Huntington Bancshares Inc (HBAN) 2014 Q1 法說會逐字稿

Good morning.

My name is Tracy and I will be your conference operator today.

At this time, I would like to welcome everyone to Huntington Bancshares, first-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. Todd Beekman, you may begin your conference.

Thank you, Tracy, and welcome.

This is Todd Beekman, Director of Investor Relations for Huntington.

Copies of the slides that we will be reviewing can be found on our IR website at www.Huntington-IR.com, and this call is being recorded and will be available for rebroadcast about an hour after the close of the call.

Slides 2 and 3 note several aspects of the basis presentation.

I encourage you to read these.

Let me point out one key disclosure.

This presentation will reference non-GAAP financial measures and in that regard, I would direct you to the comparable GAAP financial measures and the reconciliation to those comparable financial measures within the presentation.

In addition, additionally, earnings related material can be found this morning in the Form 8-K filed today, all of which can be found on our website.

Turning to Slide 4, today's discussion, including the Q&A, 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 uncertainties, please refer to this slide, the material filed with the SEC, including our most recent Forms 10-K, 10-Q and 8-K filings.

Now, turning to today's presentation, as noted on Slide 5, the presenters today are Steve Steinour, Chairman, President, and CEO, Dave Anderson, Executive vice president and Controller.

Dan Neumeyer, our Chief Credit Officer, will also be participating in the Q&A portion of our call, and Mac McCullough, who has recently joined us as our CFO is here with us today.

So, let's get started.

Dave?

Turning to Slide 6, Huntington had a good first quarter.

We reported net income of $149 million, or $0.17 per share.

This resulted in a 1.01% return on average assets and an 11.3% return on average tangible common equity.

We also achieved positive operating leverage and continue to be committed to having positive operating leverage for the full year.

There were two significant items recorded in the first quarter that I will cover when I discuss noninterest expense.

Fully tax equivalent net interest income was $443 million, an increase of $13 million or 3% from the year-ago quarter.

This increase was due to a larger balance sheet, partially offset by a decrease in the net interest margin.

Average loans grew by $2.6 billion or 6%.

Commercial and industrial loans grew by 4%, auto loans grew by 40%, and residential mortgage loans grew by 8%.

One item to note is that average commercial and industrial loan growth was negatively impacted by the $600 million reclassifications we made from loans to investment securities at the end of 2013.

Average investment security balances grew $1.9 billion, or 20% as we prepare for the new BASEL III liquidity coverage requirements.

The net interest margin for the quarter was 3.27%, a decrease of 15 basis points from the year-ago quarter.

The 15 basis point decrease resulted from a change in mix and yield of our earning assets partially offset by lower funding costs.

Noninterest income was $248 million, a decrease of $8 million or 3% from the year-ago quarter.

Mortgage banking income decreased by $22 million, or 49%.

The year-ago quarter also included a $9 million gain on sale of low income housing tax credit investments.

Partially offsetting these items were higher security gains, service charges on deposit accounts, and electronic banking fees.

Security gains for the quarter were $17 million.

In preparation for the January 2015 LCR requirements, we sold securities that will not qualify for liquidity coverage and reinvested into high-quality liquid assets.

The securities we sold had a fairly short remaining life.

Nearly all had a duration of less than two years and we would've seen more than 70% of this quarter's gains flow through as net interest income by the end of this year.

Service charges on deposits increased $4 million and electronic banking fees increased $3 million over the year-ago quarter.

Noninterest expense was $460 million, an increase of $17 million or 4% from the year-ago quarter.

The increase resulted from $22 million of significant items.

Significant items in the quarter were $13 million of onetime merger-related expenses for the CAMCO acquisition, and a $9 million increase in litigation reserves.

Steve will cover OCR later in the presentation.

Turning to Slide 7, I will cover credit trends later in the presentation, but provision expense was $25 million, a decrease of $5 million or 17% from the year-ago quarter due to improvement in our credit quality.

Capital continues to be strong.

At the end of the quarter, our tangible common equity ratio was 8.63%, down 28 basis points from a year ago, and our Tier 1 common risk-based capital ratio at 10.63% was close to the year-ago levels.

Slide 8 has a few additional first-quarter highlights.

First, Mac McCullough joined Huntington as our new CFO.

Steve will provide a fuller introduction in a few minutes.

Second, we closed and successfully converted the CAMCO acquisition.

Third, last week we announced the acquisition of 11 branches in Michigan from Bank of America.

We also received a no-objection from the Federal Reserve for our proposed capital actions under CCAR.

Slide 9 is a summary of our quarterly earnings trends and key performance metrics.

Slide 10 is a summary of the notable items that impacted comparison of the current quarter with the year-ago quarter.

I covered most of these items in my previous comments.

Slide 11 displays the trends in our net interest income and margin.

Net interest income increased $13 million from the year-ago quarter.

The net interest margin decreased 15 basis points due to a 22 basis point change from the mix in yield of our earnings assets, partially offset by a 7 basis point reduction in funding costs.

Having to add so many high-quality liquid assets has hurt the margin, but the larger pressure remains at competitive environment and fixed rate loans renewing at current market yields.

The right side of Slide 12 shows our deposit mix.

On the left side of this slide, you will see the maturity schedule of our CD book which represents a potential opportunity to continue to lower deposit costs as about $2.3 billion of CDs are maturing in the next 12 months at an average rate of 78 basis points and new CDs are currently coming out between 30 and 40 basis points.

Slide 13 shows the trends in capital.

The Tier 1 common risk-based capital ratio decreased from 10.90% at December 31, 2013 to 10.63% at March 31, 2014.

The decrease was due to balance sheet growth and share repurchases that were partially offset by retained earnings and the stock issued in the CAMCO acquisition.

During the first quarter of 2014, we repurchased 14.6 million shares of stock at an average price of $9.32.

This completed the repurchase of $227 million of stock over the last four quarters.

Yesterday, our board authorized a newly purchase of up to $250 million of stock over the next four quarters that was included as part of our most recent capital plan.

Slide 14 provides an overview of our credit quality trends.

Credit quality continues to show steady improvement and is in line with our expectations.

Net charge-offs fell to 40 basis points, well within our long-term target of 35 to 55 basis points.

Loans past-due greater than 90 days remain very well controlled at 22 basis points and have been at a similar level over the last year.

The nonaccrual loans ratio fell very slightly while the nonperforming asset ratio experienced a modest increase due to the addition of $12 million of nonperforming assets from CAMCO.

The credit size asset ratio continued to fall as the quarter saw a reduction from 4.49% to 3.78%.

Slide 15 shows the trends in our nonperforming assets.

The chart on the left demonstrates a slowly reducing trend in nonperforming assets with the flattening exhibited this quarter due to the addition of CAMCO nonperforming assets.

The chart on the right shows the nonperforming asset inflows which were fairly even with the prior quarter.

As we are operating within a normalized level of nonperforming assets, future reductions will continue to be modest although some improvement is still likely.

Reviewing Slide 16, the loan-loss provision of $25 million was relatively unchanged from the prior quarter and was $18 million less than net charge-offs of $43 million.

Overall asset quality improvement resulted in a reduction in the ACL to loan ratio from 1.65% last quarter to 1.56%.

The ratio of ACL to nonaccrual loans fell modestly from 221% to 211%.

We believe these coverage levels remain adequate and appropriate.

In summary, we had a solid credit quarter and are pleased with the results.

We remain focused on quality and are disciplined in our new business originations in a very competitive environment.

With regard to our credit metrics, we anticipate modest overall improvement with the possibility of some continued quarter-to-quarter volatility.

Let me turn the presentation over to Steve.

Thank you Dave.

Our Fair Play banking philosophy, coupled with our optimal customer relationship, or OCR, continues to drive new customer growth and increases in product penetration.

This slide recaps the continued upward trend in consumer checking.

This is Slide 17.

Over the last year, consumer checking account households grew by 94,000 households or 7%.

In the last quarter, the annualized growth rate was over 10%, but about a third of those households were from the CAMCO transaction that closed in March.

The mid- to high single-digit pace remains in line with the expectations we set nearly four years ago.

Over this last year, we've continued to focus on increasing the number of products and services we provided to those customers and the corresponding revenue.

The charts that you are accustomed to seeing are in the appendix but the broader take-away is that this strategy continues to drive in new customers and we are establishing deeper relationships.

Turning to Slide 18, the new commercial relationships over last year, the net new growth was 2.6%, as there are 4000 new commercial customers banking with Huntington.

You'll see that the last quarter had very limited growth, and that ties directly some changes that we made in our business banking checking products which accelerated the closing of lower-balance business checking accounts, and we expect some additional closings throughout the remainder of the year.

Our underlying growth with new business customers is strong.

The customers that remain with Huntington have deeper relationships.

The percentage of commercial customers with four-plus products or services increased by 2% since December of last year.

Turning to Slide 19 and expectations, our expectations for the remainder of the year are similar to what we laid out in January.

We changed a few words to account for some of the seasonal noise in the first-quarter fee income and second-quarter expenses, but overall our view of 2014 hasn't changed.

Customers in particular businesses are feeling better than they did a year ago.

Competition continues to be tough and we have continued to selectively reduce large corporate portfolio, but our middle-market specialty verticals and auto lending businesses continue to see solid growth and strong pipelines.

Auto loan originations volume remains good and at attractive yield of around 3%.

The rest of the loan portfolio is expected to grow modestly and investment securities will continue to be rolled into OCR-compliant high liquidity assets.

NIM is expected to be under continued pressure but we expect net interest income to grow.

Noninterest income, excluding the net MSR impact in security gains, is expected to be slightly lower than the seasonally low first quarter.

As we commented on in January, we continue to refine our consumer checking products and in July, we will make a change that we expect to negatively impact fee income by around $6 million per quarter.

This approximate impact was in our previous expectations.

Putting these two items together, we expected total revenue to grow.

Continuing to the next page, noninterest expense continues -- noninterest expense, including significant items, will have some quarterly volatility as second quarter sees the full impact of CAMCO and this year's peak marketing expense, along with the annual merit increase that occurs in May.

The overall message remains that we remain diligent with controlling expenses and are committed to delivering full-year operating leverage.

On the credit front, NPAs are expected to experience continued improvement over time.

Net charge-offs are in our long-term expected range of 35 to 55 basis points, but provision is likely to increase and both are expect to continue to experience some intra-quarter volatility given their absolute low levels.

Turning to Slide 20 and as you've heard me say, we are committed to positive operating leverage for the year.

This slide lays out the results for the year to date and while adjusted total revenue is up about 2%, adjusted expenses were down 1.6%.

It's too early in the year to claim a victory on operating leverage, but we wanted to provide you with an update to our progress.

Before I turn it back to Todd for Q&A, I'm very pleased to introduce our recently appointed CFO, Howell McCullough.

I think many of you know him as Mac.

And we will be referring to Mac as we go forward.

And some of you would know him through his role as Chief Strategy Officer at US Bank, which by the way is a bank I admire for their consistency of results and disciplined approach to growth.

And he is a great fit for us here at Huntington.

Mac, although he earned his MBA from Wharton, he did his undergraduate degree from The Ohio State University.

And having grown up in Columbus, he knows our markets well.

Mac brings with him a commitment to customer advocacy, which has been a hallmark of Huntington since it was founded.

He also has expertise in revenue growth, expense management, and innovation, all these attributes we are seeking to take to the next -- take Huntington to the next level.

So I'll close with a thank you to Dave Anderson, our Controller, did a super job stepping in as interim CFO, along with the accounting and finance teams which all the outstanding job for the last year.

Dave filled that interim CFO role wonderfully.

So with that, back to you Todd.

Tracy, we will now take questions.

I ask as a courtesy to your peers each person ask one question and one related follow-up.

For additional questions, he or she can go back to the queue.

Kevin St.

Pierre, Sanford Bernstein.

Good morning.

I was wondering if you could talk a bit more about the changes to the consumer checking accounts.

It's almost a 10% hit to the service charges.

Could you tell us what those changes are?

We are going to be making a couple of changes, Kevin.

First we're going to allow all of our customers to transact up to midnight to cover any overdraft charges.

By making changes again through midnight in any of our channels -- ATM, phone, bank, digital, whatever channel access they have.

And then secondly, we are making an adjustment to how we post debit items.

It's a bit involved, but it will work to the consumers' -- to our customers' advantage and I think give us even more transparency around that as we go forward.

So this is something you would anticipate that boost to the brand of the Fair Play strategy, and you'll be able to leverage this a bit?

We certainly think it's completely in line with our Fair Play strategy and will be helpful to us.

I would point out, Kevin, last year, we made a $30 million reduction in overdraft fees related to posting order changes, $30 million approximately.

But as you saw the results for the year, the actual service charge fees were up about 6%.

So, we are getting signals that our customers and our ability to attract new customers really appreciate this Fair Play approach.

And so that's in part why we decided to continue to roll out differentiating positions with our checking product.

Great, thanks very much.

Ken Zerbe, Morgan Stanley.

Thanks.

First, a really quick question.

On the reclassification of the loans and the securities, was the $600 million also the impact on average balances such that if we add average, the $600 million to the average, I think loan growth was up about 2.0%.

Is that the right way to think about it?

Yes it is.

We reclassified $600 million at the end of December, and then throughout the quarter as we got -- we originated new assets, the balance increased about $673 million.

But I think you're doing the math right.

Got it.

And that was all in the commercial line, the C&I line?

Yes.

It came out of C&I and went into available-for-sale securities.

Okay, Perfect.

And then just the follow-up question, on the expense line, obviously comp was I guess very well controlled this quarter.

Can you just run through the ups and downs?

I think you had the merit increases in May.

You had seasonally higher payroll taxes this quarter, and I know you had the pension expense or curtailment, I guess.

When we sort of net that out and we should -- are we sort of at a broadly sustainable level, or do we tick up in second quarter?

And then I'm just wondering how sustainable this level of comp expense is.

Thanks.

We will see a merit increase in May.

We are obviously continuing to manage expenses well, but we will see that impact in May, as we've signaled.

Ken, you will also see some increased marketing.

Our marking tends to be seasonal, and so that will be an increase.

And then finally, the CAMCO acquisition was brought in -- brought on late in the first quarter so that will have some overhead associated with it as well.

But that's been part of what's been in the expectations, frankly, all of this has been in terms of the expectations.

And with CAMCO, the revenue is low.

Got it, okay.

Thank you very much.

Ken Usdin, Jefferies.

This is Tom shearer in for Ken.

I just want see if I can get a little more color on loan growth within categories.

We saw CRE pick up a little bit here.

Is that sort of more of a function of lower runoffs or are we actually seeing a base set in here, or how should we think about growth in that category and others going forward?

Yes, I think -- this is Dan -- on CRE, we are seeing a pickup of activity.

I think there's been opportunities, multifamily retail.

We are seeing more properties change hands, so I do think over the last couple of quarters, we've seen more opportunities there that fit within the profile we are looking for.

To try and answer you more broadly, we've had a very good quarter in terms of broad-based growth.

We've had growth in our middle market, our small business, a number of our verticals, healthcare, food and ag, etc., so very broad-based.

Our large corporate book actually came in a little bit again in the first quarter as it did through last year.

And so I think this is a reflection of the economy and our footprint doing well, and the investments that we have made in these verticals and other businesses continuing to mature.

Great, thanks.

Just a quick cleanup on the share count.

We saw the period end down, but the average slightly up.

How should we think about that going forward?

We had the CAMCO acquisition in there as well.

Right.

The majority of the shares that we repurchased in the first quarter were after CAMCO.

We were required to stay out of the market for a while, but most the activity happened later in March.

Okay, great.

Thanks.

Scott Siefers, Sandler O'Neill and Partners.

Good morning guys.

Steve, I was hoping you could touch a little more on just the notion of positive operating leverage.

You guys made it last year.

It looks like you'll be able to do it again this year.

But I guess absent any additional securities gains for example, the spread between revenue growth and expenses might start to narrow if I'm interpreting the guidance correct.

So you can still do it, but it would be kind of very modest operating leverage.

When and how do you see that gap expanding more materially?

Is it that 2015 is the year where it really kind of shines through and that you will have kind of a full year of no need to do investment spending on the branch build out, or how should we really think about that dynamic from your perspective?

This is Dave.

I think, when we think about the future, we are obviously having very good success in growing loans this quarter, and we expect that to continue into 2014 and into 2015.

So that that will help us.

We talked about the fact that we are still expecting the net interest income line to continue to grow.

Our supermarket strategy, we expect it to break even by the end of this year, so that will help us, obviously, from a positive operating leverage.

And we are sensitive to short-term interest rates.

A large percentage of our book is LIBOR-based, and our projections on interest rates will help as interest rates move up on the short part of the curve.

That will help us as well.

So none of our investments are mature.

Credit card, for example, was end of third quarter last year, There's an array of areas that will continue to contribute.

And we've come into the second quarter with a strong pipeline.

Much like we told you at year-end, we came into the first quarter with a strong pipeline.

We would expect that to continue.

We like the activities and the focus that we have going on throughout the company.

So the execution is getting better.

If you think about that first quarter, at least in our geography, not that we want to provide weather reports, but there were clear weather impacts into some of the results.

So we have more to do.

We've got, frankly, a lot of ambitions, but we think we had a good quarter and a trend now with pipeline and backlog and activities to be confident as we come into the second quarter.

Okay, good.

That's helpful, and I appreciate the color.

Then I guess just as a follow-up, I want to make sure I understand the loan growth dynamic correctly.

Because of the CAMCO transaction, there's a little bit more of a gap than is typical between your end-of-period and average balances.

And the accounting change you did end of last quarter doesn't necessarily help I guess.

So it's almost as simple as thinking the end-of-period, which is I guess more of a double-digit annualized growth rate, is just a much better proxy for what we should be expecting for overall loan growth than the more modest annualized growth if you just did the average numbers?

The end of period of CAMCO, so that could be misleading if you just took a spot and not an average.

But we had pretty good growth throughout the quarter.

It ramped a bit, but it got a little better during the quarter.

But it wasn't back-end loaded.

So as we come into this quarter, we get essentially the same kind of pipeline to work with.

And to help you, the CAMCO loan portfolio is about $500 million of business and consumer.

Yes, okay.

So maybe just taking that out of the end-of-period is probably a pretty good proxy then for the kind of growth rate we could see going forward, it sounds like.

Yes, so you've got a couple of weeks in it, but that's all.

Okay.

All right, that's perfect.

I appreciate the time.

Matt O'Connor, Deutsche Bank.

[Dan Delmar] from [Matstein].

Just a follow-up on C&I loan growth.

Your outlook points to higher customer activity and some of the benefits from investments in your verticals.

I was wanting to get a sense for how utilization rates trended throughout the quarter, and what you guys have been seeing in terms of pricing in terms in the space?

Another regional bank pointed to some frosting us in the CRE space.

So I wanted to see if you guys are seeing that as well.

This is Dan.

So, in terms of utilization, it has been flat, which is actually a positive, because we've seen a couple year trend of decreasing utilization.

So we believe that's leveled out, and maybe points to an uptick but definitely a change in direction there in the flattening.

In terms of frothiness of the market, yes, nothing has changed from last quarter.

The market is as competitive as ever.

On CRE in particular, yes, it's more aggressive, but given where -- we have pretty modest growth targets there, so we are able to pretty much take on the credit that fits our profile and still withholding to the loan to value, debt service coverage ratios, etc.

The stress has been more on term and recourse, but the disciplines of debt service coverage and LTVs have held up well.

And so we like what we are adding to the book.

As we talked about before, we have concentration limits in place for a variety of our loan portfolios, but we tend to articulate it around commercial real estate as a concentration limit on these calls and analyst sessions, just to point out.

Great, thank you.

Bob Ramsey, FBR.

Good morning guys.

I just want to touch a little bit more on expenses.

It sounded in the intro comments as if the expectations are not materially different.

But when I read the guidance, it says you expect a slight increase from this quarter's level.

And I think last quarter you had said flattish around the second half of 2013, which was the same as this quarter.

So are you expecting a little higher expenses now than before, or am I just getting too detailed?

I think maybe a little -- a little bit of this is first quarter was lower than we expect for second quarter but the outlook for the year is in line with what we articulated at year-end.

And so a little bit of it is timing of our investment in marketing, and some of that is factored -- there are a number of factors for that, but we've had a particularly rough winter that went late into the first quarter, and so we deferred some marketing into the second quarter.

If that's helpful.

No, that is.

And then you have highlighted several unusual items that are anyway seasonal type items in the second quarter.

Can you give us a sense of the magnitude of increase in the second quarter from the Merit advertising and CAMCO acquisition altogether?

This is Dave.

Unfortunately, we do not give that type of guidance.

We just stay away from line item guidance.

But points for asking, nice try.

And then last question, I'll ask you guys sort of about the expenses and the positive operating leverages.

You guys map it out on Slide 20.

You make adjustments for the litigation and merger expenses, which is fair, but didn't back up the security gains this quarter.

When you all think about positive operating leverage, do you think about security gains as a piece of that?

We do.

It's an area where we've had some debate as well internally.

But about 70% of the revenue off of those security gains would've otherwise come in this year in net interest income.

So it struck us that we would've had much -- most of it, anyway, in the year, seemed fair to put it in.

But we quibble on whether it should we be in or out.

Certainly if this were a multi-year series of gains, we would pull it out.

Okay, great.

Thank you guys.

These investments were short in duration.

Thanks.

Steven Alexopoulos, JPMorgan.

Steve, regarding the change in Fair Play coming in July, what drove the decision to give more customers more time to get funds into their account?

Was it any pressure from CFPB or just feedback from customers that 24 hours is not enough time?

This has nothing to do with CFPB.

We were thinking about it as we came into the new year as a way of sort of strengthening the positioning around Fair Play.

And as we saw last year again with a posting order change, service charges were actually up during the course of the year.

So -- and good growth in customer.

So we are still learning.

We are still testing.

We still get -- we seek and assess customer feedback.

And the collective sense or judgment of the team is actually entirely consistent with the Fair Play approach, but we think also good business in terms of further strengthening Fair Play and uniqueness of 24-hour grace.

With 24-hour grace, the vast majority of our customers never overdraw, but they all showed very strong emotional appeal around it when we survey.

So we thought it was a logical next step for us.

But do you think it's enough of a change to drive incremental share versus the 24 hours?

It could be helpful to us in terms of both growth in customers, but also share of wallet.

We continue to refine our efforts around share of wallet.

Okay.

Just a question regarding compliance with liquidity coverage ratio.

What's the approximate dollar balance of highly liquid securities that you still need to add and what's the timing to get there?

Thanks.

So the overall portfolio securities portfolio is the absolute level today is about the level it needs to be.

But as we look over the course of the year of the principal of interest of the non-qualified that roll through, we will reinvest that back into qualifying assets and on target to be there by the end of the year.

So we've said it is about $100 million, $125 million a month in interest and amortization, and so that will cycle now throughout the year.

We do have some legacy assets that would not be high qualified, and so there may continue to be a modest amount of substitution.

But as we said in the year-end call, we wanted to get the portfolio positioned in aggregate during the fourth quarter for a number of reasons, including the potential scarcity of some of the products we were looking for.

Got you.

So just remixing the rest of the year should be enough.

Okay, thank you.

We think so.

Thanks.

Craig Siegenthaler, Credit Suisse.

Thanks, good morning.

So just a follow-up to the last question on the LCR.

On the funding side, should we expect any additional run-off of collateralized municipal deposits?

And I'm wondering, did anything on the liability side related to LCR drive the consumer pricing changes that we should expect in July?

The decisions in July around our Fair Play philosophy had nothing to do with LCR.

In fact, until you mentioned it, I hadn't thought of it in that context, so that's how remote it was.

We have been working over the last year, year and a half, to adjust collateralized deposits.

And certainly, as we see final guidance come out, we may further reduce or adjust that.

But we've made meaningful progress during that period of time.

And we may add some other approaches to it, Home Loan Bank, LCE, or other things, for very meaningful relationships, deeply crustal significant treasury management, things like that that we choose to protect.

Don't see it as a huge issue for us at this point.

Then on your prior comment, you mentioned $125 million per month that you're going to reinvest from the securities portfolio into Ginnies.

That nets to $1.5 billion.

Should we think about that roughly as the increase over the next 12 months?

And then the delta when you think about NIM is maybe a 20 basis point difference between the average Fannie/Freddie security and Ginnie?

We didn't mean to imply further growth in that portfolio.

This is normal monthly interest and, if you will, principal repayment or amortization off the existing portfolio that we would look to reinvest to hold the portfolio at roughly the $11 billion level that it's at today.

So you fold it at $11 billion, but there's a $1.5 billion mix shift from the Fannie and Freddie portion to the Ginnie portion.

And the net I think interest income delta on that is maybe 20 basis points because the Ginnies are yielding something lower.

That was kind of my quick math.

It's not all coming out of Fannie and Freddie, to be sure.

It's got a variety of coupons around it.

And the durations may be a little different as we look at the reinvest.

We do not intend to take a lot of market risk and we haven't in the last five years.

So, we have a number of things to work with.

I wouldn't do the 20 BPS, Craig, but we don't try and provide specific guidance, so just in that context I think you would be a bit severe.

Okay, great.

Thanks for the color there, Steve.

Ryan Nash, Goldman Sachs.

Good morning guys.

Just a question on the buyback strategy.

When we think about the repurchases that occurred over the past couple of quarters, you guys flowed the buybacks for two quarters.

Granted I understand there was impact from CAMCO, and then you obviously completed the offering this quarter when you billed back $136 million.

So can you help?

As we think about the $250 million approval that you got for this year, can you help us understand the philosophy from here?

I know there was a lot of talk around sensitivity above tangible book value.

Is that still the main primary factor in determining whether or not you're going to how -- aggressive you are, or is it the fact that you're continuing to generate capital at a pretty fast pace that you want to prevent the capital base from growing?

So, any color you can provide on that would be helpful.

Let me start broadly with that if we could.

First of all, we think we have a strong capital position.

We're sitting with excess capital today.

And our approach has been grow the course, have the capital there to support our growth, secondly to support dividend, and third for other activities, buyback, M&A etc.

In that context, as we talk about the year-end earnings, we had a number of discussions at board management about buyback approach and we refined or adjusted that approach which we communicated, certainly attempted to communicate at the year-end call.

And so there are a number of additional factors than just tangible book value that we are looking at.

We haven't gone into those in great detail, but we have refined our thinking, broadened it quite a bit, and that remains consistent as we go from first quarter now into second.

And as Dave pointed out, we had a little hiatus around the CAMCO acquisition that's required, but other than that, executed against that refined approach during the first quarter.

So we carry that approach into the second quarter and beyond, I guess it's second through first quarter with the CCAR approval.

Got it.

And I guess just a question on auto.

I notice that you've -- maybe I'm looking too far into this.

I notice in the release your no longer stating that you won't be doing any auto securitizations.

And I think the wording in the outlook around indirect auto loan growth changed slightly.

Has your thinking -- has pricing changed at all for loan sales such that the economics make more sense to consider?

Is there anything LCR-driven that has changed your outlook, or is it just that you're seeing improving loan growth in other areas such that you don't need as much auto loan growth to support balance sheet growth?

When we entered the year, we tried to communicate that we did not anticipate an auto securitization this year, that we had room under our concentration limit that would take us into 2015.

And like the asset yield and other risk dimensions of autos versus alternative investments, that thinking hasn't changed and wasn't a function of LCR.

Great.

If I could sneak in one other quick one, Steve.

Given that your original fee income guidance did contemplate the $6 million quarterly decline in service charges, and you highlighted the fact that, despite last year's policy changes, you were able to grow service charges 6%.

So my question is there still enough momentum in the fee income line, given the things that you're doing in Fair Play, that we could actually end up seeing core fee income growth, or are the policy changes along with the decline of mortgage still too hard to overcome?

As we've said in the full-year outlook, net interest income will be up.

We'll swim through whatever margin compression.

Fee income will be modestly down, if not flat trying to overcome mortgage, the mortgage position.

But when we gave that earning outlook, we had contemplated the decision that we are sharing today around further adjustments to the overdraft line item.

And so the overall guidance doesn't change.

We are consistent with that, and so the combination of those factors and managing expenses will put us first in line with what we originally said.

Great.

Thank you for taking my questions.

Jon Arfstrom, RBC Capital Markets.

Thanks, good morning.

Good morning Mac.

Welcome to Huntington.

It's not the same here without Mac in town.

Just a little more granular on the commercial lending, I'm particularly interested in the customer outlook for borrowing among the manufacturers and also their appetite for CapEx borrowing.

I would say it's improving.

I think there's -- we haven't seen any huge changes yet, but I do think there is a developing confidence out there, and a more propensity to look at capital investment.

I think it shows up in our middle-market loan growth and our equipment finance loan growth, so I do think there are signs of that developing confidence and I think that helps form our outlook for the balance of the year.

Okay.

And then just to follow-up on that, in terms of your specialty verticals, how is the -- I have to get the name right -- but the foreign subsidiary business going?

Are you seeing increase in activity there?

We are seeing some activity.

The thing we like about our verticals is that the growth is coming from all of them.

We are not relying on any one to kind of outperform.

We are seeing traction starting to develop in all of them, and foreign non-subs is a contributor.

It is not huge but we are starting from kind of Ground Zero.

So we like the developing pipeline there, and what we have added to the book thus far.

When we talked about investments not mature, these specialty businesses or verticals, none of them are mature.

And we've been doing this now for a number of years.

We did three at the end of 2012 but there were a series of them before.

They all have growth potential for us, and they are all coming on.

Okay.

Thank you.

David Long, Raymond James.

It's David Long.

Just the one question that I still have remaining was regarding the expectations, Steve, and you talked about expectations for net interest income to grow moderately and noninterest income and expenses to be slightly higher from the current levels.

Just to confirm, does that include the impact of CAMCO then, or is that simply looking at it organically?

That's the organic.

But we also have roped CAMCO into that.

Okay, so CAMCO is built into the that sort of guidance if you want to call it that.

CAMCO is included.

Got you.

Okay.

That's all I have got left.

Thanks guys.

Sameer Gokhale, Janney Capital.

Thank you.

Just I know you didn't want to give any sort of specific guidance on the OpEx impact from CAMCO for full quarter in Q2, but could you -- maybe you've already mentioned this, sorry if I missed it.

But what was the actual impact on OpEx this quarter from CAMCO for roughly a month or so?

I don't think we've broken it out.

It's not material.

It's $500 million in loans, $600 million in deposits, net 11 branches.

We are not trying to -- it's just not material.

Okay, no, that's fair.

I was just thinking that might help a little bit with Q2, but it doesn't sound like a big number, so that's fine.

And the other question was a relatively small number but your litigation reserve charge of $9 million.

Can you give a sense of what that ties into, this new litigation or existing litigation that you preserve for?

This is Dave.

As in the past, we just don't comment on litigation matters.

Okay.

Those are the two questions I had.

Thank you.

Geoffrey Elliott, Autonomous Research.

Just a quick question on the changes to deposit service charges.

What is the working you've done around how long you think this is expected to take for those to become earnings positive so you recover what you lose in the service charges and other fees or other revenue?

We haven't taken it at an account level in terms of what we are prepared to share this morning.

We have seen a fair amount of elasticity around customer behavior as we made adjustments last year, for example.

And so that has given us an ability to model it and perhaps in some unique way is about consumer behavior.

Remember, our approach has been customer acquisition and share of wallet.

And I would say, increasingly, the focus for us is around revenue-based share of wallet.

And you will hear us talk about that more commonly as we go forward.

And then how much do think there is to go on these fee initiatives and initiatives to become more customer friendly?

You've done quite a bit already.

Do you think there is a lot more that you can do or do you think any further initiatives are going to be kind of small and incremental?

We test and learn, and as we said, we survey and get feedback.

There is nothing larger on the horizon at this point.

And I wouldn't say never, but it's not obvious to us what or when we might do something else now.

So, I think, for purposes of modeling, certainly through the rest of this year there's not another wave of activity that we are contemplating.

Thanks very much.

There are no further questions at this time.

I'll turn the call over to Steve for closing comments.

Thank you very much.

We think we had a solid start to the year.

We are grateful for your interest today.

Keeping the ROA above 1% is an objective, and although it depressed a bit as we built the securities designed to meet the new liquidity rules, we are pleased with results.

Customer activity in particular that's translated into balance sheet growth bodes well for us as we move forward.

The CAMCO acquisition, closing integration, doing that smoothly was a nice step along with this recently announced branch acquisition in Michigan.

Each one of these, while not being significant, they add a bit to the balance sheet, 1% or so to the balance sheet.

And while not being particularly significant, they do help us, strengthen of us over time, give us more density, and deliver modest improvements in our efficiency ratios.

So we're going to continue to execute (technical difficulty)

Thank you for joining, ladies and gentlemen.

This concludes today's conference call.

You may now disconnect.