Huntington Raises Loan Loss Estimate

Huntington Bancshares' second quarter earnings were clipped by a higher loan loss provision and poor mortgage hedging results.

The Ohio-based bank earned $80.5 million in the second quarter, down from $111.6 million in the second quarter of last year.

Among the second quarter charges were $5.1 million of impairment losses on securities backed by mortgage loans to borrowers with low credit scores. The company also reported a $4.8 million hit related to the hedging of mortgage servicing rights.

But the biggest item was a $24.8 million pre-tax addition in loss provision related to two eastern Michigan credit relationships and one commercial credit in Ohio.

Net charge-offs for 2007's second quarter were $34.5 million, or an annualized rate of 0.52% of average total loans and leases. Huntington said this is above its long-term target range of 0.35% to 0.45%.

Huntington said its mortgage banking income declined by 48%, or $6.5 million, driven by the MSR hedging loss. In the year earlier period, Huntington had posted a gain in its MSR hedging position.

Expenses related to the company's merger with Sky Financial Group, which closed in July, also weighed on the company's second quarter performance. Those merger costs trimmed net earnings by $7.6 million in the second quarter.

The company also scaled back its exposure to home loan credits, reporting a 13% annualized decline in residential mortgages on its books. That in part reflected the sale of $110 million of residential mortgages at the end of the first quarter. The company had also sold some $400 million of home loans over the three previous quarters.

Huntington chairman and CEO Thomas Hoaglin called the second quarter results "disappointing" and blamed the need to build loss reserves as the primary factor in the earnings shortfall.

"Home builder markets in our footprint remain under pressure. This was especially true in eastern Michigan, where the anticipated softness turned out to be much worse than expected," he said in the company's earnings announcement.

He said that while market conditions always can affect short-term performance, the company remains focused on building its franchise. He said the merger with Sky Financial solidifies Huntington's position in Ohio and greatly expands its presence in the Indianapolis market.

Snapshot: Huntington's Provision for Loan Losses

2nd Qtr '07 $60.1 million

1st Qtr '07 $29.4 million

2nd Qtr '06 $15.7 million

Source: Huntington Bancshares (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.bondbuyer.com/ http://www.sourcemedia.com/