UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY PERIOD ENDED June 30, 2010
Commission File Number 1-34073
Huntington Bancshares Incorporated
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Maryland
(State or other jurisdiction of
incorporation or organization)
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31-0724920
(I.R.S. Employer
Identification No.)
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41 South High Street, Columbus, Ohio 43287
Registrant’s telephone number
(614) 480-8300
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2)
has been subject to such filing requirements for the past 90 days.
þ
Yes
o
No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
þ
Yes
o
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company.. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer
þ
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Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o
Yes
þ
No
There were 716,862,118 shares of Registrant’s common stock ($0.01 par value) outstanding on July
31, 2010.
HUNTINGTON BANCSHARES INCORPORATED
INDEX
2
PART 1. FINANCIAL INFORMATION
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
INTRODUCTION
Huntington Bancshares Incorporated (we or our) is a multi-state diversified regional bank
holding company headquartered in Columbus, Ohio. We have more than 144 years of serving the
financial needs of our customers. Through our subsidiaries, including our banking subsidiary, The
Huntington National Bank (the Bank), we provide full-service commercial and consumer banking
services, mortgage banking services, equipment leasing, investment management, trust services,
brokerage services, customized insurance service program, and other financial products and
services. Our over 600 banking offices are located in Indiana, Kentucky, Michigan, Ohio,
Pennsylvania, and West Virginia. We also offer retail and commercial financial services online at
huntington.com; through our 24-hour telephone bank; and through our network of over 1,300 ATMs. The
Auto Finance and Dealer Services (AFDS) group offers automobile loans to consumers and commercial
loans to automobile dealers within our six-state banking franchise area. Selected financial
service activities are also conducted in other states including: Private Financial Group (PFG)
offices in Florida, Massachusetts, and New York and Mortgage Banking offices in Maryland and New
Jersey. International banking services are available through the headquarters office in Columbus
and a limited purpose office located in the Cayman Islands and another in Hong Kong.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations
(MD&A) provides information we believe necessary for understanding our financial condition, changes
in financial condition, results of operations, and cash flows. It updates the discussion and
analysis included in our Annual Report on Form 10-K for the year ended December 31, 2009 (2009 Form
10-K), and should be read in conjunction with our 2009 Form 10-K, as well as the financial
statements, notes, and other information contained in this report.
Our discussion is divided into key segments:
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Executive Overview
- Provides a summary of our current financial performance, financial
condition, and/or business condition. This section also provides our outlook regarding our
performance for the remainder of the year.
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•
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Discussion of Results of Operations
- Reviews financial performance from a consolidated
company perspective. It also includes a “Significant Items” section that summarizes key
issues helpful for understanding performance trends. Key consolidated average balance sheet
and income statement trends are also discussed in this section.
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•
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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 obtain funding, and related performance. In
addition, there is a discussion of guarantees and/or commitments made for items such as
standby letters of credit and commitments to sell loans, and a discussion that reviews the
adequacy of capital, including regulatory capital requirements.
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Business Segment Discussion
- Provides an overview of financial performance for each of
our major business segments and provides additional discussion of trends underlying
consolidated financial performance.
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•
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Additional Disclosures
- Provides comments on important matters including risk factors,
critical accounting policies and use of significant estimates, acquisitions, and other
items.
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A reading of each section is important to understand fully the nature of our financial performance
and prospects.
3
EXECUTIVE OVERVIEW
Summary of 2010 Second Quarter Results
Continuing to build upon the momentum from the prior quarter, we reported net income of $48.8
million, or $0.03 per common share, compared with $39.7 million, or $0.01 per common share, in the
prior quarter (
see Table 1
). Pretax, pre-provision income was $270.5 million, up $18.6 million, or
7%, from the prior quarter, and primarily resulted from a $34.8 million, or 5% increase in
fully-taxable equivalent revenue. Pretax, pre-provision income increased for the sixth consecutive
quarter (
see Table 4
).
Credit quality performance in the current quarter continued to show improvement. This
improvement reflected the benefits of our focused actions taken in 2009 to address credit-related
issues. Compared with the prior quarter, nonperforming assets (NPAs) declined 17%, new NPAs
declined 28%, and our nonaccrual loan coverage ratio improved to 120% from 87%. We also saw a
decline in the level of criticized commercial loans reflecting a decrease in the level of inflows.
Although net charge-offs (NCOs) increased $40.7 million, the current quarter was impacted by $80.0
million of NCOs related to our relationship with Franklin Credit Management Corporation (Franklin).
Non-Franklin-related NCOs declined $27.8 million.
At the end of the current quarter, we transferred all of our Franklin-related loans to loans
held-for-sale at a lower of cost or fair value of $323.4 million. This had a significant impact on
the current quarter’s performance as this action resulted in $75.5 million of charge-offs, with a
commensurate increase in the provision for credit losses. As the current quarter progressed, we
saw renewed buyer interest in distressed debt that, among other factors, provided us a business
opportunity to move the portfolio to loans held for sale.
(See “Significant Items” for additional
discussion).
On July 20, 2010, $274.2 million of the Franklin-related residential mortgages were sold,
leaving the remaining Franklin-related portfolio balance of only $49.2 million. Going forward, we
anticipate this sale will improve our overall future financial performance as we have essentially
brought this relationship to a close. We have reinvested the sale proceeds in higher yielding
investments and will no longer have expenses related to portfolio servicing and other support
costs.
Our period-end capital position remained solid with increases in all of our capital ratios.
At June 30, 2010, our regulatory Tier 1 and Total risk-based capital were $2.8 billion and $2.0
billion, respectively, above the “well-capitalized” regulatory thresholds. Our tangible common
equity ratio improved 16 basis points to 6.12%. Also, our Tier 1 common risk-based capital ratio
improved 53 basis points to 7.06%.
Business Overview
General
Our 2010 objectives remain the same: (a) grow revenue and profitability, (b) improve cross
sell and share-of-wallet profitability across all business segments, (c) grow key fee businesses
(existing and new), (d) lower NCOs and NPAs, (e) reduce commercial real estate “noncore” exposure,
and (f) continue to explore opportunities to further reduce our overall risk profile.
Our main challenge to accomplishing our primary objectives results from an economy that
continues to remain weak and uncertain. This impairs our ability to grow loans as customers
continue to reduce their debt and/or remain cautious about increasing debt until they have a higher
degree of confidence of sustainable economic recovery. One area of loan growth success, however,
has been in automobile loans, a business we have been in for over 50 years. We have been able to
take advantage of the fact that many competitors have decreased their automobile lending activities
or exited the business entirely. We anticipate this will be an area where we will be able to
continue to see good loan growth.
We face strong competition from other banks and financial service firms in our markets. As
such, we have placed strong strategic emphasis on, and are continuing to develop and expand
resources devoted to, improving cross-sell performance to take advantage of a loyal core customer
base. To date, we have been successful as measured by our ability to expand our customer bases and
successfully grow core deposits.
Legislative and Regulatory
Legislative and regulatory actions continue to be adopted that will impose additional
restrictions on current business practices. Recent actions affecting us included an amendment to
Regulation E and the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank Act).
4
The Federal Reserve Board recently amended Regulation E to prohibit charging overdraft fees
for ATM or point-of-sale debit card transactions unless the customer opts-in to the overdraft
service. For us, such fees are approximately $90 million per year. Our
basic strategy is to mitigate the potential impact by alerting our customers that we can no
longer cover such overdrafts unless they opt-in to our overdraft service. To date, our results
have surpassed our expectations, however, until we have completed opt-in campaign, the ultimate
impact to related revenue cannot be estimated.
While the recently passed Dodd-Frank Act is complex and we continue to assess how this
legislation and subsequent rule-making will impact us, we currently believe there are two primary
areas of focus for us: interchange fees and the eventual inability to include trust preferred
capital as a component of our regulatory capital.
Currently, our annual interchange fees are approximately $90 million per year. In the future,
the Dodd-Frank Act gives the Federal Reserve, and no longer the banks or system owners, the ability
to set the interchange rate charged to merchants for the use of debit cards. The ultimate impact
to us cannot be estimated at this time, and there will likely be months of proposals and debate
before any specific rules are written.
At June 30, 2010, we had $569.9 million of outstanding trust-preferred-securities that, if
disallowed, would reduce our regulatory Tier 1 risk-based capital ratio by approximately 134 basis
points. However, there is a 3-year phase-in period beginning on January 1, 2013, that we believe
would provide sufficient time to evaluate and address the impacts to our capital structure around
this new legislation. Accordingly, we do not anticipate that this potential change would have a
significant impact to our business.
Prior legislative and regulatory actions that have affected us included the Federal Deposit
Insurance Corporation’s (FDIC) Transaction Account Guarantee Program (TAGP) and the U.S. Department
of Treasury’s Troubled Asset Relief Program (TARP). We elected to discontinue our participation in
the TAGP, effective July 1, 2010. We intend to repay our TARP capital as soon as it is prudent to
do so. Additional discussion regarding TAGP and TARP is located within the “Liquidity Risk” and
“Capital” sections, respectively.
2010 Outlook
Our current expectation is that the economy will remain relatively unchanged for the rest of
the year. We are not expecting a double-dip recession, but we do believe it will take longer for
the economy to recover than we did 90 days ago, especially if home prices continue to decline.
Pretax, pre-provision income levels for the second half of 2010 are anticipated to be
consistent with second quarter reported performance. Our net interest margin for the second half
of the year is expected to approximate first half performance. We anticipate modest growth in
commercial and industrial (C&I) loans and continued strong automobile lending. However, commercial
real estate (CRE) loans are expected to continue to contract while home equity and residential
mortgages remain relatively flat. We are targeting continued strong growth in demand deposit and
savings account balances. Fee income performance for the second half of the year is expected to be
mixed with certain fee income activities increasing from the continued rollout of strategic
initiatives, offset by lower mortgage banking income, as well as service charges due to Regulation
E implementation. Expenses should also be relatively stable with increases related to growth
initiatives, mostly offset by the elimination of Franklin-related loan portfolio servicing and
other related costs, as well as lower overall loan portfolio monitoring expenses.
Nonperforming loans are expected to continue to decline, with NCOs and provision expense
expected to be generally consistent with the current quarter’s performance, excluding any
Franklin-related impacts.
5
DISCUSSION OF RESULTS OF OPERATIONS
This section provides a review of financial performance from a consolidated perspective. It
also includes a “Significant Items” section that summarizes key issues important for a complete
understanding of performance trends. Key condensed consolidated balance sheet and income statement
trends are discussed. All earnings per share data are reported on a diluted basis. For additional
insight on financial performance, please read this section in conjunction with the “Business
Segment Discussion”.
Percent changes of 100% or more are typically shown as “N.M.” or “Not Meaningful”. Such
large percent changes typically reflect the impact of unusual or particularly volatile items
within the measured periods. Since the primary purpose of showing a percent change is to discern
underlying performance trends, such large percent changes are typically “not meaningful” for such
trend analysis purposes.
6
Table 1 — Selected Quarterly Income Statement Data (1)
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2010
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2009
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(amounts in thousands, except per share amounts)
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Second
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First
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Fourth
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Third
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Second
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Interest income
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$
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535,653
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$
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546,779
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$
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551,335
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$
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553,846
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$
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563,004
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Interest expense
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135,997
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152,886
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177,271
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191,027
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213,105
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Net interest income
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399,656
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393,893
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374,064
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362,819
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349,899
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Provision for credit losses
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193,406
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235,008
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893,991
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475,136
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413,707
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Net interest income (loss) after provision for credit losses
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206,250
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158,885
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(519,927
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)
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(112,317
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)
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(63,808
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)
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Service charges on deposit accounts
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75,934
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69,339
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76,757
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80,811
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75,353
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Brokerage and insurance income
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36,498
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35,762
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32,173
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33,996
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32,052
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Mortgage banking income
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45,530
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25,038
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24,618
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21,435
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30,827
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Trust services
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28,399
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27,765
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27,275
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25,832
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25,722
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Electronic banking
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28,107
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25,137
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25,173
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28,017
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24,479
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Bank owned life insurance income
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14,392
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16,470
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14,055
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13,639
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14,266
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Automobile operating lease income
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11,842
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12,303
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12,671
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12,795
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13,116
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Securities gains (losses)
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156
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(31
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(2,602
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(2,374
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)
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(7,340
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)
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Other noninterest income
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28,785
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29,069
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34,426
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41,901
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57,470
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Total noninterest income
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269,643
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240,852
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244,546
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256,052
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265,945
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Personnel costs
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194,875
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183,642
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180,663
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172,152
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171,735
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Outside data processing and other services
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40,670
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39,082
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36,812
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38,285
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40,006
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Deposit and other insurance expense
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26,067
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24,755
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24,420
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23,851
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48,138
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Net occupancy
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25,388
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29,086
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26,273
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25,382
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24,430
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OREO and foreclosure expense
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4,970
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11,530
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18,520
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38,968
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26,524
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Equipment
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21,585
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20,624
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20,454
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20,967
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21,286
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Professional services
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24,388
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22,697
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25,146
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18,108
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16,658
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Amortization of intangibles
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15,141
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15,146
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17,060
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16,995
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17,117
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Automobile operating lease expense
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9,667
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10,066
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10,440
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10,589
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11,400
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Marketing
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17,682
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11,153
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9,074
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8,259
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7,491
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Telecommunications
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6,205
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6,171
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6,099
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5,902
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6,088
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Printing and supplies
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3,893
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3,673
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3,807
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3,950
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4,151
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Goodwill impairment
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—
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—
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—
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—
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4,231
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Gain on early extinguishment of debt
(2)
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—
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—
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(73,615
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(60
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)
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(73,038
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)
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Other noninterest expense
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23,279
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20,468
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17,443
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17,749
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13,765
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Total noninterest expense
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413,810
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398,093
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322,596
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401,097
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339,982
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Income (loss) before income taxes
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62,083
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1,644
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(597,977
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)
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(257,362
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)
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(137,845
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)
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Provision (benefit) for income taxes
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13,319
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(38,093
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)
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(228,290
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)
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|
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(91,172
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)
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|
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(12,750
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)
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Net income (loss)
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$
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48,764
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$
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39,737
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$
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(369,687
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)
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$
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(166,190
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)
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$
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(125,095
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)
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Dividends on preferred shares
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29,426
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|
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29,357
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|
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29,289
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|
|
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29,223
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|
|
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57,451
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|
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Net income (loss) applicable to common shares
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$
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19,338
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|
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$
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10,380
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|
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$
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(398,976
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)
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$
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(195,413
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)
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$
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(182,546
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)
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|
|
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Average common shares — basic
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|
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716,580
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|
|
|
716,320
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|
|
715,336
|
|
|
|
589,708
|
|
|
|
459,246
|
|
|
Average common shares — diluted
(3)
|
|
|
719,387
|
|
|
|
718,593
|
|
|
|
715,336
|
|
|
|
589,708
|
|
|
|
459,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share — basic
|
|
$
|
0.03
|
|
|
$
|
0.01
|
|
|
$
|
(0.56
|
)
|
|
$
|
(0.33
|
)
|
|
$
|
(0.40
|
)
|
|
Net income (loss) per common share — diluted
|
|
|
0.03
|
|
|
|
0.01
|
|
|
|
(0.56
|
)
|
|
|
(0.33
|
)
|
|
|
(0.40
|
)
|
|
Cash dividends declared per common share
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average total assets
|
|
|
0.38
|
%
|
|
|
0.31
|
%
|
|
|
(2.80
|
)%
|
|
|
(1.28
|
)%
|
|
|
(0.97
|
)%
|
|
Return on average total shareholders’ equity
|
|
|
3.6
|
|
|
|
3.0
|
|
|
|
(25.6
|
)
|
|
|
(12.5
|
)
|
|
|
(10.2
|
)
|
|
Return on average tangible shareholders’ equity
(4)
|
|
|
4.9
|
|
|
|
4.2
|
|
|
|
(27.9
|
)
|
|
|
(13.3
|
)
|
|
|
(10.3
|
)
|
|
Net interest margin
(5)
|
|
|
3.46
|
|
|
|
3.47
|
|
|
|
3.19
|
|
|
|
3.20
|
|
|
|
3.10
|
|
|
Efficiency ratio
(6)
|
|
|
59.4
|
|
|
|
60.1
|
|
|
|
49.0
|
|
|
|
61.4
|
|
|
|
51.0
|
|
|
Effective tax rate (benefit)
|
|
|
21.5
|
|
|
|
N.M.
|
|
|
|
(38.2
|
)
|
|
|
(35.4
|
)
|
|
|
(9.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue — fully-taxable equivalent (FTE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
399,656
|
|
|
$
|
393,893
|
|
|
$
|
374,064
|
|
|
$
|
362,819
|
|
|
$
|
349,899
|
|
|
FTE adjustment
|
|
|
2,490
|
|
|
|
2,248
|
|
|
|
2,497
|
|
|
|
4,177
|
|
|
|
1,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
(5)
|
|
|
402,146
|
|
|
|
396,141
|
|
|
|
376,561
|
|
|
|
366,996
|
|
|
|
351,115
|
|
|
Noninterest income
|
|
|
269,643
|
|
|
|
240,852
|
|
|
|
244,546
|
|
|
|
256,052
|
|
|
|
265,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
(5)
|
|
$
|
671,789
|
|
|
$
|
636,993
|
|
|
$
|
621,107
|
|
|
$
|
623,048
|
|
|
$
|
617,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M., not a meaningful value.
|
|
|
|
(1)
|
|
Comparisons for presented periods are impacted by a number of factors. Refer
to “Significant Items” for additional discussion regarding these key factors.
|
7
|
|
|
|
|
(2)
|
|
The 2009 fourth quarter gain related to the purchase of certain subordinated bank
notes. The 2009 second quarter gain included $67.4 million related to the purchase of certain
trust preferred securities.
|
|
|
|
(3)
|
|
For all the quarterly periods presented above, the impact of the convertible
preferred stock issued in 2008 was excluded from the diluted share calculation. It was excluded
because the result would have been higher than basic earnings per common share (anti-dilutive) for
the periods.
|
|
|
|
(4)
|
|
Net income (loss) excluding expense for amortization of intangibles for the period
divided by average tangible shareholders’ equity. Average tangible shareholders’ equity equals
average total shareholders’ equity less average intangible assets and goodwill. Expense for
amortization of intangibles and average intangible assets are net of deferred tax liability, and
calculated assuming a 35% tax rate.
|
|
|
|
(5)
|
|
On a fully-taxable equivalent (FTE) basis assuming a 35% tax rate.
|
|
|
|
(6)
|
|
Noninterest expense less amortization of intangibles and goodwill impairment
divided by the sum of FTE net interest income and noninterest income excluding securities gains
(losses).
|
8
Table 2 — Selected Year to Date Income Statement Data
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
(in thousands, except per share amounts)
|
|
2010
|
|
|
2009
|
|
|
Amount
|
|
|
Percent
|
|
|
Interest income
|
|
$
|
1,082,432
|
|
|
$
|
1,132,961
|
|
|
$
|
(50,529
|
)
|
|
|
(4
|
)%
|
|
Interest expense
|
|
|
288,883
|
|
|
|
445,557
|
|
|
|
(156,674
|
)
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
793,549
|
|
|
|
687,404
|
|
|
|
106,145
|
|
|
|
15
|
|
|
Provision for credit losses
|
|
|
428,414
|
|
|
|
705,544
|
|
|
|
(277,130
|
)
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provision for credit losses
|
|
|
365,135
|
|
|
|
(18,140
|
)
|
|
|
383,275
|
|
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
145,273
|
|
|
|
145,231
|
|
|
|
42
|
|
|
|
—
|
|
|
Brokerage and insurance income
|
|
|
72,260
|
|
|
|
72,000
|
|
|
|
260
|
|
|
|
—
|
|
|
Mortgage banking income
|
|
|
70,568
|
|
|
|
66,245
|
|
|
|
4,323
|
|
|
|
7
|
|
|
Trust services
|
|
|
56,164
|
|
|
|
50,532
|
|
|
|
5,632
|
|
|
|
11
|
|
|
Electronic banking
|
|
|
53,244
|
|
|
|
46,961
|
|
|
|
6,283
|
|
|
|
13
|
|
|
Bank owned life insurance income
|
|
|
30,862
|
|
|
|
27,178
|
|
|
|
3,684
|
|
|
|
14
|
|
|
Automobile operating lease expense
|
|
|
24,145
|
|
|
|
26,344
|
|
|
|
(2,199
|
)
|
|
|
(8
|
)
|
|
Securities gains (losses)
|
|
|
125
|
|
|
|
(5,273
|
)
|
|
|
5,398
|
|
|
|
N.M.
|
|
|
Other income
|
|
|
57,854
|
|
|
|
75,829
|
|
|
|
(17,975
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
510,495
|
|
|
|
505,047
|
|
|
|
5,448
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs
|
|
|
378,517
|
|
|
|
347,667
|
|
|
|
30,850
|
|
|
|
9
|
|
|
Outside data processing and other services
|
|
|
79,752
|
|
|
|
72,998
|
|
|
|
6,754
|
|
|
|
9
|
|
|
Deposit and other insurance expense
|
|
|
50,822
|
|
|
|
65,559
|
|
|
|
(14,737
|
)
|
|
|
(22
|
)
|
|
Net occupancy
|
|
|
54,474
|
|
|
|
53,618
|
|
|
|
856
|
|
|
|
2
|
|
|
OREO and foreclosure expense
|
|
|
16,500
|
|
|
|
36,411
|
|
|
|
(19,911
|
)
|
|
|
(55
|
)
|
|
Equipment
|
|
|
42,209
|
|
|
|
41,696
|
|
|
|
513
|
|
|
|
1
|
|
|
Professional services
|
|
|
47,085
|
|
|
|
33,112
|
|
|
|
13,973
|
|
|
|
42
|
|
|
Amortization of intangibles
|
|
|
30,287
|
|
|
|
34,252
|
|
|
|
(3,965
|
)
|
|
|
(12
|
)
|
|
Automobile operating lease expense
|
|
|
19,733
|
|
|
|
22,331
|
|
|
|
(2,598
|
)
|
|
|
(12
|
)
|
|
Marketing
|
|
|
28,835
|
|
|
|
15,716
|
|
|
|
13,119
|
|
|
|
83
|
|
|
Telecommunications
|
|
|
12,376
|
|
|
|
11,978
|
|
|
|
398
|
|
|
|
3
|
|
|
Printing and supplies
|
|
|
7,566
|
|
|
|
7,723
|
|
|
|
(157
|
)
|
|
|
(2
|
)
|
|
Goodwill impairment
|
|
|
—
|
|
|
|
2,606,944
|
|
|
|
(2,606,944
|
)
|
|
|
N.M.
|
|
|
Gain on early extinguishment of debt
(2)
|
|
|
—
|
|
|
|
(73,767
|
)
|
|
|
73,767
|
|
|
|
N.M.
|
|
|
Other expense
|
|
|
43,747
|
|
|
|
33,513
|
|
|
|
10,234
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
811,903
|
|
|
|
3,309,751
|
|
|
|
(2,497,848
|
)
|
|
|
(75
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
63,727
|
|
|
|
(2,822,844
|
)
|
|
|
2,886,571
|
|
|
|
N.M.
|
|
|
Benefit for income taxes
|
|
|
(24,774
|
)
|
|
|
(264,542
|
)
|
|
|
239,768
|
|
|
|
(91
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
88,501
|
|
|
$
|
(2,558,302
|
)
|
|
$
|
2,646,803
|
|
|
|
N.M.
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared on preferred shares
|
|
|
58,783
|
|
|
|
116,244
|
|
|
|
(57,461
|
)
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common shares
|
|
$
|
29,718
|
|
|
$
|
(2,674,546
|
)
|
|
$
|
2,704,264
|
|
|
|
N.M.
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares — basic
|
|
|
716,450
|
|
|
|
413,083
|
|
|
|
303,367
|
|
|
|
73
|
%
|
|
Average common shares — diluted
(3)
|
|
|
718,990
|
|
|
|
413,083
|
|
|
|
305,907
|
|
|
|
74
|
|
|
|
|
Per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share — basic
|
|
$
|
0.04
|
|
|
$
|
(6.47
|
)
|
|
$
|
6.52
|
|
|
|
N.M.
|
%
|
|
Net income (loss) per common share — diluted
|
|
|
0.04
|
|
|
|
(6.47
|
)
|
|
|
6.52
|
|
|
|
N.M.
|
|
|
Cash dividends declared
|
|
|
0.0200
|
|
|
|
0.0200
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Return on average total assets
|
|
|
0.35
|
%
|
|
|
(9.77
|
)%
|
|
|
10.12
|
%
|
|
|
N.M.
|
%
|
|
Return on average total shareholders’ equity
|
|
|
3.3
|
|
|
|
(85.0
|
)
|
|
|
88.3
|
|
|
|
N.M.
|
|
|
Return on average tangible shareholders’ equity
(4)
|
|
|
4.6
|
|
|
|
3.5
|
|
|
|
1.1
|
|
|
|
31
|
|
|
Net interest margin
(5)
|
|
|
3.47
|
|
|
|
3.03
|
|
|
|
0.44
|
|
|
|
15
|
|
|
Efficiency ratio
(6)
|
|
|
59.7
|
|
|
|
55.6
|
|
|
|
4.1
|
|
|
|
7
|
|
|
Effective tax rate (benefit)
|
|
|
(38.9
|
)
|
|
|
(9.4
|
)
|
|
|
(29.5
|
)
|
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue — fully taxable equivalent (FTE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
793,549
|
|
|
$
|
687,404
|
|
|
$
|
106,145
|
|
|
|
15
|
%
|
|
FTE adjustment
|
|
|
4,738
|
|
|
|
4,798
|
|
|
|
(60
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
798,287
|
|
|
|
692,202
|
|
|
|
106,085
|
|
|
|
15
|
|
|
Noninterest income
|
|
|
510,495
|
|
|
|
505,047
|
|
|
|
5,448
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
1,308,782
|
|
|
$
|
1,197,249
|
|
|
$
|
111,533
|
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M., not a meaningful value.
|
|
|
|
(1)
|
|
Comparisons for presented periods are impacted by a number of factors. Refer to the ‘Significant Items” discussion.
|
|
|
|
(2)
|
|
The 2009 gain included $67.4 million related to the purchase of certain trust preferred securities.
|
9
|
|
|
|
|
(3)
|
|
For the periods presented above, the impact of the convertible preferred stock issued in April of 2008 was excluded from the diluted share calculation
because the result was more than basic earnings per common share (anti-dilutive) for the period.
|
|
|
|
(4)
|
|
Net income excluding expense for amortization of intangibles for the period divided by average tangible shareholders’ equity. Average tangible shareholders’
equity equals average total shareholders’ equity less average intangible assets and goodwill. Expense for amortization of intangibles and average intangible
assets are net of deferred tax liability, and calculated assuming a 35% tax rate.
|
|
|
|
(5)
|
|
On a fully taxable equivalent (FTE) basis assuming a 35% tax rate.
|
|
|
|
(6)
|
|
Noninterest expense less amortization of intangibles divided by the sum of FTE net interest income and noninterest income excluding securities gains (losses).
|
Significant Items
Definition of Significant Items
From time-to-time, revenue, expenses, or taxes, are impacted by items judged by us to be
outside of ordinary banking activities and/or by items that, while they may be associated with
ordinary banking activities, are so unusually large that their outsized impact is believed by us at
that time to be infrequent or short-term in nature, or otherwise make period-to-period comparisons
less meaningful. We refer to such items as “Significant Items”. Most often, these “Significant
Items” result from factors originating outside the company; e.g., regulatory actions/assessments,
windfall gains, changes in accounting principles, one-time tax assessments/refunds, etc. In other
cases they may result from our decisions associated with significant corporate actions out of the
ordinary course of business; e.g., merger/restructuring charges, recapitalization actions, goodwill
impairment, etc.
Even though certain revenue and expense items are naturally subject to more volatility than
others due to changes in market and economic environment conditions, as a general rule volatility
alone does not define a “Significant Item”. For example, changes in the provision for credit
losses, gains/losses from investment activities, asset valuation writedowns, etc., reflect ordinary
banking activities and are, therefore, typically excluded from consideration as a “Significant
Item”.
We believe the disclosure of “Significant Items” in current and prior period results aids in
better understanding our performance and trends to ascertain which of such items, if any, to
include or exclude from an analysis of our performance; i.e., within the context of determining how
that performance differed from expectations, as well as how, if at all, to adjust estimates of
future performance accordingly. To this end, we adopted a practice of listing “Significant Items”
in our external disclosure documents (e.g., earnings press releases, investor presentations, Forms
10-Q and 10-K).
“Significant Items” for any particular period are not intended to be a complete list of items
that may materially impact current or future period performance. A number of items could
materially impact these periods, including those described in our 2009 Annual Report on Form 10-K
and other factors described from time-to-time in our other filings with the Securities and Exchange
Commission.
Significant Items Influencing Financial Performance Comparisons
Earnings comparisons were impacted by a number of “Significant Items” summarized below.
|
|
1.
|
|
Goodwill Impairment.
The impacts of goodwill impairment on our reported results were as
follows:
|
|
|
•
|
|
During the 2009 first quarter, bank stock prices continued to decline significantly.
Our stock price declined 78% from
$7.66 per share at December 31, 2008 to $1.66 per share at March 31, 2009. Given this
significant decline, we conducted an interim test for goodwill impairment. As a result,
we recorded a noncash $2,602.7 million ($7.09 per common share) pretax charge to
noninterest expense.
|
|
|
|
|
•
|
|
During the 2009 second quarter, a pretax goodwill impairment of $4.2 million ($0.01
per common share) was recorded to noninterest expense relating to the sale of a small
payments-related business.
|
10
|
|
2.
|
|
Franklin Relationship.
Our relationship with Franklin was acquired in the Sky
Financial Group, Inc. (Sky Financial) acquisition in 2007. Significant events relating
to this relationship following the acquisition, and the impacts of those events on our
reported results, were as follows:
|
|
|
•
|
|
On March 31, 2009, we restructured our relationship with Franklin. As a result of
this restructuring, a nonrecurring net tax benefit of $159.9 million ($0.44 per common
share) was recorded in the 2009 first quarter. Also, and although earnings were not
significantly impacted, commercial NCOs increased $128.3 million as the previously
established $130.0 million Franklin-specific allowance for loan and lease losses (ALLL)
was utilized to writedown the acquired mortgages and other real estate owned (OREO)
collateral to fair value.
|
|
|
|
|
•
|
|
During the 2010 first quarter, a $38.2 million ($0.05 per common share) net tax
benefit was recognized, primarily reflecting the increase in the net deferred tax asset
relating to the assets acquired from the March 31, 2009, restructuring.
|
|
|
|
|
•
|
|
During the 2010 second quarter, the remaining portfolio of Franklin-related loans
($333.0 million of residential mortgages, and $64.7 million of home equity loans) was
transferred to loans held for sale. At the time of the transfer, the loans were marked
to the lower of cost or fair value, less costs to sell, of $323.4 million, resulting in
$75.5 million of charge-offs, and the provision for credit losses commensurately
increased $75.5 million ($0.07 per common share).
|
|
|
|
|
•
|
|
On July 20, 2010, $274.2 million of the $275.2 million of residential mortgages were
sold.
|
|
|
3.
|
|
Early Extinguishment of Debt.
The positive impacts relating to the early
extinguishment of debt on our reported results were: $73.6 million ($0.07 per common
share) in the 2009 fourth quarter and $67.4 million ($0.10 per common share) in the 2009
second quarter. These amounts were recorded to noninterest expense.
|
|
|
|
|
4.
|
|
Preferred Stock Conversion.
During the 2009 first and second quarters, we
converted 114,109 and 92,384 shares, respectively, of Series A 8.50% Non-cumulative
Perpetual Preferred (Series A Preferred Stock) stock into common stock. As part of these
transactions, there was a deemed dividend that did not impact net income, but resulted in a
negative impact of $0.08 per common share for the 2009 first quarter and $0.06 per common
share for the 2009 second quarter.
|
|
|
|
|
5.
|
|
Visa
®
.
Prior to the Visa
®
initial public offering (IPO) occurring
in March 2008, Visa
®
was owned by its member banks, which included the Bank. As
a result of this ownership, we received shares of Visa
®
stock at the time of the IPO. In
the 2009 second quarter, we sold these Visa
®
stock shares, resulting in a $31.4
million pretax gain ($0.04 per common share). This amount was recorded to noninterest
income.
|
|
|
|
|
6.
|
|
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:
|
2009 — Fourth Quarter
|
|
•
|
|
$11.3 million ($0.02 per common share) benefit to provision for income taxes,
representing a reduction to the previously established capital loss carry-forward
valuation allowance.
|
2009 — Second Quarter
|
|
•
|
|
$23.6 million ($0.03 per common share) negative impact due to a special Federal
Deposit Insurance Corporation (FDIC) insurance premium assessment. This amount was
recorded to noninterest expense.
|
|
|
|
|
•
|
|
$2.4 million ($0.01 per common share) benefit to provision for income taxes,
representing a reduction to the previously established capital loss carry-forward
valuation allowance.
|
11
The following table reflects the earnings impact of the above-mentioned significant items for
periods affected by this Results of Operations discussion:
Table 3 — Significant Items Influencing Earnings Performance Comparison
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
June 30, 2010
|
|
|
March 31, 2010
|
|
|
June 30, 2009
|
|
|
(dollar amounts in thousands, except per share amounts)
|
|
After-tax
|
|
|
EPS
|
|
|
After-tax
|
|
|
EPS
|
|
|
After-tax
|
|
|
EPS
|
|
|
|
|
Net income (loss) — GAAP
|
|
$
|
48,764
|
|
|
|
|
|
|
$
|
39,737
|
|
|
|
|
|
|
$
|
(125,095
|
)
|
|
|
|
|
|
Earnings per share, after-tax
|
|
|
|
|
|
$
|
0.03
|
|
|
|
|
|
|
$
|
0.01
|
|
|
|
|
|
|
$
|
(0.40
|
)(3)
|
|
Change from prior quarter — $
|
|
|
|
|
|
|
0.02
|
|
|
|
|
|
|
|
0.57
|
|
|
|
|
|
|
|
6.39
|
|
|
Change from prior quarter — %
|
|
|
|
|
|
|
N.M.
|
%
|
|
|
|
|
|
|
N.M.
|
%
|
|
|
|
|
|
|
(94.1)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change from year-ago — $
|
|
|
|
|
|
$
|
0.43
|
|
|
|
|
|
|
$
|
6.80
|
|
|
|
|
|
|
$
|
(0.65
|
)
|
|
Change from year-ago — %
|
|
|
|
|
|
|
N.M.
|
%
|
|
|
|
|
|
|
N.M.
|
%
|
|
|
|
|
|
|
N.M.
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant items - favorable (unfavorable) impact:
|
|
Earnings (1)
|
|
|
EPS
|
|
|
Earnings (1)
|
|
|
EPS
|
|
|
Earnings (1)
|
|
|
EPS
|
|
|
|
|
Franklin-related loans transferred to held for sale
|
|
$
|
(75,500
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Net tax benefit recognized (2)
|
|
|
—
|
|
|
|
—
|
|
|
|
38,222
|
|
|
|
0.05
|
|
|
|
—
|
|
|
|
—
|
|
|
Net gain on early extinguishment of debt
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
67,409
|
|
|
|
0.10
|
|
|
Gain related to sale of Visa
®
stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31,362
|
|
|
|
0.04
|
|
|
Deferred tax valuation allowance benefit (2)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,388
|
|
|
|
0.01
|
|
|
Goodwill impairment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,231
|
)
|
|
|
(0.01
|
)
|
|
FDIC special assessment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(23,555
|
)
|
|
|
(0.03
|
)
|
|
Preferred stock conversion deemed dividend
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
(in thousands)
|
|
After-tax
|
|
|
EPS
|
|
|
After-tax
|
|
|
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) — reported earnings
|
|
$
|
88.5
|
|
|
|
|
|
|
$
|
(2,558,302
|
)
|
|
|
|
|
|
Earnings per share, after tax
|
|
|
|
|
|
$
|
0.04
|
|
|
|
|
|
|
$
|
(6.47
|
)(3)
|
|
Change from a year-ago — $
|
|
|
|
|
|
|
6.51
|
|
|
|
|
|
|
|
(7.06
|
)
|
|
Change from a year-ago — %
|
|
|
|
|
|
|
N.M.
|
%
|
|
|
|
|
|
|
N.M.
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant items - favorable (unfavorable) impact:
|
|
Earnings (1)
|
|
|
EPS
|
|
|
Earnings (1)
|
|
|
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin-related loans transferred to held for sale
|
|
$
|
(75,500
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Net tax benefit recognized (2)
|
|
|
38,222
|
|
|
|
0.05
|
|
|
|
—
|
|
|
|
—
|
|
|
Franklin relationship restructuring (2)
|
|
|
—
|
|
|
|
—
|
|
|
|
159,895
|
|
|
|
0.39
|
|
|
Gain on redemption of junior subordinated debt
|
|
|
—
|
|
|
|
—
|
|
|
|
67,409
|
|
|
|
0.11
|
|
|
Gain related to Visa
®
stock
|
|
|
—
|
|
|
|
—
|
|
|
|
31,362
|
|
|
|
0.05
|
|
|
Deferred tax valuation allowance benefit (2)
|
|
|
—
|
|
|
|
—
|
|
|
|
3,711
|
|
|
|
0.01
|
|
|
Goodwill impairment
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,606,944
|
)
|
|
|
(6.30
|
)
|
|
FDIC special assessment
|
|
|
—
|
|
|
|
—
|
|
|
|
(23,555
|
)
|
|
|
(0.04
|
)
|
|
Preferred stock conversion deemed dividend
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.14
|
)
|
|
|
|
|
|
N.M., not a meaningful value.
|
|
|
|
(1)
|
|
Pretax unless otherwise noted.
|
|
|
|
(2)
|
|
After-tax.
|
|
|
|
(3)
|
|
Reflects the impact of additional shares of common stock issued during
the period. 24.6 million shares were issued late in the 2009 first
quarter and 177.0 million shares were issued during the 2009 second
quarter.
|
12
Pretax, Pre-provision Income Trends
One non-GAAP performance measurement that we believe is useful in analyzing underlying
performance trends is pretax, pre-provision income. This is the level of earnings adjusted to
exclude the impact of: (a) provision expense, which is excluded because its absolute level is
elevated and volatile, (b) investment securities gains/losses, which are excluded because
securities market valuations may also become particularly volatile in times of economic stress, (c)
amortization of intangibles expense, which is excluded because the return on tangible common equity
is a key measurement that we use to gauge performance trends, and (d) certain other items
identified by us
(see “Significant Items”)
that we believe may distort our underlying performance
trends.
The following table reflects pretax, pre-provision income for the each of the past five
quarters:
Table 4 — Pretax, Pre-provision Income (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
(dollar amounts in thousands)
|
|
Second
|
|
|
First
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
62,083
|
|
|
$
|
1,644
|
|
|
$
|
(597,977
|
)
|
|
$
|
(257,362
|
)
|
|
$
|
(137,845
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Provision for credit losses
|
|
|
193,406
|
|
|
|
235,008
|
|
|
|
893,991
|
|
|
|
475,136
|
|
|
|
413,707
|
|
|
Less: Securities (losses) gains
|
|
|
156
|
|
|
|
(31
|
)
|
|
|
(2,602
|
)
|
|
|
(2,374
|
)
|
|
|
(7,340
|
)
|
|
Add: Amortization of intangibles
|
|
|
15,141
|
|
|
|
15,146
|
|
|
|
17,060
|
|
|
|
16,995
|
|
|
|
17,117
|
|
|
Less: Significant Items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on early extinguishment of debt
(2)
|
|
|
—
|
|
|
|
—
|
|
|
|
73,615
|
|
|
|
—
|
|
|
|
67,409
|
|
|
Goodwill impairment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,231
|
)
|
|
Gain related to Visa stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31,362
|
|
|
FDIC special assessment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(23,555
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pretax, pre-provision income
|
|
$
|
270,474
|
|
|
$
|
251,829
|
|
|
$
|
242,061
|
|
|
$
|
237,143
|
|
|
$
|
229,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in total pretax, pre-provision income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior quarter change — amount
|
|
$
|
18,645
|
|
|
$
|
9,768
|
|
|
$
|
4,918
|
|
|
$
|
7,809
|
|
|
$
|
4,715
|
|
|
Prior quarter change — percent
|
|
|
7
|
%
|
|
|
4
|
%
|
|
|
2
|
%
|
|
|
3
|
%
|
|
|
2
|
%
|
|
|
|
|
|
(1)
|
|
Pretax, pre-provision income is a non-GAAP financial measure. Any ratio utilizing this financial measure is also
non-GAAP. This financial measure has been included as it is considered to be an important metric with which to analyze
and evaluate our results of operations and financial strength. Other companies may calculate this financial measure
differently.
|
|
|
|
(2)
|
|
Includes only transactions related to the purchase of certain trust preferred securities during the 2009 second quarter.
|
As shown in the table above, pretax, pre-provision income was $270.5 million in the 2010
second quarter, up 7% from the prior quarter. As discussed in the sections that follow, the
improvement from the prior quarter reflected higher revenue, primarily noninterest income and, to a
lesser degree, net interest income. These improvements were partially offset by higher noninterest
expense.
Net Interest Income / Average Balance Sheet
(This section should be read in conjunction with Significant Item 2.)
2010 Second Quarter versus 2009 Second Quarter
Fully-taxable equivalent net interest income increased $51.0 million, or 15%, from the
year-ago quarter. This reflected the favorable impact of the significant increase in the net
interest margin to 3.46% from 3.10%, as well as a 2% increase in average total earning assets. A
significant portion of the increase in the net interest margin reflected a shift in our deposit mix
from higher-cost time deposits to lower-cost transaction-based accounts. The increase in average
earning assets reflected a $3.5 billion, or 65%, increase in average total investment securities,
partially offset by a $1.9 billion, or 5%, decline in average total loans and leases.
13
The following table details the change in our reported loans and deposits:
Table 5 — Average Loans/Leases and Deposits — 2010 Second Quarter vs. 2009 Second Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
|
Change
|
|
|
(dollar amounts in millions)
|
|
2010
|
|
|
2009
|
|
|
Amount
|
|
|
Percent
|
|
|
Loans/Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
12,244
|
|
|
$
|
13,523
|
|
|
$
|
(1,279
|
)
|
|
|
(9
|
)%
|
|
Commercial real estate
|
|
|
7,364
|
|
|
|
9,199
|
|
|
|
(1,835
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
19,608
|
|
|
|
22,722
|
|
|
|
(3,114
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans and leases
|
|
|
4,634
|
|
|
|
3,290
|
|
|
|
1,344
|
|
|
|
41
|
|
|
Home equity
|
|
|
7,544
|
|
|
|
7,640
|
|
|
|
(96
|
)
|
|
|
(1
|
)
|
|
Residential mortgage
|
|
|
4,608
|
|
|
|
4,657
|
|
|
|
(49
|
)
|
|
|
(1
|
)
|
|
Other consumer
|
|
|
695
|
|
|
|
698
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
17,481
|
|
|
|
16,285
|
|
|
|
1,196
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases
|
|
$
|
37,089
|
|
|
$
|
39,007
|
|
|
$
|
(1,918
|
)
|
|
|
(5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits — noninterest-bearing
|
|
$
|
6,849
|
|
|
$
|
6,021
|
|
|
$
|
828
|
|
|
|
14
|
%
|
|
Demand deposits — interest-bearing
|
|
|
5,971
|
|
|
|
4,547
|
|
|
|
1,424
|
|
|
|
31
|
|
|
Money market deposits
|
|
|
11,103
|
|
|
|
6,355
|
|
|
|
4,748
|
|
|
|
75
|
|
|
Savings and other domestic time deposits
|
|
|
4,677
|
|
|
|
5,031
|
|
|
|
(354
|
)
|
|
|
(7
|
)
|
|
Core certificates of deposit
|
|
|
9,199
|
|
|
|
12,501
|
|
|
|
(3,302
|
)
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits
|
|
|
37,799
|
|
|
|
34,455
|
|
|
|
3,344
|
|
|
|
10
|
|
|
Other deposits
|
|
|
2,568
|
|
|
|
5,079
|
|
|
|
(2,511
|
)
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
40,367
|
|
|
$
|
39,534
|
|
|
$
|
833
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $1.9 billion, or 5%, decrease in average total loans and leases primarily reflected:
|
|
•
|
|
$3.1 billion, or 14%, decrease in average total commercial loans. A $1.3 billion, or
9%, decline in average C&I loans reflected a general decrease in borrowing as reflected in
a decline in line-of-credit utilization, including reductions in our automobile dealer
floorplan exposure, charge-off activity, and the reclassification in the 2010 first quarter
of variable rate demand notes to municipal securities. These negatives were partially
offset by the impact of the 2009 reclassifications of certain CRE loans, primarily
representing owner-occupied properties, to C&I loans. The $1.8 billion, or 20%, decrease
in average CRE loans reflected these reclassifications, as well as our on-going commitment
to lower our overall CRE exposure. We continue to execute our plan to reduce our CRE
exposure while maintaining a commitment to our core CRE borrowers. The decrease in average
balances is associated with the noncore portfolio, as our core portfolio average balances
were little changed during the current period.
|
Partially offset by:
|
|
•
|
|
$1.2 billion, or 7%, increase in average total consumer loans. This growth reflected a
$1.3 billion, or 41%, increase in average automobile loans and leases primarily as a result
of the adoption of a new accounting standard in which, on January 1, 2010, we consolidated
a 2009 first quarter $1.0 billion automobile loan securitization. At June 30, 2010, these
formerly securitized loans had a remaining balance of $0.7 billion
(see Note 5 of the Notes
to the Unaudited Condensed Consolidated Financial Statements).
In addition, underlying
growth in automobile loans continued to be strong, reflecting a 139% increase in loan
originations for the first six months of 2010 from the comparable year-ago period. The
growth has come while maintaining our commitment to excellent credit quality and an
appropriate return. Average home equity loans were little changed as lower origination
volume was offset by slower runoff experience and slightly higher line-of-credit
utilization. Increased line usage continued to be associated with higher quality customers
taking advantage of the low interest rate environment. Average residential mortgages were
essentially unchanged, reflecting the impact of the continued refinance of portfolio loans
and the related increased sale of fixed-rate originations. The transfer of the
Franklin-related loans into held for sale occurred at the end of the quarter and had no
impact on related average residential mortgages or home equity loans
(see Significant Item
2).
|
The $3.5 billion, or 65%, increase in average total investment securities reflected the
deployment of the cash from core deposit growth and loan runoff over this period, as well as the
proceeds from 2009 capital actions.
14
The $0.8 billion, or 2%, increase in average total deposits reflected:
|
|
•
|
|
$3.3 billion, or 10%, growth in average total core deposits, primarily reflecting our
focus on growing money market and demand deposit accounts.
|
Partially offset by:
|
|
•
|
|
$2.2 billion, or 60%, decline in brokered deposits and negotiable CDs and a $0.2
billion, or 25%, decrease in average other domestic deposits over $250,000, primarily
reflecting a reduction of noncore funding sources.
|
2010 Second Quarter versus 2010 First Quarter
Compared with the 2010 first quarter, fully-taxable equivalent net interest income increased
$6.0 million, or 2%. This reflected a 1% increase in average earning assets as the fully-taxable
equivalent net interest margin declined slightly to 3.46% from 3.47%. The increase in average
earning assets primarily reflected a $0.3 billion, or 3%, increase in average investment
securities, as average total loans and leases were up $0.1 billion, or less than 1%.
The net interest margin declined 1 basis point. Favorable trends in the mix and pricing of
deposits were offset by lower yields on Franklin-related loans, a lower contribution from
asset/liability management strategies implemented in the first and second quarters of 2010, and one
additional calendar day in the 2010 second quarter.
The following table details the change in our reported loans and deposits:
Table 6 — Average Loans/Leases and Deposits — 2010 Second Quarter vs. 2010 First Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
Change
|
|
|
(dollar amounts in millions)
|
|
Second Quarter
|
|
|
First Quarter
|
|
|
Amount
|
|
|
Percent
|
|
|
Loans/Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
12,244
|
|
|
$
|
12,314
|
|
|
$
|
(70
|
)
|
|
|
(1
|
)%
|
|
Commercial real estate
|
|
|
7,364
|
|
|
|
7,677
|
|
|
|
(313
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
19,608
|
|
|
|
19,991
|
|
|
|
(383
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans and leases
|
|
|
4,634
|
|
|
|
4,250
|
|
|
|
384
|
|
|
|
9
|
|
|
Home equity
|
|
|
7,544
|
|
|
|
7,539
|
|
|
|
5
|
|
|
|
—
|
|
|
Residential mortgage
|
|
|
4,608
|
|
|
|
4,477
|
|
|
|
131
|
|
|
|
3
|
|
|
Other consumer
|
|
|
695
|
|
|
|
723
|
|
|
|
(28
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
17,481
|
|
|
|
16,989
|
|
|
|
492
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases
|
|
$
|
37,089
|
|
|
$
|
36,980
|
|
|
$
|
109
|
|
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits — noninterest-bearing
|
|
$
|
6,849
|
|
|
$
|
6,627
|
|
|
$
|
222
|
|
|
|
3
|
%
|
|
Demand deposits — interest-bearing
|
|
|
5,971
|
|
|
|
5,716
|
|
|
|
255
|
|
|
|
4
|
|
|
Money market deposits
|
|
|
11,103
|
|
|
|
10,340
|
|
|
|
763
|
|
|
|
7
|
|
|
Savings and other domestic time deposits
|
|
|
4,677
|
|
|
|
4,613
|
|
|
|
64
|
|
|
|
1
|
|
|
Core certificates of deposit
|
|
|
9,199
|
|
|
|
9,976
|
|
|
|
(777
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits
|
|
|
37,799
|
|
|
|
37,272
|
|
|
|
527
|
|
|
|
1
|
|
|
Other deposits
|
|
|
2,568
|
|
|
|
2,951
|
|
|
|
(383
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
40,367
|
|
|
$
|
40,223
|
|
|
$
|
144
|
|
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
The $0.1 billion increase in average total loans and leases primarily reflected:
|
|
•
|
|
$0.4 billion, or 2%, decline in average total commercial loans as average C&I loans
declined $0.1 billion, or 1%, and average CRE declined $0.3 billion, or 4%. C&I loans
declined as underlying growth was more than offset by a combination of continued lower
line-of-credit utilization and paydowns on term debt. The economic environment continued
to cause many customers to actively reduce their leverage position. Our line-of-credit utilization
percentage was 43%, consistent with that of the prior quarter. We continue to believe that
we have opportunities to expand our customer base within our markets and are focused on
expanding our C&I sales pipeline. The decline in average CRE loans primarily resulted from
the continuing paydowns and charge-off activity associated with our noncore CRE portfolio.
Paydowns of $124.5 million were a result of our portfolio management and loan workout
strategies, augmented by some early stage improvements in the markets. The portion of the
CRE portfolio designated as core continued to perform as expected with average balances
little changed from the prior quarter.
|
Partially offset by:
|
|
•
|
|
$0.5 billion, or 3%, increase in total average consumer loans, primarily reflecting a
$0.4 billion, or 9%, increase in average automobile loans and leases. This growth
reflected record production of $943.6 million in the quarter. We continue to maintain high
credit quality standards on this production while achieving an appropriate return. We have
a high degree of confidence in our ability to originate quality automobile loans through
our established dealer network, and as a natural extension of our Western Pennsylvania area
operations, we have established a presence in the eastern portion of the state. Average
residential mortgages increased $0.1 billion, or 3%, and average home equity loans were
essentially unchanged from the prior quarter. The transfer of the Franklin-related loans
into held for sale occurred at the end of the quarter and had no impact on related average
residential mortgages or home equity loans
(see Significant Item 2)
.
|
The $0.3 billion, or 3%, increase in average total investment securities reflected the
reinvestment of excess cash.
Average total deposits increased $0.1 billion from the prior quarter reflecting:
|
|
•
|
|
$0.5 billion, or 1%, growth in average total core deposits, primarily reflecting our
focus on growing money market and demand deposit accounts.
|
Partially offset by:
|
|
•
|
|
$0.3 billion, or 18%, decline in brokered deposits and negotiable CDs, reflecting
maturities.
|
Tables 7 and 8 reflect quarterly average balance sheets and rates earned and paid on
interest-earning assets and interest-bearing liabilities.
16
Table 7 — Consolidated Quarterly Average Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Balances
|
|
|
Change
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2Q10 vs. 2Q09
|
|
|
(dollar amounts in millions)
|
|
Second
|
|
|
First
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
|
Amount
|
|
|
Percent
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits in banks
|
|
$
|
309
|
|
|
$
|
348
|
|
|
$
|
329
|
|
|
$
|
393
|
|
|
$
|
369
|
|
|
$
|
(60
|
)
|
|
|
(16
|
)%
|
|
Trading account securities
|
|
|
127
|
|
|
|
96
|
|
|
|
110
|
|
|
|
107
|
|
|
|
88
|
|
|
|
39
|
|
|
|
44
|
|
|
Federal funds sold and securities purchased under
resale agreement
|
|
|
—
|
|
|
|
—
|
|
|
|
15
|
|
|
|
7
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Loans held for sale
|
|
|
323
|
|
|
|
346
|
|
|
|
470
|
|
|
|
524
|
|
|
|
709
|
|
|
|
(386
|
)
|
|
|
(54
|
)
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
8,367
|
|
|
|
8,025
|
|
|
|
8,695
|
|
|
|
6,510
|
|
|
|
5,181
|
|
|
|
3,186
|
|
|
|
61
|
|
|
Tax-exempt
|
|
|
391
|
|
|
|
445
|
|
|
|
139
|
|
|
|
129
|
|
|
|
126
|
|
|
|
265
|
|
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
8,758
|
|
|
|
8,470
|
|
|
|
8,834
|
|
|
|
6,639
|
|
|
|
5,307
|
|
|
|
3,451
|
|
|
|
65
|
|
|
Loans and leases: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
12,244
|
|
|
|
12,314
|
|
|
|
12,570
|
|
|
|
12,922
|
|
|
|
13,523
|
|
|
|
(1,279
|
)
|
|
|
(9
|
)
|
|
Construction
|
|
|
1,279
|
|
|
|
1,409
|
|
|
|
1,651
|
|
|
|
1,808
|
|
|
|
1,946
|
|
|
|
(667
|
)
|
|
|
(34
|
)
|
|
Commercial
|
|
|
6,085
|
|
|
|
6,268
|
|
|
|
6,807
|
|
|
|
7,071
|
|
|
|
7,253
|
|
|
|
(1,168
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
7,364
|
|
|
|
7,677
|
|
|
|
8,458
|
|
|
|
8,879
|
|
|
|
9,199
|
|
|
|
(1,835
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
19,608
|
|
|
|
19,991
|
|
|
|
21,028
|
|
|
|
21,801
|
|
|
|
22,722
|
|
|
|
(3,114
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans
|
|
|
4,472
|
|
|
|
4,031
|
|
|
|
3,050
|
|
|
|
2,886
|
|
|
|
2,867
|
|
|
|
1,605
|
|
|
|
56
|
|
|
Automobile leases
|
|
|
162
|
|
|
|
219
|
|
|
|
276
|
|
|
|
344
|
|
|
|
423
|
|
|
|
(261
|
)
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans and leases
|
|
|
4,634
|
|
|
|
4,250
|
|
|
|
3,326
|
|
|
|
3,230
|
|
|
|
3,290
|
|
|
|
1,344
|
|
|
|
41
|
|
|
Home equity
|
|
|
7,544
|
|
|
|
7,539
|
|
|
|
7,561
|
|
|
|
7,581
|
|
|
|
7,640
|
|
|
|
(96
|
)
|
|
|
(1
|
)
|
|
Residential mortgage
|
|
|
4,608
|
|
|
|
4,477
|
|
|
|
4,417
|
|
|
|
4,487
|
|
|
|
4,657
|
|
|
|
(49
|
)
|
|
|
(1
|
)
|
|
Other loans
|
|
|
695
|
|
|
|
723
|
|
|
|
757
|
|
|
|
756
|
|
|
|
698
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
17,481
|
|
|
|
16,989
|
|
|
|
16,061
|
|
|
|
16,054
|
|
|
|
16,285
|
|
|
|
1,196
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases
|
|
|
37,089
|
|
|
|
36,980
|
|
|
|
37,089
|
|
|
|
37,855
|
|
|
|
39,007
|
|
|
|
(1,918
|
)
|
|
|
(5
|
)
|
|
Allowance for loan and lease losses
|
|
|
(1,506
|
)
|
|
|
(1,510
|
)
|
|
|
(1,029
|
)
|
|
|
(950
|
)
|
|
|
(930
|
)
|
|
|
(576
|
)
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans and leases
|
|
|
35,583
|
|
|
|
35,470
|
|
|
|
36,060
|
|
|
|
36,905
|
|
|
|
38,077
|
|
|
|
(2,494
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
46,606
|
|
|
|
46,240
|
|
|
|
46,847
|
|
|
|
45,525
|
|
|
|
45,480
|
|
|
|
1,126
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
1,509
|
|
|
|
1,761
|
|
|
|
1,947
|
|
|
|
2,553
|
|
|
|
2,466
|
|
|
|
(957
|
)
|
|
|
(39
|
)
|
|
Intangible assets
|
|
|
710
|
|
|
|
725
|
|
|
|
737
|
|
|
|
755
|
|
|
|
780
|
|
|
|
(70
|
)
|
|
|
(9
|
)
|
|
All other assets
|
|
|
4,384
|
|
|
|
4,486
|
|
|
|
3,956
|
|
|
|
3,797
|
|
|
|
3,701
|
|
|
|
683
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
51,703
|
|
|
$
|
51,702
|
|
|
$
|
52,458
|
|
|
$
|
51,680
|
|
|
$
|
51,497
|
|
|
$
|
206
|
|
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits — noninterest-bearing
|
|
$
|
6,849
|
|
|
$
|
6,627
|
|
|
$
|
6,466
|
|
|
$
|
6,186
|
|
|
$
|
6,021
|
|
|
$
|
828
|
|
|
|
14
|
%
|
|
Demand deposits — interest-bearing
|
|
|
5,971
|
|
|
|
5,716
|
|
|
|
5,482
|
|
|
|
5,140
|
|
|
|
4,547
|
|
|
|
1,424
|
|
|
|
31
|
|
|
Money market deposits
|
|
|
11,103
|
|
|
|
10,340
|
|
|
|
9,271
|
|
|
|
7,601
|
|
|
|
6,355
|
|
|
|
4,748
|
|
|
|
75
|
|
|
Savings and other domestic time deposits
|
|
|
4,677
|
|
|
|
4,613
|
|
|
|
4,686
|
|
|
|
4,771
|
|
|
|
5,031
|
|
|
|
(354
|
)
|
|
|
(7
|
)
|
|
Core certificates of deposit
|
|
|
9,199
|
|
|
|
9,976
|
|
|
|
10,867
|
|
|
|
11,646
|
|
|
|
12,501
|
|
|
|
(3,302
|
)
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits
|
|
|
37,799
|
|
|
|
37,272
|
|
|
|
36,772
|
|
|
|
35,344
|
|
|
|
34,455
|
|
|
|
3,344
|
|
|
|
10
|
|
|
Other domestic time deposits of $250,000 or more
|
|
|
661
|
|
|
|
698
|
|
|
|
667
|
|
|
|
747
|
|
|
|
886
|
|
|
|
(225
|
)
|
|
|
(25
|
)
|
|
Brokered time deposits and negotiable CDs
|
|
|
1,505
|
|
|
|
1,843
|
|
|
|
2,353
|
|
|
|
3,058
|
|
|
|
3,740
|
|
|
|
(2,235
|
)
|
|
|
(60
|
)
|
|
Deposits in foreign offices
|
|
|
402
|
|
|
|
410
|
|
|
|
422
|
|
|
|
444
|
|
|
|
453
|
|
|
|
(51
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
40,367
|
|
|
|
40,223
|
|
|
|
40,214
|
|
|
|
39,593
|
|
|
|
39,534
|
|
|
|
833
|
|
|
|
2
|
|
|
Short-term borrowings
|
|
|
966
|
|
|
|
927
|
|
|
|
879
|
|
|
|
879
|
|
|
|
879
|
|
|
|
87
|
|
|
|
10
|
|
|
Federal Home Loan Bank advances
|
|
|
212
|
|
|
|
179
|
|
|
|
681
|
|
|
|
924
|
|
|
|
947
|
|
|
|
(735
|
)
|
|
|
(78
|
)
|
|
Subordinated notes and other long-term debt
|
|
|
3,836
|
|
|
|
4,062
|
|
|
|
3,908
|
|
|
|
4,136
|
|
|
|
4,640
|
|
|
|
(804
|
)
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
38,532
|
|
|
|
38,764
|
|
|
|
39,216
|
|
|
|
39,346
|
|
|
|
39,979
|
|
|
|
(1,447
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other liabilities
|
|
|
924
|
|
|
|
947
|
|
|
|
1,042
|
|
|
|
863
|
|
|
|
569
|
|
|
|
355
|
|
|
|
62
|
|
|
Shareholders’ equity
|
|
|
5,398
|
|
|
|
5,364
|
|
|
|
5,734
|
|
|
|
5,285
|
|
|
|
4,928
|
|
|
|
470
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
51,703
|
|
|
$
|
51,702
|
|
|
$
|
52,458
|
|
|
$
|
51,680
|
|
|
$
|
51,497
|
|
|
$
|
206
|
|
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M., not a meaningful value.
|
|
|
|
|
(1)
|
|
For purposes of this analysis, nonaccrual loans are reflected in the average balances
of loans.
|
17
Table 8 — Consolidated Quarterly Net Interest Margin Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Rates (2)
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Fully-taxable equivalent basis (1)
|
|
Second
|
|
|
First
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits in banks
|
|
|
0.20
|
%
|
|
|
0.18
|
%
|
|
|
0.16
|
%
|
|
|
0.28
|
%
|
|
|
0.37
|
%
|
|
Trading account securities
|
|
|
1.74
|
|
|
|
2.15
|
|
|
|
1.89
|
|
|
|
1.96
|
|
|
|
2.22
|
|
|
Federal funds sold and securities purchased under
resale agreement
|
|
|
—
|
|
|
|
—
|
|
|
|
0.03
|
|
|
|
0.14
|
|
|
|
0.82
|
|
|
Loans held for sale
|
|
|
5.02
|
|
|
|
4.98
|
|
|
|
5.13
|
|
|
|
5.20
|
|
|
|
5.19
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
2.85
|
|
|
|
2.94
|
|
|
|
3.20
|
|
|
|
3.99
|
|
|
|
4.63
|
|
|
Tax-exempt
|
|
|
4.60
|
|
|
|
4.35
|
|
|
|
6.31
|
|
|
|
6.77
|
|
|
|
6.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
2.93
|
|
|
|
3.01
|
|
|
|
3.25
|
|
|
|
4.04
|
|
|
|
4.69
|
|
|
Loans and leases: (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
5.31
|
|
|
|
5.60
|
|
|
|
5.20
|
|
|
|
5.19
|
|
|
|
5.00
|
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
2.61
|
|
|
|
2.66
|
|
|
|
2.63
|
|
|
|
2.61
|
|
|
|
2.78
|
|
|
Commercial
|
|
|
3.69
|
|
|
|
3.60
|
|
|
|
3.40
|
|
|
|
3.43
|
|
|
|
3.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
3.49
|
|
|
|
3.43
|
|
|
|
3.25
|
|
|
|
3.26
|
|
|
|
3.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
4.63
|
|
|
|
4.76
|
|
|
|
4.41
|
|
|
|
4.40
|
|
|
|
4.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans
|
|
|
6.46
|
|
|
|
6.64
|
|
|
|
7.15
|
|
|
|
7.34
|
|
|
|
7.28
|
|
|
Automobile leases
|
|
|
6.58
|
|
|
|
6.41
|
|
|
|
6.40
|
|
|
|
6.25
|
|
|
|
6.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans and leases
|
|
|
6.46
|
|
|
|
6.63
|
|
|
|
7.09
|
|
|
|
7.22
|
|
|
|
7.13
|
|
|
Home equity
|
|
|
5.26
|
|
|
|
5.59
|
|
|
|
5.82
|
|
|
|
5.75
|
|
|
|
5.75
|
|
|
Residential mortgage
|
|
|
4.70
|
|
|
|
4.89
|
|
|
|
5.04
|
|
|
|
5.03
|
|
|
|
5.12
|
|
|
Other loans
|
|
|
6.84
|
|
|
|
7.00
|
|
|
|
6.90
|
|
|
|
7.21
|
|
|
|
8.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
5.49
|
|
|
|
5.73
|
|
|
|
5.92
|
|
|
|
5.91
|
|
|
|
5.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases
|
|
|
5.04
|
|
|
|
5.21
|
|
|
|
5.07
|
|
|
|
5.04
|
|
|
|
5.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
4.63
|
%
|
|
|
4.82
|
%
|
|
|
4.70
|
%
|
|
|
4.86
|
%
|
|
|
4.99
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits — noninterest-bearing
|
|
|
—
|
%
|
|
|
—
|
%
|
|
|
—
|
%
|
|
|
—
|
%
|
|
|
—
|
%
|
|
Demand deposits — interest-bearing
|
|
|
0.22
|
|
|
|
0.22
|
|
|
|
0.22
|
|
|
|
0.22
|
|
|
|
0.18
|
|
|
Money market deposits
|
|
|
0.93
|
|
|
|
1.00
|
|
|
|
1.21
|
|
|
|
1.20
|
|
|
|
1.14
|
|
|
Savings and other domestic time deposits
|
|
|
1.07
|
|
|
|
1.19
|
|
|
|
1.27
|
|
|
|
1.33
|
|
|
|
1.37
|
|
|
Core certificates of deposit
|
|
|
2.68
|
|
|
|
2.93
|
|
|
|
3.07
|
|
|
|
3.27
|
|
|
|
3.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits
|
|
|
1.33
|
|
|
|
1.51
|
|
|
|
1.71
|
|
|
|
1.88
|
|
|
|
2.06
|
|
|
Other domestic time deposits of $250,000 or more
|
|
|
1.37
|
|
|
|
1.44
|
|
|
|
1.88
|
|
|
|
2.24
|
|
|
|
2.61
|
|
|
Brokered time deposits and negotiable CDs
|
|
|
2.56
|
|
|
|
2.49
|
|
|
|
2.52
|
|
|
|
2.49
|
|
|
|
2.54
|
|
|
Deposits in foreign offices
|
|
|
0.19
|
|
|
|
0.19
|
|
|
|
0.18
|
|
|
|
0.20
|
|
|
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
1.37
|
|
|
|
1.55
|
|
|
|
1.75
|
|
|
|
1.92
|
|
|
|
2.11
|
|
|
Short-term borrowings
|
|
|
0.21
|
|
|
|
0.21
|
|
|
|
0.24
|
|
|
|
0.25
|
|
|
|
0.26
|
|
|
Federal Home Loan Bank advances
|
|
|
1.93
|
|
|
|
2.71
|
|
|
|
1.01
|
|
|
|
0.92
|
|
|
|
1.13
|
|
|
Subordinated notes and other long-term debt
|
|
|
2.05
|
|
|
|
2.25
|
|
|
|
2.67
|
|
|
|
2.58
|
|
|
|
2.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
1.41
|
%
|
|
|
1.60
|
%
|
|
|
1.80
|
%
|
|
|
1.93
|
%
|
|
|
2.14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread
|
|
|
3.22
|
%
|
|
|
3.22
|
%
|
|
|
2.90
|
%
|
|
|
2.93
|
%
|
|
|
2.85
|
%
|
|
Impact of noninterest-bearing funds on margin
|
|
|
0.24
|
|
|
|
0.25
|
|
|
|
0.29
|
|
|
|
0.27
|
|
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
3.46
|
%
|
|
|
3.47
|
%
|
|
|
3.19
|
%
|
|
|
3.20
|
%
|
|
|
3.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, non-deferrable fees, and amortized deferred fees.
|
|
|
|
(3)
|
|
For purposes of this analysis, nonaccrual loans are reflected in the average balances of loans.
|
18
2010 First Six Months versus 2009 First Six Months
Fully-taxable equivalent net interest income for the first six-month period of 2010 increased
$106.1 million, or 15%, from the comparable year-ago period. This increase primarily reflected the
favorable impact of the significant increase in the net interest margin to 3.47% from 3.03% and, to
a lesser degree, a 1% increase in average total earning assets. A significant portion of the
increase in the net interest margin reflected a shift in our deposit mix from higher-cost time
deposits to lower-cost transaction-based accounts. Although average total earning assets increased
only slightly compared with the year-ago period, this change reflected a $3.7 million, or 77%,
increase in average total investment securities, mostly offset by a $2.9 billion, or 7%, decline in
average total loans and leases.
The following table details the change in our reported loans and deposits:
Table 9 — Average Loans/Leases and Deposits — 2010 First Six Months vs. 2009 First Six Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
(dollar amounts in millions)
|
|
2010
|
|
|
2009
|
|
|
Amount
|
|
|
Percent
|
|
|
Loans/Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
12,279
|
|
|
$
|
13,532
|
|
|
$
|
(1,253
|
)
|
|
|
(9
|
)%
|
|
Commercial real estate
|
|
|
7,520
|
|
|
|
9,653
|
|
|
|
(2,133
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
19,799
|
|
|
|
23,185
|
|
|
|
(3,386
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans and leases
|
|
|
4,443
|
|
|
|
3,820
|
|
|
|
623
|
|
|
|
16
|
|
|
Home equity
|
|
|
7,541
|
|
|
|
7,609
|
|
|
|
(68
|
)
|
|
|
(1
|
)
|
|
Residential mortgage
|
|
|
4,543
|
|
|
|
4,634
|
|
|
|
(91
|
)
|
|
|
(2
|
)
|
|
Other consumer
|
|
|
709
|
|
|
|
683
|
|
|
|
26
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
17,236
|
|
|
|
16,746
|
|
|
|
490
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases
|
|
$
|
37,035
|
|
|
$
|
39,931
|
|
|
$
|
(2,896
|
)
|
|
|
(7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits — noninterest-bearing
|
|
$
|
6,739
|
|
|
$
|
5,784
|
|
|
$
|
955
|
|
|
|
17
|
%
|
|
Demand deposits — interest-bearing
|
|
|
5,844
|
|
|
|
4,312
|
|
|
|
1,532
|
|
|
|
36
|
|
|
Money market deposits
|
|
|
10,723
|
|
|
|
5,975
|
|
|
|
4,748
|
|
|
|
79
|
|
|
Savings and other domestic time deposits
|
|
|
4,645
|
|
|
|
5,036
|
|
|
|
(391
|
)
|
|
|
(8
|
)
|
|
Core certificates of deposit
|
|
|
9,586
|
|
|
|
12,643
|
|
|
|
(3,057
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits
|
|
|
37,537
|
|
|
|
33,750
|
|
|
|
3,787
|
|
|
|
11
|
|
|
Other deposits
|
|
|
2,759
|
|
|
|
5,115
|
|
|
|
(2,356
|
)
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
40,296
|
|
|
$
|
38,865
|
|
|
$
|
1,431
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $2.9 billion, or 7%, decrease in average total loans and leases primarily reflected:
|
|
•
|
|
$3.4 billion, or 15%, decline in average total commercial loans as C&I loans declined
$1.3 billion, or 9%, and CRE loans declined $2.1 billion, or 22%. The decline in C& I
loans reflected a general decrease in borrowing as reflected in a decline in line-of-credit
utilization, including reductions in our automobile dealer floorplan exposure, charge-off
activity, the 2009 first quarter Franklin restructuring, and the 2010 first quarter
reclassification of variable rate demand notes to municipal securities. These declines
were partially offset by the impact of the 2009 reclassifications of certain CRE loans,
primarily representing owner-occupied properties, to C&I loans. The decline in CRE loans
reflected these reclassifications, as well as our continuing commitment to lower our
overall CRE exposure. We continue to execute our plan to reduce the CRE exposure while
maintaining a commitment to our core CRE borrowers.
|
Partially offset by:
|
|
•
|
|
$0.5 billion, or 3%, increase in average total consumer loans. This growth reflected a
$0.6 billion, or 16%, increase in average automobile loans and leases primarily as a result
of the adoption of a new accounting standard in which, on January 1, 2010, we consolidated
a 2009 first quarter $1.0 billion automobile loan securitization
(see Note 5 of the Notes
to the Unaudited Condensed Consolidated Financial Statements).
At June 30, 2010, these
securitized loans had a remaining balance of $0.7 billion. Additionally, underlying growth
in automobile loans continued to be strong, reflecting a 139% increase in loan originations
compared with the year-ago period. These increases were partially offset by a $0.3
billion, or 60%, decline in average automobile leases due to the continued run-off of that portfolio. Average home
equity loans were little changed as lower origination volume was offset by slower runoff
experience and slightly higher line-of-credit utilization. Average residential mortgages
declined slightly reflecting the impact of loan sales, as well as the continued refinance of
portfolio loans and the related increased sale of fixed-rate originations, partially offset
by the additions related to the 2009 first quarter Franklin restructuring. The transfer of
the Franklin-related loans into loans held for sale occurred at the end of the 2010 second
quarter and had no impact on related average residential mortgages or home equity loans
(see
Significant Item 2).
|
19
Offsetting the decline in average total loans and leases on average earning assets was a $3.7
billion, or 77%, increase in average total investment securities, reflected the deployment of the
cash from core deposit growth and loan run-off throughout the current period, as well as the
proceeds from the 2009 capital actions.
The $1.4 billion, or 4%, increase in average total deposits reflected:
|
|
•
|
|
$3.8 billion, or 11%, growth in average total core deposits, primarily reflecting our
focus on growing money market and demand deposit accounts.
|
Partially offset by:
|
|
•
|
|
$1.9 billion, or 53%, decline in brokered and negotiable CDs, and a $0.3 billion, or
30%, decline in average other domestic deposits over $250,000, primarily reflecting a
reduction of noncore funding sources.
|
Table 10 — Consolidated YTD Average Balance Sheets and Net Interest Margin Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YTD Average Balances
|
|
|
YTD Average Rates (2)
|
|
|
Fully-taxable equivalent basis (1)
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
Six Months Ended June 30,
|
|
|
(dollar amounts in millions)
|
|
2010
|
|
|
2009
|
|
|
Amount
|
|
|
Percent
|
|
|
2010
|
|
|
2009
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits in banks
|
|
$
|
328
|
|
|
$
|
362
|
|
|
$
|
(34
|
)
|
|
|
(9
|
)%
|
|
|
0.19
|
%
|
|
|
0.41
|
%
|
|
Trading account securities
|
|
|
112
|
|
|
|
182
|
|
|
|
(70
|
)
|
|
|
(38
|
)
|
|
|
1.92
|
|
|
|
3.61
|
|
|
Federal funds sold and securities purchased under
resale agreement
|
|
|
—
|
|
|
|
9
|
|
|
|
(9
|
)
|
|
|
(100
|
)
|
|
|
—
|
|
|
|
0.21
|
|
|
Loans held for sale
|
|
|
334
|
|
|
|
668
|
|
|
|
(334
|
)
|
|
|
(50
|
)
|
|
|
5.00
|
|
|
|
5.12
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
8,197
|
|
|
|
4,575
|
|
|
|
3,622
|
|
|
|
79
|
|
|
|
2.89
|
|
|
|
5.05
|
|
|
Tax-exempt
|
|
|
418
|
|
|
|
295
|
|
|
|
123
|
|
|
|
42
|
|
|
|
4.47
|
|
|
|
6.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
8,615
|
|
|
|
4,870
|
|
|
|
3,745
|
|
|
|
77
|
|
|
|
2.97
|
|
|
|
5.15
|
|
|
Loans and leases: (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
12,279
|
|
|
|
13,532
|
|
|
|
(1,253
|
)
|
|
|
(9
|
)
|
|
|
5.45
|
|
|
|
4.80
|
|
|
Construction
|
|
|
1,344
|
|
|
|
1,989
|
|
|
|
(645
|
)
|
|
|
(32
|
)
|
|
|
2.64
|
|
|
|
2.77
|
|
|
Commercial
|
|
|
6,176
|
|
|
|
7,664
|
|
|
|
(1,488
|
)
|
|
|
(19
|
)
|
|
|
3.64
|
|
|
|
3.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
7,520
|
|
|
|
9,653
|
|
|
|
(2,133
|
)
|
|
|
(22
|
)
|
|
|
3.46
|
|
|
|
3.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
19,799
|
|
|
|
23,185
|
|
|
|
(3,386
|
)
|
|
|
(15
|
)
|
|
|
4.70
|
|
|
|
4.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans
|
|
|
4,253
|
|
|
|
3,350
|
|
|
|
903
|
|
|
|
27
|
|
|
|
6.55
|
|
|
|
7.23
|
|
|
Automobile leases
|
|
|
190
|
|
|
|
470
|
|
|
|
(280
|
)
|
|
|
(60
|
)
|
|
|
6.49
|
|
|
|
6.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans and leases
|
|
|
4,443
|
|
|
|
3,820
|
|
|
|
623
|
|
|
|
16
|
|
|
|
6.54
|
|
|
|
7.09
|
|
|
Home equity
|
|
|
7,541
|
|
|
|
7,609
|
|
|
|
(68
|
)
|
|
|
(1
|
)
|
|
|
5.42
|
|
|
|
5.44
|
|
|
Residential mortgage
|
|
|
4,543
|
|
|
|
4,634
|
|
|
|
(91
|
)
|
|
|
(2
|
)
|
|
|
4.79
|
|
|
|
5.41
|
|
|
Other loans
|
|
|
709
|
|
|
|
683
|
|
|
|
26
|
|
|
|
4
|
|
|
|
6.92
|
|
|
|
8.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
17,236
|
|
|
|
16,746
|
|
|
|
490
|
|
|
|
3
|
|
|
|
5.61
|
|
|
|
5.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases
|
|
|
37,035
|
|
|
|
39,931
|
|
|
|
(2,896
|
)
|
|
|
(7
|
)
|
|
|
5.12
|
|
|
|
4.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses
|
|
|
(1,508
|
)
|
|
|
(922
|
)
|
|
|
(586
|
)
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans and leases
|
|
|
35,527
|
|
|
|
39,009
|
|
|
|
(3,482
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
46,424
|
|
|
|
46,022
|
|
|
|
402
|
|
|
|
1
|
|
|
|
4.72
|
%
|
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
1,634
|
|
|
|
2,012
|
|
|
|
(378
|
)
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
717
|
|
|
|
2,069
|
|
|
|
(1,352
|
)
|
|
|
(65
|
)
|
|
|
|
|
|
|
|
|
|
All other assets
|
|
|
4,436
|
|
|
|
3,637
|
|
|
|
799
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
51,703
|
|
|
$
|
52,818
|
|
|
$
|
(1,115
|
)
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YTD Average Balances
|
|
|
YTD Average Rates (2)
|
|
|
Fully-taxable equivalent basis (1)
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
Six Months Ended June 30,
|
|
|
(dollar amounts in millions)
|
|
2010
|
|
|
2009
|
|
|
Amount
|
|
|
Percent
|
|
|
2010
|
|
|
2009
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits — noninterest-bearing
|
|
$
|
6,739
|
|
|
$
|
5,784
|
|
|
$
|
955
|
|
|
|
17
|
%
|
|
|
—
|
%
|
|
|
—
|
%
|
|
Demand deposits — interest-bearing
|
|
|
5,844
|
|
|
|
4,312
|
|
|
|
1,532
|
|
|
|
36
|
|
|
|
0.22
|
|
|
|
0.16
|
|
|
Money market deposits
|
|
|
10,723
|
|
|
|
5,975
|
|
|
|
4,748
|
|
|
|
79
|
|
|
|
0.96
|
|
|
|
1.09
|
|
|
Savings and other domestic time deposits
|
|
|
4,645
|
|
|
|
5,036
|
|
|
|
(391
|
)
|
|
|
(8
|
)
|
|
|
1.13
|
|
|
|
1.43
|
|
|
Core certificates of deposit
|
|
|
9,586
|
|
|
|
12,643
|
|
|
|
(3,057
|
)
|
|
|
(24
|
)
|
|
|
2.81
|
|
|
|
3.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits
|
|
|
37,537
|
|
|
|
33,750
|
|
|
|
3,787
|
|
|
|
11
|
|
|
|
1.42
|
|
|
|
2.17
|
|
|
Other domestic time deposits of $250,000 or more
|
|
|
680
|
|
|
|
977
|
|
|
|
(297
|
)
|
|
|
(30
|
)
|
|
|
1.41
|
|
|
|
2.78
|
|
|
Brokered time deposits and negotiable CDs
|
|
|
1,673
|
|
|
|
3,596
|
|
|
|
(1,923
|
)
|
|
|
(53
|
)
|
|
|
2.52
|
|
|
|
2.74
|
|
|
Deposits in foreign offices
|
|
|
406
|
|
|
|
542
|
|
|
|
(136
|
)
|
|
|
(25
|
)
|
|
|
0.19
|
|
|
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
40,296
|
|
|
|
38,865
|
|
|
|
1,431
|
|
|
|
4
|
|
|
|
1.46
|
|
|
|
2.22
|
|
|
Short-term borrowings
|
|
|
947
|
|
|
|
988
|
|
|
|
(41
|
)
|
|
|
(4
|
)
|
|
|
0.21
|
|
|
|
0.26
|
|
|
Federal Home Loan Bank advances
|
|
|
196
|
|
|
|
1,677
|
|
|
|
(1,481
|
)
|
|
|
(88
|
)
|
|
|
2.28
|
|
|
|
1.06
|
|
|
Subordinated notes and other long-term debt
|
|
|
3,948
|
|
|
|
4,627
|
|
|
|
(679
|
)
|
|
|
(15
|
)
|
|
|
2.15
|
|
|
|
3.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
38,648
|
|
|
|
40,373
|
|
|
|
(1,725
|
)
|
|
|
(4
|
)
|
|
|
1.51
|
|
|
|
2.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other liabilities
|
|
|
935
|
|
|
|
591
|
|
|
|
344
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
5,381
|
|
|
|
6,070
|
|
|
|
(689
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
51,703
|
|
|
$
|
52,818
|
|
|
$
|
(1,115
|
)
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.21
|
|
|
|
2.78
|
|
|
Impact of noninterest-bearing funds on margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.26
|
|
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.47
|
%
|
|
|
3.03
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Fully-taxable equivalent (FTE) yields are calculated assuming a 35% tax rate.
|
|
|
|
(2)
|
|
Loan, lease, and deposit average rates include the impact of applicable derivatives, non-deferrable fees, and amortized deferred fees.
|
|
|
|
(3)
|
|
For purposes of this analysis, nonaccrual loans are reflected in the average balances of loans.
|
21
Provision for Credit Losses
(This section should be read in conjunction with Significant Item 2 and the “Credit Risk” section.)
The provision for credit losses is the expense necessary to maintain the ALLL and the
allowance for unfunded loan commitments and letters of credit (AULC) at levels adequate to absorb
our estimate of inherent credit losses in the loan and lease portfolio and the portfolio of
unfunded loan commitments and letters of credit.
The provision for credit losses for the 2010 second quarter was $193.4 million, down $41.6
million, or 18%, from the prior quarter and down $220.3 million, or 53%, from the year-ago quarter.
The 2010 second quarter included $80.0 million of Franklin-related credit provision
,
and reflected
$75.5 million associated with the transfer of Franklin-related loans to loans held for sale
(see
Significant Item 2),
and $4.5 million of other Franklin-related NCOs
.
Reflecting the utilization of
previously established reserves, the current quarter’s provision for credit losses was $85.8
million less than total NCOs
(see “Credit Quality” discussion).
The following table details the Franklin-related impact to the provision for credit losses for
each of the past five quarters.
Table 11 — Provision for Credit Losses — Franklin-Related Impact
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
(in millions)
|
|
Second
|
|
|
First
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
|
|
|
|
Provision for (reduction to) credit losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin
|
|
$
|
80.0
|
|
|
$
|
11.5
|
|
|
$
|
1.2
|
|
|
$
|
(3.5
|
)
|
|
$
|
(10.1
|
)
|
|
Non-Franklin
|
|
|
113.4
|
|
|
|
223.5
|
|
|
|
892.8
|
|
|
|
478.6
|
|
|
|
423.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
193.4
|
|
|
$
|
235.0
|
|
|
$
|
894.0
|
|
|
$
|
475.1
|
|
|
$
|
413.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net charge-offs (recoveries)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin — related to transfer to loans held for sale
|
|
$
|
75.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Franklin — unrelated to transfer to loans held for sale
|
|
|
4.5
|
|
|
|
11.5
|
|
|
|
1.2
|
|
|
|
(3.5
|
)
|
|
|
(10.1
|
)
|
|
Non-Franklin
|
|
|
199.2
|
|
|
|
227.0
|
|
|
|
443.5
|
|
|
|
359.4
|
|
|
|
344.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
279.2
|
|
|
$
|
238.5
|
|
|
$
|
444.7
|
|
|
$
|
355.9
|
|
|
$
|
334.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for (reduction to) credit losses in excess of net charge-offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Non-Franklin
|
|
|
(85.8
|
)
|
|
|
(3.5
|
)
|
|
|
449.3
|
|
|
|
119.2
|
|
|
|
79.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(85.8
|
)
|
|
$
|
(3.5
|
)
|
|
$
|
449.3
|
|
|
$
|
119.2
|
|
|
$
|
79.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest Income
(This section should be read in conjunction with Significant Item 5.)
The following table reflects noninterest income for each of the past five quarters:
Table 12 — Noninterest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
(dollar amounts in thousands)
|
|
Second
|
|
|
First
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
|
|
|
|
Service charges on deposit accounts
|
|
$
|
75,934
|
|
|
$
|
69,339
|
|
|
$
|
76,757
|
|
|
$
|
80,811
|
|
|
$
|
75,353
|
|
|
Brokerage and insurance income
|
|
|
36,498
|
|
|
|
35,762
|
|
|
|
32,173
|
|
|
|
33,996
|
|
|
|
32,052
|
|
|
Mortgage banking income
|
|
|
45,530
|
|
|
|
25,038
|
|
|
|
24,618
|
|
|
|
21,435
|
|
|
|
30,827
|
|
|
Trust services
|
|
|
28,399
|
|
|
|
27,765
|
|
|
|
27,275
|
|
|
|
25,832
|
|
|
|
25,722
|
|
|
Electronic banking
|
|
|
28,107
|
|
|
|
25,137
|
|
|
|
25,173
|
|
|
|
28,017
|
|
|
|
24,479
|
|
|
Bank owned life insurance income
|
|
|
14,392
|
|
|
|
16,470
|
|
|
|
14,055
|
|
|
|
13,639
|
|
|
|
14,266
|
|
|
Automobile operating lease income
|
|
|
11,842
|
|
|
|
12,303
|
|
|
|
12,671
|
|
|
|
12,795
|
|
|
|
13,116
|
|
|
Securities gains (losses)
|
|
|
156
|
|
|
|
(31
|
)
|
|
|
(2,602
|
)
|
|
|
(2,374
|
)
|
|
|
(7,340
|
)
|
|
Other income
|
|
|
28,785
|
|
|
|
29,069
|
|
|
|
34,426
|
|
|
|
41,901
|
|
|
|
57,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
$
|
269,643
|
|
|
$
|
240,852
|
|
|
$
|
244,546
|
|
|
$
|
256,052
|
|
|
$
|
265,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
The following table details mortgage banking income and the net impact of mortgage servicing
rights (MSR) hedging activity for each of the past five quarters:
Table 13 — Mortgage Banking Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
(dollar amounts in thousands)
|
|
Second
|
|
|
First
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
|
|
|
|
Mortgage Banking Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Origination and secondary marketing
|
|
$
|
19,778
|
|
|
$
|
13,586
|
|
|
$
|
16,473
|
|
|
$
|
16,491
|
|
|
$
|
31,782
|
|
|
Servicing fees
|
|
|
12,178
|
|
|
|
12,418
|
|
|
|
12,289
|
|
|
|
12,320
|
|
|
|
12,045
|
|
|
Amortization of capitalized servicing
|
|
|
(10,137
|
)
|
|
|
(10,065
|
)
|
|
|
(10,791
|
)
|
|
|
(10,050
|
)
|
|
|
(14,445
|
)
|
|
Other mortgage banking income
|
|
|
3,664
|
|
|
|
3,210
|
|
|
|
4,466
|
|
|
|
4,109
|
|
|
|
5,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total
|
|
|
25,483
|
|
|
|
19,149
|
|
|
|
22,437
|
|
|
|
22,870
|
|
|
|
34,763
|
|
|
MSR valuation adjustment
(1)
|
|
|
(26,221
|
)
|