Huntington Continues Loss Trends

Huntington Bancshares Incorporated (HBAN - Analyst Report) reported third quarter 2009 net loss applicable to common shareholders of $166.2 million or 33 cents per share, compared to a net loss of $125.1 million or 40 cents per share in the prior quarter and a net income of $75.1 million or 17 cents per share in the prior-year quarter. Results were short of the Zacks Consensus Estimated loss of 28 cents.

Higher losses were attributable to $475.1 million in provisions for credit loss expense and higher share count in the quarter. Both credit and profitability metrics continued to deteriorate whereas non-interest expense increased significantly.

Fully taxable equivalent net interest income increased 3.7% sequentially but decreased 6.6% year-over-year to $362.8 million. The year-over-year decrease resulted primarily from a decline in the net interest margin (NIM) to 3.20% from 3.29% a year ago as well as a decline in average earnings assets.

Non-interest income decreased 3.7% sequentially but increased 52.5% year-over-year to $256.1 million in the reported quarter. The year-over-year increase in non-interest income was primarily the result of reduced securities losses and growth in mortgage banking, electronic banking and other income.

Non-interest expenses for the quarter increased 18.0% sequentially and 18.3% year-over-year to $401.1 million. The increase in non-interest expenses resulted primarily from a $19.8 million increase in FDIC insurance expenses, as the prior period’s assessment expense was offset by an assessment credit that has since been fully utilized, $29.9 million increase in OREO (other real estate owned) and foreclosure expense, $5.9 million increase in professional services and a $5.6 million increase in outside data processing and other services.

Return on average shareholders equity from continuing operations for the quarter came in at negative 12.5% compared to negative 10.2% in the prior quarter and positive 4.7% in the prior-year quarter. Return on average shareholders assets also deteriorated to a negative 1.28%, compared to negative 0.97% in the prior quarter and positive 0.55% in the prior-year quarter.

Credit metrics also deteriorated significantly during the quarter. Non-performing assets (NPAs) increased 108 bps sequentially and 462 bps year-over-year to 6.26% of total loans and foreclosed property. Net charge-offs increased 33 bps sequentially and 294 bps year-over-year to an annualized 3.76% of average total loans and leases. The allowance for loan losses increased 39 bps sequentially and 102 bps year-over-year to 2.77% of total loans.

The bank continued to incur huge losses in commercial real estate, and we expect the credit challenges to persist in the foreseeable future.