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Edited Transcript of HBAN earnings conference call or presentation 23-Jan-20 2:00pm GMT

Q4 2019 Huntington Bancshares Inc Earnings Call

COLUMBUS Jan 27, 2020 (Thomson StreetEvents) -- Edited Transcript of Huntington Bancshares Inc earnings conference call or presentation Thursday, January 23, 2020 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Mark A. Muth

Huntington Bancshares Incorporated - Senior VP & Director of IR

* Richard A. Pohle

Huntington Bancshares Incorporated - EVP & Chief Credit Officer

* Stephen D. Steinour

Huntington Bancshares Incorporated - Chairman, President & CEO

* Zachary J. Wasserman

Huntington Bancshares Incorporated - CFO & Senior EVP

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Conference Call Participants

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* David Joseph Long

Raymond James & Associates, Inc., Research Division - Senior Analyst

* Jon Glenn Arfstrom

RBC Capital Markets, Research Division - MD of Financial Services Equity Research

* Kenneth Michael Usdin

Jefferies LLC, Research Division - MD and Senior Equity Research Analyst

* Rahul Suresh Patil

Evercore ISI Institutional Equities, Research Division - Analyst

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Presentation

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Operator [1]

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Greetings, and welcome to the Huntington Bancshares Fourth Quarter Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mark Muth, Director of Investor Relations.

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Mark A. Muth, Huntington Bancshares Incorporated - Senior VP & Director of IR [2]

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Thank you. Welcome. I'm Mark Muth, Director of Investor Relations for Huntington. Copies of the slides, we'll be reviewing, can be found on the Investor Relations section of our website, www.huntington.com. This call is being recorded and will be available as a rebroadcast starting about 1 hour from the close of the call.

Our presenters today are Steve Steinour, Chairman, President and CEO; Zach Wasserman, Chief Financial Officer; and Rich Pohle, Chief Credit Officer.

As noted on Slide 2, today's discussion, including the Q&A period, will 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 the material filed with the SEC, including our most recent forms 10-K, 10-Q and 8-K filings. Let me now turn it over to Steve, where he'll start on Slide 3.

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Stephen D. Steinour, Huntington Bancshares Incorporated - Chairman, President & CEO [3]

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Thanks, Mark, and thank you to everyone for joining the call today. As always, we appreciate your interest and support. We're pleased with our full year 2019 results and the continued momentum across the bank despite a challenging operating environment. For the full year, we reported earnings per common share of $1.27, an increase of 6% over 2018. Return on average assets for 2019 was 1.3%, return on average common equity was 13% and return on average tangible common equity was 17%. The bank achieved record net income for the fifth consecutive year and positive operating leverage on an adjusted basis for the seventh consecutive year.

Our balance sheet is very well positioned with robust capital and liquidity, and our comprehensive hedging strategy has reduced interest rate risk. Credit quality remains strong, with 2019 net charge-offs at the low end of our average through-the-cycle target range. We remain prudent with our allocation of capital to ensure we are earning adequate returns and taking appropriate risks, consistent with our aggregate moderate-to-low risk profile.

2019 marked the ninth consecutive year of an increased cash dividend coupling the dividend with $441 million of share repurchases during the year. We returned over $1 billion to our shareholders in 2019, which represented a total payout ratio of 79%. As we previously communicated on many instances, our capital priorities are: first, to fund organic growth; second, to support the cash dividend; and finally, all other capital uses, including the buyback and selective acquisitions. These capital priorities have not changed.

Now moving to the economy. We continue to see growth, and our expectation for 2020 is for continued expansion. Consumers continue to perform well across our footprint, with strong labor markets driving wage inflation. In the 12 months ending November 2019, unemployment rates declined or remained the same in 17 of the 20 largest MSAs in Huntington's footprint states. Job openings continue to exceed unemployment levels in the Midwest. Home prices continue to appreciate with especially solid increases in Michigan, Indiana and Ohio. Additionally, consumer confidence in our region has generally stayed at the highest levels since 2000. The positive consumer sentiment is evident in the success of our consumer lending businesses.

Our home lending business achieved record mortgage originations for both full year 2019 and the 2019 fourth quarter. Our auto finance business also achieved record originations in the fourth quarter, and we expect another good year in 2020 for our consumer lending businesses, again, driven primarily by residential mortgage and auto finance.

Now we have seen a slowdown in commercial loan activity, consistent with the measured tone from some of our commercial customers. Economic uncertainty, along with tight labor markets, remain headwinds for more robust economic growth in our footprint. Overall, Huntington is performing well with disciplined organic growth. Our customers are generally confident about their performance for 2020, and we share that confidence in our performance. We continue to see good traction in our new specialty lending verticals of mid-corporate lending, technology, media and telecom, our practice finance area which we announced as part of the 2018 strategic plan.

Looking out to 2020, we proactively took actions in the fourth quarter to drive organic revenue growth, reduce our future expense growth and increase our capacity for additional investment in our businesses and technology. We repositioned $2 billion of securities, picking up approximately 70 basis points of yield on those securities. The rebalance resulted in $22 million of security losses in the fourth quarter.

On the expense side, we completed the position reduction of employees and announced the consolidation of 30 in-store branches. Now these actions, along with the disposition of other properties and a technology system decommission, resulted in unusual expense of approximately $25 million in the quarter. Our disciplined expense management allows for further investment in digital and mobile technology and enterprise growth initiatives going forward.

I'm confident in our positioning entering 2020, and our colleagues are focused in executing our plans. We are all aligned with our strategies of creating a high-performing regional bank and delivering top quartile through the cycle shareholder returns.

Zach will now provide an overview of our financial performance. Zach?

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Zachary J. Wasserman, Huntington Bancshares Incorporated - CFO & Senior EVP [4]

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Thanks, Steve, and good morning, everybody. It's a pleasure to be with you here on my first earnings call with Huntington. Slides 4 and 5 provide highlights of our full year 2019 and fourth quarter 2019 results, respectively, many of which Steve already touched on. Fourth quarter results include approximately $47 million of pretax impact or approximately $0.03 per share after tax from previously announced actions that were taken to better position the bank for 2020, including the securities repositioning, workforce actions and the pending in-store branch closures.

Let's turn to Slide 6 to discuss the key fundamental drivers behind the financial performance for the quarter. Average earning assets increased $2.3 billion or 2% compared to the year ago quarter. Average loans and leases increased $1.3 billion or 2% year-over-year with balanced consumer and commercial loan growth.

Average commercial and industrial loans increased 3% from the year ago quarter and reflected the largest component of our year-over-year loan growth. C&I loan growth has been well diversified over the past year with notable growth in specialty banking, asset finance and corporate banking.

Our fourth quarter commercial loan growth was below our expectations, as a portion of deals we expected to close at the end of the year were pushed into 2020 and seasonal declines in line utilization at year-end were larger than normal. Overall, commercial activity continues to be restrained by economic uncertainty.

We continue to actively manage our commercial real estate portfolio around current levels, with average CRE loans reflecting a 2% year-over-year decrease, driven by paydowns and refinancing activity. Consumer loan growth remained focused in the residential mortgage portfolio, reflecting robust originations in the second half of 2019. Average residential mortgage loans increased 7% year-over-year. As we typically do, we sold the agency-qualified mortgage production in the quarter and retained jumbo mortgages and specialty mortgage products.

Now turning to Slide 7. Average total deposits decreased less than 1% year-over-year, while average core deposits increased 1% year-over-year. Note that both of these growth rates were negatively impacted by the June 2019 sale of the Wisconsin retail branch network, including approximately $725 million or almost 1% of core deposits.

We continue to see a migration in deposit balances from CDs and savings into money market accounts, reflecting shifting customer preferences, and we are focused -- and where we are focused on promotional pricing. Average money market deposits increased 9% year-over-year, while savings decreased 9% and core CDs decreased 16%. We expect this dynamic to continue in 2020. Average noninterest-bearing and interest-bearing DDA accounts each increased 1% year-over-year. As shown on Slide 32 in the appendix, we're very pleased that our commercial noninterest-bearing deposits increased 5% year-over-year in the quarter. This growth highlights our continued focus on growing our low-cost deposit base through new customer acquisition and relationship deepening.

Moving now to Slide 8. FTE, net interest income decreased $55 million or 7% versus the year ago quarter, primarily driven by the 29 basis point decline in net interest margin, partially offset by 2% increase in average earning assets. Net interest margin was 3.02% -- 3.12% excuse me, 3.12% for the quarter, down 29 basis points from the year ago quarter, down 8 basis points linked quarter and in line with the guidance we provided at the Goldman Sachs Conference in December.

Moving to Slide 9. Our core net interest margin for the fourth quarter was 3.08%, down 26 basis points from the year ago quarter. Purchase accounting accretion contributed 4 basis points to the net interest margin in the current quarter compared to 7 basis points in the year ago quarter.

Slide 28 in the appendix provides information regarding the actual and scheduled impact of FirstMerit purchase accounting for 2019 and 2020. Please note that this quarter is the last quarter we intend to provide core NIM and PAA breakouts, as the PAA is expected to have a relatively immaterial impact in 2020.

Turning to asset -- to earning asset yields. Our commercial loan yields decreased 52 basis points year-over-year. Consumer loan yields decreased 8 basis points and security yields decreased 16 basis points. The decrease in our earning asset yields can be primarily attributed to lower interest rates following the 3 federal reserve rate reductions that occurred during 2019.

On the funding side of the balance sheet, our deposit costs continue to move lower as CDs and money market promotional rates reprice lower, and we actively manage commercial deposit costs. Total interest-bearing deposit cost of 87 basis points for the quarter were up 3% year-over-year, though, down 11 basis points sequentially.

Slide 10 summarizes the actions we have taken to reduce the unfavorable impacts of interest rate volatility and the lower interest rate environment. Our hedging strategies reduce the downside risk from lower interest rates and have significantly narrowed the band of modeled outcomes for net interest income.

Our current interest rate risk modeling suggests little change to net interest income from either a 25 basis point increase or 25 basis point decrease in 2020. We continuously monitor and will continue to prudently refine our interest rate risk management as the interest rate environment, balance sheet mix and other factors necessitate.

The graphs on the bottom left of the slide detail the mix of our loan portfolio as well as the significant consumer deposit balances with repricing events in the first half of 2020. These repricing events provide an opportunity for the bank to reduce the cost of deposits as these higher-priced CDs and promotional money market accounts repriced lower.

Through December, the consumer deposit repricing activity is on track with our expectations. The success of our consumer deposit repricing and retention has provided us the ability to remain more disciplined in our commercial deposit pricing, particularly among the highest cost deposits. The graph on the bottom right of the slide displays the impact of our actions. You can see the downward trajectory of our total interest-bearing deposit costs by month since July. We expect this trend to continue given the significant deposit repricing opportunities that remain in the first half of 2020.

Turning to Slide 11, you can see, it provides the detail on our noninterest income, which increased 13% from the year ago quarter. The growth was highlighted by mortgage banking income, which increased 152%, primarily reflecting higher salable origination volume and secondary market spreads as well as a $12 million increase in the gain on net mortgage servicing rights risk management. We also continue to see steady growth in card and payment processing income, trust and investment management and insurance.

In the 2019 fourth quarter, we repositioned $2 billion of securities, picking up approximately 70 basis points of yield on those securities, prospectively, at a cost of $22 million in Q4. While negatively impacting fourth quarter results, the prospective earnings pickup and the earn-back on the repositioning losses are very attractive and consistent with our active management of the securities portfolio. The year ago quarter in 2018 included $19 million of securities losses from similar repositioning.

Slide 12 provides the components of the 1% year-over-year decrease in noninterest expense. The 2019 fourth quarter included $25 million of expense related to the actions which Steve discussed earlier, while the year ago quarter included $35 million of similar branch and facility consolidation related expense. Adjusting for these items, noninterest expenses were essentially flat. We continue to drive efficiency in our core expense base to ensure robust and growing investment capacity to fuel our investments in digital, mobile and cyber technology, enhanced product services and distribution capabilities. This disciplined expense management allowed us to achieve positive operating leverage on an adjusted basis for the seventh consecutive year.

Slide 13 illustrates the continued strength in our capital ratios. The tangible common equity ratio, or TCE, ended the quarter at 7.88%, up 67 basis points from a year ago. And common equity Tier 1 ratio, or CET1, ended the quarter at 9.88% or 23 basis points year-over-year. We continue to manage CET1 to the high end of our 9% to 10% operating guideline.

During the fourth quarter of 2019, we repurchased 13.1 million common shares at an average cost of $14.96 per share or a total of $196 million. We plan to use the share repurchase to manage our capital following the CECL implementation back to a CET1 level near 10% by the end of 2020, excluding the benefit of the CECL transition provision provided by the Federal Reserve. We feel managing internally to a CET1 level, excluding the 3-year transition, reinforces our commitment to maintaining strong capital ratios, which we see as a position of strength for the organization. As a result, we are currently planning to repurchase less than 1/3 of the remaining $249 million of share repurchase capacity on our 2019 capital plan in the first half of 2020.

Now let me turn it over to Rich to cover credit, including CECL. Rich?

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Richard A. Pohle, Huntington Bancshares Incorporated - EVP & Chief Credit Officer [5]

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Thanks, Zach. Slide 14 provides an update on our CECL adoption. We estimate our allowance for credit losses or ACL will increase 44% from the year-end 2019 ACL to $1.28 billion or 1.70% of total loans and leases on an adjusted basis. As we stated on the third quarter call, given our 50% mix of relatively longer-dated consumer loans, the CECL lifetime loss methodology results in a higher allowance than the prior methodology. The increase in reserves is largely related to the consumer loan portfolio.

As we move forward under CECL, it is a new accounting standard with many variables. Our day 2 allowance for credit losses will be determined using various models that incorporate multiple scenarios, historical loss and recovery rates, borrower characteristics and other factors. As a result, we expect more volatility in our quarterly provisioning expense. Our parallel testing, however, indicates that key factors being held constant, the aggregate annual level of provision expense is not expected to materially change from the current incurred loss methodology despite that higher quarterly variability.

Slide 15 provides a snapshot of key credit quality metrics for the quarter. Despite challenges in our oil and gas portfolio, our credit metrics remain strong. As we have noted previously, some quarterly volatility is expected given the absolute low level of problem loans. Consistent, prudent credit underwriting is one of Huntington's core principles, and our financial results continue to reflect our disciplined approach to risk management and our aggregate moderate-to-low risk appetite.

Net charge-offs remained near the low end of our average through-the-cycle target range of 35 to 55 basis points. Net charge-offs represented an annualized 39 basis points of average loans and leases in the current quarter, flat to the prior quarter and up from 27 basis points in the year-ago quarter. The increase was centered on the oil and gas portfolio, which made up approximately half of the total commercial net charge-offs. This portfolio was primarily impacted by geological issues compounded by low commodity prices and limited capital markets activity.

We have a relatively small oil and gas portfolio, representing less than 2% of total loans, and we believe we have it appropriately reserved for. Consumer charge-offs have remained fairly consistent over the past year. There is additional granularity on charge-offs by portfolio in the analyst package in the slides.

Annual net charge-offs, excluding the $67 million of oil and gas related losses, were 26 basis points and just 15 basis points for the commercial portfolio. The nonperforming asset ratio increased 2 basis points linked quarter and 14 basis points year-over-year to 0.66%, again, primarily as a result of the stress in our oil and gas book. The allowance for loan and lease losses as a percentage of loans remained relatively stable at 1.04%, down 1 basis point versus the linked quarter.

Let me turn it back over to Zach.

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Zachary J. Wasserman, Huntington Bancshares Incorporated - CFO & Senior EVP [6]

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Thanks, Rich. Slide 16 illustrates our expectations for full year 2020. We expect 2020 to be another year of sustained organic growth as we continue to execute and invest in our core growth strategies. We expect full year average loan growth in the range of 3% to 4%, with continued growth in both consumer and commercial portfolios. We expect growth to be modestly stronger on the consumer side, focused in home lending and auto finance. We expect slightly more measured commercial loan growth consistent with recent economic data.

Full year average deposit growth is expected to be approximately 3% to 4%, as we remain focused on acquiring forward checking accounts and deepening customer relationships. Specifically, our expectation entails continued decline in CDs, more than offset by growth in checking and money market. We expect full year total revenue growth of 1.5% to 3.5% on a GAAP basis, with growth in both net interest income and noninterest income. We are projecting the NIM to rebound in the first half of 2020 from the 2019 fourth quarter before stabilizing in the second half of the year.

Given our relatively neutralized interest rate risk positioning, we remain confident in our outlook for net interest income growth. While deposit pricing remains rational in our markets, we are closely watching the competitive environment around rate and volume of deposits as this represents the primary risk and opportunity for variance to our NIM forecast. We expect noninterest income on a GAAP basis to grow at a slightly higher pace than total revenue in 2020, driven by the continued focus on deepening customer relationships.

Full year noninterest expense is expected to increase 1% to 3%. Based on our active management in 2019, we are comfortable with our current expense base and the run rate trajectory. Our focus is on driving continued investment in opportunities to further differentiate Huntington and drive revenue growth. As we've told you previously and are demonstrating with our actions and our 2020 guidance, we remain committed to targeting annual positive operating leverage. We anticipate that the full year 2020 net charge-offs will be within a range of 35 to 45 basis points.

As Rich just covered, fundamentally, our credit remains strong. We're taking decisive action to mitigate the risk in our oil and gas portfolio. As a result, we have expectations for oil and gas charge-offs remaining slightly elevated in the first half of 2020. These charges are fully represented in our 2020 guidance. We believe we are adequately reserved at year-end and with the life-of-loan CECL adoption.

Our expectation for the effective tax rate for the remainder of the year is in the 15.5% to 16.5% range.

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Mark A. Muth, Huntington Bancshares Incorporated - Senior VP & Director of IR [7]

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Operator, we'll now take questions.

(Operator Instructions)

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Jon Arfstrom with RBC.

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Jon Glenn Arfstrom, RBC Capital Markets, Research Division - MD of Financial Services Equity Research [2]

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Well, lots to ask about, but I'll just maybe start, Steve, with just -- you talked a little bit about headwinds in commercial, but we do have USMCA and Phase 1 China seemingly done. Just curious, if you could give us a little bit more color on that and if you're seeing any changes in optimism at all from the commercial customers?

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Stephen D. Steinour, Huntington Bancshares Incorporated - Chairman, President & CEO [3]

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Jon, USMCA is just recently done. And obviously, there are other issues, distractions going on in D.C. right now. So I don't think there's a meaningful change yet. But from what we reported at the prior conference and I do expect there's going to be a second half lift. I'm optimistic in that regard. But I think it's going to be a little hesitant, little reluctant in talking with different customers about the start of this year. We did see more cash on balance sheets at the end of the year. So spot balances were down a bit from where we expected them to be. That was particularly true in auto as customers kept more cash on sheet. So I think that just reflects this conservatism and just sort of a wait-and-see approach. Again, in the Midwest, we're hampered by lack of labor. So that is an element in this planning process as well as these uncertainties.

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Jon Glenn Arfstrom, RBC Capital Markets, Research Division - MD of Financial Services Equity Research [4]

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Okay. That's helpful. And then just one more, Zach or Rich, maybe, Rich, for you. Just can you talk about the day 2 CECL impact again? I think what you said is, expect the provision to be roughly the same in 2020 compared to 2019, I wonder if I heard that right? And Zach, how you want us to think about provisioning in 2020?

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Richard A. Pohle, Huntington Bancshares Incorporated - EVP & Chief Credit Officer [5]

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Yes. This is Rich. The testing that we've done -- and again, this is new, so we're kind of going through quarter-by-quarter. The testing that we did CECL to BAU showed that there were some quarterly volatility. But over the course of the year, it tended to level itself out. So we don't see a lot of -- we see more volatility on a quarterly basis, going forward, but we don't expect a material change in the overall provision under CECL than we had under the incurred loss methodology.

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Operator [6]

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Our next question comes from the line of David Long with Raymond James.

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David Joseph Long, Raymond James & Associates, Inc., Research Division - Senior Analyst [7]

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With your revenue outlook for the year, what is the rate backdrop that you are assuming right now?

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Zachary J. Wasserman, Huntington Bancshares Incorporated - CFO & Senior EVP [8]

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This is Zach. I'll take that question, David. Good to talk with you. We're essentially assuming the forward yield curve as it existed in November, although it's relatively consistent with where it looks right now. The Fed funds expectation is relatively neutral. I think the actual forward rate, look at it precisely, included forecasted one rate cut sort of in the late summertime period. But I think as we noted in the prepared remarks, based on our hedging program, our net interest income, NIM, is essentially neutralized from one rate increase or one rate decrease from today. So I would say, sort of taking a step back, so we're roughly flat from where we are today.

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David Joseph Long, Raymond James & Associates, Inc., Research Division - Senior Analyst [9]

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Got it. And if the rate backdrop goes against you, do you have additional levers that you can pull on the expense side, so you can still produce positive operating leverage?

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Zachary J. Wasserman, Huntington Bancshares Incorporated - CFO & Senior EVP [10]

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Yes, we do. I think under most realistic rate scenarios, as I mentioned, the hedging program will keep our NIM pretty constant. So we're not expecting to have to pull those expense levers, but as always, we do have a number of expense levers that we've got at our disposal. I'll take down a few of them. We can always look at the pacing and phasing of our strategic growth initiatives. We've got the #1 branch share in Michigan and Ohio. And so looking at our branch network and the costs around that is an opportunity. I think, generally, as we see revenue soft than we typically see in just the linked variable expense reduction from compensation tend to mitigate and offset that. So those are the levers we've got, and responsibly, we look at all the time. There are other levers like staffing contingency plans, which you saw us pull in the fourth quarter of 2019, which are out of disposal. But again, it's not our expectation that we'll have to do that in 2020. The last thing I would just say is, you commented positive operating leverage, we are managing and expecting to generate positive operating leverage in 2020.

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Operator [11]

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Our next question comes from the line of John Pancari with Evercore.

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Rahul Suresh Patil, Evercore ISI Institutional Equities, Research Division - Analyst [12]

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This is Rahul Patil on behalf of John. Just have a 2-part question on your auto lending business. Considering that one of the biggest players in auto lending is now becoming more active in this space, are you seeing pressure on pricing or your ability to grow auto loans at the pace that you had previously expected? And then the second part is tied to CECL. The CECL implementation impact your appetite for auto loans going forward? Just trying to gauge what's your 2020 auto loan growth outlook following a flattish average balance in 2019.

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Richard A. Pohle, Huntington Bancshares Incorporated - EVP & Chief Credit Officer [13]

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Yes, John (sic) [Rahul], it's Rich. I'll take that. So I'll take the second question first. So as it relates to CECL, the auto business is really neutral. The weighted average life of our typical auto loan is not that much different than what we had under the incurred loss methodology. So it's a fairly benign impact from a CECL standpoint. As it relates to the overall business strategy, I think we have just a tremendous franchise across multiple states with thousands of dealers that we've got the ability to drive volume. I think we are in a very high FICO band that tends to be more price-sensitive than others. So I don't see us having any real issues in meeting the origination goals that we've got for the indirect auto business in 2020.

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Rahul Suresh Patil, Evercore ISI Institutional Equities, Research Division - Analyst [14]

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Okay. And then last quarter, I believe you'd indicated that the consensus NIM estimate around that time of 3.20% for full year '20 was reasonable, but I believe that you had assumed, earlier a couple of rate cuts in that 2020 NIM guidance. Could you just discuss your updated thoughts? I know you talked about rebound in first half and then stable. But are you still comfortable with that 3.20% level right now?

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Zachary J. Wasserman, Huntington Bancshares Incorporated - CFO & Senior EVP [15]

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Yes. Thanks for the question. This is Zach. I'll answer that one. So the answer is yes. We are still comfortable with the approximately 3.20% guidance that we talked about in December at the Goldman Sachs Conference and then just reiterated today in the prepared remarks. We expect the trajectory of that to be ticking higher into the first quarter, so stabilizing around that level by mid-second quarter and then oscillating around that level through the balance of the year. There's really a couple of big drivers of that. So the most substantial of which is the repricing of the deposit maturities that we talked about in the prepared remarks there's roughly $5 billion repricing in Q1 and another $4 billion repricing in Q2. And so far, we're really pleased with both the retention and the pricing on that, which is proceeding according to our plans. The other factor, which is a little smaller, but still helpful is the 70 basis points of pickup we got on the securities repositioning that we discussed earlier. So those 2 factors are what's driving that and helping us to get the NIM to back to 3.20%. With that being said, there's a couple of factors we're watching: asset yields on new production. All of your previous question are around auto and residential. We continue to see them where we want them, but that's something we look at very carefully. The other one is, as I mentioned in my prepared remarks, the volume and rate for the deposit costs. Again, we're seeing the trend on our expectation, but it's something that we'll continue to watch. Those are the biggest factors that could cause the NIM to be higher or lower than that 3.20%.

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Rahul Suresh Patil, Evercore ISI Institutional Equities, Research Division - Analyst [16]

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Okay. And then I just want to clarify one thing, and that is assuming a cut, a rate cut, in the summer of this year?

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Zachary J. Wasserman, Huntington Bancshares Incorporated - CFO & Senior EVP [17]

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Yes. It's assuming essentially the forward rate curve that exists in November, as I mentioned, which if you look precisely at the Fed funds expectation and that had one cut over the late summertime period. But even if it's flat, we're going to be roughly at the same amount.

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Operator [18]

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(Operator Instructions) Our next question comes from the line of Ken Usdin with Jefferies.

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Kenneth Michael Usdin, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [19]

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One more question on the deposit side of things. See, what you're expecting for total growth, I'm assuming that's still coming from core customer growth. You mentioned the $5 billion that's going to reprice. Underneath that, can you just talk about what's happening in your markets as far as just underlying core deposit pricing? And if that's still also coming down aside from what you're just scheduled is going to reprice from the rollovers?

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Stephen D. Steinour, Huntington Bancshares Incorporated - Chairman, President & CEO [20]

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Yes. I mean I think we're -- as I said, we're seeing the repricing activity be pretty much in line with our expectations ticking down, but also being somewhat competitive. So we've assumed and planned for the rate environment we've got right now, and we're seeing it trend in that way.

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Mark A. Muth, Huntington Bancshares Incorporated - Senior VP & Director of IR [21]

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Yes. Ken, this is Mark. I would say that generally what we're seeing on the consumer side is very rational and as we would have expected. And the repricing coming in both with better pricing and better retention has allowed us to then be a little more aggressive on the commercial side, which we do see is more competitive. If you were to point to some of the competitive issues out there, it definitely is on the commercial side, in particular, with your large dollar deposits on the commercial side. And we've just allowed some of those to leave the bank as a result of the success we're having on consumer side.

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Kenneth Michael Usdin, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [22]

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Got it. Okay. And then one more question just on the mix of the balance sheet. With pretty good loan growth and pretty good deposit growth, what do you see happening in terms of both the size of securities portfolio? And can you talk about the underlying dynamics of -- in a stable rate environment, your front book, back book?

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Zachary J. Wasserman, Huntington Bancshares Incorporated - CFO & Senior EVP [23]

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So the expectation for the securities portfolio, this is Zach, roughly constant from where we are today, no material change. We like where it's at. And that's the expectation at this point. The second part of the question was...

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Richard A. Pohle, Huntington Bancshares Incorporated - EVP & Chief Credit Officer [24]

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Front book, back book.

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Kenneth Michael Usdin, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [25]

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Rolling off securities and rolling on how -- if rates stay low -- stay where they are from here, what's the dynamic happening in there?

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Zachary J. Wasserman, Huntington Bancshares Incorporated - CFO & Senior EVP [26]

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I mean, let's take that offline. I don't have that detail right in front of me.

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Mark A. Muth, Huntington Bancshares Incorporated - Senior VP & Director of IR [27]

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Yes, Ken, I've got that downstairs. I'll follow up with you on that.

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Operator [28]

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Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back to Steve Steinour for closing remarks.

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Stephen D. Steinour, Huntington Bancshares Incorporated - Chairman, President & CEO [29]

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I'm pleased with our 2019 performance, particularly given the environmental challenges we faced, our active management position the bank to continue to execute on our strategies, and I'm confident about our prospects for 2020. Our top priorities are executing our strategic plan and thoughtfully investing in our businesses for continued prudent organic growth while delivering annual positive operating leverage. We are clearly building long-term shareholder value through a diligent focus on top quartile financial performance and consistently disciplined risk management. And finally, we always like to end with a reminder to our shareholders, there's a high level of alignment between the Board, management, our colleagues and our shareholders. The Board and our colleagues are collectively a top 10 shareholder of Huntington, and all of us are appropriately focused on driving sustained long-term performance. So thank you for your interest in Huntington. Have a great day.

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Operator [30]

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This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.