01—Abstract
Summary
Summary of the 10-K filed February 18, 2011. Cited figures are marked; the original filing is the authoritative source.
Huntington Bancshares Incorporated, a multi-state diversified regional bank holding company headquartered in Columbus, Ohio, reported net income of $312.3 milliona, or $0.19 per common share, for 2010, compared with a net loss of $3,094.2 million, or $6.14 per share, in 2009.
The 2009 loss was driven primarily by $2,606.9 millionb of noncash goodwill impairment and a $2,074.7 million provision for credit losses. The 2010 provision fell to $634.5 million, and net charge-offs declined to $874.5 million, or 2.35% of average loans and leases, from $1,476.6 million, or 3.82%, in 2009. Net interest margin widened to 3.44% from 3.11%, and noninterest expense fell 59% to $1.7 billion, largely due to the absence of the 2009 goodwill charge.
Capital was strengthened in the fourth quarter of 2010, when the company sold $920.0 millionc of common stock and $300.0 million of 7.00% subordinated notes due 2020. Proceeds, along with other funds, were used to repurchase $1.4 billion of TARP Capital from the Treasury, and on January 19, 2011, the company repurchased the related warrant for $49.1 million. The Tier 1 common equity ratio was 9.29% at year end, and the company remained above Well-capitalized thresholds.
Nonperforming assets declined to $844.8 milliond, or 2.21% of related assets, from $2,058.1 million a year earlier. The filing highlights continued regulatory uncertainty, including the Dodd-Frank Act, which management believes will negatively affect the company in areas such as capital requirements and fee restrictions.
Interchange revenue is expected to decline significantly under the Federal Reserve's proposed rules, and approximately $569.9 million of trust-preferred securities could reduce the Tier 1 risk-based capital ratio by about 130 basis points if disallowed. For 2011, management expects pre-tax, pre-provision income to remain in line with the second half of 2010, with net income growth from the fourth-quarter 2010 level and lower credit costs.
02—Key points
Key Highlights
- Net income of $312.3 million ($0.19 per share) in 2010, versus a net loss of $3,094.2 million ($6.14 per share) in 2009, which included a $2,606.9 million goodwill impairment.
- Net interest margin rose to 3.44% from 3.11%, and fully-taxable-equivalent net interest income increased 14% to $1.6 billion.
- Provision for credit losses fell to $634.5 million from $2,074.7 million; net charge-offs were $874.5 million, or 2.35% of average loans and leases.
- Nonperforming assets declined to $844.8 million (2.21% of related assets) from $2,058.1 million, and the ACL covered 166% of nonaccrual loans and leases versus 80% a year earlier.
- Repurchased all $1.4 billion of TARP Capital in December 2010, funded by a $920.0 million common stock offering and $300.0 million of 7.00% subordinated notes; warrant repurchased January 19, 2011 for $49.1 million.
- Tier 1 common equity ratio improved to 9.29% from 6.69%, and the tangible common equity ratio rose to 7.56% from 5.92%.
- Dodd-Frank Act and proposed Federal Reserve interchange rules are expected to reduce revenue, with interchange fees of about $90 million per year at risk.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 18, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Interest Expense | $526.59M$813.86M | −35.3% |
| Net Income | $312.35M-$3.09B | +110.1% |
| EPS (Basic) | $0.19$-6.14 | +103.1% |
| EPS (Diluted) | $0.19$-6.14 | +103.1% |
| Shares Outstanding (Basic) | 726.93M532.80M | +36.4% |
| Shares Outstanding (Diluted) | 729.53M532.80M | +36.9% |
05—Questions
Frequently Asked Questions
Why did the company report a net loss in 2009 but net income in 2010?
The 2009 net loss of $3,094.2 million was driven mainly by $2,606.9 million of noncash goodwill impairment charges, most related to the Sky Financial and Unizan acquisitions, and a $2,074.7 million provision for credit losses. In 2010 the goodwill charge did not recur and the provision fell to $634.5 million, producing net income of $312.3 million.
How did the company strengthen its capital position in 2010?
In the fourth quarter of 2010, the company sold $920.0 million of common stock at $6.30 per share and issued $300.0 million of 7.00% subordinated notes due 2020. These proceeds, with other funds, repurchased $1.4 billion of TARP Capital from the Treasury. The consolidated tangible common equity ratio rose to 7.56% from 5.92%.
What are the main regulatory risks highlighted in the filing?
The Dodd-Frank Act is expected to negatively affect the company in capital requirements and restrictions on fees. Proposed Federal Reserve rules could reduce annual interchange fees substantially, with a $0.07 maximum rate cutting them by about 85%. Disallowance of trust-preferred securities ($569.9 million outstanding) would reduce the Tier 1 risk-based capital ratio by about 130 basis points, though capital ratios would remain above Well-capitalized levels; a three-year phase-in begins January 1, 2013.
How is credit quality trending?
Credit quality improved significantly in 2010. Nonperforming assets fell to $844.8 million from $2,058.1 million, nonaccrual loans fell to $777.9 million, and net charge-offs declined to $874.5 million from $1,476.6 million. The allowance for credit losses was $1,291.1 million, or 3.39% of period-end loans and leases, compared with 4.16% a year earlier.
What does management expect for 2011?
Management expects pre-tax, pre-provision income to remain in line with the second half of 2010, with net income growth from the fourth-quarter 2010 level throughout the year due to lower credit costs. The net interest margin is expected to be flat or increase slightly from the fourth quarter of 2010, while fee income is expected to decline with lower interchange fees and mortgage banking revenue.
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