Huntington Bancshares ( HBAN) will wipe out $300 million in debt owed by Franklin Credit Management ( FCMC) and restructure $1.5 billion in additional loans related to the troubled subprime lender.

In a Securities and Exchange Commission filing late Thursday, Columbus, Ohio-based Huntington said fourth-quarter results would include a $276 million charge for loan and lease losses tied to Franklin. That's slightly smaller than the $300 million charge Huntington anticipated in November, after learning of potential loan losses at Franklin. The bank inherited the commercial relationship from Sky Financial Group, which it acquired in July.

Franklin, which had ceased making new loans and delayed filing its third-quarter results until it can sort out the losses in its loan portfolio, said in a statement Friday the restructuring will allow it to return to profitability. It plans to report third-quarter earnings by Jan. 31.

"These agreements provide Franklin the opportunity to return to a positive net worth and an earnings position that should enable the company to capitalize on its skills and expertise in providing much-needed services to third parties in the residential mortgage and real estate industries, which the company plans to begin promoting immediately," said Franklin CEO Gordon Jardin.

As part of the agreement, any new revenue-generating activities will require the approval of Huntington.

Of the $1.5 billion in outstanding loans Huntington is restructuring, $1 billion are to Franklin and $491 billion are to Franklin's origination subsidiary, Tribeca Lending. The debt was restructured into six term loans that must be paid by May 15, 2009.

Huntington's loan loss provision is indicative of the growing pain exhibited by regional and larger banks. Late on Thursday, Regions Financial ( RF) increased its fourth-quarter loan-loss provision to $360 million, citing deteriorating credit conditions in its residential construction loan portfolio in hard-hit housing markets like Georgia and Florida.

Banks like Wells Fargo ( WFC) and Fifth Third ( FITB) also have recently set aside provisions for expected loan losses.

Huntington's stock was off 4.2% to $13.49 in Friday morning trading. Franklin shares were up a penny at $1.11

Regions was sinking 7.8% to $21.47.
This article was written by a staff member of TheStreet.com.

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