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 June 30, 2013
Commission File Number 1-34073
Huntington Bancshares Incorporated
Maryland | 31-0724920 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer 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. x Yes ¨ 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). x Yes ¨ 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):
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No
There were 829,674,914 shares of Registrants common stock ($0.01 par value) outstanding on June 30, 2013.
HUNTINGTON BANCSHARES INCORPORATED
2
Glossary of Acronyms and Terms
The following listing provides a comprehensive reference of common acronyms and terms used throughout the document:
2012 Form 10-K | Annual Report on Form 10-K for the year ended December 31, 2012 | |
ABL | Asset Based Lending | |
ACL | Allowance for Credit Losses | |
AFCRE | Automobile Finance and Commercial Real Estate | |
ABS | Asset-Backed Securities | |
AFS | Available-for-Sale | |
ALCO | Asset & Liability Management Committee | |
ALLL | Allowance for Loan and Lease Losses | |
ARM | Adjustable Rate Mortgage | |
ASC | Accounting Standards Codification | |
ASU | Accounting Standards Update | |
ATM | Automated Teller Machine | |
AULC | Allowance for Unfunded Loan Commitments | |
AVM | Automated Valuation Methodology | |
C&I | Commercial and Industrial | |
CapPR | Capital Plan Review | |
CCAR | Comprehensive Capital Analysis and Review | |
CDO | Collateralized Debt Obligations | |
CDs | Certificates of Deposit | |
CFPB | Bureau of Consumer Financial Protection | |
CMO | Collateralized Mortgage Obligations | |
CRE | Commercial Real Estate | |
Dodd-Frank Act | Dodd-Frank Wall Street Reform and Consumer Protection Act | |
EPS | Earnings Per Share | |
EVE | Economic Value of Equity | |
FASB | Financial Accounting Standards Board | |
FDIC | Federal Deposit Insurance Corporation | |
FHA | Federal Housing Administration | |
FHLB | Federal Home Loan Bank | |
FHLMC | Federal Home Loan Mortgage Corporation | |
FICA | Federal Insurance Contributions Act | |
FICO | Fair Isaac Corporation | |
FNMA | Federal National Mortgage Association | |
FRB | Federal Reserve Bank | |
FTE | Fully-Taxable Equivalent | |
FTP | Funds Transfer Pricing | |
GAAP | Generally Accepted Accounting Principles in the United States of America | |
HAMP | Home Affordable Modification Program | |
HARP | Home Affordable Refinance Program | |
HTM | Held-to-Maturity | |
IRS | Internal Revenue Service | |
ISE | Interest Sensitive Earnings | |
LCR | Liquidity Coverage Ratio |
3
LIBOR | London Interbank Offered Rate | |
LGD | Loss-Given-Default | |
LTV | Loan to Value | |
MBS | Mortgage-Backed Security | |
MD&A | Managements Discussion and Analysis of Financial Condition and Results of Operations | |
MSA | Metropolitan Statistical Area | |
MSR | Mortgage Servicing Rights | |
NALs | Nonaccrual Loans | |
NCO | Net Charge-off | |
NIM | Net interest margin | |
NPAs | Nonperforming Assets | |
NPR | Notice of Proposed Rulemaking | |
N.R. | Not relevant. Denominator of calculation is a gain in the current period compared with a loss in the prior period, or vice-versa. | |
OCC | Office of the Comptroller of the Currency | |
OCI | Other Comprehensive Income (Loss) | |
OCR | Optimal Customer Relationship | |
OLEM | Other Loans Especially Mentioned | |
OREO | Other Real Estate Owned | |
OTTI | Other-Than-Temporary Impairment | |
PD | Probability-Of-Default | |
Plan | Huntington Bancshares Retirement Plan | |
Problem Loans | Includes nonaccrual loans and leases (Table 18), troubled debt restructured loans (Table 19), accruing loans and leases past due 90 days or more (aging analysis section of Footnote 3), and Criticized commercial loans (credit quality indicators section of Footnote 3). | |
REIT | Real Estate Investment Trust | |
ROC | Risk Oversight Committee | |
SAD | Special Assets Division | |
SBA | Small Business Administration | |
SEC | Securities and Exchange Commission | |
SERP | Supplemental Executive Retirement Plan | |
SRIP | Supplemental Retirement Income Plan | |
TDR | Troubled Debt Restructured Loan | |
U.S. Treasury | U.S. Department of the Treasury | |
UCS | Uniform Classification System | |
UPB | Unpaid Principal Balance | |
USDA | U.S. Department of Agriculture | |
VA | U.S. Department of Veteran Affairs | |
VIE | Variable Interest Entity | |
WGH | Wealth Advisors, Government Finance, and Home Lending |
4
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.
Item 2: | 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 147 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 700 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 2012 Form 10-K should be read in conjunction with this MD&A as this discussion provides only material updates to the 2012 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:
| Executive OverviewProvides 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 2013. |
| Discussion of Results of OperationsReviews 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. |
| Risk Management and CapitalDiscusses 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. |
| Business Segment DiscussionProvides an overview of financial performance for each of our major business segments and provides additional discussion of trends underlying consolidated financial performance. |
| Additional DisclosuresProvides 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.
5
Summary of 2013 Second Quarter Results
For the quarter, we reported net income of $150.7 million, or $0.17 per common share, compared with $151.8 million, or $0.17 per common share, in the prior quarter (see Table 1).
Fully-taxable equivalent net interest income was $431.5 million for the quarter, down $1.4 million, or less than 1%, from the prior quarter. The decrease reflected a 4 basis point decrease in the net interest margin, partially offset by a $0.2 billion increase in average earnings assets as well as an additional day in the quarter. The primary items affecting the net interest margin were a 7 basis point negative impact from the mix and yield of earning assets, which was partially offset by a 3 basis point positive impact from the mix and cost of deposits.
The provision for credit losses decreased $4.9 million, or 16%, from the prior quarter. This reflected a $16.9 million, or 33%, decrease in NCOs to $34.8 million, or an annualized 0.34% of average total loans and leases, from $51.7 million, or an annualized 0.51%, in the prior quarter.
Noninterest income decreased $3.6 million, or 1%, from the prior quarter. The decrease in noninterest income reflected the $11.6 million, or 26%, decrease in mortgage banking income as the benefit of net mortgage servicing rights decreased by $11.6 million. Other income decreased $7.9 million, or 24%, as the prior quarter included a $7.6 million gain on the sale of Low Income Housing Tax Credit investments. These were partially offset by a $7.1 million, or 12%, increase in service charges on deposit accounts that follow yearly seasonal trends in customer activity, an 8% annualized growth in consumer checking households, and a $4.4 million, or 56%, increase in capital markets activity.
Noninterest expense increased $3.1 million, or 1%, from the prior quarter due to a $5.0 million, or 2%, increase in personnel costs, reflecting higher commission expense and a $3.3 million, or 30%, seasonal increase in marketing. These were partially offset by a $2.9 million decline in OREO and foreclosure expense.
The period-end ACL as a percentage of total loans and leases decreased to 1.86% from 1.91% in the prior quarter. The ACL as a percentage of period-end NALs increased 7 percentage points to 214%. NALs declined by $16.8 million, or 4%, to $363.5 million, or 0.87% of total loans. The decreases primarily reflected meaningful improvement in commercial real estate NALs.
The tangible common equity to tangible asset ratio decreased to 8.78% from 8.92% in the prior quarter, resulting primarily from net unrealized losses on available-for-sale debt securities and cash flow hedging derivatives during the quarter, partially offset by retained earnings. Our Tier 1 common risk-based capital ratio at quarter end was 10.71%, up from 10.62% in the prior quarter. The regulatory Tier 1 risk-based capital ratio at June 30, 2013 was 12.24%, up from 12.16%, at March 31, 2013. All capital ratios were impacted by the repurchase of 10.0 million common shares over the quarter at an average price per share of $7.50.
Business Overview
General
Our general business objectives are: (1) grow net interest income and fee income, (2) increase cross-sell and share-of-wallet across all business segments, (3) improve efficiency ratio, (4) continue to strengthen risk management, including sustained improvement in credit metrics, and (5) maintain strong capital and liquidity positions.
During the 2013 second quarter, we continued to demonstrate progress in our strategic priorities. We returned to pre-recession, normal credit levels, reflecting our disciplined and prudent lending approach and also continued to experience double-digit household growth. Expenses were managed to levels slightly below our expectations. Revenue was relatively unchanged as strategic growth overcame multiple environmental headwinds and the prior quarters gains from the sale of Low Income Housing Tax Credit investments. We remain on track to deliver sustainable levels of long-term profitability. Existing strategic investments continue to mature and we are focused on expense management and a more robust continuous improvement effort across the enterprise.
Economy
Consumer lending and deposits increased over the same quarter last year as consumer confidence in the recovery rises. Our commercial loan pipeline continues to be strong as business owners are seeing more signs of economic growth. Employment across our Midwest markets continues to improve with Ohio creating the largest month-to-month employment increase in the nation in May and Michigan coming in third.
6
Legislative and Regulatory
Regulatory reforms continue to be released, which impose additional restrictions on current business practices. Recent items affecting us include the Federal Reserves Comprehensive Capital Analysis and Review and the recently issued final Basel III rule.
Capital Plans Rule / Supervisory and Company-Run Stress Test Requirements During 2012, we participated in the Federal Reserves Capital Plan Review (CapPR) process and made our capital plan submission in January 2013. On March 14, 2013, we announced that the Federal Reserve had completed its review of our capital plan submission and did not object to our proposed capital actions. The capital plan review process included reviews of our internal capital planning process and our plans to make capital distributions, such as dividend payments or stock repurchases, as well as a stress test requirement designed to test our capital adequacy throughout times of economic and financial stress.
Beginning with our Capital Plan submission in January 2014, we will be subject to the Federal Reserves Comprehensive Capital Analysis and Review (CCAR) process. One of the primary additional elements of CCAR will be supervisory stress tests conducted by the Federal Reserve under different hypothetical macro-economic scenarios in addition to the stress tests routinely conducted by management. After completing its review, the Federal Reserve may object or not object to our proposed capital actions, such as plans to pay or increase common stock dividends or increase common stock repurchase programs. Beginning with our January 2014 submission, we will be subject to the OCCs Annual Stress Test at the bank-level. The OCC stipulated that it will consult closely with the Federal Reserve to provide common stress scenarios which can be used at both the depository institution and bank holding company levels.
Basel III Capital rules for U.S. banking organizations On July 2, 2013, the Federal Reserve voted to adopt final Basel III capital rules for U.S. banking organizations. The final rules establish an integrated regulatory capital framework and will implement in the United States the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act. Under the final rule, minimum requirements will increase for both the quantity and quality of capital held by banking organizations. Consistent with the international Basel framework, the final rule includes a new minimum ratio of common equity tier 1 capital (Tier I Common) to risk-weighted assets and a common equity tier 1 capital conservation buffer of 2.5% of risk-weighted assets that will apply to all supervised financial institutions. The rule also raises the minimum ratio of tier 1 capital to risk-weighted assets and includes a minimum leverage ratio of 4% for all banking organizations. These new minimum capital ratios will become effective for us on January 1, 2015 and will be fully phased-in on January 1, 2019.
Following the Basel III regulatory capital levels that we must satisfy to avoid limitations on capital distributions and discretionary bonus payments during the applicable transition period, from January 1, 2015 until January 1, 2019.
Basel III Regulatory Capital Levels | ||||||||||||||||||||
January 1, | January 1, | January 1, | January 1, | January 1, | ||||||||||||||||
2015 | 2016 | 2017 | 2018 | 2019 | ||||||||||||||||
Tier 1 common equity |
4.5 | % | 5.125 | % | 5.75 | % | 6.375 | % | 7.0 | % | ||||||||||
Tier 1 risk-based capital ratio |
6.0 | % | 6.625 | % | 7.25 | % | 7.875 | % | 8.5 | % | ||||||||||
Total risk-based capital ratio |
8.0 | % | 8.625 | % | 9.25 | % | 9.875 | % | 10.5 | % |
The final rule emphasizes common equity tier 1 capital, the most loss-absorbing form of capital, and implements strict eligibility criteria for regulatory capital instruments. The final rule also improves the methodology for calculating risk-weighted assets to enhance risk sensitivity. Banks and regulators use risk weighting to assign different levels of risk to different classes of assets.
We have evaluated the impact of the Basel III final rule on our regulatory capital ratios and estimate a reduction of approximately 60 basis points to our Basel I Tier I Common risk-based capital ratio based on our June 30, 2013 balance sheet composition. The estimate is based on managements current interpretation, expectations, and understanding of the final U.S. Basel III rules. We anticipate that our capital ratios, on a Basel III basis, will continue to exceed the well capitalized minimum capital requirements. We are evaluating options to mitigate the capital impact of the final rule prior to its effective implementation date.
Expectations
We are seeing an uptick in manufacturing across our markets led by the auto industry along with continued investments in the local oil and gas exploration industry. We believe these developments, along with recent upward revisions to economic growth forecasts in 2014, will trigger further business investment. We also are seeing a stronger than expected housing recovery across much of our region. We believe this, along with an increase in consumer confidence, will lead to more consumer spending. We will remain disciplined as we manage our returns on an aggregate moderate-to-low risk profile.
Net interest income is expected to modestly grow over the remainder of 2013. We anticipate an increase in total loans will be partially offset by a reduction in total securities, as the portfolios cash flow is not reinvested into additional securities. However, those benefits to net interest income are expected to be mostly offset by continued downward NIM pressure. NIM for 2013 is not expected to fall below the mid 3.30%s due to continued deposit repricing and mix shift opportunities while maintaining a disciplined approach to loan pricing.
7
The C&I portfolio is expected to see growth consistent with the anticipated increase in customer activity. Our C&I loan pipeline remains robust with much of this reflecting the positive impact from our investments in specialized commercial verticals, focused OCR sales process, and continued support of middle market and small business lending. Given automobile loan yields are relatively more attractive than similar duration securities and the recent decline in estimated securitization gains, we currently do not anticipate any automobile securitizations in the second half of 2013. Residential mortgages and home equity loan balances are expected to increase modestly. CRE loans are expected to remain in the current $5 billion range.
We anticipate the increase in total loans will outpace growth in total deposits. This reflects our continued focus on the overall cost of funds, as well as the continued shift towards low- and no-cost demand deposits and money market deposit accounts.
Noninterest income, when compared with 2012 levels, is expected to be flat to slightly down, excluding the impact of any automobile loan sales and any net MSR impact. The anticipated slowdown in mortgage banking activity is expected to be mostly offset by continued growth in new customers, increased contribution from higher cross-sell, and the continued maturation of our previous strategic investments.
Effective December 31, 2013, the benefits earned in the Companys pension plan will be frozen, as approved by the board of directors on July 17, 2013. As a result of the accounting treatment for the unamortized prior service pension cost and the change in the projected benefit obligation related to the curtailment, a one-time non-cash pre-tax gain of approximately $35 million, or $0.03 per share, is expected to be recognized in the 2013 third quarter.
Third quarter expenses are expected to modestly increase due to higher commission expense and higher occupancy and equipment expense related to our continued in-store expansion. Expenses will be consistent with previous expectations, with a modest downward bias related to the pension related expense and excluding the aforementioned one-time gain. We continue to evaluate additional cost saving opportunities and remain committed to posting positive operating leverage in 2013.
NPAs are expected to experience continued improvement. This quarter, NCOs were slightly below our expected normalized range of 35 to 55 basis points. The level of provision for credit losses was below our long-term expectation, and we continue to expect moderate quarterly volatility.
The effective tax rate for 2013 is expected to be in the range of 25% to 28%, primarily reflecting the impacts of tax-exempt income, tax advantaged investments, and general business credits.
8
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 Unaudited Condensed 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.
9
Table 1Selected Quarterly Income Statement Data (1)
2013 | 2012 | |||||||||||||||||||
(dollar amounts in thousands, except per share amounts) |
Second | First | Fourth | Third | Second | |||||||||||||||
Interest income |
$ | 462,582 | $ | 465,319 | $ | 478,995 | $ | 483,787 | $ | 487,544 | ||||||||||
Interest expense |
37,645 | 41,149 | 44,940 | 53,489 | 58,582 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net interest income |
424,937 | 424,170 | 434,055 | 430,298 | 428,962 | |||||||||||||||
Provision for credit losses |
24,722 | 29,592 | 39,458 | 37,004 | 36,520 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net interest income after provision for credit losses |
400,215 | 394,578 | 394,597 | 393,294 | 392,442 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Service charges on deposit accounts |
68,009 | 60,883 | 68,083 | 67,806 | 65,998 | |||||||||||||||
Mortgage banking income |
33,659 | 45,248 | 61,711 | 44,614 | 38,349 | |||||||||||||||
Trust services |
30,666 | 31,160 | 31,388 | 29,689 | 29,914 | |||||||||||||||
Electronic banking |
23,345 | 20,713 | 21,011 | 22,135 | 20,514 | |||||||||||||||
Brokerage income |
19,546 | 17,995 | 17,415 | 16,526 | 19,025 | |||||||||||||||
Insurance income |
17,187 | 19,252 | 17,268 | 17,792 | 17,384 | |||||||||||||||
Gain on sale of loans |
3,348 | 2,616 | 20,690 | 6,591 | 4,131 | |||||||||||||||
Bank owned life insurance income |
15,421 | 13,442 | 13,767 | 14,371 | 13,967 | |||||||||||||||
Capital markets fees |
12,229 | 7,834 | 12,694 | 11,596 | 13,260 | |||||||||||||||
Securities gains (losses) |
(410 | ) | (509 | ) | 863 | 4,169 | 350 | |||||||||||||
Other income |
25,655 | 33,575 | 32,761 | 25,778 | 30,927 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total noninterest income |
248,655 | 252,209 | 297,651 | 261,067 | 253,819 | |||||||||||||||
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|
|
|
|
|
|
|
|
|
|||||||||||
Personnel costs |
263,862 | 258,895 | 253,952 | 247,709 | 243,034 | |||||||||||||||
Outside data processing and other services |
49,898 | 49,265 | 48,699 | 50,396 | 48,568 | |||||||||||||||
Net occupancy |
27,656 | 30,114 | 29,008 | 27,599 | 25,474 | |||||||||||||||
Equipment |
24,947 | 24,880 | 26,580 | 25,950 | 24,872 | |||||||||||||||
Deposit and other insurance expense |
13,460 | 15,490 | 16,327 | 15,534 | 15,731 | |||||||||||||||
Professional services |
9,341 | 7,192 | 22,514 | 17,510 | 15,037 | |||||||||||||||
Marketing |
14,239 | 10,971 | 16,456 | 16,842 | 17,396 | |||||||||||||||
Amortization of intangibles |
10,362 | 10,320 | 11,647 | 11,431 | 11,940 | |||||||||||||||
OREO and foreclosure expense |
(271 | ) | 2,666 | 4,233 | 4,982 | 4,106 | ||||||||||||||
Loss (Gain) on early extinguishment of debt |
| | | 1,782 | (2,580 | ) | ||||||||||||||
Other expense |
32,371 | 33,000 | 41,212 | 38,568 | 40,691 | |||||||||||||||
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|
|
|
|
|
|
|
|
|
|||||||||||
Total noninterest expense |
445,865 | 442,793 | 470,628 | 458,303 | 444,269 | |||||||||||||||
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|
|
|
|
|
|
|
|
|||||||||||
Income before income taxes |
203,005 | 203,994 | 221,620 | 196,058 | 201,992 | |||||||||||||||
Provision for income taxes |
52,354 | 52,214 | 54,341 | 28,291 | 49,286 | |||||||||||||||
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|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
$ | 150,651 | $ | 151,780 | $ | 167,279 | $ | 167,767 | $ | 152,706 | ||||||||||
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|
|
|
|
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Dividends on preferred shares |
7,967 | 7,970 | 7,973 | 7,983 | 7,984 | |||||||||||||||
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|
|
|
|
|
|
|
|
|||||||||||
Net income applicable to common shares |
$ | 142,684 | $ | 143,810 | $ | 159,306 | $ | 159,784 | $ | 144,722 | ||||||||||
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|
|
|
|
|
|
|
|
|
|||||||||||
Average common sharesbasic |
834,730 | 841,103 | 847,220 | 857,871 | 862,261 | |||||||||||||||
Average common sharesdiluted |
843,840 | 848,708 | 853,306 | 863,588 | 867,551 | |||||||||||||||
Net income per common sharebasic |
$ | 0.17 | $ | 0.17 | $ | 0.19 | $ | 0.19 | $ | 0.17 | ||||||||||
Net income per common sharediluted |
0.17 | 0.17 | 0.19 | 0.19 | 0.17 | |||||||||||||||
Cash dividends declared per common share |
0.05 | 0.04 | 0.04 | 0.04 | 0.04 | |||||||||||||||
Return on average total assets |
1.08 | % | 1.10 | % | 1.19 | % | 1.19 | % | 1.10 | % | ||||||||||
Return on average common shareholders equity |
10.4 | 10.7 | 11.6 | 11.9 | 11.1 | |||||||||||||||
Return on average tangible common shareholders equity (2) |
12.0 | 12.4 | 13.5 | 13.9 | 13.1 | |||||||||||||||
Net interest margin (3) |
3.38 | 3.42 | 3.45 | 3.38 | 3.42 | |||||||||||||||
Efficiency ratio (4) |
64.0 | 63.3 | 62.3 | 64.5 | 62.8 | |||||||||||||||
Effective tax rate |
25.8 | 25.6 | 24.5 | 14.4 | 24.4 | |||||||||||||||
RevenueFTE |
||||||||||||||||||||
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|
|
|
|||||||||||
Net interest income |
$ | 424,937 | $ | 424,170 | $ | 434,055 | $ | 430,298 | $ | 428,962 | ||||||||||
FTE adjustment |
6,587 | 5,923 | 5,470 | 5,254 | 5,747 | |||||||||||||||
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|
|
|
|||||||||||
Net interest income (3) |
431,524 | 430,093 | 439,525 | 435,552 | 434,709 | |||||||||||||||
Noninterest income |
248,655 | 252,209 | 297,651 | 261,067 | 253,819 | |||||||||||||||
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|
|
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|
|
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|
|
|||||||||||
Total revenue (3) |
$ | 680,179 | $ | 682,302 | $ | 737,176 | $ | 696,619 | $ | 688,528 | ||||||||||
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|
(1) | Comparisons for presented periods are impacted by a number of factors. Refer to the Significant Items for additional discussion regarding these key factors. |
(2) | 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. |
(3) | On a fully-taxable equivalent (FTE) basis assuming a 35% tax rate. |
(4) | Noninterest expense less amortization of intangibles divided by the sum of FTE net interest income and noninterest income excluding securities gains. |
10
Table 2Selected Year to Date Income Statement Data(1)
Six Months Ended June 30, | Change | |||||||||||||||
(dollar amounts in thousands, except per share amounts) |
2013 | 2012 | Amount | Percent | ||||||||||||
Interest income |
$ | 927,901 | $ | 967,481 | $ | (39,580 | ) | (4 | )% | |||||||
Interest expense |
78,794 | 121,310 | (42,516 | ) | (35 | ) | ||||||||||
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|
|
|||||||||
Net interest income |
849,107 | 846,171 | 2,936 | | ||||||||||||
Provision for credit losses |
54,314 | 70,926 | (16,612 | ) | (23 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net interest income after provision for credit losses |
794,793 | 775,245 | 19,548 | 3 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Service charges on deposit accounts |
128,892 | 126,290 | 2,602 | 2 | ||||||||||||
Mortgage banking income |
78,907 | 84,767 | (5,860 | ) | (7 | ) | ||||||||||
Trust services |
61,826 | 60,820 | 1,006 | 2 | ||||||||||||
Electronic banking |
44,058 | 39,144 | 4,914 | 13 | ||||||||||||
Brokerage income |
37,541 | 38,285 | (744 | ) | (2 | ) | ||||||||||
Insurance income |
36,439 | 36,259 | 180 | | ||||||||||||
Gain on sale of loans |
5,964 | 30,901 | (24,937 | ) | (81 | ) | ||||||||||
Bank owned life insurance income |
28,863 | 27,904 | 959 | 3 | ||||||||||||
Capital markets fees |
20,063 | 23,056 | (2,993 | ) | (13 | ) | ||||||||||
Securities gains (losses) |
(919 | ) | (263 | ) | (656 | ) | 249 | |||||||||
Other income |
59,230 | 71,976 | (12,746 | ) | (18 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total noninterest income |
500,864 | 539,139 | (38,275 | ) | (7 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Personnel costs |
522,757 | 486,532 | 36,225 | 7 | ||||||||||||
Outside data processing and other services |
99,163 | 91,160 | 8,003 | 9 | ||||||||||||
Net occupancy |
57,770 | 54,553 | 3,217 | 6 | ||||||||||||
Equipment |
49,827 | 50,417 | (590 | ) | (1 | ) | ||||||||||
Deposit and other insurance expense |
28,950 | 36,469 | (7,519 | ) | (21 | ) | ||||||||||
Professional services |
16,533 | 25,734 | (9,201 | ) | (36 | ) | ||||||||||
Marketing |
25,210 | 30,965 | (5,755 | ) | (19 | ) | ||||||||||
Amortization of intangibles |
20,682 | 23,471 | (2,789 | ) | (12 | ) | ||||||||||
OREO and foreclosure expense |
2,395 | 9,056 | (6,661 | ) | (74 | ) | ||||||||||
Gain on early extinguishment of debt |
| (2,580 | ) | 2,580 | (100 | ) | ||||||||||
Other expense |
65,371 | 101,168 | (35,797 | ) | (35 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total noninterest expense |
888,658 | 906,945 | (18,287 | ) | (2 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before income taxes |
406,999 | 407,439 | (440 | ) | | |||||||||||
Provision for income taxes |
104,568 | 101,463 | 3,105 | 3 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
$ | 302,431 | $ | 305,976 | $ | (3,545 | ) | (1 | )% | |||||||
|
|
|
|
|
|
|
|
|||||||||
Dividends declared on preferred shares |
15,937 | 16,033 | (96 | ) | (1 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income applicable to common shares |
$ | 286,494 | $ | 289,943 | $ | (3,449 | ) | (1 | )% | |||||||
|
|
|
|
|
|
|
|
|||||||||
Average common sharesbasic |
837,917 | 863,380 | (25,463 | ) | (3 | )% | ||||||||||
Average common sharesdiluted |
846,274 | 868,357 | (22,083 | ) | (3 | ) | ||||||||||
Per common share |
||||||||||||||||
Net income per common share - basic |
$ | 0.34 | $ | 0.34 | $ | | | % | ||||||||
Net income per common share - diluted |
0.34 | 0.33 | 0.01 | 3 | ||||||||||||
Cash dividends declared |
0.09 | 0.08 | 0.01 | 13 | ||||||||||||
RevenueFTE |
||||||||||||||||
Net interest income |
$ | 849,107 | $ | 846,171 | $ | 2,936 | | % | ||||||||
FTE adjustment |
12,510 | 9,682 | 2,828 | 29 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net interest income (2) |
861,617 | 855,853 | 5,764 | 1 | ||||||||||||
Noninterest income |
500,864 | 539,139 | (38,275 | ) | (7 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenue (2) |
$ | 1,362,481 | $ | 1,394,992 | $ | (32,511 | ) | (2 | )% | |||||||
|
|
|
|
|
|
|
|
(1) | Comparisons for presented periods are impacted by a number of factors. Refer to the Significant Items discussion. |
(2) | On a fully taxable equivalent (FTE) basis assuming a 35% tax rate. |
11
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 outside 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 2012 first quarter, a $23.5 million addition to litigation reserves was recorded in other noninterest expense. This resulted in a negative impact of $0.02 per common share on a year-to-date basis. |
2. | Bargain Purchase Gain. During the 2012 first quarter, an $11.4 million bargain purchase gain associated with the FDIC-assisted Fidelity Bank acquisition was recorded in noninterest income. This resulted in a positive impact of $0.01 per common share on a year-to-date basis. |
The following table reflects the earnings impact of the above-mentioned Significant Items for periods affected by this Results of Operations discussion:
Table 3Significant Items Influencing Earnings Performance Comparison
Three Months Ended | ||||||||||||||||||||||||
June 30, 2013 | March 31, 2013 | June 30, 2012 | ||||||||||||||||||||||
(dollar amounts in thousands, except per share amounts) |
After-tax | EPS (2) | After-tax | EPS (2) | After-tax | EPS (2) | ||||||||||||||||||
Net income |
$ | 150,651 | $ | 151,780 | $ | 152,706 | ||||||||||||||||||
Earnings per share, after-tax |
$ | 0.17 | $ | 0.17 | $ | 0.17 | ||||||||||||||||||
Change from prior quarter$ |
| (0.02 | ) | | ||||||||||||||||||||
Change from prior quarter% |
| % | (11 | )% | | % | ||||||||||||||||||
Change from year-ago$ |
$ | | $ | | $ | 0.01 | ||||||||||||||||||
Change from year-ago% |
| % | | % | 6 | % |
12
Six Months Ended | ||||||||||||||||
June 30, 2013 | June 30, 2012 | |||||||||||||||
(dollar amounts in thousands) |
After-tax | EPS (2) | After-tax | EPS (2) | ||||||||||||
Net income |
$ | 302,431 | $ | 305,976 | ||||||||||||
Earnings per share, after-tax |
$ | 0.34 | $ | 0.33 | ||||||||||||
Change from a year-ago$ |
0.01 | 0.03 | ||||||||||||||
Change from a year-ago% |
3 | % | 10 | % | ||||||||||||
Significant Items - favorable (unfavorable) impact: |
Earnings (1) | EPS (2) | Earnings (1) | EPS (2) | ||||||||||||
Bargain purchase gain |
| | 11,409 | 0.01 | ||||||||||||
Litigation reserves addition |
| | (23,500 | ) | (0.02 | ) |
(1) | Pretax unless otherwise noted. |
(2) | After-tax. |
Net Interest Income / Average Balance Sheet
The following tables detail the change in our average balance sheet and the net interest margin:
13
Table 4Consolidated Quarterly Average Balance Sheets
Average Balances | Change | |||||||||||||||||||||||||||
2013 | 2012 | 2Q13 vs. 2Q12 | ||||||||||||||||||||||||||
(dollar amounts in millions) |
Second | First | Fourth | Third | Second | Amount | Percent | |||||||||||||||||||||
Assets: |
||||||||||||||||||||||||||||
Interest-bearing deposits in banks |
$ | 84 | $ | 72 | $ | 73 | $ | 82 | $ | 124 | $ | (40 | ) | (32 | )% | |||||||||||||
Loans held for sale |
678 | 709 | 840 | 1,829 | 410 | 268 | 65 | |||||||||||||||||||||
Securities: |
||||||||||||||||||||||||||||
Available-for-sale and other securities: |
||||||||||||||||||||||||||||
Taxable |
6,728 | 6,964 | 7,131 | 8,014 | 8,285 | (1,557 | ) | (19 | ) | |||||||||||||||||||
Tax-exempt |
591 | 549 | 492 | 423 | 387 | 204 | 53 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total available-for-sale and other securities |
7,319 | 7,513 | 7,623 | 8,437 | 8,672 | (1,353 | ) | (16 | ) | |||||||||||||||||||
Trading account securities |
84 | 85 | 97 | 66 | 54 | 30 | 56 | |||||||||||||||||||||
Held-to-maturity securitiestaxable |
1,711 | 1,717 | 1,652 | 796 | 611 | 1,100 | 180 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total securities |
9,114 | 9,315 | 9,372 | 9,299 | 9,337 | (223 | ) | (2 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Loans and leases: (1) |
||||||||||||||||||||||||||||
Commercial: |
||||||||||||||||||||||||||||
Commercial and industrial |
17,033 | 16,954 | 16,507 | 16,343 | 16,094 | 939 | 6 | |||||||||||||||||||||
Commercial real estate: |
||||||||||||||||||||||||||||
Construction |
586 | 598 | 576 | 569 | 584 | 2 | | |||||||||||||||||||||
Commercial |
4,429 | 4,694 | 4,897 | 5,153 | 5,491 | (1,062 | ) | (19 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Commercial real estate |
5,015 | 5,292 | 5,473 | 5,722 | 6,075 | (1,060 | ) | (17 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total commercial |
22,048 | 22,246 | 21,980 | 22,065 | 22,169 | (121 | ) | (1 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Consumer: |
||||||||||||||||||||||||||||
Automobile |
5,283 | 4,833 | 4,486 | 4,065 | 4,985 | 298 | 6 | |||||||||||||||||||||
Home equity |
8,263 | 8,395 | 8,345 | 8,369 | 8,310 | (47 | ) | (1 | ) | |||||||||||||||||||
Residential mortgage |
5,225 | 4,978 | 5,155 | 5,177 | 5,253 | (28 | ) | (1 | ) | |||||||||||||||||||
Other consumer |
461 | 412 | 431 | 444 | 462 | (1 | ) | | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total consumer |
19,232 | 18,618 | 18,417 | 18,055 | 19,010 | 222 | 1 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total loans and leases |
41,280 | 40,864 | 40,397 | 40,120 | 41,179 | 101 | | |||||||||||||||||||||
Allowance for loan and lease losses |
(746 | ) | (772 | ) | (783 | ) | (855 | ) | (908 | ) | 162 | (18 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net loans and leases |
40,534 | 40,092 | 39,614 | 39,265 | 40,271 | 263 | 1 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total earning assets |
51,156 | 50,960 | 50,682 | 51,330 | 51,050 | 106 | | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Cash and due from banks |
940 | 904 | 1,459 | 960 | 928 | 12 | 1 | |||||||||||||||||||||
Intangible assets |
563 | 571 | 581 | 597 | 609 | (46 | ) | (8 | ) | |||||||||||||||||||
All other assets |
3,976 | 4,065 | 4,115 | 4,106 | 4,158 | (182 | ) | (4 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total assets |
$ | 55,889 | $ | 55,728 | $ | 56,054 | $ | 56,138 | $ | 55,837 | $ | 52 | | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Liabilities and Shareholders Equity: |
||||||||||||||||||||||||||||
Deposits: |
||||||||||||||||||||||||||||
Demand depositsnoninterest-bearing |
$ | 12,879 | $ | 12,165 | $ | 13,121 | $ | 12,329 | $ | 12,064 | $ | 815 | 7 | % | ||||||||||||||
Demand depositsinterest-bearing |
5,927 | 5,977 | 5,843 | 5,814 | 5,939 | (12 | ) | | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total demand deposits |
18,806 | 18,142 | 18,964 | 18,143 | 18,003 | 803 | 4 | |||||||||||||||||||||
Money market deposits |
15,069 | 15,045 | 14,749 | 14,515 | 13,182 | 1,887 | 14 | |||||||||||||||||||||
Savings and other domestic deposits |
5,115 | 5,083 | 4,960 | 4,975 | 4,978 | 137 | 3 | |||||||||||||||||||||
Core certificates of deposit |
4,778 | 5,346 | 5,637 | 6,131 | 6,618 | (1,840 | ) | (28 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total core deposits |
43,768 | 43,616 | 44,310 | 43,764 | 42,781 | 987 | 2 | |||||||||||||||||||||
Other domestic time deposits of $250,000 or more |
324 | 360 | 359 | 300 | 298 | 26 | 9 | |||||||||||||||||||||
Brokered deposits and negotiable CDs |
1,779 | 1,697 | 1,756 | 1,878 | 1,421 | 358 | 25 | |||||||||||||||||||||
Deposits in foreign offices |
316 | 340 | 342 | 356 | 357 | (41 | ) | (11 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total deposits |
46,187 | 46,013 | 46,767 | 46,298 | 44,857 | 1,330 | 3 | |||||||||||||||||||||
Short-term borrowings |
701 | 762 | 1,012 | 1,329 | 1,391 | (690 | ) | (50 | ) | |||||||||||||||||||
Federal Home Loan Bank advances |
757 | 686 | 42 | 107 | 626 | 131 | 21 | |||||||||||||||||||||
Subordinated notes and other long-term debt |
1,292 | 1,348 | 1,374 | 1,638 | 2,251 | (959 | ) | (43 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total interest-bearing liabilities |
36,058 | 36,644 | 36,074 | 37,043 | 37,061 | (1,003 | ) | (3 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
All other liabilities |
1,064 | 1,085 | 1,017 | 1,035 | 1,094 | (30 | ) | (3 | ) | |||||||||||||||||||
Shareholders equity |
5,888 | 5,834 | 5,842 | 5,731 | 5,618 | 270 | 5 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total liabilities and shareholders equity |
$ | 55,889 | $ | 55,728 | $ | 56,054 | $ | 56,138 | $ | 55,837 | $ | 52 | | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | For purposes of this analysis, NALs are reflected in the average balances of loans. |
14
Table 5Consolidated Quarterly Net Interest Margin Analysis
Average Rates (2) | ||||||||||||||||||||
Fully-taxable equivalent basis (1) |
2013 | 2012 | ||||||||||||||||||
Second | First | Fourth | Third | Second | ||||||||||||||||
Assets |
||||||||||||||||||||
Interest-bearing deposits in banks |
0.27 | % | 0.16 | % | 0.28 | % | 0.21 | % | 0.31 | % | ||||||||||
Loans held for sale |
3.39 | 3.22 | 3.18 | 3.18 | 3.46 | |||||||||||||||
Securities: |
||||||||||||||||||||
Available-for-sale and other securities: |
||||||||||||||||||||
Taxable |
2.29 | 2.31 | 2.32 | 2.29 | 2.33 | |||||||||||||||
Tax-exempt |
3.94 | 3.96 | 4.03 | 4.15 | 4.23 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total available-for-sale and other securities |
2.42 | 2.43 | 2.43 | 2.39 | 2.41 | |||||||||||||||
Trading account securities |
0.60 | 0.50 | 1.01 | 1.07 | 1.64 | |||||||||||||||
Held-to-maturity securitiestaxable |
2.29 | 2.29 | 2.24 | 2.81 | 2.97 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total securities |
2.38 | 2.39 | 2.38 | 2.41 | 2.45 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Loans and leases: (3) |
||||||||||||||||||||
Commercial: |
||||||||||||||||||||
Commercial and industrial |
3.75 | 3.83 | 3.88 | 3.90 | 3.99 | |||||||||||||||
Commercial real estate: |
||||||||||||||||||||
Construction |
3.93 | 4.05 | 4.13 | 3.84 | 3.66 | |||||||||||||||
Commercial |
4.13 | 4.00 | 4.20 | 3.85 | 3.93 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Commercial real estate |
4.09 | 4.01 | 4.19 | 3.85 | 3.89 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total commercial |
3.83 | 3.87 | 3.96 | 3.89 | 3.97 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Consumer: |
||||||||||||||||||||
Automobile |
3.96 | 4.28 | 4.52 | 4.87 | 4.68 | |||||||||||||||
Home equity |
4.16 | 4.20 | 4.24 | 4.27 | 4.30 | |||||||||||||||
Residential mortgage |
3.82 | 3.97 | 4.07 | 4.02 | 4.14 | |||||||||||||||
Other consumer |
6.66 | 7.05 | 7.16 | 7.16 | 7.42 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total consumer |
4.07 | 4.22 | 4.33 | 4.40 | 4.43 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total loans and leases |
3.95 | 4.03 | 4.13 | 4.12 | 4.18 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total earning assets |
3.68 | % | 3.75 | % | 3.80 | % | 3.79 | % | 3.89 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Liabilities |
||||||||||||||||||||
Deposits: |
||||||||||||||||||||
Demand depositsnoninterest-bearing |
| % | | % | | % | | % | | % | ||||||||||
Demand depositsinterest-bearing |
0.04 | 0.04 | 0.05 | 0.07 | 0.07 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total demand deposits |
0.01 | 0.01 | 0.02 | 0.02 | 0.02 | |||||||||||||||
Money market deposits |
0.24 | 0.23 | 0.27 | 0.33 | 0.30 | |||||||||||||||
Savings and other domestic deposits |
0.27 | 0.30 | 0.33 | 0.37 | 0.39 | |||||||||||||||
Core certificates of deposit |
1.13 | 1.19 | 1.21 | 1.25 | 1.38 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total core deposits |
0.34 | 0.37 | 0.41 | 0.47 | 0.50 | |||||||||||||||
Other domestic time deposits of $250,000 or more |
0.50 | 0.52 | 0.61 | 0.68 | 0.66 | |||||||||||||||
Brokered deposits and negotiable CDs |
0.62 | 0.67 | 0.71 | 0.71 | 0.75 | |||||||||||||||
Deposits in foreign offices |
0.14 | 0.17 | 0.18 | 0.18 | 0.19 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total deposits |
0.36 | 0.38 | 0.42 | 0.48 | 0.51 | |||||||||||||||
Short-term borrowings |
0.10 | 0.12 | 0.14 | 0.16 | 0.16 | |||||||||||||||
Federal Home Loan Bank advances |
0.14 | 0.18 | 1.20 | 0.50 | 0.21 | |||||||||||||||
Subordinated notes and other long-term debt |
2.35 | 2.54 | 2.55 | 2.91 | 2.83 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total interest-bearing liabilities |
0.42 | % | 0.45 | % | 0.50 | % | 0.58 | % | 0.63 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net interest rate spread |
3.26 | % | 3.30 | % | 3.30 | % | 3.21 | % | 3.26 | % | ||||||||||
Impact of noninterest-bearing funds on margin |
0.12 | 0.12 | 0.15 | 0.17 | 0.16 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net interest margin |
3.38 | % | 3.42 | % | 3.45 | % | 3.38 | % | 3.42 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
(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. |
15
Table 6Average Loans/Leases and Deposits
Second Quarter | First Quarter | 2Q13 vs 2Q12 | 2Q13 vs 1Q13 | |||||||||||||||||||||||||
(dollar amounts in millions) |
2013 | 2012 | 2013 | Amount | Percent | Amount | Percent | |||||||||||||||||||||
Loans/Leases: |
||||||||||||||||||||||||||||
Commercial and industrial |
$ | 17,033 | $ | 16,094 | $ | 16,954 | $ | 939 | 6 | % | $ | 79 | | % | ||||||||||||||
Commercial real estate |
5,015 | 6,075 | 5,292 | (1,060 | ) | (17 | ) | (277 | ) | (5 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total commercial |
22,048 | 22,169 | 22,246 | (121 | ) | (1 | ) | (198 | ) | (1 | ) | |||||||||||||||||
Automobile |
5,283 | 4,985 | 4,833 | 298 | 6 | 450 | 9 | |||||||||||||||||||||
Home equity |
8,263 | 8,310 | 8,395 | (47 | ) | (1 | ) | (132 | ) | (2 | ) | |||||||||||||||||
Residential mortgage |
5,225 | 5,253 | 4,978 | (28 | ) | (1 | ) | 247 | 5 | |||||||||||||||||||
Other loans |
461 | 462 | 412 | (1 | ) | (0 | ) | 49 | 12 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total consumer |
19,232 | 19,010 | 18,618 | 222 | 1 | 614 | 3 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total loans and leases |
$ | 41,280 | $ | 41,179 | $ | 40,864 | $ | 101 | | % | $ | 416 | 1 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Deposits: |
||||||||||||||||||||||||||||
Demand depositsnoninterest-bearing |
$ | 12,879 | $ | 12,064 | $ | 12,165 | $ | 815 | 7 | % | $ | 714 | 6 | % | ||||||||||||||
Demand depositsinterest-bearing |
5,927 | 5,939 | 5,977 | (12 | ) | (0 | ) | (50 | ) | (1 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total demand deposits |
18,806 | 18,003 | 18,142 | 803 | 4 | 664 | 4 | |||||||||||||||||||||
Money market deposits |
15,069 | 13,182 | 15,045 | 1,887 | 14 | 24 | | |||||||||||||||||||||
Savings and other domestic time deposits |
5,115 | 4,978 | 5,083 | 137 | 3 | 32 | 1 | |||||||||||||||||||||
Core certificates of deposit |
4,778 | 6,618 | 5,346 | (1,840 | ) | (28 | ) | (568 | ) | (11 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total core deposits |
43,768 | 42,781 | 43,616 | 987 | 2 | 152 | | |||||||||||||||||||||
Other deposits |
2,419 | 2,076 | 2,397 | 343 | 17 | 22 | 1 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total deposits |
$ | 46,187 | $ | 44,857 | $ | 46,013 | $ | 1,330 | 3 | % | $ | 174 | | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 Second Quarter versus 2012 Second Quarter
Fully-taxable equivalent net interest income decreased $3.2 million, or 1%, from the year-ago quarter. This reflected a 4 basis point decrease in the FTE net interest margin, partially offset by a $0.1 billion, or less than 1%, increase in average total earning assets. The primary items impacting the decrease in the net interest margin were:
| 21 basis point negative impact from the mix and yield of earning assets primarily reflecting a decrease in consumer loan yields. |
Partially offset by:
| 16 basis point positive impact from the mix and yield of deposits reflecting the strategic focus on changing the funding sources to no-cost demand deposits and low cost money market deposits. |
The $0.1 billion, or less than 1%, increase in average total loans and leases primarily reflected:
| $0.9 billion, or 6%, growth in average C&I loans. This reflected the continued growth across most business lines, with particularly strong growth in the healthcare vertical, dealer floorplan, and equipment finance. |
| $0.3 billion, or 6%, increase in average automobile loans. In addition, $0.3 billion of automobile loans were transferred from held for sale to automobile loans and leases on June 30, as there are no securitizations expected for the remainder of 2013. This transfer had a minimal impact on average balances. |
Partially offset by:
| $1.1 billion, or 17%, decrease in average commercial real estate (CRE) loans. This reflected continued runoff of the noncore portfolio and managed reduction of the core portfolios as acceptable returns for new core origination were balanced against internal concentration limits and increased competition for projects sponsored by high quality developers. |
16
The $1.0 billion, or 3%, decrease in average interest-bearing liabilities from the year-ago quarter reflected:
| $1.5 billion, or 36%, decrease in subordinated notes and other short and long-term debt including the repayment of $0.6 billion of TLGP related debt and the redemption of $0.2 billion of trust preferred securities in 2012 second half. |
| $1.8 billion, or 28%, decrease in average core certificates of deposit due to the strategic focus on changing the funding sources to no-cost demand deposits and low cost money markets deposits. |
Partially offset by:
| $1.9 billion, or 14%, increase in money market deposits reflecting the strategic focus on increased share of wallet and customer preference for increased liquidity. |
2013 Second Quarter versus 2013 First Quarter
Fully-taxable equivalent net interest income increased $1.4 million, or less than 1%, from the last quarter reflecting a $0.2 billion increase in average earnings assets as well as an additional day in the quarter, partially offset by a 4 basis point decrease in net interest margin. The primary items affecting the net interest margin were:
| 7 basis point negative impact from the mix and yield of earning assets. |
Partially offset by:
| 2 basis point positive impact from the mix and yield of deposits. |
The $0.4 billion, or 1%, increase in average total loans and leases from the 2013 first quarter reflected:
| $0.5 billion, or 9%, increase in automobile loans. |
| $0.2 billion, or 5%, increase in residential mortgage loans. |
Partially offset by:
| $0.3 billion, or 5%, decrease in commercial real estate loans. |
The $0.6 billion, or 2%, decrease in average interest-bearing liabilities from the 2013 first quarter reflected:
| $0.6 billion, or 11%, decrease in core certificates of deposits. |
17
Table 7Consolidated YTD Average Balance Sheets and Net Interest Margin Analysis
YTD Average Balances | YTD Average Rates (2) | |||||||||||||||||||||||
Fully-taxable equivalent basis (1) | Six Months Ended June 30, | Change | Six Months Ended June 30, | |||||||||||||||||||||
(dollar amounts in millions) |
2013 | 2012 | Amount | Percent | 2013 | 2012 | ||||||||||||||||||
Assets: |
||||||||||||||||||||||||
Interest-bearing deposits in banks |
$ | 78 | $ | 112 | $ | (34 | ) | (30 | )% | 0.22 | % | 0.19 | % | |||||||||||
Loans held for sale |
694 | 837 | (143 | ) | (17 | ) | 3.35 | 3.71 | ||||||||||||||||
Securities: |
||||||||||||||||||||||||
Available-for-sale and other securities: |
||||||||||||||||||||||||
Taxable |
6,845 | 8,228 | (1,383 | ) | (17 | ) | 2.30 | 2.36 | ||||||||||||||||
Tax-exempt |
570 | 396 | 174 | 44 | 3.95 | 4.20 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total available-for-sale and other securities |
7,415 | 8,624 | (1,209 | ) | (14 | ) | 3.95 | 4.20 | ||||||||||||||||
Trading account securities |
85 | 52 | 33 | 63 | 0.55 | 1.65 | ||||||||||||||||||
Held-to-maturity securitiestaxable |
1,714 | 622 | 1,092 | 176 | 2.29 | 2.98 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total securities |
9,214 | 9,298 | (84 | ) | (1 | ) | 2.38 | 2.47 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loans and leases: (3) |
||||||||||||||||||||||||
Commercial: |
||||||||||||||||||||||||
Commercial and industrial |
16,994 | 15,458 | 1,536 | 10 | 3.79 | 4.00 | ||||||||||||||||||
Commercial real estate: |
||||||||||||||||||||||||
Construction |
592 | 591 | 1 | | 3.99 | 3.76 | ||||||||||||||||||
Commercial |
4,561 | 5,373 | (812 | ) | (15 | ) | 4.06 | 3.88 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Commercial real estate |
5,153 | 5,964 | (811 | ) | (14 | ) | 4.06 | 3.87 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total commercial |
22,147 | 21,422 | 725 | 3 | 3.85 | 3.96 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Consumer: |
||||||||||||||||||||||||
Automobile |
5,058 | 4,781 | 277 | 6 | 4.11 | 4.77 | ||||||||||||||||||
Home equity |
8,277 | 8,272 | 5 | | 4.17 | 4.30 | ||||||||||||||||||
Residential mortgage |
5,102 | 5,214 | (112 | ) | (2 | ) | 3.89 | 4.15 | ||||||||||||||||
Other consumer |
488 | 473 | 15 | 3 | 6.76 | 7.44 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total consumer |
18,925 | 18,740 | 185 | 1 | 4.15 | 4.46 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total loans and leases |
41,072 | 40,162 | 910 | 2 | 3.99 | 4.20 | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Allowance for loan and lease losses |
(758 | ) | (934 | ) | 176 | (19 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Net loans and leases |
40,314 | 39,228 | 1,086 | 3 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total earning assets |
51,058 | 50,409 | 649 | 1 | 3.71 | % | 3.90 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and due from banks |
922 | 970 | (48 | ) | (5 | ) | ||||||||||||||||||
Intangible assets |
567 | 611 | (44 | ) | (7 | ) | ||||||||||||||||||
All other assets |
4,020 | 4,191 | (171 | ) | (4 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total assets |
$ | 55,809 | $ | 55,247 | $ | 562 | 1 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Liabilities and Shareholders Equity: |
||||||||||||||||||||||||
Deposits: |
||||||||||||||||||||||||
Demand depositsnoninterest-bearing |
$ | 12,524 | $ | 11,668 | $ | 856 | 7 | % | | % | | % | ||||||||||||
Demand depositsinterest-bearing |
5,952 | 5,792 | 160 | 3 | 0.04 | 0.06 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total demand deposits |
18,476 | 17,460 | 1,016 | 6 | 0.01 | 0.02 | ||||||||||||||||||
Money market deposits |
15,057 | 13,162 | 1,895 | 14 | 0.23 | 0.28 | ||||||||||||||||||
Savings and other domestic deposits |
5,099 | 4,898 | 201 | 4 | 0.29 | 0.42 | ||||||||||||||||||
Core certificates of deposit |
5,060 | 6,564 | (1,504 | ) | (23 | ) | 1.16 | 1.49 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total core deposits |
43,692 | 42,084 | 1,608 | 4 | 0.36 | 0.52 | ||||||||||||||||||
Other domestic time deposits of $250,000 or more |
342 | 323 | 19 | 6 | 0.51 | 0.67 | ||||||||||||||||||
Brokered deposits and negotiable CDs |
1,738 | 1,361 | 377 | 28 | 0.65 | 0.77 | ||||||||||||||||||
Deposits in foreign offices |
328 | 393 | (65 | ) | (17 | ) | 0.15 | 0.19 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total deposits |
46,100 | 44,161 | 1,939 | 4 | 0.37 | 0.53 | ||||||||||||||||||
Short-term borrowings |
732 | 1,451 | (719 | ) | (50 | ) | 0.11 | 0.16 | ||||||||||||||||
Federal Home Loan Bank advances |
722 | 523 | 199 | 38 | 0.16 | 0.21 | ||||||||||||||||||
Subordinated notes and other long-term debt |
1,320 | 2,452 | (1,132 | ) | (46 | ) | 2.45 | 2.78 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total interest-bearing liabilities |
36,350 | 36,919 | (569 | ) | (2 | ) | 0.44 | 0.66 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
All other liabilities |
1,074 | 1,105 | (31 | ) | (3 | ) | ||||||||||||||||||
Shareholders equity |
5,861 | 5,555 | 306 | 6 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total liabilities and shareholders equity |
$ | 55,809 | $ | 55,247 | $ | 562 | 1 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Net interest rate spread |
3.28 | 3.24 | ||||||||||||||||||||||
Impact of noninterest-bearing funds on margin |
0.12 | 0.17 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Net interest margin |
3.40 | % | 3.41 | % | ||||||||||||||||||||
|
|
|
|
(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. |
18
2013 First Six Months versus 2012 First Six Months
Fully-taxable equivalent net interest income for the first six-month period of 2013 increased $5.8 million, or less than 1%, from the comparable year-ago period. This reflected the benefit of a $0.6 billion, or 1%, increase in average total earning assets. The fully-taxable equivalent net interest margin decreased to 3.40% from 3.41%. The increase in average earning assets reflected:
| $0.9 billion, or 2%, increase in average total loans and leases. |
The following table details the change in our reported loans and deposits:
Table 8Average Loans/Leases and Deposits 2013 First Six Months vs. 2012 First Six Months
Six Months Ended June 30, | Change | |||||||||||||||
(dollar amounts in millions) |
2013 (1) | 2012 | Amount | Percent | ||||||||||||
Loans/Leases: |
||||||||||||||||
Commercial and industrial |
$ | 16,994 | $ | 15,458 | $ | 1,536 | 10 | % | ||||||||
Commercial real estate |
5,153 | 5,964 | (811 | ) | (14 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total commercial |
22,147 | 21,422 | 725 | 3 | ||||||||||||
Automobile |
5,058 | 4,781 | 277 | 6 | ||||||||||||
Home equity |
8,277 | 8,272 | 5 | | ||||||||||||
Residential mortgage |
5,102 | 5,214 | (112 | ) | (2 | ) | ||||||||||
Other consumer |
488 | 473 | 15 | 3 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total consumer |
18,925 | 18,740 | 185 | 1 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total loans and leases |
$ | 41,072 | $ | 40,162 | $ | 910 | 2 | % | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Deposits: |
||||||||||||||||
Demand depositsnoninterest-bearing |
$ | 12,524 | $ | 11,668 | $ | 856 | 7 | % | ||||||||
Demand depositsinterest-bearing |
5,952 | 5,792 | 160 | 3 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total demand deposits |
18,476 | 17,460 | 1,016 | 6 | ||||||||||||
Money market deposits |
15,057 | 13,162 | 1,895 | 14 | ||||||||||||
Savings and other domestic deposits |
5,099 | 4,898 | 201 | 4 | ||||||||||||
Core certificates of deposit |
5,060 | 6,564 | (1,504 | ) | (23 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total core deposits |
43,692 | 42,084 | 1,608 | 4 | ||||||||||||
Other deposits |
2,408 | 2,077 | 331 | 16 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total deposits |
$ | 46,100 | $ | 44,161 | $ | 1,939 | 4 | % | ||||||||
|
|
|
|
|
|
|
|
(1) | The acquisition of Fidelity Bank on March 30, 2012, contributed to the increase in average loans and deposits. |
The $0.9 billion, or 2%, increase in average total loans and leases primarily reflected:
| $1.5 billion, or 10%, increase in the average C&I portfolio, primarily reflecting a combination of factors, including growth across multiple business lines including healthcare vertical, dealer floorplan, and equipment finance. |
| $0.3 billion, or 6%, increase in the average automobile portfolio. While having a minimal impact on average balances, $0.3 billion of automobile loans were transferred from held for sale to automobile loan and leases on June 30, 2013, as there are no securitizations expected for the remainder of 2013. |
Partially offset by:
| $0.8 billion, or 14%, decline in the average CRE loans. This reflected continued runoff of the noncore and core portfolios as we balanced acceptable returns for new core origination against internal concentration limits and increased competition, particularly pricing, for high quality developers and projects. |
19
The $1.9 billion, or 4%, increase in average total deposits reflected:
| $1.9 billion, or 14%, increase in money market deposits. |
| $1.0 billion, or 6%, increase in total demand deposits. |
Partially offset by:
| $1.5 billion, or 23%, decline in core certificates of deposits. |
20
Provision for Credit Losses
(This section should be read in conjunction with 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 2013 second quarter declined $4.9 million, or 16%, from the prior quarter and declined $11.8 million, or 32%, from the year-ago quarter. The provision for credit losses for the first six-month period of 2013 declined $16.6 million, or 23%, compared with the first six-month period of 2012. The current quarters provision for credit losses was $10.1 million less than total NCOs, and the provision for credit losses for the first six-month period of 2013 was $32.2 million less than total NCOs for the same period. (See Credit Quality discussion). Given the absolute low level of the provision for credit losses and the uncertain and uneven nature of the economic recovery, some degree of volatility on a quarter-to-quarter basis is expected.
Noninterest Income
(This section should be read in conjunction with Significant Item 2.)
The following table reflects noninterest income for each of the past five quarters:
Table 9Noninterest Income
2013 | 2012 | 2Q13 vs 2Q12 | 2Q13 vs 1Q13 | |||||||||||||||||||||||||||||||||
(dollar amounts in thousands) |
Second | First | Fourth | Third | Second | Amount | Percent | Amount | Percent | |||||||||||||||||||||||||||
Service charges on deposit accounts |
$ | 68,009 | $ | 60,883 | $ | 68,083 | $ | 67,806 | $ | 65,998 | $ | 2,011 | 3 | % | $ | 7,126 | 12 | % | ||||||||||||||||||
Mortgage banking income |
33,659 | 45,248 | 61,711 | 44,614 | 38,349 | (4,690 | ) | (12 | ) | (11,589 | ) | (26 | ) | |||||||||||||||||||||||
Trust services |
30,666 | 31,160 | 31,388 | 29,689 | 29,914 | 752 | 3 | (494 | ) | (2 | ) | |||||||||||||||||||||||||
Electronic banking |
23,345 | 20,713 | 21,011 | 22,135 | 20,514 | 2,831 | 14 | 2,632 | 13 | |||||||||||||||||||||||||||
Brokerage income |
19,546 | 17,995 | 17,415 | 16,526 | 19,025 | 521 | 3 | 1,551 | 9 | |||||||||||||||||||||||||||
Insurance income |
17,187 | 19,252 | 17,268 | 17,792 | 17,384 | (197 | ) | (1 | ) | (2,065 | ) | (11 | ) | |||||||||||||||||||||||
Gain on sale of loans |
3,348 | 2,616 | 20,690 | 6,591 | 4,131 | (783 | ) | (19 | ) | 732 | 28 | |||||||||||||||||||||||||
Bank owned life insurance income |
15,421 | 13,442 | 13,767 | 14,371 | 13,967 | 1,454 | 10 | 1,979 | 15 | |||||||||||||||||||||||||||
Capital markets fees |
12,229 | 7,834 | 12,694 | 11,596 | 13,260 | (1,031 | ) | (8 | ) | 4,395 | 56 | |||||||||||||||||||||||||
Securities gains (losses) |
(410 | ) | (509 | ) | 863 | 4,169 | 350 | (760 | ) | (217 | ) | 99 | (19 | ) | ||||||||||||||||||||||
Other income |
25,655 | 33,575 | 32,761 | 25,778 | 30,927 | (5,272 | ) | (17 | ) | (7,920 | ) | (24 | ) | |||||||||||||||||||||||
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Total noninterest income |
$ | 248,655 | $ | 252,209 | $ | 297,651 | $ | 261,067 | $ | 253,819 | $ | (5,164 | ) | (2 | )% | $ | (3,554 | ) | (1 | )% | ||||||||||||||||
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2013 Second Quarter versus 2012 Second Quarter
The $5.2 million, or 2%, decrease in total noninterest income from the year-ago quarter reflected:
| $5.3 million, or 17%, decrease in other noninterest income including a $4.3 million reduction in gains on the sale of Low Income Housing Tax Credit investments. |
| $4.7 million, or 12%, decrease in mortgage banking income as the benefit of net mortgage servicing rights decreased by $2.5 million while origination and secondary marketing income declined $2.3 million primarily due to lower spreads. |
Partially offset by:
| $2.8 million, or 14%, increase in electronic banking. |
| $1.5 million, or 10%, increase in bank owned life insurance income. |
2013 Second Quarter versus 2013 First Quarter
The $3.6 million, or 1%, decrease in total noninterest income from the prior quarter reflected:
| $11.6 million, or 26%, decrease in mortgage banking income as the benefit of net mortgage servicing rights decreased by $11.6 million. |
| $7.9 million, or 24%, decrease in other noninterest income as the prior quarter included a $7.6 million gain on the sale of Low Income Housing Tax Credit investments. |
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Partially offset by:
| $7.1 million, or 12%, increase in service charges on deposit accounts which reflect yearly seasonality trends in customer activity and an 8% annualized growth in consumer checking households. |
| $4.4 million, or 56%, increase in capital markets activity. |
| $2.6 million, or 13%, increase in electronic banking. |
2013 First Six Months versus 2012 First Six Months
Noninterest income for the first six-month period of 2013 decreased $38.3 million, or 7%, from the comparable year-ago period.
Table 10Noninterest Income2013 First Six Months vs. 2012 First Six Months
Six Months Ended June 30, | Change | |||||||||||||||
(dollar amounts in thousands) |
2013 | 2012 | Amount | Percent | ||||||||||||
Service charges on deposit accounts |
$ | 128,892 | $ | 126,290 | $ | 2,602 | 2 | % | ||||||||
Mortgage banking income |
78,907 | 84,767 | (5,860 | ) | (7 | ) | ||||||||||
Trust services |
61,826 | 60,820 | 1,006 | 2 | ||||||||||||
Electronic banking |
44,058 | 39,144 | 4,914 | 13 | ||||||||||||
Brokerage income |
37,541 | 38,285 | (744 | ) | (2 | ) | ||||||||||
Insurance income |
36,439 | 36,259 | 180 | | ||||||||||||
Gain on sale of loans |
5,964 | 30,901 | (24,937 | ) | (81 | ) | ||||||||||
Bank owned life insurance income |
28,863 | 27,904 | 959 | 3 | ||||||||||||
Capital markets fees |
20,063 | 23,056 | (2,993 | ) | (13 | ) | ||||||||||
Securities gains (losses) |
(919 | ) | (263 | ) | (656 | ) | N.M. | |||||||||
Other income |
59,230 | 71,976 | (12,746 | ) | (18 | ) | ||||||||||
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Total noninterest income |
$ | 500,864 | $ | 539,139 | $ | (38,275 | ) | (7 | )% | |||||||
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The $38.3 million, or 7%, decrease in total noninterest income reflected:
| $24.9 million, or 81%, decrease in gain on sale of loans, primarily related to the year-ago periods automobile loan securitization. |
| $12.7 million, or 18%, decrease in other noninterest income, primarily related to prior years $11.4 million bargain purchase gain from the FDIC-assisted Fidelity Bank acquisition and due to auto operating lease portfolio run off. |
| $5.9 million, or 7%, decrease in mortgage banking income. This primarily reflected a $6.2 million decrease in origination and secondary marketing income. |
Partially offset by:
| $4.9 million, or 13%, increase in electronic banking income, primarily reflecting the seasonality and increase in debit card usage. |
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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 11Noninterest Expense
2013 | 2012 | 2Q13 vs 2Q12 | 2Q13 vs 1Q13 | |||||||||||||||||||||||||||||||||
(dollar amounts in thousands) |
Second | First | Fourth | Third | Second | Amount | Percent | Amount | Percent | |||||||||||||||||||||||||||
Personnel costs |
$ | 263,862 | $ | 258,895 | $ | 253,952 | $ | 247,709 | $ | 243,034 | $ | 20,828 | 9 | % | $ | 4,967 | 2 | % | ||||||||||||||||||
Outside data processing and other services |
49,898 | 49,265 | 48,699 | 50,396 | 48,568 | 1,330 | 3 | 633 | 1 | |||||||||||||||||||||||||||
Net occupancy |
27,656 | 30,114 | 29,008 | 27,599 | 25,474 | 2,182 | 9 | (2,458 | ) | (8 | ) | |||||||||||||||||||||||||
Equipment |
24,947 | 24,880 | 26,580 | 25,950 | 24,872 | 75 | | 67 | | |||||||||||||||||||||||||||
Deposit and other insurance expense |
13,460 | 15,490 | 16,327 | 15,534 | 15,731 | (2,271 | ) | (14 | ) | (2,030 | ) | (13 | ) | |||||||||||||||||||||||
Professional services |
9,341 | 7,192 | 22,514 | 17,510 | 15,037 | (5,696 | ) | (38 | ) | 2,149 | 30 | |||||||||||||||||||||||||
Marketing |
14,239 | 10,971 | 16,456 | 16,842 | 17,396 | (3,157 | ) | (18 | ) | 3,268 | 30 | |||||||||||||||||||||||||
Amortization of intangibles |
10,362 | 10,320 | 11,647 | 11,431 | 11,940 | (1,578 | ) | (13 | ) | 42 | | |||||||||||||||||||||||||
OREO and foreclosure expense |
(271 | ) | 2,666 | 4,233 | 4,982 | 4,106 | (4,377 | ) | (107 | ) | (2,937 | ) | (110 | ) | ||||||||||||||||||||||
Loss (Gain) on early extinguishment of debt |
| | | 1,782 | (2,580 | ) | 2,580 | (100 | ) | | | |||||||||||||||||||||||||
Other expense |
32,371 | 33,000 | 41,212 | 38,568 | 40,691 | (8,320 | ) | (20 | ) | (629 | ) | (2 | ) | |||||||||||||||||||||||
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Total noninterest expense |
$ | 445,865 | $ | 442,793 | $ | 470,628 | $ | 458,303 | $ | 444,269 | $ | 1,596 | | % | $ | 3,072 | 1 | % | ||||||||||||||||||
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Number of employees (full-time equivalent), at period-end |
12,155 | 12,052 | 11,806 | 11,731 | 11,417 | 738 | 6 | 103 | 1 |
2013 Second Quarter versus 2012 Second Quarter
The $1.6 million, or less than 1%, increase in total noninterest expense from the year-ago quarter reflected:
| $20.8 million, or 9%, increase in personnel costs, reflecting increased salaries and benefits and a 6% increase in the number of full-time equivalent employees, primarily reflecting growth in the in-store initiative and mortgage business. |
Partially offset by:
| $8.3 million, or 20%, decrease in other expense, reflecting lower representations and warranties-related expenses and lower litigation expense. |
| $5.7 million, or 38%, decrease in professional services, reflecting a decrease in legal and outside consultant expenses. |
| $4.4 million, or 107%, decline in OREO and foreclosure expense, as there were net recoveries of $0.3 million during the 2013 second quarter. |
| $3.2 million, or 18%, decrease in marketing, primarily reflecting the refinement of targeted marketing programs and reduced promotional offers. |
2013 Second Quarter versus 2013 First Quarter
The $3.1 million, or 1%, increase in total noninterest expense from the prior quarter reflected:
| $5.0 million, or 2%, increase in personnel costs reflecting higher commission expense. |
| $3.3 million, or 30%, seasonal increase in marketing. |
Partially offset by:
| $2.9 million, or 110%, decrease in OREO and foreclosure. |
| $2.0 million, or 13%, decrease in deposit and other insurance expense. |
2013 First Six Months versus 2012 First Six Months
Noninterest expense for the first six-month period of 2013 decreased $18.3 million, or 2%, from the comparable year-ago period.
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Table 12Noninterest Expense2013 First Six Months vs. 2012 First Six Months
Six Months Ended June 30, | Change | |||||||||||||||
(dollar amounts in thousands) |
2013 | 2012 | Amount | Percent | ||||||||||||
Personnel costs |
$ | 522,757 | $ | 486,532 | $ | 36,225 | 7 | % | ||||||||
Outside data processing and other services |
99,163 | 91,160 | 8,003 | 9 | ||||||||||||
Net occupancy |
57,770 | 54,553 | 3,217 | 6 | ||||||||||||
Equipment |
49,827 | 50,417 | (590 | ) | (1 | ) | ||||||||||
Deposit and other insurance expense |
28,950 | 36,469 | (7,519 | ) | (21 | ) | ||||||||||
Professional services |
16,533 | 25,734 | (9,201 | ) | (36 | ) | ||||||||||
Marketing |
25,210 | 30,965 | (5,755 | ) | (19 | ) | ||||||||||
Amortization of intangibles |
20,682 | 23,471 | (2,789 | ) | (12 | ) | ||||||||||
OREO and foreclosure expense |
2,395 | 9,056 | (6,661 | ) | (74 | ) | ||||||||||
Gain on early extinguishment of debt |
| (2,580 | ) | 2,580 | N.M. | |||||||||||
Other expense |
65,371 | 101,168 | (35,797 | ) | (35 | ) | ||||||||||
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Total noninterest expense |
$ | 888,658 | $ | 906,945 | $ | (18,287 | ) | (2 | )% | |||||||
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Number of employees (full-time equivalent), at period-end |
12,155 | 11,417 | 738 | 6 | % |
The $18.3 million, or 2%, decrease in total noninterest expense reflected:
| $35.8 million, or 35%, decrease in other expense, primarily reflecting a decrease in operating lease expense as the automobile lease portfolio continues to run off and is expected to be essentially zero by the end of the year and the decrease in the provision for mortgage representations and warranties. The year-ago periods included a $23.5 million addition to litigation reserves. |
| $9.2 million, or 36%, decrease in professional services. |
| $7.5 million, or 21%, decrease in deposit and other insurance, reflecting lower insurance premiums. |
Partially offset by:
| $36.2 million, or 7%, increase in personnel costs, primarily reflecting an increase in bonuses, commissions, and full-time equivalent employees, as well as increased salaries and benefits. |
| $8.0 million, or 9%, increase in outside data processing and other services primarily related to continued IT infrastructure investments. |
Provision for Income Taxes
The provision for income taxes in the 2013 second quarter was $52.4 million and $49.3 million in the 2012 second quarter. The provision for income taxes for the six month periods ended June 30, 2013 and June 30, 2012 was $104.6 million and $101.5 million, respectively. Both quarters included the benefits from tax-exempt income, tax-advantaged investments, and general business credits. At June 30, 2013, we had a net federal deferred tax asset of $159.0 million and a net state deferred tax asset of $39.7 million. At December 31, 2012, we had a net federal deferred tax asset of $171.4 million and a net state deferred tax asset of $32.4 million. Based on both positive and negative evidence and our level of forecasted future taxable income, there was no impairment to the net deferred tax asset at June 30, 2013 and December 31, 2012. As of June 30, 2013 and December 31, 2012, there was no disallowed deferred tax asset for regulatory capital purposes.
We file income tax returns with the IRS and various state, city, and foreign jurisdictions. Federal income tax audits have been completed for tax years through 2009. We have appealed certain proposed adjustments resulting from the IRS examination of our 2006, 2007, 2008 and 2009 tax returns. We believe the tax positions taken related to such proposed adjustments are correct and supported by applicable statutes, regulations, and judicial authority, and intend to vigorously defend them. In 2011, we entered into discussions with the Appeals Division of the IRS for the 2006 and 2007 tax returns. 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. Nevertheless, although no assurances 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. In the first quarter of 2013, the IRS began an examination of our 2010 and 2011 consolidated federal income tax returns. Various state and other jurisdictions remain open to examination, including Kentucky, Indiana, Michigan, Pennsylvania, West Virginia, and Illinois.
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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