Q4 2024 Huntington Bancshares Inc Earnings Call
Speaker Change: Greetings and welcome to the Huntington Bankshare's fourth quarter 2024 earnings conference call. At this time, all participants are on a listen only mode. A 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.
Speaker Change: Brendan Lawler Chief Credit Officer will join us for the Q&A.
Speaker Change: Earnings documents, which include our forward looking statements disclaimer and non-GAAP information are available on the Investor Relations section of our website with that I'll turn it over to Steve. Thanks, Tim Good morning, everyone and welcome. Thank you for joining the call today.
Speaker Change: Building on a good third quarter, we delivered a very strong fourth quarter results, which Jack will detail later.
Speaker Change: 'twenty 'twenty four was an exceptional year for Huntington with our teams delivering accelerated growth over the course of the year.
Speaker Change: We're very grateful to our 20000 colleagues who drove these results while living our purpose every day as we make people's lives better help businesses thrive and strengthen the communities. We serve now onto slide four there are five key messages. We want to leave you with today first we drove record fee revenues and accelerated growth of loans.
Speaker Change: In deposits this reflected contributions from both existing and new businesses.
Speaker Change: Our investments into new geographies and capabilities are delivering attractive returns and we're seeing accelerated contributions from these new areas, we delivered sequential growth in both spread and fee revenues in the quarter, we move into 'twenty twenty-five with strong momentum.
Speaker Change: We are poised to deliver record net interest income and fee revenues for the full year.
Speaker Change: Third we are executing our dam data action plans and lowering deposit pricing. This supports management of net interest margin through a dynamic interest rate environment.
Speaker Change: Fourth we are achieving strong credit performance. This is a direct result of our disciplined client selection and rigorous portfolio management aligned with our aggregate moderate to low risk appetite.
Speaker Change: Fifth through execution of our growth strategies, we are driving profit momentum into 2025 and beyond I'll move on to slide five to recap our performance last year 'twenty 'twenty four was a breakout year for Huntington, our many years of consistent and disciplined management benefited us as we came into the year with robust liquidity and capital.
Speaker Change: As well as stable credit this position of strength enabled us to accelerate growth in our core.
Speaker Change: Add new capabilities and teams and expand into new geographies in north and South Carolina as well as Texas. We're just getting started here, we believe our investments and focused execution will deliver robust organic growth in future years the.
Speaker Change: The results in 'twenty 'twenty four included growing average deposits by over seven and a half billion dollars and growing average loans by over three and a half billion dollars.
Our growth accelerated over the course of the year with our new initiatives increasing contributions to our overall results.
Speaker Change: Additionally, our fee revenue businesses are performing exceptionally well within payments, we brought in house or a merchant acquiring capabilities and increased treasury management products and services within wealth management, we're expanding advisory household relationships, 9% year over year and gathering increased wealth assets from our customers.
Speaker Change: Capital markets set a new quarterly record for revenue in the fourth quarter at $120 million, an increase of 74% from a year ago.
Speaker Change: Turning to slide six let me take a moment to share the top level revenue trends. We've delivered the organic growth. We are driving continues to significantly outpace our peer group.
Speaker Change: We are well positioned to drive attractive and sustained revenue.
Speaker Change: These revenue growth trends support expanding P P N or into 'twenty 'twenty five and beyond now let.
Speaker Change: Turn to slide seven the growth opportunities today are the most attractive they've been since I joined Huntington. We have three primary areas of focus. These include executing the organic growth strategy I shared earlier driving revenues higher and maintaining our consistent approach to risk management, we have numerous growth levers both in our existing.
Speaker Change: Markets and businesses as well as the collective set of expanded geographies and new capabilities.
Speaker Change: We see substantive opportunities to expand loans deposits and value added fee revenues. These efforts will result in sustained revenue expansion in both fee and spread revenue Huntington benefits from a consistent approach to risk management that has served us well for many years. We expect this bedrock principle to remain unchanged as we maintain our aggregate moderate.
Speaker Change: To low risk appetite.
Speaker Change: Back over to you to provide more detail on our financial performance.
Speaker Change: Thanks, Steve and good morning, everyone Slide eight provides highlights of our fourth quarter results. We reported earnings for common share of 34 cents return on tangible common equity R. R. O T. C. He came in at 16, 4% for the quarter average loan balances increased by $7 billion or five 7% versus.
Speaker Change: Since last year.
Speaker Change: Average deposits increased by $9.7 billion or six 5% versus last year C. T. One ended the quarter at 10.5% and increased roughly 30 basis points from last year.
Speaker Change: Adjusted common equity tier one, including a OCI was eight 7%.
Speaker Change: Tangible book value per share has increased by six 9% year over year.
Speaker Change: We maintained strong credit performance and are positioned to continue to outperform net charge offs were 30 basis points stable from the prior quarter allowance for credit losses ended the quarter at 1.88%.
Speaker Change: Turning to slide nine consistent with our plan and prior guidance year over year average loan growth continued to accelerate.
Speaker Change: Loan growth in the fourth quarter increased five 7% year over year rising from three 1% year over year in Q3.
Speaker Change: Average loan balances increased sequentially by $3 $7 billion or two 9%.
Speaker Change: This exceptional loan growth reflects strong production and contributions from our existing and new businesses.
Speaker Change: During the quarter, new initiatives represented $1.1 billion in gross or 30% of the total net loan growth.
Speaker Change: Growth from new initiatives continued to accelerate as we have guided previously increasing from approximately $700 million and $500 million in the prior two quarters of the $3 $1 billion of loan growth from existing businesses, we saw $766 million from auto.
Speaker Change: $421 million from regional banking commercial and industrial.
Speaker Change: $511 million from asset finance.
Speaker Change: $327 million from higher auto Floorplan balances.
Speaker Change: $85 million from seasonally higher balances within distribution finance.
Speaker Change: $165 million from all other consumer categories, net including increases from residential mortgage and home equity offset by lower RV marine balances.
Speaker Change: And approximately $800 million collectively across the commercial bank of the $1 $1 billion of loan growth from new initiatives. The largest contributions in the quarter came from funds finance, North and South Carolina and Texas.
Speaker Change: Offsetting a portion of this growth was lower commercial real estate balances, which declined by $465 million.
Speaker Change: Turning to slide 10, the result of our accelerated loan growth continues to be a differentiated position compared to our peers over the last year through the third quarter. The peer group reported lower loan balances down nearly 3% at the median during this time Huntington outperformed the median by.
Speaker Change: <unk>, 6%.
Speaker Change: Importantly, we have sustained deposit growth to self fund our expanded loan balances with deposit growth also substantially outperformed peers on accumulative basis, turning to slide 11, we delivered deposit growth through the fourth quarter average deposits increased by $2.9 billion of one point.
Speaker Change: 9%.
Speaker Change: This growth was led by our commercial customers non interest bearing deposits expanded growing by approximately $800 million on average totaling 18.6% of total deposits.
Speaker Change: We lowered our overall cost of deposits in the quarter by 24 basis points to 2.16%.
Speaker Change: This is consistent with the trajectory we shared at our mid quarter update and reflects our disciplined deposit pricing.
Speaker Change: Onto slide 12 during the quarter, we drove a $45 million or 3.3% growth in net interest income.
Speaker Change: This reflects over 6% growth year over year and net interest income has increased for the third consecutive quarter.
Speaker Change: Net interest margin was 3.03% for the fourth quarter or five basis points from the prior quarter the.
Speaker Change: The change in net interest margin included three basis points lower spread net of free funds more than offset by three basis points benefit from lower cash balances and a five basis point benefit from lower drag from the hedging program.
Speaker Change: Turning to slide 13, our level of cash and securities at year end decreased to 28% of total assets as we saw modestly lower cash balances in the quarter.
Speaker Change: We expect to operate at or around this level going forward.
Speaker Change: We've continued to reinvest securities cash flows into treasuries and as previously stated expected manage the duration of the portfolio at approximately the current range as.
Speaker Change: As previously disclosed we sold approximately $1 billion of corporate securities during the fourth quarter.
Speaker Change: This repositioning was beneficial to risk weighted assets and capital ratios and resulted in a pretax loss of $21 million with an earn back of less than two years.
Speaker Change: Turning to slide 14, we continue to manage our hedging program with two objectives in mind to protect net interest margin from a lower rate environment as well as to protect capital from a potential higher rate environment.
We have remained relatively stable in our hedging positions since November we continue to monitor the likelihood of potential rate scenarios.
Speaker Change: And we will remain dynamic as we adjust to the rate environment move.
Speaker Change: Moving to slide 15 on a GAAP basis noninterest income increased by $154 million from the prior year on a core underlying basis adjusting for the impacts of the loss on securities CRT transactions and the pay fixed swaps <unk> mark to market from the prior year.
Speaker Change: Fee revenues increased by $96 million or 20%.
Speaker Change: Moving to slide 16, we have continued to see powerful acceleration from our focus on three strategic fee businesses for.
Speaker Change: For the full year fee revenues as a percentage of total revenue increased to 28% from 26% to the prior year within payments, we saw 8% growth year over year in the fourth quarter.
Speaker Change: Driven by a 16% increase in commercial payment revenues benefiting from higher Treasury management fees and the launch of our new merchant acquiring model.
Speaker Change: Wealth management fees increased by 8% from the prior year a U M.
Speaker Change: AUM continued to grow increasing 16% from the prior year with wealth advisory households, having increased by 9% finally capital markets completed a record quarter with $120 million in revenue that's up 74% from the prior year, our Capstone group.
Speaker Change: Had a phenomenal quarter, helping to lead our strong capital markets results.
Speaker Change: Turning to slide 17.
Speaker Change: GAAP noninterest expense increased sequentially by $48 million and underlying core expenses increased by $57 million from Q3. The primary driver of the increase in expenses was in personnel costs largely comprised of higher revenue driven compensation expense, which was $42 million higher than the <unk>.
Speaker Change: Slide 18, recaps, our capital position common equity tier one ended the quarter at 10, 5% our adjusted CET one ratio inclusive of a OCI was eight 7% up approximately 10 basis points from a year ago.
Speaker Change: Our capital management strategy remains focused on driving our top priority to fund high return loan growth, while also driving capital ratios higher.
Speaker Change: We intend to drive adjusted CET, one inclusive of a OCI into our operating range of 9% to 10% on slide 19 credit quality continues to perform very well.
Speaker Change: Net charge offs were 30 basis points for the quarter stable from Q3 and within one basis point of that level over the past four quarters for the full year net charge offs also totaled 30 basis points well within our through the cycle range allowance for credit losses was at 1.88% lower by five basis points from the prior quarter.
Speaker Change: This reflects the continued strong credit performance and loan portfolio growth.
Speaker Change: Turning to slide 20, the criticized asset ratio improved for the third consecutive quarter to 3.76%. The nonperforming asset ratio ended the quarter at 63 basis points relatively stable over the prior three quarters.
Speaker Change: Let's turn to slide 21 for our outlook for 2025, we expect to continue to drive robust loan growth with balance is expected to increase between five and 7% for the full year.
Speaker Change: Deposits are also expected to sustained growth with balances increasing between three and 5%. We see net interest income on a dollar basis growing between four and 6%. This year as noted this level would reflect record net interest income on a full year basis, we will maintain our focus on key fee.
Speaker Change: Revenue areas, including payments wealth management and capital markets, which we expect to lead to noninterest income growth between four and 6% for 2025 expense growth will be driven by sustained investments in revenue producing initiatives, albeit at a moderately lower pace of growth that we saw in full year 'twenty 'twenty four we.
Speaker Change: Expense growth between three and a half and four 5%.
Speaker Change: The pace of expense growth will in part be driven by revenue levels and the associated variable compensation expense importantly, we see positive operating leverage for full year 2025.
Speaker Change: Related to credit, we expect net charge offs for the year to be between 25 and 35 basis points the.
Speaker Change: The effective tax rate for the year is expected to be approximately 19%.
Speaker Change: Let me also share a couple of thoughts on where we see trends for the first quarter compared to the fourth quarter, we expect average loan balances to grow approximately 2% average.
Speaker Change: Deposits to be relatively stable sequentially net interest income on a dollar basis to be lower by approximately 2% to 3%, reflecting normal day count headwinds as well as a modestly lower net interest margin fee revenues normalizing in the first quarter, given seasonality and recognizing the record level, we delivered in the fourth quarter.
Speaker Change: <unk> <unk>.
Speaker Change: <unk> revenues are expected to be approximately $500 million in the first quarter and then expand from that level over the course of the year expenses are likewise expected to be lower in the first quarter given the strong year end production levels, we delivered in the fourth quarter.
Speaker Change: We forecast expenses to be down approximately 2% from the fourth quarter, the exact level of which will fluctuate dependent on revenue driven compensation.
Tim: With that we'll conclude our prepared remarks and move to Q&A Tim over to you. Thank you that operator, we will now take questions. We ask that as a courtesy to your peers. Each person ask only one question and one related follow up and then if that person has additional questions he or she can add themselves back into the queue. Thank you.
Tim: Thank you the floor is now open for questions. If he would like to ask a question. Please press star one on your telephone keypad at this time a confirmation tone will indicate your line is in the question queue. You May press star two if he would like Trimble. If your question from the queue for participants using speaker equipment, it may be necessary to pick up the handset.
Tim: Before pressing the star Keys again, Thats Star one to register your questions at this time.
Tim: First question is coming from the non Kathleen with Morgan Stanley. Please go ahead.
Kathleen: Hi, good morning.
Speaker Change: Uh huh.
Kathleen: Good morning.
Speaker Change: Is that can you talk about the confidence around the NII guidance range.
Speaker Change: It's a tighter range than last year, and I asked because I know theres a lot of uncertainty from trade and immigration and tax policy. So I just wanted to get a sense of what's embedded in that guide from a macro perspective.
Speaker Change: Yes, great question Manav.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: And the short answer to your question is we're very confident that we can drive revenue growth in that range.
Speaker Change: Ultimately, where we see the year playing out obviously still pretty dynamic here in terms of <unk>.
Speaker Change: Short term rate outlook, what's going on with the longer term part of the curve, we see the ability to manage the NIM.
Speaker Change: Any reasonable range of zero cuts dropped two or three cuts at approximately flat throughout the course of 2025.
Speaker Change: He is doing as we go into 2026 and beyond the normal.
Speaker Change: Upward sloping yield curve.
Speaker Change: Can you put.
Speaker Change: In high return areas, but generally flat and NIM for 2025, that's really can be low drop their corner.
Speaker Change: That drives the revenue performance this year.
And we think we've set the range at a level that's very achievable.
Speaker Change: Searching app.
Speaker Change: Got it and.
Speaker Change: It is youre growing loans faster than deposits is here it sounds like you're reversing some of the trends that we've seen in 2024.
Speaker Change: Can you talk about what's driving that and does that give you more room to flex on deposit cost as you go through there.
Speaker Change: Yeah.
Speaker Change: Look in terms of loan growth running right now.
Speaker Change: In the fourth quarter, we just posted five 7% growth.
Speaker Change: Greater than the 5% that we've been calling out for some time in terms of the exit growth rate, we'd see feel really good about that.
Some of the prepared remarks, you know about 60% of that coming from the core 40 perception and new initiatives. So.
Speaker Change: Really good mix of growth as we go into 2025.
Speaker Change: Five to up to 7% growth in.
Speaker Change: And loans is for the most part just sort of continuing on that run rate.
Speaker Change: We think the growth composition in 2025 will be approximately half and half.
Speaker Change: For the core and the new initiatives. So do you see a nice balance.
Speaker Change: Yes.
Speaker Change: The board.
Speaker Change: You know as we as you think about the loan to deposit ratio.
Speaker Change: We're very intentional over the course of last couple of years to drive strong deposit growth.
Speaker Change: A number of times before.
Speaker Change: Refunding.
Speaker Change: We expect it to be accelerating.
Speaker Change: Loan growth and so quickly. So please just you got plan play out well as we as we think about the plan for 'twenty five growing deposits still pretty well here between 3% to 5%.
Speaker Change: Core funding most stuff.
Loan growth, but also benefiting from the Doctor would you have taken the loan to deposit ratio down a bit. So I think that does set us up pretty well to continue to drive.
Speaker Change: Data plan, which has outperformed thus far.
Speaker Change: The first quarter and still see further further down deposit.
Speaker Change: The pricing, even though we.
<unk> accelerates.
Speaker Change: Great. Thank you.
Speaker Change: Thank you. The next question is coming from John Pan Kearney of Evercore. Please go ahead.
Speaker Change: Yeah.
Morning.
Speaker Change: Brian John on related to that growth that you were just talking about.
Speaker Change: On the loan side can you maybe help us with the new money loan production yield that youre, bringing on this new loan debt. So overall new money.
Speaker Change: <unk> yield versus your existing yield and then maybe more specifically underneath that what is the new money yield on that one 1 billion this quarter generated from the new initiatives.
Speaker Change: Appreciate the question John.
That's not going to dive into the depths of that.
Speaker Change: Sort of pocket.
Speaker Change: The high level.
Speaker Change: The yields we're seeing ultimately are are very consistent with kind of a <unk>.
Speaker Change: Spread levels, we've got overall, that's why you're seeing a pretty consistent level of NIM.
Speaker Change: Obviously, the business being roughly 50% fixed asset production those are keyed off of the belly of the curve.
Speaker Change: And 50% being variable keyed off the shorter end.
Speaker Change: One thing I didn't say, it's just a minute ago I was asking was that just sort of unpack.
Speaker Change: What's going on with yields and NIM, we continued to benefit from quite a bit of fixed asset repricing.
Speaker Change: Given given where the belly is.
Speaker Change: And so all of those things will help us together to get to that stable NIM, we've talked about.
Speaker Change: Okay, Alright, Thank you and then.
Speaker Change: Just hopping to the capital D C.
Speaker Change: He wanted to turn and a half that's down to adjusted for a OCI eight seven and I know you're targeting nine to 10, including of that so fair to assume I know buybacks are still kind of on hold how long you see that do you see a potential change in that outlook as you look at the capital.
Speaker Change: <unk> that you're forecasting for the year, just trying to figure how we should think about capital return.
Speaker Change: Yeah. Good question.
Speaker Change: If you think about capital or us what we're focused on the goals that we've had.
Speaker Change: Our unchanged most important of which is funding high return low.
Speaker Change: We're pleased that that's really been.
Speaker Change: A great opportunity for us to deploy our internally generated capital.
Speaker Change: Adjusted <unk> ratio of eight 7%.
Speaker Change: Our objective remains the same which is to drive that up into the 9% to 10% operating range.
Speaker Change: And I expect that we'll do that within the first half of 2025, and then continue to drive that higher.
Speaker Change: Solidly within that range.
Speaker Change: My my working to work out at this point John is that we continue to see our W. A growth and loan growth.
Speaker Change: Forecasting that will likely be bouncing around the kind of the law.
Speaker Change: Throughout the course of.
Speaker Change: 2025.
Speaker Change: Obviously also depends on where the longer end of the yield curve is where the OCI marks trend.
Speaker Change: Under that scenario there's relatively.
Speaker Change: Little capacity to do share repurchases in the near term over the longer term as we continue to drive share.
Speaker Change: <unk> went up into that range I would expect us to return to more normal distribution, including share repurchases. So 20th I will to some degree going to be.
Speaker Change: It's dependent on on that pace of loan growth and where.
Speaker Change: Longer end of the yield curve.
Speaker Change: No.
Speaker Change: True.
Speaker Change: Okay, Great alright, thanks, Jay.
Thank you.
Speaker Change: Thank you. The next question is coming from Ebrahim <unk> of Bank of America. Please go ahead.
Hey, good morning.
Alright and Abraham.
Speaker Change: I guess is that just falling up on the comments around the loan to deposit ratio as we think about let's say loan growth meets deposit growth in 'twenty five.
Speaker Change: Just talk about your expectations around the incremental margin and what's the incremental cost of deposits that are coming on relative to where you see the rest of the book repricing.
Speaker Change: Yes.
Speaker Change: Good questions.
Speaker Change: Loan to deposit ratio.
Speaker Change: Exiting Q4 level was 79% so it really gives us a powerful opportunity to continuing to drive.
Speaker Change: Well grow faster than the deposit growth for some period of time, even though the core fund.
Speaker Change: The marginal spreads we're seeing now are very consistent.
Speaker Change: Mentioned earlier prior question too towards the in the past.
Speaker Change: Yes, I think obviously.
Speaker Change: In the near term, we will continue to see.
Speaker Change: Acquisition deposit rates come down and benefit from the lower.
Speaker Change: Yield curve, what's going on with fed funds reductions but.
Speaker Change: And over the longer term.
Speaker Change: We will continue to see that begin to rise as we go into 2025 then.
Speaker Change: At the end of 'twenty, five excuse me 26 and beyond.
Okay.
Speaker Change: Got it.
Speaker Change: I guess, just one quick one on the fee outlook.
Speaker Change: I don't payments wealth management capital markets, how much of the fee growth is tied to lending or I'm. Just trying to think through is lending or loan growth or slower could you still have a fee revenue backdrop, which could be in line or better than what.
Speaker Change: You've guided this morning.
Speaker Change: Fundamentally the fee strategies are there to support the overall core business and so the faster the core business grows.
Speaker Change: More fee revenues opportunities there are of course and it will give you a sense as you look at some of our new growth initiatives.
Speaker Change: Carolinas in Texas, and some of the new.
Speaker Change: Specialty commercial businesses as those grow we're seeing nice pull through in terms of fees, particularly treasury management.
Speaker Change: Ebrahim.
Speaker Change: With that being said the.
Speaker Change: Another core element of the strategy is really penetrating the opportunity always so wealth management for example, I wouldn't consider it to be highly correlated with loan growth more route.
Speaker Change: In terms of penetration.
Speaker Change: Uh huh.
Speaker Change: Broadly correlated but I think also very independent shops with the strategies that we're driving my expectation over the long term, we'll see payments wealth management capital markets, all being high single digit to low double digit growth in revenues and a pretty sustainable way.
Speaker Change: And of course, the long term.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Yeah.
Brian Foran: Thank you. The next question is coming from Brian Foran of choice. Please go ahead.
Speaker Change: Oh, Hey, Al I guess, Brian or Deb.
Brian Foran: Hey, you.
Brian Foran: You know definitely recognize that your 25 loan and deposit growth died.
You know most of your peers, so far seem to be like flat up 2%, So youre continuing peer leading growth.
Brian Foran: But just in terms of like.
Brian Foran: It's kind of like flat to decelerating in terms of growth rates from where we are now and conceptually like why did you decelerate is it is it macro inputs or is it seasoning of investments or what would the growth rates are flat to decelerating.
Brian Foran: Drive that kind of change in the derivative I guess.
Brian: Yeah, Great Great question Brian.
Brian: I appreciate you recognizing it is purely because we certainly feel pretty good about that.
Brian: The way I think about it is sustaining the current run rate of loan growth again, we talked earlier five 7% year over year in Q4, it's pretty much spot in the middle of the loan growth range.
Brian: There's potential that will be at the high end of that range, which would represent acceleration actually of loan growth.
Brian: Deposit growth of 3% to 5%.
Brian: Is somewhat of a deceleration from the growth rate, we saw in 2024, but really reflective of us not needing to grow deposits as much and purposely driving down the cost of deposits.
Benefiting from frankly.
Brian: I really advantageous position, we havent loan to deposit ratio is so great with us manage the NIM overall in the face of.
Brian: Sort of a dynamic interest rate environment at this point over the longer term I would expect to.
Brian: It really won't match up.
Brian: With core deposits kind of in the business model as you go out past 'twenty five, but we're kind of managing the dynamic nature of the environment right now.
Brian: So that's how I think about it the sustaining celebrating loans have been released.
Brian: Purposely managing the deposit volumes to ensure that we can have a solid NIM and drive overall revenue.
Which is on the job.
Brian: Brian This is Steve there's also seasonality where very large assets in epsilon duration.
Brian: That typically has a very strong fourth quarter.
Brian: So.
Brian: Annualize that fourth quarter.
Brian: Because it doesn't reflect seasonality and asset finance and some other businesses that are seasonal in nature, but we're.
Brian: Coming into 'twenty five.
Brian: We have had.
Brian: Yeah, we're about 50% better this year to last year with the pipeline and most of the businesses. So we've got a lot of confidence in the low well within the range, we talked about it perhaps.
Brian: If the.
Brian: The outlook continues to be robust, we will have an opportunity to succeed.
Brian: Yeah.
Brian: That's really helpful medium to follow up you know the eight.
Brian: I was going to eight states in three verticals. The eight eight verticals in three states anything you would highlight as kind of a standout.
Brian: On the good side.
Brian: Do you think that's been maybe a little bit more challenging and as you think about investments for 25.
Mostly about continuing to invest in in the Eaton of three or is there anything.
That could potentially be new verticals or new states on the on the docket.
Brian Foran: Well, Brian Great question. Thank you.
Brian Foran: Investing in our core markets as well as these three new geographic markets.
Brian Foran: And at least eight vertical so we've added several hundred.
Brian Foran: Our ads.
Brian Foran: And new business generators in.
Brian Foran: In the last year and a half.
Brian Foran: We were very pleased with the overall performance we've had some outstanding results.
We're off to a strong start in bulk.
Brian Foran: South Carolina's in Texas, our pumps and ads business has ramped up faster than any business.
Brian Foran: We've had and especially business we've had.
Brian Foran: They're all doing reasonably well in aggregate there there has been plenty ahead of.
Brian Foran: Expectations.
Brian Foran: But.
Brian Foran: The regional geographies.
Brian Foran: Carolinas in Texas.
Brian Foran: <unk> expense basis or absolute.
Brian Foran: I actually made money last year. So we like the start we're confident.
Brian Foran: We have excellent colleagues who joined us.
Brian Foran: And we're well positioned to continue that growth. So organic growth is our priority and will continue to look for.
Brian Foran: From those.
When we think of investments and at the same time as you saw earlier this but we are.
Brian Foran: He wants to others, but the.
Brian Foran: Aero and defense.
Brian Foran: <unk>.
Brian Foran: There will.
Brian Foran: Potentially be additional specialty verticals.
Brian Foran: As we go forward, probably not a debate over the last year and a half.
Brian Foran: Okay.
Brian Foran: Yeah.
Brian Foran: Thanks, so much.
Brian Foran: Yeah.
Speaker Change: Once again that is star one if you would like to register a question at this time. The next question is coming from Jon <unk> with RBC capital markets. Please go ahead.
Jon <unk>: Hey, Thanks, good morning.
Jon <unk>: Hey, Steve just maybe following up on that a little bit on loan growth.
Jon <unk>: You you heard in your prepared comments you said this or these are some of the most attractive opportunities you've seen since you've joined Huntington and 50% higher pipelines.
Jon <unk>: Can you talk a little bit about the borrower feedback.
Jon <unk>: Youre hearing over the last few months and then if you could touch a little bit also on the core growth the $3 1 billion and core growth was obviously much stronger than you guys flagged lower CRE. So just kind of curious if there's a sentiment change and what's driving that core growth.
John: John the borrower's sentiment the Casper Southern I should say is.
John: Is consistently positive.
John: Positive.
John: Outlook post election, that's changed you'd see it in the confidence.
John: Measures and it seems that there are smoke consumer and business and.
John: And what I know.
John: We've been out with a 100 or so customers and prospects since the election and its almost a 100% are more positive about 25 and beyond.
John: So there is a.
John: There is a.
John: A consensus I think.
John: Expected ROE increased inventories.
John: We saw record.
John: Assets in the fourth quarter of about $600 million more than we did.
John: Previously as a record.
John: And I think that reflects sort of the unlocking of <unk>.
John: Expectations, there was a lot of.
John: Deferred.
John: Finance activities I think in the first half of the year and then waiting to see the election and then.
John: Yeah.
John: Decisions were made and.
John: A significant.
John: That's reflected in the fourth quarter.
John: December was a very robust month for us for example, the assets at that time.
John: So we're heading in the momentum we have and it's reflective I think of the settlement and gives us a lot of confidence as we come into the year.
John: Terms of the core growth.
John: We get we have some seasonality in that core growth.
John: In the fourth quarter with asset finance and commercial real estate. We believe is close to bottoming out we're prepared to increase.
John: The the Outstandings and commitments.
John: And created a book has performed exceptionally well in aggregate. The group is performing exceptionally well so what we're talking about loan growth in the same way about cheese and deposits with our 2020 for performance.
John: And.
John: So we come into the cost of interest and there's a lot of confidence in terms of their own.
Steve: Okay. Good that's very helpful. Steve and then one more for you with the new administration coming in.
Steve: And some changes in the regulatory leadership, what regulatory changes would you like to see what what could help Huntington.
Steve: Yes.
Steve: I think the.
Steve: Business community as a whole will benefit from a more positive pro business orientation.
Steve: With the new administration.
Steve: So I think you'll see more.
Steve: Acquisition.
Steve: Combinations.
Business convenience as a whole I think and in banking.
Steve: We will have more stability.
Steve: And less uncertainty about liquidity and capital.
Steve: And other issues I think the banks.
Speaker Change: Thanks, generally are well capitalized.
Steve: And.
Steve: This overhang of Basel III.
Steve: Get addressed.
Steve: Fairly quickly.
Beyond that I believe.
Steve: More constructive dialogue about.
Steve: <unk> willingness to do business.
Steve: It was less.
Steve: With less oversight and constraint is.
Steve: It's probable and we'll just have to see if that develops.
Steve: Okay. Thank you very nice results.
Steve: Thank you.
Speaker Change: Thank you. The next question is coming from Matt O'connor of Deutsche Bank. Please go ahead.
Nate Sign: Hey, everyone. This is Nate sign on behalf of Matt O'connor I wanted to ask about that NIM components. In October you said name should be above 3% in the second half of 'twenty five thought here about 3% now.
Nate Sign: I heard you say modestly lower NIM than in the first quarter, but can you elaborate on your NIM outlook for the full year.
Paul: Sure Paul.
Nate Sign: Yeah.
Nate Sign: Exactly thanks for the question.
Nate Sign: Across the course of the year I'm expecting to see approximately 3% NIM plus or minus a few basis points out of coal.
Nate Sign: Generally pretty flat throughout the course of this year.
Nate Sign: I mentioned a minute ago, we do continue to see the opportunity to drive NIM higher as we go into 'twenty, six and beyond particularly driven by the continued globalization of an upward sloping yield curve.
Nate Sign: You kind of unpack the drivers of NIM in 2025.
Nate Sign: Excuse me.
Nate Sign: One major benefit for us, which we've seen through powerfully throughout the course of 'twenty four as well as fixed asset repricing gives you a sense in 2024, we have about 12 basis points of benefit from fixed up.
Nate Sign: As we go into 2025, I'm seeing continued benefits and just based on their cost increases in the belly of the curve in the slightly longer part of the yield curve recently seeing about 10 basis points likely to benefit from fixed asset repricing in 2025, so that'll continue to be a really powerful headwind.
Nate Sign: So it'll.
Nate Sign: It will continue into 2026 and beyond by the way so that would be one of the drivers of a longer term.
Speaker Change: And Dan.
Speaker Change: You know another another factor that will be helpful for us as deposit pricing and interest bearing liability costs continuing to reduce.
Speaker Change: It significantly accelerate beyond what our initial plan had been deposit pricing actions in the fourth quarter was one of the reasons why we drove outperformance in the fourth quarter more than we would have expected and we continue to feel pretty confident about being able to drive data.
Speaker Change: You previously indicated and see deposit costs come down for the course of the year clearly that will be to some degree a function of what's going on with your straight environment.
Speaker Change: Are we in our extended pause or are there further rate reductions and what you need.
Speaker Change: Strong market and client sentiment is around where interest rates will go who would you see further opportunity to reduce our funding.
Speaker Change: <unk> costs.
Speaker Change: The offset to that clearly would be the 50% of our loans that are variable pricing status will fall silver.
So far it will come down because the first quarter from the fourth quarter on average just given the kind of late Q4 Fed fund reduction we saw in December. So it's one of the reasons why I've called out you'll likely a little lower.
Speaker Change: Net interest margin here in the first quarter, but over the course of the year, we're able to balance the variable yield.
Speaker Change: Funding cost reductions and then the last factor is hedge it.
Speaker Change: We saw in the fourth quarter of benefit as the hedge drag continuing to reduce as we had previously indicated I expect to see a further modest benefit as we get into the middle part of this year.
Speaker Change: And then if the curve stays as it is probably a few basis points of drag into the back half of the year. If you look kind of across the totality of the year in terms of hedging likely a couple of basis points benefit on a full year basis.
Relatively similar here between Q4 Q4 so.
Speaker Change: Several puts and takes but if I take a step back for us.
Speaker Change: Outlook for 2025 years, it's a pretty dynamic environment.
Speaker Change: The drivers are different.
Speaker Change: On a quarterly basis, but the net result of it.
Speaker Change: Should be about flat throughout the course of this year and then rising as we go into the 26 and beyond.
Speaker Change: Yeah.
Speaker Change: Okay, great. Thank you and then separately can you talk about the securities repositioning you did this quarter.
Speaker Change: We sold 1 billion of Securities.
Speaker Change: And I guess, there was a big March up in the long end of the yield curve, but are you planning on doing more of these repositioning.
Yeah, Great Great question.
Speaker Change: So the short answers your question in terms of more is not likely.
Speaker Change: The repositioning that we did was selling about $1 billion of corporate securities.
Speaker Change: That had a higher risk weighted assets.
Speaker Change: Excuse me wait on them and so by selling down and reposition the portfolio, we were able to unlock.
Speaker Change: Capital.
Speaker Change: Also at a pretty attractive earn back the teams have now completed the reinvestment.
Speaker Change: Of new securities at higher yields and we expect to see them less than two year payback on that so pretty tactical pretty marginal I think you can open up.
Speaker Change: But but attractive even of itself.
Speaker Change: One of the things that it is different with Huntington's and perhaps others in the regional banking space is that because we had so effectively hedged the <unk>.
Speaker Change: Securities portfolio for the rate cycle began.
Speaker Change: The opportunity to do significant repositioning since simply just smaller so.
Speaker Change: While we have the securities portfolio is just to continue to grow the curb.
Speaker Change: Approach them.
Speaker Change: The benefit from from those hedges that we put in place in the past.
Speaker Change: Yeah.
Speaker Change: Thank you.
Thank you. The next question is coming from Erika and Italian of UBS. Please go ahead.
Erika: Hi, good morning.
Speaker Change: Okay.
Speaker Change: Morning, the question I'm getting a lot of from investors and I'm sure. You'll address this investor day is where are you sort of in the investment cycle I think that investors have fully embraced the you know the accelerated revenue growth that Huntington and really appreciated that you invested whenever.
Speaker Change: Swiss battening down the hatches and as we think about you know just going forward do you feel like the opportunities are still there and that you were going to be at a heavier left from an investment standpoint for now and I'm sure. We'll hear about it in a few weeks or is there sort of you know a point in time, where you feel like you can enjoy widen.
Speaker Change: And positive operating leverage because you had some front loaded the investment spend.
Erika This is Steve Thanks for the question we have.
Speaker Change: Hum.
Speaker Change: The investment decisions, we've made as a result of the investment decision to do that and we have been approached.
Speaker Change: Almost all of those.
Speaker Change: Our specialty businesses those particles.
Speaker Change: And essentially the same in the <unk>.
Speaker Change: As well so we're seeing business come to US. This is something that has come to us.
Speaker Change: A number of Oh of avenues.
Speaker Change: Sometimes directly to the management sometimes through colleagues.
Speaker Change: But very seldom.
Speaker Change: In the last year and a half that we use a recruiting firm for tour for any of our our new colleagues.
Speaker Change: Investments so.
Speaker Change: There is a.
Speaker Change: A list of areas that we've maintained over the years.
Speaker Change: We have explored a week.
Speaker Change: Can you update that list if we happen to have an approach going forward that we think makes sense, where we see an opportunity that makes sense.
Let's do that so we are not at the end of an investment cycle, having said that we had significant momentum now and Ah Ah Ah Ah confidence in our growth.
And the potential because so many of these are relatively new.
Speaker Change: Continue to press forward and we intend to do that.
Speaker Change: I will talk more about it.
Speaker Change: Our Oh day on February 6th.
Speaker Change: But.
Speaker Change: Were performing exceptionally well we have momentum.
Speaker Change: The last I think it would be a mistake.
Speaker Change: Pull back prematurely and I believe we're gonna see more opportunity.
Speaker Change: Then in 'twenty five.
Speaker Change: Got it and just a follow up I know, it's an off cycle year for category for banks on the stress test I'm wondering you know how you feel about participating this year and really addressing that stress capital buffer.
Speaker Change: Yeah. Erika this is Dirk I'll take that one our stress capital buffer right now is that the minimum two 5% and so.
Speaker Change: We were pleased to see.
Speaker Change: So you'll leave it alone [laughter] got clarifies it.
Speaker Change: That one alone.
Speaker Change: But we we run internal stress tests every single year, it's a very rigorous process and continue to feel very very good.
Speaker Change: The ability for the capital base to withstand stress environments.
Speaker Change: Right.
Because as you saw a year and a half ago the quality of the deposit franchise.
Speaker Change: Absolute amount of insured the total.
Speaker Change: The backup facilities.
Speaker Change: Our treasury team has put in place gives us just a unique position of competence combined with capital and stable credit.
Speaker Change: Excuse me notwithstanding.
Speaker Change: Challenges at that moment.
Speaker Change: We are we remain very confident in our credit hedging program.
Speaker Change: And.
Speaker Change: And we'll run the stress tests that obviously.
Speaker Change: Review output carefully and we're in a period, where there's more geopolitical volatility et cetera, we think our capital and overall position is very strong at more working capital plus reserves.
Speaker Change: Where we're top top tier.
Speaker Change: Excellent. Thank you.
Speaker Change: Thank you.
Thank you we're showing time for one final question. The final question today is coming from Brian Foran of Trust. Please go ahead.
Brian Foran: Hey, I was just trying to wrap my head around provisioning for and reserve build first release in 'twenty five and.
Speaker Change: You know I know under Cecil.
Speaker Change: Almost impossible to forecast and guide with any kind of precision but.
Speaker Change: Can you just talk about like where you are on.
Speaker Change: On the one hand, you got a reserve for loan growth, which is pretty good.
Speaker Change: On the other hand, I didn't realize it until just now but I mean your criticized assets are now down 20% over nine months.
Speaker Change: And your reserve is pretty high versus peers, while your charge offs are pretty low.
Speaker Change: Where do you see the puts and takes I mean should we think about dollars of reserve release in 25 or is it more about.
Speaker Change: Provision that brings the ratio down, but he said stable reserve in dollars or just kind of any.
Speaker Change: Any kind of central tendency that you would give us on whether we should be thinking about reserve release built or somewhere in between.
Speaker Change: Yep.
Matt O'connor: Brian Great question. This is Matt I'll take that.
Matt O'connor: If you think about our particular kind of step back and frame it strategically and then I'll zoom in a little bit of attack.
Matt O'connor: I mean, most of your question, but just strategically the goal for US is to always maintain a very rigorous and robust reserve.
Really as Steve just a second ago not only protection.
Matt O'connor: And Eric but also to be a form of capital and feel really good about where the reserve has been.
Matt O'connor: If you look across the arc of time when we.
Matt O'connor: At seasonal day, what our credit reserve was $1 seven zero.
And the worst period of Covid.
Matt O'connor: Risen to about two 3% if my memory serves me the early part of 2020.
Much of the industry pretty rapidly reduced those reserves in 2021, we also reduced them somewhat but nowhere near at the same pace because we knew that the economic environment was still somewhat unsettled.
Matt O'connor: And I want to play out I don't think when it came to pass so put us in a really strong position.
Matt O'connor: That being said we.
We always expected that as the economic uncertainties that have really been out there for the last couple of years will there be a soft landing, but will there be a heartland.
Matt O'connor: No nothing at all it would be tough.
Matt O'connor: Kind of the trajectory of the interest rate environment and even though.
Matt O'connor: The political environment uncertainties.
Matt O'connor: Those would resolve there would be an opportunity if those resolved favorably ultimately doing to reduce reserves and it also fundamentally to watch the performance of the book, which has been really good and so what you've seen for example lost lost two or four quarters is a gradual with modest release of reserves.
Matt O'connor: Our reserve ratio you can actually maintain or.
Matt O'connor: Our increased dollars.
Matt O'connor: Oh, Hello portfolio so.
Matt O'connor: You know, where we stand today 188 is obviously higher than that so they want 170.
Matt O'connor: Presuming that the economy continues to perform well the outlooks continuing to be a solid and particularly given the loan growth. We expect to see it. It is not improbable to see that ACL coverage ratio as a percent continuing to go down even if the dollars might be flat to higher given alone.
Matt O'connor: So that's sort of how you're thinking about it strategically.
Matt O'connor: To your point, we look at this quarter by quarter by quarter. It really is an extraordinarily rigorous analysis since theres no pre determination of any of that we're going to see the world play out on each quarter, but assuming that everything continues to play out is where it is we're talking about I would assume that over time, there will be further.
Matt O'connor: The ACL coverage ratio and we will.
Matt O'connor: We will continue to drive loan growth higher so the dollars maybe more of a more flat to growing but the ratio will likely decline.
Speaker Change: That's awesome, if I could sneak one last one in.
Speaker Change: Get a lot of questions about M&A, how do you eat in.
Speaker Change: Well Huntington be a buyer and I would say, but the context there.
Speaker Change: Three or four other regional banks, five or six even that I cover who I get the same questions. That's not unique to you, but maybe you could just remind us.
Speaker Change: You know where you are in terms of deal mode attractive unattractive right now on the priority list not on the priority list.
Speaker Change: Certainly appreciate you've you've shown the ability to grow organically and there's a lot on your plate there, but it is something that comes up a lot.
Speaker Change: Brian Steve Great question I was wondering whether this might come up.
Speaker Change: You know we set over over the years that we're very focused on.
Speaker Change: On driving top quartile organic growth, we just made a significant number of investments and and in the core as well as what we talk about with these regional expansions and eight verticals. So the core also is getting a fair amount of investment.
Speaker Change: We're managing expense Sac has changed this over time.
Speaker Change: <unk> core expense.
Speaker Change: On a continuous basis.
Speaker Change: Through a number of actions and yet investing.
Speaker Change: So there's there's a net expense growth.
Speaker Change: And he really liked this equation.
Speaker Change: We believe we have significant opportunity.
Speaker Change: Our growth as well as with these new investments were very focused on that.
Speaker Change: This is performing exceptionally well.
Speaker Change: We've shown the ability over time.
Do I think in the last decade to all of them depository acquisitions, and we're thrilled with capstone.
Speaker Change: It just had a record quarter so.
Speaker Change: There there is a capacity to do things.
Speaker Change: The priority is working out well.
Speaker Change: You know as we've said before we're highly disciplined in our selection Tcf was a homerun near $500 million of expense.
Speaker Change: Reduction in revenue generation, our synergies and some great business, that's a lot of free college.
Speaker Change: So if it makes sense, we would work with our priority to be very clear is working out well.
Speaker Change: Thanks for the question.
Speaker Change: Thank you that brings us to the end of the question and answer session I would like to turn the floor back over to Mr. Steiner for closing comments.
Steiner: So in closing our team just delivered exceptional results for the fourth quarter highlighted by a leading law of deposit growth and record fee income.
Credit trends as you because you saw remained stable we're very pleased with the overall risk management disciplines. We have had in place now for years. Our management team is focused we're executing our strategies and shared earlier and we expect to sustain the growth momentum into <unk> 'twenty five and beyond that we just illustrated.
Steiner: We look forward to sharing more details on the growth outlook.
Steiner: How many investor day on February six we hope many of you will join us in person for this event.
Steiner: As a reminder, collectively the board executives our colleagues are a top 10 shareholder and we believe the strong alignment.
Steiner: The importance of sustaining our value creation for all shareholders.
Steiner: Second finally.
Steiner: All of my colleagues just did an outstanding job great quarter.
Steiner: So for most of the call were grateful for your interest in Huntington have a great day.
Steiner: Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect your lines of log off the webcast at this time and enjoy the rest of your day.
Steiner: Okay.
Steiner: [music].