For a group of regional banking companies that reported third-quarter earnings Thursday, the souring of residential construction portfolios and related credits depressed profits.
Continued deterioration in residential construction portfolios in the Southeast and the Middle Atlantic states, as well as parts of the Midwest, forced BB&T Corp., PNC Financial Services Group Inc., and Associated Banc-Corp to increase provisions during the period, compared to a year earlier.
Huntington Bancshares Inc. in Columbus, Ohio, meanwhile, was alone in citing cracks in its commercial and industrial portfolio. The bursting of the real estate bubble was also to blame, and Huntington cited particular issues in loans to companies that serve home builders. It also noted continuing deterioration in residential mortgages and auto loans.
In an interview, Thomas Hoaglin, Huntington's chief executive, said further weakness in commercial loans is " a foregone conclusion." He added, "I am very much in the camp that we are in a recession. We look for little or no recovery in 2009, and chargeoffs will remain elevated, maybe even a little higher, next year."
Still, the $54.7 billion-asset Huntington was the only one of the four to beat the Wall Street earnings expectation. Pittsburgh's PNC; Associated of Green Bay, Wis.; and BB&T in Winston Salem, N.C., all missed the average of analysts' estimates to varying degrees.
PNC cited credit deterioration in residential construction loans in Maryland, Virginia, Delaware, and New Jersey.
BB&T pointed to deterioration in residential development loans in Atlanta, Florida, and the District of Columbia.
In a press release, Associated, which does business in Wisconsin, Illinois, and Minnesota, also mentioned higher loan-loss provisioning for its residential construction exposure.
Huntington said nonaccruing C&I loans rose 8% from the second quarter and more than doubled from a year earlier, to $174.2 million. Its provision rose 3.8% from the second quarter and more than doubled from a year earlier, to $125.4 million. Net chargeoffs grew 28.5% from the second quarter and nearly doubled from a year earlier, to $83.8 million.
However, Huntington and PNC managed to hold on to core deposits, offering some assurance to investors concerned about liquidity.
James E. Rohr, the chairman and chief executive at PNC, said credit quality remained "manageable," with no major bleeding in commercial lending, though in an interview he said that the company had seen softness in its asset-backed lending. Losses should be limited due to an ability to collect the underlying collateral, he said.
However, earlier, on a conference call to discuss results, Mr. Rohr mentioned weakness in the company's residential construction portfolio, noting "particular softness in northern Virginia and eastern Maryland."
The loss provision at PNC rose 2% from the second quarter and nearly tripled from a year earlier, to $190 million. Net chargeoffs at the $145.6 billion-asset company rose 8% from the second quarter and more than doubled from a year earlier, to $122 million.
During a conference call Thursday morning, John A. Allison, the chairman and chief executive at $137 billion-asset BB&T, stressed that problems in its loan portfolio remained largely isolated to residential real estate. "We have not seen a significant deterioration in credit quality in C&I," he said. Kelly King, BB&T's president, who is to succeed Mr. Allison as CEO in January, said the company would try to boost C&I lending as others pull back due to liquidity concerns.
BB&T's provision for loan losses rose 10.3% from the second quarter and 247% from a year earlier, to $364 million. Net chargeoffs rose 42.4% from the second quarter and 169% from a year earlier, to $242 million.
Associated said its loss provision rose more than sixfold from a year earlier, to $55 million, but fell 7% from the second-quarter provision. Net chargeoffs nearly doubled from a year earlier, to $38 million, but rose just 2% from the second quarter.
The $22 billion-asset Wisconsin company said net income fell 47% from a year earlier, to $37.8 million, after one-time charges for its Freddie Mac and Fannie Mae holdings. Associated's per-share earnings of 30 cents missed the average analyst estimate by 6 cents; analysts said this was due principally to the charge related to GSE stock holdings.
Huntington's profit fell 17% from a year earlier, to $115.2 million, or 28 cents a share. Though the company managed to beat the average analyst estimate by 2 cents, it trimmed its full-year guidance to $1.12 to $1.16 a share from $1.25 to $1.35 a share.
BB&T's net income fell 16.4% from the second quarter and 19.4% from a year earlier, to $358 million. Earnings per share of 64 cents were a penny shy of the Wall Street expectation.
PNC said that profit fell 39% from a year earlier, to $248 million. At 71 cents a share, earnings were 17 cents below the average estimate, according to Thomson Reuters.
Deposit growth was hard to come by, and success was largely measured by an ability to retain such funding.
At Huntington, deposits fell 1% from the second quarter and 2.2% from a year earlier, to $37.8 billion, though the company said the linked-quarter decline was due to a drop in brokered deposits. BB&T's deposits rose a narrow 0.2% from the second quarter and 3.8% from a year earlier, to $88.4 billion. Mr. Allison said the issues at Wachovia Corp. played a role, spurring at least $1.2 billion of new deposits in the weeks since concerns over the Charlotte company's viability surfaced. BB&T could gain more traction, he said, as Wells Fargo & Co. looks to buy and integrate Wachovia. "It appears Wachovia had violated a trust with clients and shareholders that is going to be hard to repair," he said.
Average deposits at PNC rose 1% from the second quarter and 8% from a year earlier, to $85 billion. The company said it added 36,000 accounts in the third quarter.
Associated said total deposits rose 6.8% from the second quarter and 0.6% from a year earlier, to $14.2 billion.
Matthew C. Schultheis, an analyst at Boenning & Scattergood Inc., said, "I just don't think the general economy is going to be favorable for anybody." He said in an interview that it is highly likely that PNC and others eventually will experience deterioration in C&I and other loans.