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, 2015
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 803,065,757 shares of Registrants common stock ($0.01 par value) outstanding on June 30, 2015.
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:
ABL | Asset Based Lending | |
ACL | Allowance for Credit Losses | |
AFCRE | Automobile Finance and Commercial Real Estate | |
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 | |
Basel III | Refers to the final rule issued by the FRB and OCC and published in the Federal Register on October 11, 2013 | |
C&I | Commercial and Industrial | |
Camco Financial | Camco Financial Corp. | |
CCAR | Comprehensive Capital Analysis and Review | |
CDO | Collateralized Debt Obligations | |
CDs | Certificate of Deposit | |
CET1 | Common equity tier 1 on a transitional Basel III basis | |
CFPB | Bureau of Consumer Financial Protection | |
CFTC | Commodity Futures Trading Commission | |
CMO | Collateralized Mortgage Obligations | |
CRE | Commercial Real Estate | |
Dodd-Frank Act | Dodd-Frank Wall Street Reform and Consumer Protection Act | |
DTA/DTL | Deferred Tax Asset/Deferred Tax Liability | |
EFT | Electronic Fund Transfer | |
EPS | Earnings Per Share | |
EVE | Economic Value of Equity | |
FASB | Financial Accounting Standards Board | |
Fannie Mae | (see FNMA) | |
FDIC | Federal Deposit Insurance Corporation | |
FDICIA | Federal Deposit Insurance Corporation Improvement Act of 1991 | |
FHA | Federal Housing Administration | |
FHLB | Federal Home Loan Bank | |
FHLMC | Federal Home Loan Mortgage Corporation | |
FICO | Fair Isaac Corporation | |
FNMA | Federal National Mortgage Association | |
FRB | Federal Reserve Bank | |
Freddie Mac | (see FHLMC) | |
FTE | Fully-Taxable Equivalent | |
FTP | Funds Transfer Pricing | |
GAAP | Generally Accepted Accounting Principles in the United States of America | |
GNMA | Government National Mortgage Association, or Ginnie Mae | |
HAMP | Home Affordable Modification Program |
3
4
U.S. Treasury | U.S. Department of the Treasury | |
UCS | Uniform Classification System | |
UDAP | Unfair or Deceptive Acts or Practices | |
UPB | Unpaid Principal Balance | |
USDA | U.S. Department of Agriculture | |
VIE | Variable Interest Entity | |
XBRL | eXtensible Business Reporting Language |
5
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 149 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, insurance service programs, and other financial products and services. Our 735 branches are located in Ohio, Michigan, Pennsylvania, Indiana, West Virginia, and Kentucky. 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 2014 Form 10-K should be read in conjunction with this MD&A as this discussion provides only material updates to the 2014 Form 10-K. This MD&A should also be read in conjunction with the Unaudited Condensed Consolidated Financial Statements, Notes to Unaudited Condensed Consolidated Financial Statements, and other information contained in this report.
Our discussion is divided into key segments:
|
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 next several quarters. |
|
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. |
|
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. |
|
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. |
|
Additional Disclosures Provides comments on important matters including forward-looking statements, critical accounting policies and use of significant estimates, and recent accounting pronouncements and developments. |
A reading of each section is important to understand fully the nature of our financial performance and prospects.
6
Summary of 2015 Second Quarter Results Compared to 2014 Second Quarter
For the quarter, we reported net income of $196.2 million, or $0.23 per common share, compared with $164.6 million, or $0.19 per common share, in the year-ago quarter ( see Table 1 ).
Fully-taxable equivalent net interest income was $498.6 million, up $32.0 million, or 7%. The results reflected the benefit from a $5.5 billion, or 10%, increase in average earning assets, partially offset by an 8 basis point reduction in the net interest margin to 3.20%. Average earning asset growth included a $2.9 billion, or 6%, increase in average loans and leases, a $1.6 billion, or 14%, increase in average securities, and a $1.0 billion increase in average loans held-for-sale. The NIM contraction reflected an 8 basis point decrease related to the mix and yield of earning assets and a 2 basis point increase in funding costs, partially offset by a 2 basis point increase in the benefit from noninterest-bearing funds. While not affecting average balances, $0.8 billion of bank-level senior debt was issued at the end of the 2015 second quarter.
The provision for credit losses was $20.4 million, down $9.0 million, or 31%. NCOs were $25.4 million, down $3.3 million, or 11%. NCOs represented an annualized 0.21% of average loans and leases in the current quarter down from 0.25%. We remain pleased with the net charge-off performance across the entire portfolio. Consumer credit metrics continue to show an improving trend, while the commercial portfolios continue to experience some quarter-to-quarter volatility.
Noninterest income was $281.8 million, up $31.7 million, or 13%. The increase primarily reflected an increase in mortgage banking income of $15.8 million, or 70%, including an increase in origination and secondary marketing revenues, reflecting a higher gain on sale margin, and a net benefit from MSR hedging activities. In addition, other noninterest income increased $8.6 million, or 24%, primarily reflecting equipment operating lease income related to Macquarie Equipment Finance, which we have re-branded Huntington Technology Finance (HTF). Also, gain on sale of loans increased $8.5 million, or 218%, including the $5.3 million gain from the $0.8 billion automobile loan securitization and sale completed in the 2015 second quarter.
Noninterest expense was $491.8 million, up $33.1 million, or 7%. The increase primarily reflected an increase in personnel costs of $21.5 million, or 8%, reflecting the May implementation of annual merit increases, the addition of HTF employees, and an increase in benefits expense. In addition, other noninterest expense increased $7.8 million, or 23%, primarily reflecting operating lease expense related to HTF.
The tangible common equity to tangible assets ratio was 7.91% at June 30, 2015, down 47 basis points. On a Basel III transitional basis, the regulatory common equity tier 1 (CET1) risk-based capital ratio was 9.65% at June 30, 2015, and the regulatory tier 1 risk-based capital ratio was 10.41%. On a Basel I basis, the tier 1 common risk-based capital ratio was 10.26% at June 30, 2014, and the regulatory tier 1 risk-based capital ratio was 11.56%. All capital ratios were impacted by the repurchase of 22.8 million common shares over the last four quarters.
Business Overview
General
Our general business objectives are: (1) grow net interest income and fee income, (2) deliver positive operating leverage, (3) increase primary relationships across all business segments, (4) continue to strengthen risk management and reduce volatility, and (5) maintain strong capital and liquidity positions.
We reported good quarterly earnings that are increasingly being driven by our differentiated strategy and disciplined execution. Total revenue increased 9% year-over-year with net interest income and fee income contributing meaningfully to revenue performance. We received an immediate benefit to our earnings from HTF, while robust mortgage lending volume drove growth in mortgage banking income. Our capital markets and treasury management businesses, among others, also produced strong results.
The success we are seeing on the revenue front provides us the important opportunity to invest further in our business, though we continue to pace these investments to ensure attainment of full-year positive operating leverage. We also remain pleased with the credit performance of our portfolio.
Economy
Our regional economy has experienced strong growth, generally in line with or exceeding the national average. Economic and employment growth in some of our large metro areas has been well above the national average. Resulting in part from cyclically high vehicle sales and production, economic growth has been especially strong in Michigan and Indiana. Ohios diverse economy should benefit from a strong services sector and rising domestic demand for automobiles and other Ohio produced products. The diverse economies of Pennsylvania and Kentucky are fundamentally strong and expected to continue solid growth into next year.
7
Low energy prices are generally a net benefit to the large manufacturing economies of Michigan, Ohio and Indiana, as much of the manufacturing in these areas has high petroleum inputs. However, low energy prices have been more challenging for high energy production areas. These areas are generally concentrated in localities in Eastern Ohio, Western Pennsylvania and especially in West Virginia where low coal prices have had a relatively large macroeconomic impact.
Home purchase prices are rising in our footprint states and the nation. In addition, office vacancy rates in our largest MSAs continue to improve. Further, industrial vacancy rates in most of our largest footprint MSAs have been below the national average, reflecting generally healthy industrial real estate markets.
Legislative and Regulatory
Regulatory reforms continue to be adopted, including the 2015 first quarter implementation of the Basel III regulatory capital requirements.
Basel III Regulatory Capital Requirements In 2013, the Federal Reserve voted to adopt final capital rules implementing Basel III requirements for U.S. Banking organizations, which were effective for us beginning January 1, 2015. The final rules establish an integrated regulatory capital framework and 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. Consistent with the international Basel framework, the final rule includes a new regulatory minimum ratio of common equity tier 1 capital to risk-weighted assets. The rule also raises the minimum ratio of tier 1 capital to risk-weighted assets and includes a minimum leverage ratio of 4%. The Basel III capital rules establish two methodologies for calculating risk-weighted assets, the advanced and standardized approaches. We are subject to the standardized approach for calculating risk-weighted assets. The implementation of the Basel III capital requirements is transitional and phases-in through the end of 2018.
Conforming Covered Activities to Implement the Volcker Rule On December 10, 2013, the Federal Reserve, the OCC, the FDIC, the CFTC and the SEC issued final rules to implement the Volcker Rule contained in section 619 of the Dodd-Frank Act, and established July 21, 2015, as the end of the conformance period. The Volcker Rule prohibits an insured depository institution and any company that controls an insured depository institution (such as a bank holding company), and any of their subsidiaries and affiliates (referred to as banking entities) from: (i) engaging in proprietary trading and (ii) investing in or sponsoring certain types of funds (covered funds) subject to certain limited exceptions. These prohibitions impact the ability of U.S. banking entities to provide investment management products and services that are competitive with nonbanking firms generally and with non-U.S. banking organizations in overseas markets. The rule also effectively prohibits short-term trading strategies by any U.S. banking entity if those strategies involve instruments other than those specifically permitted for trading. Because the Company has over $50 billion in assets, it is subject to Volcker enhanced compliance requirements. As such the company has completed Volcker Rule due diligence, built its compliance program, and implemented training and on-going reporting requirements. Huntington believes it has achieved required conformance on July 21, 2015 and will deliver the required attestation on or before March 31, 2016.
Expectations 2015
We are bullish about the Midwest economy creating increasing opportunities for us with both our consumer and business customers. We saw momentum build across our businesses as loan and deposit growth accelerated in the back half of the quarter and our pipelines grew. We will continue to grow our loan portfolio prudently while remaining aligned with our aggregate moderate-to-low risk appetite. We also will deliver full-year positive operating leverage as we balance investment in the businesses for the long term, including digital technology, data analytics, and in-store branches, with the near-term revenue outlook.
The commitment to positive operating leverage for full-year 2015, excluding Significant Items and net MSR activity, is both inclusive and exclusive of the impact of HTF. We continue to expect noninterest expense growth of 2-4% for the year, excluding Significant Items and the recurring expense related to HTF. On a reported basis, we expect quarterly noninterest expense will remain near the 2015 second quarter level for the remainder of 2015.
Overall, asset quality metrics are expected to remain near current levels across the portfolio. Moderate quarterly volatility is expected given the absolute low level of problem assets and credit costs. We anticipate NCOs will remain within or below our long-term normalized range of 35 to 55 basis points.
The effective tax rate for the remainder of 2015 is expected to be in the range of 24% to 27%.
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.
Table 1Selected Quarterly Income Statement Data (1)
2015 | 2014 | |||||||||||||||||||
(dollar amounts in thousands, except per share amounts) |
Second | First | Fourth | Third | Second | |||||||||||||||
Interest income |
$ | 529,795 | $ | 502,096 | $ | 507,625 | $ | 501,060 | $ | 495,322 | ||||||||||
Interest expense |
39,109 | 34,411 | 34,373 | 34,725 | 35,274 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net interest income |
490,686 | 467,685 | 473,252 | 466,335 | 460,048 | |||||||||||||||
Provision for credit losses |
20,419 | 20,591 | 2,494 | 24,480 | 29,385 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net interest income after provision for credit losses |
470,267 | 447,094 | 470,758 | 441,855 | 430,663 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Service charges on deposit accounts |
70,118 | 62,220 | 67,408 | 69,118 | 72,633 | |||||||||||||||
Trust services |
26,550 | 29,039 | 28,781 | 28,045 | 29,581 | |||||||||||||||
Electronic banking |
30,259 | 27,398 | 27,993 | 27,275 | 26,491 | |||||||||||||||
Mortgage banking income |
38,518 | 22,961 | 14,030 | 25,051 | 22,717 | |||||||||||||||
Brokerage income |
15,184 | 15,500 | 16,050 | 17,155 | 17,905 | |||||||||||||||
Insurance income |
17,637 | 15,895 | 16,252 | 16,729 | 15,996 | |||||||||||||||
Bank owned life insurance income |
13,215 | 13,025 | 14,988 | 14,888 | 13,865 | |||||||||||||||
Capital markets fees |
13,192 | 13,905 | 13,791 | 10,246 | 10,500 | |||||||||||||||
Gain on sale of loans |
12,453 | 4,589 | 5,408 | 8,199 | 3,914 | |||||||||||||||
Securities gains (losses) |
82 | | (104 | ) | 198 | 490 | ||||||||||||||
Other income |
44,565 | 27,091 | 28,681 | 30,445 | 35,975 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total noninterest income |
281,773 | 231,623 | 233,278 | 247,349 | 250,067 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Personnel costs |
282,135 | 264,916 | 263,289 | 275,409 | 260,600 | |||||||||||||||
Outside data processing and other services |
58,508 | 50,535 | 53,685 | 53,073 | 54,338 | |||||||||||||||
Net occupancy |
28,861 | 31,020 | 31,565 | 34,405 | 28,673 | |||||||||||||||
Equipment |
31,694 | 30,249 | 31,981 | 30,183 | 28,749 | |||||||||||||||
Professional services |
12,593 | 12,727 | 15,665 | 13,763 | 17,896 | |||||||||||||||
Marketing |
15,024 | 12,975 | 12,466 | 12,576 | 14,832 | |||||||||||||||
Deposit and other insurance expense |
11,787 | 10,167 | 13,099 | 11,628 | 10,599 | |||||||||||||||
Amortization of intangibles |
9,960 | 10,206 | 10,653 | 9,813 | 9,520 | |||||||||||||||
Other expense |
41,215 | 36,062 | 50,868 | 39,468 | 33,429 | |||||||||||||||
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|
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|
|
|
|||||||||||
Total noninterest expense |
491,777 | 458,857 | 483,271 | 480,318 | 458,636 | |||||||||||||||
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|
|
|||||||||||
Income before income taxes |
260,263 | 219,860 | 220,765 | 208,886 | 222,094 | |||||||||||||||
Provision for income taxes |
64,057 | 54,006 | 57,151 | 53,870 | 57,475 | |||||||||||||||
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|
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|
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|
|
|||||||||||
Net income |
$ | 196,206 | $ | 165,854 | $ | 163,614 | $ | 155,016 | $ | 164,619 | ||||||||||
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Dividends on preferred shares |
7,968 | 7,965 | 7,963 | 7,964 | 7,963 | |||||||||||||||
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|
|
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Net income applicable to common shares |
$ | 188,238 | $ | 157,889 | $ | 155,651 | $ | 147,052 | $ | 156,656 | ||||||||||
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Average common sharesbasic |
806,891 | 809,778 | 811,967 | 816,497 | 821,546 | |||||||||||||||
Average common sharesdiluted |
820,238 | 823,809 | 825,338 | 829,623 | 834,687 | |||||||||||||||
Net income per common sharebasic |
$ | 0.23 | $ | 0.19 | $ | 0.19 | $ | 0.18 | $ | 0.19 | ||||||||||
Net income per common sharediluted |
0.23 | 0.19 | 0.19 | 0.18 | 0.19 | |||||||||||||||
Cash dividends declared per common share |
0.06 | 0.06 | 0.06 | 0.05 | 0.05 | |||||||||||||||
Return on average total assets |
1.16 | % | 1.02 | % | 1.00 | % | 0.97 | % | 1.07 | % | ||||||||||
Return on average common shareholders equity |
12.3 | 10.6 | 10.3 | 9.9 | 10.8 | |||||||||||||||
Return on average tangible common shareholders equity (2) |
14.4 | 12.2 | 11.9 | 11.4 | 12.4 | |||||||||||||||
Net interest margin (3) |
3.20 | 3.15 | 3.18 | 3.20 | 3.28 | |||||||||||||||
Efficiency ratio (4) |
61.7 | 63.5 | 66.2 | 65.3 | 62.7 | |||||||||||||||
Effective tax rate |
24.6 | 24.6 | 25.9 | 25.8 | 25.9 | |||||||||||||||
RevenueFTE |
||||||||||||||||||||
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|
|
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Net interest income |
$ | 490,686 | $ | 467,685 | $ | 473,252 | $ | 466,335 | $ | 460,048 | ||||||||||
FTE adjustment |
7,962 | 7,560 | 7,522 | 7,506 | 6,637 | |||||||||||||||
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|
|
|
|
|||||||||||
Net interest income (3) |
498,648 | 475,245 | 480,774 | 473,841 | 466,685 | |||||||||||||||
Noninterest income |
281,773 | 231,623 | 233,278 | 247,349 | 250,067 | |||||||||||||||
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|
|
|
|
|
|
|
|
|||||||||||
Total revenue (3) |
$ | 780,421 | $ | 706,868 | $ | 714,052 | $ | 721,190 | $ | 716,752 | ||||||||||
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|
|
|
|
|
|
|
9
(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 and goodwill impairment 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) |
2015 | 2014 | Amount | Percent | ||||||||||||
Interest income |
$ | 1,031,891 | $ | 967,777 | $ | 64,114 | 7 | % | ||||||||
Interest expense |
73,520 | 70,223 | 3,297 | 5 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net interest income |
958,371 | 897,554 | 60,817 | 7 | ||||||||||||
Provision for credit losses |
41,010 | 54,015 | (13,005 | ) | (24 | ) | ||||||||||
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|
|
|
|
|
|
|
|||||||||
Net interest income after provision for credit losses |
917,361 | 843,539 | 73,822 | 9 | ||||||||||||
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|
|
|
|
|
|
|
|||||||||
Service charges on deposit accounts |
132,338 | 137,215 | (4,877 | ) | (4 | ) | ||||||||||
Trust services |
55,589 | 59,146 | (3,557 | ) | (6 | ) | ||||||||||
Electronic banking |
57,657 | 50,133 | 7,524 | 15 | ||||||||||||
Mortgage banking income |
61,479 | 45,807 | 15,672 | 34 | ||||||||||||
Brokerage income |
30,684 | 35,072 | (4,388 | ) | (13 | ) | ||||||||||
Insurance income |
33,532 | 32,492 | 1,040 | 3 | ||||||||||||
Bank owned life insurance income |
26,240 | 27,172 | (932 | ) | (3 | ) | ||||||||||
Capital markets fees |
27,097 | 19,694 | 7,403 | 38 | ||||||||||||
Gain on sale of loans |
17,042 | 7,484 | 9,558 | 128 | ||||||||||||
Securities gains (losses) |
82 | 17,460 | (17,378 | ) | (100 | ) | ||||||||||
Other income |
71,656 | 66,877 | 4,779 | 7 | ||||||||||||
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|
|
|
|
|
|
|
|||||||||
Total noninterest income |
513,396 | 498,552 | 14,844 | 3 | ||||||||||||
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|
|
|
|
|
|
|
|||||||||
Personnel costs |
547,051 | 510,077 | 36,974 | 7 | ||||||||||||
Outside data processing and other services |
109,043 | 105,828 | 3,215 | 3 | ||||||||||||
Net occupancy |
59,881 | 62,106 | (2,225 | ) | (4 | ) | ||||||||||
Equipment |
61,943 | 57,499 | 4,444 | 8 | ||||||||||||
Professional services |
25,320 | 30,127 | (4,807 | ) | (16 | ) | ||||||||||
Marketing |
27,999 | 25,518 | 2,481 | 10 | ||||||||||||
Deposit and other insurance expense |
21,954 | 24,317 | (2,363 | ) | (10 | ) | ||||||||||
Amortization of intangibles |
20,166 | 18,811 | 1,355 | 7 | ||||||||||||
Other expense |
77,277 | 84,474 | (7,197 | ) | (9 | ) | ||||||||||
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|
|
|
|
|
|
|
|||||||||
Total noninterest expense |
950,634 | 918,757 | 31,877 | 3 | ||||||||||||
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|
|
|
|||||||||
Income before income taxes |
480,123 | 423,334 | 56,789 | 13 | ||||||||||||
Provision for income taxes |
118,063 | 109,572 | 8,491 | 8 | ||||||||||||
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|
|
|
|
|
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Net income |
$ | 362,060 | $ | 313,762 | $ | 48,298 | 15 | % | ||||||||
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|
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Dividends declared on preferred shares |
15,933 | 15,927 | 6 | | ||||||||||||
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|
|||||||||
Net income applicable to common shares |
$ | 346,127 | $ | 297,835 | $ | 48,292 | 16 | % | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Average common sharesbasic |
808,335 | 825,603 | (17,268 | ) | (2 | )% | ||||||||||
Average common sharesdiluted |
822,023 | 838,546 | (16,523 | ) | (2 | ) | ||||||||||
Per common share |
||||||||||||||||
Net income per common sharebasic |
$ | 0.43 | $ | 0.36 | $ | 0.07 | 19 | % | ||||||||
Net income per common sharediluted |
0.42 | 0.36 | 0.06 | 17 | ||||||||||||
Cash dividends declared |
0.12 | 0.10 | 0.02 | 20 | ||||||||||||
RevenueFTE |
||||||||||||||||
Net interest income |
$ | 958,371 | $ | 897,554 | $ | 60,817 | 7 | % | ||||||||
FTE adjustment |
15,522 | 12,522 | 3,000 | 24 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net interest income (2) |
973,893 | 910,076 | 63,817 | 7 | ||||||||||||
Noninterest income |
513,396 | 498,552 | 14,844 | 3 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenue (2) |
$ | 1,487,289 | $ | 1,408,628 | $ | 78,661 | 6 | % | ||||||||
|
|
|
|
|
|
|
|
(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) |
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. | Merger and Acquisition. Significant events relating to mergers and acquisitions, and the impacts of those events on our reported results, were as follows : |
|
During the 2014 second quarter, $0.8 million of noninterest expense was recorded related to the acquisition of 24 Bank of America branches. |
|
During the 2014 first quarter, $12.6 million of noninterest expense and $0.8 million of noninterest income was recorded related to the acquisition of Camco Financial. This net $11.8 million resulted in a negative impact of $0.01 per common share. |
2. | Litigation Reserve. During the 2014 first quarter, $9.0 million of net additions to litigation reserves were recorded as other noninterest expense. This resulted in a negative impact of $0.01 per common share. |
12
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, 2015 (4) | March 31, 2015 (4) | June 30, 2014 | ||||||||||||||||||||||
(dollar amounts in thousands, except per share amounts) |
After-tax | EPS (2)(3) | After-tax | EPS (2)(3) | After-tax | EPS (2)(3) | ||||||||||||||||||
Net income |
$ | 196,206 | $ | 165,854 | $ | 164,619 | ||||||||||||||||||
Earnings per share, after-tax |
$ | 0.23 | $ | 0.19 | $ | 0.19 | ||||||||||||||||||
Significant Itemsfavorable (unfavorable) impact: |
Earnings (1) | EPS (2)(3) | Earnings (1) | EPS (2)(3) | Earnings (1) | EPS (2)(3) | ||||||||||||||||||
Mergers and acquisitions, net |
$ | | $ | | $ | | $ | | $ | (775 | ) | $ | |
(1) |
Pretax. |
(2) |
Based on average outstanding diluted common shares. |
(3) |
After-tax. |
(4) |
The 2015 first and second quarter included $3.4 million and $1.5 million, respectively, of merger-related expense that was not a Significant Item for the first six-month period of 2015, but merger-related expense is expected to be a Significant Item for the 2015 full year. |
Six Months Ended | ||||||||||||||||
June 30, 2015 (4) | June 30, 2014 | |||||||||||||||
(dollar amounts in thousands) |
After-tax | EPS (2)(3) | After-tax | EPS (2)(3) | ||||||||||||
Net income |
$ | 362,060 | $ | 313,762 | ||||||||||||
Earnings per share, after-tax |
$ | 0.42 | $ | 0.36 | ||||||||||||
Significant Itemsfavorable (unfavorable) impact: |
Earnings (1) | EPS (2)(3) | Earnings (1) | EPS (2)(3) | ||||||||||||
Merger and acquisition, net |
$ | | $ | | $ | (12,598 | ) | $ | (0.01 | ) | ||||||
Net Additions to Litigation Reserve |
| | (9,000 | ) | (0.01 | ) |
(1) |
Pretax unless otherwise noted. |
(2) |
Based on average outstanding diluted common shares. |
(3) |
After-tax. |
(4) |
The 2015 first and second quarter included $3.4 million and $1.5 million, respectively, of merger-related expense that was not a Significant Item for the first six-month period of 2015, but merger-related expense is expected to be a Significant Item for the 2015 full year. |
13
Net Interest Income / Average Balance Sheet
The following tables detail the change in our average balance sheet and the net interest margin:
Table 4Consolidated Quarterly Average Balance Sheets
Average Balances | Change | |||||||||||||||||||||||||||
2015 | 2014 | 2Q15 vs. 2Q14 | ||||||||||||||||||||||||||
(dollar amounts in millions) |
Second | First | Fourth | Third | Second | Amount | Percent | |||||||||||||||||||||
Assets: |
||||||||||||||||||||||||||||
Interest-bearing deposits in banks |
$ | 89 | $ | 94 | $ | 85 | $ | 82 | $ | 91 | $ | (2 | ) | (2 | )% | |||||||||||||
Loans held for sale |
1,272 | 381 | 374 | 351 | 288 | 984 | 342 | |||||||||||||||||||||
Securities: |
||||||||||||||||||||||||||||
Available-for-sale and other securities: |
||||||||||||||||||||||||||||
Taxable |
7,916 | 7,664 | 7,291 | 6,935 | 6,662 | 1,254 | 19 | |||||||||||||||||||||
Tax-exempt |
2,028 | 1,874 | 1,684 | 1,620 | 1,290 | 738 | 57 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total available-for-sale and other securities |
9,944 | 9,538 | 8,975 | 8,555 | 7,952 | 1,992 | 25 | |||||||||||||||||||||
Trading account securities |
41 | 53 | 49 | 50 | 45 | (4 | ) | (9 | ) | |||||||||||||||||||
Held-to-maturity securitiestaxable |
3,324 | 3,347 | 3,435 | 3,556 | 3,677 | (353 | ) | (10 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total securities |
13,309 | 12,938 | 12,459 | 12,161 | 11,674 | 1,635 | 14 | |||||||||||||||||||||
|
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|
|
|
|
|
|
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|
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|
|||||||||||||||
Loans and leases: (1) |
||||||||||||||||||||||||||||
Commercial: |
||||||||||||||||||||||||||||
Commercial and industrial |
19,819 | 19,116 | 18,880 | 18,581 | 18,262 | 1,557 | 9 | |||||||||||||||||||||
Commercial real estate: |
||||||||||||||||||||||||||||
Construction |
970 | 887 | 822 | 775 | 702 | 268 | 38 | |||||||||||||||||||||
Commercial |
4,214 | 4,275 | 4,262 | 4,188 | 4,345 | (131 | ) | (3 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Commercial real estate |
5,184 | 5,162 | 5,084 | 4,963 | 5,047 | 137 | 3 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total commercial |
25,003 | 24,278 | 23,964 | 23,544 | 23,309 | 1,694 | 7 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Consumer: |
||||||||||||||||||||||||||||
Automobile |
8,083 | 8,783 | 8,512 | 8,012 | 7,349 | 734 | 10 | |||||||||||||||||||||
Home equity |
8,503 | 8,484 | 8,452 | 8,412 | 8,376 | 127 | 2 | |||||||||||||||||||||
Residential mortgage |
5,859 | 5,810 | 5,751 | 5,747 | 5,608 | 251 | 4 | |||||||||||||||||||||
Other consumer |
451 | 425 | 413 | 398 | 382 | 69 | 18 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total consumer |
22,896 | 23,502 | 23,128 | 22,569 | 21,715 | 1,181 | 5 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total loans and leases |
47,899 | 47,780 | 47,092 | 46,113 | 45,024 | 2,875 | 6 | |||||||||||||||||||||
Allowance for loan and lease losses |
(608 | ) | (612 | ) | (631 | ) | (633 | ) | (642 | ) | 34 | (5 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net loans and leases |
47,291 | 47,168 | 46,461 | 45,480 | 44,382 | 2,909 | 7 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total earning assets |
62,569 | 61,193 | 60,010 | 58,707 | 57,077 | 5,492 | 10 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Cash and due from banks |
926 | 935 | 929 | 887 | 872 | 54 | 6 | |||||||||||||||||||||
Intangible assets |
745 | 593 | 602 | 583 | 591 | 154 | 26 | |||||||||||||||||||||
All other assets |
4,251 | 4,142 | 4,022 | 3,929 | 3,932 | 319 | 8 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total assets |
$ | 67,883 | $ | 66,251 | $ | 64,932 | $ | 63,473 | $ | 61,830 | $ | 6,053 | 10 | % | ||||||||||||||
|
|
|
|
|
|
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|
|
|
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|
|
|
|||||||||||||||
Liabilities and Shareholders Equity: |
||||||||||||||||||||||||||||
Deposits: |
||||||||||||||||||||||||||||
Demand depositsnoninterest-bearing |
$ | 15,893 | $ | 15,253 | $ | 15,179 | $ | 14,090 | $ | 13,466 | $ | 2,427 | 18 | % | ||||||||||||||
Demand depositsinterest-bearing |
6,584 | 6,173 | 5,948 | 5,913 | 5,945 | 639 | 11 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total demand deposits |
22,477 | 21,426 | 21,127 | 20,003 | 19,411 | 3,066 | 16 | |||||||||||||||||||||
Money market deposits |
18,803 | 19,368 | 18,401 | 17,929 | 17,680 | 1,123 | 6 | |||||||||||||||||||||
Savings and other domestic deposits |
5,273 | 5,169 | 5,052 | 5,020 | 5,086 | 187 | 4 | |||||||||||||||||||||
Core certificates of deposit |
2,639 | 2,814 | 3,058 | 3,167 | 3,434 | (795 | ) | (23 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total core deposits |
49,192 | 48,777 | 47,638 | 46,119 | 45,611 | 3,581 | 8 | |||||||||||||||||||||
Other domestic time deposits of $250,000 or more |
184 | 195 | 201 | 223 | 262 | (78 | ) | (30 | ) | |||||||||||||||||||
Brokered deposits and negotiable CDs |
2,701 | 2,600 | 2,434 | 2,262 | 2,070 | 631 | 30 | |||||||||||||||||||||
Deposits in foreign offices |
562 | 557 | 479 | 374 | 315 | 247 | 78 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total deposits |
52,639 | 52,129 | 50,752 | 48,978 | 48,258 | 4,381 | 9 | |||||||||||||||||||||
Short-term borrowings |
2,153 | 1,882 | 2,683 | 3,193 | 2,788 | (635 | ) | (23 | ) | |||||||||||||||||||
Long-term debt |
5,144 | 4,374 | 3,956 | 3,967 | 3,523 | 1,621 | 46 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total interest-bearing liabilities |
44,043 | 43,132 | 42,212 | 42,048 | 41,103 | 2,940 | 7 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
All other liabilities |
1,430 | 1,450 | 1,167 | 1,043 | 1,033 | 397 | 38 | |||||||||||||||||||||
Shareholders equity |
6,517 | 6,416 | 6,374 | 6,292 | 6,228 | 289 | 5 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total liabilities and shareholders equity |
$ | 67,883 | $ | 66,251 | $ | 64,932 | $ | 63,473 | $ | 61,830 | $ | 6,053 | 10 | % | ||||||||||||||
|
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|
|
|
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|
|
(1) |
For purposes of this analysis, NALs are reflected in the average balances of loans. |
14
Table 5Consolidated Quarterly Net Interest Margin Analysis
Average Yield Rates (2) | ||||||||||||||||||||
2015 | 2014 | |||||||||||||||||||
Fully-taxable equivalent basis (1) |
Second | First | Fourth | Third | Second | |||||||||||||||
Assets: |
||||||||||||||||||||
Interest-bearing deposits in banks |
0.08 | % | 0.18 | % | 0.23 | % | 0.19 | % | 0.04 | % | ||||||||||
Loans held for sale |
3.32 | 3.69 | 3.82 | 3.98 | 4.27 | |||||||||||||||
Securities: |
||||||||||||||||||||
Available-for-sale and other securities: |
||||||||||||||||||||
Taxable |
2.60 | 2.50 | 2.61 | 2.48 | 2.52 | |||||||||||||||
Tax-exempt |
3.13 | 3.05 | 3.26 | 3.02 | 3.15 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total available-for-sale and other securities |
2.71 | 2.61 | 2.73 | 2.59 | 2.63 | |||||||||||||||
Trading account securities |
1.00 | 1.17 | 1.05 | 0.85 | 0.70 | |||||||||||||||
Held-to-maturity securitiestaxable |
2.50 | 2.47 | 2.45 | 2.45 | 2.46 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total securities |
2.65 | 2.57 | 2.65 | 2.54 | 2.57 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Loans and leases: (3) |
||||||||||||||||||||
Commercial: |
||||||||||||||||||||
Commercial and industrial |
3.61 | 3.33 | 3.35 | 3.45 | 3.49 | |||||||||||||||
Commercial real estate: |
||||||||||||||||||||
Construction |
3.60 | 3.81 | 4.30 | 4.38 | 4.29 | |||||||||||||||
Commercial |
3.41 | 3.57 | 3.47 | 3.60 | 4.16 | |||||||||||||||
|
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|
|
|
|
|
|
|
|
|||||||||||
Commercial real estate |
3.45 | 3.62 | 3.60 | 3.72 | 4.17 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total commercial |
3.58 | 3.39 | 3.40 | 3.51 | 3.64 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Consumer: |
||||||||||||||||||||
Automobile |
3.20 | 3.24 | 3.33 | 3.41 | 3.47 | |||||||||||||||
Home equity |
3.97 | 4.03 | 4.05 | 4.07 | 4.12 | |||||||||||||||
Residential mortgage |
3.72 | 3.75 | 3.84 | 3.78 | 3.77 | |||||||||||||||
Other consumer |
8.45 | 8.20 | 7.68 | 7.31 | 7.34 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total consumer |
3.73 | 3.74 | 3.80 | 3.82 | 3.87 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total loans and leases |
3.65 | 3.56 | 3.60 | 3.66 | 3.75 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total earning assets |
3.45 | % | 3.38 | % | 3.41 | % | 3.44 | % | 3.53 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Liabilities: |
||||||||||||||||||||
Deposits: |
||||||||||||||||||||
Demand depositsnoninterest-bearing |
| % | | % | | % | | % | | % | ||||||||||
Demand depositsinterest-bearing |
0.06 | 0.05 | 0.04 | 0.04 | 0.04 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total demand deposits |
0.02 | 0.01 | 0.01 | 0.01 | 0.01 | |||||||||||||||
Money market deposits |
0.22 | 0.21 | 0.22 | 0.23 | 0.24 | |||||||||||||||
Savings and other domestic deposits |
0.14 | 0.15 | 0.16 | 0.16 | 0.17 | |||||||||||||||
Core certificates of deposit |
0.78 | 0.76 | 0.75 | 0.74 | 0.81 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total core deposits |
0.22 | 0.22 | 0.23 | 0.23 | 0.25 | |||||||||||||||
Other domestic time deposits of $250,000 or more |
0.44 | 0.42 | 0.43 | 0.44 | 0.43 | |||||||||||||||
Brokered deposits and negotiable CDs |
0.17 | 0.17 | 0.18 | 0.20 | 0.24 | |||||||||||||||
Deposits in foreign offices |
0.13 | 0.13 | 0.13 | 0.13 | 0.13 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total deposits |
0.22 | 0.22 | 0.23 | 0.23 | 0.25 | |||||||||||||||
Short-term borrowings |
0.14 | 0.12 | 0.12 | 0.11 | 0.10 | |||||||||||||||
Long-term debt |
1.44 | 1.31 | 1.35 | 1.35 | 1.44 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total interest-bearing liabilities |
0.36 | % | 0.32 | % | 0.32 | % | 0.33 | % | 0.34 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net interest rate spread |
3.09 | % | 3.06 | % | 3.09 | % | 3.11 | % | 3.19 | % | ||||||||||
Impact of noninterest-bearing funds on margin |
0.11 | 0.09 | 0.09 | 0.09 | 0.09 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net interest margin |
3.20 | % | 3.15 | % | 3.18 | % | 3.20 | % | 3.28 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
(1) |
FTE yields are calculated assuming a 35% tax rate. |
(2) |
Loan, lease, and deposit average rates include impact of applicable derivatives, non-deferrable fees, and amortized fees. |
(3) |
For purposes of this analysis, NALs are reflected in the average balances of loans. |
15
2015 Second Quarter versus 2014 Second Quarter
Fully-taxable equivalent net interest income increased $32.0 million, or 7%, from the 2014 second quarter. This reflected the benefit from the $5.5 billion, or 10%, increase in average earning assets partially offset by an 8 basis point reduction in the fully-taxable equivalent net interest margin to 3.20%. Average earning asset growth included a $2.9 billion, or 6%, increase in average loans and leases, a $1.6 billion, or 14%, increase in average securities, and a $1.0 billion increase in average loans held-for-sale. The NIM contraction reflected an 8 basis point decrease related to the mix and yield of earning assets and 2 basis point increase in funding costs, partially offset by the 2 basis point increase in the benefit from noninterest-bearing funds.
Average earning assets increased $5.5 billion, or 10%, from the year-ago quarter, driven by:
|
$1.6 billion, or 9%, increase in average C&I loans and leases, primarily reflecting the $0.8 billion of equipment finance leases acquired in the HTF transaction as well as growth in the international vertical and corporate banking. |
|
$1.6 billion, or 14%, increase in average securities, reflecting an increase of $1.8 billion of Liquidity Coverage Ratio (LCR) Level 1 qualified securities. The 2015 second quarters average balance also included $1.7 billion of direct purchase municipal instruments originated by our Commercial segment, up $0.8 billion from the year-ago quarter. |
|
$1.0 billion increase in average loans held-for-sale primarily related to automobile loans that were subsequently securitized and sold late in the quarter. |
|
$0.7 billion, or 10%, increase in average Automobile loans, despite the impact of the previously mentioned automobile loan securitization. The 2015 second quarter represented the sixth consecutive quarter of greater than $1.0 billion in automobile loan originations. |
Average total deposits increased $4.4 billion, or 9%, from the year-ago quarter, including a $3.6 billion, or 8%, increase in average total core deposits. The growth in average total core deposits more than fully funded the year-over-year increase in average total loans and leases. The increase in total deposits included $0.7 billion of deposits acquired in the Bank of America branch acquisition. Average total interest-bearing liabilities increased $2.9 billion, or 7%, from the year-ago quarter. Year-over-year changes in total liabilities reflected:
|
$2.4 billion, or 18%, increase in noninterest-bearing deposits, reflecting a $2.1 billion, or 19%, increase in commercial noninterest bearing deposits and a $0.4 billion, or 15%, increase in consumer noninterest bearing deposits. |
|
$1.1 billion, or 6%, increase in money market deposits, reflecting continued banker focus across all segments on obtaining our customers full deposit relationship. |
|
$1.0 billion, or 16%, increase in short-and long-term borrowings, primarily reflecting a cost-effective method of funding LCR-related securities growth. The increase reflected the issuance of $1.0 billion and $0.8 billion of bank-level senior debt during the 2015 first quarter and 2014 second quarter, respectively, as well as $0.5 billion of debt assumed in the HTF acquisition, partially offset by a $0.6 billion reduction in short-term borrowings. While not affecting average balances, $0.8 billion of bank-level senior debt was issued in late June 2015. |
|
$0.6 billion, or 30%, increase in brokered deposits and negotiable CDs, which were used to efficiently finance balance sheet growth while continuing to manage the overall cost of funds. |
Partially offset by:
|
$0.8 billion, or 23%, decrease in average core certificates of deposit due to the strategic focus on changing the funding sources to low-and no-cost demand deposits and money market deposits. |
2015 Second Quarter versus 2015 First Quarter
Compared to the 2015 first quarter, FTE net interest income increased $23.4 million, or 5%. Average earning assets increased $1.4 billion, or 2%, sequentially, while the NIM increased 5 basis points. The increase in the NIM primarily reflected the addition of higher yielding assets from the HTF acquisition, which contributed 7 basis points to the NIM expansion, partially offset by continued pricing pressure across all asset classes. During the 2015 second quarter, FTE net interest income and the NIM also benefitted by $3.4 million and 2 basis points, respectively, from prepayment penalties within the securities portfolio.
16
Table 6Consolidated 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) |
2015 | 2014 | Amount | Percent | 2015 | 2014 | ||||||||||||||||||
Assets: |
||||||||||||||||||||||||
Interest-bearing deposits in banks |
$ | 91 | $ | 87 | $ | 4 | 5 | % | 0.13 | % | 0.03 | % | ||||||||||||
Loans held for sale |
829 | 283 | 546 | 193 | 3.39 | 4.01 | ||||||||||||||||||
Securities: |
||||||||||||||||||||||||
Available-for-sale and other securities: |
||||||||||||||||||||||||
Taxable |
7,791 | 6,452 | 1,339 | 21 | 2.55 | 2.49 | ||||||||||||||||||
Tax-exempt |
1,952 | 1,203 | 749 | 62 | 3.09 | 3.09 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total available-for-sale and other securities |
9,743 | 7,655 | 2,088 | 27 | 2.66 | 2.59 | ||||||||||||||||||
Trading account securities |
47 | 42 | 5 | 12 | 1.10 | 0.89 | ||||||||||||||||||
Held-to-maturity securitiestaxable |
3,335 | 3,730 | (395 | ) | (11 | ) | 2.48 | 2.46 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total securities |
13,125 | 11,427 | 1,698 | 15 | 2.61 | 2.54 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loans and leases: (3) |
||||||||||||||||||||||||
Commercial: |
||||||||||||||||||||||||
Commercial and industrial |
19,469 | 17,948 | 1,521 | 8 | 3.47 | 3.53 | ||||||||||||||||||
Commercial real estate: |
||||||||||||||||||||||||
Construction |
929 | 657 | 272 | 41 | 3.70 | 4.15 | ||||||||||||||||||
Commercial |
4,244 | 4,317 | (73 | ) | (2 | ) | 3.49 | 4.00 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Commercial real estate |
5,173 | 4,974 | 199 | 4 | 3.53 | 4.02 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total commercial |
24,642 | 22,922 | 1,720 | 8 | 3.48 | 3.63 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Consumer: |
||||||||||||||||||||||||
Automobile |
8,431 | 7,069 | 1,362 | 19 | 3.22 | 3.50 | ||||||||||||||||||
Home equity |
8,494 | 8,358 | 136 | 2 | 4.00 | 4.12 | ||||||||||||||||||
Residential mortgage |
5,835 | 5,494 | 341 | 6 | 3.73 | 3.78 | ||||||||||||||||||
Other consumer |
438 | 385 | 53 | 14 | 8.33 | 7.08 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total consumer |
23,198 | 21,306 | 1,892 | 9 | 3.73 | 3.88 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total loans and leases |
47,840 | 44,228 | 3,612 | 8 | 3.61 | 3.75 | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Allowance for loan and lease losses |
(610 | ) | (645 | ) | 35 | (5 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Net loans and leases |
47,230 | 43,583 | 3,647 | 8 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total earning assets |
61,885 | 56,025 | 5,860 | 10 | 3.41 | % | 3.53 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and due from banks |
930 | 887 | 43 | 5 | ||||||||||||||||||||
Intangible assets |
670 | 563 | 107 | 19 | ||||||||||||||||||||
All other assets |
4,197 | 3,937 | 260 | 7 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total assets |
$ | 67,072 | $ | 60,767 | $ | 6,305 | 10 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Liabilities and Shareholders Equity: |
||||||||||||||||||||||||
Deposits: |
||||||||||||||||||||||||
Demand depositsnoninterest-bearing |
$ | 15,575 | $ | 13,330 | $ | 2,245 | 17 | % | | % | | % | ||||||||||||
Demand depositsinterest-bearing |
6,380 | 5,860 | 520 | 9 | 0.05 | 0.04 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total demand deposits |
21,955 | 19,190 | 2,765 | 14 | 0.02 | 0.01 | ||||||||||||||||||
Money market deposits |
19,084 | 17,664 | 1,420 | 8 | 0.22 | 0.25 | ||||||||||||||||||
Savings and other domestic deposits |
5,220 | 5,027 | 193 | 4 | 0.14 | 0.19 | ||||||||||||||||||
Core certificates of deposit |
2,726 | 3,523 | (797 | ) | (23 | ) | 0.77 | 0.88 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total core deposits |
48,985 | 45,404 | 3,581 | 8 | 0.22 | 0.27 | ||||||||||||||||||
Other domestic time deposits of $250,000 or more |
190 | 273 | (83 | ) | (30 | ) | 0.43 | 0.42 | ||||||||||||||||
Brokered deposits and negotiable CDs |
2,651 | 1,927 | 724 | 38 | 0.17 | 0.26 | ||||||||||||||||||
Deposits in foreign offices |
559 | 322 | 237 | 74 | 0.13 | 0.13 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total deposits |
52,385 | 47,926 | 4,459 | 9 | 0.22 | 0.27 | ||||||||||||||||||
Short-term borrowings |
2,018 | 2,581 | (563 | ) | (22 | ) | 0.13 | 0.10 | ||||||||||||||||
Long-term debt |
4,761 | 3,021 | 1,740 | 58 | 1.38 | 1.54 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total interest-bearing liabilities |
43,589 | 40,198 | 3,391 | 8 | 0.34 | 0.35 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
All other liabilities |
1,441 | 1,034 | 407 | 39 | ||||||||||||||||||||
Shareholders equity |
6,467 | 6,205 | 262 | 4 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total liabilities and shareholders equity |
$ | 67,072 | $ | 60,767 | $ | 6,305 | 10 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Net interest rate spread |
3.07 | 3.18 | ||||||||||||||||||||||
Impact of noninterest-bearing funds on margin |
0.10 | 0.10 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Net interest margin |
3.17 | % | 3.28 | % | ||||||||||||||||||||
|
|
|
|
(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. |
17
2015 First Six Months versus 2014 First Six Months
Fully-taxable equivalent net interest income for the first six-month period of 2015 increased $63.8 million, or 7% reflecting the benefit of a $5.9 billion, or 10%, increase in average total earning assets. The fully-taxable equivalent net interest margin decreased to 3.17% from 3.28%. The increase in average earning assets reflected:
|
$3.6 billion, or 8%, increase in average total loans and leases. |
|
$1.7 billion, or 15%, increase in average securities reflecting an increase of $1.8 billion of Liquidity Coverage Ratio (LCR) Level 1 qualified securities. |
|
$0.5 billion, or 193%, increase in average loans held for sale, primarily related to automobile loans that were subsequently securitized and sold during the quarter. |
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 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 2015 second quarter was $20.4 million compared with $20.6 million for the 2015 first quarter and $29.4 million for the 2014 second quarter. On a year-to-date basis, provision for credit losses for the first six-month period of 2015 was $41.0 million, a decrease of $13.0 million, or 24%, compared to year-ago period (See Credit Quality discussion). Given the low level of the provision for credit losses and the uneven nature of commercial charge-offs and recoveries, some degree of volatility on a quarter-to-quarter basis is expected.
Noninterest Income
The following table reflects noninterest income for each of the past five quarters:
Table 7Noninterest Income
2015 | 2014 | 2Q15 vs 2Q14 | 2Q15 vs 1Q15 | |||||||||||||||||||||||||||||||||
(dollar amounts in thousands) |
Second | First | Fourth | Third | Second | Amount | Percent | Amount | Percent | |||||||||||||||||||||||||||
Service charges on deposit accounts |
$ | 70,118 | $ | 62,220 | $ | 67,408 | $ | 69,118 | $ | 72,633 | $ | (2,515 | ) | (3 | )% | $ | 7,898 | 13 | % | |||||||||||||||||
Trust services |
26,550 | 29,039 | 28,781 | 28,045 | 29,581 | (3,031 | ) | (10 | ) | (2,489 | ) | (9 | ) | |||||||||||||||||||||||
Electronic banking |
30,259 | 27,398 | 27,993 | 27,275 | 26,491 | 3,768 | 14 | 2,861 | 10 | |||||||||||||||||||||||||||
Mortgage banking income |
38,518 | 22,961 | 14,030 | 25,051 | 22,717 | 15,801 | 70 | 15,557 | 68 | |||||||||||||||||||||||||||
Brokerage income |
15,184 | 15,500 | 16,050 | 17,155 | 17,905 | (2,721 | ) | (15 | ) | (316 | ) | (2 | ) | |||||||||||||||||||||||
Insurance income |
17,637 | 15,895 | 16,252 | 16,729 | 15,996 | 1,641 | 10 | 1,742 | 11 | |||||||||||||||||||||||||||
Bank owned life insurance income |
13,215 | 13,025 | 14,988 | 14,888 | 13,865 | (650 | ) | (5 | ) | 190 | 1 | |||||||||||||||||||||||||
Capital markets fees |
13,192 | 13,905 | 13,791 | 10,246 | 10,500 | 2,692 | 26 | (713 | ) | (5 | ) | |||||||||||||||||||||||||
Gain on sale of loans |
12,453 | 4,589 | 5,408 | 8,199 | 3,914 | 8,539 | 218 | 7,864 | 171 | |||||||||||||||||||||||||||
Securities gains (losses) |
82 | | (104 | ) | 198 | 490 | (408 | ) | (83 | ) | 82 | 100 | ||||||||||||||||||||||||
Other income |
44,565 | 27,091 | 28,681 | 30,445 | 35,975 | 8,590 | 24 | 17,474 | 65 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total noninterest income |
$ | 281,773 | $ | 231,623 | $ | 233,278 | $ | 247,349 | $ | 250,067 | $ | 31,706 | 13 | % | $ | 50,150 | 22 | % | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 Second Quarter versus 2014 Second Quarter
Noninterest income increased $31.7 million, or 13%, from the year-ago quarter. HTF contributed $12.3 million of noninterest income during the 2015 second quarter. The year-over-year increase primarily reflected:
|
$15.8 million, or 70%, increase in mortgage banking income, including an 84% increase in origination and secondary marketing revenues, reflecting higher gain on sale margin and a $6.7 million net benefit from MSR hedging activities. |
|
$8.6 million, or 24%, increase in other income, primarily reflecting equipment operating lease income related to HTF. |
|
$8.5 million, or 218%, increase in gain on sale of loans, including the $5.3 million gain from the automobile loan securitization. |
18
|
$3.8 million, or 14%, increase in electronic banking, due to higher card related income and underlying customer growth. |
|
$2.7 million, or 26%, increase in capital market fees, primarily related to customer foreign exchange and commodities derivatives products. |
Partially offset by:
|
$3.0 million, or 10%, decrease in trust services, primarily related to our fiduciary trust business moving to a more open architecture platform and a decline in assets under management in proprietary mutual funds following the 2014 second quarter transition of the fixed income Huntington Funds to a third party. |
|
$2.7 million, or 15%, decrease in brokerage income, primarily reflecting a shift from upfront commission income to trail options and an increase in the sale of new open architecture advisory products. |
|
$2.5 million, or 3%, decrease in service charges on deposit accounts as growth in commercial deposit service charges coupled with a 7% increase in consumer checking households partially offset the decline from the late July 2014 implementation of changes in consumer products. |
2015 Second Quarter versus 2015 First Quarter
Noninterest income increased $50.1 million, or 22%, from the 2015 first quarter, primarily reflecting:
|
Other income increased $17.5 million, or 65%, including $12.3 million related to HTF. |
|
Mortgage banking income increased $15.6 million, or 68%, primarily driven by a $10.5 million increase in net MSR hedging activities as well as a $6.3 million, or 32%, increase in origination and secondary marketing income. |
|
Service charges on deposit accounts increased $7.9 million, or 13%, as the quarter benefitted from continued growth in consumer households and business relationships, as well as seasonality. |
|
Gain on sale of loans increased $7.9 million, or 171%, primarily reflecting a $5.3 million automobile loan securitization gain. |
Table 8Noninterest Income2015 First Six Months vs. 2014 First Six Months
Six Months Ended June 30, | Change | |||||||||||||||
(dollar amounts in thousands) |
2015 | 2014 | Amount | Percent | ||||||||||||
Service charges on deposit accounts |
$ | 132,338 | $ | 137,215 | $ | (4,877 | ) | (4 | )% | |||||||
Trust services |
55,589 | 59,146 | (3,557 | ) | (6 | ) | ||||||||||
Electronic banking |
57,657 | 50,133 | 7,524 | 15 | ||||||||||||
Mortgage banking income |
61,479 | 45,806 | 15,673 | 34 | ||||||||||||
Brokerage income |
30,684 | 35,072 | (4,388 | ) | (13 | ) | ||||||||||
Insurance income |
33,532 | 32,492 | 1,040 | 3 | ||||||||||||
Bank owned life insurance income |
26,240 | 27,172 | (932 | ) | (3 | ) | ||||||||||
Capital markets fees |
27,097 | 19,694 | 7,403 | 38 | ||||||||||||
Gain on sale of loans |
17,042 | 7,484 | 9,558 | 128 | ||||||||||||
Securities gains (losses) |
82 | 17,460 | (17,378 | ) | (100 | ) | ||||||||||
Other income |
71,656 | 66,878 | 4,778 | 7 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total noninterest income |
$ | 513,396 | $ | 498,552 | $ | 14,844 | 3 | % | ||||||||
|
|
|
|
|
|
|
|
The $14.8 million, or 3%, increase in total noninterest income reflected:
|
$15.7 million, or 34%, increase in mortgage banking income. This primarily reflected a $17.6 million, or 61%, increase in origination and secondary marketing income as originations increased 49%. |
|
$9.6 million, or 128%, increase in gain on sale of loans, including the $5.3 million automobile loan securitization gain. |
19
|
$7.5 million, or 15%, increase in electronic banking income, due to higher card related income and underlying customer growth. |
|
$7.4 million, or 38%, increase in capital market fees, primarily related to an increase in foreign exchange fees, underwriting fees, commodities revenue, and derivative trading income. |
|
$4.8 million, or 7%, increase in other income, primarily reflecting equipment operating lease income related to HTF. |
Partially offset by:
|
$17.4 million, or 100%, decrease in securities gains. |
|
$4.9 million, or 4%, decrease in service charges on deposit accounts, as growth in commercial deposit service charges coupled with an increase in consumer households partially offset the decline from the late July 2014 implementation of changes in consumer products. |
|
$4.4 million, or 13%, decrease in brokerage income, primarily reflecting a shift from upfront commission income to trail options and an increase in the sale of new open architecture advisory products. |
|
$3.6 million, or 6%, decrease in trust services, primarily related to our fiduciary trust businesses moving to a more open architecture platform and a decline in assets under management in proprietary mutual funds following the 2014 second quarter transition of the fixed income Huntington Funds to a third party. |
20
Noninterest Expense
(This section should be read in conjunction with Significant Item 1 and 2.)
The following table reflects noninterest expense for each of the past five quarters:
Table 9Noninterest Expense
2015 | 2014 | 2Q15 vs 2Q14 | 2Q15 vs 1Q15 | |||||||||||||||||||||||||||||||||
(dollar amounts in thousands) |
Second | First | Fourth | Third | Second | Amount | Percent | Amount | Percent | |||||||||||||||||||||||||||
Personnel costs |
$ | 282,135 | $ | 264,916 | $ | 263,289 | $ | 275,409 | $ | 260,600 | $ | 21,535 | 8 | % | $ | 17,219 | 6 | % | ||||||||||||||||||
Outside data processing and other services |
58,508 | 50,535 | 53,685 | 53,073 | 54,338 | 4,170 | 8 | 7,973 | 16 | |||||||||||||||||||||||||||
Net occupancy |
28,861 | 31,020 | 31,565 | 34,405 | 28,673 | 188 | 1 | (2,159 | ) | (7 | ) | |||||||||||||||||||||||||
Equipment |
31,694 | 30,249 | 31,981 | 30,183 | 28,749 | 2,945 | 10 | 1,445 | 5 | |||||||||||||||||||||||||||
Professional services |
12,593 | 12,727 | 15,665 | 13,763 | 17,896 | (5,303 | ) | (30 | ) | (134 | ) | (1 | ) | |||||||||||||||||||||||
Marketing |
15,024 | 12,975 | 12,466 | 12,576 | 14,832 | 192 | 1 | 2,049 | 16 | |||||||||||||||||||||||||||
Deposit and other insurance expense |
11,787 | 10,167 | 13,099 | 11,628 | 10,599 | 1,188 | 11 | 1,620 | 16 | |||||||||||||||||||||||||||
Amortization of intangibles |
9,960 | 10,206 | 10,653 | 9,813 | 9,520 | 440 | 5 | (246 | ) | (2 | ) | |||||||||||||||||||||||||
Other expense |
41,215 | 36,062 | 50,868 | 39,468 | 33,429 | 7,786 | 23 | 5,153 | 14 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total noninterest expense |
$ | 491,777 | $ | 458,857 | $ | 483,271 | $ | 480,318 | $ | 458,636 | $ | 33,141 | 7 | % | $ | 32,920 | 7 | % | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Number of employees (average full-time equivalent) |
12,274 | 11,914 | 11,875 | 11,946 | 12,000 | 274 | 2 | 360 | 3 |
Impacts of Significant Items:
2015 | 2014 | |||||||||||
(dollar amounts in thousands) |
Second (1) | First (1) | Second | |||||||||
Personnel costs |
$ | 319 | $ | 1 | $ | | ||||||
Outside data processing and other services |
755 | 51 | 618 | |||||||||
Net occupancy |
| | 59 | |||||||||
Equipment |
| | 1 | |||||||||
Professional services |
374 | 3,286 | 50 | |||||||||
Marketing |
27 | 1 | 30 | |||||||||
Other expense |
26 | 12 | 17 | |||||||||
|
|
|
|
|
|
|||||||
Total noninterest expense adjustments |
$ | 1,501 | $ | 3,351 | $ | 775 | ||||||
|
|
|
|
|
|
(1) | The 2015 first and second quarter included $3.4 million and $1.5 million, respectively, of merger-related expense that was not a Significant Item for the first six-month period of 2015, but merger-related expense is expected to be a Significant Item for the 2015 full year. |
Adjusted Noninterest Expense (Non-GAAP):
2015 | 2014 | 2Q15 vs 2Q14 | 2Q15 vs 1Q15 | |||||||||||||||||||||||||
(dollar amounts in thousands) |
Second | First | Second | Amount | Percent | Amount | Percent | |||||||||||||||||||||
Personnel costs |
$ | 281,816 | $ | 264,915 | $ | 260,600 | $ | 21,216 | 8 | % | $ | 16,901 | 6 | % | ||||||||||||||
Outside data processing and other services |
57,753 | 50,484 | 53,720 | 4,033 | 8 | 7,269 | 14 | |||||||||||||||||||||
Net occupancy |
28,861 | 31,020 | 28,614 | 247 | 1 | (2,159 | ) | (7 | ) | |||||||||||||||||||
Equipment |
31,694 | 30,249 | 28,748 | 2,946 | 10 | 1,445 | 5 | |||||||||||||||||||||
Professional services |
12,219 | 9,441 | 17,846 | (5,627 | ) | (32 | ) | 2,778 | 29 | |||||||||||||||||||
Marketing |
14,997 | 12,974 | 14,802 | 195 | 1 | 2,023 | 16 | |||||||||||||||||||||
Deposit and other insurance expense |
11,787 | 10,167 | 10,599 | 1,188 | 11 | 1,620 | 16 | |||||||||||||||||||||
Amortization of intangibles |
9,960 | 10,206 | 9,520 | 440 | 5 | (246 | ) | (2 | ) | |||||||||||||||||||
Other expense |
41,189 | 36,050 | 33,412 | 7,777 | 23 | 5,139 | 14 | |||||||||||||||||||||
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Total adjusted noninterest expense |
$ | 490,276 | $ | 455,506 | $ | 457,861 | $ | 32,415 | 7 | % | $ | 34,770 | 8 | % | ||||||||||||||
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21
2015 Second Quarter versus 2014 Second Quarter
Reported noninterest expense increased $33.1 million, or 7%, from the year-ago quarter. HTF contributed $15.7 million of noninterest expense during the 2015 second quarter. Changes in reported noninterest expense primarily reflect:
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$21.5 million, or 8%, increase in personnel costs, related to a $17.9 million increase in salaries, reflecting the May implementation of annual merit increases and a 2% increase in the number of average full-time equivalent employees, and a $3.6 million increase in benefits expense. HTF accounted for $7.1 million of incremental personnel expense and 167 of the average full-time equivalent employees. |
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$7.8 million, or 23%, increase in other expense, primarily reflecting $6.8 million of equipment operating lease expense from HTF. |
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$4.2 million, or 8%, increase in outside data processing and other services expense, primarily related to technology investments. |
Partially offset by
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$5.3 million, or 30%, decrease in professional services expense, as the year-ago quarter included $5.0 million of one-time consulting expense related to strategic planning. |
22
2015 Second Quarter versus 2015 First Quarter
Reported noninterest expense increased $32.9 million, or 7%, from the 2015 first quarter. On a reported basis, personnel costs increased $17.2 million, or 6%, as a result of annual merit increases implemented in May and a 3% increase in the number of average full-time equivalent employees as well as the incremental $7.1 million of personnel expense related to HTF. Outside data processing and other services expense increased $8.0 million, or 16%, primarily related to ongoing technology investments. Other expense increased $5.2 million, or 14%, from the prior quarter, primarily reflecting equipment operating lease expense related to HTF.
Table 10Noninterest Expense2015 First Six Months vs. 2014 First Six Months
Six Months Ended June 30, | Change | |||||||||||||||
(dollar amounts in thousands) |
2015 | 2014 | Amount | Percent | ||||||||||||
Personnel costs |
$ | 547,051 | $ | 510,077 | $ | 36,974 | 7 | % | ||||||||
Outside data processing and other services |
109,043 | 105,828 | 3,215 | 3 | ||||||||||||
Net occupancy |
59,881 | 62,106 | (2,225 | ) | (4 | ) | ||||||||||
Equipment |
61,943 | 57,499 | 4,444 | 8 | ||||||||||||
Professional services |
25,320 | 30,127 | (4,807 | ) | (16 | ) | ||||||||||
Marketing |
27,999 | 25,518 | 2,481 | 10 | ||||||||||||
Deposit and other insurance expense |
21,954 | 24,317 | (2,363 | ) | (10 | ) | ||||||||||
Amortization of intangibles |
20,166 | 18,811 | 1,355 | 7 | ||||||||||||
Other expense |
77,277 | 84,474 | (7,197 | ) | (9 | ) | ||||||||||
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Total noninterest expense |
$ | 950,634 | $ | 918,757 | $ | 31,877 | 3 | % | ||||||||
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Impacts of Significant Items:
Six Months Ended June 30, | ||||||||
(dollar amounts in thousands) |
2015 (1) | 2014 | ||||||
Personnel costs |
$ | 320 | $ | 2,341 | ||||
Outside data processing and other services |
806 | 4,909 | ||||||
Net occupancy |
| 1,801 | ||||||
Equipment |
| 135 | ||||||
Professional services |
3,660 | 2,222 | ||||||
Marketing |
28 | 560 | ||||||
Other expense |
38 | 10,410 | ||||||
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Total noninterest expense adjustments |
$ | 4,852 | $ | 22,378 | ||||
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(1) | The first six-month period of 2015 included $4.9 million of merger-related expense that was not a Significant Item, but merger-related expense is expected to be a Significant Item for the 2015 full year. |
Adjusted Noninterest Expense (Non-GAAP):
Six Months Ended June 30, | Change | |||||||||||||||
(dollar amounts in thousands) |
2015 | 2014 | Amount | Percent | ||||||||||||
Personnel costs |
$ | 546,731 | $ | 507,736 | $ | 38,995 | 8 | % | ||||||||
Outside data processing and other services |
108,237 | 100,919 | 7,318 | 7 | ||||||||||||
Net occupancy |
59,881 | 60,305 | (424 | ) | (1 | ) | ||||||||||
Equipment |
61,943 | 57,364 | 4,579 | 8 | ||||||||||||
Professional services |
21,660 | 27,905 | (6,245 | ) | (22 | ) | ||||||||||
Marketing |
27,971 | 24,958 | 3,013 | 12 | ||||||||||||
Deposit and other insurance expense |
21,954 | 24,317 | (2,363 | ) | (10 | ) | ||||||||||
Amortization of intangibles |
20,166 | 18,811 | 1,355 | 7 | ||||||||||||
Other expense |
77,239 | 74,064 | 3,175 | 4 | ||||||||||||
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Tota |