Huntington Bancshares Incorporated (HBAN) Q3 2013 Earnings Report, Transcript and Summary

Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Huntington Bancshares' Third Quarter Earnings Conference Call. [Operator Instructions] I will now turn the call over to your host, Mr. Todd Beekman, Director of Investor Relations. Sir, please go ahead.

Thank you, Rob, and welcome. Copies of the slides of that we'll be reviewing can be found on our IR website at www.huntington-ir.com. This call is being recorded and will be available for rebroadcast starting about an hour after the closing of the call. Slides 2 and 3 note several aspects of the basis of today's presentation. I encourage you to read these, but let me point out one key disclosure. This presentation will reference non-GAAP financial measures, and in that regard, I direct you to the comparable GAAP financial measures in reconciliation to comparable GAAP financial measures within the presentation, the additional earnings material released today and related 8-K can also 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 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, 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, participating today are Steve Steinour, Chairman, President and CEO; Dave Anderson, Interim Chief Financial Officer; and Dan Neumeyer, Chief Credit Officer. Let's get started. Dave?

Thank you, Todd. I will review our 2013 third quarter financial results then Dan will provide an update on credit; finally, Steve will give an update on household and commercial relationship growth, as well as expectations for the balance of 2013. Turning to Slide 7, Huntington had a good third quarter. We reported net income of $178 million or $0.20 per share. This resulted in a 1.27% return on average assets and a 14% return on average tangible common equity. There were 2 significant items recorded in the third quarter that I will cover when I discuss noninterest expense. Fully-tax equivalent revenue was $682 million, a decrease of $15 million or 2% from the year ago quarter. Net interest income declined $4 million or less than 1%. The net interest margin was 3.34%, down 4 basis points. Total average loans grew by 5%, primarily due to Automobile loan growth. Average Automobile loans grew by $2 billion or 49% because we have kept more of these loans on our balance sheet instead of selling them through securitizations. Commercial and industrial loans increased 4% even though we reduced our large corporate portfolio by over $200 million. Finally, Commercial Real Estate loans declined by 14%, but as we have been signaling over the last few quarters, the portfolio is stabilizing around $5 billion. Noninterest income declined $11 million due to lower mortgage banking income. Mortgage banking income decreased $21 million or 47% from the year ago quarter. This decline was partially offset by increases in fees from commercial loan activity and service charges on deposits for both consumer and commercial accounts. Expenses declined $35 million from the year ago quarter. Included in the current quarter were 2 significant items that impacted expenses. First, we recorded a $34 million gain due to the curtailment of our pension plan. Second, we recorded a $17 million charge for branch and facility consolidations and severance costs. If you adjust for these significant items, expenses declined $18 million, primarily due to lower consulting, marketing, insurance and other expenses. We continue to focus on controlling expenses as we make prudent investments for the future. Steve will provide additional detail later in the call, but you can see that our Optimal Customer Relationship or OCR methodology is working. Consumer household and commercial relationships continue to grow at a pace well above that of our regional footprint, and importantly, customers are building deeper relationships with Huntington. Dan will cover credit in more detail later in the call, but on Slide 8, you can see that credit quality continues to improve in the third quarter. Nonaccrual loans decreased $112 million or 25% from the 2012 third quarter and $30 million or 8% from the 2013 second quarter. Our capital remains strong. Tier 1 common risk-based capital increased 50 basis -- 57 basis points over the last year to 10.85%. Our tangible common equity ratio was 9.02% at the end of September. As we compare our results to the third quarter of 2013, the net interest margin of 3.34% was down 4 basis points from last quarter. Mortgage banking income was down $10 million. Despite this decline in mortgage banking income, noninterest income increased $2 million. Service charges on deposits increased $5 million and other income increased $8 million. The increase in other income was primarily due to commercial banking activities. Noninterest expense in the third quarter was down $23 million. As I discussed earlier, $17 million of the decline was due to significant items. Net charge-offs for the current quarter were $56 million, or at an annualized rate of 53 basis points, up from 34 basis points in the previous quarter. Annualized net charge-offs for the current quarter were still within our long-term goal of 35 to 55 basis points. We repurchased 2 million common shares in the third quarter at an average price of $8.18. We have the ability to repurchase up to an additional $136 million shares to the first quarter of 2014 as part of our capital plan. We will continue to be disciplined in our repurchase activity, which will vary based upon stock price. We do not anticipate that the pending transaction with Camco will materially impact our repurchase activities, except during the relatively limited time when we will be required to be out of the market under the SEC's Regulation M. There are a few items on Slide 9 that I would like to highlight. First, we launched our Voice consumer credit card in the third quarter. Second, as I commented before, we are consolidating 22 branches but at the same time, we continue to invest with the opening of 3 in-store locations. Slide 68 has additional information on the in-store rollout. This slide shows a slightly delayed time until the location breaks even as we have modestly reduced growth expectations. Third, last week, we announced the acquisition of Camco Financial. Camco has $0.8 billion in assets and $0.6 billion in deposits and is expected to be accretive to earnings per share in the first full year. The transaction is expected to close in the first half of 2014, subject to approval by the Camco shareholders and regulators. Slide 10 is a summary of our quarterly earnings trends and key performance metrics. While this is a great snapshot of our recent trends, many items will be discussed elsewhere, so I will move on to Slide 11. On Slide 11, we showed the breakdown of operating leverage for the first 9 months of 2013. In this slide, we measure the percentage change in revenue and expenses, adjusted for significant items and for both volatility from MSR, auto securitizations and last year's bargain purchase gain from the Fidelity acquisition. For the first 9 months of 2013, we recorded modest positive operating leverage of 0.1%. We continue to be committed to providing positive operating leverage for the full year. Slide 12 displays trends of our net interest income and margin. The right side of the slide displays a 4-basis-point drop in our net interest margin over the last year to 3.34% for the current quarter, which reflected the impact of a 15-basis-point increase from the reduction of deposit rates, a 16-point decrease in the earning asset yield and 3 basis points of lower benefit from noninterest-bearing funding. The right side of Slide 13 shows the improvement in our deposit mix. The improved deposit mix reflects the success of our Fair Play banking strategy on remixing and growing consumer and commercial no- and low-cost deposits. This improving mix has contributed to the 15-basis-point decline on the average rate paid on total deposits over the last 5 quarters. On the left side of this slide, you will see the maturity schedule of our CD book, which represents a potential opportunity for continuing to lower our deposit costs as new CDs are coming on between 20 and 40 basis points. Related to these last 2 slides, please refer to Slide 40, which provides some additional granularity on the breakout of fixed versus variable rate assets and liabilities. Slide 14 provides a summary income statement for the last 5 quarters. I discussed the quarterly changes in my previous comments. Finally, Slide 15 reflects the trends in capital. The tangible common equity ratio increased 24 basis points from the last quarter. Over the last year, the Tier 1 common risk-based capital ratio increased from 10.28% to 10.85%. Our capital ratios were also impacted by 30 million shares repurchased at an average price of $6.96 over the last 4 quarters. Let me turn the presentation over to Dan Neumeyer to review credit trends. Dan?

Thanks, Dave. Slide 16 provides an overview of our credit quality trends. Credit quality remained strong in the quarter, although it's modest upward movement in charge-offs and a slight increase in criticized assets. The net charge-off ratio increased to 53 basis points in the quarter. Although it remains within our long term target of 35 to 55 basis points, it is an increase from the prior quarter, which saw charge-off ratio that was actually below the targeted range. The increase was driven by the home equity and Commercial Real Estate portfolios. The home equity increase was due to the recognition of approximately $13 million of Chapter 7 bankruptcy loans that were not identified in the 2012 third quarter implementation of the OCC's regulatory guidance. The Commercial Real Estate increase related to 1 borrower relationship. As I mentioned last quarter, we do expect there to be some quarter-to-quarter volatility but expect to continue to operate within our targeted charge-off range. Loans past due greater than 90 days and still accruing were essentially flat, and at 22 basis points, remain very well-controlled. The nonaccrual loan ratio showed continued improvement in the quarter falling to 0.78% of total loans. The NPA ratio showed similar improvement falling from 95 basis points to 88 basis points. The criticized asset ratio increased slightly from 4.24% to 4.31%. The ALLL and ACL rate to loan ratios fell in the quarter to 1.57% and 1.72% respectively down from 1.76% and 1.86% in the prior quarter reflecting continued asset quality improvement. The ALLL and ACL coverage ratios both remain healthy. Slide 17 shows the trends in our nonperforming assets. The chart on the left demonstrates a continued reduction in our NPAs, falling another 6% in the third quarter. The chart on the right shows the NPA inflows which were up modestly in the quarter to 33 basis points of beginning of period loans. We expect to continue positive trend going forward. Slide 18 provides a reconciliation of our nonperforming asset flows. As mentioned, NPAs fell by 6% in the quarter. While inflows were up modestly over the previous quarter, returns to accruing status, payments and charge-offs combines results in a continuation of our steady reduction in NPAs. Turning to Slide 19. We provide a similar flow analysis of commercial criticized loans. This quarter saw an increase in criticized inflows with the increase due largely to 2 larger unrelated C&I loans that move to criticized status during the quarter. The level of paydowns and criticized loans was also lower in the quarter, which, combined with the increase inflows resulted in the 4% increase. Moving to Slide 20. 30-day commercial loan delinquencies fell noticeably in the third quarter to 47 basis points, the lowest level in 6 quarters. 90-day delinquencies also fell slightly and consist solely of Fidelity-purchased impaired loans which were recorded at fair value upon acquisition and remain in accruing status. Slide 21 outlines consumer loan delinquencies which are in line with expectations. 30 day consumer delinquencies showed a decrease from the second quarter. Home equity and auto delinquencies showed very slight increases while residential exhibited a more substantial decline. 90-day delinquencies remain very well controlled and were flat quarter-over-quarter in all categories except residential real estate, which was up 16 basis points from the prior quarter. Reviewing Slide 22. The loan loss provision of $11.4 million was down from $24.7 million in the prior quarter and was $44.3 million less than net charge-offs. This quarter we introduced an enhanced allowance methodology, which incorporates a more robust commercial risk rating system. The combination of the enhanced methodology along with continued improvement in overall asset quality resulted in a reduction in the ACL-to-loans ratio of 1.72% compared to 1.86% in the prior quarter. The ratio of ACL to nonaccrual loans rose from 214% to 220% due to the reduction in nonperformers. We believe these coverage levels remain adequate and appropriate. In summary, we're very pleased with the quarter's credit results. We remain focused on quality and are disciplined in our new business originations in a very competitive environment. With regard to our metrics, we anticipate the possibility of some continued quarter-to-quarter volatility but expect overall improvement, including lower criticized loans, lower NPAs and charge-offs within our longer-term targets. Let me turn the presentation over to Steve.

Thank you, and good day, everyone. Fair Play banking philosophy, coupled with our Optimal Customer Relationship, or OCR, continues to drive new customer growth and strength in product penetration. This slide recaps, on 23, the continued strong upward trend in consumer checking account households. For the quarter, consumer checking account households grew at an annualized rate of 7% and have increased 9% in the last year. And as we have expected, percentage growth was slowing as the base grows, and we continue to focus our marketing efforts, but the number of new customers each quarter has remained fairly stable at about 25,000 new checking account households per quarter. Since launching this strategy in the middle of 2010, we've increased our consumer checking household base by 37%. At the same time, we've meaningfully increased the number of products and services we provide to these customers. The chart that you're accustomed to seeing is in the appendix, but the broader takeaway is that the strategy is working. Linked quarter revenue experienced some of its normal seasonality and year-over-year revenue was driven by the first quarter posting order change. We are also taking market share and we're increasing share of wallet. The launch of our own consumer credit card this quarter is just one more example of the investments we're making to become the best consumer bank in the Midwest. Now turning to Slide 24. Commercial relationships also grew at an annualized rate of 5% and have increased by 35,000 commercial customers since second quarter of 2010. At the end of the quarter, 37% of our commercial relationships utilized 4 or more products or services. This is a 3% increase from this time last year. The growth with deeper product cross-sell has been a strong revenue engine for Huntington. Commercial revenue of $194 million is up $15 million from the prior quarter as we continue to see commercial activity pick up from below normal levels and our investments are continuing to mature. Again to step back from the quarter-to-quarter noise, commercial-related revenue has increased by over $50 million per quarter or 36% since we began executing our strategy in the middle of 2010. Turning to Slide 25. On expectations, the following is for the next several quarters as we are currently working on the full year 2014 budget. We continue to benefit from the strength in the Midwest and believe our strategies will continue to drive growth. Modest total loan growth is expected to continue and know that we will remain disciplined. C&I pipeline remains robust, and we continue to see increases in customer activity, which as you saw this past quarter, not only helps the balance sheet but also fee income like capital markets, SBA loan sales and other income such as loan and leasing fees. Auto loan originations remain strong and all else being equal, we continue to like this asset relative to securities, given their short duration. 3 1/8 effective yield and very clean credit quality. CRE balances, Commercial Real Estate balances, are stabilizing around the current $5 billion level and all other consumer loan categories should reflect modest growth. With regard to interest rates, while the long end has seen a high level of volatility, the shorter end of the curve remains relatively low, and that's where movement needs to happen if we're going to see an impact on the income statement as our average balance sheet has about a 3-year duration and much of the floating loan portfolio is based on LIBOR. As Dave showed earlier, the low short end debt provides continued opportunity for deposit repricing and mix shift. We do not expect net interest margin for the full year to fall below the mid 3.30%'s as we've said before, but we do expect continued pressure due to competitive loan pricing and growth in investment securities as we prepare for the new liquidity rules. Noninterest income is expected to be relatively stable. The decline in mortgage banking income this quarter was a little sharper than expected, but we've seen a nice pickup in purchase volume, which now accounts for over 50% of total production. We expected continued modest pressure on mortgage income, but the rest of the fee income areas continue to mature and as they nearly did this quarter, should mostly offset these mortgage declines. Noninterest expense had some noise this quarter, but the underlying level was lower than previously estimated as the actions we took helped to reset the bar. From here, noninterest expense is expected to increase slightly due to higher depreciation, personnel occupancy and equipment expense related to our continued modest pace of investments. With the branch consolidations, there's an additional $6 million of related onetime expenses that are expected to happen in the fourth quarter. As part of our focus on continuous improvement, we will continue to evaluate additional cost-save opportunities as we remain committed to positive operating leverage. As we've said in the past, if the revenue doesn't materialize, we will deliver expense saves. On the credit front, NPAs are expected to experience continued improvement. Net charge-offs are in our long-term expected range of 35 to 55 basis points, but provisions are likely to increase, and both are expected to continue to experience volatility, given their absolute low levels. So at this point I'll turn it back over to Todd for Q&A.

Thank you. Operator, we'll now take questions. [Operator Instructions] Thank you.

[Operator Instructions] Your first question comes from line of Erika Najarian from Merrill Lynch.

We hear you loud and clear in terms of your commitment to positive operating leverage and I know you're still in the middle of doing your 2014 budget, but as we think about 2014, should we expect this operating leverage progress to continue to widen positively? And should we expect that most of this is coming through the revenue side rather than the expense side?

We are very cognizant of a desire or need to improve our efficiency ratio and, therefore, deliver operating leverage. We're -- it's just premature to comment with specificity about how that will happen as we go forward. And so we're going to defer that until we complete the 2014 budget at this point, Erika.

Okay, and my follow-up question to that is, your tone on loan growth has been more upbeat than the tone we've heard over the past few days from other regional banks. Could you give us a little bit more color in terms of the market share dynamics that are going on in your marketplace?

Well, it's very competitive and that competition is reflected in pricing and structure. But as we've shown with our Automobile lending in particular, but have suggested across the board, we remain very disciplined. We have, on the C&I side on spot balances, had good growth quarter end to quarter end, and that's consistent with normal summer seasonality. So a nice pickup at quarter end. And we're sitting with a strong pipeline at this point on the commercial side. Some of that is attributable to the specialty banking groups that were formed over the last several years. Remember, we created 3 just late in the fourth quarter of last year that are starting to hit stride. Those 3 are food and agricultural lending, international and energy. And so our specialized areas are coming into a more mature phase, and that's helping deliver volume.

Your next question comes from the line of Ken Zerbe from Morgan Stanley.

First question, in terms of auto, the Morgan Stanley auto team has been fairly negative on what they're seeing in terms of aggressive underwriting practices in the -- across all the auto lenders. Could you just talk a little bit about what you're seeing? Is that a fair assessment just in terms of the aggressiveness of terms in auto?

Well our auto's clearly gotten more aggressive over the last couple of years. We shared with you our quarterly production, and so you can see the book is -- what we're doing is very consistent quarter-over-quarter, year-over-year. FICO scores are actually up a little bit this quarter. And we're a super prime type -- a prime super prime type of originator, and we don't plan to change that. So some of the reported challenges are emerging in the subprime space. Dan, what would you like to add to that?

Yes, Ken, this is Dan. I think our FICO scores remain very high, actually a little bit higher this quarter on average, and that includes in all of our newer markets where we have expanded. We have had as good or better FICO scores, the average LTVs are very strong. And when you look at the performance metrics, delinquencies are very, very well controlled. So we're really pleased with what we're adding to the book quarter after quarter.

All right, okay, that helps. And then from my completely unrelated follow-up question, when we think about buybacks, obviously, it's a lot slower this quarter. Is there any chance that you guys don't complete the $130 million-plus remaining authorization this year, or should we expect that to happen by first quarter?

Well, we've said we're going to be disciplined in our repurchase and we'll continue to be so. It's hard to speculate. We're not going to speculate as to whether we fulfill all of it or how much at this point, Ken.

Your next question comes from the line of Ken Usdin from Jefferies.

Just a follow-on on loan growth and auto specifically, the proportion of the book from auto has gotten bigger now, especially that you've been retaining. And I understanding your point that you don't anticipate doing future securitizations, can you talk about the dynamics of whole versus self? And if there's any change to your comfort level on allowing that auto proportion to grow as a percentage of the book?

This is Dan. I think, for now, we like the asset and like it versus our other options. And as we've said before, we do monitor this portfolio based on percentage of total loans, as well as a percentage of capital. We still have continued room there. And so for the time being, we like it, and we're going to continue to originate and keep on balance sheet. And as conditions change, we'll look at changing that viewpoint, but for now, that's where we're going to be.

We've said all along that we're in different -- when we originate, we're prepared to hold or securitize. So we're not trying to adjust credit underwriting depending on the holder of the asset.

Yes, okay, my second follow-up here, just a bigger picture question on operating leverage. Understanding that you're going to come back to us after budgeting, but just -- you held the line reasonably well on operating leverage this year. Just conceptually though, and especially now with this extra charge taken this quarter which presumably will have some help to expenses too, do we see a better gap next year, just all things equal between revenues and expenses, again, without having to rely on what happens with revenue to change your view of expense growth? But just, Steve, just from a big picture's perspective, how does the outlook for broader operating leverage look as it stands now?

Well, you answered the question at the outset with it's -- you're not complete with your 2014 budget. So it would be premature for me to go beyond where we -- what we've commented on so far, Ken. It's -- again, we're highly focused on the efficiency ratio, very cognizant of driving that to a better level, and we're going to do that through operating leverage and our continuous improvement program that we started 1.5 years ago. Things are happening and getting translated. We had an expense reset coming, if you will, off the onetime charges reflected in the third quarter, $6 million of which get carried into the fourth quarter so that will provide some benefit as we go forward.

Can you at least try to quantify that for us like the benefit that you get off of these 2 quarters of charges?

We're not prepared to do that at the moment. We will be back. Dave, is there anything you want to add?

Yes, I just like to add that if you look at our baseline NIE or net interest expense and quarterly it's about $440 million, and that's what we're kind of -- we're looking at this point as our base. Steve did mention that we have an additional $6 million in charges for onetime related to the branch consolidations in the fourth quarter. But that's kind of what we're looking at from a baseline perspective. And that's down from $450 million or $50 million so...

So that should give you some help in terms of modeling as you think about us next year.

Your next question comes from Keith Murray from ISI.

Could you just touch on Commercial Real Estate for a second? You mentioned the balance is stabilizing at around the $5-billion-or-so level. What kind of pipeline are you guys looking at and sort of what's the mix of new deals that you're seeing?

Well, there's a weekly review of pipeline that we do for all of our areas. It's part of the sales management, again, weekly process. Dan, do you want to comment further on the pipeline?

Yes, I think the pipeline is growing and I think it's a good mix of -- we've got multi-family, we've got retail. We've got a REIT group that is quite active. So we like what we're seeing. And we think that we're going to be able to originate really high-quality assets and still kind of maintain the level where we want to be, which is right around the 100% of capital or in that $5 billion range.

The primary flavors, so that's retail, industrial, multi and a little bit of office. It's not overly weighted in any one of those.

And just on the Camco deal, it's not a huge deal, obviously, but from a M&A perspective and the regulatory thoughts around that for the fact that you guys will be a CCAR bank this year, you got the green light to do this, do you think the regulators were loosening the reins at all on M&A for banks?

Well, it's hard to -- we're not in a position to talk about what they're doing generally, but as we've said over the years, in footprint on average, $500 million and $2.5 billion, good returns to our shareholders and understanding the risks involved, that we'd be prepared to acquire and this one met all the categories. So we think this is a nice deal for us, accretive in the first full year and helps us in both new market expansion a bit on the east side of Ohio, as well as gives us some opportunities to consolidate it and build our deposit base on the west side of Ohio.

Your next question comes from the line of Craig Siegenthaler from Crédit Suisse. Craig Siegenthaler - Crédit Suisse AG, Research Division: So in the back on Slide 68, you actually provided an update on the in-store buildout, and it shows 11 new openings in 2014. And also the targeted break-even level is now 2 to 2.5 years. I think these are both revised upwards. I thought the old count was 4 branches next year and also you're profitable at 24 months. So I was just wondering if you could comment on the change and if there was a change, talk about the drivers there.

The branch count is, in part, a function of store availability. We've got commitments, Craig, to file them. Sometimes the store owners will make adjustments to their plans, remodeling or other things, and then we have moved the breakeven, we set a target of breakeven between 18 and 24 months. We've moved it out a bit, and that's just a function of in this lower rate environment, lower FTP contributions assigned to -- on the deposit side. The underlying dynamics in terms of new accounts opened in the in-stores versus the other channels continues to be strong and in line with prior quarters. It's a function of us sort of -- again, in the budget process, looking forward, and in this case resetting a bit. We moved it out a quarter. Craig Siegenthaler - Crédit Suisse AG, Research Division: And then just a follow-up, I heard some commentary around you're increasing your securities portfolio composition to prepare for the new liquidity rules. Can you give us some color on what the objective is here and what the changes you need to make really are?

Yes, this is Dave. We believe we're going to need to hold additional securities and at this point we're planning on purchasing additional Ginnie Mae securities so that will help meet that requirement. Obviously, the rules are not final, but based upon our interpretation at this point, we believe in 2014, it will start to add to that portfolio. That will be in loans held for sale -- I mean, investments held to maturity, I'm sorry, as opposed to available for sale.

Craig, we're flagging it now because we've been expecting these regs any day, and currently, believe roughly at end of month. So that's why the timing on the comment.

And your next question comes from the line of Scott Siefers from Sandler O'Neill. R. Scott Siefers - Sandler O'Neill + Partners, L.P., Research Division: I guess, I wanted to -- I guess sort of follow-up on that last question on the branches. Steve, I was hoping you could maybe just update us sort of qualitatively with how you're thinking about the branch footprint. I mean, obviously you guys have undergone probably a bit more of a transformation in the last few years than others just with the heavier in-store piece. But I guess, on a net basis, I've tended to think of you guys more in kind of expansion mode over the last few years as opposed to most in the industry, which are cutting back more materially. So I think this quarter is at least the first in a while, I believe, that you had enough of closure to necessitate a special charge. So just curious about how you're thinking about the branch network overall and where you see things playing out over the next couple of years.

Well, we continue to prune our distribution like any good retailer. We think it was 2 years ago there were 29 branches, Scott, just as a point of reference, so this is not a high watermark for us. Year-over-year, we will have net 32 incremental branches so that -- to dimension it. And we have further buildout commitments on the in-stores. We are seeing transactional behavioral shifts benefiting the in-stores just because of the extended hours and 7-day-a-week program. So on average, we're seeing our teller transactions continue to increase a bit, but more of that flowing into the in-store network again because of the convenience supplied. So those in-stores are meant to be sales and service, and as the transaction -- as the flow of our customers migrates, that may give us further opportunities in the future. But we'll look at repositioning the franchise over time based on lease roles and other things to -- and some of it will be in-store, some of it will be consolidations and some level of de novo branching as we've done before.

Your next question comes from the line of Steven Alexopoulos from JPMorgan. Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division: Just regarding the commitment to cut expenses of revenue didn't materialize, what are the levers that you're most likely to pull if you had to cut expenses in short order? Is it comp, is it marketing?

We haven't committed to where we will go, but you've touched 2 of the areas that would generally be more readily available. So comp-related, not necessarily FTE, but it could include FTE. And when I say related, I mean, commissions and incentives and benefits and other things. And we had to do that in 2009. So there is some history of responding quickly. We don't anticipate that and -- but there are other categories. Marketing, we view as an investment, so while it's available to us, it does have implications around longer-term growth and positioning of the brand. So we'll be thoughtful about where we'll -- what we cut, but we do have a process of having contingent plans routinely available and updated so that if we need to make adjustments, we can do so timely. Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division: That's helpful. And if I could follow up, Steve, if I look at Slides 22 and 23, which each showed really strong growth in the number of consumer and commercial relationships, and you're getting better product penetration, if we look at year-to-date, trends from a high level, why are these not translating into stronger revenue growth?

Well, in the year-to-date, remember, we started in the first quarter with $25 million to $30 million adjustment to overdraft related income by changing our posting order. And so we have to come through that in terms of getting that overall contribution. When you look at electronic banking, some of the trust and investment revenue line items, you are seeing some levels of growth translated from this increase in customer base and penetration. The consumer side, it's a game of inches, and so we're looking for steady progress on share of wallet, on share of market, and frankly, on revenue. And we had some level of revenue give up in the past like Durbin, Reg E, et cetera, that masks what would be aggregate contribution, pre-regulatory or other impacts. Commercial, if you look at that, is -- which has not had any adjustments this year, is at a new high and that one has translated more cleanly for us. Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division: So is it safe to say you expect more revenue momentum carrying into next year, which I think is why you're getting all these questions on positive operating leverage.

Yes. We do have -- we do expect revenue momentum from the cross-sell on the base.

Your next question comes from the line of Bob Ramsey from FBR Capital Markets. Bob Ramsey - FBR Capital Markets & Co., Research Division: Just sort of following along that line, yes, I know you all highlighted that you have particularly strong commercial loan fee-related activity. How much of that is related to the commercial relationship growth that you sort of highlighted on Slide 24, and how much might have been just sort of normal volatility, and it was a good quarter?

I don't -- have we broken this out? I don't believe we've broken... Bob Ramsey - FBR Capital Markets & Co., Research Division: It's part of the other line. I think you highlighted it as the big driver of the increase, but you didn't exactly quantify it.

Well, we haven't in the past been quantified, and we don't think of it, per se, as new versus existing customers because we have existing customers that will do FX trades or reposition derivatives or expand their treasury management and that's sort of routine in the commercial area. There's an element of activity that's tied to new customers, but it's not exclusive. And depending on syndication and other -- there are a variety of factors that contribute to that fee income line. And so it's not -- we haven't split it between new versus existing portfolio in the past. And we measure each new relationship and the contribution and the sources of it, but as we measure the pipelines, a lot of our capital markets activity flows through existing customers. Bob Ramsey - FBR Capital Markets & Co., Research Division: Okay, I guess, maybe if I ask in a little bit different way, as I think about that other income line, is this a level that you guys think it will build from or is this sort of a really good quarter, and you would expect it to go back to something closer to, I don't know, maybe an average of the first 3 quarters of this year or something like that?

Well, the first half of the year was very slow. And always from the outset of the, you'd thought, second half would be stronger than the first half. Third quarter was a strong quarter for us but as we come into the fourth quarter, we've got a good pipeline as we've said on the call. And we have to translate that and we're optimistic that, that will translate in the fourth quarter. Bob Ramsey - FBR Capital Markets & Co., Research Division: Okay, great. And then one other question sort of shifting gears, I know you all said that you have no near-term plans for auto securitization. I was just wondering if you could talk a little bit about the factors behind that decision. Is it a reflection of where market pricing is? Is it a question of the fact you'd rather have those assets on your balance sheet today, or how do you evaluate and make that decision?

We've looked at the trade-off between alternative investments, duration and OCI risk, with an outlook of an increasing rate environment. So there's both a liquidity and capital component to that, as well as the income trade-off. And we did not think in the first half of the year, and continue to believe, that it's a good trade-off to securitize versus hold those assets. So we're currently planning to hold through this year and as we give further guidance on '14, we'll update that. But we have a concentration limit in place that would allow us, if we chose to, to continue to hold through most of, if not all of '14. Bob Ramsey - FBR Capital Markets & Co., Research Division: And remind me what that concentration limit is.

It's about 20% of total loans and about 125% of capital.

Your next question comes from the line of Jon Arfstrom from RBC Capital Markets.

Dan, a question for you. Can you maybe touch on the methodology enhancements that you talked about and what change in terms of your approach and what it might mean going forward?

Yes, and so -- and I think that the word, "enhancement" is deliberate because this was not a wholesale change in methodology. It was just improving our commercial risk rating system, which now provides for greater granularity, a wider distribution of probability default and loss given default. And just a very minor adjustment in our general reserve with how we're looking at economic and the risk profile portions of that reserve. So nothing -- no major changes. We just think it's just more focused. And I don't think long term, it is going to -- we think it's going to be more accurate and better, but we don't see any substantive changes. The reflection of the ACL coming down this quarter, that was going to come down based on improving credit quality, whether or not we enhance the methodology or not. But I think we have just -- the geography of some of the numbers changed a bit, but overall very much in line with where we've been and on a go-forward basis, maybe some better predictability, but nothing major.

Okay, that helps. And then Steve, I know it's early, but can you just comment on how the consumer card launch has gone?

Well, the card was designed for customers, so it's not a broadly marketed card. It's off to a good start, but it is very early. We're ahead of where we thought we'd be at this point. But again it's 1.5 months or so.

Your next question comes from the line of Chris Mutascio from KBW. Christopher M. Mutascio - Keefe, Bruyette, & Woods, Inc., Research Division: I want to kind of piggyback on the reserve question. You've got preface the question knowing that credit quality is actually quite good, so I don't want to take it the wrong way, but I'm trying to think of it in terms of going forward in reserve releases. And Dan, I'm looking at some of the numbers. So your criticized assets, you're up some -- your criticized inflows are up for 4 consecutive quarters it looks like, net charge-offs were up and NPA inflows were up. All off of low levels, I understand that. But the reserves came down by 20 basis points, which was probably the largest reserve release you had in a year. So what credit measure supersedes those inflow numbers that allows for the reserve release to this magnitude? Is it simply just a delinquency number that are improving?

No, well, I think, generally speaking, I think all of the numbers are improving. And when you look at -- you can't take any specific number in any given quarter and look at it. You have to look at the trends over time. And we've had a few quarters where inflows have either criticized or NPAs have gone up but generally speaking, those have not been the beginning of trends, and you also have to look at the other components of those flows and how many payments are we getting, how many sales, what are we charging of, what's getting upgraded, et cetera. So when you look at our reserve releases, they've actually been very much in line with the reductions from quarter-to-quarter in the major metrics, whether it's charge-offs, criticized, classified, NPAs, et cetera. And we -- delinquencies have been very well-controlled. That's obviously the major forward-looking indicator. So I think on the whole, I think the reserve releases and the reduction in the allowance have been very much in line with the asset quality metrics that we look at. Christopher M. Mutascio - Keefe, Bruyette, & Woods, Inc., Research Division: And if I can follow up then, then when do you get concerned -- at what level do you get concerned on the criticized inflows, I mean, they've gone from $218 million to $328 million in the last 5 quarters. At what time does that start becoming a trend?

Yes, well, look at -- we look very specifically beyond what is that inflow comprised of, is it broad-based? This quarter, we had 2 larger transactions that made up the majority of the increase over last quarter. So when we look at specifics, what's happening? How do we feel about those credits? That's a different analysis than periods of time where we see very broad-based early-stage migrations and we don't feel that we have that going on here. And so the analysis is done quarterly, and it's at a very granular level. So we feel comfortable in our numbers.

Your next question comes from the line of Andrew Marquardt from Evercore.

I just wanted to follow up on credit quality, and can you guys just help me understand the home equity related losses from Chapter 7 from a year ago kind of the OCC regulatory guidance that was included for $13 million? How did that come up?

Yes, and so during our review of the consumer portfolio this quarter, we recognized that there was a population, this 13 million, that should have been picked up and dealt with a year ago. Those regulations came towards the end of the quarter. We had to quickly make that assessment and there were -- some of these loans that should have been coded as non-reaffirmed Chapter 7s were not identified at that time. They were picked up this quarter and dealt with.

Okay, so that's a onetime thing.

Yes.

And that's not related to the tweaking or kind of the enhancement of the reserve methodology?

No, absolutely not.

Only separate?

Yes.

The methodology -- to be clear, the methodology was commercial and it dealt with the risk rating system change that began in 2011. We've been doing a lot of work for a couple of years on this to implement it. And then the general reserve, it had nothing to do with the consumer reserve.

Great, that's helpful. And then lastly, in terms of fees, deposit service fees and a nice step up this quarter, and one of the things you had mentioned in the press release at least was a -- part of that obviously is ongoing consumer household build, but also consumer behavior changes and usage. Can you expand on what it is that you're seeing there?

Throughout this year, we've seen a lot more debit card transaction volume off the same base than we had anticipated. And it looks like the consumers are spending again, so that the average tickets have changed, and that has balance implications and other things. So it's an indicator that the -- of consumer confidence and progress through the recovery. And so that's -- it's -- that's what we're implying.

And your final question comes from line of Terry McEvoy from Oppenheimer. Terence J. McEvoy - Oppenheimer & Co. Inc., Research Division: Just a follow-up question on OCR. Each quarter, you give us a number of households with 6-plus products and services. And with 20 -- maybe 21 now if you include the credit cards products out there, how do you think about the mix of those products and services, some I'm guessing are more profitable from your perspective and stickier than others? And have you been able to improve that mix and can that drive some growth going forward, assuming that, that it is correct?

So, Terry, we watch the mix and what's going on with it. Some of the cross-sell menu items are revenue-related, others are expense-related. So online statements, things like that, what we're trying to both drive revenue and lower cost of servicing. And we're continuing to make progress. We also, I think earlier this year, talked about a new incentive system that has more variability and it gives us more capability to adjust our targeting than we had in the past. And we would expect to do that to enhance the performance, both of revenue and expense on the consumer side of the OCR process going forward. Terence J. McEvoy - Oppenheimer & Co. Inc., Research Division: And just a follow-up, if you look at the FDIC data that recently came out, are you satisfied with your -- I think you call it your welcome culture and how that translated into certain market share gains and do you think the strategy was justified in terms of what we saw in the FDIC numbers?

Well, the FDIC we don't actually spend a lot of time, spot in time, there's some window dressing that occurs around it. It doesn't reflect mix. So for us, we've been shifting the mix quite a bit from CD to other low-cost, no-cost. Also collateralized to government or commercial to non-collateralized. So we -- again, don't put a lot of weight into it. So it's not something we actually sit down and say we're pleased or other feeling, otherwise about it. We'll continue to adjust the mix as we go forward. Dave's comments reflected that. We've had CD maturities of a little over $3 billion over the next year at more than 1%. And that will be part of how we attempt to mitigate the pricing pressure on the asset side as it has been in the past. So let me wrap up. Grateful for the interesting questions. The third quarter from our perspective was a solid quarter. We delivered positive operating leverage for the first 9 months, a commitment we made at the beginning of the year. Revenue from the -- our investments and everyday blocking and tackling has allowed us to offset some headwinds for the mortgage market and certainly the yield curve. We've taken meaningful actions to reset the bar on expenses, and while we continue to modestly invest, we understand the need to improve our overall efficiency ratio. The consumer commercial relationships continue to grow, cross-sell continues to get better and compared to the first half, customer activity has improved in the third quarter, and we believe will in the fourth as well. We've positioned ourselves to be able to grow the balance sheet, and above all else, we will remain disciplined in the use of our capital and deliver appropriate returns. So thanks for your interest in Huntington today, and have a great day.

Ladies and gentlemen, thank you for your participation. This concludes today's conference call, and you may now disconnect.