Q4 2023 Earnings Summary
- Strategic investments in specialty verticals and expansion into new markets, such as the Carolinas, position HBAN to outperform peers in loan growth, capturing market share and driving revenue growth in 2024 and beyond. ,
- HBAN maintains a disciplined aggregate moderate to low risk appetite, focusing on high-return investments and effectively managing expenses to support growth initiatives, which is expected to accelerate earnings growth.
- HBAN has a strong capital position, with an adjusted CET1 ratio of 8.6%, and plans to drive it into the 9%-10% operating range, prioritizing high-return loan growth, with potential for future capital return to shareholders through share repurchases.
- The company anticipates expense growth higher than revenue growth, acknowledging this could challenge operating leverage in the short term. Management admits that expenses are "higher than we would want to have relative to revenue growth" and that this was a "contrarian" view, potentially pressuring margins.
- There is an increase in criticized assets, particularly in the commercial real estate portfolio, due to the impact of higher short-term rates. Management noted that "criticized assets ratio increased quarter-over-quarter, with risk rating changes within commercial real estate being the largest component."
- Net interest income and net interest margin are expected to trough in Q1, with net interest income potentially decreasing further. Management indicated that they "will probably see a level that is lower than Q4 by around the same amount that Q4 was lower than Q3," suggesting continued pressure on earnings.
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Loan Growth Outlook
Q: How will you achieve above-peer loan growth?
A: Huntington expects to outperform peers with loan growth in the 3–5% range by leveraging strategic investments in specialty banking, expanding into markets like the Carolinas, and capitalizing on opportunities in TCF markets such as Chicago, Twin Cities, and Denver. The bank believes its disciplined approach, strong middle market core banking, and small business capabilities will drive this growth. -
Net Interest Income and NIM Outlook
Q: What is the outlook for NII and NIM?
A: NII is expected to trough in Q1 2024, declining similarly as in prior quarters, then grow from there. The NIM is likely to be lowest in Q1 and then rise. If rates stay higher for longer, NIM in 2024 could be about 10 basis points higher compared to a scenario with Fed cuts. Over the longer term, the bank sees a sustainable NIM north of 3% into the low 3s. -
Expense Guidance Increase
Q: Why did expense growth guidance increase to 4.5%?
A: The finalization of the budget reflects additional loan growth and associated revenues, resulting in expense growth guidance increasing from approximately 4% to 4.5%, representing about $5 million per quarter. The underlying drivers remain unchanged, and the bank plans to manage expenses while continuing to invest in strategic growth initiatives. -
Capital Return Plans
Q: When will share repurchases resume?
A: Huntington aims to drive adjusted CET1 capital into the 9–10% operating range. Until then, the priority is funding loan growth. Once within this range, the bank will reassess its posture on share repurchases, expecting to return to buybacks over time, as they are an important part of the value creation model. -
Deposit Beta and Rate Sensitivity
Q: How are you managing deposit beta as rates change?
A: Deposit costs and beta are expected to decelerate. In a scenario where rates begin to fall in March with five cuts, Huntington expects about a 20% down beta over a three-quarter period by the end of 2024. The bank is seeing initial signs of firms preparing for a down-rate environment. -
Commercial Real Estate Credit Quality
Q: What's the outlook for commercial real estate credit quality?
A: Commercial real estate net charge-offs increased to $20 million in the quarter, driven by three transactions, primarily in the office portfolio where potential loss exists. The bank has increased reserves to approximately 10% for the office portfolio and views the overall portfolio as performing well due to disciplined portfolio management and a moderate to low-risk profile. -
Impact of Fiscal Stimulus
Q: Is fiscal stimulus affecting your growth outlook?
A: Investment projects like the Intel plant in Columbus are underway, with supply chain commitments expected this year, strengthening the outlook in markets where Huntington has significant share. Such investments across the Midwest are expected to generate economic benefits for the industry and for Huntington. -
Need for Scale and M&A Outlook
Q: How does Huntington view whole bank M&A?
A: Huntington believes in a focused, disciplined, and diversified approach, with no immediate need for whole bank M&A. While open to opportunities in the future, the bank does not anticipate such activity in 2024, choosing instead to focus on organic growth and leveraging existing business lines.