The chief executive of Huntington Bancshares Inc. on Wednesday predicted further expansion of interest income but cautioned that new regulations would limit fee income.
Stephen D. Steinour told reporters the company sees interest income "continuing to grow" through the year if it keeps posting "low, double-digit" increases in auto and commercial loans.
Fee income should increase through the year, though Durbin amendment restrictions on debit-card fees "will reduce our growth" and "may even take us slightly negative" for a period, he said.
Steinour partially blamed seasonal factors for revenue softness in the first quarter. There are fewer days to collect fees and loan interest because of holidays and the short month of February, while fixed expenses like salary compensation tend to be the same regardless of a quarter's length. The shorter quarter resulted in an estimated $15 million less revenue, he estimated. Also, bonuses and certain kinds of payroll taxes are handled in the first quarter, driving up expenses.
"This is the quarter we all face where day count works against us," he said. "We're penetrating with more cross-sells. The investments we're making in the Midwest are bearing fruit."
Huntington reported net income excluding dividends of $126.4 million in the first quarter, up 3% from the prior quarter and 218% from a year earlier.
The Columbus, Ohio, company's provisions for loan losses fell $38 million, or 43%, from the prior quarter thanks to falling levels of overdue commercial and residential real estate loans. The other big boost to its bottom line was a $76 million decline in dividends paid on preferred shares, due largely to the repayment of its federal aid in December.
Steinour described the results as a "solid quarter" in the conference call with reporters.
"There were a number of things we liked about the quarter," he said. "We had good growth in loans."
In an earlier conversation with analysts, Steinour said the company had taken another step in the right direction. Huntington was plagued by billions of dollars in losses from subprime home loans during the downturn.
Loan losses continued falling, he said, while investments in new products and people are resulting in growing deposit and loan balances, particularly commercial and automobile loans. It is also on the lookout for potential acquisitions after hiring bankers and other people to look for and oversee mergers.
"Huntington is creating this category of one in Midwest banking," Steinour said.
Like other banks, Huntington is having issues with top-line growth as low interest rates, and continued reluctance among Midwestern consumers and businesses to borrow and spend, take their toll. Huntington's numbers also took a hit from a slowdown in mortgage production.
Total revenue was down 6% quarter-to-quarter, as interest from loans and securities declined 3% and fee income fell 10%. Pre-tax, pre-provision earnings - an investor measure of earnings power when the economy stabilizes - was down from both the prior quarter and year-ago period, reflecting less loan income and falling service charges.
Lending grew in the quarter, but not fast enough to offset the impact of a sale of a big batch of securities to help fund the purchase of its federal aid. Average loans and leases rose about 1%, or $300 million, to $38.1 billion, reflecting a 3% increase in both automobile lending and commercial and industrial lending. Huntington's construction and commercial property mortgages continue to run off its books, with that portfolio declining 4%.
Steinour said the company expects net interest income to grow in coming quarters as it keeps making more loans and collecting relatively cheap deposits. Overall deposits were flat quarter-to-quarter, at $41.7 billion, but non-interest-bearing accounts were up while expensive certificates of deposit declined.
Huntington has 622 branches in six states: Ohio, Indiana, Pennsylvania, West Virginia and Kentucky.