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Executives

Todd Beekman - Director of Investor Relations

Stephen D. Steinour - Chairman, Chief Executive Officer, President, Member of Executive Committee, Chairman of The Huntington National Bank, Chief Executive Officer of The Huntington National Bank and President of The Huntington National Bank

Donald R. Kimble - Chief Financial Officer and Senior Executive Vice President

Daniel J. Neumeyer - Chief Credit Officer and Senior Executive Vice President

Analysts

Craig Siegenthaler - Crédit Suisse AG, Research Division

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Bob Ramsey - FBR Capital Markets & Co., Research Division

Bryan Batory - Jefferies & Company, Inc., Research Division

Josh Levin - Citigroup Inc, Research Division

David J. Long - Raymond James & Associates, Inc., Research Division

Russell Gunther - BofA Merrill Lynch, Research Division

John V. Moran - Macquarie Research

Huntington Bancshares Incorporated (HBAN) Q4 2012 Earnings Call January 17, 2013 10:00 AM ET

Operator

Good morning. My name is Kyle, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Huntington National Bank Conference Call. [Operator Instructions] Thank you. Mr. Beekman, you may begin your conference.

Todd Beekman

Thank you, Kyle, and welcome. I'm Todd Beekman, the Director of Investor Relations for Huntington. A copy of the slides that we will be reviewing can be found on our website at huntington.com This call is also being recorded and will be made available for rebroadcast starting about 1 hour after the close of the call. Please call Investor Relations at (614) 480-5676 if you have difficulties receiving the slides or more information on the replay. 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 1 key disclosure. This presentation will reference non-GAAP financial measures. And in that regard, I will direct you to the comparable GAAP financial measures and reconciliations to comparable GAAP financial measures within the presentation, the additional 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 4. Today's discussion, including the Q&A period, may contain forward-looking statements. Such statements are based on information and assumptions available at this time and are subject to change, 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, the material filed with the SEC and our most recent 10-K, 10-Q and 8-K filings.

Now turning to today's presentation. As showed on Slide 5, participating today are Steve Steinour, our Chairman, CEO and President; Don Kimble, Chief Financial Officer; and Dan Neumeyer, Chief Credit Officer. Steve?

Stephen D. Steinour

Thank you. Welcome. I'll begin with a review of some of the quarter's and full year highlights, Don will review the financial performance, and we'll be followed by Dan, who will provide a brief update on credit. Don will then provide you with an update on our continued household and commercial relationship growth and then close with a discussion of our 2013 expectations.

Turning to Slide 7. The fourth quarter, like all of 2012, was a very solid quarter for Huntington. For the second quarter in a row, we earned just over $167 million or $0.19 per share, which is up from $0.14 in the fourth quarter of 2011. This equates to a 1.19% return on assets and a 13.5% return on tangible common equity. This quarter's performance was driven by a $41 million or 6% increase in revenue as we continued to manage our balance sheet in this difficult yield curve environment. Loans increased an average of 3% annualized, and net interest margin expanded 7 basis points, 5 of which we view as temporary benefits, which mostly relate to the Fidelity acquisition earlier in the year. Our mortgage business continues to prosper and had a very strong quarter, growing revenue by $17 million. As we announced earlier in the quarter, we completed our second auto loan securitization in 2012.

Turning to the full year, we're pleased with our year's financial results. At September of 2010, when our year-to-date ROA was just 49 basis points, we told you that our long-term goal for ROA was 1.1% to 1.35%. For 2012, Huntington earned 1.15% on ROA and EPS of $0.71, a 20% increase from the previous year. This has been achieved through a significant amount of hard work by all of my Huntington colleagues as we've continued to execute our long-term strategic plan.

In 2012, we were able to grow revenue by over $204 million. The cornerstone of our strategy has been to invest in the franchise, to grow market share and grow share of wallet. This has led to a steady loan growth and a significant improvement in our overall deposit mix. Average core deposits increased 8%, and total demand deposits, which we view as critical relationship accounts, increased 27%. This growth resulted in a 3-basis point NIM expansion and a 5% increase in net interest income. Noninterest income increased by $117 million as mortgage banking posted a record year. We completed 2 auto loan securitizations, and our expanded customer base drove growth in service charges on deposits, as well as allowing us to make up nearly 1/2 of the electronic banking income lost to the Durbin Amendment.

Noninterest expense increased $107 million. Much of that investment has been in people. Since the end of 2011, we added over 550 full-time equivalent employees, a 5% increase, as we opened 37 net new branches, expanded our infrastructure, particularly in risk management, and continued to round out our product offerings with the launch of several new commercial verticals. Don will go into additional detail later, but I want to take a moment to state that as we've seen the economy slow from our previously expected base, we've moderated our pace of planned investment in 2013 so that we can drive positive operating leverage in 2013 as we did in 2012.

Turning to Slide 8. Don will provide additional detail later in the call, but you can see that our OCR methodology is continuing to drive success throughout the company. Consumer households and commercial relationships continue to grow at a pace well above that of our Midwest footprint, and, importantly, customers are building deeper relationships with Huntington.

Turning to credit quality. Net charge-offs decreased by $95 million this year, which included the third quarter's $33 million of Chapter 7-related loans. The full year net charge-off ratio was 85 basis points, down from 1.12 in 2011, not quite at our long-term goal of 33 to 55 basis points, but another year of progress like this one will nearly get us there. Even with the addition of $63 million related to Chapter 7 consumer loans, nonaccrual loans were down $133.5 million or 25% over the course of the year, and our allowance for credit losses as a percentage of nonaccrual loans increased 12 percentage points to 199%.

With regard to capital, 2012 was the first year we participated in the Federal Reserve's capital program. Over the course of the year, we actively managed our capital within the restrictions they set forth, redeeming $230 million of higher cost TruPS and buying back over 23 million or over 2.5% of our total shares. Both our tangible common equity ratio and Tier 1 common risk-based capital ratio increased, 46 and 47 basis points, respectively.

Turning to Slide 9 for other highlights. The backbone of our strategy is convenience and service. This year, we were recognized by 2 prominent names in the business for just that. MONEY Magazine named Huntington as one of the best banks in America, and this is the second year in a row that we receive this recognition from MONEY Magazine. And more recently, J.D. Power ranked us highest in small business banking satisfaction in their 2012 study.

We've continued to look for opportunities to optimize the balance sheet and improve the franchise. In 2012, we completed the securitization of $2.3 billion in auto loans, successfully acquired and integrated Fidelity Bank and opened 37 net new branches, which includes the consolidation of nearly 5% of our traditional branch network. And while we expect the environment to be difficult, we have and will continue to actively manage and to drive growth and deliver solid profitability.

Let me turn the presentation over to Don Kimble to review the detailed financial performance. Don?

Donald R. Kimble

Thanks, Steve. Slide 10 provides a summary of our quarterly earnings trends. Many of these performance metrics will be discussed later in the presentation. Turning to Slide 11, we show a summary income statement for the full year and for the recent quarters. We adjust the revenue and expenses for items like the gain on the Fidelity acquisition and the first quarter's additional litigation reserve. We also show the impact of the tax benefit recognized last quarter.

As shown, we produced positive operating leverage for both the full year and linked quarter. On a reported basis, revenues for the full year were up $200 million or 8%. Expenses were up $107 million or 6%. On the adjusted basis, revenues increased by $181 million or 7%, and expenses increased by $91 million or 5%, resulting in a positive operating leverage of 1.6%.

Slide 12 displays the trends of our net interest income and margin. The right side displays a 7 basis point increase in our net interest margin to 3.45% for the quarter, which reflected the impact of a 1 basis point improvement in earning asset yield. This includes about 5 basis points of temporary benefits primarily related to the purchase accounting accretion. It also includes a 6 basis point increase resulting from the reduction of deposit rates and the improvement in deposit mix.

On to Slide 13. On the right, we have shown continued improvement in our deposit mix. The improved deposit mix reflects the success of Fair Play banking on growing consumer DDA, as well as our focus on growing commercial demand deposits. This improving mix has contributed to the 19 basis point decline in the average rate paid on total deposits over the last 5 quarters. On the left side of the slide, you can see the maturity schedule of our CD portfolio and that another wave of higher cost CDs are expected to mature in the second quarter of 2013.

Slide 14 provides a summary income statement and some color on items impacting linked quarter performance. Items of note included $17.1 million linked quarter improvement in mortgage banking revenue. This improvement reflected better secondary marketing gains as origination volumes remain relatively stable at about $1.2 billion for the quarter. We also recorded a $10 million positive net MSR benefit this quarter compared to a $4 million net MSR cost last quarter. This quarter also included $17 million of securitization gains as we completed the $1 billion auto loan sale earlier in the fourth quarter.

Noninterest expenses increased by $12 million this quarter, reflecting a $5 million increase in professional services related to temporary regulatory costs. We would expect these costs to decline significantly in 2013. Our personnel costs were up $6 million this quarter. Much of this related to increases in commission expense. Head count also increased by about 1% this quarter, primarily related to our in-store expansion. Other expenses increased $3 million linked quarter, which reflects increased litigation operating losses for the current quarter.

Slide 15 reflects trends in capital. The tangible common equity ratio increased slightly to 8.76%. The Tier 1 common risk-based capital ratio increased to 10.47% from 10.28% in the end of the last quarter. These ratios reflected the impact of repurchasing 13.2 million common shares this quarter for $83 million. The Tier 1 and total risk-based capital ratios increased by 13 and 15 basis points, respectively.

Now let me turn the presentation over to Dan for credit trends. Dan?

Daniel J. Neumeyer

Thanks, Don. Slides 16 provides an overview of our credit quality trends. Credit quality trends in the fourth quarter were very positive, led by the net charge-off ratio, which fell to 69 basis points on an annualized basis compared to 105 basis points in the prior quarter. The prior quarter did include the 33 basis point effect of the regulatory guidance related to Chapter 7 bankruptcy consumer loans. Loans past due greater than 90 days and still accruing were stable in the quarter and remain very well controlled. You'll recall that the second quarter uptick in past dues were caused by the acquired Fidelity portfolio. Fidelity loans include accruing purchased impaired loans, which were recorded at fair value upon acquisition and will remain in accruing status. The nonaccrual loan ratio showed continued modest improvement in the quarter, falling to 1% of total loans. The NPA ratio showed similar improvement due to a sizable reduction in commercial OREO balances in the quarter. The criticized asset ratio also showed fairly significant improvement, falling from 5.45% to 4.79%. The allowance per loan and lease loss and the allowance for credit loss to loan ratios fell in the quarter to 1.89% and 1.99%, respectively, down from 1.96% and 2.09% in the prior quarter, reflecting continued asset quality improvement. The ALLL and ACL coverage ratios both increased modestly due to the healthy reduction in nonperforming assets in the quarter.

Slide 17 shows the trends in our nonperforming assets. The chart on the left demonstrates continued reduction in our NPAs, falling 13% in the quarter. The chart on the right shows the nonperforming asset inflows, which fell in the quarter to 43 basis points of beginning-of-period loans. Slide 18 provides a reconciliation of our nonperforming asset flows. NPAs fell by 13% in the quarter compared to a 3% reduction in the prior quarter. This represents the largest quarterly reduction in the past year, and it was a result of lower inflows along with healthy payments and asset sales, which included a meaningful reduction in commercial OREO.

Turning to Slide 19. We provide a similar analysis of commercial criticized loan flows. This quarter saw a similar level of inflow as the prior quarter with upgrades, paydowns and charge-offs contributing to a 12% reduction for the quarter. Moving to Slide 20. Commercial loan delinquencies remain elevated in both the 30- and 90-day categories over what we had shown from the second quarter of 2011 through the first quarter of 2012. The increase is due to the addition of the Fidelity portfolio. All of the 90-day delinquencies are related to the Fidelity purchased impaired loans, which again are recorded at fair value upon acquisition and remain in accruing status. However, delinquencies remain very well controlled in the aggregate.

Slide 21 outlines consumer loan delinquencies, which are in line with expectations and reveal a generally improving trend. In aggregate, 30-day consumer delinquencies showed modest improvement quarter-over-quarter, as depicted in the chart on the left. The residential portfolio showed noticeable improvement in the quarter, while auto and home equity were up very modestly. 90-day delinquencies continued their overall decline, with auto flat quarter-to-quarter and residential and home equity both down.

Reviewing Slide 22. The loan-loss provision of $39.5 million was up $2.5 million from the prior quarter and was less than net charge-offs by $30.6 million. The ratio of the allowance for credit loss to non-accrual loans rose from 189% to 199% due to the previously noted reduction in nonperformers. The ACL to loans was lower at 1.99% compared to 2.09% last quarter. Most of the major credit metrics showed continued improvement, and therefore, we believe these coverage levels remain adequate and appropriate. In summary, we remain very pleased with this quarter's results, we expect continued improvement in our credit metrics and expect to move towards normalized charge-off levels by the end of 2013.

Let me turn the presentation back over to Don.

Donald R. Kimble

Thanks, Dan. And turning to Slide 23, our Fair Play banking philosophy, coupled with our optimal customer relationship, or OCR, approach is driving continued new customer growth and strength in product penetration. This slide recaps the continued strong upward trend in consumer checking account households.

For the year, consumer checking account households grew at a rate of 12.2%, while our 4+ products or services penetration grew to 78.3%, an increase of almost 5 percentage points since this time last year. For the fourth quarter, related revenue was $251 million, up $5 million from the third quarter of 2012. The current quarter is also up $21 million or 9% from a year ago, clearly demonstrating the connection between the household growth and driving our top line revenue.

Turning to Slide 24, commercial relationships grew 9% from a year ago. At the end of the fourth quarter, 35% of our commercial relationships utilized 4 or more products or services. This is 1.5% higher than last quarter and almost a 4% increase from a year ago. Related commercial revenue is up $14 million or 9% from last year.

Now turning to Slide 25, we provide our first look at 2013 expectations. While we expect to see strong growth in the Midwest economy compared to the broader country, we do believe customer sentiment is negatively influenced by uncertainty that continues in Washington. And this will weigh heavily on the overall U.S. economy. Nevertheless, we continue to benefit from the strength in the Midwest and believe our strategy will continue to drive and improve profitability. With regard to interest rates, we expect the interest rate environment will remain relatively stable. With the opportunities for deposit repricing and mix shift, we expect net interest margin to remain fairly stable and we do not expect it to fall below the mid-3.30s. Modest total loan growth, excluding any future impacts of additional auto securitization, is expected to continue. The C&I pipeline is robust, yet with the uncertainty, we do not expect this to translate to strong growth until the second half of the year. Auto loan originations remain strong, and with the relative impact of securitizations coming closer to its full phase-in impact, this should translate to absolute growth in the indirect portfolio.

Commercial Real Estate balances should stabilize in 2013 between the $5 billion and $5.5 billion level. Other consumer loan categories should reflect modest growth as we've started to substitute some shorter duration mortgage loan balances for securities purchases. Deposit balances will reflect continued growth in low-cost deposits, resulting in total deposit growth in line with to slightly less than total loan growth. Noninterest income is expected to be relatively stable as the expected slowdown in mortgage banking will be offset by the benefit of our growth in new relationships and increased cross-sell successes.

For 2013, we continue to anticipate positive operating leverage and modest improvement in our overall expense efficiency ratio. We continue to focus on efficiencies, and as a result of our expectations for the economy, we have moderated the pace and size of our planned investments. On the credit front, we expect to see improvement from current levels and there could be some quarterly volatility given the uncertain and uneven nature of the economic recovery. The level of provision expense for 2012 is at the lower level of our long-term expectation. With the outlook for continued improvement, this should keep the provision levels relatively low. 2013 presents a number of challenges for Huntington and the banking industry overall. We believe we are positioned for measured growth and improvement in sustainable, long-term profitability. Despite these challenges, we are committed to our strategy and believe this will drive long-term differentiated performance. Thanks for your interest in Huntington.

Todd Beekman

Operator, we will now take questions. [Operator Instructions]

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Craig Siegenthaler from Crédit Suisse.

Craig Siegenthaler - Crédit Suisse AG, Research Division

So do you expect total loan balances to grow in 2013 if we include your estimates for 2 auto securitizations?

Donald R. Kimble

Our outlook would have modest growth including the impact of the auto securitizations. Keep in mind that we are getting closer to that 2 years of doing the auto securitizations, and so it should start to plateau the impact of those sales.

Craig Siegenthaler - Crédit Suisse AG, Research Division

Got it. Then, if loan demand this year, let's say, is a little weaker in C&I and Commercial Real Estate than you planned, would you consider holding more residential mortgages and more indirect auto loans to temporary support higher earning asset growth versus buying more securities?

Stephen D. Steinour

We would, but you caveated your question, Craig. This is Steve. We're optimistic that the economy will perform reasonably well but could in fact pop if we can get through this set of issues in Washington. And so we're -- we think we're well positioned to participate in an expansion should we be able to get into that mode.

Craig Siegenthaler - Crédit Suisse AG, Research Division

Got it. And Steve, my only point is it appears you may have a sort of loan growth hedge that some of your competitors might not to actually have decent loan growth in a difficult environment if things don't work out great this year.

Stephen D. Steinour

Well, we've tried to be realistic, but on the conservative side, as we've given guidance, there's a wide range of GDP estimates out there given the current Washington uncertainties. And so you can go from a negative to a strong positive 3-plus percent, and that's why we're hedging.

Operator

Your next question comes from the line of Steven Alexopoulos from JPMorgan.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

On the expenses, if we looked at 2012, core expenses were up around $90 million, just above that. When we think about 2013 and your comments to moderate the pace of investments, how much of an increase in operating expenses should we be thinking about based on what you know at this point, including your contractual obligations to open new branches, et cetera?

Donald R. Kimble

This is Don. And we currently expect our quarterly expense run rate to be relatively flat or modestly below the fourth quarter level, excluding any unusual one-time items or unforeseen regulatory or legal issues. And this does reflect the decision we have to moderate the size and pace of some of our previously planned investments in light of the challenging economic outlook. We will continue to invest in our franchise but just at a little slower pace.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Okay. And Don, should we expect you guys to cut maybe a little more deeper into variable expenses early in the year to match some of the revenue pressure you might see, given your outlook on the economy?

Donald R. Kimble

We really haven't commented on timing. There are several areas of seasonal changes to expenses. And for instance, there are some payroll tax issues that hit in the first quarter, and we tend to see some seasonal fluctuations in marketing and other expenses, but what we're focused on is the longer-term guidance and outlook.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Okay. And just to follow up on the guidance. You were talking about the margin not falling below the mid-3.30s. Most banks here are talking about running out of room to further lower deposit costs, that being a cause of incremental pressure as we move through the year. Why is that dynamic any different for you guys?

Donald R. Kimble

It is a challenge, but I would say that we are getting a lot of benefit from our change in our mix in our deposits. And we still believe that we have some room to pull down our overall deposit costs. We have about $4.1 billion of CDs that have an average rate today of 1.2%. The current go-to rate is in the 20 basis point range, and so we think that there is a lot of opportunity there as well. Historically, our average cost of funds for deposits are higher than our peers, and we think that we have a little bit more of a lever to pull as a result of that.

Stephen D. Steinour

We probably have a bit less pressure on the investment portfolio. Do you want to comment on that, Don?

Donald R. Kimble

Yes, Steve usually teases me about having the lowest yielding investment portfolio in my peer group, but we try to keep the duration fairly short there. And so we think we will have less falloff from our current yield there than many of our peers as well, which will be a relative benefit for us compared to our peers.

Operator

Your next question comes from the line of Bob Ramsey.

Bob Ramsey - FBR Capital Markets & Co., Research Division

I was hoping maybe you could just give a little bit more clarity around the net interest income expectation. I know you all said in the guidance that you expect the benefits of growth to be largely offset by NIM pressure. But you also talked about net interest income growing over 2013 after a seasonal weakness in the first quarter. So does that mean that in the first quarter, you'll be a bit lower then build from that level, but in total, in 2013, you expect to be roughly in line with 2012? Is that the right way to interpret that?

Donald R. Kimble

As far as the overall net interest income that we gave, we expect that to show an increase for the full year, year-over-year. And as far as the seasonal trends, we do note that, with the shorter day count in the first quarter, that we tend to see a slight reduction then. But on a full year basis, it should be up year-over-year.

Bob Ramsey - FBR Capital Markets & Co., Research Division

Okay. So up on -- so how are you getting up year-over-year if the benefits of growth are mitigated by the margin pressure?

Donald R. Kimble

We're saying that they do mitigate but they don't eliminate. So we would have a slightly lower margin than what our current run rate is, but we still expect the asset growth to more than offset that impact.

Bob Ramsey - FBR Capital Markets & Co., Research Division

Got you. And then the 5 benefits of temporary benefits that you all highlighted, does that disappear in full in the first quarter or is there any -- does it take a little bit longer for those to phase out, and sort of where are you entering the first quarter?

Donald R. Kimble

We would expect to see about 1 basis point of contribution throughout 2013 from that accretion.

Operator

Your next question comes from the line of Ken Usdin.

Bryan Batory - Jefferies & Company, Inc., Research Division

This is actually Bryan from Ken's team. I was wondering if you could comment on your near-term outlook for mortgage banking revenues. So obviously, a pretty strong quarter, even x the hedging results. Can they continue to run at the $45 million to $50 million level per quarter in the first half of '13?

Donald R. Kimble

We haven't commented specifically as far as the range. We do think there is opportunity near term. We expect the first half of 2013 to be strong, maybe not quite as strong as the fourth quarter of this year, but we are continuing to see that we can get net flows plus the benefit from our servicing portfolio as well. So we think that we have a few more quarters left as far as higher than normalized production.

Bryan Batory - Jefferies & Company, Inc., Research Division

Okay. And can you just comment on how gain on sale margins trended during the current quarter, and just how the pipeline also trended in close of the year?

Donald R. Kimble

Yes. The margins themselves were in line with prior quarters. And as rates did increase at the end of the year, we did see some pressure on secondary gains associated with that, and pipelines continued to remain strong for us.

Operator

Your next question comes from the line of Josh Levin.

Josh Levin - Citigroup Inc, Research Division

You talked about, you think the economy could pop. So in that sort of bullish scenario where the economy pops, maybe rates move up sooner rather than later. If that were to happen, how do you think about how your deposits are going to behave in that environment and what that means for asset sensitivity? I mean do you feel like you have a good handle on modeling how deposits will behave, or is it just -- are we just in uncharted waters here?

Donald R. Kimble

We do believe that we have a handle around our deposit levels and inflows that we have -- we've spent a lot of time and effort in deepening the relationships with both our commercial and consumer customers, and so that resulted in some strong growth for us from a deposit perspective. We know that there will be some excess liquidity that our customers are maintaining in the form of deposits today that we'll see some pressure when the economy does start to pick up. But we do believe that our liquidity position and overall deposit outlook is consistent with our expectations for the economic growth occurring in the second half of the year.

Stephen D. Steinour

Why don't you comment on our position vis-a-vis outgo? Slightly asset sensitive.

Donald R. Kimble

Yes. And from an outgo perspective or asset liability management perspective, we continue to maintain our interest rate sensitivity position as slightly asset sensitive. So if we do see a pop in rates, we think that we are positioned to benefit slightly from that change. But our outlook today assumes that rates will remain flat and very low throughout 2013.

Josh Levin - Citigroup Inc, Research Division

Okay. My second question is you've talked about the fiscal cliff and lingering uncertainty as inhibiting loan growth, but do you have a sense when you talk to your customers, what specifically do they need to see from Washington to give them confidence to start actually investing and thus borrowing?

Stephen D. Steinour

There's a -- we look at our pipelines and our sales activity weekly. So we have a, we think, reasonably good insight, we have very strong activities, we have strong pipelines. But we've seen for now, a number of months, deferrals on closing loans, on fundings and reflecting restraint on investment and expansion by a number of businesses. And it ranged from things like fiscal cliff a couple of weeks ago, now sequestration has been pushed out for 2 months. So there needs to be some confidence around a plan before I think there's this potential for robust growth to pop, if you will.

Donald R. Kimble

And I think just to highlight that, too, as far as our C&I portfolio, we saw an increase as of period end balances compared to the last quarter of over $400 million. And so I think that's starting to show that there was some sense of getting some closure on some of those transactions at the end of the year, maybe for tax reasons or others. But I think that does position us well going into the first quarter.

Operator

Your next question comes from the line of David Long.

David J. Long - Raymond James & Associates, Inc., Research Division

My question is regarding Commercial Real Estate. Looking at some of your peers, they started growing that part of their business. The federal data has showed growth in the fourth quarter. I just want to see where you guys stand. It looks like your guidance is for it to be relatively flat through the year, and I know you guys have added a lot of resources to C&I. Would you be looking to do that in CRE here at this point?

Stephen D. Steinour

We would not expect to add a lot of resources. And at the end of 2009, we bisected the Commercial Real Estate book between the core and the non-core, and we indicated then and continue -- it's in the broader investor pack, that breakout. We've got about $1.6 billion or so of non-core remaining as of year end. But we had fairly high paydowns of non-core in the fourth quarter. We had about $250 million, when you get into the investor pack. So there was actually reasonably good underlying core activity because of the balances reducing less than the non-core payoffs. This is an area that the bank experienced significant problems with in '08 and '09, and therefore, we've put a hard cap in, in terms of how much exposure and concentration we want to manage. And therefore, the $5 billion to $5.5 billion range is where we expect to be in '13, and it's roughly 100% of capital.

Operator

[Operator Instructions] Your next question comes from the line of Erika Penala.

Russell Gunther - BofA Merrill Lynch, Research Division

It's Russell Gunther, on for Erika. I have a quick question, just back to the securitizations. You mentioned an expectation to complete 2 of them in '13. Any sense for the magnitude relative to the level you saw in '12?

Donald R. Kimble

We haven't provided any specific guidance as far as the size and the timing. We're still working through some of those issues as we walk through our plans. But our outlook does assume the continuation of 2 securitization transactions in 2013.

Russell Gunther - BofA Merrill Lynch, Research Division

Okay, great. And then just circling back to the normalized charge-off levels you expect to approach in the fourth quarter. I think, previously, you have said that's around 35 basis points, is that still a good range?

Daniel J. Neumeyer

Actually it's 35 to 55, and so by the end of the year, we expect to be at the upper range of that and continued progress after that. But by the fourth quarter, we're pretty confident in our ability to hit the upper end of that range.

Russell Gunther - BofA Merrill Lynch, Research Division

Okay, great. That helps. And then just last question, on the expenses, could you give us a sense for the type of investments, the planned investments, that you were making that you're pulling back. What specifically are you scaling back?

Donald R. Kimble

It's more in just the timing and size of some of those investments. And so we have a number of strategic initiatives that we have been investing in, and we've just been slowing the pace and nature of those.

Operator

Your next question comes from the line of John Moran.

John V. Moran - Macquarie Research

So Ohio continues to kind of attract a lot of talk or attention for being a particularly competitive market. Any comments anecdotally that you guys care to share on pricing structure competition in the market?

Stephen D. Steinour

Well, the -- we are in 6 states. There's no difference in any of the 6 states to Ohio, or for that matter, the other ones. We're in competitive markets, for sure, but that would be true in all of them, all of the states.

Donald R. Kimble

Maybe if I can just add a little color to that as well. As Steve said, we continue to remain very disciplined as far as pricing, and it's very consistent across all states. I think one area that reaffirms that is just taking a look at our C&I yields absent the impact of the hedging, and you can see for instance this last quarter, our C&I yields declined by 2 basis points despite the fact that LIBOR was down by 2 or 3 basis points during that time, same time period. And the temporary benefits that we had talked about really didn't impact the C&I yields that much. More of the portfolio from Fidelity was related to residential real estate and commercial real estate as opposed to C&I. And so we are and continue to remain very disciplined and believe that will be something we'll maintain prospectively.

John V. Moran - Macquarie Research

That's helpful. And just a second one if I could. On the rate of sort of customer acquisition household growth on the consumer side, and also on commercial, the pace of sort of new acquisitions seems to be slowing here as we went through '12. Would you guys attribute that to sort of broader uncertainty, and would it be reasonable to expect that, that will pick back up if we sort of get past some of the stuff down in Washington that you alluded to? Or do you think that kind of the initial thrust here with OCR and some of the different approaches that you guys took led to real rapid acquisition that now is sort of naturally sort of dwindling a bit here in terms of growth rate?

Stephen D. Steinour

Well, when we unveiled our Fair Play strategy in late 2010, we didn't project double-digit growth rates. So we've exceeded expectations significantly in terms of what we've been able to deliver. There is seasonality to the consumer side, and we think to a certain extent, as we shared, the business side has also been impacted somewhat in terms of deferred decisions. So we expect to maintain strong relationship growth and continue with what we think is a successful strategy.

Operator

There are no further questions at this time.

Todd Beekman

Thank you very much for your interest in Huntington. If you've got any more questions, feel free to follow up with the IR department. Have a good day.

Operator

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

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