Huntington Bancshares Earnings Call Insights: Total Loan Balances and Increases in Operating Expenses

Huntington Bancshares Inc (NASDAQ:HBAN) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Total Loan Balances

Craig Siegenthaler – Credit Suisse: Do you expect total loan balances to grow in 2013 if we include your estimate for two auto securitizations?

Donald R. Kimble – SEVP and CFO: Our outlook would have modest growth including the impact of the auto securitizations. Keep in mind that we are getting closer to that two years of doing the auto securitizations and so it should start to plateau the impact for those sales.

Craig Siegenthaler – Credit Suisse: Then if loan demand this year is a little weaker in C&I and the commercial real estate than you planned, would you consider holding more residential mortgages and more indirect auto loans to temporarily support higher earning asset growth versus buying more securities?

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Stephen D. Steinour – Chairman, President, and CEO: We would but, you caveated your question, Craig, this is Steve. We are optimistic that the economy will perform reasonably well but could in fact pop if we can get through this set of issues in Washington. So we think we are well positioned to participate in an expansion trip so we would be able to get into that mode.

Craig Siegenthaler – Credit Suisse: Steve, my only point is it appears you may have a sort of loan growth hedge that some of your competitors might not, to actually have decent loan growth in a difficult environment if things don’t work out great this year.

Stephen D. Steinour – Chairman, President, and CEO: Well, we’ve tried to be realistic, but on the conservative side as we’ve given guidance. There’s a wide range of GDP estimates out there, given the current Washington uncertainties and so, you can go from a negative to a strong positive 3% plus and that’s why we’re hedging.

Increases in Operating Expenses

Steve Alexopoulos – JPMorgan: Don, on the expenses, if we looked at 2012, core expenses were up around $90 million or just above that. When we think about 2013 in your comments to moderate the pace of the investments, how much of an increase in operating expenses should we be thinking about based on what you know at this point including your contractual obligations, open new branches et cetera?

Donald R. Kimble – SEVP and CFO: This is Don, and we currently expect our quarterly expense run rate to be relatively flat or modestly below the fourth quarter level, excluding unusual one-time items or unforeseen regulatory or legal issues and this does reflect the decision we have to moderate the size and pace of some of our previously planned investments in light of the challenging economic outlook. We will continue to invest in our franchise, but just at a little slower pace.

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Steve Alexopoulos – JPMorgan: Don, should we expect you guys to cut maybe a little more deeper into variable expenses early in the year to match some of the revenue pressure you might see, given your outlook in the economy?

Donald R. Kimble – SEVP and CFO: We haven’t commented on timing. There are several areas of seasonal changes to expenses. For instance there are some payroll tax issues that hit in the first quarter and we tend to see some seasonal fluctuations in marketing and other expenses. What we are focused on is the longer term guidance and outlook.

Steve Alexopoulos – JPMorgan: Just to follow-up on the guidance, were you talking about the margin not falling below the mid-330s? Most banks here are talking about running out of room to further lower deposit costs that being a clause of the incremental pressures as we move through the year. Why is that dynamic any different for you guys?

Stephen D. Steinour – Chairman, President, and CEO: It is a challenge but I would say that we have gained a lot of benefit from our change in our mix in our deposits and we still we believe that we have some room to pull down our overall deposit costs. We have about $4.1 billion of CDs that have an average rate today of 1.2%. The current go to rate is in the 20 basis point range. So we think that there is a lot of opportunity there as well. Historically our average cost of funds for deposits, are higher than our peers and we think that we have a little bit more of a lever to pull as a result of that.

Donald R. Kimble – SEVP and CFO: We probably have a bit less pressure on the investment portfolio.

Daniel J. Neumeyer – SEVP and CCO: Steve usually teases me about having the lowest yield in investment portfolio in my peer group but we try to keep the duration fairly short there and so we think it will have less fall off from our current yield there than many of our peers as well which will be a relative benefit for us compared to our peers.

A Closer Look: Huntington Bancshares Earnings Cheat Sheet>>