1,522 38,587 39,828 26,299
Total commercial net charge-offs in the 2007 fourth quarter were $344.6 million, or an annualized 6.18%. Non-Franklin-related total commercial net charge-offs in the current quarter were $36.1 million and represented an annualized 0.70% of related loans. This was higher than an annualized 0.22% in the year-ago period, and the annualized 0.31% in the prior quarter.
Total consumer net charge-offs in the current quarter were $33.3 million, or an annualized 0.75%. This was higher than an annualized 0.46% in the year- ago period and 0.67% in the prior quarter. Automobile loan and lease net charge-offs were $10.4 million, or an annualized 0.96% in the fourth quarter, up from 0.54% in the year-ago period and 0.73% in the prior period. This increase reflected both the impact of the Sky Financial portfolio, as well as seasonal factors. Residential mortgage net charge-offs were $3.3 million, or an annualized 0.25% of related average balances. This was higher than an annualized 0.19% in the year-ago quarter, but down from an annualized 0.32% in the prior quarter. Home equity net charge-offs in the 2007 fourth quarter were $12.2 million, or an annualized 0.67%, up from an annualized 0.47%, in the year-ago quarter and an annualized 0.58% in the prior quarter. The economic weakness in our markets, most notably among our borrowers in eastern Michigan and northern Ohio, continue to impact residential mortgage and home equity net charge-offs.
Non-accrual Loans and Non-performing Assets
Non-accrual loans (NALs) were $319.8 million at December 31, 2007, and represented 0.80% of related assets. This compared with $144.1 million, or 0.55%, at the end of the year-ago period, and $249.4 million, or 0.62%, at September 30, 2007. The $70.4 million, or 28%, increase in NALs from the end of the prior quarter reflected a $47.0 million increase in middle market commercial real estate loan NALs, reflecting the continued softness in the residential real estate development markets, particularly among our borrowers in eastern Michigan and northern Ohio, as well as increases in small business and residential mortgage NALs due to the continued overall economic weakness in our markets.
Non-performing assets (NPAs), which include NALs, were $1.660 billion at December 31, 2007. This compared with $193.6 million at the end of the year- ago period and $435.0 million at September 30, 2007. The $1.225 billion increase in NPAs from the end of the prior quarter reflected:
* $1.187 billion of restructured Franklin loans. Though classified as
NPAs, these restructured loans are current and accruing interest and are
expected to continue to perform per terms of the restructuring
agreement. The Franklin loans are expected to be categorized as
performing loans in our regulatory reporting.
* $6.4 million, or 9%, increase in other real estate owned.
Partially offset by:
* $27.0 million reduction in impaired loans held for sale, reflecting a
decline of $73.6 million due primarily to sales, as well as impairment
and other reductions. The declines were partially offset by $46.6
million of new loans transferred to loans held for sale.
* $11.9 million decline in other NPAs, which represent certain investment
securities backed by mortgage loans, with the reduction reflecting the
current quarter's $11.6 million of investment securities impairment
charge.
The over 90-day delinquent, but still accruing, ratio was 0.35% at December 31, 2007, up from 0.23% at the end of the year-ago quarter and from 0.29% at September 30, 2007.
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 December 31, 2007, the ALLL was $578.4 million, up from $272.1 million a year ago and from $454.8 million at September 30, 2007. Expressed as a percent of period-end loans and leases, the ALLL ratio at December 31, 2007, was 1.44%, up from 1.04% a year ago and from 1.14% at September 30, 2007. The $123.7 million increase from the end of the prior quarter, included $97.6 million related to Franklin, which increased its specific ALLL to $115.3 million. The remaining $26.1 million increase in the ALLL from the end of the prior quarter primarily reflected declining credit quality in the residential real estate development portfolio.
The level of required loan loss reserves is determined using a highly quantitative methodology, which determines the required levels for both the transaction reserve and economic reserve components. Table 11 shows the change in the ALLL ratio and each reserve component for the 2007 fourth and third quarters and the 2006 fourth quarter.
Table 11 - Components of ALLL as Percent of Total Loans and Leases
4Q07 change from
4Q07 3Q07 4Q06 3Q07 4Q06
Transaction reserve (1) 1.27% 0.97% 0.86% 0.30% 0.41%
Economic reserve 0.17 0.17 0.18 (0.00) (0.01)
Total ALLL 1.44% 1.14% 1.04% 0.30% 0.40%
(1) Includes specific reserve
The ALLL as a percent of NALs was 181% at December 31, 2007, down from 189% a year ago and from 182% at September 30, 2007. At December 31, 2007, the AULC was $66.5 million, up from $40.2 million at the end of the year-ago quarter, and from $58.2 million at September 30, 2007.
On a combined basis, the ACL as a percent of total loans and leases at December 31, 2007, was 1.61%, up from 1.19% a year ago and from 1.28% at September 30, 2007. The ACL as a percent of NALs was 202% at December 31, 2007, down from 217% a year ago and from 206% at September 30, 2007.
Capital
At December 31, 2007, the tangible equity to assets ratio was 5.08%, down from 6.93% a year ago, and from 5.70% at September 30, 2007. Of the 62 basis point decline from September 30, 2007, 46 basis points reflected the negative impact of the current quarter's net loss on equity. At December 31, 2007, the tangible equity to risk-weighted assets ratio was 5.70%, down from 7.72% at the end of the year-ago quarter, and from 6.46% at September 30, 2007. These decreases also primarily reflected the negative impact on equity from the current quarter's net loss. The estimated regulatory Tier 1 and Total risk- based capital ratios at December 31, 2007, were 7.55% and 10.89%, respectively, and remained well above the regulatory "well capitalized" minimums of 6.0% and 10.0%, respectively. The "well capitalized" level is the highest regulatory capital designation.
No shares were repurchased during the quarter. Though there are currently 3.9 million shares remaining available under the current authorization announced April 20, 2006, no future share repurchases are contemplated.
2008 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 for 2008 is that the Midwest economic environment will continue to be negatively impacted by weaknesses in the residential real estate development markets and softness in certain manufacturing sectors. How much these factors will affect banking activities and overall credit quality trends is unknown. However, it is our expectation that the greatest impact will continue to be among our borrowers in eastern Michigan and northern Ohio markets. Given the market's outlook for interest rates, we will continue to target our interest rate risk position at our customary relatively neutral position. Our net interest margin, however, will continue to be impacted by competitive pricing in our markets.
The assumptions listed below form the basis for our 2008 full year earnings outlook. Growth rates when shown are based on a comparison to fourth quarter 2007 balances.
* Annualized revenue growth of low single digit range reflecting:
* Net interest margin of around 3.35%, reflecting the impact of the
Franklin charge-off and restructuring, as well as continued
competitive market pricing
* Annualized total loan growth in the low single digit range, with
commercial loans in the mid single digit range and consumer loans
being flat
* Annualized core deposit growth in the low single digit range
* Annualized non-interest income growth in the mid single digit range
* Full year non-interest expense level that is down slightly from the
annualized fourth quarter 2007 non-interest expense level, after
adjustment for the significant items noted earlier. Merger costs for
2008 of $5-$10 million are excluded from this assumption and are
expected to be incurred primarily in the first quarter.
* Modest increase in the ALLL ratio throughout the year, and charge-offs
expected in the 60-65 basis point range. This higher level of charge-
offs reflects the current economic outlook for our markets.
* No significant net market-related gains or losses
* No share repurchases
* The effective tax rate for 2008 is expected to be in a range of 25%-
28%.
With the above assumptions, earnings for 2008 are targeted for $1.57-$1.62 per common share, excluding merger costs.
Conference Call / Webcast Information
Huntington's senior management will host an earnings conference call today at 1:00 p.m. (Eastern 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 30145719. Slides will be available at www.huntington-ir.com just prior to 1:00 p.m. (Eastern Time) on January 17, 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 January 31, 2008 at 800-642-1687; conference ID 30145719.
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) merger benefits including expense efficiencies and revenue synergies may not be fully realized and/or within the expected timeframes; (3) merger disruptions may make it more difficult to maintain relationships with clients, associates, or suppliers; (4) changes in economic conditions; (5) movements in interest rates; (6) competitive pressures on product pricing and services; (7) success and timing of other business strategies; (8) the nature, extent, and timing of governmental actions and reforms; and (9) extended disruption of vital infrastructure. Additional factors that could cause results to differ materially from those described above can be found in Huntington's 2006 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 2007 fourth 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. In addition, for the periods covered by this release, the impact of the Franklin restructuring is deemed to be a significant item due to its unusually large size and because it was acquired in the Sky Financial merger and thus it is not representative of our typical underwriting criteria. 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 2006 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 core deposits of $12.0 billion. Sky Financial results were fully included in our consolidated results for the full 2007 third quarter, and will impact all quarters thereafter. As a result, performance comparisons of 2007 fourth quarter and 2007 full-year performance to comparable prior periods are affected, as Sky Financial results were not included in the prior periods. Comparisons of the 2007 fourth quarter and 2007 full-year performance compared with prior periods are impacted as follows:
* Increased reported average balance sheet, revenue, expense, and the
absolute level of certain credit quality results (e.g., amount of net
charge-offs).
* Increased reported non-interest expense items because of costs incurred
as part of merger integration activities, most notably employee
retention bonuses, outside programming services related to systems
conversions, occupancy expenses, and marketing expenses related to
customer retention initiatives. These net merger costs were $44.4
million in the 2007 fourth quarter.
Given the significant impact of the merger on reported 2007 results, management believes that an understanding of the impacts of the merger is necessary to understand better underlying performance trends. When comparing post-merger period results to pre-merger periods, the following terms are used when discussing financial performance:
* "Merger-related" refers to amounts and percentage changes representing
the impact attributable to the merger.
* "Merger costs" represent non-interest expenses primarily associated with
merger integration activities.
* "Non-merger-related" refers to performance not attributable to the
merger and include:
* "Merger efficiencies", which represent non-interest expense
reductions realized as a result of the merger.
The following methodology has been implemented to estimate the approximate effect of the Sky Financial merger used to determine "merger-related" impacts.
Balance Sheet Items
For loans and leases, as well as core deposits, Sky Financial's balances as of June 30, 2007, adjusted for consolidating, merger, and purchase accounting adjustments, are used in the comparison. To estimate the impact on 2007 fourth quarter average balances, it was assumed that the June 30, 2007 balances, as adjusted, remained constant throughout the 2007 third quarter and will remain constant in all subsequent periods.
Income Statement Items
For income statement line 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 results in an approximate quarterly impact as the methodology does not adjust for any unusual items 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. This same estimated amount will also be used in all subsequent quarterly reporting periods. The one exception to this methodology of holding the estimated quarterly 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
2007 Fourth Quarter versus 2006 Fourth Quarter
Fourth Quarter Change
(in millions) 2007 2006 Amount %
Average Loans and Leases
Total commercial $22,323 $12,312 $10,011 81.3%
Automobile loans and leases 4,324 3,949 375 9.5
Home equity 7,297 4,973 2,324 46.7
Residential mortgage 5,437 4,635 802 17.3
Other consumer 728 430 298 69.3
Total consumer 17,786 13,987 3,799 27.2
Total loans and leases $40,109 $26,299 $13,810 52.5%
Average Deposits
Demand deposits - non-interest bearing $5,218 $3,580 $1,638 45.8%
Demand deposits - interest bearing 3,929 2,219 1,710 77.1
Money market deposits 6,845 5,548 1,297 23.4
Savings and other domestic deposits 4,813 2,849 1,964 68.9
Core certificates of deposit 10,674 5,380 5,294 98.4
Total core deposits 31,479 19,576 11,903 60.8
Other deposits 6,196 5,132 1,064 20.7
Total deposits $37,675 $24,708 $12,967 52.5%
Merger Non-merger Related
(in millions) Related Amount % (1)
Average Loans and Leases
Total commercial $8,746 $1,265 6.0%
Automobile loans and leases 432 (57) (1.3)
Home equity 2,385 (61) (0.8)
Residential mortgage 1,112 (310) (5.4)
Other consumer 143 155 27.1
Total consumer 4,072 (273) (1.5)
Total loans and leases $12,818 $992 2.5%
(1) = non-merger related / (prior period + merger-related)
Average Deposits
Demand deposits - non-interest bearing $1,829 $(191) (3.5)%
Demand deposits - interest bearing 1,460 250 6.8
Money market deposits 996 301 4.6
Savings and other domestic deposits 2,594 (630) (11.6)
Core certificates of deposit 4,630 664 6.6
Total core deposits 11,509 394 1.3
Other deposits 1,342 (278) (4.3)
Total deposits $12,851 $116 0.3%
(1) = non-merger related / (prior period + merger-related)
Fourth Quarter Change
(in thousands) 2007 2006 Amount %
Net interest income - FTE $388,296 $262,104 $126,192 48.1%
Non-interest Income
Service charges on deposit accounts $81,276 $48,548 $32,728 67.4%
Trust services 35,198 23,511 11,687 49.7
Brokerage and insurance income 30,288 14,600 15,688 NM
Other service charges and fees 21,891 13,784 8,107 58.8
Bank owned life insurance income 13,253 10,804 2,449 22.7
Mortgage banking income 3,702 6,169 (2,467) (40.0)
Securities losses (11,551) (15,804) 4,253 (26.9)
Other income (3,500) 38,994 (42,494) NM
Total non-interest income $170,557 $140,606 $29,951 21.3%
Non-interest Expense
Personnel costs $214,850 $137,944 $76,906 55.8%
Outside data processing and other
services 39,130 20,695 18,435 89.1
Net occupancy 26,714 17,279 9,435 54.6
Equipment 22,816 18,151 4,665 25.7
Amortization of intangibles 20,163 2,993 17,170 NM
Marketing 16,175 6,207 9,968 NM
Professional services 14,464 8,958 5,506 61.5
Telecommunications 8,513 4,619 3,894 84.3
Printing and supplies 6,594 3,610 2,984 82.7
Other expense 70,133 47,334 22,799 48.2
Total non-interest expense $439,552 $267,790 $171,762 64.1%
Merger Merger Non-merger Related
(in thousands) Related Costs Amount % (1)
Net interest income - FTE $151,592 $(25,400) (6.1)%
Non-interest Income
Service charges on deposit accounts $24,110 $8,618 11.9%
Trust services 7,009 4,678 15.3
Brokerage and insurance income 17,061 (1,373) (4.3)
Other service charges and fees 5,800 2,307 11.8
Bank owned life insurance income 1,807 642 5.1
Mortgage banking income 6,256 (8,723) (70.2)
Securities losses 283 3,970 (25.6)
Other income 6,390 (48,884) NM
Total non-interest income $68,716 $(38,765) (18.5)%
(1) = non-merger related / (prior period + merger-related)
Non-interest Expense
Personnel costs $68,250 $22,780 $(14,124) (6.2)%
Outside data processing and other
services 12,262 7,005 (832) (2.1)
Net occupancy 10,184 1,204 (1,953) (6.8)
Equipment 4,799 175 (309) (1.3)
Amortization of intangibles 17,431 - (261) (1.3)
Marketing 4,361 6,915 (1,308) (7.5)
Professional services 2,707 3,447 (648) (4.3)
Telecommunications 2,224 954 716 9.2
Printing and supplies 1,374 1,043 567 9.4
Other expense 13,048 893 8,858 14.5
Total non-interest expense $136,640 $44,416 $(9,294) (2.1)%
(1) = non-merger related / (prior period + merger-related)
2007 Fourth Quarter versus 2007 Third Quarter
Fourth Third
Quarter Quarter Change
(in millions) 2007 2007 Amount %
Average Loans and Leases
Total commercial $22,323 $22,016 $307 1.4%
Automobile loans and leases 4,324 4,354 (30) (0.7)
Home equity 7,297 7,468 (171) (2.3)
Residential mortgage 5,437 5,456 (19) (0.3)
Other consumer 728 534 194 36.3
Total consumer 17,786 17,812 (26) (0.1)
Total loans and leases $40,109 $39,828 $281 0.7%
Average Deposits
Demand deposits - non-interest
bearing $5,218 $5,384 $(166) (3.1)%
Demand deposits - interest bearing 3,929 3,808 121 3.2
Money market deposits 6,845 6,869 (24) (0.3)
Savings and other domestic deposits 4,813 5,043 (230) (4.6)
Core certificates of deposit 10,674 10,425 249 2.4
Total core deposits 31,479 31,529 (50) (0.2)
Other deposits 6,196 6,123 73 1.2
Total deposits $37,675 $37,652 $23 0.1%
Fourth Third
Quarter Quarter Change
(in thousands) 2007 2007 Amount %
Net interest income - FTE $388,296 $415,345 $(27,049) (6.5)%
Non-interest Income
Service charges on deposit
accounts $81,276 $78,107 $3,169 4.1%
Trust services 35,198 33,562 1,636 4.9
Brokerage and insurance income 30,288 28,806 1,482 5.1
Other service charges and fees 21,891 21,045 846 4.0
Bank owned life insurance income 13,253 14,847 (1,594) (10.7)
Mortgage banking income 3,702 9,629 (5,927) (61.6)
Securities losses (11,551) (13,152) 1,601 (12.2)
Other income (3,500) 31,830 (35,330) NM
Total non-interest income $170,557 $204,674 $(34,117) (16.7)%
(1) = non-merger related / (prior period + merger-related)
Non-interest Expense
Personnel costs $214,850 $202,148 $12,702 6.3%
Outside data processing and other
services 39,130 40,600 (1,470) (3.6)
Net occupancy 26,714 33,334 (6,620) (19.9)
Equipment 22,816 23,290 (474) (2.0)
Amortization of intangibles 20,163 19,949 214 1.1
Marketing 16,175 13,186 2,989 22.7
Professional services 14,464 11,273 3,191 28.3
Telecommunications 8,513 7,286 1,227 16.8
Printing and supplies 6,594 4,743 1,851 39.0
Other expense 70,133 29,754 40,379 NM
Total non-interest expense $439,552 $385,563 $53,989 14.0%
(1) = non-merger related / (prior period + merger-related)
Merger Non-merger Related
(in thousands) Costs Amount % (1)
Net interest income - FTE $(27,049) (6.5)%
Non-interest Income
Service charges on deposit accounts $3,169 4.1%
Trust services 1,636 4.9
Brokerage and insurance income 1,482 5.1
Other service charges and fees 846 4.0
Bank owned life insurance income (1,594) (10.7)
Mortgage banking income (5,927) (61.6)
Securities losses 1,601 (12.2)
Other income (35,330) NM
Total non-interest income $(34,117) (16.7)%
(1) = non-merger related / (prior period + merger-related)
Non-interest Expense
Personnel costs $15,030 $(2,328) (1.1)%
Outside data processing and other
services 151 (1,621) (4.0)
Net occupancy (6,236) (384) (1.4)
Equipment (1,617) 1,143 5.3
Amortization of intangibles - 214 1.1
Marketing 1,949 1,040 6.9
Professional services 1,892 1,299 9.9
Telecommunications 758 469 5.8
Printing and supplies 586 1,265 23.7
Other expense (357) 40,736 NM
Total non-interest expense $12,156 $41,833 10.5%
(1) = non-merger related / (prior period + merger-related)
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 "not meaningful" for this purpose.
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: Dealer Sales offices in Arizona, Florida, Georgia, Nevada, New Jersey, New York, North Carolina, South Carolina, and Tennessee; Private Financial and Capital Markets Group offices in Florida; and Mortgage Banking offices in Maryland and New Jersey. Sky 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)
2007 2006
(in thousands, except per share
amounts) Fourth Third Fourth
Net interest income $382,933 $409,633 $257,989
Provision for credit losses 512,082 42,007 15,744
Non-interest income 170,557 204,674 140,606
Non-interest expense 439,552 385,563 267,790
(Loss) Income before income
taxes (398,144) 186,737 115,061
(Benefit) Provision for income
taxes (158,864) 48,535 27,347
Net (Loss) Income $(239,280) $138,202 $87,714
Net (loss) income per common
share - diluted $(0.65) $0.38 $0.37
Cash dividends declared per
common share 0.265 0.265 0.250
Book value per common share at
end of period 16.24 17.08 12.80
Tangible book value per common
share at end of period 7.13 8.10 10.21
Average common shares - basic 366,119 365,895 236,426
Average common shares - diluted 366,119 368,280 239,881
Return on average assets (1.74)% 1.02 0.98%
Return on average shareholders'
equity (15.3) 8.8 11.3
Return on average tangible
shareholders' equity (2) (32.4) 20.9 14.5
Net interest margin (3) 3.26 3.52 3.28
Efficiency ratio (4) 73.5 57.7 63.3
Effective tax rate (benefit) (39.9) 26.0 23.8
Average loans and leases $40,109,361 $39,827,422 $26,300,262
Average loans and leases -
linked quarter annualized
growth rate. 2.8% N.M. (0.2)%
Average earning assets $47,274,130 $46,870,957 $31,673,902
Average total assets 54,480,021 53,970,093 35,469,530
Average core deposits (5) 31,479,143 31,529,372 19,576,197
Average core deposits - linked
quarter annualized growth
rate (5) (0.6)% N.M. (1.0)%
Average shareholders' equity $6,211,206 $6,205,783 $3,084,345
Total assets at end of period 54,697,468 55,303,927 35,329,019
Total shareholders' equity at
end of period 5,949,140 6,249,674 3,014,326
Net charge-offs (NCOs) 377,907 47,106 22,969
NCOs as a % of average loans
and leases 3.77% 0.47 0.35%
Nonaccrual loans and leases
(NALs) $319,771 $249,396 $144,133
NAL ratio (6) 0.80% 0.62 0.55%
Allowance for loan and lease
losses (ALLL) as a % of total
loans and leases at the end of
period 1.44 1.14 1.04
ALLL plus allowance for unfunded
loan commitments and letters of
credit as a % of total loans and
leases at the end of period 1.61 1.28 1.19
ALLL as a % of NALs 181 182 189
Tier 1 risk-based capital ratio (7) 7.55 8.35 8.93
Total risk-based capital ratio (7) 10.89 11.58 12.79
Tier 1 leverage ratio (7) 6.77 7.57 8.00
Average equity / assets 11.40 11.50 8.70
Tangible equity / assets (8) 5.08 5.70 6.93
Percent Changes vs.
(in thousands, except per share
amounts) 3Q07 4Q06
Net interest income (6.5)% 48.4%
Provision for credit losses N.M. N.M.
Non-interest income (16.7) 21.3
Non-interest expense 14.0 64.1
(Loss) Income before income taxes N.M. N.M.
(Benefit) Provision for income taxes N.M. N.M.
Net (Loss) Income N.M.% N.M.%
Net (loss) income per common share - diluted N.M.% N.M.%
Cash dividends declared per common share -- 6.0
Book value per common share at end of period (4.9) 26.9
Tangible book value per common share
at end of period (12.0) (30.2)
Average common shares - basic 0.1 54.9
Average common shares - diluted (0.6) 52.6
Return on average assets
Return on average shareholders' equity
Return on average tangible shareholders'
equity (2)
Net interest margin (3)
Efficiency ratio (4)
Effective tax rate (benefit)
Average loans and leases 0.7 52.5
Average loans and leases - linked quarter
annualized growth rate.
Average earning assets 0.9 49.3
Average total assets 0.9 53.6
Average core deposits (5) (0.2) 60.8
Average core deposits - linked quarter
annualized growth rate (5)
Average shareholders' equity 0.1 N.M.
Total assets at end of period (1.1) 54.8
Total shareholders' equity at end of period (4.8) 97.4
Net charge-offs (NCOs) N.M. N.M.
NCOs as a % of average loans and leases
Nonaccrual loans and leases (NALs) 28.2 N.M.
NAL ratio (6)
Allowance for loan and lease losses
(ALLL) as a % of total loans and leases at
the end of period
ALLL plus allowance for unfunded loan
commitments and letters of credit as a %
of total loans and leases at the end of period
ALLL as a % of NALs
Tier 1 risk-based capital ratio (7)
Total risk-based capital ratio (7)
Tier 1 leverage ratio (7)
Average equity / assets
Tangible equity / assets (8)
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) Net income less expense for amortization of intangibles (net of tax)
for the period divided by average tangible common shareholders'
equity. Average tangible common shareholders' equity equals average
total common shareholders' equity less intangible assets and goodwill.
Other intangible assets are net of deferred tax.
(3) On a fully taxable equivalent (FTE) basis assuming a 35% tax rate.
(4) Non-interest expense less amortization of intangibles ($20.2 million
for 4Q 2007, $19.9 million for 3Q 2007, and $3.0 million for 4Q 2006)
divided by the sum of FTE net interest income and non-interest income
excluding securities gains (losses).
(5) Includes non-interest bearing and interest bearing demand deposits,
money market deposits, savings and other domestic time deposits, and
core certificates of deposit.
(6) Nonaccruing loans and leases (NALs) divided by total loans and leases.
(7) December 31, 2007 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.
(8) 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
Annual Key Statistics (1)
(Unaudited)
(in thousands, except Year Ended December 31, Change
per share amounts) 2007 2006 Amount Percent
Net interest income $1,301,512 $1,019,177 $282,335 27.7%
Provision for credit
losses 643,628 65,191 578,437 N.M.
Non-interest income 676,603 561,069 115,534 20.6
Non-interest expense 1,311,844 1,000,994 310,850 31.1
Income before income taxes 22,643 514,061 (491,418) (95.6)
(Benefit) Provision for
income taxes (52,526) 52,840 (105,366) N.M.
Net Income $75,169 $461,221 $(386,052) (83.7)%
Net Income per common
share - diluted $0.25 $1.92 $(1.67) (87.0)%
Cash dividends declared
per common share 1.060 1.000 0.06 6.0
Average common shares -
basic 300,908 236,699 64,209 27.1
Average common shares -
diluted 303,455 239,920 63,535 26.5
Return on average assets 0.17% 1.31%
Return on average
shareholders' equity 1.6 15.7
Return on average tangible
shareholders' equity (2) 4.0 19.7
Net interest margin (3) 3.36 3.29
Efficiency ratio (4) 62.5 59.4
Effective tax rate N.M. 10.3
Average loans and leases $33,201,442 $25,943,554 $7,257,888 28.0
Average earning assets 39,355,933 31,451,041 7,904,892 25.1
Average total assets 44,711,676 35,111,236 9,600,440 27.3
Average core deposits (5) 25,691,672 19,314,828 6,376,844 33.0
Average shareholders'
equity 4,631,912 2,945,597 1,686,315 57.2
Net charge-offs (NCOs) 477,631 82,376 395,255 N.M.
NCOs as a % of average
loans and leases 1.44% 0.32%
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) Net income less expense for amortization of intangibles (net of tax)
for the period divided by average tangible common shareholders'
equity. Average tangible common shareholders' equity equals average
total common shareholders' equity less average intangible assets and
goodwill. Other intangible assets are net of deferred tax.
(3) On a fully taxable equivalent (FTE) basis assuming a 35% tax rate.
(4) Non-interest expense less amortization of intangibles ($45.2 million
for 2007 and $10.0 million for 2006) divided by the sum of FTE net
interest income and non-interest income excluding securities gains
(losses).
(5) 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 January 17, 2008