0000049196 us-gaap:OperatingSegmentsMember hban:OtherRevenueMember hban:CommercialBankingMember 2018-07-01 2018-09-30
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY PERIOD ENDED September 30, 2017
Commission File Number 1-34073
Huntington Bancshares Incorporated
|
| |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2019
Huntington Bancshares Incorporated
(Exact name of registrant as specified in its charter)
|
| | |
Maryland | 1-34073 | 31-0724920 |
(State or other jurisdiction of incorporation or organization) | (Commission File Number)
| (I.R.S. Employer Identification No.) |
Registrant's address: 41 South High Street, Columbus, Ohio43287
Registrant’s telephone number, including area code: (614) 480-8300(614) 480-2265
Securities registered pursuant to Section 12(b) of the Act |
| | |
Title of class | Trading Symbol(s) | Name of exchange on which registered |
5.875% Series C Non-Cumulative, perpetual preferred stock | HBANN | NASDAQ |
6.250% Series D Non-Cumulative, perpetual preferred stock | HBANO | NASDAQ |
Common Stock—Par Value $0.01 per Share | HBAN | NASDAQ |
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 website (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, or an emerging growth company. Refer toSee the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company”company,” and emerging"emerging growth companycompany" in Rule 12b-2 of the Securities Exchange Act. (Check one):
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| | | | | |
Large accelerated filerAccelerated Filer | x | | Accelerated filer | ¨☐ |
| | | | | |
Non-accelerated filer | ¨ (Do not check if a smaller reporting company)
|
| | ☐ | | Smaller reporting company | ¨☐ |
| | | | Emerging growth company | ¨☐ |
If an emerging growth company, indicate by checkmarkcheck mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B)13(a) of the Securities Exchange Act. ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act). ¨☐ Yes x No
There were 1,080,946,3151,032,755,207 shares of the Registrant’s common stock ($0.01 par value) outstanding on September 30, 2017.
2019.
HUNTINGTON BANCSHARES INCORPORATED
INDEX
Glossary of Acronyms and Terms
The following listing provides a comprehensive reference of common acronyms and terms used throughout this document.the document:
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| | |
ABS | | Asset-Backed Securities |
| |
ACL | | Allowance for Credit Losses |
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AFS | | Available-for-Sale |
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ALCO | | Asset-Liability Management Committee |
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ALLL | | Allowance for Loan and Lease Losses |
AOCI | | |
ANPR | | Advance Notice of Proposed Rulemaking |
| Accumulated Other Comprehensive Income |
ASC | | Accounting Standards Codification |
| |
ATM | | Automated Teller Machine |
| |
AULC | | Allowance for Unfunded Loan Commitments |
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Basel III | | Refers to the final rule issued by the FRB and OCC and published in the Federal Register on October 11, 2013 |
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BHC | | Bank Holding Companies |
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BHC Act | | Bank Holding Company Act of 1956 |
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C&I | | Commercial and Industrial |
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CCAR | | Comprehensive Capital Analysis and Review |
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CDO | | Collateralized Debt Obligations |
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CDs | | CertificateCertificates of Deposit |
CECL | | Current Expected Credit Loss
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CET1 | | Common equity tier 1 on a transitional Basel III basis |
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CFPB | | Bureau of Consumer Financial Protection Bureau |
| | |
CISA | | Cybersecurity Information Sharing Act |
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CMO | | Collateralized Mortgage Obligations |
| | |
CRA | | Community Reinvestment Act |
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CRE | | Commercial Real Estate |
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CREVF | | Commercial Real Estate and Vehicle Finance |
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DIF | | Deposit Insurance Fund |
| | |
Dodd-Frank Act | | Dodd-Frank Wall Street Reform and Consumer Protection Act |
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EFT | | Electronic Fund Transfer |
| |
EPS | | Earnings Per Share |
| | |
EVE | | Economic Value of Equity |
| | |
FASB | | Financial Accounting Standards Board |
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FDIC | | Federal Deposit Insurance Corporation |
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FDICIA | | Federal Deposit Insurance Corporation Improvement Act of 1991 |
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FHA | | Federal Housing Administration |
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FHC | | Financial Holding Company |
| | |
FHLB | | Federal Home Loan Bank |
| of Cincinnati |
FICO | | Fair Isaac Corporation |
| | |
|
| | |
FirstMerit | | FirstMerit Corporation |
| |
FRB | | Federal Reserve Bank |
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FTE | | Fully-Taxable Equivalent |
| |
FTP | | Funds Transfer Pricing |
FVO | | Fair Value Option |
GAAP | | Generally Accepted Accounting Principles in the United States of America |
| |
HIP | | Huntington Investment and Tax Savings Plan |
| | |
HQLA | | High Quality Liquid Asset |
| | |
HTM | | Held-to-Maturity |
| | |
IRS | | Internal Revenue Service |
| | |
LCR | | Liquidity Coverage Ratio |
| | |
LGD | | Loss-Given-Default |
| | |
LIBOR | | London Interbank Offered Rate |
| | |
LIHTC | | Low Income Housing Tax Credit |
| | |
LTV | | Loan to Value |
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MBS | | Mortgage-Backed Securities |
| | |
MD&A | | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| | |
MSA | | Metropolitan Statistical Area |
| | |
MSR | | Mortgage Servicing Rights |
| | Right |
NAICS | | North American Industry Classification System |
| | |
NALs | | Nonaccrual Loans |
| | |
NCO | | Net Charge-off |
| | |
NII | | Net InterestNoninterest Income |
| | |
NIM | | Net Interest Margin |
| | |
NPAs | | Nonperforming Assets |
| | |
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 |
PCD | | Purchased-Credit-Deteriorated |
|
PD | | Probability-Of-Default |
| | |
Plan | | Huntington Bancshares Retirement Plan |
| | |
RBHPCG | | Regional Banking and The Huntington Private Client Group |
| | |
REIT | | Real Estate Investment Trust |
| | |
ROC | | Risk Oversight Committee |
| | |
RWA | | Risk-Weighted Assets |
| | |
SAD | | Special Assets Division |
| | |
SBA | | Small Business Administration |
| | |
SEC | | Securities and Exchange Commission |
|
| | |
| | |
SERP | | Supplemental Executive Retirement Plan |
| | |
SRIP | | Supplemental Retirement Income Plan |
| | |
TCE | | Tangible Common Equity |
| | |
TDR | | Troubled Debt Restructured Loan |
| | Restructuring |
U.S. Treasury | | U.S. Department of the Treasury |
| | |
UCS | | Uniform Classification System |
| | |
UPB | | Unpaid Principal Balance |
| | |
USDA | | U.S. Department of Agriculture |
| | |
VIE | | Variable Interest Entity |
| | |
XBRL | | eXtensible Business Reporting Language |
| | |
PART I. FINANCIAL INFORMATION
When we refer to “we”, “our”, and “us”, "Huntington," and "the Company" 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 over 150 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, recreational vehicle and marine financing, equipment leasing,financing, investment management, trust services, brokerage services, insurance programs,products and services, and other financial products and services. Our 958868 full-service branches and private client group offices are located in Ohio, Illinois, Indiana, Kentucky, Michigan, Pennsylvania, and West Virginia, and Wisconsin.Virginia. Select financial services and other activities are also conducted in various other states. International banking services are available through the headquarters office in Columbus, Ohio. 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 20162018 Form 10-K should be read in conjunction with this MD&A as this discussion provides only material updates to the 20162018 Form 10-K. This MD&A should also be read in conjunction with the Unaudited Condensed Consolidated Financial Statements, Notes to Unaudited Condensed Consolidated Financial Statements,Statements, and other information contained in this report.
EXECUTIVE OVERVIEW
Summary of 20172019 Third Quarter Results Compared to 20162018 Third Quarter
For the quarter, we reported net income of $275$372 million, or $0.23$0.34 per common share, compared with $127$378 million, or $0.11$0.33 per common share, in the year-ago quarter (see(see Table 1)1). Reported net income was impacted by FirstMerit acquisition-related net expenses totaling $31 million pre-tax, or $0.02 per common share.
Fully-taxable equivalent net interest income was $771$805 million, up $135down $5 million, or 21%1%. The resultsThis reflected a 12 basis point decrease in the FTE net interest margin to 3.20%, partially offset by the benefit from a $13.2the $2.9 billion, or 17%3%, increase in average earning assets and an 11 basis point improvement in the net interest margin to 3.29%. Average earning asset growth included a $7.6 billion, or 12%, increase in average loans and leases, and a $5.6 billion, or 31%, increase in average securities. The net interest margin expansion reflected a 26 basis point increase in earning asset yields, including an approximate 12 basis point impact of purchase accounting, and a 4 basis point increase in the benefit from noninterest-bearing funds, partially offset by a 19 basis point increase in funding costs.assets.
The provision for credit losses decreased $20increased $29 million year-over-year to $44$82 million in the 20172019 third quarter. NCOsquarter. Net charge-offs increased $3$44 million to $43$73 million. The increase was centered in two specific energy credit relationships, which made up nearly three-fourths of the total commercial net charge-offs. Consumer charge-offs have remained consistent over the past year. NCOs represented an annualized 0.25%0.39% of average loans and leases which remains below our long-term expectation of 35 to 55 basis points.in the current quarter, up from 0.16% in the year-ago quarter.
Non-interest income was $330$389 million, up $28$47 million, or 9%. The increase was14%, from the year ago quarter. Mortgage banking income increased $23 million, or 74%, primarily a resultreflecting higher overall salable spreads, and $8 million of income from net MSR risk management-related activities. Capital markets fees increased $10 million, or 38%, driven by increased underwriting activity primarily associated with the FirstMeritHutchinson, Shockey, Erley & Co. acquisition. In addition, cardCard and payment processing income increased due to higher credit$7 million, or 12%, and debit card related income and underlying customer growth. Capital markets feesservice charges on deposit accounts increased $5 million, or 5%, both reflecting our continued strategic focus on expanding the business.increased account activity.
Non-interest expense was $680$667 million, down $32up $16 million, or 4%2%, from the year-ago quarter. Personnel costs increased $18 million, or 5%, primarily reflecting a shift to colleagues supporting our core strategies and the impactimplementation of annual merit increases in the FirstMerit acquisition. Personnel costs decreased primarily related to acquisition-related personnel expense partially offset by an increase in average full-time equivalent employees. Further, professional services, outside2019 second quarter. Outside data processing and other services decreasedincreased $18 million, or 26%, primarily reflecting a net decrease in acquisition-related Significant Items, partially offsetdriven by higher cardtechnology investment costs. Deposit and data processingother insurance expense from increased usage. Partially offsetting these decreases, otherdecreased $10 million, or 56%, due to the discontinuation of the FDIC surcharge in the 2018 fourth quarter. Other expense increaseddecreased $9 million, or 16%, primarily reflecting an increaseas a result of operational losses in donations and sponsorships and equipment lease residual impairments.the third quarter 2018.
The tangible common equity to tangible assets ratio was 7.42%, up 28 basis points from a year-ago. The CET1Common Equity Tier 1 risk-based capital ratio was 9.94% at September 30, 2017, compared to 9.09%10.02%, up from 9.89% a year ago. The regulatory Tier 1 risk-based capital ratio was 11.30%11.41% compared to 10.40%11.33% at September 30, 2016. 2018. All capital ratios were impacted by the repurchase of $12333.4 million of common stock at an average cost of $12.75 per share duringshares over the 2017 third quarter. The total risk-based capital ratio was impacted by the repurchase of trust preferred securities during the 2016 fourth quarter.last four quarters.
Business Overview
General
OurOur general business objectives are:
1.Grow net interest income•Consistent organic revenue and fee income.balance sheet growth.
2.•Invest in our businesses, particularly technology and risk management.
•Deliver positive operating leverage.
3.Increase primary customer relationships across all business segments.•Maintain aggregate moderate-to-low risk appetite.
4.Continue•Disciplined capital management.
Economy
Consumer confidence remains at a high level, and consumers continue to strengthen risk management.
5.Maintain capitalperform well. We experienced strong origination activity in our home lending and liquidity positionsauto finance businesses, while maintaining our underwriting discipline. Consistent with recent economic data pointing toward slowing growth, compounded by uncertainty related to trade and tariffs, we have seen a shift in tone from some of our manufacturing customers, which has impacted certain of their investments and expansions. While our commercial loan pipeline remains consistent with our risk appetite.
Economy
We expect consumer and business optimism to remain high across our footprint. Labor markets and consumer spending are strong with some inflationary pressures. Throughout 2017, consumer loan growth has remained steady. To date manufacturing has benefited the Midwest. Our pipelines supporta year ago, providing us near-term confidence, we have a more measured outlook for commercial loan growth althoughover the commercial lending environment is competitive on both structuresmedium term.
As we have stated the past few quarters, we do not foresee a recession in the near term. Our core earnings power, strong capital, aggregate moderate-to-low risk appetite, and rates.long-term strategic alignment position us to withstand economic headwinds should they emerge.
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“Business Segment Discussion.Discussion”.
| | Table 1 - Selected Quarterly Income Statement Data (1) | (dollar amounts in thousands, except per share amounts) | | | | | | | | | |
| Three Months Ended | | | | | | | | | |
| September 30, | | June 30, | | March 31, | | December 31, | | September 30, | Three Months Ended |
| 2017 | | 2017 | | 2017 | | 2016 | | 2016 | September 30, | | June 30, | | March 31, | | December 31, | | September 30, |
(dollar amounts in millions, share amounts in thousands) | | 2019 | | 2019 | | 2019 | | 2018 | | 2018 |
Interest income | $ | 872,987 |
| | $ | 846,424 |
| | $ | 820,360 |
| | $ | 814,858 |
| | $ | 694,346 |
| $ | 1,052 |
| | $ | 1,068 |
| | $ | 1,070 |
| | $ | 1,056 |
| | $ | 1,007 |
|
Interest expense | 114,554 |
| | 101,912 |
| | 90,385 |
| | 79,877 |
| | 68,956 |
| 253 |
| | 256 |
| | 248 |
| | 223 |
| | 205 |
|
Net interest income | 758,433 |
| | 744,512 |
| | 729,975 |
| | 734,981 |
| | 625,390 |
| 799 |
| | 812 |
| | 822 |
| | 833 |
| | 802 |
|
Provision for credit losses | 43,590 |
| | 24,978 |
| | 67,638 |
| | 74,906 |
| | 63,805 |
| 82 |
| | 59 |
| | 67 |
| | 60 |
| | 53 |
|
Net interest income after provision for credit losses | 714,843 |
| | 719,534 |
| | 662,337 |
| | 660,075 |
| | 561,585 |
| 717 |
| | 753 |
| | 755 |
| | 773 |
| | 749 |
|
Service charges on deposit accounts | 90,681 |
| | 87,582 |
| | 83,420 |
| | 91,577 |
| | 86,847 |
| 98 |
| | 92 |
| | 87 |
| | 94 |
| | 93 |
|
Cards and payment processing income | 53,647 |
| | 52,485 |
| | 47,169 |
| | 49,113 |
| | 44,320 |
| |
Card and payment processing income | | 64 |
| | 63 |
| | 56 |
| | 58 |
| | 57 |
|
Trust and investment management services | | 44 |
| | 43 |
| | 44 |
| | 42 |
| | 43 |
|
Mortgage banking income | 33,615 |
| | 32,268 |
| | 31,692 |
| | 37,520 |
| | 40,603 |
| 54 |
| | 34 |
| | 21 |
| | 23 |
| | 31 |
|
Trust and investment management services | 33,531 |
| | 32,232 |
| | 33,869 |
| | 34,016 |
| | 28,923 |
| |
Capital markets fees | | 36 |
| | 34 |
| | 22 |
| | 34 |
| | 26 |
|
Insurance income | 13,992 |
| | 15,843 |
| | 15,264 |
| | 16,486 |
| | 15,865 |
| 20 |
| | 23 |
| | 21 |
| | 21 |
| | 19 |
|
Brokerage income | 14,458 |
| | 16,294 |
| | 15,758 |
| | 17,014 |
| | 14,719 |
| |
Capital markets fees | 21,719 |
| | 16,836 |
| | 14,200 |
| | 18,730 |
| | 14,750 |
| |
Bank owned life insurance income | 16,453 |
| | 15,322 |
| | 17,542 |
| | 17,067 |
| | 14,452 |
| 18 |
| | 15 |
| | 16 |
| | 16 |
| | 19 |
|
Gain on sale of loans | 13,877 |
| | 12,002 |
| | 12,822 |
| | 24,987 |
| | 7,506 |
| |
Net securities gains (losses) | (33 | ) | | 135 |
| | (8 | ) | | (1,771 | ) | | 1,031 |
| |
Other noninterest income | 38,157 |
| | 44,219 |
| | 40,735 |
| | 29,598 |
| | 33,399 |
| |
Gain on sale of loans and leases | | 13 |
| | 13 |
| | 13 |
| | 16 |
| | 16 |
|
Securities gains (losses) | | — |
| | (2 | ) | | — |
| | (19 | ) | | (2 | ) |
Other income | | 42 |
| | 59 |
| | 39 |
| | 44 |
| | 40 |
|
Total noninterest income | 330,097 |
| | 325,218 |
| | 312,463 |
| | 334,337 |
| | 302,415 |
| 389 |
| | 374 |
| | 319 |
| | 329 |
| | 342 |
|
Personnel costs | 377,088 |
| | 391,997 |
| | 382,000 |
| | 359,755 |
| | 405,024 |
| 406 |
| | 428 |
| | 394 |
| | 399 |
| | 388 |
|
Outside data processing and other services | 79,586 |
| | 75,169 |
| | 87,202 |
| | 88,695 |
| | 91,133 |
| 87 |
| | 89 |
| | 81 |
| | 83 |
| | 69 |
|
Net occupancy | | 38 |
| | 38 |
| | 42 |
| | 70 |
| | 38 |
|
Equipment | 45,458 |
| | 42,924 |
| | 46,700 |
| | 59,666 |
| | 40,792 |
| 41 |
| | 40 |
| | 40 |
| | 48 |
| | 38 |
|
Net occupancy | 55,124 |
| | 52,613 |
| | 67,700 |
| | 49,450 |
| | 41,460 |
| |
Deposit and other insurance expense | | 8 |
| | 8 |
| | 8 |
| | 9 |
| | 18 |
|
Professional services | 15,227 |
| | 18,190 |
| | 18,295 |
| | 23,165 |
| | 47,075 |
| 16 |
| | 12 |
| | 12 |
| | 17 |
| | 17 |
|
Marketing | 16,970 |
| | 18,843 |
| | 13,923 |
| | 21,478 |
| | 14,438 |
| 10 |
| | 11 |
| | 7 |
| | 15 |
| | 12 |
|
Deposit and other insurance expense | 18,514 |
| | 20,418 |
| | 20,099 |
| | 15,772 |
| | 14,940 |
| |
Amortization of intangibles | 14,017 |
| | 14,242 |
| | 14,355 |
| | 14,099 |
| | 9,046 |
| 12 |
| | 12 |
| | 13 |
| | 13 |
| | 13 |
|
Other noninterest expense | 58,444 |
| | 59,968 |
| | 57,148 |
| | 49,417 |
| | 48,339 |
| |
Other expense | | 49 |
| | 62 |
| | 56 |
| | 57 |
| | 58 |
|
Total noninterest expense | 680,428 |
| | 694,364 |
| | 707,422 |
| | 681,497 |
| | 712,247 |
| 667 |
| | 700 |
| | 653 |
| | 711 |
| | 651 |
|
Income before income taxes | 364,512 |
| | 350,388 |
| | 267,378 |
| | 312,915 |
| | 151,753 |
| 439 |
| | 427 |
| | 421 |
| | 391 |
| | 440 |
|
Provision for income taxes | 89,944 |
| | 78,647 |
| | 59,284 |
| | 73,952 |
| | 24,749 |
| 67 |
| | 63 |
| | 63 |
| | 57 |
| | 62 |
|
Net income | 274,568 |
| | 271,741 |
| | 208,094 |
| | 238,963 |
| | 127,004 |
| 372 |
| | 364 |
| | 358 |
| | 334 |
| | 378 |
|
Dividends on preferred shares | 18,903 |
| | 18,889 |
| | 18,878 |
| | 18,865 |
| | 18,537 |
| 18 |
| | 18 |
| | 19 |
| | 19 |
| | 18 |
|
Net income applicable to common shares | $ | 255,665 |
| | $ | 252,852 |
| | $ | 189,216 |
| | $ | 220,098 |
| | $ | 108,467 |
| $ | 354 |
| | $ | 346 |
| | $ | 339 |
| | $ | 315 |
| | $ | 360 |
|
| | | | | | | | | | | | | | | | | | |
Average common shares—basic | 1,086,038 |
| | 1,088,934 |
| | 1,086,374 |
| | 1,085,253 |
| | 938,578 |
| 1,034,940 |
| | 1,044,802 |
| | 1,046,995 |
| | 1,054,460 |
| | 1,084,536 |
|
Average common shares—diluted | 1,106,491 |
| | 1,108,527 |
| | 1,108,617 |
| | 1,104,358 |
| | 952,081 |
| 1,051,273 |
| | 1,060,280 |
| | 1,065,638 |
| | 1,073,055 |
| | 1,103,740 |
|
Net income per common share—basic | $ | 0.24 |
| | $ | 0.23 |
| | $ | 0.17 |
| | $ | 0.20 |
| | $ | 0.12 |
| $ | 0.34 |
| | $ | 0.33 |
| | $ | 0.32 |
| | $ | 0.30 |
| | $ | 0.33 |
|
Net income per common share—diluted | 0.23 |
| | 0.23 |
| | 0.17 |
| | 0.20 |
| | 0.11 |
| 0.34 |
| | 0.33 |
| | 0.32 |
| | 0.29 |
| | 0.33 |
|
Cash dividends declared per common share | 0.08 |
| | 0.08 |
| | 0.08 |
| | 0.08 |
| | 0.07 |
| |
Return on average total assets | 1.08 | % | | 1.09 | % | | 0.84 | % | | 0.95 | % | | 0.58 | % | 1.37 | % | | 1.36 | % | | 1.35 | % | | 1.25 | % | | 1.42 | % |
Return on average common shareholders’ equity | 10.5 |
| | 10.6 |
| | 8.2 |
| | 9.4 |
| | 5.4 |
| 13.4 |
| | 13.5 |
| | 13.8 |
| | 12.9 |
| | 14.3 |
|
Return on average tangible common shareholders’ equity (2) | 14.1 |
| | 14.4 |
| | 11.3 |
| | 12.9 |
| | 7.0 |
| |
Net interest margin (3) | 3.29 |
| | 3.31 |
| | 3.30 |
| | 3.25 |
| | 3.18 |
| |
Efficiency ratio (4) | 60.5 |
| | 62.9 |
| | 65.7 |
| | 61.6 |
| | 75.0 |
| |
Return on average tangible common shareholders’ equity (1) | | 17.3 |
| | 17.7 |
| | 18.3 |
| | 17.3 |
| | 19.0 |
|
Net interest margin (2) | | 3.20 |
| | 3.31 |
| | 3.39 |
| | 3.41 |
| | 3.32 |
|
Efficiency ratio (3) | | 54.7 |
| | 57.6 |
| | 55.8 |
| | 58.7 |
| | 55.3 |
|
Effective tax rate | 24.7 |
| | 22.4 |
| | 22.2 |
| | 23.6 |
| | 16.3 |
| 15.4 |
| | 14.6 |
| | 15.0 |
| | 14.6 |
| | 14.1 |
|
| | | | | | | | | | | | | | | | | | |
Revenue—FTE | | | | | | | | | | | | | | | | | | |
Net interest income | $ | 758,433 |
| | $ | 744,512 |
| | $ | 729,975 |
| | $ | 734,981 |
| | $ | 625,390 |
| $ | 799 |
| | $ | 812 |
| | $ | 822 |
| | $ | 833 |
| | $ | 802 |
|
FTE adjustment | 12,209 |
| | 12,069 |
| | 12,058 |
| | 12,560 |
| | 10,598 |
| 6 |
| | 7 |
| | 7 |
| | 8 |
| | 8 |
|
Net interest income (3) | 770,642 |
| | 756,581 |
| | 742,033 |
| | 747,541 |
| | 635,988 |
| |
Net interest income (2) | | 805 |
| | 819 |
| | 829 |
| | 841 |
| | 810 |
|
Noninterest income | 330,097 |
| | 325,218 |
| | 312,463 |
| | 334,337 |
| | 302,415 |
| 389 |
| | 374 |
| | 319 |
| | 329 |
| | 342 |
|
Total revenue (3) | $ | 1,100,739 |
| | $ | 1,081,799 |
| | $ | 1,054,496 |
| | $ | 1,081,878 |
| | $ | 938,403 |
| |
Total revenue (2) | | $ | 1,194 |
| | $ | 1,193 |
| | $ | 1,148 |
| | $ | 1,170 |
| | $ | 1,152 |
|
|
| | | | | | | | | | | | | | |
| | | | | | | |
Table 2 - Selected Year to Date Income Statements (1) |
| | | | | | | |
| Nine Months Ended September 30, | | Change |
(dollar amounts in thousands, except per share amounts) | 2017 | | 2016 | | Amount | | Percent |
Interest income | $ | 2,539,771 |
| | $ | 1,817,255 |
| | $ | 722,516 |
| | 40 | % |
Interest expense | 306,851 |
| | 182,918 |
| | 123,933 |
| | 68 |
|
Net interest income | 2,232,920 |
| | 1,634,337 |
| | 598,583 |
| | 37 |
|
Provision for credit losses | 136,206 |
| | 115,896 |
| | 20,310 |
| | 18 |
|
Net interest income after provision for credit losses | 2,096,714 |
| | 1,518,441 |
| | 578,273 |
| | 38 |
|
Service charges on deposit accounts | 261,683 |
| | 232,722 |
| | 28,961 |
| | 12 |
|
Cards and payment processing income | 153,301 |
| | 119,951 |
| | 33,350 |
| | 28 |
|
Mortgage banking income | 97,575 |
| | 90,737 |
| | 6,838 |
| | 8 |
|
Trust and investment management services | 99,633 |
| | 74,258 |
| | 25,375 |
| | 34 |
|
Insurance income | 45,099 |
| | 48,037 |
| | (2,938 | ) | | (6 | ) |
Brokerage income | 46,510 |
| | 44,819 |
| | 1,691 |
| | 4 |
|
Capital markets fees | 52,755 |
| | 40,797 |
| | 11,958 |
| | 29 |
|
Bank owned life insurance income | 49,317 |
| | 40,500 |
| | 8,817 |
| | 22 |
|
Gain on sale of loans | 38,701 |
| | 22,166 |
| | 16,535 |
| | 75 |
|
Net securities gains (losses)
| 94 |
| | 1,687 |
| | (1,593 | ) | | (94 | ) |
Other noninterest income | 123,110 |
| | 99,720 |
| | 23,390 |
| | 23 |
|
Total noninterest income | 967,778 |
| | 815,394 |
| | 152,384 |
| | 19 |
|
Personnel costs | 1,151,085 |
| | 989,369 |
| | 161,716 |
| | 16 |
|
Outside data processing and other services | 241,957 |
| | 216,047 |
| | 25,910 |
| | 12 |
|
Equipment | 135,082 |
| | 105,173 |
| | 29,909 |
| | 28 |
|
Net occupancy | 175,437 |
| | 103,640 |
| | 71,797 |
| | 69 |
|
Professional services | 51,712 |
| | 82,101 |
| | (30,389 | ) | | (37 | ) |
Marketing | 49,736 |
| | 41,479 |
| | 8,257 |
| | 20 |
|
Deposit and other insurance expense | 59,031 |
| | 38,335 |
| | 20,696 |
| | 54 |
|
Amortization of intangibles | 42,614 |
| | 16,357 |
| | 26,257 |
| | 161 |
|
Other noninterest expense | 175,560 |
| | 134,487 |
| | 41,073 |
| | 31 |
|
Total noninterest expense | 2,082,214 |
| | 1,726,988 |
| | 355,226 |
| | 21 |
|
Income before income taxes | 982,278 |
| | 606,847 |
| | 375,431 |
| | 62 |
|
Provision for income taxes | 227,875 |
| | 133,989 |
| | 93,886 |
| | 70 |
|
Net income | 754,403 |
| | 472,858 |
| | 281,545 |
| | 60 |
|
Dividends declared on preferred shares | 56,670 |
| | 46,409 |
| | 10,261 |
| | 22 |
|
Net income applicable to common shares | $ | 697,733 |
| | $ | 426,449 |
| | $ | 271,284 |
| | 64 | % |
| | | | | | | |
Average common shares—basic | 1,087,115 |
| | 844,167 |
| | 242,948 |
| | 29 | % |
Average common shares—diluted | 1,107,878 |
| | 856,934 |
| | 250,944 |
| | 29 |
|
Net income per common share—basic | $ | 0.64 |
| | $ | 0.51 |
| | $ | 0.13 |
| | 25 |
|
Net income per common share—diluted | 0.63 |
| | 0.50 |
| | 0.13 |
| | 26 |
|
Cash dividends declared per common share | 0.24 |
| | 0.21 |
| | 0.03 |
| | 14 |
|
| | | | | | | |
Revenue—FTE | | | | | | | |
Net interest income | $ | 2,232,920 |
| | $ | 1,634,337 |
| | $ | 598,583 |
| | 37 | % |
FTE adjustment | 36,336 |
| | 29,848 |
| | 6,488 |
| | 22 |
|
Net interest income (3) | 2,269,256 |
| | 1,664,185 |
| | 605,071 |
| | 36 |
|
Noninterest income | 967,778 |
| | 815,394 |
| | 152,384 |
| | 19 |
|
Total revenue (3) | $ | 3,237,034 |
| | $ | 2,479,579 |
| | $ | 757,455 |
| | 31 | % |
|
| | | | | | | | | | | | | | |
| | | | | | | |
Table 2 - Selected Year to Date Income Statements |
| | | | | | | |
| Nine Months Ended September 30, | | Change |
(dollar amounts in millions, except per share amounts) | 2019 | | 2018 | | Amount | | Percent |
Interest income | $ | 3,190 |
| | $ | 2,893 |
| | $ | 297 |
| | 10 | % |
Interest expense | 757 |
| | 537 |
| | 220 |
| | 41 |
|
Net interest income | 2,433 |
| | 2,356 |
| | 77 |
| | 3 |
|
Provision for credit losses | 208 |
| | 175 |
| | 33 |
| | 19 |
|
Net interest income after provision for credit losses | 2,225 |
| | 2,181 |
| | 44 |
| | 2 |
|
Service charges on deposit accounts | 277 |
| | 270 |
| | 7 |
| | 3 |
|
Card and payment processing income | 183 |
| | 166 |
| | 17 |
| | 10 |
|
Trust and investment management services | 131 |
| | 129 |
| | 2 |
| | 2 |
|
Mortgage banking income | 109 |
| | 85 |
| | 24 |
| | 28 |
|
Capital markets fees | 92 |
| | 74 |
| | 18 |
| | 24 |
|
Insurance income | 64 |
| | 61 |
| | 3 |
| | 5 |
|
Bank owned life insurance income | 49 |
| | 51 |
| | (2 | ) | | (4 | ) |
Gain on sale of loans and leases | 39 |
| | 39 |
| | — |
| | — |
|
Securities gains (losses) | (2 | ) | | (2 | ) | | — |
| | — |
|
Other income | 140 |
| | 119 |
| | 21 |
| | 18 |
|
Total noninterest income | 1,082 |
| | 992 |
| | 90 |
| | 9 |
|
Personnel costs | 1,228 |
| | 1,160 |
| | 68 |
| | 6 |
|
Outside data processing and other services | 257 |
| | 211 |
| | 46 |
| | 22 |
|
Equipment | 121 |
| | 116 |
| | 5 |
| | 4 |
|
Net occupancy | 118 |
| | 114 |
| | 4 |
| | 4 |
|
Professional services | 40 |
| | 43 |
| | (3 | ) | | (7 | ) |
Marketing | 28 |
| | 38 |
| | (10 | ) | | (26 | ) |
Deposit and other insurance expense | 24 |
| | 54 |
| | (30 | ) | | (56 | ) |
Amortization of intangibles | 37 |
| | 40 |
| | (3 | ) | | (8 | ) |
Other expense | 167 |
| | 160 |
| | 7 |
| | 4 |
|
Total noninterest expense | 2,020 |
| | 1,936 |
| | 84 |
| | 4 |
|
Income before income taxes | 1,287 |
| | 1,237 |
| | 50 |
| | 4 |
|
Provision for income taxes | 193 |
| | 178 |
| | 15 |
| | 8 |
|
Net income | 1,094 |
| | 1,059 |
| | 35 |
| | 3 |
|
Dividends declared on preferred shares | 55 |
| | 51 |
| | 4 |
| | 8 |
|
Net income applicable to common shares | $ | 1,039 |
| | $ | 1,008 |
| | $ | 31 |
| | 3 | % |
| | | | | | | |
Average common shares—basic | 1,042,246 |
| | 1,090,570 |
| | (48,324 | ) | | (4 | )% |
Average common shares—diluted | 1,059,064 |
| | 1,116,978 |
| | (57,914 | ) | | (5 | ) |
Net income per common share—basic | $ | 1.00 |
| | $ | 0.92 |
| | $ | 0.08 |
| | 9 |
|
Net income per common share—diluted | 0.98 |
| | 0.90 |
| | 0.08 |
| | 9 |
|
| | | | | | | |
Revenue—FTE | | | | | | | |
Net interest income | $ | 2,433 |
| | $ | 2,356 |
| | $ | 77 |
| | 3 | % |
FTE adjustment | 20 |
| | 22 |
| | (2 | ) | | (9 | ) |
Net interest income (2) | 2,453 |
| | 2,378 |
| | 75 |
| | 3 |
|
Noninterest income | 1,082 |
| | 992 |
| | 90 |
| | 9 |
|
Total revenue (2) | $ | 3,535 |
| | $ | 3,370 |
| | $ | 165 |
| | 5 | % |
| |
(1) | Comparisons for presented periods are impacted by a number of factors. Refer to the “Significant Items” for additional discussion regarding these key factors. |
| |
(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%21% tax rate. |
| |
(3)(2) | On a fully-taxable equivalent (FTE)an FTE basis assuming a 35%21% tax rate. |
| |
(4)(3) | Noninterest expense less amortization of intangibles and goodwill impairment divided by the sum of FTE net interest income and noninterest income excluding securities gains. |
Significant Items
Earnings comparisons are impacted by the Significant Items summarized below:
Mergers and Acquisitions. Significant events relating to mergers and acquisitions, and the impacts of those events on our reported results, are as follows:
During the 2017 third quarter, $31 million of noninterest expense was recorded related to the acquisition of FirstMerit. This resulted in a negative impact of $0.02 per common share.
During the 2017 second quarter, $50 million of noninterest expense was recorded related to the acquisition of FirstMerit. This resulted in a negative impact of $0.03 per common share.
During the 2016 third quarter, $159 million of noninterest expense was recorded related to the then pending acquisition of FirstMerit. This resulted in a negative impact of $0.11 per common share.
The following table reflects the earnings impact of the above-mentioned Significant Items for periods affected:
|
| | | | | | | | | | | | | | | | | | | | | | | |
Table 3 - Significant Items Influencing Earnings Performance Comparison |
(dollar amounts in thousands, except per share amounts) | | | | | | | | | | |
| Three Months Ended |
| September 30, 2017 | | June 30, 2017 | | September 30, 2016 |
| Amount | | EPS (1) | | Amount | | EPS (1) | | Amount | | EPS (1) |
Net income | $ | 274,568 |
| | | | $ | 271,741 |
| | | | $ | 127,004 |
| | |
Earnings per share, after-tax | | | $ | 0.23 |
| | | | $ | 0.23 |
| | | | $ | 0.11 |
|
| | | | | | | | | | | |
Significant Items—favorable (unfavorable) impact: | Earnings | | EPS (1) | | Earnings | | EPS (1) | | Earnings | | EPS (1) |
Mergers and acquisitions, net expenses | $ | (30,733 | ) | | | | $ | (50,243 | ) | | | | $ | (158,749 | ) | | |
Tax impact | 10,757 |
| | | | 17,585 |
| | | | 52,033 |
| | |
Mergers and acquisitions, after-tax | $ | (19,976 | ) |
| $ | (0.02 | ) |
| $ | (32,658 | ) |
| $ | (0.03 | ) | | $ | (106,716 | ) | | $ | (0.11 | ) |
| |
(1) | Based upon the quarterly average outstanding diluted common shares. |
|
| | | | | | | | | | | | | | | |
| Nine Months Ended |
| September 30, 2017 | | September 30, 2016 |
| Amount | | EPS (1) | | Amount | | EPS (1) |
Net income | $ | 754,403 |
| | | | $ | 472,858 |
| | |
Earnings per share, after-tax | | | $ | 0.63 |
| | | | $ | 0.50 |
|
| | | | | | | |
Significant Items—favorable (unfavorable) impact: | Earnings | | EPS (1) | | Earnings | | EPS (1) |
Mergers and acquisitions, net expenses | $ | (152,121 | ) | | | | $ | (185,944 | ) | | |
Tax impact | 53,243 |
| | | | 61,252 |
| | |
Mergers and acquisitions, after-tax | $ | (98,878 | ) | | $ | (0.09 | ) | | $ | (124,692 | ) | | $ | (0.14 | ) |
| |
(1) | Based upon the year to date average outstanding diluted common shares. |
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 Average Balance Sheet and Net Interest Margin Analysis | |
Table 3 - Consolidated Average Balance Sheet and Net Interest Margin Analysis | | Table 3 - Consolidated Average Balance Sheet and Net Interest Margin Analysis |
| | Average Balances | | | | |
| | | | | | Three Months Ended | | Change |
| Average Balances | | | | | September 30, | | June 30, | | March 31, | | December 31, | | September 30, | | 3Q19 vs. 3Q18 |
(dollar amounts in millions) | Three Months Ended | | Change | 2019 | | 2019 | | 2019 | | 2018 | | 2018 | | Amount | | Percent |
| September 30, | | June 30, | | March 31, | | December 31, | | September 30, | | 3Q17 vs. 3Q16 | |
| 2017 | | 2017 | | 2017 | | 2016 | | 2016 | | Amount | | Percent | |
Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing deposits in Federal Reserve Bank (2) | | $ | 514 |
| | $ | 518 |
| | $ | 501 |
| | $ | 483 |
| | $ | — |
| | $ | 514 |
| | 100 | % |
Interest-bearing deposits in banks | $ | 102 |
| | $ | 102 |
| | $ | 100 |
| | $ | 110 |
| | $ | 95 |
| | $ | 7 |
| | 8 | % | 149 |
| | 135 |
| | 109 |
| | 97 |
| | 83 |
| | 66 |
| | 80 |
|
Loans held for sale | 678 |
| | 525 |
| | 415 |
| | 2,507 |
| | 695 |
| | (17 | ) | | (2 | ) | |
Securities: | | | | | | | | | | | | | | | | | | | | | | | | | |
|
|
Available-for-sale and other securities: | | | | | | | | | | | | | | |
Trading account securities | | 137 |
| | 161 |
| | 138 |
| | 131 |
| | 82 |
| | 55 |
| | 67 |
|
Available-for-sale securities: | | | | | | | | | | | | | |
|
|
Taxable | 12,275 |
| | 13,135 |
| | 12,801 |
| | 13,734 |
| | 9,785 |
| | 2,490 |
| | 25 |
| 11,096 |
| | 10,501 |
| | 10,752 |
| | 10,351 |
| | 10,469 |
| | 627 |
| | 6 |
|
Tax-exempt | 3,161 |
| | 3,104 |
| | 3,049 |
| | 3,136 |
| | 2,854 |
| | 307 |
| | 11 |
| 2,820 |
| | 2,970 |
| | 3,048 |
| | 3,176 |
| | 3,496 |
| | (676 | ) | | (19 | ) |
Total available-for-sale and other securities | 15,436 |
| | 16,239 |
| | 15,850 |
| | 16,870 |
| | 12,639 |
| | 2,797 |
| | 22 |
| |
Trading account securities | 92 |
| | 91 |
| | 137 |
| | 139 |
| | 49 |
| | 43 |
| | 88 |
| |
Total available-for-sale securities | | 13,916 |
| | 13,471 |
| | 13,800 |
| | 13,527 |
| | 13,965 |
| | (49 | ) | | — |
|
Held-to-maturity securities—taxable | 8,264 |
| | 7,427 |
| | 7,656 |
| | 5,432 |
| | 5,487 |
| | 2,777 |
| | 51 |
| 8,566 |
| | 8,771 |
| | 8,653 |
| | 8,433 |
| | 8,560 |
| | 6 |
| | — |
|
Other securities | | 437 |
| | 466 |
| | 536 |
| | 565 |
| | 567 |
| | (130 | ) | | (23 | ) |
Total securities | 23,793 |
| | 23,756 |
| | 23,643 |
| | 22,441 |
| | 18,175 |
| | 5,618 |
| | 31 |
| 23,056 |
| | 22,869 |
| | 23,127 |
| | 22,656 |
| | 23,174 |
| | (118 | ) | | (1 | ) |
Loans and leases: (1) | | | | | | | | | | | | | | |
Loans held for sale | | 877 |
| | 734 |
| | 700 |
| | 694 |
| | 745 |
| | 132 |
| | 18 |
|
Loans and leases: (4) | | | | | | | | | | | | | |
|
|
Commercial: | | | | | | | | | | | | | | | | | | | | | | | | | |
|
|
Commercial and industrial | 27,643 |
| | 27,992 |
| | 27,922 |
| | 27,727 |
| | 24,957 |
| | 2,686 |
| | 11 |
| 30,632 |
| | 30,644 |
| | 30,546 |
| | 29,557 |
| | 28,870 |
| | 1,762 |
| | 6 |
|
Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | |
|
|
Construction | 1,152 |
| | 1,130 |
| | 1,314 |
| | 1,413 |
| | 1,132 |
| | 20 |
| | 2 |
| 1,165 |
| | 1,168 |
| | 1,174 |
| | 1,138 |
| | 1,132 |
| | 33 |
| | 3 |
|
Commercial | 6,064 |
| | 5,940 |
| | 6,039 |
| | 5,805 |
| | 5,227 |
| | 837 |
| | 16 |
| 5,762 |
| | 5,732 |
| | 5,686 |
| | 5,806 |
| | 6,019 |
| | (257 | ) | | (4 | ) |
Commercial real estate | 7,216 |
| | 7,070 |
| | 7,353 |
| | 7,218 |
| | 6,359 |
| | 857 |
| | 13 |
| 6,927 |
| | 6,900 |
| | 6,860 |
| | 6,944 |
| | 7,151 |
| | (224 | ) | | (3 | ) |
Total commercial | 34,859 |
| | 35,062 |
| | 35,276 |
| | 34,945 |
| | 31,316 |
| | 3,543 |
| | 11 |
| 37,559 |
| | 37,544 |
| | 37,406 |
| | 36,501 |
| | 36,021 |
| | 1,538 |
| | 4 |
|
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | |
|
|
Automobile | 11,713 |
| | 11,324 |
| | 11,063 |
| | 10,866 |
| | 11,402 |
| | 311 |
| | 3 |
| 12,181 |
| | 12,219 |
| | 12,361 |
| | 12,423 |
| | 12,368 |
| | (187 | ) | | (2 | ) |
Home equity | 9,960 |
| | 9,958 |
| | 10,072 |
| | 10,101 |
| | 9,260 |
| | 700 |
| | 8 |
| 9,353 |
| | 9,482 |
| | 9,641 |
| | 9,817 |
| | 9,873 |
| | (520 | ) | | (5 | ) |
Residential mortgage | 8,402 |
| | 7,979 |
| | 7,777 |
| | 7,690 |
| | 7,012 |
| | 1,390 |
| | 20 |
| 11,214 |
| | 11,010 |
| | 10,787 |
| | 10,574 |
| | 10,236 |
| | 978 |
| | 10 |
|
RV and marine finance | 2,296 |
| | 2,039 |
| | 1,874 |
| | 1,844 |
| | 915 |
| | 1,381 |
| | 151 |
| |
RV and marine | | 3,528 |
| | 3,413 |
| | 3,296 |
| | 3,216 |
| | 3,016 |
| | 512 |
| | 17 |
|
Other consumer | 1,046 |
| | 983 |
| | 919 |
| | 959 |
| | 817 |
| | 229 |
| | 28 |
| 1,261 |
| | 1,264 |
| | 1,284 |
| | 1,291 |
| | 1,237 |
| | 24 |
| | 2 |
|
Total consumer | 33,417 |
| | 32,283 |
| | 31,705 |
| | 31,460 |
| | 29,406 |
| | 4,011 |
| | 14 |
| 37,537 |
| | 37,388 |
| | 37,369 |
| | 37,321 |
| | 36,730 |
| | 807 |
| | 2 |
|
Total loans and leases | 68,276 |
| | 67,345 |
| | 66,981 |
| | 66,405 |
| | 60,722 |
| | 7,554 |
| | 12 |
| 75,096 |
| | 74,932 |
| | 74,775 |
| | 73,822 |
| | 72,751 |
| | 2,345 |
| | 3 |
|
Allowance for loan and lease losses | (672 | ) | | (672 | ) | | (636 | ) | | (614 | ) | | (623 | ) | | (49 | ) | | 8 |
| (799 | ) | | (778 | ) | | (780 | ) | | (777 | ) | | (759 | ) | | (40 | ) | | (5 | ) |
Net loans and leases | 67,604 |
| | 66,673 |
| | 66,345 |
| | 65,791 |
| | 60,099 |
| | 7,505 |
| | 12 |
| 74,297 |
| | 74,154 |
| | 73,995 |
| | 73,045 |
| | 71,992 |
| | 2,305 |
| | 3 |
|
Total earning assets | 92,849 |
| | 91,728 |
| | 91,139 |
| | 91,463 |
| | 79,687 |
| | 13,162 |
| | 17 |
| 99,692 |
| | 99,188 |
| | 99,212 |
| | 97,752 |
| | 96,753 |
| | 2,939 |
| | 3 |
|
Cash and due from banks | 1,299 |
| | 1,287 |
| | 2,011 |
| | 1,538 |
| | 1,325 |
| | (26 | ) | | (2 | ) | 817 |
| | 835 |
| | 853 |
| | 909 |
| | 1,330 |
| | (513 | ) | | (39 | ) |
Intangible assets | 2,359 |
| | 2,373 |
| | 2,387 |
| | 2,421 |
| | 1,547 |
| | 812 |
| | 52 |
| 2,240 |
| | 2,252 |
| | 2,265 |
| | 2,288 |
| | 2,305 |
| | (65 | ) | | (3 | ) |
All other assets | 5,455 |
| | 5,405 |
| | 5,442 |
| | 5,559 |
| | 4,962 |
| | 493 |
| | 10 |
| 6,216 |
| | 5,982 |
| | 5,961 |
| | 5,705 |
| | 5,726 |
| | 490 |
| | 9 |
|
Total assets | $ | 101,290 |
| | $ | 100,121 |
| | $ | 100,343 |
| | $ | 100,367 |
| | $ | 86,898 |
| | $ | 14,392 |
| | 17 | % | $ | 108,166 |
| | $ | 107,479 |
| | $ | 107,511 |
| | $ | 105,877 |
| | $ | 105,355 |
| | $ | 2,811 |
| | 3 | % |
Liabilities and Shareholders’ Equity: | | | | | | | | | | | | | | | | | | | | | | | | | |
|
|
Deposits: | | | | | | | | | | | | | | |
Demand deposits—noninterest-bearing | $ | 21,723 |
| | $ | 21,599 |
| | $ | 21,730 |
| | $ | 23,250 |
| | $ | 20,033 |
| | $ | 1,690 |
| | 8 | % | |
Interest-bearing deposits: | | | | | | | | | | | | | |
|
|
Demand deposits—interest-bearing | 17,878 |
| | 17,445 |
| | 16,805 |
| | 15,294 |
| | 12,362 |
| | 5,516 |
| | 45 |
| $ | 19,796 |
| | $ | 19,693 |
| | 19,770 |
| | $ | 19,860 |
| | $ | 19,553 |
| | $ | 243 |
| | 1 | % |
Total demand deposits | 39,601 |
| | 39,044 |
| | 38,535 |
| | 38,544 |
| | 32,395 |
| | 7,206 |
| | 22 |
| |
Money market deposits | 20,314 |
| | 19,212 |
| | 18,653 |
| | 18,618 |
| | 18,453 |
| | 1,861 |
| | 10 |
| 24,266 |
| | 23,305 |
| | 22,935 |
| | 22,595 |
| | 21,547 |
| | 2,719 |
| | 13 |
|
Savings and other domestic deposits | 11,590 |
| | 11,889 |
| | 11,970 |
| | 12,272 |
| | 8,889 |
| | 2,701 |
| | 30 |
| 9,681 |
| | 10,105 |
| | 10,338 |
| | 10,534 |
| | 11,434 |
| | (1,753 | ) | | (15 | ) |
Core certificates of deposit | 2,044 |
| | 2,146 |
| | 2,342 |
| | 2,636 |
| | 2,285 |
| | (241 | ) | | (11 | ) | |
Total core deposits | 73,549 |
| | 72,291 |
| | 71,500 |
| | 72,070 |
| | 62,022 |
| | 11,527 |
| | 19 |
| |
Core certificates of deposit (5) | | 5,666 |
| | 5,860 |
| | 6,052 |
| | 5,705 |
| | 4,916 |
| | 750 |
| | 15 |
|
Other domestic time deposits of $250,000 or more | 432 |
| | 479 |
| | 470 |
| | 391 |
| | 382 |
| | 50 |
| | 13 |
| 315 |
| | 310 |
| | 335 |
| | 346 |
| | 285 |
| | 30 |
| | 11 |
|
Brokered deposits and negotiable CDs | 3,563 |
| | 3,783 |
| | 3,969 |
| | 4,273 |
| | 3,904 |
| | (341 | ) | | (9 | ) | 2,599 |
| | 2,685 |
| | 3,404 |
| | 3,507 |
| | 3,533 |
| | (934 | ) | | (26 | ) |
Deposits in foreign offices | — |
| | — |
| | — |
| | 152 |
| | 194 |
| | (194 | ) | | — |
| |
Total deposits | 77,544 |
| | 76,553 |
| | 75,939 |
| | 76,886 |
| | 66,502 |
| | 11,042 |
| | 17 |
| |
Total interest-bearing deposits | | 62,323 |
| | 61,958 |
| | 62,834 |
| | 62,547 |
| | 61,268 |
| | 1,055 |
| | 2 |
|
Short-term borrowings | 2,391 |
| | 2,687 |
| | 3,792 |
| | 2,628 |
| | 1,306 |
| | 1,085 |
| | 83 |
| 2,331 |
| | 3,166 |
| | 2,320 |
| | 1,006 |
| | 1,732 |
| | 599 |
| | 35 |
|
Long-term debt | 8,949 |
| | 8,730 |
| | 8,529 |
| | 8,594 |
| | 8,488 |
| | 461 |
| | 5 |
| 9,536 |
| | 8,914 |
| | 8,979 |
| | 8,871 |
| | 8,915 |
| | 621 |
| | 7 |
|
Total interest-bearing liabilities | 67,161 |
| | 66,371 |
| | 66,530 |
| | 64,858 |
| | 56,263 |
| | 10,898 |
| | 19 |
| 74,190 |
| | 74,038 |
| | 74,133 |
| | 72,424 |
| | 71,915 |
| | 2,275 |
| | 3 |
|
Demand deposits—noninterest-bearing | | 19,926 |
| | 19,760 |
| | 19,938 |
| | 20,384 |
| | 20,230 |
| | (304 | ) | | (2 | ) |
All other liabilities | 1,661 |
| | 1,557 |
| | 1,661 |
| | 1,833 |
| | 1,608 |
| | 53 |
| | 3 |
| 2,336 |
| | 2,206 |
| | 2,284 |
| | 2,180 |
| | 2,054 |
| | 282 |
| | 14 |
|
Shareholders’ equity | 10,745 |
| | 10,594 |
| | 10,422 |
| | 10,426 |
| | 8,994 |
| | 1,751 |
| | 19 |
| 11,714 |
| | 11,475 |
| | 11,156 |
| | 10,889 |
| | 11,156 |
| | 558 |
| | 5 |
|
Total liabilities and shareholders’ equity | $ | 101,290 |
| | $ | 100,121 |
| | $ | 100,343 |
| | $ | 100,367 |
| | $ | 86,898 |
| | $ | 14,392 |
| | 17 | % | $ | 108,166 |
| | $ | 107,479 |
| | $ | 107,511 |
| | $ | 105,877 |
| | $ | 105,355 |
| | $ | 2,811 |
| | 3 | % |
| | Table 4 - Consolidated Average Balance Sheet and Net Interest Margin Analysis (Continued) | |
Table 3 - Consolidated Average Balance Sheet and Net Interest Margin Analysis (Continued) | | Table 3 - Consolidated Average Balance Sheet and Net Interest Margin Analysis (Continued) |
| | | | | | | | | | | | | | | | | | |
| Average Yield Rates (2) | Average Yield Rates (3) |
| Three Months Ended | Three Months Ended |
| September 30, | | June 30, | | March 31, | | December 31, | | September 30, | September 30, | | June 30, | | March 31, | | December 31, | | September 30, |
Fully-taxable equivalent basis (3)(1) | 2017 | | 2017 | | 2017 | | 2016 | | 2016 | 2019 | | 2019 | | 2019 | | 2018 | | 2018 |
Assets: | | | | | | | | | | | | | | | | | | |
Interest-bearing deposits in Federal Reserve Bank (2) | | 2.19 | % | | 2.38 | % | | 2.40 | % | | 2.33 | % | | — | % |
Interest-bearing deposits in banks | 1.77 | % | | 1.53 | % | | 1.09 | % | | 0.64 | % | | 0.64 | % | 2.38 |
| | 2.08 |
| | 1.75 |
| | 1.97 |
| | 1.95 |
|
Loans held for sale | 3.83 |
| | 3.73 |
| | 3.82 |
| | 2.95 |
| | 3.53 |
| |
Securities: | | | | | | | | | | | | | | | | | | |
Available-for-sale and other securities: | | | | | | | | | | |
Trading account securities | | 2.36 |
| | 1.92 |
| | 2.03 |
| | 1.94 |
| | 0.26 |
|
Available-for-sale securities: | | | | | | | | | | |
Taxable | 2.42 |
| | 2.38 |
| | 2.38 |
| | 2.43 |
| | 2.35 |
| 2.67 |
| | 2.73 |
| | 2.82 |
| | 2.71 |
| | 2.61 |
|
Tax-exempt | 3.62 |
| | 3.71 |
| | 3.77 |
| | 3.60 |
| | 3.01 |
| 3.63 |
| | 3.66 |
| | 3.69 |
| | 4.12 |
| | 3.53 |
|
Total available-for-sale and other securities | 2.67 |
| | 2.64 |
| | 2.65 |
| | 2.65 |
| | 2.50 |
| |
Trading account securities | 0.16 |
| | 0.25 |
| | 0.11 |
| | 0.18 |
| | 0.58 |
| |
Total available-for-sale securities | | 2.87 |
| | 2.94 |
| | 3.01 |
| | 3.04 |
| | 2.84 |
|
Held-to-maturity securities—taxable | 2.36 |
| | 2.38 |
| | 2.36 |
| | 2.43 |
| | 2.41 |
| 2.51 |
| | 2.54 |
| | 2.52 |
| | 2.45 |
| | 2.43 |
|
Other securities | | 3.15 |
| | 3.44 |
| | 4.51 |
| | 4.24 |
| | 4.58 |
|
Total securities | 2.55 |
| | 2.55 |
| | 2.54 |
| | 2.58 |
| | 2.47 |
| 2.74 |
| | 2.79 |
| | 2.86 |
| | 2.84 |
| | 2.73 |
|
Loans and leases: (1) | | | | | | | | | | |
Loans held for sale | | 3.69 |
| | 4.00 |
| | 4.07 |
| | 4.04 |
| | 4.45 |
|
Loans and leases: (4) | | | | | | | | | | |
Commercial: | | | | | | | | | | | | | | | | | | |
Commercial and industrial | 4.05 |
| | 4.04 |
| | 3.98 |
| | 3.83 |
| | 3.68 |
| 4.57 |
| | 4.82 |
| | 4.91 |
| | 4.81 |
| | 4.64 |
|
Commercial real estate: | | | | | | | | | | | | | | | | | | |
Construction | 4.55 |
| | 4.26 |
| | 3.95 |
| | 3.65 |
| | 3.76 |
| 5.50 |
| | 5.59 |
| | 5.58 |
| | 5.47 |
| | 5.31 |
|
Commercial | 4.08 |
| | 3.97 |
| | 3.69 |
| | 3.54 |
| | 3.54 |
| 4.67 |
| | 4.88 |
| | 5.00 |
| | 4.99 |
| | 4.63 |
|
Commercial real estate | 4.16 |
| | 4.02 |
| | 3.74 |
| | 3.56 |
| | 3.58 |
| 4.81 |
| | 5.00 |
| | 5.10 |
| | 5.07 |
| | 4.74 |
|
Total commercial | 4.07 |
| | 4.04 |
| | 3.93 |
| | 3.78 |
| | 3.66 |
| 4.61 |
| | 4.85 |
| | 4.94 |
| | 4.86 |
| | 4.66 |
|
Consumer: | | | | | | | | | | | | | | | | | | |
Automobile | 3.60 |
| | 3.55 |
| | 3.55 |
| | 3.57 |
| | 3.37 |
| 4.09 |
| | 4.02 |
| | 3.95 |
| | 3.88 |
| | 3.75 |
|
Home equity | 4.72 |
| | 4.61 |
| | 4.45 |
| | 4.24 |
| | 4.21 |
| 5.38 |
| | 5.56 |
| | 5.61 |
| | 5.45 |
| | 5.21 |
|
Residential mortgage | 3.65 |
| | 3.66 |
| | 3.63 |
| | 3.58 |
| | 3.61 |
| 3.80 |
| | 3.84 |
| | 3.86 |
| | 3.82 |
| | 3.78 |
|
RV and marine finance | 5.43 |
| | 5.57 |
| | 5.63 |
| | 5.64 |
| | 5.70 |
| |
RV and marine | | 4.96 |
| | 4.94 |
| | 4.96 |
| | 5.10 |
| | 5.06 |
|
Other consumer | 11.59 |
| | 11.47 |
| | 12.05 |
| | 10.91 |
| | 10.93 |
| 13.34 |
| | 13.29 |
| | 13.07 |
| | 12.35 |
| | 12.16 |
|
Total consumer | 4.32 |
| | 4.27 |
| | 4.23 |
| | 4.13 |
| | 3.97 |
| 4.72 |
| | 4.76 |
| | 4.75 |
| | 4.67 |
| | 4.54 |
|
Total loans and leases | 4.20 |
| | 4.15 |
| | 4.07 |
| | 3.95 |
| | 3.81 |
| 4.67 |
| | 4.80 |
| | 4.85 |
| | 4.76 |
| | 4.60 |
|
Total earning assets | 3.78 |
| | 3.75 |
| | 3.70 |
| | 3.60 |
| | 3.52 |
| 4.21 |
| | 4.35 |
| | 4.40 |
| | 4.32 |
| | 4.16 |
|
Liabilities: | | | | | | | | | | | | | | | | | | |
Deposits: | | | | | | | | | | |
Demand deposits—noninterest-bearing | — |
| | — |
| | — |
| | — |
| | — |
| |
Interest-bearing deposits: | | | | | | | | | | |
Demand deposits—interest-bearing | 0.23 |
| | 0.20 |
| | 0.15 |
| | 0.11 |
| | 0.11 |
| 0.57 |
| | 0.58 |
| | 0.56 |
| | 0.48 |
| | 0.45 |
|
Total demand deposits | 0.10 |
| | 0.09 |
| | 0.07 |
| | 0.04 |
| | 0.04 |
| |
Money market deposits | 0.36 |
| | 0.31 |
| | 0.26 |
| | 0.24 |
| | 0.24 |
| 1.20 |
| | 1.15 |
| | 1.04 |
| | 0.91 |
| | 0.77 |
|
Savings and other domestic deposits | 0.20 |
| | 0.21 |
| | 0.22 |
| | 0.25 |
| | 0.21 |
| 0.22 |
| | 0.23 |
| | 0.23 |
| | 0.23 |
| | 0.24 |
|
Core certificates of deposit(5) | 0.73 |
| | 0.56 |
| | 0.39 |
| | 0.29 |
| | 0.43 |
| 2.17 |
| | 2.15 |
| | 2.11 |
| | 2.00 |
| | 1.82 |
|
Total core deposits | 0.30 |
| | 0.26 |
| | 0.22 |
| | 0.20 |
| | 0.20 |
| |
Other domestic time deposits of $250,000 or more | 0.61 |
| | 0.49 |
| | 0.45 |
| | 0.39 |
| | 0.40 |
| 1.85 |
| | 1.92 |
| | 1.82 |
| | 1.67 |
| | 1.40 |
|
Brokered deposits and negotiable CDs | 1.16 |
| | 0.95 |
| | 0.72 |
| | 0.48 |
| | 0.44 |
| 2.21 |
| | 2.39 |
| | 2.38 |
| | 2.22 |
| | 1.98 |
|
Deposits in foreign offices | — |
| | — |
| | — |
| | 0.13 |
| | 0.13 |
| |
Total deposits | 0.35 |
| | 0.31 |
| | 0.26 |
| | 0.23 |
| | 0.22 |
| |
Total interest-bearing deposits | | 0.98 |
| | 0.97 |
| | 0.94 |
| | 0.84 |
| | 0.73 |
|
Short-term borrowings | 0.95 |
| | 0.78 |
| | 0.63 |
| | 0.36 |
| | 0.29 |
| 2.28 |
| | 2.41 |
| | 2.41 |
| | 2.49 |
| | 1.98 |
|
Long-term debt | 2.65 |
| | 2.49 |
| | 2.33 |
| | 2.19 |
| | 1.97 |
| 3.59 |
| | 3.91 |
| | 3.98 |
| | 3.82 |
| | 3.78 |
|
Total interest-bearing liabilities | 0.68 |
| | 0.61 |
| | 0.54 |
| | 0.48 |
| | 0.49 |
| 1.36 |
| | 1.39 |
| | 1.35 |
| | 1.23 |
| | 1.13 |
|
Demand deposits—noninterest-bearing | | — |
| | — |
| | — |
| | — |
| | — |
|
Net interest rate spread | 3.10 |
| | 3.14 |
| | 3.16 |
| | 3.12 |
| | 3.03 |
| 2.85 |
| | 2.96 |
| | 3.05 |
| | 3.09 |
| | 3.03 |
|
Impact of noninterest-bearing funds on margin | 0.19 |
| | 0.17 |
| | 0.14 |
| | 0.13 |
| | 0.15 |
| 0.35 |
| | 0.35 |
| | 0.34 |
| | 0.32 |
| | 0.29 |
|
Net interest margin | 3.29 | % | | 3.31 | % | | 3.30 | % | | 3.25 | % | | 3.18 | % | 3.20 | % | | 3.31 | % | | 3.39 | % | | 3.41 | % | | 3.32 | % |
| |
(1) | FTE yields are calculated assuming a 21% tax rate. |
| |
(2) | Deposits in Federal Reserve Bank were treated as non-earning assets prior to 4Q 2018. |
| |
(3) | Loan and lease and deposit average yield rates include impact of applicable derivatives, non-deferrable fees, and amortized fees. |
| |
(4) | For purposes of this analysis, NALs are reflected in the average balances of loans. |
| |
(5) | Includes consumer certificates of deposit of $250,000 or more. |
2019 Third Quarter versus 2018 Third Quarter
FTE net interest income for the 2019 third quarter decreased $5 million, or 1%, from the 2018 third quarter. This reflected a 12 basis point decrease in the NIM to 3.20%, partially offset by the benefit from the $2.9 billion, or 3%, increase in average earning assets. The NIM compression reflected a 23 basis point increase in average interest-bearing liability costs, partially offset by a 5 basis point year-over-year increase in average earning asset yields and a 6 basis point increase in the benefit from noninterest-bearing funds. The increase in average interest-bearing liability costs primarily reflects higher interest bearing deposit costs (up 25 basis points). The increase in earning asset yields was primarily driven by higher consumer loan yields as securities yields were relatively flat (up 1 basis point) and commercial loans decreased modestly (down 5 basis points). Embedded within these yields and costs, FTE net interest income during the 2019 third quarter included $11 million, or approximately 4 basis points, of purchase accounting impact compared to $17 million, or approximately 7 basis points, in the year-ago quarter.
Average earning assets for the 2019 third quarter increased $2.9 billion, or 3%, from the year-ago quarter, primarily reflecting a $2.3 billion, or 3%, increase in average loans and leases. Average C&I loans increased $1.8 billion, or 6%, reflecting growth in corporate banking, asset finance, and dealer floorplan. Average residential mortgage loans increased $1.0 billion, or 10%, driven by the successful expansion of our home lending business within our existing markets and the lower rate environment. Average RV and marine loans increased $0.5 billion, or 17%, reflecting market share increases across our markets, while maintaining our commitment to super prime originations. Held-for-sale and other earning assets increased $0.7 billion, or 86%, primarily due to the inclusion of deposits in Federal Reserve Bank balances. These balances were treated as non-earning assets prior to the fourth quarter 2018. Partially offsetting these increases, average home equity loans and lines of credit decreased $0.5 billion, or 5%, reflecting a shift in consumer preferences.
Average total interest-bearing liabilities for the 2019 third quarter increased $2.3 billion, or 3%, from the year-ago quarter. Average total deposits increased $0.8 billion, or 1%, from the year-ago quarter, while average total core deposits increased $1.7 billion, or 2%. Average money market deposits increased $2.7 billion, or 13%, reflecting the shift in promotional pricing to consumer money market accounts in mid-2018. Average core certificates of deposit increased $0.8 billion, or 15%, reflecting consumer deposit growth initiatives in the third quarter of 2018. Savings and other domestic deposits decreased $1.8 billion, or 15%, primarily reflecting a continued shift in consumer product mix. Average brokered deposits and negotiable CDs decreased $0.9 billion, or 26%, as growth in core deposits reduced reliance on wholesale funding.
2019 Third Quarter versus 2019 Second Quarter
Compared to the 2019 second quarter, FTE net interest income decreased $13 million, or 2%, primarily reflecting the NIM compression of 11 basis points, partially offset by a 1% increase in average earning assets. The NIM contraction reflected a 14 basis point decrease in average earning asset yields and a 3 basis point decrease in average interest-bearing liability costs. The decrease in earning asset yields was primarily driven by the impact of lower LIBOR rates in the quarter on commercial loan yields. The decrease in average interest-bearing liability costs primarily reflects lower short-term borrowing costs. The purchase accounting impact on the NIM was approximately 4 basis points in the 2019 third quarter, down 1 basis point from the prior quarter.
Average earning assets increased $0.5 billion, or 1%, from 2019 second quarter. Average consumer loans were relatively unchanged, as modest increases in residential mortgage and RV and marine loans were largely offset by a decline in home equity loans.
Average total interest-bearing liabilities increased $0.2 billion, or less than 1%. Average total deposits increased $0.5 billion, or 1%, as the $1.0 billion, or 4%, increase in money market accounts more than offset the $0.4 billion, or 4%, decrease in savings deposits, primarily reflecting promotional money market pricing and a continued shift in consumer product mix. Reflecting changes in the wholesale funding mix, average long-term debt increased $0.6 billion, or 7%, due to the $0.8 billion senior note issuance in August, while average short-term borrowings decreased $0.8 billion, or 26%.
|
| | | | | | | | | | | | | | | | | | | | |
Table 4 - Consolidated YTD Average Balance Sheets and Net Interest Margin Analysis |
(dollar amounts in millions) | | | | | | | | | | | |
| YTD Average Balances | | YTD Average Rates (3) |
| Nine Months Ended September 30, | | Change | | Nine Months Ended September 30, |
Fully-taxable equivalent basis (1) | 2019 | | 2018 | | Amount | | Percent | | 2019 | | 2018 |
Assets: | | | | | | | | | | | |
Interest-bearing deposits in Federal Reserve Bank (2) | $ | 511 |
| | $ | — |
| | $ | 511 |
| | 100 | % | | 2.32 | % | | — | % |
Interest-bearing deposits in banks | 131 |
| | 86 |
| | 45 |
| | 52 |
| | 2.10 |
| | 1.95 |
|
Securities: | | | | |
|
| |
|
| | | | |
Trading account securities | 146 |
| | 84 |
| | 62 |
| | 74 |
| | 2.10 |
| | 0.21 |
|
Available-for-sale securities: | | | | |
|
| |
|
| | | | |
Taxable | 10,784 |
| | 10,817 |
| | (33 | ) | | — |
| | 2.74 |
| | 2.58 |
|
Tax-exempt | 2,945 |
| | 3,561 |
| | (616 | ) | | (17 | ) | | 3.66 |
| | 3.35 |
|
Total available-for-sale securities | 13,729 |
| | 14,378 |
| | (649 | ) | | (5 | ) | | 2.94 |
| | 2.77 |
|
Held-to-maturity securities—taxable | 8,663 |
| | 8,713 |
| | (50 | ) | | (1 | ) | | 2.52 |
| | 2.43 |
|
Other securities | 479 |
| | 590 |
| | (111 | ) | | (19 | ) | | 3.75 |
| | 4.38 |
|
Total securities | 23,017 |
| | 23,765 |
| | (748 | ) | | (3 | ) | | 2.79 |
| | 2.69 |
|
Loans held for sale | 771 |
| | 615 |
| | 156 |
| | 25 |
| | 3.90 |
| | 4.19 |
|
Loans and leases: (4) | | | | | | |
|
| | | | |
Commercial: | | | | | | |
|
| | | | |
Commercial and industrial | 30,608 |
| | 28,661 |
| | 1,947 |
| | 7 |
| | 4.77 |
| | 4.48 |
|
Commercial real estate: | | | | | | |
|
| | | | |
Construction | 1,169 |
| | 1,149 |
| | 20 |
| | 2 |
| | 5.56 |
| | 5.09 |
|
Commercial | 5,727 |
| | 6,131 |
| | (404 | ) | | (7 | ) | | 4.85 |
| | 4.49 |
|
Commercial real estate | 6,896 |
| | 7,280 |
| | (384 | ) | | (5 | ) | | 4.97 |
| | 4.58 |
|
Total commercial | 37,504 |
| | 35,941 |
| | 1,563 |
| | 4 |
| | 4.80 |
| | 4.50 |
|
Consumer: | | | | | | |
|
| | | | |
Automobile | 12,253 |
| | 12,247 |
| | 6 |
| | — |
| | 4.02 |
| | 3.65 |
|
Home equity | 9,491 |
| | 9,948 |
| | (457 | ) | | (5 | ) | | 5.51 |
| | 5.07 |
|
Residential mortgage | 11,005 |
| | 9,682 |
| | 1,323 |
| | 14 |
| | 3.83 |
| | 3.71 |
|
RV and marine | 3,413 |
| | 2,723 |
| | 690 |
| | 25 |
| | 4.95 |
| | 5.09 |
|
Other consumer | 1,270 |
| | 1,175 |
| | 95 |
| | 8 |
| | 13.29 |
| | 11.91 |
|
Total consumer | 37,432 |
| | 35,775 |
| | 1,657 |
| | 5 |
| | 4.74 |
| | 4.44 |
|
Total loans and leases | 74,936 |
| | 71,716 |
| | 3,220 |
| | 4 |
| | 4.77 |
| | 4.47 |
|
Allowance for loan and lease losses | (786 | ) | | (737 | ) | | (49 | ) | | (7 | ) | | | | |
Net loans and leases | 74,150 |
| | 70,979 |
| | 3,171 |
| | 4 |
| | | | |
Total earning assets | 99,366 |
| | 96,182 |
| | 3,184 |
| | 3 |
| | 4.32 | % | | 4.05 | % |
Cash and due from banks | 835 |
| | 1,277 |
| | (442 | ) | | (35 | ) | | | | |
Intangible assets | 2,252 |
| | 2,318 |
| | (66 | ) | | (3 | ) | | | | |
All other assets | 6,054 |
| | 5,640 |
| | 414 |
| | 7 |
| | | | |
Total assets | $ | 107,721 |
| | $ | 104,680 |
| | $ | 3,041 |
| | 3 | % | | | | |
Liabilities and Shareholders’ Equity: | | | | | | |
|
| | | | |
Interest-bearing deposits: | | | | | | |
|
| | | | |
Demand deposits—interest-bearing | $ | 19,763 |
| | $ | 19,105 |
| | $ | 658 |
| | 3 | % | | 0.57 | % | | 0.37 | % |
Money market deposits | 23,507 |
| | 21,059 |
| | 2,448 |
| | 12 |
| | 1.13 |
| | 0.61 |
|
Savings and other domestic deposits | 10,039 |
| | 11,267 |
| | (1,228 | ) | | (11 | ) | | 0.23 |
| | 0.22 |
|
Core certificates of deposit (5) | 5,858 |
| | 3,677 |
| | 2,181 |
| | 59 |
| | 2.14 |
| | 1.57 |
|
Other domestic time deposits of $250,000 or more | 320 |
| | 259 |
| | 61 |
| | 24 |
| | 1.86 |
| | 1.05 |
|
Brokered deposits and negotiable CDs | 2,893 |
| | 3,501 |
| | (608 | ) | | (17 | ) | | 2.33 |
| | 1.76 |
|
Total interest-bearing deposits | 62,380 |
| | 58,868 |
| | 3,512 |
| | 6 |
| | 0.96 |
| | 0.59 |
|
Short-term borrowings | 2,605 |
| | 3,335 |
| | (730 | ) | | (22 | ) | | 2.37 |
| | 1.67 |
|
Long-term debt | 9,145 |
| | 9,033 |
| | 112 |
| | 1 |
| | 3.82 |
| | 3.48 |
|
Total interest-bearing liabilities | 74,130 |
| | 71,236 |
| | 2,894 |
| | 4 |
| | 1.36 |
| | 1.01 |
|
Demand deposits—noninterest-bearing | $ | 19,864 |
| | $ | 20,393 |
| | (529 | ) | | (3 | ) | | — |
| | — |
|
All other liabilities | 2,277 |
| | 1,935 |
| | 342 |
| | 18 |
| | | | |
Shareholders’ equity | 11,450 |
| | 11,116 |
| | 334 |
| | 3 |
| | | | |
Total liabilities and shareholders’ equity | $ | 107,721 |
| | $ | 104,680 |
| | $ | 3,041 |
| | 3 | % | | | | |
Net interest rate spread | | | | | | | | | 2.96 |
| | 3.05 |
|
Impact of noninterest-bearing funds on margin | | | | | | | | | 0.34 |
| | 0.26 |
|
Net interest margin | | | | | | | | | 3.30 | % | | 3.31 | % |
| |
(1) | FTE yields are calculated assuming a 21% tax rate. |
| |
(2) | Deposits in Federal Reserve Bank were treated as non-earning assets prior to 4Q 2018 |
| |
(3) | Loan and lease and deposit average rates include impact of applicable derivatives, non-deferrable fees, and amortized fees. |
| |
(3) | FTE yields are calculated assuming a 35% tax rate. |
2017 Third Quarter versus 2016 Third Quarter
Fully-taxable equivalent (FTE) net interest income for the 2017 third quarter increased $135 million, or 21%, from the 2016 third quarter. This reflected the benefit from the $13.2 billion, or 17%, increase in average earning assets coupled with an 11 basis point improvement in the FTE net interest margin (NIM) to 3.29%. Average earning asset growth included a $7.6 billion, or 12%, increase in average loans and leases and a $5.6 billion, or 31%, increase in average securities.The NIM expansion reflected a 26 basis point increase related to the mix and yield of earning assets and a 4 basis point increase in the benefit from noninterest-bearing funds, partially offset by a 19 basis point increase in funding costs. FTE net interest income during the 2017 third quarter included $27 million, or approximately 12 basis points, of purchase accounting impact.
Average earning assets for the 2017 third quarter increased $13.2 billion, or 17%, from the year-ago quarter, primarily reflecting the impact of the FirstMerit acquisition. Average securities increased $5.6 billion, or 31%, which included a $0.3 billion increase in direct purchase municipal instruments in our commercial banking segment. Average residential mortgage loans increased $1.4 billion, or 20%, as we continue to see the benefits associated with the expansion of our home lending business. Average RV and marine finance loans increased $1.4 billion, or 151%, reflecting the expansion of the acquired business into 17 new states over the past year.
Average total deposits for the 2017 third quarter increased $11.0 billion, or 17%, from the year-ago quarter, while average total core deposits increased $11.5 billion, or 19%. Average total interest-bearing liabilities increased $10.9 billion, or 19%, from the year-ago quarter. These increases primarily reflect the impact of the FirstMerit acquisition. Average demand deposits increased $7.2 billion, or 22%, comprised of a $5.1 billion, or 24%, increase in average commercial demand deposits and a $2.1 billion, or 20%, increase in average consumer demand deposits. Average long-term borrowings increased $0.5 billion, or 5%, reflecting the issuance of $2.7 billion and maturity of $1.6 billion of senior debt over the past five quarters.
2017 Third Quarter versus 2017 Second Quarter
Compared to the 2017 second quarter, FTE net interest income increased $14 million, or 2%. Average earning assets increased $1.1 billion, or 1%, sequentially, while the NIM decreased 2 basis points.The decrease in the NIM reflected a 7 basis point increase in the cost of interest-bearing liabilities, partially offset by a 3 basis point increase in earning asset yields and a 2 basis point increase in the benefit from noninterest-bearing funds. The purchase accounting impact on the net interest margin was approximately 12 basis points in the 2017 third quarter compared to approximately 15 basis points in the prior quarter.
Compared to the 2017 second quarter, average earning assets increased $1.1 billion, or 1%. Average loans and leases increased $0.9 billion, or 1%, primarily reflecting growth in residential mortgage, automobile, and RV and marine loans partially offset by a decline in average commercial and industrial loans. Average commercial and industrial loans were negatively impacted by the seasonal decline in automobile floorplan lending, a reduction in mortgage warehouse lending, and continued runoff in corporate banking, partially offset by growth in asset finance.
Compared to the 2017 second quarter, average total core deposits increased $1.3 billion, or 2%, primarily reflecting a $1.1 billion, or 6%, increase in money market deposits and a $0.6 billion, or 1%, increase in average demand deposits.
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
Table 5 - Consolidated YTD Average Balance Sheets and Net Interest Margin Analysis |
| | | | | | | | | | | |
(dollar amounts in millions) | YTD Average Balances | | YTD Average Rates (2) |
| Nine Months Ended September 30, | | Change | | Nine Months Ended September 30, |
Fully-taxable equivalent basis (1) | 2017 | | 2016 | | Amount | | Percent | | 2017 | | 2016 |
Assets: | | | | | | | | | | | |
Interest-bearing deposits in banks | $ | 102 |
| | $ | 97 |
| | $ | 5 |
| | 5 | % | | 1.46 | % | | 0.37 | % |
Loans held for sale | 540 |
| | 567 |
| | (27 | ) | | (5 | ) | | 3.79 |
| | 3.76 |
|
Securities: | | | | |
|
| |
|
| | | | |
Available-for-sale and other securities: | | | | |
|
| |
|
| | | | |
Taxable | 12,735 |
| | 7,781 |
| | 4,954 |
| | 64 |
| | 2.40 |
| | 2.37 |
|
Tax-exempt | 3,105 |
| | 2,576 |
| | 529 |
| | 21 |
| | 3.70 |
| | 3.25 |
|
Total available-for-sale and other securities | 15,840 |
| | 10,357 |
| | 5,483 |
| | 53 |
| | 2.65 |
| | 2.59 |
|
Trading account securities | 107 |
| | 43 |
| | 64 |
| | 149 |
| | 0.17 |
| | 0.68 |
|
Held-to-maturity securities—taxable | 7,785 |
| | 5,781 |
| | 2,004 |
| | 35 |
| | 2.37 |
| | 2.43 |
|
Total securities | 23,732 |
| | 16,181 |
| | 7,551 |
| | 47 |
| | 2.55 |
| | 2.53 |
|
Loans and leases: (3) | | | | |
|
| |
|
| | | | |
Commercial: | | | | |
|
| |
|
| | | | |
Commercial and industrial | 27,852 |
| | 22,326 |
| | 5,526 |
| | 25 |
| | 4.03 |
| | 3.57 |
|
Commercial real estate: | | | | |
|
| |
|
| | | | |
Construction | 1,198 |
| | 979 |
| | 219 |
| | 22 |
| | 4.24 |
| | 3.66 |
|
Commercial | 6,014 |
| | 4,621 |
| | 1,393 |
| | 30 |
| | 3.92 |
| | 3.50 |
|
Commercial real estate | 7,212 |
| | 5,600 |
| | 1,612 |
| | 29 |
| | 3.97 |
| | 3.52 |
|
Total commercial | 35,064 |
| | 27,926 |
| | 7,138 |
| | 26 |
| | 4.01 |
| | 3.56 |
|
Consumer: | | | | |
|
| |
|
| | | | |
Automobile | 11,369 |
| | 10,430 |
| | 939 |
| | 9 |
| | 3.57 |
| | 3.24 |
|
Home equity | 9,983 |
| | 8,708 |
| | 1,275 |
| | 15 |
| | 4.60 |
| | 4.19 |
|
Residential mortgage | 8,055 |
| | 6,406 |
| | 1,649 |
| | 26 |
| | 3.65 |
| | 3.65 |
|
RV and marine finance | 2,071 |
| | 307 |
| | 1,764 |
| | 575 |
| | 5.54 |
| | 5.70 |
|
Other consumer | 997 |
| | 670 |
| | 327 |
| | 49 |
| | 11.53 |
| | 10.46 |
|
Total consumer | 32,475 |
| | 26,521 |
| | 5,954 |
| | 22 |
| | 4.27 |
| | 3.86 |
|
Total loans and leases | 67,539 |
| | 54,447 |
| | 13,092 |
| | 24 |
| | 4.14 |
| | 3.71 |
|
Allowance for loan and lease losses | (660 | ) | | (614 | ) | | (46 | ) | | 7 |
| | | | |
Net loans and leases | 66,879 |
| | 53,833 |
| | 13,046 |
| | 24 |
| | | | |
Total earning assets | 91,913 |
| | 71,292 |
| | 20,621 |
| | 29 |
| | 3.75 | % | | 3.46 | % |
Cash and due from banks | 1,530 |
| | 1,114 |
| | 416 |
| | 37 |
| | | | |
Intangible assets | 2,373 |
| | 1,003 |
| | 1,370 |
| | 137 |
| | | | |
All other assets | 5,433 |
| | 4,446 |
| | 987 |
| | 22 |
| | | | |
Total assets | $ | 100,589 |
| | $ | 77,241 |
| | $ | 23,348 |
| | 30 | % | | | | |
Liabilities and Shareholders’ Equity: | | | | | | | | | | | |
Deposits: | | | | | | | | | | | |
Demand deposits—noninterest-bearing | $ | 21,684 |
| | $ | 17,634 |
| | $ | 4,050 |
| | 23 | % | | — | % | | — | % |
Demand deposits—interest-bearing | 17,380 |
| | 9,538 |
| | 7,842 |
| | 82 |
| | 0.20 |
| | 0.10 |
|
Total demand deposits | 39,064 |
| | 27,172 |
| | 11,892 |
| | 44 |
| | 0.09 |
| | 0.03 |
|
Money market deposits | 19,399 |
| | 19,220 |
| | 179 |
| | 1 |
| | 0.31 |
| | 0.24 |
|
Savings and other domestic deposits | 11,815 |
| | 6,541 |
| | 5,274 |
| | 81 |
| | 0.21 |
| | 0.16 |
|
Core certificates of deposit | 2,176 |
| | 2,186 |
| | (10 | ) | | — |
| | 0.55 |
| | 0.67 |
|
Total core deposits | 72,454 |
| | 55,119 |
| | 17,335 |
| | 31 |
| | 0.26 |
| | 0.21 |
|
Other domestic time deposits of $250,000 or more | 460 |
| | 413 |
| | 47 |
| | 11 |
| | 0.51 |
| | 0.40 |
|
Brokered deposits and negotiable CDs | 3,770 |
| | 3,239 |
| | 531 |
| | 16 |
| | 0.93 |
| | 0.41 |
|
Deposits in foreign offices | — |
| | 222 |
| | (222 | ) | | — |
| | — |
| | 0.13 |
|
Total deposits | 76,684 |
| | 58,993 |
| | 17,691 |
| | 30 |
| | 0.31 |
| | 0.23 |
|
Short-term borrowings | 2,952 |
| | 1,161 |
| | 1,791 |
| | 154 |
| | 0.76 |
| | 0.32 |
|
Long-term debt | 8,738 |
| | 7,866 |
| | 872 |
| | 11 |
| | 2.49 |
| | 1.84 |
|
Total interest-bearing liabilities | 66,690 |
| | 50,386 |
| | 16,304 |
| | 32 |
| | 0.61 |
| | 0.48 |
|
All other liabilities | 1,627 |
| | 1,513 |
| | 114 |
| | 8 |
| | | | |
Shareholders’ equity | 10,588 |
| | 7,708 |
| | 2,880 |
| | 37 |
| | | | |
Total liabilities and shareholders’ equity | $ | 100,589 |
| | $ | 77,241 |
| | $ | 23,348 |
| | 30 | % | | | | |
Net interest rate spread | | | | | | | | | 3.13 |
| | 2.98 |
|
Impact of noninterest-bearing funds on margin | | | | | | | | | 0.17 |
| | 0.14 |
|
Net interest margin | | | | | | | | | 3.30 | % | | 3.12 | % |
| |
(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)(4) | For purposes of this analysis, nonaccrual loansNALs are reflected in the average balances of loans. |
| |
(5) | Includes consumer certificates of deposit of $250,000 or more. |
20172019 First Nine Months versus 20162018 First Nine Months
FTE net interest income for the first nine-month period of 20172019 increased $605$75 million, or 36%3%. This reflected the benefit of a $20.6$3.2 billion, or 29%3%, increase in average total earning assets coupled withand a 1 basis point decrease in the FTE net interest margin, which increasedNIM to 3.30% from 3.12%. Average securities increased $7.6 billion, or 47%, primarily reflecting the acquisition of FirstMerit and an increase in direct purchase municipal instruments in our commercial banking segment. Average loans and leases increased $13.1 $3.2 billion, or 24%4%, primarily reflecting an increase in C&I, lending, residential mortgage loans and RV and marine finance resultinglending. Average earning asset yields increased 27 basis points sequentially, driven by a 30 basis point increase in loan yields. Average funding costs increased 35 basis points, primarily driven by higher cost of interest-bearing deposits (up 37 basis points) and long-term debt (up 34 basis points). Average short-term borrowing costs increased 70 basis points, while the benefit from the acquisition of FirstMerit.noninterest-bearing funding improved 8 basis points.
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 credit losses inherent in the loan and lease portfolio and the portfolio of unfunded loan commitments and letters-of-credit.
The provision for credit losses for the 20172019 third quarter was $44$82 million, which decreased $20increased $29 million, or 32%55%, compared to the third quarter 2016. NCOs increased $3 million to $43 million compared with the same period in the prior year reflecting an increase in consumer net charge-offs, partially offset by a decrease in commercial net charge-offs. Net charge-offs represented an annualized 0.25% of average loans and leases, which remains below our long-term expectation of 35 to 55 basis points.
2018. On a year-to-date basis, provision for credit losses for the first nine-month period of 20172019 was $136$208 million, an increase of $20$33 million, or 18%19%, compared to the year-ago period, reflecting increased net charge-offs dueperiod. The increase from the 2018 third quarter and prior year-to-date provision for credit losses is attributed to portfolio loan growth.higher commercial losses.
Noninterest Income
The following table reflects noninterest income for each of the periods presented:
| | Table 6 - Noninterest Income | |
Table 5 - Noninterest Income | | Table 5 - Noninterest Income |
| Three Months Ended | | 3Q17 vs. 3Q16 | | 3Q17 vs. 2Q17 | Three Months Ended | | 3Q19 vs. 3Q18 | | 3Q19 vs. 2Q19 |
| September 30, | | June 30, | | September 30, | | Change | | Change | September 30, | | June 30, | | September 30, | | Change | | Change |
(dollar amounts in thousands) | 2017 | | 2017 | | 2016 | | Amount | | Percent | | Amount | | Percent | |
(dollar amounts in millions) | | 2019 | | 2019 | | 2018 | | Amount | | Percent | | Amount | | Percent |
Service charges on deposit accounts | $ | 90,681 |
| | $ | 87,582 |
| | $ | 86,847 |
| | $ | 3,834 |
| | 4 | % | | $ | 3,099 |
| | 4 | % | $ | 98 |
| | $ | 92 |
| | $ | 93 |
| | $ | 5 |
| | 5 | % | | $ | 6 |
| | 7 | % |
Cards and payment processing income | 53,647 |
| | 52,485 |
| | 44,320 |
| | 9,327 |
| | 21 |
| | 1,162 |
| | 2 |
| |
Card and payment processing income | | 64 |
| | 63 |
| | 57 |
| | 7 |
| | 12 |
| | 1 |
| | 2 |
|
Trust and investment management services | | 44 |
| | 43 |
| | 43 |
| | 1 |
| | 2 |
| | 1 |
| | 2 |
|
Mortgage banking income | 33,615 |
| | 32,268 |
| | 40,603 |
| | (6,988 | ) | | (17 | ) | | 1,347 |
| | 4 |
| 54 |
| | 34 |
| | 31 |
| | 23 |
| | 74 |
| | 20 |
| | 59 |
|
Trust and investment management services | 33,531 |
| | 32,232 |
| | 28,923 |
| | 4,608 |
| | 16 |
| | 1,299 |
| | 4 |
| |
Capital markets fees | | 36 |
| | 34 |
| | 26 |
| | 10 |
| | 38 |
| | 2 |
| | 6 |
|
Insurance income | 13,992 |
| | 15,843 |
| | 15,865 |
| | (1,873 | ) | | (12 | ) | | (1,851 | ) | | (12 | ) | 20 |
| | 23 |
| | 19 |
| | 1 |
| | 5 |
| | (3 | ) | | (13 | ) |
Brokerage income | 14,458 |
| | 16,294 |
| | 14,719 |
| | (261 | ) | | (2 | ) | | (1,836 | ) | | (11 | ) | |
Capital markets fees | 21,719 |
| | 16,836 |
| | 14,750 |
| | 6,969 |
| | 47 |
| | 4,883 |
| | 29 |
| |
Bank owned life insurance income | 16,453 |
| | 15,322 |
| | 14,452 |
| | 2,001 |
| | 14 |
| | 1,131 |
| | 7 |
| 18 |
| | 15 |
| | 19 |
| | (1 | ) | | (5 | ) | | 3 |
| | 20 |
|
Gain on sale of loans | 13,877 |
| | 12,002 |
| | 7,506 |
| | 6,371 |
| | 85 |
| | 1,875 |
| | 16 |
| |
Net securities gains (losses) | (33 | ) | | 135 |
| | 1,031 |
| | (1,064 | ) | | (103 | ) | | (168 | ) | | (124 | ) | |
Other noninterest income | 38,157 |
| | 44,219 |
| | 33,399 |
| | 4,758 |
| | 14 |
| | (6,062 | ) | | (14 | ) | |
Gain on sale of loans and leases | | 13 |
| | 13 |
| | 16 |
| | (3 | ) | | (19 | ) | | — |
| | — |
|
Securities gains (losses) | | — |
| | (2 | ) | | (2 | ) | | 2 |
| | 100 |
| | 2 |
| | 100 |
|
Other income | | 42 |
| | 59 |
| | 40 |
| | 2 |
| | 5 |
| | (17 | ) | | (29 | ) |
Total noninterest income | $ | 330,097 |
| | $ | 325,218 |
| | $ | 302,415 |
| | $ | 27,682 |
| | 9 | % | | $ | 4,879 |
| | 2 | % | $ | 389 |
| | $ | 374 |
| | $ | 342 |
| | $ | 47 |
| | 14 | % | | $ | 15 |
| | 4 | % |
20172019 Third Quarter versus 20162018 Third Quarter
NoninterestTotal noninterest income for the 20172019 third quarter increased $28$47 million, or 9%14%, from the year-ago quarter,quarter. Mortgage banking income increased $23 million, or 74%, primarily reflecting higher overall salable spreads and $8 million from net MSR risk management. Capital markets fees increased $10 million, or 38%, driven by increased underwriting activity associated with the impact of the FirstMeritHutchinson, Shockey, Erley & Co. acquisition. Card and payment processing income increased $9 million, or 21%, due to higher credit and debit card related income and underlying customer growth. Capital markets fees increased $7 million, or 47%12%, reflecting our ongoing strategic focusand service charges on expanding the business. Gain on sale of loans increased $6 million, or 85%, as a result of continued expansion of our SBA lending business. Other incomedeposit accounts increased $5 million, or 14%5%, both primarily reflecting a $5 million benefit from derivative ineffectiveness and a $3 million increase in servicing income. These increases were partially offset by a $7 million decline in mortgage banking income due to lower spreads on origination volume.increased account activity.
20172019 Third Quarter versus 20172019 Second Quarter
ComparedCompared to the 20172019 second quarter, total noninterest income increased $5$15 million, or 2%4%. Capital markets feesMortgage banking income increased $5$20 million, or 59%, primarily reflecting higher overall salable spreads and a $10 million increase in net MSR risk management. Service charges on deposit accounts increased $6 million, or 7%, primarily reflecting seasonality. Partially offsetting these increases, other income decreased $17 million, or 29%, as a resultprimarily reflecting the $15 million gain on the sale of the previously-mentioned expansion ofWisconsin retail branches and a $5 million mark-to-market adjustment on economic hedges in the business. Conversely, other income decreased2019 second quarter, whereas the 2019 third quarter included a $6 million or 14%, primarily reflecting a decreaseincrease in loan syndication fees.mezzanine gains.
| | Table 7 - Noninterest Income—2017 First Nine Months vs. 2016 First Nine Months | |
Table 6 - Noninterest Income—2019 First Nine Months Ended vs. 2018 First Nine Months Ended | | Table 6 - Noninterest Income—2019 First Nine Months Ended vs. 2018 First Nine Months Ended |
| | | | | | | | Nine Months Ended September 30, | | Change |
| Nine Months Ended September 30, | | Change | |
(dollar amounts in thousands) | 2017 | | 2016 | | Amount | | Percent | |
(dollar amounts in millions) | | 2019 | | 2018 | | Amount | | Percent |
Service charges on deposit accounts | $ | 261,683 |
| | $ | 232,722 |
| | $ | 28,961 |
| | 12 | % | $ | 277 |
| | $ | 270 |
| | $ | 7 |
| | 3 | % |
Cards and payment processing income | 153,301 |
| | 119,951 |
| | 33,350 |
| | 28 |
| |
Card and payment processing income | | 183 |
| | 166 |
| | 17 |
| | 10 |
|
Trust and investment management services | | 131 |
| | 129 |
| | 2 |
| | 2 |
|
Mortgage banking income | 97,575 |
| | 90,737 |
| | 6,838 |
| | 8 |
| 109 |
| | 85 |
| | 24 |
| | 28 |
|
Trust and investment management services | 99,633 |
| | 74,258 |
| | 25,375 |
| | 34 |
| |
Capital markets fees | | 92 |
| | 74 |
| | 18 |
| | 24 |
|
Insurance income | 45,099 |
| | 48,037 |
| | (2,938 | ) | | (6 | ) | 64 |
| | 61 |
| | 3 |
| | 5 |
|
Brokerage income | 46,510 |
| | 44,819 |
| | 1,691 |
| | 4 |
| |
Capital markets fees | 52,755 |
| | 40,797 |
| | 11,958 |
| | 29 |
| |
Bank owned life insurance income | 49,317 |
| | 40,500 |
| | 8,817 |
| | 22 |
| 49 |
| | 51 |
| | (2 | ) | | (4 | ) |
Gain on sale of loans | 38,701 |
| | 22,166 |
| | 16,535 |
| | 75 |
| |
Net securities gains (losses) | 94 |
| | 1,687 |
| | (1,593 | ) | | (94 | ) | |
Other noninterest income | 123,110 |
| | 99,720 |
| | 23,390 |
| | 23 |
| |
Gain on sale of loans and leases | | 39 |
| | 39 |
| | — |
| | — |
|
Securities gains (losses) | | (2 | ) | | (2 | ) | | — |
| | — |
|
Other income | | 140 |
| | 119 |
| | 21 |
| | 18 |
|
Total noninterest income | $ | 967,778 |
| | $ | 815,394 |
| | $ | 152,384 |
| | 19 | % | $ | 1,082 |
| | $ | 992 |
| | $ | 90 |
| | 9 | % |
Noninterest income for the first nine-month period of 20172019 increased $152$90 million, or 19%9%, from the year-ago period primarily reflecting. Mortgage banking income increased $24 million or 28%, driven by higher salable spreads. Other income increased $21 million, or 18%, as a result of the gain on the sale of the Wisconsin retail branches and the impact of the FirstMerit acquisition. Service chargesnew lease accounting standard with regard to the presentation of income for personal property tax on deposit accountsleased assets. Capital market fees increased $29$18 million, or 12%24%, reflectingdriven by increased underwriting activity primarily associated with the benefit of the FirstMeritHutchinson, Shockey, Erley & Co. acquisition and continued new customer acquisition.. Cards and payment processing income increased $33$17 million, or 28%10%, due to an increase in credit and debit card transactions and underlying customer growth. Trust and investment management services increased $25 million, or 34%, primarily reflecting an increase in assets under management as a result of the FirstMerit acquisition.increased account activity.
Noninterest Expense
(This section should be read in conjunction with Significant Items 1.)
The following table reflects noninterest expense for each of the periods presented:
| | Table 8 - Noninterest Expense | |
Table 7 - Noninterest Expense | | Table 7 - Noninterest Expense |
| Three Months Ended | | 3Q17 vs. 3Q16 | | 3Q17 vs. 2Q17 | Three Months Ended | | 3Q19 vs. 3Q18 | | 3Q19 vs. 2Q19 |
| September 30, | | June 30, | | September 30, | | Change | | Change | September 30, | | June 30, | | September 30, | | Change | | Change |
(dollar amounts in thousands) | 2017 | | 2017 | | 2016 | | Amount | | Percent | | Amount | | Percent | |
(dollar amounts in millions) | | 2019 | | 2019 | | 2018 | | Amount | | Percent | | Amount | | Percent |
Personnel costs | $ | 377,088 |
| | $ | 391,997 |
| | $ | 405,024 |
| | $ | (27,936 | ) | | (7 | )% | | $ | (14,909 | ) | | (4 | )% | $ | 406 |
| | $ | 428 |
| | $ | 388 |
| | $ | 18 |
| | 5 | % | | $ | (22 | ) | | (5 | )% |
Outside data processing and other services | 79,586 |
| | 75,169 |
| | 91,133 |
| | (11,547 | ) | | (13 | ) | | 4,417 |
| | 6 |
| 87 |
| | 89 |
| | 69 |
| | 18 |
| | 26 |
| | (2 | ) | | (2 | ) |
Net occupancy | | 38 |
| | 38 |
| | 38 |
| | — |
| | — |
| | — |
| | — |
|
Equipment | 45,458 |
| | 42,924 |
| | 40,792 |
| | 4,666 |
| | 11 |
| | 2,534 |
| | 6 |
| 41 |
| | 40 |
| | 38 |
| | 3 |
| | 8 |
| | 1 |
| | 3 |
|
Net occupancy | 55,124 |
| | 52,613 |
| | 41,460 |
| | 13,664 |
| | 33 |
| | 2,511 |
| | 5 |
| |
Deposit and other insurance expense | | 8 |
| | 8 |
| | 18 |
| | (10 | ) | | (56 | ) | | — |
| | — |
|
Professional services | 15,227 |
| | 18,190 |
| | 47,075 |
| | (31,848 | ) | | (68 | ) | | (2,963 | ) | | (16 | ) | 16 |
| | 12 |
| | 17 |
| | (1 | ) | | (6 | ) | | 4 |
| | 33 |
|
Marketing | 16,970 |
| | 18,843 |
| | 14,438 |
| | 2,532 |
| | 18 |
| | (1,873 | ) | | (10 | ) | 10 |
| | 11 |
| | 12 |
| | (2 | ) | | (17 | ) | | (1 | ) | | (9 | ) |
Deposit and other insurance expense | 18,514 |
| | 20,418 |
| | 14,940 |
| | 3,574 |
| | 24 |
| | (1,904 | ) | | (9 | ) | |
Amortization of intangibles | 14,017 |
| | 14,242 |
| | 9,046 |
| | 4,971 |
| | 55 |
| | (225 | ) | | (2 | ) | 12 |
| | 12 |
| | 13 |
| | (1 | ) | | (8 | ) | | — |
| | — |
|
Other noninterest expense | 58,444 |
| | 59,968 |
| | 48,339 |
| | 10,105 |
| | 21 |
| | (1,524 | ) | | (3 | ) | |
Other expense | | 49 |
| | 62 |
| | 58 |
| | (9 | ) | | (16 | ) | | (13 | ) | | (21 | ) |
Total noninterest expense | $ | 680,428 |
| | $ | 694,364 |
| | $ | 712,247 |
| | $ | (31,819 | ) | | (4 | )% | | $ | (13,936 | ) | | (2 | )% | $ | 667 |
| | $ | 700 |
| | $ | 651 |
| | $ | 16 |
| | 2 | % | | $ | (33 | ) | | (5 | )% |
Number of employees (average full-time equivalent) | 15,508 |
| | 15,877 |
| | 14,511 |
| | 997 |
| | 7 | % | | (369 | ) | | (2 | )% | 15,659 |
| | 15,780 |
| | 15,772 |
| | (113 | ) | | (1 | )% | | (121 | ) | | (1 | )% |
Impacts of Significant Items:
|
| | | | | | | | | | | |
| Three Months Ended |
| September 30, | | June 30, | | September 30, |
(dollar amounts in thousands) | 2017 | | 2017 | | 2016 |
Personnel costs | $ | 4,362 |
| | $ | 17,934 |
| | $ | 76,199 |
|
Outside data processing and other services | 3,304 |
| | 6,246 |
| | 27,639 |
|
Equipment | 6,505 |
| | 3,994 |
| | 4,739 |
|
Net occupancy | 14,255 |
| | 14,415 |
| | 7,116 |
|
Professional services | 2,038 |
| | 3,804 |
| | 33,679 |
|
Marketing | 17 |
| | 112 |
| | 926 |
|
Other noninterest expense | 252 |
| | 3,738 |
| | 8,451 |
|
Total noninterest expense adjustments | $ | 30,733 |
| | $ | 50,243 |
| | $ | 158,749 |
|
Adjusted Noninterest Expense (See Non-GAAP Financial Measures in the Additional Disclosures section):
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | 3Q17 vs. 3Q16 | | 3Q17 vs. 2Q17 |
| September 30, | | June 30, | | September 30, | | Change | | Change |
(dollar amounts in thousands) | 2017 | | 2017 | | 2016 | | Amount | | Percent | | Amount | | Percent |
Personnel costs | $ | 372,726 |
| | $ | 374,063 |
| | $ | 328,825 |
| | $ | 43,901 |
| | 13 | % | | $ | (1,337 | ) | | — | % |
Outside data processing and other services | 76,282 |
| | 68,923 |
| | 63,494 |
| | 12,788 |
| | 20 |
| | 7,359 |
| | 11 |
|
Equipment | 38,953 |
| | 38,930 |
| | 36,053 |
| | 2,900 |
| | 8 |
| | 23 |
| | — |
|
Net occupancy | 40,869 |
| | 38,198 |
| | 34,344 |
| | 6,525 |
| | 19 |
| | 2,671 |
| | 7 |
|
Professional services | 13,189 |
| | 14,386 |
| | 13,396 |
| | (207 | ) | | (2 | ) | | (1,197 | ) | | (8 | ) |
Marketing | 16,953 |
| | 18,731 |
| | 13,512 |
| | 3,441 |
| | 25 |
| | (1,778 | ) | | (9 | ) |
Deposit and other insurance expense | 18,514 |
| | 20,418 |
| | 14,940 |
| | 3,574 |
| | 24 |
| | (1,904 | ) | | (9 | ) |
Amortization of intangibles | 14,017 |
| | 14,242 |
| | 9,046 |
| | 4,971 |
| | 55 |
| | (225 | ) | | (2 | ) |
Other noninterest expense | 58,192 |
| | 56,230 |
| | 39,888 |
| | 18,304 |
| | 46 |
| | 1,962 |
| | 3 |
|
Total adjusted noninterest expense (Non-GAAP) | $ | 649,695 |
| | $ | 644,121 |
| | $ | 553,498 |
| | $ | 96,197 |
| | 17 | % | | $ | 5,574 |
| | 1 | % |
20172019 Third Quarter versus 20162018 Third Quarter
ReportedTotal noninterest expense for the 20172019 third quarter increased $16 million, or 2%, from the year-ago quarter. Personnel costs increased $18 million, or 5%, primarily reflecting the shift toward colleagues supporting our core strategies and the implementation of annual merit increases in the 2019 second quarter. Outside data processing and other services increased $18 million, or 26%, primarily driven by higher technology investment costs. Deposit and other insurance expense decreased $32$10 million, or 56%, due to the discontinuation of the FDIC surcharge in the 2018 fourth quarter. Other expense decreased $9 million, or 16%, primarily as a result of operational losses in the third quarter 2018 and reduced OREO and other credit-related expense.
2019 Third Quarter versus 2019 Second Quarter
Total noninterest expense decreased $33 million, or 5%, from the 2019 second quarter. Personnel costs decreased $22 million, or 5%, primarily reflecting the timing of equity compensation expense in the second quarter and lower benefits expense. Other expense decreased $13 million, or 21%, primarily as a result of a $5 million Columbus Foundation donation and other discretionary spend in the 2019 second quarter.
|
| | | | | | | | | | | | | | |
Table 8 - Noninterest Expense—2019 First Nine Months Ended vs. 2018 First Nine Months Ended |
| | | | | | | |
| Nine Months Ended September 30, | | Change |
(dollar amounts in millions) | 2019 | | 2018 | | Amount | | Percent |
Personnel costs | $ | 1,228 |
| | $ | 1,160 |
| | $ | 68 |
| | 6 | % |
Outside data processing and other services | 257 |
| | 211 |
| | 46 |
| | 22 |
|
Net occupancy | 118 |
| | 114 |
| | 4 |
| | 4 |
|
Equipment | 121 |
| | 116 |
| | 5 |
| | 4 |
|
Deposit and other insurance expense | 24 |
| | 54 |
| | (30 | ) | | (56 | ) |
Professional services | 40 |
| | 43 |
| | (3 | ) | | (7 | ) |
Marketing | 28 |
| | 38 |
| | (10 | ) | | (26 | ) |
Amortization of intangibles | 37 |
| | 40 |
| | (3 | ) | | (8 | ) |
Other expense | 167 |
| | 160 |
| | 7 |
| | 4 |
|
Total noninterest expense | $ | 2,020 |
| | $ | 1,936 |
| | $ | 84 |
| | 4 | % |
Noninterest expense increased $84 million, or 4%, from the year-ago quarter, period. Personnel costs increased $68 million, or 6%, primarily reflecting the year-over-year decrease in FirstMerit acquisition-related Significant Items. Personnel costs decreased $28 million, or 7%, primarily reflecting a $72 million net decrease in acquisition-related personnel expense partially offset by a 7% increase in average full-time equivalent employees. Professional services decreased $32 million, or 68%, reflecting the net decrease in Significant Items. Outside data processingshift toward colleagues supporting our core strategies, and other services decreased $12 million, or 13%, reflecting the $24 million net decrease in Significant Items partially offset by higher card and data processing expense from increased usage. Partially offsetting these decreases, other expense increased $10 million, or 21%, primarily reflecting a $5 million increase in donations and sponsorships and a $3 million impairment of certain equipment lease residuals. The 2017 third quarter noninterest expense also included approximately $12 million of nonrecurring net expense, not included in Significant Items, from personnel, operational, and efficiency improvement efforts, including the previously announced consolidation of 38 full-service branches, 7 drive-through only locations, and 3 corporate offices.
2017 Third Quarter versus 2017 Second Quarter
Reported noninterest expense decreased $14 million, or 2%, from the 2017 second quarter, including a $20 million net decrease in Significant Items. Personnel costs decreased $15 million, or 4%, reflecting a $14 million net decrease in acquisition-related expenses.
|
| | | | | | | | | | | | | | |
Table 9 - Noninterest Expense—2017 First Nine Months vs. 2016 First Nine Months |
| | | | | | | |
| Nine Months Ended September 30, | | Change |
(dollar amounts in thousands) | 2017 | | 2016 | | Amount | | Percent |
Personnel costs | $ | 1,151,085 |
| | $ | 989,369 |
| | $ | 161,716 |
| | 16 | % |
Outside data processing and other services | 241,957 |
| | 216,047 |
| | 25,910 |
| | 12 |
|
Equipment | 135,082 |
| | 105,173 |
| | 29,909 |
| | 28 |
|
Net occupancy | 175,437 |
| | 103,640 |
| | 71,797 |
| | 69 |
|
Professional services | 51,712 |
| | 82,101 |
| | (30,389 | ) | | (37 | ) |
Marketing | 49,736 |
| | 41,479 |
| | 8,257 |
| | 20 |
|
Deposit and other insurance expense | 59,031 |
| | 38,335 |
| | 20,696 |
| | 54 |
|
Amortization of intangibles | 42,614 |
| | 16,357 |
| | 26,257 |
| | 161 |
|
Other noninterest expense | 175,560 |
| | 134,487 |
| | 41,073 |
| | 31 |
|
Total noninterest expense | $ | 2,082,214 |
| | $ | 1,726,988 |
| | $ | 355,226 |
| | 21 | % |
Impacts of Significant Items:
|
| | | | | | | |
| Nine Months Ended September 30, |
(dollar amounts in thousands) | 2017 | | 2016 |
Personnel costs | $ | 41,851 |
| | $ | 81,405 |
|
Outside data processing and other services | 24,025 |
| | 31,047 |
|
Equipment | 16,262 |
| | 4,743 |
|
Net occupancy | 52,012 |
| | 7,626 |
|
Professional services | 10,060 |
| | 48,676 |
|
Marketing | 945 |
| | 1,180 |
|
Other noninterest expense | 9,116 |
| | 11,267 |
|
Total noninterest expense adjustments | $ | 154,271 |
| | $ | 185,944 |
|
Adjusted Noninterest Expense (See Non-GAAP Financial Measures in Additional Disclosures section):
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Change |
(dollar amounts in thousands) | 2017 | | 2016 | | Amount | | Percent |
Personnel costs | $ | 1,109,234 |
| | $ | 907,964 |
| | $ | 201,270 |
| | 22 | % |
Outside data processing and other services | 217,932 |
| | 185,000 |
| | 32,932 |
| | 18 |
|
Equipment | 118,820 |
| | 100,430 |
| | 18,390 |
| | 18 |
|
Net occupancy | 123,425 |
| | 96,014 |
| | 27,411 |
| | 29 |
|
Professional services | 41,652 |
| | 33,425 |
| | 8,227 |
| | 25 |
|
Marketing | 48,791 |
| | 40,299 |
| | 8,492 |
| | 21 |
|
Deposit and other insurance expense | 59,031 |
| | 38,335 |
| | 20,696 |
| | 54 |
|
Amortization of intangibles | 42,614 |
| | 16,357 |
| | 26,257 |
| | 161 |
|
Other noninterest expense | 166,444 |
| | 123,220 |
| | 43,224 |
| | 35 |
|
Total adjusted noninterest expense (Non-GAAP) | $ | 1,927,943 |
| | $ | 1,541,044 |
| | $ | 386,899 |
| | 25 | % |
Reported noninterest expense increased $355 million, or 21%, from the year-ago period, primarily reflecting the impact of the FirstMerit acquisition, including Significant Items. Personnel costs increased $162 million, or 16%, primarily reflecting a 21% increase in the number of average full-time equivalent employees largely related to the additional colleagues during the integration and conversion of FirstMerit as well as the in-store branch expansion. Net occupancy expense increased $72 million, or 69%, largely due to an increase of $44 million of acquisition-related expense.annual merit increases. Outside data processing and other services increased $26$46 million, or 12%22%, primarily reflectingdriven by higher cardtechnology investment costs. Other expense increased $7 million, or 4%, primarily as a result of a Columbus Foundation donation in the 2019 second quarter and data processingthe impact of the new lease accounting standard on personal property tax expense fromand increased usage partially offset by a decline in acquisition-related expenses. Depositoperational losses. Offsetting these increases, deposit and other insurance expense increased $21 million, or 54%, reflecting the larger assessment based and the FDIC Large Institution Surcharge implemented during the 2016 third quarter. Other noninterest expense increased $41 million, or 31%, reflecting the impact of the acquisition as well as a $5 million
increase in donations and sponsorships and a $3 million impairment on certain equipment lease residuals. These increases were partially offset by a decrease ofdecreased $30 million, or 37%56%, due to the discontinuation of the FDIC surcharge in professional services the 2018 fourth quarter and marketing expense decreased $10 million, or 26%, reflecting a $39 million decrease in acquisition-related expenses.the number and timing of marketing campaigns and deposit promotions.
Provision for Income Taxes
The provision for income taxes in the 20172019 third quarter was $90$67 million. This compared with a provision for income taxes of $25$62 million in the 20162018 third quarter and $79$63 million in the 20172019 second quarter. The provision for income taxes for the nine monthnine-month periods ended September 30, 20172019 and September 30, 20162018 was $228$193 million and $134$178 million, respectively. All periods included the benefits from tax-exempt income, tax-advantaged investments, general business credits, investments in qualified affordable housing projects, excess tax deductions for stock-based compensation, and capital losses. The effective tax rates for the 20172019 third quarter, 20162018 third quarter, and 20172019 second quarter were 24.7%15.4%, 16.3%14.1%, and 22.4%14.6%, respectively. The effective tax rates for the nine-month periods ended September 30, 20172019 and September 30, 20162018 were 23.2%15.0% and 22.1%14.4%, respectively. The variance between the 20172019 third quarter compared to the 20162018 third quarter, and 2017 second quarter and for the nine-monthnine month period ended September 30, 20172019 compared to the nine-monthnine month period ended September 30, 20162018 in the provision for income taxes and effective tax rates relates primarily to the Significant Items.activity in stock-based compensation. The net federal deferred tax assetliability was $29$213 million and the net state deferred tax asset was $35$34 million at September 30, 2017.2019.
We file income tax returns with the IRS and various state, city, and foreign jurisdictions. Federal income tax audits have been completed for tax years through 2009. TheCertain proposed adjustments resulting from the IRS is currently examiningexamination of our 2010 andthrough 2011 consolidated federal income tax returns.returns have been settled, subject to final approval by the Joint Committee on Taxation of the U.S. Congress. While the statute of limitations remains open for tax years 2012-2016,2012 through 2017, the IRS has advised that tax years 2012-20142012 through 2014 will not be audited, and plans to beginis currently examining the examination of the 2015 and 2016 federal income tax return during the 2017 fourth quarter.returns. Various state and other jurisdictions remain open to examination, including Ohio, Kentucky, Indiana, Michigan, Pennsylvania, West Virginia, Wisconsin, and Illinois.
RISK MANAGEMENT AND CAPITAL
We use a multi-faceted approach to risk governance. It begins with the boardBoard of directorsDirectors defining our risk appetite as aggregate moderate-to-low. Risk awareness, identification and assessment, reporting, and active management are key elements in overall risk management. Controls include, among others, effective segregation of duties, access, authorization and reconciliation procedures, as well as staff education and a disciplined assessment process.
We believe that our primary risk exposures are credit, market, liquidity, operational and compliance oriented.compliance. More information on risk can be found in the Risk Factors section included in Item 1A of our 20162018 Form 10-K and subsequent filings with the SEC. The MD&A included in our 20162018 Form 10-K should be read in conjunction with this MD&A as this discussion provides only material updates to the Form 10-K. This MD&A should also be read in conjunction with the financial statements, notesUnaudited Condensed Consolidated Financial Statements, Notes to Unaudited Condensed Consolidated Financial Statements, and other information contained in this report. Our definition, philosophy, and approach to risk management have not materially changed from the discussion presented in the 20162018 Form 10-K. Credit Risk
Credit risk is the risk of financial loss if a counterparty is not able to meet the agreed upon terms of the financial obligation. The majority of our credit risk is associated with lending activities, as the acceptance and management of credit risk is central to profitable lending. We also have credit risk associated with our AFS and HTMinvestment securities portfolios (see(see Note 4 "Investment Securities and Note 5Other Securities" of the Notes to the Unaudited Condensed Consolidated Financial Statements). We engage with other financial counterparties for a variety of purposes including investing, asset and liability management, mortgage banking, and trading activities. A variety of derivative financial instruments, principally interest rate swaps, caps, floors, and collars, are used in asset and liability management activities to protect against the risk of adverse price or interest rate movements. Huntington also uses derivatives, principally loan sale commitments, in hedging its mortgage loan interest rate lock commitments and its mortgage loans held for sale. While there is credit risk associated with derivative activity, we believe this exposure is minimal. We continue to focus on the identification, monitoring, and managingmanagement of our credit risk. In addition to the traditional credit risk mitigation strategies of credit policies and processes, market risk management activities, and portfolio diversification, we use quantitative measurement capabilities utilizing external data sources, enhanced modeling technology, and internal stress testing processes. Our portfolio management resources demonstrate our commitment to maintaining an aggregate moderate-to-low risk profile. In our efforts to continue to identify risk mitigation techniques, we have focused on product design features, origination policies, and solutions for delinquent or stressed borrowers.
Loan and Lease Credit Exposure Mix
Refer to the “Loan and Lease Credit Exposure Mix” section of our 20162018 Form 10-K for a brief description of each portfolioportfolio segment.
The table below provides the composition of our total loan and lease portfolio:
| | Table 10 - Loan and Lease Portfolio Composition | |
Table 9 - Loan and Lease Portfolio Composition | | Table 9 - Loan and Lease Portfolio Composition |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(dollar amounts in millions) | September 30, 2017 | | June 30, 2017 | | March 31, 2017 | | December 31, 2016 | | September 30, 2016 | September 30, 2019 | | June 30, 2019 | | March 31, 2019 | | December 31, 2018 | | September 30, 2018 |
Ending Balances by Type: | | | | | | | | | | | | | | | | | | | | |
Commercial: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | $ | 27,469 |
| | 40 | % | | $ | 27,969 |
| | 41 | % | | $ | 28,176 |
| | 42 | % | | $ | 28,059 |
| | 42 | % | | $ | 27,668 |
| | 42 | % | $ | 30,394 |
| | 41 | % | | $ | 30,608 |
| | 41 | % | | $ | 30,972 |
| | 41 | % | | $ | 30,605 |
| | 41 | % | | $ | 29,196 |
| | 40 | % |
Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Construction | 1,182 |
| | 2 |
| | 1,145 |
| | 2 |
| | 1,107 |
| | 2 |
| | 1,446 |
| | 2 |
| | 1,414 |
| | 2 |
| 1,157 |
| | 2 |
| | 1,146 |
| | 1 |
| | 1,152 |
| | 2 |
| | 1,185 |
| | 2 |
| | 1,111 |
| | 2 |
|
Commercial | 6,024 |
| | 9 |
| | 6,000 |
| | 9 |
| | 5,986 |
| | 9 |
| | 5,855 |
| | 9 |
| | 5,842 |
| | 9 |
| 5,698 |
| | 8 |
| | 5,742 |
| | 8 |
| | 5,643 |
| | 8 |
| | 5,657 |
| | 8 |
| | 5,962 |
| | 8 |
|
Commercial real estate | 7,206 |
| | 11 |
| | 7,145 |
| | 11 |
| | 7,093 |
| | 11 |
| | 7,301 |
| | 11 |
| | 7,256 |
| | 11 |
| 6,855 |
| | 10 |
| | 6,888 |
| | 9 |
| | 6,795 |
| | 10 |
| | 6,842 |
| | 10 |
| | 7,073 |
| | 10 |
|
Total commercial | 34,675 |
| | 51 |
| | 35,114 |
| | 52 |
| | 35,269 |
| | 53 |
| | 35,360 |
| | 53 |
| | 34,924 |
| | 53 |
| 37,249 |
| | 51 |
| | 37,496 |
| | 50 |
| | 37,767 |
| | 51 |
| | 37,447 |
| | 51 |
| | 36,269 |
| | 50 |
|
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Automobile | 11,876 |
| | 17 |
| | 11,555 |
| | 17 |
| | 11,155 |
| | 17 |
| | 10,969 |
| | 16 |
| | 10,791 |
| | 16 |
| 12,292 |
| | 15 |
| | 12,173 |
| | 16 |
| | 12,272 |
| | 16 |
| | 12,429 |
| | 16 |
| | 12,375 |
| | 17 |
|
Home equity | 9,985 |
| | 15 |
| | 9,966 |
| | 15 |
| | 9,974 |
| | 15 |
| | 10,106 |
| | 15 |
| | 10,120 |
| | 15 |
| 9,300 |
| | 12 |
| | 9,419 |
| | 12 |
| | 9,551 |
| | 13 |
| | 9,722 |
| | 13 |
| | 9,850 |
| | 13 |
|
Residential mortgage | 8,616 |
| | 13 |
| | 8,237 |
| | 12 |
| | 7,829 |
| | 12 |
| | 7,725 |
| | 12 |
| | 7,665 |
| | 12 |
| 11,247 |
| | 15 |
| | 11,182 |
| | 15 |
| | 10,885 |
| | 14 |
| | 10,728 |
| | 14 |
| | 10,459 |
| | 14 |
|
RV and marine finance | 2,371 |
| | 3 |
| | 2,178 |
| | 3 |
| | 1,935 |
| | 2 |
| | 1,846 |
| | 3 |
| | 1,840 |
| | 3 |
| |
RV and marine | | 3,553 |
| | 5 |
| | 3,492 |
| | 5 |
| | 3,344 |
| | 4 |
| | 3,254 |
| | 4 |
| | 3,152 |
| | 4 |
|
Other consumer | 1,064 |
| | 1 |
| | 1,009 |
| | 1 |
| | 936 |
| | 1 |
| | 956 |
| | 1 |
| | 964 |
| | 1 |
| 1,251 |
| | 2 |
| | 1,271 |
| | 2 |
| | 1,260 |
| | 2 |
| | 1,320 |
| | 2 |
| | 1,265 |
| | 2 |
|
Total consumer | 33,912 |
| | 49 |
| | 32,945 |
| | 48 |
| | 31,829 |
| | 47 |
| | 31,602 |
| | 47 |
| | 31,380 |
| | 47 |
| 37,643 |
| | 49 |
| | 37,537 |
| | 50 |
| | 37,312 |
| | 49 |
| | 37,453 |
| | 49 |
| | 37,101 |
| | 50 |
|
Total loans and leases | $ | 68,587 |
| | 100 | % | | $ | 68,059 |
| | 100 | % | | $ | 67,098 |
| | 100 | % | | $ | 66,962 |
| | 100 | % | | $ | 66,304 |
| | 100 | % | $ | 74,892 |
| | 100 | % | | $ | 75,033 |
| | 100 | % | | $ | 75,079 |
| | 100 | % | | $ | 74,900 |
| | 100 | % | | $ | 73,370 |
| | 100 | % |
Our loan portfolio is composed of a managed mix of consumer and commercial credits. At the corporate level, we manage the overall credit exposure and portfolio composition in part via a credit concentration policy. The policy designates specific loan types, collateral types, and loan structures to be formally tracked and assigned maximum exposure limits as a percentage of capital. C&I lending by NAICS categories, specific limits for CRE project types, loans secured by residential real estate, shared national credit exposure,large dollar exposures, and designated high risk loan definitions represent examples of specifically tracked components of our concentration management process. There are no identified concentrations that exceed the assigned exposure limit. Our concentration management policy is approved by the ROC of the Board of Directors and is one of the strategies used to ensure a high quality, well diversified portfolio that is consistent with our overall objective of maintaining an aggregate moderate-to-low risk profile. Changes to existing concentration limits require the approval of the ROC prior to implementation, incorporating specific information relating to the potential impact on the overall portfolio composition and performance metrics.
Commercial Credit
Refer to the “Commercial Credit”“Commercial Credit” section of our 20162018 Form 10-K for our commercial credit underwriting and on-going credit management processes.
Consumer Credit
Refer to the “Consumer Credit”“Consumer Credit” section of our 20162018 Form 10-K for our consumer credit underwriting and on-going credit management processes.
The table below provides our total loan and lease portfolio segregated by industry type. The changes in the industry composition from December 31, 20162018 are consistent with the portfolio growth.growth metrics.
| | Table 11 - Loan and Lease Portfolio by Industry Type | |
Table 10 - Loan and Lease Portfolio by Industry Type | | Table 10 - Loan and Lease Portfolio by Industry Type |
| | | | | | | | | | | | | | | | | | | | |
(dollar amounts in millions) | | | | | | | | | | | | | | | | | | | | September 30, 2019 | | June 30, 2019 | | March 31, 2019 | | December 31, 2018 | | September 30, 2018 |
| September 30, 2017 | | June 30, 2017 | | March 31, 2017 | | December 31, 2016 | | September 30, 2016 | |
Commercial loans and leases: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate and rental and leasing | $ | 7,461 |
| | 11 | % | | $ | 7,588 |
| | 12 | % | | $ | 7,482 |
| | 12 | % | | $ | 7,545 |
| | 11 | % | | $ | 7,513 |
| | 12 | % | $ | 6,826 |
| | 9 | % | | $ | 6,983 |
| | 9 | % | | $ | 6,955 |
| | 9 | % | | $ | 6,964 |
| | 9 | % | | $ | 7,187 |
| | 10 | % |
Manufacturing | 4,874 |
| | 7 |
| | 4,916 |
| | 7 |
| | 5,048 |
| | 8 |
| | 4,937 |
| | 7 |
| | 4,931 |
| | 7 |
| 5,141 |
| | 7 |
| | 5,329 |
| | 7 |
| | 5,338 |
| | 7 |
| | 5,140 |
| | 7 |
| | 4,817 |
| | 7 |
|
Retail trade (1) | 4,643 |
| | 7 |
| | 4,805 |
| | 7 |
| | 4,902 |
| | 7 |
| | 4,758 |
| | 7 |
| | 4,588 |
| | 7 |
| 5,031 |
| | 7 |
| | 5,161 |
| | 7 |
| | 5,266 |
| | 7 |
| | 5,337 |
| | 7 |
| | 4,987 |
| | 7 |
|
Finance and insurance | 2,900 |
| | 4 |
| | 3,051 |
| | 4 |
| | 2,844 |
| | 4 |
| | 2,010 |
| | 3 |
| | 2,289 |
| | 3 |
| 3,308 |
| | 4 |
| | 3,473 |
| | 5 |
| | 3,457 |
| | 5 |
| | 3,377 |
| | 5 |
| | 3,345 |
| | 5 |
|
Health care and social assistance | 2,727 |
| | 4 |
| | 2,699 |
| | 4 |
| | 2,727 |
| | 4 |
| | 2,729 |
| | 4 |
| | 2,638 |
| | 4 |
| 2,604 |
| | 3 |
| | 2,497 |
| | 3 |
| | 2,575 |
| | 3 |
| | 2,533 |
| | 3 |
| | 2,582 |
| | 4 |
|
Wholesale trade | 2,070 |
| | 3 |
| | 2,058 |
| | 3 |
| | 2,181 |
| | 3 |
| | 2,071 |
| | 3 |
| | 2,009 |
| | 3 |
| 2,449 |
| | 3 |
| | 2,604 |
| | 3 |
| | 2,725 |
| | 4 |
| | 2,830 |
| | 4 |
| | 2,609 |
| | 4 |
|
Accommodation and food services | 1,653 |
| | 2 |
| | 1,660 |
| | 2 |
| | 1,652 |
| | 2 |
| | 1,678 |
| | 3 |
| | 1,612 |
| | 2 |
| 2,008 |
| | 3 |
| | 1,868 |
| | 2 |
| | 1,782 |
| | 2 |
| | 1,709 |
| | 2 |
| | 1,636 |
| | 2 |
|
Mining, quarrying, and oil and gas extraction | | 1,375 |
| | 2 |
| | 1,310 |
| | 2 |
| | 1,306 |
| | 2 |
| | 1,286 |
| | 2 |
| | 1,045 |
| | 1 |
|
Professional, scientific, and technical services | | 1,347 |
| | 2 |
| | 1,336 |
| | 2 |
| | 1,401 |
| | 2 |
| | 1,344 |
| | 2 |
| | 1,269 |
| | 2 |
|
Other services | 1,265 |
| | 2 |
| | 1,261 |
| | 2 |
| | 1,278 |
| | 2 |
| | 1,223 |
| | 2 |
| | 1,205 |
| | 2 |
| 1,324 |
| | 2 |
| | 1,360 |
| | 2 |
| | 1,243 |
| | 2 |
| | 1,290 |
| | 2 |
| | 1,312 |
| | 2 |
|
Transportation and warehousing | 1,255 |
| | 2 |
| | 1,284 |
| | 2 |
| | 1,382 |
| | 2 |
| | 1,366 |
| | 2 |
| | 1,357 |
| | 2 |
| 1,242 |
| | 2 |
| | 1,240 |
| | 2 |
| | 1,323 |
| | 2 |
| | 1,320 |
| | 2 |
| | 1,176 |
| | 2 |
|
Professional, scientific, and technical services | 1,230 |
| | 2 |
| | 1,232 |
| | 2 |
| | 1,240 |
| | 2 |
| | 1,264 |
| | 2 |
| | 1,228 |
| | 2 |
| |
Construction | 913 |
| | 1 |
| | 928 |
| | 1 |
| | 924 |
| | 1 |
| | 875 |
| | 1 |
| | 889 |
| | 1 |
| 973 |
| | 1 |
| | 892 |
| | 1 |
| | 973 |
| | 1 |
| | 924 |
| | 1 |
| | 986 |
| | 1 |
|
Mining, quarrying, and oil and gas extraction | 619 |
| | 1 |
| | 501 |
| | 1 |
| | 511 |
| | 1 |
| | 668 |
| | 1 |
| | 704 |
| | 1 |
| |
Admin./Support/Waste Mgmt. and Remediation Services | | 687 |
| | 1 |
| | 681 |
| | 1 |
| | 690 |
| | 1 |
| | 737 |
| | 1 |
| | 664 |
| | 1 |
|
Arts, entertainment, and recreation | 530 |
| | 1 |
| | 469 |
| | 1 |
| | 506 |
| | 1 |
| | 556 |
| | 1 |
| | 437 |
| | 1 |
| 654 |
| | 1 |
| | 617 |
| | 1 |
| | 585 |
| | 1 |
| | 599 |
| | 1 |
| | 585 |
| | 1 |
|
Information | | 619 |
| | 1 |
| | 527 |
| | 1 |
| | 522 |
| | 1 |
| | 441 |
| | 1 |
| | 346 |
| | — |
|
Educational services | 509 |
| | 1 |
| | 570 |
| | 1 |
| | 544 |
| | 1 |
| | 501 |
| | 1 |
| | 495 |
| | 1 |
| 467 |
| | 1 |
| | 481 |
| | 1 |
| | 478 |
| | 1 |
| | 473 |
| | 1 |
| | 482 |
| | 1 |
|
Admin./Support/Waste Mgmt. and Remediation Services | 484 |
| | 1 |
| | 444 |
| | 1 |
| | 427 |
| | 1 |
| | 429 |
| | 1 |
| | 409 |
| | 1 |
| |
Information | 468 |
| | 1 |
| | 458 |
| | 1 |
| | 454 |
| | 1 |
| | 473 |
| | 1 |
| | 475 |
| | 1 |
| |
Utilities | 431 |
| | 1 |
| | 433 |
| | 1 |
| | 463 |
| | 1 |
| | 470 |
| | 1 |
| | 480 |
| | 1 |
| 419 |
| | 1 |
| | 445 |
| | 1 |
| | 428 |
| | 1 |
| | 454 |
| | 1 |
| | 459 |
| | — |
|
Unclassified/Other | | 254 |
| | — |
| | 168 |
| | — |
| | 187 |
| | — |
| | 174 |
| | — |
| | 266 |
| | — |
|
Public administration | 262 |
| | — |
| | 274 |
| | — |
| | 266 |
| | — |
| | 272 |
| | — |
| | 273 |
| | — |
| 237 |
| | 1 |
| | 247 |
| | — |
| | 249 |
| | — |
| | 253 |
| | — |
| | 253 |
| | — |
|
Agriculture, forestry, fishing and hunting | 176 |
| | — |
| | 203 |
| | — |
| | 170 |
| | — |
| | 151 |
| | — |
| | 161 |
| | — |
| 172 |
| | — |
| | 174 |
| | — |
| | 171 |
| | — |
| | 174 |
| | — |
| | 178 |
| | — |
|
Unclassified/Other | 122 |
| | — |
| | 183 |
| | — |
| | 167 |
| | — |
| | 1,288 |
| | 2 |
| | 1,136 |
| | 2 |
| |
Management of companies and enterprises | 86 |
| | — |
| | 97 |
| | — |
| | 101 |
| | — |
| | 96 |
| | — |
| | 95 |
| | — |
| 112 |
| | — |
| | 103 |
| | — |
| | 113 |
| | — |
| | 88 |
| | — |
| | 85 |
| | — |
|
Total commercial loans and leases by industry category | 34,675 |
| | 51 |
| | 35,114 |
| | 52 |
| | 35,269 |
| | 53 |
| | 35,360 |
| | 53 |
| | 34,924 |
| | 53 |
| 37,249 |
| | 51 |
| | 37,496 |
| | 50 |
| | 37,767 |
| | 51 |
| | 37,447 |
| | 51 |
| | 36,269 |
| | 50 |
|
Automobile | 11,876 |
| | 17 |
| | 11,555 |
| | 17 |
| | 11,155 |
| | 17 |
| | 10,969 |
| | 16 |
| | 10,791 |
| | 16 |
| 12,292 |
| | 16 |
| | 12,173 |
| | 16 |
| | 12,272 |
| | 16 |
| | 12,429 |
| | 16 |
| | 12,375 |
| | 17 |
|
Home Equity | 9,985 |
| | 15 |
| | 9,966 |
| | 15 |
| | 9,974 |
| | 15 |
| | 10,106 |
| | 15 |
| | 10,120 |
| | 15 |
| |
Home equity | | 9,300 |
| | 12 |
| | 9,419 |
| | 12 |
| | 9,551 |
| | 13 |
| | 9,722 |
| | 13 |
| | 9,850 |
| | 13 |
|
Residential mortgage | 8,616 |
| | 13 |
| | 8,237 |
| | 12 |
| | 7,829 |
| | 12 |
| | 7,725 |
| | 12 |
| | 7,665 |
| | 12 |
| 11,247 |
| | 15 |
| | 11,182 |
| | 15 |
| | 10,885 |
| | 14 |
| | 10,728 |
| | 14 |
| | 10,459 |
| | 14 |
|
RV and marine finance | 2,371 |
| | 3 |
| | 2,178 |
| | 3 |
| | 1,935 |
| | 2 |
| | 1,846 |
| | 3 |
| | 1,840 |
| | 3 |
| |
RV and marine | | 3,553 |
| | 5 |
| | 3,492 |
| | 5 |
| | 3,344 |
| | 4 |
| | 3,254 |
| | 4 |
| | 3,152 |
| | 4 |
|
Other consumer loans | 1,064 |
| | 1 |
| | 1,009 |
| | 1 |
| | 936 |
| | 1 |
| | 956 |
| | 1 |
| | 964 |
| | 1 |
| 1,251 |
| | 1 |
| | 1,271 |
| | 2 |
| | 1,260 |
| | 2 |
| | 1,320 |
| | 2 |
| | 1,265 |
| | 2 |
|
Total loans and leases | $ | 68,587 |
| | 100 | % | | $ | 68,059 |
| | 100 | % | | $ | 67,098 |
| | 100 | % | | $ | 66,962 |
| | 100 | % | | $ | 66,304 |
| | 100 | % | 74,892 |
| | 100 | % | | $ | 75,033 |
| | 100 | % | | $ | 75,079 |
| | 100 | % | | $ | 74,900 |
| | 100 | % | | $ | 73,370 |
| | 100 | % |
| |
(1) | Amounts include $3.0$3.5 billion, $3.2$3.6 billion, $3.3$3.6 billion, $3.2$3.6 billion and $3.0$3.3 billion of auto dealer services loans at September 30, 2017,2019, June 30, 2017,2019, March 31, 2017,2019, December 31, 20162018 and September 30, 2016,2018, respectively. |
Credit Quality
Credit Quality
We believe the most meaningful way to assess overall credit quality performance is through an analysis of credit qualityspecific performance ratios. This approach forms the basis of most of the discussion in the sections immediately following: NPAs, and NALs, TDRs, ACL, and NCOs. In addition, we utilize delinquency rates, risk distribution and migration patterns, and product segmentation, and origination trends in the analysis of our credit quality performance.
Credit quality performance in the 20172019 third quarter reflected continued overall positive results with stable levelstotal NCOs as a percent of delinquencies and a 7% declineaverage loans, annualized, of 0.39%, an increase from 0.16% in NPAs from the prior year quarter, resulting from higher commercial net charge-offs. Consumer NCOs have remained consistent with the prior year quarter. Total NCOs were $43 million, or 0.25% annualized, of average total loans and leases. Net charge-offs$73 million. On a linked quarter basis, NCOs increased by $7$25 million from the prior quarter, with $20 million of the increase within the commercial portfolio. NPAs increased from the prior quarter by $22 million due to an increase in the net charge-offs of the consumer portfolios.few high dollar credits. NPAs to total loans and leases remains low at 0.64%. The ACLALLL to total loans and leases ratio declined by 1increased 2 basis pointpoints to 1.10%1.05%.
NPAs, NALs, AND TDRs
(This section should be read in conjunction with Note 3 "Loans / Leases and Allowance for Credit Losses" of the Notes to Unaudited Condensed Consolidated Financial Statements and "Credit Quality" section of our 20162018 Form 10-K.) NPAs and NALs
Commercial loans are placed on nonaccrual status at 90-days past due, or earlier if repayment of principal and interest is in doubt. Of the $187$303 million of CRE and C&I-relatedcommercial related NALs at September 30, 2017, $1062019, $221 million, or 57%73%, represented loans that were less than 30-days past due, demonstrating our continued commitment to proactive credit risk management. With the exception of residential mortgage loans guaranteed by government organizations which continue to accrue interest, first-lien loans secured by residential mortgage collateral are placed on nonaccrual status at 150-days past due. Junior-lien home equity loans are placed on nonaccrual status at the earlier of 120-days past due or when the related first-lien loan has been identified as nonaccrual. Automobile, RV and marine, and other consumer loans are generally fully charged-off at 120-days past due.TDR recognition at an earlier past due status than summarized above also may result
When loans are placed on nonaccrual, accrued interest income is reversed with current year accruals charged to interest income and prior year amounts generally charged-off as a credit loss. When, in NAL designation.our judgment, the borrower’s ability to make required interest and principal payments has resumed and collectability is no longer in doubt, the loan or lease could be returned to accrual status.
The following table reflects period-end NALs and NPAs detail for each of the last five quarters:
| | Table 12 - Nonaccrual Loans and Leases and Nonperforming Assets | |
(dollar amounts in thousands) | | | | | | | | | | |
Table 11 - Nonaccrual Loans and Leases and Nonperforming Assets | | Table 11 - Nonaccrual Loans and Leases and Nonperforming Assets |
| September 30, 2017 | | June 30, 2017 | | March 31, 2017 | | December 31, 2016 | | September 30, 2016 | | | | | | | | | |
(dollar amounts in millions) | | September 30, 2019 | | June 30, 2019 | | March 31, 2019 | | December 31, 2018 | | September 30, 2018 |
Nonaccrual loans and leases (NALs): | | | | | | | | | | | | | | | | | | |
Commercial and industrial | $ | 169,751 |
| | $ | 195,279 |
| | $ | 232,171 |
| | $ | 234,184 |
| | $ | 220,862 |
| $ | 291 |
| | $ | 281 |
| | $ | 271 |
| | $ | 188 |
| | $ | 211 |
|
Commercial real estate | 17,397 |
| | 16,763 |
| | 13,889 |
| | 20,508 |
| | 21,300 |
| 12 |
| | 17 |
| | 9 |
| | 15 |
| | 19 |
|
Automobile | 4,076 |
| | 3,825 |
| | 4,881 |
| | 5,766 |
| | 4,777 |
| 5 |
| | 4 |
| | 4 |
| | 5 |
| | 5 |
|
Home equity | 71,353 |
| | 67,940 |
| | 69,575 |
| | 71,798 |
| | 69,044 |
| 60 |
| | 60 |
| | 64 |
| | 62 |
| | 67 |
|
Residential mortgage | 75,251 |
| | 80,306 |
| | 80,686 |
| | 90,502 |
| | 88,155 |
| 69 |
| | 62 |
| | 68 |
| | 69 |
| | 67 |
|
RV and marine finance | 309 |
| | 341 |
| | 106 |
| | 245 |
| | 96 |
| |
RV and marine | | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
|
Other consumer | 108 |
| | 2 |
| | 2 |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
Total nonaccrual loans and leases | 338,245 |
| | 364,456 |
| | 401,310 |
| | 423,003 |
| | 404,234 |
| 438 |
| | 425 |
| | 417 |
| | 340 |
| | 370 |
|
Other real estate: | | | | | | | | | | |
Other real estate, net: | | | | | | | | | | |
Residential | 26,449 |
| | 26,890 |
| | 31,786 |
| | 30,932 |
| | 34,421 |
| 10 |
| | 10 |
| | 14 |
| | 19 |
| | 22 |
|
Commercial | 15,592 |
| | 16,926 |
| | 18,101 |
| | 19,998 |
| | 36,915 |
| 2 |
| | 4 |
| | 4 |
| | 4 |
| | 5 |
|
Total other real estate | 42,041 |
| | 43,816 |
| | 49,887 |
| | 50,930 |
| | 71,336 |
| |
Total other real estate, net | | 12 |
| | 14 |
| | 18 |
| | 23 |
| | 27 |
|
Other NPAs (1) | 6,677 |
| | 6,906 |
| | 6,910 |
| | 6,968 |
| | — |
| 32 |
| | 21 |
| | 26 |
| | 24 |
| | 6 |
|
Total nonperforming assets | $ | 386,963 |
| | $ | 415,178 |
| | $ | 458,107 |
| | $ | 480,901 |
| | $ | 475,570 |
| $ | 482 |
| | $ | 460 |
| | $ | 461 |
| | $ | 387 |
| | $ | 403 |
|
| | | | | | | | | | | | | | | | | | |
Nonaccrual loans and leases as a % of total loans and leases | 0.49 | % | | 0.54 | % | | 0.60 | % | | 0.63 | % | | 0.61 | % | 0.58 | % | | 0.57 | % | | 0.56 | % | | 0.45 | % | | 0.50 | % |
NPA ratio (2) | 0.56 |
| | 0.61 |
| | 0.68 |
| | 0.72 |
| | 0.72 |
| 0.64 |
| | 0.61 |
| | 0.61 |
| | 0.52 |
| | 0.55 |
|
(NPA&90+days past due)/(Loans&OREO) | 0.74 |
| | 0.81 |
| | 0.87 |
| | 0.91 |
| | 0.92 |
| |
(1)Other nonperforming assets includes certain impaired investment securities.
| |
(1) | Other nonperforming assets include certain impaired investment securities and/or nonaccrual loans held-for-sale. |
| |
(2) | Nonperforming assets divided by the sum of loans and leases, other real estate owned, and other NPAs. |
20172019 Third Quarter versus 20162018 Fourth Quarter.
Total NPAs decreasedincreased by $94$95 million, or 20%25%, compared with December 31, 2016 primarily as a result of decreases2018, driven by an increase in the commercial portfolio, predominately C&I and residential portfolios NALs and a 17% decrease in OREO. The C&I decline was a result of significant payoffs and return to accrual of large relationships that were identified as NAL in the fourth quarter of 2016. The residential mortgage decline was in part due to the efforts by our Home Savers Group actively working with our customers.&I.
TDR Loans
Over the past five quarters, the accruing component of the total TDR balance has been betweenconsistently over 80%, indicating there is no identified credit loss and 84%, asthe borrowers continue to make their monthly payments in accordance with the modified terms. From a payment standpoint,payments. As of September 30, 2019, over 80%79% of the $500$454 million of accruing TDRs secured by residential real estate (Residential Mortgage(residential mortgage and Home Equityhome equity in Table 13)12) are current on their required payments. In addition,payments, with over 60%63% of the accruing pool havehaving had no delinquency at all in the past 12 months. There is limited migration from the accruing to non-accruing components, and virtually all of the charge-offs come from the non-accruing TDR balances.
The table below presents our accruing and nonaccruing TDRs at period-end for each of the past five quarters:
| | Table 13 - Accruing and Nonaccruing Troubled Debt Restructured Loans | |
(dollar amounts in thousands) | | | | | | | | | | |
Table 12 - Accruing and Nonaccruing Troubled Debt Restructured Loans | | Table 12 - Accruing and Nonaccruing Troubled Debt Restructured Loans |
| September 30, 2017 | | June 30, 2017 | | March 31, 2017 | | December 31, 2016 | | September 30, 2016 | | | | | | | | | |
Troubled debt restructured loans—accruing: | | | | | | | | | | |
(dollar amounts in millions) | | September 30, 2019 | | June 30, 2019 | | March 31, 2019 | | December 31, 2018 | | September 30, 2018 |
TDRs—accruing: | | | | | | | | | | |
Commercial and industrial | $ | 268,373 |
| | $ | 270,372 |
| | $ | 222,303 |
| | $ | 210,119 |
| | $ | 232,740 |
| $ | 225 |
| | $ | 245 |
| | $ | 270 |
| | $ | 269 |
| | $ | 308 |
|
Commercial real estate | 80,272 |
| | 74,429 |
| | 81,202 |
| | 76,844 |
| | 80,553 |
| 40 |
| | 48 |
| | 60 |
| | 54 |
| | 60 |
|
Automobile | 28,973 |
| | 28,140 |
| | 27,968 |
| | 26,382 |
| | 27,843 |
| 39 |
| | 37 |
| | 37 |
| | 35 |
| | 34 |
|
Home equity | 264,410 |
| | 268,731 |
| | 271,258 |
| | 269,709 |
| | 275,601 |
| 233 |
| | 241 |
| | 247 |
| | 252 |
| | 257 |
|
Residential mortgage | 235,191 |
| | 238,087 |
| | 239,175 |
| | 242,901 |
| | 251,529 |
| 221 |
| | 221 |
| | 219 |
| | 218 |
| | 219 |
|
RV and marine finance | 1,211 |
| | 950 |
| | 581 |
| | — |
| | — |
| |
RV and marine | | 3 |
| | 2 |
| | 2 |
| | 2 |
| | 2 |
|
Other consumer | 6,353 |
| | 4,017 |
| | 4,128 |
| | 3,780 |
| | 4,102 |
| 10 |
| | 10 |
| | 9 |
| | 9 |
| | 10 |
|
Total troubled debt restructured loans—accruing | 884,783 |
| | 884,726 |
| | 846,615 |
| | 829,735 |
| | 872,368 |
| |
Troubled debt restructured loans—nonaccruing: | | | | | | | | | | |
Total TDRs—accruing | | 771 |
| | 804 |
| | 844 |
| | 839 |
| | 890 |
|
TDRs—nonaccruing: | | | | | | | | | | |
Commercial and industrial | 96,248 |
| | 89,757 |
| | 88,759 |
| | 107,087 |
| | 70,179 |
| 84 |
| | 88 |
| | 86 |
| | 97 |
| | 100 |
|
Commercial real estate | 3,797 |
| | 3,823 |
| | 4,357 |
| | 4,507 |
| | 5,672 |
| 6 |
| | 6 |
| | 6 |
| | 6 |
| | 8 |
|
Automobile | 4,076 |
| | 4,291 |
| | 4,763 |
| | 4,579 |
| | 4,437 |
| 3 |
| | 3 |
| | 3 |
| | 3 |
| | 3 |
|
Home equity | 30,753 |
| | 28,667 |
| | 29,090 |
| | 28,128 |
| | 28,009 |
| 26 |
| | 26 |
| | 28 |
| | 28 |
| | 28 |
|
Residential mortgage | 50,428 |
| | 55,590 |
| | 59,773 |
| | 59,157 |
| | 62,027 |
| 44 |
| | 43 |
| | 43 |
| | 44 |
| | 46 |
|
RV and marine finance | 309 |
| | 381 |
| | 106 |
| | — |
| | — |
| |
RV and marine | | 1 |
| | 1 |
| | 1 |
| | — |
| | 1 |
|
Other consumer | 103 |
| | 109 |
| | 117 |
| | 118 |
| | 142 |
| — |
| | — |
| | — |
| | — |
| | — |
|
Total troubled debt restructured loans—nonaccruing | 185,714 |
| | 182,618 |
| | 186,965 |
| | 203,576 |
| | 170,466 |
| |
Total troubled debt restructured loans | $ | 1,070,497 |
| | $ | 1,067,344 |
| | $ | 1,033,580 |
| | $ | 1,033,311 |
| | $ | 1,042,834 |
| |
Total TDRs—nonaccruing | | 164 |
| | 167 |
| | 167 |
| | 178 |
| | 186 |
|
Total TDRs | | $ | 935 |
| | $ | 971 |
| | $ | 1,011 |
| | $ | 1,017 |
| | $ | 1,076 |
|
AccruingOverall TDRs increased by $55 million compareddecreased slightly in the quarter. Huntington continues to proactively work with December 31, 2016, primarily as a result of the addition of C&I loansour borrowing relationships that require assistance. The resulting loan structures enable our borrowers to meet their commitments and Huntington to retain earning assets. The accruing TDRs meet the well secured definition and have demonstrated a period of satisfactory payment performance.
ACL
Our total credit reserve is comprised of two different components, both of which in our judgment are appropriate to absorb credit losses inherent in our loan and lease portfolio: the ALLL and the AULC. Combined, these reserves comprise the total ACL. Our ACL Methodology Committeemethodology committee is responsible for developing the methodology, assumptions and estimates used in the calculation, as well as determining the appropriateness of the ACL. The ALLL represents the estimate of incurred losses inherent in the loan portfolio at the reported date. Additions to the ALLL result from recording provision expense for the recognition of loan losses due to new loan originations or funding under existing lines, and increased risk levels resulting from loan risk-rating downgrades or increasing delinquency migrations. Reductionsqualitative adjustments, while reductions reflect charge-offs (net of recoveries), and decreased risk levelslevels resulting from loan risk-rating upgrades, decreasing delinquencies, or the sale / paydown of loans. The AULC is determined by applying the same quantitative reserve determination process to the unfunded portion of the loan exposures adjusted by an applicable funding expectation.
Loans originated for investment are stated at their principal amount outstanding adjusted for partial charge-offs, and net
deferred loan fees and costs. Acquired loans are those purchased in the FirstMerit acquisition. These loans were recorded at estimated fair value at the acquisition date with no carryover of the related ALLL. The difference between acquired contractual balance and estimated fair value at acquisition date was recorded as a purchase premium or discount.
Our ACL evaluation processprocess includes the on-going assessment of credit quality metrics, and a comparison of certain ACL benchmarks to current performance. While the total ACL balance increased year over year, all of the relevant benchmarks remain strong.
The table below reflects the allocation of our ACLALLL among our various loan categories during each of the past five quarters:
| | Table 14 - Allocation of Allowance for Credit Losses (1) | |
(dollar amounts in thousands) | | | | | | | | | | | | | | | | | | | | |
Table 13 - Allocation of Allowance for Credit Losses (1) | | Table 13 - Allocation of Allowance for Credit Losses (1) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 | | June 30, 2017 | | March 31, 2017 | | December 31, 2016 | | September 30, 2016 | |
Allowance for Credit Losses | | | | | | | | | | | | | | | | | | | | |
(dollar amounts in millions) | | September 30, 2019 | | June 30, 2019 | | March 31, 2019 | | December 31, 2018 | | September 30, 2018 |
ALLL | | | | | | | | | | | | | | | | | | | | |
Commercial | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | $ | 373,821 |
| | 40 | % | | $ | 367,956 |
| | 41 | % | | $ | 380,504 |
| | 42 | % | | $ | 355,424 |
| | 42 | % | | $ | 333,101 |
| | 42 | % | $ | 441 |
| | 41 | % | | $ | 455 |
| | 41 | % | | $ | 437 |
| | 41 | % | | $ | 422 |
| | 41 | % | | $ | 419 |
| | 40 | % |
Commercial real estate | 100,301 |
| | 11 |
| | 106,620 |
| | 11 |
| | 99,804 |
| | 11 |
| | 95,667 |
| | 11 |
| | 98,694 |
| | 11 |
| 120 |
| | 10 |
| | 105 |
| | 9 |
| | 108 |
| | 10 |
| | 120 |
| | 10 |
| | 124 |
| | 10 |
|
Total commercial | 474,122 |
| | 51 |
| | 474,576 |
| | 52 |
| | 480,308 |
| | 53 |
| | 451,091 |
| | 53 |
| | 431,795 |
| | 53 |
| 561 |
| | 51 |
| | 560 |
| | 50 |
| | 545 |
| | 51 |
| | 542 |
| | 51 |
| | 543 |
| | 50 |
|
Consumer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Automobile | 50,382 |
| | 17 |
| | 48,322 |
| | 17 |
| | 46,402 |
| | 17 |
| | 47,970 |
| | 16 |
| | 42,584 |
| | 16 |
| 54 |
| | 15 |
| | 53 |
| | 16 |
| | 53 |
| | 16 |
| | 56 |
| | 16 |
| | 52 |
| | 17 |
|
Home equity | 57,897 |
| | 15 |
| | 62,941 |
| | 15 |
| | 64,900 |
| | 15 |
| | 65,474 |
| | 15 |
| | 69,866 |
| | 15 |
| 47 |
| | 12 |
| | 47 |
| | 12 |
| | 53 |
| | 13 |
| | 55 |
| | 13 |
| | 54 |
| | 13 |
|
Residential mortgage | 29,236 |
| | 13 |
| | 33,304 |
| | 12 |
| | 35,559 |
| | 12 |
| | 33,398 |
| | 12 |
| | 36,510 |
| | 12 |
| 22 |
| | 15 |
| | 22 |
| | 15 |
| | 23 |
| | 14 |
| | 25 |
| | 14 |
| | 24 |
| | 14 |
|
RV and marine finance | 13,018 |
| | 3 |
| | 7,665 |
| | 3 |
| | 4,022 |
| | 2 |
| | 5,311 |
| | 3 |
| | 4,289 |
| | 3 |
| |
RV and marine | | 20 |
| | 5 |
| | 18 |
| | 5 |
| | 20 |
| | 4 |
| | 20 |
| | 4 |
| | 18 |
| | 4 |
|
Other consumer | 50,831 |
| | 1 |
| | 41,188 |
| | 1 |
| | 41,389 |
| | 1 |
| | 35,169 |
| | 1 |
| | 31,854 |
| | 1 |
| 79 |
| | 2 |
| | 74 |
| | 2 |
| | 70 |
| | 2 |
| | 74 |
| | 2 |
| | 70 |
| | 2 |
|
Total consumer | 201,364 |
| | 49 |
| | 193,420 |
| | 48 |
| | 192,272 |
| | 47 |
| | 187,322 |
| | 47 |
| | 185,103 |
| | 47 |
| 222 |
| | 49 |
| | 214 |
| | 50 |
| | 219 |
| | 49 |
| | 230 |
| | 49 |
| | 218 |
| | 50 |
|
Total allowance for loan and lease losses | 675,486 |
| | 100 | % | | 667,996 |
| | 100 | % | | 672,580 |
| | 100 | % | | 638,413 |
| | 100 | % | | 616,898 |
| | 100 | % | |
Allowance for unfunded loan commitments | 78,566 |
| | | | 85,359 |
| | | | 91,838 |
| | | | 97,879 |
| | | | 88,433 |
| | | |
Total allowance for credit losses | $ | 754,052 |
| | | | $ | 753,355 |
| | | | $ | 764,418 |
| | | | $ | 736,292 |
| | | | $ | 705,331 |
| | | |
Total allowance for loan and leases losses as % of: | |
Total ALLL | | 783 |
| | 100 | % | | 774 |
| | 100 | % | | 764 |
| | 100 | % | | 772 |
| | 100 | % | | 761 |
| | 100 | % |
AULC | | 101 |
| | | | 101 |
| | | | 100 |
| | | | 96 |
| | | | 97 |
| | |
Total ACL | | $ | 884 |
| | | | $ | 875 |
| | | | $ | 864 |
| | | | $ | 868 |
| | | | $ | 858 |
| | |
Total ALLL as a % of | | Total ALLL as a % of |
Total loans and leases | | | 0.98 | % | | | | 0.98 | % | | | | 1.00 | % | | | | 0.95 | % | | | | 0.93 | % | | | 1.05% | | | | 1.03% | | | | 1.02% | | | | 1.03% | | | | 1.04% |
Nonaccrual loans and leases | | | 200 |
| | | | 183 |
| | | | 168 |
| | | | 151 |
| | | | 153 |
| | | 179 | | | | 182 | | | | 183 | | | | 228 | | | | 206 |
Nonperforming assets | | | 175 |
| | | | 161 |
| | | | 147 |
| | | | 133 |
| | | | 130 |
| |
Total allowance for credit losses as % of: | |
Total loans and leases | | | 1.10 | % | | | | 1.11 | % | | | | 1.14 | % | | | | 1.10 | % | | | | 1.06 | % | |
Nonaccrual loans and leases | | | 223 |
| | | | 207 |
| | | | 190 |
| | | | 174 |
| | | | 174 |
| |
Nonperforming assets | | | 195 |
| | | | 181 |
| | | | 167 |
| | | | 153 |
| | | | 148 |
| |
NPAs | | | | 163 | | | | 168 | | | | 166 | | | | 200 | | | | 189 |
| |
(1) | Percentages represent the percentage of each loan and lease category to total loans and leases. |
20172019 Third Quarter versus 20162018 Fourth Quarter
At September 30, 2017,2019, the ALLL was $675$783 million, compared to $638$772 million at December 31, 2016.2018. The $37$11 million or 6%, increase in the ALLL relates to an increase in Criticized/Classified assetsthe growth in the C&I portfolio as well as growthcommercial ALLL levels since the prior year end, partially offset by reductions in reserve levels for the Other Consumer portfolio related to growth and seasoning of the portfolio.
consumer ALLL. The ACLALLL to total loans ratio was 1.10%1.05% at September 30, 20172019 and 1.03% at December 31, 2016. Management believes2018. We believe the ratio is appropriate given the overall moderate-to-low risk profile of our loan portfolio.portfolio and the coverage levels reflect the quality of our portfolio and the current operating environment. We continue to focus on early identification of loans with changes in credit metrics and have proactive action plans for these loans. We believe that our ACL is appropriate and its coverage level is reflective of the quality of our portfolio and the current operating environment.
NCOs
A loanloan in any portfolio may be charged-off prior to the policies described below if a loss confirming event has occurred or in accordance with the policies described below, whichever is earlier.occurred. Loss confirming events include, but are not limited to, bankruptcy (unsecured), continued delinquency, foreclosure, or receipt of an asset valuation indicating a collateral deficiency where that asset is the sole source of repayment. Additionally, discharged, collateral dependent non-reaffirmed debt in Chapter 7 bankruptcy filings will result in a charge-off to estimated collateral value, less anticipated selling costs.costs at the time of discharge.
C&I and CRECommercial loans are either charged-off or written down to net realizable value atby 90-days past due with the exception of Huntington Technology Finance administrative small ticket lease delinquencies. Automobile loans, RV and marine, finance and other consumer loans are generally fully charged-off at 120-days past due. First-lien and junior-lien home equity loans are charged-off to the estimated fair value of the collateral, less anticipated selling costs, at 150-days past due and 120-days past due, respectively. Residential mortgages are charged-off to the estimated fair value of the collateral, less anticipated selling costs, at 150-days past due. The remaining balance is in delinquent status until a modification can be completed, or the loan goes through the foreclosure process.
| | Table 15 - Quarterly Net Charge-off Analysis | |
Table 14 - Quarterly Net Charge-off Analysis | | Table 14 - Quarterly Net Charge-off Analysis |
| Three Months Ended | Three Months Ended |
| September 30, | | June 30, | | September 30, | September 30, | | June 30, | | September 30, |
(dollar amounts in thousands) | 2017 | | 2017 | | 2016 | |
(dollar amounts in millions) | | 2019 | | 2019 | | 2018 |
Net charge-offs (recoveries) by loan and lease type: | Commercial: | | | | | | | | | | |
Commercial and industrial | $ | 13,317 |
| | $ | 12,870 |
| | $ | 19,225 |
| $ | 40 |
| | $ | 21 |
| | $ | (1 | ) |
Commercial real estate: | | | | | | | | | | |
Construction | (870 | ) | | 83 |
| | (271 | ) | (1 | ) | | (1 | ) | | — |
|
Commercial | (3,184 | ) | | (3,638 | ) | | (2,427 | ) | (1 | ) | | (2 | ) | | (3 | ) |
Commercial real estate | (4,054 | ) | | (3,555 | ) | | (2,698 | ) | (2 | ) | | (3 | ) | | (3 | ) |
Total commercial | 9,263 |
| | 9,315 |
| | 16,527 |
| 38 |
| | 18 |
| | (4 | ) |
Consumer: | | | | | | | | | | |
Automobile | 9,619 |
| | 8,318 |
| | 7,769 |
| 8 |
| | 5 |
| | 8 |
|
Home equity | 1,532 |
| | 1,218 |
| | 2,624 |
| 2 |
| | 2 |
| | 1 |
|
Residential mortgage | 2,057 |
| | 1,052 |
| | 1,728 |
| 1 |
| | 1 |
| | 2 |
|
RV and marine finance | 3,390 |
| | 1,875 |
| | 106 |
| |
RV and marine | | 2 |
| | 2 |
| | 2 |
|
Other consumer | 17,031 |
| | 14,262 |
| | 11,311 |
| 22 |
| | 20 |
| | 20 |
|
Total consumer | 33,629 |
| | 26,725 |
| | 23,538 |
| 35 |
| | 30 |
| | 33 |
|
Total net charge-offs | $ | 42,892 |
| | $ | 36,040 |
| | $ | 40,065 |
| $ | 73 |
| | $ | 48 |
| | $ | 29 |
|
| | | | | | | | | | |
| Three Months Ended | |
| September 30, | | June 30, | | September 30, | |
| 2017 | | 2017 | | 2016 | |
Net charge-offs (recoveries)—annualized percentages: | |
Net charge-offs (recoveries) - annualized percentages: | | Net charge-offs (recoveries) - annualized percentages: |
Commercial: | | | | | | | | | | |
Commercial and industrial | 0.19 | % | | 0.18 | % | | 0.31 | % | 0.52 | % | | 0.27 | % | | (0.01 | )% |
Commercial real estate: | | | | | | | | | | |
Construction | (0.30 | ) | | 0.03 |
| | (0.10 | ) | (0.40 | ) | | (0.08 | ) | | (0.01 | ) |
Commercial | (0.21 | ) | | (0.24 | ) | | (0.19 | ) | (0.09 | ) | | (0.12 | ) | | (0.18 | ) |
Commercial real estate | (0.22 | ) | | (0.20 | ) | | (0.17 | ) | (0.14 | ) | | (0.12 | ) | | (0.15 | ) |
Total commercial | 0.11 |
| | 0.11 |
| | 0.21 |
| 0.40 |
| | 0.20 |
| | (0.04 | ) |
Consumer: | | | | | | | | | | |
Automobile | 0.33 |
| | 0.29 |
| | 0.27 |
| 0.26 |
| | 0.17 |
| | 0.26 |
|
Home equity | 0.06 |
| | 0.05 |
| | 0.11 |
| 0.11 |
| | 0.07 |
| | 0.06 |
|
Residential mortgage | 0.10 |
| | 0.05 |
| | 0.10 |
| 0.03 |
| | 0.05 |
| | 0.07 |
|
RV and marine finance | 0.59 |
| | 0.37 |
| | 0.05 |
| |
RV and marine | | 0.23 |
| | 0.25 |
| | 0.25 |
|
Other consumer | 6.51 |
| | 5.81 |
| | 5.54 |
| 7.07 |
| | 6.02 |
| | 6.32 |
|
Total consumer | 0.40 |
| | 0.33 |
| | 0.32 |
| 0.38 |
| | 0.31 |
| | 0.36 |
|
Net charge-offs as a % of average loans | 0.25 | % | | 0.21 | % | | 0.26 | % | 0.39 | % | | 0.25 | % | | 0.16 | % |
In assessing NCO trends, it is helpful to understand the process of how commercial loans are treated as they deteriorate over time. The ALLL is established consistent with the level of risk associated with the commercial portfolio's original underwriting. As a part of our normal portfolio management process for commercial loans, loans within the portfolio are periodically reviewed and the ALLL is increased or decreased based on the updated risk ratings. For TDRs and individually assessed impaired loans, a specific reserve is established based on the discounted projected cash flows or collateral value of the specific loan. Charge-offs, if necessary, are generally recognized in a period after the specific ALLL is established. Consumer loans are treated in much the same manner as commercial loans, with increasing reserve factors applied based on the risk characteristics of the loan, although specific reserves are not identified for consumer loans, except for TDRs. In summary, if loan quality deteriorates, the typical credit sequence would be periods of reserve building, followed by periods of higher NCOs as the previously established ALLL is utilized. Additionally, an increase in the ALLL either precedes or is in conjunction with increases in NALs. When a loan is classified as NAL, it is evaluated for specific ALLL or charge-off. As a result, an increase in NALs does not necessarily result in an increase in the ALLL or an expectation of higher future NCOs.
2017
2019 Third Quarter versus 20172019 Second Quarter
NCOs were an annualized 0.25%0.39% of average loans and leases in the current quarter, an increaseincreasing from 0.21%0.25% in the 20172019 second quarter, still belowand within our long-term expectationaverage through-the-cycle target range of 0.35% - 0.55%. Commercial - C&IAnnualized NCOs for the commercial portfolios were 0.40% in the current quarter compared to 0.20% in 2019 second quarter. The increase in commercial NCOs was centered in our energy portfolio. Consumer charge-offs were slightly higher for the quarter, but well within our expected performance range. Consumer charge-offs were higher for the quarter, primarily driven by seasonality trends across the consumer portfolio, consistent with our expectations. Given the relatively low level of C&I and CRE NCO’s,NCOs we have experienced and continueon an overall portfolio basis, we would expect to expectsee some continued volatility on a quarter-to-quarter comparison basis.basis, largely driven by the performance of the commercial portfolios.
The table below reflects NCO detail for the nine-month periods ended September 30, 20172019 and 2016:2018:
| | Table 16 - Year to Date Net Charge-off Analysis | |
Table 15 - Year to Date Net Charge-off Analysis | | Table 15 - Year to Date Net Charge-off Analysis |
| Nine Months Ended September 30, | Nine Months Ended September 30, |
(dollar amounts in thousands) | 2017 | | 2016 | |
Net charge-offs by loan and lease type: | | | | |
(dollar amounts in millions) | | 2019 | | 2018 |
Net charge-offs (recoveries) by loan and lease type: | | | | |
Commercial: | | | | | | |
Commercial and industrial | $ | 34,283 |
| | $ | 29,441 |
| $ | 92 |
| | $ | 19 |
|
Commercial real estate: | | | | | | |
Construction | (3,924 | ) | | (752 | ) | (2 | ) | | (1 | ) |
Commercial | (5,927 | ) | | (20,095 | ) | (1 | ) | | (17 | ) |
Commercial real estate | (9,851 | ) | | (20,847 | ) | (3 | ) | | (18 | ) |
Total commercial | 24,432 |
| | 8,594 |
| 89 |
| | 1 |
|
Consumer: | | | | | | |
Automobile | 30,344 |
| | 18,859 |
| 23 |
| | 25 |
|
Home equity | 4,412 |
| | 7,383 |
| 7 |
| | 4 |
|
Residential mortgage | 5,704 |
| | 4,151 |
| 5 |
| | 4 |
|
RV and marine finance | 7,628 |
| | 106 |
| |
RV and marine | | 7 |
| | 7 |
|
Other consumer | 45,850 |
| | 26,279 |
| 61 |
| | 54 |
|
Total consumer | 93,938 |
| | 56,778 |
| 103 |
| | 94 |
|
Total net charge-offs | $ | 118,370 |
| | $ | 65,372 |
| $ | 192 |
| | $ | 95 |
|
| | | | | | |
| Nine Months Ended September 30, | |
| 2017 | | 2016 | |
Net charge-offs - annualized percentages: | | | | |
Net charge-offs (recoveries) - annualized percentages: | | | | |
Commercial: | | | | | | |
Commercial and industrial | 0.16 | % | | 0.18 | % | 0.40 | % | | 0.09 | % |
Commercial real estate: | | | | | | |
Construction | (0.44 | ) | | (0.10 | ) | (0.19 | ) | | (0.14 | ) |
Commercial | (0.13 | ) | | (0.58 | ) | (0.03 | ) | | (0.34 | ) |
Commercial real estate | (0.18 | ) | | (0.50 | ) | (0.06 | ) | | (0.31 | ) |
Total commercial | 0.09 |
| | 0.04 |
| 0.32 |
| | 0.01 |
|
Consumer: | | | | | | |
Automobile | 0.36 |
| | 0.24 |
| 0.25 |
| | 0.27 |
|
Home equity | 0.06 |
| | 0.11 |
| 0.10 |
| | 0.06 |
|
Residential mortgage | 0.09 |
| | 0.09 |
| 0.06 |
| | 0.05 |
|
RV and marine finance | 0.49 |
| | 0.05 |
| |
RV and marine | | 0.29 |
| | 0.33 |
|
Other consumer | 6.13 |
| | 5.23 |
| 6.41 |
| | 6.12 |
|
Total consumer | 0.39 |
| | 0.29 |
| 0.37 |
| | 0.35 |
|
Net charge-offs as a % of average loans | 0.23 | % | | 0.16 | % | 0.34 | % | | 0.18 | % |
20172019 First Nine Months versus 20162018 First Nine Months
NCOs were $118increased $97 million a $53 millionin the first nine-month period of 2019 to $192 million. The increase from the sameyear-ago period was primarily centered in the prior year.commercial portfolio. The increase primarily relates to portfolio growth as2018 commercial NCOs of $1 million included substantial recovery activity whereas, 2019 commercial NCOs were largely driven by a result of the FirstMerit acquisition as well as one large commercial recoveryfew energy credits. The results in the prior year period.consumer portfolio were consistent with expectations across all segments. Given the low level of C&I and CRE NCO’s,NCOs, there will continue to be some volatility on a period-to-period comparison basis.
Market Risk
(This section should be read in conjunction with the “Market Risk” section of our 20162018 Form 10-K for our on-going market risk management processes.)
Market risk refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices and commodity prices, including the correlation among these factors and their volatility. When the value of an instrument is tied to such external factors, the holder faces market risk. We are primarily exposed to interest rate risk as a result of offering a wide array of financial products to our customers and secondarily to price risk from trading securities, securities owned by our broker-dealer subsidiary,subsidiaries, foreign exchange positions, equity investments, and investments in securities backed by mortgage loans.
Interest Rate Risk
|
| | | | | | | | |
Table 17 - Net Interest Income at Risk |
| | | | | |
| Net Interest Income at Risk (%) |
Basis point change scenario | -25 |
| | +100 |
| | +200 |
|
Board policy limits | N/A |
| | -2.0 | % | | -4.0 | % |
September 30, 2017 | -0.5 | % | | 2.5 | % | | 5.0 | % |
December 31, 2016 | -1.0 | % | | 2.7 | % | | 5.6 | % |
|
| | | | | | | | |
Table 16 - Net Interest Income at Risk |
| Net Interest Income at Risk (%) |
Basis point change scenario | -100 |
| | +100 |
| | +200 |
|
Board policy limits (1) | -2.0 | % | | -2.0 | % | | -4.0 | % |
September 30, 2019 | -1.4 | % | | 0.8 | % | | 2.0 | % |
December 31, 2018 | -2.9 | % | | 2.7 | % | | 5.8 | % |
| |
(1) | The policy limit for the -100 basis point scenario changed from -4.0%, which was in effect at December 31, 2018, to -2.0% as of September 30, 2019. |
The NII at Risk results included in the table above reflect the analysis used monthly by management. It models gradual -25,-100, +100 and +200 basis point parallel shifts in market interest rates, implied by the forward yield curve over the next twelve months. DueThe decrease in sensitivity was driven by the purchase of interest rate floors as well as additional interest rate swaps, changes to the current low levelactual and forecasted portfolio composition, and the change in forecasted rates from an expectation of short-term interestrising rates the analysis reflects ato declining interest rate scenario of 25 basis points, the point at which many assets and liabilities reach zero percent.rates.
Our NII at Risk is within our boardBoard of director'sDirectors’ policy limits for the -100, +100 and +200 basis point scenarios. There is no policy limit for the -25 basis point scenario. The NII at Risk shows that theour balance sheet is asset sensitive at both September 30, 2017,2019, and December 31, 2016.2018.
|
| | | | | | | | |
Table 18 - Economic Value of Equity at Risk |
| | | | | |
| Economic Value of Equity at Risk (%) |
Basis point change scenario | -25 |
| | +100 |
| | +200 |
|
Board policy limits | N/A |
| | -5.0 | % | | -12.0 | % |
September 30, 2017 | -1.2 | % | | 3.4 | % | | 4.9 | % |
December 31, 2016 | -0.6 | % | | 0.9 | % | | 0.2 | % |
|
| | | | | | | | |
Table 17 - Economic Value of Equity at Risk |
| Economic Value of Equity at Risk (%) |
Basis point change scenario | -100 |
| | +100 |
| | +200 |
|
Board policy limits | -6.0 | % | | -6.0 | % | | -12.0 | % |
September 30, 2019 | -6.0 | % | | 1.4 | % | | — | % |
December 31, 2018 | -5.8 | % | | 2.3 | % | | 3.1 | % |
The EVE results included in the table above reflect the analysis used monthly by management. It models immediate -25,-100, +100 and +200 basis point parallel shifts in market interest rates. Due to the current low level of short-term interest rates, the analysis reflects a declining interest rate scenario of 25 basis points, the point at which deposit costs reach zero percent.
We are within our boardBoard of director'sDirectors’ policy limits for the -100, +100 and +200 basis point scenarios. There is no policy limit forThe EVE depicts a slightly asset sensitive balance sheet profile with additional convexity in the -25+200 basis point scenario. The EVE depicts a moderate leveldecline in asset sensitivity was driven by slower security prepayments, deposit composition changes, and the addition of long-term interest rate risk, which indicates the balance sheet is positioned favorably for rising interest rates. The EVE increase at September 30, 2017 from December 31, 2016 is primarily the result of a change in the average life assumptions for certain loans, depositsswaps and securities.floors mentioned above.
MSRs
At September 30, 2017,2019, we had a total of $195$180 million of capitalized MSRs representing the right to service $19.6$22 billion in mortgage loans. Of this $195$180 million, $12$8 million was recorded using the fair value method and $183$172 million was recorded using the amortization method.
MSR fair values are sensitive to movements in interest rates as expected future net servicing income depends on the projected outstanding principal balances of the underlying loans, which can be reduced by prepayments. Prepayments usually increase when mortgage interest rates decline and decrease when mortgage interest rates rise. We have employedalso employ hedging strategies to reduce the risk of MSR fair value changes or impairment. However, volatile changes in interest rates can diminish the effectiveness of these economic hedges. We report changes in the MSR value net of hedge-related trading activity in the mortgage banking income category of noninterest income. ChangesDecreases in the recordedfair value of the MSR, between reporting dates arebelow amortized costs, would be recognized as an increase or a decrease in mortgage banking income. Any increase in the fair value, to the extent of prior impairment, would be recognized as an increase in mortgage banking income.
MSRs recorded using the amortization method generally relate to loans originated with historically low interest rates, resulting in a lower probability of prepayments and, ultimately, impairment. MSR assets are included in servicing rights and other intangible assets in the Unaudited Condensed Consolidated Financial Statements.
Price Risk
Price risk represents the risk of loss arising from adverse movements in the prices of financial instruments that are carried at fair value and are subject to fair value accounting. We have price risk from trading securities, securities owned by our broker-dealer subsidiary,subsidiaries, foreign exchange positions, derivative instruments, and equity investments. We have established loss limits on the trading portfolio, on the amount of foreign exchange exposure that can be maintained, and on the amount of marketable equity securities that can be held.
Liquidity Risk
(This section should be read in conjunction with the “Liquidity Risk” section of our 20162018 Form 10-K for our on-going liquidity risk management processes.)
Our primary source of liquidity is our core deposit base. Core deposits comprised approximately 95%97% of total deposits at September 30, 2017.2019. We also have available unused wholesale sources of liquidity, including advances from the FHLB of Cincinnati, issuance through dealers in the capital markets, and access to certificates of deposit issued through brokers. Liquidity is further provided by unencumbered, or unpledged, investment securities that totaled $13.9$19.0 billion as of September 30, 2017.2019.
Bank Liquidity and Sources of Funding
Our primary sources of funding for the Bank are retail and commercial core deposits. At September 30, 2017,2019, these core deposits funded 73% of total assets (109%(106% of total loans). Other sources of liquidity include non-core deposits, FHLB advances, wholesale debt instruments, and securitizations. Demand deposit overdrafts that have been reclassified as loan balances were $24$22 million and $23 million at September 30, 20172019 and December 31, 2016,2018, respectively.
The following table reflects deposit composition detail for each of the last five quarters:
| | Table 19 - Deposit Composition | |
(dollar amounts in millions) | | | | | | | | | | | | | | | | | | | | |
Table 18 - Deposit Composition | | Table 18 - Deposit Composition |
| September 30, | | June 30, | | March 31, | | December 31, | | September 30, | | | | | | | | | | | | | | | | | | | |
| 2017 | | 2017 | | 2017 | | 2016 | | 2016 | September 30, | | June 30, | | March 31, | | December 31, | | September 30, |
(dollar amounts in millions) | | 2019 | | 2019 | | 2019 (1) | | 2018 (2) | | 2018 |
By Type: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Demand deposits—noninterest-bearing | $ | 22,225 |
| | 28 | % | | $ | 21,420 |
| | 28 | % | | $ | 21,489 |
| | 28 | % | | $ | 22,836 |
| | 30 | % | | $ | 23,426 |
| | 30 | % | $ | 20,553 |
| | 25 | % | | $ | 19,383 |
| | 24 | % | | $ | 20,036 |
| | 24 | % | | $ | 21,783 |
| | 26 | % | | $ | 19,863 |
| | 24 | % |
Demand deposits—interest-bearing | 18,343 |
| | 23 |
| | 17,113 |
| | 23 |
| | 18,618 |
| | 24 |
| | 15,676 |
| | 21 |
| | 15,730 |
| | 20 |
| 19,976 |
| | 24 |
| | 19,085 |
| | 24 |
| | 19,906 |
| | 24 |
| | 20,042 |
| | 24 |
| | 19,615 |
| | 24 |
|
Money market deposits | 20,553 |
| | 26 |
| | 19,423 |
| | 26 |
| | 18,664 |
| | 24 |
| | 18,407 |
| | 24 |
| | 18,604 |
| | 24 |
| 23,977 |
| | 29 |
| | 23,952 |
| | 30 |
| | 22,931 |
| | 28 |
| | 22,721 |
| | 27 |
| | 21,411 |
| | 26 |
|
Savings and other domestic deposits | 11,441 |
| | 15 |
| | 11,758 |
| | 15 |
| | 12,043 |
| | 16 |
| | 11,975 |
| | 16 |
| | 12,418 |
| | 16 |
| 9,566 |
| | 12 |
| | 9,803 |
| | 12 |
| | 10,277 |
| | 13 |
| | 10,451 |
| | 12 |
| | 11,604 |
| | 14 |
|
Core certificates of deposit(3) | 2,009 |
| | 3 |
| | 2,088 |
| | 3 |
| | 2,188 |
| | 3 |
| | 2,535 |
| | 3 |
| | 2,724 |
| | 4 |
| 5,443 |
| | 7 |
| | 5,703 |
| | 7 |
| | 6,007 |
| | 7 |
| | 5,924 |
| | 7 |
| | 5,358 |
| | 7 |
|
Total core deposits: | 74,571 |
| | 95 |
| | 71,802 |
| | 95 |
| | 73,002 |
| | 95 |
| | 71,429 |
| | 94 |
| | 72,902 |
| | 94 |
| 79,515 |
| | 97 |
| | 77,926 |
| | 97 |
| | 79,157 |
| | 96 |
| | 80,921 |
| | 96 |
| | 77,851 |
| | 95 |
|
Other domestic deposits of $250,000 or more | 418 |
| | 1 |
| | 441 |
| | 1 |
| | 524 |
| | 1 |
| | 394 |
| | 1 |
| | 391 |
| | 1 |
| 326 |
| | — |
| | 316 |
| | — |
| | 313 |
| | 1 |
| | 337 |
| | — |
| | 318 |
| | 1 |
|
Brokered deposits and negotiable CDs | 3,456 |
| | 4 |
| | 3,690 |
| | 4 |
| | 3,897 |
| | 4 |
| | 3,785 |
| | 5 |
| | 3,972 |
| | 5 |
| 2,554 |
| | 3 |
| | 2,640 |
| | 3 |
| | 2,685 |
| | 3 |
| | 3,516 |
| | 4 |
| | 3,520 |
| | 4 |
|
Deposits in foreign offices | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 140 |
| | — |
| |
Total deposits | $ | 78,445 |
| | 100 | % | | $ | 75,933 |
| | 100 | % | | $ | 77,423 |
| | 100 | % | | $ | 75,608 |
| | 100 | % | | $ | 77,405 |
| | 100 | % | $ | 82,395 |
| | 100 | % | | $ | 80,882 |
| | 100 | % | | $ | 82,155 |
| | 100 | % | | $ | 84,774 |
| | 100 | % | | $ | 81,689 |
| | 100 | % |
Total core deposits: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial | $ | 35,516 |
| | 48 | % | | $ | 32,201 |
| | 45 | % | | $ | 32,963 |
| | 45 | % | | $ | 31,887 |
| | 45 | % | | $ | 32,936 |
| | 45 | % | $ | 35,247 |
| | 44 | % | | $ | 33,371 |
| | 43 | % | | $ | 33,546 |
| | 42 | % | | $ | 37,268 |
| | 46 | % | | $ | 35,455 |
| | 46 | % |
Consumer | 39,055 |
| | 52 |
| | 39,601 |
| | 55 |
| | 40,039 |
| | 55 |
| | 39,542 |
| | 55 |
| | 39,966 |
| | 55 |
| 44,268 |
| | 56 |
| | 44,555 |
| | 57 |
| | 45,611 |
| | 58 |
| | 43,653 |
| | 54 |
| | 42,396 |
| | 54 |
|
Total core deposits | $ | 74,571 |
| | 100 | % | | $ | 71,802 |
| | 100 | % | | $ | 73,002 |
| | 100 | % | | $ | 71,429 |
| | 100 | % | | $ | 72,902 |
| | 100 | % | $ | 79,515 |
| | 100 | % | | $ | 77,926 |
| | 100 | % | | $ | 79,157 |
| | 100 | % | | $ | 80,921 |
| | 100 | % | | $ | 77,851 |
| | 100 | % |
| |
(1) | March 31, 2019 includes $845 million of deposits classified as held-for-sale. |
| |
(2) | December 31, 2018 includes $872 million of deposits classified as held-for-sale. |
| |
(3) | Includes consumer certificates of deposit of $250,000 or more. |
The Bank maintains borrowing capacity at the FHLB and the Federal Reserve Bank Discount Window. The Bank does not consider borrowing capacity from the Federal Reserve Bank Discount Window as a primary source of liquidity. Total loans and securities pledged to the Federal Reserve Discount Window and the FHLB are $32.0 $38.2 billion and $19.7$46.5 billion at September 30, 20172019 and December 31, 2016,2018, respectively.
To the extent we are unable to obtain sufficient liquidity through core deposits, we may meet our liquidity needs through sources of wholesale funding, asset securitization or sale. Sources of wholesale funding include other domestic deposits of $250,000 or more, brokered deposits and negotiable CDs, deposits in foreign offices, short-term borrowings, and long-term debt. At September 30, 2017,2019, total wholesale funding was $14.9 billion, a decreasean increase from $16.2$14.5 billion at December 31, 2016.2018. The decreaseincrease from year-end primarily relates to an increase in short-term borrowings and issuance of long-term debt, partially offset by a decrease in short-term borrowings.brokered deposits and negotiable CDs.
Liquidity Coverage Ratio
On September 3, 2014, the U.S. banking regulators adopted a final LCR for internationally active banking organizations, generally those with $250 billion or more in total assets, and a Modified LCR rule for banking organizations, similar to Huntington, with $50 billion or more in total assets that are not internationally active banking organizations. The LCR is designed to promote the short-term resilience of the liquidity risk profile of banks to which it applies. The Modified LCR requires Huntington to maintain HQLA to meet its net cash outflows over a prospective 30 calendar-day period, which takes into account the potential impact of idiosyncratic and market-wide shocks. The Modified LCR transition period began on January 1, 2016, with Huntington required to maintain HQLA equal to 90 percent of the stated requirement. The ratio increased to 100 percent on January 1, 2017. At September 30, 2017, Huntington was2019, the Bank is in compliance with the Modified LCR requirement.requirements and we believe the Bank has sufficient liquidity to meet its cash flow obligations for the foreseeable future.
Parent Company Liquidity
The parent company’s funding requirements consist primarily of dividends to shareholders, debt service, income taxes, operating expenses, funding of nonbank subsidiaries, repurchases of our stock, and acquisitions. The parent company obtains funding to meet obligations from dividends and interest received from the Bank, interest and dividends received from direct subsidiaries, net taxes collected from subsidiaries included in the federal consolidated tax return, fees for services provided to subsidiaries, and the issuance of debt securities.
At September 30, 2017,2019 and December 31, 2018, the parent company had $1.9$3.6 billion and $2.4 billion, respectively, in cash and cash equivalents, slightly up fromDecember 31, 2016.equivalents.
On October 18, 2017,23, 2019, the boardBoard of directorsDirectors declared a quarterly common stock cash dividend of $0.11$0.15 per common share. The dividend is payable on January 2, 2018,2020, to shareholders of record on December 18, 2017.2019. Based on the current quarterly dividend of $0.11$0.15 per common share, cash demands required for common stock dividends are estimated to be approximately $119$155 million per quarter. On October 18, 2017,23, 2019, the boardBoard of directorsDirectors declared a quarterly Series A, Series B, Series C, Series D, and Series DE Preferred Stock dividend payable on January 15, 20182020 to shareholders of record on January 1, 2018. Based on the current dividend, cash2020. Cash demands required for Series A, Series B are expected to be less than $1 million per quarter. Cash demands required for Series C, Series D and Series D Preferred StockE are estimatedexpected to be approximately $8$2 million, $0.3 million, $1.5$9 million and $9$7 million per quarter, respectively.
During the first nine months of 2017, the Bank returned capital totaling $426 million. Additionally,2019, the Bank paid a preferred dividendand common dividends of $34 million and common stock dividend of $100$430 million, to the holding company duringrespectively. During the first nine months of 2017. 2019, the Bank also repaid subordinate debt of $683 million to the holding company. To meet any additional liquidity needs, the parent company may issue debt or equity securities from time to time.
Off-Balance Sheet Arrangements
In the normal course of business, we enter into various off-balance sheet arrangements. These arrangements include commitments to extend credit, (See Note 14),interest rate swaps and floors, financial guarantees contained in standby letters-of-credit issued by the Bank, (See Note 14), and commitments by the Bank to sell mortgage loans (See Note 14).loans.
Operational Risk
Operational risk is the risk of loss due to human error;error, inadequate or failed internal systems and controls, including the use of financial or other quantitative methodologies that may not adequately predict future results; violations of, or noncompliance with, laws, rules, regulations, prescribed practices, or ethical standards; and external influences such as market conditions, fraudulent activities, disasters, and security risks. We continuously strive to strengthen our system of internal controls to ensure compliance with laws, rules, and regulations, and to improve the oversight of our operational risk. We actively and continuously monitor cyber-attackscyberattacks such as attempts related to online deception and loss of sensitive customer data. We evaluate internal systems, processes and controls to mitigate loss from cyber attackscyber-attacks and, to date, have not experienced any material losses.
Our objective for managing cyber security risk is to avoid or minimize the impacts of external threat events or other efforts to penetrate our systems. We work to achieve this objective by hardening networks and systems against attack, and by diligently managing visibility and monitoring controls within our data and communications environment to recognize events and respond before the attacker has the opportunity to plan and execute on its own goals. To this end we employ a set of defense in-depth strategies, which include efforts to make us less attractive as a target and less vulnerable to threats, while investing in threat analytic capabilities for rapid detection and response. Potential concerns related to cyber security may be escalated to our board-level Technology Committee, as appropriate. As a complement to the overall cyber security risk management, we use a number of internal training methods, both formally through mandatory courses and informally through written communications and other updates. Internal policies and procedures have been implemented to encourage the reporting of potential phishing attacks or other security risks. We also use third-party services to test the effectiveness of our cyber security risk management framework, and any such third parties are required to comply with our policies regarding information security and confidentiality.
To mitigate operational risks, we have a senior managementan Operational Risk Committee, and a senior management Legal, Regulatory, and Compliance Committee, Funds Movement Committee and a Third Party Risk Management Committee. The responsibilities of these committees, among other duties, include establishing and maintaining management information systems to monitor material risks and to identify potential concerns, risks, or trends that may have a significant impact and ensuring that recommendations are developed to address the identified issues. In addition, we have a senior management Model Risk Oversight Committee that is responsible for policies and procedures describing how model risk is evaluated and managed and the application of the governance process to implement these practices throughout the enterprise. These committees report any significant findings and recommendations to the Risk Management Committee. Potential concerns may be escalated to our ROC and the Audit Committee, as appropriate. Significant findings or issues are escalated by the Third Party Risk Management Committee to the Technology Committee of the Board, as appropriate.
The FirstMerit integration was inherently large and complex. Our objective for managing execution risk was to minimize impacts to daily operations. We established an Integration Management Office led by senior management. Responsibilities included central management, reporting, and escalation of key integration deliverables. In addition, a board level Integration Governance Committee was established to assist in the oversight of the integration of people, systems, and processes of FirstMerit with Huntington. While the systems' conversion is now largely completed, continued oversight occurred until all converted systems were fully decommissioned.
The goal of this framework is to implement effective operational risk techniques and strategies,strategies; minimize operational, fraud, and legal losses; minimize the impact of inadequately designed models and enhance our overall performance.performance.
Compliance Risk
Financial institutions are subject to many laws, rules, and regulations at both the federal and state levels. These broad-based laws, rules, and regulations include, but are not limited to, expectations relating to anti-money laundering, lending limits, client privacy, fair lending, prohibitions against unfair, deceptive or abusive acts or practices, protections for military members as they enter active duty, and community reinvestment. Additionally, theThe volume and complexity of recent regulatory changes have increased our overall compliance risk. As such, we utilize various resources to help ensure expectations are met, including a team of compliance experts dedicated to ensuring our conformance with all applicable laws, rules, and regulations. Our colleagues receive training for several broad-based laws and regulations including, but not limited to, anti-money laundering and customer privacy. Additionally, colleagues engaged in lending activities receive training for laws and regulations related to flood disaster protection, equal credit opportunity, fair lending, and/or other courses related to the extension of credit. We set a high standard of expectation for adherence to compliance management and seek to continuously enhance our performance.
Capital
Both regulatory capital and shareholders’ equity are managed at the Bank and on a consolidated basis. We have an active program for managing capital and maintain a comprehensive process for assessing the Company’s overall capital adequacy. We believe our current levels of both regulatory capital and shareholders’ equity are adequate.
The following table presents certain regulatory capital data at both the consolidated and Bank levels for each of the periods presented:
| | Table 20 - Regulatory Capital Data | | | | | | | |
Table 19 - Regulatory Capital Data | | | | | | | |
| | | Basel III | | | Basel III |
(dollar amounts in millions) | | | September 30, 2017 | | June 30, 2017 | | December 31, 2016 | | | September 30, 2019 | | June 30, 2019 | | September 30, 2018 |
Total risk-weighted assets | Consolidated | | $ | 78,631 |
| | $ | 78,366 |
| | $ | 78,263 |
| Consolidated | | $ | 86,719 |
| | $ | 86,332 |
| | $ | 83,580 |
|
| Bank | | 78,848 |
| | 78,489 |
| | 78,242 |
| Bank | | 86,831 |
| | 86,410 |
| | 83,847 |
|
Common equity tier I risk-based capital | Consolidated | | 7,817 |
| | 7,740 |
| | 7,486 |
| |
CET I risk-based capital | | Consolidated | | 8,685 |
| | 8,530 |
| | 8,263 |
|
| Bank | | 8,491 |
| | 8,367 |
| | 8,153 |
| Bank | | 9,590 |
| | 9,583 |
| | 8,601 |
|
Tier 1 risk-based capital | Consolidated | | 8,886 |
| | 8,809 |
| | 8,547 |
| Consolidated | | 9,893 |
| | 9,737 |
| | 9,470 |
|
| Bank | | 9,362 |
| | 9,238 |
| | 9,086 |
| Bank | | 10,466 |
| | 10,460 |
| | 9,480 |
|
Tier 2 risk-based capital | Consolidated | | 1,638 |
| | 1,640 |
| | 1,668 |
| Consolidated | | 1,634 |
| | 1,602 |
| | 1,697 |
|
| Bank | | 1,706 |
| | 1,706 |
| | 1,732 |
| Bank | | 1,255 |
| | 1,296 |
| | 1,895 |
|
Total risk-based capital | Consolidated | | 10,524 |
| | 10,449 |
| | 10,215 |
| Consolidated | | 11,527 |
| | 11,339 |
| | 11,167 |
|
| Bank | | 11,068 |
| | 10,944 |
| | 10,818 |
| Bank | | 11,721 |
| | 11,756 |
| | 11,375 |
|
Tier 1 leverage ratio | Consolidated | | 8.96 | % | | 8.98 | % | | 8.70 | % | |
| Bank | | 9.44 |
| | 9.43 |
| | 9.29 |
| |
Common equity tier I risk-based capital ratio | Consolidated | | 9.94 |
| | 9.88 |
| | 9.56 |
| |
CET I risk-based capital ratio | | Consolidated | | 10.02 | % | | 9.88 | % | | 9.89 | % |
| Bank | | 10.77 |
| | 10.66 |
| | 10.42 |
| Bank | | 11.05 |
| | 11.09 |
| | 10.26 |
|
Tier 1 risk-based capital ratio | Consolidated | | 11.30 |
| | 11.24 |
| | 10.92 |
| Consolidated | | 11.41 |
| | 11.28 |
| | 11.33 |
|
| Bank | | 11.87 |
| | 11.77 |
| | 11.61 |
| Bank | | 12.05 |
| | 12.11 |
| | 11.31 |
|
Total risk-based capital ratio | Consolidated | | 13.39 |
| | 13.33 |
| | 13.05 |
| Consolidated | | 13.29 |
| | 13.13 |
| | 13.36 |
|
| Bank | | 14.04 |
| | 13.94 |
| | 13.83 |
| Bank | | 13.50 |
| | 13.60 |
| | 13.57 |
|
Tier 1 leverage ratio | | Consolidated | | 9.34 |
| | 9.24 |
| | 9.14 |
|
| | Bank | | 9.88 |
| | 9.93 |
| | 9.15 |
|
At September 30, 2017,2019, we maintained Basel III transitional capital ratios in excess of the well-capitalized standards established by the FRB.
Common Equity Tier 1 (CET1) risk-based capital ratio was 9.94% at September 30, 2017, up from 9.56% at December 31, 2016. The regulatory Tier 1 risk-based capital ratio was 11.30% compared to 10.92% at December 31, 2016. All capital ratios were impacted by the repurchase of $12333.4 million of common stock at an average cost of $12.75 per share duringshares over the 2017 third quarter.last four quarters.
Shareholders’ Equity
We generate shareholders’ equity primarily through the retention of earnings, net of dividends and share repurchases. Other potential sources of shareholders’ equity include issuances of common and preferred stock. Our objective is to maintain capital at an amount commensurate with our risk profile and risk tolerance objectives, to meet both regulatory and market expectations, and to provide the flexibility needed for future growth and business opportunities.
Shareholders’ equity totaled $10.7$11.9 billion at September 30, 2017,2019, an increase of $0.4$0.8 billion when compared with December 31, 2016.2018.
On June 28, 2017,27, 2019, Huntington was notified by the Federal Reserve that it had no objection to Huntington'sannounced proposed capital actions included in Huntington's 2019 capital plan submitted in the 2017 Comprehensive Capital Analysis and Review (CCAR).plan. These actions includedinclude a 38%7% increase in the quarterly dividend per common share to $0.11,$0.15, starting in the fourththird quarter of 2017,2019, the repurchase of up to $308$513 million of common stock over the next four quarters (July 1, 20172019 through June 30, 2018)2020), subject to authorization by the Board of Directors, and maintaining dividends on the outstanding classes of preferred stock and trust preferred securities. Any capital actions, including those contemplated above, are subject to approval by Huntington’s Board of Directors.
On July 19, 2017,17, 2019, the Board of Directors authorized the repurchase of up to $308$513 million of common shares over the four quarters through the 20182020 second quarter. During the 2017 third quarter, Huntington purchased $123 million of common stock at an
average cost of $12.75 per share. Purchases of common stock under the authorization may include open market purchases, privately negotiated transactions, and accelerated repurchase programs.
Dividends
We consider disciplined capital management as a key objective, with dividends representing one component. Our strong capital ratios and expectations for continued earnings growth positions us to continue to actively explore additional capital management opportunities.
Share Repurchases
From time to time the Board of Directors authorizes the Company to repurchase shares of our common stock. Although we announce when the Board of Directors authorizes share repurchases, we typically do not give any public notice before we repurchase our shares. Future stock repurchases may be private or open-market repurchases, including block transactions, accelerated or delayed block transactions, forward transactions, and similar transactions. Various factors determine the amount and timing of our share repurchases, including our capital requirements, the number of shares we expect to issue for employee benefit plans and acquisitions, market conditions (including the trading price of our stock), and regulatory and legal considerations. During the 2019 third quarter, Huntington repurchased a total of 5.2 million shares at a weighted average share price of $13.02
BUSINESS SEGMENT DISCUSSION
Overview
Our business segments are based on our internally-aligned segment leadership structure, which is how we monitor results and assess performance. We have four major business segments: Consumer and Business Banking, Commercial Banking, Vehicle Finance, and Regional Banking and The Huntington Private Client Group (RBHPCG). The Treasury / Other function includes technology and operations, other unallocated assets, liabilities, revenue, and expense.
Business segment results are determined based upon our management practices, which assigns balance sheet and income statement items to each of the business segments. The process is designed around our organizational and management structure and, accordingly, the results derived are not necessarily comparable with similar information published by other financial institutions.
Revenue Sharing
Revenue is recorded in the business segment responsible for the related product or service. Fee sharing is recorded to allocate portions of such revenue to other business segments involved in selling to, or providing service to customers. Results of operations for the business segments reflect these fee sharing allocations.
Expense Allocation
The management process that develops the business segment reporting utilizes various estimates and allocation methodologies to measure the performance of the business segments. Expenses are allocated to business segments using a two-phase approach. The first phase consists of measuring and assigning unit costs (activity-based costs) to activities related to product origination and servicing. These activity-based costs are then extended, based on volumes, with the resulting amount allocated to business segments that own the related products. The second phase consists of the allocation of overhead costs to all four business segments from Treasury / Other. We utilize a full-allocation methodology, where all Treasury / Other expenses, except reported Significant Items, if any, and a small amount of other residual unallocated expenses, are allocated to the four business segments.
Funds Transfer Pricing (FTP)
We use an active and centralized FTP methodology to attribute appropriate net interest income to the business segments. The intent of the FTP methodology is to transfer interest rate risk from the business segments by providing matched duration funding of assets and liabilities. The result is to centralize the financial impact, management, and reporting of interest rate risk in the Treasury / Other function where it can be centrally monitored and managed. The Treasury / Other function charges (credits) an internal cost of funds for assets held in (or pays for funding provided by) each business segment. The FTP rate is based on prevailing market interest rates for comparable duration assets (or liabilities). During 2019, the Company updated and refined its FTP methodology primarily related to the allocation of deposit funding costs. Prior period amounts presented below have been restated to reflect the new methodology.
Net Income by Business Segment
Net income by business segment for the nine-month periods ending September 30, 2019 and September 30, 2018 is presented in the following table:
|
| | | | | | | |
Table 20 - Net Income by Business Segment |
| Nine Months Ended September 30, |
(dollar amounts in millions) | 2019 | | 2018 |
Consumer and Business Banking | $ | 505 |
| | $ | 355 |
|
Commercial Banking | 421 |
| | 453 |
|
Vehicle Finance | 128 |
| | 127 |
|
RBHPCG | 87 |
| | 90 |
|
Treasury / Other | (47 | ) | | 34 |
|
Net income | $ | 1,094 |
| | $ | 1,059 |
|
Treasury / Other
The Treasury / Other function includes revenue and expense related to assets, liabilities, and equity not directly assigned or allocated to one of the four business segments. Assets include investment securities and bank owned life insurance.
Net interest income includes the impact of administering our investment securities portfolios, the net impact of derivatives used to hedge interest rate sensitivity as well as the financial impact associated with our FTP methodology, as described above. Noninterest income includes miscellaneous fee income not allocated to other business segments, such as bank owned life insurance income and securities and trading asset gains or losses. Noninterest expense includes certain corporate administrative, and other miscellaneous expenses not allocated to other business segments. The provision for income taxes for the business segments is calculated at a statutory 21% tax rate, although our overall effective tax rate is lower. As a result, Treasury / Other reflects a credit for income taxes representing the difference between the lower effective tax rate and the statutory tax rate used at the time to allocate income taxes to the business segments.
|
| | | | | | | | | | | | | | |
Consumer and Business Banking |
| | | | | | | |
Table 21 - Key Performance Indicators for Consumer and Business Banking |
| Nine Months Ended September 30, | | Change |
(dollar amounts in millions) | 2019 | | 2018 | | Amount | | Percent |
Net interest income | $ | 1,371 |
| | $ | 1,254 |
| | $ | 117 |
| | 9 | % |
Provision for credit losses | 81 |
| | 98 |
| | (17 | ) | | (17 | ) |
Noninterest income | 596 |
| | 557 |
| | 39 |
| | 7 |
|
Noninterest expense | 1,247 |
| | 1,263 |
| | (16 | ) | | (1 | ) |
Provision for income taxes | 134 |
| | 95 |
| | 39 |
| | 41 |
|
Net income | $ | 505 |
| | $ | 355 |
| | $ | 150 |
| | 42 | % |
Number of employees (average full-time equivalent) | 8,015 |
| | 8,374 |
| | (359 | ) | | (4 | )% |
Total average assets | $ | 25,486 |
| | $ | 24,995 |
| | $ | 491 |
| | 2 |
|
Total average loans/leases | 22,226 |
| | 21,892 |
| | 334 |
| | 2 |
|
Total average deposits | 51,505 |
| | 47,032 |
| | 4,473 |
| | 10 |
|
Net interest margin | 3.51 | % | | 3.52 | % | | (0.01 | )% | | — |
|
NCOs | $ | 97 |
| | $ | 75 |
| | $ | 22 |
| | 29 |
|
NCOs as a % of average loans and leases | 0.58 | % | | 0.46 | % | | 0.12 | % | | 26 |
|
2019 First Nine Months versus 2018 First Nine Months
Consumer and Business Banking, including Home Lending, reported net income of $505 million in the first nine-month period of 2019, an increase of $150 million, or 42%, compared to the year-ago period. Segment net interest income increased $117 million, or 9%, driven by the higher value of deposits, along with a 10% increase in average deposits. The provision for credit losses decreased $17 million, or 17%. Noninterest income increased $39 million, or 7%, primarily due to increased mortgage banking income, card interchange income from higher transaction volumes, along with increased service charge income on deposit accounts. Noninterest expense decreased $16 million, or 1%, due to decreased personnel, occupancy, and equipment expense as a result of branch consolidations and divestitures, along with reduced FDIC insurance expense.
Home Lending, an operating unit of Consumer and Business Banking, reflects the result of the origination, sale, and servicing of mortgage loans less referral fees and net interest income for mortgage banking products distributed by the retail branch network and other business segments. Home Lending reported a gain of $9 million in the first nine-month period of 2019, compared with a net loss of $3 million in the year-ago period. Noninterest income increased $26 million, or 43%, driven primarily by higher salable spreads partially offset by lower net servicing revenue. Noninterest expense increased $13 million, or 11%, as a result of higher allocated indirect costs partially offset by lower personnel expense.
|
| | | | | | | | | | | | | | |
Commercial Banking |
| | | | | | | |
Table 22 - Key Performance Indicators for Commercial Banking |
| Nine Months Ended September 30, | | Change |
(dollar amounts in millions) | 2019 | | 2018 | | Amount | | Percent |
Net interest income | $ | 798 |
| | $ | 744 |
| | $ | 54 |
| | 7 | % |
Provision for credit losses | 103 |
| | 41 |
| | 62 |
| | 151 |
|
Noninterest income | 266 |
| | 234 |
| | 32 |
| | 14 |
|
Noninterest expense | 427 |
| | 364 |
| | 63 |
| | 17 |
|
Provision for income taxes | 113 |
| | 120 |
| | (7 | ) | | (6 | ) |
Net income | $ | 421 |
| | $ | 453 |
| | $ | (32 | ) | | (7 | )% |
Number of employees (average full-time equivalent) | 1,323 |
| | 1,240 |
| | 83 |
| | 7 | % |
Total average assets | $ | 33,678 |
| | $ | 30,954 |
| | $ | 2,724 |
| | 9 |
|
Total average loans/leases | 27,204 |
| | 26,094 |
| | 1,110 |
| | 4 |
|
Total average deposits | 21,105 |
| | 22,041 |
| | (936 | ) | | (4 | ) |
Net interest margin | 3.58 | % | | 3.47 | % | | 0.11 | % | | 3 |
|
NCOs (Recoveries) | $ | 65 |
| | $ | (12 | ) | | $ | 77 |
| | 642 |
|
NCOs as a % of average loans and leases | 0.32 | % | | (0.06 | )% | | 0.38 | % | | 633 |
|
2019 First Nine Months versus 2018 First Nine Months
Commercial Banking reported net income of $421 million in the first nine-month period of 2019, a decrease of $32 million, or 7%, compared to the year-ago period. Provision for credit losses increased $62 million, or 151%, primarily due to net charge offs of $65 million compared to a net recovery of $12 million in the prior year. Segment net interest income increased $54 million, or 7%, primarily due to an 11 basis point increase in net interest margin driven by a higher value of deposits and a 4% growth in average loans, partially offset by a decrease in loan spread. Noninterest income increased $32 million, or 14%, largely driven by higher capital markets related revenue due to increased underwriting activity, customer interest rate derivatives, and foreign exchange revenue. Noninterest expense increased $63 million, or 17%, primarily due to allocated overhead and personnel expense, which was driven by the acquisition of Hutchinson, Shockey, and Erly & Co. in the 2018 third quarter, and other taxes related to the adoption of the new lease accounting standard, partially offset by lower FDIC insurance expense.
|
| | | | | | | | | | | | | | |
Vehicle Finance |
| | | | | | | |
Table 23 - Key Performance Indicators for Vehicle Finance |
| Nine Months Ended September 30, | | Change |
(dollar amounts in millions) | 2019 | | 2018 | | Amount | | Percent |
Net interest income | $ | 291 |
| | $ | 294 |
| | $ | (3 | ) | | (1 | )% |
Provision for credit losses | 27 |
| | 36 |
| | (9 | ) | | (25 | ) |
Noninterest income | 9 |
| | 9 |
| | — |
| | — |
|
Noninterest expense | 112 |
| | 106 |
| | 6 |
| | 6 |
|
Provision for income taxes | 33 |
| | 34 |
| | (1 | ) | | (3 | ) |
Net income | $ | 128 |
| | $ | 127 |
| | $ | 1 |
| | 1 | % |
Number of employees (average full-time equivalent) | 266 |
| | 263 |
| | 3 |
| | 1 | % |
Total average assets | $ | 19,264 |
| | $ | 18,200 |
| | $ | 1,064 |
| | 6 |
|
Total average loans/leases | 19,336 |
| | 18,250 |
| | 1,086 |
| | 6 |
|
Total average deposits | 329 |
| | 339 |
| | (10 | ) | | (3 | ) |
Net interest margin | 2.01 | % | | 2.15 | % | | (0.14 | )% | | (7 | ) |
NCOs | $ | 30 |
| | $ | 31 |
| | $ | (1 | ) | | (3 | ) |
NCOs as a % of average loans and leases | 0.21 | % | | 0.23 | % | | (0.02 | )% | | (9 | ) |
2019 First Nine Months versus 2018 First Nine Months
Vehicle Finance reported net income of $128 million in the first nine-month period of 2019, an increase of $1 million, or 1%, compared to the year-ago period. Segment net interest income decreased $3 million or 1%, due to a 14 basis point decrease in the net interest margin, which continues to primarily reflect the run off of the higher yielding acquired loan portfolios, the related purchase accounting impact, and higher funding costs. This decrease was offset in part by a $1.1 billion, or 6%, increase in average loan balances primarily reflecting the success of the geographic expansion of RV and marine loans over the past two years, as well as growth of floor plan and other commercial balances. Noninterest income was unchanged, while noninterest expense increased $6 million, or 6%, primarily reflecting higher allocated costs attributed to the increases in loan balances and associated portfolio management and servicing activities.
|
| | | | | | | | | | | | | | |
Regional Banking and The Huntington Private Client Group |
| | | | | | | |
Table 24 - Key Performance Indicators for Regional Banking and The Huntington Private Client Group |
| Nine Months Ended September 30, | | Change |
(dollar amounts in millions) | 2019 | | 2018 | | Amount | | Percent |
Net interest income | $ | 153 |
| | $ | 148 |
| | $ | 5 |
| | 3 | % |
Provision for credit losses | (3 | ) | | — |
| | (3 | ) | | (100 | ) |
Noninterest income | 147 |
| | 146 |
| | 1 |
| | 1 |
|
Noninterest expense | 193 |
| | 180 |
| | 13 |
| | 7 |
|
Provision for income taxes | 23 |
| | 24 |
| | (1 | ) | | (4 | ) |
Net income | $ | 87 |
| | $ | 90 |
| | $ | (3 | ) | | (3 | )% |
Number of employees (average full-time equivalent) | 1,059 |
| | 1,022 |
| | 37 |
| | 4 | % |
Total average assets | $ | 6,377 |
| | $ | 5,703 |
| | $ | 674 |
| | 12 |
|
Total average loans/leases | 6,071 |
| | 5,386 |
| | 685 |
| | 13 |
|
Total average deposits | 5,939 |
| | 5,908 |
| | 31 |
| | 1 |
|
Net interest margin | 3.31 | % | | 3.25 | % | | 0.06 | % | | 2 |
|
NCOs | $ | — |
| | $ | — |
| | $ | — |
| | — |
|
NCOs as a % of average loans and leases | — | % | | 0.01 | % | | (0.01 | )% | | (100 | ) |
Total assets under management (in billions)—eop | $ | 16.8 |
| | $ | 17.2 |
| | $ | (0.4 | ) | | (2 | ) |
Total trust assets (in billions)—eop | 117.6 |
| | 114.3 |
| | 3.3 |
| | 3 |
|
eop - End of Period.
2019 First Nine Months versus 2018 First Nine Months
RBHPCG reported net income of $87 million in the first nine-month period of 2019, a decrease of $3 million, or 3%, compared to the year-ago period. Segment net interest income increased $5 million, or 3%, due to a 6 basis point increase in net interest margin, reflecting higher deposit spreads, partially offset by a decrease in loan spreads. Average loans increased $0.7 billion, or 13%, primarily due to residential real estate mortgage loans, while average deposits remained relatively flat. Noninterest income increased $1 million, or 1%, due to increased insurance income resulting from life insurance agency sales. Noninterest expense increased $13 million, or 7%, primarily due to strategic hires and increased product allocation costs.
ADDITIONAL DISCLOSURES
Forward-Looking Statements
This report, including MD&A, contains certain forward-looking statements, including, but not limited to, certain plans, expectations, goals, projections, and statements, which are not historical facts and are subject to numerous assumptions, risks, and uncertainties. Statements that do not describe historical or current facts, including statements about beliefs and expectations, are forward-looking statements. Forward-looking statements may be identified by words such as expect, anticipate, believe, intend, estimate, plan, target, goal, or similar expressions, or future or conditional verbs such as will, may, might, should, would, could, or similar variations. The forward-looking statements are intended to be subject to the safe harbor provided by Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995.
While there is no assurance that any list of risks and uncertainties or risk factors is complete, below are certain factors which could cause actual results to differ materially from those contained or implied in the forward-looking statements: changes in general economic, political, or industry conditions; uncertainty in U.S. fiscal and monetary policy, including the interest rate policies of the Federal Reserve Board; volatility and disruptions in global capital and credit markets; movements in interest rates; reform of LIBOR; competitive pressures on product pricing and services; success, impact, and timing of our business strategies, including market acceptance of any new products or services implementing our “Fair Play” banking philosophy; the nature, extent, timing, and results of governmental actions, examinations, reviews, reforms, regulations, and interpretations, including those related to the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Basel III regulatory capital reforms, as well as those involving the OCC, Federal Reserve, FDIC, and CFPB; and other factors that may affect our future results.
All forward-looking statements speak only as of the date they are made and are based on information available at that time. We do not assume any obligation to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made or to reflect the occurrence of unanticipated events except as required by federal securities laws. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance on such statements.
Non-GAAP Financial Measures
This document contains GAAP financial measures and non-GAAP financial measures where management believes it to be helpful in understanding our results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found herein.
Fully-Taxable Equivalent Basis
Interest income, yields, and ratios on a FTE basis are considered non-GAAP financial measures. Management believes net interest income on a FTE basis provides an insightful picture of the interest margin for comparison purposes. The FTE basis also allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources. The FTE basis assumes a federal statutory tax rate of 21 percent. We encourage readers to consider the Unaudited Condensed Consolidated Financial Statements and other financial information contained in this Form 10-Q in their entirety, and not to rely on any single financial measure.
Non-Regulatory Capital Ratios
In addition to capital ratios defined by banking regulators, the Company considers various other measures when evaluating capital utilization and adequacy, including:
Tangible common equity to tangible assets,
Tangible equity to tangible assets, and
Tangible common equity to risk-weighted assets using Basel III definitions.
These non-regulatory capital ratios are viewed by management as useful additional methods of reflecting the level of capital available to withstand unexpected market conditions. Additionally, presentation of these ratios allows readers to
compare our capitalization to other financial services companies. These ratios differ from capital ratios defined by banking regulators principally in that the numerator excludes goodwill and other intangible assets, the nature and extent of which varies among different financial services companies. These ratios are not defined in GAAP or federal banking regulations. As a result, these non-regulatory capital ratios disclosed by the Company are considered non-GAAP financial measures.
Because there are no standardized definitions for these non-regulatory capital ratios, the Company’s calculation methods may differ from those used by other financial services companies. Also, there may be limits in the usefulness of these measures to investors. As a result, we encourage readers to consider the Unaudited Condensed Consolidated Financial Statements and other financial information contained in this Form 10-Q in their entirety, and not to rely on any single financial measure.
Risk Factors
More information on risk is discussed in the Risk Factors section included in Item 1A of our 2018 Form 10-K. Additional information regarding risk factors can also be found in the Risk Management and Capital discussion of this report.
Critical Accounting Policies and Use of Significant Estimates
Our Consolidated Financial Statements are prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires us to establish accounting policies and make estimates that affect amounts reported in our Consolidated Financial Statements. Note 1 of the Notes to Consolidated Financial Statements included in our December 31, 2018 Form 10-K, as supplemented by this report including this MD&A, describes the significant accounting policies we used in our Consolidated Financial Statements.
An accounting estimate requires assumptions and judgments about uncertain matters that could have a material effect on the Consolidated Financial Statements. Estimates are made under facts and circumstances at a point in time, and changes in those facts and circumstances could produce results substantially different from those estimates. Our most significant accounting estimates relate to our ACL, valuation of financial instruments, contingent liabilities, income taxes, and deferred tax assets/liabilities. These significant accounting estimates and their related application are discussed in our December 31, 2018 Form 10-K.
Recent Accounting Pronouncements and Developments
Note 2 "Accounting Standards Update" of the Notes to Unaudited Condensed Consolidated Financial Statements discusses new accounting pronouncements adopted during 2019 and the expected impact of accounting pronouncements recently issued but not yet required to be adopted. To the extent the adoption of new accounting standards materially affects financial condition, results of operations, or liquidity, the impacts are discussed in the applicable section of this MD&A and the Notes to Unaudited Condensed Consolidated Financial Statements. Fair ValueADDITIONAL DISCLOSURES
At the end of each quarter, we assess the valuation hierarchy for each assetForward-Looking Statements
This report, including MD&A, contains certain forward-looking statements, including, but not limited to, certain plans, expectations, goals, projections, and statements, which are not historical facts and are subject to numerous assumptions, risks, and uncertainties. Statements that do not describe historical or liability measured. As necessary, assets or liabilitiescurrent facts, including statements about beliefs and expectations, are forward-looking statements. Forward-looking statements may be transferred within hierarchy levels dueidentified by words such as expect, anticipate, believe, intend, estimate, plan, target, goal, or similar expressions, or future or conditional verbs such as will, may, might, should, would, could, or similar variations. The forward-looking statements are intended to be subject to the safe harbor provided by Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995.
While there is no assurance that any list of risks and uncertainties or risk factors is complete, below are certain factors which could cause actual results to differ materially from those contained or implied in the forward-looking statements: changes in availability of observable market inputs atgeneral economic, political, or industry conditions; uncertainty in U.S. fiscal and monetary policy, including the measurement date. The fair values measured at each levelinterest rate policies of the fair value hierarchy, additional discussion regarding fair value measurements,Federal Reserve Board; volatility and a brief descriptiondisruptions in global capital and credit markets; movements in interest rates; reform of how fair value is determined for categoriesLIBOR; competitive pressures on product pricing and services; success, impact, and timing of our business strategies, including market acceptance of any new products or services implementing our “Fair Play” banking philosophy; the nature, extent, timing, and results of governmental actions, examinations, reviews, reforms, regulations, and interpretations, including those related to the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Basel III regulatory capital reforms, as well as those involving the OCC, Federal Reserve, FDIC, and CFPB; and other factors that have unobservable inputs,may affect our future results.
All forward-looking statements speak only as of the date they are made and are based on information available at that time. We do not assume any obligation to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made or to reflect the occurrence of unanticipated events except as required by federal securities laws. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance on such statements.
Non-GAAP Financial Measures
This document contains GAAP financial measures and non-GAAP financial measures where management believes it to be helpful in understanding our results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found herein.
Fully-Taxable Equivalent Basis
Interest income, yields, and ratios on a FTE basis are considered non-GAAP financial measures. Management believes net interest income on a FTE basis provides an insightful picture of the interest margin for comparison purposes. The FTE basis also allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources. The FTE basis assumes a federal statutory tax rate of 21 percent. We encourage readers to consider the Unaudited Condensed Consolidated Financial Statements and other financial information contained in this Form 10-Q in their entirety, and not to rely on any single financial measure.
Non-Regulatory Capital Ratios
In addition to capital ratios defined by banking regulators, the Company considers various other measures when evaluating capital utilization and adequacy, including:
Tangible common equity to tangible assets,
Tangible equity to tangible assets, and
Tangible common equity to risk-weighted assets using Basel III definitions.
These non-regulatory capital ratios are viewed by management as useful additional methods of reflecting the level of capital available to withstand unexpected market conditions. Additionally, presentation of these ratios allows readers to
compare our capitalization to other financial services companies. These ratios differ from capital ratios defined by banking regulators principally in that the numerator excludes goodwill and other intangible assets, the nature and extent of which varies among different financial services companies. These ratios are not defined in GAAP or federal banking regulations. As a result, these non-regulatory capital ratios disclosed by the Company are considered non-GAAP financial measures.
Because there are no standardized definitions for these non-regulatory capital ratios, the Company’s calculation methods may differ from those used by other financial services companies. Also, there may be limits in the usefulness of these measures to investors. As a result, we encourage readers to consider the Unaudited Condensed Consolidated Financial Statements and other financial information contained in this Form 10-Q in their entirety, and not to rely on any single financial measure.
Risk Factors
More information on risk is discussed in the Risk Factors section included in Item 1A of our 2018 Form 10-K. Additional information regarding risk factors can also be found in the Risk Management and Capital discussion of this report.
Critical Accounting Policies and Use of Significant Estimates
Our Consolidated Financial Statements are prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires us to establish accounting policies and make estimates that affect amounts reported in our Consolidated Financial Statements. Note 111 of the Notes to Consolidated Financial Statements included in our December 31, 2018 Form 10-K, as supplemented by this report including this MD&A, describes the significant accounting policies we used in our Consolidated Financial Statements.
An accounting estimate requires assumptions and judgments about uncertain matters that could have a material effect on the Consolidated Financial Statements. Estimates are made under facts and circumstances at a point in time, and changes in those facts and circumstances could produce results substantially different from those estimates. Our most significant accounting estimates relate to our ACL, valuation of financial instruments, contingent liabilities, income taxes, and deferred tax assets/liabilities. These significant accounting estimates and their related application are discussed in our December 31, 2018 Form 10-K.
Recent Accounting Pronouncements and Developments
BUSINESS SEGMENT DISCUSSION
Overview
Our business segmentsStatements discusses new accounting pronouncements adopted during 2019 and the expected impact of accounting pronouncements recently issued but not yet required to be adopted. To the extent the adoption of new accounting standards materially affects financial condition, results of operations, or liquidity, the impacts are based on our internally-aligned segment leadership structure, which is how we monitor results and assess performance. We have four major business segments: Consumer and Business Banking, Commercial Banking, Commercial Real Estate and Vehicle Finance (CREVF), and Regional Banking and The Huntington Private Client Group (RBHPCG). A Treasury / Other function includes technology and operations, other unallocated assets, liabilities, revenue, and expense.
Business segment results are determined based upon our management accounting practices, which assigns balance sheet and income statement items to each of the business segments. The process is designed around our organizational and management structure and, accordingly, the results derived are not necessarily comparable with similar information published by other financial institutions.
We announced a change within our executive leadership team, which became effective during the 2017 second quarter. As a result, the previously reported Home Lending segment is now included as an operating unit within the Consumer and Business Banking segment. Additionally, the Insurance operating unit previously included in Commercial Banking was realigned to RBHPCG during second quarter. Prior period results have been reclassified to conform to the current period presentation.
Revenue Sharing
Revenue is recordeddiscussed in the business segment responsible for the related product or service. Fee sharing is recorded to allocate portionsapplicable section of such revenue to other business segments involved in selling to, or providing service to customers. Results of operations for the business segments reflect these fee sharing allocations.
Expense Allocation
The management accounting process that develops the business segment reporting utilizes various estimates and allocation methodologies to measure the performance of the business segments. Expenses are allocated to business segments using a two-phase approach. The first phase consists of measuring and assigning unit costs (activity-based costs) to activities related to product origination and servicing. These activity-based costs are then extended, based on volumes, with the resulting amount allocated to business segments that own the related products. The second phase consists of the allocation of overhead costs to all four business segments from Treasury / Other. We utilize a full-allocation methodology, where all Treasury / Other expenses, except reported Significant Items, and a small amount of other residual unallocated expenses, are allocated to the four business segments.
Funds Transfer Pricing (FTP)
We use an active and centralized FTP methodology to attribute appropriate income to the business segments. The intent of the FTP methodology is to transfer interest rate risk from the business segments by providing matched duration funding of assets and liabilities. The result is to centralize the financial impact, management, and reporting of interest rate risk in the Treasury / Other function where it can be centrally monitored and managed. The Treasury / Other function charges (credits) an internal cost of funds for assets held in (or pays for funding provided by) each business segment. The FTP rate is based on prevailing market interest rates for comparable duration assets (or liabilities).
Net Income by Business Segment
Net income by business segment for the nine-month periods ending September 30, 2017 and September 30, 2016 is presented in the following table:
|
| | | | | | | |
Table 21 - Net Income (Loss) by Business Segment |
| Nine Months Ended September 30, |
(dollar amounts in thousands) | 2017 | | 2016 |
Consumer and Business Banking | $ | 314,366 |
| | $ | 234,356 |
|
Commercial Banking | 239,685 |
| | 133,470 |
|
CREVF | 162,676 |
| | 129,802 |
|
RBHPCG | 66,962 |
| | 46,529 |
|
Treasury / Other | (29,286 | ) | | (71,299 | ) |
Net income | $ | 754,403 |
| | $ | 472,858 |
|
Treasury / Other
The Treasury / Other function includes revenue and expense related to assets, liabilities, and equity not directly assigned or allocated to one of the four business segments. Other assets include investment securities and bank owned life insurance. The financial impact associated with our FTP methodology, as described above, is also included.
Net interest income includes the impact of administering our investment securities portfoliosthis MD&A and the net impact of derivatives usedNotes to hedge interest rate sensitivity. Noninterest income includes miscellaneous fee income not allocated to other business segments, such as bank owned life insurance income and securities and trading asset gains or losses. Noninterest expense includes FirstMerit acquisition-related expenses in 2017 first nine-month period, certain corporate administrative, and other miscellaneous expenses not allocated to other business segments. The provision for income taxes for the business segments is calculated at a statutory 35% tax rate, though our overall effective tax rate is lower. As a result, Treasury / Other reflects a credit for income taxes representing the difference between the lower actual effective tax rate and the statutory tax rate used to allocate income taxes to the business segments.Unaudited Condensed Consolidated Financial Statements.
|
| | | | | | | | | | | | | | |
Consumer and Business Banking |
| | | | | | | |
Table 22 - Key Performance Indicators for Consumer and Business Banking |
| Nine Months Ended September 30, | | Change |
(dollar amounts in thousands unless otherwise noted) | 2017 | | 2016 | | Amount | | Percent |
Net interest income | $ | 1,255,617 |
| | $ | 911,706 |
| | $ | 343,911 |
| | 38 | % |
Provision for credit losses | 74,270 |
| | 43,474 |
| | 30,796 |
| | 71 |
|
Noninterest income | 544,445 |
| | 459,732 |
| | 84,713 |
| | 18 |
|
Noninterest expense | 1,242,152 |
| | 967,417 |
| | 274,735 |
| | 28 |
|
Provision for income taxes | 169,274 |
| | 126,191 |
| | 43,083 |
| | 34 |
|
Net income | $ | 314,366 |
| | $ | 234,356 |
| | $ | 80,010 |
| | 34 | % |
Number of employees (average full-time equivalent) | 8,696 |
| | 6,997 |
| | 1,699 |
| | 24 | % |
Total average assets (in millions) | $ | 25,461 |
| | $ | 19,921 |
| | $ | 5,540 |
| | 28 |
|
Total average loans/leases (in millions) | 20,577 |
| | 16,967 |
| | 3,610 |
| | 21 |
|
Total average deposits (in millions) | 45,478 |
| | 33,759 |
| | 11,719 |
| | 35 |
|
Net interest margin | 3.79 | % | | 3.69 | % | | 0.10 | % | | 3 |
|
NCOs | $ | 75,064 |
| | $ | 49,873 |
| | $ | 25,191 |
| | 51 |
|
NCOs as a % of average loans and leases | 0.48 | % | | 0.39 | % | | 0.09 | % | | 23 |
|
2017 First Nine Months versus 2016 First Nine Months
Consumer and Business Banking, including Home Lending, reported net income of $314 million in the first nine-month period of 2017, an increase of $80 million, or 34%, compared to the year-ago period. Results were predominantly impacted by the FirstMerit acquisition. Segment net interest income increased $344 million, or 38%, primarily due to an increase in total average loans and deposits. The provision for credit losses increased $31 million, or 71%, driven by increased NCOs as well as an increase in the allowance. Noninterest income increased $85 million, or 18%, due to an increase in card and payment processing income and service charges on deposit accounts, which were driven by higher debit card-related transaction volumes and an increase in the number of households. In addition, SBA loan sales gains contributed to improved noninterest income. Noninterest expense increased $275 million, or 28%, due to an increase in personnel and occupancy expense related to the addition of FirstMerit branches and colleagues. Higher processing costs related to transaction volumes, along with allocated expenses, also contributed to the increase in noninterest expense.
Home Lending, an operating unit of Consumer and Business Banking, reflects the result of the origination and servicing of mortgage loans less referral fees and net interest income for mortgage banking products distributed by the retail branch network and other business segments. Home Lending reported net income of $6 million in the first nine-month period of 2017, a decrease of $11 million, or 64%, compared to the year-ago period. While total revenues increased $9 million, or 8%, largely due to higher residential loan balances, this increase was offset by an increase in noninterest expenses of $22 million, or 27%, as a result of higher personnel costs related to the FirstMerit acquisition and higher origination volume. Income from lower origination spreads offset higher origination volume.
|
| | | | | | | | | | | | | | |
Commercial Banking |
| | | | | | | |
Table 23 - Key Performance Indicators for Commercial Banking |
| Nine Months Ended September 30, | | Change |
(dollar amounts in thousands unless otherwise noted) | 2017 | | 2016 | | Amount | | Percent |
Net interest income | $ | 514,900 |
| | $ | 355,263 |
| | $ | 159,637 |
| | 45 | % |
Provision for credit losses | 21,378 |
| | 53,212 |
| | (31,834 | ) | | (60 | ) |
Noninterest income | 176,609 |
| | 150,228 |
| | 26,381 |
| | 18 |
|
Noninterest expense | 301,385 |
| | 246,941 |
| | 54,444 |
| | 22 |
|
Provision for income taxes | 129,061 |
| | 71,868 |
| | 57,193 |
| | 80 |
|
Net income | $ | 239,685 |
| | $ | 133,470 |
| | $ | 106,215 |
| | 80 | % |
Number of employees (average full-time equivalent) | 1,078 |
| | 894 |
| | 184 |
| | 21 | % |
Total average assets (in millions) | $ | 24,026 |
| | $ | 19,012 |
| | $ | 5,014 |
| | 26 |
|
Total average loans/leases (in millions) | 19,051 |
| | 14,951 |
| | 4,100 |
| | 27 |
|
Total average deposits (in millions) | 19,206 |
| | 14,976 |
| | 4,230 |
| | 28 |
|
Net interest margin | 3.33 | % | | 2.95 | % | | 0.38 | % | | 13 |
|
NCOs | $ | 13,420 |
| | $ | 19,951 |
| | $ | (6,531 | ) | | (33 | ) |
NCOs as a % of average loans and leases | 0.09 | % | | 0.18 | % | | (0.09 | )% | | (50 | ) |
2017 First Nine Months versus 2016 First Nine Months
Commercial Banking reported net income of $240 million in the first nine-month period of 2017, an increase of $106 million, or 80%, compared to the year-ago period. Results were predominantly impacted by the FirstMerit acquisition. Segment net interest income increased $160 million, or 45%, primarily due to an increase in both average loans and deposits combined with a 38 basis point increase in net interest margin. The provision for credit losses decreased $32 million, or 60%, driven by an improvement in energy related credits and a reduction in NCOs. Noninterest income increased $26 million, or 18%, largely driven by an increase in loan commitment and other fees, capital markets related revenues, and deposit service charges and other treasury management related income partially offset by a reduction in operating lease income. Noninterest expense increased $54 million, or 22%, primarily due to an increase in personnel expense, allocated expenses, and amortization of intangibles, partially offset by a decrease in operating lease expense.
|
| | | | | | | | | | | | | | |
Commercial Real Estate and Vehicle Finance |
| | | | | | | |
Table 24 - Commercial Real Estate and Vehicle Finance |
| Nine Months Ended September 30, | | Change |
(dollar amounts in thousands unless otherwise noted) | 2017 | | 2016 | | Amount | | Percent |
Net interest income | $ | 419,556 |
| | $ | 317,704 |
| | $ | 101,852 |
| | 32 | % |
Provision for credit losses | 40,047 |
| | 18,706 |
| | 21,341 |
| | 114 |
|
Noninterest income | 34,750 |
| | 25,951 |
| | 8,799 |
| | 34 |
|
Noninterest expense | 163,989 |
| | 125,254 |
| | 38,735 |
| | 31 |
|
Provision for income taxes | 87,594 |
| | 69,893 |
| | 17,701 |
| | 25 |
|
Net income | $ | 162,676 |
| | $ | 129,802 |
| | $ | 32,874 |
| | 25 | % |
Number of employees (average full-time equivalent) | 406 |
| | 330 |
| | 76 |
| | 23 | % |
Total average assets (in millions) | $ | 24,121 |
| | $ | 19,520 |
| | $ | 4,601 |
| | 24 |
|
Total average loans/leases (in millions) | 23,025 |
| | 18,433 |
| | 4,592 |
| | 25 |
|
Total average deposits (in millions) | 1,878 |
| | 1,669 |
| | 209 |
| | 13 |
|
Net interest margin | 2.42 | % | | 2.25 | % | | 0.17 | % | | 8 |
|
NCOs (Recoveries) | $ | 28,007 |
| | $ | (2,146 | ) | | $ | 30,153 |
| | (1,405 | ) |
NCOs as a % of average loans and leases | 0.16 | % | | (0.02 | )% | | 0.18 | % | | (900 | ) |
2017 First Nine Months versus 2016 First Nine Months
CREVF reported net income of $163 million in the first nine-month period of 2017, an increase of $33 million, or 25%, compared to the year-ago period. Results were positively impacted by the FirstMerit acquisition, offset in part by a higher provision for credit losses reflecting significant commercial real estate recoveries benefiting the year ago period. Segment net interest income increased $102 million or 32%, due to both higher loan balances and a 17 basis point increase in the net interest margin primarily reflecting the purchase accounting impact of the acquired loan portfolios. Noninterest income increased $9 million, or 34%, primarily due to an increase in gains on various equity investments associated with mezzanine lending related activities and an increase in net servicing income on securitized automobile loans. Noninterest expense increased $39 million, or 31%, primarily due to an increase in personnel costs and other allocated costs attributed to higher production and portfolio balance levels.
|
| | | | | | | | | | | | | | |
Regional Banking and The Huntington Private Client Group |
| | | | | | | |
Table 25 - Key Performance Indicators for Regional Banking and The Huntington Private Client Group |
| Nine Months Ended September 30, | | Change |
(dollar amounts in thousands unless otherwise noted) | 2017 | | 2016 | | Amount | | Percent |
Net interest income | $ | 145,089 |
| | $ | 112,473 |
| | $ | 32,616 |
| | 29 | % |
Provision for credit losses | 510 |
| | 490 |
| | 20 |
| | 4 |
|
Noninterest income | 140,610 |
| | 126,245 |
| | 14,365 |
| | 11 |
|
Noninterest expense | 182,171 |
| | 166,645 |
| | 15,526 |
| | 9 |
|
Provision for income taxes | 36,056 |
| | 25,054 |
| | 11,002 |
| | 44 |
|
Net income | $ | 66,962 |
| | $ | 46,529 |
| | $ | 20,433 |
| | 44 | % |
Number of employees (average full-time equivalent) | 1,027 |
| | 953 |
| | 74 |
| | 8 | % |
Total average assets (in millions) | $ | 5,473 |
| | $ | 4,424 |
| | $ | 1,049 |
| | 24 |
|
Total average loans/leases (in millions) | 4,779 |
| | 3,997 |
| | 782 |
| | 20 |
|
Total average deposits (in millions) | 5,893 |
| | 5,002 |
| | 891 |
| | 18 |
|
Net interest margin | 3.38 | % | | 3.01 | % | | 0.37 | % | | 12 |
|
NCOs (Recoveries) | $ | 1,879 |
| | $ | (2,392 | ) | | $ | 4,271 |
| | (179 | ) |
NCOs as a % of average loans and leases | 0.05 | % | | (0.08 | )% | | 0.13 | % | | (163 | ) |
Total assets under management (in billions)—eop | $ | 18.0 |
| | $ | 17.3 |
| | $ | 0.7 |
| | 4 |
|
Total trust assets (in billions)—eop | 106.3 |
| | 98.8 |
| | 7.5 |
| | 8 |
|
eop - End of Period.
2017 First Nine Months versus 2016 First Nine Months
RBHPCG reported net income of $67 million in the first nine-month period of 2017, an increase of $20 million, or 44%, compared to the year-ago period. Results were predominantly impacted by the FirstMerit acquisition. Net interest income increased $33 million, or 29%, due to an increase in average total deposits and loans combined with a 37 basis point increase in net interest margin. The increase in average total loans was due to growth in commercial and portfolio mortgage loans, while the increase in average total deposits was due to growth in interest checking balances. The provision for credit losses was essentially unchanged. Noninterest income increased $14 million, or 11%, primarily reflecting increased trust and investment management revenue as a result of an increase in trust assets and assets under management, largely from the FirstMerit acquisition. Noninterest expense increased $16 million, or 9%, as a result of increased personnel expenses and amortization of intangibles resulting from the FirstMerit acquisition.
ADDITIONAL DISCLOSURES
Forward-Looking Statements
This report, including MD&A, contains certain forward-looking statements, including, but not limited to, certain plans, expectations, goals, projections, and statements, which are not historical facts and are subject to numerous assumptions, risks, and uncertainties. Statements that do not describe historical or current facts, including statements about beliefs and expectations, are forward-looking statements. Forward-looking statements may be identified by words such as expect, anticipate, believe, intend, estimate, plan, target, goal, or similar expressions, or future or conditional verbs such as will, may, might, should, would, could, or similar variations. The forward-looking statements are intended to be subject to the safe harbor provided by Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995.
While there is no assurance that any list of risks and uncertainties or risk factors is complete, below are certain factors which could cause actual results to differ materially from those contained or implied in the forward-looking statements: changes in general economic, political, or industry conditions; uncertainty in U.S. fiscal and monetary policy, including the interest rate policies of the Federal Reserve Board; volatility and disruptions in global capital and credit markets; movements in interest rates; reform of LIBOR; competitive pressures on product pricing and services; success, impact, and timing of our business strategies, including market acceptance of any new products or services implementing our “Fair Play” banking philosophy; the nature, extent, timing, and results of governmental actions, examinations, reviews, reforms, regulations, and interpretations, including those related to the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Basel III regulatory capital reforms, as well as those involving the OCC, Federal Reserve, FDIC, and CFPB; the possibility that the anticipated benefits of the merger with FirstMerit Corporation are not realized completely or when expected, including as a result of the impact of, or problems arising from, the strength of the economy and competitive factors in the areas where we do business; and other factors that may affect our future results. Additional factors that could cause results to differ materially from those described above can be found in our Annual Report on Form 10-K for the year ended December 31, 2016, and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2017 and June 30, 2017, which are on file with the Securities and Exchange Commission (the “SEC”) and available in the “Investor Relations” section of our website, http://www.huntington.com, under the heading “Publications and Filings” and in other documents we file with the SEC.
All forward-looking statements speak only as of the date they are made and are based on information available at that time. We do not assume any obligation to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made or to reflect the occurrence of unanticipated events except as required by federal securities laws. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance on such statements.
Non-GAAP Financial Measures
This document contains GAAP financial measures and non-GAAP financial measures where management believes it to be helpful in understanding Huntington’sour results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found herein where applicable.
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.herein.
Fully-Taxable Equivalent Basis
Interest income, yields, and ratios on a FTE basis are considered non-GAAP financial measures. Management believes net interest income on a FTE basis provides an insightful picture of the interest margin for comparison purposes. The FTE basis also allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources. The FTE basis assumes a federal statutory tax rate of 3521 percent. We encourage readers to consider the consolidated financial statementsUnaudited Condensed Consolidated Financial Statements and other financial information contained in this Form 10-Q in their entirety, and not to rely on any single financial measure.
Non-Regulatory Capital Ratios
In additionaddition to capital ratios defined by banking regulators, the Company considers various other measures when evaluating capital utilizationutilization and adequacy, including:
Tangible common equity to tangible assets,
Tangible equity to tangible assets, and
Tangible common equity to risk-weighted assets using Basel III definitions.
These non-regulatory capital ratios are viewed by management as useful additional methods of reflecting the level of capital available to withstand unexpected market conditions. Additionally, presentation of these ratios allows readers to
compare the Company’sour capitalization to other financial services companies. These ratios differ from capital ratios defined by banking regulators principally in that the numerator excludes preferred securities,goodwill and other intangible assets, the nature and extent of which varies among different financial services companies. These ratios are not defined in GAAP or federal banking regulations. As a result, these non-regulatory capital ratios disclosed by the Company are considered non-GAAP financial measures.
Because there are no standardized definitions for these non-regulatory capital ratios, the Company’s calculation methods may differ from those used by other financial services companies. Also, there may be limits in the usefulness of these measures to investors. As a result, the Company encourageswe encourage readers to consider the consolidated financial statementsUnaudited Condensed Consolidated Financial Statements and other financial information contained in this Form 10-Q in their entirety, and not to rely on any single financial measure.
Risk Factors
InformationMore information on risk is discussed in the Risk Factors section included in Item 1A of our 20162018 Form 10-K. Additional information regarding risk factors can also be found in the Risk Management and Capital discussion of this report.
Critical Accounting Policies and Use of Significant Estimates
Our financial statementsConsolidated Financial Statements are prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires us to establish critical accounting policies and make accounting estimates assumptions, and judgments that affect amounts recorded and reported in our financial statements.Consolidated Financial Statements. Note 1 of the Notes to Consolidated Financial Statements included in our December 31, 20162018 Form 10-K, as supplemented by this report listsincluding this MD&A, describes the significant accounting policies we useused in the development and presentation of our financial statements. This MD&A, the significant accounting policies, and other financial statement disclosures identify and address key variables and other qualitative and quantitative factors necessary for an understanding and evaluation of our company, financial position, results of operations, and cash flows.Consolidated Financial Statements.
An accounting estimate requires assumptions and judgments about uncertain matters that could have a material effect on the financial statements if a different amount within a range of estimates were used or if estimates changed from period to period.Consolidated Financial Statements. Estimates are made under facts and circumstances at a point in time, and changes in those facts and circumstances could produce results that significantly differsubstantially different from when those estimates were made.
estimates. Our most significant accounting estimates relate to our ACL, valuation of financial instruments, contingent liabilities, income taxes, and deferred tax assets.assets/liabilities. These significant accounting estimates and their related application are discussed in our December 31, 20162018 Form 10-K.
Recent Accounting Pronouncements and Developments
Note 2 "Accounting Standards Update" of the Notes to Unaudited Condensed Consolidated Financial Statements discusses new accounting pronouncements adopted during 20172019 and the expected impact of accounting pronouncements recently issued but not yet required to be adopted. To the extent the adoption of new accounting standards materially affectaffects financial condition, results of operations, or liquidity, the impacts are discussed in the applicable section of this MD&A and the Notes to Unaudited Condensed Consolidated Financial Statements.
Fair Value
At the end of each quarter, we assess the valuation hierarchy for each asset or liability measured. As necessary, assets or liabilities may be transferred within hierarchy levels due to changes in availability of observable market inputs at the measurement date. The fair values measured at each level of the fair value hierarchy, additional discussion regarding fair value measurements, and a brief description of how fair value is determined for categories that have unobservable inputs, can be found in Note 11 "Fair Values of Assets and Liabilities" of the Notes to Unaudited Condensed Consolidated Financial Statements.
Item 1: Financial Statements
Huntington Bancshares Incorporated
Condensed Consolidated Balance Sheets
(Unaudited)
| | (dollar amounts in thousands, except number of shares) | September 30, | | December 31, | |
| 2017 | | 2016 | September 30, | | December 31, |
(dollar amounts in millions) | | 2019 | | 2018 |
Assets | | | | | | |
Cash and due from banks | $ | 1,193,738 |
| | $ | 1,384,770 |
| $ | 1,018 |
| | $ | 1,108 |
|
Interest-bearing deposits at Federal Reserve Bank | | 618 |
| | 1,564 |
|
Interest-bearing deposits in banks | 50,090 |
| | 58,267 |
| 122 |
| | 53 |
|
Trading account securities | 88,488 |
| | 133,295 |
| 118 |
| | 105 |
|
Loans held for sale (includes $584,829 and $438,224 respectively, measured at fair value)(1) | 651,734 |
| | 512,951 |
| |
Available-for-sale and other securities | 15,453,061 |
| | 15,562,837 |
| |
Available-for-sale securities | | 14,286 |
| | 13,780 |
|
Held-to-maturity securities | 8,688,399 |
| | 7,806,939 |
| 8,430 |
| | 8,565 |
|
Loans and leases (includes $99,191 and $82,319 respectively, measured at fair value)(1) | 68,587,296 |
| | 66,961,996 |
| |
Other securities | | 455 |
| | 565 |
|
Loans held for sale (includes $963 and $613 respectively, measured at fair value)(1) | | 1,064 |
| | 804 |
|
Loans and leases (includes $80 and $79 respectively, measured at fair value)(1) | | 74,892 |
| | 74,900 |
|
Allowance for loan and lease losses | (675,486 | ) | | (638,413 | ) | (783 | ) | | (772 | ) |
Net loans and leases | 67,911,810 |
| | 66,323,583 |
| 74,109 |
| | 74,128 |
|
Bank owned life insurance | 2,459,807 |
| | 2,432,086 |
| 2,532 |
| | 2,507 |
|
Premises and equipment | 853,290 |
| | 815,508 |
| 775 |
| | 790 |
|
Goodwill | 1,992,849 |
| | 1,992,849 |
| 1,990 |
| | 1,989 |
|
Other intangible assets | 359,844 |
| | 402,458 |
| |
Servicing rights | 229,746 |
| | 225,578 |
| |
Accrued income and other assets | 2,055,270 |
| | 2,062,976 |
| |
Servicing rights and other intangible assets | | 455 |
| | 535 |
|
Other assets | | 2,763 |
| | 2,288 |
|
Total assets | $ | 101,988,126 |
| | $ | 99,714,097 |
| $ | 108,735 |
| | $ | 108,781 |
|
Liabilities and shareholders’ equity | | | | | | |
Liabilities | | | | | | |
Deposits | $ | 78,445,113 |
| | $ | 75,607,717 |
| |
Deposits (includes $0 and $872 respectively, classified as held-for-sale) | | $ | 82,395 |
| | $ | 84,774 |
|
Short-term borrowings | 1,829,549 |
| | 3,692,654 |
| 2,173 |
| | 2,017 |
|
Long-term debt | 9,200,707 |
| | 8,309,159 |
| 9,874 |
| | 8,625 |
|
Accrued expenses and other liabilities | 1,813,908 |
| | 1,796,421 |
| |
Other liabilities | | 2,384 |
| | 2,263 |
|
Total liabilities | 91,289,277 |
| | 89,405,951 |
| 96,826 |
| | 97,679 |
|
Commitments and contingencies (Note 14) | | | | | | |
Shareholders’ equity | | | | | | |
Preferred stock | 1,071,286 |
| | 1,071,227 |
| 1,203 |
| | 1,203 |
|
Common stock | 10,844 |
| | 10,886 |
| 10 |
| | 11 |
|
Capital surplus | 9,820,600 |
| | 9,881,277 |
| 8,980 |
| | 9,181 |
|
Less treasury shares, at cost | (35,133 | ) | | (27,384 | ) | (55 | ) | | (45 | ) |
Accumulated other comprehensive loss | (369,963 | ) | | (401,016 | ) | (175 | ) | | (609 | ) |
Retained earnings (deficit) | 201,215 |
| | (226,844 | ) | |
Retained earnings | | 1,946 |
| | 1,361 |
|
Total shareholders’ equity | 10,698,849 |
| | 10,308,146 |
| 11,909 |
| | 11,102 |
|
Total liabilities and shareholders’ equity | $ | 101,988,126 |
| | $ | 99,714,097 |
| $ | 108,735 |
| | $ | 108,781 |
|
Common shares authorized (par value of $0.01) | 1,500,000,000 |
| | 1,500,000,000 |
| 1,500,000,000 |
| | 1,500,000,000 |
|
Common shares issued | 1,084,366,589 |
| | 1,088,641,251 |
| |
Common shares outstanding | 1,080,946,315 |
| | 1,085,688,538 |
| 1,032,755,207 |
| | 1,046,767,252 |
|
Treasury shares outstanding | 3,420,274 |
| | 2,952,713 |
| 4,548,310 |
| | 3,817,385 |
|
Preferred stock, authorized shares | 6,617,808 |
| | 6,617,808 |
| 6,617,808 |
| | 6,617,808 |
|
Preferred shares issued | 2,702,571 |
| | 2,702,571 |
| |
Preferred shares outstanding | 1,098,006 |
| | 1,098,006 |
| 740,500 |
| | 740,500 |
|
See Notes to Unaudited Condensed Consolidated Financial Statements
|
| | | | | | | | | | | | | | | |
Huntington Bancshares Incorporated | | | | | | | |
Condensed Consolidated Statements of Income | | | | | | | |
(Unaudited) | | | | | | | |
(dollar amounts in thousands, except per share amounts) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Interest and fee income: | | | | | | | |
Loans and leases | $ | 724,284 |
| | $ | 583,653 |
| | $ | 2,100,056 |
| | $ | 1,516,849 |
|
Available-for-sale and other securities | | | | | | | |
Taxable | 74,409 |
| | 57,572 |
| | 228,986 |
| | 138,178 |
|
Tax-exempt | 18,579 |
| | 13,687 |
| | 55,961 |
| | 40,499 |
|
Held-to-maturity securities—taxable | 48,743 |
| | 33,098 |
| | 138,214 |
| | 105,307 |
|
Other | 6,972 |
| | 6,336 |
| | 16,554 |
| | 16,422 |
|
Total interest income | 872,987 |
| | 694,346 |
| | 2,539,771 |
| | 1,817,255 |
|
Interest expense: | | | | | | | |
Deposits | 49,611 |
| | 26,233 |
| | 126,688 |
| | 71,575 |
|
Short-term borrowings | 5,713 |
| | 959 |
| | 16,782 |
| | 2,770 |
|
Federal Home Loan Bank advances | 65 |
| | 66 |
| | 197 |
| | 207 |
|
Subordinated notes and other long-term debt | 59,165 |
| | 41,698 |
| | 163,184 |
| | 108,366 |
|
Total interest expense | 114,554 |
| | 68,956 |
| | 306,851 |
| | 182,918 |
|
Net interest income | 758,433 |
| | 625,390 |
| | 2,232,920 |
| | 1,634,337 |
|
Provision for credit losses | 43,590 |
| | 63,805 |
| | 136,206 |
| | 115,896 |
|
Net interest income after provision for credit losses | 714,843 |
| | 561,585 |
| | 2,096,714 |
| | 1,518,441 |
|
Service charges on deposit accounts | 90,681 |
| | 86,847 |
| | 261,683 |
| | 232,722 |
|
Cards and payment processing income | 53,647 |
| | 44,320 |
| | 153,301 |
| | 119,951 |
|
Mortgage banking income | 33,615 |
| | 40,603 |
| | 97,575 |
| | 90,737 |
|
Trust and investment management services | 33,531 |
| | 28,923 |
| | 99,633 |
| | 74,258 |
|
Insurance income | 13,992 |
| | 15,865 |
| | 45,099 |
| | 48,037 |
|
Brokerage income | 14,458 |
| | 14,719 |
| | 46,510 |
| | 44,819 |
|
Capital markets fees | 21,719 |
| | 14,750 |
| | 52,755 |
| | 40,797 |
|
Bank owned life insurance income | 16,453 |
| | 14,452 |
| | 49,317 |
| | 40,500 |
|
Gain on sale of loans | 13,877 |
| | 7,506 |
| | 38,701 |
| | 22,166 |
|
Net gains on sales of securities | 71 |
| | 1,031 |
| | 3,781 |
| | 1,763 |
|
Impairment losses on available-for-sale securities | (104 | ) | | — |
| | (3,687 | ) | | (76 | ) |
Other noninterest income | 38,157 |
| | 33,399 |
| | 123,110 |
| | 99,720 |
|
Total noninterest income | 330,097 |
| | 302,415 |
| | 967,778 |
| | 815,394 |
|
Personnel costs | 377,088 |
| | 405,024 |
| | 1,151,085 |
| | 989,369 |
|
Outside data processing and other services | 79,586 |
| | 91,133 |
| | 241,957 |
| | 216,047 |
|
Equipment | 45,458 |
| | 40,792 |
| | 135,082 |
| | 105,173 |
|
Net occupancy | 55,124 |
| | 41,460 |
| | 175,437 |
| | 103,640 |
|
Professional services | 15,227 |
| | 47,075 |
| | 51,712 |
| | 82,101 |
|
Marketing | 16,970 |
| | 14,438 |
| | 49,736 |
| | 41,479 |
|
Deposit and other insurance expense | 18,514 |
| | 14,940 |
| | 59,031 |
| | 38,335 |
|
Amortization of intangibles | 14,017 |
| | 9,046 |
| | 42,614 |
| | 16,357 |
|
Other noninterest expense | 58,444 |
| | 48,339 |
| | 175,560 |
| | 134,487 |
|
Total noninterest expense | 680,428 |
| | 712,247 |
| | 2,082,214 |
| | 1,726,988 |
|
Income before income taxes | 364,512 |
| | 151,753 |
| | 982,278 |
| | 606,847 |
|
Provision for income taxes | 89,944 |
| | 24,749 |
| | 227,875 |
| | 133,989 |
|
Net income | 274,568 |
| | 127,004 |
| | 754,403 |
| | 472,858 |
|
Dividends on preferred shares | 18,903 |
| | 18,537 |
| | 56,670 |
| | 46,409 |
|
Net income applicable to common shares | $ | 255,665 |
| | $ | 108,467 |
| | $ | 697,733 |
| | $ | 426,449 |
|
| | | | | | | |
| | Huntington Bancshares Incorporated | | | | | | | | |
Condensed Consolidated Statements of Income | | | | | | | | |
(Unaudited) | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollar amounts in thousands, except per share amounts) | 2017 | | 2016 | | 2017 | | 2016 | |
| | | | | | | | |
(dollar amounts in millions, share amounts in thousands) | | 2019 | | 2018 | | 2019 | | 2018 |
Interest and fee income: | | | | | | | | |
Loans and leases | | $ | 889 |
| | $ | 848 |
| | $ | 2,692 |
| | $ | 2,414 |
|
Available-for-sale securities | | | | | | | | |
Taxable | | 74 |
| | 68 |
| | 222 |
| | 209 |
|
Tax-exempt | | 20 |
| | 24 |
| | 64 |
| | 71 |
|
Held-to-maturity securities—taxable | | 54 |
| | 52 |
| | 164 |
| | 159 |
|
Other securities—taxable | | 3 |
| | 6 |
| | 13 |
| | 19 |
|
Other | | 12 |
| | 9 |
| | 35 |
| | 21 |
|
Total interest income | | 1,052 |
| | 1,007 |
| | 3,190 |
| | 2,893 |
|
Interest expense: | | | | | | | | |
Deposits | | 154 |
| | 112 |
| | 449 |
| | 259 |
|
Short-term borrowings | | 13 |
| | 9 |
| | 46 |
| | 42 |
|
Subordinated notes and other long-term debt | | 86 |
| | 84 |
| | 262 |
| | 236 |
|
Total interest expense | | 253 |
| | 205 |
| | 757 |
| | 537 |
|
Net interest income | | 799 |
| | 802 |
| | 2,433 |
| | 2,356 |
|
Provision for credit losses | | 82 |
| | 53 |
| | 208 |
| | 175 |
|
Net interest income after provision for credit losses | | 717 |
| | 749 |
| | 2,225 |
| | 2,181 |
|
Service charges on deposit accounts | | 98 |
| | 93 |
| | 277 |
| | 270 |
|
Cards and payment processing income | | 64 |
| | 57 |
| | 183 |
| | 166 |
|
Trust and investment management services | | 44 |
| | 43 |
| | 131 |
| | 129 |
|
Mortgage banking income | | 54 |
| | 31 |
| | 109 |
| | 85 |
|
Capital markets fees | | 36 |
| | 26 |
| | 92 |
| | 74 |
|
Insurance income | | 20 |
| | 19 |
| | 64 |
| | 61 |
|
Bank owned life insurance income | | 18 |
| | 19 |
| | 49 |
| | 51 |
|
Gain on sale of loans and leases | | 13 |
| | 16 |
| | 39 |
| | 39 |
|
Net (losses) gains on sales of securities | | — |
| | (2 | ) | | (2 | ) | | (2 | ) |
Other noninterest income | | 42 |
| | 40 |
| | 140 |
| | 119 |
|
Total noninterest income | | 389 |
| | 342 |
| | 1,082 |
| | 992 |
|
Personnel costs | | 406 |
| | 388 |
| | 1,228 |
| | 1,160 |
|
Outside data processing and other services | | 87 |
| | 69 |
| | 257 |
| | 211 |
|
Net occupancy | | 38 |
| | 38 |
| | 118 |
| | 114 |
|
Equipment | | 41 |
| | 38 |
| | 121 |
| | 116 |
|
Deposit and other insurance expense | | 8 |
| | 18 |
| | 24 |
| | 54 |
|
Professional services | | 16 |
| | 17 |
| | 40 |
| | 43 |
|
Marketing | | 10 |
| | 12 |
| | 28 |
| | 38 |
|
Amortization of intangibles | | 12 |
| | 13 |
| | 37 |
| | 40 |
|
Other noninterest expense | | 49 |
| | 58 |
| | 167 |
| | 160 |
|
Total noninterest expense | | 667 |
| | 651 |
| | 2,020 |
| | 1,936 |
|
Income before income taxes | | 439 |
| | 440 |
| | 1,287 |
| | 1,237 |
|
Provision for income taxes | | 67 |
| | 62 |
| | 193 |
| | 178 |
|
Net income | | 372 |
| | 378 |
| | 1,094 |
| | 1,059 |
|
Dividends on preferred shares | | 18 |
| | 18 |
| | 55 |
| | 51 |
|
Net income applicable to common shares | | $ | 354 |
| | $ | 360 |
| | $ | 1,039 |
| | $ | 1,008 |
|
Average common shares—basic | 1,086,038 |
| | 938,578 |
| | 1,087,115 |
| | 844,167 |
| 1,034,940 |
| | 1,084,536 |
| | 1,042,246 |
| | 1,090,570 |
|
Average common shares—diluted | 1,106,491 |
| | 952,081 |
| | 1,107,878 |
| | 856,934 |
| 1,051,273 |
| | 1,103,740 |
| | 1,059,064 |
| | 1,116,978 |
|
Per common share: | | | | | | | | | | | | | | |
Net income—basic | $ | 0.24 |
| | $ | 0.12 |
| | $ | 0.64 |
| | $ | 0.51 |
| $ | 0.34 |
| | $ | 0.33 |
| | $ | 1.00 |
| | $ | 0.92 |
|
Net income—diluted | 0.23 |
| | 0.11 |
| | 0.63 |
| | 0.50 |
| 0.34 |
| | 0.33 |
| | 0.98 |
| | 0.90 |
|
Cash dividends declared | 0.08 |
| | 0.07 |
| | 0.24 |
| | 0.21 |
| |
OTTI losses for the periods presented: | | | | | | | | |
Total OTTI losses | $ | (104 | ) | | $ | — |
| | $ | (3,693 | ) | | $ | (3,809 | ) | |
Noncredit-related portion of loss recognized in OCI | — |
| | — |
| | 6 |
| | 3,733 |
| |
Impairment losses recognized in earnings on available-for-sale securities | $ | (104 | ) | | $ | — |
| | $ | (3,687 | ) | | $ | (76 | ) | |
| | | | | | | | | | | | | | |
See Notes to Unaudited Condensed Consolidated Financial Statements |
Huntington Bancshares Incorporated
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollar amounts in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Net income | $ | 274,568 |
| | $ | 127,004 |
| | $ | 754,403 |
| | $ | 472,858 |
|
Other comprehensive income, net of tax: | | | | | | | |
Unrealized gains (losses) on available-for-sale and other securities: | | | | | | | |
Non-credit-related impairment recoveries (losses) on debt securities not expected to be sold | 265 |
| | 1,294 |
| | 2,391 |
| | (388 | ) |
Unrealized net gains (losses) on available-for-sale and other securities arising during the period, net of reclassification for net realized gains and losses | (21,968 | ) | | (35,036 | ) | | 25,081 |
| | 47,118 |
|
Total unrealized gains (losses) on available-for-sale and other securities | (21,703 | ) | | (33,742 | ) | | 27,472 |
| | 46,730 |
|
Unrealized gains (losses) on cash flow hedging derivatives, net of reclassifications to income | 1,318 |
| | (5,232 | ) | | 1,563 |
| | 4,731 |
|
Change in accumulated unrealized losses for pension and other post-retirement obligations | 779 |
| | 841 |
| | 2,018 |
| | 2,522 |
|
Other comprehensive income (loss), net of tax | (19,606 | ) | | (38,133 | ) | | 31,053 |
| | 53,983 |
|
Comprehensive income | $ | 254,962 |
| | $ | 88,871 |
| | $ | 785,456 |
| | $ | 526,841 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollar amounts in millions) | 2019 | | 2018 | | 2019 | | 2018 |
Net income | $ | 372 |
| | $ | 378 |
| | $ | 1,094 |
| | $ | 1,059 |
|
Other comprehensive income, net of tax: | | | | | | | |
Unrealized gains (losses) on available-for-sale securities: | | | | | | | |
Unrealized net gains (losses) on available-for-sale securities arising during the period, net of reclassification for net realized gains and losses | 69 |
| | (62 | ) | | 349 |
| | (264 | ) |
Total unrealized gains (losses) on available-for-sale securities | 69 |
| | (62 | ) | | 349 |
| | (264 | ) |
Change in fair value related to cash flow hedges | 28 |
| | — |
| | 82 |
| | — |
|
Change in accumulated unrealized losses for pension and other post-retirement obligations | 1 |
| | 1 |
| | 3 |
| | 3 |
|
Other comprehensive income (loss), net of tax | 98 |
| | (61 | ) | | 434 |
| | (261 | ) |
Comprehensive income | $ | 470 |
| | $ | 317 |
| | $ | 1,528 |
| | $ | 798 |
|
See Notes to Unaudited Condensed Consolidated Financial Statements
Huntington Bancshares Incorporated
Condensed Consolidated Statements of Changes in Shareholders’ Equity
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Accumulated Other Comprehensive Gain (Loss) | | Retained Earnings (Deficit) | | |
(dollar amounts in thousands, except per share amounts) | Preferred Stock | | Common Stock | | Capital Surplus | | Treasury Stock | | | | |
Amount | | Shares | | Amount | | | Shares | | Amount | | | | Total |
Nine Months Ended September 30, 2016 | | | | | | | | | | | | | | | | | |
Balance, beginning of period | $ | 386,291 |
| | 796,970 |
| | $ | 7,970 |
| | $ | 7,038,502 |
| | (2,041 | ) | | $ | (17,932 | ) | | $ | (226,158 | ) | | $ | (594,067 | ) | | $ | 6,594,606 |
|
Net income | | | | | | | | | | | | | | | 472,858 |
| | 472,858 |
|
Other comprehensive income (loss) | | | | | | | | | | | | | 53,983 |
| | | | 53,983 |
|
FirstMerit Acquisition: | | | | | | | | | | | | | | | | | |
Issuance of common stock | | | 285,425 |
| | 2,854 |
| | 2,764,044 |
| | | | | | | | | | 2,766,898 |
|
Issuance of Series C preferred stock | 100,000 |
| | | | | | 4,320 |
| | | | | | | | | | 104,320 |
|
Net proceeds from issuance of Series D preferred stock | 584,936 |
| | | | | | | | | | | | | | | | 584,936 |
|
Cash dividends declared: | | | | | | | | | | | | | | | | | |
Common ($0.21 per share) | | | | | | | | | | | | | | | (187,710 | ) | | (187,710 | ) |
Preferred Series A ($63.75 per share) | | | | | | | | | | | | | | | (23,110 | ) | | (23,110 | ) |
Preferred Series B ($25.08 per share) | | | | | | | | | | | | | | | (890 | ) | | (890 | ) |
Preferred Series C ($11.59 per share) | | | | | | | | | | | | | | | (1,159 | ) | | (1,159 | ) |
Preferred Series D ($35.42 per share) | | | | | | | | | | | | | | | (21,250 | ) | | (21,250 | ) |
Recognition of the fair value of share-based compensation | | | | | | | 48,568 |
| | | | | | | | | | 48,568 |
|
Other share-based compensation activity | | | 5,014 |
| | 50 |
| | 4,389 |
| | | | | | | | (3,823 | ) | | 616 |
|
Shares sold to HIP | | | 322 |
| | 3 |
| | 3,207 |
| | | | | | | | | | 3,210 |
|
Other | | |
|
| |
|
| | 119 |
| | (908 | ) | | (9,001 | ) | | | | (229 | ) | | (9,111 | ) |
Balance, end of period | $ | 1,071,227 |
| | 1,087,731 |
| | $ | 10,877 |
| | $ | 9,863,149 |
| | (2,949 | ) | | $ | (26,933 | ) | | $ | (172,175 | ) | | $ | (359,380 | ) | | $ | 10,386,765 |
|
| | | | | | | | | | | | | | | | | |
Nine Months Ended September 30, 2017 | | | | | | | | | | | | | | | | | |
Balance, beginning of period | $ | 1,071,227 |
| | 1,088,641 |
| | $ | 10,886 |
| | $ | 9,881,277 |
| | (2,953 | ) | | $ | (27,384 | ) | | $ | (401,016 | ) | | $ | (226,844 | ) | | $ | 10,308,146 |
|
Net income | | | | | | | | | | | | | | | 754,403 |
| | 754,403 |
|
Other comprehensive income (loss) | | | | | | | | | | | | | 31,053 |
| | | | 31,053 |
|
Repurchases of common stock | | | (9,645 | ) | | (96 | ) | | (123,108 | ) | | | | | | | | | | (123,204 | ) |
Cash dividends declared: | | | | | | | | | | | | | | | | | |
Common ($0.24 per share) | | | | | | | | | | | | | | | (260,919 | ) | | (260,919 | ) |
Preferred Series A ($63.75 per share) | | | | | | | | | | | | | | | (23,110 | ) | | (23,110 | ) |
Preferred Series B ($28.96 per share) | | | | | | | | | | | | | | | (1,028 | ) | | (1,028 | ) |
Preferred Series C ($44.07 per share) | | | | | | | | | | | | | | | (4,407 | ) | | (4,407 | ) |
Preferred Series D ($46.88 per share) | | | | | | | | | | | | | | | (28,125 | ) | | (28,125 | ) |
Recognition of the fair value of share-based compensation | | | | | | | 72,747 |
| | | | | | | | | | 72,747 |
|
Other share-based compensation activity | | | 5,361 |
| | 53 |
| | (11,928 | ) | | | | | | | | (8,499 | ) | | (20,374 | ) |
Other | 59 |
| | 10 |
| | 1 |
| | 1,612 |
| | (468 | ) | | (7,749 | ) | | | | (256 | ) | | (6,333 | ) |
Balance, end of period | $ | 1,071,286 |
| | 1,084,367 |
| | $ | 10,844 |
| | $ | 9,820,600 |
| | (3,421 | ) | | $ | (35,133 | ) | | $ | (369,963 | ) | | $ | 201,215 |
| | $ | 10,698,849 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(dollar amounts in millions, share amounts in thousands) | Preferred Stock | | Common Stock | | Capital Surplus | | Treasury Stock | | Accumulated Other Comprehensive Loss | | Retained Earnings | | |
Amount | | Shares | | Amount | | | Shares | | Amount | | | | Total |
Three Months Ended September 30, 2019 | | | | | | | | | | | | | | | | | |
Balance, beginning of period | $ | 1,203 |
| | 1,042,140 |
| | $ | 10 |
| | $ | 9,030 |
| | (4,299 | ) | | $ | (52 | ) | | $ | (273 | ) | | $ | 1,750 |
| | $ | 11,668 |
|
Net income | | | | | | | | | | | | | | | 372 |
| | 372 |
|
Other comprehensive income (loss), net of tax | | | | | | | | | | | | | 98 |
| | | | 98 |
|
Repurchases of common stock | | | (5,213 | ) | | — |
| | (68 | ) | | | | | | | | | | (68 | ) |
Cash dividends declared: | | | | | | | | | | | | | | | | | |
Common ($0.15 per share) | | | | | | | | | | | | | | | (158 | ) | | (158 | ) |
Preferred Series B ($12.51 per share) | | | | | | | | | | | | | | | — |
| | — |
|
Preferred Series C ($14.69 per share) | | | | | | | | | | | | | | | (1 | ) | | (1 | ) |
Preferred Series D ($15.63 per share) | | | | | | | | | | | | | | | (10 | ) | | (10 | ) |
Preferred Series E ($1,425.00 per share) | | | | | | | | | | | | | | | (7 | ) | | (7 | ) |
Recognition of the fair value of share-based compensation | | | | | | | 16 |
| | | | | | | | | | 16 |
|
Other share-based compensation activity | | | 376 |
| | — |
| | 2 |
| | | | | | | |
|
| | 2 |
|
Other | | | | | | | | | (249 | ) | | (3 | ) | |
|
| |
|
| | (3 | ) |
Balance, end of period | $ | 1,203 |
| | 1,037,303 |
| | $ | 10 |
| | $ | 8,980 |
| | (4,548 | ) | | $ | (55 | ) | | $ | (175 | ) | | $ | 1,946 |
| | $ | 11,909 |
|
| | | | | | | | | | | | | | | | | |
Three Months Ended September 30, 2018 | | | | | | | | | | | | | | | | | |
Balance, beginning of period | $ | 1,203 |
| | 1,107,817 |
| | $ | 11 |
| | $ | 10,038 |
| | (3,268 | ) | | $ | (40 | ) | | $ | (730 | ) | | $ | 990 |
| | $ | 11,472 |
|
Net income | | | | | | | | | | | | | | | 378 |
| | 378 |
|
Other comprehensive income (loss), net of tax | | | | | | | | | | | | | (61 | ) | | | | (61 | ) |
Repurchase of common stock | | | (43,670 | ) | | — |
| | (691 | ) | | | | | | | | | | (691 | ) |
Cash dividends declared: | | | | | | | | | | | | | | | | | |
Common ($0.14 per share) | | | | | | | | | | | | | | | (150 | ) | | (150 | ) |
Preferred Series B ($12.84 per share) | | | | | | | | | | | | | | | (1 | ) | | (1 | ) |
Preferred Series C ($14.69 per share) | | | | | | | | | | | | | | | (1 | ) | | (1 | ) |
Preferred Series D ($15.63 per share) | | | | | | | | | | | | | | | (9 | ) | | (9 | ) |
Preferred Series E ($1,425.00 per share) | | | | | | | | | | | | | | | (7 | ) | | (7 | ) |
Recognition of the fair value of share-based compensation | | | | | | | 15 |
| | | | | | | | | | 15 |
|
Other share-based compensation activity | | | 1,104 |
| | — |
| | (4 | ) | | | | | | | | (4 | ) | | (8 | ) |
Other | | | | | | | | | (454 | ) | | (4 | ) | | 1 |
| | | | (3 | ) |
Balance, end of period | $ | 1,203 |
| | 1,065,251 |
| | $ | 11 |
| | $ | 9,358 |
| | (3,722 | ) | | $ | (44 | ) | | $ | (790 | ) | | $ | 1,196 |
| | $ | 10,934 |
|
| | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(dollar amounts in millions, share amounts in thousands) | Preferred Stock | | Common Stock | | Capital Surplus | | Treasury Stock | | Accumulated Other Comprehensive Loss | | Retained Earnings | | |
Amount | | Shares | | Amount | | | Shares | | Amount | | | | Total |
Nine Months Ended September 30, 2019 | | | | | | | | | | | | | | | | | |
Balance, beginning of period | $ | 1,203 |
| | 1,050,584 |
| | $ | 11 |
| | $ | 9,181 |
| | (3,817 | ) | | $ | (45 | ) | | $ | (609 | ) | | $ | 1,361 |
| | $ | 11,102 |
|
Net income | | | | | | | | | | | | | | | 1,094 |
| | 1,094 |
|
Other comprehensive income (loss), net of tax | | | | | | | | | | | | | 434 |
| | | | 434 |
|
Repurchases of common stock | | | (18,390 | ) | | (1 | ) | | (244 | ) | | | | | | | | | | (245 | ) |
Cash dividends declared: | | | | | | | | | | | | | | | | | |
Common ($0.43 per share) | | | | | | | | | | | | | | | (455 | ) | | (455 | ) |
Preferred Series B ($39.47 per share) | | | | | | | | | | | | | | | (1 | ) | | (1 | ) |
Preferred Series C ($44.07 per share) | | | | | | | | | | | | | | | (4 | ) | | (4 | ) |
Preferred Series D ($46.88 per share) | | | | | | | | | | | | | | | (29 | ) | | (29 | ) |
Preferred Series E ($4,275.00 per share) | | | | | | | | | | | | | | | (21 | ) | | (21 | ) |
Recognition of the fair value of share-based compensation | | | | | | | 64 |
| | | | | | | | | | 64 |
|
Other share-based compensation activity | | | 5,109 |
| | — |
| | (21 | ) | | | | | | | |
|
| | (21 | ) |
Other | | | | | | | — |
| | (731 | ) | | (10 | ) | |
|
| | 1 |
| | (9 | ) |
Balance, end of period | $ | 1,203 |
| | 1,037,303 |
| | $ | 10 |
| | $ | 8,980 |
| | (4,548 | ) | | $ | (55 | ) | | $ | (175 | ) | | $ | 1,946 |
| | $ | 11,909 |
|
| | | | | | | | | | | | | | | | | |
Nine Months Ended September 30, 2018 | | | | | | | | | | | | | | | | | |
Balance, beginning of period | $ | 1,071 |
| | 1,075,295 |
| | $ | 11 |
| | $ | 9,707 |
| | (3,268 | ) | | $ | (35 | ) | | $ | (528 | ) | | $ | 588 |
| | $ | 10,814 |
|
Cumulative-effect adjustment (ASU 2016-01) | | | | | | | | | | | | | (1 | ) | | 1 |
| | — |
|
Net income | | | | | | | | | | | | | | | 1,059 |
| | 1,059 |
|
Other comprehensive income (loss), net of tax | | | | | | | | | | | | | (261 | ) | | | | (261 | ) |
Net proceeds from issuance of Preferred Series E Stock | 495 |
| | | | | | | | | | | | | | | | 495 |
|
Repurchases of common stock | | | (46,677 | ) | | — |
| | (739 | ) | | | | | | | | | | (739 | ) |
Cash dividends declared: | | | | | | | | | | | | | | | | | |
Common ($0.36 per share) | | | | | | | | | | | | | | | (393 | ) | | (393 | ) |
Preferred Series B ($36.51 per share) | | | | | | | | | | | | | | | (2 | ) | | (2 | ) |
Preferred Series C ($44.07 per share) | | | | | | | | | | | | | | | (4 | ) | | (4 | ) |
Preferred Series D ($46.88 per share) | | | | | | | | | | | | | | | (28 | ) | | (28 | ) |
Preferred Series E ($3,467.50 per share) | | | | | | | | | | | | | | | (17 | ) | | (17 | ) |
Conversion of Preferred Series A Stock to Common Stock | (363 | ) | | 30,330 |
| | | | 363 |
| | | | | | | | | | — |
|
Recognition of the fair value of share-based compensation | | | | | | | 59 |
| | | | | | | | | | 59 |
|
Other share-based compensation activity | | | 6,303 |
| | — |
| | (32 | ) | | | | | | | | (8 | ) | | (40 | ) |
Other | | |
|
| |
|
| | — |
| | (454 | ) | | (9 | ) | | | |
|
| | (9 | ) |
Balance, end of period | $ | 1,203 |
| | 1,065,251 |
| | $ | 11 |
| | $ | 9,358 |
| | (3,722 | ) | | $ | (44 | ) | | $ | (790 | ) | | $ | 1,196 |
| | $ | 10,934 |
|
| | | | | | | | | | | | | | | | | |
See Notes to Unaudited Condensed Consolidated Financial Statements
Huntington Bancshares Incorporated
Condensed Consolidated Statements of Cash Flows
| | | Nine Months Ended September 30, | Nine Months Ended September 30, |
(dollar amounts in thousands) | 2017 | | 2016 | |
(dollar amounts in millions) | | 2019 | | 2018 |
Operating activities | | |
Net income | $ | 754,403 |
| | $ | 472,858 |
| $ | 1,094 |
| | $ | 1,059 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | |
Provision for credit losses | 136,206 |
| | 115,896 |
| 208 |
| | 175 |
|
Depreciation and amortization | 307,063 |
| | 299,444 |
| 308 |
| | 350 |
|
Share-based compensation expense | 72,747 |
| | 48,568 |
| 64 |
| | 59 |
|
Deferred income tax expense (benefit) | 36,244 |
| | (18,094 | ) | |
Net gains on sales of securities | (3,781 | ) | | (1,763 | ) | |
Impairment losses recognized in earnings on available-for-sale securities | 3,687 |
| | 76 |
| |
Deferred income tax expense | | (6 | ) | | 125 |
|
Net change in: | | | | | | |
Trading account securities | 44,807 |
| | 926 |
| (51 | ) | | 3 |
|
Loans held for sale | (164,405 | ) | | (194,735 | ) | (356 | ) | | (384 | ) |
Accrued income and other assets | (136,485 | ) | | (169,453 | ) | |
Accrued expense and other liabilities | 42,162 |
| | 144,496 |
| |
Other assets | | (662 | ) | | (325 | ) |
Other liabilities | | 297 |
| | 215 |
|
Other, net | 13,647 |
| | (12,413 | ) | 2 |
| | (133 | ) |
Net cash provided by (used for) operating activities | 1,106,295 |
| | 685,806 |
| |
Net cash provided by (used in) operating activities | | 898 |
| | 1,144 |
|
Investing activities | | |
Change in interest bearing deposits in banks | 20,688 |
| | 33,221 |
| (121 | ) | | 62 |
|
Cash paid for acquisition of a business, net of cash received | — |
| | (133,218 | ) | |
Proceeds from: | | | | | | |
Maturities and calls of available-for-sale and other securities | 1,081,091 |
| | 1,266,031 |
| |
Maturities of held-to-maturity securities | 792,996 |
| | 850,170 |
| |
Sales of available-for-sale and other securities | 1,255,152 |
| | 3,893,482 |
| |
Purchases of available-for-sale and other securities | (3,208,608 | ) | | (5,434,332 | ) | |
Maturities and calls of available-for-sale securities | | 1,338 |
| | 1,539 |
|
Maturities and calls of held-to-maturity securities | | 656 |
| | 573 |
|
Maturities and calls of other securities | | 153 |
| | 40 |
|
Sales of available-for-sale securities | | 1,746 |
| | 381 |
|
Purchases of available-for-sale securities | | (3,174 | ) | | (1,044 | ) |
Purchases of held-to-maturity securities | (689,670 | ) | | — |
| (516 | ) | | (71 | ) |
Purchases of other securities | | (5 | ) | | (5 | ) |
Net proceeds from sales of portfolio loans | 427,142 |
| | 352,277 |
| 670 |
| | 461 |
|
Principal payments received under direct finance and sales-type leases | | 544 |
| | — |
|
Net loan and lease activity, excluding sales and purchases | (2,159,966 | ) | | (3,286,238 | ) | (1,162 | ) | | (3,583 | ) |
Purchases of premises and equipment | (144,637 | ) | | (63,688 | ) | (82 | ) | | (62 | ) |
Proceeds from sales of other real estate | 25,156 |
| | 21,765 |
| |
Purchases of loans and leases | (112,859 | ) | | (359,208 | ) | (311 | ) | | (318 | ) |
Net cash paid for branch disposition | | (548 | ) | | — |
|
Other, net | 11,556 |
| | (249 | ) | 49 |
| | 50 |
|
Net cash provided by (used for) investing activities | (2,701,959 | ) | | (2,859,987 | ) | |
Net cash provided by (used in) investing activities | | (763 | ) | | (1,977 | ) |
Financing activities | | | | | | |
Increase (decrease) in deposits | 2,837,396 |
| | 853,806 |
| (1,654 | ) | | 4,648 |
|
Increase (decrease) in short-term borrowings | (1,865,157 | ) | | 363,518 |
| 196 |
| | (3,613 | ) |
Net proceeds from issuance of long-term debt | 1,773,096 |
| | 2,081,643 |
| 1,737 |
| | 2,171 |
|
Maturity/redemption of long-term debt | (882,977 | ) | | (684,746 | ) | (684 | ) | | (1,915 | ) |
Dividends paid on preferred stock | (56,632 | ) | | (46,409 | ) | (55 | ) | | (51 | ) |
Dividends paid on common stock | (261,593 | ) | | (168,656 | ) | (442 | ) | | (362 | ) |
Repurchases of common stock | (123,204 | ) | | — |
| (245 | ) | | (739 | ) |
Proceeds from stock options exercised | 9,316 |
| | 6,084 |
| |
Net proceeds from issuance of preferred stock | — |
| | 584,936 |
| — |
| | 495 |
|
Payments related to tax-withholding for share based compensation awards | (25,613 | ) | | — |
| (26 | ) | | (27 | ) |
Other, net | — |
| | (1,212 | ) | 2 |
| | 5 |
|
Net cash provided by (used for) financing activities | 1,404,632 |
| | 2,988,964 |
| (1,171 | ) | | 612 |
|
Increase (decrease) in cash and cash equivalents | (191,032 | ) | | 814,783 |
| (1,036 | ) | | (221 | ) |
Cash and cash equivalents at beginning of period | 1,384,770 |
| | 847,156 |
| 2,672 |
| | 1,520 |
|
Cash and cash equivalents at end of period | $ | 1,193,738 |
| | $ | 1,661,939 |
| $ | 1,636 |
| | $ | 1,299 |
|
| | | Nine Months Ended September 30, | Nine Months Ended September 30, |
(dollar amounts in thousands) | 2017 | | 2016 | |
(dollar amounts in millions) | | 2019 | | 2018 |
Supplemental disclosures: | | |
Interest paid | $ | 307,493 |
| | $ | 159,357 |
| $ | 758 |
| | $ | 527 |
|
Income taxes paid | 71,165 |
| | 3,869 |
| |
Income taxes paid (refunded) | | 54 |
| | (112 | ) |
Non-cash activities | | |
Loans transferred to held-for-sale from portfolio | 446,152 |
| | 3,204,732 |
| 744 |
| | 470 |
|
Loans transferred to portfolio from held-for-sale | 4,751 |
| | 92,585 |
| 14 |
| | 49 |
|
Transfer of loans to OREO | 23,691 |
| | 18,678 |
| 16 |
| | 15 |
|
Transfer of securities to held-to-maturity from available-for-sale
| 992,760 |
| | — |
| |
Transfer of securities from held-to-maturity to available-for-sale | | — |
| | 2,833 |
|
Transfer of securities from available-for-sale to held-to-maturity | | — |
| | 2,707 |
|
See Notes to Unaudited Condensed Consolidated Financial Statements
Huntington Bancshares Incorporated
Notes to Unaudited Condensed Consolidated Financial Statements
1. BASIS OF PRESENTATION
The accompanying Unaudited Condensed Consolidated Financial Statements of Huntington reflect all adjustments consisting of normal recurring accruals which are, in the opinion of Management, necessary for a fair statement of the consolidated financial position, the results of operations, and cash flows for the periods presented. The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. These Unaudited Condensed Consolidated Financial Statements have been prepared according to the rules and regulations of the SEC and, therefore, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted. The Notes to Consolidated Financial Statements appearing in Huntington’s 20162018 Form 10-K, which include descriptions of significant accounting policies, as updated by the information contained in this report, should be read in conjunction with these interim financial statements.
For statement of cash flow purposes, cash and cash equivalents are defined as the sum of “CashCash and due from banks” which includes amounts on deposit with thebanks and Interest-bearing deposits at Federal Reserve and “Federal funds sold and securities purchased under resale agreements.”Bank.
In conjunction with applicable accounting standards, all material subsequent events have been either recognized in the Unaudited Condensed Consolidated Financial Statements or disclosed in the Notes to Unaudited Condensed Consolidated Financial Statements. No subsequent events were disclosed for the current period.
Certain amounts reported in prior periods have been reclassified to conform to the current period presentation. During the first quarter of 2019, Huntington reclassified loan syndication fees into capital markets fees from other noninterest income. There was no material effect on capital market fees or other noninterest income and no effect on net income as a result of this reclassification.
2. ACCOUNTING STANDARDS UPDATE |
| | |
Accounting standards adopted in current period |
|
| | |
Standard | Summary of guidance | Effects on financial statements |
ASU 2014-09 - Revenue from Contracts with Customers (Topic 606): Issued May 2014
| - Topic 606 supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance.
- Requires an entity to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
- Also requires additional qualitative and quantitative disclosures relating to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers
- Guidance sets forth a five step approach for revenue recognition.
| - Effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Management intends to adopt the new guidance on January 1, 2018 using the modified retrospective approach.
- Management's analysis includes:
(a) Identification of all revenue streams included in the financial statements;
(b) Determination of scope exclusions to identify ‘in-scope’ revenue streams;
(c) Determination of size, timing, and amount of revenue recognition for in-scope items;
(d) Identification of contracts for further analysis; and
(e) Completion of review of certain contracts to evaluate the potential impact of the new guidance.
- Key revenue streams identified include service charges, credit card and payment processing fees, trust services fees, insurance income, brokerage services, and mortgage banking income.
- The new guidance is not expected to have a significant impact on Huntington’s Unaudited Consolidated Financial Statements.
|
|
| | |
Standard | Summary of guidance | Effects on financial statements |
ASU 2016-01 - Recognition and Measurement of Financial Assets and Financial Liabilities.
Issued January 2016
| - Improvements to GAAP disclosures including requiring an entity to:
(a) Measure its equity investments with changes in the fair value recognized in the income statement.
(b) Present separately in OCI the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments (i.e., FVO liability).
(c) Use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.
(d) Assess deferred tax assets related to a net unrealized loss on AFS securities in combination with the entity’s other deferred tax assets.
| - Effective for the fiscal period beginning after December 15, 2017, including interim periods within those fiscal years.
- Amendments are applied as a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption.
- The amendment is not expected to have a significant impact on Huntington's Unaudited Consolidated Financial Statements.
|
ASU 2016-02 - Leases.
Issued February 2016
| - New lease accounting model for lessorslessees and lessees.lessors. For lessees, virtually all leases will be required to be recognized on the balance sheet by recording a right-of-use asset and lease liability. Subsequent accounting for leases varies depending on whether the lease is classified as an operating lease or a finance lease.
- Accounting applied by a lessor is largely unchanged from that applied under the existingprevious guidance.
- Requires additional qualitative and quantitative disclosures with the objective of enabling users of the financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. | - Effective for the fiscal period beginning after December 15, 2018, with early application permitted.
- Management intends to adoptadopted the guidance on January 1, 2019, and has formed a working group comprisedelected certain practical expedients offered by the FASB, including foregoing the restatement of associatescomparative periods upon adoption. Management also excluded short-term leases from different disciplines, including Procurement, Real Estate,the recognition of right-of-use asset and Credit Administration, to evaluatelease liabilities. Additionally, Huntington elected the impacttransition relief allowed by FASB in foregoing reassessment of the standard where Huntington is a lesseefollowing: whether any existing contracts were or lessor, as well as any impact to borrower’s financial statements.contained leases, the classification of existing leases, and the determination of initial direct costs for existing leases.
- Management is currently assessing the impact of the new guidance on Huntington's Unaudited Consolidated Financial Statements, including working with associates engaged in the procurement of goods and services used in the entity’s operations, and reviewing contractual arrangements for embedded leases in an effort to identify Huntington’s full lease population.
- Huntington will recognizerecognized right-of-use assets andof approximately $200 million offset by lease liabilities for virtuallyof approximately $250 million upon adoption, representing substantially all of its operating lease commitments.commitments, with the difference attributable to transition adjustments required by ASC Topic 842 relating to previously recognized amounts for deferred rent and lease exit costs (recorded pursuant to ASC Topic 420). Right-of-use assets and lease liabilities were based, primarily, on the present value of unpaid future minimum lease payments. Additionally, the amounts were impacted by assumptions around renewals and/or extensions, and the interest rate used to discount those future lease obligations. Impact to the income statement was not material in the period of adoption.
- Existing sale and leaseback guidance, including the detailed guidance applicable to sale-leasebacks of real estate, was replaced with a new model applicable to all assets, which will apply equally to both lessees and lessors. Under the new standard, if the transaction meets sale criteria, the seller-lessee will recognize the sale based on the new revenue recognition standard (when control transfers to the buyer-lessor), derecognizing the asset sold and replacing it with a right-of-use asset and lease liability for the leaseback. If the transaction is at fair value, the seller-lessee shall recognize a gain or loss on sale at that time.
- Costs related to exiting an operating lease before the end of its contractual term have been historically accounted for pursuant to ASC Topic 420, with the recognition of a liability measured at the present value of remaining lease payments reduced by any expected sublease income upon the exit of that space. ASC Topic 842 changes the accounting for such costs, with entities evaluating the impairment of right-of-use assets using the guidance in ASC Topic 360. Such an impairment analysis would occur once the entity commits to a plan to abandon the space, which may accelerate the timing of these costs.
- The new standard defines initial direct costs as those that would not have been incurred if the lease had not been obtained. Certain incremental costs previously eligible for capitalization, such as internal overhead, will now be expensed. |
|
| | |
Standard | Summary of guidance | Effects on financial statements |
ASU 2019-01 - Leases (ASC Topic 842): Codification Improvements Issued: March 2019 | - Notes that lessors that are not manufacturers or dealers will apply the fair value exception in a manner similar to what they did prior to the implementation of ASC Topic 842.
- Clarifies that lessors in the scope of ASC Topic 942 (Financial Services - Depository & Lending) must classify principal payments received from sales-type and direct financing leases in investing activities in the statement of cash flows.
- Eliminates certain interim transition disclosure requirements related to the effect of an accounting change on certain interim period financial information. | - The amendments relating to lessor accounting are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.
- Huntington adopted the guidance concurrent with the adoption of ASU 2016-02 on January 1, 2019. The amendment did not have a material impact on Huntington's Unaudited Condensed Consolidated Financial Statements. |
|
| | |
Accounting standards yet to be adopted |
|
| | |
Standard | Summary of guidance | Effects on financial statements |
ASU 2016-13 - Financial Instruments - Credit Losses. Issued June 2016 | - Eliminates the probable recognition threshold for credit losses on financial assets measured at amortized cost.cost, replacing the current incurred loss model with an expected credit loss model.
- Requires those financial assets subject to the new standard to be presented at the net amount expected to be collected (i.e., net of expected credit losses).
- Measurement of expected credit losses should be based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount.
– The standard will require additional quantitative and qualitative disclosures related to the credit risk inherent in Huntington’s portfolio and how management monitors the portfolio’s credit quality. | - Effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018.
- AppliedAdoption will be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective.
- Management intends towill adopt the guidance on January 1, 2020 and has formed a working group in 2017 comprised of teams from different disciplines including credit, finance, and finance to evaluaterisk management that has evaluated the requirements of the new standard and the impact it will have on our processes.processes, systems and controls. This group is in the later stages of implementing those identified process, system and control changes.
- The earlyHuntington has completed the process of developing credit models with model implementation and validation substantially completed during the third quarter of 2019. In addition, management is in the later stages of this evaluation include a review of existing credit models to identify areas where existing credit models usedimplementing the accounting, reporting, and governance processes to comply with other regulatory requirements may be leveraged and areas wherethe new impairment models may be required. |
ASU 2016-15 - Classification of Certain Cash Receipts and Cash Payments.standard.
Issued August 2016
| - Clarifies guidanceBased on the classificationportfolio composition as of certain cash receipts and paymentsSeptember 30, 2019, management estimates the adoption of CECL on January 1, 2020 could result in an overall allowance increase of 40% to 50% compared to current ACL levels. The estimated increase in the statementallowance is largely attributable to the consumer portfolio, given the longer asset duration associated with many of cash flows.these products. It is important to note that this is still an estimated impact range. The final adoption impact will be heavily dependent on management's view of existing and forecasted economic conditions and also the composition of the portfolio at the date of adoption.
- Provides consistent principles– The standard eliminates the current accounting model for evaluating the classification of cash payments and receiptspurchased-credit-impaired loans, but requires an allowance to be recognized for purchased-credit-deteriorated (PCD) assets (those that have experienced more-than-insignificant deterioration in the statement of cash flowscredit quality since origination). Huntington does not expect a material impact from PCD assets upon adoption.
– Upon adoption, Huntington does not expect to reduce diversity in practicerecord a material allowance with respect to several typesHTM and AFS securities as the portfolios consist primarily of cash flows. | - Effective using a retrospective transition approach for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period.
- If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal yearagency-backed securities that includes that interim period.
- This Update is not expected toinherently have a significant impact on Huntington's Unaudited Consolidated Financial Statements.minimal nonpayment risk.
|
|
| | |
Standard | Summary of guidance | Effects on financial statements |
ASU 2017-04 - Simplifying the Test for Goodwill Impairment. Issued January 2017 | - Simplifies the goodwill impairment test by eliminating Step 2 of the goodwill impairment process, which requires an entity to determine the implied fair value of its goodwill by assigning fair value to all its assets and liabilities.
- Entities will instead recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value.
- Entities will still have the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. | - Effective for annual and interim goodwill tests performed in fiscal years beginning after December 15, 2019. Early adoption is permitted.
- The amendment is not expected to have a significantmaterial impact on Huntington's Unaudited Condensed Consolidated Financial Statements. |
|
| | |
Standard | Summary of guidance | Effects on financial statements |
ASU 2019-04 - Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments Issued: April 2019 | - Clarifies various implementation issues related to Recognition and Measurement of Financial Instruments (ASC Topic 825), Current Expected Credit Losses (ASC Topic 326) and Derivatives and Hedging (ASC Topic 815).
- Provides additional implementation guidance on CECL issues that include, among others, (a) measurement of credit allowance on accrued interest; (b) treatment of credit allowance upon transfers between classifications or categories for loans and debt securities; (c) inclusion of recoveries in determining credit allowance amounts; (d) using projections of rate change for variable rate instruments; (e) vintage disclosures for lines-of-credit; (f) contractual extensions and renewals; (g) consideration of prepayments in calculating effective interest rate; and (h) consideration of costs to sell if the entity intends to sell the collateral when foreclosure is probable.
- Clarifies for Topic 815, among others, that (a) only interest rate risk may be hedged in a partial-term fair value hedge; (b) amortization of fair value basis adjustment may begin before the fair value hedge is discontinued; (c) hedged AFS securities should be disclosed at amortized cost for disclosures related to hedged assets; and (d) contractually specified interest rate should be considered when applying hypothetical derivative method while assessing hedge effectiveness.
- Clarifies for Topic 326, among others, that (a) using observable price under measurement alternative provided by ASC Topic 820 is a non-recurring fair value measurement and entities should adhere to non-recurring fair value disclosure requirements; and (b) equity securities without readily determinable fair value accounted for under measurement alternative should be remeasured using historical exchange rates. | - Effective dates and transition requirements for amendments related to CECL (ASC Topic 326) are the same as effective dates and transition requirements for ASU 2016-13.
- Amendments related to Derivatives and Hedging (ASC Topic 815) are effective as of the beginning of first annual period after the issuance date of the Update (ASU 2019-04). Earlier adoption is permitted, including adoption on any date on or after the issuance of the Update.
- Amendment related to Recognition and Measurement of Financial Instruments (ASC Topic 825) should be applied on a modified-retrospective basis effective for fiscal years, including interim period within those fiscal years, beginning after December 15, 2019. Earlier adoption is permitted.
- Amendments in the Update are not expected to have a material impact on Huntington's Unaudited Condensed Consolidated Financial Statements. |
ASU 2017-072019-05 - ImprovingFinancial Instruments - Credit Losses (Topic 326): Targeted Transition Relief Issued: May 2019 | - Provides entities that have certain instruments within the Presentationscope of Net Periodic Pension Cost and Periodic Postretirement Benefit Cost.Issued March 2017 ASC Subtopic 326-20 with an option to irrevocably elect fair value option, applied on instrument-by-instrument basis. The fair value option does not apply to held-to-maturity debt securities. | - Requires that an employer reportEffective dates for the service cost component of the pension cost and postretirement benefit cost inamendment is the same line items as other compensation costs arising from services rendered by the pertinent employees during the period.effective dates in ASU 2016-13. The amendment will be applied on a modified-retrospective basis.
- Other components of the net benefit cost should be presented in the income statement separately from the service cost component. | - Effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted as of the beginning of an annual period for which financial statements have not been issued or made available for issuance.
- This UpdateThe amendment is not expected to have a significantmaterial impact on Huntington's Unaudited Condensed Consolidated Financial Statements.
|
ASU 2017-09 - Stock Compensation Modification Accounting.
Issued May 2017
| - Reduces the current diversity in practice and provides explicit guidance pertaining to the provisions of modification accounting.
- Clarifies that an entity should account for effects of modification unless the fair value, vesting conditions and the classification of the modified award are the same as the original awards immediately before the original award is modified.
| - Effective prospectively for annual periods and interim periods within those annual periods, beginning after December 15, 2017. Earlier application is permitted.
- The Update is not expected to have a significant impact on Huntington's Unaudited Consolidated Financial Statements.
|
ASU 2017-12 - Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities.
Issued August 2017
| - Aligns the entity’s risk management activities and financial reporting for hedging relationships.
- Requires an entity to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported.
- Refines measurement techniques for hedges of benchmark interest rate risk.
- Eliminates the separate measurement and reporting of hedge ineffectiveness.
- Allows stated amount of assets in a closed portfolio to be fair value hedged by excluding proportion of hedged item related to prepayments, defaults and other events.
- Eases hedge effectiveness testing including an option to perform qualitative testing.
| - Effective for annual periods and interim periods within those annual periods, beginning after December 15, 2018. For cash flow and net investment hedges, cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness should be recognized in AOCI with a corresponding adjustment to retained earnings. Earlier application is permitted.
- Huntington is considering adopting the new guidance on January 1, 2018. The Update is not expected to have a significant impact on Huntington's Unaudited Consolidated Financial Statements.
|
3. LOANS / LEASES AND ALLOWANCE FOR CREDIT LOSSES
Loans and leases which Huntington has the intent and ability to hold for the foreseeable future, or until maturity or payoff, are classified in the Unaudited Condensed Consolidated Balance Sheets as loans and leases. Except for loans which are accounted for at fair value, loans are carried at the principal amount outstanding, netThe total balance of unamortized premiums, and discounts, and deferred loan fees, and costs, recognized as part of loans and purchase accounting adjustments, which resulted inleases, was a net premium of $295$490 million and $120$428 million at September 30, 20172019 and December 31, 2016,2018, respectively.
Loan and Lease Portfolio Composition
The following table provides a detailed listing of Huntington’s loan and lease portfolio at September 30, 20172019 and December 31, 2016.2018. |
| | | | | | | |
(dollar amounts in millions) | September 30, 2019 | | December 31, 2018 |
Loans and leases: | | | |
Commercial and industrial | $ | 30,394 |
| | $ | 30,605 |
|
Commercial real estate | 6,855 |
| | 6,842 |
|
Automobile | 12,292 |
| | 12,429 |
|
Home equity | 9,300 |
| | 9,722 |
|
Residential mortgage | 11,247 |
| | 10,728 |
|
RV and marine | 3,553 |
| | 3,254 |
|
Other consumer | 1,251 |
| | 1,320 |
|
Loans and leases | $ | 74,892 |
| | $ | 74,900 |
|
Allowance for loan and lease losses | (783 | ) | | (772 | ) |
Net loans and leases | $ | 74,109 |
| | $ | 74,128 |
|
|
| | | | | | | |
(dollar amounts in thousands) | September 30, 2017 | | December 31, 2016 |
Loans and leases: | | | |
Commercial and industrial | $ | 27,469,344 |
| | $ | 28,058,712 |
|
Commercial real estate | 7,206,096 |
| | 7,300,901 |
|
Automobile | 11,876,033 |
| | 10,968,782 |
|
Home equity | 9,984,728 |
| | 10,105,774 |
|
Residential mortgage | 8,616,059 |
| | 7,724,961 |
|
RV and marine finance | 2,371,065 |
| | 1,846,447 |
|
Other consumer | 1,063,971 |
| | 956,419 |
|
Loans and leases | 68,587,296 |
| | 66,961,996 |
|
Allowance for loan and lease losses | (675,486 | ) | | (638,413 | ) |
Net loans and leases | $ | 67,911,810 |
| | $ | 66,323,583 |
|
Huntington leases equipment to customers, and substantially all such arrangements are classified as either sales-type or direct financing leases, which are included in C&I loans. These leases are reported at the aggregate of lease payments receivable and estimated residual values, net of unearned and deferred income, and any initial direct costs incurred to originate these leases. Renewal options for leases are at the option of the lessee, and are not included in the measurement of lease receivables as they are not considered reasonably certain of exercise. Purchase options are typically at fair value, and as such those options are not considered in the measurement of lease receivables or in lease classification.For leased equipment, the residual component of a direct financing lease represents the estimated fair value of the leased equipment at the end of the lease term. Huntington uses industry data, historical experience, and independent appraisals to establish these residual value estimates. Additional information regarding product life cycle, product upgrades, as well as insight into competing products are obtained through relationships with industry contacts and are factored into residual value estimates where applicable. Upon expiration of a lease, residual assets are remarketed, resulting in an extension of the lease by the lessee, a lease to a new customer, or purchase of the residual asset by the lessee or another party. Huntington also purchases insurance guaranteeing the value of certain residual assets.
Impairment of the residual values of direct financing leases is evaluated quarterly, with impairment arising if the expected fair value is less than the carrying amount. Effective January 1, 2019, as a result of the implementation of ASU 2016-02, Huntington assesses net investments in leases (including residual values) for impairment and recognizes any impairment losses in accordance with the impairment guidance for financial instruments. As such, net investments in leases may be reduced by an allowance for credit losses, with changes recognized as provision expense.
FirstMerit Purchased Credit-Impaired Loans
The following table presents a rollforwardnet investments in lease financing receivables by category at September 30, 2019 and December 31, 2018.
|
| | | | | | | |
(dollar amounts in millions) | September 30, 2019 | | December 31, 2018 |
Commercial and industrial: | | | |
Lease payments receivable | $ | 1,743 |
| | $ | 1,747 |
|
Estimated residual value of leased assets | 701 |
| | 726 |
|
Gross investment in commercial and industrial lease financing receivables | 2,444 |
| | 2,473 |
|
Deferred origination costs | 18 |
| | 20 |
|
Deferred fees | (245 | ) | | (250 | ) |
Total net investment in commercial and industrial lease financing receivables | $ | 2,217 |
| | $ | 2,243 |
|
The carrying value of
the accretable yieldresidual values guaranteed was $91 million as of September 30, 2019. The future lease rental payments due from customers on sales-type and direct financing leases at September 30, 2019, totaled $1.7 billion and were due as follows: $0.6 billion in 2020, $0.5 billion in 2021, $0.3 billion in 2022, $0.1 billion in 2023, $0.1 billion in 2024, and less than $0.1 billion thereafter. Interest income recognized for
purchased credit impaired loansthese types of leases was $28 million and $81 million for the three-month and nine-month
periodperiods ended September 30,
2017. |
| | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollar amounts in thousands) | | 2017 | | 2017 |
Balance, beginning of period | | $ | 36,509 |
| | $ | 36,669 |
|
Accretion | | (4,343 | ) | | (13,833 | ) |
Reclassification (to) from nonaccretable difference | | 3,044 |
| | 12,374 |
|
Balance, end of period | | $ | 35,210 |
| | $ | 35,210 |
|
The following table reflects the ending and unpaid balances of the purchase credit impaired loans at September 30, 2017 and December 31, 2016.
|
| | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
(dollar amounts in thousands) | | Ending Balance | | Unpaid Principal Balance | | Ending Balance | | Unpaid Principal Balance |
Commercial and industrial | | $ | 48,606 |
| | $ | 72,117 |
| | $ | 68,338 |
| | $ | 100,031 |
|
Commercial real estate | | 16,383 |
| | 29,689 |
| | 34,042 |
| | 56,320 |
|
Total | | $ | 64,989 |
| | $ | 101,806 |
| | $ | 102,380 |
| | $ | 156,351 |
|
There was no allowance for loan losses recorded on the purchased credit-impaired loan portfolio at September 30, 2017 and December 31, 2016.2019, respectively.
Nonaccrual and Past Due Loans
Loans are considered past due when the contractual amounts due with respect to principal and interest are not received within 30 days of the contractual due date. See Note 1 “Significant Accounting Policies” to the consolidated financial statementsConsolidated Financial Statements of the Annual Report on Form 10-K for the year ended December 31, 20162018 for a description of the accounting policies related to the NALs.
The following table presents nonaccrual loans (NALs)NALs by loan class at September 30, 20172019 and December 31, 2016.2018.
|
| | | | | | | |
(dollar amounts in millions) | September 30, 2019 | | December 31, 2018 |
Commercial and industrial | $ | 291 |
| | $ | 188 |
|
Commercial real estate | 12 |
| | 15 |
|
Automobile | 5 |
| | 5 |
|
Home equity | 60 |
| | 62 |
|
Residential mortgage | 69 |
| | 69 |
|
RV and marine | 1 |
| | 1 |
|
Other consumer | — |
| | — |
|
Total nonaccrual loans | $ | 438 |
| | $ | 340 |
|
|
| | | | | | | |
(dollar amounts in thousands) | September 30, 2017 | | December 31, 2016 |
Commercial and industrial | $ | 169,751 |
| | $ | 234,184 |
|
Commercial real estate | 17,397 |
| | 20,508 |
|
Automobile | 4,076 |
| | 5,766 |
|
Home equity | 71,353 |
| | 71,798 |
|
Residential mortgage | 75,251 |
| | 90,502 |
|
RV and marine finance | 309 |
| | 245 |
|
Other consumer | 108 |
| | — |
|
Total nonaccrual loans | $ | 338,245 |
| | $ | 423,003 |
|
The following table presents an aging analysis of loans and leases, including past due loans and leases, by loan class at September 30, 20172019 and December 31, 2016. (1)2018:
| | | September 30, 2017 | September 30, 2019 | |
| Past Due | | | | | | Loans Accounted for Under the Fair Value Option | | Total Loans and Leases | | 90 or more days past due and accruing | | Past Due (1) | | | | Loans Accounted for Under FVO | | Total Loans and Leases | | 90 or more days past due and accruing | |
(dollar amounts in thousands) | 30-59 Days | | 60-89 Days | | 90 or more days | Total | | Current | | Purchased Credit Impaired | | |
(dollar amounts in millions) | | 30-59 Days | | 60-89 Days | | 90 or more days | | Total | | Current | | Loans Accounted for Under FVO | | Total Loans and Leases | | 90 or more days past due and accruing | |
Commercial and industrial | $ | 36,505 |
| | $ | 10,654 |
| | $ | 77,835 |
| | $ | 124,994 |
| | $ | 27,295,744 |
| | $ | 48,606 |
| | $ | — |
| | $ | 27,469,344 |
| | $ | 14,083 |
| (2) | $ | 69 |
| | $ | 30 |
| | $ | 70 |
| | $ | 169 |
| | $ | 30,225 |
| | (2) |
Commercial real estate | 35,444 |
| | 2,586 |
| | 20,010 |
| | 58,040 |
| | 7,131,673 |
| | 16,383 |
| | — |
| | 7,206,096 |
| | 9,550 |
| | 9 |
| | — |
| | 7 |
| | 16 |
| | 6,839 |
| | — |
| | 6,855 |
| | — |
| |
Automobile | 79,457 |
| | 17,167 |
| | 10,449 |
| | 107,073 |
| | 11,767,782 |
| | — |
| | 1,178 |
| | 11,876,033 |
| | 10,239 |
| | 79 |
| | 18 |
| | 10 |
| | 107 |
| | 12,185 |
| | — |
| | 12,292 |
| | 8 |
| |
Home equity | 41,748 |
| | 19,601 |
| | 63,747 |
| | 125,096 |
| | 9,857,359 |
| | — |
| | 2,273 |
| | 9,984,728 |
| | 16,150 |
| | 49 |
| | 16 |
| | 50 |
| | 115 |
| | 9,184 |
| | 1 |
| | 9,300 |
| | 13 |
| |
Residential mortgage | 111,722 |
| | 45,041 |
| | 104,167 |
| | 260,930 |
| | 8,260,742 |
| | — |
| | 94,387 |
| | 8,616,059 |
| | 62,832 |
| (3) | 119 |
| | 44 |
| | 164 |
| | 327 |
| | 10,841 |
| | 79 |
| | 11,247 |
| | 125 |
| (3) |
RV and marine finance | 10,303 |
| | 2,184 |
| | 2,134 |
| | 14,621 |
| | 2,355,309 |
| | — |
| | 1,135 |
| | 2,371,065 |
| | 2,063 |
| | |
RV and marine | | 11 |
| | 3 |
| | 2 |
| | 16 |
| | 3,537 |
| | — |
| | 3,553 |
| | 1 |
| |
Other consumer | 10,180 |
| | 4,394 |
| | 3,752 |
| | 18,326 |
| | 1,045,427 |
| | — |
| | 218 |
| | 1,063,971 |
| | 3,752 |
| | 13 |
| | 6 |
| | 7 |
| | 26 |
| | 1,225 |
| | — |
| | 1,251 |
| | 7 |
| |
Total loans and leases | $ | 325,359 |
| | $ | 101,627 |
| | $ | 282,094 |
| | $ | 709,080 |
| | $ | 67,714,036 |
| | $ | 64,989 |
| | $ | 99,191 |
| | $ | 68,587,296 |
| | $ | 118,669 |
| | $ | 349 |
| | $ | 117 |
| | $ | 310 |
| | $ | 776 |
| | $ | 74,036 |
| | $ | 80 |
| | $ | 74,892 |
| | $ | 163 |
| |
| | | December 31, 2016 | December 31, 2018 | |
| Past Due | | | | | | Loans Accounted for Under the Fair Value Option | | Total Loans and Leases | | 90 or more days past due and accruing | | Past Due (1) | | | | Loans Accounted for Under FVO | | Total Loans and Leases | | 90 or more days past due and accruing | |
(dollar amounts in thousands) | 30-59 Days | | 60-89 Days | | 90 or more days | Total | | Current | | Purchased Credit Impaired | | |
(dollar amounts in millions) | | 30-59 Days | | 60-89 Days | | 90 or more days | | Total | | Current | | Loans Accounted for Under FVO | | Total Loans and Leases | | 90 or more days past due and accruing | |
Commercial and industrial | 42,052 |
| | 20,136 |
| | 74,174 |
| | 136,362 |
| | 27,854,012 |
| | 68,338 |
| | — |
| | 28,058,712 |
| | 18,148 |
| (2) | $ | 72 |
| | $ | 17 |
| | $ | 51 |
| | $ | 140 |
| | $ | 30,465 |
| | (2) |
Commercial real estate | 21,187 |
| | 3,202 |
| | 29,659 |
| | 54,048 |
| | 7,212,811 |
| | 34,042 |
| | — |
| | 7,300,901 |
| | 17,215 |
| | 10 |
| | — |
| | 5 |
| | 15 |
| | 6,827 |
| | — |
| | 6,842 |
| | — |
| |
Automobile | 76,283 |
| | 17,188 |
| | 10,442 |
| | 103,913 |
| | 10,862,715 |
| | — |
| | 2,154 |
| | 10,968,782 |
| | 10,182 |
| | 95 |
| | 19 |
| | 10 |
| | 124 |
| | 12,305 |
| | — |
| | 12,429 |
| | 8 |
| |
Home equity | 38,899 |
| | 23,903 |
| | 53,002 |
| | 115,804 |
| | 9,986,697 |
| | — |
| | 3,273 |
| | 10,105,774 |
| | 11,508 |
| | 51 |
| | 21 |
| | 56 |
| | 128 |
| | 9,593 |
| | 1 |
| | 9,722 |
| | 17 |
| |
Residential mortgage | 122,469 |
| | 37,460 |
| | 116,682 |
| | 276,611 |
| | 7,373,414 |
| | — |
| | 74,936 |
| | 7,724,961 |
| | 66,952 |
| (3) | 108 |
| | 47 |
| | 168 |
| | 323 |
| | 10,327 |
| | 78 |
| | 10,728 |
| | 131 |
| (3) |
RV and marine finance | 10,009 |
| | 2,230 |
| | 1,566 |
| | 13,805 |
| | 1,831,123 |
| | — |
| | 1,519 |
| | 1,846,447 |
| | 1,462 |
| | |
RV and marine | | 12 |
| | 3 |
| | 2 |
| | 17 |
| | 3,237 |
| | — |
| | 3,254 |
| | 1 |
| |
Other consumer | 9,442 |
| | 4,324 |
| | 3,894 |
| | 17,660 |
| | 938,322 |
| | — |
| | 437 |
| | 956,419 |
| | 3,895 |
| | 14 |
| | 7 |
| | 6 |
| | 27 |
| | 1,293 |
| | — |
| | 1,320 |
| | 6 |
| |
Total loans and leases | $ | 320,341 |
| | $ | 108,443 |
| | $ | 289,419 |
| | $ | 718,203 |
| | $ | 66,059,094 |
| | $ | 102,380 |
| | $ | 82,319 |
| | $ | 66,961,996 |
| | $ | 129,362 |
| | $ | 362 |
| | $ | 114 |
| | $ | 298 |
| | $ | 774 |
| | $ | 74,047 |
| | $ | 79 |
| | $ | 74,900 |
| | $ | 170 |
| |
| |
(1) | NALs are included in this aging analysis based on theirthe loan's past due status. |
| |
(2) | Amounts include Huntington Technology Finance administrative lease delinquencies. |
| |
(3) | Amounts include mortgage loans guaranteedinsured by U.S. government organizations.agencies. |
Allowance for Credit Losses
Huntington maintains two2 reserves, both of which reflect Management’s judgment regarding the appropriate level necessary to absorb probable and estimable credit losses inherent in our loan and lease portfolio as of the balance sheet date: the ALLL and the AULC. Combined, these reserves comprise the total ACL. The determination of the ACL requires significant estimates, including the timing and amounts of expected future cash flows on impaired loans and leases, consideration of current economic conditions, and historical loss experience pertaining to pools of homogeneous loans and leases, all of which may be susceptible to change. See Note 1 “Significant Accounting Policies” to the consolidated financial statementsConsolidated Financial Statements of the Annual Report on Form 10-K for the year ended December 31, 20162018 for a description of the accounting policies related to the ACL.
The ACLALLL is increased through a provision for credit losses that is charged to earnings, based on Management’s quarterly evaluation and is reduced by charge-offs, net of recoveries, and the ACL associated with loans sold or transferred to held-for-sale.recoveries.
The following table presents ALLL and AULC activity by portfolio segment for the three-month and nine-month periods ended September 30, 20172019 and 2016.2018.
| | (dollar amounts in thousands) | | Commercial | | Consumer | | Total | |
Three-month period ended September 30, 2017: | | | | | | | |
(dollar amounts in millions) | | | Commercial | | Consumer | | Total |
Three-month period ended September 30, 2019: | | | | | | | |
ALLL balance, beginning of period | | $ | 474,576 |
| | $ | 193,420 |
| | $ | 667,996 |
| | $ | 560 |
| | $ | 214 |
| | $ | 774 |
|
Loan charge-offs | | (19,278 | ) | | (45,494 | ) | | (64,772 | ) | | (53 | ) | | (49 | ) | | (102 | ) |
Recoveries of loans previously charged-off | | 10,015 |
| | 11,865 |
| | 21,880 |
| | 15 |
| | 14 |
| | 29 |
|
Provision for (reduction in allowance) loan and lease losses | | 8,810 |
| | 41,573 |
| | 50,383 |
| |
Allowance for loans sold or transferred to loans held for sale | | (1 | ) | | — |
| | (1 | ) | |
Provision for loan and lease losses | | | 39 |
| | 43 |
| | 82 |
|
ALLL balance, end of period | | $ | 474,122 |
| | $ | 201,364 |
| | $ | 675,486 |
| | $ | 561 |
| | $ | 222 |
| | $ | 783 |
|
AULC balance, beginning of period | | $ | 82,827 |
| | $ | 2,532 |
| | $ | 85,359 |
| | $ | 99 |
| | $ | 2 |
| | $ | 101 |
|
Provision for (reduction in allowance) unfunded loan commitments and letters of credit | | (6,528 | ) | | (265 | ) | | (6,793 | ) | |
Provision (reduction in allowance) for unfunded loan commitments and letters of credit | | | — |
| | — |
| | — |
|
AULC balance, end of period | | $ | 76,299 |
| | $ | 2,267 |
| | $ | 78,566 |
| | $ | 99 |
| | $ | 2 |
| | $ | 101 |
|
ACL balance, end of period | | $ | 550,421 |
| | $ | 203,631 |
| | $ | 754,052 |
| | $ | 660 |
| | $ | 224 |
| | $ | 884 |
|
Nine-month period ended September 30, 2017: | | | | | | | |
Nine-month period ended September 30, 2019: | | | | | | | |
ALLL balance, beginning of period | | $ | 451,091 |
| | $ | 187,322 |
| | $ | 638,413 |
| | $ | 542 |
| | $ | 230 |
| | $ | 772 |
|
Loan charge-offs | | (58,051 | ) | | (133,884 | ) | | (191,935 | ) | | (124 | ) | | (145 | ) | | (269 | ) |
Recoveries of loans previously charged-off | | 33,619 |
| | 39,946 |
| | 73,565 |
| | 35 |
| | 42 |
| | 77 |
|
Provision for (reduction in allowance) loan and lease losses | | 47,539 |
| | 107,980 |
| | 155,519 |
| |
Allowance for loans sold or transferred to loans held for sale | | (76 | ) | | — |
| | (76 | ) | |
Provision for loan and lease losses | | | 108 |
| | 95 |
| | 203 |
|
ALLL balance, end of period | | $ | 474,122 |
| | $ | 201,364 |
| | $ | 675,486 |
| | $ | 561 |
| | $ | 222 |
| | $ | 783 |
|
AULC balance, beginning of period | | $ | 86,543 |
| | $ | 11,336 |
| | $ | 97,879 |
| | $ | 94 |
| | $ | 2 |
| | $ | 96 |
|
Provision for (reduction in allowance) unfunded loan commitments and letters of credit | | (10,244 | ) | | (9,069 | ) | | (19,313 | ) | |
Provision (reduction in allowance) for unfunded loan commitments and letters of credit | | | 5 |
| | — |
| | 5 |
|
AULC balance, end of period | | $ | 76,299 |
| | $ | 2,267 |
| | $ | 78,566 |
| | $ | 99 |
| | $ | 2 |
| | $ | 101 |
|
ACL balance, end of period | | $ | 550,421 |
| | $ | 203,631 |
| | $ | 754,052 |
| | $ | 660 |
| | $ | 224 |
| | $ | 884 |
|
|
| | | | | | | | | | | | |
(dollar amounts in millions) | | Commercial | | Consumer | | Total |
Three-month period ended September 30, 2018: |
ALLL balance, beginning of period | | $ | 531 |
| | $ | 210 |
| | $ | 741 |
|
Loan charge-offs | | (11 | ) | | (47 | ) | | (58 | ) |
Recoveries of loans previously charged-off | | 15 |
| | 14 |
| | 29 |
|
Provision for loan and lease losses | | 8 |
| | 41 |
| | 49 |
|
ALLL balance, end of period | | $ | 543 |
| | $ | 218 |
| | $ | 761 |
|
AULC balance, beginning of period | | $ | 90 |
| | $ | 3 |
| | $ | 93 |
|
Provision (reduction in allowance) for unfunded loan commitments and letters of credit | | 5 |
| | (1 | ) | | 4 |
|
AULC balance, end of period | | $ | 95 |
| | $ | 2 |
| | $ | 97 |
|
ACL balance, end of period | | $ | 638 |
| | $ | 220 |
| | $ | 858 |
|
Nine-month period ended September 30, 2018: |
ALLL balance, beginning of period | | $ | 482 |
| | $ | 209 |
| | $ | 691 |
|
Loan charge-offs | | (46 | ) | | (138 | ) | | (184 | ) |
Recoveries of loans previously charged-off | | 45 |
| | 44 |
| | 89 |
|
Provision for loan and lease losses | | 62 |
| | 103 |
| | 165 |
|
ALLL balance, end of period | | $ | 543 |
| | $ | 218 |
| | $ | 761 |
|
AULC balance, beginning of period | | $ | 84 |
| | $ | 3 |
| | $ | 87 |
|
Provision (reduction in allowance) for unfunded loan commitments and letters of credit | | 11 |
| | (1 | ) | | 10 |
|
AULC balance, end of period | | $ | 95 |
| | $ | 2 |
| | $ | 97 |
|
ACL balance, end of period | | $ | 638 |
| | $ | 220 |
| | $ | 858 |
|
|
| | | | | | | | | | | | |
(dollar amounts in thousands) | | Commercial | | Consumer | | Total |
Three-month period ended September 30, 2016: |
ALLL balance, beginning of period | | $ | 424,507 |
| | $ | 198,557 |
| | $ | 623,064 |
|
Loan charge-offs | | (24,839 | ) | | (34,429 | ) | | (59,268 | ) |
Recoveries of loans previously charged-off | | 8,312 |
| | 10,891 |
| | 19,203 |
|
Provision for (reduction in allowance) loan and lease losses | | 36,689 |
| | 16,834 |
| | 53,523 |
|
Allowance for loans sold or transferred to loans held for sale | | (12,874 | ) | | (6,750 | ) | | (19,624 | ) |
ALLL balance, end of period | | $ | 431,795 |
| | $ | 185,103 |
| | $ | 616,898 |
|
AULC balance, beginning of period | | $ | 63,717 |
| | $ | 10,031 |
| | $ | 73,748 |
|
Provision for (reduction in allowance) unfunded loan commitments and letters of credit | | 9,739 |
| | 543 |
| | 10,282 |
|
AULC recorded at acquisition | | 4,403 |
| | — |
| | 4,403 |
|
AULC balance, end of period | | $ | 77,859 |
| | $ | 10,574 |
| | $ | 88,433 |
|
ACL balance, end of period | | $ | 509,654 |
| | $ | 195,677 |
| | $ | 705,331 |
|
Nine-month period ended September 30, 2016: |
ALLL balance, beginning of period | | $ | 398,753 |
| | $ | 199,090 |
| | $ | 597,843 |
|
Loan charge-offs | | (70,721 | ) | | (91,784 | ) | | (162,505 | ) |
Recoveries of loans previously charged-off | | 62,127 |
| | 35,006 |
| | 97,133 |
|
Provision for (reduction in allowance) loan and lease losses | | 54,510 |
| | 49,437 |
| | 103,947 |
|
Allowance for loans sold or transferred to loans held for sale | | (12,874 | ) | | (6,646 | ) | | (19,520 | ) |
ALLL balance, end of period | | $ | 431,795 |
| | $ | 185,103 |
| | $ | 616,898 |
|
AULC balance, beginning of period | | $ | 63,448 |
| | $ | 8,633 |
| | $ | 72,081 |
|
Provision for (reduction in allowance) unfunded loan commitments and letters of credit | | 10,008 |
| | 1,941 |
| | 11,949 |
|
AULC recorded at acquisition | | 4,403 |
| | — |
| | 4,403 |
|
AULC balance, end of period | | $ | 77,859 |
| | $ | 10,574 |
| | $ | 88,433 |
|
ACL balance, end of period | | $ | 509,654 |
| | $ | 195,677 |
| | $ | 705,331 |
|
Credit Quality Indicators
See Note 4Note 3 “Loans / Leases and Allowance for Credit Losses” to the consolidated financial statementsConsolidated Financial Statements of the Annual Report on Form 10-K for the year ended December 31, 20162018 for a description of the credit quality indicators Huntington utilizes for monitoring credit quality and for determining an appropriate ACL level.
To facilitate the monitoring of credit quality for commercial loans, and for purposes of determining an appropriate ACL level for these loans, Huntington utilizes the following internally defined categories of credit grades:
| |
• | Pass - Higher quality loans that do not fit any of the other categories described below. |
| |
• | OLEM - The credit risk may be relatively minor yet represents a risk given certain specific circumstances. If the potential weaknesses are not monitored or mitigated, the loan may weaken or the collateral may be inadequate to protect Huntington’s position in the future. For these reasons, Huntington considers the loans to be potential problem loans. |
| |
• | Substandard - Inadequately protected loans by the borrower’s ability to repay, equity, and/or the collateral pledged to secure the loan. These loans have identified weaknesses that could hinder normal repayment or collection of the debt. It is likely Huntington will sustain some loss if any identified weaknesses are not mitigated. |
| |
• | Doubtful - Loans that have all of the weaknesses inherent in those loans classified as Substandard, with the added elements of the full collection of the loan is improbable and that the possibility of loss is high. |
Loans are generally assigned a category of "Pass" rating upon initial approval and subsequently updated as appropriate based on the borrower's financial performance.
Commercial loans categorized as OLEM, Substandard, or Doubtful are considered Criticized loans. Commercial loans categorized as Substandard or Doubtful are both considered Classified loans.
The following table presents each loan and lease class by credit quality indicator at September 30, 20172019 and December 31, 2016.
| | | September 30, 2017 | September 30, 2019 |
| Credit Risk Profile by UCS Classification | |
(dollar amounts in thousands) | Pass | | OLEM | | Substandard | | Doubtful | | Total | |
(dollar amounts in millions) | | Credit Risk Profile by UCS Classification |
Commercial | | | | | | | | | | Pass | | OLEM | | Substandard | | Doubtful | | Total |
Commercial and industrial | $ | 25,447,805 |
| | $ | 803,540 |
| | $ | 1,189,789 |
| | $ | 28,210 |
| | $ | 27,469,344 |
| $ | 28,276 |
| | $ | 657 |
| | $ | 1,457 |
| | $ | 4 |
| | $ | 30,394 |
|
Commercial real estate | 6,934,670 |
| | 144,122 |
| | 126,352 |
| | 952 |
| | 7,206,096 |
| 6,609 |
| | 158 |
| | 87 |
| | 1 |
| | 6,855 |
|
| | | | | | | | | | |
| Credit Risk Profile by FICO Score (1), (2) | | | | | | | | | |
| 750+ | | 650-749 | | <650 | | Other (3) | | Total | Credit Risk Profile by FICO Score (1), (2) |
Consumer | | | | | | | | | | 750+ | | 650-749 | | <650 | | Other (3) | | Total |
Automobile | $ | 5,939,409 |
| | $ | 4,278,062 |
| | $ | 1,371,574 |
| | $ | 285,810 |
| | $ | 11,874,855 |
| $ | 6,257 |
| | $ | 4,462 |
| | $ | 1,328 |
| | $ | 245 |
| | $ | 12,292 |
|
Home equity | 6,359,778 |
| | 2,985,933 |
| | 621,817 |
| | 14,927 |
| | 9,982,455 |
| 5,847 |
| | 2,815 |
| | 592 |
| | 45 |
| | 9,299 |
|
Residential mortgage | 5,311,993 |
| | 2,479,820 |
| | 599,055 |
| | 130,804 |
| | 8,521,672 |
| 7,633 |
| | 2,796 |
| | 600 |
| | 139 |
| | 11,168 |
|
RV and marine finance | 1,385,176 |
| | 853,545 |
| | 91,302 |
| | 39,907 |
| | 2,369,930 |
| |
RV and marine | | 2,313 |
| | 1,027 |
| | 111 |
| | 102 |
| | 3,553 |
|
Other consumer | 404,047 |
| | 510,804 |
| | 136,346 |
| | 12,556 |
| | 1,063,753 |
| 487 |
| | 583 |
| | 117 |
| | 64 |
| | 1,251 |
|
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2018 |
(dollar amounts in millions) | Credit Risk Profile by UCS Classification |
Commercial | Pass | | OLEM | | Substandard | | Doubtful | | Total |
Commercial and industrial | $ | 28,807 |
| | $ | 518 |
| | $ | 1,269 |
| | $ | 11 |
| | $ | 30,605 |
|
Commercial real estate | 6,586 |
| | 181 |
| | 74 |
| | 1 |
| | 6,842 |
|
| | | | | | | | | |
| Credit Risk Profile by FICO Score (1), (2) |
Consumer | 750+ | | 650-749 | | <650 | | Other (3) | | Total |
Automobile | $ | 6,254 |
| | $ | 4,520 |
| | $ | 1,373 |
| | $ | 282 |
| | $ | 12,429 |
|
Home equity | 6,098 |
| | 2,975 |
| | 591 |
| | 56 |
| | 9,720 |
|
Residential mortgage | 7,159 |
| | 2,801 |
| | 612 |
| | 78 |
| | 10,650 |
|
RV and marine | 2,074 |
| | 990 |
| | 105 |
| | 85 |
| | 3,254 |
|
Other consumer | 501 |
| | 633 |
| | 129 |
| | 57 |
| | 1,320 |
|
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| Credit Risk Profile by UCS Classification |
(dollar amounts in thousands) | Pass | | OLEM | | Substandard | | Doubtful | | Total |
Commercial | | | | | | | | | |
Commercial and industrial | $ | 26,211,885 |
| | $ | 810,287 |
| | $ | 1,028,819 |
| | $ | 7,721 |
| | $ | 28,058,712 |
|
Commercial real estate | 7,042,304 |
| | 96,975 |
| | 159,098 |
| | 2,524 |
| | 7,300,901 |
|
| | | | | | | | | |
| Credit Risk Profile by FICO Score (1), (2) |
| 750+ | | 650-749 | | <650 | | Other (3) | | Total |
Consumer | | | | | | | | | |
Automobile | $ | 5,369,085 |
| | $ | 4,043,611 |
| | $ | 1,298,460 |
| | $ | 255,472 |
| | $ | 10,966,628 |
|
Home equity | 6,280,328 |
| | 2,891,330 |
| | 637,560 |
| | 293,283 |
| | 10,102,501 |
|
Residential mortgage | 4,662,777 |
| | 2,285,121 |
| | 615,067 |
| | 87,060 |
| | 7,650,025 |
|
RV and marine finance | 1,064,143 |
| | 644,039 |
| | 72,995 |
| | 63,751 |
| | 1,844,928 |
|
Other consumer | 346,867 |
| | 455,959 |
| | 133,243 |
| | 19,913 |
| | 955,982 |
|
| |
(1) | Excludes loans accounted for under the fair value option. |
| |
(2) | Reflects most recentupdated customer credit scores. |
| |
(3) | Reflects deferred fees and costs, loans in process, loans to legal entities, etc. |
Impaired Loans
See Note 1 “Significant Accounting Policies” to the consolidated financial statementsConsolidated Financial Statements of the Annual Report on Form 10-K for the year ended December 31, 20162018 for a description of accounting policies related to impaired loans.
The following tables present the balance of the ALLL attributable to loans by portfolio segment individually and collectively evaluated for impairment and the relatedrelated loan and lease balance at September 30, 20172019 and December 31, 2016.2018.
| | (dollar amounts in thousands) | | Commercial | | Consumer | | Total | |
ALLL at September 30, 2017: | | | | | | | |
(dollar amounts in millions) | | | Commercial | | Consumer | | Total |
ALLL at September 30, 2019 | | | | | | | |
Portion of ALLL balance: | | | | | | | | | | | | |
Purchased credit-impaired loans | | $ | — |
| | $ | — |
| | $ | — |
| |
Attributable to loans individually evaluated for impairment | | 22,838 |
| | 13,874 |
| | 36,712 |
| | $ | 45 |
| | $ | 7 |
| | $ | 52 |
|
Attributable to loans collectively evaluated for impairment | | 451,284 |
| | 187,490 |
| | 638,774 |
| | 516 |
| | 215 |
| | 731 |
|
Total ALLL balance | | $ | 474,122 |
| | $ | 201,364 |
| | $ | 675,486 |
| | $ | 561 |
| | $ | 222 |
| | $ | 783 |
|
Loan and Lease Ending Balances at September 30, 2017: (1) | | | | | | | |
Loan and Lease Ending Balances at September 30, 2019 (1) | | | | | | | |
Portion of loan and lease ending balance: | | | | | | | | | | | | |
Purchased credit-impaired loans | | $ | 64,989 |
| | $ | — |
| | $ | 64,989 |
| |
Individually evaluated for impairment | | 566,340 |
| | 621,808 |
| | 1,188,148 |
| | $ | 574 |
| | $ | 579 |
| | $ | 1,153 |
|
Collectively evaluated for impairment | | 34,044,110 |
| | 33,190,856 |
| | 67,234,966 |
| | 36,675 |
| | 36,984 |
| | 73,659 |
|
Total loans and leases evaluated for impairment | | $ | 34,675,439 |
| | $ | 33,812,664 |
| | $ | 68,488,103 |
| | $ | 37,249 |
| | $ | 37,563 |
| | $ | 74,812 |
|
|
| | | | | | | | | | | | |
(dollar amounts in millions) | | Commercial | | Consumer | | Total |
ALLL at December 31, 2018 | | | | | | |
Portion of ALLL balance: | | | | | | |
Attributable to loans individually evaluated for impairment | | $ | 33 |
| | $ | 10 |
| | $ | 43 |
|
Attributable to loans collectively evaluated for impairment | | 509 |
| | 220 |
| | 729 |
|
Total ALLL balance: | | $ | 542 |
| | $ | 230 |
| | $ | 772 |
|
Loan and Lease Ending Balances at December 31, 2018 (1) | | | | | | |
Portion of loan and lease ending balances: | | | | | | |
Individually evaluated for impairment | | 516 |
| | 591 |
| | 1,107 |
|
Collectively evaluated for impairment | | 36,931 |
| | 36,783 |
| | 73,714 |
|
Total loans and leases evaluated for impairment | | $ | 37,447 |
| | $ | 37,374 |
| | $ | 74,821 |
|
|
| | | | | | | | | | | | |
(dollar amounts in thousands) | | Commercial | | Consumer | | Total |
ALLL at December 31, 2016 | | | | | | |
Portion of ALLL balance: | | | | | | |
Purchased credit-impaired loans | | $ | — |
| | $ | — |
| | $ | — |
|
Attributable to loans individually evaluated for impairment | | $ | 10,525 |
| | $ | 11,021 |
| | $ | 21,546 |
|
Attributable to loans collectively evaluated for impairment | | 440,566 |
| | 176,301 |
| | 616,867 |
|
Total ALLL balance: | | $ | 451,091 |
| | $ | 187,322 |
| | $ | 638,413 |
|
Loan and Lease Ending Balances at December 31, 2016 (1) | | | | | | |
Portion of loan and lease ending balances: | | | | | | |
Purchased credit-impaired loans | | $ | 102,380 |
| | $ | — |
| | $ | 102,380 |
|
Individually evaluated for impairment | | 415,624 |
| | 457,890 |
| | 873,514 |
|
Collectively evaluated for impairment | | 34,841,609 |
| | 31,062,174 |
| | 65,903,783 |
|
Total loans and leases evaluated for impairment | | $ | 35,359,613 |
| | $ | 31,520,064 |
| | $ | 66,879,677 |
|
| |
(1) | Excludes loans accounted for under the fair value option. |
The following tables present by class the ending balance, unpaid principal balance, and the related ALLL, along with the average balance and interest income recognized only for impaired loans and leases and purchased credit-impaired loans:leases: (1), (2)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2019 | | Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 |
(dollar amounts in millions) | Ending Balance | | Unpaid Principal Balance (6) | | Related Allowance (7) | | Average Balance | | Interest Income Recognized | | Average Balance | | Interest Income Recognized |
With no related allowance recorded: | | | | | | | | | | | | | |
Commercial and industrial | $ | 205 |
| | $ | 250 |
| | $ | — |
| | $ | 204 |
| | $ | 4 |
| | $ | 210 |
| | $ | 16 |
|
Commercial real estate | 31 |
| | 33 |
| | — |
| | 30 |
| | 2 |
| | 34 |
| | 6 |
|
| | | | | | | | | | | | | |
With an allowance recorded: | | | | | | | | | | | | | |
Commercial and industrial | 314 |
| | 344 |
| | 43 |
| | 322 |
| | 3 |
| | 298 |
| | 8 |
|
Commercial real estate | 24 |
| | 27 |
| | 2 |
| | 29 |
| | — |
| | 32 |
| | 1 |
|
Automobile | 42 |
| | 45 |
| | 2 |
| | 41 |
| | 1 |
| | 40 |
| | 2 |
|
Home equity | 292 |
| | 329 |
| | 9 |
| | 297 |
| | 3 |
| | 305 |
| | 10 |
|
Residential mortgage | 290 |
| | 326 |
| | 3 |
| | 287 |
| | 3 |
| | 287 |
| | 8 |
|
RV and marine | 4 |
| | 4 |
| | — |
| | 3 |
| | — |
| | 3 |
| | — |
|
Other consumer | 10 |
| | 10 |
| | 2 |
| | 10 |
| | — |
| | 9 |
| | — |
|
| | | | | | | | | | | | | |
Total | | | | | | | | | | | | | |
Commercial and industrial (3) | 519 |
| | 594 |
| | 43 |
| | 526 |
| | 7 |
| | 508 |
| | 24 |
|
Commercial real estate (4) | 55 |
| | 60 |
| | 2 |
| | 59 |
| | 2 |
| | 66 |
| | 7 |
|
Automobile (2) | 42 |
| | 45 |
| | 2 |
| | 41 |
| | 1 |
| | 40 |
| | 2 |
|
Home equity (5) | 292 |
| | 329 |
| | 9 |
| | 297 |
| | 3 |
| | 305 |
| | 10 |
|
Residential mortgage (5) | 290 |
| | 326 |
| | 3 |
| | 287 |
| | 3 |
| | 287 |
| | 8 |
|
RV and marine (2) | 4 |
| | 4 |
| | — |
| | 3 |
| | — |
| | 3 |
| | — |
|
Other consumer (2) | 10 |
| | 10 |
| | 2 |
| | 10 |
| | — |
| | 9 |
| | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 | | Three Months Ended September 30, 2017 | | Nine Months Ended September 30, 2017 |
(dollar amounts in thousands) | Ending Balance | | Unpaid Principal Balance (6) | | Related Allowance | | Average Balance | | Interest Income Recognized | | Average Balance | | Interest Income Recognized |
With no related allowance recorded: | | | | | | | | | | | | | |
Commercial and industrial | $ | 299,349 |
| | $ | 324,474 |
| | $ | — |
| | $ | 294,513 |
| | $ | 4,969 |
| | $ | 227,611 |
| | $ | 7,467 |
|
Commercial real estate | 65,382 |
| | 92,215 |
| | — |
| | 71,277 |
| | 1,825 |
| | 80,388 |
| | 5,762 |
|
Automobile | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Home equity | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Residential mortgage | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
RV and marine finance | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Other consumer | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | | | | | | | | | | | | |
With an allowance recorded: | | | | | | | | | | | | | |
Commercial and industrial | 213,520 |
| | 245,328 |
| | 19,958 |
| | 222,745 |
| | 1,950 |
| | 334,297 |
| | 12,712 |
|
Commercial real estate | 53,078 |
| | 60,366 |
| | 2,880 |
| | 40,672 |
| | 468 |
| | 54,352 |
| | 1,388 |
|
Automobile | 33,049 |
| | 33,049 |
| | 1,683 |
| | 32,740 |
| | 496 |
| | 32,293 |
| | 1,576 |
|
Home equity | 335,763 |
| | 367,870 |
| | 14,486 |
| | 330,784 |
| | 3,713 |
| | 326,932 |
| | 11,639 |
|
Residential mortgage | 310,440 |
| | 341,724 |
| | 8,060 |
| | 319,745 |
| | 2,837 |
| | 329,193 |
| | 8,851 |
|
RV and marine finance | 1,520 |
| | 1,520 |
| | 88 |
| | 1,425 |
| | 23 |
| | 884 |
| | 58 |
|
Other consumer | 6,456 |
| | 6,456 |
| | 1,288 |
| | 6,944 |
| | 47 |
| | 7,117 |
| | 184 |
|
| | | | | | | | | | | | | |
Total | | | | | | | | | | | | | |
Commercial and industrial (3) | 512,869 |
| | 569,802 |
| | 19,958 |
| | 517,258 |
| | 6,919 |
| | 561,908 |
| | 20,179 |
|
Commercial real estate (4) | 118,460 |
| | 152,581 |
| | 2,880 |
| | 111,949 |
| | 2,293 |
| | 134,740 |
| | 7,150 |
|
Automobile (2) | 33,049 |
| | 33,049 |
| | 1,683 |
| | 32,740 |
| | 496 |
| | 32,293 |
| | 1,576 |
|
Home equity (5) | 335,763 |
| | 367,870 |
| | 14,486 |
| | 330,784 |
| | 3,713 |
| | 326,932 |
| | 11,639 |
|
Residential mortgage (5) | 310,440 |
| | 341,724 |
| | 8,060 |
| | 319,745 |
| | 2,837 |
| | 329,193 |
| | 8,851 |
|
RV and marine finance (2) | 1,520 |
| | 1,520 |
| | 88 |
| | 1,425 |
| | 23 |
| | 884 |
| | 58 |
|
Other consumer (2) | 6,456 |
| | 6,456 |
| | 1,288 |
| | 6,944 |
| | 47 |
| | 7,117 |
| | 184 |
|
| | | December 31, 2016 | | Three Months Ended September 30, 2016 | | Nine Months Ended September 30, 2016 | December 31, 2018 | | Three Months Ended September 30, 2018 | | Nine Months Ended September 30, 2018 |
(dollar amounts in thousands) | Ending Balance | | Unpaid Principal Balance (6) | | Related Allowance | | Average Balance | | Interest Income Recognized | | Average Balance | | Interest Income Recognized | |
(dollar amounts in millions) | | Ending Balance | | Unpaid Principal Balance (6) | | Related Allowance (7) | | Average Balance | | Interest Income Recognized | | Average Balance | | Interest Income Recognized |
With no related allowance recorded: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | $ | 299,606 |
|
| $ | 358,712 |
|
| $ | — |
|
| $ | 305,956 |
|
| $ | 2,235 |
|
| $ | 290,163 |
|
| $ | 4,858 |
| $ | 224 |
|
| $ | 261 |
|
| $ | — |
|
| $ | 264 |
|
| $ | 5 |
|
| $ | 264 |
|
| $ | 16 |
|
Commercial real estate | 88,817 |
|
| 126,152 |
|
| — |
|
| 80,000 |
|
| 907 |
|
| 58,666 |
|
| 2,257 |
| 36 |
|
| 45 |
|
| — |
|
| 36 |
|
| 2 |
|
| 49 |
|
| 6 |
|
Automobile | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
Home equity | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| |
Residential mortgage | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| |
RV and marine finance | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
Other consumer | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
With an allowance recorded: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | 406,243 |
| | 448,121 |
| | 22,259 |
| | 281,934 |
| | 1,631 |
| | 274,262 |
| | 5,460 |
| 221 |
| | 240 |
| | 31 |
| | 284 |
| | 3 |
| | 285 |
| | 9 |
|
Commercial real estate | 97,238 |
| | 107,512 |
| | 3,434 |
| | 49,140 |
| | 521 |
| | 49,587 |
| | 1,895 |
| 35 |
| | 39 |
| | 2 |
| | 49 |
| | 1 |
| | 48 |
| | 2 |
|
Automobile | 30,961 |
| | 31,298 |
| | 1,850 |
| | 31,540 |
| | 541 |
| | 31,912 |
| | 1,643 |
| 38 |
| | 42 |
| | 2 |
| | 38 |
| | 1 |
| | 37 |
| | 2 |
|
Home equity | 319,404 |
| | 352,722 |
| | 15,032 |
| | 284,512 |
| | 3,453 |
| | 267,264 |
| | 9,382 |
| 314 |
| | 356 |
| | 10 |
| | 326 |
| | 3 |
| | 330 |
| | 11 |
|
Residential mortgage | 327,753 |
| | 363,099 |
| | 12,849 |
| | 344,237 |
| | 2,978 |
| | 353,259 |
| | 9,041 |
| 287 |
| | 323 |
| | 4 |
| | 290 |
| | 3 |
| | 299 |
| | 8 |
|
RV and marine finance | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
RV and marine | | 2 |
| | 3 |
| | — |
| | 2 |
| | — |
| | 2 |
| | — |
|
Other consumer | 3,897 |
| | 3,897 |
| | 260 |
| | 4,454 |
| | 58 |
| | 4,627 |
| | 178 |
| 9 |
| | 9 |
| | 3 |
| | 9 |
| | — |
| | 8 |
| | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial (3) | 705,849 |
| | 806,833 |
| | 22,259 |
| | 587,890 |
| | 3,866 |
| | 564,425 |
| | 10,318 |
| 445 |
| | 501 |
| | 31 |
| | 548 |
| | 8 |
| | 549 |
| | 25 |
|
Commercial real estate (4) | 186,055 |
| | 233,664 |
| | 3,434 |
| | 129,140 |
| | 1,428 |
| | 108,253 |
| | 4,152 |
| 71 |
| | 84 |
| | 2 |
| | 85 |
| | 3 |
| | 97 |
| | 8 |
|
Automobile (2) | 30,961 |
| | 31,298 |
| | 1,850 |
| | 31,540 |
| | 541 |
| | 31,912 |
| | 1,643 |
| 38 |
| | 42 |
| | 2 |
| | 38 |
| | 1 |
| | 37 |
| | 2 |
|
Home equity (5) | 319,404 |
| | 352,722 |
| | 15,032 |
| | 284,512 |
| | 3,453 |
| | 267,264 |
| | 9,382 |
| 314 |
| | 356 |
| | 10 |
| | 326 |
| | 3 |
| | 330 |
| | 11 |
|
Residential mortgage (5) | 327,753 |
| | 363,099 |
| | 12,849 |
| | 344,237 |
| | 2,978 |
| | 353,259 |
| | 9,041 |
| 287 |
| | 323 |
| | 4 |
| | 290 |
| | 3 |
| | 299 |
| | 8 |
|
RV and marine finance (2) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
RV and marine (2) | | 2 |
| | 3 |
| | — |
| | 2 |
| | — |
| | 2 |
| | — |
|
Other consumer (2) | 3,897 |
| | 3,897 |
| | 260 |
| | 4,454 |
| | 58 |
| | 4,627 |
| | 178 |
| 9 |
| | 9 |
| | 3 |
| | 9 |
| | — |
| | 8 |
| | — |
|
| |
(1) | These tables do not include loans fully charged-off. |
| |
(2) | All automobile, RV and marine, finance and other consumer impaired loans included in these tables are considered impaired due to their status as a TDR. |
| |
(3) | At September 30, 20172019 and December 31, 2016, commercial and industrial2018, C&I loans of $365$309 million and $317$366 million, respectively, were considered impaired due to their status as a TDR. |
| |
(4) | At September 30, 20172019 and December 31, 2016, commercial real estate2018, CRE loans of $84$46 million and $81$60 million, respectively, were considered impaired due to their status as a TDR. |
| |
(5) | Includes home equity and residential mortgages considered impaired due to be collateral dependent due todesignation associated with their non-accrual status as well as home equity and mortgage loans considered impaired due to their status as a TDR. |
| |
(6) | The differences between the ending balance and unpaid principal balance amounts primarily represent partial charge-offs. |
| |
(7) | Impaired loans in the consumer portfolio are evaluated in pools and not at the loan level. Thus, these loans do not have an individually assigned allowance and as such are all classified as with an allowance in the tables above. |
TDR Loans
TDRs are modified loans where a concession was provided to a borrower experiencing financial difficulties. Loan modifications are considered TDRs when the concessions provided arewould not available to the borrower through either normal channels or other sources.otherwise be considered. However, not all loan modifications are TDRs. Acquired, non-purchased credit impaired loans are only considered for TDR reporting for modifications made subsequent to acquisition. See Note 43 “Loans / Leases and Allowance for Credit Losses” to the consolidated financial statementsConsolidated Financial Statements of the Annual Report on Form 10-K for the year ended December 31, 20162018 for an additional discussion of TDRs.
The following table presents, by class and modification type, the number of contracts, post-modification outstanding balance, and the financial effects of the modification for the three-month and nine-month periods ended September 30, 20172019 and 2016.2018.
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| New Troubled Debt Restructurings During The Three-Month Period Ended (1) |
| September 30, 2017 | | September 30, 2016 |
(dollar amounts in thousands) | Number of Contracts | | Post-modification Outstanding Ending Balance | | Financial effects of modification (2) | | Number of Contracts | | Post-modification Outstanding Ending Balance | | Financial effects of modification (2) |
Commercial and industrial: | | | | | | | | | | | |
Interest rate reduction | 6 |
| | $ | 817 |
| | $ | — |
| | 2 |
| | $ | 122 |
| | $ | 6 |
|
Amortization or maturity date change | 271 |
| | 138,381 |
| | (837 | ) | | 246 |
| | 89,100 |
| | (1,450 | ) |
Other | — |
| | — |
| | — |
| | 6 |
| | 711 |
| | (2 | ) |
Total Commercial and industrial | 277 |
| | 139,198 |
| | (837 | ) | | 254 |
| | 89,933 |
| | (1,446 | ) |
Commercial real estate: | | | | | | | | | | | |
Interest rate reduction | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Amortization or maturity date change | 28 |
| | 17,811 |
| | 133 |
| | 30 |
| | 11,183 |
| | (546 | ) |
Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total commercial real estate: | 28 |
| | 17,811 |
| | 133 |
| | 30 |
| | 11,183 |
| | (546 | ) |
Automobile: | | | | | | | | | | | |
Interest rate reduction | 5 |
| | 72 |
| | 3 |
| | 4 |
| | 26 |
| | 3 |
|
Amortization or maturity date change | 487 |
| | 3,943 |
| | 124 |
| | 452 |
| | 4,438 |
| | 559 |
|
Chapter 7 bankruptcy | 305 |
| | 2,562 |
| | 69 |
| | 236 |
| | 1,840 |
| | 157 |
|
Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total Automobile | 797 |
| | 6,577 |
| | 196 |
| | 692 |
| | 6,304 |
| | 719 |
|
Home equity: | | | | | | | | | | | |
Interest rate reduction | 8 |
| | 376 |
| | 11 |
| | 14 |
| | 352 |
| | 10 |
|
Amortization or maturity date change | 160 |
| | 11,676 |
| | (1,131 | ) | | 110 |
| | 6,740 |
| | (574 | ) |
Chapter 7 bankruptcy | 79 |
| | 2,728 |
| | 647 |
| | 70 |
| | 2,395 |
| | 1,327 |
|
Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total Home equity | 247 |
| | 14,780 |
| | (473 | ) | | 194 |
| | 9,487 |
| | 763 |
|
Residential mortgage: | | | | | | | | | | | |
Interest rate reduction | — |
| | — |
| | — |
| | 2 |
| | 134 |
| | (2 | ) |
Amortization or maturity date change | 102 |
| | 11,282 |
| | (272 | ) | | 77 |
| | 7,988 |
| | (220 | ) |
Chapter 7 bankruptcy | 20 |
| | 1,656 |
| | (2 | ) | | 17 |
| | 1,105 |
| | (63 | ) |
Other | 1 |
| | 64 |
| | 2 |
| | 3 |
| | 260 |
| | — |
|
Total Residential mortgage | 123 |
| | 13,002 |
| | (272 | ) | | 99 |
| | 9,487 |
| | (285 | ) |
RV and marine finance: | | | | | | | | | | | |
Interest rate reduction | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Amortization or maturity date change | 10 |
| | 84 |
| | 3 |
| | — |
| | — |
| | — |
|
Chapter 7 bankruptcy | 22 |
| | 492 |
| | 15 |
| | — |
| | — |
| | — |
|
Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total RV and marine finance | 32 |
| | 576 |
| | 18 |
| | — |
| | — |
| | — |
|
Other consumer: | | | | | | | | | | | |
Interest rate reduction | 18 |
| | 52 |
| | — |
| | — |
| | — |
| | — |
|
Amortization or maturity date change | 677 |
| | 3,106 |
| | 1 |
| | 1 |
| | 16 |
| | — |
|
Chapter 7 bankruptcy | 4 |
| | 24 |
| | 1 |
| | 1 |
| | 6 |
| | — |
|
Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total Other consumer | 699 |
| | 3,182 |
| | 2 |
| | 2 |
| | 22 |
| | — |
|
Total new troubled debt restructurings | 2,203 |
| | $ | 195,126 |
| | $ | (1,233 | ) | | 1,271 |
| | $ | 126,416 |
| | $ | (795 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | |
| New Troubled Debt Restructurings (1) |
| Three Months Ended September 30, 2019 |
| Number of Contracts | | Post-modification Outstanding Recorded Investment (2) |
(dollar amounts in millions) | | Interest rate reduction | | Amortization or maturity date change | | Chapter 7 bankruptcy | | Other | | Total |
| | | | | | | | | | | |
Commercial and industrial | 119 |
| | $ | — |
| | $ | 39 |
| | $ | — |
| | $ | — |
| | $ | 39 |
|
Commercial real estate | 7 |
| | — |
| | 1 |
| | — |
| | — |
| | 1 |
|
Automobile | 833 |
| | — |
| | 5 |
| | 2 |
| | — |
| | 7 |
|
Home equity | 76 |
| | — |
| | 2 |
| | 3 |
| | — |
| | 5 |
|
Residential mortgage | 69 |
| | — |
| | 9 |
| | — |
| | — |
| | 9 |
|
RV and marine | 46 |
| | — |
| | 1 |
| | — |
| | — |
| | 1 |
|
Other consumer | 385 |
| | 2 |
| | — |
| | — |
| | — |
| | 2 |
|
Total new TDRs | 1,535 |
| | $ | 2 |
| | $ | 57 |
| | $ | 5 |
| | $ | — |
| | $ | 64 |
|
| | | | | | | | | | | |
| Three Months Ended September 30, 2018 |
| Number of Contracts | | Post-modification Outstanding Recorded Investment (2) |
(dollar amounts in millions) | | Interest rate reduction | | Amortization or maturity date change | | Chapter 7 bankruptcy | | Other | | Total |
| | | | | | | | | | | |
Commercial and industrial | 131 |
| | $ | — |
| | $ | 35 |
| | $ | — |
| | $ | — |
| | $ | 35 |
|
Commercial real estate | 9 |
| | — |
| | 5 |
| | — |
| | — |
| | 5 |
|
Automobile | 848 |
| | — |
| | 4 |
| | 3 |
| | — |
| | 7 |
|
Home equity | 159 |
| | — |
| | 8 |
| | 3 |
| | — |
| | 11 |
|
Residential mortgage | 76 |
| | — |
| | 8 |
| | 1 |
| | — |
| | 9 |
|
RV and marine | 40 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Other consumer | 386 |
| | 2 |
| | — |
| | — |
| | — |
| | 2 |
|
Total new TDRs | 1,649 |
| | $ | 2 |
| | $ | 60 |
| | $ | 7 |
| | $ | — |
| | $ | 69 |
|
|
| | | | | | | | | | | | | | | | | | | | | |
| New Troubled Debt Restructurings During The Nine-Month Period Ended (1) |
| September 30, 2017 | | September 30, 2016 |
(dollar amounts in thousands) | Number of Contracts | | Post-modification Outstanding Ending Balance | | Financial effects of modification (2) | | Number of Contracts | | Post-modification Outstanding Ending Balance | | Financial effects of modification (2) |
Commercial and industrial: | | | | | | | | | | | |
Interest rate reduction | 8 |
| | $ | 854 |
| | $ | 6 |
| | 4 |
| | $ | 161 |
| | $ | 5 |
|
Amortization or maturity date change | 735 |
| | 418,924 |
| | (8,695 | ) | | 629 |
| | 345,691 |
| | (4,368 | ) |
Other | 4 |
| | 380 |
| | (27 | ) | | 16 |
| | 1,801 |
| | (4 | ) |
Total Commercial and industrial | 747 |
| | 420,158 |
| | (8,716 | ) | | 649 |
| | 347,653 |
| | (4,367 | ) |
Commercial real estate: | | | | | | | | | | | |
Interest rate reduction | — |
| | — |
| | — |
| | 1 |
| | 84 |
| | — |
|
Amortization or maturity date change | 71 |
| | 74,101 |
| | (682 | ) | | 90 |
| | 60,995 |
| | (1,828 | ) |
Other | — |
| | — |
| | — |
| | 4 |
| | 315 |
| | 16 |
|
Total commercial real estate: | 71 |
| | 74,101 |
| | (682 | ) | | 95 |
| | 61,394 |
| | (1,812 | ) |
Automobile: | | | | | | | | | | | |
Interest rate reduction | 24 |
| | 308 |
| | 9 |
| | 11 |
| | 132 |
| | 10 |
|
Amortization or maturity date change | 1,298 |
| | 11,097 |
| | 302 |
| | 1,159 |
| | 11,002 |
| | 981 |
|
Chapter 7 bankruptcy | 743 |
| | 5,878 |
| | 116 |
| | 797 |
| | 6,384 |
| | 386 |
|
Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total Automobile | 2,065 |
| | 17,283 |
| | 427 |
| | 1,967 |
| | 17,518 |
| | 1,377 |
|
Home equity: | | | | | | | | | | | |
Interest rate reduction | 25 |
| | 1,444 |
| | 24 |
| | 43 |
| | 2,363 |
| | 103 |
|
Amortization or maturity date change | 401 |
| | 25,544 |
| | (2,559 | ) | | 466 |
| | 25,031 |
| | (2,592 | ) |
Chapter 7 bankruptcy | 243 |
| | 8,764 |
| | 2,049 |
| | 215 |
| | 8,106 |
| | 2,327 |
|
Other | 70 |
| | 4,241 |
| | (326 | ) | | — |
| | — |
| | — |
|
Total Home equity | 739 |
| | 39,993 |
| | (812 | ) | | 724 |
| | 35,500 |
| | (162 | ) |
Residential mortgage: | | | | | | | | | | | |
Interest rate reduction | 2 |
| | 110 |
| | (9 | ) | | 12 |
| | 1,195 |
| | (17 | ) |
Amortization or maturity date change | 282 |
| | 30,649 |
| | (761 | ) | | 277 |
| | 29,388 |
| | (1,217 | ) |
Chapter 7 bankruptcy | 69 |
| | 6,328 |
| | (139 | ) | | 40 |
| | 3,788 |
| | (42 | ) |
Other | 22 |
| | 2,448 |
| | 19 |
| | 4 |
| | 424 |
| | — |
|
Total Residential mortgage | 375 |
| | 39,535 |
| | (890 | ) | | 333 |
| | 34,795 |
| | (1,276 | ) |
RV and marine finance: | | | | | | | | | | | |
Interest rate reduction | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Amortization or maturity date change | 34 |
| | 710 |
| | 19 |
| | — |
| | — |
| | — |
|
Chapter 7 bankruptcy | 71 |
| | 1,246 |
| | 25 |
| | — |
| | — |
| | — |
|
Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total RV and marine finance | 105 |
| | 1,956 |
| | 44 |
| | — |
| | — |
| | — |
|
Other consumer: | | | | | | | | | | | |
Interest rate reduction | 19 |
| | 130 |
| | 2 |
| | — |
| | — |
| | — |
|
Amortization or maturity date change | 681 |
| | 3,394 |
| | 8 |
| | 6 |
| | 575 |
| | 24 |
|
Chapter 7 bankruptcy | 7 |
| | 36 |
| | 1 |
| | 8 |
| | 72 |
| | 7 |
|
Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total Other consumer | 707 |
| | 3,560 |
| | 11 |
| | 14 |
| | 647 |
| | 31 |
|
Total new troubled debt restructurings | 4,809 |
| | $ | 596,586 |
| | $ | (10,618 | ) | | 3,782 |
| | $ | 497,507 |
| | $ | (6,209 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | |
| New Troubled Debt Restructurings (1) |
| Nine Months Ended September 30, 2019 |
| Number of Contracts | | Post-modification Outstanding Recorded Investment (2) |
(dollar amounts in millions) | | Interest rate reduction | | Amortization or maturity date change | | Chapter 7 bankruptcy | | Other | | Total |
| | | | | | | | | | | |
Commercial and industrial | 335 |
| | $ | — |
| | $ | 114 |
| | $ | — |
| | $ | — |
| | $ | 114 |
|
Commercial real estate | 21 |
| | — |
| | 12 |
| | — |
| | — |
| | 12 |
|
Automobile | 2,227 |
| | — |
| | 14 |
| | 6 |
| | — |
| | 20 |
|
Home equity | 248 |
| | — |
| | 7 |
| | 6 |
| | — |
| | 13 |
|
Residential mortgage | 241 |
| | — |
| | 27 |
| | 1 |
| | — |
| | 28 |
|
RV and marine finance | 113 |
| | — |
| | 1 |
| | 1 |
| | — |
| | 2 |
|
Other consumer | 972 |
| | 6 |
| | — |
| | — |
| | — |
| | 6 |
|
Total new TDRs | 4,157 |
| | $ | 6 |
| | $ | 175 |
| | $ | 14 |
| | $ | — |
| | $ | 195 |
|
| | | | | | | | | | | |
| Nine Months Ended September 30, 2018 |
| Number of Contracts | | Post-modification Outstanding Recorded Investment (2) |
(dollar amounts in millions) | | Interest rate reduction | | Amortization or maturity date change | | Chapter 7 bankruptcy | | Other | | Total |
| | | | | | | | | | | |
Commercial and industrial | 641 |
| | $ | — |
| | $ | 302 |
| | $ | — |
| | $ | — |
| | $ | 302 |
|
Commercial real estate | 95 |
| | — |
| | 79 |
| | — |
| | — |
| | 79 |
|
Automobile | 2,088 |
| | — |
| | 11 |
| | 6 |
| | — |
| | 17 |
|
Home equity | 472 |
| | — |
| | 21 |
| | 8 |
| | — |
| | 29 |
|
Residential mortgage | 278 |
| | — |
| | 29 |
| | 2 |
| | — |
| | 31 |
|
RV and marine finance | 99 |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
Other consumer | 1,320 |
| | 6 |
| | — |
| | — |
| | — |
| | 6 |
|
Total new TDRs | 4,993 |
| | $ | 6 |
| | $ | 442 |
| | $ | 17 |
| | $ | — |
| | $ | 465 |
|
| |
(1) | TDRs may include multiple concessions and the disclosure classifications are based on the primary concession provided to the borrower. |
| |
(2) | Amount represents the financial impact via provision for loan and lease losses as a result of the modification.Post-modification balances approximate pre-modification balances. |
The financial effects of modification represent the impact on the provision (recovery) for loan and lease losses. Amounts for the three-month periods ended September 30, 2019 and 2018, were $1 million and $(1) million, respectively. For the nine-month periods ended September 30, 2019 and 2018, the financial effects of modification were $(1) million and $(11) million, respectively.
Pledged Loans and Leases
At September 30, 2017, theThe Bank has access to the Federal Reserve’s discount window and advances from the FHLB – Cincinnati.FHLB. As of September 30, 2017,2019 and December 31, 2018, these borrowings and advances are secured by $32.0$38.2 billion and $46.5 billion, respectively, of loans and securities.
4. AVAILABLE-FOR-SALEINVESTMENT SECURITIES AND OTHER SECURITIES
Listed belowDebt securities purchased in which Huntington has the positive intent and ability to hold to their maturity are the contractual maturities of available-for-saleclassified as held-to-maturity securities. All other debt and other securities at September 30, 2017 and December 31, 2016.
|
| | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
(dollar amounts in thousands) | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
U.S. Treasury and Federal agency securities: | | | | | | | |
U.S. Treasury: | | | | | | | |
1 year or less | $ | 11,256 |
| | $ | 11,260 |
| | $ | 4,978 |
| | $ | 4,988 |
|
After 1 year through 5 years | — |
| | — |
| | 502 |
| | 509 |
|
After 5 years through 10 years | — |
| | — |
| | — |
| | — |
|
After 10 years | — |
| | — |
| | — |
| | — |
|
Total U.S. Treasury | 11,256 |
| | 11,260 |
| | 5,480 |
| | 5,497 |
|
Federal agencies: mortgage-backed securities: | | | | | | | |
1 year or less | — |
| | — |
| | — |
| | — |
|
After 1 year through 5 years | 32,749 |
| | 32,515 |
| | 46,591 |
| | 46,762 |
|
After 5 years through 10 years | 257,032 |
| | 255,488 |
| | 173,941 |
| | 176,404 |
|
After 10 years | 10,496,277 |
| | 10,351,747 |
| | 10,630,929 |
| | 10,450,176 |
|
Total Federal agencies: mortgage-backed securities | 10,786,058 |
| | 10,639,750 |
| | 10,851,461 |
| | 10,673,342 |
|
Other agencies: | | | | | | | |
1 year or less | 4,201 |
| | 4,223 |
| | 4,302 |
| | 4,367 |
|
After 1 year through 5 years | 8,892 |
| | 9,034 |
| | 5,092 |
| | 5,247 |
|
After 5 years through 10 years | 82,692 |
| | 83,194 |
| | 63,618 |
| | 63,928 |
|
After 10 years | — |
| | — |
| | — |
| | — |
|
Total other agencies | 95,785 |
| | 96,451 |
| | 73,012 |
| | 73,542 |
|
Total U.S. Treasury and Federal agency securities | 10,893,099 |
| | 10,747,461 |
| | 10,929,953 |
| | 10,752,381 |
|
Municipal securities: | | | | | | | |
1 year or less | 163,747 |
| | 160,032 |
| | 169,636 |
| | 166,887 |
|
After 1 year through 5 years | 905,872 |
| | 905,075 |
| | 933,893 |
| | 933,903 |
|
After 5 years through 10 years | 1,656,860 |
| | 1,655,384 |
| | 1,463,459 |
| | 1,464,583 |
|
After 10 years | 703,350 |
| | 705,618 |
| | 693,440 |
| | 684,684 |
|
Total municipal securities | 3,429,829 |
| | 3,426,109 |
| | 3,260,428 |
| | 3,250,057 |
|
Asset-backed securities: | | | | | | | |
1 year or less | — |
| | — |
| | — |
| | — |
|
After 1 year through 5 years | 80,003 |
| | 80,330 |
| | 80,700 |
| | 80,560 |
|
After 5 years through 10 years | 162,079 |
| | 163,439 |
| | 223,352 |
| | 224,565 |
|
After 10 years | 326,724 |
| | 311,422 |
| | 520,072 |
| | 488,356 |
|
Total asset-backed securities | 568,806 |
| | 555,191 |
| | 824,124 |
| | 793,481 |
|
Corporate debt: | | | | | | | |
1 year or less | 3,143 |
| | 3,157 |
| | 43,223 |
| | 43,603 |
|
After 1 year through 5 years | 66,878 |
| | 68,450 |
| | 78,430 |
| | 80,196 |
|
After 5 years through 10 years | 38,471 |
| | 39,902 |
| | 32,523 |
| | 32,865 |
|
After 10 years | 13,211 |
| | 14,120 |
| | 40,361 |
| | 42,019 |
|
Total corporate debt | 121,703 |
| | 125,629 |
| | 194,537 |
| | 198,683 |
|
Other: | | | | | | | |
1 year or less | 3,150 |
| | 3,144 |
| | 1,650 |
| | 1,650 |
|
After 1 year through 5 years | 800 |
| | 791 |
| | 2,302 |
| | 2,283 |
|
After 5 years through 10 years | — |
| | — |
| | — |
| | — |
|
After 10 years | — |
| | — |
| | 10 |
| | 10 |
|
Nonmarketable equity securities | 583,019 |
| | 583,019 |
| | 547,704 |
| | 547,704 |
|
Mutual funds | 10,416 |
| | 10,416 |
| | 15,286 |
| | 15,286 |
|
Marketable equity securities | 861 |
| | 1,301 |
| | 861 |
| | 1,302 |
|
Total other | 598,246 |
| | 598,671 |
| | 567,813 |
| | 568,235 |
|
Total available-for-sale and other securities | $ | 15,611,683 |
| | $ | 15,453,061 |
| | $ | 15,776,855 |
| | $ | 15,562,837 |
|
Other securities at September 30, 2017 and December 31, 2016 include non-marketable equity securities of $287 million and $249 million of stock issued by the FHLB and $296 million and $299 million of Federal Reserve Bank stock, respectively. Non-marketable equity securities are recorded at amortized cost.classified as either available-for-sale or other securities.
The following tables provide amortized cost, fair value, and gross unrealized gains and losses recognized in OCI by investment category at September 30, 20172019 and December 31, 2016:
| | | | | Unrealized | | | | | Unrealized | | |
(dollar amounts in thousands) | Amortized Cost | | Gross Gains | | Gross Losses | | Fair Value | |
September 30, 2017 | | | | | | | | |
(dollar amounts in millions) | | Amortized Cost | | Gross Gains | | Gross Losses | | Fair Value |
September 30, 2019 | | | | | | | | |
Available-for-sale securities: | | | | | | | | |
U.S. Treasury | $ | 11,256 |
| | $ | 4 |
| | $ | — |
| | $ | 11,260 |
| $ | 10 |
| | $ | — |
| | $ | — |
| | $ | 10 |
|
Federal agencies: | | | | | | | | | | | | | | |
Mortgage-backed securities | 10,786,058 |
| | 5,851 |
| | (152,159 | ) | | 10,639,750 |
| |
Residential CMO | | 6,668 |
| | 71 |
| | (15 | ) | | 6,724 |
|
Residential MBS | | 2,355 |
| | 39 |
| | (1 | ) | | 2,393 |
|
Commercial MBS | | 1,237 |
| | 3 |
| | (1 | ) | | 1,239 |
|
Other agencies | 95,785 |
| | 722 |
| | (56 | ) | | 96,451 |
| 117 |
| | — |
| | — |
| | 117 |
|
Total U.S. Treasury, Federal agency securities | 10,893,099 |
| | 6,577 |
| | (152,215 | ) | | 10,747,461 |
| |
Total U.S. Treasury, federal agency and other agency securities | | 10,387 |
| | 113 |
| | (17 | ) | | 10,483 |
|
Municipal securities | 3,429,829 |
| | 31,043 |
| | (34,763 | ) | | 3,426,109 |
| 3,147 |
| | 35 |
| | (30 | ) | | 3,152 |
|
Asset-backed securities | 568,806 |
| | 2,409 |
| | (16,024 | ) | | 555,191 |
| 588 |
| | 8 |
| | (1 | ) | | 595 |
|
Corporate debt | 121,703 |
| | 3,927 |
| | (1 | ) | | 125,629 |
| 50 |
| | 2 |
| | — |
| | 52 |
|
Other securities | 598,246 |
| | 439 |
| | (14 | ) | | 598,671 |
| |
Total available-for-sale and other securities | $ | 15,611,683 |
| | $ | 44,395 |
| | $ | (203,017 | ) | | $ | 15,453,061 |
| |
Other securities/Sovereign debt | | 4 |
| | — |
| | — |
| | 4 |
|
Total available-for-sale securities | | $ | 14,176 |
| | $ | 158 |
| | $ | (48 | ) | | $ | 14,286 |
|
| | | | | | | | |
Held-to-maturity securities: | | | | | | | | |
Federal agencies: | | | | | | | | |
Residential CMO | | $ | 1,970 |
| | $ | 41 |
| | $ | (3 | ) | | $ | 2,008 |
|
Residential MBS | | 2,065 |
| | 45 |
| | — |
| | 2,110 |
|
Commercial MBS | | 4,075 |
| | 66 |
| | — |
| | 4,141 |
|
Other agencies | | 316 |
| | 5 |
| | — |
| | 321 |
|
Total federal agency and other agency securities | | 8,426 |
| | 157 |
| | (3 | ) | | 8,580 |
|
Municipal securities | | 4 |
| | — |
| | — |
| | 4 |
|
Total held-to-maturity securities | | $ | 8,430 |
| | $ | 157 |
| | $ | (3 | ) | | $ | 8,584 |
|
| | | | | | | | |
Other securities, at cost: | | | | | | | | |
Non-marketable equity securities: | | | | | | | | |
Federal Home Loan Bank stock | | $ | 104 |
| | $ | — |
| | $ | — |
| | $ | 104 |
|
Federal Reserve Bank stock | | 297 |
| | — |
| | — |
| | 297 |
|
Other securities, at fair value | | | | | | | | |
Mutual funds | | 53 |
| | — |
| | — |
| | 53 |
|
Marketable equity securities | | 1 |
| | — |
| | — |
| | 1 |
|
Total other securities | | $ | 455 |
| | $ | — |
| | $ | — |
| | $ | 455 |
|
|
| | | | | | | | | | | | | | | |
| | | Unrealized | | |
(dollar amounts in millions) | Amortized Cost | | Gross Gains | | Gross Losses | | Fair Value |
December 31, 2018 | | | | | | | |
Available-for-sale securities: | | | | | | | |
U.S. Treasury | $ | 5 |
| | $ | — |
| | $ | — |
| | $ | 5 |
|
Federal agencies: | | | | | | | |
Residential CMO | 7,185 |
| | 15 |
| | (201 | ) | | 6,999 |
|
Residential MBS | 1,261 |
| | 9 |
| | (15 | ) | | 1,255 |
|
Commercial MBS | 1,641 |
| | — |
| | (58 | ) | | 1,583 |
|
Other agencies | 128 |
| | — |
| | (2 | ) | | 126 |
|
Total U.S. Treasury, federal agency and other agency securities | 10,220 |
| | 24 |
| | (276 | ) | | 9,968 |
|
Municipal securities | 3,512 |
| | 6 |
| | (78 | ) | | 3,440 |
|
Asset-backed securities | 318 |
| | 1 |
| | (4 | ) | | 315 |
|
Corporate debt | 54 |
| | — |
| | (1 | ) | | 53 |
|
Other securities/Sovereign debt | 4 |
| | — |
| | — |
| | 4 |
|
Total available-for-sale securities | $ | 14,108 |
| | $ | 31 |
| | $ | (359 | ) | | $ | 13,780 |
|
| | | | | | | |
Held-to-maturity securities: | | | | | | | |
Federal agencies: | | | | | | | |
Residential CMO | $ | 2,124 |
| | $ | — |
| | $ | (47 | ) | | $ | 2,077 |
|
Residential MBS | 1,851 |
| | 2 |
| | (42 | ) | | 1,811 |
|
Commercial MBS | 4,235 |
| | — |
| | (186 | ) | | 4,049 |
|
Other agencies | 350 |
| | — |
| | (6 | ) | | 344 |
|
Total federal agency and other agency securities | 8,560 |
| | 2 |
| | (281 | ) | | 8,281 |
|
Municipal securities | 5 |
| | — |
| | — |
| | 5 |
|
Total held-to-maturity securities | $ | 8,565 |
| | $ | 2 |
| | $ | (281 | ) | | $ | 8,286 |
|
| | | | | | | |
Other securities, at cost: | | | | | | | |
Non-marketable equity securities: | | | | | | | |
Federal Home Loan Bank stock | $ | 248 |
| | $ | — |
| | $ | — |
| | $ | 248 |
|
Federal Reserve Bank stock | 295 |
| | — |
| | — |
| | 295 |
|
Other securities, at fair value | | | | | | | |
Mutual funds | 20 |
| | — |
| | — |
| | 20 |
|
Marketable equity securities | 1 |
| | 1 |
| | — |
| | 2 |
|
Total other securities | $ | 564 |
| | $ | 1 |
| | $ | — |
| | $ | 565 |
|
|
| | | | | | | | | | | | | | | |
| | | Unrealized | | |
(dollar amounts in thousands) | Amortized Cost | | Gross Gains | | Gross Losses | | Fair Value |
December 31, 2016 | | | | | | | |
U.S. Treasury | $ | 5,480 |
| | $ | 17 |
| | $ | — |
| | $ | 5,497 |
|
Federal agencies: | | | | | | | |
Mortgage-backed securities | 10,851,461 |
| | 12,548 |
| | (190,667 | ) | | 10,673,342 |
|
Other agencies | 73,012 |
| | 536 |
| | (6 | ) | | 73,542 |
|
Total U.S. Treasury, Federal agency securities | 10,929,953 |
| | 13,101 |
| | (190,673 | ) | | 10,752,381 |
|
Municipal securities | 3,260,428 |
| | 28,431 |
| | (38,802 | ) | | 3,250,057 |
|
Asset-backed securities | 824,124 |
| | 1,492 |
| | (32,135 | ) | | 793,481 |
|
Corporate debt | 194,537 |
| | 4,161 |
| | (15 | ) | | 198,683 |
|
Other securities | 567,813 |
| | 441 |
| | (19 | ) | | 568,235 |
|
Total available-for-sale and other securities | $ | 15,776,855 |
| | $ | 47,626 |
| | $ | (261,644 | ) | | $ | 15,562,837 |
|
The following table provides the amortized cost and fair value of securities by contractual maturity at September 30, 2019 and December 31, 2018. Expected maturities may differ from contractual maturities as issuers may have the right to call or prepay obligations with or without incurring penalties. |
| | | | | | | | | | | | | | | |
| September 30, 2019 | | December 31, 2018 |
(dollar amounts in millions) | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Available-for-sale securities: | | | | | | | |
Under 1 year | $ | 294 |
| | $ | 291 |
| | $ | 186 |
| | $ | 185 |
|
After 1 year through 5 years | 1,084 |
| | 1,074 |
| | 1,057 |
| | 1,039 |
|
After 5 years through 10 years | 1,708 |
| | 1,717 |
| | 1,838 |
| | 1,802 |
|
After 10 years | 11,090 |
| | 11,204 |
| | 11,027 |
| | 10,754 |
|
Total available-for-sale securities | $ | 14,176 |
| | $ | 14,286 |
| | $ | 14,108 |
| | $ | 13,780 |
|
| | | | | | | |
Held-to-maturity securities: | | | | | | | |
Under 1 year | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
After 1 year through 5 years | 18 |
| | 19 |
| | 11 |
| | 11 |
|
After 5 years through 10 years | 329 |
| | 335 |
| | 362 |
| | 356 |
|
After 10 years | 8,083 |
| | 8,230 |
| | 8,192 |
| | 7,919 |
|
Total held-to-maturity securities | $ | 8,430 |
| | $ | 8,584 |
| | $ | 8,565 |
| | $ | 8,286 |
|
The following tables provide detail on investment securities with unrealized gross losses aggregated by investment category and the length of time the individual securities have been in a continuous loss position as ofat September 30, 20172019 and December 31, 2016.2018:
| | | Less than 12 Months | | Over 12 Months | | Total | Less than 12 Months | | Over 12 Months | | Total |
(dollar amounts in thousands) | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | |
September 30, 2017 | | | | | | | | | | | | |
(dollar amounts in millions) | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses |
September 30, 2019 | | | | | | | | | | | | |
Available-for-sale securities: | | | | | | | | | | | | |
Federal agencies: | | | | | | | | | | | | | | | | | | | | | | |
Mortgage-backed securities | $ | 8,283,266 |
| | $ | (125,950 | ) | | $ | 1,003,097 |
| | $ | (26,209 | ) | | $ | 9,286,363 |
| | $ | (152,159 | ) | |
Residential CMO | | $ | 1,287 |
| | $ | (3 | ) | | $ | 1,207 |
| | $ | (12 | ) | | $ | 2,494 |
| | $ | (15 | ) |
Residential MBS | | 353 |
| | (1 | ) | | 9 |
| | — |
| | 362 |
| | (1 | ) |
Commercial MBS | | 80 |
| | — |
| | 401 |
| | (1 | ) | | 481 |
| | (1 | ) |
Other agencies | 11,607 |
| | (56 | ) | | — |
| | — |
| | 11,607 |
| | (56 | ) | 1 |
| | — |
| | — |
| | — |
| | 1 |
| | — |
|
Total Federal agency securities | 8,294,873 |
| | (126,006 | ) | | 1,003,097 |
| | (26,209 | ) | | 9,297,970 |
| | (152,215 | ) | |
Total federal agency and other agency securities | | 1,721 |
| | (4 | ) | | 1,617 |
| | (13 | ) | | 3,338 |
| | (17 | ) |
Municipal securities | 1,293,344 |
| | (23,995 | ) | | 277,157 |
| | (10,768 | ) | | 1,570,501 |
| | (34,763 | ) | 403 |
| | (7 | ) | | 1,238 |
| | (23 | ) | | 1,641 |
| | (30 | ) |
Asset-backed securities | 199,109 |
| | (1,471 | ) | | 122,568 |
| | (14,553 | ) | | 321,677 |
| | (16,024 | ) | 68 |
| | — |
| | 93 |
| | (1 | ) | | 161 |
| | (1 | ) |
Corporate debt | 200 |
| | (1 | ) | | — |
| | — |
| | 200 |
| | (1 | ) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Other securities | 791 |
| | (8 | ) | | 1,494 |
| | (6 | ) | | 2,285 |
| | (14 | ) | |
Total temporarily impaired securities | $ | 9,788,317 |
| | $ | (151,481 | ) | | $ | 1,404,316 |
| | $ | (51,536 | ) | | $ | 11,192,633 |
| | $ | (203,017 | ) | $ | 2,192 |
| | $ | (11 | ) | | $ | 2,948 |
| | $ | (37 | ) | | $ | 5,140 |
| | $ | (48 | ) |
| | | | | | | | | | | | |
Held-to-maturity securities: | | | | | | | | | | | | |
Federal agencies: | | | | | | | | | | | | |
Residential CMO | | $ | 160 |
| | $ | (1 | ) | | $ | 119 |
| | $ | (2 | ) | | $ | 279 |
| | $ | (3 | ) |
Residential MBS | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Commercial MBS | | — |
| | — |
| | 27 |
| | — |
| | 27 |
| | — |
|
Other agencies | | 5 |
| | — |
| | — |
| | — |
| | 5 |
| | — |
|
Total federal agency and other agency securities | | 165 |
| | (1 | ) | | 146 |
| | (2 | ) | | 311 |
| | (3 | ) |
Municipal securities | | 4 |
| | — |
| | — |
| | — |
| | 4 |
| | — |
|
Total temporarily impaired securities | | $ | 169 |
| | $ | (1 | ) | | $ | 146 |
| | $ | (2 | ) | | $ | 315 |
| | $ | (3 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Less than 12 Months | | Over 12 Months | | Total |
(dollar amounts in millions) | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses |
December 31, 2018 | | | | | | | | | | | |
Available-for-sale securities: | | | | | | | | | | | |
Federal agencies: | | | | | | | | | | | |
Residential CMO | $ | 425 |
| | $ | (3 | ) | | $ | 5,943 |
| | $ | (198 | ) | | $ | 6,368 |
| | $ | (201 | ) |
Residential MBS | 259 |
| | (6 | ) | | 319 |
| | (9 | ) | | 578 |
| | (15 | ) |
Commercial MBS | 10 |
| | — |
| | 1,573 |
| | (58 | ) | | 1,583 |
| | (58 | ) |
Other agencies | — |
| | — |
| | 124 |
| | (2 | ) | | 124 |
| | (2 | ) |
Total federal agency and other agency securities | 694 |
| | (9 | ) | | 7,959 |
| | (267 | ) | | 8,653 |
| | (276 | ) |
Municipal securities | 1,425 |
| | (24 | ) | | 1,602 |
| | (54 | ) | | 3,027 |
| | (78 | ) |
Asset-backed securities | 95 |
| | (2 | ) | | 117 |
| | (2 | ) | | 212 |
| | (4 | ) |
Corporate debt | 40 |
| | — |
| | 1 |
| | (1 | ) | | 41 |
| | (1 | ) |
Total temporarily impaired securities | $ | 2,254 |
| | $ | (35 | ) | | $ | 9,679 |
| | $ | (324 | ) | | $ | 11,933 |
| | $ | (359 | ) |
| | | | | | | | | | | |
Held-to-maturity securities: | | | | | | | | | | | |
Federal agencies: | | | | | | | | | | | |
Residential CMO | $ | 12 |
| | $ | — |
| | $ | 2,004 |
| | $ | (47 | ) | | $ | 2,016 |
| | $ | (47 | ) |
Residential MBS | 16 |
| | — |
| | 1,457 |
| | (42 | ) | | 1,473 |
| | (42 | ) |
Commercial MBS | — |
| | — |
| | 4,041 |
| | (186 | ) | | 4,041 |
| | (186 | ) |
Other agencies | 113 |
| | (2 | ) | | 205 |
| | (4 | ) | | 318 |
| | (6 | ) |
Total federal agency and other agency securities | 141 |
| | (2 | ) | | 7,707 |
| | (279 | ) | | 7,848 |
| | (281 | ) |
Municipal securities | — |
| | — |
| | 4 |
| | — |
| | 4 |
| | — |
|
Total temporarily impaired securities | $ | 141 |
| | $ | (2 | ) | | $ | 7,711 |
| | $ | (279 | ) | | $ | 7,852 |
| | $ | (281 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Less than 12 Months | | Over 12 Months | | Total |
(dollar amounts in thousands) | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
December 31, 2016 | | | | | | | | | | | |
Federal agencies: | | | | | | | | | | | |
Mortgage-backed securities | $ | 8,908,470 |
| | $ | (189,318 | ) | | $ | 41,706 |
| | $ | (1,349 | ) | | $ | 8,950,176 |
| | $ | (190,667 | ) |
Other agencies | 924 |
| | (6 | ) | | — |
| | — |
| | 924 |
| | (6 | ) |
Total Federal agency securities | 8,909,394 |
| | (189,324 | ) | | 41,706 |
| | (1,349 | ) | | 8,951,100 |
| | (190,673 | ) |
Municipal securities | 1,412,152 |
| | (29,175 | ) | | 272,292 |
| | (9,627 | ) | | 1,684,444 |
| | (38,802 | ) |
Asset-backed securities | 361,185 |
| | (3,043 | ) | | 178,924 |
| | (29,092 | ) | | 540,109 |
| | (32,135 | ) |
Corporate debt | 3,567 |
| | (15 | ) | | 200 |
| | — |
| | 3,767 |
| | (15 | ) |
Other securities | 790 |
| | (11 | ) | | 1,492 |
| | (8 | ) | | 2,282 |
| | (19 | ) |
Total temporarily impaired securities | $ | 10,687,088 |
| | $ | (221,568 | ) | | $ | 494,614 |
| | $ | (40,076 | ) | | $ | 11,181,702 |
| | $ | (261,644 | ) |
At September 30, 20172019 and December 31, 2016,2018, the carryingmarket value of investment securities pledged to secure public and trust deposits, trading account liabilities, U.S. Treasury demand notes, and security repurchase agreements totaled $6.2$3.8 billion and $5.0$4.5 billion, respectively. There were no securities of a single issuer, which arewere not governmental or government-sponsored, that exceeded 10% of shareholders’ equity at either September 30, 20172019 or December 31, 2016.
2018.
The following table is a summary of realized securities gains and losses for the three-month and nine-month periods ended September 30, 20172019 and 2016,2018, respectively.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollar amounts in millions) | 2019 | | 2018 | | 2019 | | 2018 |
Gross gains on sales of securities | $ | — |
| | $ | — |
| | $ | 9 |
| | $ | 6 |
|
Gross losses on sales of securities | — |
| | (2 | ) | | (11 | ) | | (8 | ) |
Net (loss) gain on sales of securities | $ | — |
| | $ | (2 | ) | | $ | (2 | ) | | $ | (2 | ) |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollar amounts in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Gross gains on sales of securities | $ | 4,201 |
| | $ | 3,770 |
| | $ | 8,311 |
| | $ | 7,161 |
|
Gross (losses) on sales of securities | (4,130 | ) | | (2,739 | ) | | (4,530 | ) | | (5,398 | ) |
Net gain on sales of securities | $ | 71 |
| | $ | 1,031 |
| | $ | 3,781 |
| | $ | 1,763 |
|
OTTI recognized in earnings | (104 | ) | | — |
| | (3,687 | ) | | (76 | ) |
Net securities gains (losses) | $ | (33 | ) | | $ | 1,031 |
| | $ | 94 |
| | $ | 1,687 |
|
Security Impairment
Huntington evaluates the available-for-sale securities portfolio for impairment on a quarterly basis for impairment and conducts a comprehensive security-level assessment on all available-for-sale securities. Impairment exists when the present value of the expected cash flows are not sufficient to recover the entire amortized cost basis at the balance sheet date. Under these circumstances, any credit impairment would be recognized in earnings. At the end of the second quarter of 2017, Huntington changed its intent from able and willing to hold to sell sometime in the near future prior to final maturity for the two Reg Diversified CDO securities. Related to this change in intent, Huntington estimated the fair value of these bonds by obtaining bids. As a result of this analysis, Huntington recognized $3.6 million of OTTI on these two securities. In addition, Huntington recognized an additional $0.1 million of OTTI in the 2017 third quarter relating an investment in the Municipal Securities portfolio. For all other securities, Huntington does not intend to sell, nor does it believe it will be required to sell these securities until the amortized cost is recovered, which may be at maturity.
The highest risk investments in the portfolio are the trust-preferred CDO securities which are in the asset-backed securities portfolio. This portfolio is in runoff, and the Company has not purchased these types of securities since 2005. The fair values of the CDO assets have been impacted by various market conditions. The unrealized losses are primarily the result of wider liquidity spreads on asset-backed securities and the longer expected average lives of the trust-preferred CDO securities, due to changes in the expectations of when the underlying securities will be repaid.
Collateralized Debt Obligations are backed by a pool of debt securities issued by financial institutions. The collateral generally consists of trust-preferred securities and subordinated debt securities issued by banks, bank holding companies, and insurance companies. Many collateral issuers have the option of deferring interest payments on their debt for up to five years. A full cash flow analysis is used to estimate fair values and assess impairment for each security within this portfolio. A third-party pricing specialist with direct industry experience in pooled-trust-preferred security evaluations is engaged to provide assistance estimating the fair value and expected cash flows on this portfolio. The full cash flow analysis is completed by evaluating the relevant credit and structural aspects of each pooled-trust-preferred security in the portfolio, including collateral performance projections for each piece of collateral in the security and terms of the security’s structure. The credit review includes an analysis of profitability, credit quality, operating efficiency, leverage, and liquidity using available financial and regulatory information for each underlying collateral issuer. The analysis also includes a review of historical industry default data, current / near-term operating conditions, and the impact of macroeconomic and regulatory changes. Using the results of the analysis, the Company estimates appropriate default and recovery probabilities for each piece of collateral, then estimates the expected cash flows for each security. The fair value of each security is obtained by discounting the expected cash flows at a market discount rate. The market discount rate is determined by reference to yields observed in the market for similarly rated collateralized debt obligations, specifically high-yield collateralized loan obligations. The relatively high market discount rate is reflective of the uncertainty of the cash flows and illiquid nature of these securities. The large differential between the fair value and amortized cost of some of the securities reflects the high market discount rate and the expectation that the majority of the cash flows will not be received until near the final maturity of the security (the final maturities range from 2032 to 2035).
The following table summarizes the relevant characteristics of the Company's CDO securities portfolio, which are included in asset-backed securities, at September 30, 2017. Each security is part of a pool of issuers and supports a more senior tranche of securities except for the MM Comm III securities, which are the most senior class.
Collateralized Debt Obligation Securities
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
(dollar amounts in thousands) | | | | | | | | Lowest Credit Rating (2) | | # of Issuers Currently Performing/ Remaining (3) | | Actual Deferrals and Defaults as a % of Original Collateral | | Expected Defaults as a % of Remaining Performing Collateral | | Excess Subordination (4) |
Deal Name | Par Value | | Amortized Cost | | Fair Value | | Unrealized Loss (1) | | | | | |
MM Comm III | 4,509 |
| | 4,308 |
| | 3,641 |
| | (667 | ) | | BB+ | | 5/8 | | 5 | | 7 | | 34 |
Reg Diversified | 25,500 |
| | 100 |
| | 510 |
| | 410 |
| | D | |
| | — | | — | | — |
Tropic III | 31,000 |
| | 30,989 |
| | 19,976 |
| | (11,013 | ) | | BB | | 27/36 | | 16 | | 6 | | 41 |
Total at September 30, 2017 | $ | 61,009 |
| | $ | 35,397 |
| | $ | 24,127 |
| | $ | (11,270 | ) | | | | | | | | | | |
Total at December 31, 2016 | $ | 137,197 |
| | $ | 101,210 |
| | $ | 76,003 |
| | $ | (25,207 | ) | | | | | | | | | | |
| |
(1) | The majority of securities have been in a continuous loss position for 12 months or longer. |
| |
(2) | For purposes of comparability, the lowest credit rating expressed is equivalent to Fitch ratings even where the lowest rating is based on another nationally recognized credit rating agency. |
| |
(3) | Includes both banks and/or insurance companies. |
| |
(4) | Excess subordination percentage represents the additional defaults in excess of both current and projected defaults that the CDO can absorb before the bond experiences credit impairment. Excess subordinated percentage is calculated by (a) determining what percentage of defaults a deal can experience before the bond has credit impairment, and (b) subtracting from this default breakage percentage both total current and expected future default percentages. |
For the three-month and nine-month periods ended September 30, 2017 and 2016, the following table summarizes by security type the total OTTI losses recognized in the Unaudited Condensed Consolidated Statements of Income for securities evaluated for impairment as described above.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollar amounts in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Available-for-sale and other securities: | | | | | | | |
Collateralized Debt Obligations | $ | — |
| | $ | — |
| | $ | 3,559 |
| | $ | — |
|
Municipal Securities | 104 |
| | — |
| | 128 |
| | 76 |
|
Total available-for-sale and other securities | $ | 104 |
| | $ | — |
| | $ | 3,687 |
| | $ | 76 |
|
The following table presents the OTTI recognized in earnings on debt securities held by Huntington for the three-month and nine-month periods ended September 30, 2017 and 2016, respectively.
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollar amounts in thousands) | | 2017 | | 2016 | | 2017 | | 2016 |
Balance, beginning of period | | $ | 10,821 |
| | $ | 9,831 |
| | $ | 11,796 |
| | $ | 18,368 |
|
Reductions from sales | | (5,373 | ) | | (76 | ) | | (9,931 | ) | | (8,689 | ) |
Additional credit losses | | 104 |
| | — |
| | 3,687 |
| | 76 |
|
Balance, end of period | | $ | 5,552 |
| | $ | 9,755 |
| | $ | 5,552 |
| | $ | 9,755 |
|
5. HELD-TO-MATURITY SECURITIES
Held-to-maturity securities are debt securities that Huntington has the intent and ability to hold until maturity. The debt securities are carried at amortized cost and adjusted for amortization of premiums and accretion of discounts using the interest method.
During the second quarter of 2017, Huntington transferred $1.0 billion of mortgage-backed and other agency securities from the available-for-sale securities portfolio to the held-to-maturity securities portfolio. The securities were reclassified at fair value at the date of transfer. At the time of the transfer, $13.5 million of unrealized net losses were recognized in OCI. The amounts in OCI will be recognized in earnings over the remaining life of the securities as an offset to the adjustment of yield in a manner consistent with the amortization of the premium on the same transferred securities, resulting in an immaterial impact on net income.
Listed below are the contractual maturities of held-to-maturity securities at September 30, 2017 and December 31, 2016.
|
| | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
(dollar amounts in thousands) | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Federal agencies mortgage-backed securities: | | | | | | | |
1 year or less | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
After 1 year through 5 years | — |
| | — |
| | — |
| | — |
|
After 5 years through 10 years | 68,668 |
| | 68,478 |
| | 41,261 |
| | 40,791 |
|
After 10 years | 8,067,957 |
| | 8,035,777 |
| | 7,157,083 |
| | 7,139,943 |
|
Total Federal agencies mortgage-backed securities | 8,136,625 |
| | 8,104,255 |
| | 7,198,344 |
| | 7,180,734 |
|
Other agencies: | | | | | | | |
1 year or less | — |
| | — |
| | — |
| | — |
|
After 1 year through 5 years | — |
| | — |
| | — |
| | — |
|
After 5 years through 10 years | 375,580 |
| | 376,393 |
| | 398,341 |
| | 399,452 |
|
After 10 years | 170,628 |
| | 169,741 |
| | 204,083 |
| | 201,180 |
|
Total other agencies | 546,208 |
| | 546,134 |
| | 602,424 |
| | 600,632 |
|
Total Federal agencies | 8,682,833 |
| | 8,650,389 |
| | 7,800,768 |
| | 7,781,366 |
|
Municipal securities: | | | | | | | |
1 year or less | — |
| | — |
| | — |
| | — |
|
After 1 year through 5 years | — |
| | — |
| | — |
| | — |
|
After 5 years through 10 years | — |
| | — |
| | — |
| | — |
|
After 10 years | 5,566 |
| | 5,416 |
| | 6,171 |
| | 5,902 |
|
Total municipal securities | 5,566 |
| | 5,416 |
| | 6,171 |
| | 5,902 |
|
Total held-to-maturity securities | $ | 8,688,399 |
| | $ | 8,655,805 |
| | $ | 7,806,939 |
| | $ | 7,787,268 |
|
The following table provides amortized cost, gross unrealized gains and losses, and fair value by investment category at September 30, 2017 and December 31, 2016.
|
| | | | | | | | | | | | | | | |
| | | Unrealized | | |
(dollar amounts in thousands) | Amortized Cost | | Gross Gains | | Gross Losses | | Fair Value |
September 30, 2017 | | | | | | | |
Federal agencies: | | | | | | | |
Mortgage-backed securities | $ | 8,136,625 |
| | $ | 14,868 |
| | $ | (47,238 | ) | | $ | 8,104,255 |
|
Other agencies | 546,208 |
| | 1,697 |
| | (1,771 | ) | | 546,134 |
|
Total Federal agencies | 8,682,833 |
| | 16,565 |
| | (49,009 | ) | | 8,650,389 |
|
Municipal securities | 5,566 |
| | — |
| | (150 | ) | | 5,416 |
|
Total held-to-maturity securities | $ | 8,688,399 |
| | $ | 16,565 |
| | $ | (49,159 | ) | | $ | 8,655,805 |
|
|
| | | | | | | | | | | | | | | |
| | | Unrealized | | |
(dollar amounts in thousands) | Amortized Cost | | Gross Gains | | Gross Losses | | Fair Value |
December 31, 2016 | | | | | | | |
Federal agencies: | | | | | | | |
Mortgage-backed securities | $ | 7,198,344 |
| | $ | 20,883 |
| | $ | (38,493 | ) | | $ | 7,180,734 |
|
Other agencies | 602,424 |
| | 1,690 |
| | (3,482 | ) | | 600,632 |
|
Total Federal agencies | 7,800,768 |
| | 22,573 |
| | (41,975 | ) | | 7,781,366 |
|
Municipal securities | 6,171 |
| | — |
| | (269 | ) | | 5,902 |
|
Total held-to-maturity securities | $ | 7,806,939 |
| | $ | 22,573 |
| | $ | (42,244 | ) | | $ | 7,787,268 |
|
The following tables provide detail on held-to-maturity securities with unrealized gross losses aggregated by investment category and the length of time the individual securities have been in a continuous loss position, at September 30, 2017 and December 31, 2016.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Less than 12 Months | | Over 12 Months | | Total |
(dollar amounts in thousands) | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
September 30, 2017 | | | | | | | | | | | |
Federal agencies: | | | | | | | | | | | |
Mortgage-backed securities | $ | 5,729,896 |
| | $ | (38,204 | ) | | $ | 301,637 |
| | $ | (9,034 | ) | | $ | 6,031,533 |
| | $ | (47,238 | ) |
Other agencies | 248,109 |
| | (1,771 | ) | | — |
| | — |
| | 248,109 |
| | (1,771 | ) |
Total Federal agencies | 5,978,005 |
| | (39,975 | ) | | 301,637 |
| | (9,034 | ) | | 6,279,642 |
| | (49,009 | ) |
Municipal securities | — |
| | — |
| | 5,416 |
| | (150 | ) | | 5,416 |
| | (150 | ) |
Total temporarily impaired securities | $ | 5,978,005 |
| | $ | (39,975 | ) | | $ | 307,053 |
| | $ | (9,184 | ) | | $ | 6,285,058 |
| | $ | (49,159 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Less than 12 Months | | Over 12 Months | | Total |
(dollar amounts in thousands) | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
December 31, 2016 | | | | | | | | | | | |
Federal agencies: | | | | | | | | | | | |
Mortgage-backed securities | $ | 2,855,360 |
| | $ | (31,470 | ) | | $ | 186,226 |
| | $ | (7,023 | ) | | $ | 3,041,586 |
| | $ | (38,493 | ) |
Other agencies | 413,207 |
| | (3,482 | ) | | — |
| | — |
| | 413,207 |
| | (3,482 | ) |
Total Federal agencies | 3,268,567 |
| | (34,952 | ) | | 186,226 |
| | (7,023 | ) | | 3,454,793 |
| | (41,975 | ) |
Municipal securities | 5,902 |
| | (269 | ) | | — |
| | — |
| | 5,902 |
| | (269 | ) |
Total temporarily impaired securities | $ | 3,274,469 |
| | $ | (35,221 | ) | | $ | 186,226 |
| | $ | (7,023 | ) | | $ | 3,460,695 |
| | $ | (42,244 | ) |
Security Impairment
Huntington evaluates the held-to-maturity securities portfolio on a quarterly basis for impairment. Impairment exists when the present value of the expected cash flows is not sufficient to recover the entire amortized cost basis at the balance sheet date. Under these circumstances, any impairment would be recognized in earnings.basis. As of September 30, 2017, Management2019, the Company has evaluated available-for-sale and held-to-maturity securities with gross unrealized losses for impairment and concluded noless than $1 million and 0 OTTI was required for the three-month periods ended September 30, 2019 and 2018, respectively, and less than $1 million and 0 OTTI was required for the nine-month periods ended September 30, 2019 and 2018, respectively.
Other securities that are carried at cost are reviewed for impairment on a quarterly basis, with valuation adjustments recognized in other noninterest income. As of September 30, 2019, the Company concluded 0 impairment is required.
6. 5. MORTGAGE LOAN SALES AND SECURITIZATIONSSERVICING RIGHTS
Residential Mortgage LoansPortfolio
The following table summarizes activity relating to residential mortgage loans sold with servicing retained for the three-month and nine-month periods ended September 30, 20172019 and 2016.2018:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollar amounts in thousands) | 2017 | | 2016 | | 2017 | | 2016 | |
(dollar amounts in millions) | | | 2019 | | 2018 | | 2019 | | 2018 |
Residential mortgage loans sold with servicing retained | $ | 1,178,955 |
| | $ | 1,204,547 |
| | $ | 2,824,707 |
| | $ | 2,552,602 |
| | $ | 1,238 |
| | $ | 1,047 |
| | $ | 3,025 |
| | $ | 2,787 |
|
Pretax gains resulting from above loan sales (1) | 26,880 |
| | 32,073 |
| | 66,014 |
| | 64,804 |
| | 26 |
| | 24 |
| | 61 |
| | 64 |
|
| |
(1) | Recorded in mortgage banking income. |
A mortgage servicing right (MSR) is established only when the servicing is contractually separated from the underlying mortgage loans by sale or securitization of the loans with servicing rights retained. At initial recognition, the MSR asset is established at its fair value using assumptions consistent with assumptions used to estimate the fair value of existing MSRs. Subsequent to the initial recognition, MSRs may be measured using either the fair value method or the amortization method. The election of the fair value method or amortization method is made at the time each servicing class is established. Subsequently, servicing rights are accounted for based on the methodology chosen for each respective servicing class. Any
increase or decrease in the fair value of MSRs carried under the fair value method, as well as amortization or impairment of MSRs recorded using the amortization method, during the period is recorded as an increase or decrease in mortgage banking income, which is reflected in noninterest income in the Unaudited Condensed Consolidated Statements of Income.
The following tables summarizetable summarizes the changes in MSRs recorded using either the fair value method or the amortization method for the three-month and nine-month periods ended September 30, 20172019 and 2016.2018:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollar amounts in millions) | | 2019 | | 2018 | | 2019 | | 2018 |
Carrying value, beginning of period | | $ | 184 |
| | $ | 204 |
| | $ | 211 |
| | $ | 191 |
|
New servicing assets created | | 12 |
| | 12 |
| | 31 |
| | 32 |
|
Impairment (charge) recovery | | (11 | ) | | — |
| | (38 | ) | | 7 |
|
Amortization | | (13 | ) | | (8 | ) | | (32 | ) | | (22 | ) |
Carrying value, end of period | | $ | 172 |
| | $ | 208 |
| | $ | 172 |
| | $ | 208 |
|
Fair value, end of period | | $ | 172 |
| | $ | 222 |
| | $ | 172 |
| | $ | 222 |
|
Weighted-average life (years) | | 4.9 |
| | 7.1 |
| | 4.9 |
| | 7.1 |
|
|
| | | | | | | | | | | | | | | |
Fair Value Method: | Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollar amounts in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Fair value, beginning of period | $ | 12,528 |
| | $ | 13,105 |
| | $ | 13,747 |
| | $ | 17,585 |
|
Change in fair value during the period due to: | | | | | | | |
Time decay (1) | (202 | ) | | (217 | ) | | (649 | ) | | (734 | ) |
Payoffs (2) | (295 | ) | | (423 | ) | | (876 | ) | | (1,392 | ) |
Changes in valuation inputs or assumptions (3) | (278 | ) | | (37 | ) | | (469 | ) | | (3,031 | ) |
Fair value, end of period: | $ | 11,753 |
| | $ | 12,428 |
| | $ | 11,753 |
| | $ | 12,428 |
|
Weighted-average life (years) | 5.5 |
| | 5.1 |
| | 5.5 |
| | 5.1 |
|
| |
(1) | Represents decrease in value due to passage of time, including the impact from both regularly scheduled loan principal payments and partial loan paydowns. |
| |
(2) | Represents decrease in value associated with loans that paid off during the period. |
| |
(3) | Represents change in value resulting primarily from market-driven changes in interest rates and prepayment speeds. |
|
| | | | | | | | | | | | | | | |
Amortization Method: | Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollar amounts in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Carrying value, beginning of period | $ | 176,491 |
| | $ | 121,292 |
| | $ | 172,466 |
| | $ | 143,133 |
|
New servicing assets created | 12,841 |
| | 12,434 |
| | 30,694 |
| | 25,820 |
|
Servicing assets acquired | — |
| | 15,317 |
| | — |
| | 15,317 |
|
Impairment (charge) / recovery | 688 |
| | 2,543 |
| | (318 | ) | | (21,093 | ) |
Amortization and other | (6,995 | ) | | (7,194 | ) | | (19,817 | ) | | (18,785 | ) |
Carrying value, end of period | $ | 183,025 |
| | $ | 144,392 |
| | $ | 183,025 |
| | $ | 144,392 |
|
Fair value, end of period | $ | 183,583 |
| | $ | 144,623 |
| | $ | 183,583 |
| | $ | 144,623 |
|
Weighted-average life (years) | 7.0 |
| | 6.1 |
| | 7.0 |
| | 6.1 |
|
MSRs do not trade in an active, open market with readily-observablereadily observable prices. While sales of MSRs occur, the precise terms and conditions are typically not readily available. Therefore, the fair value of MSRs is estimated using a discounted future cash flow model. The model considers portfolio characteristics, contractually-specified servicing fees and assumptions related to prepayments, delinquency rates, late charges, other ancillary revenues, costs to service, and other economic factors. Changes in the assumptions used may have a significant impact on the valuation of MSRs.
MSR values are highly sensitive to movementsmovement in interest rates as expected future net servicing income depends on the projected outstanding principal balances of the underlying loans, which can be greatly impacted by the level of prepayments. Huntington hedges the value of the MSRs against changes in value attributable to changes in interest rates using a combination of derivative instruments and trading securities.
For MSRs under the fair value method, a summary of key assumptions and the sensitivity of the MSR value at September 30, 2017 and December 31, 2016, to changes in these assumptions is shown in the table below.
|
| | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| | | Decline in fair value due to | | | | Decline in fair value due to |
(dollar amounts in thousands) | Actual | | 10% adverse change | | 20% adverse change | | Actual | | 10% adverse change | | 20% adverse change |
Constant prepayment rate (annualized) | 12.10 | % | | $ | (472 | ) | | $ | (910 | ) | | 10.90 | % | | $ | (501 | ) | | $ | (970 | ) |
Spread over forward interest rate swap rates | 813 | bps | | (436 | ) | | (823 | ) | | 536 | bps | | (454 | ) | | (879 | ) |
For MSRs under the amortization method, a summary of key assumptions and the sensitivity of the MSR value at September 30, 2017 and December 31, 2016, to changes in these assumptions is shown inat September 30, 2019, and December 31, 2018 follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2019 | | December 31, 2018 |
| | | | Decline in fair value due to | | | | | Decline in fair value due to |
(dollar amounts in millions) | Actual | | 10% adverse change | | 20% adverse change | | Actual | | 10% adverse change | | 20% adverse change |
Constant prepayment rate (annualized) | 15.60 | % | | | $ | (8 | ) | | $ | (15 | ) | | 9.40 | % | | | $ | (6 | ) | | $ | (12 | ) |
Spread over forward interest rate swap rates | 889 |
| bps | | (5 | ) | | (9 | ) | | 934 |
| bps | | (7 | ) | | (13 | ) |
Additionally, at September 30, 2019 and 2018, Huntington held MSRs recorded using the table below.
|
| | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| | | Decline in fair value due to | | | | Decline in fair value due to |
(dollar amounts in thousands) | Actual | | 10% adverse change | | 20% adverse change | | Actual | | 10% adverse change | | 20% adverse change |
Constant prepayment rate (annualized) | 8.40 | % | | $ | (5,172 | ) | | $ | (10,038 | ) | | 7.80 | % | | $ | (4,510 | ) | | $ | (8,763 | ) |
Spread over forward interest rate swap rates | 1,041 | bps | | (6,866 | ) | | (12,934 | ) | | 1,173 | bps | | (5,259 | ) | | (10,195 | ) |
fair value method of $8 million and $11 million, respectively.
Total servicing, late fees and other ancillary fees included in mortgage banking income amounted to $14was $16 million and $13$15 million for the three-month periods ended September 30, 20172019 and 2016.2018, respectively. For the nine-month periods ended September 30, 20172019 and 2016,2018, total net servicing, late fees and other ancillary fees included in mortgage banking income were $42was $47 million and $36$44 million. The unpaid principal balance of residential mortgage loans serviced for third parties was $19.3$21.7 billion and $18.9$21.0 billion at September 30, 20172019 and December 31, 2016,2018, respectively.
6. OPERATING LEASES
At September 30, 2019, Huntington was obligated under noncancelable leases for branch and office space. These leases are all classified as operating primarily due to the amount of time such spaces are occupied relative to the underlying assets useful lives. Many of these leases contain renewal options, most of which are not included in measurement of the right-of-use asset as they are not considered reasonably certain of exercise (i.e., Huntington does not currently have a significant economic incentive to exercise these options). Some leases contain escalation clauses calling for rentals to be adjusted for increased real estate taxes and other operating expenses or proportionately adjusted for increases in the consumer or other price indices.
Occasionally, Huntington will sublease the land and buildings for which it has obtained the right to use; substantially all of those sublease arrangements are classified as operating, with sublease income recognized on a straight-line basis over the contractual term of the arrangement. Huntington has retained servicing responsibilities on sold automobile loanselected not to include non-lease components in the measurement of right-of-use assets, and receives annual servicing feesas such allocates the costs attributable to such components, where those costs are not separately identifiable, via per-square-foot costing analysis developed by the entity for owned and other ancillary fees onleased spaces. Huntington uses a portfolio approach to develop discount rates as its lease portfolio is comprised of substantially all branch space and office space used in the outstanding loan balances. Automobile loan servicing rights are accounted for usingentity’s operations. That rate, an input used in the amortization method. A servicing asset is established at fair value at the timemeasurement of the sale. The servicing asset is then amortized against servicing income. Impairment, if any, is recognized when carrying value exceeds the fair valueentity’s right-of-use assets, leverages an incremental borrowing rate of appropriate tenor and collateralization.
Net lease assets and liabilities at September 30, 2019 are as determined by calculating the present value of expected net future cash flows. The primary risk characteristic for measuring servicing assets is payoff rates of the underlying loan pools. Valuation calculations rely on the predicted payoff assumption and, if actual payoff is quicker than expected, then future value would be impairedfollows: |
| | | | | | |
(dollar amounts in millions) | | Classification | | September 30, 2019 |
Assets | | | | |
Operating lease assets | | Other assets | | $ | 200 |
|
Liabilities | | | | |
Lease liabilities | | Other liabilities | | $ | 225 |
|
Changes in the carrying value of automobile loan servicing rightsNet lease cost for the three-month and nine-month periods ended September 30, 2017 and 2016, and the fair value at the end2019 is as follows: |
| | | | | | | | | | |
(dollar amounts in millions) | | Classification | | Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 |
Operating lease cost | | Net occupancy | | $ | 11 |
| | $ | 34 |
|
Short term lease cost | | Net occupancy | | — |
| | 1 |
|
Sublease income | | Net occupancy | | (1 | ) | | (2 | ) |
Net lease cost | | | | $ | 10 |
| | $ | 33 |
|
Maturity of each period were as shown in the table below.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollar amounts in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Carrying value, beginning of period | $ | 12,524 |
| | $ | 5,458 |
| | $ | 18,285 |
| | $ | 8,771 |
|
Amortization and other | (2,338 | ) | | (1,087 | ) | | (8,099 | ) | | (4,400 | ) |
Carrying value, end of period | $ | 10,186 |
| | $ | 4,371 |
| | $ | 10,186 |
| | $ | 4,371 |
|
Fair value, end of period | $ | 10,398 |
| | $ | 4,366 |
| | $ | 10,398 |
| | $ | 4,366 |
|
Weighted-average contractual life (years) | 3.7 |
| | 3.2 |
| | 3.7 |
| | 3.2 |
|
A summary of key assumptions and the sensitivity of the automobile loan servicing rights value to changes in these assumptionslease liabilities at September 30,
20172019 are as follows: |
| | | | |
(dollar amounts in millions) | | Total |
Remainder of 2019 | | $ | 10 |
|
2020 | | 50 |
|
2021 | | 39 |
|
2022 | | 34 |
|
2023 | | 29 |
|
Thereafter | | 105 |
|
Total lease payments | | $ | 267 |
|
Less: Interest | | (42 | ) |
Total lease liabilities | | $ | 225 |
|
Lease term and December 31, 2016 is shown in the table below.
|
| | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| | | Decline in fair value due to | | | | Decline in fair value due to |
(dollar amounts in thousands) | Actual | | 10% adverse change | | 20% adverse change | | Actual | | 10% adverse change | | 20% adverse change |
Constant prepayment rate (annualized) | 23.66 | % | | $ | (586 | ) | | $ | (1,112 | ) | | 19.98 | % | | $ | (1,047 | ) | | $ | (2,026 | ) |
Spread over forward interest rate swap rates | 500 | bps | | (14 | ) | | (27 | ) | | 500 | bps | | (26 | ) | | (53 | ) |
Servicing income amounted to $4 million and $2 million for the three-month periods endingdiscount rate as of September 30,
2017, and 2016. For the nine-month periods ended September 30, 2017 and 2016, total servicing income was $14 million and $6 million, respectively. The unpaid principal balance of automobile loans serviced for third parties was $1.2 billion and $1.7 billion2019 are as follows: |
| | | |
| | September 30, 2019 |
Weighted-average remaining lease term (years) | | |
Operating leases | | 7.41 |
|
| | |
Weighted-average discount rate | | |
Operating leases | | 4.67 | % |
Cash flow supplemental information at September 30, 2017 and December 31, 2016, respectively.
Small Business Administration (SBA) Portfolio
The following table summarizes activity relating to SBA loans sold with servicing retained for the three-month and nine-month periods ended September 30, 2017 and 2016.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollar amounts in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
SBA loans sold with servicing retained | $ | 107,259 |
| | $ | 62,803 |
| | $ | 272,635 |
| | $ | 167,321 |
|
Pretax gains resulting from above loan sales (1) | 8,508 |
| | 4,679 |
| | 21,435 |
| | 12,862 |
|
| |
(1) | Recorded in gain on sale of loans. |
Huntington has retained servicing responsibilities on sold SBA loans and receives annual servicing fees on the outstanding loan balances. SBA loan servicing rights2019 are
accounted for using the amortization method. A servicing asset is established at fair value at the time of the sale using a discounted future cash flow model. The servicing asset is then amortized against servicing income. Impairment, if any, is recognized when carrying value exceeds the fair value as
determined by calculating the present value of expected net future cash flows.follows: |
| | | | |
(dollar amounts in millions) | | Nine Months Ended September 30, 2019 |
Cash paid for amounts included in the measurement of lease liabilities | | |
Operating cash flows from operating leases | | $ | (41 | ) |
| | |
Right-of-use assets obtained in exchange for lease obligations | | |
Operating leases | | 19 |
|
The following tables summarize the changes in the carrying value of the servicing asset for the three-month and nine-month periods ended September 30, 2017 and 2016. The fair value at the end of each period is shown in the table below.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollar amounts in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Carrying value, beginning of period | $ | 23,113 |
| | $ | 19,612 |
| | $ | 21,080 |
| | $ | 19,747 |
|
New servicing assets created | 3,591 |
| | 1,879 |
| | 9,187 |
| | 5,259 |
|
Amortization and other | (1,923 | ) | | (1,745 | ) | | (5,486 | ) | | (5,260 | ) |
Carrying value, end of period | $ | 24,781 |
| | $ | 19,746 |
| | $ | 24,781 |
| | $ | 19,746 |
|
Fair value, end of period | $ | 28,822 |
| | $ | 24,065 |
| | $ | 28,822 |
| | $ | 24,065 |
|
Weighted-average life (years) | 3.3 |
| | 3.3 |
| | 3.3 |
| | 3.3 |
|
A summary of key assumptions and the sensitivity of the SBA loan servicing rights value to changes in these assumptions at September 30, 2017 and December 31, 2016 is shown in the table below.
|
| | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| | | Decline in fair value due to | | | | Decline in fair value due to |
(dollar amounts in thousands) | Actual | | 10% adverse change | | 20% adverse change | | Actual | | 10% adverse change | | 20% adverse change |
Constant prepayment rate (annualized) | 7.50 | % | | $ | (385 | ) | | $ | (764 | ) | | 7.40 | % | | $ | (324 | ) | | $ | (644 | ) |
Discount rate | 15.00 |
| | (774 | ) | | (1,516 | ) | | 15.00 |
| | (1,270 | ) | | (1,870 | ) |
Servicing income amounted to $3 million and $2 million for the three-month periods ending September 30, 2017, and 2016, respectively. For the nine-month periods ended September 30, 2017 and 2016, total servicing income was $8 million and $7 million, respectively. The unpaid principal balance of SBA loans serviced for third parties was $1.3 billion and $1.1 billion at September 30, 2017 and December 31, 2016, respectively.
7. LONG-TERM DEBT
In March 2017,January 2019, the Bank issued $0.7 billion$300 million of senior notes at 99.994%100% of face value. The senior notes mature on March 10, 2020February 5, 2021 and havewill bear interest at a fixed coupon rate of 2.375%per annum, reset quarterly, equal to the three-month LIBOR for U.S. dollar deposits plus 0.55%. The senior notes may be redeemed one month prior to the maturity date at 100% of principal plus accrued and unpaid interest. Also, in March 2017,
In February 2019, the Bank issued $0.3 billion$500 million of senior notes at 100%99.909% of face value. The senior notes mature on March 10, 2020April 1, 2022 and have a variablefixed coupon rate of three3.125%. The senior notes may be redeemed one month LIBOR + 51 basis points.prior to the maturity date at 100% of principal plus accrued and unpaid interest.
In August 2017, the Bank2019, Huntington issued $0.7 billion$800 million of senior notes at 99.762%99.781% of face value. The senior notes mature on August 7, 20226, 2024 and have a fixed coupon rate of 2.50%2.625%. The senior notes may be redeemed one month prior to the maturity date at 100% of principal plus accrued and unpaid interest.
8. OTHER COMPREHENSIVE INCOME
The components of other comprehensive incomeHuntington's OCI for the three-month and nine-month periods ended September 30, 20172019 and 2016,2018, were as shown in the following table.follows:
|
| | | | | | | | | | | |
| Three Months Ended September 30, 2017 |
| | | Tax (Expense) | | |
(dollar amounts in thousands) | Pretax | | Benefit | | After-tax |
Noncredit-related impairment recoveries (losses) on debt securities not expected to be sold | $ | 410 |
| | $ | (145 | ) | | $ | 265 |
|
Unrealized holding gains (losses) on available-for-sale debt securities arising during the period | (42,429 | ) | | 14,828 |
| | (27,601 | ) |
Less: Reclassification adjustment for net losses (gains) included in net income | 8,715 |
| | (3,082 | ) | | 5,633 |
|
Net change in unrealized holding gains (losses) on available-for-sale debt securities | (33,304 | ) | | 11,601 |
| | (21,703 | ) |
Unrealized gains (losses) on derivatives used in cash flow hedging relationships arising during the period | 1,885 |
| | (660 | ) | | 1,225 |
|
Less: Reclassification adjustment for net (gains) losses included in net income | 144 |
| | (51 | ) | | 93 |
|
Net change in unrealized gains (losses) on derivatives used in cash flow hedging relationships | 2,029 |
| | (711 | ) | | 1,318 |
|
Net change in pension and other post-retirement obligations | 1,198 |
| | (419 | ) | | 779 |
|
Total other comprehensive income (loss) | $ | (30,077 | ) | | $ | 10,471 |
| | $ | (19,606 | ) |
|
| | | | | | | | | | | |
| Three Months Ended September 30, 2019 |
| Tax (expense) |
(dollar amounts in millions) | Pretax | | Benefit | | After-tax |
Unrealized gains (losses) on available-for-sale securities arising during the period | $ | 81 |
| | $ | (18 | ) | | $ | 63 |
|
Less: Reclassification adjustment for realized net losses (gains) included in net income | 8 |
| | (2 | ) | | 6 |
|
Net change in unrealized holding gains (losses) on available-for-sale securities | 89 |
| | (20 | ) | | 69 |
|
Net change in fair value on cash flow hedges | 36 |
| | (8 | ) | | 28 |
|
Net change in pension and other post-retirement obligations | 1 |
| | — |
| | 1 |
|
Total other comprehensive income (loss) | $ | 126 |
| | $ | (28 | ) | | $ | 98 |
|
|
| | | | | | | | | | | |
| Three Months Ended September 30, 2018 |
| Tax (expense) |
(dollar amounts in millions) | Pretax | | Benefit | | After-tax |
Unrealized gains (losses) on available-for-sale securities arising during the period | $ | (82 | ) | | $ | 18 |
| | $ | (64 | ) |
Less: Reclassification adjustment for realized net losses (gains) included in net income | 3 |
| | (1 | ) | | 2 |
|
Net change in unrealized gains (losses) on available-for-sale securities | (79 | ) | | 17 |
| | (62 | ) |
Net change in pension and other post-retirement obligations | 2 |
| | (1 | ) | | 1 |
|
Total other comprehensive income (loss) | $ | (77 | ) | | $ | 16 |
| | $ | (61 | ) |
|
| | | | | | | | | | | |
| Nine Months Ended September 30, 2019 |
| Tax (expense) |
(dollar amounts in millions) | Pretax | | Benefit | | After-tax |
Unrealized holding gains (losses) on available-for-sale securities arising during the period | $ | 428 |
| | $ | (95 | ) | | $ | 333 |
|
Less: Reclassification adjustment for realized net losses (gains) included in net income | 21 |
| | (5 | ) | | 16 |
|
Net change in unrealized holding gains (losses) on available-for-sale securities | 449 |
| | (100 | ) | | 349 |
|
Net change in fair value on cash flow hedges | 104 |
| | (22 | ) | | 82 |
|
Net change in pension and other post-retirement obligations | 3 |
| | — |
| | 3 |
|
Total other comprehensive income (loss) | $ | 556 |
| | $ | (122 | ) | | $ | 434 |
|
|
| | | | | | | | | | | |
| Nine Months Ended September 30, 2018 |
| Tax (expense) |
(dollar amounts in millions) | Pretax | | Benefit | | After-tax |
Unrealized holding gains (losses) on available-for-sale securities arising during the period | $ | (359 | ) | | $ | 78 |
| | $ | (281 | ) |
Less: Reclassification adjustment for realized net losses (gains) included in net income | 21 |
| | (4 | ) | | 17 |
|
Net change in unrealized holding gains (losses) on available-for-sale securities | (338 | ) | | 74 |
| | (264 | ) |
Net change in pension and other post-retirement obligations | 4 |
| | (1 | ) | | 3 |
|
Total other comprehensive income (loss) | $ | (334 | ) | | $ | 73 |
| | $ | (261 | ) |
|
| | | | | | | | | | | |
| Three Months Ended September 30, 2016 |
| Tax (Expense) |
(dollar amounts in thousands) | Pretax | | Benefit | | After-tax |
Noncredit-related impairment recoveries (losses) on debt securities not expected to be sold | $ | 2,002 |
| | $ | (708 | ) | | $ | 1,294 |
|
Unrealized holding gains (losses) on available-for-sale debt securities arising during the period | (54,109 | ) | | 18,604 |
| | (35,505 | ) |
Less: Reclassification adjustment for net losses (gains) included in net income | 726 |
| | (257 | ) | | 469 |
|
Net change in unrealized holding gains (losses) on available-for-sale debt securities | (51,381 | ) | | 17,639 |
| | (33,742 | ) |
Unrealized gains (losses) on derivatives used in cash flow hedging relationships arising during the period | (8,171 | ) | | 2,860 |
| | (5,311 | ) |
Less: Reclassification adjustment for net (gains) losses included in net income | 123 |
| | (44 | ) | | 79 |
|
Net change in unrealized gains (losses) on derivatives used in cash flow hedging relationships | (8,048 | ) | | 2,816 |
| | (5,232 | ) |
Net change in pension and other post-retirement obligations | 1,293 |
| | (452 | ) | | 841 |
|
Total other comprehensive income (loss) | $ | (58,136 | ) | | $ | 20,003 |
| | $ | (38,133 | ) |
|
| | | | | | | | | | | |
| Nine Months Ended September 30, 2017 |
| | | Tax (expense) | | |
(dollar amounts in thousands) | Pretax | | Benefit | | After-tax |
Noncredit-related impairment recoveries (losses) on debt securities not expected to be sold | $ | 3,698 |
| | $ | (1,307 | ) | | $ | 2,391 |
|
Unrealized holding gains (losses) on available-for-sale debt securities arising during the period | 19,853 |
| | (6,779 | ) | | 13,074 |
|
Less: Reclassification adjustment for net losses (gains) included in net income | 18,577 |
| | (6,570 | ) | | 12,007 |
|
Net change in unrealized holding gains (losses) on available-for-sale debt securities | 42,128 |
| | (14,656 | ) | | 27,472 |
|
Unrealized gains (losses) on derivatives used in cash flow hedging relationships arising during the period | 1,274 |
| | (446 | ) | | 828 |
|
Less: Reclassification adjustment for net (gains) losses included in net income | 1,131 |
| | (396 | ) | | 735 |
|
Net change in unrealized gains (losses) on derivatives used in cash flow hedging relationships | 2,405 |
| | (842 | ) | | 1,563 |
|
Net change in pension and other post-retirement obligations | 3,104 |
| | (1,086 | ) | | 2,018 |
|
Total other comprehensive income (loss) | $ | 47,637 |
| | $ | (16,584 | ) | | $ | 31,053 |
|
|
| | | | | | | | | | | |
| Nine Months Ended September 30, 2016 |
| Tax (expense) |
(dollar amounts in thousands) | Pretax | | Benefit | | After-tax |
Noncredit-related impairment recoveries (losses) on debt securities not expected to be sold | $ | (600 | ) | | $ | 212 |
| | $ | (388 | ) |
Unrealized holding gains (losses) on available-for-sale debt securities arising during the period | 76,637 |
| | (28,315 | ) | | 48,322 |
|
Less: Reclassification adjustment for net losses (gains) included in net income | (2,032 | ) | | 718 |
| | (1,314 | ) |
Net change in unrealized holding gains (losses) on available-for-sale debt securities | 74,005 |
| | (27,385 | ) | | 46,620 |
|
Net change in unrealized holding gains (losses) on available-for-sale equity securities | 170 |
| | (60 | ) | | 110 |
|
Unrealized gains (losses) on derivatives used in cash flow hedging relationships arising during the period | 8,047 |
| | (2,816 | ) | | 5,231 |
|
Less: Reclassification adjustment for net (gains) losses included in net income | (769 | ) | | 269 |
| | (500 | ) |
Net change in unrealized gains (losses) on derivatives used in cash flow hedging relationships | 7,278 |
| | (2,547 | ) | | 4,731 |
|
Net change in pension and other post-retirement obligations | 3,879 |
| | (1,357 | ) | | 2,522 |
|
Total other comprehensive income (loss) | $ | 85,332 |
| | $ | (31,349 | ) | | $ | 53,983 |
|
The following table presents activityActivity in accumulated other comprehensive income (loss), net of tax,OCI for the nine-monththree and nine month periods ended September 30, 20172019 and 2016.2018, were as follows:
|
| | | | | | | | | | | | | | | |
(dollar amounts in millions) | Unrealized gains (losses) on debt securities (1) | | Change in fair value related to cash flow hedges | | Unrealized gains (losses) for pension and other post- retirement obligations | | Total |
Three Months Ended September 30, 2019 | | | | | | | |
Balance, beginning of period | $ | (83 | ) | | $ | 54 |
| | $ | (244 | ) | | $ | (273 | ) |
Other comprehensive income before reclassifications | 63 |
| | 28 |
| | — |
| | 91 |
|
Amounts reclassified from accumulated OCI to earnings | 6 |
| | — |
| | 1 |
| | 7 |
|
Period change | 69 |
| | 28 |
| | 1 |
| | 98 |
|
Balance, end of period | $ | (14 | ) | | $ | 82 |
| | $ | (243 | ) | | $ | (175 | ) |
| | | | | | | |
Three Months Ended September 30, 2018 | | | | | | | |
Balance, beginning of period | $ | (482 | ) | | $ | — |
| | $ | (248 | ) | | $ | (730 | ) |
Other comprehensive income before reclassifications | (64 | ) | | — |
| | — |
| | (64 | ) |
Amounts reclassified from accumulated OCI to earnings | 2 |
| | — |
| | 1 |
| | 3 |
|
Period change | (62 | ) | | — |
| | 1 |
| | (61 | ) |
Other | 1 |
| | | | | | 1 |
|
Balance, end of period | $ | (543 | ) | | $ | — |
| | $ | (247 | ) | | $ | (790 | ) |
| | (dollar amounts in thousands) | Unrealized gains and (losses) on debt securities (1) | | Unrealized gains and (losses) on equity securities | | Unrealized gains and (losses) on cash flow hedging derivatives | | Unrealized gains (losses) for pension and other post- retirement obligations | | Total | |
December 31, 2015 | $ | 8,361 |
| | $ | 176 |
| | $ | (3,948 | ) | | $ | (230,747 | ) | | $ | (226,158 | ) | |
(dollar amounts in millions) | | Unrealized gains (losses) on debt securities (1) | | Change in fair value related to cash flow hedges | | Unrealized gains (losses) for pension and other post- retirement obligations | | Total |
Nine Months Ended September 30, 2019 | | | | | | | | |
Balance, beginning of period | | $ | (363 | ) | | $ | — |
| | $ | (246 | ) | | $ | (609 | ) |
Other comprehensive income before reclassifications | 47,934 |
| | 110 |
| | 5,231 |
| | — |
| | 53,275 |
| 333 |
| | 82 |
| | — |
| | 415 |
|
Amounts reclassified from accumulated OCI to earnings | (1,314 | ) | | — |
| | (500 | ) | | 2,522 |
| | 708 |
| 16 |
| | — |
| | 3 |
| | 19 |
|
Period change | 46,620 |
| | 110 |
| | 4,731 |
| | 2,522 |
| | 53,983 |
| 349 |
| | 82 |
| | 3 |
| | 434 |
|
September 30, 2016 | $ | 54,981 |
| | $ | 286 |
| | $ | 783 |
| | $ | (228,225 | ) | | $ | (172,175 | ) | |
Balance, end of period | | $ | (14 | ) | | $ | 82 |
| | $ | (243 | ) | | $ | (175 | ) |
| | | | | | | | | | | | | | | | |
December 31, 2016 | $ | (192,764 | ) | | $ | 287 |
| | $ | (2,634 | ) | | $ | (205,905 | ) | | $ | (401,016 | ) | |
Nine Months Ended September 30, 2018 | | | | | | | | |
Balance, beginning of period | | $ | (278 | ) | | $ | — |
| | $ | (250 | ) | | $ | (528 | ) |
Cumulative-effect adjustments (ASU 2016-01) | | (1 | ) | | | | | | (1 | ) |
Other comprehensive income before reclassifications | 15,465 |
| | — |
| | 828 |
| | — |
| | 16,293 |
| (281 | ) | | — |
| | — |
| | (281 | ) |
Amounts reclassified from accumulated OCI to earnings | 12,007 |
| | — |
| | 735 |
| | 2,018 |
| | 14,760 |
| 17 |
| | — |
| | 3 |
| | 20 |
|
Period change | 27,472 |
| | — |
| | 1,563 |
| | 2,018 |
| | 31,053 |
| (264 | ) | | — |
| | 3 |
| | (261 | ) |
September 30, 2017 | $ | (165,292 | ) | | $ | 287 |
| | $ | (1,071 | ) | | $ | (203,887 | ) | | $ | (369,963 | ) | |
Balance, end of period | | $ | (543 | ) | | $ | — |
| | $ | (247 | ) | | $ | (790 | ) |
| |
(1) | AmountsAOCI amounts at September 30, 20172019, June 30, 2019 and December 31, 2016September 30, 2018 include $97$126 million, $131 millionand $82$141 million, respectively, of net unrealized gainslosses on securities transferred from the available-for-sale securities portfolio to the held-to-maturity securities portfolio. The net unrealized gainslosses will be recognized in earnings over the remaining life of the security using the effective interest method. |
The following table presents the reclassification adjustments out of accumulated OCI included in net income and the impacted line items as listed on the Unaudited Condensed Consolidated Statements of Income for the three-month and nine-month periods ended September 30, 20172019 and 2016.2018:
| | | Reclassifications out of accumulated OCI | Reclassifications out of accumulated OCI |
Accumulated OCI components | Amounts reclassified from accumulated OCI | | Location of net gain (loss) reclassified from accumulated OCI into earnings | Amounts reclassified from accumulated OCI | | Location of net gain (loss) reclassified from accumulated OCI into earnings |
| Three Months Ended | | Three Months Ended | |
(dollar amounts in thousands) | September 30, 2017 | | September 30, 2016 | | |
(dollar amounts in millions) | | September 30, 2019 | | September 30, 2018 | |
Gains (losses) on debt securities: | | | | | | | | |
Amortization of unrealized gains (losses) | $ | (1,498 | ) | | $ | (726 | ) | | Interest income - held-to-maturity securities - taxable | $ | (4 | ) | | $ | (3 | ) | | Interest income - held-to-maturity securities - taxable |
Realized gain (loss) on sale of securities | (7,113 | ) | | — |
| | Noninterest income - net gains (losses) on sale of securities | (4 | ) | | — |
| | Noninterest income - net gains (losses) on sale of securities |
OTTI recorded | (104 | ) | | — |
| | Noninterest income - net gains (losses) on sale of securities | |
| (8,715 | ) | | (726 | ) | | Total before tax | |
| 3,082 |
| | 257 |
| | Tax (expense) benefit | |
| $ | (5,633 | ) | | $ | (469 | ) | | Net of tax | |
Gains (losses) on cash flow hedging relationships: | | | | | |
Interest rate contracts | $ | (144 | ) | | $ | (123 | ) | | Interest income - loans and leases | |
Interest rate contracts | — |
| | — |
| | Noninterest income - other income | |
| (144 | ) | | (123 | ) | | Total before tax | |
| 51 |
| | 44 |
| | Tax (expense) benefit | |
| $ | (93 | ) | | $ | (79 | ) | | Net of tax | |
Total before tax | | (8 | ) | | (3 | ) | |
Tax (expense) benefit | | 2 |
| | 1 |
| |
Net of tax | | $ | (6 | ) | | $ | (2 | ) | |
Amortization of defined benefit pension and post-retirement items: | | | | | Amortization of defined benefit pension and post-retirement items: | |
Actuarial gains (losses) | $ | (1,690 | ) | | $ | (1,785 | ) | | Noninterest expense - personnel costs | $ | (1 | ) | | $ | (2 | ) | | Noninterest income |
Prior service credit | 492 |
| | 492 |
| | Noninterest expense - personnel costs | |
| (1,198 | ) | | (1,293 | ) | | Total before tax | |
| 419 |
| | 452 |
| | Tax (expense) benefit | |
| $ | (779 | ) | | $ | (841 | ) | | Net of tax | |
Net periodic benefit costs | | — |
| | — |
| | Noninterest income |
Total before tax | | (1 | ) | | (2 | ) | |
Tax (expense) benefit | | — |
| | 1 |
| |
Net of tax | | $ | (1 | ) | | $ | (1 | ) | |
|
| | | | | | | | | |
| | | | | |
| Reclassifications out of accumulated OCI |
Accumulated OCI components | Amounts reclassified from accumulated OCI | | Location of net gain (loss) reclassified from accumulated OCI into earnings |
| Nine Months Ended | | |
(dollar amounts in millions) | September 30, 2019 | | September 30, 2018 | | |
Gains (losses) on debt securities: | | | | | |
Amortization of unrealized gains (losses) | $ | (11 | ) | | $ | (9 | ) | | Interest income - held-to-maturity securities - taxable |
Realized gain (loss) on sale of securities | (10 | ) | | (12 | ) | | Noninterest income - net gains (losses) on sale of securities |
Total before tax | (21 | ) | | (21 | ) | | |
Tax (expense) benefit | 5 |
| | 4 |
| | |
Net of tax | $ | (16 | ) | | $ | (17 | ) | | |
Amortization of defined benefit pension and post-retirement items: |
Actuarial gains (losses) | $ | (4 | ) | | $ | (6 | ) | | Noninterest income |
Net periodic benefit costs | 1 |
| | 2 |
| | Noninterest income |
Total before tax | (3 | ) | | (4 | ) | | |
Tax (expense) benefit | — |
| | 1 |
| | |
Net of tax | $ | (3 | ) | | $ | (3 | ) | | |
|
| | | | | | | | | |
| | | | | |
| | | | | |
| Reclassifications out of accumulated OCI |
Accumulated OCI components | Amounts reclassified from accumulated OCI | | Location of net gain (loss) reclassified from accumulated OCI into earnings |
| Nine Months Ended | | |
(dollar amounts in thousands) | September 30, 2017 | | September 30, 2016 | | |
Gains (losses) on debt securities: | | | | | |
Amortization of unrealized gains (losses) | $ | (7,388 | ) | | $ | 478 |
| | Interest income - held-to-maturity securities - taxable |
Realized gain (loss) on sale of securities | (7,502 | ) | | 1,630 |
| | Noninterest income - net gains (losses) on sale of securities |
OTTI recorded | (3,687 | ) | | (76 | ) | | Noninterest income - net gains (losses) on sale of securities |
| (18,577 | ) | | 2,032 |
| | Total before tax |
| 6,570 |
| | (718 | ) | | Tax (expense) benefit |
| $ | (12,007 | ) | | $ | 1,314 |
| | Net of tax |
Gains (losses) on cash flow hedging relationships: | | | | | |
Interest rate contracts | $ | (1,131 | ) | | $ | 770 |
| | Interest income - loans and leases |
Interest rate contracts | — |
| | (1 | ) | | Noninterest income - other income |
| (1,131 | ) | | 769 |
| | Total before tax |
| 396 |
| | (269 | ) | | Tax (expense) benefit |
| $ | (735 | ) | | $ | 500 |
| | Net of tax |
Amortization of defined benefit pension and post-retirement items: | | | | | |
Actuarial gains (losses) | $ | (4,580 | ) | | $ | (5,355 | ) | | Noninterest expense - personnel costs |
Prior service credit | 1,476 |
| | 1,476 |
| | Noninterest expense - personnel costs |
| (3,104 | ) | | (3,879 | ) | | Total before tax |
| 1,086 |
| | 1,357 |
| | Tax (expense) benefit |
| $ | (2,018 | ) | | $ | (2,522 | ) | | Net of tax |
9. EARNINGS PER SHARE
Basic earnings per share is the amount of earnings (adjusted for dividends declared on preferred stock) available to each share of common stock outstanding during the reporting period. Diluted earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period adjusted to include the effect of potentially dilutive common shares. Potentially dilutive common shares include incremental shares issued for stock options, restricted stock units and awards, and distributions from deferred compensation plans, and the conversion of the Company’s convertible preferred stock.plans. Potentially dilutive common shares are excluded from the computation of diluted earnings per share duringin periods in which the effect would be antidilutive.
For the nine months ended September 30, 2018, total diluted earnings per share, net income available toaverage common shares can be affectedissued and outstanding was impacted by using the conversion of the Company’s convertible preferred stock. Where the effect of this conversion would be dilutive, net income available to common shareholders is adjusted by the associated preferred dividends and deemed dividend.
if-converted method. The calculation of basic and diluted earnings per share for the three and nine-month periods ended September 30, 20172019 and 2016,2018 was as shown in the table.follows: |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollar amounts in millions, except per share data, share count in thousands) | 2019 | | 2018 | | 2019 | | 2018 |
Basic earnings per common share: | | | | | | | |
Net income | $ | 372 |
| | $ | 378 |
| | $ | 1,094 |
| | $ | 1,059 |
|
Preferred stock dividends | (18 | ) | | (18 | ) | | (55 | ) | | (51 | ) |
Net income available to common shareholders | $ | 354 |
| | $ | 360 |
| | $ | 1,039 |
| | $ | 1,008 |
|
Average common shares issued and outstanding | 1,034,940 |
| | 1,084,536 |
| | 1,042,246 |
| | 1,090,570 |
|
Basic earnings per common share | $ | 0.34 |
| | $ | 0.33 |
| | $ | 1.00 |
| | $ | 0.92 |
|
Diluted earnings per common share: | | | | | | | |
Dilutive potential common shares: | | | | | | | |
Stock options and restricted stock units and awards | 11,930 |
| | 15,655 |
| | 12,681 |
| | 17,105 |
|
Shares held in deferred compensation plans | 4,403 |
| | 3,549 |
| | 4,137 |
| | 3,416 |
|
Dilutive impact of Preferred Stock | — |
| | — |
| | — |
| | 5,887 |
|
Dilutive potential common shares | 16,333 |
| | 19,204 |
| | 16,818 |
| | 26,408 |
|
Total diluted average common shares issued and outstanding | 1,051,273 |
| | 1,103,740 |
| | 1,059,064 |
| | 1,116,978 |
|
Diluted earnings per common share | $ | 0.34 |
| | $ | 0.33 |
| | $ | 0.98 |
| | $ | 0.90 |
|
Anti-dilutive awards (1) | 6,253 |
| | 1,616 |
| | 4,900 |
| | 2,035 |
|
| |
(1) | Reflects the total number of shares related to outstanding options that have been excluded from the computation of diluted earnings per share because the impact would have been anti-dilutive. |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollar amounts in thousands, except per share amounts) | 2017 | | 2016 | | 2017 | | 2016 |
Basic earnings per common share: | | | | | | | |
Net income | $ | 274,568 |
| | $ | 127,004 |
| | $ | 754,403 |
| | $ | 472,858 |
|
Preferred stock dividends | (18,903 | ) | | (18,537 | ) | | (56,670 | ) | | (46,409 | ) |
Net income available to common shareholders | $ | 255,665 |
| | $ | 108,467 |
| | $ | 697,733 |
| | $ | 426,449 |
|
Average common shares issued and outstanding | 1,086,038 |
| | 938,578 |
| | 1,087,115 |
| | 844,167 |
|
Basic earnings per common share | $ | 0.24 |
| | $ | 0.12 |
| | $ | 0.64 |
| | $ | 0.51 |
|
Diluted earnings per common share: | | | | | | | |
Net income available to common shareholders | $ | 255,665 |
| | $ | 108,467 |
| | $ | 697,733 |
| | $ | 426,449 |
|
Effect of assumed preferred stock conversion | — |
| | — |
| | — |
| | — |
|
Net income applicable to diluted earnings per share | $ | 255,665 |
| | $ | 108,467 |
| | $ | 697,733 |
| | $ | 426,449 |
|
Average common shares issued and outstanding | 1,086,038 |
| | 938,578 |
| | 1,087,115 |
| | 844,167 |
|
Dilutive potential common shares: | | | | | | | |
Stock options and restricted stock units and awards | 17,079 |
| | 10,714 |
| | 17,515 |
| | 10,295 |
|
Shares held in deferred compensation plans | 3,228 |
| | 2,654 |
| | 3,096 |
| | 2,337 |
|
Other | 146 |
| | 135 |
| | 152 |
| | 135 |
|
Dilutive potential common shares | 20,453 |
| | 13,503 |
| | 20,763 |
| | 12,767 |
|
Total diluted average common shares issued and outstanding | 1,106,491 |
| | 952,081 |
| | 1,107,878 |
| | 856,934 |
|
Diluted earnings per common share | $ | 0.23 |
| | $ | 0.11 |
| | $ | 0.63 |
| | $ | 0.50 |
|
For the three-month periods ended September 30, 201710. NONINTEREST INCOME
Huntington earns a variety of revenue including interest and 2016, approximately 1.5 millionfees from customers as well as revenues from non-customers. Certain sources of revenue are recognized within interest or fee income and 3.5 million, respectively, of options to purchase shares of common stock were not included in the computation of diluted earnings per share because the effect would be antidilutive. For the nine-month periods ended September 30, 2017 and 2016, approximately 0.9 million and 3.3 million, respectively, were not included.
10. BENEFIT PLANS
Huntington sponsors a non-contributory defined benefit pension plan covering substantially all employees hired or rehired prior to January 1, 2010. The plan, which was modified in 2013 and no longer accrues service benefits to participants, provides benefits based upon length of service and compensation levels. The funding policy of Huntington is to contribute an annual amount that is at least equal to the minimum funding requirements but not more than the amount deductible under the Internal Revenue Code. There is no required minimum contribution for 2017.
In addition, Huntington has a defined benefit post-retirement plan that provides certain healthcare and life insurance benefits to retired employees who have attained the age of 55 and have at least 10 years of vesting service under this plan.
As partare outside of the FirstMerit acquisition, Huntington agreed to assumescope of ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). Other sources of revenue fall within the scope of ASC 606 and honor all FirstMerit benefit plans. The FirstMerit Pension Plan was frozen for nonvested employees and closed to new entrants after December 31, 2006. Effective December 31, 2012,are generally recognized within noninterest income. These revenues are included within various sections of the FirstMerit Pension Plan was frozen for vested employees. Additionally, FirstMerit had a post-retirement benefit plan which provided medical and life insurance for retired employees.
For additional information on benefit plans, see the Benefit Plan footnote in our 2016 Form 10-K.
Unaudited Condensed Consolidated Financial Statements. The following table shows Huntington’s total noninterest income segregated between contracts with customers within the componentsscope of net periodic (benefit) cost for all plans.ASC 606 and those within the scope of other GAAP Topics.
|
| | | | | | | | | | | | | | | | |
(dollar amounts in millions) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
Noninterest income | | | | | | | | |
Noninterest income from contracts with customers | | $ | 240 |
| | $ | 222 |
| | $ | 697 |
| | $ | 654 |
|
Noninterest income within the scope of other GAAP topics | | 149 |
| | 120 |
| | 385 |
| | 338 |
|
Total noninterest income | | $ | 389 |
| | $ | 342 |
| | $ | 1,082 |
| | $ | 992 |
|
|
| | | | | | | | | | | | | | | |
| Pension Benefits | | Post-Retirement Benefits |
| Three Months Ended September 30, | | Three Months Ended September 30, |
(dollar amounts in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Service cost | $ | 640 |
| | $ | 1,425 |
| | $ | 22 |
| | $ | 16 |
|
Interest cost | 7,478 |
| | 7,978 |
| | 98 |
| | 79 |
|
Expected return on plan assets | (13,803 | ) | | (12,086 | ) | | — |
| | — |
|
Amortization of prior service cost | — |
| | — |
| | (492 | ) | | (492 | ) |
Amortization of (gain) loss | 1,747 |
| | 1,865 |
| | (55 | ) | | (72 | ) |
Settlements | 5,049 |
| | 3,400 |
| | — |
| | — |
|
Net periodic (benefit) cost | $ | 1,111 |
| | $ | 2,582 |
| | $ | (427 | ) | | $ | (469 | ) |
The following table illustrates the disaggregation by operating segment and major revenue stream and reconciles disaggregated revenue to segment revenue presented in Note 15 "Segment Reporting". |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2019 |
(dollar amounts in millions) | Consumer & Business Banking | | Commercial Banking | | Vehicle Finance | | RBHPCG | | Treasury / Other | | Huntington Consolidated |
Major Revenue Streams | | | | | |
Service charges on deposit accounts | $ | 79 |
| | $ | 16 |
| | $ | 2 |
| | $ | 1 |
| | $ | — |
| | $ | 98 |
|
Card and payment processing income | 56 |
| | 4 |
| | — |
| | — |
| | — |
| | 60 |
|
Trust and investment management services | 9 |
| | 1 |
| | — |
| | 34 |
| | — |
| | 44 |
|
Insurance income | 8 |
| | 2 |
| | — |
| | 10 |
| | — |
| | 20 |
|
Other income | 8 |
| | 7 |
| | 2 |
| | 1 |
| | — |
| | 18 |
|
Net revenue from contracts with customers | $ | 160 |
| | $ | 30 |
| | $ | 4 |
| | $ | 46 |
| | $ | — |
| | $ | 240 |
|
Noninterest income within the scope of other GAAP topics | 63 |
| | 71 |
| | — |
| | 1 |
| | 14 |
| | 149 |
|
Total noninterest income | $ | 223 |
| | $ | 101 |
| | $ | 4 |
| | $ | 47 |
| | $ | 14 |
| | $ | 389 |
|
| | | | | | | | | | | |
| Three Months Ended September 30, 2018 |
(dollar amounts in millions) | Consumer & Business Banking | | Commercial Banking | | Vehicle Finance | | RBHPCG | | Treasury / Other | | Huntington Consolidated |
Major Revenue Streams | | | | | |
Service charges on deposit accounts | $ | 75 |
| | $ | 16 |
| | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | 93 |
|
Card and payment processing income | 50 |
| | 3 |
| | — |
| | — |
| | — |
| | 53 |
|
Trust and investment management services | 7 |
| | 1 |
| | — |
| | 34 |
| | — |
| | 42 |
|
Insurance income | 8 |
| | 1 |
| | — |
| | 10 |
| | — |
| | 19 |
|
Other income | 10 |
| | 2 |
| | 1 |
| | 1 |
| | 1 |
| | 15 |
|
Net revenue from contracts with customers | $ | 150 |
| | $ | 23 |
| | $ | 2 |
| | $ | 46 |
| | $ | 1 |
| | $ | 222 |
|
Noninterest income within the scope of other GAAP topics | 44 |
| | 58 |
| | 1 |
| | — |
| | 17 |
| | 120 |
|
Total noninterest income | $ | 194 |
| | $ | 81 |
| | $ | 3 |
| | $ | 46 |
| | $ | 18 |
| | $ | 342 |
|
|
| | | | | | | | | | | | | | | |
| Pension Benefits | | Post-Retirement Benefits |
| Nine Months Ended September 30, | | Nine Months Ended September 30, |
(dollar amounts in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Service cost | $ | 1,920 |
| | $ | 3,475 |
| | $ | 65 |
| | $ | 16 |
|
Interest cost | 22,433 |
| | 21,474 |
| | 296 |
| | 188 |
|
Expected return on plan assets | (41,409 | ) | | (32,533 | ) | | — |
| | — |
|
Amortization of prior service cost | — |
| | — |
| | (1,476 | ) | | (1,476 | ) |
Amortization of (gain) loss | 5,241 |
| | 5,594 |
| | (164 | ) | | (216 | ) |
Settlements | 10,049 |
| | 10,200 |
| | — |
| | — |
|
Net periodic (benefit) cost | $ | (1,766 | ) | | $ | 8,210 |
| | $ | (1,279 | ) | | $ | (1,488 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2019 |
(dollar amounts in millions) | Consumer & Business Banking | | Commercial Banking | | Vehicle Finance | | RBHPCG | | Treasury / Other | | Huntington Consolidated |
Major Revenue Streams | | | | | |
Service charges on deposit accounts | $ | 221 |
| | $ | 48 |
| | $ | 5 |
| | $ | 3 |
| | $ | — |
| | $ | 277 |
|
Card and payment processing income | 162 |
| | 11 |
| | — |
| | — |
| | — |
| | 173 |
|
Trust and investment management services | 25 |
| | 2 |
| | — |
| | 103 |
| | 1 |
| | 131 |
|
Insurance income | 25 |
| | 5 |
| | — |
| | 33 |
| | 1 |
| | 64 |
|
Other income | 24 |
| | 17 |
| | 4 |
| | 5 |
| | 2 |
| | 52 |
|
Net revenue from contracts with customers | $ | 457 |
| | $ | 83 |
| | $ | 9 |
| | $ | 144 |
| | $ | 4 |
| | $ | 697 |
|
Noninterest income within the scope of other GAAP topics | 139 |
| | 183 |
| | — |
| | 3 |
| | 60 |
| | 385 |
|
Total noninterest income | $ | 596 |
| | $ | 266 |
| | $ | 9 |
| | $ | 147 |
| | $ | 64 |
| | $ | 1,082 |
|
| | | | | | | | | | | |
| Nine Months Ended September 30, 2018 |
(dollar amounts in millions) | Consumer & Business Banking | | Commercial Banking | | Vehicle Finance | | RBHPCG | | Treasury / Other | | Huntington Consolidated |
Major Revenue Streams | | | | | |
Service charges on deposit accounts | $ | 215 |
| | $ | 48 |
| | $ | 4 |
| | $ | 3 |
| | $ | — |
| | $ | 270 |
|
Card and payment processing income | 146 |
| | 8 |
| | — |
| | — |
| | — |
| | 154 |
|
Trust and investment management services | 19 |
| | 3 |
| | — |
| | 106 |
| | — |
| | 128 |
|
Insurance income | 26 |
| | 3 |
| | — |
| | 31 |
| | 1 |
| | 61 |
|
Other income | 30 |
| | 3 |
| | 2 |
| | 4 |
| | 2 |
| | 41 |
|
Net revenue from contracts with customers | $ | 436 |
| | $ | 65 |
| | $ | 6 |
| | $ | 144 |
| | $ | 3 |
| | $ | 654 |
|
Noninterest income within the scope of other GAAP topics | 121 |
| | 169 |
| | 3 |
| | 2 |
| | 43 |
| | 338 |
|
Total noninterest income | $ | 557 |
| | $ | 234 |
| | $ | 9 |
| | $ | 146 |
| | $ | 46 |
| | $ | 992 |
|
Huntington hasgenerally provides services for customers in which it acts as principal. Payment terms and conditions vary amongst services and customers, and thus impact the timing and amount of revenue recognition. Some fees may be paid before any service is rendered and accordingly, such fees are deferred until the obligations pertaining to those fees are satisfied. Most Huntington contracts with customers are cancelable by either party without penalty or they are short-term in nature, with a defined contribution plan that is available to eligible employees. Huntington matches participant contributions, up tocontract duration of less than one year. Accordingly, most revenue deferred for the first 4% of base pay that is contributed to the defined contribution plan. For 2016, a discretionary profit-sharing contribution equal to 1% of eligible participants’ 2016 base pay was awarded during the 2017 first quarter. Huntington's expense related to the defined contribution plans during the third quarter 2017 and 2016 was $5 million and $9 million, respectively. For the nine-month periodsreporting period ended September 30, 2017 and 2016, expense related2019 is expected to the defined contribution plans was $26 million and $26 million, respectively.be earned within one year.
11.FAIR VALUES OF ASSETS AND LIABILITIES
See Note 1817 “Fair Value of Assets and Liabilities” to the consolidated financial statementsConsolidated Financial Statements of the Annual Report on Form 10-K for the year ended December 31, 20162018 for a description of additionalthe valuation methodologies used for assets and liabilitiesinstruments measured at fair value on a recurring and non-recurring basis.value. Assets and liabilities measured at fair value rarely transfer between Level 1 and Level 2 measurements. There were no such transfers during the three-month and nine-month periods ended September 30, 20172019 and 2016.
2018.
Assets and Liabilities measured at fair value on a recurring basis
Assets and liabilities measured at fair value on a recurring basis at September 30, 20172019 and December 31, 20162018 are summarized in the table below.below:
| | | Fair Value Measurements at Reporting Date Using | | Netting Adjustments (1) | | September 30, 2017 | Fair Value Measurements at Reporting Date Using | | Netting Adjustments (1) | | September 30, 2019 |
(dollar amounts in thousands) | Level 1 | | Level 2 | | Level 3 | | |
(dollar amounts in millions) | | Level 1 | | Level 2 | | Level 3 | | Netting Adjustments (1) | | September 30, 2019 |
Assets | | | | | | | | | | | | | | | |
Loans held for sale | $ | — |
| | $ | 584,829 |
| | $ | — |
| | $ | — |
| | $ | 584,829 |
| |
Loans held for investment | — |
| | 58,708 |
| | 40,483 |
| | — |
| | 99,191 |
| |
Trading account securities: | | | | | | | | | | | | | | | | | | |
U.S. Treasury securities | 25 |
| | — |
| | — |
| | — |
| | 25 |
| |
Municipal securities | — |
| | 1,481 |
| | — |
| | — |
| | 1,481 |
| $ | — |
| | $ | 89 |
| | $ | — |
| | $ | — |
| | $ | 89 |
|
Other securities | 86,982 |
| | — |
| | — |
| | — |
| | 86,982 |
| 29 |
| | — |
| | — |
| | — |
| | 29 |
|
| 87,007 |
| | 1,481 |
| | — |
| | — |
| | 88,488 |
| 29 |
| | 89 |
| | — |
| | — |
| | 118 |
|
Available-for-sale and other securities: | | | | | | | | | | |
Available-for-sale securities: | | | | | | | | | | |
U.S. Treasury securities | 11,260 |
| | — |
| | — |
| | — |
| | 11,260 |
| 10 |
| | — |
| | — |
| | — |
| | 10 |
|
Federal agencies: Mortgage-backed | — |
| | 10,639,750 |
| | — |
| | — |
| | 10,639,750 |
| |
Federal agencies: Other agencies | — |
| | 96,451 |
| | — |
| | — |
| | 96,451 |
| |
Residential CMOs | | — |
| | 6,724 |
| | — |
| | — |
| | 6,724 |
|
Residential MBS | | — |
| | 2,393 |
| | — |
| | — |
| | 2,393 |
|
Commercial MBS | | — |
| | 1,239 |
| | — |
| | — |
| | 1,239 |
|
Other agencies | | — |
| | 117 |
| | — |
| | — |
| | 117 |
|
Municipal securities | — |
| | 468,082 |
| | 2,958,027 |
| | — |
| | 3,426,109 |
| — |
| | 58 |
| | 3,094 |
| | — |
| | 3,152 |
|
Asset-backed securities | — |
| | 531,064 |
| | 24,127 |
| | — |
| | 555,191 |
| — |
| | 540 |
| | 55 |
| | — |
| | 595 |
|
Corporate debt | — |
| | 125,629 |
| | — |
| | — |
| | 125,629 |
| — |
| | 52 |
| | — |
| | — |
| | 52 |
|
Other securities/sovereign debt | | — |
| | 4 |
| | — |
| | — |
| | 4 |
|
| | 10 |
| | 11,127 |
| | 3,149 |
| | — |
| | 14,286 |
|
Other securities | 11,717 |
| | 3,935 |
| | — |
| | — |
| | 15,652 |
| 54 |
| | — |
| | — |
| | — |
| | 54 |
|
| 22,977 |
| | 11,864,911 |
| | 2,982,154 |
| | — |
| | 14,870,042 |
| |
Loans held for sale | | — |
| | 963 |
| | — |
| | — |
| | 963 |
|
Loans held for investment | | — |
| | 53 |
| | 27 |
| | — |
| | 80 |
|
MSRs | — |
| | — |
| | 11,753 |
| | — |
| | 11,753 |
| — |
| | — |
| | 8 |
| | — |
| | 8 |
|
Derivative assets | — |
| | 312,401 |
| | 8,425 |
| | (154,562 | ) | | 166,264 |
| — |
| | 1,112 |
| | 11 |
| | (546 | ) | | 577 |
|
Liabilities | | | | | | | | | | | | | | | | | | |
Derivative liabilities | — |
| | 288,191 |
| | 5,459 |
| | (234,526 | ) | | 59,124 |
| — |
| | 628 |
| | 3 |
| | (504 | ) | | 127 |
|
Short-term borrowings | 4 |
| | — |
| | — |
| | — |
| | 4 |
| |
|
| | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements at Reporting Date Using | | Netting Adjustments (1) | | December 31, 2018 |
(dollar amounts in millions) | Level 1 | | Level 2 | | Level 3 | | |
Assets | | | | | | | | | |
Trading account securities: | | | | | | | | | |
Municipal securities | $ | 1 |
| | $ | 27 |
| | $ | — |
| | $ | — |
| | $ | 28 |
|
Other securities | 77 |
| | — |
| | — |
| | — |
| | 77 |
|
| 78 |
| | 27 |
| | — |
| | — |
| | 105 |
|
Available-for-sale securities: | | | | | | | | | |
U.S. Treasury securities | 5 |
| | — |
| | — |
| | — |
| | 5 |
|
Residential CMOs | — |
| | 6,999 |
| | — |
| | — |
| | 6,999 |
|
Residential MBS | — |
| | 1,255 |
| | — |
| | — |
| | 1,255 |
|
Commercial MBS | — |
| | 1,583 |
| | — |
| | — |
| | 1,583 |
|
Other agencies | — |
| | 126 |
| | — |
| | — |
| | 126 |
|
Municipal securities | — |
| | 275 |
| | 3,165 |
| | — |
| | 3,440 |
|
Asset-backed securities | — |
| | 315 |
| | — |
| | — |
| | 315 |
|
Corporate debt | — |
| | 53 |
| | — |
| | — |
| | 53 |
|
Other securities/sovereign debt | — |
| | 4 |
| | — |
| | — |
| | 4 |
|
| 5 |
| | 10,610 |
| | 3,165 |
| | — |
| | 13,780 |
|
Other securities | 22 |
| | — |
| | — |
| | — |
| | 22 |
|
Loans held for sale | — |
| | 613 |
| | — |
| | — |
| | 613 |
|
Loans held for investment | — |
| | 49 |
| | 30 |
| | — |
| | 79 |
|
MSRs | — |
| | — |
| | 10 |
| | — |
| | 10 |
|
Derivative assets | 21 |
| | 474 |
| | 5 |
| | (291 | ) | | 209 |
|
Liabilities | | | | | | | | | |
Derivative liabilities | 11 |
| | 390 |
| | 3 |
| | (217 | ) | | 187 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements at Reporting Date Using | | Netting Adjustments (1) | | December 31, 2016 |
(dollar amounts in thousands) | Level 1 | | Level 2 | | Level 3 | | |
Assets | | | | | | | | | |
Loans held for sale | $ | — |
| | $ | 438,224 |
| | $ | — |
| | $ | — |
| | $ | 438,224 |
|
Loans held for investment | — |
| | 34,439 |
| | 47,880 |
| | — |
| | 82,319 |
|
Trading account securities: | | | | | | | | | |
Municipal securities | — |
| | 1,148 |
| | — |
| | — |
| | 1,148 |
|
Other securities | 132,147 |
| | — |
| | — |
| | — |
| | 132,147 |
|
| 132,147 |
| | 1,148 |
| | — |
| | — |
| | 133,295 |
|
Available-for-sale and other securities: | | | | | | | | | |
U.S. Treasury securities | 5,497 |
| | — |
| | — |
| | — |
| | 5,497 |
|
Federal agencies: Mortgage-backed | — |
| | 10,673,342 |
| | — |
| | — |
| | 10,673,342 |
|
Federal agencies: Other agencies | — |
| | 73,542 |
| | — |
| | — |
| | 73,542 |
|
Municipal securities | — |
| | 452,013 |
| | 2,798,044 |
| | — |
| | 3,250,057 |
|
Asset-backed securities | — |
| | 717,478 |
| | 76,003 |
| | — |
| | 793,481 |
|
Corporate debt | — |
| | 198,683 |
| | — |
| | — |
| | 198,683 |
|
Other securities | 16,588 |
| | 3,943 |
| | — |
| | — |
| | 20,531 |
|
| 22,085 |
| | 12,119,001 |
| | 2,874,047 |
| | — |
| | 15,015,133 |
|
MSRs | — |
| | — |
| | 13,747 |
| | — |
| | 13,747 |
|
Derivative assets | — |
| | 414,412 |
| | 5,747 |
| | (181,940 | ) | | 238,219 |
|
Liabilities | | | | | | | | | |
Derivative liabilities | — |
| | 362,777 |
| | 7,870 |
| | (272,361 | ) | | 98,286 |
|
Short-term borrowings | 474 |
| | — |
| | — |
| | — |
| | 474 |
|
| |
(1) | Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle positive and negative positions and cash collateral held or placed with the same counterparties. |
The tables below present a rollforward of the balance sheet amounts for the three-month and nine-month periods ended September 30, 20172019 and 2016,2018, for financial instruments measured on a recurring basis and classified as Level 3. The classification of an item as Level 3 is based on the significance of the unobservable inputs to the overall fair value measurement. However, Level 3 measurements may also include observable components of value that can be validated externally. Accordingly, the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology.
| | | Level 3 Fair Value Measurements Three Months Ended September 30, 2017 | Level 3 Fair Value Measurements Three Months Ended September 30, 2019 |
| | | | | Available-for-sale securities | | | | | | | Available-for-sale securities | | |
(dollar amounts in thousands) | MSRs | | Derivative instruments | | Municipal securities | | Asset-backed securities | | Loans held for investment | |
(dollar amounts in millions) | | MSRs | | Derivative instruments | | Municipal securities | | Asset-backed securities | | Loans held for investment |
Opening balance | $ | 12,528 |
| | $ | 3,178 |
| | $ | 2,872,007 |
| | $ | 42,575 |
| | $ | 43,855 |
| $ | 9 |
| | $ | 9 |
| | $ | 3,202 |
| | $ | — |
| | $ | 28 |
|
Transfers out of Level 3 (1) | — |
| | (1,376 | ) | | — |
| | — |
| | — |
| — |
| | (20 | ) | | — |
| | — |
| | — |
|
Total gains/losses for the period: | | | | | | | | | | | | | | | | | | |
Included in earnings | (775 | ) | | 1,164 |
| | (637 | ) | | (1,569 | ) | | 187 |
| (1 | ) | | 19 |
| | (1 | ) | | — |
| | — |
|
Included in OCI | — |
| | — |
| | (33,781 | ) | | 5,166 |
| | — |
| — |
| | — |
| | 24 |
| | — |
| | — |
|
Purchases/originations | — |
| | — |
| | 166,514 |
| | — |
| | — |
| — |
| | — |
| | 28 |
| | 55 |
| | — |
|
Sales | — |
| | — |
| | (90 | ) | | (21,625 | ) | | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
Repayments | — |
| | — |
| | — |
| | — |
| | (3,559 | ) | — |
| | — |
| | — |
| | — |
| | (1 | ) |
Settlements | — |
| | — |
| | (45,986 | ) | | (420 | ) | | — |
| — |
| | — |
| | (159 | ) | | — |
| | — |
|
Closing balance | $ | 11,753 |
| | $ | 2,966 |
| | $ | 2,958,027 |
| | $ | 24,127 |
| | $ | 40,483 |
| $ | 8 |
| | $ | 8 |
| | $ | 3,094 |
| | $ | 55 |
| | $ | 27 |
|
Change in unrealized gains or losses for the period included in earnings for assets held at end of the reporting date | $ | (775 | ) | | $ | 1,164 |
| | $ | (104 | ) | | $ | — |
| | $ | — |
| $ | (1 | ) | | $ | (1 | ) | | $ | — |
| | $ | — |
| | $ | — |
|
Change in unrealized gains or losses for the period included in other comprehensive income for assets held at the end of the reporting period | | $ | — |
| | $ | — |
| | $ | 23 |
| | $ | — |
| | $ | — |
|
|
| | | | | | | | | | | | | | | |
| Level 3 Fair Value Measurements Three Months Ended September 30, 2018 |
| | | | | Available-for-sale securities | | |
(dollar amounts in millions) | MSRs | | Derivative instruments | | Municipal securities | | Loans held for investment |
Opening balance | $ | 11 |
| | $ | 1 |
| | $ | 3,178 |
| | $ | 34 |
|
Transfers out of Level 3 (1) | — |
| | (12 | ) | | — |
| | — |
|
Total gains/losses for the period: | | | | | | | |
Included in earnings | — |
| | 9 |
| | (1 | ) | | — |
|
Included in OCI | — |
| | — |
| | — |
| | — |
|
Purchases/originations | — |
| | — |
| | 260 |
| | — |
|
Sales | — |
| | — |
| | — |
| | — |
|
Repayments | — |
| | — |
| | — |
| | (2 | ) |
Settlements | — |
| | 3 |
| | (160 | ) | | — |
|
Closing balance | $ | 11 |
| | $ | 1 |
| | $ | 3,277 |
| | $ | 32 |
|
Change in unrealized gains or losses for the period included in earnings for assets held at end of the reporting date | $ | — |
| | $ | (3 | ) | | $ | — |
| | $ | — |
|
| | | Level 3 Fair Value Measurements Three Months Ended September 30, 2016 | Level 3 Fair Value Measurements Nine Months Ended September 30, 2019 |
| | | | | Available-for-sale securities | | | | | | | Available-for-sale securities | | |
(dollar amounts in thousands) | MSRs | | Derivative instruments | | Municipal securities | | Asset-backed securities | | Loans held for investment | |
(dollar amounts in millions) | | MSRs | | Derivative instruments | | Municipal securities | | Asset-backed securities | | Loans held for investment |
Opening balance | $ | 13,105 |
| | $ | 12,751 |
| | $ | 2,237,975 |
| | $ | 71,379 |
| | $ | 925 |
| $ | 10 |
| | $ | 2 |
| | $ | 3,165 |
| | $ | — |
| | $ | 30 |
|
Transfers out of Level 3 (1) | — |
| | (1,692 | ) | | — |
| | — |
| | — |
| — |
| | (44 | ) | | — |
| | — |
| | — |
|
Total gains/losses for the period: | | | | | | | | | | | | | | | | | | |
Included in earnings | (677 | ) | | (2,459 | ) | | 4,166 |
| | — |
| | (249 | ) | (2 | ) | | 50 |
| | (1 | ) | | — |
| | — |
|
Included in OCI | — |
| | — |
| | (28,272 | ) | | 2,875 |
| | — |
| — |
| | — |
| | 70 |
| | — |
| | — |
|
Purchases/originations | — |
| | — |
| | 953,639 |
| | 10 |
| | 56,469 |
| — |
| | — |
| | 136 |
| | 55 |
| | — |
|
Sales | — |
| | — |
| |
|
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
Repayments | — |
| | — |
| | — |
| | — |
| | (3,860 | ) | — |
| | — |
| | — |
| | — |
| | (3 | ) |
Settlements | — |
| | — |
| | (262,235 | ) | | (445 | ) | | — |
| — |
| | — |
| | (276 | ) | | — |
| | — |
|
Closing balance | $ | 12,428 |
| | $ | 8,600 |
| | $ | 2,905,273 |
| | $ | 73,819 |
| | $ | 53,285 |
| $ | 8 |
| | $ | 8 |
| | $ | 3,094 |
| | $ | 55 |
| | $ | 27 |
|
Change in unrealized gains or losses for the period included in earnings for assets held at end of the reporting date | $ | (677 | ) | | $ | (2,459 | ) | | $ | — |
| | $ | — |
| | $ | — |
| $ | (2 | ) | | $ | 6 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Change in unrealized gains or losses for the period included in other comprehensive income for assets held at the end of the reporting period | | $ | — |
| | $ | — |
| | $ | 68 |
| | $ | — |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | |
| Level 3 Fair Value Measurements Nine Months Ended September 30, 2018 |
| | | | | Available-for-sale securities | | |
(dollar amounts in millions) | MSRs | | Derivative instruments | | Municipal securities | | Asset- backed securities | | Loans held for investment |
Opening balance | $ | 11 |
| | $ | (1 | ) | | $ | 3,167 |
| | $ | 24 |
| | $ | 38 |
|
Transfers out of Level 3 (1) | — |
| | (26 | ) | | — |
| | — |
| | — |
|
Total gains/losses for the period: | | | | | | | | | |
Included in earnings | — |
| | 25 |
| | (3 | ) | | (2 | ) | | — |
|
Included in OCI | — |
| | — |
| | (37 | ) | | 11 |
| | — |
|
Purchases/originations | — |
| | — |
| | 539 |
| | — |
| | — |
|
Sales | — |
| | — |
| | — |
| | (33 | ) | | — |
|
Repayments | — |
| | — |
| | — |
| | — |
| | (6 | ) |
Settlements | — |
| | 3 |
| | (389 | ) | | — |
| | — |
|
Closing balance | $ | 11 |
| | $ | 1 |
| | $ | 3,277 |
| | $ | — |
| | $ | 32 |
|
Change in unrealized gains or losses for the period included in earnings for assets held at end of the reporting date | $ | — |
| | $ | (1 | ) | | $ | — |
| | $ | — |
| | $ | — |
|
| |
(1) | Transfers out of Level 3 represent the settlement value of the derivative instruments (i.e. interest rate lock agreements) that wereis transferred to loans held for sale, which areis classified as Level 2. |
|
| | | | | | | | | | | | | | | | | | | |
| Level 3 Fair Value Measurements Nine Months Ended September 30, 2017 |
| | | | | Available-for-sale securities | | |
(dollar amounts in thousands) | MSRs | | Derivative instruments | | Municipal securities | | Asset-backed securities | | Loans held for investment |
Opening balance | $ | 13,747 |
| | $ | (2,123 | ) | | $ | 2,798,044 |
| | $ | 76,003 |
| | $ | 47,880 |
|
Transfers out of Level 3 (1) | — |
| | (3,833 | ) | | — |
| | — |
| | — |
|
Total gains/losses for the period: | | | | | | | | | |
Included in earnings | (1,994 | ) | | 8,922 |
| | (3,612 | ) | | (5,097 | ) | | 1,617 |
|
Included in OCI | — |
| | — |
| | (887 | ) | | 13,936 |
| | — |
|
Purchases/originations | — |
| | — |
| | 414,123 |
| | — |
| | — |
|
Sales | — |
| | — |
| | (90 | ) | | (59,353 | ) | | — |
|
Repayments | — |
| | — |
| | — |
| | — |
| | (9,014 | ) |
Settlements | — |
| | — |
| | (249,551 | ) | | (1,362 | ) | | — |
|
Closing balance | $ | 11,753 |
| | $ | 2,966 |
| | $ | 2,958,027 |
| | $ | 24,127 |
| | $ | 40,483 |
|
Change in unrealized gains or losses for the period included in earnings for assets held at end of the reporting date | $ | (1,994 | ) | | $ | 8,922 |
| | $ | (128 | ) | | $ | (3,559 | ) | | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | |
| Level 3 Fair Value Measurements Nine Months Ended September 30, 2016 |
| | | | | Available-for-sale securities | | |
(dollar amounts in thousands) | MSRs | | Derivative instruments | | Municipal securities | | Asset- backed securities | | Loans held for investment |
Opening balance | $ | 17,585 |
| | $ | 6,056 |
| | $ | 2,095,551 |
| | $ | 100,337 |
| | $ | 1,748 |
|
Transfers out of Level 3 (1) | — |
| | (5,115 | ) | | — |
| | — |
| | — |
|
Total gains/losses for the period: | | | | | | | | | |
Included in earnings | (5,157 | ) | | 7,659 |
| | 4,166 |
| | 2 |
| | (249 | ) |
Included in OCI | — |
| | — |
| | (8,946 | ) | | 3,549 |
| | — |
|
Purchases/originations | — |
| | — |
| | 1,237,546 |
| | 10 |
| | 56,469 |
|
Sales | — |
| | — |
| | (36,657 | ) | | (27,794 | ) | | — |
|
Repayments | — |
| | — |
| | — |
| | — |
| | (4,683 | ) |
Settlements | — |
| | — |
| | (386,387 | ) | | (2,285 | ) | | — |
|
Closing balance | $ | 12,428 |
| | $ | 8,600 |
| | $ | 2,905,273 |
| | $ | 73,819 |
| | $ | 53,285 |
|
Change in unrealized gains or losses for the period included in earnings for assets held at end of the reporting date | $ | (5,157 | ) | | $ | 7,759 |
| | $ | — |
| | $ | 2 |
| | $ | — |
|
| |
(1) | Transfers out of Level 3 represent the settlement value of the derivative instruments (i.e. interest rate lock agreements) that were transferred to loans held for sale, which are classified as Level 2. |
The tables below summarize the classification of gains and losses due to changes in fair value, recorded in earnings for Level 3 assets and liabilities for the three-month and nine-month periods ended September 30, 20172019 and 2016.2018:
| | | Level 3 Fair Value Measurements Three Months Ended September 30, 2017 | Level 3 Fair Value Measurements Three Months Ended September 30, 2019 |
| | | | | Available-for-sale securities | | | | | | | Available-for-sale securities |
(dollar amounts in thousands) | MSRs | | Derivative instruments | | Municipal securities | | Asset-backed securities | | Loans held for investment | |
(dollar amounts in millions) | | MSRs | | Derivative instruments | | Municipal securities |
Classification of gains and losses in earnings: | | | | | | | | | | | | | | |
Mortgage banking income | $ | (775 | ) | | $ | 1,164 |
| | $ | — |
| | $ | — |
| | $ | — |
| $ | (1 | ) | | $ | 19 |
| | $ | — |
|
Securities gains (losses) | — |
| | — |
| | (104 | ) | | (1,569 | ) | | — |
| |
Interest and fee income | — |
| | — |
| | (533 | ) | | — |
| | — |
| — |
| | — |
| | (1 | ) |
Noninterest income | — |
| | — |
| | — |
| | — |
| | 187 |
| |
Total | $ | (775 | ) | | $ | 1,164 |
| | $ | (637 | ) | | $ | (1,569 | ) | | $ | 187 |
| $ | (1 | ) | | $ | 19 |
| | $ | (1 | ) |
|
| | | | | | | | | | | |
| Level 3 Fair Value Measurements Three Months Ended September 30, 2018 |
| | | | | Available-for-sale securities |
(dollar amounts in millions) | MSRs | | Derivative instruments | | Municipal securities |
Classification of gains and losses in earnings: | | | | | |
Mortgage banking income | $ | — |
| | $ | 9 |
| | $ | — |
|
Other expense | — |
| | — |
| | (1 | ) |
Total | $ | — |
| | $ | 9 |
| | $ | (1 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| Level 3 Fair Value Measurements Three Months Ended September 30, 2016 |
| | | | | Available-for-sale securities | | |
(dollar amounts in thousands) | MSRs | | Derivative instruments | | Municipal securities | | Asset-backed securities | | Loans held for investment |
Classification of gains and losses in earnings: | | | | | | | | | |
Mortgage banking income | $ | (677 | ) | | $ | (2,459 | ) | | $ | — |
| | $ | — |
| | $ | — |
|
Securities gains (losses) | — |
| | — |
| | — |
| | — |
| | — |
|
Interest and fee income | — |
| | — |
| | — |
| | — |
| | — |
|
Noninterest income | — |
| | — |
| | 4,166 |
| | — |
| | (249 | ) |
Total | $ | (677 | ) | | $ | (2,459 | ) | | $ | 4,166 |
| | $ | — |
| | $ | (249 | ) |
|
| | | | | | | | | | | |
| Level 3 Fair Value Measurements Nine Months Ended September 30, 2019 |
| | | | | Available-for-sale securities |
(dollar amounts in millions) | MSRs | | Derivative instruments | | Municipal securities |
Classification of gains and losses in earnings: | | | | | |
Mortgage banking income | $ | (2 | ) | | $ | 50 |
| | $ | — |
|
Interest and fee income | — |
| | — |
| | (1 | ) |
Total | $ | (2 | ) | | $ | 50 |
| | $ | (1 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| Level 3 Fair Value Measurements Nine Months Ended September 30, 2017 |
| | | | | Available-for-sale securities | | |
(dollar amounts in thousands) | MSRs | | Derivative instruments | | Municipal securities | | Asset-backed securities | | Loans held for investment |
Classification of gains and losses in earnings: | | | | | | | | | |
Mortgage banking income | $ | (1,994 | ) | | $ | 8,922 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Securities gains (losses) | — |
| | — |
| | (128 | ) | | (5,100 | ) | | — |
|
Interest and fee income | — |
| | — |
| | (3,484 | ) | | 3 |
| | — |
|
Noninterest income | — |
| | — |
| | — |
| | — |
| | 1,617 |
|
Total | $ | (1,994 | ) | | $ | 8,922 |
| | $ | (3,612 | ) | | $ | (5,097 | ) | | $ | 1,617 |
|
|
| | | | | | | | | | | | | | | |
| Level 3 Fair Value Measurements Nine Months Ended September 30, 2018 |
| | | | | Available-for-sale securities |
(dollar amounts in millions) | MSRs | | Derivative instruments | | Municipal securities | | Asset-backed securities |
Classification of gains and losses in earnings: | | | | | | | |
Mortgage banking income | $ | — |
| | $ | 25 |
| | $ | — |
| | $ | — |
|
Securities gains (losses) | — |
| | — |
| | — |
| | (2 | ) |
Other expense | — |
| | — |
| | (3 | ) | | — |
|
Total | $ | — |
| | $ | 25 |
| | $ | (3 | ) | | $ | (2 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| Level 3 Fair Value Measurements Nine Months Ended September 30, 2016 |
| | | | | Available-for-sale securities | | |
(dollar amounts in thousands) | MSRs | | Derivative instruments | | Municipal securities | | Asset-backed securities | | Loans held for investment |
Classification of gains and losses in earnings: | | | | | | | | | |
Mortgage banking income | $ | (5,157 | ) | | $ | 7,659 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Securities gains (losses) | — |
| | — |
| | — |
| | — |
| | — |
|
Interest and fee income | — |
| | — |
| | — |
| | — |
| | — |
|
Noninterest income | — |
| | — |
| | 4,166 |
| | 2 |
| | (249 | ) |
Total | $ | (5,157 | ) | | $ | 7,659 |
| | $ | 4,166 |
| | $ | 2 |
| | $ | (249 | ) |
Assets and liabilities under the fair value option
The following table presentstables present the fair value and aggregate principal balance of certain assets and liabilities under the fair value option.option: |
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2019 |
(dollar amounts in millions) | Total Loans | | Loans that are 90 or more days past due |
Assets | Fair value carrying amount | | Aggregate unpaid principal | | Difference | | Fair value carrying amount | | Aggregate unpaid principal | | Difference |
Loans held for sale | $ | 963 |
| | $ | 932 |
| | $ | 31 |
| | $ | 1 |
| | $ | 1 |
| | $ | — |
|
Loans held for investment | 80 |
| | 86 |
| | (6 | ) | | 4 |
| | 6 |
| | (2 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2018 |
(dollar amounts in millions) | Total Loans | | Loans that are 90 or more days past due |
Assets | Fair value carrying amount | | Aggregate unpaid principal | | Difference | | Fair value carrying amount | | Aggregate unpaid principal | | Difference |
Loans held for sale | $ | 613 |
| | $ | 594 |
| | $ | 19 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Loans held for investment | 79 |
| | 87 |
| | (8 | ) | | 6 |
| | 7 |
| | (1 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 |
| Total Loans | | Loans that are 90 or more days past due |
(dollar amounts in thousands) | Fair value carrying amount | | Aggregate unpaid principal | | Difference | | Fair value carrying amount | | Aggregate unpaid principal | | Difference |
Assets | | | | | | | | | | | |
Loans held for sale | $ | 584,829 |
| | $ | 564,106 |
| | $ | 20,723 |
| | $ | 602 |
| | $ | 608 |
| | $ | (6 | ) |
Loans held for investment | 99,191 |
| | 107,997 |
| | (8,806 | ) | | 10,086 |
| | 11,781 |
| | (1,695 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| Total Loans | | Loans that are 90 or more days past due |
(dollar amounts in thousands) | Fair value carrying amount | | Aggregate unpaid principal | | Difference | | Fair value carrying amount | | Aggregate unpaid principal | | Difference |
Assets | | | | | | | | | | | |
Loans held for sale | $ | 438,224 |
| | $ | 433,760 |
| | $ | 4,464 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Loans held for investment | 82,319 |
| | 91,998 |
| | (9,679 | ) | | 8,408 |
| | 11,082 |
| | (2,674 | ) |
The following tables present the net gains (losses) from fair value changes for the three-month and nine-month periods ended September 30, 20172019 and 2016.
|
| | | | | | | | | | | | | | | | |
| | Net gains (losses) from fair value changes | | Net gains (losses) from fair value changes |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollar amounts in thousands) | | 2017 | | 2016 | | 2017 | | 2016 |
Assets | | | | | | | | |
Loans held for sale | | $ | (1,897 | ) | | $ | (4,439 | ) | | $ | 11,719 |
| | $ | 9,080 |
|
Loans held for investment | | 187 |
| | — |
| | 1,617 |
| | — |
|
|
| | | | | | | | | | | | | | | | |
| | Net gains (losses) from fair value changes | | Net gains (losses) from fair value changes |
(dollar amounts in millions) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
Assets | | 2019 | | 2018 | | 2019 | | 2018 |
Loans held for sale (1) | | $ | 6 |
| | $ | (4 | ) | | $ | 12 |
| | $ | (1 | ) |
| |
(1) | The net gains (losses) from fair value changes are included in Mortgage banking income on the Unaudited Condensed Consolidated Statements of Income. |
Assets and Liabilities measured at fair value on a nonrecurring basis
Certain assets and liabilities may be required to be measured at fair value on a nonrecurring basis in periods subsequent to their initial recognition. These assets and liabilities are not measured at fair value on an ongoing basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment. ForThe amounts presented represent the nine months ended September 30, 2017, assetsfair value on the various measurement dates throughout the period. The gains (losses) represent the amounts recorded during the period regardless of whether the asset is still held at period end.
The amounts measured at fair value on a nonrecurring basis at September 30, 2019 were as shown in the table below.follows:
|
| | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements Using | | |
(dollar amounts in millions) | Fair Value | | Quoted Prices In Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Other Unobservable Inputs (Level 3) | | Total Gains/(Losses) Nine Months Ended September 30, 2019
|
MSRs | $ | 172 |
| | $ | — |
| | $ | — |
| | $ | 172 |
| | $ | (38 | ) |
Impaired loans | 20 |
| | — |
| | — |
| | 20 |
| | (1 | ) |
Loans held for sale | 36 |
| | — |
| | — |
| | 36 |
| | (13 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements Using | | |
(dollar amounts in thousands) | Fair Value | | Quoted Prices In Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Other Unobservable Inputs (Level 3) | | Total Gains/(Losses) Nine Months Ended September 30, 2017
|
MSRs | $ | 182,043 |
| | $ | — |
| | $ | — |
| | $ | 182,043 |
| | $ | (318 | ) |
Impaired loans | 68,159 |
| | — |
| | — |
| | 68,159 |
| | (3,976 | ) |
Other real estate owned | 42,041 |
| | — |
| | — |
| | 42,041 |
| | (1,759 | ) |
MSRs accounted for under the amortization method are subject to nonrecurring fair value measurement when the fair value is lower than the carrying amount.
Periodically, Huntington records nonrecurring adjustments of collateral-dependent loans measured for impairment when establishing the ACL.ALLL. Such amounts are generally based on the fair value of the underlying collateral supporting the loan. Appraisals are generally obtained to support the fair value of the collateral and incorporate measures such as recent sales prices
for comparable properties and cost of construction. InPeriodically, in cases where the carrying value exceeds the fair value of the collateral less cost to sell, an impairment charge is recognized.
Other real estate-owned propertiesLoans held for sale are included in accrued income and other assets and valuedmeasured at lower of cost or fair value less costs to sell. The fair value of loans held for sale is determined based on appraisals and third-party price opinions, less estimated selling costs.discounted cash flows or based on the fair value of the underlying collateral supporting the loan.
Significant unobservable inputs for assets and liabilities measured at fair value on a recurring and nonrecurring basis
The table below presents quantitative information about the significant unobservable inputs for assets and liabilities measured at fair value on a recurring and nonrecurring basis at September 30, 20172019 and December 31, 2016:2018:
| | | Quantitative Information about Level 3 Fair Value Measurements at September 30, 2017 | Quantitative Information about Level 3 Fair Value Measurements at September 30, 2019 |
(dollar amounts in thousands) | Fair Value | | Valuation Technique | | Significant Unobservable Input | | Range (Weighted Average) | |
(dollar amounts in millions) | | Fair Value | | Valuation Technique | | Significant Unobservable Input | | Range | | Weighted Average |
Measured at fair value on a recurring basis: | MSRs | $ | 11,753 |
| | Discounted cash flow | | Constant prepayment rate | | 9.0% - 31.0% (12%) | $ | 8 |
| | Discounted cash flow | | Constant prepayment rate | | 0 | % | - | 25 | % | | 9 | % |
| | | | | Spread over forward interest rate swap rates | | 8.0% - 10.0% (8.1%) | | | | | Spread over forward interest rate swap rates | | 5 | % | - | 11 | % | | 8 | % |
Derivative assets | 8,425 |
| | Consensus Pricing | | Net market price | | -4.0% - 21.4% (1.8%) | 11 |
| | Consensus Pricing | | Net market price | | (2 | )% | - | 14 | % | | 2 | % |
| | | | | | Estimated Pull through % | | 1 | % | - | 100 | % | | 90 | % |
Derivative liabilities | 5,459 |
| | | | Estimated Pull through % | | 11.0% - 99.0% (79.0%) | 3 |
| | Discounted cash flow | | Estimated conversion factor | | | | | | 162 | % |
Municipal securities | 2,958,027 |
| | Discounted cash flow | | Discount rate | | 0.0% - 10.3% (4.0%) | |
| | | Cumulative default | | 0.0% - 42.0% (4.9%) | |
| | | | | Loss given default | | 5.0% - 80.0% (23.7%) | |
Asset-backed securities | 24,127 |
| | Discounted cash flow | | Discount rate | | 1.3% - 6.8% (6.5%) | |
| | | Cumulative prepayment rate | | 0.0% - 72% (7.3%) | | | Estimated growth rate of Visa Class A shares | | | | | | 7 | % |
| | | Cumulative default | | 2.9% - 100% (8.6%) | | | Discount rate | | | | | | 2 | % |
| | | | | Loss given default | | 90% - 100% (97.8%) | | | | | Timing of the resolution of the litigation | | | | | | 6/30/2020 |
|
Municipal securities | | 3,094 |
| | Discounted cash flow | | Discount rate | | 2 | % | - | 3 | % | | 2 | % |
Asset-backed securities | | 55 |
| | Cumulative default | | 0 | % | - | 64 | % | | 4 | % |
| | | | | | Loss given default | | 5 | % | - | 80 | % | | 24 | % |
Loans held for investment | 40,483 |
| | Discounted cash flow | | Discount rate | | 7.0% - 17.7% (8.2%) | 27 |
| | Discounted cash flow | | Discount rate | | 6 | % | - | 6 | % | | 6 | % |
| | | | | | Constant prepayment rate | | 9 | % | - | 12 | % | | 9 | % |
Measured at fair value on a nonrecurring basis: | MSRs | 182,043 |
| | Discounted cash flow | | Constant prepayment rate | | 6.0% - 21.0% (8%) | 172 |
| | Discounted cash flow | | Constant prepayment rate | | 12 | % | | 33 | % | | 16 | % |
| | | Spread over forward interest rate swap rates | | 1.8% - 20.0% (10.4%) | | | | | Spread over forward interest rate swap rates | | 5 | % | | 11 | % | | 9 | % |
Impaired loans | 68,159 |
| | Appraisal value | | NA | | NA | 20 |
| | Appraisal value | | NA | | | | | | NA |
|
Other real estate owned | 42,041 |
| | Appraisal value | | NA | | NA | |
Loans held for sale | | 36 |
| | Appraisal value | | NA | | | | | | NA |
|
|
| | | | | | | | | | | | | | | | |
| Quantitative Information about Level 3 Fair Value Measurements at December 31, 2018 |
(dollar amounts in millions) | Fair Value | | Valuation Technique | | Significant Unobservable Input | | Range | | Weighted Average |
Measured at fair value on a recurring basis: | | | | |
MSRs | $ | 10 |
| | Discounted cash flow | | Constant prepayment rate | | 6 | % | - | 54 | % | | 8 | % |
| | | | | Spread over forward interest rate swap rates | | 5 | % | - | 11 | % | | 8 | % |
Derivative assets | 5 |
| | Consensus Pricing | | Net market price | | (5 | )% | - | 23 | % | | 2 | % |
| | | | | Estimated Pull through % | | 1 | % | - | 100 | % | | 92 | % |
Derivative liabilities | 3 |
| | Discounted cash flow | | Estimated conversion factor | | | | | | 163 | % |
| | | | | Estimated growth rate of Visa Class A shares | | | | | | 7 | % |
| | | | | Discount rate | | | | | | 4 | % |
| | | | | Timing of the resolution of the litigation | | | | | | 6/30/2020 |
|
Municipal securities | 3,165 |
| | Discounted cash flow | | Discount rate | | 4 | % | - | 4 | % | | 4 | % |
| | | | | Cumulative default | | 0 | % | - | 39 | % | | 3 | % |
| | | | | Loss given default | | 5 | % | - | 90 | % | | 25 | % |
Loans held for investment | 30 |
| | Discounted cash flow | | Discount rate | | 7 | % | - | 9 | % | | 9 | % |
| | | | | Constant prepayment rate | | 9 | % | - | 9 | % | | 9 | % |
Measured at fair value on a nonrecurring basis: | | | | |
Impaired loans | 33 |
| | Appraisal value | | NA | | | | | | NA |
|
Loans held for sale | 121 |
| | Discounted cash flow | | Discount rate | | 5 | % | - | 6 | % | | 5 | % |
| 24 |
| | Appraisal value | | NA | | | | | | NA |
|
|
| | | | | | | | | |
| Quantitative Information about Level 3 Fair Value Measurements at December 31, 2016 |
(dollar amounts in thousands) | Fair Value | | Valuation Technique | | Significant Unobservable Input | | Range (Weighted Average) |
Measured at fair value on a recurring basis: |
MSRs | $ | 13,747 |
| | Discounted cash flow | | Constant prepayment rate | | 5.63% - 34.4% (10.9%) |
| | | | | Spread over forward interest rate swap rates | | 3.0% - 9.2% (5.4%) |
Derivative assets | 5,747 |
| | Consensus Pricing | | Net market price | | -7.1% - 25.4% (1.1%) |
Derivative liabilities | 7,870 |
| | | | Estimated Pull through % | | 8.1% - 99.8% (76.9%) |
Municipal securities | 2,798,044 |
| | Discounted cash flow | | Discount rate | | 0.0% - 10.0% (3.6%) |
| | | | | Cumulative default | | 0.3% - 37.8% (4.0%) |
| | | | | Loss given default | | 5.0% - 80.0% (24.1%) |
Asset-backed securities | 76,003 |
| | Discounted cash flow | | Discount rate | | 5.0% - 12.0% (6.3%) |
| | | | | Cumulative prepayment rate | | 0.0% - 73% (6.5%) |
| | | | | Cumulative default | | 1.1% - 100% (11.2%) |
| | | | | Loss given default | | 85% - 100% (96.3%) |
| | | | | Cure given deferral | | 0.0% - 75.0% (36.2%) |
Loans held for investment | 47,880 |
| | Discounted cash flow | | Discount rate | | 5.4% - 16.2% (5.6%) |
Measured at fair value on a nonrecurring basis: |
MSRs | 171,309 |
| | Discounted cash flow | | Constant prepayment rate | | 5.57% - 30.4% (7.8%) |
| | | | | Spread over forward interest rate swap rates | | 4.2% - 20.0% (11.7%) |
Impaired loans | 53,818 |
| | Appraisal value | | NA | | NA |
Other real estate owned | 50,930 |
| | Appraisal value | | NA | | NA |
The following provides a general description of the impact of a change in an unobservable input on the fair value measurement and the interrelationship between unobservable inputs, where relevant/significant. Interrelationships may also exist between observable and unobservable inputs. Such relationships have not been included in the discussion below.
A significant change in the unobservable inputs may result in a significant change in the ending fair value measurement of Level 3 instruments. In general, prepayment rates increase when market interest rates decline and decrease when market interest rates rise and higher prepayment rates generally result in lower fair values for MSR assets and Asset-backed securities.
Credit loss estimates, such as probability of default, constant default, cumulative default, loss given default, cure given deferral, and loss severity, are driven by the ability of the borrowers to pay their loans and the value of the underlying collateral and are impacted by changes in macroeconomic conditions, typically increasing when economic conditions worsen and decreasing when conditions improve. An increase in the estimated prepayment rate typically results in a decrease in estimated credit losses and vice versa. Higher credit loss estimates generally result in lower fair values. Credit spreads generally increase when liquidity risks and market volatility increase and decrease when liquidity conditions and market volatility improve.
Discount rates and spread over forward interest rate swap rates typically increase when market interest rates increase and/or credit and liquidity risks increase, and decrease when market interest rates decline and/or credit and liquidity conditions improve. Higher discount rates and credit spreads generally result in lower fair market values.
Net market price and pull through percentages generally increase when market interest rates increase and decline when market interest rates decline. Higher net market price and pull through percentages generally result in higher fair values.
Fair values of financial instruments
The following table provides the carrying amounts and estimated fair values of Huntington’s financial instruments that are carried either at fair value or cost at September 30, 20172019 and December 31, 2016:2018:
| | | September 30, 2017 | | December 31, 2016 | September 30, 2019 |
(dollar amounts in thousands) | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | |
(dollar amounts in millions) | | Amortized Cost | | Lower of Cost or Market | | Fair Value or Fair Value Option | | Total Carrying Amount | | Estimated Fair Value |
Financial Assets | | | | | | | | | | | | | | | | |
Cash and short-term assets | $ | 1,243,828 |
| | $ | 1,243,828 |
| | $ | 1,443,037 |
| | $ | 1,443,037 |
| $ | 1,758 |
| | $ | — |
| | $ | — |
| | $ | 1,758 |
| | $ | 1,758 |
|
Trading account securities | 88,488 |
| | 88,488 |
| | 133,295 |
| | 133,295 |
| — |
| | — |
| | 118 |
| | 118 |
| | 118 |
|
Available-for-sale securities | | — |
| | — |
| | 14,286 |
| | 14,286 |
| | 14,286 |
|
Held-to-maturity securities | | 8,430 |
| | — |
| | — |
| | 8,430 |
| | 8,584 |
|
Other securities | | 401 |
| | — |
| | 54 |
| | 455 |
| | 455 |
|
Loans held for sale | 651,734 |
| | 657,270 |
| | 512,951 |
| | 515,640 |
| — |
| | 101 |
| | 963 |
| | 1,064 |
| | 1,067 |
|
Available-for-sale and other securities | 15,453,061 |
| | 15,453,061 |
| | 15,562,837 |
| | 15,562,837 |
| |
Held-to-maturity securities | 8,688,399 |
| | 8,655,805 |
| | 7,806,939 |
| | 7,787,268 |
| |
Net loans and direct financing leases | 67,911,810 |
| | 67,698,855 |
| | 66,323,583 |
| | 66,294,639 |
| |
Net loans and leases (1) | | 74,029 |
| | — |
| | 80 |
| | 74,109 |
| | 75,234 |
|
Derivatives | 166,264 |
| | 166,264 |
| | 238,219 |
| | 238,219 |
| — |
| | — |
| | 577 |
| | 577 |
| | 577 |
|
Financial Liabilities | | | | | | | | | | | | | | | | |
Deposits | 78,445,113 |
| | 78,422,971 |
| | 75,607,717 |
| | 76,161,091 |
| 82,395 |
| | — |
| | — |
| | 82,395 |
| | 82,398 |
|
Short-term borrowings | 1,829,549 |
| | 1,829,549 |
| | 3,692,654 |
| | 3,692,654 |
| 2,173 |
| | — |
| | — |
| | 2,173 |
| | 2,173 |
|
Long-term debt | 9,200,707 |
| | 9,402,926 |
| | 8,309,159 |
| | 8,387,444 |
| 9,874 |
| | — |
| | — |
| | 9,874 |
| | 10,075 |
|
Derivatives | 59,124 |
| | 59,124 |
| | 98,286 |
| | 98,286 |
| — |
| | — |
| | 127 |
| | 127 |
| | 127 |
|
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2018 |
(dollar amounts in millions) | Amortized Cost | | Lower of Cost or Market | | Fair Value or Fair Value Option | | Total Carrying Amount | | Estimated Fair Value |
Financial Assets | | | | | | | | | |
Cash and short-term assets | $ | 2,725 |
| | $ | — |
| | $ | — |
| | $ | 2,725 |
| | $ | 2,725 |
|
Trading account securities | — |
| | — |
| | 105 |
| | 105 |
| | 105 |
|
Available-for-sale securities | — |
| | — |
| | 13,780 |
| | 13,780 |
| | 13,780 |
|
Held-to-maturity securities | 8,565 |
| | — |
| | — |
| | 8,565 |
| | 8,286 |
|
Other securities | 543 |
| | — |
| | 22 |
| | 565 |
| | 565 |
|
Loans held for sale | — |
| | 191 |
| | 613 |
| | 804 |
| | 806 |
|
Net loans and leases (1) | 74,049 |
| | — |
| | 79 |
| | 74,128 |
| | 73,668 |
|
Derivatives | — |
| | — |
| | 209 |
| | 209 |
| | 209 |
|
Financial Liabilities | | | | | | | | | |
Deposits | 84,774 |
| | — |
| | — |
| | 84,774 |
| | 84,731 |
|
Short-term borrowings | 2,017 |
| | — |
| | — |
| | 2,017 |
| | 2,017 |
|
Long-term debt | 8,625 |
| | — |
| | — |
| | 8,625 |
| | 8,718 |
|
Derivatives | — |
| | — |
| | 187 |
| | 187 |
| | 187 |
|
| |
(1) | Includes collateral-dependent loans measured for impairment. |
The following table presents the level in the fair value hierarchy for the estimated fair values of only Huntington’s financial instruments that are not already on the Unaudited Condensed Consolidated Balance Sheets at fair value at September 30, 20172019 and December 31, 2016:2018:
| | | Estimated Fair Value Measurements at Reporting Date Using | | September 30, 2017 | Estimated Fair Value Measurements at Reporting Date Using | | September 30, 2019 |
(dollar amounts in thousands) | Level 1 | | Level 2 | | Level 3 | | |
(dollar amounts in millions) | | Level 1 | | Level 2 | | Level 3 | | September 30, 2019 |
Financial Assets | | | | | | | | | | | | | |
Trading account securities | | $ | 29 |
| | $ | 89 |
| | $ | — |
| | $ | 118 |
|
Available-for-sale securities | | 10 |
| | 11,127 |
| | 3,149 |
| | 14,286 |
|
Held-to-maturity securities | $ | — |
| | $ | 8,655,805 |
| | $ | — |
| | $ | 8,655,805 |
| — |
| | 8,584 |
| | — |
| | 8,584 |
|
Other securities (1) | | 54 |
| | — |
| | — |
| | 54 |
|
Loans held for sale | | — |
| | 963 |
| | 104 |
| | 1,067 |
|
Net loans and direct financing leases | — |
| | — |
| | 67,698,855 |
| | 67,698,855 |
| — |
| | 80 |
| | 75,154 |
| | 75,234 |
|
Financial Liabilities | | | | | | | | | | | | | | |
Deposits | — |
| | 75,230,127 |
| | 3,192,844 |
| | 78,422,971 |
| — |
| | 75,707 |
| | 6,691 |
| | 82,398 |
|
Short-term borrowings | 4 |
| | — |
| | 1,829,545 |
| | 1,829,549 |
| — |
| | — |
| | 2,173 |
| | 2,173 |
|
Long-term debt | — |
| | 8,992,820 |
| | 410,106 |
| | 9,402,926 |
| — |
| | 9,435 |
| | 640 |
| | 10,075 |
|
|
| | | | | | | | | | | | | | | |
| Estimated Fair Value Measurements at Reporting Date Using | | December 31, 2018 |
(dollar amounts in millions) | Level 1 | | Level 2 | | Level 3 | |
Financial Assets | | | | | | | |
Trading account securities | $ | 78 |
| | $ | 27 |
| | $ | — |
| | $ | 105 |
|
Available-for-sale securities | 5 |
| | 10,610 |
| | 3,165 |
| | 13,780 |
|
Held-to-maturity securities | — |
| | 8,286 |
| | — |
| | 8,286 |
|
Other securities (1) | 22 |
| | — |
| | — |
| | 22 |
|
Loans held for sale | — |
| | 613 |
| | 193 |
| | 806 |
|
Net loans and direct financing leases | — |
| | 49 |
| | 73,619 |
| | 73,668 |
|
Financial Liabilities |
| |
| |
| | |
Deposits | — |
| | 76,922 |
| | 7,809 |
| | 84,731 |
|
Short-term borrowings | 1 |
| | — |
| | 2,016 |
| | 2,017 |
|
Long-term debt | — |
| | 8,158 |
| | 560 |
| | 8,718 |
|
|
| | | | | | | | | | | | | | | |
| Estimated Fair Value Measurements at Reporting Date Using | | December 31, 2016 |
(dollar amounts in thousands) | Level 1 | | Level 2 | | Level 3 | |
Financial Assets | | | | | | | |
Held-to-maturity securities | $ | — |
| | $ | 7,787,268 |
| | $ | — |
| | $ | 7,787,268 |
|
Net loans and direct financing leases | — |
| | — |
| | 66,294,639 |
| | 66,294,639 |
|
Financial Liabilities |
| |
| |
| | |
Deposits | — |
| | 72,319,328 |
| | 3,841,763 |
| | 76,161,091 |
|
Short-term borrowings | 474 |
| | — |
| | 3,692,180 |
| | 3,692,654 |
|
Long-term debt | — |
| | 7,980,176 |
| | 407,268 |
| | 8,387,444 |
|
| |
(1) | Excludes securities without readily determinable fair values. |
The short-term nature of certain assets and liabilities result in their carrying value approximating fair value. These include trading account securities, customers’ acceptance liabilities, short-term borrowings, bank acceptances outstanding, FHLB advances, and cash and short-term assets, which include cash and due from banks, interest-bearing deposits in banks, andinterest-bearing deposits at Federal Reserve Bank, federal funds sold, and securities purchased under resale agreements. Loan commitments and letters-of-credit generally have short-term, variable-rate features and contain clauses that limit Huntington’s exposure to changes in customer credit quality.
Accordingly, their carrying values, which are immaterial at the respective balance sheet dates, are reasonable estimates of fair value.
Certain assets, the most significant being operating lease assets, bank owned life insurance, and premises and equipment, do not meet the definition of a financial instrument and are excluded from this disclosure. Similarly, mortgage and nonmortgage servicing rights, deposit base, and other customer relationship intangibles are not considered financial instruments and are not included above. Accordingly, this fair value information is not intended to, and does not, represent Huntington’s underlying value. Many of the assets and liabilities subject to the disclosure requirements are not actively traded, requiring fair values to be estimated by Management. These estimations necessarily involve the use of judgment about a wide variety of factors, including but not limited to, relevancy of market prices of comparable instruments, expected future cash flows, and appropriate discount rates.
The following methods and assumptions were used by Huntington to estimate the fair value of the remaining classes of financial instruments:
Held-to-maturity securities
Fair values are determined by using models that are based on security-specific details, as well as relevant industry and economic factors. The most significant of these inputs are quoted market prices, and interest rate spreads on relevant benchmark securities.
Loans and Direct Financing Leases
Variable-rate loans that reprice frequently are based on carrying amounts, as adjusted for estimated credit losses. The fair values for other loans and leases are estimated using discounted cash flow analyses and employ interest rates currently being offered for loans and leases with similar terms. The rates take into account the position of the yield curve, as well as an adjustment for prepayment risk, operating costs, and profit. This value is also reduced by an estimate of expected losses and the credit risk associated in the loan and lease portfolio. The valuation of the loan portfolio reflected discounts that Huntington believed are consistent with transactions occurring in the marketplace.
Deposits
Demand deposits, savings accounts, and money market deposits are, by definition, equal to the amount payable on demand. The fair values of fixed-rate time deposits are estimated by discounting cash flows using interest rates currently being offered on certificates with similar maturities.
Debt
Long-term debt is based upon quoted market prices, which are inclusive of Huntington’s credit risk. In the absence of quoted market prices, discounted cash flows using market rates for similar debt with the same maturities are used in the determination of fair value.
12. DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are recorded in the Unaudited Condensed Consolidated Balance Sheets as either an asset or a liability (in accrued income and other assets or accrued expenses and other liabilities, respectively) and measured at fair value.
Derivative financial instruments can be designated as accounting hedges under GAAP. Designating a derivative as an accounting hedge allows Huntington to recognize gains and losses on the hedging instruments in the same income statement line item where the gains and losses on the hedged item are recognized. Gains and losses on derivatives that are not designated in an effective hedge relationship under GAAP immediately impact earnings within the period they occur.
The following table presents the fair values of all derivative instruments included in the Unaudited Condensed Consolidated Balance Sheets at September 30,
20172019 and December 31,
2016.2018. Amounts in the table below are presented gross without the impact of any net collateral arrangements.
| | | September 30, 2017 | December 31, 2016 | September 30, 2019 | December 31, 2018 |
(dollar amounts in thousands) | Asset | | Liability | | Asset | | Liability | |
(dollar amounts in millions) | | Asset | | Liability | | Asset | | Liability |
Derivatives designated as Hedging Instruments | | | | | | | | | | | | | | |
Interest rate contracts | $ | 32,837 |
| | $ | 93,224 |
| | $ | 46,440 |
| | $ | 99,996 |
| $ | 376 |
| | $ | 19 |
| | $ | 44 |
| | $ | 42 |
|
Derivatives not designated as Hedging Instruments | | | | | | | | | | | | | | |
Interest rate contracts (1) | 198,471 |
| | 112,534 |
| | 232,653 |
| | 140,475 |
| |
Interest rate contracts | | 544 |
| | 417 |
| | 261 |
| | 165 |
|
Foreign exchange contracts | 22,354 |
| | 21,020 |
| | 23,265 |
| | 19,576 |
| 22 |
| | 20 |
| | 23 |
| | 19 |
|
Commodities contracts | 66,133 |
| | 61,695 |
| | 108,026 |
| | 104,328 |
| 178 |
| | 172 |
| | 172 |
| | 168 |
|
Equity contracts | 1,031 |
| | 5,177 |
| | 9,775 |
| | 6,272 |
| 3 |
| | 3 |
| | — |
| | 10 |
|
Total Contracts | $ | 320,826 |
| | $ | 293,650 |
| | $ | 420,159 |
| | $ | 370,647 |
| $ | 1,123 |
| | $ | 631 |
| | $ | 500 |
| | $ | 404 |
|
The following table presents the amount of gain or loss recognized in income for derivatives not designated as hedging instruments under ASC Subtopic 815-10 in the Unaudited Condensed Consolidated Income Statement for the three-month and nine-month periods ended September 30, 2019 and 2018, respectively.
| |
(1) | Includes derivative assets and liabilities used in mortgage banking activities. |
|
| | | | | | | | | | | | | | | | | | |
| | Location of Gain or (Loss) Recognized in Income on Derivative | | Amount of Gain or (Loss) Recognized in Income on Derivative |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollar amounts in millions) | | | | 2019 | | 2018 | | 2019 | | 2018 |
Interest rate contracts: | |
| | | | | | | | |
Customer | | Capital markets fees | | $ | 15 |
| | $ | 11 |
| | $ | 38 |
| | $ | 30 |
|
Mortgage Banking | | Mortgage banking income | | 28 |
| | 5 |
| | 52 |
| | (3 | ) |
Interest Rate Floors | | Other noninterest income | | (1 | ) | | — |
| | 4 |
| | — |
|
Foreign exchange contracts | | Capital markets fees | | 7 |
| | 6 |
| | 22 |
| | 18 |
|
Commodities contracts | | Capital markets fees | | 1 |
| | 1 |
| | (3 | ) | | 3 |
|
Equity contracts | | Other noninterest expense | | (2 | ) | | — |
| | (3 | ) | | 3 |
|
Total | | | | $ | 48 |
| | $ | 23 |
| | $ | 110 |
| | $ | 51 |
|
Derivatives used in asset and liability management activities
Huntington engages in balance sheet hedging activity, principally for asset and liability management purposes, to convert fixed rate assets or liabilities into floating rate, or vice versa.purposes. Balance sheet hedging activity is generally arranged to receive hedge accounting treatment and isthat can be classified as either fair value or cash flow hedges. Fair value hedges are purchasedexecuted to convert subordinated and other long-termhedge changes in fair value of outstanding fixed-rate debt from fixed-rate obligations to floating rate.caused by fluctuations in market interest rates. Cash flow hedges are also usedexecuted to convert floatingmodify interest rate characteristics of designated commercial loans into fixedin order to reduce the impact of changes in future cash flows due to market interest rate loans.changes.
The following table presents the gross notional values of derivatives used in Huntington’s asset and liability management activities at September 30, 20172019 and December 31, 2016,2018, identified by the underlying interest rate-sensitive instruments.
|
| | | | | | | | | | | |
| September 30, 2019 |
(dollar amounts in millions) | Fair Value Hedges | | Cash Flow Hedges | | Total |
Instruments associated with: | | | | | |
Loans | $ | — |
| | $ | 17,150 |
| | $ | 17,150 |
|
Investment securities | — |
| | 12 |
| | 12 |
|
Long-term debt | 7,540 |
| | — |
| | 7,540 |
|
Total notional value at September 30, 2019 | $ | 7,540 |
| | $ | 17,162 |
| | $ | 24,702 |
|
| | | | | |
| | | December 31, 2018 |
(dollar amounts in millions) | Fair Value Hedges | | Cash Flow Hedges | | Total |
Instruments associated with: | | | | | |
Investment securities | $ | — |
| | $ | 12 |
| | $ | 12 |
|
Long-term debt | 4,865 |
| | — |
| | 4,865 |
|
Total notional value at December 31, 2018 | $ | 4,865 |
| | $ | 12 |
| | $ | 4,877 |
|
|
| | | | | | | | | | | |
| September 30, 2017 |
(dollar amounts in thousands) | Fair Value Hedges | | Cash Flow Hedges | | Total |
Instruments associated with: | | | | | |
Loans | $ | — |
| | $ | 1,325,000 |
| | $ | 1,325,000 |
|
Subordinated notes | 950,000 |
| | — |
| | 950,000 |
|
Long-term debt | 7,425,000 |
| | — |
| | 7,425,000 |
|
Total notional value at September 30, 2017 | $ | 8,375,000 |
| | $ | 1,325,000 |
| | $ | 9,700,000 |
|
| | | | | |
| December 31, 2016 |
(dollar amounts in thousands) | Fair Value Hedges | | Cash Flow Hedges | | Total |
Instruments associated with: | | | | | |
Loans | $ | — |
| | $ | 3,325,000 |
| | $ | 3,325,000 |
|
Subordinated notes | 950,000 |
| | — |
| | 950,000 |
|
Long-term debt | 6,525,000 |
| | — |
| | 6,525,000 |
|
Total notional value at December 31, 2016 | $ | 7,475,000 |
| | $ | 3,325,000 |
| | $ | 10,800,000 |
|
The following table presents additional information about the interest rate swaps and floors used in Huntington’s asset and liability management activities at September 30, 20172019 and December 31, 2016.2018.
|
| | | | | | | | | | | | | | | | | |
| September 30, 2019 |
| | | | | | | Weighted-Average Rate |
(dollar amounts in millions) | Notional Value | | Average Maturity (years) | | Fair Value | | Receive | | Pay |
Asset conversion swaps | | | | | | | | | |
Receive fixed—generic | $ | 8,287 |
| | 3.5 |
| | $ | 106 |
| | 1.69 | % | | 1.33 | % |
Liability conversion swaps | | | | | | | | | |
Receive fixed—generic | 7,540 |
| | 2.5 |
| | 191 |
| | 2.20 |
| | 2.08 |
|
Total swap portfolio at September 30, 2019 | $ | 15,827 |
| | 3.0 |
| | $ | 297 |
| | 1.93 | % | | 1.69 | % |
| | | | | | | | | |
| September 30, 2019 |
| | | | | | | |
(dollar amounts in millions) | Notional Value | | Average Maturity (years) | | Fair Value |
Interest rate floors | | | | | | | | | |
Designated interest rate floors | $ | 8,875 | | | 1.6 | | | $ | 60 |
|
Total floors portfolio at September 30, 2019 | $ | 8,875 | | | 1.6 | | | $ | 60 |
|
| | | | | | | | | |
| December 31, 2018 |
| | | | | | | Weighted-Average Rate |
(dollar amounts in millions) | Notional Value | | Average Maturity (years) | | Fair Value | | Receive | | Pay |
Asset conversion swaps | | | | | | | | | |
Receive fixed—generic | $ | 12 |
| | 1.2 |
| | $ | — |
| | 2.20 | % | | 2.46 | % |
Liability conversion swaps | | | | | | | | | |
Receive fixed—generic | 4,865 |
| | 2.6 |
| | 2 |
| | 2.24 |
| | 2.54 |
|
Total swap portfolio at December 31, 2018 | $ | 4,877 |
| | 2.6 |
| | $ | 2 |
| | 2.24 | % | | 2.54 | % |
|
| | | | | | | | | | | | | | | |
| September 30, 2017 |
| | | | | | | Weighted-Average Rate |
(dollar amounts in thousands) | Notional Value | | Average Maturity (years) | | Fair Value | | Receive | | Pay |
Asset conversion swaps | | | | | | | | | |
Receive fixed—generic | $ | 1,325,000 |
| | 0.1 | | $ | (1,239 | ) | | 0.72 | % | | 1.23 | % |
Liability conversion swaps | | | | | | | | | |
Receive fixed—generic | 8,375,000 |
| | 2.8 | | (59,148 | ) | | 1.56 |
| | 1.29 |
|
Total swap portfolio at September 30, 2017 | $ | 9,700,000 |
| | 2.3 | | $ | (60,387 | ) | |
|
| |
|
|
| | | | | | | | | |
| December 31, 2016 |
| | | | | | | Weighted-Average Rate |
(dollar amounts in thousands) | Notional Value | | Average Maturity (years) | | Fair Value | | Receive | | Pay |
Asset conversion swaps | | | | | | | | | |
Receive fixed—generic | $ | 3,325,000 |
| | 0.6 | | $ | (2,060 | ) | | 1.04 | % | | 0.91 | % |
Liability conversion swaps | | | | | | | | | |
Receive fixed—generic | 7,475,000 |
| | 3.1 | | (51,496 | ) | | 1.49 |
| | 0.88 |
|
Total swap portfolio at December 31, 2016 | $ | 10,800,000 |
| | 2.3 | | $ | (53,556 | ) | | | | |
These derivative financial instruments arewere entered into to managefor the purpose of managing the interest rate risk of assets and liabilities. Consequently, netNet amounts receivable or payable on contracts hedging either interest-earninginterest earning assets or interest-bearinginterest bearing liabilities arewere accrued as an adjustment to either interest income or interest expense. The net amounts resulted in an increase (decrease) to net interest income of $3$(16) million and $18$(11) million for the three-month periods ended September 30, 2017,2019, and 2016, respectively. For2018, respectively, and $(44) million and $(25) million for the nine-month periods ended September 30, 2017,2019, and 2016, the net amounts resulted in an increase to net interest income of $20 million and $58 million,2018, respectively.
Fair Value Hedges
The changes in fair value of the fair value hedges are to the extent that the hedging relationship is effective, recorded through earnings and offset against changes in the fair value of the hedged item.
The following table presents the change in fair value for derivatives designated as fair value hedges as well as the offsetting change in fair value on the hedged item for the three-month and nine-month periods ended September 30, 20172019 and 2016.2018.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollar amounts in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Interest rate contracts | | | | | | | |
Change in fair value of interest rate swaps hedging deposits (1) | $ | — |
| | $ | — |
| | $ | — |
| | $ | (82 | ) |
Change in fair value of hedged deposits (1) | — |
| | — |
| | — |
| | 72 |
|
Change in fair value of interest rate swaps hedging subordinated notes (2) | (2,234 | ) | | (9,688 | ) | | (4,665 | ) | | (2,880 | ) |
Change in fair value of hedged subordinated notes (2) | 3,615 |
| | 10,400 |
| | 6,782 |
| | 3,591 |
|
Change in fair value of interest rate swaps hedging other long-term debt (2) | (6,431 | ) | | (45,870 | ) | | (880 | ) | | 37,179 |
|
Change in fair value of hedged other long-term debt (2) | 7,152 |
| | 42,647 |
| | (1,226 | ) | | (38,187 | ) |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollar amounts in millions) | 2019 | | 2018 | | 2019 | | 2018 |
Interest rate contracts | | | | | | | |
Change in fair value of interest rate swaps hedging long-term debt (1) | $ | 36 |
| | $ | (11 | ) | | $ | 165 |
| | $ | 55 |
|
Change in fair value of hedged long term debt (1) | (32 | ) | | 12 |
| | (162 | ) | | (49 | ) |
| |
(1) | Effective portion of the hedging relationship is recognized |
| |
(2) | Effective portion of the hedging relationship is recognized in Interest expense—subordinated notes and other long-term debt in the Unaudited Condensed Consolidated Statements of Income. Any resulting ineffective portion of the hedging relationship is recognized in noninterest income in the Unaudited Condensed Consolidated Statements of Income.Income. |
As of September 30, 2019 and December 31, 2018, the following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges.
|
| | | | | | | | | | | | | | | |
| Carrying Amount of the Hedged Liabilities | | Cumulative Amount of Fair Value Hedging Adjustment To Hedged Liabilities |
(dollar amounts in millions) | September 30, 2019 | | December 31, 2018 | | September 30, 2019 | | December 31, 2018 |
Long-term debt | $ | 7,835 |
| | $ | 4,845 |
| | $ | 150 |
| | $ | (12 | ) |
The cumulative amount of fair value hedging adjustments remaining for any hedged assets and liabilities for which hedge accounting has been discontinued was $(104) million and $(127) million at September 30, 2019 and December 31, 2018, respectively.
Cash Flow Hedges
To the extent derivatives designated as cash flow hedges are effective in offsetting the variability of the hedged cash flows, changes in the derivatives’ fair value will not be included in current earnings but are reported as a component of OCI in the Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity. These changes in fair value will be included in earnings of future periods when earnings are also affected by the changes in the hedged cash flows. To the extent these derivatives are not effective, changes in their fair values are immediately included in noninterest income.
The following table presents the gains and (losses) recognized in OCI and the location in the Unaudited Condensed Consolidated Statements of Income of gains and (losses) reclassified from OCI into earnings for derivatives designated as effective cash flow hedges for the three-month and nine-month periods ended September 30, 2017 and 2016.
|
| | | | | | | | | | | | | | | | | |
Derivatives in cash flow hedging relationships | Amount of gain or (loss) recognized in OCI on derivatives (effective portion) (after-tax) | | Location of gain or (loss) reclassified from accumulated OCI into earnings (effective portion) | | Amount of (gain) or loss reclassified from accumulated OCI into earnings (effective portion) |
| Three Months Ended September 30, | | | | Three Months Ended September 30, |
(dollar amounts in thousands) | 2017 | | 2016 | | | | 2017 | | 2016 |
Interest rate contracts | | | | | | | | | |
Loans | $ | 1,225 |
| | $ | (5,311 | ) | | Interest and fee income - loans and leases | | $ | 144 |
| | $ | 123 |
|
Investment Securities | — |
| | — |
| | Noninterest income - other income | | — |
| | — |
|
Total | $ | 1,225 |
| | $ | (5,311 | ) | | | | $ | 144 |
| | $ | 123 |
|
|
| | | | | | | | | | | | | | | | | |
Derivatives in cash flow hedging relationships | Amount of gain or (loss) recognized in OCI on derivatives (effective portion) (after-tax) | | Location of gain or (loss) reclassified from accumulated OCI into earnings (effective portion) | | Amount of (gain) or loss reclassified from accumulated OCI into earnings (effective portion) |
| Nine Months Ended September 30, | | | | Nine Months Ended September 30, |
(dollar amounts in thousands) | 2017 | | 2016 | | | | 2017 | | 2016 |
Interest rate contracts | | | | | | | | | |
Loans | $ | 828 |
| | $ | 5,231 |
| | Interest and fee income - loans and leases | | $ | 1,131 |
| | $ | (770 | ) |
Investment Securities | — |
| | — |
| | Noninterest income - other income | | — |
| | 1 |
|
| $ | 828 |
| | $ | 5,231 |
| | | | $ | 1,131 |
| | $ | (769 | ) |
Gains and losses on swaps related to loans and investment securities are recorded in interest income and interest expense, respectively. During the next twelvefirst nine months of 2019, Huntington expects to reclassify to earnings approximately $(1) million after-tax of unrealized gains (losses) on cash flow hedging derivatives currently in OCI.
The following table presents the gains and (losses) recognized in noninterest income for the ineffective portionentered into $17.2 billion of interest rate contracts for derivativesfloors and swaps. These are designated as cash flow hedges for variable rate commercial loans indexed to LIBOR. The initial premium paid for the threeinterest rate floor contracts represents the time value of the contracts and nine-month periods ended September 30, 2017 and 2016. |
| | | | | | | | | | | | | | | |
Derivatives in cash flow hedging relationships | Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollar amounts in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Interest rate contracts | | | | | | | |
Loans | $ | 359 |
| | $ | (371 | ) | | $ | 225 |
| | $ | 6 |
|
is not included in the measurement of hedge effectiveness. Any change in fair value related to time value is recognized in OCI. The initial premium paid is amortized on a straight line basis as a reduction to interest income over the contractual life of these contracts.
Derivatives used in mortgage banking activities
Mortgage loan origination hedging activity
Huntington’sHuntington’s mortgage origination hedging activity is related to theeconomically hedging of theHuntington's mortgage pricing commitments to customers and the secondary sale to third parties. The value of a newly originated mortgage is not firm until the interest rate is committed or locked. The interest rate lock commitmentsnet asset (liability) position of these derivatives at September 30, 2019 and December 31, 2018 are derivative positions offset by forward$14 million and $(4) million, respectively. At September 30, 2019 and December 31, 2018, Huntington had commitments to sell loans.residential real estate loans of $2.0 billion and $0.8 billion, respectively. These contracts mature in less than 1 year.
Huntington uses two types of mortgage-backed securities in its forward commitments to sell loans. The first type of forward commitment is a “To Be Announced” (or TBA), the second is a “Specified Pool” mortgage-backed security. Huntington uses these derivatives to hedge the value of mortgage-backed securities until they are sold.
The following table summarizes the derivative assets and liabilities used in mortgage banking activities:
|
| | | | | | | | | | | | | | | |
Derivatives used in mortgage banking activities | September 30, 2017 | December 31, 2016 |
(dollar amounts in thousands) | Asset | | Liability | | Asset | | Liability |
Interest rate lock agreements | $ | 8,425 |
| | $ | 282 |
| | $ | 5,747 |
| | $ | 1,598 |
|
Forward trades and options | 1,562 |
| | 1,782 |
| | 13,319 |
| | 1,173 |
|
Total derivatives used in mortgage banking activities | $ | 9,987 |
| | $ | 2,064 |
| | $ | 19,066 |
| | $ | 2,771 |
|
MSR hedging activity
Huntington’s MSR economic hedging activity uses securities and derivatives to manage the value of the MSR asset and to mitigate the various types of risk inherent in the MSR asset, including risks related to duration, basis, convexity, volatility, and yield curve. The hedging instruments include forward commitments, interest rate swaps, and options on interest rate swaps.
The total notional value of thesethe derivative financial instruments, at September 30, 2017 and December 31, 2016, was $188 million and $300 million, respectively. The total notional amount at September 30, 2017 corresponds tocorresponding trading assets with a fair value of $1 million and trading liabilities, with a fair value of $2 million. Netand net trading gains and (losses) related to MSR hedging foractivity is summarized in the three-month periods ended September 30, 2017following table:
|
| | | | | | | | | | | | | |
(dollar amounts in millions) | September 30, 2019 | December 31, 2018 |
Notional value | $ | 572 | | | $ | — | |
Trading assets | 30 | | | — | |
Trading liabilities | (1 | ) | | — | |
| | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollar amounts in millions) | 2019 | 2018 | | 2019 | 2018 |
Trading gains (losses) | $ | 20 |
| $ | — |
| | $ | 44 |
| $ | (8 | ) |
MSR hedging trading assets and 2016, were less than $1 millionliabilities are included in other assets and $(1) million and $1 million and $17 million forother liabilities, respectively, in the nine-month periods ended September 30, 2017 and 2016, respectively. These amountsUnaudited Condensed Balance Sheets. Trading gains (losses) are included in mortgage banking income in the Unaudited Condensed Consolidated StatementsStatement of Income.
Derivatives used in customer related activities
Various derivative financial instruments are offered to enable customers to meet their financing and investing objectives and for their risk management purposes. Derivative financial instruments used in trading activities consist of commodity, interest rate, and foreign exchange contracts. Huntington may enterenters into offsetting third-party contracts with approved, reputable counterparties with substantially matching terms and currencies in order to economically hedge significant exposure related to derivatives used in trading activities.
The interest rate or price risk of customer derivatives is mitigated by entering into similar derivatives having offsetting terms with other counterparties. The credit risk to these customers is evaluated and included in the calculation of fair value. Foreign currency derivatives help the customer hedge risk and reduce exposure to fluctuations in exchange rates. Transactions are primarily in liquid currencies with Canadian dollars and Euros comprising a majority of all transactions. Commodity derivatives help the customer hedge risk and reduce exposure to fluctuations in the price of various commodities. Hedging of energy-related products and base metals comprise the majority of allthese transactions.
The net fair values of these derivative financial instruments, for which the gross amounts are included in accrued income and other assets or accrued expenses and other liabilities at both September 30, 20172019 and December 31, 2016,2018, were $84$87 million and $80$92 million, respectively. The total notional values of derivative financial instruments used by Huntington on behalf of customers, including offsetting derivatives, were $21.4$30 billion and $20.6$26 billion at both September 30, 20172019 and December 31, 2016,2018, respectively. Huntington’s credit risk from interest rate swaps used for trading purposescustomer derivatives was $156$515 million and $196$132 million at the same dates, respectively.
Share Swap Economic Hedge
Huntington acquires and holds shares of Huntington common stock in a Rabbi Trust for the Executive Deferred Compensation Plan. Huntington common stock held in the Rabbi Trust is recorded at cost and the corresponding deferred compensation liability is recorded at fair value using Huntington's share price as a significant input.
During the second quarter of 2017, Huntington entered into an economic hedge with a notional value of $8 million to hedge deferred compensation expense related to the Executive Deferred Compensation Plan. During the third quarter 2017, the previous economic hedge entered into during the second quarter of 2016 of $20 million expired. Also during the third quarter of 2017, Huntington entered into an economic hedge with notional value of $31 million for a total of $39 million at September 30, 2017 to hedge deferred compensation expense related to the Executive Deferred Compensation Plan. The economic hedges are recorded at fair value in other assets or liabilities. Changes in the fair value are recorded directly through other noninterest expense in the Unaudited Condensed Consolidated Statements of Income. At September 30, 2017, the fair value of the share swaps was $1 million.
Visa®-related SwapSwaps
In connection with the sale of Huntington’s Class B Visa® shares, Huntington entered into a swap agreement with the purchaser of the shares. The swap agreement adjusts for dilution in the conversion ratio of Class B shares resulting from changes in the Visa® litigation. In connection with the FirstMerit acquisition, Huntington acquired an additional Visa® related swap agreement. At September 30, 2017,2019, the combined fair value of the swap liabilities of $5$3 million is an estimate of the exposure liability based upon Huntington’s assessment of the potential Visa® litigation losses and timing of the litigation settlement.
Financial assets and liabilities that are offset in the Unaudited Condensed Consolidated Balance Sheets
Derivative balances are presented on a net basis taking into consideration the effects of legally enforceable master netting agreements. Additionally, collateral exchanged with counterparties is also netted against the applicable derivative fair values. Huntington enters into derivative transactions with two2 primary groups: broker-dealers and banks, and Huntington’s customers. Different methods are utilized for managing counterparty credit exposure and credit risk for each of these groups.
Huntington enters into transactions with broker-dealers and banks for various risk management purposes. These types of transactions generally are high-dollarhigh dollar volume. Huntington enters into bilateral collateral and master netting agreements with these counterparties, and routinely exchanges cash and high quality securities collateral. Huntington enters into transactions with
customers to meet their financing, investing, payment and risk management needs. These types of transactions generally are low-dollarlow dollar volume. Huntington enters into master netting agreements with customer counterparties; however, collateral is generally not exchanged.exchanged with customer counterparties.
At September 30, 20172019 and December 31, 2016,2018, aggregate credit risk associated with these derivatives, net of collateral that has been pledged by the counterparty, was $30$46 million and $26$37 million, respectively. The credit risk associated with interest rate swaps is calculated after considering master netting agreements with broker-dealers and banks.
At September 30, 2017,2019, Huntington pledged $144$109 million of investment securities and cash collateral to counterparties, while other counterparties pledged $78$228 million of investment securities and cash collateral to Huntington to satisfy collateral netting agreements. In the event of credit downgrades, Huntington would not be required to provide additional collateral.
The following tables present the gross amounts of these assets and liabilities with any offsets to arrive at the net amounts recognized in the Unaudited Condensed Consolidated Balance Sheets at September 30, 20172019 and December 31, 2016.2018.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Offsetting of Financial Assets and Derivative Assets |
| | | | Gross amounts offset in the unaudited condensed consolidated balance sheets | | Net amounts of assets presented in the unaudited condensed consolidated balance sheets | | Gross amounts not offset in the unaudited condensed consolidated balance sheets | | |
(dollar amounts in millions) | | Gross amounts of recognized assets | | | | Financial instruments | | Cash collateral received | | Net amount |
September 30, 2019 | Derivatives | $ | 1,123 |
| | $ | (546 | ) | | $ | 577 |
| | $ | (15 | ) | | $ | (31 | ) | | $ | 531 |
|
December 31, 2018 | Derivatives | 500 |
| | (291 | ) | | 209 |
| | (4 | ) | | (53 | ) | | 152 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Offsetting of Financial Liabilities and Derivative Assets |
| | | | Gross amounts offset in the condensed consolidated balance sheets | | Net amounts of assets presented in the condensed consolidated balance sheets | | Gross amounts not offset in the condensed consolidated balance sheets | | |
(dollar amounts in thousands) | | Gross amounts of recognized assets | | | | Financial instruments | | Cash collateral received | | Net amount |
September 30, 2017 | Derivatives | $ | 320,826 |
| | $ | (154,562 | ) | | $ | 166,264 |
| | $ | (23,350 | ) | | $ | (16,895 | ) | | $ | 126,019 |
|
December 31, 2016 | Derivatives | 420,159 |
| | (181,940 | ) | | 238,219 |
| | (34,328 | ) | | (5,428 | ) | | 198,463 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Offsetting of Financial Liabilities and Derivative Liabilities |
| | | | Gross amounts offset in the unaudited condensed consolidated balance sheets | | Net amounts of liabilities presented in the unaudited condensed consolidated balance sheets | | Gross amounts not offset in the unaudited condensed consolidated balance sheets | | |
(dollar amounts in millions) | | Gross amounts of recognized liabilities | | | | Financial instruments | | Cash collateral delivered | | Net amount |
September 30, 2019 | Derivatives | $ | 631 |
| | $ | (504 | ) | | $ | 127 |
| | $ | — |
| | $ | (23 | ) | | $ | 104 |
|
December 31, 2018 | Derivatives | 404 |
| | (217 | ) | | 187 |
| | — |
| | (12 | ) | | 175 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Offsetting of Financial Liabilities and Derivative Liabilities |
| | | | Gross amounts offset in the condensed consolidated balance sheets | | Net amounts of liabilities presented in the condensed consolidated balance sheets | | Gross amounts not offset in the condensed consolidated balance sheets | | |
(dollar amounts in thousands) | | Gross amounts of recognized liabilities | | | | Financial instruments | | Cash collateral delivered | | Net amount |
September 30, 2017 | Derivatives | $ | 293,650 |
| | $ | (234,526 | ) | | $ | 59,124 |
| | $ | — |
| | $ | (26,766 | ) | | $ | 32,358 |
|
December 31, 2016 | Derivatives | 370,647 |
| | (272,361 | ) | | 98,286 |
| | (7,550 | ) | | (23,943 | ) | | 66,793 |
|
13. VIEs
Consolidated VIEs
Consolidated VIEs at September 30, 2017, consisted of certain loan and lease securitization trusts. Huntington has determined that the trusts are VIEs. Huntington has concluded that it is the primary beneficiary of these trusts because it has the power to direct the activities of the entity that most significantly affect the entity’s economic performance and it has either the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE.
The following tables present the carrying amount and classification of the consolidated trusts’ assets and liabilities that were included in the Unaudited Condensed Consolidated Balance Sheets at September 30, 2017 and December 31, 2016.
|
| | | | | | | | | | | | |
| | September 30, 2017 |
| | Huntington Technology Funding Trust | | Other Consolidated VIEs | | Total |
(dollar amounts in thousands) | | Series 2014A | | |
Assets: | | | | | | |
Cash | | $ | 1,569 |
| | $ | — |
| | $ | 1,569 |
|
Net loans and leases | | 33,148 |
| | — |
| | 33,148 |
|
Accrued income and other assets | | — |
| | 269 |
| | 269 |
|
Total assets | | $ | 34,717 |
| | $ | 269 |
| | $ | 34,986 |
|
Liabilities: | | | | | | |
Other long-term debt | | $ | 28,120 |
| | $ | — |
| | $ | 28,120 |
|
Accrued interest and other liabilities | | — |
| | 269 |
| | 269 |
|
Total liabilities | | 28,120 |
| | 269 |
| | 28,389 |
|
Equity: | | | | | | |
Beneficial Interest owned by third party | | 6,597 |
| | — |
| | 6,597 |
|
Total liabilities and equity | | $ | 34,717 |
| | $ | 269 |
| | $ | 34,986 |
|
|
| | | | | | | | | | | | |
| | December 31, 2016 |
| | Huntington Technology Funding Trust | | Other Consolidated VIEs | | Total |
(dollar amounts in thousands) | | Series 2014A | | |
Assets: | | | | | | |
Cash | | $ | 1,564 |
| | $ | — |
| | $ | 1,564 |
|
Net loans and leases | | 69,825 |
| | — |
| | 69,825 |
|
Accrued income and other assets | | — |
| | 281 |
| | 281 |
|
Total assets | | $ | 71,389 |
| | $ | 281 |
| | $ | 71,670 |
|
Liabilities: | | | | | | |
Other long-term debt | | $ | 57,494 |
| | $ | — |
| | $ | 57,494 |
|
Accrued interest and other liabilities | | — |
| | 281 |
| | 281 |
|
Total liabilities | | 57,494 |
| | 281 |
| | 57,775 |
|
Equity: | | | | | | |
Beneficial Interest owned by third party | | 13,895 |
| | — |
| | 13,895 |
|
Total liabilities and equity | | $ | 71,389 |
| | $ | 281 |
| | $ | 71,670 |
|
The loans and leases were designated to repay the securitized notes. Huntington services the loans and leases and uses the proceeds from principal and interest payments to pay the securitized notes during the amortization period. Huntington has not provided financial or other support that was not previously contractually required.
Unconsolidated VIEs
The following tables provide a summary of the assets and liabilities included in Huntington’s Unaudited Condensed Consolidated Financial Statements, as well as the maximum exposure to losses, associated with its interests related to unconsolidated VIEs for which Huntington holds an interest, but is not the primary beneficiary, to the VIE at September 30, 2017,2019, and December 31, 2016.2018:
|
| | | | | | | | | | | |
| September 30, 2017 |
(dollar amounts in thousands) | Total Assets |
| Total Liabilities |
| Maximum Exposure to Loss |
2016-1 Automobile Trust | $ | 8,674 |
| | $ | — |
| | $ | 8,674 |
|
2015-1 Automobile Trust | 1,506 |
|
| — |
|
| 1,506 |
|
Trust Preferred Securities | 13,919 |
|
| 252,577 |
|
| — |
|
Low Income Housing Tax Credit Partnerships | 638,171 |
|
| 348,733 |
|
| 638,171 |
|
Other Investments | 108,556 |
|
| 48,339 |
|
| 108,556 |
|
Total | $ | 770,826 |
|
| $ | 649,649 |
|
| $ | 756,907 |
|
|
| | | | | | | | | | | |
| September 30, 2019 |
(dollar amounts in millions) | Total Assets |
| Total Liabilities |
| Maximum Exposure to Loss |
Trust Preferred Securities | $ | 14 |
|
| $ | 252 |
|
| $ | — |
|
Affordable Housing Tax Credit Partnerships | 714 |
|
| 338 |
|
| 714 |
|
Other Investments | 157 |
|
| 64 |
|
| 157 |
|
Total | $ | 885 |
|
| $ | 654 |
|
| $ | 871 |
|
|
| | | | | | | | | | | |
| December 31, 2018 |
(dollar amounts in millions) | Total Assets | | Total Liabilities | | Maximum Exposure to Loss |
Trust Preferred Securities | $ | 14 |
| | $ | 252 |
| | $ | — |
|
Affordable Housing Tax Credit Partnerships | 708 |
| | 357 |
| | 708 |
|
Other Investments | 126 |
| | 53 |
| | 126 |
|
Total | $ | 848 |
|
| $ | 662 |
|
| $ | 834 |
|
|
| | | | | | | | | | | |
| December 31, 2016 |
(dollar amounts in thousands) | Total Assets | | Total Liabilities | | Maximum Exposure to Loss |
2016-1 Automobile Trust | $ | 14,770 |
| | $ | — |
| | $ | 14,770 |
|
2015-1 Automobile Trust | 2,227 |
| | — |
| | 2,227 |
|
Trust Preferred Securities | 13,919 |
| | 252,552 |
| | — |
|
Low Income Housing Tax Credit Partnerships | 576,880 |
| | 292,721 |
| | 576,880 |
|
Other Investments | 79,195 |
| | 42,316 |
| | 79,195 |
|
Total | $ | 686,991 |
|
| $ | 587,589 |
|
| $ | 673,072 |
|
The following table provides a summary of automobile transfers to trusts in separate securitization transactions. |
| | | | | | |
(dollar amounts in millions) | | Year | | Amount Transferred |
2016-1 Automobile Trust | | 2016 | | $ | 1,500 |
|
2015-1 Automobile Trust | | 2015 | | 750 |
|
The securitizations and the resulting sale of all underlying securities qualified for sale accounting. Huntington has concluded that it is not the primary beneficiary of these trusts because it has neither the obligation to absorb losses of the entities that could potentially be significant to the VIEs nor the right to receive benefits from the entities that could potentially be significant to the VIEs. Huntington is not required and does not currently intend to provide any additional financial support to the trusts. Investors and creditors only have recourse to the assets held by the trusts. The interest Huntington holds in the VIEs relates to servicing rights which are included in servicing rights of Huntington’s Unaudited Consolidated Balance Sheets. The maximum exposure to loss is equal to the carrying value of the servicing asset. See Note 6 for more information.
Trust PreferredTrust-Preferred Securities
Huntington has certain wholly-owned trusts whose assets, liabilities, equity, income, and expenses are not included inwithin Huntington’s Unaudited Condensed Consolidated Financial Statements. These trusts have been formed for the sole purpose of issuing trust-preferred securities, from which the proceeds are then invested in Huntington junior subordinated debentures, which are reflected in Huntington’s Unaudited Condensed Consolidated Balance SheetsSheet as subordinated notes.long-term debt. The trust securities are the obligations of the trusts, and as such, are not consolidated inwithin Huntington’s Unaudited Condensed Consolidated Financial Statements.
A list of trust preferred securities outstanding at September 30, 2017 follows.2019 follows:
| | (dollar amounts in thousands) | Rate | | Principal amount of subordinated note/ debenture issued to trust (1) | | Investment in unconsolidated subsidiary | |
(dollar amounts in millions) | | Rate | | Principal amount of subordinated note/ debenture issued to trust (1) | | Investment in unconsolidated subsidiary |
Huntington Capital I | 2.01 | % | (2) | $ | 69,730 |
| | $ | 6,186 |
| 2.79 | % | (2) | $ | 70 |
| | $ | 6 |
|
Huntington Capital II | 1.95 |
| (3) | 32,093 |
| | 3,093 |
| 2.71 |
| (3) | 32 |
| | 3 |
|
Sky Financial Capital Trust III | 2.74 |
| (4) | 72,165 |
| | 2,165 |
| 3.49 |
| (4) | 72 |
| | 2 |
|
Sky Financial Capital Trust IV | 2.70 |
| (4) | 74,320 |
| | 2,320 |
| 3.49 |
| (4) | 74 |
| | 2 |
|
Camco Financial Trust | 3.76 |
| (5) | 4,269 |
| | 155 |
| 3.42 |
| (5) | 4 |
| | 1 |
|
Total | | | $ | 252,577 |
| | $ | 13,919 |
| | | $ | 252 |
| | $ | 14 |
|
| |
(1) | Represents the principal amount of debentures issued to each trust, including unamortized original issue discount. |
| |
(2) | Variable effective rate at September 30, 2017,2019, based on three-month LIBOR +0.70%. |
| |
(3) | Variable effective rate at September 30, 2017,2019, based on three-month LIBOR +0.625%. |
| |
(4) | Variable effective rate at September 30, 2017,2019, based on three-month LIBOR +1.40%. |
| |
(5) | Variable effective rate at September 30, 2017,2019, based on three-month LIBOR +1.33%. |
Each issue of the junior subordinated debentures has an interest rate equal to the corresponding trust securities distribution rate. Huntington has the right to defer payment of interest on the debentures at any time, or from time-to-time for a period not exceeding five years provided that no extension period may extend beyond the stated maturity of the related debentures. During any such extension period, distributions to the trust securities will also be deferred and Huntington’s ability to pay dividends on its common stock will be restricted. Periodic cash payments and payments upon liquidation or redemption with respect to trust securities are guaranteed by Huntington to the extent of funds held by the trusts. The guarantee ranks subordinate and junior in right of payment to all indebtedness of the Company to the same extent as the junior subordinated debt. The guarantee does not place a limitation on the amount of additional indebtedness that may be incurred by Huntington.
Low IncomeAffordable Housing Tax Credit Partnerships
Huntington makes certain equity investments in various limited partnerships that sponsor affordable housing projects utilizing the Low Income Housing Tax Credit (LIHTC)LIHTC pursuant to Section 42 of the Internal Revenue Code. The purpose of these investments is to achieve a satisfactory return on capital, to facilitate the sale of additional affordable housing product offerings, and to assist in achieving goals associated with the Community Reinvestment Act. The primary activities of the limited partnerships include the identification, development, and operation of multi-family housing that is leased to qualifying residential tenants. Generally, these types of investments are funded through a combination of debt and equity.
Huntington uses the proportional amortization method to account for all qualifieda majority of its investments in these entities. These investments are included in accrued income and other assets. Investments that do not meet the requirements of the proportional
amortization method are recognizedaccounted for using the equity method. Investment gains/losses related to these investments are included in noninterest income in the Unaudited Condensed Consolidated Statements of Income.
The following table presents the balances of Huntington’s affordable housing tax credit investments and related unfunded commitments at September 30, 20172019 and December 31, 2016.2018.
|
| | | | | | | |
(dollar amounts in millions) | September 30, 2019 | | December 31, 2018 |
Affordable housing tax credit investments | $ | 1,219 |
| | $ | 1,147 |
|
Less: amortization | (505 | ) | | (439 | ) |
Net affordable housing tax credit investments | $ | 714 |
| | $ | 708 |
|
Unfunded commitments | $ | 338 |
| | $ | 357 |
|
|
| | | | | | | |
(dollar amounts in thousands) | September 30, 2017 | | December 31, 2016 |
Affordable housing tax credit investments | $ | 980,984 |
| | $ | 877,237 |
|
Less: amortization | (342,813 | ) | | (300,357 | ) |
Net affordable housing tax credit investments | $ | 638,171 |
| | $ | 576,880 |
|
Unfunded commitments | $ | 348,733 |
| | $ | 292,721 |
|
The following table presents other information relatedrelating to Huntington’s affordable housing tax credit investments for the three-month and nine-month periods ended September 30, 20172019 and 2016.2018.
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollar amounts in millions) | | 2019 | | 2018 | | 2019 | | 2018 |
Tax credits and other tax benefits recognized | | $ | 26 |
| | $ | 24 |
| | $ | 79 |
| | $ | 70 |
|
| | | | | | | | |
Proportional amortization expense included in provision for income taxes | | 22 |
| | 19 |
| | 66 |
| | 59 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollar amounts in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Tax credits and other tax benefits recognized | $ | 22,471 |
| | $ | 21,200 |
| | $ | 68,426 |
| | $ | 57,634 |
|
Proportional amortization method | | | | | | | |
Tax credit amortization expense included in provision for income taxes | 17,292 |
| | 13,608 |
| | 51,474 |
| | 38,513 |
|
Equity method | | | | | | | |
Tax credit investment (gains) losses included in noninterest income | — |
| | 132 |
| | — |
| | 396 |
|
Huntington recognized immaterial impairment losses onThere were no material sales of affordable housing tax credit investments during the three-month and nine-month periods ended September 30, 20172019 and 2016. The2018. There was no impairment losses recognized related tofor the fair value of the tax credit investments that were less than carrying value.three-month and nine-month periods ended September 30, 2019 and 2018.
Other InvestmentsVIE's
Other investments determined to be VIEsVIE's include investments in New Market Tax Credit Investments,Small Business Investment Companies, Historic Tax Credit Investments, Small Business Investment Companies, Rural Business Investment Companies, certain equity method investments, renewable energy financings, automobile securitizations, and other miscellaneous investments.
14. COMMITMENTS AND CONTINGENT LIABILITIES
Commitments to extend credit
In the ordinary course of business, Huntington makes various commitments to extend credit that are not reflected in the Unaudited Condensed Consolidated Financial Statements. The contract amounts of these financial agreements at September 30, 20172019 and December 31, 2016,2018, were as listed in the following table.follows:
|
| | | | | | | |
(dollar amounts in millions) | September 30, 2019 |
| December 31, 2018 |
Contract amount representing credit risk | | | |
Commitments to extend credit: | | | |
Commercial | $ | 18,345 |
|
| $ | 17,149 |
|
Consumer | 14,754 |
|
| 14,974 |
|
Commercial real estate | 1,410 |
|
| 1,188 |
|
Standby letters of credit | 624 |
|
| 676 |
|
Commercial letters-of-credit | 10 |
|
| 14 |
|
|
| | | | | | | |
(dollar amounts in thousands) | September 30, 2017 |
| December 31, 2016 |
Contract amount representing credit risk: | | | |
Commitments to extend credit | | | |
Commercial | $ | 16,056,609 |
|
| $ | 15,190,056 |
|
Consumer | 12,977,175 |
|
| 12,235,943 |
|
Commercial real estate | 1,373,127 |
|
| 1,697,671 |
|
Standby letters-of-credit | 547,689 |
|
| 637,182 |
|
Commercial letters-of-credit | 16,815 |
|
| 4,610 |
|
Commitments to extend credit generally have fixed expiration dates, are variable-rate, and contain clauses that permit Huntington to terminate or otherwise renegotiate the contracts in the event of a significant deterioration in the customer’s credit quality. These arrangements normally require the payment of a fee by the customer, the pricing of which is based on prevailing market conditions, credit quality, probability of funding, and other relevant factors. Since many of these commitments are expected to expire without being drawn upon, the contract amounts are not necessarily indicative of future cash requirements.
The interest rate risk arising from these financial instruments is insignificant as a result of their predominantly short-term, variable-rate nature.
Standby letters-of-credit are conditional commitments issued to guarantee the performance of a customer to a third party.third-party. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. Most of these arrangements mature within two years. The carrying amount of deferred revenue associated with these guarantees was $5$10 million and $8$13 million at September 30, 20172019 and December 31, 2016,2018, respectively.
Commercial letters-of-credit represent short-term, self-liquidating instruments that facilitate customer trade transactions and generally have maturities of no longer than 90 days. The goods or cargo being traded normally securessecure these instruments.
Litigation and Regulatory Matters
The following supplements the disclosure in Note 20 - Commitments and Contingencies to sell loans
Activity related to our mortgage origination activity supports the hedgingConsolidated Financial Statements of the mortgage pricingCorporation’s 2018 Annual Report on Form 10-K and in Note 14 - Commitments and Contingencies to the Consolidated Financial Statements of the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 (collectively, the prior commitments and contingencies disclosures).
In the ordinary course of business, Huntington is routinely a defendant in or party to customerspending and the secondary sale to third parties. At September 30, 2017 and December 31, 2016, Huntington had commitments to sell residential real estate loans of $1.0 billion and $0.8 billion, respectively. These contracts mature in less than one year.
Litigation
The nature of Huntington’s business ordinarily results in a certain amount of pending as well as threatened claims, litigation, investigations, regulatory and legal and administrative cases, mattersregulatory actions and proceedings, all of which are considered incidental to the normal conduct of business. When the Company determines it has meritorious defenses to the claims asserted, it vigorously defends itself. The Company considers settlement of cases when, in Management’s judgment, it is in the best interests of both the Company and its shareholders to do so.proceedings.
On at least a quarterly basis, Huntington assesses its liabilities and contingencies in connection with threatened and outstanding legal cases, matters and proceedings, utilizing the latest information available. For cases, matters and proceedings where it is both probable the Company will incur a loss and the amount can be reasonably estimated, Huntington establishes an accrual for the loss. Once established, the accrual is adjusted as appropriate to reflect any relevant developments. For cases, matters or proceedings where a loss is not probable or the amountIn view of the lossinherent difficulty of predicting the outcome of such matters, particularly where the claimants seek very large or indeterminate damages or where the matters present novel legal theories or involve a large number of parties,
Huntington generally cannot be estimated, no accrual is established.
In certain cases, matters and proceedings, exposure to loss exists in excesspredict what the eventual outcome of the accrual topending matters will be, what the extent such loss is reasonably possible, but not probable. Management believes an estimatetiming of the aggregate range of reasonably possible losses, in excess of amounts accrued, for current legal proceedings is up to $65 million at September 30, 2017. For certain other cases, and matters, Management cannot reasonably estimate the possible loss at this time. Any estimate involves significant judgment, given the varying stages of the proceedings (including the fact that many of them are currently in preliminary stages), the existence of multiple defendants in several of the current proceedings whose share of liability has yet to be determined, the numerous unresolved issues in many of the proceedings, and the inherent uncertainty of the various potential outcomes of such proceedings. Accordingly, Management’s estimate will change from time-to-time, and actual losses may be more or less than the current estimate.
While the final outcome of legal cases, matters, and proceedings is inherently uncertain, based on information currently available, advice of counsel, and available insurance coverage, Management believes that the amount it has already accrued is adequate and any incremental liability arising from the Company’s legal cases, matters, or proceedings will not have a material negative adverse effect on the Company’s consolidated financial position as a whole. However, in the event of unexpected future developments, it is possible that the ultimate resolution of these matters will be, or what the eventual loss, fines or penalties related to each matter may be.
Huntington establishes an accrued liability when those matters present loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. Huntington thereafter continues to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established.
For certain matters, Huntington is able to estimate a range of possible loss. In cases in which Huntington possesses information to estimate a range of possible loss, that estimate is aggregated and proceedings, if unfavorable,disclosed below. There may be other matters for which a loss is probable or reasonably possible but such an estimate of the range of possible loss may not be possible. For those matters where an estimate of the range of possible loss is possible, management currently estimates the aggregate range of possible loss is $0 to $20 million at September 30, 2019 in excess of the accrued liability (if any) related to those matters. This estimated range of possible loss is based upon currently available information and is subject to significant judgment and a variety of assumptions, and known and unknown uncertainties. The matters underlying the estimated range will change from time to time, and actual results may vary significantly from the current estimate. The estimated range of possible loss does not represent Huntington’s maximum loss exposure.
Based on current knowledge, management does not believe that loss contingencies arising from pending matters will have a material adverse effect on the consolidated financial position of Huntington. Further, management believes that amounts accrued are adequate to address Huntington’s contingent liabilities. However, in light of the inherent uncertainties involved in these matters, some of which are beyond Huntington’s control, and the large or indeterminate damages sought in some of these matters, an adverse outcome in one or more of these matters could be material to the Company’s consolidated financial position in aHuntington’s results of operations for any particular period.
Meoli v. The Huntington National Bank (Cyberco Litigation). The Bank has been named a defendant in a lawsuit arising from the Bank’s commercial lending, depository, and equipment leasing relationships with Cyberco Holdings, Inc. (Cyberco), Cyberco allegedly defrauded equipment lessors and financial institutions, including Huntington, in financing the purchase of computer equipment from Teleservices Group, Inc. (Teleservices), which itself later proved to be a shell corporation. Bankruptcy proceedings for both Cyberco and Teleservices ensued.
In an adversary proceeding brought by the bankruptcy trustee for Teleservices in the U.S. District Court for the Western District of Michigan, judgment was rendered against Huntington in the amount of $72 million plus costs and pre- and post-judgment interest. Huntington appealed the judgment to the U.S. Sixth Circuit Court of Appeals, which reversed the judgment in part and remanded the case for further proceedings. The case is currently before the bankruptcy court again. The parties have completed briefing on liability and the appropriate calculation of damages, and await the scheduling of a hearing on the issue.
Powell v. Huntington National Bank. Huntington is a defendant in a class action filed on October 15, 2013 alleging Huntington charged late fees on mortgage loans in a method that violated West Virginia law and the loan documents. Plaintiffs seek statutory civil penalties, compensatory damages and attorney’s fees. Huntington filed a motion for summary judgment on
the plaintiffs’ claims, which was granted by the U.S. District Court on December 28, 2016. Plaintiffs have appealed to the U.S. Fourth Circuit Court of Appeals. Oral arguments were held on October 24, 2017.
FirstMerit Overdraft Litigation. Commencing in December 2010, two separate lawsuits were filed in the Summit County Court of Common Pleas and the Lake County Court of Common Pleas against FirstMerit. The complaints were brought as class actions on behalf of Ohio residents who maintained a checking account at FirstMerit and who incurred one or more overdraft fees as a result of the alleged re-sequencing of debit transactions. The parties have reached a global settlement for approximately $9 million cash to a common fund plus an additional $7 million in debt forgiveness. Attorneys' fees will be paid from the fund, with any remaining funds going to charity. FirstMerit’s insurer has reimbursed Huntington 49% of the approximately $9 million, which totals approximately $4.4 million. The court preliminarily approved the settlement on December 5, 2016 and the cash portion of the settlement was funded on December 12, 2016. The settlement received final approval on June 2, 2017 and there has been no appeal, so the settlement is final. Huntington is in the process of issuing settlement checks, forgiving the agreed-upon debt, and taking other actions as agreed upon in the settlement agreement. Because the settlement is in the process of being concluded, we anticipate no further reporting on this matter.period.
15. SEGMENT REPORTING
OurHuntington's business segments are based on our internally-aligned segment leadership structure, which is how we monitormanagement monitors results and assessassesses performance. We have fourThe Company has 4 major business segments: Consumer and Business Banking, Commercial Banking, Commercial Real Estate and Vehicle Finance, (CREVF), Regional Banking and The Huntington Private Client Group (RBHPCG). The Treasury / Other function includes our technology and operations, other unallocated assets, liabilities, revenue, and expense.
Business segment results are determined based upon ourHuntington's management reporting system, which assigns balance sheet and income statement items to each of the business segments. The process is designed around ourthe organizational and management structure and, accordingly, the results derived are not necessarily comparable with similar information published by other financial institutions. Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities.
Revenue is recorded in the business segment responsible for the related product or service. Fee sharing is recorded to allocate portions of such revenue to other business segments involved in selling to, or providing service to customers. Results of operations for the business segments reflect these fee-sharing allocations.
The management accounting process that develops the business segment reporting utilizes various estimates and allocation methodologies to measure the performance of the business segments. Expenses are allocated to business segments using a two-phase approach. The first phase consists of measuring and assigning unit (activity-based) costs (activity-based costs) to activities related to product origination and servicing. These activity-based costs are then extended, based on volumes, with the resulting amount allocated to business segments that own the related products. The second phase consists of the allocation of overhead costs to all four4 business segments from Treasury / Other. We utilizeHuntington utilizes a full-allocation methodology, where all Treasury / Other expenses, except reported Significant Items, if any, and a small amount of other residual unallocated expenses, are allocated to the four4 business segments.
The management accounting policies and processes utilized in compiling segment financial information are highly subjective and, unlike financial accounting, are not based on authoritative guidance similar to GAAP. As a result, reported segment results are not necessarily comparable with similar information reported by other financial institutions. Furthermore, changes in management structure or allocation methodologies and procedures result in changes in reported segment
financial data. Accordingly, certain amounts have been reclassified to conform to the current period presentation.
We useHuntington uses an active and centralized Funds Transfer Pricing (FTP)FTP methodology to attribute appropriate net interest income to the business segments. The intent of the FTP methodology is to transfer interest rate risk from the business segments by providing matched duration funding of assets and liabilities. The result centralizesis to centralize the financial impact, management, and reporting of interest rate risk in the Treasury / Other function where it can be centrally monitored and managed. The Treasury / Other function charges (credits) an internal cost of funds for assets held in (or pays for funding provided by) each business segment. The FTP rate is based on prevailing market interest rates for comparable duration assets (or liabilities). During 2019, the Company
We announced a change in our executive leadership team, which became effective during
updated and refined its FTP methodology primarily related to the second quarterallocation of 2017. As a result,deposit funding costs. Prior period amounts presented below have been restated to reflect the previously-reported Home Lending segment is now included as an operating unit in the new methodology.
Consumer and Business Banking segment. Additionally, the Insurance operating unit previously included in Commercial Banking was realigned to RBHPCG during second quarter. Prior period results have been reclassified to conform to the current period presentation.
Consumer and Business Banking - The Consumer and Business Banking segment, including Home Lending, provides a wide array of financial products and services to consumer and small business customers including but not limited to checking accounts, savings accounts, money market accounts, certificates of deposit, mortgage loans, consumer loans, credit cards, and small business loans and investment products. Other financial services available to consumer and small business customers include insurance, interest rate risk protection, foreign exchange, and treasury management. Business Banking is defined as serving companies with revenues up to $20 million and consists of approximately 254,000 businesses.million. Home Lending supports origination and servicing of consumer loans and mortgages for customers who are generally located in our primary banking markets across all segments.
Commercial Banking - Through a relationship banking model, this segment provides a wide array of products and services to the middle market, large corporate, real estate and government public sector customers located primarily within our geographic footprint. The segment is divided into six6 business units: Middle Market, Large Corporate, Specialty Banking, Asset Finance, Capital Markets and Treasury Management.
Markets/Institutional Corporate Banking, Commercial Real Estate and Treasury Management.
Vehicle Finance - This segment provides lending and other banking products and services to customers outside of our traditional retail and commercial banking segments. Our products and services include providing financing to consumers for the purchase of automobiles, light-duty trucks, recreational vehicles and marine craft at franchised and other select dealerships, and providing financing to franchised dealerships for the acquisition of new and used vehicle inventory of franchised automotive dealerships, and financing for land, buildings, and other commercial real estate owned or constructed by real estate developers, automobile dealerships, or other customers with real estate project financing needs.inventory. Products and services are delivered through highly specialized relationship-focused bankers and product partners.
Regional Banking and The Huntington Private Client Group - The core business of The Huntington Private Client Group is The Huntington Private Bank, which consists of Private Banking, Wealth & Investment Management, and Retirement Plan Services. The Huntington Private Bank provides high net-worth customers with deposit, lending (including specialized lending options), and banking services. The Huntington Private Bank also delivers wealth management and legacy planning through investment and portfolio management, fiduciary administration, and trust services. This group also provides retirement plan services to corporate businesses. The Huntington Private Client Group provides corporate trust services and institutional and mutual fund custody services and insurance services.
Listed in the table below is certain operating basis financial information reconciled to Huntington’s September 30, 2017,2019, December 31, 2016,2018, and September 30, 2016,2018, reported results by business segment.
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| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Three Months Ended September 30, |
Income Statements | Consumer & Business Banking | | Commercial Banking | | CREVF | | RBHPCG | | Treasury / Other | | Huntington Consolidated |
(dollar amounts in thousands) | | | | | |
2017 | | | | | | | | | | | |
Net interest income | $ | 426,752 |
| | $ | 171,448 |
| | $ | 139,870 |
| | $ | 49,596 |
| | $ | (29,233 | ) | | $ | 758,433 |
|
Provision for (reduction in allowance) credit losses | 24,089 |
| | 9,580 |
| | 9,705 |
| | 216 |
| | — |
| | 43,590 |
|
Noninterest income | 189,378 |
| | 59,121 |
| | 10,969 |
| | 46,215 |
| | 24,414 |
| | 330,097 |
|
Noninterest expense | 415,874 |
| | 100,003 |
| | 55,354 |
| | 58,237 |
| | 50,960 |
| | 680,428 |
|
Income taxes | 61,658 |
| | 42,345 |
| | 30,022 |
| | 13,076 |
| | (57,157 | ) | | 89,944 |
|
Net income | $ | 114,509 |
| | $ | 78,641 |
| | $ | 55,758 |
| | $ | 24,282 |
| | $ | 1,378 |
| | $ | 274,568 |
|
2016 | | | | | | | | | | | |
Net interest income | $ | 349,283 |
| | $ | 143,023 |
| | $ | 126,489 |
| | $ | 41,971 |
| | $ | (35,376 | ) | | $ | 625,390 |
|
Provision for (reduction in allowance) credit losses | 12,724 |
| | 23,788 |
| | 25,615 |
| | 1,663 |
| | 15 |
| | 63,805 |
|
Noninterest income | 177,234 |
| | 54,744 |
| | 8,001 |
| | 45,339 |
| | 17,097 |
| | 302,415 |
|
Noninterest expense | 349,470 |
| | 87,892 |
| | 44,331 |
| | 57,473 |
| | 173,081 |
| | 712,247 |
|
Income taxes | 57,513 |
| | 30,130 |
| | 22,590 |
| | 9,861 |
| | (95,345 | ) | | 24,749 |
|
Net income | $ | 106,810 |
| | $ | 55,957 |
| | $ | 41,954 |
| | $ | 18,313 |
| | $ | (96,030 | ) | | $ | 127,004 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Three Months Ended September 30, |
Income Statements | Consumer & Business Banking | | Commercial Banking | | Vehicle Finance | | RBHPCG | | Treasury / Other | | Huntington Consolidated |
(dollar amounts in millions) | | | | | |
2019 | | | | | | | | | | | |
Net interest income | $ | 433 |
| | $ | 263 |
| | $ | 100 |
| | $ | 48 |
| | $ | (45 | ) | | $ | 799 |
|
Provision (benefit) for credit losses | 35 |
| | 36 |
| | 12 |
| | (1 | ) | | — |
| | 82 |
|
Noninterest income | 223 |
| | 101 |
| | 4 |
| | 47 |
| | 14 |
| | 389 |
|
Noninterest expense | 421 |
| | 142 |
| | 36 |
| | 63 |
| | 5 |
| | 667 |
|
Provision (benefit) for income taxes | 42 |
| | 39 |
| | 12 |
| | 7 |
| | (33 | ) | | 67 |
|
Net income (loss) | $ | 158 |
| | $ | 147 |
| | $ | 44 |
| | $ | 26 |
| | $ | (3 | ) | | $ | 372 |
|
2018 | | | | | | | | | | | |
Net interest income | $ | 445 |
| | $ | 259 |
| | $ | 97 |
| | $ | 51 |
| | $ | (50 | ) | | $ | 802 |
|
Provision (benefit) for credit losses | 41 |
| | (1 | ) | | 13 |
| | — |
| | — |
| | 53 |
|
Noninterest income | 194 |
| | 81 |
| | 3 |
| | 46 |
| | 18 |
| | 342 |
|
Noninterest expense | 424 |
| | 121 |
| | 35 |
| | 60 |
| | 11 |
| | 651 |
|
Provision (benefit) for income taxes | 38 |
| | 46 |
| | 11 |
| | 6 |
| | (39 | ) | | 62 |
|
Net income (loss) | $ | 136 |
| | $ | 174 |
| | $ | 41 |
| | $ | 31 |
| | $ | (4 | ) | | $ | 378 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
Income Statements | Consumer & Business Banking | | Commercial Banking | | CREVF | | RBHPCG | | Treasury / Other | | Huntington Consolidated |
(dollar amounts in thousands) | | | | | |
2017 | | | | | | | | | | | |
Net interest income | $ | 1,255,617 |
| | $ | 514,900 |
| | $ | 419,556 |
| | $ | 145,089 |
| | $ | (102,242 | ) | | $ | 2,232,920 |
|
Provision for credit losses | 74,270 |
| | 21,378 |
| | 40,047 |
| | 510 |
| | 1 |
| | 136,206 |
|
Noninterest income | 544,445 |
| | 176,609 |
| | 34,750 |
| | 140,610 |
| | 71,364 |
| | 967,778 |
|
Noninterest expense | 1,242,152 |
| | 301,385 |
| | 163,989 |
| | 182,171 |
| | 192,517 |
| | 2,082,214 |
|
Income taxes | 169,274 |
| | 129,061 |
| | 87,594 |
| | 36,056 |
| | (194,110 | ) | | 227,875 |
|
Net income | $ | 314,366 |
| | $ | 239,685 |
| | $ | 162,676 |
| | $ | 66,962 |
| | $ | (29,286 | ) | | $ | 754,403 |
|
2016 | | | | | | | | | | | |
Net interest income | $ | 911,706 |
| | $ | 355,263 |
| | $ | 317,704 |
| | $ | 112,473 |
| | $ | (62,809 | ) | | $ | 1,634,337 |
|
Provision for credit losses | 43,474 |
| | 53,212 |
| | 18,706 |
| | 490 |
| | 14 |
| | 115,896 |
|
Noninterest income | 459,732 |
| | 150,228 |
| | 25,951 |
| | 126,245 |
| | 53,238 |
| | 815,394 |
|
Noninterest expense | 967,417 |
| | 246,941 |
| | 125,254 |
| | 166,645 |
| | 220,731 |
| | 1,726,988 |
|
Income taxes | 126,191 |
| | 71,868 |
| | 69,893 |
| | 25,054 |
| | (159,017 | ) | | 133,989 |
|
Net income | $ | 234,356 |
| | $ | 133,470 |
| | $ | 129,802 |
| | $ | 46,529 |
| | $ | (71,299 | ) | | $ | 472,858 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
Income Statements | Consumer & Business Banking | | Commercial Banking | | Vehicle Finance | | RBHPCG | | Treasury / Other | | Huntington Consolidated |
(dollar amounts in millions) | | | | | |
2019 | | | | | | | | | | | |
Net interest income | $ | 1,371 |
| | $ | 798 |
| | $ | 291 |
| | $ | 153 |
| | $ | (180 | ) | | $ | 2,433 |
|
Provision (benefit) for credit losses | 81 |
| | 103 |
| | 27 |
| | (3 | ) | | — |
| | 208 |
|
Noninterest income | 596 |
| | 266 |
| | 9 |
| | 147 |
| | 64 |
| | 1,082 |
|
Noninterest expense | 1,247 |
| | 427 |
| | 112 |
| | 193 |
| | 41 |
| | 2,020 |
|
Provision (benefit) for income taxes | 134 |
| | 113 |
| | 33 |
| | 23 |
| | (110 | ) | | 193 |
|
Net income (loss) | $ | 505 |
| | $ | 421 |
| | $ | 128 |
| | $ | 87 |
| | $ | (47 | ) | | $ | 1,094 |
|
2018 | | | | | | | | | | | |
Net interest income | $ | 1,254 |
| | $ | 744 |
| | $ | 294 |
| | $ | 148 |
| | $ | (84 | ) | | $ | 2,356 |
|
Provision (benefit) for credit losses | 98 |
| | 41 |
| | 36 |
| | — |
| | — |
| | 175 |
|
Noninterest income | 557 |
| | 234 |
| | 9 |
| | 146 |
| | 46 |
| | 992 |
|
Noninterest expense | 1,263 |
| | 364 |
| | 106 |
| | 180 |
| | 23 |
| | 1,936 |
|
Provision (benefit) for income taxes | 95 |
| | 120 |
| | 34 |
| | 24 |
| | (95 | ) | | 178 |
|
Net income (loss) | $ | 355 |
| | $ | 453 |
| | $ | 127 |
| | $ | 90 |
| | $ | 34 |
| | $ | 1,059 |
|
|
| | | | | | | | | | | | | | | |
| Assets at | | Deposits at |
(dollar amounts in millions) | September 30, 2019 | | December 31, 2018 | | September 30, 2019 | | December 31, 2018 |
Consumer & Business Banking | $ | 25,418 |
| | $ | 27,486 |
| | $ | 51,671 |
| | $ | 50,300 |
|
Commercial Banking | 34,368 |
| | 34,818 |
| | 21,088 |
| | 23,185 |
|
Vehicle Finance | 19,414 |
| | 19,435 |
| | 363 |
| | 346 |
|
RBHPCG | 6,593 |
| | 6,540 |
| | 6,101 |
| | 6,809 |
|
Treasury / Other | 22,942 |
| | 20,502 |
| | 3,172 |
| | 4,134 |
|
Total | $ | 108,735 |
| | $ | 108,781 |
| | $ | 82,395 |
| | $ | 84,774 |
|
|
| | | | | | | | | | | | | | | |
| Assets at | | Deposits at |
(dollar amounts in thousands) | September 30, 2017 | | December 31, 2016 | | September 30, 2017 | | December 31, 2016 |
Consumer & Business Banking | $ | 25,989,043 |
| | $ | 25,332,635 |
| | $ | 45,694,477 |
| | $ | 45,355,745 |
|
Commercial Banking | 24,199,091 |
| | 24,121,689 |
| | 20,795,143 |
| | 18,053,208 |
|
CREVF | 24,723,324 |
| | 23,576,832 |
| | 2,052,274 |
| | 1,893,072 |
|
RBHPCG | 5,695,880 |
| | 5,327,622 |
| | 5,944,240 |
| | 6,214,250 |
|
Treasury / Other | 21,380,788 |
| | 21,355,319 |
| | 3,958,979 |
| | 4,091,442 |
|
Total | $ | 101,988,126 |
| | $ | 99,714,097 |
| | $ | 78,445,113 |
| | $ | 75,607,717 |
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Item 3: Quantitative and Qualitative Disclosures about Market Risk
Quantitative and qualitative disclosures for the current period can be found in the Market Risk section of this report, which includes changes in market risk exposures from disclosures presented in Huntington’s 20162018 Form 10-K.
Item 4: Controls and Procedures
Disclosure Controls and Procedures
Huntington maintains disclosure controls and procedures designed to ensure that the information required to be disclosed in the reports that it files (or submits)or submits under the Securities Exchange Act of 1934, as amended (the Exchange Act), are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Huntington’s Management, with the participation of its Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of Huntington’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report.September 30, 2019. Based upon such evaluation, Huntington’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period,September 30, 2019, Huntington’s disclosure controls and procedures were effective.
There have not been any changes in Huntington’sour internal controlscontrol over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relatesended September 30, 2019, that have materially affected, or are reasonably likely to materially affect, Huntington’s internal control over financial reporting.
PART II. OTHER INFORMATION
In accordance with the instructions to Part II, the other specified items in this part have been omitted because they are not applicable or the information has been previously reported.
Item 1: Legal Proceedings
Item 1A: Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) and (b)
Not Applicable
(c)
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| | | | | | | | | | |
Period | Total Number of Shares Purchased (1) | | Average Price Paid Per Share | | Maximum Number of Shares (or Approximate Dollar Value) that May Yet Be Purchased Under the Plans or Programs (2) |
July 1, 2019 to July 31, 2019 | 59,000 |
| | $ | 14.42 |
| | $ | 512,149,127 |
|
August 1, 2019 to August 31, 2019 | 5,154,176 |
| | 13.01 |
| | 445,099,835 |
|
September 1, 2019 to September 30, 2019 | — |
| | — |
| | 445,099,835 |
|
Total | 5,213,176 |
| | $ | 13.02 |
| | $ | 445,099,835 |
|
|
| | | | | | | | | | |
Period | Total Number of Shares Purchased (1) | | Average Price Paid Per Share | | Maximum Number of Shares (or Approximate Dollar Value) that May Yet Be Purchased Under the Plans or Programs (2) |
July 1, 2017 to July 31, 2017 | 1,122,116 |
| | $ | 13.20 |
| | $ | 293,164,850 |
|
August 1, 2017 to August 31, 2017 | 6,046,079 |
| | 12.81 |
| | 215,621,231 |
|
September 1, 2017 to September 30, 2017 | 2,476,746 |
| | 12.43 |
| | 184,795,094 |
|
Total | 9,644,941 |
| | $ | 12.75 |
| | $ | 184,795,094 |
|
| |
(1) | The reported shares were repurchased pursuant to Huntington’s publicly-announced stockshare repurchase authorizations.authorization. |
| |
(2) | The number shown represents, as of the end of each period, the maximum number of shares (or approximate dollar value)value of Common Stock that may yet be purchased under publicly-announced stockshare repurchase authorizations. The shares may be purchased, from time-to-time, depending on market conditions. |
On June 28, 2017, Huntington was notified by the Federal Reserve that it had no objection to Huntington's proposed capital actions included in Huntington's capital plan submitted in the 2017 Comprehensive Capital Analysis and Review (CCAR). These actions included a 38% increase in the quarterly dividend per common share to $0.11, starting in the fourth quarter of 2017, the repurchase of up to $308 million of common stock over the next four quarters (July 1, 2017 through June 30, 2018), subject to authorization byJuly 17, 2019, the Board of Directors and maintaining dividends on the outstanding classes of preferred stock and trust preferred securities.
On July 19, 2017, the Board authorized the repurchase of up to $308$513 million of common shares over the four quarters through the 2020 second quarter. During the 2019 third quarter, Huntington repurchased a total of 2018. Purchases 5.2 million shares at a weighted average share price of common stock under the authorization may include open market purchases, privately-negotiated transactions, and accelerated repurchase programs.$13.02.
Item 6. Exhibits
Exhibit Index
ThisThis report incorporates by reference the documents listed below that we have previously filed with the SEC. The SEC allows us to incorporate by reference information in this document. The information incorporated by reference is considered to be a part of this document, except for any information that is superseded by information that is included directly in this document.
This information may be read and copied at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549. The SEC also maintains an Internet websiteweb site that contains reports, proxy statements, and other information about issuers, like us, who file electronically with the SEC. The address of the site is http://www.sec.gov. The reports and other information filed by us with the SEC are also available free of charge at our Internet web site. The address of the site is http://www.huntington.com. Except as specifically incorporated by reference into this Quarterly Report on Form 10-Q, information on those websitesweb sites is not part of this report. Reports,You also should be able to inspect reports, proxy statements, and other information about us can also be inspected at the offices of the NASDAQ Nasdaq National Market at 33 Whitehall Street, New York, New York.York 10004.
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Exhibit Number | | Document Description | | Report or Registration Statement | | SEC File or Registration Number | | Exhibit Reference | |
3.1 (P) | | Articles of Restatement of Charter. | | Annual Report on Form 10-K for the year ended December 31, 1993 | | 000-02525 | | 3 |
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3.11 | | | | | | | | |
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3.12 | | | | | | | | |
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3.13 | | | | | | | | |
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4.1(P) | | Instruments defining the Rights of Security Holders—reference is made to Articles Fifth, Eighth, and Tenth of Articles of Restatement of Charter, as amended and supplemented. Instruments defining the rights of holders of long-term debt will be furnished to the Securities and Exchange Commission upon request. | | | | | | | |
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31.1 | | | | | | | | | |
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31.2 | | | | | | | | | |
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32.1 | | | | | | | | | |
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32.2 | | | | | | | | | |
101 | | *The following material from Huntington’s Form 10-Q Report for the quarterly period ended September 30, 2017, formatted in XBRL: (1) Unaudited Condensed Consolidated Balance Sheets, (2) Unaudited Condensed Consolidated Statements of Income, (3) Unaudited Condensed Consolidated Statements of Comprehensive Income (4) Unaudited Condensed Consolidated Statement of Changes in Shareholders’ Equity, (5) Unaudited Condensed Consolidated Statements of Cash Flows, and (6) the Notes to Unaudited Condensed Consolidated Financial Statements. | | | | | | | |
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Exhibit Number | Document Description | Report or Registration Statement | SEC File or Registration Number | Exhibit Reference |
3.1 | | | | |
3.2 | | | | |
3.3 | | | | |
4.1(P) | Instruments defining the Rights of Security Holders—reference is made to Articles Fifth, Eighth, and Tenth of Articles of Restatement of Charter, as amended and supplemented. Instruments defining the rights of holders of long-term debt will be furnished to the Securities and Exchange Commission upon request. | | | |
10.1 | | | | |
10.2 | | | | |
31.1 | | | | |
31.2 | | | | |
32.1 | | | | |
32.2 | | | | |
101.INS | ***The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document | | | |
101.SCH | *Inline XBRL Taxonomy Extension Schema Document | | | |
101.CAL | *Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | |
101.DEF | *Inline XBRL Taxonomy Extension Definition Linkbase Document | | | |
101.LAB | *Inline XBRL Taxonomy Extension Label Linkbase Document | | | |
101.PRE | *Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | |
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* | Filed herewith |
** | Furnished herewith |
*** | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrantregistrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Huntington Bancshares IncorporatedHUNTINGTON BANCSHARES INCORPORATED
(Registrant)
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Date: | October 30, 201728, 2019 | | /s/ Stephen D. Steinour |
| | | Stephen D. Steinour |
| | | Chairman, President, and Chief Executive Officer and President(Principal Executive Officer) |
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Date: | October 30, 201728, 2019 | | /s/ Howell D. McCullough III |
| | | Howell D. McCullough III |
| | | Chief Financial Officer (Principal Financial Officer) |