Huntington(HBAN) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Q3 earnings per common share reported at $0 33 with no impact from notable items [10] - Return on tangible common equity (ROTCE) at 16 2% adjusted for notable items [10] - Pre-provision net revenue (PPNR) increased by 8 3% driven by net interest income growth of 2 9% and fee revenue growth of 6 5% [10] - Average loan balances increased by$ 3 7 billion or 3 1% year-over-year [10] - Average deposits grew by $8 3 billion or 5 6% year-over-year [10] - Net charge-offs remained stable at 30 basis points with allowance for credit losses at 1 93% [10] - Adjusted CET1 ratio increased to 8 9% up 30 basis points from last quarter [10] - Tangible book value per share increased by 21 5% year-over-year [10] Business Line Data and Key Metrics - Loan growth accelerated with average balances up 3% year-over-year and end-of-period loans increasing at a 6 3% annualized rate [5] - Fee revenue strategies delivered GAAP fee income growth of 3% year-over-year with core fee revenues up 12% driven by payments wealth management and capital markets [5] - Consumer primary bank relationships (PBRs) increased by 2% and business banking PBRs increased by 4% year-over-year [6] - Merchant acquiring business completed final testing in September and launched commercially in October expected to add 1 percentage point to overall fee revenue growth [7] - Regional Banking group posted record loan production ex-PPP in Q3 with late-stage commercial pipelines up 68% year-over-year [8] - Wealth management revenue grew 18% year-over-year with advisory relationships up 7% and assets under management up 22% [22] - Capital markets revenue increased by$ 26 million or 50% year-over-year to $78 million [22] Market Data and Key Metrics - Full franchise and branch expansion into the Carolinas announced with results tracking better than initial business case [6] - Deposit growth outpaced peers with cumulative growth of 7 1% since early 2023 [15] - Net interest income increased by$ 39 million or 2 9% to $1 364 billion with net interest margin at 2 98% [16] - Cash and securities as a percentage of total average assets expected to remain at approximately 28% [18] - Asset sensitivity reduced by more than one-third in Q3 with further reductions expected by year-end 2024 and mid-2025 [19] Strategy and Industry Competition - Company is driving accelerated loan growth and sustained deposit growth supported by core businesses and new initiatives [4] - Actively executing down beta playbook in anticipation of declining Fed rate cycle with dynamic balance sheet management [4] - Focus on increasing fee revenues across payments wealth management and capital markets [4] - Disciplined credit management with stable net charge-offs and improved non-performing and criticized assets [4] - Investments in organic growth including expansion into new geographies and verticals [6] - Merchant acquiring business expected to significantly contribute to fee revenue growth [7] - Continued focus on expense management while investing in revenue-producing initiatives [9] Management Commentary on Operating Environment and Outlook - Management expressed confidence in sustaining organic growth outlook into 2025 [9] - Credit trends remain strong with disciplined client selection and sound fundamentals from commercial customers [8] - Robust production levels in September carried momentum into Q4 [8] - Expect record net interest income in 2025 based on current rate curve expectations [17] - Continued focus on driving capital ratios higher while funding high-return loan growth [24] - Full-year outlook remains unchanged with accelerating loan and deposit growth expected in Q4 [25] Other Important Information - Company announced full franchise and branch expansion into the Carolinas [6] - Merchant acquiring business completed final testing in September and launched commercially in October [7] - Investor Day scheduled for February 6 2025 [61] Q&A Session Summary Question: Q4 NII guidance implies flat to slightly down versus Q3 What is driving this? - Timing difference between floating rate asset yields coming down and deposit costs coming down with positive run rate benefit expected by end of Q4 [27] Question: Deposit growth continues to outpace loans Why not pay down higher-cost CDs? - Plan to leverage strong deposit growth to drive down beta and decelerate deposit growth while accelerating loan growth [28][29] Question: Clarification on NII growth trajectory and sensitivity to rate cuts - Expect NIM to rise throughout 2025 with record NII dollars driven by robust loan growth and NIM expansion [32][33] - Less rate cuts would be positive for NIM and NII in the short term while more rate cuts could benefit down rate deposit pricing in the long term [36][37] Question: Deposit growth strategy in Carolinas and beyond - Consumer deposit growth has been strong with commercial deposits accelerating particularly in mortgage service vertical [38] Question: Q4 NII expectations and merchant acquiring revenue impact - Q4 NII expected to be$ 15 million to $25 million lower sequentially with merchant acquiring expected to add$ 25 million in revenue next year [41][43] Question: Consensus expectations for Q4 2025 NII growth - Directionally correct with NIM expected to rise above 3% in H2 2025 and loan growth sustained at 6% annualized pace [45] Question: Expense run rate outlook for 2025 - Plan to drive positive operating leverage with continued focus on efficiency and investment in revenue-producing initiatives [46] Question: Fee revenue outperformance in Q3 - Primarily driven by capital markets with strong outlook for Q4 particularly in capital markets and payments [49] Question: Credit risk transfer (CRT) strategy going forward - CRT transactions viewed as tactical and opportunistic with focus on core organic earnings and strong return on capital [50][51] Question: Auto business trends and credit outlook - Auto production stepped up in Q3 with stable credit trends and disciplined customer selection [52][53][55] Question: Hedge program adjustments and future plans - Dynamic management of asset sensitivity with forward-starting receivers added to drive sensitivity lower [58][59]