Q1 2025 Huntington Bancshares Inc Earnings Call
Greetings and welcome to the Huntington Bancshares first quarter of 2025 earnings conference call. At this time, all participants will be listening only mode. The question and answer session will follow the formal presentation.
If anyone should require upward resistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
Speaker Change: I would now like to turn the conference over to your host Tim Sedabres, Director of Investor Relations. Please go ahead Tim.
Thank you, operator. Welcome everyone and good morning.
Tim Sedabres: Copies of the slides we will be reviewing today can be found in the Invest relations section of our website, www.Honnington.com As a reminder, this call is being recorded and a replay will be available starting about one hour from the close of the call. Our presenters today are Steve Steinour, Chairman, President and CEO , and Zach Wasserman Chief Financial Officer Thank you very much for your time, and we will see you in the next video.
Steve Steinour: Brendan Lawlor, Chief Cred Officer, will join us for the Q&A. 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, let me now turn it over to Steve. Thanks, Tim. Good morning, everyone, and welcome. Thank you for joining the call today. Thanks for joining us today.
Steve Steinour: We delivered exceptional results for the first quarter. I'll share a few highlights up front and then Zach will take you through the numbers.
Speaker Change: Before we turn to the quarter, let me share a couple of thoughts on recent market volatility and our overall approach to managing the company through a period of economic uncertainty. I've seen quite a number of economic disruptions over my more than four decades in banking. Thank you.
Speaker Change: Now, with that being said, we recognized that the probability of adverse economic scenarios has increased in recent weeks, and those scenarios in turn could create additional headwinds within our industry.
Speaker Change: Regardless of the path the economy takes, we are well positioned and expect to continue outperforming our peers. Our longstanding aggregate moderate to low risk appetite is proven to help us deliver strong and more predictable results through the cycle.
Speaker Change: Even in the best of times, we are steadfast in our approach to credit and risk management. And this has resulted in consistent top quartile credit performance for net charge offs.
Speaker Change: We also maintain an allowance for loan losses that is well above the peer median.
Speaker Change: Our foundation of strong management begins with disciplined client selection. We are intentional with whom we do business and in our selection of the geographies, industries and exposures, we want to underwrite and hold.
Speaker Change: We ensure broad diversification and adhere to strict limits with no outsized concentrations, as you've seen in our commercial real estate portfolio. We have a well-balanced and granular loan portfolio, which we rigorously and proactively manage.
Speaker Change: All of this provides us with confidence in the foundation of the company, and it allows us to capitalize on opportunities where others sometimes cannot.
Speaker Change: Two years ago in 2023, when many banks pulled back due to liquidity, capital, or credit concerns, we chose to invest. We took a different road.
Speaker Change: We demonstrated breakout performance and we invested for long-term growth. We took share and accelerated new customer acquisition. We hired hundreds of talented bankers, added capabilities and expertise and executed very well. And those efforts are now helping us deliver leading deposit and loan growth.
Speaker Change: We also expanded our three focused areas of fee revenue and we're seeing good results in those areas as well Huntington has never been better positioned [inaudible]
Speaker Change: Now on to slide four. There are four key messages we want to leave you with today. First, we sustain the momentum from year end through the first quarter with robust loan growth and continued deposit growth. The business is performing exceptionally well and through the first quarter we are ahead of our plans for the year.
Speaker Change: I'd like to thank all of my colleagues and teammates for their extraordinary efforts this quarter and everything they do for our customers and company every day.
Speaker Change: Second, we're driving revenue of profit growth year over year, consistent with the strategy we shared at Investor Day. Profit growth is supported by our earning asset growth, expanded net interest margin, growth of value added fee revenues, and disciplined expense management. Thank you very much.
Speaker Change: Third, Credit Performance continues to be strong. We are proactively managing all of our loan portfolios. Fourth, our Strong Financial Foundation enables us to operate through a range of potential economic scenarios. [inaudible]
Speaker Change: Turning to slide five, I'll recap our performance in the first quarter. We grew average loans by almost nine billion dollars year over year, supported by both core businesses and new initiatives.
Speaker Change: Average deposit growth continued and increased by almost $11 billion year over year. Our deposit strategy remains focused on acquiring and deepening primary bank relationships, and we grew primary bank relationships by 3% in consumer and 4% in business banking over the previous year.
Speaker Change: Importantly, we are maintaining disciplined deposit pricing while delivering this growth.
Speaker Change: Our investments in value added fee revenues continued to deliver, with fee income increasing over 6% year over year led by payments, wealth and capital markets.
Speaker Change: We are continuing to invest in these areas. For example, in capital markets, we're excited to welcome Chris Wood to lead the continued build out of our leverage finance program and private equity coverage.
Speaker Change: We invested in talent and launched two new verticals, financial institutions group and aerospace and defense. In North and South Carolina we are accelerating our branch expansion plans. We're excited to bring the entire Huntington franchise to this region.
Speaker Change: These investments will drive long-term value creation for shareholders and contribute to the medium-term goals. Our capital levels improved as well with adjusted CET-1 growing by 20 basis points from the prior quarter to 8.9%.
Speaker Change: In anticipation of reaching our operating range, the board approved a $1 billion multi-year share repurchase authorization, which provides us flexibility for capital deployment. Turning to slide six, let me take a moment to share the top level revenue and PPR trends we've delivered.
10% year-over-year revenue growth, and 24% year-over-year PP&R growth.
Speaker Change: As I said, the business is performing very well and continuing to build momentum. We are optimistic about Huntington's future and the opportunities that lie ahead.
Speaker Change: As a reminder, the board and management are collectively a top 10 shareholder and we are fully aligned and committed to our investors to drive out performance and additional shareholder value. With that, I'll ask Zach to provide an overview of the financial performance. Thank you very much.
Zach Wasserman: Thanks, Steve, and good morning, everyone. Slide 7 provides highlights of our first quarter results. We reported earnings per common share of 34 cents.
Zach Wasserman: Return on Tansible Common Equity, or ROTCE, came in at 16.7% for the quarter.
Zach Wasserman: As Steve noted, preperision net revenue, PPR, expanded by 24% year-over-year to $783 million.
Adjusted for Notable Items, PPNRO's 18% year over year.
Zach Wasserman: Average loan balances grew by $2.7 billion, or 2.1% from the prior quarter.
Zach Wasserman: Average deposits increased by $2.2 billion, or 1.4% versus prior quarter. Reported CET-1 ended the quarter at 10.6%, increasing approximately 40 basis points from last year.
Zach Wasserman: Tanzel Book Value per share has increased by over 13% year over year. We continue to demonstrate strong credit performance with net charge-offs of 26 basis points.
Allow us for credit losses, end of the quarter 1.87%. Thank you for your time, Brian .
Turn to Slide 8.
Consistent with our plan and prior guidance.
Zach Wasserman: Year over year, loans grew 7.3%, driven by continued production in the core business and contributions from the new initiatives.
Zach Wasserman: During the quarter, growth from new initiatives continued to accelerate from the prior quarter and represented $1.3 billion or approximately half of the total growth.
Zach Wasserman: The primary drivers of new initiative loan growth in the quarter included financial institutions group, mortgage servicing, funds finance, North and South Carolina, and Texas.
Zach Wasserman: Of the remaining $1.4 billion of loan growth from existing businesses, we delivered $697 million from corporate and specialty banking, $439 million from regional banking, commercial and industrial.
Zach Wasserman: 209 million from seasonally higher balances within distribution finance, and $301 million from auto .
Zach Wasserman: Offsetting a portion of this growth was lower commercial real estate balances, which declined by $261 million for $1 million.
Turning to Slide 9. [inaudible]
Zach Wasserman: Since the first quarter of 2023, we have consistently delivered deposit growth well above peer levels.
Zach Wasserman: and our positive momentum continued into the first quarter of 2025.
Zach Wasserman: Average balances increased by $2.2 billion or 1.4% driven by continued household growth. We lowered our overall cost of deposits in the quarter by 13 basis points to 2.03%.
Zach Wasserman: This outperformed the expectations we shared in January and reflects our disciplined deposit pricing.
Zach Wasserman: On to Slide 10. During the quarter, we drove $31 million or 2.2% growth and an interest income. This reflects almost 11% growth year over year and the fourth consecutive quarter of an interest income dollar growth. [inaudible]
Zach Wasserman: Nenidious Margin was 3.1% for the first quarter, up 7 basis points from the prior quarter. [inaudible]
Zach Wasserman: The increase in interest margin from the prior quarter included two basis points higher spread, net-of-free funds, a one basis point reduction from higher cash balances, a four basis point benefit from lower drag from the hedging program, and a three basis point benefit from interest recoveries and other smaller items. The increase in interest margin from the prior quarter included two basis points higher spread, net-of-free funds, a four basis point benefit from interest
Zach Wasserman: We were very pleased with the performance of the underlying 307 basis points of NIM in the quarter, which beat our earlier expectations primarily as a result of strong performance in deposit beta.
Zach Wasserman: Turning to slide 11. Our level of cash and securities at quarter end remained at 28% of total assets, consistent with the prior quarter, and we held modestly higher cash balances in the quarter.
Zach Wasserman: We have continued to reinvest cash flows into treasuries which now represent 20% of our total securities portfolio, up 8% from a year ago.
Zach Wasserman: As I have previously stated, we expect to manage the duration of the portfolio at approximately the current range. Turn to slide 12.
Zach Wasserman: We continue to manage our hedging program to both protect net interest margin from a lower rate environment as well as protect capital from potential higher rates. Over the last 12 months, we have reduced our asset sensitivity to a near neutral level.
Zach Wasserman: During the first quarter, we added to our down rate risk hedges, with approximately $4 billion in floor spreads. We continue to analyze multiple potential rates scenarios and will remain dynamic, as we continue to calibrate to the most likely rate environment.
Zach Wasserman: Moving to slide 13, on a gap basis, non-interest income increased by 6% or $27 million from the prior year.
Zach Wasserman: We continue to see solid growth, driven by payments, wealth management and capital markets. As a reminder, the first quarter is generally a seasonal low for fee revenues, and we expect fee revenues to grow over the course of the year.
Zach Wasserman: Treasury Management fees grew 10%, as we continue to penetrate and deepen within our customer base and benefit from an increasing contribution from our new merchant acquiring model.
Zach Wasserman: Moving to Wealth Management on Slide 15, fees increased by 15% on a year of your basis.
Zach Wasserman: AUM continued to grow, increasing 6% from the prior year with wealth advisory households of the 11% year on year.
Zach Wasserman: We've gathered approximately $1.4 billion in net flows over the last year as we continue to execute our strategy to deepen our advisory penetration into our customer base.
Zach Wasserman: Moving to slide 16, capital markets grew 20% year-of-year, supported by commercial loan production-related capital markets activity, including notable strength in underrating incendications.
Slide 18 recaps our capital position.
Zach Wasserman: We continue to drive common equity tier one higher, and our capital management strategy remains focused on our top priority to fund high return loan growth. While continuing to drive adjusted CT1, inclusive of AOSCI, into our operating range of 9-10% over time. [inaudible]
Speaker Change: As Steve stated in his remarks, the board approved a $1 billion sharey purchase program, which provides Huntington flexibility in our expected capital distribution plan over the next several years.
Speaker Change: The timing of repurchases will be discretionary, and depend on a number of factors, including the macroeconomic and industry environment, as well as the pace of long-growth. We would expect any repurchases in 2025 to be modest. [inaudible]
Speaker Change: Turning to slide 19. Credit quality continues to outperform. Net charge-off decreased four basis points in the quarter.
Speaker Change: Allowance for credit losses was 1.87%, lower by one basis point from the prior quarter, and up $32 million sequentially. Reflecting strong, low and portfolio growth and continued solid credit performance. Thank you very much.
Speaker Change: Turning to slide 20, the Criticized Asset Ratio increased to 3.98%. The Non-Performing Asset Ratio ended the quarter two basis points lower at 61 basis points.
Let's turn to slide 21 for our outlook for 2025.
Speaker Change: Clearly, there is more uncertainty in the economic outlook for 2025 today than there was at the beginning of the year. [inaudible]
Speaker Change: As Steve noted earlier, we run the business with a highly dynamic approach where we continually analyze multiple potential economic scenarios and ensure that we have action plans ready not only to manage but to outperform in all of them.
Speaker Change: The business performed exceptionally well in Q1 and we have momentum going into Q2. Thank you.
Speaker Change: Based on the robust performance in Q1 and the momentum that is carrying into Q2, we are well on track to achieve that objective, notwithstanding the less certain economic outlook.
Speaker Change: In a less volatile economic environment, we would likely have increased our guidance.
Speaker Change: On deposits, we expect to drive growth within the prior range of three to five percent, as we focus on growing primary banking relationships and new households.
Speaker Change: For net interest income, we're increasing our guidance on a dollar basis to plus five to seven percent based on our strong first quarter performance and benefiting from a stronger name. As noted previously, this level would reflect record net interest income on a full year basis.
Speaker Change: The revenues are tracking within the 4-6% prior range. The revenues are tracking within the 4-6% prior range.
Speaker Change: Expense Growth is also tracking to the prior range of 3.5 to 4.5% driven by sustained investments in revenue producing initiatives and overall growth in the business. [inaudible]
Speaker Change: On credit, we continue to expect net charge-offs for the year to be between 25 and 35 basis points.
Speaker Change: I will also share some color on expectations for the second quarter.
Speaker Change: We expect sequential average loan growth between 1% and 2% [inaudible]
Speaker Change: Deposits are expected to grow as well, as we focus on self-funding our loan growth. We expect net interest income to grow modestly into the second quarter, given by earning asset growth and a relatively stable run rate, NIM.
Speaker Change: We expect expenses of approximately $1 billion, $170 million, with the sequential increase of approximately $20 million, driven approximately half from the full quarter impact of annual merit, and the remainder from higher expected revenue-driven compensation from growing fee revenues. We expect $170 million, with the full quarter impact of annual merit, and the remainder from higher expected revenue-driven compensation from growing fee revenues.
Speaker Change: Lastly, we expect Q2 net charge-offs within our full-year range, turning to slide 22. In closing, we remain focused on driving long-term shareholder value creation. Our performance is driven by our culture and our purpose. In closing, we remain focused on driving long-term shareholder value creation.
Speaker Change: We operate a powerful franchise that is both scaled and diversified with multiple sustainable growth levers from a position of strength.
Speaker Change: Risk management is deeply embedded in our culture. Throughout the years, we have consistently demonstrated top-tier performance in stressed environments, as measured by de-fast and C-car data.
Speaker Change: Our focus on adjusted CET-1, Inclusive of AOCI, demonstrates the rigor of our capital management approach.
Speaker Change: Our liquidity remains top tier in the industry, the organic growth we are driving continues to significantly outpace our peer group, and supports the attractive revenue and profit growth we are delivering.
Speaker Change: With that, we will conclude our prepared remarks, and before we move to Q&A, let me take a moment and thank Tim Sedabres for his leadership of our investor relations program over the past four years. Many of you know him well, given his strong relationships and his counsel has been of great value to us.
Speaker Change: Tim will be taking on a new role within our finance organization as part of his development plan, leading our corporate forecasting and profitability team.
Speaker Change: We look forward to accepting our new head of IR in the coming weeks. Tim, thank you and over to you for questions and answers.
Speaker Change: Thank you, Zach. Operator, we will now take questions. We asked it as a courtesy to your peers, each person asked 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.
Speaker Change: Thank you Tim. At this time we'll be conducting a question and answer session.
Speaker Change: If you'd like to ask a question, you may press star one from your telephone keypad, and the confirmation tone will indicate your line is in the question queue.
Speaker Change: Let me first start, too, if you'd like to withdraw your question from the queue. Thank you.
Speaker Change: For participants using speaker equipment, maybe necessary to pick up the handset before pressing the star keys.
Speaker Change: Please ask us one question and one follow-up, and if there are additional questions this time allows to place yourself back into the queue. One moment while we pull for questions. Thank you.
Speaker Change: The first question today are from the line of Erika Najarian with UBS. Please excuse your questions.
Hi, good morning. Just for my first question.
Good morning. My first question is for Zach.
The net interest margin clearly came in higher than expectations.
sort of just wanted to unpack.
Speaker Change: You know, what you said, should we think about flattened interest margin trends relative to the 310 or should we take out the interest recoveries?
Speaker Change: And as we contemplate what you've said in the past, and obviously the neutral rate positioning that you showed us, should we then apply sort of that flat net interest margin thought process for the rest of the year?
Speaker Change: Good morning, Yarky. Great to hear you and thanks for the question.
Speaker Change: So let me unpack a bit of that. So for the first quarter, I don't get compared to March, really the big driver of the outperformance for us was deposit pricing, and frankly the team's execute is exceptionally well and beat our own internal plan.
Speaker Change: You know, if you just think about that topic for a second. [inaudible]
Speaker Change: Through the fourth quarter of last year, we achieved a cumulative deposit beta of down 24% and our expectations as we went into this year was to see continued sort of gradual improvement on that down beta getting to the high 30s by the end of 2025.
Speaker Change: We achieved actually 37% just in the first quarter. So it was a significant acceleration of that performance and just really, really great result. And that's really primarily what drove us above what we expected BTO flat to the 303 roughly level we were at in Q4.
Speaker Change: You know, so I think about the kind of run rate from here to the second part of your question. We're looking at our current run rate is around 307, Erica Teppi.
to answer your question.
Speaker Change: And I see under most scenarios here, and there's clearly a wider range of scenarios that one might think about at this point. But there are most scenarios of either zero cuts.
Speaker Change: Or as many as three or four are in the curve right now, pretty consistent with a few basis points outcome around that 307 for the remainder of this year.
Speaker Change: So pretty flat within the reasonable range of 307 for the next three quarters. I continue to model numerous scenarios as you know out of the longer term, and all of those really continue to indicate the opportunity for us to see rising them to 2026.
Speaker Change: Aligned to what we talked about at length at our yesterday, a couple of months ago, so pretty similar kind of shape of that curve, just phase shifted up a little bit to 307 on your turn.
Speaker Change: Isaac, and my second question, if I may, is for Steve.
Speaker Change: I thought the 1 billion in buyback authorization is interesting, it's pretty clear from the performance.
Speaker Change: in the quarter and your outlook that your business momentum continues to be, you know, best in class because...
Speaker Change: To your point, you were able to zig when everyone else was sagging, given your superior capital and risk management.
in 23.
Speaker Change: Not to put orange in your mouth, but in the over-decade that I've covered, you've never been a huge fan of buybacks, so you just wanted to get your thought process on that.
Speaker Change: Thank you, Erika. Since you've covered up a bit before, we've had a consistent approach to cab
Speaker Change: First the growth, and we're getting really good growth, as you pointed out, best in class. Second to the dividend, third to other uses, looking by-backs.
We expected my back a bit this year. [inaudible] yeah, yeah, yeah
and we've got a multi-year opportunity.
And so, depending on the economic... [inaudible]
Speaker Change: We're prepared now to do a vibe act and expect that we will on some modest basis this year and then continuing as we go forward.
Got it. I'll re-cue. Thank you.
Thank you [inaudible]
Speaker Change: Our next questions are from the line of John Pancari with Evercore ISI. Please excuse your questions.
Morning!
on the
Speaker Change: On the deposit cost progress in the quarter, definitely better than expected. You maybe give us a little bit of color, but...
Where are you seeing that success? Is it tied in...
Speaker Change: to the new efforts on the certain product side, or is it programs that you've been pushing through and across the, you know, pricing programs across the product?
Speaker Change: It just, if you could help us, you know, better picture around the success on that front versus the competitive backdrop. Thanks.
Yep, a good question, Jon, this is Zach, I'll take it
Speaker Change: You know, in general, I would characterize the outcome that really is a function of the consistent plan we got around down there, so not really any sort of change in that strategy, just a great execution of it.
Speaker Change: and Outperformance of it. Just if I remind you of the five key levers that we had highlighted us.
Speaker Change: Integral to our down beta plan over the last several quarters. The first was decreasing the mix of CDs within the overall.
Speaker Change: thereby setting us up to be ready to see a higher bid on that product set over time. That continues to work very well. I will note, by the way, in the CD area, we're seeing historical CDs expire and we're retaining the large majority of those customers and significantly lower rates, something like approximately 100 basis points lower. And that's a meaningful piece of that overall deposit cost reduction. Thank you very much.
Speaker Change: The third part of our downvated plan was, as we acquired, in volume, acquiring that in money market, as opposed to time to deposit, and that really, again, a high beta product allows us to keep it managed through for potential future industry productions. Fourth, we reduced our go-to market price.
Speaker Change: I think, as we've talked about a number of times in the past,
Speaker Change: We are incredibly segmented in terms of how we think about deposit pricing. Thank you very much.
Speaker Change: in the consumer and business world, very much on a reachable basis.
Speaker Change: In the commercial world, looking at industry segments and size bands.
Speaker Change: and we look almost every day, if not certainly every week, where's the competitive pricing, and we have purposely reduced our pricing within that overall sphere. And then last they've been selectively reducing pricing on existing segments.
Speaker Change: You know, we had a lot of confidence as we came into the year that we would be able to execute our overall beta plan very, very well, and we challenged ourselves to some degree to go even harder than that and to the team's credit that they really performed very, very well.
Speaker Change: You know, to some degree, you may remember when we sent Q1 guidance, we also expected deposits to be about flat, actually quarter to quarter
Speaker Change: And not only do we have a form on deposit costs, we actually have the form on volume as well and improve that. It's just another testament to the deposit franchise. It is incredibly strong.
Great, thank you Jack, appreciate the color there, then on low growth. [inaudible]
Speaker Change: I know you indicated that the new initiatives are generated about half of the low growth in the quarter.
Speaker Change: And, you know, can you help us a little bit in terms of what new yields you're bringing the paper on? I mean, there's questions out there like you've got to win that share from someone. [inaudible]
Speaker Change: And therefore, is it pricing that's getting you there, or is it just getting, stepping up the focus in these areas where you haven't had before, some of their new businesses?
Speaker Change: and I know the margins have been competitive because of your funding dynamics, but how about the new loan yields? Is there any way to help us think about what yields these new papers coming on at? [inaudible]
Speaker Change: Yeah, so it's a great question, Jon, and the short answer, I will unpack it with more detail, but the short answer is the New Year's are coming on pretty consistent with our overall production yields, not leveraging any kind of overly aggressive pricing to win there. We are seeing, you know, I think we've talked about this a lot.
Speaker Change: We have hired extraordinarily experienced bankers who have deep connectivity and relationships, and the model we have to bring
Speaker Change: The expertise of a large bank down to a local level in the Carolinas in Texas, and then separately the expertise, the deep-deep expertise of our industry vertical specialists, banking leaders is really what's causing us to win here, not pricing . . .
Speaker Change: In fact, when I look at the return on capital, those deals to our capital approval committees, they look very attractive Just as an indication, we talked about the fact that the Carolinas achieved profitability last year during the year and this is a great, great sense of how pricing is going [inaudible]
So, not leveraging... [inaudible]
Speaker Change: We're all pricing there and seeing a lot of good strength. And I think we look at the outcome of them.
Speaker Change: That's a testament to that. We're not seeing any kind of degradation in our run right now, even as we really accelerate a lot over on throughout the last part of last year, and the guidance was to continue to grow right now as well.
Speaker Change: Great, thank you, Zach, and good luck to him, best luck in the new role.
That's Chantel.
Speaker Change: Our next questions are from the line of Ebrahim Poonawala with Bank of America. Please excuse your questions.
Take good morning.
There's maybe one question, means... [inaudible]
Thank you.
He's a very, very strong first quarter.
I think...
Speaker Change: Head and shoulders about most of your peers, just talk to us in terms of...
Speaker Change: How things evolved during the quarter, Steve, maybe a thing start off extremely strong and then march and maybe even the last couple of weeks. Have you seen that weakness that we all worry about in terms of the economy and clients being on the sidelines or just how would you describe how the quarter evolved?
Speaker Change: We announced in a year and we had a very strong pipeline coming into the first quarter, and we also had activity that did close in the fourth quarter that's built into the first quarter. So we had a good start, January was a very good month, but
Speaker Change: We've had each of the months a bit very good. There's been, there's a bit of tail-off per se, but some of the activity that we actually thought with funds in the first quarter.
Speaker Change: has been deferred, just a modest amount of it, and largely in equipment finance and and and tariff-related issues or concerns.
Speaker Change: But as you know, we had a really good first quarter. Our pipeline going into the second quarter, again with high probability close, is almost the same level as it was in the first quarter. So our second quarter, unless something dramatically happens.
Speaker Change: Should be reasonably strong as well, so we're not seeing...
Speaker Change: You know, a material drop off by any stretch, and things that are being deferred to have the potential to be stacked into the second half of this year. And, you know, we're usually having very strong with Porter.
That's help Steve and I guess. [inaudible]
The other component to growth is...
Speaker Change: You picked up a lot of talent. I'm just wondering, is there an amount of growth that's coming from the bankers that you hired bringing on their books of business which should happen no matter what? Is there a component of that that we should keep in mind when we think about Huntington's loan or deposit growth?
Speaker Change: Absolutely, our new colleagues, remember this roughly an average 20-year tenure all of them, and they are outstanding. We just had a board session in Charlotte that to meet the entire team.
Speaker Change: in the North and South Carolina, obviously very abused. [inaudible]
Speaker Change: by our directors about what's been accomplished and encouragement to do more. [inaudible]
They're an important part of the overall. [inaudible]
Results, and we expect that they'll have.
Runway now for years. [inaudible]
Speaker Change: But it would also suggest the course performing very, very well, and our colleagues in the more traditional business lines, if you will, just are doing a great job.
and our commercial real estate, which has been...
Reynolds, quite a bit in the...
in last year is stabilizing. [inaudible]
and we expect it to have...
and Warren Buffett.
Thanks. Thank you.
Thank you.
Speaker Change: Our next question is from the line of Manan Gosalia with Morgan Stanley . Please just use your question.
Hi, good morning all.
Manan Gosalia: Steve, can you expand on what you're hearing on the ground from clients since April 2nd? You know, what is the sentiment? What are they telling you and what actions are they taking in this environment?
There's a wide range of...
Manan Gosalia: of issues, if you will, to talk about in this regard. I'll try to do it in a summary fashion. We are customers that are not reliant on imports or exports.
Manan Gosalia: If anything, they feel more bullish, because there's less potential less competition, certainly less praise competition.
as a result of the inter-tariff activity.
Manan Gosalia: We've got a lot of trade that it goes on between Canada and Mexico that is exempt because of USMCA.
Manan Gosalia: And so no, in fact, if you'll recall that auto dealers did very, very well, some of their best years in a COVID environment where they had more margin on do, and used as well.
Manan Gosalia: There are pockets of real strength here. There are other areas of our distribution finance, for example, where there's some import restriction being felt through terrorists. [inaudible]
That utilization has dropped off a bit. [inaudible]
Manan Gosalia: I mentioned Equipment Finance where some of what we finance gets imported and decisions to defer have been named but...
Manan Gosalia: Again, a broad spectrum. There are winners, not just losers. I think the headlines suggest that everybody's impacted. And in a negative way, that is not the case. There are a number of businesses that are going to do very well.
Manan Gosalia: and, as you know, we've a very broadly diversified portfolio, so we'll have those that are going to be winners and some others that will be temporarily impacted.
Very helpful. And then maybe as a follow-up.
Manan Gosalia: You saw a pretty strong longrod this quarter, you noted that you would have increased the guide in normal circumstances, but then you also said you're not really expecting a drop-off in longrods in the second quarter.
Manan Gosalia: So your guide would then imply a pretty meaningful slowdown in Longroth in the second half of the year relative to what you're seeing right now. So you're just being more conservative here and if not, what would cause you to pull back on Longroth in this environment? So you're just being more conservative here and if not, what would cause you to pull back on Longroth in this environment?
Manan Gosalia: But we have had an aggregate maritalo risk appetite for a decade and a half.
Manan Gosalia: That hasn't changed, and that's not going to change. So we'll be running...
Manan Gosalia: Company, with that in mind, it's our policies, our credit processes.
and others.
Manan Gosalia: and we will be consistent in generating a business. We're being a bit cautious with that second half guide.
Manan Gosalia: and hopefully overly cautious, because this could be an exceptional year. We've got a very strong start.
Manan Gosalia: LeCop in the second quarter, if things come together with the...
Manan Gosalia: Individual Terrific negotiations with a variety of countries. I think we'll have an opportunity to beat that guy.
[inaudible]
Got it, thank you, and all the very best, then. [inaudible]
Thank you.
Speaker Change: I miss questions. Come from the line of Jon Arfstrom with RBC Capital Markets. Please receive your questions. Thanks. Good morning.
Arjan, Echo that on Tim, nice job. Thanks for everything.
Speaker Change: Steve, where are you the most focused right now in terms of risk management? You have obviously a strong record historically in risk, but what are you telling your teams to kind of double and triple check at this point?
Steve Steinour: Well, good morning, Jon, and thanks for the question. You know, most of my career early on was at risk and credit risk specifically, so...
Speaker Change: We've been very, very diligent on portfolio management now for a number of years, and we will continue to do that. But the things, some stale information, things that might reflect.
Steve Steinour: Some challenge with our customers. Our view is we're here to support our customers.
Steve Steinour: And so if there's bad news, we want to hear it, and we want to be in a position to help them get through it.
Steve Steinour: And so it's a very constructive view and that's both consumers of business.
Steve Steinour: And so there's an active outreach effort, if you will, with an extra alert around the environment that we're emphasizing. There's no one particular portfolio.
Steve Steinour: of Unique Focus, I would say the portfolio management efforts are and have been thought-based and will continue. And as we get more capabilities in terms of data and use of data, think of what's coming with gender to the eye, we'll do more and more inquiry.
and review.
Okay, that's good. Thank you [inaudible]
Steve Steinour: and then Zach for you, just on the non-interest income guide for modest growth sequentially. Looks like in your materials you're pointing to the year over year growth rates and I'm just curious how you want us to think about that modest growth and I guess I'm particularly interested in capital markets. [inaudible]
Steve Steinour: What kind of a bounce back you expect there? Thanks [inaudible]
Speaker Change: Yep, great, great question, Jon. Just, you know, in the area of fees, I will note we feel really, really good about the strategy and where this is going over the moderate term. You know, 11% Euro, your growth in those key theories of focus payments.
Speaker Change: The amount of that will be a function of where we land in the equity market levels to stop the degree that affects our wealth management and cap markets. You know, what's interesting in the cap markets today is I think you can.
Speaker Change: We've discussed this a lot before. About two-thirds of that business is commercial load production related.
Speaker Change: and we are expecting to have a solid quarter of growth in carceral home production and that should flow through into cat market activities.
Speaker Change: We noted in the presentation that the strength and recognition activities, for example, and long-sendication, so that should continue, we should see that continue to track higher.
Speaker Change: You know, obviously M&A advisory is the one that is, you know, the most sensitive, probably of any of our businesses, to uncertainty.
Speaker Change: And we did come into Q1, expecting to have a somewhat stronger Q1 than it ultimately came to pass. We saw some delays of dealing with the activity.
Speaker Change: and I think that's going to be, to some degree, what happens there as a function of how this uncertainty in the economy resolves.
Speaker Change: If I talk to our, you know, M&A advisor team, they're so pretty bullish on the internet, I will say. The pipeline looks good, not only good in terms of size, but in terms of quality, the companies that are in it are very high quality and should be able to transact.
Speaker Change: And this undergroup is just going to come down to things closing a couple of weeks before the quarter, potentially pushing it on to the back, so...
I do expect to see growth.
Speaker Change: And, you know, so I hold back and we let Leslie jog the answer question. You didn't ask, but it's related. You know, in that big guy, they're four to six percent. I think that the biggest puts and takes for us.
Speaker Change: It'll push us to the top end, versus the bottom of that range, is really that M&A advisory world. What happens with cat markets? And so, you know, that'll be where we have to watch here, but strategically the team are executing exceptionally well and look at what we've got. So somebody is trying to behind us.
Speaker Change: Jon, just to add a bit, we had a record number of, had cast on a record number of initiatives in the first quarter. So the year set up very well.
Speaker Change: Obviously, current activities will cause some delay, but this could be a very strong account of our good cheer for us on the IB side as well.
Okay, all right, thanks guys, appreciate it.
Thanks, John.
Speaker Change: Our next questions come from the line of David Long with Raymond James. Please receive your questions.
Speaker Change: Good morning everyone. I understand that the credit mark, the credit metrics for you guys look real good right now, but specifically
Speaker Change: What is the, what has the uncertain backdrops impact then on your quantitative sea soil model and overall reserve levels?
David, this is Brendan and I'll take that. Um.
You know, it's the...
Speaker Change: First of all, we model many different scenarios as we try to come up with the reserve on a quarterly basis, as we think about the economic environment and the component of it.
Speaker Change: We were a moody shop, and so we used Faceline Scenario.
Speaker Change: A somewhat positive scenario, which this point doesn't look much different than the baseline scenario.
And then we also incorporate a downside scenario.
Speaker Change: We will wait the output that comes out of our modeling to derive the quantitative and what we've seen over the last quarter is that as the scenarios from duties have softened, we have seen much more of the risk being picked up through the quantitative modeling that we've done.
That's where we...
Speaker Change: We then will step in and provide the qualitative side to get to the strong reserve covers that we've...
Speaker Change: have posted and been pretty consistent with. So, you know, I feel really good about the position we're sitting in at this point, and, you know, we look forward to, as this evolves, we'll reevaluate every quarter through that same lunch. We'll see you in the next video.
David, Joe Recall, we have...
Speaker Change: Typically, top tier or even best off in all the defests, prior tests. So there's the consistency in terms of stress-private risk within the portfolio. It's one of the reasons
Speaker Change: For the last 15 years, we'd really squirrely data on the consumer book, and that those trends are consistent now for that period of time. If anything, they've actually become a bit more conservative over time.
Speaker Change: So we feel very good about the Predate Foundation within the company and optimistic about the future performance, the modeling we do would reflect that.
Speaker Change: Got it. Thank you for that color. The second thing that I asked about was, what does the pipeline look like for continuing to build out in the care line as in Texas and the newer verticals, as well as are there any new geographies or new verticals planned for the rest of the year? [inaudible]
Speaker Change: If we announced it at the investor day, we expect to add one to two new verticals every year. We had an accelerated effort early on.
Speaker Change: But we do expect to add verticals this year. And I think it was last September we announced we were planning to open 55 branches over five years to Carolina's. Looks like they'll be closer to three so that's a bit of acceleration.
Three years and we're continuing. [inaudible]
Speaker Change: to look to increase our capabilities in a variety of our markets. We're adding colleagues in Chicago, a substantial number of colleagues as an example. So we're pressing forward, building out the franchise in multiple ways, both pre-existing and the newer aspects of it.
Speaker Change: Got some sounds like the you guys continue to play offense display.
any, you know, increase in uncertainty in the economic backdrop.
Speaker Change: Well, we are very cognizant of what's going on around us. We have contingent plans. We've got a range of opportunities both in the expense and management side that are well laid out internally. So, we and our board know what will do under various scenarios. [inaudible]
Speaker Change: But we are going to continue to execute the plan. We deliver great role. We are optimistic that we're going to get through this.
Speaker Change: Challenging Eurita about certainty, and the countries know being good shape, becoming good shape, and we're going to move forward with it. There will be pockets of the issues, though doubt, but that's why we have such a well-diversified and actively managed portfolio. Thank you very much.
Speaker Change: Great. Thanks, Steven. Thanks for taking the question. Thank you.
Speaker Change: Our next questions are from the line of Matt O'Connor with Deutsche Bank. Please assist your question.
Matt O'connor: Morning, I want to ask a question regarding slide 62, the Criticized Commercial Loans. You guys are one of the few that give all this detail, and the credit overall was quite strong, but always looking forward to fully indicators.
Matt O'connor: Building Afflection, and we're going to look at the upgrades to pass and the paydowns. They will both down a decent amount. I'm just wondering if you guys also view those kind of like a very early indicator of some trouble reflection or is it just a matter of. [inaudible]
Matt O'connor: Steven Howdy, Timing, things going to get so good or just elaborate on that chart because I thought it was pretty interesting. Thanks.
Matt O'connor: Sure, Matt, this is Brian , and I'll take that. You know, we spent a lot of time talking about that as the quarter evolved and really what you're seeing picked up specifically in that line item of the upgrades to past.
and we're
Matt O'connor: Several transactions that were slated to close as we got closer to the end of the month.
Matt O'connor: of March, that really just drifted into April . And they just didn't, the refinancing or the support that they were bringing in, it drifted over into the first two weeks of the month. And so what we've seen is, you know, for the quarter we had an 8% increase in crit class overall.
I'd say to you,
About a third in that.
Matt O'connor: Got picked up, you know, what if it had closed two weeks earlier, you know, would have been picked up in the summer. So it was a little bit of timing, frankly, than anything else.
Matt O'connor: And that's what gives us comfort that, you know, even the strong position that we're sitting in front here, I think we're going to probably be flatish for the remainder of this year.
Speaker Change: As you know, Matt, we've come down very substantially over the last year. At some point we'll plateau. I don't think we're at the plateau yet. I'm a little more bullish on our ability to manage the flow, then what Brendan just related, but it will plateau. Let's go.
Speaker Change: And we don't believe we have significant loss content in the grid or class at this stage.
Brendan and I review the top 50 every month.
and a couple of students. [inaudible]
Mottos Laws, the expectation. Thank you for the question. Thank you, Michael Foran.
Thank you.
Speaker Change: Next questions from the line of Ken Dustin with Autonomous Research. Let's just use their questions.
Ben: Hey, good morning, guys. This has been on from Ken's team. Zach, a question for you.
Ben: Can you just talk about how you expect the drag from the hedging program to reject throughout the rest of the year, just given this new rate curve? You got the four basis point benefits in this quarter. And then just how you think of using that hedging program out into the rest of the year and out into the medium term just to manage the rate sensitivity of the bank, just given the volatility and the rate curve. Thanks.
Yep, you got it, Ben. Excellent question, thanks.
Ben: So in terms of hedging, maybe I'll answer your second one first, or strategically how we think we're going to come back to the nuances around the hedge drug trajectory. You know, we've been very intentional, it's been coming through in the discussions we've had in the last several orders of gradually reducing our asset sensitivity as rates reach their peak.
Ben: as we now expect to have a, you know, likely a down-tritch trajectory but still with a fair amount of uncertainty around whether that will happen in a way. And so we think this, this sort of neutral positioning that we're at now is really very optimal.
Ben: It's our general expect. Now I will say we look at it every single month and we made it rigorously and we dynamically managed it so it could change. But at this point our posture is to maintain that neutrality through the end of this calendar year.
Ben: As you go on into 26, at this point less declarative, I would say I'm expecting probably a regrowth in assets sensitivity as we go into 2026, but at this point we've got a fair line of sight to the rest of this year and it's pretty neutral.
and that neutrality is really what kind of underlies. Guys,
Speaker Change: But the statements I made earlier, I think was Erika Wasserman, in terms of just kind of-
Ben: The potential range of scenarios right now, you're pretty flat. [inaudible]
Ben: Nam Outcom, within a few bits of the 307 run rate name we generated in Q1 for the rest of this year and then rising it to next year and it's sort of supported by that neutral position.
So now let me get to the trajectory this year.
Ben: In the fourth quarter, last two quarters ago, we had an eight basis point drag from hedging. As we came into the first quarter, we our guidance had indicated and actually we're coming to pass exactly was a four basis part reduction of that.
Ben: So there's a benefit of 4 Bips in Q1 and it left us with a hashtag of 4 Bips in the corner.
Ben: Well, we expect that to get down to about neutral by the middle of the sear. We could get back all four bibs into Q2. It might be a little bit hard leaking into Q3. We'll see. It'll be dependent on what really happens obviously with...
Ben: with Fed fund actions here, but effectively neutral, and then probably a little bit of drag coming back in by the end of the year. If you take the implied forward from Mars 31st.
Ben: It would be something like four bits of drag by Q4 or 25. [inaudible]
Ben: And so you can imagine in your mind that you shape a four-bip drag going down to roughly zero and then going back up to four. So that's why I think about it just the beginning of these years of the run rate exit of this year. It's about neutral. It's not that much delta between that.
Ben: But again, if rates are different, we'll see obviously a different result there. If I share one last thought with you, if you look at it in the 26, it looks about flat to that form, maybe even reducing a little bit as you go out from there. So I think most of the action will occur this year, and then it'll be about the controls that go out into the 26. [inaudible]
Great, thank you for all the color.
Walter, good question.
Speaker Change: Thank you. Ladies and gentlemen, we've reached the end of the question and answer session. I'd like to turn the call back to Mr. Steve Steinour for closing remarks.
Thank you for joining us today.
Speaker Change: and closing our team's continued to deliver exceptional results highlighted by our leading law that's positive growth and PP and our growth. Looking forward into 2025 while the economic outlook is less certain we have momentum and we feel confident in our strategy.
Speaker Change: We have experienced management teams and contingency playbooks to deploy to manage through various economic scenarios. We've never been better positioned.
Speaker Change: We've never been better positioned and were confident in our ability to continue to drive out performance.
Speaker Change: So, finally, thank you to the nearly 20,000-hundred-two colleagues. We would not be able to take care of our customers and drive this level performance, outstanding performance without your efforts. Thank you for your interest in Huntington. Today, have a great one.
Speaker Change: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.