Q2 2021 Huntington Bancshares Inc Earnings Call
[music].
Greetings and welcome to the Huntington Bancshares second quarter earnings Conference call.
At this time all participants are in a listen only mode.
The question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded I would now like to turn the conference over to your host Mark Muth.
Sector of Investor Relations.
Hey, Jeff welcome on Mark Muth director of Investor Relations for Huntington.
Copies of the slides, we will be reviewed on it can be found on the Investor Relations section of our website Www Dot Huntington Dot com.
The call is being recorded and will be available as a rebroadcast starting about 1 hour from the close of the call.
Today's presenters from Steve on our Chairman President.
The CEO and Zach Wasserman, Chief Financial Officer, Rich Foley, Chief Credit Officer will join us for the Q&A.
As noted on slide 2 of todays discussion, including the Q&A period will contain forward looking statements.
Statements are based on information and assumptions available at the top and are subject to changes risks and uncertainties, which may cause.
The results to differ materially we assume no obligation to update such statements for a complete discussion of risks and uncertainties. Please refer to the slot the material filed with the SEC, including our most recent forms 10-K, 10-Q, and 8-K filings. Let me now turn it over Stephen Thanks, Mark and happy birthday welcome everyone Slide 3 provides.
The overview of Huntington, where now the top 25 Bank holding company with 175 billion in total assets. The Tcs acquisition expanded our leadership position and density and Michigan bolstered scale in markets, such as Chicago and added new growth markets and the twin cities, Denver and Milwaukee Importantly, we have.
Number 1 brand share within our footprint, which allows us to leverage our brands convenience and digital channels to continue to efficiently grow the customer base Huntington brings an expanded set of capabilities to these markets and to the Tcf customer base, including middle market of corporate banking with the specialty verticals Treasury management.
Capital Markets Trust investment and insurance products. In addition to our number 1 in the nation SBA lending program. So we're excited by the opportunity to introduce our fair play approach and leading digital offerings to our customers in these markets.
Over the past several years, we've been pleased by the number of independent affirmations of the.
The superior customer service, our colleagues to provide on the customer centric products and services. We've entered the US just last month JD power announced Huntington ranked highest in customer satisfaction amongst regional banks of our mobile app for the third consecutive year. Additionally, we were ranked first in our region for consumer banking customer satisfaction now of.
These are important affirmation of the considerable investments we've made in our culture and digital technology Slide 4 provides an overview of Huntington strategy to build the leading people first digitally powered bank in the nation Huntington is a purpose driven company.
The organic growth.
And.
And sustainable top quartile financial performance.
A core tenant of our strategic vision the acquisition of Tcf is additive on both fronts. As it supports continued organic growth opportunities and allows us to leverage the incremental scale to drive efficiencies and deliver top quartile financial returns are very.
Well positioned to benefit from the strength of the economic recovery, our accelerated investments during the past year of driving new customer acquisition and retention and we expect to continue to capture market share gains and increase share of wallet in the second half of 'twenty, 1 and beyond on.
The macro basis labor.
On strengths and wage inflation remains a concern for many of our business customers. However confidence levels are very high on leading economic indicators are positive.
Any of our customers continue to see record cash flows from profitability driving unprecedented levels of liquidity, which continue to weigh on loan growth and line utilization.
We expect borrowers may opt to carry more liquidity than they had previously given what we all experienced with the pandemic.
On the supply chain issues and ongoing labor constraints, but nonetheless, our loan pipelines are strong and continue to build and we remain optimistic the conditions favorable.
The rates approved loan growth will strengthen during the second half of 'twenty, 1 and as we move into 'twenty 2 turning to slide 5 I'd like to give an update on the Tcf integration. We continue to be on track for all key integration activities. We closed the acquisition in early June and completed phase 1 of the branch consolidations closing.
From <unk> Meyer in store branches, we expect to close the required branch divestiture in the third quarter and the complete the majority of the remaining system conversions over the Columbus day weekend.
The final 3 phases of the branch consolidations are expected to be completed by month in October.
In addition to our focus on systems.
400, and customer conversion. We're also focused on fully integrating our new tcf colleagues into the Huntington's culture Huntington strategy of building the nation's leading people first digitally powered bank begins with our people our colleagues both legacy and the Tcf colleagues acting together.
The other are the key to our success and I've seen appreciate our colleagues and the differences they make and customers lives on our communities every day.
Very fortunately the tremendous team.
With commercial banking the business as we've added from Tcf, such as inventory finance and vendor finance to name a few of continued to be comparable.
The primary and additive to our overall strategy in consumer banking Tcf of net progress on customer experience.
Now the opportunity to introduce our digital capabilities, our products or services combined with our fair play philosophy will significantly bolster the customer experience as they convert to Huntington.
As we introduced the Huntington brand, our product suite of products and services and the commitment of our colleagues to our new markets and expanded customer base, we clearly see opportunity to gain additional market share to deepen relationships and to drive organic revenue growth.
Turning to slide 6.1 of the Tcf acquisition is an important.
Implement of our growth plan, we remain focused on the larger organic growth strategies, we have been executing on.
The investments in digital and technology continue to drive strong returns for our business nearly half of new consumer deposit accounts are now opened digitally while consumer checking households, as well as business checking relationships.
Each increased by 8%.
Annualized year to date, 8% annualized year to date.
Last month, we launched compelling new digital products, including standby cash and early pay which are part of our roadmap to continue to innovate and advance our customer centric fair play banking philosophy.
We are.
We're continuing to innovate with additional new products from features to be launched later this year end net.
And we're seeing traction in customer acquisition, and we've restored marketing investments to pre pandemic levels. So as we continue to build out of our specialty banking efforts within the commercial we're seeing strong sales activities growing pipeline and momentum.
On them and originations before I turn it over to Zac from to take a moment to say thank you to mark for his hard work and dedication. The Huntington of these led our investor relationship team for the last 8 years 7 years, Mark will be taking on the finance leadership role as CFO of our important vehicle Finance Division, we're pleased to welcome Tim.
Just the that risk as our new director of IR, Congratulations to Mark on the new role and welcome to Tim Jack over to you to provide more detail on our financial performance. Thanks, Stephen Good morning, everyone.
<unk> 7 provides the highlights for the second quarter, which included closing the Tcf transaction delivering strong.
The new loan production and maintaining solid credit quality as well as robust liquidity and capital positions on a fully reported basis, including all impacts of the acquisition. We reported a net loss per common share of <unk> from the second quarter earnings were impacted by acquisition expenses of $269 million and of the so called seasonal double count.
The provision expense of $294 million.
Earnings per common share of adjusted for these notable items were positive <unk> 35 per share.
Steve mentioned, we closed the Tcf acquisition in June and we remain on track for the realization of the deal economics.
Even as we brought on Tcf, our teams did not lose focus.
<unk> driving organic growth across the bank, we saw underlying loan growth ex tcf in many of our consumer loan portfolios, namely mortgage auto and RV Marine we also saw encouraging new commercial loan production and building pipelines.
Fee income was also a bright spot in the quarter as we saw increases on our underlying.
Of the Huntington business, including Treasury management card and the payments capital markets, and our wealth and investment businesses.
With respect to credit net charge offs were 28 basis points the allowance for credit losses ended the quarter of 2.8% and was driven by provisioning of $294 million from the acquired Tcf loan book.
Offset against the $145 million of reserve release from the legacy Huntington book.
Detailed loan and credit marks related to Tcf are included on slide 25 of the appendix.
Liquidity remained elevated as we continue to see growth in deposits balances.
This gives us ample opportunity to deploy into incremental.
Lending opportunities and securities to support net interest income growth in the coming quarters. Additionally, we fully exited the capital protection hedging position that utilize interest rate caps closing on a very useful hedge and replacement with alternative capital protection tools, which have less earnings volatility of the qualified for hedge accounting.
Finally, common equity tier 1 ended the quarter of $9.97 per cent.
Turning to slide 8 FTE net interest income increased primarily driven by the addition of Tcf and the quarter on a linked quarter basis net interest margin decreased 82 basis points to 6.6% primarily driven from the net change.
The interest rate caps from the prior quarter.
Looking for a more looking for a moment at the underlying NIM dynamics the impact in the second quarter from the Mark to market on the caps was negative 17 basis points.
While we saw 3 basis points benefit from purchase accounting accretion therefore, the underlying NIM, excluding the caps and PAA.
Approximately 2.8 per cent for the second quarter. This compares the $2, 98% on the same basis in the prior quarter. As we've noted on previous calls we had expected a reduction in 2 Q2 driven in part by of 9 basis points step down in the benefit of our existing interest rate hedging positions as well as 4.
Ousted pvp dynamics and yield curve impacts on spread of.
The mortgage Daily Conference of June we got it to a second quarter NIM in the low 2 eighties, the underlying second quarter NIM of 2.80 was a few basis points below expectations due to the additional impact of excess liquidity as deposits of yet again increase in the quarter and elevated fed cash represented on 18.
18 basis point drag on the nib in the quarter.
Looking ahead, we continue to expect queue to to be the low point for NIM for the year driving of positive trend will be. The addition of Tcf assets that will benefit margin as we get the full quarter impact of those acquired assets on the third quarter also the continued execution of our balance sheet optimization program will provide benefits from our ongoing focus.
On funding costs optimization asset mix and customer level of pricing.
And over time, we expect the elevated liquidity levels that I mentioned to normalize reducing the 18 basis point drag back down to zero of the does.
These positive factors will offset some continued spread pressure from competition for high quality assets and the absolute level of interest rates as well as impacts from the rohloff of hedges as illustrated on the next slide on.
All told these changes are expected to bring up the the net interest margin in the 2 nineties next quarter. Our outlook continues to <unk> to nims stability of approximately those levels for the foreseeable future going forward.
Turning to slide 9 in the second quarter. The interest rate caps resulted in the $55 million negative mark to market driven by lower rate the quarter and.
However, cumulatively over the life of these caps the strategy was highly effective and resulted in the $94 million pretax gain $75 million net of tax that as we intended offset approximately 46% of the negative impact on capital from rising rates.
Of the securities portfolio of gradually grew during the last 2 quarters and prepayments fees on that portfolio have reduced we now have the opportunity to utilize the more traditional hedging structure of to accomplish the same capital of protection objective.
Hence we fully exited the caps during the second quarter and replace them with $4 billion of forward, starting swaps, which followed by for hedge accounting and reduce earnings volatility, while achieving a similar level of of capital of protection.
Additionally, we moved $4.5 billion of securities from available from <unk> for sale into help from a maturity during the quarter in order to further minimize volatility in OCI as a result of the changes in interest rates.
Turning to slide 10 average low balances increased by 9% year over year, driven by the added Tcf balances and continued growth in our consumer loan portfolios.
Period, and low imbalances ended the second quarter of the $112 billion.
We continue to have near record origination levels in our consumer portfolios in the second quarter with Rd, Marine automobile and residential mortgage all continuing to post the sequential quarter growth.
Despite the inventory of constraints and auto an RV marine consumer demand remains very high driving continue to strengthen originations. The same can be said for home lending where origination activity is quite robust despite ongoing home inventory of constraints.
The calling activity and origination volumes in the commercial portfolios also continue to be robust how.
However, overall commercial growth is constrained by pressure on utilization rate of.
Auto dealer Floorplan balances remained the headwind in the quarter driven by the inventory supply constraints, but we are optimistic that is worth of we're nearing the floor for these balances the.
The outlook is expected of slowly recover from these levels as Oems deliver increased inventory of to dealers.
The inventory finance business from Tcs has been facing of similar headwind as inventory levels of the depressed and outstandings have been near a multiyear loans loans.
Commercial utilization rate for a middle market in corporate portfolio has remained relatively stable in the second quarter cumulatively. These 3 areas of the commercial lending combined represent $5 billion to $6 billion of incremental low growth opportunity as the utilization rate recover.
With respect to investment Securities, we completed of repositioning of the acquired Tcf portfolio to approve of the yields and to reduce duration.
We also deployed an incremental $4 billion of excess liquidity into additional securities.
Inclusive of these actions of the security's portfolio ended the quarter of $35 billion given.
Given the level of of excess liquidity, we had a quarter and we would expect to grow the securities portfolio incrementally by approximately $4 billion over the remainder of 2021.
Slide 11 provides an update on Pvp.
In total the originated $11.4 billion of Pvp loans inclusive of Tcf's activity.
We continue to expect approximately 85% of balances from the programs to ultimately be forgiven.
Loans totaled $442 billion per quarter, and with the significant acceleration of the pace of forgiveness during June.
We anticipate forgiveness of the of the majority of balances to be completed in the second half of the year with a portion trailing into early 2022.
Turning to slide 12 average total deposits increased 13% of sequentially due to the acquisition of Tcf and increased customer of liquidity the levels at Huntington.
We continue to leverage excess liquidity to match wholesale funding balances and costs lower.
Slides of 13 illustrates the strength of our capital in the community ratios as.
As I mentioned common equity tier 1 the ended the quarter of $9, 97% and is near the top of our 9% to 10% operating guidelines. These.
These strong capital levels, coupled with the ongoing economic recovery and our merger integration proceeding as planned gave us confidence to relaunch our share buyback program program earlier than previously expected the <unk>.
Board has authorized $800 million of common stock repurchases over the next 4 quarters that will likely be over weighted towards the earlier part of that time on.
Of our capital plan until managing our CET, 1 ratio toward the lower half of our 9% to 10% operating range over the medium term. This plan of supported by our Finalization of the marks on the card portfolio and our confidence in the pro forma earnings power on return on capital profile of the company.
Slide 14 provides the view of our allowance for credit losses the.
The second quarter, ending ACL represents 2.08% of total loans down from 2.17% of prior quarter and the.
The allowance includes the previously mentioned Tcf credit markets, which was partially offset by the 8% reserve release on the legacy Huntington portfolio.
Slide 15 provide the snapshot of key credit quality metrics for the quarter.
Our overall credit performance remains strong net charge offs were represented annualized 28 basis points of average loans and leases below are 35 to 55 basis points through the cycle average target range consumer charge offs were quite low of this quarter adjusted to basis points as auto and home equity portfolios both reported network.
Covers year to date consumer net charge offs have been 9 basis points on.
Ah criticize assets an MPA ratio is we're both modestly higher as a result of the Tcf acquired portfolios. These portfolios came over as expected consistent with our details due diligence work and we remain comfortable with the acquired book the.
The ACL coverage on Npa's of strong at 229%.
Finally, turning to our outlook on slide 16, we've provided the set of medium term financial targets, including of 17 per cent return on tangible common equity of 56% efficiency ratio, while remaining committed to investing in our people first digitally of Howard strategy.
These metrics in addition to sustainable top line revenue growth slightly above nominal GDP will drive earnings per share growth over time.
Our efficiency ratio will benefit from expense synergies from the Tcf acquisition and incorporates our commitments to continued investment in technology and digital capabilities.
Annual positive operating leverage remains of core principle of our strategy.
We believe these metrics revenue growth return on capital an annual positive operating leverage are compelling set of financial performance indicators and closely aligned with value creation for our shareholder of shareholders now, let me turn it back over to Mark and we'll get to your questions.
We will now take questions the app that as a courtesy of your peers. Each person ask on the 1 question and 1 related follow up and then if that person had any additional questions he or she can add themselves back into the queue. Thank you.
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Our first question is from Scott Fevers with Piper Sandler. Please proceed.
Good morning, guys. Thanks for taking the question.
So I think 1 of the main issues over the past few months has been the sort of the higher expense guys. In a couple of those now that Tcf is in the mix. It a little tougher to tell exactly what's going on on from sort of the Standalone Huntington basis wondering if you could just speak or provide some color on.
How we can feel confident that sort of that guy that you offered earlier in the year about Huntington Standalone gross indeed, peaking and will normalize from here you know how how does that play out what should we be watching for from the outside to understand the expense of control et cetera.
Yes, the great question, Scott thinks the <unk> I'll take that 1 to.
2 big brothers out of.
Offer to you what is on an underlying Huntington basis. As you noted very much executing to our prior plan, which had been elevated levels of expense on the first 2 orders of the the are driven by our investments, bringing net growth rate back down into the low single digits of by the second half of the year.
Everything that we're we're probably the executing to that plan of everything I've seen in terms of of forecast of a standalone Huntington on our track up until the clothes of of the acquisition mid June was very much corroborating that in fact Q2 was coming in a bit lower in terms of of overall expense road and the outlet continues to be the asthma.
Disclose.
And then secondly, the Tcf cost synergies are very much on track and we're executing on that as we as we speak the branch rationalization of Steve noted in the comments on the way the system's conversion as planned personnel decisions of finalized we've completed the a lot of the vendor conversion accusing the progress on on real estate consolidation to the.
Already of those cost savings from the Tcf acquisition will benefit of 2022, which was on the full run rate of being present in the back half of the year is going to 23.
Excluding once on costs, which was clearly will be noisy on Ah.
Organic basis, we expect a step up into the queue 3 as we get the full quarter of the Tcf expense space and then from there beginning in queue for over the next 6 quarters, the gradual reduction of each quarter as the synergies of realize pretty steady no no major step down at this point on our outlook.
Okay, perfect. So absolutely declared the expenses.
Sort of starting a day in the fourth quarter sounds like that.
Correct site.
Okay, perfect and then sit there is little I think that you talked about the margin going into the 2 nineties beginning in the third quarter can you sort of specify and I apologize if I missed this and taking the notes, but what would be included in that does that does that include.
PPP forgiveness fees purchase counting benefits et cetera.
It does include the the dynamics, we see around Pvp, which move around in single digits on the quarter to quarter basis.
That doesn't include the benefit of of.
There will be a couple of basis points of benefit.
Oh really significant of things.
It gives you the sentences, it's 3 basis points in Q3, yeah.
Yeah.
2 of the 22 relatively small on PAA. So it really is the core of underlying NIM it will be in the 2 nineties.
Perfect. Okay. Good. Thank you guys very much.
Pick up.
The next question is from Kent Zerbe with mortgage statements. Please proceed.
Alright, great. Thanks, good morning.
And the morning.
In terms of the loans, obviously, it's it's kind of hard to see the sort of the core of alone growth just given the the merger of Tcf This quarter.
Can you just talk about I guess, what was her that underlying growth and loans.
And I must of kind of curious I know you guys sound pretty positive about the growth outlook on the second half of the year for low imbalances, but the how does that play out in the near term just given supply chain constraints and sort of generally weaker overall industry growth.
Is your positive outlook more weighted towards the fourth quarter, then 3 heuer's of pretty split between the 2.
Great question came on all of this is that I will take it.
Couple of things I would share with you want to answer your question of of kind of the underlying Huntington growth and Ah I will copy on to say that we're deeply integrating the businesses at this point, so over time and the more and more difficult for us to segregate in this way, but generally what we were seeing was consumer growth kind of.
Close to 1% and commercial gross just slightly less of the flat. So overall it was pretty flat of particularly when you strip out the decline of Pvp.
Order of the quarter going forward the more importantly, I think the 2 dynamics that we've been seeing we tried to kind of illustrated in the prepared remarks continue to be very much the.
The thing to focus on the firstly, new production is quite strong.
At or better than our plan on the on the consumer side of surprising continued strength in mortgage an auto.
And then other commercial side.
The record calling activities driving pipelines up both both sequentially from Q of and I would also say very very healthy growth vs 2019.
So, it's giving us a lot of confidence in where in new production is going and it's related to the question of watching therefore of the second factor, which is the impact from the elevated liquidity in the system and supply chain the shoes on existing line utilization and so I think the net outcome of this from what we're seeing is probably about 1% additional gross.
The pressure in the back half of this year and whereas at the beginning of the Euro guidance for 1 to 3 per cent low growth and then by Judah that the mortgage hailing conference of him talking about sort of the low end of that range. My expectation that was of roughly flat on average in the second half of the year with gross really starting to rebound as we get out into.
2022, and go forward I think there's some particular size rock mezzo here I think on the on the places where the supply chains of really pressuring.
Inventory of utilization, an auto and certainly in the UTC of acquired inventory of Finance book, We're seeing OEM production increase and our clients walk to use. These line. So I think over the course of 22 and 23, you will see the $5 billion to $6 billion come back and the new production really shows no signs of slowing down on it.
So we're bullish about the future of and I think the throughout the course of 22, you see those conditions improve.
Alright, perfect and then just as a follow up question. The Doc on the NIM. The 10 basis point of increase the the expecting <unk> how much of that is driven just simply by the addition of Tcf and all of the purchase counting kind of issues.
Vs. The balance sheet optimization or management initiatives that you guys talked about.
Of sequentially much of it is driven by the the Tcf acquisition, but I think sort of overtime. The balance sheet optimization program is providing a grateful or for us and really contributing to what would of otherwise been.
Yield curve impacts on pushing it low or so.
The president.
Business I get Ya.
Hi, perfect. Thank you very much.
Our next question is from Stephen Alexopoulos with J P. Morgan. Please proceed.
Hey, good morning, everyone on.
The start for Ya Zach So there's obviously a lot going on this quarter. When we look at the 35 cents of adjusted EPS is that a run rate that you can grow from.
Yeah I think.
The the outlook we've got the earnings is as good as of given the Tcf synergies coming in clearly it's going to be up on noisy couple of quarters here just with the closing of the acquisition, but our expectations will continue to drive forward.
Very much according to the expectation of we said.
The amount of it back to move on December of of Us here.
Okay. That's.
That's helpful and then in terms of staying on offense rate over the last few quarters you guys have discussed the increasing the pace of investment rate new hires and we know M&A deals are quite distracting rate. When you are trying to put 2 companies together are you able to keep that momentum on offensive you really need to turn the focus internal to make sure of this integration goes seamless.
The as possible.
Steve This is Steve Steinhauer, we've been doing both.
On the quarters, the executing really well these sorts of new products just launched last month.
On silver side.
And I think what's at shared earlier.
The subject of the the reduction in the new line Utilizations of Floorplan rates.
The the.
Of the pipelines have been good and we're closing at or above budget. So we're committed to this quarter strong.
And in comparison to the.
2019.
Where we have more normalized.
Comparison, so we like what we see on the core and we're at the same time really doing.
Great teams are doing a great job on the integration, where either on schedule and a schedule and with the able to make some really good.
Ah decisions around.
The the talent within Tcf combined debate debate Huntington stronger company. So they're they're pleased with what we see line of work you have to do but we're moving rapidly and by the end of October the branch consolidations of done on the nature systems conversions are done.
And we're in the head or twenty-two substantially scent, which is.
Probably close to a record time of the June closing.
For the TP of transaction really like what we see on we're confident about both of the label delivered of the core we're very focused on that as well as get the economics of the integration.
Okay, great. Thanks for taking my questions. Thank you.
Thank you. That's the question is from Abraham put a wall of with the bank of America.
Erica Please proceed.
On any of your good morning.
Just a question of a couple of questions 1.
2 of us a little bit on the consumer side like you've done the lot Steve since day.
King of work in terms of making it of a consumer friendly bank of guests to me 2 things 1 the competitive pressure that you're seeing from either of the syntax of the meal banks and on consumer fees and how you're thinking about 8 where do you see the most at risk and do you see particular this to D C.
Perhaps deposits customer base.
Seems to be the target for some of these banks that are coming out the different takes on new banks. Thank you.
Abraham.
Been focused on the consumer side since 2009, we launched their play in 2010, we've had a series of of feature function that it started on the 24 hour Grace of the Astros rejecting product with the.
For profit and rebuild out of the product lines. We've continued to innovate over the last decade, all day deposits and more recently safety zone, a year ago of this time and different things. So we are we are disrupting ourselves against the Grand plan of of trying to be the premier consumer bank in our footprint and I think we are achieved.
Thing that I think in the last 9 years, we've had 60 of the power of number ones and consumer banking on our footprint you had the 3 mobile apps in the realm of life.
Like what we're seeing we're not done we have some really interesting ideas will be working on the.
The through through this year as well as the next.
The system to further distinguish and provide growth opportunities for us now on the concepts of Tcf icy of stare Blankly banking philosophy, just as a huge advantage for the customer base and I think from the early reaction of our new colleagues from Tcf and the branches.
They are wildly enthusiastic and I think the customer base will will be as well I see that as the big growth opportunity for us including.
The the process. So the operating processes procedures et cetera, we have complemented by our fairplay products and and this emphasis of focus on customer service I think is going to make our on our true.
Combination incredibly balance on the consumer side I am very bullshit.
And the change of neat, we're competing with the fit with this disease and the syntax.
And the the larger banks in our footprint per year, it's actually made us better.
So we're we'll.
We'll look forward to get the new to adapt and the date and yet growth on the consumer Vicky business.
The cats Lucy Thank you and just send the follow up I think the the fate of Steve's question. You had been then it can be acquisitive all of the last few years as you get through the Tcf integration over the next few quarters, just talk to us in terms of need for the M&A you did in terms of the skin on expanding geography is like is any of the priority of with the medium.
Home or not.
While our focus is on completing this integration well delivery of the economics were better and driving the poor.
And and that that's the that's the focus so.
We're really grateful and pleased with the talented new colleagues we of joining us.
The training natural absorption that will go walk over the next year or so and again, that's where we're focus.
Alright, thank you.
Thank you.
Our next question is from Brian Cowen with Autonomous. Please proceed.
Hi, I'm just thinking over the next couple of quarters I mean, it's always tough with the deals to figure out what's really going on low clearly have the benefit of your quality of comments and you've been very clear of that your upbeat on what's going on so far but if you put yourself in our shoes for the next 6 to 9 months.
And you're kind of picking up the financial it's every quarter.
There are 2 or 3 things that you would say look these are the you should watch for these 3 metrics and this is kind of of what what's going to be good in the <unk>, what's going to be business, what would be the the benchmark you should really focus on for the next 6 to 9 months basically.
I pick up the third quarter of financials, and I'm trying to figure out our things going well what would be the 2 or 3 things you would really kiana, yes.
Yes, it's of great questions is that I can.
I fully understand it and frankly entirely what were the very much focused on the show we have the ability as well.
On what I'm watching the.
The second thing is you should of of which is the sequential loan growth from where we stand today as I mentioned I think it will be.
Somewhat flattish share in the back half of the year, but I do think of the conditions will be improving and we were watching that line utilization of that drag the that it as it goes away what kind of of.
Veal, the underlying strength and the new production.
Well I think the the driver of that was.
The 0.1.
0.2 is the name of that as well.
Talking about our expectations and the 2 nineties.
I think that will move.
Potentially based on the pace of the deposit run off on that kind of 18 basis points of elevated liquidity drag coming off I have confidence on our forecasts over the a lot of action and specific plans to drive it by the the other thing I would watch secondly.
Third.
We haven't talked about the last year, but Ah fees are real bright spot for us in terms of the dziedzic focus areas for our strategy and the growth of it's driving principally in those 4 areas I mentioned in my comments carbon payments just.
Debt in the commercial card business card just on fire Treasury management, continuing to charge to track forward very very well our capital markets business growing very nice of the year over year and sequentially and then wealth of investments which of seeing record sales activity of really strong of <unk>.
Revenue growth as well, so I've watched those very carefully.
And then I think lastly, the expenses.
I think we've got a question earlier about about the trajectory of expenses I do think the pop up just from a kind of calendar relation perspective it of the third.
Warner is we have a full quarter of Tcf, then you'll you'll see it every quarter kick down on the nominal basis over the next few quarters us as our synergies of realized I kind of.
By way of basis, and then getting to that run rate level of performance that are in our medium term targets as we get into the the second half of 22 and as we certainly go into the full year of 23. So.
That's our operating plan.
And that sort of of what I would urge you stay on the phone as well.
Additionally, the credit profile continue to improve.
With credit the conservative with both of the marks and our use of discretion or non accrual.
As it relates to the the Tcf portfolio and you'll see you'll see improvement on credit class NPA NPL.
Net charge offs as well.
That's where the great I appreciate all of the detailed from both of you.
Okay.
Right.
Oh, that's the question is from David Conrad Security. Please proceed.
Yes. Good morning, I was just wondering if you could help us out a little bit on next quarter's expenses.
Make sure we're all kind of in the range of the same same.
Same starting point of view put Tcf together with the cage fan for the full quarter.
Yeah, I hate the gifts of overly precise guidance, but Ah my expectation ex 1 timers as will pop up a couple of hundred million dollars is the run rate of.
Into next quarter from around $1 billion of 1 of the expenses ex.
On timers, and then started to picked out from there.
Okay. Thank you.
Okay.
Ladies and gentlemen, we have reached the.
Oh, well so there's 1 more question from John Armstrong with the Odyssey capital markets. Please proceed.
Hey, Jeff.
Yeah.
John Iran on our.
So.
Thank you I'm sorry, thanks for letting me sneaking.
The question for Ya back on Steve's on on the EPS question.
It sounds like you're pretty optimistic on credit can you give us some idea of what you are shrinking in terms of provisioning as well are we still on this reserve reduction credit improvement mode for the company or are there any nuances in terms of how you of Mark Tcf on what you see on credit, where we're going to flip back to of positive provision.
Hey, John is rich on let me take that so from my standpoint, we've been releasing reserves now for 2 quarters.
And within that we're seeing that the positive impact on the economy and our product metrics are continuing to improve the tcf Mark we spent a lot of time on that we feel we have an absolutely rate and so we would not expect to have to build.
Of reserves from here we continue.
So expect the economy the improvement in our credit metrics of Steve just mentioned.
Also expect to see reductions from credit class on MTA is in.
Charge offs, continuing the downward trend so of all of that holds true I would expect to see continued releases.
Forward.
Okay. Good.
Steve Wynn does fairplay come.
Come into the Tcf markets, and what kind of an impact the expect them to have.
John will be introducing the uninjured products when we do the conversion on Columbus day and.
And I think that will be the moment, where.
So the the advertising or marketing along with the highly engaged.
New college of Tcf will be able to to really name Vaca with with what we're talking about here.
We have to get through the conversion and settle of them usually takes a couple of weeks, but but we had such great products in comparison.
There is a British comments are very enthusiastic and such an exciting moment for us will translate that into our customer base and we will be launching marketing campaigns in advance the sort of the momentum that we hope to deliver number will be willing to FCC of feel we've talked about the expense take out the.
Half of the equation, but we were up on the stage of that.
The revenue potential of this.
And it's not been sized it wasn't sized for discussion of that it's not today, but.
It's looking really good and.
And we have a great group of new colleagues that we'll be able to deliver to the source.
We're we're very optimistic about our future together.
Okay.
You kind of had on what I wanted to ask also but do you have any early revenue synergy examples that you can share I know you don't Wanna sides of it but but any examples so far but the.
And a lot of calling in so the the and yes.
From.
Customers, our customers CCF customer of new prospects are very very encouraging we've.
We have a much broader set of products and services then Ccs of them were sitting around talking about what we can do.
I think it was yesterday.
A very large bill market company, and they're asking us questions of on a detailed basis the value.
The CCF just didn't have those products and capabilities and.
So being able to introduce those into the discussion on.
The.
Look very very promising I think the.
A 4 year relationship removed from 1 of our competitors so.
And this combination has a lot of potential.
The breath of our products and services both of the business of commercial side of the services are very encouraging.
This is how much of the tech onto that linked to the to me if I think about the synergies.
Equally bullish on those.
<unk> business.
I was thinking about some sort of an and a few major bucket.
The deepening.
Engagement with products and commercial capital markets Treasury management or card in the commercial heart of things business and consumer all of the things of the steepest referenced in terms of.
Elevated level of share of wallet, given the stronger products and and an accelerated acquisition given the particularly the digital capabilities and then lastly geographic opportunity for for us to expand into the new Big markets, Denver, Minneapolis deepening into a lot of the marks the week.
The us today, I think already beginning to hire staff and really sort of the penetrate the market moving 2 bucks.
So we're moving fairly quickly.
Pick up on that so we can.
The school bit.
We're ahead of the hiring that we ahead of the pro forma on our commercial are well.
In business banking and a couple of the new markets and the power of the combination of in terms of the just the sheer magnitude of what we have the decision in Chicago is very very exciting to us.
A lot of work to do in front of the system, where we're focused on driving organic growth in getting this integration in great shape, but we like what we see.
Okay. Thanks, a lot very helpful and Mark Congrats on thanks for all the help over the years I appreciate it.
Hey, what's up.
Our next question is from Ken Houston with Jefferys. Please proceed.
I kind of good morning, guys.
Just the <unk> can you remind us on your on the medium term goals for.
Rowe and efficiency ratio of just what you're timeframe is for that and then also how do you contemplate what rates and credit you built into that.
Yeah. This is Zack I'll take that with the great question I appreciate the opportunity to elaborate and be more specific so medium term for us is really kind of of the next 48 quarters as I mentioned in my prepared remarks over the questions I think you'll see the deal economics sort of accrue very substantially the 22 and they'll.
Of build over the course of the year, where the run rate of particularly in the second half of the year will be very much evidence of that and then the full year 2003 should should very much be those those metrics and so that's our focus so of.
Back half of 22 in the 23.
And.
I think the the credit environment that were visioning.
And is.
On credit line on continued.
Tracking forward of of benefits as risk just noted in this of.
Answer is just a few moments ago, the probably will represent some incremental reserve releases here, mainly in the back half of 21 I would expect.
On.
And on the forward yield curve basis really just planning on the on the 4 of yoga of about that exist today. So.
You can you can you can see the 2 silver.
Still represents a constructive environment, particularly as you get kind of through 22 and into the the course of 23, but really on of Nin basis that that will manifest itself into the to nineties, which is my forecast sort of of of the entire period.
Got it and then just 1 follow up on the merger saves so with the convergence of finalizing in October is it fair to say that will get.
Right now full run rate saves.
And <unk> and then.
On top of that like how do you feel just about your original cost saved for cash do you see any potential upside and if there were to be upside the expect to let that forward what could you reinvest some of it thanks guidance.
Yeah. Good good good additional questions in terms of the cost of a of still very much on track of deliberate what we committed and that's the number we're really aiming for.
It's not the sort of a perfect step down of of cost as you as you sort of alluded potentially as of the form of your question really.
Think of US tranches of of cost reduction that will begin as I mentioned in the fourth quarter and start to kind of each quarter of thereafter drive incremental benefits on a quarter to quarter basis.
By the second half of the year, you'll sort of see the full totality of of it as a few.
Pieces that will carry forward in terms of of.
Additional execution into the early part of the next year so.
So is the steady reduction in the expenses from the start on 4 at Q4, and then the continuing to about 4 or 5 quarters of Iraq.
Okay. That's helpful.
Our next question.
The next question is again from Brian forward with all the tone of <unk>. Please proceed.
Oh, Hi, I, just wanted to circle back to that 3 Q expense number and definitely recognize you mentioned.
You're not trying to give guidance, but now I'll ask you about point guidance to make sure I'm not misinterpreting.
So you are saying start with the billion and then add a couple of hundred million dollars something like 1212, 5 billion, but with a wide range.
I just want to make sure like.
Let me, let me clarify on let me clarify yeah, I think that'd be.
Looking at the number of it it's roughly.
$250 million higher for the quarter on a growth rate based on just a nominal basis from Q2 in the queue..3 that's the just the sort of Quarterization. If you will of the full quarter of gcs.
Run rate expenses.
Performing many of the synergy started to take place so.
Precisely.
Roughly 200 for the million dollars quarter to quarter of hiring.
Expenses excellent timers into the queue 3.
And the base that's higher off of is roughly 1 billion or.
Of 250 million higher than what.
The number of America $800 million I'm not sure of the the numbers you are looking at you can take off line of you clarified more precise.
Okay. You said the number you are looking at is what.
Fix the Bryan it's the number of in the earnings release at the 1 time items that the Ada of 3 is the starting 0.08 O..3 okay. Perfect. That's exactly what I was trying to clarify of.
Working off the wrong base, Okay, so $250 million higher off 8 O 3 with obviously lots of moving parts of on integration and stop so that's kind of a range to start rather than a point guidance.
Okay, that's the goodwill to take away of.
I appreciate that I was about the plug in the number that was about 20% to hide my models [laughter]. Thanks for the last few thanks for the.
[laughter] I appreciate it.
Okay.
The next question is from Bill cash perish. The Wolf Research. Please proceed.
Thanks, Good morning, I wanted to follow up on the.
Outlook.
Low gross to be flat on the second hash, but improving in 2022 and.
Wanted to ask if you could tie that outlook in with what's implicit in that outlook relative to the.
The the commentary you had around labor force shortages.
Continuing and just.
To the extent that the expectation is that that's going to improve as we look to the fallen beyond as extended unemployment benefits were barents. Another stimulus sort of of beat is that sort of the expectation. That's that's contributing to that or you know maybe maybe just some color on on what's implicit in that outlook.
It's the.
Steve Bill you have of.
The the environment is changing is improving.
We hope on the employment of side.
It is the number 1 issue for businesses at least on our footprint. They just can't get enough of labor and so the the changes assets, we hope will serve more employment, which which will translate over time to to higher growth rates and financing needs, but it's it's.
It's not an immediate correlation logistics of some period of time to the to burn in.
And we expect that we'll see the seal it.
An experienced the during the fourth quarter, but there's also with the 10 year reduction there's some level of prepayment that we would expect to occur on some of our portfolio. So we're we're trying to incorporate of all of the changes with the guidance that you got from from that we're not optimistic that line.
<unk> improve.
In a material sense of this year at this point and that is the.
That's a bit of of a change of where we were at the end of the first quarter.
[noise] understood and I wanted to follow up on some of the commentary on the auto side of the business and ask if you could give some color on your discussions with your dealer clients in terms of what you are hearing from number on their appetite for keeping floorplan levels lower vs history, even even after the supply chain issues are resolved.
How are you how are you guys thinking about the possibility of that we could end up.
Below historical levels of inventory.
While the reminds me of 2010 and 11, 1 of the bankruptcies occurred in inventories withdrawn down and.
Everybody is going to keep your plan.
Levels lower than the the card companies are going to be more judicious trying to hit pricing vs volume of that lasted for a couple of quarters.
There is a volume share game the history has shown the the Oem's line and.
They have the ability to push the delivery.
It's not just the dealers, Florida. So so we believe over time, the floorplan inventories of essentially get back to where they were a lot of the deal of particularly the slow rate environment would love to have a lot more inventory and the.
They're they're getting deliveries and.
The the percentage of the cases they are those of Presold. So then on on the last very briefly.
And they are still phenomenon, where people come in thinking of what they want the.
Once the experience the next version of or or the additional.
Teachers that are available on the car.
The there is a sales process and generally of selection that still have some physical components of the site I think the dealers.
Will the essentially in the position they were back in the 18 and 19 overtime that I don't think thats of the.
Of 21 and that day.
Truly be in 22, but by 2003.
That will be normalized.
The the pandemic.
Stays on the control.
Thank you Steve that's helpful.
Zone.
Alright, Steve before we move on to the next.
This real quick we got an E mail question.
As you talked about the buyback, but you didn't talk about the dividend could you give us what you're thinking on the dividend.
We typically the.
Dividend decisions on the fourth quarter of the Board's decision.
Will the rerunning of.
Models, now with Tcf data and the.
And look at the end of our priorities of it changed.
Organic growth dividend and all of the us at this point.
That's about the sort of let go of at this point.
The Joe next question.
There are no more questions. So Steve I would like to turn the call back to you for any closing remarks, well. Thank you all for your interest in Huntington, We continue to execute our core strategies as as you heard earlier and I'm confident will drive both near term long term return from our shareholders are on pace and committed to deliver the economics of the recently closed.
Acquisition, while on the organic growth hormone driven by our investments remains intact. So were optimistic about the average is in front of us confident in our ability to capitalize on the improving the economic recovery.
I believe the disciplined execution of our strategies will drive up courthouse financial performance of the medium and long term of we've clearly build a strong foundation of the enterprise risk management and of deeply embedded stock ownership mentality with July's, Our board management colleagues with our shareholders. So thank you for your support and interest in Huntington have a great day.
This concludes today's conference. We may disconnect. Your lines at this time. Thank you very much for your participation have a great day.