Huntington Bancshares Incorporated (HBAN) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Accelerated Loan and Deposit Growth: The bank experienced accelerated loan growth with average balances growing by $2 billion from a year ago and deposit balances increasing by $8 billion or 5.5% over the past year.
• Expanded Net Interest Income: Net interest income expanded and is expected to continue growing, supported by accelerating loan growth and sustained deposit growth.
• Fee Revenue Growth: Fee revenues increased, supported by focus areas such as capital markets, payments, and wealth management.
• Strong Credit Performance: The bank reported stable net charge-offs, indicating strong credit performance.
• Robust Capital and Liquidity: Capital further strengthened with reported common equity Tier 1 of 10.4% and liquidity remains top tier with coverage of uninsured deposits of 204%.

Pessimistic Highlights

• Competitive Environment for Loans: The bank noted a competitive environment for loans, which impacts loan spreads.
• CRE Run-off: There was more commercial real estate (CRE) run-off than expected, which could impact future loan growth.

Company Outlook

• Loan Growth Acceleration: The bank expects the pace of year-over-year loan growth to accelerate over the course of 2024.
• Deposit Growth and Management: Deposit growth is expected to continue, with strategies in place to manage down beta in anticipation of potential rate cuts.
• Net Interest Margin Stability: Net interest margin is expected to remain relatively stable over the next two quarters at or around the 3% level.
• Expense Management: Core expenses are well-managed and tracking to the full-year outlook, with expectations of low single-digit year-over-year growth rate by the end of the year.

Q & A Highlights

• Q: Can you expand on your comments on managing downside deposit beta if we get a couple of rate cuts by year-end? (Manan Gosalia, Morgan Stanley)

  A: We're beginning the early stages of the down beta playbook, including reducing acquisition rates and shifting the acquisition mix. Our general working assumption is a mid to high-20s percent down beta range over a first-year period. (Steve Steinour)

• Q: How are loan spreads tracking given the competitive environment? (Manan Gosalia, Morgan Stanley)

  A: The environment is competitive, but we're focused on driving growth in areas with attractive spreads relative to the average. Spread environment is generally flat on a product and category level. (Steve Steinour)

• Q: Could you talk through expected deposit trends for the rest of the quarter? (Erika Najarian, UBS)

  A: We're really pleased with deposit gathering and expect it to grow, albeit not at the same level as the second quarter. We're in a position of strength, allowing us to execute the early stages of down beta. (Zach Wasserman)

• Q: As it relates to the NII outlook, where do you think we lean in the range if we get two cuts this year? (Steven Alexopoulos, JPMorgan)

  A: Trending right in the middle of the range, including a couple of cuts. Key factors include managing a flat NIM and continued execution on reducing the trajectory of interest rate cuts rising. (Zach Wasserman)

• Q: How far out do you have visibility on loan growth? (Jon Arfstrom, RBC Capital Markets)

  A: Our pipelines go out a couple of quarters, giving us partial visibility through the fourth quarter. We see from our customer base that they're performing well this year. (Steve Steinour)

• Q: Can you talk about the risk transfers executed and the financial impact? (Matt O'Connor, Deutsche Bank)

  A: These transactions are helpful for RWA and balance sheet optimization. The second quarter yield was exceptionally good, with less than a 3% cost of capital. (Zach Wasserman)

• Q: Do you think fee income can continue with this momentum? (Peter Winter, D.A. Davidson)

  A: Fee income performance was strong, and we expect to land within our 5% to 7% full-year range. Execution quality in capital markets, payments, and wealth management is very strong. (Zach Wasserman)