HUNTINGTON BANCSHARES INC /MD/ Q2 FY2024 earnings call

• Organic Growth Strategies: Intensely focused on executing organic growth, leveraging robust liquidity and capital base to invest in new geographies and businesses.
• Loan and Deposit Growth: Accelerated loan growth with average balances up $2B year-over-year; average deposit balances up $8B or 5.5% over the past year.
• Fee Revenue Drivers: Capital markets, payments, and wealth management contributed to fee revenue growth. Capital markets had higher advisory revenues, payments saw growth in treasury management fees, and wealth management had increased assets under management.
• Credit Performance: Strong credit performance with stable net charge-offs at 29 basis points, tracking as expected. CRE balances managed lower, with concentration reduced.
• Capital and Liquidity: Common equity Tier 1 ended the quarter at 10.4%, adjusted common equity Tier 1 at 8.6%. Liquidity remains top tier with 204% coverage of uninsured deposits.

Loan Growth: Average loan balances grew by $2 billion from the prior year, with annualized loan growth in the quarter at 4.7%. Commercial loans saw growth from new geographies and specialty verticals, while consumer loans also increased. CRE balances declined, with the concentration of CRE as a percent of total loans dropping from 10.9% to 9.6%. Deposit Growth: Average deposits increased by $8 billion or 5.5% over the past year. In the second quarter, average deposits rose by $2.9 billion or 1.9%. Cumulative deposit growth since the start of the rate cycle is 7.9%, outperforming peers. Net Interest Income: Net interest income expanded, expected to continue sequential growth. Net interest margin was 2.99% in Q2. Fee Revenues: Driven by capital markets, payments, and wealth management, collectively accounting for nearly two-thirds of total fee revenues. Capital markets had higher advisory revenues, payments saw growth in treasury management fees, and wealth management saw increased assets under management.

• Loan Growth: Expect loan growth to accelerate over 2024, with the current run rate at 4.7% annualized on track for the full-year plan.
• Net Interest Margin: Expected to remain relatively stable over the next two quarters at or around the 3% level, plus or minus a few basis points, based on the assumption of two rate cuts by year-end.
• Expenses: Forecast 4.5% core expense growth for the full year, with core expenses expected to be higher in Q3 at approximately $1.140 billion.
• Capital: Intend to drive adjusted CET1, inclusive of AOCI, into the operating range of 9% to 10%.

• Interest Rate Changes: Potential impact on net interest margin and deposit costs.
• Commercial Real Estate Exposure: Risks associated with CRE balances despite management efforts to lower them.
• Competitive Pressures: In the deposit and loan markets, affecting growth and margins.

Q: Expand on managing downside deposit beta if rate cuts occur?

A: Steve Steinour discussed beginning early stages of down beta playbook, including reducing acquisition rates, shifting mix, shortening CD duration, and targeted rate reductions.

Q: Expected deposit trends for rest of the year?

A: Zach Wasserman said they're outperforming initial budget, expect continued growth within guidance range, and have flexibility to manage down beta.

Q: Loan growth outlook from new initiatives?

A: Steve Steinour expects steady build from new initiatives, which are driving loan growth with good performance on deposits and fees.

Q: Auto loan quality and demand?

A: Steve Steinour said auto book is super prime with very low default, used car pricing has minimal impact.

Q: Loan to deposit ratio and deposit mix?

A: Zach Wasserman said loan to deposit ratio expected to stay within tight range, deposits shifting from time to money market to aid down beta.

Q: Risk transfers for capital optimization?

A: Zach Wasserman explained CRT and CLN transactions help with RWA optimization, providing funding and reducing risk-weighted assets with favorable economics.

Q: Visibility on loan growth and credit reserving?

A: Steve Steinour mentioned partial visibility through Q4, Brendan Lawlor discussed reserving based on economic performance and credit portfolio strength.