Greetings and welcome to the Huntington Bankshares 2nd Quarter Earnings Conference Call. Will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mark Lewis, Director of Investor Relations.
Thank you. Welcome. I am Mark Smith, Director of Investor Relations for Huntington. Copies of the slides we will be reviewing can be found on the Investor Relations section of our website www.huntington.com. This call is being recorded and will be available as a rebroadcast starting about 1 hour in the close of the call.
Our presenters today are Steve Stauer, Chairman, President and CEO and Mike McCullough, Chief Financial Officer. Dave Niemeyer, our Chief Credit Officer will also be participating in the Q And A portion of today's call. As noted on Slide 2, today's discussion, including the Q And A period, will contain forward looking statements. Such statements are based on information and assumptions available at this time and are subject to changes, risks and uncertainties, which may cause actual results to differ materially. We assume no obligation to update such statements.
For a complete discussion of risks and uncertainties, please refer to this slide and material filed with the SEC, including our most recent Forms 10K, 10 Q and 8 K balance. Let me now turn it over to Steve. Thanks, Mark, and thank you to everyone for joining the call today. As always, we appreciate your interest and support. We had a really solid second quarter as we continue to build momentum and deliver high quality earnings We reported net income of $355,000,000 and earnings per share of $0.30, increases of 31% and 30%, respectively, over the second quarter of 2017.
Profitability ratios were very good and improving with return on common equity of 13.2 percent return on tangible common equity of 17.6 percent. The average loan increase was strong at 7% versus the 2nd quarter of 2017 8% annualized versus the first quarter of 2018. Our loan growth was driven by discipline broad based growth in both commercial and consumer loans. We are pleased with our 2nd quarter efficiency ratio of 57%, driven by 4% year over year revenue growth and continued expense discipline. Our organic growth along with the successful integration of the first merit, provides scale, which allows for continued meaningful investments in extending our customer experience advantage through targeted investments in both people and technology, all while delivering positive operating leverage.
Franchise continues to perform well on many fronts, allowing us to make the investments that we need to compete at the highest levels of the industry as a result of the focused execution of our strategies. We are very pleased with the recent PECAST and CCAR stress test results which provided important industry comparisons. The Huntington's organic capital generation is illustrated by the profitability metrics that I just referenced is a significant competitive advantage for the company and is a direct result of our successful acquisition and integration of FirstMerit. On the credit side of the equation, our 9.4rd team loss as a percentage of total loans in a severely adverse scenario ranked 3rd lowest among traditional commercial banks. Our performance in the pet's 9 quarter period to loan loss estimates in a severely adverse stress scenario as over the past 4 years, where we have never wrecked labor for clearly reflects are relatively strong and consistently disciplined risk management.
Combined these results highlight our ability to generate strong earnings and industry leading profitability. We remain committed to our aggregate moderate to overscapitite, which we put in place 8 years ago. And as a reminder, we reinforced the importance of these standards by requiring about the top 800 officers of the company to comply with holds retirement restrictions on their equity awards. I'd also like to take this opportunity to discuss the performance of the auto finance in the stress test. Particularly in line with Ted's comments earlier this year stating that they intend to discuss auto portfolios heavily.
The Fed as black box remains opaque. However, we know that our other consumer portfolios severely address stress scenario losses. Which includes the super prime indirect auto portfolio at Ramon for the 5th best among the traditional commercial banks. Within the company run portion of G SaaS, our indirect auto portfolio remained profitable in every quarter of the scenario adverse stress scenario again this year. In fact, our indirect auto and auto dealer floor plan portfolios combined are the 2 best performing portfolios in our entire loan portfolio in the stress test.
This highlights the high quality robust nature of our super prime focused indirect auto portfolio, along with our dealer center floor plan businesses. Reflecting the power of the FirstMerit acquisition, we were once, but were one of the few regional banks to see us dress total capital increased from the 2017 CCAR process, despite the more difficult Fed scenario in 2018. Consistently high capital generation, governed by strongest management, is highly correlated to the creation of shareholder value in our industry. Our performance in the 2018 CCAR process clearly indicates that we are on the right track. We've materially increased our total payout in 2018 with quarterly dividend increasing 27%.
From $0.11 to $0.13 per share. This year will represent the 8th consecutive year of an increased dividend. Board also approved the repurchase with our $1,100,000,000 of common stock over the next four quarters. And consistent with our CCAR capital plan, we intend to program about 2, about 3 quarters of the buyback into 2018. Including the announced intention to enter into an accelerated share repurchase program for approximately $400,000,000 of common stock this quarter.
We understand prudent capital allocation is essential to delivering strong returns to our shareholders. The 2018 capital plan actions are consistent with our stated capital priorities, which are to fund organic growth first, to increase our quarterly dividend second and finally, other uses, including return of capital via share repurchases. At this time, we do not view traditional commercial bank acquisitions as being attractive as potential candidates are not meeting our valuation expectations. Now, as Mac has stated on previous occasions, we believe our earnings power capital generation and risk management discipline will support higher dividends, including a higher dividend payout ratio over time. As we briefly outlined on Slide 3, we developed Huntington's strategies for the vision of creating a high performing regional bank and delivering top quartile 3 recycles shareholder returns.
Our profitability metrics are amongst the best in the industry and we approach sustainable competitive advantages in our key businesses that we believe will drive continued high performance in the future. We continue to make meaningful long term and investments in our businesses, particularly around our highly engaged colleagues and customer experience, enabled by technology, and particularly digital technology to drive organic growth. We're very pleased with how we're positioned and the opportunities ahead. Slide 4 illustrates our long term financial goals, which were approved by the board for the fall of 2014 as part of our strategic planning process. As a reminder, these goals were originally set with a 5 year time horizon in mind, and we fully expect to achieve these goals this year on a reported GAAP basis, 2 years ahead of the original expectation.
Our second quarter efficiency ratio is near the low end of our long term goal as a result of our expense discipline and focus on revenue growth. While continuing to invest in our businesses. We're on pace against deliver our annual goal of positive operating leverage, which will represent our 6th consecutive year of doing so. Our credit metrics are simply excellent, whereas 2nd quarter losses were the 16th consecutive quarter where net charge offs remained below our average through the cycle target range. Our 17 point 6% return on tangible common equity, Provisions Huntington as a top performing regional bank.
And these results demonstrate that our strategies are working and will continue to drive Huntington forward. So, let's turn to Slide 5 to review 2018 expectations and to discuss continue to perform well and we remain optimistic on the near term outlook. An appointment rates remain near historic lows and we continue to see meaningful labor shortages in several footprint markets such as Columbus and Indianapolis and Grand Rapids. The Midwest in fact has the highest job opening rate in the nation so far in 2018, reflecting the dynamic region For potential job growth, the most dynamic region for potential job growth of the 4 major regions in the country according to our Bureau of Labor Statistics made Jolt survey. As shown on the slide in the appendix, the 3 LTIP beds State Leading indicated indices for our footprint point for the favorable economic environment for the remainder of 2018.
Most of the states are expected to see an acceleration in economic activity over the next 6 months. Further states, including Ohio, are expected to grow significantly faster than duration. And while trade and tariff issues are creating some uncertainty in specific industries, We have not yet seen an impact on our customer base. We continue to have conversations with our clients and they remain optimistic for their businesses in the region in large part reflecting a positive impact of federal tax reform and the overall strength of the economy. We are seeing broad based commercial loan growth driven by increased capital expenditures and credit plan expansions.
Our loan pipelines remain steady. And moving to 2018, we expect full year average loan growth in the range of 5.5% to 6.5%, and based on our current auto pricing strategy, we no longer expect to do an auto securitization this year. Full year average deposit growth is expected to be 3.5percentto4.5percent, but full year growth and average core deposits is expected to be 4.5% to 5.5%. We expect full year revenue growth of 5% to 6%. We project the GAAP NIM for the full year will expand 2 to 4 basis points compared to 2017 and we expect both the core and GAAP NIM will be up modestly in third quarter of 'eighteen.
We remain on track to deliver positive operating leverage for the 6th consecutive year, We expect a 3% to 4% decrease in non interest expense on a GAAP basis and our expected efficiency ratio range is 55% to 55.5 percent to 56.5 percent in line with our year to date results and an improvement from the full year 2017 efficiency ratio of 61%. We anticipate that net charge offs will main below our average due to the cycle target of 35 to 55 basis points and our expectation for the effective tax rate for the remainder of the year It's in the 15.5percentto16.5percent range. Looking beyond 2018, we continue to make meaningful progress on the new 3 year strategic planning process we kicked off in the first quarter. Our past 2 strategic plans significantly advanced the company's financial performance and competitive positioning. Continue this momentum are areas of focus for the 2018 planning process, our top line revenue growth, Capital Optimization And Business Model Evolution Incorporating expected disruption.
We were fortunate to be in a position to build a strong foundation of our previous strategic plans, which are positioned us as an industry leader in customer experience. We are focused on extending our customer experience advantage through a series of initiatives coming out of this year's strategic process that will allow us to improve customer acquisition while reducing customer attrition and deepen relationships with our customers. As always, our boarded is highly engaged in the process, leaving for the rest for 2 days just last week to be followed up with a 3 day Board outside September to further refine into the decision of the new strategic plan. As we stated previously, another port outcome of the strategic planning process There'll be new long term financial goals for the company. We expect to be in a position to communicate those goals later this year.
So, before I turn it over to Mac, I want to personally thank everyone who participated in our recent investor and analyst survey. We really appreciate hearing your thoughts on where we have met your expectations, but as importantly, where we have opportunities to improve. The survey results are extremely valuable to us and to our board as we continue to work through our strategic planning process. As always, Mark and the IR team are available to anyone that didn't participate with what would like to share your thoughts or concerns with us or the board. So, Matt, let me now ask you to provide an overview of financials.
Thanks, Steve. Slide 6 provides the highlights of the second quarter results. As Steve mentioned, we had a good second quarter. It was also a clean quarter, as for the 3rd quarter in a row, there were no significant items other than the implementation of tax reform, the fourth quarter of 2017. We recorded earnings per common share of 30% over the year ago quarter.
The year ago quarter included a $0.03 per share reduction due to the 1st year integration related significant items. Return on assets was 1.36%. Return on common equity was 13.2% and return on tangible common equity was 17.6%. We believe all three of these metrics distinguish Huntington among our Regional Bank peers. Our efficiency ratio for the quarter was 56.6%.
Cash flow per share increased 2% sequentially and 8% year over year to $7.27 per share. On Slide 7, total revenue was up 4% from the year ago quarter. Net interest income was up 5% year over year due to a 5% increase in average earning assets. Demand interest income increased 3% year over year, reflecting ongoing household acquisition and execution of our optimal customer relationship or OCR strategy. While both mortgage and originations were higher year over year, compression and secondary market spreads in mortgage banking and a higher mix of construction SBA originations, which linked lengthens the funding cycle for SBA loans continue to impact these fee categories.
Non interest expense decreased 6% year over year, reflecting $50,000,000 of significant items expense in the year ago quarter, related to the integration of FirstMerit versus non in the current quarter. Expenses were up versus the prior quarter, driven by the timing of profit Basin associated with long term incentives and a seasonally higher marketing expense. For a closer look at the income statement details, please refer to the analyst package in the press release. Turning to Slide 8. Average earning assets grew 5% for the second quarter of 2017.
This increase was driven by a 7% increase in average loans and leases. Average CMI loans increased 3% year over year with growth centered in the middle market, Asset Finance, Energy And Corporate Banking. On a linked quarter basis, average C and I loans increased to 2% or 7% annualized. With broad based growth in middle market, asset finance, energy and specialty banking. Average commercial real estate loans were up 4% year over year, while flat on a linked quarter basis as we have strategically tightened commercial real estate lending, specifically in multi family, retail and construction, to remain consistent with our aggregate, moderate to low risk appetite and to ensure appropriate returns on capital.
Average auto loans increased 1,000,000,000 for the second quarter of 2018, down 2% year over year. We have been consistently increasing auto loan pricing from which slowed originations while optimizing revenue. The average new money yield on our auto originations was 4.22% in the quarter up from 3.88% in the first quarter. Average RV and re loans increased 31% year over year, reflecting the success of our expansion of the business into 17 new states over the past 2 years. Range quarter growth was 30% annualized, driven by normal seasonality.
Average residential mortgage loans increased 21% year over year, reflecting continued strong demand for mortgages across our footprint, as well as the benefit of ongoing investment in former FirstMerit geographies, particularly Chicago. As typical, we sold the agency qualified mortgage production in the quarter and retained a number of mortgages and specialty mortgage products. Turning attention to the chart on the right side of the slide. Average total deposits increased 4% from the year ago quarter, including a 4% increase in average core deposits, and a 6% increase in period end core deposits. Moving to Slide 9.
Our net interest margin was 3.29 percent for the second quarter, down 2 basis points from a year ago quarter and down 1 basis point in the quarter. During the first half 2018, we took a number of actions to position the balance sheet for higher interest rates, including the origination of approximately $3,000,000,000 of attractively priced fixed rate CDs through our finished network. We also closed out approximately $3,000,000,000 of paid fluting swaps on fixed rate long term debt and issued $1,250,000,000 of fixed rate long term debt at WestRock back to Florida with an average rate of maturity of 4 0.6 years. The next number of these actions made our balance sheet more asset sensitive and will better manage our deposit beta over the next 12 to 18 months. In addition, the second quarter of 2018 reflects the inflection point of balance sheet growth and core net interest margin improvements, combined with run off of purchase accounting accretion, allowing for expansion of our GAAP reported net interest margin to expand going forward.
As Steve mentioned in his comments, we expect the GAAP recorded net interest margin for the full year 2018 to expand 2 to 4 basis points over full year GAAP reported net interest margin for 2017. This remained approximately 3 to 6 basis points of improvement and a GAAP recorded net interest margin for each of the next two quarters. Purchase accounting accretion contributed 8 phase points to the net interest margin in the second quarter of 2018 compared to 15 basis points in the year ago quarter. After adjusting for purchase accounting accretion in both quarters, the core NIM was 3.22% versus 3.16% in the second quarter of 2017. Growth in core net interest margin over the past year has more than offset the benefit and purchase accounting accretion.
Slide 29 in the appendix provides information regarding the scheduled impact of FirstMerit purchase accounting for 20182019. On the early asset side, our provisional loan yields increased 41 basis points year over year, while consumer loan yields increased 16 basis points. Our deposit costs remain well contained with total interest bearing deposits of 59 basis points for the quarter, up 28 basis points year over year. Consumer core deposits were up 14 basis points year over year and commercial core deposits were up 25 basis points. On a linked quarter basis, the core NIM was unchanged to 3.22%.
Average earning asset yields increased 16 basis points, including a 26 basis point increase in commercial loan yields and a 9 basis point increase in consumer loan yields. On the liability side, the rate paid on interest bearing deposits increased 16 basis points. Day count negatively impacted the net interest margin by one basis point on a linked quarter basis. Our CD strategy negatively impacted the NIM. By one basis point and derivatives and effectiveness on debt swaps had a negative impact of 3 basis points.
Moving to Slide 10. Our cycle to date deposit beta remains low at 24% through the second quarter of 2018. While our CD funding strategy negatively impacted our cycle to date deposit beta by 2 basis points, we are better positioned for continued higher rates due to the strategy. As we told you last quarter, overall positive pricing remains rational in our markets. Assuming one additional rate increase in 2018, our current forecast assumes an incremental deposit beta of approximately 50% for calendar year 2018, driven by the shift in customer preferences to more rate sensitive products, including money markets and CDs.
Slide 11 illustrates the continued strength of our capital ratios. Salesforce Common Equity ended the quarter at 7.78%, up 37 basis points year over year. Cominant made Tier 1 ended the quarter at 10.53 percent, up 65 basis points year over year. Moving to Slide 12, credit quality remained strong in the quarter. Consistent, prudent credit underwriting is one of Huntington's core principles, and our financial results continue to reflect our disciplined approach to risk management and our aggregate moderate to low risk appetite.
We booked provision expense of $56,000,000 in the second quarter, including $8,000,000 of allowance for unfunded loan commitments compared to net charge offs of $28,000,000. The loan loss provision expense in the quarter reflected a strong loan growth and continued migration of the acquired FirstMerit portfolio into the originated portfolio. As a reminder, our provision expense has exceeded net charge offs in the webinar of the past 12 quarters while driving material earnings power improvement. Net charge off represented annualized 16 basis points of average loans and leases, which remain below average through the cycle target range of 35 55 basis points. Net charge offs were down 5 basis points from the prior quarter and the year ago quarter.
As usual, there is a of granularity of charge offs high portfolio of an AELUS package in this box. The allowance for loan MDs losses as a percentage of loans increased one basis point 8 quarter to 1.02% and coverage of non accrual loans was 197%. The allowance for credit losses as a percentage of loans increased 2 basis points linked quarter to 1.15%. Turning to Slide 13. Overall asset quality metrics remain near cyclical lows and some quarterly volatility is expected given the absolute low level of problem loans.
The non performing asset ratio decreased 2 basis points sequentially to 57 basis points. The criticized asset ratio decreased 11 basis points from 3 $60,000,000 to $349,000,000. Slide 14 highlights putting some strong position to execute on our strategy and provide put through the cycle shareholder returns. The graph in the top left quadrant represents our continued growth in pretax pre provision net revenue as a result of the focused execution of our core strategies. The strong level of capital generation positions us well to fund organic growth in the future and return capital to our shareholders, consistent with our capital priorities.
The top right chart highlights the well balanced mix of our loan and deposit portfolios. We refer to the consumer and a commercial bank, and believe the diversification of the balance sheet will serve us well over the cycle. Our DFAST stress test results in the bottom left, which Steve discussed earlier, highlight our disciplined enterprise risk management. Finally, the bottom right demonstrates funding for the strong capital position. As we return to the key messages on slide 15, let me turn the presentation back over to Mark for Q And A.
Cathy will now take questions. For those courtesy of your peers, each person asks only one question and one related follow-up. And then if that person has additional questions, he or she may add themselves back into the queue. Thank you.
Question and answer you. Thank you. Our first question is coming from the line of Ken Usdin with Jefferies. Please proceed with your question.
Thanks. And good morning guys. Matt, thanks for the color on the expectation for how the NIM should you in the second half. I was wondering that's a pretty big step up, 3 to 6 basis points per quarter. Can you help us understand the, you know, literally then you separate the left side and the right side of the balance sheet and where that will be driven from?
So, so, Ken, I think a number of things went back going forward. I do think we're being, more aggressive on asset pricing. We've increased pricing in direct, auto. We've increased pricing in both RV. We've increased pricing in residential mortgage.
And we continue to be very disciplined and appropriately priced on the commercial portfolio. So we continue to see good expansion there, in particular, as we take some of these pricing actions. I think on the liability side, given the CD strategy that we put in place and really the middle of the first quarter of this year, We did expect to see some accelerated deposit costs. We also expected to see the loan growth that we've been seeing. So we wanted to make sure that we got ahead of that.
With our core funding. We feel very good about the robotic that we put on the boats. We had a very I would say good reception from our customer base, good execution by the retail branches in terms of raising about $3,000,000,000 to date. And we do think that longer term that's going to position us well as insurance rates continue to rise. We should see this help us both with asset sensitivity and with the deposit betas going forward.
Okay. And as a follow-up, maybe you can also help us understand your reinvestment yields on new securities. I know you're changing the composition of the book, but versus the 271, what are you putting on stuff on? And on the lower right side, is there anything going on in the long term debt line that should also revert relative to the big spike you saw in the cost on that line this quarter?
So, we are not reinvesting into the security portfolio at this point in time. We're going to continue to run that down through the end of the year. Basically, not in cash flow. If you think about where we started the year to where we're going to end the year, the securities portfolio will be down about $1,800,000,000. You need to cut through the noise because we do have some municipal loans that are counted as securities that aren't growing in that book.
But, basically, the pure investment security portfolio will be down $1,800,000 by the end of the year. We'll start to reinvest, in 2019. But we're in really good shape from an OCR perspective right now, and we're going to continue to run that down. We did issue some long term debt. We did issue the 1,250,000,005 100,000,000 of that the 7 year and $750,000,000 was 3 year.
We did, we did swap that to floating. But we, we likely won't have another issuance of debt later this year.
Thank you. The next question comes from the line of John Pancari with Evercore. Please proceed with your question.
Good morning.
On the on your for your 'eighteen outlook.
I know you kind of bumped
up the midpoint of your revenue expectation. You bumped down the midpoint of your expense expectation a bit versus previously. But the midpoint of your efficiency ratio guidance is unchanged, despite tweaking the tails a bit. So, why not see more of a move in the midpoint of that range? Thanks.
Basically the ranges would allow us to calculate off of the range, the efficiency ratio based on the mix of revenue and expense So very comfortable with the range that we provided across all those categories. We did tighten somewhat significantly in this, in this, in this guidance. But, you know, basically within those ranges, those are the efficiency ratios that we feel comfortable Okay. So not meaningful enough really to move the midpoint then? Yes.
I think that's, I think that's the way to think about it. I mean, we likely, were this tight in the range we linked up prior guidance.
Got it. Okay. And then separately on the betas,
I know the part of that jump up
in the beta cumulatively this quarter was from the CD program. How do you think about you know, next quarter and, I know you indicated you're expecting an incremental data of about 50% through the back half of the year? I mean, how, what do you view your terminal beta as well? At what point do you think or what level do you see the terminal getting to?
So the 50% for 2018, feel very comfortable with that, that actually might be a little bit light, but I would say not materially. And going forward, we continue to think that, we're going to be continuing to see deposit betas increase I'm just not sure at this point in the cycle, unless we think about the rate increases that are coming, that we're going to see, materially different performance when you think about incremental 50% in 2019 based upon the rate increases that we see coming through. Okay. All right. Thank you.
Thanks.
Thank you. Our next question is coming from the line of Matt O'Connor with Deutsche Bank. Please proceed with your question.
Hey, guys. It's actually Rick Stauds from Matt's team. Just wanted to touch on
loan growth. You saw some good strong growth in
the commercial book and I'm wondering if you could refresh that out a little bit and just what our customer is saying, is there an up and tick and investment and just your general points like the climate out there among a public client?
Yes, Ricky, this is Dan. I would say that we are we still have a strong pipeline. I think our customer base overall is fairly optimistic. I think what you saw this quarter, we had good diversification, in various categories. If you recall, last year, you know, corporate banking, we had big headwinds with, bond issues taking out, taking out loans.
I think that has, phenomenon has, really led up and would getting some traction in the large corporate space, some of our specialty businesses, have had good results, our energy book, which, you know, our E and T book has been very modest. It still is of a, you know, modest size that we've had some good growth there because we like the structure and the pricing. You know, for the market has seen good growth. So it's broad and it's diversified. And so, still very positive.
Some headwinds out there, we believe, from, you know, the trade talk well, I don't think it's impacted customers' outlook yet, that
is something we're keeping an eye on. Thanks. And maybe a follow-up on
the boat RV running piece. I was gonna be
seeing some pretty nice pick up the
wondering how big can that
become over time? And do you guys have sort of a limit on capital as to how big that can grow in the out years?
Yes. So, given the size of the portfolio, we started very small, so there is room for growth that we have on the Sabra a, a concentration limit. And, you know, and so we like the business, but the growth is going to be controlled. We're now in 34 States. I don't see, that growing in the near term.
But when you look at what we're originating, you know, very high FICO the customer profile remains very strong and, so we do have room to grow, but we have tax that growth internally. Our next question
the line of Ken Zerbe with Morgan Stanley.
Just can you just elaborate
a little bit the change that you guys have made to make your balance sheet a little more asset sensitive I guess can you just walk through the decision process? Why make that decision now versus a quarter or 2 quarters ago? Thanks.
So, Ken, we analyzed the situation, weekly. Spent a lot of time in Alco, some of our co, a lot of committees taking a look at their position, looking at different options that we can take. You know, we, we basically, read the call on the CD strategy in the first quarter, because we became more convinced that we were going to rates rise from here were, more comparable than what we might have thought in 2017. And, So with those, those, those deposits on, as I mentioned, because we also saw the loan growth coming out of. In terms of what we did with the debt swaps, we did contemplate taking those off earlier, to become more asset sensitive.
We were doing other things along the way to become more asset sensitive. In general, of, we feel pretty comfortable with where we are, we're about 6%. And that's a 200 basis point ramp. So, we don't want to get ahead of the situation. We want to want to fall behind the situation where we feel very comfortable with where we are.
Okay, understood. And then my follow-up,
in terms of capital return, obviously in my view, I think you're demonstrating your willingness to be more aggressive or is aggressive as you can be in terms of returning capital. Would you consider sort of a mid year resubmission to ask for more capital earned or given the environment and kind of given your capital ratios, are you completely comfortable for where you're at with this with the current $1,000,000,000 authorization? Thanks. So, we're targeting at 9%
to 10% CET1. We have that better asset growth, relative to what we submitted in the CCAR plan. So, on a risk weighted asset basis, we're a little bit higher than what we expected, but still very comfortable, very, I would say, higher in that 9% to 10% range. You know, I think we just have to continue to see how the economy, progresses, I think we have to, to see what happens with the interest rate environment, and make that decision as we take of various factors into consideration. We do think that our 9% to 10% CET1 target positions us well relative to the peer group.
You should see the peer group playing and see what levels down. So when you guys take all those things into consideration, when we decide, it will, will do that kind of an immediate, midyear process. There's also, Federal Reserve action Ken that's expected, as a result of the recent legislation for banks our size. And, the timetable for that's not clear, but it's intended to be within 18 months hopefully, it's sooner, and that'll give us some guidance.
All right. Great. Thank you.
Thank you. Our next question is coming from the line of Scott Pleisers with Sandler O'Neill. Please proceed with your question.
Good morning guys.
Mac, maybe I was hoping you could expand a little on your thoughts on the competitive dynamics in both the auto and marine RV businesses. I mean, you guys really had some success raising and raising prices in both. And I guess just as I look at them, auto, you've had some larger players sort of deemphasizing that business, which presumably is good for you guys, but then marine RV, maybe some newer entrants getting in. So just hoping you could update your thoughts on how the competitive dynamic is in each of those businesses.
So I'll start and then maybe Steve or Dan will add to it, but, I think in the auto space, we we're very well positioned with our customers, who are the auto dealers. I mean, we've been in the space for over 60 years. We provide a high level of service when you think about the response time, when you think about same day funding, maybe do some things that other, other banks just don't do. And I think that really puts us in a very strong relationship position with those dealers. We're not changing our risk appetite as it relates to this business.
We're super primal. And, we do think that we can optimize balance sheet, optimize revenue by increasing pricing in the indirect auto space. And that's what we've been doing. To the point where we don't need a securitization this year in order to stay underneath our limits. So we think that's just smart, balance sheet and capital optimization.
And we believe that we've got the pricing power and the relationships to be able to do that in the indirect dollar space. The rate of RV, there really are 6 major players nationally in that business. It's probably not as dependent on technology as the indirect dollars things might be. But again, it comes down to the relationships that you have and and being there to be able to service those fevers. It's a space where we're going to continue to make investments and we'll likely bring some additional technology into that space.
But we feel that, just given our market share and given our position, we do have some pricing power. And part of it also is the level of customer service that we provide that allows both the actions or takeaways.
All right, perfect. Thank you. And then I have just one, sort of a sticky cut question on the margin guidance. So when you talk about the GAAP margin, being up a couple of basis points versus the 'seventeen number, are you using the 330 FTE margin for full year 'seventeen or are you not including the FTE adjustment?
We always use the FTE. Okay, all right. Thank you very much, but I
just want to make sure.
Thank you. Our next question is coming from the line of Steven Allen Douglas with JP Morgan. Please proceed with your question.
Hey, good morning, everybody.
On the deposit side, what was
the term and cost of the
CDs that you guys added in
the quarter? And is that strategy of building these out continuing? In the third quarter?
Yes. So, you know, we're basically somewhere between 'nineteen and, 26 months and the rates between $2.20 $2.50 is the way to think about it. We are continuing with the campaign and the activity. And I would say we've been averaging about $600,000,000 a month in production of premiums historically. Okay.
That's helpful. I'm curious, business optimism has been really strong in your footprint. But regarding the uncertainty around tariffs, is this impacting your commercial loan pipelines at all? What are you hearing from your customers on that front?
Yes. So, I would say at this point, it is not impacting the pipelines obviously, we'll have to watch the pull through rate. And if some of the changes longer this goes on right now, As I mentioned before, I think, our customer base, you know, their monitoring situation, their cautionary, but still, still going ahead with plans, that they've had in place for, for investments. So we haven't seen the impact at this point. I think the outlook still remains pretty positive.
Great. Thanks for taking my questions.
Thank you.
Thank you. The next question is coming from the line of John Oststrom with RBC Capital Markets. Proceed with your question.
Thanks. Good morning, guys. Hey, John. Just back on deposits, can you touch a little bit about, on the consumer deposit growth for the quarter, I guess, one of the numbers that, so that was a non interest bearing demand growth. And, curious what drove that if you could maybe tie that into the customer acquisition and reduce attrition comment that you talked about in your longer term plans?
Sure, John. So I think, we continue to be, I think, advantaged and strong in terms of household acquisition. On the consumer side. You know, there is some seasonality in the second quarter that, actually, fortunately against us. But, we continue to add new account origination.
I think that's a big driver of it. And I think also, being able to get deeper into the first mirror, corporate business has been helpful as well. But, we haven't covered specifics around OCR and some of the household acquisition that we've seen, for a while, but we can certainly to see good growth and good, household acquisition. Okay. Good.
And then just, Steve, one for
you, the labor shortage comment it seems to come up every quarter, but maybe it seems a little bit more acute, from the tone of your voice when you talked about quarter, would you say it's, is it a bigger problem for you and does that concern
you longer term? I do think it's, a restraining factor in terms of the economic potential in our footprint. It was surprising to me to see our jobs availability being higher than every other region of the country, John. And, and so that underlying strength and the potential makes me bullish long term, but, clearly, it's holding us back at some level. Okay.
Okay. Thank you. Thank you.
Thank you. The next question is coming from the line of Brian Clark with KeyB Leatin Woods. Please proceed with your question.
Hi, good morning gentlemen. I just had Mac I just wanted to follow-up question really quickly and I I missed it earlier, but for the full year revenue guidance, do you now include a September hike in for the back half of the year? We do. Yes, we do have a September, right, in the back half of the year. Okay.
And then just really on the deposit beta, so that's percent would be your deposit beta for the full year 2018. So, the expectation is that will be another ramp in the back half of the year with that September hike that would be higher than the second quarter? That is the real model. We're expecting the 50% to be for the full year. Okay.
And, you know, we think we're probably, you know, 40% to 3%, something in that range from where we sit today. Got you. But obviously, the NIM expansion is going to come from the earning asset side of this getting a benefit from that rolling through for the second half of the year? That's correct. Got it.
Thanks for your time.
Thank you. And ladies and gentlemen, we have reached the end of the question and answer session. Would like to turn the call back over to Steve Feinera for closing remarks.
We are clearly building long term shareholder value with Chris top quartile financial performance, combined with strongest management and our execution of our strategies. Now, we had a strong first half of the year, good growth, clean credit, high quality earnings, and we believe we are well positioned for the remainder of the year and beyond. So, finally, I would like to include a reminder that there is a high level of alignment between the broad management of our colleagues, and shareholders. The broadened our colleagues are collectively the 7th largest shareholder for Huntington and all of us are appropriately focused on driving sustained long term performance. So, thank you for your interest in Huntington today.
We appreciate you joining us and have a great day.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and we thank you for your participation.