Company Quick10K Filing
Quick10K
Huntington Bancshares
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$13.58 1,046 $14,210
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-06-27 Other Events, Exhibits
8-K 2019-06-11 Officers, Other Events, Exhibits
8-K 2019-05-29 Regulation FD, Exhibits
8-K 2019-05-13 Officers, Exhibits
8-K 2019-04-25 Earnings, Exhibits
8-K 2019-04-19 Other Events, Exhibits
8-K 2019-04-18 Shareholder Vote
8-K 2019-01-24 Earnings, Exhibits
8-K 2019-01-24 Earnings, Exhibits
8-K 2019-01-17 Other Events, Exhibits
8-K 2019-01-16 Amend Bylaw, Exhibits
8-K 2018-12-11 Other Events
8-K 2018-11-05 Regulation FD, Exhibits
8-K 2018-10-23 Earnings, Exhibits
8-K 2018-10-22 Other Events, Exhibits
8-K 2018-07-25 Earnings, Exhibits
8-K 2018-07-19 Other Events, Exhibits
8-K 2018-06-28 Other Events, Exhibits
8-K 2018-06-21 Regulation FD, Exhibits
8-K 2018-05-30 Regulation FD, Exhibits
8-K 2018-05-15 Other Events, Exhibits
8-K 2018-04-24 Earnings, Exhibits
8-K 2018-04-20 Other Events, Exhibits
8-K 2018-04-19 Officers, Shareholder Vote, Exhibits
8-K 2018-03-07 Regulation FD, Exhibits
8-K 2018-03-05 Shareholder Rights, Amend Bylaw, Other Events, Exhibits
8-K 2018-02-21 Other Events, Exhibits
8-K 2018-01-23 Other Events, Exhibits
EBAY eBay 32,790
OKTA Okta 12,140
TEO Telecom Argentina 6,680
CSV Carriage Services 350
BELFA Bel Fuse 246
GCAP Gain Capital Holdings 177
MSN Emerson Radio 26
ITRK Interlink Plus 0
AST Asterias Biotherapeutics 0
ETP Energy Transfer Operating 0
HBAN 2019-03-31
Part I. Financial Information
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 1: Financial Statements
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Item 4: Controls and Procedures
Part II. Other Information
Item 1: Legal Proceedings
Item 1A: Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 hban20190331_10qex311.htm
EX-31.2 hban20190331_10qex312.htm
EX-32.1 hban20190331_10qex321.htm
EX-32.2 hban20190331_10qex322.htm

Huntington Bancshares Earnings 2019-03-31

HBAN 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 hban20190331_10q.htm 10-Q Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY PERIOD ENDED March 31, 2019
Commission File Number 1-34073
Huntington Bancshares Incorporated
 
Maryland
31-0724920
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
Registrant's address: 41 South High Street, Columbus, Ohio 43287
Registrant’s telephone number, including area code: (614) 480-2265
Securities registered pursuant to Section 12(b) of the Act:
Title of class
Trading
Symbol(s)
Name of exchange on which registered
5.875% Series C Non-Cumulative, perpetual preferred stock
HBANN

Nasdaq
6.250% Series D Non-Cumulative, perpetual preferred stock
HBANO

Nasdaq
Common Stock—Par Value $0.01 per Share
HBAN
Nasdaq
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.     x  Yes    ¨  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     x  Yes    ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
 
Accelerated filer
¨
 
 
 
 
 
 
Non-accelerated filer
¨
 
Smaller reporting company
¨
 
 
 
 
Emerging growth company
¨
 
 
 
 
 
 
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. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     ¨  Yes    x  No
There were 1,046,440,116 shares of the Registrant’s common stock ($0.01 par value) outstanding on March 31, 2019.



HUNTINGTON BANCSHARES INCORPORATED
INDEX
 
 
 


2


Glossary of Acronyms and Terms

The following listing provides a comprehensive reference of common acronyms and terms used throughout the document:
 
ACL
  
Allowance for Credit Losses
AFS
  
Available-for-Sale
ALLL
  
Allowance for Loan and Lease Losses
AOCI
 
Accumulated Other Comprehensive Income
ASC
  
Accounting Standards Codification
AULC
  
Allowance for Unfunded Loan Commitments
Basel III
  
Refers to the final rule issued by the FRB and OCC and published in the Federal Register on October 11, 2013
C&I
  
Commercial and Industrial
CCAR
  
Comprehensive Capital Analysis and Review
CDs
  
Certificates of Deposit
CET1
  
Common equity tier 1 on a transitional Basel III basis
CFPB
  
Bureau of Consumer Financial Protection
CMO
  
Collateralized Mortgage Obligations
CRE
  
Commercial Real Estate
EPS
  
Earnings Per Share
EVE
  
Economic Value of Equity
FASB
 
Financial Accounting Standards Board
FDIC
  
Federal Deposit Insurance Corporation
FHLB
  
Federal Home Loan Bank
FICO
  
Fair Isaac Corporation
FirstMerit
  
FirstMerit Corporation
FRB
  
Federal Reserve Bank
FTE
  
Fully-Taxable Equivalent
FTP
  
Funds Transfer Pricing
FVO
 
Fair Value Option
GAAP
  
Generally Accepted Accounting Principles in the United States of America
HTM
  
Held-to-Maturity
IRS
  
Internal Revenue Service
LCR
  
Liquidity Coverage Ratio
LIBOR
  
London Interbank Offered Rate
LIHTC
  
Low Income Housing Tax Credit
MBS
  
Mortgage-Backed Securities
MD&A
  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
MSR
  
Mortgage Servicing Right
NAICS
  
North American Industry Classification System
NALs
  
Nonaccrual Loans
NCO
  
Net Charge-off
NII
  
Noninterest Income
NIM
  
Net Interest Margin
NPAs
  
Nonperforming Assets
OCC
  
Office of the Comptroller of the Currency
OCI
  
Other Comprehensive Income (Loss)
OLEM
  
Other Loans Especially Mentioned
OREO
  
Other Real Estate Owned
OTTI
  
Other-Than-Temporary Impairment

3


RBHPCG
  
Regional Banking and The Huntington Private Client Group
ROC
 
Risk Oversight Committee
SBA
  
Small Business Administration
SEC
  
Securities and Exchange Commission
TDR
  
Troubled Debt Restructuring
U.S. Treasury
  
U.S. Department of the Treasury
UCS
  
Uniform Classification System
VIE
  
Variable Interest Entity
XBRL
  
eXtensible Business Reporting Language





4


PART I. FINANCIAL INFORMATION
When we refer to “we”, “our”, and “us”, "Huntington," and "the Company" in this report, we mean Huntington Bancshares Incorporated and our consolidated subsidiaries, unless the context indicates that we refer only to the parent company, Huntington Bancshares Incorporated. When we refer to the “Bank” in this report, we mean our only bank subsidiary, The Huntington National Bank, and its subsidiaries.
 
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
INTRODUCTION
We are a multi-state diversified regional bank holding company organized under Maryland law in 1966 and headquartered in Columbus, Ohio. Through the Bank, we have over 150 years of servicing the financial needs of our customers. Through our subsidiaries, we provide full-service commercial and consumer banking services, mortgage banking services, automobile financing, recreational vehicle and marine financing, equipment financing, investment management, trust services, brokerage services, insurance products and services, and other financial products and services. Our 898 full-service branches and private client group offices are located in Ohio, Illinois, Indiana, Kentucky, Michigan, Pennsylvania, West Virginia, and Wisconsin. Select financial services and other activities are also conducted in various other states. International banking services are available through the headquarters office in Columbus, Ohio. Our foreign banking activities, in total or with any individual country, are not significant.
This MD&A provides information we believe necessary for understanding our financial condition, changes in financial condition, results of operations, and cash flows. The MD&A included in our 2018 Form 10-K should be read in conjunction with this MD&A as this discussion provides only material updates to the 2018 Form 10-K. This MD&A should also be read in conjunction with the Unaudited Condensed Consolidated Financial Statements, Notes to Unaudited Condensed Consolidated Financial Statements, and other information contained in this report.
EXECUTIVE OVERVIEW
Summary of 2019 First Quarter Results Compared to 2018 First Quarter
For the quarter, we reported net income of $358 million, or $0.32 per common share, compared with $326 million, or $0.28 per common share, in the year-ago quarter (see Table 1).
Fully-taxable equivalent net interest income was $829 million, up $52 million, or 7%. This reflected the benefit from the $3.8 billion, or 4%, increase in average earning assets coupled with a 9 basis point increase in the FTE net interest margin to 3.39%.
The provision for credit losses increased $1 million year-over-year to $67 million in the 2019 first quarter. Net charge-offs increased $33 million to $71 million. The increase was centered in two specific commercial credit relationships. Consumer charge-offs have remained consistent over the past year. NCOs represented an annualized 0.38% of average loans and leases in the current quarter, up from 0.21% in the year-ago quarter.
Non-interest income was $319 million, up $5 million, or 2%, from the year ago quarter. Gain on sale of loans and leases increased $5 million, or 63%, primarily reflecting the gain on the sale of asset finance leases and higher SBA sales. Mortgage banking income decreased $5 million, or 19%, primarily reflecting net mortgage servicing rights (MSR) risk management-related activities and lower origination volume.
Non-interest expense was $653 million, up $20 million, or 3%, from the year-ago quarter. Personnel costs increased $18 million, or 5%, primarily reflecting strategic hiring, the implementation of annual merit increases in the 2018 second quarter, and increased benefits costs. Outside data processing and other services increased $8 million, or 11%, primarily driven by higher technology investment costs. Deposit and other insurance expense decreased $10 million, or 56%, due to the discontinuation of the FDIC surcharge in the 2018 fourth quarter.

5


The tangible common equity to tangible assets ratio was 7.57% at March 31, 2019, down 13 basis points from a year ago. Common Equity Tier 1 risk-based capital ratio was 9.84%, down from 10.45% a year ago. The regulatory Tier 1 risk-based capital ratio was 11.25% compared to 11.94% at March 31, 2018. All capital ratios were impacted by the repurchase of $916 million of common stock over the last four quarters.
The Company repurchased $25 million of common stock during the 2019 first quarter at an average cost of $13.64 per share. There is $152 million of share repurchase authorization remaining under the 2018 Capital Plan.
Business Overview
General
Our general business objectives are:
Consistent organic revenue and balance sheet growth.
Invest in our businesses, particularly technology and risk management.
Deliver positive operating leverage.
Maintain aggregate moderate-to-low risk appetite.
Disciplined capital management.
Economy
Overall economic activity in our footprint continues to reflect a favorable outlook for both consumers and businesses. Our balance sheet growth expectations for 2019 remain unchanged. Our commercial loan pipelines are steady, and we are seeing the normal seasonal build in our consumer pipelines. Competition for loans and deposits is strong, but rational. We do not foresee a recession in the near term; however, our core earnings power, strong capital, aggregate moderate-to-low risk appetite, and long-term strategic alignment position us to withstand economic headwinds.
DISCUSSION OF RESULTS OF OPERATIONS
This section provides a review of financial performance from a consolidated perspective. Key Unaudited Condensed Consolidated Balance Sheet and Unaudited Condensed Statement of Income trends are discussed. All earnings per share data are reported on a diluted basis. For additional insight on financial performance, please read this section in conjunction with the “Business Segment Discussion”.

6



Table 1 - Selected Quarterly Income Statement Data
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
March 31,
(dollar amounts in millions, share amounts in thousands)
2019
 
2018
 
2018
 
2018
 
2018
Interest income
$
1,070

 
$
1,056

 
$
1,007

 
$
972

 
$
914

Interest expense
248

 
223

 
205

 
188

 
144

Net interest income
822

 
833

 
802

 
784

 
770

Provision for credit losses
67

 
60

 
53

 
56

 
66

Net interest income after provision for credit losses
755

 
773

 
749

 
728

 
704

Service charges on deposit accounts
87

 
94

 
93

 
91

 
86

Card and payment processing income
56

 
58

 
57

 
56

 
53

Trust and investment management services
44

 
42

 
43

 
42

 
44

Mortgage banking income
21

 
23

 
31

 
28

 
26

Capital markets fees
22

 
34

 
26

 
26

 
21

Insurance income
21

 
21

 
19

 
21

 
21

Bank owned life insurance income
16

 
16

 
19

 
17

 
15

Gain on sale of loans and leases
13

 
16

 
16

 
15

 
8

Securities gains (losses)

 
(19
)
 
(2
)
 

 

Other income
39

 
44

 
40

 
40

 
40

Total noninterest income
319

 
329

 
342

 
336

 
314

Personnel costs
394

 
399

 
388

 
396

 
376

Outside data processing and other services
81

 
83

 
69

 
69

 
73

Net occupancy
42

 
70

 
38

 
35

 
41

Equipment
40

 
48

 
38

 
38

 
40

Deposit and other insurance expense
8

 
9

 
18

 
18

 
18

Professional services
12

 
17

 
17

 
15

 
11

Marketing
7

 
15

 
12

 
18

 
8

Amortization of intangibles
13

 
13

 
13

 
13

 
14

Other expense
56

 
57

 
58

 
50

 
52

Total noninterest expense
653

 
711

 
651

 
652

 
633

Income before income taxes
421

 
391

 
440

 
412

 
385

Provision for income taxes
63

 
57

 
62

 
57

 
59

Net income
358

 
334

 
378

 
355

 
326

Dividends on preferred shares
19

 
19

 
18

 
21

 
12

Net income applicable to common shares
$
339

 
$
315

 
$
360

 
$
334

 
$
314

 
 
 
 
 
 
 
 
 
 
Average common shares—basic
1,046,995

 
1,054,460

 
1,084,536

 
1,103,337

 
1,083,836

Average common shares—diluted
1,065,638

 
1,073,055

 
1,103,740

 
1,122,612

 
1,124,778

Net income per common share—basic
$
0.32

 
$
0.30

 
$
0.33

 
$
0.30

 
$
0.29

Net income per common share—diluted
0.32

 
0.29

 
0.33

 
0.30

 
0.28

Return on average total assets
1.35
%
 
1.25
%
 
1.42
%
 
1.36
%
 
1.27
%
Return on average common shareholders’ equity
13.8

 
12.9

 
14.3

 
13.2

 
13.0

Return on average tangible common shareholders’ equity (1)
18.3

 
17.3

 
19.0

 
17.6

 
17.5

Net interest margin (2)
3.39

 
3.41

 
3.32

 
3.29

 
3.30

Efficiency ratio (3)
55.8

 
58.7

 
55.3

 
56.6

 
56.8

Effective tax rate
15.0

 
14.6

 
14.1

 
13.8

 
15.3

 
 
 
 
 
 
 
 
 
 
Revenue—FTE
 
 
 
 
 
 
 
 
 
Net interest income
$
822

 
$
833

 
$
802

 
$
784

 
$
770

FTE adjustment
7

 
8

 
8

 
7

 
7

Net interest income (2)
829

 
841

 
810

 
791

 
777

Noninterest income
319

 
329

 
342

 
336

 
314

Total revenue (2)
$
1,148

 
$
1,170

 
$
1,152

 
$
1,127

 
$
1,091

(1)
Net income excluding expense for amortization of intangibles for the period divided by average tangible common shareholders’ equity. Average tangible common shareholders’ equity equals average total common shareholders’ equity less average intangible assets and goodwill. Expense for amortization of intangibles and average intangible assets are net of deferred tax liability, and calculated assuming a 21% tax rate.
(2)
On an FTE basis assuming a 21% tax rate.
(3)
Noninterest expense less amortization of intangibles and goodwill impairment divided by the sum of FTE net interest income and noninterest income excluding securities gains.



7


Net Interest Income / Average Balance Sheet
The following tables detail the change in our average balance sheet and the net interest margin:
Table 2 - Consolidated Average Balance Sheet and Net Interest Margin Analysis
 
Average Balances
 
 
 
 
 
Three Months Ended
 
Change
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
1Q19 vs. 1Q18
(dollar amounts in millions)
2019
 
2018
 
2018
 
2018
 
2018
 
Amount
 
Percent
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits in Federal Reserve Bank (2)
$
501

 
$
483

 
$

 
$

 
$

 
$
501

 
100
 %
Interest-bearing deposits in banks
109

 
97

 
83

 
$
84

 
90

 
19

 
21

Securities:
 
 
 
 
 
 
 
 
 
 
 
 


Trading account securities
138

 
131

 
82

 
82

 
87

 
51

 
59

Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 


Taxable
10,752

 
10,351

 
10,469

 
10,832

 
11,158

 
(406
)
 
(4
)
Tax-exempt
3,048

 
3,176

 
3,496

 
3,554

 
3,633

 
(585
)
 
(16
)
Total available-for-sale securities
13,800

 
13,527

 
13,965

 
14,386

 
14,791

 
(991
)
 
(7
)
Held-to-maturity securities—taxable
8,653

 
8,433

 
8,560

 
8,706

 
8,877

 
(224
)
 
(3
)
Other securities
536

 
565

 
567

 
599

 
605

 
(69
)
 
(11
)
Total securities
23,127

 
22,656

 
23,174

 
23,773

 
24,360

 
(1,233
)
 
(5
)
Loans held for sale
700

 
694

 
745

 
619

 
478

 
222

 
46

Loans and leases: (4)
 
 
 
 
 
 
 
 
 
 
 
 


Commercial:
 
 
 
 
 
 
 
 
 
 
 
 


Commercial and industrial
30,546

 
29,557

 
28,870

 
28,863

 
28,243

 
2,303

 
8

Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 


Construction
1,174

 
1,138

 
1,132

 
1,126

 
1,189

 
(15
)
 
(1
)
Commercial
5,686

 
5,806

 
6,019

 
6,233

 
6,142

 
(456
)
 
(7
)
Commercial real estate
6,860

 
6,944

 
7,151

 
7,359

 
7,331

 
(471
)
 
(6
)
Total commercial
37,406

 
36,501

 
36,021

 
36,222

 
35,574

 
1,832

 
5

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 


Automobile
12,361

 
12,423

 
12,368

 
12,271

 
12,100

 
261

 
2

Home equity
9,641

 
9,817

 
9,873

 
9,941

 
10,040

 
(399
)
 
(4
)
Residential mortgage
10,787

 
10,574

 
10,236

 
9,624

 
9,174

 
1,613

 
18

RV and marine
3,296

 
3,216

 
3,016

 
2,667

 
2,481

 
815

 
33

Other consumer
1,284

 
1,291

 
1,237

 
1,162

 
1,115

 
169

 
15

Total consumer
37,369

 
37,321

 
36,730

 
35,665

 
34,910

 
2,459

 
7

Total loans and leases
74,775

 
73,822

 
72,751

 
71,887

 
70,484

 
4,291

 
6

Allowance for loan and lease losses
(780
)
 
(777
)
 
(759
)
 
(742
)
 
(709
)
 
(71
)
 
(10
)
Net loans and leases
73,995

 
73,045

 
71,992

 
71,145

 
69,775

 
4,220

 
6

Total earning assets
99,212

 
97,752

 
96,753

 
96,363

 
95,412

 
3,800

 
4

Cash and due from banks
853

 
909

 
1,330

 
1,283

 
1,217

 
(364
)
 
(30
)
Intangible assets
2,265

 
2,288

 
2,305

 
2,318

 
2,332

 
(67
)
 
(3
)
All other assets
5,961

 
5,705

 
5,726

 
5,599

 
5,596

 
365

 
7

Total assets
$
107,511

 
$
105,877

 
$
105,355

 
$
104,821

 
$
103,848

 
$
3,663

 
4
 %
Liabilities and Shareholders’ Equity:
 
 
 
 
 
 
 
 
 
 
 
 


Deposits:
 
 
 
 
 
 
 
 
 
 
 
 


Demand deposits—noninterest-bearing
19,938

 
20,384

 
20,230

 
20,382

 
20,572

 
$
(634
)
 
(3
)%
Demand deposits—interest-bearing
19,770

 
19,860

 
19,553

 
19,121

 
18,630

 
1,140

 
6

Total demand deposits
39,708

 
40,244

 
39,783

 
39,503

 
39,202

 
506

 
1

Money market deposits
22,935

 
22,595

 
21,547

 
20,943

 
20,678

 
2,257

 
11

Savings and other domestic deposits
10,338

 
10,534

 
11,434

 
11,146

 
11,219

 
(881
)
 
(8
)
Core certificates of deposit
6,052

 
5,705

 
4,916

 
3,794

 
2,293

 
3,759

 
164

Total core deposits
79,033

 
79,078

 
77,680

 
75,386

 
73,392

 
5,641

 
8

Other domestic time deposits of $250,000 or more
335

 
346

 
285

 
243

 
247

 
88

 
36

Brokered deposits and negotiable CDs
3,404

 
3,507

 
3,533

 
3,661

 
3,307

 
97

 
3

Total deposits
82,772

 
82,931

 
81,498

 
79,290

 
76,946

 
5,826

 
8

Short-term borrowings
2,320

 
1,006

 
1,732

 
3,082

 
5,228

 
(2,908
)
 
(56
)
Long-term debt
8,979

 
8,871

 
8,915

 
9,225

 
8,958

 
21

 

Total interest-bearing liabilities
74,133

 
72,424

 
71,915

 
71,215

 
70,560

 
3,573

 
5

All other liabilities
2,284

 
2,180

 
2,054

 
1,891

 
1,861

 
423

 
23

Shareholders’ equity
11,156

 
10,889

 
11,156

 
11,333

 
10,855

 
301

 
3

Total liabilities and shareholders’ equity
$
107,511

 
$
105,877

 
$
105,355

 
$
104,821

 
$
103,848

 
$
3,663

 
4
 %

8


Table 2 - Consolidated Average Balance Sheet and Net Interest Margin Analysis (Continued)
 
 
 
 
 
 
 
 
 
 
 
Average Yield Rates (3)
 
Three Months Ended
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
March 31,
Fully-taxable equivalent basis (1)
2019
 
2018
 
2018
 
2018
 
2018
Assets:
 
 
 
 
 
 
 
 
 
Interest-bearing deposits in Federal Reserve Bank (2)
2.40
%
 
2.33
%
 
%
 
%
 
%
Interest-bearing deposits in banks
1.75

 
1.97

 
1.95

 
1.95

 
1.97

Securities:
 
 
 
 
 
 
 
 
 
Trading account securities
2.03

 
1.94

 
0.26

 
0.23

 
0.15

Available-for-sale securities:
 
 
 
 
 
 
 
 
 
Taxable
2.82

 
2.71

 
2.61

 
2.63

 
2.51

Tax-exempt
3.69

 
4.12

 
3.53

 
3.35

 
3.18

Total available-for-sale securities
3.01

 
3.04

 
2.84

 
2.81

 
2.67

Held-to-maturity securities—taxable
2.52

 
2.45

 
2.43

 
2.42

 
2.45

Other securities
4.51

 
4.24

 
4.58

 
4.58

 
3.98

Total securities
2.86

 
2.84

 
2.73

 
2.71

 
2.62

Loans held for sale
4.07

 
4.04

 
4.45

 
4.17

 
3.82

Loans and leases: (4)
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
Commercial and industrial
4.91

 
4.81

 
4.64

 
4.52

 
4.28

Commercial real estate:
 
 
 
 
 
 
 
 
 
Construction
5.58

 
5.47

 
5.31

 
5.26

 
4.73

Commercial
5.00

 
4.99

 
4.63

 
4.58

 
4.24

Commercial real estate
5.10

 
5.07

 
4.74

 
4.68

 
4.32

Total commercial
4.94

 
4.86

 
4.66

 
4.55

 
4.29

Consumer:
 
 
 
 
 
 
 
 
 
Automobile
3.95

 
3.88

 
3.75

 
3.63

 
3.56

Home equity
5.61

 
5.45

 
5.21

 
5.09

 
4.90

Residential mortgage
3.86

 
3.82

 
3.78

 
3.69

 
3.66

RV and marine
4.96

 
5.10

 
5.06

 
5.11

 
5.11

Other consumer
13.07

 
12.35

 
12.16

 
11.90

 
11.78

Total consumer
4.75

 
4.67

 
4.54

 
4.43

 
4.34

Total loans and leases
4.85

 
4.76

 
4.60

 
4.49

 
4.32

Total earning assets
4.43

 
4.34

 
4.16

 
4.07

 
3.91

Liabilities:
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
Demand deposits—noninterest-bearing

 

 

 

 

Demand deposits—interest-bearing
0.56

 
0.48

 
0.45

 
0.38

 
0.29

Total demand deposits
0.28

 
0.24

 
0.22

 
0.18

 
0.14

Money market deposits
1.04

 
0.91

 
0.77

 
0.60

 
0.45

Savings and other domestic deposits
0.23

 
0.23

 
0.24

 
0.21

 
0.20

Core certificates of deposit
2.11

 
2.00

 
1.82

 
1.56

 
1.01

Total core deposits
0.85

 
0.75

 
0.65

 
0.51

 
0.36

Other domestic time deposits of $250,000 or more
1.82

 
1.67

 
1.40

 
1.01

 
0.69

Brokered deposits and negotiable CDs
2.38

 
2.22

 
1.98

 
1.81

 
1.47

Total deposits
0.94

 
0.84

 
0.73

 
0.59

 
0.43

Short-term borrowings
2.41

 
2.49

 
1.98

 
1.82

 
1.47

Long-term debt
3.98

 
3.82

 
3.78

 
3.75

 
2.92

Total interest-bearing liabilities
1.35

 
1.23

 
1.13

 
1.05

 
0.82

Net interest rate spread
3.08

 
3.11

 
3.03

 
3.02

 
3.09

Impact of noninterest-bearing funds on margin
0.31

 
0.30

 
0.29

 
0.27

 
0.21

Net interest margin
3.39
%
 
3.41
%
 
3.32
%
 
3.29
%
 
3.30
%

(1)
FTE yields are calculated assuming a 21% tax rate.
(2)
Deposits in Federal Reserve Bank were treated as non-earning assets prior to 4Q 2018.
(3)
Loan and lease and deposit average yield rates include impact of applicable derivatives, non-deferrable fees, and amortized fees.
(4)
For purposes of this analysis, NALs are reflected in the average balances of loans.


9


2019 First Quarter versus 2018 First Quarter
FTE net interest income for the 2019 first quarter increased $52 million, or 7%, from the 2018 first quarter. This reflected the benefit from the $3.8 billion, or 4%, increase in average earning assets coupled with a 9 basis point increase in the NIM to 3.39%. Average earning asset yields increased 52 basis points year-over-year, driven by a 53 basis point improvement in loan yields. Average interest-bearing liability costs increased 53 basis points, primarily driven by a 51 basis point increase in average interest-bearing deposit costs. The cost of short-term borrowings and long-term debt increased 94 basis points and 106 basis points, respectively. The benefit from noninterest-bearing funds improved 10 basis points versus the year-ago quarter. Embedded within these yields and costs, FTE net interest income during the 2019 first quarter included $15 million, or approximately 6 basis points, of purchase accounting impact compared to $19 million, or approximately 8 basis points, in the year-ago quarter.
Average earning assets for the 2019 first quarter increased $3.8 billion, or 4%, from the year-ago quarter, primarily reflecting a $4.3 billion, or 6%, increase in average loans and leases. Average C&I loans increased $2.3 billion, or 8%, reflecting growth in corporate banking, asset finance, dealer floorplan, and middle market banking. Average residential mortgage loans increased $1.6 billion, or 18%, driven by the successful expansion of our home lending business over the past two years. Average RV and marine loans increased $0.8 billion, or 33%, primarily reflecting the success of the geographic expansion over the past two years, while maintaining our commitment to super prime originations. Held-for-sale and other earning assets increased $0.7 billion, or 131%, primarily due to the inclusion of deposits in Federal Reserve Bank balances. These balances were treated as non-earning assets prior to the fourth quarter 2018. As of March 31, 2019, approximately $126 million of loans were included in held-for-sale related to the previously announced sale of our Wisconsin branches, which is expected to close in the 2019 second quarter. Average securities decreased $1.2 billion, or 5%, primarily due to runoff in the portfolio in 2018.
Average total interest-bearing liabilities for the 2019 first quarter increased $3.6 billion, or 5%, from the year-ago quarter. Average total deposits increased $5.8 billion, or 8%, from the year-ago quarter, while average total core deposits increased $5.6 billion, or 8%. Average core certificates of deposit increased $3.8 billion, or 164%, reflecting consumer deposit growth initiatives primarily in the first three quarters of 2018. Average money market deposits increased $2.3 billion, or 11%, reflecting the shift in promotional pricing to consumer money market accounts in mid-2018. Average interest-bearing demand deposits increased $1.1 billion, or 6%, primarily driven by the shift in commercial balances from noninterest-bearing to interest-bearing checking. Savings and other domestic deposits decreased $0.9 billion, or 8%, primarily reflecting a continued shift in consumer product mix. Average noninterest-bearing demand deposits decreased $0.6 billion, or 3%, primarily driven by the aforementioned shift in commercial checking balances, partially offset by continued growth in consumer noninterest-bearing checking. Average short-term borrowings decreased $2.9 billion, or 56%, as growth in core deposits reduced reliance on wholesale funding. As of March 31, 2019, approximately $845 million of deposits are held-for-sale associated with the previously-mentioned pending Wisconsin branch sale.
2019 First Quarter versus 2018 Fourth Quarter
Compared to the 2018 fourth quarter, FTE net interest income decreased $12 million, or 1%, primarily reflecting the NIM compression of 2 basis points, more than offsetting the benefit from the $1.5 billion, or 1%, increase in average earning assets. Average earning asset yields increased 9 basis points sequentially, driven by a 9 basis point increase in loan yields. Average interest-bearing liability costs increased 12 basis points, primarily driven by a 10 basis point increase in average interest-bearing deposit costs. The benefit of noninterest-bearing funding improved 1 basis point linked quarter. The purchase accounting impact on the net interest margin was approximately 6 basis points in the 2019 first quarter, down 1 basis point from the prior quarter. The 2018 fourth quarter included an approximately 2 basis point impact from higher commercial interest recoveries.
Compared to the 2018 fourth quarter, average earning assets increased $1.5 billion, or 1%, primarily reflecting the $1.0 billion, or 1%, increase in average loans and leases. Average C&I loans increased $1.0 billion, or 3%, reflecting growth in corporate banking, asset finance, dealer floorplan, and broad-based growth across the specialty lending verticals. Average securities increased $0.5 billion, or 2%, primarily reflecting the timing of purchases in anticipation of future cash flows.
Compared to the 2018 fourth quarter, average total interest-bearing liabilities increased $1.7 billion, or 2%. Average short-term borrowings increased $1.3 billion, or 131%, as loan growth and seasonality in deposits drove increased borrowings in the quarter.
Provision for Credit Losses
(This section should be read in conjunction with the "Credit Risk" section.)
The provision for credit losses is the expense necessary to maintain the ALLL and the AULC at levels appropriate to absorb our estimate of credit losses inherent in the loan and lease portfolio and the portfolio of unfunded loan commitments and letters-of-credit.

10


The provision for credit losses for the 2019 first quarter was $67 million, which increased $1 million, or 2%, compared to the first quarter 2018. The increase from the 2018 first quarter is primarily attributed to higher commercial losses.
Noninterest Income
The following table reflects noninterest income for each of the periods presented: 
Table 3 - Noninterest Income
 
Three Months Ended
 
1Q19 vs. 1Q18
 
1Q19 vs. 4Q18
 
March 31,
 
December 31,
 
March 31,
 
Change
 
Change
(dollar amounts in millions)
2019
 
2018
 
2018
 
Amount
 
Percent
 
Amount
 
Percent
Service charges on deposit accounts
$
87

 
$
94

 
$
86

 
$
1

 
1
 %
 
$
(7
)
 
(7
)%
Card and payment processing income
56

 
58

 
53

 
3

 
6

 
(2
)
 
(3
)
Trust and investment management services
44

 
42

 
44

 

 

 
2

 
5

Mortgage banking income
21

 
23

 
26

 
(5
)
 
(19
)
 
(2
)
 
(9
)
Capital markets fees
22

 
34

 
21

 
1

 
5

 
(12
)
 
(35
)
Insurance income
21

 
21

 
21

 

 

 

 

Bank owned life insurance income
16

 
16

 
15

 
1

 
7

 

 

Gain on sale of loans and leases
13

 
16

 
8

 
5

 
63

 
(3
)
 
(19
)
Securities gains (losses)

 
(19
)
 

 

 

 
19

 
100

Other income
39

 
44

 
40

 
(1
)
 
(3
)
 
(5
)
 
(11
)
Total noninterest income
$
319

 
$
329

 
$
314

 
$
5

 
2
 %
 
$
(10
)
 
(3
)%
2019 First Quarter versus 2018 First Quarter
Reported noninterest income for the 2019 first quarter increased $5 million, or 2%, from the year-ago quarter. Gain on sale of loans and leases increased $5 million, or 63%, primarily reflecting the gain on the sale of asset finance leases and higher SBA sales. Mortgage banking income decreased $5 million, or 19%, primarily reflecting net mortgage servicing rights (MSR) risk management-related activities and lower origination volume.
2019 First Quarter versus 2018 Fourth Quarter
Compared to the 2018 fourth quarter, total noninterest income decreased $10 million, or 3%. Securities losses were less than $1 million compared to $19 million in the prior quarter, reflecting the portfolio repositioning completed in the 2018 fourth quarter. Capital market fees decreased $12 million, or 35%, driven by unfavorable commodities derivatives mark-to-market adjustments related to a commercial customer default and decreased interest rate derivative and syndication activity. Service charges on deposit accounts decreased $7 million, or 7%, primarily reflecting seasonality. Other income decreased $5 million, or 11%, primarily reflecting lower income on terminated asset finance leases.
Noninterest Expense
The following table reflects noninterest expense for each of the periods presented: 
Table 4 - Noninterest Expense
 
Three Months Ended
 
1Q19 vs. 1Q18
 
1Q19 vs. 4Q18
 
March 31,
 
December 31,
 
March 31,
 
Change
 
Change
(dollar amounts in millions)
2019
 
2018
 
2018
 
Amount
 
Percent
 
Amount
 
Percent
Personnel costs
$
394

 
$
399

 
$
376

 
$
18

 
5
 %
 
$
(5
)
 
(1
)%
Outside data processing and other services
81

 
83

 
73

 
8

 
11

 
(2
)
 
(2
)
Net occupancy
42

 
70

 
41

 
1

 
2

 
(28
)
 
(40
)
Equipment
40

 
48

 
40

 

 

 
(8
)
 
(17
)
Deposit and other insurance expense
8

 
9

 
18

 
(10
)
 
(56
)
 
(1
)
 
(11
)
Professional services
12

 
17

 
11

 
1

 
9

 
(5
)
 
(29
)
Marketing
7

 
15

 
8

 
(1
)
 
(13
)
 
(8
)
 
(53
)
Amortization of intangibles
13

 
13

 
14

 
(1
)
 
(7
)
 

 

Other noninterest expense
56

 
57

 
52

 
4

 
8

 
(1
)
 
(2
)
Total noninterest expense
$
653

 
$
711

 
$
633

 
$
20

 
3
 %
 
$
(58
)
 
(8
)%
Number of employees (average full-time equivalent)
15,738

 
15,657

 
15,599

 
139

 
1
 %
 
81

 
1
 %


11


2019 First Quarter versus 2018 First Quarter
Reported noninterest expense for the 2019 first quarter increased $20 million, or 3%, from the year-ago quarter. Personnel costs increased $18 million, or 5%, primarily reflecting strategic hiring, the implementation of annual merit increases in the 2018 second quarter, and increased benefits costs. Outside data processing and other services increased $8 million, or 11%, primarily driven by higher technology investment costs. Deposit and other insurance expense decreased $10 million, or 56%, due to the discontinuation of the FDIC surcharge in the 2018 fourth quarter.
2019 First Quarter versus 2018 Fourth Quarter
Reported noninterest expense decreased $58 million, or 8%, from the 2018 fourth quarter. Net occupancy decreased $28 million, or 40%, reflecting branch and facility consolidation-related expense in the 2018 fourth quarter. Equipment decreased $8 million, or 17%, reflecting branch and facility consolidation-related expense in the 2018 fourth quarter. Marketing expense decreased $8 million, or 53%, reflecting the timing of marketing campaigns and deposit promotions. Personnel costs decreased $5 million, or 1%, primarily reflecting lower performance-based incentive compensation.
Provision for Income Taxes
The provision for income taxes in the 2019 first quarter was $63 million. This compared with a provision for income taxes of $59 million in the 2018 first quarter and $57 million in the 2018 fourth quarter. All periods included the benefits from tax-exempt income, tax-advantaged investments, general business credits, investments in qualified affordable housing projects, stock-based compensation, and capital losses. The effective tax rates for the 2019 first quarter, 2018 first quarter, and 2018 fourth quarter were 15.0%, 15.3%, and 14.6%, respectively. The net federal deferred tax liability was $159 million and the net state deferred tax asset was $35 million at March 31, 2019.

We file income tax returns with the IRS and various state, city, and foreign jurisdictions. Federal income tax audits have been completed for tax years through 2009. Certain proposed adjustments resulting from the IRS examination of our 2010 through 2011 tax returns have been settled, subject to final approval by the Joint Committee on Taxation of the U.S. Congress. While the statute of limitations remains open for tax years 2012 through 2017, the IRS has advised that tax years 2012 through 2014 will not be audited, and began the examination of the 2015 federal income tax return during 2018. Various state and other jurisdictions remain open to examination, including Ohio, Kentucky, Indiana, Michigan, Pennsylvania, West Virginia, Wisconsin, and Illinois.
RISK MANAGEMENT AND CAPITAL
We use a multi-faceted approach to risk governance. It begins with the Board of Directors defining our risk appetite as aggregate moderate-to-low. Risk awareness, identification and assessment, reporting, and active management are key elements in overall risk management. Controls include, among others, effective segregation of duties, access, authorization and reconciliation procedures, as well as staff education and a disciplined assessment process.
We believe that our primary risk exposures are credit, market, liquidity, operational and compliance. More information on risk can be found in the Risk Factors section included in Item 1A of our 2018 Form 10-K and subsequent filings with the SEC. The MD&A included in our 2018 Form 10-K should be read in conjunction with this MD&A as this discussion provides only material updates to the Form 10-K. This MD&A should also be read in conjunction with the Unaudited Condensed Consolidated Financial Statements, Notes to Unaudited Condensed Consolidated Financial Statements, and other information contained in this report. Our definition, philosophy, and approach to risk management have not materially changed from the discussion presented in the 2018 Form 10-K.
Credit Risk
Credit risk is the risk of financial loss if a counterparty is not able to meet the agreed upon terms of the financial obligation. The majority of our credit risk is associated with lending activities, as the acceptance and management of credit risk is central to profitable lending. We also have credit risk associated with our investment securities portfolios (see Note 4 "Investment Securities and Other Securities" of the Notes to the Unaudited Condensed Consolidated Financial Statements). We engage with other financial counterparties for a variety of purposes including investing, asset and liability management, mortgage banking, and trading activities. While there is credit risk associated with derivative activity, we believe this exposure is minimal.
We continue to focus on the identification, monitoring, and management of our credit risk. In addition to the traditional credit risk mitigation strategies of credit policies and processes, market risk management activities, and portfolio diversification, we use quantitative measurement capabilities utilizing external data sources, enhanced modeling technology, and internal stress testing processes. Our portfolio management resources demonstrate our commitment to maintaining an aggregate moderate-to-low risk profile. In our efforts to continue to identify risk mitigation techniques, we have focused on product design features, origination policies, and solutions for delinquent or stressed borrowers.

12


Loan and Lease Credit Exposure Mix
Refer to the “Loan and Lease Credit Exposure Mix” section of our 2018 Form 10-K for a brief description of each portfolio segment.
The table below provides the composition of our total loan and lease portfolio: 
Table 5 - Loan and Lease Portfolio Composition
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(dollar amounts in millions)
March 31,
2019
 
December 31,
2018
 
September 30,
2018
 
June 30,
2018
 
March 31,
2018
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
30,972

 
41
%
 
$
30,605

 
41
%
 
$
29,196

 
40
%
 
$
28,850

 
40
%
 
$
28,622

 
40
%
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction
1,152

 
2

 
1,185

 
2

 
1,111

 
2

 
1,083

 
1

 
1,167

 
2

Commercial
5,643

 
8

 
5,657

 
8

 
5,962

 
8

 
6,118

 
8

 
6,245

 
9

Commercial real estate
6,795

 
10

 
6,842

 
10

 
7,073

 
10

 
7,201

 
9

 
7,412

 
11

Total commercial
37,767

 
51

 
37,447

 
51

 
36,269

 
50

 
36,051

 
49

 
36,034

 
51

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Automobile
12,272

 
16

 
12,429

 
16

 
12,375

 
17

 
12,390

 
17

 
12,146

 
17

Home equity
9,551

 
13

 
9,722

 
13

 
9,850

 
13

 
9,907

 
14

 
9,987

 
14

Residential mortgage
10,885

 
14

 
10,728

 
14

 
10,459

 
14

 
10,006

 
14

 
9,357

 
13

RV and marine
3,344

 
4

 
3,254

 
4

 
3,152

 
4

 
2,846

 
4

 
2,549

 
3

Other consumer
1,260

 
2

 
1,320

 
2

 
1,265

 
2

 
1,206

 
2

 
1,090

 
2

Total consumer
37,312

 
49

 
37,453

 
49

 
37,101

 
50

 
36,355

 
51

 
35,129

 
49

Total loans and leases
$
75,079

 
100
%
 
$
74,900

 
100
%
 
$
73,370

 
100
%
 
$
72,406

 
100
%
 
$
71,163

 
100
%
Our loan portfolio is composed of a managed mix of consumer and commercial credits. At the corporate level, we manage the overall credit exposure and portfolio composition via a credit concentration policy. The policy designates specific loan types, collateral types, and loan structures to be formally tracked and assigned maximum exposure limits as a percentage of capital. C&I lending by NAICS categories, specific limits for CRE project types, loans secured by residential real estate, shared national credit exposure, and designated high risk loan definitions represent examples of specifically tracked components of our concentration management process. There are no identified concentrations that exceed the assigned exposure limit. Our concentration management policy is approved by the ROC of the Board of Directors and is one of the strategies used to ensure a high quality, well diversified portfolio that is consistent with our overall objective of maintaining an aggregate moderate-to-low risk profile. Changes to existing concentration limits require the approval of the ROC prior to implementation, incorporating specific information relating to the potential impact on the overall portfolio composition and performance metrics.
Commercial Credit
Refer to the “Commercial Credit” section of our 2018 Form 10-K for our commercial credit underwriting and on-going credit management processes.
Consumer Credit
Refer to the “Consumer Credit” section of our 2018 Form 10-K for our consumer credit underwriting and on-going credit management processes.

13


The table below provides our total loan and lease portfolio segregated by industry type. The changes in the industry composition from December 31, 2018 are consistent with the portfolio growth metrics.
Table 6 - Loan and Lease Portfolio by Industry Type
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(dollar amounts in millions)
March 31,
2019
 
December 31,
2018
 
September 30,
2018
 
June 30,
2018
 
March 31,
2018
Commercial loans and leases:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate and rental and leasing
6,955

 
9
%
 
$
6,964

 
9
%
 
$
7,187

 
10
%
 
$
7,314

 
10
%
 
$
7,509

 
11
%
Retail trade (1)
5,266

 
7

 
5,337

 
7

 
4,987

 
7

 
4,886

 
7

 
5,034

 
7

Manufacturing
5,338

 
7

 
5,140

 
7