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Actionable news in HBAN: Huntington Bancshares Incorporated,

Huntington Bancshares Incorporated Reports Record Quarterly Earnings

"We are very pleased with our record second quarter earnings, which illustrates tangible progress to deliver top tier regional bank performance," said Steve Steinour, chairman, president, and CEO. "The improved earnings power of the company is a result of the successful integration combined with organic growth. The recent results of the annual DFAST and CCAR exercises demonstrate our disciplined underwriting and risk management to maintain our aggregate moderate-to-low risk profile."

"We remain focused on core deposit growth, and actively manage our balance sheet in the face of rising short-term interest rates. Loan growth in the second quarter benefited from strong consumer loan production, particularly residential mortgage and auto," Steinour said.

"With the FirstMerit integration nearly complete, we are focused on growing revenues through deepening existing customer relationships, gaining market share via new customer acquisition, and executing on the revenue enhancement opportunities from the acquisition. The successful conversion, particularly with respect to consumer deposit retention, positioned us to re-examine our physical distribution network for additional efficiencies, resulting in the recently-announced consolidation of 38 branches and 7 drive-through convenience locations to be completed during the 2017 third quarter."

Huntington today also announced the Board authorized the repurchase of up to $308 million of common shares over the four quarters through the 2018 second quarter. The share repurchase plan was proposed in the 2017 CCAR capital plan, which received no objections from the Federal Reserve. Purchases of common stock under the authorization may include open market purchases, privately negotiated transactions, and accelerated repurchase programs.

Specific 2017 Second Quarter Highlights:

  • $295 million, or 37%, year-over-year increase in fully-taxable equivalent revenue, comprised of a $241 million, or 47%, increase in fully-taxable equivalent net interest income and a $54 million, or 20%, increase in noninterest income
  • Net interest margin of 3.31%, an increase of 25 basis points from the year-ago quarter
  • $171 million, or 33%, year-over-year increase in noninterest expense, including a net increase of $29 million of FirstMerit acquisition-related expense
  • $15.4 billion, or 30%, year-over-year increase in average loans and leases, comprised on an $8.5 billion, or 32%, increase in commercial loans and a $6.9 billion, or 27%, increase in consumer loans
  • $8.5 billion, or 56%, year-over-year increase in average securities, including a net increase of $0.6 billion of direct purchase municipal instruments in our Commercial Banking segment
  • $20.4 billion, or 39%, year-over-year increase in average core deposits, driven by a $9.0 billion, or 107%, increase in interest-bearing demand deposits, a $6.5 billion, or 120%, increase in savings and other domestic deposits, and a $5.1 billion, or 31%, increase in noninterest-bearing demand deposits
  • Net charge-offs equated to 0.21% of average loans and leases, representing the thirteenth consecutive quarter below the long-term target range of 0.35% to 0.55%
  • Nonperforming asset ratio of 0.61%, down from 0.68% a quarter ago and 0.93% a year ago
    • Automobile loans continue to perform well, with net charge-offs down 16 basis points sequentially to 0.29% and nonaccrual loans down 22% to $4 million, or 0.03% of Automobile loans
  • $0.55, or 8%, year-over-year decrease, but $0.19, or 3%, linked-quarter increase in tangible book value per common share (TBVPS) to $6.74

Table 1 – Earnings Performance Summary


2017


2016

($ in millions, except per share data)

Second


First


Fourth


Third


Second

Quarter


Quarter


Quarter


Quarter


Quarter

Net Income

$

272



$

208



$

239



$

127



$

175


Diluted earnings per common share

0.23



0.17



0.20



0.11



0.19












Return on average assets

1.09

%


0.84

%


0.95

%


0.58

%


0.96

%

Return on average common equity

10.6



8.2



9.4



5.4



9.6


Return on average tangible common equity

14.4



11.3



12.9



7.0



11.0


Net interest margin

3.31



3.30



3.25



3.18



3.06


Efficiency ratio

62.9



65.7



61.6



75.0



66.1












Tangible book value per common share

$

6.74



$

6.55



$

6.43



$

6.48



$

7.29


Cash dividends declared per common share

0.08



0.08



0.08



0.07



0.07


Average diluted shares outstanding (000's)

1,108,527



1,108,617



1,104,358



952,081



810,371












Average earning assets

$

91,728



$

91,139



$

91,463



$

79,687



$

67,863


Average loans and leases

67,345



66,981



66,405



60,722



51,932


Average core deposits

72,291



71,500



72,070



62,022



51,895












Tangible common equity / tangible assets ratio

7.41

%


7.28

%


7.16

%


7.14

%


7.96

%

Common equity Tier 1 risk-based capital ratio

9.88



9.74



9.56



9.09



9.80












NCOs as a % of average loans and leases

0.21

%


0.24

%


0.26

%


0.26

%


0.13

%

NAL ratio

0.54



0.60



0.63



0.61



0.88


ACL as a % of total loans and leases

1.11



1.14



1.10



1.06



1.33


Table 2 lists certain items that we believe are significant in understanding corporate performance and trends (see Basis of Presentation). There was one Significant Item in the 2017 second quarter: $50 million of FirstMerit acquisition-related net expense.

Table 2 – Significant Items Influencing Earnings

Three Months Ended

Pre-Tax
Impact


After-Tax Impact

($ in millions, except per share)

Amount


Amount (1)


EPS (2)

June 30, 2017 – net income



$

272



$

0.23



Merger and acquisition-related net expenses

$

(50)



(33)



(0.03)


March 31, 2017 – net income



$

208



$

0.17



Merger and acquisition-related net expenses

$

(71)



(46)



(0.04)


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


September 30, 2016 – net income



$

127



$

0.11



Merger and acquisition-related net expenses

$

(159)



(107)



(0.11)


June 30, 2016 – net income



$

175



$

0.19



Merger and acquisition-related net expenses

$

(21)



(14)



(0.02)


Net Interest Income, Net Interest Margin, and Average Balance Sheet

Table 3 – Net Interest Income and Net Interest Margin Performance Summary – Purchase Accounting Accretion Aids Year-over-Year NIM Expansion


2017


2016




($ in millions)

Second


First


Fourth


Third


Second


Change (%)

Quarter


Quarter


Quarter


Quarter


Quarter

LQ


YOY

Net interest income

$

745



$

730



$

735



$

625



$

506



2

%


47

%

FTE adjustment

12



12



13



11



10



(0)



20


Net interest income - FTE

757



742



748



636



516



2



47


Noninterest income

325



312



334



302



271



4



20


Total revenue - FTE

$

1,082



$

1,054



$

1,082



$

938



$

787



3

%


37

%












Change bp

Yield / Cost











LQ


YOY

Total earning assets

3.75

%


3.70

%


3.60

%


3.52

%


3.41

%


5



34


Total loans and leases

4.15



4.07



3.95



3.81



3.63



8



52


Total securities

2.55



2.54



2.58



2.47



2.56



1



(1)


Total interest-bearing liabilities

0.61



0.54



0.48



0.49



0.50



7



11


Total interest-bearing deposits

0.31



0.26



0.23



0.22



0.23



5



8
















Net interest rate spread

3.14



3.16



3.12



3.03



2.91



(2)



23


Impact of noninterest-bearing funds on margin

0.17



0.14



0.13



0.15



0.15



3



2


Net interest margin

3.31

%


3.30

%


3.25

%


3.18

%


3.06

%


1



25


Fully-taxable equivalent (FTE) net interest income for the 2017 second quarter increased $241 million, or 47%, from the 2016 second quarter. This reflected the benefit from the $23.9 billion, or 35%, increase in average earning assets coupled with a 25 basis point improvement in the FTE net interest margin (NIM) to 3.31%. Average earning asset growth included a $15.4 billion, or 30%, increase in average loans and leases and an $8.5 billion, or 56%, increase in average securities. The NIM expansion reflected a 34 basis point increase in earning asset yields and a 2 basis point increase in the benefit from noninterest-bearing funds, partially offset by an 11 basis point increase in funding costs. FTE net interest income during the 2017 second quarter included $34 million, or approximately 15 basis points, of purchase accounting impact.

Compared to the 2017 first quarter, FTE net interest income increased $15 million, or 2%. Average earning assets increased $0.6 billion, or less than 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 3 basis point increase in the benefit from noninterest-bearing funds, partially offset by a 7 basis point increase in the cost of interest-bearing liabilities. The purchase accounting impact on the net interest margin was approximately 15 basis points in the 2017 second quarter compared to approximately 16 basis points in the prior quarter.

Table 4 – Average Earning Assets – Residential Mortgage, Automobile, and RV and Marine Drive Linked-quarter Loan Growth


2017


2016





($ in billions)

Second


First


Fourth


Third


Second


Change (%)

Quarter


Quarter


Quarter


Quarter


Quarter

LQ


YOY

Commercial and industrial

$

28.0



$

27.9



$

27.7



$

25.0



$

21.3



0

%


31

%

Commercial real estate

7.1



7.4



7.2



6.4



5.2



(4)



35


Total commercial

35.1



35.3



34.9



31.3



26.6



(1)



32


Automobile

11.3



11.1



10.9



11.4



10.1



2



12


Home equity

10.0



10.1



10.1



9.3



8.4



(1)



18


Residential mortgage

8.0



7.8



7.7



7.0



6.2



3



29


RV and marine finance

2.0



1.9



1.8



0.9





9



NM

Other consumer

1.0



0.9



1.0



0.8



0.6



7



60


Total consumer

32.3



31.7



31.5



29.4



25.4



2



27


Total loans and leases

67.3



67.0



66.4



60.7



51.9



1



30


Total securities

23.8



23.6



22.4



18.2



15.3



0



56


Held-for-sale and other earning assets

0.6



0.5



2.6



0.8



0.7



22



(6)


Total earning assets

$

91.7



$

91.1



$

91.5



$

79.7



$

67.9



1

%


35

%

Average earning assets for the 2017 second quarter increased $23.9 billion, or 35%, from the year-ago quarter, primarily reflecting the impact of the FirstMerit acquisition. Average securities increased $8.5 billion, or 56%, which included $2.9 billion of direct purchase municipal instruments in our commercial banking segment compared to $2.3 billion in the year-ago quarter. Average residential mortgage loans increased $1.8 billion, or 29%, as we continue to see increased demand for residential mortgage loans across our footprint.

Compared to the 2017 first quarter, average earning assets increased $0.6 billion, or less than 1%. Average loans and leases increased $0.4 billion, or less than 1%, primarily reflecting growth in residential mortgage, automobile, and RV and marine loans partially offset by a decline in average commercial real estate loans. Total commercial lending was negatively impacted by anticipated FirstMerit-related runoff.

Table 5 – Average Liabilities – Interest-bearing Demand and Money Market Deposits Drive Linked-quarter Core Deposit Growth


2017


2016




Second


First


Fourth


Third


Second


Change (%)

($ in billions)

Quarter


Quarter


Quarter


Quarter


Quarter


LQ


YOY

Demand deposits - noninterest-bearing

$

21.6



$

21.7



$

23.2



$

20.0



$

16.5



(1)

%


31

%

Demand deposits - interest-bearing

17.4



16.8



15.3



12.4



8.4



4



107


Total demand deposits

39.0



38.5



38.5



32.4



24.9



1



56


Money market deposits

19.2



18.7



18.6



18.5



19.5



3



(2)


Savings and other domestic deposits

11.9



12.0



12.3



8.9



5.4



(1)



120


Core certificates of deposit

2.1



2.3



2.6



2.3



2.0



(8)



7


Total core deposits

72.2



71.5



72.0



62.1



51.8



1



39


Other domestic deposits of $250,000 or more

0.5



0.5



0.4



...

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