XNAS:HBAN Huntington Bancshares Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

QUARTERLY PERIOD ENDED June 30, 2012

Commission File Number 1-34073

 

 

Huntington Bancshares Incorporated

 

 

 

Maryland   31-0724920

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

41 South High Street, Columbus, Ohio 43287

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.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

There were 858,401,176 shares of Registrant’s common stock ($0.01 par value) outstanding on June 30, 2012.

 

 

 


Table of Contents

HUNTINGTON BANCSHARES INCORPORATED

INDEX

 

PART I. FINANCIAL INFORMATION

  

Item 1. Financial Statements (Unaudited)

  

Condensed Consolidated Balance Sheets at June 30, 2012 and December 31, 2011

     73   

Condensed Consolidated Statements of Income for the three months and six months ended June 30, 2012 and 2011

     74   

Condensed Consolidated Statements of Comprehensive Income for the three months and six months ended June 30, 2012 and 2011

     75   

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the six months ended June 30, 2012 and 2011

     76   

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011

     77   

Notes to Unaudited Condensed Consolidated Financial Statements

     78   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

Executive Overview

     7   

Discussion of Results of Operations

     10   

Risk Management and Capital:

  

Credit Risk

     28   

Market Risk

     45   

Liquidity Risk

     47   

Operational Risk

     51   

Compliance Risk

     52   

Capital

     52   

Business Segment Discussion

     56   

Additional Disclosures

     69   

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     147   

Item 4. Controls and Procedures

     147   

PART II. OTHER INFORMATION

  

Item 1. Legal Proceedings

     147   

Item 1A. Risk Factors

     147   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     147   

Item 6. Exhibits

     148   

Signatures

     150   

 

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Glossary of Acronyms and Terms

The following listing provides a comprehensive reference of common acronyms and terms used throughout the document:

 

2011 Form 10-K    Annual Report on Form 10-K for the year ended December 31, 2011
ABL    Asset Based Lending
ACL    Allowance for Credit Losses
AFCRE    Automobile Finance and Commercial Real Estate
ALCO    Asset & Liability Management Committee
ALLL    Allowance for Loan and Lease Losses
ARM    Adjustable Rate Mortgage
ARRA    American Recovery and Reinvestment Act of 2009
ASC    Accounting Standards Codification
ASU    Accounting Standards Update
ATM    Automated Teller Machine
AULC    Allowance for Unfunded Loan Commitments
AVM    Automated Valuation Methodology
C&I    Commercial and Industrial
CapPR    Capital Plan Review
CCAR    Comprehensive Capital Analysis and Review
CDARS    Certificate of Deposit Account Registry Service
CDO    Collateralized Debt Obligations
CDs    Certificates of Deposit
CFPB    Bureau of Consumer Financial Protection
CMO    Collateralized Mortgage Obligations
CPP    Capital Purchase Program
CRE    Commercial Real Estate
DDA    Demand Deposit Account
DIF    Deposit Insurance Fund
Dodd-Frank Act    Dodd-Frank Wall Street Reform and Consumer Protection Act
EESA    Emergency Economic Stabilization Act of 2008
EPS    Earnings Per Share
ERISA    Employee Retirement Income Security Act
EVE    Economic Value of Equity
FASB    Financial Accounting Standards Board
FDIC    Federal Deposit Insurance Corporation
FDICIA    Federal Deposit Insurance Corporation Improvement Act of 1991
FFIEC    Federal Financial Institutions Examination Council
FHA    Federal Housing Administration
FHFA    Federal Housing Finance Agency
FHLB    Federal Home Loan Bank
FHLMC    Federal Home Loan Mortgage Corporation
FICA    Federal Insurance Contributions Act
FICO    Fair Isaac Corporation
FOMC    Federal Open Market Committee
FNMA    Federal National Mortgage Association
Franklin    Franklin Credit Management Corporation

 

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FRB    Federal Reserve Bank
FSP    Financial Stability Plan
FTE    Fully-Taxable Equivalent
FTP    Funds Transfer Pricing
GAAP    Generally Accepted Accounting Principles in the United States of America
GSIFI    Globally Systemically Important Financial Institution
GSE    Government Sponsored Enterprise
HAMP    Home Affordable Modification Program
HARP    Home Affordable Refinance Program
HASP    Homeowner Affordability and Stability Plan
HCER Act    Health Care and Education Reconciliation Act of 2010
IPO    Initial Public Offering
IRS    Internal Revenue Service
ISE    Interest Sensitive Earnings
LIBOR    London Interbank Offered Rate
LGD    Loss-Given-Default
LTV    Loan to Value
MD&A    Management’s Discussion and Analysis of Financial Condition and Results of Operations
MRC    Market Risk Committee
MSA    Metropolitan Statistical Area
MSR    Mortgage Servicing Rights
NALs    Nonaccrual Loans
NAV    Net Asset Value
NCO    Net Charge-off
NPAs    Nonperforming Assets
NPR    Notice of Proposed Rulemaking
NSF / OD    Nonsufficient Funds and Overdraft
OCC    Office of the Comptroller of the Currency
OCI    Other Comprehensive Income (Loss)
OCR    Optimal Customer Relationship
OLEM    Other Loans Especially Mentioned
OREO    Other Real Estate Owned
OTTI    Other-Than-Temporary Impairment
PD    Probability-Of-Default
Plan    Huntington Bancshares Retirement Plan
Problem Loans    Includes nonaccrual loans and leases (Table 17), troubled debt restructured loans (Table 18),
   accruing loans and leases past due 90 days or more (aging analysis section of Footnote 3),
   and Criticized commercial loans (credit quality indicators section of Footnote 3).
Reg E    Regulation E of the Electronic Fund Transfer Act
REIT    Real Estate Investment Trust
SAD    Special Assets Division
SBA    Small Business Administration
SEC    Securities and Exchange Commission
SERP    Supplemental Executive Retirement Plan
SIFIs    Systemically Important Financial Institutions
Sky Financial    Sky Financial Group, Inc.
SRIP    Supplemental Retirement Income Plan

 

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Sky Trust    Sky Bank and Sky Trust, National Association
TAGP    Transaction Account Guarantee Program
TARP    Troubled Asset Relief Program
TARP Capital    Series B Preferred Stock
TCE    Tangible Common Equity
TDR    Troubled Debt Restructured Loan
TLGP    Temporary Liquidity Guarantee Program
Treasury    U.S. Department of the Treasury
UCS    Uniform Classification System
UPB    Unpaid Principal Balance
USDA    U.S. Department of Agriculture
VA    U.S. Department of Veteran Affairs
VIE    Variable Interest Entity
WGH    Wealth Advisors, Government Finance, and Home Lending

 

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PART I. FINANCIAL INFORMATION

When we refer to “we,” “our,” and “us” in this report, we mean Huntington Bancshares Incorporated and our consolidated subsidiaries, unless the context indicates that we refer only to the parent company, Huntington Bancshares Incorporated. When we refer to the “Bank” in this report, we mean our only bank subsidiary, The Huntington National Bank, and its subsidiaries.

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

We are a multi-state diversified regional bank holding company organized under Maryland law in 1966 and headquartered in Columbus, Ohio. Through the Bank, we have 145 years of servicing the financial needs of our customers. Through our subsidiaries, we provide full-service commercial and consumer banking services, mortgage banking services, automobile financing, equipment leasing, investment management, trust services, brokerage services, customized insurance service programs, and other financial products and services. Our over 680 banking offices are located in Indiana, Kentucky, Michigan, Ohio, Pennsylvania, and West Virginia. Selected financial services and other activities are also conducted in various other states. International banking services are available through the headquarters office in Columbus, Ohio and a limited purpose office located in the Cayman Islands and another limited purpose office located in Hong Kong. Our foreign banking activities, in total or with any individual country, are not significant.

This MD&A provides information we believe necessary for understanding our financial condition, changes in financial condition, results of operations, and cash flows. The MD&A included in our 2011 Form 10-K should be read in conjunction with this MD&A as this discussion provides only material updates to the 2011 Form 10-K. This MD&A should also be read in conjunction with the financial statements, notes and other information contained in this report.

Our discussion is divided into key segments:

 

   

Executive Overview—Provides a summary of our current financial performance, and business overview, including our thoughts on the impact of the economy, legislative and regulatory initiatives, and recent industry developments. This section also provides our outlook regarding our expectations for the remainder of 2012.

 

   

Discussion of Results of Operations—Reviews financial performance from a consolidated Company perspective. It also includes a Significant Items section that summarizes key issues helpful for understanding performance trends. Key consolidated average balance sheet and income statement trends are also discussed in this section.

 

   

Risk Management and Capital—Discusses credit, market, liquidity, operational, and compliance risks, including how these are managed, as well as performance trends. It also includes a discussion of liquidity policies, how we obtain funding, and related performance. In addition, there is a discussion of guarantees and / or commitments made for items such as standby letters of credit and commitments to sell loans, and a discussion that reviews the adequacy of capital, including regulatory capital requirements.

 

   

Business Segment Discussion—Provides an overview of financial performance for each of our major business segments and provides additional discussion of trends underlying consolidated financial performance.

 

   

Additional Disclosures—Provides comments on important matters including forward-looking statements, critical accounting policies and use of significant estimates, recent accounting pronouncements and developments, and acquisitions.

A reading of each section is important to understand fully the nature of our financial performance and prospects.

 

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EXECUTIVE OVERVIEW

Summary of 2012 Second Quarter Results

For the quarter, we reported net income of $152.7 million, or $0.17 per common share, compared with $153.3 million, or $0.17 per common share, in the prior quarter (see Table 1).

Fully-taxable equivalent net interest income was $434.7 million for the quarter, up $13.6 million, or 3%, from the prior quarter. The increase reflected the benefit of a $1.3 billion, or 3% (10% annualized), increase in average earning assets, and a 2 basis point increase in the fully-taxable equivalent net interest margin to 3.42% from 3.40%. The 2 basis point increase in the net interest margin reflected the benefits from the 5 basis point reduction in the cost of total interest bearing liabilities, as well as $0.8 billion, or 7%, growth in average noninterest bearing deposits. However, there was a 3 basis point negative impact from the mix and yield of earning assets and other items. The acquisition of Fidelity Bank at the end of the prior quarter had a positive 2 basis point impact on the net interest margin, and the recent redemption of two trust preferred securities had a 1 basis point positive impact.

The provision for credit losses increased $2.1 million, or 6%, from the prior quarter. The provision for credit losses in the current quarter was $47.7 million lower than NCOs, reflecting continued improvement in credit quality.

Noninterest income decreased $31.5 million, or 11%. This included a $22.6 million decrease in gain on sale of loans as the prior quarter included a $23.0 million gain associated with that quarter’s automobile loan securitization. In addition, other income decreased $9.2 million as the prior quarter included an $11.4 million bargain purchase gain associated with the FDIC-assisted acquisition of Dearborn, Michigan-based Fidelity Bank. Mortgage banking income declined $8.1 million as the benefit of the net mortgage servicing rights decreased by $6.8 million. This was partially offset by an increase in service charges on deposit accounts and capital market fees, reflecting the results of our OCR initiative.

Noninterest expense decreased $18.4 million, or 4%. This reflected a $19.9 million reduction in other expense as the prior quarter included a $23.5 million addition to litigation reserves. Deposit and other insurance expense decreased $5.0 million, and net occupancy declined $3.6 million. The positive impacts from these reductions were partially offset by a $6.1 million increase in outside data processing and other services, a $4.6 million seasonal increase in marketing, and a $4.2 million increase in professional services. Of the total noninterest expense, $6.8 million related to the prior quarter’s FDIC-assisted acquisition of Fidelity Bank, of which approximately 40% was one-time in nature and mainly impacted outside data processing and other services and professional services. Of note, noninterest expense included four unrelated items that we believe were one-time in nature that, in total, reduced expenses $6.4 million.

The period end ACL as a percentage of total loans and leases decreased to 2.28%, from 2.37%. The ACL as a percentage of period end NALs decreased to 192% from 206%, as NALs increased $6.6 million, or 1%, to $474.2 million, or 1.19% of total loans and leases. Total NCOs for the 2012 second quarter were $84.2 million, or an annualized 0.82% of average total loans and leases, compared to $83.0 million, or an annualized 0.85%, in the prior quarter.

Our Tier 1 common risk-based capital ratio at June 30, 2012, was 10.08%, down from 10.15% at March 31, 2012, and our tangible common equity ratio increased to 8.41% from 8.33% over this same period. The regulatory Tier 1 risk-based capital ratio at June 30, 2012 was 11.93%, down from 12.22%, at March 31, 2012. This decline reflected an increase in risk-weighted assets due to balance sheet and unfunded commitment growth, as well as the capital actions taken throughout the quarter.

Business Overview

General

Our general business objectives are: (1) grow net interest income and fee income, (2) increase cross-sell and share-of-wallet across all business segments, (3) improve efficiency ratio, (4) continue to strengthen risk management, including sustained improvement in credit metrics, and (5) maintain strong capital and liquidity positions.

The second quarter results clearly showed the benefit of 11.6% annualized growth in consumer checking account households and 11.9% annualized growth in commercial relationships, with both electronic banking and service charges on deposits up over 9%. Not only are we gaining customers, we are selling deeper with 76.0% of consumer checking account households and 32.6% commercial relationships now with 4 or more products or services. A portion of our strategic investments remains in the early stages, such as our in-store strategy. In contrast, others have matured and are adding meaningfully to the bottom line, like our customer focused capital markets activities, which posted a record quarter resulting in 35% linked quarter and 58% year-over-year revenue growth.

 

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Economy

We continue to see positive trends within our Midwest footprint. Relative to the broader United States, parts of the Midwest continue to experience lower levels of unemployment, strength in manufacturing, and more stable home prices.

Generally, our footprint large metropolitan statistical areas (MSA) unemployment rates were below the national average as of April 2012. In addition, our footprint states have continued to be strong export states. For the three-month average ending April 2012, exports from our footprint states were 3.2% greater than the same period last year. By comparison, overall U.S. exports were 2.9% higher. Office vacancy rates in our footprint MSAs were above the national vacancy rate in the prior quarter, but have remained on declining trends, with the exception of Cincinnati.

While our footprint has clearly benefited from certain aspects of this recovery, the United States and global economies continue to experience elevated levels of volatility and uncertainty.

Legislative and Regulatory

Regulatory reforms continue to be adopted which impose additional restrictions on current business practices. A recent action affecting us was the Federal Reserve BASEL III proposal and the capital plans rule.

BASEL III and the Dodd-Frank Act – In June 2012, the FRB, OCC, and FDIC (collectively, the Agencies) each issued Notices of Proposed Rulemaking (NPRs) that would revise and replace the Agencies’ current capital rules to align with the BASEL III capital standards and meet certain requirements of the Dodd-Frank Act. Certain requirements of the proposed NPRs would establish more restrictive capital definitions, higher risk-weightings for certain asset classes, capital buffers and higher minimum capital ratios. The proposed NPRs are in a comment period through September 7, 2012 and subject to further modification by the Agencies. We are currently evaluating the impact of the proposed NPRs on our regulatory capital ratios and estimate a reduction of approximately 150 basis points to our BASEL I Tier I Common risk-based capital ratio based on our existing balance sheet composition. We anticipate that our capital ratios, on a BASEL III basis, would continue to exceed the well-capitalized minimum requirements. For additional discussion, please see BASEL III and the Dodd-Frank Act section within the Capital section.

Capital Plans Rule / Comprehensive Capital Analysis and Review (CCAR) – In November 2011, the Federal Reserve issued its final rule requiring top-tier U.S. bank holding companies with total consolidated assets of $50 billion or more, including us, to submit to an annual capital planning review process. The capital planning review process includes reviews of our internal capital adequacy assessment process and our plans to make capital distributions, such as dividend payments or stock repurchases, as well as a supervisory stress test designed to test our capital adequacy.

During 2011, we participated in the Federal Reserve’s Capital Plan Review (CapPR) process and made our capital plan submission in January 2012. On March 14, 2012, we announced that the Federal Reserve had completed its review of our capital plan submission and did not object to our proposed capital actions. During 2012, we will transition into the Federal Reserve’s more rigorous CCAR or equivalent process, which had previously been required of only the largest 19 bank holding companies.

The Federal Reserve’s objective with CCAR is to ensure that large, systemically important banking institutions have forward-looking, risk tailored capital planning processes that provide reasonable assurance that they will have sufficient capital to remain going concerns in times of economic and financial distress. We are expected to have two year pro forma plans that illustrate that we will have sufficient capital to operate as usual, under adverse conditions, while still meeting certain regulatory capital thresholds.

Annually, the Federal Reserve will issue detailed instructions outlining the information they are requiring from us, as well as the required timeframes. The instructions will include the Federal Reserve’s adverse stress scenario that is required to be used in this exercise and is designed to represent economic conditions that could occur in a prolonged global economic recession. For additional discussion, please see Updates to Risk Factors within the Additional Disclosures section.

Expectations

For the remainder of 2012, average net interest income is expected to show modest improvement from the second quarter level as we anticipate an increase in total loans, excluding the impacts of any future loan securitizations. Those benefits to net interest income are expected to be mostly offset, however, by downward NIM pressure due to the anticipated competitive pressures on loan pricing, as well as lower rate securities through reinvestment, and declining positive impacts from deposit repricing. The C&I portfolio is expected to continue to show meaningful growth. Our sales pipeline remains robust with much of this reflecting the positive impact from strategic initiatives to expand our commercial lending expertise into areas such as specialty banking, asset based lending, and equipment financing. It also reflects our long-standing, continued support of middle market and small business lending. Automobile loan balances are expected to grow from period-end balances. Residential mortgages and home equity loans are expected to be relatively flat as we continue to evaluate the impact of the proposed capital rules recently released by our regulators. CRE loans likely will experience modest levels of declines from current levels.

 

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Excluding potential future automobile loan securitizations, we anticipate the increase in total loans will modestly outpace growth in total deposits. This reflects our heightened focus on our overall cost of funding and the continued shift towards low- and no-cost demand deposits and money market deposit accounts.

Noninterest income is expected to show a modest increase from the 2012 second quarter level after excluding the impacts of any future automobile loan securitization gains and any net MSR impact. This growth is expected to reflect primarily the continued growth in new customers and increased contribution from key fee income activities including capital markets, treasury management services, and brokerage, as well as the continued positive impact of our cross-sell and product penetration initiatives throughout the company.

Noninterest expense continued to run at levels above our long-term expectations relative to revenue. For the full year, we continue to anticipate positive operating leverage and modest improvement in our expense efficiency ratio. This will likely reflect the benefit of revenue growth as we expect expenses could increase slightly. While we will continue our focus on improving expense efficiencies throughout the company, additional regulatory costs and expenses associated with strategic actions, including the planned opening of over 30 in-store branches, may offset some of the improvements. Credit quality is expected to experience continued improvement. The level of provision for credit losses in the first half of the year was at the low end of our long-term expectation, and we expect some quarterly volatility given the absolute low level of provision and the uncertain and uneven nature of the economic recovery.

We anticipate the effective tax rate for 2012 to approximate 24% to 26%, which includes permanent tax benefits primarily related to tax-exempt income, tax-advantaged investments, and general business credits.

 

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DISCUSSION OF RESULTS OF OPERATIONS

This section provides a review of financial performance from a consolidated perspective. It also includes a “Significant Items” section that summarizes key issues important for a complete understanding of performance trends. Key Unaudited Condensed Consolidated Balance Sheet and Unaudited Condensed Statement of Income trends are discussed. All earnings per share data are reported on a diluted basis. For additional insight on financial performance, please read this section in conjunction with the “Business Segment Discussion.”

 

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Table 1 - Selected Quarterly Income Statement Data (1)

 

     2012     2011  

(dollar amounts in thousands, except per share amounts)

   Second     First     Fourth     Third     Second  

Interest income

   $ 487,544     $ 479,937     $ 485,216     $ 490,996     $ 492,137  

Interest expense

     58,582       62,728       70,191       84,518       88,800  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     428,962       417,209       415,025       406,478       403,337  

Provision for credit losses

     36,520       34,406       45,291       43,586       35,797  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for credit losses

     392,442       382,803       369,734       362,892       367,540  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Service charges on deposit accounts

     65,998       60,292       63,324       65,184       60,675  

Trust services

     29,914       30,906       28,775       29,473       30,392  

Electronic banking

     20,514       18,630       18,282       32,901       31,728  

Mortgage banking income

     38,349       46,418       24,098       12,791       23,835  

Brokerage income

     19,025       19,260       18,688       20,349       20,819  

Insurance income

     17,384       18,875       17,906       17,220       16,399  

Bank owned life insurance income

     13,967       13,937       14,271       15,644       17,602  

Capital markets fees

     13,455       9,982       9,811       11,256       8,537  

Gain on sale of loans

     4,131       26,770       2,884       19,097       2,756  

Automobile operating lease income

     2,877       3,775       4,727       5,890       7,307  

Securities gains (losses)

     350       (613     (3,878     (1,350     1,507  

Other income

     27,855       37,088       30,464       30,104       34,210  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest income

     253,819       285,320       229,352       258,559       255,767  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Personnel costs

     243,034       243,498       228,101       226,835       218,570  

Outside data processing and other services

     48,149       42,058       53,422       49,602       43,889  

Net occupancy

     25,474       29,079       26,841       26,967       26,885  

Equipment

     24,872       25,545       25,884       22,262       21,921  

Deposit and other insurance expense

     15,731       20,738       18,481       17,492       23,823  

Marketing

     21,365       16,776       16,379       22,251       20,102  

Professional services

     15,458       11,230       16,769       20,281       20,080  

Amortization of intangibles

     11,940       11,531       13,175       13,387       13,386  

Automobile operating lease expense

     2,183       2,854       3,362       4,386       5,434  

OREO and foreclosure expense

     4,106       4,950       5,009       4,668       4,398  

Gain on early extinguishment of debt

     (2,580     —          (9,697     —          —     

Other expense

     34,537       54,417       32,548       30,987       29,921  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest expense

     444,269       462,676       430,274       439,118       428,409  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     201,992       205,447       168,812       182,333       194,898  

Provision for income taxes

     49,286       52,177       41,954       38,942       48,980  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 152,706     $ 153,270     $ 126,858     $ 143,391     $ 145,918  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Dividends on preferred shares

     7,984       8,049       7,703       7,703       7,704  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income applicable to common shares

   $ 144,722     $ 145,221     $ 119,155     $ 135,688     $ 138,214  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Average common shares—basic

     862,261       864,499       864,136       863,911       863,358  

Average common shares—diluted

     867,551       869,164       868,156       867,633       867,469  

Net income per common share—basic

   $ 0.17     $ 0.17     $ 0.14     $ 0.16     $ 0.16  

Net income per common share—diluted

     0.17       0.17       0.14       0.16       0.16  

Cash dividends declared per common share

     0.04       0.04       0.04       0.04       0.01  

Return on average total assets

     1.10      1.13      0.92      1.05      1.11 

Return on average common shareholders’ equity

     11.1       11.4       9.3       10.8       11.6  

Return on average tangible common shareholders’ equity (2)

     13.1       13.5       11.2       13.0       13.3  

Net interest margin (3)

     3.42       3.40       3.38       3.34       3.40  

Efficiency ratio (4)

     62.8       63.8       64.0       63.5       62.7  

Effective tax rate

     24.4       25.4       24.9       21.4       25.1  

Revenue—FTE

          
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

   $ 428,962     $ 417,209     $ 415,025     $ 406,478     $ 403,337  

FTE adjustment

     5,747       3,935       3,479       3,658       3,834  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income (3)

     434,709       421,144       418,504       410,136       407,171  

Noninterest income

     253,819       285,320       229,352       258,559       255,767  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue (3)

   $ 688,528     $ 706,464     $ 647,856     $ 668,695     $ 662,938  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Comparisons for presented periods are impacted by a number of factors. Refer to Significant Items.

 

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Table of Contents
(2) 

Net income excluding expense for amortization of intangibles for the period divided by average tangible common shareholders’ equity. Average tangible common shareholders’ equity equals average total common shareholders’ equity less average intangible assets and goodwill. Expense for amortization of intangibles and average intangible assets are net of deferred tax liability, and calculated assuming a 35% tax rate.

 

(3) 

On a fully-taxable equivalent (FTE) basis assuming a 35% tax rate.

 

(4) 

Noninterest expense less amortization of intangibles and goodwill impairment divided by the sum of FTE net interest income and noninterest income excluding securities gains (losses).

 

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Table 2 - Selected Year to Date Income Statement Data(1)

 

     Six Months Ended June 30,     Change  

(dollar amounts in thousands, except per share amounts)

   2012     2011     Amount     Percent  

Interest income

   $ 967,481     $ 994,014     $ (26,533     (3 )% 

Interest expense

     121,310       186,347       (65,037     (35
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     846,171       807,667       38,504       5  

Provision for credit losses

     70,926       85,182       (14,256     (17
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for credit losses

     775,245       722,485       52,760       7  
  

 

 

   

 

 

   

 

 

   

 

 

 

Service charges on deposit accounts

     126,290       114,999       11,291       10  

Trust services

     60,820       61,134       (314     (1

Electronic banking

     39,144       60,514       (21,370     (35

Mortgage banking income

     84,767       46,519       38,248       82  

Brokerage income

     38,285       41,330       (3,045     (7

Insurance income

     36,259       34,344       1,915       6  

Bank owned life insurance income

     27,904       32,421       (4,517     (14

Capital markets fees

     23,437       15,473       7,964       51  

Gain on sale of loans

     30,901       9,963       20,938       210  

Automobile operating lease income

     6,652       16,154       (9,502     (59

Securities gains (losses)

     (263     1,547       (1,810     (117

Other income

     64,943       58,314       6,629       11  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest income

     539,139       492,712       46,427       9  
  

 

 

   

 

 

   

 

 

   

 

 

 

Personnel costs

     486,532       437,598       48,934       11  

Outside data processing and other services

     90,207       84,171       6,036       7  

Net occupancy

     54,553       55,321       (768     (1

Equipment

     50,417       44,398       6,019       14  

Deposit and other insurance expense

     36,469       41,719       (5,250     (13

Marketing

     38,141       36,997       1,144       3  

Professional services

     26,688       33,545       (6,857     (20

Amortization of intangibles

     23,471       26,756       (3,285     (12

Automobile operating lease expense

     5,037       12,270       (7,233     (59

OREO and foreclosure expense

     9,056       8,329       727       9  

Gain on early extinguishment of debt

     (2,580     —          (2,580     —     

Other expense

     88,954       78,004       10,950       14  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest expense

     906,945       859,108       47,837       6  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     407,439       356,089       51,350       14  

Provision for income taxes

     101,463       83,725       17,738       21  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 305,976     $ 272,364     $ 33,612       12 
  

 

 

   

 

 

   

 

 

   

 

 

 

Dividends declared on preferred shares

     16,033       15,407       626       4  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income applicable to common shares

   $ 289,943     $ 256,957     $ 32,986       13 
  

 

 

   

 

 

   

 

 

   

 

 

 

Average common shares—basic

     863,380       863,358       22       —  

Average common shares—diluted (2)

     868,357       867,353       1,004       —     

Per common share

        

Net income per common share - basic

   $ 0.34     $ 0.30     $ 0.04       13 

Net income per common share - diluted

     0.33       0.30       0.03       10  

Cash dividends declared

     0.08       0.02       0.06       300  

Return on average total assets

     1.11      1.03      0.08     

Return on average common shareholders’ equity

     11.3       11.0       0.3       3  

Return on average tangible common shareholders’ equity (3)

     13.3       13.4       (0.1     (1

Net interest margin (4)

     3.41       3.41       —          —     

Efficiency ratio (5)

     63.3       63.7       (0.4     (1

Effective tax rate

     24.9       23.5       1.4       6  

Revenue—FTE

        

Net interest income

   $ 846,171     $ 807,667     $ 38,504      

FTE adjustment

     9,682       7,779       1,903       24  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income (4)

     855,853       815,446       40,407       5  

Noninterest income

     539,139       492,712       46,427       9  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue (4)

   $ 1,394,992     $ 1,308,158     $ 86,834      
  

 

 

   

 

 

   

 

 

   

 

 

 

 

13


Table of Contents
(1) 

Comparisons for presented periods are impacted by a number of factors. Refer to Significant Items.

(2) 

For all periods presented, the impact of the preferred stock issued in 2008 and the warrants issued to the U.S. Department of the Treasury in 2008 related to Huntington’s participation in the voluntary Capital Purchase Program was excluded from the diluted share calculation because the result was more than basic earnings per common share (anti-dilutive) for the periods. The preferred stock and warrants were repurchased in December 2010 and January 2011, respectively.

(3) 

Net income excluding expense for amortization of intangibles for the period divided by average tangible common shareholders’ equity. Average tangible common shareholders’ equity equals average total common shareholders’ equity less average intangible assets and goodwill. Expense for amortization of intangibles and average intangible assets are net of deferred tax liability, and calculated assuming a 35% tax rate.

(4) 

On a fully-taxable equivalent (FTE) basis assuming a 35% tax rate.

(5) 

Noninterest expense less amortization of intangibles and goodwill impairment divided by the sum of FTE net interest income and noninterest income excluding securities gains (losses).

Significant Items

Definition of Significant Items

From time-to-time, revenue, expenses, or taxes, are impacted by items judged by us to be outside of ordinary banking activities and / or by items that, while they may be associated with ordinary banking activities, are so unusually large that their outsized impact is believed by us at that time to be infrequent or short-term in nature. We refer to such items as Significant Items. Most often, these Significant Items result from factors originating outside the company; e.g., regulatory actions / assessments, windfall gains, changes in accounting principles, one-time tax assessments / refunds, litigation actions, etc. In other cases, they may result from our decisions associated with significant corporate actions outside of the ordinary course of business; e.g., merger / restructuring charges, recapitalization actions, goodwill impairment, etc.

Even though certain revenue and expense items are naturally subject to more volatility than others due to changes in market and economic environment conditions, as a general rule volatility alone does not define a Significant Item. For example, changes in the provision for credit losses, gains / losses from investment activities, asset valuation writedowns, etc., reflect ordinary banking activities and are, therefore, typically excluded from consideration as a Significant Item.

We believe the disclosure of Significant Items provides a better understanding of our performance and trends to ascertain which of such items, if any, to include or exclude from an analysis of our performance; i.e., within the context of determining how that performance differed from expectations, as well as how, if at all, to adjust estimates of future performance accordingly. To this end, we adopted a practice of listing Significant Items in our external disclosure documents; e.g., earnings press releases, investor presentations, Forms 10-Q and 10-K.

Significant Items for any particular period are not intended to be a complete list of items that may materially impact current or future period performance.

Significant Items Influencing Financial Performance Comparisons

There were not any Significant Items for the current quarter. Earnings comparisons were impacted by the Significant Items summarized below.

 

1. Litigation Reserve. $23.5 million and $17.0 million of additions to litigation reserves were recorded as other noninterest expense in the first quarter of 2012 and 2011, respectively. This resulted in a negative impact of $0.02 per common share in 2012 and $0.01 per common share in 2011 for both quarterly and year-to-date basis.
2. Bargain Purchase Gain. During the 2012 first quarter, an $11.4 million bargain purchase gain associated with the FDIC-assisted Fidelity Bank acquisition was recorded in noninterest income. This resulted in a positive impact of $0.01 per common share for both the quarterly and year-to-date basis.

 

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The following table reflects the earnings impact of the above-mentioned Significant Items for periods affected by this Results of Operations discussion:

Table 3 - Significant Items Influencing Earnings Performance Comparison

 

     Three Months Ended  
     June 30, 2012     March 31, 2012     June 30, 2011  

(dollar amounts in thousands, except per share amounts)

   After-tax      EPS (2)     After-tax     EPS (2)     After-tax      EPS (2)  

Net income—GAAP

   $ 152,706        $ 153,270       $ 145,918     

Earnings per share, after—tax

      $ 0.17       $ 0.17        $ 0.16  

Change from prior quarter—$

        —            0.03          0.02  

Change from prior quarter—%

        —         21         14 

Change from year-ago—$

      $ 0.01       $ 0.03        $ 0.13  

Change from year-ago—%

              21         433 

Significant Items—favorable (unfavorable) impact:

   Earnings (1)      EPS (2)     Earnings (1)     EPS (2)     Earnings (1)      EPS (2)  

Bargain purchase gain

   $ —         $ —        $ 11,409     $ 0.01     $ —         $ —     

Litigation reserves addition

     —           —          (23,500     (0.02     —           —     

 

     Six Months Ended  
     June 30, 2012     June 30, 2011  

(dollar amounts in thousands)

   After-tax     EPS (2)     After-tax     EPS (2)  

Net income

   $ 305,976       $ 272,364    

Earnings per share, after—tax

     $ 0.33       $ 0.30  

Change from a year-ago—$

       0.03         0.26  

Change from a year-ago—%

       10        650 

Significant Items—favorable (unfavorable) impact:

   Earnings (1)     EPS (2)     Earnings (1)     EPS (2)  

Bargain purchase gain

   $ 11,409     $ 0.01     $ —        $ —     

Litigation reserves addition

     (23,500     (0.02     (17,028     (0.01

 

(1) Pretax unless otherwise noted.
(2) After-tax.

 

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Net Interest Income / Average Balance Sheet

The following tables detail the change in our average balance sheet and the net interest margin:

Table 4 - Consolidated Quarterly Average Balance Sheets

 

     Average Balances  
     2012     2011  

(dollar amounts in millions)

   Second     First     Fourth     Third     Second  

Assets

          

Interest-bearing deposits in banks

   $ 124     $ 100     $ 107     $ 164     $ 131  

Trading account securities

     54       50       81       92       112  

Federal funds sold and securities purchased under resale agreement

     —          —          —          —          21  

Loans held for sale

     410       1,265       316       237       181  

Available-for-sale and other securities:

          

Taxable

     8,285       8,171       8,065       7,902       8,428  

Tax-exempt

     387       404       409       421       436  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total available-for-sale and other securities

     8,672       8,575       8,474       8,323       8,864  

Held-to-maturity securities—taxable

     611       632       650       665       174  

Loans and leases: (1)

          

Commercial:

          

Commercial and industrial

     16,094       14,824       14,219       13,664       13,370  

Commercial real estate:

          

Construction

     584       598       533       670       554  

Commercial

     5,491       5,254       5,425       5,441       5,679  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial real estate

     6,075       5,852       5,958       6,111       6,233  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial

     22,169       20,676       20,177       19,775       19,603  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consumer:

          

Automobile

     4,985       4,576       5,639       6,211       5,954  

Home equity

     8,310       8,234       8,149       8,002       7,874  

Residential mortgage

     5,253       5,174       5,043       4,788       4,566  

Other consumer

     462       485       511       521       538  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer

     19,010       18,469       19,342       19,522       18,932  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans and leases

     41,179       39,145       39,519       39,297       38,535  

Allowance for loan and lease losses

     (908     (961     (1,014     (1,066     (1,128
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loans and leases

     40,271       38,184       38,505       38,231       37,407  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total earning assets

     51,050       49,767       49,147       48,778       48,018  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and due from banks

     928       1,012       1,671       1,700       1,068  

Intangible assets

     609       613       625       639       652  

All other assets

     4,158       4,225       4,221       4,142       4,160  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 55,837     $ 54,656     $ 54,650     $ 54,193     $ 52,770  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

          

Deposits:

          

Demand deposits—noninterest-bearing

   $ 12,064     $ 11,273     $ 10,716     $ 8,719     $ 7,806  

Demand deposits—interest-bearing

     5,939       5,646       5,570       5,573       5,565  

Money market deposits

     13,182       13,141       13,594       13,321       12,879  

Savings and other domestic deposits

     4,978       4,817       4,706       4,752       4,778  

Core certificates of deposit

     6,618       6,510       6,769       7,592       8,079  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total core deposits

     42,781       41,387       41,355       39,957       39,107  

Other domestic time deposits of $250,000 or more

     298       347       405       387       467  

Brokered deposits and negotiable CDs

     1,421       1,301       1,410       1,533       1,333  

Deposits in foreign offices

     357       430       434       401       347  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total deposits

     44,857       43,465       43,604       42,278       41,254  

Short-term borrowings

     1,391       1,512       1,728       2,251       2,112  

Federal Home Loan Bank advances

     626       419       29       285       97  

Subordinated notes and other long-term debt

     2,251       2,652       2,866       3,030       3,249  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest-bearing liabilities

     37,061       36,775       37,511       39,125       38,906  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

All other liabilities

     1,094       1,116       978       1,017       913  

Shareholders’ equity

     5,618       5,492       5,445       5,332       5,145  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 55,837     $ 54,656     $ 54,650     $ 54,193     $ 52,770  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) For purposes of this analysis, NALs are reflected in the average balances of loans.

 

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Table of Contents

Table 5 - Consolidated Quarterly Net Interest Margin Analysis

 

 
      Average Rates (2)  
     2012     2011  

Fully-taxable equivalent basis (1)

   Second     First     Fourth     Third     Second  

Assets

          

Interest-bearing deposits in banks

     0.31      0.05      0.06      0.04      0.22 

Trading account securities

     1.64       1.65       0.97       1.41       1.59  

Federal funds sold and securities purchased under resale agreement

     —          —          —          —          0.09  

Loans held for sale

     3.46       3.80       3.96       4.46       4.97  

Available-for-sale and other securities:

          

Taxable

     2.33       2.39       2.37       2.43       2.59  

Tax-exempt

     4.23       4.17       4.22       4.17       4.02  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total available-for-sale and other securities

     2.41       2.47       2.46       2.52       2.66  

Held-to-maturity securities—taxable

     2.97       2.98       2.99       3.04       2.96  

Loans and leases: (3)

          

Commercial:

          

Commercial and industrial

     3.99       4.01       4.01       4.13       4.31  

Commercial real estate:

          

Construction

     3.66       3.85       4.78       3.87       3.37  

Commercial

     3.93       3.82       3.91       3.91       3.90  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial real estate

     3.89       3.82       3.99       3.91       3.84  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial

     3.97       3.96       4.01       4.06       4.16  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consumer:

          

Automobile

     4.68       4.87       4.80       4.89       5.06  

Home equity

     4.30       4.30       4.41       4.45       4.49  

Residential mortgage

     4.14       4.17       4.30       4.47       4.62  

Other consumer

     7.42       7.47       7.32       7.57       7.76  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer

     4.43       4.49       4.57       4.68       4.79  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans and leases

     4.18       4.21       4.28       4.37       4.47  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total earning assets

     3.89      3.91      3.95      4.02      4.14 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

          

Deposits:

          

Demand deposits—noninterest-bearing

     —       —       —       —       —  

Demand deposits—interest-bearing

     0.07       0.06       0.08       0.10       0.09  

Money market deposits

     0.30       0.26       0.32       0.41       0.40  

Savings and other domestic deposits

     0.39       0.45       0.52       0.69       0.74  

Core certificates of deposit

     1.38       1.60       1.69       1.95       2.04  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total core deposits

     0.50       0.54       0.61       0.77       0.82  

Other domestic time deposits of $250,000 or more

     0.66       0.68       0.78       0.93       1.01  

Brokered deposits and negotiable CDs

     0.75       0.79       0.77       0.77       0.89  

Deposits in foreign offices

     0.19       0.18       0.19       0.26       0.26  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total deposits

     0.51       0.55       0.61       0.77       0.82  

Short-term borrowings

     0.16       0.16       0.18       0.16       0.16  

Federal Home Loan Bank advances

     0.21       0.21       2.09       0.32       0.88  

Subordinated notes and other long-term debt

     2.83       2.74       2.56       2.43       2.39  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest-bearing liabilities

     0.63      0.68      0.74      0.86      0.91 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest rate spread

     3.18      3.15      3.15      3.11      3.19 

Impact of noninterest-bearing funds on margin

     0.25       0.25       0.23       0.22       0.21  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest margin

     3.42      3.40      3.38      3.34      3.40 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) FTE yields are calculated assuming a 35% tax rate.
(2) Loan and lease and deposit average rates include impact of applicable derivatives, non-deferrable fees, and amortized deferred fees.
(3) For purposes of this analysis, NALs are reflected in the average balances of loans.

 

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Table 6 - Average Loans/Leases and Deposits

 

     Second Quarter      First Quarter      2Q12 vs 2Q11     2Q12 vs 1Q12  

(dollar amounts in millions)

   2012      2011      2012      Amount     Percent     Amount     Percent  

Loans/Leases:

                 

Commercial and industrial

   $ 16,094      $ 13,370      $ 14,824      $ 2,724       20   $ 1,270       9

Commercial real estate

     6,075        6,233        5,852        (158     (3     223       4  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial

     22,169        19,603        20,676        2,566       13       1,493       7  

Automobile

     4,985        5,954        4,576        (969     (16     409       9  

Home equity

     8,310        7,874        8,234        436       6       76       1  

Residential mortgage

     5,253        4,566        5,174        687       15       79       2  

Other loans

     462        538        485        (76     (14     (23     (5
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer

     19,010        18,932        18,469        78       —          541       3  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total loans and leases

   $ 41,179      $ 38,535      $ 39,145      $ 2,644       7   $ 2,034       5
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Deposits:

                 

Demand deposits—noninterest-bearing

   $ 12,064      $ 7,806      $ 11,273      $ 4,258       55   $ 791       7

Demand deposits—interest-bearing

     5,939        5,565        5,646        374       7       293       5  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total demand deposits

     18,003        13,371        16,919        4,632       35       1,084       6  

Money market deposits

     13,182        12,879        13,141        303       2       41       —     

Savings and other domestic time deposits

     4,978        4,778        4,817        200       4       161       3  

Core certificates of deposit

     6,618        8,079        6,510        (1,461     (18     108       2  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total core deposits

     42,781        39,107        41,387        3,674       9       1,394       3  

Other deposits

     2,076        2,147        2,078        (71     (3     (2     (0
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total deposits

   $ 44,857      $ 41,254      $ 43,465      $ 3,603       9   $ 1,392       3
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

2012 Second Quarter versus 2011 Second Quarter

Fully-taxable equivalent net interest income increased $27.5 million, or 7%, from the year-ago quarter. This reflected a $3.0 billion, or 6%, increase in average total earning assets and a 2 basis point increase in the FTE net interest margin. The increase in average earning assets reflected:

 

   

$2.6 billion, or 7%, increase in average total loans and leases.

 

   

$0.4 billion, or 251%, increase in average held-to-maturity securities.

 

   

$0.2 billion, 127%, increase in average loans held for sale.

Partially offset by:

 

   

$0.2 billion, or 2%, decrease in average total available-for-sale and other securities.

The 2 basis point increase in the FTE net interest margin reflected the 28 basis point positive impact from the reduction in the cost of average total interest-bearing liabilities, partially offset by a 25 basis point negative impact from lower earning asset yields and a shift to lower-yield, higher quality credits and other items.

The $2.6 billion, or 7%, increase in average total loans and leases primarily reflected:

 

   

$2.7 billion, or 20%, growth in the average C&I portfolio primarily reflecting a combination of factors, including the benefits from our strategic initiatives focusing on equipment finance and large corporate. In addition, we continued to see strong growth in more traditional middle-market and business banking loans. This growth was evident despite line utilization rates that remained well below historical norms.

 

   

$0.7 billion, or 15%, increase in average residential mortgages reflecting a purposeful decision to sell a lower percentage of mortgages during the second half of 2011.

 

   

$0.4 billion, or 6%, increase in average home equity loans with over 70% of new originations in 2012 in a first lien position.

 

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Partially offset by:

 

   

$1.0 billion, or 16%, decrease in the average automobile portfolio. This reflected the impact of our continued program of the securitization and sale of such loans. Specifically, $1.0 billion in the 2011 third quarter and $1.3 billion in the 2012 first quarter. While not impacting averages, $1.3 billion of automobile loans was reclassified to loans held for sale at the end of the current quarter in preparation for an expected securitization in the second half of 2012.

The $3.6 billion, or 9%, increase in average total deposits from the year-ago quarter reflected:

 

   

$3.7 billion, or 9%, growth in average total core deposits. The drivers of this change were a $4.6 billion, or 35%, growth in average total demand deposits and more modest growth in both money market deposits and savings and other domestic deposits, partially offset by $1.5 billion, or 18%, decline in average core certificates of deposit.

2012 Second Quarter versus 2012 First Quarter

Fully-taxable equivalent net interest income increased $13.6 million, or 3%, from the 2012 first quarter. This reflected the combined positive impacts of a $1.3 billion, or 3%, increase in average earning assets and a 2 basis point increase in the FTE net interest margin. The increase in average earnings assets reflected a $2.0 billion, or 5%, increase in average total loans and leases, partially offset by a $0.8 billion decline in average loans held for sale, reflecting last quarter’s $1.3 billion automobile loan securitization and sale. The primary item impacting the increase in the FTE net interest margin was:

 

   

5 basis point positive impact from the reduction in the cost of average total interest bearing liabilities, as well as 7% growth in average noninterest bearing deposits.

Partially offset by:

 

   

3 basis point negative impact from lower earning asset yields and a shift to lower-yield, higher quality credits and other items.

The acquisition of Fidelity Bank at the end of the prior quarter had a 2 basis point positive impact to the FTE net interest margin, and the current quarter’s redemption of two issuances of trust preferred securities had a 1 basis point positive impact.

The $2.0 billion, or 5%, increase in average total loans and leases from the 2012 first quarter reflected:

 

   

$1.3 billion, or 9%, growth in average total C&I loans. This reflected the continued elevated level of activity from multiple business lines including middle market and equipment finance, as well as the full quarter impact of the Fidelity Bank related loans.

 

   

$0.4 billion, or 9%, growth in average automobile loans. Automobile loan originations were more than $1.1 billion. At the end of the quarter, $1.3 billion of automobile loans were reclassified to loans held for sale in preparation of a securitization in the second half of 2012.

 

   

$0.2 billion, or 4%, growth in average CRE loans. This reflected the full quarter impact of the Fidelity Bank related loans partially offset by continued runoff of the noncore portfolio.

The $1.4 billion, or 3%, increase in average total deposits from the 2012 first quarter reflected:

 

   

$1.1 billion, or 6%, increase in average total demand deposits.

 

   

$0.2 billion, or 3%, increase in average savings and other domestic time deposits.

 

   

$0.1 billion, or 2%, increase in core certificates of deposit.

The acquisition of Fidelity Bank at the end of the prior quarter contributed $0.5 billion to average total loans and $0.7 billion to average total deposits in the current quarter.

 

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Table 7 - Consolidated YTD Average Balance Sheets and Net Interest Margin Analysis

 

     YTD Average Balances     YTD Average Rates (2)  
Fully-taxable equivalent basis (1)    Six Months Ended June 30,     Change     Six Months Ended June 30,  

(dollar amounts in millions)

   2012     2011     Amount     Percent     2012     2011  

Assets

            

Interest-bearing deposits in banks

   $ 112     $ 130     $ (18     (14 )%      0.19      0.17

Trading account securities

     52       128       (76     (59     1.65       1.47  

Federal funds sold and securities purchased under resale agreement

     —          11       (11     (100     0.29       0.09  

Loans held for sale

     837       300       537       179       3.71       4.36  

Available-for-sale and other securities:

            

Taxable

     8,228       8,766       (538     (6     2.36       2.56  

Tax-exempt

     396       441       (45     (10     4.20       4.37  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total available-for-sale and other securities

     8,624       9,207       (583     (6     2.44       2.65  

Held-to-maturity securities—taxable

     622       87       535       615       2.98       2.95  

Loans and leases: (3)

            

Commercial:

            

Commercial and industrial

     15,458       13,246       2,212       17       4.00       4.44  

Commercial real estate:

            

Construction

     591       582       9       2       3.76       3.37  

Commercial

     5,373       5,795       (422     (7     3.88       3.91  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial real estate

     5,964       6,377       (413     (6     3.87       3.86  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial

     21,422       19,623       1,799       9       3.96       4.25  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consumer:

            

Automobile

     4,781       5,829       (1,048     (18     4.77       5.14  

Home equity

     8,272       7,801       471       6       4.30       4.51  

Residential mortgage

     5,214       4,516       698       15       4.15       4.69  

Other consumer

     473       548       (75     (14     7.44       7.80  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer

     18,740       18,694       46       —          4.46       4.85  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans and leases

     40,162       38,317       1,845       5       4.20       4.54  
          

 

 

   

 

 

 

Allowance for loan and lease losses

     (934     (1,179     245       (21    
  

 

 

   

 

 

   

 

 

   

 

 

     

Net loans and leases

     39,228       37,138       2,090       6      
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total earning assets

     50,409       48,180       2,229       5       3.90     4.19
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and due from banks

     970       1,183       (213     (18    

Intangible assets

     611       659       (48     (7    

All other assets

     4,191       4,224       (33     (1    
  

 

 

   

 

 

   

 

 

   

 

 

     

Total assets

   $ 55,247     $ 53,067     $ 2,180          
  

 

 

   

 

 

   

 

 

   

 

 

     

Liabilities and Shareholders’ Equity

            

Deposits:

            

Demand deposits—noninterest-bearing

   $ 11,668     $ 7,571     $ 4,097       54     —       —  

Demand deposits—interest-bearing

     5,792       5,462       330       6       0.06       0.09  

Money market deposits

     13,162       13,184       (22     —          0.28       0.45  

Savings and other domestic deposits

     4,898       4,740       158       3       0.42       0.78  

Core certificates of deposit

     6,564       8,234       (1,670     (20     1.49       2.05  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total core deposits

     42,084       39,191       2,893       7       0.52       0.86  

Other domestic time deposits of $250,000 or more

     323       536       (213     (40     0.67       1.05  

Brokered deposits and negotiable CDs

     1,361       1,372       (11     (1     0.77       1.00  

Deposits in foreign offices

     393       360       33       9       0.19       0.23  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total deposits

     44,161       41,459       2,702       7       0.53       0.86  

Short-term borrowings

     1,451       2,123       (672     (32     0.16       0.17  

Federal Home Loan Bank advances

     523       63       460       730       0.21       1.36  

Subordinated notes and other long-term debt

     2,452       3,386       (934     (28     2.78       2.36  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest-bearing liabilities

     36,919       39,460       (2,541     (6     0.66       0.95  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

All other liabilities

     1,105       952       153       16      

Shareholders’ equity

     5,555       5,084       471       9      
  

 

 

   

 

 

   

 

 

   

 

 

     

Total liabilities and shareholders’ equity

   $ 55,247     $ 53,067     $ 2,180       4    
  

 

 

   

 

 

   

 

 

   

 

 

     

Net interest rate spread

             3.16       3.20  

Impact of noninterest-bearing funds on margin

             0.25       0.21  
          

 

 

   

 

 

 

Net interest margin

             3.41     3.41
          

 

 

   

 

 

 

 

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(1) FTE yields are calculated assuming a 35% tax rate.
(2) Loan, lease, and deposit average rates include the impact of applicable derivatives, non-deferrable fees, and amortized deferred fees.
(3) For purposes of this analysis, nonaccrual loans are reflected in the average balances of loans.

2012 First Six Months versus 2011 First Six Months

Fully-taxable equivalent net interest income for the first six-month period of 2012 increased $40.4 million, or 5%, from the comparable year-ago period. This reflected the benefit of a 5% increase in average total earning assets. The fully-taxable equivalent net interest margin was unchanged at 3.41%. The increase in average earning assets reflected a combination of factors including:

 

   

$1.8 billion, or 5%, increase in average total loans and leases.

 

   

$0.5 billion, or 179%, increase in average loans held for sale.

 

   

$0.5 billion, or 615%, increase in average held-to-maturity securities.

Partially offset by:

 

   

$0.6 billion, or 6%, decline in average total available-for-sale and other securities.

The following table details the change in our reported loans and deposits:

Table 8 - Average Loans/Leases and Deposits - 2012 First Six Months vs. 2011 First Six Months

 

     Six Months Ended June 30,      Change  

(dollar amounts in millions)

   2012      2011      Amount     Percent  

Loans/Leases:

          

Commercial and industrial

   $ 15,458      $ 13,246      $ 2,212       17 

Commercial real estate

     5,964        6,377        (413     (6
  

 

 

    

 

 

    

 

 

   

 

 

 

Total commercial

     21,422        19,623        1,799       9  

Automobile

     4,781        5,829        (1,048     (18

Home equity

     8,272        7,801        471       6  

Residential mortgage

     5,214        4,516        698       15  

Other consumer

     473        548        (75     (14
  

 

 

    

 

 

    

 

 

   

 

 

 

Total consumer

     18,740        18,694        46       —     
  

 

 

    

 

 

    

 

 

   

 

 

 

Total loans and leases

   $ 40,162      $ 38,317      $ 1,845      
  

 

 

    

 

 

    

 

 

   

 

 

 

Deposits:

          

Demand deposits—noninterest-bearing

   $ 11,668      $ 7,571      $ 4,097       54 

Demand deposits—interest-bearing

     5,792        5,462        330       6  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total demand deposits

     17,460        13,033        4,427       34  

Money market deposits

     13,162        13,184        (22     —     

Savings and other domestic deposits

     4,898        4,740        158       3  

Core certificates of deposit

     6,564        8,234        (1,670     (20
  

 

 

    

 

 

    

 

 

   

 

 

 

Total core deposits

     42,084        39,191        2,893       7  

Other deposits

     2,077        2,268        (191     (8
  

 

 

    

 

 

    

 

 

   

 

 

 

Total deposits

   $ 44,161      $ 41,459      $ 2,702      
  

 

 

    

 

 

    

 

 

   

 

 

 

The $1.8 billion, or 5%, increase in average total loans and leases primarily reflected:

 

   

$2.2 billion, or 17%, increase in the average C&I portfolio, primarily reflecting a combination of factors, including the benefits from our strategic initiatives focusing on equipment finance and large corporate. In addition, we continued to see strong growth in more traditional middle-market and business banking loans. This growth was evident despite line utilization rates that remained well below historical norms.

 

   

$0.7 billion, or 15%, increase in the average residential mortgage portfolio, primarily reflecting a purposeful decision to sell a lower percentage of mortgages in the secondary market during the second half of 2011.

 

   

$0.5 billion, or 6%, increase in the average home equity portfolio with over 70% of new originations in 2012 in a first-lien position.

 

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Partially offset by:

 

   

$1.0 billion, or 18%, decline in the average automobile portfolio. This reflected the impact of our continued program of the securitization and sale of such loans. Specifically, $1.0 billion in the 2011 third quarter and $1.3 billion in the 2012 first quarter.

 

   

$0.4 billion, or 6%, decline in the average CRE portfolio, primarily reflecting the continued execution of our plan to reduce the total CRE exposure, primarily in the noncore CRE portfolio. Declines were partially offset by additions to the core CRE portfolio associated with the FDIC-assisted acquisition of Fidelity Bank.

The $2.7 billion, or 7%, increase in average total deposits reflected:

 

   

$4.4 billion, or 34%, increase in demand deposits reflecting an improved deposit mix as a result of growing total number of consumer checking account households as well as our treasury management and OCR focus on growing commercial demand deposits.

Partially offset by:

 

   

$1.7 billion, or 20%, decline in core certificates of deposits.

 

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Provision for Credit Losses

(This section should be read in conjunction with the Credit Risk section.)

The provision for credit losses is the expense necessary to maintain the ALLL and the AULC at levels appropriate to absorb our estimate of inherent credit losses in the loan and lease portfolio and the portfolio of unfunded loan commitments and letters-of-credit.

The provision for credit losses for the 2012 second quarter was $36.5 million, an increase of $2.1 million, or 6%, from the prior quarter, and $0.7 million, or 2%, from the year-ago quarter. The current quarter’s provision for credit losses was $47.7 million less than total NCOs and the provision for credit losses for the first six-month period of 2012 was $96.3 million less than total NCOs. The level of provision for credit losses in the first half of 2012 was at the lower end of our long-term expectation. Some quarter-to-quarter volatility is expected given the absolute low level of the provision for credit losses and the uncertain and uneven nature of the economic recovery. (See Credit Quality discussion).

Noninterest Income

(This section should be read in conjunction with Significant Item 2.)

The following table reflects noninterest income for each of the past five quarters:

Table 9 - Noninterest Income

 

     2012     2011      2Q12 vs 2Q11     2Q12 vs 1Q12  

(dollar amounts in thousands)

   Second      First     Fourth     Third     Second      Amount     Percent     Amount     Percent  

Service charges on deposit accounts

   $ 65,998      $ 60,292     $ 63,324     $ 65,184     $ 60,675      $ 5,323         $ 5,706      

Trust services

     29,914        30,906       28,775       29,473       30,392        (478     (2     (992     (3

Electronic banking

     20,514        18,630       18,282       32,901       31,728        (11,214     (35     1,884       10  

Mortgage banking income

     38,349        46,418       24,098       12,791       23,835        14,514       61       (8,069     (17

Brokerage income

     19,025        19,260       18,688       20,349       20,819        (1,794     (9     (235     (1

Insurance income

     17,384        18,875       17,906       17,220       16,399        985       6       (1,491     (8

Bank owned life insurance income

     13,967        13,937       14,271       15,644       17,602        (3,635     (21     30       —     

Capital markets fees

     13,455        9,982       9,811       11,256       8,537        4,918       58       3,473       35  

Gain on sale of loans

     4,131        26,770       2,884       19,097       2,756        1,375       50       (22,639     (85

Automobile operating lease income

     2,877        3,775       4,727       5,890       7,307        (4,430     (61     (898     (24

Securities gains (losses)

     350        (613     (3,878     (1,350     1,507        (1,157     (77     963       (157

Other income

     27,855        37,088       30,464       30,104       34,210        (6,355     (19     (9,233     (25
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest income

   $ 253,819      $ 285,320     $ 229,352     $ 258,559     $ 255,767      $ (1,948     (1 )%    $ (31,501     (11 )% 
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

2012 Second Quarter versus 2011 Second Quarter

The $1.9 million, or 1%, decrease in total noninterest income from the year-ago quarter reflected:

 

   

$11.2 million, or 35%, decline in electronic banking income related to implementing the lower debit card interchange fee structure mandated in the Durbin Amendment of the Dodd-Frank Act.

 

   

$6.4 million, or 19%, decrease in other income, as the prior year-ago quarter reflected an increased value in a loan servicing asset.

 

   

$4.4 million, or 61%, decline in automobile operating lease income, reflecting the impact of a declining portfolio as a result of having exited that business in 2008.

 

   

$3.6 million, or 21%, decline in bank owned life insurance income.

Partially offset by:

 

   

$14.5 million, or 61%, increase in mortgage banking income. This primarily reflected an $18.7 million increase in origination and secondary marketing income. Also impacting the year-over-year comparison was a $0.8 million net MSR hedging gain in the current quarter compared to a net MSR hedging gain of $4.7 million in the year-ago quarter.

 

   

$5.3 million, or 9%, increase in service charges on deposits, primarily reflecting continued strong customer growth.

 

   

$4.9 million, or 58%, increase in capital markets fees reflecting strong customer demand for interest rate protection and other risk management products.

 

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2012 Second Quarter versus 2012 First Quarter

The $31.5 million, or 11%, decrease in total noninterest income from the prior quarter reflected:

 

   

$22.6 million, or 85%, decline in gain on sale of loans, as the previous quarter included a $23.0 million automobile loan securitization gain.

 

   

$9.2 million, or 25%, decline in other income, reflecting the prior quarter’s $11.4 million bargain purchase gain associated with the FDIC-assisted Fidelity Bank acquisition.

 

   

$8.1 million, or 17%, decline in mortgage banking income. This primarily reflected a $6.8 million decline in net MSR hedging gains, and a $1.1 million decline in origination and secondary marketing income.

Partially offset by:

 

   

$5.7 million, or 9%, increase in service charges on deposit accounts, reflecting continued growth in consumer households and business relationships.

 

   

$3.5 million, or 35%, increase in capital market fees, primarily reflecting strong customer demand for interest rate protection and other risk management products.

2012 First Six Months versus 2011 First Six Months

Noninterest income for the first six-month period of 2012 increased $46.4 million, or 9%, from the comparable year-ago period.

Table 10 - Noninterest Income - 2012 First Six Months vs. 2011 First Six Months

 

     Six Months Ended June 30,      Change  

(dollar amounts in thousands)

   2012     2011      Amount     Percent  

Service charges on deposit accounts

   $ 126,290     $ 114,999      $ 11,291       10 

Trust services

     60,820       61,134        (314     (1

Electronic banking

     39,144       60,514        (21,370     (35

Mortgage banking income

     84,767       46,519        38,248       82  

Brokerage income

     38,285       41,330        (3,045     (7

Insurance income

     36,259       34,344        1,915       6  

Bank owned life insurance income

     27,904       32,421        (4,517     (14

Capital markets fees

     23,437       15,473        7,964       51  

Gain on sale of loans

     30,901       9,963        20,938       210  

Automobile operating lease income

     6,652       16,154        (9,502     (59

Securities gains (losses)

     (263     1,547        (1,810     (117

Other income

     64,943       58,314        6,629       11  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total noninterest income

   $ 539,139     $ 492,712      $ 46,427      
  

 

 

   

 

 

    

 

 

   

 

 

 

The $46.4 million, or 9%, increase in total noninterest income reflected:

 

   

$38.2 million, or 82%, increase in mortgage banking income. This primarily reflected a $30.2 million increase in origination and secondary marketing income as originations increased 33% from the year-ago period, and a $7.2 million increase in MSR net hedging income.

 

   

$20.9 million, or 210%, increase in gain on sale of loans, as the current year-to-date period included a $23.0 million automobile loan securitization gain.

 

   

$11.3 million, or 10%, increase in service charges of deposit account, primarily reflecting continued strong customer growth.

 

   

$8.0 million, or 51%, increase in capital market fees, primarily reflecting strong customer demand for derivatives and other risk management products.

 

   

$6.6 million, or 11%, increase in other income, primarily reflecting the $11.4 million bargain purchase gain in the current year-to-date period associated with the FDIC-assisted Fidelity Bank acquisition, partially offset by the impacts related to an increased value in a loan servicing asset.

 

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Partially offset by:

 

   

$21.4 million, or 35%, decline in electronic banking income, primarily reflecting the implementation of the lower debit card interchange fee structure mandated in the Durbin Amendment of the Dodd-Frank Act.

 

   

$9.5 million, or 59%, decline in automobile operating lease expense primarily reflecting the impact of a declining portfolio as a result of having exited that business in 2008.

Noninterest Expense

(This section should be read in conjunction with Significant Item 1.)

The following table reflects noninterest expense for each of the past five quarters:

Table 11 - Noninterest Expense

 

     2012      2011      2Q12 vs 2Q11     2Q12 vs 1Q12  

(dollar amounts in thousands)

   Second     First      Fourth     Third      Second      Amount     Percent     Amount     Percent  

Personnel costs

   $ 243,034     $ 243,498      $ 228,101     $ 226,835      $ 218,570      $ 24,464       11    $ (464     (0 )% 

Outside data processing and other services

     48,149       42,058        53,422       49,602        43,889        4,260       10       6,091       14  

Net occupancy

     25,474       29,079        26,841       26,967        26,885        (1,411     (5     (3,605     (12

Equipment

     24,872       25,545        25,884       22,262        21,921        2,951       13       (673     (3

Deposit and other insurance expense

     15,731       20,738        18,481       17,492        23,823        (8,092     (34     (5,007     (24

Marketing

     21,365       16,776        16,379       22,251        20,102        1,263       6       4,589       27  

Professional services

     15,458       11,230        16,769       20,281        20,080        (4,622     (23     4,228       38  

Amortization of intangibles

     11,940       11,531        13,175       13,387        13,386        (1,446     (11     409       4  

Automobile operating lease expense

     2,183       2,854        3,362       4,386        5,434        (3,251     (60     (671     (24

OREO and foreclosure expense

     4,106       4,950        5,009       4,668        4,398        (292     (7     (844     (17

Gain on early extinguishment of debt

     (2,580     —           (9,697     —           —           (2,580     —          (2,580     —     

Other expense

     34,537       54,417        32,548       30,987        29,921        4,616       15       (19,880     (37
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest expense

   $ 444,269     $ 462,676      $ 430,274     $ 439,118      $ 428,409      $ 15,860         $ (18,407     (4 )% 
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Number of employees (full-time equivalent), at period-end

     11,417       11,166        11,245       11,473        11,457        (40     (0     251       2  

2012 Second Quarter versus 2011 Second Quarter

The $15.9 million, or 4%, increase in total noninterest expense from the year-ago quarter reflected:

 

   

$24.5 million, or 11%, increase in personnel costs, which primarily reflected increased salaries and benefits, including an increase in commissions and incentive compensation expense primarily due to improved performance metrics and results.

 

   

$4.6 million, or 15%, increase in other expense, reflecting a $3.1 million increase in the provision for the mortgage representations and warranties reserve.

 

   

$4.3 million, or 10%, increase in outside data processing and other services, primarily reflecting the implementation of strategic initiatives.

 

   

$3.0 million, or 13%, increase in equipment expense reflecting the impact of depreciation from technology investments.

 

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Partially offset by:

 

   

$8.1 million, or 34%, decline in deposit and other insurance expense reflecting lower insurance premiums.

 

   

$4.6 million, or 23%, decline in professional services reflecting lower legal related expenses.

 

   

$3.3 million, or 60%, decline in automobile operating lease expense as the portfolio continued its planned runoff as we exited that business in 2008.

2012 Second Quarter versus 2012 First Quarter

The $18.4 million, or 4%, decrease in total noninterest expense from the prior quarter reflected:

 

   

$19.9 million, or 37%, decrease in other expense, as the prior quarter included a $23.5 million addition to litigation reserves.

 

   

$5.0 million, or 24%, decline in deposit and other insurance, reflecting adjustments to insurance premiums.

 

   

$3.6 million, or 12%, decline in net occupancy expense, primarily reflecting seasonally lower utility and building service expense.

Partially offset by:

 

   

$6.1 million, or 14%, increase in outside data processing and other services, partially reflecting the conversion and integration of Fidelity Bank and the implementation of strategic initiatives.

 

   

$4.6 million, or 27%, increase in seasonal marketing expense.

 

   

$4.2 million, or 38%, increase in professional services, partially reflecting the conversion and integration of Fidelity Bank and increased consulting related expenses.

2012 First Six Months versus 2011 First Six Months

Noninterest expense for the first six-month period of 2012 increased $47.8 million, or 6%, from the comparable year-ago period.

Table 12 - Noninterest Expense - 2012 First Six Months vs. 2011 First Six Months

 

     Six Months Ended June 30,      Change  

(dollar amounts in thousands)

   2012     2011      Amount     Percent  

Personnel costs

   $ 486,532     $ 437,598      $ 48,934       11 

Outside data processing and other services

     90,207       84,171        6,036       7  

Net occupancy

     54,553       55,321        (768     (1

Equipment

     50,417       44,398        6,019       14  

Deposit and other insurance expense

     36,469       41,719        (5,250     (13

Marketing

     38,141       36,997        1,144       3  

Professional services