Huntington Bancshares Incorporated (HBAN) reported a first quarter profit of $39.7 million or 1 cent a share, helped by a tax benefit of $38.2 million. Excluding the benefit, the company reported a loss of 4 cents per share, well ahead of the Zacks Consensus Estimate of a loss of 15 cents.
The result in the reported quarter compares favorably with a loss of $369.7 million or 56 cents per share in the prior quarter and a loss of $2.4 billion or $6.79 per share, in the year-ago quarter. The year-ago quarter results included a significant charge for goodwill impairments.
The better-than-expected results were primarily driven by a significant reduction in loan loss provisions. Additionally, the company experienced a decent increase in interest margin.
Credit metrics significantly improved during the quarter. Provision for credit losses was $235.0 million, down 74% sequentially and 19% from the year-ago quarter.
With improving credit trends and solid capital levels, the company now expects to report a profit for full year 2010.
The market is also reacting positively to the earnings results of Huntington and the shares were up 7% in the pre-market trading.
Credit Quality
Net charge-offs were $238.5 million, down 46% sequentially and 30% year-over-year. Net charge-offs as a percentage of average total loans and leases improved to 2.58% from 4.80% reported in the prior quarter and 3.34% reported in the year-ago quarter. Total non-performing assets as of March 31, 2010, were $1.9 billion, down 7% sequentially, driven primarily by a 52% decline in new nonperforming assets. The NPA ratio improved to 5.17% from 5.57% reported in the prior quarter.
Behind the Headline Numbers
Fully taxable-equivalent net interest income increased 5% sequentially and 17% year-over-year to $393.9 million, reflecting an increase in interest margin. Net interest margin was 3.47%, up 28 basis points sequentially and 50 basis points year-over-year.
Average loans and leases remained unchanged sequentially but were down 10% year-over-year, driven by the economic environment that led many customers to reduce their leverage position. However, average core deposits increased 1% sequentially and 13% year-over-year.
Non-interest income was $240.6 million, down 2% sequentially but up 1% year-over-year. The sequential decrease primarily reflects the decline in service charges on deposit accounts, due to seasonally lower personal service charges, partially offset by an increase in brokerage and insurance income.
Non-interest expenses for the quarter increased 23% sequentially to $398.1 million, primarily reflecting the gain on the early extinguishment of debt in the prior quarter. Non-interest income was significantly down (87%) year-over-year as a result of goodwill impairment in the year-ago quarter.
Capital Ratios
Capital ratios were good. The tangible common equity to asset ratio as of March 31, 2010, was 5.96%, up from 5.92% at the end of the prior quarter. As of March 31, 2010, Huntington’s regulatory Tier 1 and Total risk-based capital ratios were 11.94% and 14.24%, respectively, slightly down from 12.03% and 14.41%, respectively, as of December 31, 2009. The decrease was due to an increase in deferred tax assets which was excluded for regulatory capital purposes.
Huntington expects provision expense and net charge-offs to continue to stay considerably below 2009 levels with continuing signs of improvement. The company expects growth in revenue while loans are expected to be flat-to-up slightly from first quarter levels. Net interest margin is expected to remain relatively stable around 3.50%. Core deposits are expected to grow while fee income is expected to be slightly higher from first quarter levels.
The company anticipates an increase in investment for growth and the implementation of key strategic initiatives. As previously announced, Huntington continues to target a $275.0 million in pre-tax, pre-provision earnings for the third quarter of 2010.
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 shoring up of its balance sheet. We expect these actions to help the company navigate the current credit cycle and support earnings growth going forward.

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