2014 Annual Report Huntington Bancshares Incorporated Is a $66 Billion Asset Regional Bank Holding Company Headquartered in Columbus, Ohio
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2014 Annual Report Huntington Bancshares Incorporated is a $66 billion asset regional bank holding company headquartered in Columbus, Ohio. The Huntington National Bank, founded in 1866, and its affiliates provide full-service commercial, small business, and consumer banking services; mortgage banking services; treasury management and foreign exchange services; equipment leasing; wealth and investment management services; trust services; brokerage services; customized insurance brokerage and service programs; and other financial products and services. The principal markets for these services are Huntington’s six-state retail banking franchise: Ohio, Michigan, Pennsylvania, Indiana, West Virginia, and Kentucky. The primary distribution channels include a banking network of more than 700 traditional branches and convenience branches located in grocery stores and retirement centers, and through an array of alternative distribution channels including internet and mobile banking, telephone banking, and more than 1,500 ATMs. Through automotive dealership relationships within its six-state retail banking franchise area and selected other Midwest and Northeast states, Huntington also provides commercial banking services to the automotive dealers and retail automobile financing for dealer customers. CONSOLIDATED FINANCIAL HIGHLIGHTS Change Change (In millions, except per share amounts) 2014 2013 Amount Percent NET INCOME $ 632.4 $ 641.3 $ (8.9) (1)% PER COMMON SHARE AMOUNTS Net income per common share – diluted .......................................... $ 0.72 $ 0.72 $ — — % Cash dividend declared per common share ........................................ 0.21 0.19 0.02 11 Tangible book value per common share(1) ......................................... 6.62 6.26 0.36 6 PERFORMANCE RATIOS Return on average total assets .................................................. 1.01% 1.14% (0.13)% Return on average tangible common shareholders’ equity(2) ........................... 11.8 12.7 (0.9) Net interest margin(3) ......................................................... 3.23 3.36 (0.13) Efficiency ratio(4) ............................................................ 65.1 62.6 2.5 CAPITAL RATIOS Tier 1 risk-based capital ratio(1) ................................................. 11.50% 12.28% (0.78)% Total risk-based capital ratio(1) .................................................. 13.56 14.57 (1.01) Tangible equity/tangible assets ratio(1)(5)(6) ......................................... 8.76 9.47 (0.71) Tangible common equity/tangible asset ratio(1)(6)(7) .................................. 8.17 8.82 (0.65) CREDIT QUALITY MEASURES Net charge-offs (NCOs) ....................................................... $ 124.6 $ 188.7 $ (64.1) (34)% NCOs as a % of average loans and leases ......................................... 0.27% 0.45% (0.18)% Non-accrual loans (NALs)(1) ................................................... $ 300.2 $ 322.1 $ (21.9) (7)% NAL ratio(1)(8) ............................................................... 0.63% 0.75% (0.12)% Non-performing assets (NPAs)(1) ................................................ $ 337.7 $ 352.2 $ (14.5) (4)% NPA ratio(1)(9) ............................................................... 0.71% 0.82% (0.11)% Allowance for credit losses (ACL)(1) ............................................. $ 666.0 $ 710.8 $ (44.8) (6)% ACL as a % of total loans and leases(1) ........................................... 1.40% 1.65% (0.25)% ACL as a % of NALs(1) ....................................................... 222 221 1.0 BALANCE SHEET – DECEMBER 31, Total loans and leases ........................................................ $47,655.7 $43,120.5 $4,535.2 11% Total assets ................................................................. 66,298.0 59,467.2 6,830.8 11 Total deposits ............................................................... 51,732.2 47,506.7 4,225.5 9 Total shareholders’ equity ..................................................... 6,328.2 6,090.2 238.0 4 (1) At December 31. (2) 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 35% tax rate. (3) On a fully-taxable equivalent (FTE) basis assuming a 35% tax rate. (4) Noninterest expense less amortization of intangibles and goodwill impairment divided by the sum of FTE net interest income and noninterest income excluding securities losses. (5) Tangible equity (total equity less goodwill and other intangible assets) divided by tangible assets (total assets less goodwill and other intangible assets). Other intangible assets are net of deferred tax and calculated assuming a 35% tax rate. (6) Tangible equity, tangible common equity, and tangible assets are non-GAAP financial measures. Additionally, any ratios utilizing these financial measures are also non-GAAP. These financial measures have been included as they are considered to be critical metrics with which to analyze and evaluate financial condition and capital strength. Other companies may calculate these financial measures differently. (7) Tangible common equity (total common equity less goodwill and other intangible assets) divided by tangible assets (total assets less goodwill and other intangible assets). Other intangible assets are net of deferred tax and calculated assuming a 35% tax rate. (8) NALs divided by total loans and leases. (9) NPAs divided by the sum of total loans and leases, impaired loans held-for-sale, and net other real estate. TO FELLOW OWNERS AND FRIENDS: I am pleased to report 2014 was another solid year for Huntington. Our colleagues remain focused on delivering high performance and creating value for our customers and shareholders as we continue to manage through this challenging operating environment. Over the last five years, we have created a culture and positioned the Company to reduce risk and deliver more stable returns through the cycle. This year was the fourth year in a row with a return on average assets of over 1% and a return on average tangible common equity of 12%. These results allowed the Company to return over $500 million of our net income to our investors through an increased dividend and a share repurchase program, while also supporting continued investments and double- digit balance sheet growth. Our performance is driven by the execution of our differentiated strategy. We have positioned Huntington uniquely in an industry that many would consider filled with “me-too’s.” We know this because year after year, we receive multiple awards from the likes of J.D. Power, Greenwich Associates, and the Small Business Administration; we received regulatory approval for our third-quarter acquisition in near record time; and we read the results of independent surveys that place us top in our region for the most favorable brand and highest levels of net promoter score. At a time of growing competition from not only banks, but the ever-increasing number of nonregulated entities, what is more important than those external accolades is what we hear from our customers and how they interact with us. Since 2010, the number of consumer households has grown by 48% and commercial relationships increased by 30%. At the same time, customers are doing more with us: the number of customers using 4+ products has increased by over 10% to nearly 80% for consumer households and nearly doubled to reach 42% for commercial relationships. The growth in our revenue, improved credit quality, and strong capital levels demonstrated how Huntington colleagues have risen to meet the challenges of the current banking environment. Let me offer a recap of 2014 performance and then our expectations for 2015. In 2014, we reported net income of $632 million, or $0.72 per common share, relatively unchanged from the prior year. Fully taxable equivalent total revenue increased $100 million, or 4%, which is at the lower end of our new long-term goal of 4%-6% revenue growth. Fully-taxable equivalent net interest income increased $133 million, or 8%, while noninterest income decreased by $33 million, or 3%. Importantly, we delivered on our commitment of positive operating leverage, and as we adjusted our long-term through-the-cycle financial goals that we first laid out in 2010, we crystalized that commitment by formally including positive operating leverage as one of our five goals. The net interest income increase reflected the impact of 12% earning asset growth and a 13 basis points decrease in the net interest margin to 3.23%. The earning asset growth reflected a $3.6 billion, or 9%, increase in average loans and leases and a $2.7 billion, or 29%, increase in average securities. Automobile loans and Commercial and Industrial (C&I) loans, two areas of significant focus of our strategic investments of the last several years, drove the majority of the loan growth. The securities growth primarily reflected our preparation for the 2016 phase-in implementation of the modified liquidity coverage ratio (LCR) requirement by U.S. banking regulators. We continue to be dynamic in how we fund our balance sheet growth, and over the course of 2014, we reduced funding costs by 9 basis points by remaining focused on building primary banking relationships.