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2007 News Releases Sky Financial Group Reports 2007 First Quarter Results Downloadable Earnings Release and
BOWLING GREEN, Ohio -- April 19, 2007 -- Sky Financial Group, Inc. (Nasdaq: SKYF) today reported net income for the first quarter of 2007 of $51.6 million, or $.44 per diluted share, compared to $50.6 million, or $.46 per diluted share, for the first quarter of 2006. Annualized return on assets and return on equity for the first quarter were 1.18% and 11.03%, respectively, compared with 1.31% and 13.07%, respectively, for the same period in 2006. Core operating earnings were $52.7 million for the first quarter of 2007 versus $50.8 million for the same period in 2006. Core operating earnings per diluted share for the first quarter were $.45 versus $.46 for the first quarter of 2006. Core operating earnings in the first quarter of 2007 and 2006 reflect net income adjusted to exclude merger, integration and restructuring expenses that are not representative of ongoing operations. For the first quarter, on a core operating earnings basis, annualized return on assets and return on equity were 1.21% and 11.27%, respectively, compared with 1.31% and 13.10%, respectively, for the same period in 2006. Cash operating earnings, which reflect core operating earnings excluding amortization of intangibles, were $55.7 million, or $.47 per diluted share, in the first quarter of 2007 compared to $53.3 million, or $.49 per diluted share, in the first quarter of 2006. On a cash operating basis, the annualized return on average tangible equity was 20.05% for the first quarter compared with 21.49% for the same period in 2006. "Our first quarter performance reflects our continued focus on our strategic priorities," stated Marty E. Adams, chairman, president and chief executive officer. "Our margin improved from last quarter and we continue to see strong fee-based revenue growth. Combined with an emphasis on consistent credit quality and strong expense control, Sky produced solid results in the face of a challenging economic and interest rate environment. We look forward to achieving improved results in the second quarter and are excited about the progress of our pending merger with Huntington, which is on schedule to be completed early in the third quarter." First Quarter Results Net interest income for the first quarter was $142.8 million, up 7.5% from $132.8 million in the first quarter of 2006. The net interest margin for the first quarter was 3.64%, up 5 basis points from the fourth quarter of 2006 and down 14 basis points from the first quarter of 2006. The increase in the net interest margin performance from the fourth quarter of 2006 was primarily the result of mid-fourth quarter balance sheet restructuring activities. The decrease from the first quarter of 2006 was primarily the result of compressed interest rate spreads from an unfavorable interest rate environment and the effects of the addition of Union Federal Bank in the fourth quarter of 2006 that had a lower margin, which were partially offset by the fourth quarter balance sheet restructuring. Average earning assets increased 12.0% over the first quarter of 2006 due to organic growth and acquisitions. Average loans for the quarter increased 15.0% from the same quarter last year, with organic growth contributing 2.4% in addition to the acquisitions. Average deposits grew 21.8% from the first quarter of 2006, which included organic growth of 3.8% in addition to the acquisitions. Non-interest revenues were $68.8 million, up from $56.7 million in the first quarter of 2006. Compared to the first quarter of 2006, service charges on deposits for the first quarter of 2007 were up 54.2% from higher volumes in deposit accounts from acquisitions, continued growth in transaction accounts and fee increases on certain types of accounts. In addition, trust services income was up 17.9% as trust assets increased to $5.8 billion at March 31, 2007 compared to $4.9 billion at March 31, 2006. Brokerage and insurance commissions were down 6.6%, due mostly to the sale of the wholesale insurance business in the fourth quarter of 2006 and decreased contingent income. Other income in the quarter increased 36.5% over the first quarter of 2006, due primarily to higher check card and deposits fees. Mortgage banking revenues were up 3.0%, mainly due to lower amortization of servicing rights during the first quarter of 2007, while mortgage originations of $257 million rose 4% from the first quarter last year. The first quarter non-interest expenses on a core operating basis, excluding the merger, integration and restructuring expenses recorded during the quarter were $121.2 million, up 14.3% or $15.2 million from $106.0 million in the first quarter of 2006. Total non-interest expenses for the first quarter were $122.9 million compared to $106.2 million in the first quarter of 2006 and included pre-tax charges of $1.7 million of merger, integration and restructuring expenses related to additional costs from the 2006 acquisition of Union Federal Bank and costs incurred related to the pending merger with Huntington Bancshares Incorporated. Core operating expenses increased over the first quarter of 2006, mainly due to the acquisitions in late 2006 and increased marketing expenses in the first quarter of 2007 compared to the first quarter of 2006. The efficiency ratio, on a cash operating basis, excluding the core operating adjustments, was 54.85% for the first quarter of 2007, compared to 53.67% for the same quarter in 2006. Credit Quality The provision for credit losses for the first quarter was $10.7 million, increasing from $7.2 million in the same quarter in 2006. Net credit losses for the quarter were $11.3 million, or .36% annualized to average total loans, compared to $8.0 million, or .29%, for the first quarter of 2006. At March 31, 2007, non-performing loans to total loans was 1.14% versus 1.07% at December 31, 2006 and 1.16% at March 31, 2006. Total non-performing loans at March 31, 2007, were $146.4 million, an increase of $9.2 million from $137.2 million at December 31, 2006 and an increase of $17.5 million from $128.9 million at March 31, 2006. The allowance for credit losses to non-performing loans at March 31, 2007, was 118% versus 126% at December 31, 2006 and 111% at March 31, 2006. Non-performing loans continue to reflect the non-accrual status of $15.4 million of loans with payments guaranteed by surety bonds issued by an insurance company, which remains in litigation. Outlook for 2007 For 2007, Sky continues to project growth in core operating earnings per share for the year. Sky's financial performance is expected to reflect moderate organic growth in loans and deposits, stability in the net interest margin and asset quality ratios and strong operating efficiency, all consistent with its strategic priorities. Non-GAAP Financial Measures In addition to results presented in accordance with GAAP, this press release contains certain non-GAAP financial measures. Sky believes that providing certain non-GAAP financial measures provides investors with information useful in understanding Sky's financial performance, its performance trends and financial position. Specifically, Sky provides measures based on "core operating earnings," which excludes merger-related expenses and other transactions that are not reflective of ongoing operations or not expected to recur. In addition, Sky provides measures based on "cash operating earnings," which further adjusts core operating earnings to exclude the effect of amortization of intangibles. These non-GAAP measures should not be considered a substitute for GAAP basis measures and results. A reconciliation of these non-GAAP measures to the most comparable GAAP equivalent is included in the financial tables. Forward-looking Statement This press release contains certain forward-looking statements, including certain plans, expectations, goals and projections, including statements about the benefits of the merger between Huntington Bancshares Incorporated ("Huntington") and Sky Financial Group, Inc. ("Sky Financial"), 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: the businesses of Huntington and Sky Financial may not be integrated successfully or such integration may take longer to accomplish than expected; the expected cost savings and any revenue synergies from the merger may not be fully realized within the expected timeframes; disruption from the merger may make it more difficult to maintain relationships with clients, associates, or suppliers; the required governmental approvals of the merger may not be obtained on the proposed terms and schedule; Huntington and/or Sky Financial's stockholders may not approve the merger; changes in economic conditions; movements in interest rates; competitive pressures on product pricing and services; success and timing of other business strategies; the nature, extent, and timing of governmental actions and reforms; extended disruption of vital infrastructure; and other factors described in Huntington's 2006 Annual Report on Form 10-K, Sky Financial's 2006 Annual Report on Form 10-K, and documents subsequently filed by Huntington and Sky Financial with the Securities and Exchange Commission ("SEC"). All forward-looking statements included in this letter are based on information available at the time it was written. Neither Huntington nor Sky Financial assumes any obligation to update any forward-looking statement. Additional Information about the Merger and Where to Find It Huntington and Sky Financial have filed all relevant documents concerning the transaction with the SEC, including a registration statement on Form S-4, which includes a proxy statement/prospectus. Stockholders can obtain a free copy of the proxy statement/prospectus, as well as other filings containing information about Huntington and Sky Financial, at the SEC's Internet site: www.sec.gov. Copies of the proxy statement/prospectus and the filings with the SEC that are incorporated by reference in the proxy statement/prospectus can also be obtained, without charge, by directing a request to Huntington, Huntington Center, 41 South High Street, Columbus, Ohio 43287, Attention: Investor Relations, 614-480-4060; or Sky Financial, 221 South Church Street, Bowling Green, Ohio, 43402. The final proxy statement/prospectus will be mailed to stockholders of Huntington and Sky Financial on or about April 25, 2007. Stockholders are urged to read the proxy statement/prospectus, and other relevant documents filed with the SEC regarding the proposed transaction when they become available, because they will contain important information. The directors and executive officers of Huntington and Sky Financial and other persons may be deemed to be participants in the solicitation of proxies in respect of the proposed merger. Information regarding Huntington's directors and executive officers is available in its proxy statement filed with the SEC by Huntington on March 8, 2006. Information regarding Sky Financial's directors and executive officers is available in its 2006 Annual Report on Form 10-K filed with the SEC by Sky Financial on February 23, 2006. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, is contained in the proxy statement/prospectus and other relevant materials to be filed with the SEC when they become available. About Sky Financial Group, Inc. Sky Financial Group is a $17.6 billion diversified financial holding company. Sky's asset size places it among the 40 largest publicly-held bank holding companies in the nation. Sky operates over 330 financial centers and over 400 ATMs, serving communities in Ohio, Pennsylvania, Michigan, Indiana and West Virginia. Sky's financial service affiliates include: Sky Bank, commercial and retail banking; Sky Trust, asset management services; and Sky Insurance, retail and commercial insurance agency services. The company is located on the web at www.skyfi.com.
Summary Financials-First Quarter 2007
SKY FINANCIAL GROUP, INC.
STATEMENTS OF INCOME (Unaudited)
Three Months Ended
(Dollars in thousands, March 31 Percent
except per share data) 2007 2006 Change
Interest income $281,267 $234,044 20.2 %
Interest expense 138,501 101,208 36.8
Net interest income 142,766 132,836 7.5
Provision for credit losses 10,703 7,154 49.6
Net interest income after
provision for credit losses 132,063 125,682 5.1
Non-interest income
Trust services income 6,935 5,881 17.9
Service charges and fees on
deposit accounts 20,811 13,499 54.2
Mortgage banking income 5,731 5,563 3.0
Brokerage and insurance
commissions 18,492 19,792 (6.6)
Net securities gains (losses) 565 (5) 11,400.0
Other income 16,279 11,929 36.5
Total non-interest income 68,813 56,659 21.5
Non-interest expenses
Salaries and employee benefits 66,366 59,814 11.0
Occupancy and equipment expense 21,319 17,643 20.8
Merger, integration and
restructuring expense 1,723 180 857.2
Other operating expenses 33,472 28,541 17.3
Total non-interest expense 122,880 106,178 15.7
Income before income taxes 77,996 76,163 2.4
Income taxes 26,375 25,523 3.3
Net income $51,621 $50,640 1.9
SHARE DATA:
Earnings per share
Basic $0.44 0.47 (6.4)
Diluted 0.44 0.46 (4.4)
Core operating earnings per share*
Basic 0.45 0.47 (4.3)
Diluted 0.45 0.46 (2.2)
Cash operating earnings per share*
Basic 0.47 0.49 (4.1)
Diluted 0.47 0.49 (4.1)
Cash dividend declared per
common share 0.25 0.23 --
Average shares outstanding
Basic 117,291,000 108,337,000 --
Diluted 118,329,000 109,287,000 --
Summary Financials-First Quarter 2007
PERFORMANCE RATIOS:
Three Months Ended
March 31
2007 2006
Net Income $51,621 $50,640
Return on average equity 11.03% 13.07%
Return on average assets 1.18% 1.31%
Net interest margin (FTE) 3.64% 3.78%
CORE OPERATING*
Core operating earnings $52,741 $50,757
Return on average equity 11.27% 13.10%
Return on average assets 1.21% 1.31%
Efficiency ratio 57.00 55.71
CASH OPERATING*
Cash operating earnings $55,705 $53,277
Return on average tangible equity 20.05% 21.49%
Return on average tangible assets 1.34% 1.43%
Efficiency ratio 54.85 53.67
PERIOD END BALANCE SHEETS (Unaudited)
(Dollars in thousands)
March 31 Percent
2007 2006 Change
Cash and due from banks $326,448 $260,304 25.4 %
Interest-earning deposits
with banks 11,055 9,652 14.5
Federal funds sold 45,132 23,000 96.2
Loans held for sale 17,357 23,395 (25.8)
Securities available for sale 3,043,833 3,144,045 (3.2)
Total loans 12,837,735 11,093,918 15.7
Allowance for credit losses (172,407) (143,383) 20.2
Net loans 12,665,328 10,950,535 15.7
Premises and equipment 204,241 165,598 23.3
Goodwill and other intangibles 798,506 587,231 36.0
Other assets 511,109 494,791 3.3
Total assets $17,623,009 $15,658,551 12.5
Total interest-earning assets $15,955,112 $14,294,010 11.6
Non-interest-bearing
deposits $1,855,488 $1,663,459 11.5
Interest-bearing deposits 11,279,964 9,339,539 20.8
Total deposits 13,135,452 11,002,998 19.4
Repos and federal funds
purchased 1,208,182 915,821 31.9
Debt and FHLB advances 1,149,516 1,982,984 (42.0)
Other liabilities 199,227 190,177 4.8
Shareholders' equity 1,930,632 1,566,571 23.2
Total liabilities and
shareholders' equity $17,623,009 $15,658,551 12.5
Summary Financials-First Quarter 2007
AVERAGE BALANCE SHEETS (Unaudited)
(Dollars in thousands)
Three Months Ended
March 31 Percent
2007 2006 Change
Cash and due from banks $315,120 $246,033 28.1 %
Interest-earning deposits
with banks 9,414 12,546 (25.0)
Federal funds sold 50,545 2,644 1,811.7
Loans held for sale 15,074 11,727 28.5
Securities available for sale 3,106,414 3,115,505 (0.3)
Total loans 12,854,247 11,176,494 15.0
Allowance for credit losses (172,618) (144,415) 19.5
Net loans 12,681,629 11,032,079 15.0
Premises and equipment 206,033 167,180 23.2
Goodwill and other intangibles 796,862 588,376 35.4
Other assets 510,884 483,232 5.7
Total assets $17,691,975 $15,659,322 13.0
Total interest-earning assets $16,035,694 $14,318,916 12.0
Non-interest-bearing
deposits $1,841,009 $1,645,047 11.9
Interest-bearing deposits 11,262,385 9,114,741 23.6
Total deposits 13,103,394 10,759,788 21.8
Repos and federal funds
purchased 1,052,180 1,020,649 3.1
Debt and FHLB advances 1,442,115 2,132,077 (32.4)
Other liabilities 195,664 176,019 11.2
Shareholders' equity 1,898,622 1,570,789 20.9
Total liabilities and
shareholders' equity $17,691,975 $15,659,322 13.0
ASSET QUALITY DATA:
March 31
2007 2006
Non-accrual loans $146,343 $128,402
Restructured loans 40 463
Total non-performing loans 146,383 128,865
Other real estate owned 23,425 18,319
Total non-performing assets $169,808 $147,184
Loans 90 days or more past
due and still accruing $14,915 $20,408
Allowance for credit losses 172,407 143,383
ASSET QUALITY RATIOS:
Non-accrual loans to total
loans 1.14% 1.16%
Non-performing loans to
total loans 1.14 1.16
Non-performing assets to total
assets 0.96 0.94
Loans 90 days or more past
due and still accruing
to total loans 0.12 0.18
Allowance for credit losses
to non-performing loans 117.78 111.27
Allowance for credit losses
to non-performing assets 101.53 97.42
Allowance for credit losses
to total loans 1.34 1.29
NET CHARGE-OFFS:
Three Months Ended
March 31
2007 2006
Net charge-offs $11,340 $8,030
Net charge-offs to average
loans 0.36 0.29
Summary Financials-First Quarter 2007
SKY FINANCIAL GROUP, INC.
*NON-GAAP DISCLOSURE RECONCILIATIONS
(Dollars in thousands)
Core operating earnings reflect net income adjusted to exclude the after-
tax effect of discontinued operations and other charges and gains that
management does not consider to be reflective of ongoing operations or
are expected to recur.
Cash operating earnings are core operating earnings adjusted to exclude
the after-tax effect of amortizing core deposits and other intangibles.
Management believes that both core operating earnings and cash operating
earnings assist the investor in understanding the impact of non-core
adjustments and amortization of intangibles on reported results.
Core operating earnings
The following reconciles GAAP income from continuing operations to core
operating earnings for the three months ended March 31, 2007 and 2006:
Three Months Ended
March 31
2007 2006
Net income $51,621 $50,640
Add: Merger, integration and
restructuring expense 1,723 180
Tax effect (603) (63)
After-tax non-operating items 1,120 117
Core operating earnings $52,741 $50,757
Merger, integration and restructuring expenses in 2007 reflect charges
from additional costs from the fourth quarter 2006 acquisition of Union
Federal Bank and costs incurred related to the pending merger with
Huntington Bancshares.
Merger, integration and restructuring expenses in 2006 reflect charges
associated with the acquisition of Union Federal Bank and additional costs
from the fourth quarter 2005 Falls Bank acquisition.
Core operating earnings is used as the numerator to calculate core
operating return on average assets, core operating return on average
equity and core operating earnings per share. Additionally, certain
charges and gains that are not considered by management to be part of core
earnings are removed from the numerator and the denominator of the core
operating efficiency ratio disclosed in the tables. The comparable
information on a GAAP basis is also provided in the tables.
Cash operating earnings
The following table reconciles core operating earnings to cash operating
earnings for the three months ended March 31, 2007 and 2006:
Three Months Ended
March 31
2007 2006
Core operating earnings $52,741 $50,757
Add: Amortization of core deposits
and other intangible assets 4,560 3,877
Tax effect (1,596) (1,357)
After-tax non-operating items 2,964 2,520
Cash operating earnings $55,705 $53,277
Cash operating earnings is used as the numerator to calculate the cash
operating return on average tangible equity and the cash operating return
on average tangible assets. The denominator of each ratio is adjusted to
deduct the average balance of intangible assets during the period.
Additionally, amortization of core deposits and other intangible assets
and other charges and gains that are not considered by management
to be a part of core operating earnings are removed from the numerator
and the denominator of the core operating efficiency ratio disclosed in
the tables. The comparable information on a GAAP basis is also provided
in the tables.
Summary Financials-First Quarter 2007
The following table reconciles average GAAP equity to average tangible
equity for the three months ended March 31, 2007 and 2006.
Three Months Ended
March 31
2007 2006
Average GAAP equity $1,898,622 $1,570,789
Goodwill 725,299 522,981
Core deposits and other intangibles 71,563 65,395
Deferred taxes (25,047) (22,888)
771,815 565,488
Average tangible equity $1,126,807 $1,005,301
The following table reconciles average GAAP assets to average tangible
assets for the three months ended March 31, 2007 and 2006:
Three Months Ended
March 31
2007 2006
Average GAAP assets $17,691,975 $15,659,322
Goodwill 725,299 522,981
Core deposits and other intangibles 71,563 65,395
Deferred taxes (25,047) (22,888)
771,815 565,488
Average tangible assets $16,920,160 $15,093,834
The following table reconciles GAAP earnings per share to operating
earnings per share, core operating earnings per share and cash operating
earnings per share (certain information does not add due to rounding):
Basic EPS Three Months Ended
March 31
2007 2006
Net income $0.44 $0.47
After-tax non-core operating
adjustments 0.01 -
Core operating earnings 0.45 0.47
After-tax amortization of core
deposits and other intangible
assets 0.03 0.02
Cash operating earnings $0.47 $0.49
Diluted EPS Three Months Ended
March 31
2007 2006
Net income $0.44 $0.46
After-tax non-core operating
adjustments 0.01 -
Core operating earnings 0.45 0.46
After-tax amortization of core
deposits and other intangible
assets 0.03 0.02
Cash operating earnings $0.47 $0.49
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