Huntington Bancshares 3Q profit slides 17 percent

COLUMBUS, Ohio - Huntington Bancshares Inc. reported a 17 percent decline in third-quarter profit and cut its outlook for the remainder of the year, as the bank's loan portfolios continue to struggle amid a worsening economy.

But results beat Wall Street expectations, with Stifel, Nicolaus & Co. analyst Anthony Davis saying the Midwest regional bank's report was "a pretty darn good showing" considering the current banking environment.

The third quarter proved to be one of the most tumultuous times in America's economy since the stock market crash of 1929. Unprecedented market turmoil led to the bankruptcy of investment bank Lehman Brothers Holdings Inc. and the near-collapse of insurer American International Group Inc.

Fear has since permeated the market, resulting in a seize-up of lending. As a result, the government has taken extraordinary moves — including the passage of a $700 billion financial rescue package — to restore investor confidence and spur banks to lend again.

For the three months ended Sept. 30, Huntington's net income after paying preferred dividends totaled $103.1 million, or 28 cents per share, compared with profit of $138.2 million, or 38 cents per share, in the year-ago quarter.

The latest quarter included a write-down of $15.2 million in securities losses. Huntington also set aside $125.4 million to cover loan losses, up $83.4 million from the year-ago period.

The results still topped the average estimate of 24 cents per share of analysts polled by Thomson Reuters.

The company said it experienced significant pressure in its auto loan and lease, home equity and residential mortgage portfolios. Total net charge-offs, or loans written off as unpaid, were $83.8 million, or 0.82 percent of total annualized loans and leases. That's up sharply from $47.1 million, or 0.47 percent, in the third quarter of last year.

Non-performing assets swelled 5 percent, with most of the increase in commercial real estate and commercial and industrial loans.

"Net charge-offs and problem assets are increasing, but at a manageable pace," said Chairman, President and Chief Executive Thomas E. Hoaglin in a statement. "Even so, this will continue to place pressure on earnings as we build our allowance for credit losses to assure it is sufficient to handle an environment that we expect will continue to be weak through next year."

Results also were hurt by significant declines in trust services, customer derivative income, brokerage and insurance income and mortgage banking income, due to lower origination volume, the company said. Net interest income slipped 5 percent to $388.6 million during the quarter.

Total average loans and leases rose 3 percent to $41 billion, driven by an increase in commercial loans. Average total deposits were essentially flat year-over-year at $37.8 billion.

Non-interest income, or income generated from fees and other charges, rose 11 percent over the prior-year quarter to $226.5 million, but was down 4 percent from the second quarter.

"Fee income performance was not as good as expected since many fee-based activity levels have declined in this environment and lower market valuations decreased the value of managed assets," Hoaglin said.

The bank's Tier 1 capital ratio, essentially a measure of a company's cash versus debt, stood at 8.86 percent at quarter end. Capital was $1 billion above the regulatory level for being considered "well capitalized," the company said.

Looking forward, Huntington said it expects "difficult times will remain," and trimmed its full-year profit forecast to a range of $1.12 and $1.16 per share, from $1.25 to $1.35 per share previously.

Analysts have forecast profit of $1.09, on average, for the full year.

Huntington shares added 40 cents, or 4.7 percent, to $9 in midday trading. Shares have ranged between $4.37 and $18.09 in the past 12 months.

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