Huntington Bancshares Incorporated (HBAN) Q4 2014 Earnings Report, Transcript and Summary

Good morning. My name is Anastasia and I will be your conference operator today. At this time I would like to welcome everyone to the Huntington Bancshares’ Fourth 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. Todd Beekman, Director of Investor Relations, you may begin your conference.

Thank you, Anastasia and welcome. I’m Todd Beekman the Managing Director of Strategy and Investor Relations for Huntington. Copies of the slides that we will be reviewing can be found on our website at huntington.com. This call is being recorded and will be available as a rebroadcast starting about an hour after the close of the call. Slides two and three have several aspects, 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 comparable GAAP financial measures and a reconciliation to comparable GAAP financial measures within the presentation, initial earnings-related material we released this morning and related 8-K filed today, all of which can be found on our website. Turning to slide four, 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, material filed with the SEC including our most recent 10-K, 10-Q and 8-K filings. As noted on slide five, presenters today are Steve Steinour, Chairman, President and CEO and Mac McCullough, Chief Financial Officer. Dan Neumeyer, Chief Credit Officer will also participate in Q&A portion of the call. Let’s get started by turning to slide six. Steve?

Thanks Todd. I’d like to thank everyone on the call for joining us today. At Huntington, we enjoy a unique and advantaged position in the industry and we believe our future is bright. We’re focused on executing our strategic plan and we’re very pleased with results we are achieving. For the past several years, we’ve invested in the company at a time when most of the industry’s been pulling back. We’ve expanded and optimized our distribution, both physical and digital. We’ve invested in small business and commercial specialty lending verticals. We’ve added new products such as our consumer and commercial credit cards and our new business in consumer checking accounts. And each represents just a handful of the investments we’ve made. Our 2014 earnings reflected results from these investments, yet significant opportunity remains as none of these investments are mature. We have a strong outlook for the future. Slides six and seven show some of the financial highlights of the full year and the fourth quarter. Mac will go through more of the detail shortly, but I wanted to highlight a few of these items that I believe distinguish Huntington and illustrate our strategic execution. Huntington had a solid year in 2014, reporting net income of $632 million or $0.72 per common share while absorbing $0.06 per share of significant items. Return on assets for the year was 1.01% and the return on common tangible equity was 11.8%. Underlying fundamental trends were somewhat obscured by a net $75 million of significant items over the two years specifically. In 2014, results were negatively impacted by a net $65 million of significant items, while 2013 results benefited from a net $10 million of significant items. So, these significant items were largely related to two acquisitions and other strategic decisions that we believe would better position franchise for improved efficiency and profitability going forward. There are additional details regarding significant items on slides 22 and 23. For the full year, we reported a $3.6 billion or 9% in average loans and leases. Revenues increased to $100 million or 4% in 2014. Importantly, we delivered positive operating leverage for the second year in a row, a commitment we have renewed for 2015 and in fact installed in our updated long term financial goals. We continue to post industry leading customer acquisition rates with 10% growth in consumer checking households and 3% growth in commercial relationships over the past year. Now, with respect to the commercial growth rate, like to remind you that early in 2014, we implemented some changes to our business banking products which caused approximately 10,000 lower balance accounts to be closed over the course of the year. So, the underlying core fundamentals were actually much stronger. We also continued to sell deeper across both our consumer and commercial relationships. So, almost half of our consumer relationships now have six or more products and services from Huntington while 42% of the commercial relationships have a cross-sell of 4% or higher. Fourth quarter net income of $164 million represented a 3% year-over-year increase while EPS of $0.19 was a penny higher than the year ago quarter. Return on assets for the fourth quarter 1% and return on tangible common equity was 11.9%. The 2014 fourth quarter included $20 million of significant items while the year ago quarter included $7 million of significant items. Total revenues for the fourth quarter increased $25 million or 4% from the year ago quarter, despite a $10 million headwind in mortgage banking income. A 10% increase in net interest income drove the overall revenue growth as a 13% increase in average earning assets more than offset continued pressure on the net interest margin. Our NIM decreased 10 basis points year-over-year but only 2 basis points from the third quarter. We remain focused on minimizing this net interest margin compression to disciplined pricing of loans in the face of increasing competition for quality loans in our markets and through continued improvement in our funding mix via our focus on core checking account, relationship growth and balance growth. While there is limited opportunity remaining in terms of the positive pricing levers, we still have significant opportunity remaining to increase non-interest bearing deposits and further improve our funding mix. The increase in our securities portfolio related to compliance with the Basel III liquidity coverage rules -- ratio rules has also negatively impacted our margin. And we expect additional further pressure as we continue to add approximately $1 billion incremental assets to the portfolio in 2015. We continue to enjoy improvements in our credit quality. We stated last quarter that we expect credit metrics will begin to stabilize given where we are in the credit cycle but this quarter exhibited particularly strong credit performance. Net charge-offs in the fourth quarter were 20 basis points, bringing net charge-offs for the full year to 27 basis points, both well below our long-term target of 35 basis points to 55 basis points. This quarter’s net charge-offs benefited from some large recoveries within our C&I book as well as net recoveries in our commercial real estate portfolio. I should add, for the fifth consecutive quarter. Capital rations remained strong. We continue to be good stewards of shareholder capital via disciplined balance sheet growth and capital return. At the end of the year, tangible common equity ratio was 8.17%, down 65 basis points from a year ago and 18 basis points from the last quarter. Tier 1 common risk-based capital ratio was 10.23%, down 67 basis points year-over-year and 8 basis points sequentially. Despite these declines, tangible book value per share increased 6% year-over-year to $6.62 due to our share repurchase program. For the full year, we repurchased almost 36 million shares at an average cost of $9.37 per share. During 2014, we returned approximately 84% of earnings to common shareholders to the combination of dividend and buyback. Just to repeat, approximately 84% of earnings to common shareholders to the combination of dividend and buyback. During the fourth quarter, our cash dividend increased to 20% and we repurchased 3.6 million shares. We have approximately $52 million of remaining share repurchase capacity through the end of the 2015 first quarter and we intend to complete this authorization. Slide eight has a few additional highlights for the fourth quarter. First, as we continue optimize distribution to better reflect changes in customer behavior, we completed the consolidation of 26 branches at year end. We introduced our new Huntington 5 and Huntington 25 checking account products, as we continue to improve customer choice and value related to our industry leading checking account products. Once again Huntington was recognized for our superior customer service, this time honored as the highest ranking in customer satisfaction with small business banking in the Midwest region by J.D. Power. And finally, in December, we disclosed our new long-term through the cycle financial goals. You will not see what we consider material changes from our prior goals but rather refine them as we reexamine the franchise and banking environment. We have replaced our former ROA target with the goal of return on tangible common equity in order to bring focus on this measure of profitability while closely aligned with value creation for our shareholders. There is a slight increase in our efficiency ratio from the prior mid-50s level which is an acknowledgement of the higher inherent cost of today’s banking industry from increased regulatory burdens. Last, you will see that a new goal is positive operating leverage annually. We’re committed to and delivered positive operating leverage in each of the past two years; we’re committed to delivering positive operating leverage again in 2015. And this new goal formerly recognized as this is an integral for the company going forward. So, with that let me turn it over to Mac for a more detailed review of the numbers. Mac?

Thanks Steve and good morning everyone. Slide nine is a summary of our quarterly trends and key performance metrics. Steve already touched on several of these, so let’s move on to slide 10 and drill into the underlying details. Relative to last year’s fourth quarter, total revenue increased $25 million or 4% to $714 million. Spread revenue accounted for the entire increase as net interest income grew 10%. Driving net interest income growth was a $7 billion or 13% increase in average earning assets. Loans made up $4 billion of the increase with the remainder of the growth in the securities portfolio including $1.3 billion of direct purchase municipal instruments originated by our commercial lending teams. The net interest margin declined 10 basis points year-over-year to 3.18% in the fourth quarter of 2014. This decrease reflected a 17 basis-point contraction in earning asset yields including 4 basis points related to the increase in the size of the securities portfolio as we prepare for the upcoming Basel III liquidity coverage ratio requirement and a 3 basis-point decline in the benefit from the non-interest bearing funds. These reductions were partially offset by 10 basis points of improvement in funding costs. On a linked quarter basis, the net interest margin compressed 2 basis points exclusively related to declining earning asset yields. Fourth quarter fee income of $233 million which represented a $17 million or 7% decline from the year ago quarter. Lower mortgage banking income accounted for $10 million of the decline while the remainder of the decrease primarily related to lower fees associated with commercial customer activity in the other income line. Negative impacts to fee income during the fourth quarter included $6 million of net MSR hedging related activity and a full quarter’s impact of July’s changes to our consumer deposit accounts which were previously estimated as $5 million per quarter. On a positive note, we continue to see the benefits of consumer and commercial customer growth with both electronic banking and capital markets revenue increasing more than 10% year-over-year. Reported non-interest expense in the fourth quarter was $483 million, an increase of $37 million or 8% from a year ago quarter. The current quarter included two significant items impacting non-interest expense. You might want to refer to table two in the press release or page 22 of the presentation as I walk through these items. First, we incurred $9 million of franchise repositioning expense related to the consolidation of 26 branches at year-end and other organizational actions announced last year; second, we had a $12 million addition to the litigation reserve. After adjusting for significant items, non-interest expense increased $24 million or 5% from a year ago quarter. Of this increase, $4 million related to the incremental impacts from the Camco acquisition and the Bank of America branch transaction. Other contributing factors included an increase in healthcare cost, higher professional service expense and higher equipment expense related to technology investments. Table eight and nine in the press release provide more detail related to non-interest expense. Compared to the third quarter and also adjusting for significant items in both quarters, adjusted expenses increased $5 million. The primary drivers of the linked quarter increase were higher healthcare cost and professional services expense. Slide 11 displays the trends in our earning asset mix, net interest income and net interest margin. As I mentioned earlier, average loans increased $4 billion or 9% year-over-year. The indirect auto and commercial and industrial or C&I accounted for more than $3 billion of this loan growth, although we experienced growth in every portfolio. The indirect auto loan portfolio increased $2 or 31% from a year ago quarter as originations remain strong and we continue to portfolio all of our production. As shown on slide 54 in the appendix, we continue to focus on the super prime space and have not sacrificed credit quality to drive volume. In addition, we continue to drive improvements in pricing. On last quarter’s earnings call, we announced that we achieved price increases late in the quarter. Earlier this month we raised pricing again. As a result, new money yields averaged 3.08% during the fourth quarter and more recently, new money yields have been in the 3.10%. We continue to expect two auto loan securitizations during 2015 as we manage loan concentrations. Average C&I loans increased more than $1 billion or 7% year-over-year, primarily reflecting trade finance in support of our middle market and corporate banking customers. The chart on the left side shows the net interest margin trend which we previously discussed. Turning to slide 12, the right side of this slide shows quarterly trends in our deposit mix and average cost of deposits, while the left side illustrates the maturity schedule of our CD book. Average core deposits in the 2014 fourth quarter increased $2.9 billion or 6% year-over-year. This increase benefited from $1.1 billion of core deposits acquired in the Camco acquisition and the Bank of America branch transaction. We remain focused on remixing our deposit base by increasing low cost core deposits while reducing our dependence on higher cost CDs. Average non-interest bearing demand deposits increased $1.8 billion or 14% as compared to the 2013 fourth quarter, while average money market deposits increased $1.6 billion or 9%. Growth in these categories more than offset the intentional $0.9 billion or 22% decline in average core certificates of deposit. As show in the chart on the left side of the slide, the opportunity to reduce CD cost has diminished but remained focused on the opportunity to drive further improvement in the mix. There are two pieces of funding mix dynamic that you do not see on the slide. First, average short and long-term borrowings increased $2.9 billion or 78% year-over-year which includes $1.25 billion of bank debt issued during 2014. Second, average broker deposits increased $1 billion or 74% from the 2013 fourth quarter. Both of these funding sources provide a cost efficient means for funding balance sheet growth including LCR related securities growth while maintaining an intense focus on managing our core deposit expense. Slide 13 shows the trends in our capital ratios. We remain well capitalized with reductions in our capital ratios throughout 2014 being driven by robust balance sheet growth as well as our active capital management strategies. We repurchased $334 million of our common stock over the course of the year including $35 million during the fourth quarter. At year-end, we had approximately $53 million of capacity remaining under our share repurchase authorization which we intend to complete in the first quarter of 2015. Slide 14 provides an overview of our credit quality trends. Credit performance remains quite strong and in line with our expectations. Net charge-offs decreased to 20 26 basis points in the fourth quarter, an improvement over both the prior and year ago quarters and well below our long-term expectation of 35 basis points to 55 basis points. Net charge-offs this quarter benefited from the fifth consecutive quarter of net recoveries within our commercial real estate portfolio as well as a couple large recoveries within the C&I book. Non-performing assets and non-performing loans also posted continued improvement. The allowance for credit losses eased modestly consistent with the improvements in the overall portfolio. Criticized assets represented one of the few credit metrics that increased sequentially with about half of the increase due to two large unrelated credits that moved into special mention this quarter. Slide 15 shows the trends in our non-performing assets. The charts on the left demonstrate continued improvement, albeit at a reduced rate. The charts on the right show the NPA inflows which also improved modestly from the prior quarter. Turning to slide 16, the loan loss provision decreased to $2.4 million in the fourth quarter, reflecting primarily continued improvement within the commercial real estate portfolio. The allowance-to-loan ratio decreased to 1.40%, down 7 basis points sequentially and 25 basis points year-over-year. The ratio of allowance to non-accrual loans improved to 222% up slightly from the prior quarter and roughly in line with the year ago. We believe the allowance is appropriate and reflects the continued improvement in the underlying credit quality of our loan portfolio. Let me now turn the presentation back over to Steve.

Thank you, Mac. Turning to slide 17, as I alluded to in my opening remarks, our fair play banking philosophy, coupled with our optimal customer relationship or OCR continues to drive new customer growth and improved product penetration. This slide illustrates the continued upward trend in consumer checking account households. And over the last year, consumer checking account households grew by 129,000 households or 10%. And the fourth quarter was relatively unchanged from the prior quarter due to seasonality, costumer activity and a reduction of our marketing programs made earlier in the year. If we exclude the impact of the Camco and Bank of America branch acquisitions, organic growth in consumer checking households was a healthy 6% for the year. Our strategy is not just about market share gains but also gains in share of wallet. We continue to focus on increasing the number of products and services we provide to the customers knowing that this will translate into revenue growth. Our OCR cross-sell goal of six or more products and services improved to almost 50% in our consumer account households this quarter, up more than 174 basis points from a year ago. Correspondingly, our consumer checking account household revenue for the fourth quarter is up 12% year-over-year. You can see on slide 18, commercial relationship growth has returned as we’ve worked through the impact to the changes made in our business banking checking products that impacted a number of lower balance accounts. Commercial relationships increased 3% year-over-year. Excluding the impacts of the Camco and Bank of America branch acquisitions, organic growth in commercial relationships was 2% for the year. Our former product OCR cross-sell for commercial relationships improved almost 42% this quarter, up more than 4% from a year ago. Commercial relationship revenue for the fourth quarter grew 12% year-over-year. Slide 19 shows that we once again delivered on our commitment for positive operating leverage for the full year 2014. We’re recommitted to delivering positive operating leverage for the full year 2015. And as I noted earlier, positive operating leverage is now long-term goal for the company. Turning to slide 20 for some closing remarks and expectations. As we enter 2015, we’re bullish on the economy and our footprint, particularly for consumers with home prices rebounding, at least a near term opportunity for additional mortgage refinancing and the benefit as the dramatic recent decline in energy cost just starting to be appreciated. State governments in our footprint are all operating with surpluses and most municipalities are on solid footing. Automobile sales were very strong last year and appear poised for another great if not even better year 2015. Our loan pipelines are stable; they are consistent with fourth quarter. And we remain optimistic regarding the outlook for continued growth. We’ll continue to reinvest cash flows of approximately $100 million to $125 million per month from existing investment securities into LCR-compliant, high-quality liquid assets. In addition, we expect to add another $1 billion of additional level one HQLA as we prepare for LCR. Our portion of portion of the commercial team’s production also will continue to be placed in the securities book. We expect NIM pressure will remain a headwind until interest rates start moving back up but we expect to grow revenue despite this pressure. We are maintaining our pricing discipline. We continue to monitor the securitization market and will look to use it as a tool to manage our overall concentration of indirect auto loans. We expect to do two securitizations in 2015. We will continue to invest in the franchise with expected expense growth of 2% to 4% for the full year. Excluding significant items if any and net MSR activity, we’re committed to positive operating leverage on an annual basis which means revenue growth exceeding expense growth. We will grow revenues in ‘15, both fee and net interest income. We will not change our underwriting standards. We are long-term shareholders in management and at the board level. I’m pleased to report we’ve got good momentum in many of our business lines. And in my opinion this is the best entry position for a new year we’ve had in my tenure here over the last six years. Finally, we continue to expect to see stabilization in credit trends. We expect net charge-offs will remain at or below our long-term expected range of 35 basis points to 55 basis points. Provision was below our long-term expectations during this past quarter. Both are expected to continue to experience modest changes, given their absolute low levels. Longer term, we’re managing the franchise to deliver consistent, strong shareholder returns. We’ve built a strong consumer brand with differentiated products and superior customer service. And we’re executing our strategies and adjusting to operating environments whenever necessary. And there is a high level of alignment between employees and shareholders. We are both cognizant of and highly focused on our commitment to being the stewards of shareholders’ capital. So, with that, let me turn it back to Todd.

Operator, we’ll now take questions and ask for the courtesy of your peers, each person ask only one question and one related follow-up. And if that person has additional questions, we ask to add themselves back to the queue. Thank you. Anastasia?

[Operator Instructions]. Your first question comes from Scott Siefers with Sandler O’Neill. Your line is open.

Good morning, Scott. Scott Siefers - Sandler O’Neill: Good morning, guys. Actually Mac, maybe first one is for you. You talked about possibility of margin pressure and gave kind of the puts and takes. So, I wonder if you can spend -- expecting just talking about order of magnitude of margin pressure. I mean the funding remix that’s an opportunity but the LCR, still bit of a headwind. You’ve been doing maybe 1 or 2 basis points of core compression a quarter for a while. Is that still something seems fair going forward?

Well, thanks Scott, thanks for the question. I think the way to think about it, we continue to see compression in certain loan portfolios as we see the re-pricing take place. Certainly there are some portfolios where we’ve already crossed that line but we’re not seeing significant or any re-pricing. We will see some pressure as we add securities for LCR. We’ll about 1 billion incremental along with kind of having to repurchase about 100 million to 130 million a month from maturities. So, those things will add the margin pressure as well. Certainly there is not much room on the deposit side going forward. We do continue to grow demand deposits very nicely. And that is certainly going to help as we remix the deposits but continued pressure on the margin that will be outpaced by earning asset growth in 2015. Scott Siefers - Sandler O’Neill: Okay. Thank you. And maybe just separate question. So, I think we have a good sense for how you think on auto pricing, given your comments, Mac. But maybe Mac or Steve, just given the amount of attention that auto lending gets these days, if you could spend maybe another second, talking about sort of growth and credit prospects as you see from your position.

We have been very consistent with our auto lending we show to you every quarter. If you look back over the last five years, our FICO bands are credibly tight [ph] our loan to values, new use moves a little bit depending on the year and new production by the auto manufacturers. But we’re very bullish on auto. We think we’re going to come off a very good year and have an even better one. Certainly there is consumer benefit coming by a refinance potential that exists today compounded with the lower price of the pump for gas, should help drive auto to even -- to no worse than last year. We’re optimistic it’s going to be a better year on the whole. And our discipline will remain in place and we expect our performance to continue at or better than prior periods. Scott Siefers - Sandler O’Neill: All right. That’s perfect. Thank you very much, guys.

Thank you.

Your next question comes from Ken Usdin with Jefferies. Your line is open.

Hey guys, this is actually Josh [ph] covering for Ken. Can you speak to what you saw in mortgage banking this quarter? We saw from other banks that this held up a little stronger and you guys saw a little more weakness.

What we saw on a year-over-year basis, we did have an MSR gain in the fourth quarter of 2013, we had MSR increase in the fourth quarter of 2014. So, I think that certainly impacted us quite a bit. Other than that, I think our production stats were in line with what we saw in the industry. And we certainly are seeing a pickup as we see what’s happening today in the market. So, we do expect a better improvement in this line in 2015.

Okay. And then just more generally, can you speak to the revenue drivers for fee income in ‘15 where you are expecting to see the most growth or less growth?

We certainly have seen a few areas in the fee income area that are showing strength due to our growth in households and also businesses as Steve mentioned earlier. We see capital markets increasing; we see the ATM and debit card fees increasing significantly both double-digit growth in the quarter. We do expect to see a better growth in non-interest income in 2015 relative to what we saw in 2014 as we probably bottomed out in mortgage. And again, as we discussed earlier, we are going to see good earning asset growth that will certainly offset any progression we see in 2015.

Okay, great. Thanks for the time guys.

Thank you.

Your next question comes from Mathew O’Connor with Deutsche Bank. Your line is open. Mathew O’Connor - Deutsche Bank: Good morning.

Good morning, Matt. Mathew O’Connor - Deutsche Bank: I was wondering if you could elaborate on the two credits that drove the increase in criticized assets. I guess first what industries were they in?

Hey Matt, this is Dan. Yes, one was in metals, the supplier to the auto industry and the other was in natural resources, both legacy credits, both we feel very positive about their ultimate disposition. But we’re trying to call these things early and make sure that we leave all of our options open for resolution. So, that comprise the majority of what would be considered more than normal inflow. And then we also have throughout the fourth quarter taken a very deep dive into all portfolios as we attempt to stay in front of any development front and still again calling the credits early and giving ourselves every opportunity for rehabilitation. Mathew O’Connor - Deutsche Bank: And I know there are some moving pieces because most of the credit metrics were quite good in terms of charge-offs, non-performers. But as you think about the higher criticized assets and then the loan loss reserve release this quarter, I guess I’m surprised how much reserve release there was given the increase in criticized assets.

Yes. So, there is a lot of components as to how we look at making sure we have an adequate and appropriate ACL. And most of the metrics as you know were very strong. So, we had a really low level of charge-offs, NPAs coming down and improving economy. And so, when you factor all those in and if we see a trend developing, we’ll modify. But we don’t believe we’ve seen a trend here. We think this is one quarter phenomenon and the increase in criticized. So, we feel very good about the level of ACL today. And again, we continue to have improvements in the C&I portfolio, continued recoveries in CRE which drove a lot of the reduction. So, on the whole we think we’re right where we need to be. Mathew O’Connor - Deutsche Bank: And as we think about the reserve levels going forward, we think of them being closer to charge-offs or you start building a little bit or…?

Well clearly, we don’t expect -- we’re at our -- lower than where we expect to be on charge-offs, so I certainly don’t see things getting better on that front from here. So, I think you can make you own assessment of that. Mathew O’Connor - Deutsche Bank: Okay. Thank you.

Your next question comes from Bob Ramsey with FBR. Your line is open

Hey Bob.

Hey, good morning guys. I was hoping you could just touch on the sort of some of the through the cycle long-term goals. You talked about specifically your new return on tangible common equity goal and the efficiency number. Are those numbers that you hope to be able to touch at some point in 2015 or are these numbers that you really need higher rates or some other catalysts or bring you into that zone?

Yes. Thanks Bob, it’s Mac. So, you certainly touched on one variable that is going to impact how soon we achieve the bottom end of some of these ranges and that is the rate environment. But clearly we’re doing other things to make sure that we move in that direction. We’ve talked about positive operating leverage; we’ve talked about making sure that we manage our expense base as it relates to the revenue opportunity that we have in any one year. And that certainly is going to continue to move us towards the efficiency ratio target. As it relates to tangible common equity, we are continuing to make the right investments in the businesses that we think have the best returns going forward. We are looking through opportunities to optimize the existing balance sheet and in some cases making sure that we are being efficient in how we’re using our balance sheet and certainly investing in higher return on equity businesses. So, this is going to be -- it’s not going to happen overnight but certainly the things that we do every day, they head in the right direction are going to help us get there. And I would expect late 2015, 2016, we’ll start to see the achievement of some of these ratios.

And will you see them in late 2015 or 2016 even if rates don’t move up as sort of as expected or do you really need that rate move? I know it is helpful but is it absolutely necessary I guess?

Yes. What I’ll commit to is we’re going to continue to make progress in the right direction and that rates will certainly help us get there but there are a lot of other things that we’re doing that are going to help us achieve those ratios.

Okay. And then I guess similarly as you’ll talk about your revenue growth expectations and any outlook for this year, does it move materially if there is -- if you do get a 50 basis-point move in rates in the back half of 2015, does it materially move the revenue numbers for 2015 or is it more of an impact the year after?

Well clearly, it would be a larger impact for the year after, given any rate change later in the year really going to partial your benefit. Clearly, we’ll get some pickup as rates increase. And certainly midyear or later seems to be what would be the best we can hope for. But the bigger impact would come in 2016.

Okay, all right. Thank you guys.

Thank you.

Your next question comes from Jon Arfstrom with RBC Capital Markets. Your line is open.

Hey, thanks. Good morning guys.

Good morning, Jon.

Just clarification, maybe for Dan or Mac on the provision. Are you saying you expect the provision to come back in line with charge-offs against during 2015?

Actually we didn’t say that. We are at a low point in terms of charge-offs. So, provision was lower this quarter than we have seen. Much of it’s going to depend on loan growth and the state of the economy. But I would say it’s probably likely the provision is not going to remain at this level or lower on a go forward basis.

Yes. Jon, it’s Mac. Obviously the provision is the outcome of how we think about we need from an appropriate reserve perspective and we just have a lot of very positive actions in the fourth quarter that in this provision number. I think the inflow of classified that we saw that’s criticized that is obviously incorporated into the fourth quarter number. And we do feel comfortable with credit quality where it’s out there. So, clearly we’re at a low level relative to what we expect longer term. There could be some volatility as we move forward because we are at such a low level but I think a lot of things came together in the right direction this quarter to make that happen.

Okay, good. Just another clarification point on the operating leverage number. Are you assuming $1.8 billion expense base in terms of expense growth before we go to the expense number?

That’s correct.

Okay. And then just one more if I can Steve, you talked a little bit about energy prices. You do have some Marcellus and Utica overlap; on the other hand you have a big consumer base. How do you think about the puts and takes of low energy prices?

I think it’s tremendous for our region, both at the consumer but I’d also say at a commercial level our businesses whether they are manufacturers, distributor services, they are going to benefit from lower energy costs, price of the pump whatever. Our energy exposure is very modest; it’s part of strategy purposeful selection and a particularly slice in that market and if you will a go slow approach to make sure we are fully absorbing what we were -- and understanding what as we thought a little portfolio.

Okay, all right. Thank you.

Thank you.

Thanks Jon.

[Operator Instructions]. Your next question comes from Geoffrey Elliott with Autonomous Research. Your line is open.

Hi. It’s Geoff Elliot from Autonomous. On the natural resources, you mentioned that one of the new criticized loans was in that sector. So, could you just give us a bit more of detail on what the total exposure to that sector looks like and kind of how it breaks down between oil and gas, mining other kind of components of natural resources?

Okay. Let’s say that’s a pretty broad category. When we talk about what we have; natural resources is the broadest of categories. Our E&P book which is how has been our energy vertical that has about 500 million of commitment and about 300 million or so in outstanding. And that is largely reserve base, syndicated deals that have broad geographic diversity. The entire energy category can define at a number of different ways but I think in terms of the oil and gas has primarily reserve based lending and…

About oil versus gas and…

Sure. And our energy book is weighted towards natural gas. We do have about half dozen of ores that are oil heavy but the majority of the book is weighted towards natural gas. And again, reserve base, for the most part we do have a few midstream names in there as well. And I should emphasize that in that portfolio none of that was in the -- moved to criticized.

Okay. So, in [indiscernible] natural resources?

Correct.

Great, thank you very much.

Thank you, Geoff.

Your next question comes from Erika Najarian with Bank of America. Your line is open.

Good morning, Erika.

Hi, everybody. I just had one follow-up question; I just wanted to make sure that I got the message clearly. And I think you are giving us so much detail for ‘15. The message that I’m getting is regardless of the rate backdrop in the short end or long end, Huntington will grow revenues in ‘15 and post positive operating leverage.

Right Erika, it’s Mac. So, we are going to manage the expense base based on a revenue environment to achieve positive operating leverage. So, we do continue to see good earning asset growth which we believe will overcome any NIM pressure that we have in 2015. And we are going to see better growth in fee income in 2015 as well. So, yes, I think the positive operating leverage comment is a strong comment that we are committed to.

Got it. Thank you.

Thanks Erika.

There are no further questions at this time. I turn the call back over to the presenters.

So, in summary, we’re pleased with our performance for the full year 2014 and especially the fourth quarter. Results reflected the disciplined execution of our strategies and the strong competitive position of Huntington and our brand highlighted by superior customer service which is separating us from our peers. We continue to gain market share and improved share of wallet. We’ve produced 4% annual revenue growth and positive operating leverage in a challenging. We also took demonstrable steps to improve efficiency and optimize the franchise. And finally, our board and this management team, we are all long-term shareholders; we remain focused on actively managing risk, reducing volatility while investing for top line growth achieving positive operating leverage. We’re here to drive long-term performance. So thank you for your interest in Huntington and have a great day.

This concludes today’s conference call. You may now disconnect.