If there was a fly in the ointment concerning Huntington Bancshares' first-quarter results, it centered around deposits.

The Columbus, Ohio, bank reported a drop-off in noninterest deposits, and overall funding costs rose 9 basis points from Dec. 31 and 28 points from the first quarter of 2017.

Yet Chairman and CEO Stephen Steinour downplayed any concerns. He said the increase in deposits costs was in line with what other banks are doing and added rising yields should more than offset any ill effects.

“I think that’s the appropriate way to look at it,” Steinour said Tuesday in an interview. “Cost of deposit will be increasing, but so will asset yields, and so on balance it should be good for the industry, this outlook for higher interest rates."

Huntington's higher deposits costs were in line with what other banks are doing and rising yields should more than offset any ill effects, CEO Stephen Steinour says.

The $104.2 billion-asset Huntington reported deposits of $79.4 billion at March 31, up 3% from the same date in 2017. Chief Financial Officer Howell D. McCullough said on a conference call with analysts that the company “aims to improve that” result as 2018 plays out. However, future increases will almost certainly come at a higher cost as Huntington experienced an outflow of noninterest deposits that McCullough said would continue in the short term.

“I think what’s happening is you’re seeing our commercial customers in particular be much more sensitive to what’s happening in the rate environment,” McCullough said. “We’re seeing them move balances from noninterest-bearing into interest-bearing, which you would expect. ... Clearly, as rates continue to increase we’re going to have commercial customers ask for some sharing of those rates, but I think the mix-shift should probably slow down as we move forward.”

In all, noninterest deposits fell 3% year over year to $20.8 billion. However, there was an 11% jump in money-market deposits, which also totaled $20.8 billion at March 31.

Huntington is not anticipating any difficulty gathering deposits despite the rising costs. It is calling for full-year deposit growth in the 3% to 5% range. “Core deposits will be the primary way we’re going to fund ourselves going forward,” McCullough said.

That optimism may be warranted given Huntington’s results, but it is a far cry from what its peers have been experiencing. A number of regional banks have noted steep declines in total deposits as rates have crept up.

Overall, Huntington reported first-quarter net income totaling $326 million, an increase of 57% from the same period last year, as the bottom line was bolstered by a phase-out of merger-related expenses. Quarterly noninterest expenses of $633 million were down $73 million from the same period in 2017. The company expects costs to remain in check for the remainder of the year. It is forecasting a 2% to 4% decline for all of 2018.

Huntington reported strong loan growth, powered by a 10% year-over-year jump in consumer lending. The hottest component of the $35 billion-asset consumer category was the portfolio of recreational vehicle and marine loans, which rose 32% to $2.5 billion.

“We like the business,” Steinour said. FICO scores in the recreational vehicle and marine portfolio average about 790, he said, higher even than those in the company’s super-prime indirect auto portfolio, where the average FICO score hovers near 760. “With that score, this book should perform well through the cycle.”

Huntington’s guidance calls for robust full-year loan growth of 4% to 6% and continued strong asset quality, with projected charge-offs remaining well below the historical norm of 35 to 55 basis points. For the first quarter, charge-offs of $38 million amounting to 0.21% of average loans.

It all adds up to a markedly positive outlook for the remainder of 2018 and into 2019, according to Steinour.

“I’m obviously very pleased with our continued performance,” he said. “The pipeline is very strong across all our businesses.”

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