Jul. 24--The recession has continued to batter Huntington Bancshares, which reported a $125.1 million loss in the second quarter yesterday.

The loss was driven by a $413 million set-aside for loan losses, a direct reflection of the economy, said Chief Executive Officer Stephen Steinour.

"I'd love to say the economy will be better in the third quarter, but I'm not going to do that," he said. Steinour doesn't expect the turnaround to begin this year, and he said the recovery in the Midwest might lag the rest of the country.

Fifth Third Bancorp, meanwhile, announced an $856 million quarterly profit yesterday. The Cincinnati-based bank benefited from the $1.1 billion sale of a processing center in which it had a controlling interest.

Huntington stock fell 4.8 percent yesterday to close at $3.73, while Fifth Third's shares rose 14.3 percent to close at $8.01.

Huntington's quarterly loss equals 40 cents per share and follows a loss of $2.4 billion in the first quarter and a loss of $417 million in the fourth quarter of 2008.

"But (the recession) won't go on forever, and we have bolstered our capital, strengthened our liquidity -- and the core elements that drive profitability are getting better," said Steinour, who declined to say when he thinks the bank will return to profitability. "We're creating a future that will be quite positive once the economy normalizes."

The Columbus-based bank took several measures in the quarter to strengthen its finances.

Huntington raised $704 million in capital, mostly through the sale of common stock. It increased its Tier 1 capital ratio, a gauge of a bank's fiscal soundness, to 11.86 percent; it had been 11 percent at the end of the first quarter.

Analysts seem to agree that the bank has taken several positive steps, but that it also faces challenges from rising unemployment and foreclosures and a worsening commercial real-estate situation.

"I agree they have done a lot of work to prepare themselves for the economic turnaround; (Steinour) has done everything he can," said Matt McCormick, a portfolio manager and banking analyst with Cincinnati investment adviser Bahl & Gaynor.

However, the loan losses "will continue to be a stone in their shoe, and investors want that taken off the table," he said.

This is an issue that most regional banks face, McCormick said, "especially in the Midwest, where we're feeling the effects of the recession more so than in other areas."

Overall, Huntington's non-performing loan assets rose 12.8 percent to $2 billion.

Commercial real-estate charge-offs totaled $173 million in the quarter, an annualized rate of 7.5 percent. That was more than double the first-quarter rate of 3.3 percent.

"I think they have raised the amount of capital they thought they needed, based on the stress tests the bigger banks underwent," said Terry McEvoy, an analyst for Oppenheimer & Co., a New York investment firm. "And the way they raised it has been marginally dilutive to shareholders, unlike many of the larger banks."

swartenberg@dispatch.com

Huntington faces problems with commercial real-estate loans.

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