UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY PERIOD ENDED
September 30, 2007
Commission File Number
0-2525
Huntington Bancshares Incorporated
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Maryland
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31-0724920
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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41 South High Street, Columbus, Ohio 43287
Registrants telephone number
(614) 480-8300
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2)
has been subject to such filing requirements for the past
90 days. [x] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer [x]
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Accelerated filer [ ]
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Non-accelerated filer [ ]
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
[ ] Yes [x] No
There were 365,898,439 shares of Registrants common stock ($0.01 par value) outstanding on
September 30, 2007.
Huntington Bancshares Incorporated
INDEX
2
Part 1. Financial Information
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
INTRODUCTION
Huntington Bancshares Incorporated (we or our) is a multi-state diversified financial holding
company organized under Maryland law in 1966 and headquartered in Columbus, Ohio. Through our
subsidiaries, including our bank subsidiary, The Huntington National Bank (the Bank), organized in
1866, we provide full-service commercial and consumer banking services, mortgage banking services,
automobile financing, equipment leasing, investment management, trust services, brokerage services,
reinsurance of private mortgage insurance, reinsurance of credit life and disability insurance, and
other insurance and financial products and services. Our banking offices are located in Ohio,
Michigan, Indiana, Pennsylvania, West Virginia, and Kentucky. Selected financial service
activities are also conducted in other states including: Dealer Sales offices in Arizona, Florida,
Georgia, Nevada, New Jersey, New York, North Carolina, South Carolina, and Tennessee; Private
Financial and Capital Markets Group offices in Florida; and Mortgage Banking offices in Maryland
and New Jersey. Sky Insurance offers retail and commercial insurance agency services, through
offices in Ohio, Pennsylvania, and Indiana. International banking services are available
through the headquarters office in Columbus and a limited purpose office located in both the
Cayman Islands and Hong Kong.
The following discussion and analysis provides you with information we believe necessary for
understanding our 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. The Managements Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) appearing in our 2006 Annual Report on Form 10-K (2006
Form 10-K), as updated by the information contained in this report, should be read in conjunction
with this discussion and analysis.
Our discussion is divided into key segments:
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Introduction
- Provides overview comments on important matters including risk
factors, acquisitions, and other items. These are essential for understanding our
performance and prospects.
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Discussion of Results of Operations
- Reviews financial performance from a
consolidated company perspective. It also includes a Significant Items Influencing
Financial Performance Comparisons section that summarizes key issues helpful for
understanding performance trends. Key consolidated balance sheet and income statement
trends are also discussed in this section.
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Risk Management and Capital
- Discusses credit, market, liquidity, and operational
risks, including how these are managed, as well as performance trends. It also includes a
discussion of liquidity policies, how we fund ourselves, and related performance. In
addition, there is a discussion of guarantees and/or commitments made for items such as
standby letters of credit and commitments to sell loans, and a discussion that reviews the
adequacy of capital, including regulatory capital requirements.
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Lines of Business Discussion
- Provides an overview of financial performance for each
of our major lines of business and provides additional discussion of trends underlying
consolidated financial performance.
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Forward-Looking Statements
This report, including MD&A, contains certain forward-looking statements, including certain
plans, expectations, goals, and projections, and including statements about the benefits of the
merger between Huntington and Sky Financial, which are subject to numerous assumptions, risks, and
uncertainties.
Actual results could differ materially from those contained or implied by such statements for
a variety of factors including: the expected merger efficiencies and any revenue synergies from the
merger may not be fully realized within the expected timeframes; disruption from the merger may
make it more difficult to maintain relationships with clients, associates, or suppliers; changes in
economic conditions; movements in interest rates; competitive pressures on product pricing and
services; success and timing of other business strategies; the nature, extent, and timing of
governmental actions and reforms; and extended disruption of vital infrastructure. Additional
factors that could cause results to differ materially
3
from those described above can be found in
our 2006 Annual Report on Form 10-K, and documents subsequently filed with the Securities and
Exchange Commission (SEC).
All forward-looking statements speak only as of the date they are made. We assume 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 except as required by federal securities laws.
Risk Factors
We, like other financial companies, are subject to a number of risks, many of which are
outside of our direct control, though efforts are made to manage 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 our financial condition or results of operation, (3)
liquidity risk
, which is the
risk that we, 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 and systems, or from external events
.
Refer to the Risk Management and
Capital section for additional information regarding risk factors. Additionally, more information
on risk is set forth under the heading Risk Factors included in Item 1A of our Annual Report on
Form 10-K for the year ended December 31, 2006, and subsequent filings with the SEC.
Critical Accounting Policies and Use of Significant Estimates
Our financial statements are prepared in accordance with accounting principles generally
accepted in the United States (GAAP). The preparation of financial statements in conformity with
GAAP requires us to establish critical accounting policies and make accounting estimates,
assumptions, and judgments that affect amounts recorded and reported in our financial statements.
Note 1 of the Notes to Consolidated Financial Statements included in our 2006 Form 10-K as
supplemented by this report lists significant accounting policies we use in the development and
presentation of our financial statements. This discussion and analysis, the significant accounting
policies, and other financial statement disclosures identify and address key variables and other
qualitative and quantitative factors necessary for an understanding and evaluation of our company,
financial position, results of operations, and cash flows.
An accounting estimate requires assumptions about uncertain matters that could have a material
effect on the financial statements if a different amount within a range of estimates were used or
if estimates changed from period to period. Readers of this report should understand that estimates
are made under facts and circumstances at a point in time, and changes in those facts and
circumstances could produce actual results that differ from when those estimates were made.
Acquisition of Sky Financial
The merger with Sky Financial Group Inc. (Sky Financial) was completed on July 1, 2007. At
the time of acquisition, Sky Financial had assets of $16.8 billion, including $13.3 billion of
loans, and total deposits of $12.9 billion. Sky Financial results were fully included in our
consolidated results for the full 2007 third quarter, and will impact all quarters thereafter.
Additionally, during the 2007 third quarter, Sky Bank and Sky Trust, National Association (Sky
Trust), merged into the Bank and systems
integration was completed. As a result, performance comparisons of 2007 third quarter and
2007 nine-month performance to prior periods are affected as Sky Financial results were not
included in the prior periods. Comparisons of the 2007 third quarter and 2007 nine-month
performance compared with prior periods are impacted as follows:
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Increased the absolute level of reported average balance sheet, revenue,
expense, and the absolute level of certain credit quality results (e.g., amount of
net charge-offs).
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Increased the absolute level of reported non-interest expense items because
of costs incurred as part of merger integration activities, most notably employee
retention bonuses, outside programming services related to systems conversions,
occupancy expenses, and marketing expenses related to customer retention initiatives.
These net merger costs were $32.3 million in the 2007 third quarter.
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Given the significant impact of the merger on reported 2007 results, we believe that an
understanding of the impacts of the merger is necessary to understand better underlying performance
trends. When comparing post-merger period results to premerger periods, we use the following terms
when discussing financial performance:
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Merger related refers to amounts and percentage changes representing the
impact attributable to the merger.
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4
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Merger costs represent non-interest expenses primarily associated with
merger integration activities.
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Non-merger related refers to performance not attributable to the merger and
include:
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Merger efficiencies, which represent non-interest expense
reductions realized as a result of the merger.
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The following methodology has been implemented to estimate the approximate effect of the Sky
Financial merger used to determine merger-related impacts.
Balance Sheet Items
For loans and leases, as well as total deposits, Sky Financials balances as of June 30,
2007, adjusted for purchase accounting adjustments, and transfers of loans to loans
held-for-sale, are used in the comparison. To estimate the impact on 2007 third quarter
average balances, it was assumed that the June 30, 2007 balances, as adjusted, remained
constant throughout the 2007 third quarter and will remain constant in all subsequent
periods.
Income Statement Items
For income statement line items, Sky Financials actual results for the first six months of
2007, adjusted for the impact of unusual items and purchase accounting adjustments, were
determined. This six-month adjusted amount was divided by two to estimate a quarterly
amount. This results in an approximate quarterly impact, as the methodology does not
adjust for any unusual items, market related changes, or seasonal factors in Sky
Financials 2007 six-month results. Nor does it consider any revenue or expense synergies
realized since the merger date. This same estimated amount will also be used in all
subsequent quarterly reporting periods. The one
exception to this methodology of holding the estimated quarterly impact constant relates to
the amortization of intangibles expense where the amount is known and is therefore used.
Certain tables contained within our discussion and analysis provide detail of changes to
reported results to quantify the estimated impact of the Sky Financial merger using this methodology.
DISCUSSION OF RESULTS OF OPERATIONS
This section provides a review of financial performance from a consolidated perspective. It
also includes a Significant Items Influencing Financial Performance Comparisons section that
summarizes key issues important for a complete understanding of performance trends. Key
consolidated balance sheet and income statement trends are discussed in this section. All earnings
per share data are reported on a diluted basis. For additional insight on financial performance,
please read this section in conjunction with the Lines of Business Discussion.
Summary
We reported 2007 third quarter net income of $138.2 million and earnings per common share of
$0.38. These results compared favorably to net income of $80.5 million and earnings per common
share of $0.34 in the 2007 second quarter, but declined from net income of $157.4 million and
earnings per common share of $0.65 in the third quarter of 2006. Our year-to-date net income was
$314.4 million, or $1.12 per common share, down from net income of $373.5 million, or $1.56 per
common share, in the comparable year-ago period. Additionally, comparisons with the prior year are impacted by the benefits for income taxes and balance sheet restructuring charges in the comparable year-ago period.
Period-to-period comparisons are significantly
impacted by the Sky Financial acquisition, which closed on July 1, 2007. The acquisition
solidified our position in Ohio, greatly expanded our presence in the Indianapolis market, and
established western Pennsylvania as a new market. Customer reaction has been very positive, and we
continue to work to ensure that all of the growth opportunities afforded by the acquisition are
realized.
Expense control was a major highlight for the quarter. Although non-interest expense
increased $140.9 million from the prior quarter, $161.3 million of the increase was merger related,
either through merger related expenses or increased merger costs. Non-merger related expenses
actually declined $20.4 million and represented most of the merger efficiencies that we targeted
from the acquisition. We expect to achieve most of the remaining benefit next quarter. Our
efficiency
5
ratio, which has been a key focal point for us, is approaching our targeted range, and
we expect to be within, or very near, that range, once we achieve the remaining targeted merger
efficiencies.
Fee income performance was mixed for the quarter. In addition to the increase in non-interest
income that was merger related, non-merger related deposit service charges and other service
charges showed very good growth, however, non-merger related trust services, mortgage banking, and
brokerage and insurance income were down.
Net interest income for the third quarter of 2007 increased $156.2 million from the prior
quarter. The current quarter included three months of net interest income attributable to the
acquisition of Sky Financial, which added $12.8 billion of loans, net of transfers to loans
held-for-sale and purchase
accounting adjustment, and $12.9 billion of deposits at July 1, 2007. During the current
quarter, we saw good growth in non-merger related commercial loans and certain consumer loans,
however, average automobile leases continued to shrink, as expected, due to low consumer demand and
competitive pricing. Additionally, the lack of growth in non-merger related average home equity
loans and average residential real estate loans continued to reflect the softness in the real
estate markets. Growth in non-merger related average total deposits was also good during the
quarter, driven by strong growth in interest-bearing demand deposits and money market accounts.
Our net interest margin was 3.52%, consistent with expectations and up from 3.26% in the second quarter,
primarily merger related.
Consistent with expectations, overall credit quality was stable during the quarter. The
allowance for loan and leases losses (ALLL) was 1.14% of total loans, down slightly from 1.15% at
June 30, 2007. The ALLL coverage of nonperforming loans (NPLs) improved to 182% at September 30,
2007, from 145% at June 30, 2007, and declined from 189% at December 31, 2006. However,
nonperforming assets (NPAs) increased $173.9 million from the prior quarter as we acquired $144.5
million of NPAs from Sky Financial. Additionally, we designated $16.3 million of impaired
asset-backed securities as other NPAs. During the quarter, non-merger related NPLs and
other-real-estate-owned (OREO) grew $13.0 million. Our outlook remains for NPLs to rise modestly
in the 2007 fourth quarter, as there remains pressure on businesses and consumers in our markets.
Market conditions remain difficult and we do not expect that to change in the near future. We
anticipate that the economic environment will continue to be negatively impacted by weakness in
residential real estate markets and negative impacts from the on-going challenges in the automotive
manufacturing and supplier sector. We expect our greatest impacts to be in our eastern Michigan
and northern Ohio markets.
Significant Items
Certain components of the income statement are naturally subject to more volatility than
others. As a result, readers of this report may view such items differently in their assessment of
underlying or core earnings performance compared with their expectations and/or any implications resulting from them on their
assessment of future performance trends.
Therefore, we believe the disclosure of certain Significant Items in current and prior
period results aids readers of this report in better understanding corporate performance so that
they can ascertain for themselves what, if any, items they may wish to include or exclude from
their analysis of performance, within the context of determining how that performance differed from
their expectations, as well as how, if at all, to adjust their estimates of future performance
accordingly.
To this end, we have adopted a practice of listing as Significant Items in our external
disclosure documents (including earnings press releases, investor presentations, Forms 10-Q and
10-K) individual and/or particularly volatile items that impact the current period results by $0.01
per share or more. Such Significant Items generally fall within one of two categories: timing
differences and other items.
Timing Differences
Part of our regular business activities are by their nature volatile, including capital
markets income and sales of loans. While such items may generally be expected to occur within a
full year reporting period, they may vary significantly from period to period. Such items are also
typically a component of an income statement line item and not, therefore, readily discernable. By
specifically disclosing such items, analysts/investors can better assess how, if at all, to adjust
their estimates of future performance.
6
Other Items
From time to time an event or transaction might significantly impact revenues, expenses, or
taxes in a particular reporting period that are judged to be unusual, short-term in nature, and/or
materially outside typically expected performance. Examples would be (1) merger costs, including
restructuring charges and asset valuation adjustments, as they
typically impact expenses for only a few quarters during the period
of transition; (2) changes in an accounting principle; (3)
unusual tax assessments or refunds; (4) a large gain/loss on the sale of an asset; (5) outsized
commercial loan net charge-offs; and other items deemed significant. By disclosing such items,
analysts/investors can better assess how, if at all, to adjust their estimates of future
performance.
Provision for Credit Losses
While
the provision for credit losses may vary significantly among periods, and often exceeds $0.01 per
share, we typically exclude it
from the list of significant items unless, in our view, there is a significant, specific credit (or
multiple significant, specific credits) affecting comparability among periods. In determining
whether any portion of the provision for credit losses should be included as a significant item, we
consider, among other things, that the provision is a major income statement caption rather than a component of another caption and, therefore, the
period-to-period variance can be readily determined.
Other Exclusions
Significant Items for any particular period are not intended to be a complete list of items
that may significantly impact future periods. A number of factors, including those described in
Huntingtons 2006 Annual Report on Form 10-K and other factors described from time to time in
Huntingtons other filings with the SEC, could also significantly impact future periods.
7
Table 1 Selected Quarterly Income Statement Data
(1), (7)
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2007
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2006
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(in thousands, except per share amounts)
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Third
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Second
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First
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Fourth
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Third
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Interest income
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$
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851,155
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$
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542,461
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$
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534,949
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$
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544,841
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$
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538,988
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Interest expense
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441,522
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289,070
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279,394
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286,852
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283,675
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Net interest income
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409,633
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253,391
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255,555
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257,989
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255,313
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Provision for credit losses
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42,007
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60,133
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29,406
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15,744
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14,162
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Net interest income after provision for credit losses
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367,626
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193,258
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226,149
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242,245
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241,151
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Service charges on deposit accounts
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78,107
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50,017
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44,793
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48,548
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48,718
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Trust services
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33,562
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26,764
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25,894
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23,511
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22,490
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Brokerage and insurance income
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28,806
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17,199
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16,082
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14,600
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14,697
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Other service charges and fees
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21,045
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14,923
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13,208
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13,784
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12,989
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Bank owned life insurance income
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14,847
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10,904
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10,851
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10,804
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12,125
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Mortgage banking income
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9,629
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7,122
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9,351
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6,169
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8,512
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Securities (losses) gains
(2)
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(13,152
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(5,139
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104
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(15,804
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(57,332
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Other income
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31,830
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34,403
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24,894
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38,994
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35,711
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Total non-interest income
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204,674
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156,193
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145,177
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140,606
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97,910
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Personnel costs
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202,148
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135,191
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134,639
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137,944
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133,823
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Outside data processing and other services
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40,600
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25,701
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21,814
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20,695
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18,664
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Net occupancy
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33,334
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19,417
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19,908
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17,279
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18,109
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Equipment
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23,290
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17,157
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18,219
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18,151
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17,249
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Marketing
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13,186
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8,986
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7,696
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6,207
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7,846
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Professional services
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11,273
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8,101
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6,482
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8,958
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6,438
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Telecommunications
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7,286
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4,577
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4,126
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4,619
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4,818
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Printing and supplies
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4,743
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3,672
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3,242
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3,610
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3,416
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Amortization of intangibles
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19,949
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2,519
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2,520
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2,993
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2,902
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Other expense
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29,754
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19,334
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23,426
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47,334
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29,165
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Total non-interest expense
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385,563
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244,655
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242,072
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267,790
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242,430
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Income before income taxes
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186,737
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104,796
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129,254
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115,061
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96,631
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Provision (benefit) for income taxes
(3)
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48,535
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24,275
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33,528
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27,346
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(60,815
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)
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Net income
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$
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138,202
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$
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80,521
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$
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95,726
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$
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87,715
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$
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157,446
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Average common shares diluted
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368,280
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239,008
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238,754
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239,881
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240,896
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Per common share
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Net income diluted
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|
$
|
0.38
|
|
|
$
|
0.34
|
|
|
$
|
0.40
|
|
|
$
|
0.37
|
|
|
$
|
0.65
|
|
Cash dividends declared
|
|
|
0.265
|
|
|
|
0.265
|
|
|
|
0.265
|
|
|
|
0.250
|
|
|
|
0.250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average total assets
|
|
|
1.02
|
%
|
|
|
0.92
|
%
|
|
|
1.11
|
%
|
|
|
0.98
|
%
|
|
|
1.75
|
%
|
Return on average total shareholders equity
|
|
|
8.8
|
|
|
|
10.6
|
|
|
|
12.9
|
|
|
|
11.3
|
|
|
|
21.0
|
|
Return on average tangible shareholders equity
(4)
|
|
|
20.9
|
|
|
|
13.6
|
|
|
|
16.5
|
|
|
|
14.5
|
|
|
|
27.1
|
|
Net interest margin
(5)
|
|
|
3.52
|
|
|
|
3.26
|
|
|
|
3.36
|
|
|
|
3.28
|
|
|
|
3.22
|
|
Efficiency ratio
(6)
|
|
|
57.7
|
|
|
|
57.8
|
|
|
|
59.2
|
|
|
|
63.3
|
|
|
|
57.8
|
|
Effective tax rate
(3)
|
|
|
26.0
|
|
|
|
23.2
|
|
|
|
25.9
|
|
|
|
23.8
|
|
|
|
(62.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue fully taxable equivalent (FTE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
409,633
|
|
|
$
|
253,391
|
|
|
$
|
255,555
|
|
|
$
|
257,989
|
|
|
$
|
255,313
|
|
FTE adjustment
|
|
|
5,712
|
|
|
|
4,127
|
|
|
|
4,047
|
|
|
|
4,115
|
|
|
|
4,090
|
|
|
|
|
Net interest income
(5)
|
|
|
415,345
|
|
|
|
257,518
|
|
|
|
259,602
|
|
|
|
262,104
|
|
|
|
259,403
|
|
Non-interest income
|
|
|
204,674
|
|
|
|
156,193
|
|
|
|
145,177
|
|
|
|
140,606
|
|
|
|
97,910
|
|
|
|
|
Total revenue
(5)
|
|
$
|
620,019
|
|
|
$
|
413,711
|
|
|
$
|
404,779
|
|
|
$
|
402,710
|
|
|
$
|
357,313
|
|
|
|
|
|
|
|
(1)
|
|
Comparisons for presented periods are impacted by a number of factors. Refer to the
Significant Items Influencing Financial Performance Comparisons for additional discussion
regarding these key factors.
|
|
(2)
|
|
Includes $57.5 million of securities impairment losses for the 2006 third quarter.
|
|
(3)
|
|
The third quarter of 2006 includes $84.5 million benefit reflecting the resolution of a federal
income tax audit of tax years 2002 and 2003, as well as the recognition of federal tax loss carry
backs.
|
|
(4)
|
|
Net income less expense of amortization of intangibles (net of tax) for the period divided by
average tangible common shareholders equity. Average tangible common shareholders equity equals
average total common shareholders equity less average intangible assets and goodwill.
|
|
(5)
|
|
On a fully taxable equivalent (FTE) basis assuming a 35% tax rate.
|
|
(6)
|
|
Non-interest expense less amortization of intangibles divided by the sum of FTE net interest
income and non-interest income excluding securities gains (losses).
|
|
(7)
|
|
On July 1, 2007, Huntington acquired Sky Financial Group, Inc. Accordingly, the balances
presented include the impact of the acquisition from that date.
|
8
Table 2 Selected Year to Date Income Statement Data
(1), (7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
Change
|
|
(in thousands, except per share amounts)
|
|
2007
|
|
|
2006
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
Interest income
|
|
$
|
1,928,565
|
|
|
$
|
1,525,678
|
|
|
$
|
402,887
|
|
|
|
26.4
|
%
|
Interest expense
|
|
|
1,009,986
|
|
|
|
764,490
|
|
|
|
245,496
|
|
|
|
32.1
|
|
|
|
|
Net interest income
|
|
|
918,579
|
|
|
|
761,188
|
|
|
|
157,391
|
|
|
|
20.7
|
|
Provision for credit losses
|
|
|
131,546
|
|
|
|
49,447
|
|
|
|
82,099
|
|
|
|
N.M.
|
|
|
|
|
Net interest income after provision for credit losses
|
|
|
787,033
|
|
|
|
711,741
|
|
|
|
75,292
|
|
|
|
10.6
|
|
|
|
|
Service charges on deposit accounts
|
|
|
172,917
|
|
|
|
137,165
|
|
|
|
35,752
|
|
|
|
26.1
|
|
Trust services
|
|
|
86,220
|
|
|
|
66,444
|
|
|
|
19,776
|
|
|
|
29.8
|
|
Brokerage and insurance income
|
|
|
62,087
|
|
|
|
44,235
|
|
|
|
17,852
|
|
|
|
40.4
|
|
Other service charges and fees
|
|
|
49,176
|
|
|
|
37,570
|
|
|
|
11,606
|
|
|
|
30.9
|
|
Bank owned life insurance income
|
|
|
36,602
|
|
|
|
32,971
|
|
|
|
3,631
|
|
|
|
11.0
|
|
Mortgage banking income
|
|
|
26,102
|
|
|
|
35,322
|
|
|
|
(9,220
|
)
|
|
|
(26.1
|
)
|
Securities losses
(2)
|
|
|
(18,187
|
)
|
|
|
(57,387
|
)
|
|
|
39,200
|
|
|
|
(68.3
|
)
|
Other income
|
|
|
91,127
|
|
|
|
124,143
|
|
|
|
(33,016
|
)
|
|
|
(26.6
|
)
|
|
|
|
Total non-interest income
|
|
|
506,044
|
|
|
|
420,463
|
|
|
|
85,581
|
|
|
|
20.4
|
|
|
|
|
Personnel costs
|
|
|
471,978
|
|
|
|
403,284
|
|
|
|
68,694
|
|
|
|
17.0
|
|
Outside data processing and other services
|
|
|
88,115
|
|
|
|
58,084
|
|
|
|
30,031
|
|
|
|
51.7
|
|
Net occupancy
|
|
|
72,659
|
|
|
|
54,002
|
|
|
|
18,657
|
|
|
|
34.5
|
|
Equipment
|
|
|
58,666
|
|
|
|
51,761
|
|
|
|
6,905
|
|
|
|
13.3
|
|
Marketing
|
|
|
29,868
|
|
|
|
25,521
|
|
|
|
4,347
|
|
|
|
17.0
|
|
Professional services
|
|
|
25,856
|
|
|
|
18,095
|
|
|
|
7,761
|
|
|
|
42.9
|
|
Telecommunications
|
|
|
15,989
|
|
|
|
14,633
|
|
|
|
1,356
|
|
|
|
9.3
|
|
Printing and supplies
|
|
|
11,657
|
|
|
|
10,254
|
|
|
|
1,403
|
|
|
|
13.7
|
|
Amortization of intangibles
|
|
|
24,988
|
|
|
|
6,969
|
|
|
|
18,019
|
|
|
|
N.M.
|
|
Other expense
|
|
|
72,514
|
|
|
|
90,601
|
|
|
|
(18,087
|
)
|
|
|
(20.0
|
)
|
|
|
|
Total non-interest expense
|
|
|
872,290
|
|
|
|
733,204
|
|
|
|
139,086
|
|
|
|
19.0
|
|
|
|
|
Income before income taxes
|
|
|
420,787
|
|
|
|
399,000
|
|
|
|
21,787
|
|
|
|
5.5
|
|
Provision for income taxes
(3)
|
|
|
106,338
|
|
|
|
25,494
|
|
|
|
80,844
|
|
|
|
N.M.
|
|
|
|
|
Net income
|
|
$
|
314,449
|
|
|
$
|
373,506
|
|
|
$
|
(59,057
|
)
|
|
|
(15.8)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares diluted
|
|
|
282,014
|
|
|
|
239,933
|
|
|
|
42,081
|
|
|
|
17.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share diluted
|
|
$
|
1.12
|
|
|
$
|
1.56
|
|
|
$
|
(0.44
|
)
|
|
|
(28.2)
|
%
|
Cash dividends declared
|
|
|
0.795
|
|
|
|
0.750
|
|
|
|
0.045
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average total assets
|
|
|
1.02
|
%
|
|
|
1.43
|
%
|
|
|
(0.41
|
)
|
|
|
(28.7)
|
%
|
Return on average total shareholders equity
|
|
|
10.3
|
|
|
|
17.2
|
|
|
|
(6.9
|
)
|
|
|
(40.1
|
)
|
Return on average tangible shareholders equity
(4)
|
|
|
17.3
|
|
|
|
21.5
|
|
|
|
(4.2
|
)
|
|
|
(19.5
|
)
|
Net interest margin
(5)
|
|
|
3.40
|
|
|
|
3.29
|
|
|
|
0.11
|
|
|
|
3.3
|
|
Efficiency ratio
(6)
|
|
|
58.2
|
|
|
|
58.1
|
|
|
|
0.1
|
|
|
|
0.2
|
|
Effective tax rate
(3)
|
|
|
25.3
|
|
|
|
6.4
|
|
|
|
18.9
|
|
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue fully taxable equivalent (FTE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
918,578
|
|
|
$
|
761,188
|
|
|
$
|
157,390
|
|
|
|
20.7
|
%
|
FTE adjustment
(5)
|
|
|
13,886
|
|
|
|
11,910
|
|
|
|
1,976
|
|
|
|
16.6
|
|
|
|
|
Net interest income
|
|
|
932,464
|
|
|
|
773,098
|
|
|
|
159,366
|
|
|
|
20.6
|
|
Non-interest income
|
|
|
506,046
|
|
|
|
420,463
|
|
|
|
85,583
|
|
|
|
20.4
|
|
|
|
|
Total revenue
|
|
$
|
1,438,510
|
|
|
$
|
1,193,561
|
|
|
$
|
244,949
|
|
|
|
20.5
|
%
|
|
|
|
|
|
|
N.M., not a meaningful value.
|
|
|
|
(1)
|
|
Comparisons for presented periods are impacted by a number of factors. Refer to the
Significant Items Influencing Financial Performance Comparisons for additional discussion
regarding these key factors.
|
|
(2)
|
|
Includes $57.5 million of securities impairment losses for the 2006 third quarter.
|
|
(3)
|
|
The third quarter of 2006 includes $84.5 million benefit reflecting the resolution of a
federal income tax audit of tax years 2002 and 2003, as well as the recognition of federal tax
loss carry backs.
|
|
(4)
|
|
Net income less expense of amortization of intangibles (net of tax) for the period divided by
average tangible common shareholders equity. Average tangible common shareholders equity equals
average total common shareholders equity less average intangible assets and goodwill.
|
|
(5)
|
|
On a fully taxable equivalent (FTE) basis assuming a 35% tax rate.
|
|
(6)
|
|
Non-interest expense less amortization of intangibles divided by the sum of FTE net interest
income and non-interest income excluding securities gains/(losses).
|
|
(7)
|
|
On July 1, 2007, Huntington acquired Sky Financial Group, Inc. Accordingly, the balances
presented include the impact of the acquisition from that date.
|
9
Significant Items Influencing Financial Performance Comparisons
Earnings comparisons from the beginning of 2006 through the third quarter of 2007 were
impacted by a number of significant items summarized below.
|
1.
|
|
Sky Financial Acquisition.
The merger with Sky Financial was completed on July 1,
2007. At the time of acquisition, Sky Financial had assets of $16.8 billion, including
$13.3 billion of loans, and total deposits of $12.9 billion. Sky Financial results are
reflected in our consolidated results beginning July 1, 2007. The impacts of the affected
quarterly and year-to-date reported results compared with premerger reporting periods are
as follows:
|
|
|
|
Increased the absolute level of reported average balance sheet, revenue, expense,
and credit quality results (for example, net charge-offs).
|
|
|
|
|
Increased reported non-interest expense items as a result of costs incurred as
part of merger integration activities, most notably employee retention bonuses,
outside programming services related to systems conversions, and marketing expenses
related to customer retention initiatives. These net merger costs were $0.8 million
in the 2007 first quarter, $7.6 million in the 2007 second quarter, and $32.3 million
in the 2007 third quarter.
|
|
2.
|
|
Balance Sheet Restructuring
. In third and fourth quarters of 2006, we utilized the
excess capital resulting from the third quarters significant reduction to federal tax
expense (see Item 6 below) to restructure certain under-performing components of our
balance sheet. Total securities losses as a result of these actions totaled $73.3
million. The refinancing of Federal Home Loan Bank (FHLB) funding and the sale of mortgage
loans resulted in total charges of $4.4 million, resulting in total balance sheet
restructuring costs of $77.7 million ($0.21 per common share). Our actions impacted 2006
third and fourth quarter results as follows:
|
|
|
|
$57.3 million pretax ($0.16 per common share) negative impact in the 2006 third
quarter from securities impairment. Subsequent to the end of the quarter, we initiated
a review of our investment securities portfolio. The objective of this review was to
reposition the portfolio to optimize performance in light of changing economic
conditions and other factors. A total of $2.1 billion of securities, primarily
consisting of U.S. Treasury, agency securities, and mortgage-backed securities, as
well as certain other asset-backed securities, were identified as
other-than-temporarily impaired as a result of this review.
|
|
|
|
|
$20.2 million pretax ($13.1 million after tax or $0.05 per common share) negative
impact in the 2006 fourth quarter related to costs associated with the completion of
the balance sheet restructuring. This consisted of $9.0 million pretax of investment
securities losses as well as
$6.8 million of additional impairment on certain asset-backed securities not included
in the restructuring recognized in the third quarter, and $4.4 million pretax of other
balance sheet restructuring expenses, most notably FHLB funding refinancing costs.
|
10
3.
|
|
Mortgage servicing rights (MSRs) and related hedging.
Included in net market related
losses are net losses or gains from our mortgage servicing rights and the related hedging.
MSR fair values are very sensitive to movements in interest rates as expected future net
servicing income depends on the projected outstanding principal balances of the underlying
loans, which can be greatly reduced by prepayments. Prepayments usually increase when
mortgage interest rates decline and decrease when mortgage interest rates rise. A hedging
strategy is used to minimize the impact from MSR fair value changes. However, volatile
changes in interest rates can diminish the effectiveness of these hedges. We typically
report MSR fair value adjustments net of hedge-related trading activity. Net income
included the following net impact of MSR hedging activity
(reference Table 11)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
Per
|
|
|
|
interest
|
|
|
interest
|
|
|
Pretax
|
|
|
Net
|
|
|
Common
|
|
Period
|
|
income
|
|
|
income
|
|
|
income
|
|
|
income
|
|
|
Share
|
|
1Q 07
|
|
$
|
|
|
|
$
|
(2,018
|
)
|
|
$
|
(2,018
|
)
|
|
$
|
(1,312
|
)
|
|
$
|
(0.01
|
)
|
2Q 07
|
|
|
248
|
|
|
|
(4,998
|
)
|
|
|
(4,750
|
)
|
|
|
(3,088
|
)
|
|
|
(0.01
|
)
|
3Q 07
|
|
|
2,357
|
|
|
|
(6,002
|
)
|
|
|
(3,645
|
)
|
|
|
(2,369
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 mo. 07
|
|
$
|
2,605
|
|
|
$
|
(13,018
|
)
|
|
$
|
(10,413
|
)
|
|
$
|
(6,769
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q 06
|
|
$
|
|
|
|
$
|
4,575
|
(1)
|
|
$
|
4,575
|
|
|
$
|
2,974
|
|
|
$
|
0.01
|
|
2Q 06
|
|
|
|
|
|
|
1,542
|
|
|
|
1,542
|
|
|
|
1,002
|
|
|
|
|
|
3Q 06
|
|
|
38
|
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 mo. 06
|
|
|
38
|
|
|
|
6,079
|
|
|
|
6,117
|
|
|
|
3,976
|
|
|
|
0.02
|
|
|
4Q 06
|
|
|
(2
|
)
|
|
|
(2,493
|
)
|
|
|
(2,495
|
)
|
|
|
(1,622
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 mo. 06
|
|
$
|
36
|
|
|
$
|
3,586
|
|
|
$
|
3,622
|
|
|
$
|
2,354
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes $5.1 million related to the positive impact of adopting SFAS No. 156
|
|
|
Beginning in the 2006 first quarter, we adopted Statement of Financial Accounting Standards
(Statement) No. 156,
Accounting for Servicing of Financial Assets (an amendment of FASB
Statement No. 140),
which allowed us to carry MSRs at fair value. This resulted in a $5.1
million pretax ($0.01 per common share) positive impact in the 2006 first quarter (this
impact is reflected in the above table). Under the fair value approach, servicing assets
and liabilities are recorded at fair value at each reporting date. Changes in fair value
between reporting dates are recorded as an increase or decrease in mortgage banking income.
MSR assets are included in other assets.
|
11
4.
|
|
Other net market-related losses.
Other net market-related losses include losses and
gains related to the following market-driven activities: gains and losses from equity
investing (included in other non-interest income), net securities gains and losses, and the
impact from the extinguishment of debt (included as other non-interest expense). Total net
market-related losses also include the net impact of MSRs and related hedging (see item 3
above). Net income included the following impact from other net market-related losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
|
|
|
|
Debt
|
|
|
|
|
|
|
|
|
|
|
Per
|
|
|
|
Gains/
|
|
|
Equity
|
|
|
Extinguish-
|
|
|
Pretax
|
|
|
Net
|
|
|
Common
|
|
Period
|
|
(Losses)
|
|
|
Investing
|
|
|
ment
|
|
|
income
|
|
|
income
|
|
|
Share
|
|
1Q 07
|
|
$
|
104
|
|
|
$
|
(8,530
|
)
|
|
$
|
|
|
|
$
|
(8,426
|
)
|
|
$
|
(5,477
|
)
|
|
$
|
(0.02
|
)
|
2Q 07
|
|
|
(5,139
|
)
|
|
|
2,301
|
|
|
|
4,090
|
|
|
|
1,252
|
|
|
|
814
|
|
|
|
|
|
3Q 07
|
|
|
(13,152
|
)
|
|
|
(4,387
|
)
|
|
|
3,220
|
|
|
|
(14,319
|
)
|
|
|
(9,307
|
)
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 mo. 07
|
|
$
|
(18,187
|
)
|
|
$
|
(10,616
|
)
|
|
$
|
7,310
|
|
|
$
|
(21,493
|
)
|
|
$
|
(13,970
|
)
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q 06
|
|
$
|
(20
|
)
|
|
$
|
1,505
|
|
|
$
|
|
|
|
$
|
1,485
|
|
|
$
|
965
|
|
|
$
|
|
|
2Q 06
|
|
|
(35
|
)
|
|
|
2,322
|
|
|
|
|
|
|
|
2,287
|
|
|
|
1,487
|
|
|
|
0.01
|
|
3Q 06
|
|
|
(57,332
|
)
|
|
|
352
|
|
|
|
|
|
|
|
(56,980
|
)
|
|
|
(37,037
|
)
|
|
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 mo. 06
|
|
|
(57,387
|
)
|
|
|
4,179
|
|
|
|
|
|
|
|
(53,208
|
)
|
|
|
(34,585
|
)
|
|
|
(0.14
|
)
|
4Q 06
|
|
|
(15,804
|
)
|
|
|
3,257
|
|
|
|
(4,389
|
)
|
|
|
(16,936
|
)
|
|
|
(11,008
|
)
|
|
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 mo. 06
|
|
$
|
(73,191
|
)
|
|
$
|
7,436
|
|
|
$
|
(4,389
|
)
|
|
$
|
(70,144
|
)
|
|
$
|
(45,593
|
)
|
|
$
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
|
Significant commercial loan provision expense.
Performance for the 2007 second quarter included
$24.8 million ($16.1 million after tax, or $0.07 per common share) in provision for credit losses
associated with three credit relationships: two in the eastern Michigan single-family home builder
sector and one northern Ohio commercial credit to an auto industry-related manufacturing company.
In the 2007 second quarter, charge-offs of $12.2 million were recorded against two of these credit
relationships. In the 2007 third quarter, an additional $10.0 million of charge-offs were
recorded, relating to all three of these credit relationships.
|
|
6.
|
|
Effective tax rate.
The effective tax rate for the 2006 third quarter included an
$84.5 million ($0.35 per common share) reduction of federal income tax expense from the
release of tax reserves as a result of the resolution of the federal income tax audit for
2002 and 2003 and the recognition of federal tax loss carry backs.
|
|
7.
|
|
Other significant items influencing earnings performance comparisons.
In addition to the
items discussed separately in this section, a number of other items impacted financial results.
These included:
|
|
|
|
2007
- First Quarter
|
|
|
|
$1.9 million pretax ($1.2 million after tax or $0.01 per common share) negative
impact due to litigation losses.
|
|
|
|
$10.0 million pretax ($6.5 million after tax or $0.03 per common share) contribution
to the Huntington Foundation.
|
|
|
|
|
$5.2 million pretax ($3.6 million after tax or $0.02 per common share) increase in
automobile lease residual value losses. This increase reflected higher relative losses
on vehicles sold at auction, most notably high-line imports and larger sport utility
vehicles.
|
|
|
|
|
$4.5 million pretax ($2.9 million after tax or $0.01 per common share) in severance
and consolidation expenses. This reflected severance-related expenses associated with a
reduction of 75 Regional Banking staff positions, as well as costs associated with the
retirements of a vice chairman and an executive vice president.
|
|
|
|
|
$2.6 million pretax ($1.7 million after tax or $0.01 per common share) gain related
to the sale of MasterCard
®
stock.
|
12
|
|
|
$2.3 million pretax ($1.5 million after tax or $0.01 per common share) negative
impact, reflecting a cumulative adjustment to defer annual fees related to home equity
loans.
|
Table 3 reflects the earnings impact of the above-mentioned significant items for periods affected
by this Discussion of Results of Operations:
13
Table 3 Significant Items Influencing Earnings Performance Comparison
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
September 30, 2007
|
|
June 30, 2007
|
|
September 30, 2006
|
(in millions)
|
|
After-tax
|
|
EPS
|
|
After-tax
|
|
EPS
|
|
After-tax
|
|
EPS
|
|
Net income reported earnings
|
|
$
|
138.2
|
|
|
|
|
|
|
$
|
80.5
|
|
|
|
|
|
|
$
|
157.4
|
|
|
|
|
|
Earnings per share, after tax
|
|
|
|
|
|
$
|
0.38
|
|
|
|
|
|
|
$
|
0.34
|
|
|
|
|
|
|
$
|
0.65
|
|
Change from prior quarter $
|
|
|
|
|
|
|
0.04
|
|
|
|
|
|
|
|
(0.06
|
)
|
|
|
|
|
|
|
0.19
|
|
Change from prior quarter %
|
|
|
|
|
|
|
11.8
|
%
|
|
|
|
|
|
|
(15.0
|
)%
|
|
|
|
|
|
|
41.3
|
%
|
|
Change from a year-ago $
|
|
|
|
|
|
$
|
(0.27
|
)
|
|
|
|
|
|
$
|
(0.12
|
)
|
|
|
|
|
|
$
|
0.18
|
|
Change from a year-ago %
|
|
|
|
|
|
|
(41.5
|
)%
|
|
|
|
|
|
|
(26.1
|
)%
|
|
|
|
|
|
|
38.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant items - favorable (unfavorable) impact:
|
|
Earnings
(2)
|
|
EPS
|
|
Earnings
(2)
|
|
EPS
|
|
Earnings
(2)
|
|
EPS
|
|
Merger costs
|
|
$
|
(32.3
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(7.6
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
|
|
|
$
|
|
|
Net market-related losses
|
|
|
(18.0
|
)
|
|
|
(0.03
|
)
|
|
|
(3.5
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
Significant commercial loan provision expense
|
|
|
|
|
|
|
|
|
|
|
(24.8
|
)
|
|
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
Reduction to federal income tax expense
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84.5
|
|
|
|
0.35
|
|
Balance sheet restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57.3
|
)
|
|
|
(0.16
|
)
|
Adjustment for equity method investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.1
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
September 30, 2007
|
|
September 30, 2006
|
(in millions)
|
|
After-tax
|
|
EPS
|
|
After-tax
|
|
EPS
|
|
Net income reported earnings
|
|
$
|
314.4
|
|
|
|
|
|
|
$
|
373.5
|
|
|
|
|
|
Earnings per share, after tax
|
|
|
|
|
|
$
|
1.12
|
|
|
|
|
|
|
$
|
1.56
|
|
Change from a year-ago $
|
|
|
|
|
|
|
(0.44
|
)
|
|
|
|
|
|
|
0.22
|
|
Change from a year-ago %
|
|
|
|
|
|
|
(28.2
|
)%
|
|
|
|
|
|
|
16.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant items - favorable (unfavorable) impact:
|
|
Earnings
(2)
|
|
EPS
|
|
Earnings
(2)
|
|
EPS
|
|
Merger costs
|
|
$
|
(40.7
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(4.2
|
)
|
|
$
|
(0.01
|
)
|
Net market-related losses
|
|
|
(32.0
|
)
|
|
|
(0.07
|
)
|
|
|
5.1
|
|
|
|
0.01
|
|
Significant commercial loan provision expense
|
|
|
(24.8
|
)
|
|
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
Reduction to federal income tax expense
(3)
|
|
|
|
|
|
|
|
|
|
|
84.5
|
|
|
|
0.35
|
|
MSR FAS 156 accounting change
|
|
|
|
|
|
|
|
|
|
|
5.1
|
|
|
|
0.01
|
|
Balance sheet restructuring
|
|
|
|
|
|
|
|
|
|
|
(57.3
|
)
|
|
|
(0.16
|
)
|
Adjustment for equity method investments
|
|
|
|
|
|
|
|
|
|
|
(3.2
|
)
|
|
|
(0.01
|
)
|
Adjustment to defer home equity annual fees
|
|
|
|
|
|
|
|
|
|
|
(2.3
|
)
|
|
|
(0.01
|
)
|
|
|
|
(1)
|
|
Refer to the Significant Items Influencing Financial Performance Comparisons for additional discussion regarding these items.
|
|
(2)
|
|
Pretax unless otherwise noted.
|
|
(3)
|
|
After tax
|
14
Net Interest Income
(This section should be read in conjunction with Significant Items 1, 2, 3, and 7.)
2007 Third Quarter versus 2006 Third Quarter
Fully taxable equivalent net interest income for the 2007 third quarter was $415.3 million.
This represented an increase of $155.9 million, or 60%, from the year-ago quarter. This reflected
the favorable impact of a $14.9 billion increase in average earning assets, of which $13.5 billion
represented an increase in average loans and leases, as well as the benefit of an increase in the
fully taxable equivalent net interest margin of 30 basis points to 3.52%. The 3.52% fully taxable
equivalent net interest margin was consistent with our expectations for a relatively stable net
interest margin compared with the pro forma 2007 second quarter level of 3.50%.
The following table details the estimated merger related impacts on our reported loans and
deposits:
Table 4 Average Loans/Leases and Deposits Estimated Merger Related Impacts 3Q07 vs. 3Q06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter
|
|
Change
|
|
Merger
|
|
Non-merger Related
|
(in millions)
|
|
2007
|
|
2006
|
|
Amount
|
|
%
|
|
Related
|
|
Amount
|
|
%
(1)
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
$
|
22,016
|
|
|
$
|
12,039
|
|
|
$
|
9,977
|
|
|
|
82.9
|
%
|
|
$
|
8,746
|
|
|
$
|
1,231
|
|
|
|
5.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans and leases
|
|
|
4,354
|
|
|
|
4,055
|
|
|
|
299
|
|
|
|
7.4
|
|
|
|
432
|
|
|
|
(133
|
)
|
|
|
(3.0
|
)
|
Home equity
|
|
|
7,355
|
|
|
|
5,041
|
|
|
|
2,314
|
|
|
|
45.9
|
|
|
|
2,385
|
|
|
|
(71
|
)
|
|
|
(1.0
|
)
|
Residential mortgage
|
|
|
5,456
|
|
|
|
4,748
|
|
|
|
708
|
|
|
|
14.9
|
|
|
|
1,112
|
|
|
|
(404
|
)
|
|
|
(6.9
|
)
|
Other consumer
|
|
|
647
|
|
|
|
430
|
|
|
|
217
|
|
|
|
50.5
|
|
|
|
143
|
|
|
|
74
|
|
|
|
12.9
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
17,812
|
|
|
|
14,274
|
|
|
|
3,538
|
|
|
|
24.8
|
|
|
|
4,072
|
|
|
|
(534
|
)
|
|
|
(2.9
|
)
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
39,828
|
|
|
$
|
26,313
|
|
|
$
|
13,515
|
|
|
|
51.4
|
%
|
|
$
|
12,818
|
|
|
$
|
697
|
|
|
|
1.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits non-interest bearing
|
|
$
|
5,384
|
|
|
$
|
3,509
|
|
|
$
|
1,875
|
|
|
|
53.4
|
%
|
|
$
|
1,829
|
|
|
$
|
46
|
|
|
|
0.9
|
%
|
Demand deposits interest bearing
|
|
|
3,808
|
|
|
|
2,169
|
|
|
|
1,639
|
|
|
|
75.6
|
|
|
|
1,460
|
|
|
|
179
|
|
|
|
4.9
|
|
Money market deposits
|
|
|
6,869
|
|
|
|
5,689
|
|
|
|
1,180
|
|
|
|
20.7
|
|
|
|
996
|
|
|
|
184
|
|
|
|
2.8
|
|
Savings and other domestic deposits
|
|
|
5,043
|
|
|
|
2,923
|
|
|
|
2,120
|
|
|
|
72.5
|
|
|
|
2,594
|
|
|
|
(474
|
)
|
|
|
(8.6
|
)
|
Core certificates of deposit
|
|
|
10,425
|
|
|
|
5,334
|
|
|
|
5,091
|
|
|
|
95.4
|
|
|
|
4,630
|
|
|
|
461
|
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
Total core deposits
|
|
|
31,529
|
|
|
|
19,624
|
|
|
|
11,905
|
|
|
|
60.7
|
|
|
|
11,509
|
|
|
|
396
|
|
|
|
1.3
|
|
Other deposits
|
|
|
6,123
|
|
|
|
4,969
|
|
|
|
1,154
|
|
|
|
23.2
|
|
|
|
1,342
|
|
|
|
(188
|
)
|
|
|
(3.0
|
)
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
37,652
|
|
|
$
|
24,593
|
|
|
$
|
13,059
|
|
|
|
53.1
|
%
|
|
$
|
12,851
|
|
|
$
|
208
|
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Calculated as non-merger related / (prior period + merger-related)
|
The $0.7 billion, or 2%, non-merger related increase in total average loans primarily
reflected:
|
|
|
$1.2 billion, or 6%, increase in average total commercial loans, reflecting continued
strong growth in middle-market commercial and industrial (C&I) loans. The increase in
commercial loans was spread across substantially all regions.
|
Partially offset by:
|
|
|
$0.5 billion, or 3%, decrease in average total consumer loans, reflecting continued
declines in automobile leasing due to low consumer demand and competitive pricing, as well
as the impact of mortgage loan sales over the last 12 months.
|
Also contributing to the growth in average earning assets was a $1.1 billion increase in
average trading account securities. The increase in these assets reflected a change in our
strategy to use trading account securities to hedge the change in fair value of our MSRs.
15
Concerning total average deposits, the $0.2 billion of non-merger related increase primarily
reflected:
|
|
|
$0.4 billion, or 1%, increase in average total core deposits, reflecting strong growth
in interest bearing demand deposits and money market accounts. While there was strong
growth in core certificates of deposits, this was offset by a decline in savings and other
domestic deposits, as customers transferred funds from lower rate to higher rate accounts.
|
Partially offset by:
|
|
|
$0.2 billion, or 3%, decline in other non-core deposits driven by a decline in brokered
deposits and negotiable certificates of deposit.
|
2007 Third Quarter versus 2007 Second Quarter
Fully taxable equivalent net interest income for the 2007 third quarter was $415.3 million.
This represented an increase of $157.8 million, or 61%, from the prior quarter. This reflected the
favorable impact of a $15.2 billion increase in average earning assets, of which $13.4 billion
represented an increase in average loans and leases, as well as the benefit of an increase in the
fully taxable equivalent net interest margin of 26 basis points to 3.52%. These increases were
primarily merger related.
The following table details the estimated merger related impacts on our reported loans and
deposits:
Table 5 Average Loans/Leases and Deposits Estimated Merger Related Impacts 3Q07 vs. 2Q07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third
|
|
Second
|
|
|
|
|
|
|
|
|
Quarter
|
|
Quarter
|
|
Change
|
|
Merger
|
|
Non-merger Related
|
(in millions)
|
|
2007
|
|
2007
|
|
Amount
|
|
Percent
|
|
Related
|
|
Amount
|
|
%
(1)
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
$
|
22,016
|
|
|
$
|
12,818
|
|
|
$
|
9,198
|
|
|
|
71.8
|
%
|
|
$
|
8,746
|
|
|
$
|
452
|
|
|
|
2.1
|
%
|
|
Automobile loans and leases
|
|
|
4,354
|
|
|
|
3,873
|
|
|
|
481
|
|
|
|
12.4
|
|
|
|
432
|
|
|
|
49
|
|
|
|
1.1
|
|
Home equity
|
|
|
7,355
|
|
|
|
4,973
|
|
|
|
2,382
|
|
|
|
47.9
|
|
|
|
2,385
|
|
|
|
(3
|
)
|
|
|
(0.0
|
)
|
Residential mortgage
|
|
|
5,456
|
|
|
|
4,351
|
|
|
|
1,105
|
|
|
|
25.4
|
|
|
|
1,112
|
|
|
|
(7
|
)
|
|
|
(0.1
|
)
|
Other consumer
|
|
|
647
|
|
|
|
424
|
|
|
|
223
|
|
|
|
52.6
|
|
|
|
143
|
|
|
|
80
|
|
|
|
14.1
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
17,812
|
|
|
|
13,621
|
|
|
|
4,191
|
|
|
|
30.8
|
|
|
|
4,072
|
|
|
|
119
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
39,828
|
|
|
$
|
26,439
|
|
|
$
|
13,389
|
|
|
|
50.6
|
%
|
|
$
|
12,818
|
|
|
$
|
571
|
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits non-interest
bearing
|
|
$
|
5,384
|
|
|
$
|
3,591
|
|
|
$
|
1,793
|
|
|
|
49.9
|
%
|
|
$
|
1,829
|
|
|
$
|
(36
|
)
|
|
|
(0.7
|
)%
|
Demand deposits interest bearing
|
|
|
3,808
|
|
|
|
2,404
|
|
|
|
1,404
|
|
|
|
58.4
|
|
|
|
1,460
|
|
|
|
(56
|
)
|
|
|
(1.4
|
)
|
Money market deposits
|
|
|
6,869
|
|
|
|
5,466
|
|
|
|
1,403
|
|
|
|
25.7
|
|
|
|
996
|
|
|
|
407
|
|
|
|
6.3
|
|
Savings and other domestic deposits
|
|
|
5,043
|
|
|
|
2,863
|
|
|
|
2,180
|
|
|
|
76.1
|
|
|
|
2,594
|
|
|
|
(414
|
)
|
|
|
(7.6
|
)
|
Core certificates of deposit
|
|
|
10,425
|
|
|
|
5,591
|
|
|
|
4,834
|
|
|
|
86.5
|
|
|
|
4,630
|
|
|
|
204
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
Total core deposits
|
|
|
31,529
|
|
|
|
19,915
|
|
|
|
11,614
|
|
|
|
58.3
|
|
|
|
11,509
|
|
|
|
105
|
|
|
|
0.3
|
|
Other deposits
|
|
|
6,123
|
|
|
|
4,358
|
|
|
|
1,765
|
|
|
|
40.5
|
|
|
|
1,342
|
|
|
|
423
|
|
|
|
7.4
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
37,652
|
|
|
$
|
24,273
|
|
|
$
|
13,379
|
|
|
|
55.1
|
%
|
|
$
|
12,851
|
|
|
$
|
528
|
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Calculated as non-merger related / (prior period + merger-related)
|
The $0.6 billion, or 1%, non-merger related increase in average total loans and leases
primarily reflected 2% growth in average total commercial loans due to continued strong growth
across substantially all regions. Non-merger related average total consumer loans increased 1%
with most categories essentially unchanged.
Also contributing to the growth in average earning assets were $0.9 billion increase in
average trading account securities and $0.7 billion in average investment securities. These
increases were primarily merger related. The increase in these assets reflected a change in our
strategy to use trading account securities to hedge the change in fair value of our MSRs.
16
Concerning the $13.4 billion increase in average total deposits, $12.9 billion was merger
related. The $0.5 billion, or 1%, non-merger related increase reflected:
|
|
|
$0.4 billion, or 7%, increase in other non-core deposits, reflecting an increase in
wholesale deposits.
|
|
|
|
|
$0.1 billion increase in average total core deposits. This reflected strong growth in
money market deposits and core certificates of deposit, partially offset by a decline in
savings and other domestic deposits as those depositors moved funds into higher rate
accounts. The decline in interest bearing and non-interest bearing demand deposits
reflected seasonality.
|
Tables 6 and 7 reflect quarterly average balance sheets and rates earned and paid on
interest-earning assets and interest-bearing liabilities.
17
Table 6 Consolidated Quarterly Average Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Balances
|
|
|
Change
|
Fully taxable equivalent basis
|
|
2007
|
|
2006
|
|
|
3Q07 vs 3Q06
|
(in millions)
|
|
Third
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
|
Amount
|
|
Percent
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits in banks
|
|
$
|
292
|
|
|
$
|
259
|
|
|
$
|
93
|
|
|
$
|
77
|
|
|
$
|
75
|
|
|
|
$
|
217
|
|
|
|
N.M.
|
%
|
Trading account securities
|
|
|
1,149
|
|
|
|
230
|
|
|
|
48
|
|
|
|
116
|
|
|
|
96
|
|
|
|
|
1,053
|
|
|
|
N.M.
|
|
Federal funds sold and securities purchased
under resale agreements
|
|
|
557
|
|
|
|
574
|
|
|
|
503
|
|
|
|
531
|
|
|
|
266
|
|
|
|
|
291
|
|
|
|
N.M.
|
|
Loans held for sale
|
|
|
419
|
|
|
|
291
|
|
|
|
242
|
|
|
|
265
|
|
|
|
275
|
|
|
|
|
144
|
|
|
|
52.4
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
3,951
|
|
|
|
3,253
|
|
|
|
3,595
|
|
|
|
3,792
|
|
|
|
4,364
|
|
|
|
|
(413
|
)
|
|
|
(9.5
|
)
|
Tax-exempt
|
|
|
675
|
|
|
|
629
|
|
|
|
591
|
|
|
|
594
|
|
|
|
581
|
|
|
|
|
94
|
|
|
|
16.2
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
4,626
|
|
|
|
3,882
|
|
|
|
4,186
|
|
|
|
4,386
|
|
|
|
4,945
|
|
|
|
|
(319
|
)
|
|
|
(6.5
|
)
|
Loans and
leases:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle market commercial and
industrial
|
|
|
10,301
|
|
|
|
6,209
|
|
|
|
6,070
|
|
|
|
5,882
|
|
|
|
5,651
|
|
|
|
|
4,650
|
|
|
|
82.3
|
|
Middle market commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
1,782
|
|
|
|
1,245
|
|
|
|
1,151
|
|
|
|
1,170
|
|
|
|
1,129
|
|
|
|
|
653
|
|
|
|
57.8
|
|
Commercial
|
|
|
5,623
|
|
|
|
2,865
|
|
|
|
2,772
|
|
|
|
2,839
|
|
|
|
2,846
|
|
|
|
|
2,777
|
|
|
|
97.6
|
|
|
|
|
|
|
|
Middle market commercial real estate
|
|
|
7,405
|
|
|
|
4,110
|
|
|
|
3,923
|
|
|
|
4,009
|
|
|
|
3,975
|
|
|
|
|
3,430
|
|
|
|
86.3
|
|
Small business
|
|
|
4,310
|
|
|
|
2,499
|
|
|
|
2,466
|
|
|
|
2,421
|
|
|
|
2,413
|
|
|
|
|
1,897
|
|
|
|
78.6
|
|
|
|
|
|
|
|
Total commercial
|
|
|
22,016
|
|
|
|
12,818
|
|
|
|
12,459
|
|
|
|
12,312
|
|
|
|
12,039
|
|
|
|
|
9,977
|
|
|
|
82.9
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans
|
|
|
2,931
|
|
|
|
2,322
|
|
|
|
2,215
|
|
|
|
2,111
|
|
|
|
2,079
|
|
|
|
|
852
|
|
|
|
41.0
|
|
Automobile leases
|
|
|
1,423
|
|
|
|
1,551
|
|
|
|
1,698
|
|
|
|
1,838
|
|
|
|
1,976
|
|
|
|
|
(553
|
)
|
|
|
(28.0
|
)
|
|
|
|
|
|
|
Automobile loans and leases
|
|
|
4,354
|
|
|
|
3,873
|
|
|
|
3,913
|
|
|
|
3,949
|
|
|
|
4,055
|
|
|
|
|
299
|
|
|
|
7.4
|
|
Home equity
|
|
|
7,355
|
|
|
|
4,973
|
|
|
|
4,913
|
|
|
|
4,973
|
|
|
|
5,041
|
|
|
|
|
2,314
|
|
|
|
45.9
|
|
Residential mortgage
|
|
|
5,456
|
|
|
|
4,351
|
|
|
|
4,496
|
|
|
|
4,635
|
|
|
|
4,748
|
|
|
|
|
708
|
|
|
|
14.9
|
|
Other loans
|
|
|
647
|
|
|
|
424
|
|
|
|
422
|
|
|
|
430
|
|
|
|
430
|
|
|
|
|
217
|
|
|
|
50.5
|
|
|
|
|
|
|
|
Total consumer
|
|
|
17,812
|
|
|
|
13,621
|
|
|
|
13,744
|
|
|
|
13,987
|
|
|
|
14,274
|
|
|
|
|
3,538
|
|
|
|
24.8
|
|
|
|
|
|
|
|
Total loans and leases
|
|
|
39,828
|
|
|
|
26,439
|
|
|
|
26,203
|
|
|
|
26,299
|
|
|
|
26,313
|
|
|
|
|
13,515
|
|
|
|
51.4
|
|
Allowance for loan and lease losses
|
|
|
(475
|
)
|
|
|
(297
|
)
|
|
|
(278
|
)
|
|
|
(282
|
)
|
|
|
(291
|
)
|
|
|
|
(184
|
)
|
|
|
(63.2
|
)
|
|
|
|
|
|
|
Net loans and leases
|
|
|
39,353
|
|
|
|
26,142
|
|
|
|
25,925
|
|
|
|
26,017
|
|
|
|
26,022
|
|
|
|
|
13,331
|
|
|
|
51.2
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
46,871
|
|
|
|
31,675
|
|
|
|
31,275
|
|
|
|
31,674
|
|
|
|
31,970
|
|
|
|
|
14,901
|
|
|
|
46.6
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
1,111
|
|
|
|
748
|
|
|
|
826
|
|
|
|
830
|
|
|
|
823
|
|
|
|
|
288
|
|
|
|
35.0
|
|
Intangible assets
|
|
|
3,337
|
|
|
|
626
|
|
|
|
627
|
|
|
|
631
|
|
|
|
634
|
|
|
|
|
2,703
|
|
|
|
N.M.
|
|
All other assets
|
|
|
3,124
|
|
|
|
2,398
|
|
|
|
2,480
|
|
|
|
2,617
|
|
|
|
2,633
|
|
|
|
|
491
|
|
|
|
18.6
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
53,968
|
|
|
$
|
35,150
|
|
|
$
|
34,930
|
|
|
$
|
35,470
|
|
|
$
|
35,769
|
|
|
|
$
|
18,199
|
|
|
|
50.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits non-interest
bearing
|
|
$
|
5,384
|
|
|
$
|
3,591
|
|
|
$
|
3,530
|
|
|
$
|
3,580
|
|
|
$
|
3,509
|
|
|
|
$
|
1,875
|
|
|
|
53.4
|
%
|
Demand deposits interest bearing
|
|
|
3,808
|
|
|
|
2,404
|
|
|
|
2,349
|
|
|
|
2,219
|
|
|
|
2,169
|
|
|
|
|
1,639
|
|
|
|
75.6
|
|
Money market deposits
|
|
|
6,869
|
|
|
|
5,466
|
|
|
|
5,489
|
|
|
|
5,548
|
|
|
|
5,689
|
|
|
|
|
1,180
|
|
|
|
20.7
|
|
Savings and other domestic deposits
|
|
|
5,043
|
|
|
|
2,863
|
|
|
|
2,827
|
|
|
|
2,849
|
|
|
|
2,923
|
|
|
|
|
2,120
|
|
|
|
72.5
|
|
Core certificates of deposit
|
|
|
10,425
|
|
|
|
5,591
|
|
|
|
5,455
|
|
|
|
5,380
|
|
|
|
5,334
|
|
|
|
|
5,091
|
|
|
|
95.4
|
|
|
|
|
|
|
|
Total core deposits
|
|
|
31,529
|
|
|
|
19,915
|
|
|
|
19,650
|
|
|
|
19,576
|
|
|
|
19,624
|
|
|
|
|
11,905
|
|
|
|
60.7
|
|
Other domestic deposits of $100,000 or more
|
|
|
1,694
|
|
|
|
1,124
|
|
|
|
1,219
|
|
|
|
1,282
|
|
|
|
1,141
|
|
|
|
|
553
|
|
|
|
48.5
|
|
Brokered deposits and negotiable CDs
|
|
|
3,728
|
|
|
|
2,682
|
|
|
|
3,020
|
|
|
|
3,252
|
|
|
|
3,307
|
|
|
|
|
421
|
|
|
|
12.7
|
|
Deposits in foreign offices
|
|
|
701
|
|
|
|
552
|
|
|
|
562
|
|
|
|
598
|
|
|
|
521
|
|
|
|
|
180
|
|
|
|
34.5
|
|
|
|
|
|
|
|
Total deposits
|
|
|
37,652
|
|
|
|
24,273
|
|
|
|
24,451
|
|
|
|
24,708
|
|
|
|
24,593
|
|
|
|
|
13,059
|
|
|
|
53.1
|
|
Short-term borrowings
|
|
|
2,542
|
|
|
|
2,075
|
|
|
|
1,863
|
|
|
|
1,832
|
|
|
|
1,660
|
|
|
|
|
882
|
|
|
|
53.1
|
|
Federal Home Loan Bank advances
|
|
|
2,553
|
|
|
|
1,329
|
|
|
|
1,128
|
|
|
|
1,121
|
|
|
|
1,349
|
|
|
|
|
1,204
|
|
|
|
89.3
|
|
Subordinated notes and other long-term debt
|
|
|
3,912
|
|
|
|
3,470
|
|
|
|
3,487
|
|
|
|
3,583
|
|
|
|
3,921
|
|
|
|
|
(9
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
Total interest bearing liabilities
|
|
|
41,275
|
|
|
|
27,556
|
|
|
|
27,399
|
|
|
|
27,664
|
|
|
|
28,014
|
|
|
|
|
13,261
|
|
|
|
47.3
|
|
|
|
|
|
|
|
All other liabilities
|
|
|
1,103
|
|
|
|
960
|
|
|
|
987
|
|
|
|
1,142
|
|
|
|
1,276
|
|
|
|
|
(173
|
)
|
|
|
(13.6
|
)
|
Shareholders equity
|
|
|
6,206
|
|
|
|
3,043
|
|
|
|
3,014
|
|
|
|
3,084
|
|
|
|
2,970
|
|
|
|
|
3,236
|
|
|
|
N.M.
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
$
|
53,968
|
|
|
$
|
35,150
|
|
|
$
|
34,930
|
|
|
$
|
35,470
|
|
|
$
|
35,769
|
|
|
|
$
|
18,199
|
|
|
|
50.9
|
%
|
|
|
|
|
|
|
N.M., not a meaningful value.
|
|
|
(1)
|
|
For purposes of this analysis, non-accrual loans are reflected in the average balances of loans.
|
18
Table
7 Consolidated Quarterly Net Interest Margin Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Rates
(2)
|
|
|
2007
|
|
2006
|
Fully taxable equivalent basis
(1)
|
|
Third
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits in banks
|
|
|
4.69
|
%
|
|
|
6.47
|
%
|
|
|
5.13
|
%
|
|
|
5.50
|
%
|
|
|
5.23
|
%
|
Trading account securities
|
|
|
6.01
|
|
|
|
5.74
|
|
|
|
5.27
|
|
|
|
4.10
|
|
|
|
4.32
|
|
Federal funds sold and securities purchased
under resale agreements
|
|
|
5.26
|
|
|
|
5.28
|
|
|
|
5.24
|
|
|
|
5.35
|
|
|
|
5.13
|
|
Loans held for sale
|
|
|
5.13
|
|
|
|
5.79
|
|
|
|
6.27
|
|
|
|
6.01
|
|
|
|
6.24
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
6.09
|
|
|
|
6.11
|
|
|
|
6.13
|
|
|
|
6.05
|
|
|
|
5.49
|
|
Tax-exempt
|
|
|
6.78
|
|
|
|
6.69
|
|
|
|
6.66
|
|
|
|
6.68
|
|
|
|
6.80
|
|
|
|
|
Total investment securities
|
|
|
6.19
|
|
|
|
6.20
|
|
|
|
6.21
|
|
|
|
6.13
|
|
|
|
5.64
|
|
Loans and leases:
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle market commercial and industrial
|
|
|
7.77
|
|
|
|
7.39
|
|
|
|
7.48
|
|
|
|
7.55
|
|
|
|
7.40
|
|
Middle market commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
7.67
|
|
|
|
7.62
|
|
|
|
8.41
|
|
|
|
8.37
|
|
|
|
8.49
|
|
Commercial
|
|
|
7.60
|
|
|
|
7.34
|
|
|
|
7.64
|
|
|
|
7.57
|
|
|
|
7.86
|
|
|
|
|
Middle market commercial real estate
|
|
|
7.62
|
|
|
|
7.42
|
|
|
|
7.87
|
|
|
|
7.80
|
|
|
|
8.05
|
|
Small business
|
|
|
7.55
|
|
|
|
7.30
|
|
|
|
7.24
|
|
|
|
7.18
|
|
|
|
7.13
|
|
|
|
|
Total commercial
|
|
|
7.68
|
|
|
|
7.38
|
|
|
|
7.56
|
|
|
|
7.56
|
|
|
|
7.56
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans
|
|
|
7.25
|
|
|
|
7.10
|
|
|
|
6.92
|
|
|
|
6.75
|
|
|
|
6.62
|
|
Automobile leases
|
|
|
5.56
|
|
|
|
5.34
|
|
|
|
5.25
|
|
|
|
5.21
|
|
|
|
5.10
|
|
|
|
|
Automobile loans and leases
|
|
|
6.70
|
|
|
|
6.39
|
|
|
|
6.25
|
|
|
|
6.03
|
|
|
|
5.88
|
|
Home equity
|
|
|
7.95
|
|
|
|
7.63
|
|
|
|
7.67
|
|
|
|
7.75
|
|
|
|
7.62
|
|
Residential mortgage
|
|
|
6.06
|
|
|
|
5.61
|
|
|
|
5.54
|
|
|
|
5.55
|
|
|
|
5.46
|
|
Other loans
|
|
|
10.71
|
|
|
|
9.57
|
|
|
|
9.52
|
|
|
|
9.28
|
|
|
|
9.41
|
|
|
|
|
Total consumer
|
|
|
7.17
|
|
|
|
6.69
|
|
|
|
6.58
|
|
|
|
6.58
|
|
|
|
6.46
|
|
|
|
|
Total loans and leases
|
|
|
7.45
|
|
|
|
7.03
|
|
|
|
7.05
|
|
|
|
7.04
|
|
|
|
6.96
|
|
|
|
|
Total earning assets
|
|
|
7.25
|
%
|
|
|
6.92
|
%
|
|
|
6.98
|
%
|
|
|
6.86
|
%
|
|
|
6.73
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits non-interest bearing
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
Demand deposits interest bearing
|
|
|
1.53
|
|
|
|
1.22
|
|
|
|
1.21
|
|
|
|
1.04
|
|
|
|
0.97
|
|
Money market deposits
|
|
|
3.78
|
|
|
|
3.85
|
|
|
|
3.78
|
|
|
|
3.75
|
|
|
|
3.66
|
|
Savings and other domestic deposits
|
|
|
2.50
|
|
|
|
2.16
|
|
|
|
2.02
|
|
|
|
1.90
|
|
|
|
1.75
|
|
Core certificates of deposit
|
|
|
4.99
|
|
|
|
4.79
|
|
|
|
4.72
|
|
|
|
4.58
|
|
|
|
4.40
|
|
|
|
|
Total core deposits
|
|
|
3.69
|
|
|
|
3.49
|
|
|
|
3.41
|
|
|
|
3.32
|
|
|
|
3.20
|
|
Other domestic deposits of $100,000 or more
|
|
|
4.81
|
|
|
|
5.30
|
|
|
|
5.32
|
|
|
|
5.29
|
|
|
|
5.18
|
|
Brokered deposits and negotiable CDs
|
|
|
5.42
|
|
|
|
5.53
|
|
|
|
5.50
|
|
|
|
5.53
|
|
|
|
5.50
|
|
Deposits in foreign offices
|
|
|
3.29
|
|
|
|
3.16
|
|
|
|
2.99
|
|
|
|
3.18
|
|
|
|
3.12
|
|
|
|
|
Total deposits
|
|
|
3.94
|
|
|
|
3.84
|
|
|
|
3.81
|
|
|
|
3.78
|
|
|
|
3.66
|
|
Short-term borrowings
|
|
|
4.10
|
|
|
|
4.50
|
|
|
|
4.32
|
|
|
|
4.21
|
|
|
|
4.10
|
|
Federal Home Loan Bank advances
|
|
|
5.31
|
|
|
|
4.76
|
|
|
|
4.44
|
|
|
|
4.50
|
|
|
|
4.51
|
|
Subordinated notes and other long-term debt
|
|
|
6.15
|
|
|
|
5.96
|
|
|
|
5.77
|
|
|
|
5.96
|
|
|
|
5.75
|
|
|
|
|
Total interest bearing liabilities
|
|
|
4.24
|
%
|
|
|
4.20
|
%
|
|
|
4.14
|
%
|
|
|
4.12
|
%
|
|
|
4.02
|
%
|
|
|
|
Net interest rate spread
|
|
|
3.01
|
%
|
|
|
2.72
|
%
|
|
|
2.84
|
%
|
|
|
2.74
|
%
|
|
|
2.71
|
%
|
Impact of non-interest bearing funds on margin
|
|
|
0.51
|
|
|
|
0.54
|
|
|
|
0.52
|
|
|
|
0.54
|
|
|
|
0.51
|
|
|
|
|
Net interest margin
|
|
|
3.52
|
%
|
|
|
3.26
|
%
|
|
|
3.36
|
%
|
|
|
3.28
|
%
|
|
|
3.22
|
%
|
|
|
|
|
|
|
(1)
|
|
Fully taxable equivalent (FTE) yields are calculated assuming a 35% tax rate. See
Table 1 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.
|
19
2007 First Nine Months versus 2006 First Nine Months
Fully taxable equivalent net interest income for the first nine-month period of 2007 was
$932.5 million. This represented an increase of $159.4 million, or 21%, from the comparable
year-ago period. This reflected the favorable impact of a $5.3 billion increase in average earning
assets, of which $5.0 billion represented an increase in average loans and leases, as well as the
benefit of an increase in the fully taxable equivalent net interest margin of 11 basis points to
3.40%. These increases were primarily merger related.
The following table details the estimated merger related impacts on our reported loans and
deposits:
Table 8 Average Loans/Leases and Deposits Estimated Merger Related Impacts Nine Months 2007 vs. Nine Months 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
September 30,
|
|
Change
|
|
Merger
|
|
|
Non-merger Related
|
(in millions)
|
|
2007
|
|
2006
|
|
Amount
|
|
Percent
|
|
Related
|
|
|
Amount
|
|
%
(1)
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
$
|
15,799
|
|
|
$
|
11,715
|
|
|
$
|
4,084
|
|
|
|
34.9
|
%
|
|
$
|
2,915
|
|
|
$
|
1,169
|
|
|
|
8.0
|
%
|
|
Automobile loans and leases
|
|
|
4,048
|
|
|
|
4,135
|
|
|
|
(87
|
)
|
|
|
(2.1
|
)
|
|
|
144
|
|
|
|
(231
|
)
|
|
|
(5.4
|
)
|
Home equity
|
|
|
5,756
|
|
|
|
4,969
|
|
|
|
787
|
|
|
|
15.8
|
|
|
|
795
|
|
|
|
(8
|
)
|
|
|
(0.1
|
)
|
Residential mortgage
|
|
|
4,771
|
|
|
|
4,563
|
|
|
|
208
|
|
|
|
4.6
|
|
|
|
371
|
|
|
|
(163
|
)
|
|
|
(3.3
|
)
|
Other consumer
|
|
|
499
|
|
|
|
442
|
|
|
|
57
|
|
|
|
12.9
|
|
|
|
48
|
|
|
|
9
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
15,074
|
|
|
|
14,109
|
|
|
|
965
|
|
|
|
6.8
|
|
|
|
1,357
|
|
|
|
(392
|
)
|
|
|
(2.5
|
)
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
30,873
|
|
|
$
|
25,824
|
|
|
$
|
5,049
|
|
|
|
19.6
|
%
|
|
$
|
4,273
|
|
|
$
|
776
|
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits non-interest bearing
|
|
$
|
4,175
|
|
|
$
|
3,513
|
|
|
$
|
662
|
|
|
|
18.8
|
%
|
|
$
|
610
|
|
|
$
|
52
|
|
|
|
1.3
|
%
|
Demand deposits interest bearing
|
|
|
2,859
|
|
|
|
2,110
|
|
|
|
749
|
|
|
|
35.5
|
|
|
|
487
|
|
|
|
262
|
|
|
|
10.1
|
|
Money market deposits
|
|
|
5,946
|
|
|
|
5,624
|
|
|
|
322
|
|
|
|
5.7
|
|
|
|
332
|
|
|
|
(10
|
)
|
|
|
(0.2
|
)
|
Savings and other domestic time deposits
|
|
|
3,586
|
|
|
|
3,041
|
|
|
|
545
|
|
|
|
17.9
|
|
|
|
865
|
|
|
|
(320
|
)
|
|
|
(8.2
|
)
|
Core certificates of deposit
|
|
|
7,176
|
|
|
|
4,939
|
|
|
|
2,237
|
|
|
|
45.3
|
|
|
|
1,543
|
|
|
|
694
|
|
|
|
10.7
|
|
|
|
|
|
|
|
|
|
Total core deposits
|
|
|
23,742
|
|
|
|
19,227
|
|
|
|
4,515
|
|
|
|
23.5
|
|
|
|
3,836
|
|
|
|
679
|
|
|
|
2.9
|
|
Other deposits
|
|
|
5,098
|
|
|
|
4,780
|
|
|
|
318
|
|
|
|
6.7
|
|
|
|
447
|
|
|
|
(129
|
)
|
|
|
(2.5
|
)
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
28,840
|
|
|
$
|
24,007
|
|
|
$
|
4,833
|
|
|
|
20.1
|
%
|
|
$
|
4,284
|
|
|
$
|
549
|
|
|
|
1.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Calculated as non-merger related / (prior period + merger-related)
|
The $0.8 billion, or 3%, of non-merger related increase in total average loans primarily
reflected:
|
|
|
$1.2 billion, or 8%, increase in average total commercial loans, reflecting continued
strong growth in middle-market C&I loans. The increase in commercial loans was spread
across substantially all regions.
|
Partially offset by:
|
|
|
$0.4 billion, or 3%, decrease in average total consumer loans, reflecting continued
declines in automobile leasing due to low consumer demand and competitive pricing, as well
as a decline in residential mortgages due to the
impact of mortgage loan sales over the last 12 months.
|
Concerning total average deposits, the $0.5 billion, or 2%, non-merger related increase
primarily reflected:
|
|
|
$0.7 billion, or 3%, in average total core deposits, reflecting strong growth in
interest bearing demand deposits. While there was strong growth in core certificates of
deposits, this was partially offset by the decline in savings and other domestic deposits,
as customers transferred funds from lower rate to higher rate accounts.
|
20
Table 9 Consolidated YTD Average Balance Sheets and Net Interest Margin Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YTD Average Balances
|
|
YTD Average Rates
(2)
|
Fully taxable equivalent basis
(1)
|
|
Nine Months Ended Sept 30,
|
|
Change
|
|
Nine Months Ended September 30,
|
(in millions of dollars)
|
|
2007
|
|
2006
|
|
Amount
|
|
Percent
|
|
2007
|
|
2006
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits in banks
|
|
$
|
187
|
|
|
$
|
44
|
|
|
$
|
143
|
|
|
|
N.M.
|
%
|
|
|
4.93
|
%
|
|
|
6.16
|
%
|
Trading account securities
|
|
|
480
|
|
|
|
84
|
|
|
|
396
|
|
|
|
N.M.
|
|
|
|
5.94
|
|
|
|
4.24
|
|
Federal
funds sold and securities
purchased
under resale agreements
|
|
|
545
|
|
|
|
251
|
|
|
|
294
|
|
|
|
N.M.
|
|
|
|
5.26
|
|
|
|
4.76
|
|
Loans held for sale
|
|
|
318
|
|
|
|
279
|
|
|
|
39
|
|
|
|
14.0
|
|
|
|
5.61
|
|
|
|
6.13
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
3,601
|
|
|
|
4,333
|
|
|
|
(732
|
)
|
|
|
(16.9
|
)
|
|
|
6.11
|
|
|
|
5.29
|
|
Tax-exempt
|
|
|
632
|
|
|
|
562
|
|
|
|
70
|
|
|
|
12.5
|
|
|
|
6.71
|
|
|
|
6.78
|
|
|
|
|
|
|
Total investment securities
|
|
|
4,233
|
|
|
|
4,895
|
|
|
|
(662
|
)
|
|
|
(13.5
|
)
|
|
|
6.20
|
|
|
|
5.46
|
|
Loans and leases:
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle market commercial and industrial
|
|
|
7,542
|
|
|
|
5,450
|
|
|
|
2,092
|
|
|
|
38.4
|
|
|
|
7.59
|
|
|
|
7.33
|
|
Middle market commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
1,395
|
|
|
|
1,277
|
|
|
|
118
|
|
|
|
9.2
|
|
|
|
7.86
|
|
|
|
7.98
|
|
Commercial
|
|
|
3,764
|
|
|
|
2,720
|
|
|
|
1,044
|
|
|
|
38.4
|
|
|
|
7.55
|
|
|
|
7.06
|
|
|
|
|
|
|
Middle market commercial real estate
|
|
|
5,159
|
|
|
|
3,997
|
|
|
|
1,162
|
|
|
|
29.1
|
|
|
|
7.63
|
|
|
|
7.35
|
|
Small business
|
|
|
3,098
|
|
|
|
2,268
|
|
|
|
830
|
|
|
|
36.6
|
|
|
|
7.40
|
|
|
|
6.90
|
|
|
|
|
|
|
Total commercial
|
|
|
15,799
|
|
|
|
11,715
|
|
|
|
4,084
|
|
|
|
34.9
|
|
|
|
7.57
|
|
|
|
7.25
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans
|
|
|
2,492
|
|
|
|
2,039
|
|
|
|
453
|
|
|
|
22.2
|
|
|
|
7.11
|
|
|
|
6.51
|
|
Automobile leases
|
|
|
1,556
|
|
|
|
2,096
|
|
|
|
(540
|
)
|
|
|
(25.8
|
)
|
|
|
5.38
|
|
|
|
5.02
|
|
|
|
|
|
|
Automobile loans and leases
|
|
|
4,048
|
|
|
|
4,135
|
|
|
|
(87
|
)
|
|
|
(2.1
|
)
|
|
|
6.44
|
|
|
|
5.75
|
|
Home equity
|
|
|
5,756
|
|
|
|
4,969
|
|
|
|
787
|
|
|
|
15.8
|
|
|
|
7.77
|
|
|
|
7.32
|
|
Residential mortgage
|
|
|
4,771
|
|
|
|
4,563
|
|
|
|
208
|
|
|
|
4.6
|
|
|
|
5.76
|
|
|
|
5.40
|
|
Other loans
|
|
|
499
|
|
|
|
442
|
|
|
|
57
|
|
|
|
12.9
|
|
|
|
10.05
|
|
|
|
9.25
|
|
|
|
|
|
|
Total consumer
|
|
|
15,074
|
|
|
|
14,109
|
|
|
|
965
|
|
|
|
6.8
|
|
|
|
6.85
|
|
|
|
6.30
|
|
|
|
|
|
|
Total loans and leases
|
|
|
30,873
|
|
|
|
25,824
|
|
|
|
5,049
|
|
|
|
19.6
|
|
|
|
7.22
|
|
|
|
6.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses
|
|
|
(351
|
)
|
|
|
(289
|
)
|
|
|
(62
|
)
|
|
|
21.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans and leases
|
|
|
30,522
|
|
|
|
25,535
|
|
|
|
4,987
|
|
|
|
19.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
36,636
|
|
|
|
31,377
|
|
|
|
5,259
|
|
|
|
16.8
|
|
|
|
7.08
|
%
|
|
|
6.51
|
%
|
|
|
|
|
|
Cash and due from banks
|
|
|
925
|
|
|
|
823
|
|
|
|
102
|
|
|
|
12.4
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
1,540
|
|
|
|
545
|
|
|
|
995
|
|
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
All other assets
|
|
|
2,670
|
|
|
|
2,535
|
|
|
|
135
|
|
|
|
5.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
41,420
|
|
|
$
|
34,991
|
|
|
$
|
6,429
|
|
|
|
18.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits non-interest bearing
|
|
$
|
4,175
|
|
|
$
|
3,513
|
|
|
$
|
662
|
|
|
|
18.8
|
%
|
|
|
|
%
|
|
|
|
%
|
Demand deposits interest bearing
|
|
|
2,859
|
|
|
|
2,110
|
|
|
|
749
|
|
|
|
35.5
|
|
|
|
1.36
|
|
|
|
0.86
|
|
Money market deposits
|
|
|
5,946
|
|
|
|
5,624
|
|
|
|
322
|
|
|
|
5.7
|
|
|
|
3.80
|
|
|
|
3.35
|
|
Savings and other domestic time deposits
|
|
|
3,586
|
|
|
|
3,041
|
|
|
|
545
|
|
|
|
17.9
|
|
|
|
2.28
|
|
|
|
1.61
|
|
Core certificates of deposit
|
|
|
7,176
|
|
|
|
4,939
|
|
|
|
2,237
|
|
|
|
45.3
|
|
|
|
4.87
|
|
|
|
4.13
|
|
|
|
|
|
|
Total core deposits
|
|
|
23,742
|
|
|
|
19,227
|
|
|
|
4,515
|
|
|
|
23.5
|
|
|
|
3.56
|
|
|
|
2.92
|
|
Other domestic time deposits of $100,000 or more
|
|
|
1,347
|
|
|
|
1,055
|
|
|
|
292
|
|
|
|
27.7
|
|
|
|
5.10
|
|
|
|
4.87
|
|
Brokered deposits and negotiable CDs
|
|
|
3,146
|
|
|
|
3,238
|
|
|
|
(92
|
)
|
|
|
(2.8
|
)
|
|
|
5.48
|
|
|
|
5.11
|
|
Deposits in foreign offices
|
|
|
605
|
|
|
|
487
|
|
|
|
118
|
|
|
|
24.2
|
|
|
|
3.16
|
|
|
|
2.82
|
|
|
|
|
|
|
Total deposits
|
|
|
28,840
|
|
|
|
24,007
|
|
|
|
4,833
|
|
|
|
20.1
|
|
|
|
3.88
|
|
|
|
3.37
|
|
Short-term borrowings
|
|
|
2,163
|
|
|
|
1,790
|
|
|
|
373
|
|
|
|
20.8
|
|
|
|
4.29
|
|
|
|
3.94
|
|
Federal Home Loan Bank advances
|
|
|
1,675
|
|
|
|
1,453
|
|
|
|
222
|
|
|
|
15.3
|
|
|
|
4.97
|
|
|
|
4.28
|
|
Subordinated notes and other long-term debt
|
|
|
3,624
|
|
|
|
3,570
|
|
|
|
54
|
|
|
|
1.5
|
|
|
|
5.96
|
|
|
|
5.55
|
|
|
|
|
|
|
Total interest bearing liabilities
|
|
|
32,127
|
|
|
|
27,307
|
|
|
|
4,820
|
|
|
|
17.7
|
|
|
|
4.20
|
|
|
|
3.74
|
|
|
|
|
|
|
All other liabilities
|
|
|
1,018
|
|
|
|
1,272
|
|
|
|
(254
|
)
|
|
|
(20.0
|
)
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
4,100
|
|
|
|
2,899
|
|
|
|
1,201
|
|
|
|
41.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
$
|
41,420
|
|
|
$
|
34,991
|
|
|
$
|
6,429
|
|
|
|
18.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.88
|
|
|
|
2.77
|
|
Impact of non-interest bearing funds on margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.52
|
|
|
|
0.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.40
|
%
|
|
|
3.29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M., not a meaningful value.
|
|
(1)
|
|
Fully taxable equivalent (FTE) yields are calculated assuming a 35% tax rate.
|
|
(2)
|
|
Loan and 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.
|
21
Provision for Credit Losses
(This section should be read in conjunction with Significant Items 1,5, and the Credit Risk
section.)
The provision for credit losses is the expense necessary to maintain the ALLL and the
allowance for unfunded loan commitments (AULC) at levels adequate to absorb our estimate of
probable inherent credit losses in the loan and lease portfolio and the portfolio of unfunded loan
commitments.
The provision for credit losses in the 2007 third quarter was $42.0 million, up $27.8 million
from the year-ago quarter. Compared with the 2007 second quarter, the provision for credit losses
declined $18.1 million. The 2007 second quarter included $24.8 million of provision for credit
losses for two eastern Michigan credit relationships and one northern Ohio commercial credit. In
the current quarter, charge-offs of $10.0 million, related to these credit relationships, were
taken against these reserves. On a reported basis, 2007 third quarter net charge-offs of $47.1
million exceeded current period provision for credit losses by $5.1 million. Adjusting for the
$10.0 million of charge-offs associated with these three commercial credits, the current quarter
provision for credit losses exceeded net charge-offs by $4.9 million. Refer to the Credit
Quality section of this document for additional discussion regarding the allowance for credit
losses and charge-offs.
Non-Interest Income
(This section should be read in conjunction with Significant Items1, 2, 3, 4, and 7.)
Table 10 reflects non-interest income detail for each of the past five quarters and the first
nine-month periods of 2007 and 2006.
Table 10 Non-Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
3Q07 vs 3Q06
|
(in thousands)
|
|
Third
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
|
Amount
|
|
Percent
|
|
|
|
|
|
|
Service charges on deposit
accounts
|
|
$
|
78,107
|
|
|
$
|
50,017
|
|
|
$
|
44,793
|
|
|
$
|
48,548
|
|
|
$
|
48,718
|
|
|
|
$
|
29,389
|
|
|
|
60.3
|
%
|
Trust services
|
|
|
33,562
|
|
|
|
26,764
|
|
|
|
25,894
|
|
|
|
23,511
|
|
|
|
22,490
|
|
|
|
|
11,072
|
|
|
|
49.2
|
|
Brokerage and insurance income
|
|
|
28,806
|
|
|
|
17,199
|
|
|
|
16,082
|
|
|
|
14,600
|
|
|
|
14,697
|
|
|
|
|
14,109
|
|
|
|
96.0
|
|
Other service charges and fees
|
|
|
21,045
|
|
|
|
14,923
|
|
|
|
13,208
|
|
|
|
13,784
|
|
|
|
12,989
|
|
|
|
|
8,056
|
|
|
|
62.0
|
|
Bank owned life insurance income
|
|
|
14,847
|
|
|
|
10,904
|
|
|
|
10,851
|
|
|
|
10,804
|
|
|
|
12,125
|
|
|
|
|
2,722
|
|
|
|
22.4
|
|
Mortgage banking income
|
|
|
9,629
|
|
|
|
7,122
|
|
|
|
9,351
|
|
|
|
6,169
|
|
|
|
8,512
|
|
|
|
|
1,117
|
|
|
|
13.1
|
|
Securities (losses) gains
|
|
|
(13,152
|
)
|
|
|
(5,139
|
)
|
|
|
104
|
|
|
|
(15,804
|
)
|
|
|
(57,332
|
)
|
|
|
|
44,180
|
|
|
|
(77.1
|
)
|
Other income
|
|
|
31,830
|
|
|
|
34,403
|
|
|
|
24,894
|
|
|
|
38,994
|
|
|
|
35,711
|
|
|
|
|
(3,881
|
)
|
|
|
(10.9
|
)
|
|
|
|
|
|
|
Total non-interest income
|
|
$
|
204,674
|
|
|
$
|
156,193
|
|
|
$
|
145,177
|
|
|
$
|
140,606
|
|
|
$
|
97,910
|
|
|
|
$
|
106,764
|
|
|
|
N.M.
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended Sept 30,
|
|
YTD 2007 vs 2006
|
(in thousands)
|
|
2007
|
|
2006
|
|
Amount
|
|
Percent
|
|
|
|
Service charges on deposit accounts
|
|
$
|
172,917
|
|
|
$
|
137,165
|
|
|
$
|
35,752
|
|
|
|
26.1
|
%
|
Trust services
|
|
|
86,220
|
|
|
|
66,444
|
|
|
|
19,776
|
|
|
|
29.8
|
|
Brokerage and insurance income
|
|
|
62,087
|
|
|
|
44,235
|
|
|
|
17,852
|
|
|
|
40.4
|
|
Other service charges and fees
|
|
|
49,176
|
|
|
|
37,570
|
|
|
|
11,606
|
|
|
|
30.9
|
|
Bank owned life insurance income
|
|
|
36,602
|
|
|
|
32,971
|
|
|
|
3,631
|
|
|
|
11.0
|
|
Mortgage banking income
|
|
|
26,102
|
|
|
|
35,322
|
|
|
|
(9,220
|
)
|
|
|
(26.1
|
)
|
Securities losses
|
|
|
(18,187
|
)
|
|
|
(57,387
|
)
|
|
|
39,200
|
|
|
|
(68.3
|
)
|
Other income
|
|
|
91,127
|
|
|
|
124,143
|
|
|
|
(33,016
|
)
|
|
|
(26.6
|
)
|
|
|
|
Total non-interest income
|
|
$
|
506,044
|
|
|
$
|
420,463
|
|
|
$
|
85,581
|
|
|
|
20.4
|
%
|
|
|
|
|
|
|
N.M., not a meaningful value.
|
Table 11 details mortgage banking income and the net impact of MSR hedging activity for each
of the past five quarters and for the first nine-month periods of 2007 and 2006.
22
Table 11 Mortgage Banking Income and Net Impact of MSR Hedging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
3Q07 vs 3Q06
|
(in thousands)
|
|
Third
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
|
Amount
|
|
Percent
|
|
|
|
|
|
|
Mortgage Banking Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Origination and secondary marketing
|
|
$
|
8,375
|
|
|
$
|
6,771
|
|
|
$
|
4,940
|
|
|
$
|
4,057
|
|
|
$
|
3,070
|
|
|
|
|
5,305
|
|
|
|
N.M.
|
%
|
Servicing fees
|
|
|
10,811
|
|
|
|
6,976
|
|
|
|
6,820
|
|
|
|
6,662
|
|
|
|
6,077
|
|
|
|
|
4,734
|
|
|
|
77.9
|
|
Amortization of capitalized servicing
(1)
|
|
|
(6,571
|
)
|
|
|
(4,449
|
)
|
|
|
(3,638
|
)
|
|
|
(3,835
|
)
|
|
|
(4,484
|
)
|
|
|
|
(2,087
|
)
|
|
|
(46.5
|
)
|
Other mortgage banking income
|
|
|
3,016
|
|
|
|
2,822
|
|
|
|
3,247
|
|
|
|
1,778
|
|
|
|
3,887
|
|
|
|
|
(871
|
)
|
|
|
(22.4
|
)
|
|
|
|
|
|
|
Sub-total
|
|
|
15,631
|
|
|
|
12,120
|
|
|
|
11,369
|
|
|
|
8,662
|
|
|
|
8,550
|
|
|
|
|
7,081
|
|
|
|
82.8
|
|
MSR valuation adjustment
(1)
|
|
|
(9,863
|
)
|
|
|
16,034
|
|
|
|
(1,057
|
)
|
|
|
(1,907
|
)
|
|
|
(10,716
|
)
|
|
|
|
853
|
|
|
|
(8.0
|
)
|
Net trading gains (losses) related to MSR hedging
|
|
|
3,861
|
|
|
|
(21,032
|
)
|
|
|
(961
|
)
|
|
|
(586
|
)
|
|
|
10,678
|
|
|
|
|
(6,817
|
)
|
|
|
(63.8
|
)
|
|
|
|
|
|
|
Total mortgage banking income
|
|
$
|
9,629
|
|
|
$
|
7,122
|
|
|
$
|
9,351
|
|
|
$
|
6,169
|
|
|
$
|
8,512
|
|
|
|
$
|
1,117
|
|
|
|
13.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized mortgage servicing rights
(2)
|
|
$
|
228,933
|
|
|
$
|
155,420
|
|
|
$
|
134,845
|
|
|
$
|
131,104
|
|
|
$
|
129,317
|
|
|
|
$
|
99,616
|
|
|
|
77.0
|
%
|
Total mortgages serviced for others
(2)
|
|
|
15,073,000
|
|
|
|
8,693,000
|
|
|
|
8,494,000
|
|
|
|
8,252,000
|
|
|
|
7,994,000
|
|
|
|
|
7,079,000
|
|
|
|
88.6
|
|
MSR % of investor servicing portfolio
|
|
|
1.52
|
%
|
|
|
1.79
|
%
|
|
|
1.59
|
%
|
|
|
1.59
|
%
|
|
|
1.62
|
%
|
|
|
|
(0.10
|
)%
|
|
|
(6.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Impact of MSR Hedging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSR valuation adjustment
(1)
|
|
$
|
(9,863
|
)
|
|
$
|
16,034
|
|
|
$
|
(1,057
|
)
|
|
$
|
(1,907
|
)
|
|
$
|
(10,716
|
)
|
|
|
$
|
853
|
|
|
|
(8.0)
|
%
|
Net trading gains (losses) related to MSR hedging
|
|
|
3,861
|
|
|
|
(21,032
|
)
|
|
|
(961
|
)
|
|
|
(586
|
)
|
|
|
10,678
|
|
|
|
|
(6,817
|
)
|
|
|
(63.8
|
)
|
Net interest income (losses) related to MSR hedging
|
|
|
2,357
|
|
|
|
248
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
38
|
|
|
|
|
2,319
|
|
|
|
N.M.
|
|
|
|
|
|
|
|
Net impact of MSR hedging
|
|
$
|
(3,645
|
)
|
|
$
|
(4,750
|
)
|
|
$
|
(2,018
|
)
|
|
$
|
(2,495
|
)
|
|
$
|
|
|
|
|
$
|
(3,645
|
)
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
YTD 2007 vs 2006
|
(in thousands)
|
|
2007
|
|
2006
|
|
|
Amount
|
|
Percent
|
|
|
|
|
Mortgage Banking Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Origination and secondary marketing
|
|
$
|
20,086
|
|
|
$
|
14,160
|
|
|
|
$
|
5,926
|
|
|
|
41.9
|
%
|
Servicing fees
|
|
|
24,607
|
|
|
|
17,997
|
|
|
|
|
6,610
|
|
|
|
36.7
|
|
Amortization of capitalized servicing
(1)
|
|
|
(14,658
|
)
|
|
|
(11,309
|
)
|
|
|
|
(3,349
|
)
|
|
|
29.6
|
|
Other mortgage banking income
|
|
|
9,085
|
|
|
|
8,395
|
|
|
|
|
690
|
|
|
|
8.2
|
|
|
|
|
|
Sub-total
|
|
|
39,120
|
|
|
|
29,243
|
|
|
|
|
9,877
|
|
|
|
33.8
|
|
MSR valuation adjustment
(1)
|
|
|
5,114
|
|
|
|
6,778
|
|
|
|
|
(1,664
|
)
|
|
|
(24.6
|
)
|
Net trading losses related to MSR hedging
|
|
|
(18,132
|
)
|
|
|
(699
|
)
|
|
|
|
(17,433
|
)
|
|
|
N.M.
|
|
|
|
|
|
Total mortgage banking income
|
|
$
|
26,102
|
|
|
$
|
35,322
|
|
|
|
$
|
(9,220
|
)
|
|
|
(26.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized mortgage servicing rights
(2)
|
|
$
|
228,933
|
|
|
$
|
129,317
|
|
|
|
$
|
99,616
|
|
|
|
77.0
|
%
|
Total mortgages serviced for others
(2)
|
|
|
15,073,000
|
|
|
|
7,994,000
|
|
|
|
|
7,079,000
|
|
|
|
88.6
|
|
MSR % of investor servicing portfolio
|
|
|
1.52
|
%
|
|
|
1.62
|
%
|
|
|
|
(0.10
|
)%
|
|
|
(6.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Impact of MSR Hedging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSR valuation adjustment
(1)
|
|
$
|
5,114
|
|
|
$
|
6,778
|
|
|
|
$
|
(1,664
|
)
|
|
|
(24.6
|
)%
|
Net trading losses related to MSR hedging
|
|
|
(18,132
|
)
|
|
|
(699
|
)
|
|
|
|
(17,433
|
)
|
|
|
N.M.
|
|
Net interest income related to MSR hedging
|
|
|
2,605
|
|
|
|
38
|
|
|
|
|
2,567
|
|
|
|
N.M.
|
|
|
|
|
|
Net impact of MSR hedging
|
|
$
|
(10,413
|
)
|
|
$
|
6,117
|
|
|
|
$
|
(16,530
|
)
|
|
|
N.M.
|
%
|
|
|
|
|
|
|
|
N.M., not a meaningful value.
|
|
(1)
|
|
The change in fair value for the period represents the MSR valuation adjustment, excluding amortization of capitalized servicing.
|
|
(2)
|
|
At period end.
|
23
2007 Third Quarter versus 2006 Third Quarter
Non-interest income increased $106.8 million, or 109%, from the year-ago quarter, of which
$68.7 million was merger related. The following table details the estimated merger related
impact on our reported non-interest income:
Table 12 Non-Interest Income Estimated Merger Related Impacts 3Q07 vs. 3Q06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
Change
|
|
Merger
|
|
|
Non-merger Related
|
(in thousands)
|
|
Third
|
|
Third
|
|
Amount
|
|
%
|
|
Related
|
|
|
Amount
|
|
%
(1)
|
|
|
|
|
|
|
|
|
Service charges on deposit
accounts
|
|
$
|
78,107
|
|
|
$
|
48,718
|
|
|
$
|
29,389
|
|
|
|
60.3
|
%
|
|
$
|
24,110
|
|
|
$
|
5,279
|
|
|
|
7.2
|
%
|
Trust services
|
|
|
33,562
|
|
|
|
22,490
|
|
|
|
11,072
|
|
|
|
49.2
|
|
|
|
7,009
|
|
|
|
4,063
|
|
|
|
13.8
|
|
Brokerage and insurance income
|
|
|
28,806
|
|
|
|
14,697
|
|
|
|
14,109
|
|
|
|
96.0
|
|
|
|
17,061
|
|
|
|
(2,952
|
)
|
|
|
(9.3
|
)
|
Other service charges and fees
|
|
|
21,045
|
|
|
|
12,989
|
|
|
|
8,056
|
|
|
|
62.0
|
|
|
|
5,800
|
|
|
|
2,256
|
|
|
|
12.0
|
|
Bank owned life insurance income
|
|
|
14,847
|
|
|
|
12,125
|
|
|
|
2,722
|
|
|
|
22.4
|
|
|
|
1,807
|
|
|
|
915
|
|
|
|
6.6
|
|
Mortgage banking income
|
|
|
9,629
|
|
|
|
8,512
|
|
|
|
1,117
|
|
|
|
13.1
|
|
|
|
6,256
|
|
|
|
(5,139
|
)
|
|
|
(34.8
|
)
|
Securities losses
|
|
|
(13,152
|
)
|
|
|
(57,332
|
)
|
|
|
44,180
|
|
|
|
(77.1
|
)
|
|
|
283
|
|
|
|
43,897
|
|
|
|
(76.9
|
)
|
Other income
|
|
|
31,830
|
|
|
|
35,711
|
|
|
|
(3,881
|
)
|
|
|
(10.9
|
)
|
|
|
6,390
|
|
|
|
(10,271
|
)
|
|
|
(24.4
|
)
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
$
|
204,674
|
|
|
$
|
97,910
|
|
|
$
|
106,764
|
|
|
|
109.0
|
%
|
|
$
|
68,716
|
|
|
$
|
38,048
|
|
|
|
22.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Calculated as non-merger related / (prior period +
merger-related)
|
The $38.0 million, or 23%, non-merger related increase primarily reflected:
|
|
|
$43.9 million less in investment securities losses. In the 2007 third quarter, net
investment securities losses totaled $13.2 million and consisted of $23.3 million of
realized securities impairment losses on certain investment securities, partially offset by
$10.2 million of realized gains on other investment securities. This compared favorably
with $57.3 million of such losses in the comparable year-ago period, virtually all of which
related to balance sheet restructuring (see Significant Item #2 under Discussion of
Results of Operations Significant Items Influencing Financial Performance Comparisons).
|
|
|
|
|
$5.3 million, or 7%, increase in service charges on deposit accounts, reflecting strong
growth in personal service charge income.
|
|
|
|
|
$4.1 million, or 14%, increase in trust services income, of which $2.5 million reflected
fees associated with the acquisition of Unified Fund Services in the 2006 fourth quarter.
|
Partially offset by:
|
|
|
$10.3 million, or 24%, decline in other income, reflecting a $7.9 million decline in
automobile operating lease income as that portfolio continued to decline, and $4.7 million
of higher equity investment losses.
|
|
|
|
|
$5.1 million, or 35%, decline in mortgage banking income, reflecting the current
quarters $6.0 million of MSR hedging losses, compared with no material MSR valuation
hedging impact in the comparable year-ago quarter.
|
2007 Third Quarter versus 2007 Second Quarter
Non-interest income increased $48.5 million, or 31%, from the 2007 second quarter, of which
$68.7 million was merger related. The following table details the estimated merger related
impact on our reported non-interest income.
24
Table 13 Non-Interest Income Estimated Merger Related Impacts 3Q07 vs. 2Q07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
Change
|
|
Merger
|
|
|
Non-merger Related
|
(in thousands)
|
|
Third
|
|
Second
|
|
Amount
|
|
%
|
|
Related
|
|
|
Amount
|
|
%
(1)
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
$
|
78,107
|
|
|
$
|
50,017
|
|
|
$
|
28,090
|
|
|
|
56.2
|
%
|
|
$
|
24,110
|
|
|
$
|
3,980
|
|
|
|
5.4
|
%
|
Trust services
|
|
|
33,562
|
|
|
|
26,764
|
|
|
|
6,798
|
|
|
|
25.4
|
|
|
|
7,009
|
|
|
|
(211
|
)
|
|
|
(0.6
|
)
|
Brokerage and insurance income
|
|
|
28,806
|
|
|
|
17,199
|
|
|
|
11,607
|
|
|
|
67.5
|
|
|
|
17,061
|
|
|
|
(5,454
|
)
|
|
|
(15.9
|
)
|
Other service charges and fees
|
|
|
21,045
|
|
|
|
14,923
|
|
|
|
6,122
|
|
|
|
41.0
|
|
|
|
5,800
|
|
|
|
322
|
|
|
|
1.6
|
|
Bank owned life insurance income
|
|
|
14,847
|
|
|
|
10,904
|
|
|
|
3,943
|
|
|
|
36.2
|
|
|
|
1,807
|
|
|
|
2,136
|
|
|
|
16.8
|
|
Mortgage banking income
|
|
|
9,629
|
|
|
|
7,122
|
|
|
|
2,507
|
|
|
|
35.2
|
|
|
|
6,256
|
|
|
|
(3,749
|
)
|
|
|
(28.0
|
)
|
Securities losses
|
|
|
(13,152
|
)
|
|
|
(5,139
|
)
|
|
|
(8,013
|
)
|
|
|
155.9
|
|
|
|
283
|
|
|
|
(8,296
|
)
|
|
|
170.8
|
|
Other income
|
|
|
31,830
|
|
|
|
34,403
|
|
|
|
(2,573
|
)
|
|
|
(7.5
|
)
|
|
|
6,390
|
|
|
|
(8,963
|
)
|
|
|
(22.0
|
)
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
$
|
204,674
|
|
|
$
|
156,193
|
|
|
$
|
48,481
|
|
|
|
31.0
|
%
|
|
$
|
68,716
|
|
|
$
|
(20,235
|
)
|
|
|
(9.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Calculated as non-merger related / (prior period + merger-related)
|
The $20.2 million, or 9%, non-merger related decline primarily reflected:
|
|
|
$9.0 million, or 22%, decline in other income, reflecting $4.4 million of equity
investment losses in the current quarter compared with $2.3 million of such gains in the
prior quarter, as well as declines in automobile operating lease income, loan sale gains,
and lease prepayment income.
|
|
|
|
|
$8.3 million increase in securities losses as the current quarter results reflected
$13.2 million of net investment securities losses, compared with $5.1 million of such
losses in the 2007 second quarter.
|
|
|
|
|
$5.5 million, or 16%, decline in brokerage and insurance income, primarily reflecting
seasonal trends in property and casualty insurance income.
|
|
|
|
|
$3.7 million, or 28%, decline in mortgage banking income, reflecting $1.0 million higher
MSR hedging losses this quarter and lower production, and gains on loan sales.
|
Partially offset by:
|
|
|
$4.0 million, or 5%, increase in service charges on deposit accounts, primarily
reflecting higher personal service charge income and seasonal trends.
|
2007 First Nine Months versus 2006 First Nine Months
Non-interest income for the first nine-month period of 2007 increased $85.6 million, or 20%,
from the comparable year-ago period, of which $68.7 million was merger related. The following
table details the estimated merger related impact on our non-interest income.
25
Table 14 Non-Interest Income Estimated Merger Related Impact Nine Months 2007 vs. Nine Months 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
September 30,
|
|
Change
|
|
Merger
|
|
|
Non-merger Related
|
(in thousands)
|
|
2007
|
|
2006
|
|
Amount
|
|
%
|
|
Related
|
|
|
Amount
|
|
%
(1)
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
$
|
172,917
|
|
|
$
|
137,165
|
|
|
$
|
35,752
|
|
|
|
26.1
|
%
|
|
$
|
24,110
|
|
|
$
|
11,642
|
|
|
|
7.2
|
%
|
Trust services
|
|
|
86,220
|
|
|
|
66,444
|
|
|
|
19,776
|
|
|
|
29.8
|
|
|
|
7,009
|
|
|
|
12,767
|
|
|
|
17.4
|
|
Brokerage and insurance income
|
|
|
62,087
|
|
|
|
44,235
|
|
|
|
17,852
|
|
|
|
40.4
|
|
|
|
17,061
|
|
|
|
791
|
|
|
|
1.3
|
|
Other service charges and fees
|
|
|
49,176
|
|
|
|
37,570
|
|
|
|
11,606
|
|
|
|
30.9
|
|
|
|
5,800
|
|
|
|
5,806
|
|
|
|
13.4
|
|
Bank owned life insurance income
|
|
|
36,602
|
|
|
|
32,971
|
|
|
|
3,631
|
|
|
|
11.0
|
|
|
|
1,807
|
|
|
|
1,824
|
|
|
|
5.2
|
|
Mortgage banking income
|
|
|
26,102
|
|
|
|
35,322
|
|
|
|
(9,220
|
)
|
|
|
(26.1
|
)
|
|
|
6,256
|
|
|
|
(15,476
|
)
|
|
|
(37.2
|
)
|
Securities losses
|
|
|
(18,187
|
)
|
|
|
(57,387
|
)
|
|
|
39,200
|
|
|
|
(68.3
|
)
|
|
|
283
|
|
|
|
38,917
|
|
|
|
(68.2
|
)
|
Other income
|
|
|
91,127
|
|
|
|
124,143
|
|
|
|
(33,016
|
)
|
|
|
(26.6
|
)
|
|
|
6,390
|
|
|
|
(39,406
|
)
|
|
|
(30.2
|
)
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
$
|
506,044
|
|
|
$
|
420,463
|
|
|
$
|
85,581
|
|
|
|
20.4
|
%
|
|
$
|
68,716
|
|
|
$
|
16,865
|
|
|
|
3.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Calculated as non-merger related / (prior period + merger-related)
|
The $16.9 million non-merger related increase primarily reflected:
|
|
|
$38.9 million less in investment securities losses. In the first nine months of 2007,
net investment securities losses totaled $18.2 million and consisted of $28.5 million of
realized securities impairment losses on certain investment securities, partially offset by
$10.2 million of realized gains on other investment securities. This compared favorably
with $57.4 million of such losses in the comparable year-ago period, virtually all of which
related to balance sheet restructuring (see Significant Item #2 earlier in this document).
|
|
|
|
|
$12.8 million, or 17%, increase in trust services income, primarily reflecting $7.3
million of revenues associated with the acquisition of Unified Fund Services and a $3.4
million increase in Huntington Fund fees due to growth in the Huntington Funds managed
assets.
|
|
|
|
|
$11.6 million, or 7%, increase in service charges on deposit accounts, primarily
reflecting higher personal and commercial service charge income.
|
Partially offset by:
|
|
|
$39.4 million decline in other income, reflecting a $32.6 million decline in automobile
operating lease income as that portfolio continues to decline, and $10.6 million of equity
investment losses in the first nine months of 2007 compared with $4.2 million of such gains
in the comparable year-ago period.
|
|
|
|
|
$15.5 million decline in mortgage banking income, driven by $13.0 million net impact of
MSR hedging losses.
|
Non-Interest Expense
(This section should be read in conjunction with Significant Items 1, 2, 4 and 7.)
Table 15 reflects non-interest expense detail for each of the last five quarters and for the
first nine-month periods of 2007 and 2006.
26
Table 15 Non-Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
3Q07 vs 3Q06
|
(in thousands)
|
|
Third
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
|
Amount
|
|
Percent
|
|
|
|
|
|
|
Salaries
|
|
$
|
166,719
|
|
|
$
|
106,768
|
|
|
$
|
104,912
|
|
|
$
|
111,806
|
|
|
$
|
105,144
|
|
|
|
$
|
61,575
|
|
|
|
58.6
|
%
|
Benefits
|
|
|
35,429
|
|
|
|
28,423
|
|
|
|
29,727
|
|
|
|
26,138
|
|
|
|
28,679
|
|
|
|
|
6,750
|
|
|
|
23.5
|
|
|
|
|
|
|
|
Personnel costs
|
|
|
202,148
|
|
|
|
135,191
|
|
|
|
134,639
|
|
|
|
137,944
|
|
|
|
133,823
|
|
|
|
|
68,325
|
|
|
|
51.1
|
%
|
Outside data processing and other services
|
|
|
40,600
|
|
|
|
25,701
|
|
|
|
21,814
|
|
|
|
20,695
|
|
|
|
18,664
|
|
|
|
|
21,936
|
|
|
|
N.M.
|
|
Net occupancy
|
|
|
33,334
|
|
|
|
19,417
|
|
|
|
19,908
|
|
|
|
17,279
|
|
|
|
18,109
|
|
|
|
|
15,225
|
|
|
|
84.1
|
|
Equipment
|
|
|
23,290
|
|
|
|
17,157
|
|
|
|
18,219
|
|
|
|
18,151
|
|
|
|
17,249
|
|
|
|
|
6,041
|
|
|
|
35.0
|
|
Marketing
|
|
|
13,186
|
|
|
|
8,986
|
|
|
|
7,696
|
|
|
|
6,207
|
|
|
|
7,846
|
|
|
|
|
5,340
|
|
|
|
68.1
|
|
Professional services
|
|
|
11,273
|
|
|
|
8,101
|
|
|
|
6,482
|
|
|
|
8,958
|
|
|
|
6,438
|
|
|
|
|
4,835
|
|
|
|
75.1
|
|
Telecommunications
|
|
|
7,286
|
|
|
|
4,577
|
|
|
|
4,126
|
|
|
|
4,619
|
|
|
|
4,818
|
|
|
|
|
2,468
|
|
|
|
51.2
|
|
Printing and supplies
|
|
|
4,743
|
|
|
|
3,672
|
|
|
|
3,242
|
|
|
|
3,610
|
|
|
|
3,416
|
|
|
|
|
1,327
|
|
|
|
38.8
|
|
Amortization of intangibles
|
|
|
19,949
|
|
|
|
2,519
|
|
|
|
2,520
|
|
|
|
2,993
|
|
|
|
2,902
|
|
|
|
|
17,047
|
|
|
|
N.M.
|
|
Other expense
|
|
|
29,754
|
|
|
|
19,334
|
|
|
|
23,426
|
|
|
|
47,334
|
|
|
|
29,165
|
|
|
|
|
589
|
|
|
|
2.0
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
$
|
385,563
|
|
|
$
|
244,655
|
|
|
$
|
242,072
|
|
|
$
|
267,790
|
|
|
$
|
242,430
|
|
|
|
$
|
143,133
|
|
|
|
59.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
September 30,
|
|
|
YTD 2006 vs 2005
|
(in thousands)
|
|
2007
|
|
2006
|
|
|
Amount
|
|
Percent
|
|
|
|
|
Salaries
|
|
$
|
378,399
|
|
|
$
|
313,851
|
|
|
|
$
|
64,548
|
|
|
|
20.6
|
%
|
Benefits
|
|
|
93,579
|
|
|
|
89,433
|
|
|
|
|
4,146
|
|
|
|
4.6
|
|
|
|
|
|
Personnel costs
|
|
|
471,978
|
|
|
|
403,284
|
|
|
|
|
68,694
|
|
|
|
17.0
|
|
Outside data processing and other services
|
|
|
88,115
|
|
|
|
58,084
|
|
|
|
|
30,031
|
|
|
|
51.7
|
|
Net occupancy
|
|
|
72,659
|
|
|
|
54,002
|
|
|
|
|
18,657
|
|
|
|
34.5
|
|
Equipment
|
|
|
58,666
|
|
|
|
51,761
|
|
|
|
|
6,905
|
|
|
|
13.3
|
|
Professional services
|
|
|
29,868
|
|
|
|
25,521
|
|
|
|
|
4,347
|
|
|
|
17.0
|
|
Marketing
|
|
|
25,856
|
|
|
|
18,095
|
|
|
|
|
7,761
|
|
|
|
42.9
|
|
Telecommunications
|
|
|
15,989
|
|
|
|
14,633
|
|
|
|
|
1,356
|
|
|
|
9.3
|
|
Printing and supplies
|
|
|
11,657
|
|
|
|
10,254
|
|
|
|
|
1,403
|
|
|
|
13.7
|
|
Amortization of intangibles
|
|
|
24,988
|
|
|
|
6,969
|
|
|
|
|
18,019
|
|
|
|
N.M.
|
|
Other expense
|
|
|
72,514
|
|
|
|
90,601
|
|
|
|
|
(18,087
|
)
|
|
|
(20.0
|
)
|
|
|
|
|
Total non-interest expense
|
|
$
|
872,290
|
|
|
$
|
733,204
|
|
|
|
$
|
139,086
|
|
|
|
19.0
|
%
|
|
|
|
|
|
|
|
N.M., not a meaningful value.
|
2007 Third Quarter versus 2006 Third Quarter
Non-interest expense increased $143.1 million, or 59%, from the year-ago quarter. This
included $136.6 million of merger-related expenses, as well as $32.3 million of merger costs
related to merger-integration activities. The following table details the estimated merger related
impact on our reported non-interest expense:
27
Table 16 Non-Interest Expense Estimated Merger Related Impact 3Q07 vs. 3Q06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
Change
|
|
Merger
|
|
Merger
|
|
Non-merger Related
|
(in thousands)
|
|
Third
|
|
Third
|
|
Amount
|
|
Percent
|
|
Related
|
|
Costs
|
|
Amount
|
|
%
(1)
|
|
|
|
|
|
|
|
Personnel costs
|
|
$
|
202,148
|
|
|
$
|
133,823
|
|
|
$
|
68,325
|
|
|
|
51
|
%
|
|
$
|
68,250
|
|
|
$
|
7,750
|
|
|
$
|
(7,675
|
)
|
|
|
(3.8)
|
%
|
Outside data processing and other services
|
|
|
40,600
|
|
|
|
18,664
|
|
|
|
21,936
|
|
|
|
117.5
|
|
|
|
12,262
|
|
|
|
6,854
|
|
|
|
2,820
|
|
|
|
9.1
|
|
Net occupancy
|
|
|
33,334
|
|
|
|
18,109
|
|
|
|
15,225
|
|
|
|
84.1
|
|
|
|
10,184
|
|
|
|
7,440
|
|
|
|
(2,399
|
)
|
|
|
(8.5
|
)
|
Equipment
|
|
|
23,290
|
|
|
|
17,249
|
|
|
|
6,041
|
|
|
|
35.0
|
|
|
|
4,799
|
|
|
|
1,792
|
|
|
|
(550
|
)
|
|
|
(2.5
|
)
|
Marketing
|
|
|
13,186
|
|
|
|
7,846
|
|
|
|
5,340
|
|
|
|
68.1
|
|
|
|
4,361
|
|
|
|
4,966
|
|
|
|
(3,987
|
)
|
|
|
(32.7
|
)
|
Professional services
|
|
|
11,273
|
|
|
|
6,438
|
|
|
|
4,835
|
|
|
|
75.1
|
|
|
|
2,707
|
|
|
|
1,555
|
|
|
|
573
|
|
|
|
6.3
|
|
Telecommunications
|
|
|
7,286
|
|
|
|
4,818
|
|
|
|
2,468
|
|
|
|
51.2
|
|
|
|
2,224
|
|
|
|
196
|
|
|
|
48
|
|
|
|
0.7
|
|
Printing and supplies
|
|
|
4,743
|
|
|
|
3,416
|
|
|
|
1,327
|
|
|
|
38.8
|
|
|
|
1,374
|
|
|
|
457
|
|
|
|
(504
|
)
|
|
|
(10.5
|
)
|
Amortization of intangibles
|
|
|
19,949
|
|
|
|
2,902
|
|
|
|
17,047
|
|
|
|
587.4
|
|
|
|
17,431
|
|
|
|
|
|
|
|
(384
|
)
|
|
|
(1.9
|
)
|
Other expense
|
|
|
29,754
|
|
|
|
29,165
|
|
|
|
589
|
|
|
|
2.0
|
|
|
|
13,048
|
|
|
|
1,250
|
|
|
|
(13,709
|
)
|
|
|
(32.5
|
)
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
$
|
385,563
|
|
|
$
|
242,430
|
|
|
$
|
143,133
|
|
|
|
59.0
|
%
|
|
$
|
136,640
|
|
|
$
|
32,260
|
|
|
$
|
(25,767
|
)
|
|
|
(6.8)
|
%
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Calculated as non-merger related / (prior period + merger-related)
|
The $25.8 million, or 7%, non-merger related decline reflected:
|
|
|
$13.7 million, or 32%, decline in other expense, reflecting merger efficiencies, as well
as a $5.7 million decline in automobile operating lease expense, the current quarters $3.2
million gain on debt extinguishment, and declines in deferred compensation expense and
franchise taxes.
|
|
|
|
|
$7.7 million, or 4%, decline in personnel expense, reflecting merger efficiencies
including the impact of the reduction of 828, or 6%, full-time equivalent staff during the
2007 third quarter.
|
|
|
|
|
$4.0 million, or 33%, decline in marketing expense, reflecting merger efficiencies and
timing of advertising campaigns.
|
2007 Third Quarter versus 2007 Second Quarter
Non-interest expense increased $140.9 million, or 58%, from the prior quarter. This included
$136.6 million of merger-related expenses, as well as $24.7 million of merger costs related to
merger-integration activities. The following table details the estimated merger related impact on
our reported non-interest expense:
Table 17 Non-Interest Expense Estimated Merger Related Impact 3Q07 vs. 2Q07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
Change
|
|
Merger
|
|
Merger
|
|
Non-merger Related
|
(in thousands)
|
|
Third
|
|
Second
|
|
Amount
|
|
Percent
|
|
Related
|
|
Costs
|
|
Amount
|
|
%
(1)
|
|
|
|
|
|
|
|
Personnel costs
|
|
$
|
202,148
|
|
|
$
|
135,191
|
|
|
$
|
66,957
|
|
|
|
50
|
%
|
|
$
|
68,250
|
|
|
$
|
7,106
|
|
|
$
|
(8,399
|
)
|
|
|
(4.1)
|
%
|
Outside data processing
and other services
|
|
|
40,600
|
|
|
|
25,701
|
|
|
|
14,899
|
|
|
|
58.0
|
|
|
|
12,262
|
|
|
|
2,783
|
|
|
|
(146
|
)
|
|
|
(0.4
|
)
|
Net occupancy
|
|
|
33,334
|
|
|
|
19,417
|
|
|
|
13,917
|
|
|
|
71.7
|
|
|
|
10,184
|
|
|
|
7,329
|
|
|
|
(3,596
|
)
|
|
|
(12.1
|
)
|
Equipment
|
|
|
23,290
|
|
|
|
17,157
|
|
|
|
6,133
|
|
|
|
35.7
|
|
|
|
4,799
|
|
|
|
1,777
|
|
|
|
(443
|
)
|
|
|
(2.0
|
)
|
Marketing
|
|
|
13,186
|
|
|
|
8,986
|
|
|
|
4,200
|
|
|
|
46.7
|
|
|
|
4,361
|
|
|
|
3,392
|
|
|
|
(3,553
|
)
|
|
|
(26.6
|
)
|
Professional services
|
|
|
11,273
|
|
|
|
8,101
|
|
|
|
3,172
|
|
|
|
39.2
|
|
|
|
2,707
|
|
|
|
469
|
|
|
|
(4
|
)
|
|
|
(0.0
|
)
|
Telecommunications
|
|
|
7,286
|
|
|
|
4,577
|
|
|
|
2,709
|
|
|
|
59.2
|
|
|
|
2,224
|
|
|
|
196
|
|
|
|
289
|
|
|
|
4.2
|
|
Printing and supplies
|
|
|
4,743
|
|
|
|
3,672
|
|
|
|
1,071
|
|
|
|
29.2
|
|
|
|
1,374
|
|
|
|
456
|
|
|
|
(759
|
)
|
|
|
(15.0
|
)
|
Amortization of intangibles
|
|
|
19,949
|
|
|
|
2,519
|
|
|
|
17,430
|
|
|
|
691.9
|
|
|
|
17,431
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(0.0
|
)
|
Other expense
|
|
|
29,754
|
|
|
|
19,334
|
|
|
|
10,420
|
|
|
|
53.9
|
|
|
|
13,048
|
|
|
|
1,175
|
|
|
|
(3,803
|
)
|
|
|
(11.7
|
)
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
$
|
385,563
|
|
|
$
|
244,655
|
|
|
$
|
140,908
|
|
|
|
57.6
|
%
|
|
$
|
136,640
|
|
|
$
|
24,683
|
|
|
$
|
(20,415
|
)
|
|
|
(5.4)
|
%
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Calculated as non-merger related / (prior period + merger-related)
|
28
The $20.4 million, or 5%, non-merger related decline primarily represented the total estimated
merger efficiencies achieved in the quarter and reflected:
|
|
|
$8.4 million, or 4%, decline in personnel expense, primarily reflecting merger
efficiencies including the impact of the reduction of 828, or 6%, full-time equivalent
staff during the 2007 third quarter.
|
|
|
|
|
$3.8 million, or 12%, decline in other expense, primarily reflecting merger
efficiencies.
|
|
|
|
|
$3.6 million, or 27%, decline in marketing expense, reflecting merger efficiencies and
timing of advertising campaigns.
|
|
|
|
|
$3.6 million, or 12%, decline in net occupancy expense, reflecting merger efficiencies.
|
2007 First Nine Months versus 2006 First Nine Months
Non-interest expense for the first nine-month period of 2007 increased $139.1 million from the
comparable year-ago period. This included $136.6 million of merger-related expenses, as well as
$40.7 million of merger costs related to merger integration activities. The following table
details the estimated merger related impact on our reported non-interest expense:
Table 18 Non-Interest Expense Estimated Merger Related Impact Nine Months 2007 vs. Nine
Months 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
Non-merger Related
|
(in thousands)
|
|
2007
|
|
2006
|
|
Amount
|
|
Percent
|
|
Merger Related
|
|
|
Merger Costs
|
|
Amount
|
|
%
(1)
|
|
|
|
|
|
|
|
Personnel costs
|
|
$
|
471,978
|
|
|
$
|
403,284
|
|
|
$
|
68,694
|
|
|
|
17.0
|
%
|
|
$
|
68,250
|
|
|
|
$
|
8,402
|
|
|
$
|
(7,958
|
)
|
|
|
(1.7)
|
%
|
Outside data processing and other services
|
|
|
88,115
|
|
|
|
58,084
|
|
|
|
30,031
|
|
|
|
51.7
|
|
|
|
12,262
|
|
|
|
|
11,520
|
|
|
|
6,249
|
|
|
|
8.9
|
|
Net occupancy
|
|
|
72,659
|
|
|
|
54,002
|
|
|
|
18,657
|
|
|
|
34.5
|
|
|
|
10,184
|
|
|
|
|
7,551
|
|
|
|
922
|
|
|
|
1.4
|
|
Equipment
|
|
|
58,666
|
|
|
|
51,761
|
|
|
|
6,905
|
|
|
|
13.3
|
|
|
|
4,799
|
|
|
|
|
1,806
|
|
|
|
300
|
|
|
|
0.5
|
|
Marketing
|
|
|
29,868
|
|
|
|
25,521
|
|
|
|
4,347
|
|
|
|
17.0
|
|
|
|
4,361
|
|
|
|
|
6,608
|
|
|
|
(6,622
|
)
|
|
|
(22.2
|
)
|
Professional services
|
|
|
25,856
|
|
|
|
18,095
|
|
|
|
7,761
|
|
|
|
42.9
|
|
|
|
2,707
|
|
|
|
|
2,736
|
|
|
|
2,318
|
|
|
|
11.1
|
|
Telecommunications
|
|
|
15,989
|
|
|
|
14,633
|
|
|
|
1,356
|
|
|
|
9.3
|
|
|
|
2,224
|
|
|
|
|
197
|
|
|
|
(1,065
|
)
|
|
|
(6.3
|
)
|
Printing and supplies
|
|
|
11,657
|
|
|
|
10,254
|
|
|
|
1,403
|
|
|
|
13.7
|
|
|
|
1,374
|
|
|
|
|
458
|
|
|
|
(429
|
)
|
|
|
(3.7
|
)
|
Amortization of intangibles
|
|
|
24,988
|
|
|
|
6,969
|
|
|
|
18,019
|
|
|
|
258.6
|
|
|
|
17,431
|
|
|
|
|
|
|
|
|
588
|
|
|
|
2.4
|
|
Other expense
|
|
|
72,514
|
|
|
|
90,601
|
|
|
|
(18,087
|
)
|
|
|
(20.0
|
)
|
|
|
13,048
|
|
|
|
|
1,390
|
|
|
|
(32,525
|
)
|
|
|
(31.4
|
)
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
$
|
872,290
|
|
|
$
|
733,204
|
|
|
$
|
139,086
|
|
|
|
19.0
|
%
|
|
$
|
136,640
|
|
|
|
$
|
40,668
|
|
|
$
|
(38,222
|
)
|
|
|
(4.4)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Calculated as non-merger related / (prior period + merger-related)
|
The $38.2 million non-merger related decline included the total estimated merger efficiencies
achieved and reflected in the first nine months of 2007:
|
|
|
$32.5 million decline in other expense, primarily reflecting a $24.1 million decline in
automobile operating lease expense as that portfolio continued to decline and merger
efficiencies.
|
|
|
|
|
$8.0 million, or 2%, decline in personnel expense, primarily reflecting merger
efficiencies including the impact of the reduction of 828, or 6%, full-time equivalent
staff during the 2007 third quarter.
|
|
|
|
|
$6.6 million, or 22%, decline in marketing expense, reflecting merger efficiencies and
timing of advertising campaigns.
|
Partially offset by:
|
|
|
$6.2 million, or 9%, increase in outside data processing and other services, primarily
reflecting costs incurred for technology-related initiatives.
|
|
|
|
|
$2.3 million, or 11%, increase in professional services, primarily reflecting increased
commercial collections activity.
|
29
Provision for Income Taxes
(This section should be read in conjunction with Significant Items 1 and 6.)
The provision for income taxes in the 2007 third quarter was $48.5 million, resulting in an
effective tax rate of 26.0%. In the year-ago quarter, the provision for income taxes was a
negative $60.8 million, resulting in an effective tax rate of negative 62.9%. The year ago quarter
reflected an $84.5 million reduction of federal tax expense related to the resolution of a federal
tax audit covering tax years 2002 and 2003 that resulted in the release of previously established
federal income
tax reserves, as well as the recognition of federal tax loss carry backs. The provision for
income taxes was $24.3 million in the 2007 second quarter representing an effective tax rate of
23.2%. The increase in the effective tax rate from the 2007 second quarter was the result of the
Sky Financial acquisition. The effective tax rate for the 2007 full year is estimated to be
consistent with the 25.3% effective tax rate of the first nine-month period of 2007.
In the ordinary course of business, we operate in various taxing jurisdictions and are subject
to income and non-income taxes. The effective tax rate is based in part on our interpretation of
the relevant current tax laws. We review the appropriate tax treatment of all transactions taking
into consideration statutory, judicial, and regulatory guidance in the context of our tax
positions. In addition, we rely on various tax opinions, recent tax audits, and historical
experience.
The Internal Revenue Service is currently examining our federal tax returns for the years
ending 2004 and 2005. In addition, we are subject to ongoing tax examinations in various
jurisdictions. We believe that the resolution of these examinations will not have a significant
adverse impact on our consolidated financial position or results of operations.
RISK MANAGEMENT AND CAPITAL
Risk identification and monitoring are key elements in overall risk management. We believe our
primary risk exposures are credit, market, liquidity, and operational risk.
Credit risk
is
the risk of loss due to adverse changes in the borrowers ability to meet its financial obligations
under agreed upon terms.
Market risk
represents the risk of loss due to changes in the
market value of assets and liabilities due to changes in interest rates, exchange rates, and equity
prices.
Liquidity risk
arises from the possibility that funds may not be available to
satisfy current or future commitments based on external macro market issues, investor perception of
financial strength, and events unrelated to the company such as war, terrorism, or financial
institution market specific issues.
Operational risk
arises from the inherent day-to-day
operations of the company that could result in losses due to human error, inadequate or failed
internal systems and controls, and external events.
More information on risk is set forth under the heading Risk Factors included in Item 1A of
our Annual Report on Form 10-K for the year ended December 31, 2006. Additionally, the
MD&A
appearing in our 2006 Form 10-K should be read in conjunction
with this discussion and analysis as this report provides only material updates to the 2006 Form
10-K. Our definition, philosophy, and approach to risk management is unchanged from the discussion
presented in that document.
Credit Risk
Credit risk is the risk of loss due to adverse changes in the borrowers ability to meet its
financial obligations under agreed upon terms. The majority of our credit risk is associated with
lending activities, as the acceptance and management of credit risk is central to profitable
lending. Credit risk is mitigated through a combination of credit policies and processes and
portfolio diversification.
Credit Exposure Mix
(This section should be read in conjunction with Significant Items 1 and 5.)
Table 19 reflects loan and lease composition detail for each of the past five quarters.
As shown in Table 19, at September 30, 2007, our largest credit concentration was in total
commercial loans, which totaled $22.1 billion and represented 55% of total loans and leases. This
portfolio was diversified among middle market C&I loans, middle market commercial real estate loans
(CRE), and small business loans (see Commercial Credit discussion below).
30
Total consumer loans were $17.9 billion at September 30, 2007, and represented 45% of total
credit exposure. The consumer portfolio was diversified among home equity loans, residential
mortgages, and automobile loans and leases (see Consumer Credit discussion below).
By business segment, Regional Banking accounted for 80% of total loans and leases at September
30, 2007.
31
Table 19 Loans and Leases Composition
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
(in thousands)
|
|
September 30,
|
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle market commercial and industrial
|
|
$
|
10,200,357
|
|
|
|
25.5
|
%
|
|
$
|
6,210,709
|
|
|
|
23.2
|
%
|
|
$
|
6,164,569
|
|
|
|
23.5
|
%
|
|
$
|
5,961,445
|
|
|
|
22.8
|
%
|
|
$
|
5,811,130
|
|
|
|
22.0
|
%
|
Middle market commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
1,856,792
|
|
|
|
4.6
|
|
|
|
1,382,722
|
|
|
|
5.2
|
|
|
|
1,187,664
|
|
|
|
4.5
|
|
|
|
1,228,641
|
|
|
|
4.7
|
|
|
|
1,169,276
|
|
|
|
4.4
|
|
Commercial
|
|
|
5,686,297
|
|
|
|
14.2
|
|
|
|
2,950,864
|
|
|
|
11.0
|
|
|
|
2,807,063
|
|
|
|
10.7
|
|
|
|
2,722,599
|
|
|
|
10.4
|
|
|
|
2,808,684
|
|
|
|
10.7
|
|
|
|
|
Middle market commercial real estate
|
|
|
7,543,089
|
|
|
|
18.8
|
|
|
|
4,333,586
|
|
|
|
16.2
|
|
|
|
3,994,727
|
|
|
|
15.2
|
|
|
|
3,951,240
|
|
|
|
15.1
|
|
|
|
3,977,960
|
|
|
|
15.1
|
|
Small business
|
|
|
4,355,252
|
|
|
|
10.8
|
|
|
|
2,507,728
|
|
|
|
9.4
|
|
|
|
2,474,955
|
|
|
|
9.4
|
|
|
|
2,441,837
|
|
|
|
9.3
|
|
|
|
2,418,709
|
|
|
|
9.2
|
|
|
|
|
Total commercial
|
|
|
22,098,698
|
|
|
|
55.1
|
|
|
|
13,052,023
|
|
|
|
48.8
|
|
|
|
12,634,251
|
|
|
|
48.1
|
|
|
|
12,354,522
|
|
|
|
47.2
|
|
|
|
12,207,799
|
|
|
|
46.3
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans
|
|
|
2,959,913
|
|
|
|
7.4
|
|
|
|
2,424,105
|
|
|
|
9.0
|
|
|
|
2,251,215
|
|
|
|
8.6
|
|
|
|
2,125,821
|
|
|
|
8.1
|
|
|
|
2,105,623
|
|
|
|
8.0
|
|
Automobile leases
|
|
|
1,365,805
|
|
|
|
3.4
|
|
|
|
1,488,903
|
|
|
|
5.6
|
|
|
|
1,623,758
|
|
|
|
6.2
|
|
|
|
1,769,424
|
|
|
|
6.8
|
|
|
|
1,910,257
|
|
|
|
7.2
|
|
Home equity
|
|
|
7,317,804
|
|
|
|
18.4
|
|
|
|
5,015,506
|
|
|
|
18.7
|
|
|
|
4,914,462
|
|
|
|
18.7
|
|
|
|
4,926,900
|
|
|
|
18.8
|
|
|
|
5,019,101
|
|
|
|
19.0
|
|
Residential mortgage
|
|
|
5,505,340
|
|
|
|
13.8
|
|
|
|
4,398,720
|
|
|
|
16.4
|
|
|
|
4,404,220
|
|
|
|
16.8
|
|
|
|
4,548,849
|
|
|
|
17.4
|
|
|
|
4,678,577
|
|
|
|
17.7
|
|
Other loans
|
|
|
739,680
|
|
|
|
1.9
|
|
|
|
432,256
|
|
|
|
1.5
|
|
|
|
437,117
|
|
|
|
1.6
|
|
|
|
427,909
|
|
|
|
1.7
|
|
|
|
440,145
|
|
|
|
1.8
|
|
|
|
|
Total consumer
|
|
|
17,888,542
|
|
|
|
44.9
|
|
|
|
13,759,490
|
|
|
|
51.2
|
|
|
|
13,630,772
|
|
|
|
51.9
|
|
|
|
13,798,903
|
|
|
|
52.8
|
|
|
|
14,153,703
|
|
|
|
53.7
|
|
|
|
|
Total loans and leases
|
|
$
|
39,987,240
|
|
|
|
100.0
|
%
|
|
$
|
26,811,513
|
|
|
|
100.0
|
%
|
|
$
|
26,265,023
|
|
|
|
100.0
|
%
|
|
$
|
26,153,425
|
|
|
|
100.0
|
%
|
|
$
|
26,361,502
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Business Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regional Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central Ohio
|
|
$
|
4,993,373
|
|
|
|
12.5
|
%
|
|
$
|
3,721,031
|
|
|
|
13.9
|
%
|
|
$
|
3,610,316
|
|
|
|
13.7
|
%
|
|
$
|
3,597,172
|
|
|
|
13.8
|
%
|
|
$
|
3,685,704
|
|
|
|
14.0
|
%
|
Northwest Ohio
|
|
|
2,580,787
|
|
|
|
6.5
|
|
|
|
449,232
|
|
|
|
1.7
|
|
|
|
455,075
|
|
|
|
1.7
|
|
|
|
461,622
|
|
|
|
1.8
|
|
|
|
465,413
|
|
|
|
1.8
|
|
Greater Cleveland
|
|
|
3,057,757
|
|
|
|
7.6
|
|
|
|
2,099,941
|
|
|
|
7.8
|
|
|
|
2,019,820
|
|
|
|
7.7
|
|
|
|
1,920,421
|
|
|
|
7.3
|
|
|
|
1,953,851
|
|
|
|
7.4
|
|
Greater Akron/Canton
|
|
|
2,078,588
|
|
|
|
5.2
|
|
|
|
1,330,102
|
|
|
|
5.0
|
|
|
|
1,318,932
|
|
|
|
5.0
|
|
|
|
1,326,374
|
|
|
|
5.1
|
|
|
|
1,357,028
|
|
|
|
5.1
|
|
Southern Ohio/Kentucky
|
|
|
2,547,800
|
|
|
|
6.4
|
|
|
|
2,275,224
|
|
|
|
8.5
|
|
|
|
2,159,407
|
|
|
|
8.2
|
|
|
|
2,190,115
|
|
|
|
8.4
|
|
|
|
2,181,340
|
|
|
|
8.3
|
|
Mahoning Valley
|
|
|
939,739
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ohio Valley
|
|
|
869,139
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Michigan
|
|
|
2,520,325
|
|
|
|
6.3
|
|
|
|
2,439,517
|
|
|
|
9.1
|
|
|
|
2,453,300
|
|
|
|
9.3
|
|
|
|
2,421,085
|
|
|
|
9.3
|
|
|
|
2,443,461
|
|
|
|
9.3
|
|
East Michigan
|
|
|
1,674,896
|
|
|
|
4.2
|
|
|
|
1,654,934
|
|
|
|
6.2
|
|
|
|
1,646,028
|
|
|
|
6.3
|
|
|
|
1,630,050
|
|
|
|
6.2
|
|
|
|
1,602,647
|
|
|
|
6.1
|
|
Western Pennsylvania
|
|
|
1,106,068
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pittsburgh
|
|
|
888,848
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central Indiana
|
|
|
1,419,693
|
|
|
|
3.6
|
|
|
|
1,004,934
|
|
|
|
3.7
|
|
|
|
971,186
|
|
|
|
3.7
|
|
|
|
962,575
|
|
|
|
3.7
|
|
|
|
957,612
|
|
|
|
3.6
|
|
West Virginia
|
|
|
1,125,628
|
|
|
|
2.8
|
|
|
|
1,148,573
|
|
|
|
4.3
|
|
|
|
1,109,197
|
|
|
|
4.2
|
|
|
|
1,123,817
|
|
|
|
4.3
|
|
|
|
1,102,407
|
|
|
|
4.2
|
|
Other Regional
|
|
|
6,256,033
|
|
|
|
15.7
|
|
|
|
3,813,381
|
|
|
|
14.2
|
|
|
|
3,749,087
|
|
|
|
14.3
|
|
|
|
3,767,093
|
|
|
|
14.3
|
|
|
|
3,837,728
|
|
|
|
14.5
|
|
|
|
|
Regional Banking
|
|
|
32,058,674
|
|
|
|
80.2
|
|
|
|
19,936,869
|
|
|
|
74.4
|
|
|
|
19,492,348
|
|
|
|
74.2
|
|
|
|
19,400,324
|
|
|
|
74.2
|
|
|
|
19,587,191
|
|
|
|
74.3
|
|
Dealer Sales
|
|
|
5,449,580
|
|
|
|
13.6
|
|
|
|
4,944,386
|
|
|
|
18.4
|
|
|
|
4,903,370
|
|
|
|
18.7
|
|
|
|
4,908,764
|
|
|
|
18.8
|
|
|
|
4,956,635
|
|
|
|
18.8
|
|
Private Financial and Capital Markets Group
|
|
|
2,478,986
|
|
|
|
6.2
|
|
|
|
1,930,258
|
|
|
|
7.2
|
|
|
|
1,869,305
|
|
|
|
7.1
|
|
|
|
1,844,337
|
|
|
|
7.0
|
|
|
|
1,817,676
|
|
|
|
6.9
|
|
Treasury / Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases
|
|
$
|
39,987,240
|
|
|
|
100.0
|
%
|
|
$
|
26,811,513
|
|
|
|
100.0
|
%
|
|
$
|
26,265,023
|
|
|
|
100.0
|
%
|
|
$
|
26,153,425
|
|
|
|
100.0
|
%
|
|
$
|
26,361,502
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
(1)
|
|
Reflects post-Sky Financial merger organizational structure effective on July 1,
2007. Accordingly, balances presented for prior periods do not include the impact of the
acquisition.
|
32
Commercial Credit
(This section should be read in conjunction with Significant Items 1 and 5.)
Commercial credit approvals are based on, among other factors, the financial strength of the
borrower, assessment of the borrowers management capabilities, industry sector trends, type of
exposure, transaction structure, and the general economic outlook.
In commercial lending, ongoing credit management is dependent on the type and nature of the
loan. In general, quarterly monitoring is normal for all significant exposures. The internal risk
ratings are revised and updated with each periodic monitoring event. There is also extensive macro
portfolio management analysis on an ongoing basis. We continually review and adjust our risk
rating criteria based on actual experience, which may result in further changes to such criteria,
in future periods. Accordingly, in the 2007 third quarter, we changed our reserve methodology for small business loans to utilize a small business credit score, consistent with that used for the consumer loan portfolio, as the primary driver of the reserve for commercial loans less than $500 thousand, rather than reserving based on Obligor Risk Grades (ORG) and Facility Risk Grades (FRG).
Our commercial loan portfolio is diversified by customer, as well as throughout our geographic
footprint. However, the following two segments are noteworthy:
Single Family Homebuilders
At September 30, 2007, we had $1.6 billion of loans to single family homebuilders, including
loans made to both middle market and small business homebuilders. Such loans represented 4% of
total loans and leases. Of this portfolio, 63% were to finance projects where houses were
currently under construction, 13% to finance the acquisition of land for future development, and
24% to finance the development of land.
There has been a general slowdown in the housing market across our geographic footprint,
reflecting declining prices and excess inventories of houses to be sold, particularly in our
eastern Michigan and northern Ohio markets. As a result, homebuilders have shown signs of
financial deterioration. We have taken the following steps to mitigate the risk arising from this
exposure: (1) all loans have been reviewed three times during the last 12 months and are
continuously monitored, (2) credit valuation adjustments have been made across the entire portfolio
based on the current condition of each relationship, and (3) reserves have been increased based on
proactive risk identification and thorough borrower analysis.
Franklin Credit Management Corporation (Franklin) Portfolio
As a result of our acquisition of Sky Financial, we have a commercial lending relationship
with Franklin Credit Management Corporation (Franklin), a customer of Sky Financial for 17 years. Franklins primary business is to acquire,
service, and resolve seasoned performing, re-performing, and nonperforming first- and
second-priority lien residential mortgage loans and real estate assets. Through their wholly-owned
subsidiary, Tribeca Lending Corp (Tribeca), Franklin also originates maximum 75% loan-to-value
non-prime mortgage loans for their own portfolio. Tribeca currently accounts for approximately 25%
of Franklins business activities.
Our primary relationship with Franklin consists of both commercial term financing and
revolving credit warehouse facilities, where the Bank is the lead bank. As of September 30, 2007,
this relationship accounted for less than 5% of total loans and leases, with approximately 16% of
our direct exposure to Franklin participated on a non-recourse basis to other financial
institutions. The term debt exposure is in the form of over 400 individually underwritten
commercial loans used to fund over 30,000 individual first- and second-priority lien residential
mortgages.
The collateral securing our commercial term loans cross-collateralizes other loans made under
these facilities. Specifically, the collateral for term loans used to fund mortgage loans
originated by Tribeca also secures our other term loans used to fund other mortgage loans
originated by Tribeca. Likewise, the collateral for term loans used to fund mortgage loans
acquired by Franklin also secures our other term loans used to fund other mortgage loans acquired
by Franklin. In addition, pursuant to an exclusive lockbox arrangement, Huntington receives all
payments made to Franklin and Tribeca on their individual mortgages. As of September 30, 2007, no
commercial loans to Franklin were classified as 30-day delinquent or nonperforming, and there have
been no net charge-offs related to these facilities for the first nine months of 2007. The
determination of an appropriate allowance follows our standard ALLL methodology. As such, an allowance
associated with the Franklin portfolio of commercial loans is included in our total ALLL.
33
Although we funded loans originated by Franklin and Tribeca during the 2007 third quarter, we are
not required to fund additional loan originations under the terms of the respective credit
facilities. We have announced our intention over time to lower in both absolute and relative terms
our total Franklin credit exposure.
Consumer Credit
Consumer credit approvals, which include residential mortgage and home equity loans, are based
on, among other factors, the financial strength of the borrower, type of exposure, and the
transaction structure.
Our consumer loan portfolio is diversified throughout our geographic footprint. However, the
following two segments are worthy of note:
Home Equity Loans
Home equity loans and lines consist of both first and second position collateral with
underwriting criteria based on minimum FICO credit scores, debt-to-income ratios, and loan-to-value
ratios. We offer closed-end home equity loans with a fixed interest rate and level monthly
payments and a variable-rate, interest-only home equity line of credit. At September 30, 2007, we
had $3.4 billion of home equity loans and $3.9 billion of home equity lines of credit. Combined,
this represented 18% of total loans and leases. The weighted average loan-to-value ratio of our home equity
portfolio (both loans and lines) was 74% at September 30, 2007.
We do not originate home equity loans or lines that allow negative amortization, or have a
loan-to-value ratio at origination greater than 100%. Home equity loans are generally fixed rate
with periodic principal and interest payments. We originated $242 million of home equity loans in
the 2007 third quarter with a weighted average loan-to-value ratio of 69% and a weighted average
FICO score of 742. Home equity lines of credit generally have variable rates of interest and do
not require payment of principal during the 10-year revolving period of the line. During the 2007 third
quarter, we originated commitments of $363 million of home equity lines. The lines of
credit originated during the quarter had a weighted average loan-to-value ratio of 77% and a
weighted average FICO score of 749.
Residential Mortgages
At September 30, 2007, we had $5.5 billion of residential real estate loans, which
represented 14% of total loans and leases. Adjustable-rate mortgages (ARMs), primarily mortgages
that have a fixed rate for the first 3 to 5 years and then adjust annually, comprised 59% of total
residential mortgages.
We do not originate residential mortgage loans that (a) allow negative amortization, (b) have
a loan-to-value ratio at origination greater than 100%, or (c) are option ARMs. Interest-only
loans comprised $0.9 billion, or 16%, of residential real estate loans, or 2% of total loans and
leases, at September 30, 2007. Interest-only loans are underwritten to specific standards
including minimum FICO credit scores, stressed debt-to-income ratios, and extensive collateral
evaluation.
Credit Quality Overview
The Sky Financial merger increased virtually all credit quality measures on an absolute basis:
including the level of net charge-offs, NPLs, NPAs, and allowance for credit losses (ACL). We
believe the more meaningful way to assess overall credit quality performance for the 2007 third
quarter is through an analysis of credit quality performance ratios. This approach forms the basis
of most of the following discussion.
Aside from merger related impacts and consistent with expectations, overall credit quality was
stable in the 2007 third quarter. Overall delinquencies increased only slightly and the outlook
remains for only modest increases in problem assets in the 2007 fourth quarter. However, the
continued weakness in our Midwest markets, most notably eastern Michigan and northern Ohio,
resulted in higher levels of non-merger related NPLs and consumer net charge-offs.
34
Nonperforming Loans (NPL/NPLs) and Nonperforming Assets (NPA/NPAs)
(This section should be read in conjunction with Significant Items 1 and 5.)
Table 20 reflects period-end NPLs, NPAs, and past due loans and leases detail for each of the
last five quarters.
Table 20 Non-Performing Loans (NPLs), Non-Performing Assets (NPAs) and Past Due Loans and Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
(in thousands)
|
|
September 30,
|
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
|
|
Non-accrual loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle market commercial and industrial
|
|
$
|
56,691
|
|
|
$
|
41,644
|
|
|
$
|
32,970
|
|
|
$
|
35,657
|
|
|
$
|
37,082
|
|
Middle market commercial real estate
|
|
|
85,144
|
|
|
|
81,108
|
|
|
|
42,458
|
|
|
|
34,831
|
|
|
|
27,538
|
|
Small business
|
|
|
36,712
|
|
|
|
32,059
|
|
|
|
30,015
|
|
|
|
25,852
|
|
|
|
21,356
|
|
Residential mortgage
|
|
|
47,738
|
|
|
|
39,868
|
|
|
|
35,491
|
|
|
|
32,527
|
|
|
|
30,289
|
|
Home equity
|
|
|
23,111
|
|
|
|
16,837
|
|
|
|
16,396
|
|
|
|
15,266
|
|
|
|
13,047
|
|
|
|
|
Total NPLs
|
|
|
249,396
|
|
|
|
211,516
|
|
|
|
157,330
|
|
|
|
144,133
|
|
|
|
129,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
66,155
|
|
|
|
47,712
|
|
|
|
47,762
|
|
|
|
47,898
|
|
|
|
40,615
|
|
Commercial
|
|
|
2,710
|
|
|
|
1,957
|
|
|
|
1,586
|
|
|
|
1,589
|
|
|
|
1,285
|
|
|
|
|
Total other real estate, net
|
|
|
68,865
|
|
|
|
49,669
|
|
|
|
49,348
|
|
|
|
49,487
|
|
|
|
41,900
|
|
Impaired loans held for sale
(1)
|
|
|
100,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other NPAs
(2)
|
|
|
16,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total NPAs
|
|
$
|
435,042
|
|
|
$
|
261,185
|
|
|
$
|
206,678
|
|
|
$
|
193,620
|
|
|
$
|
171,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NPLs as a % of total loans and leases
|
|
|
0.62
|
%
|
|
|
0.79
|
%
|
|
|
0.60
|
%
|
|
|
0.55
|
%
|
|
|
0.49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NPA ratio
(3)
|
|
|
1.08
|
|
|
|
0.97
|
|
|
|
0.79
|
|
|
|
0.74
|
|
|
|
0.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing loans and leases past due 90
days or more
|
|
$
|
115,607
|
|
|
$
|
67,277
|
|
|
$
|
70,179
|
|
|
$
|
59,114
|
|
|
$
|
62,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing loans and leases past due 90 days or
more as a percent of total loans and leases
|
|
|
0.29
|
%
|
|
|
0.25
|
%
|
|
|
0.27
|
%
|
|
|
0.23
|
%
|
|
|
0.24
|
%
|
|
|
|
(1)
|
|
Held for sale represent impaired loans obtained from the Sky Financial acquisition that are intended to be sold.
Held for sale loans are carried at the lower of cost or market value.
|
|
(2)
|
|
Other NPAs represent certain investment securities backed by mortgage loans.
|
|
(3)
|
|
Nonperforming assets divided by the sum of loans, impaired loans held for sale, net other real estate, and other NPAs.
|
NPAs were $435.0 million at September 30, 2007, and represented 1.08% of related assets with
most of the NPA increase being merger related. This compared with $171.2 million, or 0.65%, at
September 30, 2006, and $261.2 million, or 0.97%, at June 30, 2007. The $173.9 million increase
from the end of the prior quarter reflected:
|
|
|
$144.5 million merger related consisting of:
|
|
|
|
$100.5 million of acquired commercial loans previously classified as NPLs, which
were reclassified as impaired loans held for sale and written down to their net
realizable fair value upon acquisition,
|
|
|
|
|
$32.7 million of other acquired commercial and consumer loans and classified as
NPLs, and
|
|
|
|
|
$11.3 million increase of acquired OREO.
|
|
|
|
$13.0 million, or 3%, increase in non-merger related NPLs and OREO.
|
35
|
|
|
$16.3 million of impaired investment securities, where a decision was made to stop
accruing interest and apply future interest payments to principal reduction.
|
NPLs increased $37.9 million from the prior quarter, driven primarily by the $32.7 million
acquired as a result of the merger. Excluding the merger impact, NPLs increased $5.2 million from
the prior quarter.
NPAs increased $241.4 million from the 2006 fourth quarter reflecting the factors discussed
above as well as increases in middle market CRE NPLs, with $18.5 million, net of charge-offs,
related to the two commercial real estate relationships classified as NPLs in the 2007 second
quarter and an increase in middle market C&I NPLs reflecting $15.0 million related to the one Ohio
commercial credit classified as an NPL during the 2007 second quarter. Residential mortgage NPLs
also increased significantly during this period reflecting the softness in the overall residential
market.
NPLs increased $105.3 million from the 2006 fourth quarter, with $32.7 million merger-related. Middle
market CRE NPLs increased, driven by the $28.5 million attributable to two eastern Michigan
commercial real estate relationships, and middle market C&I loans increased, driven by $15.0
million related to one northern Ohio commercial credit, partially offset by declines in other
loans. The majority of the remainder of the increase resulted from increased in residential
mortgage, reflecting the softness in the overall residential market, and small business.
NPA activity for each of the last five quarters ended September 30, 2007, and for the first
nine-month periods of 2007 and 2006 was as follows:
36
Table 21 Non-Performing Assets (NPAs) Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
(in thousands)
|
|
Third
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
|
|
NPAs, beginning of period
|
|
$
|
261,185
|
|
|
$
|
206,678
|
|
|
$
|
193,620
|
|
|
$
|
171,212
|
|
|
$
|
171,068
|
|
New NPAs
(1)
|
|
|
92,986
|
|
|
|
112,348
|
|
|
|
51,588
|
|
|
|
60,287
|
|
|
|
55,490
|
|
Acquired NPAs
|
|
|
144,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Returns to accruing status
|
|
|
(8,829
|
)
|
|
|
(4,674
|
)
|
|
|
(6,176
|
)
|
|
|
(5,666
|
)
|
|
|
(11,880
|
)
|
NPA losses
|
|
|
(28,031
|
)
|
|
|
(27,149
|
)
|
|
|
(9,072
|
)
|
|
|
(11,908
|
)
|
|
|
(14,143
|
)
|
Payments
|
|
|
(17,589
|
)
|
|
|
(19,662
|
)
|
|
|
(18,086
|
)
|
|
|
(16,673
|
)
|
|
|
(16,709
|
)
|
Sales
|
|
|
(9,172
|
)
|
|
|
(6,356
|
)
|
|
|
(5,196
|
)
|
|
|
(3,632
|
)
|
|
|
(12,614
|
)
|
|
|
|
NPAs, end of period
|
|
$
|
435,042
|
|
|
$
|
261,185
|
|
|
$
|
206,678
|
|
|
$
|
193,620
|
|
|
$
|
171,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
(in thousands)
|
|
2007
|
|
2006
|
|
NPAs, beginning of period
|
|
$
|
193,620
|
|
|
$
|
117,155
|
|
New NPAs
(1), (2)
|
|
|
256,922
|
|
|
|
161,756
|
|
Acquired NPAs
|
|
|
144,492
|
|
|
|
33,843
|
|
Returns to accruing status
|
|
|
(19,679
|
)
|
|
|
(38,333
|
)
|
Loan and lease losses
|
|
|
(64,252
|
)
|
|
|
(34,283
|
)
|
Payments
|
|
|
(55,337
|
)
|
|
|
(42,796
|
)
|
Sales
|
|
|
(20,724
|
)
|
|
|
(26,130
|
)
|
|
NPAs, end of period
|
|
$
|
435,042
|
|
|
$
|
171,212
|
|
|
|
|
|
(1)
|
|
Includes $16.3 million of other NPAs representing certain investment
securities backed by mortgage loans.
|
|
(2)
|
|
Beginning in the second quarter of 2006, new non-performing assets includes OREO
balances of loans in foreclosure which are fully guaranteed by the U.S. Government that were
reported in 90 day past due loans and leases in prior periods.
|
Allowances for Credit Losses (ACL)
(This section should be read in conjunction with Significant Items 1 and 5.)
We maintain two reserves, both of which are available to absorb credit losses: the ALLL and
the AULC. When summed together, these reserves constitute the total ACL. Our credit administration
group is responsible for developing the methodology and determining the adequacy of the ACL.
37
Table 22 reflects activity in the ALLL and AULC for each of the last five quarters.
Table 22 Quarterly Credit Reserves Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
(in thousands)
|
|
Third
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
|
|
Allowance for loan and lease losses,
beginning of period
|
|
$
|
307,519
|
|
|
$
|
282,976
|
|
|
$
|
272,068
|
|
|
$
|
280,152
|
|
|
$
|
287,517
|
|
Acquired allowance for loan and lease losses
|
|
|
188,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
Loan and lease losses
|
|
|
(57,466
|
)
|
|
|
(44,158
|
)
|
|
|
(27,813
|
)
|
|
|
(32,835
|
)
|
|
|
(29,127
|
)
|
Recoveries of loans previously charged off
|
|
|
10,360
|
|
|
|
9,658
|
|
|
|
9,695
|
|
|
|
9,866
|
|
|
|
7,888
|
|
|
|
|
Net loan and lease losses
|
|
|
(47,106
|
)
|
|
|
(34,500
|
)
|
|
|
(18,118
|
)
|
|
|
(22,969
|
)
|
|
|
(21,239
|
)
|
|
|
|
Provision for loan and lease losses
|
|
|
36,952
|
|
|
|
59,043
|
|
|
|
29,026
|
|
|
|
14,885
|
|
|
|
13,774
|
|
Allowance for loans transferred to held-for-sale
|
|
|
(30,709
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses, end of period
|
|
$
|
454,784
|
|
|
$
|
307,519
|
|
|
$
|
282,976
|
|
|
$
|
272,068
|
|
|
$
|
280,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for unfunded loan commitments
and letters of credit, beginning of period
|
|
$
|
41,631
|
|
|
$
|
40,541
|
|
|
$
|
40,161
|
|
|
$
|
39,302
|
|
|
$
|
38,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired AULC
|
|
|
11,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for unfunded loan commitments and
letters of credit losses
|
|
|
5,055
|
|
|
|
1,090
|
|
|
|
380
|
|
|
|
859
|
|
|
|
388
|
|
|
|
|
Allowance for unfunded loan commitments
and letters of credit, end of period
|
|
$
|
58,227
|
|
|
$
|
41,631
|
|
|
$
|
40,541
|
|
|
$
|
40,161
|
|
|
$
|
39,302
|
|
|
|
|
Total allowances for credit losses
|
|
$
|
513,011
|
|
|
$
|
349,150
|
|
|
$
|
323,517
|
|
|
$
|
312,229
|
|
|
$
|
319,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses (ALLL) as % of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction reserve
|
|
|
0.97
|
%
|
|
|
0.94
|
%
|
|
|
0.89
|
%
|
|
|
0.86
|
%
|
|
|
0.86
|
%
|
Economic reserve
|
|
|
0.17
|
|
|
|
0.21
|
|
|
|
0.19
|
|
|
|
0.18
|
|
|
|
0.20
|
|
|
|
|
Total loans and leases
|
|
|
1.14
|
%
|
|
|
1.15
|
%
|
|
|
1.08
|
%
|
|
|
1.04
|
%
|
|
|
1.06
|
%
|
|
|
|
NPLs
|
|
|
182
|
|
|
|
145
|
|
|
|
180
|
|
|
|
189
|
|
|
|
217
|
|
NPAs
|
|
|
105
|
|
|
|
118
|
|
|
|
137
|
|
|
|
141
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowances for credit losses (ACL) as % of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases
|
|
|
1.28
|
%
|
|
|
1.30
|
%
|
|
|
1.23
|
%
|
|
|
1.19
|
%
|
|
|
1.21
|
%
|
NPLs
|
|
|
206
|
|
|
|
165
|
|
|
|
206
|
|
|
|
217
|
|
|
|
247
|
|
NPAs
|
|
|
118
|
|
|
|
134
|
|
|
|
157
|
|
|
|
161
|
|
|
|
187
|
|
|
38
Table 23 reflects activity in the ALLL and AULC for the first nine-month periods of 2007 and
2006.
Table 23 Year to Date Credit Reserves Analysis
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
(in thousands)
|
|
2007
|
|
2006
|
|
Allowance for loan and lease losses,
beginning of period
|
|
$
|
272,068
|
|
|
$
|
268,347
|
|
Acquired allowance for loan and lease losses
|
|
|
188,128
|
|
|
|
23,784
|
|
Loan and lease losses
|
|
|
(129,437
|
)
|
|
|
(86,857
|
)
|
Recoveries of loans previously charged off
|
|
|
29,713
|
|
|
|
27,451
|
|
|
Net loan and lease losses
|
|
|
(99,724
|
)
|
|
|
(59,406
|
)
|
|
Provision for loan and lease losses
|
|
|
125,021
|
|
|
|
47,427
|
|
Allowance for loans transferred to held-for-sale
|
|
|
(30,709
|
)
|
|
|
|
|
|
Allowance for loan and lease losses, end of period
|
|
$
|
454,784
|
|
|
$
|
280,152
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for unfunded loan commitments
and letters of credit, beginning of period
|
|
$
|
40,161
|
|
|
$
|
36,957
|
|
Acquired AULC
|
|
|
11,541
|
|
|
|
325
|
|
Provision for unfunded loan commitments and
letters of credit losses
|
|
|
6,525
|
|
|
|
2,020
|
|
|
Allowance for unfunded loan commitments
and letters of credit, end of period
|
|
$
|
58,227
|
|
|
$
|
39,302
|
|
|
Total allowances for credit losses
|
|
$
|
513,011
|
|
|
$
|
319,454
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses (ALLL) as % of:
|
|
|
|
|
|
|
|
|
Transaction reserve
|
|
|
0.97
|
%
|
|
|
0.86
|
%
|
Economic reserve
|
|
|
0.17
|
|
|
|
0.20
|
|
|
Total loans and leases
|
|
|
1.14
|
%
|
|
|
1.06
|
%
|
|
Non-performing loans and leases (NPLs)
|
|
|
182
|
|
|
|
217
|
|
Non-performing assets (NPAs)
|
|
|
105
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
Total allowances for credit losses (ACL) as % of:
|
|
|
|
|
|
|
|
|
Total loans and leases
|
|
|
1.28
|
%
|
|
|
1.21
|
%
|
Non-performing loans and leases
|
|
|
206
|
|
|
|
247
|
|
Non-performing assets
|
|
|
118
|
|
|
|
187
|
|
|
The increase in the ACL as compared to both the prior quarter and the 2006 fourth quarter is
primarily merger related.
The increase in the transaction reserve component, as compared to the 2006 fourth quarter,
reflected the impact of increasing monitored credits during the 2007 second quarter, primarily
resulting from softness in the residential and commercial real estate markets in the Midwest. The
three relationships noted above represented a significant portion of the additional required
reserve with the remaining increase associated with other relationships meeting the monitored
credit definition.
39
Given the expectation of continued stress in commercial real estate markets, as well as weak
performance of the eastern Michigan and northern Ohio economies, we expect modest increases in the
ALLL ratio in the 2007 fourth quarter.
Net Charge-offs
(This section should be read in conjunction with Significant Items1 and 5.)
Table 24 reflects net loan and lease charge-off detail for each of the last five quarters.
Table 24 Quarterly Net Charge-Off Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
(in thousands)
|
|
Third
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
|
|
Net charge-offs by loan and lease type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle market commercial and
industrial
|
|
$
|
7,760
|
|
|
$
|
3,628
|
|
|
$
|
(11
|
)
|
|
$
|
(1,827
|
)
|
|
$
|
1,742
|
|
Middle market commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
2,160
|
|
|
|
2,876
|
|
|
|
9
|
|
|
|
3,957
|
|
|
|
(2
|
)
|
Commercial
|
|
|
2,282
|
|
|
|
10,428
|
|
|
|
377
|
|
|
|
144
|
|
|
|
644
|
|
|
|
|
Middle market commercial real estate
|
|
|
4,442
|
|
|
|
13,304
|
|
|
|
386
|
|
|
|
4,101
|
|
|
|
642
|
|
Small business
|
|
|
5,102
|
|
|
|
3,603
|
|
|
|
2,089
|
|
|
|
4,535
|
|
|
|
4,451
|
|
|
|
|
Total commercial
|
|
|
17,304
|
|
|
|
20,535
|
|
|
|
2,464
|
|
|
|
6,809
|
|
|
|
6,835
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans
|
|
|
5,354
|
|
|
|
1,631
|
|
|
|
2,853
|
|
|
|
2,422
|
|
|
|
1,759
|
|
Automobile leases
|
|
|
2,561
|
|
|
|
2,699
|
|
|
|
2,201
|
|
|
|
2,866
|
|
|
|
2,306
|
|
|
|
|
Automobile loans and leases
|
|
|
7,915
|
|
|
|
4,330
|
|
|
|
5,054
|
|
|
|
5,288
|
|
|
|
4,065
|
|
Home equity
|
|
|
10,841
|
|
|
|
5,405
|
|
|
|
5,968
|
|
|
|
5,820
|
|
|
|
6,734
|
|
Residential mortgage
|
|
|
4,405
|
|
|
|
1,695
|
|
|
|
1,931
|
|
|
|
2,226
|
|
|
|
876
|
|
Other loans
|
|
|
6,641
|
|
|
|
2,535
|
|
|
|
2,701
|
|
|
|
2,826
|
|
|
|
2,729
|
|
|
|
|
Total consumer
|
|
|
29,802
|
|
|
|
13,965
|
|
|
|
15,654
|
|
|
|
16,160
|
|
|
|
14,404
|
|
|
|
|
Total net charge-offs
|
|
$
|
47,106
|
|
|
$
|
34,500
|
|
|
$
|
18,118
|
|
|
$
|
22,969
|
|
|
$
|
21,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs annualized
percentages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle market commercial and
industrial
|
|
|
0.30
|
%
|
|
|
0.23
|
%
|
|
|
|
%
|
|
|
(0.12
|
)%
|
|
|
0.12
|
%
|
Middle market commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
0.48
|
|
|
|
0.92
|
|
|
|
|
|
|
|
1.35
|
|
|
|
|
|
Commercial
|
|
|
0.16
|
|
|
|
1.46
|
|
|
|
0.05
|
|
|
|
0.02
|
|
|
|
0.09
|
|
|
|
|
Middle market commercial real estate
|
|
|
0.24
|
|
|
|
1.29
|
|
|
|
0.04
|
|
|
|
0.41
|
|
|
|
0.06
|
|
Small business
|
|
|
0.47
|
|
|
|
0.58
|
|
|
|
0.34
|
|
|
|
0.75
|
|
|
|
0.74
|
|
|
|
|
Total commercial
|
|
|
0.31
|
|
|
|
0.64
|
|
|
|
0.08
|
|
|
|
0.22
|
|
|
|
0.23
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans
|
|
|
0.73
|
|
|
|
0.28
|
|
|
|
0.52
|
|
|
|
0.46
|
|
|
|
0.34
|
|
Automobile leases
|
|
|
0.72
|
|
|
|
0.70
|
|
|
|
0.52
|
|
|
|
0.62
|
|
|
|
0.47
|
|
|
|
|
Automobile loans and leases
|
|
|
0.73
|
|
|
|
0.45
|
|
|
|
0.52
|
|
|
|
0.54
|
|
|
|
0.40
|
|
Home equity
|
|
|
0.59
|
|
|
|
0.43
|
|
|
|
0.49
|
|
|
|
0.47
|
|
|
|
0.53
|
|
Residential mortgage
|
|
|
0.32
|
|
|
|
0.16
|
|
|
|
0.17
|
|
|
|
0.19
|
|
|
|
0.07
|
|
Other loans
|
|
|
4.11
|
|
|
|
2.39
|
|
|
|
2.56
|
|
|
|
2.63
|
|
|
|
2.54
|
|
|
|
|
Total consumer
|
|
|
0.67
|
|
|
|
0.41
|
|
|
|
0.46
|
|
|
|
0.46
|
|
|
|
0.40
|
|
|
|
|
Net charge-offs as a % of average loans
|
|
|
0.47
|
%
|
|
|
0.52
|
%
|
|
|
0.28
|
%
|
|
|
0.35
|
%
|
|
|
0.32
|
%
|
|
|
|
40
Table 25 reflects net loan and lease charge-off detail for the first nine-month periods of
2007 and 2006.
Table 25 Year To Date Net Charge-Off Analysis
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
(in thousands)
|
|
2007
|
|
2006
|
|
Net charge-offs by loan and lease type:
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
Middle market commercial and
industrial
|
|
$
|
11,377
|
|
|
$
|
8,145
|
|
Middle market commercial real estate:
|
|
|
|
|
|
|
|
|
Construction
|
|
|
5,045
|
|
|
|
(404
|
)
|
Commercial
|
|
|
13,087
|
|
|
|
2,411
|
|
|
Middle market commercial real estate
|
|
|
18,132
|
|
|
|
2,007
|
|
Small business
|
|
|
10,794
|
|
|
|
10,690
|
|
|
Total commercial
|
|
|
40,303
|
|
|
|
20,842
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
Automobile loans
|
|
|
9,838
|
|
|
|
5,908
|
|
Automobile leases
|
|
|
7,461
|
|
|
|
7,579
|
|
|
Automobile loans and leases
|
|
|
17,299
|
|
|
|
13,487
|
|
Home equity
|
|
|
22,214
|
|
|
|
16,034
|
|
Residential mortgage
|
|
|
8,031
|
|
|
|
2,279
|
|
Other loans
|
|
|
11,877
|
|
|
|
6,764
|
|
|
Total consumer
|
|
|
59,421
|
|
|
|
38,564
|
|
|
Total net charge-offs
|
|
$
|
99,724
|
|
|
$
|
59,406
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs annualized percentages:
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
Middle market commercial and
industrial
|
|
|
0.20
|
%
|
|
|
0.20
|
%
|
Middle market commercial real estate:
|
|
|
|
|
|
|
|
|
Construction
|
|
|
0.48
|
|
|
|
(0.04
|
)
|
Commercial
|
|
|
0.46
|
|
|
|
0.12
|
|
|
Middle market commercial real estate
|
|
|
0.47
|
|
|
|
0.07
|
|
Small business
|
|
|
0.46
|
|
|
|
0.63
|
|
|
Total commercial
|
|
|
0.34
|
|
|
|
0.24
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
Automobile loans
|
|
|
0.53
|
|
|
|
0.39
|
|
Automobile leases
|
|
|
0.64
|
|
|
|
0.48
|
|
|
Automobile loans and leases
|
|
|
0.57
|
|
|
|
0.43
|
|
Home equity
|
|
|
0.54
|
|
|
|
0.43
|
|
Residential mortgage
|
|
|
0.22
|
|
|
|
0.07
|
|
Other loans
|
|
|
3.17
|
|
|
|
2.04
|
|
|
Total consumer
|
|
|
0.53
|
|
|
|
0.36
|
|
|
Net charge-offs as a % of average loans
|
|
|
0.43
|
%
|
|
|
0.31
|
%
|
|
Total commercial net charge-offs in the 2007 third quarter were $17.3 million, or an
annualized 0.31%. This was higher than an annualized 0.22% in the 2006 fourth quarter, but less
than the annualized 0.64% in the prior quarter. In the 2007 second quarter, we provided an
additional $24.8 million for loan losses related to two eastern Michigan homebuilder credits and
one northern Ohio automotive supplier credit. In that quarter, we charged off $12.2 million, or an annualized 0.38%, against these reserves. In the third quarter 2007, we charged off an additional
$10.0 million, or an annualized 0.18%, against these previously established reserves.
Total consumer net charge-offs in the 2007 third quarter were $29.8 million, or an annualized
0.67%. This was higher than the 0.46% in the 2006 fourth quarter and 0.41% in the prior quarter.
The increases in automobile loan and lease net charge-offs from both the prior quarter and 2006
fourth quarter reflected both the impact of the Sky Financial portfolio, as
41
well as seasonal factors. The increases in residential mortgage and home equity net charge-offs
reflected continued market weakness, particularly in the southeast Michigan and northeast Ohio
markets.
Total net charge-offs for the first nine-months of 2007 were an annualized 0.43% of related
total average loans and leases, up from an annualized 0.31% in the comparable year-ago period. The
increase primarily reflected higher commercial loan net charge-offs associated with the general
weakness in our Midwest markets and was influenced by higher CRE net charge-offs. This included
the $22.2 million associated with the three commercial credit relationships noted earlier. The
0.43% annualized total net charge-offs was within our long-term net charge-off targeted range of
0.35%-0.45%.
Market Risk
Market risk represents the risk of loss due to changes in market values of assets and
liabilities. We incur market risk in the normal course of business through exposures to market
interest rates, foreign exchange rates, equity prices, credit spreads, and expected lease residual
values. We have identified two primary sources of market risk: interest rate risk and price risk.
Interest rate risk is our primary market risk.
Interest Rate Risk
Interest rate risk results from timing differences in the repricings and maturities of assets
and liabilities, and changes in relationships between market interest rates and the yields on
assets and rates on liabilities, as well as from the impact of embedded options, such as borrowers
ability to prepay residential mortgage loans at any time and depositors ability to terminate
certificates of deposit before maturity.
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 September 30, 2007 and December 31, 2006. All
of the positions were well within the board of directors policy limits.
Table 26 Net Interest Income at Risk
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income at Risk (%)
|
Basis point change scenario
|
|
-200
|
|
-100
|
|
+100
|
|
+200
|
|
|
|
September 30, 2007
|
|
|
-0.8
|
%
|
|
|
-0.3
|
%
|
|
|
+0.5
|
%
|
|
|
+0.8
|
%
|
December 31, 2006
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
-0.2
|
%
|
|
|
-0.4
|
%
|
The net interest income at risk reported as of September 30, 2007 shows additional asset
sensitivity to the balance sheet reflecting an increase in trading portfolio securities used to
hedge the value of our mortgage servicing rights.
The primary simulations for economic value of equity (EVE) at 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 September 30, 2007 results
compared to December 31, 2006.
42
Table 27 Economic Value of Equity at Risk
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic Value of Equity at Risk (%)
|
Basis point change scenario
|
|
-200
|
|
-100
|
|
+100
|
|
+200
|
|
|
|
September 30, 2007
|
|
|
0.0
|
%
|
|
|
+1.4
|
%
|
|
|
-4.9
|
%
|
|
|
-9.5
|
%
|
December 31, 2006
|
|
|
+0.5
|
%
|
|
|
+1.4
|
%
|
|
|
-4.7
|
%
|
|
|
-11.3
|
%
|
The EVE at risk reported as of September 30, 2007 incorporates a methodology change resulting
from the acquisition of Sky Financial. Previously, EVE at risk was measured on the basis of total
shareholders equity. Going forward, given the impact of the Sky Financial acquisition, EVE at
risk will be measured on the basis of net equity. Net equity equals total shareholders equity
adjusted for goodwill and other intangible assets, and the ACL. This change in the measurement of
EVE risk did not affect our compliance with limits that have been set by our board of directors.
The table below reconciles the difference between total shareholders equity and net equity.
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
(in thousands)
|
|
September 30,
|
|
December 31,
|
|
Total Shareholders Equity
|
|
$
|
6,249,674
|
|
|
$
|
3,014,326
|
|
Less:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
2,995,961
|
|
|
|
570,876
|
|
Other intangible Assets
|
|
|
443,446
|
|
|
|
59,487
|
|
Add:
|
|
|
|
|
|
|
|
|
Allowance for Credit Losses
|
|
|
513,011
|
|
|
|
312,229
|
|
|
Net Equity
|
|
$
|
3,323,278
|
|
|
$
|
2,696,192
|
|
|
Price Risk
Price risk represents the risk of loss arising from adverse movements in the prices of
financial instruments that are carried at fair value and are subject to fair value accounting.
Liquidity Risk
Liquidity risk arises from the possibility that funds may not be available to satisfy current
or future commitments based on external macro market issues, asset and liability activities,
investor perception of financial strength, and events unrelated to the company such as war,
terrorism, or financial institution market specific issues. We manage liquidity risk at both the
Bank and at the parent company, Huntington Bancshares Incorporated.
Liquidity policies and limits are established by our board of directors, with operating limits
set by the market risk committee (MRC), based upon analyses of the ratio of loans to deposits, the
percentage of assets funded with non-core or wholesale funding, and the amount of liquid assets
available to cover non-core funds maturities. In addition, guidelines are established to ensure
diversification of wholesale funding by type, source, and maturity and provide sufficient balance
sheet liquidity to cover 100% of wholesale funds maturing within a six-month time period. A
contingency funding plan is in place, which includes forecasted sources and uses of funds under
various scenarios in order to prepare for unexpected liquidity shortages, including the
implications of any rating changes. The MRC meets monthly to identify and monitor liquidity issues,
provide policy guidance, and oversee adherence to, and the maintenance of, an evolving contingency
funding plan.
Bank Liquidity
Conditions in the capital markets have been volatile during 2007, particularly during the
third quarter. As a result, there have been significant disruptions in a variety of funding
arrangements typically used by many banks, including the availability of liquid markets for the
sale of mortgage loan production not conforming to secondary market standards required by Federal
National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC). In
43
addition, many banks relying on short term funding structures such as commercial paper and
alternative collateral repurchase agreements have had limited access to these markets. Huntington
has maintained a diversified wholesale funding structure with an emphasis on reducing the roll over
risk of maturing borrowings resulting in minimal reliance on the short term funding markets.
Huntington does not have an active commercial paper funding program and, while active in the
securitization markets (primarily indirect auto loans and leases) does not rely heavily on these
sources of funding, and therefore, our liquidity has not been subject to the recent disruption in
its funding positions. In addition, Huntington does not provide liquidity facilities for conduits,
structured investment vehicles, or other off balance sheet financing structures. Indicative credit
spreads have widened for Huntington debt along with other peer banks reflecting the current market
conditions and we expect these spreads to remain wider than in prior quarters.
Our primary source of funding for the Bank is core deposits from retail and commercial
customers. Core deposits are comprised of interest bearing and non-interest bearing demand
deposits, savings and other domestic time deposits, consumer certificates of deposit, and
non-consumer certificates of deposit less than $100,000. Non-core deposits include: brokered time
deposits, large denomination certificates of deposit, foreign deposits, and other domestic time
deposits, comprised primarily of IRA deposits and public fund certificates of deposit greater than
$100,000.
Table 28, presented on the next page, reflects deposit composition detail for each of the past
five quarters.
44
Table 28 Deposit Composition
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
(in thousands)
|
|
September 30,
|
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits non-interest bearing
|
|
$
|
4,984,663
|
|
|
|
13.0
|
%
|
|
$
|
3,625,540
|
|
|
|
14.7
|
%
|
|
$
|
3,696,231
|
|
|
|
15.0
|
%
|
|
$
|
3,615,745
|
|
|
|
14.4
|
%
|
|
$
|
3,480,888
|
|
|
|
14.1
|
%
|
Demand deposits interest bearing
|
|
|
3,982,102
|
|
|
|
10.4
|
|
|
|
2,496,250
|
|
|
|
10.1
|
|
|
|
2,486,304
|
|
|
|
10.1
|
|
|
|
2,389,085
|
|
|
|
9.5
|
|
|
|
2,243,153
|
|
|
|
9.1
|
|
Money market deposits
|
|
|
6,721,963
|
|
|
|
17.5
|
|
|
|
5,323,707
|
|
|
|
21.6
|
|
|
|
5,568,104
|
|
|
|
22.6
|
|
|
|
5,362,459
|
|
|
|
21.4
|
|
|
|
5,678,252
|
|
|
|
23.0
|
|
Savings and other domestic deposits
|
|
|
4,877,476
|
|
|
|
12.7
|
|
|
|
2,845,945
|
|
|
|
11.6
|
|
|
|
2,879,098
|
|
|
|
11.7
|
|
|
|
2,986,287
|
|
|
|
11.9
|
|
|
|
3,011,268
|
|
|
|
12.2
|
|
Core certificates of deposit
|
|
|
10,611,821
|
|
|
|
27.6
|
|
|
|
5,738,598
|
|
|
|
23.3
|
|
|
|
5,408,289
|
|
|
|
22.0
|
|
|
|
5,364,610
|
|
|
|
21.4
|
|
|
|
5,313,473
|
|
|
|
21.5
|
|
|
|
|
Total core deposits
|
|
|
31,178,025
|
|
|
|
81.2
|
|
|
|
20,030,040
|
|
|
|
81.3
|
|
|
|
20,038,026
|
|
|
|
81.4
|
|
|
|
19,718,186
|
|
|
|
78.6
|
|
|
|
19,727,034
|
|
|
|
79.9
|
|
Other domestic deposits of $100,000 or
more
|
|
|
1,914,417
|
|
|
|
5.0
|
|
|
|
1,052,545
|
|
|
|
4.3
|
|
|
|
1,287,186
|
|
|
|
5.2
|
|
|
|
1,191,984
|
|
|
|
4.8
|
|
|
|
1,259,720
|
|
|
|
5.1
|
|
Brokered deposits and negotiable CDs
|
|
|
3,701,726
|
|
|
|
9.6
|
|
|
|
2,920,726
|
|
|
|
11.9
|
|
|
|
2,721,927
|
|
|
|
11.1
|
|
|
|
3,345,943
|
|
|
|
13.4
|
|
|
|
3,183,489
|
|
|
|
12.9
|
|
Deposits in foreign offices
|
|
|
1,610,197
|
|
|
|
4.2
|
|
|
|
596,601
|
|
|
|
2.5
|
|
|
|
538,754
|
|
|
|
2.3
|
|
|
|
791,657
|
|
|
|
3.2
|
|
|
|
568,152
|
|
|
|
2.1
|
|
|
|
|
Total deposits
|
|
$
|
38,404,365
|
|
|
|
100.0
|
%
|
|
$
|
24,599,912
|
|
|
|
100.0
|
%
|
|
$
|
24,585,893
|
|
|
|
100.0
|
%
|
|
$
|
25,047,770
|
|
|
|
100.0
|
%
|
|
$
|
24,738,395
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
9,017,474
|
|
|
|
28.3
|
%
|
|
$
|
6,267,644
|
|
|
|
31.3
|
%
|
|
$
|
6,314,309
|
|
|
|
31.5
|
%
|
|
$
|
6,063,372
|
|
|
|
30.8
|
%
|
|
$
|
6,214,462
|
|
|
|
31.5
|
%
|
Personal
|
|
|
22,160,551
|
|
|
|
71.7
|
|
|
|
13,762,396
|
|
|
|
68.7
|
|
|
|
13,723,717
|
|
|
|
68.5
|
|
|
|
13,654,814
|
|
|
|
69.2
|
|
|
|
13,512,572
|
|
|
|
68.5
|
|
|
|
|
Total core deposits
|
|
$
|
31,178,025
|
|
|
|
100.0
|
%
|
|
$
|
20,030,040
|
|
|
|
100.0
|
%
|
|
$
|
20,038,026
|
|
|
|
100.0
|
%
|
|
$
|
19,718,186
|
|
|
|
100.0
|
%
|
|
$
|
19,727,034
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Business Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regional Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central Ohio
|
|
$
|
5,931,926
|
|
|
|
15.4
|
%
|
|
$
|
5,052,242
|
|
|
|
20.5
|
%
|
|
$
|
5,130,716
|
|
|
|
20.9
|
%
|
|
$
|
5,122,091
|
|
|
|
20.4
|
%
|
|
$
|
5,040,855
|
|
|
|
20.4
|
%
|
Northwest Ohio
|
|
|
2,841,442
|
|
|
|
7.4
|
|
|
|
1,097,765
|
|
|
|
4.5
|
|
|
|
1,062,255
|
|
|
|
4.3
|
|
|
|
1,043,918
|
|
|
|
4.2
|
|
|
|
1,008,951
|
|
|
|
4.1
|
|
Greater Cleveland
|
|
|
3,071,014
|
|
|
|
8.0
|
|
|
|
2,025,824
|
|
|
|
8.2
|
|
|
|
2,020,165
|
|
|
|
8.2
|
|
|
|
1,995,203
|
|
|
|
8.0
|
|
|
|
2,126,795
|
|
|
|
8.6
|
|
Greater Akron/Canton
|
|
|
2,629,397
|
|
|
|
6.8
|
|
|
|
1,883,329
|
|
|
|
7.7
|
|
|
|
1,909,677
|
|
|
|
7.8
|
|
|
|
1,894,707
|
|
|
|
7.6
|
|
|
|
1,896,046
|
|
|
|
7.7
|
|
Southern Ohio / Kentucky
|
|
|
2,626,166
|
|
|
|
6.8
|
|
|
|
2,353,087
|
|
|
|
9.6
|
|
|
|
2,353,129
|
|
|
|
9.6
|
|
|
|
2,275,880
|
|
|
|
9.1
|
|
|
|
2,212,443
|
|
|
|
8.9
|
|
Mahoning Valley
|
|
|
1,540,095
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ohio Valley
|
|
|
1,374,947
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Michigan
|
|
|
2,966,558
|
|
|
|
7.7
|
|
|
|
2,820,076
|
|
|
|
11.5
|
|
|
|
2,826,489
|
|
|
|
11.5
|
|
|
|
2,757,434
|
|
|
|
11.0
|
|
|
|
2,938,112
|
|
|
|
11.9
|
|
East Michigan
|
|
|
2,420,169
|
|
|
|
6.3
|
|
|
|
2,357,108
|
|
|
|
9.6
|
|
|
|
2,460,100
|
|
|
|
10.0
|
|
|
|
2,418,450
|
|
|
|
9.7
|
|
|
|
2,357,607
|
|
|
|
9.5
|
|
Western Pennsylvania
|
|
|
1,663,174
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pittsburgh
|
|
|
933,468
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central Indiana
|
|
|
1,910,530
|
|
|
|
5.0
|
|
|
|
851,839
|
|
|
|
3.5
|
|
|
|
903,119
|
|
|
|
3.7
|
|
|
|
819,106
|
|
|
|
3.3
|
|
|
|
847,726
|
|
|
|
3.4
|
|
West Virginia
|
|
|
1,559,864
|
|
|
|
4.1
|
|
|
|
1,586,407
|
|
|
|
6.4
|
|
|
|
1,547,095
|
|
|
|
6.3
|
|
|
|
1,515,999
|
|
|
|
6.1
|
|
|
|
1,517,834
|
|
|
|
6.1
|
|
Other Regional
|
|
|
1,319,027
|
|
|
|
3.4
|
|
|
|
490,194
|
|
|
|
2.0
|
|
|
|
163,456
|
|
|
|
1.7
|
|
|
|
387,819
|
|
|
|
1.5
|
|
|
|
354,888
|
|
|
|
1.4
|
|
|
|
|
Regional Banking
|
|
|
32,787,777
|
|
|
|
85.4
|
|
|
|
20,517,871
|
|
|
|
83.4
|
|
|
|
20,637,340
|
|
|
|
83.9
|
|
|
|
20,230,607
|
|
|
|
80.8
|
|
|
|
20,301,257
|
|
|
|
82.1
|
|
Dealer Sales
|
|
|
63,399
|
|
|
|
0.2
|
|
|
|
57,554
|
|
|
|
0.2
|
|
|
|
54,644
|
|
|
|
0.2
|
|
|
|
58,885
|
|
|
|
0.2
|
|
|
|
58,918
|
|
|
|
0.2
|
|
Private Financial and Capital Markets Group
|
|
|
1,630,869
|
|
|
|
4.2
|
|
|
|
1,103,760
|
|
|
|
4.5
|
|
|
|
1,171,982
|
|
|
|
4.8
|
|
|
|
1,162,335
|
|
|
|
4.6
|
|
|
|
1,144,731
|
|
|
|
4.6
|
|
Treasury / Other
(2)
|
|
|
3,922,320
|
|
|
|
10.2
|
|
|
|
2,920,727
|
|
|
|
11.9
|
|
|
|
2,721,927
|
|
|
|
11.1
|
|
|
|
3,595,943
|
|
|
|
14.4
|
|
|
|
3,233,489
|
|
|
|
13.1
|
|
|
|
|
Total deposits
|
|
$
|
38,404,365
|
|
|
|
100.0
|
%
|
|
$
|
24,599,912
|
|
|
|
100.0
|
%
|
|
$
|
24,585,893
|
|
|
|
100.0
|
%
|
|
$
|
25,047,770
|
|
|
|
100.0
|
%
|
|
$
|
24,738,395
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
(1)
|
|
Reflects post-Sky Financial merger organizational structure effective on July 1,
2007. Accordingly, balances presented for prior periods do not include the impact of the
acquisition.
|
|
(2)
|
|
Comprised largely of national market deposits.
|
45
Core deposits can also increase our need for liquidity as certificates of deposit mature or
are withdrawn early and as non-maturity deposits, such as checking and savings account balances,
are withdrawn.
To the extent that we are unable to obtain sufficient liquidity through core deposits, we can
meet our liquidity needs through short-term borrowings by purchasing fed funds or by selling
securities under repurchase agreements. Our bank also has a $6.0 billion bank note facility, of
which $2.8 billion remains available and a $4.5 billion borrowing capacity at the Federal Home Loan
Bank of Cincinnati, of which $1.8 billion remained unused at September 30, 2007. Other sources of
liquidity exist within our securities available for sale, the relatively shorter-term structure of
our commercial loans and automobile loans, and the Federal Reserve Banks discount window.
At September 30, 2007, we believe that the Bank had sufficient liquidity to meet its cash flow
obligations for the foreseeable future.
Parent Company Liquidity
At September 30, 2007, the parent company had $240.2 million in cash or cash equivalents.
This declined significantly during the quarter and returned to a more typical level when, on July
2, 2007, as part of consideration for the merger, the parent company made a cash payment of $357.0
million to the former shareholders of Sky Financial as part of the purchase price. On July 17,
2007, Huntington declared a quarterly cash dividend on its common stock of $0.265 per common share,
payable October 1, 2007, to shareholders of record on September 14, 2007. In October 2007, the
Bank declared and paid a dividend of $120.0 million to the parent company. Based on the
regulatory dividend limitation, the Bank could have declared and paid $111.7 million of additional
dividends to the parent company at September 30, 2007 without regulatory approval.
To help meet any additional liquidity needs, we have an open-ended, automatic shelf
registration statement filed and effective with the SEC, which permits us to issue an unspecified
amount of debt or equity securities.
Considering potential future obligations, and expected dividend payments, we believe the
parent company has sufficient liquidity to meet its cash flow obligations for the foreseeable
future.
Credit Ratings
Credit ratings by the three major credit rating agencies are an important component of our
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 our 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.
(See the Liquidity
Risks section in Part 1 of the 2006 Annual Report on
Form 10-K
for additional discussion.)
Credit ratings as of September 30, 2007, for the parent company and the Bank were:
46
Table 29 Credit Ratings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007
|
|
|
|
Senior Unsecured
|
|
|
Subordinated
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
Notes
|
|
|
Short-Term
|
|
|
Outlook
|
|
|
|
|
Huntington Bancshares
Incorporated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Moodys Investor Service
|
|
|
A3
|
|
|
Baal
|
|
|
P-2
|
|
|
Stable
|
Standard and Poors
|
|
BBB+
|
|
BBB
|
|
|
A-2
|
|
|
Stable
|
Fitch Ratings
|
|
|
A
|
|
|
|
A-
|
|
|
|
F1
|
|
|
Stable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Huntington National Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Moodys Investor Service
|
|
|
A2
|
|
|
|
A3
|
|
|
|
P-1
|
|
|
Stable
|
Standard and Poors
|
|
|
A-
|
|
|
BBB+
|
|
|
A-2
|
|
|
Stable
|
Fitch Ratings
|
|
|
A
|
|
|
|
A-
|
|
|
|
F1
|
|
|
Stable
|
These credit ratings were unchanged from December 31, 2006 and were re-affirmed by each of the
credit rating agencies after the Sky Financial acquisition was announced.
Off-Balance Sheet Arrangements
In the normal course of business, we enter into various off-balance sheet arrangements. These
arrangements include financial guarantees contained in standby letters of credit issued by the Bank
and commitments by the Bank to sell mortgage loans.
Through our credit process, we monitor the credit risks of outstanding standby letters of
credit. When it is probable that a standby letter of credit will be drawn and not repaid in full,
losses are recognized in the provision for credit losses. At September 30, 2007, we had $1.5
billion of standby letters of credit outstanding, of which 34% were collateralized.
We enter into forward contracts relating to the mortgage banking business. At September 30,
2007, December 31, 2006, and September 30, 2006, we had commitments to sell residential real estate
loans of $466.1 million, $319.9 million, and $314.2 million, respectively. These contracts mature
in less than one year.
We do not believe that off-balance sheet arrangements will have a material impact on our
liquidity or capital resources.
Capital
Capital is managed both at the Bank and on a consolidated basis. Capital levels are maintained
based on regulatory capital requirements and the economic capital required to support credit,
market, liquidity, and operational risks inherent in our business, and to provide the flexibility
needed for future growth and new business opportunities.
During the second quarter of 2007, Huntington Capital III, a trust formed by us, issued $250
million of enhanced trust preferred securities. The securities were secured by junior subordinated
notes from the parent company. The enhanced trust preferred securities have a coupon of 6.65% for
the first ten years and a floating rate thereafter. They also have a scheduled maturity date of
2037 and may be called, at our discretion, at the 10
th
and 20
th
anniversaries
of the issuance of the notes. In accordance with FIN 46R, the trust is not consolidated in our
balance sheet; the junior subordinated notes issued by the parent company represent the obligation
reflected in our balance sheet. The junior subordinate notes issued to this trust qualify as Tier
1 regulatory capital for Huntington.
Our total risk-weighted assets, Tier 1 leverage, Tier 1 risk-based capital, and total
risk-based capital ratios for five quarters are shown in Table 30 and are well in excess of minimum
levels established for well capitalized institutions of 5.00%, 6.00%, and 10.00%, respectively.
The decrease in the tangible equity to assets ratio from December 31, 2006,
47
primarily reflected the impact of the $2.8 billion of intangibles recorded with the Sky Financial
acquisition and a temporary $1.5 billion increase in other assets, which cleared in October of
2007. The expectation is that this ratio will return to our targeted range of 6.00%-6.25% by
mid-2008. The decrease in the tangible equity to risk-weighted asset ratio from December 31, 2006
was also primarily merger related.
Table 30 Capital Adequacy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized
|
|
2007
|
|
|
2006
|
(in millions)
|
|
Minimums
|
|
September 30,
|
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
|
|
|
|
Total risk-weighted assets
(1)
|
|
|
|
|
|
$
|
45,978
|
|
|
$
|
32,121
|
|
|
$
|
31,473
|
|
|
$
|
31,155
|
|
|
$
|
31,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 leverage ratio
(1)
|
|
|
5.00
|
%
|
|
|
7.58
|
%
|
|
|
9.07
|
%
|
|
|
8.24
|
%
|
|
|
8.00
|
%
|
|
|
7.99
|
%
|
Tier 1 risk-based capital ratio
(1)
|
|
|
6.00
|
|
|
|
8.35
|
|
|
|
9.74
|
|
|
|
8.98
|
|
|
|
8.93
|
|
|
|
8.95
|
|
Total risk-based capital ratio
(1)
|
|
|
10.00
|
|
|
|
11.54
|
|
|
|
13.49
|
|
|
|
12.82
|
|
|
|
12.79
|
|
|
|
12.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible equity / asset ratio
|
|
|
|
|
|
|
5.42
|
|
|
|
6.82
|
|
|
|
7.06
|
|
|
|
6.87
|
|
|
|
7.13
|
|
Tangible equity / risk-weighted assets ratio
(1)
|
|
|
|
|
|
|
6.11
|
|
|
|
7.60
|
|
|
|
7.70
|
|
|
|
7.65
|
|
|
|
7.97
|
|
Average equity / average assets
|
|
|
|
|
|
|
11.50
|
|
|
|
8.66
|
|
|
|
8.63
|
|
|
|
8.70
|
|
|
|
8.30
|
|
|
|
|
(1)
|
|
September 30, 2007 figures are estimated. Based on an interim decision by the
banking agencies on December 14, 2006, Huntington has excluded the impact of adopting
Statement 158 from the regulatory capital calculations.
|
The Bank is primarily supervised and regulated by the OCC, which establishes regulatory
capital guidelines for banks similar to those established for bank holding companies by the Federal
Reserve Board. We intend to maintain the Banks risk-based capital ratios at levels at which the
Bank would be considered well capitalized by regulators. At September 30, 2007, the Bank had
tier one and total risk-based capital in excess of the minimum level required to be considered
well capitalized of $447.6 million and $194.1 million, respectively.
48
Table 31 Quarterly Common Stock Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
(in thousands, except per share amounts)
|
|
Third
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock price, per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
(1)
|
|
$
|
22.930
|
|
|
$
|
22.960
|
|
|
$
|
24.140
|
|
|
$
|
24.970
|
|
|
$
|
24.820
|
|
Low
(1)
|
|
|
16.050
|
|
|
|
21.300
|
|
|
|
21.610
|
|
|
|
22.870
|
|
|
|
23.000
|
|
Close
|
|
|
16.980
|
|
|
|
22.740
|
|
|
|
21.850
|
|
|
|
23.750
|
|
|
|
23.930
|
|
Average closing price
|
|
|
18.671
|
|
|
|
22.231
|
|
|
|
23.117
|
|
|
|
24.315
|
|
|
|
23.942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends, per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared on common stock
|
|
$
|
0.265
|
|
|
$
|
0.265
|
|
|
$
|
0.265
|
|
|
$
|
0.250
|
|
|
$
|
0.250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average basic
|
|
|
365,895
|
|
|
|
236,032
|
|
|
|
235,586
|
|
|
|
236,426
|
|
|
|
237,672
|
|
Average diluted
|
|
|
368,280
|
|
|
|
239,008
|
|
|
|
238,754
|
|
|
|
239,881
|
|
|
|
240,896
|
|
Ending
|
|
|
365,898
|
|
|
|
236,244
|
|
|
|
235,714
|
|
|
|
235,474
|
|
|
|
237,921
|
|
Book value per share
|
|
$
|
17.08
|
|
|
$
|
12.97
|
|
|
$
|
12.95
|
|
|
$
|
12.80
|
|
|
$
|
13.15
|
|
Tangible book value per share
|
|
|
7.68
|
|
|
|
10.33
|
|
|
|
10.29
|
|
|
|
10.12
|
|
|
|
10.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common share repurchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares repurchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,050
|
|
|
|
|
|
|
|
|
(1)
|
|
High and low stock prices are intra-day quotes obtained from NASDAQ.
|
49
LINES OF BUSINESS DISCUSSION
This section reviews financial performance from a line of business perspective and should be
read in conjunction with the Discussion of Results of Operations, Note 14 of the Notes to Unaudited
Condensed Consolidated Financial Statements, and other sections for a full understanding of
consolidated financial performance.
We have three distinct lines of business: Regional Banking, Dealer Sales, and the Private
Financial and Capital Markets Group (PFCMG). A fourth segment includes our Treasury function and
other unallocated assets, liabilities, revenue, and expense. Lines of business results are
determined based upon our management reporting system, which assigns balance sheet and income
statement items to each of the business segments. The process is designed around our
organizational and management structure and, accordingly, the results derived are not necessarily
comparable with similar information published by other financial institutions. An overview of this
system is provided below, along with a description of each segment and discussion of financial
results.
Acquisition of Sky Financial
The businesses acquired in the Sky Financial merger were fully integrated into each of the
corresponding Huntington lines of business as of July 1, 2007. The Sky Financial merger had the
largest impact on the Regional Banking line of business, and also significantly impacted PFCMG and
Treasury/Other. For Regional Banking, the merger added four new banking regions and strengthened
our presence in five regions where Huntington previously operated. The merger did not
significantly impact our Dealer Sales line of business.
Funds Transfer Pricing
We use a centralized funds transfer pricing (FTP) methodology to attribute appropriate net
interest income to the business segments. The Treasury/Other business segment charges (credits) an
internal cost of funds for assets held in (or pays for funding provided by) each line of business.
The FTP rate is based on prevailing market interest rates for comparable duration assets (or
liabilities). Deposits of an indeterminate maturity receive an FTP credit based on vintage-based
pool rates. Other assets, liabilities, and capital are charged (credited) with a four-year moving
average FTP rate. The intent of the FTP methodology is to eliminate all interest rate risk from
the lines of business by providing matched duration funding of assets and liabilities. The result
is to centralize the financial impact, management, and reporting of interest rate and liquidity
risk in Treasury/Other where it can be monitored and managed.
Treasury/Other
The Treasury function includes revenue and expense related to assets, liabilities, and equity
not directly assigned or allocated to one of the other three business segments. Assets in this
segment include investment securities and bank owned life insurance.
50
Net interest income includes the impact of administering our investment securities portfolios
and the net impact of derivatives used to hedge interest rate sensitivity. Non-interest income
includes miscellaneous fee income not allocated to other business segments such as bank owned life
insurance income and any investment securities and trading assets gains or losses. Non-interest
expense includes certain corporate administrative, merger, and other miscellaneous expenses not
allocated to other business segments. The provision for income taxes for the other business
segments is calculated at a statutory 35% tax rate, though our overall effective tax rate is lower.
As a result, Treasury reflects a credit for income taxes representing the difference between the
actual effective tax rate and the statutory tax rate used to allocate income taxes to the other
segments.
51
Regional Banking
(This section should be read in conjunction with Significant Items 1, 5, and 7.)
Objectives, Strategies, and Priorities
Our Regional Banking line of business provides traditional banking products and services to
consumer, small business, and commercial customers located in its 13 operating regions within the
six states of Ohio, Michigan, West Virginia, Indiana, Pennsylvania, and Kentucky. It provides
these services through a banking network of over 600 branches, and over 1,400 ATMs, along with
Internet and telephone banking channels. It also provides certain services outside of these six
states, including mortgage banking and equipment leasing. 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. At September 30,
2007, Retail Banking accounted for 50% and 79% 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.
We have a business model that emphasizes the delivery of a complete set of banking products
and services offered by larger banks, but distinguished by local decision-making about the pricing
and the offering of these products. Our strategy is to focus on building a deeper relationship
with our customers by providing a Simply the Best service experience. This focus on service
requires continued investments in state-of-the-art platform technology in our branches,
award-winning retail and business websites for our customers, extensive development of associates,
and internal processes that empower our local bankers to serve our customers better. We expect the
combination of local decision-making and Simply the Best service will result in a competitive
advantage and drive revenue and earnings growth.
Table 32 Key Performance Indicators for Regional Banking
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Change
|
(in thousands unless otherwise noted)
|
|
2007
|
|
2006
|
|
Amount
|
|
Percent
|
|
Net income operating
|
|
$
|
276,336
|
|
|
$
|
260,645
|
|
|
$
|
15,691
|
|
|
|
6.0
|
%
|
Total average assets (in millions of dollars)
|
|
|
25,514
|
|
|
|
20,298
|
|
|
|
5,216
|
|
|
|
25.7
|
|
Total average deposits (in millions of dollars)
|
|
|
24,549
|
|
|
|
19,555
|
|
|
|
4,994
|
|
|
|
25.5
|
|
Return on average equity
|
|
|
26.8
|
%
|
|
|
30.9
|
%
|
|
|
(4.1
|
)%
|
|
|
(13.3
|
)
|
Retail banking # DDA households (eop)
|
|
|
910,947
|
|
|
|
560,526
|
|
|
|
350,421
|
|
|
|
62.5
|
|
Retail banking # new relationships 90-day cross-sell (average)
|
|
|
2.68
|
|
|
|
2.80
|
|
|
|
(0.12
|
)
|
|
|
(4.3
|
)
|
Small business # business DDA relationships (eop)
|
|
|
104,137
|
|
|
|
60,341
|
|
|
|
43,796
|
|
|
|
72.6
|
|
Small business # new relationships 90-day cross-sell (average)
|
|
|
2.40
|
|
|
|
2.25
|
|
|
|
0.15
|
|
|
|
6.7
|
|
Mortgage banking closed loan volume (in millions)
|
|
$
|
2,508
|
|
|
$
|
2,131
|
|
|
$
|
377
|
|
|
|
17.7
|
|
|
eop End of Period.
2007 First Nine Months versus 2006 First Nine Months
Regional Banking contributed $276.3 million, or 88%, of the companys net operating earnings
for the first nine months of 2007. This compares with $260.6 million in the same year-ago period an increase of $15.7 million, or 6%. The $15.7 million increase includes the impact of the
Sky Financial acquisition. Substantially all of the increase in each income statement component
was attributable to the impact of the acquisition.
52
Net interest income increased $120.4 million, substantially all of which was merger related. Since
77% of Huntingtons average loans and leases and 85% of Huntingtons total deposits are provided by
Regional Banking, the performance and performance trends for net interest income are substantially
the same as those of Huntington, and thus, Regional Bankings net interest income performance
trends do not materially differ from those discussed under Results of Operations Net interest
income. The following table details the impact of the merger on Regional Bankings third quarter
average total loans including a full quarter of merger related impact, compared with the second
quarter, which does not include any merger related impact:
Average Total Loans and Leases
Regional Banking
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third
|
|
Second
|
|
|
|
|
|
|
Quarter
|
|
Quarter
|
|
Change
|
(in millions)
|
|
2007
|
|
2007
|
|
Amount
|
|
Central Ohio
|
|
$
|
4,910
|
|
|
$
|
3,681
|
|
|
$
|
1,229
|
|
Northwest Ohio
|
|
|
2,341
|
|
|
|
452
|
|
|
|
1,889
|
|
Greater Cleveland
|
|
|
2,993
|
|
|
|
2,064
|
|
|
|
929
|
|
Greater Akron/Canton
|
|
|
2,024
|
|
|
|
1,328
|
|
|
|
696
|
|
Southern Ohio/Kentucky
|
|
|
2,527
|
|
|
|
2,205
|
|
|
|
322
|
|
Mahoning Valley
|
|
|
871
|
|
|
|
|
|
|
|
871
|
|
Ohio Valley
|
|
|
759
|
|
|
|
|
|
|
|
759
|
|
West Michigan
|
|
|
2,484
|
|
|
|
2,447
|
|
|
|
37
|
|
East Michigan
|
|
|
1,662
|
|
|
|
1,639
|
|
|
|
23
|
|
Western Pennsylvania
|
|
|
1,069
|
|
|
|
|
|
|
|
1,069
|
|
Pittsburgh
|
|
|
912
|
|
|
|
|
|
|
|
912
|
|
Central Indiana
|
|
|
1,406
|
|
|
|
982
|
|
|
|
424
|
|
West Virginia
|
|
|
1,163
|
|
|
|
1,128
|
|
|
|
35
|
|
Other Regional
|
|
|
6,834
|
|
|
|
3,737
|
|
|
|
3,097
|
|
|
Regional Banking
|
|
$
|
31,955
|
|
|
$
|
19,663
|
|
|
$
|
12,292
|
|
|
N.M. Not meaningful.
Additionally, the Sky Financial merger impacted deposits. The following table details the
impact of the merger on Regional Bankings third quarter average total loans including a full
quarter of merger related impact, compared with the second quarter, which does not include any
merger related impact:
Average Total Deposits
Regional Banking
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third
|
|
|
Second
|
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Change
|
(in millions)
|
|
2007
|
|
|
2007
|
|
|
Amount
|
|
Central Ohio
|
|
$
|
6,026
|
|
|
$
|
5,014
|
|
|
$
|
1,012
|
|
Northwest Ohio
|
|
|
2,856
|
|
|
|
1,070
|
|
|
|
1,786
|
|
Greater Cleveland
|
|
|
2,969
|
|
|
|
2,024
|
|
|
|
945
|
|
Greater Akron/Canton
|
|
|
2,613
|
|
|
|
1,898
|
|
|
|
715
|
|
Southern Ohio/Kentucky
|
|
|
2,564
|
|
|
|
2,333
|
|
|
|
231
|
|
Mahoning Valley
|
|
|
1,562
|
|
|
|
|
|
|
|
1,562
|
|
Ohio Valley
|
|
|
1,380
|
|
|
|
|
|
|
|
1,380
|
|
West Michigan
|
|
|
2,868
|
|
|
|
2,784
|
|
|
|
84
|
|
East Michigan
|
|
|
2,423
|
|
|
|
2,397
|
|
|
|
26
|
|
Western Pennsylvania
|
|
|
1,695
|
|
|
|
|
|
|
|
1,695
|
|
Pittsburgh
|
|
|
943
|
|
|
|
|
|
|
|
943
|
|
Central Indiana
|
|
|
1,831
|
|
|
|
854
|
|
|
|
977
|
|
West Virginia
|
|
|
1,562
|
|
|
|
1,535
|
|
|
|
27
|
|
Other Regional
|
|
|
1,597
|
|
|
|
487
|
|
|
|
1,110
|
|
|
Regional Banking
|
|
$
|
32,889
|
|
|
$
|
20,396
|
|
|
$
|
12,493
|
|
|
53
Non-interest income increased $63.3 million, substantially all of which was merger related.
For the first nine months of 2007, non-merger deposit service charges and electronic banking fees
showed significant growth compared with the same year-ago period.
Non-interest expense increased $86.3 million, substantially all of which was merger related.
During the quarter, Sky Bank was merged into the Bank, concurrent with the conversion of major
systems. At this time, we closed several duplicate branches. Non-merger related decreases in
non-interest expense were noted in personnel costs, net occupancy, and marketing.
Regional Bankings provision for credit losses increased $73.2 million for the first nine
months from the comparable year-ago period. As 77% of Huntingtons average loans and lease
balances are provided by Regional Banking, and as Regional Banking accounts for 98% of Huntingtons
NPAs, the credit quality performance and trends in credit quality are substantially the same as
those of Huntington and, thus, Regional Bankings credit quality trends do not materially differ
from those discussed under Risk Management and Capital Credit Quality.
After the merger with Sky Financial, regional banking now has 13 banking regions, organized
under four group presidents. The merger helps to diversify Regional Bankings performance from the
economic issues in any one region and strengthens our market share, ranking first in four of our 12
Metropolitan Statistical Areas (MSAs). Additionally, the acquisition strengthens our mortgage
banking business, expanding the mortgage loans serviced for others to $15.1 billion from $8.0
billion. The merger also expanded our equipment leasing and small-business administration (SBA)
lending businesses.
54
Dealer Sales
(This section should be read in conjunction with Significant Item 1 and 7.)
Objectives, Strategies, and Priorities
Our Dealer Sales line of business provides a variety of banking products and services to more
than 3,600 automotive dealerships within our primary banking markets, as well as in Arizona,
Florida, Georgia, Nevada, New Jersey, New York, North Carolina, South Carolina, and Tennessee.
Dealer Sales finances the purchase of automobiles by customers at the automotive dealerships;
purchases automobiles from dealers and simultaneously leases the automobiles to consumers under
long-term leases; finances dealerships new and used vehicle inventories, land, buildings, and
other real estate owned by the dealership, or dealer working capital needs; and provides other
banking services to the automotive dealerships and their owners. Competition from the financing
divisions of automobile manufacturers and from other financial institutions is intense. Dealer
Sales production opportunities are directly impacted by the general automotive sales business,
including programs initiated by manufacturers to enhance and increase sales directly. We have
been in this line of business for over 50 years.
The Dealer Sales strategy has been to focus on developing relationships with the dealership through
its finance department, general manager, and owner. An underwriter who understands each local
market makes loan decisions, though we prioritize maintaining pricing discipline over market share.
Table 33 Key Performance Indicators for Dealer Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Change
|
(in thousands unless otherwise noted)
|
|
2007
|
|
2006
|
|
Amount
|
|
Percent
|
|
|
|
Net income operating
|
|
$
|
36,502
|
|
|
$
|
49,913
|
|
|
$
|
(13,411
|
)
|
|
|
(26.9
|
)
%
|
Total average assets (in millions of dollars)
|
|
|
5,031
|
|
|
|
5,403
|
|
|
|
(372
|
)
|
|
|
(6.9
|
)
|
Return on average equity
|
|
|
26.8
|
%
|
|
|
23.7
|
%
|
|
|
3.1
|
%
|
|
|
13.1
|
|
Automobile loans production (in millions)
|
|
$
|
1,423.6
|
|
|
$
|
1,337.4
|
|
|
$
|
86.2
|
|
|
|
6.4
|
|
Automobile leases production (in millions)
|
|
|
239.4
|
|
|
|
273.7
|
|
|
|
(34.3
|
)
|
|
|
(12.5
|
)
|
2007 First Nine Months versus 2006 First Nine Months
Dealer Sales contributed $36.5 million, or 12%, of the companys net operating earnings for
the first nine months of 2007. This compared with $49.9 million in the same year-ago period, a
decline of $13.4 million, or 27%.
Factors contributing to the $13.4 million decline in net operating earnings include:
Net interest income declined $3.7 million, or 4%, in fully taxable equivalent net interest
income, primarily reflecting a 10 basis point decline in the net interest margin to 2.54% for the
first nine months of 2007 from 2.64% for the comparable year-ago period. This decline reflected a
continuation of competitive pricing pressures and the resulting lower margins on new production as
compared with margins on loans and leases that are being repaid. The addition of automobile loans
acquired from Sky Financial and an increase in indirect loan production partially offset this
decline.
The provision for credit losses increased $7.2 million, or 76%, primarily reflecting a $4.1
million increase in net charge-offs and an increase in the provision attributed to loan growth. Net
charge-offs totaled $18.3 million, or an annualized 0.48%, of average loans and leases, for the
first nine months of 2007 as compared with $14.3 million, or an annualized 0.38% of average loans
and leases, for the comparable year-ago period. Growth in total loans and direct finance leases,
excluding loans added by the Sky Financial acquisition, was primarily attributed to higher
production as well as lower sales levels, noted below.
55
Non-interest income declined $36.6 million, or 53%, primarily reflecting the decrease in net
automobile operating lease income as that portfolio continued to decline. Additionally, there were
declines in insurance related revenues, lease termination income and servicing income totaling $4.0
million.
Non-interest expense declined $26.8 million, or 32%, primarily reflecting a $24.1 million
decrease in automobile operating lease expense. Other non-interest expense declined $2.7 million,
reflecting declines in lease residual value insurance and other residual value related losses due
to an overall decline in the lease portfolio along with lower relative losses on vehicles sold at
auction.
56
Private Financial and Capital Markets Group (PFCMG)
(This section should be read in conjunction with Significant Items 1, 3, and 4.)
Objectives, Strategies, and Priorities
The PFCMG provides products and services designed to meet the needs of higher net worth
customers. Revenue is derived through the sale of trust, asset management, investment advisory,
brokerage, insurance, and private banking products and services. Sky Insurance, included within PFCMG,
provides retail and commercial insurance agency services. PFCMG also focuses on financial solutions
for corporate and institutional customers that include investment banking, sales and trading of
securities, mezzanine capital financing, and risk management products. To serve higher net worth
customers, a unique distribution model is used that employs a single, unified sales force to
deliver products and services mainly through Regional Banking distribution channels. PFCMG
provides investment management and custodial services to our 31 proprietary mutual funds, including
11 variable annuity funds, which represented approximately $4.6 billion in assets under management
at September 30, 2007. The Huntington Investment Company offers brokerage and investment advisory
services to both Regional Banking and PFCMG customers through a combination of licensed investment
sales representatives and licensed personal bankers. PFCMGs insurance entities provide a complete
array of insurance products including individual life insurance products ranging from basic term
life insurance to estate planning, group life and health insurance, property and casualty
insurance, mortgage title insurance, and reinsurance for payment protection products. Income and
related expenses from the sale of brokerage and insurance products is shared with the line of
business that generated the sale or provided the customer referral, most notably Regional Banking.
PFCMGs primary goals are to consistently increase assets under management by offering innovative
products and services that are responsive to our clients changing financial needs and to grow the
balance sheet mainly through increased loan volume achieved through improved cross-selling efforts.
To grow managed assets, the Huntington Investment Company sales team has been utilized as the
distribution source for trust and investment management.
Table 34 Key Performance Indicators for Private Financial and Capital Markets Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Change
|
(in thousands unless otherwise noted)
|
|
2007
|
|
2006
|
|
Amount
|
|
Percent
|
|
|
|
Net income operating
|
|
$
|
34,441
|
|
|
$
|
40,854
|
|
|
$
|
(6,413
|
)
|
|
|
(15.7)
|
%
|
Total average assets (in millions of dollars)
|
|
|
2,438
|
|
|
|
2,102
|
|
|
|
336
|
|
|
|
16.0
|
|
Return on average equity
|
|
|
27.1
|
%
|
|
|
36.3
|
%
|
|
|
(9.2)
|
%
|
|
|
(25.3
|
)
|
Total brokerage and insurance income
|
|
$
|
61,200
|
|
|
$
|
40,627
|
|
|
$
|
20,573
|
|
|
|
50.6
|
|
Total assets under management (in billions)
|
|
|
16.7
|
|
|
|
11.9
|
|
|
|
4.8
|
|
|
|
40.3
|
|
Total trust assets (in billions)
|
|
|
60.0
|
|
|
|
49.6
|
|
|
|
10.4
|
|
|
|
21.0
|
|
2007 First Nine Months versus 2006 First Nine Months
PFCMG contributed $34.4 million, or 11%, of the companys net operating earnings for the first
nine months of 2007. This compared with $40.9 million in the same year-ago period, a decline
of $6.4 million, or 16%. The $6.4 million decrease included a merger related positive impact of
$3.8 million. Non-merger related net income declined $10.2 million.
Fully taxable net interest income for the first nine months of 2007 increased $5.9 million
compared with the same year-ago period, substantially all of which was attributable to merger
related increases in loans and deposits.
Non-interest income increased $23.0 million for the first nine months of 2007 compared with
the same year-ago period, substantially all of which was merger related. On a non-merger basis,
increases in trust services income and brokerage and insurance income were offset by a large
decrease in other non-interest income. The improved level of trust services income reflected trust
managed asset growth, most notably for the Huntington Funds. Six out of nine of the equity funds
outperformed the S&P for the nine months ended September 30, 2007. A new fund, Real Strategies,
was introduced in May
57
2007 and grew to $29 million in assets as of September 30, 2007. Trust
services income also increased from the acquisition of Unified Fund Services on December 31, 2006,
which had attributable revenues of $7.3 million for the first nine months of 2007. These increases
were offset by a decrease in other non-interest income, primarily related to the $14.8 million
impact of market valuation adjustments on its portfolio of equity funds. These portfolio losses of
$10.6 million for the first nine months of 2007 compared with market value gains of $4.2 million
for the same year-ago period. The carrying value of this portfolio was $23.8 million at September
30, 2007 and was carried at fair value.
Non-interest expense increased $37.1 million for the first nine months of 2007 compared with
the same year-ago period, substantially all of which was merger related. Non-merger related
personnel and other expenses increased compared with the same year-ago period. The increase in
personnel costs reflected the acquisition of Unified Fund Services and the opening of new trust
offices in Dayton, Ohio, and Indianapolis, Indiana in the 2006 second quarter, and sales
commissions due to increased revenue. The increase in other expenses reflected many of the same
factors as the increase in personnel expense and increases in minority interest expense related to mezzanine lending.
58
Item 1. Financial Statements
Huntington Bancshares Incorporated
Condensed Consolidated Balance Sheets
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
(in thousands, except number of shares)
|
|
September 30,
|
|
December 31,
|
|
September 30,
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
1,201,981
|
|
|
$
|
1,080,163
|
|
|
$
|
848,088
|
|
Federal funds sold and securities
purchased under resale agreements
|
|
|
431,244
|
|
|
|
440,584
|
|
|
|
370,418
|
|
Interest bearing deposits in banks
|
|
|
288,841
|
|
|
|
74,168
|
|
|
|
59,333
|
|
Trading account securities
|
|
|
1,034,240
|
|
|
|
36,056
|
|
|
|
122,621
|
|
Loans held for sale
|
|
|
479,853
|
|
|
|
270,422
|
|
|
|
276,304
|
|
Investment securities
|
|
|
4,288,974
|
|
|
|
4,362,924
|
|
|
|
4,643,901
|
|
Loans and leases
|
|
|
39,987,240
|
|
|
|
26,153,425
|
|
|
|
26,361,502
|
|
Allowance for loan and lease losses
|
|
|
(454,784
|
)
|
|
|
(272,068
|
)
|
|
|
(280,152
|
)
|
|
Net loans and leases
|
|
|
39,532,456
|
|
|
|
25,881,357
|
|
|
|
26,081,350
|
|
|
Bank owned life insurance
|
|
|
1,302,363
|
|
|
|
1,089,028
|
|
|
|
1,083,033
|
|
Premises and equipment
|
|
|
547,380
|
|
|
|
372,772
|
|
|
|
367,709
|
|
Goodwill
|
|
|
2,995,961
|
|
|
|
570,876
|
|
|
|
571,521
|
|
Other intangible assets
|
|
|
443,446
|
|
|
|
59,487
|
|
|
|
61,239
|
|
Accrued income and other assets
|
|
|
2,757,188
|
|
|
|
1,091,182
|
|
|
|
1,176,431
|
|
|
Total Assets
|
|
$
|
55,303,927
|
|
|
$
|
35,329,019
|
|
|
$
|
35,661,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
38,404,365
|
|
|
$
|
25,047,770
|
|
|
$
|
24,738,395
|
|
Short-term borrowings
|
|
|
2,227,116
|
|
|
|
1,676,189
|
|
|
|
1,532,504
|
|
Federal Home Loan Bank advances
|
|
|
2,716,265
|
|
|
|
996,821
|
|
|
|
1,221,669
|
|
Other long-term debt
|
|
|
1,974,387
|
|
|
|
2,229,140
|
|
|
|
2,592,188
|
|
Subordinated notes
|
|
|
1,919,625
|
|
|
|
1,286,657
|
|
|
|
1,275,883
|
|
Accrued expenses and other liabilities
|
|
|
1,812,495
|
|
|
|
1,078,116
|
|
|
|
1,171,563
|
|
|
Total Liabilities
|
|
$
|
49,054,253
|
|
|
$
|
32,314,693
|
|
|
$
|
32,532,202
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock authorized 6,617,808 shares;
none outstanding
|
|
|
|
|
|
|
|
|
|
|
---
|
|
Common stock
No par value and authorized 500,000,000 shares;
issued 257,866,255 shares; outstanding 235,474,366 and
237,361,333 shares, respectively
|
|
|
|
|
|
|
2,560,569
|
|
|
|
2,556,168
|
|
Par value of $0.01 and authorized 1,000,000,000 shares at
September 30, 2007; issued 387,504,687 shares; outstanding
365,898,439 shares
|
|
|
3,875
|
|
|
|
|
|
|
|
|
|
Capital surplus
|
|
|
5,700,961
|
|
|
|
|
|
|
|
|
|
Less 21,606,248; 22,391,889 and 19,945,179
treasury shares at cost, respectively
|
|
|
(489,062
|
)
|
|
|
(506,946
|
)
|
|
|
(445,359
|
)
|
Accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (losses) gains on investment securities
|
|
|
(3,221
|
)
|
|
|
14,254
|
|
|
|
12,316
|
|
Unrealized gains on cash flow hedging derivatives
|
|
|
9,392
|
|
|
|
17,008
|
|
|
|
23,043
|
|
Pension and other postretirement benefit adjustments
|
|
|
(80,272
|
)
|
|
|
(86,328
|
)
|
|
|
(3,283
|
)
|
Retained earnings
|
|
|
1,108,001
|
|
|
|
1,015,769
|
|
|
|
986,861
|
|
|
Total Shareholders Equity
|
|
$
|
6,249,674
|
|
|
$
|
3,014,326
|
|
|
$
|
3,129,746
|
|
|
Total Liabilities and Shareholders Equity
|
|
$
|
55,303,927
|
|
|
$
|
35,329,019
|
|
|
$
|
35,661,948
|
|
|
See notes to unaudited condensed consolidated financial statements
59
Huntington Bancshares Incorporated
Condensed Consolidated Statements of Income
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
(in thousands, except per share amounts)
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Interest and fee income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
$
|
747,938
|
|
|
$
|
462,709
|
|
|
$
|
1,675,983
|
|
|
$
|
1,307,979
|
|
Tax-exempt
|
|
|
2,409
|
|
|
|
555
|
|
|
|
2,994
|
|
|
|
1,584
|
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
60,152
|
|
|
|
60,437
|
|
|
|
164,951
|
|
|
|
173,397
|
|
Tax-exempt
|
|
|
7,100
|
|
|
|
6,137
|
|
|
|
19,721
|
|
|
|
17,743
|
|
Other
|
|
|
33,556
|
|
|
|
9,150
|
|
|
|
64,916
|
|
|
|
24,975
|
|
|
Total interest income
|
|
|
851,155
|
|
|
|
538,988
|
|
|
|
1,928,565
|
|
|
|
1,525,678
|
|
|
Interest expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
320,490
|
|
|
|
194,623
|
|
|
|
715,321
|
|
|
|
515,969
|
|
Short-term borrowings
|
|
|
26,264
|
|
|
|
17,161
|
|
|
|
69,372
|
|
|
|
52,795
|
|
Federal Home Loan Bank advances
|
|
|
34,661
|
|
|
|
15,565
|
|
|
|
63,180
|
|
|
|
47,130
|
|
Subordinated notes and other long-term debt
|
|
|
60,107
|
|
|
|
56,326
|
|
|
|
162,113
|
|
|
|
148,596
|
|
|
Total interest expense
|
|
|
441,522
|
|
|
|
283,675
|
|
|
|
1,009,986
|
|
|
|
764,490
|
|
|
Net interest income
|
|
|
409,633
|
|
|
|
255,313
|
|
|
|
918,579
|
|
|
|
761,188
|
|
Provision for credit losses
|
|
|
42,007
|
|
|
|
14,162
|
|
|
|
131,546
|
|
|
|
49,447
|
|
|
Net interest income after provision for credit losses
|
|
|
367,626
|
|
|
|
241,151
|
|
|
|
787,033
|
|
|
|
711,741
|
|
|
Service charges on deposit accounts
|
|
|
78,107
|
|
|
|
48,718
|
|
|
|
172,917
|
|
|
|
137,165
|
|
Trust services
|
|
|
33,562
|
|
|
|
22,490
|
|
|
|
86,220
|
|
|
|
66,444
|
|
Brokerage and insurance income
|
|
|
28,806
|
|
|
|
14,697
|
|
|
|
62,087
|
|
|
|
44,235
|
|
Other service charges and fees
|
|
|
21,045
|
|
|
|
12,989
|
|
|
|
49,176
|
|
|
|
37,570
|
|
Bank owned life insurance income
|
|
|
14,847
|
|
|
|
12,125
|
|
|
|
36,602
|
|
|
|
32,971
|
|
Mortgage banking income
|
|
|
9,629
|
|
|
|
8,512
|
|
|
|
26,102
|
|
|
|
35,322
|
|
Securities losses
|
|
|
(13,152
|
)
|
|
|
(57,332
|
)
|
|
|
(18,187
|
)
|
|
|
(57,387
|
)
|
Other income
|
|
|
31,830
|
|
|
|
35,711
|
|
|
|
91,127
|
|
|
|
124,143
|
|
|
Total non-interest income
|
|
|
204,674
|
|
|
|
97,910
|
|
|
|
506,044
|
|
|
|
420,463
|
|
|
Personnel costs
|
|
|
202,148
|
|
|
|
133,823
|
|
|
|
471,978
|
|
|
|
403,284
|
|
Outside data processing and other services
|
|
|
40,600
|
|
|
|
18,664
|
|
|
|
88,115
|
|
|
|
58,084
|
|
Net occupancy
|
|
|
33,334
|
|
|
|
18,109
|
|
|
|
72,659
|
|
|
|
54,002
|
|
Equipment
|
|
|
23,290
|
|
|
|
17,249
|
|
|
|
58,666
|
|
|
|
51,761
|
|
Marketing
|
|
|
13,186
|
|
|
|
7,846
|
|
|
|
29,868
|
|
|
|
25,521
|
|
Professional services
|
|
|
11,273
|
|
|
|
6,438
|
|
|
|
25,856
|
|
|
|
18,095
|
|
Telecommunications
|
|
|
7,286
|
|
|
|
4,818
|
|
|
|
15,989
|
|
|
|
14,633
|
|
Printing and supplies
|
|
|
4,743
|
|
|
|
3,416
|
|
|
|
11,657
|
|
|
|
10,254
|
|
Amortization of intangibles
|
|
|
19,949
|
|
|
|
2,902
|
|
|
|
24,988
|
|
|
|
6,969
|
|
Other expense
|
|
|
29,754
|
|
|
|
29,165
|
|
|
|
72,514
|
|
|
|
90,601
|
|
|
Total non-interest expense
|
|
|
385,563
|
|
|
|
242,430
|
|
|
|
872,290
|
|
|
|
733,204
|
|
|
Income before income taxes
|
|
|
186,737
|
|
|
|
96,631
|
|
|
|
420,787
|
|
|
|
399,000
|
|
Provision for income taxes
|
|
|
48,535
|
|
|
|
(60,815
|
)
|
|
|
106,338
|
|
|
|
25,494
|
|
|
Net income
|
|
$
|
138,202
|
|
|
$
|
157,446
|
|
|
$
|
314,449
|
|
|
$
|
373,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares basic
|
|
|
365,895
|
|
|
|
237,672
|
|
|
|
279,171
|
|
|
|
236,790
|
|
Average common shares diluted
|
|
|
368,280
|
|
|
|
240,896
|
|
|
|
282,014
|
|
|
|
239,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income basic
|
|
$
|
0.38
|
|
|
$
|
0.66
|
|
|
$
|
1.13
|
|
|
$
|
1.58
|
|
Net income diluted
|
|
|
0.38
|
|
|
|
0.65
|
|
|
|
1.12
|
|
|
|
1.56
|
|
Cash dividends declared
|
|
|
0.265
|
|
|
|
0.250
|
|
|
|
0.795
|
|
|
|
0.750
|
|
See notes to unaudited condensed consolidated financial statements
60
Huntington Bancshares Incorporated
Condensed Consolidated Statements of Changes in Shareholders Equity
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Preferred Stock
|
|
Common Stock
|
|
Capital
|
|
Treasury Stock
|
|
Comprehensive
|
|
Retained
|
|
|
(in thousands)
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Surplus
|
|
Shares
|
|
Amount
|
|
Income (Loss)
|
|
Earnings
|
|
Total
|
|
Nine Months Ended September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
|
|
|
$
|
|
|
|
|
257,866
|
|
|
$
|
2,491,326
|
|
|
$
|
|
|
|
|
(33,760
|
)
|
|
$
|
(693,576
|
)
|
|
$
|
(22,093
|
)
|
|
$
|
781,844
|
|
|
$
|
2,557,501
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
373,506
|
|
|
|
373,506
|
|
Unrealized net gains on investment securities
arising during the period, net of reclassification
(1)
for net realized losses, net of tax of ($25,313)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,332
|
|
|
|
|
|
|
|
46,332
|
|
Unrealized gains on cash flow hedging derivatives,
net of tax of $4,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,837
|
|
|
|
|
|
|
|
7,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
427,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting principle
for servicing financial assets, net of tax of $6,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,110
|
|
|
|
12,110
|
|
Cash dividends declared ($0.75 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(180,599
|
)
|
|
|
(180,599
|
)
|
Shares issued pursuant to acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,366
|
|
|
|
|
|
|
|
25,350
|
|
|
|
522,390
|
|
|
|
|
|
|
|
|
|
|
|
575,756
|
|
Recognition of the fair value of share-based
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,430
|
|
Treasury shares purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,931
|
)
|
|
|
(303,898
|
)
|
|
|
|
|
|
|
|
|
|
|
(303,898
|
)
|
Stock options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,073
|
)
|
|
|
|
|
|
|
1,439
|
|
|
|
30,911
|
|
|
|
|
|
|
|
|
|
|
|
28,838
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119
|
|
|
|
|
|
|
|
(43
|
)
|
|
|
(1,186
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,067
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
|
|
|
|
|
|
|
|
|
257,866
|
|
|
|
2,556,168
|
|
|
|
|
|
|
|
(19,945
|
)
|
|
|
(445,359
|
)
|
|
|
32,076
|
|
|
|
986,861
|
|
|
|
3,129,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
|
|
|
|
|
|
|
|
257,866
|
|
|
|
2,560,569
|
|
|
|
|
|
|
|
(22,392
|
)
|
|
|
(506,946
|
)
|
|
|
(55,066
|
)
|
|
|
1,015,769
|
|
|
|
3,014,326
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
314,449
|
|
|
|
314,449
|
|
Unrealized net losses on investment securities
arising during the period, net of reclassification
(1)
for net realized gains, net of tax of ($9,497)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,475
|
)
|
|
|
|
|
|
|
(17,475
|
)
|
Unrealized losses on cash flow hedging derivatives,
net of tax of ($4,101)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,616
|
)
|
|
|
|
|
|
|
(7,616
|
)
|
Amortization included in net periodic benefit costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss, net of tax of ($2,809)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,216
|
|
|
|
|
|
|
|
5,216
|
|
Prior service costs, net of tax of ($161)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300
|
|
|
|
|
|
|
|
300
|
|
Transition obligation, net of tax of ($291)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
540
|
|
|
|
|
|
|
|
540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
295,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assignment of $0.01 par value per share for each
share of Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,557,990
|
)
|
|
|
2,557,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared ($0.795 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(222,217
|
)
|
|
|
(222,217
|
)
|
Shares issued pursuant to acquisition
|
|
|
|
|
|
|
|
|
|
|
129,639
|
|