HUNTINGTON BANCSHARES INC/MD (Form: 8-K, Received: 01/24/2019 07:35:31)

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 24, 2019

_______________________________________________________________

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)

(614) 480-2265

(Registrant’s telephone number, including area code)

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):




o	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))



Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (§24012b-2).

	Emerging growth company	o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o


Item 2.02.	Results of Operations and Financial Condition.

On January 24, 2019 , Huntington Bancshares Incorporated (“Huntington”) issued a news release announcing its earnings for the quarter ended December 31, 2018 . Also on January 24, 2019 , Huntington made a Quarterly Financial Supplement available in the Investor Relations section of Huntington’s website. 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 24, 2019 , 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 website, www.huntington.com, or through a dial-in telephone number at (877) 407-8029 ; Conference ID 13686018 . Slides will be available in the Investor Relations section of Huntington’s website about an hour prior to the call. A replay of the webcast will be archived in the Investor Relations section of Huntington’s website. A telephone replay will be available approximately two hours after the completion of the call through February 1, 2019 at (877) 660-6853 or (201) 612-7415 conference ID 13686018 .

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 BCFP; 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 2017 Annual Report on Form 10-K, as well as our subsequent Securities and Exchange Commission ("SEC") filings, which are on file with the SEC and available in the “Investor Relations” section of our website, http://www.huntington.com , under the heading “Publications and Filings.”

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 24, 2019.

Exhibit 99.2 – Quarterly Financial Supplement, December 2018.

EXHIBIT INDEX

Exhibit No. Description

Exhibit 99.1 News release of Huntington Bancshares Incorporated, dated January 24, 2019

Exhibit 99.2 Quarterly Financial Supplement, December 2018

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 24, 2019	By:	/s/ Howell D. McCullough III
			Howell D. McCullough III
			Chief Financial Officer

Exhibit 99.1

FOR IMMEDIATE RELEASE

January 24, 2019

Analysts: Mark Muth (mark.muth@huntington.com), 614.480.4720

Media: Matt Samson (matt.b.samson@huntington.com), 312.263.0203

HUNTINGTON BANCSHARES INCORPORATED REPORTS RECORD ANNUAL EARNINGS

Record Annual Revenue Drives 20% Increase in 2018 EPS

COLUMBUS, Ohio – Huntington Bancshares Incorporated (Nasdaq: HBAN; www.huntington.com) reported 2018 full-year net income of $1.4 billion , an increase of 17% from the prior year. Earnings per common share for the year were $1.20 , up 20% from the prior year. Tangible book value per common share as of 2018 year-end was $7.34 , a 5% year-over-year increase. Return on average assets for the 2018 full year was 1.33% , return on average common equity was 13.4% , and return on average tangible common equity was 17.9 %.

Net income for the 2018 fourth quarter was $334 million , a 23% decrease from the year-ago quarter. Earnings per common share for the 2018 fourth quarter were $0.29 , down 22% from the year-ago quarter. The 2017 fourth quarter included an estimated tax benefit of $123 million, or $0.11 per common share, related to the Tax Cuts and Jobs Act ("federal tax reform"). Excluding this tax benefit for the 2017 fourth quarter, 2018 fourth quarter earnings per common share were up 12% from the year-ago quarter. Return on average assets for the 2018 fourth quarter was 1.25% , return on average common equity was 12.9% , and return on average tangible common equity was 17.3% .

"2018 marks another year of strong performance for Huntington, with record net income for the fourth consecutive year and annual positive operating leverage for the sixth consecutive year," said Steve Steinour, chairman, president, and CEO. "For the first time, we achieved all five of our long-term financial goals on a full-year GAAP basis. This achievement accelerated our ability to provide enhanced long-term targets as a part of the new strategic plan announced in the fourth quarter. Our strategy is based on capitalizing on our sustainable competitive advantages, driving organic revenue growth, and adhering to our aggregate moderate-to-low risk appetite.”

"Total revenue for the 2018 full year increased 4% year-over-year driven by organic balance sheet growth and net interest margin expansion. The revenue growth coupled with our disciplined expense management drove annual positive operating leverage,” Steinour said. “Average loan growth remained strong at 6% for the 2018 full year, driven by broad-based consumer and commercial lending. As expected, the fourth quarter reflected seasonally strong commercial loan production, particularly from our corporate, dealer floorplan, and equipment finance customers at the end of December, along with steady consumer loan production."

"Our view of 2019 from a balance sheet growth perspective remains unchanged, generally consistent with our view of overall economic activity. The underlying fundamentals of our local economies are positive, and businesses are generally performing well and are optimistic about 2019. Our loan pipelines remain steady, and credit metrics remain strong. We are executing on our new strategic plan and continue to invest to drive organic growth. The plan entails low execution risk and builds on the success of the past two strategic plans. At the same time, given recent market volatility, we are reverting to our historic practice of assuming no interest rate hikes in our revenue expectation and are adjusting our expense expectation as a result. We are focused on what we can control to drive long-term performance."

Full-year 2018 highlights compared with 2017 :


•	Fully-taxable equivalent total revenue increased $181 million , or 4% .


•	Fully-taxable equivalent net interest income increased $167 million , or 5% .


•	Net interest margin increased 3 basis points to 3.33% .


•	Noninterest income increased $14 million , or 1% .


•	Noninterest expense decreased $67 million , or 2% , as 2017 included $154 million of acquisition-related expense.


•	Efficiency ratio of 56.9% , down from 60.9% .


•	Average loans and leases increased $4.4 billion , or 6% , including a $3.2 billion , or 10% , increase in consumer loans and a $1.1 billion , or 3% , increase in commercial loans.


•	Average core deposits increased $3.6 billion , or 5% , driven by a $2.1 billion , or 98% , increase in core certificates of deposits (CDs) and a $1.7 billion , or 9% , increase in money market deposits.


•	Net charge-offs (NCOs) equated to 0.20% of average loans and leases, down from 0.23% and represented continued performance below the average through-the-cycle target range of 0.35% to 0.55%.


•	Nonperforming asset (NPA) ratio of 0.52% , down from 0.55% .


•	Common Equity Tier 1 (CET1) risk-based capital ratio of 9.65% , down from 10.01% and within our 9% to 10% operating guideline.


•	Tangible common equity (TCE) ratio of 7.21% , down from 7.34% .


•	Tangible book value per common share (TBVPS) increased $ 0.37 , or 5% , to $7.34 .


•	Repurchased $939 million of common stock (61.6 million shares at an average price of $15.23 per share).


•	Cash dividends on common stock increased for the eighth consecutive year.

2018 Fourth Quarter highlights compared with 2017 Fourth Quarter :


•	Fully-taxable equivalent total revenue increased $48 million , or 4% .


•	Fully-taxable equivalent net interest income increased $59 million , or 8% .


•	Net interest margin increased 11 basis points to 3.41% .


•	Noninterest income decreased $11 million , or 3% .


•	Noninterest expense increased $78 million , or 12% .


•	Average loans and leases increased $4.9 billion , or 7% , including a $3.0 billion , or 9% , increase in consumer loans and a $1.9 billion , or 5% , increase in commercial loans.


•	Average securities decreased $1.7 billion , or 7% .


•	Average core deposits increased $5.1 billion , or 7% , driven by a $3.8 billion , or 193% , increase in average core CDs and a $1.9 billion , or 9% , increase in money market deposits.


•	NCOs equated to 0.27% of average loans and leases, up from 0.24% and remaining below the average through-the-cycle target range of 0.35% to 0.55%.


•	Repurchased $200 million of common stock (15.0 million shares at an average price of $13.36 per share).


•	In October, Huntington announced the consolidation of 70 branches and additional corporate facilities. While the expense of these actions was included in the 2018 fourth quarter, certain consolidations were completed early in the 2019 first quarter.


•	In December, Huntington announced the sale of 32 Wisconsin branches, which is expected to close in the 2019 second quarter.

Table 1 – Earnings Performance Summary



	Full Year						2018						2017
($ in millions, except per share data)	2018			2017			Fourth Quarter			Third Quarter			Fourth Quarter
Net income	$	1,393		$	1,186		$	334		$	378		$	432
Diluted earnings per common share	1.20			1.00			0.29			0.33			0.37

Return on average assets	1.33		%	1.17		%	1.25		%	1.42		%	1.67		%
Return on average common equity	13.4			11.6			12.9			14.3			17.0
Return on average tangible common equity	17.9			15.7			17.3			19.0			22.7
Net interest margin	3.33			3.30			3.41			3.32			3.30
Efficiency ratio	56.9			60.9			58.7			55.3			54.9

Tangible book value per common share	$	7.34		$	6.97		$	7.34		$	7.06		$	6.97
Cash dividends declared per common share	0.50			0.35			0.14			0.14			0.11
Average diluted shares outstanding (000’s)	1,105,985			1,136,186			1,073,055			1,103,740			1,130,117

Average earning assets	$	96,577		$	92,423		$	97,752		$	96,753		$	93,937
Average loans and leases	72,246			67,891			73,822			72,751			68,940
Average core deposits	76,403			72,830			79,078			77,680			73,946

Tangible common equity / tangible assets ratio	7.21		%	7.34		%	7.21		%	7.25		%	7.34		%
Common equity Tier 1 risk-based capital ratio	9.65			10.01			9.65			9.89			10.01

NCOs as a % of average loans and leases	0.20		%	0.23		%	0.27		%	0.16		%	0.24		%
NAL ratio	0.45			0.50			0.45			0.50			0.50
ALLL as a % of total loans and leases	1.03			0.99			1.03			1.04			0.99

Table 2 lists certain items that management believes are significant in understanding corporate performance and trends (see Basis of Presentation on page 14). There were no Significant Items in 2018.

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, 2018 – net income					$	1,393		$	1.20
•	None	N/A			—			—
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		)

Three Months Ended
December 31, 2018 – net income					$	334		$	0.29
•	None	N/A			—			—
September 30, 2018 – net income					$	378		$	0.33
•	None	N/A			—			—
December 31, 2017 – net income					$	432		$	0.37
•	Federal tax reform-related estimated tax benefit (3)	N/A			123			0.11


(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. We completed our provisional estimate related to tax reform during 2018 which resulted in an immaterial impact for the year.

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 Drove NIM Expansion



	2018		2017				2018				2017
($ in millions)	Full Year		Full Year		Change YOY		Fourth Quarter		Third Quarter		Fourth Quarter		Change (%)
($ in millions)	Full Year		Full Year		Change YOY		Fourth Quarter		Third Quarter		Fourth Quarter		LQ		YOY
Net interest income	$	3,189	$	3,002	6	%	$	833	$	802	$	770	4	%	8	%
FTE adjustment	30		50		(40	)	8		8		12		0		33
Net interest income - FTE	3,219		3,052		5		841		810		782		4		8
Noninterest income	1,321		1,307		1		329		342		340		(4	)	(3	)
Total revenue - FTE	$	4,540	$	4,359	4	%	$	1,170	$	1,152	$	1,122	2	%	4	%



	2018		2017				2018				2017
	Full Year		Full Year		Change YOY		Fourth Quarter		Third Quarter		Fourth Quarter		Change bp
Yield / Cost	Full Year		Full Year		Change YOY		Fourth Quarter		Third Quarter		Fourth Quarter		LQ	YOY
Total earning assets	4.12	%	3.77	%	35	bp	4.34	%	4.16	%	3.83	%	18	51
Total loans and leases	4.58		4.19		39		4.76		4.60		4.23		16	53
Total securities	2.72		2.57		15		2.84		2.73		2.64		11	20
Total interest-bearing liabilities	1.06		0.64		42		1.23		1.13		0.73		10	50
Total interest-bearing deposits	0.65		0.33		32		0.84		0.73		0.37		11	47

Net interest rate spread	3.06		3.13		(7)		3.11		3.03		3.10		8	1
Impact of noninterest-bearing funds on margin	0.27		0.17		10		0.30		0.29		0.20		1	10
Net interest margin	3.33	%	3.30	%	3	bp	3.41	%	3.32	%	3.30	%	9	11

See Pages 7-9 and 18-20 of Quarterly Financial Supplement for additional detail.

Fully-taxable equivalent (FTE) net interest income for the 2018 fourth quarter increased $59 million , or 8% , from the 2017 fourth quarter . This reflected the benefit from the $3.8 billion , or 4% , increase in average earning assets coupled with an 11 basis point increase in the FTE net interest margin (NIM) to 3.41% . Average earning asset yields increased 51 basis points year-over-year, driven by a 53 basis point improvement in loan yields. Average interest-bearing liability costs increased 50 basis points, although interest-bearing deposit costs only increased 47 basis points. The cost of short-term borrowings and long-term debt increased 134 basis points and 109 basis points, respectively. The benefit from noninterest-bearing funds increased 10 basis points versus the year-ago quarter. Embedded within these yields and costs, FTE net interest income during the 2018 fourth quarter included $17 million, or approximately 7 basis points, of purchase accounting impact compared to $24 million, or approximately 10 basis points, in the year-ago quarter. The 2018 fourth quarter included an approximately 2 basis point impact from higher commercial interest recoveries. On a year-over-year basis, NIM was negatively impacted by 2 basis points as a result of the impact of federal tax reform on the FTE adjustment.

Compared to the 2018 third quarter , FTE net interest income increased $31 million , or 4% , primarily reflecting a 9 basis point increase in NIM. Average earning asset yields increased 18 basis points sequentially, driven by a 16 basis point increase in loan yields, which includes the aforementioned commercial interest recovery benefit, and the benefit of the earning asset mix shift. Average interest-bearing liability costs increased 10 basis points, primarily driven by an 11 basis point increase in average interest-bearing deposit costs. The benefit of noninterest-bearing funds increased 1 basis point. The purchase accounting impact on the net interest margin was approximately 7 basis points in the 2018 fourth quarter , unchanged from the prior quarter.

Table 4 – Average Earning Assets – Broad-based Consumer and C&I Loan Growth Reflects Underlying Economic Strength of Footprint



	2018		2017				2018				2017
($ in billions)	Full		Full		YOY		Fourth		Third		Fourth		Change (%)
($ in billions)	Year		Year		Change		Quarter		Quarter		Quarter		LQ		YOY
Commercial and industrial	$	28.9	$	27.7	4	%	$	29.6	$	28.9	27.4		2	%	8	%
Commercial real estate	7.2		7.2		0		6.9		7.2		7.2		(3	)	(4	)
Total commercial	36.1		35.0		3		36.5		36.0		34.6		1		5
Automobile	12.3		11.5		7		12.4		12.4		12.0		0		4
Home equity	9.9		10.0		(1	)	9.8		9.9		10.0		(1	)	(2	)
Residential mortgage	9.9		8.2		20		10.6		10.2		8.8		3		20
RV and marine finance	2.8		2.2		32		3.2		3.0		2.4		7		34
Other consumer	1.2		1.0		18		1.3		1.2		1.1		4		18
Total consumer	36.2		32.9		10		37.3		36.7		34.3		2		9
Total loans and leases	72.2		67.9		6		73.8		72.8		68.9		1		7
Total securities	23.5		23.9		(2	)	22.7		23.2		24.3		(2	)	(7	)
Held-for-sale and other earning assets	0.8		0.7		29		1.3		0.8		0.7		54		85
Total earning assets	$	96.6	$	92.4	4	%	$	97.8	$	96.8	$	93.9	1	%	4	%

See Pages 7 and 18 of Quarterly Financial Supplement for additional detail.

Average earning assets for the 2018 fourth quarter increased $3.8 billion , or 4% , from the year-ago quarter, primarily reflecting a $4.9 billion , or 7% , increase in average total loans and leases. Average commercial and industrial (C&I) loans increased $2.1 billion , or 8% , reflecting broad-based growth. Average residentia l mortg age loans increased $1.8 billion , or 20% , driven by an increase in lending officers and expansion into the Chicago market. Average RV and marine finance loans increased $0.8 billion , or 34% , reflecting the success of the well-managed geographic expansion over the past two years, while maintaining our commitment to super prime originations. Average automobile loans increased $0.5 billion , or 4% , driven by origination volume consistent with current market dynamics and our continued commitment to high quality borrowers while optimizing yield and production in the rising rate environment over the past year. Average securities decreased $1.7 billion , or 7% , primarily due to runoff in the portfolio, partially offset by continued growth in direct purchase municipal instruments in our commercial banking segment.

Compared to the 2018 third quarter , average earning assets increased $1.0 billion , or 1% . Average total loans and leases increased $1.1 billion , or 1% . Average C&I loans increased $0.7 billion , or 2% , reflecting growth in dealer floorplan, corporate, and middle market banking. Average total consumer loans increased $0.6 billion , or 2% , driven by continued growth in residential mortgage and RV and marine lending. Average securities decreased $0.5 billion , or 2% , primarily due to runoff in the portfolio. As of December 31, 2018, approximately $121 million of loans were included in held-for-sale related to the announced sale of our Wisconsin branches, which is expected to close in the 2019 second quarter.

Table 5 – Average Liabilities – Continued Growth in Core Deposits Drove Reduction in Wholesale Funding



	2018		2017				2018				2017
	Full		Full		YOY		Fourth		Third		Fourth			Change (%)
($ in billions)	Year		Year		Change		Quarter		Quarter		Quarter			LQ		YOY
Demand deposits - noninterest bearing	$	20.4	$	21.7	(6	)%	$	20.4	$	20.2	$	21.7		1	%	(6	)%
Demand deposits - interest bearing	19.3		17.6		10		19.9		19.6		18.2			2		9
Total demand deposits	39.7		39.3		1		40.2		39.8		39.9			1		1
Money market deposits	21.4		19.7		9		22.6		21.5		20.7			5		9
Savings and other domestic deposits	11.1		11.7		(5	)	10.5		11.4		11.3			(8	)	(7	)
Core certificates of deposit	4.2		2.1		98		5.7		4.9		1.9		#160;	16		193
Total core deposits	76.4		72.8		5		79.1		77.7		73.9			2		7
Other domestic deposits of $250,000 or more	0.3		0.4		(37	)	0.3		0.3		0.4			21		(14	)
Brokered deposits and negotiable CDs	3.5		3.7		(5	)	3.5		3.5		3.4			(1	)	3
Total deposits	$	80.2	$	77.0	4	%	$	82.9	$	81.5	$	77.7		2	%	7	%

Short-term borrowings	$	2.7	$	2.9	(6	)%	$	1.0	$	1.7	$	2.8		(42	)%	(65	)%
Long-term debt	9.0		8.9		1		8.9		8.9		9.2			0		(4	)
Total debt	$	11.7	$	11.8	(1	)%	$	9.9	$	10.6	$	12.0		(7	)%	(18	)%

Total Interest-bearing liabilities	$	71.5	$	67.0	7	%	$	72.4	$	71.9	$	68.1		1	%	6	%

See Pages 7 and 18 of Quarterly Financial Supplement for additional detail.

Average total interest-bearing liabilities for the 2018 fourth quarter increased $4.4 billion , or 6% , from the year ago quarter. Average total deposits increased $5.2 billion , or 7% , while average total core deposits increased $5.1 billion , or 7% . Average core CDs increased $3.8 billion , or 193% , reflecting consumer deposit growth initiatives primarily in the first three quarters of 2018. Average money market deposits increased $1.9 billion , or 9% , primarily reflecting growth in commercial and consumer balances. Savings and other domestic deposits decreased $0.8 billion , or 7% , primarily reflecting FirstMerit-related balance attrition and continued consumer product mix shift. Average short-term borrowings decreased $1.8 billion , or 65% , as continued growth in core deposits reduced reliance on wholesale funding.

Compared to the 2018 third quarter , average total interest-bearing liabilities increased $0.5 billion , or 1% . Average total core deposits increased $1.4 billion , or 2% . Average core CDs increased $0.8 billion , or 16% , reflecting the aforementioned consumer deposit growth initiatives. Average total demand deposits increased $0.5 billion , or 1% , primarily driven by commercial interest checking growth. Average money market deposits increased $1.0 billion , or 5% , reflecting initiatives to drive commercial and consumer money market growth and a re-class of certain commercial savings accounts. Savings and other domestic deposits decreased $0.9 billion , or 8% , primarily reflecting the re-class of certain commercial savings accounts and continued consumer product mix shift. Average short-term borrowings decreased $0.7 billion , or 42% , as continued growth in core deposits reduced reliance on wholesale funding. As of December 31, 2018, approximately $872 million of deposits are held-for-sale associated with the previously-mentioned pending Wisconsin branch sale (included in total deposits in Table 5 above).

Noninterest Income (see Basis of Presentation on page 14)

Table 6 - Noninterest Income (GAAP) - Continued Momentum in Capital Markets and Card and Payment Processing Income



	2018			2017					2018						2017
	Full			Full			YOY		Fourth			Third			Fourth			Change (%)
($ in millions)	Year			Year			Change		Quarter			Quarter			Quarter			LQ		YOY
Service charges on deposit accounts	$	364		$	353		3	%	$	94		$	93		$	91		1	%	3	%
Card and payment processing income	224			206			9		58			57			53			2		9
Trust and investment management services	171			156			10		42			43			41			(2	)	2
Mortgage banking income	108			131			(18	)	23			31			33			(26	)	(30	)
Capital markets fees	91			76			20		29			22			23			32		26
Insurance income	82			81			1		21			19			21			11		0
Bank owned life insurance income	67			67			0		16			19			18			(16	)	(11	)
Gain on sale of loans	55			56			(2	)	16			16			17			0		(6	)
Securities (losses) gains	(21		)	(4		)	(425	)	(19		)	(2		)	(4		)	(850	)	(375	)
Other income	180			185			(3	)	49			44			47			11		4
Total noninterest income	$	1,321		$	1,307		1	%	$	329		$	342		$	340		(4	)%	(3	)%

Table 7 - Impact of Significant Items



	2018		2017		2018				2017
	Full		Full		Fourth		Third		Fourth
($ in millions)	Year		Year		Quarter		Quarter		Quarter
Service charges on deposit accounts	$	—	$	—	$	—	$	—	$	—
Card and payment processing income	—		—		—		—		—
Trust and investment management services	—		—		—		—		—
Mortgage banking income	—		—		—		—		—
Capital markets fees	—		—		—		—		—
Insurance income	—		—		—		—		—
Bank owned life insurance income	—		—		—		—		—
Gain on sale of loans	—		—		—		—		—
Securities (losses) gains	—		—		—		—		—
Other income	—		2		—		—		—
Total noninterest income	$	—	$	2	$	—	$	—	$	—

Table 8 - Adjusted Noninterest Income (Non-GAAP)



	2018			2017					2018						2017
	Full			Full			YOY		Fourth			Third			Fourth			Change (%)
($ in millions)	Year			Year			Change		Quarter			Quarter			Quarter			LQ		YOY
Service charges on deposit accounts	$	364		$	353		3	%	$	94		$	93		$	91		1	%	3	%
Card and payment processing income	224			206			9		58			57			53			2		9
Trust and investment management services	171			156			10		42			43			41			(2	)	2
Mortgage banking income	108			131			(18	)	23			31			33			(26	)	(30	)
Capital markets fees	91			76			20		29			22			23			32		26
Insurance income	82			81			1		21			19			21			11		0
Bank owned life insurance income	67			67			0		16			19			18			(16	)	(11	)
Gain on sale of loans	55			56			(2	)	16			16			17			0		(6	)
Securities (losses) gains	(21		)	(4		)	(425	)	(19		)	(2		)	(4		)	(850	)%	(375	)%
Other income	180			183			(2	)	49			44			47			11		4
Total adjusted noninterest income	$	1,321		$	1,305		1	%	$	329		$	342		$	340		(4	)%	(3	)%

See Pages 10-11 and 21-22 of Quarterly Financial Supplement for additional detail.

Noninterest income for the 2018 fourth quarter decreased $11 million , or 3% , from the year-ago quarter. Securities losses were $19 million compared to $4 million in the year-ago quarter, reflecting the losses related to the $1.1 billion portfolio repositioning completed in the 2018 fourth quarter . Mortgage banking income decreased $10 million , or 30% , primarily reflecting lower spreads on origination volume. Capital markets fees increased $6 million , or 26% , primarily driven by $4 million of fees from Hutchinson, Shockey, and Erley & Co. (HSE), which was acquired October 1, 2018. Card and payment processing income increased $5 million , or 9% , due to underlying customer growth and higher card usage.

Compared to the 2018 third quarter , total noninterest income decreased $13 million , or 4% . Securities losses were $19 million compared to $2 million in the 2018 third quarter , reflecting the $19 million of losses related to the aforementioned portfolio repositioning. Mortgage banking income decreased $8 million , or 26% , primarily reflecting lower spreads on origination volume and lower volume. Capital markets fees increased $7 million , or 32% , primarily driven by $4 million of fees from HSE and increased sales of foreign exchange and commodity derivatives.

Noninterest Expense (see Basis of Presentation on page 14)

Table 9 – Noninterest Expense (GAAP) – Year-over-Year Variance Driven by Branch and Facility Consolidation-Related Actions in the 2018 Fourth Quarter



	2018		2017				2018				2017
	Full		Full		YOY		Fourth		Third		Fourth		Change (%)
($ in millions)	Year		Year		Change		Quarter		Quarter		Quarter		LQ		YOY
Personnel costs	$	1,559	$	1,524	2	%	$	399	$	388	$	373	3	%	7	%
Outside data processing and other services	294		313		(6	)	83		69		71		20		17
Net occupancy	184		212		(13	)	70		38		36		84		94
Equipment	164		171		(4	)	48		38		36		26		33
Deposit and other insurance expense	63		78		(19	)	9		18		19		(50	)	(53	)
Professional services	60		69		(13	)	17		17		18		0		(6	)
Marketing	53		60		(12	)	15		12		10		25		50
Amortization of intangibles	53		56		(5	)	13		13		14		0		(7	)
Other expense	217		231		(6	)	57		58		56		(2	)	2
Total noninterest expense	$	2,647	$	2,714	(2	)%	$	711	$	651	$	633	9	%	12	%
(in thousands)
Number of employees (Average full-time equivalent)	15.7		15.8		(1	)%	15.7		15.8		15.4		(1	)%	2	%

Table 10 - Impacts of Significant Items



	2018		2017		2018				2017
	Full		Full		Fourth		Third		Fourth
($ in millions)	Year		Year		Quarter		Quarter		Quarter
Personnel costs	$	—	$	42	$	—	$	—	$	—
Outside data processing and other services	—		24		—		—		—
Net occupancy	—		52		—		—		—
Equipment	—		16		—		—		—
Deposit and other insurance expense	—		—		—		—		—
Professional services	—		10		—		—		—
Marketing	—		1		—		—		—
Amortization of intangibles	—		—		—		—		—
Other expense	—		9		—		—		—
Total noninterest expense	$	—	$	154	$	—	$	—	$	—

Table 11 - Adjusted Noninterest Expense (Non-GAAP)



	2018		2017				2018				2017
	Full		Full		YOY		Fourth		Third		Fourth		Change (%)
($ in millions)	Year		Year		Change		Quarter		Quarter		Quarter		LQ		YOY
Personnel costs	$	1,559	$	1,482	5	%	$	399	$	388	$	373	3	%	7	%
Outside data processing and other services	294		289		2		83		69		71		20		17
Net occupancy	184		160		16		70		38		36		84		(14	)
Equipment	164		155		6		48		38		36		26		33
Deposit and other insurance expense	63		78		44		9		18		19		(50	)	19
Professional services	60		59		2		17		17		18		0		(6	)
Marketing	53		59		(10	)	15		12		10		25		50
Amortization of intangibles	53		56		(5	)	13		13		14		0		(7	)
Other expense	217		222		(2	)	57		58		56		(2	)	2
Total adjusted noninterest expense	$	2,647	$	2,560	3	%	$	711	$	651	$	633	9	%	12	%

See Pages 10 and 21 of Quarterly Financial Supplement for additional detail.

Reported noninterest expense for the 2018 fourth quarter increased $78 million , or 12% , from the year-ago quarter. Net occupancy costs increased $34 million , or 94% , primarily reflecting $28 million of branch and facility consolidation-related expense in the 2018 fourth quarter. Personnel costs increased $26 million , or 7% , reflecting annual merit increases, higher benefit costs, and $3 million of run-rate expense from HSE. Equipment increased $12 million , or 33% , primarily reflecting $7 million of branch and facility consolidation-related expense in the 2018 fourth quarter. Outside data processing and other services expense increased $12 million , or 17% , primarily driven by higher technology investment costs. Marketing increased $5 million , or 50% , primarily reflecting timing of marketing campaigns. Insurance expense decreased $10 million , or 53% , due to the discontinuation of the FDIC surcharge in the 2018 fourth quarter.

Reported noninterest expense increased $60 million , or 9% , from the 2018 third quarter . Net occupancy expense increased $32 million , or 84% , primarily reflecting $28 million of branch and facility consolidation-related expense in the 2018 fourth quarter. Outside data processing and other services expense increased $14 million , or 20% , primarily driven by higher technology investment costs. Personnel costs increased $11 million , 3% , reflecting higher benefit costs and $3 million of run-rate expense from HSE. Equipment increased $10 million , or 26% , primarily reflecting $7 million of branch and facility consolidation-related expense in the 2018 fourth quarter. Insurance expense decreased $9 million , or 50% , due to the discontinuation of the FDIC surcharge in the 2018 fourth quarter.

Credit Quality

Table 12 – Credit Quality Metrics – NPA Ratio at Cyclical Low, and NCOs Remain Below the Average Through-the-Cycle Target Range



	2018												2017
($ in millions)	December 31,			September 30,			June 30,			March 31,			December 31,
Total nonaccrual loans and leases	$	340		$	370		$	378		$	383		$	349
Total other real estate, net	23			27			28			30			33
Other NPAs (1)	24			6			6			7			7
Total nonperforming assets	387			403			412			420			389
Accruing loans and leases past due 90 days or more	170			154			132			106			115
NPAs + accruing loans and lease past due 90 days or more	$	557		$	557		$	544		$	526		$	504
NAL ratio (2)	0.45		%	0.50		%	0.52		%	0.54		%	0.50		%
NPA ratio (3)	0.52			0.55			0.57			0.59			0.55
(NPAs+90 days)/(Loans+OREO)	0.74			0.76			0.75			0.74			0.72
Provision for credit losses	$	60		$	53		$	56		$	66		$	65
Net charge-offs	50			29			28			38			41
Net charge-offs / Average total loans	0.27		%	0.16		%	0.16		%	0.21		%	0.24		%
Allowance for loans and lease losses (ALLL)	$	772		$	761		$	741		$	721		$	691
Allowance for unfunded loan commitments and letters of credit	96			97			93			85			87
Allowance for credit losses (ACL)	$	868		$	858		$	834		$	806		$	778
ALLL as % of:
Total loans and leases	1.03		%	1.04		%	1.02		%	1.01		%	0.99		%
NALs	228			206			197			188			198
NPAs	200			189			180			172			178


(1)	Other nonperforming assets at December 31, 2018 include certain loans held-for-sale. Amounts prior to December 31, 2018 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.

Overall asset quality performance remained consistent with prior periods and our expectations. The consumer portfolio metrics continue to reflect the results associated with our focus on high quality borrowers, with an expected 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) decreased $9 million , or 3% , from the year-ago quarter to $340 million , or 0.45% of total loans and leases. The year-over-year decline was centered in the commercial real estate and residential mortgage portfolios, partially offset by an increase in the commercial portfolio. OREO balances decreased $10 million , or 30% , from the year-ago quarter. The decline in OREO assets reflected reductions in both commercial and residential properties. Nonperforming assets (NPAs) decreased to $387 million , or 0.52% of total loans and leases and OREO. On a linked quarter basis, NALs decreased $30 million , or 8% , while NPAs decreased $16 million , or 4% .

The provision for credit losses decreased $5 million year-over-year to $60 million in the 2018 fourth quarter . Net charge-offs (NCOs) increased $9 million to $50 million . The increase was primarily centered in the C&I portfolio, with no segment or geographic concentration. Consumer charge-offs have remained consistent over the past year. NCOs represented an annualized 0.27% of average loans and leases in the current quarter, up from 0.16% in the prior quarter and up from 0.24% in the year-ago quarter. We continue to be pleased with the net charge-off performance within each portfolio and in total.

The allowance for loan and lease losses (ALLL) as a percentage of total loans and leases increased to 1.03% compared to 0.99% a year ago, while the ALLL as a percentage of period-end total NALs increased to 228% from 198% over the same period. The increase in the ALLL is primarily the result of loan growth. We believe the level of the ALLL and ACL are appropriate given the low level of problem loans and the current composition of the overall loan and lease portfolio.

Capital

Table 13 – Capital Ratios – Managing Capital Ratios within Targeted Ranges



	2018								2017
($ in billions)	December 31,		September 30,		June 30,		March 31,		December 31,
Tangible common equity / tangible assets ratio	7.21	%	7.25	%	7.78	%	7.70	%	7.34	%
Regulatory common equity tier 1 risk-based capital ratio (1)	9.65	%	9.89	%	10.53	%	10.45	%	10.01	%
Regulatory Tier 1 risk-based capital ratio (1)	11.06	%