01—Abstract
Summary
Summary of the 10-K filed March 5, 2004. Cited figures are marked; the original filing is the authoritative source.
Huntington Bancshares Incorporated, a Columbus, Ohio-based multi-state diversified financial holding company, reports net income of $372.4 milliona, or $1.61 per diluted share, for 2003, up 15% from 2002 on a GAAP basis.
Net interest income rose to $849.0 millionb, with average earning assets up 18%, though the net interest margin declined to 3.49% from 3.62% as interest rates stayed low. Results were supported by $40.0 million of gains on the sale of $2.1 billion of automobile loans, a $13.1 million gain on the sale of four West Virginia banking offices, and a $15.3 million loss from prepaying $250 million of high-cost debt. Excluding these and other significant items, adjusted net income rose 27.5% to $356.7 million, or $1.54 per diluted share.
Credit quality improved materially. Non-performing assets fell to $87.4 millionc, or 0.41% of loans and leases and other real estate, from $136.7 million a year earlier, and net charge-offs declined to 0.81% of average loans from 1.13%. Automobile exposure was reduced to 27.7% of total credit exposure from 33.0%, in line with management's stated goal.
Total assets reached $30.48 billiond, and shareholders' equity was $2.28 billion. All capital ratios exceeded the well-capitalized thresholds, with the holding company's Tier 1 risk-based ratio at 8.53%. The filing also highlights risks investors should weigh.
The SEC has been conducting a formal investigation since June 26, 2003, following Huntington's April 2003 announcement that it would restate its accounting for automobile leases, and the outcome is not yet known. Standard & Poor's placed the company's debt ratings on Credit Watch Negative. On January 27, 2004, Huntington agreed to acquire Unizan Financial Corp., a Canton, Ohio company with $2.7 billion in assets, in a stock transaction valued at about $587 million, with closing expected in late second quarter 2004.
02—Key points
Key Highlights
- Net income of $372.4 million, or $1.61 per diluted share, in 2003, up 15% (net income) and 21% (per share) from 2002 on a GAAP basis
- Adjusted net income of $356.7 million, or $1.54 per diluted share, up 27.5% from 2002 after excluding significant items
- Net interest income of $849.0 million, up 13.3%; net interest margin narrowed to 3.49% from 3.62%
- Non-performing assets fell to $87.4 million (0.41% of loans and other real estate) from $136.7 million at year-end 2002
- Net charge-offs of 0.81% of average loans and leases, down from 1.13% in 2002; management expects 0.50%-0.60% for 2004
- Pending acquisition of Unizan Financial Corp. ($2.7 billion in assets) for approximately $587 million in stock, expected to close late in the second quarter of 2004
- Ongoing SEC formal investigation, announced June 26, 2003, with final results not known at the time of filing
03—Questions
Frequently Asked Questions
Why did reported earnings differ from adjusted earnings in 2003?
Reported 2003 net income of $372.4 million included items management excluded from its adjusted measure, namely a $40.0 million pre-tax gain on the sale of automobile loans, a $13.1 million pre-tax gain on the sale of West Virginia banking offices, a $15.3 million pre-tax loss on extinguishing $250 million of high-cost debt, a $6.7 million restructuring reserve release, and a $13.3 million after-tax charge from adopting FIN 46. Adjusted net income was $356.7 million, or $1.54 per diluted share.
How is the automobile lending exposure changing?
Management reduced total automobile credit exposure to 27.7% of total credit exposure at December 31, 2003, down from 33.0% a year earlier, and sold $2.1 billion of automobile loans during 2003. Management stated that it remains committed to automobile financing but considered the prior concentration too high.
What is the status of the SEC investigation and credit ratings?
The SEC staff began a formal investigation following Huntington's April 2003 announcement that it would restate its accounting for automobile leases, plus allegations by a former employee. The investigation is ongoing, and the company says it has cooperated fully. Standard & Poor's placed Huntington's debt ratings on Credit Watch Negative pending its completion. Moody's outlook was Negative, and Fitch's was Stable.
What does the pending Unizan merger involve?
Unizan shareholders will receive 1.1424 shares of Huntington common stock, on a tax-free basis, for each Unizan share, valuing the transaction at about $587 million based on Huntington's January 26, 2004 closing price. Closing is expected in late second quarter 2004, subject to regulatory and Unizan shareholder approvals, and management expects the deal to be accretive to 2004 earnings excluding one-time charges.
04—Continue