Greetings, welcome to the Huntington Bancshares second quarter earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mark Muth, Director of Investor Relations.
Thank you. Welcome. I'm Mark Muth, 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 one hour from the close of the call. Our presenters today are Steve Steinour, Chairman, President, and CEO, and Mac McCullough, Chief Financial Officer. Dan Neumeyer, our Chief Credit Officer, will also be participating in the Q&A portion of today's call. As noted on slide two, today's discussion, including the Q&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 10-K, 10-Q, and 8-K filings. Let me now turn it over to Steve.
Thanks, Mark, 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 million 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% and return on tangible common equity of 17.6%. The average loan increase was strong at 7% versus the second quarter of 2017 and 8% annualized versus the first quarter of 2018. Our loan growth was driven by disciplined, broad-based growth in both commercial and consumer loans. We're pleased with our second 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 FirstMerit, 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. The 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're very pleased with the recent DFAST and CCAR stress test results, which provided important industry comparisons. Huntington's organic capital generation, as 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 nine-quarter cum loss as a percentage of total loans in a severely adverse scenario ranked third lowest amongst traditional commercial banks. Our performance in the Fed's nine-quarter cumulative loan loss estimates in the severely adverse stress scenarios over the past four years, where we have never ranked lower than fourth, clearly reflects a 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-tier risk appetite, which we put in place eight years ago. As a reminder, we reinforce the importance of these standards by requiring about the top 800 officers of the company to comply with hold-to-retirement restrictions on their equity awards.
I'd also like to take this opportunity to discuss the performance of the auto finance business in the stress test, particularly in light of the Fed's comments earlier this year stating that they intended to stress auto portfolios heavily. The Fed's black box remains opaque. However, we know that our other consumer portfolios' severely adverse stress scenario losses, which includes the super prime indirect auto portfolio, were among the fifth best among the traditional commercial banks. Within the company-run portion of DFAST, our indirect auto portfolio remained profitable in every quarter of the severely adverse stress scenario again this year. In fact, our indirect auto and auto dealer floor plan portfolios combined are the two best-performing portfolios in our entire loan portfolio in the stress test. This highlights the high-quality, low-risk nature of our super prime-focused indirect auto portfolio, along with our dealer-centric floor plan businesses.
Reflecting the power of the FirstMerit acquisition, we were one of the few regional banks to see our stress total capital increase from the 2017 CCAR process despite the more difficult Fed scenario in 2018. Consistently high capital generation governed by strong risk management is highly correlated to the creation of shareholder value in our industry. Our performance in the 2018 CCAR process clearly indicates that we're on the right track. We materially increased our total payout in 2018 with quarterly dividend increasing 27%, from $0.11 to $0.14 per share. This year will represent the eighth consecutive year of an increased dividend. The board also approved a repurchase of about $1.1 billion of common stock over the next four quarters.
Consistent with our CCAR capital plan, we intend to front-load about three-quarters of the buyback into 2018, including the announced intention to enter into an accelerated share repurchase program for approximately $400 million 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. 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've briefly outlined on slide three, we developed Huntington's strategies with a vision of creating a high-performing regional bank and delivering top quartile through-the-cycle shareholder returns. Our profitability metrics are amongst the best in the industry, and we've built 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 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 four illustrates our long-term financial goals, which were approved by the board in the fall of 2014 as part of our strategic planning process.
As a reminder, these goals were originally set with a five-year time horizon in mind, and we fully expect to achieve these goals this year on a reported GAAP basis, two years ahead of the original expectation. Our second quarter efficiency ratio was 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 again to deliver our annual goal of positive operating leverage, which will represent our sixth consecutive year of doing so. Our credit metrics are simply excellent. Our second quarter losses were the 16th consecutive quarter where net charge-offs remained below our average through-the-cycle target range. Our 17.6% return on tangible common equity positions Huntington as a top-performing regional bank. These results demonstrate that our strategies are working and will continue to drive Huntington forward.
Let's turn to slide five to review 2018 expectations and to discuss the current economic and competitive environment in our markets. The local economies across our eight-state footprint continue to perform well, and we remain optimistic on the near-term outlook. Unemployment rates remain near historical lows, and we continue to see meaningful labor shortages in several footprint markets such as Columbus, Indianapolis, and Grand Rapids. The Midwest, in fact, has the highest job opening rate in the nation so far in 2018, reflecting the most dynamic region for potential job growth of the four major regions in the country, according to a Bureau of Labor Statistics May JOLTS survey. As shown on the slide in the appendix, the Philadelphia Fed's state reading indicator indices for our footprint point to a favorable economic environment for the remainder of 2018.
Most of the states are expected to see an acceleration in economic activity over the next six months. Four of our states, including Ohio, are expected to grow significantly faster than the nation. While trade and tariff issues are creating some uncertainty in specific industries, we've not yet seen an impact on our customer base. We continue to have conversations with our clients, and they remain optimistic for their businesses and the region, in large part reflecting the positive impact of federal tax reform and the overall strength of the economy. We are seeing growth-based commercial loan growth driven by increased capital expenditures, including plant expansions. Our own pipelines remain steady. Moving to 2018, we expect full-year average loan growth in the range of 5.5%-6.5%. 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 3.5%-4.5%, while full-year growth in average core deposits is expected to be 4.5%-5.5%. We expect full-year revenue growth of 5%-6%. We project the GAAP NIM for the full year will expand two to four basis points compared to 2017, and we expect both the core and GAAP NIM will be up modestly in the third quarter of 2018. We remain on track to deliver positive operating leverage for the sixth consecutive year. We expect a 3%-4% decrease in non-interest expense on a GAAP basis. Our expected efficiency ratio range is 55.5%-56.5%, 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 remain below our average through the cycle target of 35-55 basis points, and our expectation for the effective tax rate for the remainder of the year is in the 15.5%-16.5% range. Looking beyond 2018, we continue to make meaningful progress on the new three-year strategic planning process we kicked off in the first quarter. Our past two strategic plans significantly advanced the company's financial performance and competitive positioning. To continue this momentum, our areas of focus for the 2018 planning process are top line revenue growth, capital optimization, and business model evolution incorporating expected disruption. We're fortunate to be in a position to build on the strong foundation of our previous strategic plans, which have positioned us as an industry leader in customer experience.
We're 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 board of directors is highly engaged in the process, meeting for two days just last week, to be followed up with a three-day board offsite in September to further refine and decision the new strategic plan. As we stated previously, another important outcome of the strategic planning process will be new long-term financial goals for the company. We expect to be in a position to communicate those goals later this year. 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've met your expectations, and 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 but would like to share your thoughts or concerns with us or the board. Mac, let me now ask you to provide an overview of the financials.
Thanks, Steve. Slide six 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 third quarter in a row, there were no significant items other than the implementation of tax reform in the fourth quarter of 2017. We recorded earnings per common share of $0.30 over the year ago quarter. The year ago quarter included a $0.03 per share reduction due to FirstMerit 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%. Tangible book value per share increased 2% sequentially and 8% year over year to $7.27 per share.
On slide seven, 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. Non-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 SBA originations were higher year over year, compression and secondary market spreads in mortgage banking and a higher mix of construction SBA originations, which lengthens the funding cycle for SBA loans, continue to impact these fee categories. Non-interest expense decreased 6% year over year, reflecting $50 million of significant items expense in the year ago quarter related to the integration of FirstMerit, versus none in the current quarter. Expenses were up versus the prior quarter, driven by the timing of compensation 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 and the press release. Turning to slide eight, 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 C&I loans increased 3% year over year, with growth centered in middle market, asset finance, energy, and corporate banking. On a linked-quarter basis, average C&I loans increased 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 8% year-over-year as a result of consistent and disciplined loan production. Originations totaled $1.6 billion for the second quarter of 2018, down 2% year-over-year. We have been consistently increasing auto loan pricing, 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 marine loans increased 31% year-over-year, reflecting the success of our expansion of the business into 17 new states over the past two years. Late 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 the jumbo 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 core deposits. Moving to slide nine. Our net interest margin was 3.29% for the second quarter, down two basis points from the year ago quarter and down one basis point quarter-over-quarter. During the first half of 2018, we took a number of actions to position the balance sheet for higher interest rates, including the origination of approximately $3 billion of attractively priced fixed-rate CDs through our branch network.
We also closed out approximately $3 billion of pay floating swaps on fixed rate long-term debt and issued $1.25 billion of fixed rate long-term debt that was swapped back to floating with an average weighted maturity of 4.6 years. The net sum of these actions made our balance sheet more asset sensitive and will help 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 improvement, combined with runoff 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 reported net interest margin for full year 2018 to expand two to four basis points over the full year GAAP reported net interest margin for 2017.
This would mean approximately three to six basis points of improvement in a GAAP recorded net interest margin for each of the next two quarters. Purchase accounting accretion contributed eight basis 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 in purchase accounting accretion. Slide 29 in the appendix provides information regarding the scheduled impact of FirstMerit purchase accounting for 2018 and 2019. On the earning asset side, our commercial 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 at 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 at 3.22%. Average earning asset yields increased 16 basis points, including a 26 basis point increase in commercial loan yields and a nine basis point increase in consumer loan yields. On the liability side, the rate paid on interest-bearing deposits increased 16 basis points. Big accounts 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 derivative ineffectiveness on debt swaps had a negative impact of three 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 two basis points, we are better positioned for continued higher rates due to the strategy. As we told you last quarter, overall deposit 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. Tangible common equity ended the quarter at 7.78%, up 37 basis points year-over-year. Common equity tier 1 ended the quarter at 10.53%, up 65 basis points year-over-year. Moving to slide 12. Credit quality remains 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 million in the second quarter, including $8 million of allowance for unfunded loan commitments, compared to net charge-offs of $28 million. The loan loss provision expense in the quarter reflected the strong loan growth and continued migration of the acquired FirstMerit portfolio into the originator portfolio. As a reminder, our provision expense has exceeded net charge-offs in 11 out of the past 12 quarters while driving material earnings power improvement. Net charge-off represented an annualized 16 basis points of average loans and leases, which remains below average through the cycle target range of 35 to 55 basis points.
Net charge-offs were down five basis points from the prior quarter and the year-ago quarter. As usual, there is additional granularity on charge-offs by portfolio in the analyst package in the slides. The allowance for loan and lease losses as a percentage of loans increased one basis point linked quarter to 1.02%, and coverage of non-accrual loans was 197%. The allowance for credit losses as a percentage of loans increased two basis points from quarter to 1.15%. Going 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 two basis points sequentially to 57 basis points. The criticized asset ratio decreased 11 basis points from 360 to 349. Slide 14 highlights Huntington's strong position to execute on our strategy and provide consistent through the cycle shareholder returns.
The graph in the top left quadrant represents our continued growth in pre-tax, 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 are both a consumer and a commercial bank. I 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 Huntington's strong capital position. As we return to the key messages on slide 15, let me turn the presentation back over to Mark for Q&A.
Jeff, you will now take questions. We ask that as a courtesy to your peers, each person ask 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.
Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pause for questions. Thank you. Our first question is coming from the line of Ken Usdin with Jefferies. Please proceed with your question.
Thanks. Good morning, guys. Mac, thanks for the color on the expectation for how the NIM should traject in the second half. I was wondering, that's a pretty big step up, three to six basis points per quarter. Can you help us understand the, literally, separate the left side and the right side of the balance sheet, and where that will be driven from?
Ken, I think a number of things will impact 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 boat and RV. We've increased pricing in residential mortgage, and we continue to be very disciplined and appropriately priced on the commercial portfolio. 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 in 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. We want to make sure we get ahead of that with our core funding. We feel very good about the product that we put on the books.
We've had very, I would say, good reception from our customer base, good execution by the retail branches in terms of raising about $3 billion to date. We do think that longer term, that's going to position us well as interest rates continue to rise. We should see this help us both with asset sensitivity and with the deposit betas going forward.
Okay, 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? 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 costs on that line this quarter? Thanks a lot, Mac.
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 reinvesting 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 $1.8 billion. 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. Basically, the pure investment security portfolio will be down $1.8 billion by the end of the year. We'll start to reinvest in 2019. We're in really good shape from an LCR perspective right now, and we're going to continue to run that down. We did issue some long-term debt. We did issue the $1.25 billion.
$500 million of that was 7-year and $750 was 3-year. We did swap that to floating. We likely will have another issuance of debt later this year.
All right. Thanks a lot, Mac.
Yeah. Thanks, Ken.
Thank you. The next question is coming from the line of John Pancari with Evercore. Please proceed with your question.
Morning.
Morning, John.
On your full year 2018 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. The midpoint of your efficiency ratio guidance is unchanged despite tweaking the tails a bit. Why not see more of a move in the midpoint of that range? Thanks.
I think basically the ranges would allow us to calculate out the range of the efficiency ratio based upon the mix of revenue and expense. We're very comfortable with the range that we've provided across all those categories. We did tighten them somewhat significantly in this guidance. Basically within those ranges, those are the efficiency ratios that we feel comfortable with.
Okay. Not meaningful enough really to move the midpoint then?
Yeah, I think that's the way to think about it. We likely were this tight in the range when you think about prior guidance.
Got it. Okay, separately on the betas. I know that part of that jump up in the beta cumulatively this quarter was from the CD program. How do you think about next quarter? I know you indicated you're expecting an incremental beta of about 50% through the back half of the year. What do you view your terminal beta as well? At what point do you think, or at what level do you see the terminal getting to?
The 50% for 2018, feel very comfortable with that. That actually might be a little bit high, but I would say not materially. 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, as 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 Ricky Dodds from Matt's team.
Hey, Ricky.
Just wanted to touch on loan growth. You saw some good, strong growth in the commercial bank and in money. If you could flesh that out a little bit more. Just what are customers doing? Is there an uptick in investment spending? Just your general sense as to the climate out there among corporate clients.
Ricky, this is Dan. I would say that 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 the various categories. If you recall last year, corporate banking, they had big headwinds with bond issues, taking out loans. I think that phenomenon has really let up, and we're gaining some traction in the large corporate space. Some of our specialty businesses have had good results. Our energy book, which our E&P book had always been very modest. It still is of a modest size, but we've had some good growth there because we like the structure and the pricing. Middle market has seen good growth. It's broad, and it's diversified. It's still very positive. Some headwinds out there we believe from the trade talk.
While I don't think it's impacted customers' outlook yet, that is something we're keeping an eye on.
Thanks. Maybe just a follow-up on the boat RV lending piece. Obviously, you've seen some pretty nice pickup there. Just 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?
Yeah. Given the size of the portfolio, we started very small, so there is room for growth. We have established a concentration limit. 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. When we look at what we're originating, very high FICO. The customer profile remains very strong. We do have room to grow, but we have capped that growth internally.
Thank you. Our next question is coming from the line of Kenneth Zerbe with Morgan Stanley. Please proceed with your question.
Great, thanks. Good morning.
Morning, Ken.
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 two quarters ago? Thanks.
Ken, we analyze the situation weekly. We've spent a lot of time in ALCO, Sub-ALCO, a lot of committees taking a look at their position, looking at different options that we can take. We basically made the call on the CD strategy in the first quarter because we became more convinced that we were going to see rates rise from here, more probable than what we might have thought in 2017. Sort of put those deposits on, as I mentioned, because we also saw the loan growth coming at us. 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, we feel pretty comfortable with where we are. We're about 6%, and that's a 200 basis point ramp.
We don't want to get ahead of the situation or kind of fall behind the situation, we feel very comfortable with where we are.
Okay, understood. My follow-up, in terms of capital return, obviously in my view, I think you're demonstrating your willingness to be more aggressive or as aggressive as you can be in terms of returning capital. Would you consider sort of a mid-year resubmission to ask for more capital return? Given the environment and kind of given your capital ratios, are you completely comfortable sort of where you're at with the current $1 billion authorization? Thanks.
We're targeting at 9%-10% CET1. We have had better asset growth relative to what we submitted in the CCAR plan. Our risk-weighted asset paces were a little bit higher than what we expected, but still very comfortable and very, I would say, higher in that 9%-10% range. I think we just have to continue to see how the economy progresses. I think we have to see what happens with the interest rate environment and make that decision as we take the various factors into consideration. We do think that our 9%-10% CET1 target positions us well relative to the peer group. We do see the peer group bringing CET1 levels down. We have to take all those things into consideration when we decide if we'll do that in kind of a mid-year process.
There's also Federal Reserve action that's expected as a result of the recent legislation for banks our size. The timetable for that's not clear, but it tended to be within 18 months. Hopefully it's sooner, that'll give us some guidance.
All right, great. Thank you.
Thank you. Our next question is coming from the line of Scott Siefers with Sandler O'Neill. Please proceed with your question.
Morning, guys.
Hey, Scott.
Hey. 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. You guys have clearly had some success raising prices in both, I guess just as I look at them, auto, you've had some larger players sort of de-emphasizing that business, which presumably is good for you guys. Then marine RV, maybe some newer entrants getting in. Just hoping you could update your thoughts on how the competitive dynamic is in each of those businesses.
I'll start and maybe Steve or Dan want to add to it. I think in the auto space, we're very well positioned with our customers who are the auto dealers. 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. We do some things that 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 proud. We do think that we can optimize the 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 the securitization this year in order to stay underneath our limits.
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 auto space. Marine RV, there really are six major players nationally in that business. It's probably not as dependent on technology as the indirect auto space might be. Again, it comes down to the relationships that you have and being there to be able to service those dealers. It's a space where we're going to continue to make investments, and we'll likely bring some additional technology into that space. We feel that just given our market share and given our position, we do have some pricing power. Part of it also is the level of customer service that we provide that allows the actions to take place.
All right. Perfect. Thank you. Can I ask just one sort of ticky-tack question on the margin guidance? When you talk about the GAAP margin being up a couple basis points versus the 2017 number, are you using the 330 FTE margin for full year 2017, or are you not including the FTE adjustment?
We always use the FTE.
Okay. All right.
Yeah.
Thank you very much. Just want to make sure.
Yeah. Good question.
Okay, perfect. Thank you guys very much.
Thanks, Scott.
Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question at this time, please press *1 on your telephone keypad. Our next question is coming from the line of Steven Alexopoulos with JPMorgan. Please proceed with your question.
Hey, good morning, everybody.
Hey, Steve.
On the deposit side, what was the term and cost of the CDs that you guys added in the quarter? Is that strategy of building these out continuing in the third quarter?
Yeah. We're basically somewhere between 19 and 26 months, and the rates between 220 and 250 is the way to think about it. We are continuing with the campaign and the activity. I would say we've been averaging about $600 million a month in production pretty consistently.
Okay. That's helpful. I'm curious, business optimism has been really strong in your footprint. With regard to the uncertainty around tariffs, is this impacting your commercial loan pipelines at all? What are you hearing from your customers on that front?
Yeah. I would say at this point, it is not impacting the pipelines. Obviously, we'll have to watch the pull-through rate and if something changes, the longer this goes on. Right now, as I mentioned before, I think our customer base, they're monitoring the situation. They're cautionary, but still going ahead with plans that they've had in place for investments. 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 Jon Arfstrom with RBC Capital Markets. Please proceed with your question.
Thanks. Good morning, guys.
Hey, Jon.
Just back on deposits. Can you touch a little bit on the consumer deposit growth for the quarter? I guess one of the numbers that stood out was the non-interest-bearing demand growth. Curious what drove that, and if you could maybe tie that into the customer acquisition and reduced attrition comment that you talked about in your longer-term plans.
Sure, Jon. I think we continue to be, I think, advantaged and strong in terms of household acquisition on the consumer side. There is some seasonality in the second quarter that actually works against us. We continue to have good new accounts origination. I think that's a big driver of it. I think also being able to get deeper into the FirstMerit corporate business has been helpful as well. We haven't published statistics around OCR and some of the household acquisition that we've seen for a while. We continue to see good growth and good household acquisition.
Okay. Good. Then just Steve, one for you, the labor shortage comment. It seems to come up every quarter, maybe it seems a little bit more acute from the tone of your voice when you talked about it this quarter. 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, Jon. That underlying strength and the potential makes me bullish long term, clearly it's holding us back at some level.
Okay. Thank you.
Thank you.
Thank you. The next question is coming from the line of Brian Klock with Keefe, Bruyette & Woods . Please proceed with your question.
Well, good morning, gentlemen. Yeah, Mac, I just want to ask a follow-up question really quickly, and sorry, 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 hike in the back half of the year.
Okay. Just related on the deposit beta. The 50% would be your deposit beta for the full year 2018. The expectation is that there 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 way we modeled. We're expecting the 50% to be for the full year.
Okay.
We think that probably 43%, something in that range, kind of where we sit today.
Got you. Obviously, the NIM expansion's going to come from the earning asset side of this, getting the benefit from that rolling through for the second half of the year.
That's correct.
Got it. Thanks for your time.
You bet.
Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. I would like to turn the call back over to Steve Steinour for closing remarks.
We are clearly building long-term shareholder value with this top quartile financial performance, combined with strong risk management and our execution of our strategies. We had a strong first half of the year, good growth, clean credit, high-quality earnings, and we believe we're well-positioned for the remainder of the year and beyond. Finally, I'd always like to include a reminder that there's a high level of alignment between the board, management, our colleagues, and shareholders. The board and our colleagues are collectively the seventh largest shareholder of Huntington, and all of us are appropriately focused on driving sustained long-term performance. 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 conference call. You may disconnect your lines at this time, and we thank you for your participation.