For the year ending
PERFORMANCE OVERVIEW -- Performance compared with the 2008 third quarter included: -- Net loss of $1.20 per common share, compared with net income of $0.17 per common share. Current quarter earnings were negatively impacted $0.81 per common share by the Franklin relationship and $0.25 per common share by market-related losses (see Significant Item discussion and Table 1 below). -- $560.6 million of net charge-offs, or an annualized 5.41% of average total loans, including $423.3 million related to Franklin. The non- Franklin related net charge-offs were $137.4 million, or an annualized 1.36% of related loans, up from an annualized 0.82% in the third quarter. -- 2.30% period-end allowance for credit losses (ACL) ratio, up from 1.90% at the end of the third quarter. -- $961.3 million increase in non-performing assets (NPAs), including $650.2 million related to the Franklin relationship. Period-end 3.97% NPA ratio, up from 1.64%. -- 3.18% net interest margin, down from 3.29% with 8 basis points of the decline associated with the Franklin relationship. -- 9% annualized linked-quarter growth in average total commercial loans and a 2% annualized linked-quarter decline in average total consumer loans. -- 3% annualized linked-quarter increase in average total core deposits. -- 10.76% and 13.96% period-end Tier 1 and Total risk-based capital ratios, compared with 8.80% and 12.03%, respectively, at September 30, 2008, and well above the regulatory "well capitalized" thresholds of 6.0% and 10.0%, respectively. The increase in both ratios included 2.99% due to issuance of preferred shares under the Trouble Asset Relief Program Capital Purchase Plan administered by the United States Treasury.
"Fourth quarter performance was clearly disappointing, and
"There were some bright spots in the quarter, such as our ability to
continue to grow loans and core deposits," he continued. "Our lines of
business continued to grow their customer bases and attract new business
customers. We were able to use some of the TARP capital for loan originations
and modifications, with the remainder temporarily paying down short-term
borrowings, thus creating future lending capacity. From
"Yet these successes were overshadowed by the difficult and volatile market conditions that made revenue growth a challenge. This was most notable in the decreased value of our investment securities portfolio where additional impairment was recognized, as well as the decline in asset values in our asset management and brokerage areas. Margins remained under pressure due to the continued intense competition for deposits in our markets. And there was upward pressure on expenses from such things as higher FDIC insurance premiums and increased collection activities."
Commenting on non-Franklin related credit quality performance, Steinour noted, "Credit quality performance was mixed. Net charge-offs for our home equity and residential mortgage portfolios were in line with expectations. In contrast, non-Franklin related commercial loans deteriorated more than expected, as the fourth quarter's accelerated weakening of the economy took its toll on our business borrowers' ability to pay and collateral values. The automobile loan and lease net charge-off rate was slightly worse than expected, reflecting reduced sales and higher net charge-offs as used car prices fell. These factors contributed to the increase in non-Franklin related net charge-offs, as well as higher provision expense in order to replenish and build our reserve levels. While there will remain credit challenges, we believe they are addressable given our strong regulatory capital position."
"I think it is important that our investors, customers, and associates
understand that despite this quarter's performance and the continued
challenges in coming quarters,
DIVIDEND, MANAGEMENT AND BOARD COMPENSATION ANNOUNCEMENTS
Regarding the decision to reduce the cash dividend, Steinour said, "This dividend reduction is clearly painful for our shareholders. Nevertheless, given that we reported a loss for 2008 and expect that 2009 will remain a challenging year, it is the right decision for these times. Importantly, and reflecting alignment with our shareholders, key members of management will forego 2008 bonuses, and going forward compensation to the board of directors will only be in common stock."
FOURTH QUARTER PERFORMANCE DISCUSSION Significant Items Influencing Financial Performance Comparisons
Specific significant items impacting 2008 fourth quarter performance included (see Table 1 below):
-- $454.3 million pre-tax ($0.81 per common share) negative impact related to our relationship with Franklin consisting of: -- $438.0 million of provision for credit losses, -- $9.0 million of interest income reversals as the loans were placed on nonaccrual loan status, and -- $7.3 million of interest rate swap write offs. -- $141.7 million pre-tax ($0.25 per common share) negative impact of net market-related losses consisting of: -- $127.1 million of securities losses, related to other-than- temporary impairment (OTTI) on certain investment securities, -- $12.6 million net negative impact of mortgage servicing rights (MSR) hedging consisting of a $22.1 million net impairment loss reflected in non-interest income, partially offset by a $9.5 million net interest income benefit, and -- $2.0 million of equity investment losses. -- $2.9 million ($0.01 per common share) increase to provision for income taxes, representing an increase to the previously established capital loss carry-forward valuation allowance related to the decline in value of Visa(R) shares held and the reduction of shares resulting from the revised conversion ratio. -- $4.6 million pre-tax ($0.01 per common share) decline in other non- interest expense, representing a partial reversal of the 2007 fourth quarter accrual of $24.9 million for our portion of the bank guaranty covering indemnification charges against Visa(R) following its funding of an escrow account for a portion of such indemnification. Table 1 - Significant Items Impacting Earnings Performance Comparisons(1) Three Months Ended Impact (2) (in millions, except per share) Pre-tax EPS (3) December 31, 2008 - GAAP loss $(417.3)(3) $(1.20) -- Franklin relationship (454.3) (0.81) -- Net market-related losses (141.7) (0.25) -- Visa(R)-related deferred tax valuation allowance provision (2.9)(3) (0.01) -- Visa(R) indemnification 4.6 0.01 September 30, 2008 - GAAP earnings $75.1 (3) $0.17 -- Net market-related losses (47.1) (0.08) -- Visa(R)-related deferred tax valuation allowance provision (3.7)(3) (0.01) December 31, 2007 - GAAP loss $(239.3)(3) $(0.65) -- Franklin relationship restructuring (423.6) (0.75) -- Net market-related losses (63.5) (0.11) -- Merger costs (44.4) (0.08) -- Aggregate impact of Visa(R) IPO (24.9) (0.04) -- Increases to litigation reserves (8.9) (0.02) (1) Includes significant items with $0.01 EPS impact or greater (2) Favorable (unfavorable) impact on GAAP earnings; pre-tax unless otherwise noted (3) After-tax; EPS reflected on a fully diluted basis
Franklin Credit Management Relationship Actions
Through the 2008 third quarter, the Franklin relationship continued to perform and accrue interest. While the cash flow generated by the underlying collateral was declining slightly, it continued to exceed the requirements of the 2007 fourth quarter restructuring agreement. However, during the 2008 fourth quarter the cash flows deteriorated significantly, reflecting a more severe than expected deterioration in the overall economy during the quarter. Principal payments associated with the first mortgage portfolios contracted significantly as the availability of credit was further reduced. An important source of principal reductions has been proceeds from the sale of properties in foreclosure, so the tightening credit scenario had a direct negative impact on the cash flows during the quarter. In addition, interest collections declined in the Franklin second mortgage portfolio as delinquencies continued to increase. These factors, coupled with the expectation that the severity of the economic downturn will further weaken the borrower's ability to pay and the underlying value of the collateral, resulted in a significant deterioration in the value of Franklin's mortgages. As such, the revaluation of the future expected cash flows led to the following 2008 fourth quarter actions:
-- $423.3 million of our loans to Franklin were charged-off, -- $9.0 million of interest was reversed as the remaining loans were put on nonaccrual, -- $7.3 million of interest swap exposure was written off, and -- $438.0 million of provision expense was taken to replenish and increase the remaining specific loan loss reserve.
As a result of these actions, at
"These actions should substantially address investor concerns regarding
our exposure to Franklin," said Steinour. "Our period-end net exposure to
Franklin was
"Addressing Franklin was my highest priority upon joining
Troubled Asset Relief Program Capital Purchase Plan
As previously announced on
Commenting on the receipt of this capital, Steinour said, "This capital
provides additional flexibility and we are committed to use it as intended to
support and increase loan originations and our existing loan modification
programs. We want to serve the loan demands of our customers and expect that
over time this capital will contribute to those efforts. From
Net Interest Income, Net Interest Margin, and Average Balance Sheet
2008 Fourth Quarter versus 2008 Third Quarter
Compared with the 2008 third quarter, fully taxable equivalent net
interest income decreased
Table 2 details the increase in average loans and leases. Table 2 - Loans and Leases - 4Q08 vs. 3Q08 Fourth Third Quarter Quarter Change (in billions) 2008 2008 Amount % Average Loans and Leases Commercial and industrial $13.7 $13.6 $0.1 1 % Commercial real estate 10.2 9.8 0.4 4 Total commercial 24.0 23.4 0.5 2 Automobile loans and leases 4.5 4.6 (0.1) (2) Home equity 7.5 7.5 0.1 1 Residential mortgage 4.7 4.8 (0.1) (2) Other consumer 0.7 0.7 0.0 1 Total consumer 17.5 17.6 (0.1) (0) Total loans and leases $41.4 $41.0 $0.4 1 %
Average total loans and leases increased
Average total commercial loans increased
Average total consumer loans decreased
Table 3 details the $0.2 billion decline in average total deposits. Table 3 - Deposits - 4Q08 vs. 3Q08 Fourth Third Quarter Quarter Change (in billions) 2008 2008 Amount % Average Deposits Demand deposits - non-interest bearing $5.2 $5.1 $0.1 2 % Demand deposits - interest bearing 4.0 4.0 (0.0) (0) Money market deposits 5.5 5.9 (0.4) (6) Savings and other domestic deposits 4.8 4.9 (0.1) (2) Core certificates of deposit 12.5 11.9 0.6 5 Total core deposits 32.0 31.7 0.3 1 Other deposits 5.6 6.1 (0.5) (8) Total deposits $37.6 $37.8 $(0.2) (1)%
Average total deposits were down
-- $0.5 billion, or 8%, decrease in average non-core deposits, primarily reflecting a decline in other non-core domestic deposits. Partially offset by: -- $0.3 billion, or 1%, increase in average total core deposits. The primary driver of the change was 5% growth in higher rate core certificates of deposits, partially offset by a 6% decline in lower rate money market accounts.
2008 Fourth Quarter versus 2007 Fourth Quarter
Fully taxable equivalent net interest income decreased
Table 4 details the $1.3 billion increase in average loans and leases. Table 4 - Loans and Leases - 4Q08 vs. 4Q07 Fourth Quarter Change (in billions) 2008 2007 Amount % Average Loans and Leases Commercial and industrial $13.7 $13.3 $0.5 4 % Commercial real estate 10.2 9.1 1.2 13 Total commercial 24.0 22.3 1.6 7 Automobile loans and leases 4.5 4.3 0.2 5 Home equity 7.5 7.3 0.2 3 Residential mortgage 4.7 5.4 (0.7) (13) Other consumer 0.7 0.7 (0.1) (7) Total consumer 17.5 17.8 (0.3) (2) Total loans and leases $41.4 $40.1 $1.3 3 %
The
-- $1.6 billion, or 7%, increase in average total commercial loans, with growth reflected in both C&I loans and CRE loans. The $1.2 billion, or 13%, increase in average CRE loans reflected a combination of factors, including the previously mentioned funding of letters of credit that had supported floating rate bonds, loans to existing borrowers, and draws on existing commitments, and loans to new business customers. The new loan activity, both to existing and new customers, was focused on traditional income producing property types and was not related to the single family residential developer segment. The $0.5 billion, or 4%, growth in average C&I loans reflected a combination of draws associated with existing commitments, new loans to existing borrowers, and some originations to new high credit quality customers. Given our consistent positioning in the market, we have been able to attract new relationships that historically dealt exclusively with competitors. These "house account" types of relationships are typically the highest quality borrowers and bring with them the added benefit of significant new deposit and other non-credit relationships. Partially offset by: -- $0.3 billion, or 2%, decrease in average total consumer loans. This reflected a $0.7 billion, or 13%, decline in average residential mortgages, reflecting the impact of a loan sale in the 2008 second quarter, as well as the continued slump in the housing markets. Average home equity loans increased 3%, due to significant activity in home equity lines, particularly in the second half of the year due to the significantly lower rate environment. There was a decrease in the level of home equity loans, as borrowers moved back to the variable rate product. Huntington has underwritten home equity lines with credit policies designed to continue to improve the risk profile of the portfolio. Notably, our interest rate stress policies associated with this variable rate product continue to be in place. While clearly some borrowers have increased their funding percentage, the overall funding percentage on the home equity lines increased only slightly to 48%. Average automobile loans and leases increased 5% from the year-ago quarter, despite the dramatic decline in automobile sales that negatively affected growth in the 2008 fourth quarter due to the growth experienced earlier in 2008. Even though automobile loan origination volumes have declined, the impact of prepayments on this portfolio is lower because of loan sales in prior years.
Table 5 details the
Table 5 - Deposits - 4Q08 vs. 4Q07 Fourth Quarter Change (in billions) 2008 2007 Amount % Average Deposits Demand deposits - non-interest bearing $5.2 $5.2 $(0.0) (0)% Demand deposits - interest bearing 4.0 3.9 0.1 2 Money market deposits 5.5 6.8 (1.3) (20) Savings and other domestic deposits 4.8 5.0 (0.2) (3) Core certificates of deposit 12.5 10.7 1.8 17 Total core deposits 32.0 31.7 0.3 1 Other deposits 5.6 6.0 (0.4) (7) Total deposits $37.6 $37.7 $(0.1) (0)%
The
Provision for Credit Losses
The provision for credit losses in the 2008 fourth quarter was
Non-Interest Income
2008 Fourth Quarter versus 2008 Third Quarter
Non-interest income decreased
Table 6 - Non-interest Income - 4Q08 vs. 3Q08 Fourth Third Quarter Quarter Change (in millions) 2008 2008 Amount % Non-interest Income Service charges on deposit accounts $75.2 $80.5 $(5.3) (7)% Brokerage and insurance income 31.2 34.3 (3.1) (9) Trust services 27.8 31.0 (3.1) (10) Electronic banking 22.8 23.4 (0.6) (3) Bank owned life insurance income 13.6 13.3 0.3 2 Automobile operating lease income 13.2 11.5 1.7 15 Mortgage banking income (loss) (6.7) 10.3 (17.0) NM Securities gains (losses) (127.1) (73.8) (53.3) (72) Other income 17.1 37.3 (20.3) (54) Total non-interest income $67.1 $167.9 $(100.8) (60)% Change Attributable to Significant Other (in millions) Items Amount % Non-interest Income Service charges on deposit accounts $- $(5.3) (7)% Brokerage and insurance income - (3.1) (9) Trust services - (3.1) (10) Electronic banking - (0.6) (3) Bank owned life insurance income - 0.3 2 Automobile operating lease income - 1.7 15 Mortgage banking income (loss) (15.6) (1) (1.4) (14) Securities gains (losses) (53.3) (2) - 0 Other income (12.7) (3) (7.6) (20) Total non-interest income $(81.6) $(19.1) (11)% Fourth Third Change Quarter Quarter 2008 2008 Amount (1) Net impact of MSR hedging MSR valuation adjustment $(63.4) $(10.3) $(53.1) Net trading (losses) gains 41.3 3.8 37.5 Impact to non interest income (22.1) (6.5) (15.6) Net interest income impact 9.5 8.4 1.1 Net impact of MSR hedging $(12.6) $1.9 $(14.5) (2) Securities gains (losses) $(127.1) $(73.8) $(53.3) (3) Other income Equity investment gains (losses) $(2.0) $3.4 $(5.4) Franklin swap losses (7.3) - (7.3) Impact to other income $(9.3) $3.4 $(12.7)
The
-- $7.6 million, or 20%, decline in other income, reflecting credit losses on non-Franklin interest rate swaps. -- $5.3 million, or 7%, decline in service charges on deposit accounts, primarily reflecting lower consumer NSF and overdraft fees. -- $3.1 million, or 10%, decline in trust services income, reflecting the impact of lower market values on asset management revenues. -- $3.1 million, or 9%, decline in brokerage and insurance income, primarily reflecting lower commercial line insurance income.
2008 Fourth Quarter versus 2007 Fourth Quarter
Non-interest income decreased
Table 7 - Non-interest Income - 4Q08 vs. 4Q07 Fourth Quarter Change (in millions) 2008 2007 Amount % Non-interest Income Service charges on deposit accounts $75.2 $81.3 $(6.0) (7)% Brokerage and insurance income 31.2 30.3 0.9 3 Trust services 27.8 35.2 (7.4) (21) Electronic banking 22.8 21.9 0.9 4 Bank owned life insurance income 13.6 13.3 0.3 2 Automobile operating lease income 13.2 2.7 10.5 NM Mortgage banking income (loss) (6.7) 3.7 (10.4) NM Securities gains (losses) (127.1) (11.6) (115.5) NM Other income 17.1 (6.2) 23.2 NM Total non-interest income $67.1 $170.6 $(103.5) (61)% Change Attributable to Significant Other (in millions) Items Amount % Non-interest Income Service charges on deposit accounts $- $(6.0) (7)% Brokerage and insurance income - 0.9 3 Trust services - (7.4) (21) Electronic banking - 0.9 4 Bank owned life insurance income - 0.3 2 Automobile operating lease income - 10.5 NM Mortgage banking income (loss) (10.3) (1) (0.1) (4) Securities gains (losses) (115.5) (2) - 0 Other income 34.1 (3) (10.9) NM Total non-interest income $(91.8) $(11.7) (7)% Fourth Quarter Change 2008 2007 Amount (1) Net impact of MSR hedging MSR valuation adjustment $(63.4) $(21.2) $(42.1) Net trading (losses) gains 41.3 9.5 31.8 Impact to non interest income (22.1) (11.8) (10.3) Net interest income impact 9.5 3.2 6.3 Net impact of MSR hedging $(12.6) $(8.6) $(4.0) (2) Securities gains (losses) $(127.1) $(11.6) $(115.5) (3) Other income Equity investment gains (losses) $(2.0) $(9.4) $7.4 Loss on loans held for sale - (34.0) 34.0 Franklin swap losses (7.3) - (7.3) Impact to non interest income $(9.3) $(43.4) $34.1
The
Non-interest Expense 2008 Fourth Quarter versus 2008 Third Quarter
Non-interest expense increased
Table 8 - Non-interest Expense - 4Q08 vs. 3Q08 Fourth Third Change Attributable to Quarter Quarter Change Significant Other (in millions) 2008 2008 Amount % Items Amount % Non-interest Expense Personnel costs $196.8 $184.8 $12.0 6 % $- $12.0 6 % Outside data processing and other services 31.2 32.4 (1.2) (4) - (1.2) (4) Net occupancy 23.0 25.2 (2.2) (9) - (2.2) (9) Equipment 22.3 22.1 0.2 1 - 0.2 1 Amortization of intangibles 19.2 19.5 (0.3) (1) - (0.3) (1) Professional services 17.4 13.4 4.0 30 - 4.0 30 Marketing 9.4 7.0 2.3 33 - 2.3 33 Automobile operating lease expense 10.5 9.1 1.4 15 - 1.4 15 Telecommunications 5.9 6.0 (0.1) (2) - (0.1) (2) Printing and supplies 4.2 4.3 (0.1) (3) - (0.1) (3) Other expense 50.2 15.1 35.1 NM 16.8(1) 18.3 NM Total non-interest expense $390.1 $339.0 $51.1 15 % $16.8 $34.3 10 % (1)Other expense Debt extinguishment loss (gain) $- $(21.4) $21.4 VISA indemnification (4.6) - (4.6) Impact to non interest expense $(4.6) $(21.4) $16.8
Of the
-- $18.3 million increase in other expense, reflecting a $7.4 million increase in automobile lease residual losses due to continued weakening in used car prices, as well as a $5.4 million increase in FDIC insurance expense as we depleted our one-time credit, previously being used to offset these insurance expenses. -- $12.0 million, or 6%, increase in personnel costs, reflecting the seasonal pension settlement catch up, as well as severance and non- executive benefit accruals. -- $4.0 million, or 30%, increase in professional services, reflecting an increase in legal fees associated with litigation and collection expenses. -- $2.3 million, or 33%, increase in marketing costs. Partially offset by: -- $2.2 million, or 9%, decline in net occupancy expense. 2008 Fourth Quarter versus 2007 Fourth Quarter
Non-interest expense decreased
Table 9 - Non-interest Expense - 4Q08 vs. 4Q07 Fourth Quarter Change (in millions) 2008 2007 Amount % Non-interest Expense Personnel costs $196.8 $214.9 $(18.1) (8)% Outside data processing and other services 31.2 39.1 (7.9) (20) Net occupancy 23.0 26.7 (3.7) (14) Equipment 22.3 22.8 (0.5) (2) Amortization of intangibles 19.2 20.2 (1.0) (5) Professional services 17.4 14.5 3.0 20 Marketing 9.4 16.2 (6.8) (42) Automobile operating lease expense 10.5 1.9 8.6 NM Telecommunications 5.9 8.5 (2.6) (31) Printing and supplies 4.2 6.6 (2.4) (37) Other expense 50.2 68.2 (18.0) (26) Total non-interest expense $390.1 $439.6 $(49.5) (11)% (1) VISA indemnification $(4.6) $24.9 $(29.4) Change Attributable to Mrgr. Significant Rstrct. Other (in millions) Items Costs Amount % Non-interest Expense Personnel costs $- $(22.8) $4.7 2 % Outside data processing and other services - (7.0) (0.9) (3) Net occupancy - (1.2) (2.5) (10) Equipment - (0.2) (0.3) (1) Amortization of intangibles - - (1.0) (5) Professional services - (3.4) 6.4 58 Marketing - (6.9) 0.1 1 Automobile operating lease expense - - 8.6 NM Telecommunications - (1.0) (1.7) (22) Printing and supplies - (1.0) (1.4) (25) Other expense (29.4)(1) (0.9) 12.3 18 Total non-interest expense $(29.4) $(44.4) $24.4 6 % (1) VISA indemnification
Of the
Income Taxes
The provision for income taxes in the 2008 fourth quarter was a benefit of
Credit Quality
Credit quality performance in the 2008 fourth quarter was negatively impacted by the Franklin relationship actions (see Franklin Credit Management Relationship Actions), as well as accelerated economic weakness in our Midwest markets. These economic factors influenced the performance of net charge-offs (NCOs) and nonaccrual loans (NALs), as well as an expected commensurate significant increase in the provision for credit losses (see Provision for Credit Losses discussion) that significantly increased the absolute and relative levels of our allowance for credit losses (ACL).
Net Charge-Offs
Total net charge-offs for the 2008 fourth quarter were
Total commercial net charge-offs for the 2008 fourth quarter were
Current quarter CRE net charge-offs were
Total consumer net charge-offs in the current quarter were
Automobile loan and lease net charge-offs were
Home equity net charge-offs in the 2008 fourth quarter were
Residential mortgage net charge-offs were
Nonaccrual Loans and Non-performing Assets
Nonaccrual loans (NALs) were
Non-performing assets (NPAs), which include NALs, were
The over 90-day delinquent, but still accruing, ratio was 0.50% at
Allowances for Credit Losses (ACL)
We maintain two reserves, both of which are available to absorb probable credit losses: the allowance for loan and lease losses (ALLL) and the allowance for unfunded loan commitments and letters of credit (AULC). When summed together, these reserves constitute the total ACL.
At
Table 10 shows the change in the ALLL ratio and each reserve component for the 2008 fourth and third quarters and 2007 fourth quarter.
Table 10 - Components of ALLL as Percent of Total Loans and Leases 4Q08 change from 4Q08 3Q08 4Q07 3Q08 4Q07 Transaction reserve (1) 1.91% 1.54% 1.27% 0.37% 0.64% Economic reserve 0.28 0.21 0.17 0.07 0.11 Total ALLL 2.19% 1.75% 1.44% 0.44% 0.75% (1) Includes specific reserve
The ALLL as a percent of NALs was 60% at
On a combined basis, the ACL as a percent of total loans and leases at
Capital
At
2009 EXPECTATIONS
Commenting on 2009 expectations Steinour noted, "We expect 2009 will be a challenging year as we do not expect to see any turnaround in the underlying economy through at least the end of this year. We expect to see continued levels of elevated charge-offs and provision expense. The net interest margin is likely to remain under modest pressure. We do expect to continue to grow our core deposits. Fee income will be challenged and we expect that higher collection expense levels will remain throughout the year."
"Within this type of environment, right-sizing the level of expense is critical. That is why we have launched an expense reduction initiative. What direction or magnitude this will take is not known at this time. But we will be looking in every area, and nothing is off limits," he concluded.
Conference Call / Webcast Information
Forward-looking Statement
This press release contains certain forward-looking statements, including
certain plans, expectations, goals, projections, and statements, which are
subject to numerous assumptions, risks, and uncertainties. Actual results
could differ materially from those contained or implied by such statements for
a variety of factors including: (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 the rules of
participation for the Troubled Asset Relief Program voluntary Capital Purchase
Plan under the Emergency Economic Stabilization Act of 2008, which may be
changed unilaterally and retroactively by legislative or regulatory actions;
and (7) extended disruption of vital infrastructure. Additional factors that
could cause results to differ materially from those described above can be
found in
Basis of Presentation
Use of Non-GAAP Financial Measures
This earnings release contains GAAP financial measures and non-GAAP
financial measures where management believes it to be helpful in understanding
Significant Items
Certain components of the Income Statement are naturally subject to more volatility than others. As a result, analysts/investors may view such items differently in their assessment of performance compared with their expectations and/or any implications resulting from them on their assessment of future performance trends. It is a general practice of analysts/investors to try and determine their perception of what "underlying" or "core" earnings performance is in any given reporting period, as this typically forms the basis for their estimation of performance in future periods.
Therefore, Management believes the disclosure of certain "Significant Items" in current and prior period results aids analysts/investors in better understanding corporate performance so that they can ascertain for themselves what, if any, items they may wish to include/exclude from their analysis of performance; i.e., within the context of determining how that performance differed from their expectations, as well as how, if at all, to adjust their estimates of future performance accordingly.
To this end, Management has adopted a practice of listing as "Significant
Items" in its external disclosure documents (e.g., earnings press releases,
investor presentations, Forms 10-Q and 10-K) individual and/or particularly
volatile items that impact the current period results by
Timing Differences
Part of the company's regular business activities are by their nature volatile; e.g. capital markets income, gains and losses on the sale of loans, etc. While such items may generally be expected to occur within a full-year reporting period, they may vary significantly from period to period. Such items are also typically a component of an Income Statement line item and not, therefore, readily discernable. By specifically disclosing such items, analysts/investors can better assess how, if at all, to adjust their estimates of future performance.
Other Items
From time to time, an event or transaction might significantly impact revenues, expenses, or taxes in a particular reporting period that are judged to be one-time, short-term in nature, and/or materially outside typically expected performance. Examples would be (1) merger costs as they typically impact expenses for only a few quarters during the period of transition; e.g., restructuring charges, asset valuation adjustments, etc.; (2) changes in an accounting principle; (3) one-time tax assessments/refunds; (4) a large gain/loss on the sale of an asset; (5) outsized commercial loan net charge- offs related to fraud; etc. By disclosing such items, analysts/investors can better assess how, if at all, to adjust their estimates of future performance.
Provision for Credit Losses
While the provision for credit losses may vary significantly between periods, Management typically excludes it from the list of "Significant Items", unless in Management's view, there is a significant specific credit(s), which is causing distortion in the period.
Provision expense is always an assumption in analyst/investor expectations
of earnings and there is apparent agreement among them that provision expense
is included in their definition of "underlying" or "core" earnings unlike
"timing differences" or "other items". In addition, provision expense is an
individual Income Statement line item so its value is easily known and, except
in very rare situations, the amount in any reporting period always exceeds
In addition, provision expense trends usually increase/decrease in a somewhat orderly pattern in conjunction with credit quality cycle changes; i.e., as credit quality improves provision expense generally declines and vice versa. While they may have differing views regarding magnitude and/or trends in provision expense, every analyst and most investors incorporate a provision expense estimate in their financial performance estimates.
Other Exclusions
"Significant Items" for any particular period are not intended to be a
complete list of items that may significantly impact future periods. A number
of factors, including those described in
Annualized data
Certain returns, yields, performance ratios, or quarterly growth rates are "annualized" in this presentation to represent an annual time period. This is done for analytical and decision-making purposes to better discern underlying performance trends when compared to full year or year-over-year amounts. For example, loan and deposit growth rates are most often expressed in terms of an annual rate like 8%. As such, a 2% growth rate for a quarter would represent an annualized 8% growth rate.
Fully taxable equivalent interest income and net interest margin
Income from tax-exempt earnings assets is increased by an amount equivalent to the taxes that would have been paid if this income had been taxable at statutory rates. This adjustment puts all earning assets, most notably tax-exempt municipal securities and certain lease assets, on a common basis that facilitates comparison of results to results of competitors.
Earnings per share equivalent data
Significant income or expense items may be expressed on a per common share basis. This is done for analytical and decision-making purposes to better discern underlying trends in total corporate earnings per share performance excluding the impact of such items. Investors may also find this information helpful in their evaluation of the company's financial performance against published earnings per share mean estimate amounts, which typically exclude the impact of significant items. Earnings per share equivalents are usually calculated by applying a 35% effective tax rate to a pre-tax amount to derive an after-tax amount, which is divided by the average shares outstanding during the respective reporting period. Occasionally, when the item involves special tax treatment, the after-tax amount is disclosed separately, with this then being the amount used to calculate the earnings per share equivalent.
NM or nm
Percent changes of 100% or more are typically shown as "nm" or "