Huntington Bancshares Incorporated (HBAN)

Q2 2010 Earnings Call Transcript

July 22, 2010 1:00 pm ET

Executives

Jay Gould – SVP and Director, IR

Steve Steinour – Chairman, President and CEO

Don Kimble – Senior EVP and CFO

Tim Barber – SVP, Credit Risk

Analysts

Brian Foran – Goldman Sachs

Matt O’Connor – Deutsche Bank

Dave Rochester – FBR Capital Markets

Ken Zerbe – Morgan Stanley

Tony Davis – Stifel Nicolaus

Erika Penala – UBS

Terry McEvoy – Oppenheimer

Presentation

Operator

Good afternoon. My name is Christopher, and I will be your conference operator today. At this time I would like to welcome everyone to the Huntington Bancshares second quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator instructions) Thank you.

Mr. Gould, you may begin your conference.

Jay Gould

Thank you, Christopher, and welcome everybody. I am Jay Gould, Director of Investor Relations for Huntington. Copies of the slides, we will be reviewing, can be found on our Web site, huntington.com.

This call is being recorded and will be available as a rebroadcast starting about one hour from the close of the call. Please call the Investor Relations department at 614-480-5676 for more information on how to access these recordings or playback or should you have difficulty getting a copy of the slides.

Slides two, three and four on your deck note several aspects of the basis of today’s presentation. I encourage you to read these, but let me point out one key disclosure. This presentation contains both GAAP and non-GAAP financial measures, and where we believe it’s helpful to understanding Huntington’s results of operations or financial position.

Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure can be found in the slide presentation, in its appendix, in the press release, in the quarterly financial review supplement to today’s earnings press release, or in the related Form 8-K filed later today, all of these can be found on our Web site.

Turning to slide five, today’s discussion including the Q&A period may 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.

Now, turning to today’s presentation. As noted on slide six, participating today are Steve Steinour, Chairman and Chief Executive Officer, Don Kimble, Senior Executive Vice President and Chief Financial Officer, and Tim Barber, Senior Vice President of Credit Risk Management.

Also present, and by way of introduction is, Todd Beekman. He recently joined us as Assistant Director of Investor Relations. He was formerly with Fidelity Management and Research in Boston, where he was an Analyst, including several years as a Regional Bank Analyst. Many of you, I know, know Todd. We look forward to his contribution to our IR effort.

Let’s get started now by turning to slide seven, Steve?

Steve Steinour

Welcome, everyone. I’ll begin with the review of the second quarter performance highlights. After my overview, Don will detail how Franklin impacted our numbers and then follow with his usual overview of our financial performance. Tim will provide an update on credit. I will then return with the discussion of the impact of recent regulatory changes and 2010 outlook comments.

While we will provide the detail in a moment, I want to point out a couple of key achievements. Overall, we are very pleased with the second quarter performance. We reported higher profits than last quarter. We saw a 3% linked-quarter growth in revenue, even after excluding a $14.2 million increase in MSR valuations. Our capital ratios meaningfully improved during the quarter.

As expected we saw significant declines in nonperforming assets inflows, as inflows of new NPAs and criticized assets continued to fall. Our period-end nonaccruing loan reserve coverage ratio jumped to 120% from 87%. So in sum, another meaningful step forward, moving Huntington to stronger financial performance.

At the end of the quarter we transferred all of our Franklin loans to -for-sale, and subsequent to quarter-end, we sold $274 million of this exposure, which had a significant impact on second quarter performance as it resulted in a $75.5 million charge-off and also $75.5 million of provision expense, a negative $0.07 per share.

There was another $4.5 million in net charge-offs in provision expenses associated with Franklin in the second quarter prior to the transfer into held-for-sale. Don will detail all of this for you later in his presentation. It is important to understand that this transfer into held-for-sale and subsequent sale was a very positive development.

Let’s begin a more detailed presentation. Turning to slide eight, we reported net income of $48.8 million or $0.03 per share. This was a significant achievement. The drivers were substantially improved credit quality and higher pre-tax pre-provision income. We believe these trends will continue.

Our pre-tax pre-provision income was $270.5 million, a 7% improvement from the first quarter and an 18% improvement from a year earlier. This represented our sixth consecutive quarter improvement. The primary driver was a 5% linked-quarter increase in revenue, reflecting 2% growth in fully taxable equivalent net interest income and a 12% increase in non-interest income. This was partially offset by a 4% linked-quarter increase in non-interest expense.

The growth in fully taxable equivalent net interest income reflected modest growth in average total loans. We saw very strong growth in average automobile loans, and leases up 9% as we continue to take advantage of competitive dislocations and benefited from strategic initiatives to expand our in franchise footprint.

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