Oct. 22, 2009 (PR Newswire) -- COLUMBUS, Ohio, Oct. 22 /PRNewswire-FirstCall/ --
-- 2009 third quarter reported net loss of $166.2 million, or $0.33 per
common share
-- Improved pre-tax, pre-provision income of $237.1 million, up $7.8
million, or 3%
-- 3.20% net interest margin, up 10 basis points
-- Significantly strengthened capital
-- $587.3 million of capital actions during the third quarter
-- 6.46% tangible common equity ratio, up 78 basis points
-- 13.04% and 16.24% Tier 1 and Total capital ratios, respectively, up
119 basis points and 130 basis points, respectively
-- Strengthened liquidity position
-- 10% annualized linked-quarter growth in average total core deposits
-- 94% period end loan-to-deposit ratio, improved from 98% at June 30,
2009
-- Credit actions contributed to higher residential mortgage net
charge-offs, commercial loan nonaccruals, and provision for credit
losses
-- Over 55% of newly identified commercial nonaccrual loans were less
than 30 days past due at September 30, 2009
-- 2.90% allowance for credit losses at September 30, 2009, up from
2.51% at June 30, 2009 as the provision for credit losses exceeded
net charge-offs by $119.2 million, or 33%
Huntington Bancshares Incorporated (Nasdaq: HBAN; www.huntington.com) reported a 2009 third quarter net loss of $166.2 million, or $0.33 per common share. This compared with a net loss of $125.1 million, or $0.40 per common share in the 2009 second quarter, and net income of $75.1 million, or $0.17 per common share in the year-ago quarter. The lower loss per share in the current quarter compared with the 2009 second quarter reflected an increase in average common shares on a fully diluted basis to 589.7 million shares in the 2009 third quarter, up from an average of 459.2 million shares on a fully diluted basis in the second quarter.
For the first nine months of 2009, Huntington reported a net loss of $2,724.5 million, or $6.08 per common share, compared with net income of $303.5 million, or $0.83 per common share in the comparable 2008 period. Results for the first nine months of 2009 reflected $2,606.9 million, or $5.51 per common share, in noncash goodwill impairment charges.
PERFORMANCE OVERVIEW
"We believe it is in the best interest of our shareholders to position Huntington for a return to profitability as soon as possible," said Stephen D. Steinour, chairman, president, and chief executive officer. "Fundamental to achieving this objective is growth in pre-tax, pre-provision income, a strong capital position, a liquid balance sheet, and a lower-risk loan portfolio. We made significant progress in each of these areas this past quarter."
"Our reported loss for the quarter of $166.2 million was entirely due to $475.1 million of provision for credit loss expense as our pre-tax, pre-provision income increased $7.8 million, or 3%, from the second quarter," he continued. "Continual improvement in pre-tax, pre-provision income helps set the stage for profitable performance once credit costs return to more historical performance. Contributing to the pre-tax, pre-provision income improvement was a 10 basis point increase in our net interest margin."
"On the capital front, we raised $587.3 million of common equity. Our period-end tangible common equity ratio was 6.46%, up 78 basis points. Our period-end regulatory Tier 1 and Total risk-based capital were $3.1 billion and $2.8 billion significantly above the 6.0% and 10.0% 'well capitalized' regulatory thresholds, respectively. We believe we now have sufficient capital to weather a stressed economic scenario. We also continued to make excellent progress in improving liquidity due to strong core deposit growth and the cash received from our equity issuances. Our period-end loan-to-deposit ratio was 94%, improved from 98% at June 30, and much improved from 108% at the end of last year."
"Lowering the risk profile of the loan portfolio has been a high priority since the beginning of the year," he noted, "and we are aggressively addressing credit issues. In the first half of the year, we successfully restructured our Franklin Credit Management relationship and conducted significant commercial loan portfolio reviews. During the third quarter, utilizing the enhanced portfolio management processes put in place in the second quarter, we continued our emphasis on identifying changes in the risk profiles of our commercial borrowers. While nonaccrual loans increased by a net 20% in the quarter, the level of criticized loans increased by only 4%. This is important since the level of criticized loans is a leading indicator of future nonaccrual and charge-off levels. Our continued proactive identification of potential emerging problems contributed significantly to the increase in total nonaccrual loans. It is important to note that over 55% of the third quarter's newly identified commercial nonaccrual loans were less than 30 days past due as of September 30."
"With regard to our consumer portfolio, we continue to believe it will show better relative performance throughout this cycle. Nevertheless, some of our third quarter actions resulted in above trend line losses. For example, residential mortgage actions resulted in an outsized, third quarter annualized 6.15% net charge-off ratio. Excluding the impact of these actions, the third quarter annualized residential mortgage net charge-off ratio would have been 1.73%. While related net charge-offs increased, these actions contributed to a 151 basis point decline in the related 'over 30 days past due' ratio. These actions included taking a more conservative position on the timing of loss recognition, continued active loss mitigation and troubled debt restructuring efforts, as well as the sale of some underperforming loans."
"In light of the continued stress on our loan portfolios, especially commercial real estate loans, it was prudent to continue to build our reserves. Our provision for credit losses exceeded net charge-offs by $119.2 million, or 33%. As a result, our period-end allowance for credit losses increased to 2.90% from 2.51% at the end of the second quarter. Even though net charge-offs remained elevated, they continued to be below the two-year cumulative loss assumptions used in our loan portfolio stress test analysis announced on May 20, 2009."
"We will continue to manage the company assuming that the economy will remain weak for the foreseeable future. History has shown that meaningful improvement in credit quality, and thereby a return of provision for credit losses to more normal levels, lags improvement in economic indicators. As we entered this year, a key objective was to assure that we had sufficient capital to get through this economic cycle. We believe this objective was accomplished through our capital actions. Going forward, we will continue to seek opportunities to accelerate the resolution of problem credits and position Huntington for its return to profitability. In summary, I am encouraged by the progress we have made. We are more focused and are seeing improvement in underlying performance in a number of key areas. We are getting stronger every day," he concluded.
THIRD QUARTER PERFORMANCE DISCUSSION
Significant Items Influencing Financial Performance Comparisons
From time to time, revenue, expenses, or taxes, are impacted by items judged by Management to be outside of ordinary banking activities and/or by items that, while they may be associated with ordinary banking activities, are so unusually large that their outsized impact is believed by Management at that time to be one-time or short-term in nature. Management believes the disclosure of "Significant Items" in current and prior period results aids analysts/investors in better understanding corporate performance trends. (See Significant Items under the Basis of Presentation for a full discussion).
There were no Significant Items impacting 2009 third quarter performance. Those impacting prior periods are shown in Table 1 below.
Table 1 - Significant Items Impacting Earnings Performance Comparisons
----------------------------------------------------------------------
Three Months Ended Impact(1)
-----------------
(in millions, except per share) Pre-tax EPS(2)
-------------- -------
September 30, 2009 - GAAP loss $(166.2)(2) $(0.33)
- None
June 30, 2009 - GAAP loss $(125.1)(2) $(0.40)
- Gain on tender of trust
preferred securities 67.4 0.10
- Gain related to Visa(R) stock 31.4 0.04
- Preferred stock conversion
deemed dividend NA (0.06)
- FDIC special assessment (23.6) (0.03)
- Goodwill impairment (4.2) (0.01)
September 30, 2008 - GAAP earnings $63.0(2) $0.17
- Gain on the extinguishment of debt 21.4 0.03
- Visa(R) deferred tax valuation
allowance provision (3.7)(2) (0.01)
(1) Favorable (unfavorable) impact on GAAP earnings; pre-tax unless
otherwise noted
(2) After-tax; EPS reflected on a fully diluted basis
Pre-tax, Pre-provision Income Trends
One performance metric that Management believes is useful in analyzing performance in times of economic stress is the level of earnings adjusted to exclude provision expense and certain other volatile items. (See Pre-tax, Pre-provision in Basis of Presentation for a full discussion).
Table 2 shows pre-tax, pre-provision income was $237.1 million in the third quarter, up 3% from the prior quarter.
Table 2 - Pre-tax, Pre-provision Income (1) - 3Q09 - 3Q08
---------------------------------------------------------
2009 2008
---- ----
Third Second First Fourth Third
(in millions) Quarter Quarter Quarter Quarter Quarter
------------- ------- ------- ------- ------- -------
(Loss) Income Before
Income Taxes $(257.4) $(137.8) $(2,685.0) $(669.2) $92.1
Add: Provision for
credit losses 475.1 413.7 291.8 722.6 125.4
Less: Securities gains
(losses) (2.4) (7.3) 2.1 (127.1) (73.8)
Add: Amortization of
intangibles 17.0 17.1 17.1 19.2 19.5
Less: Significant(1) items
Gain on the redemption
of junior subordinated
debt - 67.4 - - -
Goodwill impairment - (4.2) (2,602.7) - -
Gain related to Visa(R)
stock - 31.4 - - -
FDIC special assessment - (23.6) - - -
Gain on the extinguishment
of debt - - - - 21.4
Visa(R) anti-trust
indemnification - - - 4.6 -
----------------------------------------------------------------------
Pre-tax, Pre-provision
Income (1) $237.1 $229.3 $224.6 $195.1 $289.4
---------------------- ------ ------ ------ ------ ------
LQ Change - Amount $7.8 $4.7 $29.5 $(94.3) $38.2
LQ Change - Percent 3.4% 2.1% 15.1% -32.6% 15.2%
(1) See Basis of Presentation for definition
As discussed in the sections that follow, the improvement from the 2009 second quarter primarily reflected the benefit of higher net interest income, service charges on deposits, and electronic banking income, partially offset by higher OREO and foreclosure expense and lower mortgage banking income.
Net Interest Income, Net Interest Margin, and Average Balance Sheet
2009 Third Quarter versus 2009 Second Quarter
Compared with the 2009 second quarter, fully-taxable equivalent net interest income increased $15.9 million, or 5%. This primarily reflected a 10 basis point increase in the net interest margin to 3.20% from 3.10% as average total earning assets were essentially unchanged. The increase in the net interest margin reflected a combination of factors including favorable impacts from strong core deposit growth and the benefit of lower deposit pricing, partially offset by the negative impact of maintaining a higher liquidity position. Average total earning assets were essentially unchanged as a $1.2 billion, or 18%, increase in other earning assets, primarily investment securities, was offset by a $1.2 billion, or 3%, decline in average total loans and leases.
Table 3 details the decrease in average loans and leases.
Table 3 - Loans and Leases - 3Q09 vs. 2Q09
------------------------------------------
Third Second Change
Quarter Quarter ------
(in billions) 2009 2009 Amount %
------------- ---- ---- ------ --
Average Loans and Leases
Commercial and industrial $12.9 $13.5 $(0.6) (4)%
Commercial real estate 8.9 9.2 (0.3) (3)
---------------------- --- --- ---- --
Total commercial $21.8 $22.7 $(0.9) (4)%
---------------- ----- ----- ----- --
Automobile loans and leases 3.2 3.3 (0.1) (2)
Home equity 7.6 7.6 (0.1) (1)
Residential mortgage 4.5 4.7 (0.2) (4)
Other consumer 0.8 0.7 0.1 8
-------------- --- --- --- -
Total consumer 16.1 16.3 (0.2) (1)
-------------- ---- ---- ---- --
Total loans and leases $37.9 $39.0 $(1.2) (3)%
---------------------- ----- ----- ----- --
Average total loans and leases declined $1.2 billion, or 3%, reflecting a $0.9 billion, or 4% decline in total commercial loans and a $0.2 billion, or 1%, decline in total consumer loans.
Average total commercial loans decreased $0.9 billion, or 4%. Average commercial and industrial (C&I) loans were lower based, in part on lower line utilization across the portfolio, particularly in automobile dealer floorplan loans. The lower floorplan balances were consistent with the lower level of dealer car inventories resulting from the "cash for clunkers" program and lower manufacturer production levels. We continue to expect no credit impact from dealership closings. The planned decline in average commercial real estate (CRE) loans primarily reflected payoffs, balance reductions, and charge-offs.
Average total consumer loans declined $0.2 billion, or 1%. The decline was spread evenly across the portfolio segments. The decline in average automobile loans and leases was consistent with our expectations given market conditions along with the continued run-off of the automobile lease portfolio. Demand for home equity loans remained weak, reflecting the impact of the economic environment and depressed home values. The decline in residential mortgages reflected the impact of lower market interest rates, the related increase in fixed-rate refinancing activity, and our practice of selling virtually all of our longer-term fixed-rate production. It also reflected the more conservative position on loss recognition, active loss mitigation and troubled debt restructuring efforts, as well as the sale of some underperforming loans.
The $1.2 billion, or 18%, increase in other earning assets reflected a $1.3 billion, or 25%, increase in average total investment securities as the cash proceeds from capital actions during the second and third quarters were deployed (See Capital for a full discussion). The increase primarily represented the purchase of agency debt with an average 2-year maturity and agency CMOs with an average 3-year maturity.
Our period-end liquidity position remained strong. At September 30, 2009, total cash and due from banks was $1.9 billion, down slightly from $2.1 billion at the end of the prior quarter. During the first nine months of this year, we strengthened balance sheet liquidity as our available cash increased $1.1 billion, and our unpledged investment securities increased $4.2 billion from December 31, 2008.
Another metric indicating our improved liquidity position was a decline in our loan-to-deposit ratio. At September 30, 2009, our loan-to-deposit ratio was 94%, improved from 98% at the end of the second quarter, and from 108% at the end of last year. Growth in core deposits contributed to this improvement.
Table 4 details the increase in average total deposits.
Table 4 - Deposits - 3Q09 vs. 2Q09
----------------------------------
Third Second Change
Quarter Quarter ------
(in billions) 2009 2009 Amount %
------------- ---- ---- ------ --
Average Deposits
Demand deposits -
noninterest bearing $6.2 $6.0 $0.2 3%
Demand deposits - interest
bearing 5.1 4.5 0.6 13
Money market deposits 7.6 6.4 1.2 20
Savings and other domestic
deposits 4.8 5.0 (0.3) (5)
Core certificates of deposit 11.6 12.5 (0.9) (7)
---------------------------- ---- ---- ---- --
Total core deposits 35.3 34.5 0.9 3
Other deposits 4.2 5.1 (0.8) (16)
-------------- --- --- ---- ---
Total deposits $39.6 $39.5 $0.1 0%
-------------- ----- ----- ---- --
Average total deposits increased slightly from the prior quarter and reflected:
-- $0.9 billion, or 3%, growth in average total core deposits. The primary
drivers of this change were 20% growth in average money market deposits,
13% growth in interest bearing demand deposits, and 3% increase in
noninterest bearing demand deposits. These increases were partially
offset by a $0.9 billion, or 7%, decline in average core certificates of
deposit, reflecting our focus on growing money market and transaction
accounts. Average savings and other domestic deposits declined $0.3
billion, or 5%.
Partially offset by:
-- $0.8 billion, or 16%, decline in other deposits, reflecting our
deployment of excess liquidity in reducing noncore funding sources.
2009 Third Quarter versus 2008 Third Quarter
Fully-taxable equivalent net interest income decreased $27.1 million, or 7%, from the year-ago quarter. This reflected the unfavorable impact of a $2.1 billion, or 4%, decline in total average earning assets, as well as a 9 basis point decline in the net interest margin to 3.20% from 3.29%. The decline in total average earning assets reflected a $3.1 billion, or 8%, decline in average total loans and leases, partially offset by a $1.0 billion, or 16%, increase in other earning assets, primarily investment securities.
Table 5 details the $3.1 billion decrease in average loans and leases.
Table 5 - Loans and Leases - 3Q09 vs. 3Q08
------------------------------------------
Third Quarter Change
------------- ------
(in billions) 2009 2008 Amount %
------------- ---- ---- ------ --
Average Loans and Leases
Commercial and industrial $12.9 $13.6 $(0.7) (5)%
Commercial real estate 8.9 9.8 (0.9) (10)
---------------------- --- --- ---- ---
Total commercial $21.8 $23.4 $(1.6) (7)%
---------------- ----- ----- ----- --
Automobile loans and leases 3.2 4.6 (1.4) (30)
Home equity 7.6 7.5 0.1 2
Residential mortgage 4.5 4.8 (0.3) (7)
Other consumer 0.8 0.7 0.1 13
-------------- --- --- --- --
Total consumer 16.1 17.6 (1.5) (9)
-------------- ---- ---- ---- --
Total loans and leases $37.9 $41.0 $(3.1) (8)%
---------------------- ----- ----- ----- --
The $3.1 billion, or 8%, decrease in average total loans and leases reflected:
-- $1.6 billion, or 7%, decrease in average total commercial loans. The
$0.9 billion, or 10%, decrease in average CRE loans reflected a
combination of factors, including our planned efforts to shrink this
portfolio through payoffs and paydowns, as well as the impact of
charge-offs and the 2009 first quarter reclassification of CRE loans to
C&I loans. The decline in average C&I loans reflected the impact of the
reclassification project, offset by paydowns, the automobile dealer
floorplan reductions, and the Franklin restructuring and related 2008
fourth quarter and 2009 first quarter charge-offs.
-- $1.5 billion, or 9%, decrease in average total consumer loans. This
primarily reflected a $1.4 billion, or 30%, decline in average
automobile loans and leases due to the 2009 first quarter securitization
of $1.0 billion of automobile loans, as well as the continued runoff of
the automobile lease portfolio. The $0.3 billion, or 7%, decline in
average residential mortgages reflected the impact of loan sales, as
well as the continued refinance of portfolio loans and the related
increased sale of fixed-rate originations, partially offset by additions
related to the 2009 first quarter Franklin restructuring. Average home
equity loans increased 2%, due primarily to increased line usage and
slower runoff experience. The increased line usage continued to be
associated with higher quality borrowers taking advantage of the low
interest rate environment.
The $1.0 billion, or 16%, increase in other earning assets reflected a $2.0 billion, or 42%, increase in average total investment securities as the cash proceeds from capital actions during the second and third quarters were deployed (See Capital for a full discussion). Average trading account securities declined $0.9 billion, or 89%, from the year-ago quarter, due to the reduction in the use of securities to hedge mortgage servicing rights.
Table 6 details the $1.8 billion, or 5%, increase in average total deposits.
Table 6 - Deposits - 3Q09 vs. 3Q08
----------------------------------
Third Quarter Change
------------- ------
(in billions) 2009 2008 Amount %
------------- ---- ---- ------ --
Average Deposits
Demand deposits - noninterest
bearing $6.2 $5.1 $1.1 22%
Demand deposits - interest
bearing 5.1 4.0 1.1 28
Money market deposits 7.6 5.9 1.7 30
Savings and other domestic
deposits 4.8 5.1 (0.3) (6)
Core certificates of deposit 11.6 12.0 (0.3) (3)
---------------------------- ---- ---- ---- --
Total core deposits 35.3 32.0 3.3 10
Other deposits 4.2 5.8 (1.5) (26)
-------------- --- --- ---- ---
Total deposits $39.6 $37.8 $1.8 5%
-------------- ----- ----- ---- --
Average total deposits increased $1.8 billion, or 5%, from the year-ago quarter and reflected:
-- $3.3 billion, or 10%, growth in average total core deposits. The
primary drivers of this change were 30% growth in average money market
deposits, 28% growth in average interest bearing demand deposits, and
22% growth in average noninterest bearing demand deposits. These
increases were partially offset by a $0.3 billion, or 6%, decline in
average savings and other domestic deposits and a $0.3 billion, or 3%,
decline in average core certificates of deposit.
Partially offset by:
-- A $1.5 billion, or 26%, decrease in average other deposits, primarily
reflecting our deployment of excess liquidity in reducing noncore
funding sources.
Provision for Credit Losses
The provision for credit losses in the 2009 third quarter was $475.1 million, up $61.4 million, or 15%, from the prior quarter and up $349.7 million from the year-ago quarter.
