Huntington Bancshares Inc (NASDAQ:HBANP) Q3 2018 Earnings Conference Call - Final Transcript
Oct 23, 2018 • 09:00 am ET
Thank you. [Operator Instructions]
Our first question is from Ken Usdin with Jefferies. Please proceed with your question.
Hi, good morning, guys. Mac, wondering if you can just help us flush out the incremental securities loss and then the incremental charges on your previously announced restructuring charges? And maybe even more so than understanding the fourth quarter, help us understand the return on those? And how we should expect that to affect the '19 starting points for both the securities portfolio yield and also just for the cost base? Thanks.
Thanks, Ken. So we're selling about $1.1 billion of investment securities in the fourth quarter, and we will replace those one-for-one. So there won't be an increase in the securities portfolio from this action. Basically, it's a shorter-duration, low-yielding securities. And the payback is pretty quick, under two years, on this transaction. We're going to get a net yield pickup of about 1.2%, which should translate into about $13 million in additional net interest income in 2019. So we do see this as good hygiene and continuing to make sure that we stay efficient with the balance sheet and think about opportunities.
On the expense side, so this is basically related to the 70-branch consolidation that will take place in the fourth quarter. And there will be some corporate facilities that we will be closing, consolidating as part of that as well. And we estimate that to be approximately $40 million and it would be the typical expenses that you see in these types of activities. And when you think about the 2018 guidance and the change to the 2018 guidance for both revenue and expense, these items impacted those changes to a very large degree, entirely on the expense side and primarily on the revenue side. So shouldn't think about this really as being a change in core guidance for 2018. This is really about these actions that we're taking in the fourth quarter.
Got it. And my follow up, Mac, just on that expense point. If I follow you on that and just put in the $40 million on the expense side, it would still seem that underlying that, you're still expecting a decent increase in kind of underlying cost growth third to fourth. Can you just level set us on that versus the $651 million result you just put up, the type of underlying expense growth you're still expecting in 4Q? Thanks.
Yes, Ken, so it is somewhat seasonal. We do have higher expenses in the fourth quarter. I would tell you there's not anything out of the ordinary relative to what we've seen historically in the fourth quarter, just the fact that we do have higher revenue because of seasonal actions taking place in the fourth quarter by our customers and the expenses that come along with that.
Our next question is from Jon Arfstrom with RBC Capital Markets. Please proceed with your question.
Hi. Good morning, guys. Question on lending. When you talk about