Huntington Bancshares Incorporated's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Huntington Bancshares Incorporated (HBAN)

Q1 2012 Earnings Call

April 18, 2012 10:00 am ET

Executives

Todd Beekman - Assistant Director of Investor Relations

Donald R. Kimble - Chief Financial Officer, Senior Executive Vice President and Treasurer

Daniel J. Neumeyer - Chief Credit Officer and Senior Executive Vice President

Mary W. Navarro - Senior Executive Vice President, Retail & Business Banking Director, Regional Banking Group President and Senior Executive Vice President of The Huntington National Bank

Stephen D. Steinour - Chairman, Chief Executive Officer, President, Member of Executive Committee, Chairman of The Huntington National Bank, Chief Executive Officer of The Huntington National Bank and President of The Huntington National Bank

Analysts

Leanne Erika Penala - BofA Merrill Lynch, Research Division

Brian Foran - Nomura Securities Co. Ltd., Research Division

Matthew D. O'Connor - Deutsche Bank AG, Research Division

Craig Siegenthaler - Crédit Suisse AG, Research Division

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

Ken A. Zerbe - Morgan Stanley, Research Division

Kevin J. St. Pierre - Sanford C. Bernstein & Co., LLC., Research Division

Jon G. Arfstrom - RBC Capital Markets, LLC, Research Division

Presentation

Operator

Good morning. My name is Matthew, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Huntington Bank First Quarter Earnings Conference Call. [Operator Instructions] Todd Beekman, you may begin your conference.

Todd Beekman

Thank you, Matthew, and welcome. I'm Todd Beekman, the Director of Investor Relations for Huntington. Copies of the slides that we will be reviewing will be found on our website at www.huntington.com. This call is being recorded and will be available as -- for rebroadcast starting about an hour after the call. Please call the Investor Relations department at (614) 480-5676 for more information on how to access this recording playback if you -- should you have difficulties.

Slide 2. There's 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 GAAP and non-GAAP financial measures where we believe it is helpful to understand Huntington's results of operations or financial performance. For the non-GAAP financial measures used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in the slide presentation, its appendix, the earnings press release, the quarterly financial review, the quarterly performance discussion, or the related 8-K filed today, all of which can be found on our website.

Turning to Slide 3. Today's discussion includes a Q&A period that may contain forward-looking statements. Such statements are based on information and assumption available at this time and are subject to change, risk and uncertainty, which may cause actual results to differ materially. We assume no obligation to update such statements. For a complete discussion of risks and uncertainties, refer to the slide and material found with the SEC, including our most recent 10-K, 10-Q and 8-K filings.

Now turning to today's presentation. As noted on Slide 4, participating today will be Steve Steinour, Chairman, President and CEO; Don Kimble, our CFO; Dan Neumeyer, Chief Credit Officer; Mary Navarro, Head of Retail and Business Banking Director. Let's get started. Turning to Slide 5. Don?

Donald R. Kimble

Thanks Todd, and welcome, everyone. We're going to mix up the order a little bit today and I'll begin with a review of our first quarter performance highlights, and Dan will provide a review of credit. Mary will continue with an update on our in-store partnership with Giant Eagle. Steve will then provide you with an update of our OCR strategy, review of our Fidelity Bank acquisition and close with a discussion of our expectations for this year.

Turning to Slide 6. We reported net income of $153.3 million or $0.17 per share. That's up 21% from a year ago and also from the fourth quarter. There were 2 significant items that impacted this quarter's results. First was an $11.4 million gain relating to our recently announced FDIC-assisted purchase of Fidelity Bank in Dearborn, Michigan. The other was a $23.5 million addition to our litigation reserves related to previously existing actions taken against us.

Total revenues increased $58.6 million or 9% over the fourth quarter. Our non-interest income growth drove most of this improvement, up $56 million, reflecting the benefit of a $23 million gain from our first quarter auto securitization, the $11.4 million gain from our Fidelity Bank acquisition, and a $22.3 million increase in mortgage banking revenues.

Fully taxable equivalent net interest income increased $2.6 million or 1%. For the quarter, our net interest margin increased by 2 basis points as we continue to lower our deposit and other funding cost. We also had a 5% annualized growth in average earning assets. This growth reflected the benefit of continued strong commercial loan growth, up 17% annualized from the fourth quarter. The auto securitization negatively impacted auto loan growth for the quarter, as we transferred the balances to loans held for sale at the end of last year.

Average total core deposits were stable this quarter with the mix continuing its shift to lower-cost demand deposits. Total demand deposits increased $0.6 billion or 16% annualized. Non-interest expense increased $32.4 million as the quarter included the $23.5 million increase to our litigation reserves. Also, the prior quarter included a $9.7 million gain on the extinguishment of debt related to our TruPS exchange. Adjusted for these items, expenses were essentially flat.

Turning to Slide 7. Our OCR methodology is continuing to drive success throughout the company. On the consumer side, we grew checking account households by an annualized 14.2% this past quarter. This represented an 11.7% growth rate since the first quarter of 2011. More importantly, our cross-sell performance also continued to improve.

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