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Huntington Bancshares Swings to Profit

Huntington Bancshares's stock leapt Wednesday after the company reported a surprise first-quarter profit.



) -- Shares of

Huntington Bancshares

(HBAN) - Get Huntington Bancshares Incorporated Report

leapt Wednesday after the company reported a surprise first-quarter profit and improvements in loan quality that should translate to major earnings improvements in coming quarters.

The stock was recently changing hands at $6.66, up 14.2%, and its session-high of $6.76 was a new 52-week peak. Volume of nearly 54 million was already more than double the issue's three-month trailing daily average of 25.1 million.

Before the opening bell, Huntington reported first quarter net income of $39.7 million, or a penny a share, well ahead of the average estimate of analysts polled by

Thomson Reuters

for a loss of 15 cents a share in the March period.

The performance were also a marked improvement from the company's fourth-quarter net loss of $369.7 million, or 56 cents a share, and a first-quarter 2009 net loss of $2.4 billion, or $6.79 cents a share.

The latest results include a tax benefit of $38.2 million and also reflect the impact of $29.4 million in dividends paid on preferred shares, including those held by the U.S. Treasury, which provided Huntington with $1.4 billion in bailout money via the Troubled Assets Relief Program, or TARP, in November 2008.

Like other several other regional holding companies with high levels of problem loans, including


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, the main factor in the earnings improvement over the fourth quarter was a reduction in Huntington's credit costs.

Huntington's provision for loan losses for the first quarter totaled $235 million, down from $894 million during the fourth quarter and $292 million in the same period a year earlier.

Nonaccrual loans declined by $151 million from the previous quarter to $1.77 billion, although net charge-offs (loan losses) for the first quarter totaled $239 million. The good news was that the pace of charge-offs declined to its lowest level since the third quarter of 2008, and the inflow of problem loans slowed considerably.

Nonperforming assets, including nonaccrual loans, impaired loans for sale and repossessed real estate comprised 3.70% of total assets, down from 3.99% in the fourth quarter, although it was up from 3.43% a year earlier. The annualized ratio of net charge-offs to average loans for the first quarter was 2.58%, declining from 4.80% the previous quarter and 3.34% in the first quarter of 2009.

CEO Stephen Steinour said the asset quality improvement confirmed the holding company's "expectation that 2009 would represent the high water mark for credit-related problems." He also said that the company expected continued reductions in loan charge-offs and loan loss provisions and predicted Huntington would achieve a full-year profit for 2010.

Loan loss reserves covered 4.00% of total loans as of March 31, making the company appear over-reserved, assuming Steinour's projection of continuing declines in charge-offs was correct. This means that in coming quarters, Huntington can be expected to greatly reduce the quarterly provision for loan losses, leading to quite a bounce in earnings performance.

Again following the trend for most regional bank holding companies in the low interest rate environment, Huntington's net interest margin -- the difference between a bank's average yield on loans and investments and its average cost of funds -- continued to improve, to 3.47% for the first quarter, from 3.19% in the fourth quarter and 2.97% during the first quarter of 2009.


Written by Philip van Doorn in Jupiter Fla.

Philip W. van Doorn joined Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.