Huntington Bancshares, a large U.S. Midwest bank, said Monday second-quarter profit was lower than analysts had forecast, citing a soft housing market and merger-related costs.
The announcement is evidence that the housing slowdown and weakening credit quality may be affecting banks' bottom lines.
Last week, the American Bankers Association, a trade group, said U.S. consumer delinquencies were at their highest level since the second quarter of 2001, when the economy was in recession.
Shares of Huntington fell as much as 4.7%.
Huntington, based in Columbus, Ohio, said it expects to report quarterly profit of 34 cents per share, 11 cents below the average analyst forecast according to Reuters Estimates.
The bank set aside $60 million for bad loans, twice as much as the first quarter. This included $25 million for three large loans it downgraded to "nonperforming" status. Two involved real estate in eastern Michigan, and one concerned a commercial loan in northeast Ohio. Nonperforming assets will rise to about $262 million from the first quarter's $206.7 million.
"Results were below our expectations and resulted primarily from difficult and deteriorating residential real estate markets," Chief Executive Thomas Hoaglin said in a statement.
"The spring and early summer selling season is important for homebuilders, and while we had expected softness, in the case of east Michigan, it turned out to be far worse than planned."
Huntington also will record $8 million of costs related to its $3.3 billion purchase on July 1 of Sky Financial Group , and $3 million of losses related to hedging and investments.
Net interest margin, the difference between what Huntington earns on loans and pays on deposits, narrowed to 3.27% from 3.36% in the first quarter.
Huntington said it has more than $50 billion of assets, and operates more than 700 branches in Ohio, Indiana, Kentucky, Michigan, Pennsylvania and West Virginia.
Many banks, including M&T Bank, Sovereign Bancorp and SunTrust Banks, have this year suffered real estate-related losses as slowing home sales and higher interest rates cause more borrowers to miss payments.
On Monday, a Michigan bank,Ionia-based Independent Bank, said the slow Michigan housing market would contribute to a surprise second-quarter loss.
Huntington is slated to report quarterly results on July 19. Most large U.S. banks also report results next week.
In late morning trading, Huntington shares were down 70 cents, or 3.1%, at $21.94 on the Nasdaq, after earlier falling to $21.57.