Exhibit 99.1
FOR IMMEDIATE RELEASE
| | | | |
| CONTACT: | | Kevin T. Thompson | | Tim Dirrim |
| | Executive Vice President | | Vice President |
| | Chief Financial Officer | | Corporate Communications |
| | Sky Financial Group, Inc. | | Sky Financial Group, Inc. |
| | (419) 254-6068 | | (419) 327-6330 |
Sky Financial Group Reports 2006 Fourth Quarter and Year-End Results
| | • | | Net Income of $.35 per Share Includes Derivative Gains and Balance Sheet Restructuring Charges |
| | • | | Core Operating Earnings of $.47 per Share |
January 18, 2007 - Bowling Green, Ohio - Sky Financial Group, Inc. (NASDAQ: SKYF) today reported net income for the fourth quarter of 2006 of $40.1 million, or $.35 per diluted share, compared to $53.7 million, or $.49 per diluted share, for the fourth quarter of 2005. Annualized return on assets and return on equity for the fourth quarter were 0.90% and 8.72%, respectively, compared with 1.39% and 13.89%, respectively, for the same period in 2005. Net income for the fourth quarter of 2005 included income from discontinued operations of $0.4 million.
Core operating earnings were $54.1 million for the fourth quarter of 2006 versus $53.7 million for the same period in 2005. Core operating earnings per diluted share for the fourth quarter of 2006 were $.47 versus $.49 for the fourth quarter of 2005. Core operating earnings reflect net income adjusted to exclude certain charges and gains, detailed further below, that are not representative of ongoing operations. For the 2006 fourth quarter, on a core operating earnings basis, annualized return on assets and return on equity were 1.22% and 11.77%, respectively, compared with 1.39% and 13.90%, respectively, for the same period in 2005.
Cash operating earnings, which reflect core operating earnings excluding amortization of intangibles, were $56.9 million, or $.49 per diluted share, in the fourth quarter of 2006 compared to $56.3 million, or $.52 per diluted share, in the fourth quarter of 2005. On a cash operating basis, the annualized return on average tangible equity was 21.07% for the fourth quarter of 2006 compared with 23.08% for the same period in 2005.
“We are pleased with our strong operating results in 2006,” stated Marty E. Adams, chairman, president and chief executive officer. “Growth in our fee businesses and an overall focus on expense control helped us overcome the difficult interest rate environment and achieve improved financial performance for the year. Following our balance sheet restructuring in the fourth quarter, our net interest margin is properly positioned and we are looking forward to our pending merger with Huntington Bancshares in mid-2007.”
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Sky Financial’s results of operations for the fourth quarter of 2006 were impacted by several items that management has determined are not indicative of ongoing operations. Sky Financial’s net income of $40.1 million, or $.35 per diluted share was impacted by the following items, which are not included in the core operating earnings of $54.1 million or $.47 per diluted share:
| | A. | A balance sheet restructuring, discussed further below, that resulted in net after-tax charges of $9.9 million, or $.09 per diluted share for the quarter. The pre-tax net charge of $15.2 million was recorded as follows: 1) Charges of $19.4 million recorded as a component of net securities gains (losses); and 2) Net gains of $4.2 million recorded as a component of other income. |
| | B. | After-tax derivative gains of $0.3 million ($0.5 million before tax), which were related primarily to the balance sheet restructuring activities. |
| | C. | After-tax merger, integration and restructuring expenses of $3.3 million ($5.1 million before tax), or $.03 per diluted share associated with the acquisition of Union Federal Bank of Indianapolis and Perpetual Savings Bank, both completed during the fourth quarter of 2006. |
| | D. | After-tax charges totaling $1.0 million ($1.5 million before tax), or $.01 per diluted share, related to additional incentive compensation due to the completion of the Union Federal acquisition and conversion. |
| | E. | An after-tax charge of $1.0 million ($1.5 million before tax), or $.01 per diluted share, related to additional nonqualified pension expenses due to an increase in Sky Financial’s common stock price following the announcement of the merger with Huntington Bancshares Incorporated. |
| | F. | An after-tax net gain of $2.5 million ($3.9 million before tax), or $.02 per diluted share, from the sale of an insurance business. Sky Financial sold a portion of its insurance business related primarily to wholesale insurance. This net gain included a pre-tax gain of $6.7 million recorded as other income and pre-tax charges of $2.8 million recorded as salaries and employee benefits expense. |
| | G. | An after-tax charge of $1.1 million ($1.7 million before tax), or $.01 per diluted share, from the impairment of an equity security. |
| | H. | An after-tax charge of $0.5 million ($0.8 million before tax) from an adjustment to the amortization of mortgage servicing rights. |
For the full year of 2006, Sky Financial reported net income of $190.3 million, or $1.72 per diluted share, versus $182.6 million, or $1.69 per diluted share for the prior year. Annualized return on assets and return on equity for 2006 were 1.18% and 11.56%, respectively, compared with 1.21% and 12.27%, respectively, for the full year of 2005. The net income for 2005 included income from discontinued operations of $0.4 million. The net income for 2006 was negatively affected by a change in the accounting for derivatives. During the second quarter of 2006, Sky Financial identified and corrected immaterial
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accounting errors related to certain derivative hedging relationships and recorded a loss of $9.9 million ($6.6 million after tax) to correct the cumulative impact of these errors. During the third and fourth quarters of 2006, Sky Financial terminated the affected swaps and recorded a gain of $4.2 million ($2.7 million after tax) recorded as derivative gains on swaps.
Core operating earnings were $209.4 million, or $1.89 per diluted share, for the full year of 2006 versus $183.3 million, or $1.70 per diluted share, for the prior year. For the full year 2006, on a core operating earnings basis, annualized return on assets and return on equity were 1.29% and 12.72%, respectively, compared with 1.21% and 12.32% respectively, for the full year of 2005.
Cash operating earnings were $219.7 million, or $1.98 per diluted share, for the full year of 2006 compared to $193.0 million, or $1.79 per diluted share, for the prior year. On a cash operating basis, the return on average tangible equity was 21.22% for 2006 compared with 20.38% for the prior year.
Fourth Quarter Results
Net interest income for the fourth quarter was $143.5 million, up 8.5% from $132.2 million in the fourth quarter of 2005. The net interest margin for the fourth quarter was 3.59%, down 6 basis points from the third quarter of 2006 and 17 basis points from the fourth quarter of 2005. The decrease in the net interest margin performance was primarily the result of the early fourth quarter acquisition of Union Federal Bank, which had a lower net interest margin, partially offset by an improved net interest margin as a result of the mid-fourth quarter balance sheet restructuring activities.
During the fourth quarter of 2006, Sky Financial restructured its balance sheet to strengthen capital ratios, maintain a sound interest rate risk position, enhance the net interest margin and improve future earnings following the completion of its recent acquisitions of Union Federal Bank and Perpetual Savings Bank. The restructuring actions resulted in a reduction in total assets, which included the sale of approximately $506 million of available-for-sale, fixed-rate investment securities with an average yield of 3.74% and the elimination of federal funds sold coming from the Union Federal acquisition. With the sale proceeds, Sky Financial paid off approximately $255 million of FHLB advances and $72 million of borrowings, with a combined average cost of 5.92% and reduced federal funds purchased. In addition to de-leveraging the balance sheet, these actions should improve the net interest margin and increase net interest income in the upcoming quarters.
Average earning assets increased 13.7% over the fourth quarter of 2005 due to organic growth and acquisitions. Average loans for the quarter increased 14.0% from the same quarter last year, with organic growth contributing 3.1% in addition to the acquisitions. Average deposits grew 20.0% from the fourth quarter of 2005, which included organic growth of 4.9% in addition to the acquisitions.
Non-interest revenues on a core-operating basis, excluding non-core operating adjustments recorded during the quarter, were $66.0 million, up 17.4% from $56.2 million in the fourth quarter of 2005. Total
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non-interest revenues were $55.3 million, down from $56.2 million in the fourth quarter of 2005 and included the following: (1) Pre-tax charges of $19.4 million recorded as net securities gains (losses) related to the balance sheet restructuring; (2) Pre-tax net gains of $4.2 million recorded as other income related to the balance sheet restructuring; (3) Pre-tax gains of $0.5 million related to derivative transactions, primarily as a result of the balance sheet restructuring; (4) A pre-tax gain of $6.7 million related to the sale of an insurance business; (5) Pre-tax charges of $1.7 million related to securities impairment; and (6) Pre-tax charges of $0.8 million related to additional amortization expense from mortgage servicing rights. Compared to the fourth quarter of 2005, service charges on deposits for the fourth quarter of 2006 were up 54.2% from higher volumes in deposit accounts from acquisitions, continued growth in transaction accounts and fee increases on certain types of accounts. In addition, trust services income was up 18.9% from higher trust assets compared to the prior year. Brokerage and insurance commissions were up 14.1%, due mostly to acquisitions in 2006. Other income in the quarter increased 77.3% over the fourth quarter of 2005, due primarily to the gains related to the balance sheet restructuring activities and the sale of an insurance business. Mortgage banking revenues were down 14.4%, mainly due to lower origination and sales revenue, lower recaptures of impairment and higher amortization during the fourth quarter of 2006. The higher amortization during the quarter reflects the additional amortization recorded during the quarter.
The fourth quarter non-interest expenses on a core operating basis, excluding the non-core operating adjustments recorded during the quarter, were $117.7 million, up 17.1% or $17.2 million from $100.5 million in the fourth quarter of 2005. Total non-interest expenses for the fourth quarter were $128.6 million compared to $101.1 million in the fourth quarter of 2005 and included the following: (1) Pre-tax charges of $5.1 million of merger, integration and restructuring expenses related to the acquisition of Union Federal Bank and Perpetual Savings Bank; (2) Pre-tax charges of $2.8 million of additional compensation expenses related to the insurance sale; (3) Pre-tax charges of $1.5 million related to additional nonqualified pension expenses due to the increase in price of Sky Financial’s common stock related to the announcement of the merger with Huntington Bancshares Incorporated; and (4) Pre-tax charges of $1.5 million related to additional incentive compensation due to the completion of the Union Federal acquisition and conversion. Core operating expenses increased over the fourth quarter of 2005, mainly due to the acquisitions in the fourth quarter of 2006. The efficiency ratio, on a cash operating basis, excluding the core operating adjustments, was 53.87% for the fourth quarter, compared to 51.02% for the same quarter in 2005.
Credit Quality
The provision for credit losses for the fourth quarter was $10.8 million, increasing from $6.8 million in the same quarter in 2005. The lower provision last year was the result of a reduction in non-performing assets accomplished during the fourth quarter of that year. Net credit losses for the quarter were $12.5 million, or .40% annualized to average total loans, compared to $16.2 million, or .59%, for the fourth quarter of 2005. Net credit losses for the full year of 2006 were $38.7 million, or .34% of average total loans, compared to $61.8 million, or 0.57% for 2005. At December 31, 2006, non-performing loans to total
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loans was 1.07% versus 1.13% at September 30, 2006 and 1.07% at December 31, 2005. Total non-performing loans at December 31, 2006, were $137.2 million, an increase of $9.9 million from $127.3 million at September 30, 2006 and an increase of $17.7 million from $119.5 million at December 31, 2005. The allowance for credit losses to non-performing loans at December 31, 2006, was 126% versus 113% at September 30, 2006 and 121% at December 31, 2005. Non-performing loans continue to reflect the non-accrual status of $15.4 million of loans with payments guaranteed by surety bonds issued by an insurance company, which remains in litigation.
Outlook for 2007
In 2007, Sky projects consistent strong financial performance with continued growth in core operating earnings per share for the year. Organic growth in loans and deposits is targeted between 5% and 7% for the year. The net interest margin will reflect the full benefit of the recent balance sheet restructuring beginning in the first quarter of 2007 and is expected to remain stable throughout the year. Asset quality in 2007 is forecasted to be consistent with 2006, with net charge-offs to total loans projected at 0.35% or below for the year. On a core operating basis and excluding the impact of acquisitions completed during 2006, total non-interest income is expected to grow slightly faster than the targeted organic balance sheet growth, while expenses should grow at a slower rate. In 2007, Sky’s results will reflect the continued focus on its strategic priorities.
Non-GAAP Financial Measures
In addition to results presented in accordance with GAAP, this press release contains certain non-GAAP financial measures. Sky believes that providing certain non-GAAP financial measures provides investors with information useful in understanding Sky’s financial performance, its performance trends and financial position. Specifically, Sky provides measures based on “core operating earnings,” which excludes merger-related expenses, derivative gains and losses on swaps, balance sheet restructuring charges, gains related to the sale on an insurance business, certain additional employee compensation and benefit costs, and discontinued operations that are not reflective of ongoing operations or not expected to recur. In addition, Sky provides measures based on “cash operating earnings,” which further adjusts core operating earnings to exclude the effect of amortization of intangibles. These non-GAAP measures should not be considered a substitute for GAAP basis measures and results. A reconciliation of these non-GAAP measures to the most comparable GAAP equivalent is included in the financial tables.
Forward-looking Statement
This press release contains certain forward-looking statements, including certain plans, expectations, goals and projections, and including statements about the benefits of the merger between Huntington Bancshares Incorporated (“Huntington”) and Sky Financial Group, Inc. (“Sky Financial”), which are subject to numerous assumptions, risks and uncertainties. Actual results could differ materially from those contained or implied by such statements for a variety of factors including: the businesses of Huntington and Sky Financial may not be integrated successfully or such integration may take longer to accomplish than expected; the expected cost savings and any revenue synergies from the merger may not be fully
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realized within the expected timeframes; disruption from the merger may make it more difficult to maintain relationships with clients, associates, or suppliers; the required governmental approvals of the merger may not be obtained on the proposed terms and schedule; Huntington and/or Sky Financial’s stockholders may not approve the merger; changes in economic conditions; movements in interest rates; competitive pressures on product pricing and services; success and timing of other business strategies; the nature, extent, and timing of governmental actions and reforms; and extended disruption of vital infrastructure; other factors described in Huntington’s 2005 Annual Report on Form 10-K/A, Sky Financial’s 2005 Annual Report on Form 10-K, and documents subsequently filed by Huntington and Sky Financial with the Securities and Exchange Commission (“SEC”). All forward-looking statements included in this letter are based on information available at the time it was written. Neither Huntington nor Sky Financial assumes any obligation to update any forward-looking statement.
Additional Information about the Merger and Where to Find It
Huntington and Sky Financial will be filing relevant documents concerning the transaction with the SEC, including a registration statement on Form S-4, which will include a proxy statement/prospectus. Stockholders will be able to obtain a free copy of the proxy statement/prospectus, as well as other filings containing information about Huntington and Sky Financial, at the SEC’s Internet site: www.sec.gov. Copies of the proxy statement/prospectus and the filings with the SEC that will be incorporated by reference in the proxy statement/prospectus can also be obtained, without charge, by directing a request to Huntington, Huntington Center, 41 South High Street, Columbus, Ohio 43287, Attention: Investor Relations, 614-480-4060; or Sky Financial, 221 South Church Street, Bowling Green, Ohio, 43402. The final proxy statement/prospectus will be mailed to stockholders of Huntington and Sky Financial.
Stockholders are urged to read the proxy statement/prospectus, and other relevant documents filed with the SEC regarding the proposed transaction when they become available, because they will contain important information.
The directors and executive officers of Huntington and Sky Financial and other persons may be deemed to be participants in the solicitation of proxies in respect of the proposed merger. Information regarding Huntington’s directors and executive officers is available in its proxy statement filed with the SEC by Huntington on March 8, 2006. Information regarding Sky Financial’s directors and executive officers is available in its proxy statement filed with the SEC by Sky Financial on February 23, 2006. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the proxy statement/prospectus and other relevant materials to be filed with the SEC when they become available.
About Sky Financial Group, Inc.
Sky Financial Group is a $17.7 billion diversified financial holding company. Sky’s asset size places it among the 40 largest publicly-held bank holding companies in the nation. Sky operates over 330 financial centers and over 400 ATMs, serving communities in Ohio, Pennsylvania, Michigan, Indiana and West
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Virginia. Sky’s financial service affiliates include: Sky Bank, commercial and retail banking; Sky Trust, asset management services; and Sky Insurance, retail and commercial insurance agency services. Sky is located on the web atwww.skyfi.com.
-end-
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Summary Financials-Fourth Quarter 2006
SKY FINANCIAL GROUP, INC.
STATEMENTS OF INCOME (Unaudited)
| | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended December 31 | | Percent Change | | | Twelve Months Ended
December 31 | | Percent Change | |
(Dollars in thousands, except per share data) | | 2006 | | | 2005 | | | 2006 | | | 2005 | |
Interest income | | $ | 282,167 | | | $ | 223,243 | | 26.4 | % | | $ | 1,013,491 | | | $ | 830,224 | | 22.1 | % |
Interest expense | | | 138,656 | | | | 91,017 | | 52.3 | | | | 471,945 | | | | 315,572 | | 49.6 | |
| | | | | | | | | | | | | | | | | | | | |
Net interest income | | | 143,511 | | | | 132,226 | | 8.5 | | | | 541,546 | | | | 514,652 | | 5.2 | |
Provision for credit losses | | | 10,779 | | | | 6,807 | | 58.4 | | | | 36,854 | | | | 52,249 | | (29.5 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net interest income after provision for credit losses | | | 132,732 | | | | 125,419 | | 5.8 | | | | 504,692 | | | | 462,403 | | 9.1 | |
| | | | | | | | | | | | | | | | | | | | |
Non-interest income | | | | | | | | | | | | | | | | | | | | |
Trust services income | | | 6,551 | | | | 5,511 | | 18.9 | | | | 24,279 | | | | 21,918 | | 10.8 | |
Service charges and fees on deposit accounts | | | 22,481 | | | | 14,578 | | 54.2 | | | | 67,707 | | | | 55,570 | | 21.8 | |
Mortgage banking income | | | 4,820 | | | | 5,632 | | (14.4 | ) | | | 23,141 | | | | 24,991 | | (7.4 | ) |
Brokerage and insurance commissions | | | 16,566 | | | | 14,519 | | 14.1 | | | | 67,394 | | | | 59,172 | | 13.9 | |
Net securities gains (losses) | | | (21,117 | ) | | | 1,553 | | (1,459.8 | ) | | | (21,184 | ) | | | 3,662 | | (678.5 | ) |
Derivative gains (losses) on swaps | | | 464 | | | | — | | 100.0 | | | | (5,895 | ) | | | — | | 100.0 | |
Net cash settlement on swaps | | | — | | | | — | | 100.0 | | | | (40 | ) | | | — | | 100.0 | |
Other income | | | 25,558 | | | | 14,412 | | 77.3 | | | | 63,468 | | | | 46,069 | | 37.8 | |
| | | | | | | | | | | | | | | | | | | | |
Total non-interest income | | | 55,323 | | | | 56,205 | | (1.6 | ) | | | 218,870 | | | | 211,382 | | 3.5 | |
| | | | | | | | | | | | | | | | | | | | |
Non-interest expenses | | | | | | | | | | | | | | | | | | | | |
Salaries and employee benefits | | | 70,069 | | | | 53,251 | | 31.6 | | | | 243,281 | | | | 214,555 | | 13.4 | |
Occupancy and equipment expense | | | 20,419 | | | | 17,209 | | 18.7 | | | | 72,560 | | | | 68,402 | | 6.1 | |
Merger, integration and restructuring expense | | | 5,090 | | | | 618 | | 723.6 | | | | 6,575 | | | | 1,771 | | 271.3 | |
Other operating expenses | | | 33,014 | | | | 30,037 | | 9.9 | | | | 116,139 | | | | 115,319 | | 0.7 | |
| | | | | | | | | | | | | | | | | | | | |
Total non-interest expense | | | 128,592 | | | | 101,115 | | 27.2 | | | | 438,555 | | | | 400,047 | | 9.6 | |
| | | | | | | | | | | | | | | | | | | | |
Income before income taxes | | | 59,463 | | | | 80,509 | | (26.1 | ) | | | 285,007 | | | | 273,738 | | 4.1 | |
Income taxes | | | 19,407 | | | | 27,168 | | (28.6 | ) | | | 94,669 | | | | 91,547 | | 3.4 | |
| | | | | | | | | | | | | | | | | | | | |
Income from continuing operations | | | 40,056 | | | | 53,341 | | (24.9 | ) | | | 190,338 | | | | 182,191 | | 4.5 | |
Income from discontinued operations, net of tax | | | — | | | | 372 | | | | | | — | | | | 372 | | | |
| | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 40,056 | | | $ | 53,713 | | (25.4 | ) | | $ | 190,338 | | | $ | 182,563 | | 4.3 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
SHARE DATA: | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Earnings per share from continuing operations | | | | | | | | | | | | | | | | | | | | |
Basic | | $ | 0.35 | | | $ | 0.49 | | (28.6 | )% | | $ | 1.73 | | | $ | 1.71 | | 1.2 | % |
Diluted | | | 0.35 | | | | 0.49 | | (28.6 | ) | | | 1.72 | | | | 1.69 | | 1.8 | |
| | | | | | |
Earnings per share from discontinued operations | | | | | | | | | | | | | | | | | | | | |
Basic | | | — | | | | 0.00 | | — | | | | — | | | | 0.00 | | — | |
Diluted | | | — | | | | 0.00 | | — | | | | — | | | | 0.00 | | — | |
| | | | | | |
Earnings per share | | | | | | | | | | | | | | | | | | | | |
Basic | | $ | 0.35 | | | | 0.50 | | (30.0 | ) | | $ | 1.73 | | | | 1.71 | | 1.2 | |
Diluted | | | 0.35 | | | | 0.49 | | (28.6 | ) | | | 1.72 | | | | 1.69 | | 1.8 | |
| | | | | | |
Core operating earnings per share* | | | | | | | | | | | | | | | | | | | | |
Basic | | | 0.47 | | | | 0.50 | | (6.1 | ) | | | 1.90 | | | | 1.72 | | 10.5 | |
Diluted | | | 0.47 | | | | 0.49 | | (4.1 | ) | | | 1.89 | | | | 1.70 | | 11.2 | |
| | | | | | |
Cash operating earnings per share* | | | | | | | | | | | | | | | | | | | | |
Basic | | | 0.49 | | | | 0.52 | | (5.8 | ) | | | 2.00 | | | | 1.81 | | 10.5 | |
Diluted | | | 0.49 | | | | 0.52 | | (5.8 | ) | | | 1.98 | | | | 1.79 | | 10.6 | |
Cash dividend declared per common share | | | 0.25 | | | | 0.23 | | — | | | | 0.94 | | | | 0.89 | | — | |
Average shares outstanding | | | | | | | | | | | | | | | | | | | | |
Basic | | | 115,000,000 | | | | 107,844,000 | | — | | | | 110,105,000 | | | | 106,796,000 | | — | |
Diluted | | | 115,836,000 | | | | 109,008,000 | | — | | | | 110,952,000 | | | | 107,973,000 | | — | |
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Summary Financials-Fourth Quarter 2006
PERFORMANCE RATIOS:
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
December 31 | | | Twelve Months Ended
December 31 | |
| | | 2006 | | | 2005 | | | 2006 | | | 2005 | |
Net Income | | $ | 40,056 | | | $ | 53,713 | | | $ | 190,338 | | | $ | 182,563 | |
Return on average equity | | | 8.72 | % | | | 13.89 | % | | | 11.56 | % | | | 12.27 | % |
Return on average assets | | | 0.90 | % | | | 1.39 | % | | | 1.18 | % | | | 1.21 | % |
| | | | |
CONTINUING OPERATIONS | | | | | | | | | | | | | | | | |
Income from continuing operations | | $ | 40,056 | | | $ | 53,341 | | | $ | 190,338 | | | $ | 182,191 | |
Return on average equity | | | 8.72 | % | | | 13.79 | % | | | 11.56 | % | | | 12.25 | % |
Return on average assets | | | 0.90 | % | | | 1.38 | % | | | 1.18 | % | | | 1.20 | % |
Efficiency ratio | | | 64.39 | | | | 53.42 | | | | 57.43 | | | | 54.85 | |
Net interest margin (FTE) | | | 3.59 | % | | | 3.76 | % | | | 3.69 | % | | | 3.73 | % |
| | | | |
CORE OPERATING * | | | | | | | | | | | | | | | | |
Core operating earnings | | $ | 54,061 | | | $ | 53,743 | | | $ | 209,441 | | | $ | 183,342 | |
Return on average equity | | | 11.77 | % | | | 13.90 | % | | | 12.72 | % | | | 12.32 | % |
Return on average assets | | | 1.22 | % | | | 1.39 | % | | | 1.29 | % | | | 1.21 | % |
Efficiency ratio | | | 55.95 | | | | 53.09 | | | | 54.60 | | | | 54.60 | |
| | | | |
CASH OPERATING* | | | | | | | | | | | | | | | | |
Cash operating earnings | | $ | 56,914 | | | $ | 56,284 | | | $ | 219,713 | | | $ | 193,018 | |
Return on average tangible equity | | | 21.07 | % | | | 23.08 | % | | | 21.22 | % | | | 20.38 | % |
Return on average tangible assets | | | 1.34 | % | | | 1.51 | % | | | 1.41 | % | | | 1.32 | % |
Efficiency ratio | | | 53.87 | | | | 51.02 | | | | 52.57 | | | | 52.56 | |
PERIOD END BALANCE SHEETS (Unaudited)
(Dollars in thousands)
| | | | | | | | | | | |
| | | December 31 | | | Percent Change | |
| | | 2006 | | | 2005 | | |
Cash and due from banks | | $ | 345,859 | | | $ | 318,114 | | | 8.7 | % |
Interest-earning deposits with banks | | | 12,245 | | | | 15,037 | | | (18.6 | ) |
Federal funds sold | | | 40,000 | | | | — | | | — | |
Loans held for sale | | | 20,019 | | | | 24,184 | | | (17.2 | ) |
Securities available for sale | | | 3,129,960 | | | | 3,097,472 | | | 1.0 | |
Total loans | | | 12,825,393 | | | | 11,149,222 | | | 15.0 | |
Allowance for credit losses | | | (172,990 | ) | | | (144,461 | ) | | 19.7 | |
| | | | | | | | | | | |
Net loans | | | 12,652,403 | | | | 11,004,761 | | | 15.0 | |
Premises and equipment | | | 202,614 | | | | 166,797 | | | 21.5 | |
Goodwill and other intangibles | | | 803,448 | | | | 588,939 | | | 36.4 | |
Other assets | | | 513,933 | | | | 467,987 | | | 9.8 | |
| | | | | | | | | | | |
Total assets | | $ | 17,720,481 | | | $ | 15,683,291 | | | 13.0 | |
| | | | | | | | | | | |
Total interest-earning assets | | $ | 16,027,617 | | | $ | 14,285,915 | | | 12.2 | |
| | | | | | | | | | | |
Non-interest-bearing deposits | | $ | 1,953,658 | | | $ | 1,734,113 | | | 12.7 | |
Interest-bearing deposits | | | 11,266,995 | | | | 9,021,563 | | | 24.9 | |
| | | | | | | | | | | |
Total deposits | | | 13,220,653 | | | | 10,755,676 | | | 22.9 | |
Repos and federal funds purchased | | | 978,661 | | | | 1,053,244 | | | (7.1 | ) |
Debt and FHLB advances | | | 1,439,080 | | | | 2,125,788 | | | (32.3 | ) |
Other liabilities | | | 208,117 | | | | 194,706 | | | 6.9 | |
Shareholders’ equity | | | 1,873,970 | | | | 1,553,877 | | | 20.6 | |
| | | | | | | | | | | |
Total liabilities and shareholders’ equity | | $ | 17,720,481 | | | $ | 15,683,291 | | | 13.0 | |
| | | | | | | | | | | |
9
Summary Financials-Fourth Quarter 2006
AVERAGE BALANCE SHEETS (Unaudited)
(Dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
December 31 | | | Percent Change | | | Twelve Months Ended
December 31 | | | Percent Change | |
| | | 2006 | | | 2005 | | | | 2006 | | | 2005 | | |
Cash and due from banks | | $ | 324,033 | | | $ | 249,407 | | | 29.9 | % | | $ | 263,769 | | | $ | 247,833 | | | 6.4 | % |
Interest-earning deposits with banks | | | 64,679 | | | | 16,690 | | | 287.5 | | | | 26,411 | | | | 29,957 | | | (11.8 | ) |
Federal funds sold | | | 38,923 | | | | 930 | | | 4,085.3 | | | | 11,374 | | | | 1,284 | | | 785.8 | |
Loans held for sale | | | 16,815 | | | | 18,048 | | | (6.8 | ) | | | 15,592 | | | | 22,373 | | | (30.3 | ) |
Securities available for sale | | | 3,363,781 | | | | 3,049,214 | | | 10.3 | | | | 3,193,444 | | | | 3,055,905 | | | 4.5 | |
Total loans | | | 12,474,587 | | | | 10,946,325 | | | 14.0 | | | | 11,523,336 | | | | 10,766,796 | | | 7.0 | |
Allowance for credit losses | | | (168,325 | ) | | | (149,914 | ) | | 12.3 | | | | (150,118 | ) | | | (150,915 | ) | | (0.5 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Net loans | | | 12,306,262 | | | | 10,796,411 | | | 14.0 | | | | 11,373,218 | | | | 10,615,881 | | | 7.1 | |
Premises and equipment | | | 192,208 | | | | 165,570 | | | 16.1 | | | | 173,013 | | | | 162,551 | | | 6.4 | |
Goodwill and other intangibles | | | 773,108 | | | | 589,410 | | | 31.2 | | | | 632,621 | | | | 564,684 | | | 12.0 | |
Other assets | | | 515,889 | | | | 472,562 | | | 9.2 | | | | 503,348 | | | | 445,230 | | | 13.1 | |
| | | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 17,595,698 | | | $ | 15,358,242 | | | 14.6 | | | $ | 16,192,790 | | | $ | 15,145,698 | | | 6.9 | |
| | | | | | | | | | | | | | | | | | | | | | |
Total interest-earning assets | | $ | 15,958,785 | | | $ | 14,031,207 | | | 13.7 | | | $ | 14,770,157 | | | $ | 13,876,315 | | | 6.4 | |
| | | | | | | | | | | | | | | | | | | | | | |
Non-interest-bearing deposits | | $ | 1,916,091 | | | $ | 1,698,192 | | | 12.8 | | | $ | 1,723,417 | | | $ | 1,641,264 | | | 5.0 | |
Interest-bearing deposits | | | 11,042,319 | | | | 9,098,470 | | | 21.4 | | | | 9,770,051 | | | | 8,984,954 | | | 8.7 | |
| | | | | | | | | | | | | | | | | | | | | | |
Total deposits | | | 12,958,410 | | | | 10,796,662 | | | 20.0 | | | | 11,493,468 | | | | 10,626,218 | | | 8.2 | |
Repos and federal funds purchased | | | 994,602 | | | | 828,989 | | | 20.0 | | | | 949,308 | | | | 857,472 | | | 10.7 | |
Debt and FHLB advances | | | 1,626,733 | | | | 2,027,218 | | | (19.8 | ) | | | 1,924,253 | | | | 2,024,967 | | | (5.0 | ) |
Other liabilities | | | 193,263 | | | | 171,142 | | | 12.9 | | | | 179,629 | | | | 149,417 | | | 20.2 | |
Shareholders’ equity | | | 1,822,690 | | | | 1,534,231 | | | 18.8 | | | | 1,646,132 | | | | 1,487,624 | | | 10.7 | |
| | | | | | | | | | | | | | | | | | | | | | |
Total liabilities and shareholders’ equity | | $ | 17,595,698 | | | $ | 15,358,242 | | | 14.6 | | | $ | 16,192,790 | | | $ | 15,145,698 | | | 6.9 | |
| | | | | | | | | | | | | | | | | | | | | | |
ASSET QUALITY DATA:
| | | | | | | | |
| | | December 31 | |
| | | 2006 | | | 2005 | |
Non-accrual loans | | $ | 137,111 | | | $ | 119,030 | |
Restructured loans | | | 42 | | | | 479 | |
| | | | | | | | |
Total non-performing loans | | | 137,153 | | | | 119,509 | |
Other real estate owned | | | 21,669 | | | | 17,476 | |
| | | | | | | | |
Total non-performing assets | | $ | 158,822 | | | $ | 136,985 | |
| | | | | | | | |
Loans 90 days or more past due and still accruing | | $ | 23,988 | | | $ | 27,987 | |
Allowance for credit losses | | | 172,990 | | | | 144,461 | |
| | |
ASSET QUALITY RATIOS: | | | | | | | | |
| | |
Non-accrual loans to total loans | | | 1.07 | % | | | 1.07 | % |
Non-performing loans to total loans | | | 1.07 | | | | 1.07 | |
Non-performing assets to total assets | | | 0.90 | | | | 0.87 | |
Loans 90 days or more past due and still accruing to total loans | | | 0.19 | | | | 0.25 | |
Allowance for credit losses to non-performing loans | | | 126.13 | | | | 120.88 | |
Allowance for credit losses to non-performing assets | | | 108.92 | | | | 105.46 | |
Allowance for credit losses to total loans | | | 1.35 | | | | 1.30 | |
NET CHARGE-OFFS
| | | | | | |
| | | Three Months Ended
December 31 |
| | | 2006 | | 2005 |
Net charge-offs | | $ | 12,508 | | $ | 16,223 |
Net charge-offs to average loans | | | 0.40 | | | 0.59 |
| |
| | | Twelve Months
Ended December 31 |
| | | 2006 | | 2005 |
Net charge-offs | | $ | 38,699 | | $ | 61,785 |
Net charge-offs to average loans | | | 0.34 | | | 0.57 |
10
Summary Financials-Fourth Quarter 2006
SKY FINANCIAL GROUP, INC.
*NON-GAAP DISCLOSURE RECONCILIATIONS
(Dollars in thousands)
Core operating earnings reflect net income adjusted to exclude the after-tax effect of discontinued operations and other charges and gains that management does not consider to be reflective of ongoing operations or are expected to recur.
Cash operating earnings are core operating earnings adjusted to exclude the after-tax effect of amortizing core deposits and other intangibles.
Management believes that both core operating earnings and cash operating earnings assist the investor in understanding the impact of non-core adjustments and amortization of intangibles on reported results.
Core operating earnings
The following reconciles GAAP income from continuing operations to core operating earnings for the three and twelve months ended December 31, 2006 and 2005:
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
December 31 | | | Twelve Months Ended
December 31 | |
| | | 2006 | | | 2005 | | | 2006 | | | 2005 | |
Net income | | $ | 40,056 | | | $ | 53,341 | | | $ | 190,338 | | | $ | 182,191 | |
| | | | | | | | | | | | | | | | |
Add: Merger, integration and restructuring expense | | | 5,090 | | | | 618 | | | | 6,575 | | | | 1,771 | |
Derivative (gains) losses on swaps | | | (464 | ) | | | — | | | | 5,895 | | | | — | |
Balance sheet restructuring charges | | | 15,252 | | | | — | | | | 15,252 | | | | — | |
Sale of an insurance business | | | (3,878 | ) | | | — | | | | (3,878 | ) | | | — | |
Additional employee costs | | | 3,020 | | | | — | | | | 3,020 | | | | — | |
Securities impairment | | | 1,681 | | | | — | | | | 1,681 | | | | — | |
Additional amortization of mortgage servicing rights | | | 845 | | | | — | | | | 845 | | | | — | |
Tax effect | | | (7,541 | ) | | | (216 | ) | | | (10,287 | ) | | | (620 | ) |
| | | | | | | | | | | | | | | | |
After-tax non-operating items | | | 14,005 | | | | 402 | | | | 19,103 | | | | 1,151 | |
| | | | | | | | | | | | | | | | |
Core operating earnings | | $ | 54,061 | | | $ | 53,743 | | | $ | 209,441 | | | $ | 183,342 | |
| | | | | | | | | | | | | | | | |
Merger, integration and restructuring expenses in 2006 reflect charges associated with the acquisition of Union Federal Bank in all four quarters, additional costs from the Falls Bank acquisition incurred in the first quarter and costs from the Perpetual Savings Bank acquistion in the fourth quarter.
In the fourth quarter of 2006, Sky Financial completed a balance sheet restructuring that resulted in net charges of $14.7 million ($9.6 million after tax). The charges were recorded as follows: (1) Charges of $19.4 million recorded as a component of net securities gains (losses); (2) Net gains of $4.2 million recorded as a component of other income; and (3) Gains of $0.5 million recorded as derivative gains (losses) on swaps. The gains related to derivatives are included in derivative (gains) losses in the above tabular reconciliation.
The additional employee costs above represent additional employee compensation and benefits related to acquisitions and mergers. The additional costs incurred included $1.5 million related to the increase in Sky Financial’s non-qualified pension plan due to the value of Sky Financial Group common stock increasing after the merger announcement. In addition, an additional $1.5 million related to additional incentive compensation related to the Union Federal acquisition.
Merger, integration and restructuring expense in 2005 reflect charges associated with the acquisition of Belmont Bancorp in the second quarter, the cost associated with the acquisition of Falls Bank recorded in the third and fourth quarters and the cost associated with the pending acquisition of Union Federal Bank recorded in the fourth quarter.
Core operating earnings is used as the numerator to calculate core operating return on average assets, core operating return on average equity and core operating earnings per share. Additionally, certain charges and gains that are not considered by management to be part of core earnings are removed from the numerator and the denominator of the core operating efficiency ratio disclosed in the tables. The comparable information on a GAAP basis is also provided in the tables.
Cash operating earnings
The following table reconciles core operating earnings to cash operating earnings for the three and twelve months ended December 31, 2006 and 2005:
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
December 31 | | | Twelve Months Ended
December 31 | |
| | | 2006 | | | 2005 | | | 2006 | | | 2005 | |
Core operating earnings | | $ | 54,061 | | | $ | 53,743 | | | $ | 209,441 | | | $ | 183,342 | |
Add: Amortization of core deposits and other intangible assets | | | 4,390 | | | | 3,909 | | | | 15,803 | | | | 14,887 | |
Tax effect | | | (1,537 | ) | | | (1,368 | ) | | | (5,531 | ) | | | (5,211 | ) |
| | | | | | | | | | | | | | | | |
After-tax non-operating items | | | 2,853 | | | | 2,541 | | | | 10,272 | | | | 9,676 | |
| | | | | | | | | | | | | | | | |
Cash operating earnings | | $ | 56,914 | | | $ | 56,284 | | | $ | 219,713 | | | $ | 193,018 | |
| | | | | | | | | | | | | | | | |
Cash operating earnings is used as the numerator to calculate the cash operating return on average tangible equity and the cash operating return on average tangible assets. The denominator of each ratio is adjusted to deduct the average balance of intangible assets during the period. Additionally, amortization of core deposits and other intangible assets and other charges and gains that are not considered by management to be a part of core operatering earnings are removed from the numerator and the denominator of the core operating efficiency ratio disclosed in the tables. The comparable information on a GAAP basis is also provided in the tables.
11
Summary Financials-Fourth Quarter 2006
The following table reconciles average GAAP equity to average tangible equity for the three and twelve months ended December 31, 2006 and 2005.
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
December 31 | | | Twelve Months Ended
December 31 | |
| | | 2006 | | | 2005 | | | 2006 | | | 2005 | |
Average GAAP equity | | $ | 1,822,690 | | | $ | 1,534,231 | | | $ | 1,646,132 | | | $ | 1,487,624 | |
| | | | | | | | | | | | | | | | |
Goodwill | | | 709,929 | | | | 524,217 | | | | 570,592 | | | | 496,297 | |
Core deposits and other intangibles | | | 63,179 | | | | 65,193 | | | | 62,030 | | | | 68,387 | |
Deferred taxes | | | (22,113 | ) | | | (22,818 | ) | | | (21,711 | ) | | | (23,935 | ) |
| | | | | | | | | | | | | | | | |
| | | 750,995 | | | | 566,592 | | | | 610,911 | | | | 540,749 | |
| | | | | | | | | | | | | | | | |
Average tangible equity | | $ | 1,071,695 | | | $ | 967,639 | | | $ | 1,035,221 | | | $ | 946,875 | |
| | | | | | | | | | | | | | | | |
The following table reconciles average GAAP assets to average tangible assets for the three and twelve months ended December, 2006 and 2005:
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
December 31 | | | Twelve Months Ended
December 31 | |
| | | 2006 | | | 2005 | | | 2006 | | | 2005 | |
Average GAAP assets | | $ | 17,595,698 | | | $ | 15,358,242 | | | $ | 16,192,790 | | | $ | 15,145,698 | |
| | | | | | | | | | | | | | | | |
Goodwill | | | 709,929 | | | | 524,217 | | | | 570,592 | | | | 496,297 | |
Core deposits and other intangibles | | | 63,179 | | | | 65,193 | | | | 62,030 | | | | 68,387 | |
Deferred taxes | | | (22,113 | ) | | | (22,818 | ) | | | (21,711 | ) | | | (23,935 | ) |
| | | | | | | | | | | | | | | | |
| | | 750,995 | | | | 566,592 | | | | 610,911 | | | | 540,749 | |
| | | | | | | | | | | | | | | | |
Average tangible assets | | $ | 16,844,703 | | | $ | 14,791,650 | | | $ | 15,581,879 | | | $ | 14,604,949 | |
| | | | | | | | | | | | | | | | |
The following table reconciles GAAP earnings per share to operating earnings per share, core operating earnings per share and cash operating earnings per share (certain information does not add due to rounding):
Basic EPS
| | | | | | | | | | | | | | |
| | | Three Months Ended
December 31 | | | Twelve Months Ended
December 31 | |
| | | 2006 | | 2005 | | | 2006 | | 2005 | |
Net income | | $ | 0.35 | | $ | 0.50 | | | $ | 1.73 | | $ | 1.71 | |
After-tax earnings from discontinued operations | | | — | | | (0.00 | ) | | | — | | | (0.00 | ) |
After-tax non-core operating adjustments | | | 0.12 | | | 0.00 | | | | 0.17 | | | 0.01 | |
| | | | | | | | | | | | | | |
Core operating earnings | | | 0.47 | | | 0.50 | | | | 1.90 | | | 1.72 | |
After-tax amortization of core deposits and other intangible assets | | | 0.02 | | | 0.02 | | | | 0.09 | | | 0.09 | |
| | | | | | | | | | | | | | |
Cash operating earnings | | $ | 0.49 | | $ | 0.52 | | | $ | 2.00 | | $ | 1.81 | |
| | | | | | | | | | | | | | |
Diluted EPS
| | | | | | | | | | | | | | |
| | | Three Months Ended
December 31 | | | Twelve Months Ended
December 31 | |
| | | 2006 | | 2005 | | | 2006 | | 2005 | |
Net income | | $ | 0.35 | | $ | 0.49 | | | $ | 1.72 | | $ | 1.69 | |
After-tax earnings from discontinued operations | | | — | | | (0.00 | ) | | | — | | | (0.00 | ) |
After-tax non-core operating adjustments | | | 0.12 | | | 0.00 | | | | 0.17 | | | 0.01 | |
| | | | | | | | | | | | | | |
Core operating earnings | | | 0.47 | | | 0.49 | | | | 1.89 | | | 1.70 | |
After-tax amortization of core deposits and other intangible assets | | | 0.02 | | | 0.02 | | | | 0.09 | | | 0.09 | |
| | | | | | | | | | | | | | |
Cash operating earnings | | $ | 0.49 | | $ | 0.52 | | | $ | 1.98 | | $ | 1.79 | |
| | | | | | | | | | | | | | |
— end —
12
Fourth Quarter 2006
Supplemental Financial Information
January 18, 2007
Supplemental Financial Information - Fourth Quarter 2006
SKY FINANCIAL GROUP, INC.
FIVE QUARTER STATEMENTS OF INCOME (unaudited)
(Dollars in thousands)
| | | | | | | | | | | | | | | | | | |
| | | 2006 | | | 2005 |
| | | 4th qtr | | | 3rd qtr | | 2nd qtr | | | 1st qtr | | | 4th qtr |
Fully taxable equivalent interest income | | $ | 283,034 | | | $ | 254,900 | | $ | 243,898 | | | $ | 234,812 | | | $ | 224,108 |
| | | | | | | | | | | | | | | | | | |
Interest income | | $ | 282,167 | | | $ | 254,134 | | $ | 243,146 | | | $ | 234,044 | | | $ | 223,243 |
Interest expense | | | 138,656 | | | | 122,155 | | | 109,926 | | | | 101,208 | | | | 91,017 |
| | | | | | | | | | | | | | | | | | |
Net interest income | | | 143,511 | | | | 131,979 | | | 133,220 | | | | 132,836 | | | | 132,226 |
Provision for credit losses | | | 10,779 | | | | 9,445 | | | 9,476 | | | | 7,154 | | | | 6,807 |
| | | | | | | | | | | | | | | | | | |
Net interest income after provision for credit losses | | | 132,732 | | | | 122,534 | | | 123,744 | | | | 125,682 | | | | 125,419 |
| | | | | | | | | | | | | | | | | | |
Non-interest income | | | | | | | | | | | | | | | | | | |
Trust services income | | | 6,551 | | | | 5,835 | | | 6,012 | | | | 5,881 | | | | 5,511 |
Service charges and fees on deposit accounts | | | 22,481 | | | | 16,701 | | | 15,026 | | | | 13,499 | | | | 14,578 |
Mortgage banking income | | | 4,820 | | | | 6,240 | | | 6,518 | | | | 5,563 | | | | 5,632 |
Brokerage and insurance commissions | | | 16,566 | | | | 15,156 | | | 15,880 | | | | 19,792 | | | | 14,519 |
Net securities gains (losses) | | | (21,117 | ) | | | 18 | | | (80 | ) | | | (5 | ) | | | 1,553 |
Derivative gains (losses) on swaps | | | 464 | | | | 3,570 | | | (9,930 | ) | | | — | | | | — |
Net cash settlement on swaps | | | — | | | | 159 | | | (199 | ) | | | — | | | | — |
Other income | | | 25,558 | | | | 13,254 | | | 12,728 | | | | 11,929 | | | | 14,412 |
| | | | | | | | | | | | | | | | | | |
Total non-interest income | | | 55,323 | | | | 60,933 | | | 45,955 | | | | 56,659 | | | | 56,205 |
| | | | | | | | | | | | | | | | | | |
Non-interest expenses | | | | | | | | | | | | | | | | | | |
Salaries and employee benefits | | | 70,069 | | | | 57,593 | | | 55,805 | | | | 59,814 | | | | 53,251 |
Occupancy and equipment expense | | | 20,419 | | | | 17,364 | | | 17,134 | | | | 17,643 | | | | 17,209 |
Merger, integration and restructuring expense | | | 5,090 | | | | 941 | | | 364 | | | | 180 | | | | 618 |
Other operating expenses | | | 33,014 | | | | 25,966 | | | 28,618 | | | | 28,541 | | | | 30,037 |
| | | | | | | | | | | | | | | | | | |
Total non-interest expense | | | 128,592 | | | | 101,864 | | | 101,921 | | | | 106,178 | | | | 101,115 |
| | | | | | | | | | | | | | | | | | |
Income from continuing operations before income taxes | | | 59,463 | | | | 81,603 | | | 67,778 | | | | 76,163 | | | | 80,509 |
Income taxes from continuing operations | | | 19,407 | | | | 27,034 | | | 22,705 | | | | 25,523 | | | | 27,168 |
| | | | | | | | | | | | | | | | | | |
Income from continuing operations | | | 40,056 | | | | 54,569 | | | 45,073 | | | | 50,640 | | | | 53,341 |
| | | | | | | | | | | | | | | | | | |
Income from discontinued operations, net of tax | | | — | | | | — | | | — | | | | — | | | | 372 |
| | | | | | | | | | | | | | | | | | |
Net income | | $ | 40,056 | | | $ | 54,569 | | $ | 45,073 | | | $ | 50,640 | | | $ | 53,713 |
| | | | | | | | | | | | | | | | | | |
Core operating earnings | | $ | 54,061 | | | $ | 52,860 | | $ | 51,764 | | | $ | 50,757 | | | $ | 53,743 |
| | | | | | | | | | | | | | | | | | |
1
Supplemental Financial Information - Fourth Quarter 2006
SKY FINANCIAL GROUP, INC.
FIVE QUARTER PERFORMANCE RATIOS AND SHARE DATA
(Unaudited)
| | | | | | | | | | | | | | | |
| | | 2006 | | | 2005 | |
| | | 4th qtr | | | 3rd qtr | | | 2nd qtr | | | 1st qtr | | | 4th qtr | |
PERFORMANCE RATIOS | | | | | | | | | | | | | | | |
| | | | | |
Return on average equity | | 8.72 | % | | 13.48 | % | | 11.42 | % | | 13.07 | % | | 13.89 | % |
Return on average assets | | 0.90 | | | 1.37 | | | 1.15 | | | 1.31 | | | 1.39 | |
| | |
| | | 2006 | | | 2005 | |
| | | 4th qtr | | | 3rd qtr | | | 2nd qtr | | | 1st qtr | | | 4th qtr | |
CONTINUING OPERATIONS | | | | | | | | | | | | | | | |
| | | | | |
Return on average equity | | 8.72 | % | | 13.48 | % | | 11.42 | % | | 13.07 | % | | 13.79 | % |
Return on average assets | | 0.90 | | | 1.37 | | | 1.15 | | | 1.31 | | | 1.38 | |
Net interest rate spread (FTE) | | 3.01 | | | 3.08 | | | 3.23 | | | 3.30 | | | 3.32 | |
Net interest rate margin (FTE) | | 3.59 | | | 3.65 | | | 3.75 | | | 3.78 | | | 3.76 | |
Efficiency ratio | | 64.39 | | | 52.59 | | | 56.65 | | | 55.81 | | | 53.42 | |
| | |
| | | 2006 | | | 2005 | |
| | | 4th qtr | | | 3rd qtr | | | 2nd qtr | | | 1st qtr | | | 4th qtr | |
CORE OPERATING * | | | | | | | | | | | | | | | |
| | | | | |
Return on average equity | | 11.77 | % | | 13.06 | % | | 13.11 | % | | 13.10 | % | | 13.90 | % |
Return on average assets | | 1.22 | | | 1.33 | | | 1.32 | | | 1.31 | | | 1.39 | |
Efficiency ratio | | 55.95 | | | 53.09 | | | 53.49 | | | 55.71 | | | 53.09 | |
| | |
| | | 2006 | | | 2005 | |
| | | 4th qtr | | | 3rd qtr | | | 2nd qtr | | | 1st qtr | | | 4th qtr | |
CASH OPERATING* | | | | | | | | | | | | | | | |
| | | | | |
Return on average tangible equity | | 21.07 | % | | 21.02 | % | | 21.34 | % | | 21.49 | % | | 23.08 | % |
Return on average assets | | 1.34 | | | 1.44 | | | 1.44 | | | 1.43 | | | 1.51 | |
Efficiency ratio | | 53.87 | | | 51.13 | | | 51.49 | | | 53.67 | | | 51.02 | |
2
Supplemental Financial Information - Fourth Quarter 2006
SKY FINANCIAL GROUP, INC.
FIVE QUARTER SHARE DATA
(Unaudited)
| | | | | | | | | | | | | | | |
| | | 2006 | | 2005 |
| | | 4th qtr | | 3rd qtr | | 2nd qtr | | 1st qtr | | 4th qtr |
Earnings per share from continuing operations | | | | | | | | | | | | | | | |
Basic | | $ | 0.35 | | $ | 0.50 | | $ | 0.42 | | $ | 0.47 | | $ | 0.49 |
Diluted | | | 0.35 | | | 0.50 | | | 0.41 | | | 0.46 | | | 0.49 |
| | | | | |
Earnings per share from discontinued operations | | | | | | | | | | | | | | | |
Basic | | | — | | | — | | | — | | | — | | | 0.00 |
Diluted | | | — | | | — | | | — | | | — | | | 0.00 |
| | | | | |
Earnings per share | | | | | | | | | | | | | | | |
Basic | | | 0.35 | | | 0.50 | | | 0.42 | | | 0.47 | | | 0.50 |
Diluted | | | 0.35 | | | 0.50 | | | 0.41 | | | 0.46 | | | 0.49 |
| | | | | |
Core operating earnings per share* | | | | | | | | | | | | | | | |
Basic | | | 0.47 | | | 0.49 | | | 0.48 | | | 0.47 | | | 0.50 |
Diluted | | | 0.47 | | | 0.48 | | | 0.47 | | | 0.46 | | | 0.49 |
| | | | | |
Cash operating earnings per share* | | | | | | | | | | | | | | | |
Basic | | | 0.49 | | | 0.51 | | | 0.50 | | | 0.49 | | | 0.52 |
Diluted | | | 0.49 | | | 0.51 | | | 0.50 | | | 0.49 | | | 0.52 |
| | | | | |
Cash dividend declared per common share | | | 0.25 | | | 0.23 | | | 0.23 | | | 0.23 | | | 0.23 |
| | | | | |
Book value per share | | | 16.05 | | | 15.10 | | | 14.47 | | | 14.41 | | | 14.35 |
| | | | | |
Average shares outstanding | | | | | | | | | | | | | | | |
Basic | | | 115,000,000 | | | 108,564,000 | | | 108,463,000 | | | 108,337,000 | | | 107,844,000 |
Diluted | | | 115,836,000 | | | 109,345,000 | | | 109,266,000 | | | 109,287,000 | | | 109,008,000 |
| | | | | |
Book value calculation shares outstanding | | | 116,731,982 | | | 108,947,993 | | | 108,782,409 | | | 108,704,939 | | | 108,307,601 |
3
Supplemental Financial Information - Fourth Quarter 2006
SKY FINANCIAL GROUP, INC.
FIVE QUARTER AVERAGE BALANCE SHEETS (Unaudited)
(Dollars in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | | 2006 | | | 2005 | |
| | | 4th qtr | | | 3rd qtr | | | 2nd qtr | | | 1st qtr | | | 4th qtr | |
Cash and due from banks | | $ | 324,033 | | | $ | 243,811 | | | $ | 240,562 | | | $ | 246,033 | | | $ | 249,407 | |
Interest-earning deposits with banks | | | 64,679 | | | | 12,951 | | | | 15,041 | | | | 12,546 | | | | 16,690 | |
Federal funds sold | | | 38,923 | | | | 533 | | | | 3,115 | | | | 2,644 | | | | 930 | |
Loans held for sale | | | 16,815 | | | | 16,110 | | | | 17,656 | | | | 11,727 | | | | 18,048 | |
Securities available for sale | | | 3,363,781 | | | | 3,152,411 | | | | 3,139,803 | | | | 3,115,505 | | | | 3,049,214 | |
Total loans | | | 12,474,587 | | | | 11,265,283 | | | | 11,165,552 | | | | 11,176,494 | | | | 10,946,325 | |
Allowance for loan losses | | | (168,325 | ) | | | (144,362 | ) | | | (143,169 | ) | | | (144,415 | ) | | | (149,914 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net loans | | | 12,306,262 | | | | 11,120,921 | | | | 11,022,383 | | | | 11,032,079 | | | | 10,796,411 | |
Premises and equipment | | | 192,208 | | | | 166,983 | | | | 165,470 | | | | 167,180 | | | | 165,570 | |
Goodwill and other intangibles | | | 773,108 | | | | 582,235 | | | | 585,291 | | | | 588,376 | | | | 589,410 | |
Other assets | | | 515,889 | | | | 506,848 | | | | 507,024 | | | | 483,232 | | | | 472,562 | |
| | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 17,595,698 | | | $ | 15,802,803 | | | $ | 15,696,345 | | | $ | 15,659,322 | | | $ | 15,358,242 | |
| | | | | | | | | | | | | | | | | | | | |
Total interest-earning assets | | $ | 15,958,785 | | | $ | 14,447,288 | | | $ | 14,341,167 | | | $ | 14,318,916 | | | $ | 14,031,207 | |
| | | | | | | | | | | | | | | | | | | | |
Non-interest-bearing deposits | | $ | 1,916,091 | | | $ | 1,655,915 | | | $ | 1,674,377 | | | $ | 1,645,047 | | | $ | 1,698,192 | |
Interest-bearing deposits | | | 11,042,319 | | | | 9,573,663 | | | | 9,330,457 | | | | 9,114,741 | | | | 9,098,470 | |
| | | | | | | | | | | | | | | | | | | | |
Total deposits | | | 12,958,410 | | | | 11,229,578 | | | | 11,004,834 | | | | 10,759,788 | | | | 10,796,662 | |
Repos and federal funds purchased | | | 994,602 | | | | 869,381 | | | | 913,764 | | | | 1,020,649 | | | | 828,989 | |
Debt and FHLB advances | | | 1,626,733 | | | | 1,920,271 | | | | 2,023,530 | | | | 2,132,077 | | | | 2,027,218 | |
Other liabilities | | | 193,263 | | | | 178,081 | | | | 170,984 | | | | 176,019 | | | | 171,142 | |
Shareholders’ equity | | | 1,822,690 | | | | 1,605,492 | | | | 1,583,233 | | | | 1,570,789 | | | | 1,534,231 | |
| | | | | | | | | | | | | | | | | | | | |
Total liabilities and shareholders’ equity | | $ | 17,595,698 | | | $ | 15,802,803 | | | $ | 15,696,345 | | | $ | 15,659,322 | | | $ | 15,358,242 | |
| | | | | | | | | | | | | | | | | | | | |
4
Supplemental Financial Information - Fourth Quarter 2006
SKY FINANCIAL GROUP, INC.
FIVE QUARTER PERIOD END BALANCE SHEETS (Unaudited)
(Dollars in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | | 2006 | | | 2005 | |
| | | 4th qtr | | | 3rd qtr | | | 2nd qtr | | | 1st qtr | | | 4th qtr | |
Cash and due from banks | | $ | 345,859 | | | $ | 272,903 | | | $ | 293,266 | | | $ | 260,304 | | | $ | 318,114 | |
Interest-earning deposits with banks | | | 12,245 | | | | 12,980 | | | | 13,226 | | | | 9,652 | | | | 15,037 | |
Federal funds sold | | | 40,000 | | | | — | | | | — | | | | 23,000 | | | | — | |
Loans held for sale | | | 20,019 | | | | 16,515 | | | | 22,296 | | | | 23,395 | | | | 24,184 | |
Securities available for sale | | | 3,129,960 | | | | 3,221,525 | | | | 3,084,312 | | | | 3,144,045 | | | | 3,097,472 | |
Total loans | | | 12,825,393 | | | | 11,305,636 | | | | 11,218,034 | | | | 11,093,918 | | | | 11,149,222 | |
Allowance for loan losses | | | (172,990 | ) | | | (144,310 | ) | | | (144,601 | ) | | | (143,383 | ) | | | (144,461 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net loans | | | 12,652,403 | | | | 11,161,326 | | | | 11,073,433 | | | | 10,950,535 | | | | 11,004,761 | |
Premises and equipment | | | 202,614 | | | | 166,865 | | | | 166,551 | | | | 165,598 | | | | 166,797 | |
Goodwill and other intangibles | | | 803,448 | | | | 580,306 | | | | 583,948 | | | | 587,231 | | | | 588,939 | |
Other assets | | | 513,933 | | | | 488,211 | | | | 513,970 | | | | 494,791 | | | | 467,987 | |
| | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 17,720,481 | | | $ | 15,920,631 | | | $ | 15,751,002 | | | $ | 15,658,551 | | | $ | 15,683,291 | |
| | | | | | | | | | | | | | | | | | | | |
Total interest-earning assets | | $ | 16,027,617 | | | $ | 14,556,656 | | | $ | 14,337,868 | | | $ | 14,294,010 | | | $ | 14,285,915 | |
| | | | | | | | | | | | | | | | | | | | |
Non-interest-bearing deposits | | $ | 1,953,658 | | | $ | 1,665,760 | | | $ | 1,698,585 | | | $ | 1,663,459 | | | $ | 1,734,113 | |
Interest-bearing deposits | | | 11,266,995 | | | | 9,730,664 | | | | 9,393,136 | | | | 9,339,539 | | | | 9,021,563 | |
| | | | | | | | | | | | | | | | | | | | |
Total deposits | | | 13,220,653 | | | | 11,396,424 | | | | 11,091,721 | | | | 11,002,998 | | | | 10,755,676 | |
Repos and federal funds purchased | | | 978,661 | | | | 904,827 | | | | 883,403 | | | | 915,821 | | | | 1,053,244 | |
Debt and FHLB advances | | | 1,439,080 | | | | 1,781,640 | | | | 2,010,758 | | | | 1,982,984 | | | | 2,125,788 | |
Other liabilities | | | 208,117 | | | | 192,785 | | | | 190,607 | | | | 190,177 | | | | 194,706 | |
Shareholders’ equity | | | 1,873,970 | | | | 1,644,955 | | | | 1,574,513 | | | | 1,566,571 | | | | 1,553,877 | |
| | | | | | | | | | | | | | | | | | | | |
Total liabilities and shareholders’ equity | | $ | 17,720,481 | | | $ | 15,920,631 | | | $ | 15,751,002 | | | $ | 15,658,551 | | | $ | 15,683,291 | |
| | | | | | | | | | | | | | | | | | | | |
5
Supplemental Financial Information - Fourth Quarter 2006
SKY FINANCIAL GROUP, INC.
FIVE QUARTER LOAN TABLE (Unaudited)
(Dollars in thousands)
PERIOD END
| | | | | | | | | | | | | | | | | | | | |
| | | 2006 | | | 2005 | |
| | | 4th qtr | | | 3rd qtr | | | 2nd qtr | | | 1st qtr | | | 4th qtr | |
Residential Mortgage | | $ | 1,367,478 | | | $ | 1,069,992 | | | $ | 1,069,897 | | | $ | 1,125,633 | | | $ | 1,134,698 | |
Home Equity | | | 2,321,772 | | | | 1,707,425 | | | | 1,712,030 | | | | 1,696,999 | | | | 1,730,752 | |
Consumer | | | 782,264 | | | | 689,380 | | | | 691,270 | | | | 695,392 | | | | 711,197 | |
Commercial Real Estate | | | 4,323,729 | | | | 4,704,738 | | | | 4,666,045 | | | | 4,539,276 | | | | 4,552,226 | |
Commercial and Industrial | | | 4,030,150 | | | | 3,134,101 | | | | 3,078,792 | | | | 3,036,618 | | | | 3,020,349 | |
| | | | | | | | | | | | | | | | | | | | |
Total Loans | | $ | 12,825,393 | | | $ | 11,305,636 | | | $ | 11,218,034 | | | $ | 11,093,918 | | | $ | 11,149,222 | |
| | | | | | | | | | | | | | | | | | | | |
Residential Mortgage | | | 11 | % | | | 9 | % | | | 10 | % | | | 10 | % | | | 10 | % |
Home Equity | | | 18 | % | | | 15 | % | | | 15 | % | | | 15 | % | | | 16 | % |
Consumer | | | 6 | % | | | 6 | % | | | 6 | % | | | 6 | % | | | 6 | % |
Commercial Real Estate | | | 34 | % | | | 42 | % | | | 42 | % | | | 41 | % | | | 41 | % |
Commercial and Industrial | | | 31 | % | | | 28 | % | | | 27 | % | | | 28 | % | | | 27 | % |
| | | | | | | | | | | | | | | | | | | | |
Total Loans | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
AVERAGES | | | | | | | | | | | | | | | | | | | | |
| | |
| | | 2006 | | | 2005 | |
| | | 4th qtr | | | 3rd qtr | | | 2nd qtr | | | 1st qtr | | | 4th qtr | |
Residential Mortgage | | $ | 1,320,361 | | | $ | 1,070,254 | | | $ | 1,107,658 | | | $ | 1,132,588 | | | $ | 1,106,292 | |
Home Equity | | | 2,213,543 | | | | 1,704,231 | | | | 1,706,839 | | | | 1,711,076 | | | | 1,732,682 | |
Consumer | | | 768,657 | | | | 691,634 | | | | 695,951 | | | | 701,714 | | | | 724,727 | |
Commercial Real Estate | | | 4,330,749 | | | | 4,711,243 | | | | 4,609,588 | | | | 4,524,839 | | | | 4,536,494 | |
Commercial and Industrial | | | 3,841,277 | | | | 3,087,921 | | | | 3,045,569 | | | | 3,106,277 | | | | 2,846,130 | |
| | | | | | | | | | | | | | | | | | | | |
Total Loans | | $ | 12,474,587 | | | $ | 11,265,283 | | | $ | 11,165,605 | | | $ | 11,176,494 | | | $ | 10,946,325 | |
| | | | | | | | | | | | | | | | | | | | |
Residential Mortgage | | | 11 | % | | | 10 | % | | | 10 | % | | | 10 | % | | | 10 | % |
Home Equity | | | 18 | % | | | 15 | % | | | 15 | % | | | 15 | % | | | 16 | % |
Consumer | | | 6 | % | | | 6 | % | | | 6 | % | | | 6 | % | | | 7 | % |
Commercial Real Estate | | | 35 | % | | | 42 | % | | | 41 | % | | | 41 | % | | | 41 | % |
Commercial and Industrial | | | 30 | % | | | 27 | % | | | 28 | % | | | 28 | % | | | 26 | % |
| | | | | | | | | | | | | | | | | | | | |
Total Loans | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | |
6
Supplemental Financial Information - Fourth Quarter 2006
SKY FINANCIAL GROUP, INC.
FIVE QUARTER FUNDING TABLE (Unaudited)
(Dollars in thousands)
PERIOD END
| | | | | | | | | | | | | | | |
| | | 2006 | | 2005 |
| | | 4th qtr | | 3rd qtr | | 2nd qtr | | 1st qtr | | 4th qtr |
Non-interest-bearing demand deposits | | $ | 1,953,658 | | $ | 1,665,760 | | $ | 1,698,585 | | $ | 1,663,459 | | $ | 1,734,113 |
Interest-bearing demand deposits | | | 464,406 | | | 415,232 | | | 354,253 | | | 385,747 | | | 333,491 |
Savings deposits | | | 4,516,910 | | | 3,364,869 | | | 3,283,701 | | | 3,426,386 | | | 3,416,583 |
Time deposits | | | 6,285,679 | | | 5,950,563 | | | 5,755,182 | | | 5,527,406 | | | 5,271,489 |
| | | | | | | | | | | | | | | |
Total deposits | | | 13,220,653 | | | 11,396,424 | | | 11,091,721 | | | 11,002,998 | | | 10,755,676 |
| | | | | | | | | | | | | | | |
Short-term borrowings | | | 978,661 | | | 904,827 | | | 883,403 | | | 915,821 | | | 1,053,244 |
Trust preferred securities | | | 335,294 | | | 337,040 | | | 337,156 | | | 182,288 | | | 184,799 |
Debt and FHLB advances | | | 1,103,786 | | | 1,444,600 | | | 1,673,602 | | | 1,800,696 | | | 1,940,989 |
| | | | | | | | | | | | | | | |
Total funding sources | | $ | 15,638,394 | | $ | 14,082,891 | | $ | 13,985,882 | | $ | 13,901,803 | | $ | 13,934,708 |
| | | | | | | | | | | | | | | |
| | | | | |
AVERAGE | | | | | | | | | | | | | | | |
| | |
| | | 2006 | | 2005 |
| | | 4th qtr | | 3rd qtr | | 2nd qtr | | 1st qtr | | 4th qtr |
Non-interest-bearing demand deposits | | $ | 1,916,091 | | $ | 1,655,915 | | $ | 1,674,377 | | $ | 1,645,047 | | $ | 1,698,192 |
Interest-bearing demand deposits | | | 522,045 | | | 387,738 | | | 363,567 | | | 345,545 | | | 368,885 |
Savings deposits | | | 4,248,402 | | | 3,327,147 | | | 3,327,009 | | | 3,396,816 | | | 3,524,370 |
Time deposits | | | 6,271,872 | | | 5,858,778 | | | 5,639,881 | | | 5,372,380 | | | 5,205,215 |
| | | | | | | | | | | | | | | |
Total deposits | | | 12,958,410 | | | 11,229,578 | | | 11,004,834 | | | 10,759,788 | | | 10,796,662 |
| | | | | | | | | | | | | | | |
Short-term borrowings | | | 994,602 | | | 869,381 | | | 913,766 | | | 1,020,649 | | | 829,152 |
Trust preferred securities | | | 362,397 | | | 338,275 | | | 254,433 | | | 184,440 | | | 185,934 |
Debt and FHLB advances | | | 1,264,336 | | | 1,581,996 | | | 1,769,095 | | | 1,947,637 | | | 1,841,121 |
| | | | | | | | | | | | | | | |
Total funding sources | | $ | 15,579,745 | | $ | 14,019,230 | | $ | 13,942,128 | | $ | 13,912,514 | | $ | 13,652,869 |
| | | | | | | | | | | | | | | |
7
Supplemental Financial Information - Fourth Quarter 2006
ASSET QUALITY DATA:
| | | | | | | | | | | | | | | | | | | | |
| | | 2006 | | | 2005 | |
| | | 4th qtr | | | 3rd qtr | | | 2nd qtr | | | 1st qtr | | | 4th qtr | |
Non-accrual loans | | $ | 137,111 | | | $ | 127,279 | | | $ | 124,839 | | | $ | 128,402 | | | $ | 119,030 | |
Restructured loans | | | 42 | | | | 43 | | | | 45 | | | | 463 | | | | 479 | |
| | | | | | | | | | | | | | | | | | | | |
Total non-performing loans | | | 137,153 | | | | 127,322 | | | | 124,884 | | | | 128,865 | | | | 119,509 | |
Other real estate owned | | | 21,669 | | | | 13,992 | | | | 14,471 | | | | 18,319 | | | | 17,476 | |
| | | | | | | | | | | | | | | | | | | | |
Total non-performing assets | | $ | 158,822 | | | $ | 141,314 | | | $ | 139,355 | | | $ | 147,184 | | | $ | 136,985 | |
| | | | | | | | | | | | | | | | | | | | |
Loans 90 days or more past due and still accruing | | $ | 23,988 | | | $ | 17,207 | | | $ | 11,858 | | | $ | 20,408 | | | $ | 27,987 | |
Net charge-offs | | | 12,508 | | | | 9,890 | | | | 8,270 | | | | 8,030 | | | | 16,223 | |
Allowance for loan losses | | | 172,990 | | | | 144,310 | | | | 144,601 | | | | 143,383 | | | | 144,461 | |
| | | | | |
ASSET QUALITY RATIOS: | | | | | | | | | | | | | | | | | | | | |
| | |
| | | 2006 | | | 2005 | |
| | | 4th qtr | | | 3rd qtr | | | 2nd qtr | | | 1st qtr | | | 4th qtr | |
Non-accrual loans to total loans | | | 1.07 | % | | | 1.13 | % | | | 1.11 | % | | | 1.16 | % | | | 1.07 | % |
Non-performing loans to total loans | | | 1.07 | | | | 1.13 | | | | 1.11 | | | | 1.16 | | | | 1.07 | |
Non-performing assets to total assets | | | 0.90 | | | | 0.89 | | | | 0.88 | | | | 0.94 | | | | 0.87 | |
Loans 90 days or more past due and still accruing to total loans | | | 0.19 | | | | 0.15 | | | | 0.11 | | | | 0.18 | | | | 0.25 | |
Net charge-offs to average loans | | | 0.40 | | | | 0.35 | | | | 0.30 | | | | 0.29 | | | | 0.59 | |
Allowance for loan losses to non-performing loans | | | 126.13 | | | | 113.34 | | | | 115.79 | | | | 111.27 | | | | 120.88 | |
Allowance for loan losses to non-performing assets | | | 108.92 | | | | 102.12 | | | | 103.76 | | | | 97.42 | | | | 105.46 | |
Allowance for loan losses to total loans | | | 1.35 | | | | 1.28 | | | | 1.29 | | | | 1.29 | | | | 1.30 | |
8
Supplemental Financial Information - Fourth Quarter 2006
SKY FINANCIAL GROUP, INC.
*NON-GAAP DISCLOSURE RECONCILIATIONS
(Dollars in thousands)
Core operating earnings reflect net income adjusted to exclude the after-tax effect of discontinued operations and other charges and gains that management does not consider to be reflective of ongoing operations or are expected to recur.
Cash operating earnings are core operating earnings adjusted to exclude the after-tax effect of amortizing core deposits and other intangibles.
Management believes that both core operating earnings and cash operating earnings assist the investor in understanding the impact of non-core adjustments and amortization of intangibles on reported results.
Core operating earnings
The following reconciles GAAP income from continuing operations to core operating earnings for the twelve months ended December 31, 2006 and 2005 for each of the five quarters presented in the tables:
| | | | | | | | |
| | | Twelve Months Ended
December 31 | |
| | | 2006 | | | 2005 | |
Income from continuing operations | | $ | 190,338 | | | $ | 182,191 | |
Add: Merger, integration and restructuring expense | | | 6,575 | | | | 1,771 | |
Derivative losses on swaps | | | 5,895 | | | | — | |
Balance sheet restructuring charges | | | 15,252 | | | | — | |
Sale of an insurance business | | | (3,878 | ) | | | — | |
Additional employee costs | | | 3,020 | | | | — | |
Securities impairment | | | 1,681 | | | | — | |
Additional amortization of mortgage servicing rights | | | 845 | | | | — | |
Tax effect | | | (10,287 | ) | | | (620 | ) |
| | | | | | | | |
After-tax non-operating items | | | 19,103 | | | | 1,151 | |
| | | | | | | | |
Core operating earnings | | $ | 209,441 | | | $ | 183,342 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | 4th qtr | | | 3rd qtr | | | 2nd qtr | | | 1st qtr | | | 4th qtr | |
Income from continuing operations | | $ | 40,056 | | | $ | 54,569 | | | $ | 45,073 | | | $ | 50,640 | | | $ | 53,341 | |
| | | | | | | | | | | | | | | | | | | | |
Add: Merger, integration and restructuring expense | | | 5,090 | | | | 941 | | | | 364 | | | | 180 | | | | 618 | |
Derivative (gains) losses on swaps | | | (464 | ) | | | (3,570 | ) | | | 9,930 | | | | — | | | | — | |
Balance sheet restructuring charges | | | 15,252 | | | | — | | | | — | | | | — | | | | — | |
Sale of an insurance business | | | (3,878 | ) | | | — | | | | — | | | | — | | | | — | |
Additional employee costs | | | 3,020 | | | | — | | | | — | | | | — | | | | — | |
Securities impairment | | | 1,681 | | | | — | | | | — | | | | — | | | | — | |
Additional amortization of mortgage servicing rights | | | 845 | | | | — | | | | — | | | | — | | | | — | |
Tax effect | | | (7,541 | ) | | | 920 | | | | (3,603 | ) | | | (63 | ) | | | (216 | ) |
| | | | | | | | | | | | | | | | | | | | |
After-tax non-operating items | | | 14,005 | | | | (1,709 | ) | | | 6,691 | | | | 117 | | | | 402 | |
| | | | | | | | | | | | | | | | | | | | |
Core operating earnings | | $ | 54,061 | | | $ | 52,860 | | | $ | 51,764 | | | $ | 50,757 | | | $ | 53,743 | |
| | | | | | | | | | | | | | | | | | | | |
Merger, integration and restructuring expenses in 2006 reflect charges associated with the acquisition of Union Federal Bank in all four quarters, additional costs from the Falls Bank acquisition incurred in the first quarter and costs from the Perpetual Savings Bank acquistion in the fourth quarter.
In the fourth quarter of 2006, Sky Financial completed a balance sheet restructuring that resulted in net charges of $14.7 million ($9.6 million aftertax). The charges were recorded as follows: (1) Charges of $19.4 million recorded as a component of net securities gains (losses); (2) Net gains of $4.2 million recorded as a component of other income; and (3) Gains of $0.5 million recorded as derivative gains (losses) on swaps. The gains related to derivatives are included in derivative (gains) losses in the above tabular reconciliation.
The additional employee costs above represent additional employee compensation and benefits related to acquisitions and mergers. The additional costs incurred included $1.5 million related to the increase in Sky Financial’s non-qualified pension plan due to the value of Sky Financial Group common stock increasing after the merger announcement. In addition, an additional $1.5 million related to additional incentive compensation related to the Union Federal acquisition.
Merger, integration and restructuring expenses in 2005 reflect charges associated with the acquisition of Belmont Bancorp in the second quarter, the cost associated with the acquisition of Falls Bank recorded in the third and fourth quarters and the cost associated with the pending acquisition of Union Federal Bank recorded in the fourth quarter.
Core operating earnings is used as the numerator to calculate core operating return on average assets, core operating return on average equity and core operating earnings per share. Additionally, certain charges and gains that are not considered by management to be part of core earnings are removed from the numerator and the denominator of the core operating efficiency ratio disclosed in the tables. The comparable information on a GAAP basis is also provided in the tables.
9
Supplemental Financial Information - Fourth Quarter 2006
Cash operating earnings
The following reconciles core operating earnings to cash operating earnings for the twelve months ended December 31, 2006 and 2005, as well as for each of the five quarters presented in these tables:
| | | | | | | | |
| | | Twelve Months Ended
December 31 | |
| | | 2006 | | | 2005 | |
Core operating earnings | | $ | 209,441 | | | $ | 183,342 | |
| | | | | | | | |
Amortization of core deposits and other intangible assets | | | 15,803 | | | | 14,887 | |
Tax effect | | | (5,531 | ) | | | (5,211 | ) |
| | | | | | | | |
After-tax non-operating items | | | 10,272 | | | | 9,676 | |
| | | | | | | | |
Cash operating earnings | | $ | 219,713 | | | $ | 193,018 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | 2006 | | | 2005 | |
| | | 4th qtr | | | 3rd qtr | | | 2nd qtr | | | 1st qtr | | | 4th qtr | |
Core operating earnings | | $ | 54,061 | | | $ | 52,860 | | | $ | 51,764 | | | $ | 50,757 | | | $ | 53,743 | |
| | | | | | | | | | | | | | | | | | | | |
Amortization of core deposits and other intangible assets | | | 4,390 | | | | 3,728 | | | | 3,807 | | | | 3,877 | | | | 3,909 | |
Tax effect | | | (1,537 | ) | | | (1,305 | ) | | | (1,332 | ) | | | (1,357 | ) | | | (1,368 | ) |
| | | | | | | | | | | | | | | | | | | | |
After-tax non-operating items | | | 2,853 | | | | 2,423 | | | | 2,475 | | | | 2,520 | | | | 2,541 | |
| | | | | | | | | | | | | | | | | | | | |
Cash operating earnings | | $ | 56,914 | | | $ | 55,283 | | | $ | 54,239 | | | $ | 53,277 | | | $ | 56,284 | |
| | | | | | | | | | | | | | | | | | | | |
Cash operating earnings is used as the numerator to calculate the cash operating return on average tangible equity and the cash operating return on average tangible assets. The denominator of each ratio is adjusted to deduct the average balance of intangible assets during the period. Additionally, amortization of core deposits and other intangible assets and other charges and gains that are not considered by management to be a part of core operatering earnings are removed from the numerator and the denominator of the core operating efficiency ratio disclosed in the tables. The comparable information on a GAAP basis is also provided in the tables.
10
Supplemental Financial Information - Fourth Quarter 2006
The following table reconciles average GAAP equity to average tangible equity for the three and twelve months ended December 31, 2006 and 2005, as well as each of the period ends presented in the tables.
| | | | | | | | |
| | | Twelve Months Ended
December 31 | |
| | | 2006 | | | 2005 | |
Average GAAP equity | | $ | 1,646,132 | | | $ | 1,487,624 | |
| | | | | | | | |
Goodwill | | | 570,592 | | | | 496,297 | |
Core deposits and other intangibles | | | 62,030 | | | | 68,387 | |
Deferred taxes | | | (21,711 | ) | | | (23,935 | ) |
| | | | | | | | |
| | | 610,911 | | | | 540,749 | |
| | | | | | | | |
Average tangible equity | | $ | 1,035,221 | | | $ | 946,875 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | 2006 | | | 2005 | |
| | | 4th qtr | | | 3rd qtr | | | 2nd qtr | | | 1st qtr | | | 4th qtr | |
Average GAAP equity | | $ | 1,822,690 | | | $ | 1,605,492 | | | $ | 1,583,233 | | | $ | 1,570,789 | | | $ | 1,534,231 | |
| | | | | | | | | | | | | | | | | | | | |
Goodwill | | | 709,929 | | | | 524,329 | | | | 523,582 | | | | 522,981 | | | | 524,217 | |
Core deposits and other intangibles | | | 63,179 | | | | 57,906 | | | | 61,709 | | | | 65,395 | | | | 65,193 | |
Deferred taxes | | | (22,113 | ) | | | (20,267 | ) | | | (21,598 | ) | | | (22,888 | ) | | | (22,818 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | 750,995 | | | | 561,968 | | | | 563,693 | | | | 565,488 | | | | 566,592 | |
| | | | | | | | | | | | | | | | | | | | |
Average tangible equity | | $ | 1,071,695 | | | $ | 1,043,524 | | | $ | 1,019,540 | | | $ | 1,005,301 | | | $ | 967,639 | |
| | | | | | | | | | | | | | | | | | | | |
The following table reconciles average GAAP assets to average tangible assets for the twelve months ended December 31, 2006 and 2005, as well as each of the period ends presented in the tables.
| | | | | | | | |
| | | Twelve Months Ended
December 31 | |
| | | 2006 | | | 2005 | |
Average GAAP assets | | $ | 16,192,790 | | | $ | 15,145,698 | |
| | | | | | | | |
Goodwill | | | 570,592 | | | | 496,297 | |
Core deposits and other intangibles | | | 62,030 | | | | 68,387 | |
Deferred taxes | | | (21,711 | ) | | | (23,935 | ) |
| | | | | | | | |
| | | 610,911 | | | | 540,749 | |
| | | | | | | | |
Average tangible assets | | $ | 15,581,879 | | | $ | 14,604,949 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | 2006 | | | 2005 | |
| | | 4th qtr | | | 3rd qtr | | | 2nd qtr | | | 1st qtr | | | 4th qtr | |
Average GAAP assets | | $ | 17,595,698 | | | $ | 15,802,803 | | | $ | 15,696,345 | | | $ | 15,659,322 | | | $ | 15,358,242 | |
| | | | | | | | | | | | | | | | | | | | |
Goodwill | | | 709,929 | | | | 524,329 | | | | 523,582 | | | | 522,981 | | | | 524,217 | |
Core deposits and other intangibles | | | 63,179 | | | | 57,906 | | | | 61,709 | | | | 65,395 | | | | 65,193 | |
Deferred taxes | | | (22,113 | ) | | | (20,267 | ) | | | (21,598 | ) | | | (22,888 | ) | | | (22,818 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | 750,995 | | | | 561,968 | | | | 563,693 | | | | 565,488 | | | | 566,592 | |
| | | | | | | | | | | | | | | | | | | | |
Average tangible assets | | $ | 16,844,703 | | | $ | 15,240,835 | | | $ | 15,132,652 | | | $ | 15,093,834 | | | $ | 14,791,650 | |
| | | | | | | | | | | | | | | | | | | | |
11
Supplemental Financial Information - Fourth Quarter 2006
The following table reconciles GAAP earnings per share to core operating earnings per share and cash operating earnings per share (certain information does not add due to rounding):
Basic EPS
| | | | | | | |
| | | Twelve Months Ended
December 31 | |
| | | 2006 | | 2005 | |
Net income | | $ | 1.73 | | $ | 1.71 | |
After-tax earnings from discontinued operations | | | — | | | (0.00 | ) |
After-tax core operating adjustments | | | 0.17 | | | 0.01 | |
| | | | | | | |
Core operating earnings | | | 1.90 | | | 1.72 | |
After-tax amortization of core deposits and other intangible assets | | | 0.09 | | | 0.09 | |
| | | | | | | |
Cash operating earnings | | $ | 2.00 | | $ | 1.81 | |
| | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | 2006 | | 2005 | |
| | | 4th qtr | | 3rd qtr | | | 2nd qtr | | 1st qtr | | 4th qtr | |
Net income | | $ | 0.35 | | $ | 0.50 | | | $ | 0.42 | | $ | 0.47 | | $ | 0.50 | |
After-tax earnings from discontinued operations | | | — | | | — | | | | — | | | — | | | (0.00 | ) |
After-tax core operating adjustments | | | 0.12 | | | (0.02 | ) | | | 0.06 | | | 0.00 | | | 0.00 | |
| | | | | | | | | | | | | | | | | |
Core operating earnings | | | 0.47 | | | 0.49 | | | | 0.48 | | | 0.47 | | | 0.50 | |
After-tax amortization of core deposits and other intangible assets | | | 0.02 | | | 0.02 | | | | 0.02 | | | 0.02 | | | 0.02 | |
| | | | | | | | | | | | | | | | | |
Cash operating earnings | | $ | 0.49 | | $ | 0.51 | | | $ | 0.50 | | $ | 0.49 | | $ | 0.52 | |
| | | | | | | | | | | | | | | | | |
Diluted EPS
| | | | | | | |
| | | Twelve Months Ended
December 31 | |
| | | 2006 | | 2005 | |
Net income | | $ | 1.72 | | $ | 1.69 | |
After-tax earnings from discontinued operations | | | — | | | (0.00 | ) |
After-tax core operating adjustments | | | 0.17 | | | 0.01 | |
| | | | | | | |
Core operating earnings | | | 1.89 | | | 1.70 | |
After-tax amortization of core deposits and other intangible assets | | | 0.09 | | | 0.09 | |
| | | | | | | |
Cash operating earnings | | $ | 1.98 | | $ | 1.79 | |
| | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | 2006 | | 2005 | |
| | | 4th qtr | | 3rd qtr | | | 2nd qtr | | 1st qtr | | 4th qtr | |
Net income | | $ | 0.35 | | $ | 0.50 | | | $ | 0.41 | | $ | 0.46 | | $ | 0.49 | |
After-tax earnings from discontinued operations | | | — | | | — | | | | — | | | — | | | (0.00 | ) |
After-tax core operating adjustments | | | 0.12 | | | (0.02 | ) | | | 0.06 | | | 0.00 | | | 0.00 | |
| | | | | | | | | | | | | | | | | |
Core operating earnings | | | 0.47 | | | 0.48 | | | | 0.47 | | | 0.46 | | | 0.49 | |
After-tax amortization of core deposits and other intangible assets | | | 0.02 | | | 0.02 | | | | 0.02 | | | 0.02 | | | 0.02 | |
| | | | | | | | | | | | | | | | | |
Cash operating earnings | | $ | 0.49 | | $ | 0.51 | | | $ | 0.50 | | $ | 0.49 | | $ | 0.52 | |
| | | | | | | | | | | | | | | | | |
— end —
12
