Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY PERIOD ENDED September 30, 2009
Commission File Number 1-34073
Huntington Bancshares Incorporated
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| Maryland
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31-0724920 |
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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). o 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):
| Large accelerated filer þ |
Accelerated filer o |
Non-accelerated filer o
(Do not check if a smaller reporting company) |
Smaller reporting company o |
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 715,049,729 shares of Registrant’s common stock ($0.01 par value) outstanding on October
31, 2009.
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 financial holding
company organized under Maryland law in 1966 and headquartered in Columbus, Ohio. Through our
subsidiaries, including our bank subsidiary, The Huntington National Bank (the Bank), organized in
1866, we provide full-service commercial and consumer banking services, mortgage banking services,
automobile financing, equipment leasing, investment management, trust services, brokerage services,
customized insurance service programs, and other financial products and services. Our banking
offices are located in Ohio, Michigan, Pennsylvania, Indiana, West Virginia, and Kentucky.
Selected financial service activities are also conducted in other states including Private
Financial Group (PFG) offices in Florida, 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 both the Cayman Islands and Hong Kong.
The following 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. This MD&A
provides updates to the discussion and analysis included in our Annual Report on Form 10-K for the
year ended December 31, 2008 (2008 Form 10-K). This MD&A should be read in conjunction with our
2008 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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Introduction — Provides overview comments on important matters including risk factors,
acquisitions, and other items. These are essential for understanding our performance and
prospects. |
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Discussion of Results of Operations — Reviews financial performance from a consolidated
company perspective. It also includes a “Significant Items” 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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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. |
A reading of each section is important to understand fully the nature of our financial
performance and prospects.
Forward-Looking Statements
This report, including this MD&A, contains certain forward-looking statements, including
certain plans, expectations, goals, projections, and statements, which are subject to numerous
assumptions, risks, and uncertainties. Statements that do not describe historical or current
facts, including statements about beliefs and expectations, are forward-looking statements. The
forward-looking statements are intended to be subject to the safe harbor provided by Section 27A of
the Securities Exchange Act of 1933 and Section 21E of the Securities Exchange Act.
Actual results could differ materially from those contained or implied by such statements for
a variety of factors including: (1) deterioration in the loan portfolio could be worse than
expected due to a number of factors such as the underlying value of the collateral could prove less
valuable than otherwise assumed and assumed cash flows may be worse than expected; (2) changes in
economic conditions; (3) movements in interest rates; (4) competitive pressures on product pricing
and services; (5) success and timing of other business strategies; (6) the nature, extent, and
timing of governmental actions and reforms, including existing and potential future restrictions
and limitations imposed in connection with the Troubled Asset Relief Program’s (TARP) voluntary
Capital Purchase Plan or otherwise under the Emergency Economic Stabilization Act of 2008; and (7)
extended disruption of vital infrastructure.
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Additional factors that could cause results to differ materially from those described above
can be found in our 2008 Form 10-K, and documents subsequently filed by us with the Securities and
Exchange Commission (SEC). All forward-looking statements included in this filing are based on
information available at the time of the filing. We assume no obligation to update any
forward-looking statement.
Risk Factors
We, like other financial companies, are subject to a number of risks that may adversely affect
our financial condition or results of operation, many of which are outside of our direct control,
though efforts are made to manage those risks while optimizing returns. Among the risks assumed
are: (1) credit risk, which is the risk of loss due to loan and lease customers or other
counterparties not being able to meet their financial obligations under agreed upon terms, (2)
market risk, which is the risk of loss due to changes in the market value of assets and
liabilities due to changes in market interest rates, foreign exchange rates, equity prices, and
credit spreads, (3) liquidity risk, which is the risk of loss due to the possibility that
funds may not be available to satisfy current or future obligations resulting from external macro
market issues, investor and customer perception of financial strength, and events unrelated to the
company such as war, terrorism, or financial institution market specific issues, and (4)
operational risk, which is the risk of loss due to human error, inadequate or failed
internal systems and controls, violations of, or noncompliance with, laws, rules, regulations,
prescribed practices, or ethical standards, and external influences such as market conditions,
fraudulent activities, disasters, and security risks.
More information on risk is set forth under the heading “Risk Factors” included in Item 1A of
our 2008 Form 10-K. Additional information regarding risk factors can also be found in the “Risk
Management and Capital” discussion.
Update to Risk Factors
All of our loan portfolios, particularly our construction and commercial real estate (CRE) loans,
may continue to be affected by the sustained economic weakness of our Midwest markets and the
impact of higher unemployment rates. This may significantly adversely affect our business,
financial condition, liquidity, capital, and results of operation.
As described in the “Credit Risk” discussion, credit quality performance continued to be under
pressure during the first nine-month period of 2009, with nonaccrual loans and leases (NALs) and
nonperforming assets (NPAs) both increasing at September 30, 2009, compared with December 31, 2008,
and September 30, 2008. The allowance for credit losses (ACL) of $1,082.1 million at September 30,
2009, was 2.90% of period-end loans and leases and 50% of period-end NALs.
The majority of our credit risk is associated with lending activities, as the acceptance and
management of credit risk is central to profitable lending. Credit risk is mitigated through a
combination of credit policies and processes, market risk management activities, and portfolio
diversification. However, adverse changes in our borrowers’ ability to meet their financial
obligations under agreed upon terms and, in some cases, to the value of the assets securing our
loans to them may increase our credit risk. Our commercial portfolio, as well as our real
estate-related portfolios, have continued to be negatively affected by the ongoing reduction in
real estate values and reduced levels of sales and leasing activities. We regularly review the ACL
for adequacy considering changes in economic conditions and trends, as well as loan collateral
values. Our ACL reserving methodology uses individual loan portfolio performance factors based on
an analysis of historical charge-off experience and migration patterns as part of the determination
of ACL adequacy. Such factors are subject to regular review and may change to reflect updated
performance trends and expectations, particularly in times of severe stress. There is no certainty
that the ACL will be adequate over time to cover credit losses in the portfolio because of
continued adverse changes in the economy, market conditions, or events adversely affecting specific
customers, industries or markets. If the credit quality of the customer base materially decreases,
if the risk profile of a market, industry, or group of customers changes materially, or if the ACL
is determined to not be adequate, our business, financial condition, liquidity, capital, and
results of operations could be materially adversely affected.
Bank regulators periodically review our ACL and may require us to increase our provision for
loan and lease losses or loan charge-offs. Any increase in our ACL or loan charge-offs as required
by these regulatory authorities could have a material adverse effect on our results of operations
and our financial condition.
In particular, an increase in our ACL could result in a reduction in the amount of our
tangible common equity (TCE) and/or our Tier 1 common equity. Given the focus on these
measurements, we may be required to raise additional capital through the issuance of common stock
as a result of an increase in our ACL. The issuance of additional common stock or
other actions could have a dilutive effect on the existing holders of our common stock, and
adversely affect the market price of our common stock.
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Legislative and regulatory actions taken now or in the future to address the current liquidity and
credit crisis in the financial industry may significantly affect our financial condition, results
of operation, liquidity, or stock price.
Current economic conditions, particularly in the financial markets, have resulted in
government regulatory agencies and political bodies placing increased focus on and scrutiny of the
financial services industry. The U.S. Government has intervened on an unprecedented scale,
responding to what has been commonly referred to as the financial crisis. In addition to the U.S.
Treasury Department’s CPP under the TARP announced in the fall of 2008 and the new Capital
Assistance Program (CAP) announced in spring of 2009, the U.S. Government has taken steps that
include enhancing the liquidity support available to financial institutions, establishing a
commercial paper funding facility, temporarily guaranteeing money market funds and certain types of
debt issuances, and increasing insurance on bank deposits. The U.S. Congress, through the
Emergency Economic Stabilization Act of 2008 and the American Recovery and Reinvestment Act of
2009, has imposed a number of restrictions and limitations on the operations of financial services
firms participating in the federal programs.
These
programs subject us, and other financial institutions, that participate in them to
additional restrictions, oversight, and costs that may have an adverse impact on our business,
financial condition, results of operations, or the price of our common stock. In addition, new
proposals for legislation continue to be introduced in the U.S. Congress that could further
increase regulation of the financial services industry and impose restrictions on the operations
and general ability of firms within the industry to conduct business consistent with historical
practices, including as related to compensation, interest rates, the impact of bankruptcy
proceedings on consumer real property mortgages, and otherwise. Federal and state regulatory
agencies also frequently adopt changes to their regulations and/or change the manner in which
existing regulations are applied. We cannot predict the substance or impact of pending or future
legislation, regulation, or its application. Compliance with such current and potential regulation
and scrutiny may significantly increase our costs, impede the efficiency of our internal business
processes, negatively impact the recoverability of certain of our recorded assets, require us to
increase our regulatory capital, and limit our ability to pursue business opportunities in an
efficient manner.
Recent
legislative proposals in Congress and regulatory proposals at
the Federal Reserve could impact how we assess fees on deposit
accounts for items and transactions that either overdraw an account
or that are returned for nonsufficient funds. These proposals are in
the discussion phase and remain subject to significant modification
and revision prior to becoming final, and it is uncertain what
changes, if any, will be adopted. As such, we cannot predict the
impact of these proposals to us, or whether they could have a
material and adverse effect on our results of operations.
If the Federal Deposit Insurance Corporation (FDIC) permits the Transaction Account Guarantee
Program (TAGP) to expire as scheduled on June 30, 2010, our customers may choose to reduce their
deposits with us. This could reduce our retail and commercial deposits, our primary source of
funding for the Bank.
We have elected to participate in the TAGP, a voluntary program provided by the FDIC as part
of its Temporary Liquidity Guarantee Program (TLGP), that is currently scheduled to expire on June
30, 2010. Under the program, all noninterest bearing transaction deposit accounts are fully
guaranteed by the FDIC for the entire amount in the account providing our customers with extra
deposit insurance coverage. The coverage under the TAGP is in addition to and separate from the
$250,000 coverage available under the FDIC’s general deposit insurance rules. If the FDIC permits
the program to expire as scheduled, our customers may choose to reduce their deposits with us in an
effort to maintain deposit insurance coverage. This could reduce our retail and commercial core
deposits, our primary source of funding for the Bank.
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At September 30, 2009, noninterest bearing transaction account balances exceeding $250,000
totaled $2.0 billion. This $2.0 billion represents the amount of noninterest bearing transaction
customer deposits that would not have been FDIC insured without the additional coverage provided by
the TAGP.
We may raise additional capital, which could have a dilutive effect on the existing holders of our
common stock and adversely affect the market price of our common stock.
During the first nine-month period of 2009, we issued 346.8 million shares of additional
common stock through two common stock public offerings, three discretionary equity issuance
programs, and conversions of preferred stock into common stock. The issuance of these additional
shares of common stock resulted in a 95% increase of outstanding shares of common stock at
September 30, 2009, compared with December 31, 2008, and those additional shares were significantly
dilutive to existing common shareholders. (See the “Capital” section located within the “Risk
Management and Capital” section for additional information). As of September 30, 2009, we had
128.2 million of additional authorized common shares available for issuance, and 4.7 million of
additional authorized preferred shares available for issuance.
We are not restricted from issuing additional authorized shares of common stock or securities
that are convertible into or exchangeable for, or that represent the right to receive, common
stock. We continually evaluate opportunities to access capital markets taking into account our
regulatory capital ratios, financial condition, and other relevant considerations, and anticipate
that, subject to market conditions, we are likely to take further capital actions. Such actions,
with regulatory approval when required, may include opportunistically retiring our outstanding
securities, including our subordinated debt, trust-preferred securities, and preferred shares, in
open market transactions, privately negotiated transactions, or public offers for cash or common
shares, as well as issuing additional shares of common stock in public or private transactions in
order to increase our capital levels above our already “well-capitalized” levels, as defined by the
federal bank regulatory agencies, and other regulatory capital targets. On October 22, 2009, we
announced an offer to purchase certain subordinated notes issued previously by the Bank. The offer
established the cash prices that we would pay for each of the subordinated note issuances, and
established a maximum amount that we would purchase of $400 million of principal outstanding (see
“Bank Liquidity and Other Sources of Liquidity” discussion located within the “Risk Management and
Capital” section).
Both Huntington and the Bank are highly regulated, and we, as well as our regulators, continue
to regularly perform a variety of capital analyses, including the preparation of stress case
scenarios. As a result of those assessments, we could determine, or our regulators could require
us, to raise additional capital in the future. Any such capital raise could include, among other
things, the potential issuance of additional common equity to the public, the potential issuance of
common equity to the government under the CAP, or the additional conversions of our existing Series
B Preferred Stock to common equity. There could also be market perceptions that we need to raise
additional capital, and regardless of the outcome of any stress test or other stress case analysis,
such perceptions could have an adverse effect on the price of our common stock.
Furthermore, in order to improve our capital ratios above our already “well-capitalized”
levels, we can decrease the amount of our risk-weighted assets, increase capital, or a combination
of both. If it is determined that additional capital is required in order to improve or maintain
our capital ratios, we may accomplish this through the issuance of additional common stock.
The issuance of any additional shares of common stock or securities convertible into or
exchangeable for common stock or that represent the right to receive common stock, or the exercise
of such securities, could be substantially dilutive to existing common shareholders. Shareholders
of our common stock have no preemptive rights that entitle holders to purchase their pro rata share
of any offering of shares of any class or series and, therefore, such sales or offerings could
result in increased dilution to existing shareholders. The market price of our common stock could
decline as a result of sales of shares of our common stock or securities convertible into or
exchangeable for common stock in anticipation of such sales.
We are subject to ongoing tax examinations in various jurisdictions. The Internal Revenue
Service and other taxing jurisdictions may propose various adjustments to our previously filed tax
returns. It is possible that the ultimate resolution of such proposed adjustments, if unfavorable,
may be material to the results of operations in the period it occurs.
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The calculation of our provision for federal and state and local income taxes is complex and
requires the use of estimates and judgments. We have two accruals for income taxes: our federal
income tax receivable represents the
estimated amount currently due from the federal government, net of any reserve for potential
audit issues, and is reported as a component of “accrued income and other assets” and state and
local tax reserves for potential audit issues are reported as a component of “other liabilities” in
our consolidated balance sheet; our deferred federal and state and local income tax asset or
liability represents the estimated impact of temporary differences between how we recognize our
assets and liabilities under GAAP, and how such assets and liabilities are recognized under federal
and state and local tax law.
In the ordinary course of business, we operate in various taxing jurisdictions and are subject
to income and nonincome taxes. The effective tax rate is based in part on our interpretation of
the relevant current tax laws. We believe the aggregate liabilities related to taxes are
appropriately reflected in the consolidated financial statements. We review the appropriate tax
treatment of all transactions taking into consideration statutory, judicial, and regulatory
guidance in the context of our tax positions. In addition, we rely on various tax opinions, recent
tax audits, and historical experience.
From time to time, we engage in business transactions that may have an effect on our tax
liabilities. Where appropriate, we have obtained opinions of outside experts and have assessed the
relative merits and risks of the appropriate tax treatment of business transactions taking into
account statutory, judicial, and regulatory guidance in the context of the tax position. However,
changes to our estimates of accrued taxes can occur due to changes in tax rates, implementation of
new business strategies, resolution of issues with taxing authorities regarding previously taken
tax positions and newly enacted statutory, judicial, and regulatory guidance. Such changes could
affect the amount of our accrued taxes and could be material to our financial position and/or
results of operations.
During the 2009 second quarter, the State of Ohio completed the audit of our 2001, 2002, and
2003 corporate franchise tax returns. During 2008, the Internal Revenue Service (IRS) completed
the audit of our consolidated federal income tax returns for tax years 2004 and 2005. In addition,
we are subject to ongoing tax examinations in various other state and local jurisdictions. Both
the IRS and various state tax officials have proposed adjustments to our previously filed tax
returns. We believe that the tax positions taken by us related to such proposed adjustments
were correct and supported by applicable statutes, regulations, and judicial authority, and intend
to vigorously defend them. It is possible that the ultimate resolution of the proposed
adjustments, if unfavorable, may be material to the results of operations in the period it occurs.
However, although no assurances can be given, we believe that the resolution of these examinations
will not, individually or in the aggregate, have a material adverse impact on our consolidated
financial position.
Furthermore, we still face risk relating to the Franklin Credit Management Corporation
(Franklin) relationship not withstanding the restructuring announced on March 31, 2009. The
Franklin restructuring resulted in a $159.9 million net deferred tax asset equal to the amount of
income and equity that was included in our operating results for the 2009 first quarter. While we
believe that our position regarding the deferred tax asset and related income recognition is
correct, that position could be subject to challenge.
Recent Accounting Pronouncements and Developments
Note 3 to the Unaudited Condensed Consolidated Financial Statements discusses new accounting
pronouncements adopted during 2009 and the expected impact of accounting pronouncements recently
issued but not yet required to be adopted. To the extent that we believe the adoption of new
accounting standards will materially affect our financial condition, results of operations, or
liquidity, the impacts or potential impacts are discussed in the applicable section of this MD&A
and the Notes to the Unaudited Condensed Consolidated Financial Statements.
Critical Accounting Policies and Use of Significant Estimates
Our financial statements are prepared in accordance with generally accepted accounting
principles in the United States (GAAP). The preparation of financial statements in conformity with
GAAP requires us to establish critical accounting policies and make accounting estimates,
assumptions, and judgments that affect amounts recorded and reported in our financial statements.
Note 1 of the Notes to Consolidated Financial Statements included in our 2008 Form 10-K as
supplemented by this report lists significant accounting policies we use in the development and
presentation of our financial statements. This MD&A, the significant accounting policies, and other
financial statement disclosures identify and address key variables and other qualitative and
quantitative factors necessary to understand and evaluate our company, financial position, results
of operations, and cash flows.
An accounting estimate requires assumptions about uncertain matters that could have a material
effect on the financial statements if a different amount within a range of estimates were used or
if estimates changed from period to period.
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Estimates are made under facts and circumstances at a point in time, and changes in those
facts and circumstances could produce results that differ from when those estimates were made. The
most significant accounting estimates and their related application are discussed in our 2008 Form
10-K.
The following discussion provides updates of our accounting estimates related to the fair
value measurements with regard to our ACL, deferred tax assets, investment securities portfolio,
goodwill, Franklin loans, our commercial loan portfolio, and other real estate owned (OREO).
Total Allowances for Credit Losses (ACL)
The ACL is the sum of the ALLL and the allowance for unfunded loan commitments and letters of
credit (AULC), and represents the estimate of the level of reserves appropriate to absorb inherent
credit losses. The amount of the ACL was determined by judgments regarding the quality of each
individual loan portfolio and loan commitments. All known relevant internal and external factors
that affected loan collectibility were considered, including analysis of historical charge-off
experience, migration patterns, changes in economic conditions, and changes in loan collateral
values. Such factors are subject to regular review and may change to reflect updated performance
trends and expectations, particularly in times of severe stress. We believe the process for
determining the ACL considers all of the potential factors that could result in credit losses.
However, the process includes judgmental and quantitative elements that may be subject to
significant change. There is no certainty that the ACL will be adequate over time to cover credit
losses in the portfolio because of continued adverse changes in the economy, market conditions, or
events adversely affecting specific customers, industries or markets. To the extent actual
outcomes differ from our estimates, the credit quality of our customer base materially decreases,
the risk profile of a market, industry, or group of customers changes materially, or if the ACL is
determined to not be adequate, additional provision for credit losses could be required, which
could adversely affect our business, financial condition, liquidity, capital, and results of
operations in future periods.
The ACL of $1,082.1 million at September 30, 2009, was 2.90% of period-end loans and leases.
To illustrate the potential effect on the financial statements of our estimates of the ACL, a 10
basis point, or 3%, increase would have required $37.0 million in additional reserves (funded by
additional provision for credit losses), which would have negatively impacted the net income of the
first nine-month period of 2009 by approximately $24.1 million, or $0.05 per common share. The ACL
of $1,082.1 million at September 30, 2009, represented a 15% increase from $944.4 million at
December 31, 2008.
Deferred Tax Assets
At September 30, 2009, we had a net deferred tax asset of $297.1 million. Based on our
ability to offset approximately two-thirds of the net deferred tax asset against taxable income in
prior carryback years and level of our forecast of future taxable income, there was no impairment
of the deferred tax asset at September 30, 2009. All available evidence, both positive and
negative, was considered to determine whether, based on the weight of that evidence, impairment
should be recognized. However, our forecast process includes judgmental and quantitative elements
that may be subject to significant change. If our forecast of taxable income within the
carryback/carryforward periods available under applicable law is not sufficient to cover the amount
of net deferred tax assets, such assets may be impaired.
Securities and Other-Than-Temporary Impairment (OTTI)
(This section should be read in conjunction with the “Investment Securities Portfolio” discussion.)
Effective with the 2009 second quarter, we adopted new guidance from the Financial Accounting
Standards Board (FASB) that impacts estimates and assumptions utilized by us in determining the
fair values of securities. FASB’s update to Accounting Standards Codification (ASC) 820, “Fair
Value Measurements”, reaffirms the exit price fair value measurement guidance and also provides
additional guidance for estimating fair value when the volume and level of activity for the asset
or liability have significantly decreased. FASB’s changes to ASC 320, “Investments — Debt and
Equity Securities”, amended the other-than-temporary impairment (OTTI) guidance in GAAP for debt
securities.
We recognize OTTI through earnings on those debt securities that: (a) have a fair value less
than book value, and (b) we intend to sell (or we cannot assert that it is more likely than not
that we will not have to sell before recovery). The amount of OTTI recognized is the difference
between the fair value and book value of the securities.
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If we do not intend to sell a debt security, but it is probable that we will not collect all
amounts due according to the debt’s contractual terms, we separate the impairment into credit and
noncredit components. The credit component of the impairment, measured as the difference between
amortized cost and the present value of expected cash flows discounted at the security’s effective
interest rate, is recognized in earnings. The noncredit component is recognized in other
comprehensive income (OCI), separately from other unrealized gains and losses on available-for-sale
securities.
The new guidance required an after-tax adjustment at the beginning of the 2009 second quarter
of $3.5 million to increase retained earnings, with an equal and offsetting adjustment to OCI, that
was recorded to reclassify noncredit related impairment to OCI for previously impaired securities.
The adjustment was applicable only to noncredit OTTI relating to the debt securities that we do not
have the intent to sell. Noncredit OTTI losses related to debt securities that we intend to sell
(or for which we cannot assert that it is more likely than not that we will not have to sell the
securities before recovery) were not reclassified.
OTTI ANALYSIS ON CERTAIN SECURITIES PORTFOLIOS
Our three highest risk segments of our investment portfolio are the Alt-A mortgage backed,
pooled-trust-preferred, and private-label collateralized mortgage obligation (CMO) portfolios. The
Alt-A mortgage backed securities and pooled-trust-preferred securities are located within the
asset-backed securities portfolio. The performance of the underlying securities in each of these
segments continued to reflect the weakened economic environment. The Alt-A and CMO securities
portfolios are subjected to a monthly review of the projected cash flows, while the cash flows of
our pooled-trust-preferred securities portfolio are reviewed quarterly in support of our impairment
analysis. These reviews are supported with analysis from independent third parties. These three
segments, and the results of our impairment analysis for each segment, are discussed in further
detail below:
Alt-A mortgage-backed and private-label collateralized mortgage obligation (CMO)
securities represent securities collateralized by first-lien residential mortgage loans. As
the lowest level input that is significant to the fair value measurement of these securities in its
entirety was a Level 3 input, we classified all securities within these portfolios as Level 3 in
the fair value hierarchy. The securities were priced with the assistance of an outside third-party
specialist using a discounted cash flow approach and the independent third-party’s proprietary
pricing model. The model used inputs such as estimated prepayment speeds, losses, recoveries,
default rates that were implied by the underlying performance of collateral in the structure or
similar structures, discount rates that were implied by market prices for similar securities,
collateral structure types, and house price depreciation/appreciation rates that were based upon
macroeconomic forecasts.
We analyzed both our Alt-A mortgage-backed and private-label CMO securities portfolios to
determine if the securities in these portfolios were other-than-temporarily impaired. We used the
analysis to determine whether we believed it is probable that all contractual cash flows would not
be collected. All securities in these portfolios remained current with respect to interest and
principal at September 30, 2009.
Our analysis indicated, as of September 30, 2009, a total of 8 Alt-A mortgage-backed
securities and 6 private-label CMO securities could experience a loss of principal in the future.
The future expected losses of principal on these other-than-temporarily impaired securities ranged
from 0.06% to 83.23% of their par value. These losses were projected to occur beginning anywhere
from 5 months to as many as 17 years in the future. We measured the amount of credit impairment on
these securities using the cash flows discounted at each security’s effective rate. As a result,
in the 2009 third quarter, we recorded $2.3 million of credit OTTI in our Alt-A mortgage-backed
securities portfolio and $1.7 million of credit OTTI in our private-label CMO securities portfolio.
Pooled-trust-preferred securities represent collateralized debt obligations (CDOs)
backed by a pool of debt securities issued by financial institutions. As the lowest level input
that is significant to the fair value measurement of these securities in its entirety was a Level 3
input, we classified all securities within this portfolio as Level 3 in the fair value hierarchy.
The collateral generally consisted of trust-preferred securities and subordinated debt securities
issued by banks, bank holding companies, and insurance companies. A full cash flow analysis was
used to estimate fair values and assess impairment for each security within this portfolio.
Impairment was calculated as the difference between the carrying amount and the amount of cash
flows discounted at each security’s effective rate. We engaged a third party specialist with
direct industry experience in pooled-trust-preferred securities valuations to provide assistance in
estimating the fair value and expected cash flows for each security in this portfolio. Relying on
cash flows was necessary because there was a lack of observable transactions in the market and many
of the original sponsors or dealers for these securities were no longer able to provide a fair
value that was compliant with ASC-820, “Fair Value Measurements and Disclosures”.
9
The analysis was completed by evaluating the relevant credit and structural aspects of each
pooled-trust-preferred security in the portfolio, including collateral performance projections for
each piece of collateral in each security and terms of each security’s structure. The credit
review included analysis of profitability, credit quality, operating efficiency, leverage, and
liquidity using the most recently available financial and regulatory information for each
underlying collateral issuer. We also reviewed historical industry default data and current/near
term operating conditions. Using the results of our analysis, we estimated appropriate default and
recovery probabilities for each piece of collateral and then estimated the expected cash flows for
each security. No recoveries were assumed on issuers who are in default. The recovery assumptions
on issuers who are deferring interest ranged from 10% to 55% with a cure assumed after the maximum
deferral period. As a result of this testing, we believe we will experience a loss of principal or
interest on 11 securities; and as such, recorded credit OTTI of $14.6 million for 3 newly impaired
and 8 previously impaired pooled-trust-preferred securities in the 2009 third quarter.
Please refer to the “Investment Securities Portfolio” discussion for additional information
regarding OTTI.
Goodwill
Goodwill is tested for impairment annually, as of October 1, using a two-step process that
begins with an estimation of the fair value of a reporting unit. Goodwill impairment exists when a
reporting unit’s carrying value of goodwill exceeds its implied fair value. Goodwill is also tested
for impairment on an interim basis, using the same two-step process as the annual testing, if an
event occurs or circumstances change between annual tests that would more likely than not reduce
the fair value of the reporting unit below its carrying amount. We had previously performed
goodwill impairment tests at June 30, October 1, and December 31, 2008, and concluded no impairment
existed at those dates. During the 2009 first quarter, our stock price declined 78%, from $7.66
per common share at December 31, 2008, to $1.66 per common share at March 31, 2009. Many peer
banks also experienced similar significant declines in market capitalization. This decline
primarily reflected the continuing economic slowdown and increased market concern surrounding
financial institutions’ credit risks and capital positions, as well as uncertainty related to
increased regulatory supervision and intervention. We determined that these changes would
more-likely-than-not reduce the fair value of certain reporting units below their carrying amounts.
Therefore, we performed an interim goodwill impairment test during the 2009 first quarter. An
independent third party was engaged to assist with the impairment assessment.
Significant judgment is applied when goodwill is assessed for impairment. This judgment
includes developing cash flow projections, selecting appropriate discount rates, identifying
relevant market comparables, incorporating general economic and market conditions, and selecting an
appropriate control premium. The selection and weighting of the various fair value techniques may
result in a higher or lower fair value. Judgment is applied in determining the weightings that are
most representative of fair value. The assumptions used in the goodwill impairment assessment and
the application of these estimates and assumptions are discussed below.
2009 FIRST QUARTER IMPAIRMENT TESTING
The first step (Step 1) of impairment testing requires a comparison of each reporting unit’s
fair value to carrying value to identify potential impairment. For our impairment testing
conducted during the 2009 first quarter, we identified four reporting units: Regional
Banking, PFG, Insurance, and Auto Finance and Dealer Services (AFDS).
| |
• |
|
Although Insurance is included within PFG for business segment reporting, it was
evaluated as a separate reporting unit for goodwill impairment testing because it has
its own separately allocated goodwill resulting from prior acquisitions. The fair
value of PFG (determined using the market approach as described below), excluding
Insurance, exceeded its carrying value, and goodwill was determined to not be impaired
for this reporting unit. |
| |
| |
• |
|
There was no goodwill associated with AFDS and, therefore, it was not subject to
impairment testing. |
10
For Regional Banking, we utilized both the income and market approaches to determine fair
value. The income approach was based on discounted cash flows derived from assumptions of balance
sheet and income statement activity. An internal forecast was developed by considering several
long-term key business drivers such as anticipated loan and deposit growth. The long-term growth
rate used in determining the terminal value was estimated at 2.5%. The discount rate of 14% was
estimated based on the Capital Asset Pricing Model, which considered the risk-free interest rate
(20-year Treasury
Bonds), market risk premium, equity risk premium, and a company-specific risk factor. The
company-specific risk factor was used to address the uncertainty of growth estimates and earnings
projections of management. For the market approach, revenue, earnings and market capitalization
multiples of comparable public companies were selected and applied to the Regional Banking unit’s
applicable metrics such as book and tangible book values. A 20% control premium was used in the
market approach. The results of the income and market approaches were weighted 75% and 25%,
respectively, to arrive at the final calculation of fair value. As market capitalization declined
across the banking industry, we believed that a heavier weighting on the income approach is more
representative of a market participant’s view. For the Insurance reporting unit, management
utilized a market approach to determine fair value. The aggregate fair market values were compared
with market capitalization as an assessment of the appropriateness of the fair value measurements.
As our stock price fluctuated greatly, we used our average stock price for the 30 days preceding
the valuation date to determine market capitalization. The aggregate fair market values of the
reporting units compared with market capitalization indicated an implied premium of 27%. A control
premium analysis indicated that the implied premium was within range of overall premiums observed
in the market place. Neither the Regional Banking nor Insurance reporting units passed Step 1.
The second step (Step 2) of impairment testing is necessary only if the reporting unit does
not pass Step 1. Step 2 compares the implied fair value of the reporting unit goodwill with the
carrying amount of the goodwill for the reporting unit. The implied fair value of goodwill is
determined in the same manner as goodwill that is recognized in a business combination. Significant
judgment and estimates are involved in estimating the fair value of the assets and liabilities of
the reporting unit.
To determine the implied fair value of goodwill, the fair value of Regional Banking and
Insurance (as determined in Step 1) was allocated to all assets and liabilities of the reporting
units including any recognized or unrecognized intangible assets. The allocation was done as if
the reporting unit was acquired in a business combination, and the fair value of the reporting unit
was the price paid to acquire the reporting unit. This allocation process is only performed for
purposes of testing goodwill for impairment. The carrying values of recognized assets or
liabilities (other than goodwill, as appropriate) were not adjusted nor were any new intangible
assets recorded. Key valuations were the assessment of core deposit intangibles, the
mark-to-fair-value of outstanding debt and deposits, and mark-to-fair-value on the loan portfolio.
Core deposits were valued using a 15% discount rate. The marks on our outstanding debt and
deposits were based upon observable trades or modeled prices using current yield curves and market
spreads. The valuation of the loan portfolio indicated discounts in the ranges of 9%-24%,
depending upon the loan type. For every 100 basis point change in the valuation of our overall
loan portfolio, implied goodwill would be impacted by approximately $325 million. The estimated
fair value of these loan portfolios was based on an exit price, and the assumptions used were
intended to approximate those that a market participant would have used in valuing the loans in an
orderly transaction, including a market liquidity discount. The significant market risk premium
that is a consequence of the current distressed market conditions was a significant contributor to
the valuation discounts associated with these loans. We believed these discounts were consistent
with transactions currently occurring in the marketplace.
Upon completion of Step 2, we determined that the Regional Banking and Insurance reporting
units’ goodwill carrying values exceeded their implied fair values of goodwill by $2,573.8 million
and $28.9 million, respectively. As a result, we recorded a noncash pretax impairment charge of
$2,602.7 million, or $7.09 per common share, in the 2009 first quarter. The impairment charge was
included in noninterest expense and did not affect our regulatory and tangible capital ratios.
2009 SECOND QUARTER AND 2009 THIRD QUARTER IMPAIRMENT TESTING
While we recorded an impairment charge of $4.2 million in the 2009 second quarter related to
the sale of a small payments-related business completed in July 2009, we concluded that no other
goodwill impairment was required during either the 2009 second quarter or the 2009 third quarter.
Subsequent to the 2009 first quarter impairment testing, we reorganized our Regional Banking
segment to reflect how our assets and operations are now managed. The Regional Banking business
segment, which through March 31, 2009, had been managed geographically, is now managed by a product
segment approach. Essentially, Regional Banking has been divided into the new segments of Retail
and Business Banking, Commercial Banking, and Commercial Real Estate.
11
Due to the current economic environment and other uncertainties, it is possible that our
estimates and assumptions may adversely change in the future. If our market capitalization
decreases or the liquidity discount on our loan portfolio improves significantly without a
concurrent increase in market capitalization, we may be required to record additional goodwill
impairment losses in future periods, whether in connection with our next annual impairment testing
in the 2009
third quarter or prior to that, if any changes constitute a triggering event. It is not
possible at this time to determine if any such future impairment loss would result or, if it does,
whether such charge would be material. However, any such future impairment loss would be limited
as the remaining goodwill balance was only $0.4 billion at September 30, 2009.
Franklin Loans Restructuring Transaction
(This section should be read in conjunction with Note 4 of the Notes to the Unaudited
Condensed Consolidated Financial Statements).
Franklin is a specialty consumer finance company primarily engaged in servicing performing,
reperforming, and nonperforming residential mortgage loans. Prior to March 31, 2009, Franklin
owned a portfolio of loans secured by first- and second-liens on 1-4 family residential properties.
These loans generally fell outside the underwriting standards of the Federal National Mortgage
Association (“FNMA” or “Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“FHLMC” or
“Freddie Mac”), and involve elevated credit risk as a result of the nature or absence of income
documentation, limited credit histories, higher levels of consumer debt, and/or past credit
difficulties (“nonprime loans”). At December 31, 2008, our total loans outstanding to Franklin
were $650.2 million, all of which were placed on nonaccrual status. Additionally, the specific
allowance for loan and lease losses for the Franklin portfolio was $130.0 million, resulting in our
net exposure to Franklin at December 31, 2008, of $520.2 million.
On March 31, 2009, we entered into a transaction with Franklin whereby a Huntington
wholly-owned REIT subsidiary (REIT) indirectly acquired an 83% ownership right in a trust which
holds all the underlying consumer loans and OREO properties that were formerly collateral for the
Franklin commercial loans. The equity interests provided to Franklin by the REIT were pledged by
Franklin as collateral for the Franklin commercial loans.
As a result of the restructuring, on a consolidated basis, the $650.2 million nonaccrual
commercial loan to Franklin at December 31, 2008, is no longer reported. Instead, we now report
the loans secured by first- and second- mortgages on residential properties and OREO properties
both of which had previously been assets of Franklin or its subsidiaries and were pledged to secure
our loan to Franklin. At the time of the restructuring, these loans had a fair value of $493.6
million and the OREO properties had a fair value of $79.6 million. As a result, NALs declined by a
net amount of $284.1 million as there were $650.2 million commercial NALs outstanding related to
Franklin, and $366.1 million mortgage-related NALs outstanding, representing first- and second-
lien mortgages that were nonaccruing at March 31, 2009. Also, our specific allowance for loan and
lease losses for the Franklin portfolio of $130.0 million was eliminated; however, no initial
increase to the allowance for loan and lease losses (ALLL) relating to the acquired mortgages was
recorded as these assets were recorded at fair value.
In accordance with ASC 805, “Business Combinations”, we recorded a net deferred tax asset of
$159.9 million related to the difference between the tax basis and the book basis in the acquired
assets. Because the acquisition price, represented by the equity interests in our wholly-owned
subsidiary, was equal to the fair value of the acquired 83% ownership right, no goodwill was
created from the transaction. The recording of the net deferred tax asset was a bargain purchase
under Statement No. 141R, and was recorded as a tax benefit in the 2009 first quarter.
Commercial Loans
Commercial loans, including CRE loans, are evaluated periodically for impairment. Impairment
guidance in ASC 310-10-35, “Receivables — Subsequent Measurement”, requires an allowance to be
established as a component of the ALLL when, based upon current information and events, it is
probable that all amounts due according to the contractual terms of the loan or lease will not be
collected. The amount of the impairment is measured using the present value of expected future cash
flows discounted at the loan’s or lease’s effective interest rate, or, as a practical expedient,
the observable market price of the loan or lease, or, the fair value of the collateral if the loan
or lease is collateral dependent. When the present value of expected future cash flows is used,
the effective interest rate is the contractual interest rate of the loan adjusted for any premium
or discount. When the contractual interest rate is variable, the effective interest rate of the
loan changes over time. Interest income is recognized on impaired loans using a cost recovery
method unless the receipt of principal and interest as they become contractually due is not in
doubt, such as in a troubled debt restructuring (TDR). TDRs of impaired loans that continue to
perform under the restructured terms continue to accrue interest. This process of determining
impairment includes judgmental and quantitative elements that may be subject to significant change.
To the extent actual outcomes differ from our estimates, additional provision for credit losses
could be required in order to increase the ALLL, which could adversely affect earnings or financial
performance in future periods. At September 30, 2009,
$1.4 billion, or 7%, of
our $21.3 billion commercial loan portfolio was considered impaired. Additionally, at
September 30, 2009, $818.6 million, or 79%, of our ALLL was allocated to our commercial loan
portfolio, compared with 82% at December 31, 2008.
12
Other Real Estate Owned (OREO)
OREO obtained in satisfaction of a loan is recorded at its estimated fair value less
anticipated selling costs based upon the property’s appraised value at the date of transfer, with
any difference between the fair value of the property and the carrying value of the loan charged to
the ALLL. Subsequent declines in value are reported as adjustments to the carrying amount, and are
charged to noninterest expense. Gains or losses not previously recognized resulting from the sale
of OREO are recognized in noninterest expense on the date of sale. At September 30, 2009, OREO
totaled $142.6 million, representing a 16% increase compared with $122.5 million at December 31,
2008.
13
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 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.
The below summary provides an update of key events and trends during the current quarter.
Comparisons are made with the prior quarter, as we believe this comparison provides the most
meaningful measurement relative to analyzing trends.
Summary
We reported a net loss of $166.2 million in the 2009 third quarter, representing a loss per
common share of $0.33. This compared with the prior quarter’s net loss of $125.1 million, or $0.40
per common share. The loss per common share was impacted in both the current and prior quarters by
the issuance of additional shares in both periods (see “Capital” discussion). Comparisons with
the prior quarter were also impacted by other factors that are discussed later in the “Significant
Items” section (see “Significant Items” discussion).
The largest contributor to our 2009 third quarter net loss was provision for credit losses of
$475.1 million, representing a $61.4 million, or 15%, increase from the prior quarter. This
increase resulted from necessary reserve building due to the continued stress on our loan
portfolios, especially our commercial real estate (CRE) portfolio, as well as credit actions taken
by us during the current quarter that are discussed in the following two paragraphs.
During the 2009 third quarter, we continued to be proactive in our approach in identifying and
classifying emerging problem credits. In many cases, commercial loans were placed on nonaccrual
status even though the loan was less than 30 days past due for both principal and interest
payments. This significantly impacted the inflow of commercial loan NALs for the quarter. Of the
commercial loans placed on nonaccrual status in the current quarter, over 55% were less than 30
days past due. Of the period end $1,746.4 million of commercial and industrial (C&I) and CRE
-related NALs, approximately 36% were less than 30 days past due. We believe these decisions
increase our options for working these loans toward timelier resolutions.
Also during the current quarter, we took specific credit actions related to our residential
mortgage portfolio. These actions included taking a more conservative position regarding the
timing of loss recognition, continued active loss mitigation and troubled debt restructuring
efforts, as well as the sale of some underperforming loans. These actions resulted in
significantly higher residential mortgage charge-offs during the current quarter. The timing of
loss recognition was a change made to better align our portfolio management strategies with the
market dynamics in our regions. We believed that the economics surrounding the portfolio sale of
the underperforming loans were favorable for us. We will continue to evaluate this type of
transaction in future periods based on market conditions.
Credit quality performance in the 2009 third quarter continued to be negatively impacted by
the sustained economic weaknesses in our Midwest markets. The continued trend of higher
unemployment rates in our markets negatively impacted consumer loan credit quality. Net
charge-offs (NCOs) totaled $355.9 million, and were partially impacted by the residential mortgage
credit actions discussed previously. C&I NCOs improved substantially compared with the prior
quarter; however, there continued to be concern regarding the impact of the economic conditions on
our commercial borrowers. CRE NCOs declined slightly, yet that loan portfolio segment remained the
most stressed portfolio. The majority of the CRE NCOs were experienced in the single family home
builder and retail projects portfolios. These two portfolios continue to be our highest risk
segments, and we continued to work with these borrowers in resolving challenging credit issues.
NPAs also increased, primarily within the commercial loan portfolio, reflecting the impact of the
weak economic conditions in our markets as well as the impact of the credit actions previously
discussed. For the remainder of 2009, we expect that the overall level of NPAs and NCOs will
remain elevated, especially as related to continued softness in our C&I and CRE portfolios.
However, all consumer loan portfolios showed improved early stage delinquency levels compared with
the prior quarter.
As we have done throughout 2009, we took additional proactive steps during the current quarter
to increase our capital position as we executed total additions of $587.3 million to Tier 1 common
equity. This capital raising was accomplished through a discretionary equity issuance and a common
stock offering. These actions strengthened all of our period-end
capital ratios. Our TCE ratio increased to 6.46% from 5.68%, and our Tier 1 common equity
ratio increased to 7.82% from 6.80%. We believe that we have sufficient capital to withstand a
stressed economic scenario.
14
Our period-end liquidity position remained strong as average core deposits grew at a 10%
annualized rate, thus reducing our reliance on noncore funding. As of September 30, 2009, our
total cash and due from banks totaled $1.9 billion. Also, our unpledged investment securities
increased $2.2 billion from the end of the prior quarter.
Fully-taxable equivalent net interest income in the 2009 third quarter increased $15.9
million, or 5%, compared with the prior quarter. The increase reflected a 10 basis point
improvement in our net interest margin. The margin improvement reflected the favorable impacts of
our improved loan pricing and deposit mix, partially offset by the negative impact of maintaining a
higher liquidity position and the higher levels of NPAs. We expect that the net interest margin
for the 2009 fourth quarter will be flat or improve slightly from the 2009 third quarter level. We
expect that average total loans will continue to decline modestly, reflecting the impacts of our
efforts to reduce our CRE exposure, the weak economy, and charge-offs. As previously mentioned,
average core deposits grew at an annualized 10% rate, despite the competitive market. Deposit
growth continues to be a strategic priority for us. Also, on October 2, 2009, we acquired
approximately $400 million of deposits from Warren Bank in an FDIC-related transaction.
Noninterest income in the 2009 third quarter declined $9.9 million compared with the 2009
second quarter. The following table reflects the impacts of “Significant Items” to noninterest
income (see “Significant Items”).
Table 1 — Noninterest Income — Significant Items Impact — 2009 Third Quarter vs. 2009 Second Quarter
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Third |
|
|
Second |
|
|
|
|
| |
|
Quarter |
|
|
Quarter |
|
|
|
|
| (in thousands) |
|
2009 |
|
|
2009 |
|
|
Change |
|
Total noninterest income |
|
$ |
256,052 |
|
|
$ |
265,945 |
|
|
$ |
(9,893 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant Items: |
|
|
|
|
|
|
|
|
|
|
|
|
Gain related to Visa® stock |
|
|
— |
|
|
|
31,362 |
|
|
|
(31,362 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income, excluding
Significant Items |
|
$ |
256,052 |
|
|
$ |
234,583 |
|
|
$ |
21,469 |
|
|
|
|
|
|
|
|
|
|
|
As shown in the table above, after adjusting for “Significant Items”, noninterest income
increased $21.5 million. This increase primarily reflected a $22.8 million gain in the current
quarter representing the change in fair value of our derivatives that did not qualify for hedge
accounting. Overall, noninterest income performance was mixed for the quarter. Service charges
on deposit accounts and electronic banking income showed strong increases, while mortgage banking
income declined. Services charges on deposits accounts increased $5.5 million, or 7%, reflecting
the growth in demand deposits, and electronic banking income increased $3.5 million, or 14%,
including additional third-party processing fees. Mortgage banking income declined $9.4 million,
or 30%, largely reflecting a 37% decline in loan originations. We expect that fee income will
likely continue to be mixed for the remainder of 2009.
The following table reflects the impacts of “Significant Items” to noninterest expense (see
“Significant Items”).
Table 2 — Noninterest Expense — Significant Items Impact — 2009 Third Quarter vs. 2009 Second Quarter
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Third |
|
|
Second |
|
|
|
|
| |
|
Quarter |
|
|
Quarter |
|
|
|
|
| (in thousands) |
|
2009 |
|
|
2009 |
|
|
Change |
|
Total noninterest expense |
|
$ |
401,097 |
|
|
$ |
339,982 |
|
|
$ |
61,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant Items: |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment |
|
|
— |
|
|
|
4,231 |
|
|
|
(4,231 |
) |
FDIC special assessment |
|
|
— |
|
|
|
23,555 |
|
|
|
(23,555 |
) |
Gain on redemption of
junior subordinated
debt |
|
|
— |
|
|
|
(67,409 |
) |
|
|
67,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense, excluding
Significant Items |
|
$ |
401,097 |
|
|
$ |
379,605 |
|
|
$ |
21,492 |
|
|
|
|
|
|
|
|
|
|
|
15
As shown in the table above, after adjusting for “Significant Items” (see “Significant
Items”), noninterest expense increased $21.5 million. This increase included a $12.4 million
increase in OREO and foreclosure expense, representing higher levels of problem assets, as well as
loss mitigation activities. We expect expenses to be well controlled for the remainder of 2009.
16
Table 3 — Selected Quarterly Income Statement Data(1)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
|
2008 |
|
| (in thousands, except per share amounts) |
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
Interest income |
|
$ |
553,846 |
|
|
$ |
563,004 |
|
|
$ |
569,957 |
|
|
$ |
662,508 |
|
|
$ |
685,728 |
|
Interest expense |
|
|
191,027 |
|
|
|
213,105 |
|
|
|
232,452 |
|
|
|
286,143 |
|
|
|
297,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
362,819 |
|
|
|
349,899 |
|
|
|
337,505 |
|
|
|
376,365 |
|
|
|
388,636 |
|
Provision for credit losses |
|
|
475,136 |
|
|
|
413,707 |
|
|
|
291,837 |
|
|
|
722,608 |
|
|
|
125,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest (loss) income after provision for credit losses |
|
|
(112,317 |
) |
|
|
(63,808 |
) |
|
|
45,668 |
|
|
|
(346,243 |
) |
|
|
263,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
|
80,811 |
|
|
|
75,353 |
|
|
|
69,878 |
|
|
|
75,247 |
|
|
|
80,508 |
|
Brokerage and insurance income |
|
|
33,996 |
|
|
|
32,052 |
|
|
|
39,948 |
|
|
|
31,233 |
|
|
|
34,309 |
|
Trust services |
|
|
25,832 |
|
|
|
25,722 |
|
|
|
24,810 |
|
|
|
27,811 |
|
|
|
30,952 |
|
Electronic banking |
|
|
28,017 |
|
|
|
24,479 |
|
|
|
22,482 |
|
|
|
22,838 |
|
|
|
23,446 |
|
Bank owned life insurance income |
|
|
13,639 |
|
|
|
14,266 |
|
|
|
12,912 |
|
|
|
13,577 |
|
|
|
13,318 |
|
Automobile operating lease income |
|
|
12,795 |
|
|
|
13,116 |
|
|
|
13,228 |
|
|
|
13,170 |
|
|
|
11,492 |
|
Mortgage banking income (loss) |
|
|
21,435 |
|
|
|
30,827 |
|
|
|
35,418 |
|
|
|
(6,747 |
) |
|
|
10,302 |
|
Securities (losses) gains |
|
|
(2,374 |
) |
|
|
(7,340 |
) |
|
|
2,067 |
|
|
|
(127,082 |
) |
|
|
(73,790 |
) |
Other income |
|
|
41,901 |
|
|
|
57,470 |
|
|
|
18,359 |
|
|
|
17,052 |
|
|
|
37,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
256,052 |
|
|
|
265,945 |
|
|
|
239,102 |
|
|
|
67,099 |
|
|
|
167,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs |
|
|
172,152 |
|
|
|
171,735 |
|
|
|
175,932 |
|
|
|
196,785 |
|
|
|
184,827 |
|
Outside data processing and other services |
|
|
37,999 |
|
|
|
39,266 |
|
|
|
32,432 |
|
|
|
31,230 |
|
|
|
32,386 |
|
Net occupancy |
|
|
25,382 |
|
|
|
24,430 |
|
|
|
29,188 |
|
|
|
22,999 |
|
|
|
25,215 |
|
OREO and foreclosure expense |
|
|
38,968 |
|
|
|
26,524 |
|
|
|
9,887 |
|
|
|
8,171 |
|
|
|
9,113 |
|
Equipment |
|
|
20,967 |
|
|
|
21,286 |
|
|
|
20,410 |
|
|
|
22,329 |
|
|
|
22,102 |
|
Amortization of intangibles |
|
|
16,995 |
|
|
|
17,117 |
|
|
|
17,135 |
|
|
|
19,187 |
|
|
|
19,463 |
|
Professional services |
|
|
18,108 |
|
|
|
16,658 |
|
|
|
16,454 |
|
|
|
16,430 |
|
|
|
12,234 |
|
Marketing |
|
|
8,259 |
|
|
|
7,491 |
|
|
|
8,225 |
|
|
|
9,357 |
|
|
|
7,049 |
|
Automobile operating lease expense |
|
|
10,589 |
|
|
|
11,400 |
|
|
|
10,931 |
|
|
|
10,483 |
|
|
|
9,093 |
|
Telecommunications |
|
|
5,902 |
|
|
|
6,088 |
|
|
|
5,890 |
|
|
|
5,892 |
|
|
|
6,007 |
|
Printing and supplies |
|
|
3,950 |
|
|
|
4,151 |
|
|
|
3,572 |
|
|
|
4,175 |
|
|
|
4,316 |
|
Goodwill impairment |
|
|
— |
|
|
|
4,231 |
|
|
|
2,602,713 |
|
|
|
— |
|
|
|
— |
|
Other expense |
|
|
41,826 |
|
|
|
(10,395 |
) |
|
|
37,000 |
|
|
|
43,056 |
|
|
|
7,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
401,097 |
|
|
|
339,982 |
|
|
|
2,969,769 |
|
|
|
390,094 |
|
|
|
338,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income before income taxes |
|
|
(257,362 |
) |
|
|
(137,845 |
) |
|
|
(2,684,999 |
) |
|
|
(669,238 |
) |
|
|
92,105 |
|
(Benefit) Provision for income taxes |
|
|
(91,172 |
) |
|
|
(12,750 |
) |
|
|
(251,792 |
) |
|
|
(251,949 |
) |
|
|
17,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(166,190 |
) |
|
$ |
(125,095 |
) |
|
$ |
(2,433,207 |
) |
|
$ |
(417,289 |
) |
|
$ |
75,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on preferred shares |
|
|
29,223 |
|
|
|
57,451 |
|
|
|
58,793 |
|
|
|
23,158 |
|
|
|
12,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income applicable to common shares |
|
$ |
(195,413 |
) |
|
$ |
(182,546 |
) |
|
$ |
(2,492,000 |
) |
|
$ |
(440,447 |
) |
|
$ |
62,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares — basic |
|
|
589,708 |
|
|
|
459,246 |
|
|
|
366,919 |
|
|
|
366,054 |
|
|
|
366,124 |
|
Average common shares — diluted (2) |
|
|
589,708 |
|
|
|
459,246 |
|
|
|
366,919 |
|
|
|
366,054 |
|
|
|
367,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net (loss) income — basic |
|
$ |
(0.33 |
) |
|
$ |
(0.40 |
) |
|
$ |
(6.79 |
) |
|
$ |
(1.20 |
) |
|
$ |
0.17 |
|
Net (loss) income — diluted |
|
|
(0.33 |
) |
|
$ |
(0.40 |
) |
|
$ |
(6.79 |
) |
|
$ |
(1.20 |
) |
|
$ |
0.17 |
|
Cash dividends declared |
|
|
0.0100 |
|
|
|
0.0100 |
|
|
|
0.0100 |
|
|
|
0.1325 |
|
|
|
0.1325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average total assets |
|
|
(1.28 |
)% |
|
|
(0.97 |
)% |
|
|
(18.22 |
) |
|
|
(3.04 |
)% |
|
|
0.55 |
% |
Return on average total shareholders’ equity |
|
|
(12.5 |
) |
|
|
(10.2 |
) |
|
|
N.M. |
|
|
|
(23.6 |
) |
|
|
4.7 |
|
Return on average tangible shareholders’ equity (3) |
|
|
(13.3 |
) |
|
|
(10.3 |
) |
|
|
18.4 |
|
|
|
(43.2 |
) |
|
|
11.6 |
|
Net interest margin (4) |
|
|
3.20 |
|
|
|
3.10 |
|
|
|
2.97 |
|
|
|
3.18 |
|
|
|
3.29 |
|
Efficiency ratio (5) |
|
|
61.4 |
|
|
|
51.0 |
|
|
|
60.5 |
|
|
|
64.6 |
|
|
|
50.3 |
|
Effective tax rate (benefit) |
|
|
(35.4 |
) |
|
|
(9.2 |
) |
|
|
(9.4 |
) |
|
|
(37.6 |
) |
|
|
18.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue — fully taxable equivalent (FTE) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
362,819 |
|
|
$ |
349,899 |
|
|
$ |
337,505 |
|
|
$ |
376,365 |
|
|
$ |
388,636 |
|
FTE adjustment |
|
|
4,177 |
|
|
|
1,216 |
|
|
|
3,582 |
|
|
|
3,641 |
|
|
|
5,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (4) |
|
|
366,996 |
|
|
|
351,115 |
|
|
|
341,087 |
|
|
|
380,006 |
|
|
|
394,087 |
|
Noninterest income |
|
|
256,052 |
|
|
|
265,945 |
|
|
|
239,102 |
|
|
|
67,099 |
|
|
|
167,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue (4) |
|
$ |
623,048 |
|
|
$ |
617,060 |
|
|
$ |
580,189 |
|
|
$ |
447,105 |
|
|
$ |
561,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M., not a meaningful value.
| |
|
|
| (1) |
|
Comparisons for presented periods are impacted by a number of factors. Refer to the “Significant Items”. |
| |
| (2) |
|
For all the quarterly 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 would have been higher than basic earnings per common share (anti-dilutive) for the periods. |
| |
| (3) |
|
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 stockholders’ 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. |
| |
| (4) |
|
On a fully taxable equivalent (FTE) basis assuming a 35% tax rate. |
| |
| (5) |
|
Noninterest expense less amortization of intangibles divided by the sum of FTE net interest income and noninterest income excluding securities gains (losses). |
17
Table 4 — Selected Year to Date Income Statement Data (1)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended September 30, |
|
|
Change |
|
| (in thousands, except per share amounts) |
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
Interest income |
|
$ |
1,686,807 |
|
|
$ |
2,135,814 |
|
|
$ |
(449,007 |
) |
|
|
(21 |
)% |
Interest expense |
|
|
636,584 |
|
|
|
980,488 |
|
|
|
(343,904 |
) |
|
|
(35 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
1,050,223 |
|
|
|
1,155,326 |
|
|
|
(105,103 |
) |
|
|
(9 |
) |
Provision for credit losses |
|
|
1,180,680 |
|
|
|
334,855 |
|
|
|
845,825 |
|
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest (loss) income after provision for credit losses |
|
|
(130,457 |
) |
|
|
820,471 |
|
|
|
(950,928 |
) |
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
|
226,042 |
|
|
|
232,806 |
|
|
|
(6,764 |
) |
|
|
(3 |
) |
Brokerage and insurance income |
|
|
105,996 |
|
|
|
106,563 |
|
|
|
(567 |
) |
|
|
(1 |
) |
Trust services |
|
|
76,364 |
|
|
|
98,169 |
|
|
|
(21,805 |
) |
|
|
(22 |
) |
Electronic Banking |
|
|
74,978 |
|
|
|
67,429 |
|
|
|
7,549 |
|
|
|
11 |
|
Bank owned life insurance income |
|
|
40,817 |
|
|
|
41,199 |
|
|
|
(382 |
) |
|
|
(1 |
) |
Automobile operating lease income |
|
|
39,139 |
|
|
|
26,681 |
|
|
|
12,458 |
|
|
|
47 |
|
Mortgage banking income |
|
|
87,680 |
|
|
|
15,741 |
|
|
|
71,939 |
|
|
|
N.M. |
|
Securities (losses) gains |
|
|
(7,647 |
) |
|
|
(70,288 |
) |
|
|
62,641 |
|
|
|
(89 |
) |
Other income |
|
|
117,730 |
|
|
|
121,739 |
|
|
|
(4,009 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
761,099 |
|
|
|
640,039 |
|
|
|
121,060 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs |
|
|
519,819 |
|
|
|
586,761 |
|
|
|
(66,942 |
) |
|
|
(11 |
) |
Outside data processing and other services |
|
|
109,697 |
|
|
|
96,933 |
|
|
|
12,764 |
|
|
|
13 |
|
Net occupancy |
|
|
79,000 |
|
|
|
85,429 |
|
|
|
(6,429 |
) |
|
|
(8 |
) |
OREO and foreclosure expense |
|
|
75,379 |
|
|
|
25,284 |
|
|
|
50,095 |
|
|
|
N.M. |
|
Equipment |
|
|
62,663 |
|
|
|
71,636 |
|
|
|
(8,973 |
) |
|
|
(13 |
) |
Amortization of intangibles |
|
|
51,247 |
|
|
|
57,707 |
|
|
|
(6,460 |
) |
|
|
(11 |
) |
Professional services |
|
|
51,220 |
|
|
|
33,183 |
|
|
|
18,037 |
|
|
|
54 |
|
Marketing |
|
|
23,975 |
|
|
|
23,307 |
|
|
|
668 |
|
|
|
3 |
|
Automobile operating lease expense |
|
|
32,920 |
|
|
|
20,799 |
|
|
|
12,121 |
|
|
|
58 |
|
Telecommunications |
|
|
17,880 |
|
|
|
19,116 |
|
|
|
(1,236 |
) |
|
|
(6 |
) |
Printing and supplies |
|
|
11,673 |
|
|
|
14,695 |
|
|
|
(3,022 |
) |
|
|
(21 |
) |
Goodwill impairment |
|
|
2,606,944 |
|
|
|
— |
|
|
|
2,606,944 |
|
|
|
— |
|
Other expense |
|
|
68,431 |
|
|
|
52,430 |
|
|
|
16,001 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
3,710,848 |
|
|
|
1,087,280 |
|
|
|
2,623,568 |
|
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income before income taxes |
|
|
(3,080,206 |
) |
|
|
373,230 |
|
|
|
(3,453,436 |
) |
|
|
N.M. |
|
(Benefit) Provision for income taxes |
|
|
(355,714 |
) |
|
|
69,747 |
|
|
|
(425,461 |
) |
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(2,724,492 |
) |
|
$ |
303,483 |
|
|
$ |
(3,027,975 |
) |
|
|
N.M. |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared on preferred shares |
|
|
145,467 |
|
|
|
23,242 |
|
|
|
122,225 |
|
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income applicable to common shares |
|
$ |
(2,869,959 |
) |
|
$ |
280,241 |
|
|
$ |
(3,150,200 |
) |
|
|
N.M. |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares — basic |
|
|
471,958 |
|
|
|
366,188 |
|
|
|
105,770 |
|
|
|
29 |
% |
Average common shares — diluted (2) |
|
|
471,958 |
|
|
|
367,268 |
|
|
|
104,690 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share — basic |
|
$ |
(6.08 |
) |
|
$ |
0.77 |
|
|
$ |
(6.85 |
) |
|
|
N.M. |
% |
Net income (loss) per common share — diluted |
|
|
(6.08 |
) |
|
|
0.76 |
|
|
|
(6.84 |
) |
|
|
N.M. |
|
Cash dividends declared |
|
|
0.030 |
|
|
|
0.530 |
|
|
|
(0.500 |
) |
|
|
(94 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average total assets |
|
|
(6.95 |
)% |
|
|
0.74 |
% |
|
|
(7.69 |
) |
|
|
N.M. |
% |
Return on average total shareholders’ equity |
|
|
(62.7 |
) |
|
|
6.6 |
|
|
|
(69.3 |
) |
|
|
N.M. |
|
Return on average tangible shareholders’ equity (3) |
|
|
(83.8 |
) |
|
|
15.9 |
|
|
|
(99.7 |
) |
|
|
N.M. |
|
Net interest margin (4) |
|
|
3.09 |
|
|
|
3.27 |
|
|
|
(0.18 |
) |
|
|
(6 |
) |
Efficiency ratio (5) |
|
|
57.6 |
|
|
|
54.7 |
|
|
|
2.9 |
|
|
|
5 |
|
Effective tax rate (benefit) |
|
|
(11.5 |
) |
|
|
18.7 |
|
|
|
(30.2 |
) |
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue — fully taxable equivalent (FTE) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
1,050,223 |
|
|
$ |
1,155,326 |
|
|
$ |
(105,103 |
) |
|
|
(9 |
)% |
FTE adjustment |
|
|
8,975 |
|
|
|
16,577 |
|
|
|
(7,602 |
) |
|
|
(46 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
1,059,198 |
|
|
|
1,171,903 |
|
|
|
(112,705 |
) |
|
|
(10 |
) |
Noninterest income |
|
|
761,099 |
|
|
|
640,038 |
|
|
|
121,061 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
1,820,297 |
|
|
$ |
1,811,941 |
|
|
$ |
8,356 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
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) |
|
For all 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. |
| |
| (3) |
|
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. |
| |
| (4) |
|
On a fully taxable equivalent (FTE) basis assuming a 35% tax rate. |
| |
| (5) |
|
Noninterest expense less amortization of intangibles divided by the sum of FTE net interest income and noninterest
income excluding securities (losses) gains. |
Significant Items
Definition of Significant Items
From time to time, revenue, expenses, or taxes, are impacted by items we believe 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 we believe the outsized impact at that time to be
one-time or short-term in nature. We refer to such items as “Significant Items”. Most often, these
Significant Items result from factors originating outside the company: regulatory
actions/assessments, windfall gains, changes in accounting principles, one-time tax
assessments/refunds, and other similar items. In other cases they may result from our decisions
associated with significant corporation actions out of the ordinary course of business:
merger/restructuring charges, recapitalization actions, goodwill impairment, and other similar
items.
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, and asset valuation write downs 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 so readers can ascertain which of such items, if
any, they may wish to include or exclude from an analysis of our performance 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.
“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 2008 Annual Report on Form 10-K and other
factors described from time to time in our other filings with the SEC.
The above description of “Significant Items” represents a change in definition from that
provided in our 2008 Annual Report. Certain components listed within the “Timing Differences”
section found within the “Significant Items” section on our 2008 Annual Report are no longer
considered within the scope of our definition of “Significant Items”. Although these items are
subject to more volatility than other items due to changes in market and economic environment
conditions, they reflect ordinary banking activities.
19
Table 5 — Significant Items Influencing Earnings Performance Comparison
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
September 30, 2009 |
|
|
June 30, 2009 |
|
|
September 30, 2008 |
|
| (in millions) |
|
After-tax |
|
|
EPS |
|
|
After-tax |
|
|
EPS |
|
|
After-tax |
|
|
EPS |
|
Net income — reported earnings |
|
$ |
(166.2 |
) |
|
|
|
|
|
$ |
(125.1 |
) |
|
|
|
|
|
$ |
75.1 |
|
|
|
|
|
Earnings per share, after tax |
|
|
|
|
|
$ |
(0.33 |
) |
|
|
|
|
|
$ |
(0.40 |
) |
|
|
|
|
|
$ |
0.17 |
|
Change from prior quarter — $ |
|
|
|
|
|
|
0.07 |
|
|
|
|
|
|
|
6.39 |
|
|
|
|
|
|
|
(0.08 |
) |
Change from prior quarter — % |
|
|
|
|
|
|
(17.5 |
)% |
|
|
|
|
|
|
94.1 |
% |
|
|
|
|
|
|
(32.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change from a year-ago — $ |
|
|
|
|
|
$ |
(0.50 |
) |
|
|
|
|
|
$ |
(0.65 |
) |
|
|
|
|
|
$ |
(0.21 |
) |
Change from a year-ago — % |
|
|
|
|
|
|
N.M. |
% |
|
|
|
|
|
|
N.M. |
% |
|
|
|
|
|
|
(55.3 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Significant items — favorable (unfavorable) impact: |
|
Earnings(1) |
|
|
EPS |
|
|
Earnings(1) |
|
|
EPS |
|
|
Earnings(1) |
|
|
EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on redemption of junior subordinated debt |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
67.4 |
|
|
$ |
0.10 |
|
|
$ |
— |
|
|
$ |
— |
|
Gain related to Visa® stock |
|
|
— |
|
|
|
— |
|
|
|
31.4 |
|
|
|
0.04 |
|
|
|
— |
|
|
|
— |
|
FDIC special assessment |
|
|
— |
|
|
|
— |
|
|
|
(23.6 |
) |
|
|
(0.03 |
) |
|
|
— |
|
|
|
— |
|
Goodwill impairment |
|
|
— |
|
|
|
— |
|
|
|
(4.2 |
) |
|
|
(0.01 |
) |
|
|
— |
|
|
|
— |
|
Preferred stock conversion deemed dividend |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.06 |
) |
|
|
— |
|
|
|
— |
|
Gain on extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
21.4 |
|
|
|
0.04 |
|
Deferred tax valuation allowance (provision)
benefit (2) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3.7 |
) |
|
|
(0.01 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended |
|
| |
|
September 30, 2009 |
|
|
September 30, 2008 |
|
| (in millions) |
|
After-tax |
|
|
EPS |
|
|
After-tax |
|
|
EPS |
|
Net income — reported earnings |
|
$ |
(2,724.5 |
) |
|
|
|
|
|
$ |
303.5 |
|
|
|
|
|
Earnings per share, after tax |
|
|
|
|
|
$ |
(6.08) |
(3) |
|
|
|
|
|
$ |
0.76 |
|
Change from a year-ago — $ |
|
|
|
|
|
|
(6.84 |
) |
|
|
|
|
|
|
(0.36 |
) |
Change from a year-ago — % |
|
|
|
|
|
|
N.M. |
% |
|
|
|
|
|
|
(32.1 |
)% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Significant items — favorable (unfavorable) impact: |
|
Earnings(1) |
|
|
EPS |
|
|
Earnings (1) |
|
|
EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin relationship restructuring (2) |
|
$ |
159.9 |
|
|
$ |
0.34 |
|
|
$ |
— |
|
|
$ |
— |
|
Gain on redemption of junior subordinated debt |
|
|
67.4 |
|
|
|
0.09 |
|
|
|
— |
|
|
|
— |
|
Gain related to Visa® stock |
|
|
31.4 |
|
|
|
0.04 |
|
|
|
25.1 |
|
|
|
0.04 |
|
Goodwill impairment |
|
|
(2,606.9 |
) |
|
|
(5.52 |
) |
|
|
— |
|
|
|
— |
|
FDIC special assessment |
|
|
(23.6 |
) |
|
|
(0.03 |
) |
|
|
— |
|
|
|
— |
|
Preferred stock conversion deemed dividend |
|
|
— |
|
|
|
(0.12 |
) |
|
|
— |
|
|
|
— |
|
Gain on extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
23.5 |
|
|
|
0.04 |
|
Visa® indemnification liability |
|
|
— |
|
|
|
— |
|
|
|
12.4 |
|
|
|
0.02 |
|
Deferred tax valuation allowance benefit (2) |
|
|
— |
|
|
|
— |
|
|
|
10.8 |
|
|
|
0.03 |
|
Merger and restructuring costs |
|
|
— |
|
|
|
— |
|
|
|
(21.8 |
) |
|
|
(0.04 |
) |
Asset impairment |
|
|
— |
|
|
|
— |
|
|
|
(12.4 |
) |
|
|
(0.02 |
) |
| |
|
|
| (1) |
|
Pretax unless otherwise noted. |
| |
| (2) |
|
After-tax. |
| |
| (3) |
|
Reflects the impact of the 346.8 million additional shares of common stock issued
during the period through two common stock public offerings, three discretionary equity issuance
programs, and conversions of preferred stock into common stock. Of these shares, 24.6 million were
issued late in the 2009 first quarter, 177.0 million were issued during the 2009 second quarter,
and the remaining 145.2 million were issued during the 2009 third quarter. |
20
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 pretax
($7.09 per common share) charge. (See “Goodwill” discussion located within the
“Critical Accounting Policies and Use of Significant Estimates” section for additional
information). |
| |
| |
• |
|
During the 2009 second quarter, a pretax goodwill impairment of $4.2 million ($0.01
per common share) was recorded relating to the sale of a small payments-related
business in July 2009. |
| |
2. |
|
Franklin Relationship Restructuring. The impacts of the Franklin relationship on our
reported results were as follows (see “Franklin Relationship” discussion located within the
“Risk Management and Capital” section and the “Franklin Loans” discussion located within
the “Critical Accounting Policies and Use of Significant Estimates” discussion for
additional information.): |
| |
• |
|
Performance for the 2009 first quarter included a nonrecurring net tax benefit of
$159.9 million ($0.44 per common share) related to the restructuring with Franklin.
Also as a result of the restructuring, although earnings were not significantly
impacted, commercial NCOs increased $128.3 million as the previously established $130.0
million Franklin-specific ALLL was utilized to write-down the acquired mortgages and
OREO collateral to fair value. |
| |
| |
• |
|
The restructuring affects the comparability of our 2009 second quarter income
statement with prior periods. In the 2009 second quarter, we recorded interest income
from the loans that we now own as a result of the restructuring. Interest income was
earned through interest payments on accruing loans, from the payoff of loans that were
recorded at a discount, and through the accretion of the accretable discount recorded
at the time the loans were acquired. Noninterest expense was also impacted as,
effective with the 2009 second quarter, we pay Franklin to service the loans, and
record the expense of holding foreclosed homes, including any declines in the fair
value of these homes below their carrying value. |
| |
3. |
|
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
negative impacts of $0.08 per common share for the 2009 first quarter and $0.06 per common
share for the 2009 second quarter. (See “Capital” discussion located within the “Risk
Management and Capital” section for additional information.) |
| |
| |
4. |
|
Visa®. Prior to the Visa® initial public offering (IPO)
occurring in March 2008, Visa® was owned by its member banks, which included
the Bank. The impacts related to the Visa® IPO for the first nine-month
periods of 2009 and 2008 are presented in the following table: |
21
Table 6 — Visa® impacts — First Nine-Month Periods of 2009 and 2008
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
|
2008 |
|
| (in millions) |
|
Third Quarter |
|
|
Second Quarter |
|
|
First Quarter |
|
|
Third Quarter |
|
|
Second Quarter |
|
|
First Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain related to Visa® stock sale(1) |
|
$ |
— |
|
|
$ |
31.4 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
25.1 |
|
Visa® indemnification liability (2) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12.4 |
|
Deferred tax valuation allowance benefit
(3) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3.7 |
) |
|
|
3.4 |
|
|
|
11.1 |
|
| |
|
|
| (1) |
|
Pretax. Recorded to noninterest income, and represents a gain on the sale of
ownership interest in Visa®. As part of the 2009 second quarter sale, we released $8.2 million, as
of June 30, 2009, of the remaining indemnification liability. Concurrently, we established a $7.1
million swap liability associated with the conversion protection provided to the purchasers of the
Visa® shares. |
| |
| (2) |
|
Pretax. Recorded to noninterest expense, and represents a reversal of our pro-rata
portion of an indemnification charge provided to Visa® by its member banks for various litigation
filed against Visa®, as an escrow account was established by Visa® using a portion of the proceeds
received from the IPO. |
| |
| (3) |
|
After-tax. Recorded to provision for income taxes, and represents a reduction to
the previously established capital loss carry-forward valuation allowance related to the value of
Visa® shares held. |
5. 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 — Second Quarter
| |
• |
|
$67.4 million pretax gain ($0.10 per common share) related to the redemption of a
portion of our junior subordinated debt. |
| |
| |
• |
|
$23.6 million ($0.03 per common share) negative impact due to a special FDIC
insurance premium assessment. |
2008 — Third Quarter
| |
• |
|
$21.4 million ($0.04 per common share) gain related to the extinguishment of debt. |
2008 — Second Quarter
| |
• |
|
$14.6 million ($0.03 per common share) of merger and restructuring costs related to
the Sky Financial Group, Inc. acquisition in 2007. |
| |
| |
• |
|
$2.2 million gain related to the extinguishment of debt. |
| |
| |
• |
|
$1.4 million of asset impairment, included in other noninterest expense, relating to
the charge-off of a receivable. |
2008 — First Quarter
| |
• |
|
$11.0 million ($0.02 per common share) of asset impairment, including (a) $5.9
million venture capital loss included in other noninterest income, (b) $2.6 million
charge-off of a receivable included in other noninterest expense, and (c) $2.5 million
write-down of leasehold improvements in our Cleveland main office included net
occupancy expense. |
| |
| |
• |
|
$7.3 million ($0.01 per common share) of merger and restructuring costs related to
the Sky Financial Group, Inc. acquisition in 2007. |
22
Net Interest Income / Average Balance Sheet
2009 Third Quarter versus 2008 Third Quarter
Fully-taxable equivalent net interest income decreased $27.1 million, or 7%, from the year-ago
quarter. This reflected the unfavorable impact of a $2.1 billion, or 4%, decline in total average
earning assets, as well as a 9 basis point decline in the net interest margin to 3.20% from 3.29%.
The decline in total average earning assets reflected a $3.1 billion, or 8%, decline in average
total loans and leases, partially offset by a $1.0 billion, or 16%, increase in other earning
assets, primarily investment securities.
The following table details the changes in our average loans and leases and average deposits:
Table 7 — Average Loans/Leases and Deposits — 2009 Third Quarter vs. 2008 Third Quarter
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Third Quarter |
|
|
Change |
|
| (in millions) |
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
Average Loans/Leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
$ |
12,922 |
|
|
$ |
13,629 |
|
|
$ |
(707 |
) |
|
|
(5 |
)% |
Commercial real estate |
|
|
8,879 |
|
|
|
9,816 |
|
|
|
(937 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial |
|
|
21,801 |
|
|
|
23,445 |
|
|
|
(1,644 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans and leases |
|
|
3,230 |
|
|
|
4,624 |
|
|
|
(1,394 |
) |
|
|
(30 |
) |
Home equity |
|
|
7,581 |
|
|
|
7,453 |
|
|
|
128 |
|
|
|
2 |
|
Residential mortgage |
|
|
4,487 |
|
|
|
4,812 |
|
|
|
(325 |
) |
|
|
(7 |
) |
Other consumer |
|
|
756 |
|
|
|
670 |
|
|
|
86 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
16,054 |
|
|
|
17,559 |
|
|
|
(1,505 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
37,855 |
|
|
$ |
41,004 |
|
|
$ |
(3,149 |
) |
|
|
(8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits — noninterest bearing |
|
$ |
6,186 |
|
|
$ |
5,080 |
|
|
$ |
1,106 |
|
|
|
22 |
% |
Demand deposits — interest bearing |
|
|
5,140 |
|
|
|
4,005 |
|
|
|
1,135 |
|
|
|
28 |
|
Money market deposits |
|
|
7,601 |
|
|
|
5,860 |
|
|
|
1,741 |
|
|
|
30 |
|
Savings and other domestic time deposits |
|
|
4,771 |
|
|
|
5,100 |
|
|
|
(329 |
) |
|
|
(6 |
) |
Core certificates of deposit |
|
|
11,646 |
|
|
|
11,993 |
|
|
|
(347 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits |
|
|
35,344 |
|
|
|
32,038 |
|
|
|
3,306 |
|
|
|
10 |
|
Other deposits |
|
|
4,249 |
|
|
|
5,765 |
|
|
|
(1,516 |
) |
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
39,593 |
|
|
$ |
37,803 |
|
|
$ |
1,790 |
|
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The $3.1 billion, or 8%, decrease in average total loans and leases reflected:
| |
• |
|
$1.6 billion, or 7%, decrease in average total commercial loans. The $0.9 billion,
or 10%, decrease in average CRE loans reflected a combination of factors, including our
planned efforts to shrink this portfolio through payoffs and paydowns, as well as the
impact of charge-offs and the 2009 first quarter reclassification of CRE loans to C&I
loans. The decline in average C&I loans reflected the impact of the reclassification
project, offset by paydowns, automobile dealer floorplan reductions, and the Franklin
restructuring and related 2008 fourth quarter and 2009 first quarter charge-offs. |
| |
| |
• |
|
$1.5 billion, or 9%, decrease in average total consumer loans. This primarily
reflected a $1.4 billion, or 30%,
decline in average automobile loans and leases due to the 2009 first quarter
securitization of $1.0 billion of automobile loans, as well as the continued runoff of
the automobile lease portfolio. The $0.3 billion, or 7%, decline in average residential
mortgages reflected 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 additions related to the 2009 first quarter Franklin restructuring. Average
home equity loans increased 2%, due primarily to increased line usage and slower runoff
experience. The increased line usage continued to be associated with higher quality
borrowers taking advantage of the low interest rate environment. |
23
The $1.0 billion, or 16%, increase in other earning assets reflected a $2.0 billion, or 42%,
increase in average total investment securities as the cash proceeds from capital actions during
the second and third quarters were deployed (See the “Capital / Capital Adequacy” section located
within the “Risk Management and Capital” section for a full discussion). Average trading account
securities declined $0.9 billion, or 89%, from the year-ago quarter, due to the reduction in the
use of trading securities to hedge mortgage servicing rights (MSRs).
Average total deposits increased $1.8 billion, or 5%, from the year-ago quarter and reflected:
| |
• |
|
$3.3 billion, or 10%, growth in average total core deposits, primarily reflecting
increased sales efforts and initiatives for deposit accounts. |
Partially offset by:
| |
• |
|
A $1.5 billion, or 26%, decrease in average other deposits, primarily reflecting
our deployment of excess liquidity in reducing noncore funding sources. |
2009 Third Quarter versus 2009 Second Quarter
Compared with the 2009 second quarter, fully-taxable equivalent net interest income increased
$15.9 million, or 5%. This primarily reflected a 10 basis point increase in the net interest
margin to 3.20% from 3.10%, as average total earning assets were essentially unchanged. The
increase in the net interest margin reflected a combination of factors including favorable impacts
from strong core deposit growth and the benefit of lower deposit pricing, partially offset by the
negative impact of maintaining a higher liquidity position. Average total earning assets were
essentially unchanged as a $1.2 billion, or 18%, increase in other earning assets, primarily
investment securities, was offset by a $1.2 billion, or 3%, decline in average total loans and
leases.
The following table details the changes in our average loans and leases and average deposits:
Table 8 — Average Loans/Leases and Deposits — 2009 Third Quarter vs. 2009 Second Quarter
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
|
2009 |
|
|
Change |
|
| (in millions) |
|
Third Quarter |
|
|
Second Quarter |
|
|
Amount |
|
|
Percent |
|
Average Loans/Leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
$ |
12,922 |
|
|
$ |
13,523 |
|
|
$ |
(601 |
) |
|
|
(4 |
)% |
Commercial real estate |
|
|
8,879 |
|
|
|
9,199 |
|
|
|
(320 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial |
|
|
21,801 |
|
|
|
22,722 |
|
|
|
(921 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans and leases |
|
|
3,230 |
|
|
|
3,290 |
|
|
|
(60 |
) |
|
|
(2 |
) |
Home equity |
|
|
7,581 |
|
|
|
7,640 |
|
|
|
(59 |
) |
|
|
(1 |
) |
Residential mortgage |
|
|
4,487 |
|
|
|
4,657 |
|
|
|
(170 |
) |
|
|
(4 |
) |
Other consumer |
|
|
756 |
|
|
|
698 |
|
|
|
58 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
16,054 |
|
|
|
16,285 |
|
|
|
(231 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
37,855 |
|
|
$ |
39,007 |
|
|
$ |
(1,152 |
) |
|
|
(3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits — noninterest bearing |
|
$ |
6,186 |
|
|
$ |
6,021 |
|
|
$ |
165 |
|
|
|
3 |
% |
Demand deposits — interest bearing |
|
|
5,140 |
|
|
|
4,547 |
|
|
|
593 |
|
|
|
13 |
|
Money market deposits |
|
|
7,601 |
|
|
|
6,355 |
|
|
|
1,246 |
|
|
|
20 |
|
Savings and other domestic time deposits |
|
4,771 |
|
|
5,031 |
|
|
|
(260 |
) |
|
|
(5 |
) |
Core certificates of deposit |
|
|
11,646 |
|
|
|
12,501 |
|
|
|
(855 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits |
|
|
35,344 |
|
|
|
34,455 |
|
|
|
889 |
|
|
|
3 |
|
Other deposits |
|
|
4,249 |
|
|
|
5,079 |
|
|
|
(830 |
) |
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
39,593 |
|
|
$ |
39,534 |
|
|
$ |
59 |
|
|
|
— |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
24
Average total loans and leases declined $1.2 billion, or 3%, reflecting:
| |
• |
|
$0.9 billion, or 4%, decline in average total commercial loans. Average C&I loans
were lower based, in part on lower line utilization across the portfolio, particularly
in automobile dealer floorplan loans. The lower floorplan balances were consistent
with the lower level of dealer car inventories resulting from the “cash for clunkers”
program and lower manufacturer production levels. We continue to expect no material
credit impact from dealership closings. The planned decline in average CRE loans
primarily reflected payoffs, balance reductions, and charge-offs. |
| |
| |
• |
|
$0.2 billion, or 1%, decline in average total consumer loans. The decline was
spread evenly across the portfolio segments. The decline in average automobile loans
and leases was consistent with our expectations given market conditions along with the
continued run-off of the automobile lease portfolio. Demand for home equity loans
remained weak, reflecting the impact of the economic environment and depressed home
values. The decline in residential mortgages reflected the impact of lower market
interest rates, the related increase in fixed-rate refinancing activity, and our
practice of selling virtually all of our longer-term fixed-rate production. It also
reflected the more conservative position on loss recognition, active loss mitigation
and troubled debt restructuring efforts, as well as the transfer to held for sale, and
subsequent sale in the 2009 fourth quarter, of some underperforming loans. |
The $1.2 billion, or 18%, increase in other earning assets reflected a $1.3 billion, or 25%,
increase in average total investment securities as the cash proceeds from capital actions during
the second and third quarters were deployed. (See the “Capital / Capital Adequacy” section located
within the “Risk Management and Capital” section for a full discussion). The increase primarily
represented the purchase of agency debt with an average 2-year maturity and agency CMOs with an
average 3-year maturity.
Average total deposits increased slightly from the prior quarter and reflected:
| |
• |
|
$0.9 billion, or 3%, growth in average total core deposits, primarily reflecting
increased sales efforts and initiatives for deposit accounts. |
Partially offset by:
| |
• |
|
$0.8 billion, or 16%, decline in other deposits, reflecting our deployment of excess
liquidity in reducing noncore funding sources. |
Tables 9 and 10 reflect quarterly average balance sheets and rates earned and paid on
interest-earning assets and interest-bearing liabilities.
25
Table 9 — Consolidated Quarterly Average Balance Sheets
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Average Balances |
|
|
Change |
|
| Fully-taxable equivalent basis |
|
2009 |
|
|
2008 |
|
|
3Q09 vs 3Q08 |
|
| (in millions) |
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
|
Amount |
|
|
Percent |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits in banks |
|
$ |
393 |
|
|
$ |
369 |
|
|
$ |
355 |
|
|
$ |
343 |
|
|
$ |
321 |
|
|
$ |
72 |
|
|
|
22 |
% |
Trading account securities |
|
|
107 |
|
|
|
88 |
|
|
|
278 |
|
|
|
940 |
|
|
|
992 |
|
|
|
(885 |
) |
|
|
(89 |
) |
Federal funds sold and securities purchased
under resale agreements |
|
|
7 |
|
|
|
— |
|
|
|
19 |
|
|
|
48 |
|
|
|
363 |
|
|
|
(356 |
) |
|
|
(98 |
) |
Loans held for sale |
|
|
524 |
|
|
|
709 |
|
|
|
627 |
|
|
|
329 |
|
|
|
274 |
|
|
|
250 |
|
|
|
91 |
|
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
6,510 |
|
|
|
5,181 |
|
|
|
3,961 |
|
|
|
3,789 |
|
|
|
3,975 |
|
|
|
2,535 |
|
|
|
64 |
|
Tax-exempt |
|
|
129 |
|
|
|
126 |
|
|
|
465 |
|
|
|
689 |
|
|
|
712 |
|
|
|
(583 |
) |
|
|
(82 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
|
6,639 |
|
|
|
5,307 |
|
|
|
4,426 |
|
|
|
4,478 |
|
|
|
4,687 |
|
|
|
1,952 |
|
|
|
42 |
|
Loans and leases: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
12,922 |
|
|
|
13,523 |
|
|
|
13,541 |
|
|
|
13,746 |
|
|
|
13,629 |
|
|
|
(707 |
) |
|
|
(5 |
) |
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
1,808 |
|
|
|
1,946 |
|
|
|
2,033 |
|
|
|
2,103 |
|
|
|
2,090 |
|
|
|
(282 |
) |
|
|
(13 |
) |
Commercial |
|
|
7,071 |
|
|
|
7,253 |
|
|
|
8,079 |
|
|
|
8,115 |
|
|
|
7,726 |
|
|
|
(655 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
8,879 |
|
|
|
9,199 |
|
|
|
10,112 |
|
|
|
10,218 |
|
|
|
9,816 |
|
|
|
(937 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial |
|
|
21,801 |
|
|
|
22,722 |
|
|
|
23,653 |
|
|
|
23,964 |
|
|
|
23,445 |
|
|
|
(1,644 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans |
|
|
2,886 |
|
|
|
2,867 |
|
|
|
3,837 |
|
|
|
3,899 |
|
|
|
3,856 |
|
|
|
(970 |
) |
|
|
(25 |
) |
Automobile leases |
|
|
344 |
|
|
|
423 |
|
|
|
517 |
|
|
|
636 |
|
|
|
768 |
|
|
|
(424 |
) |
|
|
(55 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans and leases |
|
|
3,230 |
|
|
|
3,290 |
|
|
|
4,354 |
|
|
|
4,535 |
|
|
|
4,624 |
|
|
|
(1,394 |
) |
|
|
(30 |
) |
Home equity |
|
|
7,581 |
|
|
|
7,640 |
|
|
|
7,577 |
|
|
|
7,523 |
|
|
|
7,453 |
|
|
|
128 |
|
|
|
2 |
|
Residential mortgage |
|
|
4,487 |
|
|
|
4,657 |
|
|
|
4,611 |
|
|
|
4,737 |
|
|
|
4,812 |
|
|
|
(325 |
) |
|
|
(7 |
) |
Other loans |
|
|
756 |
|
|
|
698 |
|
|
|
671 |
|
|
|
678 |
|
|
|
670 |
|
|
|
86 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
16,054 |
|
|
|
16,285 |
|
|
|
17,213 |
|
|
|
17,473 |
|
|
|
17,559 |
|
|
|
(1,505 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
|
37,855 |
|
|
|
39,007 |
|
|
|
40,866 |
|
|
|
41,437 |
|
|
|
41,004 |
|
|
|
(3,149 |
) |
|
|
(8 |
) |
Allowance for loan and lease losses |
|
|
(950 |
) |
|
|
(930 |
) |
|
|
(913 |
) |
|
|
(764 |
) |
|
|
(731 |
) |
|
|
(219 |
) |
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans and leases |
|
|
36,905 |
|
|
|
38,077 |
|
|
|
39,953 |
|
|
|
40,673 |
|
|
|
40,273 |
|
|
|
(3,368 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets |
|
|
45,525 |
|
|
|
45,480 |
|
|
|
46,571 |
|
|
|
47,575 |
|
|
|
47,641 |
|
|
|
(2,116 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
2,553 |
|
|
|
2,466 |
|
|
|
1,553 |
|
|
|
928 |
|
|
|
925 |
|
|
|
1,628 |
|
|
|
N.M. |
|
Intangible assets |
|
|
755 |
|
|
|
780 |
|
|
|
3,371 |
|
|
|
3,421 |
|
|
|
3,441 |
|
|
|
(2,686 |
) |
|
|
(78 |
) |
All other assets |
|
|
3,797 |
|
|
|
3,701 |
|
|
|
3,571 |
|
|
|
3,447 |
|
|
|
3,384 |
|
|
|
413 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
51,680 |
|
|
$ |
51,497 |
|
|
$ |
54,153 |
|
|
$ |
54,607 |
|
|
$ |
54,660 |
|
|
$ |
(2,980 |
) |
|
|
(5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits — noninterest bearing |
|
$ |
6,186 |
|
|
$ |
6,021 |
|
|
$ |
5,544 |
|
|
$ |
5,205 |
|
|
$ |
5,080 |
|
|
$ |
1,106 |
|
|
|
22 |
% |
Demand deposits — interest bearing |
|
|
5,140 |
|
|
|
4,547 |
|
|
|
4,076 |
|
|
|
3,988 |
|
|
|
4,005 |
|
|
|
1,135 |
|
|
|
28 |
|
Money market deposits |
|
|
7,601 |
|
|
|
6,355 |
|
|
|
5,593 |
|
|
|
5,500 |
|
|
|
5,860 |
|
|
|
1,741 |
|
|
|
30 |
|
Savings and other domestic deposits |
|
|
4,771 |
|
|
|
5,031 |
|
|
|
5,041 |
|
|
|
5,034 |
|
|
|
5,100 |
|
|
|
(329 |
) |
|
|
(6 |
) |
Core certificates of deposit |
|
|
11,646 |
|
|
|
12,501 |
|
|
|
12,784 |
|
|
|
12,588 |
|
|
|
11,993 |
|
|
|
(347 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits |
|
|
35,344 |
|
|
|
34,455 |
|
|
|
33,038 |
|
|
|
32,315 |
|
|
|
32,038 |
|
|
|
3,306 |
|
|
|
10 |
|
Other domestic deposits of $250,000 or more |
|
|
747 |
|
|
|
886 |
|
|
|
1,069 |
|
|
|
1,365 |
|
|
|
1,692 |
|
|
|
(945 |
) |
|
|
(56 |
) |
Brokered deposits and negotiable CDs |
|
|
3,058 |
|
|
|
3,740 |
|
|
|
3,449 |
|
|
|
3,049 |
|
|
|
3,025 |
|
|
|
33 |
|
|
|
1 |
|
Deposits in foreign offices |
|
|
444 |
|
|
|
453 |
|
|
|
633 |
|
|
|
854 |
|
|
|
1,048 |
|
|
|
(604 |
) |
|
|
(58 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
39,593 |
|
|
|
39,534 |
|
|
|
38,189 |
|
|
|
37,583 |
|
|
|
37,803 |
|
|
|
1,790 |
|
|
|
5 |
|
Short-term borrowings |
|
|
879 |
|
|
|
879 |
|
|
|
1,099 |
|
|
|
1,748 |
|
|
|
2,131 |
|
|
|
(1,252 |
) |
|
|
(59 |
) |
Federal Home Loan Bank advances |
|
|
924 |
|
|
|
947 |
|
|
|
2,414 |
|
|
|
3,188 |
|
|
|
3,139 |
|
|
|
(2,215 |
) |
|
|
(71 |
) |
Subordinated notes and other long-term debt |
|
|
4,136 |
|
|
|
4,640 |
|
|
|
4,612 |
|
|
|
4,252 |
|
|
|
4,382 |
|
|
|
(246 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities |
|
|
39,346 |
|
|
|
39,979 |
|
|
|
40,770 |
|
|
|
41,566 |
|
|
|
42,375 |
|
|
|
(3,029 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other liabilities |
|
|
863 |
|
|
|
569 |
|
|
|
614 |
|
|
|
817 |
|
|
|
882 |
|
|
|
(19 |
) |
|
|
(2 |
) |
Shareholders’ equity |
|
|
5,285 |
|
|
|
4,928 |
|
|
|
7,225 |
|
|
|
7,019 |
|
|
|
6,323 |
|
|
|
(1,038 |
) |
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders’ Equity |
|
$ |
51,680 |
|
|
$ |
51,497 |
|
|
$ |
54,153 |
|
|
$ |
54,607 |
|
|
$ |
54,660 |
|
|
$ |
(2,980 |
) |
|
|
(5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M., not a meaningful value.
| |
|
|
| (1) |
|
For purposes of this analysis, non-accrual loans are
reflected in the average balances of loans. |
26
Table 10 — Consolidated Quarterly Net Interest Margin Analysis
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Average Rates (2) |
|
| |
|
2009 |
|
|
2008 |
|
| Fully-taxable equivalent basis (1) |
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits in banks |
|
|
0.28 |
% |
|
|
0.37 |
% |
|
|
0.45 |
% |
|
|
1.44 |
% |
|
|
2.17 |
% |
Trading account securities |
|
|
1.96 |
|
|
|
2.22 |
|
|
|
4.04 |
|
|
|
5.32 |
|
|
|
5.45 |
|
Federal funds sold and securities purchased
under resale agreements |
|
|
0.14 |
|
|
|
0.82 |
|
|
|
0.20 |
|
|
|
0.24 |
|
|
|
2.02 |
|
Loans held for sale |
|
|
5.20 |
|
|
|
5.19 |
|
|
|
5.04 |
|
|
|
6.58 |
|
|
|
6.54 |
|
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
3.99 |
|
|
|
4.63 |
|
|
|
5.60 |
|
|
|
5.74 |
|
|
|
5.54 |
|
Tax-exempt |
|
|
6.77 |
|
|
|
6.83 |
|
|
|
6.61 |
|
|
|
7.02 |
|
|
|
6.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
|
4.04 |
|
|
|
4.69 |
|
|
|
5.71 |
|
|
|
5.94 |
|
|
|
5.73 |
|
Loans and leases: (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
5.19 |
|
|
|
5.00 |
|
|
|
4.60 |
|
|
|
5.01 |
|
|
|
5.46 |
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
2.61 |
|
|
|
2.78 |
|
|
|
2.76 |
|
|
|
4.55 |
|
|
|
4.69 |
|
Commercial |
|
|
3.43 |
|
|
|
3.56 |
|
|
|
3.76 |
|
|
|
5.07 |
|
|
|
5.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
3.26 |
|
|
|
3.39 |
|
|
|
3.55 |
|
|
|
4.96 |
|
|
|
5.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial |
|
|
4.40 |
|
|
|
4.35 |
|
|
|
4.15 |
|
|
|
4.99 |
|
|
|
5.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans |
|
|
7.34 |
|
|
|
7.28 |
|
|
|
7.20 |
|
|
|
7.17 |
|
|
|
7.13 |
|
Automobile leases |
|
|
6.25 |
|
|
|
6.12 |
|
|
|
6.03 |
|
|
|
5.82 |
|
|
|
5.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans and leases |
|
|
7.22 |
|
|
|
7.13 |
|
|
|
7.06 |
|
|
|
6.98 |
|
|
|
6.89 |
|
Home equity |
|
|
5.75 |
|
|
|
5.75 |
|
|
|
5.13 |
|
|
|
5.87 |
|
|
|
6.19 |
|
Residential mortgage |
|
|
5.03 |
|
|
|
5.12 |
|
|
|
5.71 |
|
|
|
5.84 |
|
|
|
5.83 |
|
Other loans |
|
|
7.21 |
|
|
|
8.22 |
|
|
|
8.97 |
|
|
|
9.25 |
|
|
|
9.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
5.91 |
|
|
|
5.95 |
|
|
|
5.92 |
|
|
|
6.28 |
|
|
|
6.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
|
5.04 |
|
|
|
5.02 |
|
|
|
4.90 |
|
|
|
5.53 |
|
|
|
5.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets |
|
|
4.86 |
% |
|
|
4.99 |
% |
|
|
4.99 |
% |
|
|
5.57 |
% |
|
|
5.77 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits — noninterest bearing |
|
|
— |
% |
|
|
— |
% |
|
|
— |
% |
|
|
— |
% |
|
|
— |
% |
Demand deposits — interest bearing |
|
|
0.22 |
|
|
|
0.18 |
|
|
|
0.14 |
|
|
|
0.34 |
|
|
|
0.51 |
|
Money market deposits |
|
|
1.20 |
|
|
|
1.14 |
|
|
|
1.02 |
|
|
|
1.31 |
|
|
|
1.66 |
|
Savings and other domestic deposits |
|
|
1.33 |
|
|
|
1.37 |
|
|
|
1.50 |
|
|
|
1.72 |
|
|
|
1.79 |
|
Core certificates of deposit |
|
|
3.27 |
|
|
|
3.50 |
|
|
|
3.81 |
|
|
|
4.02 |
|
|
|
4.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits |
|
|
1.88 |
|
|
|
2.06 |
|
|
|
2.28 |
|
|
|
2.50 |
|
|
|
2.58 |
|
Other domestic deposits of $250,000 or more |
|
|
2.24 |
|
|
|
2.61 |
|
|
|
2.92 |
|
|
|
3.39 |
|
|
|
3.50 |
|
Brokered deposits and negotiable CDs |
|
|
2.49 |
|
|
|
2.54 |
|
|
|
2.97 |
|
|
|
3.39 |
|
|
|
3.37 |
|
Deposits in foreign offices |
|
|
0.20 |
|
|
|
0.20 |
|
|
|
0.17 |
|
|
|
0.90 |
|
|
|
1.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
1.92 |
|
|
|
2.11 |
|
|
|
2.33 |
|
|
|
2.58 |
|
|
|
2.66 |
|
Short-term borrowings |
|
|
0.25 |
|
|
|
0.26 |
|
|
|
0.25 |
|
|
|
0.85 |
|
|
|
1.42 |
|
Federal Home Loan Bank advances |
|
|
0.92 |
|
|
|
1.13 |
|
|
|
1.03 |
|
|
|
3.04 |
|
|
|
2.92 |
|
Subordinated notes and other long-term debt |
|
|
2.58 |
|
|
|
2.91 |
|
|
|
3.29 |
|
|
|
4.49 |
|
|
|
4.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities |
|
|
1.93 |
% |
|
|
2.14 |
% |
|
|
2.31 |
% |
|
|
2.74 |
% |
|
|
2.79 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread |
|
|
2.93 |
% |
|
|
2.85 |
% |
|
|
2.68 |
% |
|
|
2.83 |
% |
|
|
2.98 |
% |
Impact of noninterest bearing funds on margin |
|
|
0.27 |
|
|
|
0.25 |
|
|
|
0.29 |
|
|
|
0.35 |
|
|
|
0.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
3.20 |
% |
|
|
3.10 |
% |
|
|
2.97 |
% |
|
|
3.18 |
% |
|
|
3.29 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
Fully taxable equivalent (FTE) yields are calculated assuming a 35% tax rate. See Table 3 for the FTE adjustment. |
| |
| (2) |
|
Loan, lease, and deposit average rates include impact of applicable derivatives and non-deferrable fees. |
| |
| (3) |
|
For purposes of this analysis, nonaccrual loans are reflected in the average balances of loans. |
27
2009 First Nine Months versus 2008 First Nine Months
Fully-taxable equivalent net interest income for the first nine-month period of 2009 declined
$112.7 million, or 10%, from the comparable year-ago period. This decline primarily reflected an 18
basis point decline in the net interest margin, a 4% decline in average earning assets, the
unfavorable impact of maintaining a higher liquidity position, and an increase in NALs. These
factors were partially offset by managed reductions of our balance sheet and other capital
management initiatives.
The following table details the changes in our average loans and leases and average deposits:
| |
Table 11 — Average Loans/Leases and Deposits — First Nine Months 2009 vs. First Nine Months 2008 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended |
|
|
|
|
| |
|
September 30, |
|
|
Change |
|
| (in millions) |
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
Average Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
$ |
13,327 |
|
|
$ |
13,535 |
|
|
$ |
(208 |
) |
|
|
(2 |
)% |
Commercial real estate |
|
|
9,392 |
|
|
|
9,568 |
|
|
|
(176 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial |
|
|
22,719 |
|
|
|
23,103 |
|
|
|
(384 |
) |
|
|
(2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans and leases |
|
|
3,620 |
|
|
|
4,525 |
|
|
|
(905 |
) |
|
|
(20 |
)% |
Home equity |
|
|
7,600 |
|
|
|
7,364 |
|
|
|
236 |
|
|
|
3 |
|
Residential mortgage |
|
|
4,584 |
|
|
|
5,113 |
|
|
|
(529 |
) |
|
|
(10 |
) |
Other consumer |
|
|
709 |
|
|
|
695 |
|
|
|
14 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
16,513 |
|
|
|
17,697 |
|
|
|
(1,184 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
39,232 |
|
|
$ |
40,800 |
|
|
$ |
(1,568 |
) |
|
|
(4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits — non-interest bearing |
|
$ |
5,919 |
|
|
$ |
5,058 |
|
|
$ |
861 |
|
|
|
17 |
% |
Demand deposits — interest bearing |
|
|
4,591 |
|
|
|
4,008 |
|
|
|
583 |
|
|
|
15 |
|
Money market deposits |
|
|
6,524 |
|
|
|
6,292 |
|
|
|
232 |
|
|
|
4 |
|
Savings and other domestic time deposits |
|
|
4,946 |
|
|
|
5,185 |
|
|
|
(239 |
) |
|
|
(5 |
) |
Core certificates of deposit |
|
|
12,308 |
|
|
|
11,317 |
|
|
|
991 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits |
|
|
34,288 |
|
|
|
31,860 |
|
|
|
2,428 |
|
|
|
8 |
|
Other deposits |
|
|
4,822 |
|
|
|
6,061 |
|
|
|
(1,239 |
) |
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
39,110 |
|
|
$ |
37,921 |
|
|
$ |
1,189 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The $1.6 billion, or 4%, decrease in average total loans and leases primarily reflected:
| |
• |
|
$0.9 billion, or 20%, decline in average automobile loans and leases due to the 2009
first quarter securitization of $1.0 billion of automobile loans, as well as the
continued runoff of the automobile lease portfolio. |
| |
| |
• |
|
$0.5 billion, or 10%, decline in residential mortgages reflecting the impact of loan
sales, as well as the continued refinance of portfolio loans. The majority of this
refinance activity was fixed-rate loans, which we typically sell in the secondary
market. |
| |
| |
• |
|
$0.4 billion, or 2%, decline in average total commercial loans. The decline in
average CRE loans reflected our planned efforts to shrink this portfolio through
payoffs and paydowns, as well as the impact of charge-offs and the 2009 first quarter
reclassification of CRE loans to C&I loans. The decline in average C&I loans reflected
paydowns and the Franklin restructuring; partially offset by the 2009 first quarter
reclassification project. |
28
Partially offset by:
| |
• |
|
$0.2 billion, or 3%, increase in average home equity loans reflecting higher
utilization of existing lines resulting from higher quality borrowers taking advantage
of the current relatively lower interest rate environment, as well as a slowdown in
runoff. |
Other average earning assets declined $0.4 million, reflecting a decline in trading account
securities due to the reduction in the use of these securities to hedge MSRs, partially offset by
an increase in total investment securities as the cash proceeds from capital actions during the
first nine-month period of 2009 were deployed.
The $1.2 billion, or 3%, increase in average total deposits reflected:
| |
• |
|
$2.4 billion, or 8%, growth in total core deposits, primarily reflecting increased
sales efforts and initiatives for deposit accounts. |
Partially offset by:
| |
• |
|
$1.2 billion, or 20%, decline in average noncore deposits, reflecting a managed
decline in public fund deposits as well as planned efforts to reduce our reliance on
noncore funding sources. |
29
Table 12 — Consolidated YTD Average Balance Sheets and Net Interest Margin Analysis
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
YTD Average Balances |
|
|
YTD Average Rates (2) |
|
| Fully taxable equivalent basis (1) |
|
Nine Months Ending September 30, |
|
|
Change |
|
|
Nine Months Ending September 30, |
|
| (in millions of dollars) |
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
|
2009 |
|
|
2008 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits in banks |
|
$ |
372 |
|
|
$ |
290 |
|
|
$ |
82 |
|
|
|
28 |
% |
|
|
0.36 |
% |
|
|
2.96 |
% |
Trading account securities |
|
|
157 |
|
|
|
1,139 |
|
|
|
(982 |
) |
|
|
(86 |
) |
|
|
3.24 |
|
|
|
5.26 |
|
Federal funds sold and securities purchased
under resale agreements |
|
|
8 |
|
|
|
565 |
|
|
|
(557 |
) |
|
|
(99 |
) |
|
|
0.19 |
|
|
|
2.52 |
|
Loans held for sale |
|
|
620 |
|
|
|
446 |
|
|
|
174 |
|
|
|
39 |
|
|
|
5.15 |
|
|
|
5.86 |
|
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
5,227 |
|
|
|
3,908 |
|
|
|
1,319 |
|
|
|
34 |
|
|
|
4.60 |
|
|
|
5.58 |
|
Tax-exempt |
|
|
239 |
|
|
|
711 |
|
|
|
(472 |
) |
|
|
(66 |
) |
|
|
6.72 |
|
|
|
6.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
|
5,466 |
|
|
|
4,619 |
|
|
|
847 |
|
|
|
18 |
|
|
|
4.70 |
|
|
|
5.76 |
|
Loans and leases: (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
13,327 |
|
|
|
13,535 |
|
|
|
(208 |
) |
|
|
(2 |
) |
|
|
4.92 |
|
|
|
5.79 |
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
1,928 |
|
|
|
2,047 |
|
|
|
(119 |
) |
|
|
(6 |
) |
|
|
2.72 |
|
|
|
5.14 |
|
Commercial |
|
|
7,464 |
|
|
|
7,521 |
|
|
|
(57 |
) |
|
|
(1 |
) |
|
|
3.59 |
|
|
|
5.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
9,392 |
|
|
|
9,568 |
|
|
|
(176 |
) |
|
|
(2 |
) |
|
|
3.41 |
|
|
|
5.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial |
|
|
22,719 |
|
|
|
23,103 |
|
|
|
(384 |
) |
|
|
(2 |
) |
|
|
4.30 |
|
|
|
5.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans |
|
|
3,193 |
|
|
|
3,601 |
|
|
|
(408 |
) |
|
|
(11 |
) |
|
|
7.26 |
|
|
|
7.16 |
|
Automobile leases |
|
|
427 |
|
|
|
924 |
|
|
|
(497 |
) |
|
|
(54 |
) |
|
|
6.13 |
|
|
|
5.60 |
|
Automobile loans and leases |
|
|
3,620 |
|
|
|
4,525 |
|
|
|
(905 |
) |
|
|
(20 |
) |
|
|
7.13 |
|
|
|
6.85 |
|
Home equity |
|
|
7,600 |
|
|
|
7,364 |
|
|
|
236 |
|
|
|
3 |
|
|
|
5.55 |
|
|
|
6.60 |
|
Residential mortgage |
|
|
4,584 |
|
|
|
5,113 |
|
|
|
(529 |
) |
|
|
(10 |
) |
|
|
5.29 |
|
|
|
5.83 |
|
Other loans |
|
|
709 |
|
|
|
695 |
|
|
|
14 |
|
|
|
2 |
|
|
|
8.09 |
|
|
|
10.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
16,513 |
|
|
|
17,697 |
|
|
|
(1,184 |
) |
|
|
(7 |
) |
|
|
5.93 |
|
|
|
6.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
|
39,232 |
|
|
|
40,800 |
|
|
|
(1,568 |
) |
|
|
(4 |
) |
|
|
4.99 |
|
|
|
6.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses |
|
|
(931 |
) |
|
|
(672 |
) |
|
|
(259 |
) |
|
|
(39 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans and leases |
|
|
38,301 |
|
|
|
40,128 |
|
|
|
(1,827 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets |
|
|
45,855 |
|
|
|
47,859 |
|
|
|
(2,004 |
) |
|
|
(4 |
) |
|
|
4.94 |
% |
|
|
6.01 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
2,195 |
|
|
|
968 |
|
|
|
1,227 |
|
|
|
N.M. |
|
|
|
|
|
|
|
|
|
Intangible assets |
|
|
1,626 |
|
|
|
3,454 |
|
|
|
(1,828 |
) |
|
|
(53 |
) |
|
|
|
|
|
|
|
|
All other assets |
|
|
3,689 |
|
|
|
3,419 |
|
|
|
270 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
52,434 |
|
|
$ |
55,028 |
|
|
$ |
(2,594 |
) |
|
|
(5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits — non-interest bearing |
|
$ |
5,919 |
|
|
$ |
5,058 |
|
|
$ |
861 |
|
|
|
17 |
% |
|
|
— |
% |
|
|
— |
% |
Demand deposits — interest bearing |
|
|
4,591 |
|
|
|
4,008 |
|
|
|
583 |
|
|
|
15 |
|
|
|
0.19 |
|
|
|
0.62 |
|
Money market deposits |
|
|
6,524 |
|
|
|
6,292 |
|
|
|
232 |
|
|
|
4 |
|
|
|
1.13 |
|
|
|
2.11 |
|
Savings and other domestic time deposits |
|
|
4,946 |
|
|
|
5,185 |
|
|
|
(239 |
) |
|
|
(5 |
) |
|
|
1.40 |
|
|
|
1.95 |
|
Core certificates of deposit |
|
|
12,308 |
|
|
|
11,317 |
|
|
|
991 |
|
|
|
9 |
|
|
|
3.53 |
|
|
|
4.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits |
|
|
34,288 |
|
|
|
31,860 |
|
|
|
2,428 |
|
|
|
8 |
|
|
|
2.07 |
|
|
|
2.80 |
|
Other domestic time deposits of $250,000 or more |
|
|
899 |
|
|
|
1,737 |
|
|
|
(838 |
) |
|
|
(48 |
) |
|
|
2.63 |
|
|
|
3.87 |
|
Brokered deposits and negotiable CDs |
|
|
3,414 |
|
|
|
3,309 |
|
|
|
105 |
|
|
|
3 |
|
|
|
2.67 |
|
|
|
3.75 |
|
Deposits in foreign offices |
|
|
509 |
|
|
|
1,015 |
|
|
|
(506 |
) |
|
|
(50 |
) |
|
|
0.19 |
|
|
|
1.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
39,110 |
|
|
|
37,921 |
|
|
|
1,189 |
|
|
|
3 |
|
|
|
2.12 |
|
|
|
2.93 |
|
Short-term borrowings |
|
|
951 |
|
|
|
2,584 |
|
|
|
(1,633 |
) |
|
|
(63 |
) |
|
|
0.26 |
|
|
|
1.99 |
|
Federal Home Loan Bank advances |
|
|
1,423 |
|
|
|
3,312 |
|
|
|
(1,889 |
) |
|
|
(57 |
) |
|
|
1.03 |
|
|
|
3.30 |
|
Subordinated notes and other long-term debt |
|
|
4,461 |
|
|
|
4,043 |
|
|
|
418 |
|
|
|
10 |
|
|
|
2.94 |
|
|
|
4.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities |
|
|
40,026 |
|
|
|
42,802 |
|
|
|
(2,776 |
) |
|
|
(6 |
) |
|
|
2.12 |
|
|
|
3.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other liabilities |
|
|
684 |
|
|
|
982 |
|
|
|
(298 |
) |
|
|
(30 |
) |
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
5,805 |
|
|
|
6,186 |
|
|
|
(381 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders’ Equity |
|
$ |
52,434 |
|
|
$ |
55,028 |
|
|
$ |
(2,594 |
) |
|
|
(5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.82 |
|
|
|
2.96 |
|
Impact of non-interest bearing funds on margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.27 |
|
|
|
0.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.09 |
% |
|
|
3.27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| N.M., not a meaningful value. |
| |
| (1) |
|
Fully taxable equivalent (FTE) yields are calculated assuming a 35% tax rate. See Table 4 for the FTE adjustment. |
| |
| (2) |
|
Loan and lease and deposit average rates include impact of applicable derivatives and non-deferrable fees. |
| |
| (3) |
|
For purposes of this analysis, non-accrual loans are reflected in the average balances of loans. |
30
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 AULC at
levels adequate to absorb our estimate of probable inherent credit losses in the loan and lease
portfolio and the portfolio of unfunded loan commitments and letters of credit.
The following table details the Franklin-related impact to the provision for credit losses for
each of the past five quarters:
Table 13 — Provision for Credit Losses — Franklin-Related Impact
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
|
2008 |
|
| (in millions) |
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin |
|
$ |
(3.5 |
) |
|
$ |
(10.1 |
) |
|
$ |
— |
|
|
$ |
438.0 |
|
|
$ |
— |
|
Non-Franklin |
|
|
478.6 |
|
|
|
423.8 |
|
|
|
291.8 |
|
|
|
284.6 |
|
|
|
125.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
475.1 |
|
|
$ |
413.7 |
|
|
$ |
291.8 |
|
|
$ |
722.6 |
|
|
$ |
125.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net charge-offs (recoveries) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin |
|
$ |
(3.5 |
) |
|
$ |
(10.1 |
) |
|
$ |
128.3 |
|
|
$ |
423.3 |
|
|
$ |
— |
|
Non-Franklin |
|
|
359.4 |
|
|
|
344.5 |
|
|
|
213.2 |
|
|
|
137.3 |
|
|
|
83.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
355.9 |
|
|
$ |
334.4 |
|
|
$ |
341.5 |
|
|
$ |
560.6 |
|
|
$ |
83.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses in excess of net charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(128.3 |
) |
|
$ |
14.7 |
|
|
$ |
— |
|
Non-Franklin |
|
|
119.2 |
|
|
|
79.3 |
|
|
|
78.6 |
|
|
|
147.3 |
|
|
|
41.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
119.2 |
|
|
$ |
79.3 |
|
|
$ |
(49.7 |
) |
|
$ |
162.0 |
|
|
$ |
41.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for credit losses in the first nine-month period of 2009 was $1,180.7 million,
up $845.8 million from the comparable year-ago period of $334.9 million. The reported provision for
credit losses for the first nine-month period of 2009 of $1,180.7 million exceeded total NCOs by
$148.8 million (see the “Credit Quality” section located within the “Risk Management and Capital”
section for a full discussion).
31
Noninterest Income
(This section should be read in conjunction with Significant Items 4 and 5.)
The following table reflects noninterest income for each of the past five quarters:
Table 14 — Noninterest Income
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
|
2008 |
|
| (in thousands) |
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
Service charges on deposit
accounts |
|
$ |
80,811 |
|
|
$ |
75,353 |
|
|
$ |
69,878 |
|
|
$ |
75,247 |
|
|
$ |
80,508 |
|
Brokerage and insurance income |
|
|
33,996 |
|
|
|
32,052 |
|
|
|
39,948 |
|
|
|
31,233 |
|
|
|
34,309 |
|
Trust services |
|
|
25,832 |
|
|
|
25,722 |
|
|
|
24,810 |
|
|
|
27,811 |
|
|
|
30,952 |
|
Electronic banking |
|
|
28,017 |
|
|
|
24,479 |
|
|
|
22,482 |
|
|
|
22,838 |
|
|
|
23,446 |
|
Bank owned life insurance income |
|
|
13,639 |
|
|
|
14,266 |
|
|
|
12,912 |
|
|
|
13,577 |
|
|
|
13,318 |
|
Automobile operating lease income |
|
|
12,795 |
|
|
|
13,116 |
|
|
|
13,228 |
|
|
|
13,170 |
|
|
|
11,492 |
|
Mortgage banking income (loss) |
|
|
21,435 |
|
|
|
30,827 |
|
|
|
35,418 |
|
|
|
(6,747 |
) |
|
|
10,302 |
|
Securities (losses) gains |
|
|
(2,374 |
) |
|
|
(7,340 |
) |
|
|
2,067 |
|
|
|
(127,082 |
) |
|
|
(73,790 |
) |
Other income |
|
|
41,901 |
|
|
|
57,470 |
|
|
|
18,359 |
|
|
|
17,052 |
|
|
|
37,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income |
|
$ |
256,052 |
|
|
$ |
265,945 |
|
|
$ |
239,102 |
|
|
$ |
67,099 |
|
|
$ |
167,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table details mortgage banking income and the net impact of MSR hedging activity
for each of the past five quarters:
Table 15 — Mortgage Banking Income and Net Impact of MSR Hedging
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
|
2008 |
|
| (in thousands, except as noted) |
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
Mortgage Banking Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Origination and secondary marketing |
|
$ |
16,491 |
|
|
$ |
31,782 |
|
|
$ |
29,965 |
|
|
$ |
7,180 |
|
|
$ |
7,647 |
|
Servicing fees |
|
|
12,320 |
|
|
|
12,045 |
|
|
|
11,840 |
|
|
|
11,660 |
|
|
|
11,838 |
|
Amortization of capitalized servicing (1) |
|
|
(10,050 |
) |
|
|
(14,445 |
) |
|
|
(12,285 |
) |
|
|
(6,462 |
) |
|
|
(6,234 |
) |
Other mortgage banking income |
|
|
4,109 |
|
|
|
5,381 |
|
|
|
9,404 |
|
|
|
2,959 |
|
|
|
3,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total |
|
|
22,870 |
|
|
|
34,763 |
|
|
|
38,924 |
|
|
|
15,337 |
|
|
|
16,770 |
|
MSR valuation adjustment (1) |
|
|
(17,348 |
) |
|
|
46,551 |
|
|
|
(10,389 |
) |
|
|
(63,355 |
) |
|
|
(10,251 |
) |
Net trading gains (losses) related to MSR hedging |
|
|
15,913 |
|
|
|
(50,487 |
) |
|
|
6,883 |
|
|
|
41,271 |
|
|
|
3,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage banking income (loss) |
|
$ |
21,435 |
|
|
$ |
30,827 |
|
|
$ |
35,418 |
|
|
$ |
(6,747 |
) |
|
$ |
10,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage originations (in millions) |
|
$ |
998 |
|
|
$ |
1,587 |
|
|
$ |
1,546 |
|
|
$ |
724 |
|
|
$ |
680 |
|
Average trading account securites used to hedge
MSRs (in millions) |
|
|
19 |
|
|
|
20 |
|
|
|
223 |
|
|
|
857 |
|
|
|
941 |
|
Capitalized mortgage servicing rights (2) |
|
|
200,969 |
|
|
|
219,282 |
|
|
|
167,838 |
|
|
|
167,438 |
|
|
|
230,398 |
|
Total mortgages serviced for others
(in millions)(2) |
|
|
16,145 |
|
|
|
16,246 |
|
|
|
16,315 |
|
|
|
15,754 |
|
|
|
15,741 |
|
MSR % of investor servicing portfolio |
|
|
1.24 |
% |
|
|
1.35 |
% |
|
|
1.03 |
% |
|
|
1.06 |
% |
|
|
1.46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Impact of MSR Hedging |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSR valuation adjustment (1) |
|
$ |
(17,348 |
) |
|
$ |
46,551 |
|
|
$ |
(10,389 |
) |
|
$ |
(63,355 |
) |
|
$ |
(10,251 |
) |
Net trading gains (losses) related to MSR hedging |
|
|
15,913 |
|
|
|
(50,487 |
) |
|
|
6,883 |
|
|
|
41,271 |
|
|
|
3,783 |
|
Net interest income related to MSR hedging |
|
|
191 |
|
|
|
199 |
|
|
|
2,441 |
|
|
|
9,473 |
|
|
|
8,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impact of MSR hedging |
|
$ |
(1,244 |
) |
|
$ |
(3,737 |
) |
|
$ |
(1,065 |
) |
|
$ |
(12,611 |
) |
|
$ |
1,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
The change in fair value for the period represents the MSR valuation adjustment, excluding amortization of capitalized servicing. |
| |
| (2) |
|
At period end. |
32
2009 Third Quarter versus 2008 Third Quarter
Noninterest income increased $88.2 million, or 53%, from the year-ago quarter.
Table 16 — Noninterest Income — 2009 Third Quarter vs. 2008 Third Quarter
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Third Quarter |
|
|
Change |
|
| (in thousands) |
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
Service charges on deposit accounts |
|
$ |
80,811 |
|
|
$ |
80,508 |
|
|
$ |
303 |
|
|
|
— |
% |
Brokerage and insurance income |
|
|
33,996 |
|
|
|
34,309 |
|
|
|
(313 |
) |
|
|
(1 |
) |
Trust services |
|
|
25,832 |
|
|
|
30,952 |
|
|
|
(5,120 |
) |
|
|
(17 |
) |
Electronic banking |
|
|
28,017 |
|
|
|
23,446 |
|
|
|
4,571 |
|
|
|
19 |
|
Bank owned life insurance income |
|
|
13,639 |
|
|
|
13,318 |
|
|
|
321 |
|
|
|
2 |
|
Automobile operating lease income |
|
|
12,795 |
|
|
|
11,492 |
|
|
|
1,303 |
|
|
|
11 |
|
Mortgage banking income |
|
|
21,435 |
|
|
|
10,302 |
|
|
|
11,133 |
|
|
|
N.M. |
|
Securities (losses) gains |
|
|
(2,374 |
) |
|
|
(73,790 |
) |
|
|
71,416 |
|
|
|
(97 |
) |
Other income |
|
|
41,901 |
|
|
|
37,320 |
|
|
|
4,581 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
$ |
256,052 |
|
|
$ |
167,857 |
|
|
$ |
88,195 |
|
|
|
53 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M., not a meaningful value.
The $88.2 million increase in total noninterest income reflected:
| |
• |
|
$71.4 million improvement in securities losses as the current quarter reflected a
$2.4 million loss compared with a $73.8 million loss in the year-ago quarter as that
period included a $76.6 million OTTI adjustment in the Alt-A mortgage loan-backed
securities portfolio. |
| |
| |
• |
|
$11.1 million increase in mortgage banking income, reflecting an $8.8 million
increase in origination and secondary marketing income as originations in the
current quarter were 47% higher, as well as a $5.0 million net improvement in MSR
valuation and hedging activity (see Table 15). |
| |
| |
• |
|
$4.6 million, or 19%, increase in electronic banking income including additional
third-party processing fees. |
| |
| |
• |
|
$4.6 million, or 12%, increase in other income, reflecting the current quarter’s
net impact of a $22.8 million change in fair value of our derivatives that did not
qualify for hedge accounting, partially offset by a $7.5 million loss on sale of
loans held for sale, as well as lower mezzanine lending income, equity investment
gains, and derivatives income. |
Partially offset by:
| |
• |
|
$5.1 million, or 17%, decline in trust services income, reflecting the impact of
lower market values on asset management revenues and reduced yields on money market
funds. |
2009 Third Quarter versus 2009 Second Quarter
Noninterest income decreased $9.9 million, or 4%, from the 2009 second quarter.
33
Table 17 — Noninterest Income — 2009 Third Quarter vs. 2009 Second Quarter
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Third |
|
|
Second |
|
|
|
|
| |
|
Quarter |
|
|
Quarter |
|
|
Change |
|
| (in thousands) |
|
2009 |
|
|
2009 |
|
|
Amount |
|
|
Percent |
|
Service charges on deposit
accounts |
|
$ |
80,811 |
|
|
$ |
75,353 |
|
|
$ |
5,458 |
|
|
|
7 |
% |
Brokerage and insurance income |
|
|
33,996 |
|
|
|
32,052 |
|
|
|
1,944 |
|
|
|
6 |
|
Trust services |
|
|
25,832 |
|
|
|
25,722 |
|
|
|
110 |
|
|
|
— |
|
Electronic banking |
|
|
28,017 |
|
|
|
24,479 |
|
|
|
3,538 |
|
|
|
14 |
|
Bank owned life insurance income |
|
|
13,639 |
|
|
|
14,266 |
|
|
|
(627 |
) |
|
|
(4 |
) |
Automobile operating lease
income |
|
|
12,795 |
|
|
|
13,116 |
|
|
|
(321 |
) |
|
|
(2 |
) |
Mortgage banking income |
|
|
21,435 |
|
|
|
30,827 |
|
|
|
(9,392 |
) |
|
|
(30 |
) |
Securities (losses) gains |
|
|
(2,374 |
) |
|
|
(7,340 |
) |
|
|
4,966 |
|
|
|
(68 |
) |
Other income |
|
|
41,901 |
|
|
|
57,470 |
|
|
|
(15,569 |
) |
|
|
(27 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
$ |
256,052 |
|
|
$ |
265,945 |
|
|
$ |
(9,893 |
) |
|
|
(4) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The $9.9 million decrease in total noninterest income reflected:
| |
• |
|
$15.6 million, or 27%, decline in other income, as the prior quarter included a
$31.4 million gain on the sale of Visa® stock. The current quarter
reflected a $22.8 million benefit representing the change in fair value of our
derivatives that did not qualify for hedge accounting. This benefit was partially
offset by a $7.5 million loss on commercial loans held for sale as well as other
equity investment losses. |
| |
| |
• |
|
$9.4 million, or 30%, decline in mortgage banking income, primarily reflecting a
$15.3 million decline in origination and secondary marketing income as loan
originations declined 37% from the prior quarter. This was partially offset by a
$2.5 million net improvement in MSR valuation and hedging from the prior quarter
(see Table 15). |
Partially offset by:
| |
• |
|
$5.5 million, or 7%, increase in service charges on deposit accounts, primarily
reflecting seasonally higher personal service charges, mostly nonsufficient funds
and overdraft related, as well as account growth. |
| |
| |
• |
|
$5.0 million decline in securities losses as the current quarter reflected a $2.4
million loss compared with a $7.3 million loss in the prior quarter. |
| |
| |
• |
|
$3.5 million, or 14%, increase in electronic banking income including additional
third-party processing fees. |
34
2009 First Nine Months versus 2008 First Nine Months
The following table reflects noninterest income for the first nine-month periods of 2009 and
2008:
Table 18 — Noninterest Income — 2009 First Nine Months vs. 2008 First Nine Months
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended |
|
|
|
|
| |
|
September 30, |
|
|
Change |
|
| (in thousands) |
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
Service charges on deposit accounts |
|
$ |
226,042 |
|
|
$ |
232,806 |
|
|
$ |
(6,764 |
) |
|
|
(3) |
% |
Brokerage and insurance income |
|
|
105,996 |
|
|
|
106,563 |
|
|
|
(567 |
) |
|
|
(1 |
) |
Trust services |
|
|
76,364 |
|
|
|
98,169 |
|
|
|
(21,805 |
) |
|
|
(22 |
) |
Electronic banking |
|
|
74,978 |
|
|
|
67,429 |
|
|
|
7,549 |
|
|
|
11 |
|
Bank owned life insurance income |
|
|
40,817 |
|
|
|
41,199 |
|
|
|
(382 |
) |
|
|
(1 |
) |
Automobile operating lease income |
|
|
39,139 |
|
|
|
26,681 |
|
|
|
12,458 |
|
|
|
47 |
|
Mortgage banking income |
|
|
87,680 |
|
|
|
15,741 |
|
|
|
71,939 |
|
|
|
N.M. |
|
Securities (losses) gains |
|
|
(7,647 |
) |
|
|
(70,288 |
) |
|
|
62,641 |
|
|
|
N.M. |
|
Other income |
|
|
117,730 |
|
|
|
121,739 |
|
|
|
(4,009 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
$ |
761,099 |
|
|
$ |
640,039 |
|
|
$ |
121,060 |
|
|
|
19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M., not a meaningful value.
35
The following table details mortgage banking income and the net impact of MSR hedging activity
for the first nine-month periods of 2009 and 2008:
Table 19 — Mortgage Banking Income and Net Impact of MSR Hedging
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended |
|
|
|
|
| |
|
September 30, |
|
|
YTD 2009 vs 2008 |
|
| (in thousands, except as noted) |
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
Mortgage Banking Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Origination and secondary marketing |
|
$ |
78,238 |
|
|
$ |
30,077 |
|
|
$ |
48,161 |
|
|
|
N.M. |
% |
Servicing fees |
|
|
36,205 |
|
|
|
33,898 |
|
|
|
2,307 |
|
|
|
7 |
|
Amortization of capitalized servicing (1) |
|
|
(36,780 |
) |
|
|
(20,172 |
) |
|
|
(16,608 |
) |
|
|
(82 |
) |
Other mortgage banking income |
|
|
18,894 |
|
|
|
13,809 |
|
|
|
5,085 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total |
|
|
96,557 |
|
|
|
57,612 |
|
|
|
38,945 |
|
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSR valuation adjustment (1) |
|
|
18,814 |
|
|
|
10,687 |
|
|
|
8,127 |
|
|
|
76 |
|
Net trading losses related to MSR hedging |
|
|
(27,691 |
) |
|
|
(52,558 |
) |
|
|
24,867 |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage banking income |
|
$ |
87,680 |
|
|
$ |
15,741 |
|
|
$ |
71,939 |
|
|
|
N.M. |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage originations (in millions) |
|
$ |
4,131 |
|
|
|
3,049 |
|
|
$ |
1,082 |
|
|
|
35 |
% |
Average trading account securites used to hedge
MSRs (in millions) |
|
|
87 |
|
|
|
1,089 |
|
|
|
(1,002 |
) |
|
|
(92 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized mortgage servicing rights (2) |
|
$ |
200,969 |
|
|
$ |
230,398 |
|
|
|
(29,429 |
) |
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgages serviced for others (2) (in
millions) |
|
|
16,145 |
|
|
|
15,741 |
|
|
|
404 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSR % of investor servicing portfolio |
|
|
1.24 |
% |
|
|
1.46 |
% |
|
|
(0.22) |
% |
|
|
(15) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Impact of MSR Hedging |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSR valuation adjustment (1) |
|
$ |
18,814 |
|
|
$ |
10,687 |
|
|
$ |
8,127 |
|
|
|
76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net trading losses related to MSR hedging |
|
|
(27,691 |
) |
|
|
(52,558 |
) |
|
|
24,867 |
|
|
|
(47 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income related to MSR hedging |
|
|
2,831 |
|
|
|
23,666 |
|
|
|
(20,835 |
) |
|
|
(88 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impact of MSR hedging |
|
$ |
(6,046 |
) |
|
$ |
(18,205 |
) |
|
$ |
12,159 |
|
|
|
(67) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M., not a meaningful value.
| |
|
|
| (1) |
|
The change in fair value for the period represents the MSR valuation adjustment, excluding amortization of capitalized servicing. |
| |
| (2) |
|
At period end. |
The $121.1 million, or 19%, increase in total noninterest income reflected:
| |
• |
|
$71.9 million increase in mortgage banking income, reflecting a $48.2 million
increase in origination and secondary marketing income as loans sales and loan
originations were substantially higher, and a $33.0 million improvement in MSR hedging
(see Table 19). |
| |
| |
• |
|
$62.6 million improvement in securities losses as the first nine-month period of
2008 included $76.6 million of OTTI adjustments compared with $42.1 million of OTTI
adjustments during the 2009 first nine-month
period. |
| |
| |
• |
|
$12.5 million increase in automobile operating lease income, reflecting a 40%
increase in average operating lease balances as lease originations since the 2007
fourth quarter were recorded as operating leases. All automobile lease originations
were discontinued in the 2008 fourth quarter. |
| |
| |
• |
|
$7.5 million increase in electronic banking, reflecting increased transaction
volumes and additional third-party processing fees. |
Partially offset by:
| |
• |
|
$6.8 million decline in service charges on deposit account, reflecting lower
consumer NSF and overdraft fees, partially offset by higher commercial service charges. |
36
| |
• |
|
$4.0 million decline in other income, reflecting a $25.1 million gain in the first
nine-month period of 2008 reflecting the sale of a portion of our Visa®
stock, a $16.9 million decline customer derivatives revenue from the comparable
year-ago period, and a $7.5 million loss on sale of loans held-for-sale during the
first nine-month period of 2009. These unfavorable impacts were partially offset by a
$31.4 million gain in the first nine-month period of 2009 reflecting the sale of our
remaining Visa® stock, and the net impact of a $22.8 million change in fair
value of derivatives that did not qualify for hedge accounting. |
Noninterest Expense
(This section should be read in conjunction with Significant Items 1, 4, and 5.)
The following table reflects noninterest expense for each of the past five quarters:
Table 20 — Noninterest Expense
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
|
2008 |
|
| (in thousands) |
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
Personnel costs |
|
|
172,152 |
|
|
$ |
171,735 |
|
|
$ |
175,932 |
|
|
$ |
196,785 |
|
|
$ |
184,827 |
|
Outside data processing and other services |
|
|
37,999 |
|
|
|
39,266 |
|
|
|
32,432 |
|
|
|
31,230 |
|
|
|
32,386 |
|
Net occupancy |
|
|
25,382 |
|
|
|
24,430 |
|
|
|
29,188 |
|
|
|
22,999 |
|
|
|
25,215 |
|
OREO and foreclosure expense |
|
|
38,968 |
|
|
|
26,524 |
|
|
|
9,887 |
|
|
|
8,171 |
|
|
|
9,113 |
|
Equipment |
|
|
20,967 |
|
|
|
21,286 |
|
|
|
20,410 |
|
|
|
22,329 |
|
|
|
22,102 |
|
Amortization of intangibles |
|
|
16,995 |
|
|
|
17,117 |
|
|
|
17,135 |
|
|
|
19,187 |
|
|
|
19,463 |
|
Professional services |
|
|
18,108 |
|
|
|
16,658 |
|
|
|
16,454 |
|
|
|
16,430 |
|
|
|
12,234 |
|
Marketing |
|
|
8,259 |
|
|
|
7,491 |
|
|
|
8,225 |
|
|
|
9,357 |
|
|
|
7,049 |
|
Automobile operating lease expense |
|
|
10,589 |
|
|
|
11,400 |
|
|
|
10,931 |
|
|
|
10,483 |
|
|
|
9,093 |
|
Telecommunications |
|
|
5,902 |
|
|
|
6,088 |
|
|
|
5,890 |
|
|
|
5,892 |
|
|
|
6,007 |
|
Printing and supplies |
|
|
3,950 |
|
|
|
4,151 |
|
|
|
3,572 |
|
|
|
4,175 |
|
|
|
4,316 |
|
Goodwill impairment |
|
|
— |
|
|
|
4,231 |
|
|
|
2,602,713 |
|
|
|
— |
|
|
|
— |
|
Other expense |
|
|
41,826 |
|
|
|
(10,395 |
) |
|
|
37,000 |
|
|
|
43,056 |
|
|
|
7,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
$ |
401,097 |
|
|
$ |
339,982 |
|
|
$ |
2,969,769 |
|
|
$ |
390,094 |
|
|
$ |
338,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of employees (full-time equivalent),
at period-end |
|
|
10,194 |
|
|
|
10,342 |
|
|
|
10,540 |
|
|
|
10,951 |
|
|
|
10,901 |
|
37
2009 Third Quarter versus 2008 Third Quarter
Noninterest expense increased $62.1 million, or 18%, from the year-ago quarter.
Table 21 — Noninterest Expense — 2009 Third Quarter vs. 2008 Third Quarter
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Third |
|
|
Third |
|
|
|
|
| |
|
Quarter |
|
|
Quarter |
|
|
Change |
|
| (in thousands) |
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
Personnel costs |
|
$ |
172,152 |
|
|
$ |
184,827 |
|
|
$ |
(12,675 |
) |
|
|
(7) |
% |
Outside data processing and other services |
|
|
37,999 |
|
|
|
32,386 |
|
|
|
5,613 |
|
|
|
17 |
|
Net occupancy |
|
|
25,382 |
|
|
|
25,215 |
|
|
|
167 |
|
|
|
1 |
|
OREO and foreclosure expense |
|
|
38,968 |
|
|
|
9,113 |
|
|
|
29,855 |
|
|
|
N.M. |
|
Equipment |
|
|
20,967 |
|
|
|
22,102 |
|
|
|
(1,135 |
) |
|
|
(5 |
) |
Amortization of intangibles |
|
|
16,995 |
|
|
|
19,463 |
|
|
|
(2,468 |
) |
|
|
(13 |
) |
Professional services |
|
|
18,108 |
|
|
|
12,234 |
|
|
|
5,874 |
|
|
|
48 |
|
Marketing |
|
|
8,259 |
|
|
|
7,049 |
|
|
|
1,210 |
|
|
|
17 |
|
Automobile operating lease expense |
|
|
10,589 |
|
|
|
9,093 |
|
|
|
1,496 |
|
|
|
16 |
|
Telecommunications |
|
|
5,902 |
|
|
|
6,007 |
|
|
|
(105 |
) |
|
|
(2 |
) |
Printing and supplies |
|
|
3,950 |
|
|
|
4,316 |
|
|
|
(366 |
) |
|
|
(8 |
) |
Other expense |
|
|
41,826 |
|
|
|
7,191 |
|
|
|
34,635 |
|
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
$ |
401,097 |
|
|
$ |
338,996 |
|
|
$ |
62,101 |
|
|
|
18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full-time equivalent employees, at
period-end |
|
|
10,194 |
|
|
|
10,901 |
|
|
|
(707 |
) |
|
|
(6) |
% |
N.M., not a meaningful value.
The $62.1 million increase reflected:
| |
• |
|
$34.6 million increase in other expense, reflecting a $19.8 million increase in
FDIC insurance expenses as the prior period’s assessment expense was offset by an
assessment credit that has since been fully utilized. In addition, the year-ago
quarter included a $21.4 million reduction to expense as a result of a gain on the
debt extinguishment. |
| |
| |
• |
|
$29.9 million increase in OREO and foreclosure expense, reflecting higher levels
of problem assets, as well as loss mitigation activities. |
| |
| |
• |
|
$5.9 million, or 48%, increase in professional services, reflecting higher
consulting and collection-related expenses. |
| |
| |
• |
|
$5.6 million, or 17%, increase in outside data processing and other services,
primarily reflecting portfolio servicing fees now paid to Franklin resulting from
the 2009 first quarter restructuring of this relationship. |
Partially offset by:
| |
• |
|
$12.7 million, or 7%, decline in personnel costs, reflecting a decline in
salaries and lower benefits and commission expense. Full-time equivalent staff
declined 6% from the year-ago period. |
| |
| |
• |
|
$2.5 million, or 13%, decline in amortization of intangibles expense. |
38
2009 Third Quarter versus 2009 Second Quarter
Noninterest expense increased $61.1 million, or 18%, from the 2009 second quarter.
Table 22 — Noninterest Expense — 2009 Third Quarter vs. 2009 Second Quarter
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Third |
|
|
Second |
|
|
|
|
| |
|
Quarter |
|
|
Quarter |
|
|
Change |
|
| (in thousands) |
|
2009 |
|
|
2009 |
|
|
Amount |
|
|
Percent |
|
Personnel costs |
|
$ |
172,152 |
|
|
$ |
171,735 |
|
|
$ |
417 |
|
|
|
— |
% |
Outside data processing and other services |
|
|
37,999 |
|
|
|
39,266 |
|
|
|
(1,267 |
) |
|
|
(3 |
) |
Net occupancy |
|
|
25,382 |
|
|
|
24,430 |
|
|
|
952 |
|
|
|
4 |
|
OREO and foreclosure expense |
|
|
38,968 |
|
|
|
26,524 |
|
|
|
12,444 |
|
|
|
47 |
|
Equipment |
|
|
20,967 |
|
|
|
21,286 |
|
|
|
(319 |
) |
|
|
(1 |
) |
Amortization of intangibles |
|
|
16,995 |
|
|
|
17,117 |
|
|
|
(122 |
) |
|
|
(1 |
) |
Professional services |
|
|
18,108 |
|
|
|
16,658 |
|
|
|
1,450 |
|
|
|
9 |
|
Marketing |
|
|
8,259 |
|
|
|
7,491 |
|
|
|
768 |
|
|
|
10 |
|
Automobile operating lease expense |
|
|
10,589 |
|
|
|
11,400 |
|
|
|
(811 |
) |
|
|
(7 |
) |
Telecommunications |
|
|
5,902 |
|
|
|
6,088 |
|
|
|
(186 |
) |
|
|
(3 |
) |
Printing and supplies |
|
|
3,950 |
|
|
|
4,151 |
|
|
|
(201 |
) |
|
|
(5 |
) |
Goodwill impairment |
|
|
— |
|
|
|
4,231 |
|
|
|
(4,231 |
) |
|
|
— |
|
Other expense |
|
|
41,826 |
|
|
|
(10,395 |
) |
|
|
52,221 |
|
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
$ |
401,097 |
|
|
$ |
339,982 |
|
|
$ |
61,115 |
|
|
|
18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full-time equivalent employees, at
period-end |
|
|
10,194 |
|
|
|
10,342 |
|
|
|
(148 |
) |
|
|
(1) |
% |
N.M., not a meaningful value.
The $61.1 million increase in noninterest expense reflected:
| |
• |
|
$52.2 million increase in other expense, reflecting the reduction of the prior
quarter’s expense by a $67.4 gain on the redemption of a portion of our junior
subordinated debt, partially offset by a reduction in FDIC insurance expense as the
prior quarter included a $23.6 million special assessment. |
| |
| |
• |
|
$12.4 million, or 47%, increase in OREO and foreclosure expense, reflecting
higher levels of problem assets, as well as loss mitigation activities. The current
quarter included a $14.3 million charge related to one CRE retail OREO property. |
39
2009 First Nine Months versus 2008 First Nine Months
Noninterest expense for the first nine-month period of 2009 increased $2.6 billion from the
comparable year-ago period.
Table 23 — Noninterest Expense — 2009 First Nine Months vs. 2008 First Nine Months
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended |
|
|
|
|
| |
|
September 30, |
|
|
Change |
|
| (in thousands) |
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
Personnel costs |
|
$ |
519,819 |
|
|
$ |
586,761 |
|
|
$ |
(66,942 |
) |
|
|
(11 |
)% |
Outside data processing and other services |
|
|
109,697 |
|
|
|
96,933 |
|
|
|
12,764 |
|
|
|
13 |
|
Net occupancy |
|
|
79,000 |
|
|
|
85,429 |
|
|
|
(6,429 |
) |
|
|
(8 |
) |
OREO and foreclosure expense |
|
|
75,379 |
|
|
|
25,284 |
|
|
|
50,095 |
|
|
|
N.M. |
|
Equipment |
|
|
62,663 |
|
|
|
71,636 |
|
|
|
(8,973 |
) |
|
|
(13 |
) |
Amortization of intangibles |
|
|
51,247 |
|
|
|
57,707 |
|
|
|
(6,460 |
) |
|
|
(11 |
) |
Professional services |
|
|
51,220 |
|
|
|
33,183 |
|
|
|
18,037 |
|
|
|
54 |
|
Marketing |
|
|
23,975 |
|
|
|
23,307 |
|
|
|
668 |
|
|
|
3 |
|
Automobile operating lease expense |
|
|
32,920 |
|
|
|
20,799 |
|
|
|
12,121 |
|
|
|
58 |
|
Telecommunications |
|
|
17,880 |
|
|
|
19,116 |
|
|
|
(1,236 |
) |
|
|
(6 |
) |
Printing and supplies |
|
|
11,673 |
|
|
|
14,695 |
|
|
|
(3,022 |
) |
|
|
(21 |
) |
Goodwill impairment |
|
|
2,606,944 |
|
|
|
— |
|
|
|
2,606,944 |
|
|
|
— |
|
Other expense |
|
|
68,431 |
|
|
|
52,430 |
|
|
|
16,001 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
$ |
3,710,848 |
|
|
$ |
1,087,280 |
|
|
$ |
2,623,568 |
|
|
|
N.M. |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of employees
(full-time equivalent),
at period-end |
|
|
10,194 |
|
|
|
10,901 |
|
|
|
(707 |
) |
|
|
(6 |
) |
N.M., not a meaningful value
The $2,623.6 million increase in total noninterest expense reflected:
| |
• |
|
$2,606.9 million of goodwill impairment recorded in 2009. The majority of the
goodwill impairment, $2,602.7 million, was recorded during the 2009 first quarter. The
remaining $4.2 million of goodwill impairment was recorded in the 2009 second quarter,
and was related to the sale of a small payments-related business in July 2009. (See
“Goodwill” discussion located within the Critical Account Policies and Use of
Significant Estimates” for additional information). |
| |
| |
• |
|
$50.1 million increase in OREO and foreclosure expense, reflecting higher levels of
problem assets, as well as loss mitigation activities. |
| |
| |
• |
|
$18.0 million increase in professional services, reflecting higher consulting and
collection-related expenses. |
| |
| |
• |
|
$16.0 million, or 31%, increase in other expense. The primary factors contributing
to the increase are shown below: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended |
|
|
|
|
| |
|
September 30, |
|
|
|
|
| (in millions) |
|
2009 |
|
|
2008 |
|
|
Change |
|
Total other noninterest expense |
|
$ |
68.4 |
|
|
$ |
52.4 |
|
|
$ |
16.0 |
|
Primary factors contributing to increase: |
|
|
|
|
|
|
|
|
|
|
|
|
Gain on redemption of junior subordinated debt |
|
|
(67.4 |
) |
|
|
— |
|
|
|
(67.4 |
) |
Decline in non-deposit insurance expense |
|
|
(10.0 |
) |
|
|
— |
|
|
|
(10.0 |
) |
Increase in deposit insurance expense |
|
|
76.2 |
|
|
|
— |
|
|
|
76.2 |
|
Gain on extinguishment of debt |
|
|
— |
|
|
|
(21.4 |
) |
|
|
21.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other noninterest expense, after adjusting for
primary factors contributing to increase |
|
$ |
69.6 |
|
|
$ |
73.8 |
|
|
$ |
(4.2 |
) |
|
|
|
|
|
|
|
|
|
|
| |
|
|
The increase of $76.2 million in deposit insurance expense was comprised of two
components: (a) $23.6 million FDIC special assessment during the 2009 second quarter,
and (b) $52.6 million increase primarily related to our 2008 FDIC assessments being
significantly reduced by a nonrecurring deposit assessment credit provided by the FDIC
that was depleted during the 2008 fourth quarter. This deposit insurance credit offset
substantially all of our assessment in the first nine-month period of 2008. |
40
| |
|
|
Also, several other expense categories, such as travel expense, declined as a result of
the implementation of expense reduction initiatives. |
| |
| |
• |
|
$12.8 million increase in outside data processing and other services, primarily
reflecting portfolio servicing fees paid to Franklin resulting from the 2009 first
quarter restructuring of this relationship. |
| |
| |
• |
|
$12.1 million increase in automobile operating lease expense, primarily reflecting
the 40% increase in average operating leases discussed previously. |
Partially offset by:
| |
• |
|
$66.9 million decline in personnel expense, reflecting a decline in salaries, and
lower benefits and commission expense. Full-time equivalent staff declined 6% from the
comparable year-ago period. |
| |
| |
• |
|
$9.0 million decline in equipment costs, reflecting lower depreciation costs, as
well as lower repair and maintenance costs. |
Provision for Income Taxes
(This section should be read in conjunction with Significant Items 2 and 4.)
The provision for income taxes in the 2009 third quarter was a benefit of $91.2 million,
resulting in an effective tax rate benefit of 35.4%. This compared with a tax benefit of $12.7
million in the 2009 second quarter and a tax expense of $17.0 million in the 2008 third quarter.
The effective tax rates in the prior quarter and year-ago quarters were a benefit of 9.2% and an
expense of 18.5 %, respectively. The effective tax rate for the first nine-month period of 2009 was
a benefit of 11.5% compared with an expense of 18.7% for the first nine-month period of 2008. As of
September 30, 2009, a net deferred tax asset of $297.1 million was recorded. There was no
impairment to the deferred tax asset as a result of carryback capacity and projected taxable
income.
In the ordinary course of business, we operate in various taxing jurisdictions and are subject
to income and nonincome taxes. Also, we are subject to ongoing tax examinations in various
jurisdictions. During the 2009 second quarter, the State of Ohio completed the audit of our 2001,
2002, and 2003 corporate franchise tax returns. During 2008, the IRS completed the audit of our
consolidated federal income tax returns for tax years 2004 and 2005. In addition, we are subject to
ongoing tax examinations in various other state and local jurisdictions. Both the IRS and various
state tax officials have proposed adjustments to our previously filed tax returns. We believe that
the tax positions taken by us related to such proposed adjustments were correct and supported by
applicable statutes, regulations, and judicial authority, and intend to vigorously defend them. It
is possible that the ultimate resolution of the proposed adjustments, if unfavorable, may be
material to the results of operations in the period it occurs. However, although no assurances can
be given, we believe that the resolution of these examinations will not, individually or in the
aggregate, have a material adverse impact on our consolidated financial position.
We account for uncertainties in income taxes in accordance with ASC 740, “Income Taxes”. At
September 30, 2009 we had a gross unrecognized tax benefit of $10.8 million in income tax liability
related to tax positions taken in prior periods. This balance includes $7.0 million of unrecognized
tax benefits that would impact the effective tax rate, if recognized. Due to the complexity of some
of these uncertainties, the
ultimate resolution may result in a payment that is materially different from our current
estimate of the tax liabilities. However, any ultimate settlement is not expected to be material to
the financial statements as a whole. Our policy is to recognize interest and penalties, if any,
related to unrecognized tax benefits in the provision for income taxes. Accrued interest and
penalties are included within the related tax liability line in the consolidated balance sheet. It
is possible that the amount of the liability for unrecognized tax benefits under examination could
change during the next 12 months. An estimate of the range of the possible change cannot be made at
this time.
41
RISK MANAGEMENT AND CAPITAL
Risk identification and monitoring are key elements in overall risk management. We believe our
primary risk exposures are credit, market, liquidity, and operational risk. We hold capital
proportionately against these risks. More information on risk can be found under the heading “Risk
Factors” included in Item 1A of our 2008 Form 10-K, and subsequent filings with the SEC.
Additionally, the MD&A, included as an exhibit to our 2008 Form 10-K, should be read in conjunction
with this MD&A as this report provides only material updates to the 2008 Form 10-K. Our definition,
philosophy, and approach to risk management are unchanged from the discussion presented in the 2008
Form 10-K.
Credit Risk
Credit risk is the risk of loss due to our counterparties not being able to meet their
financial obligations under agreed upon terms. The majority of our credit risk is associated with
lending activities, as the acceptance and management of credit risk is central to profitable
lending. We also have credit risk associated with our investment and derivatives activities. Credit
risk is incidental to trading activities and represents a significant risk that is associated with
our investment securities portfolio (see “Investment Securities Portfolio” discussion). Credit risk
is mitigated through a combination of credit policies and processes, market risk management
activities, and portfolio diversification.
Credit Exposure Mix
As shown in Table 24, at September 30, 2009, commercial loans totaled $21.3 billion, and
represented 57% of our total credit exposure. This portfolio was diversified between C&I and CRE
loans (see “Commercial Credit” discussion).
Total consumer loans were $16.0 billion at September 30, 2009, and represented 43% of our
total credit exposure. The consumer portfolio included home equity loans and lines of credit,
residential mortgages, and automobile loans and leases (see “Consumer Credit” discussion).
42
Table 24 — Loans and Leases Composition
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
|
2008 |
|
| (in millions) |
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Type |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial (2) |
|
$ |
12,547 |
|
|
|
34 |
% |
|
$ |
13,320 |
|
|
|
35 |
% |
|
$ |
13,768 |
|
|
|
35 |
% |
|
$ |
13,541 |
|
|
|
33 |
% |
|
$ |
13,638 |
|
|
|
33 |
% |
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
1,815 |
|
|
|
5 |
|
|
|
1,857 |
|
|
|
5 |
|
|
|
2,074 |
|
|
|
5 |
|
|
|
2,080 |
|
|
|
5 |
|
|
|
2,111 |
|
|
|
5 |
|
Commercial (2) |
|
|
6,900 |
|
|
|
19 |
|
|
|
7,089 |
|
|
|
18 |
|
|
|
7,187 |
|
|
|
18 |
|
|
|
8,018 |
|
|
|
20 |
|
|
|
7,796 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
8,715 |
|
|
|
23 |
|
|
|
8,946 |
|
|
|
23 |
|
|
|
9,261 |
|
|
|
23 |
|
|
|
10,098 |
|
|
|
25 |
|
|
|
9,907 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial |
|
|
21,262 |
|
|
|
57 |
|
|
|
22,266 |
|
|
|
58 |
|
|
|
23,029 |
|
|
|
58 |
|
|
|
23,639 |
|
|
|
58 |
|
|
|
23,545 |
|
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans (3) |
|
|
2,939 |
|
|
|
8 |
|
|
|
2,855 |
|
|
|
7 |
|
|
|
2,894 |
|
|
|
7 |
|
|
|
3,901 |
|
|
|
10 |
|
|
|
3,918 |
|
|
|
10 |
|
Automobile leases |
|
|
309 |
|
|
|
1 |
|
|
|
383 |
|
|
|
1 |
|
|
|
468 |
|
|
|
1 |
|
|
|
563 |
|
|
|
1 |
|
|
|
698 |
|
|
|
2 |
|
Home equity |
|
|
7,576 |
|
|
|
20 |
|
|
|
7,631 |
|
|
|
20 |
|
|
|
7,663 |
|
|
|
19 |
|
|
|
7,556 |
|
|
|
18 |
|
|
|
7,497 |
|
|
|
18 |
|
Residential mortgage |
|
|
4,468 |
|
|
|
12 |
|
|
|
4,646 |
|
|
|
12 |
|
|
|
4,837 |
|
|
|
12 |
|
|
|
4,761 |
|
|
|
12 |
|
|
|
4,854 |
|
|
|
12 |
|
Other loans |
|
|
750 |
|
|
|
2 |
|
|
|
714 |
|
|
|
2 |
|
|
|
657 |
|
|
|
2 |
|
|
|
672 |
|
|
|
2 |
|
|
|
680 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
16,042 |
|
|
|
43 |
|
|
|
16,229 |
|
|
|
42 |
|
|
|
16,519 |
|
|
|
42 |
|
|
|
17,453 |
|
|
|
42 |
|
|
|
17,647 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
$ |
37,304 |
|
|
|
100 |
% |
|
$ |
38,495 |
|
|
|
100 |
% |
|
$ |
39,548 |
|
|
|
100 |
% |
|
$ |
41,092 |
|
|
|
100 |
|
|
$ |
41,192 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
There were no commercial loans outstanding that would be considered a concentration of lending to a particular group of industries. |
| |
| (2) |
|
The 2009 first quarter reflected a net reclassification of $782.2 million from commercial real estate to commercial and industrial. |
| |
| (3) |
|
The decrease from December 31, 2008, to March 31, 2009, reflected a $1.0 billion automobile loan sale during the 2009 first quarter. |
43
Franklin relationship
(This section should be read in conjunction with Significant Item 2 and the “Franklin Loans
Restructuring Transaction” discussion located within the “Critical Accounting Policies and Use of
Significant Estimates” section.)
As a result of the March 31, 2009, restructuring, on a consolidated basis, the $650.2 million
nonaccrual commercial loan to Franklin at December 31, 2008, is no longer reported. Instead, we now
report the loans secured by first- and second- mortgages on residential properties and OREO
properties, both of which had previously been assets of Franklin or its subsidiaries and were
pledged to secure our loan to Franklin. At the time of the restructuring, the loans had a fair
value of $493.6 million and the OREO properties had a fair value of $79.6 million. As a result,
NALs declined by a net amount of $284.1 million as there were $650.2 million commercial NALs
outstanding related to Franklin, and $366.1 million mortgage-related NALs outstanding, representing
first- and second- lien mortgages that were nonaccruing at March 31, 2009. Also, our specific ALLL
for the Franklin portfolio of $130.0 million was eliminated; however, no initial increase to the
ALLL relating to the acquired mortgages was recorded as these assets were recorded at fair value.
The following table summarizes the Franklin-related balances for accruing loans, NALs, and
OREO since the restructuring:
Table 25 — Franklin-related Loan and OREO Balances
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
| (in millions) |
|
September 30 |
|
|
June 30 |
|
|
March 31 |
|
Total accruing loans |
|
|
126.7 |
|
|
|
127.4 |
|
|
|
127.4 |
|
Total nonaccruing loans |
|
|
338.5 |
|
|
|
344.6 |
|
|
|
366.1 |
|
|
|
|
|
|
|
|
|
|
|
Total Loans |
|
|
465.2 |
|
|
|
472.0 |
|
|
|
493.5 |
|
OREO |
|
|
31.0 |
|
|
|
43.6 |
|
|
|
79.6 |
|
|
|
|
|
|
|
|
|
|
|
Total Franklin Loans and OREO |
|
$ |
496.2 |
|
|
$ |
515.6 |
|
|
$ |
573.1 |
|
|
|
|
|
|
|
|
|
|
|
The changes in the Franklin-related balances since the restructuring have been a result of the
collection strategies utilized, and have been consistent with our expectations based on the
restructuring agreement. The reduction in the June 30, 2009, balances, compared with March 31,
2009, balances, was significantly impacted by refinance activity. Refinance activity slowed during
the 2009 third quarter, and did not have as significant of an impact in reducing the balances. The
principal and interest collections associated with the loans remained consistent with expectations.
The OREO balances have declined significantly as a direct result of a focused effort to sell the
properties.
Commercial Credit
The primary factors considered in commercial credit approvals are the financial strength of
the borrower, assessment of the borrower’s management capabilities, industry sector trends, type of
exposure, transaction structure, and the general economic outlook.
In commercial lending, ongoing credit management is dependent upon the type and nature of the
loan. We monitor all significant exposures on a regular basis. Internal risk ratings are assigned
at the time of each loan approval, and are assessed and updated with each monitoring event. The
frequency of the monitoring event is dependent upon the size and complexity of the individual
credit, but in no case less frequently than every 12 months. There is also extensive macro
portfolio management analysis conducted to identify performance trends or specific portions of the
overall portfolio that may need additional monitoring activity. The single family home builder
portfolio and retail projects are examples of segments of the portfolio that have received more
frequent evaluation at the loan level as a result of the economic
environment and performance trends (see “Single Family Home Builder” and “Retail Properties”
discussions). We continually review and adjust our risk rating criteria and rating determination
process based on actual experience. This review and analysis process results in a determination of
an appropriate ALLL amount for our commercial loan portfolio.
Our commercial loan portfolio is primarily comprised of the following:
Commercial and Industrial (C&I) loans — C&I loans represent loans to commercial customers for
use in normal business operations to finance working capital needs, equipment purchases, or other
projects. The vast majority of these borrowers are commercial customers doing business within our
geographic regions. C&I loans are generally underwritten
44
individually and usually secured with the
assets of the company and/or the personal guarantee of the business owners. The financing of
owner-occupied facilities is considered a C&I loan even though there is improved real estate as
collateral. This treatment is a function of the underwriting process, which focuses on cash flow
from operations to repay the debt. The operation or sale of the real estate is not considered a
repayment source for the loan.
Commercial real estate (CRE) loans — CRE loans consist of loans for income producing real
estate properties. We mitigate our risk on these loans by requiring collateral values that exceed
the loan amount and underwriting the loan with cash flow substantially in excess of the debt
service requirement. These loans are made to finance properties such as apartment buildings, office
and industrial buildings, and retail shopping centers; and are repaid through cash flows related to
the operation, sale, or refinance of the property.
Construction CRE loans — Construction CRE loans are loans to individuals, companies, or
developers used for the construction of a commercial property for which repayment will be generated
by the sale or permanent financing of the property. A significant portion of our construction CRE
portfolio consists of residential product types (land, single family, and condominium loans) within
our regions, and to a lesser degree, retail and multi-family projects. Generally, these loans are
for construction projects that have been presold, preleased, or otherwise have secured permanent
financing, as well as loans to real estate companies that have significant equity invested in each
project. These loans are generally underwritten and managed by a specialized real estate group that
actively monitors the construction phase and manages the loan disbursements according to the
predetermined construction schedule.
COMMERCIAL LOAN PORTFOLIO REVIEWS AND ACTIONS
In the 2009 first quarter, we restructured our commercial loan relationship with Franklin by
taking control of the underlying mortgage loan collateral, and transferring the exposure to the
consumer loan portfolio as first- and second- lien loans to individuals secured by residential real
estate properties. (See “Franklin Loans Restructuring Transaction” located within the “Critical
Accounting Policies and Use of Significant Estimates” section). We also proactively completed a
concentrated review of our single family home builder and retail CRE loan portfolio segments, our
CRE portfolio’s two highest risk segments. We now review the “criticized” portion of these
portfolios on a monthly basis. The increased review activity resulted in more pro-active decisions
on nonaccrual status, reserve levels, and charge-offs in the 2009 second and third quarters. This
heightened level of portfolio monitoring is ongoing.
During the 2009 second quarter, we updated our evaluation of every “noncriticized” commercial
relationship with an aggregate exposure of over $500,000. This review included C&I, CRE, and
business banking loans and encompassed $13.2 billion of total commercial loans, and $18.8 billion
in related commitments.
This was a detailed, labor-intensive process designed to enhance our understanding of each
borrower’s financial position, and to ensure that this understanding was accurately reflected in
our internal risk rating system. Our objective was to identify current and potential credit risks
across the portfolio consistent with our expectation that the economy in our markets will not
improve before the end of this year.
Our activity in the 2009 third quarter represented a continuation of the portfolio management
processes established in the first two quarters of 2009. We continue to fully assess our criticized
loans over $500,000
on a monthly basis, and have maintained the discipline associated with the ongoing
“noncriticized” review process established in the 2009 second quarter. In many cases, we have
directly contacted the borrower and obtained the most recent financial information available,
including interim financial results. In addition, we discussed the impact of the economic
environment on the future direction of their company, industry prospects, collateral values, and
other borrower-specific information.
In addition, with respect to our commercial loan exposure to automobile dealers, we have had
an ongoing review process in place for some time now. Our automobile dealer commercial loan
portfolio is predominantly comprised of larger, “well-capitalized”, multi-franchised dealer groups
underwritten to conservative credit standards. These dealer groups have largely remained profitable
on a consolidated basis due to franchise diversity and a shift of sales emphasis to higher-margin,
used vehicles, as well as a focus on the service department. Additionally, our portfolio is closely
monitored through receipt and review of monthly dealer financial statements and ongoing floor plan
inventory audits, which allow for rapid response to weakening trends. As a result, we have not
experienced any significant deterioration in the credit quality of our automobile dealer commercial
loan portfolio and remain comfortable with our expectation of no material losses, even given the
substantial stress associated with our dealership closings announced by Chrysler and GM. The more
recent announcement regarding the Saturn dealerships also has had no impact on our view of the
portfolio. (See “Automobile Industry” section located within the “Commercial and Industrial
Portfolio” section for additional information.)
45
In summary, we have established an ongoing portfolio management process involving each
business segment, providing an improved view of emerging risk issues at a borrower level, enhanced
ongoing monitoring capabilities, and strengthened actions and timeliness to mitigate emerging loan
risks. Given our stated view of continued economic weakness for the foreseeable future, we
anticipate some level of additional negative credit migration. While we can give no assurances
given market uncertainties, we believe that as a result of our increased portfolio management
actions, a portfolio management process involving each business segment, an improved view of
emerging risk issues at the borrower level, enhanced ongoing monitoring capabilities, and
strengthened borrower-level loan structures, any future migration will be manageable.
Our commercial loan portfolio, including CRE loans, is diversified by customer size, as well
as throughout our geographic footprint. Certain segments of our commercial loan portfolio are
discussed in further detail below:
COMMERCIAL AND INDUSTRIAL (C&I) PORTFOLIO
The C&I portfolio is comprised of loans to businesses where the source of repayment is
associated with the ongoing operations of the business. Generally, the loans are secured with the
financing of the borrower’s assets, such as equipment, accounts receivable, or inventory. In many
cases, the loans are secured by real estate, although the sale of the real estate is not a primary
source of repayment for the loan. For these loans that are secured by real estate, appropriate
appraisals are obtained at origination, and updated on an as needed basis, in compliance with
regulatory requirements.
There were no outstanding commercial loans that would be considered a concentration of lending
to a particular industry or within a geographic standpoint. Currently, higher-risk segments of the
C&I portfolio include loans to borrowers supporting the home building industry, contractors, and
automotive suppliers. However, the combined total of these segments represent less than 10% of the
total C&I portfolio. We manage the risks inherent in this portfolio through origination policies,
concentration limits, ongoing loan level reviews, recourse requirements, and continuous portfolio
risk management activities. Our origination policies for this portfolio include loan product-type
specific policies such as loan-to-value (LTV), and debt service coverage ratios, as applicable.
To the extent C&I loans are secured by real estate collateral, appropriate appraisals are
obtained at origination, and updated on an as needed basis, in compliance with regulatory
requirements.
As shown in the following table, C&I loans totaled $12.5 billion at September 30, 2009.
Table 26 — Commercial and Industrial Loans and Leases by Industry Classification
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
At September 30, 2009 |
|
| |
|
Commitments |
|
|
Loans Outstanding |
|
| (in millions of dollars) |
|
Amount |
|
|
Percent |
|
|
Amount |
|
|
Percent |
|
Industry Classification: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
$ |
5,076 |
|
|
|
27 |
% |
|
$ |
3,893 |
|
|
|
31 |
% |
Manufacturing |
|
|
3,499 |
|
|
|
19 |
|
|
|
2,169 |
|
|
|
17 |
|
Finance, insurance, and real estate |
|
|
2,574 |
|
|
|
14 |
|
|
|
2,124 |
|
|
|
17 |
|
Retail trade — Other than Auto Dealers |
|
|
1,682 |
|
|
|
9 |
|
|
|
966 |
|
|
|
8 |
|
Retail trade — Auto Dealers |
|
|
1,324 |
|
|
|
7 |
|
|
|
754 |
|
|
|
6 |
|
Wholesale trade |
|
|
1,357 |
|
|
|
7 |
|
|
|
753 |
|
|
|
6 |
|
Transportation, communications, and
utilities |
|
|
1,164 |
|
|
|
6 |
|
|
|
700 |
|
|
|
6 |
|
Contractors and construction |
|
|
925 |
|
|
|
5 |
|
|
|
462 |
|
|
|
4 |
|
Energy |
|
|
567 |
|
|
|
3 |
|
|
|
388 |
|
|
|
3 |
|
Agriculture and forestry |
|
|
274 |
|
|
|
2 |
|
|
|
189 |
|
|
|
2 |
|
Public administration |
|
|
131 |
|
|
|
1 |
|
|
|
123 |
|
|
|
1 |
|
Other |
|
|
29 |
|
|
|
— |
|
|
|
26 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
18,602 |
|
|
|
100 |
% |
|
$ |
12,547 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
46
Credit quality information regarding NCOs and NALs for our C&I loan portfolio is presented in
the following table.
Table 27 — Commercial and Industrial Credit Quality Data by Industry Classification
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Quarter Ended September 30, 2009 |
|
|
At September 30, 2009 |
|
| |
|
Net Charge-offs |
|
|
Nonaccrual Loans |
|
| (in millions) |
|
Amount |
|
|
Annualized % |
|
|
Percent |
|
|
Amount |
|
|
%
of Related
Outstandings |
|
Industry Classification: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing |
|
$ |
16.6 |
|
|
|
2.97 |
% |
|
|
24 |
% |
|
$ |
166.4 |
|
|
|
8 |
% |
Services |
|
|
14.1 |
|
|
|
1.41 |
|
|
|
20 |
|
|
|
171.2 |
|
|
|
4 |
|
Transportation, communications, and utilities |
|
|
10.4 |
|
|
|
5.85 |
|
|
|
15 |
|
|
|
21.1 |
|
|
|
3 |
|
Finance, insurance, and real estate |
|
|
10.3 |
|
|
|
1.90 |
|
|
|
15 |
|
|
|
95.3 |
|
|
|
4 |
|
Retail trade — Other than Auto Dealers |
|
|
6.5 |
|
|
|
2.61 |
|
|
|
9 |
|
|
|
66.0 |
|
|
|
7 |
|
Wholesale trade |
|
|
5.3 |
|
|
|
2.71 |
|
|
|
8 |
|
|
|
37.5 |
|
|
|
5 |
|
Contractors and construction |
|
|
4.8 |
|
|
|
3.92 |
|
|
|
7 |
|
|
|
33.3 |
|
|
|
7 |
|
Energy |
|
|
0.5 |
|
|
|
0.48 |
|
|
|
1 |
|
|
|
14.3 |
|
|
|
4 |
|
Agriculture and forestry |
|
|
0.2 |
|
|
|
0.50 |
|
|
|
1 |
|
|
|
4.8 |
|
|
|
3 |
|
Other |
|
|
0.1 |
|
|
|
1.22 |
|
|
|
— |
|
|
|
0.8 |
|
|
|
3 |
|
Retail trade — Auto Dealers |
|
|
0.0 |
|
|
|
0.02 |
|
|
|
— |
|
|
|
1.6 |
|
|
|
— |
|
Public administration |
|
|
0.0 |
|
|
|
0.05 |
|
|
|
— |
|
|
|
0.4 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
68.8 |
|
|
|
2.13 |
% |
|
|
100 |
% |
|
$ |
612.7 |
|
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within the C&I portfolio, the automotive industry segment continued to be stressed and is
discussed below.
Automotive Industry
The following table provides a summary of loans and total exposure including both loans and
unused commitments and standby letters of credit to companies related to the automotive industry
since December 31, 2008.
Table
28 — Automotive Industry Exposure(1)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
September 30, 2009 |
|
|
December 31, 2008 |
|
| |
|
|
|
|
|
% of Total |
|
|
|
|
|
|
|
|
|
|
% of Total |
|
|
|
|
| (in millions) |
|
Loans Outstanding |
|
|
Loans |
|
|
Total Exposure |
|
|
Loans Outstanding |
|
|
Loans |
|
|
Total Exposure |
|
Suppliers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
183.6 |
|
|
|
|
|
|
$ |
307.8 |
|
|
$ |
182.4 |
|
|
|
|
|
|
$ |
330.9 |
|
Foreign |
|
|
31.0 |
|
|
|
|
|
|
|
41.3 |
|
|
|
32.7 |
|
|
|
|
|
|
|
45.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Suppliers |
|
|
214.6 |
|
|
|
0.58 |
% |
|
|
349.1 |
|
|
|
215.1 |
|
|
|
0.52 |
% |
|
|
376.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dealer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floorplan —
domestic |
|
|
298.0 |
|
|
|
|
|
|
|
790.7 |
|
|
|
552.6 |
|
|
|
|
|
|
|
746.8 |
|
Floorplan — foreign |
|
|
251.6 |
|
|
|
|
|
|
|
562.0 |
|
|
|
408.1 |
|
|
|
|
|
|
|
544.1 |
|
Other |
|
|
351.0 |
|
|
|
|
|
|
|
428.6 |
|
|
|
345.6 |
|
|
|
|
|
|
|
463.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Dealer |
|
|
900.6 |
|
|
|
2.41 |
|
|
|
1,781.3 |
|
|
|
1,306.4 |
|
|
|
3.18 |
|
|
|
1,754.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Automotive |
|
$ |
1,115.2 |
|
|
|
2.99 |
|
|
$ |
2,130.4 |
|
|
$ |
1,521.4 |
|
|
|
3.70 |
|
|
$ |
2,131.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
Companies with > 25% of revenue derived from the automotive industry. |
47
Although we do not have direct exposure to the automobile manufacturing companies, we do have
limited exposure to automobile industry suppliers, and automobile dealer-related exposures. The
automobile industry supplier exposure is embedded primarily in our C&I portfolio within the
Commercial Banking segment, while the dealer exposure is originated and managed within the AFDS
business segment. As a result of our geographic locations and the above referenced exposure, we
have closely monitored the entire automobile industry, particularly the recent events associated
with General Motors and Chrysler, including bankruptcy filings, plant closings, production
suspension, and model eliminations. We have anticipated the significant reductions in production
across the industry that will result in additional economic distress in some of our markets. Our
eastern Michigan and northern Ohio markets are particularly exposed to these reductions, and all
our markets are affected. We anticipate the impact will result in additional stress throughout our
commercial and consumer loan portfolios, as secondary and tertiary businesses are affected by the
actions of the manufacturers. However, as these actions were anticipated, many of the potential
impacts have been mitigated through changes in underwriting criteria and regionally focused
policies and procedures. Within the AFDS portfolio, our dealer selection criteria and focus is on
multiple brand dealership groups, as we have immaterial exposure to single-brand dealerships.
As shown in Table 28, our total direct exposure to the automotive supplier segment is $349.1
million, of which $214.6 million represented loans outstanding. We included companies that derive
more than 25% of their revenues from contracts with automobile manufacturing companies. This low
level of exposure is reflective of our industry-level risk-limits approach.
While the entire automotive industry is under significant pressure as evidenced by a
significant reduction in new car sales and the resulting production declines, we believe that our
floorplan exposure of $1.4 billion will not be materially affected. Our floorplan exposure is
centered in large, multi-dealership entities, and we have focused on client selection and
conservative underwriting standards. We anticipate that the economic environment will affect our
dealerships in the near-term, but we believe the majority of our portfolio will perform favorably
relative to the industry in the increasingly stressed environment. The decline in floorplan loans
outstanding at September 30, 2009, compared with December 31, 2008, reflected reduced dealership
inventory, in part as a result of the successful “Cash for Clunkers” program.
While the specific impacts associated with the ongoing changes in the industry are unknown, we
believe that we have taken appropriate steps to limit our exposure. When we have chosen to extend
credit, our client selection process has focused us on the most diversified and strongest
dealership groups. We do not anticipate any material dealer-related losses in the portfolio
despite numerous dealership closings during 2009. Our dealer selection criteria, with a focus on
multi-dealership groups has proven itself in this environment.
COMMERCIAL REAL ESTATE (CRE) PORTFOLIO
As shown in the following table, CRE loans totaled $8.7 billion and represented 23% of total
loans and leases at September 30, 2009.
48
Table 29 — Commercial Real Estate Loans by Property Type and Property Location
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At September 30, 2009 |
|
| (in millions) |
|
Ohio |
|
|
Michigan |
|
|
Pennsylvania |
|
|
Indiana |
|
|
Kentucky |
|
|
Florida |
|
|
West Virginia |
|
|
Other |
|
|
Total
Amount |
|
|
Percent |
|
Retail properties |
|
$ |
901 |
|
|
$ |
240 |
|
|
$ |
157 |
|
|
$ |
210 |
|
|
$ |
10 |
|
|
$ |
81 |
|
|
$ |
47 |
|
|
$ |
591 |
|
|
$ |
2,237 |
|
|
|
26 |
% |
Multi family |
|
|
828 |
|
|
|
138 |
|
|
|
94 |
|
|
|
78 |
|
|
|
41 |
|
|
|
7 |
|
|
|
80 |
|
|
|
135 |
|
|
|
1,401 |
|
|
|
16 |
|
Office |
|
|
581 |
|
|
|
204 |
|
|
|
114 |
|
|
|
57 |
|
|
|
24 |
|
|
|
22 |
|
|
|
61 |
|
|
|
65 |
|
|
|
1,128 |
|
|
|
13 |
|
Industrial and warehouse |
|
|
498 |
|
|
|
226 |
|
|
|
35 |
|
|
|
86 |
|
|
|
14 |
|
|
|
43 |
|
|
|
21 |
|
|
|
118 |
|
|
|
1,041 |
|
|
|
12 |
|
Single family home builders |
|
|
628 |
|
|
|
93 |
|
|
|
57 |
|
|
|
35 |
|
|
|
23 |
|
|
|
116 |
|
|
|
20 |
|
|
|
67 |
|
|
|
1,039 |
|
|
|
12 |
|
Lines to real estate companies |
|
|
688 |
|
|
|
120 |
|
|
|
89 |
|
|
|
49 |
|
|
|
4 |
|
|
|
1 |
|
|
|
54 |
|
|
|
17 |
|
|
|
1,022 |
|
|
|
12 |
|
Hotel |
|
|
152 |
|
|
|
85 |
|
|
|
23 |
|
|
|
26 |
|
|
|
— |
|
|
|
— |
|
|
|
10 |
|
|
|
70 |
|
|
|
366 |
|
|
|
4 |
|
Health care |
|
|
172 |
|
|
|
77 |
|
|
|
24 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5 |
|
|
|
32 |
|
|
|
310 |
|
|
|
4 |
|
Raw land and other land uses |
|
|
55 |
|
|
|
27 |
|
|
|
3 |
|
|
|
8 |
|
|
|
6 |
|
|
|
3 |
|
|
|
2 |
|
|
|
15 |
|
|
|
119 |
|
|
|
1 |
|
Other |
|
|
32 |
|
|
|
9 |
|
|
|
6 |
|
|
|
1 |
|
|
|
3 |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
52 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,535 |
|
|
$ |
1,219 |
|
|
$ |
602 |
|
|
$ |
550 |
|
|
$ |
125 |
|
|
$ |
273 |
|
|
$ |
300 |
|
|
$ |
1,111 |
|
|
$ |
8,715 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of total portfolio |
|
|
52 |
% |
|
|
14 |
% |
|
|
7 |
% |
|
|
6 |
% |
|
|
1 |
% |
|
|
3 |
% |
|
|
3 |
% |
|
|
13 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs (three months ended
Sept. 30, 2009) |
|
$ |
86.9 |
|
|
$ |
37.5 |
|
|
$ |
2.0 |
|
|
$ |
8.9 |
|
|
$ |
0.6 |
|
|
$ |
16.5 |
|
|
$ |
— |
|
|
$ |
16.8 |
|
|
$ |
169.2 |
|
|
|
|
|
Net charge-offs — annualized percentage |
|
|
7.52 |
% |
|
|
12.09 |
% |
|
|
1.32 |
% |
|
|
6.35 |
% |
|
|
1.78 |
% |
|
|
23.84 |
% |
|
|
0.00 |
% |
|
|
5.94 |
% |
|
|
7.62 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans |
|
$ |
523.9 |
|
|
$ |
192.4 |
|
|
$ |
41.9 |
|
|
$ |
47.6 |
|
|
$ |
10.8 |
|
|
$ |
89.7 |
|
|
$ |
1.2 |
|
|
$ |
226.2 |
|
|
$ |
1,133.7 |
|
|
|
|
|
% of portfolio |
|
|
12 |
% |
|
|
16 |
% |
|
|
7 |
% |
|
|
9 |
% |
|
|
9 |
% |
|
|
33 |
% |
|
|
0 |
% |
|
|
20 |
% |
|
|
13 |
% |
|
|
|
|
Credit quality data regarding NCOs and NALs for our CRE portfolio is presented in the
following table.
Table 30 — Commercial Real Estate Loans Credit Quality Data by Property Type
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Quarter Ended September 30,2009 |
|
|
|
At September 30, 2009 |
|
| |
|
Net charge-offs |
|
|
Nonaccrual Loans |
|
| |
|
|
|
|
|
|
|
|
% of Related |
|
| (in millions) |
|
Amount |
|
|
Annualized % |
|
|
Percent |
|
|
Amount |
|
|
Outstandings |
|
Single family home builders |
|
$ |
62.0 |
|
|
|
22.67 |
% |
|
|
37 |
% |
|
$ |
340.0 |
|
|
|
33 |
% |
Retail properties |
|
|
52.5 |
|
|
|
9.22 |
|
|
|
31 |
|
|
|
331.1 |
|
|
|
15 |
|
Multi family |
|
|
27.3 |
|
|
|
7.67 |
|
|
|
16 |
|
|
|
98.8 |
|
|
|
7 |
|
Industrial and warehouse |
|
|
18.6 |
|
|
|
7.03 |
|
|
|
11 |
|
|
|
138.7 |
|
|
|
13 |
|
Lines to real estate companies |
|
|
3.3 |
|
|
|
1.26 |
|
|
|
2 |
|
|
|
64.6 |
|
|
|
6 |
|
Office |
|
|
2.5 |
|
|
|
0.86 |
|
|
|
1 |
|
|
|
110.3 |
|
|
|
10 |
|
Raw land and other land uses |
|
|
2.4 |
|
|
|
8.09 |
|
|
|
1 |
|
|
|
27.6 |
|
|
|
23 |
|
Hotel |
|
|
0.6 |
|
|
|
0.64 |
|
|
|
— |
|
|
|
14.7 |
|
|
|
4 |
|
Other |
|
|
0.1 |
|
|
|
1.05 |
|
|
|
— |
|
|
|
6.8 |
|
|
|
13 |
|
Health care |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.9 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
169.2 |
|
|
|
7.62 |
% |
|
|
100 |
% |
|
$ |
1,133.7 |
|
|
|
13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We manage the risks inherent in this portfolio through origination policies, concentration
limits, ongoing loan level reviews, recourse requirements, and continuous portfolio risk management
activities. Our origination policies for this portfolio include loan product-type specific
policies such as LTV, debt service coverage ratios, and pre-leasing requirements, as applicable.
Generally, we: (a) limit our loans to 80% of the appraised value of the commercial real estate,
(b) require net operating cash flows to be 125% of required interest and principal payments, and
(c) if the commercial real estate is non-owner occupied, require that at least 50% of the space of
the project be pre-leased. We may require more conservative loan terms, depending on the project.
49
Dedicated real estate professionals within our Commercial Real Estate segment team originated
the majority of the portfolio, with the remainder obtained from prior acquisitions. Appraisals
from approved vendors are reviewed by an internal appraisal review group to ensure the quality of
the valuation used in the underwriting process. The portfolio is diversified by project type and
loan size, and represents a significant piece of the credit risk management strategies employed for
this portfolio. Our loan review staff provides an assessment of the quality of the underwriting
and structure and validates the risk rating assigned to the loan.
Appraisal values are obtained in conjunction with all originations and renewals, and on an as
needed basis, in compliance with regulatory requirements. Given the stressed environment for some
loan types, we have initiated ongoing portfolio level reviews of segments such as single family
home builders and retail properties (see “Single Family Home Builders” and “Retail Properties”
discussions). These reviews generate action plans based on occupancy levels or sales volume
associated with the projects being reviewed. The results of these actions indicated that
additional stress is likely due to the current economic conditions. Property values are updated
using appraisals on a regular basis to ensure that appropriate decisions regarding the ongoing
management of the portfolio reflect the changing market conditions. This highly individualized
process requires working closely with all of our borrowers as well as an in-depth knowledge of CRE
project lending and the market environment.
At the portfolio level, we actively monitor the concentrations and performance metrics of all
loan types, with a focus on higher risk segments. Macro-level stress-test scenarios based on
retail sales and home-price depreciation trends for the segments are embedded in our performance
expectations, and lease-up and absorption scenarios are assessed. We anticipate the current stress
within this portfolio will continue for the foreseeable future, resulting in elevated charge-offs,
NALs, and ALLL levels.
During the 2009 first quarter, a portfolio review resulted in a reclassification of certain
CRE loans to C&I loans at the end of the period. This net reclassification of $782 million was
primarily associated with loans to businesses secured by the real estate and buildings that house
their operations. These owner-occupied loans secured by real estate were underwritten based on the
cash flow of the business and are more appropriately classified as C&I loans.
Within the CRE portfolio, the single family home builder and retail properties segments
continued to be stressed as a result of the continued decline in the housing markets and general
economic conditions. As previously mentioned above, these segments continue to be the highest risk
segments within our CRE portfolio, and are discussed further below.
Single Family Home Builders
At September 30, 2009, we had $1,039 million of CRE loans to single family home builders.
Such loans represented 3% of total loans and leases. Of this portfolio segment, 69% were to
finance projects currently under construction, 15% to finance land under development, and 16% to
finance land held for development. The $1,039 million represented a $550 million, or 35%, decrease
compared with $1,589 million at December 31, 2008. The decrease primarily reflected the
reclassification of loans secured by 1-4 family residential real estate rental properties to C&I
loans, consistent with industry practices in the definition of this segment. Other factors
contributing to the decrease in exposure include no new originations in this portfolio segment in
2009, increased property sale activity, and substantial charge-offs. The increased sale activity
was evident in the 2009 second and third quarters; however, we anticipate a seasonal decline in the
2009 fourth quarter.
The housing market across our geographic footprint remained stressed, reflecting relatively
lower sales activity, declining prices, and excess inventories of houses to be sold, particularly
impacting borrowers in our eastern Michigan and northern Ohio markets. Further, a portion of the
loans extended to borrowers located within our geographic regions was to finance projects outside
of our geographic regions. We anticipate the residential developer market will continue to be
depressed, and anticipate continued pressure on the single family home builder segment for the
foreseeable future. As previously mentioned, all significant exposures are monitored on a periodic
basis. For this portfolio segment, the periodic monitoring has included: (a) all loans greater
than $50 thousand have been reviewed continuously over the past 18 months and continue to be
monitored, (b) credit valuation adjustments have been made when appropriate based on the current
condition of each relationship, and (c) reserves have been increased based on proactive risk
identification and thorough borrower analysis.
50
Retail Properties
Our
portfolio of CRE loans secured by retail properties totaled $2,237 million, or
approximately 6% of total loans and leases, at September 30, 2009. Loans within this portfolio
segment declined 1% from December 31, 2008. Credit approval in this portfolio segment is generally
dependent on pre-leasing requirements, and net operating income from the project must cover debt
service by specified percentages when the loan is fully funded.
The weakness of the economic environment in our geographic regions significantly impacted the
projects that secure the loans in this portfolio segment. Increased unemployment levels compared
with recent years, and the expectation that these levels will continue to increase for the
foreseeable future, are expected to adversely affect our borrowers’ ability to repay these loans.
We have increased the level of credit risk management activity to this portfolio segment, and we
analyze our retail property loans in detail by combining property type, geographic location,
tenants, and other data, to assess and manage our credit concentration risks.
Consumer Credit
Consumer credit approvals are based on, among other factors, the financial strength and
payment history of the borrower, type of exposure, and the transaction structure. We make
extensive use of portfolio assessment models to continuously monitor the quality of the portfolio,
which may result in changes to future origination strategies. The continuous analysis and review
process results in a determination of an appropriate ALLL amount for our consumer loan portfolio.
Our consumer loan portfolio is primarily comprised of home equity loans, traditional
residential mortgages, and automobile loans and leases.
Home equity — Home equity lending includes both home equity loans and lines of credit. This
type of lending, which is secured by a first- or second- mortgage on the borrower’s residence,
allows customers to borrow against the equity in their home. Real estate market values as of the
time the loan or line is granted directly affect the amount of credit extended and, in addition,
changes in these values impact the severity of losses.
Residential mortgages — Residential mortgage loans represent loans to consumers for the
purchase or refinance of a residence. These loans are generally financed over a 15- to 30- year
term, and in most cases, are extended to borrowers to finance their primary residence. In some
cases, government agencies or private mortgage insurers guarantee the loan. Generally speaking,
our practice is to sell a significant majority of our fixed-rate originations in the secondary
market.
Automobile loans/leases — Automobile loans/leases is primarily comprised of loans made
through automotive dealerships, and includes exposure in several out-of-market states. However, no
out-of-market state represented more than 10% of our total automobile loan portfolio, and we expect
to see relatively rapid reductions in these exposures as we ceased automobile loan originations in
out-of-market states during the 2009 first quarter. Our automobile lease portfolio will continue
to decline as we ceased new originations of all automobile leases during the 2008 fourth quarter.
The residential mortgage and home equity portfolios are primarily located throughout our
geographic footprint. The general slowdown in the housing market has impacted the performance of
our residential mortgage and home equity portfolios over the past year. While the degree of price
depreciation varies across our markets, all regions throughout our footprint have been affected.
Given the conditions in our markets as described above in the single family home builder section,
the home equity and residential mortgage portfolios are particularly noteworthy, and are discussed
in greater detail below:
51
Table 31 — Selected Home Equity and Residential Mortgage Portfolio Data (1)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Home Equity Loans |
|
|
Home Equity Lines of Credit |
|
|
Residential Mortgages |
|
| (dollar amounts in millions) |
|
9/30/09 |
|
|
12/31/08 |
|
|
9/30/09 |
|
|
12/31/08 |
|
|
9/30/09 |
|
|
12/31/08 |
|
Ending Balance |
|
$ |
2,670 |
|
|
$ |
3,116 |
|
|
$ |
4,906 |
|
|
$ |
4,440 |
|
|
$ |
4,468 |
|
|
$ |
4,761 |
|
Portfolio Weighted Average LTV ratio (2) |
|
|
71 |
% |
|
|
70 |
% |
|
|
78 |
% |
|
|
78 |
% |
|
|
77 |
% |
|
|
76 |
% |
Portfolio Weighted Average FICO (3) |
|
|
718 |
|
|
|
725 |
|
|
|
724 |
|
|
|
720 |
|
|
|
699 |
|
|
|
707 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three-Month Period Ended September 30, 2009 |
|
| |
|
Home Equity Loans |
|
|
Home Equity Lines of Credit |
|
|
Residential Mortgages (4) |
|
Originations |
|
$ |
54 |
|
|
$ |
338 |
|
|
$ |
127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Origination Weighted Average LTV ratio (2) |
|
|
63 |
% |
|
|
73 |
% |
|
|
84 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Origination Weighted Average FICO (3) |
|
|
753 |
|
|
|
766 |
|
|
|
749 |
|
| |
|
|
| (1) |
|
Excludes Franklin loans. |
| |
| (2) |
|
The loan-to-value (LTV) ratios for home equity loans and home equity lines of credit are cumulative LTVs reflecting the balance of any senior loans. |
| |
| (3) |
|
Portfolio Weighted Average FICO reflects currently updated customer credit scores whereas Origination Weighted Average FICO reflects the customer credit scores at the time of loan origination. |
| |
| (4) |
|
Represents only owned-portfolio originations. |
HOME EQUITY PORTFOLIO
Our home equity portfolio (loans and lines of credit) consists of both first and second
mortgage loans with underwriting criteria based on minimum credit scores, debt-to-income ratios,
and LTV ratios. We offer closed-end home equity loans with a fixed interest rate and level monthly
payments and a variable-rate, interest-only home equity line of credit.
We believe we have granted credit conservatively within this portfolio. We have not
originated home equity loans or lines of credit that allow negative amortization. Also, we have
not originated home equity loans or lines of credit with an LTV ratio at origination greater than
100%, except for infrequent situations with high quality borrowers. However, recent declines in
housing prices have likely eliminated a portion of the collateral for this portfolio as some loans
with an original LTV ratio of less than 100% currently have an LTV ratio of greater than 100%.
Home equity loans are generally fixed-rate with periodic principal and interest payments. Home
equity lines of credit are generally variable-rate and do not require payment of principal during
the 10-year revolving period of the line.
For certain home equity loans and lines of credit, we may utilize Automated Valuation
Methodology (AVM) or other model driven value estimates during the credit underwriting process.
Regardless of the estimate methodology, we supplement our underwriting with a third party fraud
detection system to limit our exposure to “flipping”, and outright fraudulent transactions. We
update values, as we believe appropriate, and in compliance with applicable regulations, for loans
identified as higher risk, based on performance indicators to facilitate our workout and loss
mitigation functions.
We continue to make appropriate origination policy adjustments based on our assessment of an
appropriate risk profile as well as industry actions. As an example, the significant changes made
in 2008 by Fannie Mae and Freddie Mac resulted in the reduction of our maximum LTV ratio on
second-mortgage loans, even for customers with high credit scores. In addition to origination
policy adjustments, we take appropriate actions, as necessary, to mitigate the risk profile of this
portfolio. We focus production primarily within our banking footprint or to existing customers.
52
RESIDENTIAL MORTGAGES
We focus on higher quality borrowers, and underwrite all applications centrally, often through
the use of an automated underwriting system. We do not originate residential mortgage loans that
allow negative amortization or are “payment option adjustable-rate mortgages.”
All residential mortgage loans are originated based on a full appraisal during the credit
underwriting process. Additionally, we supplement our underwriting with a third party fraud
detection system to limit our exposure to “flipping”, and outright fraudulent transactions. We
update values, as we believe appropriate, and in compliance with applicable regulations, for loans
identified as higher risk, based on performance indicators to facilitate our workout and loss
mitigation functions.
During the 2009 third quarter, we transferred to held for sale, and subsequently sold in the
2009 fourth quarter, $44.8 million of underperforming mortgage loans, resulting in a reduction in
residential mortgage NALs. We will continue to evaluate this type of transaction in future periods
based on market conditions.
A majority of the loans in our loan portfolio have adjustable rates. Our adjustable-rate
mortgages (ARMs) are primarily residential mortgages that have a fixed rate for the first 3 to 5
years and then adjust annually. These loans comprised approximately 58% of our total residential
mortgage loan portfolio at September 30, 2009. At September 30, 2009, ARM loans that were
expected to have rates reset totaled $159.4 million for the remainder of 2009, and $891.4 million
for 2010. Given the quality of our borrowers and the relatively low current interest rates, we
believe that we have a relatively limited exposure to ARM reset risk. Nonetheless, we have taken
actions to mitigate our risk exposure. We initiate borrower contact at least six months prior to
the interest rate resetting, and have been successful in converting many ARMs to fixed-rate loans
through this process. Additionally, where borrowers are experiencing payment difficulties, loans
may be re-underwritten based on the borrower’s ability to repay the loan.
We had $385.0 million of Alt-A mortgage loans in the residential mortgage loan portfolio at
September 30, 2009, compared with $445.4 million at December 31, 2008. These loans have a higher
risk profile than the rest of the portfolio as a result of origination policies for this limited
segment including reliance on stated income, stated assets, or higher acceptable LTV ratios. At
September 30, 2009, borrowers for Alt-A mortgages had an average current FICO score of 664 and the
loans had an average LTV ratio of 87%, compared with 671 and 88%, respectively, at December 31,
2008. Total Alt-A NCOs were $18.8 million, or an annualized 6.03%, for the first nine-month period
of 2009, compared with $7.1 million, or an annualized 1.87%, for the first nine-month period of
2008. As with the entire residential mortgage portfolio, the increase in NCOs reflected, among
other actions, a more conservative position on the timing of loss recognition and the transfer to
held for sale, and subsequent sale in the 2009 fourth quarter, of underperforming mortgage loans.
The ALLL expressed as a percentage of total related loans was 4.83% at September 30, 2009. Our
exposure related to this product will continue to decline in the future as we stopped originating
these loans in 2007.
Interest-only loans comprised $602.8 million of residential real estate loans at September 30,
2009, compared with $691.9 million at December 31, 2008. Interest-only loans are underwritten to
specific standards including minimum credit scores, stressed debt-to-income ratios, and extensive
collateral evaluation. At September 30, 2009, borrowers for interest-only loans had an average
current FICO score of 718 and the loans had an average LTV ratio of 78%, compared with 724 and 78%,
respectively, at December 31, 2008. Total interest-only NCOs were $10.3 million, or an annualized
2.13% for the first nine-month period of 2009, compared with $1.3 million, or an annualized 0.22%,
for the first nine-month period of 2009. As with the entire residential mortgage portfolio, the
increase in NCOs reflected, among other actions, a more conservative position on the timing of loss
recognition and the transfer to held for sale, and subsequent sale in the 2009 fourth quarter, of
underperforming mortgage loans. The ALLL expressed as a percentage of total related loans was
1.03% at September 30, 2009.
Several recent government actions have been enacted that have affected the residential
mortgage portfolio and MSRs in particular. Various refinance programs positively affected the
availability of credit for the industry. We are utilizing these programs to enhance our existing
strategies of working closely with our customers.
53
AUTOMOTIVE INDUSTRY IMPACTS ON CONSUMER LOAN PORTFOLIO
The issues affecting the automotive industry (see “Automotive Industry” discussion located
within the “Commercial Credit” section) also have an impact on the performance of the consumer loan
portfolio. While there is a direct correlation between the industry situation and our exposure to
the automotive suppliers and automobile dealers in our commercial portfolio, the loss of jobs and
reduction in wages may have a negative impact on our consumer portfolio. We continue to monitor
the potential impact on our geographic regions in the event of significant production changes or
plant closings in our markets. This project included assessing the downstream impact on automotive
suppliers, related small businesses, and consumers. As a result of this project, we believe that
we have made a number of positive decisions regarding the quality of our consumer portfolio given
the current environment. In the indirect automobile portfolio, we have focused on borrowers with
high credit scores for many years, as reflected by the performance of the portfolio given the
economic conditions. In the residential and home equity loan portfolios, we have been operating in
a relatively high unemployment situation for an extended period of time, yet have been able to
maintain our performance metrics reflecting our focus on strong underwriting. In summary, while we
anticipate our performance results may be negatively impacted, we believe the impact will be
manageable.
Counterparty Risk
In the normal course of business, we engage with other financial counterparties for a variety
of purposes including investing, asset and liability management, mortgage banking, and for trading
activities. As a result, we are exposed to credit risk, or the risk of loss if the counterparty
fails to perform according to the terms of our contract or agreement.
We minimize counterparty risk through credit approvals, actively setting adjusting exposure
limits, implementing monitoring procedures similar to those used for our commercial portfolio (see
“Commercial Credit” discussion), generally entering into transactions only with counterparties that
carry high quality ratings, and requiring collateral when appropriate.
The majority of the financial institutions with whom we are exposed to counterparty risk are
large commercial banks. The potential amount of loss, which would have been recognized at
September 30, 2009, if a counterparty defaulted, did not exceed $16 million for any individual
counterparty.
Credit Quality
We believe the most meaningful way to assess overall credit quality performance is through an
analysis of credit quality performance ratios. This approach forms the basis of most of the
discussion in the three sections immediately following: NALs and NPAs, ACL, and NCOs.
Credit quality performance in the 2009 third quarter continued to be negatively impacted by
the sustained economic weakness in our Midwest markets. In addition, we initiated certain actions
with regard to loss recognition on our residential mortgage portfolio that we believe will increase
the flexibility in working the loans toward timelier resolution.
NONACCRUAL LOANS (NAL/NALs) AND NONPERFORMING ASSETS (NPA/NPAs)
(This section should be read in conjunction with the “Franklin Relationship” discussion.)
NPAs consist of (a) NALs, which represent loans and leases that are no longer accruing
interest, (b) impaired held-for-sale loans, (c) OREO, and (d) other NPAs. A C&I or CRE loan is
generally placed on nonaccrual status when collection of principal or interest is in doubt or when
the loan is 90-days past due. Home equity and residential mortgage loans are placed on nonaccrual
status at 120 days and 180 days, respectively, and are written down to realizable value at no later
than 180 days past due. When interest accruals are suspended, accrued interest income is reversed
with current year accruals charged to earnings and prior-year amounts generally charged-off as a
credit loss.
Accruing restructured loans (ARLs) consists of accruing loans that have been re-underwritten,
modified, or restructured when borrowers are experiencing payment difficulties. Generally, prior
to restructuring, these loans have not reached a status to be considered as NALs. These loan
restructurings are one component of the loss mitigation process, and are made to increase the
likelihood of the borrower’s ability to repay the loan. Modifications to these loans include, but
are not limited to, changes to any of the following: interest rate, maturity, principal, payment
amount, or a combination of each. The decline in the commercial ARL balance at September 30, 2009,
compared with June 30, 2009, represented the migration of a significant amount of commercial ARLs
to NAL status. The increase in the residential mortgage ARLs represented our continued efforts in
working with stressed borrowers.
54
Table 32 reflects period-end NALs, NPAs, ARLs, and past due loans and leases detail for each
of the last five quarters. Due to the impact of the NALs and NPAs related to Franklin, we believe
it is helpful to analyze trends in our portfolio with those Franklin-related NALs and NPAs removed.
Table 33 details the Franklin-related impacts to NALs and NPAs for each of the last five quarters.
55
Table 32 — Nonaccruing Loans (NALs), Nonperforming Assets (NPAs), and Past Due Loans and Leases
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
|
2008 |
|
| (in thousands) |
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
Nonaccrual loans and leases (NALs): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial (1) |
|
$ |
612,701 |
|
|
$ |
456,734 |
|
|
$ |
398,286 |
|
|
$ |
932,648 |
|
|
$ |
174,207 |
|
Commercial real estate |
|
|
1,133,661 |
|
|
|
850,846 |
|
|
|
629,886 |
|
|
|
445,717 |
|
|
|
298,844 |
|
Alt-A mortgages |
|
|
9,810 |
|
|
|
25,861 |
|
|
|
25,175 |
|
|
|
21,286 |
|
|
|
18,559 |
|
Interest-only mortgages |
|
|
8,336 |
|
|
|
17,428 |
|
|
|
20,580 |
|
|
|
12,221 |
|
|
|
8,492 |
|
Franklin residential mortgages |
|
|
322,796 |
|
|
|
342,207 |
|
|
|
360,106 |
|
|
|
— |
|
|
|
— |
|
Other residential mortgages |
|
|
49,579 |
|
|
|
89,992 |
|
|
|
81,094 |
|
|
|
65,444 |
|
|
|
58,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total residential mortgage (1) |
|
|
390,521 |
|
|
|
475,488 |
|
|
|
486,955 |
|
|
|
98,951 |
|
|
|
85,163 |
|
Home equity (1) |
|
|
44,182 |
|
|
|
35,299 |
|
|
|
37,967 |
|
|
|
24,831 |
|
|
|
27,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total NALs |
|
|
2,181,065 |
|
|
|
1,818,367 |
|
|
|
1,553,094 |
|
|
|
1,502,147 |
|
|
|
585,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential (1) |
|
|
81,807 |
|
|
|
107,954 |
|
|
|
143,856 |
|
|
|
63,058 |
|
|
|
59,302 |
|
Commercial |
|
|
60,784 |
|
|
|
64,976 |
|
|
|
66,906 |
|
|
|
59,440 |
|
|
|
14,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other real estate |
|
|
142,591 |
|
|
|
172,930 |
|
|
|
210,762 |
|
|
|
122,498 |
|
|
|
73,478 |
|
Impaired loans held for sale (2) |
|
|
20,386 |
|
|
|
11,287 |
|
|
|
11,887 |
|
|
|
12,001 |
|
|
|
13,503 |
|
Other NPAs (3) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total NPAs |
|
$ |
2,344,042 |
|
|
$ |
2,002,584 |
|
|
$ |
1,775,743 |
|
|
$ |
1,636,646 |
|
|
$ |
675,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming Franklin loans (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
650,225 |
|
|
$ |
— |
|
Residential mortgage |
|
|
322,796 |
|
|
|
342,207 |
|
|
|
360,106 |
|
|
|
— |
|
|
|
— |
|
OREO |
|
|
30,996 |
|
|
|
43,623 |
|
|
|
79,596 |
|
|
|
— |
|
|
|
— |
|
Home Equity |
|
|
15,704 |
|
|
|
2,437 |
|
|
|
6,000 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming Franklin loans |
|
$ |
369,496 |
|
|
$ |
388,267 |
|
|
$ |
445,702 |
|
|
$ |
650,225 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NALs as a % of total loans and leases |
|
|
5.85 |
% |
|
|
4.72 |
% |
|
|
3.93 |
% |
|
|
3.66 |
% |
|
|
1.42 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NPA ratio (4) |
|
|
6.26 |
|
|
|
5.18 |
|
|
|
4.46 |
|
|
|
3.97 |
|
|
|
1.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing loans and leases past due 90 days or more: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
10,889 |
|
|
$ |
24,407 |
|
Commercial real estate |
|
|
2,546 |
|
|
|
— |
|
|
|
— |
|
|
|
59,425 |
|
|
|
58,867 |
|
Residential mortgage (excluding loans guaranteed by
the U.S. government) |
|
|
46,592 |
|
|
|
97,937 |
|
|
|
88,381 |
|
|
|
71,553 |
|
|
|
58,280 |
|
Home equity |
|
|
45,334 |
|
|
|
35,328 |
|
|
|
35,717 |
|
|
|
29,039 |
|
|
|
23,224 |
|
Other loans and leases |
|
|
14,175 |
|
|
|
13,474 |
|
|
|
15,611 |
|
|
|
18,039 |
|
|
|
14,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total, excl. loans guaranteed by the U.S. government |
|
$ |
108,647 |
|
|
$ |
146,739 |
|
|
$ |
139,709 |
|
|
$ |
188,945 |
|
|
$ |
179,358 |
|
Add: loans guaranteed by U.S. government |
|
|
122,019 |
|
|
|
99,379 |
|
|
|
88,551 |
|
|
|
82,576 |
|
|
|
68,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accruing loans and leases past due 90 days
or more, including loans guaranteed by the U.S.
government |
|
$ |
230,666 |
|
|
$ |
246,118 |
|
|
$ |
228,260 |
|
|
$ |
271,521 |
|
|
$ |
248,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluding loans guaranteed by the U.S. government,
as a percent of total loans and leases |
|
|
0.29 |
% |
|
|
0.38 |
% |
|
|
0.35 |
% |
|
|
0.46 |
% |
|
|
0.44 |
% |
Guaranteed by U.S. government, as a percent of
total loans and leases |
|
|
0.33 |
% |
|
|
0.26 |
% |
|
|
0.22 |
% |
|
|
0.20 |
% |
|
|
0.17 |
% |
Including loans guaranteed by the U.S. government,
as a percent of total loans and leases |
|
|
0.62 |
% |
|
|
0.64 |
% |
|
|
0.58 |
% |
|
|
0.66 |
% |
|
|
0.60 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing restructured loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial (1) |
|
$ |
153,010 |
|
|
$ |
267,975 |
|
|
$ |
201,508 |
|
|
$ |
185,333 |
|
|
$ |
364,939 |
|
Alt-A mortgages |
|
|
58,367 |
|
|
|
46,657 |
|
|
|
36,642 |
|
|
|
32,336 |
|
|
|
28,740 |
|
Interest-only mortgages |
|
|
10,072 |
|
|
|
12,147 |
|
|
|
8,500 |
|
|
|
7,183 |
|
|
|
5,094 |
|
Other residential mortgages |
|
|
136,024 |
|
|
|
99,764 |
|
|
|
62,869 |
|
|
|
43,338 |
|
|
|
37,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total residential mortgage |
|
|
204,463 |
|
|
|
158,568 |
|
|
|
108,011 |
|
|
|
82,857 |
|
|
|
71,512 |
|
Other |
|
|
42,406 |
|
|
|
35,720 |
|
|
|
27,014 |
|
|
|
41,094 |
|
|
|
40,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accruing restructured loans |
|
$ |
399,879 |
|
|
$ |
462,263 |
|
|
$ |
336,533 |
|
|
$ |
309,284 |
|
|
$ |
476,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
Franklin loans were reported as accruing restructured commercial loans for the three-month period ended
September 30, 2008. For the three-month period ended December 31, 2008, Franklin loans were reported as
nonaccruing commercial and industrial loans. For the three-month periods ended March 31, 2009, June 30, 2009,
and September 30, 2009, nonaccruing Franklin loans were reported as residential mortgage loans, home equity
loans, and OREO; reflecting the 2009 first quarter restructuring. |
| |
| (2) |
|
The September 30, 2009, figure primarily represent impaired residential mortgage loans held for sale. All
other presented figures represent impaired loans obtained from the Sky Financial acquisition. Held for sale
loans are carried at the lower of cost or fair value less costs to sell. |
| |
| (3) |
|
Other NPAs represent certain investment securities backed by mortgage loans to borrowers with lower FICO scores. |
| |
| (4) |
|
Nonperforming assets divided by the sum of loans and leases, impaired loans held for sale, net other real
estate, and other NPAs. |
Table 33 — NALs/NPAs — Franklin-Related Impact
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
|
2008 |
|
| (in millions) |
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
Nonaccrual loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin |
|
$ |
338.5 |
|
|
$ |
344.6 |
|
|
$ |
366.1 |
|
|
$ |
650.2 |
|
|
$ |
— |
|
Non-Franklin |
|
|
1,842.6 |
|
|
|
1,473.8 |
|
|
|
1,187.0 |
|
|
|
851.9 |
|
|
|
585.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,181.1 |
|
|
$ |
1,818.4 |
|
|
$ |
1,553.1 |
|
|
$ |
1,502.1 |
|
|
$ |
585.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin |
|
$ |
465.2 |
|
|
$ |
472.0 |
|
|
$ |
494.0 |
|
|
$ |
650.2 |
|
|
$ |
1,095.0 |
|
Non-Franklin |
|
|
36,838.9 |
|
|
|
38,023.0 |
|
|
|
39,054.0 |
|
|
|
40,441.8 |
|
|
|
40,097.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
37,304.1 |
|
|
$ |
38,495.0 |
|
|
$ |
39,548.0 |
|
|
$ |
41,092.0 |
|
|
$ |
41,192.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAL ratio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
5.85 |
% |
|
|
4.72 |
% |
|
|
3.93 |
% |
|
|
3.66 |
% |
|
|
1.42 |
% |
Non-Franklin |
|
|
5.00 |
|
|
|
3.88 |
|
|
|
3.04 |
|
|
|
2.11 |
|
|
|
1.46 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
|
2008 |
|
| (in millions) |
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
Nonperforming assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin |
|
$ |
369.5 |
|
|
$ |
388.3 |
|
|
$ |
445.7 |
|
|
$ |
650.2 |
|
|
$ |
— |
|
Non-Franklin |
|
|
1,974.5 |
|
|
|
1,614.3 |
|
|
|
1,330.0 |
|
|
|
986.4 |
|
|
|
675.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,344.0 |
|
|
$ |
2,002.6 |
|
|
$ |
1,775.7 |
|
|
$ |
1,636.6 |
|
|
$ |
675.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
$ |
37,304.1 |
|
|
$ |
38,495.0 |
|
|
$ |
39,548.0 |
|
|
$ |
41,092.0 |
|
|
$ |
41,192.0 |
|
Total other real estate, net |
|
|
142.6 |
|
|
|
172.9 |
|
|
|
210.8 |
|
|
|
122.5 |
|
|
|
73.5 |
|
Impaired loans held for sale |
|
|
20.4 |
|
|
|
11.3 |
|
|
|
11.9 |
|
|
|
12.0 |
|
|
|
13.5 |
|
Other NPAs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
37,467.1 |
|
|
|
38,679.2 |
|
|
|
39,770.7 |
|
|
|
41,226.5 |
|
|
|
41,281.4 |
|
Franklin |
|
|
369.5 |
|
|
|
388.3 |
|
|
|
445.7 |
|
|
|
650.2 |
|
|
|
1,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Franklin |
|
$ |
37,097.6 |
|
|
$ |
38,290.9 |
|
|
$ |
39,325.0 |
|
|
$ |
40,576.3 |
|
|
$ |
40,186.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NPA ratio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
6.26 |
% |
|
|
5.18 |
% |
|
|
4.46 |
% |
|
|
3.97 |
% |
|
|
1.64 |
% |
Non-Franklin |
|
|
5.34 |
|
|
|
4.23 |
|
|
|
3.39 |
|
|
|
2.43 |
|
|
|
1.68 |
|
The $362.7 million increase in NALs from the prior quarter primarily reflected increases in
CRE and C&I-related NALs.
During the 2009 third quarter, and because we believe that there will be no meaningful
economic recovery for the foreseeable future, we took a more conservative approach in identifying
and classifying emerging problem credits. In many cases, commercial loans were placed on
nonaccrual status even though the loan was less than 30 days past due for both principal and
interest payments. This significantly impacted the inflow of commercial loan NALs for the quarter.
Of the commercial loans placed on nonaccrual status in the current quarter, over 55% were less
than 30 days past due. Of the period end $1,746.4 million of CRE and C&I-related NALs,
approximately 36% represented loans that were less than 30 days past due. We believe the decisions
increase our options for working these loans toward timelier resolution.
C&I NALs increased $156.0 million, or 34%, from the end of the prior quarter. The increase
was associated with loans throughout our regions, with no specific geographic concentration, and
industry segments. In general, C&I loans that support the home building industry, contractors, and
automotive suppliers experienced the most stress, however, less than 10% of the C&I portfolio is
associated with these segments. The manufacturing-related segment also showed some deterioration,
but we believe this to be more borrower-specific than industry-specific.
CRE NALs increased $282.8 million, or 33%, from the end of the prior quarter. This increase
reflected the continued decline in the housing market, stress on retail sales, and the general
decline in the economy. The increase was not concentrated in any specific project type, although
the single family home builder and retail segments remain the most stressed.
57
Residential mortgage NALs declined $85.0 million, or 18%, reflecting the impact of the more
conservative position on the timing of loss recognition, active loss mitigation and troubled debt
restructuring efforts, as well as the sale of loans. Our efforts to proactively address existing
issues with loss mitigation and loan modification transactions have helped to minimize the inflow
of new NALs.
Home equity NALs increased $8.9 million, or 25%, reflecting loans migrating into the more
serious delinquency stage. However, this does not indicate higher future losses, as all loans have
been written down to expected proceeds.
NPAs, which include NALs, increased $341.5 million, or 17%, the end of the prior quarter.
This increase in NPAs was less than the increase in NALs as OREO assets declined $30.3 million, or
18%, reflecting a continuation of our focused efforts to sell OREO properties.
Compared with December 31, 2008, NPAs, which include NALs, increased $707.4 million, or 43%,
reflecting:
| |
• |
|
$687.9 million increase in CRE NALs, reflecting the continued decline in the housing
market and stress on retail sales, as the majority of the increase was associated with the
retail and the single family home builder segments. The stress of lower retail sales and
downward pressure on rents given the economic conditions, have adversely affected retail
projects. |
| |
| |
• |
|
$291.6 million increase in residential mortgage NALs. This reflected an increase of
$322.8 million related to the Franklin restructuring, partially offset by the impact of the
more conservative position regarding the timing of loss recognition, active loss
mitigation, as well as the sale of loans. Our efforts to proactively address existing
issues with loss mitigation and loan modification transactions have helped to reduce the
inflow of new NALs. |
| |
| |
• |
|
$20.1 million increase in OREO. This reflected an increase of $79.6 million in OREO
assets recorded as part of the Franklin restructuring. Subsequently, Franklin-related OREO
assets declined $48.6 million, reflecting the active marketing and selling of
Franklin-related OREO properties over the past nine months. The non-Franklin-related
decline also reflects the same active marketing and selling of our OREO properties. |
Partially offset by:
| |
• |
|
$319.9 million decrease in C&I NALs. This reflected a reduction of $650.2 million
related to the 2009 first quarter Franklin relationship, partially offset by an increase on
$330.3 million in non-Franklin related NALs reflecting the economic conditions in our
markets. In general, the C&I loans experiencing the most stress are those supporting the
housing and construction segments, and to a lesser degree, the automobile suppliers and
restaurant segments. |
The over 90-day delinquent, but still accruing, ratio excluding loans guaranteed by the U.S.
Government, was 0.29% at September 30, 2009, down from 0.38% at the end of second quarter, and 15
basis points lower than a year-ago. On this same basis, the delinquency ratio for total consumer
loans was 0.66% at September 30, 2009, down from 0.90% at the end of the prior quarter, and up from
0.54% a year-ago.
58
NPA activity for each of the past five quarters was as follows:
Table 34 — Nonperforming Assets (NPAs) Activity
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
|
2008 |
|
| (in thousands) |
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
NPAs, beginning of period |
|
$ |
2,002,584 |
|
|
$ |
1,775,743 |
|
|
$ |
1,636,646 |
|
|
$ |
675,319 |
|
|
$ |
624,736 |
|
New NPAs |
|
|
899,855 |
|
|
|
750,318 |
|
|
|
622,515 |
|
|
|
509,320 |
|
|
|
175,345 |
|
Franklin impact, net (1) |
|
|
(18,771 |
) |
|
|
(57,436 |
) |
|
|
(204,523 |
) |
|
|
650,225 |
|
|
|
— |
|
Returns to accruing status |
|
|
(52,498 |
) |
|
|
(40,915 |
) |
|
|
(36,056 |
) |
|
|
(13,756 |
) |
|
|
(9,104 |
) |
Loan and lease losses |
|
|
(305,405 |
) |
|
|
(282,713 |
) |
|
|
(168,382 |
) |
|
|
(95,687 |
) |
|
|
(47,288 |
) |
OREO losses |
|
|
(30,623 |
) |
|
|
(20,614 |
) |
|
|
(4,034 |
) |
|
|
(4,648 |
) |
|
|
(5,504 |
) |
Payments |
|
|
(117,710 |
) |
|
|
(95,124 |
) |
|
|
(61,452 |
) |
|
|
(66,536 |
) |
|
|
(43,319 |
) |
Sales |
|
|
(33,390 |
) |
|
|
(26,675 |
) |
|
|
(8,971 |
) |
|
|
(17,591 |
) |
|
|
(19,547 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NPAs, end of period |
|
$ |
2,344,042 |
|
|
$ |
2,002,584 |
|
|
$ |
1,775,743 |
|
|
$ |
1,636,646 |
|
|
$ |
675,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
Franklin loans were reported as accruing restructured
commercial loans for the three-month period ended September
30, 2008. For the three-month period ended December 31,
2008, Franklin loans were reported as nonaccruing
commercial and industrial loans. For the three-month
periods ended March 31, 2009, June 30, 2009, and September
30, 2009, nonaccruing Franklin loans were reported as
residential mortgage loans, home equity loans, and OREO;
reflecting the 2009 first quarter restructuring. |
ALLOWANCE FOR CREDIT LOSSES (ACL)
(This section should be read in conjunction with Significant Item 2.)
We maintain two reserves, both of which are available to absorb inherent credit losses: the
ALLL and the AULC. When summed together, these reserves comprise the total ACL. Our credit
administration group is responsible for developing the methodology and determining the adequacy of
the ACL.
We have an established monthly process to determine the adequacy of the ACL that relies on a
number of analytical tools and benchmarks. No single statistic or measurement, in itself,
determines the adequacy of the ACL. Changes to the ACL are impacted by changes in the estimated
credit losses inherent in our loan portfolios. For example, our process requires increasingly
higher level of reserves as a loan’s internal classification moves from higher quality ratings to
lower, and vice versa. This movement across the credit scale is called migration.
We continued to update our probability-of-default and loss-given-default factors based on the
actual performance and the expected performance of our portfolios. The updates to these factors
made during the first nine-month period of 2009 were primarily associated with the consumer and
business banking portfolios.
Table 35 reflects activity in the ALLL and ACL for each of the last five quarters. Due to the
Franklin-related impact to the ALLL and ACL, we believe it is helpful to analyze trends in the ALLL
and ACL with the Franklin-related impact removed. Table 36 displays the Franklin-related impacts
to the ALLL and ACL for each of the last five quarters.
59
Table 35 — Quarterly Credit Reserves Analysis
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
|
2008 |
|
| (in thousands) |
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
Allowance for loan and lease losses,
beginning of period |
|
$ |
917,680 |
|
|
$ |
838,549 |
|
|
$ |
900,227 |
|
|
$ |
720,738 |
|
|
$ |
679,403 |
|
Loan and lease losses |
|
|
(377,443 |
) |
|
|
(359,444 |
) |
|
|
(353,005 |
) |
|
|
(571,053 |
) |
|
|
(96,388 |
) |
Recoveries of loans previously charged off |
|
|
21,501 |
|
|
|
25,037 |
|
|
|
11,514 |
|
|
|
10,433 |
|
|
|
12,637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan and lease losses |
|
|
(355,942 |
) |
|
|
(334,407 |
) |
|
|
(341,491 |
) |
|
|
(560,620 |
) |
|
|
(83,751 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan and lease losses |
|
|
472,137 |
|
|
|
413,538 |
|
|
|
289,001 |
|
|
|
728,046 |
|
|
|
125,086 |
|
Allowance for loans transferred to held-for-sale |
|
|
(1,904 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Economic reserve transfer |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,063 |
|
|
|
— |
|
Allowance of assets sold |
|
|
— |
|
|
|
— |
|
|
|
(9,188 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses, end of period |
|
$ |
1,031,971 |
|
|
$ |
917,680 |
|
|
$ |
838,549 |
|
|
$ |
900,227 |
|
|
$ |
720,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for unfunded loan commitments
and letters of credit, beginning of period |
|
$ |
47,144 |
|
|
$ |
46,975 |
|
|
$ |
44,139 |
|
|
$ |
61,640 |
|
|
$ |
61,334 |
|
Provision for (reduction in) unfunded loan
commitments and letters of credit losses |
|
|
2,999 |
|
|
|
169 |
|
|
|
2,836 |
|
|
|
(5,438 |
) |
|
|
306 |
|
Economic reserve transfer |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12,063 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for unfunded loan commitments
and letters of credit, end of period |
|
$ |
50,143 |
|
|
$ |
47,144 |
|
|
$ |
46,975 |
|
|
$ |
44,139 |
|
|
$ |
61,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowances for credit losses |
|
$ |
1,082,114 |
|
|
$ |
964,824 |
|
|
$ |
885,524 |
|
|
$ |
944,366 |
|
|
$ |
782,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses (ALLL) as % of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
|
2.77 |
% |
|
|
2.38 |
% |
|
|
2.12 |
% |
|
|
2.19 |
% |
|
|
1.75 |
% |
Nonaccrual loans and leases (NALs) |
|
|
47 |
|
|
|
50 |
|
|
|
54 |
|
|
|
60 |
|
|
|
123 |
|
Nonperforming assets (NPAs) |
|
|
44 |
|
|
|
46 |
|
|
|
47 |
|
|
|
55 |
|
|
|
107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowances for credit losses (ACL) as % of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
|
2.90 |
% |
|
|
2.51 |
% |
|
|
2.24 |
% |
|
|
2.30 |
% |
|
|
1.90 |
% |
NALs |
|
|
50 |
|
|
|
53 |
|
|
|
57 |
|
|
|
63 |
|
|
|
134 |
|
NPAs |
|
|
46 |
|
|
|
48 |
|
|
|
50 |
|
|
|
58 |
|
|
|
116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
| |
Table 36 — ALLL/ACL — Franklin-Related Impact |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
|
2008 |
|
| (in millions) |
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
Allowance for loan and lease losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
130.0 |
|
|
$ |
115.3 |
|
Non-Franklin |
|
|
1,032.0 |
|
|
|
917.7 |
|
|
|
838.5 |
|
|
|
770.2 |
|
|
|
605.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,032.0 |
|
|
$ |
917.7 |
|
|
$ |
838.5 |
|
|
$ |
900.2 |
|
|
$ |
720.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
130.0 |
|
|
$ |
115.3 |
|
Non-Franklin |
|
|
1,082.1 |
|
|
|
964.8 |
|
|
|
885.5 |
|
|
|
814.4 |
|
|
|
667.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,082.1 |
|
|
$ |
964.8 |
|
|
$ |
885.5 |
|
|
$ |
944.4 |
|
|
$ |
782.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin |
|
$ |
465.2 |
|
|
$ |
472.0 |
|
|
$ |
494.0 |
|
|
$ |
650.2 |
|
|
$ |
1,095.0 |
|
Non-Franklin |
|
|
36,838.9 |
|
|
|
38,023.0 |
|
|
|
39,054.0 |
|
|
|
40,441.8 |
|
|
|
40,097.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
37,304.1 |
|
|
$ |
38,495.0 |
|
|
$ |
39,548.0 |
|
|
$ |
41,092.0 |
|
|
$ |
41,192.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLL as % of total loans and leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2.77 |
% |
|
|
2.38 |
% |
|
|
2.12 |
% |
|
|
2.19 |
% |
|
|
1.75 |
% |
Non-Franklin |
|
|
2.80 |
|
|
|
2.41 |
|
|
|
2.15 |
|
|
|
1.90 |
|
|
|
1.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACL as % of total loans and leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2.90 |
% |
|
|
2.51 |
% |
|
|
2.24 |
% |
|
|
2.30 |
% |
|
|
1.90 |
% |
Non-Franklin |
|
|
2.94 |
|
|
|
2.54 |
|
|
|
2.27 |
|
|
|
2.01 |
|
|
|
1.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin |
|
$ |
338.5 |
|
|
$ |
344.6 |
|
|
$ |
366.1 |
|
|
$ |
650.2 |
|
|
$ |
— |
|
Non-Franklin |
|
|
1,842.6 |
|
|
|
1,473.8 |
|
|
|
1,187.0 |
|
|
|
851.9 |
|
|
|
586.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,181.1 |
|
|
$ |
1,818.4 |
|
|
$ |
1,553.1 |
|
|
$ |
1,502.1 |
|
|
$ |
586.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLL as % of NALs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
47 |
% |
|
|
50 |
% |
|
|
54 |
% |
|
|
60 |
% |
|
|
123 |
% |
Non-Franklin |
|
|
56 |
|
|
|
62 |
|
|
|
71 |
|
|
|
90 |
|
|
|
103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACL as % of NALs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
50 |
% |
|
|
53 |
% |
|
|
57 |
% |
|
|
63 |
% |
|
|
134 |
% |
Non-Franklin |
|
|
59 |
|
|
|
65 |
|
|
|
75 |
|
|
|
96 |
|
|
|
114 |
|
As shown in the above table, the ALLL increased to $1,032.0 million at September 30, 2009,
compared with $917.7 million at June 30, 2009, and $900.2 million at December 31, 2008. Expressed
as a percent of period-end loans and leases, the ALLL ratio increased to 2.77% at September 30,
2009, compared with 2.38% at June 30, 2009, and 2.19% at December 31, 2008. The increase of $114.3
million compared with June 30, 2009 primarily reflected the necessary building of reserves due to
the continued economic weaknesses in our markets. As loans were assigned to higher risk ratings,
our calculated reserve increased accordingly, consistent with our reserving methodology. The
increase of $131.7 million compared with December 31, 2008, also reflected the continued economic
weaknesses in our markets as well as an increase of reserves resulting from the 2009 second quarter
portfolio review process (See “Commercial Loan Portfolio Review and Actions” section located within
the “Commercial Credit” section for additional information), partially offset by the impact
of using the previously established $130.0 million Franklin specific reserve to absorb related
NCOs due to the 2009 first quarter Franklin restructuring (see “Franklin Loan” discussion located
within the “Critical Accounting Policies and Use of Significant Estimates” section).
On a combined basis, the ACL as a percent of total loans and leases at September 30, 2009, was
2.90% compared with 2.51% at June 30, 2009, and 2.30% at December 31, 2008. Like the ALLL, the
Franklin restructuring impacted the change in the ACL from December 31, 2008.
61
The table below reflects how our ACL is allocated among our various loan categories:
| |
Table 37 — Allocation of Allowances for Credit
Losses (1) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
|
2008 |
|
| (in thousands) |
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
$ |
381,912 |
|
|
|
34 |
% |
|
$ |
347,339 |
|
|
|
35 |
% |
|
$ |
309,465 |
|
|
|
35 |
% |
|
$ |
412,201 |
|
|
|
33 |
% |
|
$ |
344,074 |
|
|
|
33 |
% |
Commercial real estate |
|
|
436,661 |
|
|
|
23 |
|
|
|
368,464 |
|
|
|
23 |
|
|
|
349,750 |
|
|
|
23 |
|
|
|
322,681 |
|
|
|
25 |
|
|
|
241,419 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial |
|
|
818,573 |
|
|
|
57 |
|
|
|
715,803 |
|
|
|
58 |
|
|
|
659,215 |
|
|
|
58 |
|
|
|
734,882 |
|
|
|
58 |
|
|
|
585,493 |
|
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans and leases |
|
|
59,134 |
|
|
|
9 |
|
|
|
60,995 |
|
|
|
8 |
|
|
|
51,235 |
|
|
|
9 |
|
|
|
44,712 |
|
|
|
11 |
|
|
|
41,144 |
|
|
|
11 |
|
Home equity |
|
|
86,989 |
|
|
|
20 |
|
|
|
76,653 |
|
|
|
20 |
|
|
|
67,510 |
|
|
|
19 |
|
|
|
63,538 |
|
|
|
18 |
|
|
|
61,926 |
|
|
|
18 |
|
Residential mortgage |
|
|
50,177 |
|
|
|
12 |
|
|
|
48,093 |
|
|
|
12 |
|
|
|
45,138 |
|
|
|
12 |
|
|
|
44,463 |
|
|
|
12 |
|
|
|
19,848 |
|
|
|
12 |
|
Other loans |
|
|
17,098 |
|
|
|
2 |
|
|
|
16,136 |
|
|
|
2 |
|
|
|
15,451 |
|
|
|
2 |
|
|
|
12,632 |
|
|
|
2 |
|
|
|
12,327 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
213,398 |
|
|
|
43 |
|
|
|
201,877 |
|
|
|
42 |
|
|
|
179,334 |
|
|
|
42 |
|
|
|
165,345 |
|
|
|
42 |
|
|
|
135,245 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for loan and lease losses |
|
$ |
1,031,971 |
|
|
|
100 |
% |
|
$ |
917,680 |
|
|
|
100 |
% |
|
$ |
838,549 |
|
|
|
100 |
% |
|
$ |
900,227 |
|
|
|
100 |
% |
|
$ |
720,738 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for unfunded loan commitments
and letters of credit |
|
|
50,143 |
|
|
|
|
|
|
|
47,144 |
|
|
|
|
|
|
|
46,975 |
|
|
|
|
|
|
|
44,139 |
|
|
|
|
|
|
|
61,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowances for credit losses |
|
$ |
1,082,114 |
|
|
|
|
|
|
$ |
964,824 |
|
|
|
|
|
|
$ |
885,524 |
|
|
|
|
|
|
$ |
944,366 |
|
|
|
|
|
|
$ |
782,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
Percentages represent the percentage of each loan and lease category to total loans and leases. |
62
The table below reflects activity in the ALLL and AULC for the first nine-month periods of
2009 and 2008.
| |
Table 38 — Year to Date Credit Reserves Analysis |
| |
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended September 30, |
|
| (in thousands) |
|
2009 |
|
|
2008 |
|
Allowance for loan and lease losses,
beginning of period |
|
$ |
900,227 |
|
|
$ |
578,442 |
|
Loan and lease losses |
|
|
(1,089,892 |
) |
|
|
(235,276 |
) |
Recoveries of loans previously charged off |
|
|
58,052 |
|
|
|
37,829 |
|
|
|
|
|
|
|
|
Net loan and lease losses |
|
|
(1,031,840 |
) |
|
|
(197,447 |
) |
Provision for loan and lease losses |
|
|
1,174,676 |
|
|
|
339,743 |
|
Allowance for loans transferred to held-for-sale |
|
|
(1,904 |
) |
|
|
— |
|
Allowance of assets sold |
|
|
(9,188 |
) |
|
|
— |
|
|
|
|
|
|
|
|
Allowance for loan and lease losses, end of period |
|
$ |
1,031,971 |
|
|
$ |
720,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for unfunded loan commitments
and letters of credit, beginning of period |
|
$ |
44,139 |
|
|
$ |
66,528 |
|
Provision for (reduction in) unfunded loan
commitments
and letters of credit losses |
|
|
6,004 |
|
|
|
(4,888 |
) |
|
|
|
|
|
|
|
Allowance for unfunded loan commitments
and letters of credit, end of period |
|
$ |
50,143 |
|
|
$ |
61,640 |
|
|
|
|
|
|
|
|
Total allowances for credit losses |
|
$ |
1,082,114 |
|
|
$ |
782,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses (ALLL) as % of: |
|
|
|
|
|
|
|
|
Total loans and leases |
|
|
2.77 |
% |
|
|
1.75 |
% |
Nonaccrual loans and leases (NALs) |
|
|
47 |
|
|
|
123 |
|
Non-performing assets (NPAs) |
|
|
44 |
|
|
|
107 |
|
|
|
|
|
|
|
|
|
|
Total allowances for credit losses (ACL) as % of: |
|
|
|
|
|
|
|
|
Total loans and leases |
|
|
2.90 |
% |
|
|
1.90 |
% |
NALs |
|
|
50 |
|
|
|
134 |
|
NPAs |
|
|
46 |
|
|
|
116 |
|
The following table provides additional detail regarding ACL allocation as it relates to NALs.
Table 39 — ACL/NAL Coverage Ratios Analysis
At September 30, 2009
(in millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Amount |
|
|
Prior NCOs (1) |
|
|
Existing ACL (2) |
|
Total nonaccrual loans (NALs) |
|
$ |
2,181.1 |
|
|
|
|
|
|
|
|
|
Less: Franklin |
|
|
(338.5 |
) |
|
|
71 |
% |
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
Non-Franklin NALs |
|
|
1,842.6 |
|
|
|
26 |
|
|
|
18 |
|
Less: Impaired commercial loans without reserve |
|
|
(507.1 |
) |
|
|
33 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
Adjusted non-Franklin NALs |
|
$ |
1,335.5 |
|
|
|
23 |
% |
|
|
25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Franklin residential mortgage and home equity NALs (3) |
|
$ |
96.2 |
|
|
|
37 |
% |
|
|
10 |
% |
| |
|
|
| (1) |
|
Cumulative NCOs against credit exposure. |
| |
| (2) |
|
Current ACL expressed as a percentage of the September 30, 2009, balances. |
| |
| (3) |
|
Included in Adjusted non-Franklin NALs. |
63
As shown in the table above, the impaired commercial loan balance and the Franklin balance do
not have existing ACL reserves. The Franklin balance has been written down to fair value as a part
of the restructuring agreement on March 31, 2009. Furthermore, we do not expect any additional
charge-offs in the Franklin portfolio, as 71% of the total Franklin balance was previously
charged-off. (See “Franklin Loan Restructuring Transaction” discussion located within the “Critical
Accounting Policies and Use of Significant Estimates” section.) The impaired commercial loan
balance is subject
to quarterly impairment testing. The $507.1 million balance represents the net recoverable
balance based on our most recent test date of September 30, 2009, and has been written down by an
aggregate 33%. Based on the impairment designation and valuation, no reserves are assigned to the
impaired commercial loan balance.
At September 30, 2009, adjusted non-Franklin NALs totaled $1,335.5 million, and have been
written down by a cumulative 23%, with an additional 25% reserve against the carrying value to
absorb future credit losses. Also, at September 30, 2009, non-Franklin residential mortgage and
home equity NALs totaled $96.2 million, and have been written down by a cumulative 37%, with an
additional 10% reserve against the carrying value to absorb future credit losses. As a result of
the information and analysis provided in Table 39 and the paragraph above, we believe that our
current level of ALLL with respect to our NAL balances is sufficient.
NET CHARGE-OFFS (NCOs)
(This section should be read in conjunction with Significant Item 2.)
Table 40 reflects NCO detail for each of the last five quarters. Due to the size of the NCOs
related to our loans to Franklin, we believe it is helpful to analyze trends in our portfolio with
those Franklin-related NCOs, and the related loans, removed. Table 41 displays the Franklin-related
impacts for each of the last five quarters.
64
| |
Table 40 — Quarterly Net Charge-Off Analysis |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
|
2008 |
|
| (in thousands) |
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
Net charge-offs by loan and lease type: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
$ |
68,842 |
(1) |
|
$ |
98,300 |
(2) |
|
$ |
210,648 |
(3) |
|
$ |
473,426 |
(4) |
|
$ |
29,646 |
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
50,359 |
|
|
|
31,360 |
|
|
|
25,642 |
|
|
|
2,390 |
|
|
|
3,539 |
|
Commercial |
|
|
118,866 |
|
|
|
141,261 |
|
|
|
57,139 |
|
|
|
35,991 |
|
|
|
7,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
169,225 |
|
|
|
172,621 |
|
|
|
82,781 |
|
|
|
38,381 |
|
|
|
10,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial |
|
|
238,067 |
|
|
|
270,921 |
|
|
|
293,429 |
|
|
|
511,807 |
|
|
|
40,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans |
|
|
8,988 |
|
|
|
12,379 |
|
|
|
14,971 |
|
|
|
14,885 |
|
|
|
9,813 |
|
Automobile leases |
|
|
1,753 |
|
|
|
2,227 |
|
|
|
3,086 |
|
|
|
3,666 |
|
|
|
3,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans and leases |
|
|
10,741 |
|
|
|
14,606 |
|
|
|
18,057 |
|
|
|
18,551 |
|
|
|
13,345 |
|
Home equity |
|
|
28,045 |
|
|
|
24,687 |
|
|
|
17,680 |
|
|
|
19,168 |
|
|
|
15,828 |
|
Residential
mortgage (5) |
|
|
68,955 |
|
|
|
17,160 |
|
|
|
6,298 |
|
|
|
7,328 |
|
|
|
6,706 |
|
Other loans |
|
|
10,134 |
|
|
|
7,033 |
|
|
|
6,027 |
|
|
|
3,766 |
|
|
|
7,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
117,875 |
|
|
|
63,486 |
|
|
|
48,062 |
|
|
|
48,813 |
|
|
|
43,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net charge-offs |
|
$ |
355,942 |
|
|
$ |
334,407 |
|
|
$ |
341,491 |
|
|
$ |
560,620 |
|
|
$ |
83,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs — annualized percentages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and
industrial (1), (2), (3), (4) |
|
|
2.13 |
% |
|
|
2.91 |
% |
|
|
6.22 |
% |
|
|
13.78 |
% |
|
|
0.87 |
% |
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
11.14 |
|
|
|
6.45 |
|
|
|
5.05 |
|
|
|
0.45 |
|
|
|
0.68 |
|
Commercial |
|
|
6.72 |
|
|
|
7.79 |
|
|
|
2.83 |
|
|
|
1.77 |
|
|
|
0.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
7.62 |
|
|
|
7.51 |
|
|
|
3.27 |
|
|
|
1.50 |
|
|
|
0.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial |
|
|
4.37 |
|
|
|
4.77 |
|
|
|
4.96 |
|
|
|
8.54 |
|
|
|
0.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans |
|
|
1.25 |
|
|
|
1.73 |
|
|
|
1.56 |
|
|
|
1.53 |
|
|
|
1.02 |
|
Automobile leases |
|
|
2.04 |
|
|
|
2.11 |
|
|
|
2.39 |
|
|
|
2.31 |
|
|
|
1.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans and leases |
|
|
1.33 |
|
|
|
1.78 |
|
|
|
1.66 |
|
|
|
1.64 |
|
|
|
1.15 |
|
Home equity |
|
|
1.48 |
|
|
|
1.29 |
|
|
|
0.93 |
|
|
|
1.02 |
|
|
|
0.85 |
|
Residential
mortgage (5) |
|
|
6.15 |
|
|
|
1.47 |
|
|
|
0.55 |
|
|
|
0.62 |
|
|
|
0.56 |
|
Other loans |
|
|
5.36 |
|
|
|
4.03 |
|
|
|
3.59 |
|
|
|
2.22 |
|
|
|
4.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
2.94 |
|
|
|
1.56 |
|
|
|
1.12 |
|
|
|
1.12 |
|
|
|
0.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs as a% of average loans |
|
|
3.76 |
% |
|
|
3.43 |
% |
|
|
3.34 |
% |
|
|
5.41 |
% |
|
|
0.82 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
The 2009 third quarter included net recoveries totaling
$4,080 thousand associated with the Franklin relationship. |
| |
| (2) |
|
The 2009 second quarter included net recoveries totaling
$9,884 thousand associated with the Franklin relationship. |
| |
| (3) |
|
The 2009 first quarter included net charge-offs totaling
$128,338 thousand associated with the Franklin
restructuring. |
| |
| (4) |
|
The 2008 fourth quarter included net charge-offs totaling
$423,269 thousand associated with the Franklin
relationship. |
| |
| (5) |
|
Effective with the 2009 third quarter, a change to
accelerate the timing for when a partial charge-off is
recognized was made. This change resulted in $31,952
thousand of charge-offs in the 2009 third quarter. |
65
Table 41 — NCOs — Franklin-Related Impact
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
|
2008 |
|
| (in millions) |
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
Commercial and industrial net charge-offs (recoveries) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin |
|
$ |
(4.1 |
) |
|
$ |
(9.9 |
) |
|
$ |
128.3 |
|
|
$ |
423.3 |
|
|
$ |
— |
|
Non-Franklin |
|
|
72.9 |
|
|
|
108.2 |
|
|
|
82.3 |
|
|
|
50.1 |
|
|
|
29.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
68.8 |
|
|
$ |
98.3 |
|
|
$ |
210.6 |
|
|
$ |
473.4 |
|
|
$ |
29.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial average loan balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
628.0 |
|
|
$ |
1,085.0 |
|
|
$ |
1,114.0 |
|
Non-Franklin |
|
|
12,922.4 |
|
|
|
13,523.0 |
|
|
|
12,913.0 |
|
|
|
12,661.0 |
|
|
|
12,515.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
12,922.4 |
|
|
$ |
13,523.0 |
|
|
$ |
13,541.0 |
|
|
$ |
13,746.0 |
|
|
$ |
13,629.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial net charge-offs —
annualized percentages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2.13 |
% |
|
|
2.91 |
% |
|
|
6.22 |
% |
|
|
13.78 |
% |
|
|
0.87 |
% |
Non-Franklin |
|
|
2.26 |
|
|
|
3.20 |
|
|
|
2.55 |
|
|
|
1.58 |
|
|
|
0.95 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
|
2008 |
|
| (in millions) |
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
Total net charge-offs (recoveries) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin |
|
$ |
(3.5 |
) |
|
$ |
(10.1 |
) |
|
$ |
128.3 |
|
|
$ |
423.3 |
|
|
$ |
— |
|
Non-Franklin |
|
|
359.4 |
|
|
|
344.5 |
|
|
|
213.2 |
|
|
|
137.3 |
|
|
|
83.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
355.9 |
|
|
$ |
334.4 |
|
|
$ |
341.5 |
|
|
$ |
560.6 |
|
|
$ |
83.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average loan balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin |
|
$ |
470.5 |
|
|
$ |
489.0 |
|
|
$ |
630.0 |
|
|
$ |
1,085.0 |
|
|
$ |
1,114.0 |
|
Non-Franklin |
|
|
37,384.7 |
|
|
|
38,518.0 |
|
|
|
40,236.0 |
|
|
|
40,352.0 |
|
|
|
39,890.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
37,855.2 |
|
|
$ |
39,007.0 |
|
|
$ |
40,866.0 |
|
|
$ |
41,437.0 |
|
|
$ |
41,004.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net charge-offs — annualized percentages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3.76 |
% |
|
|
3.43 |
% |
|
|
3.34 |
% |
|
|
5.41 |
% |
|
|
0.82 |
% |
Non-Franklin |
|
|
3.85 |
|
|
|
3.58 |
|
|
|
2.12 |
|
|
|
1.36 |
|
|
|
0.84 |
|
Total C&I NCOs for the 2009 third quarter were substantially improved on a net comparison
basis with the prior quarter and our early-stage delinquencies were lower. The lower losses in the
current quarter were primarily a result of significantly lower activity associated with loans over
$5 million. While the decline from the prior quarter was positive, concern remains regarding the
impact of the economic conditions on our commercial borrowers. The majority of the charge-offs
were concentrated in smaller loans, distributed across our geographic markets. From an industry
perspective, the broad category of manufacturing represented the most significant level of losses
during the current quarter.
Current quarter CRE NCOs were $169.2 million, and the single family home builder and retail
projects continued to represent a significant portion, or 68%, of the losses. The level of losses
in excess of $5 million continued to decline, both in terms of the number of loans, as well as
related cumulative amount, as we continued to actively address the credit issues in the portfolio.
In assessing commercial NCOs trends, it is helpful to understand the process of how these
loans are treated as they deteriorate over time. Reserves for loans are established at origination
consistent with the level of risk associated with the transaction. If the quality of a commercial
loan deteriorates, it migrates to a lower quality risk rating as a result of our normal portfolio
management process, and a higher reserve amount is assigned. As a part of our normal portfolio
management process, the loan is reviewed and reserves are increased as warranted. Charge-offs, if
necessary, are generally recognized in a period after the reserves were established. If the
previously established reserves exceed that needed to satisfactorily resolve the problem credit, a
reduction in the overall level of the reserve could be recognized. In summary, if loan quality
deteriorates, the typical credit sequence for commercial loans are periods of reserve building,
followed by periods of higher NCOs. Additionally, it is helpful to understand that increases in
reserves either precede or are in conjunction with increases in NALs. When a credit is classified
as NAL, it is evaluated for specific reserves or charge-off. As a result, an increase in NALs does
not necessarily result in an increase in reserves or an expectation of higher future NCOs.
66
Automobile loan and lease NCOs were $10.7 million. Performance of this portfolio on both an
absolute and relative basis continued to be consistent with our views regarding the underlying
quality of the portfolio. The level of delinquencies dropped for the third consecutive quarter,
further substantiating our view of flat to improved performance of this portfolio.
Home equity NCOs in the 2009 third quarter were $28.0 million. While NCOs during the current
quarter were higher than in prior quarters, there continued to be a declining trend in the
early-stage delinquency level in the home equity line of credit portfolio, supporting our
longer-term positive view for home equity portfolio performance. The higher losses resulted from a
significant increase in loss mitigation activity and short sales. We continue to believe that our
more proactive loss mitigation strategies are in the best interest of both the company and our
customers. While there has been an increase in the losses from the year-ago quarter, given the
market conditions, performance remained within expectations.
Residential mortgage NCOs were $69.0 million. The increase from the prior quarter reflected,
among other actions, a more conservative position on the timing of loss recognition. This accounted
for $32.0 million of current quarter NCOs. In addition, during the 2009 third quarter we
transferred to held for sale, and subsequently sold in the 2009 fourth quarter, $44.8 million of
underperforming mortgage loans that resulted in $17.6 million of NCOs in the 2009 third quarter.
Excluding the impact of these two actions, NCOs on residential mortgages would have been comparable
with the prior quarter. We continue to see some positive trends in early-stage delinquencies,
indicating that even with the economic stress on our borrowers, our losses are expected to remain
manageable.
67
Table 42 — Year To Date Net Charge-Off Analysis
| |
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended September 30, |
|
| (in thousands) |
|
2009 |
|
|
2008 |
|
Net charge-offs by loan and lease type: |
|
|
|
|
|
|
|
|
Commercial: |
|
|
|
|
|
|
|
|
Commercial and industrial |
|
$ |
377,790 |
(1) |
|
$ |
52,739 |
|
Commercial real estate: |
|
|
|
|
|
|
|
|
Construction |
|
|
107,361 |
|
|
|
4,236 |
|
Commercial |
|
|
317,266 |
|
|
|
26,123 |
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
424,627 |
|
|
|
30,359 |
|
|
|
|
|
|
|
|
Total commercial |
|
|
802,417 |
|
|
|
83,098 |
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
Automobile loans |
|
|
36,338 |
|
|
|
26,343 |
|
Automobile leases |
|
|
7,066 |
|
|
|
9,671 |
|
|
|
|
|
|
|
|
Automobile loans and leases |
|
|
43,404 |
|
|
|
36,014 |
|
Home equity |
|
|
70,412 |
|
|
|
48,388 |
|
Residential mortgage (2) |
|
|
92,413 |
|
|
|
13,919 |
|
Other loans |
|
|
23,194 |
|
|
|
16,028 |
|
|
|
|
|
|
|
|
Total consumer |
|
|
229,423 |
|
|
|
114,349 |
|
|
|
|
|
|
|
|
Total net charge-offs |
|
$ |
1,031,840 |
|
|
$ |
197,447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs — annualized percentages: |
|
|
|
|
|
|
|
|
Commercial: |
|
|
|
|
|
|
|
|
Commercial and industrial (1) |
|
|
3.78 |
% |
|
|
0.52 |
% |
Commercial real estate: |
|
|
|
|
|
|
|
|
Construction |
|
|
7.42 |
|
|
|
0.28 |
|
Commercial |
|
|
5.67 |
|
|
|
0.46 |
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
6.03 |
|
|
|
0.42 |
|
|
|
|
|
|
|
|
Total commercial |
|
|
4.71 |
|
|
|
0.48 |
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
Automobile loans |
|
|
1.52 |
|
|
|
0.98 |
|
Automobile leases |
|
|
2.21 |
|
|
|
1.40 |
|
|
|
|
|
|
|
|
Automobile loans and leases |
|
|
1.60 |
|
|
|
1.06 |
|
Home equity |
|
|
1.24 |
|
|
|
0.88 |
|
Residential mortgage (2) |
|
|
2.69 |
|
|
|
0.36 |
|
Other loans |
|
|
4.36 |
|
|
|
3.07 |
|
|
|
|
|
|
|
|
Total consumer |
|
|
1.85 |
|
|
|
0.86 |
|
|
|
|
|
|
|
|
Net charge-offs as a % of average loans |
|
|
3.51 |
% |
|
|
0.65 |
% |
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
The 2009 first nine-month period included net charge-offs
totaling $114,374 thousand associated with the Franklin
restructuring. |
| |
| (2) |
|
Effective with the 2009 third quarter, a change to
accelerate the timing for when a partial charge-off is
recognized was made. This change resulted in $31,952 of
charge-offs during the first nine-month period of 2009. |
INVESTMENT SECURITIES PORTFOLIO
(This section should be read in conjunction with the “Securities and Other-Than-Temporary
Impairment” discussion located within the “Critical Accounting Policies and Use of Significant
Estimates” section.)
We routinely review our available for sale investment securities portfolio, and recognize
impairment based on fair value, issuer-specific factors and results, and our intent to hold such
investments. Our available for sale investment securities portfolio is evaluated taking into
consideration established asset/liability management objectives, and changing market conditions
that could affect the profitability of the portfolio, as well as the level of interest rate risk to
which we are exposed.
68
Our available for sale investment securities portfolio is comprised of various financial
instruments. At September 30, 2009, our available for sale investment securities portfolio totaled
$8.5 billion.
Declines in the fair value of available for sale investment securities are recorded as
temporary impairment, noncredit OTTI, or credit OTTI adjustments.
Temporary impairment adjustments are recorded when the fair value of a security fluctuates
from its historical cost. Temporary impairment adjustments are recorded in accumulated OCI, and
therefore, reduces equity. Temporary impairment adjustments do not impact net income or risk-based
capital. A recovery of available for sale security prices also is recorded as an adjustment to
OCI for securities that are temporarily impaired, and results in an increase to equity.
OTTI is recorded when the fair value of an available for sale security is less than historical
cost, and it is probable that all contractual cash flows will not be collected. If we do not
intend to sell a debt security, but it is probable that we will not collect all amounts due
according to the debt’s contractual terms, the OTTI is separated into noncredit and credit
components. The noncredit component is recognized in OCI, separately from any temporary
impairment. As with temporary impairment, noncredit OTTI does not impact net income or risk-based
capital. Any recovery of noncredit OTTI is also recorded to OCI, and results in an increase to
equity.
The credit component of OTTI, measured as the difference between amortized cost and the
present value of expected cash flows discounted at the security’s effective interest rate, is
recognized in noninterest income and, therefore, reduces net income, as well as our regulatory
capital ratios.
Because the available for sale securities portfolio is recorded at fair value, the conclusion
as to whether an investment decline is other-than-temporarily impaired, does not significantly
impact our equity position as the amount of temporary adjustment has already been reflected in
accumulated other comprehensive income/loss. A recovery in the value of an other-than-temporarily
impaired security is recorded as additional interest income over the remaining life of the
security.
Given the continued disruption in the financial markets, we may be required to recognize
additional credit OTTI losses in future periods with respect to our available for sale investment
securities portfolio. The amount and timing of any additional credit OTTI will depend on the
decline in the underlying cash flows of the securities.
Alt-A, Pooled-Trust-Preferred, and Private-Label CMO Securities
Our three highest risk segments of our investment portfolio are the Alt-A mortgage backed,
pooled-trust-preferred, and private-label CMO portfolios. The Alt-A mortgage backed securities and
pooled-trust-preferred securities are located within the asset-backed securities portfolio. The
performance of the underlying securities in each of these segments continues to reflect the
economic environment. Each of these securities in these three segments is subjected to a rigorous
review of their projected cash flows. These reviews are supported with analysis from independent
third parties. (See the “Securities and Other-Than-Temporary Impairment” section located within
the “Critical Accounting Policies and Use of Significant Estimates” section for additional
information).
The following table presents the credit ratings for our Alt-A, pooled-trust-preferred, and
private label CMO securities as of September 30, 2009:
Table 43 — Credit Ratings of Alt-A, Pooled-Trust-Preferred, and Private Label CMO Securities(1)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Amortized |
|
|
|
|
|
|
Average Credit Rating of Fair Value Amount at September 30, 2009 |
|
| (in millions) |
|
Cost |
|
|
Fair Value |
|
|
AAA |
|
|
AA +/- |
|
|
A +/- |
|
|
BBB +/- |
|
|
<BBB- |
|
Private label CMO securities |
|
|
562.1 |
|
|
|
475.3 |
|
|
|
38.8 |
|
|
|
31.9 |
|
|
|
38.2 |
|
|
|
80.7 |
|
|
|
285.7 |
|
Alt-A mortgage-backed
securities |
|
|
186.1 |
|
|
|
165.8 |
|
|
|
21.2 |
|
|
|
26.2 |
|
|
|
— |
|
|
|
— |
|
|
|
118.4 |
|
Pooled-trust-preferred
securities |
|
|
253.0 |
|
|
|
118.1 |
|
|
|
— |
|
|
|
25.7 |
|
|
|
— |
|
|
|
29.1 |
|
|
|
63.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at September 30,
2009 |
|
$ |
1,001.3 |
|
|
$ |
759.2 |
|
|
$ |
60.0 |
|
|
$ |
83.8 |
|
|
$ |
38.2 |
|
|
$ |
109.8 |
|
|
$ |
467.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at December 31, 2008 |
|
$ |
1,327.4 |
|
|
$ |
987.5 |
|
|
$ |
390.6 |
|
|
$ |
84.4 |
|
|
$ |
174.1 |
|
|
$ |
49.7 |
|
|
$ |
288.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
Credit ratings reflect the lowest current rating assigned by a nationally recognized credit rating agency. |
69
Negative changes to the above credit ratings would generally result in an increase of our
risk-weighted assets, which could result in a reduction to our regulatory capital ratios.
In an effort to lower the risk profile of the Alt-A portfolio, we sold $168.9 million (book
value) of our Alt-A securities during the first nine-month period of 2009, resulting in a net
securities gain of $1.4 million. These sold securities were some of the lower rated securities
that we owned.
Table 44 details our Alt-A, pooled-trust-preferred, and private-label CMO securities exposure
at September 30, 2009:
Table 44 — Alt-A, Pooled-Trust-Preferred, and Private-Label CMO Securities Selected Data
At September 30, 2009
(in millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Alt-A |
|
|
|
|
|
|
|
|
|
|
| |
|
mortgage-backed |
|
|
Private Label |
|
|
Pooled-Trust-Preferred |
|
|
|
|
| |
|
securities |
|
|
CMO securities |
|
|
securities |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Par value |
|
$ |
230.9 |
|
|
$ |
571.3 |
|
|
$ |
297.3 |
|
|
$ |
1,099.5 |
|
Unamortized premium (discount) |
|
|
(2.7 |
) |
|
|
(6.3 |
) |
|
|
(0.4 |
) |
|
|
(9.4 |
) |
Credit OTTI |
|
|
(15.5 |
) |
|
|
(2.8 |
) |
|
|
(42.8 |
) |
|
|
(61.1 |
) |
Other OTTI (1) |
|
|
(26.6 |
) |
|
|
(0.1 |
) |
|
|
(1.1 |
) |
|
|
(27.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
OTTI recognized through earnings |
|
|
(42.1 |
) |
|
|
(2.9 |
) |
|
|
(43.9 |
) |
|
|
(88.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value / amortized cost |
|
|
186.1 |
|
|
|
562.1 |
|
|
|
253.0 |
|
|
|
1,001.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment recognized through |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income
(2) |
|
|
(20.3 |
) |
|
|
(86.8 |
) |
|
|
(134.9 |
) |
|
|
(242.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value |
|
$ |
165.8 |
|
|
$ |
475.3 |
|
|
$ |
118.1 |
|
|
$ |
759.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
Other OTTI represents noncredit related impairment recorded through earnings. |
| |
| (2) |
|
Includes both noncredit OTTI and temporary impairment. |
As shown in the above table, the securities in the Alt-A, pooled-trust-preferred, and
private-label CMO securities portfolios had a fair value that was $242.0 million less than their
book value (net of impairment) at September 30, 2009, resulting from increased liquidity spreads
and extended duration. We consider the $242.0 million of impairment to be temporary, as we believe
that it is probable that all contractual cash flows will be collected on the related securities and
we intend to hold these securities until recovery. The subsequent recovery on this temporary
impairment will be recorded in OCI. In addition, we recorded $27.8 million of noncredit related
impairment on securities through earnings. These are
securities for which we don’t have the intent to hold until recovery. The subsequent recovery
of this OTTI will be recorded to interest income over the remaining life of the securities.
During the first nine-month period of 2009, we recognized OTTI of $9.7 million within the Alt-A
securities portfolio, $29.5 million within the pooled-trust-preferred securities portfolio, and
$3.0 million within the private-label CMO securities. (See “Critical Accounting Policies and Use of
Significant Estimates” for additional information).
The following table summarizes the relevant characteristics of our pooled-trust-preferred
securities portfolio. Each of the securities is part of a pool of issuers and each support a more
senior tranche of securities except for the I-Pre TSL II security that is the most senior class.
(See “Critical Accounting Policies and Use of Significant Estimates” for additional information
regarding our pooled-trust-preferred securities portfolio).
70
Table 45 — Trust Preferred Securities Data
(in thousands, as of September 30, 2009)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferrals |
|
|
Expected |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
|
Defaults |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# of |
|
|
Defaults |
|
|
as a % of |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Lowest |
|
|
Issuers Currently |
|
|
as a % of |
|
|
Remaining |
|
|
|
|
| |
|
Book |
|
|
Fair |
|
|
Unrealized |
|
|
Credit |
|
|
Performing/ |
|
|
Original |
|
|
Performing |
|
|
Excess |
|
| Deal Name |
|
Value |
|
|
Value |
|
|
Gain/(Loss) |
|
|
Rating(2) |
|
|
Remaining(3) |
|
|
Collateral |
|
|
Collateral |
|
|
Subordination(4) |
|
Alesco II(1) |
|
$ |
35,308 |
|
|
$ |
11,076 |
|
|
$ |
(24,232 |
) |
|
CC |
|
|
36/44 |
|
|
|
18.8 |
% |
|
|
20.0 |
% |
|
|
— |
% |
Alesco IV(1) |
|
|
12,904 |
|
|
|
3,182 |
|
|
|
(9,722 |
) |
|
CC |
|
|
40/54 |
|
|
|
28.2 |
|
|
|
27.1 |
|
|
|
— |
|
ICONS |
|
|
20,000 |
|
|
|
12,542 |
|
|
|
(7,458 |
) |
|
BBB |
|
|
29/30 |
|
|
|
3.0 |
|
|
|
14.0 |
|
|
|
54.8 |
|
I-Pre TSL II |
|
|
36,838 |
|
|
|
25,688 |
|
|
|
(11,149 |
) |
|
AA |
|
|
29/29 |
|
|
|
— |
|
|
|
14.2 |
|
|
|
72.8 |
|
MM Comm II(1) |
|
|
23,720 |
|
|
|
16,585 |
|
|
|
(7,135 |
) |
|
BBB |
|
|
5/8 |
|
|
|
4.7 |
|
|
|
9.2 |
|
|
|
— |
|
MM Comm III(1) |
|
|
11,924 |
|
|
|
6,016 |
|
|
|
(5,908 |
) |
|
|
B |
|
|
|
10/12 |
|
|
|
3.5 |
|
|
|
34.4 |
|
|
|
— |
|
Pre TSL IX(1) |
|
|
4,194 |
|
|
|
1,621 |
|
|
|
(2,573 |
) |
|
CC |
|
|
37/49 |
|
|
|
23.5 |
|
|
|
19.0 |
|
|
|
— |
|
Pre TSL X(1) |
|
|
13,165 |
|
|
|
3,936 |
|
|
|
(9,229 |
) |
|
CC |
|
|
43/58 |
|
|
|
26.6 |
|
|
|
22.3 |
|
|
|
— |
|
Pre TSL XI |
|
|
25,000 |
|
|
|
10,383 |
|
|
|
(14,618 |
) |
|
CC |
|
|
54/65 |
|
|
|
16.9 |
|
|
|
19.8 |
|
|
|
3.1 |
|
Pre TSL XIII(1) |
|
|
23,623 |
|
|
|
8,647 |
|
|
|
(14,976 |
) |
|
CC |
|
|
55/65 |
|
|
|
16.7 |
|
|
|
22.1 |
|
|
|
— |
|
Reg
Diversified(1) |
|
|
7,499 |
|
|
|
7,306 |
|
|
|
(193 |
) |
|
CC |
|
|
33/45 |
|
|
|
26.0 |
|
|
|
22.8 |
|
|
|
— |
|
Soloso(1) |
|
|
7,857 |
|
|
|
1,638 |
|
|
|
(6,219 |
) |
|
CC |
|
|
56/71 |
|
|
|
16.3 |
|
|
|
26.9 |
|
|
|
— |
|
Tropic III |
|
|
31,000 |
|
|
|
9,523 |
|
|
|
(21,477 |
) |
|
|
B |
|
|
|
34/46 |
|
|
|
25.2 |
|
|
|
25.9 |
|
|
|
22.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
253,031 |
|
|
$ |
118,143 |
|
|
$ |
(134,889 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
Security was determined to have other-than-temporary impairment. As such, the book value is net of recorded credit impairment. |
| |
| (2) |
|
For purposes of comparability, the lowest credit rating expressed is equivalent to Fitch ratings even where lowest rating is
based on another nationally recognized credit rating agency. |
| |
| (3) |
|
Includes both banks and/or insurance companies. |
| |
| (4) |
|
Excess subordination percentage represents the additional defaults in excess of both current and projected defaults that the
CDO can absorb before the bond experiences credit impairment. Excess subordinated percentage is calculated by (a) determining what
percentage of defaults a deal can experience before the bond has credit impairment, and (b) subtracting from this default breakage percentage
both total current and expected future default percentages. |
Market Risk
Market risk represents the risk of loss due to changes in market values of assets and
liabilities. We incur market risk in the normal course of business through exposures to market
interest rates, foreign exchange rates, equity prices, credit spreads, and expected lease residual
values. We have identified two primary sources of market risk: interest rate risk and price risk.
Interest rate risk is our primary market risk.
Interest Rate Risk
Interest rate risk is the risk to earnings and value arising from changes in market interest
rates. Interest rate risk arises from timing differences in the repricings and maturities of
interest bearing assets and liabilities (reprice risk), changes in the expected maturities of
assets and liabilities arising from embedded options, such as borrowers’ ability to prepay
residential mortgage loans at any time and depositors’ ability to terminate certificates of deposit
before maturity (option risk), changes in the shape of the yield curve whereby interest rates
increase or decrease in a non-parallel fashion (yield curve risk), and changes in spread
relationships between different yield curves, such as U.S. Treasuries and London Interbank Offered
Rate (LIBOR) (basis risk).
“Asset sensitive position” refers to an increase in short-term interest rates that is expected
to generate higher net interest income, as rates earned on our interest-earning assets would
reprice upward more quickly than rates paid on our interest-bearing liabilities. Conversely,
“liability sensitive position” refers to an increase in short-term interest rates that is expected
to generate lower net interest income, as rates paid on our interest-bearing liabilities would
reprice upward more quickly than rates earned on our interest-earning assets.
71
INCOME SIMULATION AND ECONOMIC VALUE OF EQUITY ANALYSIS
Interest rate risk measurement is performed monthly. Two broad approaches to modeling
interest rate risk are used: income simulation and economic value analysis. An income simulation
analysis is used to measure the sensitivity of forecasted net interest income to changes in market
rates over a one-year time period. Although bank owned life insurance, automobile operating lease
assets, and excess cash balances held at the Federal Reserve Bank are classified as noninterest
earning assets, and the net revenue from these assets is recorded to noninterest income and
noninterest expense, these portfolios are included in the interest sensitivity analysis because
both have attributes similar to fixed-rate interest earning assets. Economic value of equity (EVE)
analysis is used to measure the sensitivity of the values of period-end assets and liabilities to
changes in market interest rates. EVE serves as a complement to income simulation modeling as it
provides risk exposure estimates for time periods beyond the one-year time period simulation.
The simulations for evaluating short-term interest rate risk exposure are scenarios that model
gradual “+/-100” and “+/-200” basis point parallel shifts in market interest rates over the next
12-month period beyond the interest rate change implied by the current yield curve. We assumed
that market interest rates would not fall below 0% over the next 12-month period for the scenarios
that used the “-100” and “-200” basis point parallel shift in market interest rates. The following
table shows the results of the scenarios as of September 30, 2009, and December 31, 2008. All of
the positions were within the board of directors’ policy limits.
Table 46 — Net Interest Income at Risk
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net Interest Income at Risk (%) |
|
Basis point change scenario |
|
|
-200 |
|
|
|
-100 |
|
|
|
+100 |
|
|
|
+200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Board policy limits |
|
|
-4.0 |
% |
|
|
-2.0 |
% |
|
|
-2.0 |
% |
|
|
-4.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
-2.1 |
% |
|
|
-1.4 |
% |
|
|
+0.6 |
% |
|
|
+0.9 |
% |
December 31, 2008 |
|
|
-0.3 |
% |
|
|
-0.9 |
% |
|
|
+0.6 |
% |
|
|
+1.1 |
% |
The net interest income at risk reported as of September 30, 2009 for the “+200” basis points
scenario showed a slight change to a lower near-term asset sensitive position compared with
December 31, 2008. Net interest income at risk reflects actions taken by management to improve the
liquidity position of the balance sheet. The primary factors contributing to the change include:
| |
• |
|
2.6% incremental liability sensitivity reflecting the execution of $4.4 billion receive
fixed-interest-rate swaps during the first nine-month period of 2009, partially offset by
the maturities or calling of $0.6 billion of receive fixed-interest-rate swaps, to offset
the impact of actual and anticipated reductions in fixed rate assets. |
| |
| |
• |
|
2.3% incremental asset sensitivity reflecting the decrease in floating rate debt and an
increase in deposits and net free funds. |
| |
| |
• |
|
1.7% incremental liability sensitivity reflecting the purchase of securities to maintain
a higher liquidity position. |
| |
| |
• |
|
1.3% incremental asset sensitivity reflecting the sale of municipal securities, the
securitization and sale of automobile loans, and the sale of residential mortgage loans,
slightly offset by an increase in other securities. |
| |
| |
• |
|
0.7% incremental asset sensitivity reflecting the anticipated slow down in fixed-rate
loan originations due to customer preferences for variable-rate loans. |
The primary simulations for EVE at risk assume immediate “+/-100” and “+/-200” basis point
parallel shifts in market interest rates beyond the interest rate change implied by the current
yield curve. The following table outlines the September 30, 2009, results compared with December
31, 2008. All of the positions were within the board of directors’ policy limits.
72
Table 47 — Economic Value of Equity at Risk
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Economic Value of Equity at Risk (%) |
|
Basis point change scenario |
|
|
-200 |
|
|
|
-100 |
|
|
|
+100 |
|
|
|
+200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Board policy limits |
|
|
-12.0 |
% |
|
|
-5.0 |
% |
|
|
-5.0 |
% |
|
|
-12.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
-1.8 |
% |
|
|
+1.3 |
% |
|
|
-2.9 |
% |
|
|
-6.8 |
% |
December 31, 2008 |
|
|
-3.4 |
% |
|
|
-1.0 |
% |
|
|
-2.6 |
% |
|
|
-7.2 |
% |
The EVE at risk reported as of September 30, 2009 for the “+200” basis points scenario showed
a change to a lower long-term liability sensitive position compared with December 31, 2008,
reflecting actions taken by management to improve the liquidity position of the balance sheet and
improvements made in modeling assumptions around deposit pricing and mortgage asset prepayments.
The primary factors contributing to the change include:
| |
• |
|
3.1% incremental liability sensitivity reflecting the purchase of securities to maintain
a higher liquidity position. |
| |
| |
• |
|
2.5% incremental asset sensitivity reflecting the sale of municipal securities, the
securitization of indirect auto loans, and the sale of residential mortgage loans, slightly
offset by an increase in other securities. |
| |
| |
• |
|
1.5% incremental asset sensitivity reflecting the improvements made in modeling
assumptions around deposit pricing, mortgage asset prepayments, and implied forward yield
curves. |
| |
| |
• |
|
1.3% incremental liability sensitivity reflecting the execution of $4.4 billion receive
fixed-interest-rate swaps during the first nine-month period of 2009, partially offset by
maturities or calling of $0.6 billion receive fixed-interest-rate swaps, to offset the
impact of actual and anticipated reductions in fixed rate assets. |
| |
| |
• |
|
1.1% incremental asset sensitivity reflecting the issuance of $587.3 million common
equity in the 2009 third
quarter. |
MORTGAGE SERVICING RIGHTS (MSRs)
At September 30, 2009, we had a total of $201.0 million of capitalized MSRs representing the
right to service $16.1 billion in mortgage loans. Of this $201.0 million, $170.5 million was
recorded using the fair value method, and $30.5 million was recorded using the amortization method.
If we actively engage in hedging, the MSR asset is carried at fair value. If we do not actively
engage in hedging, the MSR asset is adjusted using the amortization method, and is carried at the
lower of cost or market value. (See Note 6 of the Notes to Unaudited Condensed Consolidated
Financial Statements).
MSR fair values are very sensitive to movements in interest rates as expected future net
servicing income depends on the projected outstanding principal balances of the underlying loans,
which can be greatly reduced by prepayments. Prepayments usually increase when mortgage interest
rates decline and decrease when mortgage interest rates rise. We have employed strategies to
reduce the risk of MSR fair value changes or impairment. In addition, we engage a third party to
provide improved valuation tools and assistance with our strategies with the objective to decrease
the volatility from MSR fair value changes. However, volatile changes in interest rates can
diminish the effectiveness of these hedges. We typically report MSR fair value adjustments net of
hedge-related trading activity in the mortgage banking income category of noninterest income.
Changes in fair value between reporting dates are recorded as an increase or decrease in mortgage
banking income.
MSRs recorded using the amortization method generally relate to loans originated with
historically low interest rates, resulting in a lower probability of prepayments and, ultimately,
impairment. MSR assets are included in other assets, and are presented in Table 15 and Table 19.
(See Note 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements).
Price Risk
Price risk represents the risk of loss arising from adverse movements in the prices of
financial instruments that are carried at fair value and are subject to fair value accounting. We
have price risk from trading securities, securities owned by our broker-dealer subsidiaries,
foreign exchange positions, equity investments, investments in securities backed by mortgage loans,
and marketable equity securities held by our insurance subsidiaries. We have established loss
limits on the
trading portfolio, on the amount of foreign exchange exposure that can be maintained,
and on the amount of marketable equity securities that can be held by the insurance subsidiaries.
73
EQUITY INVESTMENT PORTFOLIOS
In reviewing our equity investment portfolio, we consider general economic and market
conditions, including industries in which private equity merchant banking and community development
investments are made, and adverse changes affecting the availability of capital. We determine any
impairment based on all of the information available at the time of the assessment. New
information or economic developments in the future could result in the recognition of additional
impairment.
From time to time, we invest in various investments with equity risk. Such investments
include investment funds that buy and sell publicly traded securities, investment funds that hold
securities of private companies, direct equity or venture capital investments in companies (public
and private), and direct equity or venture capital interests in private companies in connection
with our mezzanine lending activities. These investments are included in “accrued income and
other assets” on our consolidated balance sheet. At September 30, 2009, we had a total of $33.4
million of such investments, down from $44.7 million at December 31, 2008. The following table
details the components of this change during 2009:
Table 48 — Equity Investment Activity
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Balance at |
|
|
New |
|
|
Returns of |
|
|
|
|
|
|
|
|
|
|
Balance at |
|
| |
|
December 31, 2008 |
|
|
Investments |
|
|
Capital |
|
|
Gain / (Loss) |
|
|
Other |
|
|
September 30, 2009 |
|
Type: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public equity |
|
$ |
12,129 |
|
|
$ |
— |
|
|
$ |
(13,813 |
) |
|
$ |
1,963 |
|
|
$ |
(279 |
) |
|
$ |
— |
|
Private equity |
|
|
25,951 |
|
|
|
5,275 |
|
|
|
(2,573 |
) |
|
|
(1,368 |
) |
|
|
— |
|
|
|
27,285 |
|
Direct investment |
|
|
6,576 |
|
|
|
— |
|
|
|
— |
|
|
|
(444 |
) |
|
|
— |
|
|
|
6,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
44,656 |
|
|
$ |
5,275 |
|
|
$ |
(16,386 |
) |
|
$ |
151 |
|
|
$ |
(279 |
) |
|
$ |
33,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
September 30, 2009, we had an additional $22.1 million of
unfunded commitments relating to these equity investments.
Investment decisions that incorporate credit risk require the approval of the independent
credit administration function. The degree of initial due diligence and subsequent review is a
function of the type, size, and collateral of the investment. Performance is monitored on a regular
basis, and reported to the Market Risk Committee.
Liquidity Risk
Liquidity risk is the risk of loss due to the possibility that funds may not be available to
satisfy current or future commitments resulting from external macro market issues, investor and
customer perception of financial strength, and events unrelated to the company such as war,
terrorism, or financial institution market specific issues. We manage liquidity risk at both the
Bank and at the parent company, Huntington Bancshares Incorporated (HBI).
The overall objective of liquidity risk management is to ensure that we can obtain
cost-effective funding to meet current and future obligations, as well as maintain sufficient
levels of on-hand liquidity, under both normal “business as usual” and unanticipated, stressed
circumstances. The Risk Management Committee was appointed by the HBI Board Risk Committee to
oversee liquidity risk management and establish policies and limits, based upon analyses of the
ratio of loans to deposits, liquid asset coverage ratios, the percentage of assets funded with
noncore or wholesale funding, net cash capital, liquid assets, and emergency borrowing capacity.
In addition, operating guidelines are established to ensure that bank loans included in the Retail
and Business Banking, Commercial Banking, Commercial Real Estate, and PFG lines-of-business are
funded with core deposits. These operating guidelines also ensure diversification of noncore
funding by type, source, and maturity and provide sufficient liquidity to cover 100% of wholesale
funds maturing within a six-month period. A contingency funding plan is in place, which includes
forecasted sources and uses of funds under various scenarios in order to prepare for unexpected
liquidity shortages, including the implications of any credit rating changes and/or other trigger
events related to financial ratios, deposit fluctuations, debt issuance capacity, stock
performance, or negative news related to us or the banking industry. Liquidity risk is reviewed
monthly for the Bank and the parent company, as well as its subsidiaries. In addition, two
liquidity subcommittees meet regularly to identify and monitor liquidity positions, provide policy
guidance, review funding strategies, and oversee adherence to, and the maintenance of, the
contingency funding
plan(s). A Contingency Funding Working Group monitors daily cash flow trends,
branch activity, unfunded commitments, significant transactions, and parent company subsidiary
sources and uses of funds in order to identify areas of concern, and establish specific funding
strategies. This group works closely with the Risk Management Committee and the HBI Communication
Team in order to identify issues that may require a more proactive communication plan to
shareholders, employees, and customers regarding specific events or issues that could have an
impact on our liquidity position.
74
In the normal course of business, in order to better manage liquidity risk, we perform stress
tests to determine the effect that a potential downgrade in our credit ratings or other market
disruptions could have on liquidity over various time periods. These credit ratings, which are
presented in Table 50, have a direct impact on our cost of funds and ability to raise funds under
normal, as well as adverse, circumstances. The results of these stress tests indicate that
sufficient sources of funds are available to meet our financial obligations and fund our operations
for a 12-month period. The stress test scenarios include testing to determine the impact of an
interruption to our access to the national markets for funding, significant run-off in core
deposits and liquidity triggers inherent in other financial agreements. To compensate for the
effect of these assumed liquidity pressures, we consider alternative sources of liquidity over
different time periods to project how funding needs would be managed. The specific alternatives
for enhancing liquidity include generating
client deposits, securitizing or selling loans, selling or maturing of securities, and
extending the level or maturity of wholesale borrowings.
Most credit markets in which we participate and rely upon as sources of funding have been
significantly disrupted and highly volatile since mid-2007. Reflecting concern about the stability
of the financial markets generally, many lenders reduced, and in some cases, ceased unsecured
funding to borrowers, including other financial institutions. Since that time, as a means of
maintaining adequate liquidity, we, like many other financial institutions, have relied more
heavily on the liquidity and stability present in the secured credit markets since access to
unsecured term debt has been restricted. Throughout this period, we continued to extend maturities
ensuring that we maintained adequate liquidity in the event the crisis became prolonged. In
addition to managing our maturities, we strengthened our overall liquidity position by
significantly reducing our noncore funds and wholesale borrowings, and increasing our overall level
of liquid assets. Shifting from the net purchasing of overnight federal funds to an excess reserve
position at the end of the 2009 first quarter, as well as significantly increasing the level of
free securities, has significantly improved our on-hand liquidity. However, we are part of a
financial system, and a systemic lack of available credit, a lack of confidence in the financial
sector, and increased volatility in the financial markets could materially and adversely affect our
liquidity position.
Bank Liquidity and Sources of Liquidity
Our primary sources of funding for the Bank are retail and commercial core deposits. Core
deposits are comprised of interest bearing and noninterest bearing demand deposits, money market
deposits, savings and other domestic time deposits, consumer certificates of deposit both over and
under $250,000, and nonconsumer certificates of deposit less than $250,000. Noncore deposits
consist of brokered money market deposits and certificates of deposit, foreign time deposits, and
other domestic time deposits of $250,000 or more comprised primarily of public fund certificates of
deposit more than $250,000.
Core deposits may increase our need for liquidity as certificates of deposit mature or are
withdrawn before maturity and as nonmaturity deposits, such as checking and savings account
balances, are withdrawn. Specifically, if the FDIC permits the Transaction Account Guarantee
Program (“TAGP”) to expire as scheduled on June 30, 2010, customers may elect to reduce their
deposits with us in an effort to maintain deposit insurance coverage. The TAGP is a voluntary
program provided by the FDIC as part of its TLGP. Under the program, all noninterest bearing
transaction accounts are fully guaranteed by the FDIC for the customer’s entire account balance.
This program provides our customers with additional deposit insurance coverage, and is in addition
to and separate from the $250,000 coverage available under the FDIC’s general deposit insurance
rules. At September 30, 2009,
noninterest bearing transaction account balances exceeding $250,000 totaled $2.0 billion. This
$2.0 billion represents the amount of noninterest bearing transaction customer deposits that would
not have been FDIC insured without the additional coverage provided by the TAGP.
As referenced in the above paragraph, the FDIC establishes a coverage limit, generally
$250,000 currently, for interest bearing deposit balances. To provide our customers deposit
insurance above the established $250,000, we have joined the Certificate of Deposit Account
Registry Service (CDARS), a program that allows customers to invest up to $50 million in
certificates of deposit through one participating financial institution, with the entire amount
being covered by FDIC insurance.
75
Table 49 reflects deposit composition detail for each of the past five quarters.
Table 49 — Deposit Composition
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
|
2008 |
|
| (in millions) |
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Type |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits — noninterest bearing |
|
$ |
6,306 |
|
|
|
16 |
% |
|
$ |
6,169 |
|
|
|
16 |
% |
|
$ |
5,887 |
|
|
|
15 |
% |
|
$ |
5,477 |
|
|
|
14 |
% |
|
$ |
5,135 |
|
|
|
14 |
% |
Demand deposits — interest bearing |
|
|
5,401 |
|
|
|
14 |
|
|
|
4,842 |
|
|
|
12 |
|
|
|
4,306 |
|
|
|
11 |
|
|
|
4,083 |
|
|
|
11 |
|
|
|
4,052 |
|
|
|
11 |
|
Money market deposits |
|
|
8,548 |
|
|
|
22 |
|
|
|
6,622 |
|
|
|
17 |
|
|
|
5,857 |
|
|
|
15 |
|
|
|
5,182 |
|
|
|
14 |
|
|
|
5,565 |
|
|
|
15 |
|
Savings and other domestic deposits |
|
|
4,631 |
|
|
|
12 |
|
|
|
4,859 |
|
|
|
12 |
|
|
|
5,007 |
|
|
|
13 |
|
|
|
4,930 |
|
|
|
13 |
|
|
|
4,903 |
|
|
|
13 |
|
Core certificates of deposit |
|
|
11,205 |
|
|
|
28 |
|
|
|
12,197 |
|
|
|
31 |
|
|
|
12,616 |
|
|
|
32 |
|
|
|
12,856 |
|
|
|
34 |
|
|
|
12,270 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits |
|
|
36,091 |
|
|
|
91 |
|
|
|
34,689 |
|
|
|
89 |
|
|
|
33,673 |
|
|
|
86 |
|
|
|
32,528 |
|
|
|
86 |
|
|
|
31,925 |
|
|
|
85 |
|
Other domestic deposits of $250,000 or more |
|
|
689 |
|
|
|
2 |
|
|
|
846 |
|
|
|
2 |
|
|
|
1,041 |
|
|
|
3 |
|
|
|
1,328 |
|
|
|
4 |
|
|
|
1,749 |
|
|
|
5 |
|
Brokered deposits and negotiable CDs |
|
|
2,630 |
|
|
|
7 |
|
|
|
3,229 |
|
|
|
8 |
|
|
|
3,848 |
|
|
|
10 |
|
|
|
3,954 |
|
|
|
9 |
|
|
|
2,925 |
|
|
|
8 |
|
Deposits in foreign offices |
|
|
419 |
|
|
|
1 |
|
|
|
401 |
|
|
|
1 |
|
|
|
508 |
|
|
|
1 |
|
|
|
733 |
|
|
|
2 |
|
|
|
970 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
39,829 |
|
|
|
100 |
% |
|
$ |
39,165 |
|
|
|
100 |
% |
|
$ |
39,070 |
|
|
|
100 |
% |
|
$ |
37,943 |
|
|
|
100 |
% |
|
$ |
37,569 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
10,884 |
|
|
|
30 |
% |
|
$ |
9,738 |
|
|
|
28 |
% |
|
$ |
8,934 |
|
|
|
27 |
% |
|
$ |
7,971 |
|
|
|
25 |
% |
|
$ |
8,208 |
|
|
|
26 |
% |
Personal |
|
|
25,207 |
|
|
|
70 |
|
|
|
24,951 |
|
|
|
72 |
|
|
|
24,739 |
|
|
|
74 |
|
|
|
24,557 |
|
|
|
76 |
|
|
|
23,717 |
|
|
|
74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits |
|
$ |
36,091 |
|
|
|
100 |
% |
|
$ |
34,689 |
|
|
|
100 |
% |
|
$ |
33,673 |
|
|
|
100 |
% |
|
$ |
32,528 |
|
|
|
100 |
% |
|
$ |
31,925 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
Comprised largely of national market deposits. |
76
During the first nine-month period of 2009, we initiated various strategies with the intent of
further strengthening our liquidity position, as well as reducing the size of our balance sheet to,
among other objectives, provide additional support to our TCE ratio (see “Capital” discussion).
Our actions taken during the first nine-month period of 2009 resulted in: (a) $4.2 billion
increase in our unpledged investment securities, (b) $1.1 billion increase in available cash and
due from banks, (c) $1.0 billion automobile loan securitization, (d) $0.6 billion sale of municipal
securities, (e) $0.6 billion debt issuance as part of the TLGP, and (f) $0.2 billion mortgage loan
sale. Any proceeds from these actions were used primarily to pay down wholesale borrowings.
In addition to these actions, core deposits grew $3.6 billion during the first nine-month
period of 2009. This increase reduced our reliance upon noncore funding sources. In addition, our
loan-to-deposit ratio improved to 94% at September 30, 2009, compared with 108% at December 31,
2008.
On October 22, 2009, we announced an offer to purchase certain subordinated notes issued
previously by the Bank. The offer established the cash prices that we would pay for each of the
subordinated note issuances, and established a maximum amount that we would purchase of $400
million of principal outstanding. The purpose of this offer was to redeem these obligations at
prices and terms that we believe are favorable. Any difference between the carrying value of the
notes and the purchase price will be recorded as a pretax gain, net of expenses. While these
securities qualify as Tier 2 capital, it is our intention to replace this capital at the Bank with
an intercompany subordinated note from the parent company. Therefore, any redemption should
increase the quantity and quality of the Bank’s capital. The funding for this transaction will be
from cash on hand, and will not have a material impact on our liquidity position. On a
consolidated basis, the transaction will reduce our total risk-based capital and increase our Tier
1 capital. Through November 4, 2009, the “Early Tender
Date”, we had received tenders of these subordinated notes
having an aggregate principal amount of $370 million. Based on
the terms and conditions of the offer, and the amount of tenders
received through the “Early Tender Date”, we anticipate a
pretax gain of approximately $80 million —
$90 million, including the impact of fair value adjustments from
hedge accounting, will be recorded in the 2009 fourth quarter.
The Bank has access to the Federal Reserve’s discount window and Term Auction Facility (TAF).
These borrowings are secured by commercial loans and home equity lines of credit. The Bank is also
a member of the Federal Home Loan Bank (FHLB)-Cincinnati, and as such, has access to advances from
this facility. These advances are generally secured by residential mortgages, other
mortgage-related loans, and available-for-sale securities. Information regarding amounts pledged,
for the ability to borrow if necessary, and unused borrowing capacity at both the Federal Reserve
and the FHLB-Cincinnati, are outlined in the following table:
| |
|
|
|
|
|
|
|
|
| |
|
September 30, |
|
|
December 31, |
|
| (in billions) |
|
2009 |
|
|
2008 |
|
| |
Loans and Securities Pledged |
|
|
|
|
|
|
|
|
Federal Reserve Bank |
|
$ |
8.0 |
|
|
$ |
8.4 |
|
FHLB-Cincinnati |
|
|
8.7 |
|
|
|
9.2 |
|
|
|
|
|
|
|
|
Total loans and securities pledged |
|
$ |
16.7 |
|
|
$ |
17.6 |
|
|
|
|
|
|
|
|
|
|
Total unused borrowing capacity at Federal
Reserve Bank and FHLB-Cincinnati |
|
$ |
8.4 |
|
|
$ |
9.3 |
|
As part of a periodic review conducted by the Federal Reserve, our discount window and TAF
borrowing capacity was reduced during 2009. The reduction was based on the lowering of the
specific percentages of pledged amounts available for borrowing.
We can also obtain funding through other methods including: (a) purchasing federal funds, (b)
selling securities under repurchase agreements, (c) the sale or maturity of investment securities,
(d) the sale or securitization of loans, (e) the sale of national market certificates of deposit,
(f) the relatively shorter-term structure of our commercial loans and automobile loans, and (g) the
issuance of common and preferred stock.
At September 30, 2009, we believe that the Bank had sufficient liquidity to meet its cash flow
obligations for the foreseeable future.
Parent Company Liquidity
The parent company’s funding requirements consist primarily of dividends to shareholders, debt
service, income taxes, operating expenses, funding of non-bank subsidiaries, repurchases of our
stock, and acquisitions. The parent company obtains funding to meet obligations from dividends
received from direct subsidiaries, net taxes collected from subsidiaries included in the federal
consolidated tax return, fees for services provided to subsidiaries, and the issuance of debt
securities.
77
At September 30, 2009, the parent company had $1.8 billion in cash or cash equivalents,
compared with $1.1 billion at December 31, 2008. The following actions taken during the first
nine-month period of 2009 affected the parent company’s liquidity position: (a) the issuance of
213.0 million shares of new common stock through two common stock offerings
resulting in aggregate gross proceeds of $796.8 million; (b) the completion of three separate
“discretionary equity issuance” programs, which allowed us to take advantage of market
opportunities to issue an additional 92.7 million shares of common stock worth $338.9 million; (c)
two contributions of $250.0 million each, or $500.0 million total, of additional capital made by
the parent company to the Bank, which increased the Bank’s regulatory capital levels above its
already “well-capitalized” levels; and (d) the redemption of a portion of our junior subordinated
debt at a total cost of $96.2 million. A portion of the cash proceeds received from the common
stock issuances were used to purchase investment securities.
Based on the current dividend of $0.01 per common share, cash demands required for common
stock dividends are estimated to be approximately $7 million per quarter. We recognize the
importance of the dividend to our shareholders. While our overall capital and liquidity positions
are strong, extreme and economic market deterioration and the changing regulatory environment drove
the difficult but prudent decision to reduce the dividend during the 2009 first quarter to $0.01
per common share. This proactive measure will enable us to build capital and strengthen our
balance sheet. Table 55 provides additional detail regarding quarterly dividends declared per
common share.
During 2008, we issued an aggregate $569 million of Series A Non-cumulative Perpetual
Convertible Preferred Stock. The Series A Preferred Stock will pay, as declared by our board of
directors, dividends in cash at a rate of 8.50% per annum, payable quarterly (see Note 10 of the
Notes to Unaudited Condensed Consolidated Financial Statements). During the 2009 first and second
quarters, we entered into agreements with various institutional investors exchanging shares of our
common stock for shares of the Series A Preferred Stock held by them (see “Capital” discussion).
In the aggregate, these exchanges are anticipated to reduce our total dividend cash requirements
(common, Series A Preferred Stock, and Series B Preferred Stock) by an estimated $4.0 million per
quarter. Considering these exchanges and the current dividend, cash demands required for Series A
Preferred Stock are estimated to be approximately $7.7 million per quarter.
Also during 2008, we received $1.4 billion of equity capital by issuing 1.4 million shares of
Series B Preferred Stock to the U.S. Department of Treasury as a result of our participation in the
TARP voluntary CPP. The Series B Preferred Stock will pay cumulative dividends at a rate of 5% per
year for the first five years and 9% per year thereafter, resulting in quarterly cash demands of
approximately $18 million through 2012, and $32 million thereafter (see Note 10 of the Notes to the
Unaudited Condensed Consolidated Financial Statements for additional information regarding the
Series B Preferred Stock issuance).
Based on a regulatory dividend limitation, the Bank could not have declared and paid a
dividend to the parent company at September 30, 2009, without regulatory approval. We do not
anticipate that the Bank will request regulatory approval to pay dividends in the near future as we
continue to build Bank regulatory capital above our already “well-capitalized” level. To help meet
any additional liquidity needs, we have an open-ended, automatic shelf registration statement filed
and effective with the SEC, which permits us to issue an unspecified amount of debt or equity
securities.
With the exception of the common and preferred dividends previously discussed, the parent
company does not have any significant cash demands. There are no maturities of parent company
obligations until 2013, when a debt maturity of $50 million is payable.
Considering the factors discussed above, and other analyses that we have performed, we believe
the parent company has sufficient liquidity to meet its cash flow obligations for the foreseeable
future.
Credit Ratings
Credit ratings provided by the three major credit rating agencies are an important component
of our liquidity profile. Among other factors, the credit ratings are based on financial strength,
credit quality and concentrations in the loan portfolio, the level and volatility of earnings,
capital adequacy, the quality of management, the liquidity of the balance sheet, the availability
of a significant base of core deposits, and our ability to access a broad array of wholesale
funding sources. Adverse changes in these factors could result in a negative change in credit
ratings and impact our ability to raise funds at a reasonable cost in the capital markets. In
addition, certain financial on- and off-balance sheet arrangements contain credit rating triggers
that could increase funding needs if a negative rating change occurs. Other arrangements that
could be impacted by credit rating changes include, but are not limited to, letter of credit
commitments for marketable securities, interest rate swap collateral agreements, and certain asset
securitization transactions contain credit rating provisions or could otherwise be impacted by
credit rating changes.
78
The most recent credit ratings for the parent company and the Bank are as follows:
Table 50 — Credit Ratings
| |
|
|
|
|
|
|
|
|
| |
|
September 30, 2009 |
| |
|
Senior Unsecured |
|
Subordinated |
|
|
|
|
| |
|
Notes |
|
Notes |
|
Short-term |
|
Outlook |
Huntington Bancshares Incorporated |
|
|
|
|
|
|
|
|
Moody’s Investor Service
|
|
Baa2
|
|
Baa3
|
|
P-2
|
|
Negative |
Standard and Poor’s
|
|
BB+
|
|
BB
|
|
B
|
|
Negative |
Fitch Ratings
|
|
BBB
|
|
BBB-
|
|
F2
|
|
Negative |
|
|
|
|
|
|
|
|
|
The Huntington National Bank |
|
|
|
|
|
|
|
|
Moody’s Investor Service
|
|
Baa1
|
|
Baa2
|
|
P-2
|
|
Negative |
Standard and Poor’s
|
|
BBB-
|
|
BB+
|
|
A-3
|
|
Negative |
Fitch Ratings
|
|
BBB+
|
|
BBB
|
|
F2
|
|
Negative |
During the 2009 first and second quarters, all three rating agencies lowered their credit
ratings for both the parent company and the Bank. The credit ratings to senior unsecured notes,
subordinated notes, and short-term debt were changed. The above table reflects these changes.
During the 2009 third quarter, Fitch Ratings reaffirmed the ratings given to both the parent
company and the Bank. The FHLB uses the Bank’s credit rating in its calculation of borrowing
capacity. As a result of these credit rating changes, the FHLB reduced our borrowing capacity by
$370 million during the 2009 first quarter (see “Risk Factors” included in Item 1A of our 2008 Form
10-K).
A security rating is not a recommendation to buy, sell, or hold securities, is subject to
revision or withdrawal at any time by the assigning rating organization, and should be evaluated
independently of any other rating.
Off-Balance Sheet Arrangements
In the normal course of business, we enter into various off-balance sheet arrangements. These
arrangements include financial guarantees contained in standby letters of credit issued by the Bank
and commitments by the Bank to sell mortgage loans.
Through our credit process, we monitor the credit risks of outstanding standby letters of
credit. When it is probable that a standby letter of credit will be drawn and not repaid in full,
losses are recognized in the provision for credit losses. At September 30, 2009, we had $0.6
billion of standby letters of credit outstanding, of which 54% were collateralized. Included in
this $0.6 billion total are letters of credit issued by the Bank that support securities that were
issued by our customers and remarketed by The Huntington Investment Company (HIC), our
broker-dealer subsidiary. Due to the credit rating changes noted above, and pursuant to the letters
of credit issued by the Bank, the Bank repurchased substantially all of these securities, net of
payments and maturities, during 2009. As a result of these repurchases, only $39.2 million of
these standby letters of credit were outstanding at September 30, 2009.
We enter into forward contracts relating to the mortgage banking business to hedge the
exposures we have from commitments to extend new residential mortgage loans to our customers and
from our held-for-sale mortgage loans. At September 30, 2009, December 31, 2008, and September 30,
2008, we had commitments to sell residential real estate loans of $729.5 million, $759.4 million,
and $485.6 million, respectively. These contracts mature in less than one year.
79
During the 2009 first quarter, we transferred $1.0 billion automobile loans and leases to a
trust in a securitization transaction. The securitization qualified for sale accounting under ASC
860. We retained $210.9 million of the related securities and recorded a $47.1 million retained
residual interest as a result of the transaction. Subsequent to the transaction, we sold $78.4
million of these securities in the 2009 second quarter. These amounts were recorded as investment
securities on our condensed consolidated balance sheet. We also recorded a $5.9 million loss in
other noninterest income on the condensed consolidated statement of income and recorded a $19.5
million servicing asset in accrued income and other assets associated with this transaction.
We do not believe that off-balance sheet arrangements will have a material impact on our
liquidity or capital resources.
Operational Risk
As with all companies, we are subject to operational risk. Operational risk is the risk of
loss due to human error, inadequate or failed internal systems and controls, violations of, or
noncompliance with, laws, rules, regulations, prescribed practices, or ethical standards, and
external influences such as market conditions, fraudulent activities, disasters, and security
risks. We continuously strive to strengthen our system of internal controls to ensure compliance
with laws, rules, and regulations, and to improve the oversight of our operational risk.
The goal of this framework is to implement effective operational risk techniques and
strategies, minimize operational losses, and strengthen our overall performance.
Capital / Capital Adequacy
(This section should be read in conjunction with Significant Item 3.)
Capital is managed both at the Bank and on a consolidated basis. Capital levels are maintained
based on regulatory capital requirements and the economic capital required to support credit,
market, liquidity, and operational risks inherent in our business, and to provide the flexibility
needed for future growth and new business opportunities. Shareholders’ equity totaled $5.7
billion at September 30, 2009. This represented a decrease compared with $7.2 billion at December
31, 2008, primarily reflecting the negative impact of the $2.6 billion goodwill impairment charge,
partially offset by the issuance of 305.7 million new shares of common stock, through two common
stock offerings and three “discretionary equity issuance” programs, worth $1.1 billion, and the
exchange of a portion of our Series A Preferred Stock for 41.1 million shares of our common stock
worth $0.2 billion (see “Tier 1 Common Equity” section below).
Tier 1 Common Equity
During the first nine-month period of 2009, a key priority was to strengthen our capital
position in order to withstand potential future credit losses should the economic environment
continue to deteriorate. During the 2009 second quarter, the Federal Reserve conducted a
Supervisory Capital Assessment Program (SCAP) on the country’s 19 largest bank holding companies to
determine the amount of capital required to absorb losses that could arise under “baseline” and
“more adverse” economic scenarios. The SCAP results determined that a Tier 1 common capital risk
based ratio of at least 4.0% would be needed. A total of 10 of the 19 bank holding companies were
directed to increase their capital levels to meet this 4.0% threshold.
While we were not one of these 19 institutions required by the Federal Reserve to conduct a
forward-looking capital assessment, or “stress test”, we believed it important that we have an
equivalent relative amount of capital to meet the official SCAP threshold of a 4% Tier 1 common
capital risk based ratio. As such, in May of 2009, we conducted an internal analysis designed to
emulate the SCAP “more adverse” economic scenario based on December 31, 2008, portfolio balances as
modeled by the Federal Reserve. As a result of that analysis, we disclosed on May 20, 2009, that
we estimated $675 million of Tier 1 common equity was needed in addition to that already raised
through that date. By June 30, 2009, substantially all of that capital had been raised. On
September 17, 2009, we announced the completion of a third discretionary equity issuance program
that raised a net $146.9 million of common equity, thus exceeding the remaining capital needed
indicated by our internal SCAP analysis.
On that same date we announced a new $350 million common stock offering as favorable market
conditions and investor interest presented an opportunity to continue to build common equity
efficiently to the long-term benefit of our shareholders. On September 19, 2009, we announced the
completion of this common stock offering, which resulted in a net $440.4 million issuance of common
equity. This capital, over and above that indicated by our internal SCAP analysis, increases our
flexibility to repurchase debt and improve our overall funding. Further, it gives us the
additional capacity to pursue growth of our core businesses, which includes supporting organic
asset and deposit growth. This capital also provides us with sufficient capital to withstand a
stressed economic scenario, allows us to take advantage of initiatives identified through our
strategic planning effort currently underway, and significantly enhances our ability to eventually
repay our $1.4 billion of TARP capital.
80
The following table summarizes the primary activity during the first nine-month period of 2009
to increase Tier 1 common equity:
Table 51 — Tier 1 Common Equity Activity
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
| |
|
Common Stock |
|
|
Retained |
|
|
|
|
| (in millions) |
|
Shares |
|
|
Amount |
|
|
Earnings |
|
|
Total |
|
First Quarter — 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin restructuring |
|
|
— |
|
|
$ |
— |
|
|
$ |
159.9 |
|
|
$ |
159.9 |
|
Conversion of preferred stock |
|
|
24.6 |
|
|
|
114.1 |
|
|
|
— |
|
|
|
114.1 |
|
Other (1) |
|
|
— |
|
|
|
— |
|
|
|
47.1 |
|
|
|
47.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2009 First Quarter |
|
|
24.6 |
|
|
|
114.1 |
|
|
|
207.0 |
|
|
|
321.1 |
|
| |
Discretionary equity issuance #1 |
|
|
38.5 |
|
|
|
117.6 |
|
|
|
— |
|
|
|
117.6 |
|
Discretionary equity issuance #2 |
|
|
18.5 |
|
|
|
74.4 |
|
|
|
— |
|
|
|
74.4 |
|
Conversion of preferred stock |
|
|
16.5 |
|
|
|
92.3 |
|
|
|
— |
|
|
|
92.3 |
|
Common stock offering |
|
|
103.5 |
|
|
|
356.4 |
|
|
|
|
|
|
|
356.4 |
|
Gain on cash tender offer of
certain trust
preferred securities |
|
|
— |
|
|
|
— |
|
|
|
43.8 |
|
|
|
43.8 |
|
Gain related to Visa stock |
|
|
— |
|
|
|
— |
|
|
|
20.4 |
|
|
|
20.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2009 Second Quarter |
|
|
177.0 |
|
|
|
640.7 |
|
|
|
64.2 |
|
|
|
704.9 |
|
| |
Discretionary equity issuance #3 |
|
|
35.7 |
|
|
|
146.9 |
|
|
|
|
|
|
|
146.9 |
|
Common stock offering |
|
|
109.5 |
|
|
|
440.4 |
|
|
|
|
|
|
|
440.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2009 Third Quarter |
|
|
145.2 |
|
|
|
587.3 |
|
|
|
— |
|
|
|
587.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Year-to-date |
|
|
346.8 |
|
|
$ |
1,342.1 |
|
|
$ |
271.2 |
|
|
$ |
1,613.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
Primarily represents improvement in other comprehensive income. |
As shown in the table above, these actions increased our Tier 1 common equity by $1.6 billion
during the first nine-month period of 2009. While we may continue to seek opportunities to further
strengthen our capital position, we believe that we have sufficient capital to withstand a severe
economic scenario similar to that used by the Federal Reserve in its modeling of capital adequacy
for the 19 large bank holding companies where “stress tests” were conducted.
The following table presents risk-weighed assets and other financial data necessary to calculate certain financial ratios, including the Tier 1 common equity ratio, which we use to measure capital adequacy:
81
Table 52 — Capital Adequacy
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
|
2008 |
|
| (in millions) |
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated capital calculations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ common equity |
|
$ |
3,992 |
|
|
$ |
3,541 |
|
|
$ |
3,047 |
|
|
$ |
5,351 |
|
|
$ |
5,807 |
|
Shareholders’ preferred equity |
|
|
1,683 |
|
|
|
1,679 |
|
|
|
1,768 |
|
|
|
1,878 |
|
|
|
569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity |
|
|
5,675 |
|
|
|
5,221 |
|
|
|
4,815 |
|
|
|
7,229 |
|
|
|
6,376 |
|
Goodwill |
|
|
(444 |
) |
|
|
(448 |
) |
|
|
(452 |
) |
|
|
(3,055 |
) |
|
|
(3,056 |
) |
Intangible assets |
|
|
(303 |
) |
|
|
(322 |
) |
|
|
(340 |
) |
|
|
(357 |
) |
|
|
(376 |
) |
Intangible asset deferred tax liability (1) |
|
|
106 |
|
|
|
113 |
|
|
|
119 |
|
|
|
125 |
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tangible equity (2) |
|
|
5,034 |
|
|
|
4,563 |
|
|
|
4,142 |
|
|
|
3,942 |
|
|
|
3,076 |
|
Shareholders’ preferred equity |
|
|
(1,683 |
) |
|
|
(1,679 |
) |
|
|
(1,768 |
) |
|
|
(1,878 |
) |
|
|
(569 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tangible common equity (2) |
|
$ |
3,351 |
|
|
$ |
2,884 |
|
|
$ |
2,374 |
|
|
$ |
2,064 |
|
|
$ |
2,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total assets |
|
$ |
52,513 |
|
|
$ |
51,397 |
|
|
$ |
51,702 |
|
|
$ |
54,353 |
|
|
$ |
54,661 |
|
Goodwill |
|
|
(444 |
) |
|
|
(448 |
) |
|
|
(452 |
) |
|
|
(3,055 |
) |
|
|
(3,056 |
) |
Other intangible assets |
|
|
(303 |
) |
|
|
(322 |
) |
|
|
(340 |
) |
|
|
(357 |
) |
|
|
(376 |
) |
Intangible asset deferred tax liability (1) |
|
|
106 |
|
|
|
113 |
|
|
|
119 |
|
|
|
125 |
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tangible assets (2) |
|
$ |
51,872 |
|
|
$ |
50,740 |
|
|
$ |
51,029 |
|
|
$ |
51,066 |
|
|
$ |
51,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 equity |
|
$ |
5,755 |
|
|
$ |
5,390 |
|
|
$ |
5,167 |
|
|
$ |
5,036 |
|
|
|
4,101 |
|
Shareholders’ preferred equity |
|
|
(1,683 |
) |
|
|
(1,679 |
) |
|
|
(1,768 |
) |
|
|
(1,878 |
) |
|
|
(569 |
) |
Trust preferred securities |
|
|
(570 |
) |
|
|
(570 |
) |
|
|
(736 |
) |
|
|
(736 |
) |
|
|
(736 |
) |
REIT preferred stock |
|
|
(50 |
) |
|
|
(50 |
) |
|
|
(50 |
) |
|
|
(50 |
) |
|
|
(50 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 common equity (2) |
|
$ |
3,452 |
|
|
$ |
3,091 |
|
|
$ |
2,613 |
|
|
$ |
2,372 |
|
|
$ |
2,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-weighted assets (RWA) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
44,142 |
|
|
$ |
45,463 |
|
|
$ |
46,383 |
|
|
$ |
46,994 |
|
|
$ |
46,608 |
|
Bank |
|
|
43,964 |
|
|
|
45,137 |
|
|
|
45,951 |
|
|
|
46,477 |
|
|
|
45,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 common equity / RWA ratio (2), (3) |
|
|
7.82 |
% |
|
|
6.80 |
% |
|
|
5.63 |
% |
|
|
5.05 |
% |
|
|
5.89 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible equity / tangible asset ratio (2) |
|
|
9.71 |
|
|
|
8.99 |
|
|
|
8.12 |
|
|
|
7.72 |
|
|
|
5.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible common equity / tangible asset ratio (2) |
|
|
6.46 |
|
|
|
5.68 |
|
|
|
4.65 |
|
|
|
4.04 |
|
|
|
4.88 |
|
| |
|
|
| (1) |
|
Intangible assets
are net of deferred
tax liability, and
calculated assuming
a 35% tax rate. |
| |
| (2) |
|
Tangible equity, Tier 1 common equity, tangible common equity, and tangible assets are non-GAAP financial measures.
Additionally, any ratios utilizing these financial measures are also non-GAAP. These financial measures have been included as
they are considered to be critical metrics with which to analyze and evaluate financial condition and capital strength. Other
companies may calculate these financial measures differently. |
| |
| (3) |
|
Based on an interim decision by the banking agencies on December 14, 2006, we have excluded the impact of adopting ASC Topic
715, “Compensation — Retirement Benefits”, from the regulatory capital calculations. |
As shown in the above table, our consolidated TCE ratio was 6.46% at September 30, 2009, an
increase from 4.04% at December 31, 2008. The 242 basis point increase from December 31, 2008,
primarily reflected the $796.8 million aggregate of new common stock offering issuances, the $206.4
million conversion of Series A Preferred Stock to common
stock, as well as the reducing of our balance sheet through the securitizing of automobile
loans, and the selling of a portion of our municipal securities portfolio, as well as mortgage
loans.
Regulatory Capital
Regulatory capital ratios are the primary metrics used by regulators in assessing the “safety
and soundness” of banks. We intend to maintain both the company’s and the Bank’s risk-based capital
ratios at levels at which each would be considered “well-capitalized” by regulators. The Bank is
primarily supervised and regulated by the Office of the Comptroller of the Currency (OCC), which
establishes regulatory capital guidelines for banks similar to those established for bank holding
companies by the Federal Reserve Board.
Regulatory capital primarily consists of Tier 1 capital and Tier 2 capital. The sum of Tier 1
capital and Tier 2 capital equals our total risk-based capital. The following table reflects
changes and activity to the various components utilized in the calculation our consolidated Tier 1,
Tier 2, and total risk-based capital amounts during 2009.
Table 53 — Regulatory Capital Activity
(in millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Shareholder |
|
|
|
|
|
|
|
|
|
|
Disallowed |
|
|
Disallowed |
|
|
|
|
| |
|
Common |
|
|
Preferred |
|
|
Qualifying |
|
|
Goodwill & |
|
|
Other |
|
|
Tier 1 |
|
| |
|
Equity
(1) |
|
|
Equity |
|
|
Core Capital (2) |
|
|
Intangible assets |
|
|
Adjustments (net) |
|
|
Capital |
|
Balance at December 31, 2008 |
|
$ |
5,676.2 |
|
|
$ |
1,877.7 |
|
|
$ |
787.9 |
|
|
$ |
(3,286.8 |
) |
|
$ |
(19.4 |
) |
|
$ |
5,035.6 |
|
Cumulative effect accounting changes |
|
|
3.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3.5 |
|
Earnings |
|
|
(2,724.5 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,724.5 |
) |
Changes to disallowed adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,646.5 |
|
|
|
(2.3 |
) |
|
|
2,644.2 |
|
Dividends |
|
|
(92.4 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(92.4 |
) |
Issuance of common stock |
|
|
1,140.7 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,140.7 |
|
Conversion of preferred stock |
|
|
206.5 |
|
|
|
(206.5 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Amortization of preferred discount |
|
|
(11.9 |
) |
|
|
11.9 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Redemption of junior subordinated
debt |
|
|
— |
|
|
|
— |
|
|
|
(166.3 |
) |
|
|
— |
|
|
|
— |
|
|
|
(166.3 |
) |
Disallowance of deferred tax assets |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(89.4 |
) |
|
|
(89.4 |
) |
Change in minority interest |
|
|
— |
|
|
|
— |
|
|
|
(0.9 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1.0 |
) |
Other |
|
|
4.7 |
|
|
|
0.3 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2009 |
|
$ |
4,202.8 |
|
|
$ |
1,683.4 |
|
|
$ |
620.7 |
|
|
$ |
(640.3 |
) |
|
$ |
(111.1 |
) |
|
$ |
5,755.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Qualifying |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Subordinated |
|
|
|
|
|
|
Tier 1 Capital |
|
|
Total risk-based |
|
| |
|
Qualifying ACL |
|
|
Debt |
|
|
Tier 2 Capital |
|
|
(from above) |
|
|
capital |
|
Balance at December 31, 2008 |
|
$ |
591.8 |
|
|
$ |
907.2 |
|
|
$ |
1,499.0 |
|
|
$ |
5,035.6 |
|
|
$ |
6,534.6 |
|
Change in qualifying subordinated
debt |
|
|
— |
|
|
|
(78.2 |
) |
|
|
(78.2 |
) |
|
|
— |
|
|
|
(78.2 |
) |
Change in qualifying ACL |
|
|
(10.8 |
) |
|
|
— |
|
|
|
(10.8 |
) |
|
|
— |
|
|
|
(10.8 |
) |
Changes to Tier 1 Capital (see above) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
719.9 |
|
|
|
719.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2009 |
|
$ |
581.0 |
|
|
$ |
829.0 |
|
|
$ |
1,410.0 |
|
|
$ |
5,755.5 |
|
|
$ |
7,165.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
Excludes other comprehensive income (OCI) and minority interest. |
| |
| (2) |
|
Includes minority interest. |
83
The following table presents our regulatory capital ratios at both the consolidated and Bank
levels for the past five quarters:
Table 54 — Regulatory Capital Ratios
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
2009 |
|
|
2008 |
|
| |
|
|
|
|
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
Risk-weighted assets (RWA) (in millions) |
|
Consolidated |
|
$ |
44,142 |
|
|
$ |
45,463 |
|
|
$ |
46,383 |
|
|
$ |
46,994 |
|
|
$ |
46,608 |
|
|
|
Bank |
|
|
43,964 |
|
|
|
45,137 |
|
|
|
45,951 |
|
|
|
46,477 |
|
|
|
45,883 |
|
Tier 1 leverage ratio (1) |
|
Consolidated |
|
|
11.30 |
% |
|
|
10.62 |
% |
|
|
9.67 |
% |
|
|
9.82 |
% |
|
|
7.99 |
% |
|
|
Bank |
|
|
6.48 |
|
|
|
6.46 |
|
|
|
5.95 |
|
|
|
5.99 |
|
|
|
6.36 |
|
Tier 1 risk-based capital / RWA ratio (1) |
|
Consolidated |
|
|
13.04 |
|
|
|
11.85 |
|
|
|
11.14 |
|
|
|
10.72 |
|
|
|
8.80 |
|
|
|
Bank |
|
|
7.46 |
|
|
|
7.14 |
|
|
|
6.79 |
|
|
|
6.44 |
|
|
|
7.01 |
|
Total risk-based capital / RWA ratio (1) |
|
Consolidated |
|
|
16.23 |
|
|
|
14.94 |
|
|
|
14.26 |
|
|
|
13.91 |
|
|
|
12.03 |
|
|
|
Bank |
|
|
11.75 |
|
|
|
11.35 |
|
|
|
11.00 |
|
|
|
10.71 |
|
|
|
10.25 |
|
| |
|
|
| (1) |
|
Based on an interim decision by the banking agencies on December 14, 2006, we have
excluded the impact of adopting ASC Topic 715, “Compensation — Retirement Benefits”, from the
regulatory capital calculations. |
At September 30, 2009, the parent company had Tier 1 and Total risk-based capital in excess of
the minimum level required to be considered “well-capitalized” of $3.1 billion and $2.8 billion,
respectively.
Our risk-weighted capital ratios improved during the 2009 third quarter compared with prior
quarters. The primary driver of these improvements was the $587.3 million of net proceeds from the
discretionary equity issuance program and the common stock public offering completed in the 2009
third quarter. Additionally, risk-weighted assets declined during the 2009 third quarter, as both
loans outstanding and unfunded loan commitments decreased. These improvements were slightly offset
by an increase in the amount of our net deferred tax asset that was disallowed for regulatory
capital purposes. Regulations require that we deduct from our Tier 1 capital any amount that we
cannot demonstrate the ability to recover within the next 12 months. This adjustment to regulatory
capital has no impact on our assessment of the realizability of our net deferred tax asset.
The Bank’s risk-weighted capital ratios also improved during the quarter. The primary driver
of these improvements was a $250 million cash capital contribution made by the parent company in
the current quarter. Additionally, risk-weighted assets declined during the current quarter, as
both loans outstanding and unfunded loan commitments decreased. Similar to the parent company
regulatory capital, the improvements in capital at the Bank were slightly offset by an increase in
the amount of our net deferred tax asset that was disallowed for regulatory capital purposes. Bank
regulations require that we deduct from our Tier 1 capital any amount that we cannot demonstrate
the ability to recover within the next 12 months. At September 30, 2009, the Bank had Tier 1 and
Total risk-based capital in excess of the minimum level required to be considered
“well-capitalized” of $0.6 billion and $0.8 billion, respectively.
Preferred Stock / TARP
In 2008, we issued an aggregate $569 million of Series A Preferred Stock. The Series A
Preferred Stock is nonvoting and may be convertible at any time, at the option of the holder, into
83.668 shares of our common stock. Shares of Series A Preferred Stock held by investors is not a
component of Tier 1 common equity. As previously discussed (see “Tier 1 Common Equity” section),
we entered into agreements with various institutional investors exchanging 41.1 million shares of
our common stock for 0.2 million shares of the Series A Preferred Stock held by them during the
first nine-month period of
2009. These transactions increased common equity by $206.4 million, while preferred equity
decreased by the same amount.
During 2008, we received $1.4 billion of equity capital by issuing 1.4 million shares of
Series B Preferred Stock to the U.S. Department of Treasury, and a ten-year warrant to purchase up
to 23.6 million shares of our common stock, par value $0.01 per share, at an exercise price of
$8.90 per share. The proceeds received were allocated to the preferred stock and additional
paid-in-capital. The resulting discount on the preferred stock will be amortized, resulting in
additional dilution to our earnings per share. The Series B Preferred Stock is not a component of
Tier 1 common equity. (See Note 10 of the Notes to the Unaudited Condensed Consolidated Financial
Statements for additional information regarding the Series B
Preferred Stock issuance).
84
Other Capital Matters
To accelerate the building of capital, we reduced our quarterly common stock dividend to $0.01
per common share, effective with the dividend paid April 1, 2009.
On February 18, 2009, our 2006 Repurchase Program was terminated. Additionally, as a condition
to participate in the TARP, we may not repurchase any shares without prior approval from the
Department of Treasury. No shares were repurchased during the first nine-month period of 2009.
As
shown in the table below, our book value per share declined to $5.59
per share at September 30, 2009, from $14.62 per share at
December 31, 2008. This decline reflected the net loss
applicable to common shares for the first nine-month period of 2009,
which included a $2.6 billion impairment of our goodwill (see
the “Goodwill” discussion located within the “Critical
Accounting Policies and Use of Significant Estimates”
section). Our tangible book value per share, which excludes
goodwill and other intangible assets from equity, declined to $4.69
per share at September 30, 2009, from $5.64 at December 31,
2008. This decline was significantly less, on both an absolute and
relative basis, compared with the decline in book value per share, as
the size of the net loss applicable to common shares reflected the
goodwill impairment in 2009 and had no impact to tangible equity.
Tangible book value per share also declined as a result of the
issuance of 305.7 million common shares in 2009, through two
common stock offerings and three discretionary equity issuance
programs, at an average net proceeds of $3.71 per share.
| |
Table 55 — Quarterly Common Stock Summary |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
|
2008 |
|
| (in thousands, except per share amounts) |
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock price, per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High (1) |
|
$ |
4.970 |
|
|
$ |
6.180 |
|
|
$ |
8.000 |
|
|
$ |
11.650 |
|
|
$ |
13.500 |
|
Low (1) |
|
|
3.260 |
|
|
|
1.550 |
|
|
|
1.000 |
|
|
|
5.260 |
|
|
|
4.370 |
|
Close |
|
|
4.710 |
|
|
|
4.180 |
|
|
|
1.660 |
|
|
|
7.660 |
|
|
|
7.990 |
|
Average closing price |
|
|
4.209 |
|
|
|
3.727 |
|
|
|
2.733 |
|
|
|
8.276 |
|
|
|
7.510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends, per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share |
|
$ |
0.0100 |
|
|
$ |
0.0100 |
|
|
$ |
0.0100 |
|
|
$ |
0.1325 |
|
|
$ |
0.1325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average — basic |
|
|
589,708 |
|
|
|
459,246 |
|
|
|
366,919 |
|
|
|
366,054 |
|
|
|
366,124 |
|
Average — diluted (2) |
|
|
589,708 |
|
|
|
459,246 |
|
|
|
366,919 |
|
|
|
366,054 |
|
|
|
367,361 |
|
Ending |
|
|
714,469 |
|
|
|
568,741 |
|
|
|
390,682 |
|
|
|
366,058 |
|
|
|
366,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per share |
|
$ |
5.59 |
|
|
$ |
6.23 |
|
|
$ |
7.80 |
|
|
$ |
14.62 |
|
|
$ |
15.86 |
|
Tangible book value per share |
|
|
4.69 |
|
|
|
5.07 |
|
|
|
6.08 |
|
|
|
5.64 |
|
|
|
6.85 |
|
| |
|
|
| (1) |
|
High and low stock prices are intra-day quotes obtained from NASDAQ. |
| |
| (2) |
|
For all the quarterly periods presented above, the impact of the
convertible preferred stock issued in April of 2008 was excluded
from the diluted share calculations. They were excluded because the
results would have been higher than basic earnings per common share
(anti-dilutive) for the periods. |
85
BUSINESS SEGMENT DISCUSSION
This section reviews financial performance from a business segment perspective and should be
read in conjunction with the Discussion of Results of Operations, Note 18 of the Notes to
Consolidated Financial Statements, and other sections for a full understanding of our consolidated
financial performance.
We have five major business segments: Retail and Business Banking, Commercial Banking,
Commercial Real Estate, Auto Finance and Dealer Services (AFDS), and the Private Financial Group
(PFG). A Treasury/Other function includes other unallocated assets, liabilities, revenue, and
expense. For each of our business segments, we expect the combination of our business model and
exceptional service to provide a competitive advantage that supports revenue and earnings growth.
Our business model emphasizes the delivery of a complete set of banking products and services
offered by larger banks, but distinguished by local decision-making regarding the pricing and
offering of these products.
Periodically, organizational changes result in the transfer of specific components from one
business segment to another business segment. During the 2009 second quarter, the Mezzanine Lending
component was transferred to the Commercial Real Estate business segment from the PFG business
segment.
Funds Transfer Pricing
We use a centralized funds transfer pricing (FTP) methodology to attribute appropriate net
interest income to the business segments. The Treasury/Other business segment charges (credits) an
internal cost of funds for assets held in (or pays for funding provided by) each business segment.
The FTP rate is based on prevailing market interest rates for comparable duration assets (or
liabilities). Deposits of an indeterminate maturity receive an FTP credit based on vintage-based
pool rates. Other assets, liabilities, and capital are charged (credited) with a four-year moving
average FTP rate. The intent of the FTP methodology is to eliminate all interest rate risk from the
business segments by providing matched duration funding of assets and liabilities. The result is to
centralize the financial impact, management, and reporting of interest rate and liquidity risk in
the Treasury/Other function where it can be monitored and managed. The denominator in net interest
margin calculation has been modified to add the amount of net funds provided by each business
segment for all periods presented.
Fee Sharing
Our business segments operate in cooperation to provide products and services to our
customers. Revenue is recorded in the business segment responsible for the related product or
service. Fee sharing is recorded to allocate portions of such revenue to other business segments
involved in selling to or providing service to customers. The most significant revenues for which
fee sharing is recorded relate to customer derivatives and brokerage services, which are recorded
by PFG and shared primarily with Retail and Business Banking and Commercial Banking. Results of
operations for the business segments reflect these fee sharing allocations.
Expense Allocation
Business segment results are determined based upon our management reporting system, which
assigns balance sheet and income statement items to each of the business segments. The process is
designed around our organizational and management structure and, accordingly, the results derived
are not necessarily comparable with similar information published by other financial institutions.
For comparability purposes, the amounts in all periods were based on business segments and
methodologies in effect at September 30, 2009.
The management accounting process used to develop the business segment reporting utilized
various estimates and allocation methodologies to measure the performance of the business segments.
To determine the financial performance for each business segment, we allocated a portion of the
provision for credit losses and certain noninterest expenses related to shared services and
corporate overhead. The provision for credit losses was allocated based on the level of each
business segment’s respective ACL. Noninterest expenses were allocated based on various
methodologies, including volume of activity and the number of full-time equivalent employees.
86
Treasury/Other
The Treasury / Other function includes revenue and expense related to assets, liabilities, and
equity not directly assigned or allocated to one of the five business segments. Assets include
investment securities, bank owned life insurance, and the loans and OREO properties acquired
through the 2009 first quarter Franklin restructuring. The financial impact associated with our FTP
methodology, as described above, is also included.
Net interest income includes the impact of administering our investment securities portfolios
and the net impact of derivatives used to hedge interest rate sensitivity. Noninterest income
includes miscellaneous fee income not allocated to other business segments such as bank owned life
insurance income, and any investment securities and trading assets gains or losses. Noninterest
expense includes certain corporate administrative, merger, and other miscellaneous expenses not
allocated to other business segments. The provision for income taxes for the business segments is
calculated at a statutory 35% tax rate, though our overall effective tax rate is lower. As a
result, Treasury/Other reflects a credit for income taxes representing the difference between the
lower actual effective tax rate and the statutory tax rate used to allocate income taxes to the
business segments.
Net Income by Business Segment
We reported a net loss of $2,724.5 million for the first nine months of 2009. This compared
with net income of $303.5 million for the first nine months of 2008. The segregation of net income
by business segment for the first nine months of 2009 and 2008 is presented in the following table:
| |
Table 56 — Net Income (Loss) by Business Segment — 2009 First Nine Months vs. 2008 First Nine Months |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended September 30, |
|
|
|
|
| (in thousands) |
|
2009 |
|
|
2008 |
|
|
Change |
|
Retail and Business Banking |
|
$ |
127,366 |
|
|
$ |
194,239 |
|
|
$ |
(66,873 |
) |
Commercial Banking |
|
|
(41,800 |
) |
|
|
100,771 |
|
|
|
(142,571 |
) |
Commercial Real Estate |
|
|
(245,664 |
) |
|
|
16,279 |
|
|
|
(261,943 |
) |
AFDS |
|
|
84 |
|
|
|
15,939 |
|
|
|
(15,855 |
) |
PFG |
|
|
15,510 |
|
|
|
42,458 |
|
|
|
(26,948 |
) |
Treasury/Other |
|
|
(6,170 |
) |
|
|
(66,201 |
) |
|
|
60,031 |
|
Unallocated goodwill impairment (1) |
|
|
(2,573,818 |
) |
|
|
— |
|
|
|
(2,573,818 |
) |
|
|
|
|
|
|
|
|
|
|
Total net (loss) income |
|
$ |
(2,724,492 |
) |
|
$ |
303,485 |
|
|
$ |
(3,027,977 |
) |
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
Represents the 2009 first quarter impairment charge, net of
tax, associated with the former Regional Banking business
segment. The allocation of this charge to the newly created
business segments is not practical. See the “Goodwill”
section located within the “Critical Accounting Polices and
Use of Significant Estimates” section for additional
information. |
87
Average Loans/Leases and Deposits by Business Segment
The segregation of total average loans and leases and total average deposits by business
segment for the first nine-month period of 2009 is presented in the following table:
| |
Table 57 — Average Loans/Leases and Deposits by Business Segment — 2009 First Nine Months |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Regional and |
|
|
Commercial |
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
Treasury / |
|
|
|
|
| (in millions) |
|
Business Banking |
|
|
Banking |
|
|
Real Estate |
|
|
AFDS |
|
|
PFG |
|
|
Other |
|
|
TOTAL |
|
Average Loans/Leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
$ |
3,358 |
|
|
$ |
7,175 |
|
|
$ |
512 |
|
|
$ |
1,115 |
|
|
$ |
960 |
|
|
$ |
207 |
|
|
$ |
13,327 |
|
Commercial real estate |
|
|
1,593 |
|
|
|
1,006 |
|
|
|
6,570 |
|
|
|
43 |
|
|
|
180 |
|
|
|
— |
|
|
|
9,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial |
|
|
4,951 |
|
|
|
8,181 |
|
|
|
7,082 |
|
|
|
1,158 |
|
|
|
1,140 |
|
|
|
207 |
|
|
|
22,719 |
|
Automobile loans and leases |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,620 |
|
|
|
— |
|
|
|
— |
|
|
|
3,620 |
|
Home equity |
|
|
6,825 |
|
|
|
46 |
|
|
|
— |
|
|
|
— |
|
|
|
661 |
|
|
|
68 |
|
|
|
7,600 |
|
Residential mortgage |
|
|
3,686 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
641 |
|
|
|
254 |
|
|
|
4,584 |
|
Other consumer |
|
|
484 |
|
|
|
8 |
|
|
|
— |
|
|
|
184 |
|
|
|
33 |
|
|
|
— |
|
|
|
709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
10,995 |
|
|
|
55 |
|
|
|
1 |
|
|
|
3,805 |
|
|
|
1,335 |
|
|
|
322 |
|
|
|
16,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
15,946 |
|
|
$ |
8,236 |
|
|
$ |
7,083 |
|
|
$ |
4,963 |
|
|
$ |
2,475 |
|
|
$ |
529 |
|
|
$ |
39,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits — noninterest bearing |
|
$ |
3,323 |
|
|
$ |
1,919 |
|
|
$ |
184 |
|
|
$ |
66 |
|
|
$ |
343 |
|
|
$ |
84 |
|
|
$ |
5,919 |
|
Demand deposits — interest bearing |
|
|
3,485 |
|
|
|
702 |
|
|
|
33 |
|
|
|
— |
|
|
|
368 |
|
|
|
3 |
|
|
|
4,591 |
|
Money market deposits |
|
|
3,934 |
|
|
|
1,260 |
|
|
|
156 |
|
|
|
4 |
|
|
|
1,170 |
|
|
|
— |
|
|
|
6,524 |
|
Savings and other domestic time deposits |
|
|
4,619 |
|
|
|
260 |
|
|
|
— |
|
|
|
— |
|
|
|
67 |
|
|
|
— |
|
|
|
4,946 |
|
Core certificates of deposit |
|
|
11,877 |
|
|
|
59 |
|
|
|
7 |
|
|
|
— |
|
|
|
365 |
|
|
|
— |
|
|
|
12,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits |
|
|
27,238 |
|
|
|
4,200 |
|
|
|
380 |
|
|
|
70 |
|
|
|
2,313 |
|
|
|
87 |
|
|
|
34,288 |
|
Other deposits |
|
|
390 |
|
|
|
1,442 |
|
|
|
36 |
|
|
|
7 |
|
|
|
150 |
|
|
|
2,797 |
|
|
|
4,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
27,628 |
|
|
$ |
5,642 |
|
|
$ |
416 |
|
|
$ |
77 |
|
|
$ |
2,463 |
|
|
$ |
2,884 |
|
|
$ |
39,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88
Retail and Business Banking
(This section should be read in conjunction with Significant Items 1, 4, 5.)
Objectives, Strategies, and Priorities
Our Retail and Business Banking segment provides traditional banking products and services to
consumer and small business customers located in our 11 operating regions within the six states of
Ohio, Michigan, Pennsylvania, Indiana, West Virginia, and Kentucky. It provides these services
through a banking network of over 600 branches, and almost 1,400 ATMs, along with internet and
telephone banking channels. It also provides certain services on a limited basis outside of these
six states, such as mortgage banking. Retail products and services include home equity loans and
lines of credit, first mortgage loans, direct installment loans, small business loans, personal and
business deposit products, as well as sales of investment and insurance services. At September 30,
2009, Retail and Business Banking accounted for 41% and 72% of consolidated loans and leases and
deposits, respectively.
The Retail and Business Banking strategy is to focus on building a deeper relationship with
our customers by providing an exceptional service experience. This focus on service involves
continued investments in state-of-the-art platform technology in our branches, award-winning retail
and business websites for our customers, extensive development of employees, and internal processes
that empower our local bankers to serve our customers.
2009 First Nine Months versus 2008 First Nine Months
Table 58 — Key Performance Indicators for Retail and Business Banking
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended |
|
|
|
|
| |
|
September 30, |
|
|
Change — YTD 2009 vs 2008 |
|
| (in thousands unless otherwise noted) |
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
Net interest income |
|
$ |
762,765 |
|
|
$ |
719,492 |
|
|
$ |
43,273 |
|
|
|
6 |
% |
Provision for credit losses |
|
|
342,472 |
|
|
|
147,227 |
|
|
|
195,245 |
|
|
|
N.M. |
|
Noninterest income |
|
|
385,791 |
|
|
|
317,102 |
|
|
|
68,689 |
|
|
|
22 |
|
Noninterest expense excluding goodwill impairment |
|
|
610,136 |
|
|
|
590,538 |
|
|
|
19,598 |
|
|
|
3 |
|
(Benefit) Provision for income taxes |
|
|
68,582 |
|
|
|
104,590 |
|
|
|
(36,008 |
) |
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
127,366 |
|
|
$ |
194,239 |
|
|
$ |
(66,873 |
) |
|
|
(34 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average assets (in millions) |
|
$ |
18,060 |
|
|
$ |
18,828 |
|
|
$ |
(768 |
) |
|
|
(4 |
)% |
Total average loans/leases (in millions) |
|
|
15,946 |
|
|
|
16,850 |
|
|
|
(904 |
) |
|
|
(5 |
) |
Total average deposits (in millions) |
|
|
27,628 |
|
|
|
26,033 |
|
|
|
1,595 |
|
|
|
6 |
|
Net interest margin |
|
|
3.66 |
% |
|
|
3.68 |
% |
|
|
(0.02 |
)% |
|
|
(1 |
) |
Net charge-offs (NCOs) |
|
$ |
297,390 |
|
|
$ |
97,335 |
|
|
$ |
200,055 |
|
|
|
N.M. |
|
NCOs as a % of average loans and leases |
|
|
2.49 |
% |
|
|
0.77 |
% |
|
|
1.7 |
% |
|
|
N.M. |
|
| |
Return on average equity |
|
|
13.3 |
|
|
|
26.0 |
|
|
|
(12.7 |
) |
|
|
(49 |
) |
Retail banking # DDA households (eop) |
|
|
921,059 |
|
|
|
898,966 |
|
|
|
22,093 |
|
|
|
2 |
|
Retail banking # new relationships 90-day
cross-sell (average) |
|
|
2.60 |
|
|
|
2.38 |
|
|
|
0.22 |
|
|
|
9 |
|
Small business # business DDA relationships (eop) |
|
|
112,427 |
|
|
|
106,538 |
|
|
|
5,889 |
|
|
|
6 |
|
Small business # new relationships 90-day
cross-sell (average) |
|
|
2.06 |
|
|
|
2.07 |
|
|
|
(0.01 |
) |
|
|
(0 |
) |
Mortgage banking closed loan volume (in millions) |
|
$ |
4,131 |
|
|
$ |
3,049 |
|
|
$ |
1,082 |
|
|
|
35 |
% |
eop — End of Period.
N.M., not a meaningful value.
89
Retail and Business Banking reported net income of $127.4 million in the first nine-month
period of 2009, compared with net income of $194.2 million in the first nine-month period of 2008.
The most notable factor contributing to this $66.9 million decrease was a $195.2 million
increase to the provision for credit losses, reflecting: (a) the continued economic weaknesses in
our markets, (b) an increase of commercial reserves resulting from the 2009 second quarter
portfolio review process (see “Commercial Loan Portfolio Review and Actions” section located within
the “Commercial Credit” section for additional information), and (c) a $200.1 million increase in
NCOs. Our consumer loan NCOs increased $96.5 million, primarily reflecting: (a) the sale of
underperforming mortgage loans that were written down to their fair value prior to sale, (b) a more
conservative position regarding the timing of loss recognition in our residential mortgage
portfolio, and (c) the higher unemployment rate, particularly in our Michigan and northern Ohio
markets. The overall economic slowdown impacted our commercial loan portfolio as reflected in the
increases in commercial NCOs and NALs, which increased $103.6 million and $192 million,
respectively. Contributing to the increase in commercial NALs was our more conservative approach
in identifying and classifying emerging problem credits. In many cases, commercial loans were
placed on nonaccrual status even though the loan was less than 30 days past due for both principal
and interest payments.
Net interest income increased $43.3 million, or 6%, reflecting: (a) lower market interest
rates, (b) $1.7 billion increase in average consumer deposit balances, (c) decreases in our funding
costs for nonearning assets, and (d) an increase in allocated equity, resulting in a higher funding
credit. Partially offsetting these increases were: (a) $25.5 million reduction in loan net
interest income, reflecting significant declines in interest rates, (b) a 45 basis point decline in
the commercial deposit net interest margin as a result of the significant decline in the 30 day
LIBOR rate, and (c) a $20.8 million reduction related to MSR hedging.
The $0.9 billion decline in total average loans and leases primarily reflected a $0.7 billion
decrease in average residential mortgages, resulting from the impact of loan sales. Although
mortgage originations increased 35%, the majority of our fixed-rate originations were sold in the
secondary market, as is our practice. The $0.3 billion decrease in average commercial loans,
primarily reflected: (a) higher commercial loan NCOs, and (b) lower loan origination production
when compared with the first nine-month period of 2008, particularly in our CRE portfolio
reflecting our planned efforts to shrink this portfolio.
Average total deposits increased $1.6 billion, or 6%, primarily reflecting increased sales
efforts throughout 2009 as deposit growth has been a strategic priority for us for the year.
Additionally, the number of DDA households also increased 2%, primarily reflecting the same sales
efforts. We anticipate continued consumer deposit growth for the remainder of 2009, particularly
in our consumer DDA and non-maturity deposits. Period-end balances for total core deposits
increased in all of our regions.
Noninterest income increased $68.7 million, or 22%, primarily reflecting a $71.3 million
increase in mortgage banking income. The increase to mortgage banking income primarily reflected a
$48.2 million increase in origination and secondary marketing fees as a result of a 35% increase in
mortgage originations, as well as a $33.0 million improvement in the net hedging impact of MSRs.
We expect mortgage originations for the remainder of the year to stabilize or be slightly lower
compared with the first nine-month period of 2009. Additionally, electronic banking income
increased $7.5 million, primarily reflecting an increased number of deposit accounts and
transaction volumes, as well as additional third-party processing fees. These increases were
partially offset by a $12.0 million decline in service charges on deposit accounts, primarily
reflecting lower consumer nonsufficient funds and overdraft fees, partially offset by higher
commercial service charges. During the current economic environment, customers have improved the
management of their deposit balances, thus resulting in fewer overdraft instances.
Noninterest expense increased $19.6 million. This increase reflected a $30.9 million increase
in FDIC insurance expense as the comparable year-ago period’s expense was substantially offset by
an assessment credit that has since been fully utilized, and a $15.7 million increase in credit
quality-related expenses, such as legal and collection costs as a result of higher levels of
problem assets, as well as loss mitigation activities. We expect that collection costs will remain
elevated for the remainder of 2009 due to the current economic weaknesses. These increases were
partially offset by a $22.7 million decrease in personnel expense resulting from a 6% reduction in
full-time equivalent employees, as well as a reduction in, or elimination of, incentive plan
payouts. Also, several other expense categories, such as travel expense and marketing expense,
declined as a result of the implementation of expense reduction initiatives.
90
Commercial Banking
Objectives, Strategies, and Priorities
The Commercial Banking segment provides a variety of banking products and services to
customers within our primary banking markets who generally have larger credit exposures and sales
revenues compared with our Retail and Business Banking customers. Commercial Banking products
include commercial loans, international trade, cash management, leasing, interest rate protection
products, capital market alternatives, 401(k) plans, and mezzanine investment capabilities. Our
Commercial Banking team also serves customers that specialize in equipment leasing, as well as
serving the commercial banking needs of government entities, not-for-profit organizations, and
large corporations. Commercial bankers personally deliver these products and services by
developing leads through community involvement, referrals from other professionals, and targeted
prospect calling.
The Commercial Banking strategy is to focus on building a deeper relationship with our
customers by providing an exceptional service experience. This focus on service requires continued
investments in technology for our product offerings, websites for our customers, extensive
development of employees, and internal processes that empower our local bankers to serve our
customers better.
2009 First Nine Months versus 2008 First Nine Months
Table 59 — Key Performance Indicators for Commercial Banking
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended |
|
|
|
|
| |
|
September 30, |
|
|
Change — YTD 2009 vs 2008 |
|
| (in thousands unless otherwise noted) |
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
Net interest income |
|
$ |
232,729 |
|
|
$ |
237,427 |
|
|
$ |
(4,698 |
) |
|
|
(2 |
)% |
Provision for credit losses |
|
|
257,405 |
|
|
|
36,342 |
|
|
|
221,063 |
|
|
|
N.M. |
|
Noninterest income |
|
|
68,083 |
|
|
|
72,304 |
|
|
|
(4,221 |
) |
|
|
(6 |
) |
Noninterest expense |
|
|
107,715 |
|
|
|
118,356 |
|
|
|
(10,641 |
) |
|
|
(9 |
) |
(Benefit) Provision for income taxes |
|
|
(22,508 |
) |
|
|
54,262 |
|
|
|
(76,770 |
) |
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(41,800 |
) |
|
$ |
100,771 |
|
|
$ |
(142,571 |
) |
|
|
N.M. |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average assets (in millions) |
|
$ |
8,569 |
|
|
$ |
8,691 |
|
|
$ |
(122 |
) |
|
|
(1 |
)% |
Total average loans/leases (in millions) |
|
|
8,236 |
|
|
|
8,189 |
|
|
|
47 |
|
|
|
1 |
|
Total average deposits (in millions) |
|
|
5,642 |
|
|
|
6,284 |
|
|
|
(642 |
) |
|
|
(10 |
) |
Net interest margin |
|
|
3.80 |
% |
|
|
3.85 |
% |
|
|
(0.05 |
)% |
|
|
(1 |
) |
Net charge-offs (NCOs) |
|
$ |
175,033 |
|
|
$ |
41,000 |
|
|
$ |
134,033 |
|
|
|
N.M. |
|
NCOs as a % of average loans and leases |
|
|
2.83 |
% |
|
|
0.67 |
% |
|
|
2.2 |
% |
|
|
N.M. |
|
Return on average equity |
|
|
(7.1 |
) |
|
|
17.5 |
|
|
|
(24.6 |
) |
|
|
N.M. |
|
N.M., not a meaningful value.
Commercial Banking reported a net loss of $41.8 million in the first nine-month period of
2009, compared with net income of $100.8 million in the first nine-month period of 2008. The
decline reflected a $221.1 million increase to the provision for credit losses. This increase to
the provision for credit losses reflected: (a) the continued economic weaknesses in our markets,
(b) an increase of commercial reserves resulting from the 2009 second quarter portfolio review
process (see “Commercial Loan Portfolio Review and Actions” section located within the “Commercial
Credit” section for additional information), and (c) a $134.0 million increase in NCOs, again
reflecting the continued impact of the economic conditions on our commercial borrowers. As NALs
continued to grow, we built our loan loss reserves. NALs increased $262 million, reflecting our
more conservative approach in identifying and classifying emerging problem credits. In many cases,
commercial loans were placed on nonaccrual status even though the loan was less than 30 days past
due for both principal and interest payments. The impact to net income resulting from the increase
in the provision for credit losses was partially offset by a $76.8 million reduction in provision
for income taxes expense reflecting the net loss during the first nine-month period of 2009.
Although we expect our commercial portfolio will remain under pressure, we believe that the risks
in our loan portfolios are manageable.
91
Net interest income decreased $4.7 million, or 2%, primarily reflecting a 5 basis point
decline in net interest margin, and a $1.3 billion decline in average interest bearing liabilities
as average earning assets were essentially unchanged. The net interest margin decline primarily
reflected a 9 basis point reduction in loan net interest margin, resulting from a significant
decline in the LIBOR rate, as well as a $262 million increase in NALs. The decline in average
interest bearing liabilities primarily reflected lower money-market account, time deposit, and
other sweep product balances, partially as a result of the migration of those balances into demand
deposit accounts due to lower market rates and the increased FDIC insurance coverage.
Average total deposits declined $0.6 billion, or 10%, compared with the first nine-month
period of 2008. The decline reflected decreases in account balances on deposit products that had
customer rates directly linked to overall market interest rates that decreased quickly and
significantly in the 2008 fourth quarter. Additionally, some customers with higher account
balances withdrew a portion of their balances due to concern over FDIC insurance coverage.
Noninterest income decreased $4.2 million, or 6%, primarily reflecting: (a) a $4.9 million
decrease in derivative income due to a decline in demand for interest rate swap products, (b) a
$0.7 million decrease in mezzanine income, and (c) a $1.8 million decline in operating lease
income, as effective with the 2009 second quarter, lease originations were recorded as direct
finance leases rather than operating leases. These decreases were partially offset by a $3.6
million increase in service charges on deposit accounts, reflecting pricing initiatives implemented
during the 2009 first six-month period.
Noninterest expense declined $10.6 million, reflecting an $11.7 million decrease in personnel
expense resulting from an 18% reduction in full-time equivalent employees, as well as a decrease in
various other expense categories as a result of the implementation of several expense reduction
initiatives. These decreases were partially offset by a $6.1 million increase in FDIC insurance
expense as a result of the comparable year-ago period’s expense was offset by an assessment credit
that has since been fully utilized, and a $4.0 million increase in credit quality related expenses,
such as legal and collection costs as a result of higher levels of problem assets, as well as loss
mitigation activities. We expect that collection costs will remain elevated for the remainder of
2009 due to the current economic weaknesses.
92
Commercial Real Estate
Objectives, Strategies, and Priorities
Our Commercial Real Estate segment serves professional real estate developers or other
customers with real estate project financing needs within our primary banking markets. Commercial
Real Estate products and services include CRE loans, cash management, interest rate protection
products, and capital market alternatives. Commercial Real Estate bankers personally deliver these
products and services by: (a) relationships with developers in our footprint who are recognized as
the most experienced, well-managed and well-capitalized, and are capable of operating in all phases
of the real estate cycle (“top-tier developers”), (b) leads through community involvement, and (c)
referrals from other professionals.
The Commercial Real Estate strategy is to focus on building a deeper relationship with
top-tier developers within our geographic footprint. Our local expertise of the customers, market,
and products, gives us a competitive advantage and supports revenue growth in our footprint. Our
strategy is to continue to expand the relationships of our current customer base and to attract
new, profitable business with top-tier developers in our footprint.
2009 First Nine Months versus 2008 First Nine Months
Table 60 — Key Performance Indicators for Commercial Real Estate
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended |
|
|
|
|
| |
|
September 30, |
|
|
Change — YTD 2009 vs 2008 |
|
| (in thousands unless otherwise noted) |
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
Net interest income |
|
$ |
136,727 |
|
|
$ |
130,479 |
|
|
$ |
6,248 |
|
|
|
5 |
% |
Provision for credit losses |
|
|
494,334 |
|
|
|
97,829 |
|
|
|
396,505 |
|
|
|
N.M. |
|
Noninterest income |
|
|
321 |
|
|
|
13,478 |
|
|
|
(13,157 |
) |
|
|
(98 |
) |
Noninterest expense |
|
|
20,658 |
|
|
|
21,083 |
|
|
|
(425 |
) |
|
|
(2 |
) |
(Benefit) Provision for income taxes |
|
|
(132,280 |
) |
|
|
8,766 |
|
|
|
(141,046 |
) |
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(245,664 |
) |
|
$ |
16,279 |
|
|
$ |
(261,943 |
) |
|
|
N.M. |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average assets (in millions) |
|
$ |
7,011 |
|
|
$ |
6,513 |
|
|
$ |
498 |
|
|
|
8 |
% |
Total average loans/leases (in millions) |
|
|
7,083 |
|
|
|
6,496 |
|
|
|
587 |
|
|
|
9 |
|
Total average deposits (in millions) |
|
|
416 |
|
|
|
531 |
|
|
|
(115 |
) |
|
|
(22 |
) |
Net interest margin |
|
|
2.59 |
% |
|
|
2.69 |
% |
|
|
(0.10 |
)% |
|
|
(4 |
) |
Net charge-offs (NCOs) |
|
$ |
373,723 |
|
|
$ |
16,409 |
|
|
$ |
357,314 |
|
|
|
N.M. |
|
NCOs as a % of average loans and leases |
|
|
7.04 |
% |
|
|
0.34 |
% |
|
|
6.7 |
% |
|
|
N.M. |
|
Return on average equity |
|
|
(58.8 |
) |
|
|
5.0 |
|
|
|
(63.8 |
) |
|
|
N.M. |
|
N.M., not a meaningful value.
Commercial Real Estate reported a net loss of $245.7 million in the first nine-month period of
2009, compared with net income of $16.3 million in the first nine-month period of 2008. The
decline primarily reflected a $396.5 million increase to the provision for credit losses
reflecting: (a) the continued economic weaknesses in our markets, (b) an increase of commercial
reserves resulting from the 2009 second quarter portfolio review process (see “Commercial Loan
Portfolio Review and Actions” section located within the “Commercial Credit” section for additional
information), and (c) a $357.3 million increase in NCOs, again reflecting the continued impact of
the economic conditions on our commercial borrowers. As NALs continued to grow, we built our loan
loss reserves. NALs increased $808 million, reflecting our more conservative approach in
identifying and classifying emerging problem credits. In many cases, commercial loans were placed
on nonaccrual status even though the loan was less than 30 days past due for both principal and
interest payments. The impact to net income resulting from the increase in the provision for
credit losses was partially offset by a $141.0 million reduction in provision for income taxes
expense reflecting the net loss during the first nine-month period of 2009. Although we expect
our CRE portfolio will remain under pressure, we believe that the risks in our loan portfolios are
manageable.
93
Net interest income increased $6.2 million, or 5%, reflecting a $0.6 billion, or 9%, increase
in average earning assets, partially offset by a 10 basis point decrease in net interest margin.
The decrease in the net interest margin primarily reflected a 21 basis point reduction in loan net
interest income, as a result of a significant decline in the LIBOR rate and a significant increase
in NALs, which increased to $1.0 billion at September 30, 2009. Also contributing to the decrease
was a $1.5 million decline in deposit net interest income, primarily reflecting the significant
decline in the 30 day LIBOR rate.
The $0.6 billion increase in total average commercial loans and leases primarily reflected
higher utilization of existing lines and lower payoffs due to the lack of permanent financing in
the secondary market.
Noninterest income decreased $13.2 million, or 98%, primarily reflecting: (a) $5.2 million of
interest rate swap losses, (b) a $4.3 million decrease in derivative income due to a decline in
demand for interest rate swap products, and (c) a $3.8 million decrease in mezzanine lending
income, resulting from lower participation gains.
Noninterest expense decreased $0.4 million, or 2%, reflecting a $1.9 million decrease in
personnel expense resulting from an 11% reduction in full-time equivalent employees. Also,
various other expense categories declined as a result of the implementation of several expense
reduction initiatives, specifically travel and business development expenses. These declines were
offset by a $3.5 million increase in credit quality related expenses, such as legal and collection
costs as a result of higher levels of problem assets, as well as loss mitigation activities. We
expect that collection costs will remain at higher levels for the remainder of 2009 due to the
current economic weaknesses.
94
Auto Finance and Dealer Services (AFDS)
(This section should be read in conjunction with the “Automotive Industry” discussion located
within the “Commercial Credit” section.)
Objectives, Strategies, and Priorities
Our AFDS business segment provides a variety of banking products and services to approximately
2,000 automotive dealerships within our primary banking markets. During the first quarter of 2009,
AFDS discontinued lending activities in Arizona, Florida, Tennessee, Texas, and Virginia. Also,
all lease origination activities were discontinued during the 2008 fourth quarter. AFDS finances
the purchase of automobiles by customers at the automotive dealerships; finances dealerships’ new
and used vehicle inventories, land, buildings, and other real estate owned by the dealership;
finances dealership working capital needs; and provides other banking services to the automotive
dealerships and their owners. Competition from the financing divisions of automobile manufacturers
and from other financial institutions is intense. AFDS’ production opportunities are directly
impacted by the general automotive sales business, including programs initiated by manufacturers to
enhance and increase sales directly. We have been in this line of business for over 50 years.
The AFDS strategy focuses on developing relationships with the dealership through its finance
department, general manager, and owner. An underwriter who understands each local region makes
loan decisions, though we prioritize maintaining pricing discipline over market share.
2009 First Nine Months versus 2008 First Nine Months
Table 61 — Key Performance Indicators for Auto Finance and Dealer Services (AFDS)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended |
|
|
|
|
| |
|
September 30, |
|
|
Change — YTD 2009 vs 2008 |
|
| (in thousands unless otherwise noted) |
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
Net interest income |
|
$ |
104,861 |
|
|
$ |
112,392 |
|
|
$ |
(7,531 |
) |
|
|
(7 |
)% |
Provision for credit losses |
|
|
68,364 |
|
|
|
46,283 |
|
|
|
22,081 |
|
|
|
48 |
|
Noninterest income |
|
|
44,308 |
|
|
|
43,136 |
|
|
|
1,172 |
|
|
|
3 |
|
Noninterest expense |
|
|
80,676 |
|
|
|
84,723 |
|
|
|
(4,047 |
) |
|
|
(5 |
) |
Provision for income taxes |
|
|
45 |
|
|
|
8,583 |
|
|
|
(8,538 |
) |
|
|
(99 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
84 |
|
|
$ |
15,939 |
|
|
$ |
(15,855 |
) |
|
|
(99 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average assets (in millions) |
|
$ |
5,267 |
|
|
$ |
5,720 |
|
|
$ |
(453 |
) |
|
|
(8 |
)% |
Total average loans/leases (in millions) |
|
|
4,963 |
|
|
|
5,845 |
|
|
|
(882 |
) |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
2.65 |
% |
|
|
2.52 |
% |
|
|
0.13 |
% |
|
|
5 |
|
Net charge-offs (NCOs) |
|
$ |
45,430 |
|
|
$ |
38,072 |
|
|
$ |
7,358 |
|
|
|
19 |
|
NCOs as a % of average loans and leases |
|
|
1.22 |
% |
|
|
0.87 |
% |
|
|
0.35 |
% |
|
|
40 |
|
Return on average equity |
|
|
0.1 |
|
|
|
10.4 |
|
|
|
(10.3 |
) |
|
|
(99 |
) |
Automobile loans production (in millions) |
|
$ |
1,073 |
|
|
$ |
1,852 |
|
|
$ |
(779 |
) |
|
|
(42 |
) |
AFDS reported net income of $0.1 million in the first nine-month period of 2009, compared with
net income of $15.9 million in the first nine-month period of 2008. This $15.9 million decline
reflected a $22.1 million increase to the provision for credit losses due to reserve building
necessary due to the continued economic and automobile industry-related weaknesses, as well as a 35
basis point increase in NCOs also reflecting the continued economic weaknesses in our markets.
Although total NCOs increased from the comparable year-ago period, automobile loan and lease NCOs
in the 2009 third quarter declined $3.9 million, or 27%, compared with the 2009 second quarter.
Also, delinquency levels declined for the third consecutive quarter. At September 30, 2009, the
ALLL as a percentage of total loans and leases increased to 1.36% compared with 0.76% at September
30, 2008. Performance of this portfolio on both an absolute and relative basis continues to be
consistent with our views regarding the underlying quality of the portfolio and we continue to
expect flat to improved performance.
95
Net interest income decreased $7.5 million, or 7%, to $104.9 million, reflecting a $0.9
billion decrease in average loans and leases. The decrease in average loans and leases reflected:
(a) continued run-off in the automobile lease portfolio, and (b) a decline in the automobile loan
portfolio due to lower originations, primarily as a result of the significant decline in
industry-wide new and used vehicle sales, as well as the sale of $1.0 billion of loans at the end
of March 2009. Originations totaled $1.1 billion for the first nine-month period of 2009 ($0.9
billion from our primary banking markets) compared with $1.9 billion for the first nine-month
period of 2008 ($1.2 billion from our primary banking markets). Partially offsetting the impact of
these declining balances was a 13 basis point improvement in the net interest margin from 2.52% to
2.65%.
Noninterest income (excluding operating lease income of $39.1 million in the first nine-month
period of 2009, and $26.7 million in the first nine-month period of 2008) declined $11.3 million,
and included a $5.9 million nonrecurring loss from the previously mentioned $1.0 billion sale of
loans in 2009. In addition, fee income from the sale of Huntington Plus loans declined $2.9
million as this program was discontinued in the 2008 fourth quarter, servicing income decreased
$1.0 million due to declines in underlying serviced loan portfolios, and fees associated with
customers exercising their purchase option on leased vehicles declined $0.8 million.
Noninterest expense (excluding operating lease expense of $32.9 million in the first
nine-month period of 2009, and $20.8 million in the first nine-month period of 2008) decreased
$16.2 million. This decline reflected: (a) $10.1 million reduction in losses associated with
sales of vehicles returned at the end of their lease terms due to an improvement in used vehicle
values combined with a decline in the number of vehicles being returned, (b) a $1.7 million decline
in residual value insurance costs as all residual value insurance policies were terminated in the
2008 fourth quarter, and (c) a $2.1 million decline in personnel costs. Personnel costs, as well
as various other expenses, have declined primarily as a result of expense reduction initiatives
that began in the second half of 2008 and continued into 2009. A majority of these reduction
initiatives involved discontinuing lending activities outside of our primary banking markets.
Net automobile operating lease income increased $0.3 million and consisted of a $12.5 million
increase in noninterest income, offset by a $12.1 million increase in noninterest expense. These
increases primarily reflected the increase in average operating lease balances, which resulted from
all automobile lease originations since the 2007 fourth quarter being recorded as operating leases.
However, the automobile operating lease portfolio and related income will decline in the future as
all lease origination activities were discontinued during the 2008 fourth quarter.
96
Private Financial Group (PFG)
(This section should be read in conjunction with Significant Items 1, 5, and the “Goodwill”
discussion located within the “Critical Accounting Policies and Use of Significant Estimates”
section.)
Objectives, Strategies, and Priorities
PFG provides products and services designed to meet the needs of higher net worth customers.
Revenue results from the sale of trust, asset management, investment advisory, brokerage,
insurance, and private banking products and services including credit and lending activities. PFG
also focuses on financial solutions for corporate and institutional customers that include
investment banking, sales and trading of securities, and interest rate risk management products.
To serve high net worth customers, we use a unique distribution model that employs a single,
unified sales force to deliver products and services mainly through the Bank’s distribution
channels. PFG provides investment management and custodial services to the Huntington Funds, which
consists of 35 proprietary mutual funds, including 12 variable annuity funds. Huntington Funds
assets represented 25% of the approximately $13.0 billion total assets under management at
September 30, 2009. The Huntington Investment Company (HIC) offers brokerage and investment
advisory services to both the Bank’s and PFG’s customers, through a combination of licensed
investment sales representatives and licensed personal bankers. PFG’s Insurance group provides a
complete array of insurance products including individual life insurance products ranging from
basic term-life insurance to estate planning, group life and health insurance, property and
casualty insurance, mortgage title insurance, and reinsurance for payment protection products.
PFG’s primary goals are to consistently increase assets under management by offering
innovative products and services that are responsive to our clients’ changing financial needs, and
to grow deposits through increased focus and improved cross-selling efforts. To grow managed
assets, the HIC sales team has been utilized as the primary distribution source for trust and
investment management.
2009 First Nine Months versus 2008 First Nine Months
Table 62 — Key Performance Indicators for Private Financial Group (PFG)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended |
|
|
|
|
| |
|
September 30, |
|
|
Change — YTD 2009 vs 2008 |
|
| (in thousands unless otherwise noted) |
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
Net interest income |
|
$ |
76,097 |
|
|
$ |
59,685 |
|
|
$ |
16,412 |
|
|
|
27.5 |
% |
Provision for credit losses |
|
|
29,299 |
|
|
|
7,174 |
|
|
|
22,125 |
|
|
|
N.M. |
|
Noninterest income |
|
|
184,835 |
|
|
|
199,989 |
|
|
|
(15,154 |
) |
|
|
(7.6 |
) |
Noninterest expense excluding goodwill
impairment |
|
|
178,877 |
|
|
|
187,180 |
|
|
|
(8,303 |
) |
|
|
(4.4 |
) |
Goodwill impairment |
|
|
28,895 |
|
|
|
— |
|
|
|
28,895 |
|
|
|
— |
|
Provision for income taxes |
|
|
8,351 |
|
|
|
22,862 |
|
|
|
(14,511 |
) |
|
|
(63.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
15,510 |
|
|
$ |
42,458 |
|
|
$ |
(26,948 |
) |
|
|
(63.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average assets (in millions) |
|
$ |
3,369 |
|
|
$ |
2,965 |
|
|
$ |
404 |
|
|
|
13.6 |
% |
Total average loans/leases (in millions) |
|
|
2,475 |
|
|
|
2,279 |
|
|
|
196 |
|
|
|
8.6 |
|
Net interest margin |
|
|
3.93 |
% |
|
|
3.39 |
% |
|
|
0.54 |
% |
|
|
15.9 |
|
Net charge-offs (NCOs) |
|
$ |
25,537 |
|
|
$ |
4,631 |
|
|
$ |
20,906 |
|
|
|
N.M. |
|
NCOs as a % of average loans and leases |
|
|
1.38 |
% |
|
|
0.27 |
% |
|
|
1.11 |
% |
|
|
N.M. |
|
Return on average equity |
|
|
8.5 |
|
|
|
26.0 |
|
|
|
(17.5 |
) |
|
|
(67.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income shared with other
lines-of-business |
|
$ |
28,397 |
|
|
$ |
38,745 |
|
|
$ |
(10,348 |
) |
|
|
(26.7 |
) |
Total assets under management (in billions)- eop |
|
|
13.0 |
|
|
|
14.3 |
|
|
|
(1.3 |
) |
|
|
(9.1 |
) |
Total trust assets (in billions)- eop |
|
|
47.7 |
|
|
|
49.7 |
|
|
|
(2.0 |
) |
|
|
(4.0 |
)% |
eop — End of Period.
N.M., not a meaningful value.
(1) Amount is not included in noninterest income reported above.
97
PFG reported net income of $15.5 million in the first nine-month period of 2009, compared with
net income of $42.5 million in the first nine-month period of 2008. The decline reflected a $28.9
million goodwill impairment charge recorded during the first nine-month period of 2009 (see
“Goodwill” discussion located within the “Critical Accounting Policies and Use of Significant
Estimates” for additional information). After adjusting for the goodwill impairment charge, and
the related tax impact, PFG’s net income decreased $8.2 million.
Net interest income increased $16.4 million, or 28%, primarily as a result of a 54 basis point
improvement in the net interest margin. The improvement in the net interest margin primarily
reflected a 55% increase in average deposits relative to the much smaller loan growth of 9%. A
substantial portion of the deposit growth resulted from the introduction of three deposit products
during the first nine-month period of 2009 designed as alternative options for lower yielding money
market mutual funds. The new deposit products are: (a) the Huntington Conservative Deposit
Account (HCDA), (b) the Huntington Protected Deposit Account (HPDA), and (c) the Bank Deposit Sweep
Product (BDSP). These three accounts had balances in excess of $1.1 billion at September 30, 2009.
Provision for credit losses increased $22.1 million reflecting: (a) the continued economic
weaknesses in our markets, particularly relating to the commercial portfolio, (b) an increase of
commercial loan loss reserves resulting from the 2009 second quarter portfolio review process (see
“Commercial Loan Portfolio Review and Actions” section located within the “Commercial Credit”
section for additional information), and (c) an 111 basis point increase in total NCOs. The
increase in NCOs included a significant increase in residential mortgage charge-offs, as a result
of, among other actions, a more conservative position regarding the timing of loss recognition.
Noninterest income decreased $15.2 million, or 8%, primarily reflecting a $21.2 million
decline in trust services revenue. The trust revenue decline reflected: (a) a market-driven $1.3
billion decline in average total assets under management, (b) reduced proprietary mutual fund fees
due to the migration of proprietary money-market mutual fund balances to the new deposit products
noted above, and (c) the impact of reduced money market yields. Also contributing to the reduction
in noninterest income was a $4.6 million decline in derivatives income primarily as a result of
lower demand for CRE loan interest-rate hedging transactions. These decreases were partially offset
by a $10.9 million improvement in equity investment portfolio valuation adjustments from a loss of
$9.6 million in 2008 to a $1.3 million gain in 2009.
Noninterest expense increased $20.6 million, or 11%, primarily reflecting the goodwill
impairment charge of $28.9 million recorded during the first nine-month period of 2009, partially
offset by $13.9 million of reduced personnel expense as a result of the implementation of several
expense reduction initiatives. Also contributing to the noninterest expense increase was a $2.7
million increase in FDIC insurance expense as the prior period’s expense was offset by an
assessment credit that has since been fully utilized, and a $0.8 million increase in OREO losses,
reflecting higher levels of problem assets.
98
Item 1. Financial Statements
Huntington Bancshares Incorporated
Condensed Consolidated Balance Sheets
(Unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2009 |
|
|
2008 |
|
| (in thousands, except number of shares) |
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
1,882,108 |
|
|
$ |
806,693 |
|
|
$ |
901,239 |
|
Federal funds sold and securities
purchased under resale agreements |
|
|
— |
|
|
|
37,975 |
|
|
|
269,519 |
|
Interest bearing deposits in banks |
|
|
397,941 |
|
|
|
292,561 |
|
|
|
298,297 |
|
Trading account securities |
|
|
121,366 |
|
|
|
88,677 |
|
|
|
998,249 |
|
Loans held for sale |
|
|
530,861 |
|
|
|
390,438 |
|
|
|
286,751 |
|
Investment securities |
|
|
8,503,150 |
|
|
|
4,384,457 |
|
|
|
4,565,064 |
|
Loans and leases |
|
|
37,304,094 |
|
|
|
41,092,165 |
|
|
|
41,191,723 |
|
Allowance for loan and lease losses |
|
|
(1,031,971 |
) |
|
|
(900,227 |
) |
|
|
(720,738 |
) |
|
|
|
|
|
|
|
|
|
|
Net loans and leases |
|
|
36,272,123 |
|
|
|
40,191,938 |
|
|
|
40,470,985 |
|
|
|
|
|
|
|
|
|
|
|
Bank owned life insurance |
|
|
1,402,134 |
|
|
|
1,364,466 |
|
|
|
1,353,400 |
|
Premises and equipment |
|
|
496,280 |
|
|
|
519,500 |
|
|
|
527,798 |
|
Goodwill |
|
|
443,648 |
|
|
|
3,054,985 |
|
|
|
3,056,386 |
|
Other intangible assets |
|
|
302,612 |
|
|
|
356,703 |
|
|
|
375,914 |
|
Accrued income and other assets |
|
|
2,160,436 |
|
|
|
2,864,466 |
|
|
|
1,556,987 |
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
52,512,659 |
|
|
$ |
54,352,859 |
|
|
$ |
54,660,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
39,829,057 |
|
|
$ |
37,943,286 |
|
|
$ |
37,569,056 |
|
Short-term borrowings |
|
|
852,076 |
|
|
|
1,309,157 |
|
|
|
1,974,368 |
|
Federal Home Loan Bank advances |
|
|
920,045 |
|
|
|
2,588,976 |
|
|
|
3,483,001 |
|
Other long-term debt |
|
|
2,434,858 |
|
|
|
2,331,632 |
|
|
|
2,497,002 |
|
Subordinated notes |
|
|
1,674,054 |
|
|
|
1,950,097 |
|
|
|
1,864,728 |
|
Accrued expenses and other liabilities |
|
|
1,127,463 |
|
|
|
1,000,805 |
|
|
|
896,674 |
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
46,837,553 |
|
|
|
47,123,953 |
|
|
|
48,284,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock — authorized 6,617,808 shares — |
|
|
|
|
|
|
|
|
|
|
|
|
5.00% Series B Non-voting, Cumulative Preferred Stock, par
value
of $0.01 and liquidation value per share of $1,000 |
|
|
1,320,898 |
|
|
|
1,308,667 |
|
|
|
— |
|
8.50% Series A Non-cumulative Perpetual Convertible Preferred
Stock, par value and liquidiation value per share of $1,000 |
|
|
362,507 |
|
|
|
569,000 |
|
|
|
569,000 |
|
Common stock — |
|
|
|
|
|
|
|
|
|
|
|
|
Par value of $0.01 and authorized 1,000,000,000 shares |
|
|
7,154 |
|
|
|
3,670 |
|
|
|
3,670 |
|
Capital surplus |
|
|
6,723,923 |
|
|
|
5,322,428 |
|
|
|
5,228,381 |
|
Less treasury shares at cost |
|
|
(11,827 |
) |
|
|
(15,530 |
) |
|
|
(15,501 |
) |
Accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on investment securities |
|
|
(103,010 |
) |
|
|
(207,756 |
) |
|
|
(207,816 |
) |
Unrealized gains on cash flow hedging derivatives |
|
|
50,311 |
|
|
|
44,638 |
|
|
|
(13,450 |
) |
Pension and other postretirement benefit adjustments |
|
|
(159,143 |
) |
|
|
(163,575 |
) |
|
|
(45,411 |
) |
Retained (deficit) earnings |
|
|
(2,515,707 |
) |
|
|
367,364 |
|
|
|
856,887 |
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders’ Equity |
|
|
5,675,106 |
|
|
|
7,228,906 |
|
|
|
6,375,760 |
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders’ Equity |
|
$ |
52,512,659 |
|
|
$ |
54,352,859 |
|
|
$ |
54,660,589 |
|
|
|
|
|
|
|
|
|
|
|
Common shares issued |
|
|
715,409,524 |
|
|
|
366,972,250 |
|
|
|
366,970,661 |
|
Common shares outstanding |
|
|
714,469,066 |
|
|
|
366,057,669 |
|
|
|
366,068,762 |
|
Treasury shares outstanding |
|
|
940,458 |
|
|
|
914,581 |
|
|
|
901,899 |
|
Preferred shares issued |
|
|
1,967,071 |
|
|
|
1,967,071 |
|
|
|
569,000 |
|
Preferred shares outstanding |
|
|
1,760,578 |
|
|
|
1,967,071 |
|
|
|
569,000 |
|
See notes to unaudited condensed consolidated financial statements
99
Huntington Bancshares Incorporated
Condensed Consolidated Statements of Income
(Unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| (in thousands, except per share amounts) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Interest and fee income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
$ |
476,832 |
|
|
$ |
600,340 |
|
|
$ |
1,462,647 |
|
|
$ |
1,863,556 |
|
Tax-exempt |
|
|
3,184 |
|
|
|
1,388 |
|
|
|
7,741 |
|
|
|
4,899 |
|
Investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
64,955 |
|
|
|
55,042 |
|
|
|
180,445 |
|
|
|
163,500 |
|
Tax-exempt |
|
|
1,356 |
|
|
|
7,497 |
|
|
|
7,454 |
|
|
|
22,375 |
|
Other |
|
|
7,519 |
|
|
|
21,461 |
|
|
|
28,520 |
|
|
|
81,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
553,846 |
|
|
|
685,728 |
|
|
|
1,686,807 |
|
|
|
2,135,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
161,593 |
|
|
|
219,086 |
|
|
|
525,243 |
|
|
|
721,734 |
|
Short-term borrowings |
|
|
564 |
|
|
|
7,604 |
|
|
|
1,825 |
|
|
|
38,545 |
|
Federal Home Loan Bank advances |
|
|
2,170 |
|
|
|
23,435 |
|
|
|
11,118 |
|
|
|
83,080 |
|
Subordinated notes and other long-term debt |
|
|
26,700 |
|
|
|
46,967 |
|
|
|
98,398 |
|
|
|
137,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
191,027 |
|
|
|
297,092 |
|
|
|
636,584 |
|
|
|
980,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
362,819 |
|
|
|
388,636 |
|
|
|
1,050,223 |
|
|
|
1,155,326 |
|
Provision for credit losses |
|
|
475,136 |
|
|
|
125,392 |
|
|
|
1,180,680 |
|
|
|
334,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest (loss) income after provision for credit losses |
|
|
(112,317 |
) |
|
|
263,244 |
|
|
|
(130,457 |
) |
|
|
820,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
|
80,811 |
|
|
|
80,508 |
|
|
|
226,042 |
|
|
|
232,806 |
|
Brokerage and insurance income |
|
|
33,996 |
|
|
|
34,309 |
|
|
|
105,996 |
|
|
|
106,563 |
|
Trust services |
|
|
25,832 |
|
|
|
30,952 |
|
|
|
76,364 |
|
|
|
98,169 |
|
Electronic banking |
|
|
28,017 |
|
|
|
23,446 |
|
|
|
74,978 |
|
|
|
67,429 |
|
Bank owned life insurance income |
|
|
13,639 |
|
|
|
13,318 |
|
|
|
40,817 |
|
|
|
41,199 |
|
Automobile operating lease income |
|
|
12,795 |
|
|
|
11,492 |
|
|
|
39,139 |
|
|
|
26,681 |
|
Mortgage banking income (loss) |
|
|
21,435 |
|
|
|
10,302 |
|
|
|
87,680 |
|
|
|
15,741 |
|
Net (losses) gains on sales of investment securities |
|
|
16,208 |
|
|
|
(73,790 |
) |
|
|
34,459 |
|
|
|
(70,288 |
) |
Impairment losses on investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment losses on investment securities |
|
|
(53,307 |
) |
|
|
— |
|
|
|
(145,359 |
) |
|
|
— |
|
Noncredit-related losses on securities not expected
to be sold (recognized in other comprehensive income) |
|
|
34,725 |
|
|
|
— |
|
|
|
103,253 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impairment losses on investment securities |
|
|
(18,582 |
) |
|
|
— |
|
|
|
(42,106 |
) |
|
|
— |
|
Other income |
|
|
41,901 |
|
|
|
37,320 |
|
|
|
117,730 |
|
|
|
121,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income |
|
|
256,052 |
|
|
|
167,857 |
|
|
|
761,099 |
|
|
|
640,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs |
|
|
172,152 |
|
|
|
184,827 |
|
|
|
519,819 |
|
|
|
586,761 |
|
Outside data processing and other services |
|
|
37,999 |
|
|
|
32,386 |
|
|
|
109,697 |
|
|
|
96,933 |
|
Net occupancy |
|
|
25,382 |
|
|
|
25,215 |
|
|
|
79,000 |
|
|
|
85,429 |
|
OREO and foreclosure expense |
|
|
38,968 |
|
|
|
9,113 |
|
|
|
75,379 |
|
|
|
25,284 |
|
Equipment |
|
|
20,967 |
|
|
|
22,102 |
|
|
|
62,663 |
|
|
|
71,636 |
|
Amortization of intangibles |
|
|
16,995 |
|
|
|
19,463 |
|
|
|
51,247 |
|
|
|
57,707 |
|
Professional services |
|
|
18,108 |
|
|
|
12,234 |
|
|
|
51,220 |
|
|
|
33,183 |
|
Marketing |
|
|
8,259 |
|
|
|
7,049 |
|
|
|
23,975 |
|
|
|
23,307 |
|
Automobile operating lease expense |
|
|
10,589 |
|
|
|
9,093 |
|
|
|
32,920 |
|
|
|
20,799 |
|
Telecommunications |
|
|
5,902 |
|
|
|
6,007 |
|
|
|
17,880 |
|
|
|
19,116 |
|
Printing and supplies |
|
|
3,950 |
|
|
|
4,316 |
|
|
|
11,673 |
|
|
|
14,695 |
|
Goodwill impairment |
|
|
— |
|
|
|
— |
|
|
|
2,606,944 |
|
|
|
— |
|
Other expense |
|
|
41,826 |
|
|
|
7,191 |
|
|
|
68,431 |
|
|
|
52,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense |
|
|
401,097 |
|
|
|
338,996 |
|
|
|
3,710,848 |
|
|
|
1,087,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(257,362 |
) |
|
|
92,105 |
|
|
|
(3,080,206 |
) |
|
|
373,230 |
|
(Benefit) provision for income taxes |
|
|
(91,172 |
) |
|
|
17,042 |
|
|
|
(355,714 |
) |
|
|
69,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(166,190 |
) |
|
$ |
75,063 |
|
|
$ |
(2,724,492 |
) |
|
$ |
303,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on preferred shares |
|
|
29,223 |
|
|
|
12,091 |
|
|
|
145,467 |
|
|
|
23,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income applicable to common shares |
|
$ |
(195,413 |
) |
|
$ |
62,972 |
|
|
$ |
(2,869,959 |
) |
|
$ |
280,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares — basic |
|
|
589,708 |
|
|
|
366,124 |
|
|
|
471,958 |
|
|
|
366,188 |
|
Average common shares — diluted |
|
|
589,708 |
|
|
|
367,361 |
|
|
|
471,958 |
|
|
|
367,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income — basic |
|
$ |
(0.33 |
) |
|
$ |
0.17 |
|
|
$ |
(6.08 |
) |
|
$ |
0.77 |
|
Net (loss) income — diluted |
|
|
(0.33 |
) |
|
|
0.17 |
|
|
|
(6.08 |
) |
|
|
0.76 |
|
Cash dividends declared |
|
|
0.0100 |
|
|
|
0.1325 |
|
|
|
0.0300 |
|
|
|
0.5300 |
|
See notes to unaudited condensed consolidated financial statements
100
Huntington Bancshares Incorporated
Condensed Consolidated Statements of Changes in Shareholders’ Equity
(Unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
| |
|
Preferred Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
| |
|
Series B |
|
|
Series A |
|
|
Common Stock |
|
|
Capital |
|
|
Treasury Stock |
|
|
Comprehensive |
|
|
Retained |
|
|
|
|
| (in thousands) |
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Surplus |
|
|
Shares |
|
|
Amount |
|
|
Loss |
|
|
Earnings |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
367,001 |
|
|
$ |
3,670 |
|
|
$ |
5,237,783 |
|
|
|
(739 |
) |
|
$ |
(14,391 |
) |
|
$ |
(49,611 |
) |
|
$ |
771,689 |
|
|
$ |
5,949,140 |
|
Cumulative effect of change in accounting principle
for fair value of assets and libilities, net of
tax of ($803) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,491 |
|
|
|
1,491 |
|
Cumulative effect of changing measurement date
provisions for pension and post-retirement assets
and obligations, net of tax of $4,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,834 |
) |
|
|
(4,195 |
) |
|
|
(8,029 |
) |
Cumulative effect of change in accounting
principle for noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,950 |
|
|
|
1,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period — as adjusted |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
367,001 |
|
|
|
3,670 |
|
|
|
5,237,783 |
|
|
|
(739 |
) |
|
|
(14,391 |
) |
|
|
(53,445 |
) |
|
|
770,935 |
|
|
|
5,944,552 |
|
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
303,483 |
|
|
|
303,483 |
|
Unrealized net losses on investment securities
arising during the period, net of reclassification
for net realized gains, net of tax of $108,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(197,805 |
) |
|
|
|
|
|
|
(197,805 |
) |
Unrealized losses on cash flow hedging derivatives,
net of tax of $9,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,003 |
) |
|
|
|
|
|
|
(18,003 |
) |
Amortization included in net periodic benefit costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss, net of tax of ($843) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,565 |
|
|
|
|
|
|
|
1,565 |
|
Prior service costs, net of tax of ($253) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
470 |
|
|
|
|
|
|
|
470 |
|
Transition obligation, net of tax of ($291) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
541 |
|
|
|
|
|
|
|
541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of preferred stock |
|
|
|
|
|
|
|
|
|
|
569 |
|
|
|
569,000 |
|
|
|
|
|
|
|
|
|
|
|
(18,866 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
550,134 |
|
Cash dividends declared: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common ($0.53 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(193,998 |
) |
|
|
(193,998 |
) |
Preferred Series A ($40.847 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,242 |
) |
|
|
(23,242 |
) |
Recognition of the fair value of
share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,544 |
|
Other share-based compensation activity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30 |
) |
|
|
— |
|
|
|
(674 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(195 |
) |
|
|
(869 |
) |
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(406 |
) |
|
|
(163 |
) |
|
|
(1,110 |
) |
|
|
|
|
|
|
(96 |
) |
|
|
(1,612 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
|
— |
|
|
$ |
— |
|
|
|
569 |
|
|
$ |
569,000 |
|
|
|
366,971 |
|
|
$ |
3,670 |
|
|
$ |
5,228,381 |
|
|
|
(902 |
) |
|
$ |
(15,501 |
) |
|
$ |
(266,677 |
) |
|
$ |
856,887 |
|
|
$ |
6,375,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
|
1,398 |
|
|
$ |
1,308,667 |
|
|
|
569 |
|
|
$ |
569,000 |
|
|
|
366,972 |
|
|
$ |
3,670 |
|
|
$ |
5,322,428 |
|
|
|
(915 |
) |
|
$ |
(15,530 |
) |
|
$ |
(326,693 |
) |
|
$ |
365,599 |
|
|
$ |
7,227,141 |
|
Cumulative effect of change in accounting
principle for noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,765 |
|
|
|
1,765 |
|
Balance, beginning of period — as adjusted |
|
|
1,398 |
|
|
|
1,308,667 |
|
|
|
569 |
|
|
|
569,000 |
|
|
|
366,972 |
|
|
|
3,670 |
|
|
|
5,322,428 |
|
|
|
(915 |
) |
|
|
(15,530 |
) |
|
|
(326,693 |
) |
|
|
367,364 |
|
|
|
7,228,906 |
|
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,724,492 |
) |
|
|
(2,724,492 |
) |
Cumulative effect of change in accounting
principle for other-than-temporarily
impaired debt securities, net of tax of $1,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,541 |
) |
|
|
3,541 |
|
|
|
— |
|
Non-credit-related impairment losses on debt
securities not expected to be sold, net of tax of $36,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(67,114 |
) |
|
|
|
|
|
|
(67,114 |
) |
Unrealized net gains on investment securities
arising during the period, net of reclassification
for net realized gains, net of tax of ($95,528) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,401 |
|
|
|
|
|
|
|
175,401 |
|
Unrealized gains on cash flow hedging derivatives,
net of tax of ($3,055) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,673 |
|
|
|
|
|
|
|
5,673 |
|
Amortization included in net periodic benefit costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss, net of tax of ($1,831) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,400 |
|
|
|
|
|
|
|
3,400 |
|
Prior service costs, net of tax of ($265) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
492 |
|
|
|
|
|
|
|
492 |
|
Transition obligation, net of tax of ($291) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
540 |
|
|
|
|
|
|
|
540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,606,100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
307,008 |
|
|
|
3,069 |
|
|
|
1,137,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,140,726 |
|
Conversion of Preferred Series A stock |
|
|
|
|
|
|
|
|
|
|
(206 |
) |
|
|
(206,493 |
) |
|
|
41,072 |
|
|
|
411 |
|
|
|
262,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56,035 |
) |
|
|
— |
|
Amortization of discount |
|
|
|
|
|
|
11,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,931 |
) |
|
|
— |
|
Cash dividends declared: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common ($0.03 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,859 |
) |
|
|
(14,859 |
) |
Preferred Series B ($37.50 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52,428 |
) |
|
|
(52,428 |
) |
Preferred Series A ($63.75 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,073 |
) |
|
|
(25,073 |
) |
Recognition of the fair value of
share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,128 |
|
Other share-based compensation activity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
358 |
|
|
|
4 |
|
|
|
652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(813 |
) |
|
|
(157 |
) |
Other |
|
|
|
|
|
|
300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,059 |
) |
|
|
(25 |
) |
|
|
3,703 |
|
|
|
|
|
|
|
(981 |
) |
|
|
(1,037 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
|
1,398 |
|
|
$ |
1,320,898 |
|
|
|
363 |
|
|
|
362,507 |
|
|
|
715,410 |
|
|
$ |
7,154 |
|
|
$ |
6,723,923 |
|
|
|
(940 |
) |
|
$ |
(11,827 |
) |
|
$ |
(211,842 |
) |
|
$ |
(2,515,707 |
) |
|
$ |
5,675,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited condensed consolidated financial statements.
101
Huntington Bancshares Incorporated
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| |
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended |
|
| |
|
September 30, |
|
| (in thousands) |
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(2,724,492 |
) |
|
$ |
303,483 |
|
Adjustments to reconcile net (loss) income to net cash provided
by operating activites: |
|
|
|
|
|
|
|
|
Impairment of goodwill |
|
|
2,606,944 |
|
|
|
— |
|
Provision for credit losses |
|
|
1,180,680 |
|
|
|
334,855 |
|
Depreciation and amortization |
|
|
160,473 |
|
|
|
181,253 |
|
Increase (decrease) in accrued income taxes |
|
|
|
|
|
|
|
|
Change in current and deferred income taxes |
|
|
(243,482 |
) |
|
|
210 |
|
Mortgage servicing rights valuation adjustment |
|
|
|
|
|
|
|
|
Net sales of trading account securities |
|
|
818,403 |
|
|
|
34,496 |
|
Originations of loans held for sale |
|
|
(3,907,458 |
) |
|
|
(2,379,803 |
) |
Principal payments on and proceeds from loans held for sale |
|
|
3,736,250 |
|
|
|
2,526,903 |
|
Other, net |
|
|
211,230 |
|
|
|
(28,801 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
1,838,548 |
|
|
|
972,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
(Increase) decrease in interest bearing deposits in banks |
|
|
(294,238 |
) |
|
|
5,145 |
|
Proceeds from: |
|
|
|
|
|
|
|
|
Maturities and calls of investment securities |
|
|
564,433 |
|
|
|
319,625 |
|
Sales of investment securities |
|
|
2,836,072 |
|
|
|
546,169 |
|
Purchases of investment securities |
|
|
(7,099,257 |
) |
|
|
(1,315,393 |
) |
Net proceeds from sales of loans |
|
|
949,398 |
|
|
|
471,362 |
|
Net loan and lease activity, excluding sales |
|
|
1,500,544 |
|
|
|
(1,803,047 |
) |
Purchases of operating lease assets |
|
|
(119 |
) |
|
|
(198,693 |
) |
Proceeds from sale of operating lease assets |
|
|
7,647 |
|
|
|
20,383 |
|
Purchases of premises and equipment |
|
|
(32,672 |
) |
|
|
(44,890 |
) |
Proceeds from sales of other real estate |
|
|
39,733 |
|
|
|
42,412 |
|
Other, net |
|
|
4,207 |
|
|
|
14,097 |
|
|
|
|
|
|
|
|
Net cash used for investing activities |
|
|
(1,524,252 |
) |
|
|
(1,942,830 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
Increase (decrease) in deposits |
|
|
1,895,145 |
|
|
|
(178,316 |
) |
Decrease in short-term borrowings |
|
|
(375,011 |
) |
|
|
(846,866 |
) |
Maturity/redemption of subordinated notes |
|
|
(151,942 |
) |
|
|
(76,659 |
) |
Proceeds from Federal Home Loan Bank advances |
|
|
206,286 |
|
|
|
1,557,114 |
|
Maturity/redemption of Federal Home Loan Bank advances |
|
|
(1,875,534 |
) |
|
|
(1,158,046 |
) |
Proceeds from issuance of long-term debt |
|
|
598,200 |
|
|
|
887,111 |
|
Maturity/redemption of long-term debt |
|
|
(578,072 |
) |
|
|
(358,730 |
) |
Dividends paid on preferred stock |
|
|
(82,084 |
) |
|
|
(11,151 |
) |
Dividends paid on common stock |
|
|
(49,349 |
) |
|
|
(231,976 |
) |
Net proceeds from issuance of preferred stock |
|
|
— |
|
|
|
550,134 |
|
Net proceeds from issuance of common stock |
|
|
1,135,662 |
|
|
|
— |
|
Other, net |
|
|
(157 |
) |
|
|
(869 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
723,144 |
|
|
|
131,746 |
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
1,037,440 |
|
|
|
(838,488 |
) |
Cash and cash equivalents at beginning of period |
|
|
844,668 |
|
|
|
2,009,246 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
1,882,108 |
|
|
$ |
1,170,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures: |
|
|
|
|
|
|
|
|
Income taxes refunded (paid) |
|
$ |
112,232 |
|
|
$ |
(69,538 |
) |
Interest paid |
|
|
686,077 |
|
|
|
992,116 |
|
Non-cash activities |
|
|
|
|
|
|
|
|
Common stock dividends accrued, paid in subsequent quarter |
|
|
5,185 |
|
|
|
38,784 |
|
Preferred stock dividends accrued, paid in subsequent quarter |
|
|
16,635 |
|
|
|
12,091 |
|
See notes to unaudited condensed consolidated financial statements.
102
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 — Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Huntington
Bancshares Incorporated (Huntington or the Company) reflect all adjustments consisting of normal
recurring accruals, which are, in the opinion of Management, necessary for a fair presentation of
the consolidated financial position, the results of operations, and cash flows for the periods
presented. These unaudited condensed consolidated financial statements have been prepared according
to the rules and regulations of the Securities and Exchange Commission (SEC) and, therefore,
certain information and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States (GAAP) have been
omitted. The Notes to Consolidated Financial Statements appearing in Huntington’s 2008 Annual
Report on Form 10-K (2008 Form 10-K), which include descriptions of significant accounting
policies, as updated by the information contained in this report, should be read in conjunction
with these interim financial statements.
Certain amounts in the prior-period financial statements have been reclassified to conform to
the current period presentation.
For statement of cash flows purposes, cash and cash equivalents are defined as the sum of
“Cash and due from banks” which includes amounts on deposit with the Federal Reserve and “Federal
funds sold and securities purchased under resale agreements.”
In preparing these financial statements, subsequent events were evaluated through the time the
financial statements were issued on November 9, 2009. Financial statements are considered issued
when they are widely distributed to all shareholders and other financial statement users, or filed
with the Securities and Exchange Commission. In conjunction with applicable accounting standards,
all material subsequent events have been either recognized in the financial statements or disclosed
in the notes to the financial statements.
Note 2 — Subsequent Events
On October 2, 2009, Huntington assumed the deposits and certain assets of Warren Bank located
in Macomb County, Michigan from the Federal Deposit Insurance Corporation (FDIC). Under the
agreement, approximately $409.5 of deposits and $61.9 million of assets (primarily cash and due
from banks and investment securities) were transferred to Huntington for consideration including a
premium for the deposits of $0.9 million. The FDIC transferred cash to Huntington for the
difference between the assets purchased and the liabilities assumed net of the premium. The assets
and liabilities will be appraised and marked to market as of the purchase date for future filings.
On October 22, 2009, Huntington announced an offer to purchase certain subordinated notes
issued previously by the Bank. The offer established the cash prices that would be paid for each of
the subordinated note issuances, and established a maximum amount available for purchase of up to
$400 million of principal outstanding. Through November 4,
2009, the “Early Tender Date”, Huntington had received
tenders of these subordinated notes having an aggregate principal
amount of $370 million. Based on the terms and conditions of the
offer, and the amount of tenders received through the “Early
Tender Date”, Huntington anticipates a pretax gain of
approximately $80 million — $90 million, including the impact
of fair value adjustments from hedge accounting, will be recorded in
the 2009 fourth quarter.
Beginning January 1, 2010, there will be changes to the way the future early and normal
retirement benefit is calculated under the Huntington Bancshares Retirement Plan (Retirement Plan).
While these changes will not affect the benefit earned under the Retirement Plan through December
31, 2009, there will be a reduction in future benefits. Employees hired (or rehired) January 1,
2010, or later will not be eligible to participate in the Retirement Plan. Also, employees that
retire on or after March 1, 2010, will no longer receive a subsidy for medical coverage under the
Post-Retirement Benefit Plan. The changes to the Retirement Plan will be a negative plan amendment
and amortized over an appropriate period. The elimination of retiree medical subsidy and life
insurance benefits will result in both a negative plan amendment and curtailment.
103
Note 3 —Accounting Standards Update
FASB Accounting Standards Codification (ASC) Topic 810 — Consolidation (Statement No. 160,
Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51) (ASC
810). This accounting guidance was originally issued in December 2007 and is now included in ASC
810. The guidance requires that noncontrolling interests in subsidiaries be initially measured at
fair value and classified as a separate component of equity. The guidance is effective for fiscal
years beginning on or after December 15, 2008. The adoption of this guidance did not have a
material impact on Huntington’s condensed consolidated financial statements.
ASC Topic 805 — Business Combinations (Statement No. 141 (Revised 2008), Business Combinations)
(ASC 805). This accounting guidance was originally issued in December 2007 and is now included in
ASC 805. The guidance requires an acquirer to recognize the assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their
fair values as of that date, with limited exceptions. The guidance requires prospective application
for business combinations consummated in fiscal years beginning on or after December 15, 2008. The
Franklin restructuring transaction described in Note 4 was accounted for under this guidance.
ASC Topic 944 — Financial Services — Insurance (Statement No. 163, Accounting for Financial
Guarantee Insurance Contracts — an interpretation of FASB Statement No. 60) (ASC 944). This
accounting guidance was originally issued in May 2008 and is now included in ASC 944. This guidance
requires that an insurance enterprise recognize a claim liability prior to an event of default
(insured event) when there is evidence that credit deterioration has occurred in an insured
financial obligation. The guidance also clarifies the recognition and measurement criteria to be
used to account for premium revenue and claim liabilities in financial guarantee insurance
contracts. The guidance also requires expanded disclosures about financial guarantee insurance
contracts. The guidance is effective for financial statements issued for fiscal years and interim
periods beginning after December 15, 2008. The adoption of this guidance did not have a material
impact on the Huntington’s condensed consolidated financial statements.
ASC Topic 320 — Investments — Debt and Equity Securities (FSP FAS 115-2 and FAS 124-2,
Recognition and Presentation of Other-Than-Temporary Impairments) (ASC 320). This accounting
guidance was originally issued in April 2009 and is now included in ASC 320. The guidance amends
the previous other-than-temporary impairment (OTTI) guidance for debt securities and included
additional presentation and disclosure requirements for both debt and equity securities. The
guidance is effective for interim reporting periods ending after June 15, 2009. The adoption this
guidance requires an adjustment to retained earnings and other comprehensive income (OCI) in the
period of adoption to reclassify non-credit related impairment to OCI for securities that the
Company does not intend to sell (and will not more likely than not be required to sell). The
adoption resulted in the reclassification of $3.5 million (net of tax) from retained earnings to
OCI. (See Condensed Consolidated Statements of Shareholders’ Equity and Note 9).
ASC Topic 820 — Fair Value Measurements and Disclosures (Staff Position (FSP) FAS 157-4,
Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly) (ASC 820). This
accounting guidance was originally issued in April 2009 and is now included in ASC 820. The
guidance reaffirms the exit price fair value measurement concept and also provides additional
guidance for estimating fair value when the volume and level of activity for the asset or liability
have significantly decreased. The guidance is effective for interim reporting periods ending after
June 15, 2009. The adoption of this guidance did not have a material impact on the Huntington’s
condensed consolidated financial statements.
ASC Topic 825 — Financial Instruments (FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments) (ASC 825). This accounting guidance was originally issued in April
2009 and is now included in ASC 825. The guidance requires disclosures about fair value of
financial instruments for interim reporting periods of publicly traded companies as well as in
annual financial statements. This guidance is effective for interim reporting periods ending after
June 15, 2009 (See Note 13).
104
ASC Topic 855 — Subsequent Events (Statement No. 165, Subsequent Events) (ASC 855). This
accounting guidance was originally issued in May 2009 and is now included in ASC 855. The guidance
establishes general standards of accounting for and disclosure of subsequent events. Subsequent
events are events that occur after the balance sheet date but before financial statements are
issued or are available to be issued. The guidance is effective for interim or annual periods
ending after June 15, 2009. The adoption of this guidance was not material to Huntington’s
condensed consolidated financial statements.
ASC Topic 105 — Generally Accepted Accounting Principles (Statement No. 168, The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a
replacement of FASB Statement No. 162) (ASC 105). This accounting guidance was originally issued in
June 2009 and is now included in ASC 105. The guidance identifies the FASB Accounting Standards
Codification (Codification) as the single source of authoritative U.S. Generally Accepted
Accounting Principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. The
Codification reorganizes all previous GAAP pronouncements into roughly 90 accounting topics and
displays all topics using a consistent structure. All existing standards that were used to create
the Codification will be superseded, replacing the previous references to specific Statements of
Financial Accounting Standards (SFAS) with numbers used in the Codification’s structural
organization. The guidance is effective for interim and annual periods ending after September 15,
2009. After September 15, only one level of authoritative GAAP will exist, other than guidance
issued by the Securities and Exchange Commission (SEC). All other accounting literature excluded
from the Codification will be considered non-authoritative. The adoption of the Codification does
not have a material impact on the Company’s condensed consolidated financial statements.
ASC Topic 810 — Consolidation (Statement No. 167, Amendments to FASB Interpretation No. 46R) (ASC
810) This accounting guidance was originally issued in June 2009 and is now included in ASC 810.
The guidance amends the consolidation guidance applicable for variable interest entities (VIE).
Huntington will need to reconsider its previous conclusions including whether an entity is a VIE,
and whether Huntington is the VIE’s primary beneficiary. It is possible that application of this
revised guidance will change Huntington’s assessment of which entities with which it is involved
are VIEs and consolidation will be required. The guidance is effective for financial statements
issued for fiscal years and interim periods beginning after November 15, 2009, and early adoption
is prohibited. Management is currently evaluating the impact that the guidance could have on the
Company’s condensed consolidated financial statements. However, based upon the current regulatory
requirements, Huntington anticipates the impact of adopting will decrease risk weighted capital
ratios between five and ten basis points.
ASC Topic 860 — Transfers and Servicing (Statement No. 166, Accounting for Transfers of Financial
Assets — an amendment of FASB Statement No. 140) (ASC 860). This accounting guidance was
originally issued in June 2009 and is now included in ASC 860. The guidance removes the concept of
a qualifying special purpose entity and removes the exception from applying ASC 810, to qualifying
special-purpose entities. Many types of transferred financial assets that would have been
derecognized previously are no longer eligible for derecognition. The guidance is effective for
financial statements issued for fiscal years and interim periods beginning after November 15, 2009,
and early adoption is prohibited. The guidance applies prospectively to transfers of financial
assets occurring on or after the effective date. Management is currently evaluating the impact that
the guidance could have on the Company’s condensed consolidated financial statements.
ASC Topic 715 — Compensation — Retirement Benefits (FSP FAS 132R-1, Employers’ Disclosures about
Postretirement Benefit Plan Assets) (ASC 715). This accounting guidance was originally issued in
December 2008 and is now included in ASC 715. The guidance requires additional disclosures about
plan assets in an employer’s defined benefit pension and other postretirement plans. The guidance
is effective for fiscal years ending after December 15, 2009.
105
Note 4 — Loans and Leases
Franklin Credit Management relationship
Franklin Credit Management Corporation (Franklin) is a specialty consumer finance company
primarily engaged in servicing residential mortgage loans. Prior to March 31, 2009, Franklin owned
a portfolio of loans secured by first and second liens on 1-4 family residential properties. At
December 31, 2008, Huntington’s total loans outstanding to Franklin were $650.2 million, all of
which were on nonaccrual status. Additionally, the specific ALLL for the Franklin portfolio was
$130.0 million, resulting in a net exposure to Franklin at December 31, 2008 of $520.2 million.
On March 31, 2009, Huntington entered into a transaction with Franklin whereby a Huntington
wholly-owned REIT subsidiary (REIT) exchanged a non controlling amount of certain equity interests
for a 100% interest in Franklin Asset Merger Sub, LLC (Merger Sub), a wholly owned subsidiary of
Franklin. This was accomplished by merging Merger Sub into a wholly-owned subsidiary of REIT.
Merger Sub’s sole assets were two trust participation
certificates evidencing 83% ownership rights
in a newly created trust, Franklin Mortgage Asset Trust 2009-A (Franklin 2009 Trust) which holds
all the underlying consumer loans and OREO that were formerly collateral for the Franklin
commercial loans. The equity interests provided to Franklin by REIT were pledged by Franklin as
collateral for the Franklin commercial loans.
Franklin 2009 Trust is a variable interest entity and, as a result of Huntington’s 83%
participation certificates, Franklin 2009 Trust was consolidated into Huntington’s financial
results. As required by current accounting guidance, the consolidation is treated as a business
combination with the fair value of the equity interests issued to Franklin representing the
acquisition price. ASC 310 provides guidance for accounting for acquired loans, such as these, that
have experienced a deterioration of credit quality at the time of acquisition for which it is
probable that the investor will be unable to collect all contractually required payments.
Under ASC 310, the excess of cash flows expected at acquisition over the estimated fair value
is referred to as the accretable discount and is recognized in interest income over the remaining
life of the loan, or pool of loans, in situations where there is a reasonable expectation about the
timing and amount of cash flows expected to be collected. The difference between the contractually
required payments at acquisition and the cash flows expected to be collected at acquisition,
considering the impact of prepayments, is referred to as the nonaccretable discount. Subsequent
decreases to the expected cash flows will generally result in a charge to the provision for credit
losses and an increase to the allowance for loan and lease losses. Subsequent increases in cash
flows result in reversal of any nonaccretable discount (or allowance for loan and lease losses to
the extent any has been recorded) with a positive impact on interest income. The measurement of
undiscounted cash flows involves assumptions and judgments for credit risk, interest rate risk,
prepayment risk, default rates, loss severity, payment speeds, and collateral values. All of these
factors are inherently subjective and significant changes in the cash flow estimates over the life
of the loan can result.
At September 30, 2009, there were no additional credit losses recorded on the portfolio and no
adjustment to the accretable yield or nonaccretable yield was required.
The following table reflects the contractually required payments receivable, cash flows
expected to be collected, and fair value of the loans at the acquisition date:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
Loans |
|
|
OREO |
|
|
Total |
|
Contractually required payments including interest |
|
$ |
1,612,695 |
|
|
$ |
113,732 |
|
|
$ |
1,726,427 |
|
Less: nonaccretable difference |
|
|
(1,079,362 |
) |
|
|
(34,136 |
) |
|
|
(1,113,498 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows expected to be collected |
|
|
533,333 |
|
|
|
79,596 |
|
|
|
612,929 |
|
Less: accretable yield |
|
|
(39,781 |
) |
|
|
— |
|
|
|
(39,781 |
) |
|
|
|
|
|
|
|
|
|
|
Fair value of loans acquired |
|
$ |
493,552 |
|
|
$ |
79,596 |
|
|
$ |
573,148 |
|
|
|
|
|
|
|
|
|
|
|
106
The fair values of the acquired mortgage loans and OREO assets were based upon a market
participant model and calculated in accordance with ASC 820. Under this market participant model,
expected cash flows for first-lien mortgages were calculated based upon the net expected
foreclosure proceeds of the collateral underlying each mortgage loan. Updated appraisals or other
indicators of value provided the basis for estimating cash flows. Sales proceeds from the
underlying collateral were estimated to be received over a one to three year period, depending on
the delinquency status of the loan. Expected proceeds were reduced assuming housing price
depreciation of 18%, 12%, and 0% over each year of the next three years of expected collections,
respectively. Interest cash flows were estimated to be received for a limited time on each
portfolio. The resulting cash flows were discounted at an 18% rate of return. Limited value was
assigned to all second-lien mortgages because, after considering the house price depreciation rates
above, little if any proceeds would be realized.
The following table presents a rollforward of the accretable yield from the beginning of the
period to the end of the period:
| |
|
|
|
|
| (in thousands) |
|
Accretable Yield |
|
Balance at December 31, 2008 |
|
$ |
— |
|
Impact of Franklin transaction on March 31, 2009 |
|
|
39,781 |
|
Additions |
|
|
— |
|
Accretion |
|
|
(3,228 |
) |
Reclassification from (to) nonaccretable difference |
|
|
— |
|
|
|
|
|
Balance at September 30, 2009 |
|
$ |
36,553 |
|
|
|
|
|
The following table reflects the outstanding balance of all contractually required payments
and carrying amounts of the acquired loans at September 30, 2009:
| |
|
|
|
|
|
|
|
|
| |
|
September 30, 2009 |
|
| (in thousands) |
|
Carrying Value |
|
|
Outstanding Balance |
|
Residential mortgage |
|
$ |
392,516 |
|
|
$ |
698,466 |
|
Home equity |
|
|
72,656 |
|
|
|
820,648 |
|
|
|
|
|
|
|
|
Total |
|
$ |
465,172 |
|
|
$ |
1,519,114 |
|
|
|
|
|
|
|
|
At September 30, 2009, $126.7 million of the acquired current mortgage loans accrue interest
while $338.5 million were on nonaccrual. Management has concluded that it cannot reliably estimate
the timing of collection of cash flows for delinquent first and second lien mortgages, because the
majority of the expected cash flows for the delinquent portfolio will result from the foreclosure
and subsequent disposition of the underlying collateral supporting the loans.
The consolidation of Franklin 2009 Trust at March 31, 2009 resulted in the recording of a
$95.8 million liability, representing the 17% of Franklin 2009 Trust certificates not acquired by
Huntington. At September 30, 2009, the balance of the liability was $82.3 million. These
certificates were retained by Franklin.
In accordance with ASC 805, at March 31, 2009 Huntington has recorded a net deferred tax asset
of $159.9 million related to the difference between the tax basis and the book basis in the
acquired assets. Because the acquisition price, represented by the equity interests in the
Huntington wholly-owned subsidiary, was equal to the fair value of
the 83% interest in the Franklin
2009 Trust participant certificate, no goodwill was created from the transaction. The recording of
the net deferred tax asset was a bargain purchase under ASC 805, and was recorded as tax benefit in
the 2009 first quarter.
107
Single Family Home Builders
At September 30, 2009, December 31, 2008, and September 30, 2008, Huntington had $1.0 billion,
$1.6 billion and $1.6 billion of commercial real estate loans to single family homebuilders,
including loans made to both middle market and small business homebuilders. The decline from
December 31, 2008 was primarily the result of a reclassification of loans from commercial real
estate to commercial and industrial. Other factors contributing to the decrease in exposure include
no new originations in this portfolio segment in 2009, increased property sale activity, and
substantial charge-offs. Such loans represented 3% of total loans and leases at September 30, 2009,
and 4% of total loans and leases at December 31, 2008, and September 30, 2008. Of this portfolio at
September 30, 2009, 69% were to finance projects currently under construction, 15% to finance land
under development, and 16% to finance land held for development.
The housing market across Huntington’s geographic footprint remained stressed, reflecting
relatively lower sales activity, declining prices, and excess inventories of houses to be sold,
particularly impacting borrowers in our eastern Michigan and northern Ohio regions. Further, a
portion of the loans extended to borrowers located within Huntington’s geographic regions was to
finance projects outside of our geographic regions.
Retail properties
Huntington’s portfolio of commercial real estate loans secured by retail properties totaled
$2.2 billion, $2.3 billion and $2.2 billion at September 30, 2009, December 31, 2008 and September
30, 2008 or approximately 6%, 6% and 5% of total loans and leases, at each respective date. Credit
approval in this loan segment is generally dependant on pre-leasing requirements, and net operating
income from the project must cover interest expense when the loan is fully funded.
The weakness of the economic environment in the Company’s geographic regions significantly
impacted the projects that secure the loans in this portfolio segment. Increased unemployment
levels compared with recent years, and the expectation that these levels will continue to increase
for the foreseeable future, are expected to adversely affect our borrowers’ ability to repay these
loans.
Home Equity and Residential Mortgage Loans (excluding loans in Franklin 2009 Trust)
There is a potential for loan products to contain contractual terms that give rise to a
concentration of credit risk that may increase a lending institution’s exposure to risk of
nonpayment or realization. Examples of these contractual terms include loans that permit negative
amortization, a loan-to-value of greater than 100%, and option adjustable-rate mortgages.
Huntington does not originate mortgage loan products that contain these terms. Recent declines
in housing prices have likely eliminated a portion of the collateral for the home equity portfolio,
such that some loans originally underwritten at an LTV of less than 100% are currently at higher
than 100%. Home equity loans totaled $7.6 billion at September 30, 2009, $7.6 billion at December
31, 2008, and $7.5 billion at September 30, 2008, or 20%, 18%, and 18% of total loans at the end of
each respective period.
As part of the Company’s loss mitigation process, Huntington increased its efforts in 2008 and
2009 to re-underwrite, modify, or restructure loans when borrowers are experiencing payment
difficulties, and these loan restructurings are based on the borrower’s ability to repay the loan.
108
Note 5 — Investment Securities
Listed below are the contractual maturities (under 1 year, 1-5 years, 6-10 years, and over 10
years) of investment securities at September 30, 2009, December 31, 2008, and September 30, 2008:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
September 30, 2009 |
|
|
December 31, 2008 |
|
|
September 30, 2008 |
|
| |
|
Amortized |
|
|
|
|
|
|
Amortized |
|
|
|
|
|
|
Amortized |
|
|
|
|
| (in thousands of dollars) |
|
Cost |
|
|
Fair Value |
|
|
Cost |
|
|
Fair Value |
|
|
Cost |
|
|
Fair Value |
|
U.S. Treasury |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 1 year |
|
$ |
251 |
|
|
$ |
252 |
|
|
$ |
11,141 |
|
|
$ |
11,157 |
|
|
$ |
1,361 |
|
|
$ |
1,372 |
|
1-5 years |
|
|
150,731 |
|
|
|
150,785 |
|
|
|
— |
|
|
|
— |
|
|
|
253 |
|
|
|
255 |
|
6-10 years |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Over 10 years |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Treasury |
|
|
150,982 |
|
|
|
151,037 |
|
|
|
11,141 |
|
|
|
11,157 |
|
|
|
1,614 |
|
|
|
1,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal agencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 1 year |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
200 |
|
|
|
200 |
|
1-5 years |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16,228 |
|
|
|
16,465 |
|
6-10 years |
|
|
544,953 |
|
|
|
547,873 |
|
|
|
1 |
|
|
|
1 |
|
|
|
9,359 |
|
|
|
9,365 |
|
Over 10 years |
|
|
2,996,736 |
|
|
|
3,046,139 |
|
|
|
1,625,655 |
|
|
|
1,627,580 |
|
|
|
1,668,348 |
|
|
|
1,666,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed Federal agencies |
|
|
3,541,689 |
|
|
|
3,594,012 |
|
|
|
1,625,656 |
|
|
|
1,627,581 |
|
|
|
1,694,135 |
|
|
|
1,692,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary Liquidity Guarantee Program
(TLGP) securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 1 year |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
1-5 years |
|
|
311,414 |
|
|
|
312,621 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
6-10 years |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Over 10 years |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TLGP securities |
|
|
311,414 |
|
|
|
312,621 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other agencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 1 year |
|
|
129,023 |
|
|
|
131,613 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
1-5 years |
|
|
2,380,213 |
|
|
|
2,390,314 |
|
|
|
579,546 |
|
|
|
595,912 |
|
|
|
562,446 |
|
|
|
559,153 |
|
6-10 years |
|
|
7,116 |
|
|
|
7,343 |
|
|
|
7,954 |
|
|
|
8,328 |
|
|
|
— |
|
|
|
— |
|
Over 10 years |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other Federal agencies |
|
|
2,516,352 |
|
|
|
2,529,270 |
|
|
|
587,500 |
|
|
|
604,240 |
|
|
|
562,446 |
|
|
|
559,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. government backed securities |
|
|
6,520,437 |
|
|
|
6,586,940 |
|
|
|
2,224,297 |
|
|
|
2,242,978 |
|
|
|
2,258,195 |
|
|
|
2,252,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 1 year |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16 |
|
|
|
16 |
|
1-5 years |
|
|
6,050 |
|
|
|
6,094 |
|
|
|
51,890 |
|
|
|
54,184 |
|
|
|
24,568 |
|
|
|
24,970 |
|
6-10 years |
|
|
58,317 |
|
|
|
62,662 |
|
|
|
216,433 |
|
|
|
222,086 |
|
|
|
227,333 |
|
|
|
225,901 |
|
Over 10 years |
|
|
65,206 |
|
|
|
68,838 |
|
|
|
441,825 |
|
|
|
434,076 |
|
|
|
459,412 |
|
|
|
440,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total municipal securities |
|
|
129,573 |
|
|
|
137,594 |
|
|
|
710,148 |
|
|
|
710,346 |
|
|
|
711,329 |
|
|
|
690,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private label CMO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 1 year |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
1-5 years |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
6-10 years |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Over 10 years |
|
|
562,104 |
|
|
|
475,285 |
|
|
|
674,506 |
|
|
|
523,515 |
|
|
|
696,558 |
|
|
|
611,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total private label CMO |
|
|
562,104 |
|
|
|
475,285 |
|
|
|
674,506 |
|
|
|
523,515 |
|
|
|
696,558 |
|
|
|
611,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset backed securities (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 1 year |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
1-5 years |
|
|
147,711 |
|
|
|
148,040 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
6-10 years |
|
|
235,419 |
|
|
|
244,549 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Over 10 years |
|
|
580,062 |
|
|
|
423,790 |
|
|
|
652,881 |
|
|
|
464,027 |
|
|
|
774,310 |
|
|
|
565,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset backed securities |
|
|
963,192 |
|
|
|
816,379 |
|
|
|
652,881 |
|
|
|
464,027 |
|
|
|
774,310 |
|
|
|
565,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 1 year |
|
|
2,250 |
|
|
|
2,250 |
|
|
|
549 |
|
|
|
552 |
|
|
|
1,699 |
|
|
|
1,694 |
|
1-5 years |
|
|
4,657 |
|
|
|
4,790 |
|
|
|
6,546 |
|
|
|
6,563 |
|
|
|
6,348 |
|
|
|
6,315 |
|
6-10 years |
|
|
1,104 |
|
|
|
1,186 |
|
|
|
798 |
|
|
|
811 |
|
|
|
798 |
|
|
|
785 |
|
Over 10 years |
|
|
64 |
|
|
|
193 |
|
|
|
64 |
|
|
|
136 |
|
|
|
64 |
|
|
|
136 |
|
Non-marketable equity securities |
|
|
427,772 |
|
|
|
427,772 |
|
|
|
427,973 |
|
|
|
427,973 |
|
|
|
427,474 |
|
|
|
427,474 |
|
Marketable equity securities |
|
|
51,135 |
|
|
|
50,761 |
|
|
|
8,061 |
|
|
|
7,556 |
|
|
|
9,632 |
|
|
|
8,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other |
|
|
486,982 |
|
|
|
486,952 |
|
|
|
443,991 |
|
|
|
443,591 |
|
|
|
446,015 |
|
|
|
444,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
$ |
8,662,288 |
|
|
$ |
8,503,150 |
|
|
$ |
4,705,823 |
|
|
$ |
4,384,457 |
|
|
$ |
4,886,407 |
|
|
$ |
4,565,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
Amounts at September 30, 2009 include securities backed by automobile loans with a fair value of $184.8 million which meet the eligibility
requirements for the Term Asset-Backed Securities Loan Facility, or “TALF,” administered by the Federal Reserve Bank of New York, and
securities with a fair value of $159.8 million backed by student loans with a 97% government guarantee. |
109
Other securities include $240.6 million of stock issued by the Federal Home Loan Bank of
Cincinnati, $45.7 million of stock issued by the Federal Home Loan Bank of Indianapolis, and $141.5
million of Federal Reserve Bank stock. Other securities also include corporate debt and marketable
equity securities. Huntington does not have any material equity positions in Federal National
Mortgage Association (FNMA or Fannie Mae) and the Federal Home Loan Mortgage Corporation (FHLMC or
Freddie Mac).
The following table provides gross unrealized gains and losses recognized in accumulated other
comprehensive income by investment category at September 30, 2009 and December 31, 2008.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Unrealized |
|
|
|
|
| |
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
Fair |
|
| (in thousands) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
$ |
150,982 |
|
|
$ |
55 |
|
|
$ |
— |
|
|
$ |
151,037 |
|
Federal Agencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
3,541,689 |
|
|
|
55,894 |
|
|
|
(3,571 |
) |
|
|
3,594,012 |
|
TLGP securities |
|
|
311,414 |
|
|
|
1,207 |
|
|
|
— |
|
|
|
312,621 |
|
Other agencies |
|
|
2,516,352 |
|
|
|
13,195 |
|
|
|
(277 |
) |
|
|
2,529,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Government
backed securities |
|
|
6,520,437 |
|
|
|
70,351 |
|
|
|
(3,848 |
) |
|
|
6,586,940 |
|
Municipal securities |
|
|
129,573 |
|
|
|
8,036 |
|
|
|
(15 |
) |
|
|
137,594 |
|
Private label CMO |
|
|
562,104 |
|
|
|
— |
|
|
|
(86,819 |
) |
|
|
475,285 |
|
Asset backed securities |
|
|
963,192 |
|
|
|
15,278 |
|
|
|
(162,091 |
) |
|
|
816,379 |
|
Other securities |
|
|
486,982 |
|
|
|
345 |
|
|
|
(375 |
) |
|
|
486,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
$ |
8,662,288 |
|
|
$ |
94,010 |
|
|
$ |
(253,148 |
) |
|
$ |
8,503,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Unrealized |
|
|
|
|
| |
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
Fair |
|
| (in thousands) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
$ |
11,141 |
|
|
$ |
16 |
|
|
$ |
— |
|
|
$ |
11,157 |
|
Federal Agencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
1,625,656 |
|
|
|
18,822 |
|
|
|
(16,897 |
) |
|
|
1,627,581 |
|
TLGP securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other agencies |
|
|
587,500 |
|
|
|
16,748 |
|
|
|
(8 |
) |
|
|
604,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Government
backed securities |
|
|
2,224,297 |
|
|
|
35,586 |
|
|
|
(16,905 |
) |
|
|
2,242,978 |
|
Municipal securities |
|
|
710,148 |
|
|
|
13,897 |
|
|
|
(13,699 |
) |
|
|
710,346 |
|
Private label CMO |
|
|
674,506 |
|
|
|
— |
|
|
|
(150,991 |
) |
|
|
523,515 |
|
Asset backed securities |
|
|
652,881 |
|
|
|
— |
|
|
|
(188,854 |
) |
|
|
464,027 |
|
Other securities |
|
|
443,991 |
|
|
|
114 |
|
|
|
(514 |
) |
|
|
443,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
$ |
4,705,823 |
|
|
$ |
49,597 |
|
|
$ |
(370,963 |
) |
|
$ |
4,384,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110
The following table provides detail on investment securities with unrealized losses aggregated
by investment category and length of time the individual securities have been in a continuous loss
position, at September 30, 2009 and December 31, 2008.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Less than 12 Months |
|
|
Over 12 Months |
|
|
Total |
|
| |
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
| (in thousands ) |
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
$ |
50,738 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
50,738 |
|
|
$ |
— |
|
Federal agencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
496,255 |
|
|
|
(3,571 |
) |
|
|
— |
|
|
|
— |
|
|
|
496,255 |
|
|
|
(3,571 |
) |
TLGP securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other agencies |
|
|
274,587 |
|
|
|
(260 |
) |
|
|
3,124 |
|
|
|
(17 |
) |
|
|
277,711 |
|
|
|
(277 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Government
backed securities |
|
|
821,580 |
|
|
|
(3,831 |
) |
|
|
3,124 |
|
|
|
(17 |
) |
|
|
824,704 |
|
|
|
(3,848 |
) |
Municipal securities |
|
|
— |
|
|
|
— |
|
|
|
3,805 |
|
|
|
(15 |
) |
|
|
3,805 |
|
|
|
(15 |
) |
Private label CMO |
|
|
16,922 |
|
|
|
(2,514 |
) |
|
|
458,363 |
|
|
|
(84,305 |
) |
|
|
475,285 |
|
|
|
(86,819 |
) |
Asset backed securities |
|
|
158,909 |
|
|
|
(1,697 |
) |
|
|
207,678 |
|
|
|
(160,394 |
) |
|
|
366,587 |
|
|
|
(162,091 |
) |
Other securities |
|
|
38,671 |
|
|
|
(156 |
) |
|
|
431 |
|
|
|
(219 |
) |
|
|
39,102 |
|
|
|
(375 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
securities |
|
$ |
1,036,082 |
|
|
$ |
(8,198 |
) |
|
$ |
673,401 |
|
|
$ |
(244,950 |
) |
|
$ |
1,709,483 |
|
|
$ |
(253,148 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Less than 12 Months |
|
|
Over 12 Months |
|
|
Total |
|
| |
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
| (in thousands ) |
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Federal agencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
417,988 |
|
|
|
(16,897 |
) |
|
|
— |
|
|
|
— |
|
|
|
417,988 |
|
|
|
(16,897 |
) |
TLGP securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other agencies |
|
|
— |
|
|
|
— |
|
|
|
2,028 |
|
|
|
(8 |
) |
|
|
2,028 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Government
backed securities |
|
|
417,988 |
|
|
|
(16,897 |
) |
|
|
2,028 |
|
|
|
(8 |
) |
|
|
420,016 |
|
|
|
(16,905 |
) |
Municipal securities |
|
|
276,990 |
|
|
|
(6,951 |
) |
|
|
40,913 |
|
|
|
(6,748 |
) |
|
|
317,903 |
|
|
|
(13,699 |
) |
Private label CMO |
|
|
449,494 |
|
|
|
(130,914 |
) |
|
|
57,024 |
|
|
|
(20,077 |
) |
|
|
506,518 |
|
|
|
(150,991 |
) |
Asset backed securities |
|
|
61,304 |
|
|
|
(24,220 |
) |
|
|
164,074 |
|
|
|
(164,634 |
) |
|
|
225,378 |
|
|
|
(188,854 |
) |
Other securities |
|
|
1,132 |
|
|
|
(323 |
) |
|
|
1,149 |
|
|
|
(191 |
) |
|
|
2,281 |
|
|
|
(514 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
securities |
|
$ |
1,206,908 |
|
|
$ |
(179,305 |
) |
|
$ |
265,188 |
|
|
$ |
(191,658 |
) |
|
$ |
1,472,096 |
|
|
$ |
(370,963 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities transactions are recognized on the trade date (the date the order to buy or sell is
executed). The amortized cost of sold securities is used to compute realized gains and losses.
Interest and dividends on securities, including amortization of premiums and accretion of discounts
using the effective interest method over the period to maturity, are included in interest income.
The following table is a summary of securities gains and losses for the three and nine months
ended September 30, 2009 and 2008:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| (in thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Gross gains on sales of securities |
|
$ |
16,504 |
|
|
$ |
2,764 |
|
|
$ |
45,011 |
|
|
$ |
9,365 |
|
Gross (losses) on sales of securities |
|
|
(296 |
) |
|
|
(1 |
) |
|
|
(10,552 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on sales of securities |
|
|
16,208 |
|
|
|
2,763 |
|
|
|
34,459 |
|
|
|
9,361 |
|
Net other-than-temporary impairment recorded |
|
|
(18,582 |
) |
|
|
(76,553 |
) |
|
|
(42,106 |
) |
|
|
(79,649 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities gain (loss) |
|
$ |
(2,374 |
) |
|
$ |
(73,790 |
) |
|
$ |
(7,647 |
) |
|
$ |
(70,288 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
111
Huntington evaluates its investment securities portfolio on a quarterly basis for
other-than-temporary impairment (OTTI). Huntington assesses whether OTTI has occurred when the
fair value of a debt security is less than the amortized cost basis at the balance sheet date.
Under these circumstances, OTTI is considered to have occurred (1) if Huntington intends to sell
the security; (2) if it is more likely than not Huntington will be required to sell the security
before recovery of its amortized cost basis; or (3) the present value of the expected cash flows is
not sufficient to recover the entire amortized cost basis.
For securities that Huntington does not expect to sell or it is not more likely than not to be
required to sell, credit-related OTTI, represented by the expected loss in principal, is recognized
in earnings, while noncredit-related OTTI is recognized in other comprehensive income (OCI). For
securities which Huntington does expect to sell, all OTTI is recognized in earnings.
Noncredit-related OTTI results from other factors, including increased liquidity spreads and
extension of the security. Presentation of OTTI is made in the income statement on a gross basis
with a reduction for the amount of OTTI recognized in OCI. Noncredit-related OTTI recognized in
earnings prior to April 1, 2009 of $3.5 million (net of tax) was reclassified from retained
earnings to accumulated OCI as a cumulative effect adjustment.
Huntington applied the related OTTI guidance on the debt security types listed below.
Alt-A mortgage-backed and private-label collateralized mortgage obligation (CMO)
securities represent securities collateralized by first-lien residential mortgage loans. The
securities were priced with the assistance of an outside third-party consultant using a discounted
cash flow approach and the independent third-party’s proprietary pricing model. The model used
inputs such as estimated prepayment speeds, losses, recoveries, default rates that were implied by
the underlying performance of collateral in the structure or similar structures, discount rates
that were implied by market prices for similar securities, collateral structure types, and house
price depreciation/appreciation rates that were based upon macroeconomic forecasts.
Pooled-trust-preferred securities represent collateralized debt obligations (CDOs)
backed by a pool of debt securities issued by financial institutions. The collateral generally
consisted of trust-preferred securities and subordinated debt securities issued by banks, bank
holding companies, and insurance companies. A full cash flow analysis was used to estimate fair
values and assess impairment for each security within this portfolio. We engaged a third party
specialist with
direct industry experience in pooled trust preferred securities valuations to provide
assistance in estimating the fair value and expected cash flows for each security in this
portfolio. Relying on cash flows was necessary because there was a lack of observable transactions
in the market and many of the original sponsors or dealers for these securities were no longer able
to provide a fair value that was compliant with ASC 820.
For the three months and nine months ended September 30, 2009, the following tables summarizes
by debt security type, total OTTI losses, OTTI losses included in OCI, and OTTI recognized in the
income statement.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended September 30, 2009 |
|
| |
|
Alt-A |
|
|
Pooled |
|
|
Private |
|
|
|
|
| (in thousands) |
|
Mortgage-backed |
|
|
Trust-Preferred |
|
|
Label CMO |
|
|
Total |
|
Total OTTI losses (unrealized and
realized) |
|
$ |
(8,345 |
) |
|
$ |
(38,551 |
) |
|
$ |
(6,411 |
) |
|
$ |
(53,307 |
) |
Unrealized OTTI recognized in OCI |
|
|
6,062 |
|
|
|
23,986 |
|
|
|
4,677 |
|
|
|
34,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impairment losses recognized in
earnings |
|
$ |
(2,283 |
) |
|
$ |
(14,565 |
) |
|
$ |
(1,734 |
) |
|
$ |
(18,582 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended September 30, 2009 |
|
| |
|
Alt-A |
|
|
Pooled |
|
|
Private |
|
|
|
|
| (in thousands) |
|
Mortgage-backed |
|
|
Trust-Preferred |
|
|
Label CMO |
|
|
Total |
|
Total OTTI losses (unrealized and
realized) |
|
$ |
(14,325 |
) |
|
$ |
(107,206 |
) |
|
$ |
(19,890 |
) |
|
$ |
(141,421 |
) |
Unrealized OTTI recognized in OCI |
|
|
6,161 |
|
|
|
80,187 |
|
|
|
16,905 |
|
|
|
103,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impairment losses recognized in
earnings |
|
$ |
(8,164 |
) |
|
$ |
(27,019 |
) |
|
$ |
(2,985 |
) |
|
$ |
(38,168 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
112
The following tables rollforward the unrealized OTTI recognized in OCI on debt securities held
by Huntington for the three months and nine months ended September 30, 2009 is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended September 30, 2009 |
|
| |
|
Alt-A |
|
|
Pooled |
|
|
Private |
|
|
|
|
| (in thousands) |
|
Mortgage-backed |
|
|
Trust-Preferred |
|
|
Label CMO |
|
|
Total |
|
Balance, beginning of period |
|
$ |
99 |
|
|
$ |
56,201 |
|
|
$ |
12,228 |
|
|
$ |
68,528 |
|
Credit losses not previous recognized |
|
|
6,160 |
|
|
|
28,212 |
|
|
|
5,245 |
|
|
|
39,617 |
|
Change in expected cash flows |
|
|
(99 |
) |
|
|
(4,226 |
) |
|
|
(567 |
) |
|
|
(4,892 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
6,160 |
|
|
$ |
80,187 |
|
|
$ |
16,906 |
|
|
$ |
103,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended September 30, 2009 |
|
| |
|
Alt-A |
|
|
Pooled |
|
|
Private |
|
|
|
|
| (in thousands) |
|
Mortgage-backed |
|
|
Trust-Preferred |
|
|
Label CMO |
|
|
Total |
|
Balance, beginning of period |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Credit losses not previous recognized |
|
|
6,259 |
|
|
|
84,413 |
|
|
|
17,473 |
|
|
|
108,145 |
|
Change in expected cash flows |
|
|
(99 |
) |
|
|
(4,226 |
) |
|
|
(567 |
) |
|
|
(4,892 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
6,160 |
|
|
$ |
80,187 |
|
|
$ |
16,906 |
|
|
$ |
103,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table displays the cumulative credit component of OTTI recognized in earnings on
debt securities held by Huntington for the three months and nine months ended September 30, 2009 is
as follows:
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| (in thousands) |
|
September 30, 2009 |
|
Balance, beginning of period |
|
$ |
19,611 |
|
|
$ |
— |
|
Credit component of OTTI not
reclassified to OCI in
conjunction with the
cumulative effect transition
adjustment |
|
|
— |
|
|
|
25 |
|
Additions for the credit
component on debt securities
in which OTTI was not
previously recognized |
|
|
18,582 |
|
|
|
38,168 |
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
38,193 |
|
|
$ |
38,193 |
|
|
|
|
|
|
|
|
As of September 30, 2009, management has evaluated all other investment securities with
unrealized losses and all non-marketable securities for impairment. The unrealized losses were
primarily the result of wider liquidity spreads on asset-backed securities and, additionally,
increased market volatility on non-agency mortgage and asset-backed securities that are backed by
certain mortgage loans. The fair values of these assets have been impacted by various market
conditions. In addition, the expected average lives of the asset-backed securities backed by trust
preferred securities have been extended, due to changes in the expectations of when the underlying
securities would be repaid. The contractual terms and/or cash flows of the investments do not
permit the issuer to settle the securities at a price less than the amortized cost. Huntington has
reviewed its asset-backed portfolio with independent third parties and does not believe there is
additional OTTI from these securities other than what has already been recorded. Huntington does
not intend to sell, nor does it believe it will be required to sell these securities until the fair
value is recovered, which may be maturity and, therefore,
does not consider them to be other-than-temporarily impaired at September 30, 2009.
Note 6 — Loan Sales and Securitizations
Residential Mortgage Loans
For the three months ended September 30, 2009 and 2008, Huntington sold $775.1 million and
$438.8 million of residential mortgage loans with servicing retained, resulting in net pre-tax
gains of $18.4 million and $8.1 million, respectively, recorded in mortgage banking income. During
the first nine months of 2009 and 2008, sales of residential mortgage loans with servicing retained
totaled $3.5 billion and $2.3 billion, respectively, resulting in net pre-tax gains of $74.0
million and $24.1 million, respectively.
A mortgage servicing right (MSR) is established only when the servicing is contractually
separated from the underlying mortgage loans by sale or securitization of the loans with servicing
rights retained.
113
At initial recognition, the MSR asset is established at its fair value using assumptions that
are consistent with assumptions used to estimate the fair value of the total MSR portfolio.
Subsequent to initial capitalization, MSR assets are adjusted using the fair value method if the
Company will engage in actively hedging the asset or adjusted using the amortization method if no
active hedging will be performed. MSRs are included in accrued income and other assets in the
Company’s condensed consolidated balance sheet. Any increase or decrease in the fair value or
amortized cost of MSRs carried under the fair value method during the period is recorded as an
increase or decrease in mortgage banking income, which is reflected in non-interest income in the
consolidated statements of income.
The following tables summarize the changes in MSRs recorded using either the fair value method
or the amortization method during the three months and nine months ended September 30, 2009 and
2008:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
MSRs recorded using the fair value method |
|
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| (in thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Fair value, beginning of period |
|
$ |
196,932 |
|
|
$ |
240,024 |
|
|
$ |
167,438 |
|
|
$ |
207,894 |
|
New servicing assets created |
|
|
— |
|
|
|
6,859 |
|
|
|
23,074 |
|
|
|
31,989 |
|
Change in fair value during the period due to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time decay (1) |
|
|
(1,836 |
) |
|
|
(2,232 |
) |
|
|
(5,164 |
) |
|
|
(5,833 |
) |
Payoffs (2) |
|
|
(7,295 |
) |
|
|
(4,002 |
) |
|
|
(30,603 |
) |
|
|
(14,339 |
) |
Changes in valuation inputs or assumptions (3) |
|
|
(17,348 |
) |
|
|
(10,251 |
) |
|
|
18,814 |
|
|
|
10,687 |
|
Other changes |
|
|
— |
|
|
|
— |
|
|
|
(3,106 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value, end of period |
|
$ |
170,453 |
|
|
$ |
230,398 |
|
|
$ |
170,453 |
|
|
$ |
230,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
Represents decrease in value due to passage of time, including the impact from both
regularly scheduled loan principal payments and partial loan paydowns. |
| |
| (2) |
|
Represents decrease in value associated with loans that paid off during the period.
|
| |
| (3) |
|
Represents change in value resulting primarily from market-driven changes in
interest rates. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
MSRs recorded using the amortization method |
|
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| (in thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Carrying value, beginning of period |
|
$ |
22,350 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
New servicing assets created |
|
|
9,086 |
|
|
|
— |
|
|
|
31,530 |
|
|
|
— |
|
Amortization |
|
|
(919 |
) |
|
|
— |
|
|
|
(1,013 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value, end of period |
|
$ |
30,517 |
|
|
$ |
— |
|
|
$ |
30,517 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSRs do not trade in an active, open market with readily observable prices. While sales of
MSRs occur, the precise terms and conditions are typically not readily available. Therefore, the
fair value of MSRs is estimated using a discounted future cash flow model. The model considers
portfolio characteristics, contractually specified servicing fees and assumptions related to
prepayments, delinquency rates, late charges, other ancillary revenues, costs to service, and other
economic factors. Changes in the assumptions used may have a significant impact on the valuation
of MSRs.
A summary of key assumptions and the sensitivity of the MSR value at September 30, 2009 to
changes in these assumptions follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Decline in fair value |
|
| |
|
|
|
|
|
due to |
|
| |
|
|
|
|
|
10% |
|
|
20% |
|
| |
|
|
|
|
|
adverse |
|
|
adverse |
|
| (in thousands) |
|
Actual |
|
|
change |
|
|
change |
|
Constant pre-payment rate |
|
|
12.37 |
% |
|
$ |
(9,895 |
) |
|
$ |
(17,489 |
) |
Spread over forward interest rate swap rates |
|
446 |
bps |
|
(3,235 |
) |
|
|
(6,469 |
) |
114
MSR values are very sensitive to movements in interest rates as expected future net servicing
income depends on the projected outstanding principal balances of the underlying loans, which can
be greatly impacted by the level of prepayments. The Company hedges against changes in MSR fair
value attributable to changes in interest rates through a combination of derivative instruments and
trading securities.
Total servicing fees included in mortgage banking income amounted to $12.3 million and $11.8
million for the three months ended September 30, 2009 and 2008, respectively. For the nine months
ended September 30, 2009 and 2008, servicing fees totaled $36.2 million and $33.9 million,
respectively.
Automobile Loans and Leases
During the first quarter of 2009, Huntington transferred $1.0 billion automobile loans and
leases to a trust in a securitization transaction. The securitization qualified for sale
accounting under ASC 860. Huntington retained $210.9 million of the related securities and
recorded a $47.1 million retained residual interest as a result of the transaction. Subsequent to
the transaction, Huntington sold $78.4 million of these securities in the second quarter of 2009.
These amounts were recorded as investment securities on Huntington’s condensed consolidated balance
sheet. Huntington also recorded a $5.9 million loss in other noninterest income on the condensed
consolidated statement of income and recorded a $19.5 million servicing asset in accrued income and
other assets associated with this transaction.
Automobile loan servicing rights are accounted for under the amortization method. A servicing
asset is established at fair value at the time of the sale. The servicing asset is then amortized
against servicing income. Impairment, if any, is recognized when carrying value exceeds the fair
value as determined by calculating the present value of expected net future cash flows. The
primary risk characteristic for measuring servicing assets is payoff rates of the underlying loan
pools. Valuation calculations rely on the predicted payoff assumption and, if actual payoff is
quicker than expected, then future value would be impaired.
Changes in the carrying value of automobile loan servicing rights for the three months and
nine months ended September 30, 2009 and 2008, and the fair value at the end of each period were as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| (in thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Carrying value, beginning of period |
|
$ |
17,423 |
|
|
$ |
2,644 |
|
|
$ |
1,656 |
|
|
$ |
4,099 |
|
New servicing assets |
|
|
— |
|
|
|
— |
|
|
|
19,538 |
|
|
|
— |
|
Amortization and other |
|
|
(2,391 |
) |
|
|
(606 |
) |
|
|
(6,162 |
) |
|
|
(2,061 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value, end of period |
|
$ |
15,032 |
|
|
$ |
2,038 |
|
|
$ |
15,032 |
|
|
$ |
2,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value, end of period |
|
$ |
16,472 |
|
|
$ |
2,725 |
|
|
$ |
16,472 |
|
|
$ |
2,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Huntington has retained servicing responsibilities on sold automobile loans and receives
annual servicing fees from 0.55% to 1.00% and other ancillary fees of approximately 0.40% to 0.50%
of the outstanding loan balances. Servicing income, net of amortization of capitalized servicing
assets, amounted to $1.8 million and $1.5 million for the three months ended September 30, 2009 and
2008, respectively. For the nine months ended September 30, 2009 and 2008, servicing income, net
of amortization of capitalized servicing assets, was $4.5 million and $5.5 million, respectively.
Note 7 — Goodwill and Other Intangible Assets
During the second quarter of 2009, Huntington reorganized its internal reporting structure.
The Regional Banking reporting unit, which through March 31, 2009 had been managed geographically,
is now managed on a product segment approach. Regional Banking was divided into Commercial
Banking, Retail and Business Banking, and Commercial Real Estate segments. Regional Banking
goodwill was assigned to the new reporting units affected using a relative fair value allocation.
Auto Finance and Dealer Services (AFDS), Private Financial Group (PFG), and Treasury / Other
remained essentially unchanged. A rollforward of goodwill including the reallocation noted above,
was as follows:
115
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Retail & |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Regional |
|
|
Business |
|
|
Commercial |
|
|
Commercial |
|
|
|
|
|
|
Treasury/ |
|
|
Huntington |
|
| (in thousands) |
|
Banking |
|
|
Banking |
|
|
Banking |
|
|
Real Estate |
|
|
PFG |
|
|
Other |
|
|
Consolidated |
|
Balance, January 1, 2009 |
|
$ |
2,888,344 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
153,178 |
|
|
$ |
13,463 |
|
|
$ |
3,054,985 |
|
Impairment, March 31,
2009 |
|
|
(2,573,818 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(28,895 |
) |
|
|
— |
|
|
|
(2,602,713 |
) |
Reallocation of goodwill |
|
|
(314,526 |
) |
|
|
309,518 |
|
|
|
5,008 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, April 1, 2009 |
|
|
— |
|
|
|
309,518 |
|
|
|
5,008 |
|
|
|
— |
|
|
|
124,283 |
|
|
|
13,463 |
|
|
|
452,272 |
|
Impairment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,231 |
) |
|
|
(4,231 |
) |
Other adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,393 |
) |
|
|
(4,393 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2009 |
|
$ |
— |
|
|
$ |
309,518 |
|
|
$ |
5,008 |
|
|
$ |
— |
|
|
$ |
124,283 |
|
|
$ |
4,839 |
|
|
$ |
443,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill is not amortized but is evaluated for impairment on an annual basis at October 1st of
each year or whenever events or changes in circumstances indicate that the carrying value may not
be recoverable. During the first quarter of 2009, Huntington experienced a sustained decline in
its stock price, which was primarily attributable to the continuing economic slowdown and increased
market concern surrounding financial institutions’ credit risks and capital positions as well as
uncertainty related to increased regulatory supervision and intervention. Huntington determined
that
these changes would more likely than not reduce the fair value of certain reporting units
below their carrying amounts. Therefore, Huntington performed a goodwill impairment test, which
resulted in a goodwill impairment charge of $2,603 million in the first quarter of 2009.
An impairment charge of $4.3 million was recorded in the second quarter related to the sale of
a small payments-related business completed in July 2009. Huntington concluded that no other
goodwill impairment was required during the 2009 third quarter.
At September 30, 2009, December 31, 2008, and September 30, 2008, Huntington’s other
intangible assets consisted of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Gross |
|
|
Accumulated |
|
|
Net |
|
| (in thousands) |
|
Carrying Amount |
|
|
Amortization |
|
|
Carrying Value |
|
September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Core deposit intangible |
|
$ |
373,300 |
|
|
$ |
(154,158 |
) |
|
$ |
219,142 |
|
Customer relationship |
|
|
104,574 |
|
|
|
(23,710 |
) |
|
|
80,864 |
|
Other |
|
|
25,164 |
|
|
|
(22,558 |
) |
|
|
2,606 |
|
|
|
|
|
|
|
|
|
|
|
Total other intangible assets |
|
$ |
503,038 |
|
|
$ |
(200,426 |
) |
|
$ |
302,612 |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Core deposit intangible |
|
$ |
373,300 |
|
|
$ |
(111,163 |
) |
|
$ |
262,137 |
|
Customer relationship |
|
|
104,574 |
|
|
|
(16,776 |
) |
|
|
87,798 |
|
Other |
|
|
29,327 |
|
|
|
(22,559 |
) |
|
|
6,768 |
|
|
|
|
|
|
|
|
|
|
|
Total other intangible assets |
|
$ |
507,201 |
|
|
$ |
(150,498 |
) |
|
$ |
356,703 |
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Core deposit intangible |
|
$ |
373,300 |
|
|
$ |
(94,887 |
) |
|
$ |
278,413 |
|
Customer relationship |
|
|
104,574 |
|
|
|
(14,361 |
) |
|
|
90,213 |
|
Other |
|
|
29,327 |
|
|
|
(22,039 |
) |
|
|
7,288 |
|
|
|
|
|
|
|
|
|
|
|
Total other intangible assets |
|
$ |
507,201 |
|
|
$ |
(131,287 |
) |
|
$ |
375,914 |
|
|
|
|
|
|
|
|
|
|
|
The estimated amortization expense of other intangible assets for the remainder of 2009 and the
next five years are as follows:
| |
|
|
|
|
| |
|
Amortization |
|
| (in thousands) |
|
Expense |
|
2009 |
|
$ |
16,887 |
|
2010 |
|
|
59,826 |
|
2011 |
|
|
52,778 |
|
2012 |
|
|
45,630 |
|
2013 |
|
|
40,090 |
|
2014 |
|
|
35,472 |
|
116
Note 8 — Other Long-term Debt and Subordinated Notes
The following table summarizes the changes in other long-term debt and subordinated notes
during the nine months ended September 30, 2009 and 2008:
| |
|
|
|
|
|
|
|
|
| |
|
Other long-term |
|
|
Subordinated |
|
| |
|
debt |
|
|
notes |
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2009 |
|
$ |
2,331,632 |
|
|
$ |
1,950,097 |
|
Issuances |
|
|
600,000 |
|
|
|
— |
|
Redemptions/maturities |
|
|
(578,072) |
(1) |
|
|
(223,315) |
(2) |
Amortization of issued discount |
|
|
— |
|
|
|
(28 |
) |
Fair value changes related to hedging |
|
|
(2,961 |
) |
|
|
(52,700 |
) |
Franklin liability |
|
|
82,309 |
(3) |
|
|
— |
|
Other |
|
|
1,950 |
|
|
|
— |
|
|
|
|
|
|
|
|
Balance, September 30, 2009 |
|
$ |
2,434,858 |
|
|
$ |
1,674,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2008 |
|
$ |
1,937,078 |
|
|
$ |
1,934,276 |
|
Issuances |
|
|
887,111 |
(4) |
|
|
— |
|
Redemptions |
|
|
(358,730 |
) |
|
|
(98,470 |
) |
Amortization of issued discount |
|
|
— |
|
|
|
(961 |
) |
Fair value changes related to hedging |
|
|
6,402 |
|
|
|
29,883 |
|
Other |
|
|
25,141 |
|
|
|
— |
|
|
|
|
|
|
|
|
Balance, September 30, 2008 |
|
$ |
2,497,002 |
|
|
$ |
1,864,728 |
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
In the 2009 first quarter, the Bank issued $600 million of guaranteed other
long-term debt through the Temporary Liquidity Guarantee Program (TLGP) with the FDIC. The
majority of the resulting proceeds were used to satisfy unsecured other long-term debt
obligations maturing in 2009. |
| |
| (2) |
|
During the second quarter of 2009, Huntington redeemed $166.3 million junior
subordinated notes associated with outstanding trust preferred securities, for an aggregate of
$96.2 million, resulting in a net pre-tax gain of $67.4 million. This was reflected as a debt
extinguishment in the condensed consolidated financial statements. |
| |
| (3) |
|
The Franklin liability was a result of the consolidation of Franklin 2009 Trust on
March 31, 2009. See Note 4 for more information regarding the Franklin relationship. |
| |
| (4) |
|
During the second quarter of 2008, Huntington transferred $994.0 million automobile
loans to a trust in a securitization transaction. This resulted in a trust securitization
trust note payable of $887.1 million. |
Derivative instruments, principally interest rate swaps, are used to match the funding rates
on certain assets to hedge the interest rate values of certain fixed-rate debt by converting the
debt to a variable rate. See Note 15 for more information regarding such financial instruments
117
Note 9 — Other Comprehensive Income
The components of Huntington’s other comprehensive income in the three and nine months ended
September 30, 2009 and 2008, were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended September 30, |
|
| |
|
2009 |
|
|
2008 |
|
| |
|
|
|
|
|
Tax (expense) |
|
|
|
|
|
|
|
|
|
|
Tax (expense) |
|
|
|
|
| (in thousands) |
|
Pretax |
|
|
Benefit |
|
|
After-tax |
|
|
Pretax |
|
|
Benefit |
|
|
After-tax |
|
Cumulative effect of change in accounting principle
for other-than-temporarily impaired debt securities |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Non-credit-related impairment losses on debt securities not
expected to be sold |
|
|
(34,725 |
) |
|
|
12,154 |
|
|
|
(22,571 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Unrealized holding (losses) gains on debt securities available
for sale arising during the period |
|
|
69,689 |
|
|
|
(24,758 |
) |
|
|
44,931 |
|
|
|
(171,077 |
) |
|
|
60,170 |
|
|
|
(110,907 |
) |
Less: Reclassification adjustment for net losses (gains) losses
included in net income |
|
|
2,374 |
|
|
|
(830 |
) |
|
|
1,544 |
|
|
|
73,790 |
|
|
|
(25,827 |
) |
|
|
47,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized holding (losses) gains on debt
securities avalable for sale |
|
|
37,338 |
|
|
|
(13,434 |
) |
|
|
23,904 |
|
|
|
(97,287 |
) |
|
|
34,343 |
|
|
|
(62,944 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding (losses) gains on equity securities available
for sale arising during the period |
|
|
323 |
|
|
|
(113 |
) |
|
|
210 |
|
|
|
2,209 |
|
|
|
(774 |
) |
|
|
1,435 |
|
Less: Reclassification adjustment for net losses (gains) losses
included in net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized holding (losses) gains on equity
securities avalable for sale |
|
|
323 |
|
|
|
(113 |
) |
|
|
210 |
|
|
|
2,209 |
|
|
|
(774 |
) |
|
|
1,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains and losses on derivatives used in cash flow
hedging relationships arising during the period |
|
|
55,527 |
|
|
|
(19,435 |
) |
|
|
36,092 |
|
|
|
57,068 |
|
|
|
(19,974 |
) |
|
|
37,094 |
|
Cumulative effect of changing measurement date provisions
for pension and post-retirement assets and obligations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Change in pension and post-retirement benefit plan adjustments |
|
|
2,272 |
|
|
|
(795 |
) |
|
|
1,477 |
|
|
|
1,322 |
|
|
|
(462 |
) |
|
|
860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
$ |
95,460 |
|
|
$ |
(33,777 |
) |
|
$ |
61,683 |
|
|
$ |
(36,688 |
) |
|
$ |
13,133 |
|
|
$ |
(23,555 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended September 30, |
|
| |
|
2009 |
|
|
2008 |
|
| |
|
|
|
|
Tax (expense) |
|
|
|
|
|
|
|
|
|
|
Tax (expense) |
|
|
|
|
| (in thousands) |
|
Pretax |
|
|
Benefit |
|
|
After-tax |
|
|
Pretax |
|
|
Benefit |
|
|
After-tax |
|
Cumulative effect of change in accounting principle
for other-than-temporarily impaired debt securities |
|
$ |
(5,448 |
) |
|
$ |
1,907 |
|
|
$ |
(3,541 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Non-credit-related impairment losses on debt securities not
expected to be sold |
|
|
(103,253 |
) |
|
|
36,139 |
|
|
|
(67,114 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Unrealized holding (losses) gains on debt securities available
for sale arising during the period |
|
|
263,094 |
|
|
|
(92,787 |
) |
|
|
170,307 |
|
|
|
(375,074 |
) |
|
|
132,276 |
|
|
|
(242,798 |
) |
Less: Reclassification adjustment for net losses (gains) losses
included in net income |
|
|
7,647 |
|
|
|
(2,676 |
) |
|
|
4,971 |
|
|
|
70,288 |
|
|
|
(24,601 |
) |
|
|
45,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized holding (losses) gains on debt
securities avalable for sale |
|
|
167,488 |
|
|
|
(59,324 |
) |
|
|
108,164 |
|
|
|
(304,786 |
) |
|
|
107,675 |
|
|
|
(197,111 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding (losses) gains on equity securities available
for sale arising during the period |
|
|
188 |
|
|
|
(65 |
) |
|
|
123 |
|
|
|
(1,067 |
) |
|
|
373 |
|
|
|
(694 |
) |
Less: Reclassification adjustment for net losses (gains) losses
included in net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized holding (losses) gains on equity
securities avalable for sale |
|
|
188 |
|
|
|
(65 |
) |
|
|
123 |
|
|
|
(1,067 |
) |
|
|
373 |
|
|
|
(694 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains and losses on derivatives used in cash flow
hedging relationships arising during the period |
|
|
8,728 |
|
|
|
(3,055 |
) |
|
|
5,673 |
|
|
|
(27,697 |
) |
|
|
9,694 |
|
|
|
(18,003 |
) |
Cumulative effect of changing measurement date provisions
for pension and post-retirement assets and obligations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,898 |
) |
|
|
2,064 |
|
|
|
(3,834 |
) |
Change in pension and post-retirement benefit plan adjustments |
|
|
6,819 |
|
|
|
(2,387 |
) |
|
|
4,432 |
|
|
|
3,963 |
|
|
|
(1,387 |
) |
|
|
2,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
$ |
177,775 |
|
|
$ |
(62,924 |
) |
|
$ |
114,851 |
|
|
$ |
(335,485 |
) |
|
$ |
118,419 |
|
|
$ |
(217,066 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118
Activity
in accumulated other comprehensive income for each of the nine month periods ended
September 30, 2009 and 2008, was as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
gains |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
and losses |
|
|
Amortization |
|
|
|
|
| |
|
Unrealized gains and |
|
|
Unrealized gains |
|
|
on cash flow |
|
|
included in |
|
|
|
|
| |
|
losses on debt |
|
|
and losses on |
|
|
hedging |
|
|
net periodic |
|
|
|
|
| (in thousands) |
|
securities |
|
|
equity |
|
|
derivatives |
|
|
benefit costs |
|
|
Total |
|
Balance, December 31, 2007 |
|
$ |
(10,001 |
) |
|
$ |
(10 |
) |
|
$ |
4,553 |
|
|
$ |
(44,153 |
) |
|
$ |
(49,611 |
) |
Cumulative effect of change in
measurement
date provisions for
pension and
post-retirement assets
and obligations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,834 |
) |
|
|
(3,834 |
) |
Period change |
|
|
(197,111 |
) |
|
|
(694 |
) |
|
|
(18,003 |
) |
|
|
2,576 |
|
|
|
(213,232 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2008 |
|
$ |
(207,112 |
) |
|
$ |
(704 |
) |
|
$ |
(13,450 |
) |
|
$ |
(45,411 |
) |
|
$ |
(266,677 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
$ |
(207,427 |
) |
|
$ |
(329 |
) |
|
$ |
44,638 |
|
|
$ |
(163,575 |
) |
|
$ |
(326,693 |
) |
Cumulative effect of change
in accounting
principle for
other-than-temporarily
impaired debt securities |
|
|
(3,541 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,541 |
) |
Period change |
|
|
108,164 |
|
|
|
123 |
|
|
|
5,673 |
|
|
|
4,432 |
|
|
|
118,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2009 |
|
$ |
(102,804 |
) |
|
$ |
(206 |
) |
|
$ |
50,311 |
|
|
$ |
(159,143 |
) |
|
$ |
(211,842 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 10 — Shareholders’ Equity
Issuance of Common Stock
During 2009, Huntington completed several capital actions to add additional regulatory common
equity.
In the 2009 third quarter, Huntington completed an offering of 109.5 million shares of its
common stock at a price to the public of $4.20 per share, or $460.1 million in aggregate gross
proceeds. In the 2009 second quarter, Huntington completed an offering of 103.5 million shares of
its common stock at a price to the public of $3.60 per share, or $372.6 million in aggregate gross
proceeds.
Also, during 2009, Huntington completed three separate “discretionary equity issuance”
programs. These programs allowed the Company to take advantage of market opportunities to issue a
total of 92.7 million new shares of common stock worth a total of $345.8 million. Sales of the
common shares were made through ordinary brokers’ transactions on the NASDAQ Global Select Market
or otherwise at the prevailing market prices.
Conversion of Convertible Preferred Stock
In 2008, Huntington completed the public offering of 569,000 shares of 8.50% Series A
Non-Cumulative Perpetual Convertible Preferred Stock (Series A Preferred Stock) with a liquidation
preference of $1,000 per share, resulting in an aggregate liquidation preference of $569 million.
119
During the 2009 first and second quarters, Huntington entered into agreements with various
institutional investors exchanging shares of common stock for shares of the Series A Preferred
Stock held by the institutional investors. The table below provides details of the aggregate
activities:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
First |
|
|
Second |
|
|
|
|
| (in thousands) |
|
Quarter 2009 |
|
|
Quarter 2009 |
|
|
Total |
|
Preferred shares exchanged |
|
|
114 |
|
|
|
92 |
|
|
|
206 |
|
Common shares issued: |
|
|
|
|
|
|
|
|
|
|
|
|
At stated convertible option |
|
|
9,547 |
|
|
|
7,730 |
|
|
|
17,277 |
|
As deemed dividend |
|
|
15,044 |
|
|
|
8,751 |
|
|
|
23,795 |
|
|
|
|
|
|
|
|
|
|
|
Total common shares issued: |
|
|
24,591 |
|
|
|
16,481 |
|
|
|
41,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed dividend |
|
$ |
27,742 |
|
|
$ |
28,293 |
|
|
$ |
56,035 |
|
Each share of the Series A Preferred Stock is non-voting and may be converted at any time, at
the option of the holder, into 83.668 shares of common stock of Huntington, which represents an
approximate initial conversion price of $11.95 per share of common stock (for a total of
approximately 30.3 million shares at September 30, 2009). The conversion rate and conversion price
will be subject to adjustments in certain circumstances. On or after April 15, 2013, at the option
of Huntington, the Series A Preferred Stock will be subject to mandatory conversion into
Huntington’s common stock at the prevailing conversion rate, if the closing price of Huntington’s
common stock exceeds 130% of the conversion price for 20 trading days during any 30 consecutive
trading day period.
Troubled Asset Relief Program (TARP)
In 2008, Huntington received $1.4 billion of equity capital by issuing to the U.S. Department
of Treasury 1.4 million shares of Huntington’s 5.00% Series B Non-voting Cumulative Preferred
Stock, par value $0.01 per share with a liquidation preference of $1,000 per share, and a ten-year
warrant to purchase up to 23.6 million shares of Huntington’s common stock, par value $0.01 per
share, at an exercise price of $8.90 per share. The proceeds received were allocated to the
preferred stock and additional paid-in-capital based on their relative fair values. The resulting
discount on the preferred stock is amortized against retained earnings and is reflected in
Huntington’s consolidated statement of income as “Dividends on preferred shares”, resulting in
additional dilution to Huntington’s earnings per share. The warrants are immediately exercisable,
in whole or in part, over a term of 10 years. The warrants are included in Huntington’s diluted
average common shares outstanding using the treasury stock method. Both the preferred securities
and warrants were accounted for as additions to Huntington’s regulatory Tier 1 and Total capital.
The Series B Preferred Stock is not mandatorily redeemable and will pay cumulative dividends
at a rate of 5% per year for the first five years and 9% per year thereafter. With regulatory
approval, Huntington may redeem the Series B Preferred Stock at par with any unamortized discount
recognized as a deemed dividend in the period of redemption. The Series B Preferred Stock rank on
equal priority with Huntington’s existing 8.50% Series A Non-Cumulative Perpetual Convertible
Preferred Stock.
A company that participates in the TARP must adopt certain standards for executive
compensation, including (a) prohibiting “golden parachute” payments as defined in the Emergency
Economic Stabilization Act of 2008 (EESA) to senior executive officers; (b) requiring recovery of
any compensation paid to senior executive officers based on criteria that is later proven to be
materially inaccurate; (c) prohibiting incentive compensation that encourages unnecessary and
excessive risks that threaten the value of the financial institution, and (d) accepting
restrictions on the payment of dividends and the repurchase of common stock. As of September 30,
2009, Huntington is in compliance with all TARP standards and restrictions.
120
Note 11 — (Loss) Earnings per Share
Basic loss or earnings per share is the amount of (loss) earnings (adjusted for dividends
declared on preferred stock) available to each share of common stock outstanding during the
reporting period. Diluted (loss) earnings per share is the amount of loss or earnings available to
each share of common stock outstanding during the reporting period adjusted to include the effect
of potentially dilutive common shares. Potentially dilutive common shares include incremental
shares issued for stock options, restricted stock units, distributions from deferred compensation
plans, and the conversion of the Company’s convertible preferred stock and warrants (See Note 10).
Potentially dilutive common shares are excluded from the computation of diluted earnings per share
in periods in which the effect would be antidilutive. For diluted (loss) earnings per share, net
(loss) income available to common shares can be affected by the conversion of the Company’s
convertible preferred stock. Where the effect of this conversion would be dilutive, net (loss)
income available to common shareholders is adjusted by the associated preferred dividends. The
calculation of basic and diluted (loss) earnings per share for the three months and nine months
ended September 30, 2009 and 2008, was as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| (in thousands, except per share amounts) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Basic (loss) earnings per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(166,190 |
) |
|
$ |
75,063 |
|
|
$ |
(2,724,492 |
) |
|
$ |
303,483 |
|
Preferred Class B and Class A stock dividends |
|
|
(25,179 |
) |
|
|
(12,091 |
) |
|
|
(77,501 |
) |
|
$ |
(23,242 |
) |
Amortization of discount on issuance of Preferred Class B stock |
|
|
(4,044 |
) |
|
|
— |
|
|
|
(11,931 |
) |
|
|
|
|
Deemed dividend on conversion of Preferred Class A stock |
|
|
— |
|
|
|
— |
|
|
|
(56,035 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to common shareholders |
|
$ |
(195,413 |
) |
|
$ |
62,972 |
|
|
$ |
(2,869,959 |
) |
|
$ |
280,241 |
|
Average common shares issued and outstanding |
|
|
589,708 |
|
|
|
366,124 |
|
|
|
471,958 |
|
|
|
366,188 |
|
Basic (loss) earnings per common share |
|
$ |
(0.33 |
) |
|
$ |
0.17 |
|
|
$ |
(6.08 |
) |
|
$ |
0.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to common shareholders |
|
$ |
(195,413 |
) |
|
$ |
62,972 |
|
|
$ |
(2,869,959 |
) |
|
$ |
280,241 |
|
Effect of assumed preferred stock conversion |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income applicable to diluted earnings per share |
|
$ |
(195,413 |
) |
|
$ |
62,972 |
|
|
$ |
(2,869,959 |
) |
|
$ |
280,241 |
|
Average common shares issued and outstanding |
|
|
589,708 |
|
|
|
366,124 |
|
|
|
471,958 |
|
|
|
366,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock units |
|
|
— |
|
|
|
354 |
|
|
|
— |
|
|
|
260 |
|
Shares held in deferred compensation plans |
|
|
— |
|
|
|
883 |
|
|
|
— |
|
|
|
820 |
|
Conversion of preferred stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares: |
|
|
— |
|
|
|
1,237 |
|
|
|
— |
|
|
|
1,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total diluted average common shares issued and outstanding |
|
|
589,708 |
|
|
|
367,361 |
|
|
|
471,958 |
|
|
|
367,268 |
|
Diluted (loss) earnings per common share |
|
$ |
(0.33 |
) |
|
$ |
0.17 |
|
|
$ |
(6.08 |
) |
|
$ |
0.76 |
|
Due to the loss attributable to common shareholders for the three months and nine months ended
September 30, 2009, no additional potentially dilutive shares were included in loss per share
calculation as including such shares in the calculation would have reduced the reported loss per
share. Options to purchase 25.9 million and 25.7 million shares during the three months and nine
months ended September 30, 2008, respectively, were outstanding but were not included
in the computation of diluted earnings per share because the effect would have also been
antidilutive. The weighted average exercise price for these options was $17.26 per share for the
three months and nine months ended September 30, 2009, and $20.24 per share for the three months
and $20.32 for the nine months ended September 30, 2008.
121
Note 12 — Share-based Compensation
Huntington sponsors nonqualified and incentive share-based compensation plans. These plans
provide for the granting of stock options and other awards to officers, directors, and other
employees. Compensation costs are included in personnel costs on the condensed consolidated
statements of income. Stock options are granted at the closing market price on the date of the
grant. Options granted typically vest ratably over three years or when other conditions are met.
Options granted prior to May 2004 have a term of ten years. All options granted after May 2004 have
a term of seven years.
Huntington uses the Black-Scholes option-pricing model to value share-based compensation
expense. This model assumes that the estimated fair value of options is amortized over the options’
vesting periods. Forfeitures are estimated at the date of grant based on historical rates and
reduce the compensation expense recognized. The risk-free interest rate is based on the U.S.
Treasury yield curve in effect at the date of grant. Expected volatility is based on the estimated
volatility of Huntington’s stock over the expected term of the option. The expected dividend yield
is based on the dividend rate and stock price at the date of the grant. The following table
illustrates the weighted-average assumptions used in the option-pricing model for options granted
in each of the periods presented.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Assumptions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate |
|
|
3.06 |
% |
|
|
3.41 |
% |
|
|
2.71 |
% |
|
|
3.41 |
% |
Expected dividend yield |
|
|
1.01 |
|
|
|
5.26 |
|
|
|
0.95 |
|
|
|
5.28 |
|
Expected volatility of Huntington’s common stock |
|
|
60.0 |
|
|
|
35.0 |
|
|
|
51.4 |
|
|
|
34.8 |
|
Expected option term (years) |
|
|
6.0 |
|
|
|
6.0 |
|
|
|
6.0 |
|
|
|
6.0 |
|
Weighted-average grant date fair value per share |
|
$ |
2.09 |
|
|
$ |
1.54 |
|
|
$ |
1.94 |
|
|
$ |
1.54 |
|
As a result of increased employee turnover, during the 2009 second quarter Huntington updated
its forfeiture rate assumption and adjusted share-based compensation expense to account for the
higher forfeiture rate. This resulted in a reduction to share-based compensation expense of $2.8
million. The following table illustrates total share-based compensation expense for the three
months ended September 30, 2009 and 2008:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| (in thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Share-based compensation expense |
|
$ |
2,488 |
|
|
$ |
3,350 |
|
|
$ |
5,128 |
|
|
$ |
10,544 |
|
Tax benefit |
|
|
871 |
|
|
|
1,173 |
|
|
|
1,795 |
|
|
|
3,690 |
|
Huntington established an additional paid-in capital pool (APIC Pool) on January 1, 2006.
With the continued decline in Huntington’s stock price, the tax deductions have been less than the
compensation expense recorded for book purposes, causing the related APIC Pool to be reduced to
zero. As a result, Huntington is required to record tax expense to write-off the related deferred
tax asset in periods in which options expire unexercised.
122
Huntington’s stock option activity and related information for the nine months ended September
30, 2009, was as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
| |
|
|
|
|
|
Weighted- |
|
|
Average |
|
|
|
|
| |
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
| |
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
| (in thousands, except per share amounts) |
|
Options |
|
|
Price |
|
|
Life (Years) |
|
|
Value |
|
Outstanding at January 1, 2009 |
|
|
26,289 |
|
|
$ |
19.45 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
2,968 |
|
|
|
4.26 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Forfeited/expired |
|
|
(5,067 |
) |
|
|
20.97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2009 |
|
|
24,190 |
|
|
$ |
17.26 |
|
|
|
3.6 |
|
|
$ |
1,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2009 |
|
|
19,769 |
|
|
$ |
19.64 |
|
|
|
3.0 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value represents the amount by which the fair value of underlying
stock exceeds the “in-the-money” option exercise price. There were no exercises of stock options in
the first nine months of 2009 or 2008.
Huntington also grants restricted stock units and awards. Restricted stock units and awards
are issued at no cost to the recipient, and can be settled only in shares at the end of the vesting
period. Restricted stock awards provide the holder with full voting rights and cash dividends
during the vesting period. Restricted stock units do not provide the holder with voting rights or
cash dividends during the vesting period and are subject to certain service restrictions. The fair
value of the restricted stock units and awards is the closing market price of the Company’s common
stock on the date of award.
The following table summarizes the status of Huntington’s restricted stock units and
restricted stock awards as of September 30, 2009, and activity for the nine months ended September
30, 2009:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Weighted- |
|
| |
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
| |
|
Restricted |
|
|
Grant Date |
|
|
Restricted |
|
|
Grant Date |
|
| |
|
Stock |
|
|
Fair Value |
|
|
Stock |
|
|
Fair Value |
|
| (in thousands, except per share amounts) |
|
Units |
|
|
Per Share |
|
|
Awards |
|
|
Per Share |
|
Nonvested at January 1, 2009 |
|
|
1,823 |
|
|
$ |
14.64 |
|
|
|
— |
|
|
$ |
— |
|
Granted |
|
|
969 |
|
|
|
3.82 |
|
|
|
140 |
|
|
|
2.58 |
|
Vested |
|
|
(388 |
) |
|
|
21.76 |
|
|
|
(74 |
) |
|
|
1.66 |
|
Forfeited |
|
|
(211 |
) |
|
|
14.44 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at September 30, 2009 |
|
|
2,193 |
|
|
$ |
8.62 |
|
|
|
66 |
|
|
$ |
3.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant date fair value of nonvested shares granted for the nine months
ended September 30, 2009 and 2008, were $3.67 and $7.08, respectively. The total fair value of
awards vested during the nine months ended September 30, 2009 and 2008, was $1.5 million and $0.4
million, respectively. As of September 30, 2009, the total unrecognized compensation cost related
to nonvested awards was $8.8 million with a weighted-average remaining expense recognition period
of 1.9 years.
Of the 31.1 million shares of common stock authorized for issuance under the plans at
September 30, 2009, 25.3 million were outstanding and 5.8 million were available for future grants.
Huntington issues shares to fulfill stock option exercises and restricted stock units from
available authorized shares. At September 30, 2009, the Company believes there are adequate
authorized shares to satisfy anticipated stock option exercises in 2009.
123
Note 13 — Fair Values of Assets and Liabilities
Huntington follows the fair value accounting guidance under ASC 820 and ASC 825. As of January
1, 2008, Huntington elected to apply the fair value option for mortgage loans originated with the
intent to sell which are included in loans held for sale.
At
September 30, 2009, mortgage loans held for sale had an
aggregate fair value of $491.6 million and an aggregate
outstanding principal balance of $477.3 million. Interest income on these
loans is recorded in interest and fees on loans and leases. Included in mortgage banking income
were net gains resulting from changes in fair value of these loans, including net realized gains of
$75.6 million and $27.3 million for the nine months ended September 30, 2009 and 2008,
respectively.
Fair value is defined as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on the measurement date. A
three-level valuation hierarchy was established for disclosure of fair value measurements. The
valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as follows:
Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets
or liabilities in active markets.
Level 2 — inputs to the valuation methodology include quoted prices for similar assets and
liabilities in active markets, and inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the financial instrument.
Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value
measurement.
A financial instrument’s categorization within the valuation hierarchy is based upon the
lowest level of input that is significant to the fair value measurement.
Following is a description of the valuation methodologies used for instruments measured at
fair value, as well as the general classification of such instruments pursuant to the valuation
hierarchy.
Securities
Where quoted prices are available in an active market, securities are classified within Level 1 of
the valuation hierarchy. Level 1 securities include US Treasury and other federal agency
securities, and money market mutual funds. If quoted market prices are not available, then fair
values are estimated by using pricing models, quoted prices of securities with similar
characteristics, or discounted cash flows. Level 2 securities include US Government and agency
mortgage-backed securities and municipal securities. In certain cases where there is limited
activity or less transparency around inputs to the valuation, securities are classified within
Level 3 of the valuation hierarchy. Securities classified within Level 3 include asset backed
securities and private label CMOs, for which Huntington obtains third party pricing. With the
current market conditions, the assumptions used to determine the fair value of many Level 3
securities have greater subjectivity due to the lack of observable market transactions.
Mortgage loans held for sale
Mortgage loans held for sale are estimated using security prices for similar product types and,
therefore, are classified in Level 2.
Mortgage servicing rights
MSRs do not trade in an active, open market with readily observable prices. For example, sales of
MSRs do occur, but the precise terms and conditions typically are not readily available.
Accordingly, MSRs are classified in Level 3.
Equity Investments
Equity investments are valued initially based upon transaction price. The carrying values are then
adjusted from the transaction price to reflect expected exit values as evidenced by financing and
sale transactions with third parties, or when determination of a valuation adjustment is considered
necessary based upon a variety of factors including, but not limited to, current operating
performance and future expectations of the particular investment, industry valuations of comparable
public companies, and changes in market outlook. Due to the absence of quoted market prices and
inherent lack of liquidity and the long-term nature of such assets, these equity investments are
included in Level 3. Certain equity
investments are accounted for under the equity method and, therefore, are not subject to the fair
value disclosure requirements.
124
Derivatives
Huntington uses derivatives for a variety of purposes including asset and liability management,
mortgage banking, and for trading activities. Level 1 derivatives consist of exchange traded
options and forward commitments to deliver mortgage backed securities which have quoted prices.
Level 2 derivatives include basic asset and liability conversion swaps and options, and interest
rate caps. Derivative instruments offered to customers are adjusted for credit considerations
related to the customer based upon individual credit considerations. These derivative positions
are valued using internally developed models that use readily observable market parameters.
Derivatives in Level 3 consist primarily of interest rate lock agreements related to mortgage loan
commitments. The valuation includes assumptions related to the likelihood that a commitment will
ultimately result in a closed loan, which is a significant unobservable assumption.
Assets and Liabilities measured at fair value on a recurring basis
Assets and liabilities measured at fair value on a recurring basis at September 30, 2009 and 2008 are summarized below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fair Value Measurements at Reporting Date Using |
|
|
Netting |
|
|
Balance at |
|
| (in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Adjustments(1) |
|
|
September 30, 2009 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading account securities |
|
$ |
64,738 |
|
|
$ |
56,628 |
|
|
|
|
|
|
|
|
|
|
$ |
121,366 |
|
Investment securities |
|
|
3,015,587 |
|
|
|
4,112,699 |
|
|
$ |
947,092 |
|
|
|
|
|
|
|
8,075,378 |
|
Mortgage loans held for sale |
|
|
|
|
|
|
491,564 |
|
|
|
|
|
|
|
|
|
|
|
520,056 |
|
Mortgage servicing rights |
|
|
|
|
|
|
|
|
|
|
170,453 |
|
|
|
|
|
|
|
170,453 |
|
Derivative assets |
|
|
41 |
|
|
|
497,525 |
|
|
|
5,740 |
|
|
$ |
(136,256 |
) |
|
|
367,050 |
|
Equity investments |
|
|
|
|
|
|
|
|
|
|
24,706 |
|
|
|
|
|
|
|
24,706 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities |
|
|
10,083 |
|
|
|
264,319 |
|
|
|
4,041 |
|
|
|
(39,710 |
) |
|
|
238,733 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fair Value Measurements at Reporting Date Using |
|
|
Netting |
|
|
Balance at |
|
| (in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Adjustments(1) |
|
|
September 30, 2008 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading account securities |
|
$ |
46,755 |
|
|
$ |
951,494 |
|
|
|
|
|
|
|
|
|
|
$ |
998,249 |
|
Investment securities |
|
|
572,259 |
|
|
|
2,388,989 |
|
|
$ |
1,176,342 |
|
|
|
|
|
|
|
4,137,590 |
|
Mortgage loans held for sale |
|
|
|
|
|
|
273,249 |
|
|
|
|
|
|
|
|
|
|
|
273,249 |
|
Mortgage servicing rights |
|
|
|
|
|
|
|
|
|
|
230,398 |
|
|
|
|
|
|
|
230,398 |
|
Derivative assets |
|
|
1,177 |
|
|
|
198,490 |
|
|
|
2,729 |
|
|
$ |
(22,404 |
) |
|
|
179,992 |
|
Equity investments |
|
|
|
|
|
|
|
|
|
|
40,032 |
|
|
|
|
|
|
|
40,032 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities |
|
|
4,817 |
|
|
|
91,811 |
|
|
|
423 |
|
|
|
(47,639 |
) |
|
|
49,412 |
|
| |
|
|
| (1) |
|
Amounts represent the impact of legally enforceable master netting agreements that
allow the Company to settle positive and negative positions and cash collateral held or placed with the same counterparties. |
The tables below present a rollforward of the balance sheet amounts for the three months and
nine months ended September 30, 2009 and 2008, for financial instruments measured on a recurring
basis and classified as Level 3. The classification of an item as Level 3 is based on the
significance of the unobservable inputs to the overall fair value measurement. However, Level 3
measurements may also include observable components of value that can be validated externally.
Accordingly, the gains and losses in the table below included changes in fair value due in part to
observable factors that are part of the valuation methodology. Transfers in and out of Level 3 are
presented in the tables below at fair value at the beginning of the reporting period.
125
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Level 3 Fair Value Measurements |
|
| |
|
Three months ended September 30, 2009 |
|
| |
|
Mortgage |
|
|
|
|
|
Investment Securities |
|
|
|
|
| |
|
Servicing |
|
|
Derivative |
|
|
Alt-A |
|
|
Pooled |
|
|
Private |
|
|
|
|
|
|
Equity |
|
| (in thousands) |
|
Rights |
|
|
Instruments |
|
|
Mortgage-backed |
|
|
Trust-Preferred |
|
|
Label CMO |
|
|
Other |
|
|
investments |
|
Balance, June 30, 2009 |
|
$ |
196,932 |
|
|
$ |
(4,537 |
) |
|
$ |
274,065 |
|
|
$ |
128,864 |
|
|
$ |
510,503 |
|
|
$ |
183,361 |
|
|
$ |
28,462 |
|
Total gains/losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
|
|
(26,479 |
) |
|
|
3,207 |
|
|
|
1,951 |
|
|
|
(14,544 |
) |
|
|
(1,121 |
) |
|
|
(2,205 |
) |
|
|
(156 |
) |
Included in OCI |
|
|
— |
|
|
|
— |
|
|
|
(8,001 |
) |
|
|
3,849 |
|
|
|
5,777 |
|
|
|
6,727 |
|
|
|
— |
|
Purchases |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Sales |
|
|
— |
|
|
|
— |
|
|
|
(97,935 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Repayments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Issuances |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Settlements |
|
|
— |
|
|
|
3,029 |
|
|
|
(4,299 |
) |
|
|
(26 |
) |
|
|
(39,874 |
) |
|
|
— |
|
|
|
(3,600 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30,
2009 |
|
$ |
170,453 |
|
|
$ |
1,699 |
|
|
$ |
165,781 |
|
|
$ |
118,143 |
|
|
$ |
475,285 |
|
|
$ |
187,883 |
|
|
$ |
24,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of total gains
or losses for the period
included in earnings
(or OCI) attributable
to the
change in unrealized gains or
losses relating to
assets still
held at reporting date |
|
$ |
(26,479 |
) |
|
$ |
3,028 |
|
|
$ |
(6,050 |
) |
|
$ |
(10,695 |
) |
|
$ |
4,656 |
|
|
$ |
4,522 |
|
|
$ |
(156 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Level 3 Fair Value Measurements |
|
| |
|
Three months ended September 30, 2008 |
|
| |
|
Mortgage |
|
|
|
|
|
Investment Securities |
|
|
|
|
| |
|
Servicing |
|
|
Derivative |
|
|
Alt-A |
|
|
Pooled |
|
|
Private |
|
|
|
|
|
|
Equity |
|
| (in thousands) |
|
Rights |
|
|
Instruments |
|
|
Mortgage-backed |
|
|
Trust-Preferred |
|
|
Label CMO |
|
|
Other |
|
|
investments |
|
Balance, June 30, 2008 |
|
$ |
240,024 |
|
|
$ |
2,005 |
|
|
$ |
458,437 |
|
|
$ |
212,745 |
|
|
$ |
— |
|
|
$ |
2,557 |
|
|
$ |
32,200 |
|
Total gains/losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
|
|
(9,207 |
) |
|
|
357 |
|
|
|
(17,690 |
) |
|
|
(58,638 |
) |
|
|
536 |
|
|
|
(129 |
) |
|
|
5,915 |
|
Included in OCI |
|
|
|
|
|
|
|
|
|
|
(49,819 |
) |
|
|
15,929 |
|
|
|
(47,158 |
) |
|
|
— |
|
|
|
|
|
Purchases |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,917 |
|
Sales |
|
|
(419 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Repayments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Issuances |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Settlements |
|
|
— |
|
|
|
(56 |
) |
|
|
(5,621 |
) |
|
|
(521 |
) |
|
|
(20,377 |
) |
|
|
(31 |
) |
|
|
— |
|
Transfers in/out of
Level 3 |
|
|
— |
|
|
|
— |
|
|
|
7,923 |
|
|
|
— |
|
|
|
678,199 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30,
2008 |
|
$ |
230,398 |
|
|
$ |
2,306 |
|
|
$ |
393,230 |
|
|
$ |
169,515 |
|
|
$ |
611,200 |
|
|
$ |
2,397 |
|
|
$ |
40,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of total gains
or losses for the period
included in earnings
(or OCI) attributable
to the
change in unrealized gains or
losses relating to
assets still
held at reporting date |
|
$ |
(9,207 |
) |
|
$ |
301 |
|
|
$ |
(67,509 |
) |
|
$ |
(42,709 |
) |
|
$ |
(46,622 |
) |
|
$ |
(129 |
) |
|
$ |
5,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Level 3 Fair Value Measurements |
|
| |
|
Nine months ended September 30, 2009 |
|
| |
|
Mortgage |
|
|
|
|
|
Investment Securities |
|
|
|
|
| |
|
Servicing |
|
|
Derivative |
|
|
Alt-A |
|
|
Pooled |
|
|
Private |
|
|
|
|
|
|
Equity |
|
| (in thousands) |
|
Rights |
|
|
Instruments |
|
|
Mortgage-backed |
|
|
Trust-Preferred |
|
|
Label CMO |
|
|
Other |
|
|
investments |
|
Balance, December 31,
2008 |
|
$ |
167,438 |
|
|
$ |
1,032 |
|
|
$ |
322,421 |
|
|
$ |
141,606 |
|
|
$ |
523,515 |
|
|
$ |
— |
|
|
$ |
36,893 |
|
Total gains/losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
|
|
3,733 |
|
|
|
(668 |
) |
|
|
3,943 |
|
|
|
(29,361 |
) |
|
|
(1,019 |
) |
|
|
(908 |
) |
|
|
(87 |
) |
Included in OCI |
|
|
— |
|
|
|
— |
|
|
|
26,141 |
|
|
|
7,459 |
|
|
|
64,173 |
|
|
|
9,052 |
|
|
|
— |
|
Purchases |
|
|
2,388 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,448 |
|
|
|
211,296 |
|
|
|
1,017 |
|
Sales |
|
|
— |
|
|
|
— |
|
|
|
(170,027 |
) |
|
|
— |
|
|
|
— |
|
|
|
(78,676 |
) |
|
|
— |
|
Repayments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Issuances |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
47,119 |
|
|
|
— |
|
Settlements |
|
|
(3,106 |
) |
|
|
1,335 |
|
|
|
(16,697 |
) |
|
|
(1,561 |
) |
|
|
(116,832 |
) |
|
|
— |
|
|
|
(13,117 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30,
2009 |
|
$ |
170,453 |
|
|
$ |
1,699 |
|
|
$ |
165,781 |
|
|
$ |
118,143 |
|
|
$ |
475,285 |
|
|
$ |
187,883 |
|
|
$ |
24,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of total gains
or losses for the period
included in earnings
(or OCI) attributable
to the
change in unrealized gains or
losses relating to
assets still
held at reporting date |
|
$ |
3,733 |
|
|
$ |
(2,542 |
) |
|
$ |
30,084 |
|
|
$ |
(21,902 |
) |
|
$ |
63,154 |
|
|
$ |
8,144 |
|
|
$ |
(87 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Level 3 Fair Value Measurements |
|
| |
|
Nine months ended September 30, 2008 |
|
| |
|
Mortgage |
|
|
|
|
|
Investment Securities |
|
|
|
|
| |
|
Servicing |
|
|
Derivative |
|
|
Alt-A |
|
|
Pooled |
|
|
Private |
|
|
|
|
|
|
Equity |
|
| (in thousands) |
|
Rights |
|
|
Insruments |
|
|
Mortgage-backed |
|
|
Trust-Preferred |
|
|
Label CMO |
|
|
Other |
|
|
investments |
|
Balance, January 1, 2008 |
|
$ |
207,894 |
|
|
$ |
(46 |
) |
|
$ |
547,358 |
|
|
$ |
279,175 |
|
|
$ |
— |
|
|
$ |
7,956 |
|
|
$ |
41,516 |
|
Total gains/losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
|
|
22,730 |
|
|
|
2,610 |
|
|
|
(17,230 |
) |
|
|
(58,649 |
) |
|
|
1,509 |
|
|
|
(3,882 |
) |
|
|
(7,374 |
) |
Included in OCI |
|
|
|
|
|
|
|
|
|
|
(124,689 |
) |
|
|
(48,835 |
) |
|
|
(86,234 |
) |
|
|
(187 |
) |
|
|
|
|
Purchases |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,890 |
|
Sales |
|
|
(226 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Repayments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Issuances |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Settlements |
|
|
— |
|
|
|
(258 |
) |
|
|
(22,008 |
) |
|
|
(2,176 |
) |
|
|
(79,199 |
) |
|
|
(1,490 |
) |
|
|
— |
|
Transfers in/out of
Level 3 |
|
|
— |
|
|
|
— |
|
|
|
9,799 |
|
|
|
— |
|
|
|
775,124 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30,
2008 |
|
$ |
230,398 |
|
|
$ |
2,306 |
|
|
$ |
393,230 |
|
|
$ |
169,515 |
|
|
$ |
611,200 |
|
|
$ |
2,397 |
|
|
$ |
40,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of total gains
or losses for the period
included in earnings
(or OCI) attributable
to the
change in unrealized gains or
losses relating to
assets still
held at reporting date |
|
$ |
22,730 |
|
|
$ |
2,352 |
|
|
$ |
(141,919 |
) |
|
$ |
(107,484 |
) |
|
$ |
(84,725 |
) |
|
$ |
(4,069 |
) |
|
$ |
(1,601 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127
The table below summarizes the classification of gains and losses due to changes in fair
value, recorded in earnings for Level 3 assets and liabilities for the three months and nine months
ended September 30, 2009 and 2008.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Level 3 Fair Value Measurements |
|
| |
|
Three months ended September 30, 2009 |
|
| |
|
Mortgage |
|
|
|
|
|
Investment Securities |
|
|
|
|
| |
|
Servicing |
|
|
Derivative |
|
|
Alt-A |
|
|
Pooled |
|
|
Private |
|
|
|
|
|
|
Equity |
|
| (in thousands) |
|
Rights |
|
|
Instruments |
|
|
Mortgage-backed |
|
|
Trust-Preferred |
|
|
Label CMO |
|
|
Other |
|
|
investments |
|
Classification of gains and
losses in earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage banking income
(loss) |
|
$ |
(26,479 |
) |
|
$ |
3,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities gains (losses) |
|
|
|
|
|
|
|
|
|
$ |
(2,284 |
) |
|
$ |
(14,565 |
) |
|
$ |
(1,734 |
) |
|
|
|
|
|
|
|
|
Interest and fee income |
|
|
|
|
|
|
|
|
|
|
4,235 |
|
|
|
21 |
|
|
|
613 |
|
|
$ |
(2,205 |
) |
|
|
|
|
Noninterest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(156 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(26,479 |
) |
|
$ |
3,207 |
|
|
$ |
1,951 |
|
|
$ |
(14,544 |
) |
|
$ |
(1,121 |
) |
|
$ |
(2,205 |
) |
|
$ |
(156 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Level 3 Fair Value Measurements |
|
| |
|
Three months ended September 30, 2008 |
|
| |
|
Mortgage |
|
|
|
|
|
Investment Securities |
|
|
|
|
| |
|
Servicing |
|
|
Derivative |
|
|
Alt-A |
|
|
Pooled |
|
|
Private |
|
|
|
|
|
|
Equity |
|
| (in thousands) |
|
Rights |
|
|
Instruments |
|
|
Mortgage-backed |
|
|
Trust-Preferred |
|
|
Label CMO |
|
|
Other |
|
|
investments |
|
Classification of gains and
losses in earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage banking income
(loss) |
|
$ |
(9,207 |
) |
|
$ |
357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities gains (losses) |
|
|
|
|
|
|
|
|
|
$ |
(17,923 |
) |
|
$ |
(58,634 |
) |
|
$ |
— |
|
|
$ |
3 |
|
|
|
|
|
Interest and fee income |
|
|
|
|
|
|
|
|
|
|
233 |
|
|
|
(4 |
) |
|
|
536 |
|
|
|
(132 |
) |
|
|
|
|
Noninterest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(9,207 |
) |
|
$ |
357 |
|
|
$ |
(17,690 |
) |
|
$ |
(58,638 |
) |
|
$ |
536 |
|
|
$ |
(129 |
) |
|
$ |
5,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Level 3 Fair Value Measurements |
|
| |
|
Nine months ended September 30, 2009 |
|
| |
|
Mortgage |
|
|
|
|
|
Investment Securities |
|
|
|
|
| |
|
Servicing |
|
|
Derivative |
|
|
Alt-A |
|
|
Pooled |
|
|
Private |
|
|
|
|
|
|
Equity |
|
| (in thousands) |
|
Rights |
|
|
Instruments |
|
|
Mortgage-backed |
|
|
Trust-Preferred |
|
|
Label CMO |
|
|
Other |
|
|
investments |
|
Classification of gains and
losses in earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage banking income
(loss) |
|
$ |
3,733 |
|
|
$ |
(668 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities gains (losses) |
|
|
|
|
|
|
|
|
|
$ |
(9,670 |
) |
|
$ |
(29,452 |
) |
|
$ |
(2,985 |
) |
|
|
|
|
|
|
|
|
Interest and fee income |
|
|
|
|
|
|
|
|
|
|
13,613 |
|
|
|
91 |
|
|
|
1,966 |
|
|
$ |
(908 |
) |
|
|
|
|
Noninterest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(87 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,733 |
|
|
$ |
(668 |
) |
|
$ |
3,943 |
|
|
$ |
(29,361 |
) |
|
$ |
(1,019 |
) |
|
$ |
(908 |
) |
|
$ |
(87 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Level 3 Fair Value Measurements |
|
| |
|
Nine months ended September 30, 2008 |
|
| |
|
Mortgage |
|
|
|
|
|
Investment Securities |
|
|
|
|
| |
|
Servicing |
|
|
Derivative |
|
|
Alt-A |
|
|
Pooled |
|
|
Private |
|
|
|
|
|
|
Equity |
|
| (in thousands) |
|
Rights |
|
|
Instruments |
|
|
Mortgage-backed |
|
|
Trust-Preferred |
|
|
Label CMO |
|
|
Other |
|
|
investments |
|
Classification of gains and
losses in earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage banking income
(loss) |
|
$ |
22,730 |
|
|
$ |
2,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities gains (losses) |
|
|
|
|
|
|
|
|
|
$ |
(17,923 |
) |
|
$ |
(58,634 |
) |
|
$ |
— |
|
|
$ |
(3,093 |
) |
|
|
|
|
Interest and fee income |
|
|
|
|
|
|
|
|
|
|
693 |
|
|
|
(15 |
) |
|
|
1,509 |
|
|
|
(789 |
) |
|
|
|
|
Noninterest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(7,374 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
22,730 |
|
|
$ |
2,610 |
|
|
$ |
(17,230 |
) |
|
$ |
(58,649 |
) |
|
$ |
1,509 |
|
|
$ |
(3,882 |
) |
|
$ |
(7,374 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128
Assets and Liabilities measured at fair value on a nonrecurring basis
Certain assets and liabilities may be required to be measured at fair value on a nonrecurring
basis in periods subsequent to their initial recognition. These assets and liabilities are not
measured at fair value on an ongoing basis; however, they are subject to fair value adjustments in
certain circumstances, such as when there is evidence of impairment.
Periodically, Huntington records nonrecurring adjustments of collateral-dependent loans
measured for impairment when establishing the allowance for credit losses. Such amounts are
generally based on the fair value of the underlying collateral supporting the loan. In cases where
the carrying value exceeds the fair value of the collateral, an impairment charge is recognized.
During the nine months of 2009 and 2008, Huntington identified $662.8 million, and $150.5 million,
respectively, of impaired loans for which the fair value is recorded based upon collateral value, a
Level 3 input in the valuation hierarchy. For the nine months ended September 30, 2009 and 2008,
nonrecurring fair value losses of $268.2 million and $68.5 million, respectively, were recorded
within the provision for credit losses.
Other real estate owned properties are valued based on appraisals and third party price
opinions, less estimated selling costs. During 2009, Huntington recorded $142.6 million of OREO
assets at fair value. Losses of $75.4 were recorded within noninterest expense.
During
2009, new mortgage servicing assets were created and initially recorded at fair value of $31.5
million (See Note 6).
Also during the 2009 second quarter, goodwill related to the sale of a small payments-related
business completed in July 2009,with a carrying amount of $8.4 million was written down to its
implied fair value of $4.2 million.
Fair values of financial instruments
The carrying amounts and estimated fair values of Huntington’s financial instruments at
September 30, 2009 and December 31, 2008 are presented in the following table:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
September 30, 2009 |
|
|
December 31, 2008 |
|
| |
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
| (in thousands) |
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
| |
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and short-term assets |
|
$ |
2,280,049 |
|
|
$ |
2,280,049 |
|
|
$ |
1,137,229 |
|
|
$ |
1,137,229 |
|
Trading account securities |
|
|
121,366 |
|
|
|
121,366 |
|
|
|
88,677 |
|
|
|
88,677 |
|
Loans held for sale |
|
|
530,861 |
|
|
|
530,861 |
|
|
|
390,438 |
|
|
|
390,438 |
|
Investment securities |
|
|
8,503,150 |
|
|
|
8,503,150 |
|
|
|
4,384,457 |
|
|
|
4,384,457 |
|
Net loans and direct financing leases |
|
|
36,272,123 |
|
|
|
31,424,545 |
|
|
|
40,191,938 |
|
|
|
33,856,153 |
|
Derivatives |
|
|
367,050 |
|
|
|
367,050 |
|
|
|
458,995 |
|
|
|
458,995 |
|
| |
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
(39,829,057 |
) |
|
|
(40,151,292 |
) |
|
|
(37,943,286 |
) |
|
|
(38,363,248 |
) |
Short-term borrowings |
|
|
(852,076 |
) |
|
|
(832,849 |
) |
|
|
(1,309,157 |
) |
|
|
(1,252,861 |
) |
Federal Home Loan Bank advances |
|
|
(920,045 |
) |
|
|
(920,045 |
) |
|
|
(2,588,976 |
) |
|
|
(2,588,445 |
) |
Other long term debt |
|
|
(2,434,858 |
) |
|
|
(2,391,241 |
) |
|
|
(2,331,632 |
) |
|
|
(1,979,441 |
) |
Subordinated notes |
|
|
(1,674,054 |
) |
|
|
(1,224,506 |
) |
|
|
(1,950,097 |
) |
|
|
(1,287,150 |
) |
Derivatives |
|
|
(238,733 |
) |
|
|
(238,733 |
) |
|
|
(83,367 |
) |
|
|
(83,367 |
) |
The short-term nature of certain assets and liabilities result in their carrying value
approximating fair value. These include trading account securities, customers’ acceptance
liabilities, short-term borrowings, bank acceptances outstanding, Federal Home Loan Bank Advances
and cash and short-term assets, which include cash and due from banks, interest-bearing deposits in
banks, and federal funds sold and securities purchased under resale agreements. Loan commitments
and letters of credit generally have short-term, variable-rate features and contain clauses that
limit Huntington’s exposure to changes in customer credit quality. Accordingly, their carrying
values, which are immaterial at the respective balance sheet dates, are reasonable estimates of
fair value. Not all the financial instruments listed in the table above are subject to the
disclosure provisions of ASC 820
129
Certain assets, the most significant being operating lease assets, bank owned life insurance,
and premises and equipment, do not meet the definition of a financial instrument and are excluded
from this disclosure. Similarly, mortgage and non-mortgage servicing rights, deposit base, and
other customer relationship intangibles are not considered financial instruments and are not
discussed below. Accordingly, this fair value information is not intended to, and does not,
represent Huntington’s underlying value. Many of the assets and liabilities subject to the
disclosure requirements are not actively traded, requiring fair values to be estimated by
management. These estimations necessarily involve the use of judgment about a wide variety of
factors, including but not limited to, relevancy of market prices of comparable instruments,
expected future cash flows, and appropriate discount rates.
The following methods and assumptions were used by Huntington to estimate the fair value of
the remaining classes of financial instruments:
Loans and Direct Financing Leases
Variable-rate loans that reprice frequently are based on carrying amounts, as adjusted for
estimated credit losses. The fair values for other loans and leases are estimated using discounted
cash flow analyses and employ interest rates currently being offered for loans and leases with
similar terms. The rates take into account the position of the yield curve, as well as an
adjustment for prepayment risk, operating costs, and profit. This value is also reduced by an
estimate of probable losses and the credit risk associated in the loan and lease portfolio. The
valuation of the loan portfolio reflected discounts that Huntington believed are consistent with
transactions occurring in the market place.
Deposits
Demand deposits, savings accounts, and money market deposits are, by definition, equal to the
amount payable on demand. The fair values of fixed-rate time deposits are estimated by discounting
cash flows using interest rates currently being offered on certificates with similar maturities.
Debt
Fixed-rate, long-term debt is based upon quoted market prices, which are inclusive of Huntington’s
credit risk. In the absence of quoted market prices, discounted cash flows using market rates for
similar debt with the same maturities are used in the determination of fair value.
Note 14 — Benefit Plans
Huntington sponsors the Retirement Plan, a non-contributory defined benefit pension plan
covering substantially all employees. The Retirement Plan provides benefits based upon length of
service and compensation levels. The funding policy of Huntington is to contribute an annual amount
that is at least equal to the minimum funding requirements but not more than that deductible under
the Internal Revenue Code.
In addition, Huntington has an unfunded, defined benefit post-retirement plan (Post-Retirement
Benefit Plan) that provides certain healthcare and life insurance benefits to retired employees who
have attained the age of 55 and have at least 10 years of vesting service under this plan.
Employees retiring on or after January 1, 1993, pay the full cost of health care coverage, offset
by a length of service-based employer subsidy, limited to the actual cost of coverage. Life
insurance benefits are a percentage of the employee’s base salary at the time of retirement, with a
maximum of $50,000 of coverage.
As disclosed in Note 2, beginning January 1, 2010, there will be changes to the way the future
early and normal retirement benefit is calculated under the Retirement Plan. While these changes
will not affect the benefit earned under the Retirement Plan through December 31, 2009, there will
be a reduction in future benefits.
On January 1, 2008, Huntington transitioned to fiscal year-end measurement date of plan assets
and benefit obligations. As a result, Huntington recognized a charge to beginning retained earnings
of $4.2 million, representing the net periodic benefit costs for the last three months of 2008, and
a charge to the opening balance of accumulated other comprehensive loss of $3.8 million,
representing the change in fair value of plan assets and benefit obligations for the last three
months of 2008 (net of amortization included in net periodic benefit cost).
130
The following table shows the components of net periodic benefit expense of the Plan and the
Post-Retirement Benefit Plan:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pension Benefits |
|
|
Post Retirement Benefits |
|
| |
|
Three Months Ended |
|
|
Three Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| (in thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Service cost |
|
$ |
6,155 |
|
|
$ |
5,954 |
|
|
$ |
465 |
|
|
$ |
420 |
|
Interest cost |
|
|
7,056 |
|
|
|
6,761 |
|
|
|
896 |
|
|
|
903 |
|
Expected return on plan assets |
|
|
(10,551 |
) |
|
|
(9,786 |
) |
|
|
— |
|
|
|
— |
|
Amortization of transition asset |
|
|
2 |
|
|
|
1 |
|
|
|
276 |
|
|
|
276 |
|
Amortization of prior service cost |
|
|
121 |
|
|
|
78 |
|
|
|
95 |
|
|
|
95 |
|
Settlements |
|
|
1,725 |
|
|
|
450 |
|
|
|
— |
|
|
|
— |
|
Recognized net actuarial loss (gain) |
|
|
1,872 |
|
|
|
1,038 |
|
|
|
(231 |
) |
|
|
(274 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit expense |
|
$ |
6,380 |
|
|
$ |
4,496 |
|
|
$ |
1,501 |
|
|
$ |
1,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pension Benefits |
|
|
Post Retirement Benefits |
|
| |
|
Nine Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| (in thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Service cost |
|
$ |
18,464 |
|
|
$ |
17,862 |
|
|
$ |
1,395 |
|
|
$ |
1,259 |
|
Interest cost |
|
|
21,167 |
|
|
|
20,283 |
|
|
|
2,687 |
|
|
|
2,709 |
|
Expected return on plan assets |
|
|
(31,653 |
) |
|
|
(29,358 |
) |
|
|
— |
|
|
|
— |
|
Amortization of transition asset |
|
|
4 |
|
|
|
3 |
|
|
|
828 |
|
|
|
828 |
|
Amortization of prior service cost |
|
|
362 |
|
|
|
236 |
|
|
|
284 |
|
|
|
284 |
|
Settlements |
|
|
5,175 |
|
|
|
1,350 |
|
|
|
— |
|
|
|
— |
|
Recognized net actuarial loss (gain) |
|
|
5,620 |
|
|
|
3,114 |
|
|
|
(693 |
) |
|
|
(821 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit expense |
|
$ |
19,139 |
|
|
$ |
13,490 |
|
|
$ |
4,501 |
|
|
$ |
4,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There is no required minimum contribution for 2009 to the Retirement Plan.
Huntington also sponsors other nonqualified retirement plans, the most significant being the
Supplemental Executive Retirement Plan (SERP) and the Supplemental Retirement Income Plan (SRIP).
The SERP provides certain current and former officers and directors, and the SRIP provides certain
current officers and directors of Huntington and its subsidiaries with defined pension benefits in
excess of limits imposed by federal tax law. The cost of providing these plans was $1.0 million
and $0.9 million for the three-month periods ended September 30, 2009 and 2008, respectively. For
the respective nine-month periods, the cost was $2.7 million and $2.5 million.
Huntington has a defined contribution plan that is available to eligible employees. Huntington
matches participant contributions, up to the first 3% of base pay contributed to the plan. Half of
the employee contribution is matched on the 4th and 5th percent of base pay contributed to the
plan. In the first quarter of 2009, the Plan was amended to eliminate employer matching
contributions effective on or after March 15, 2009. For the nine months ended September 30, 2009
and 2008, the cost of providing the plan was $3.1 million and $11.4 million.
131
Note 15 — Derivative Financial Instruments
A variety of derivative financial instruments, principally interest rate swaps, are used in
asset and liability management activities to protect against the risk of adverse price or interest
rate movements. These instruments provide flexibility in adjusting Huntington’s sensitivity to
changes in interest rates without exposure to loss of principal and higher funding requirements.
Huntington records derivatives at fair value, as further described in Note 13. Collateral
agreements are regularly entered into as part of the underlying derivative agreements with
Huntington’s counterparties to mitigate counter party credit risk. At September 30, 2009, December
31, 2008, and September 30, 2008, aggregate credit risk associated with these derivatives, net of
collateral that has been pledged by the counterparty, was $50.4 million, $40.7 million, and $50.3
million, respectively. The credit risk associated with interest rate swaps is calculated after
considering master netting agreements.
At September 30, 2009, Huntington pledged $239.8 million investment security and cash
collateral to various counterparties, while various other counterparties pledged $143.4 million
investment security and cash collateral to Huntington to satisfy collateral netting agreements. In
the event of credit downgrades, Huntington could be required to provide an additional $1.0 million
in collateral.
Derivatives used in Asset and Liability Management Activities
The following table presents the gross notional values of derivatives used in Huntington’s
Asset and Liability Management activities at September 30, 2009, identified by the underlying
interest rate-sensitive instruments:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fair Value |
|
|
Cash Flow |
|
|
|
|
| (in thousands ) |
|
Hedges |
|
|
Hedges |
|
|
Total |
|
Instruments associated with: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
— |
|
|
$ |
8,405,000 |
|
|
$ |
8,405,000 |
|
Deposits |
|
|
801,525 |
|
|
|
— |
|
|
|
801,525 |
|
Subordinated notes |
|
|
675,000 |
|
|
|
— |
|
|
|
675,000 |
|
Other long-term debt |
|
|
35,000 |
|
|
|
— |
|
|
|
35,000 |
|
|
|
|
|
|
|
|
|
|
|
Total notional value at September 30, 2009 |
|
$ |
1,511,525 |
|
|
$ |
8,405,000 |
|
|
$ |
9,916,525 |
|
|
|
|
|
|
|
|
|
|
|
The following table presents additional information about the interest rate swaps and caps
used in Huntington’s Asset and Liability Management activities at September 30, 2009:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Average |
|
|
|
|
|
|
Weighted-Average |
|
| |
|
Notional |
|
|
Maturity |
|
|
Fair |
|
|
Rate |
|
| (in thousands ) |
|
Value |
|
|
(years) |
|
|
Value |
|
|
Receive |
|
|
Pay |
|
Asset conversion swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive fixed — generic |
|
$ |
8,405,000 |
|
|
|
1.5 |
|
|
$ |
93,308 |
|
|
|
2.24 |
% |
|
|
0.52 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset conversion swaps |
|
|
8,405,000 |
|
|
|
1.5 |
|
|
|
93,308 |
|
|
|
2.24 |
|
|
|
0.52 |
|
Liability conversion swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive fixed — generic |
|
|
1,511,525 |
|
|
|
4.3 |
|
|
|
83,448 |
|
|
|
3.12 |
|
|
|
0.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liability conversion swaps |
|
|
1,511,525 |
|
|
|
4.3 |
|
|
|
83,448 |
|
|
|
3.12 |
|
|
|
0.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total swap portfolio |
|
$ |
9,916,525 |
|
|
|
1.9 |
|
|
$ |
176,756 |
|
|
|
2.38 |
% |
|
|
0.50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These derivative financial instruments were entered into for the purpose of managing the
interest rate risk of assets and liabilities. Consequently, net amounts receivable or payable on
contracts hedging either interest earning assets or interest bearing liabilities were accrued as an
adjustment to either interest income or interest expense. The net amounts resulted in an increase
to net interest income of $48.1 million and $4.7 million for the three months ended September 30,
2009 and 2008, respectively. For the nine months ended September 30, 2009 and 2008, the net amounts
resulted in an increase to net interest income of $121.6 million and $6.8 million, respectively.
132
The following table presents the fair values at September 30, 2009, December 31, 2008, and
September 30, 2008 of Huntington’s derivatives that are designated and not designated as hedging
instruments. Amounts in the table below are presented without the impact of any net collateral
arrangements.
Asset derivatives included in accrued income and other assets
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
| (in thousands) |
|
2009 |
|
|
2008 |
|
|
2008 |
|
Interest rate contracts designated as hedging instruments |
|
$ |
176,756 |
|
|
$ |
230,601 |
|
|
$ |
44,739 |
|
Interest rate contracts not designated as hedging instruments |
|
|
320,769 |
|
|
|
436,131 |
|
|
|
149,097 |
|
|
|
|
|
|
|
|
|
|
|
Total contracts |
|
$ |
497,525 |
|
|
$ |
666,732 |
|
|
$ |
193,836 |
|
|
|
|
|
|
|
|
|
|
|
Liability derivatives included in accrued expenses and other liabilities
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
| (in thousands) |
|
2009 |
|
|
2008 |
|
|
2008 |
|
Interest rate contracts designated as hedging instruments |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
12,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts not designated as hedging instruments |
|
|
268,212 |
|
|
|
377,249 |
|
|
|
74,540 |
|
|
|
|
|
|
|
|
|
|
|
Total contracts |
|
$ |
268,212 |
|
|
$ |
377,249 |
|
|
$ |
87,259 |
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges effectively convert deposits and subordinated and other long term debt from
fixed rate obligations to floating rate. The changes in fair value of the derivative are, to the
extent that the hedging relationship is effective, recorded through earnings and offset against
changes in the fair value of the hedged item.
The following table presents the increase or (decrease) to interest expense for the three
months and nine months ending September 30, 2009 and 2008, for derivatives designated as fair value
hedges:
Increase (decrease) to interest expense
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Derivatives in fair |
|
|
|
|
|
|
|
|
|
| value hedging |
|
Location of change in fair value recognized in earnings on |
|
|
Three months ended |
|
|
Nine months ended |
|
| relationships |
|
derivative |
|
|
September 30, |
|
|
September 30, |
|
| (in thousands) |
|
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Interest Rate Contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
Interest expense — deposits |
|
|
$ |
(1,771 |
) |
|
$ |
(511 |
) |
|
$ |
(2,874 |
) |
|
$ |
(2,050 |
) |
Subordinated notes |
|
Interest expense — subordinated notes and other long term debt |
|
|
|
(8,092 |
) |
|
|
(4,682 |
) |
|
|
(21,743 |
) |
|
|
(11,424 |
) |
Other long term debt |
|
Interest expense — subordinated notes and other long term debt |
|
|
|
(91 |
) |
|
|
576 |
|
|
|
745 |
|
|
|
3,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
(9,954 |
) |
|
$ |
(4,617 |
) |
|
$ |
(23,872 |
) |
|
$ |
(10,232 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For cash flow hedges, interest rate swap contracts were entered into that pay fixed-rate
interest in exchange for the receipt of variable-rate interest without the exchange of the
contract’s underlying notional amount, which effectively converts a portion of its floating-rate
debt to fixed-rate. This reduces the potentially adverse impact of increases in interest rates on
future interest expense. In like fashion, certain LIBOR-based commercial and industrial loans were
effectively converted to fixed-rate by entering into contracts that swap certain variable-rate
interest payments for fixed-rate interest payments at designated times.
To the extent these derivatives are effective in offsetting the variability of the hedged cash
flows, changes in the derivatives’ fair value will not be included in current earnings but are
reported as a component of accumulated other comprehensive income in shareholders’ equity. These
changes in fair value will be included in earnings of future periods
when earnings are also affected by the changes in the hedged cash flows. To the extent these
derivatives are not effective, changes in their fair values are immediately included in earnings.
133
The following table presents the gains and (losses) recognized in other comprehensive loss
(OCL) and the location in the consolidated statements of income of gains and (losses) reclassified
from OCL into earnings for the nine months ending September 30, 2009 and 2008 for derivatives
designated as effective cash flow hedges:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or |
|
| |
|
Amount of gain or |
|
|
|
|
|
|
(loss) reclassified |
|
| Derivatives in cash |
|
(loss) recognized in |
|
|
|
|
|
|
from accumulated |
|
| flow hedging |
|
OCL on derivatives |
|
|
Location of gain or (loss) reclassified from accumulated |
|
|
OCL into earnings |
|
| relationships |
|
(effective portion) |
|
|
OCL into earnings (effective portion) |
|
|
(effective portion) |
|
| (in thousands) |
|
2009 |
|
|
2008 |
|
|
|
|
|
2009 |
|
|
2008 |
|
Interest rate contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
(977 |
) |
|
$ |
(6,551 |
) |
|
Interest and fee income — loans and leases |
|
|
$ |
1,168 |
|
|
$ |
(6,431 |
) |
FHLB Advances |
|
|
1,338 |
|
|
|
(820 |
) |
|
Interest expense — FHLB Advances |
|
|
|
5,374 |
|
|
|
(3,020 |
) |
Deposits |
|
|
326 |
|
|
|
2,122 |
|
|
Interest expense — deposits |
|
|
|
4,153 |
|
|
|
(5,866 |
) |
Subordinated notes |
|
|
101 |
|
|
|
— |
|
|
Interest expense — subordinated notes and other long term debt |
|
|
|
(2,179 |
) |
|
|
(3,740 |
) |
Other long term debt |
|
|
— |
|
|
|
96 |
|
|
Interest expense — subordinated notes and other long term debt |
|
|
|
(378 |
) |
|
|
(718 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
788 |
|
|
$ |
(5,153 |
) |
|
|
|
|
|
$ |
8,138 |
|
|
$ |
(19,775 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table details the gains and (losses) recognized in noninterest income on the
ineffective portion on interest rate contracts for derivatives designated as fair value and cash
flow hedges for the three months and nine months ending September 30, 2009 and 2008.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months ended |
|
|
Nine months ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| (in thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Derivatives in fair value hedging relationships
Interest rate contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
8,158 |
|
|
$ |
9 |
|
|
$ |
8,192 |
|
|
$ |
(30 |
) |
Derivatives in cash flow hedging relationships
Interest rate contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
14,688 |
|
|
|
3 |
|
|
|
16,331 |
|
|
|
157 |
|
Derivatives Used in Trading Activities
Various derivative financial instruments are offered to enable customers to meet their
financing and investing objectives and for their risk management purposes. Derivative financial
instruments used in trading activities consisted predominantly of interest rate swaps, but also
included interest rate caps, floors, and futures, as well as foreign exchange options. Interest
rate options grant the option holder the right to buy or sell an underlying financial instrument
for a predetermined price before the contract expires. Interest rate futures are commitments to
either purchase or sell a financial instrument at a future date for a specified price or yield and
may be settled in cash or through delivery of the underlying financial instrument. Interest rate
caps and floors are option-based contracts that entitle the buyer to receive cash payments based on
the difference between a designated reference rate and a strike price, applied to a notional
amount. Written options, primarily caps, expose Huntington to market risk but not credit risk.
Purchased options contain both credit and market risk. The interest rate risk of these customer
derivatives is mitigated by entering into similar derivatives having offsetting terms with other
counterparties. The credit risk to these customers is evaluated and included in the calculation of
fair value.
The net fair values of these derivative financial instruments, for which the gross amounts are
included in other assets or other liabilities, were $49.7 million, $41.9 million, and $56.9 million
at September 30, 2009, December 31, 2008,
and September 30, 2008. Changes in fair value of $2.2 million and $8.6 million for the three
months ended September 30, 2009 and 2008 and $3.5 million and $23.5 million for the nine months
ended September 30, 2009 and 2008, respectively, were reflected in other noninterest income. The
total notional values of derivative financial instruments used by Huntington on behalf of
customers, including offsetting derivatives, were $9.7 billion, $10.9 billion, and $10.7 billion at
September 30, 2009, December 31, 2008, and September 30, 2008, respectively. Huntington’s credit
risks from interest rate swaps used for trading purposes were $320.8 million, $429.9 million, and
$153.9 million at the same dates, respectively.
134
Huntington also uses certain derivative financial instruments to offset changes in value of
its residential mortgage servicing assets. These derivatives consist primarily of forward interest
rate agreements and forward mortgage securities. The derivative instruments used are not
designated as hedges. Accordingly, such derivatives are recorded at fair value with changes in
fair value reflected in mortgage banking income. The total notional value of these derivative
financial instruments at September 30, 2009, December 31, 2008, and September 30, 2008, was $4.7
billion, $2.2 billion, and $3.1 billion, respectively. The total notional amount at September 30,
2009 corresponds to trading assets with a fair value of $19.0 million and trading liabilities with
a fair value of $0.1 million. The gains and (losses) related to derivative instruments included in
mortgage banking income for the three months ended September 30, 2009 and 2008 were $15.7 million
and ($3.3) million, respectively and for the nine months ended September 30, 2009 and 2008 were
($28.0) million and ($40.2) million, respectively. Total MSR hedging gains and (losses) for the
three months ended September 30, 2009 and 2008, were $16.1 million and $12.2 million, respectively,
and for the nine months ended September 30, 2009 and 2008 were ($24.7) million and ($28.4) million
and were also included in mortgage banking income.
In connection with securitization activities, Huntington purchased interest rate caps with a
notional value totaling $1.2 billion. These purchased caps were assigned to the securitization
trust for the benefit of the security holders. Interest rate caps were also sold totaling $1.2
billion outside the securitization structure. Both the purchased and sold caps are marked to market
through income.
In connection with the sale of Huntington’s remaining class B Visa shares, Huntington entered
into a swap agreement with the purchaser of the shares. The swap agreement adjusts for dilution in
the conversion ratio of class B shares resulting from the Visa litigation. At September 30, the
fair value of the swap liability of $3.9 million is an estimate of the exposure liability based
upon probability-weighted potential Visa litigation losses.
Note 16 —Variable Interest Entities
Consolidated Variable Interest Entities
Consolidated variable interest entities at September 30, 2009 consist of Franklin 2009 Trust
(See Note 4) and loan securitizations. Loan securitizations include auto loan and lease
securitization trusts formed in 2008, 2006, and 2000. Huntington has determined that the trusts
are not qualified special purpose entities and, therefore, are variable interest entities (VIEs)
based upon equity guidelines established in ASC 810. Huntington owns 100% of the trusts and is the
primary beneficiary of the VIEs, therefore, the trusts are consolidated. The carrying amount and
classification of the trusts’ assets and liabilities included in the consolidated balance sheet are
as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
September 30, 2009 |
|
| (in thousands) |
|
Franklin
2009 Trust |
|
|
2008 Trust |
|
|
2006 Trust |
|
|
2000 Trust |
|
|
Total |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
— |
|
|
$ |
26,730 |
|
|
$ |
290,189 |
|
|
$ |
31,456 |
|
|
$ |
348,375 |
|
Loans and leases |
|
|
465,172 |
|
|
|
601,723 |
|
|
|
1,162,343 |
|
|
|
43,721 |
|
|
|
2,272,959 |
|
Allowance for loan and lease losses |
|
|
— |
|
|
|
(10,572 |
) |
|
|
(20,627 |
) |
|
|
(768 |
) |
|
|
(31,967 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans and leases |
|
|
465,172 |
|
|
|
591,151 |
|
|
|
1,141,716 |
|
|
|
42,953 |
|
|
|
2,240,992 |
|
Accrued income and other assets |
|
|
35,615 |
|
|
|
3,616 |
|
|
|
6,049 |
|
|
|
174 |
|
|
|
45,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
500,787 |
|
|
$ |
621,497 |
|
|
$ |
1,437,954 |
|
|
$ |
74,583 |
|
|
$ |
2,634,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term debt |
|
$ |
82,309 |
|
|
$ |
456,526 |
|
|
$ |
1,057,398 |
|
|
$ |
— |
|
|
$ |
1,596,233 |
|
Accrued interest and other liabilities |
|
|
17,461 |
|
|
|
819 |
|
|
|
12,086 |
|
|
|
— |
|
|
|
30,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
99,770 |
|
|
$ |
457,345 |
|
|
$ |
1,069,484 |
|
|
$ |
— |
|
|
$ |
1,626,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The auto loans and leases were designated to repay the securitized notes. Huntington services
the loans and leases and uses the proceeds from principal and interest payments to pay the
securitized notes during the amortization period. Huntington has not provided financial or other
support that was not previously contractually required.
135
Trust Preferred Securities
Huntington has certain wholly-owned trusts are not consolidated. The trusts have been formed
for the sole purpose of issuing trust preferred securities, from which the proceeds are then
invested in Huntington junior subordinated debentures, which are reflected in Huntington’s
condensed consolidated balance sheet as subordinated notes. The trust securities are the
obligations of the trusts and are not consolidated within Huntington’s balance sheet. A list of
trust preferred securities outstanding at September 30, 2009 follows:
| |
|
|
|
|
|
|
|
|
| |
|
Principal amount of |
|
|
Investment in |
|
| |
|
subordinated note/ |
|
|
unconsolidated |
|
| (in thousands) |
|
debenture issued to trust(1) |
|
|
subsidiary |
|
Huntington Capital I |
|
$ |
138,816 |
|
|
$ |
6,186 |
|
Huntington Capital II |
|
|
60,093 |
|
|
|
3,093 |
|
Huntington Capital III |
|
|
114,039 |
|
|
|
10 |
|
BancFirst Ohio Trust Preferred |
|
|
23,311 |
|
|
|
619 |
|
Sky Financial Capital Trust I |
|
|
65,206 |
|
|
|
1,856 |
|
Sky Financial Capital Trust II |
|
|
30,929 |
|
|
|
929 |
|
Sky Financial Capital Trust III |
|
|
77,891 |
|
|
|
2,320 |
|
Sky Financial Capital Trust IV |
|
|
77,892 |
|
|
|
2,320 |
|
Prospect Trust I |
|
|
6,186 |
|
|
|
186 |
|
|
|
|
|
|
|
|
Total |
|
$ |
594,363 |
|
|
$ |
17,519 |
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
Represents the principal amount of
debentures issued to each trust, including unamortized
original issue discount. |
Huntington’s investment in the unconsolidated trusts represents the only risk of loss.
During the second quarter of 2009, Huntington redeemed a portion of the junior subordinated
debt associated with the outstanding trust preferred securities of Huntington Capital I, Huntington
Capital II, and Huntington Capital III, for an aggregate of $96.2 million, resulting in a net pre
tax gain of $67.4 million. This was reflected as a debt extinguishment in the condensed
consolidated financial statements.
Each issue of the junior subordinated debentures has an interest rate equal to the
corresponding trust securities distribution rate. Huntington has the right to defer payment of
interest on the debentures at any time, or from time to time for a period not exceeding five years,
provided that no extension period may extend beyond the stated maturity of the related debentures.
During any such extension period, distributions to the trust securities will also be deferred and
Huntington’s ability to pay dividends on its common stock will be restricted. Periodic cash
payments and payments upon liquidation or redemption with respect to trust securities are
guaranteed by Huntington to the extent of funds held by the trusts. The guarantee ranks
subordinate and junior in right of payment to all indebtedness of the company to the same extent as
the junior subordinated debt. The guarantee does not place a limitation on the amount of
additional indebtedness that may be incurred by Huntington.
Low Income Housing Tax Credit Partnerships
Huntington makes certain equity investments in various limited partnerships that sponsor
affordable housing projects utilizing the Low Income Housing Tax Credit (LIHTC) pursuant to Section
42 of the Internal Revenue Code. The purpose of these investments is to achieve a satisfactory
return on capital, to facilitate the sale of additional affordable housing product offerings and to
assist us in achieving goals associated with the Community Reinvestment Act. The primary
activities of the limited partnerships include the identification, development, and operation of
multi-family housing that is leased to qualifying residential tenants. Generally, these types of
investments are funded through a combination of debt and equity.
Huntington does not own a majority of the limited partnership interests in these entities and
is not the primary beneficiary. Huntington uses the equity method to account for the majority of
its investments in these entities. These investments are included in accrued income and other
assets. At September 30, 2009, we have commitments of $274.2 million of which $187.6 million are
funded. The unfunded portion is included in accrued expenses and other liabilities.
136
Note 17 — Commitments and Contingent Liabilities
Commitments to extend credit
In the ordinary course of business, Huntington makes various commitments to extend credit that
are not reflected in the financial statements. The contract amounts of these financial agreements
at September 30, 2009, December 31, 2008, and September 30, 2008, were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
| (in millions) |
|
2009 |
|
|
2008 |
|
|
2008 |
|
Contract amount represents credit risk |
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
6,055 |
|
|
$ |
6,494 |
|
|
$ |
6,640 |
|
Consumer |
|
|
4,964 |
|
|
|
4,964 |
|
|
|
4,928 |
|
Commercial real estate |
|
|
1,177 |
|
|
|
1,951 |
|
|
|
2,007 |
|
Standby letters of credit |
|
|
624 |
|
|
|
1,272 |
|
|
|
1,577 |
|
Commitments to extend credit generally have fixed expiration dates, are variable-rate, and
contain clauses that permit Huntington to terminate or otherwise renegotiate the contracts in the
event of a significant deterioration in the customer’s credit quality. These arrangements normally
require the payment of a fee by the customer, the pricing of which is based on prevailing market
conditions, credit quality, probability of funding, and other relevant factors. Since many of these
commitments are expected to expire without being drawn upon, the contract amounts are not
necessarily indicative of future cash requirements. The interest rate risk arising from these
financial instruments is insignificant as a result of their predominantly short-term, variable-rate
nature.
Standby letters of credit are conditional commitments issued to guarantee the performance of a
customer to a third party. These guarantees are primarily issued to support public and private
borrowing arrangements, including commercial paper, bond financing, and similar transactions. Most
of these arrangements mature within two years. The carrying amount of deferred revenue associated
with these guarantees was $3.0 million, $4.5 million, and $4.7 million at September 30, 2009,
December 31, 2008, and September 30, 2008, respectively.
Through the Company’s credit process, Huntington monitors the credit risks of outstanding
standby letters of credit. When it is probable that a standby letter of credit will be drawn and
not repaid in full, losses are recognized in the provision for credit losses. At September 30,
2009, Huntington had $0.6 billion of standby letters of credit outstanding, of which 54% were
collateralized. Included in this $0.6 billion total are letters of credit issued by the Bank that
support securities that were issued by customers and remarketed by The Huntington Investment
Company (HIC), the Company’s broker-dealer subsidiary. As a result of a change in credit ratings
and pursuant to the letters of credit issued by the Bank, the Bank repurchased substantially all of
these securities, net of payments and maturities, during the first nine months of 2009.
Huntington uses an internal loan grading system to assess an estimate of loss on its loan and
lease portfolio. The same loan grading system is used to help monitor credit risk associated with
standby letters of credit. Under this risk rating system as of September 30, 2009, approximately
$105.7 million of the standby letters of credit were rated strong with sufficient asset quality,
liquidity, and good debt capacity and coverage, approximately $471.3 million were rated average
with acceptable asset quality, liquidity, and modest debt capacity; and approximately $47.3 million
were rated substandard with negative financial trends, structural weaknesses, operating
difficulties, and higher leverage.
Commercial letters of credit represent short-term, self-liquidating instruments that
facilitate customer trade transactions and generally have maturities of no longer than 90 days. The
goods or cargo being traded normally secures these instruments.
Commitments to sell loans
Huntington enters into forward contracts relating to its mortgage banking business to hedge
the exposures from commitments to make new residential mortgage loans with existing customers and
from mortgage loans classified as held for sale. At September 30, 2009, December 31, 2008, and
September 30, 2008, Huntington had commitments to sell residential real estate loans of $729.5
million, $759.4 million, and $485.6 million, respectively. These contracts mature in less than one
year.
137
Income Taxes
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and
various state, city and foreign jurisdictions. Federal income tax audits have been completed
through 2005. Various state and other jurisdictions remain open to examination for tax years 2000
and forward.
The Internal Revenue Service, State of Ohio and other state tax officials have proposed
adjustments to the Company’s previously filed tax returns. Management believes that the tax
positions taken by the Company related to such proposed adjustments were correct and supported by
applicable statutes, regulations, and judicial authority, and intends to vigorously defend them.
It is possible that the ultimate resolution of the proposed adjustments, if unfavorable, may be
material to the results of operations in the period it occurs. However, although no assurance can
be given, we believe that the resolution of these examinations will not, individually or in the
aggregate, have a material adverse impact on our consolidated financial position.
Litigation
Between December 19, 2007 and February 1, 2008, two putative class actions were filed in the
United States District Court for the Southern District of Ohio, Eastern Division, against
Huntington and certain of its current or former officers and directors purportedly on behalf of
purchasers of Huntington securities during the periods July 20, 2007 to November 16, 2007, or July
20, 2007 to January 10, 2008. On June 5, 2008, the two cases were consolidated into a single
action. On August 22, 2008, a consolidated complaint was filed asserting a class period of July
19, 2007 through November 16, 2007, alleging that the defendants violated Section 10(b) of the
Securities Exchange Act of 1934, as amended (the Exchange Act), and Rule 10b-5 promulgated
thereunder, and Section 20(a) of the Exchange Act by issuing a series of allegedly false and/or
misleading statements concerning Huntington’s financial results, prospects, and condition,
relating, in particular, to its transactions with Franklin. A motion to dismiss was filed on
October 21, 2008, and currently is pending. At this stage, it is not possible for management to
assess the probability of an adverse outcome, or reasonably estimate the amount of any potential
loss.
Three putative derivative lawsuits were filed in the Court of Common Pleas of Delaware County,
Ohio, the United States District Court for the Southern District of Ohio, Eastern Division, and the
Court of Common Pleas of Franklin County, Ohio, between January 16, 2008, and April 17, 2008,
against certain of Huntington’s current or former officers and directors variously seeking to
allege breaches of fiduciary duty, waste of corporate assets, abuse of control, gross
mismanagement, and unjust enrichment, all in connection with Huntington’s acquisition of Sky
Financial, certain transactions between Huntington and Franklin, and the financial disclosures
relating to such transactions. Huntington is named as a nominal defendant in each of these
actions. The derivative action filed in the United States District Court for the Southern District
of Ohio was dismissed with prejudice on September 23, 2009, and plaintiffs thereafter filed a
Notice of Appeal to the United States Court of Appeals for the Sixth Circuit. Motions to dismiss
the other two actions were filed on March 10, 2008, and January 26, 2009, and currently are
pending. At this stage of the lawsuits, it is not possible for management to assess the
probability of an adverse outcome, or reasonably estimate the amount of any potential loss.
Between February 20, 2008 and February 29, 2008, three putative class action lawsuits were
filed in the United States District Court for the Southern District of Ohio, Eastern Division,
against Huntington, the Huntington Bancshares Incorporated Pension Review Committee, the Huntington
Investment and Tax Savings Plan (the Plan) Administrative Committee, and certain of the Company’s
officers and directors purportedly on behalf of participants in or beneficiaries of the Plan
between either July 1, 2007 or July 20, 2007 and the present. On May 14, 2008, the three cases
were consolidated into a single action. On August 4, 2008, a consolidated complaint was filed
asserting a class period of July 1, 2007 through the present, alleging breaches of fiduciary duties
in violation of the Employee Retirement Income Security Act (ERISA) relating to Huntington stock
being offered as an investment alternative for participants in the Plan and seeking money damages
and equitable relief. On February 9, 2009, the court entered an order dismissing with prejudice
the consolidated lawsuit in its entirety, and plaintiffs thereafter filed a Notice of Appeal to the
United States Court of Appeals for the Sixth Circuit. Because the case is currently being
appealed, it is not possible for management to assess the probability of an eventual material
adverse outcome, or reasonably estimate the amount of any potential loss at this time.
On May 7, 2008, a putative class action lawsuit was filed in the United States District Court
for the Southern District of Ohio, Eastern Division, against Huntington (as successor in interest
to Sky Financial), and certain of Sky Financial’s former officers on behalf of all persons who
purchased or acquired Sky Financial common stock in connection with and as a result of Sky
Financial’s October 2006 acquisition of Waterfield Mortgage Company. The complaint alleged that
the defendants violated Sections 11, 12, and 15 of the Securities Act of 1933 in connection with
the issuance of
138
allegedly false and misleading registration and proxy statements leading up to the Waterfield
acquisition and their disclosures about the nature and extent of Sky Financial’s lending
relationship with Franklin. On May 1, 2009, Plaintiff filed a stipulation dismissing the lawsuit
with prejudice. The dismissal entry was approved by the Court on May 5, 2009, and the case is now
terminated.
Note 18 — Parent Company Financial Statements
The parent company condensed financial statements, which include transactions with
subsidiaries, are as follows.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Balance Sheets |
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
| (in thousands) |
|
2009 |
|
|
2008 |
|
|
2008 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (1) |
|
$ |
1,780,345 |
|
|
$ |
1,122,056 |
|
|
$ |
279,688 |
|
Due from The Huntington National Bank |
|
|
540,741 |
|
|
|
532,746 |
|
|
|
30,741 |
|
Due from non-bank subsidiaries |
|
|
280,338 |
|
|
|
338,675 |
|
|
|
324,216 |
|
Investment in The Huntington National Bank |
|
|
3,157,018 |
|
|
|
5,274,261 |
|
|
|
5,552,026 |
|
Investment in non-bank subsidiaries |
|
|
859,202 |
|
|
|
854,575 |
|
|
|
1,141,774 |
|
Accrued interest receivable and other assets |
|
|
194,654 |
|
|
|
146,167 |
|
|
|
179,153 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
6,812,298 |
|
|
$ |
8,268,480 |
|
|
$ |
7,507,598 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings |
|
$ |
1,290 |
|
|
$ |
1,852 |
|
|
$ |
1,693 |
|
Long-term borrowings |
|
|
637,434 |
|
|
|
803,699 |
|
|
|
803,699 |
|
Dividends payable, accrued expenses, and other liabilities |
|
|
498,468 |
|
|
|
234,023 |
|
|
|
326,446 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,137,192 |
|
|
|
1,039,574 |
|
|
|
1,131,838 |
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity (2) |
|
|
5,675,106 |
|
|
|
7,228,906 |
|
|
|
6,375,760 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
|
$ |
6,812,298 |
|
|
$ |
8,268,480 |
|
|
$ |
7,507,598 |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
Includes restricted cash of $125,000 at September 30, 2009 and December 31, 2008. |
| |
| (2) |
|
See page 101 for Huntington’s Condensed Consolidated Statements of Changes in Shareholders’ Equity. |
139
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months ended |
|
|
Nine months ended |
|
| Statements of Income |
|
September 30, |
|
|
September 30, |
|
| (in thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Huntington National Bank |
|
$ |
— |
|
|
$ |
142,254 |
|
|
$ |
— |
|
|
$ |
142,254 |
|
Non-bank subsidiaries |
|
|
15,450 |
|
|
|
— |
|
|
|
24,700 |
|
|
|
16,845 |
|
Interest from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Huntington National Bank |
|
|
11,841 |
|
|
|
4,094 |
|
|
|
34,828 |
|
|
|
14,525 |
|
Non-bank subsidiaries |
|
|
3,581 |
|
|
|
3,434 |
|
|
|
11,872 |
|
|
|
10,366 |
|
Other |
|
|
435 |
|
|
|
21,795 |
|
|
|
68,004 |
|
|
|
22,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income |
|
|
31,307 |
|
|
|
171,577 |
|
|
|
139,404 |
|
|
|
206,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs |
|
|
11,120 |
|
|
|
5,903 |
|
|
|
13,835 |
|
|
|
16,892 |
|
Interest on borrowings |
|
|
5,838 |
|
|
|
10,353 |
|
|
|
23,755 |
|
|
|
33,594 |
|
Other |
|
|
8,621 |
|
|
|
6,721 |
|
|
|
21,148 |
|
|
|
14,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense |
|
|
25,579 |
|
|
|
22,977 |
|
|
|
58,738 |
|
|
|
65,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and equity in
undistributed net income of subsidiaries |
|
|
5,728 |
|
|
|
148,600 |
|
|
|
80,666 |
|
|
|
141,129 |
|
Income taxes |
|
|
(2,072 |
) |
|
|
(3,196 |
) |
|
|
17,130 |
|
|
|
(16,386 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in undistributed net income
of subsidiaries |
|
|
7,800 |
|
|
|
151,796 |
|
|
|
63,536 |
|
|
|
157,515 |
|
Increase (decrease) in undistributed net income of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Huntington National Bank |
|
|
(168,462 |
) |
|
|
(92,516 |
) |
|
|
(2,761,828 |
) |
|
|
140,404 |
|
Non-bank subsidiaries |
|
|
(5,528 |
) |
|
|
15,783 |
|
|
|
(26,200 |
) |
|
|
5,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income |
|
$ |
(166,190 |
) |
|
$ |
75,063 |
|
|
$ |
(2,724,492 |
) |
|
$ |
303,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
Nine months ended |
|
| Statements of Cash Flows |
|
September 30, |
|
| (in thousands) |
|
2009 |
|
|
2008 |
|
Operating activities |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(2,724,492 |
) |
|
$ |
303,483 |
|
Adjustments
to reconcile net (loss) income to net cash
(used in) provided by operating activities: |
|
|
|
|
|
|
|
|
Equity in undistributed net income of subsidiaries |
|
|
2,788,028 |
|
|
|
(145,968 |
) |
Depreciation and amortization |
|
|
3,204 |
|
|
|
1,780 |
|
Change in other, net |
|
|
(91,326 |
) |
|
|
35,312 |
|
|
|
|
|
|
|
|
Net cash
(used in) provided by operating activities |
|
|
(24,586 |
) |
|
|
194,607 |
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
Repayments from subsidiaries |
|
|
369,861 |
|
|
|
734,656 |
|
Advances to subsidiaries |
|
|
(591,640 |
) |
|
|
(1,010,732 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(221,779 |
) |
|
|
(276,076 |
) |
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
Payment of borrowings |
|
|
(99,418 |
) |
|
|
(98,470 |
) |
Dividends paid on preferred stock |
|
|
(82,084 |
) |
|
|
(11,151 |
) |
Dividends paid on common stock |
|
|
(49,349 |
) |
|
|
(231,976 |
) |
Proceeds from issuance of preferred stock |
|
|
— |
|
|
|
550,134 |
|
Proceeds from issuance of common stock |
|
|
1,135,662 |
|
|
|
— |
|
Other, net |
|
|
(157 |
) |
|
|
(869 |
) |
|
|
|
|
|
|
|
Net cash
provided by financing activities |
|
|
904,654 |
|
|
|
207,668 |
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
|
658,289 |
|
|
|
126,199 |
|
Cash and
cash equivalents at beginning of period |
|
|
1,122,056 |
|
|
|
153,489 |
|
|
|
|
|
|
|
|
Cash and
cash equivalents at end of period |
|
$ |
1,780,345 |
|
|
$ |
279,688 |
|
|
|
|
|
|
|
|
Supplemental disclosure: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
23,755 |
|
|
$ |
33,594 |
|
Dividends in-kind received from The Huntington National Bank |
|
|
— |
|
|
|
124,689 |
|
140
Note 19 — Segment Reporting
In the second quarter of 2009, Huntington reorganized its Regional Banking segment to reflect
how its assets and operations are now managed. The Regional Banking line of business, which through
March 31, 2009, had been managed geographically, is now managed on a product segment approach. The
five distinct segments are: Retail and Business Banking, Commercial Banking, Commercial Real
Estate, Auto Finance and Dealer Services (AFDS), and the Private Financial Group (PFG). A sixth
group includes the Treasury function and other unallocated assets, liabilities, revenue, and
expense. All periods have been reclassified to conform to the current period presentation.
Segment results are determined based upon the Company’s management reporting system, which
assigns balance sheet and income statement items to each of the business segments. The process is
designed around the Company’s organizational and management structure and, accordingly, the results
derived are not necessarily comparable with similar information published by other financial
institutions. An overview of this system is provided below, along with a description of each
segment and discussion of financial results.
Retail and Business Banking: This segment provides traditional banking products and services to
consumer and small business customers located in its 11 operating regions within the six states of
Ohio, Michigan, Pennsylvania, Indiana, West Virginia, and Kentucky. It provides these services
through a banking network of over 600 branches, and almost 1,400 ATMs, along with internet and
telephone banking channels. It also provides certain services on a limited basis outside of these
six states, including mortgage banking and small business administration (SBA) lending. Retail
products and services include home equity loans and lines of credit, first mortgage loans, direct
installment loans, small business loans, personal and business deposit products, as well as sales
of investment and insurance services. At September 30, 2009, Retail and Business Banking accounted
for 41% and 72% of consolidated loans and leases and deposits, respectively.
Commercial Banking: This segment provides a variety of banking products and services to customers
within the Company’s primary banking markets who generally have larger credit exposures and sales
revenues compared with its Retail and Business Banking customers. Commercial Banking products
include commercial loans, international trade, cash management, leasing, interest rate protection
products, capital market alternatives, 401(k) plans, and mezzanine investment capabilities. The
Commercial Banking team also serves customers that specialize in equipment leasing, as well as
serves the commercial banking needs of government entities, not-for-profit organizations, and large
corporations. Commercial bankers personally deliver these products and services by developing leads
through community involvement, referrals from other professionals, and targeted prospect calling.
Commercial Real Estate: This segment serves professional real estate developers or other customers
with real estate project financing needs within the Company’s primary banking markets. Commercial
Real Estate products and services include CRE loans, cash management, interest rate protection
products, and capital market alternatives. Commercial real estate bankers personally deliver these
products and services by: (a) relationships with developers in the Company’s footprint who are
recognized as the most experienced, well-managed, and well-capitalized, and are capable of
operating in all phases of the real estate cycle (“top-tier developers”), (b) leads through
community involvement, and (c) referrals from other professionals.
141
Auto Finance and Dealer Services (AFDS): This segment provides a variety of banking products and
services to more than 2,000 automotive dealerships within the Company’s primary banking markets.
During the first quarter of 2009, AFDS discontinued lending activities in Arizona, Florida,
Tennessee, Texas, and Virginia. Also, all lease origination activities were discontinued during the
2008 fourth quarter. AFDS finances the purchase of automobiles by customers at the automotive
dealerships; finances dealerships’ new and used vehicle inventories, land, buildings, and other
real estate owned by the dealership; finances dealership working capital needs; and provides other
banking services to the automotive dealerships and their owners. Competition from the financing
divisions of automobile manufacturers and from other financial institutions is intense. AFDS’
production opportunities are directly impacted by the general automotive sales business, including
programs initiated by manufacturers to enhance and increase sales directly. Huntington has been in
this line of business for over 50 years.
Private Financial Group (PFG): This segment provides products and services designed to meet the
needs of higher net worth customers. Revenue results from the sale of trust, asset management,
investment advisory, brokerage, insurance, and private banking products and services including
credit and lending activities. PFG also focuses on financial solutions for corporate and
institutional customers that include investment banking, sales and trading of securities, and
interest rate risk management products. To serve high net worth customers, we use a unique
distribution model that employs a single, unified sales force to deliver products and services
mainly through Retail and Business Banking distribution channels.
In addition to the Company’s five business segments, the Treasury / Other group includes
revenue and expense related to assets, liabilities, and equity that are not directly assigned or
allocated to one of the five business segments. Assets in this group include investment securities
and bank owned life insurance. Net interest income/(expense) includes the net impact of
administering the Company’s investment securities portfolios as part of overall liquidity
management. A match-funded transfer pricing system is used to attribute appropriate funding
interest income and interest expense to other business segments. As such, net interest income
includes the net impact of any over or under allocations arising from centralized management of
interest rate risk. Furthermore, net interest income includes the net impact of derivatives used to
hedge interest rate sensitivity. Non-interest income includes miscellaneous fee income not
allocated to other business segments, including bank owned life insurance income. Fee income also
includes asset revaluations not allocated to business segments, as well as any investment
securities and trading assets gains or losses. The non-interest expense includes certain corporate
administrative, merger costs, and other miscellaneous expenses not allocated to business segments.
This group also includes any difference between the actual effective tax rate of Huntington and the
statutory tax rate used to allocate income taxes to the other segments.
142
Listed below are certain financial results by business segment. For the three months and nine
months ended September 30, 2009 and 2008, operating earnings were the same as reported earnings.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended September 30, |
|
| |
|
Retail & |
|
|
|
|
|
|
|
|
|
|
Former |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income Statements |
|
Business |
|
|
|
|
|
|
Commercial |
|
|
Regional |
|
|
|
|
|
|
|
|
|
|
Treasury/ |
|
|
Huntington |
|
| (in thousands ) |
|
Banking |
|
|
Commercial |
|
|
Real Estate |
|
|
Banking |
|
|
AFDS |
|
|
PFG |
|
|
Other |
|
|
Consolidated |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
252,083 |
|
|
$ |
79,004 |
|
|
$ |
46,601 |
|
|
$ |
377,688 |
|
|
$ |
33,708 |
|
|
$ |
27,724 |
|
|
$ |
(76,301 |
) |
|
$ |
362,819 |
|
Provision for credit losses |
|
|
(123,396 |
) |
|
|
(98,624 |
) |
|
|
(231,402 |
) |
|
|
(453,422 |
) |
|
|
(11,259 |
) |
|
|
(9,903 |
) |
|
|
(552 |
) |
|
|
(475,136 |
) |
Non interest income |
|
|
131,793 |
|
|
|
23,234 |
|
|
|
(783 |
) |
|
|
154,244 |
|
|
|
17,243 |
|
|
|
59,337 |
|
|
|
25,228 |
|
|
|
256,052 |
|
Non interest expense |
|
|
(203,709 |
) |
|
|
(37,132 |
) |
|
|
(7,968 |
) |
|
|
(248,809 |
) |
|
|
(24,930 |
) |
|
|
(59,576 |
) |
|
|
(67,782 |
) |
|
|
(401,097 |
) |
Income taxes |
|
|
(19,870 |
) |
|
|
11,731 |
|
|
|
67,743 |
|
|
|
59,604 |
|
|
|
(5,167 |
) |
|
|
(6,154 |
) |
|
|
42,889 |
|
|
|
91,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating / reported net income |
|
$ |
36,901 |
|
|
$ |
(21,787 |
) |
|
$ |
(125,809 |
) |
|
$ |
(110,695 |
) |
|
$ |
9,595 |
|
|
$ |
11,428 |
|
|
$ |
(76,518 |
) |
|
$ |
(166,190 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
241,783 |
|
|
$ |
77,711 |
|
|
$ |
44,111 |
|
|
$ |
363,605 |
|
|
$ |
37,504 |
|
|
$ |
20,280 |
|
|
$ |
(32,753 |
) |
|
$ |
388,636 |
|
Provision for credit losses |
|
|
(53,536 |
) |
|
|
(10,941 |
) |
|
|
(36,918 |
) |
|
|
(101,395 |
) |
|
|
(21,866 |
) |
|
|
(2,131 |
) |
|
|
— |
|
|
|
(125,392 |
) |
Non interest income |
|
|
113,040 |
|
|
|
23,368 |
|
|
|
5,213 |
|
|
|
141,621 |
|
|
|
15,660 |
|
|
|
68,241 |
|
|
|
(57,665 |
) |
|
|
167,857 |
|
Non interest expense |
|
|
(190,593 |
) |
|
|
(38,739 |
) |
|
|
(6,905 |
) |
|
|
(236,237 |
) |
|
|
(28,853 |
) |
|
|
(60,556 |
) |
|
|
(13,350 |
) |
|
|
(338,996 |
) |
Income taxes |
|
|
(38,743 |
) |
|
|
(17,990 |
) |
|
|
(1,925 |
) |
|
|
(58,658 |
) |
|
|
(856 |
) |
|
|
(9,042 |
) |
|
|
51,514 |
|
|
|
(17,042 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating / reported net income |
|
$ |
71,951 |
|
|
$ |
33,409 |
|
|
$ |
3,576 |
|
|
$ |
108,936 |
|
|
$ |
1,589 |
|
|
$ |
16,792 |
|
|
$ |
(52,254 |
) |
|
$ |
75,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended September 30, |
|
| |
|
Retail & |
|
|
|
|
|
|
|
|
|
|
Former |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income Statements |
|
Business |
|
|
|
|
|
|
Commercial |
|
|
Regional |
|
|
|
|
|
|
|
|
|
|
Treasury/ |
|
|
Huntington |
|
| (in thousands of dollars) |
|
Banking |
|
|
Commercial |
|
|
Real Estate |
|
|
Banking |
|
|
AFDS |
|
|
PFG |
|
|
Other |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
762,765 |
|
|
$ |
232,729 |
|
|
$ |
136,727 |
|
|
$ |
1,132,221 |
|
|
$ |
104,861 |
|
|
$ |
76,097 |
|
|
$ |
(262,956 |
) |
|
$ |
1,050,223 |
|
Provision for credit losses |
|
|
(342,472 |
) |
|
|
(257,405 |
) |
|
|
(494,334 |
) |
|
|
(1,094,211 |
) |
|
|
(68,364 |
) |
|
|
(29,299 |
) |
|
|
11,194 |
|
|
|
(1,180,680 |
) |
Non-Interest income |
|
|
385,791 |
|
|
|
68,083 |
|
|
|
321 |
|
|
|
454,195 |
|
|
|
44,308 |
|
|
|
184,835 |
|
|
|
77,761 |
|
|
|
761,099 |
|
Non-Interest expense,
excluding goodwill impairment |
|
|
(610,136 |
) |
|
|
(107,715 |
) |
|
|
(20,658 |
) |
|
|
(738,509 |
) |
|
|
(80,676 |
) |
|
|
(178,877 |
) |
|
|
(105,842 |
) |
|
|
(1,103,904 |
) |
Goodwill impairment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,573,818) |
(1) |
|
|
— |
|
|
|
(28,895 |
) |
|
|
(4,231 |
) |
|
|
(2,606,944 |
) |
Income taxes |
|
|
(68,582 |
) |
|
|
22,508 |
|
|
|
132,280 |
|
|
|
86,206 |
|
|
|
(45 |
) |
|
|
(8,351 |
) |
|
|
277,904 |
|
|
|
355,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating / reported net income |
|
$ |
127,366 |
|
|
$ |
(41,800 |
) |
|
$ |
(245,664 |
) |
|
$ |
(2,733,916 |
) |
|
$ |
84 |
|
|
$ |
15,510 |
|
|
$ |
(6,170 |
) |
|
$ |
(2,724,492 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
719,492 |
|
|
$ |
237,427 |
|
|
$ |
130,479 |
|
|
$ |
1,087,398 |
|
|
$ |
112,392 |
|
|
$ |
59,685 |
|
|
$ |
(104,149 |
) |
|
$ |
1,155,326 |
|
Provision for credit losses |
|
|
(147,227 |
) |
|
|
(36,342 |
) |
|
|
(97,829 |
) |
|
|
(281,398 |
) |
|
|
(46,283 |
) |
|
|
(7,174 |
) |
|
|
— |
|
|
|
(334,855 |
) |
Non-Interest income |
|
|
317,102 |
|
|
|
72,304 |
|
|
|
13,478 |
|
|
|
402,884 |
|
|
|
43,136 |
|
|
|
199,989 |
|
|
|
(5,971 |
) |
|
|
640,038 |
|
Non-Interest expense |
|
|
(590,538 |
) |
|
|
(118,356 |
) |
|
|
(21,083 |
) |
|
|
(729,977 |
) |
|
|
(84,723 |
) |
|
|
(187,180 |
) |
|
|
(85,397 |
) |
|
|
(1,087,277 |
) |
Income taxes |
|
|
(104,590 |
) |
|
|
(54,262 |
) |
|
|
(8,766 |
) |
|
|
(167,618 |
) |
|
|
(8,583 |
) |
|
|
(22,862 |
) |
|
|
129,316 |
|
|
|
(69,747 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating / reported net income |
|
$ |
194,239 |
|
|
$ |
100,771 |
|
|
$ |
16,279 |
|
|
$ |
311,289 |
|
|
$ |
15,939 |
|
|
$ |
42,458 |
|
|
$ |
(66,201 |
) |
|
$ |
303,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
Represents the 2009 first quarter goodwill impairment charge associated with the former Regional Banking segment. |
The allocation of this amount to the new business segments was not practical.
143
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Assets at |
|
|
Deposits at |
|
| |
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
| (in millions) |
|
2009 |
|
|
2008 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
Retail & Business Banking |
|
$ |
17,604 |
|
|
$ |
18,230 |
|
|
$ |
18,357 |
|
|
$ |
28,120 |
|
|
$ |
27,314 |
|
|
$ |
26,626 |
|
Commercial Banking |
|
|
8,281 |
|
|
|
8,883 |
|
|
|
8,756 |
|
|
|
6,241 |
|
|
|
5,180 |
|
|
|
5,946 |
|
Commercial Real Estate |
|
|
6,621 |
|
|
|
7,116 |
|
|
|
6,961 |
|
|
|
454 |
|
|
|
433 |
|
|
|
494 |
|
AFDS |
|
|
4,942 |
|
|
|
6,376 |
|
|
|
6,327 |
|
|
|
96 |
|
|
|
68 |
|
|
|
68 |
|
PFG |
|
|
3,403 |
|
|
|
3,242 |
|
|
|
3,019 |
|
|
|
2,954 |
|
|
|
1,777 |
|
|
|
1,584 |
|
Treasury / Other |
|
|
11,662 |
|
|
|
7,618 |
|
|
|
8,351 |
|
|
|
1,964 |
|
|
|
3,171 |
|
|
|
2,851 |
|
Unallocated goodwill (1) |
|
|
— |
|
|
|
2,888 |
|
|
|
2,890 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
52,513 |
|
|
$ |
54,353 |
|
|
$ |
54,661 |
|
|
$ |
39,829 |
|
|
$ |
37,943 |
|
|
$ |
37,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
Represents the balance of goodwill associated with the former Regional Banking business segment. |
The allocation of these amounts to the new business segments is not practical.
144
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Quantitative and qualitative disclosures for the current period can be found in the Market
Risk section of this report, which includes changes in market risk exposures from disclosures
presented in Huntington’s 2008 Form 10-K.
Item 4. Controls and Procedures
Huntington maintains disclosure controls and procedures designed to ensure that the
information required to be disclosed in the reports that it files or submits under the Securities
Exchange Act of 1934, as amended, are recorded, processed, summarized, and reported within the time
periods specified in the Commission’s rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information required to be
disclosed by an issuer in the reports that it files or submits under the Act is accumulated and
communicated to the issuer’s management, including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow timely decisions
regarding required disclosure. Huntington’s Management, with the participation of its Chief
Executive Officer and the Chief Financial Officer, evaluated the effectiveness of Huntington’s
disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act) as of the end of the period covered by this report. Based upon such evaluation,
Huntington’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end
of such period, Huntington’s disclosure controls and procedures were effective.
There have not been any changes in Huntington’s internal control over financial reporting (as
such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal
quarter to which this report relates that have materially affected, or are reasonably likely to
materially affect, Huntington’s internal control over financial reporting.
Item 4T. Controls and Procedures
Not applicable
PART II. OTHER INFORMATION
In accordance with the instructions to Part II, the other specified items in this part have
been omitted because they are not applicable or the information has been previously reported.
Item 1. Legal Proceedings
Information required by this item is set forth in Note 17 of Notes to Unaudited Condensed
Consolidated Financial Statements included in Item 1 of this report and incorporated herein by
reference.
Item 1A. Risk Factors
Information required by this item is set forth in Part 1 Item 2.- Management’s Discussion and
Analysis of Financial Condition and Results of Operations of this report and incorporated herein by
reference.
Item 6. Exhibits
This report incorporates by reference the documents listed below that we have previously filed with
the SEC. The SEC allows us to incorporate by reference information in this document. The
information incorporated by reference is considered to be a part of this document, except for any
information that is superseded by information that is included directly in this document.
This information may be read and copied at the Public Reference Room of the SEC at 100 F Street,
N.E., Washington, D.C. 20549. The SEC also maintains an Internet web site that contains reports,
proxy statements, and other information about issuers, like us, who file electronically with the
SEC. The address of the site is http://www.sec.gov. The reports and other information filed by us
with the SEC are also available at our Internet web site. The address of the site is
http://www.huntington.com. Except as specifically incorporated by reference into this Quarterly
Report on Form 10-Q, information on those web sites is not part of this report. You also should be
able to inspect reports, proxy statements, and other information about us at the offices of the
NASDAQ National Market at 33 Whitehall Street, New York, New York.
145
(a) Exhibits
| |
|
|
|
|
|
|
|
|
|
|
| Exhibit |
|
|
|
Incorporated from |
|
SEC File or |
|
Exhibit |
| Number |
|
Document Description |
|
Report or Registration Statement |
|
Registration Number |
|
Reference |
3.1
|
|
Articles of Restatement of Charter
|
|
Annual Report on Form 10-K for
the year ended December 31,
1993.
|
|
000-02525
|
|
|
3 |
(i) |
|
|
|
|
|
|
|
|
|
|
|
3.2
|
|
Articles of Amendment to Articles of Restatement of
Charter.
|
|
Current Report on Form 8-K dated
May 31, 2007
|
|
000-02525
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
3.3
|
|
Articles of Amendment to Articles of Restatement of
Charter
|
|
Current Report on Form 8-K dated
May 7, 2008
|
|
000-02525
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
3.4
|
|
Articles Supplementary of Huntington Bancshares
Incorporated, as of April 22, 2008.
|
|
Current Report on Form 8-K dated
April 22, 2008
|
|
000-02525
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
3.5
|
|
Articles Supplementary of Huntington Bancshares
Incorporated, as of April 22. 2008.
|
|
Current Report on Form 8-K dated
April 22, 2008
|
|
000-02525
|
|
|
3.2 |
|
|
|
|
|
|
|
|
|
|
|
|
3.6
|
|
Articles Supplementary of Huntington Bancshares
Incorporated, as of November 12, 2008.
|
|
Current Report on Form 8-K dated
November 12, 2008
|
|
001-34073
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
3.7
|
|
Articles Supplementary of Huntington Bancshares
Incorporated, as of December 31, 2006.
|
|
Annual Report on Form 10-K for
the year ended December 31, 2006
|
|
000-02525
|
|
|
3.4 |
|
|
|
|
|
|
|
|
|
|
|
|
3.8
|
|
Bylaws of Huntington Bancshares Incorporated, as
amended and restated, as of January 21, 2009.
|
|
Current Report on Form 8-K dated
January 23, 2009.
|
|
001-34073
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
4.1
|
|
Instruments defining the Rights of Security Holders —
reference is made to Articles Fifth, Eighth, and
Tenth of Articles of Restatement of Charter, as
amended and supplemented. Instruments defining the
rights of holders of long-term debt will be furnished
to the Securities and Exchange Commission upon
request. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.1
|
|
Schedule identifying material details of Executive
Agreements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2*
|
|
2009 Stock Option Grant Notice to Stephen D. Steinour.
|
|
Quarterly Report on Form 10-Q
for the quarter ended March 31,
2009.
|
|
001-34073
|
|
|
10.1 |
|
|
|
|
|
|
|
|
|
|
|
|
10.3*
|
|
Relocation assistance and reimbursement agreement
with Mark E. Thompson dated May 7, 2009.
|
|
Quarterly Report on Form 10-Q
for the quarter ended June 30,
2009.
|
|
001-34073
|
|
|
10.3 |
|
|
|
|
|
|
|
|
|
|
|
|
12.1
|
|
Ratio of Earnings to Fixed Charges. |
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12.2
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Ratio of Earnings to Fixed Charges and Preferred
Dividends. |
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31.1
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Rule 13a-14(a) Certification — Chief Executive
Officer. |
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31.2
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Rule 13a-14(a) Certification — Chief Financial
Officer. |
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32.1
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Section 1350 Certification — Chief Executive Officer. |
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32.2
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Section 1350 Certification — Chief Financial Officer. |
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| * |
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Denotes management contract or compensatory plan or arrangement. |
146
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| |
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| |
Huntington Bancshares Incorporated
(Registrant)
|
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| Date: November 9, 2009 |
/s/ Stephen D. Steinour
|
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| |
Stephen D. Steinour |
|
| |
Chairman, Chief Executive Officer and
President |
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| |
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| Date: November 9, 2009 |
/s/ Donald R. Kimble
|
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| |
Donald R. Kimble |
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Sr. Executive Vice President and Chief Financial Officer |
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| |
147
EXHIBIT INDEX
| |
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|
| Exhibit |
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|
Incorporated from |
|
SEC File or |
|
Exhibit |
| Number |
|
Document Description |
|
Report or Registration Statement |
|
Registration Number |
|
Reference |
3.1
|
|
Articles of Restatement of Charter
|
|
Annual Report on Form 10-K for
the year ended December 31,
1993.
|
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000-02525
|
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|
3 |
(i) |
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3.2
|
|
Articles of Amendment to Articles of Restatement of
Charter.
|
|
Current Report on Form 8-K dated
May 31, 2007
|
|
000-02525
|
|
|
3.1 |
|
3.3
|
|
Articles of Amendment to Articles of Restatement of
Charter
|
|
Current Report on Form 8-K dated
May 7, 2008
|
|
000-02525
|
|
|
3.1 |
|
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3.4
|
|
Articles Supplementary of Huntington Bancshares
Incorporated, as of April 22, 2008.
|
|
Current Report on Form 8-K dated
April 22, 2008
|
|
000-02525
|
|
|
3.1 |
|
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|
|
|
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3.5
|
|
Articles Supplementary of Huntington Bancshares
Incorporated, as of April 22. 2008.
|
|
Current Report on Form 8-K dated
April 22, 2008
|
|
000-02525
|
|
|
3.2 |
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3.6
|
|
Articles Supplementary of Huntington Bancshares
Incorporated, as of November 12, 2008.
|
|
Current Report on Form 8-K dated
November 12, 2008
|
|
001-34073
|
|
|
3.1 |
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|
|
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|
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|
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3.7
|
|
Articles Supplementary of Huntington Bancshares
Incorporated, as of December 31, 2006.
|
|
Annual Report on Form 10-K for
the year ended December 31, 2006
|
|
000-02525
|
|
|
3.4 |
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3.8
|
|
Bylaws of Huntington Bancshares Incorporated, as
amended and restated, as of January 21, 2009.
|
|
Current Report on Form 8-K dated
January 23, 2009.
|
|
001-34073
|
|
|
3.1 |
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4.1
|
|
Instruments defining the Rights of Security Holders
— reference is made to Articles Fifth, Eighth, and
Tenth of Articles of Restatement of Charter, as
amended and supplemented. Instruments defining the
rights of holders of long-term debt will be furnished
to the Securities and Exchange Commission upon
request. |
|
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10.1
|
|
Schedule identifying material details of Executive
Agreements. |
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10.2*
|
|
2009 Stock Option Grant Notice to Stephen D. Steinour.
|
|
Quarterly Report on Form 10-Q
for the quarter ended March 31,
2009.
|
|
001-34073
|
|
|
10.1 |
|
|
|
|
|
|
|
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10.3*
|
|
Relocation assistance and reimbursement agreement
with Mark E. Thompson dated May 7, 2009.
|
|
Quarterly Report on Form 10-Q
for the quarter ended June 30,
2009.
|
|
001-34073
|
|
|
10.3 |
|
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10.4
|
|
Amendment to the Huntington
Bancshares Incorporated Executive Agreement
|
|
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|
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|
|
|
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|
|
|
|
|
|
|
|
12.1
|
|
Ratio of Earnings to Fixed Charges. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.2
|
|
Ratio of Earnings to Fixed Charges and Preferred
Dividends. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.1
|
|
Rule 13a-14(a) Certification — Chief Executive
Officer. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.2
|
|
Rule 13a-14(a) Certification — Chief Financial
Officer. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.1
|
|
Section 1350 Certification — Chief Executive Officer. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.2
|
|
Section 1350 Certification — Chief Financial Officer. |
|
|
|
|
|
|
|
|
| |
|
|
| * |
|
Denotes management contract or compensatory plan or arrangement. |