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HUNTINGTON BANCSHARES REPORTS:
COLUMBUS, Ohio – April 15, 2008 – Huntington Bancshares Incorporated (NASDAQ: HBAN; www.huntington.com) reported 2008 first quarter net income of $127.1 million, or $0.35 per common share. Earnings in the year-ago first quarter were $95.7 million, or $0.40 per common share. Huntington also revised its 2008 full-year reported earnings target to $1.45-$1.50 per common share, down from the previously targeted amount of $1.57-$1.62 per common share. The reduction primarily reflected a combination of assumption changes including a lower net interest margin, a higher provision for loan and lease losses, and the impact of a planned issuance of capital securities. Huntington also announced that the board of directors has declared a quarterly cash dividend on its common stock of $0.1325 per common share payable, July 1, 2008, to shareholders of record on June 13, 2008. This represents a 50% reduction from the previous quarterly cash dividend of $0.265 per common share. PERFORMANCE OVERVIEW Performance compared with the 2007 fourth quarter included:
“Within the context of increasingly challenging market and economic conditions, we are generally pleased with this performance,” said Thomas E. Hoaglin, chairman, president, and chief executive officer. “The significant and rapid succession of interest rate reductions by the Federal Reserve compressed our net interest margin, as our balance sheet was asset-sensitive in the short term. This resulted in a decline in net interest income from the 2007 fourth quarter, despite reasonable growth in loans and deposits. Key fee income activities reflected seasonal declines with expenses reflecting seasonal increases.” “We were pleased that credit quality performance was consistent with previously announced expectations,” he continued. “Our allowance for loan and lease losses (ALLL) increased 9 basis points, reflecting the impact of increased uncertainties of the current environment, and consistent with our expectation of building most of our ALLL increase in the first half of the year. We anticipate less reserve building in the second half of the year. Our net charge-off ratio was 48 basis points, well below our 2008 full-year net charge-off targeted range which remains at 60-65 basis points. Our expectation is that net charge-offs in coming quarters will be higher than in the first quarter. Building reserves in advance of net charge-offs is consistent with our quantitative ALLL methodology.” He continued, “We continue to monitor closely our lending relationship with Franklin Credit Management Corporation. First quarter cash flows from the Franklin loans substantially exceeded that required per terms of the 2007 fourth quarter restructuring agreement. The loans to Franklin at the end of the quarter were all performing and accruing interest.” “We are reducing our 2008 full-year earnings estimate to $1.45-$1.50 per share,” he said. “This reflects first quarter performance and our expectation of continued pressure on our net interest margin and the level of net interest income, and the impact of a planned issuance of capital securities. Loan and deposit growth, as well as fee income and other credit quality assumptions, are essentially unchanged. We are pleased that we have now achieved all of the targeted annualized merger expense saves, and, are focused on efforts to continue to control expense growth.” Regarding the decision to reduce the cash dividend, Hoaglin said, “We understand clearly that reducing the dividend is painful for shareholders. Though we believe that our targeted 2008 earnings could continue to support our previous dividend level, the uncertainties of the current environment demand that we proceed cautiously and conservatively with capital. With the current state of markets, the issuance of non-dilutive capital has become cost prohibitive for many regional banks. We think that it is prudent and in the best long-term interests of Huntington shareholders that we issue $500 million of additional capital. We now expect to do this in the form of a convertible security. The dividend reduction will help in this effort. Huntington has a history of growing dividends. We look forward to resuming dividend increases as the markets stabilize and our performance improves.” FIRST QUARTER PERFORMANCE DISCUSSION Significant Items Influencing Financial Performance Comparisons Specific significant items impacting 2008 first quarter performance included (see Table 1 below):
Table 1 – Significant Items Impacting Earnings Performance Comparisons (1)
Three Months Ended Impact(2)
(in millions, except per share) Pre-tax EPS(3)
March 31, 2008 -- GAAP earnings (loss) $127.1(3) $0.35
-- Aggregate impact of Visa(R) IPO 37.5 0.07
-- Deferred tax valuation allowance benefit 11.1(3) 0.03
-- Net market-related losses (20.0) (0.04)
-- Asset impairment (11.0) (0.02)
-- Merger costs (7.1) (0.01)
December 31, 2007 -- GAAP earnings (loss) $(239.3)(3) $(0.65)
-- Franklin relationship restructuring (423.6) (0.75)
-- Net market-related losses (63.5) (0.11)
-- Merger costs (44.4) (0.08)
-- Visa(R) indemnification charge (24.9) (0.04)
-- Increases to litigation reserves (8.9) (0.02)
March 31, 2007 -- GAAP earnings (loss) $95.7(3) $0.40
-- Equity investment losses (8.5) (0.02)
-- MSR mark-to-market net of hedge-related
trading activity (2.0) (0.01)
-- Litigation losses (1.9) (0.01)
(1) Includes significant items with $0.01 EPS impact or greater
(2) Favorable (unfavorable) impact on GAAP earnings; pre-tax unless
otherwise noted
(3) After-tax
Net Interest Income, Net Interest Margin, and Average Balance Sheet 2008 First Quarter versus 2007 First Quarter Fully taxable equivalent net interest income increased $122.7 million, or 47%, from the year-ago quarter. This reflected the favorable impact of a $16.4 billion, or 52%, increase in average earning assets, with $14.2 billion representing an increase in average loans and leases, partially offset by the negative impact of a 13 basis point decline in the fully taxable equivalent net interest margin to 3.23%. The increases in average earning assets, as well as loans and leases, were primarily Sky Financial merger-related. Table 2 details the $14.2 billion reported increase in average loans and leases. Table 2 – Loans and Leases – 1Q08 vs. 1Q07 Non-merger
First Quarter Change Merger Related
(in billions) 2008 2007 Amount % Related Amount % (1)
Average Loans and
Leases
Total commercial $22.6 $12.5 $10.2 82 % $8.7 $1.4 7 %
Automobile loans and
leases 4.4 3.9 0.5 12 0.4 0.1 1
Home equity 7.3 4.9 2.4 48 2.4 (0.0) (0)
Residential mortgage 5.4 4.5 0.9 19 1.1 (0.3) (5)
Other consumer 0.7 0.4 0.3 69 0.1 0.1 26
Total consumer 17.7 13.7 4.0 29 4.1 (0.1) (0)
Total loans and leases $40.4 $26.2 $14.2 54 % $12.8 $1.3 3 %
(1) = non-merger related / (prior period + merger-related)
The $1.3 billion, or 3%, non-merger-related increase in average total loans and leases primarily reflected:
Partially offset by:
Also contributing to the growth in average earning assets was a $1.1 billion increase in average trading account securities. The increase in these assets reflected a change in our strategy to use trading account securities to hedge the change in fair value of our mortgage servicing rights (MSR). The 3.23% fully taxable net interest margin in the current period was below our expectations. This primarily reflected the impact of the rapid reduction in interest rates, which were more quickly reflected in the downward repricing of loans and leases than in our funding costs. Funding costs, particularly as related to deposits, continued to reflect the competitive deposit pricing environment, as well as the low absolute rates in selected deposit accounts, which make it difficult to pass on interest rate reductions equivalent to that occurring in the overall interest rate environment. Table 3 details the $13.5 billion reported increase in average total deposits. Table 3 – Deposits – 1Q08 vs. 1Q07 First Quarter Change Merger Non-merger
Related
(in billions) 2008 2007 Amount % Related Amount % (1)
Average Deposits
Demand deposits - non-
interest bearing $5.0 $3.5 $1.5 43 % $1.8 $(0.3) (6)%
Demand deposits -
interest bearing 3.9 2.3 1.6 67 1.5 0.1 3
Money market deposits 6.8 5.5 1.3 23 1.0 0.3 4
Savings and other
domestic deposits 5.0 2.9 2.1 73 2.6 (0.5) (9)
Core certificates of
deposit 10.8 5.5 5.3 98 4.6 0.7 7
Total core deposits 31.5 19.7 11.8 60 11.5 0.3 1
Other deposits 6.4 4.7 1.7 36 1.3 0.3 6
Total deposits $37.9 $24.5 $13.5 55 % $12.9 $0.6 2 %
(1) = non-merger related / (prior period + merger-related)
Most of the increase in average total deposits was merger-related. The $0.6 billion non-merger-related increase reflected:
2008 First Quarter versus 2007 Fourth Quarter Compared with the 2007 fourth quarter, fully taxable equivalent net interest income decreased $6.0 million, or 2%. This reflected the negative impact of a lower fully taxable equivalent net interest margin, only partially offset by an increase in average earning assets, primarily loans. The fully taxable net interest margin was 3.23% in the quarter, down 3 basis points. The 3 basis point decline reflected:
Partially offset by:
Table 4 details the $0.3 billion reported increase in average loans and leases. Table 4 – Loans and Leases – 1Q08 vs. 4Q07 First Fourth
Quarter Quarter Change
(in billions) 2008 2007 Amount %
Average Loans and Leases
Total commercial $22.6 $22.3 $0.3 1 %
Automobile loans
and leases 4.4 4.3 0.1 2
Home equity 7.3 7.3 (0.0) (0)
Residential
mortgage 5.4 5.4 (0.1) (2)
Other consumer 0.7 0.7 (0.0) (2)
Total consumer 17.7 17.8 (0.0) (0)
Total loans and
leases $40.4 $40.1 $0.3 1 %
The $0.3 billion, or 1%, increase in average total loans and leases reflected 1% growth in average total commercial loans. Contributing to this increase was growth in middle market CRE loans, primarily reflecting permanent funding in the retail, warehouse, and multifamily segments, concentrated geographically in our Cincinnati and Columbus markets. This growth was not related to the single family home builder segment or funding interest coverage on existing construction loans. The first quarter also saw growth in middle market C&I loans, comprised primarily of new or increased loan facilities to existing borrowers. Average total consumer loans decreased slightly, led by declines in residential mortgages and home equity loans as the residential real estate sector remained weak, partially offset by 2% growth in average total automobile loans and leases. Table 5 details the $0.3 billion, or 1%, increase in average total deposits. Table 5 – Deposits – 1Q08 vs. 4Q07 First Fourth
Quarter Quarter Change
(in billions) 2008 2007 Amount %
Average Deposits
Demand deposits -
non-interest
bearing $5.0 $5.2 $(0.2) (4)%
Demand deposits -
interest bearing 3.9 3.9 0.0 0
Money market
deposits 6.8 6.8 (0.1) (1)
Savings and other
domestic deposits 5.0 5.0 (0.0) (0)
Core certificates
of deposit 10.8 10.7 0.1 1
Total core deposits 31.5 31.7 (0.2) (0)
Other deposits 6.4 6.0 0.4 7
Total deposits $37.9 $37.7 $0.3 1 %
Average total deposits were $37.9 billion, up slightly compared with the prior quarter. There were changes between the various deposit account categories consisting of:
Partially offset by:
Provision for Credit Losses The provision for credit losses in the 2008 first quarter was $88.7 million, up $59.2 million from the year-ago quarter, but down $423.4 million from the 2007 fourth quarter. Compared with the 2007 fourth quarter, the $423.4 million decrease reflected $405.8 million related to Franklin. The reported 2008 first quarter provision for credit losses exceeded net charge-offs by $40.2 million. (See Credit Quality Discussion). Non-Interest Income 2008 First Quarter versus 2007 First Quarter Non-interest income increased $90.6 million from the year-ago quarter. The $68.7 million of merger-related non-interest income drove most of the increase. Table 6 details the $90.6 million increase in reported total non-interest income. Table 6 – Non-interest Income – 1Q08 vs. 1Q07 First Quarter Change Merger Non-merger
Related
(in millions) 2008 2007 Amount % Related Amount % (1)
Non-interest Income
Service charges on
deposit accounts $72.7 $44.8 $27.9 62 % $24.1 $3.8 5 %
Trust services 34.1 25.9 8.2 32 7.0 1.2 4
Brokerage and insurance
income 36.6 16.1 20.5 NM 17.1 3.4 10
Other service charges
and fees 20.7 13.2 7.5 57 5.8 1.7 9
Bank owned life
insurance income 13.8 10.9 2.9 27 1.8 1.1 9
Mortgage banking income
(loss) (7.1) 9.4 (16.4) NM 6.3 (22.7) NM
Securities gains
(losses) 1.4 0.1 1.3 NM 0.3 1.0 NM
Other income 63.5 24.9 38.6 NM 6.4 32.3 NM
Total non-interest
income $235.8 $145.2 $90.6 62 % $68.7 $21.9 10 %
(1) = non-merger related / (prior period + merger-related)
The $21.9 million, or 10%, non-merger-related increase reflected:
Partially offset by:
2008 First Quarter versus 2007 Fourth Quarter Non-interest income increased $65.2 million from the 2007 fourth quarter. Table 7 – Non-interest Income – 1Q08 vs. 4Q07 First Fourth
Quarter Quarter Change
(in millions) 2008 2007 Amount %
Non-interest Income
Service charges on
deposit accounts $72.7 $81.3 $(8.6) (11)%
Trust services 34.1 35.2 (1.1) (3)
Brokerage and
insurance income 36.6 30.3 6.3 21
Other service
charges and fees 20.7 21.9 (1.2) (5)
Bank owned life
insurance income 13.8 13.3 0.5 4
Mortgage banking
income (loss) (7.1) 3.7 (10.8) NM
Securities gains
(losses) 1.4 (11.6) 13.0 NM
Other income 63.5 (3.5) 67.0 NM
Total non-interest
income $235.8 $170.6 $65.2 38 %
This $65.2 million, or 38%, increase reflected:
Partially offset by:
Non-interest Expense 2008 First Quarter versus 2007 First Quarter Non-interest expense increased $128.4 million from the year-ago quarter. The $135.7 million of merger-related expenses and $6.3 million of merger costs drove the increase, as non-merger-related expenses declined $13.5 million, or 4%. Table 8 details the $128.4 million increase in reported total non-interest expense. Table 8 – Non-interest Expense – 1Q08 vs. 1Q07 First Quarter Change
(in millions) 2008 2007 Amount %
Non-interest Expense
Personnel costs $201.9 $134.6 $67.3 50 %
Outside data processing and other
services 34.4 21.8 12.5 58
Net occupancy 33.2 19.9 13.3 67
Equipment 23.8 18.2 5.6 31
Amortization of intangibles 18.9 2.5 16.4 NM
Marketing 8.9 7.7 1.2 16
Professional services 9.1 6.5 2.6 40
Telecommunications 6.2 4.1 2.1 51
Printing and supplies 5.6 3.2 2.4 73
Other expense 28.3 23.4 4.9 21
Total non-interest expense $370.5 $242.1 $128.4 53 %
Merger Merger Non-merger Related
(in millions) Related Costs Amount % (1)
Non-interest Expense
Personnel costs $68.3 $2.7 $(3.6) (2)%
Outside data processing and other
services 12.3 2.8 (2.5) (7)
Net occupancy 10.2 0.5 2.7 9
Equipment 4.8 0.1 0.7 3
Amortization of intangibles 16.5 - (0.1) (0)
Marketing 4.4 0.0 (3.2) (26)
Professional services 2.7 (0.4) 0.3 3
Telecommunications 2.2 0.6 (0.7) (10)
Printing and supplies 1.4 0.0 1.0 21
Other expense 13.0 (0.1) (8.1) (22)
Total non-interest expense $135.7 $6.3 $(13.5) (4)%
(1) = non-merger related / (prior period + merger-related)
The $13.5 million, or 4%, non-merger-related decline reflected:
Partially offset by:
2008 First Quarter versus 2007 Fourth Quarter Non-interest expense decreased $69.1 million, or 16%, from the 2007 fourth quarter, of which $37.3 million represented a decline in merger costs. Table 9 details the $69.1 million decline in reported total non-interest expense. Table 9 – Non-interest Expense – 1Q08 vs. 4Q07 First Fourth
Quarter Quarter Change Merger Non-merger
Related
(in millions) 2008 2007 Amount % Costs Amount % (1)
Non-interest
Expense
Personnel costs $201.9 $214.9 $(12.9) (6)% $(20.1) $7.2 4 %
Outside data
processing and
other services 34.4 39.1 (4.8) (12) (3.6) (1.2) (3)
Net occupancy 33.2 26.7 6.5 24 (0.8) 7.3 28
Equipment 23.8 22.8 1.0 4 (0.1) 1.0 5
Amortization of
intangibles 18.9 20.2 (1.2) (6) - (1.2) (6)
Marketing 8.9 16.2 (7.3) (45) (6.8) (0.4) (5)
Professional
services 9.1 14.5 (5.4) (37) (3.8) (1.6) (15)
Telecommunications 6.2 8.5 (2.3) (27) (0.4) (1.9) (23)
Printing and
supplies 5.6 6.6 (1.0) (15) (1.0) 0.0 0
Other expense 28.3 70.1 (41.8) (60) (0.9) (40.9) (59)
Total non-interest
expense $370.5 $439.6 $(69.1) (16)% $(37.3) $(31.7) (8)%
(1) = non-merger related / (prior period + merger-related)
The $31.7 million, or 8%, non-merger-related decrease reflected:
Partially offset by:
Income Taxes The provision for income taxes in the 2008 first quarter was $26.4 million, resulting in an effective tax rate of 17.2%. The effective tax rate included an $11.1 million benefit to provision for income taxes, representing a reduction to the previously established capital loss carry-forward valuation allowance as a result of the 2008 first quarter Visa® IPO. The effective tax rate for the remaining three quarters of 2008 is expected to be in a range of 24%-27%. Franklin Credit Management Relationship At March 31, 2008, total exposure to Franklin was $1.157 billion, down $30 million, or 3%, from $1.187 billion at December 31, 2007. This relationship continued to perform with interest being earned. There were no net charge-offs or related provision for credit losses in the current quarter. At March 31, 2008, the specific allowance for loan and lease losses for Franklin was $115.3 million, unchanged from December 31, 2007. Importantly, the cash flow generated by the underlying collateral substantially exceeded that required per terms of the 2007 fourth quarter restructuring agreement. Though the $1.157 billion of Franklin loans are classified as NPAs, these restructured loans are current and accruing interest and are expected to continue to perform per terms of the restructuring agreement. The Franklin loans are categorized as performing loans in our regulatory reporting. Credit Quality The Franklin 2007 fourth quarter restructuring materially impacted that quarter’s credit quality metrics and, as such, impacts significantly comparative performance discussions. Therefore, and for analytical purposes as an aid to understanding credit quality performance trends, certain credit quality performance metrics in the following tables and discussion that follows detail the Franklin impact, as well as non-Franklin-related metrics and performance. Credit quality performance in the 2008 first quarter was mixed, with positive overall net charge-off results, offset by increases in the absolute and relative level of reserves. The reserve increase reflected the impact of the continued economic weakness across our Midwest markets, most notably in portfolios related to the residential housing sector, both commercial and consumer. These economic factors influenced the performance of net charge-offs (NCOs), non-accrual loans (NALs), and non-performing assets (NPAs). To maintain the adequacy of our reserves, there was a commensurate significant increase in the provision for credit losses (see Provision for Credit Losses discussion) in order to increase the absolute and relative levels of our allowance for credit losses (ACL). Net Charge-Offs Total net charge-offs for the 2008 first quarter were $48.4 million, or an annualized 0.48% of average total loans and leases. There were no Franklin-related net charge-offs in the 2008 first quarter. This performance was better than our full-year targeted net charge-off expectation of 0.60%-0.65%. First quarter net charge-offs in the year-ago quarter were $18.1 million, or an annualized 0.28%, and did not include any impact from Franklin as this relationship was acquired July, 1, 2007, as part of the Sky Financial acquisition. Total net charge-offs in the 2007 fourth quarter were $377.9 million, including $308.5 million related to Franklin. The remaining $69.4 million of non-Franklin-related net charge-offs in the 2007 fourth quarter represented an annualized 0.72% of related loans. Table 10 details net charge-off performance: Table 10 – Franklin Impact on Net Charge-offs (in millions) First Quarter 2008
Reported Franklin Non-Franklin
Net charge-offs (recoveries) by loan
and lease type:
Middle-market C&I $3.1 $- $3.1
Total commercial 15.0 - 15.0
Total net charge-offs 48.4 - 48.4
Net charge-offs (recoveries) -
annualized percentages:
Middle-market C&I 0.12 % - % 0.13 %
Total commercial 0.27 - 0.28
Total net charge-offs 0.48 % - % 0.49 %
Average loans and leases
Middle-market C&I $10,506 $1,172 $9,334
Total commercial 22,630 1,172 21,458
Total loans and leases 40,367 1,172 39,195
First
Quarter
(in millions) Fourth Quarter 2007 2007
Reported Franklin Non-
Franklin
Net charge-offs (recoveries) by
loan and lease type:
Middle-market C&I $318.5 $308.5 $10.0 $(0.0)
Total commercial 344.6 308.5 36.1 2.5
Total net charge-offs 377.9 308.5 69.4 18.1
Net charge-offs (recoveries) -
annualized percentages:
Middle-market C&I 12.30 % 81.08 % 0.45 % - %
Total commercial 6.18 81.08 0.70 0.08
Total net charge-offs 3.77 % 81.08 % 0.72 % 0.28 %
Average loans and leases
Middle-market C&I $10,445 $1,522 $8,923 $6,084
Total commercial 22,323 1,522 20,801 12,459
Total loans and leases 40,109 1,522 38,587 26,203
Total commercial net charge-offs for the 2008 first quarter of $15.0 million, or an annualized 0.27%, compared with 2007 first quarter net charge-offs of $2.5 million, or 0.08%. Total commercial net charge-offs in the 2007 fourth quarter were $344.6 million, or an annualized 6.18%, or $36.1 million, or 0.70%, on a non-Franklin basis. Of the current quarter’s total commercial net charge-offs, middle market C&I loan net charge-offs were $3.1 million, or an annualized 0.12%, and middle market CRE loan net charge-offs were $2.8 million, or an annualized 0.14%. Small business loan net charge-offs were $9.1 million, or an annualized 0.87%. Total consumer net charge-offs in the current quarter were $33.4 million, or an annualized 0.75%. This was higher than an annualized 0.46% in the year-ago period, but unchanged from 0.75% in the prior quarter. Automobile loan and lease net charge-offs were $11.2 million, or an annualized 1.02% in the current quarter, up from 0.52% in the year-ago period and 0.96% in the prior period. This increase reflected a flat level of automobile loan net charge-offs compared with the prior quarter, but an increase in automobile lease net charge-offs. The declining balances of automobile direct financing leases, coupled with the fact that no new automobile direct financing leases are being originated, increases the potential for volatility in reported automobile direct financing lease net charge-offs. Both the automobile loan and lease net charge-offs were also impacted by a slower than expected recovery in used car prices. There is evidence that the seasonal improvement in used car prices generally seen in the first quarter was delayed this year, but is now starting to occur. From a performance standpoint, the level of our March 31, 2008, 60-days and over past due automobile loans declined 20% from December 31, 2007. As such, it is our expectation that the automobile loan and lease net charge-off ratio will decline over the next two quarters. Residential mortgage net charge-offs were $2.9 million, or an annualized 0.22% of related average balances. This was up from an annualized 0.17% in the year-ago quarter, but down from an annualized 0.25% in the prior quarter. We expect residential mortgage net charge-offs will remain under only modest upward pressure from the 2008 first quarter level for the remainder of 2008, given our limited exposure to non-traditional mortgages. Non-accrual Loans and Non-performing Assets Non-accrual loans (NALs) were $377.4 million at March 31, 2008, and represented 0.92% of related assets. This compared with $157.3 million, or 0.60%, at the end of the year-ago period, and $319.8 million, or 0.80%, at December 31, 2007. The $57.6 million, or 18%, increase in NALs from the end of the prior quarter primarily reflected a $28.9 million, or 22%, increase in middle market CRE NALs and a $14.0 million, or 27%, increase in middle market C&I NALs. These increases reflected the continued softness in the residential real estate development markets and overall economic weakness in our markets, particularly among our borrowers in eastern Michigan and northern Ohio. Small business, residential mortgage, and home equity NALs increased 11%, 12%, and 8%, respectively, also reflecting the overall economic weakness in our markets. Non-performing assets (NPAs), which include NALs, were $1.678 billion at March 31, 2008. This compared with $206.7 million at the end of the year-ago period and $1.660 billion at December 31, 2007. The $17.5 million, or 1%, increase in NPAs from the end of the prior quarter reflected:
Partially offset by:
The over 90-day delinquent, but still accruing, ratio was 0.37% at March 31, 2007, up from 0.27% at the end of the year-ago quarter, and up slightly from 0.35% at December 31, 2007. The 2 basis point increase in the 90-day delinquent ratio from December 31, 2007, reflected a 2 basis point increase in the total commercial loan 90-day delinquent ratio to 0.18% from 0.16%, and a 3 basis point increase in the total consumer loan 90-day delinquent ratio to 0.62% from 0.59%, Allowances for Credit Losses (ACL) We maintain two reserves, both of which are available to absorb probable credit losses: the allowance for loan and lease losses (ALLL) and the allowance for unfunded loan commitments and letters of credit (AULC). When summed together, these reserves constitute the total ACL. At March 31, 2008, the ALLL was $627.6 million, up from $283.0 million a year ago and from $578.4 million at December 31, 2007. Expressed as a percent of period-end loans and leases, the ALLL ratio at March 31, 2008, was 1.53%, up from 1.08% a year ago and from 1.44% at December 31, 2007. The $49.2 million increase from the end of the prior quarter primarily reflected declining credit quality in the middle market CRE portfolio. Given the current market conditions, we believe the increase in the ALLL is prudent and appropriate. Our highly quantitative loan loss reserve methodology indicates the need for higher reserves in response to changes in underlying portfolio characteristics as reflected in the transaction reserve component, and changes in the economy as reflected in the economic reserve component. At March 31, 2008, the specific ALLL related to Franklin was $115.3 million, unchanged from December 31, 2007. Table 11 shows the change in the ALLL ratio and each reserve component for the 2008 first quarter and for the 2007 fourth and first quarters. Table 11 - Components of ALLL as Percent of Total Loans and Leases
1Q08 change from
1Q08 4Q07 1Q07 4Q07 1Q07
Transaction reserve (1) 1.34% 1.27% 0.89% 0.07% 0.45%
Economic reserve 0.19 0.17 0.19 0.02 - -
Total ALLL 1.53% 1.44% 1.08% 0.09% 0.45%
(1) Includes specific reserve
The ALLL as a percent of NALs was 166% at March 31, 2008, down from 180% a year ago and from 181% at December 31 2007. At March 31, 2008, the AULC was $57.6 million, up from $40.5 million at the end of the year-ago quarter, but down from $66.5 million at December 31, 2007. On a combined basis, the ACL as a percent of total loans and leases at March 31, 2008, was 1.67%, up from 1.23% a year ago and from 1.61% at December 31, 2007. The ACL as a percent of NALs was 182% at March 31, 2008, down from 206% a year ago and from 202% at December 31, 2007. CapitalAt March 31, 2008, the tangible equity to risk-weighted assets ratio was 5.57%, down from 7.77% at the end of the year-ago quarter, and from 5.67% at December 31, 2007. The regulatory Tier 1 and Total risk-based capital ratios at March 31, 2008, were 7.55% and 10.86%, respectively, up from 7.51% and 10.85%, respectively, at December 31, 2007. Both ratios are well above the regulatory “well capitalized” minimums of 6.0% and 10.0%, respectively. The “well capitalized” level is the highest regulatory capital designation. At March 31, 2008, the tangible equity to assets ratio was 4.92%, down from 7.11% a year ago, and from 5.08% at December 31, 2007. Of the 16 basis point decline from December 31, 2007, 14 basis points reflected a $72.6 million after-tax reduction to accumulated other comprehensive losses in the current quarter due to a decline in market values of investment securities. No shares were repurchased during the quarter. Though there are currently 3.9 million shares remaining available under the current authorization announced April 20, 2006, no future share repurchases are contemplated. 2008 OUTLOOK When earnings guidance is given, it is our practice to do so on a GAAP basis, unless otherwise noted. Such guidance includes the expected results of all significant forecasted activities. However, guidance typically excludes selected items where the timing and financial impact is uncertain until the impact can be reasonably forecasted, as well as potential unusual or one-time items. Our expectation for 2008 is that the Midwest economic environment will continue to be negatively impacted by weaknesses in the residential real estate development markets and softness in certain manufacturing sectors. How much these factors will affect banking activities and overall credit quality trends is unknown. However, it is our expectation that the greatest impact will continue to be among our borrowers in eastern Michigan and northern Ohio markets. Given the market’s outlook for interest rates, we will continue to target our interest rate risk position at our customary relatively neutral position. Our net interest margin, however, will continue to be impacted by competitive pricing in our markets. The assumptions listed below form the basis for our 2008 full-year earnings outlook.
With the above assumptions, earnings for full year 2008 are targeted for $1.45-$1.50 per common share. Conference Call / Webcast Information Huntington’s senior management will host an earnings conference call on Wednesday, April 16, 2008, at 10:00 a.m. (Eastern Daylight Time). The call may be accessed via a live Internet webcast at www.huntington-ir.com or through a dial-in telephone number at 800-223-1238; conference ID 39997024. Slides will be available at www.huntington-ir.com just prior to 10:00 a.m. (Eastern Daylight Time) on April 16, 2008, for review during the call. A replay of the webcast will be archived in the Investor Relations section of Huntington’s web site www.huntington.com. A telephone replay will be available two hours after the completion of the call through April 30, 2008 at 800-642-1687; conference ID 39997024. Forward-looking Statement This press release contains certain forward-looking statements, including certain plans, expectations, goals, projections, and statements, which are subject to numerous assumptions, risks, and uncertainties. Actual results could differ materially from those contained or implied by such statements for a variety of factors including: (1) deterioration in the loan portfolio could be worse than expected due to a number of factors such as the underlying value of the collateral could prove less valuable than otherwise assumed and assumed cash flows may be worse than expected; (2) merger revenue synergies may not be fully realized and/or within the expected timeframes; (3) changes in economic conditions; (4) movements in interest rates; (5) competitive pressures on product pricing and services; (6) success and timing of other business strategies; (7) the nature, extent, and timing of governmental actions and reforms; and (8) extended disruption of vital infrastructure. Additional factors that could cause results to differ materially from those described above can be found in Huntington’s 2007 Annual Report on Form 10-K, and documents subsequently filed by Huntington with the Securities and Exchange Commission. All forward-looking statements included in this release are based on information available at the time of the release. Huntington assumes no obligation to update any forward-looking statement. Basis of PresentationUse of Non-GAAP Financial Measures This earnings release contains GAAP financial measures and non-GAAP financial measures where management believes it to be helpful in understanding Huntington’s results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in this release, the Quarterly Financial Review supplement to this earnings release, or the 2008 first quarter earnings conference call slides, which can be found on Huntington’s website at huntington-ir.com. Significant Items Certain components of the Income Statement are naturally subject to more volatility than others. As a result, analysts/investors may view such items differently in their assessment of performance compared with their expectations and/or any implications resulting from them on their assessment of future performance trends. It is a general practice of analysts/investors to try and determine their perception of what “underlying” or “core” earnings performance is in any given reporting period, as this typically forms the basis for their estimation of performance in future periods. Therefore, Management believes the disclosure of certain “Significant Items” in current and prior period results aids analysts/investors in better understanding corporate performance so that they can ascertain for themselves what, if any, items they may wish to include/exclude from their analysis of performance; i.e., within the context of determining how that performance differed from their expectations, as well as how, if at all, to adjust their estimates of future performance accordingly. To this end, Management has adopted a practice of listing as “Significant Items” in its external disclosure documents (e.g., earnings press releases, investor presentations, Forms 10-Q and 10-K) individual and/or particularly volatile items that impact the current period results by $0.01 per share or more. (The one exception is the provision for credit losses discussed below). Such “Significant Items” generally fall within one of two categories: timing differences and other items. Timing Differences Part of the company’s regular business activities are by their nature volatile; e.g. capital markets income, gains and losses on the sale of loans, etc. While such items may generally be expected to occur within a full-year reporting period, they may vary significantly from period to period. Such items are also typically a component of an Income Statement line item and not, therefore, readily discernable. By specifically disclosing such items, analysts/investors can better assess how, if at all, to adjust their estimates of future performance. Other Items From time to time, an event or transaction might significantly impact revenues, expenses, or taxes in a particular reporting period that are judged to be one-time, short-term in nature, and/or materially outside typically expected performance. Examples would be (1) merger costs as they typically impact expenses for only a few quarters during the period of transition; e.g., restructuring charges, asset valuation adjustments, etc.; (2) changes in an accounting principle; (3) one-time tax assessments/refunds; (4) a large gain/loss on the sale of an asset; (5) outsized commercial loan net charge-offs related to fraud; etc. In addition, for the periods covered by this release, the impact of the Franklin restructuring is deemed to be a significant item due to its unusually large size and because it was acquired in the Sky Financial merger and thus it is not representative of our typical underwriting criteria. By disclosing such items, analysts/investors can better assess how, if at all, to adjust their estimates of future performance. Provision for Credit Losses While the provision for credit losses may vary significantly between periods, Management typically excludes it from the list of “Significant Items”, unless in Management’s view, there is a significant specific credit(s), which is causing distortion in the period. Provision expense is always an assumption in analyst/investor expectations of earnings and there is apparent agreement among them that provision expense is included in their definition of “underlying” or “core” earnings unlike “timing differences” or “other items”. In addition, provision expense is an individual Income Statement line item so its value is easily known and, except in very rare situations, the amount in any reporting period always exceeds $0.01 per share. In addition, the factors influencing the level of provision expense receive detailed additional disclosure and analysis so that analysts/investors have information readily available to understand the underlying factors that result in the reported provision expense amount. In addition, provision expense trends usually increase/decrease in a somewhat orderly pattern in conjunction with credit quality cycle changes; i.e., as credit quality improves provision expense generally declines and vice versa. While they may have differing views regarding magnitude and/or trends in provision expense, every analyst and most investors incorporate a provision expense estimate in their financial performance estimates. Other Exclusions "Significant Items" for any particular period are not intended to be a complete list of items that may significantly impact future periods. A number of factors, including those described in Huntington’s 2007 Annual Report on Form 10-K and other factors described from time to time in Huntington’s other filings with the Securities and Exchange Commission, could significantly impact future periods. Estimating the Impact on Balance Sheet and Income Statement Results Due to Acquisitions The merger with Sky Financial Group Inc. (Sky Financial) was completed on July 1, 2007. At the time of acquisition, Sky Financial had assets of $16.8 billion, including $13.3 billion of loans, and core deposits of $12.0 billion. Sky Financial results were fully included in our consolidated results for the full 2007 third quarter, and will impact all quarters thereafter. As a result, performance comparisons of 2008 first quarter performance to comparable prior periods are affected, as Sky Financial results were not included in the prior periods. Comparisons of the 2008 first quarter performance compared with prior periods are impacted as follows:
Given the significant impact of the merger on reported 2008 and 2007 results, management believes that an understanding of the impacts of the merger is necessary to understand better underlying performance trends. When comparing post-merger period results to pre-merger periods, the following terms are used when discussing financial performance:
The following methodology has been implemented to estimate the approximate effect of the Sky Financial merger used to determine “merger-related” impacts. Balance Sheet Items For loans and leases, as well as core deposits, Sky Financial’s balances as of June 30, 2007, adjusted for consolidating, merger, and purchase accounting adjustments, are used in the comparison. To estimate the impact on 2008 first quarter average balances, it was assumed that the June 30, 2007 balances, as adjusted, remained constant throughout the 2007 third quarter and all subsequent periods. Income Statement Items For income statement line items, Sky Financial’s actual results for the first six months of 2007, adjusted for the impact of unusual items and purchase accounting adjustments, were determined. This six-month adjusted amount was divided by two to estimate a quarterly amount. This results in an approximate quarterly impact as the methodology does not adjust for any unusual items or seasonal factors in Sky Financial’s 2007 six-month results. Nor does it consider any revenue or expense synergies realized since the merger date. This same estimated amount will also be used in all subsequent quarterly reporting periods. The one exception to this methodology of holding the estimated quarterly impact constant relates to the amortization of intangibles expense where the amount is known and is therefore used. Table 12 below provides detail of changes to selected reported results to quantify the impact of the Sky Financial merger using this methodology: Table 12 - Estimated Impact of Sky Financial Merger
2008 First Quarter versus 2007 First Quarter
First Quarter Change
(in millions) 2008 2007 Amount %
Average Loans and Leases
Total commercial $22,630 $12,459 $10,171 81.6 %
Automobile loans and leases 4,399 3,913 486 12.4
Home equity 7,274 4,913 2,361 48.1
Residential mortgage 5,351 4,496 855 19.0
Other consumer 713 422 291 69.0
Total consumer 17,737 13,744 3,993 29.1
Total loans and leases $40,367 $26,203 $14,164 54.1 %
(1) = non-merger related / (prior period + merger-related)
Average Deposits
Demand deposits - non-interest
bearing $5,034 $3,530 $1,504 42.6 %
Demand deposits - interest bearing 3,934 2,349 1,585 67.5
Money market deposits 6,753 5,489 1,264 23.0
Savings and other domestic deposits 5,004 2,898 2,106 72.7
Core certificates of deposit 10,796 5,455 5,341 97.9
Total core deposits 31,521 19,721 11,800 59.8
Other deposits 6,410 4,730 1,680 35.5
Total deposits $37,931 $24,451 $13,480 55.1 %
(1) = non-merger related / (prior period + merger-related)
First Quarter Change
(in thousands) 2008 2007 Amount %
Net interest income - FTE $382,326 $259,602 $122,724 47.3 %
Non-interest Income
Service charges on deposit
accounts $72,668 $44,793 $27,875 62.2 %
Trust services 34,128 25,894 8,234 31.8
Brokerage and insurance income 36,560 16,082 20,478 NM
Other service charges and fees 20,741 13,208 7,533 57.0
Bank owned life insurance income 13,750 10,851 2,899 26.7
Mortgage banking income (loss) (7,063) 9,351 (16,414) NM
Securities gains (losses) 1,429 104 1,325 NM
Other income 63,539 24,894 38,645 NM
Total non-interest income $235,752 $145,177 $90,575 62.4 %
(1) = non-merger related / (prior period + merger-related)
Non-interest Expense
Personnel costs $201,943 $134,639 $67,304 50.0 %
Outside data processing and other
services 34,361 21,814 12,547 57.5
Net occupancy 33,243 19,908 13,335 67.0
Equipment 23,794 18,219 5,575 30.6
Amortization of intangibles 18,917 2,520 16,397 NM
Marketing 8,919 7,696 1,223 15.9
Professional services 9,090 6,482 2,608 40.2
Telecommunications 6,245 4,126 2,119 51.4
Printing and supplies 5,622 3,242 2,380 73.4
Other expense 28,347 23,426 4,921 21.0
Total non-interest expense $370,481 $242,072 $128,409 53.0 %
(1) = non-merger related / (prior period + merger-related)
Merger Non-merger Related
(in millions) Related Amount % (1)
Average Loans and Leases
Total commercial $8,746 $1,425 6.7 %
Automobile loans and leases 432 54 1.2
Home equity 2,385 (24) (0.3)
Residential mortgage 1,112 (257) (4.6)
Other consumer 143 148 26.2
Total consumer 4,072 (79) (0.4)
Total loans and leases $12,818 $1,346 3.4 %
(1) = non-merger related / (prior period + merger-related)
Average Deposits
Demand deposits - non-interest
bearing $1,829 $(325) (6.1)%
Demand deposits - interest bearing 1,460 125 3.3
Money market deposits 996 268 4.1
Savings and other domestic deposits 2,594 (488) (8.9)
Core certificates of deposit 4,630 711 7.1
Total core deposits 11,509 291 0.9
Other deposits 1,342 338 5.6
Total deposits $12,851 $629 1.7 %
(1) = non-merger related / (prior period + merger-related)
Merger Merger Non-merger Related
(in thousands) Related Costs Amount % (1)
Net interest income - FTE $151,592 $(28,868) (7.0)%
Non-interest Income
Service charges on deposit
accounts $24,110 $3,765 5.5 %
Trust services 7,009 1,225 3.7
Brokerage and insurance income 17,061 3,417 10.3
Other service charges and fees 5,800 1,733 9.1
Bank owned life insurance income 1,807 1,092 8.6
Mortgage banking income (loss) 6,256 (22,670) NM
Securities gains (losses) 283 1,042 NM
Other income 6,390 32,255 NM
Total non-interest income $68,716 $21,859 10.2 %
(1) = non-merger related / (prior period + merger-related)
Non-interest Expense
Personnel costs $68,250 $2,675 $(3,621) (1.8)%
Outside data processing and other
services 12,262 2,814 (2,529) (6.9)
Net occupancy 10,184 454 2,697 8.8
Equipment 4,799 110 666 2.9
Amortization of intangibles 16,481 - (84) (0.4)
Marketing 4,361 22 (3,160) (26.2)
Professional services 2,707 (402) 303 3.4
Telecommunications 2,224 594 (699) (10.1)
Printing and supplies 1,374 47 959 20.6
Other expense 13,048 (59) (8,068) (22.2)
Total non-interest expense $135,690 $6,255 $(13,536) (3.5)%
(1) = non-merger related / (prior period + merger-related)
2008 First Quarter versus 2007 Fourth Quarter
First Fourth
Quarter Quarter Change
(in millions) 2008 2007 Amount %
Average Loans and Leases
Total commercial $22,630 $22,323 $307 1.4 %
Automobile loans and leases 4,399 4,324 75 1.7
Home equity 7,274 7,297 (23) (0.3)
Residential mortgage 5,351 5,437 (86) (1.6)
Other consumer 713 728 (15) (2.1)
Total consumer 17,737 17,786 (49) (0.3)
Total loans and leases $40,367 $40,109 $258 0.6 %
(1) = non-merger related / (prior period + merger-related)
Average Deposits
Demand deposits - non-interest
bearing $5,034 $5,218 $(184) (3.5)%
Demand deposits - interest bearing 3,934 3,929 5 0.1
Money market deposits 6,753 6,845 (92) (1.3)
Savings and other domestic
deposits 5,004 5,012 (8) (0.2)
Core certificates of deposit 10,796 10,674 122 1.1
Total core deposits 31,521 31,678 (157) (0.5)
Other deposits 6,410 5,997 413 6.9
Total deposits $37,931 $37,675 $256 0.7 %
First Fourth
Quarter Quarter Change
(in thousands) 2008 2007 Amount %
Net interest income - FTE $382,326 $388,296 $(5,970) (1.5)%
Non-interest Income
Service charges on deposit
accounts $72,668 $81,276 $(8,608) (10.6)%
Trust services 34,128 35,198 (1,070) (3.0)
Brokerage and insurance income 36,560 30,288 6,272 20.7
Other service charges and fees 20,741 21,891 (1,150) (5.3)
Bank owned life insurance income 13,750 13,253 497 3.8
Mortgage banking income (loss) (7,063) 3,702 (10,765) NM
Securities gains (losses) 1,429 (11,551) 12,980 NM
Other income 63,539 (3,500) 67,039 NM
Total non-interest income $235,752 $170,557 $65,195 38.2 %
(1) = non-merger related / (prior period + merger-related)
Non-interest Expense
Personnel costs $201,943 $214,850 $(12,907) (6.0)%
Outside data processing and
other services 34,361 39,130 (4,769) (12.2)
Net occupancy 33,243 26,714 6,529 24.4
Equipment 23,794 22,816 978 4.3
Amortization of intangibles 18,917 20,163 (1,246) (6.2)
Marketing 8,919 16,175 (7,256) (44.9)
Professional services 9,090 14,464 (5,374) (37.2)
Telecommunications 6,245 8,513 (2,268) (26.6)
Printing and supplies 5,622 6,594 (972) (14.7)
Other expense 28,347 70,133 (41,786) (59.6)
Total non-interest expense $370,481 $439,552 $(69,071) (15.7)%
(1) = non-merger related / (prior period + merger-related)
Merger Non-merger Related
(in thousands) Costs Amount % (1)
Net interest income - FTE $(5,970) (1.5)%
Non-interest Income
Service charges on deposit accounts $(8,608) (10.6)%
Trust services (1,070) (3.0)
Brokerage and insurance income 6,272 20.7
Other service charges and fees (1,150) (5.3)
Bank owned life insurance income 497 3.8
Mortgage banking income (loss) (10,765) NM
Securities gains (losses) 12,980 NM
Other income 67,039 NM
Total non-interest income $65,195 38.2 %
(1) = non-merger related / (prior period + merger-related)
Non-interest Expense
Personnel costs $(20,103) $7,196 3.7 %
Outside data processing and other
services (3,598) (1,171) (3.3)
Net occupancy (750) 7,279 28.0
Equipment (65) 1,043 4.6
Amortization of intangibles - (1,246) (6.2)
Marketing (6,825) (431) (4.6)
Professional services (3,755) (1,619) (15.1)
Telecommunications (360) (1,908) (23.4)
Printing and supplies (996) 24 0.4
Other expense (897) (40,889) (59.1)
Total non-interest expense $(37,349) $(31,722) (7.9)%
(1) = non-merger related / (prior period + merger-related)
Annualized data Certain returns, yields, performance ratios, or quarterly growth rates are “annualized” in this presentation to represent an annual time period. This is done for analytical and decision-making purposes to better discern underlying performance trends when compared to full year or year-over-year amounts. For example, loan and deposit growth rates are most often expressed in terms of an annual rate like 8%. As such, a 2% growth rate for a quarter would represent an annualized 8% growth rate. Fully taxable equivalent interest income and net interest margin Income from tax-exempt earnings assets is increased by an amount equivalent to the taxes that would have been paid if this income had been taxable at statutory rates. This adjustment puts all earning assets, most notably tax-exempt municipal securities and certain lease assets, on a common basis that facilitates comparison of results to results of competitors. Earnings per share equivalent data Significant income or expense items may be expressed on a per common share basis. This is done for analytical and decision-making purposes to better discern underlying trends in total corporate earnings per share performance excluding the impact of such items. Investors may also find this information helpful in their evaluation of the company’s financial performance against published earnings per share mean estimate amounts, which typically exclude the impact of significant items. Earnings per share equivalents are usually calculated by applying a 35% effective tax rate to a pre-tax amount to derive an after-tax amount, which is divided by the average shares outstanding during the respective reporting period. Occasionally, when the item involves special tax treatment, the after-tax amount is disclosed separately, with this then being the amount used to calculate the earnings per share equivalent. NM or nm Percent changes of 100% or more are typically shown as “nm” or “not meaningful” unless required. Such large percent changes typically reflect the impact of unusual or particularly volatile items within the measured periods. Since the primary purpose of showing a percent change is for discerning underlying performance trends, such large percent changes are “not meaningful” for this purpose. About HuntingtonHuntington Bancshares Incorporated is a $56 billion regional bank holding company headquartered in Columbus, Ohio. Huntington has more than 142 years of serving the financial needs of its customers. Huntington’s banking subsidiary, The Huntington National Bank, provides innovative retail and commercial financial products and services through over 600 regional banking offices in Indiana, Kentucky, Michigan, Ohio, Pennsylvania, and West Virginia. Huntington also offers retail and commercial financial services online at huntington.com; through its technologically advanced, 24-hour telephone bank; and through its network of almost 1,400 ATMs. Selected financial service activities are also conducted in other states including: Dealer Sales offices in Arizona, Florida, Nevada, New Jersey, New York, Tennessee, and Texas; Private Financial and Capital Markets Group offices in Florida; and Mortgage Banking offices in Maryland and New Jersey. Sky Insurance offers retail and commercial insurance agency services in Ohio, Pennsylvania, Michigan, Indiana, and West Virginia. International banking services are made available through the headquarters office in Columbus, a limited purpose office located in the Cayman Islands, and another located in Hong Kong. ###
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