01—Abstract
Summary
Summary of the 10-K filed February 16, 2018. 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 2017 net income of $1.2 billiona, a 67% increase from the prior year, with diluted earnings per common share of $1.00, up 43%.
Results were shaped by the full-year impact of the FirstMerit acquisition, which was completed August 16, 2016, and by a $123 millionb tax benefit from the TCJA recorded in the fourth quarter. Fully-taxable equivalent net interest income rose $0.6 billion, or 27%, to $3.1 billion, and the net interest margin increased 14 basis points to 3.30%. Noninterest income grew $157 million, or 14%, to $1.3 billion, while noninterest expense rose $306 million, or 13%, to $2.7 billion, including $154 million of FirstMerit acquisition-related expense.
Credit quality improved in several respects. Nonperforming assets fell 19% to $389 millionc, and the ALLL rose to 0.99% of total loans and leases from 0.95%. Net charge-offs increased to $159 million, or 0.23% of average loans and leases, up from $109 million, driven by consumer portfolios.
Total loans and leases reached $70.1 billiond at year-end 2017, up 5% from $67.0 billion. Capital ratios strengthened, with the CET1 risk-based capital ratio at 10.01%, up 45 basis points, and the tangible common equity to tangible assets ratio at 7.34%. Huntington repurchased $260 million of common stock during 2017 and raised its quarterly common dividend to $0.11 per share starting in the fourth quarter of 2017, following a Federal Reserve no-objection to its 2017 capital plan.
The filing also flags regulatory and operational considerations. Management says it is too early to assess whether the post-financial-crisis regulatory framework will change materially, and it discusses proposed changes affecting enhanced prudential standards and stress testing.
Huntington notes that a Basel III capital conservation buffer will rise to 2.5% by January 1, 2019, and that the LIBOR transition after 2021 is uncertain. Two litigation matters were settled in principle in early 2018, and the company estimates a range of reasonably possible loss of $0 to $55 million above amounts accrued at December 31, 2017.
02—Key points
Key Highlights
- Net income of $1.186 billion in 2017, up 67% from $712 million in 2016; diluted EPS of $1.00, up 43%.
- Net interest income (FTE) of $3.1 billion, up 27%, with net interest margin up 14 basis points to 3.30%.
- Noninterest expense rose 13% to $2.714 billion, including $154 million of FirstMerit acquisition-related expense; a $123 million federal tax reform benefit lowered the effective tax rate to 14.9%.
- Nonperforming assets declined 19% to $389 million; NALs were 0.50% of total loans and leases, down from 0.63%.
- Net charge-offs rose to $159 million (0.23% of average loans and leases) from $109 million, mainly in consumer portfolios such as other consumer loans.
- CET1 risk-based capital ratio of 10.01%, up 45 basis points; tangible common equity to tangible assets of 7.34%.
- Repurchased $260 million of common stock in 2017 and raised the quarterly common dividend to $0.11 per share, following a Federal Reserve no-objection to the 2017 capital plan.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 16, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Interest Expense | $431.00M$263.00M | +63.9% |
| Net Income | $1.19B$712.00M | +66.6% |
| EPS (Basic) | $1.02$0.72 | +41.7% |
| EPS (Diluted) | $1.00$0.70 | +42.9% |
| Shares Outstanding (Basic) | 1.08B904.44M | +19.9% |
| Shares Outstanding (Diluted) | 1.14B918.79M | +23.7% |
05—Questions
Frequently Asked Questions
How did the FirstMerit acquisition affect Huntington's 2017 results?
The filing says the full-year impact of the FirstMerit acquisition, completed August 16, 2016, drove much of the year-over-year growth in net interest income, noninterest income, and noninterest expense. Acquisition-related noninterest expense totaled $154 million in 2017, compared with $282 million in 2016, and reduced earnings by $0.09 per common share in 2017.
What was the impact of federal tax reform on Huntington's 2017 earnings?
The TCJA, enacted December 22, 2017, reduced the federal corporate tax rate from 35% to 21% effective January 1, 2018. Huntington recorded a $123 million tax benefit in the fourth quarter of 2017, primarily from revaluing net deferred tax liabilities, which added $0.11 per common share and lowered the 2017 effective tax rate to 14.9%.
How is Huntington's credit quality trending?
Nonaccrual loans and leases were $349 million at December 31, 2017, down from $423 million, and total nonperforming assets fell 19% to $389 million. Net charge-offs increased to $159 million from $109 million, which the filing attributes to higher losses in the Other Consumer portfolio. The allowance for credit losses was $778 million, or 1.11% of total loans and leases.
What capital return plans did Huntington announce?
After a Federal Reserve no-objection notice on June 28, 2017, Huntington raised its quarterly common dividend 38% to $0.11 per share starting in the fourth quarter of 2017. The board also authorized repurchases of up to $308 million of common stock over the four quarters through June 30, 2018. During 2017, Huntington repurchased $260 million of common stock at an average cost of $13.38 per share.
What regulatory risks does the filing highlight?
The filing says regulatory change is possible but uncertain, and that it is too early to assess whether the post-crisis framework will be substantially revised. Congress was considering bills that would exempt BHCs with $100 billion to $250 billion in assets, such as Huntington, from some enhanced prudential standards and stress testing requirements. The filing also notes that the Capital Conservation Buffer will reach 2.5% by January 1, 2019, and that LIBOR's discontinuation after 2021 creates uncertainty for certain securities and debt.
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