Huntington’s Profit Growth Failed to Meet Expectations

By Barnet D . Wolf, The Columbus Dispatch, Ohio

Jan. 19–Huntington Bancshares Inc. recorded lower fourth-quarter earnings than it expected because of charges related to poor-performing loans.

The banking company, based in Columbus, said yesterday that earnings per share grew 12.8 percent to 44 cents during the three months that ended Dec. 31, and 3.5 percent to $1.77 for the year, compared with similar periods in 2004.

Even so, the earnings were 3 cents below analysts’ expectations, and the company’s stock tumbled 3.3 percent yesterday to close at $23.20 per share.

Kevin K. Reevey, a financial analyst at Ryan Beck & Co., characterized the banking company’s fourth quarter as “disappointing.”

Financial developments late in the quarter caused Huntington to classify a large loan in the troubled domestic auto-supply industry and another in commercial real estate as no longer producing income.

The two loans, totaling $12 million, accounted for most of the bank’s $15 million increase in assets that weren’t producing income, equal to 4 cents in earnings.

Additionally, a number of other commercial loans were downgraded, requiring a “meaningful increase” in the amount of money set aside to cover the company’s potential losses from defaulted loans and leases, said Thomas E. Hoaglin, the bank’s chairman and chief executive.

None of the loan problems represents the start of a trend, he said.

“It is what it is,” Hoaglin said. “We believe that we are now well-reserved, with regard to the particular loans in question, so if there is further deterioration (in the loans’ quality), it will not have a significant earnings impact.”

Despite the loan issues, Huntington reported some positive underlying trends during the final quarter, including some improved profit margins and growth in commercial loans and core deposits.

Hoaglin said Huntington and other Midwestern banks will continue to face slow growth in the region, strong competition and a narrowing gap between long- and short-term interest rates, which tightens lending margins.

At the same time, he said, the bank should continue to report earnings growth thanks to continued increases in loans and deposits, and controls on expenses.

The bank’s proposed acquisition of Unizan Financial Corp., now awaiting regulatory approval, could lower Huntington’s earnings this year by 3 cents or 4 cents per share. When the deal was proposed nearly two years ago, it was expected to add a penny to per-share earnings.

Hoaglin said several factors caused this change.

Unizan is a slightly smaller company than it had been in 2004 because of reductions in its lending activities.

Factoring in Unizan’s effect on Huntington and a 5-cent-per share hit from having to account for employee stock options this year, Huntington estimated its earnings for 2006 will be $1.78 to $1.84 per share. That’s slightly better than in 2005.

The company also said yesterday that its board of directors increased the quarterly dividend on its common stock to 25 cents per share, a 16 percent increase. It follows a 7 percent increase three quarters ago.

bwolf@dispatch.com

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