Huntington Bancshares Incorporated (NASDAQ: HBAN;
www.huntington.com) reported net income for the 2015 first quarter
of $166 million, or a $17 million increase from the year-ago
quarter. Earnings per common share for the 2015 first quarter were
$0.19, an increase of $0.02 from the year-ago quarter.
“This year will be built on a strong foundation of focused
execution of our strategies,” said Steve Steinour, chairman,
president and CEO. “Our solid first quarter performance puts us on
a path for success in 2015. Ongoing improvement in our expense
control environment, continuing good core deposit growth, and
strong mortgage and capital markets results were highlights for the
quarter. We are committed to achieving another full year of
positive operating leverage with appropriately risk-balanced
growth.”
“We completed the first quarter with the successful close of our
acquisition of Macquarie Equipment Finance, Inc., and look forward
to transitioning to the Huntington Technology Finance brand to
align our enhanced capabilities with our combined customer base and
prospects. The acquisition gives us the ability to drive added
growth to our national equipment finance business as well as
additional health care and small business finance capabilities,”
Steinour said. “Also in the quarter, we continued to expand within
our core footprint via the launch of our previously announced 2015
in-store build-out, enhancing our full-service branch network in a
cost-efficient manner. Furthermore, we were pleased for Huntington
to receive annual recognition again within the quarter as one of
the best commercial and business banks in the country by Greenwich
Associates. And, we received this month for the third time the TNS
Choice Award for Consumer Retail Banking in the Central Region of
the U.S., recognizing Huntington’s top survey performance ratings
among major banks within 20 states.”
Huntington today also announced two capital actions approved by
the Board of Directors. First, the Board declared a quarterly cash
dividend on the company’s common stock of $0.06 per common share.
The dividend is payable July 1, 2015, to shareholders of record on
June 17, 2015. Second, the Board authorized the repurchase of up to
$366 million of common shares over the five quarters through the
2016 second quarter. Both actions were proposed in the January 2015
CCAR capital plan, which received no objections from the Federal
Reserve. Purchases of common stock may include open market
purchases, privately negotiated transactions, and accelerated
repurchase programs. During the 2015 first quarter, the company
repurchased 4.9 million common shares at an average price of $10.45
per share.
Specific 2015 First Quarter highlights
compared with 2014 First Quarter:
- 1.02% return on average assets; 12.2%
return on average tangible common equity
- $15 million, or 2%, increase in
fully-taxable equivalent revenue, driven by a $32 million, or 7%,
increase in fully-taxable equivalent net interest income
- $4.5 billion, or 10%, increase in
average total deposits, driven by a $3.6 billion, or 8%, increase
in average core deposits
- $4.4 billion, or 10%, increase in
average loans and leases
- Net charge-offs declined to 0.20% of
average loans and leases, down from 0.40%
- $0.31, or 5%, increase in tangible book
value per common share to $6.62; end of period dividend yield of
2.2%
Specific 2015 First Quarter highlights compared with 2014
Fourth Quarter:
- $1.4 billion, or 3%, increase in
average total deposits, including a $1.1 billion, or 2%, increase
in average core deposits
- $1.2 billion, or 2%, increase in
average earning assets, driven by a $0.7 billion, or 1%, increase
in average loans and leases
- Completed acquisition of Macquarie
Equipment Finance, which added $0.8 billion of equipment finance
leases and $0.5 billion of assumed debt
Table 1 – Earnings Performance
Summary
2015 2014
First
Fourth Third Second First
($ in millions, except per share data)
Quarter
Quarter Quarter Quarter Quarter Net Income
$ 165.9 $
163.6 $ 155.0 $ 164.6 $ 149.1 Diluted earnings per common share
0.19 0.19 0.18 0.19 0.17 Return on average assets
1.02 % 1.00 % 0.97 % 1.07 % 1.01 % Return on average
common equity
10.6 10.3 9.9 10.8 9.9 Return on average
tangible common equity
12.2 11.9 11.4 12.4 11.4 Net interest
margin
3.15 3.18 3.20 3.28 3.27 Efficiency ratio
63.5
66.2 65.3 62.7 66.4 Tangible book value per common share
$ 6.62 $ 6.62 $ 6.53 $ 6.48 $ 6.31 Cash dividends
declared per common share
0.06 0.06 0.05 0.05 0.05 Average
diluted shares outstanding (000's)
823,809 825,338 829,623
834,687 842,677 Average earning assets
$
61,193 $ 60,010 $ 58,707 $ 57,077 $ 54,961 Average loans
47,780 47,092 46,113 45,024 43,423 Average core deposits
48,777 47,638 46,119 45,611 45,195 Tangible common
equity / tangible assets ratio
7.95 % 8.17 % 8.35 %
8.38 % 8.63 % Common equity Tier 1 risk-based capital ratio
9.51 N/A N/A N/A N/A Tier 1 common risk-based capital ratio
N/A 10.23 10.31 10.26 10.60 NCOs as a % of average
loans and leases
0.20 % 0.20 % 0.26 % 0.25 % 0.40 %
NAL ratio
0.76 0.63 0.70 0.71 0.74 ACL as a % of total loans
and leases
1.38 1.40 1.47 1.50 1.56 N/A denotes
quarters in which the calculation did not apply
Table 2 lists certain items that Management believes are
significant in understanding corporate performance and trends (see
Basis of Presentation). There were no Significant Items in the 2015
first quarter. The quarter did contain $3 million of expenses
related to the Macquarie Equipment Finance acquisition.
Merger-related expense may be a Significant Item for the 2015 full
year.
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)
March 31, 2015 – net income (3) $
166 $ 0.19 December 31, 2014 – net
income $ 164 $ 0.19
- Addition to litigation reserves
$ (12 ) (8 ) (0.01 )
- Franchise repositioning related expense
(9 ) (6 ) (0.01 )
September 30, 2014 – net income
$ 155 $ 0.18
- Franchise repositioning related expense
$ (19 ) (13 ) (0.02 )
- Merger and acquisition related net expenses
(3 ) (2 ) (0.00 )
June 30, 2014 – net income
(4) $ 165 $ 0.19 March
31, 2014 – net income $ 149 $ 0.17
- Camco Financial acquisition
$ (12 ) (8 ) (0.01 )
- Addition to litigation reserves
(9 ) (6 ) (0.01 )
(1)
Favorable (unfavorable) impact on net
income; 35% operating tax rate
(2)
EPS reflected on a fully diluted basis
(3)
Quarter included $3 million of
merger-related expense that was not a Significant Item for the
quarter, but merger-related expense may be a Significant Item for
the 2015 full year.
(4)
Quarter included $1 million of
merger-related expense that was not a Significant Item for the
quarter, but merger and acquisition-related net expense was a
Significant Item for the 2014 full year.
Net Interest Income, Net Interest
Margin, and Average Balance Sheet
Table 3 – Net Interest Income and Net
Interest Margin Performance Summary
2015 2014
First Fourth Third Second
First Change ($ in millions)
Quarter Quarter Quarter Quarter Quarter LQ YOY Net interest
income
$ 467.7 $ 473.3 $ 466.3 $ 460.0 $ 437.5 (1 ) %
7 % FTE adjustment
7.6
7.5 7.5 6.6 5.9 1
28 Net interest income - FTE
475.2 480.8 473.8 466.7 443.4 (1 ) 7 Noninterest income
231.6 233.3
247.3 250.1 248.5 (1 ) (7
) Total revenue - FTE
$ 706.9
$ 714.1 $ 721.2 $ 716.8 $ 691.9
(1 ) % 2 % Change bp Yield / Cost
LQ YOY Total earning assets
3.38 % 3.41 % 3.44
% 3.53 % 3.53 % (3 ) (15 ) Total loans and leases
3.56 3.60
3.66 3.75 3.75 (3 ) (19 ) Total securities
2.57 2.65 2.54
2.57 2.52 (8 ) 5 Total interest-bearing liabilities
0.32 0.32 0.33 0.34 0.36 (0 ) (4 ) Total interest-bearing
deposits
0.22 0.23 0.23 0.25 0.28 (1 ) (6 ) Net
interest rate spread
3.06 3.09 3.11 3.19 3.17 (3 ) (11 )
Impact of noninterest-bearing funds on margin
0.09 0.09 0.09
0.09 0.10 (0 ) (1 ) Net interest
margin
3.15 % 3.18 %
3.20 % 3.28 % 3.27 % (3 ) (12 )
See Pages 7-8 of Quarterly Financial
Supplement for additional detail.
Fully-taxable equivalent (FTE) net interest income for the 2015
first quarter increased $32 million, or 7%, from the 2014 first
quarter. This reflected the benefit from the $6.2 billion, or 11%,
increase in average earnings assets partially offset by a 12 basis
point reduction in the FTE net interest margin (NIM) to 3.15%.
Average earning asset growth included a $4.4 billion, or 10%,
increase in average loans and leases and a $1.8 billion, or 16%,
increase in average securities. The NIM contraction reflected a 15
basis point decrease related to the mix and yield of earning assets
and 1 basis point reduction in benefit from the impact of
noninterest-bearing funds, partially offset by the 4 basis point
reduction in funding costs.
Compared to the 2014 fourth quarter, FTE net interest income
decreased $6 million, or 1%. While average earning assets increased
$1.2 billion, or 2%, sequentially, the 3 basis point decrease in
the NIM coupled with two fewer days in the 2015 first quarter more
than offset the benefit of the larger balance sheet.
Table 4 – Average Earning Assets –
Automobile and C&I Continue to Provide Primary Sources of Loan
Growth
2015 2014
First Fourth Third
Second First Change (%) (in billions)
Quarter Quarter Quarter Quarter Quarter LQ YOY
Average
Loans and Leases Commercial and industrial
$ 19.1
$ 18.9 $ 18.6 $ 18.3 $ 17.6 1 % 8 % Commercial real estate
5.2 5.1 5.0 5.0
4.9 2 5 Total commercial
24.3 24.0 23.5 23.3 22.5 1
8 Automobile
8.8 8.5 8.0 7.3 6.8 3 29 Home
equity
8.5 8.5 8.4 8.4 8.3 --- 2 Residential mortgage
5.8 5.8 5.7 5.6 5.4 1 8 Other consumer
0.4 0.4 0.4 0.4 0.4 3 10
Total consumer
23.5 23.1
22.6 21.7 20.9 2 12 Total loans
and leases
47.8 47.1 46.1
45.0 43.4 1 10 Total securities
12.9 12.4 12.2 11.7 11.2 4 16 Held-for-sale and other
earning assets
0.5 0.5 0.4 0.4 0.4 4 32 Total earning assets
$ 61.2 $ 60.0 $ 58.7 $ 57.1 $ 55.0 2 %
11 %
See Page 6 of Quarterly Financial
Supplement for additional detail.
Average earning assets for the 2015 first quarter increased $6.2
billion, or 11%, from the year-ago quarter, driven by:
- $2.0 billion, or 29%, increase in
average Automobile loans, as the 2015 first quarter represented the
fifth consecutive quarter of greater than $1.0 billion in
automobile loan originations.
- $1.8 billion, or 16%, increase in
average securities, reflecting an increase of $1.8 billion of
Liquidity Coverage Ratio (LCR) Level 1 qualified securities. The
quarter’s average balance also included $0.8 billion of direct
purchase municipal instruments originated by our Commercial
segment, offset by $0.8 billion of runoff.
- $1.5 billion, or 8%, increase in
average Commercial and Industrial (C&I) loans and leases,
primarily reflecting growth in trade finance in support of our
middle market and corporate customers, asset finance, automobile
dealer floorplan lending, and corporate banking.
- $0.4 billion, or 8%, increase in
average Residential mortgage loans as a result of the Camco
acquisition in the year-ago quarter and a decrease in the rate of
payoffs due to lower levels of refinancing.
While not affecting average balances, $1.0 billion of automobile
loans were transferred to Loans Held-For-Sale (HFS) at quarter end
in anticipation of a future loan securitization. In addition, on
March 31, 2015, the company completed the previously announced
acquisition of Macquarie Equipment Finance, Inc., subsequently
rebranded as Huntington Technology Finance. The acquisition
included $0.8 billion of equipment finance leases.
Table 5 – Average Liabilities – Growth
in Noninterest Bearing Demand Deposits Drives Further Improvement
in Funding Mix
2015 2014
First Fourth Third
Second First Change (%) (in billions)
Quarter Quarter Quarter Quarter Quarter LQ YOY
Average
Deposits Demand deposits - noninterest bearing
$
15.3 $ 15.2 $ 14.1 $ 13.5 $ 13.2 --- % 16 % Demand deposits
- interest bearing
6.2 5.9
5.9 5.9 5.8 4 7
Total demand deposits
21.4 21.1 20.0 19.4 19.0 1 13 Money
market deposits
19.4 18.4 17.9 17.7 17.6 5 10 Savings and
other domestic deposits
5.2 5.1 5.0 5.1 5.0 2 4 Core
certificates of deposit
2.8 3.1
3.2 3.4 3.6 (8 ) (22 ) Total
core deposits
48.8 47.6 46.1 45.6 45.2 2 8 Other domestic
deposits of $250,000 or more
0.2 0.2 0.2 0.3 0.3 (3 ) (31 )
Brokered deposits and negotiable CDs
2.6 2.4 2.3 2.1 1.8 7
46 Other deposits
0.6 0.5
0.4 0.3 0.3 16 70 Total
deposits
52.1 50.8 49.0
48.3 47.6 3 10
Short and long-term borrowings
6.3 6.6 7.2 6.3 4.9 (6 ) 28
Total Interest-bearing liabilities
$
43.1 $ 42.2 $ 42.0 $ 41.1 $ 39.3 2 % 10 %
See Page 6 of Quarterly Financial
Supplement for additional detail.
Average total deposits for the 2015 first quarter increased $4.5
billion, or 10%, from the year-ago quarter, including a $3.6
billion, or 8%, increase in average total core deposits. The
increase in total deposits included $1.0 billion of deposits
acquired in the Camco and Bank of America branch acquisitions.
Average total interest-bearing liabilities increased $3.8 billion,
or 10%, from the year-ago quarter, reflecting:
- $2.1 billion, or 16%, increase in
noninterest bearing deposits, reflecting the strategic focus on
consumer checking account household and commercial checking account
relationship growth.
- $1.7 billion, or 10%, increase in money
market deposits, reflecting consumer and commercial relationship
growth as well as strong sales execution.
- $1.4 billion, or 28%, increase in
short- and long-term borrowings, primarily reflecting a
cost-effective method of funding incremental LCR related securities
growth including the issuance of $1.0 billion of bank-level senior
debt during the 2015 first quarter.
- $0.8 billion, or 46%, increase in
brokered deposits and negotiable CDs, which were used to
efficiently finance balance sheet growth while continuing to manage
the overall cost of funds.
Partially offset by:
- $0.8 billion, or 22%, decrease in
average core certificates of deposit due to the strategic focus on
changing the funding sources to no-cost demand deposits and
lower-cost money market deposits.
Compared to the 2014 fourth quarter, average total
interest-bearing liabilities increased $0.9 billion, or 2%,
primarily reflecting a $1.0 billion, or 5%, increase in average
money market deposits. While not affecting average balances, the
Macquarie acquisition included $0.5 billion of assumed debt.
Noninterest Income
Table 6 – Noninterest Income –
Continued Momentum in Electronic Banking and Robust Activity in
Capital Markets Highlight Quarter
2015 2014
First Fourth Third
Second First Change (%) (in millions)
Quarter Quarter Quarter Quarter Quarter LQ YOY
Noninterest Income Service charges on deposit accounts
$ 62.2 $ 67.4 $ 69.1 $ 72.6 $ 64.6 (8 ) % (4 ) %
Trust services
29.0 28.8 28.0 29.6 29.6 1 (2 ) Electronic
Banking
27.4 28.0 27.3 26.5 23.6 (2 ) 16 Mortgage banking
income
23.0 14.0 25.1 22.7 23.1 64 (1 ) Brokerage Income
15.5 16.1 17.2 17.9 17.2 (3 ) (10 ) Insurance income
15.9 16.3 16.7 16.0 16.5 (2 ) (4 ) Bank owned life insurance
income
13.0 15.0 14.9 13.9 13.3 (13 ) (2 ) Capital markets
fees
13.9 13.8 10.2 10.5 9.2 1 51 Gain on sale of loans
4.6 5.4 8.2 3.9 3.6 (15 ) 29 Securities (losses) gains
0.0 (0.1 ) 0.2 0.5 17.0 NM NM Other income
27.1 28.7 30.4 36.0
30.9 (6 ) (12 ) Total noninterest income
$ 231.6 $ 233.3 $ 247.3 $ 250.1
$ 248.5 (1 ) % (7 ) % NM-Not meaningful
See Pages 9-10 of Quarterly Financial
Supplement for additional detail.
Noninterest income for the 2015 first quarter decreased $17
million, or 7%, from the year-ago quarter. The year-over-year
decrease primarily reflected the $17 million of securities gains
realized in the 2014 first quarter compared to none in the current
quarter. Other notable noninterest income comparisons with the
year-ago quarter included:
- $5 million, or 51%, increase in capital
market fees, primarily related to income from customer interest
rate derivative products and underwriting fees.
- $4 million, or 16%, increase in
electronic banking, due to higher card related income and
underlying customer growth.
- $2 million, or 4%, decrease in service
charges on deposit accounts as a 9% increase in consumer households
and changing customer usage patterns partially offset the estimated
$6 million quarterly run-rate decline from the late July 2014
implementation of changes in consumer products.
Compared to the 2014 fourth quarter, mortgage banking revenues
increased $9 million, or 64%, primarily driven by higher gain on
sale margin, a higher percentage of loans originated for sale, and
a 6% increase in origination volume.
Noninterest Expense (see
Basis of Presentation)
Table 7 – Noninterest Expense from
Continuing Operations (GAAP) – Continuing Impact of Acquisitions
Push Expenses Higher
2015 2014
First Fourth Third
Second First Change (%) (in millions)
Quarter Quarter Quarter Quarter Quarter LQ YOY
Noninterest Expense Personnel costs
$ 264.9 $
263.3 $ 275.4 $ 260.6 $ 249.5 1 % 6 % Outside data processing and
other services
50.5 53.7 53.1 54.3 51.5 (6 ) (2 ) Net
occupancy
31.0 31.6 34.4 28.7 33.4 (2 ) (7 ) Equipment
30.2 32.0 30.2 28.7 28.8 (5 ) 5 Professional services
12.7 15.7 13.8 17.9 12.2 (19 ) 4 Marketing
13.0 12.5
12.6 14.8 10.7 4 21 Deposit and other insurance expense
10.2
13.1 11.6 10.6 13.7 (22 ) (26 ) Amortization of intangibles
10.2 10.7 9.8 9.5 9.3 (4 ) 10 Other expense
36.1 50.9 39.5 33.4 51.0
(29 ) (29 ) Total noninterest expense
$ 458.9 $ 483.3 $ 480.3 $ 458.6 $ 460.1 (5 ) % ---
% (in thousands) Number of employees (Average
full-time equivalent)
11.9 11.9 11.9 12.0 11.8 1 % 1 %
Table 8 - Impacts of Significant
Items
2015 2014
First
Fourth Third Second First
(in millions)
Quarter (1) Quarter
Quarter Quarter (2) Quarter
Noninterest Expense Personnel
costs
$ 0.0 $ 2.2 $ 15.3 $ 0.0 $ 2.3 Outside data
processing and other services
0.1 0.3 0.3 0.6 4.3 Net
occupancy
0.0 4.1 5.2 0.1 1.7 Equipment
0.0 2.0 0.1
0.0 0.1 Professional services
3.3 0.0 0.0 0.1 2.2 Marketing
0.0 0.0 0.8 0.0 0.5 Other expense
0.0 11.6 1.1 0.0 10.4 Total
noninterest expense
$ 3.4 $ 20.3 $ 22.8
$ 0.8 $ 21.6
(1)
Includes $3 million of merger-related
expense that was not a Significant Item for the quarter, but
merger-related expense may be a Significant Item for the 2015 full
year.
(2)
Includes $1 million of merger-related
expense that was not a Significant Item for the quarter, but was a
Significant Item for the 2014 full year.
Table 9 - Adjusted Noninterest Expense
(Non-GAAP)
2015 2014
First Fourth Third Second
First Change (%) (in millions)
Quarter Quarter Quarter Quarter Quarter LQ YOY
Noninterest Expense Personnel costs
$ 264.9 $
261.1 $ 260.1 $ 260.6 $ 247.1 1 % 7 % Outside data processing and
other services
50.5 53.4 52.8 53.7 47.2 (5 ) 7 Net occupancy
31.0 27.4 29.2 28.6 31.7 13 (2 ) Equipment
30.2 30.0
30.1 28.7 28.6 1 6 Professional services
9.4 15.7 13.8 17.8
10.1 (40 ) (6 ) Marketing
13.0 12.5 11.8 14.8 10.2 4 28
Deposit and other insurance expense
10.2 13.1 11.6 10.6 13.7
(22 ) (26 ) Amortization of intangibles
10.2 10.7 9.8 9.5
9.3 (4 ) 10 Other expense
36.1
39.2 38.4 33.4 40.7 (8 ) (11 )
Total noninterest expense
$ 455.5 $
463.0 $ 457.5 $ 457.9 $ 438.5 (2 ) % 4 %
See Page 9 of Quarterly Financial
Supplement for additional detail.
Reported noninterest expense for the 2015 first quarter
decreased $1 million, or less than 1%, from the year-ago quarter.
Excluding the impact of Significant Items, noninterest expense
increased $17 million, or 4%. The company has continued to invest
in the growth of the franchise, including the Camco, Bank of
America branch, and Macquarie acquisitions, the ongoing expansion
of our retail branch distribution through our in-store strategy,
and investments in technology and data analytics. Changes in
reported noninterest expense primarily reflect:
- $15 million, or 29%, decrease in other
expense. Excluding the impact of Significant Items, other expenses
decreased $5 million, or 11%.
- $4 million, or 26%, decrease in deposit
and other insurance expense, primarily reflecting the benefit of
$1.75 billion of bank-level debt issued over the past year.
Partially offset by:
- $15 million, or 6%, increase in
personnel costs. Excluding the impact of Significant Items,
personnel costs increased $18 million, or 7%, primarily related to
a $14 million increase in salaries reflecting a 1% increase in the
number of full-time equivalent employees and a $4 million increase
in benefits expense.
Reported noninterest expense decreased $24 million, or 5%, from
the 2014 fourth quarter. When adjusting for Significant Items,
noninterest expense decreased $7 million. On a reported basis,
other expense decreased $15 million, or 29%, largely reflecting the
prior quarter’s $12 million net increase to litigation reserves.
Outside data processing and other services, professional services,
and deposit and other insurance each decreased $3 million from the
prior quarter. Professional services during the 2015 first quarter
included $3 million of expense related to the Macquarie Equipment
Finance acquisition.
Credit Quality
Table 10 – Summary Credit Quality
Metrics – NCOs Remain Below the Long-Term Goal, while One Large
Relationship Creates Volatility within NPAs
2015 2014 ($ in
thousands)
Mar. 31 Dec. 31 Sep. 30
Jun. 30 Mar. 31 Total nonaccrual loans and
leases
$ 364,413 $ 300,244 $ 325,765 $ 324,957 $
327,158 Total other real estate, net
33,951 35,039 36,270
34,695 35,691 Other NPAs (1)
2,440
2,440 2,440 2,440 2,440
Total nonperforming assets
$ 400,804 $ 337,723
$ 364,475 $ 362,092 $ 365,289 Accruing loans and leases past due 90
days or more
112,935 130,481
142,126 137,008 154,896
NPAs + accruing loans and lease past due 90 days or more
$
513,739 $ 468,204 $ 506,601 $ 499,100 $ 520,185 NAL
ratio (2)
0.76 % 0.63
% 0.70
% 0.71
% 0.74
% NPA ratio (3)
0.84 0.71 0.78 0.79
0.82 (NPAs+90 days)/(Loans+OREO)
1.08 0.98 1.08 1.08 1.17
Provision for credit losses
$ 20,591 $ 2,494 $
24,480 $ 29,385 $ 24,630 Net charge-offs
24,432 22,975
30,023 28,643 42,986 Net charge-offs / Average total loans
0.20 % 0.20
% 0.26
% 0.25
% 0.40
% Allowance for loans and lease losses
$
605,126 $ 605,196 $ 631,036 $ 635,101 $ 631,918 Allowance
for unfunded loan commitments and letters of credit
54,742 60,806 55,449
56,927 59,368 Allowance for credit
losses (ACL)
$ 659,868 $ 666,002 $ 686,485 $ 692,028
$ 691,286
ACL as a % of: Total loans and leases
1.38 % 1.40 % 1.47 % 1.50 % 1.56 % NALs
181
222 211 213 211 NPAs
165 197 188 191 191
(1)
Other nonperforming assets includes
certain impaired investment securities.
(2)
Total NALs as a % of total loans and
leases.
(3)
Total NPAs as a % of sum of loans and
leases, impaired loans held for sale, and net other real
estate.
See Pages 11-14 of Quarterly Financial
Supplement for additional detail.
Nonaccrual loans and leases (NALs) increased $37 million, or
11%, compared to a year ago to $364 million, or 0.76% of total
loans and leases. Nonperforming assets (NPAs) increased $36
million, or 10%, to $401 million, or 0.84% of total loans and
leases, OREO, and other NPAs. The increase in NALs primarily was
driven by one specific relationship. As noted previously, given the
low level of problem assets, some quarter-to-quarter volatility is
expected.
The provision for credit losses decreased $4 million
year-over-year to $21 million in the 2015 first quarter. Net
charge-offs (NCOs) decreased $19 million, or 43%, to $24 million.
NCOs represented an annualized 0.20% of average loans and leases in
the current quarter consistent with the prior quarter results, and
down substantially from 0.40% in the year-ago quarter. The Consumer
portfolios continued to show a declining trend over the last five
quarters, particularly evident in Home Equity. The Commercial
portfolio has been relatively consistent over the period with
relatively low levels creating some inherent volatility, while the
commercial real estate portfolio recorded net recoveries for the
sixth consecutive quarter.
The period-end allowance for credit losses (ACL) as a percentage
of total loans and leases decreased to 1.38% from 1.56% a year ago,
while the ACL as a percentage of period-end total NALs declined to
181% from 211%.
Capital
Beginning in the 2015 first quarter, the company became subject
to the Basel III capital requirements as adopted by the Federal
Reserve Board including the standardized approach for calculating
risk-weighted assets in accordance with subpart D of the final
capital rule. The implementation of the Basel III capital
requirements is transitional and phases in from January 1, 2015,
through the end of 2018. The Basel III capital requirements
emphasize common equity tier 1 capital, the most loss-absorbing
form of capital, and implement strict eligibility criteria for
regulatory capital instruments. Common equity tier 1 capital
primarily includes common shareholders’ equity less certain
deductions for goodwill and other intangibles, net of taxes, MSRs,
net of taxes, and DTAs that arise from tax loss and credit
carryforwards. Tier 1 capital is primarily comprised of common
equity tier 1 capital, perpetual preferred stock and certain
qualifying capital instruments (TruPS) that are subject to
phase-out from tier 1 capital. Tier 2 capital primarily includes
qualifying subordinated debt and qualifying ALLL.
Table 11 – Capital Ratios – Capital
Levels Support Continued Balance Sheet Growth and Capital Return to
Shareholders
2015 2014
(in millions)
Mar. 31 Dec. 31 Sep. 30
Jun. 30 Mar. 31 Tangible common equity /
tangible assets ratio
7.95 % 8.17 % 8.35 % 8.38 %
8.63 % Common equity tier 1 risk-based capital ratio(1)
Basel III
9.51 % N/A N/A N/A N/A Tier 1 common
risk-based capital ratio Basel I
N/A 10.23 % 10.31 % 10.26 %
10.60 % Regulatory Tier 1 risk-based capital ratio(1) Basel
III
10.22 % N/A N/A N/A N/A Basel I
N/A 11.50
% 11.61 % 11.56 % 11.95 % Regulatory Total risk-based
capital ratio(1) Basel III
12.48 % N/A N/A N/A N/A
Basel I
N/A 13.56 % 13.72 % 13.67 % 14.13 % Total
risk-weighted assets(1) Basel III
$ 57,833 N/A N/A
N/A N/A Basel I
N/A $ 54,479 $ 53,239 $ 53,035 $ 51,120
(1)
March 31, 2015 figures are estimated and
are presented on a Basel III basis, including the standardized
approach for calculating risk-weighted assets.
N/A denotes quarters in which the
calculation did not apply
See Pages 15-16 of Quarterly Financial
Supplement for additional detail.
The tangible common equity to tangible assets ratio was 7.95% at
March 31, 2015, down 68 basis points from a year ago. On a Basel
III basis, Common Equity Tier 1 (CET1) risk-based capital ratio was
9.51% at March 31, 2015, and the regulatory Tier 1 risk-based
capital ratio was 10.22%. On a Basel I basis, the tier 1 common
risk-based capital ratio was 10.60% at March 31, 2014, and the
regulatory Tier 1 risk-based capital ratio was 11.95%. All capital
ratios were impacted by the repurchase of 26.1 million common
shares over the last four quarters.
During the 2015 first quarter, the company repurchased 4.9
million common shares at an average price of $10.45 per share,
completing the $250 million repurchase authorization included in
the 2014 CCAR capital plan. The Board of Directors authorized the
repurchase of up to $366 million of common shares over the next
five quarters, consistent with the capital plan submitted in the
2015 CCAR process, which received no objection from the Federal
Reserve.
Income Taxes
The provision for income taxes in the 2015 first quarter was $54
million and $52 million in the 2014 first quarter. The effective
tax rates for the 2015 first quarter and 2014 first quarter were
24.6% and 25.9%, respectively. At March 31, 2015, we had a net
federal deferred tax asset of $55 million and a net state deferred
tax asset of $44 million.
Expectations – 2015
“We are optimistic about ongoing economic improvement in our
markets and on the national level. While our customer activity
levels, our pipelines, and our balance sheet are strong, we will
continue to be disciplined in growing our commercial real estate
and C&I portfolios,” Steinour said. “We remain committed to
delivering solid results in a flat interest rate environment. We
have built our budget around the current rate environment and our
planned results are not dependent on a rate hike. We will continue
disciplined execution of our strategic focus on investment in the
business, controlled expenses, and delivering full-year positive
operating leverage.”
Excluding Significant Items and net MSR activity, we expect to
deliver positive operating leverage in 2015. We expect noninterest
expense growth of 2-4%, excluding Significant Items and the
recurring expense related to the Macquarie acquisition.
Overall, asset quality metrics are expected to remain near
current levels, although moderate quarterly volatility also is
expected, given the absolute low level of problem assets and credit
costs. We anticipate NCOs will remain within or below our long-term
normalized range of 35 to 55 basis points.
The effective tax rate for 2015 is expected to be in the range
of 24% to 27%.
Conference Call / Webcast
Information
Huntington’s senior management will host an earnings conference
call on April 22, 2015, at 10:00 a.m. (Eastern Daylight Saving
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 (844)
318-8148; Conference ID# 11113289. 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 April 30, 2015 at (855) 859-2056 or
(404) 537-3406; conference ID# 11113289.
Please see the 2015 First Quarter Quarterly Financial Supplement
for additional detailed financial performance metrics. This
document can be found at the Investor Relations section of
Huntington’s website, www.huntington.com.
Forward-looking Statement
This document 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: (1)
worsening of credit quality performance due to a number of factors
such as the underlying value of collateral that could prove less
valuable than otherwise assumed and assumed cash flows may be worse
than expected; (2) 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; (3) movements in interest rates; (4) competitive pressures
on product pricing and services; (5) success, impact, and timing of
our business strategies, including market acceptance of any new
products or services implementing our “Fair Play” banking
philosophy; (6) changes in accounting policies and principles and
the accuracy of our assumptions and estimates used to prepare our
financial statements; (7) extended disruption of vital
infrastructure; (8) the final outcome of significant litigation;
(9) the nature, extent, timing, and results of governmental
actions, examinations, reviews, reforms, regulations, and
interpretations, including those related to the Dodd-Frank Wall
Street Reform and Consumer Protection Act and the Basel III
regulatory capital reforms, as well as those involving the OCC,
Federal Reserve, FDIC, and CFPB; and (10) the outcome of judicial
and regulatory decisions regarding practices in the residential
mortgage industry, including among other things the processes
followed for foreclosing residential mortgages. Additional factors
that could cause results to differ materially from those described
above can be found in Huntington’s 2014 Annual Report on Form 10-K,
and documents subsequently filed by Huntington with the Securities
and Exchange Commission. All forward-looking statements included in
this document are based on information available at the time of the
release. Huntington assumes no obligation to update any
forward-looking statement.
Basis of Presentation
Use of Non-GAAP Financial
Measures
This document may contain GAAP financial measures and non-GAAP
financial measures where management believes it to be helpful in
understanding Huntington’s results of operations or financial
position. Where non-GAAP financial measures are used, the
comparable GAAP financial measure, as well as the reconciliation to
the comparable GAAP financial measure, can be found in this fourth
quarter earnings release, conference call slides, or the Form 8-K
related to this document, all of which can be found on Huntington’s
website at www.huntington-ir.com.
Significant Items
From time to time, revenue, expenses, or taxes are impacted by
items judged by Management to be outside of ordinary banking
activities and/or by items that, while they may be associated with
ordinary banking activities, are so unusually large that their
outsized impact is believed by Management at that time to be
infrequent or short term in nature. We refer to such items as
"Significant Items". Most often, these Significant Items result
from factors originating outside the Company – e.g., regulatory
actions/assessments, windfall gains, changes in accounting
principles, one-time tax assessments/refunds, litigation actions,
etc. In other cases they may result from Management decisions
associated with significant corporate actions out of the ordinary
course of business – e.g., merger/restructuring charges,
recapitalization actions, goodwill impairment, etc.
Even though certain revenue and expense items are naturally
subject to more volatility than others due to changes in market and
economic environment conditions, as a general rule volatility alone
does not define a Significant Item. For example, changes in the
provision for credit losses, gains/losses from investment
activities, asset valuation write-downs, etc., reflect ordinary
banking activities and are, therefore, typically excluded from
consideration as a Significant Item.
Management believes the disclosure of “Significant Items”, when
appropriate, aids analysts/investors in better understanding
corporate performance and trends so that they can ascertain which
of such items, if any, they may wish to include/exclude from their
analysis of the Company’s performance - i.e., within the context of
determining how that performance differed from their expectations,
as well as how, if at all, to adjust their estimates of future
performance accordingly. To this end, Management has adopted a
practice of listing “Significant Items” in its external disclosure
documents (e.g., earnings press releases, quarterly performance
discussions, investor presentations, Forms 10-Q and 10-K).
"Significant Items" for any particular period are not intended
to be a complete list of items that may materially impact current
or future period performance. A number of items could materially
impact these periods, including those described in Huntington’s
2014 Annual Report on Form 10-K and other factors described from
time to time in Huntington’s other filings with the Securities and
Exchange Commission.
Annualized Data
Certain returns, yields, performance ratios, or quarterly growth
rates are presented on an “annualized” basis. This is done for
analytical and decision-making purposes to better discern
underlying performance trends when compared to full-year or
year-over-year amounts. For example, loan and deposit growth rates,
as well as net charge-off percentages, are most often expressed in
terms of an annual rate like 8%. As such, a 2% growth rate for a
quarter would represent an annualized 8% growth rate.
Fully-Taxable Equivalent Interest Income
and Net Interest Margin
Income from tax-exempt earning assets is increased by an amount
equivalent to the taxes that would have been paid if this income
had been taxable at statutory rates. This adjustment puts all
earning assets, most notably tax-exempt municipal securities and
certain lease assets, on a common basis that facilitates comparison
of results to results of competitors.
Earnings per Share Equivalent
Data
Significant income or expense items may be expressed on a per
common share basis. This is done for analytical and decision-making
purposes to better discern underlying trends in total corporate
earnings per share performance excluding the impact of such items.
Investors may also find this information helpful in their
evaluation of the Company’s financial performance against published
earnings per share mean estimate amounts, which typically exclude
the impact of Significant Items. Earnings per share equivalents are
usually calculated by applying a 35% effective tax rate to a
pre-tax amount to derive an after-tax amount, which is divided by
the average shares outstanding during the respective reporting
period. Occasionally, when the item involves special tax treatment,
the after-tax amount is disclosed separately, with this then being
the amount used to calculate the earnings per share equivalent.
Rounding
Please note that columns of data in this document may not add
due to rounding.
About Huntington
Huntington Bancshares Incorporated is a $68 billion asset
regional bank holding company headquartered in Columbus, Ohio, with
a network of more than 700 branches and almost 1,500 ATMs across
six Midwestern states. Founded in 1866, The Huntington National
Bank and its affiliates provide consumer, small business,
commercial, treasury management, wealth management, brokerage,
trust, and insurance services. Huntington also provides auto
dealer, equipment finance, national settlement and capital market
services that extend beyond its core states. Visit huntington.com
for more information.
Huntington BancsharesAnalysts:Mark Muth,
614-480-4720mark.muth@huntington.comorMedia:Maureen Brown,
614-480-5512maureen.brown@huntington.com
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