Good morning. My name is Chris and I will be your conference operator today. At this time, I would like to welcome everyone to the Huntington Bank Shares 4th Quarter Earnings Conference Call. All lines have been placed on mute Thank you. Mark Booth, Director of Investor Relations, you may begin your conference.
Thank you, Chris. Welcome. I'm Mark Muth, Director of Investor Relations for Huntington. Copies of the slides we will be reviewing can be found on our IR website at www.huntingtonir.com or by following the Investor Relations link on www.huntington.com.
This call is being recorded and will be available for rebroadcast starting about an hour from the close of the call.
Our presenters today are Steve Steinauer, Chairman, President and CEO and Mac McCullough, Chief Financial Officer Dan Newmar, Our Chief Credit Officer will also be participating in the Q And A portion of today's call. As noted on slide 1, 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 10 K, 10 Q and 8 K filings.
Let's get started by turning to slide 2 and an overview of the financial Matt? Thanks, Mark. Good morning and thank you for joining us today. We appreciate your interest in Huntington. We have great results to share with you today and we're very fees with how we are positioned for 2016.
For the past 6 years, Huntington's customer centric stash strategy has resulted in growth in market share ensure of wallet through execution of our distinctive fair play philosophy, our welcome culture and our superior customer service. 2015 was a year of continued disciplined execution of this strategy, producing solid results and delivering on our commitments to our customers, colleagues, communities and most importantly, our shareholders. We continue to invest in our colleagues and in the capabilities we need to continue to be an industry leader in customer experience, including digital, data and analytics solution strategy including the accelerated build out of our in store strategy in Michigan. In addition, in 2015, we returned approximately $400,000,000 of capital or more than 55 percent of net income to shareholders via dividends and buybacks. Slide 2 shows some of the financial highlights for the year.
Earnings per common share of $0.81 was up 13% from 2014, while tangible book value per share increased 4% to $6.91. Full year return on tangible common equity was 12 point Return on assets was 1.01 for the full year. We are very pleased with our core fundamentals for the full year, including revenue growth of 6% average loan growth of 7% and average core deposit growth of 9%. And we delivered positive operating leverage for the 3rd consecutive year. Slide 3 shows similar financial highlights for the 4th quarter.
Grains per common share of $0.21 was up 11 percent year over year. 4th quarter return on tangible common equity was 12.4% while 4th quarter return on assets was 1%. We again produced solid revenue growth despite the challenging interest rate environment. Year over year revenue growth was 9% with both net interest income and non interest income contributing to the increase. We were particularly pleased with a 17% year over year increase in non interest income in the fourth quarter, benefiting from performance in capital markets, mortgage banking, and SBA loan sales among others.
Expense growth was well controlled with non interest expense up only 3% year over year. Our efficiency ratio for the quarter was 63.7 percent, a 250 basis point improvement from the year ago quarter. High quality balance sheet growth included an 8% year over year in in average core deposits and a 6% increase in average loans and leases. Growth in average core deposits more than fully funded average loan growth. As we've noted the past several quarters, while the value of core deposits may not be fully appreciated, we believe that our strong core deposit franchise will prove to be key differentiator in a rising rate environment.
We remain pleased with our credit quality with only 18 basis points of net charge offs in the 4th quarter and seventy nine basis points of non performing assets. Our capital ratios remain strong as well. Tangible common equity ended the quarter 7.81 percent while common equity Tier 1 was 9.80 percent. Slide 4 provides a summary of of the income statement, including some additional details on our non interest income and non interest expense for the quarter. Relative to last year's 4th quarter, total reported revenue increased 9 percent to $778,000,000.
Spread revenues accounted for less than half of the increase as net interest income increased 5 percent to $505,000,000. We benefited from 8% average earning asset growth partially offset by 9 basis points most notably the increase in low yielding LCR compliance securities in our earning assets and higher cost senior bank notes in our funding mix. We continue to remain disciplined in pricing of both loans and deposits. During the 2015 fourth quarter, Congress passed a provision in the fixing Americas Surface Transportation Act more commonly referred to as the highway bill which reduced in CAPT's dividends paid by the Federal Reserve to banks with assets greater than 10,000,000,000 including Huntington. The reduction in this dividend is expected to negatively impact net interest income by approximately $7,000,000 in 2016.
Were pleased with our fee income performance in the quarter as more than 60% of the year over year revenue increase came from non interest income. Specifically, reported non interest income was $272,000,000, an increase of 39000000 dollars or 17% from the year ago quarter. Highlights included an 8% increase in service charges on deposit accounts and continued momentum in card and payment processing income. Mortgage banking income increased 124 percent from the year ago quarter as a result of an $11,000,000 increase in mortgage origination and secondary marketing revenues coupled with a $5,000,000 increase from dollars gain on the sale of Huntington Asset Advisors, Huntington Asset Services And Unified Financial Services, a was included in the quarter's merger and acquisition related significant item. The decision to sell these non core businesses allow us to focus on the core wealth business and continue to reposition the Regional Banking And Huntington Private Client Group segment for better growth and returns in coming quarters.
The sale is expected to reduce non interest income by approximately $14,000,000 in 2016, primarily in the trust services line, and reduced non interest expense by approximately $22,000,000 in 20 16, primarily in the personal expense line. Reported non interest expense in the 2015 fourth quarter was $499,000,000, an increase of 15000000 dollars or 3% from the year ago quarter. This quarter's non interest expense included 2 significant items: $8,000,000 of franchise repositioning expense related to branch closures facilities impairments and personnel actions and $3,000,000 of merger related expense from the Huntington Technology Finance acquisition and the previously mentioned sale of Huntington Asset Advisors, Huntington Asset Services And Unified Financial Services. Non interest expense adjusted for significant items in both quarters increased $25,000,000 or 5 percent year over year. Of this increase, approximately $14,000,000 was related to the acquisition of Macquarie Equipment Finance, which we have rebranded Huntington Technology Finance.
During the fourth quarter, the FDIC announced a surcharge on banks with assets in excess of $10,000,000,000 including Huntington. We expect the surcharge will negatively impact our FDIC insurance expense by approximately $13,000,000 in 2016. Turning to slide 5. Average loans and leases increased $2,700,000,000 or 6 percent year over year we again experienced year over year growth in every portfolio. Average securities increased $2,100,000,000 or 17 percent primarily reflecting growth in LCR compliance securities and to a lesser extent growth in direct purchase municipal securities originated by our commercial segment.
Average commercial and industrial loans grew $1,300,000,000 or 7 percent, primarily driven by a $1,100,000,000 increase in asset finance $800,000,000 of which came via the Huntington Technology Finance acquisition. The quarter also benefited from seasonal strength auto floor plan lending and growth in corporate lending. Our core middle market business banking saw modest portfolio reductions. Average automobile loans grew $800,000,000 or 9 percent from the year ago quarter. The 2015 fourth quarter represented the 8th consecutive quarter of more than $1,000,000,000 of auto loan originations.
Auto Finance remains a core competency of financing and as detailed on the slides in the appendix, we have remained consistent in our strategy, which is built around a dealer centric model and focused on prime borrowers. Our underwriting has not changed. In fact, while industry volumes were up around 5% to 6% in 2015, our origination volumes were essentially flat reflecting our lending discipline. Yields on new auto paper dipped slightly in the fourth quarter to the $2.90 to $2.95 range just above the 3% in the prior resulting in a mix shift reduction in the overall yield. We expect the new used mix will return to more normal levels in the first quarter.
Moving to the right side including a $3,900,000,000 or 8 percent increase in average core deposits. Average non interest bearing demand deposits increased $2,000,000,000 or 13% year over year and average interest bearing demand deposits increased $1,000,000,000 or 16%. These growth numbers reflect our continued focus on new customer checking households and commercial relationship account acquisition. Average money market deposits increased $1,400,000,000 or 8 percent year over year, reflecting our continued efforts to deepen banking relationships and increased share of wallet. We also continue to remix the consumer deposit base out of higher cost CDs into other less expensive deposit products.
Average core CDs decreased $600,000,000 or 21 percent year over year. As shown on slide 5, average total demand deposits accounted for 38% of non equity funding in 2015 fourth quarter. While money market deposits accounted for 31%. By contrast, average core CDs accounted for only 4% of our non equity funding in the quarter. As we have highlighted in the last few quarters, the year over year growth in our total core deposits more than fully funded our average loan growth over this period.
Average long term debt increased $2,900,000,000 or 72 percent as a result of 4 bank level senior debt issuances this year totaling $3,100,000,000 including $850,000,000 issued in November as well as the assumption of $500,000,000 of debt in the Huntington Technology Finance acquisition. These long term debt issuances allowed us to reduce average short term borrowings by $2,600,000,000 or 80 percent from the year ago quarter. While this trade had a negative impact on the net interest margin, the long term debt provides us with advantages of long term stable funding. Average brokered deposits increased $500,000,000. We continue to view wholesale funding sources as a cost efficient means for funding balance sheet growth including LCR related securities growth, while managing core deposit expense and maintaining sales focus on acquiring core checking account customers.
Slide 6 shows our net interest margin plotted against earning asset yields and interest bearing liability costs. 4th quarter NAND decreased 9 basis points year over year and 7 basis points linked quarter to 3.09%. Recall that the third quarter of 2015 net interest margin benefited from approximately 2 basis points of interest recoveries in the commercial portfolio. We continue to experience pricing pressure across most asset classes through the majority of the compression reflected unfavorable mix shift on both sides of the balance sheet, most notably the growth in LCR compliance securities, funded by senior bank debt issuance. While we were encouraged by the December interest rate increase by the FOMC, we the impact on the 4th quarter's net interest margin was negligible.
Going forward, we expect modest net interest margin pressure to remain a headwind as several asset classes continue to price lower given average portfolio rates above new money rates, despite the recent increases in LIBOR and Prime. Based on our current outlook, we remain comfortable reaffirming that the net interest margin will remain above 3% in 2016. Slide 7 provides an update on our assets and sensitivity positioning and how we manage interest rate risk. We continue to have a relatively neutral balance sheet largely due to income would benefit by 0.3 percent if interest rates were to gradually ramp 200 basis points in addition to increases already reflected in the current implied forward curve. Unchanged from a quarter ago.
In a hypothetical scenario, without the $8,500,000,000 of asset swaps, the estimated benefit would approximate positive3.4% in the up 200 basis point ramp scenario. The chart on the bottom of the slide shows our $8,500,000,000 asset swap portfolio and the $5,900,000,000 liabilities swap portfolio including their respective average remaining lives and was $29,000,000 in the 2015 fourth quarter, up from $28,000,000 in the 2015 third quarter $24,000,000 in the year ago quarter. As we have stated previously, our asset swap portfolio is a laddered portfolio. There are no clips looming on the horizon and during the 2015 fourth quarter, $800,000,000 of the assets swaps matured. As we communicated a few quarters ago, we intend to allow maturing asset swaps this year to run off gradually shifting our balance sheet positioning more asset sensitive.
As of year end, 3,600,000,000 of swaps were scheduled to mature over the next 12 months. Slide 8 shows the trends in our capital ratios. Our risk based regulatory capital ratios improved modestly from the prior quarter end, while tangible common equity or TCE declined slightly. We repurchased 2,500,000 common shares during the fourth quarter at an average price of $11.59 per share and a total of 23,000,000 common shares at an average price of $10.93 over the full year. Coupled with cash dividends we effectively returned approximately $400,000,000 of capital to shareholders during 2015.
We have $166,000,000 of authorized repurchase capacity remaining for the final 2 quarters under our $366,000,000 share repurchase authorization. Slide 9 provides an overview of our loan loss provision, net charge offs and allowance for credit losses. Credit performance remains solid and in line with our expectations. The loan loss provision was $36,500,000 Net charge offs remained well controlled at only 18 basis points are well below our long term expectations of 35 to 55 basis points. Net charge offs for the full year were also 18 basis points The ACL ratio ticked up 1 basis point 1.33% of loans and leases compared to 1.32% at the end of the prior quarter.
The ratio of allowance to non accrual loans eased 180% compared to 184% a quarter ago due to a slight uptick in NALs. We believe the allowance is appropriate and reflects the underlying credit quality of our loan portfolio Slide 10 shows trends in non performing assets, delinquencies and criticized assets. The chart in the upper left shows a slight increase in the non performing asset ratio for the quarter to 79 basis points compared to 77 basis points a quarter ago. The increase primarily reflected 2 oil and gas exploration and production credits, which replaced a non accrual during the quarter. The chart on the upper right reflects our 90 day delinquencies which remain flat from a quarter ago.
The bottom left shows the criticized asset ratio, which also remains unchanged. Finally, the chart on the bottom right shows NPA inflows as
a percentage of beginning period loans of 29 basis points in 4th quarter, again, unchanged from the prior quarter. Let me now turn the presentation over to Steve. Thank you, Mac. Our Fairplay Banking philosophy, our Welcome Culture and our optimal customer relationship or OCR focus continues to drive, we believe to be industry leading customer acquisition. Slide 11 illustrates these long term trends in consumer and commercial customer acquisition.
We've increased our consumer checking households and our business checking relationships by 8% 5% compounded annual growth rates since 2010. While the law of large numbers might be beginning to weigh on these growth rates, the underlying customer growth rates remain impressive. And these robust customer growth rates have allowed us to post the associated revenue growth you can see in the 2 lower charts on the slide. We're particularly pleased with the recent trend visible in the chart on the bottom left as the past three quarters have shown improved momentum in the consumer household revenue metrics as we've lapped the last fee change we implemented under our fair play philosophy and continued to realize the benefit of the underlying customer growth. You've heard me say this before, but our focus remains on growing revenues.
We will continue to grow revenues despite the challenging environment. While the slides have been slightly redesigned from what you are used to seeing, slides 1213 illustrate the continued success of our OCR strategy, and deepening our consumer and commercial relationships. As we've stated before, our strategy is not about gaining market share It's a strategy is about gaining market share and share of wallet. Now this strategy is built around increasing the number of products and services we provide to our customers, knowing that this will translate both into more loyal, satisfied and stickier customers as well as revenue that's up from 49% a year ago. Correspondingly, our consumer checking account household revenue was up 13% year over year in fourth quarter.
Similarly, 44% of our commercial customers use 4 or more products or services at year end, up from 42% a year ago. Again, this has translated directly to revenue growth as commercial revenue increased 4% year over year. We introduced the next two slides to you last quarter and many of you indicated how helpful you found them. Slide 14 illustrates trends in the unemployment rate across our 6 core Midwestern States as well as other leading coincident and lagging economic data for the region. Slide 15 takes a deeper look at the trend in the unemployment rates in our largest metropolitan markets.
Despite the recent volatility exhibited in the equity and commodity markets, we remain bullish on our core Midwestern footprint. Our small and medium sized commercial customers continue to express confidence in their businesses And while consumers continue to benefit from recovering real estate markets, low energy prices and early signs of wage inflation in certain markets, such as here in Columbus. The auto industry is an important component of the economy in our footprint and it appears poised for another stellar year in 2016. Other industries that contribute meaningfully to the regional economies such as healthcare, medical device medical technology and higher education amongst others also remain strong. Our small business customers continue to experience strong performance and improving balance sheets.
Our SBA lending also remains quite robust. I find the chart in the lower right on Slide 14, particularly encouraging. This chart shows the state leading economic indices as reported by the Federal Reserve Bank of Philadelphia for our 6 state footprint all of which are projected to be positive over the next 6 months. The chart on the bottom left of Slide 14 shows that unemployment rates and our footprint footprint states continued to trend positively, including recent improvement in West Virginia, following several challenging months as they doubled the impact of lower hold prices. Unemployment rates in most of our footprint states remain in line with or better than the national average.
The chart on the bottom of Slide 15 shows a similar trend for our 10 largest deposit markets, which collectively account for more than 80% of our total deposit franchise. As detailed in the chart, the majority of these markets continue to trend favorably and 7 of the 10 markets currently enjoy Unemployment rates below the national average, and this is quite a departure from several years ago when most of these markets were above the national average. In 2014, we introduced long term financial goals, including positive operating leverage annually. Slide 16 shows that we've delivered on our commitment for positive operating leverage in 2015, our 3rd consecutive year to achieve this goal. Further, we also delivered on our commitment for positive operating leverage both including and excluding the highly accretive Huntington Technology Finance acquisition.
Over the course of the past year, Some of you expressed concern about our ability to deliver this commitment in 2015 and while others have questioned the prudence of such a commitment even in the first place. So therefore, rather than taking a victory lap or dwelling too much on the accomplishment, I think it's important to reflect back both on the impetus for establishing annual positive operating leverage, one of our long term financial goals and why it's made us a better company. Just a few years ago, some shareholders question our spending disciplines, we invested in while the related revenue growth was often difficult to ascertain because continued refinements of our fair play philosophy matched the underlying momentum and the ultimate return on those investments was not always easily enough quantified. But we continue to invest thoughtfully, strategically and opportunistically for the future, However, we committed to our owners that we would better pace our investments with revenue growth and improve, transparency. You can now see the fruit of these commitments in our daily culture at Huntington, a culture in which continuous improvement, a focus on driving sustained revenue growth and accountability for every dollar of investment has been established as an absolute expectation.
We've developed a culture in which our share owners should expect more often than not that we will deliver positive operating leverage as we constantly strive to post improved returns and top tier performance. With that, let's turn to Slide 17 for some closing remarks. And our initial 2016 expectations. We continue to manage the company with a focus on delivering consistent through the cycle shareholder returns. This strategy entails reducing short term volatility, achieving top tier performance profile throughout.
We successfully built a strong, distinguished consumer brand with differentiated products and superior customer service. We continue to execute our strategies and to adapt or adjust to our environment where necessary. We completed and integrated the highly accretive acquisition of Macquarie Equipment Finance, which we rebranded Huntington Technology Finance or HTF. Other past investments also continue to pay off, such as our data analytics effort, which will drive better customer targeting and ongoing efforts to improve sales execution across the franchise as and grow revenue. None of our investments are mature We also continue to invest in enhanced sales management, digital technology, further investments in data analytics, and optimizing our retail distribution network, all of which will help drive future performance.
From the build out of our Meyer in store strategy in the back half of 2015 is very positive, pointing towards a faster ramp than in prior in store branch openings. We've refined our in store execution over the past several years to drive this improved performance and these new stores represented some of the best locations which were there for also naturally lend themselves to stronger results. We remain bullish on the economic vitality and economic outlook of our core Midwest footprint, while we're prudently monitoring certain industries or sectors potentially impacted by global macroeconomic developments such as oil and gas exploration and production, we believe these risks remain well contained within our portfolio and the majority of our core consumer and small medium sized businesses and customers enjoy a positive near term outlook. Customer sentiment also remains positive. Commercial loan utilization rates showed a slight increase for the 3rd consecutive quarter and loan pipelines are steady.
Competitive pressures across our businesses show signs of stabilizing, and while our commitment to be disciplined lenders has not wavered. 2016, our commercial teams will be refocusing on our core middle market and small business customers following the recent years focus on building out our specialty lending verticals. Our commitment to consumers remains constant. In summary, we're pleased with our 2015 results and are optimistic as we entered 2016. Just as we did last year, we've built our 2016 budget assuming no benefit from interest rates and have established contingency plans should an even more challenging environment materialize.
We control our own destiny and once again, our focus and execution will deliver for our shareholders in 2016. While we expect NIM pressure will remain a headwind in the near term, That said, we continue to expect the NIM will bottom out later this year, assuming no interest rate increase and will remain above 3%. And further, we expect to grow both net interest income and non interest income. We expect 2016 full year revenue growth will be consistent with our 4% to 6% long term financial goal, excluding significant items and net MSR activity. As you should have come to expect from us, we will continue to invest in our businesses, but we'll pace those investments consistent with our revenue outlook.
Digital and mobile and improved sales execution. We continue to manage our loan portfolio closely, particularly sectors and specific relationships most likely to be affected by recent market volatility, the strengthening dollar, declining commodity values and other macroeconomic factors. I'm incrementally more concerned today about our credit outlook than I was when we spoke a quarter ago but I stress that recent global economic volatility and the strength of the dollar, we expect some volatility in our credit metrics going forward, and anticipate that loan loss provisioning for both ourselves and the broader industry will likely begin to increase sometime in 2016. On the other hand, we expect Finally, I always like to close with a reminder that there's a high level of alignment between the board and management and our shareholders. The board and our colleagues are collectively the 6th largest shareholder of Huntington.
We have holder retirement requirements on certain shares and are appropriately focused on of shareholders' capital. So I'll now turn it back over to Mark so we can begin the Q and A. Thanks, Steve. Operator, we 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 can add themselves back into you. Thank you.
Your first question comes from the line of Ken Usdin of Jefferies. Your line is
Thanks. Good morning.
Hi, Ken. Good morning, Ken.
Steve, if I could ask you to talk a little bit more about your your comments about credit. So this quarter obviously put up a bigger reserve than we've seen in a while and you mentioned a couple of specific things. Charge offs, however, are just remarkably low. So just in terms of the outlook, how can you talk to us just about where you
would expect that volatility start
to come from? And should we also expect you to continue to have to start building reserves going forward? And why would that be the case? Thanks.
Hey, Ken, this is Dan. Actually, you
know, the outlook is very strong and we feel very good about charge offs entering into 2016. The one area that we've seen some volatility in is kind of the whole commodities, and oil and gas arena remind you, we have, you know, very modest exposure there. You know, where all the volatility has been is in the ENT space. We have less than, we have a half a percent of our total loans in that area. Although we did build reserves this quarter, based on that book, we the majority of this division increase, was aligned with that very small portfolio because we know there's a lot of volatility and we want to continue take a conservative stance.
But in terms
of the charge off outlook,
I expect to remain below our long term, stated range.
And Ken, I think the other thing is we've had remarkable recoveries on CRE and we won't see that continuing in the 2016 So we wouldn't naturally see some increase in charge offs there.
Yes. Okay. And then so just to play that forward, just one more. So then how do we think about, if you're really confident about the loss forecast, you know, and this was a specific reserve action then should we anticipate you needing to build reserves incrementally or is this more just about charge off normalization to both of your points?
Well, since we've been at these very low levels, we've said we're going to move towards normalization. And I guess that's that's kind of the same comment I would have is we've been at a historical lows with change in the cycle and with loan growth? Yes, I think you will see some level of reserve bills. This quarter was probably a little bit more pronounced because we did have a particular focus on our small E and P book.
Understood. Thanks guys.
So, Kim, clearly below our long term range of 35 to 55. We'll probably see some increase towards that range, but we'll definitely be below it.
Yes. Okay. That's helpful. Thank you.
Your next question comes from the line of John Pinkery of Evercore ISI. Your line is open.
Good morning. It's Steve Moss, actually, for John here.
Hi, Steve.
Well, you know, on credit one more time, with regard to the, inflows you had this quarter on, criticized assets and commercial loans, how much of that was tied to commodities?
Well, the majority of the increase in the non accrual loans were, as said, we moved 2 reserve based loans to non accrual. The criticized category actually was much more stable. There was just there was a very slight uptick in that category, but that obviously would be included in the NAL.
Okay. And then turning to, on the commercial loan yield side, commercial line yields declined 11 basis points here during the quarter. Just wondering, you know, where is the, new money yields versus the, 4th quarter book yield on the commercial loan book?
Steve, it's going to be mixed across the portfolio. And I would tell you that we continue to see the same demand that we seen historically in terms of, our customers wanting to borrow. It's just a matter of us being more disciplined in making sure that we bring on to the balance sheet what we feel comfortable with. Clearly, we still see pressure on pricing, maybe less pressure on structure, but still some pressure on structure and we're just being disciplined in terms of what we do. Okay.
And
I guess
to follow that up on the liability side, just wondering, are we nearing a plateau on the increase in total interest bearing liabilities, or should that trend continue?
Well, you know, we've done a great job of growing households and commercial operating accounts and we're going to continue to see that I believe because of the philosophy we have around customer service, our Fairplay strategy So I would expect that we're going to continue to grow households and we'll still see a good non interest bearing growth along with that.
Your next question comes from the line of Scott Siefers of Sandler O'Neill And Partners. Your line is open.
Good morning, guys.
Good morning,
Scott. Two questions on overall loan growth. You guys give a lot of color on what's going on in the market. Suspect. I know the answer to the first one, but Steve, if you can, offer any additional thoughts on just, any changes seeing overall loan demand within the footprint.
And then, specifically, I was hoping you guys could update us as well on your thoughts on, your appetite for auto production, whether it's given, you know, pricing concerns or just any other, pressures perhaps building in the market.
Scott, happy to try and answer, on the first part. From what we can tell, and we've talked to businesses and all of our markets over the last couple of weeks in particular, through multiple channels. And there's generally a bullishness And you see that reflecting some of the economic statistics we've provided you, but when we take it down to the customer level, It's, it's very positive, very encouraging. So we're, you know, and our pipelines would reflect that. We have, a good pipeline for this time of year on the commercial side.
And your second question, Scott, was?
Appetite for, auto production, just any changes, you know, what, if it's, if it's decreased due to pricing pressures or maybe any other emerging pressures or still feeling very good about that space?
I think the team has done a pretty good job. We essentially were flat year over year with origination. And, and that reflected efforts to, to maintain, yield more recently, we've been able to increase the yield on the new production So we're back above the 3% level.
Okay. We like the
asset class, there's no change in outlook for it. We just remain very disciplined in it and you get to see that discipline as we release it every quarter in terms of the different credit and other metrics.
Your next question comes from the line of Bob Ramsey of FBR.
Hey, good morning. I was just curious, how much of the provision this quarter was specific to those 2 energy credits that you highlighted $10,000,000.
I'm sorry. I didn't quite catch it. Do you say $9,000,000?
Well, it's $10,000,000 that that applied not just to the 2 credit but that was our reserve based loan portfolio in total. We added $10,000,000. So we now have a 6% reserve on our reserve based lending portfolio. Got it. Perfect.
Thank you. And are these are any of
the loans in that portfolio, Snick, or are these all,
I guess, more direct lending relationships?
Actually, our strategy, these are all pretty much all shared national credit our target is, you know, larger well capitalized firms that have generally had access to the capital markets have sophisticated dredging added hedging strategies, etcetera. So this is largely a shared national credit book. Got it, again. Oilfield Services either as a reminder. Perfect.
And all firstly, can I take it?
Yes. Perfect. Thank you.
Your next question comes from the line of David Darst of Guggenheim Securities. Your line is open.
Hey, David.
Mac, I guess with the the swaps that are rolling off this year, that will be about 8 basis points to your commercial yield. I guess is that the key driver behind some of the margin compression or is there anything you can do to to offset that? Or would it be volume?
Yes, David, it's certainly a component. Of pressure to the margin. I would tell you that a good portion of it continue to be LCR and how we're funding OCR with wholesale funds. But this is all built into our plan around the expectations for 2016. So, we're comfortable with that guidance of saying at 3% or above in 2016.
And again, we're letting these swaps roll off so we can become more sensitive over time and we feel very comfortable with that strategy.
Okay. And if you had another 25 basis points mid year, Would that give you enough to stabilize the the core commercial lead yields, packs, swaps?
You know, I'm not sure about the commercial, but I think across the entire portfolio, 125 basis points would certainly give us some relief from that pressure.
Your next
question comes from the line of Jeffrey Elliot of Autonomous Research.
Another question on credit. What are the sorts of early indicators that you typically look at to see whether the cycle might be turning?
Well, obviously, we're we look at delinquencies and all the kind of traditional measurements. But as we're kind of even a step beyond that, we're talking to our customers and looking for the signals, it obviously, we're looking at job formation and interest rates and in the manufacturing base within our footprint, which continues to be strong. But in terms of the metrics, we try to look at the early indicators, which are downgrades within the portfolio, including credit migration within pass rated loan category, and delinquencies are the primary measures. But again, before we even get to that point, we're trying to stay in touch with our customers and look at the key indicators that they are watching. And as Steve indicated earlier, right now, in our region, the indicators are actually quite positive.
So I guess to to follow-up, how should we reconcile the indicators being quite positive with the message that you're kind of incrementally more cautious on credit as we go through 2016 for huntington and for the industry?
Well, I think there's a lot of uncertainty out there right now. And that is, you know, we always take a conservative stance. So if we have questions in the economy, we're going to going to take a more cautious approach. But I would say that there's a stark contrast today what you see in the news and the way our customers and folks in our region are feeling. But nonetheless, we are paying attention to the warning signs and clearly, you know, the energy and commodities businesses are, are quite volatile and that goes into our thinking.
And I think that's the key, right, because we're at a very low level, in terms of charge offs and non performing assets and we will see more volatility in 2016. So off of the slow level, is it likely that we see a trend towards the upside that's likely, but we're very comfortable with how we're positioned.
Great. Thank you.
Thanks. To close it, we continue to manage this a risk profile with an aggregate moderate to low position. And, we're coming off of a very severe cycle with absolute lows. So we're not overly concerned about it. In fact, we like the very much like the geography we're in and what we're hearing from our customers.
Your next question comes from the line of Andy Stapp of Hilliard Lions. Your line is open.
Andy. Andy? All my questions have been answered, but I just want to make sure you said you have no exposure to oilfield service companies.
That's correct. It would be, negligible. There would probably be a couple of small deals out there that you could classify as oilfield services, but we have, as a strategy, we have specifically avoided that and within our energy vertical, we had 0 exposure.
Your next question comes from the line of John Arfstrom of RBC Capital Markets. Your line is open.
John. Mac, question for you on your guidance. It's a bit of a propeller head question, but I'll ask it anyway. The 3% keeping the margin above 3% are you talking about end of the year or full year average for that?
I would say both, John.
Okay. Helpful. And then the other part is, on the buyback, you you have a tremendous amount of room left given your share price. Just curious how you're thinking about the buyback versus other uses of capital? Thanks.
Yes. So we did slow the buyback down as the quarter progressed, wanted to keep our powder dry. We fully intend to use the remainder of the buyback over the next two quarters and we've talked about how we use capital in terms of supporting the core growth and then supporting the dividend and after that comes share buybacks and M and A activity. But obviously at this price, we like our we like the price very well.
Yeah. And do you plan to exhaust that MAC, or is this, is that just too big of a bind?
Yeah, if obviously it will depend on market conditions and where we go from here. But certainly it is possible for us to use the entire authorization.
Okay. Thank you.
Your next question comes from the line of Terry McEvoy of Steve Your line is open. Hi, thanks.
Good morning.
Hi, Terry.
Hi, just a first question. Service charges on deposit accounts, it was nice to see that percent year over year growth in the 4th quarter and up positive, I believe, for 2015. Looking ahead with no regulatory changes at all on fees. Do you think the growth in that revenue line should be at or about the pace of new checking account or deposit relationship growth in the deposit base?
Terry, there are 2 components in that line, right? There's the commercial, the treasury management revenue and then there's the retail side. Keep in mind that in the third quarter of 2014, we made our last Fairplay adjustment of $6,000,000. So you're seeing the 1st full quarter of kind of year over year growth off of the consumer side of the business reflecting the great job we do in bringing new households to the bank. And I'll also tell you that treasury management had a great year in terms of product capability penetrating the customer base and fee growth.
So, certainly encouraged by what we see this
And then just a follow-up question for Steve. You talked about contingency plans. Should the revenue growth in 2016 not tracked your kind of outlook that you discussed today. Could you just shed a little bit of light on, I'm guessing that's on the expense side where you see some opportunities that does happen to be the case this year?
Well, we continue to invest in the business. That's part of the plan we've been investing every year. We'd pace that investment and tapered off. And then, there are other categories of expenses that we would look to And some of that would be some of the business expansion in terms of people and related. Certainly, if we didn't see the revenue, the incentives and commissions would be adjusted.
I think we may adjust some of our discretionary investments in a number of, in a number of areas that we routinely, when I look at an example, might be marketing So hopefully that gives you. There's a smorgasbord, that we're working with. We do this routinely. It's part of what we we deliver to our board, if for some reason the economy starts changing, then we, we have series of levels of contingent adjustments.
Your next question comes from the line of Peter Winter of Stern AG. Your line is open.
Good morning. Mac, I just want to go back to the comment, for the wanting to keep the powder dry. Can you just talk about the M and A environment right now? And Also, can you talk about what your financial parameters are for a bank acquisition?
Yes. So we're obviously always looking for acquisitions. I think we've been very consistent in how we talk about it. I would say for us, there's really no change in terms of activity. We look at We look at core banking franchises when you look at opportunities like Macquarie that we had this year and continue to look in the 6 state footprint contiguous states So, I'd say Peter, there's really no change in how we see the environment or how we approach the environment.
Have you seen an increase in maybe worrying us of sellers given, what's been going on recently? In a lower for longer kind of rate environment?
It's probably too early to make that call. I would say it's been consistent in terms of what we see happening.
There are no further questions at this time. I return the call to our presenters.
We're very pleased with our 4th quarter and certainly the full year 2015 results. We delivered 13% annual growth in earnings per share and 4% annual growth and tangible book value per share. 2015 results reflected a 12.4% return on tangible common equity and a one on one return on tangible return on assets. And as we enter 2016, I'm optimistic, equally optimistic, I should say with regard the year ahead. Our strategies are working.
Our investments continue to drive results and our execution remains focused and strong. We're gaining market share and we're taking share of wallet. So we expect to generate annual revenue growth consistent with our long term financial goals and we'll manage our continued investments in our businesses to the revenue environment. We continue to work towards becoming more efficient and improving returns, finally, I want to close by reiterating that our board and this management team are all long term shareholders. Our top priorities include managing risk, reducing volatility and driving solid, consistent long term performance.
So I want to thank you for your interest in Huntington. We appreciate you joining us today. Have a great day.
This concludes today's conference call. You may now disconnect.