Huntington Bancshares Reports:
- 2007 Third Quarter Net Income of $138.2 Million and Earnings Per Common Share of $0.38
- Includes the negative impact of merger costs ($0.06 per common share) and net market-related losses ($0.03 per common share).
- 2007 Fourth Quarter Earnings Target of $0.45-$0.47 Per Share, Excluding Merger Costs
COLUMBUS, Ohio, Oct. 18 /PRNewswire-FirstCall/ -- Huntington Bancshares Incorporated (Nasdaq: HBAN; www.huntington.com) reported 2007 third quarter earnings of $138.2 million, or $0.38 per common share. Earnings in the year-ago third quarter were $157.4 million, or $0.65 per common share.
Earnings in the current and year-ago quarters were impacted by several significant items (see Table 1). The 2007 third quarter earnings were negatively impacted by $0.09 per share, reflecting the combination of merger costs associated with the acquisition of Sky Financial Group, Inc. (Sky Financial) on July 1, 2007, and net market-related losses. In contrast, the year-ago quarter was positively impacted by a net $0.18 per common share, reflecting a reduction of federal income tax expense, partially offset by the negative impacts of a securities impairment related to a balance sheet restructuring initiative, as well as an adjustment for equity method investments.
Earnings for the first nine months of 2007 were $314.4 million, or $1.12 per common share, compared with $373.5 million, or $1.56 per common share, for the comparable year-ago period.
Sky Financial Group, Inc. Acquisition Impact
The acquisition of Sky Financial on July 1, 2007, significantly affected reported results. Sky Financial was approximately half the size of Huntington before its acquisition. As such, its acquisition significantly increased the absolute levels of 2007 third quarter reported balance sheet items (e.g., loans, deposits, etc.), and income statement items (e.g., net interest income, non-interest income, non-interest expenses, and taxes). It also affected the relative level of other performance metrics such as the net interest margin, efficiency ratio, and credit performance metrics like reserve ratios, etc. To assist in understanding the impacts of the merger, as well as performance not attributable to the merger, when comparing 2007 third quarter performance to that of prior periods, the following terms are used:
* "Merger related" refers to amounts and percentage changes representing
the estimated impact attributable to the merger (see the "Estimating
the Impact on Balance Sheet and Income Statement Results Due to
Acquisitions" section and Table 11 in the "Basis of Presentation"
discussion at the end of this press release for details of the
methodologies used and the reconciliation between reported results and
estimates of non-merger related performance).
* "Merger costs" represent non-interest expenses associated primarily
with merger integration activities.
* "Non-merger related" refers to estimated performance not attributable
directly to the merger and includes:
* "Merger efficiencies", which represent non-interest expense
reductions realized as a result of the merger.
PERFORMANCE OVERVIEW
Performance compared with the 2007 second quarter included:
* $0.38 earnings per common share, up from $0.34 per common share in the
prior quarter.
* Current quarter earnings were negatively impacted by $0.09 per share,
reflecting the combination of merger costs associated with the
acquisition of Sky Financial and net market-related losses. The 2007
second quarter earnings were negatively impacted by $0.03 per share,
reflecting merger costs and net market-related losses.
* 3.52% net interest margin, consistent with expectations and up from
3.26%, primarily merger related.
* Strong growth in average total commercial loans with good growth in
average total consumer loans.
* Good annualized non-merger related growth in average total deposits.
* Mixed non-merger related non-interest income performance. Strong non-
merger related performance in service charges on deposit accounts and
good growth in other service charges and fees. However, broker and
insurance income on a non-merger related basis declined, primarily
reflecting seasonal trends in brokerage as well as property and casualty
insurance activities. The quarter also reflected $23.5 million of
market-related losses, compared with $7.8 million of such losses in the
2007 second quarter.
* Significant decline in non-merger related total non-interest expense,
reflecting the benefit of the achievement of over 70% of targeted total
annualized merger efficiencies.
* 0.47% annualized net charge-offs, down 5 basis points.
* 1.14% period-end allowance for loan and lease losses (ALLL) ratio, down
from 1.15%.
* 1.08% period-end non-performing asset (NPA) ratio, up from 0.97%,
primarily reflecting $144.5 million of acquired NPAs, as well as a
decision to classify $16.3 million of non-accruing investment securities
as NPAs.
* 5.42% period-end tangible common equity ratio, down from 6.82%. This
reduction reflected a combination of factors including the expected
reduction due to the merger. About 17 basis points of the decline was
attributable to a temporary increase in balances related to investment
securities.
"The Sky Financial acquisition significantly impacted overall performance and materially affected comparisons of our third quarter performance to that in prior periods," said Thomas E. Hoaglin, chairman and chief executive officer. "Yet, when you adjust for all merger related impacts, underlying performance basically matched or exceeded our expectations. The only exception was our net market-related losses, which reflected the severity of market pricing volatility during the quarter. We believe we have appropriately addressed the valuation of our market-related assets, given where we are today and our current expectations."
"The major highlight of the quarter was the successful Sky Financial systems conversion over the September 22nd weekend," he continued. "Accomplishing this conversion in less than 90 days after the merger closed was a significant accomplishment. It was an aggressive timetable and its success reflected a huge team effort and the culmination of endless hours of preparation. The fact that we were able to generate good loan and deposit growth at the same time we were going through the largest merger integration we have ever undertaken is a testimony to the unified spirit that focused every associate on the needs of our customers. Importantly, we also achieved over 70% of the targeted total annualized expense efficiencies in the third quarter. After considering all significant items and merger related impact, we estimate that our adjusted efficiency ratio for the quarter was just above our 50%-52% targeted range. We are also excited that, as a result of the merger, about 40% of our deposit base is now in markets where we have the number one market share. This portends well for our ability to grow earnings by focusing on serving our expanded customer base and actively pursuing the growth opportunities this merger affords us."
"With all of the turmoil in credit markets, we were pleased with our underlying credit quality performance. Net charge-offs were a bit higher than expected, but this primarily reflected charge-offs on the three commercial credits for which we had already established reserves in the prior quarter. Our overall net charge-off outlook for the year has not changed materially. The non-merger related increase in the level of non-performing assets was also basically in line with our expectations, and we are pursuing opportunities that might permit us to move some of these off our balance sheet before the end of the year. The outlook for the fourth quarter is that non-performing loans will rise modestly as there remains pressure on businesses and consumers in our markets," he concluded.
THIRD QUARTER PERFORMANCE DISCUSSION
Significant Items Influencing Financial Performance Comparisons
Specific significant items impacting 2007 third quarter performance included (see Table 1 below):
* $32.3 million pre-tax ($0.06 per common share) negative impact from Sky
Financial merger costs.
* $18.0 million pre-tax ($0.03 per common share) of net market-related
losses consisting of:
* $23.3 million of impairment losses on certain investment securities,
* $4.4 million of equity investment losses, and
* $3.6 million negative impact of mortgage servicing rights (MSR)
hedging.
Partially offset by:
* $10.2 of investment securities gains,
* $3.2 million gain from the extinguishment of debt.
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, 2007 - GAAP earnings $138.2(3) $0.38
* Sky Financial merger costs (32.3) (0.06)
* Net market-related losses (18.0) (0.03)
June 30, 2007 - GAAP earnings $80.5(3) $0.34
* Provision expense related to three commercial credits (24.8) (0.07)
* Sky Financial merger costs (7.6) (0.02)
* Net market-related losses (3.5) (0.01)
September 30, 2006 - GAAP earnings $157.4(3) $0.65
* Reduction of federal income tax expense 84.5 0.35
* Net market-related losses (59.4) (0.17)
(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 Third Quarter versus 2006 Third Quarter
Fully taxable equivalent net interest income increased $155.9 million from the year-ago quarter. This reflected the favorable impact of a $14.9 billion increase in average earning assets, of which $13.5 billion represented an increase in average loans and leases, as well as the benefit of an increase in the fully taxable equivalent net interest margin of 30 basis points to 3.52%. These increases were primarily merger related. Table 2 details the $13.5 billion reported increase in average loans and leases.
Table 2 - Loans and Leases - 3Q07 vs. 3Q06
Non-merger
Third Quarter Change Merger Related
(in billions) 2007 2006 Amount % Related Amount %(1)
Average Loans and Leases
Total commercial $22.0 $12.0 $10.0 83% $8.7 $1.2 6%
Automobile loans and
leases 4.4 4.1 0.3 7 0.4 (0.1) (3)
Home equity 7.4 5.0 2.3 46 2.4 (0.1) (1)
Residential mortgage 5.5 4.7 0.7 15 1.1 (0.4) (7)
Other consumer 0.6 0.4 0.2 50 0.1 0.1 13
Total consumer 17.8 14.3 3.5 25 4.1 (0.5) (3)
Total loans and leases $39.8 $26.3 $13.5 51% $12.8 $0.7 2%
(1) = non-merger related / (prior period + merger-related)
The $0.7 billion, or 2%, non-merger related increase primarily reflected:
* $1.2 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:
* $0.5 billion, or 3%, decrease in average total consumer loans,
reflecting continued declines in automobile leasing due to low consumer
demand and competitive pricing, as well as the impact of mortgage loan
sales over the last 12 months.
Also contributing to the growth in average earning assets was a $1.1 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 3.52% net interest margin in the current period was consistent with our expectations for a relatively stable net interest margin compared with the pro forma 2007 second quarter level of 3.50%.
Table 3 details the $13.1 billion reported increase in average deposits.
Table 3 - Deposits - 3Q07 vs. 3Q06
Non-merger
Third Quarter Change Merger Related
(in billions) 2007 2006 Amount % Related Amount %(1)
Average Deposits
Demand deposits -
non-interest bearing $5.4 $3.5 $1.9 53% $1.8 $0.0 1%
Demand deposits -
interest bearing 3.8 2.2 1.6 76 1.5 0.2 5
Money market deposits 6.9 5.7 1.2 21 1.0 0.2 3
Savings and other
domestic deposits 5.0 2.9 2.1 73 2.6 (0.5) (9)
Core certificates of
deposit 10.4 5.3 5.1 95 4.6 0.5 5
Total core deposits 31.5 19.6 11.9 61 11.5 0.4 1
Other deposits 6.1 5.0 1.2 23 1.3 (0.2) (3)
Total deposits $37.7 $24.6 $13.1 53% $12.9 $0.2 1%
(1) = non-merger related / (prior period + merger-related)
Most of the increase in average total deposits was merger related. The $0.2 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:
* $0.2 billion, or 3%, decline in other non-core deposits.
2007 Third Quarter versus 2007 Second Quarter
Compared with the 2007 second quarter, fully taxable equivalent net interest income increased $157.8 million. This reflected the favorable impact of a $15.2 billion increase in average earning assets, of which $13.4 billion represented an increase in average loans and leases, as well as the benefit of an increase in the fully taxable equivalent net interest margin of 26 basis points to 3.52%. These increases were primarily merger related. Table 4 details the $13.4 billion reported increase in average loans and leases.
Table 4 - Loans and Leases - 3Q07 vs. 2Q07
Third Second Non-merger
Quarter Quarter Change Merger Related
(in billions) 2007 2007 Amount % Related Amount %(1)
Average Loans and Leases
Total commercial $22.0 $12.8 $9.2 72% $8.7 $0.5 2%
Automobile loans
and leases 4.4 3.9 0.5 12 0.4 0.0 1
Home equity 7.4 5.0 2.4 48 2.4 (0.0) (0)
Residential mortgage 5.5 4.4 1.1 25 1.1 (0.0) (0)
Other consumer 0.6 0.4 0.2 53 0.1 0.1 14
Total consumer 17.8 13.6 4.2 31 4.1 0.1 1
Total loans and leases $39.8 $26.4 $13.4 51% $12.8 $0.6 1%
(1) = non-merger related / (prior period + merger-related)
The $0.6 billion, or 1%, non-merger related increase in average total loans and leases primarily reflected 2% growth in average total commercial loans due to continued strong growth in middle-market commercial and industrial (C&I) loans. Average total consumer loans increased 1% with most categories essentially unchanged.
Also contributing to the growth in average earning assets were increases of $0.9 billion in average trading account securities and $0.7 billion in average investment securities. These increases were primarily merger related.
Table 5 details the $13.4 billion reported increase in average deposits.
Table 5 - Deposits - 3Q07 vs. 2Q07
Third Second Non-merger
Quarter Quarter Change Merger Related
(in billions) 2007 2007 Amount % Related Amount %(1)
Average Deposits
Demand deposits -
non-interest bearing $5.4 $3.6 $1.8 50% $1.8 $(0.0) (1)%
Demand deposits -
interest bearing 3.8 2.4 1.4 58 1.5 (0.1) (1)
Money market deposits 6.9 5.5 1.4 26 1.0 0.4 6
Savings and other
domestic deposits 5.0 2.9 2.2 76 2.6 (0.4) (8)
Core certificates of
deposit 10.4 5.6 4.8 86 4.6 0.2 2
Total core deposits 31.5 19.9 11.6 58 11.5 0.1 0
Other deposits 6.1 4.4 1.8 41 1.3 0.4 7
Total deposits $37.7 $24.3 $13.4 55% $12.9 $0.5 1%
(1) = non-merger related / (prior period + merger-related)
Of the $13.4 billion increase in average total deposits, $12.9 billion was merger related. The $0.5 billion, or 1%, non-merger related increase reflected:
* $0.4 billion, or 7%, increase in other non-core deposits, reflecting an
increase in wholesale deposits.
* $0.1 billion increase in average total core deposits. This reflected
strong growth in money market deposits and core certificates of deposit,
partially offset by a decline in savings and other domestic deposits as
those depositors moved funds into higher rate accounts. The decline in
interest bearing and non-interest bearing demand deposits reflected
seasonality.
Provision for Credit Losses
The provision for credit losses in the 2007 third quarter was $42.0 million, up $27.8 million from the year-ago quarter. Compared with the 2007 second quarter, the provision for credit losses declined $18.1 million. The 2007 second quarter included $24.8 million of provision for credit losses for the two eastern Michigan credit relationships and one northern Ohio commercial credit. In the current quarter, charge-offs of $10.0 million related to these three credit relationships were taken against these reserves. On a reported basis, 2007 third quarter net charge-offs of $47.1 million exceeded current period provision for credit losses by $5.1 million. Adjusting for the $10.0 million of charge-offs associated with these three commercial credits, the current quarter provision for credit losses exceeded net charge-offs by $4.9 million. (See Credit Quality Discussion).
Non-Interest Income
2007 Third Quarter versus 2006 Third Quarter
Non-interest income increased $106.8 million from the year-ago quarter. The $68.7 million of merger related income significantly impacted this increase. Table 6 details the $106.8 million reported increase in total non-interest income.
Table 6 - Non-interest Income - 3Q07 vs. 3Q06
Non-merger
Third Quarter Change Merger Related
(in millions) 2007 2006 Amount % Related Amount %(1)
Non-interest Income
Service charges on
deposit accounts $78.1 $48.7 $29.4 60% $24.1 $5.3 7%
Trust services 33.6 22.5 11.1 49 7.0 4.1 14
Brokerage and
insurance income 28.8 14.7 14.1 96 17.1 (3.0) (9)
Other service charges
and fees 21.0 13.0 8.1 62 5.8 2.3 12
Bank owned life
insurance income 14.8 12.1 2.7 22 1.8 0.9 7
Mortgage banking
income 9.6 8.5 1.1 13 6.3 (5.1) (35)
Securities losses (13.2) (57.3) 44.2 (77) 0.3 43.9 (77)
Other income 31.8 35.7 (3.9) (11) 6.4 (10.3) (24)
Total non-interest
income $204.7 $97.9 $106.8 109% $68.7 $38.0 23%
(1) = non-merger related / (prior period + merger-related)
The $38.0 million, or 23%, non-merger related increase reflected:
* $43.9 million less in investment securities losses. In the 2007 third
quarter, net investment securities losses totaled $13.2 million and
consisted of $23.3 million of securities losses on certain investment
securities, partially offset by $10.2 million of gains on other
investment securities. This compared favorably with $57.3 million of
such losses in the year-ago quarter, virtually all of which related to a
balance sheet restructuring. (See Significant Items).
* $5.3 million, or 7%, increase in service charges on deposit accounts,
reflecting strong growth in personal service charge income.
* $4.1 million, or 14%, increase in trust services income, of which $2.5
million reflected fees associated with the acquisition of Unified Fund
Services in the 2006 fourth quarter.
Partially offset by:
* $10.3 million, or 24%, decline in other income, reflecting a $7.9
million decline in automobile operating lease income as that portfolio
continued to decline, and $2.3 million of higher equity investment
losses.
* $5.1 million, or 35%, decline in mortgage banking income, reflecting the
current quarter's $6.0 million of MSR hedging losses, compared with no
material MSR valuation impact in the year-ago quarter.
2007 Third Quarter versus 2007 Second Quarter
Non-interest income increased $48.5 million from the 2007 second quarter. The $68.7 million of merger related income drove this increase. Table 7 details the $48.5 million increase in reported total non-interest income.
Table 7 - Non-interest Income - 3Q07 vs. 2Q07
Third Second Non-merger
Quarter Quarter Change Merger Related
(in millions) 2007 2007 Amount % Related Amount %(1)
Non-interest Income
Service charges on
deposit accounts $78.1 $50.0 $28.1 56% $24.1 $4.0 5%
Trust services 33.6 26.8 6.8 25 7.0 (0.2) (1)
Brokerage and
insurance income 28.8 17.2 11.6 67 17.1 (5.5) (16)
Other service
charges and fees 21.0 14.9 6.1 41 5.8 0.3 2
Bank owned life
insurance income 14.8 10.9 3.9 36 1.8 2.1 17
Mortgage banking
income 9.6 7.1 2.5 35 6.3 (3.7) (28)
Securities losses (13.2) (5.1) (8.0 156 0.3 (8.3) 171
Other income 31.8 34.4 (2.6) (7) 6.4 (9.0) (22)
Total non-interest
income $204.7 $156.2 $48.5 31% $68.7 $(20.2) (9)%
(1) = non-merger related / (prior period + merger-related)
The $20.2 million, or 9%, non-merger related decline reflected:
* $9.0 million, or 22%, decline in other income, reflecting $4.4 million
of equity investment losses in the current quarter compared with $2.3
million of such gains in the prior quarter, as well as declines in
automobile operating lease income, loan sale gains, and lease prepayment
income.
* $8.3 million increase in securities losses as the current quarter
results reflected $13.2 million of net investment securities losses,
compared with $5.1 million of such losses in the 2007 second quarter.
* $5.5 million, or 16%, decline in brokerage and insurance income,
primarily reflecting seasonal trends in property and casualty insurance
income.
* $3.7 million, or 28%, decline in mortgage banking income, reflecting
$1.0 million higher MSR hedging losses this quarter and lower non-merger
related production.
Partially offset by:
* $4.0 million, or 5%, increase in service charges on deposit accounts,
primarily reflecting higher personal service charge income and seasonal
trends.
Non-interest Expense
2007 Third Quarter versus 2006 Third Quarter
Non-interest expense increased $143.1 million from the year-ago quarter. The $136.6 million of merger related expenses and $32.3 million of merger costs drove the increase, as non-merger related expenses declined. Table 8 details the $143.1 million increase in reported total non-interest expense.
Table 8 - Non-interest Expense - 3Q07 vs. 3Q06
Non-merger
Third Quarter Change Merger Merger Related
(in millions) 2007 2006 Amount % Related Costs Amount %(1)
Non-interest Expense
Personnel costs $202.1 $133.8 $68.3 51% $68.3 $7.8 $(7.7) (4)%
Outside data
processing and
other services 40.6 18.7 21.9 118 12.3 6.9 2.8 9
Net occupancy 33.3 18.1 15.2 84 10.2 7.4 (2.4) (8)
Equipment 23.3 17.2 6.0 35 4.8 1.8 (0.6) (2)
Marketing 13.2 7.8 5.3 68 4.4 5.0 (4.0) (33)
Professional
services 11.3 6.4 4.8 75 2.7 1.6 0.6 6
Telecommunications 7.3 4.8 2.5 51 2.2 0.2 0.0 1
Printing and
supplies 4.7 3.4 1.3 39 1.4 0.5 (0.5) (11)
Amortization of
intangibles 19.9 2.9 17.0 587 17.4 - (0.4) (2)
Other expense 29.8 29.2 0.6 2 13.0 1.3 (13.7) (32)
Total non-interest
expense $385.6 $242.4 $143.1 59% $136.6 $32.3 $(25.8) (7)%
(1) = non-merger related / (prior period + merger-related)
The $25.8 million, or 7%, non-merger related decline reflected:
* $13.7 million, or 32%, decline in other expense, reflected merger
efficiencies, as well as a $5.7 million decline in automobile operating
lease expense, the current quarter's $3.2 million gain on debt
extinguishment, and declines in deferred compensation expense and
franchise taxes.
* $7.7 million, or 4%, 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.
* $4.0 million, or 33%, decline in marketing expense, reflecting merger
efficiencies and timing of advertising campaigns.
2007 Third Quarter versus 2007 Second Quarter
Non-interest expense increased $140.9 million, or 58%, from the 2007 second quarter. The $136.6 million of merger related expenses and $24.7 million increase in merger costs drove the increase, as non-merger related expenses declined. Table 9 details the $140.9 million increase in reported total non-interest expense.
Table 9 - Non-interest Expense - 3Q07 vs. 2Q07
Third Second Non-merger
Quarter Quarter Change Merger Merger Related
(in millions) 2007 2007 Amount % Related Costs Amount %(1)
Non-interest Expense
Personnel costs $202.1 $135.2 $67.0 50% $68.3 $7.1 $(8.4) (4)%
Outside data
processing and
other services 40.6 25.7 14.9 58 12.3 2.8 (0.1) (0)
Net occupancy 33.3 19.4 13.9 72 10.2 7.3 (3.6) (12)
Equipment 23.3 17.2 6.1 36 4.8 1.8 (0.4) (2)
Marketing 13.2 9.0 4.2 47 4.4 3.4 (3.6) (27)
Professional
services 11.3 8.1 3.2 39 2.7 0.5 (0.0) (0)
Telecommunications 7.3 4.6 2.7 59 2.2 0.2 0.3 4
Printing and
supplies 4.7 3.7 1.1 29 1.4 0.5 (0.8) (15)
Amortization of
intangibles 19.9 2.5 17.4 692 17.4 - (0.0) (0)
Other expense 29.8 19.3 10.4 54 13.0 1.2 (3.8) (12)
Total non-interest
expense $385.6 $244.7 $140.9 58% $136.6 $24.7 $(20.4) (5)%
(1) = non-merger related / (prior period + merger-related)
The $20.4 million, or 5%, non-merger related decline represented the total estimated merger efficiencies achieved in the quarter and reflected:
* $8.4 million, or 4%, decline in personnel expense, primarily reflecting
merger efficiencies including the impact of the reduction of 828, or 6%,
full-time equivalent staff during the 2007 third quarter.
* $3.8 million, or 12%, decline in other expense, primarily reflecting
merger efficiencies.
* $3.6 million, or 27%, decline in marketing expense, reflecting merger
efficiencies and timing of advertising campaigns.
* $3.6 million, or 12%, decline in net occupancy expense, reflecting
merger efficiencies.
Income Taxes
The provision for income taxes in the 2007 third quarter was $48.5 million, resulting in an effective tax rate of 26.0%. As expected, the merger resulted in a higher effective tax rate compared with the 2007 second quarter effective tax rate of 23.2%. In the year-ago quarter, the provision for income taxes was a negative $60.8 million, resulting in an effective tax rate of negative 62.9%. The year ago quarter reflected an $84.5 million reduction of federal tax expense related to the resolution of a federal tax audit covering tax years 2002 and 2003 that resulted in the release of previously established federal income tax reserves, as well as the recognition of federal tax loss carry backs. The effective tax rate for the full year 2007 is estimated to be consistent with the 2007 nine-month effective tax rate of 25.3%.
Credit Quality
The Sky Financial merger increased virtually all credit quality measures on an absolute basis: the level of net charge-offs, non-performing loans (NPL/NPLs), non-performing assets (NPA/NPAs), allowance for credit losses (ACL), etc. Management, therefore, believes the more meaningful way to assess overall credit quality performance for the 2007 third quarter is through an analysis of credit quality performance ratios. This approach forms the basis of most of the following discussion.
Aside from merger related impacts and consistent with expectations, overall credit quality moderately deteriorated in the 2007 third quarter. The continued weakness in our Midwest markets, most notably eastern Michigan and northern Ohio, resulted in higher levels of non-merger related NPLs and consumer net charge-offs. However, overall delinquencies increased only slightly and the outlook remains for modest increases in problem assets in the 2007 fourth quarter.
Total net charge-offs for the 2007 third quarter were $47.1 million, or an annualized 0.47% of average total loans and leases. This compared with net charge-offs of $21.2 million, or an annualized 0.32%, in the year-ago quarter, and $34.5 million, or an annualized 0.52%, in the 2007 second quarter. Performance in the 2007 third quarter was slightly above the long-term targeted range of 0.35%-0.45%.
Total commercial net charge-offs in the 2007 third quarter were $17.3 million, or an annualized 0.31%. This was higher than an annualized 0.23% in the year-ago period, but less than the annualized 0.64% in the prior quarter. The prior quarter ratio included 38 basis points related to losses on two single family homebuilder credits in eastern Michigan. The current quarter included $10.0 million, or 18 basis points, of net charge-offs associated with the three commercial credits for which reserves had been established in the 2007 second quarter.
Total consumer net charge-offs in the current quarter were $29.8 million, or an annualized 0.67%. This was higher than an annualized 0.40% in the year- ago period and 0.41% in the prior quarter. Automobile loan and lease net charge-offs were an annualized 0.73% in the third quarter, up from 0.40% in the year-ago period and 0.45% 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 totaled $4.4 million, or an annualized 0.32% of related average balances. This was higher than an annualized 0.07% in the year-ago quarter and an annualized 0.16% in the prior quarter. Home equity net charge-offs in the 2007 third quarter were $10.8 million, or an annualized 0.59%, up from an annualized 0.53%, in the year-ago quarter and an annualized 0.43% in the prior quarter. The increase in residential mortgage and home equity net charge-offs reflected continued market weakness, particularly in the southeast Michigan and northeast Ohio markets.
NPAs were $435.0 million at September 30, 2007, and represented 1.08% of related assets with most of the NPA increase being merger related. This compared with $171.2 million, or 0.65%, at the end of the year-ago period, and $261.2 million, or 0.97%, at June 30, 2007. The $173.9 million increase from the end of the prior quarter reflected:
* $144.5 million merger related consisting of:
* $100.5 million of acquired commercial loans previously classified as
NPLs, which were reclassified as impaired loans held for sale and
written down to their net realizable fair value upon acquisition,
* $32.7 million of other acquired commercial and consumer loans and
classified as NPLs, and
* $11.3 million increase of acquired other real estate owned (OREO).
* $13.0 million, or 3%, increase in non-merger related NPLs and OREO.
* $16.3 million of impaired investment securities, where a decision was
made to stop accruing interest and apply future interest payments to
principal reduction. Future cash flows are expected to reduce principal
by about 25% in the 2007 fourth quarter.
At September 30, 2007, total NPLs were $249.4 million, up $37.9 million, or 18%, from June 30, 2007. Total NPLs at September 30, 2007 expressed as a percent of period end total loans and leases, was 0.62%, down from 0.79% at June 30, 2007, but up from 0.49% a year earlier.
The over 90-day delinquent, but still accruing, ratio was 0.29% at September 30, 2007, up from 0.24% at the end of the year-ago quarter and from 0.25% at June 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 September 30, 2007, the ALLL was $454.8 million, up from $280.2 million a year ago and from $307.5 million at June 30, 2007. Expressed as a percent of period-end loans and leases, the ALLL ratio at September 30, 2007, was 1.14%, up from 1.06% a year ago, but down 1 basis point from 1.15% at June 30, 2007, reflecting the charge-off of $10.0 million of commercial loans where reserves had been established in the 2007 second quarter.
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 10 shows the change in the ALLL ratio and each reserve component for the 2007 third and second quarters and the 2006 third quarter.
Table 10 - Components of ALLL as Percent of Total Loans and Leases
3Q07 change from
3Q07 2Q07 3Q06 2Q07 3Q06
Transaction reserve (1) 0.97% 0.94% 0.86% 0.03% 0.11%
Economic reserve 0.17 0.21 0.20 (0.04) (0.03)
Total ALLL 1.14% 1.15% 1.06% (0.01)% 0.08%
(1) Includes specific reserve
The change in both the transaction reserve and the economic reserve components primarily reflected the impact of the merger.
The ALLL as a percent of NPLs was 182% at September 30, 2007, down from 217% a year ago, but up from 145% at June 30, 2007. The ALLL as a percent of NPAs was 105% at September 30, 2007, down from 164% a year ago, and from 118% at June 30, 2007. At September 30, 2007, the AULC was $58.2 million, up from $39.3 million at the end of the year-ago quarter, and from $41.6 million at June 30, 2007, mostly merger related.
On a combined basis, the ACL as a percent of total loans and leases at September 30, 2007, was 1.28%, up from 1.21% a year ago, but down from 1.30% at June 30, 2007. The ACL as a percent of NPLs was 206% at September 30, 2007, down from 247% a year ago, but up from 165% at June 30, 2007. The ACL as a percent of NPAs was 118% at September 30, 2007, down from 187% a year earlier and from 134% at June 30, 2007.
Given the expectation of continued stress in commercial real estate markets, weak performance of the eastern Michigan and northern Ohio economies, as well as the increase in reserves recognized this quarter, the expectation is for modest increases in the ALLL ratio in the 2007 fourth quarter.
Capital
At September 30, 2007, the tangible equity to assets ratio was 5.42%, down from 7.13% a year ago, and from 6.82% at June 30, 2007. The decline from June 30, 2007 primarily reflected the impact of the Sky Financial merger, as well as a 17 basis point negative impact attributable to a temporary $1.5 billion increase in assets. At September 30, 2007, the tangible equity to risk- weighted assets ratio was 6.11%, down from 7.97% at the end of the year-ago quarter, and from 7.60% at June 30, 2007. These decreases were also primarily merger related.
There were no share repurchases during the quarter. Under the current authorization announced April 20, 2006, there are currently 3.9 million shares remaining available.
2007 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 continue to be negatively impacted by weakness in residential real estate markets and the automotive manufacturing and supplier sector. How much these factors will affect banking activities and overall credit quality trends is unknown. However, it is our expectation that any impact will be greatest in our 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.
The assumptions listed below reflect 2007 fourth quarter expectations compared with actual 2007 third quarter performance.
* Annualized revenue growth in the low- to mid-single digit range,
reflecting:
* Net interest margin relatively stable.
* Annualized average total loan growth in the mid-single digit range,
with total commercial loans in the mid- to upper-single digit range
and total consumer loans being flat, reflecting continued softness in
residential mortgages and home equity loans.
* Annualized core deposit growth in the low- to mid-single digit range.
* Annualized non-interest income growth in the mid- to higher-single
digit range.
* Non-interest expense that is flat-to-down, excluding additional merger
costs. Merger costs for the first nine months were $40.7 million.
Merger costs for the fourth quarter are estimated to be $15-$25 million,
which would be consistent with our previous 2007 second half of the year
target of $50-$60 million. Annualized merger efficiencies from the
merger are expected to equal or exceed the original target of $115
million. Of the remaining annualized merger efficiencies, most is
expected to be achieved in the fourth quarter.
* NPLs are expected to rise modestly, reflecting pressure from continued
economic weakness in our markets, and resulting higher levels of
monitored credits. The absolute level of total NPAs, however, is
expected to decline as the held for sale NPAs are sold.
* Modest increase in the ALLL ratio is expected from its current level,
and the fourth quarter net charge-off ratio is expected to be relatively
consistent with the third quarter level of an annualized 0.47%.
* No significant market-related losses.
* No stock repurchase activity.
Within this type of environment, earnings for the 2007 fourth quarter are targeted at $0.45-$0.47 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 huntington-ir.com or through a dial-in telephone number at 800-223-1238; conference ID 17065118. Slides will be available at huntington-ir.com just prior to 1:00 p.m. (Eastern Time) today for review during the call. A replay of the webcast will be archived in the Investor Relations section of Huntington's web site at huntington-ir.com. A telephone replay will be available approximately two hours after the completion of the call through October 31, 2007 at 800-642-1687; conference ID 17065118.
Forward-looking Statement
This document contains certain forward-looking statements, including certain plans, expectations, goals, and projections, and including statements about the benefits of the merger between Huntington and Sky Financial, 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: the expected merger efficiencies and any revenue synergies from the merger may not be fully realized within the expected timeframes; disruption from the merger may make it more difficult to maintain relationships with clients, associates, or suppliers; changes in economic conditions; movements in interest rates; competitive pressures on product pricing and services; success and timing of other business strategies; the nature, extent, and timing of governmental actions and reforms; and 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 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 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 third quarter and 2007 nine-month performance to prior periods are affected as Sky Financial results were not included in the prior periods. Comparisons of the 2007 third quarter and 2007 nine-month performance compared 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 $32.3
million in the 2007 third 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 third 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 Third Quarter versus 2006 Third Quarter
Third Quarter Change
(in millions) 2007 2006 Amount %
Average Loans and Leases
Total commercial $22,016 $12,039 $9,977 82.9%
Automobile loans and leases 4,354 4,055 299 7.4
Home equity 7,355 5,041 2,314 45.9
Residential mortgage 5,456 4,748 708 14.9
Other consumer 647 430 217 50.5
Total consumer 17,812 14,274 3,538 24.8
Total loans and leases $39,828 $26,313 $13,515 51.4%
Average Deposits
Demand deposits - non-interest
bearing $5,384 $3,509 $1,875 53.4%
Demand deposits - interest bearing 3,808 2,169 1,639 75.6
Money market deposits 6,869 5,689 1,180 20.7
Savings and other domestic deposits 5,043 2,923 2,120 72.5
Core certificates of deposit 10,425 5,334 5,091 95.4
Total core deposits 31,529 19,624 11,905 60.7
Other deposits 6,123 4,969 1,154 23.2
Total deposits $37,652 $24,593 $13,059 53.1%
Merger Non-merger Related
(in millions) Related Amount % (1)
Average Loans and Leases
Total commercial $8,746 $1,231 5.9%
Automobile loans and leases 432 (133) (3.0)
Home equity 2,385 (71) (1.0)
Residential mortgage 1,112 (404) (6.9)
Other consumer 143 74 12.9
Total consumer 4,072 (534) (2.9)
Total loans and leases $12,818 $697 1.8%
Average Deposits
Demand deposits - non-interest
bearing $1,829 $46 0.9%
Demand deposits - interest bearing 1,460 179 4.9
Money market deposits 996 184 2.8
Savings and other domestic deposits 2,594 (474) (8.6)
Core certificates of deposit 4,630 461 4.6
Total core deposits 11,509 396 1.3
Other deposits 1,342 (188) (3.0)
Total deposits $12,851 $208 0.6%
(1) = non-merger related / (prior period + merger-related)
Third Quarter Change
(in thousands) 2007 2006 Amount %
Net interest income - FTE $415,344 $259,403 $155,941 60.1%
Non-interest Income
Service charges on deposit
accounts $78,107 $48,718 $29,389 60.3%
Trust services 33,562 22,490 11,072 49.2
Brokerage and insurance income 28,806 14,697 14,109 96.0
Other service charges and fees 21,045 12,989 8,056 62.0
Bank owned life insurance income 14,847 12,125 2,722 22.4
Mortgage banking income 9,629 8,512 1,117 13.1
Securities losses (13,152) (57,332) 44,180 (77.1)
Other income 31,830 35,711 (3,881) (10.9)
Total non-interest income $204,674 $97,910 $106,764 109.0%
Non-interest Expense
Personnel costs $202,148 $133,823 $68,325 51.1%
Outside data processing and other
services 40,600 18,664 21,936 117.5
Net occupancy 33,334 18,109 15,225 84.1
Equipment 23,290 17,249 6,041 35.0
Marketing 13,186 7,846 5,340 68.1
Professional services 11,273 6,438 4,835 75.1
Telecommunications 7,286 4,818 2,468 51.2
Printing and supplies 4,743 3,416 1,327 38.8
Amortization of intangibles 19,949 2,902 17,047 587.4
Other expense 29,756 29,165 591 2.0
Total non-interest expense $385,565 $242,430 $143,135 59.0%
Merger Merger Non-merger Related
(in thousands) Related Costs Amount % (1)
Net interest income - FTE $151,592 $4,349 1.1%
Non-interest Income
Service charges on deposit
accounts $24,110 $5,279 7.2%
Trust services 7,009 4,063 13.8
Brokerage and insurance income 17,061 (2,952) (9.3)
Other service charges and fees 5,800 2,256 12.0
Bank owned life insurance income 1,807 915 6.6
Mortgage banking income 6,256 (5,139) (34.8)
Securities losses 283 43,897 (76.9)
Other income 6,390 (10,271) (24.4)
Total non-interest income $68,716 $38,048 22.8%
Non-interest Expense
Personnel costs $68,250 $7,750 $(7,675) (3.8)%
Outside data processing and other
services 12,262 6,854 2,820 9.1
Net occupancy 10,184 7,440 (2,399) (8.5)
Equipment 4,799 1,792 (550) (2.5)
Marketing 4,361 4,966 (3,987) (32.7)
Professional services 2,707 1,555 573 6.3
Telecommunications 2,224 196 48 0.7
Printing and supplies 1,374 457 (504) (10.5)
Amortization of intangibles 17,431 - (384) (1.9)
Other expense 13,048 1,250 (13,707) (32.5)
Total non-interest expense $136,640 $32,260 $(25,765) (6.8)%
(1) = non-merger related / (prior period + merger-related)
2007 Third Quarter versus 2007 Second Quarter
Third Second
Quarter Quarter Change
(in millions) 2007 2007 Amount %
Average Loans and Leases
Total commercial $22,016 $12,818 $9,198 71.8%
Automobile loans and leases 4,354 3,873 481 12.4
Home equity 7,355 4,973 2,382 47.9
Residential mortgage 5,456 4,351 1,105 25.4
Other consumer 647 424 223 52.6
Total consumer 17,812 13,621 4,191 30.8
Total loans and leases $39,828 $26,439 $13,389 50.6%
Average Deposits
Demand deposits - non-interest
bearing $5,384 $3,591 $1,793 49.9%
Demand deposits - interest bearing 3,808 2,404 1,404 58.4
Money market deposits 6,869 5,466 1,403 25.7
Savings and other domestic deposits 5,043 2,863 2,180 76.1
Core certificates of deposit 10,425 5,591 4,834 86.5
Total core deposits 31,529 19,915 11,614 58.3
Other deposits 6,123 4,358 1,765 40.5
Total deposits $37,652 $24,273 $13,379 55.1%
Merger Non-merger Related
(in millions) Related Amount % (1)
Average Loans and Leases
Total commercial $8,746 $452 2.1%
Automobile loans and leases 432 49 1.1
Home equity 2,385 (3) (0.0)
Residential mortgage 1,112 (7) (0.1)
Other consumer 143 80 14.1
Total consumer 4,072 119 0.7
Total loans and leases $12,818 $571 1.5%
Average Deposits
Demand deposits - non-interest
bearing $1,829 $(36) (0.7)%
Demand deposits - interest bearing 1,460 (56) (1.4)
Money market deposits 996 407 6.3
Savings and other domestic deposits 2,594 (414) (7.6)
Core certificates of deposit 4,630 204 2.0
Total core deposits 11,509 105 0.3
Other deposits 1,342 423 7.4
Total deposits $12,851 $528 1.4%
(1) = non-merger related / (prior period + merger-related)
Third Second
Quarter Quarter Change
(in thousands) 2007 2007 Amount %
Net interest income - FTE $415,344 $257,518 $157,826 61.3%
Non-interest Income
Service charges on deposit
accounts $78,107 $50,017 $28,090 56.2%
Trust services 33,562 26,764 6,798 25.4
Brokerage and insurance income 28,806 17,199 11,607 67.5
Other service charges and fees 21,045 14,923 6,122 41.0
Bank owned life insurance income 14,847 10,904 3,943 36.2
Mortgage banking income 9,629 7,122 2,507 35.2
Securities losses (13,152) (5,139) (8,013) 155.9
Other income 31,830 34,403 (2,573) (7.5)
Total non-interest income $204,674 $156,193 $48,481 31.0%
Non-interest Expense
Personnel costs $202,148 $135,191 $66,957 49.5%
Outside data processing and other
services 40,600 25,701 14,899 58.0
Net occupancy 33,334 19,417 13,917 71.7
Equipment 23,290 17,157 6,133 35.7
Marketing 13,186 8,986 4,200 46.7
Professional services 11,273 8,101 3,172 39.2
Telecommunications 7,286 4,577 2,709 59.2
Printing and supplies 4,743 3,672 1,071 29.2
Amortization of intangibles 19,949 2,519 17,430 691.9
Other expense 29,756 19,334 10,422 53.9
Total non-interest expense $385,565 $244,655 $140,910 57.6%
Merger Merger Non-merger Related
(in thousands) Related Costs Amount % (1)
Net interest income - FTE $151,592 $6,234 1.5%
Non-interest Income
Service charges on deposit
accounts $24,110 $3,980 5.4%
Trust services 7,009 (211) (0.6)
Brokerage and insurance income 17,061 (5,454) (15.9)
Other service charges and fees 5,800 322 1.6
Bank owned life insurance income 1,807 2,136 16.8
Mortgage banking income 6,256 (3,749) (28.0)
Securities losses 283 (8,296) 170.8
Other income 6,390 (8,963) (22.0)
Total non-interest income $68,716 $(20,235) (9.0)%
Non-interest Expense
Personnel costs $68,250 $7,106 $(8,399) (4.1)%
Outside data processing and other
services 12,262 2,783 (146) (0.4)
Net occupancy 10,184 7,329 (3,596) (12.1)
Equipment 4,799 1,777 (443) (2.0)
Marketing 4,361 3,392 (3,553) (26.6)
Professional services 2,707 469 (4) (0.0)
Telecommunications 2,224 196 289 4.2
Printing and supplies 1,374 456 (759) (15.0)
Amortization of intangibles 17,431 - (1) (0.0)
Other expense 13,048 1,175 (3,801) (11.7)
Total non-interest expense $136,640 $24,683 $(20,413) (5.4)%
(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 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 and/or one-time 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 and/or one-time 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 one-time 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 141 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 over 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, through offices in Ohio, Pennsylvania, Michigan, Indiana, and West Virginia. International banking services are available through the headquarters office in Columbus, a limited purpose office located in both the Cayman Islands and Hong Kong.
HUNTINGTON BANCSHARES INCORPORATED
Quarterly Key Statistics (1), (9)
(Unaudited)
(in thousands, except per 2007 2006
share amounts) Third Second Third
Net interest income $409,632 $253,391 $255,313
Provision for credit losses 42,007 60,133 14,162
Non-interest income 204,674 156,193 97,910
Non-interest expense 385,565 244,655 242,430
Income before income taxes 186,734 104,796 96,631
Provision for income taxes 48,535 24,275 (60,815)
Net Income $138,199 $80,521 $157,446
Net income per common share -
diluted $0.38 $0.34 $0.65
Cash dividends declared per
common share 0.265 0.265 0.250
Book value per common share
at end of period 17.08 12.97 13.15
Tangible book value per
common share at end of period 7.68 10.33 10.50
Average common shares - basic 365,895 236,032 237,672
Average common shares - diluted 368,280 239,008 240,896
Return on average assets 1.02% 0.92% 1.75%
Return on average
shareholders' equity 8.8 10.6 21.0
Return on average tangible
shareholders' equity (2) 20.9 13.6 27.1
Net interest margin (3) 3.52 3.26 3.22
Efficiency ratio (4) 57.7 57.8 57.8
Effective tax rate 26.0 23.2 (62.9)
Average loans and leases $39,827,422 $26,439,235 $26,313,060
Average loans and leases -
linked quarter annualized
growth rate. N.M.% 3.6% 1.7%
Average earning assets $46,870,957 $31,674,664 $31,970,236
Average total assets 53,970,093 35,150,051 35,769,712
Average core deposits (5) 31,529,372 19,913,828 19,623,429
Average core deposits -
linked quarter annualized
growth rate (5) N.M.% 5.4% 1.3%
Average shareholders' equity $6,205,783 $3,042,682 $2,969,643
Total assets at end of period 55,303,927 36,420,686 35,661,948
Total shareholders' equity at
end of period 6,249,674 3,064,141 3,129,746
Net charge-offs (NCOs) 47,106 34,500 21,239
NCOs as a % of average loans
and leases 0.47% 0.52% 0.32%
Non-performing loans and
leases (NPLs) $249,396 $211,516 $129,312
Non-performing assets (NPAs) 435,042 261,185 171,212
NPA ratio (6) 1.08% 0.97% 0.65%
Allowance for loan and lease
losses (ALLL) as a % of total
loans and leases at the end
of period 1.14 1.15 1.06
ALLL plus allowance for unfunded
loan commitments and letters of
credit as a % of total loans
and leases at the end of period 1.28 1.30 1.21
ALLL as a % of NPLs 182 145 217
ALLL as a % of NPAs 105 118 164
Tier 1 risk-based capital ratio (7) 8.35 9.74 8.95
Total risk-based capital ratio (7) 11.54 13.49 12.81
Tier 1 leverage ratio (7) 7.58 9.07 7.99
Average equity / assets 11.50 8.66 8.30
Tangible equity / assets (8) 5.42 6.82 7.13
Percent Changes vs.
(in thousands, except per share amounts) 2Q07 3Q06
Net interest income 61.7% 60.4%
Provision for credit losses (30.1) N.M.
Non-interest income 31.0 N.M.
Non-interest expense 57.6 59.0
Income before income taxes 78.2 93.2
Provision for income taxes 99.9 N.M.
Net Income 71.6% (12.2)%
Net income per common share - diluted 11.8% (41.5)%
Cash dividends declared per common share --- 6.0
Book value per common share at end of period 31.7 29.9
Tangible book value per common share
at end of period (25.7) (26.9)
Average common shares - basic 55.0 53.9
Average common shares - diluted 54.1 52.9
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
Average loans and leases 50.6 51.4
Average loans and leases - linked quarter
annualized growth rate.
Average earning assets 48.0 46.6
Average total assets 53.5 50.9
Average core deposits (5) 58.3 60.7
Average core deposits - linked quarter
annualized growth rate (5)
Average shareholders' equity N.M. N.M.
Total assets at end of period 51.8 55.1
Total shareholders' equity at end of period N.M. 99.7
Net charge-offs (NCOs) 36.5 N.M.
NCOs as a % of average loans and leases
Non-performing loans and leases (NPLs) 17.9 92.9
Non-performing assets (NPAs) 66.6 N.M.
NPA 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 NPLs
ALLL as a % of NPAs
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.
(3) On a fully taxable equivalent (FTE) basis assuming a 35% tax rate.
(4) Non-interest expense less amortization of intangibles ($19.9 million
for 3Q 2007, $2.5 million for 2Q 2007 and $2.9 million for 3Q 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) Nonperforming assets (NPAs) divided by the sum of loans and leases,
impaired loans held for sale, net other real estate, and other NPAs.
(7) September 30, 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 intangible
assets) divided by tangible assets (total assets less intangible
assets).
(9) On July 1, 2007, Huntington acquired Sky Financial Group, Inc.
Accordingly, the balances presented include the impact of the
acquisition from that date.
SOURCE Huntington Bancshares Incorporated
Released October 18, 2007