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HUNTINGTON BANCSHARES REPORTS:
COLUMBUS, Ohio – July 17, 2008 – Huntington Bancshares Incorporated (NASDAQ: HBAN; www.huntington.com) reported 2008 second quarter net income of $101.4 million, or $0.25 per common share. Earnings in the year-ago second quarter were $80.5 million, or $0.34 per common share. Huntington also revised its 2008 full-year reported earnings target to $1.25-$1.35 per common share, down from the previously targeted amount of $1.45-$1.50 per common share. The reduction primarily reflected an assumed higher provision for loan and lease losses. PERFORMANCE OVERVIEW Performance compared with the 2008 first quarter included:
“Despite a continued challenging credit environment, we are pleased with the performance of our core franchise,” said Thomas E. Hoaglin, chairman, president, and chief executive officer. “Our net interest margin rebounded nicely from the first quarter, reflecting market stabilization and more rational pricing in our markets. We grew loans in ten of our thirteen regions and increased demand deposits in a challenging market. We took steps to further enhance our balance sheet with the sale of $473 million in mortgage loans and executed an on-balance sheet securitization of $887 million in automobile loans. Key fee income activities increased or rebounded from seasonally low first quarter levels and underlying operating expenses declined.” “We accomplished our objective of significantly strengthening our capital,” he continued. “Our period end Tier 1 risk-based capital ratio improved to 9.03%, up from 7.56% at the end of the first quarter. This improvement reflected the convertible preferred securities that we issued in April, the impact of strategic asset sales and securitizations, and our second quarter retained earnings. We believe our capital level is well-positioned to navigate the current credit environment. Our Tier 1 capital ratio is one of the highest among our peer group.” “Our credit quality performance was consistent with the expectations we announced on June 19,” he continued. “Our allowance for credit losses (ACL) increased $56 million, or 13 basis points, and our net charge-offs ratio was 64 basis points, which is slightly less than our current 2008 full year net charge-off targeted range of 65-70 basis points. The economy remains weak in our markets and this continues to put stress on borrowers. As we entered this year, our expectation was that the economy would remain under stress and it is increasingly likely that we will not see any improvement until we are well into next year. We do not think the economic environment will get materially worse, but neither do we expect any near term relief. As such, we expect to continue to build our reserves and estimate that our year-end allowance for credit losses will be 10-20 basis points higher than June’s 1.80% level.” Hoaglin said, “We continue to monitor closely our lending relationship with Franklin Credit Management Corporation. Second quarter cash flows from the Franklin loans again exceeded those required per terms of the 2007 fourth quarter restructuring agreement. This performance was reflected in our decision to move $762 million out of non-performing asset status. All the Franklin loans, including those remaining classified as non-performing assets, continued to perform and accrue interest.” “We are reducing our 2008 full-year earnings estimate to $1.25-$1.35 per share,” he said. “This reduction in our guidance from three months ago reflects second quarter performance, but mostly a continued building of our allowance for credit losses in the second half of the year, although at a slower pace than the first half. This earnings range is wider than our previous guidance due to economic uncertainty, especially regarding credit. We continue to expect good performance for the second half of the year, including a flat to slightly up net interest margin, modest loan and deposit growth, increases in key fee income activities, and improved expense efficiencies. We also remain confident that despite the current credit quality challenges, the actions we have taken over the last several years to reduce portfolio risk will result in overall better relative credit quality performance throughout this cycle,” he concluded. SECOND QUARTER PERFORMANCE DISCUSSION Significant Items Influencing Financial Performance Comparisons Specific significant items impacting 2008 second 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)
June 30, 2008 - GAAP earnings $101.4 (3) $0.25
-- Deferred tax valuation allowance benefit 3.4 (3) 0.01
-- Merger/restructuring costs (14.6) (0.03)
-- Net market-related losses (6.8) (0.01)
March 31, 2008 - GAAP earnings $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 (7.3) (0.01)
June 30, 2007 - GAAP earnings $80.5 (3) $0.34
-- Merger costs (7.6) (0.02)
-- Net market-related losses (3.5) (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; EPS reflected on a fully diluted basis
Net Interest Income, Net Interest Margin, and Average Balance Sheet 2008 Second Quarter versus 2007 Second Quarter Fully taxable equivalent net interest income increased $138.0 million, or 54%, from the year-ago quarter. This reflected the favorable impact of a $16.6 billion, or 52%, increase in average earning assets, with $14.6 billion representing an increase in average loans and leases, and a 3 basis point increase in the net interest margin to 3.29%. The increase in average earning assets, including loans and leases, was primarily Sky Financial merger-related. Table 2 details the $14.6 billion reported increase in average loans and leases. Table 2 – Loans and Leases – 2Q08 vs. 2Q07
Non-merger
Second Quarter Change Merger Related
(in billions) 2008 2007 Amount % Related Amount %(1)
Average Loans and Leases
Commercial and industrial $13.6 $8.2 $5.5 67 % $4.8 $0.7 5 %
Commercial real estate 9.6 4.7 5.0 NM 4.0 1.0 11
Total commercial 23.2 12.8 10.4 81 8.7 1.7 8
Automobile loans and
leases 4.6 3.9 0.7 18 0.4 0.2 6
Home equity 7.4 5.0 2.4 48 2.4 0.0 0
Residential mortgage 5.2 4.4 0.8 19 1.1 (0.3) (5)
Other consumer 0.7 0.4 0.3 65 0.1 0.1 23
Total consumer 17.8 13.6 4.2 31 4.1 0.1 1
Total loans and leases $41.0 $26.4 $14.6 55 % $12.8 $1.8 5 %
(1) = non-merger related / (prior period + merger-related)
The $1.8 billion, or 5%, non-merger-related increase in average total loans and leases primarily reflected:
Table 3 details the $13.8 billion reported increase in average total deposits. Table 3 – Deposits – 2Q08 vs. 2Q07
Non-merger
Second Quarter Change Merger Related
(in billions) 2008 2007 Amount % Related Amount %(1)
Average Deposits
Demand deposits - non-
interest bearing $5.1 $3.6 $1.5 41 % $1.8 $(0.4) (7)%
Demand deposits -
interest bearing 4.1 2.4 1.7 70 1.5 0.2 6
Money market deposits 6.3 5.5 0.8 15 1.0 (0.2) (3)
Savings and other
domestic deposits 5.0 2.9 2.1 72 2.6 (0.5) (9)
Core certificates of
deposit 11.0 5.6 5.4 96 4.6 0.7 7
Total core deposits 31.4 20.0 11.4 57 11.5 (0.1) (0)
Other deposits 6.6 4.3 2.3 54 1.3 1.0 17
Total deposits $38.0 $24.3 $13.8 57 % $12.9 $0.9 2 %
(1) = non-merger related / (prior period + merger-related)
Most of the increase in average total deposits was merger-related. The $0.9 billion non-merger-related increase reflected:
Partially offset by:
2008 Second Quarter versus 2008 First Quarter Compared with the 2008 first quarter, fully taxable equivalent net interest income increased $13.2 million, or 3%. This reflected the positive impact of a higher net interest margin and an increase in average earning assets, primarily loans. The net interest margin was 3.29% in the quarter, up 6 basis points. The 6 basis point increase reflected:
Partially offset by:
Table 4 details the $0.7 billion reported increase in average loans and leases. Table 4 – Loans and Leases – 2Q08 vs. 1Q08
Second First
Quarter Quarter Change
(in billions) 2008 2008 Amount %
Average Loans and Leases
Commercial and industrial $13.6 $13.3 $0.3 2 %
Commercial real estate 9.6 9.3 0.3 3
Total commercial 23.2 22.6 0.6 3
Automobile loans and leases 4.6 4.4 0.2 3
Home equity 7.4 7.3 0.1 1
Residential mortgage 5.2 5.4 (0.2) (3)
Other consumer 0.7 0.7 (0.0) (2)
Total consumer 17.8 17.7 0.1 0
Total loans and leases $41.0 $40.4 $0.7 2 %
The $0.7 billion, or 2%, increase in average total loans and leases reflected 3% growth in average total commercial loans. The second quarter growth was comprised primarily of new or increased loan facilities to existing borrowers. This growth was not related to the single family home builder segment or funding interest coverage on existing construction loans. Average total consumer loans increased slightly, led by growth in automobile loans and leases and modest growth in home equity, partially offset by declines in residential mortgages and other consumer loans. During the quarter, $473 million residential mortgage loans were sold to improve our interest rate risk position and overall balance sheet. Table 5 details the $0.1 billion increase in average total deposits. Table 5 – Deposits – 2Q08 vs. 1Q08
Second First
Quarter Quarter Change
(in billions) 2008 2008 Amount %
Average Deposits
Demand deposits - non-interest
bearing $5.1 $5.0 $0.0 1 %
Demand deposits - interest bearing 4.1 3.9 0.2 4
Money market deposits 6.3 6.8 (0.5) (7)
Savings and other domestic deposits 5.0 5.0 0.0 1
Core certificates of deposit 11.0 10.8 0.2 1
Total core deposits 31.4 31.5 (0.1) (0)
Other deposits 6.6 6.4 0.2 3
Total deposits $38.0 $37.9 $0.1 0 %
Average total deposits were $38.0 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 second quarter was $120.8 million, up $60.7 million from the year-ago quarter, and up $32.2 million from the first quarter. The reported 2008 second quarter provision for credit losses exceeded net charge-offs by $55.6 million. (See Credit Quality Discussion). Non-Interest Income 2008 Second Quarter versus 2007 Second Quarter Non-interest income increased $80.2 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 $80.2 million increase in reported total non-interest income. Table 6 – Non-interest Income – 2Q08 vs. 2Q07
Non-merger
Second Quarter Change Merger Related
(in millions) 2008 2007 Amount % Related Amount %(1)
Non-interest Income
Service charges on
deposit accounts $79.6 $50.0 $29.6 59 % $24.1 $5.5 7 %
Trust services 33.1 26.8 6.3 24 7.0 (0.7) (2)
Brokerage and
insurance income 35.7 17.2 18.5 NM 17.1 1.4 4
Other service charges
and fees 23.2 14.9 8.3 56 5.8 2.5 12
Bank owned life
insurance income 14.1 10.9 3.2 30 1.8 1.4 11
Mortgage banking
income (loss) 12.5 7.1 5.4 76 6.3 (0.9) (7)
Securities gains
(losses) 2.1 (5.1) 7.2 NM 0.3 6.9 NM
Other income 36.1 34.4 1.7 5 6.4 (4.7) (12)
Total non-interest
income $236.4 $156.2 $80.2 51 % $68.7 $11.5 5 %
(1) = non-merger related / (prior period + merger-related)
The $11.5 million, or 5%, non-merger-related increase reflected:
Partially offset by:
2008 Second Quarter versus 2008 First Quarter Non-interest income increased $0.7 million from the first quarter. Table 7 – Non-interest Income – 2Q08 vs. 1Q08
Second First
Quarter Quarter Change
(in millions) 2008 2008 Amount %
Non-interest Income
Service charges on deposit accounts $79.6 $72.7 $7.0 10 %
Trust services 33.1 34.1 (1.0) (3)
Brokerage and insurance income 35.7 36.6 (0.9) (2)
Other service charges and fees 23.2 20.7 2.5 12
Bank owned life insurance income 14.1 13.8 0.4 3
Mortgage banking income (loss) 12.5 (7.1) 19.6 NM
Securities gains (losses) 2.1 1.4 0.6 45
Other income 36.1 63.5 (27.5) (43)
Total non-interest income $236.4 $235.8 $0.7 0 %
This $0.7 million increase reflected:
Partially offset by:
Non-interest Expense 2008 Second Quarter versus 2007 Second Quarter Non-interest expense increased $133.1 million from the year-ago quarter. The $135.7 million of merger-related expenses and $7.0 million of higher merger/restructuring costs drove the increase, as non-merger-related expenses declined $9.5 million, or 2%. Table 8 details the $133.1 million increase in reported total non-interest expense. Table 8 – Non-interest Expense – 2Q08 vs. 2Q07
Second Quarter Change
(in millions) 2008 2007 Amount %
Non-interest Expense
Personnel costs $200.0 $135.2 $64.8 48 %
Outside data processing and other
services 30.2 25.7 4.5 17
Net occupancy 27.0 19.4 7.6 39
Equipment 25.7 17.2 8.6 50
Amortization of intangibles 19.3 2.5 16.8 NM
Marketing 7.3 9.0 (1.6) (18)
Professional services 13.8 8.1 5.7 70
Telecommunications 6.9 4.6 2.3 50
Printing and supplies 4.8 3.7 1.1 30
Other expense 42.9 19.3 23.5 NM
Total non-interest expense $377.8 $244.7 $133.1 54 %
(1) = non-merger related / (prior period + merger-related)
Merger / Non-merger
Merger Restruct. Related
(in millions) Related Costs Amount %(1)
Non-interest Expense
Personnel costs $68.3 $10.0 $(13.5) (6)%
Outside data processing and other
services 12.3 (5.0) (2.8) (9)
Net occupancy 10.2 1.7 (4.3) (14)
Equipment 4.8 2.8 1.0 4
Amortization of intangibles 16.5 - 0.3 2
Marketing 4.4 (1.6) (4.5) (38)
Professional services 2.7 (1.0) 3.9 40
Telecommunications 2.2 0.0 0.1 1
Printing and supplies 1.4 0.0 (0.3) (6)
Other expense 13.0 (0.1) 10.5 33
Total non-interest expense $135.7 $7.0 $(9.5) (2)%
(1) = non-merger related / (prior period + merger-related)
The $9.5 million, or 2%, non-merger-related decline reflected:
Partially offset by:
2008 Second Quarter versus 2008 First Quarter Non-interest expense increased $7.3 million, or 2%, from the 2008 first quarter, reflecting increased merger/restructuring costs. Table 9 details the $7.3 million increase in reported total non-interest expense. Table 9 – Non-interest Expense – 2Q08 vs. 1Q08
Second First Merger/ Non-merger
Quarter Quarter Change Restruct. Related
(in millions) 2008 2008 Amount % Costs Amount %(1)
Non-interest Expense
Personnel costs $200.0 $201.9 $(2.0) (1)% $7.8 $(9.7) (5)%
Outside data
processing and other
services 30.2 34.4 (4.2) (12) (4.3) 0.1 0
Net occupancy 27.0 33.2 (6.3) (19) 1.4 (7.6) (22)
Equipment 25.7 23.8 1.9 8 2.7 (0.8) (3)
Amortization of
intangibles 19.3 18.9 0.4 2 - 0.4 2
Marketing 7.3 8.9 (1.6) (18) (0.1) (1.5) (17)
Professional services 13.8 9.1 4.7 51 0.4 4.3 45
Telecommunications 6.9 6.2 0.6 10 (0.6) 1.2 21
Printing and supplies 4.8 5.6 (0.9) (15) (0.0) (0.8) (15)
Other expense 42.9 28.3 14.5 51 0.0 14.5 51
Total non-interest
expense $377.8 $370.5 $7.3 2 % $7.3 $0.0 0 %
(1) = non-merger related / (prior period + merger-related)
Non-merger-related expenses were flat, and reflected:
Partially offset by:
Income Taxes The p rovision for incom e taxes in the 2008 second quarter was $26.3 million, resulting in an effective tax rate of 20.6%. The effective tax rate included a $3.4 million benefit to provision for income taxes, representing a reduction to the previously established capital loss carry-forward valuation allowance related to the value of Visa ® shares held. The effective tax rate for the second half of 2008 is expected to be in a range of 24%-26%. Franklin Credit Management Relationship At June 30, 2008, total exposure to Franklin was $1.130 billion, down $27 million, or 2%, from $1.157 billion at March 31, 2008. This relationship continued to perform and accrue interest. In the second half of 2008, our proportion of payments received is expected to increase to our pro-rata participation level, following satisfaction of certain terms of the restructuring agreement, which provided for a more rapid amortization on a certain participant’s portion of the debt. There were no Franklin-related net charge-offs or provision for credit losses in the current or prior quarter. At June 30, 2008, the specific allowance for loan and lease losses for Franklin was $115.3 million, unchanged from March 31, 2008. The cash flow generated by the underlying collateral continued to exceed that required per terms of the 2007 fourth quarter restructuring agreement. As a result, and as announced June 19, 2008, the $762 million Tranche A portion of our Franklin exposure was moved out of the troubled debt restructuring non-performing asset classification based on 2008 first half and continued expected cash flow performance. Credit Quality Credit quality performance in the 2008 second quarter was consistent with expectations announced on June 19, 2008. The reserve increase reflected the impact of the continued economic weakness across our Midwest markets. These economic factors influenced the performance of net charge-offs (NCOs) and non-accrual loans (NALs). 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 second quarter were $65.2 million, or an annualized 0.64% of average total loans and leases. Second quarter net charge-offs in the year-ago quarter were $34.5 million, or an annualized 0.52%. Total net charge-offs in the 2008 first quarter were $48.4 million, or an annualized 0.48%. Total commercial net charge-offs for the 2008 second quarter were $27.5 million, or an annualized 0.47%, compared with 2007 second quarter net charge-offs of $20.5 million, or 0.64%. Total commercial net charge-offs in the 2008 first quarter were $15.0 million, or an annualized 0.27%. Of the current quarter’s total commercial net charge-offs, C&I loan net charge-offs were $12.4 million, or an annualized 0.36%, and CRE loan net charge-offs were $15.1 million, or an annualized 0.63%. Total consumer net charge-offs in the current quarter were $37.8 million, or an annualized 0.85%. This was higher than an annualized 0.41% in the year-ago period and 0.75% in the prior quarter. Automobile loan and lease net charge-offs were $11.5 million, or an annualized 1.01% in the current quarter, up from 0.45% in the year-ago period but consistent with 1.02% in the prior period. This level reflected a slightly lower level of annualized automobile loan net charge-offs compared with the prior quarter, but an increase in annualized 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 negatively impacted by the lack of recovery in used car prices. It is our expectation that the automobile loan and lease net charge-off ratio for the 2008 second half will be consistent with the 2008 first half. Home equity net charge-offs in the 2008 second quarter were $14.0 million, or an annualized 0.76%, up from an annualized 0.43%, in the year-ago quarter but down from an annualized 0.80% in the prior quarter. This portfolio continues to be impacted by the general housing market slowdown. The losses were evident across our footprint, but are lower in our Columbus and Cincinnati markets. Our expectation is that 2008 second half performance will be consistent with the 2008 first half, as the small broker-originated portfolio continues to decline, and our enhanced loss mitigation programs positively impact performance. We continue to believe our home equity net charge-off experience will compare very favorably to the industry. Residential mortgage net charge-offs were $4.3 million, or an annualized 0.33% of related average balances. This was up from an annualized 0.16% in the year-ago quarter and from an annualized 0.22% in the prior quarter. We expect residential mortgage net charge-offs will remain under modest upward pressure from the 2008 first half 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 $535.0 million at June 30, 2008, and represented 1.30% of total loans and leases. This compared with $211.5 million, or 0.79%, at the end of the year-ago period, and $377.4 million, or 0.92%, at March 31, 2008. The $157.7 million, or 42%, increase in NALs from the end of the prior quarter, primarily reflected a $78.7 million, or 43%, increase in CRE NALs and a $59.5 million, or 58%, increase in C&I NALs. Residential mortgage and home equity NALs increased 25%, and 12%, respectively, also reflecting the overall economic weakness in our markets. Non-performing assets (NPAs), which include NALs, were $993.1 million at June 30, 2008. This compared with $261.2 million at the end of the year-ago period and $1.678 billion at March 31, 2008. The $684.7 million, or 41%, decrease in NPAs from the end of the prior quarter reflected:
Partially offset by:
The over 90-day delinquent, but still accruing, ratio was 0.33% at June 30, 2008, up from 0.25% at the end of the year-ago quarter, but down from 0.37% at March 31, 2008. The 4 basis point decrease in the 90-day delinquent ratio from March 31, 2008, reflected a 4 basis point decrease in the total commercial loan 90-day delinquent ratio to 0.14% from 0.18%, and a 3 basis point decrease in the total consumer loan 90-day delinquent ratio to 0.59% from 0.62%. 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 June 30, 2008, the ALLL was $679.4 million, up from $307.5 million a year ago and from $627.6 million at March 31, 2008. Expressed as a percent of period-end loans and leases, the ALLL ratio at June 30, 2008, was 1.66%, up from 1.15% a year ago and from 1.53% at March 31, 2008. The $51.8 million increase from the end of the prior quarter primarily reflected the impact of the continued economic weakness across our Midwest markets. Given the current market conditions, we believe the increase in the ALLL is prudent and appropriate. At June 30, 2008, the specific ALLL related to Franklin was $115.3 million, unchanged from March 31, 2008. Table 10 shows the change in the ALLL ratio and each reserve component for the 2008 second quarter and for the 2008 first quarter and 2007 second quarter.
Table 10 - Components of ALLL as Percent of Total Loans and Leases
2Q08
change from
2Q08 1Q08 2Q07 1Q08 2Q07
Transaction reserve (1) 1.45 % 1.34 % 0.94 % 0.11 % 0.51 %
Economic reserve 0.21 0.19 0.21 0.02 --
Total ALLL 1.66 % 1.53 % 1.15 % 0.13 % 0.51 %
(1) Includes specific reserve
The ALLL as a percent of NALs was 127% at June 30, 2008, down from 145% a year ago and from 166% at March 31, 2008. At June 30, 2008, the AULC was $61.3 million, up from $41.6 million at the end of the year-ago quarter, and from $57.6 million at March 31, 2008. On a combined basis, the ACL as a percent of total loans and leases at June 30, 2008, was 1.80%, up from 1.30% a year ago and from 1.67% at March 31, 2008. The ACL as a percent of NALs was 138% at June 30, 2008, down from 165% a year ago and from 182% at March 31, 2008. Capital At June 30, 2008, the regulatory Tier 1 and Total risk-based capital ratios were 9.03% and 12.31%, respectively, up from 7.56% and 10.87%, respectively, at March 31, 2008. Both ratios are well above the regulatory “well capitalized” thresholds of 6.0% and 10.0%, respectively. The “well capitalized” level is the highest regulatory capital designation. No shares were repurchased during the quarter. Though there are currently 3.9 million shares remaining available for repurchase under the current authorization announced April 20, 2006, no future share repurchases are currently 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 weak. We will continue to target our interest rate risk position at our customary relatively neutral position. 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 $1.25-$1.35 per common share. Conference Call / Webcast Information Huntington ’s senior management will host an earnings conference call on Thursday, July 17, 2008, at 1:00 p.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 52522284. Slides will be available at www.huntington-ir.com just prior to 1:00 p.m. (Eastern Daylight Time) on July 17, 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 July 31, 2008, at 800-642-1687; conference ID 52522284. 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 Presentation Use 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 second 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 second quarter performance to comparable year-ago periods are affected, as Sky Financial results were not included in the year-ago periods. Comparisons of the 2008 second quarter performance compared with year-ago 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 second 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. T he 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 11 below provides detail of changes to selected reported results to quantify the impact of the Sky Financial merger using this methodology: Table 11 – Estimated Impact of Sky Financial Merger 2008 Second Quarter versus 2007 Second Quarter
Second Quarter Change Merger
(in millions) 2008 2007 Amount % Related
Average Loans and Leases
Commercial and industrial $13,631 $8,167 $5,464 66.9 % $4,775
Commercial real estate 9,601 4,651 4,950 NM 3,971
Total commercial 23,232 12,818 10,414 81.2 8,746
Automobile loans and leases 4,551 3,873 678 17.5 432
Home equity 7,365 4,973 2,392 48.1 2,385
Residential mortgage 5,178 4,351 827 19.0 1,112
Other consumer 699 424 275 64.9 143
Total consumer 17,793 13,621 4,172 30.6 4,072
Total loans and leases $41,025 $26,439 $14,586 55.2 % $12,818
(1) = non-merger related / (prior period + merger-related)
Average Deposits
Demand deposits - non-interest
bearing $5,061 $3,591 $1,470 40.9 % $1,829
Demand deposits - interest
bearing 4,086 2,404 1,682 70.0 1,460
Money market deposits 6,267 5,466 801 14.7 996
Savings and other domestic
deposits 5,047 2,931 2,116 72.2 2,594
Core certificates of deposit 10,952 5,591 5,361 95.9 4,630
Total core deposits 31,413 19,983 11,430 57.2 11,509
Other deposits 6,614 4,290 2,324 54.2 1,342
Total deposits $38,027 $24,273 $13,754 56.7 % $12,851
(1) = non-merger related / (prior period + merger-related)
Non-merger Related
(in millions) Amount % (1)
Average Loans and Leases
Commercial and industrial $689 5.3 %
Commercial real estate 979 11.4
Total commercial 1,668 7.7
Automobile loans and leases 246 5.7
Home equity 7 0.1
Residential mortgage (285) (5.2)
Other consumer 132 23.3
Total consumer 100 0.6
Total loans and leases $1,768 4.5 %
(1) = non-merger related / (prior period + merger-related)
Average Deposits
Demand deposits - non-interest
bearing $(359) (6.6)%
Demand deposits - interest bearing 222 5.7
Money market deposits (195) (3.0)
Savings and other domestic deposits (478) (8.7)
Core certificates of deposit 731 7.2
Total core deposits (79) (0.3)
Other deposits 982 17.4
Total deposits $903 2.4 %
(1) = non-merger related / (prior period + merger-related)
Second Quarter Change Merger
(in thousands) 2008 2007 Amount % Related
Net interest income - FTE $395,490 $257,518 $137,972 53.6 % $151,592
Non-interest Income
Service charges on
deposit accounts $79,630 $50,017 $29,613 59.2 % $24,110
Trust services 33,089 26,764 6,325 23.6 7,009
Brokerage and insurance
income 35,694 17,199 18,495 NM 17,061
Other service charges and
fees 23,242 14,923 8,319 55.7 5,800
Bank owned life insurance
income 14,131 10,904 3,227 29.6 1,807
Mortgage banking income
(loss) 12,502 7,122 5,380 75.5 6,256
Securities gains (losses) 2,073 (5,139) 7,212 NM 283
Other income 36,069 34,403 1,666 4.8 6,390
Total non-interest income $236,430 $156,193 $80,237 51.4 % $68,716
(1) = non-merger related / (prior period + merger-related)
Non-interest Expense
Personnel costs $199,991 $135,191 $64,800 47.9 % $68,250
Outside data processing
and other services 30,186 25,701 4,485 17.5 12,262
Net occupancy 26,971 19,417 7,554 38.9 10,184
Equipment 25,740 17,157 8,583 50.0 4,799
Amortization of
intangibles 19,327 2,519 16,808 NM 16,481
Marketing 7,339 8,986 (1,647) (18.3) 4,361
Professional services 13,752 8,101 5,651 69.8 2,707
Telecommunications 6,864 4,577 2,287 50.0 2,224
Printing and supplies 4,757 3,672 1,085 29.5 1,374
Other expense 42,876 19,334 23,542 NM 13,048
Total non-interest
expense $377,803 $244,655 $133,148 54.4 % $135,690
(1) = non-merger related / (prior period + merger-related)
Merger /
Restruct. Non-merger Related
(in thousands) Costs Amount % (1)
Net interest income - FTE $(13,620) (3.3)%
Non-interest Income
Service charges on deposit accounts $5,503 7.4 %
Trust services (684) (2.0)
Brokerage and insurance income 1,434 4.2
Other service charges and fees 2,519 12.2
Bank owned life insurance income 1,420 11.2
Mortgage banking income (loss) (876) (6.5)
Securities gains (losses) 6,929 NM
Other income (4,724) (11.6)
Total non-interest income $11,521 5.1 %
(1) = non-merger related / (prior period + merger-related)
Non-interest Expense
Personnel costs $10,019 $(13,469) (6.3)%
Outside data processing and other
services (4,969) (2,808) (8.5)
Net occupancy 1,702 (4,332) (13.8)
Equipment 2,799 985 4.0
Amortization of intangibles - 327 1.7
Marketing (1,551) (4,457) (37.8)
Professional services (995) 3,939 40.1
Telecommunications 3 60 0.9
Printing and supplies 19 (308) (6.1)
Other expense (52) 10,546 32.6
Total non-interest expense $6,975 $(9,517) (2.5)%
(1) = non-merger related / (prior period + merger-related)
2008 Second Quarter versus 2008 First Quarter
Second First
Quarter Quarter Change
(in millions) 2008 2008 Amount %
Average Loans and Leases
Commercial and industrial $13,631 $13,343 $288 2.2 %
Commercial real estate 9,601 9,287 314 3.4
Total commercial 23,232 22,630 602 2.7
Automobile loans and leases 4,551 4,399 152 3.5
Home equity 7,365 7,274 91 1.3
Residential mortgage 5,178 5,351 (173) (3.2)
Other consumer 699 713 (14) (2.0)
Total consumer 17,793 17,737 56 0.3
Total loans and leases $41,025 $40,367 $658 1.6 %
Average Deposits
Demand deposits - non-interest
bearing $5,061 $5,034 $27 0.5 %
Demand deposits - interest bearing 4,086 3,934 152 3.9
Money market deposits 6,267 6,753 (486) (7.2)
Savings and other domestic deposits 5,047 5,004 43 0.9
Core certificates of deposit 10,952 10,796 156 1.4
Total core deposits 31,413 31,521 (108) (0.3)
Other deposits 6,614 6,410 204 3.2
Total deposits $38,027 $37,931 $96 0.3 %
Second First
Quarter Quarter Change
(in thousands) 2008 2008 Amount %
Net interest income - FTE $395,490 $382,326 $13,164 3.4 %
Non-interest Income
Service charges on deposit accounts $79,630 $72,668 $6,962 9.6 %
Trust services 33,089 34,128 (1,039) (3.0)
Brokerage and insurance income 35,694 36,560 (866) (2.4)
Other service charges and fees 23,242 20,741 2,501 12.1
Bank owned life insurance income 14,131 13,750 381 2.8
Mortgage banking income (loss) 12,502 (7,063) 19,565 NM
Securities gains (losses) 2,073 1,429 644 45.1
Other income 36,069 63,539 (27,470) (43.2)
Total non-interest income $236,430 $235,752 $678 0.3 %
(1) = non-merger related / (prior period + merger-related)
Non-interest Expense
Personnel costs $199,991 $201,943 $(1,952) (1.0)%
Outside data processing and other
services 30,186 34,361 (4,175) (12.2)
Net occupancy 26,971 33,243 (6,272) (18.9)
Equipment 25,740 23,794 1,946 8.2
Amortization of intangibles 19,327 18,917 410 2.2
Marketing 7,339 8,919 (1,580) (17.7)
Professional services 13,752 9,090 4,662 51.3
Telecommunications 6,864 6,245 619 9.9
Printing and supplies 4,757 5,622 (865) (15.4)
Other expense 42,876 28,347 14,529 51.3
Total non-interest expense $377,803 $370,481 $7,322 2.0 %
(1) = non-merger related / (prior period + merger-related)
Merger /
Restruct. Non-merger Related
(in thousands) Costs Amount % (1)
Net interest income - FTE $13,164 3.4 %
Non-interest Income
Service charges on deposit accounts $6,962 9.6 %
Trust services (1,039) (3.0)
Brokerage and insurance income (866) (2.4)
Other service charges and fees 2,501 12.1
Bank owned life insurance income 381 2.8
Mortgage banking income (loss) 19,565 NM
Securities gains (losses) 644 45.1
Other income (27,470) (43.2)
Total non-interest income $678 0.3 %
(1) = non-merger related / (prior period + merger-related)
Non-interest Expense
Personnel costs $7,775 $(9,727) (4.6)%
Outside data processing and other
services (4,305) 130 0.4
Net occupancy 1,359 (7,631) (22.1)
Equipment 2,703 (757) (2.9)
Amortization of intangibles - 410 2.2
Marketing (67) (1,513) (17.1)
Professional services 399 4,263 44.9
Telecommunications (591) 1,210 21.4
Printing and supplies (27) (838) (15.0)
Other expense 28 14,501 51.1
Total non-interest expense $7,274 $48 0.0 %
(1) = non-merger related / (prior period + merger-related)
2008 Six Months versus 2007 Six Months Six Months Ended
June 30, Change
(in millions) 2008 2007 Amount %
Average Loans and Leases
Commercial and industrial $13,487 $8,077 $5,410 67.0 %
Commercial real estate 9,444 4,563 4,881 NM
Total commercial 22,931 12,640 10,291 81.4
Automobile loans and leases 4,475 3,893 582 14.9
Home equity 7,320 4,943 2,377 48.1
Residential mortgage 5,264 4,423 841 19.0
Other consumer 706 423 283 66.9
Total consumer 17,765 13,682 4,083 29.8
Total loans and leases $40,696 $26,322 $14,374 54.6 %
(1) = non-merger related / (prior period + merger-related)
Average Deposits
Demand deposits - non-interest
bearing $5,047 $3,561 $1,486 41.7 %
Demand deposits - interest bearing 4,010 2,377 1,633 68.7
Money market deposits 6,510 5,477 1,033 18.9
Savings and other domestic deposits 5,026 2,915 2,111 72.4
Core certificates of deposit 10,874 5,523 5,351 96.9
Total core deposits 31,467 19,853 11,614 58.5
Other deposits 6,512 4,508 2,004 44.5
Total deposits $37,979 $24,361 $13,618 55.9 %
(1) = non-merger related / (prior period + merger-related)
Merger Non-merger Related
(in millions) Related Amount %(1)
Average Loans and Leases
Commercial and industrial $4,775 $635 4.9 %
Commercial real estate 3,971 910 10.7
Total commercial 8,746 1,545 7.2
Automobile loans and leases 432 150 3.5
Home equity 2,385 (8) (0.1)
Residential mortgage 1,112 (271) (4.9)
Other consumer 143 140 24.7
Total consumer 4,072 11 0.1
Total loans and leases $12,818 $1,556 4.0 %
(1) = non-merger related / (prior period + merger-related)
Average Deposits
Demand deposits - non-interest
bearing $1,829 $(343) (6.4)%
Demand deposits - interest bearing 1,460 173 4.5
Money market deposits 996 37 0.6
Savings and other domestic deposits 2,594 (483) (8.8)
Core certificates of deposit 4,630 721 7.1
Total core deposits 11,509 105 0.3
Other deposits 1,342 662 11.3
Total deposits $12,851 $767 2.1 %
(1) = non-merger related / (prior period + merger-related)
Six Months Ended
June 30, Change
(in thousands) 2008 2007 Amount %
Net interest income - FTE $777,816 $517,120 $260,696 50.4 %
Non-interest Income
Service charges on deposit
accounts $152,298 $94,810 $57,488 60.6 %
Trust services 67,217 52,658 14,559 27.6
Brokerage and insurance income 72,254 33,281 38,973 NM
Other service charges and fees 43,983 28,131 15,852 56.4
Bank owned life insurance income 27,881 21,755 6,126 28.2
Mortgage banking income (loss) 5,439 16,473 (11,034) (67.0)
Securities gains (losses) 3,502 (5,035) 8,537 NM
Other income 99,608 59,297 40,311 68.0
Total non-interest income $472,182 $301,370 $170,812 56.7 %
(1) = non-merger related / (prior period + merger-related)
Non-interest Expense
Personnel costs $401,934 $269,830 $132,104 49.0 %
Outside data processing and other
services 64,547 47,515 17,032 35.8
Net occupancy 60,214 39,325 20,889 53.1
Equipment 49,534 35,376 14,158 40.0
Amortization of intangibles 38,244 5,039 33,205 NM
Marketing 16,258 16,682 (424) (2.5)
Professional services 22,842 14,583 8,259 56.6
Telecommunications 13,109 8,703 4,406 50.6
Printing and supplies 10,379 6,914 3,465 50.1
Other expense 71,223 42,760 28,463 66.6
Total non-interest expense $748,284 $486,727 $261,557 53.7 %
(1) = non-merger related / (prior period + merger-related)
Merger / Non-merger
Merger Restruct. Related
(in thousands) Related Costs Amount %(1)
Net interest income - FTE $303,184 $(42,488) (5.2)%
Non-interest Income
Service charges on deposit accounts $48,220 $9,268 6.5 %
Trust services 14,018 541 0.8
Brokerage and insurance income 34,122 4,851 7.2
Other service charges and fees 11,600 4,252 10.7
Bank owned life insurance income 3,614 2,512 9.9
Mortgage banking income (loss) 12,512 (23,546) (81.2)
Securities gains (losses) 566 7,971 NM
Other income 12,780 27,531 38.2
Total non-interest income $137,432 $33,380 7.6 %
(1) = non-merger related / (prior period + merger-related)
Non-interest Expense
Personnel costs $136,500 $12,897 $(17,293) (4.1)%
Outside data processing and other
services 24,524 (2,158) (5,334) (7.6)
Net occupancy 20,368 2,156 (1,635) (2.6)
Equipment 9,598 2,909 1,651 3.4
Amortization of intangibles 32,962 - 243 0.6
Marketing 8,722 (1,529) (7,617) (31.9)
Professional services 5,414 (1,397) 4,242 22.8
Telecommunications 4,448 597 (639) (4.6)
Printing and supplies 2,748 66 651 6.7
Other expense 26,096 (119) 2,486 3.6
Total non-interest expense $271,380 $13,422 $(23,245) (3.0)%
(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 typically “not meaningful” for trend analysis purposes. About Huntington Huntington 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 over 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. Huntington 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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