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, 2005
Commission
File Number
0-2525
Huntington Bancshares Incorporated
|
|
|
Maryland
|
|
31-0724920
|
(State or other jurisdiction of
|
|
(I.R.S. Employer
|
incorporation or organization)
|
|
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.
Yes
þ
No
o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).
Yes
þ
No
o
There were 230,820,842 shares of Registrants without par value common stock outstanding on July
31, 2005.
Huntington Bancshares Incorporated
INDEX
2
Part 1. Financial Information
Item 1. Financial Statements
Huntington Bancshares Incorporated
Condensed Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
June 30,
|
(in thousands, except number of shares)
|
|
2005
|
|
2004
|
|
2004
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
976,432
|
|
|
$
|
877,320
|
|
|
$
|
1,162,995
|
|
Federal funds sold and securities purchased under resale agreements
|
|
|
121,310
|
|
|
|
628,040
|
|
|
|
193,772
|
|
Interest bearing deposits in banks
|
|
|
22,758
|
|
|
|
22,398
|
|
|
|
24,009
|
|
Trading account securities
|
|
|
328,715
|
|
|
|
309,630
|
|
|
|
20,577
|
|
Loans held for sale
|
|
|
395,053
|
|
|
|
223,469
|
|
|
|
314,262
|
|
Investment securities
|
|
|
3,849,955
|
|
|
|
4,238,945
|
|
|
|
4,991,439
|
|
Loans and leases
|
|
|
24,567,148
|
|
|
|
23,560,277
|
|
|
|
21,775,669
|
|
Allowance for loan and lease losses
|
|
|
(254,784
|
)
|
|
|
(271,211
|
)
|
|
|
(286,935
|
)
|
|
Net loans and leases
|
|
|
24,312,364
|
|
|
|
23,289,066
|
|
|
|
21,488,734
|
|
|
Operating lease assets
|
|
|
353,678
|
|
|
|
587,310
|
|
|
|
888,612
|
|
Bank owned life insurance
|
|
|
983,302
|
|
|
|
963,059
|
|
|
|
944,892
|
|
Premises and equipment
|
|
|
356,697
|
|
|
|
355,115
|
|
|
|
354,534
|
|
Goodwill and other intangible assets
|
|
|
217,576
|
|
|
|
215,807
|
|
|
|
216,215
|
|
Customers acceptance liability
|
|
|
7,509
|
|
|
|
11,299
|
|
|
|
6,613
|
|
Accrued income and other assets
|
|
|
1,063,625
|
|
|
|
844,039
|
|
|
|
814,552
|
|
|
Total Assets
|
|
$
|
32,988,974
|
|
|
$
|
32,565,497
|
|
|
$
|
31,421,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
22,330,576
|
|
|
$
|
20,768,161
|
|
|
$
|
19,465,146
|
|
Short-term borrowings
|
|
|
1,266,535
|
|
|
|
1,207,233
|
|
|
|
1,130,830
|
|
Federal Home Loan Bank advances
|
|
|
903,864
|
|
|
|
1,271,088
|
|
|
|
1,270,455
|
|
Other long-term debt
|
|
|
3,034,154
|
|
|
|
4,016,004
|
|
|
|
4,557,373
|
|
Subordinated notes
|
|
|
1,046,283
|
|
|
|
1,039,793
|
|
|
|
1,011,506
|
|
Allowance for unfunded loan commitments and letters of credit
|
|
|
37,511
|
|
|
|
33,187
|
|
|
|
31,193
|
|
Bank acceptances outstanding
|
|
|
7,509
|
|
|
|
11,299
|
|
|
|
6,613
|
|
Deferred federal income tax liability
|
|
|
784,504
|
|
|
|
783,628
|
|
|
|
699,148
|
|
Accrued expenses and other liabilities
|
|
|
947,263
|
|
|
|
897,466
|
|
|
|
862,573
|
|
|
Total Liabilities
|
|
|
30,358,199
|
|
|
|
30,027,859
|
|
|
|
29,034,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock authorized 6,617,808 shares;
none outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock without par value; authorized
500,000,000 shares; issued 257,866,255
shares; outstanding 230,842,020; 231,605,281
and 229,475,821 shares, respectively
|
|
|
2,487,981
|
|
|
|
2,484,204
|
|
|
|
2,482,069
|
|
Less 27,024,235; 26,260,974 and 28,390,434
treasury shares, respectively
|
|
|
(526,814
|
)
|
|
|
(499,259
|
)
|
|
|
(539,852
|
)
|
Accumulated other comprehensive loss
|
|
|
(720
|
)
|
|
|
(10,903
|
)
|
|
|
(27,204
|
)
|
Retained earnings
|
|
|
670,328
|
|
|
|
563,596
|
|
|
|
471,356
|
|
|
Total Shareholders Equity
|
|
|
2,630,775
|
|
|
|
2,537,638
|
|
|
|
2,386,369
|
|
|
Total Liabilities and Shareholders Equity
|
|
$
|
32,988,974
|
|
|
$
|
32,565,497
|
|
|
$
|
31,421,206
|
|
|
See notes to unaudited condensed consolidated financial statements
3
Huntington Bancshares Incorporated
Condensed Consolidated Statements of Income
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
(in thousands, except per share amounts)
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
Interest and fee income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
$
|
352,608
|
|
|
$
|
268,651
|
|
|
$
|
678,276
|
|
|
$
|
539,014
|
|
Tax-exempt
|
|
|
116
|
|
|
|
202
|
|
|
|
355
|
|
|
|
707
|
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
37,042
|
|
|
|
46,591
|
|
|
|
75,042
|
|
|
|
93,760
|
|
Tax-exempt
|
|
|
4,341
|
|
|
|
4,582
|
|
|
|
8,648
|
|
|
|
9,072
|
|
Other
|
|
|
8,219
|
|
|
|
4,141
|
|
|
|
16,110
|
|
|
|
7,545
|
|
|
Total interest income
|
|
|
402,326
|
|
|
|
324,167
|
|
|
|
778,431
|
|
|
|
650,098
|
|
|
Interest expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
104,559
|
|
|
|
59,372
|
|
|
|
193,727
|
|
|
|
118,998
|
|
Short-term borrowings
|
|
|
7,086
|
|
|
|
2,789
|
|
|
|
11,914
|
|
|
|
6,102
|
|
Federal Home Loan Bank advances
|
|
|
8,663
|
|
|
|
8,098
|
|
|
|
17,346
|
|
|
|
16,139
|
|
Subordinated notes and other long-term debt
|
|
|
40,118
|
|
|
|
31,345
|
|
|
|
78,346
|
|
|
|
63,611
|
|
|
Total interest expense
|
|
|
160,426
|
|
|
|
101,604
|
|
|
|
301,333
|
|
|
|
204,850
|
|
|
Net interest income
|
|
|
241,900
|
|
|
|
222,563
|
|
|
|
477,098
|
|
|
|
445,248
|
|
Provision for credit losses
|
|
|
12,895
|
|
|
|
5,027
|
|
|
|
32,769
|
|
|
|
30,623
|
|
|
Net interest income after provision for credit losses
|
|
|
229,005
|
|
|
|
217,536
|
|
|
|
444,329
|
|
|
|
414,625
|
|
|
Operating lease income
|
|
|
38,097
|
|
|
|
78,706
|
|
|
|
84,829
|
|
|
|
167,573
|
|
Service charges on deposit accounts
|
|
|
41,516
|
|
|
|
43,596
|
|
|
|
80,934
|
|
|
|
85,433
|
|
Trust services
|
|
|
19,113
|
|
|
|
16,708
|
|
|
|
37,309
|
|
|
|
33,031
|
|
Brokerage and insurance income
|
|
|
13,544
|
|
|
|
13,523
|
|
|
|
26,570
|
|
|
|
28,720
|
|
Bank owned life insurance income
|
|
|
10,139
|
|
|
|
11,309
|
|
|
|
20,243
|
|
|
|
21,794
|
|
Other service charges and fees
|
|
|
11,252
|
|
|
|
10,645
|
|
|
|
21,411
|
|
|
|
20,158
|
|
Mortgage banking income (loss)
|
|
|
(2,376
|
)
|
|
|
23,322
|
|
|
|
9,685
|
|
|
|
19,026
|
|
Securities gains (losses)
|
|
|
(343
|
)
|
|
|
(9,230
|
)
|
|
|
614
|
|
|
|
5,860
|
|
Gain on sales of automobile loans
|
|
|
254
|
|
|
|
4,890
|
|
|
|
254
|
|
|
|
13,894
|
|
Other income
|
|
|
24,974
|
|
|
|
24,659
|
|
|
|
42,371
|
|
|
|
50,278
|
|
|
Total non-interest income
|
|
|
156,170
|
|
|
|
218,128
|
|
|
|
324,220
|
|
|
|
445,767
|
|
|
Personnel costs
|
|
|
124,090
|
|
|
|
119,715
|
|
|
|
248,071
|
|
|
|
241,339
|
|
Operating lease expense
|
|
|
28,879
|
|
|
|
62,563
|
|
|
|
66,827
|
|
|
|
133,273
|
|
Net occupancy
|
|
|
17,257
|
|
|
|
16,258
|
|
|
|
36,499
|
|
|
|
33,021
|
|
Outside data processing and other services
|
|
|
18,113
|
|
|
|
17,563
|
|
|
|
36,883
|
|
|
|
36,025
|
|
Equipment
|
|
|
15,637
|
|
|
|
16,228
|
|
|
|
31,500
|
|
|
|
32,314
|
|
Professional services
|
|
|
9,347
|
|
|
|
7,836
|
|
|
|
18,806
|
|
|
|
15,135
|
|
Marketing
|
|
|
7,441
|
|
|
|
8,069
|
|
|
|
13,895
|
|
|
|
15,908
|
|
Telecommunications
|
|
|
4,801
|
|
|
|
4,638
|
|
|
|
9,683
|
|
|
|
9,832
|
|
Printing and supplies
|
|
|
3,293
|
|
|
|
3,098
|
|
|
|
6,387
|
|
|
|
6,114
|
|
Amortization of intangibles
|
|
|
204
|
|
|
|
204
|
|
|
|
408
|
|
|
|
408
|
|
Other expense
|
|
|
19,074
|
|
|
|
25,981
|
|
|
|
37,454
|
|
|
|
44,438
|
|
|
Total non-interest expense
|
|
|
248,136
|
|
|
|
282,153
|
|
|
|
506,413
|
|
|
|
567,807
|
|
|
Income before income taxes
|
|
|
137,039
|
|
|
|
153,511
|
|
|
|
262,136
|
|
|
|
292,585
|
|
Provision for income taxes
|
|
|
30,614
|
|
|
|
43,384
|
|
|
|
59,192
|
|
|
|
78,285
|
|
|
Net income
|
|
$
|
106,425
|
|
|
$
|
110,127
|
|
|
$
|
202,944
|
|
|
$
|
214,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares basic
|
|
|
232,217
|
|
|
|
229,429
|
|
|
|
232,021
|
|
|
|
229,328
|
|
Average common shares diluted
|
|
|
235,671
|
|
|
|
232,659
|
|
|
|
235,362
|
|
|
|
232,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income basic
|
|
$
|
0.46
|
|
|
$
|
0.48
|
|
|
$
|
0.87
|
|
|
$
|
0.93
|
|
Net income diluted
|
|
|
0.45
|
|
|
|
0.47
|
|
|
|
0.86
|
|
|
|
0.92
|
|
Cash dividends declared
|
|
|
0.215
|
|
|
|
0.175
|
|
|
|
0.415
|
|
|
|
0.350
|
|
See notes to unaudited condensed consolidated financial statements
4
Condensed Consolidated Statements of Changes in Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common Stock
|
|
Treasury Shares
|
|
Comprehensive
|
|
Retained
|
|
|
(in thousands)
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Income
|
|
Earnings/
|
|
Total
|
|
Six Months Ended June 30, 2004 (Unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
257,866
|
|
|
$
|
2,483,542
|
|
|
|
(28,858
|
)
|
|
$
|
(548,576
|
)
|
|
$
|
2,678
|
|
|
$
|
337,358
|
|
|
$
|
2,275,002
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
214,300
|
|
|
|
214,300
|
|
Unrealized net holding losses on securities
available for sale arising during the period,
net of reclassification adjustment for net
gains included in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52,165
|
)
|
|
|
|
|
|
|
(52,165
|
)
|
Unrealized gains on derivative instruments
used in cash flow hedging relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,283
|
|
|
|
|
|
|
|
22,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
184,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared ($0.35 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(80,302
|
)
|
|
|
(80,302
|
)
|
Stock options exercised
|
|
|
|
|
|
|
(951
|
)
|
|
|
442
|
|
|
|
8,467
|
|
|
|
|
|
|
|
|
|
|
|
7,516
|
|
Other
|
|
|
|
|
|
|
(522
|
)
|
|
|
26
|
|
|
|
257
|
|
|
|
|
|
|
|
|
|
|
|
(265
|
)
|
|
|
Balance, end of period (Unaudited)
|
|
|
257,866
|
|
|
$
|
2,482,069
|
|
|
|
(28,390
|
)
|
|
$
|
(539,852
|
)
|
|
$
|
(27,204
|
)
|
|
$
|
471,356
|
|
|
$
|
2,386,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2005 (Unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
257,866
|
|
|
$
|
2,484,204
|
|
|
|
(26,261
|
)
|
|
$
|
(499,259
|
)
|
|
$
|
(10,903
|
)
|
|
$
|
563,596
|
|
|
$
|
2,537,638
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
202,944
|
|
|
|
202,944
|
|
Unrealized net holding gains on securities
available for sale arising during the period,
net of reclassification adjustment for net
gains included in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,248
|
|
|
|
|
|
|
|
5,248
|
|
Unrealized gains on derivative instruments
used in cash flow hedging relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,935
|
|
|
|
|
|
|
|
4,935
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared ($0.415 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(96,212
|
)
|
|
|
(96,212
|
)
|
Treasury shares purchased
|
|
|
|
|
|
|
|
|
|
|
(1,818
|
)
|
|
|
(44,178
|
)
|
|
|
|
|
|
|
|
|
|
|
(44,178
|
)
|
Stock options exercised
|
|
|
|
|
|
|
2,153
|
|
|
|
910
|
|
|
|
17,264
|
|
|
|
|
|
|
|
|
|
|
|
19,417
|
|
Other
|
|
|
|
|
|
|
1,624
|
|
|
|
145
|
|
|
|
(641
|
)
|
|
|
|
|
|
|
|
|
|
|
983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period (Unaudited)
|
|
|
257,866
|
|
|
$
|
2,487,981
|
|
|
|
(27,024
|
)
|
|
$
|
(526,814
|
)
|
|
$
|
(720
|
)
|
|
$
|
670,328
|
|
|
$
|
2,630,775
|
|
|
See notes to unaudited condensed consolidated financial statements.
5
Huntington Bancshares Incorporated
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
June 30,
|
(in thousands of dollars)
|
|
2005
|
|
2004
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
202,944
|
|
|
$
|
214,300
|
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
Provision for credit losses
|
|
|
32,769
|
|
|
|
30,623
|
|
Depreciation on operating lease assets
|
|
|
61,263
|
|
|
|
120,915
|
|
Amortization of mortgage servicing rights
|
|
|
9,948
|
|
|
|
9,398
|
|
Other depreciation and amortization
|
|
|
39,153
|
|
|
|
45,829
|
|
Mortgage servicing rights impairment charges (recovery)
|
|
|
6,471
|
|
|
|
(4,759
|
)
|
Deferred income tax expense
|
|
|
4,305
|
|
|
|
66,243
|
|
Increase in trading account securities
|
|
|
(19,085
|
)
|
|
|
(12,988
|
)
|
Originations of loans held for sale
|
|
|
(1,065,372
|
)
|
|
|
(955,589
|
)
|
Principal payments on and proceeds from loans held for sale
|
|
|
893,788
|
|
|
|
867,806
|
|
Gains on sales of investment securities
|
|
|
(614
|
)
|
|
|
(5,860
|
)
|
Gains on sales/securitizations of loans
|
|
|
(254
|
)
|
|
|
(13,894
|
)
|
Increase of cash surrender value of bank owned life insurance
|
|
|
(20,243
|
)
|
|
|
(21,794
|
)
|
(Decrease) increase in payable to investors in securitized loans
|
|
|
(134,561
|
)
|
|
|
33,032
|
|
Other, net
|
|
|
(114,428
|
)
|
|
|
(20,897
|
)
|
|
Net Cash (Used for) Provided by Operating Activities
|
|
|
(103,916
|
)
|
|
|
352,365
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
(Increase) decrease in interest bearing deposits in banks
|
|
|
(360
|
)
|
|
|
9,618
|
|
Proceeds from:
|
|
|
|
|
|
|
|
|
Maturities and calls of investment securities
|
|
|
207,874
|
|
|
|
545,089
|
|
Sales of investment securities
|
|
|
1,476,685
|
|
|
|
885,554
|
|
Purchases of investment securities
|
|
|
(1,273,933
|
)
|
|
|
(1,457,477
|
)
|
Proceeds from sales/securitizations of loans
|
|
|
54,913
|
|
|
|
1,382,596
|
|
Net loan and lease originations, excluding sales
|
|
|
(1,111,747
|
)
|
|
|
(2,234,989
|
)
|
Purchases of equipment operating lease assets
|
|
|
(8,353
|
)
|
|
|
(7,965
|
)
|
Proceeds from sale of operating lease assets
|
|
|
174,427
|
|
|
|
248,488
|
|
Proceeds from sale of premises and equipment
|
|
|
989
|
|
|
|
334
|
|
Purchases of premises and equipment
|
|
|
(28,500
|
)
|
|
|
(29,298
|
)
|
Proceeds from sales of other real estate
|
|
|
41,899
|
|
|
|
6,460
|
|
|
Net Cash Used for Investing Activities
|
|
|
(466,106
|
)
|
|
|
(651,590
|
)
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
Increase in deposits
|
|
|
1,562,607
|
|
|
|
982,401
|
|
Increase (decrease) in short-term borrowings
|
|
|
59,302
|
|
|
|
(321,474
|
)
|
Proceeds from issuance of subordinated notes
|
|
|
|
|
|
|
148,830
|
|
Maturity of subordinated notes
|
|
|
|
|
|
|
(100,000
|
)
|
Proceeds from Federal Home Loan Bank advances
|
|
|
557,789
|
|
|
|
455
|
|
Maturity of Federal Home Loan Bank advances
|
|
|
(925,013
|
)
|
|
|
(3,000
|
)
|
Proceeds from issuance of long-term debt
|
|
|
|
|
|
|
625,000
|
|
Maturity of long-term debt
|
|
|
(975,000
|
)
|
|
|
(600,000
|
)
|
Dividends paid on common stock
|
|
|
(92,520
|
)
|
|
|
(80,239
|
)
|
Repurchases of common stock
|
|
|
(44,178
|
)
|
|
|
|
|
Net proceeds from issuance of common stock
|
|
|
19,417
|
|
|
|
7,516
|
|
|
Net Cash Provided by Financing Activities
|
|
|
162,404
|
|
|
|
659,489
|
|
|
Change in Cash and Cash Equivalents
|
|
|
(407,618
|
)
|
|
|
360,264
|
|
Cash and Cash Equivalents at Beginning of Period
|
|
|
1,505,360
|
|
|
|
996,503
|
|
|
Cash and Cash Equivalents at End of Period
|
|
$
|
1,097,742
|
|
|
$
|
1,356,767
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
95,611
|
|
|
$
|
9,490
|
|
Interest paid
|
|
|
279,823
|
|
|
|
206,500
|
|
Non-cash activities
|
|
|
|
|
|
|
|
|
Mortgage loans securitized
|
|
|
|
|
|
|
115,929
|
|
Common stock dividends accrued, paid in subsequent quarter
|
|
|
39,613
|
|
|
|
31,562
|
|
See notes to unaudited condensed consolidated financial statements.
6
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Huntington
Bancshares Incorporated (Huntington or the Company) reflect all adjustments consisting of normal
recurring accruals, which are, in the opinion of Management, necessary for a fair presentation of
the consolidated financial position, the results of operations, and cash flows for the periods
presented. These unaudited condensed consolidated financial statements have been prepared
according to the rules and regulations of the Securities and Exchange Commission (SEC or
Commission) and, therefore, certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally accepted in the
United States (GAAP) have been omitted. The Notes to the Consolidated Financial Statements
appearing in Huntingtons 2004 Annual Report on Form 10-K (2004 Form 10-K), which include
descriptions of significant accounting policies, as updated by the information contained in this
report, should be read in conjunction with these interim financial statements.
Certain amounts in the prior-years financial statements have been reclassified to conform to
the 2005 presentation.
For statement of cash flows purposes, cash and cash equivalents are defined as the sum of
Cash and due from banks and Federal funds sold and securities purchased under resale
agreements.
Note 2 New Accounting Pronouncements
Financial Accounting Standards Board (FASB) Statement No. 123 (revised 2004),
Share-Based Payment
(Statement 123R)
Statement 123R was issued in December 2004, requiring that the compensation cost
relating to share-based payment transactions be recognized in the financial statements. That cost
will be measured based on the fair value of the equity or liability instruments issued. Statement
123R covers a wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and employee share
purchase plans. Statement 123R replaces FASB Statement No. 123,
Accounting for Stock-Based
Compensation
(Statement 123), and supersedes Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees
(APB 25). Statement 123, as originally issued in 1995,
established as preferable a fair-value-based method of accounting for share-based payment
transactions with employees. However, that Statement permitted entities the option of continuing
to apply the guidance in APB 25, as long as the footnotes to financial statements disclosed pro
forma net income under the preferable fair-value-based method. In its 2004 Form 10-K, Huntington
disclosed adopting Statement 123R effective January 1, 2005. Subsequently however, new guidance
was issued by the SEC that provides the option to postpone adoption of Statement 123R until the
first annual reporting period that begins after June 15, 2005. As such, Huntington has postponed
the adoption of Statement 123R until January 1, 2006.
(Pro forma disclosures required by Statement
123 are provided in Note 10.)
Statement 123R will require the immediate recognition at the grant date of the full
share-based compensation expense for grants to retirement eligible employees, as the explicit
vesting period is non-substantive. The estimated effect of applying the explicit vesting period
approach versus the non-substantive approach is not material to any period presented.
Staff Accounting Bulletin No. 107,
Share Based Payments (SAB 107)
On March 29, 2005, the SEC
issued SAB 107 to provide public companies additional guidance in applying the provisions of
Statement 123R. Among other things, SAB 107 describes the SEC staffs expectations in determining
the assumptions that underlie the fair value estimates and discusses the interaction of Statement
123R with certain existing SEC guidance. Huntington will adopt the provisions of SAB 107 in
conjunction with the adoption of FAS 123R beginning January 1, 2006.
FASB Interpretation No. 47,
Accounting for Conditional Asset Retirement Obligations (FIN 47)
In
March 2005, the FASB issued FIN 47, which clarifies that the term conditional asset retirement
obligation as used in FASB Statement No. 143,
Accounting for Asset Retirement Obligations
. FIN 47
refers to a legal obligation to perform an asset retirement activity in which the timing and/or
method of settlement are conditional on a future event that may or may not be within the control of
the entity. An entity is required to recognize a liability for the fair value of a conditional
asset retirement obligation if the fair value of the liability can be reasonably estimated. FIN 47
becomes effective for fiscal years ending after December 15, 2005. Huntington does not expect the
impact of adopting FIN 47 will be significant.
7
Financial Accounting Standards Board (FASB) Statement No. 154,
Accounting Changes and Error
Corrections a replacement of APB Opinion No. 20 and FASB Statement No. 3 (Statement 154)
In
May 2005, the FASB issued Statement 154, which replaces APB Opinion No. 20,
Accounting Changes
, and
FASB Statement No. 3,
Reporting Accounting Changes in Interim Financial Statements
. Statement 154
changes the requirements for the accounting for and reporting of a change in accounting principle.
Statement 154 is effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005. The impact of this new pronouncement is not expected to be
material to Huntingtons financial condition, results of operations, or cash flows.
FASB Staff Position No. 106-2,
Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003
(FSP 106-2)
In December 2003, a law
was enacted that expands Medicare benefits, primarily adding a prescription drug benefit for
Medicare-eligible retirees beginning in 2006. The law also provides a federal subsidy to companies
that sponsor postretirement benefit plans providing prescription drug coverage. FSP 106-2
specifies that any Medicare subsidy must be taken into account in measuring the employers
postretirement health care benefit obligation and will also reduce the net periodic postretirement
cost in future periods. During the first quarter of 2005, government authorities issued further
clarification on certain aspects of the Medicare Act. Huntington is currently in the process of
determining whether to register for the Medicare subsidy and therefore the postretirement benefit
obligations and net periodic costs reported in the accompanying financial statements and notes do
not reflect the impact of this legislation. The impact of this new pronouncement is not expected
to be material to Huntingtons financial condition, results of operations, or cash flows.
Proposed
FASB interpretation of FASB Statement No. 109
Accounting for
Uncertain Tax Positions
In July 2005, the FASB issued an
exposure draft of a proposed interpretation on accounting for
uncertain tax positions under SFAS No. 109
Accounting for
Income Taxes
. The Exposure Draft contains proposed guidance on
the recognition and measurement of uncertain tax positions. If adopted
as proposed, the Company would be required to recognize, in its
financial statements, the best estimate of the impact of a tax position, only if that tax position
is probable of being sustained on audit based solely on the technical
merits of the position. The proposed effective date for the Interpretation is
December 31, 2005, with a cumulative effect of a change in accounting
principle to be recorded upon the initial adoption. The Company is
currently evaluating the impact this proposed interpretation will
have on its financial statements. The proposed Interpretation is
subject to a 60-day comment period followed by final deliberations by
the FASB and, therefore, is subject to change.
Note 3 Securities and Exchange Commission Formal Investigation
On June 26, 2003, Huntington announced that the Securities and Exchange Commission staff was
conducting a formal investigation into certain financial accounting matters relating to fiscal
years 2002 and earlier and certain related disclosure matters.
On June 2, 2005, Huntington announced that the five-member Securities and Exchange Commission
(Commission) approved the settlement of its previously announced formal investigation into
certain financial accounting matters. As a part of the settlement, the Commission instituted a
cease and desist administrative proceeding and entered a cease and desist order, as well as filed a
civil action in federal district court pursuant to which, without admitting or denying the
allegations in the complaint, Huntington, its chief executive officer, Thomas Hoaglin, its former
chief financial officer, Michael McMennamin, and its former controller, John Van Fleet have
consented to pay civil money penalties. Huntington consented to pay a penalty of $7.5 million,
which may be distributed pursuant to the Fair Fund provisions of Section 308(a) of the
Sarbanes-Oxley Act of 2002. This civil money penalty had no 2005 financial impact on Huntingtons
results, as reserves for this amount were established and expensed in 2004.
In the administrative proceeding, the Commission charged that in its 2001 and 2002 fiscal
years Huntington violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 (Securities
Act) and Sections 13(a) and 13(b)(2)(A) and (B) of the Securities Exchange Act of 1934 (Exchange
Act), and Exchange Act Rules 12b-20 and 13a-1; that Hoaglin violated Exchange Act Rule 13a-14 and
caused Huntingtons violations of Securities Act Section 17(a)(2) and Exchange Act Sections 13(a)
and 13(b)(2)(A) and (B), and Exchange Act Rules 12b-20 and 13a-1 with respect to fiscal year 2002;
that McMennamin and Van Fleet violated Securities Act Sections 17(a)(2) and 17(a)(3), Exchange Act
Section 13(b)(5) and Exchange Act Rule 13b2-1, and caused Huntingtons violations of Exchange Act
Sections 13(a) and 13(b)(2)(A) and (B) and Exchange Act Rules 12b-20 and 13a-1 in fiscal years 2001
and 2002; and that McMennamin directly violated Exchange Act Rule 13a-14 in 2002. Without
admitting or denying the charges in the administrative proceeding, Huntington and the individuals
each agreed to cease and desist from committing and/or causing the violations charged as well as
any future
8
violations of these provisions. Additionally, Hoaglin, McMennamin, and Van Fleet agreed
to pay disgorgement, pre-judgment interest, and penalties in the amounts of $667,609, $415,215, and
$51,660, respectively. Van Fleet consented to a suspension from appearing or practicing before the
Commission as an accountant for two years pursuant to Rule 102(e) of the Commissions Rules of
Practice. McMennamin consented to an undertaking that he will not act as an officer or director of
a public company for five years.
Note 4 Formal Regulatory Supervisory Agreements
On March 1, 2005, Huntington announced that it had entered into a formal written agreement
with the Federal Reserve Bank of Cleveland (FRBC) and that the Bank had entered into a formal
written agreement with the Office of the Comptroller of the Currency (OCC), providing for a
comprehensive action plan designed to enhance its corporate governance, internal audit, risk
management, accounting policies and procedures, and financial and regulatory reporting. The
agreements call for independent third-party reviews, as well as the submission of written plans and
progress reports by Management and remain in effect until terminated by the banking regulators.
Management has been working with its banking regulators over the past several months and has
been taking actions and devoting significant resources to address all of the issues raised.
Management believes that the changes it has already made, and is in the process of making, will
address these issues fully and comprehensively. No assurances, however, can be provided as to the
ultimate timing or outcome of these matters.
Note 5 Pending Acquisition
On January 27, 2004, Huntington announced the signing of a definitive agreement to acquire
Unizan Financial Corp. (Unizan), a financial holding company based in Canton, Ohio. On November
12, 2004, Huntington and Unizan jointly announced they had entered into an amendment to their
January 26, 2004 merger agreement extending the term of the agreement for one year from January 27,
2005 to January 27, 2006, and Huntington had withdrawn its application with the Federal Reserve to
acquire Unizan. On March 1, 2005, Huntington announced that it intends to resubmit the application
for regulatory approval of the merger once the regulatory written agreements have been terminated.
No assurances, however, can be provided as to the ultimate timing or outcome of these matters.
Note 6 Loan Sales and Securitizations
Automobile loans
Huntington sold $53.4 million and $500.9 million of automobile loans in the second quarter of
2005 and 2004, respectively. For the six-month periods ended June 30, 2005 and 2004, sales of
automobile loans totaled $53.4 million and $1.4 billion, respectively. Pre-tax gains from the sales
of automobile loans totaled $0.3 million and $4.8 million in second quarter of 2005 and 2004,
respectively, and $0.3 million and $13.9 million for the six-months ended June 30, 2005 and 2004,
respectively.
A servicing asset is established based on the relative fair values of both assets sold and
retained at the time of the loan sale. The servicing asset is then amortized against servicing
income. Impairment, if any, is recognized when carrying value exceeds the fair value as determined
by calculating the present value of expected net future cash flows. The primary risk
characteristic for measuring servicing assets is payoff rates of the underlying loan pools.
Valuation calculations rely heavily on the predicted payoff assumption, and if actual payoff is
quicker than expected, then future value would be impaired.
9
Changes in the carrying value of automobile loan servicing rights for the three months and six
months ended June 30, 2005 and 2004, and the fair value at the end of each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
(in thousands of dollars)
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
|
|
Carrying value, beginning of period
|
|
$
|
17,046
|
|
|
$
|
23,913
|
|
|
$
|
20,286
|
|
|
$
|
17,662
|
|
New servicing assets
|
|
|
332
|
|
|
|
5,546
|
|
|
|
332
|
|
|
|
14,395
|
|
Amortization
|
|
|
(3,050
|
)
|
|
|
(3,537
|
)
|
|
|
(6,290
|
)
|
|
|
(6,135
|
)
|
Impairment charges
|
|
|
(66
|
)
|
|
|
|
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value, end of period
|
|
$
|
14,262
|
|
|
$
|
25,922
|
|
|
$
|
14,262
|
|
|
$
|
25,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value, end of period
|
|
$
|
14,842
|
|
|
$
|
26,797
|
|
|
$
|
14,842
|
|
|
$
|
26,797
|
|
|
|
|
|
|
|
|
|
|
Huntington has retained servicing responsibilities and receives annual servicing fees from 0.55% to
1.00% of the outstanding loan balances. Servicing income, net of amortization of capitalized
servicing assets, amounted to $2.6 million and $2.4 million for the three months ended June 30,
2005 and 2004, respectively. For the six months ended June 30, 2005 and 2004, servicing income was
$5.0 million and $4.2 million, respectively. There were no pre-tax gains from automobile loan
securitization in 2005 or 2004.
Residential Mortgage Loans
No sales or securitizations of residential mortgage loans held for investment were made in the
first half of 2005. For the three months and six months ended June 30, 2004, Huntington sold $22.9
million and $43.7 million of residential mortgage loans held for investment, resulting in a net
pre-tax gain of $0.3 million and $0.4 million respectively. Huntington also securitized $115.9
million of residential mortgage loans in the first quarter of 2004, and retained all of the
resulting securities. Accordingly, the securitized amounts were reclassified from loans to
investment securities.
A mortgage servicing right (MSR) is established only when the loans are sold or when servicing
is contractually separated from the underlying mortgage loans by sale or securitization of the
loans with servicing rights retained. The initial carrying value of the asset is established based
on its fair value at the time of sale using assumptions that are consistent with assumptions used
at the time to estimate the fair value of the total MSR portfolio. All servicing rights are
subsequently carried at the lower of the initial carrying value, adjusted for amortization, or fair
value, and are included in other assets.
Changes in the carrying value of mortgage servicing rights for the three months and six months
ended June 30, 2005 and 2004, and the fair value at the end of each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
(in thousands of dollars)
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
|
|
Carrying value, beginning of period
|
|
$
|
80,972
|
|
|
$
|
60,379
|
|
|
$
|
77,107
|
|
|
$
|
71,087
|
|
New servicing assets
|
|
|
5,596
|
|
|
|
8,018
|
|
|
|
10,582
|
|
|
|
12,782
|
|
Amortization
|
|
|
(5,187
|
)
|
|
|
(4,046
|
)
|
|
|
(9,948
|
)
|
|
|
(9,397
|
)
|
Temporary impairment (charges) recovery
|
|
|
(10,231
|
)
|
|
|
14,880
|
|
|
|
(6,471
|
)
|
|
|
4,759
|
|
Sales
|
|
|
|
|
|
|
(64
|
)
|
|
|
(120
|
)
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
Carrying value, end of period
|
|
$
|
71,150
|
|
|
$
|
79,167
|
|
|
$
|
71,150
|
|
|
$
|
79,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value, end of period
|
|
$
|
75,974
|
|
|
$
|
94,936
|
|
|
$
|
75,974
|
|
|
$
|
94,936
|
|
|
|
|
|
|
|
|
|
|
10
Servicing rights are evaluated quarterly for impairment based on the fair value of those
rights, using a disaggregated approach. The fair value of the servicing rights is determined by
estimating the present value of future net cash flows, taking into consideration market loan
prepayment speeds, discount rates, servicing costs, and other economic factors. Temporary
impairment is recognized in a valuation allowance against the mortgage servicing rights. Huntington
also analyzes its mortgage servicing rights periodically for other-than-temporary impairment.
Other-than-temporary impairment is recognized as a direct reduction of the carrying value of the
mortgage servicing right and cannot be recovered. Servicing rights are amortized over the period
of, and in proportion to, the estimated future net servicing revenue. Amortization is recorded as a
reduction of servicing income, which is reflected in non-interest income in Huntingtons
consolidated income statement.
Changes in the impairment allowance of mortgage servicing rights for the three months and six
months ended June 30, 2005 and 2004, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
(in thousands of dollars)
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
|
|
Balance, beginning of period
|
|
$
|
(1,015
|
)
|
|
$
|
(16,274
|
)
|
|
$
|
(4,775
|
)
|
|
$
|
(6,153
|
)
|
Impairment charges
|
|
|
(10,231
|
)
|
|
|
(414
|
)
|
|
|
(11,411
|
)
|
|
|
(10,535
|
)
|
Impairment recovery
|
|
|
|
|
|
|
15,294
|
|
|
|
4,940
|
|
|
|
15,294
|
|
|
|
|
Balance, end of period
|
|
$
|
(11,246
|
)
|
|
$
|
(1,394
|
)
|
|
$
|
(11,246
|
)
|
|
$
|
(1,394
|
)
|
|
|
|
11
|
Note 7 Investment Securities
|
Listed below are the contractual maturities (under 1 year, 1-5 years, 6-10 years, and over 10 years) of investment
securities at June 30, 2005, December 31, 2004, and June 30, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2005
|
|
December 31, 2004
|
|
June 30, 2004
|
|
|
Amortized
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
Amortized
|
|
|
(in thousands of dollars)
|
|
Cost
|
|
Fair Value
|
|
Cost
|
|
Fair Value
|
|
Cost
|
|
Fair Value
|
|
U.S. Treasury
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 1 year
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
796
|
|
|
$
|
800
|
|
1-5 years
|
|
|
23,949
|
|
|
|
23,821
|
|
|
|
24,233
|
|
|
|
24,304
|
|
|
|
24,480
|
|
|
|
24,404
|
|
6-10 years
|
|
|
248
|
|
|
|
267
|
|
|
|
754
|
|
|
|
832
|
|
|
|
754
|
|
|
|
824
|
|
Over 10 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Treasury
|
|
|
24,197
|
|
|
|
24,088
|
|
|
|
24,987
|
|
|
|
25,136
|
|
|
|
26,030
|
|
|
|
26,028
|
|
|
Federal Agencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 1 year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-5 years
|
|
|
15,221
|
|
|
|
15,010
|
|
|
|
1,362
|
|
|
|
1,390
|
|
|
|
14,181
|
|
|
|
14,548
|
|
6-10 years
|
|
|
19,775
|
|
|
|
19,568
|
|
|
|
38,814
|
|
|
|
38,589
|
|
|
|
155,460
|
|
|
|
155,628
|
|
Over 10 years
|
|
|
1,118,023
|
|
|
|
1,108,410
|
|
|
|
945,670
|
|
|
|
933,538
|
|
|
|
1,352,082
|
|
|
|
1,331,790
|
|
|
Total
mortgage-backed securities
|
|
|
1,153,019
|
|
|
|
1,142,988
|
|
|
|
985,846
|
|
|
|
973,517
|
|
|
|
1,521,723
|
|
|
|
1,501,967
|
|
|
Other agencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 1 year
|
|
|
|
|
|
|
|
|
|
|
500
|
|
|
|
503
|
|
|
|
116,357
|
|
|
|
118,776
|
|
1-5 years
|
|
|
410,298
|
|
|
|
403,883
|
|
|
|
535,502
|
|
|
|
530,670
|
|
|
|
728,472
|
|
|
|
719,339
|
|
6-10 years
|
|
|
198,210
|
|
|
|
193,763
|
|
|
|
450,952
|
|
|
|
441,072
|
|
|
|
343,226
|
|
|
|
322,398
|
|
Over 10 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other agencies
|
|
|
608,508
|
|
|
|
597,646
|
|
|
|
986,954
|
|
|
|
972,245
|
|
|
|
1,188,055
|
|
|
|
1,160,512
|
|
|
Total U.S. Treasury and Federal Agencies
|
|
|
1,785,724
|
|
|
|
1,764,722
|
|
|
|
1,997,787
|
|
|
|
1,970,898
|
|
|
|
2,735,808
|
|
|
|
2,688,507
|
|
|
Municipal securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 1 year
|
|
|
65
|
|
|
|
65
|
|
|
|
5,997
|
|
|
|
6,032
|
|
|
|
8,141
|
|
|
|
8,193
|
|
1-5 years
|
|
|
166
|
|
|
|
165
|
|
|
|
9,990
|
|
|
|
10,392
|
|
|
|
15,541
|
|
|
|
15,774
|
|
6-10 years
|
|
|
102,460
|
|
|
|
103,599
|
|
|
|
83,102
|
|
|
|
83,771
|
|
|
|
70,218
|
|
|
|
69,285
|
|
Over 10 years
|
|
|
393,905
|
|
|
|
402,053
|
|
|
|
311,525
|
|
|
|
316,029
|
|
|
|
311,972
|
|
|
|
303,309
|
|
|
Total municipal securities
|
|
|
496,596
|
|
|
|
505,882
|
|
|
|
410,614
|
|
|
|
416,224
|
|
|
|
405,872
|
|
|
|
396,560
|
|
|
Private Label CMO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 1 year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6-10 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over 10 years
|
|
|
424,521
|
|
|
|
420,103
|
|
|
|
462,394
|
|
|
|
458,027
|
|
|
|
585,920
|
|
|
|
577,013
|
|
|
Total Private Label CMO
|
|
|
424,521
|
|
|
|
420,103
|
|
|
|
462,394
|
|
|
|
458,027
|
|
|
|
585,920
|
|
|
|
577,013
|
|
|
Asset backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 1 year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-5 years
|
|
|
34,625
|
|
|
|
34,636
|
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
30,038
|
|
6-10 years
|
|
|
|
|
|
|
|
|
|
|
8,084
|
|
|
|
8,155
|
|
|
|
11,187
|
|
|
|
11,339
|
|
Over 10 years
|
|
|
1,011,868
|
|
|
|
1,015,621
|
|
|
|
1,160,212
|
|
|
|
1,161,827
|
|
|
|
1,074,239
|
|
|
|
1,075,608
|
|
|
Total asset backed securities
|
|
|
1,046,493
|
|
|
|
1,050,257
|
|
|
|
1,198,296
|
|
|
|
1,199,982
|
|
|
|
1,115,426
|
|
|
|
1,116,984
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 1 year
|
|
|
1,200
|
|
|
|
1,200
|
|
|
|
2,100
|
|
|
|
2,118
|
|
|
|
1,611
|
|
|
|
1,642
|
|
1-5 years
|
|
|
12,109
|
|
|
|
12,382
|
|
|
|
9,102
|
|
|
|
9,384
|
|
|
|
9,703
|
|
|
|
9,877
|
|
6-10 years
|
|
|
1,555
|
|
|
|
1,573
|
|
|
|
2,913
|
|
|
|
2,980
|
|
|
|
2,854
|
|
|
|
2,948
|
|
Over 10 years
|
|
|
87,657
|
|
|
|
87,939
|
|
|
|
169,872
|
|
|
|
173,131
|
|
|
|
193,652
|
|
|
|
190,545
|
|
Marketable equity securities
|
|
|
5,657
|
|
|
|
5,897
|
|
|
|
5,526
|
|
|
|
6,201
|
|
|
|
6,658
|
|
|
|
7,364
|
|
|
Total other
|
|
|
108,178
|
|
|
|
108,991
|
|
|
|
189,513
|
|
|
|
193,814
|
|
|
|
214,479
|
|
|
|
212,375
|
|
|
Total investment securities
|
|
$
|
3,861,512
|
|
|
$
|
3,849,955
|
|
|
$
|
4,258,604
|
|
|
$
|
4,238,945
|
|
|
$
|
5,057,504
|
|
|
$
|
4,991,439
|
|
|
|
|
|
(1)
|
|
The average duration of total investment securities as of June 30, 2005, December 31, 2004, and June 30, 2004, was 3.0 years, 2.8 years, and 3.2 years, respectively.
|
12
Based upon its assessment, Management does not believe any individual
unrealized loss at June 30, 2005, represents an other-than-temporary impairment. In addition, Huntington has both the
intent and the ability to hold these securities for a time necessary to recover the amortized cost.
There were no other-than-temporary impairments of any securities recognized in either of the
six-month periods ended June 30, 2005 and 2004.
Note 8 Other Comprehensive Income
The components of Huntingtons Other Comprehensive Income in the three and six months ended June 30
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
(in thousands of dollars)
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
|
|
Unrealized holding gains and losses on
securities available for sale
arising during the
period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized net gains (losses)
|
|
$
|
39,881
|
|
|
$
|
(136,458
|
)
|
|
$
|
8,716
|
|
|
$
|
(74,755
|
)
|
Related tax (expense) benefit
|
|
|
(14,067
|
)
|
|
|
47,760
|
|
|
|
(3,069
|
)
|
|
|
26,399
|
|
|
|
|
Net
|
|
|
25,814
|
|
|
|
(88,698
|
)
|
|
|
5,647
|
|
|
|
(48,356
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for net
gains from sales of securities
available for sale realized during the
period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized net losses (gains)
|
|
|
343
|
|
|
|
9,230
|
|
|
|
(614
|
)
|
|
|
(5,860
|
)
|
Related tax (benefit) expense
|
|
|
(120
|
)
|
|
|
(3,231
|
)
|
|
|
215
|
|
|
|
2,051
|
|
|
|
|
Net
|
|
|
223
|
|
|
|
5,999
|
|
|
|
(399
|
)
|
|
|
(3,809
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized holding gains (losses)
on securities available for sale
arising during
the period, net of reclassification
adjustment for net gains included in net
income
|
|
|
26,037
|
|
|
|
(82,699
|
)
|
|
|
5,248
|
|
|
|
(52,165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains and losses on derivatives
used in cash flow hedging relationships
arising during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized net (losses) gains
|
|
|
(12,417
|
)
|
|
|
52,315
|
|
|
|
7,592
|
|
|
|
34,282
|
|
Related tax benefit (expense)
|
|
|
4,346
|
|
|
|
(18,310
|
)
|
|
|
(2,657
|
)
|
|
|
(11,999
|
)
|
|
|
|
Net
|
|
|
(8,071
|
)
|
|
|
34,005
|
|
|
|
4,935
|
|
|
|
22,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Comprehensive Income (Loss)
|
|
$
|
17,966
|
|
|
$
|
(48,694
|
)
|
|
$
|
10,183
|
|
|
$
|
(29,882
|
)
|
|
|
|
Activity in Accumulated Other Comprehensive Income for the six months ended June 30, 2005
and 2004 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains and
|
|
|
|
|
|
|
|
|
|
|
losses on derivative
|
|
|
|
|
|
|
Unrealized gains and
|
|
instruments used in
|
|
|
|
|
|
|
losses on securities
|
|
cash flow hedging
|
|
Minimum pension
|
|
|
(in thousands of dollars)
|
|
available for sale
|
|
relationships
|
|
liability
|
|
Total
|
|
Balance, December 31, 2003
|
|
$
|
9,429
|
|
|
$
|
(5,442
|
)
|
|
$
|
(1,309
|
)
|
|
$
|
2,678
|
|
Period change
|
|
|
(52,165
|
)
|
|
|
22,283
|
|
|
|
|
|
|
|
(29,882
|
)
|
|
Balance, June 30, 2004
|
|
$
|
(42,736
|
)
|
|
$
|
16,841
|
|
|
$
|
(1,309
|
)
|
|
$
|
(27,204
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
$
|
(12,683
|
)
|
|
$
|
4,252
|
|
|
$
|
(2,472
|
)
|
|
$
|
(10,903
|
)
|
Period change
|
|
|
5,248
|
|
|
|
4,935
|
|
|
|
|
|
|
|
10,183
|
|
|
Balance, June 30, 2005
|
|
$
|
(7,435
|
)
|
|
$
|
9,187
|
|
|
$
|
(2,472
|
)
|
|
$
|
(720
|
)
|
|
13
Note 9
Earnings per Share
Basic earnings per share is the amount of earnings for the period available to each share of
common stock outstanding during the reporting period. Diluted earnings per share is the amount of
earnings available to each share of common stock outstanding during the reporting period adjusted
for the potential issuance of common shares upon the exercise of stock options. The calculation of
basic and diluted earnings per share for each of the three and six months ended June 30 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
(in thousands of dollars, except per share amounts)
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
|
|
Net Income
|
|
$
|
106,425
|
|
|
$
|
110,127
|
|
|
$
|
202,944
|
|
|
$
|
214,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding
|
|
|
232,217
|
|
|
|
229,429
|
|
|
|
232,021
|
|
|
|
229,328
|
|
Dilutive potential common shares
|
|
|
3,454
|
|
|
|
3,230
|
|
|
|
3,341
|
|
|
|
3,459
|
|
|
|
|
Diluted Average Common Shares Outstanding
|
|
|
235,671
|
|
|
|
232,659
|
|
|
|
235,362
|
|
|
|
232,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.46
|
|
|
$
|
0.48
|
|
|
$
|
0.87
|
|
|
$
|
0.93
|
|
Diluted
|
|
|
0.45
|
|
|
|
0.47
|
|
|
|
0.86
|
|
|
|
0.92
|
|
The average market price of Huntingtons common stock for the period was used in determining
the dilutive effect of outstanding stock options. Common stock equivalents are computed based on
the number of shares subject to stock options that have an exercise price less than the average
market price of Huntingtons common stock for the period.
Options on approximately 2.6 million and 2.8 million shares were outstanding at June 30, 2005
and 2004, respectively, but were not included in the computation of diluted earnings per share
because the effect would be antidilutive. The weighted average exercise price for these options was
$26.92 per share and $26.70 per share at the end of the same respective periods.
On January 7, 2005, Huntington released from escrow 86,118 shares of Huntington common stock
to former shareholders of LeaseNet, Inc., which were previously issued in September 2002. A total
of 373,896 common shares, previously held in escrow, was returned to Huntington. All shares in
escrow had been accounted for as treasury stock.
Note
10 Stock-Based Compensation
Huntingtons stock-based compensation plans are accounted for based on the intrinsic value
method promulgated by APB Opinion 25,
Accounting for Stock Issued to Employees
, and related
interpretations. Compensation expense for employee stock options is generally not recognized if the
exercise price of the option equals or exceeds the fair value of the stock on the date of grant.
The following pro forma disclosures for net income and earnings per diluted common share is
presented as if Huntington had applied the fair value method of accounting of Statement No. 123 in
measuring compensation costs for stock options. The fair values of the stock options granted were
estimated using the Black-Scholes option-pricing model. This model assumes that the estimated fair
value of the options is amortized over the options vesting periods and the compensation costs
would be included in personnel expense on the income statement. The following table also includes
the weighted-average assumptions that were used in the option-pricing model for options granted in
each of the periods presented:
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
|
|
Number of stock options granted
during the period
(in thousands)
|
|
|
27.5
|
|
|
|
60.0
|
|
|
|
124.4
|
|
|
|
95.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
- average fair value of options granted during the period
|
|
|
$4.85
|
|
|
|
$5.56
|
|
|
|
$4.89
|
|
|
|
$5.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
3.63
|
%
|
|
|
3.89
|
%
|
|
|
4.02
|
%
|
|
|
3.82
|
%
|
Expected dividend yield
|
|
|
3.24
|
|
|
|
3.33
|
|
|
|
3.42
|
|
|
|
3.28
|
|
Expected volatility of Huntingtons common stock
|
|
|
26.3
|
|
|
|
30.9
|
|
|
|
26.3
|
|
|
|
30.9
|
|
Expected option term (years)
|
|
|
6.0
|
|
|
|
6.0
|
|
|
|
6.0
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Results
(in millions of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, as reported
|
|
$
|
106.4
|
|
|
$
|
110.1
|
|
|
$
|
202.9
|
|
|
$
|
214.3
|
|
Pro forma expense, net of tax, related to options granted
|
|
|
(2.9
|
)
|
|
|
(2.7
|
)
|
|
|
(5.8
|
)
|
|
|
(5.6
|
)
|
|
|
|
Pro Forma Net Income
|
|
$
|
103.5
|
|
|
$
|
107.4
|
|
|
$
|
197.1
|
|
|
$
|
208.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic, as reported
|
|
$
|
0.46
|
|
|
$
|
0.48
|
|
|
$
|
0.87
|
|
|
$
|
0.93
|
|
Basic, pro forma
|
|
|
0.45
|
|
|
|
0.47
|
|
|
|
0.85
|
|
|
|
0.91
|
|
Diluted, as reported
|
|
|
0.45
|
|
|
|
0.47
|
|
|
|
0.86
|
|
|
|
0.92
|
|
Diluted, pro forma
|
|
|
0.44
|
|
|
|
0.46
|
|
|
|
0.84
|
|
|
|
0.90
|
|
Note
11 Benefit Plans
Huntington sponsors the Huntington Bancshares Retirement Plan (the Plan), a non-contributory
defined benefit pension plan covering substantially all employees. The Plan provides benefits based
upon length of service and compensation levels. The funding policy of Huntington is to contribute
an annual amount that is at least equal to the minimum funding requirements but not more than that
deductible under the Internal Revenue Code. In addition, Huntington has an unfunded, defined
benefit post-retirement plan (Post-Retirement Benefit Plan) that provides certain healthcare and
life insurance benefits to retired employees who have attained the age of 55 and have at least 10
years of vesting service under this plan. For any employee retiring on or after January 1, 1993,
post-retirement healthcare benefits are based upon the employees number of months of service and
are limited to the actual cost of coverage. Life insurance benefits are a percentage of the
employees base salary at the time of retirement, with a maximum of $50,000 of coverage.
The following table shows the components of net periodic benefit expense:
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Post Retirement Benefits
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
|
June 30,
|
|
June 30,
|
(in thousands of dollars)
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
|
|
Service cost
|
|
$
|
3,547
|
|
|
$
|
3,040
|
|
|
$
|
353
|
|
|
$
|
326
|
|
Interest cost
|
|
|
4,754
|
|
|
|
4,371
|
|
|
|
778
|
|
|
|
802
|
|
Expected return on plan assets
|
|
|
(6,716
|
)
|
|
|
(5,383
|
)
|
|
|
|
|
|
|
|
|
Amortization of transition asset
|
|
|
(1
|
)
|
|
|
|
|
|
|
276
|
|
|
|
276
|
|
Amortization of prior service cost
|
|
|
|
|
|
|
|
|
|
|
95
|
|
|
|
146
|
|
Settlements
|
|
|
750
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
Recognized net actuarial loss
|
|
|
2,672
|
|
|
|
1,984
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Expense
|
|
$
|
5,006
|
|
|
$
|
5,012
|
|
|
$
|
1,502
|
|
|
$
|
1,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Post Retirement Benefits
|
|
|
Six Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
(in thousands of dollars)
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
|
|
Service cost
|
|
$
|
7,092
|
|
|
$
|
6,078
|
|
|
$
|
706
|
|
|
$
|
650
|
|
Interest cost
|
|
|
9,507
|
|
|
|
8,741
|
|
|
|
1,556
|
|
|
|
1,604
|
|
Expected return on plan assets
|
|
|
(12,812
|
)
|
|
|
(10,764
|
)
|
|
|
|
|
|
|
|
|
Amortization of transition asset
|
|
|
(2
|
)
|
|
|
|
|
|
|
552
|
|
|
|
552
|
|
Amortization of prior service cost
|
|
|
1
|
|
|
|
|
|
|
|
189
|
|
|
|
291
|
|
Settlements
|
|
|
1,500
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
Recognized net actuarial loss
|
|
|
5,345
|
|
|
|
3,968
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Expense
|
|
$
|
10,631
|
|
|
$
|
10,023
|
|
|
$
|
3,003
|
|
|
$
|
3,097
|
|
|
|
|
There is no expected minimum contribution for 2005 to the Plan. Although not required,
Huntington made a contribution to the Plan of $63.7 million in April 2005.
Huntington also sponsors other retirement plans, the most significant being the Supplemental
Executive Retirement Plan and the Supplemental Retirement Income Plan. These plans are nonqualified
plans that provide certain former officers and directors of Huntington and its subsidiaries with
defined pension benefits in excess of limits imposed by federal tax law.
Huntington has a defined contribution plan that is available to eligible employees. Matching
contributions by Huntington equal 100% on the first 3%, then 50% on the next 2%, of participant
elective deferrals. The cost of providing this plan was $2.4 million and $2.3 million for the three
months ended June 30, 2005 and 2004, respectively. For the respective six-month periods, the cost
was $4.9 million and $4.7 million.
16
Note
12 Commitments and Contingent Liabilities
Commitments to extend credit
:
In the ordinary course of business, Huntington makes various commitments to extend credit that
are not reflected in the financial statements. The contract amount of these financial agreements at
June 30, 2005, December 31, 2004, and June 30, 2004, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
June 30,
|
(in millions of dollars)
|
|
2005
|
|
2004
|
|
2004
|
|
Contract amount represents credit risk
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit
Commercial
|
|
$
|
5,156
|
|
|
$
|
5,076
|
|
|
$
|
4,993
|
|
Consumer
|
|
|
3,136
|
|
|
|
2,928
|
|
|
|
2,803
|
|
Commercial real estate
|
|
|
1,388
|
|
|
|
854
|
|
|
|
586
|
|
Standby letters of credit
|
|
|
968
|
|
|
|
945
|
|
|
|
937
|
|
Commercial letters of credit
|
|
|
61
|
|
|
|
72
|
|
|
|
132
|
|
Commitments to extend credit generally have fixed expiration dates, are variable-rate, and
contain clauses that permit Huntington to terminate or otherwise renegotiate the contracts in the
event of a significant deterioration in the customers credit quality. These arrangements normally
require the payment of a fee by the customer, the pricing of which is based on prevailing market
conditions, credit quality, probability of funding, and other relevant factors. Since many of these
commitments are expected to expire without being drawn upon, the contract amounts are not
necessarily indicative of future cash requirements. The interest rate risk arising from these
financial instruments is insignificant as a result of their predominantly short-term, variable-rate
nature.
Standby letters of credit are conditional commitments issued to guarantee the performance of a
customer to a third party. These guarantees are primarily issued to support public and private
borrowing arrangements, including commercial paper, bond financing, and similar transactions. Most
of these arrangements mature within two years. The carrying amount of deferred revenue associated
with these guarantees was $3.2 million, $4.1 million, and $3.2 million at June 30, 2005, December
31, 2004, and June 30, 2004, respectively.
Commercial letters of credit represent short-term, self-liquidating instruments that
facilitate customer trade transactions and generally have maturities of no longer than 90 days. The
merchandise or cargo being traded normally secures these instruments.
Commitments to sell loans:
Huntington enters into forward contracts relating to its mortgage banking business. At June
30, 2005, December 31, 2004, and June 30, 2004, Huntington had commitments to sell residential real
estate loans of $534.3 million, $311.3 million, and $309.6 million, respectively. These contracts
mature in less than one year.
During the second quarter, Huntington entered into a two-year agreement to sell a minimum of 50% of
monthly automobile loan production, provided the production meets
certain pricing, asset quality, and
volume parameters. At June 30, 2005, approximately
$75 million of automobile loans related to this
commitment were classified as held for sale.
Litigation:
In the ordinary course of business, there are various legal proceedings pending against
Huntington and its subsidiaries. In the opinion of Management, the aggregate liabilities, if any,
arising from such proceedings are not expected to have a material adverse effect on Huntingtons
consolidated financial position.
17
Note
13 Derivative Financial Instruments
A variety of derivative financial instruments, principally interest rate swaps, are used in
asset and liability management activities to protect against the risk of adverse price or interest
rate movements on the value of certain assets and liabilities and on future cash flows. These
instruments provide flexibility in adjusting the Companys sensitivity to changes in interest rates
without exposure to loss of principal and higher funding requirements. By using derivatives to
manage interest rate risk, the effect is a smaller, more efficient balance sheet, with a lower
wholesale funding requirement and a higher net interest margin. All derivatives are reflected at
fair value in the consolidated balance sheet. Huntington also uses derivatives, principally loan
sale commitments, in the hedging of its mortgage loan commitments and its mortgage loans held for
sale.
Market risk, which is the possibility that economic value of net assets or net interest income
will be adversely affected by changes in interest rates or other economic factors, is managed
through the use of derivatives. Derivatives are also sold to meet customers financing needs and,
like other financial instruments, contain an element of credit risk, which is the possibility that
Huntington will incur a loss because a counter-party fails to meet its contractual obligations.
Notional values of interest rate swaps and other off-balance sheet financial instruments
significantly exceed the credit risk associated with these instruments and represent contractual
balances on which calculations of amounts to be exchanged are based. Credit exposure is limited to
the sum of the aggregate fair value of positions that have become favorable to Huntington,
including any accrued interest receivable due from counterparties. Potential credit losses are
minimized through careful evaluation of counterparty credit standing, selection of counterparties
from a limited group of high quality institutions, collateral agreements, and other contractual
provisions.
Asset and Liability Management
Derivatives that are used in asset and liability management are classified as fair value
hedges or cash flow hedges and are required to meet specific criteria. To qualify as a hedge, the
hedge relationship is designated and formally documented at inception, detailing the particular
risk management objective and strategy for the hedge. This includes identifying the item and risk
being hedged, the derivative being used, and how the effectiveness of the hedge is being assessed.
A derivative must be highly effective in accomplishing the objective of offsetting either changes
in fair value or cash flows for the risk being hedged. Correlation is evaluated on a retrospective
and prospective basis using quantitative measures. If a hedge relationship is found to be
ineffective, the derivative may no longer qualify as a hedge. Any excess gains or losses
attributable to ineffectiveness are recognized in other income.
For fair value hedges, deposits, short-term borrowings, and long-term debt are effectively
converted to variable-rate obligations by entering into interest rate swap contracts whereby
fixed-rate interest is received in exchange for variable-rate interest without the exchange of the
contracts underlying notional amount. Forward contracts, used primarily in connection with its
mortgage banking activities, settle in cash at a specified future date based on the differential
between agreed interest rates applied to a notional amount. The changes in fair value of the hedged
item and the hedging instrument are reflected in current earnings.
For cash flow hedges, interest rate swap contracts are entered into that pay fixed-rate
interest in exchange for the receipt of variable-rate interest without the exchange of the
contracts underlying notional amount, which effectively converts a portion of its floating-rate
debt to fixed-rate. This reduces the potentially adverse impact of increases in interest rates on
future interest expense. In like fashion, certain LIBOR-based commercial and industrial loans are
effectively converted to fixed-rate by entering into contracts that swap variable-rate interest for
fixed-rate interest over the life of the contracts.
To the extent these derivatives are effective in offsetting the variability of the hedged cash
flows, changes in the derivatives fair value will not be included in current earnings but are
reported as a component of accumulated other comprehensive income in shareholders equity. These
changes in fair value will be included in earnings of future periods when earnings are also
affected by the changes in the hedged cash flows. To the extent these derivatives are not
effective, changes in their fair values are immediately included in earnings.
18
Derivatives used to manage Huntingtons interest rate risk at June 30, 2005, are shown in
the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Weighted-Average
|
|
|
Notional
|
|
Maturity
|
|
Fair
|
|
Rate
|
(in thousands of dollars)
|
|
Value
|
|
(years)
|
|
Value
|
|
Receive
|
|
Pay
|
|
Asset conversion swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive fixed generic
|
|
$
|
350,000
|
|
|
|
2.8
|
|
|
$
|
(4,866
|
)
|
|
|
3.41
|
%
|
|
|
3.17
|
%
|
Pay fixed generic
|
|
|
50,000
|
|
|
|
2.0
|
|
|
|
215
|
|
|
|
3.41
|
|
|
|
3.83
|
|
|
Total asset conversion swaps
|
|
|
400,000
|
|
|
|
2.7
|
|
|
|
(4,651
|
)
|
|
|
3.41
|
%
|
|
|
3.25
|
%
|
|
Liability conversion swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive fixed generic
|
|
|
1,480,000
|
|
|
|
6.2
|
|
|
|
19,749
|
|
|
|
4.22
|
%
|
|
|
3.41
|
%
|
Receive fixed callable
|
|
|
646,000
|
|
|
|
2.5
|
|
|
|
(5,753
|
)
|
|
|
4.31
|
|
|
|
3.17
|
|
Pay fixed generic
|
|
|
1,766,000
|
|
|
|
2.0
|
|
|
|
17,518
|
|
|
|
3.27
|
|
|
|
3.09
|
|
Pay fixed forwards
|
|
|
200,000
|
|
|
|
4.7
|
|
|
|
(1,569
|
)
|
|
|
N/A
|
|
|
|
4.57
|
|
|
Total liability conversion swaps
|
|
|
4,092,000
|
|
|
|
3.7
|
|
|
|
29,945
|
|
|
|
3.80
|
%
|
|
|
3.29
|
%
|
|
Total Swap Portfolio
|
|
$
|
4,492,000
|
|
|
|
3.6
|
|
|
$
|
25,294
|
|
|
|
3.77
|
%
|
|
|
3.29
|
%
|
|
N/A, not applicable
These values must be viewed in the context of the overall financial structure of Huntington,
including the aggregate net position of all on- and off-balance sheet financial instruments.
As is the case with cash securities, the fair value of interest rate swaps is largely a
function of the financial markets expectations regarding the future direction of interest rates.
Accordingly, current market values are not necessarily indicative of the future impact of the swaps
on net interest income. This will depend, in large part, on the shape of the yield curve as well as
interest rate levels. Management made no assumptions regarding future changes in interest rates
with respect to the variable-rate information presented in the table above.
The next table represents the gross notional value of derivatives used to manage interest rate
risk at June 30, 2005, identified by the underlying interest rate-sensitive instruments. The
notional amounts shown in the tables above and below should be viewed in the context of overall
interest rate risk management activities to assess the impact on the net interest margin.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Cash Flow
|
|
|
(in thousands of dollars)
|
|
Hedges
|
|
Hedges
|
|
Total
|
|
Instruments associated with:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
$
|
50,000
|
|
|
$
|
25,000
|
|
|
$
|
75,000
|
|
Loans
|
|
|
|
|
|
|
325,000
|
|
|
|
325,000
|
|
Deposits
|
|
|
676,000
|
|
|
|
45,000
|
|
|
|
721,000
|
|
Federal Home Loan Bank advances
|
|
|
|
|
|
|
876,000
|
|
|
|
876,000
|
|
Subordinated notes
|
|
|
500,000
|
|
|
|
|
|
|
|
500,000
|
|
Other long-term debt
|
|
|
950,000
|
|
|
|
1,045,000
|
|
|
|
1,995,000
|
|
|
Total Notional Value at June 30, 2005
|
|
$
|
2,176,000
|
|
|
$
|
2,316,000
|
|
|
$
|
4,492,000
|
|
|
Collateral agreements are regularly entered into as part of the underlying derivative
agreements with Huntingtons counterparties to mitigate the credit risk associated with both the
derivatives used for asset and liability management and used in trading activities. At June 30,
2005 and 2004, aggregate credit risk associated with these derivatives, net of
collateral that has been pledged by the counterparty, was $26.5 million and $23.3 million,
respectively. The credit risk associated with interest rate swaps is calculated after considering
master netting agreements.
These derivative financial instruments were entered into for the purpose of altering the
interest rate risk embedded in Huntingtons assets and liabilities. Consequently, net amounts
receivable or payable on contracts hedging either interest earning assets or interest bearing
liabilities were accrued as an adjustment to either interest income or interest expense. The
19
net
amount resulted in an increase to net interest income of $6.9 million, and $5.1 million, for the
three months ended June 30, 2005, and 2004, respectively. For the six months ended June 30, 2005
and 2004, the impact to net interest income was an increase of $14.5 million and $10.0 million,
respectively.
Derivatives Used in Mortgage Banking Activities
Huntington also uses derivatives, principally loan sale commitments, in the hedging of its
mortgage loan commitments and its mortgage loans held for sale. For derivatives that are used in
hedging mortgage loans held for sale, ineffective hedge gains and losses are reflected in mortgage
banking revenue in the income statement. Mortgage loan commitments are derivatives that are not
included in FAS 133 relationships. These derivative financial instruments are carried at fair value
on the consolidated balance sheet with changes in fair value reflected in mortgage banking revenue.
The following is a summary of the derivative assets and liabilities that Huntington used in its
mortgage banking activities as of June 30, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
At June 30,
|
(in thousands of dollars)
|
|
2005
|
|
2004
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
Interest rate lock agreements
|
|
$
|
1,333
|
|
|
$
|
876
|
|
Forward trades
|
|
|
243
|
|
|
|
798
|
|
|
Total derivative assets
|
|
|
1,576
|
|
|
|
1,674
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
Interest rate lock agreements
|
|
|
(861
|
)
|
|
|
(420
|
)
|
Forward trades
|
|
|
(2,122
|
)
|
|
|
(1,990
|
)
|
|
Total derivative liabilities
|
|
|
(2,983
|
)
|
|
|
(2,410
|
)
|
|
|
|
|
|
|
|
|
|
|
Net derivative liability
|
|
$
|
(1,407
|
)
|
|
$
|
(736
|
)
|
|
Derivatives Used in Trading Activities
Various derivative financial instruments are offered to enable customers to meet their
financing and investing objectives and for their risk management purposes. Derivative financial
instruments used in trading activities during the first six months of 2005 and 2004 consisted
predominantly of interest rate swaps, but also included interest rate caps, floors, and futures, as
well as foreign exchange options. Interest rate options grant the option holder the right to buy or
sell an underlying financial instrument for a predetermined price before the contract expires.
Interest rate futures are commitments to either purchase or sell a financial instrument at a future
date for a specified price or yield and may be settled in cash or through delivery of the
underlying financial instrument. Interest rate caps and floors are option-based contracts that
entitle the buyer to receive cash payments based on the difference between a designated reference
rate and a strike price, applied to a notional amount. Written options, primarily caps, expose
Huntington to market risk but not credit risk. Purchased options contain both credit and market
risk. They are used to manage fluctuating interest rates as exposure to loss from interest rate
contracts changes.
Supplying these derivatives to customers results in fee income. These instruments are carried
at fair value in other assets with gains and losses reflected in other non-interest income. Total
trading revenue for customer accommodation was $2.0 million and $3.1 million for the three months
ended June 30, 2005 and 2004, respectively. For the six months ended June 30, 2005 and 2004, total
trading revenue was $3.7 million and $4.8 million respectively. The total notional value of
derivative financial instruments used by Huntington on behalf of customers (for which the related
interest rate risk is offset by third parties) was $4.5 billion and $4.7 billion at June 30, 2005 and 2004 respectively.
Huntingtons credit risk from interest rate swaps used for trading purposes was $49.7 million and
$59.9 million at the same dates.
In connection with its securitization activities, interest rate caps were purchased with a
notional value totaling $1 billion. These purchased caps were assigned to the securitization trust
for the benefit of the security holders. Interest rate caps were also sold totaling $1 billion
outside the securitization structure. Both the purchased and sold caps are marked to market through
income in accordance with accounting principles generally accepted in the United States.
20
Note
14 Shareholders Equity
Share Repurchase Program:
Effective April 27, 2004, the board of directors authorized a new share repurchase program
(the 2004 Repurchase Program) which cancelled the 2003 Repurchase Program and authorized Management
to repurchase not more than 7,500,000 shares of Huntington common stock. On June 9, 2005,
Huntington reactivated its share repurchase program upon settlement of the SEC formal
investigation. During the second quarter, Huntington repurchased 1,818,000 shares under the 2004
Repurchase Program. Huntington expects to repurchase the remaining authorized shares from
time-to-time in the open market or through privately negotiated transactions depending on market
conditions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
Maximum Number
|
|
|
|
|
|
|
Average
|
|
Shares Purchased
|
|
of Shares that May
|
|
|
|
|
|
|
Price
|
|
as Part of Publicly
|
|
Yet Be Purchased
|
|
|
Total Number of
|
|
Paid Per
|
|
Announced Plans
|
|
Under the Plans or
|
Period
|
|
Shares Purchased
|
|
Share
|
|
or Programs
|
|
Programs
(1)
|
|
April 1, 2005 to April 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,500,000
|
|
May 1, 2005 to May 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,500,000
|
|
June 1, 2005 to June 30, 2005
|
|
|
1,818,000
|
|
|
$
|
24.28
|
|
|
|
1,818,000
|
|
|
|
5,682,000
|
|
|
|
|
Total
|
|
|
1,818,000
|
|
|
$
|
24.28
|
|
|
|
1,818,000
|
|
|
|
5,682,000
|
|
|
|
|
|
|
|
(1)
|
|
Information is as of the end of the period.
|
Rights Agreement:
Holders of Huntington common stock are entitled to certain rights as set forth in a Rights
Agreement dated as of February 22, 1990, amended August 16, 1995, and as it may be amended from
time to time (the Rights Agreement), between Huntington and The Huntington National Bank,
successor to The Huntington Trust Company, N.A., as rights agent. These rights are evidenced by
the certificates representing shares of Huntington common stock, each of which bears a legend
referencing the rights. The Rights Agreement expires on August 16, 2005. Huntingtons directors
have not taken any action to extend the term of the Rights Agreement or to redeem the rights. Upon
expiration of the Rights Agreement, the legend on Huntington common stock certificates referencing
the rights will have no force or effect.
Pending expiration of the Rights Agreement, each share of Huntington common stock would have
one associated preferred share purchase right. Generally, if a person acquires or announces a
tender offer to acquire 10% or more of Huntingtons outstanding common stock, each right will
become exercisable and entitle its holder to purchase 1/100 share of Series A Junior Participating
Preferred Stock (the economic equivalent of one share of Huntingtons common stock) for $49.68.
This exercise price is subject to further adjustment for stock dividends and splits. Once the
acquiring person acquires 10% or more of Huntingtons outstanding common stock, each right held by
such acquiring person will become null and void and each right held by all other holders will
entitle such holders to purchase the number of Huntingtons Series A Junior Participating Preferred
Stock having a value equal to twice the exercise price. In addition, if Huntington is acquired in a
merger or other business combination or a significant portion of Huntingtons assets are sold or
transferred, each holder will be entitled to purchase shares of the acquiring company that have a
market value of twice the exercise price or twice the book value, if the acquiring companys shares
are not publicly traded. A copy of the Rights Agreement has been filed with the SEC.
21
Note
15 Segment Reporting
Huntington has three distinct lines of business: Regional Banking, Dealer Sales, and the
Private Financial and Capital Markets Group (PFCMG). A fourth segment includes the Companys
Treasury function and other unallocated assets, liabilities, revenue, and expense. Lines of
business results are determined based upon the Companys management reporting system, which assigns
balance sheet and income statement items to each of the business segments. The process is designed
around Huntingtons organizational and management structure and, accordingly, the results below are
not necessarily comparable with similar information published by other financial institutions.
During the second quarter of 2005, the Capital Markets Group was removed from the Treasury / Other
segment and combined with the Private Financial Group to form the Private Financial and Capital
Markets Group segment. Since the Capital Markets Group is now managed through the Private
Financial Group, combining these two segments better reflects the management accountability and
decision-making structure. Prior periods have been restated to reflect this change in methodology.
An overview of this system is provided below, along with a description of each segment and
discussion of financial results.
The following provides a brief description of the four operating segments of Huntington:
Regional Banking:
This segment provides products and services to consumer, small business, and
commercial customers. These products and services are offered in seven operating regions within the
five states of Ohio, Michigan, West Virginia, Indiana, and Kentucky through the Companys banking
network of 336 branches, over 800 ATMs, plus Internet and telephone banking channels. Each region
is further divided into Retail and Commercial Banking units. Retail products and services include
home equity loans and lines of credit, first mortgage loans, direct installment loans, small
business loans, personal and business deposit products, as well as sales of investment and
insurance services. Retail Banking accounts for approximately 60% and 80% of total Regional Banking
loans and deposits, respectively. Commercial Banking serves middle market and large commercial
banking relationships, which use a variety of banking products and services including, but not
limited to, commercial loans, international trade, cash management, leasing, interest rate
protection products, capital market alternatives, 401(k) plans, and mezzanine investment
capabilities.
Dealer Sales:
This segment serves more than 3,500 automotive dealerships within Huntingtons
primary banking markets, as well as in Arizona, Florida, Georgia, Pennsylvania, and Tennessee. The
segment finances the purchase of automobiles by customers of the automotive dealerships, purchases
automobiles from dealers and simultaneously leases the automobiles to consumers under long-term
operating or direct finance leases, finances the dealerships floor plan inventories, real estate,
or working capital needs, and provides other banking services to the automotive dealerships and
their owners.
Private Financial and Capital Markets Group:
The Private Financial segment provides products and
services designed to meet the needs of the Companys higher net worth customers with revenue
derived through trust, asset management, investment advisory, brokerage, insurance, and private
banking products and services. The Capital Markets segment focuses on financial solutions
for corporate and institutional customers including investment banking, sales and trading of
securities, mezzanine capital financing, and risk management products.
Treasury / Other:
This segment includes revenue and expense related to assets, liabilities, and
equity that are not directly assigned or allocated to one of the other three business segments.
Assets included in this segment include investment securities and bank owned life insurance.
Use of Operating Earnings to Measure Segment Performance
Management uses earnings on an operating basis, rather than on a GAAP basis, to measure
underlying performance trends for each business segment and to determine the success of strategies
and future earnings capabilities. Operating earnings represent GAAP earnings adjusted to exclude
the impact of the significant items listed in the reconciliation table below. For the three months
and six months ending June 30, 2005, operating earnings were the same as reported GAAP earnings.
Listed below is certain operating basis financial information reconciled to Huntingtons
second quarter and year-to-date 2005 and 2004 reported results by line of business.
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
Income Statements
|
|
Regional
|
|
Dealer
|
|
|
|
|
|
Treasury/
|
|
Huntington
|
(in thousands of dollars)
|
|
Banking
|
|
Sales
|
|
PFCMG
|
|
Other
|
|
Consolidated
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
193,924
|
|
|
$
|
36,887
|
|
|
$
|
19,417
|
|
|
$
|
(8,328
|
)
|
|
$
|
241,900
|
|
Provision for credit losses
|
|
|
(8,501
|
)
|
|
|
(4,635
|
)
|
|
|
241
|
|
|
|
|
|
|
|
(12,895
|
)
|
Non-interest income
|
|
|
76,474
|
|
|
|
46,052
|
|
|
|
33,066
|
|
|
|
578
|
|
|
|
156,170
|
|
Non-interest expense
|
|
|
(148,906
|
)
|
|
|
(47,823
|
)
|
|
|
(32,801
|
)
|
|
|
(18,606
|
)
|
|
|
(248,136
|
)
|
Income taxes
|
|
|
(39,547
|
)
|
|
|
(10,668
|
)
|
|
|
(6,973
|
)
|
|
|
26,574
|
|
|
|
(30,614
|
)
|
|
Operating earnings and net income, as reported
|
|
$
|
73,444
|
|
|
$
|
19,813
|
|
|
$
|
12,950
|
|
|
$
|
218
|
|
|
$
|
106,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
163,312
|
|
|
$
|
37,886
|
|
|
$
|
15,167
|
|
|
$
|
6,198
|
|
|
$
|
222,563
|
|
Provision for credit losses
|
|
|
3,916
|
|
|
|
(8,283
|
)
|
|
|
(660
|
)
|
|
|
|
|
|
|
(5,027
|
)
|
Non-interest income
|
|
|
82,060
|
|
|
|
88,374
|
|
|
|
31,533
|
|
|
|
11,271
|
|
|
|
213,238
|
|
Non-interest expense
|
|
|
(147,443
|
)
|
|
|
(85,766
|
)
|
|
|
(31,746
|
)
|
|
|
(17,198
|
)
|
|
|
(282,153
|
)
|
Income taxes
|
|
|
(35,646
|
)
|
|
|
(11,274
|
)
|
|
|
(5,003
|
)
|
|
|
10,251
|
|
|
|
(41,672
|
)
|
|
Operating earnings
|
|
|
66,199
|
|
|
|
20,937
|
|
|
|
9,291
|
|
|
|
10,522
|
|
|
|
106,949
|
|
Gain on sale of automobile loans, net of tax
|
|
|
|
|
|
|
2,068
|
|
|
|
|
|
|
|
1,110
|
|
|
|
3,178
|
|
|
Net income, as reported
|
|
$
|
66,199
|
|
|
$
|
23,005
|
|
|
$
|
9,291
|
|
|
$
|
11,632
|
|
|
$
|
110,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
Income Statements
|
|
Regional
|
|
Dealer
|
|
|
|
|
|
Treasury/
|
|
Huntington
|
(in thousands of dollars)
|
|
Banking
|
|
Sales
|
|
PFCMG
|
|
Other
|
|
Consolidated
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
379,127
|
|
|
$
|
74,794
|
|
|
$
|
36,139
|
|
|
$
|
(12,962
|
)
|
|
$
|
477,098
|
|
Provision for credit losses
|
|
|
(20,916
|
)
|
|
|
(11,494
|
)
|
|
|
(359
|
)
|
|
|
|
|
|
|
(32,769
|
)
|
Non-Interest income
|
|
|
147,826
|
|
|
|
99,195
|
|
|
|
65,109
|
|
|
|
12,090
|
|
|
|
324,220
|
|
Non-Interest expense
|
|
|
(298,546
|
)
|
|
|
(104,419
|
)
|
|
|
(66,250
|
)
|
|
|
(37,198
|
)
|
|
|
(506,413
|
)
|
Provision for income taxes
|
|
|
(72,622
|
)
|
|
|
(20,326
|
)
|
|
|
(12,124
|
)
|
|
|
45,880
|
|
|
|
(59,192
|
)
|
|
Operating earnings and net income, as reported
|
|
$
|
134,869
|
|
|
$
|
37,750
|
|
|
$
|
22,515
|
|
|
$
|
7,810
|
|
|
$
|
202,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
320,637
|
|
|
$
|
72,955
|
|
|
$
|
29,656
|
|
|
$
|
22,000
|
|
|
$
|
445,248
|
|
Provision for credit losses
|
|
|
1,743
|
|
|
|
(29,956
|
)
|
|
|
(2,410
|
)
|
|
|
|
|
|
|
(30,623
|
)
|
Non-Interest income
|
|
|
154,123
|
|
|
|
184,819
|
|
|
|
67,405
|
|
|
|
25,526
|
|
|
|
431,873
|
|
Non-Interest expense
|
|
|
(294,360
|
)
|
|
|
(177,132
|
)
|
|
|
(64,422
|
)
|
|
|
(31,893
|
)
|
|
|
(567,807
|
)
|
Provision for income taxes
|
|
|
(63,750
|
)
|
|
|
(17,740
|
)
|
|
|
(10,580
|
)
|
|
|
18,648
|
|
|
|
(73,422
|
)
|
|
Operating earnings
|
|
|
118,393
|
|
|
|
32,946
|
|
|
|
19,649
|
|
|
|
34,281
|
|
|
|
205,269
|
|
Gain on sale of automobile loans, net of tax
|
|
|
|
|
|
|
8,214
|
|
|
|
|
|
|
|
817
|
|
|
|
9,031
|
|
|
Net income, as reported
|
|
$
|
118,393
|
|
|
$
|
41,160
|
|
|
$
|
19,649
|
|
|
$
|
35,098
|
|
|
$
|
214,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at
|
|
Deposits at
|
Balance Sheets
|
|
June 30,
|
|
December 31,
|
|
June 30,
|
|
June 30,
|
|
December 31,
|
|
June 30,
|
(in millions of dollars)
|
|
2005
|
|
2004
|
|
2004
|
|
2005
|
|
2004
|
|
2004
|
|
|
|
Regional Banking
|
|
$
|
18,789
|
|
|
$
|
17,864
|
|
|
$
|
16,532
|
|
|
$
|
17,643
|
|
|
$
|
17,411
|
|
|
$
|
16,662
|
|
Dealer Sales
|
|
|
6,021
|
|
|
|
6,100
|
|
|
|
6,162
|
|
|
|
68
|
|
|
|
75
|
|
|
|
71
|
|
PFCMG
|
|
|
2,004
|
|
|
|
1,959
|
|
|
|
1,834
|
|
|
|
1,159
|
|
|
|
1,176
|
|
|
|
1,017
|
|
Treasury / Other
|
|
|
6,175
|
|
|
|
6,642
|
|
|
|
6,893
|
|
|
|
3,461
|
|
|
|
2,106
|
|
|
|
1,715
|
|
|
|
|
Total
|
|
$
|
32,989
|
|
|
$
|
32,565
|
|
|
$
|
31,421
|
|
|
$
|
22,331
|
|
|
$
|
20,768
|
|
|
$
|
19,465
|
|
|
|
|
23
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
INTRODUCTION
Huntington Bancshares Incorporated (Huntington or the Company) is a multi-state diversified
financial holding company organized under Maryland law in 1966 and headquartered in Columbus, Ohio.
Through its subsidiaries, Huntington is engaged in providing full-service commercial and consumer
banking services, mortgage banking services, automobile financing, equipment leasing, investment
management, trust services, and discount brokerage services, as well as reinsuring credit life and
disability insurance, and selling other insurance and financial products and services. Huntingtons
banking offices are located in Ohio, Michigan, West Virginia, Indiana, and Kentucky. Selected
financial services are also conducted in other states including Arizona, Florida, Georgia,
Maryland, Nevada, New Jersey, Pennsylvania, and Tennessee. Huntington has a foreign office in the
Cayman Islands and a foreign office in Hong Kong. The Huntington National Bank (the Bank),
organized in 1866, is Huntingtons only bank subsidiary.
The following discussion and analysis provides investors and others with information that
Management believes to be necessary for an understanding of Huntingtons financial condition,
changes in financial condition, results of operations, and cash flows, and should be read in
conjunction with the financial statements, notes, and other information contained in this report.
Forward-Looking Statements
This report, including Managements Discussion and Analysis of Financial Condition and Results
of Operations, contains forward-looking statements about Huntington. These include descriptions of
products or services, plans or objectives of Management for future operations, including pending
acquisitions, and forecasts of revenues, earnings, cash flows, or other measures of economic
performance. Forward-looking statements can be identified by the fact that they do not relate
strictly to historical or current facts.
By their nature, forward-looking statements are subject to numerous assumptions, risks, and
uncertainties. A number of factors could cause actual conditions, events, or results to differ
significantly from those described in the forward-looking statements. These factors include, but
are not limited to, those set forth below and under the heading Business Risks included in Item 1
of Huntingtons Annual Report on Form 10-K for the year ended December 31, 2004 (2004 Form 10-K),
and other factors described in this report and from time-to-time in other filings with the
Securities and Exchange Commission.
Management encourages readers of this report to understand forward-looking statements to be
strategic objectives rather than absolute forecasts of future performance. Forward-looking
statements speak only as of the date they are made. Huntington assumes no obligation to update
forward-looking statements to reflect circumstances or events that occur after the date the
forward-looking statements were made or to reflect the occurrence of unanticipated events.
Risk Factors
Huntington, like other financial companies, is subject to a number of risks, many of which are
outside of Managements control. Management strives to mitigate those risks while optimizing
returns. Among the risks assumed are: (1)
credit risk
, which is the risk that loan and
lease customers or other counter parties will be unable to perform their contractual obligations,
(2)
market risk
, which is the risk that changes in market rates and prices will adversely
affect Huntingtons financial condition or results of operations, (3)
liquidity risk
, which
is the risk that Huntington and / or the Bank will have insufficient cash or access to cash to meet
operating needs, and (4)
operational risk
, which is the risk of loss resulting from
inadequate or failed internal processes, people, or systems, or external events. The description of
Huntingtons business contained in Item 1 of its 2004 Form 10-K, while not all-inclusive, discusses
a number of business risks that, in addition to the other information in this report, readers
should carefully consider.
24
SEC Formal Investigation
On June 26, 2003, Huntington announced that the Securities and Exchange Commission staff was
conducting a formal investigation into certain financial accounting matters relating to fiscal
years 2002 and earlier and certain related disclosure matters.
On June 2, 2005, Huntington announced that the five-member Securities and Exchange Commission
(Commission) approved the settlement of its previously announced formal investigation into
certain financial accounting matters. As a part of the settlement, the Commission instituted a
cease and desist administrative proceeding and entered a cease and desist order, as well as filed a
civil action in federal district court pursuant to which, without admitting or denying the
allegations in the complaint, Huntington, its chief executive officer, Thomas Hoaglin, its former
chief financial officer, Michael McMennamin, and its former controller, John Van Fleet have
consented to pay civil money penalties. Huntington consented to pay a penalty of $7.5 million,
which may be distributed pursuant to the Fair Fund provisions of Section 308(a) of the
Sarbanes-Oxley Act of 2002. This civil money penalty had no 2005 financial impact on Huntingtons
results, as reserves for this amount were established and expensed in 2004.
In the administrative proceeding, the Commission charged that in its 2001 and 2002 fiscal
years Huntington violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 (Securities
Act) and Sections 13(a) and 13(b)(2)(A) and (B) of the Securities Exchange Act of 1934 (Exchange
Act), and Exchange Act Rules 12b-20 and 13a-1; that Hoaglin violated Exchange Act Rule 13a-14 and
caused Huntingtons violations of Securities Act Section 17(a)(2) and Exchange Act Sections 13(a)
and 13(b)(2)(A) and (B), and Exchange Act Rules 12b-20 and 13a-1 with respect to fiscal year 2002;
that McMennamin and Van Fleet violated Securities Act Sections 17(a)(2) and 17(a)(3), Exchange Act
Section 13(b)(5) and Exchange Act Rule 13b2-1, and caused Huntingtons violations of Exchange Act
Sections 13(a) and 13(b)(2)(A) and (B) and Exchange Act Rules 12b-20 and 13a-1 in fiscal years 2001
and 2002; and that McMennamin directly violated Exchange Act Rule 13a-14 in 2002. Without
admitting or denying the charges in the administrative proceeding, Huntington and the individuals
each agreed to cease and desist from committing and/or causing the violations charged as well as
any future violations of these provisions. Additionally, Hoaglin, McMennamin, and Van Fleet agreed
to pay disgorgement, pre-judgment interest, and penalties in the amounts of $667,609, $415,215, and
$51,660, respectively. Van Fleet consented to a suspension from appearing or practicing before the
Commission as an accountant for two years pursuant to Rule 102(e) of the Commissions Rules of
Practice. McMennamin consented to an undertaking that he will not act as an officer or director of
a public company for five years.
Formal Regulatory Supervisory Agreements and Pending Acquisition
On March 1, 2005, Huntington announced that it had entered into a formal written agreement
with the Federal Reserve Bank of Cleveland (FRBC) and that the Bank had entered into a formal
written agreement with the Office of the Comptroller of the Currency (OCC), providing for a
comprehensive action plan designed to enhance its corporate governance, internal audit, risk
management, accounting policies and procedures, and financial and regulatory reporting. The
agreements call for independent third-party reviews, as well as the submission of written plans and
progress reports by Management and remain in effect until terminated by the banking regulators.
Management has been working with its banking regulators over the past several months and has
been taking actions and devoting significant resources to address all of the issues raised.
Management believes that the changes that it has already made, and is in the process of making,
will address these issues fully and comprehensively.
On January 27, 2004, Huntington announced the signing of a definitive agreement to acquire
Unizan Financial Corp. (Unizan), a financial holding company based in Canton, Ohio. On November
12, 2004, Huntington and Unizan jointly announced they had entered into an amendment to their
January 26, 2004 merger agreement extending the term of the agreement for one year from January 27,
2005 to January 27, 2006, and Huntington had withdrawn its application with the Federal Reserve to
acquire Unizan. On March 1, 2005, Huntington announced that it intends to resubmit the application
for regulatory approval of the merger once the regulatory written agreements have been terminated.
No assurances, however, can be provided as to the ultimate timing or outcome of these matters.
25
SUMMARY DISCUSSION OF RESULTS
Earnings comparisons from the first quarter of 2004 through the second quarter of 2005 were
impacted by a number of factors, some related to changes in the economic and competitive
environment, while others reflected specific Management strategies or changes in accounting
practices. Understanding the nature and implications of these factors on financial results is
important in understanding the companys income statement, balance sheet, and credit quality trends
and the comparison of the current quarter and year-to-date performance with comparable prior-year
periods. The key factors impacting the current reporting period comparisons are more fully
described in the Significant Factors Influencing Financial Performance Comparisons section, which
follows the summary of results below.
2005 Second Quarter versus 2004 Second Quarter
Net income for the second quarter of 2005 was $106.4 million, or $0.45 per common share, down
3% and 4%, respectively, from $110.1 million and $0.47 per common share in the year-ago quarter.
This $3.7 million decrease in net income primarily reflected:
|
|
|
$62.0 million, or 28%, decline in non-interest income, due primarily to a $40.6 million
decline in operating lease income, as that portfolio continued to run-off, and a $25.7
million decline in mortgage banking income, reflecting a $10.2 million temporary
impairment of mortgage servicing rights (MSR) in the current quarter compared with a $14.9
million recovery of MSR temporary impairment in the year-ago quarter. Other factors
influencing the decline in non-interest income between quarters included lower gains from
the sale of automobile loans, a decline in service charges on deposit accounts, as well as
other service charges and fees, which were partially offset by higher securities gains, and
trust services income.
|
|
|
|
|
$7.8 million increase in the provision for credit losses as the year-ago quarter
included a $9.7 million one-time commercial loan recovery.
|
Partially offset by:
|
|
|
$34.0 million, or 12%, decline in non-interest expense, reflecting a $33.7 million
decline in operating lease expenses.
|
|
|
|
|
$19.3 million, or 9%, increase in net interest income reflecting a 6% increase in
average earning assets and an effective 2% increase in the net interest margin. The
increase in average earnings assets reflected 13% growth in average total loans and leases,
including 15% growth in average consumer loans and 10% growth in average total commercial
loans, partially offset by a 24% decline in average investment securities.
|
|
|
|
|
$12.8 million decline in income tax expense as the effective tax rate in the 2005 second
quarter was 22.3%, down from 28.3% in the year-ago quarter. The 2005 tax expense includes
the benefit of a federal tax loss carry back and lower income before income taxes.
|
The return on average assets (ROA) and return on average equity (ROE) in the 2005 second
quarter were 1.31% and 16.3%, respectively, down from 1.41% and 19.1%, respectively, in the
year-ago quarter. Period end capital was strong with a June 30, 2005, tangible equity to assets
ratio of 7.36%, up from 6.95% at the end of the year-ago period.
2005 Second Quarter versus 2005 First Quarter
Compared with 2005 first quarter net income of $96.5 million, or $0.41 per common share, 2005
second quarter net income and earnings per share increased 10%. This $9.9 million, or $0.04 per
common share, increase in net income primarily reflected:
|
|
|
$10.1 million, or 4%, decline in non-interest expense, reflecting a $9.1 million decline
in operating lease expenses, as well as lower net occupancy expense.
|
|
|
|
|
$7.0 million decline in provision for credit losses, reflecting a decline in net
charge-offs and improvement in credit quality.
|
|
|
|
|
$6.7 million, or 3%, increase in net interest income primarily reflecting the benefit of
an effective 2% increase in the net interest margin, as average earnings assets were little
changed. A 3% increase in average loans and leases was mostly offset by an 8% decline in
average investment securities. The growth in average total loans and leases
|
26
included 2% growth in average consumer loans and 3% growth in average total commercial
loans.
Partially offset by:
|
|
|
$11.9 million decline in non-interest income, primarily reflecting a $14.4 million
decline in mortgage banking income, as the current quarter included a $10.2 million MSR
temporary impairment compared with a $3.8 million recovery of MSR temporary impairment in
the prior quarter, and an $8.6 million decline in operating lease income. These declines
were partially offset by a $7.6 million increase in other income, reflecting higher MSR
hedge-related trading gains partially offset by the current period write-off of an equity
investment, and a $2.1 million increase in service charges on deposit accounts.
|
|
|
|
|
$2.0 million increase in income tax expense due to higher pre-tax income.
|
The ROA and ROE in the 2005 first quarter were 1.20% and 15.5%, respectively, with a tangible
equity to assets ratio of 7.42% at March 31, 2005.
2005 First Six Months versus 2004 First Six Months
Net income for the first six months of 2005 was $202.9 million, or $0.86 per common share,
down 5% and 7%, respectively, from $214.3 million, or $0.92 per common share, in the comparable
year-ago period. This $11.4 million decrease in net income primarily reflected:
|
|
|
$121.5 million, or 27%, decline in non-interest income, due primarily to a $82.7 million
decline in operating lease income, as that portfolio continued to run-off, a $13.6 million
decline in gains from the sale of automobile loans, a $9.3 million decline in mortgage
banking income, reflecting a $6.5 million MSR temporary impairment in the current six-month
period compared with a $4.8 million recovery of MSR temporary impairment in the year-ago
period. Other factors influencing the decline in non-interest income between six-month
periods was a decline in other income, mostly due to non-recurring items, lower securities
gains, and a decline in service charges on deposit accounts, which were partially offset by
higher trust services and other service charges and fee income.
|
|
|
|
|
$2.1 million increase in the provision for credit losses, reflecting a growth in the
loan portfolio.
|
Partially offset by:
|
|
|
$61.3 million, or 11%, decline in non-interest expense, reflecting a $66.4 million
decline in operating lease expenses.
|
|
|
|
|
$31.9 million, or 7%, increase in net interest income reflecting a 7% increase in
average earning assets as the net interest margin improved only slightly. The increase in
average earning assets reflected 12% growth in average total loans and leases, including
14% growth in average consumer loans and 9% growth in average total commercial loans,
partially offset by a 20% decline in average investment securities.
|
|
|
|
|
$19.1 million decline in income tax expense as the effective tax rate for the first six
months of 2005 was 22.6%, down from 26.8% in the year-ago period.
|
The ROA and ROE for the 2005 first six months were 1.26% and 15.9%, respectively, down from
1.39% and 18.7%, respectively, in the year-ago period.
27
Table 1 Selected Quarterly Income Statement Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
2Q05 vs 2Q04
|
(in thousands of dollars, except per share amounts)
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
Second
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
402,326
|
|
|
$
|
376,105
|
|
|
$
|
359,215
|
|
|
$
|
338,002
|
|
|
$
|
324,167
|
|
|
|
|
|
|
|
|
|
|
|
$
|
78,159
|
|
|
|
24.1
|
%
|
Interest expense
|
|
|
160,426
|
|
|
|
140,907
|
|
|
|
120,147
|
|
|
|
110,944
|
|
|
|
101,604
|
|
|
|
|
|
|
|
|
|
|
|
|
58,822
|
|
|
|
57.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
241,900
|
|
|
|
235,198
|
|
|
|
239,068
|
|
|
|
227,058
|
|
|
|
222,563
|
|
|
|
|
|
|
|
|
|
|
|
|
19,337
|
|
|
|
8.7
|
|
Provision for credit losses
|
|
|
12,895
|
|
|
|
19,874
|
|
|
|
12,654
|
|
|
|
11,785
|
|
|
|
5,027
|
|
|
|
|
|
|
|
|
|
|
|
|
7,868
|
|
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for credit losses
|
|
|
229,005
|
|
|
|
215,324
|
|
|
|
226,414
|
|
|
|
215,273
|
|
|
|
217,536
|
|
|
|
|
|
|
|
|
|
|
|
|
11,469
|
|
|
|
5.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease income
|
|
|
38,097
|
|
|
|
46,732
|
|
|
|
55,106
|
|
|
|
64,412
|
|
|
|
78,706
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,609
|
)
|
|
|
(51.6
|
)
|
Service charges on deposit accounts
|
|
|
41,516
|
|
|
|
39,418
|
|
|
|
41,747
|
|
|
|
43,935
|
|
|
|
43,596
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,080
|
)
|
|
|
(4.8
|
)
|
Trust services
|
|
|
19,113
|
|
|
|
18,196
|
|
|
|
17,315
|
|
|
|
17,064
|
|
|
|
16,708
|
|
|
|
|
|
|
|
|
|
|
|
|
2,405
|
|
|
|
14.4
|
|
Brokerage and insurance income
|
|
|
13,544
|
|
|
|
13,026
|
|
|
|
12,879
|
|
|
|
13,200
|
|
|
|
13,523
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
0.2
|
|
Bank owned life insurance income
|
|
|
10,139
|
|
|
|
10,104
|
|
|
|
10,484
|
|
|
|
10,019
|
|
|
|
11,309
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,170
|
)
|
|
|
(10.3
|
)
|
Other service charges and fees
|
|
|
11,252
|
|
|
|
10,159
|
|
|
|
10,617
|
|
|
|
10,799
|
|
|
|
10,645
|
|
|
|
|
|
|
|
|
|
|
|
|
607
|
|
|
|
5.7
|
|
Mortgage banking income (loss)
|
|
|
(2,376
|
)
|
|
|
12,061
|
|
|
|
8,822
|
|
|
|
4,448
|
|
|
|
23,322
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,698
|
)
|
|
|
N.M.
|
|
Securities gains (losses)
|
|
|
(343
|
)
|
|
|
957
|
|
|
|
2,100
|
|
|
|
7,803
|
|
|
|
(9,230
|
)
|
|
|
|
|
|
|
|
|
|
|
|
8,887
|
|
|
|
96.3
|
|
Gain on sales of automobile loans
|
|
|
254
|
|
|
|
|
|
|
|
|
|
|
|
312
|
|
|
|
4,890
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,636
|
)
|
|
|
(94.8
|
)
|
Other income
|
|
|
24,974
|
|
|
|
17,397
|
|
|
|
23,870
|
|
|
|
17,899
|
|
|
|
24,659
|
|
|
|
|
|
|
|
|
|
|
|
|
315
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
|
156,170
|
|
|
|
168,050
|
|
|
|
182,940
|
|
|
|
189,891
|
|
|
|
218,128
|
|
|
|
|
|
|
|
|
|
|
|
|
(61,958
|
)
|
|
|
(28.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs
|
|
|
124,090
|
|
|
|
123,981
|
|
|
|
122,738
|
|
|
|
121,729
|
|
|
|
119,715
|
|
|
|
|
|
|
|
|
|
|
|
|
4,375
|
|
|
|
3.7
|
|
Operating lease expense
|
|
|
28,879
|
|
|
|
37,948
|
|
|
|
48,320
|
|
|
|
54,885
|
|
|
|
62,563
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,684
|
)
|
|
|
(53.8
|
)
|
Net occupancy
|
|
|
17,257
|
|
|
|
19,242
|
|
|
|
26,082
|
|
|
|
16,838
|
|
|
|
16,258
|
|
|
|
|
|
|
|
|
|
|
|
|
999
|
|
|
|
6.1
|
|
Outside data processing and other services
|
|
|
18,113
|
|
|
|
18,770
|
|
|
|
18,563
|
|
|
|
17,527
|
|
|
|
17,563
|
|
|
|
|
|
|
|
|
|
|
|
|
550
|
|
|
|
3.1
|
|
Equipment
|
|
|
15,637
|
|
|
|
15,863
|
|
|
|
15,733
|
|
|
|
15,295
|
|
|
|
16,228
|
|
|
|
|
|
|
|
|
|
|
|
|
(591
|
)
|
|
|
(3.6
|
)
|
Professional services
|
|
|
9,347
|
|
|
|
9,459
|
|
|
|
9,522
|
|
|
|
12,219
|
|
|
|
7,836
|
|
|
|
|
|
|
|
|
|
|
|
|
1,511
|
|
|
|
19.3
|
|
Marketing
|
|
|
7,441
|
|
|
|
6,454
|
|
|
|
5,581
|
|
|
|
5,000
|
|
|
|
8,069
|
|
|
|
|
|
|
|
|
|
|
|
|
(628
|
)
|
|
|
(7.8
|
)
|
Telecommunications
|
|
|
4,801
|
|
|
|
4,882
|
|
|
|
4,596
|
|
|
|
5,359
|
|
|
|
4,638
|
|
|
|
|
|
|
|
|
|
|
|
|
163
|
|
|
|
3.5
|
|
Printing and supplies
|
|
|
3,293
|
|
|
|
3,094
|
|
|
|
3,148
|
|
|
|
3,201
|
|
|
|
3,098
|
|
|
|
|
|
|
|
|
|
|
|
|
195
|
|
|
|
6.3
|
|
Amortization of intangibles
|
|
|
204
|
|
|
|
204
|
|
|
|
205
|
|
|
|
204
|
|
|
|
204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring reserve releases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,151
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
19,074
|
|
|
|
18,380
|
|
|
|
26,526
|
|
|
|
22,317
|
|
|
|
25,981
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,907
|
)
|
|
|
(26.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
|
248,136
|
|
|
|
258,277
|
|
|
|
281,014
|
|
|
|
273,423
|
|
|
|
282,153
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,017
|
)
|
|
|
(12.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
137,039
|
|
|
|
125,097
|
|
|
|
128,340
|
|
|
|
131,741
|
|
|
|
153,511
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,472
|
)
|
|
|
(10.7
|
)
|
Provision for income taxes
|
|
|
30,614
|
|
|
|
28,578
|
|
|
|
37,201
|
|
|
|
38,255
|
|
|
|
43,384
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,770
|
)
|
|
|
(29.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
106,425
|
|
|
$
|
96,519
|
|
|
$
|
91,139
|
|
|
$
|
93,486
|
|
|
$
|
110,127
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3,702
|
)
|
|
|
(3.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares diluted
|
|
|
235,671
|
|
|
|
235,053
|
|
|
|
235,502
|
|
|
|
234,348
|
|
|
|
232,659
|
|
|
|
|
|
|
|
|
|
|
|
|
3,012
|
|
|
|
1.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income diluted
|
|
$
|
0.45
|
|
|
$
|
0.41
|
|
|
$
|
0.39
|
|
|
$
|
0.40
|
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.02
|
)
|
|
|
(4.3
|
)%
|
Cash dividends declared
|
|
|
0.215
|
|
|
|
0.200
|
|
|
|
0.200
|
|
|
|
0.200
|
|
|
|
0.175
|
|
|
|
|
|
|
|
|
|
|
|
|
0.040
|
|
|
|
22.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average total assets
|
|
|
1.31
|
%
|
|
|
1.20
|
%
|
|
|
1.13
|
%
|
|
|
1.18
|
%
|
|
|
1.41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
(0.10
|
)%
|
|
|
(7.1
|
)%
|
Return on average total shareholders equity
|
|
|
16.3
|
|
|
|
15.5
|
|
|
|
14.6
|
|
|
|
15.4
|
|
|
|
19.1
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.8
|
)
|
|
|
(14.7
|
)
|
Net interest margin
(1)
|
|
|
3.36
|
|
|
|
3.31
|
|
|
|
3.38
|
|
|
|
3.30
|
|
|
|
3.29
|
|
|
|
|
|
|
|
|
|
|
|
|
0.07
|
|
|
|
2.1
|
|
Efficiency ratio
(2)
|
|
|
61.8
|
|
|
|
63.7
|
|
|
|
66.4
|
|
|
|
66.3
|
|
|
|
62.3
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
(0.8
|
)
|
Effective tax rate
|
|
|
22.3
|
|
|
|
22.8
|
|
|
|
29.0
|
|
|
|
29.0
|
|
|
|
28.3
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.0
|
)
|
|
|
(21.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue fully taxable equivalent (FTE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
241,900
|
|
|
$
|
235,198
|
|
|
$
|
239,068
|
|
|
$
|
227,058
|
|
|
$
|
222,563
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,337
|
|
|
|
8.7
|
%
|
FTE adjustment
|
|
|
2,961
|
|
|
|
2,861
|
|
|
|
2,847
|
|
|
|
2,864
|
|
|
|
2,919
|
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
(1)
|
|
|
244,861
|
|
|
|
238,059
|
|
|
|
241,915
|
|
|
|
229,922
|
|
|
|
225,482
|
|
|
|
|
|
|
|
|
|
|
|
|
19,379
|
|
|
|
8.6
|
|
Non-interest income
|
|
|
156,170
|
|
|
|
168,050
|
|
|
|
182,940
|
|
|
|
189,891
|
|
|
|
218,128
|
|
|
|
|
|
|
|
|
|
|
|
|
(61,958
|
)
|
|
|
(28.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
(1)
|
|
$
|
401,031
|
|
|
$
|
406,109
|
|
|
$
|
424,855
|
|
|
$
|
419,813
|
|
|
$
|
443,610
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(42,579
|
)
|
|
|
(9.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M., not a meaningful value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
On a fully taxable equivalent (FTE) basis assuming a 35% tax rate.
|
|
(2)
|
|
Non-interest expense less amortization of intangibles divided by the sum of FTE net interest income and non-interest income excluding securities gains (losses).
|
28
Table 2 Selected Year to Date Income Statement Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Change
|
(in thousands of dollars, except per share amounts)
|
|
2005
|
|
2004
|
|
Amount
|
|
Percent
|
|
|
|
Interest income
|
|
$
|
778,431
|
|
|
$
|
650,098
|
|
|
$
|
128,333
|
|
|
|
19.7
|
%
|
Interest expense
|
|
|
301,333
|
|
|
|
204,850
|
|
|
|
96,483
|
|
|
|
47.1
|
|
|
|
|
Net interest income
|
|
|
477,098
|
|
|
|
445,248
|
|
|
|
31,850
|
|
|
|
7.2
|
|
Provision for credit losses
|
|
|
32,769
|
|
|
|
30,623
|
|
|
|
2,146
|
|
|
|
7.0
|
|
|
|
|
Net interest income after provision for credit losses
|
|
|
444,329
|
|
|
|
414,625
|
|
|
|
29,704
|
|
|
|
7.2
|
|
|
|
|
Operating lease income
|
|
|
84,829
|
|
|
|
167,573
|
|
|
|
(82,744
|
)
|
|
|
(49.4
|
)
|
Service charges on deposit accounts
|
|
|
80,934
|
|
|
|
85,433
|
|
|
|
(4,499
|
)
|
|
|
(5.3
|
)
|
Trust services
|
|
|
37,309
|
|
|
|
33,031
|
|
|
|
4,278
|
|
|
|
13.0
|
|
Brokerage and insurance income
|
|
|
26,570
|
|
|
|
28,720
|
|
|
|
(2,150
|
)
|
|
|
(7.5
|
)
|
Bank owned life insurance income
|
|
|
20,243
|
|
|
|
21,794
|
|
|
|
(1,551
|
)
|
|
|
(7.1
|
)
|
Other service charges and fees
|
|
|
21,411
|
|
|
|
20,158
|
|
|
|
1,253
|
|
|
|
6.2
|
|
Mortgage banking income (loss)
|
|
|
9,685
|
|
|
|
19,026
|
|
|
|
(9,341
|
)
|
|
|
(49.1
|
)
|
Securities gains
|
|
|
614
|
|
|
|
5,860
|
|
|
|
(5,246
|
)
|
|
|
(89.5
|
)
|
Gain on sales of automobile loans
|
|
|
254
|
|
|
|
13,894
|
|
|
|
(13,640
|
)
|
|
|
(98.2
|
)
|
Other income
|
|
|
42,371
|
|
|
|
50,278
|
|
|
|
(7,907
|
)
|
|
|
(15.7
|
)
|
|
|
|
Total non-interest income
|
|
|
324,220
|
|
|
|
445,767
|
|
|
|
(121,547
|
)
|
|
|
(27.3
|
)
|
|
|
|
Personnel costs
|
|
|
248,071
|
|
|
|
241,339
|
|
|
|
6,732
|
|
|
|
2.8
|
|
Operating lease expense
|
|
|
66,827
|
|
|
|
133,273
|
|
|
|
(66,446
|
)
|
|
|
(49.9
|
)
|
Net occupancy
|
|
|
36,499
|
|
|
|
33,021
|
|
|
|
3,478
|
|
|
|
10.5
|
|
Outside data processing and other services
|
|
|
36,883
|
|
|
|
36,025
|
|
|
|
858
|
|
|
|
2.4
|
|
Equipment
|
|
|
31,500
|
|
|
|
32,314
|
|
|
|
(814
|
)
|
|
|
(2.5
|
)
|
Professional services
|
|
|
18,806
|
|
|
|
15,135
|
|
|
|
3,671
|
|
|
|
24.3
|
|
Marketing
|
|
|
13,895
|
|
|
|
15,908
|
|
|
|
(2,013
|
)
|
|
|
(12.7
|
)
|
Telecommunications
|
|
|
9,683
|
|
|
|
9,832
|
|
|
|
(149
|
)
|
|
|
(1.5
|
)
|
Printing and supplies
|
|
|
6,387
|
|
|
|
6,114
|
|
|
|
273
|
|
|
|
4.5
|
|
Amortization of intangibles
|
|
|
408
|
|
|
|
408
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
37,454
|
|
|
|
44,438
|
|
|
|
(6,984
|
)
|
|
|
(15.7
|
)
|
|
|
|
Total non-interest expense
|
|
|
506,413
|
|
|
|
567,807
|
|
|
|
(61,394
|
)
|
|
|
(10.8
|
)
|
|
|
|
Income before income taxes
|
|
|
262,136
|
|
|
|
292,585
|
|
|
|
(30,449
|
)
|
|
|
(10.4
|
)
|
Provision for income taxes
|
|
|
59,192
|
|
|
|
78,285
|
|
|
|
(19,093
|
)
|
|
|
(24.4
|
)
|
|
|
|
Net income
|
|
$
|
202,944
|
|
|
$
|
214,300
|
|
|
$
|
(11,356
|
)
|
|
|
(5.3
|
)%
|
|
|
|
|
Average common shares diluted
|
|
|
235,362
|
|
|
|
232,787
|
|
|
|
2,575
|
|
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share diluted
|
|
$
|
0.86
|
|
|
$
|
0.92
|
|
|
$
|
(0.06
|
)
|
|
|
(6.5)
|
%
|
Cash dividends declared
|
|
|
0.415
|
|
|
|
0.350
|
|
|
|
0.065
|
|
|
|
18.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average total assets
|
|
|
1.26
|
%
|
|
|
1.39
|
%
|
|
|
(0.13
|
)%
|
|
|
(9.4
|
)%
|
Return on average total shareholders equity
|
|
|
15.9
|
|
|
|
18.7
|
|
|
|
(2.8
|
)
|
|
|
(15.0
|
)
|
Net interest margin
(1)
|
|
|
3.34
|
|
|
|
3.32
|
|
|
|
0.02
|
|
|
|
0.6
|
|
Efficiency ratio
(2)
|
|
|
62.7
|
|
|
|
63.7
|
|
|
|
(1.0
|
)
|
|
|
(1.6
|
)
|
Effective tax rate
|
|
|
22.6
|
|
|
|
26.8
|
|
|
|
(4.2
|
)
|
|
|
(15.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue fully taxable equivalent (FTE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
477,098
|
|
|
$
|
445,248
|
|
|
$
|
31,850
|
|
|
|
7.2
|
%
|
FTE adjustment
|
|
|
5,822
|
|
|
|
5,942
|
|
|
|
(120
|
)
|
|
|
(2.0
|
)
|
|
|
|
Net interest income
(1)
|
|
|
482,920
|
|
|
|
451,190
|
|
|
|
31,730
|
|
|
|
7.0
|
|
Non-interest income
|
|
|
324,220
|
|
|
|
445,767
|
|
|
|
(121,547
|
)
|
|
|
(27.3
|
)
|
|
|
|
Total revenue
(1)
|
|
$
|
807,140
|
|
|
$
|
896,957
|
|
|
$
|
(89,817
|
)
|
|
|
(10.0
|
)%
|
|
|
|
|
N.M., not a meaningful value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
On a fully taxable equivalent (FTE) basis assuming a 35% tax rate.
|
|
(2)
|
|
Non-interest expense less amortization of intangibles divided by the sum of FTE net interest income and non-interest income excluding securities
gains.
|
29
Significant Factors Influencing Financial Performance Comparisons
Earnings comparisons from the first quarter of 2004 through the second quarter of 2005 were
impacted by a number of factors, some related to changes in the economic and competitive
environment, while others reflected specific Management strategies or changes in accounting
practices. Those key factors are summarized below.
|
1.
|
|
Automobile leases originated through April 2002 are accounted for as
operating leases.
Automobile leases originated before May 2002 are accounted for
using the operating lease method of accounting because they do not qualify as direct
financing leases. Operating leases are carried in other assets with the related rental
income, other revenue, and credit recoveries reflected as operating lease income, a
component of non-interest income. Under this accounting method, depreciation expenses,
as well as other costs and charge-offs, are reflected as operating lease expense, a
component of non-interest expense. With no new operating leases originated since April
2002, the operating lease assets have declined rapidly. It is anticipated that the
level of operating lease assets and related operating lease income and expense will
decline to a point of diminished materiality sometime in 2006.
However, until that point
is reached, and since operating lease income and expense represented a significant
percentage of total non-interest income and expense, respectively, throughout these
reporting periods, their downward trend influenced total non-interest income and
non-interest expense trends.
|
In contrast, automobile leases originated since April 2002 are accounted for as direct
financing leases, an interest-bearing asset included in total loans and leases with the
related income reflected as interest income and included in the calculation of the net
interest margin. Credit charge-offs and recoveries are reflected in the allowance for
loan and lease losses (ALLL), with related changes in the ALLL reflected in the provision
for credit losses. The relative newness and rapid growth of the direct financing lease
portfolio has resulted in higher reported automobile lease growth rates than in a more
mature portfolio. To better understand overall trends in automobile lease exposure, it is
helpful to compare trends in the combined total of direct financing leases plus operating
leases (see the Companys 2004 Form 10-K for additional discussion).
|
2.
|
|
Generally recovering economic environment throughout this period.
This
has been reflected in improving demand for loans, including middle market commercial
and industrial (C&I) loans, most notably beginning in the second half of 2004, as well
as contributing to good growth in other consumer portfolios. This recovering trend has
also been a contributing factor to generally improving credit quality performance
throughout this period.
|
|
3.
|
|
Mortgage servicing rights (MSRs) and related hedging.
Interest rate
levels throughout this period have remained low by historical standards. Though
generally increasing throughout this period, they have also been volatile, with
increases in one period followed by declines in another and vice versa. This has
impacted the valuation of MSRs, which are volatile when rates change.
|
|
|
|
Since the second quarter of 2002, the Company generally has retained the
servicing on mortgage loans it originates and sells. MSR values are very sensitive
to movements in interest rates as expected future net servicing income depends on
the projected outstanding principal balances of the underlying loans, which can be
greatly reduced by prepayments. Prepayments usually increase when mortgage interest
rates decline and decrease when mortgage interest rates rise. Thus, as interest
rates decline, less future income is expected and the value of MSRs declines and
becomes impaired when the valuation is less than the recorded book value. The
Company recognizes temporary impairment due to change in interest rates through a
valuation reserve and records a direct write-down of the book value of its MSRs for
other-than-temporary declines in valuation. Changes and fluctuations in interest
rate levels between quarters resulted in some quarters reporting an MSR temporary
impairment, with others reporting a recovery of previously reported MSR temporary
impairment. Such swings in MSR valuations have significantly impacted quarterly
mortgage banking income and quarterly trends throughout this period.
|
|
|
|
The Company uses gains or losses on investment securities, and beginning in 2004,
gains or losses and net interest income on trading account assets, to offset MSR
temporary valuation changes. Valuation of trading and investment securities
generally reacts to interest rate changes in an opposite direction compared with MSR
valuations. As a result, changes in interest rate levels that
impacted MSR valuations also resulted in securities or trading gains or losses. As such, in
quarters where an MSR temporary
|
30
impairment is recognized, investment securities
and/or trading account assets are sold resulting in a gain on sale, and vice versa.
Investment securities gains or losses are reflected in the income statement in a
single non-interest income line item, whereas trading gains or losses are a component
of other non-interest income on the income statement. The earnings impact of the MSR
valuation change, and the combination of securities and/or trading gains/losses may
not exactly offset due to, among other factors, the difference in the magnitude
and/or timing of when the MSR valuation is determined and recorded, compared with
when the securities are sold and any gain or loss is recorded
(see Table 3).
|
4.
|
|
The sale of automobile loans.
A key strategy over this time period was
to lower the credit exposure to automobile loans and leases to 20% or less of total
credit exposure, primarily by selling automobile loans. This objective was realized
during the 2005 first quarter. These sales of higher-rate, higher-risk loans impact
results in a number of ways including: lower growth rates in automobile, total
consumer, and total loans; the generation of gains reflected in non-interest income;
and lower net interest income and margin than otherwise would be the case if the loans
were not sold
(see Table 3).
|
|
|
5.
|
|
Significant C&I and CRE charge-offs and recoveries.
A single commercial
credit recovery in the 2004 second quarter on a loan previously charged off in the 2002
fourth quarter favorably impacted the 2004 second quarter provision expense
(see Table
14)
, as well as middle-market commercial and industrial, total commercial, and total
net charge-offs for the quarter
(see Table 15).
In addition, in the 2005 first quarter,
a single large commercial credit was charged-off. This impacted 2005 first quarter
total net charge-offs and provision expense
(see Tables 3, 14, and 15)
|
|
|
6.
|
|
Expenses and accruals associated with the SEC formal investigation and
banking regulatory formal written agreements.
On June 26, 2003, Huntington
announced that the Securities and Exchange Commission staff was conducting a formal
investigation into certain financial accounting matters relating to fiscal years 2002
and earlier and certain related disclosure matters. In addition, on March 1, 2005,
Huntington announced that it had entered into a formal written agreement with the FRBC
and that the Bank had entered into a formal written agreement with the OCC, providing
for a comprehensive action plan designed to enhance its corporate governance, internal
audit, risk management, accounting policies and procedures, and financial and
regulatory reporting. These matters resulted in certain expenses and accruals as
detailed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
0.7
|
|
|
million
|
|
First quarter
|
|
$
|
2.0
|
|
|
million
|
|
Second quarter
|
|
|
0.9
|
|
|
|
|
Second quarter
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First six months
|
|
|
1.6
|
|
|
million
|
|
First six months
|
|
$
|
3.7
|
|
|
million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third quarter
|
|
|
5.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth quarter
|
|
|
6.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full year
|
|
$
|
13.6
|
|
|
million
|
|
|
|
|
|
|
|
|
|
|
|
7.
|
|
Other significant non-run rate items
. The 2005 second quarter results
included $3.6 million of severance and other expenses associated with the consolidation
of certain operations functions, including the closing of an item-processing center in
Michigan, which influences comparisons with both the year-ago quarter, as well as prior
quarter. These expenses included $2.0 million in severance-related personnel costs, $0.8
million in net occupancy, $0.5 million in equipment expense, and $0.3 million in other
expense.
|
The 2005 second quarter results also included a $2.1 million write-off of an equity
investment.
|
8.
|
|
Effective tax rate.
The 2005 first and second quarter effective tax
rate included the after-tax positive impact on net income due to a federal tax loss
carry back, tax exempt income, bank owned life insurance, asset securitization
activities, and general business credits from investment in low income housing and
historic property partnerships. The lower effective tax rate is expected to impact each
quarter of 2005. In 2006, the effective tax rate is anticipated to increase to a more
typical rate slightly below 30%.
|
31
Table 3 Significant Items Influencing Earnings Performance Comparisons
(1)
|
|
|
|
|
|
|
|
|
|
|
Impact
(2)
|
(in millions, except per share amounts)
|
|
Amount
(3)
|
|
EPS
|
|
|
|
|
|
Three Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2005 GAAP earnings
|
|
$
|
106.4
|
(4)
|
|
$
|
0.45
|
|
Federal tax loss carry back
|
|
|
6.6
|
(4)
|
|
|
0.03
|
|
MSR temporary impairment net of hedge-related trading income
|
|
|
(4.0
|
)
|
|
|
(0.01
|
)
|
Severance and consolidation expenses
|
|
|
(3.6
|
)
|
|
|
(0.01
|
)
|
Write-off of equity investment
|
|
|
(2.1
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
March 31, 2005 GAAP earnings
|
|
$
|
96.5
|
(4)
|
|
$
|
0.41
|
|
Federal tax loss carry back
|
|
|
6.4
|
(4)
|
|
|
0.03
|
|
Single C&I charge-off impact, net of allocated reserves
|
|
|
(6.4
|
)
|
|
|
(0.02
|
)
|
SEC and regulatory related expenses
|
|
|
(2.0
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
June 30, 2004 GAAP earnings
|
|
$
|
110.1
|
(4)
|
|
$
|
0.47
|
|
Gain of sale of automobile loans
|
|
|
4.9
|
|
|
|
0.01
|
|
MSR temporary impairment recovery net of investment securities losses
|
|
|
1.2
|
|
|
|
|
|
Single C&I recovery
|
|
|
9.7
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
March 31, 2004 GAAP earnings
|
|
$
|
139.1
|
(4)
|
|
$
|
0.45
|
|
Gain of sale of automobile loans
|
|
|
9.0
|
|
|
|
0.03
|
|
MSR temporary impairment net of investment securities gains
|
|
|
5.0
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2005 GAAP earnings
|
|
$
|
202.9
|
(4)
|
|
$
|
0.86
|
|
Federal tax loss carry back
|
|
|
13.0
|
(4)
|
|
|
0.06
|
|
MSR temporary impairment net of hedge-related trading income
|
|
|
(4.0
|
)
|
|
|
(0.01
|
)
|
Severance and consolidation expenses
|
|
|
(3.6
|
)
|
|
|
(0.01
|
)
|
Write-off of equity investment
|
|
|
(2.1
|
)
|
|
|
(0.01
|
)
|
Single C&I charge-off impact, net of allocated reserves
|
|
|
(6.4
|
)
|
|
|
(0.02
|
)
|
SEC and regulatory related expenses
|
|
|
(3.7
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
June 30, 2004 GAAP earnings
|
|
$
|
214.3
|
(4)
|
|
$
|
0.92
|
|
Gain of sale of automobile loans
|
|
|
13.9
|
|
|
|
0.04
|
|
MSR temporary impairment net of investment securities losses/hedge-related gains
|
|
|
6.2
|
|
|
|
0.01
|
|
Single C&I recovery
|
|
|
9.7
|
|
|
|
0.03
|
|
|
(1)
Includes significant items with $0.01 EPS impact or greater
|
|
(2)
Favorable (unfavorable) impact on GAAP earnings
|
|
(3)
Pre-tax unless otherwise noted
|
|
(4)
After-tax
|
32
RESULTS OF OPERATIONS
Net Interest Income
(This
section should be read in conjunction with Significant Factors 1, 2 and 4.)
2005 Second Quarter versus 2004 Second Quarter
Fully taxable equivalent net interest income increased $19.4 million, or 9%, from the year-ago
quarter, reflecting the favorable impact of a $1.7 billion, or 6%, increase in average earning
assets, and a 7 basis point, or an effective 2%, increase in the net interest margin. The fully
taxable equivalent net interest margin increased to 3.36% from 3.29% in the year-ago quarter. The
increase in the net interest margin from the year-ago quarter reflected a shift from lower-yielding
investments to higher-yielding loans as a result of decreasing the
level of excess liquidity,
redirecting part of the proceeds of securities sales to fund loan growth, and higher yields on
mezzanine-related loans. In addition, the margin also benefited from the increase of the impact of
non-interest bearing funds.
Average total loans and leases increased $2.7 billion, or 12%, from the 2004 second quarter,
reflecting growth in consumer loans, and to a lesser degree, growth in commercial loans. Total
average consumer loans increased $1.7 billion, or 15%, from the year-ago quarter primarily due to a
$1.1 billion, or 37%, increase in average residential mortgages as mortgage loan rates remained
near historically low levels. Average home equity loans increased $0.5 billion, or 13%.
Average total automobile loans decreased $0.3 billion, or 11%, from the year-ago quarter
reflecting the sale of automobile loans over this 12-month period as part of a strategy of reducing
automobile loan and lease exposure as a percent of total credit exposure. Partially offsetting the
decline in automobile loans was growth in direct financing leases due to the continued migration
from operating lease assets, which have not been originated since April 2002. Average direct
financing leases increased $0.3 billion, or 15%, from the year-ago quarter. Total automobile loan
and lease production was 22% below the year-ago quarter, reflecting continued aggressive
competition in this sector.
Average total commercial loans increased $1.0 billion, or 10%, from the year-ago quarter. This
increase reflected a $0.4 billion, or 12%, increase in middle market commercial real estate (CRE)
loans, a $0.3 billion, or 8%, increase in middle market commercial and industrial (C&I) loans, and
a $0.2 billion, or 11%, increase in average small business C&I and CRE loans.
Average total investment securities declined $1.3 billion, or 24%, from the year-ago quarter.
This decline reflected a combination of factors including lowering the level of excess liquidity, a
decision to sell selected lower yielding securities, and partially funding loan growth with the
proceeds from the sale of securities.
Average total core deposits in the 2005 second quarter were $17.0 billion, up $0.7 billion, or
5%, from the year-ago quarter, reflecting a $0.5 billion, or 7%, increase in average interest
bearing demand deposit accounts, primarily money market accounts, a $0.3 billion, or 13%, increase
in retail certificates of deposit, and a $0.1 billion, or 4%, increase in non-interest bearing
deposits. These increases were partially offset by a $0.2 billion, or 6%, decline in savings and
other domestic time deposits.
Tables 3 and 4 reflect quarterly average balance sheets and rates earned and paid on
interest-earning assets and interest-bearing liabilities.
2005 Second Quarter versus 2005 First Quarter
Compared with the 2005 first quarter, fully taxable equivalent net interest income increased
$6.8 million, or 3%, reflecting a 5 basis point, or an effective 2%, increase in the net interest
margin to 3.36% from 3.31% in the 2005 first quarter, and a slight increase in average earning
assets. The increase in the net interest margin from the first quarter reflected the reduction in
excess liquidity positions, a mix change in earning assets from investment securities to loans, and
higher yields on mezzanine-related loans.
Average total loans and leases increased $0.6 billion, or 3%, from the 2005 first quarter with
growth in average commercial loans and consumer loans contributing equally to the increase.
33
Total average commercial loans increased $0.3 billion, or 3%, from the first quarter primarily
due to a $0.2 billion, or 4%, increase in average C&I loans. Average CRE loans increased 2%. As
expected, this was a bit slower than in the prior quarter. The growth in C&I and CRE loans was more
weighted toward loans to new, rather than existing customers. For commercial loans of $1 million or
more made during the quarter, 61% represented loans to new borrowers with the dollar amount of
growth led by the Central Ohio, Southern Ohio/Kentucky, Indiana, and East Michigan regions. On the
same basis, those regions contributing most to the dollar amount of loan growth to existing
customers were Northeast Ohio, Central Ohio, West Michigan, and East Michigan. Growth in average
small business C&I and CRE loans was also 2% and was comparable to the growth rate in the 2005
first quarter.
Compared with the 2005 first quarter, average total consumer loans increased $0.3 billion, or
2%, reflecting a $0.2 billion, or 4%, increase in residential mortgages and a $0.1 billion, or 1%,
increase in average home equity loans. Growth rates in residential mortgages and home equity loans
remained strong, though they have slowed in each of the last two linked quarters. Average home
equity loans increased $0.5 billion, or 13%, though annualized linked-quarter growth rates for the
first two quarters of 2005 have been at rates roughly half that, at 6% and 7%, for the first and
second quarters, respectively. Average automobile loans and leases increased $0.1 billion, or 2%,
due to growth in automobile loans and, to a much lesser degree, growth in direct financing leases.
This growth was in spite of a 2% decline in total automobile loan and lease production from the
2005 first quarter.
Average investment securities declined $0.3 billion, or 8%, from the 2005 first quarter
reflecting a combination of factors including the release of excess liquidity, the lack of
attractive investment options due to the current flat yield curve environment, and a strategy of
partially funding strong loan growth with proceeds from investment securities sales.
Compared with the 2005 first quarter, average total core deposits declined slightly. Average
interest bearing demand deposit accounts declined $0.2 billion, or 3%, from the prior quarter,
which was mostly offset by a $0.2 billion, or 9%, increase in retail certificates of deposits. The
decline in interest bearing demand deposits reflected aggressive money market deposit rate pricing,
especially for commercial accounts, compared with lower relative pricing for national market
brokered deposits. Therefore, commercial money market accounts declined in favor of growth in
national market brokered deposits. Reflecting these factors, average total commercial core deposits
declined 3% from the first quarter, with average brokered deposits and negotiable certificates of
deposit increasing. Consumer core deposits pricing also reflected the impact of aggressive rate
competition. Nevertheless, average total consumer core deposits increased slightly from the first
quarter, reflecting growth in households, as well as consumer certificates of deposits commensurate
with consumer preference for higher fixed-rate deposits.
34
Table 4 Condensed Consolidated Quarterly Average Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
Balances
|
|
|
|
|
|
|
|
|
|
|
Change
|
Fully taxable equivalent basis
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
2Q05 vs 2Q04
|
(in millions of dollars)
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
Second
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits in banks
|
|
$
|
54
|
|
|
$
|
53
|
|
|
$
|
60
|
|
|
$
|
55
|
|
|
$
|
69
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(15
|
)
|
|
|
(21.7)
|
%
|
Trading account securities
|
|
|
236
|
|
|
|
200
|
|
|
|
228
|
|
|
|
148
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
208
|
|
|
|
N.M.
|
|
Federal funds sold and securities purchased
under resale agreements
|
|
|
225
|
|
|
|
475
|
|
|
|
695
|
|
|
|
318
|
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
57
|
|
|
|
33.9
|
|
Loans held for sale
|
|
|
276
|
|
|
|
203
|
|
|
|
229
|
|
|
|
283
|
|
|
|
254
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
8.7
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
3,589
|
|
|
|
3,932
|
|
|
|
3,858
|
|
|
|
4,340
|
|
|
|
4,861
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,272
|
)
|
|
|
(26.2
|
)
|
Tax-exempt
|
|
|
411
|
|
|
|
409
|
|
|
|
404
|
|
|
|
398
|
|
|
|
410
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
4,000
|
|
|
|
4,341
|
|
|
|
4,262
|
|
|
|
4,738
|
|
|
|
5,271
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,271
|
)
|
|
|
(24.1
|
)
|
Loans and leases:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle market commercial and industrial
|
|
|
4,901
|
|
|
|
4,710
|
|
|
|
4,503
|
|
|
|
4,298
|
|
|
|
4,555
|
|
|
|
|
|
|
|
|
|
|
|
|
346
|
|
|
|
7.6
|
|
Construction
|
|
|
1,678
|
|
|
|
1,642
|
|
|
|
1,577
|
|
|
|
1,514
|
|
|
|
1,272
|
|
|
|
|
|
|
|
|
|
|
|
|
406
|
|
|
|
31.9
|
|
Commercial
|
|
|
1,905
|
|
|
|
1,883
|
|
|
|
1,852
|
|
|
|
1,913
|
|
|
|
1,919
|
|
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle market commercial real estate
|
|
|
3,583
|
|
|
|
3,525
|
|
|
|
3,429
|
|
|
|
3,427
|
|
|
|
3,191
|
|
|
|
|
|
|
|
|
|
|
|
|
392
|
|
|
|
12.3
|
|
Small business commercial and industrial
and commercial real estate
|
|
|
2,230
|
|
|
|
2,183
|
|
|
|
2,136
|
|
|
|
2,081
|
|
|
|
2,018
|
|
|
|
|
|
|
|
|
|
|
|
|
212
|
|
|
|
10.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
10,714
|
|
|
|
10,418
|
|
|
|
10,068
|
|
|
|
9,806
|
|
|
|
9,764
|
|
|
|
|
|
|
|
|
|
|
|
|
950
|
|
|
|
9.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans
|
|
|
2,069
|
|
|
|
2,008
|
|
|
|
1,913
|
|
|
|
1,857
|
|
|
|
2,337
|
|
|
|
|
|
|
|
|
|
|
|
|
(268
|
)
|
|
|
(11.5
|
)
|
Automobile leases
|
|
|
2,468
|
|
|
|
2,461
|
|
|
|
2,388
|
|
|
|
2,250
|
|
|
|
2,139
|
|
|
|
|
|
|
|
|
|
|
|
|
329
|
|
|
|
15.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans and leases
|
|
|
4,537
|
|
|
|
4,469
|
|
|
|
4,301
|
|
|
|
4,107
|
|
|
|
4,476
|
|
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
1.4
|
|
Home equity
|
|
|
4,636
|
|
|
|
4,570
|
|
|
|
4,489
|
|
|
|
4,337
|
|
|
|
4,107
|
|
|
|
|
|
|
|
|
|
|
|
|
529
|
|
|
|
12.9
|
|
Residential mortgage
|
|
|
4,080
|
|
|
|
3,919
|
|
|
|
3,695
|
|
|
|
3,484
|
|
|
|
2,986
|
|
|
|
|
|
|
|
|
|
|
|
|
1,094
|
|
|
|
36.6
|
|
Other loans
|
|
|
491
|
|
|
|
480
|
|
|
|
479
|
|
|
|
461
|
|
|
|
434
|
|
|
|
|
|
|
|
|
|
|
|
|
57
|
|
|
|
13.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
13,744
|
|
|
|
13,438
|
|
|
|
12,964
|
|
|
|
12,389
|
|
|
|
12,003
|
|
|
|
|
|
|
|
|
|
|
|
|
1,741
|
|
|
|
14.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases
|
|
|
24,458
|
|
|
|
23,856
|
|
|
|
23,032
|
|
|
|
22,195
|
|
|
|
21,767
|
|
|
|
|
|
|
|
|
|
|
|
|
2,691
|
|
|
|
12.4
|
|
Allowance for loan and lease losses
|
|
|
(270
|
)
|
|
|
(282
|
)
|
|
|
(283
|
)
|
|
|
(288
|
)
|
|
|
(310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
12.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans and leases
|
|
|
24,188
|
|
|
|
23,574
|
|
|
|
22,749
|
|
|
|
21,907
|
|
|
|
21,457
|
|
|
|
|
|
|
|
|
|
|
|
|
2,731
|
|
|
|
12.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
29,249
|
|
|
|
29,128
|
|
|
|
28,506
|
|
|
|
27,737
|
|
|
|
27,557
|
|
|
|
|
|
|
|
|
|
|
|
|
1,692
|
|
|
|
6.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease assets
|
|
|
409
|
|
|
|
529
|
|
|
|
648
|
|
|
|
800
|
|
|
|
977
|
|
|
|
|
|
|
|
|
|
|
|
|
(568
|
)
|
|
|
(58.1
|
)
|
Cash and due from banks
|
|
|
865
|
|
|
|
909
|
|
|
|
880
|
|
|
|
928
|
|
|
|
772
|
|
|
|
|
|
|
|
|
|
|
|
|
93
|
|
|
|
12.0
|
|
Intangible assets
|
|
|
218
|
|
|
|
218
|
|
|
|
216
|
|
|
|
216
|
|
|
|
216
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
0.9
|
|
All other assets
|
|
|
2,149
|
|
|
|
2,079
|
|
|
|
2,094
|
|
|
|
2,066
|
|
|
|
2,101
|
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
32,620
|
|
|
$
|
32,581
|
|
|
$
|
32,061
|
|
|
$
|
31,459
|
|
|
$
|
31,313
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,307
|
|
|
|
4.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing demand deposits
|
|
$
|
3,352
|
|
|
$
|
3,314
|
|
|
$
|
3,401
|
|
|
$
|
3,276
|
|
|
$
|
3,223
|
|
|
|
|
|
|
|
|
|
|
|
$
|
129
|
|
|
|
4.0
|
%
|
Interest bearing demand deposits
|
|
|
7,677
|
|
|
|
7,925
|
|
|
|
7,658
|
|
|
|
7,384
|
|
|
|
7,168
|
|
|
|
|
|
|
|
|
|
|
|
|
509
|
|
|
|
7.1
|
|
Savings and other domestic time deposits
|
|
|
3,230
|
|
|
|
3,309
|
|
|
|
3,395
|
|
|
|
3,436
|
|
|
|
3,439
|
|
|
|
|
|
|
|
|
|
|
|
|
(209
|
)
|
|
|
(6.1
|
)
|
Retail certificates of deposit
|
|
|
2,720
|
|
|
|
2,496
|
|
|
|
2,454
|
|
|
|
2,414
|
|
|
|
2,400
|
|
|
|
|
|
|
|
|
|
|
|
|
320
|
|
|
|
13.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits
|
|
|
16,979
|
|
|
|
17,044
|
|
|
|
16,908
|
|
|
|
16,510
|
|
|
|
16,230
|
|
|
|
|
|
|
|
|
|
|
|
|
749
|
|
|
|
4.6
|
|
Domestic time deposits of $100,000 or more
|
|
|
1,248
|
|
|
|
1,249
|
|
|
|
990
|
|
|
|
886
|
|
|
|
795
|
|
|
|
|
|
|
|
|
|
|
|
|
453
|
|
|
|
57.0
|
|
Brokered deposits and negotiable CDs
|
|
|
3,249
|
|
|
|
2,728
|
|
|
|
1,948
|
|
|
|
1,755
|
|
|
|
1,737
|
|
|
|
|
|
|
|
|
|
|
|
|
1,512
|
|
|
|
87.0
|
|
Foreign time deposits
|
|
|
434
|
|
|
|
442
|
|
|
|
465
|
|
|
|
476
|
|
|
|
542
|
|
|
|
|
|
|
|
|
|
|
|
|
(108
|
)
|
|
|
(19.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
21,910
|
|
|
|
21,463
|
|
|
|
20,311
|
|
|
|
19,627
|
|
|
|
19,304
|
|
|
|
|
|
|
|
|
|
|
|
|
2,606
|
|
|
|
13.5
|
|
Short-term borrowings
|
|
|
1,301
|
|
|
|
1,179
|
|
|
|
1,302
|
|
|
|
1,342
|
|
|
|
1,396
|
|
|
|
|
|
|
|
|
|
|
|
|
(95
|
)
|
|
|
(6.8
|
)
|
Federal Home Loan Bank advances
|
|
|
1,136
|
|
|
|
1,196
|
|
|
|
1,270
|
|
|
|
1,270
|
|
|
|
1,270
|
|
|
|
|
|
|
|
|
|
|
|
|
(134
|
)
|
|
|
(10.6
|
)
|
Subordinated notes and other long-term
debt
|
|
|
4,100
|
|
|
|
4,517
|
|
|
|
5,099
|
|
|
|
5,244
|
|
|
|
5,623
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,523
|
)
|
|
|
(27.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities
|
|
|
25,095
|
|
|
|
25,041
|
|
|
|
24,581
|
|
|
|
24,207
|
|
|
|
24,370
|
|
|
|
|
|
|
|
|
|
|
|
|
725
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other liabilities
|
|
|
1,554
|
|
|
|
1,699
|
|
|
|
1,598
|
|
|
|
1,564
|
|
|
|
1,397
|
|
|
|
|
|
|
|
|
|
|
|
|
157
|
|
|
|
11.2
|
|
Shareholders equity
|
|
|
2,619
|
|
|
|
2,527
|
|
|
|
2,481
|
|
|
|
2,412
|
|
|
|
2,323
|
|
|
|
|
|
|
|
|
|
|
|
|
296
|
|
|
|
12.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
$
|
32,620
|
|
|
$
|
32,581
|
|
|
$
|
32,061
|
|
|
$
|
31,459
|
|
|
$
|
31,313
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,307
|
|
|
|
4.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M., not a meaningful value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
For purposes of this analysis, non-accrual loans are reflected in the average balances of loans.
|
35
Table 5 Consolidated Quarterly Net Interest Margin Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Rates
(2)
|
|
|
2005
|
|
2004
|
Fully taxable equivalent basis
(1)
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
Second
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits in banks
|
|
|
1.47
|
%
|
|
|
1.88
|
%
|
|
|
1.61
|
%
|
|
|
0.91
|
%
|
|
|
1.05
|
%
|
Trading account securities
|
|
|
3.94
|
|
|
|
4.14
|
|
|
|
4.15
|
|
|
|
4.44
|
|
|
|
3.02
|
|
Federal funds sold and securities purchased
under resale agreements
|
|
|
2.76
|
|
|
|
2.36
|
|
|
|
1.99
|
|
|
|
1.53
|
|
|
|
1.21
|
|
Loans held for sale
|
|
|
6.04
|
|
|
|
5.55
|
|
|
|
5.69
|
|
|
|
5.25
|
|
|
|
5.17
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
4.13
|
|
|
|
3.87
|
|
|
|
3.77
|
|
|
|
3.83
|
|
|
|
3.83
|
|
Tax-exempt
|
|
|
6.76
|
|
|
|
6.73
|
|
|
|
6.89
|
|
|
|
7.06
|
|
|
|
7.07
|
|
|
|
|
Total investment securities
|
|
|
4.40
|
|
|
|
4.14
|
|
|
|
4.07
|
|
|
|
4.10
|
|
|
|
4.09
|
|
Loans and leases:
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle market commercial and industrial
|
|
|
5.65
|
|
|
|
5.02
|
|
|
|
4.80
|
|
|
|
4.46
|
|
|
|
4.05
|
|
Construction
|
|
|
5.70
|
|
|
|
5.13
|
|
|
|
4.65
|
|
|
|
4.13
|
|
|
|
3.73
|
|
Commercial
|
|
|
5.44
|
|
|
|
5.15
|
|
|
|
4.80
|
|
|
|
4.45
|
|
|
|
4.20
|
|
|
|
|
Middle market commercial real estate
|
|
|
5.56
|
|
|
|
5.14
|
|
|
|
4.73
|
|
|
|
4.31
|
|
|
|
4.02
|
|
Small business commercial and industrial
and commercial real estate
|
|
|
5.99
|
|
|
|
5.81
|
|
|
|
5.67
|
|
|
|
5.45
|
|
|
|
5.33
|
|
|
|
|
Total commercial
|
|
|
5.69
|
|
|
|
5.23
|
|
|
|
4.96
|
|
|
|
4.62
|
|
|
|
4.30
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans
|
|
|
6.57
|
|
|
|
6.83
|
|
|
|
7.31
|
|
|
|
7.65
|
|
|
|
7.20
|
|
Automobile leases
|
|
|
4.91
|
|
|
|
4.92
|
|
|
|
5.00
|
|
|
|
5.02
|
|
|
|
5.06
|
|
|
|
|
Automobile loans and leases
|
|
|
5.67
|
|
|
|
5.78
|
|
|
|
6.02
|
|
|
|
6.21
|
|
|
|
6.17
|
|
Home equity
|
|
|
6.24
|
|
|
|
5.77
|
|
|
|
5.30
|
|
|
|
4.84
|
|
|
|
4.75
|
|
Residential mortgage
|
|
|
5.37
|
|
|
|
5.36
|
|
|
|
5.53
|
|
|
|
5.48
|
|
|
|
5.40
|
|
Other loans
|
|
|
6.22
|
|
|
|
6.42
|
|
|
|
6.87
|
|
|
|
6.54
|
|
|
|
6.21
|
|
|
|
|
Total consumer
|
|
|
5.79
|
|
|
|
5.67
|
|
|
|
5.66
|
|
|
|
5.54
|
|
|
|
5.49
|
|
|
|
|
Total loans and leases
|
|
|
5.75
|
|
|
|
5.48
|
|
|
|
5.34
|
|
|
|
5.12
|
|
|
|
4.95
|
|
|
|
|
Total earning assets
|
|
|
5.52
|
%
|
|
|
5.21
|
%
|
|
|
5.05
|
%
|
|
|
4.89
|
%
|
|
|
4.76
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing demand deposits
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
Interest bearing demand deposits
|
|
|
1.64
|
|
|
|
1.45
|
|
|
|
1.21
|
|
|
|
1.06
|
|
|
|
0.94
|
|
Savings and other domestic time deposits
|
|
|
1.34
|
|
|
|
1.27
|
|
|
|
1.26
|
|
|
|
1.24
|
|
|
|
1.23
|
|
Retail certificates of deposit
|
|
|
3.49
|
|
|
|
3.43
|
|
|
|
3.38
|
|
|
|
3.32
|
|
|
|
3.27
|
|
|
|
|
Total core deposits
|
|
|
1.94
|
|
|
|
1.76
|
|
|
|
1.62
|
|
|
|
1.52
|
|
|
|
1.45
|
|
Domestic time deposits of $100,000 or more
|
|
|
3.27
|
|
|
|
2.92
|
|
|
|
2.51
|
|
|
|
2.40
|
|
|
|
2.37
|
|
Brokered deposits and negotiable CDs
|
|
|
3.25
|
|
|
|
2.80
|
|
|
|
2.26
|
|
|
|
1.84
|
|
|
|
1.57
|
|
Foreign time deposits
|
|
|
1.95
|
|
|
|
1.41
|
|
|
|
0.98
|
|
|
|
0.83
|
|
|
|
0.76
|
|
|
|
|
Total deposits
|
|
|
2.26
|
|
|
|
1.99
|
|
|
|
1.73
|
|
|
|
1.58
|
|
|
|
1.48
|
|
Short-term borrowings
|
|
|
2.16
|
|
|
|
1.66
|
|
|
|
1.17
|
|
|
|
0.92
|
|
|
|
0.80
|
|
Federal Home Loan Bank advances
|
|
|
3.02
|
|
|
|
2.90
|
|
|
|
2.68
|
|
|
|
2.60
|
|
|
|
2.52
|
|
Subordinated notes and other long-term debt
|
|
|
3.91
|
|
|
|
3.39
|
|
|
|
2.67
|
|
|
|
2.62
|
|
|
|
2.24
|
|
|
|
|
Total interest bearing liabilities
|
|
|
2.56
|
%
|
|
|
2.27
|
%
|
|
|
1.94
|
%
|
|
|
1.82
|
%
|
|
|
1.66
|
%
|
|
|
|
Net interest rate spread
|
|
|
2.96
|
%
|
|
|
2.94
|
%
|
|
|
3.11
|
%
|
|
|
3.07
|
%
|
|
|
3.10
|
%
|
Impact of non-interest bearing funds on margin
|
|
|
0.40
|
|
|
|
0.37
|
|
|
|
0.27
|
|
|
|
0.23
|
|
|
|
0.19
|
|
|
|
|
Net interest margin
|
|
|
3.36
|
%
|
|
|
3.31
|
%
|
|
|
3.38
|
%
|
|
|
3.30
|
%
|
|
|
3.29
|
%
|
|
|
|
|
|
|
(1)
|
|
Fully taxable equivalent (FTE) yields are calculated assuming a 35% tax rate.
|
|
(2)
|
|
Loan, lease, and deposit average rates include impact of applicable derivatives and non-deferrable fees.
|
|
(3)
|
|
For purposes of this analysis, non-accrual loans are reflected in the average balances of loans.
|
36
2005 First Six Months versus 2004 First Six Months
Fully taxable equivalent net interest income increased $31.7 million, or 7%, from the year-ago
quarter, reflecting the favorable impact of a $1.9 billion, or 7%, increase in average earning
assets, and a 2 basis point increase in the net interest margin. The fully taxable equivalent net
interest margin increased to 3.34% from 3.32% in the year-ago period. The increase in the net
interest margin from the year-ago period reflected a shift from lower-yielding investments to
higher-yielding loans as a result of decreasing the level of excess liquidity and redirecting part
of the proceeds of securities sales to fund loan growth. In addition, the margin also benefited
from the increase of the impact of non-interest bearing funds. These benefits were partially offset
by the impact of a flattening yield curve.
Average total loans and leases increased $2.5 billion, or 12%, from the 2004 first six month
period, reflecting growth in consumer loans, and to a lesser degree, growth in commercial loans.
Total average consumer loans increased $1.6 billion, or 14%, from the year-ago period primarily due
to a $1.2 billion, or 41%, increase in average residential mortgages as mortgage loan rates
remained near historically low levels. Average home equity loans increased $0.6 billion, or 16%.
Average total automobile loans decreased $0.3 billion, or 5%, from the year-ago period
reflecting the sale of automobile loans. Partially offsetting the decline in automobile loans was
growth in direct financing leases due to the continued migration from operating lease assets, which
have not been originated since April 2002. Average direct financing leases increased $0.4 billion,
or 19%, from the year-ago period.
Average total commercial loans increased $0.9 billion, or 9%, from the year-ago six-month
period. This reflected a $0.4 billion, or 12%, increase in middle market commercial real estate
(CRE) loans, a $0.3 billion, or 7%, increase in middle market commercial and industrial (C&I)
loans, and a $0.2 billion, or 11%, increase in average small business C&I and CRE loans.
Average total investment securities declined $1.0 billion, or 19%, from the first six months
of 2004. This decline reflected a combination of factors including lowering the level of excess
liquidity, a decision to sell selected lower yielding securities, and partially funding loan growth
with the proceeds from the sale of securities.
Average total core deposits in the 2005 first six-month period were $17.0 billion, up $1.2
billion, or 7%, from the comparable year-ago period, reflecting a $0.9 billion, or 13%, increase in
average interest bearing demand deposit accounts, primarily money market accounts, a $0.2 billion,
or 9%, increase in retail certificates of deposit, and a $0.2 billion, or 7%, increase in
non-interest bearing deposits. These increases were partially offset by a $0.2 billion, or 5%,
decline in savings and other domestic time deposits.
37
Table 6 Condensed Consolidated YTD Average Balance Sheets and Net Interest Margin Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YTD Average Balances
|
|
YTD Average Rates
(2)
|
Fully taxable equivalent basis
(1)
|
|
Six Months Ending June 30,
|
|
Change
|
|
Six Months Ending June 30,
|
(in millions of dollars)
|
|
2005
|
|
2004
|
|
Amount
|
|
Percent
|
|
2005
|
|
2004
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits in banks
|
|
$
|
54
|
|
|
$
|
74
|
|
|
$
|
(20
|
)
|
|
|
(27.0
|
)%
|
|
|
1.67
|
%
|
|
|
0.88
|
%
|
Trading account securities
|
|
|
218
|
|
|
|
22
|
|
|
|
196
|
|
|
|
N.M.
|
|
|
|
4.03
|
|
|
|
3.36
|
|
Federal funds sold and securities purchased
under resale agreements
|
|
|
349
|
|
|
|
130
|
|
|
|
219
|
|
|
|
N.M.
|
|
|
|
2.49
|
|
|
|
1.28
|
|
Loans held for sale
|
|
|
240
|
|
|
|
231
|
|
|
|
9
|
|
|
|
3.9
|
|
|
|
5.83
|
|
|
|
5.25
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
3,759
|
|
|
|
4,753
|
|
|
|
(994
|
)
|
|
|
(20.9
|
)
|
|
|
3.99
|
|
|
|
3.94
|
|
Tax-exempt
|
|
|
410
|
|
|
|
423
|
|
|
|
(13
|
)
|
|
|
(3.1
|
)
|
|
|
6.75
|
|
|
|
6.97
|
|
|
|
|
|
|
Total investment securities
|
|
|
4,169
|
|
|
|
5,176
|
|
|
|
(1,007
|
)
|
|
|
(19.5
|
)
|
|
|
4.26
|
|
|
|
4.19
|
|
Loans and leases:
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle market commercial and industrial
|
|
|
4,806
|
|
|
|
4,498
|
|
|
|
308
|
|
|
|
6.8
|
|
|
|
5.34
|
|
|
|
4.19
|
|
Construction
|
|
|
1,659
|
|
|
|
1,274
|
|
|
|
385
|
|
|
|
30.2
|
|
|
|
5.42
|
|
|
|
3.70
|
|
Commercial
|
|
|
1,894
|
|
|
|
1,896
|
|
|
|
(2
|
)
|
|
|
(0.1
|
)
|
|
|
5.30
|
|
|
|
4.26
|
|
|
|
|
|
|
Middle market commercial real estate
|
|
|
3,553
|
|
|
|
3,170
|
|
|
|
|
|
|
|
|
|
|
|
5.35
|
|
|
|
4.03
|
|
Small business commercial and industrial
and commercial real estate
|
|
|
2,207
|
|
|
|
1,996
|
|
|
|
211
|
|
|
|
10.6
|
|
|
|
5.90
|
|
|
|
5.40
|
|
|
|
|
|
|
Total commercial
|
|
|
10,566
|
|
|
|
9,664
|
|
|
|
902
|
|
|
|
9.3
|
|
|
|
5.46
|
|
|
|
4.39
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans
|
|
|
2,038
|
|
|
|
2,689
|
|
|
|
(651
|
)
|
|
|
(24.2
|
)
|
|
|
6.70
|
|
|
|
7.05
|
|
Automobile leases
|
|
|
2,465
|
|
|
|
2,064
|
|
|
|
401
|
|
|
|
19.4
|
|
|
|
4.91
|
|
|
|
5.02
|
|
|
|
|
|
|
Automobile loans and leases
|
|
|
4,503
|
|
|
|
4,753
|
|
|
|
(250
|
)
|
|
|
(5.3
|
)
|
|
|
5.72
|
|
|
|
6.17
|
|
Home equity
|
|
|
4,603
|
|
|
|
3,959
|
|
|
|
644
|
|
|
|
16.3
|
|
|
|
6.01
|
|
|
|
4.88
|
|
Residential mortgage
|
|
|
4,000
|
|
|
|
2,830
|
|
|
|
1,170
|
|
|
|
41.3
|
|
|
|
5.36
|
|
|
|
5.37
|
|
Other loans
|
|
|
486
|
|
|
|
429
|
|
|
|
57
|
|
|
|
13.3
|
|
|
|
6.32
|
|
|
|
7.37
|
|
|
|
|
|
|
Total consumer
|
|
|
13,592
|
|
|
|
11,971
|
|
|
|
1,621
|
|
|
|
13.5
|
|
|
|
5.73
|
|
|
|
5.51
|
|
|
|
|
|
|
Total loans and leases
|
|
|
24,158
|
|
|
|
21,635
|
|
|
|
2,523
|
|
|
|
11.7
|
|
|
|
5.62
|
|
|
|
5.00
|
|
|
|
|
|
|
Allowance for loan and lease losses
|
|
|
(276
|
)
|
|
|
(311
|
)
|
|
|
35
|
|
|
|
(11.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans and leases
|
|
|
23,882
|
|
|
|
21,324
|
|
|
|
2,558
|
|
|
|
12.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
29,188
|
|
|
|
27,268
|
|
|
|
1,920
|
|
|
|
7.0
|
|
|
|
5.37
|
|
|
|
4.83
|
|
|
|
|
|
|
Operating lease assets
|
|
|
469
|
|
|
|
1,070
|
|
|
|
(601
|
)
|
|
|
(56.2
|
)
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
887
|
|
|
|
756
|
|
|
|
131
|
|
|
|
17.3
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
218
|
|
|
|
217
|
|
|
|
1
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
All other assets
|
|
|
2,115
|
|
|
|
2,075
|
|
|
|
40
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
32,601
|
|
|
$
|
31,075
|
|
|
$
|
1,526
|
|
|
|
4.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits non-interest bearing
|
|
$
|
3,333
|
|
|
$
|
3,120
|
|
|
$
|
213
|
|
|
|
6.8
|
%
|
|
|
|
|
|
|
|
|
Demand deposits interest bearing
|
|
|
7,800
|
|
|
|
6,889
|
|
|
|
911
|
|
|
|
13.2
|
|
|
|
1.54
|
|
|
|
0.92
|
|
Savings and other domestic time deposits
|
|
|
3,266
|
|
|
|
3,447
|
|
|
|
(181
|
)
|
|
|
(5.3
|
)
|
|
|
1.30
|
|
|
|
1.32
|
|
Retail certificates of deposit
|
|
|
2,609
|
|
|
|
2,400
|
|
|
|
209
|
|
|
|
8.7
|
|
|
|
3.46
|
|
|
|
3.37
|
|
|
|
|
|
|
Total core deposits
|
|
|
17,008
|
|
|
|
15,856
|
|
|
|
1,152
|
|
|
|
7.3
|
|
|
|
1.85
|
|
|
|
1.49
|
|
Domestic time deposits of $100,000 or more
|
|
|
1,249
|
|
|
|
792
|
|
|
|
457
|
|
|
|
57.7
|
|
|
|
3.10
|
|
|
|
2.26
|
|
Brokered deposits and negotiable CDs
|
|
|
2,995
|
|
|
|
1,822
|
|
|
|
1,173
|
|
|
|
64.4
|
|
|
|
3.05
|
|
|
|
1.54
|
|
Deposits in foreign offices
|
|
|
438
|
|
|
|
545
|
|
|
|
(107
|
)
|
|
|
(19.6
|
)
|
|
|
1.69
|
|
|
|
0.74
|
|
|
|
|
|
|
Total deposits
|
|
|
21,690
|
|
|
|
19,015
|
|
|
|
2,675
|
|
|
|
14.1
|
|
|
|
2.13
|
|
|
|
1.51
|
|
Short-term borrowings
|
|
|
1,240
|
|
|
|
1,499
|
|
|
|
(259
|
)
|
|
|
(17.3
|
)
|
|
|
1.91
|
|
|
|
0.82
|
|
Federal Home Loan Bank advances
|
|
|
1,166
|
|
|
|
1,272
|
|
|
|
(106
|
)
|
|
|
(8.3
|
)
|
|
|
2.96
|
|
|
|
2.51
|
|
Subordinated notes and other long-term debt
|
|
|
4,308
|
|
|
|
5,590
|
|
|
|
(1,282
|
)
|
|
|
(22.9
|
)
|
|
|
3.64
|
|
|
|
2.28
|
|
|
|
|
|
|
Total interest bearing liabilities
|
|
|
25,071
|
|
|
|
24,256
|
|
|
|
815
|
|
|
|
3.4
|
|
|
|
2.42
|
|
|
|
1.68
|
|
|
|
|
|
|
All other liabilities
|
|
|
1,624
|
|
|
|
1,398
|
|
|
|
226
|
|
|
|
16.2
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
2,573
|
|
|
|
2,301
|
|
|
|
272
|
|
|
|
11.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
$
|
32,601
|
|
|
$
|
31,075
|
|
|
$
|
1,526
|
|
|
|
4.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.95
|
|
|
|
3.15
|
|
Impact of non-interest bearing funds on margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.39
|
|
|
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.34
|
%
|
|
|
3.32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Fully taxable equivalent (FTE) yields are calculated assuming a 35% tax rate. See page 15 for the FTE adjustment.
|
|
(2)
|
|
Loan, lease, and deposit average rates include impact of applicable derivatives and non-deferrable fees.
|
|
(3)
|
|
For purposes of this analysis, non-accrual loans are reflected in the average balances of loans.
|
38
Provision for Credit Losses
(This section should be read in conjunction with Significant Factors 2 and 5 and the Credit Risk section.)
The provision for credit losses combines the provision for loan and lease losses with the
provision for losses on unfunded loan commitments. The provision for loan and lease losses is the
expense necessary to maintain the allowance for loan and lease losses (ALLL) at a level adequate to
absorb Managements estimate of probable credit losses in the loan and lease portfolio. The
provision for losses on unfunded loan commitments is the expense necessary to maintain the
allowance for unfunded loan commitments (AULC) at a level adequate to absorb Managements estimate
of probable credit losses in the portfolio of unfunded loan commitments.
The provision for credit losses in the 2005 second quarter was $12.9 million, a $7.9 million
increase from the year-ago quarter, but a $7.0 million decrease from the 2005 first quarter. The
increase in provision expense from the year-ago quarter reflected the benefit in the year-ago
quarter of a $9.7 million commercial loan recovery. The decline in provision expense from the 2005
first quarter primarily reflected the positive impact of the overall credit quality and improved
economic environment.
The provision for credit losses for the first six-months of 2005 was $32.8 million, a $2.1
million, or 7%, increase from the comparable year-ago period.
Non-Interest Income
(This section should be read in conjunction with Significant Factor 1, 3, and 4.)
Table 7 reflects non-interest income detail for each of the past five quarters and for the
first six months of 2005 and 2004.
Table 7 Non-Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
|
2Q05 vs 2Q04
|
(in thousands of dollars)
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
Second
|
|
|
Amount
|
|
Percent
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
$
|
41,516
|
|
|
$
|
39,418
|
|
|
$
|
41,747
|
|
|
$
|
43,935
|
|
|
$
|
43,596
|
|
|
|
$
|
(2,080
|
)
|
|
|
(4.8
|
)%
|
Trust services
|
|
|
19,113
|
|
|
|
18,196
|
|
|
|
17,315
|
|
|
|
17,064
|
|
|
|
16,708
|
|
|
|
|
2,405
|
|
|
|
14.4
|
|
Brokerage and insurance income
|
|
|
13,544
|
|
|
|
13,026
|
|
|
|
12,879
|
|
|
|
13,200
|
|
|
|
13,523
|
|
|
|
|
21
|
|
|
|
0.2
|
|
Bank owned life insurance income
|
|
|
10,139
|
|
|
|
10,104
|
|
|
|
10,484
|
|
|
|
10,019
|
|
|
|
11,309
|
|
|
|
|
(1,170
|
)
|
|
|
(10.3
|
)
|
Other service charges and fees
|
|
|
11,252
|
|
|
|
10,159
|
|
|
|
10,617
|
|
|
|
10,799
|
|
|
|
10,645
|
|
|
|
|
607
|
|
|
|
5.7
|
|
Mortgage banking income (loss)
|
|
|
(2,376
|
)
|
|
|
12,061
|
|
|
|
8,822
|
|
|
|
4,448
|
|
|
|
23,322
|
|
|
|
|
(25,698
|
)
|
|
|
N.M.
|
|
Securities gains (losses)
|
|
|
(343
|
)
|
|
|
957
|
|
|
|
2,100
|
|
|
|
7,803
|
|
|
|
(9,230
|
)
|
|
|
|
8,887
|
|
|
|
96.3
|
|
Other income
|
|
|
24,974
|
|
|
|
17,397
|
|
|
|
23,870
|
|
|
|
17,899
|
|
|
|
24,659
|
|
|
|
|
315
|
|
|
|
1.3
|
|
|
|
|
|
|
|
Sub-total before operating lease income
|
|
|
117,819
|
|
|
|
121,318
|
|
|
|
127,834
|
|
|
|
125,167
|
|
|
|
134,532
|
|
|
|
|
(16,713
|
)
|
|
|
(12.4
|
)
|
Operating lease income
|
|
|
38,097
|
|
|
|
46,732
|
|
|
|
55,106
|
|
|
|
64,412
|
|
|
|
78,706
|
|
|
|
|
(40,609
|
)
|
|
|
(51.6
|
)
|
|
|
|
|
|
|
Sub-total including operating lease income
|
|
|
155,916
|
|
|
|
168,050
|
|
|
|
182,940
|
|
|
|
189,579
|
|
|
|
213,238
|
|
|
|
|
(57,322
|
)
|
|
|
(26.9
|
)
|
Gain on sales of automobile loans
|
|
|
254
|
|
|
|
|
|
|
|
|
|
|
|
312
|
|
|
|
4,890
|
|
|
|
|
(4,636
|
)
|
|
|
(94.8
|
)
|
|
|
|
|
|
|
Total non-interest income
|
|
$
|
156,170
|
|
|
$
|
168,050
|
|
|
$
|
182,940
|
|
|
$
|
189,891
|
|
|
$
|
218,128
|
|
|
|
$
|
(61,958
|
)
|
|
|
(28.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
YTD 2005 vs 2004
|
(in thousands of dollars)
|
|
2005
|
|
|
2004
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
Service charges on deposit accounts
|
|
$
|
80,934
|
|
|
$
|
85,433
|
|
|
$
|
(4,499
|
)
|
|
|
(5.3
|
)%
|
Trust services
|
|
|
37,309
|
|
|
|
33,031
|
|
|
|
4,278
|
|
|
|
13.0
|
|
Brokerage and insurance income
|
|
|
26,570
|
|
|
|
28,720
|
|
|
|
(2,150
|
)
|
|
|
(7.5
|
)
|
Bank owned life insurance income
|
|
|
20,243
|
|
|
|
21,794
|
|
|
|
(1,551
|
)
|
|
|
(7.1
|
)
|
Other service charges and fees
|
|
|
21,411
|
|
|
|
20,158
|
|
|
|
1,253
|
|
|
|
6.2
|
|
Mortgage banking income
|
|
|
9,685
|
|
|
|
19,026
|
|
|
|
(9,341
|
)
|
|
|
(49.1
|
)
|
Securities gains
|
|
|
614
|
|
|
|
5,860
|
|
|
|
(5,246
|
)
|
|
|
(89.5
|
)
|
Other income
|
|
|
42,371
|
|
|
|
50,278
|
|
|
|
(7,907
|
)
|
|
|
(15.7
|
)
|
|
|
|
Sub-total before operating lease income
|
|
|
239,137
|
|
|
|
264,300
|
|
|
|
(25,163
|
)
|
|
|
(9.5
|
)
|
Operating lease income
|
|
|
84,829
|
|
|
|
167,573
|
|
|
|
(82,744
|
)
|
|
|
(49.4
|
)
|
|
|
|
Sub-total including operating lease income
|
|
|
323,966
|
|
|
|
431,873
|
|
|
|
(107,907
|
)
|
|
|
(25.0
|
)
|
Gain on sales of automobile loans
|
|
|
254
|
|
|
|
13,894
|
|
|
|
(13,640
|
)
|
|
|
(98.2
|
)
|
|
|
|
Total non-interest income
|
|
$
|
324,220
|
|
|
$
|
445,767
|
|
|
$
|
(121,547
|
)
|
|
|
(27.3
|
)%
|
|
|
|
|
N.M., not a meaningful value.
|
39
Table 8 reflects mortgage banking income detail for each of the past five quarters and for the
first six months of 2005 and 2004.
Table 8 Mortgage Banking Income and Net Impact of MSR Hedging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
|
2Q05 vs 2Q04
|
(in thousands of dollars)
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
Second
|
|
|
Amount
|
|
Percent
|
|
|
|
|
|
|
Mortgage Banking Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Origination fees
|
|
$
|
3,066
|
|
|
$
|
2,699
|
|
|
$
|
3,264
|
|
|
$
|
3,219
|
|
|
$
|
3,330
|
|
|
|
$
|
(264
|
)
|
|
|
(7.9
|
)%
|
Secondary marketing
|
|
|
1,749
|
|
|
|
2,482
|
|
|
|
1,623
|
|
|
|
(14
|
)
|
|
|
5,514
|
|
|
|
|
(3,765
|
)
|
|
|
(68.3
|
)
|
Servicing fees
|
|
|
5,464
|
|
|
|
5,394
|
|
|
|
5,730
|
|
|
|
5,353
|
|
|
|
5,465
|
|
|
|
|
(1
|
)
|
|
|
(0.0
|
)
|
Amortization of capitalized servicing
|
|
|
(5,187
|
)
|
|
|
(4,761
|
)
|
|
|
(5,153
|
)
|
|
|
(4,468
|
)
|
|
|
(4,047
|
)
|
|
|
|
(1,140
|
)
|
|
|
28.2
|
|
MSR recovery / (impairment)
|
|
|
(10,231
|
)
|
|
|
3,760
|
|
|
|
738
|
|
|
|
(4,119
|
)
|
|
|
14,880
|
|
|
|
|
(25,111
|
)
|
|
|
N.M.
|
|
Other mortgage banking income
|
|
|
2,763
|
|
|
|
2,487
|
|
|
|
2,620
|
|
|
|
4,477
|
|
|
|
(1,820
|
)
|
|
|
|
4,583
|
|
|
|
N.M.
|
|
|
|
|
|
|
|
Total mortgage banking income (loss)
|
|
$
|
(2,376
|
)
|
|
$
|
12,061
|
|
|
$
|
8,822
|
|
|
$
|
4,448
|
|
|
$
|
23,322
|
|
|
|
$
|
(25,698
|
)
|
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized mortgage servicing rights
(1)
|
|
$
|
71,150
|
|
|
$
|
80,972
|
|
|
$
|
77,107
|
|
|
$
|
76,540
|
|
|
$
|
79,167
|
|
|
|
$
|
(8,017
|
)
|
|
|
(10.1)
|
%
|
Total mortgages serviced for others
(1)
|
|
|
6,951,000
|
|
|
|
6,896,000
|
|
|
|
6,861,000
|
|
|
|
6,780,000
|
|
|
|
6,537,000
|
|
|
|
|
414,000
|
|
|
|
6.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Impact of MSR Hedging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSR recovery / (impairment)
|
|
$
|
(10,231
|
)
|
|
$
|
3,760
|
|
|
$
|
738
|
|
|
$
|
(4,119
|
)
|
|
$
|
14,880
|
|
|
|
$
|
(25,111
|
)
|
|
|
N.M.
|
%
|
Net trading
gains (losses)
related to MSR hedging
(2)
|
|
|
5,727
|
|
|
|
(4,182
|
)
|
|
|
(3,345
|
)
|
|
|
(2,340
|
)
|
|
|
|
|
|
|
|
5,727
|
|
|
|
|
|
Net interest income related to MSR hedging
|
|
|
512
|
|
|
|
834
|
|
|
|
1,451
|
|
|
|
|
|
|
|
|
|
|
|
|
512
|
|
|
|
|
|
Other MSR
hedge activity
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,492
|
)
|
|
|
|
4,492
|
|
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
impact of MSR hedging
(3)
|
|
$
|
(3,992
|
)
|
|
$
|
412
|
|
|
$
|
(1,156
|
)
|
|
$
|
(6,459
|
)
|
|
$
|
10,388
|
|
|
|
$
|
(14,380
|
)
|
|
|
N.M.
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
YTD 2005 vs 2004
|
(in thousands of dollars)
|
|
2005
|
|
2004
|
|
Amount
|
|
Percent
|
|
|
|
Mortgage Banking Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Origination fees
|
|
$
|
5,765
|
|
|
$
|
5,893
|
|
|
$
|
(128
|
)
|
|
|
(2.2
|
)%
|
Secondary marketing
|
|
|
4,232
|
|
|
|
6,731
|
|
|
|
(2,499
|
)
|
|
|
(37.1
|
)
|
Servicing fees
|
|
|
10,858
|
|
|
|
10,614
|
|
|
|
244
|
|
|
|
2.3
|
|
Amortization of capitalized servicing
|
|
|
(9,948
|
)
|
|
|
(9,398
|
)
|
|
|
(550
|
)
|
|
|
5.9
|
|
MSR recovery / (impairment)
|
|
|
(6,471
|
)
|
|
|
4,759
|
|
|
|
(11,230
|
)
|
|
|
N.M.
|
|
Other mortgage banking income
|
|
|
5,249
|
|
|
|
427
|
|
|
|
4,822
|
|
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage banking income
|
|
$
|
9,685
|
|
|
$
|
19,026
|
|
|
$
|
(9,341
|
)
|
|
|
(49.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized mortgage servicing rights
(1)
|
|
$
|
71,150
|
|
|
$
|
79,167
|
|
|
$
|
(8,017
|
)
|
|
|
(10.1
|
)%
|
Total mortgages serviced for others
(1)
|
|
|
6,951,000
|
|
|
|
6,537,000
|
|
|
|
414,000
|
|
|
|
6.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Impact of MSR Hedging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSR recovery / (impairment)
|
|
$
|
(6,471
|
)
|
|
$
|
4,759
|
|
|
$
|
(11,230
|
)
|
|
|
N.M.
|
%
|
Net trading
losses related to MSR hedging
(2)
|
|
|
1,545
|
|
|
|
|
|
|
|
1,545
|
|
|
|
|
|
Net interest income related to MSR hedging
|
|
|
1,346
|
|
|
|
|
|
|
|
1,346
|
|
|
|
|
|
Other MSR hedge activity
|
|
|
|
|
|
|
(4,492
|
)
|
|
|
4,492
|
|
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impact
of MSR hedging
(3)
|
|
$
|
(3,580
|
)
|
|
$
|
267
|
|
|
$
|
(3,847
|
)
|
|
|
N.M.
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M., not a meaningful value.
|
|
(1)
|
|
At period end.
|
|
(2)
|
|
Included in other non-interest income.
|
|
(3)
|
|
The tables above exclude securities gains or losses related to the investment
securities portfolio.
|
|
(4)
|
|
Included in other mortgage banking income.
|
40
2005 Second Quarter versus 2004 Second Quarter
Non-interest income decreased $62.0 million, or 28%, from the year-ago quarter with $40.6
million of the decline reflecting the run-off of the operating lease portfolio. Of the remaining
$21.3 million decline from the year-ago quarter, the primary drivers were:
|
|
|
$25.7 million decline in mortgage banking income, reflecting a $10.2 million MSR
temporary impairment in the current quarter compared with a $14.9 million recovery of MSR
temporary impairment in the year-ago quarter.
|
|
|
|
|
$4.6 million decline in gains on sale of automobile loans as the year-ago period
included $4.9 million of such gains.
|
|
|
|
|
$2.1 million, or 5%, decline in service charges on deposit accounts with declines in
commercial and consumer service charges contributing equally to the decrease. Lower
commercial service charges reflected a combination of lower activity and a preference by
commercial customers to pay for services with higher compensating balances rather than fees
as interest rates increase. The decline in consumer service charges primarily reflected
lower personal NSF and overdraft service charges.
|
|
|
|
|
$1.2 million decline in bank owned life insurance income.
|
Partially offset by:
|
|
|
$8.9 million decline in securities losses as the current quarter securities losses were
less than such losses in the year-ago quarter. Specifically, the current quarter reflected
$0.3 million of net securities losses resulting from sales to strengthen the quality of the
investment portfolio and lengthen its duration. These sales resulted in total losses of
$6.0 million and gains of $5.7 million. The gains were also taken to mitigate the net
impact of the MSR impairment. The year-ago quarter reflected $9.2 million of MSR-related
securities losses.
|
|
|
|
|
$2.4 million, or 14%, increase in trust services due to higher personal trust and mutual
fund fees reflecting a combination of higher market value of assets, as well as increased
activity.
|
2005 Second Quarter versus 2005 First Quarter
Compared with the 2005 first quarter, non-interest income decreased $11.9 million, or 7%, with
$8.6 million of the decline reflecting the run-off of the operating lease portfolio. Of the
remaining $3.2 million decline from the 2005 first quarter, the primary drivers were:
|
|
|
$14.4 million decline in mortgage banking income reflecting a $10.2 million MSR
temporary impairment in the current quarter compared with $3.8 million recovery of MSR
temporary impairment in the prior quarter. Though originations increased 17% from the
first quarter, this was more than offset by lower net marketing income reflecting lower
gains on sold loans.
|
|
|
|
|
$1.3 million decline in securities gains as the current quarter reflected net securities
losses of $0.3 million compared with $1.0 million of gains in the 2005 first quarter.
|
Partially offset by:
|
|
|
$7.6 million increase in other income reflecting the positive benefit of $5.7 million of
MSR hedge-related trading gains in the current quarter compared with $4.2 million of MSR
hedge-related trading losses in the first quarter and modest hedge fund gains compared with
losses in the prior quarter, partially offset by the current quarter negative impact of a
$2.1 million write-off of an equity investment, as well as lower miscellaneous gains and
safe deposit fee income.
|
|
|
|
|
$2.1 million, or 5%, increase in service charges on deposit accounts reflecting higher
personal NSF and overdraft service charges.
|
|
|
|
|
$1.1 million, or 11%, increase in other service charges and fees reflecting higher check
card-related income.
|
|
|
|
|
$0.9 million, or 5%, increase in trust services income reflected a combination of
factors including (1) higher personal trust and mutual fund fees due to a combination of
the higher market value of assets and increased activity, (2) increased corporate trust
income, and (3) client additions. The current quarter represented the seventh consecutive
quarterly increase in trust income.
|
41
|
|
|
$0.5 million, or 4%, increase in brokerage and insurance income reflecting growth in
insurance agency income and sales of new automobile equity protection insurance, partially
offset by a decline in investment product revenue, most notably mutual fund fees and
brokerage commissions.
|
2005 First Six Months versus 2004 First Six Months
Non-interest income decreased $121.5 million, or 27%, from the year-ago six-month period with
$82.7 million of the decline reflecting the run-off of the operating lease portfolio. Of the
remaining $38.8 million decline from the year-ago period, the primary drivers were:
|
|
|
$13.6 million decline in gains on sale of automobile loans as the year-ago period
included $13.9 million of such gains.
|
|
|
|
|
$9.3 million decline in mortgage banking income, reflecting a $6.5 million MSR temporary
impairment in the current six-month period compared with a $4.8 million recovery of MSR
temporary impairment in the year-ago period.
|
|
|
|
|
$7.9 million, or 16%, decline in other income reflected a combination of factors
including MSR hedge-related trading losses in the current period compared with gains in the
year-ago period, the $2.1 million write-off of an equity investment in the 2005 second
quarter, lower investment banking income, and lower equity investment gains.
|
|
|
|
|
$5.2 million decline in securities gains reflecting $5.9 million of gains in the
year-ago period taken to mitigate the net impact of the MSR impairment.
|
|
|
|
|
$4.5 million, or 5%, decline in service charges on deposit accounts with declines in
commercial and consumer service charges contributing equally to the decrease. Lower
commercial service charges reflected a combination of lower activity and a preference by
commercial customers to pay for services with higher compensating balances rather than fees
as interest rates increase. The decline in consumer service charges primarily reflected
lower personal NSF and overdraft service charges.
|
|
|
|
|
$2.2 million, or 7%, decline in brokerage and insurance income reflecting lower annuity sales.
|
|
|
|
|
$1.6 million decline in bank owned life insurance income.
|
Partially offset by:
|
|
|
$4.3 million, or 13%, increase in trust services due to higher personal trust and mutual
fund fees reflecting a combination of higher market value of assets, as well as increased
activity.
|
42
Non-Interest Expense
(This section should be read in conjunction with Significant Factor 1 and 6-7.)
Table 9 reflects non-interest expense detail for each of the last five quarters and for the
first six months of 2005 and 2004.
Table 9 Non-Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
|
2Q05 vs 2Q04
|
(in thousands of dollars)
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
Second
|
|
|
Amount
|
|
Percent
|
|
|
|
|
|
|
Salaries
|
|
$
|
98,283
|
|
|
$
|
96,239
|
|
|
$
|
94,658
|
|
|
$
|
96,456
|
|
|
$
|
92,169
|
|
|
|
$
|
6,114
|
|
|
|
6.6
|
%
|
Benefits
|
|
|
25,807
|
|
|
|
27,742
|
|
|
|
28,080
|
|
|
|
25,273
|
|
|
|
27,546
|
|
|
|
|
(1,739
|
)
|
|
|
(6.3
|
)
|
|
|
|
|
|
|
Personnel costs
|
|
|
124,090
|
|
|
|
123,981
|
|
|
|
122,738
|
|
|
|
121,729
|
|
|
|
119,715
|
|
|
|
|
4,375
|
|
|
|
3.7
|
|
Net occupancy
|
|
|
17,257
|
|
|
|
19,242
|
|
|
|
26,082
|
|
|
|
16,838
|
|
|
|
16,258
|
|
|
|
|
999
|
|
|
|
6.1
|
|
Outside data processing and other services
|
|
|
18,113
|
|
|
|
18,770
|
|
|
|
18,563
|
|
|
|
17,527
|
|
|
|
17,563
|
|
|
|
|
550
|
|
|
|
3.1
|
|
Equipment
|
|
|
15,637
|
|
|
|
15,863
|
|
|
|
15,733
|
|
|
|
15,295
|
|
|
|
16,228
|
|
|
|
|
(591
|
)
|
|
|
(3.6
|
)
|
Professional services
|
|
|
9,347
|
|
|
|
9,459
|
|
|
|
9,522
|
|
|
|
12,219
|
|
|
|
7,836
|
|
|
|
|
1,511
|
|
|
|
19.3
|
|
Marketing
|
|
|
7,441
|
|
|
|
6,454
|
|
|
|
5,581
|
|
|
|
5,000
|
|
|
|
8,069
|
|
|
|
|
(628
|
)
|
|
|
(7.8
|
)
|
Telecommunications
|
|
|
4,801
|
|
|
|
4,882
|
|
|
|
4,596
|
|
|
|
5,359
|
|
|
|
4,638
|
|
|
|
|
163
|
|
|
|
3.5
|
|
Printing and supplies
|
|
|
3,293
|
|
|
|
3,094
|
|
|
|
3,148
|
|
|
|
3,201
|
|
|
|
3,098
|
|
|
|
|
195
|
|
|
|
6.3
|
|
Amortization of intangibles
|
|
|
204
|
|
|
|
204
|
|
|
|
205
|
|
|
|
204
|
|
|
|
204
|
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
19,074
|
|
|
|
18,380
|
|
|
|
26,526
|
|
|
|
22,317
|
|
|
|
25,981
|
|
|
|
|
(6,907
|
)
|
|
|
(26.6
|
)
|
|
|
|
|
|
|
Sub-total before operating lease expense
|
|
|
219,257
|
|
|
|
220,329
|
|
|
|
232,694
|
|
|
|
219,689
|
|
|
|
219,590
|
|
|
|
|
(333
|
)
|
|
|
(0.2
|
)
|
Operating lease expense
|
|
|
28,879
|
|
|
|
37,948
|
|
|
|
48,320
|
|
|
|
54,885
|
|
|
|
62,563
|
|
|
|
|
(33,684
|
)
|
|
|
(53.8
|
)
|
|
|
|
|
|
|
Sub-total including operating lease expense
|
|
|
248,136
|
|
|
|
258,277
|
|
|
|
281,014
|
|
|
|
274,574
|
|
|
|
282,153
|
|
|
|
|
(34,017
|
)
|
|
|
(12.1
|
)
|
Restructuring reserve releases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,151
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
$
|
248,136
|
|
|
$
|
258,277
|
|
|
$
|
281,014
|
|
|
$
|
273,423
|
|
|
$
|
282,153
|
|
|
|
$
|
(34,017
|
)
|
|
|
(12.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
YTD 2005 vs 2004
|
(in thousands of dollars)
|
|
2005
|
|
|
2004
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
Salaries
|
|
$
|
194,522
|
|
|
$
|
185,154
|
|
|
$
|
9,368
|
|
|
|
5.1
|
%
|
Benefits
|
|
|
53,549
|
|
|
|
56,185
|
|
|
|
(2,636
|
)
|
|
|
(4.7
|
)
|
|
|
|
Personnel costs
|
|
|
248,071
|
|
|
|
241,339
|
|
|
|
6,732
|
|
|
|
2.8
|
|
Net occupancy
|
|
|
36,499
|
|
|
|
33,021
|
|
|
|
3,478
|
|
|
|
10.5
|
|
Outside data processing and other services
|
|
|
36,883
|
|
|
|
36,025
|
|
|
|
858
|
|
|
|
2.4
|
|
Equipment
|
|
|
31,500
|
|
|
|
32,314
|
|
|
|
(814
|
)
|
|
|
(2.5
|
)
|
Professional services
|
|
|
18,806
|
|
|
|
15,135
|
|
|
|
3,671
|
|
|
|
24.3
|
|
Marketing
|
|
|
13,895
|
|
|
|
15,908
|
|
|
|
(2,013
|
)
|
|
|
(12.7
|
)
|
Telecommunications
|
|
|
9,683
|
|
|
|
9,832
|
|
|
|
(149
|
)
|
|
|
(1.5
|
)
|
Printing and supplies
|
|
|
6,387
|
|
|
|
6,114
|
|
|
|
273
|
|
|
|
4.5
|
|
Amortization of intangibles
|
|
|
408
|
|
|
|
408
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
37,454
|
|
|
|
44,438
|
|
|
|
(6,984
|
)
|
|
|
(15.7
|
)
|
|
|
|
Sub-total before operating lease expense
|
|
|
439,586
|
|
|
|
434,534
|
|
|
|
5,052
|
|
|
|
1.2
|
|
Operating lease expense
|
|
|
66,827
|
|
|
|
133,273
|
|
|
|
(66,446
|
)
|
|
|
(49.9
|
)
|
|
|
|
Total non-interest expense
|
|
$
|
506,413
|
|
|
$
|
567,807
|
|
|
$
|
(61,394
|
)
|
|
|
(10.8
|
)%
|
|
|
|
|
N.M., not a meaningful value.
|
2005 Second Quarter versus 2004 Second Quarter
Non-interest expense decreased $34.0 million, or 12%, from the year-ago quarter with $33.7
million of the decline reflecting the run-off of the operating lease portfolio. Of the remaining
$0.3 million decline from the year-ago quarter, the primary drivers were:
43
|
|
|
$6.9 million, or 27%, decline in other expense as the year-ago quarter included $5.8
million of costs related to investments in partnerships generating tax benefits, as well as
lower operational losses.
|
Partially offset by:
|
|
|
$4.4 million, or 4%, increase in personnel costs reflecting $2.0 million of current
period severance-related costs as well as higher salaries.
|
|
|
|
|
$1.5 million, or 19%, increase in professional services expense as the current quarter
included $1.7 million of regulatory-related expenses.
|
|
|
|
|
$1.0 million, or 6%, increase in net occupancy expense primarily reflecting the negative
impact of expenses associated with the consolidation of certain operations functions (see
discussion below) and lower rental income, partially offset by lower maintenance costs.
|
2005 Second Quarter versus 2005 First Quarter
Compared with the 2005 first quarter, non-interest expense decreased $10.1 million with $9.1
million reflecting the run-off of the operating lease portfolio. Of the remaining $1.1 million
decrease from the prior quarter, the primary drivers were:
|
|
|
$2.0 million, or 10%, decrease in net occupancy reflecting a combination of positive
factors including seasonally lower facility-related costs, higher rental income, partially
offset by expenses associated with the consolidation of certain operations functions in the
current period.
|
|
|
|
|
$0.7 million, or 4%, decline in outside data processing and other services.
Partially offset by:
|
|
|
|
|
$1.0 million, or 15%, increase in marketing expense.
|
2005 First Six Months versus 2004 First Six Months
Non-interest expense decreased $61.4 million, or 11%, from the year-ago six-month period all
attributable to a $66.4 million decline in operating lease expense reflecting the run-off of the
operating lease portfolio. This impact was partially offset by a net $5.1 million increase in
expense with the primary drivers being:
|
|
|
$6.7 million, or 3%, increase in personnel costs
reflecting an $11.0 million increase in
salaries, including $2.0 million of 2005 second quarter severance costs, partially offset
by lower sales commission and benefits expenses.
|
|
|
|
|
$3.7 million, or 24%, increase in professional services expense as the current period
included $3.7 million of SEC and regulatory-related expenses.
|
|
|
|
|
$3.5 million, or 11%, increase in net occupancy expense primarily reflecting a loss
caused by a refinancing penalty of a real estate partnership minority interest, as well as
lower rental income.
|
Partially offset by:
|
|
|
$6.9 million, or 16%, decline in other expense as the year-ago period included $5.8
million of costs related to investments in partnerships generating tax benefits, in
addition to lower insurance costs and operational losses.
|
|
|
|
|
$2.0 million decline in marketing expenses.
|
Operating Lease Assets
(This section should be read in conjunction with Significant Factor 1 and Lease Residual Risk
section.)
Table 10 reflects operating lease assets performance detail for each of the last five quarters
and for the first six months of 2005 and 2004.
44
Table 10 Operating Lease Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
|
2Q05 vs 2Q04
|
(in thousands of dollars)
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
Second
|
|
|
Amount
|
|
Percent
|
|
|
|
|
|
|
Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average operating lease assets outstanding
|
|
$
|
408,798
|
|
|
$
|
529,245
|
|
|
$
|
647,970
|
|
|
$
|
800,145
|
|
|
$
|
976,626
|
|
|
|
$
|
(567,828
|
)
|
|
|
(58.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Statement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net rental income
|
|
$
|
34,562
|
|
|
$
|
43,554
|
|
|
$
|
51,016
|
|
|
$
|
60,267
|
|
|
$
|
72,402
|
|
|
|
$
|
(37,840
|
)
|
|
|
(52.3
|
)%
|
Fees
|
|
|
1,773
|
|
|
|
1,857
|
|
|
|
2,111
|
|
|
|
2,965
|
|
|
|
4,838
|
|
|
|
|
(3,065
|
)
|
|
|
(63.4
|
)
|
Recoveries early terminations
|
|
|
1,762
|
|
|
|
1,321
|
|
|
|
1,979
|
|
|
|
1,180
|
|
|
|
1,466
|
|
|
|
|
296
|
|
|
|
20.2
|
|
|
|
|
|
|
|
Total operating lease income
|
|
|
38,097
|
|
|
|
46,732
|
|
|
|
55,106
|
|
|
|
64,412
|
|
|
|
78,706
|
|
|
|
|
(40,609
|
)
|
|
|
(51.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and residual losses at
termination
|
|
|
26,560
|
|
|
|
34,703
|
|
|
|
45,293
|
|
|
|
49,917
|
|
|
|
57,412
|
|
|
|
|
(30,852
|
)
|
|
|
(53.7
|
)
|
Losses early terminations
|
|
|
2,319
|
|
|
|
3,245
|
|
|
|
3,027
|
|
|
|
4,968
|
|
|
|
5,151
|
|
|
|
|
(2,832
|
)
|
|
|
(55.0
|
)
|
|
|
|
|
|
|
Total operating lease expense
|
|
|
28,879
|
|
|
|
37,948
|
|
|
|
48,320
|
|
|
|
54,885
|
|
|
|
62,563
|
|
|
|
|
(33,684
|
)
|
|
|
(53.8
|
)
|
|
|
|
|
|
|
Net earnings contribution
|
|
$
|
9,218
|
|
|
$
|
8,784
|
|
|
$
|
6,786
|
|
|
$
|
9,527
|
|
|
$
|
16,143
|
|
|
|
$
|
(6,925
|
)
|
|
|
(42.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings ratios
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net rental income
|
|
|
33.8
|
%
|
|
|
32.9
|
%
|
|
|
31.5
|
%
|
|
|
30.1
|
%
|
|
|
29.7
|
%
|
|
|
|
4.1
|
%
|
|
|
13.8
|
%
|
Depreciation and residual losses at
termination
|
|
|
26.0
|
|
|
|
26.2
|
|
|
|
28.0
|
|
|
|
25.0
|
|
|
|
23.5
|
|
|
|
|
2.5
|
|
|
|
10.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
YTD 2005 vs. 2004
|
(in thousands of dollars)
|
|
2005
|
|
2004
|
|
Amount
|
|
Percent
|
|
|
|
Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average operating lease assets outstanding
|
|
$
|
468,688
|
|
|
$
|
1,071,386
|
|
|
$
|
(602,698
|
)
|
|
|
(56.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Statement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net rental income
|
|
$
|
78,116
|
|
|
$
|
155,919
|
|
|
$
|
(77,803
|
)
|
|
|
(49.9
|
)
|
Fees
|
|
|
3,630
|
|
|
|
8,381
|
|
|
|
(4,751
|
)
|
|
|
(56.7
|
)
|
Recoveries early terminations
|
|
|
3,083
|
|
|
|
3,273
|
|
|
|
(190
|
)
|
|
|
(5.8
|
)
|
|
|
|
Total operating lease income
|
|
|
84,829
|
|
|
|
167,573
|
|
|
|
(82,744
|
)
|
|
|
(49.4
|
)
|
|
|
|
Depreciation and residual losses at
termination
|
|
|
61,263
|
|
|
|
121,235
|
|
|
|
(59,972
|
)
|
|
|
(49.5
|
)
|
Losses early terminations
|
|
|
5,564
|
|
|
|
12,038
|
|
|
|
(6,474
|
)
|
|
|
(53.8
|
)
|
|
|
|
Total operating lease expense
|
|
|
66,827
|
|
|
|
133,273
|
|
|
|
(66,446
|
)
|
|
|
(49.9
|
)
|
|
|
|
Net earnings contribution
|
|
$
|
18,002
|
|
|
$
|
34,300
|
|
|
$
|
(16,298
|
)
|
|
|
(47.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings ratios
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net rental income
|
|
|
33.3
|
%
|
|
|
29.1
|
%
|
|
|
4.2
|
%
|
|
|
14.4
|
%
|
Depreciation and residual losses at
termination
|
|
|
26.1
|
|
|
|
22.6
|
|
|
|
3.5
|
|
|
|
15.5
|
|
|
|
|
(1)
|
|
As a percent of average operating lease assets, quarterly amounts annualized.
|
2005 Second Quarter versus 2004 Second Quarter and 2005 First Quarter
Average operating lease assets in the 2005 second quarter were $0.4 billion, down $0.6
billion, or 58%, from the year-ago quarter and 23% from the 2005 first quarter.
(For a discussion
of operating lease accounting, residual value loss determination, and related residual value
insurance, see the Operating Lease Assets section of the Companys 2004 Form 10-K.)
Operating lease income, which totaled $38.1 million in the 2005 second quarter, represented
24% of total non-interest income in the quarter. Operating lease income was down $40.6 million, or
52%, from the year-ago quarter and $8.6 million, or 18%, from the 2005 first quarter, reflecting
the declines in average operating leases. As no new operating leases have been originated after
April 2002, the operating lease asset balances will continue to decline through both depreciation
and lease terminations. Net rental income was down 52% and 21%, respectively, from the year-ago and
2005 first quarter.
45
Fees declined 63% from the year-ago quarter, and 5% from the first quarter.
Recoveries from early terminations increased 20% from the year-ago quarter and 33% from the first
quarter.
Operating lease expense totaled $28.9 million, down $33.7 million, or 54%, from the year-ago
quarter and down $9.1 million, or 24%, from the 2005 first quarter. These declines also reflected
the fact that this portfolio is decreasing over time. Losses on early terminations, which are
included in total operating lease expense, declined 55% from the year-ago quarter and 29% from the
first quarter.
2005 First Six Months versus 2004 First Six Months
Average operating lease assets in the first six-month period of 2005 were $0.5 billion, down
$0.6 billion, or 56% from the comparable year-ago period.
Operating lease income, which totaled $84.8 million for the first six months of 2005,
represented 26% of total non-interest income, and was down $82.7 million, or 49%, from the
comparable year-ago period. Net rental income was down $77.8 million, or 50%. Fees declined $4.8
million, or 57%, from the comparable year-ago period. Recoveries from early terminations were
little changed from the year-ago period. Operating lease expense totaled $66.8 million, down $66.4
million, or 50%, from the comparable year-ago period. The declines in operating lease income and
operating lease expense reflected the fact that this portfolio is decreasing over time.
Provision for Income Taxes
(This section should be read in conjunction with Significant Factor 8.)
The provision for income taxes in the second quarter of 2005 was $30.6 million and represented
an effective tax rate on income before taxes of 22.3%. The provision for income taxes decreased
$12.8 million from the year-ago quarter, primarily due to a reduction in pre-tax earnings, as well
as the recognition of the effect of federal tax refunds on income tax expense. These federal tax
refunds resulted from the ability to carry back federal tax losses to prior years. The effective
tax rates in the year-ago quarter and first quarter of 2005 were 28.3% and 22.8%, respectively.
For the first six months of 2005, provision for income taxes was $59.2 million and represented an
effective tax rate on income before taxes of 22.6%. The provision for income taxes decreased $19.1
million from the same period in 2004, in which the effective tax rate was 26.8%, reflecting higher
pre-tax income in the first six months of 2004 and the recognition of the effect of federal tax
refunds on income tax expense in the first six months of 2005.
Pursuant to APB 28, taxes for the full year are estimated and year-to-date accrual adjustments
are made. Revisions to the full-year estimate of accrued taxes occur periodically due to changes in
the tax rates, audit resolution with taxing authorities, and newly enacted statutory, judicial, and
regulatory guidance. These changes, when they occur, affect accrued taxes and can result in
fluctuations in the quarterly effective tax rate. Management reviews the appropriate tax treatment
of all transactions taking into consideration statutory, judicial, and regulatory guidance in the
context of Huntingtons tax positions. In addition, Management relies on various tax opinions,
recent tax audits, and historical experience.
In accordance with FAS 109,
Accounting for Income Taxes
, no deferred income taxes are to be
recorded when a company intends to reinvest permanently the earnings from a foreign activity. In
accordance with FASB Staff Position No. 109-2,
Accounting and Disclosure Guidance for the Foreign
Earnings Repatriation Provision within the American Jobs Act of 2004
, at June 30, 2005, the range
of possible amounts that Huntington is considering for repatriation in 2005 is between zero and
$105.5 million. The related potential range of income tax is between zero and $5.5 million.
During the first quarter of 2005, the Internal Revenue Service commenced the audit of
Huntingtons consolidated federal income tax returns for tax years 2002 and 2003.
In the ordinary course of business, the Company operates in various taxing jurisdictions and
is subject to income tax. The effective tax rate is based in part on Managements interpretation of
the relevant current laws. Management believes the aggregate liabilities related to taxes are
appropriately reflected in the consolidated financial statements.
The effective tax rate for the second quarter and first six months of 2005 included the
after-tax positive impact on net income due to the federal tax loss carry back, tax-exempt income,
bank owned life insurance, asset securitization activities, and general business credits from
investment in low income housing and historic property partnerships. The lower
46
effective tax rate is expected to impact each quarter in 2005. In 2006, the effective tax rate is anticipated to
increase to a more typical rate, slightly below 30%.
CREDIT RISK
Credit risk is the risk of loss due to adverse changes in a borrowers ability to meet its
financial obligations under agreed upon terms. The Company is subject to credit risk in lending,
trading, and investment activities. The nature and degree of credit risk is a function of the types
of transactions, the structure of those transactions, and the parties involved. The majority of the
Companys credit risk is associated with lending activities, as the acceptance and management of
credit risk is central to profitable lending. Credit risk is incidental to trading activities and
represents a limited portion of the total risks associated with the investment portfolio. Credit
risk is mitigated through a combination of credit policies and processes and portfolio
diversification. These include origination/underwriting criteria, portfolio monitoring processes,
and effective problem asset management
(see Credit Risk Management section of the Companys 2004
Form 10-K for additional discussion).
Credit Exposure Composition
Compared with the year-ago period, the composition of the loan and lease portfolio at June 30,
2005, had changed such that lower credit risk home equity loans and residential mortgages combined
represented 36% of total credit exposure, up from 33% a year earlier. Conversely, higher risk
automobile exposure, which consists of automobile loans and leases, as well as operating lease
assets, declined from 22% to 19% at June 30, 2005.
Table 11 reflects period-end loan and lease portfolio mix by type of loan or lease, as well as
by business segment:
47
Table 11 Credit Exposure Composition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
(in thousands of dollars)
|
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
June 30,
|
|
|
|
By Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle market commercial and industrial
|
|
$
|
4,883,354
|
|
|
|
19.6
|
%
|
|
$
|
4,824,403
|
|
|
|
19.6
|
%
|
|
$
|
4,660,141
|
|
|
|
19.3
|
%
|
|
$
|
4,352,952
|
|
|
|
18.7
|
%
|
|
$
|
4,270,282
|
|
|
|
18.8
|
%
|
Construction
|
|
|
1,684,299
|
|
|
|
6.8
|
|
|
|
1,647,999
|
|
|
|
6.7
|
|
|
|
1,592,125
|
|
|
|
6.6
|
|
|
|
1,538,135
|
|
|
|
6.6
|
|
|
|
1,501,248
|
|
|
|
6.6
|
|
Commercial
|
|
|
1,899,518
|
|
|
|
7.6
|
|
|
|
1,913,849
|
|
|
|
7.8
|
|
|
|
1,881,835
|
|
|
|
7.8
|
|
|
|
1,898,015
|
|
|
|
8.1
|
|
|
|
1,959,684
|
|
|
|
8.6
|
|
|
|
|
Middle market commercial real estate
|
|
|
3,583,817
|
|
|
|
14.4
|
|
|
|
3,561,848
|
|
|
|
14.5
|
|
|
|
3,473,960
|
|
|
|
14.4
|
|
|
|
3,436,150
|
|
|
|
14.7
|
|
|
|
3,460,932
|
|
|
|
15.2
|
|
|
|
|
Small business commercial and industrial
and commercial real estate
|
|
|
2,258,097
|
|
|
|
9.1
|
|
|
|
2,204,278
|
|
|
|
8.9
|
|
|
|
2,168,877
|
|
|
|
8.9
|
|
|
|
2,124,602
|
|
|
|
9.2
|
|
|
|
2,060,259
|
|
|
|
9.1
|
|
|
|
|
Total commercial
|
|
|
10,725,268
|
|
|
|
43.1
|
|
|
|
10,590,529
|
|
|
|
43.0
|
|
|
|
10,302,978
|
|
|
|
42.6
|
|
|
|
9,913,704
|
|
|
|
42.6
|
|
|
|
9,791,473
|
|
|
|
43.1
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans
|
|
|
2,045,771
|
|
|
|
8.2
|
|
|
|
2,066,264
|
|
|
|
8.4
|
|
|
|
1,948,667
|
|
|
|
8.1
|
|
|
|
1,884,924
|
|
|
|
8.1
|
|
|
|
1,814,644
|
|
|
|
8.0
|
|
Automobile leases
|
|
|
2,458,432
|
|
|
|
9.9
|
|
|
|
2,476,098
|
|
|
|
10.0
|
|
|
|
2,443,455
|
|
|
|
10.1
|
|
|
|
2,316,801
|
|
|
|
9.9
|
|
|
|
2,184,633
|
|
|
|
9.6
|
|
Home equity
|
|
|
4,683,577
|
|
|
|
18.8
|
|
|
|
4,594,586
|
|
|
|
18.6
|
|
|
|
4,554,540
|
|
|
|
18.9
|
|
|
|
4,429,626
|
|
|
|
19.0
|
|
|
|
4,255,576
|
|
|
|
18.8
|
|
Residential mortgage
|
|
|
4,152,203
|
|
|
|
16.7
|
|
|
|
3,995,769
|
|
|
|
16.2
|
|
|
|
3,829,234
|
|
|
|
15.9
|
|
|
|
3,565,670
|
|
|
|
15.3
|
|
|
|
3,283,779
|
|
|
|
14.5
|
|
Other loans
|
|
|
501,897
|
|
|
|
1.9
|
|
|
|
483,219
|
|
|
|
1.9
|
|
|
|
481,403
|
|
|
|
2.0
|
|
|
|
476,534
|
|
|
|
2.0
|
|
|
|
445,564
|
|
|
|
2.1
|
|
|
|
|
Total consumer
|
|
|
13,841,880
|
|
|
|
55.5
|
|
|
|
13,615,936
|
|
|
|
55.1
|
|
|
|
13,257,299
|
|
|
|
55.0
|
|
|
|
12,673,555
|
|
|
|
54.3
|
|
|
|
11,984,196
|
|
|
|
53.0
|
|
|
|
|
Total loans and direct financing leases
|
|
$
|
24,567,148
|
|
|
|
98.6
|
|
|
$
|
24,206,465
|
|
|
|
98.1
|
|
|
$
|
23,560,277
|
|
|
|
97.6
|
|
|
$
|
22,587,259
|
|
|
|
96.9
|
|
|
$
|
21,775,669
|
|
|
|
96.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease assets
|
|
|
353,678
|
|
|
|
1.4
|
|
|
|
466,550
|
|
|
|
1.9
|
|
|
|
587,310
|
|
|
|
2.4
|
|
|
|
717,411
|
|
|
|
3.1
|
|
|
|
888,612
|
|
|
|
3.9
|
|
Securitized loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total credit exposure
|
|
$
|
24,920,826
|
|
|
|
100.0
|
%
|
|
$
|
24,673,015
|
|
|
|
100.0
|
%
|
|
$
|
24,147,587
|
|
|
|
100.0
|
%
|
|
$
|
23,304,670
|
|
|
|
100.0
|
%
|
|
$
|
22,664,281
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total automobile exposure
(1)
|
|
$
|
4,857,881
|
|
|
|
19.5
|
%
|
|
$
|
5,008,912
|
|
|
|
20.3
|
%
|
|
$
|
4,979,432
|
|
|
|
20.6
|
%
|
|
$
|
4,919,136
|
|
|
|
21.1
|
%
|
|
$
|
4,887,889
|
|
|
|
21.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Business Segment
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regional Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central Ohio
(3)
|
|
$
|
6,593,763
|
|
|
|
26.5
|
%
|
|
$
|
6,443,475
|
|
|
|
26.1
|
%
|
|
$
|
6,293,471
|
|
|
|
26.1
|
%
|
|
$
|
6,007,682
|
|
|
|
25.8
|
%
|
|
$
|
5,663,749
|
|
|
|
25.0
|
%
|
Northern Ohio
|
|
|
2,916,456
|
|
|
|
11.7
|
|
|
|
2,910,071
|
|
|
|
11.8
|
|
|
|
2,857,746
|
|
|
|
11.8
|
|
|
|
2,810,332
|
|
|
|
12.1
|
|
|
|
2,696,268
|
|
|
|
11.9
|
|
Southern Ohio / Kentucky
|
|
|
2,105,173
|
|
|
|
8.4
|
|
|
|
2,023,243
|
|
|
|
8.2
|
|
|
|
1,895,180
|
|
|
|
7.8
|
|
|
|
1,825,652
|
|
|
|
7.8
|
|
|
|
1,758,808
|
|
|
|
7.8
|
|
West Michigan
|
|
|
2,386,443
|
|
|
|
9.6
|
|
|
|
2,335,578
|
|
|
|
9.5
|
|
|
|
2,271,682
|
|
|
|
9.4
|
|
|
|
2,236,001
|
|
|
|
9.6
|
|
|
|
2,216,170
|
|
|
|
9.8
|
|
East Michigan
|
|
|
1,495,978
|
|
|
|
6.0
|
|
|
|
1,475,868
|
|
|
|
6.0
|
|
|
|
1,430,169
|
|
|
|
5.9
|
|
|
|
1,387,543
|
|
|
|
6.0
|
|
|
|
1,359,098
|
|
|
|
6.0
|
|
West Virginia
|
|
|
918,620
|
|
|
|
3.7
|
|
|
|
887,239
|
|
|
|
3.6
|
|
|
|
882,016
|
|
|
|
3.7
|
|
|
|
867,271
|
|
|
|
3.7
|
|
|
|
812,929
|
|
|
|
3.6
|
|
Indiana
|
|
|
1,045,960
|
|
|
|
4.2
|
|
|
|
997,052
|
|
|
|
4.0
|
|
|
|
961,700
|
|
|
|
4.0
|
|
|
|
862,833
|
|
|
|
3.7
|
|
|
|
811,431
|
|
|
|
3.6
|
|
|
|
|
Regional Banking
|
|
|
17,462,393
|
|
|
|
70.1
|
|
|
|
17,072,526
|
|
|
|
69.2
|
|
|
|
16,591,964
|
|
|
|
68.7
|
|
|
|
15,997,314
|
|
|
|
68.7
|
|
|
|
15,318,453
|
|
|
|
67.7
|
|
Dealer Sales
(4)
|
|
|
5,761,333
|
|
|
|
23.1
|
|
|
|
5,955,624
|
|
|
|
24.1
|
|
|
|
5,920,256
|
|
|
|
24.5
|
|
|
|
5,765,184
|
|
|
|
24.7
|
|
|
|
5,832,391
|
|
|
|
25.7
|
|
Private Financial and Capital Markets Group
|
|
|
1,697,100
|
|
|
|
6.8
|
|
|
|
1,644,865
|
|
|
|
6.7
|
|
|
|
1,635,367
|
|
|
|
6.8
|
|
|
|
1,542,172
|
|
|
|
6.6
|
|
|
|
1,513,437
|
|
|
|
6.6
|
|
Treasury / Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total credit exposure
|
|
$
|
24,920,826
|
|
|
|
100.0
|
%
|
|
$
|
24,673,015
|
|
|
|
100.0
|
%
|
|
$
|
24,147,587
|
|
|
|
100.0
|
%
|
|
$
|
23,304,670
|
|
|
|
100.0
|
%
|
|
$
|
22,664,281
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
(1)
|
|
Sum of automobile loans and leases, operating lease assets, and securitized loans.
|
|
(2)
|
|
Prior period amounts have been reclassified to conform to the current period
business segment structure. Effective June 30, 2005, the Capital Markets Group was removed from
Treasury / Other and combined with the Private Financial Group (PFG), prior period amounts have
been reclassified.
|
|
(3)
|
|
Includes operating lease equipment.
|
|
(4)
|
|
Includes operating lease inventory and securitized loans.
|
48
Non-Performing Assets (NPAs) and Past Due Loans and Leases
(This section should be read in conjunction with Significant Factor 5.)
Table 12 reflects period-end NPAs and past due loans and leases detail for each of the last
five quarters.
Table 12 Non-Performing Assets and Past Due Loans and Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
(in thousands of dollars)
|
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
June 30,
|
|
|
|
Non-accrual loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle market commercial and industrial
|
|
$
|
26,856
|
|
|
$
|
16,993
|
|
|
$
|
24,179
|
|
|
$
|
20,098
|
|
|
$
|
24,336
|
|
Middle market commercial real estate
|
|
|
15,331
|
|
|
|
6,682
|
|
|
|
4,582
|
|
|
|
14,717
|
|
|
|
11,122
|
|
Small business commercial and industrial
and commercial real estate
|
|
|
19,788
|
|
|
|
16,387
|
|
|
|
14,601
|
|
|
|
12,087
|
|
|
|
12,368
|
|
Residential mortgage
|
|
|
14,137
|
|
|
|
12,498
|
|
|
|
13,545
|
|
|
|
13,197
|
|
|
|
13,952
|
|
Home equity
(1)
|
|
|
7,748
|
|
|
|
7,333
|
|
|
|
7,055
|
|
|
|
7,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans and leases
|
|
|
83,860
|
|
|
|
59,893
|
|
|
|
63,962
|
|
|
|
67,784
|
|
|
|
61,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
10,758
|
|
|
|
10,571
|
|
|
|
8,762
|
|
|
|
8,840
|
|
|
|
8,851
|
|
Commercial
(2)
|
|
|
2,800
|
|
|
|
2,839
|
|
|
|
35,844
|
|
|
|
3,852
|
|
|
|
4,067
|
|
|
|
|
Total other real estate, net
|
|
|
13,558
|
|
|
|
13,410
|
|
|
|
44,606
|
|
|
|
12,692
|
|
|
|
12,918
|
|
|
|
|
Total non-performing assets
|
|
$
|
97,418
|
|
|
$
|
73,303
|
|
|
$
|
108,568
|
|
|
$
|
80,476
|
|
|
$
|
74,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans and leases as a % of total loans and leases
|
|
|
0.34
|
%
|
|
|
0.25
|
%
|
|
|
0.27
|
%
|
|
|
0.30
|
%
|
|
|
0.28
|
%
|
Non-performing assets as a % of total loans and leases and other
real estate
|
|
|
0.40
|
|
|
|
0.30
|
|
|
|
0.46
|
|
|
|
0.36
|
|
|
|
0.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses (ALLL) as % of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans and leases (NPLs)
|
|
|
304
|
|
|
|
441
|
|
|
|
424
|
|
|
|
417
|
|
|
|
464
|
|
Non-performing assets (NPAs)
|
|
|
262
|
|
|
|
361
|
|
|
|
250
|
|
|
|
351
|
|
|
|
384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowances for credit losses (ACL) as % of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans and leases
|
|
|
349
|
|
|
|
494
|
|
|
|
476
|
|
|
|
461
|
|
|
|
515
|
|
Non-performing assets
|
|
|
300
|
|
|
|
404
|
|
|
|
280
|
|
|
|
389
|
|
|
|
426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing loans and leases past due 90 days or more
(1)
|
|
$
|
53,371
|
|
|
$
|
50,086
|
|
|
$
|
54,283
|
|
|
$
|
53,456
|
|
|
$
|
51,490
|
|
Accruing loans and leases past due 90 days or more as a percent of
total loans and leases
|
|
|
0.22
|
%
|
|
|
0.21
|
%
|
|
|
0.23
|
%
|
|
|
0.24
|
%
|
|
|
0.24
|
%
|
|
|
|
(1)
|
|
Beginning September 30, 2004, the Company adopted a policy, consistent with its policy
for residential mortgage loans, of placing home equity loans and lines on non-accrual status when
they become greater than 180 days past due. In prior quarters, these balances were included in
Accruing loans and leases past due 90 days or more.
|
|
(2)
|
|
At December 31, 2004, other real estate owned included $35.7 million of
properties that related to the work-out of $5.9 million of mezzanine loans. These properties were
subject to $29.8 million of non-recourse debt to another financial institution. Both properties
were sold in the first quarter of 2005.
|
NPAs were $97.4 million at June 30, 2005, and represented 0.40% of related assets, up
$22.7 million from $74.7 million, or 0.34%, at the end of the year-ago quarter and up $24.1 million
from $73.3 million, or 0.30%, at March 31, 2005. The increase from the prior quarter was impacted,
in part, by credits associated with the domestic automobile supplier sector.
49
Non-performing loans and leases (NPLs), which exclude other real estate owned (OREO), were
$83.9 million at June 30, 2005, up $22.1 million from the year-earlier period and $24.0 million
from the end of the first quarter. Expressed as a percent of total loans and leases, NPLs were
0.34% at June 30, 2005, up from 0.28% a year earlier and from 0.25% at March 31, 2005.
The over 90-day delinquent, but still accruing, ratio was 0.22% at June 30, 2005, down from
0.24% at the end of the year-ago quarter, and little changed from 0.21% at March 31, 2005.
Non-Performing Assets Activity
Table 13 Non-Performing Asset Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
(in thousands of dollars)
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
Second
|
|
|
|
Non-performing assets, beginning of period
|
|
$
|
73,303
|
|
|
$
|
108,568
|
|
|
$
|
80,476
|
|
|
$
|
74,696
|
|
|
$
|
91,694
|
|
New non-performing assets
(1) (2)
|
|
|
47,420
|
|
|
|
33,607
|
|
|
|
61,684
|
|
|
|
22,740
|
|
|
|
25,727
|
|
Returns to accruing status
|
|
|
(250
|
)
|
|
|
(3,838
|
)
|
|
|
(2,248
|
)
|
|
|
|
|
|
|
(1,493
|
)
|
Loan and lease losses
|
|
|
(6,578
|
)
|
|
|
(17,281
|
)
|
|
|
(8,578
|
)
|
|
|
(5,424
|
)
|
|
|
(12,872
|
)
|
Payments
|
|
|
(11,925
|
)
|
|
|
(10,404
|
)
|
|
|
(8,829
|
)
|
|
|
(10,202
|
)
|
|
|
(13,571
|
)
|
Sales
(2)
|
|
|
(4,552
|
)
|
|
|
(37,349
|
)
|
|
|
(13,937
|
)
|
|
|
(1,334
|
)
|
|
|
(14,789
|
)
|
|
|
|
Non-performing assets, end of period
|
|
$
|
97,418
|
|
|
$
|
73,303
|
|
|
$
|
108,568
|
|
|
$
|
80,476
|
|
|
$
|
74,696
|
|
|
|
|
|
|
|
(1)
|
|
Beginning September 30, 2004, the Company adopted a policy, consistent with its policy
for residential mortgage loans, of placing home equity loans and lines on non-accrual status when
they become greater than 180 days past due. In prior quarters, these balances were included in
Accruing loans and leases past due 90 days or more.
|
|
(2)
|
|
At December 31, 2004, other real estate owned included $35.7 million of properties
that related to the work-out of $5.9 million of mezzanine loans. These properties were subject to
$29.8 million of non-recourse debt to another financial institution. Both properties were sold in
the first quarter of 2005.
|
Allowances for Credit Losses (ACL) and Provision for Credit Losses
(This
section should be read in conjunction with Significant Factor 1, 2, 4-5, and the Credit Risk
section.)
The Company maintains two reserves, both of which are available to absorb probable credit
losses: the allowance for loan and lease losses (ALLL) and the allowance for unfunded loan
commitments (AULC). When summed together, these reserves constitute the total allowances for credit
losses (ACL). Table 14 reflects activity in the ALLL and AULC for the past five quarters:
50
Table 14 Allowances for Credit Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
(in thousands of dollars)
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
Second
|
|
|
|
Allowance for loan and lease losses,
beginning of period
|
|
$
|
264,390
|
|
|
$
|
271,211
|
|
|
$
|
282,650
|
|
|
$
|
286,935
|
|
|
$
|
295,377
|
|
Loan and lease losses
|
|
|
(25,733
|
)
|
|
|
(37,213
|
)
|
|
|
(31,737
|
)
|
|
|
(26,366
|
)
|
|
|
(30,845
|
)
|
Recoveries of loans previously charged off
|
|
|
9,469
|
|
|
|
8,941
|
|
|
|
10,824
|
|
|
|
9,886
|
|
|
|
18,330
|
|
|
|
|
Net loan and lease losses
|
|
|
(16,264
|
)
|
|
|
(28,272
|
)
|
|
|
(20,913
|
)
|
|
|
(16,480
|
)
|
|
|
(12,515
|
)
|
|
|
|
Provision for loan and lease losses
|
|
|
13,247
|
|
|
|
21,451
|
|
|
|
9,474
|
|
|
|
12,971
|
|
|
|
5,923
|
|
Economic reserve transfer
|
|
|
(6,253
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance of assets sold and securitized
|
|
|
(336
|
)
|
|
|
|
|
|
|
|
|
|
|
(776
|
)
|
|
|
(1,850
|
)
|
|
|
|
Allowance for loan and lease losses, end of period
|
|
$
|
254,784
|
|
|
$
|
264,390
|
|
|
$
|
271,211
|
|
|
$
|
282,650
|
|
|
$
|
286,935
|
|
|
|
|
Allowance for unfunded loan commitments
and letters of credit, beginning of period
|
|
$
|
31,610
|
|
|
$
|
33,187
|
|
|
$
|
30,007
|
|
|
$
|
31,193
|
|
|
$
|
32,089
|
|
Provision for unfunded loan commitments and
letters of credit losses
|
|
|
(352
|
)
|
|
|
(1,577
|
)
|
|
|
3,180
|
|
|
|
(1,186
|
)
|
|
|
(896
|
)
|
Economic reserve transfer
|
|
|
6,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for unfunded loan commitments
and letters of credit, end of period
|
|
$
|
37,511
|
|
|
$
|
31,610
|
|
|
$
|
33,187
|
|
|
$
|
30,007
|
|
|
$
|
31,193
|
|
|
|
|
Total allowances for credit losses
|
|
$
|
292,295
|
|
|
$
|
296,000
|
|
|
$
|
304,398
|
|
|
$
|
312,657
|
|
|
$
|
318,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses (ALLL) as % of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction reserve
|
|
|
0.77
|
%
|
|
|
0.81
|
%
|
|
|
0.78
|
%
|
|
|
0.84
|
%
|
|
|
0.86
|
%
|
Economic reserve
|
|
|
0.22
|
|
|
|
0.27
|
|
|
|
0.32
|
|
|
|
0.33
|
|
|
|
0.36
|
|
Specific reserve
|
|
|
0.05
|
|
|
|
0.01
|
|
|
|
0.05
|
|
|
|
0.08
|
|
|
|
0.10
|
|
|
|
|
Total loans and leases
|
|
|
1.04
|
%
|
|
|
1.09
|
%
|
|
|
1.15
|
%
|
|
|
1.25
|
%
|
|
|
1.32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowances for credit losses (ACL) as % of
total loans and leases
|
|
|
1.19
|
%
|
|
|
1.22
|
%
|
|
|
1.29
|
%
|
|
|
1.38
|
%
|
|
|
1.46
|
%
|
At June 30, 2005, ALLL was $254.8 million, down from $286.9 million a year earlier and
$264.4 million at March 31, 2005. Expressed as a percent of period-end loans and leases, the ALLL
ratio at June 30, 2005, was 1.04%, down from 1.32% a year ago reflecting the improvement in
economic indicators, the change in the mix of the loan portfolio to lower-risk residential
mortgages and home equity loans, and the reduction of specific reserves related to improved or
resolved individual problem commercial credits. The decline from 1.09% at March 31, 2005,
reflected a 4 basis point decrease in the transaction reserve component; 3 basis points related to
the transfer of $6.3 million from the economic reserve component of the ALLL to the AULC due to a
refinement in methodology; a 2 basis point decline in the economic reserve component as economic
indicators strengthened; and a 4 basis point increase in the specific reserve component consistent
with the current quarters increase in NPLs. The table below shows the change in the ALLL ratio
and each reserve component from the 2004 second quarter and 2005 first quarter.
51
Components of the ALLL as a percent of total loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2Q05 change from
|
|
|
2Q05
|
|
1Q05
|
|
2Q04
|
|
1Q05
|
|
2Q04
|
Transaction reserve
|
|
|
0.77
|
%
|
|
|
0.81
|
%
|
|
|
0.86
|
%
|
|
|
(0.04
|
)%
|
|
|
(0.09
|
)%
|
Economic reserve
|
|
|
0.22
|
|
|
|
0.27
|
|
|
|
0.36
|
|
|
|
(0.05
|
)
|
|
|
(0.14
|
)
|
Specific reserve
|
|
|
0.05
|
|
|
|
0.01
|
|
|
|
0.10
|
|
|
|
0.04
|
|
|
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ALLL
|
|
|
1.04
|
%
|
|
|
1.09
|
%
|
|
|
1.32
|
%
|
|
|
(0.05
|
)%
|
|
|
(0.28
|
)%
|
The ALLL as a percent of NPAs was 262% at June 30, 2005, down from 384% a year ago, and 361%
at March 31, 2005.
At June 30, 2005, the AULC was $37.5 million, up from $31.2 million at the end of the year-ago
quarter and from $31.6 million at March 31, 2005, reflecting the transfer of $6.3 million from the
economic reserve component of the ALLL.
On a combined basis, the ACL as a percent of total loans and leases was 1.19% at June 30,
2005, down from 1.46% a year earlier and 1.22% at the end of last quarter. The ACL as a percent of
NPAs was 300% at June 30, 2005, down from 426% a year earlier and 404% at March 31, 2005.
52
Net Loan and Lease Charge-Offs
(This section should be read in conjunction with Significant Factor 5.)
Table 15 reflects net loan and lease charge-off detail for each of the last five quarters and
for the first six months of 2005 and 2004.
Table 15 Net Loan and Lease Charge-Offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
(in thousands of dollars)
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
Second
|
|
|
|
Net charge-offs by loan and lease type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle market commercial and industrial
|
|
$
|
1,312
|
|
|
$
|
14,092
|
|
|
$
|
1,239
|
|
|
$
|
(102
|
)
|
|
$
|
(3,642
|
)
|
Construction
|
|
|
(134
|
)
|
|
|
(51
|
)
|
|
|
704
|
|
|
|
(19
|
)
|
|
|
276
|
|
Commercial
|
|
|
2,269
|
|
|
|
(152
|
)
|
|
|
1,834
|
|
|
|
1,490
|
|
|
|
2,222
|
|
|
|
|
Middle market commercial real estate
|
|
|
2,135
|
|
|
|
(203
|
)
|
|
|
2,538
|
|
|
|
1,471
|
|
|
|
2,498
|
|
|
|
|
Small business commercial and industrial and commercial real estate
|
|
|
2,141
|
|
|
|
2,283
|
|
|
|
1,386
|
|
|
|
1,195
|
|
|
|
1,281
|
|
|
|
|
Total commercial
|
|
|
5,588
|
|
|
|
16,172
|
|
|
|
5,163
|
|
|
|
2,564
|
|
|
|
137
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans
|
|
|
1,664
|
|
|
|
3,216
|
|
|
|
4,406
|
|
|
|
5,142
|
|
|
|
5,604
|
|
Automobile leases
|
|
|
2,123
|
|
|
|
3,014
|
|
|
|
3,104
|
|
|
|
2,415
|
|
|
|
2,159
|
|
|
|
|
Automobile loans and leases
|
|
|
3,787
|
|
|
|
6,230
|
|
|
|
7,510
|
|
|
|
7,557
|
|
|
|
7,763
|
|
Home equity
|
|
|
5,065
|
|
|
|
3,963
|
|
|
|
5,346
|
|
|
|
4,259
|
|
|
|
2,569
|
|
Residential mortgage
|
|
|
430
|
|
|
|
439
|
|
|
|
608
|
|
|
|
534
|
|
|
|
302
|
|
Other loans
|
|
|
1,394
|
|
|
|
1,468
|
|
|
|
2,286
|
|
|
|
1,566
|
|
|
|
1,744
|
|
|
|
|
Total consumer
|
|
|
10,676
|
|
|
|
12,100
|
|
|
|
15,750
|
|
|
|
13,916
|
|
|
|
12,378
|
|
|
|
|
Total net charge-offs
|
|
$
|
16,264
|
|
|
$
|
28,272
|
|
|
$
|
20,913
|
|
|
$
|
16,480
|
|
|
$
|
12,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs annualized percentages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle market commercial and industrial
|
|
|
0.11
|
%
|
|
|
1.20
|
%
|
|
|
0.11
|
%
|
|
|
(0.01
|
)%
|
|
|
(0.32
|
)%
|
Construction
|
|
|
(0.03
|
)
|
|
|
(0.01
|
)
|
|
|
0.18
|
|
|
|
(0.01
|
)
|
|
|
0.09
|
|
Commercial
|
|
|
0.48
|
|
|
|
(0.03
|
)
|
|
|
0.40
|
|
|
|
0.31
|
|
|
|
0.46
|
|
|
|
|
Middle market commercial real estate
|
|
|
0.24
|
|
|
|
(0.02
|
)
|
|
|
0.30
|
|
|
|
0.17
|
|
|
|
0.31
|
|
|
|
|
Small business commercial and industrial
and commercial real estate
|
|
|
0.38
|
|
|
|
0.42
|
|
|
|
0.26
|
|
|
|
0.23
|
|
|
|
0.25
|
|
|
|
|
Total commercial
|
|
|
0.21
|
|
|
|
0.62
|
|
|
|
0.21
|
|
|
|
0.10
|
|
|
|
0.01
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans
|
|
|
0.32
|
|
|
|
0.64
|
|
|
|
0.92
|
|
|
|
1.11
|
|
|
|
0.96
|
|
Automobile leases
|
|
|
0.34
|
|
|
|
0.49
|
|
|
|
0.52
|
|
|
|
0.43
|
|
|
|
0.40
|
|
|
|
|
Automobile loans and leases
|
|
|
0.33
|
|
|
|
0.56
|
|
|
|
0.70
|
|
|
|
0.74
|
|
|
|
0.69
|
|
Home equity
|
|
|
0.44
|
|
|
|
0.35
|
|
|
|
0.48
|
|
|
|
0.39
|
|
|
|
0.25
|
|
Residential mortgage
|
|
|
0.04
|
|
|
|
0.04
|
|
|
|
0.07
|
|
|
|
0.06
|
|
|
|
0.04
|
|
Other loans
|
|
|
1.14
|
|
|
|
1.22
|
|
|
|
1.91
|
|
|
|
1.36
|
|
|
|
1.62
|
|
|
|
|
Total consumer
|
|
|
0.31
|
|
|
|
0.36
|
|
|
|
0.49
|
|
|
|
0.45
|
|
|
|
0.41
|
|
|
|
|
Net charge-offs as a % of average loans
|
|
|
0.27
|
%
|
|
|
0.47
|
%
|
|
|
0.36
|
%
|
|
|
0.30
|
%
|
|
|
0.23
|
%
|
|
|
|
53
2005 Second Quarter versus 2004 Second Quarter and 2005 First Quarter
Total net charge-offs for the 2005 second quarter were $16.3 million, or an annualized 0.27%
of average total loans and leases. This was up from $12.5 million, or 0.23%, in the year-ago
quarter, which included a $9.7 million one-time recovery on a previously charged-off commercial
loan, but represented a decrease from $28.3 million, or an annualized 0.47%, of average total loans
and leases in the 2005 first quarter. The prior quarter included a single $14.2 million middle
market commercial charge-off related to a commercial leasing company with significant exposure to a
service provider that declared bankruptcy. The 0.47% net charge-off ratio for average total loans
and leases in the 2005 first quarter included 24 basis points related to this single credit.
Total commercial net charge-offs in the second quarter were $5.6 million, or an annualized
0.21%, up from $0.1 million, or an annualized 0.01%, in the year-ago quarter as that quarter
included the $9.7 million one-time recovery. Current period total commercial net charge-offs were
down from $16.2 million, or an annualized 0.62%, in the prior quarter. As noted above, the 2005
first quarter included a $14.2 million middle market commercial charge-off, which represented 54
basis points of the 0.62% total commercial net charge-off ratio.
Total consumer net charge-offs in the current quarter were $10.7 million, or an annualized
0.31% of related loans. This compared with $12.4 million, or 0.41%, in the year-ago quarter with
the decline from the year-ago quarter primarily reflecting lower automobile loan and lease net
charge-offs partially offset by higher home equity net charge-offs. Total automobile loan and
lease net charge-offs in the 2005 second quarter were $3.8 million, or an annualized 0.33% of
related loans and leases, down significantly from $7.8 million, or an annualized 0.69%, in the
year-ago quarter. Home equity net charge-offs in the current quarter were $5.1 million, or an
annualized 0.44% of related loans, up from $2.6 million, or 0.25%, in the year-ago quarter.
Compared with the 2005 first quarter, total consumer net charge-offs decreased $1.4 million,
primarily reflecting a $2.4 million decrease automobile loan and lease net charge-offs, partially
offset by a $1.1 million increase in home equity loan net charge-offs.
2005 First Six Months versus 2004 First Six Months
Total net charge-offs for the first six months of 2005 were $44.5 million, or an annualized
0.37% of average total loans and leases. While the dollar amount of net charge-offs increased 8%
from the comparable year-ago period, on a relative basis, net charge-offs declined slightly from
the annualized 0.38% ratio a year ago.
Total commercial net charge-offs in the first six-month period of 2005 were $21.8 million, or
an annualized 0.41%, up from $7.7 million, or 0.16%, in the year-ago period, which included a $9.7
million one-time recovery on a previously charged-off loan.
Total consumer net charge-offs in the current six-month period were $22.8 million, or an
annualized 0.34% of related loans, down from $33.4 million, or 0.56%, in the comparable year-ago
period. The decline from the year-ago period primarily reflected lower automobile loan and lease
net charge-offs partially offset by higher home equity net charge-offs. Total automobile loan and
lease net charge-offs in the 2005 six-month period were $10.0 million, or an annualized 0.44% of
related loans and leases, down 59% from $24.3 million, or 1.02%, in the year-ago six-month period.
Home equity net charge-offs in the current six-month period were $9.0 million, or an annualized
0.39% of related loans, up from $5.5 million, or 0.28%, in the year-ago period.
54
MARKET RISK
Market risk represents the risk of loss due to changes in the market values of assets and
liabilities, as well as the risk of decreases in the Companys net income due to changes in
interest rates. The Company incurs market risk in the normal course of business. Market risk arises
when the Company extends fixed-rate loans, purchases fixed-rate securities, originates fixed-rate
CDs, obtains funding through fixed-rate borrowings, and leases automobiles and equipment based on
expected lease residual values. The Company has identified three primary sources of market risk:
interest rate risk, lease residual risk, and price risk.
Interest Rate Risk
Interest rate risk is the most significant market risk incurred by the Company. It results
from timing differences in the repricing and maturity of assets and
liabilities and from changes in
relationships between market interest rates and the yields on assets and rates on liabilities,
including the impact of embedded options.
Management seeks to minimize the impact of changing interest rates on net interest income and
the fair values of assets and liabilities. The board of directors establishes broad policies
regarding interest rate, market, and liquidity risk. The Market Risk Committee (MRC) establishes
specific operating guidelines within the parameters of the board of directors policies.
Interest rate risk management is a dynamic process that encompasses monitoring loan and
deposit flows and investment and funding activities, and assessing the impact of the changing
market and business environment. Effective management of interest rate risk begins with
understanding the interest rate characteristics of assets and liabilities and determining the
appropriate interest rate risk posture given market expectations and policy objectives and
constraints. The MRC regularly monitors position concentrations and the level of interest rate risk
to ensure compliance with risk tolerances approved by the board of directors.
Interest rate risk modeling is performed monthly. Two broad approaches to modeling interest
rate risk are employed: income simulation and economic value analysis. An income simulation
analysis is used to measure the sensitivity of forecasted net interest income to changes in market
rates over a one-year horizon. Although bank owned life insurance and automobile operating lease
assets are classified as non-interest earning assets, and the income from these assets is in
non-interest income, these portfolios are included in the interest rate sensitivity analysis
because both have attributes similar to fixed-rate interest earning assets. The economic value
analysis (Economic Value of Equity or EVE) is calculated by subjecting the period-end balance sheet
to changes in interest rates and measuring the impact of the changes in the value of the assets and
liabilities.
The models used for these measurements take into account prepayment speeds on mortgage loans,
mortgage and asset-backed securities, and consumer installment loans, as well as cash flows of
other loans and deposits. Balance sheet growth assumptions are also considered in the income
simulation model. The models include the effects of embedded options, such as interest rate caps,
floors, and call options, and account for changes in relationships among interest rates.
The baseline scenario for the income simulation, with which all other scenarios are compared,
is based on forward market interest rates implied by the prevailing yield curve as of the period
end. Alternative interest rate scenarios are then compared with the baseline scenario. These
alternative market rate scenarios include parallel rate shifts on both a gradual and immediate
basis, movements in rates that alter the shape of the yield curve (i.e., flatter or steeper yield
curve), and spot rates remaining unchanged for the entire measurement period. Scenarios are also
developed to measure basis risk, such as the impact of LIBOR-based rates rising or falling faster
than the prime rate.
The simulations for evaluating short-term interest rate risk exposure are scenarios that model
gradual 100 and 200 basis point increasing and decreasing parallel shifts in interest rates over
the next 12-month period beyond the interest rate change implied by the current yield curve. The
table below shows the results of the scenarios as of June 30, 2005, March 31, 2005, and
December 31, 2004. All of the positions were well within the
board of directors policy limits.
55
Table 16 Net Interest Income at Risk
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income at Risk (%)
|
|
Basis point change scenario
|
|
|
-200
|
|
|
|
-100
|
|
|
|
+100
|
|
|
|
+200
|
|
|
Board policy limits
|
|
|
-4.0
|
%
|
|
|
-2.0
|
%
|
|
|
-2.0
|
%
|
|
|
-4.0
|
%
|
|
|
June 30, 2005
|
|
|
-2.2
|
%
|
|
|
-0.8
|
%
|
|
|
+0.4
|
%
|
|
|
+0.7
|
%
|
|
March 31, 2005
|
|
|
-1.8
|
%
|
|
|
-0.8
|
%
|
|
|
+0.6
|
%
|
|
|
+1.0
|
%
|
|
December 31, 2004
|
|
|
-1.2
|
%
|
|
|
-0.5
|
%
|
|
|
+0.2
|
%
|
|
|
+0.2
|
%
|
The primary simulations for EVE risk assume an immediate and parallel increase in rates
of +/- 100 and +/- 200 basis points beyond any interest rate change implied by the current yield
curve. The table below outlines the results compared to the previous quarter and policy limits.
Table 17 Economic Value of Equity at Risk
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic Value of Equity at Risk (%)
|
|
Basis point change scenario
|
|
|
-200
|
|
|
|
-100
|
|
|
|
+100
|
|
|
|
+200
|
|
|
Board policy limits
|
|
|
-12.0
|
%
|
|
|
-5.0
|
%
|
|
|
-5.0
|
%
|
|
|
-12.0
|
%
|
|
|
June 30, 2005
|
|
|
-3.0
|
%
|
|
|
-0.5
|
%
|
|
|
-1.6
|
%
|
|
|
-4.0
|
%
|
|
March 31, 2005
|
|
|
-1.3
|
%
|
|
|
+0.4
|
%
|
|
|
-2.0
|
%
|
|
|
-4.8
|
%
|
|
December 31, 2004
|
|
|
-3.0
|
%
|
|
|
-0.5
|
%
|
|
|
-1.5
|
%
|
|
|
-4.0
|
%
|
Lease Residual Risk
(This section should be read in conjunction with the Operating Lease Assets section.)
Lease residual risk associated with retail automobile and commercial equipment leases is the
potential for declines in the fair market value of the vehicle or equipment below the maturity
value estimated at origination. Most of Huntingtons lease residual risk is in its automobile
leases. Used car values are the primary factor in determining the magnitude of the risk exposure.
Since used car values are subject to many factors, lease residual risk has been extremely volatile
throughout the history of automobile leasing. Management mitigates lease residual risk by
purchasing residual value insurance. Residual value insurance provides for the recovery of a
decline in the vehicle residual value as specified by the Automotive Lease Guide (ALG), an
authoritative industry source, at the inception of the lease. As a result, the risk associated with
market driven declines in used car values is mitigated.
As of June 30, 2005, three distinct residual value insurance policies were in place to address
the residual risk in the portfolio. Two residual value insurance policies cover all vehicles leased
prior to May 2002, and have associated total payment caps of $120 million and $50 million,
respectively. During the 2004 third quarter, the $120 million cap was exceeded on the first policy.
Any losses above the cap result in additional operating lease depreciation expense. It is
Managements assessment that the $50 million cap remains sufficient to cover any expected losses. A
third residual insurance policy covers
all originations from May 2002 through June 2005, and does not have a cap. A fourth policy,
similar in structure to the referenced third policy, went into effect July 1, 2005, and covers all
originations for a period of one year.
56
Price Risk
Price risk is risk to earnings or capital arising from changes in the value of financial
instruments subject to mark-to market adjustments. This risk
arises from market-making, dealing, and position taking in interest-rate, foreign exchange, and equity markets as well as loans held
for sale and loan servicing assets. To manage price risk, Management establishes limits as to the
amount of trading securities that can be purchased, the foreign exchange exposure that can be
maintained, and the maximum loss positions within a quarter.
LIQUIDITY RISK
Liquidity risk is the current and prospective risk to earnings or capital arising from a
banks inability to meet its obligations when they come due without incurring unacceptable losses.
Liquidity risk also arises from the failure to recognize or address changes in market conditions
that affect the ability to liquidate assets quickly and with minimal loss in value. The objective
of effective liquidity management is to ensure that cash flow needs can be met on a timely basis at
a reasonable cost under both normal operating conditions and unforeseen circumstances. The
liquidity of the Bank is used to originate loans and leases and to repay deposit and other
liabilities as they become due or are demanded by customers.
(See Liquidity section in the
Companys 2004
Form 10-K
for additional discussion.)
The primary source of funding is core deposits from retail and commercial customers
(see Table
18).
As of June 30, 2005, core deposits totaled $17.3 billion, and represented 77% of total
deposits. This compared with $16.5 billion, or 85% of total deposits, a year earlier. Most of the
growth in core deposits was attributable to growth in interest bearing demand deposits and retail
certificates of deposit.
57
Table 18 Deposit Composition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
(in thousands of dollars)
|
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
June 30,
|
|
|
|
By Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits non-interest bearing
|
|
$
|
3,221,352
|
|
|
|
14.4
|
%
|
|
$
|
3,186,187
|
|
|
|
14.6
|
%
|
|
$
|
3,392,123
|
|
|
|
16.3
|
%
|
|
$
|
3,264,145
|
|
|
|
16.2
|
%
|
|
$
|
3,327,426
|
|
|
|
17.1
|
%
|
Demand deposits interest bearing
|
|
|
7,674,807
|
|
|
|
34.4
|
|
|
|
7,848,458
|
|
|
|
36.1
|
|
|
|
7,786,377
|
|
|
|
37.5
|
|
|
|
7,471,779
|
|
|
|
37.2
|
|
|
|
7,124,144
|
|
|
|
36.6
|
|
Savings and other domestic time deposits
|
|
|
3,332,728
|
|
|
|
14.9
|
|
|
|
3,460,633
|
|
|
|
15.9
|
|
|
|
3,502,552
|
|
|
|
16.9
|
|
|
|
3,570,494
|
|
|
|
17.8
|
|
|
|
3,605,778
|
|
|
|
18.5
|
|
Retail certificates of deposit
|
|
|
3,032,957
|
|
|
|
13.6
|
|
|
|
2,555,241
|
|
|
|
11.7
|
|
|
|
2,466,965
|
|
|
|
11.9
|
|
|
|
2,441,387
|
|
|
|
12.1
|
|
|
|
2,412,178
|
|
|
|
12.4
|
|
|
|
|
Total core deposits
|
|
|
17,261,844
|
|
|
|
77.3
|
|
|
|
17,050,519
|
|
|
|
78.3
|
|
|
|
17,148,017
|
|
|
|
82.6
|
|
|
|
16,747,805
|
|
|
|
83.3
|
|
|
|
16,469,526
|
|
|
|
84.6
|
|
Domestic time deposits of $100,000 or more
|
|
|
1,177,271
|
|
|
|
5.3
|
|
|
|
1,311,495
|
|
|
|
6.0
|
|
|
|
1,081,660
|
|
|
|
5.2
|
|
|
|
997,952
|
|
|
|
5.0
|
|
|
|
808,415
|
|
|
|
4.2
|
|
Brokered deposits and negotiable CDs
|
|
|
3,459,645
|
|
|
|
15.5
|
|
|
|
3,007,124
|
|
|
|
13.8
|
|
|
|
2,097,537
|
|
|
|
10.1
|
|
|
|
1,896,135
|
|
|
|
9.4
|
|
|
|
1,679,099
|
|
|
|
8.6
|
|
Foreign time deposits
|
|
|
431,816
|
|
|
|
1.9
|
|
|
|
401,835
|
|
|
|
1.9
|
|
|
|
440,947
|
|
|
|
2.1
|
|
|
|
467,133
|
|
|
|
2.3
|
|
|
|
508,106
|
|
|
|
2.6
|
|
|
|
|
Total deposits
|
|
$
|
22,330,576
|
|
|
|
100.0
|
%
|
|
$
|
21,770,973
|
|
|
|
100.0
|
%
|
|
$
|
20,768,161
|
|
|
|
100.0
|
%
|
|
$
|
20,109,025
|
|
|
|
100.0
|
%
|
|
$
|
19,465,146
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
5,399,412
|
|
|
|
31.3
|
%
|
|
$
|
5,218,482
|
|
|
|
30.6
|
%
|
|
$
|
5,293,666
|
|
|
|
30.9
|
%
|
|
$
|
5,227,613
|
|
|
|
31.2
|
%
|
|
$
|
5,080,250
|
|
|
|
30.8
|
%
|
Personal
|
|
|
11,862,432
|
|
|
|
68.7
|
|
|
|
11,832,037
|
|
|
|
69.4
|
|
|
|
11,854,351
|
|
|
|
69.1
|
|
|
|
11,520,192
|
|
|
|
68.8
|
|
|
|
11,389,276
|
|
|
|
69.2
|
|
|
|
|
Total core deposits
|
|
$
|
17,261,844
|
|
|
|
100.0
|
%
|
|
$
|
17,050,519
|
|
|
|
100.0
|
%
|
|
$
|
17,148,017
|
|
|
|
100.0
|
%
|
|
$
|
16,747,805
|
|
|
|
100.0
|
%
|
|
$
|
16,469,526
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Business Segment
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regional Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central Ohio
|
|
$
|
4,830,088
|
|
|
|
21.6
|
%
|
|
$
|
4,781,190
|
|
|
|
22.0
|
%
|
|
$
|
4,695,464
|
|
|
|
22.6
|
%
|
|
$
|
4,426,949
|
|
|
|
22.0
|
%
|
|
$
|
4,619,437
|
|
|
|
23.7
|
%
|
Northern Ohio
|
|
|
3,964,220
|
|
|
|
17.8
|
|
|
|
3,929,993
|
|
|
|
18.1
|
|
|
|
4,068,385
|
|
|
|
19.6
|
|
|
|
4,012,247
|
|
|
|
20.0
|
|
|
|
3,771,145
|
|
|
|
19.4
|
|
Southern Ohio / Kentucky
|
|
|
1,823,532
|
|
|
|
8.2
|
|
|
|
1,774,229
|
|
|
|
8.1
|
|
|
|
1,742,353
|
|
|
|
8.4
|
|
|
|
1,599,685
|
|
|
|
8.0
|
|
|
|
1,557,288
|
|
|
|
8.0
|
|
West Michigan
|
|
|
2,599,452
|
|
|
|
11.6
|
|
|
|
2,685,054
|
|
|
|
12.3
|
|
|
|
2,643,510
|
|
|
|
12.7
|
|
|
|
2,699,059
|
|
|
|
13.4
|
|
|
|
2,598,397
|
|
|
|
13.3
|
|
East Michigan
|
|
|
2,241,112
|
|
|
|
10.0
|
|
|
|
2,298,679
|
|
|
|
10.6
|
|
|
|
2,222,191
|
|
|
|
10.7
|
|
|
|
2,165,533
|
|
|
|
10.8
|
|
|
|
2,078,967
|
|
|
|
10.7
|
|
West Virginia
|
|
|
1,412,290
|
|
|
|
6.3
|
|
|
|
1,368,763
|
|
|
|
6.3
|
|
|
|
1,375,151
|
|
|
|
6.6
|
|
|
|
1,380,934
|
|
|
|
6.9
|
|
|
|
1,368,951
|
|
|
|
7.0
|
|
Indiana
|
|
|
772,256
|
|
|
|
3.5
|
|
|
|
717,877
|
|
|
|
3.3
|
|
|
|
663,927
|
|
|
|
3.2
|
|
|
|
665,368
|
|
|
|
3.3
|
|
|
|
667,501
|
|
|
|
3.4
|
|
|
|
|
Regional Banking
|
|
|
17,642,950
|
|
|
|
79.0
|
|
|
|
17,555,785
|
|
|
|
80.7
|
|
|
|
17,410,981
|
|
|
|
83.8
|
|
|
|
16,949,775
|
|
|
|
84.4
|
|
|
|
16,661,686
|
|
|
|
85.5
|
|
Dealer Sales
|
|
|
68,470
|
|
|
|
0.3
|
|
|
|
69,046
|
|
|
|
0.3
|
|
|
|
74,969
|
|
|
|
0.4
|
|
|
|
68,944
|
|
|
|
0.3
|
|
|
|
70,595
|
|
|
|
0.4
|
|
Private Financial and Capital Markets Group
|
|
|
1,159,189
|
|
|
|
5.2
|
|
|
|
1,139,139
|
|
|
|
5.2
|
|
|
|
1,176,303
|
|
|
|
5.7
|
|
|
|
1,126,807
|
|
|
|
5.6
|
|
|
|
1,017,115
|
|
|
|
5.2
|
|
Treasury / Other
(2)
|
|
|
3,459,967
|
|
|
|
15.5
|
|
|
|
3,007,003
|
|
|
|
13.8
|
|
|
|
2,105,908
|
|
|
|
10.1
|
|
|
|
1,963,499
|
|
|
|
9.7
|
|
|
|
1,715,750
|
|
|
|
8.9
|
|
|
|
|
Total deposits
|
|
$
|
22,330,576
|
|
|
|
100.0
|
%
|
|
$
|
21,770,973
|
|
|
|
100.0
|
%
|
|
$
|
20,768,161
|
|
|
|
100.0
|
%
|
|
$
|
20,109,025
|
|
|
|
100.0
|
%
|
|
$
|
19,465,146
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
(1)
|
|
Prior period amounts have been reclassified to conform to the current period business
segment structure. Effective June 30, 2005, the Capital Markets Group was removed from Treasury /
Other and combined with the Private Financial Group (PFG), prior period amounts have been
reclassified.
|
|
(2)
|
|
Comprised largely of brokered deposits and negotiable CDs.
|
58
Credit ratings by the three major credit rating agencies are an important component of
the Companys liquidity profile. Among other factors, the credit ratings are based on financial
strength, credit quality and concentrations in the loan portfolio, the level and volatility of
earnings, capital adequacy, the quality of management, the liquidity of the balance sheet, the
availability of a significant base of core retail and commercial deposits, and the Companys
ability to access a broad array of wholesale funding sources. Adverse changes in these factors could result in a
negative change in credit ratings and impact not only the ability to raise funds in the capital
markets, but also the cost of these funds. In addition, certain financial on- and off-balance sheet
arrangements contain credit rating triggers that could increase funding needs if a negative rating
change occurs. Letter of credit commitments for marketable securities, interest rate swap
collateral agreements, and certain asset securitization transactions contain credit rating
provisions.
On April 6, 2005, Standard and Poors announced the following rating actions: