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
  _______________________________________________________________
HUNTINGTONLOGOA26.JPG
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
 
 
HUNTINGTONLOGOA18.JPG
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."





1




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.


2



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



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 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.



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 Drove NIM Expansion
 
2018
 
2017
 
 
 
2018
 
2017
 
 
 
 
($ in millions)
Full Year
 
Full Year
 
Change YOY
 
Fourth Quarter
 
Third Quarter
 
Fourth Quarter
 
Change (%)
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
 
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.


5



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 (%)
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.


6



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).


7



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

 
 
 
$

 
$

 
$

 
 
 
 



8



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.


9



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.


10



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.



11



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
%