In a regulatory filing with the Securities and Exchange Commission yesterday, Huntington Bancshares Inc. (HBAN) reaffirmed its 2010 guidance. As announced concurrent with the fourth-quarter earnings release on Jan 22, 2010, Huntington expects to return to a profitable quarterly performance at some time in 2010, which would be earlier than most analysts expect, the company said.

During the fourth quarter earnings release, the company also said that it 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 fourth quarter levels and interest margin is expected to improve, while fee income could be flat-to-down slightly from fourth quarter levels.

The company may report an increase in expenses for investments in growth and the implementation of key strategic initiatives. Huntington set a target of $275.0 million in pre-tax, pre-provision earnings for the third quarter of 2010.

Huntington reported a loss of 56 cents per share in the fourth quarter. Excluding the impact of significant items, the company incurred a loss of 65 cents. Results were well wider than the Zacks Consensus Estimate for 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 double that in the prior quarter. Additionally, the share count was higher.

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 and $2.1 billion in provision for credit losses in 2009.

Estimate Revision Trends

The current Zacks Consensus Estimates for the first quarter and full-year 2010 are losses per share of 15 cents and 32 cents, respectively. Over the last 30 days, none of the 16 analysts covering the stock revised the earnings estimate for the first quarter. However, one analyst has upgraded the full year estimate over that period.

In terms of earnings surprises, the company has missed the Zacks Consensus Estimate thrice in the last four quarters, with a four-quarter average of negative 75.4%.

Currently, the first quarter estimate has a downside potential (essentially a proxy for future earnings surprises) of 6.7%. However, the full-year 2010 estimate has an upside potential of 37.5%.

The projection of a loss in the first quarter and the lack of estimate revisions reflect the fact that Huntington’s growth is threatened by the profound economic weakness in the areas it operates. Its loan composite remains heavily weighed to the mid-Ohio to eastern-Michigan markets, which are under severe stress currently.

Additionally, the company has significant exposure to the problematic commercial real estate and residential markets. As a result, nonperforming assets, charge-offs and loan loss provisions are expected to remain elevated at least through the first half of 2010.

However, 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 of its balance sheet.

Further, Huntington is also seeking for strategic expansion opportunities to broaden its Midwest franchise by acquiring failed banks. Last year, the company acquired the deposits and certain assets of Warren Bank, located in Macomb County in Michigan, in an FDIC-related transaction.

Going forward, we expect the company’s strategic efforts to help navigate the current credit cycle and support earnings growth. This is also reflected in an upward revision of the estimate for the full-year and the upside potential of that estimate.

The lack of estimate revisions in either direction indicates no clear directional pressure on shares over the near term. As a result, Huntington currently has a Zacks #3 Rank, which translates to a short-term Hold rating. Also, considering the current headwinds and the future growth potential, we have a long-term Neutral recommendation on the shares.

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