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Huntington Bancshares Reports 2005 Third Quarter Results; CONTACT:
COLUMBUS, Ohio – October 19, 2005 – Huntington Bancshares Incorporated (NASDAQ: HBAN; www.huntington.com) reported 2005 third quarter earnings of $108.6 million, or $0.47 per common share, up 16% and 18%, respectively, from $93.5 million, or $0.40 per common share, in the year-ago quarter and up 2% and 4%, respectively, from $106.4 million, or $0.45 per common share, in the 2005 second quarter. Earnings for the first nine months of 2005 were $311.5 million, or $1.33 per common share, compared with $307.8 million, or $1.32 per common share, in the comparable year-ago period. “We are pleased with our third quarter financial performance and believe that our earnings momentum will enable us to meet our full-year 2005 earnings per share target of $1.78-$1.81,” said Thomas E. Hoaglin, chairman, president, and chief executive officer. “Operating leverage was again positive as third quarter revenues increased 1% from the prior quarter, while non-interest expense declined 6%. This resulted in a 7% spread, or 4%, after both are adjusted for operating lease accounting and significant non-run rate items. Our net interest margin was 3.31%, down from 3.36% in the second quarter. Of the 5 basis point decline, 2 basis points reflected lower mezzanine loan yields and one basis point was due to share repurchase activity. In addition, we were encouraged by growth in key non-interest income categories. Service charges on deposit accounts increased 8% from the second quarter, with brokerage and insurance income up 3% and other service charges and fees up 2%. Trust service income increased 3% and marked the eighth consecutive quarterly increase.” “Though total average loans and leases were little changed from the second quarter, average residential mortgages increased at an 8% annualized rate and home equity loans grew 4%,” he said. “Middle market commercial real estate loans and small business loans grew at 7% and 4% annualized rates, respectively. Average middle market C&I loans declined $193 million. This included a $157 million decline in dealer floor plan loans, which reflected lower dealer inventories due to the success of ‘employee pricing’ incentives and resulting higher automobile sales. The remaining $36 million decline reflected lower credit demand from borrowers, due to rising interest rates and economic uncertainty in certain sectors of the Midwest economy, as well as our commitment to maintain underwriting and pricing discipline in the face of intense competition.” “Competition for deposits remained aggressive,” he continued. “As such, we were pleased to see average total core deposits increase an annualized 5% in the third quarter. Commercial core deposit growth was strong, led by growth in interest bearing deposits and non-interest bearing accounts. Average consumer core deposits were down slightly. This reflected a decline in interest bearing money market deposits partially offset by an increase in retail CDs, reflecting the consumer preference for higher fixed rate deposits. Consumer non-interest bearing balances also declined slightly. We continued growing the number of both consumer and small business relationships.” “Credit quality remained solid and consistent with our expectations,” Hoaglin noted. “Annualized net charge-offs were 29 basis points and the non-performing assets ratio was 42 basis points. The allowance for loan and lease losses ratio was unchanged at 1.04% and represented a healthy 283% of period-end non-performing loans.” “Finally, our capital levels remained strong with our tangible common equity to assets ratio increasing slightly to 7.39% even though we repurchased 2.6 million shares during the quarter,” he concluded.
Significant items impacting 2005 third quarter performance included (see table below):
Discussion of Performance Net Interest Income, Net Interest Margin, Loans and Leases, and Investment Securities Fully taxable equivalent net interest income increased $15.4 million, or 7%, from the year-ago quarter, primarily reflecting the favorable impact of a $1.7 billion, or 6%, increase in average earning assets, as well as a one basis point increase in the net interest margin. The fully taxable equivalent net interest margin was 3.31% compared with 3.30% in the year-ago quarter. The stable net interest margin reflected a combination of factors. These included the benefit from growth in higher-yielding loans and redirecting part of the proceeds from maturing securities to fund loan growth, as well as an increase in both the proportion and the contribution of net free funds on the balance sheet. These positives were partially offset by the negative impacts from the flattening of the yield curve and share repurchase activity. Average total loans and leases increased $2.3 billion, or 10%, from the 2004 third quarter, reflecting growth in both consumer loans and commercial loans. Total average consumer loans increased $1.5 billion, or 12%, from the year-ago quarter, reflecting growth across all consumer loan categories. Average residential mortgages increased $0.7 billion, or 19%, and average home equity loans increased $0.3 billion, or 8%. Though residential mortgage and home equity growth rates were strong, the annualized 2005 third quarter growth rates of 8% and 4%, respectively, were approximately half the year-over-year growth rates. This reflected our commitment to maintaining underwriting and pricing discipline. Compared with the year-ago quarter, average total automobile loans and leases increased $0.4 billion, or 10%. Average automobile loans increased $0.2 billion, or 12%, reflecting 30% higher automobile loan production levels, stimulated by manufacturer employee pricing discounts in the current quarter, partially offset by loan sales over the past 12 months. Average direct financing leases increased $0.2 billion, or 8%, from the year-ago quarter despite 56% lower production levels reflecting lower automobile lease demand and aggressive price competition. Average operating lease assets declined $0.5 billion, or 61%, as this portfolio continued to run off. Total automobile loan and lease exposure at quarter end was 19%, down from 21% a year ago. Average total commercial loans increased $0.8 billion, or 8%, from the year-ago quarter. This increase reflected a $0.4 billion, or 10%, increase in middle market commercial and industrial (C&I) loans despite the negative impact from the current quarter decline in automobile dealer floor plan loans. Average middle market commercial real estate (CRE) loans increased $0.2 billion, or 6%, with small business C&I and CRE loans increasing $0.2 billion, or 8%. Average total investment securities declined $0.7 billion, or 14%, from the year-ago quarter. This decline reflected a combination of factors including lowering the level of excess liquidity and funding loan growth. Compared with the 2005 second quarter, fully taxable equivalent net interest income increased $0.5 million reflecting a $0.2 billion, or 1%, increase in average earning assets, offset by a 5 basis point decline in the net interest margin to 3.31% from 3.36%. Of the 5 basis point decline, 2 basis points related to lower yields on mezzanine-related loans and one basis point related to the impact of share repurchases. The remainder reflected continued loan and deposit pricing pressures, as well as the overall impact of a flatter yield curve. Average total loans and leases in the third quarter were virtually unchanged from the 2005 second quarter as growth in average consumer loans was offset by a decline in average commercial loans. Total average commercial loans decreased $0.1 billion, or 1%, from the second quarter due to a $193 million, or 4%, decrease in average C&I loans, partially offset by a 2% increase in average CRE loans. Of the decline in average C&I loans, approximately $157 million related to a decline in dealer floor plan loans primarily reflecting lower utilization rates, as dealer automobile inventories fell. Growth in average small business C&I and CRE loans was 1%, slightly below the growth rates in the 2005 first and second quarters. Compared with the 2005 second quarter, average total consumer loans increased $0.1 billion, or 1%, primarily reflecting a 2% increase in residential mortgages and a 1% increase in average home equity loans. Growth rates in residential mortgages and home equity loans have slowed in each of the last three linked quarters. Average automobile loans and leases decreased 1%, reflecting a 2% decline in average automobile direct financing leases. Average automobile loans were little changed, as growth due to higher automobile loan production was offset by loan sales. Average investment securities increased $0.1 billion, or 2%, from the 2005 second quarter.
Deposits Average total core deposits in the 2005 third quarter were $17.2 billion, up $0.7 billion, or 4%, from the year-ago quarter. The largest contributor to this growth was a $0.7 billion, or 31%, increase in retail certificates of deposit. Interest bearing demand deposits grew $0.2 billion, or 2%, with all of the increase reflecting growth in commercial money market deposits, as consumer money market accounts declined. Non-interest bearing demand deposits increased $0.1 billion, or 4%, reflecting growth in both consumer and commercial non-interest bearing deposits. These increases were partially offset by a $0.3 billion, or 10%, decline in savings and other domestic time deposits. Compared with the 2005 second quarter, average total core deposits increased $0.2 billion, or 1%. This primarily reflected a $0.4 billion, or 16%, increase in retail certificates of deposits, primarily consumer driven. Non-interest bearing deposits also increased 2%, with all of this related to growth in commercial non-interest bearing deposits, as consumer non-interest bearing deposits declined. These increases were partially offset by a $0.1 billion, or 4%, decline in savings and other time deposits, and a $0.1 billion, or 2%, decline in interest bearing demand deposits.
Non-Interest Income Non-interest income decreased $29.2 million, or 15%, from the year-ago quarter with the entire decline attributed to the $35.2 million decline in operating lease income reflecting the continued run-off of the operating lease portfolio. The remaining fee income categories increased a total of $6.0 million with the primary drivers being:
Partially offset by:
Compared with the 2005 second quarter, non-interest income increased $4.6 million, or 3%. This was despite an $8.8 million decline in operating lease income, reflecting the run-off of the operating lease portfolio, as the remaining fee income categories contributed a net $13.4 million increase with the primary drivers being:
Partially offset by:
Non-Interest Expense Non-interest expense decreased $40.4 million, or 15%, from the year-ago quarter with $32.1 million of the decline reflecting the run-off of the operating lease portfolio. Of the remaining $8.3 million decline from the year-ago quarter, the primary drivers were:
Compared with the 2005 second quarter, non-interest expense decreased $15.1 million, with $6.1 million reflecting the run-off of the operating lease portfolio. Of the remaining $9.0 million decrease from the prior quarter, the primary drivers were:
Compared with the 2005 second quarter, operating leverage was positive as revenue increased and expenses declined. On a fully taxable equivalent basis, total revenue for the 2005 third quarter was $406.1 million, an increase of $5.1 million, or 1%, from the prior quarter. Adjusting for the securities gains and losses, the impact of operating leases, the net impact of MSR impairment net of trading activities and the write-off of an equity investment in the prior quarter, total revenue was $385.3 million, up $6.7 million, or 2%. Non-interest expense decreased $15.1 million, or 6%, compared with the prior quarter. Adjusting for the decline in operating lease expenses, severance/consolidation expenses and $1.7 million of SEC/regulatory-related expenses in the prior quarter, non-interest expenses decreased 2%. This decline, along with the 2% increase in total revenue, adjusted for operating lease accounting and certain non-run rate items, resulted in a 4% operating leverage spread between the growth rates of total revenue and expense.
Income Taxes The company’s effective tax rate was 28.4% in the 2005 third quarter, down slightly from 29.0% in the year-ago quarter, but up from 22.3% in the 2005 second quarter. As noted in the past two quarters, for 2005, the effective tax rate includes the positive impact on net income due to a federal tax loss carry back, tax exempt income, bank owned life insurance, asset securitization activities, and general business credits from investment in low income housing and historic property partnerships. These positive items were partially offset in the current quarter primarily due to an increase in pre-tax earnings and the repatriation of foreign earnings. In 2006, the effective tax rate is anticipated to increase to a more typical rate slightly below 30%. Credit Quality Total net charge-offs for the 2005 third quarter were $18.0 million, or an annualized 0.29% of average total loans and leases. This was up from $16.5 million, or 0.30%, in the year-ago quarter and up from $16.3 million, or an annualized 0.27%, of average total loans and leases in the 2005 second quarter. Total commercial net charge-offs in the third quarter were $4.3 million, or an annualized 0.16%, up from $2.6 million, or an annualized 0.10%, in the year-ago quarter, driven primarily by higher small business C&I and CRE net charge-offs. Total small business net charge-offs in the 2005 third quarter were $3.1 million, or an annualized 0.54% of related loans, up from $1.2 million, or an annualized 0.23% in the year-ago quarter. Current period total commercial net charge-offs were down from $5.6 million, or an annualized 0.21%, in the prior quarter. Total consumer net charge-offs in the current quarter were $13.7 million, or an annualized 0.40% of related loans. This compared with $13.9 million, or 0.45%, in the year-ago quarter. The decline from the year-ago quarter reflected both lower automobile loan and lease net charge-offs and lower home equity net charge-offs. Total automobile loan and lease net charge-offs in the 2005 third quarter were $7.0 million, or an annualized 0.62% of related loans and leases, down from $7.6 million, or an annualized 0.74%, in the year-ago quarter. Home equity net charge-offs in the current quarter were $4.1 million, or an annualized 0.35% of related loans, down slightly from $4.3 million, or 0.39%, in the year-ago quarter. Compared with the 2005 second quarter, total consumer net charge-offs increased $3.0 million, primarily reflecting a $3.2 million increase in automobile loan and lease net charge-offs from the second quarter’s low levels, partially offset by a $1.0 million decrease in home equity loan net charge-offs. The over 90-day delinquent, but still accruing, ratio was 0.21% at September 30, 2005, down from 0.24% at the end of the year-ago quarter, and little changed from 0.22% at June 30, 2005.
Since the 2004 first quarter, the company has maintained two reserves, both of which are available to absorb possible credit losses: the allowance for loan and lease losses (ALLL) and the allowance for unfunded loan commitments (AULC). When summed together, these reserves constitute the total allowances for credit losses (ACL). The September 30, 2005, ALLL was $253.9 million, down from $282.7 million a year earlier and $254.8 million at June 30, 2005. Expressed as a percent of period-end loans and leases, the ALLL ratio at September 30, 2005, was 1.04%, down from 1.25% a year ago reflecting the improvement in economic indicators, the change in the mix of the loan portfolio to lower-risk residential mortgages, and the reduction of specific reserves related to improved or resolved individual problem commercial credits. Although the ALLL ratio was unchanged from the 2005 second quarter, the component mix changed with a 2 basis point decline in both the economic and specific reserves, offset by a 4 basis point increase in the transaction reserve. The table below shows the change in the ALLL ratio and each reserve component from the 2004 third quarter and 2005 second quarter.
The ALLL as a percent of NPAs was 249% at September 30, 2005, down from 351% a year ago, and 262% at June 30, 2005. At September 30, 2005, the AULC was $38.1 million, up from $30.0 million at the end of the year-ago quarter and from $37.5 million at June 30, 2005. At June 30, 2005, $6.3 million of the economic reserve was reclassified to the AULC. On a combined basis, the ACL as a percent of total loans and leases was 1.19% at September 30, 2005, down from 1.38% a year earlier and unchanged from the end of last quarter. The ACL as a percent of NPAs was 287% at September 30, 2005, down from 389% a year earlier and 300% at June 30, 2005. The provision for credit losses in the 2005 third quarter was $17.7 million, a $5.9 million increase from the year-ago quarter and a $4.8 million increase from the 2005 second quarter. The increase in provision expense from the year-ago quarter and the prior quarter primarily reflected the relatively stable credit quality in the current quarter compared with improving trends in the prior periods. Capital At September 30, 2005, the tangible equity to assets ratio was 7.39%, up from 7.11% a year ago and 7.36% at June 30, 2005. At September 30, 2005, the tangible equity to risk-weighted assets ratio was 8.25%, up from 7.83% at the end of the year-ago quarter, and from 8.05% at June 30, 2005. The increases in these ratios primarily reflect the positive impact of earnings growth, as retained capital was generated at a 9% annualized rate during the quarter with the improvement in the risk-weighted ratio also reflecting the reduced overall risk profile of earning assets. During the quarter, 2.6 million shares of common stock were repurchased in the open market. Under the new 15 million share repurchase authorization announced October 18, 2005, the company expects to repurchase shares from time-to-time in the open market or through privately negotiated transactions depending on market conditions. The remaining shares under the prior authorization were cancelled and replaced by the new authorization. Unizan Financial Corp. Update On October 6, 2005, the company announced its intention to proceed this month with the filing of its Federal Reserve application to acquire Unizan Financial Corp. As announced November 12, 2004, Huntington and Unizan entered into an amendment to their January 26, 2004 merger agreement extending the term of the agreement for one year from January 27, 2005 to January 27, 2006. 2005 Outlook When earnings guidance is given, it is the company’s 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 unusual or one-time items, as well as selected items where the timing and financial impact is uncertain, until such time as the impact can be reasonably forecasted. Today, the company reaffirmed full-year 2005 earnings per share guidance of $1.78-$1.81, noting that this guidance excludes any impact of future share repurchases. In addition, in 2005 the company has departed slightly from providing this guidance on a strictly GAAP basis solely to exclude the estimated $0.03 per common share benefit for the 2005 fourth quarter related to any future benefit from the federal tax loss carry back discussed above. This is excluded as it impacts only 2005 performance, and because offsetting impacts may occur during the fourth quarter from possible balance sheet restructurings and/or expense initiatives currently under review. Conference Call / Webcast Information
This press release contains certain forward-looking statements, including certain plans, expectations, goals, and projections, which are subject to numerous assumptions, risks, and uncertainties. A number of factors, including but not limited to those set forth under the heading "Business Risks" included in Item 1 of Huntington's Annual Report on Form 10-K for the year ended December 31, 2004, and other factors described from time to time in Huntington's other filings with the Securities and Exchange Commission, could cause actual conditions, events, or results to differ significantly from those described in the forward-looking statements. All forward-looking statements included in this news 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
Annualized data
Fully taxable equivalent interest income and net interest margin
Earnings per share equivalent data
NM or nm About Huntington
HUNTINGTON BANCSHARES INCORPORATED
Quarterly Key Statistics
(Unaudited)
(in thousands of dollars,
except per share 2005 2004 Percent Changes vs.
amounts) Third Second Third 2Q05 3Q04
Net interest
income $241,637 $241,900 $227,058 (0.1)% 6.4%
Provision for
credit losses 17,699 12,895 11,785 37.3 50.2
Non-interest
income 160,740 156,170 189,891 2.9 (15.4)
Non-interest
expense 233,052 248,136 273,423 (6.1) (14.8)
Income before
income taxes 151,626 137,039 131,741 10.6 15.1
Provision for
income taxes 43,052 30,614 38,255 40.6 12.5
Net Income $108,574 $106,425 $93,486 2.0% 16.1%
Net income per
common share
- diluted $0.47 $0.45 $0.40 4.4% 17.5%
Cash dividends
declared per
common share 0.215 0.215 0.200 --- 7.5%
Book value per
common share at
end of period 11.45 11.40 10.69 0.4 7.1
Average common
shares - basic 229,830 232,217 229,848 (1.0) ---
Average common
shares - diluted 233,456 235,671 234,348 (0.9) (0.4)
Return on
average assets 1.32 % 1.31 % 1.18 %
Return on
average shareholders'
equity 16.5 16.3 15.4
Net interest
margin (1) 3.31 3.36 3.30
Efficiency
ratio (2) 57.4 61.8 66.3
Effective
tax rate 28.4 22.3 29.0
Average loans
and leases $24,448,366 $24,457,747 $22,194,826 ---% 10.2
Average loans and
leases - linked
quarter annualized
growth rate. (0.2)% 10.1 % 7.9 %
Average earning
assets $29,404,945 $29,248,535 $27,736,806 0.5 6.0
Average total
assets $32,739,357 $32,619,845 $31,458,712 0.4 4.1
Average core
deposits (3) 17,197,417 16,979,208 16,509,879 1.3 4.2
Average core
deposits - linked
quarter annualized
growth rate (3) 5.1 % (1.7)% 6.9 %
Average shareholders'
equity 2,610,782 2,618,579 2,411,746 (0.3) 8.3
Total assets at
end of period $32,762,988 $32,988,974 $31,808,240 (0.7) 3.0
Total shareholders'
equity at
end of period 2,622,675 2,630,775 2,460,917 (0.3) 6.6
Net charge-offs
(NCOs) $17,953 $16,264 $16,480 10.4 8.9
NCOs as a % of
average loans
and leases 0.29 % 0.27 % 0.30 %
Non-performing loans
and leases (NPLs) $89,709 $83,860 $67,784 7.0 32.3
Non-performing
assets (NPAs) 101,800 97,418 80,476 4.5 26.5
NPAs as a % of total
loans and leases
and other
real estate (OREO) 0.42 % 0.40 % 0.36 %
Allowance for loan
and lease losses
(ALLL) as a % of
total loans and
leases at the
end of period 1.04 1.04 1.25
ALLL plus allowance
for unfunded loan
commitments and
letters of credit
as a % of total loans
and leases at the
end of period 1.19 1.19 1.38
ALLL as a % of NPLs 283 304 417
ALLL as a % of NPAs 249 262 351
Tier 1 risk-based
capital ratio (4) 9.49 9.18 9.10
Total risk-based
capital ratio (4) 12.79 12.39 12.53
Tier 1 leverage
ratio (4) 8.51 8.50 8.36
Average equity /
assets 7.97 8.03 7.67
Tangible equity /
assets (5) 7.39 7.36 7.11
(1) On a fully taxable equivalent (FTE) basis assuming a 35% tax rate.
(2) Non-interest expense less amortization of intangibles ($0.2 million
for all periods above) divided by the sum of FTE net interest income
and non-interest income excluding securities gains (losses).
(3) Includes non-interest bearing and interest bearing demand deposits,
savings and other domestic time deposits, and retail CDs.
(4) September 30, 2005 figures are estimated.
(5) At end of period. Tangible equity (total equity less intangible
assets) divided by tangible assets (total assets less intangible
assets).
HUNTINGTON BANCSHARES INCORPORATED
Year To Date Key Statistics
(Unaudited)
Nine Months Ended
September 30, Change
(in thousands of
dollars, except per
share amounts) 2005 2004 Amount Percent
Net interest income $718,735 $672,306 $46,429 6.9 %
Provision for credit
losses 50,468 42,408 8,060 19.0
Non-interest income 484,960 635,658 (150,698) (23.7)
Non-interest expense 739,465 841,230 (101,765) (12.1)
Income before income
taxes 413,762 424,326 (10,564) (2.5)
Provision for income
taxes 102,244 116,540 (14,296) (12.3)
Net Income $311,518 $307,786 $3,732 1.2 %
Net Income per
common share -
diluted $1.33 $1.32 $0.01 0.8 %
Cash dividends
declared per common
share 0.63 0.55 0.08 14.5
Average common
shares - basic 231,290 229,501 1,789 0.8
Average common
shares - diluted 234,727 233,307 1,420 0.6
Return on average
assets 1.28 % 1.32 %
Return on average
shareholders'
equity 16.1 17.6
Net interest margin (1) 3.33 3.31
Efficiency ratio (2) 60.9 64.5
Effective tax rate 24.7 27.5
Average loans and
leases $24,256,366 $21,822,931 $2,433,435 11.2 %
Average earning
assets 29,261,517 27,425,309 1,836,208 6.7
Average total assets 32,647,327 31,205,667 1,441,660 4.6
Average core
deposits (3) 17,076,401 16,075,363 1,001,038 6.2
Average
shareholders'
equity 2,585,816 2,338,130 247,686 10.6
Net charge-offs
(NCOs) 62,489 57,622 4,867 8.4
NCOs as a % of
average loans and
leases 0.34 % 0.35 %
(1) On a fully taxable equivalent (FTE) basis assuming a 35% tax rate.
(2) Non-interest expense less amortization of intangibles ($0.6 million
for both periods above) divided by the sum of FTE net interest income
and non-interest income excluding securities gains (losses).
(3) Includes non-interest bearing and interest bearing demand deposits,
savings and other domestic time deposits, and retail CDs.
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