Huntington Bancshares Incorporated Management Discusses Q2 2012 Results - Earnings Call Transcript

Huntington Bancshares Incorporated (HBAN)

Q2 2012 Earnings Call

July 19, 2012 10:00 am ET

Executives

Todd Beekman - Assistant Director of Investor Relations

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

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

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

Nicholas G. Stanutz - Senior Executive Vice President of ABL, CRE and Auto Finance Group Director

Analysts

Leanne Erika Penala - BofA Merrill Lynch, Research Division

Paul J. Miller - FBR Capital Markets & Co., Research Division

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

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Craig Siegenthaler - Crédit Suisse AG, Research Division

R. Scott Siefers - Sandler O'Neill + Partners, L.P., Research Division

Christopher M. Mutascio - Stifel, Nicolaus & Co., Inc., Research Division

Maclovio Pina - Morningstar Inc., Research Division

David J. Long - Raymond James & Associates, Inc., Research Division

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

Terence J. McEvoy - Oppenheimer & Co. Inc., Research Division

Presentation

Operator

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

Todd Beekman

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

Slides 2 and 3 note several aspects of the basis of today's presentation. I encourage you to read these. Let me point out one key disclosure. This presentation will reference to GAAP -- non-GAAP financial measures. In that regard, I direct you to the comparable GAAP financial measures and the reconciliation to the comparable GAAP financial measures within the presentation. Additional earnings-related material that we released this morning and the related 8-K filed today, all of which can be found on our website.

Turning to Slide 4. Today's discussion, including Q&A period, may contain forward-looking statements. Such statements are based on information and assumptions available at this time and are subject to change, risk and uncertainties, which may cause results to differ materially. We assume no obligation to update such statements. For a complete discussion of risks and uncertainties, please refer to the slide and material filed with the SEC, including our most recent 10-K, 10-Q and 8-K filings.

Slide 5. Now turning to today's presentation. Participants will be Steve Steinour, CEO; Don Kimble, our CFO; Dan Neumeyer, our Chief Credit Officer; and joining us for the Q&A will be Nick Stanutz, Senior Vice President, Head of Auto and Corporate Real Estate. Let's get started turning to Slide 6, and Don?

Donald R. Kimble

Thanks, Todd, and welcome, everyone. We'll begin with a review of our second quarter performance highlights; and then Dan will provide an update on credit; and then Steve will continue with an update on our OCR strategy; and then close with the discussion of our expectations for the remainder of this year.

Turning to Slide 7, we reported net income of $152.7 million dollars or $0.17 per share. That's equal to last quarter, but up 5% and 6%, respectively, from the year-ago quarter. Total revenue decreased $17.9 million, or 3% from the first quarter, all due to a decline in noninterest income, as the first quarter included 2 large gains. Noninterest income declined by $31.5 million at the first quarter, included a $23 million gain from our auto loan securitization, and an $11.4 million bargain purchase gain associated with the Fidelity Bank acquisition.

Importantly, our net interest income increased $13.6 million, reflecting a 2 basis point increase in the margin and strong organic loan growth, as well as the impact of Fidelity Bank and the municipal lease portfolio purchases that occurred late in the first quarter.

Average total core deposits were up 13% annualized from the first quarter, about 1/2 of which related to the Fidelity acquisition. Noninterest expense decreased $18.4 million as the prior quarter included a $23.5 million increase to our litigation reserves.

The current quarter also reflected lower deposits and insurance -- other insurance costs of $5 million. It was negatively impacted by the $6.8 million of expenses related to Fidelity.

Turning to Slide 8. Steve will go into additional detail later in the call, but you can see that our OCR methodology is continuing to drive success throughout the company.

Turning to credit quality, our metrics were fairly stable. Net charge-offs to loans declined from 85 basis points to 82 basis points this quarter. Nonaccrual loans were up 1%, and our allowance for credit losses as a percentage of nonaccrual loans decreased to 192%, which we still believe will continue to compare favorably to our peers.

With regard to capital, our tangible common equity ratio rose 8 basis points to 8.41%. Our Tier 1 capital ratio decline reflected the impact of growth in risk-weighted assets, as well as our trust-preferred redemption that was completed this quarter. The Tier 1 and total risk-based capital ratios declined by 29 and 35 basis points, respectively.

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