UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________
FORM 8-K
  _______________________________________________________________
CURRENT REPORT
Pursuant to Section 13 OR 15(d)
of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 23, 2018
  _______________________________________________________________
HUNTINGTON BANCSHARES INCORPORATED
(Exact name of registrant as specified in its charter)  
  _______________________________________________________________
Maryland
 
1-34073
 
31-0724920
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
Huntington Center
41 South High Street
Columbus, Ohio
 
43287
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (614) 480-8300
Not Applicable
(Former name or former address, if changed since last report.)  
_______________________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
____________________________________________________________________________________________________________________________________________________________________________________________________________





Item  2.02.
Results of Operations and Financial Condition.
On January 23, 2018 , Huntington Bancshares Incorporated (“Huntington”) issued a news release announcing its earnings for the quarter ended December 31, 2017 . Also on January 23, 2018 , Huntington made a Quarterly Financial Supplement available on the Investor Relations section of its web site, www.huntington-ir.com . Copies of Huntington's news release and quarterly financial supplement are attached hereto as Exhibit 99.1 and Exhibit 99.2, respectively, and are incorporated by reference in this Item 2.02.
Huntington’s senior management will host an earnings conference call on January 23, 2018 , at 9:00 a.m. (Eastern Daylight Time). The call may be accessed via a live Internet webcast at the Investor Relations section of Huntington’s web site, www.huntington-ir.com or through a dial-in telephone number at (877) 407-8029 ; Conference ID 13674942 . Slides will be available in the Investor Relations section of Huntington’s web site, www.huntington-ir.com about an hour prior to the call. A replay of the webcast will be archived in the Investor Relations section of Huntington’s web site, www.huntington-ir.com . A telephone replay will be available approximately two hours after the completion of the call through February 2, 2018 at (877) 660-6853 or (201) 612-7415 ; conference ID 13674942 .
The information contained or incorporated by reference in this Current Report on Form 8-K contains certain forward-looking statements, including certain plans, expectations, goals, projections, and statements, which are subject to numerous assumptions, risks, and uncertainties. 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.
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; 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. 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, June 30, 2017 and September 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.

The information contained or incorporated by reference in Item 2.02 of this Form 8-K shall be treated as “furnished” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

Item  9.01.
Financial Statements and Exhibits.
The exhibits referenced below shall be treated as “furnished” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

(d)
Exhibits.

Exhibit 99.1 – News release of Huntington Bancshares Incorporated, dated January 23, 2018 .

Exhibit 99.2 – Quarterly Financial Supplement, December 2017 .





SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
HUNTINGTON BANCSHARES INCORPORATED
 
 
 
 
 
 
Date:
January 23, 2018
 
By:
 
/s/ Howell D. McCullough III
 
 
 
 
 
Howell D. McCullough III
 
 
 
 
 
Chief Financial Officer






EXHIBIT INDEX

Exhibit No.    Description
Exhibit 99.1      News release of Huntington Bancshares Incorporated, dated January 23, 2018
Exhibit 99.2      Quarterly Financial Supplement, December 2017





Exhibit 99.1

 
 
HUNTINGTONLOGOA18.JPG
FOR IMMEDIATE RELEASE
January 23, 2018
Analysts: Mark Muth (mark.muth@huntington.com), 614.480.4720
Media:     Matt Samson (matt.b.samson@huntington.com), 312.263.0203
Michael Sherman (michael.sherman@huntington.com), 614.480.6114

HUNTINGTON BANCSHARES INCORPORATED REPORTS RECORD QUARTERLY AND ANNUAL EARNINGS
2017 Fourth Quarter EPS Increased 85% , and 2017 Full Year EPS Increased 43%

COLUMBUS, Ohio – Huntington Bancshares Incorporated (NASDAQ: HBAN; www.huntington.com) reported 2017 full-year net income of $1.2 billion , an increase of 67% from the prior year. Earnings per common share for the year were $1.00 , up 43% from the prior year. Excluding approximately $152 million pretax of FirstMerit acquisition-related expenses, or $0.09 per common share after tax, and an estimated tax benefit of $123 million, or $0.11 per common share, related to the Tax Cuts and Jobs Act ("federal tax reform") enacted in the fourth quarter, adjusted earnings per common share were $0.98. Return on average assets for the 2017 full year was 1.17% , while return on average tangible common equity was 15.7 %. Total revenue increased 22% over the prior year.
Net income for the 2017 fourth quarter was $432 million , or an 81% increase from the year-ago quarter. Earnings per common share for the 2017 fourth quarter were $0.37 , up 85% from the year-ago quarter. Excluding approximately $123 million of federal tax reform-related estimated tax benefit, or $0.11 per common share, adjusted earnings per common share were $0.26. Return on average assets was 1.67% for the 2017 fourth quarter, while return on average tangible common equity was 22.7% . Total revenue increased 4% over the year-ago quarter.
“The 2017 fourth quarter caps off another year of record performance and significant achievements for Huntington," said Steve Steinour, chairman, president, and CEO. "When we announced the transformational FirstMerit acquisition two years ago, we expected it would help drive material improvement in our profitability, accelerating the achievement of our long-term financial goals. With the FirstMerit integration complete, our fourth quarter results illustrate the performance improvements realized over the past two years. We achieved our long-term financial goals for Return on Tangible Common Equity and Efficiency Ratio on a GAAP basis for the first time. In fact, during the fourth quarter, we achieved all five of our long-term financial goals. In addition, we recently began the strategic planning process that later this year will yield new long-term financial goals for the company.”
“We have momentum in our businesses, with our brand, and throughout our expanded footprint. We executed well in the fourth quarter and continue to deliver on our consistent, long-term strategy to gain market share and share of wallet by providing superior customer service with expanded product and industry expertise. As expected, the fourth quarter reflected seasonally strong commercial loan production, particularly from our middle market, corporate, and dealer floorplan customers at the end of December, along with steady consumer loan production. We also took advantage of volatility in the debt capital markets during the quarter to more efficiently reposition our securities portfolio,” Steinour said. "Finally, credit metrics remain in very good condition."

Full-year 2017 highlights compared with 2016 :
Completed the integration of the FirstMerit acquisition
Increased cash dividends for the seventh consecutive year; end-of-year dividend yield of 3.0%
$10.4 billion , or 18% , increase in average loans and leases, including a $4.1 billion , or 17% , increase in commercial and industrial loans and a $1.0 billion , or 9% , increase in automobile loans

1



$13.5 billion , or 23% , increase in average total core deposits, including a $9.2 billion , or 31% , increase in average demand deposits and a $3.7 billion , or 47% , increase in average savings and other domestic deposits
$797 million , or 22% , increase in fully-taxable equivalent revenue, including a $640 million , or 27% , increase in fully-taxable equivalent net interest income
Net interest margin of 3.30% , an increase of 14 basis points
$157 million , or 14% , increase in noninterest income, including a $37 million , or 22% , increase in cards and payment processing income, a $33 million , or 27% , increase in trust and investment management services, and a $29 million , or 9% , increase in service charges on deposit accounts
$123 million, or $0.11 per share, estimated tax benefit related to federal tax reform
Net charge-offs (NCOs) of 0.23% of average loans and leases, up from 0.19% . 2017 represents the fourth consecutive year with NCOs below our long-term financial goal of 0.35% to 0.55%
$0.54, or 8% , increase in tangible book value per common share (TBVPS) to $6.97

2017 Fourth Quarter highlights compared with 2016 Fourth Quarter :
$2.5 billion , or 4% , increase in average loans and leases, including a $1.1 billion , or 15% , increase in average residential mortgage loans and a $1.1 billion , or 10% , increase in average automobile loans
$1.9 billion , or 8% , increase in average securities
$1.9 billion , or 3% , increase in average total core deposits, driven by a $2.1 billion , or 11% , increase in average money market deposits; average total demand deposits increased $1.4 billion , or 4%
$40 million , or 4% , increase in fully-taxable equivalent revenue, including a $34 million , or 5% , increase in fully-taxable equivalent net interest income and a $6 million , or 2% , increase in noninterest income
Net interest margin of 3.30% , an increase of 5 basis points
$48 million , or 7% , decrease in noninterest expense, driven by a $53 million reduction in Significant Item-related expenses
$123 million, or $0.11 per share, estimated tax benefit related to federal tax reform
Net charge-offs represented 0.24% of average loans and leases, down from 0.26%
$92 million , or 19% , decrease in nonperforming assets; NPA ratio decreased to 0.55% , down from 0.72%

2



Table 1 – Earnings Performance Summary
 
Full Year
 
2017
 
2016
($ in millions, except per share data)
2017
 
2016
 
Fourth Quarter
 
Third Quarter
 
Fourth Quarter
Net income
$
1,186

 
$
712

 
$
432

 
$
275

 
$
239

Diluted earnings per common share
1.00

 
0.70

 
0.37

 
0.23

 
0.20

 
 
 
 
 
 
 
 
 
 
Return on average assets
1.17
%
 
0.86
%
 
1.67
%
 
1.08
%
 
0.95
%
Return on average common equity
11.6

 
8.6

 
17.0

 
10.5

 
9.4

Return on average tangible common equity
15.7

 
10.7

 
22.7

 
14.1

 
12.9

Net interest margin
3.30

 
3.16

 
3.30

 
3.29

 
3.25

Efficiency ratio
60.9

 
66.8

 
54.9

 
60.5

 
61.6

 
 
 
 
 
 
 
 
 
 
Tangible book value per common share
$
6.97

 
$
6.43

 
$
6.97

 
$
6.85

 
$
6.43

Cash dividends declared per common share
0.35

 
0.29

 
0.11

 
0.08

 
0.08

Average diluted shares outstanding (000’s)
1,136,186

 
918,790

 
1,130,117

 
1,106,491

 
1,104,358

 
 
 
 
 
 
 
 
 
 
Average earning assets
$
92,423

 
$
76,362

 
$
93,937

 
$
92,849

 
$
91,463

Average loans and leases
67,891

 
57,454

 
68,940

 
68,276

 
66,405

Average core deposits
72,830

 
59,380

 
73,946

 
73,549

 
72,070

 
 
 
 
 
 
 
 
 
 
Tangible common equity / tangible assets ratio
7.34
%
 
7.16
%
 
7.34
%
 
7.42
%
 
7.16
%
Common equity Tier 1 risk-based capital ratio
9.89

 
9.56

 
9.89

 
9.94

 
9.56

 
 
 
 
 
 
 
 
 
 
NCOs as a % of average loans and leases
0.23
%
 
0.19
%
 
0.24
%
 
0.25
%
 
0.26
%
NAL ratio
0.50

 
0.63

 
0.50

 
0.49

 
0.63

ALLL as a % of total loans and leases
0.99

 
0.95

 
0.99

 
0.98

 
0.95

ACL as a % of total loans and leases
1.11

 
1.10

 
1.11

 
1.10

 
1.10


3



Table 2 lists certain items that management believes are significant in understanding corporate performance and trends (see Basis of Presentation on page 14). There was one Significant Item in the 2017 fourth quarter : $123 million of federal tax reform-related tax benefit.
Table 2 – Significant Items Influencing Earnings
 
Pre-Tax
Impact
 
After-Tax Impact
($ in millions, except per share)
Amount
 
Amount  (1)
 
EPS (2)
Twelve Months Ended
 
 
 
 
 
December 31, 2017 – net income
 
 
$
1,186

 
$
1.00

 
Federal tax reform-related estimated tax benefit (3)
N/A

 
123

 
0.11

 
Merger and acquisition-related net expenses
$
(152
)
 
(99
)
 
(0.09
)
December 31, 2016 – net income
 
 
$
712

 
$
0.70

 
Merger and acquisition-related net expenses
$
(282
)
 
(187
)
 
(0.20
)
 
Reduction to litigation reserves
$
42

 
27

 
0.03

 
 
 
 
 
 
Three Months Ended
 
 
 
 
 
December 31, 2017 – net income
 
 
$
432

 
$
0.37

 
Federal tax reform-related estimated tax benefit (3)
N/A

 
123

 
0.11

September 30, 2017 – net income
 
 
$
275

 
$
0.23

 
Merger and acquisition-related net expenses
$
(31
)
 
(20
)
 
(0.02
)
December 31, 2016 – net income
 
 
$
239

 
$
0.20

 
Merger and acquisition-related net expenses
$
(96
)
 
(63
)
 
(0.06
)
 
Reduction to litigation reserves
$
42

 
27

 
0.02

(1)
Favorable (unfavorable) impact on net income
(2)
EPS reflected on a fully diluted basis
(3)
Represents the reasonable estimated impact of tax reform as of December 31, 2017. The estimate could be adjusted in future periods during the measurement period ending December 22, 2018.


4



Net Interest Income, Net Interest Margin, and Average Balance Sheet
Table 3 – Net Interest Income and Net Interest Margin Performance Summary – Rising Short-Term Interest Rates Drive NIM Expansion
 
2017
 
2016
 
 
 
2017
 
2016
 
 
 
 
($ in millions)
Full Year
 
Full Year
 
Change YOY
 
Fourth Quarter
 
Third Quarter
 
Fourth Quarter
 
Change (%)
LQ
 
YOY
Net interest income
$
3,002

 
$
2,369

 
27
%
 
$
770

 
$
758

 
$
735

 
2
%
 
5
%
FTE adjustment
50

 
43

 
16

 
12

 
13

 
13

 
8

 
8

Net interest income - FTE
3,052

 
2,412

 
27

 
782

 
771

 
748

 
1

 
5

Noninterest income
1,307

 
1,150

 
14

 
340

 
330

 
334

 
3

 
2

Total revenue - FTE
$
4,359

 
$
3,562

 
22
%
 
$
1,122

 
$
1,101

 
$
1,082

 
2
%
 
4
%
 
2017
 
2016
 
 
 
2017
 
2016
 
 
 
 
 
Full Year
 
Full Year
 
Change YOY
 
Fourth Quarter
 
Third Quarter
 
Fourth Quarter
 
Change bp
Yield / Cost
 
LQ
 
YOY
Total earning assets
3.77
%
 
3.50
%
 
27
  bp
 
3.83
%
 
3.78
%
 
3.60
%
 
5
 
23
  bp
Total loans and leases
4.19

 
3.81

 
38
 
4.23

 
4.20

 
3.95

 
3
 
28

Total securities
2.57

 
2.54

 
3
 
2.64

 
2.55

 
2.58

 
9
 
6

Total interest-bearing liabilities
0.64

 
0.48

 
16
 
0.73

 
0.68

 
0.48

 
5
 
25

Total interest-bearing deposits
0.33

 
0.23

 
10
 
0.37

 
0.35

 
0.23

 
2
 
14

 
 
 
 
 


 
 
 
 
 
 
 

 


Net interest rate spread
3.13

 
3.02

 
11
 
3.10

 
3.10

 
3.12

 
 
(2
)
Impact of noninterest-bearing funds on margin
0.17


0.14


3

0.20

 
0.19

 
0.13

 
1
 
7

Net interest margin
3.30
%
 
3.16
%
 
14
  bp
 
3.30
%
 
3.29
%
 
3.25
%
 
1
 
5
  bp
See Pages 7-9 and 18-20 of Quarterly Financial Supplement for additional detail.
Note: 2016 results reflect inclusion of FirstMerit since August 16, 2016.
Fully-taxable equivalent (FTE) net interest income for the 2017 fourth quarter increased $34 million , or 5% , from the 2016 fourth quarter . This reflected the benefit from the $2.5 billion , or 3% , increase in average earning assets partially coupled with a 5 basis point improvement in the FTE net interest margin (NIM) to 3.30% . Average earning asset growth included a $2.5 billion , or 4% , increase in average loans and leases and a $1.9 billion , or 8% , increase in average securities, partially offset by a $1.9 billion , or 76% , decrease in average loans held for sale related to the balance sheet optimization activities executed in the year-ago quarter. The NIM expansion reflected a 23 basis point increase in earning asset yields and a 7 basis point increase in the benefit from noninterest-bearing funds, partially offset by a 25 basis point increase in funding costs. The cost of interest-bearing deposits increased 14 basis points from the year-ago quarter. FTE net interest income during the 2017 fourth quarter included $24 million, or approximately 10 basis points, of purchase accounting impact compared to $42 million, or approximately 18 basis points, in the year-ago quarter.
Compared to the 2017 third quarter , FTE net interest income increased $11 million , or 1% . Average earning assets increased $1.1 billion , or 1% , sequentially, while the NIM increased 1 basis point. The increase in the NIM reflected a 5 basis point increase in earning asset yields and a 1 basis point increase in the benefit from noninterest-bearing funds, partially offset by a 5 basis point increase in the cost of interest-bearing liabilities. The cost of interest-bearing deposits increased 2 basis points from the prior quarter. The purchase accounting impact on the net interest margin was approximately 10 basis points in the 2017 fourth quarter compared to approximately 12 basis points in the prior quarter.

5



Table 4 – Average Earning Assets – Consumer Lending Continues to Drive Average Loan Growth
 
2017
 
2016
 
 
 
2017
 
2016
 
 
 
 
($ in billions)
Full
 
Full
 
YOY
 
Fourth
 
Third
 
Fourth
 
Change (%)
Year
 
Year
 
Change
 
Quarter
 
Quarter
 
Quarter
LQ
 
YOY
Commercial and industrial
$
27.7

 
$
23.7

 
17
 %
 
$
27.4

 
$
27.6

 
27.7

 
(1
)%
 
(1
)%
Commercial real estate
7.2

 
6.0

 
20

 
7.2

 
7.2

 
7.2

 

 

Total commercial
35.0

 
29.7

 
18

 
34.6

 
34.9

 
34.9

 
(1
)
 
(1
)
Automobile
11.5

 
10.5

 
9

 
12.0

 
11.7

 
10.9

 
2

 
10

Home equity
10.0

 
9.1

 
10

 
10.0

 
10.0

 
10.1

 
1

 
(1
)
Residential mortgage
8.2

 
6.7

 
23

 
8.8

 
8.4

 
7.7

 
5

 
15

RV and marine finance
2.2

 
0.7

 
211

 
2.4

 
2.3

 
1.8

 
5

 
30

Other consumer
1.0

 
0.7

 
38

 
1.1

 
1.0

 
1.0

 
5

 
14

Total consumer
32.9

 
27.8

 
19

 
34.3

 
33.4

 
31.5

 
3

 
9

Total loans and leases
67.9

 
57.5

 
18

 
68.9

 
68.3

 
66.4

 
1

 
4

Total securities
23.9

 
17.8

 
34

 
24.3

 
23.8

 
22.4

 
2

 
8

Held-for-sale and other earning assets
0.7

 
1.2

 
(43
)
 
0.7

 
0.8

 
2.6

 
(12
)
 
(74
)
Total earning assets
$
92.4

 
$
76.4

 
21
 %
 
$
93.9

 
$
92.8

 
$
91.5

 
1
 %
 
3
 %
See Pages 7 and 18 of Quarterly Financial Supplement for additional detail.
Note: 2016 results reflect inclusion of FirstMerit since August 16, 2016.
Average earning assets for the 2017 fourth quarter increased $2.5 billion , or 3% , from the year-ago quarter. Average securities increased $1.9 billion , or 8% , primarily reflecting the reinvestment of proceeds of the $1.5 billion auto loan securitization completed in the year-ago quarter. Average total loans and leases increased $2.5 billion , or 4% . Average residential mortgage loans increased $1.1 billion , or 15% , reflecting the benefit of the ongoing expansion of the home lending business. Average automobile loans increased $1.1 billion , or 10% , reflecting continued strength in new and used automobile originations across our 23-state auto finance lending footprint. Average RV and marine finance loans increased $0.6 billion , or 30% , reflecting the success of the well-managed expansion of the acquired business into 17 new states over the past year. Partially offsetting these increases, average loans held for sale decreased $1.9 billion , or 76% , reflecting the balance sheet optimization strategy executed in the year-ago quarter.
Compared to the 2017 third quarter , average earning assets increased $1.1 billion , or 1% . Average total loans and leases increased $0.7 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 reductions in the specialty lending verticals and dealer floorplan portfolios, partially offset by growth in the corporate banking, equipment finance, and middle market portfolios.

6



Table 5 – Average Deposits and Average Debt – Growth in Money Market and Demand Deposits Drive Year-over-Year Core Deposit Growth
 
2017
 
2016
 
 
 
2017
 
2016
 
 
 
Full
 
Full
 
YOY
 
Fourth
 
Third
 
Fourth
 
Change (%)
($ in billions)
Year
 
Year
 
Change
 
Quarter
 
Quarter
 
Quarter
 
LQ
 
YOY
Demand deposits - noninterest bearing
$
21.7

 
$
19.0

 
14
 %
 
$
21.7

 
$
21.7

 
$
23.3

 
 %
 
(6
)%
Demand deposits - interest bearing
17.6

 
11.0

 
60

 
18.2

 
17.9

 
15.3

 
2

 
19

Total demand deposits
39.3

 
30.0

 
31

 
39.9

 
39.6

 
38.6

 
1

 
4

Money market deposits
19.7

 
19.1

 
3

 
20.7

 
20.3

 
18.6

 
2

 
11

Savings and other domestic deposits
11.7

 
8.0

 
47

 
11.3

 
11.6

 
12.3

 
(2
)
 
(8
)
Core certificates of deposit
2.1

 
2.3

 
(8
)
 
1.9

 
2.0

 
2.6

 
(5
)
 
(26
)
Total core deposits
72.8

 
59.4

 
23

 
73.9

 
73.5

 
72.1

 
1

 
3

Other domestic deposits of $250,000 or more
0.4

 
0.4

 
9

 
0.4

 
0.4

 
0.4

 
(7
)
 
2

Brokered deposits and negotiable CDs
3.7

 
3.5

 
5

 
3.4

 
3.6

 
4.3

 
(5
)
 
(21
)
Deposits in foreign offices

 
0.2

 
(100
)
 

 

 
0.2

 

 
(100
)
Total deposits
$
77.0

 
$
63.5

 
21
 %
 
$
77.7

 
$
77.5

 
$
76.9

 
 %
 
1
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Short-term borrowings
$
2.9

 
$
1.5

 
91
 %
 
$
2.8

 
$
2.4

 
$
2.6

 
19
 %
 
8
 %
Long-term debt
8.9

 
8.0

 
10

 
9.2

 
8.9

 
8.6

 
3

 
7

Total debt
$
11.8

 
$
9.5

 
24
 %
 
$
12.0

 
$
11.3

 
$
11.2

 
6
 %
 
7
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Interest-bearing liabilities
$
67.0

 
$
54.0

 
24
 %
 
$
68.1

 
$
67.2

 
$
64.9

 
1
 %
 
5
 %
See Pages 7 and 18 of Quarterly Financial Supplement for additional detail.
Note: 2016 results reflect inclusion of FirstMerit since August 16, 2016.
Average total deposits for the 2017 fourth quarter increased $0.9 billion , or 1% , from the year-ago quarter, while average total core deposits increased $1.9 billion , or 3% . Average total interest-bearing liabilities increased $3.2 billion , or 5% , from the year-ago quarter. Average money market deposits increased $2.1 billion , or 11% , reflecting certain specialty banking relationships with expected deposit fluctuations and continued deepening of consumer relationships. Average demand deposits increased $1.4 billion , or 4% , comprised of a $1.3 billion, or 5%, increase in average commercial demand deposits and a $0.1 billion, or 1%, increase in average consumer demand deposits. The growth in commercial demand deposits reflected growth within interest bearing demand deposits. Average long-term debt increased $0.6 billion , or 7% , reflecting the issuance of $1.7 billion and maturity of $1.2 billion of senior debt over the past five quarters. On the other hand, average savings deposits decreased $0.9 billion , or 8% , primarily reflecting the deposit and branch divestiture completed during the year-ago quarter and runoff in acquired FirstMerit deposits. Average brokered deposits and negotiable CDs decreased $0.9 billion , or 21% .
Compared to the 2017 third quarter , average total interest-bearing liabilities increased $0.9 billion , or 1% , primarily reflecting a $0.4 billion , or 19% , increase in average short-term borrowings and a $0.4 billion , or 1% , increase in average total core deposits. Average core deposit growth during the 2017 fourth quarter reflected continued new customer acquisition and deepening, partially offset by seasonal decreases in government banking and certain specialty banking deposit relationships.

7



Noninterest Income (see Basis of Presentation on page 14)
Table 6 - Noninterest Income (GAAP) - Capital Markets Posts Second Consecutive Record Quarter
 
2017
 
2016
 
 
 
2017
 
2016
 
 
 
Full
 
Full
 
YOY
 
Fourth
 
Third
 
Fourth
 
Change (%)
($ in millions)
Year
 
Year
 
Change
 
Quarter
 
Quarter
 
Quarter
 
LQ
 
YOY
Service charges on deposit accounts
$
353

 
$
324

 
9
 %
 
$
91

 
$
91

 
$
92

 
 %
 
(1
)%
Cards and payment processing income
206

 
169

 
22

 
53

 
54

 
49

 
(2
)
 
8

Trust and investment management services
156

 
123

 
27

 
41

 
39

 
39

 
5

 
5

Mortgage banking income
131

 
128

 
2

 
33

 
34

 
38

 
(3
)
 
(13
)
Insurance income
81

 
84

 
(4
)
 
21

 
18

 
21

 
17

 

Capital markets fees
76

 
60

 
27

 
23

 
22

 
19

 
5

 
21

Bank owned life insurance income
67

 
58

 
16

 
18

 
16

 
17

 
13

 
6

Gain on sale of loans
56

 
47

 
19

 
17

 
14

 
25

 
21

 
(32
)
Securities (losses) gains
(4
)
 

 
(100
)
 
(4
)
 

 
(2
)
 
(100
)
 
(100
)
Other income
185

 
157

 
18

 
47

 
42

 
36

 
12

 
31

Total noninterest income
$
1,307

 
$
1,150

 
14
 %
 
$
340

 
$
330

 
$
334

 
3
 %
 
2
 %
Table 7 - Impact of Significant Items
 
2017
 
2016
 
 
 
2017
 
2016
 
 
 
Full
 
Full
 
 
 
Fourth
 
Third
 
Fourth
 
 
($ in millions)
Year
 
Year
 
 
 
Quarter
 
Quarter
 
Quarter
 
 
 
 
Service charges on deposit accounts
$

 
$

 
 
 
$

 
$

 
$

 
 
 
 
Cards and payment processing income

 

 
 
 

 

 

 
 
 
 
Trust and investment management services

 

 
 
 

 

 

 
 
 
 
Mortgage banking income

 

 
 
 

 

 

 
 
 
 
Insurance income

 

 
 
 

 

 

 
 
 
 
Brokerage income

 

 
 
 

 

 

 
 
 
 
Capital markets fees

 

 
 
 

 

 

 
 
 
 
Bank owned life insurance income

 

 
 
 

 

 

 
 
 
 
Gain on sale of loans

 

 
 
 

 

 

 
 
 
 
Securities (losses) gains

 

 
 
 

 

 

 
 
 
 
Other income
2

 
(1
)
 
 
 

 

 
(1
)
 
 
 
 
Total noninterest income
$
2

 
$
(1
)
 
 
 
$

 
$

 
$
(1
)
 
 
 
 


8



Table 8 - Adjusted Noninterest Income (Non-GAAP)
 
2017
 
2016
 
 
 
2017
 
2016
 
 
 
Full
 
Full
 
YOY
 
Fourth
 
Third
 
Fourth
 
Change (%)
($ in millions)
Year
 
Year
 
Change
 
Quarter
 
Quarter
 
Quarter
 
LQ
 
YOY
Service charges on deposit accounts
$
353

 
$
324

 
9
 %
 
$
91

 
$
91

 
$
92

 
 %
 
(1
)%
Cards and payment processing income
206

 
169

 
22

 
53

 
54

 
49

 
(2
)
 
8

Trust and investment management services
156

 
123

 
27

 
41

 
39

 
39

 
5

 
5

Mortgage banking income
131

 
128

 
2

 
33

 
34

 
38

 
(3
)
 
(13
)
Insurance income
81

 
84

 
(4
)
 
21

 
18

 
21

 
17

 

Capital markets fees
76

 
60

 
27

 
23

 
22

 
19

 
5

 
21

Bank owned life insurance income
67

 
58

 
16

 
18

 
16

 
17

 
13

 
6

Gain on sale of loans
56

 
47

 
19

 
17

 
14

 
25

 
21

 
(32
)
Securities (losses) gains
(4
)
 

 
(100
)
 
(4
)
 

 
(2
)
 
(100
)%
 
(100
)%
Other income
183

 
158

 
16

 
47

 
42

 
37

 
12

 
27

Total adjusted noninterest income
$
1,305

 
$
1,151

 
13
 %
 
$
340

 
$
330

 
$
335

 
3
 %
 
1
 %
See Pages 10-11 and 21-22 of Quarterly Financial Supplement for additional detail.
Note: 2016 results reflect inclusion of FirstMerit since August 16, 2016.
Noninterest income for the 2017 fourth quarter increased $6 million , or 2% , from the year-ago quarter. Other income increased $11 million , or 31% , primarily reflecting a $10 million benefit related to elevated derivative ineffectiveness recognized in the year-ago quarter and a $5 million increase in servicing income. Gain on sale of loans decreased $8 million , or 32% , primarily reflecting the $11 million of gains related to the balance sheet optimization strategy completed in the 2016 fourth quarter. Mortgage banking income decreased $5 million , or 13% , primarily reflecting a $6 million decrease from net mortgage servicing rights (MSR) risk management-related activities.
Compared to the 2017 third quarter , total noninterest income increased $10 million , or 3% . This increase primarily resulted from modest increases in trust and investment management services, bank owned life insurance, SBA loan sale gains, and lease sale gains, partially offset by $4 million of securities losses related to the portfolio repositioning completed during the 2017 fourth quarter.

9



Noninterest Expense (see Basis of Presentation on page 14)
Table 9 – Noninterest Expense (GAAP) – Continued Expense Discipline and Realization of FirstMerit-Related Cost Savings Highlight Fourth Quarter Expenses
 
2017
 
2016
 
 
 
2017
 
2016
 
 
 
Full
 
Full
 
YOY
 
Fourth
 
Third
 
Fourth
 
Change (%)
($ in millions)
Year
 
Year
 
Change
 
Quarter
 
Quarter
 
Quarter
 
LQ
 
YOY
Personnel costs
$
1,524

 
$
1,349

 
13
 %
 
$
373

 
$
377

 
$
360

 
(1
)%
 
4
 %
Outside data processing and other services
313

 
305

 
3

 
71

 
80

 
89

 
(11
)
 
(20
)
Net occupancy
212

 
153

 
39

 
36

 
55

 
49

 
(35
)
 
(27
)
Equipment
171

 
165

 
4

 
36

 
45

 
60

 
(20
)
 
(40
)
Deposit and other insurance expense
78

 
54

 
44

 
19

 
19

 
16

 

 
19

Professional services
69

 
105

 
(34
)
 
18

 
15

 
23

 
20

 
(22
)
Marketing
60

 
63

 
(5
)
 
10

 
17

 
21

 
(41
)
 
(52
)
Amortization of intangibles
56

 
30

 
87

 
14

 
14

 
14

 

 

Other expense
231

 
184

 
26

 
56

 
58

 
49

 
(3
)
 
14

Total noninterest expense
$
2,714

 
$
2,408

 
13
 %
 
$
633

 
$
680

 
$
681

 
(7
)%
 
(7
)%
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of employees (Average full-time equivalent)
15.4

 
16.0

 
(4
)%
 
15.4

 
15.5

 
16.0

 
(1
)%
 
(4
)%
Table 10 - Impacts of Significant Items
 
2017
 
2016
 
 
 
2017
 
2016
 
 
 
 
 
Full
 
Full
 
 
 
Fourth
 
Third
 
Fourth
 
 
($ in millions)
Year
 
Year
 
 
 
Quarter
 
Quarter
 
Quarter
 
 
 
 
Personnel costs
$
42

 
$
76

 

 
$

 
$
4

 
$
(5
)
 

 

Outside data processing and other services
24

 
46

 

 

 
4

 
15

 

 

Net occupancy
52

 
15

 

 

 
14

 
7

 

 

Equipment
16

 
25

 

 

 
6

 
20

 

 

Professional services
10

 
58

 

 

 
2

 
9

 

 

Marketing
1

 
5

 

 

 

 
4

 

 

Other expense
9

 
14

 

 

 

 
3

 

 

Total noninterest expense
$
154

 
$
239

 

 
$

 
$
30

 
$
53

 

 

Table 11 - Adjusted Noninterest Expense (Non-GAAP)
 
2017
 
2016
 
 
 
2017
 
2016
 
 
 
 
 
Full
 
Full
 
YOY
 
Fourth
 
Third
 
Fourth
 
Change (%)
($ in millions)
Year
 
Year
 
Change
 
Quarter
 
Quarter
 
Quarter
 
LQ
 
YOY
Personnel costs
$
1,482

 
$
1,273

 
16
%
 
$
373

 
$
373

 
$
365

 
 %
 
2
 %
Outside data processing and other services
289

 
259

 
12

 
71

 
76

 
74

 
(7
)
 
(4
)
Net occupancy
160

 
138

 
16

 
36

 
41

 
42

 
(12
)
 
(14
)
Equipment
155

 
140

 
11

 
36

 
39

 
40

 
(8
)
 
(10
)
Deposit and other insurance expense
78

 
54

 
44

 
19

 
19

 
16

 

 
19

Professional services
59

 
47

 
26

 
18

 
13

 
14

 
38

 
29

Marketing
59

 
58

 
2

 
10

 
17

 
17

 
(41
)
 
(41
)
Amortization of intangibles
56

 
30

 
87

 
14

 
14

 
14

 

 

Other expense
222

 
170

 
31

 
56

 
58

 
46

 
(3
)
 
22

Total adjusted noninterest expense
$
2,560

 
$
2,169

 
18
%
 
$
633

 
$
650

 
$
628

 
(3
)%
 
1
 %
See Pages 10 and 21 of Quarterly Financial Supplement for additional detail.
Note: 2016 results reflect inclusion of FirstMerit since August 16, 2016.

10



Reported noninterest expense for the 2017 fourth quarter decreased $48 million , or 7% , from the year-ago quarter, primarily reflecting the impact of Significant Items in the year-ago quarter. Net occupancy costs decreased $13 million , or 27% , primarily reflecting $7 million of acquisition-related Significant Items in the 2016 fourth quarter and the benefit of branch and corporate office consolidations completed during the past year. Marketing decreased $11 million , or 52% , primarily reflecting elevated marketing activities in the year-ago quarter related to the FirstMerit acquisition and timing of marketing campaigns within the 2017 calendar year. Personnel costs increased $13 million , or 4% , reflecting annual merit increases, higher medical claims, and $5 million of acquisition-related expense reversals in the year ago quarter. Other expense increased $7 million , or 14% , primarily reflecting the $6 million benefit related to the extinguishment of trust preferred securities in the 2016 fourth quarter.
Reported noninterest expense decreased $47 million , or 7% , from the 2017 third quarter , primarily reflecting the impact of Significant Items in the prior quarter. Net occupancy expense decreased $19 million , or 35% , including the benefit of branch and corporate office consolidations completed during the prior quarter. Outside data processing and other services expense decreased $9 million , or 11% , primarily reflecting the benefit of a debit card-related vendor migration completed during the prior quarter. Marketing decreased $7 million , or 41% , reflecting normal seasonality in marketing spend.
Credit Quality
Table 12 – Credit Quality Metrics – NPAs and NCOs Remain Stable Sequentially
 
2017
 
2016
($ in millions)
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
Total nonaccrual loans and leases
$
349

 
$
338

 
$
364

 
$
401

 
$
423

Total other real estate, net
33

 
42

 
44

 
50

 
51

Other NPAs (1)
7

 
7

 
7

 
7

 
7

Total nonperforming assets
389

 
387

 
415

 
458

 
481

Accruing loans and leases past due 90 days or more
115

 
119

 
136

 
128

 
129

NPAs + accruing loans and lease past due 90 days or more
$
504

 
$
506

 
$
551

 
$
586

 
$
610

NAL ratio (2)
0.50
%
 
0.49
%
 
0.54
%
 
0.60
%
 
0.63
%
NPA ratio (3)
0.55

 
0.56

 
0.61

 
0.68

 
0.72

(NPAs+90 days)/(Loans+OREO)
0.72

 
0.74

 
0.81

 
0.87

 
0.91

Provision for credit losses
$
65

 
$
43

 
$
25

 
$
68

 
$
75

Net charge-offs
41

 
43

 
36

 
39

 
44

Net charge-offs / Average total loans
0.24
%
 
0.25
%
 
0.21
%
 
0.24
%
 
0.26
%
Allowance for loans and lease losses
$
691

 
$
675

 
$
668

 
$
673

 
$
638

Allowance for unfunded loan commitments and letters of credit
87

 
79

 
85

 
92

 
98

Allowance for credit losses (ACL)
$
778

 
$
754

 
$
753

 
$
765

 
$
736

ALLL as % of:
 
 
 
 
 
 
 
 
 
Total loans and leases
0.99
%
 
0.98
%
 
0.98
%
 
1.00
%
 
0.95
%
NALs
198

 
200

 
183

 
168

 
151

NPAs
178

 
175

 
161

 
147

 
133

ACL as a % of:
 
 
 
 
 
 
 
 
 
Total loans and leases
1.11
%
 
1.10
%
 
1.11
%
 
1.14
%
 
1.10
%
NALs
223

 
223

 
207

 
190

 
174

NPAs
200

 
195

 
181

 
167

 
153

(1)
Other nonperforming assets includes certain impaired investment securities.
(2)
Total NALs as a % of total loans and leases.
(3)
Total NPAs as a % of sum of loans and leases and net other real estate.
See Pages 12-15 and 23-26 of Quarterly Financial Supplement for additional detail.

11



Overall asset quality remains strong. The overall consumer credit metrics continue to perform as expected, with a modest seasonal impact evident across the portfolios. The commercial portfolios have performed consistently, with some quarter-to-quarter volatility as a result of the absolute low level of problem loans.
Nonaccrual loans and leases (NALs) of $349 million represented 0.50% of total loans and leases, down from 0.63% a year ago. The decrease in the NAL ratio reflected a 17% year-over-year decrease in NALs centered in the commercial portfolio coupled with the impact of the 5% year-over-year increase in total loans and leases. Nonperforming assets (NPAs) of $389 million represented 0.55% of total loans and leases and OREO, down from 0.72% a year ago. These ratios remained stable sequentially as the NAL ratio increased 1 basis point from the prior quarter, while the NPA ratio decreased 1 basis point.
The provision for credit losses decreased to $65 million in the 2017 fourth quarter compared to $75 million in the 2016 fourth quarter. Net charge-offs (NCOs) decreased $3 million , or 7% , to $41 million . NCOs represented an annualized 0.24% of average loans and leases in the current quarter, down 1 basis point from the prior quarter and down 2 basis points from the year-ago quarter. Commercial charge-offs continued to be positively impacted by recoveries in the CRE portfolio and broader continued successful workout strategies, while consumer charge-offs remained within our expected range. We continue to be pleased with the net charge-off performance across the entire portfolio, as NCOs remain below our targeted range of 0.35% to 0.55%.
The period-end allowance for credit losses (ACL) as a percentage of total loans and leases increased to 1.11% from 1.10% a year ago, while the ACL as a percentage of period-end total NALs increased to 223% from 174% . We believe the level of the ACL is appropriate given the consistent improvement in the credit quality metrics and the current composition of the overall loan and lease portfolio.
Capital
Table 13 – Capital Ratios – Share Repurchases Continuing to Return Capital
 
 
2017
 
2016
($ in billions)
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
Tangible common equity / tangible assets ratio
 
7.34
%
 
7.42
%
 
7.41
%
 
7.28
%
 
7.16
%
Regulatory common equity tier 1 risk-based capital ratio (1)
 
9.89
%
 
9.94
%
 
9.88
%
 
9.74
%
 
9.56
%
Regulatory Tier 1 risk-based capital ratio (1)
 
11.22