Release Date: July 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Huntington Bancshares Inc (HBAN, Financial) reported a sequential increase in net interest income, driven by accelerating loan growth and sustained deposit growth.
- The company achieved strong credit performance with stable net charge-offs, which are tracking as expected for the year.
- Fee revenues increased, supported by capital markets, payments, and wealth management, contributing to overall revenue growth.
- Average loan balances grew by $2 billion from a year ago, and average deposit balances increased by $8 billion over the past year.
- Huntington Bancshares Inc (HBAN) maintained a robust liquidity position with coverage of uninsured deposits at 204%, a peer-leading level.
Negative Points
- The company incurred a $6 million notable item related to the updated FDIC deposit insurance fund special assessment, which impacted non-interest expenses.
- Allowance for credit losses decreased by 2 basis points, ending the quarter at 1.95%, indicating a slight reduction in reserve levels.
- Non-performing assets increased by approximately 5% from the previous quarter, reaching 63 basis points.
- The commercial real estate (CRE) balances have declined by $1.3 billion over the past year, reflecting a reduction in CRE concentration.
- The company expects core expenses to be higher in the third quarter, driven by personnel expenses and revenue-driven compensation.
Q & A Highlights
Q: Can you expand on your comments on how you're managing downside deposit beta if we get a couple of rate cuts by year-end?
A: We're already beginning the early stages of the down beta playbook, reducing acquisition rates, shifting the acquisition mix from time deposits toward more money market, shortening the duration of CDs, and making targeted rate reductions in certain client segments. We expect to be in the mid to high-20s percent down beta range over a first-year period and then continuing from there.
Q: Can you talk about how spreads are tracking in the current competitive environment for loan growth?
A: It is certainly a competitive environment. We're driving growth, and our focus is on growing in new areas we've been investing in, which typically come on with attractive spreads. The spread environment is generally flat on a product and category level, and we are focused on driving capital optimization in areas with the highest return.
Q: Can you talk through expected deposit trends for the rest of the quarter and whether you have enough deposits to fund the acceleration of loan growth?
A: We are pleased with our deposit gathering performance, which allows us to prefund future loan growth. We expect to see some sequential growth in deposits into the third and fourth quarters, within our overall guidance range of 3% to 4% for the full year. This will allow us to absorb increased lending volumes and manage down beta effectively.
Q: As rates come down, will you be set up to potentially benefit from a lower short rate environment?
A: Our strategy has been to allow our natural asset sensitivity to maximize the value of the up rate environment. As rates top out and begin to fall, we are reducing asset sensitivity. We expect net interest margin (NIM) to remain relatively stable over the next several quarters, with opportunities to drive NIM higher in a more upward-sloping yield curve environment.
Q: If we get two rate cuts this year, where do you think the net interest income (NII) outlook will lean within your guidance range?
A: We are trending well within our guidance range, including the expectation of a couple of rate cuts. The key factors will be continued execution on reducing the trajectory of interest rate cuts rising and then driving them lower. We feel confident about our ability to manage this effectively.
Q: Can you provide more details on the new loan growth initiatives and their expected contribution?
A: We are seeing strong performance in our new initiatives, with every one of them booking customers and loans. The trajectory of growth is very accretive to loan growth, and we expect to see a steady build from here.
Q: How are you thinking about reserving going forward, given your strong credit trends and high ACL ratio?
A: We are continuing to watch the volatility in the overall market, particularly with respect to rates and the impact on our commercial real estate portfolio. As we see stronger economic performance and continued solid credit performance, we may start to move the reserve down more materially over a longer period of time.
Q: Can you talk about the risk transfers you have executed and their financial impact?
A: These transactions are tactical and help with RWA and balance sheet optimization. For example, our recent credit-linked-note transaction had a cost of less than 3% and unlocked 17 basis points of CET1. These transactions are very efficient at the margins and support our prime objectives of driving capital higher and funding high-return loan growth.
Q: How far out do you have visibility on loan growth, and what is your outlook for the exit rate for NII in 2024?
A: Our pipelines go out a couple of quarters, giving us partial visibility through the fourth quarter. We don't have significant multi-quarter visibility, but our customer base is performing well, and we expect more business next year as rates come down.
Q: Can you provide more details on the rebound in fee income and the outlook for the rest of the year?
A: We are pleased with our fee income performance, driven by capital markets, payments, and wealth management. We expect sequential growth in these areas and to land within our 5% to 7% full-year range. The trends we are seeing are conducive to continued strong performance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
