01—Abstract
Summary
Summary of the 10-K filed February 22, 2017. Cited figures are marked; the original filing is the authoritative source.
Huntington Bancshares Incorporated, a multi-state diversified regional bank holding company headquartered in Columbus, Ohio, reported net income of $711.8 milliona for 2016, up from $692.96 million in 2015, while diluted earnings per common share fell to $0.70 from $0.81.
The results were shaped by the August 16, 2016 acquisition of FirstMerit Corporation, a stock and cash transaction valued at approximately $3.7 billionb that extended the company's footprint to eight Midwestern states. FirstMerit acquisition-related expenses totaled $282 million pre-tax, or $0.20 per common share, and a $42 million reduction to litigation reserves added $0.03 per share. Total assets grew to $99.71 billion at December 31, 2016, from $71.02 billion a year earlier, and total loans and leases reached $66.96 billion.
Net interest income rose to $2.37 billionc, and the net interest margin was 3.16%. Noninterest income increased 11% to $1.15 billion, while noninterest expense rose 22% to $2.41 billion. Net charge-offs were 0.19% of average loans and leases, below the company's long-term target of 35 to 55 basis points.
The common equity tier 1 risk-based capital ratio was 9.56%d and the total risk-based capital ratio was 13.05%, both above well-capitalized minimums, and the company did not repurchase common stock in 2016. For investors, the filing points to a larger, more diversified balance sheet and a near-term focus on integrating FirstMerit, with management expecting to realize full cost-saving benefits in the second half of 2017. Key risks highlighted include interest rate sensitivity, regulatory capital and CCAR requirements, cyber security exposure, and the outcome of pending litigation.
02—Key points
Key Highlights
- Net income of $711.8 million in 2016, up from $692.96 million in 2015; diluted EPS of $0.70 versus $0.81 a year earlier.
- FirstMerit acquisition, completed August 16, 2016 for approximately $3.7 billion, expanded the franchise to an eight-state Midwestern footprint and added $1.3 billion of goodwill.
- Total assets of $99.71 billion at year-end 2016 versus $71.02 billion at year-end 2015; loans and leases of $66.96 billion.
- Net interest margin of 3.16%, up 1 basis point; fully-taxable equivalent net interest income rose 22% to $2.4 billion.
- Noninterest expense rose 22% to $2.41 billion, including $282 million of FirstMerit acquisition-related expense.
- Net charge-offs of 0.19% of average loans and leases, below the 35 to 55 basis point long-term target; nonaccrual loans were 0.63% of total loans and leases.
- Quarterly common dividend increased to $0.08 per share starting in Q4 2016, with share repurchases suspended under the 2016 capital plan.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 22, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Interest Expense | $263.00M$164.00M | +60.4% |
| Net Income | $712.00M$693.00M | +2.7% |
| EPS (Basic) | $0.72$0.82 | −12.2% |
| EPS (Diluted) | $0.70$0.81 | −13.6% |
| Shares Outstanding (Basic) | 904.44M803.41M | +12.6% |
| Shares Outstanding (Diluted) | 918.79M817.13M | +12.4% |
05—Questions
Frequently Asked Questions
What drove the change in Huntington's 2016 earnings per share?
Diluted EPS fell to $0.70 from $0.81 even though net income rose to $711.8 million from $692.96 million. The filing attributes the higher share count to the issuance of 285 million common shares in the FirstMerit acquisition, and the earnings reduction to $282 million of acquisition-related expense, which reduced EPS by $0.20, partly offset by a $42 million litigation reserve reduction worth $0.03 per share.
How large is the FirstMerit acquisition and what did it add?
Huntington completed the acquisition of FirstMerit Corporation on August 16, 2016 in a stock and cash transaction valued at approximately $3.7 billion. The company issued common stock with a fair value of $2.8 billion and paid $0.8 billion in cash, and it recorded $1.3 billion of goodwill. The combined company now operates across an eight-state Midwestern footprint with a larger deposit base and a more diversified loan portfolio.
Is Huntington's capital position above regulatory minimums?
Yes. At December 31, 2016, the common equity tier 1 risk-based capital ratio was 9.56% on a consolidated basis and 10.42% at the Bank, against a well-capitalized minimum of 6.50% for the Bank. The total risk-based capital ratio was 13.05% consolidated, and the tier 1 leverage ratio was 8.70%. The filing states that all capital ratios were impacted by the goodwill created and the common stock issued in the FirstMerit transaction.
How is Huntington's credit quality trending?
Credit quality remained stable overall. Net charge-offs were $108.9 million, or 0.19% of average loans and leases, consistent with 2015. Nonperforming assets rose $82 million, or 21%, to $481 million, mainly from commercial and industrial nonaccrual loans tied to energy-related borrowers. The allowance for credit losses was $736 million, or 1.10% of total loans and leases, down from 1.33% a year earlier, which the company attributes mainly to acquired FirstMerit loans being recorded at fair value with no carryover allowance.
What are the key pending legal and regulatory matters?
The Cyberco litigation resulted in a $72 million district court judgment against the Bank in 2015, and on February 8, 2017 the Sixth Circuit reversed that decision in part and remanded the case; the company had reduced its legal reserve by about $42 million in the fourth quarter of 2016. Management estimates a reasonably possible loss range of up to $65 million in excess of accruals for current proceedings. The filing also notes that the Federal Reserve will respond to the 2017 capital plan by June 30, 2017, and that there is no assurance of a favorable response.
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