Huntington Bancshares Incorporated (HBAN) reported a fourth quarter loss of 56 cents per share. Excluding the impact of significant items, the company incurred a loss of 65 cents in the quarter. Results were well below the Zacks Consensus Estimate of a loss of 28 cents. However, the company narrowed its loss compared to the prior-year quarter. The company had reported a loss of $1.20 per share a year earlier.
The miss was primarily driven by loan loss provisions, which were almost doubled from the prior quarter. Additionally, the share count was higher in the quarter.
For the reported quarter 2009, net loss applicable to common shareholders was $369.7 million or 56 cents per share, compared to a net loss of $166.2 million or 33 cents per share in the prior quarter and a net loss of $417.3 million or $1.20 per share in the prior-year quarter.
The results in the reported quarter include a $73.6 million pre-tax (7 cents per share after-tax) gain on the early extinguishment of debt and a $12.0 million after-tax (2 cents a share) deferred tax valuation allowance benefit.
For full year 2009, Huntington reported a net loss of $3.1 billion or $6.14 per share, compared with a full year 2008 net loss of $113.8 million or 44 cents per share. The decline primarily reflected non-cash goodwill impairment charges of $2.6 billion or $4.89 per share in 2009.
Provisions Nearly Doubled
Provision for loan losses nearly doubled from the prior-quarter level. Provisions were $894.0 million, up from $475.1 million in the prior quarter and $722.6 million in the year-ago quarter.
Huntington’s growth is threatened by the profound economic weakness in its geographic footprint. Its loan composite remains heavily weighed to the Midwest markets, which are under severe stress currently, with high levels of unemployment.
Credit metrics also deteriorated significantly during the quarter. Net charge-offs increased 104 basis points (bps) sequentially to an annualized 4.80% of average loans and leases. The allowance for loan losses increased 126 bps sequentially year-over-year to 4.03% of total loans.
However, the rate of deterioration is somewhat moderating as the level of criticized and classified loans increased at a much lower rate than in the prior quarters and the non-performing assets fell in the reported quarter. Non-performing assets decreased 69 bps sequentially to 5.57% of related assets.
Inside the Headline Numbers
Fully taxable equivalent net interest income increased 3% sequentially but decreased 1% year-over-year to $374.1 million. The sequential increase reflects an increase in average earnings assets. However, net interest margin was 3.19%, down 1 basis point sequentially but up again 1 basis point year-over-year.
Average total loans and leases declined 2% sequentially and 11% year-over-year, driven by the economic environment that has caused many customers to reduce their leverage position. However, average core deposits increased 4% sequentially and 14% year-over-year.
Non-interest income decreased 5% sequentially to $244.5 million. However, it was significantly up from $67.1 million reported in the year-ago quarter. The year-over-year increase in non-interest income was primarily the result of reduced securities losses and growth in mortgage banking, electronic banking and other income.
Non-interest expenses for the quarter decreased 20% sequentially and 17% year-over-year to $322.6 million, primarily reflecting the gain on the early extinguishment of debt in the reported quarter.
Evaluation of Capital Ratios
Capital ratios deteriorated sequentially but were up from the prior-year quarter. Tangible common equity ratio was 5.92%, down 54 bps but up 188 bps year-over-year. The Tier 1 risk-based capital ratio was 12.05%, down 99 bps sequentially but up 133 bps year-over-year.
2010 Outlook
Huntington expects to report a quarterly profit some time in 2010. The company expects charge-offs and loan loss provisions to remain elevated but still below the 2009 levels. Loans are expected to be flat-to-up slightly from the fourth quarter levels, interest margin is expected to improve while fee income could be flat-to-down slightly from the fourth quarter levels. The company may report an increase in expenses for investments in growth — and the implementation of — key strategic initiatives.
Huntington has set a target of $275.0 million in pre-tax, pre-provision earnings for the 2010 third quarter.
We believe that the turnaround story is right on track. Under its new leadership, the company has taken fundamental steps including the strengthening of capital levels, reorganization of business and bolstering its balance sheet. We expect these actions to help the company navigate the current credit cycle and support earnings growth.
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