UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY PERIOD ENDED September 30, 2011
Commission File Number 1-34073
Huntington Bancshares Incorporated
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Maryland
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31-0724920 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
41 South High Street, Columbus, Ohio 43287
Registrants telephone number (614) 480-8300
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2)
has been subject to such filing requirements for the past 90 days.
þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o Yes þ No
There were 864,074,883 shares of Registrants common stock ($0.01 par value) outstanding on
September 30, 2011.
HUNTINGTON BANCSHARES INCORPORATED
INDEX
2
Glossary of Acronyms and Terms
The following listing provides a comprehensive reference of common acronyms and terms used
throughout the document:
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2010 Form 10-K
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Annual Report on Form 10-K for the year ended December 31, 2010 |
ABL
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Asset Based Lending |
ACL
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Allowance for Credit Losses |
AFCRE
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Automobile Finance and Commercial Real Estate |
ALCO
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Asset & Liability Management Committee |
ALLL
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Allowance for Loan and Lease Losses |
ARM
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Adjustable Rate Mortgage |
ARRA
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American Recovery and Reinvestment Act of 2009 |
ASC
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Accounting Standards Codification |
ASU
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Accounting Standards Update |
ATM
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Automated Teller Machine |
AULC
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Allowance for Unfunded Loan Commitments |
AVM
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Automated Valuation Methodology |
C&I
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Commercial and Industrial |
CDARS
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Certificate of Deposit Account Registry Service |
CDO
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Collateralized Debt Obligations |
CDs
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Certificates of Deposit |
CFPB
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Bureau of Consumer Financial Protection |
CMO
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Collateralized Mortgage Obligations |
CPP
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Capital Purchase Program |
CRE
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Commercial Real Estate |
DDA
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Demand Deposit Account |
DIF
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Deposit Insurance Fund |
Dodd-Frank Act
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Dodd-Frank Wall Street Reform and Consumer Protection Act |
EESA
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Emergency Economic Stabilization Act of 2008 |
EPS
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Earnings Per Share |
ERISA
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Employee Retirement Income Security Act |
EVE
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Economic Value of Equity |
FASB
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Financial Accounting Standards Board |
FDIC
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Federal Deposit Insurance Corporation |
FDICIA
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Federal Deposit Insurance Corporation Improvement Act of 1991 |
FFIEC
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Federal Financial Institutions Examination Council |
FHA
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Federal Housing Administration |
FHFA
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Federal Housing Finance Agency |
FHLB
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Federal Home Loan Bank |
FHLMC
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Federal Home Loan Mortgage Corporation |
FICA
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Federal Insurance Contributions Act |
FICO
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Fair Isaac Corporation |
FOMC
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Federal Open Market Committee |
FNMA
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Federal National Mortgage Association |
Franklin
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Franklin Credit Management Corporation |
FRB
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Federal Reserve Bank |
FSP
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Financial Stability Plan |
FTE
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Fully-Taxable Equivalent |
3
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FTP
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Funds Transfer Pricing |
GAAP
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Generally Accepted Accounting Principles in the United States of America |
GSIFI
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Globally Systemically Important Financial Institution |
GSE
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Government Sponsored Enterprise |
HASP
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Homeowner Affordability and Stability Plan |
HCER Act
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Health Care and Education Reconciliation Act of 2010 |
IPO
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Initial Public Offering |
IRS
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Internal Revenue Service |
ISE
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Interest Sensitive Earnings |
LIBOR
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London Interbank Offered Rate |
LGD
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Loss-Given-Default |
LTV
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Loan to Value |
MD&A
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
MRC
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Market Risk Committee |
MSA
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Metropolitan Statistical Area |
MSR
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Mortgage Servicing Rights |
NALs
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Nonaccrual Loans |
NAV
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Net Asset Value |
NCO
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Net Charge-off |
NPAs
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Nonperforming Assets |
NSF / OD
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Nonsufficient Funds and Overdraft |
OCC
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Office of the Comptroller of the Currency |
OCI
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Other Comprehensive Income (Loss) |
OCR
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Optimal Customer Relationship |
OLEM
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Other Loans Especially Mentioned |
OREO
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Other Real Estate Owned |
OTTI
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Other-Than-Temporary Impairment |
PD
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Probability-Of-Default |
Plan
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Huntington Bancshares Retirement Plan |
Reg E
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Regulation E, of the Electronic Fund Transfer Act |
REIT
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Real Estate Investment Trust |
SAD
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Special Assets Division |
SBA
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Small Business Administration |
SEC
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Securities and Exchange Commission |
SERP
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Supplemental Executive Retirement Plan |
SIFIs
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Systemically Important Financial Institutions |
Sky Financial
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Sky Financial Group, Inc. |
SRIP
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Supplemental Retirement Income Plan |
Sky Trust
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Sky Bank and Sky Trust, National Association |
TAGP
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Transaction Account Guarantee Program |
TARP
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Troubled Asset Relief Program |
TARP Capital
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Series B Preferred Stock |
TCE
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Tangible Common Equity |
TDR
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Troubled Debt Restructured Loan |
TLGP
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Temporary Liquidity Guarantee Program |
Treasury
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U.S. Department of the Treasury |
4
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UCS
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Uniform Classification System |
Unizan
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Unizan Financial Corp. |
UPB
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Unpaid Principal Balance |
USDA
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U.S. Department of Agriculture |
VA
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U.S. Department of Veteran Affairs |
VIE
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Variable Interest Entity |
WGH
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Wealth Advisors, Government Finance, and Home Lending |
5
PART I. FINANCIAL INFORMATION
When we refer to we, our, and us in this report, we mean Huntington Bancshares
Incorporated and our consolidated subsidiaries, unless the context indicates that we refer only to
the parent company, Huntington Bancshares Incorporated. When we refer to the Bank in this
report, we mean our only bank subsidiary, The Huntington National Bank, and its subsidiaries.
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Item 2: |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
INTRODUCTION
We are a multi-state diversified regional bank holding company organized under Maryland law in
1966 and headquartered in Columbus, Ohio. Through the Bank, we have 145 years of servicing the
financial needs of our customers. Through our subsidiaries, we provide full-service commercial and
consumer banking services, mortgage banking services, automobile financing, equipment leasing,
investment management, trust services, brokerage services, customized insurance service programs,
and other financial products and services. Our over 600 banking offices are located in Indiana,
Kentucky, Michigan, Ohio, Pennsylvania, and West Virginia. Selected financial services and other
activities are also conducted in various other states. International banking services are
available through the headquarters office in Columbus, Ohio and a limited purpose office located in
the Cayman Islands and another limited purpose office located in Hong Kong. Our foreign banking
activities, in total or with any individual country, are not significant.
This MD&A provides information we believe necessary for understanding our financial condition,
changes in financial condition, results of operations, and cash flows. The MD&A included in our
2010 Form 10-K should be read in conjunction with this MD&A as this discussion provides only
material updates to the 2010 Form 10-K. This MD&A should also be read in conjunction with the
financial statements, notes and other information contained in this report.
Our discussion is divided into key segments:
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Executive Overview - Provides a summary of our current financial performance, and
business overview, including our thoughts on the impact of the economy, legislative and
regulatory initiatives, and recent industry developments. This section also provides our
outlook regarding our expectations for the remainder of 2011. |
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Discussion of Results of Operations - Reviews financial performance from a consolidated
Company perspective. It also includes a Significant Items section that summarizes key
issues helpful for understanding performance trends. Key consolidated average balance sheet
and income statement trends are also discussed in this section. |
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Risk Management and Capital - Discusses credit, market, liquidity, operational, and
compliance risks, including how these are managed, as well as performance trends. It also
includes a discussion of liquidity policies, how we obtain funding, and related
performance. In addition, there is a discussion of guarantees and / or commitments made for
items such as standby letters of credit and commitments to sell loans, and a discussion
that reviews the adequacy of capital, including regulatory capital requirements. |
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Business Segment Discussion - Provides an overview of financial performance for each of
our major business segments and provides additional discussion of trends underlying
consolidated financial performance. |
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Additional Disclosures - Provides comments on important matters including
forward-looking statements, critical accounting policies and use of significant estimates,
recent accounting pronouncements and developments, and acquisitions. |
A reading of each section is important to understand fully the nature of our financial
performance and prospects.
6
EXECUTIVE OVERVIEW
Summary of 2011 Third Quarter Results
For the quarter, we reported net income of $143.4 million, or $0.16 per common share, compared
with $145.9 million, or $0.16 per common share, in the prior quarter (see Table 1).
Fully-taxable equivalent net interest income was $410.1 million for the quarter, up $3.0
million, or 1%, from the prior quarter. The increase reflected the benefit of a 2% (6% annualized)
increase in average earning assets, partially offset by a 6 basis point decline in the
fully-taxable equivalent net interest margin to 3.34% from 3.40%.
The provision for credit losses in the 2011 third quarter was $43.6 million, up $7.8 million,
or 22%, from the prior quarter. This reflected the combination of strong loan growth and the
expectation of a weaker and prolonged economic recovery. These were partially offset by the
benefits of an end-of-period decline of 8% in nonaccrual loans and a 4% decline in total Criticized
commercial loans.
Total noninterest income increased $2.8 million, or 1%, from the prior quarter. This included
an increase in other income of $15.1 million, or 33%, reflecting a $15.5 million gain on sale from
the automobile securitization and a $2.8 million increase in market-related gains and capital
markets income, which was partially offset by a $5.8 million decline in SBA servicing income.
Service charges on deposit accounts and electronic banking income increased $4.5 million, or 7%,
and $1.0 million, or 3%, respectively, primarily driven by new account growth. These benefits were
partially offset by an $11.0 million decline in mortgage banking income, primarily driven by a
negative $13.9 million linked quarter change in the net MSR valuation, the majority of which
occurred over the last two weeks of the quarter.
Noninterest expense increased $10.7 million, or 2%. Personnel costs increased $8.3 million,
or 4%, due to higher salary, severance, and healthcare costs. Outside data processing and other
services increased $5.7 million, or 13%, primarily due to costs associated with a conversion to a
new debit card processor.
The period end ACL as a percentage of total loans and leases decreased to 2.71% from 2.84%.
However, the ACL as a percentage of period end NALs increased to 187% from 181%. Net charge-offs
were $90.6 million, or an annualized 0.92% of average total loans and leases, down 7% from $97.5
million, or 1.01%, in the prior quarter. Credit quality continued its expected improvement. Even
so, many of these performance metrics remain elevated compared with historical performance. We
expect to see continued declines in nonaccrual loans and net charge-offs going forward.
Business Overview
General
Our general business objectives are: (1) grow revenue and profitability, (2) improve
cross-sell and share-of-wallet across all business segments, (3) grow key fee businesses (existing
and new), (4) improve credit quality, including lower NCOs and NALs, (5) reduce noncore CRE
exposure, and (6) continue to improve our overall management of risk.
Throughout last year, and continuing into this year, we are taking advantage of what we view
as an opportunity to make significant investments in strategic initiatives to position us for more
profitable and sustainable long-term growth. This includes implementing our Fair Play banking
philosophy, value proposition for our consumer customers, increasing share-of-wallet, investing in
expanding existing business, and launching new businesses.
Our emphasis on cross-sell, coupled with customers increasingly being attracted by the
benefits offered through our Fair Play banking philosophy is having a positive effect. The
number of consumer checking account households grew at a 10.8% annualized rate for the first three
quarters of 2011. These new households are not just focused around single service. We have been
able to continue to grow our share of wallet with new and existing customers. Almost 73% of our
consumer customers now have four or more products or services. On the commercial side, we also saw
an increase with commercial relationships growing for the first nine months at an 8.6% annualized
rate.
Economy
Wavering business and consumer confidence, U.S. debt and fiscal uncertainties, and slow
economic growth remain challenges to the operating environment. Consumer sentiment has dropped to
the lowest level since the recessionary period in 2008. Elevated housing inventories continue to
present a near-term drag; however housing affordability is near record highs on historically low
mortgage rates and lower home prices.
7
Legislative and Regulatory
Regulatory reforms continue to be adopted which impose additional restrictions on current
business practices. Recent actions affecting us included the Federal Reserves maturity extension
program, and the rules and regulations that have been issued pursuant to the Dodd-Frank Act.
Federal Reserve Maturity Extension Program Under the maturity extension program announced on
September 21, 2011, the Federal Reserve intends to sell $400 billion of shorter-term Treasury
securities by the end of 2012 and use the proceeds to buy longer-term securities. This will extend
the average maturity of the securities in the Federal Reserves portfolio. By reducing the supply
of longer-term securities in the market, it is the FOMCs intention to put downward pressure on
longer-term interest rates, including rates on financial assets that investors consider to be close
substitutes for longer-term Treasury securities. Further, it is their objective that the reduction
in longer-term interest rates, in turn, will contribute to a broad easing in financial market
conditions that will provide additional stimulus to support the economic recovery. We do not
anticipate that this recent announcement will have a material impact on our current securities
portfolio or future investment strategy. However, it could cause our net interest margin to drop
modestly.
Resolution Plan The FRB and FDIC issued final regulations as required by section 165 of the
Dodd-Frank Act regarding resolution plans, also referred to as living wills. Insured depository
institutions with $50 billion or more in total assets must submit to the FDIC a plan whereby the
institution can be resolved by the FDIC, in the event of failure, in a manner that ensures
depositors will receive access to insured funds within the required timeframes and generally
ensures an orderly liquidation of the institution. Additionally, bank holding companies with
assets of $50 billion or more are required to submit to the FRB and the FDIC a plan that, in the
event of material financial distress or failure, establishes the rapid and orderly liquidation of
the company under the bankruptcy code and in a way that would not pose systemic risk to the
financial system of the United States. The regulations allow for a tier approach for complying
with the requirements based on materiality of the institution. Currently, we are required to
submit resolution plans as prescribed by December 31, 2013.
Durbin Amendment The Durbin Amendment to the Dodd-Frank Act instructed the Federal Reserve to
establish the rate merchants pay banks for electronic clearing of debit card transactions (i.e.,
the interchange rate). The Federal Reserve recently issued its final rule establishing standards
for debit card interchange fees and prohibiting network exclusivity arrangements and routing
restrictions. The final rule establishes standards for assessing whether debit card interchange
fees received by debit card issuers are reasonable and proportional to the costs incurred by
issuers for electronic debit transactions. Under the final rule, the maximum permissible
interchange fee that an issuer may receive for an electronic debit transaction will be the sum of
21 cents per transaction, 1 cent fraud prevention adjustment, and 5 basis points multiplied by the
value of the transaction. This provision regarding debit card interchange fees became effective on
October 1, 2011. Based on the final rule, we expect our 2011 fourth quarter electronic banking
income to decline from the 2011 third quarter level by approximately 50%, or $16 million.
Recent Industry Developments
Recent industry events and related supervisory guidance brought about by the continued weak
housing market have caused us to evaluate certain aspects of our mortgage operations. This
included a review of our foreclosure documentation, MSR valuation, and representation and warranty
reserve level. Additionally, we are evaluating potential impacts from recent announcements of the
enhanced Home Affordable Refinance Program (HARP) and by PMI Mortgage Insurance Co. (PMI).
Foreclosure Documentation On June 30, 2011, the OCC issued OCC Bulletin 2011-29 clarifying their
expectations for the oversight and management of mortgage foreclosure activities by national banks
and directing national banks to perform a self-assessment no later than September 30, 2011. We
believe that, with the self-assessments we have performed and will continue to perform, we are in
compliance with the OCC expectation for self-assessment.
Mortgage Servicing Rights MSR fair values are estimated based on residential mortgage servicing
revenue in excess of estimated market costs to service the underlying loans. Historically, the
estimated market cost to service has been stable. Due to changes in the regulatory environment
related to loan servicing and foreclosure activities, costs to service may potentially increase,
however the potential impact on the market costs to service remains uncertain. Certain large
residential mortgage loan servicers entered into consent orders with banking regulators in April
2011, which require the servicers to remedy deficiencies and unsafe or unsound practices and to
enhance residential mortgage servicing and foreclosure processes. It is unclear what impact this
may ultimately have on market costs to service.
Representation and Warranty Reserve We primarily conduct our loan sale and securitization
activity with FNMA and FHLMC. In connection with these and other sale and securitization
transactions, we make representations and warranties that the loans meet certain criteria, such as
collateral type and underwriting standards. We may be required to repurchase individual loans and
/ or indemnify these organizations against losses due to material breaches of these representations
and warranties. At September 30, 2011, we had a reserve for such losses of $23.9 million, which is
included in accrued expenses and other liabilities.
8
Home Affordable Refinance Program The FHFA has announced changes to the Home Affordable
Refinance Program designed to attract more borrowers with FNMA and FHLMC backed mortgages that can
benefit from refinancing their residential mortgage loans under current low interest rates. The
new operational details are to be issued by November 15, 2011. We do not expect the impact to be
material.
PMI Mortgage Insurance Co. (PMI) On August 19, 2011, PMI informed its customers that it was
required to stop writing new commitments and we stopped doing new business with PMI at that time.
On October 24, 2011, PMI informed all policyholders, insured parties, and servicers of loans
insured by PMI that the Director of the Arizona Department of Insurance (Director) obtained an
Order Directing Full and Exclusive Possession and Control of Insurer (the Order) with respect to
PMI. Effective October 24, 2011, and pursuant to the Order, instead of a moratorium on claims
payments, the Director instituted a partial claims payment plan. Claim payments will be made at
50%, with the remaining amount deferred as a policyholder claim. PMI has not been a significant
provider of mortgage insurance for loans in our portfolio. We utilize a number of insurance
providers, limiting our risk associated with any one provider. We do not expect the exposure
associated with our owned residential mortgage portfolio to have a material impact on our results
of operations or financial position.
Expectations
The lack of prospects for meaningful economic improvement, higher interest rates, and wider
spreads between short-term and long-term interest rates for the foreseeable future is a challenge.
For example, broad-based loan growth, as well as growth in certain fee income activities, is
expected to be less than would otherwise be the case in an expanding economy, even though growth in
certain portfolios and activities is anticipated. Further, a period of prolonged low interest
rates is expected to put pressure on our net interest margin. This would reflect more compression
in loan and investment securities yields relative to any declines in deposit and funding rates. In
addition, deposit inflows over and above any reinvestment opportunities at appropriate risk
adjusted spreads means we may elect to curtail deposit growth, typically an engine of revenue
growth. These revenue headwinds are magnified by the continued fragility of business and consumer
confidence that is expected to continue the postponement of borrowing and investment decisions.
Nevertheless, our success in growing and deepening relationships presents us with an opportunity to
selectively expand revenue, while maintaining disciplined loan and deposit pricing, as well as
conservative credit underwriting.
Net interest income is expected to continue to show very modest improvement from the third
quarter level. The momentum we are seeing in loan and low cost deposit growth is expected to
continue, yet the benefits will be mostly offset by pressure on the net interest margin due to the
expected continued mix shift to higher quality loans and lower securities reinvestment rates that
reflect the low absolute level and shape of the yield curve. If the current interest rate
environment, which has partially resulted from the Federal Reserve Maturity Extension Program
Operation Twist, remains unchanged through 2012, it could cause our net interest margin to drop
modestly below our long-term range of 3.30% to 3.75%. Our C&I portfolio is expected to continue to
show meaningful growth with much of this reflecting the positive impact from strategic initiatives
to expand our commercial lending expertise into areas like specialty banking, asset based lending,
and equipment financing, in addition to our long-standing continued support of middle market and
small business lending. For automobile loans, we expect to see strong growth from September 30,
2011 balances. Residential mortgages are expected to show modest growth, with CRE continuing to
experience modest declines.
We again anticipate the increase in total core deposits to match that of loans, reflecting
continued growth in consumer households and commercial relationships. Further, we expect the shift
toward low and no cost demand deposits and money market accounts will continue.
Noninterest income is expected to show a modest decline in the 2011 fourth quarter, primarily
due to an anticipated 50%, or $16 million, decline in electronic banking income from the third
quarter, given the newly mandated lower interchange fee structure implemented October 1, 2011. We
expect to see continued growth of service charge income commensurate with customer growth and
increased product penetration. Mortgage banking income should increase as the third quarters
sizable MSR impairment is not expected to repeat. We also anticipate continued growth in the
contribution from other key fee income activities including capital markets, treasury management
services, and brokerage, reflecting the impact of our cross-sell and product penetration
initiatives throughout the company as well as the positive impact from strategic initiatives.
Expense levels are expected to modestly decline in coming quarters though strategic actions
like the current debit card conversion may cause short-term fluctuations.
Nonaccrual loans and net charge-offs are expected to continue to decline. Provision for
credit losses should remain near current levels, yet there could be some volatility given the
uncertain and uneven nature of the economic recovery.
We anticipate the effective tax rate for the foreseeable future to be in the range of 24% to
27%.
9
DISCUSSION OF RESULTS OF OPERATIONS
This section provides a review of financial performance from a consolidated perspective. It
also includes a Significant Items section that summarizes key issues important for a complete
understanding of performance trends. Key Unaudited Condensed Consolidated Balance Sheet and
Statement of Income trends are discussed. All earnings per share data are reported on a diluted
basis. For additional insight on financial performance, please read this section in conjunction
with the Business Segment Discussion.
10
Table 1 Selected Quarterly Income Statement Data (1)
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2011 |
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2010 |
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(dollar amounts in thousands, except per share amounts) |
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Third |
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Second |
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First |
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Fourth |
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Third |
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Interest income |
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$ |
490,996 |
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$ |
492,137 |
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$ |
501,877 |
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$ |
528,291 |
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$ |
534,669 |
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Interest expense |
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84,518 |
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|
88,800 |
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|
97,547 |
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112,997 |
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124,707 |
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Net interest income |
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406,478 |
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403,337 |
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404,330 |
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415,294 |
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409,962 |
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Provision for credit losses |
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43,586 |
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35,797 |
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49,385 |
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86,973 |
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119,160 |
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Net interest income after provision for credit losses |
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362,892 |
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367,540 |
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354,945 |
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328,321 |
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290,802 |
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Service charges on deposit accounts |
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65,184 |
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60,675 |
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54,324 |
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55,810 |
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65,932 |
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Mortgage banking income |
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12,791 |
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23,835 |
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22,684 |
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53,169 |
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52,045 |
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Trust services |
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29,473 |
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30,392 |
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30,742 |
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29,394 |
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26,997 |
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Electronic banking |
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32,714 |
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31,728 |
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28,786 |
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28,900 |
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28,090 |
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Insurance income |
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17,220 |
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16,399 |
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17,945 |
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19,678 |
|
|
|
19,801 |
|
Brokerage income |
|
|
20,349 |
|
|
|
20,819 |
|
|
|
20,511 |
|
|
|
16,953 |
|
|
|
16,575 |
|
Bank owned life insurance income |
|
|
15,644 |
|
|
|
17,602 |
|
|
|
14,819 |
|
|
|
16,113 |
|
|
|
14,091 |
|
Automobile operating lease income |
|
|
5,890 |
|
|
|
7,307 |
|
|
|
8,847 |
|
|
|
10,463 |
|
|
|
11,356 |
|
Securities gains (losses) |
|
|
(1,350 |
) |
|
|
1,507 |
|
|
|
40 |
|
|
|
(103 |
) |
|
|
(296 |
) |
Other income |
|
|
60,644 |
|
|
|
45,503 |
|
|
|
38,247 |
|
|
|
33,843 |
|
|
|
32,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
258,559 |
|
|
|
255,767 |
|
|
|
236,945 |
|
|
|
264,220 |
|
|
|
267,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs |
|
|
226,835 |
|
|
|
218,570 |
|
|
|
219,028 |
|
|
|
212,184 |
|
|
|
208,272 |
|
Outside data processing and other services |
|
|
49,602 |
|
|
|
43,889 |
|
|
|
40,282 |
|
|
|
40,943 |
|
|
|
38,553 |
|
Net occupancy |
|
|
26,967 |
|
|
|
26,885 |
|
|
|
28,436 |
|
|
|
26,670 |
|
|
|
26,718 |
|
Deposit and other insurance expense |
|
|
17,492 |
|
|
|
23,823 |
|
|
|
17,896 |
|
|
|
23,320 |
|
|
|
23,406 |
|
Professional services |
|
|
20,281 |
|
|
|
20,080 |
|
|
|
13,465 |
|
|
|
21,021 |
|
|
|
20,672 |
|
Equipment |
|
|
22,262 |
|
|
|
21,921 |
|
|
|
22,477 |
|
|
|
22,060 |
|
|
|
21,651 |
|
Marketing |
|
|
22,251 |
|
|
|
20,102 |
|
|
|
16,895 |
|
|
|
16,168 |
|
|
|
20,921 |
|
Amortization of intangibles |
|
|
13,387 |
|
|
|
13,386 |
|
|
|
13,370 |
|
|
|
15,046 |
|
|
|
15,145 |
|
OREO and foreclosure expense |
|
|
4,668 |
|
|
|
4,398 |
|
|
|
3,931 |
|
|
|
10,502 |
|
|
|
12,047 |
|
Automobile operating lease expense |
|
|
4,386 |
|
|
|
5,434 |
|
|
|
6,836 |
|
|
|
8,142 |
|
|
|
9,159 |
|
Other expense |
|
|
30,987 |
|
|
|
29,921 |
|
|
|
48,083 |
|
|
|
38,537 |
|
|
|
30,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
439,118 |
|
|
|
428,409 |
|
|
|
430,699 |
|
|
|
434,593 |
|
|
|
427,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
182,333 |
|
|
|
194,898 |
|
|
|
161,191 |
|
|
|
157,948 |
|
|
|
130,636 |
|
Provision for income taxes |
|
|
38,942 |
|
|
|
48,980 |
|
|
|
34,745 |
|
|
|
35,048 |
|
|
|
29,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
143,391 |
|
|
$ |
145,918 |
|
|
$ |
126,446 |
|
|
$ |
122,900 |
|
|
$ |
100,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on preferred shares |
|
|
7,703 |
|
|
|
7,704 |
|
|
|
7,703 |
|
|
|
83,754 |
|
|
|
29,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common shares |
|
$ |
135,688 |
|
|
$ |
138,214 |
|
|
$ |
118,743 |
|
|
$ |
39,146 |
|
|
$ |
71,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares basic |
|
|
863,911 |
|
|
|
863,358 |
|
|
|
863,359 |
|
|
|
757,924 |
|
|
|
716,911 |
|
Average common shares diluted (2) |
|
|
867,633 |
|
|
|
867,469 |
|
|
|
867,237 |
|
|
|
760,582 |
|
|
|
719,567 |
|
|
Net income per common share basic |
|
$ |
0.16 |
|
|
$ |
0.16 |
|
|
$ |
0.14 |
|
|
$ |
0.05 |
|
|
$ |
0.10 |
|
Net income per common share diluted |
|
|
0.16 |
|
|
|
0.16 |
|
|
|
0.14 |
|
|
|
0.05 |
|
|
|
0.10 |
|
Cash dividends declared per common share |
|
|
0.04 |
|
|
|
0.01 |
|
|
|
0.01 |
|
|
|
0.01 |
|
|
|
0.01 |
|
|
Return on average total assets |
|
|
1.05 |
% |
|
|
1.11 |
% |
|
|
0.96 |
% |
|
|
0.90 |
% |
|
|
0.76 |
% |
Return on average common shareholders equity |
|
|
10.8 |
|
|
|
11.6 |
|
|
|
10.3 |
|
|
|
3.8 |
|
|
|
7.4 |
|
Return on average tangible common shareholders equity (3) |
|
|
13.0 |
|
|
|
13.3 |
|
|
|
12.7 |
|
|
|
5.6 |
|
|
|
10.0 |
|
Net interest margin (4) |
|
|
3.34 |
|
|
|
3.40 |
|
|
|
3.42 |
|
|
|
3.37 |
|
|
|
3.45 |
|
Efficiency ratio (5) |
|
|
63.5 |
|
|
|
62.7 |
|
|
|
64.7 |
|
|
|
61.4 |
|
|
|
60.6 |
|
Effective tax rate |
|
|
21.4 |
|
|
|
25.1 |
|
|
|
21.6 |
|
|
|
22.2 |
|
|
|
22.7 |
|
Revenue FTE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
406,478 |
|
|
$ |
403,337 |
|
|
$ |
404,330 |
|
|
$ |
415,294 |
|
|
$ |
409,962 |
|
FTE adjustment |
|
|
3,658 |
|
|
|
3,834 |
|
|
|
3,945 |
|
|
|
3,708 |
|
|
|
2,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (4) |
|
|
410,136 |
|
|
|
407,171 |
|
|
|
408,275 |
|
|
|
419,002 |
|
|
|
412,593 |
|
Noninterest income |
|
|
258,559 |
|
|
|
255,767 |
|
|
|
236,945 |
|
|
|
264,220 |
|
|
|
267,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue (4) |
|
$ |
668,695 |
|
|
$ |
662,938 |
|
|
$ |
645,220 |
|
|
$ |
683,222 |
|
|
$ |
679,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Comparisons for presented periods are impacted by a number of factors. Refer
to Significant Items. |
|
(2) |
|
For periods presented prior to their repurchase, the impact of the convertible
preferred stock issued in 2008 and the warrants issued to the U.S. Department of the Treasury in
2008 related to Huntingtons participation in the voluntary Capital Purchase Program was excluded
from the diluted share calculation because the result was more than basic earnings per common share
(anti-dilutive) for those periods. The convertible preferred stock and warrants were repurchased
in December 2010 and January 2011, respectively. |
11
|
|
|
(3) |
|
Net income excluding expense for amortization of intangibles for the period divided
by average tangible common shareholders equity. Average tangible common shareholders equity
equals average total common shareholders equity less average intangible assets and goodwill.
Expense for amortization of intangibles and average intangible assets are net of deferred tax
liability, and calculated assuming a 35% tax rate. |
|
(4) |
|
On a fully-taxable equivalent (FTE) basis assuming a 35% tax rate. |
|
(5) |
|
Noninterest expense less amortization of intangibles and goodwill impairment
divided by the sum of FTE net interest income and noninterest income excluding securities gains
(losses). |
12
Table 2 Selected Year to Date Income Statement Data(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
Change |
|
(dollar amounts in thousands, except per share amounts) |
|
2011 |
|
|
2010 |
|
|
Amount |
|
|
Percent |
|
Interest income |
|
$ |
1,485,010 |
|
|
$ |
1,617,101 |
|
|
$ |
(132,091 |
) |
|
|
(8 |
)% |
Interest expense |
|
|
270,865 |
|
|
|
413,590 |
|
|
|
(142,725 |
) |
|
|
(35 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
1,214,145 |
|
|
|
1,203,511 |
|
|
|
10,634 |
|
|
|
1 |
|
Provision for credit losses |
|
|
128,768 |
|
|
|
547,574 |
|
|
|
(418,806 |
) |
|
|
(76 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for credit losses |
|
|
1,085,377 |
|
|
|
655,937 |
|
|
|
429,440 |
|
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
|
180,183 |
|
|
|
211,205 |
|
|
|
(31,022 |
) |
|
|
(15 |
) |
Mortgage banking income |
|
|
59,310 |
|
|
|
122,613 |
|
|
|
(63,303 |
) |
|
|
(52 |
) |
Trust services |
|
|
90,607 |
|
|
|
83,161 |
|
|
|
7,446 |
|
|
|
9 |
|
Electronic banking |
|
|
93,228 |
|
|
|
81,334 |
|
|
|
11,894 |
|
|
|
15 |
|
Insurance income |
|
|
51,564 |
|
|
|
56,735 |
|
|
|
(5,171 |
) |
|
|
(9 |
) |
Brokerage income |
|
|
61,679 |
|
|
|
51,901 |
|
|
|
9,778 |
|
|
|
19 |
|
Bank owned life insurance income |
|
|
48,065 |
|
|
|
44,953 |
|
|
|
3,112 |
|
|
|
7 |
|
Automobile operating lease income |
|
|
22,044 |
|
|
|
35,501 |
|
|
|
(13,457 |
) |
|
|
(38 |
) |
Securities gains (losses) |
|
|
197 |
|
|
|
(171 |
) |
|
|
368 |
|
|
|
N.R. |
|
Other income |
|
|
144,394 |
|
|
|
90,406 |
|
|
|
53,988 |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
751,271 |
|
|
|
777,638 |
|
|
|
(26,367 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs |
|
|
664,433 |
|
|
|
586,789 |
|
|
|
77,644 |
|
|
|
13 |
|
Outside data processing and other services |
|
|
133,773 |
|
|
|
118,305 |
|
|
|
15,468 |
|
|
|
13 |
|
Net occupancy |
|
|
82,288 |
|
|
|
81,192 |
|
|
|
1,096 |
|
|
|
1 |
|
Deposit and other insurance expense |
|
|
59,211 |
|
|
|
74,228 |
|
|
|
(15,017 |
) |
|
|
(20 |
) |
Professional services |
|
|
53,826 |
|
|
|
67,757 |
|
|
|
(13,931 |
) |
|
|
(21 |
) |
Equipment |
|
|
66,660 |
|
|
|
63,860 |
|
|
|
2,800 |
|
|
|
4 |
|
Marketing |
|
|
59,248 |
|
|
|
49,756 |
|
|
|
9,492 |
|
|
|
19 |
|
Amortization of intangibles |
|
|
40,143 |
|
|
|
45,432 |
|
|
|
(5,289 |
) |
|
|
(12 |
) |
OREO and foreclosure expense |
|
|
12,997 |
|
|
|
28,547 |
|
|
|
(15,550 |
) |
|
|
(54 |
) |
Automobile operating lease expense |
|
|
16,656 |
|
|
|
28,892 |
|
|
|
(12,236 |
) |
|
|
(42 |
) |
Other expense |
|
|
108,991 |
|
|
|
94,455 |
|
|
|
14,536 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
1,298,226 |
|
|
|
1,239,213 |
|
|
|
59,013 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
538,422 |
|
|
|
194,362 |
|
|
|
344,060 |
|
|
|
177 |
|
Provision for income taxes |
|
|
122,667 |
|
|
|
4,915 |
|
|
|
117,752 |
|
|
|
2,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
415,755 |
|
|
$ |
189,447 |
|
|
$ |
226,308 |
|
|
|
119 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared on preferred shares |
|
|
23,110 |
|
|
|
88,278 |
|
|
|
(65,168 |
) |
|
|
(74 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common shares |
|
$ |
392,645 |
|
|
$ |
101,169 |
|
|
$ |
291,476 |
|
|
|
288 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares basic |
|
|
863,542 |
|
|
|
716,604 |
|
|
|
146,938 |
|
|
|
21 |
% |
Average common shares diluted (2) |
|
|
867,446 |
|
|
|
719,182 |
|
|
|
148,264 |
|
|
|
21 |
|
Per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share basic |
|
$ |
0.45 |
|
|
$ |
0.14 |
|
|
$ |
0.31 |
|
|
|
221 |
% |
Net income per common share diluted |
|
|
0.45 |
|
|
|
0.14 |
|
|
|
0.31 |
|
|
|
221 |
|
Cash dividends declared |
|
|
0.06 |
|
|
|
0.03 |
|
|
|
0.03 |
|
|
|
100 |
|
Return on average total assets |
|
|
1.04 |
% |
|
|
0.49 |
% |
|
|
0.55 |
% |
|
|
112 |
% |
Return on average common shareholders equity |
|
|
10.9 |
|
|
|
3.6 |
|
|
|
7.3 |
|
|
|
203 |
|
Return on average tangible common shareholders equity (3) |
|
|
13.2 |
|
|
|
5.6 |
|
|
|
7.6 |
|
|
|
136 |
|
Net interest margin (4) |
|
|
3.39 |
|
|
|
3.46 |
|
|
|
(0.07 |
) |
|
|
(2 |
) |
Efficiency ratio (5) |
|
|
63.6 |
|
|
|
60.0 |
|
|
|
3.6 |
|
|
|
6 |
|
Effective tax rate |
|
|
22.8 |
|
|
|
2.5 |
|
|
|
20.3 |
|
|
|
812 |
|
Revenue FTE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
1,214,145 |
|
|
$ |
1,203,511 |
|
|
$ |
10,634 |
|
|
|
1 |
% |
FTE adjustment |
|
|
11,437 |
|
|
|
7,369 |
|
|
|
4,068 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (4) |
|
|
1,225,582 |
|
|
|
1,210,880 |
|
|
|
14,702 |
|
|
|
1 |
|
Noninterest income |
|
|
751,271 |
|
|
|
777,638 |
|
|
|
(26,367 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue (4) |
|
$ |
1,976,853 |
|
|
$ |
1,988,518 |
|
|
$ |
(11,665 |
) |
|
|
(1) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.R. |
|
- Not relevant, as denominator of calculation is a loss in prior period compared with income
in current period. |
|
(1) |
|
Comparisons for presented periods are impacted by a number of factors. Refer
to Significant Items. |
13
|
|
|
(2) |
|
For all periods presented, the impact of the convertible preferred stock issued in
2008 and the warrants issued to the U.S. Department of the Treasury in 2008 related to Huntingtons
participation in the voluntary Capital Purchase Program was excluded from the diluted share
calculation because the result was more than basic earnings per common share (anti-dilutive) for
the periods. The convertible preferred stock and warrants were repurchased in December 2010 and
January 2011, respectively. |
|
(3) |
|
Net income excluding expense for amortization of intangibles for the period divided
by average tangible common shareholders equity. Average tangible common shareholders equity
equals average total common shareholders equity less average intangible assets and goodwill.
Expense for amortization of intangibles and average intangible assets are net of deferred tax
liability, and calculated assuming a 35% tax rate. |
|
(4) |
|
On a fully-taxable equivalent (FTE) basis assuming a 35% tax rate. |
|
(5) |
|
Noninterest expense less amortization of intangibles and goodwill impairment
divided by the sum of FTE net interest income and noninterest income excluding securities gains
(losses). |
Significant Items
Definition of Significant Items
From time-to-time, revenue, expenses, or taxes, are impacted by items judged by us to be
outside of ordinary banking activities and / or by items that, while they may be associated with
ordinary banking activities, are so unusually large that their outsized impact is believed by us at
that time to be infrequent or short-term in nature. We refer to such items as Significant Items.
Most often, these Significant Items result from factors originating outside the company; e.g.,
regulatory actions / assessments, windfall gains, changes in accounting principles, one-time tax
assessments / refunds, litigation actions, etc. In other cases, they may result from our decisions
associated with significant corporate actions out of the ordinary course of business; e.g., merger
/ restructuring charges, recapitalization actions, goodwill impairment, etc.
Even though certain revenue and expense items are naturally subject to more volatility than
others due to changes in market and economic environment conditions, as a general rule volatility
alone does not define a Significant Item. For example, changes in the provision for credit losses,
gains / losses from investment activities, asset valuation writedowns, etc., reflect ordinary
banking activities and are, therefore, typically excluded from consideration as a Significant Item.
We believe the disclosure of Significant Items provides a better understanding of our
performance and trends to ascertain which of such items, if any, to include or exclude from an
analysis of our performance; i.e., within the context of determining how that performance differed
from expectations, as well as how, if at all, to adjust estimates of future performance
accordingly. To this end, we adopted a practice of listing Significant Items in our external
disclosure documents (e.g., earnings press releases, investor presentations, Forms 10-Q and 10-K).
Significant Items for any particular period are not intended to be a complete list of items
that may materially impact current or future period performance.
Significant Items Influencing Financial Performance Comparisons
Earnings comparisons were impacted by the Significant Items summarized below.
|
1. |
|
Litigation Reserve. During the 2011 first quarter, $17.0 million of additions to
litigation reserves were recorded as other noninterest expense. This resulted in a negative
impact of $0.01 per common share. |
|
2. |
|
Franklin Relationship. Our relationship with Franklin was acquired in the Sky Financial
acquisition in 2007. Significant events relating to this relationship following the
acquisition, and the impacts of those events on our reported results were as follows: |
|
|
|
On March 31, 2009, we restructured our relationship with Franklin. During the 2010
first quarter, a $38.2 million ($0.05 per common share) net tax benefit was recognized,
primarily reflecting the increase in the net deferred tax asset relating to the assets
acquired from the March 31, 2009 restructuring. |
|
|
|
|
During the 2010 second quarter, the remaining portfolio of Franklin-related loans
($333.0 million of residential mortgages, and $64.7 million of home equity loans) was
transferred to loans held for sale. At the time of the transfer, the
loans were marked to the lower of cost or fair value, less costs to sell, of $323.4
million, resulting in $75.5 million of charge-offs, and the provision for credit losses
commensurately increased $75.5 million ($0.07 per common share). |
14
The following table reflects the earnings impact of the above-mentioned significant items for
periods affected by this Results of Operations discussion:
Table 3 Significant Items Influencing Earnings Performance Comparison
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
(dollar amounts in thousands, except per |
|
September 30, 2011 |
|
|
June 30, 2011 |
|
|
September 30, 2010 |
|
share amounts) |
|
After-tax |
|
|
EPS |
|
|
After-tax |
|
|
EPS |
|
|
After-tax |
|
|
EPS |
|
Net income |
|
$ |
143,391 |
|
|
|
|
|
|
$ |
145,918 |
|
|
|
|
|
|
$ |
100,946 |
|
|
|
|
|
Earnings per share, after-tax |
|
|
|
|
|
$ |
0.16 |
|
|
|
|
|
|
$ |
0.16 |
|
|
|
|
|
|
$ |
0.10 |
|
Change from prior quarter $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.02 |
|
|
|
|
|
|
|
0.07 |
|
Change from prior quarter % |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
14.3 |
% |
|
|
|
|
|
|
233.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change from year-ago $ |
|
|
|
|
|
$ |
0.06 |
|
|
|
|
|
|
$ |
0.13 |
|
|
|
|
|
|
$ |
0.43 |
|
Change from year-ago % |
|
|
|
|
|
|
60 |
% |
|
|
|
|
|
|
433 |
% |
|
|
|
|
|
|
N.R. |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, 2011 |
|
|
September 30, 2010 |
|
(dollar amounts in thousands) |
|
After-tax |
|
|
EPS |
|
|
After-tax |
|
|
EPS |
|
Net income |
|
$ |
415,755 |
|
|
|
|
|
|
$ |
189,447 |
|
|
|
|
|
Earnings per share, after-tax |
|
|
|
|
|
$ |
0.45 |
|
|
|
|
|
|
$ |
0.14 |
|
Change from a year-ago $ |
|
|
|
|
|
|
0.31 |
|
|
|
|
|
|
|
6.22 |
|
Change from a year-ago % |
|
|
|
|
|
|
221 |
% |
|
|
|
|
|
|
N.R. |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant Items - favorable (unfavorable) impact: |
|
Earnings (1) |
|
|
EPS |
|
|
Earnings (1) |
|
|
EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin-related loans transferred to held for sale |
|
$ |
|
|
|
$ |
|
|
|
$ |
(75,500 |
) |
|
$ |
(0.07 |
) |
Net tax benefit recognized (2) |
|
|
|
|
|
|
|
|
|
|
38,222 |
|
|
|
0.05 |
|
Litigation reserves addition |
|
|
(17,028 |
) |
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
N.R. |
|
- Not relevant, as denominator of calculation is a loss in prior period compared with income
in current period. |
|
(1) |
|
Pretax unless otherwise noted. |
|
(2) |
|
After-tax. |
Pretax, Pre-provision Income Trends
One non-GAAP performance measurement that we believe is useful in analyzing our underlying
performance trends is pretax, pre-provision income. This is the level of pretax earnings adjusted
to exclude the impact of: (a) provision expense, (b) investment securities gains/losses, which are
excluded because securities market valuations may become particularly volatile in times of economic
stress, (c) amortization of intangibles expense, which is excluded because the return on tangible
common equity is a key measurement we use to gauge performance trends, and (d) certain other items
identified by us (see Significant Items) that we believe may distort our underlying performance
trends.
15
The following table reflects pretax, pre-provision income for each of the past five quarters:
Table 4 Pretax, Pre-provision Income (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
(dollar amounts in thousands) |
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
|
Income before income taxes |
|
$ |
182,333 |
|
|
$ |
194,898 |
|
|
$ |
161,191 |
|
|
$ |
157,948 |
|
|
$ |
130,636 |
|
Add: Provision for credit losses |
|
|
43,586 |
|
|
|
35,797 |
|
|
|
49,385 |
|
|
|
86,973 |
|
|
|
119,160 |
|
Less: Securities gains (losses) |
|
|
(1,350 |
) |
|
|
1,507 |
|
|
|
40 |
|
|
|
(103 |
) |
|
|
(296 |
) |
Add: Amortization of intangibles |
|
|
13,387 |
|
|
|
13,386 |
|
|
|
13,370 |
|
|
|
15,046 |
|
|
|
15,145 |
|
Less: Litigation reserves addition |
|
|
|
|
|
|
|
|
|
|
(17,028 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pretax, pre-provision income |
|
$ |
240,656 |
|
|
$ |
242,574 |
|
|
$ |
240,934 |
|
|
$ |
260,070 |
|
|
$ |
265,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in total pretax, pre-provision income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior quarter change amount |
|
$ |
(1,918 |
) |
|
$ |
1,640 |
|
|
$ |
(19,136 |
) |
|
$ |
(5,167 |
) |
|
$ |
(5,237 |
) |
Prior quarter change percent |
|
|
(1) |
% |
|
|
1 |
% |
|
|
(7) |
% |
|
|
(2) |
% |
|
|
(2) |
% |
|
|
|
(1) |
|
Pretax, pre-provision income is a non-GAAP financial measure. Any ratio utilizing this
financial measure is also non-GAAP. This financial measure has been included as it is
considered to be an important metric with which to analyze and evaluate our results of
operations and financial strength. Other companies may calculate this financial measure
differently. |
Pretax, pre-provision income was $240.7 million in the 2011 third quarter, down $1.9
million, or 1%, from the prior quarter. As discussed in the sections that follow, the decrease
primarily reflected the negative impact from a lower net interest margin percentage and higher
noninterest expense as compared to the prior quarter.
Net Interest Income / Average Balance Sheet
The following table details the change in our average loans / leases and deposits:
Table 5 Average Loans/Leases and Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
Second Quarter |
|
|
3Q11 vs 3Q10 |
|
|
3Q11 vs 2Q11 |
|
(dollar amounts in millions) |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
Amount |
|
|
Percent |
|
|
Amount |
|
|
Percent |
|
Loans/Leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
$ |
13,664 |
|
|
$ |
12,393 |
|
|
$ |
13,370 |
|
|
$ |
1,271 |
|
|
|
10 |
% |
|
$ |
294 |
|
|
|
2 |
% |
Commercial real estate |
|
|
6,111 |
|
|
|
7,073 |
|
|
|
6,233 |
|
|
|
(962 |
) |
|
|
(14 |
) |
|
|
(122 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial |
|
|
19,775 |
|
|
|
19,466 |
|
|
|
19,603 |
|
|
|
309 |
|
|
|
2 |
|
|
|
172 |
|
|
|
1 |
|
Automobile |
|
|
6,211 |
|
|
|
5,140 |
|
|
|
5,954 |
|
|
|
1,071 |
|
|
|
21 |
|
|
|
257 |
|
|
|
4 |
|
Home equity |
|
|
8,002 |
|
|
|
7,567 |
|
|
|
7,874 |
|
|
|
435 |
|
|
|
6 |
|
|
|
128 |
|
|
|
2 |
|
Residential mortgage |
|
|
4,788 |
|
|
|
4,389 |
|
|
|
4,566 |
|
|
|
399 |
|
|
|
9 |
|
|
|
222 |
|
|
|
5 |
|
Other loans |
|
|
521 |
|
|
|
653 |
|
|
|
538 |
|
|
|
(132 |
) |
|
|
(20 |
) |
|
|
(17 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
19,522 |
|
|
|
17,749 |
|
|
|
18,932 |
|
|
|
1,773 |
|
|
|
10 |
|
|
|
590 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
$ |
39,297 |
|
|
$ |
37,215 |
|
|
$ |
38,535 |
|
|
$ |
2,082 |
|
|
|
6 |
% |
|
$ |
762 |
|
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits noninterest-bearing |
|
$ |
8,719 |
|
|
$ |
6,768 |
|
|
$ |
7,806 |
|
|
$ |
1,951 |
|
|
|
29 |
% |
|
$ |
913 |
|
|
|
12 |
% |
Demand deposits interest-bearing |
|
|
5,573 |
|
|
|
5,319 |
|
|
|
5,565 |
|
|
|
254 |
|
|
|
5 |
|
|
|
8 |
|
|
|
|
|
Money market deposits |
|
|
13,321 |
|
|
|
12,336 |
|
|
|
12,879 |
|
|
|
985 |
|
|
|
8 |
|
|
|
442 |
|
|
|
3 |
|
Savings and other domestic time
deposits |
|
|
4,752 |
|
|
|
4,639 |
|
|
|
4,778 |
|
|
|
113 |
|
|
|
2 |
|
|
|
(26 |
) |
|
|
(1 |
) |
Core certificates of deposit |
|
|
7,592 |
|
|
|
8,948 |
|
|
|
8,079 |
|
|
|
(1,356 |
) |
|
|
(15 |
) |
|
|
(487 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits |
|
|
39,957 |
|
|
|
38,010 |
|
|
|
39,107 |
|
|
|
1,947 |
|
|
|
5 |
|
|
|
850 |
|
|
|
2 |
|
Other deposits |
|
|
2,321 |
|
|
|
2,636 |
|
|
|
2,147 |
|
|
|
(315 |
) |
|
|
(12 |
) |
|
|
174 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
42,278 |
|
|
$ |
40,646 |
|
|
$ |
41,254 |
|
|
$ |
1,632 |
|
|
|
4 |
% |
|
$ |
1,024 |
|
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
2011 Third Quarter versus 2010 Third Quarter
Fully-taxable equivalent net interest income decreased $2.5 million, or 1%, from the year-ago
quarter. This reflected the benefit of a $1.3 billion, or 3%, increase in average total earning
assets partially offset by an 11 basis point decline in the net interest margin. The increase in
average earning assets reflected:
|
|
|
$2.1 billion, or 6%, increase in average total loans and leases. |
Partially offset by:
|
|
|
$0.3 billion, or 3%, decrease in average total available-for-sale and other securities
and held-to-maturity securities. |
|
|
|
$0.4 billion, or 64%, decrease in average loans held for sale. |
The 11 basis point decline in the net interest margin reflected a reduction in derivatives
income, lower loan and securities yields, partially offset by the positive impacts of increases in
low cost deposits and improved deposit pricing.
The $2.1 billion, or 6%, increase in average total loans and leases primarily reflected:
|
|
|
$1.3 billion, or 10%, growth in the average C&I portfolio reflected a combination of
factors. This included the benefits from our strategic initiatives including a focus on
large corporate, asset based lending, and equipment finance. In addition, we continued to
see growth in more traditional middle-market, business banking, and automobile floorplan
loans. This growth was evident despite line utilization rates that remained well below
historical norms. |
|
|
|
$1.1 billion, or 21%, increase in the average automobile portfolio. Automobile lending
is a core competency and continues to be an area of targeted growth. The growth from the
year-ago quarter exhibited further penetration within our historical geographic footprint,
as well as the positive impacts of our expansion into Eastern Pennsylvania and five New
England states. Origination quality remained high as measured by all of our internal
quality metrics. |
|
|
|
$0.4 billion, or 9%, increase in average residential mortgages. |
|
|
|
$0.4 billion, or 6%, increase in average home equity loans. |
Partially offset by:
|
|
|
$1.0 billion, or 14%, decrease in the average CRE portfolio, reflecting the continued
execution of our plan to reduce the total CRE exposure, primarily in the noncore CRE
portfolio. This reduction is expected to continue, reflecting the combined impact of
amortization, pay downs, refinancing, and restructures. |
The $1.6 billion, or 4%, increase in average total deposits from the year-ago quarter reflected:
|
|
|
$1.9 billion, or 5%, growth in average total core deposits. The drivers of this change
were a $2.2 billion, or 18%, growth in average total demand deposits, and a $1.0 billion,
or 8%, growth in average money market deposits. Partially offset by $1.4 billion, or 15%,
decline in average core certificates of deposit. |
Partially offset by:
|
|
|
$0.3 billion, or 44%, decline in average other domestic deposits of $250,000 or more,
reflecting a strategy of reducing such noncore funding. |
2011 Third Quarter versus 2011 Second Quarter
FTE net interest income increased $3.0 million, or 1%, from the 2011 second quarter. This
reflected a $0.8 billion, or 2%, increase in average earning assets partially offset by a 6 basis
point decline in the FTE net interest margin. The increase in average earning assets reflected:
|
|
|
$0.8 billion, or 2%, increase in average total loans and leases. |
The
6 basis point decline in the net interest margin reflected a reduction in
derivatives income and lower loan yields, partially offset by the positive impact of increases in
low cost deposits and improved deposit pricing.
17
The $0.8 billion, or 2% (8% annualized), increase in average total loans and leases reflected:
|
|
|
$0.3 billion, or 2% (9% annualized), growth in the average C&I portfolio. The growth in
the C&I portfolio during the third quarter came from several business lines including large
corporate, equipment finance, business banking, and middle market. C&I utilization rates
were little changed from the end of the prior quarter. |
|
|
|
$0.3 billion, or 4% (17% annualized), growth in the average automobile portfolio. In
September, the bank completed a $1.0 billion securitization of automobile loans. We
continued to originate very high quality loans with attractive returns. We focus on
larger, multi-franchised, well-capitalized dealers that are rarely reliant on the success
of one franchise to generate profitability. While the used car market remained very
strong, we increased our originations of new vehicle loans, which reflected a reduced level
of manufacturer captive finance company incentive programs due to lower new vehicle
inventory levels in the market. |
|
|
|
$0.2 billion, or 5% (19% annualized), growth in residential mortgages as the bank
experienced the continuation of a year-long trend of customer preferences shifting to
shorter-term and variable rate mortgages. |
Partially offset by:
|
|
|
$0.1 billion, or 2% (8% annualized), decline in the average CRE portfolio, primarily as
a result of our on-going strategy to reduce our exposure to the commercial real estate
market. We were successful in reducing exposure across virtually all of the CRE project
types that we actively manage via our concentration management process. The decline in the
noncore CRE portfolio accounted for the vast majority of the decline in the total CRE
portfolio. The noncore CRE portfolio declines reflected paydowns, refinancing, and NCOs.
The core CRE portfolio continued to exhibit high quality characteristics with minimal
downgrade or NCO activity. |
The $1.0 billion, or 2% (10% annualized), increase in average total deposits from the 2011 second
quarter reflected:
|
|
|
$0.9 billion, or 7% (28% annualized), increase in total demand deposits. This was
driven primarily by growth in commercial and consumer noninterest-bearing demand deposits.
Commercial demand deposit growth reflected, in part, temporary deposits from several large
relationships. |
|
|
|
$0.4 billion, or 3% (14% annualized), increase in average money market deposits. |
Partially offset by:
|
|
|
$0.5 billion, or 6% (24% annualized), decrease in core certificates of deposits. |
Tables 6 and 7 reflect quarterly average balance sheets and rates earned and paid on
interest-earning assets and interest-bearing liabilities.
18
Table 6 Consolidated Quarterly Average Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Balances |
|
|
Change |
|
|
|
2011 |
|
|
2010 |
|
|
3Q11 vs. 3Q10 |
|
(dollar amounts in millions) |
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
|
Amount |
|
|
Percent |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits in banks |
|
$ |
164 |
|
|
$ |
131 |
|
|
$ |
130 |
|
|
$ |
218 |
|
|
$ |
282 |
|
|
$ |
(118 |
) |
|
|
(42) |
% |
Trading account securities |
|
|
92 |
|
|
|
112 |
|
|
|
144 |
|
|
|
297 |
|
|
|
110 |
|
|
|
(18 |
) |
|
|
(16 |
) |
Federal
funds sold and securities purchased under resale agreement |
|
|
|
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale |
|
|
237 |
|
|
|
181 |
|
|
|
420 |
|
|
|
779 |
|
|
|
663 |
|
|
|
(426 |
) |
|
|
(64 |
) |
Available-for-sale and other securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
7,902 |
|
|
|
8,428 |
|
|
|
9,108 |
|
|
|
9,747 |
|
|
|
8,876 |
|
|
|
(974 |
) |
|
|
(11 |
) |
Tax-exempt |
|
|
421 |
|
|
|
436 |
|
|
|
445 |
|
|
|
449 |
|
|
|
365 |
|
|
|
56 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale and other securities |
|
|
8,323 |
|
|
|
8,864 |
|
|
|
9,553 |
|
|
|
10,196 |
|
|
|
9,241 |
|
|
|
(918 |
) |
|
|
(10 |
) |
Held-to-maturity securities taxable |
|
|
665 |
|
|
|
174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
665 |
|
|
|
|
|
Loans and leases: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
13,664 |
|
|
|
13,370 |
|
|
|
13,121 |
|
|
|
12,767 |
|
|
|
12,393 |
|
|
|
1,271 |
|
|
|
10 |
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
670 |
|
|
|
554 |
|
|
|
611 |
|
|
|
716 |
|
|
|
989 |
|
|
|
(319 |
) |
|
|
(32 |
) |
Commercial |
|
|
5,441 |
|
|
|
5,679 |
|
|
|
5,913 |
|
|
|
6,082 |
|
|
|
6,084 |
|
|
|
(643 |
) |
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
6,111 |
|
|
|
6,233 |
|
|
|
6,524 |
|
|
|
6,798 |
|
|
|
7,073 |
|
|
|
(962 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial |
|
|
19,775 |
|
|
|
19,603 |
|
|
|
19,645 |
|
|
|
19,565 |
|
|
|
19,466 |
|
|
|
309 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile |
|
|
6,211 |
|
|
|
5,954 |
|
|
|
5,701 |
|
|
|
5,520 |
|
|
|
5,140 |
|
|
|
1,071 |
|
|
|
21 |
|
Home equity |
|
|
8,002 |
|
|
|
7,874 |
|
|
|
7,728 |
|
|
|
7,709 |
|
|
|
7,567 |
|
|
|
435 |
|
|
|
6 |
|
Residential mortgage |
|
|
4,788 |
|
|
|
4,566 |
|
|
|
4,465 |
|
|
|
4,430 |
|
|
|
4,389 |
|
|
|
399 |
|
|
|
9 |
|
Other consumer |
|
|
521 |
|
|
|
538 |
|
|
|
559 |
|
|
|
576 |
|
|
|
653 |
|
|
|
(132 |
) |
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
19,522 |
|
|
|
18,932 |
|
|
|
18,453 |
|
|
|
18,235 |
|
|
|
17,749 |
|
|
|
1,773 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
|
39,297 |
|
|
|
38,535 |
|
|
|
38,098 |
|
|
|
37,800 |
|
|
|
37,215 |
|
|
|
2,082 |
|
|
|
6 |
|
Allowance for loan and lease losses |
|
|
(1,066 |
) |
|
|
(1,128 |
) |
|
|
(1,231 |
) |
|
|
(1,323 |
) |
|
|
(1,384 |
) |
|
|
318 |
|
|
|
(23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans and leases |
|
|
38,231 |
|
|
|
37,407 |
|
|
|
36,867 |
|
|
|
36,477 |
|
|
|
35,831 |
|
|
|
2,400 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets |
|
|
48,778 |
|
|
|
48,018 |
|
|
|
48,345 |
|
|
|
49,290 |
|
|
|
47,511 |
|
|
|
1,267 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
1,700 |
|
|
|
1,068 |
|
|
|
1,299 |
|
|
|
1,187 |
|
|
|
1,618 |
|
|
|
82 |
|
|
|
5 |
|
Intangible assets |
|
|
639 |
|
|
|
652 |
|
|
|
665 |
|
|
|
679 |
|
|
|
695 |
|
|
|
(56 |
) |
|
|
(8 |
) |
All other assets |
|
|
4,142 |
|
|
|
4,160 |
|
|
|
4,291 |
|
|
|
4,313 |
|
|
|
4,277 |
|
|
|
(135 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
54,193 |
|
|
$ |
52,770 |
|
|
$ |
53,369 |
|
|
$ |
54,146 |
|
|
$ |
52,717 |
|
|
$ |
1,476 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits noninterest-bearing |
|
$ |
8,719 |
|
|
$ |
7,806 |
|
|
$ |
7,333 |
|
|
$ |
7,188 |
|
|
$ |
6,768 |
|
|
$ |
1,951 |
|
|
|
29 |
% |
Demand deposits interest-bearing |
|
|
5,573 |
|
|
|
5,565 |
|
|
|
5,357 |
|
|
|
5,317 |
|
|
|
5,319 |
|
|
|
254 |
|
|
|
5 |
|
Money market deposits |
|
|
13,321 |
|
|
|
12,879 |
|
|
|
13,492 |
|
|
|
13,158 |
|
|
|
12,336 |
|
|
|
985 |
|
|
|
8 |
|
Savings and other domestic deposits |
|
|
4,752 |
|
|
|
4,778 |
|
|
|
4,701 |
|
|
|
4,640 |
|
|
|
4,639 |
|
|
|
113 |
|
|
|
2 |
|
Core certificates of deposit |
|
|
7,592 |
|
|
|
8,079 |
|
|
|
8,391 |
|
|
|
8,646 |
|
|
|
8,948 |
|
|
|
(1,356 |
) |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits |
|
|
39,957 |
|
|
|
39,107 |
|
|
|
39,274 |
|
|
|
38,949 |
|
|
|
38,010 |
|
|
|
1,947 |
|
|
|
5 |
|
Other domestic time deposits of $250,000 or more |
|
|
387 |
|
|
|
467 |
|
|
|
606 |
|
|
|
737 |
|
|
|
690 |
|
|
|
(303 |
) |
|
|
(44 |
) |
Brokered deposits and negotiable CDs |
|
|
1,533 |
|
|
|
1,333 |
|
|
|
1,410 |
|
|
|
1,575 |
|
|
|
1,495 |
|
|
|
38 |
|
|
|
3 |
|
Deposits in foreign offices |
|
|
401 |
|
|
|
347 |
|
|
|
374 |
|
|
|
443 |
|
|
|
451 |
|
|
|
(50 |
) |
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
42,278 |
|
|
|
41,254 |
|
|
|
41,664 |
|
|
|
41,704 |
|
|
|
40,646 |
|
|
|
1,632 |
|
|
|
4 |
|
Short-term borrowings |
|
|
2,251 |
|
|
|
2,112 |
|
|
|
2,134 |
|
|
|
2,134 |
|
|
|
1,739 |
|
|
|
512 |
|
|
|
29 |
|
Federal Home Loan Bank advances |
|
|
285 |
|
|
|
97 |
|
|
|
30 |
|
|
|
112 |
|
|
|
188 |
|
|
|
97 |
|
|
|
52 |
|
Subordinated notes and other long-term debt |
|
|
3,030 |
|
|
|
3,249 |
|
|
|
3,525 |
|
|
|
3,558 |
|
|
|
3,672 |
|
|
|
(642 |
) |
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
39,125 |
|
|
|
38,906 |
|
|
|
40,020 |
|
|
|
40,320 |
|
|
|
39,477 |
|
|
|
(352 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other liabilities |
|
|
1,017 |
|
|
|
913 |
|
|
|
994 |
|
|
|
993 |
|
|
|
952 |
|
|
|
65 |
|
|
|
7 |
|
Shareholders equity |
|
|
5,332 |
|
|
|
5,145 |
|
|
|
5,022 |
|
|
|
5,645 |
|
|
|
5,520 |
|
|
|
(188 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
54,193 |
|
|
$ |
52,770 |
|
|
$ |
53,369 |
|
|
$ |
54,146 |
|
|
$ |
52,717 |
|
|
$ |
1,476 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For purposes of this analysis, NALs are reflected in the average balances of loans. |
19
Table 7 Consolidated Quarterly Net Interest Margin Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Rates (2) |
|
|
|
2011 |
|
|
2010 |
|
Fully-taxable equivalent basis (1) |
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits in banks |
|
|
0.04 |
% |
|
|
0.22 |
% |
|
|
0.11 |
% |
|
|
0.63 |
% |
|
|
0.21 |
% |
Trading account securities |
|
|
1.41 |
|
|
|
1.59 |
|
|
|
1.37 |
|
|
|
1.98 |
|
|
|
1.20 |
|
Federal funds sold and securities purchased under
resale agreement |
|
|
|
|
|
|
0.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale |
|
|
4.46 |
|
|
|
4.97 |
|
|
|
4.08 |
|
|
|
4.01 |
|
|
|
5.75 |
|
Available-for-sale and other securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
2.43 |
|
|
|
2.59 |
|
|
|
2.53 |
|
|
|
2.42 |
|
|
|
2.77 |
|
Tax-exempt |
|
|
4.17 |
|
|
|
4.02 |
|
|
|
4.70 |
|
|
|
4.59 |
|
|
|
4.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale and other securities |
|
|
2.52 |
|
|
|
2.66 |
|
|
|
2.63 |
|
|
|
2.52 |
|
|
|
2.84 |
|
Held-to-maturity securities taxable |
|
|
3.04 |
|
|
|
2.96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases: (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
4.13 |
|
|
|
4.31 |
|
|
|
4.57 |
|
|
|
4.94 |
|
|
|
5.14 |
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
3.87 |
|
|
|
3.37 |
|
|
|
3.36 |
|
|
|
3.07 |
|
|
|
2.83 |
|
Commercial |
|
|
3.91 |
|
|
|
3.90 |
|
|
|
3.93 |
|
|
|
3.92 |
|
|
|
3.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
3.91 |
|
|
|
3.84 |
|
|
|
3.88 |
|
|
|
3.83 |
|
|
|
3.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial |
|
|
4.06 |
|
|
|
4.16 |
|
|
|
4.34 |
|
|
|
4.56 |
|
|
|
4.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile |
|
|
4.89 |
|
|
|
5.06 |
|
|
|
5.22 |
|
|
|
5.46 |
|
|
|
5.79 |
|
Home equity |
|
|
4.45 |
|
|
|
4.49 |
|
|
|
4.54 |
|
|
|
4.64 |
|
|
|
4.74 |
|
Residential mortgage |
|
|
4.47 |
|
|
|
4.62 |
|
|
|
4.76 |
|
|
|
4.82 |
|
|
|
4.97 |
|
Other consumer |
|
|
7.57 |
|
|
|
7.76 |
|
|
|
7.85 |
|
|
|
7.92 |
|
|
|
7.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
4.68 |
|
|
|
4.79 |
|
|
|
4.90 |
|
|
|
5.04 |
|
|
|
5.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
|
4.37 |
|
|
|
4.47 |
|
|
|
4.61 |
|
|
|
4.79 |
|
|
|
4.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets |
|
|
4.02 |
% |
|
|
4.14 |
% |
|
|
4.24 |
% |
|
|
4.29 |
% |
|
|
4.49 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits noninterest-bearing |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
Demand deposits interest-bearing |
|
|
0.10 |
|
|
|
0.09 |
|
|
|
0.09 |
|
|
|
0.13 |
|
|
|
0.17 |
|
Money market deposits |
|
|
0.41 |
|
|
|
0.40 |
|
|
|
0.50 |
|
|
|
0.77 |
|
|
|
0.86 |
|
Savings and other domestic deposits |
|
|
0.69 |
|
|
|
0.74 |
|
|
|
0.81 |
|
|
|
0.90 |
|
|
|
0.99 |
|
Core certificates of deposit |
|
|
1.95 |
|
|
|
2.04 |
|
|
|
2.07 |
|
|
|
2.11 |
|
|
|
2.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits |
|
|
0.77 |
|
|
|
0.82 |
|
|
|
0.89 |
|
|
|
1.05 |
|
|
|
1.18 |
|
Other domestic time deposits of $250,000 or more |
|
|
0.93 |
|
|
|
1.01 |
|
|
|
1.08 |
|
|
|
1.21 |
|
|
|
1.28 |
|
Brokered deposits and negotiable CDs |
|
|
0.77 |
|
|
|
0.89 |
|
|
|
1.11 |
|
|
|
1.53 |
|
|
|
2.21 |
|
Deposits in foreign offices |
|
|
0.26 |
|
|
|
0.26 |
|
|
|
0.20 |
|
|
|
0.17 |
|
|
|
0.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
0.77 |
|
|
|
0.82 |
|
|
|
0.90 |
|
|
|
1.06 |
|
|
|
1.21 |
|
Short-term borrowings |
|
|
0.16 |
|
|
|
0.16 |
|
|
|
0.18 |
|
|
|
0.20 |
|
|
|
0.22 |
|
Federal Home Loan Bank advances |
|
|
0.32 |
|
|
|
0.88 |
|
|
|
2.98 |
|
|
|
0.95 |
|
|
|
1.25 |
|
Subordinated notes and other long-term debt |
|
|
2.43 |
|
|
|
2.39 |
|
|
|
2.34 |
|
|
|
2.15 |
|
|
|
2.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
0.86 |
% |
|
|
0.91 |
% |
|
|
0.99 |
% |
|
|
1.11 |
% |
|
|
1.25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread |
|
|
3.11 |
% |
|
|
3.19 |
% |
|
|
3.21 |
% |
|
|
3.16 |
% |
|
|
3.24 |
% |
Impact of noninterest-bearing funds on margin |
|
|
0.23 |
|
|
|
0.21 |
|
|
|
0.21 |
|
|
|
0.21 |
|
|
|
0.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
3.34 |
% |
|
|
3.40 |
% |
|
|
3.42 |
% |
|
|
3.37 |
% |
|
|
3.45 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
FTE yields are calculated assuming a 35% tax rate. |
|
(2) |
|
Loan and lease and deposit average rates include impact of applicable derivatives,
non-deferrable fees, and amortized deferred fees. |
|
(3) |
|
For purposes of this analysis, NALs are reflected in the average balances of loans. |
20
Table 8 Consolidated YTD Average Balance Sheets and Net Interest Margin Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YTD Average Balances |
|
|
YTD Average Rates (2) |
|
Fully-taxable equivalent basis (1) |
|
Nine Months Ended September 30, |
|
|
Change |
|
|
Nine Months Ended September 30, |
|
(dollar amounts in millions) |
|
2011 |
|
|
2010 |
|
|
Amount |
|
|
Percent |
|
|
2011 |
|
|
2010 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits in banks |
|
$ |
141 |
|
|
$ |
313 |
|
|
$ |
(172 |
) |
|
|
(55) |
% |
|
|
0.12 |
% |
|
|
0.20 |
% |
Trading account securities |
|
|
116 |
|
|
|
111 |
|
|
|
5 |
|
|
|
5 |
|
|
|
1.46 |
|
|
|
1.68 |
|
Federal
funds sold and securities purchased under resale agreement |
|
|
7 |
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
0.09 |
|
|
|
|
|
Loans held for sale |
|
|
279 |
|
|
|
445 |
|
|
|
(166 |
) |
|
|
(37 |
) |
|
|
4.39 |
|
|
|
5.36 |
|
Available-for-sale and other securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
8,475 |
|
|
|
8,428 |
|
|
|
47 |
|
|
|
1 |
|
|
|
2.52 |
|
|
|
2.85 |
|
Tax-exempt |
|
|
434 |
|
|
|
399 |
|
|
|
35 |
|
|
|
9 |
|
|
|
4.30 |
|
|
|
4.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale and other securities |
|
|
8,909 |
|
|
|
8,827 |
|
|
|
82 |
|
|
|
1 |
|
|
|
2.61 |
|
|
|
2.93 |
|
Total held-to-maturity securities |
|
|
282 |
|
|
|
|
|
|
|
282 |
|
|
|
|
|
|
|
3.00 |
|
|
|
|
|
Loans and leases: (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
13,387 |
|
|
|
12,317 |
|
|
|
1,070 |
|
|
|
9 |
|
|
|
4.33 |
|
|
|
5.35 |
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
612 |
|
|
|
1,224 |
|
|
|
(612 |
) |
|
|
(50 |
) |
|
|
3.55 |
|
|
|
2.69 |
|
Commercial |
|
|
5,676 |
|
|
|
6,145 |
|
|
|
(469 |
) |
|
|
(8 |
) |
|
|
3.91 |
|
|
|
3.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
6,288 |
|
|
|
7,369 |
|
|
|
(1,081 |
) |
|
|
(15 |
) |
|
|
3.88 |
|
|
|
3.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial |
|
|
19,675 |
|
|
|
19,686 |
|
|
|
(11 |
) |
|
|
|
|
|
|
4.19 |
|
|
|
4.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile |
|
|
5,958 |
|
|
|
4,678 |
|
|
|
1,280 |
|
|
|
27 |
|
|
|
5.05 |
|
|
|
6.27 |
|
Home equity |
|
|
7,869 |
|
|
|
7,550 |
|
|
|
319 |
|
|
|
4 |
|
|
|
4.49 |
|
|
|
5.20 |
|
Residential mortgage |
|
|
4,607 |
|
|
|
4,491 |
|
|
|
116 |
|
|
|
3 |
|
|
|
4.61 |
|
|
|
4.85 |
|
Other consumer |
|
|
539 |
|
|
|
690 |
|
|
|
(151 |
) |
|
|
(22 |
) |
|
|
7.73 |
|
|
|
6.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
18,973 |
|
|
|
17,409 |
|
|
|
1,564 |
|
|
|
9 |
|
|
|
4.79 |
|
|
|
5.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
|
38,648 |
|
|
|
37,095 |
|
|
|
1,553 |
|
|
|
4 |
|
|
|
4.48 |
|
|
|
5.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses |
|
|
(1,141 |
) |
|
|
(1,466 |
) |
|
|
325 |
|
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans and leases |
|
|
37,507 |
|
|
|
35,629 |
|
|
|
1,878 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets |
|
|
48,382 |
|
|
|
46,791 |
|
|
|
1,591 |
|
|
|
3 |
|
|
|
4.14 |
% |
|
|
4.64 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
1,358 |
|
|
|
1,629 |
|
|
|
(271 |
) |
|
|
(17 |
) |
|
|
|
|
|
|
|
|
Intangible assets |
|
|
652 |
|
|
|
709 |
|
|
|
(57 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
|
|
All other assets |
|
|
4,196 |
|
|
|
4,381 |
|
|
|
(185 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
53,447 |
|
|
$ |
52,044 |
|
|
$ |
1,403 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits noninterest-bearing |
|
$ |
7,958 |
|
|
$ |
6,748 |
|
|
$ |
1,210 |
|
|
|
18 |
% |
|
|
|
% |
|
|
|
% |
Demand deposits interest-bearing |
|
|
5,499 |
|
|
|
5,667 |
|
|
|
(168 |
) |
|
|
(3 |
) |
|
|
0.10 |
|
|
|
0.20 |
|
Money market deposits |
|
|
13,230 |
|
|
|
11,267 |
|
|
|
1,963 |
|
|
|
17 |
|
|
|
0.44 |
|
|
|
0.92 |
|
Savings and other domestic deposits |
|
|
4,744 |
|
|
|
4,643 |
|
|
|
101 |
|
|
|
2 |
|
|
|
0.75 |
|
|
|
1.08 |
|
Core certificates of deposit |
|
|
8,017 |
|
|
|
9,371 |
|
|
|
(1,354 |
) |
|
|
(14 |
) |
|
|
2.02 |
|
|
|
2.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits |
|
|
39,448 |
|
|
|
37,696 |
|
|
|
1,752 |
|
|
|
5 |
|
|
|
0.83 |
|
|
|
1.34 |
|
Other domestic time deposits of $250,000 or more |
|
|
486 |
|
|
|
683 |
|
|
|
(197 |
) |
|
|
(29 |
) |
|
|
1.02 |
|
|
|
1.36 |
|
Brokered deposits and negotiable CDs |
|
|
1,426 |
|
|
|
1,613 |
|
|
|
(187 |
) |
|
|
(12 |
) |
|
|
0.92 |
|
|
|
2.43 |
|
Deposits in foreign offices |
|
|
374 |
|
|
|
421 |
|
|
|
(47 |
) |
|
|
(11 |
) |
|
|
0.24 |
|
|
|
0.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
41,734 |
|
|
|
40,413 |
|
|
|
1,321 |
|
|
|
3 |
|
|
|
0.83 |
|
|
|
1.38 |
|
Short-term borrowings |
|
|
2,166 |
|
|
|
1,214 |
|
|
|
952 |
|
|
|
78 |
|
|
|
0.17 |
|
|
|
0.21 |
|
Federal Home Loan Bank advances |
|
|
138 |
|
|
|
193 |
|
|
|
(55 |
) |
|
|
(28 |
) |
|
|
0.64 |
|
|
|
1.94 |
|
Subordinated notes and other long-term debt |
|
|
3,266 |
|
|
|
3,855 |
|
|
|
(589 |
) |
|
|
(15 |
) |
|
|
2.38 |
|
|
|
2.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
39,346 |
|
|
|
38,927 |
|
|
|
419 |
|
|
|
1 |
|
|
|
0.92 |
|
|
|
1.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other liabilities |
|
|
975 |
|
|
|
941 |
|
|
|
34 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
5,168 |
|
|
|
5,428 |
|
|
|
(260 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
53,447 |
|
|
$ |
52,044 |
|
|
$ |
1,403 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.17 |
|
|
|
3.22 |
|
Impact of noninterest-bearing funds on margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.22 |
|
|
|
0.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.39 |
% |
|
|
3.46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
(1) |
|
FTE yields are calculated assuming a 35% tax rate. |
|
(2) |
|
Loan, lease, and deposit average rates include the impact of applicable derivatives,
non-deferrable fees, and amortized deferred fees. |
|
(3) |
|
For purposes of this analysis, nonaccrual loans are reflected in the average balances of loans. |
2011 First Nine Months versus 2010 First Nine Months
Fully-taxable equivalent net interest income for the nine-month period of 2011 increased $14.7
million, or 1%, from the comparable year-ago period. This reflected the benefit of a 3% increase
in average total earning assets partially offset by a decrease in the net interest margin to 3.39%
from 3.46%. The increase in average earning assets reflected a combination of factors including:
|
|
|
$1.6 billion, or 4%, increase in average total loans and leases. |
|
|
|
$0.4 billion, or 4%, increase in average total available-for-sale and other and
held-to-maturity securities. |
The 7 basis point decrease in the net interest margin reflected reduction in derivatives
income, lower loan and securities yields, partially offset by the positive impact of increases in
low cost deposits and improved deposit pricing.
The following table details the change in our reported loans and deposits:
Table 9 Average Loans/Leases and Deposits 2011 First Nine Months vs. 2010 First Nine Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
Change |
|
(dollar amounts in millions) |
|
2011 |
|
|
2010 |
|
|
Amount |
|
|
Percent |
|
Loans/Leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
$ |
13,387 |
|
|
$ |
12,317 |
|
|
$ |
1,070 |
|
|
|
9 |
% |
Commercial real estate |
|
|
6,288 |
|
|
|
7,369 |
|
|
|
(1,081 |
) |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial |
|
|
19,675 |
|
|
|
19,686 |
|
|
|
(11 |
) |
|
|
|
|
Automobile |
|
|
5,958 |
|
|
|
4,678 |
|
|
|
1,280 |
|
|
|
27 |
|
Home equity |
|
|
7,869 |
|
|
|
7,550 |
|
|
|
319 |
|
|
|
4 |
|
Residential mortgage |
|
|
4,607 |
|
|
|
4,491 |
|
|
|
116 |
|
|
|
3 |
|
Other consumer |
|
|
539 |
|
|
|
690 |
|
|
|
(151 |
) |
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
18,973 |
|
|
|
17,409 |
|
|
|
1,564 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
$ |
38,648 |
|
|
$ |
37,095 |
|
|
$ |
1,553 |
|
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits noninterest-bearing |
|
$ |
7,958 |
|
|
$ |
6,748 |
|
|
$ |
1,210 |
|
|
|
18 |
% |
Demand deposits interest-bearing |
|
|
5,499 |
|
|
|
5,667 |
|
|
|
(168 |
) |
|
|
(3 |
) |
Money market deposits |
|
|
13,230 |
|
|
|
11,267 |
|
|
|
1,963 |
|
|
|
17 |
|
Savings and other domestic deposits |
|
|
4,744 |
|
|
|
4,643 |
|
|
|
101 |
|
|
|
2 |
|
Core certificates of deposit |
|
|
8,017 |
|
|
|
9,371 |
|
|
|
(1,354 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits |
|
|
39,448 |
|
|
|
37,696 |
|
|
|
1,752 |
|
|
|
5 |
|
Other deposits |
|
|
2,286 |
|
|
|
2,717 |
|
|
|
(431 |
) |
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
41,734 |
|
|
$ |
40,413 |
|
|
$ |
1,321 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The $1.6 billion, or 4%, increase in average total loans and leases primarily reflected:
|
|
|
$1.3 billion, or 27%, increase in the average automobile portfolio. Automobile lending
is a core competency and continued area of growth. The growth from the year-ago period
exhibited further penetration within our historical geographic footprint, as well as the
positive impact of our expansion into Eastern Pennsylvania and selected New England states.
Origination quality remained high. |
|
|
|
$1.1 billion, or 9%, increase in the average C&I portfolio. Growth from the year-ago
period reflected the benefits from our strategic initiatives including large corporate,
asset based lending, business banking, automobile floor plan lending, and equipment
finance. Traditional middle-market loans continued to grow despite line utilization rates
that remain well below historical norms. |
|
|
|
$0.3 billion, or 4%, increase in the average home equity portfolio, reflecting higher
originations and continued slower runoff. |
22
Partially offset by:
|
|
|
$1.1 billion, or 15%, decrease in the average CRE portfolio reflecting the continued
execution of our plan to reduce the CRE exposure, primarily in the noncore CRE portfolio.
This reduction is expected to continue through 2011, reflecting normal amortization,
paydowns, and refinancing. |
The $1.3 billion, or 3%, increase in average total deposits reflected:
|
|
|
$1.8 billion, or 5%, growth in average total core deposits. The drivers of this change
were a $2.0 billion, or 17%, growth in average money market deposits, and a $1.2 billion,
or 18%, growth in average noninterest-bearing demand deposits. These increases were
partially offset by a $1.4 billion, or 14%, decline in average core certificates of
deposit. |
Partially offset by:
|
|
|
$0.4 billion, or 16%, decline in other deposits including a $0.2 billion, or 29%,
decrease in other domestic time deposits of $250,000 or more, and a $0.2 billion, or 12%,
decline in average brokered deposits and negotiable CDs, reflecting a strategy of reducing
such noncore funding. |
23
Provision for Credit Losses
(This section should be read in conjunction with Significant Item 2 and the Credit Risk section.)
The provision for credit losses is the expense necessary to maintain the ALLL and the AULC at
levels appropriate to absorb our estimate of inherent credit losses in the loan and lease portfolio
and the portfolio of unfunded loan commitments and letters-of-credit.
The provision for credit losses for the 2011 third quarter was $43.6 million, an increase of
$7.8 million, or 22%, from the prior quarter, reflecting the combination of strong loan growth and
the expectation of a weaker and prolonged economic recovery. These factors were partially offset
by a combination of lower NCOs and commercial Criticized loans. The reduction in commercial
Criticized loans reflected the resolution of problem credits for which reserves had been previously
established. The current quarters provision for credit losses was $47.0 million less than total
NCOs.
Compared to the year-ago quarter, provision for credit losses declined $75.6 million, or 63%.
The provision for credit losses for the first nine-month period of 2011 was $128.8 million, down
$418.8 million, or 76%, from the year-ago period. These declines reflected the combination of
lower NCOs and commercial Criticized loans as noted above. The provision for credit losses for the
first nine-month period of 2011 was $224.4 million less than total NCOs (see Credit Quality
discussion).
Noninterest Income
The following table reflects noninterest income for each of the past five quarters:
Table 10 Noninterest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
3Q11 vs 3Q10 |
|
|
3Q11 vs 2Q11 |
|
(dollar amounts in thousands) |
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
|
|
Amount |
|
|
Percent |
|
|
Amount |
|
|
Percent |
|
Service charges on
deposit accounts |
|
$ |
65,184 |
|
|
$ |
60,675 |
|
|
$ |
54,324 |
|
|
$ |
55,810 |
|
|
$ |
65,932 |
|
|
|
$ |
(748 |
) |
|
|
(1 |
)% |
|
$ |
4,509 |
|
|
|
7 |
% |
Mortgage banking income |
|
|
12,791 |
|
|
|
23,835 |
|
|
|
22,684 |
|
|
|
53,169 |
|
|
|
52,045 |
|
|
|
|
(39,254 |
) |
|
|
(75 |
) |
|
|
(11,044 |
) |
|
|
(46 |
) |
Trust services |
|
|
29,473 |
|
|
|
30,392 |
|
|
|
30,742 |
|
|
|
29,394 |
|
|
|
26,997 |
|
|
|
|
2,476 |
|
|
|
9 |
|
|
|
(919 |
) |
|
|
(3 |
) |
Electronic banking |
|
|
32,714 |
|
|
|
31,728 |
|
|
|
28,786 |
|
|
|
28,900 |
|
|
|
28,090 |
|
|
|
|
4,624 |
|
|
|
16 |
|
|
|
986 |
|
|
|
3 |
|
Insurance income |
|
|
17,220 |
|
|
|
16,399 |
|
|
|
17,945 |
|
|
|
19,678 |
|
|
|
19,801 |
|
|
|
|
(2,581 |
) |
|
|
(13 |
) |
|
|
821 |
|
|
|
5 |
|
Brokerage income |
|
|
20,349 |
|
|
|
20,819 |
|
|
|
20,511 |
|
|
|
16,953 |
|
|
|
16,575 |
|
|
|
|
3,774 |
|
|
|
23 |
|
|
|
(470 |
) |
|
|
(2 |
) |
Bank owned life
insurance income |
|
|
15,644 |
|
|
|
17,602 |
|
|
|
14,819 |
|
|
|
16,113 |
|
|
|
14,091 |
|
|
|
|
1,553 |
|
|
|
11 |
|
|
|
(1,958 |
) |
|
|
(11 |
) |
Automobile operating
lease income |
|
|
5,890 |
|
|
|
7,307 |
|
|
|
8,847 |
|
|
|
10,463 |
|
|
|
11,356 |
|
|
|
|
(5,466 |
) |
|
|
(48 |
) |
|
|
(1,417 |
) |
|
|
(19 |
) |
Securities gains (losses) |
|
|
(1,350 |
) |
|
|
1,507 |
|
|
|
40 |
|
|
|
(103 |
) |
|
|
(296 |
) |
|
|
|
(1,054 |
) |
|
|
356 |
|
|
|
(2,857 |
) |
|
|
(190 |
) |
Other income |
|
|
60,644 |
|
|
|
45,503 |
|
|
|
38,247 |
|
|
|
33,843 |
|
|
|
32,552 |
|
|
|
|
28,092 |
|
|
|
86 |
|
|
|
15,141 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
$ |
258,559 |
|
|
$ |
255,767 |
|
|
$ |
236,945 |
|
|
$ |
264,220 |
|
|
$ |
267,143 |
|
|
|
$ |
(8,584 |
) |
|
|
(3 |
)% |
|
$ |
2,792 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 Third Quarter versus 2010 Third Quarter
The $8.6 million, or 3%, decrease in total noninterest income from the year-ago quarter reflected:
|
|
|
$39.3 million, or 75%, decrease in mortgage banking income. This primarily reflected a
$21.4 million decrease in net MSR activity and a $20.2 million, or 56%, decrease in
origination and secondary marketing income, as originations decreased 41% from the year-ago
quarter. |
|
|
|
$5.5 million, or 48%, decline in automobile operating lease income reflecting the impact
of a declining portfolio as a result of having exited that business in 2008. |
Partially offset by:
|
|
|
$28.1 million, or 86%, increase in other income, of which $15.5 million related to the
automobile loan securitization. Also contributing to the growth were increases totaling
$6.4 million from the sale of interest rate protection products and capital markets
activities. |
|
|
|
$4.6 million, or 16%, increase in electronic banking income, reflecting an increase in
debit card transaction volume and new account growth. |
|
|
|
$3.8 million, or 23%, increase in brokerage income, primarily reflecting increased sales
of investment products. |
24
2011 Third Quarter versus 2011 Second Quarter
The $2.8 million, or 1%, increase in total noninterest income from the prior quarter reflected:
|
|
|
$15.1 million, or 33%, increase in other income, reflecting a $15.5 million automobile
loan securitization gain on sale, $2.8 million higher market-related gains and capital
markets income; partially offset by a $5.8 million reduction in SBA-related servicing
income. |
|
|
|
$4.5 million, or 7%, increase in service charges on deposit accounts, primarily
reflecting an increase in personal services charges, mostly due to strong customer growth. |
Partially offset by:
|
|
|
$11.0 million, or 46%, decline in mortgage banking income reflecting a $13.9 million
decrease in net MSR activity, partially offset by a $4.1 million, or 36%, increase in
origination and secondary marketing income. |
|
|
|
$1.4 million securities loss in the current period compared with a $1.5 million
securities gain in the second quarter. |
2011 First Nine Months versus 2010 First Nine Months
Noninterest income for the first nine-month period of 2011 decreased $26.4 million, or 3%,
from the comparable year-ago period.
Table 11 Noninterest Income 2011 First Nine Months vs. 2010 First Nine Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
Change |
|
(dollar amounts in thousands) |
|
2011 |
|
|
2010 |
|
|
Amount |
|
|
Percent |
|
Service charges on
deposit accounts |
|
$ |
180,183 |
|
|
$ |
211,205 |
|
|
$ |
(31,022 |
) |
|
|
(15) |
% |
Mortgage banking income |
|
|
59,310 |
|
|
|
122,613 |
|
|
|
(63,303 |
) |
|
|
(52 |
) |
Trust services |
|
|
90,607 |
|
|
|
83,161 |
|
|
|
7,446 |
|
|
|
9 |
|
Electronic banking |
|
|
93,228 |
|
|
|
81,334 |
|
|
|
11,894 |
|
|
|
15 |
|
Insurance income |
|
|
51,564 |
|
|
|
56,735 |
|
|
|
(5,171 |
) |
|
|
(9 |
) |
Brokerage income |
|
|
61,679 |
|
|
|
51,901 |
|
|
|
9,778 |
|
|
|
19 |
|
Bank owned life
insurance income |
|
|
48,065 |
|
|
|
44,953 |
|
|
|
3,112 |
|
|
|
7 |
|
Automobile operating
lease income |
|
|
22,044 |
|
|
|
35,501 |
|
|
|
(13,457 |
) |
|
|
(38 |
) |
Securities gains (losses) |
|
|
197 |
|
|
|
(171 |
) |
|
|
368 |
|
|
|
N.R. |
|
Other income |
|
|
144,394 |
|
|
|
90,406 |
|
|
|
53,988 |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
$ |
751,271 |
|
|
$ |
777,638 |
|
|
$ |
(26,367 |
) |
|
|
(3) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.R. |
|
- Not relevant, as denominator of calculation is a loss in prior period compared with income
in current period. |
The $26.4 million, or 3%, decrease in total noninterest income reflected:
|
|
|
$63.3 million, or 52%, decrease in mortgage banking income. This primarily reflected a
$46.2 million decrease in net MSR activity and a $22.2 million, or 32%, decrease in
origination and secondary marketing income, as originations decreased 23% from the year-ago
period. |
|
|
|
$31.0 million, or 15%, decline in service charges on deposit accounts, reflecting lower
personal service charges due to the implementation of the amendment to Reg E and our Fair
Play consumer banking initiatives. |
|
|
|
$13.5 million, or 38%, decline in automobile operating lease income reflecting the
impact of a declining portfolio as a result of having exited that business in 2008. |
Partially offset by:
|
|
|
$54.0 million, or 60%, increase in other income, of which $19.3 million was associated
with SBA-related loan fees and gains from SBA loan sales, and a $15.5 million automobile
loan securitization gain on sale. Also contributing to the growth were increases totaling
$13.4 million from the sale of interest rate protection products and capital markets
activities. |
|
|
|
$11.9 million, or 15%, increase in electronic banking income, reflecting an increase in
debit card transaction volume and new
account growth. |
25
|
|
|
$9.8 million, or 19%, increase in brokerage income, primarily reflecting increased sales
of investment products. |
|
|
|
$7.4 million, or 9%, increase in trust services income, due to a $0.8 billion increase
in assets under management. This increase reflected improved market values and net growth
in accounts. |
|
|
|
For additional information regarding noninterest income, see the Legislative and Regulatory
section located within the Executive Overview. |
Noninterest Expense
(This section should be read in conjunction with Significant Item 1.)
The following table reflects noninterest expense for each of the past five quarters:
Table 12 Noninterest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
3Q11 vs 3Q10 |
|
|
3Q11 vs 2Q11 |
|
(dollar amounts in thousands) |
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
|
|
Amount |
|
|
Percent |
|
|
Amount |
|
|
Percent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs |
|
$ |
226,835 |
|
|
$ |
218,570 |
|
|
$ |
219,028 |
|
|
$ |
212,184 |
|
|
$ |
208,272 |
|
|
|
$ |
18,563 |
|
|
|
9 |
% |
|
$ |
8,265 |
|
|
|
4 |
% |
Outside data processing and
other services |
|
|
49,602 |
|
|
|
43,889 |
|
|
|
40,282 |
|
|
|
40,943 |
|
|
|
38,553 |
|
|
|
|
11,049 |
|
|
|
29 |
|
|
|
5,713 |
|
|
|
13 |
|
Net occupancy |
|
|
26,967 |
|
|
|
26,885 |
|
|
|
28,436 |
|
|
|
26,670 |
|
|
|
26,718 |
|
|
|
|
249 |
|
|
|
1 |
|
|
|
82 |
|
|
|
|
|
Deposit and other insurance
expense |
|
|
17,492 |
|
|
|
23,823 |
|
|
|
17,896 |
|
|
|
23,320 |
|
|
|
23,406 |
|
|
|
|
(5,914 |
) |
|
|
(25 |
) |
|
|
(6,331 |
) |
|
|
(27 |
) |
Professional services |
|
|
20,281 |
|
|
|
20,080 |
|
|
|
13,465 |
|
|
|
21,021 |
|
|
|
20,672 |
|
|
|
|
(391 |
) |
|
|
(2 |
) |
|
|
201 |
|
|
|
1 |
|
Equipment |
|
|
22,262 |
|
|
|
21,921 |
|
|
|
22,477 |
|
|
|
22,060 |
|
|
|
21,651 |
|
|
|
|
611 |
|
|
|
3 |
|
|
|
341 |
|
|
|
2 |
|
Marketing |
|
|
22,251 |
|
|
|
20,102 |
|
|
|
16,895 |
|
|
|
16,168 |
|
|
|
20,921 |
|
|
|
|
1,330 |
|
|
|
6 |
|
|
|
2,149 |
|
|
|
11 |
|
Amortization of intangibles |
|
|
13,387 |
|
|
|
13,386 |
|
|
|
13,370 |
|
|
|
15,046 |
|
|
|
15,145 |
|
|
|
|
(1,758 |
) |
|
|
(12 |
) |
|
|
1 |
|
|
|
|
|
OREO and foreclosure expense |
|
|
4,668 |
|
|
|
4,398 |
|
|
|
3,931 |
|
|
|
10,502 |
|
|
|
12,047 |
|
|
|
|
(7,379 |
) |
|
|
(61 |
) |
|
|
270 |
|
|
|
6 |
|
Automobile operating lease
expense |
|
|
4,386 |
|
|
|
5,434 |
|
|
|
6,836 |
|
|
|
8,142 |
|
|
|
9,159 |
|
|
|
|
(4,773 |
) |
|
|
(52 |
) |
|
|
(1,048 |
) |
|
|
(19 |
) |
Other expense |
|
|
30,987 |
|
|
|
29,921 |
|
|
|
48,083 |
|
|
|
38,537 |
|
|
|
30,765 |
|
|
|
|
222 |
|
|
|
1 |
|
|
|
1,066 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
$ |
439,118 |
|
|
$ |
428,409 |
|
|
$ |
430,699 |
|
|
$ |
434,593 |
|
|
$ |
427,309 |
|
|
|
$ |
11,809 |
|
|
|
3 |
% |
|
$ |
10,709 |
|
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of employees (full-time equivalent), at
period-end |
|
|
11,473 |
|
|
|
11,457 |
|
|
|
11,319 |
|
|
|
11,341 |
|
|
|
11,279 |
|
|
|
|
194 |
|
|
|
2 |
% |
|
|
16 |
|
|
|
|
% |
2011 Third Quarter versus 2010 Third Quarter
The $11.8 million, or 3%, increase in total noninterest expense from the year-ago quarter
reflected:
|
|
|
$18.6 million, or 9%, increase in personnel costs, primarily reflecting a 2% increase in
full-time equivalent staff in support of strategic initiatives, as well as higher
benefit-related expenses, including $4.2 million of healthcare related costs. |
|
|
|
$11.0 million, or 29%, increase in outside data processing and other service, reflecting
the costs associated with the conversion to a new debit card processor and outside services
supporting increased regulations. |
Partially offset by:
|
|
|
$7.4 million, or 61%, decrease in OREO and foreclosure expense. |
|
|
|
$5.9 million, or 25%, decline in deposit and other insurance expenses. |
|
|
|
$4.8 million, or 52%, decline in automobile operating lease expense as that portfolio
continued to run-off having exited that business in 2008. |
2011 Third Quarter versus 2011 Second Quarter
The $10.7 million, or 2%, increase in total noninterest expense from the prior quarter reflected:
|
|
|
$8.3 million, or 4%, increase in personnel costs, primarily reflecting higher salaries,
severance, and healthcare costs. |
|
|
|
$5.7 million, or 13%, increase in outside data processing and other services, reflecting
the costs associated with the conversion to a new debit card processor and the
implementation of strategic initiatives. |
26
Partially offset by:
|
|
|
$6.3 million, or 27%, decline in deposit and other insurance expenses. |
2011 First Nine Months versus 2010 First Nine Months
Noninterest expense for the first nine-month period of 2011 increased $59.0 million, or 5%,
from the comparable year-ago period.
Table 13 Noninterest Expense 2011 First Nine Months vs. 2010 First Nine Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
Change |
|
(dollar amounts in thousands) |
|
2011 |
|
|
2010 |
|
|
Amount |
|
|
Percent |
|
Personnel costs |
|
$ |
664,433 |
|
|
$ |
586,789 |
|
|
$ |
77,644 |
|
|
|
13 |
% |
Outside data processing and other services |
|
|
133,773 |
|
|
|
118,305 |
|
|
|
15,468 |
|
|
|
13 |
|
Net occupancy |
|
|
82,288 |
|
|
|
81,192 |
|
|
|
1,096 |
|
|
|
1 |
|
Deposit and other insurance expense |
|
|
59,211 |
|
|
|
74,228 |
|
|
|
(15,017 |
) |
|
|
(20 |
) |
Professional services |
|
|
53,826 |
|
|
|
67,757 |
|
|
|
(13,931 |
) |
|
|
(21 |
) |
Equipment |
|
|
66,660 |
|
|
|
63,860 |
|
|
|
2,800 |
|
|
|
4 |
|
Marketing |
|
|
59,248 |
|
|
|
49,756 |
|
|
|
9,492 |
|
|
|
19 |
|
Amortization of intangibles |
|
|
40,143 |
|
|
|
45,432 |
|
|
|
(5,289 |
) |
|
|
(12 |
) |
OREO and foreclosure expense |
|
|
12,997 |
|
|
|
28,547 |
|
|
|
(15,550 |
) |
|
|
(54 |
) |
Automobile operating lease expense |
|
|
16,656 |
|
|
|
28,892 |
|
|
|
(12,236 |
) |
|
|
(42 |
) |
Other expense |
|
|
108,991 |
|
|
|
94,455 |
|
|
|
14,536 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
$ |
1,298,226 |
|
|
$ |
1,239,213 |
|
|
$ |
59,013 |
|
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The $59.0 million, or 5%, increase in total noninterest expense reflected:
|
|
|
$77.6 million, or 13%, increase in personnel costs, primarily reflecting an increase in
full-time equivalent staff in support of strategic initiatives, as well as higher benefit
related expenses, including the reinstatement of our 401(k) plan matching contribution in
May of 2010. |
|
|
|
$15.5 million, or 13%, increase in outside data processing and other service, reflecting
the costs associated with the conversion to a new debit card processor and the
implementation of strategic initiatives. |
|
|
|
$14.5 million, or 15%, increase in other expense, primarily reflecting the 2011 first
quarter $17.0 million addition to litigation reserves (see Significant Items). |
|
|
|
$9.5 million, or 19%, increase in marketing expense, reflecting higher advertising
costs. |
Partially offset by:
|
|
|
$15.6 million, or 54%, decline in OREO and foreclosure expenses as OREO balances
declined 69% in the current period. |
|
|
|
$15.0 million, or 20%, decrease in deposit and other insurance expenses. |
|
|
|
$13.9 million, or 21%, decrease in professional services, reflecting lower legal costs,
as collection activities declined, and consulting expenses. |
|
|
|
$12.2 million, or 42%, decline in automobile operating lease expense as that portfolio
continued to run-off having exited that business in 2008. |
27
Provision for Income Taxes
(This section should be read in conjunction with Significant Item 2.)
The provision for income taxes in the 2011 third quarter was $38.9 million. This compared with
a provision for income taxes of $49.0 million in the 2011 second quarter and a provision for income
taxes of $29.7 million in the 2010 third quarter. All three quarters included the benefits from
tax-exempt income, tax-advantaged investments, and general business credits. At September 30,
2011, we had a net deferred tax asset of $364.2 million. Based on both positive and negative
evidence and our level of forecasted future taxable income, there was no impairment to the deferred
tax asset at September 30, 2011. The total disallowed deferred tax asset for regulatory capital
purposes decreased to $19.4 million at September 30, 2011 compared to the total disallowed deferred
tax asset of $48.2 million at June 30, 2011.
The IRS completed audits of our consolidated federal income tax returns for tax years through
2007. In the third quarter 2011, the IRS began its examination of our 2008 and 2009 consolidated
federal income tax returns. The IRS, various states, and other jurisdictions remain open to
examination, including Kentucky, Indiana, Michigan, Pennsylvania, West Virginia and Illinois. The
IRS has proposed adjustments to our previously filed tax returns. We believe our tax positions
related to such proposed adjustments are correct and supported by applicable statutes, regulations,
and judicial authority, and intend to vigorously defend them. It is possible the ultimate
resolution of the proposed adjustments, if unfavorable, may be material to the results of
operations in the period it occurs. However, although no assurance can be given, we believe the
resolution of these examinations will not, individually or in the aggregate, have a material
adverse impact on our consolidated financial position.
28
RISK MANAGEMENT AND CAPITAL
Risk awareness, identification and assessment, reporting, and active management are key
elements in overall risk management. We manage risk to an aggregate moderate-to-low risk profile
through a control framework and by monitoring and responding to identified potential risks. We
believe that our primary risk exposures are credit, market, liquidity, operational, and compliance
oriented. More information on risk can be found in the Risk Factors section included in Item 1A of
our 2010 Form 10-K and subsequent filings with the SEC. Additionally, the MD&A included in our
2010 Form 10-K should be read in conjunction with this MD&A as this discussion provides only
material updates to the 2010 Form 10-K. Our definition, philosophy, and approach to risk
management have not materially changed from the discussion presented in the 2010 Form 10-K.
Credit Risk
Credit risk is the risk of financial loss if a counterparty is not able to meet the agreed
upon terms of the financial obligation. The majority of our credit risk is associated with lending
activities, as the acceptance and management of credit risk is central to profitable lending. We
also have credit risk associated with our available-for-sale and other investment and
held-to-maturity securities portfolios (see Note 4 and Note 5 of the Notes to the Unaudited
Condensed Consolidated Financial Statements). We engage with other financial counterparties for a
variety of purposes including investing, asset and liability management, mortgage banking and for
trading activities. Given the current level of global financial issues, we believe it is important
to provide clarity around our exposure in this specific area. While there is credit risk
associated with derivative activity, we believe this exposure is minimal. The significant change
in the economic conditions and the resulting changes in borrower behavior over the past several
years resulted in our continuing focus on the identification, monitoring, and managing of our
credit risk. In addition to the traditional credit risk mitigation strategies of credit policies
and processes, market risk management activities, and portfolio diversification, we added more
quantitative measurement capabilities utilizing external data sources, enhanced use of modeling
technology, and internal stress testing processes. The continued expansion of our portfolio
management resources demonstrates our commitment to maintaining an aggregate moderate-to-low risk
profile.
Loan and Lease Credit Exposure Mix
At September 30, 2011, our loans and leases totaled $39.0 billion, representing a $0.9
billion, or 2%, increase compared to $38.1 billion at December 31, 2010, primarily reflecting
growth in the C&I, residential mortgage, and home equity portfolios. The automobile portfolio was
little changed reflecting the 2011 third quarter automobile securitization (see Automobile
Portfolio discussion). The CRE portfolio continued to decline reflecting our planned strategy to
reduce our CRE exposure.
At September 30, 2011, commercial loans and leases totaled $19.9 billion, and represented 51%
of our total credit exposure. Our commercial portfolio is diversified along product type, customer
size, and geography within our footprint and is comprised of the following (see Commercial Credit
discussion):
C&I C&I loans and leases are made to commercial customers for use in normal business
operations to finance working capital needs, equipment purchases, or other projects. The majority
of these borrowers are customers doing business within our geographic regions. C&I loans and
leases are generally underwritten individually and secured with the assets of the company and/or
the personal guarantee of the business owners. The financing of owner occupied facilities is
considered a C&I loan even though there is improved real estate as collateral. This treatment is a
function of the credit decision process, which focuses on cash flow from operations of the business
to repay the debt. The operation, sale, rental, or refinancing of the real estate is not
considered the primary repayment source for these types of loans. As we look to grow our C&I
portfolio, we have further developed our ABL capabilities by adding experienced ABL professionals
to take advantage of market opportunities resulting in better leveraging of the manufacturing base
in our primary markets. Also, our Equipment Finance area is targeting larger equipment financings
in the manufacturing sector in addition to our core products. We also expanded our large corporate
banking group with sufficient resources to ensure we appropriately recognize and manage the risks
associated with these types of lending.
CRE CRE loans consist of loans for income-producing real estate properties, real estate
investment trusts, and real estate developers. We mitigate our risk on these loans by requiring
collateral values that exceed the loan amount and underwriting the loan with projected cash flow in
excess of the debt service requirement. These loans are made to finance properties such as
apartment buildings, office and industrial buildings, and retail shopping centers, and are repaid
through cash flows related to the operation, sale, or refinance of the property.
Construction CRE Construction CRE loans are loans to individuals, companies, or developers
used for the construction of a commercial or residential property for which repayment will be
generated by the sale or permanent financing of the property. Our construction CRE portfolio
primarily consists of retail, residential (land, single family, and condominiums), office, and
warehouse product types. Generally, these loans are for construction projects that have been
presold or preleased, or have secured permanent financing, as well as loans to real estate
companies with significant equity invested in each project. These loans are underwritten and
managed by a specialized real estate lending group that actively monitors the construction
phase and manages the loan disbursements according to the predetermined construction schedule.
29
Total consumer loans and leases were $19.1 billion at September 30, 2011, and represented 49%
of our total loan and lease credit exposure. The consumer portfolio was primarily diversified
among home equity loans and lines-of-credit, residential mortgages, and automobile loans and leases
(see Consumer Credit discussion).
Automobile Automobile loans and leases are primarily comprised of loans made through
automotive dealerships and include exposure in selected states outside of our primary banking
markets. No state outside of our primary banking markets represented more than 3% of our total
automobile portfolio at September 30, 2011.
Home equity Home equity lending includes both home equity loans and lines-of-credit. This
type of lending, which is secured by a first-lien or second-lien on the borrowers residence,
allows customers to borrow against the equity in their home. Given the current low interest rate
environment, many borrowers have utilized the line-of-credit home equity product as the primary
source of financing their home. As a result, the proportion of the home equity portfolio secured
by a first-lien has increased significantly over the past three years, positively impacting the
portfolios risk profile. The credit risk profile is substantially reduced when we hold a
first-lien position. During the first nine-month period of 2011, more than 65% of our home equity
portfolio originations were secured by a first-lien mortgage. The first-lien position combined
with continued high average FICO scores significantly reduces the PD associated with these loans.
The combination provides a strong base when assessing the expected future performance of this
portfolio. Real estate market values at the time of origination directly affect the amount of
credit extended and, in the event of default, subsequent changes in these values impact the
severity of losses. We actively manage the extension of credit and the amount of credit extended
through a combination of criteria including financial position, debt-to-income policies and LTV
policy limits.
Residential mortgage Residential mortgage loans represent loans to consumers for the
purchase or refinance of a residence. These loans are generally financed over a 15-year to 30-year
term, and in most cases, are extended to borrowers to finance their primary residence. Generally,
our practice is to sell a significant portion of our fixed-rate originations in the secondary
market. As such, the majority of the loans in our portfolio are ARMs. These ARMs primarily
consist of a fixed-rate of interest for the first 3 to 5 years, and then adjust annually. These
loans comprised approximately 53% of our total residential mortgage loan portfolio at September 30,
2011. We are subject to repurchase risk associated with residential mortgage loans sold in the
secondary market. This activity has increased recently reflecting the overall market conditions
and GSE activity and an appropriate level of allowance has been established to address the
repurchase risk inherent in the portfolio (refer to the Operational Risk section for additional
discussion).
Other consumer This portfolio primarily consists of consumer loans not secured by real
estate or automobiles, including personal unsecured loans.
Table 14 Loan and Lease Portfolio Composition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
(dollar amounts in millions) |
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
Commercial:(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
$ |
13,939 |
|
|
|
36 |
% |
|
$ |
13,544 |
|
|
|
34 |
% |
|
$ |
13,299 |
|
|
|
35 |
% |
|
$ |
13,063 |
|
|
|
34 |
% |
|
$ |
12,425 |
|
|
|
33 |
% |
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
520 |
|
|
|
1 |
|
|
|
591 |
|
|
|
2 |
|
|
|
587 |
|
|
|
2 |
|
|
|
650 |
|
|
|
2 |
|
|
|
738 |
|
|
|
2 |
|
Commercial |
|
|
5,414 |
|
|
|
14 |
|
|
|
5,573 |
|
|
|
14 |
|
|
|
5,711 |
|
|
|
15 |
|
|
|
6,001 |
|
|
|
16 |
|
|
|
6,174 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial real estate |
|
|
5,934 |
|
|
|
15 |
|
|
|
6,164 |
|
|
|
16 |
|
|
|
6,298 |
|
|
|
17 |
|
|
|
6,651 |
|
|
|
18 |
|
|
|
6,912 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial |
|
|
19,873 |
|
|
|
51 |
|
|
|
19,708 |
|
|
|
50 |
|
|
|
19,597 |
|
|
|
52 |
|
|
|
19,714 |
|
|
|
52 |
|
|
|
19,337 |
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile |
|
|
5,558 |
|
|
|
14 |
|
|
|
6,190 |
|
|
|
16 |
|
|
|
5,802 |
|
|
|
15 |
|
|
|
5,614 |
|
|
|
15 |
|
|
|
5,385 |
|
|
|
14 |
|
Home equity |
|
|
8,079 |
|
|
|
21 |
|
|
|
7,952 |
|
|
|
20 |
|
|
|
7,784 |
|
|
|
20 |
|
|
|
7,713 |
|
|
|
20 |
|
|
|
7,690 |
|
|
|
21 |
|
Residential mortgage |
|
|
4,986 |
|
|
|
13 |
|
|
|
4,751 |
|
|
|
12 |
|
|
|
4,517 |
|
|
|
12 |
|
|
|
4,500 |
|
|
|
12 |
|
|
|
4,511 |
|
|
|
12 |
|
Other consumer |
|
|
516 |
|
|
|
1 |
|
|
|
525 |
|
|
|
2 |
|
|
|
546 |
|
|
|
1 |
|
|
|
566 |
|
|
|
1 |
|
|
|
578 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
19,139 |
|
|
|
49 |
|
|
|
19,418 |
|
|
|
50 |
|
|
|
18,649 |
|
|
|
48 |
|
|
|
18,393 |
|
|
|
48 |
|
|
|
18,164 |
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
$ |
39,012 |
|
|
|
100 |
% |
|
$ |
39,126 |
|
|
|
100 |
% |
|
$ |
38,246 |
|
|
|
100 |
% |
|
$ |
38,107 |
|
|
|
100 |
% |
|
$ |
37,501 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
There were no commercial loans outstanding that would be considered a concentration of lending
to a particular industry or group of industries. |
30
The table below provides our total loan and lease portfolio segregated by the type of
collateral securing the loan or lease:
Table 15 Loan and Lease Portfolio by Collateral Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
(dollar amounts in millions) |
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
Secured loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate commercial |
|
$ |
9,554 |
|
|
|
24 |
% |
|
$ |
9,781 |
|
|
|
25 |
% |
|
$ |
9,931 |
|
|
|
26 |
% |
|
$ |
10,389 |
|
|
|
27 |
% |
|
$ |
10,516 |
|
|
|
28 |
% |
Real estate consumer |
|
|
13,065 |
|
|
|
33 |
|
|
|
12,703 |
|
|
|
32 |
|
|
|
12,300 |
|
|
|
32 |
|
|
|
12,214 |
|
|
|
32 |
|
|
|
12,201 |
|
|
|
33 |
|
Vehicles |
|
|
6,898 |
|
|
|
18 |
|
|
|
7,594 |
|
|
|
19 |
|
|
|
7,333 |
|
|
|
19 |
|
|
|
7,134 |
|
|
|
19 |
|
|
|
6,652 |
|
|
|
18 |
|
Receivables/Inventory |
|
|
4,297 |
|
|
|
11 |
|
|
|
4,171 |
|
|
|
11 |
|
|
|
3,819 |
|
|
|
10 |
|
|
|
3,763 |
|
|
|
10 |
|
|
|
3,524 |
|
|
|
9 |
|
Machinery/Equipment |
|
|
1,864 |
|
|
|
5 |
|
|
|
1,784 |
|
|
|
5 |
|
|
|
1,787 |
|
|
|
5 |
|
|
|
1,766 |
|
|
|
5 |
|
|
|
1,763 |
|
|
|
5 |
|
Securities/Deposits |
|
|
805 |
|
|
|
2 |
|
|
|
802 |
|
|
|
2 |
|
|
|
778 |
|
|
|
2 |
|
|
|
734 |
|
|
|
2 |
|
|
|
730 |
|
|
|
2 |
|
Other |
|
|
1,103 |
|
|
|
3 |
|
|
|
1,095 |
|
|
|
3 |
|
|
|
1,139 |
|
|
|
3 |
|
|
|
990 |
|
|
|
2 |
|
|
|
1,097 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total secured loans and leases |
|
|
37,586 |
|
|
|
96 |
|
|
|
37,930 |
|
|
|
97 |
|
|
|
37,087 |
|
|
|
97 |
|
|
|
36,990 |
|
|
|
97 |
|
|
|
36,483 |
|
|
|
97 |
|
Unsecured loans and leases |
|
|
1,426 |
|
|
|
4 |
|
|
|
1,196 |
|
|
|
3 |
|
|
|
1,159 |
|
|
|
3 |
|
|
|
1,117 |
|
|
|
3 |
|
|
|
1,018 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
$ |
39,012 |
|
|
|
100 |
% |
|
$ |
39,126 |
|
|
|
100 |
% |
|
$ |
38,246 |
|
|
|
100 |
% |
|
$ |
38,107 |
|
|
|
100 |
% |
|
$ |
37,501 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Credit
In commercial lending, on-going credit management is dependent on the type and nature of the
loan. We monitor all significant exposures on an on-going basis. All commercial credit extensions
are assigned internal risk ratings reflecting the borrowers PD and LGD (severity of loss). This
two-dimensional rating methodology provides granularity in the portfolio management process. The PD
is rated and applied at the borrower level. The LGD is rated and applied based on the specific type
of credit extension and the quality and lien position associated with the underlying collateral.
The internal risk ratings are assessed at origination and updated at each periodic monitoring
event. There is also extensive macro portfolio management analysis on an on-going basis. As an
example, the retail properties class of the CRE portfolio and manufacturing loans within the C&I
portfolio have each received more frequent evaluation at the individual loan level given the weak
environment and our portfolio composition. We continually review and adjust our risk-rating
criteria based on actual experience, which provides us with the current risk level in the portfolio
and is the basis for determining an appropriate allowance amount for this portfolio.
Our Credit Review group performs testing to provide an independent review and assessment of
the quality and / or risk of new loan originations. This group is part of our Risk Management
area, and conducts portfolio reviews on a risk-based cycle to evaluate individual loans, validate
risk ratings, as well as test the consistency of credit processes. Similarly, to provide
consistent oversight, a centralized portfolio management team monitors and reports on the
performance of small business loans, which are included within the commercial loan portfolio.
Our standardized loan grading system considers many components that directly correlate to loan
quality and likelihood of repayment, one of which is guarantor support. On an annual basis, or
more frequently if warranted, we consider, among other things, the guarantors reputation and
creditworthiness, along with various key financial metrics such as liquidity and net worth. Our
assessment of the guarantors credit strength is reflected in our risk ratings for such loans. The
risk rating is directly tied to, and an integral component of, our allowance for loan loss
methodology. When our assessment of the guarantors credit strength demonstrates an inherent
capacity to perform, we will seek repayment from the guarantor as part of the collection process
and have successfully negotiated repayment from guarantors as part of our overall credit risk
management process. When a loan goes to impaired status, viable guarantor support is considered in
the determination of the recognition of a loan loss.
Substantially all loans categorized as Classified (see Note 3 of Notes to Unaudited Condensed
Consolidated Financial Statements) are managed by our SAD. The SAD is a specialized group of
credit professionals that handle the day-to-day management of workouts, commercial recoveries, and
problem loan sales. Its responsibilities include developing and implementing action plans,
assessing risk ratings, and determining the adequacy of the allowance, the accrual status, and the
ultimate collectability of the Classified loan portfolio.
Our commercial portfolio is diversified by product type, customer size, and geography
throughout our footprint. No outstanding commercial loans and leases comprised an industry or
geographic concentration of lending. Certain segments of our commercial portfolio are discussed in
further detail below.
31
C&I PORTFOLIO
We manage the risks inherent in this portfolio through origination policies, concentration
limits, on-going loan level reviews and portfolio level reviews, recourse requirements, and
continuous portfolio risk management activities. Our origination policies for this portfolio
include loan product-type specific policies such as LTV and debt service coverage ratios, as
applicable.
While C&I borrowers have been challenged by the weak economy, problem loans have trended
downward, reflecting a combination of proactive risk identification as well as some relative
improvement in the economic conditions. Nevertheless, some borrowers may no longer have sufficient
capital to withstand the extended stress. As a result, these borrowers may not be able to comply
with the original terms of their credit agreements. We continue to focus attention on the
portfolio management process to proactively identify borrowers that may be facing financial
difficulty and to assess all potential solutions. The impact of the economic environment is
further evidenced by the level of line-of-credit activity, as borrowers continued to maintain
relatively low utilization percentages.
As shown in the following table, C&I loans and leases totaled $13.9 billion at September 30,
2011:
Table 16 Commercial and Industrial Loans and Leases by Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011 |
|
|
|
Commitments |
|
|
Loans Outstanding |
|
(dollar amounts in millions) |
|
Amount |
|
|
Percent |
|
|
Amount |
|
|
Percent |
|
Class: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied |
|
$ |
4,390 |
|
|
|
21 |
% |
|
$ |
3,978 |
|
|
|
29 |
% |
Other commercial and industrial |
|
|
17,020 |
|
|
|
79 |
|
|
|
9,961 |
|
|
|
71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
21,410 |
|
|
|
100 |
% |
|
$ |
13,939 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The difference in the composition between the commitments and loans and leases
outstanding in the other commercial and industrial class results from a significant amount of
working capital lines-of-credit and businesses have reduced these borrowings. The funding
percentage associated with the lines-of-credit has been a significant indicator of credit quality.
Generally, borrowers that fully utilize their line-of-credit consistently, over time, have a higher
risk profile. The overall funding rate on the commercial lines-of-credit has declined compared to
pre-2008 levels as borrowers have limited their borrowing and focused on maintaining high liquidity
and reducing debt. Line-of-credit utilization is one of many credit risk factors we utilize in
assessing the credit risk portfolio of individual borrowers and the overall portfolio.
CRE PORTFOLIO
We manage the risks inherent in this portfolio specific to CRE lending, focusing on the
quality of the developer, and the specifics associated with each project. Generally, we: (1)
limit our loans to 80% of the appraised value of the commercial real estate, (2) require net
operating cash flows to be 125% of required interest and principal payments, and (3) if the
commercial real estate is nonowner occupied, require that at least 50% of the space of the project
be preleased. Additionally, we established a limit to our CRE exposure of no more than our amount
of Tier 1 Capital plus the ACL. We have been actively reducing our CRE exposure during the past
three years, and our CRE exposure was below this established limit at September 30, 2011.
Each CRE loan is classified as either core or noncore. We separated the CRE portfolio into
these categories in order to provide more clarity around our portfolio management strategies and to
provide an additional level of transparency. We believe segregating the noncore CRE from core CRE
improves our ability to understand the nature, performance prospects, and problem resolution
opportunities, thus allowing us to continue to deal proactively with any emerging credit issues.
A CRE loan is generally considered core when the borrower is an experienced, well-capitalized
developer in our Midwest footprint, and has either an established meaningful relationship with us
that generates an acceptable return on capital or demonstrates the prospect of becoming one. The
core CRE portfolio was $3.9 billion at September 30, 2011, representing 65% of total CRE loans.
The performance of the core portfolio met our expectations based on the consistency of the asset
quality metrics within the portfolio. Based on our extensive project level assessment process,
including forward-looking collateral valuations, we continue to believe the credit quality of the
core portfolio is stable.
A CRE loan is generally considered noncore based on the lack of a substantive relationship
outside of the loan product, with no immediate prospects for meeting the core relationship
criteria. The noncore CRE portfolio declined from $2.6 billion at December 31, 2010, to $2.1
billion at September 30, 2011, and represented 35% of total CRE loans. Of the loans in the noncore
portfolio at September 30, 2011, 66% were categorized as Pass, 95% had guarantors, 99% were
secured, and 95% were located within our geographic footprint. However, it is within the noncore
portfolio where most of the credit quality challenges exist. For example, $0.2 billion, or 11%, of
related outstanding balances, are classified as NALs. SAD administered $0.9 billion, or 44%, of
total noncore CRE loans at September 30, 2011. We expect to exit the majority of noncore CRE
relationships over time through normal repayments and refinancings, possible sales should
economically attractive opportunities arise, or the reclassification to a core CRE relationship if
it expands to meet the core criteria.
32
The table below provides a segregation of the CRE portfolio as of September 30, 2011:
Table 17 Core Commercial Real Estate Loans by Property Type and Property Location
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
|
|
|
|
|
|
|
|
|
|
(dollar amounts in millions) |
|
Ohio |
|
|
Michigan |
|
|
Pennsylvania |
|
|
Indiana |
|
|
Kentucky |
|
|
Florida |
|
|
Virginia |
|
|
Other |
|
|
Total |
|
|
% |
|
Core portfolio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail properties |
|
$ |
505 |
|
|
$ |
64 |
|
|
$ |
69 |
|
|
$ |
84 |
|
|
$ |
9 |
|
|
$ |
39 |
|
|
$ |
29 |
|
|
$ |
363 |
|
|
$ |
1,162 |
|
|
|
20 |
% |
Office |
|
|
337 |
|
|
|
105 |
|
|
|
93 |
|
|
|
17 |
|
|
|
11 |
|
|
|
|
|
|
|
39 |
|
|
|
56 |
|
|
|
658 |
|
|
|
11 |
|
Multi family |
|
|
217 |
|
|
|
91 |
|
|
|
66 |
|
|
|
35 |
|
|
|
28 |
|
|
|
1 |
|
|
|
27 |
|
|
|
56 |
|
|
|
521 |
|
|
|
9 |
|
Industrial and warehouse |
|
|
222 |
|
|
|
66 |
|
|
|
21 |
|
|
|
49 |
|
|
|
3 |
|
|
|
2 |
|
|
|
5 |
|
|
|
82 |
|
|
|
450 |
|
|
|
8 |
|
Other commercial real
estate |
|
|
701 |
|
|
|
121 |
|
|
|
37 |
|
|
|
38 |
|
|
|
|
|
|
|
19 |
|
|
|
53 |
|
|
|
111 |
|
|
|
1,080 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core portfolio |
|
|
1,982 |
|
|
|
447 |
|
|
|
286 |
|
|
|
223 |
|
|
|
51 |
|
|
|
61 |
|
|
|
153 |
|
|
|
668 |
|
|
|
3,871 |
|
|
|
65 |
|
Total noncore portfolio |
|
|
1,149 |
|
|
|
350 |
|
|
|
123 |
|
|
|
173 |
|
|
|
28 |
|
|
|
100 |
|
|
|
40 |
|
|
|
100 |
|
|
|
2,063 |
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,131 |
|
|
$ |
797 |
|
|
$ |
409 |
|
|
$ |
396 |
|
|
$ |
79 |
|
|
$ |
161 |
|
|
$ |
193 |
|
|
$ |
768 |
|
|
$ |
5,934 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality data regarding the ACL and NALs, segregated by core CRE loans and noncore
CRE loans, is presented in the following table:
Table 18 Commercial Real Estate Core vs. Noncore Portfolios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011 |
|
|
|
Ending |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual |
|
(dollar amounts in millions) |
|
Balance |
|
|
Prior NCOs |
|
|
ACL $ |
|
|
ACL % |
|
|
Credit Mark (1) |
|
|
Loans |
|
Total core |
|
$ |
3,871 |
|
|
$ |
16 |
|
|
$ |
122 |
|
|
|
3.15 |
% |
|
|
3.55 |
% |
|
$ |
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncore SAD (2) |
|
|
910 |
|
|
|
286 |
|
|
|
213 |
|
|
|
23.41 |
|
|
|
41.72 |
|
|
|
202 |
|
Noncore Other |
|
|
1,153 |
|
|
|
14 |
|
|
|
89 |
|
|
|
7.72 |
|
|
|
8.83 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noncore |
|
|
2,063 |
|
|
|
300 |
|
|
|
302 |
|
|
|
14.64 |
|
|
|
25.48 |
|
|
|
232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial real estate |
|
$ |
5,934 |
|
|
$ |
316 |
|
|
$ |
424 |
|
|
|
7.15 |
% |
|
|
11.84 |
% |
|
$ |
257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
Total core |
|
$ |
4,042 |
|
|
$ |
5 |
|
|
$ |
160 |
|
|
|
3.96 |
% |
|
|
4.08 |
% |
|
$ |
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncore SAD (2) |
|
|
1,400 |
|
|
|
379 |
|
|
|
329 |
|
|
|
23.50 |
|
|
|
39.80 |
|
|
|
307 |
|
Noncore Other |
|
|
1,209 |
|
|
|
5 |
|
|
|
105 |
|
|
|
8.68 |
|
|
|
9.06 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noncore |
|
|
2,609 |
|
|
|
384 |
|
|
|
434 |
|
|
|
16.63 |
|
|
|
27.33 |
|
|
|
348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial real estate |
|
$ |
6,651 |
|
|
$ |
389 |
|
|
$ |
594 |
|
|
|
8.93 |
% |
|
|
13.96 |
% |
|
$ |
364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Calculated as (Prior NCOs + ACL $) / (Ending Balance + Prior NCOs). |
|
(2) |
|
Noncore loans managed by SAD, the area responsible for managing loans and relationships designated as Classified Loans. |
As shown in the above table, the ending balance of the CRE portfolio at September 30,
2011, declined $0.7 billion, or 11%, compared with December 31, 2010. Of this decline, 68%
occurred in the noncore segment of the portfolio administered by the SAD, and was a result of
payoffs and NCOs as we actively focus on the noncore portfolio to reduce our overall CRE exposure.
This reduction demonstrates our continued commitment to achieving a materially lower risk profile
in the CRE portfolio, consistent with our overall objective of maintaining an aggregate
moderate-to-low risk profile. We anticipate further significant declines in the noncore segment,
consistent with our strategy to continue to reduce our overall CRE exposure. The reduction in the
core segment is a result of normal portfolio attrition combined with limited origination activity.
We will continue to support our core developer customers as appropriate, however, we do not believe
that significant additional CRE activity is appropriate given our current exposure in CRE lending
and the current economic conditions.
33
Also as shown above, substantial reserves for the noncore portfolio have been established. At
September 30, 2011, the ACL related to the noncore portfolio was 14.64%, and 23.41% related to the
SAD managed noncore portfolio. The combination of the existing ACL and prior NCOs represents the
total credit actions taken on each segment of the portfolio. From this data, we calculate a credit
mark that provides a consistent measurement of the cumulative credit actions taken against a
specific portfolio segment. The 41.72% Credit Mark associated with the SAD-managed noncore
portfolio is an indicator of the aggressive portfolio management strategy employed for this
portfolio.
Retail Properties
Our portfolio of total CRE loans secured by retail properties totaled $1.6 billion, or
approximately 4%, of total loans and leases, at September 30, 2011. Loans within this portfolio
segment declined $0.1 billion, or 6%, from $1.8 billion at December 31, 2010. Credit approval in
this portfolio segment is generally dependent on preleasing requirements, and net operating income
from the project must cover debt service by specified percentages when the loan is fully funded.
The weakness of the economic environment in our geographic regions continued to impact the
projects that secure the loans in this portfolio class. Lower occupancy rates, reduced rental
rates, and the expectation these levels will remain stressed for the foreseeable future may
adversely affect some of our borrowers ability to repay these loans. We have increased the level
of credit risk management activity on this portfolio segment, and we analyze our retail property
loans in detail by combining property type, geographic location, and other data, to assess and
manage our credit risks. We review the majority of this portfolio segment on a monthly basis.
Consumer Credit
Consumer credit approvals are based on, among other factors, the financial strength and
payment history of the borrower, type of exposure, and the transaction structure. We make
extensive use of portfolio assessment models to continuously monitor the quality of the portfolio,
which may result in changes to future origination strategies. The on-going analysis and review
process results in a determination of an appropriate allowance for our consumer loan and lease
portfolio.
AUTOMOBILE PORTFOLIO
Our strategy in the automobile portfolio continued to focus on high quality borrowers as
measured by both FICO and internal custom scores, combined with appropriate LTVs, terms, and a
reasonable level of profitability. Our strategy and operational capabilities allow us to
appropriately manage the origination quality across the entire portfolio, including our newer
markets. Although increased origination volume and the expansion into new markets can be
associated with increased risk levels, we believe our strategy and operational capabilities
significantly mitigate these risks.
We have continued to consistently execute our value proposition while taking advantage of
market opportunities that allow us to grow our automobile loan portfolio. The significant growth
in the portfolio over the past two years was accomplished while maintaining our consistently high
credit quality metrics. As we further execute our strategies and take advantage of these
opportunities, we are developing alternative plans to address any growth in excess of our
established portfolio concentration limits, including both securitizations and loan sales.
During the 2011 third quarter, we transferred automobile loans totaling $1.0 billion to a
trust in a securitization transaction. The securitization qualified for sale accounting. As a
result of this transaction, we recognized a $15.5 million gain on sale which is reflected in other
noninterest income and recorded a $16.0 million servicing asset which is reflected in accrued
income and other assets.
RESIDENTIAL-SECURED PORTFOLIOS
The properties securing our residential mortgage and home equity portfolios are primarily
located within our footprint. The continued stress on home prices has caused the performance in
these portfolios to remain weaker than historical levels. We continue to evaluate all of our
policies and processes associated with managing these portfolios to provide as much clarity as
possible.
In the 2011 first quarter, we accelerated the timing of charge-off recognition in our
residential mortgage portfolio. In addition, we established an immediate charge-off process
regardless of the delinquency status for short sale situations. Both of these policy changes
resulted in accelerated recognition of residential mortgage charge-offs totaling $6.8 million in
the 2011 first quarter. Further, in the 2011 second quarter, we implemented a policy change
regarding the placement of loans on nonaccrual status in both our home equity and residential
mortgage portfolios. This policy change resulted in accelerated placement of loans on nonaccrual
status totaling $6.7 million in the home equity portfolio and $8.0 million in the residential
mortgage portfolio.
34
Table 19 Selected Home Equity and Residential Mortgage
Portfolio Data
(dollar amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity |
|
|
Residential Mortgage |
|
|
|
Secured by first-lien |
|
|
Secured by second-lien |
|
|
|
|
|
|
09/30/11 |
|
|
12/31/10 |
|
|
09/30/11 |
|
|
12/31/10 |
|
|
09/30/11 |
|
|
12/31/10 |
|
Ending balance |
|
$ |
3,589 |
|
|
$ |
3,041 |
|
|
$ |
4,490 |
|
|
$ |
4,672 |
|
|
$ |
4,986 |
|
|
$ |
4,500 |
|
Portfolio weighted average LTV ratio(1) |
|
|
71 |
% |
|
|
70 |
% |
|
|
80 |
% |
|
|
80 |
% |
|
|
78 |
% |
|
|
77 |
% |
Portfolio weighted average FICO score(2) |
|
|
749 |
|
|
|
745 |
|
|
|
734 |
|
|
|
733 |
|
|
|
731 |
|
|
|
721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity |
|
|
Residential Mortgage (3) |
|
|
|
Secured by first-lien |
|
|
Secured by second-lien |
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Originations |
|
$ |
1,392 |
|
|
$ |
922 |
|
|
$ |
630 |
|
|
$ |
523 |
|
|
$ |
1,102 |
|
|
$ |
1,179 |
|
Origination weighted average LTV ratio(1) |
|
|
71 |
% |
|
|
69 |
% |
|
|
82 |
% |
|
|
79 |
% |
|
|
84 |
% |
|
|
81 |
% |
Origination weighted average FICO
score(2) |
|
|
768 |
|
|
|
767 |
|
|
|
759 |
|
|
|
756 |
|
|
|
758 |
|
|
|
760 |
|
|
|
|
(1) |
|
The LTV ratios for home equity loans and home equity lines-of-credit are cumulative and
reflect the balance of any senior loans. LTV ratios reflect collateral values at the time of
loan origination. |
|
(2) |
|
Portfolio weighted average FICO scores reflect currently updated customer credit scores
whereas origination weighted average FICO scores reflect the customer credit scores at the
time of loan origination. |
|
(3) |
|
Represents only owned-portfolio originations. |
Home Equity Portfolio
Our home equity portfolio (loans and lines-of-credit) consists of both first-lien and
second-lien mortgage loans with underwriting criteria based on minimum credit scores,
debt-to-income ratios, and LTV ratios. We offer closed-end home equity loans which are generally
fixed-rate with principal and interest payments, and variable-rate interest-only home equity
lines-of-credit which do not require payment of principal during the 10-year revolving period of
the line-of-credit. Applications are underwritten centrally in conjunction with an automated
underwriting system.
At September 30, 2011, approximately 44% of our home equity portfolio was secured by
first-lien mortgages. The credit risk profile is substantially reduced when we hold a first-lien
position. During the first nine-month period of 2011, more than 65% of our home equity portfolio
originations were secured by a first-lien mortgage. We focus on high quality borrowers primarily
located within our footprint. The majority of our home equity line-of-credit borrowers
consistently pay more than the minimum payment required in any given month. Additionally, since we
focus on developing complete relationships with our customers, many of our home equity borrowers
are utilizing other products and services. The combination of high quality borrowers as measured
by financial condition, FICO score, and the lien position status provide a high degree of
confidence regarding the performance of the 2009-2011 originations.
Within the home equity line-of-credit portfolio, the standard product is a 10-year
interest-only draw period with a balloon payment and represents a majority of the line-of-credit
portfolio at September 30, 2011. As previously discussed, a significant portion of recent
originations are secured by first-liens on the property as high quality borrowers take advantage of
the low variable-rates available with a line-of-credit. If the current 30-year fixed-rate declines
substantially from its already low level, we would anticipate some portion of these first-lien
line-of-credit borrowers to refinance to a more traditional mortgage at a fixed-rate.
We believe we have underwritten credit conservatively within this portfolio. We have not
originated home equity loans or lines-of-credit with an LTV at origination greater than 100%,
except for infrequent situations with high quality borrowers. However, continued declines in
housing prices have decreased the value of the collateral for this portfolio and have caused a
portion of the portfolio to have an LTV greater than 100%. These higher LTV ratios are directly
correlated with borrower payment patterns and are a particular focus of our Loss Mitigation and
Home Saver groups.
35
We obtain a property valuation for every loan or line-of-credit. The type of property
valuation obtained is based on a series of credit parameters, and ranges from an AVM to a complete
walkthrough appraisal. While we believe an AVM estimate is an appropriate valuation source for a
portion of our home equity lending activities, we continue to re-evaluate all of our policies on an
on-going basis, specifically related to the December 2010 FFIEC guidelines regarding property
valuation. The intent of these guidelines is to ensure complete independence in the requesting and
review of real estate valuations associated with loan decisions. We are committed to appropriate
valuations for all of our real estate lending, and do not anticipate significant impacts to our
loan decision process as a result of these guidelines. We update values as appropriate, and in
compliance with applicable regulations, for loans identified as higher risk. Loans are identified
as higher risk based on performance indicators and the updated values are utilized to facilitate
our portfolio management processes, as well as our workout and loss mitigation functions.
We continue to make origination policy adjustments based on our assessment of an appropriate
risk profile, as well as industry actions. In addition to origination policy adjustments, we take
actions, as necessary, to manage the risk profile of this portfolio.
Residential Mortgage Portfolio
We focus on higher quality borrowers and underwrite all applications centrally. We do not
originate residential mortgages that allow negative amortization or allow the borrower multiple
payment options.
All residential mortgages are originated based on a completed full appraisal during the credit
underwriting process. We update values on a regular basis in compliance with applicable
regulations to facilitate our portfolio management, as well as our workout and loss mitigation
functions.
A majority of the loans in our portfolio have adjustable rates. These ARMs comprised
approximately 53% of our total residential mortgage loan portfolio at September 30, 2011. At
September 30, 2011, ARM loans that were expected to have rates reset totaled $1.5 billion through
2014. These loans scheduled to reset are primarily associated with loans originated subsequent to
2007, and as such, are not subject to the most significant declines in value. Given the quality of
our borrowers and the relatively low current interest rates, we believe that we have a relatively
limited exposure to ARM reset risk. Nonetheless, we have taken actions to mitigate our risk
exposure. We initiate borrower contact at least six months prior to the interest rate resetting,
and have been successful in converting many ARMs to fixed-rate loans through this process. Our ARM
portfolio has performed substantially better than the fixed-rate portfolio in part due to this
proactive management process. Additionally, when borrowers are experiencing payment difficulties,
loans may be reunderwritten based on the borrowers ability to repay the loan.
Several government actions were enacted that impacted the residential mortgage portfolio,
including various refinance programs which positively affected the availability of credit for the
industry. We are utilizing these programs to enhance our existing strategy of working closely with
our customers.
Financial Institution Exposure Risk
In the normal course of business, we engage with other financial institutions for a variety of
purposes resulting from ordinary banking activities such as payment processing, transactions
entered into for risk management purposes (see Note 14 of the Notes to Unaudited Condensed
Consolidated Financial Statements), and for investment diversification. As a result, we are
exposed to credit risk, or risk of loss, if the other financial institution fails to perform
according to the terms of our contract or agreement.
Current European credit pressures have increased concerns about correlated adverse effects
upon financial institutions. Specifically, there has been heightened emphasis on direct credit
exposure to certain sovereigns, in particular, Greece, Ireland, Portugal, Spain and Italy, as well
as to financial institutions headquartered in those countries. We conduct significant due
diligence on each financial institution prior to approval as a counterparty. Our Treasury Credit
Risk group within Credit Administration is responsible for the initial risk assessment as well as
on-going monitoring. We actively manage the level of exposure to each financial institution, with
regular assessment of the exposure limits by our Credit Policy and Strategy Committee. We believe
our overall exposure to financial institution exposure risk, including direct credit exposure to
any of these sovereigns and their banks, is not significant. Nonetheless, we minimize this risk
through increased frequency and degree of monitoring of each contract or agreement as we manage the
risk exposure on a real-time basis over the course of each day.
Credit Quality
We believe the most meaningful way to assess overall credit quality performance is through an
analysis of credit quality performance ratios. This approach forms the basis of most of the
discussion in the sections immediately following: NPAs and NALs, TDRs, ACL, and NCOs. In addition,
we utilize delinquency rates, risk distribution and migration patterns, and product segmentation in
the analysis of our credit quality performance.
36
Credit quality performance in the 2011 third quarter reflected a continued improvement in the
levels of our NCOs, NALs, and commercial Criticized assets. Although the commercial Criticized
asset levels continued to decline, there was an increase in new commercial Criticized asset inflows
compared to the prior quarter. The inflow of new commercial Criticized assets was across all
business segments and included one large relationship. We do not believe the increase in this
current quarters commercial Criticized assets to be either an indication of a future increase in
the overall level of commercial Criticized loans or a widespread deterioration in commercial credit
performance. Also, our ACL coverage ratios improved compared to the prior quarter. Specifically,
our ACL as a percentage of NALs improved to 187% at September 30, 2011 compared with 181% at June
30, 2011 and 166% at December 31, 2010.
NPAs, NALs, AND TDRs
NPAs and NALs
(This section should be read in conjunction with Note 3 of the Notes to Unaudited Condensed
Consolidated Financial Statements.)
NPAs consist of (1) NALs, which represent loans and leases no longer accruing interest, (2)
impaired loans held for sale, (3) OREO properties, and (4) other NPAs. Any loan in our portfolio
may be placed on nonaccrual status prior to the policies described below when collection of
principal or interest is in doubt.
C&I and CRE loans are placed on nonaccrual status at no greater than 90-days past due. With
the exception of residential mortgage loans guaranteed by government organizations which continue
to accrue interest, residential mortgage loans are placed on nonaccrual status at 150-days past
due. First-lien and second-lien home equity loans are placed on nonaccrual status at 150-days past
due and 120-days past due, respectively. Automobile and other consumer loans are not placed on
nonaccrual status, but are generally charged-off when the loan is 120-days past due. When interest
accruals are suspended, accrued interest income is reversed with current year accruals charged to
earnings and prior year amounts generally charged-off as a credit loss. When, in our judgment, the
borrowers ability to make required interest and principal payments has resumed and collectability
is no longer in doubt, the loan or lease is returned to accrual status.
37
The following table reflects period-end NALs and NPAs detail for each of the last five
quarters:
Table 20 Nonaccrual Loans and Leases and Nonperforming Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
(dollar amounts in thousands) |
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans and leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
$ |
209,632 |
|
|
$ |
229,327 |
|
|
$ |
260,397 |
|
|
$ |
346,720 |
|
|
$ |
398,353 |
|
Commercial real estate |
|
|
257,086 |
|
|
|
291,500 |
|
|
|
305,793 |
|
|
|
363,692 |
|
|
|
478,754 |
|
Residential mortgage |
|
|
61,129 |
|
|
|
59,853 |
|
|
|
44,812 |
|
|
|
45,010 |
|
|
|
82,984 |
|
Home equity |
|
|
37,156 |
|
|
|
33,545 |
|
|
|
25,255 |
|
|
|
22,526 |
|
|
|
21,689 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonaccrual loans and leases |
|
|
565,003 |
|
|
|
614,225 |
|
|
|
636,257 |
|
|
|
777,948 |
|
|
|
981,780 |
|
Other real estate owned, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
18,588 |
|
|
|
20,803 |
|
|
|
28,668 |
|
|
|
31,649 |
|
|
|
65,775 |
|
Commercial |
|
|
19,418 |
|
|
|
17,909 |
|
|
|
25,961 |
|
|
|
35,155 |
|
|
|
57,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other real estate owned, net |
|
|
38,006 |
|
|
|
38,712 |
|
|
|
54,629 |
|
|
|
66,804 |
|
|
|
123,084 |
|
Other nonperforming assets(1) |
|
|
10,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets |
|
$ |
613,981 |
|
|
$ |
652,937 |
|
|
$ |
690,886 |
|
|
$ |
844,752 |
|
|
$ |
1,104,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans as a % of total loans and leases |
|
|
1.45 |
% |
|
|
1.57 |
% |
|
|
1.66 |
% |
|
|
2.04 |
% |
|
|
2.62 |
% |
Nonperforming assets ratio(2) |
|
|
1.57 |
|
|
|
1.67 |
|
|
|
1.80 |
|
|
|
2.21 |
|
|
|
2.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming Franklin assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Home equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OREO |
|
|
534 |
|
|
|
883 |
|
|
|
5,971 |
|
|
|
9,477 |
|
|
|
15,330 |
|
Impaired loans held for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming Franklin assets |
|
$ |
534 |
|
|
$ |
883 |
|
|
$ |
5,971 |
|
|
$ |
9,477 |
|
|
$ |
15,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other nonperforming assets represent an investment security backed by a municipal bond. |
|
(2) |
|
This ratio is calculated as nonperforming assets divided by the sum of loans and leases, other
nonperforming assets, and net other real estate. |
The $39.0 million, or 6%, decline in NPAs compared with June 30, 2011, primarily
reflected:
|
|
|
$34.4 million, or 12%, decline in CRE NALs, reflecting both NCO activity and problem
credit resolutions, including borrower payments and payoffs. We continue to focus on early
recognition of risks through our on-going portfolio management processes. |
|
|
|
$19.7 million, or 9%, decline in C&I NALs, reflecting both NCO activity and problem
credit resolutions, including payoffs. The decline was associated with loans throughout
our footprint, with no specific industry concentration. |
Partially offset by:
|
|
|
$11.0 million increase in other NPAs reflecting an investment security backed by a
municipal bond. |
|
|
|
$3.6 million, or 11%, increase in home equity NALs, primarily reflecting the current
weak economic conditions and the continued decline of residential real estate property
values. Home equity NALs have been written down to net realizable value, less anticipated
selling costs, which substantially limits any significant future risk of loss. |
As part of our loss mitigation process, we reunderwrite, modify, or restructure loans when
borrowers are experiencing payment difficulties, based on the borrowers ability to repay the loan.
38
Compared with December 31, 2010, NPAs decreased $230.8 million, or 27%, primarily reflecting:
|
|
|
$137.1 million, or 40%, decline in C&I NALs, reflecting both NCO activity and problem
credit resolutions, including payoffs. The decline was associated with loans throughout
our footprint, with no specific geographic concentration. From an industry perspective,
improvement in the manufacturing-related segment accounted for a significant portion of the
decrease. |
|
|
|
$106.6 million, or 29%, decline in CRE NALs, reflecting both NCO activity and problem
credit resolutions, including borrower payments and payoffs. This decline was a direct
result of our on-going proactive management of these credits by our SAD. |
|
|
|
$28.8 million, or 43%, decrease in OREO properties, reflecting lower inflow levels
combined with aggressive sales activities. |
Partially offset by:
|
|
|
$16.1 million, or 36%, increase in residential mortgage NALs, reflecting the current
weak economic conditions and the continued decline in residential real estate property
values, as well as a change in our nonaccrual policy (see Consumer Credit section). |
|
|
|
$14.6 million, or 65%, increase in home equity NALs, also reflecting the current weak
economic conditions and the continued decline in residential real estate property values,
as well as a change in our nonaccrual policy (see Consumer Credit section). |
|
|
|
$11.0 million increase in other NPAs reflecting an investment security backed by a
municipal bond. |
NPA activity for each of the past five quarters was as follows:
Table 21- Nonperforming Asset Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
(dollar amounts in thousands) |
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets, beginning of period |
|
$ |
652,937 |
|
|
$ |
690,886 |
|
|
$ |
844,752 |
|
|
$ |
1,104,864 |
|
|
$ |
1,582,702 |
|
New nonperforming assets |
|
|
153,626 |
|
|
|
210,255 |
|
|
|
192,044 |
|
|
|
237,802 |
|
|
|
278,388 |
|
Franklin-related impact, net |
|
|
(349 |
) |
|
|
(5,088 |
) |
|
|
(3,506 |
) |
|
|
(5,853 |
) |
|
|
(251,412 |
) |
Returns to accruing status |
|
|
(25,794 |
) |
|
|
(68,429 |
) |
|
|
(70,886 |
) |
|
|
(100,051 |
) |
|
|
(111,168 |
) |
Loan and lease losses |
|
|
(79,992 |
) |
|
|
(74,945 |
) |
|
|
(128,730 |
) |
|
|
(126,047 |
) |
|
|
(151,013 |
) |
Other real estate owned gains (losses) |
|
|
(242 |
) |
|
|
388 |
|
|
|
1,492 |
|
|
|
(5,117 |
) |
|
|
(5,302 |
) |
Payments |
|
|
(76,510 |
) |
|
|
(73,009 |
) |
|
|
(87,041 |
) |
|
|
(191,296 |
) |
|
|
(210,612 |
) |
Sales |
|
|
(9,695 |
) |
|
|
(27,121 |
) |
|
|
(57,239 |
) |
|
|
(69,550 |
) |
|
|
(26,719 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets, end of period |
|
$ |
613,981 |
|
|
$ |
652,937 |
|
|
$ |
690,886 |
|
|
$ |
844,752 |
|
|
$ |
1,104,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As discussed previously, residential mortgage loans are placed on nonaccrual status at
150-days past due, with the exception of residential mortgage loans guaranteed by government
organizations which continue to accrue interest, and first-lien and second-lien home equity loans
and lines-of-credit are placed on nonaccrual status at 150-days past due and 120-days past due,
respectively.
39
The following table reflects period-end accruing loans and leases 90 days or more past due for
each of the last five quarters:
Table 22 Accruing Past Due Loans and Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
(dollar amounts in thousands) |
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
Accruing loans and leases past due 90 days or more: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Residential mortgage (excluding loans guaranteed
by the U.S. government) |
|
|
32,850 |
|
|
|
33,975 |
|
|
|
41,858 |
|
|
|
53,983 |
|
|
|
56,803 |
|
Home equity |
|
|
20,420 |
|
|
|
17,451 |
|
|
|
24,130 |
|
|
|
23,497 |
|
|
|
27,160 |
|
Other consumer |
|
|
7,755 |
|
|
|
6,227 |
|
|
|
7,578 |
|
|
|
10,177 |
|
|
|
11,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total, excl. loans guaranteed by the U.S. government |
|
|
61,025 |
|
|
|
57,653 |
|
|
|
73,566 |
|
|
|
87,657 |
|
|
|
95,386 |
|
Add: loans guaranteed by the U.S. government |
|
|
84,413 |
|
|
|
76,979 |
|
|
|
94,440 |
|
|
|
98,288 |
|
|
|
94,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accruing loans and leases past due 90 days
or more, including loans guaranteed by the
U.S. government |
|
$ |
145,438 |
|
|
$ |
134,632 |
|
|
$ |
168,006 |
|
|
$ |
185,945 |
|
|
$ |
189,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluding loans guaranteed by the U.S. government,
as a percent of total loans and leases |
|
|
0.16 |
% |
|
|
0.15 |
% |
|
|
0.19 |
% |
|
|
0.23 |
% |
|
|
0.25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed by the U.S. government, as a percent of
total loans and leases |
|
|
0.21 |
|
|
|
0.19 |
|
|
|
0.25 |
|
|
|
0.26 |
|
|
|
0.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Including loans guaranteed by the U.S. government,
as a percent of total loans and leases |
|
|
0.37 |
|
|
|
0.34 |
|
|
|
0.44 |
|
|
|
0.49 |
|
|
|
0.51 |
|
|
|
|
(1) |
|
Ratios are calculated as a percentage of related loans and leases. |
Loans guaranteed by the U.S. government accrue interest at the rate guaranteed by the
government agency. We are reimbursed from the government agency for reasonable expenses incurred
in servicing loans. The FHA reimburses us for 66% of expenses, and the VA reimburses us at a
maximum percentage of guarantee which is established for each individual loan. We have not
experienced either material losses in excess of guarantees caps or significant delays or rejected
claims from the related government entity.
The over 90-day delinquency ratio for total loans not guaranteed by a U.S. government agency
was 0.16% at September 30, 2011, representing an 7 basis point decline compared with December 31,
2010. This decline reflected the sale of certain loans in this category.
TDR Loans
(This section should be read in conjunction with Note 3 of the Notes to Unaudited Condensed
Consolidated Financial Statements.)
TDRs are modified loans in which a concession is provided to a borrower experiencing financial
difficulties. TDRs can be classified as either accrual or nonaccrual loans. Nonaccrual TDRs are
included in NALs whereas accruing TDRs are excluded from NALs as it is probable that all
contractual principal and interest due under the restructured terms will be collected.
40
The table below presents our accruing and nonaccruing TDRs at period-end for each of the past
five quarters:
Table 23 Accruing and Nonaccruing Troubled Debt Restructured Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
(dollar amounts in thousands) |
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
Troubled debt restructured loans accruing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage |
|
$ |
304,365 |
|
|
$ |
313,772 |
|
|
$ |
333,492 |
|
|
$ |
328,411 |
|
|
$ |
304,356 |
|
Other consumer(1) |
|
|
89,596 |
|
|
|
75,036 |
|
|
|
78,488 |
|
|
|
76,586 |
|
|
|
73,210 |
|
Commercial |
|
|
321,598 |
|
|
|
240,126 |
|
|
|
206,462 |
|
|
|
222,632 |
|
|
|
157,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total troubled debt restructured loans accruing |
|
|
715,559 |
|
|
|
628,934 |
|
|
|
618,442 |
|
|
|
627,629 |
|
|
|
535,537 |
|
|
Troubled debt restructured loans nonaccruing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage |
|
|
20,877 |
|
|
|
14,378 |
|
|
|
8,523 |
|
|
|
5,789 |
|
|
|
10,581 |
|
Other consumer(1) |
|
|
279 |
|
|
|
140 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
Commercial |
|
|
74,264 |
|
|
|
77,745 |
|
|
|
37,858 |
|
|
|
33,462 |
|
|
|
33,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total troubled debt restructured loans
nonaccruing |
|
|
95,420 |
|
|
|
92,263 |
|
|
|
46,395 |
|
|
|
39,251 |
|
|
|
43,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total troubled debt restructured loans |
|
$ |
810,979 |
|
|
$ |
721,197 |
|
|
$ |
664,837 |
|
|
$ |
666,880 |
|
|
$ |
579,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes automobile, home equity, and other consumer TDRs. |
TDRs primarily reflect our loss mitigation efforts to proactively work with borrowers having
difficulty making their payments. Within commercial accruing TDRs, $40.1 million of the increase
from the prior quarter reflected a change based on clarifying language in the FASBs ASU 2011-02
Receivables (Topic 310), A Creditors Determination of Whether a Restructuring Is a Troubled Debt
Restructuring, related to when a TDR designation is removed.
ACL
(This section should be read in conjunction with Note 3 of the Notes to Unaudited Condensed
Consolidated Financial Statements.)
We maintain two reserves, both of which in our judgment are appropriate to absorb credit
losses inherent in our loan and lease portfolio: the ALLL and the AULC. Combined, these reserves
comprise the total ACL. Our Credit Administration group is responsible for developing the
methodology assumptions and estimates used in the calculation, as well as determining the
appropriateness of the ACL. The ALLL represents the estimate of losses inherent in the loan
portfolio at the reported date. Additions to the ALLL result from recording provision expense for
loan losses or increased risk levels resulting from loan risk-rating downgrades, while reductions
reflect charge-offs, recoveries, decreased risk levels resulting from loan risk-rating upgrades, or
the sale of loans. The AULC is determined by applying the transaction reserve process to the
unfunded portion of the loan exposures adjusted by an applicable funding expectation.
A provision for credit losses is recorded to adjust the ACL to the level we have determined to
be appropriate to absorb credit losses inherent in our loan and lease portfolio. The provision for
credit losses in the 2011 third quarter was $43.6 million, compared with $35.8 million in the prior
quarter and $119.2 million in the year-ago quarter. (See Provision for Credit Losses discussion).
We regularly evaluate the appropriateness of the ACL by performing on-going evaluations of the
loan and lease portfolio, including such factors as the differing economic risks associated with
each loan category, the financial condition of specific borrowers, the level of delinquent loans,
the value of any collateral and, where applicable, the existence of any guarantees or other
documented support. We evaluate the impact of changes in interest rates and overall economic
conditions on the ability of borrowers to meet their financial obligations when quantifying our
exposure to credit losses and assessing the appropriateness of our ACL at each reporting date. In
addition to general economic conditions and the other factors described above, we also consider the
impact of declining residential real estate values and the diversification of CRE loans,
particularly loans secured by retail properties.
Our ACL evaluation process includes the on-going assessment of credit quality metrics, and a
comparison of certain ACL benchmarks to current performance. While the total ACL balance has
declined in recent quarters, all of the relevant benchmarks improved as a result of the asset
quality improvement. The coverage ratios of NALs, Criticized, and Classified loans have
significantly improved in recent quarters despite the decline in the ACL level. For example, the
ACL coverage ratio associated with NALs was 187% at September 30, 2011, compared with 166% at
December 31, 2010 and 140% at September 30, 2010.
41
The table below reflects activity in the ALLL and the AULC for each of the last five quarters:
Table 24 Quarterly Allowance for Credit Losses Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
(dollar amounts in thousands) |
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
Allowance for loan and lease losses,
beginning of period |
|
$ |
1,071,126 |
|
|
$ |
1,133,226 |
|
|
$ |
1,249,008 |
|
|
$ |
1,336,352 |
|
|
$ |
1,402,160 |
|
Loan and lease losses |
|
|
(115,899 |
) |
|
|
(128,701 |
) |
|
|
(199,007 |
) |
|
|
(205,587 |
) |
|
|
(221,144 |
) |
Recoveries of loans previously charged-off |
|
|
25,344 |
|
|
|
31,167 |
|
|
|
33,924 |
|
|
|
33,336 |
|
|
|
36,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan and lease losses |
|
|
(90,555 |
) |
|
|
(97,534 |
) |
|
|
(165,083 |
) |
|
|
(172,251 |
) |
|
|
(184,514 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan and lease losses |
|
|
45,867 |
|
|
|
36,948 |
|
|
|
49,301 |
|
|
|
84,907 |
|
|
|
118,788 |
|
Allowance for assets sold |
|
|
(6,728 |
) |
|
|
(1,514 |
) |
|
|
|
|
|
|
|
|
|
|
(82 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses, end of period |
|
$ |
1,019,710 |
|
|
$ |
1,071,126 |
|
|
$ |
1,133,226 |
|
|
$ |
1,249,008 |
|
|
$ |
1,336,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for unfunded loan commitments
and letters of credit, beginning of period |
|
$ |
41,060 |
|
|
$ |
42,211 |
|
|
$ |
42,127 |
|
|
$ |
40,061 |
|
|
$ |
39,689 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for (reduction in) unfunded loan
commitments and letters of credit losses |
|
|
(2,281 |
) |
|
|
(1,151 |
) |
|
|
84 |
|
|
|
2,066 |
|
|
|
372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for unfunded loan commitments
and letters of credit, end of period |
|
$ |
38,779 |
|
|
$ |
41,060 |
|
|
$ |
42,211 |
|
|
$ |
42,127 |
|
|
$ |
40,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses, end of period |
|
$ |
1,058,489 |
|
|
$ |
1,112,186 |
|
|
$ |
1,175,437 |
|
|
$ |
1,291,135 |
|
|
$ |
1,376,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses as % of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
|
2.61 |
% |
|
|
2.74 |
% |
|
|
2.96 |
% |
|
|
3.28 |
% |
|
|
3.56 |
% |
Nonaccrual loans and leases |
|
|
180 |
|
|
|
174 |
|
|
|
178 |
|
|
|
161 |
|
|
|
136 |
|
Nonperforming assets |
|
|
166 |
|
|
|
164 |
|
|
|
164 |
|
|
|
148 |
|
|
|
121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses as % of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
|
2.71 |
% |
|
|
2.84 |
% |
|
|
3.07 |
% |
|
|
3.39 |
% |
|
|
3.67 |
% |
Nonaccrual loans and leases |
|
|
187 |
|
|
|
181 |
|
|
|
185 |
|
|
|
166 |
|
|
|
140 |
|
Nonperforming assets |
|
|
172 |
|
|
|
170 |
|
|
|
170 |
|
|
|
153 |
|
|
|
125 |
|
The table below reflects the allocation of our ACL among our various loan categories
during each of the past five quarters:
Table 25 Allocation of Allowance for Credit Losses (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
(dollar amounts in thousands) |
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and
industrial |
|
$ |
285,254 |
|
|
|
36 |
% |
|
$ |
281,016 |
|
|
|
35 |
% |
|
$ |
299,564 |
|
|
|
35 |
% |
|
$ |
340,614 |
|
|
|
34 |
% |
|
$ |
353,431 |
|
|
|
33 |
% |
Commercial real
estate |
|
|
418,895 |
|
|
|
15 |
|
|
|
463,874 |
|
|
|
16 |
|
|
|
511,068 |
|
|
|
17 |
|
|
|
588,251 |
|
|
|
18 |
|
|
|
654,219 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial |
|
|
704,149 |
|
|
|
51 |
|
|
|
744,890 |
|
|
|
51 |
|
|
|
810,632 |
|
|
|
52 |
|
|
|
928,865 |
|
|
|
52 |
|
|
|
1,007,650 |
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile |
|
|
49,402 |
|
|
|
14 |
|
|
|
55,428 |
|
|
|
16 |
|
|
|
50,862 |
|
|
|
15 |
|
|
|
49,488 |
|
|
|
15 |
|
|
|
44,505 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
|
139,616 |
|
|
|
21 |
|
|
|
146,444 |
|
|
|
20 |
|
|
|
149,370 |
|
|
|
20 |
|
|
|
150,630 |
|
|
|
20 |
|
|
|
154,323 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage |
|
|
98,974 |
|
|
|
13 |
|
|
|
98,992 |
|
|
|
12 |
|
|
|
96,741 |
|
|
|
12 |
|
|
|
93,289 |
|
|
|
12 |
|
|
|
93,407 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other consumer |
|
|
27,569 |
|
|
|
1 |
|
|
|
25,372 |
|
|
|
1 |
|
|
|
25,621 |
|
|
|
1 |
|
|
|
26,736 |
|
|
|
1 |
|
|
|
36,467 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
315,561 |
|
|
|
49 |
|
|
|
326,236 |
|
|
|
49 |
|
|
|
322,594 |
|
|
|
48 |
|
|
|
320,143 |
|
|
|
48 |
|
|
|
328,702 |
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for loan and lease
losses |
|
|
1,019,710 |
|
|
|
100 |
% |
|
|
1,071,126 |
|
|
|
100 |
% |
|
|
1,133,226 |
|
|
|
100 |
% |
|
|
1,249,008 |
|
|
|
100 |
% |
|
|
1,336,352 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for unfunded loan
commitments |
|
|
38,779 |
|
|
|
|
|
|
|
41,060 |
|
|
|
|
|
|
|
42,211 |
|
|
|
|
|
|
|
42,127 |
|
|
|
|
|
|
|
40,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses |
|
$ |
1,058,489 |
|
|
|
|
|
|
$ |
1,112,186 |
|
|
|
|
|
|
$ |
1,175,437 |
|
|
|
|
|
|
$ |
1,291,135 |
|
|
|
|
|
|
$ |
1,376,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Percentages represent the percentage of each loan and lease category to total loans and leases. |
42
The reduction in the ALLL, compared with both June 30, 2011, and December 31, 2010,
reflected declines in the ALLL in both the commercial and consumer portfolios.
The decline in the commercial-related ALLL reflected NCOs on loans with specific reserves, and
an overall reduction in the level of commercial Criticized loans. Commercial Criticized loans are
commercial loans rated as OLEM, Substandard, Doubtful, or Loss. As shown in the table below,
commercial Criticized loans declined $88.1 million from June 30, 2011, and $783.4 million from
December 31, 2010, reflecting significant upgrade and payment activity.
Table 26 Criticized Commercial Loan Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
(dollar amounts in thousands) |
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Criticized commercial loans, beginning of period |
|
$ |
2,379,150 |
|
|
$ |
2,660,792 |
|
|
$ |
3,074,481 |
|
|
$ |
3,637,533 |
|
|
$ |
4,106,602 |
|
New additions / increases |
|
|
357,057 |
|
|
|
250,422 |
|
|
|
169,884 |
|
|
|
289,850 |
|
|
|
407,514 |
|
Advances |
|
|
46,148 |
|
|
|
44,442 |
|
|
|
61,516 |
|
|
|
52,282 |
|
|
|
75,386 |
|
Upgrades to Pass |
|
|
(252,388 |
) |
|
|
(271,698 |
) |
|
|
(238,518 |
) |
|
|
(382,713 |
) |
|
|
(391,316 |
) |
Payments |
|
|
(180,845 |
) |
|
|
(231,819 |
) |
|
|
(294,564 |
) |
|
|
(401,302 |
) |
|
|
(408,698 |
) |
Loan losses |
|
|
(58,035 |
) |
|
|
(72,989 |
) |
|
|
(112,008 |
) |
|
|
(121,169 |
) |
|
|
(151,955 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Criticized commercial loans, end of period |
|
$ |
2,291,088 |
|
|
$ |
2,379,150 |
|
|
$ |
2,660,792 |
|
|
$ |
3,074,481 |
|
|
$ |
3,637,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decline in the consumer-related ALLL primarily reflected the impact of the 2011 third
quarter automobile securitization (see Automobile Portfolio discussion) as well as a decrease in
the home equity-related ALLL as a result of lower delinquency levels, partially offset by an
increase in the mortgage-related ALLL as a result of increased residential mortgage-related
balances.
The entire loan and lease portfolio has shown steadily improving credit quality trends
throughout 2010 and 2011. The ACL to total loans declined to 2.71% at September 30, 2011 compared
to 3.39% at December 31, 2010. We believe the decline in the ratio is appropriate given the
continued improvement in the risk profile of our loan portfolio. Further, we believe that early
identification of problem loans and aggressive action plans for these problem loans, combined with
originating high quality new loans will contribute to continued improvement in our key credit
quality metrics. However, the continued weakness in the residential real estate market and the
overall economic conditions remained stressed, and additional risks emerged during the first
nine-month period of 2011. These additional risks included the European banking sector stress, the
continued budget issues in local governments, flat domestic economic growth, and the variety of
policy proposals regarding job growth, debt management, and domestic tax policy. Continued high
unemployment, among other factors, has slowed any significant recovery. In the near-term, we
anticipate a continued high unemployment rate and the concern around the U.S. and local government
budget issues will continue to negatively impact the financial condition of some of our retail and
commercial borrowers. The pronounced downturn in the residential real estate market that began in
early 2007 has resulted in significantly lower residential real estate values. We have significant
exposure to loans secured by residential real estate and continue to be an active lender in our
communities. The impact of the downturn in real estate values has had a significant impact on some
of our borrowers as evidenced by the higher delinquencies and NCOs since late 2007. We do not
anticipate any meaningful economic improvement in the near-term. All of these factors are
impacting consumer confidence, as well as business investments and acquisitions. Given the
combination of these noted factors, we believe that our ACL is appropriate and its coverage level
is reflective of the quality of our portfolio and the current operating environment.
43
The table below reflects activity in the ALLL and AULC for the first nine-month periods ended
September 30, 2011 and 2010.
Table 27 Year to Date Allowance for Credit Losses Analysis
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
(dollar amounts in thousands) |
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses,
beginning of period |
|
$ |
1,249,008 |
|
|
$ |
1,482,479 |
|
Loan and lease losses |
|
|
(443,607 |
) |
|
|
(798,320 |
) |
Recoveries of loans previously charged-off |
|
|
90,435 |
|
|
|
96,097 |
|
|
|
|
|
|
|
|
Net loan and lease losses |
|
|
(353,172 |
) |
|
|
(702,223 |
) |
Provision for loan and lease losses |
|
|
132,116 |
|
|
|
556,392 |
|
Allowance for assets sold |
|
|
(8,242 |
) |
|
|
(296 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses, end of period |
|
$ |
1,019,710 |
|
|
$ |
1,336,352 |
|
|
|
|
|
|
|
|
Allowance for unfunded loan commitments
and letters of credit, beginning of period |
|
$ |
42,127 |
|
|
$ |
48,879 |
|
Provision for (reduction in) unfunded loan commitments
and letters of credit losses |
|
|
(3,348 |
) |
|
|
(8,818 |
) |
|
|
|
|
|
|
|
Allowance for unfunded loan commitments
and letters of credit, end of period |
|
$ |
38,779 |
|
|
$ |
40,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses |
|
$ |
1,058,489 |
|
|
$ |
1,376,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses as % of: |
|
|
|
|
|
|
|
|
Total loans and leases |
|
|
2.61 |
% |
|
|
3.56 |
% |
Nonaccrual loans and leases |
|
|
180 |
|
|
|
136 |
|
Nonperforming assets |
|
|
166 |
|
|
|
121 |
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses as % of: |
|
|
|
|
|
|
|
|
Total loans and leases |
|
|
2.71 |
% |
|
|
3.67 |
% |
Nonaccrual loans and leases |
|
|
187 |
|
|
|
140 |
|
Nonperforming assets |
|
|
172 |
|
|
|
125 |
|
NCOs
(This section should be read in conjunction with Significant Item 2 and the Franklin-related
Impacts section.)
Any loan in any portfolio may be charged-off prior to the policies described below if a loss
confirming event has occurred. Loss confirming events include, but are not limited to, bankruptcy
(unsecured), continued delinquency, foreclosure, or receipt of an asset valuation indicating a
collateral deficiency and that asset is the sole source of repayment.
C&I and CRE loans are either charged-off or written down to net realizable value at 90-days
past due. Automobile loans and other consumer loans are charged-off at 120-days past due.
First-lien and second-lien home equity loans are charged-off to the estimated fair value of the
collateral at 150-days past due and 120-days past due, respectively. Residential mortgages are
charged-off to the estimated fair value of the collateral at 150-days past due.
44
The following table reflects NCO detail for each of the last five quarters:
Table 28 Quarterly Net Charge-off Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
(dollar amounts in thousands) |
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
Net charge-offs by loan and lease type: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
$ |
17,891 |
|
|
$ |
18,704 |
|
|
$ |
42,191 |
|
|
$ |
59,124 |
|
|
$ |
62,241 |
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
1,450 |
|
|
|
4,145 |
|
|
|
28,400 |
|
|
|
11,084 |
|
|
|
17,936 |
|
Commercial |
|
|
22,990 |
|
|
|
23,450 |
|
|
|
39,283 |
|
|
|
33,787 |
|
|
|
45,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
24,440 |
|
|
|
27,595 |
|
|
|
67,683 |
|
|
|
44,871 |
|
|
|
63,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial |
|
|
42,331 |
|
|
|
46,299 |
|
|
|
109,874 |
|
|
|
103,995 |
|
|
|
125,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile |
|
|
3,863 |
|
|
|
2,255 |
|
|
|
4,712 |
|
|
|
7,035 |
|
|
|
5,570 |
|
Home equity |
|
|
26,222 |
|
|
|
25,441 |
|
|
|
26,715 |
|
|
|
29,175 |
|
|
|
27,827 |
|
Residential mortgage(1) |
|
|
11,562 |
|
|
|
16,455 |
|
|
|
18,932 |
|
|
|
26,775 |
|
|
|
18,961 |
|
Other consumer |
|
|
6,577 |
|
|
|
7,084 |
|
|
|
4,850 |
|
|
|
5,271 |
|
|
|
6,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
48,224 |
|
|
|
51,235 |
|
|
|
55,209 |
|
|
|
68,256 |
|
|
|
58,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net charge-offs |
|
$ |
90,555 |
|
|
$ |
97,534 |
|
|
$ |
165,083 |
|
|
$ |
172,251 |
|
|
$ |
184,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs annualized percentages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
0.52 |
% |
|
|
0.56 |
% |
|
|
1.29 |
% |
|
|
1.85 |
% |
|
|
2.01 |
% |
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
0.87 |
|
|
|
2.99 |
|
|
|
18.59 |
|
|
|
6.19 |
|
|
|
7.25 |
|
Commercial |
|
|
1.69 |
|
|
|
1.65 |
|
|
|
2.66 |
|
|
|
2.22 |
|
|
|
3.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
1.60 |
|
|
|
1.77 |
|
|
|
4.15 |
|
|
|
2.64 |
|
|
|
3.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial |
|
|
0.86 |
|
|
|
0.94 |
|
|
|
2.24 |
|
|
|
2.13 |
|
|
|
2.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile |
|
|
0.25 |
|
|
|
0.15 |
|
|
|
0.33 |
|
|
|
0.51 |
|
|
|
0.43 |
|
Home equity |
|
|
1.31 |
|
|
|
1.29 |
|
|
|
1.38 |
|
|
|
1.51 |
|
|
|
1.47 |
|
Residential mortgage(1) |
|
|
0.97 |
|
|
|
1.44 |
|
|
|
1.70 |
|
|
|
2.42 |
|
|
|
1.73 |
|
Other consumer |
|
|
5.05 |
|
|
|
5.27 |
|
|
|
3.47 |
|
|
|
3.66 |
|
|
|
3.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
0.99 |
|
|
|
1.08 |
|
|
|
1.20 |
|
|
|
1.50 |
|
|
|
1.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs as a % of average loans |
|
|
0.92 |
% |
|
|
1.01 |
% |
|
|
1.73 |
% |
|
|
1.82 |
% |
|
|
1.98 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The 2010 fourth quarter included net charge-offs of $16,389 thousand related to the sale
of certain underperforming residential mortgage loans. |
In assessing NCO trends, it is helpful to understand the process of how these loans are
treated as they deteriorate over time. The ALLL established at origination is consistent with the
level of risk associated with the original underwriting. As a part of our normal portfolio
management process for commercial loans, the loan is periodically reviewed and the ALLL is
increased or decreased as warranted. If the quality of a loan has deteriorated, it migrates to a
lower quality risk rating, requiring a higher ALLL amount. Charge-offs, if necessary, are
generally recognized in a period after the specific ALLL was established. If the previously
established ALLL exceeds that needed to satisfactorily resolve the problem loan, a reduction in the
overall level of the ALLL could be recognized. In summary, if loan quality deteriorates, the
typical credit sequence would be periods of ALLL building, followed by periods of higher NCOs as
the previously established ALLL is utilized. Additionally, an increase in the ALLL either precedes
or is in conjunction with increases in NALs. When a loan is classified as NAL, it is evaluated
for specific ALLL or charge-off. As a result, an increase in NALs does not necessarily result in
an increase in the ALLL or an expectation of higher future NCOs.
Residential mortgage NCO annualized percentages generally are greater than those of the home
equity portfolio. The NCO annualized percentage in the home equity portfolio is the result of a
higher quality customer base as measured by FICO distribution and a substantial portion of the
growth is represented by first-lien positions. Additionally, we accelerated the charge-off policy
associated with the residential mortgage portfolio in 2010 which shortened the maximum timeframe to
charge-off and, during 2011, have executed two NPL sales in the residential mortgage portfolio with
resulting charge-offs.
45
2011 Third Quarter versus 2011 Second Quarter
C&I NCOs declined $0.8 million, or 4%. CRE NCOs decreased $3.2 million, or 11%. These
declines were evident across our geographic footprint and generally associated with small
relationships. The performance of both portfolios was consistent with our expectations. Based on
asset quality trends, we continue to anticipate this lower level of CRE NCOs in future quarters.
Automobile NCOs increased $1.6 million, or 71%. The current quarters performance was
consistent with our expectations. The prior quarters NCOs were historically low reflecting a
combination of low delinquency levels and a strong resale market for used vehicles.
Home equity NCOs increased $0.8 million, or 3%. Although the performance of this portfolio
continues to be impacted by the weakened overall economy and the continued decline in home values,
this slight increase was consistent with our expectations. We continue to manage the default rate
through focused delinquency monitoring as essentially all defaults for second-lien home equity
loans incur significant losses reflecting the reduction of equity associated with the collateral
property.
Residential mortgage NCOs declined $4.9 million, or 30%, consistent with our expectations for
a continued downward trend in this portfolio.
46
The following table reflects NCO activity for the first nine-month periods ended September 30,
2011 and 2010:
Table 29 Year to Date Net Charge-off Analysis
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
(dollar amounts in thousands) |
|
2011 |
|
|
2010 |
|
Net charge-offs by loan and lease type: |
|
|
|
|
|
|
|
|
Commercial: |
|
|
|
|
|
|
|
|
Commercial and industrial |
|
$ |
78,786 |
|
|
$ |
195,808 |
|
Commercial real estate: |
|
|
|
|
|
|
|
|
Construction |
|
|
33,995 |
|
|
|
97,924 |
|
Commercial |
|
|
85,723 |
|
|
|
132,767 |
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
119,718 |
|
|
|
230,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial |
|
|
198,504 |
|
|
|
426,499 |
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
Automobile |
|
|
10,830 |
|
|
|
19,537 |
|
Home equity(1) |
|
|
78,378 |
|
|
|
110,198 |
|
Residential mortgage(2) |
|
|
46,949 |
|
|
|
126,120 |
|
Other loans |
|
|
18,511 |
|
|
|
19,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
154,668 |
|
|
|
275,724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net charge-offs |
|
$ |
353,172 |
|
|
$ |
702,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs annualized percentages: |
|
|
|
|
|
|
|
|
Commercial: |
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
0.78 |
% |
|
|
2.12 |
% |
Commercial real estate: |
|
|
|
|
|
|
|
|
Construction |
|
|
7.41 |
|
|
|
10.67 |
|
Commercial |
|
|
2.01 |
|
|
|
2.88 |
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
2.54 |
|
|
|
4.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial |
|
|
1.35 |
|
|
|
2.89 |
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
Automobile |
|
|
0.24 |
|
|
|
0.56 |
|
Home equity(1) |
|
|
1.33 |
|
|
|
1.95 |
|
Residential mortgage(2) |
|
|
1.36 |
|
|
|
3.74 |
|
Other loans |
|
|
4.58 |
|
|
|
3.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
1.09 |
|
|
|
2.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs as a % of average loans |
|
|
1.22 |
% |
|
|
2.52 |
% |
|
|
|
|
|
|
|
|
|
|
(1) |
|
The 2010 first nine-month period included net charge-offs totaling $14,678 thousand associated
with the transfer of Franklin-related home equity loans to loans held for sale and $6,143 thousand
of other Franklin-related net charge-offs. |
|
(2) |
|
The 2010 first nine-month period included net charge-offs totaling $60,822 thousand associated
with the transfer of Franklin-related residential mortgage loans to loans held for sale and $14,914
thousand of other Franklin-related net charge-offs. |
2011 First Nine Months versus 2010 First Nine Months
C&I NCOs decreased $117.0 million, or 60%. CRE NCOs decreased $111.0 million, or 48%. These
declines primarily reflected significant credit quality improvement in the underlying portfolio as
well as our on-going proactive credit management practices.
Automobile NCOs decreased $8.7 million, or 45%, reflected our consistent high quality
origination profile, as well as a stronger market for used automobiles. This focus on origination
quality has been the primary driver for the improvement in this portfolio in the current period
compared with the year-ago period.
Home equity NCOs declined $31.8 million, or 29%. The first nine-month period of 2010 included
$20.7 million of Franklin-related NCOs compared with no Franklin-related NCOs in the current
period. Excluding the Franklin-related impacts, home equity NCOs decreased $11.1 million compared
with the first nine-month period of 2010. Although the performance of this portfolio continued to
be impacted by the overall weak economic conditions and the continued decline of residential real
estate property values, the performance was consistent with our expectations for the portfolio.
47
Residential mortgage NCOs declined $79.2 million, or 63%. The first nine-month period of 2010
included $75.7 million of Franklin-related net charge-offs, and the first nine-month period of 2011
included Franklin-related net recoveries of $2.5 million. Excluding the Franklin impacts,
residential mortgage NCOs decreased $1.0 million compared with the first nine-month period of 2010.
Additionally, the first nine-month period of 2011 included $6.8 million of NCOs related to a
change in loss recognition policy (see Consumer Credit section). Excluding these impacts,
performance was consistent with our expectations for a continued downward trend in this portfolio.
Market Risk
Market risk represents the risk of loss due to changes in market values of assets and
liabilities. We incur market risk in the normal course of business through exposures to market
interest rates, foreign exchange rates, equity prices, credit spreads, and expected lease residual
values. We have identified two primary sources of market risk: interest rate risk and price risk.
Interest Rate Risk
OVERVIEW
Interest rate risk is the risk to earnings and value arising from changes in market interest
rates. Interest rate risk arises from timing differences in the repricings and maturities of
interest-earning assets and interest-bearing liabilities (reprice risk), changes in the expected
maturities of assets and liabilities arising from embedded options, such as borrowers ability to
prepay residential mortgage loans at any time and depositors ability to redeem certificates of
deposit before maturity (option risk), changes in the shape of the yield curve where interest rates
increase or decrease in a non-parallel fashion (yield curve risk), and changes in spread
relationships between different yield curves, such as U.S. Treasuries and LIBOR (basis risk).
INCOME SIMULATION AND ECONOMIC VALUE ANALYSIS
Interest rate risk measurement is performed monthly. Two broad approaches to modeling
interest rate risk are employed: income simulation and economic value analysis. An income
simulation analysis is used to measure the sensitivity of forecasted ISE to changes in market rates
over a one-year time period. Although bank owned life insurance, automobile operating lease
assets, and excess cash balances held at the Federal Reserve Bank are classified as
noninterest-earning assets, and the net revenue from these assets is recorded in noninterest income
and noninterest expense, these portfolios are included in the interest sensitivity analysis because
they have attributes similar to interest-earning assets. EVE analysis is used to measure the
sensitivity of the values of period-end assets and liabilities to changes in market interest rates.
EVE analysis serves as a complement to ISE analysis as it provides risk exposure estimates for
time periods beyond the one-year simulation period.
The models used for these measurements take into account prepayment speeds on mortgage loans,
mortgage-backed securities, and consumer installment loans, as well as cash flows of other assets
and liabilities. Balance sheet growth assumptions are also considered in the ISE analysis. The
models include the effects of derivatives, such as interest rate swaps, caps, floors, and other
types of interest rate options.
The baseline scenario for ISE analysis, with which all other scenarios are compared, is based
on market interest rates implied by the prevailing yield curve as of the period-end. Alternative
interest rate scenarios are then compared with the baseline scenario. These alternative interest
rate scenarios include parallel rate shifts on both a gradual and an immediate basis, movements in
interest rates that alter the shape of the yield curve (e.g., flatter or steeper yield curve), and
no changes in current interest rates for the entire measurement period. Scenarios are also
developed to measure short-term repricing risks, such as the impact of LIBOR-based interest rates
rising or falling faster than the prime rate.
The simulations for evaluating short-term interest rate risk exposure are scenarios that model
gradual +/-100 and +/-200 basis points parallel shifts in market interest rates over the next
one-year period beyond the interest rate change implied by the current yield curve. We assumed
market interest rates would not fall below 0% over the next one-year period for the scenarios that
used the -100 and -200 basis points parallel shift in market interest rates. The table below shows
the results of the scenarios as of September 30, 2011, and December 31, 2010. All of the positions
were within the board of directors policy limits as of September 30, 2011.
48
Table 30 Interest Sensitive Earnings at Risk
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Sensitive Earnings at Risk (%) |
|
Basis point change scenario |
|
|
-200 |
|
|
|
-100 |
|
|
|
+100 |
|
|
|
+200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Board policy limits |
|
|
-4.0 |
% |
|
|
-2.0 |
% |
|
|
-2.0 |
% |
|
|
-4.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011 |
|
|
-2.1 |
|
|
|
-1.3 |
|
|
|
1.1 |
|
|
|
2.2 |
|
December 31, 2010 |
|
|
-3.2 |
|
|
|
-1.8 |
|
|
|
0.3 |
|
|
|
0.0 |
|
The ISE at risk reported as of September 30, 2011, for the +200 basis points scenario shows a
significant change to an asset sensitive near-term interest rate risk position compared with
December 31, 2010. The ALCOs strategy is to be near-term asset-sensitive to a rising rate
scenario. The primary factors contributing to this change are the 2011 first quarter termination
of $4.5 billion of interest rate swaps maturing through
June 2012, offset slightly by $1.8 billion
of interest rate swaps executed in the 2011 second and third quarters, and the impact of lower
interest rates on mortgage asset prepayments.
The following table shows the income sensitivity of select portfolios to changes in market
interest rates. A portfolio with 100% sensitivity would indicate that interest income and expense
will change with the same magnitude and direction as interest rates. A portfolio with 0%
sensitivity is insensitive to changes in interest rates. For the +200 basis points scenario, total
interest-sensitive income is 36.8% sensitive to changes in market interest rates, while total
interest-sensitive expense is 40.2% sensitive to changes in market interest rates. However, net
interest income at risk for the +200 basis points scenario has an asset-sensitive near-term
interest rate risk position because of the larger base of total interest-sensitive income relative
to total interest-sensitive expense.
Table 31 Interest Income/Expense Sensitivity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of |
|
|
Percent Change in Interest Income/Expense for a Given |
|
|
|
Total Earning |
|
|
Change in Interest Rates |
|
|
|
Assets (1) |
|
|
Over / (Under) Base Case Parallel Ramp |
|
Basis point change scenario |
|
|
|
|
|
|
-200 |
|
|
|
-100 |
|
|
|
+100 |
|
|
|
+200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
80 |
% |
|
|
-16.2 |
% |
|
|
-25.3 |
% |
|
|
37.9 |
% |
|
|
39.4 |
% |
Total investments and other earning assets |
|
|
20 |
|
|
|
-17.8 |
|
|
|
-22.1 |
|
|
|
32.5 |
|
|
|
30.2 |
|
Total interest sensitive income |
|
|
|
|
|
|
-16.0 |
|
|
|
-24.0 |
|
|
|
36.1 |
|
|
|
36.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
71 |
|
|
|
-11.5 |
|
|
|
-18.9 |
|
|
|
35.5 |
|
|
|
36.5 |
|
Total borrowings |
|
|
11 |
|
|
|
-21.0 |
|
|
|
-37.6 |
|
|
|
62.7 |
|
|
|
66.0 |
|
Total interest-sensitive expense |
|
|
|
|
|
|
-12.7 |
|
|
|
-21.2 |
|
|
|
38.9 |
|
|
|
40.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
At September 30, 2011. |
The primary simulations for EVE at risk assume immediate +/-100 and +/-200 basis points
parallel shifts in market interest rates beyond the interest rate change implied by the current
yield curve. The table below outlines the September 30, 2011, results compared with December 31,
2010. All of the positions were within the board of directors policy limits.
Table 32 Economic Value of Equity at Risk
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic Value of Equity at Risk (%) |
|
Basis point change scenario |
|
|
-200 |
|
|
|
-100 |
|
|
|
+100 |
|
|
|
+200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Board policy limits |
|
|
-12.0 |
% |
|
|
-5.0 |
% |
|
|
-5.0 |
% |
|
|
-12.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011 |
|
|
-4.2 |
|
|
|
-0.7 |
|
|
|
-1.0 |
|
|
|
-3.3 |
|
December 31, 2010 |
|
|
-0.5 |
|
|
|
1.3 |
|
|
|
-4.0 |
|
|
|
-8.9 |
|
The EVE at risk reported as of September 30, 2011, for the +200 basis points scenario shows a
change to a lower long-term liability sensitive position compared with December 31, 2010. The
primary factors contributing to this change are the impact of lower interest rates on mortgage
asset prepayments, the growth in low-cost deposits, and the 2011 first quarter termination of $4.5
billion of interest rate swaps maturing through June 2012,
offset slightly by $1.8 billion of
interest rate swaps executed in the 2011 second and third quarters.
The following table shows the economic value sensitivity of select portfolios to changes in
market interest rates. The change in economic value for each portfolio is measured as the percent
change from the base economic value for that portfolio. For the +200 basis points scenario, total
net tangible assets decreased in value 3.1% to changes in market interest rates, while total net
tangible liabilities increased in value 3.1% to changes in market interest rates.
49
Table 33 Economic Value Sensitivity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Total Net |
|
|
Percent Change in Economic Value for a Given |
|
|
|
Tangible |
|
|
Change in Interest Rates |
|
|
|
Assets (1) |
|
|
Over / (Under) Base Case Parallel Shocks |
|
Basis point change scenario |
|
|
|
|
|
|
-200 |
|
|
|
-100 |
|
|
|
+100 |
|
|
|
+200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
71 |
% |
|
|
0.9 |
% |
|
|
0.8 |
% |
|
|
-1.3 |
% |
|
|
-2.6 |
% |
Total investments and other earning assets |
|
|
18 |
|
|
|
2.0 |
|
|
|
2.0 |
|
|
|
-2.8 |
|
|
|
-5.9 |
|
Total net tangible assets (2) |
|
|
|
|
|
|
1.1 |
|
|
|
1.0 |
|
|
|
-1.5 |
|
|
|
-3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
79 |
|
|
|
-2.1 |
|
|
|
-1.4 |
|
|
|
1.7 |
|
|
|
3.3 |
|
Total borrowings |
|
|
9 |
|
|
|
-1.1 |
|
|
|
-0.8 |
|
|
|
0.8 |
|
|
|
1.6 |
|
Total net tangible liabilities (3) |
|
|
|
|
|
|
-2.0 |
|
|
|
-1.3 |
|
|
|
1.6 |
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
At September 30, 2011. |
|
(2) |
|
Tangible assets excluding ALLL. |
|
(3) |
|
Tangible liabilities excluding AULC. |
MSRs
(This section should be read in conjunction with Note 6 of Notes to Unaudited Condensed
Consolidated Financial Statements.)
At September 30, 2011, we had a total of $145.3 million of capitalized MSRs representing the
right to service $16.1 billion in mortgage loans. Of this $145.3 million, $73.8 million was
recorded using the fair value method, and $71.5 million was recorded using the amortization method.
MSR fair values are very sensitive to movements in interest rates as expected future net
servicing income depends on the projected outstanding principal balances of the underlying loans,
which can be greatly reduced by prepayments. Prepayments usually increase when mortgage interest
rates decline and decrease when mortgage interest rates rise. We have employed strategies to
reduce the risk of MSR fair value changes or impairment to MSRs recorded using the amortization
method. In addition, we engage a third party to provide valuation tools and assistance with our
strategies with the objective to decrease the volatility from MSR fair value changes or impairment
to MSRs recorded using the amortization method. However, volatile changes in interest rates can
diminish the effectiveness of these hedges. We typically report MSR fair value adjustments net of
hedge-related trading activity in the mortgage banking income category of noninterest income.
Changes in fair value between reporting dates are recorded as an increase or a decrease in mortgage
banking income. We report MSRs recorded using the amortization method at the lower of cost or fair
value and these MSRs generally relate to loans originated with historically low interest rates,
resulting in a lower probability of prepayments and, ultimately, impairment. MSR assets are
included in other assets in the Unaudited Condensed Consolidated Financial Statements.
Price Risk
Price risk represents the risk of loss arising from adverse movements in the prices of
financial instruments that are carried at fair value and are subject to fair value accounting. We
have price risk from trading securities, securities owned by our broker-dealer subsidiaries,
foreign exchange positions, equity investments, investments in securities backed by mortgage loans,
and marketable equity securities held by our insurance subsidiaries. We have established loss
limits on the trading portfolio, on the amount of foreign exchange exposure that can be maintained,
and on the amount of marketable equity securities that can be held by the insurance subsidiaries.
Liquidity Risk
Liquidity risk is the risk of loss due to the possibility that funds may not be available to
satisfy current or future commitments resulting from external macro market issues, investor and
customer perception of financial strength, and events unrelated to us, such as war, terrorism, or
financial institution market specific issues. We manage liquidity risk at both the Bank and the
parent company.
50
Bank Liquidity and Sources of Liquidity
Our primary sources of funding for the Bank are retail and commercial core deposits. At
September 30, 2011, these core deposits funded 74% of total assets. At September 30, 2011, total
core deposits represented 94% of total deposits, an increase from 93% at December 31, 2010.
Core deposits are comprised of interest-bearing and noninterest-bearing demand deposits, money
market deposits, savings and other domestic deposits, consumer certificates of deposit both over
and under $250,000, and nonconsumer certificates of deposit less than $250,000. Noncore deposits
consist of brokered money market deposits and certificates of deposit, foreign time deposits, and
other domestic deposits of $250,000 or more comprised primarily of public fund certificates of
deposit more than $250,000.
Core deposits may increase our need for liquidity as certificates of deposit mature or are
withdrawn before maturity and as nonmaturity deposits, such as checking and savings account
balances, are withdrawn.
Demand deposit overdrafts that have been reclassified as loan balances were $14.0 million,
$13.1 million, and $13.1 million at September 30, 2011, December 31, 2010, and September 30, 2010,
respectively.
Other domestic time deposits of $250,000 or more and brokered deposits and negotiable CDs
totaled $2.0 billion, $2.2 billion, and $2.3 billion at September 30, 2011, December 31, 2010, and
September 30, 2010, respectively.
The following tables reflect deposit composition and short-term borrowings detail for each of
the past five quarters:
Table 34 Deposit Composition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
(dollar amounts in millions) |
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
By Type |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits -
noninterest-bearing |
|
$ |
9,502 |
|
|
|
22 |
% |
|
$ |
8,210 |
|
|
|
20 |
% |
|
$ |
7,597 |
|
|
|
18 |
% |
|
$ |
7,217 |
|
|
|
17 |
% |
|
$ |
6,926 |
|
|
|
17 |
% |
Demand deposits interest-bearing |
|
|
5,763 |
|
|
|
13 |
|
|
|
5,642 |
|
|
|
14 |
|
|
|
5,532 |
|
|
|
13 |
|
|
|
5,469 |
|
|
|
13 |
|
|
|
5,347 |
|
|
|
13 |
|
Money market deposits |
|
|
13,759 |
|
|
|
32 |
|
|
|
12,643 |
|
|
|
31 |
|
|
|
13,105 |
|
|
|
32 |
|
|
|
13,410 |
|
|
|
32 |
|
|
|
12,679 |
|
|
|
31 |
|
Savings and other domestic
deposits |
|
|
4,711 |
|
|
|
11 |
|
|
|
4,752 |
|
|
|
11 |
|
|
|
4,762 |
|
|
|
12 |
|
|
|
4,643 |
|
|
|
11 |
|
|
|
4,613 |
|
|
|
11 |
|
Core certificates of deposit |
|
|
7,084 |
|
|
|
16 |
|
|
|
7,936 |
|
|
|
19 |
|
|
|
8,208 |
|
|
|
20 |
|
|
|
8,525 |
|
|
|
20 |
|
|
|
8,765 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits |
|
|
40,819 |
|
|
|
94 |
|
|
|
39,183 |
|
|
|
95 |
|
|
|
39,204 |
|
|
|
95 |
|
|
|
39,264 |
|
|
|
93 |
|
|
|
38,330 |
|
|
|
93 |
|
Other domestic deposits of $250,000
or more |
|
|
421 |
|
|
|
1 |
|
|
|
436 |
|
|
|
1 |
|
|
|
531 |
|
|
|
1 |
|
|
|
675 |
|
|
|
2 |
|
|
|
730 |
|
|
|
2 |
|
Brokered deposits and negotiable CDs |
|
|
1,535 |
|
|
|
4 |
|
|
|
1,486 |
|
|
|
4 |
|
|
|
1,253 |
|
|
|
3 |
|
|
|
1,532 |
|
|
|
4 |
|
|
|
1,576 |
|
|
|
4 |
|
Deposits in foreign offices |
|
|
445 |
|
|
|
1 |
|
|
|
297 |
|
|
|
|
|
|
|
378 |
|
|
|
1 |
|
|
|
383 |
|
|
|
1 |
|
|
|
436 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
43,220 |
|
|
|
100 |
% |
|
$ |
41,402 |
|
|
|
100 |
% |
|
$ |
41,366 |
|
|
|
100 |
% |
|
$ |
41,854 |
|
|
|
100 |
% |
|
$ |
41,072 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
15,526 |
|
|
|
38 |
% |
|
$ |
13,541 |
|
|
|
35 |
% |
|
$ |
12,785 |
|
|
|
33 |
% |
|
$ |
12,476 |
|
|
|
32 |
% |
|
$ |
12,262 |
|
|
|
32 |
% |
Consumer |
|
|
25,293 |
|
|
|
62 |
|
|
|
25,642 |
|
|
|
65 |
|
|
|
26,419 |
|
|
|
67 |
|
|
|
26,788 |
|
|
|
68 |
|
|
|
26,068 |
|
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits |
|
$ |
40,819 |
|
|
|
100 |
% |
|
$ |
39,183 |
|
|
|
100 |
% |
|
$ |
39,204 |
|
|
|
100 |
% |
|
$ |
39,264 |
|
|
|
100 |
% |
|
$ |
38,330 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
Table 35 Federal Funds Purchased and Repurchase Agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
(dollar amounts in millions) |
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
Balance at period-end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Funds purchased
and securities sold under
agreements to repurchase |
|
$ |
2,201 |
|
|
$ |
1,983 |
|
|
$ |
2,017 |
|
|
$ |
1,966 |
|
|
$ |
1,773 |
|
Other short-term borrowings |
|
|
24 |
|
|
|
40 |
|
|
|
34 |
|
|
|
75 |
|
|
|
86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average interest rate at period-end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Funds purchased
and securities sold under
agreements to repurchase |
|
|
0.16 |
% |
|
|
0.15 |
% |
|
|
0.17 |
% |
|
|
0.19 |
% |
|
|
0.22 |
% |
Other short-term borrowings |
|
|
1.01 |
|
|
|
0.69 |
|
|
|
0.92 |
|
|
|
0.53 |
|
|
|
0.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum amount outstanding at month-end
during the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Funds purchased
and securities sold under
agreements to repurchase |
|
$ |
2,431 |
|
|
$ |
2,361 |
|
|
$ |
2,091 |
|
|
$ |
2,084 |
|
|
$ |
1,773 |
|
Other short-term borrowings |
|
|
53 |
|
|
|
50 |
|
|
|
86 |
|
|
|
108 |
|
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average amount outstanding during the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Funds purchased
and securities sold under
agreements to repurchase |
|
$ |
2,200 |
|
|
$ |
2,067 |
|
|
$ |
2,064 |
|
|
$ |
2,045 |
|
|
$ |
1,645 |
|
Other short-term borrowings |
|
|
51 |
|
|
|
45 |
|
|
|
69 |
|
|
|
89 |
|
|
|
94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average interest rate during the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Funds purchased
and securities sold under
agreements to repurchase |
|
|
0.16 |
% |
|
|
0.15 |
% |
|
|
0.17 |
% |
|
|
0.19 |
% |
|
|
0.21 |
% |
Other short-term borrowings |
|
|
0.56 |
|
|
|
0.58 |
|
|
|
0.52 |
|
|
|
0.38 |
|
|
|
0.35 |
|
To the extent we are unable to obtain sufficient liquidity through core deposits, we may
meet our liquidity needs through sources of wholesale funding. These sources include other
domestic time deposits of $250,000 or more, brokered deposits and negotiable CDs, deposits in
foreign offices, short-term borrowings, FHLB advances, other long-term debt, and subordinated
notes. At September 30, 2011, total wholesale funding was $7.6 billion, a decrease from $8.4
billion at December 31, 2010. There are no maturities of Bank
obligations until 2012, when debt maturities of $664.9 million
are payable.
The Bank also has access to the Federal Reserves discount window. These borrowings are
secured by commercial loans and home equity lines-of-credit. The Bank is also a member of the
FHLB, and as such, has access to advances from this facility. These advances are generally secured
by residential mortgages, other mortgage-related loans, and available-for-sale securities.
Information regarding amounts pledged, for the ability to borrow if necessary, and the unused
borrowing capacity at both the Federal Reserve Bank and the FHLB, is outlined in the following
table:
Table 36 Federal Reserve and FHLB Borrowing Capacity
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
(dollar amounts in billions) |
|
2011 |
|
|
2010 |
|
Loans and securities pledged: |
|
|
|
|
|
|
|
|
Federal Reserve Bank |
|
$ |
10.2 |
|
|
$ |
9.7 |
|
FHLB |
|
|
7.9 |
|
|
|
7.8 |
|
|
|
|
|
|
|
|
Total loans and securities pledged |
|
$ |
18.1 |
|
|
$ |
17.5 |
|
|
|
|
|
|
|
|
|
|
Total unused borrowing capacity at Federal Reserve Bank and FHLB |
|
$ |
9.8 |
|
|
$ |
8.8 |
|
We can also obtain funding through other methods including: (1) purchasing federal funds,
(2) selling securities under repurchase agreements, (3) the sale or maturity of investment
securities, (4) the sale or securitization of loans, (5) the sale of national market certificates
of deposit, (6) paydowns and/or securitization arising from the relatively shorter-term structure
of our commercial loans and automobile loans, and (7) the issuance of common and preferred stock.
During the 2011 third quarter, Huntington transferred automobile loans totaling $1.0 billion
to a trust in a securitization transaction. The securitization qualified for sale accounting. Net
proceeds of $1.0 billion from the transaction will be used for general corporate purposes,
including repayment of other long-term debt.
At September 30, 2011, we believe the Bank has sufficient liquidity to meet its cash flow
obligations for the foreseeable future.
52
Parent Company Liquidity
The parent companys funding requirements consist primarily of dividends to shareholders, debt
service, income taxes, operating expenses, funding of nonbank subsidiaries, repurchases of our
stock, and acquisitions. The parent company obtains funding to meet obligations from interest
received from the Bank, interest and dividends received from direct subsidiaries, net taxes
collected from subsidiaries included in the federal consolidated tax return, fees for services
provided to subsidiaries, and the issuance of debt securities.
At September 30, 2011, December 31, 2010, and September 30, 2010, the parent company had $0.7
billion, $0.6 billion and $0.9 billion, respectively, in cash and cash equivalents. The decrease
from September 30, 2010, primarily reflected the repurchase of our TARP Capital in the 2010 fourth
quarter, along with dividend payments on our common and preferred stock, partially offset by the
net impact of the equity and debt public offerings. Appropriate limits and guidelines are in place
to ensure the parent company has sufficient cash to meet operating expenses and other commitments
over the next 12 months without relying on subsidiaries or capital markets for funding.
During the 2010 fourth quarter, we completed a public offering and sale of 146.0 million
shares of common stock at a price of $6.30 per share, or $920.0 million in aggregate gross
proceeds. Also during the 2010 fourth quarter, we completed the public offering and sale of $300.0
million aggregate principal amount of 7.00% Subordinated Notes due 2020. We used the net proceeds
from these transactions to repurchase our TARP Capital. On January 19, 2011, we repurchased the
warrant we had issued to the Treasury at an agreed upon purchase price of $49.1 million. The
warrant had entitled the Treasury to purchase 23.6 million shares of common stock.
On October 20, 2011, we announced that the board of directors had declared a quarterly common
stock cash dividend of $0.04 per common share. The dividend is payable on January 3, 2012, to
shareholders of record on December 20, 2011. Based on the dividend increase to $0.04 per common
share, cash demands required for common stock dividends are estimated to be approximately $34.6
million per quarter. Based on the current dividend, cash demands required for Series A Preferred
Stock are estimated to be approximately $7.7 million per quarter.
Based on a regulatory dividend limitation, the Bank could not have declared and paid a
dividend to the parent company at September 30, 2011, without regulatory approval. We do not
anticipate that the Bank will need to request regulatory approval to pay dividends in the near
future. To help meet any additional liquidity needs, we have an open-ended, automatic shelf
registration statement filed and effective with the SEC, which permits us to issue an unspecified
amount of debt or equity securities.
With the exception of the common and preferred dividends previously discussed, the parent
company does not have any significant cash demands. There are no maturities of parent company
obligations until 2013, when a debt maturity of $50.0 million is payable. It is our policy
to keep operating cash on hand at the parent company to satisfy any cash demands for the next 12
months.
We sponsor a non-contributory defined benefit pension plan covering substantially all employees hired or rehired
prior to January 1, 2010. The Plan provides benefits based upon length of service and compensation levels. Our policy
is to contribute an annual amount that is at least equal to the
minimum funding requirements. The Bank and other subsidiaries fund approximately 90% of pension contributions. There is no required
minimum contribution for 2011, although we contributed $50 million in March 2011 and anticipate contributing an
additional $40 million in the 2011 fourth quarter. Funding requirements are calculated annually as of the end of the
year and are heavily dependent on the value of our pension plan assets and the interest rate used to discount plan
obligations. To the extent that the low interest rate environment continues, including as a result of the Federal Reserve Maturity Extension
Program Operation Twist, or the pension plan does not earn the expected asset return
rates, annual pension contribution requirements in future years could increase and such increases
could be significant. However, any additional pension contributions
are not expected to significantly impact liquidity.
Considering the factors discussed above, and other analyses that we have performed, we believe
the parent company has sufficient liquidity to meet its cash flow obligations for the foreseeable
future.
53
Off-Balance Sheet Arrangements
In the normal course of business, we enter into various off-balance sheet arrangements. These
arrangements include financial guarantees contained in standby letters-of-credit issued by the Bank
and commitments by the Bank to sell mortgage loans.
Standby letters-of-credit are conditional commitments issued to guarantee the performance of a
customer to a third party. These guarantees are primarily issued to support public and private
borrowing arrangements, including commercial paper, bond financing, and similar transactions. Most
of these arrangements mature within two years and are expected to expire without being drawn upon.
Standby letters-of-credit are included in the determination of the amount of risk-based capital
that the parent company and the Bank are required to hold.
Through our credit process, we monitor the credit risks of outstanding standby
letters-of-credit. When it is probable that a standby letter of credit will be drawn and not
repaid in full, losses are recognized in the provision for credit losses. At September 30, 2011,
we had $0.5 billion of standby letters-of-credit outstanding, of which 80% were collateralized.
Included in this $0.5 billion are letters-of-credit issued by the Bank that support securities that
were issued by our customers and remarketed by The Huntington Investment Company, our broker-dealer
subsidiary.
We enter into forward contracts relating to the mortgage banking business to hedge the
exposures we have from commitments to extend new residential mortgage loans to our customers and
from our mortgage loans held for sale. At September 30, 2011, December 31, 2010, and September 30,
2010, we had commitments to sell residential real estate loans of $673.5 million, $998.7 million,
and $1,254.4 million, respectively. These contracts mature in less than one year.
We do not believe that off-balance sheet arrangements will have a material impact on our
liquidity or capital resources.
Operational Risk
As with all companies, we are subject to operational risk. Operational risk is the risk of
loss due to human error; inadequate or failed internal systems and controls; violations of, or
noncompliance with, laws, rules, regulations, prescribed practices, or ethical standards; and
external influences such as market conditions, fraudulent activities, disasters, and security
risks. We continuously strive to strengthen our system of internal controls to ensure compliance
with laws, rules, and regulations, and to improve the oversight of our operational risk.
To mitigate operational risks, we have established a senior management Operational Risk
Committee and a senior management Legal, Regulatory, and Compliance Committee. The
responsibilities of these committees, among other duties, include establishing and maintaining
management information systems to monitor material risks and to identify potential concerns, risks,
or trends that may have a significant impact and ensuring that recommendations are developed to
address the identified issues. Both of these committees report any significant findings and
recommendations to the Risk Management Committee. Additionally, potential concerns may be
escalated to our Board Risk Oversight Committee, as appropriate.
The goal of this framework is to implement effective operational risk techniques and
strategies, minimize operational and fraud losses, and enhance our overall performance.
Representation and Warranty Reserve
We primarily conduct our loan sale and securitization activity with FNMA and FHLMC. In
connection with these and other securitization transactions, we make certain representations and
warranties that the loans meet certain criteria, such as collateral type and underwriting
standards. We may be required to repurchase individual loans and / or indemnify these
organizations against losses due to a loan not meeting the established criteria. We have a reserve
for such losses, which is included in accrued expenses and other liabilities. The reserves were
estimated based on historical and expected repurchase activity, average loss rates, and current
economic trends. The level of mortgage loan repurchase losses depends upon economic factors,
investor demand strategies and other external conditions containing a level of uncertainty and risk
that may change over the life of the underlying loans. We do not believe we have sufficient
information to estimate the range of reasonably possible loss related to representation and
warranty exposure.
54
The table below reflects activity in the representations and warranties reserve:
Table 37 Summary of Reserve for Representations and Warranties on Mortgage Loans Serviced for
Others
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
(dollar amounts in thousands) |
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
Reserve for representations and warranties, beginning of period |
|
$ |
24,496 |
|
|
$ |
23,785 |
|
|
$ |
20,170 |
|
|
$ |
18,026 |
|
|
$ |
10,519 |
|
Assumed reserve for representations and warranties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,000 |
|
Reserve charges |
|
|
(3,340 |
) |
|
|
(365 |
) |
|
|
(270 |
) |
|
|
(4,242 |
) |
|
|
(1,787 |
) |
Provision for representations and warranties |
|
|
2,697 |
|
|
|
1,076 |
|
|
|
3,885 |
|
|
|
6,386 |
|
|
|
2,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for representations and warranties, end of period |
|
$ |
23,853 |
|
|
$ |
24,496 |
|
|
$ |
23,785 |
|
|
$ |
20,170 |
|
|
$ |
18,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 38 Mortgage Loan Repurchase Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
(dollar amounts in thousands) |
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
Number of loans sold |
|
|
3,877 |
|
|
|
3,875 |
|
|
|
8,933 |
|
|
|
10,314 |
|
|
|
6,944 |
|
|
Amount of loans sold (UPB) |
|
$ |
529,722 |
|
|
$ |
512,069 |
|
|
$ |
1,313,994 |
|
|
$ |
1,577,879 |
|
|
$ |
1,043,024 |
|
|
Number of loans repurchased |
|
|
43 |
|
|
|
36 |
|
|
|
15 |
|
|
|
71 |
|
|
|
118 |
|
|
Amount of loans repurchased (UPB) |
|
$ |
7,325 |
|
|
$ |
4,755 |
|
|
$ |
2,343 |
|
|
$ |
13,198 |
|
|
$ |
15,356 |
|
|
Number of claims received |
|
|
96 |
|
|
|
130 |
|
|
|
118 |
|
|
|
105 |
|
|
|
108 |
|
|
Successful dispute rate (1) |
|
|
27 |
% |
|
|
49 |
% |
|
|
86 |
% |
|
|
21 |
% |
|
|
36 |
% |
|
Number of make whole payments |
|
|
38 |
|
|
|
8 |
|
|
|
6 |
|
|
|
44 |
|
|
|
19 |
|
|
Amount of make whole payments |
|
$ |
3,392 |
|
|
$ |
445 |
|
|
$ |
560 |
|
|
$ |
3,835 |
|
|
$ |
1,444 |
|
|
|
|
(1) |
|
Successful disputes are a percent of close out requests. Process changes in
2011 significantly decreased close out requests inflating this ratio. |
Process changes in 2011 increased the number of make whole payment request disputes
and significantly decreased close outs of make whole requests. The related reserves were increased
to account for the delay in close out requests.
Foreclosure Documentation
Compared to the high volume servicers, we service a relatively low volume of residential
mortgage foreclosures, with approximately 4,100 foreclosure cases as of September 30, 2011, in
states that require foreclosures to proceed through the courts. We have reviewed and are
continuing to review our residential foreclosure process. We have not found any evidence suggesting
that any foreclosure by the Bank should not have proceeded. We have and are strengthening our
processes and controls to ensure that our foreclosure processes do not have the deficiencies
identified in those institutions which are the subject of the consent orders between the high
volume servicers and their respective federal regulators.
Compliance Risk
Financial institutions are subject to several laws, rules, and regulations emanating at both
the federal and state levels. These broad-based mandates include, but are not limited to,
expectations on anti-money laundering, lending limits, client privacy, fair lending, community
reinvestment, and other important areas. Recently, the volume and complexity of regulatory changes
have added to the overall compliance risk. We have invested in various resources to help ensure we
meet expectations, and we have a team of compliance experts dedicated to ensuring our conformance.
We require training for our colleagues for several broad-based laws and regulations. For example,
all of our colleagues are expected to pass courses on anti-money laundering and customer privacy.
Those colleagues who are engaged in lending activities must also take training related to flood
disaster protection, equal credit opportunity, fair lending, and / or a variety of other courses
related to the extension of credit. We set a high standard of expectation for adherence to
compliance management and seek to continuously enhance our performance.
Capital
Capital is managed both at the Bank and on a consolidated basis. Capital levels are maintained
based on regulatory capital requirements and the economic capital required to support credit,
market, liquidity, and operational risks inherent in our business, and to provide the flexibility
needed for future growth and new business opportunities. Shareholders equity totaled $5.4
billion at September 30, 2011, an increase of $0.4 billion, or 8%, from December 31, 2010,
primarily reflecting an increase in retained earnings. We believe our current level of capital is
adequate.
55
TARP Capital
As discussed in our 2010 Form 10-K, we fully exited our TARP relationship during the 2011
first quarter by repurchasing for $49.1 million the ten-year warrant we had issued to the Treasury
as part of the TARP. Refer to the 2010 Form 10-K for a complete discussion regarding the issuing
and repayment of our TARP Capital.
Capital Adequacy
The following table presents risk-weighted assets and other financial data necessary to
calculate certain financial ratios that we use to measure capital adequacy:
Table 39 Capital Adequacy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
(dollar amounts in millions) |
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
Consolidated capital calculations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shareholders equity |
|
$ |
5,037 |
|
|
$ |
4,890 |
|
|
$ |
4,676 |
|
|
$ |
4,618 |
|
|
$ |
3,867 |
|
Preferred shareholders equity |
|
|
363 |
|
|
|
363 |
|
|
|
363 |
|
|
|
363 |
|
|
|
1,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
5,400 |
|
|
|
5,253 |
|
|
|
5,039 |
|
|
|
4,981 |
|
|
|
5,567 |
|
Goodwill |
|
|
(444 |
) |
|
|
(444 |
) |
|
|
(444 |
) |
|
|
(444 |
) |
|
|
(444 |
) |
Other intangible assets |
|
|
(188 |
) |
|
|
(202 |
) |
|
|
(215 |
) |
|
|
(229 |
) |
|
|
(244 |
) |
Other intangible assets
deferred tax liability (1) |
|
|
66 |
|
|
|
71 |
|
|
|
75 |
|
|
|
80 |
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tangible equity (2) |
|
|
4,834 |
|
|
|
4,678 |
|
|
|
4,455 |
|
|
|
4,388 |
|
|
|
4,964 |
|
Preferred shareholders equity |
|
|
(363 |
) |
|
|
(363 |
) |
|
|
(363 |
) |
|
|
(363 |
) |
|
|
(1,700 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tangible common equity (2) |
|
$ |
4,471 |
|
|
$ |
4,315 |
|
|
$ |
4,092 |
|
|
$ |
4,025 |
|
|
$ |
3,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
54,979 |
|
|
$ |
53,050 |
|
|
$ |
52,949 |
|
|
$ |
53,820 |
|
|
$ |
53,247 |
|
Goodwill |
|
|
(444 |
) |
|
|
(444 |
) |
|
|
(444 |
) |
|
|
(444 |
) |
|
|
(444 |
) |
Other intangible assets |
|
|
(188 |
) |
|
|
(202 |
) |
|
|
(215 |
) |
|
|
(229 |
) |
|
|
(244 |
) |
Other intangible assets
deferred tax liability (1) |
|
|
66 |
|
|
|
71 |
|
|
|
75 |
|
|
|
80 |
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tangible assets (2) |
|
$ |
54,413 |
|
|
$ |
52,475 |
|
|
$ |
52,365 |
|
|
$ |
53,227 |
|
|
$ |
52,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital |
|
$ |
5,488 |
|
|
$ |
5,352 |
|
|
$ |
5,179 |
|
|
$ |
5,022 |
|
|
$ |
5,480 |
|
Preferred shareholders equity |
|
|
(363 |
) |
|
|
(363 |
) |
|
|
(363 |
) |
|
|
(363 |
) |
|
|
(1,700 |
) |
Trust-preferred securities |
|
|
(565 |
) |
|
|
(565 |
) |
|
|
(570 |
) |
|
|
(570 |
) |
|
|
(570 |
) |
REIT-preferred stock |
|
|
(50 |
) |
|
|
(50 |
) |
|
|
(50 |
) |
|
|
(50 |
) |
|
|
(50 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 common equity (2) |
|
$ |
4,510 |
|
|
$ |
4,374 |
|
|
$ |
4,196 |
|
|
$ |
4,039 |
|
|
$ |
3,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-weighted assets (RWA) |
|
$ |
44,376 |
|
|
$ |
44,080 |
|
|
$ |
43,024 |
|
|
$ |
43,471 |
|
|
$ |
42,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 common equity / RWA ratio (2) |
|
|
10.17 |
% |
|
|
9.92 |
% |
|
|
9.75 |
% |
|
|
9.29 |
% |
|
|
7.39 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible equity / tangible asset ratio (2) |
|
|
8.88 |
|
|
|
8.91 |
|
|
|
8.51 |
|
|
|
8.24 |
|
|
|
9.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible common equity / tangible asset ratio (2) |
|
|
8.22 |
|
|
|
8.22 |
|
|
|
7.81 |
|
|
|
7.56 |
|
|
|
6.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible common equity / RWA ratio (2) |
|
|
10.08 |
|
|
|
9.79 |
|
|
|
9.51 |
|
|
|
9.26 |
|
|
|
7.63 |
|
|
|
|
(1) |
|
Other intangible assets are net of deferred tax liability, and calculated assuming a 35% tax
rate. |
|
(2) |
|
Tangible equity, Tier 1 common equity, tangible common equity, and tangible assets are non-GAAP
financial measures. Additionally, any ratios utilizing these financial measures are also non-GAAP.
These financial measures have been included as they are considered to be critical metrics with
which to analyze and evaluate financial condition and capital strength. Other companies may
calculate these financial measures differently. |
Capital continued to strengthen as period-end capital ratios improved compared to
December 31, 2010. Our Tier 1 common risk-based ratio improved 88 basis points to 10.17% at
September 30, 2011 compared to 9.29% at December 31, 2010. This increase primarily reflected the
combination of an increase in retained earnings and a reduction in the disallowed tax deferred
asset.
The Tier 1 common risk-based ratio is the metric that has gained prominence with regulators.
The recent international banking Basel III accord sets this ratio minimum at 7.0% with an
additional buffer of up to 2.5% for a GSIFI. While we are not a GSIFI, the Dodd-Frank Act requires
that any bank with assets over $50.0 billion would be subject to additional scrutiny. U.S.
regulators have identified such qualifying banks as SIFIs. With $55 billion in assets at September
30, 2011, we are at the lower range of the SIFI group. Although we do not know at this time how
much, if any, our required buffer will be, we believe that our current period-end capital ratios
are well positioned.
56
Regulatory Capital
Regulatory capital ratios are the primary metrics used by regulators in assessing the safety
and soundness of banks. We intend to maintain both our and the Banks risk-based capital ratios at
levels at which both would be considered Well-capitalized by regulators. The Bank is primarily
supervised and regulated by the OCC, which establishes regulatory capital guidelines for banks
similar to those established for bank holding companies by the Federal Reserve Board.
Regulatory capital primarily consists of Tier 1 capital and Tier 2 capital. The sum of Tier 1
capital and Tier 2 capital equals our total risk-based capital. The following table reflects
changes and activity to the various components utilized in the calculation of our consolidated Tier
1, Tier 2, and total risk-based capital amounts during the first nine-month period of 2011.
Table 40 Consolidated Regulatory Capital Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Capital |
|
|
|
Common |
|
|
Preferred |
|
|
|
|
|
|
Disallowed |
|
|
Disallowed |
|
|
Total |
|
|
|
Shareholders |
|
|
Shareholders |
|
|
Qualifying |
|
|
Goodwill & |
|
|
Other |
|
|
Tier 1 |
|
(dollar amounts in millions) |
|
Equity (1) |
|
|
Equity |
|
|
Core Capital (2) |
|
|
Intangible assets |
|
|
Adjustments (net) |
|
|
Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 |
|
$ |
4,815 |
|
|
$ |
363 |
|
|
$ |
620 |
|
|
$ |
(607 |
) |
|