Huntington Bancshares Incorporated (HBAN) Earnings Call Transcript & Summary

Fireside chat next with Huntington, we have Zach Wasserman, the CFO, who will make some opening comments. And we have Amit Dhingra, who is the Chief Enterprise Payments Officer. Did I get that right?

You did.

All right. Awesome. And so we're going to talk a little bit about payments as well. Zach will touch a little bit on guidance and any other updates we may have. But focus a little bit more on payments this time with Zach. Why don't you go ahead with your prepared comments, and we'll get into Q&A.

Sounds good. Well, good morning, everybody, and thanks, Jon. Thanks for obviously for hosting us today. I -- as Jon just said, I'm joined this morning by our Chief Enterprise Payments Officer, Amit Dhingra, so we'll cover some of that in the Q&A session. Really pleased to share an update on Huntington's performance and accomplishments on a number of growth initiatives this morning. Following this brief presentation, then we'll look get to Q&A. Before we get started, please review Slide 2, which applies to forward-looking statements we'll make today. Moving on to Slide 3. Last month, we hosted our 2025 Investor Day and shared a comprehensive view of Huntington's strategy and outlook. Let me take a moment to reiterate 5 key messages we shared at the event. First, our culture, vision and purpose are key to our differentiated operating model, that powers our ability to compete and win across our markets. We fundamentally believe we are in a people business where relationships advice and guidance are critical success factors. Second, we operate a powerful franchise that is both scaled and diversified. We maintain a leading market position across both consumer and commercial businesses. The loan portfolio has been constructed intentionally with diversification across customer segments, geographies and with no outsized concentrations. Third, we have multiple growth levers to drive sustainable long-term growth. Our powerful regional and national businesses are complemented by our recent additions of new geographies and commercial specialty banking teams. Fourth, this growth outlook is enabled by our position of strength, which allowed us to dynamically invest and capture opportunities over the couple of years, while many in the industry pulled back. And fifth, the management team is driving disciplined execution to deliver top quartile performance. Turning to Slide 4. Our vision is to be a leading people-first customer-centered bank in the country. This positioning is intentional to emphasize the relationship-based nature of our strategy and our distinctive culture of commitment and service. Our colleagues deliver expertise and advice locally, across the footprint and nationally to commercial customers. Additionally, we put the customer at the center of all that we do, deeply understanding their needs and tailoring our products and services to offer differentiated value. This combination leads to industry-leading trust as well as sustained customer acquisition as well as deepening of primary bank relationships. As an example of the impact of this focus, we were pleased to yet again be recognized by Greenwich last month with 18 awards for service in business banking and middle market segments. Moving to Slide 5. We have 3 primary focus areas for this year. First, we're executing the organic growth strategies we've previously shared. Secondly, we're driving revenues higher, benefiting from the investments we've made across the franchise. This is resulting in the expansion of net interest income as we grow the balance sheet, while managing a stable net interest margin. We're also expanding our value-added fee revenues, driven by payments, wealth management and capital markets. Third, we're operating under a consistent approach to risk management. We're maintaining our disciplined focus on credit and have not changed our long-standing aggregate moderate to low risk appetite. The growth we are driving continues to be aligned with our risk framework. Turning to Slide 6. Our loan and deposit growth has well outpaced the peer set. Since the first quarter of 2023, we have outperformed peer median loan and deposit growth rates by approximately 10 percentage points each. Our growth forecast for 2025 continues to demonstrate the strength and outperformance. We've delivered these results through contributions from both our existing business and new initiatives, with new initiatives contributing 39% of full year 2024 loan growth. These new initiatives in aggregate, continue to exceed our initial business case and we believe represents significant multiyear growth opportunities as these teams continue to acquire and expand customer relationships. Turning to Slide 7. Credit quality continues to be a hallmark of our franchise. We have delivered top quartile performance in net charge-offs and maintained a top-tier reserve. Our portfolio has been purposely constructed and diversified with 44% in consumer asset categories or over 95% our secured collateral and focused on prime and super-prime borrowers. In our commercial portfolio, which comprises 56% of total loans, we have diversification across industry and geography. As an example, our CRE concentration is the second lowest of any bank over $50 billion of assets at 8.5% of total loans, and our reserve coverage for that category is the second highest at 4.3%. Turning to Slide 8. Growing value-added fee revenues is a core focus, and we have numerous strategies in place to drive this growth across payments, wealth management and capital markets. This focus has yielded strong results with 10% year-over-year fee revenue growth in 2024. Importantly, we believe this growth can be sustained and increase the mix of total fees within revenues. In our payments business, as Amit shared at Investor Day, we expect revenues to grow at 9% plus, driven by treasury management, card and new payment capabilities. We expect Wealth Management to grow at a 10% plus CAGR over the medium term and Capital Markets, which posted a tremendous fourth quarter we also see sustained momentum for many years, growing at an 11% plus CAGR. Moving to Slide 9. Amit joined me here today, so I'll provide a few highlights of our payments business, and then Amit can provide more detail during the Q&A session with Jon. Within payments, Treasury Management has driven a double-digit growth rate over the past 2 years as we continue to penetrate these services into our commercial customer base through both acquisition and deepening of existing relationships. Our credit card business similarly closed 2024 with significant momentum, having posted 80% plus card acquisition growth rates as we've expanded our product set, bolstered market capabilities and better captured share of wallet with Huntington customers. Merchant Acquiring, which we brought in-house in late 2024 and has ramped up quickly, and we are successfully amending this new model and seeing very strong early results. Turning to Slide 11. In closing, we have a clear objective to continue to drive strong and differentiated performance in 2025. We're executing the robust organic growth outlook we discussed. We're driving revenues higher over the course of the year in both spread and fee revenue categories, and we're maintaining our consistent approach to risk management, which we expect will sustain top quartile credit performance. Collectively, these efforts should result in strong profit growth this year and beyond. With those opening remarks, let me turn it over to Jon for the Q&A.

All right. Thanks, Zach. I appreciate it. I'm going to feel liberated. I don't have to walk through the balance sheet and the P&L, we just get to talk about a business line.

Yes.

I appreciate you being up here. Walk us through a couple of the most important payment strategies at Huntington? What do you want to highlight?

Yes. Thank you, Jon, and good morning, everyone. Maybe if I may. There's a lot of familiar faces, but some people are meeting for the first time, right? So Amit Dhingra. Ironically, Steve wished me early yesterday because I'll be finishing my 10-year anniversary at Huntington at the end of this month. But Steve, he likes to move faster on everything. He said congratulations on your 10-year anniversary.

You received a call from Steve congratulating you?

He did. And then prior to Huntington at 10 years where I've had various leadership positions, I was at U.S. Bank, prior to that spent 6 years at McKinsey in their financial services practice. And I was telling Jon this morning, it's great to be here because it's knowing back home in Minnesota where I live, and Jon shares that sentiment. So every excuse I get to leave Minnesota, I come here. But just now on the topic of payment strategy, Zach referenced, right? Payments is critically important to us for a couple of reasons. One, strategically, it allows us to maintain relationships with the customer. And then second, as you all know, this is a high return on equity business, right? And as I think of important strategies, there's really 3 things I'd leave you to take away with, and some of you might have seen this in the Investor Day. But the first is continuing to focus on acquisition and deepening. There's a significant deepening opportunity within our customer base. The second piece we're focused on is ensuring we provide our customers with new products and value added services and solutions across their life cycles and then as you think of small business and commercial, it is across all the different verticals that are priorities for our commercial and small business customers. And then third is, continuing to innovate as we provide new solutions to our customers, and then we continue to pick on our spots to win. So really, those are the 3 pillars strategically that we are focused on, Jon.

Okay. And you've talked about a 9% plus revenue growth goal. You brought that out at Investor Day for payments. What are the key drivers to achieving that target?

Yes. So as I think about that, Jon, frankly, it's across -- the drivers are across the entire business with a specific focus on -- I think there's tons of opportunity in card, there's tons of opportunity in TM and there's tons of opportunity in merchant, right? And if I unpack that, again, back to the 3 pillars, as you think of new products and solutions over the past couple of years, we have doubled the number of value propositions in our credit card. Zach referenced, I think it was on the chart or in the Investor Day, we had double-digit spend growth, double-digit balance growth on card. So tons of opportunity from a new product solutions perspective. The second pillar, I would say, is continuing to leverage new operating models and go-to-market strategies. Merchant is a classic example. Embedded finance is a classic example. We launched merchant in November. We're now embedding our merchant into deposit and lending workflows. So that's a huge growth driver. And then the third one, as I talk about innovation, leveraging partnerships to continue to innovate. As an example, we have partnered with small business payments providers. We have partners [Audio Gap] sum of all these 3, you will see in terms of increased acquisition, improved retention and deepening. And frankly, if you look at it, again, I kind of touched on this at Investor Day, as you think of our revenue growth over the next few years, you can expect 30% of that incremental revenue growth to come from new initiatives.

Okay. Good. Zach will bring you into the mix. Sounds good. We're going to pivot a little bit, but I do want to come back to the partnerships and merchant as well. But just economic activity, what are you seeing in terms of economic activity? Every other bank, we've talked about tariffs and that potential impact. How are you feeling about that in general?

The year is starting off quite well. I think we can touch on guidance in a further question, but I think the headline is that the first quarter is starting off exceptionally good. And if you -- I quipped earlier today in the meeting that if you were simply to look at the results of the business and not read the news headlines, you would see a very strong underlying economy and lots of momentum within the customer base. So I feel actually really good about how things are playing out. The quarter is starting off quite strong. Obviously, to the extent that there becomes a long and protracted period of news flow that could be disruptive or drive uncertainty that, that could put a dent into that, but we're not seeing it yet. I think on the ground, real economy looks quite solid.

Okay. Anything on the -- in terms of guidance updates you provided pretty strong guidance with your fourth quarter earnings. Also, you talked a little bit about 1Q, you provided a little bit more at Investor Day. Any tweaks or anything you want to talk about?

Sure. Obviously, we are just 2 months in here to the full year, but our full year guidance looks intact and look solid. We expect to grow loans between 5% and 7%, deposits between 3% and 5%. Both spread and fee revenue, somewhere between a range of 4% and 6%. Generally speaking, I'm expecting fees to grow a little faster than spread, but that's the range for both of those, and for expenses to be between 3.5% and 4.5% growth. And then lastly, for charge-offs to be between 25 and 35 basis points. All of that continues to be our plan, and it looks quite solid. As it relates to the first quarter, just following up on the comments I just made, first quarter looks terrific actually. So you may have heard that in January, we gave guidance on Q1 that we expect loans to grow about 2% on average from the fourth quarter. That looks very solid. We expect to see that 2% loan growth. We expect deposits to be relatively flat into the first quarter, but before then growing sequentially throughout the rest of the year. I think we'll be at least flat, if not a little better on deposits, which looks pretty solid. There -- we had talked about spread revenue, which typically is seasonally lower, just given day count and other things into the first quarter being down around 2% to 3% sequentially into the first quarter. I believe it will be now at the better end of that range. We're seeing somewhat higher NIMs, solid asset yields coming through and deposit pricing continues to reduce into the first quarter. So NIM looks modestly better than forecast and volumes look solid. So we'll see solid revenue growth. Fees, we expect it to be a tilt of $500 million as a dollar amount in the first quarter. That looks intact. We can unpack some of that, but look, look solid. Credit, just very stable. And expenses, we had talked about being down 2% into the first quarter, and that looks very much in line with our expectation. To the extent that we beat on revenue, there might be a little revenue-driven compensation that brings us slightly above that. But generally speaking, we expect to see a really strong Q1 across the board.

Okay. That's great. What -- if you had to point to a couple of things on margin, on the margin potential outperformance, what would that be?

I think the -- our expectation for this year as it relates to NIM was to be relatively stable, and we continue to have that outlook, to be clear. There are, of course, a number of puts and takes here. We've been benefiting recently from really strong asset yield pricing. So we're seeing that fixed asset repricing come through, and it's been slightly better than our forecast. You may remember that in the fourth quarter, we talked about the fact that we saw a 24% down deposit pricing beta, and that was higher than you would typically expect in the first quarter of a downrate cycle, and we continue to see some benefits coming through from deposit pricing into the first quarter, too. So that -- those 2 factors are modestly beating our budget at this point. And so we feel good about where that's going. I think what we would really like to see is getting back to a more normalized upward sloping yield curve. And so that's sort of fundamentally the biggest opportunity for us over the course of the next several years as that likely more normal environment comes to pass, that should continue to drive NIMs higher.

Do you have a preference in terms of whether the long end is up or the short end is down?

I think the kind of -- the absolute level of the yield curve matters less to us than the shape of it, and we really like to see a kind of more normal upward sloping shape, which we have every expectation, we'll start to see come to pass here, take a step back, the expectation we have is to see NIMs relatively flat in 2025, but then rising in 2026 and 2027 back towards the more normal long-term ranges that we've seen at Huntington, which would be, I think the 10-year average is like 3.18% for NIM. And so that's sort of the range we'd expect to be at or above that over the course of time.

Okay. And on the fee, the fee expectations, I think that sounds positive as well. But what are some of the key drivers there. And this is probably an opportunity to pass it back to Amit at the end of this, but...

Yes, all the great dynamic and unpacking some more. But just generally speaking, the 3 core areas, wealth, payments, cap market, all performing pretty well. Capital markets in the fourth quarter was exceptionally strong. We saw the really, really strong M&A advisory as well as our core capital markets business. I think Q1 will be a solid quarter and the year looks -- continues to have a pretty good pipeline. And then wealth management. Well, fundamentally, the wealth management opportunity for us is driven by acquisition of customers. We're seeing household growth of new wealth households in the high single-digit year-over-year to low double digit, that's driving really strong asset gathering and very strong revenue performance. So those continue to see that momentum. Maybe if you want to touch on payments?

Yes, I was going to say, Jon, we came off an extremely strong fourth quarter across all the payments areas, treasury management, card, merchant. And then some of the folks asked me in the breakout earlier today as I look at the first quarter, interestingly spend, even though despite what we see in the news, spend has remained very robust, exactly on forecast, the way we were expecting it to be. I was watching over the weekend because Friday was the economic boycott, right, the call for that. But Thursday spend was really strong. And actually February ended really strong, exactly in line with forecast. So what I'm expecting is that Q1 will be right on target.

I wanted to ask you that, which is great. I thought Tim would start twitching or something sort of asking you for payments trends, but that's good.

Yes. So I'm very pleased because even treasury management fee income is coming in right in line with what we were forecasting.

Okay. So that's positive trends. You talked about partnerships early, partnerships and payments. What does an ideal partnership look like for you? How do you think about the economics of it? What determine success? Just talk a little bit more about that.

Yes. So I think, Jon, the way we look at it is -- and by the way, we've done dozens of partnerships over the past 1 year, 1.5 years, right? But we're always looking at the full spectrum of, do we build, do we buy, do we partner, and we've done all of them, right? And to me, it's around capabilities. What are our capabilities? Because if you look at the customers, look, all of you are customers of many different banks, what you care about is does my bank have the capabilities. So whether you're a consumer or a business customer or commercial, for me, it's about what capabilities am I providing. And then as to your question on criteria, there's really 2 or 3 criteria. The first one is, what is unique about the value proposition because I want to be distinctive in the marketplace. The second piece is speed to market. That's really important. So as I consider build versus partner, what gets me speed to market. And then the third is a bit of what's the competitive advantage I would have as a consequence of the first two. So those are the criteria I evaluate or we evaluate when we look at a partnership.

Okay. And can you talk a little bit more about the merchant -- bringing the merchant business in-house and some of the decision-making behind that?

Absolutely. And maybe I'll just give some context to you, Jon, for those who may not have spent a lot of time with our merchant business. Prior to November of last year, our merchant business was a referral model. So the -- whether the small business owner or the commercial client or the mid-market, large client came to us, we referred it to a partner. The reality was, that reflected in what I call service, whether it's onboarding or whether it's servicing, our customers knew that we were handing it off to a third party. And so really, the opportunity was for a bank or scale to bring this in-house. So today, we're doing the entire range of functions from onboarding to servicing to underwriting them. And frankly, the fact that we have done that opens up a huge world of opportunity. As an example now, we can provide our customers with -- we can cherry pick the solutions we provide our customers. So I referenced vertical-specific solutions. We have partnerships. We have established many partnerships with different software providers. So that depending on the industry you are in, we can go to market with that solution, right? So that's one piece. Second is, it allows us to take what I call a relationship-based view of the customer, whether we are pricing for them or whether we are servicing for them. So segmented sales and delivery, relationship pricing, where I have access to the deposit data and I can look across all the spectrum. So early results, extremely positive. We had -- as you'll see in the investor deck, we had quarter 4 over 2 years back, a 60% pop in revenue. Referral volume is 2x what it was, right? So extremely strong. And then for a bank that provides itself on being #1 in customer service, we have found a lot of our customers are extremely pleased because now we own the servicing and we're able to talk to them. So that's really in a nutshell what we've done in the merchant servicing. Over the next few years, I expect this business to grow at 25% CAGR in terms of revenue. And over the next -- by 2030, I'd expect the revenue to be 4x of what it is. I think the last piece, we have embedded our merchant into lending and deposit workflows. So with the merchant relationship comes the deposits with the bank as well. So that's really another, what I call, kicker to this business.

Okay. Good. Just one more for you. It's payments, it's -- sometimes it's a little bit opaque what it exactly means, but it feels like it's very competitive. You're running this inside of Huntington a Bank. Talk about maybe your right to win or advantages, disadvantages you have operating inside of a bank?

Yes. So actually, I think there's advantages to operating bank, but let me just -- I think if you're asking, what does it take, look firstly, we had a full spectrum provider. We have all the products and services with our customers. I think second is, the big advantage is, we have access to customer data beyond just the payment, right, whether it's the lending behavior or other parts of the bank's deposit behavior. I think third, it's very simple. There's 2 reasons I think we will win. And I'll just turn it back to the audience. Let's say you're taking a new credit card or a new lending product or this -- you turn to a bank you trust. We're #1 in trust. I think the other piece is we are among the top 3 in unaided recall in our core markets. So that plays a huge factor too, and then we're known for customer service. And so what do you want? You want someone you trust, you want someone who gives you a good service, and then you have good product. So I think those 3 actually make for a really good combination for us to win.

Okay. Great. Zach to you. I know you guys have hit the road and you've seen a lot of investors after Investor Day. Talk a little bit about the feedback that you've received in kind of key takeaways.

Yes. We were really pleased to execute our second Investor Day in just 2.5 years this past month. The messages we tried to share there was, a, we've got a very focused and compelling strategy. As I said earlier in my prepared remarks, there are multiple growth levers. We expect revenues to grow 7% plus over the next several years, and there are multiple growth levers to achieve that. The culture and environment of Huntington is attracting talent. We see the momentum building there and sustaining. And I think, frankly, the proof is in the pudding. We have the momentum now. We are demonstrating differentiated growth and we expect that to continue. So those are the key points we were hoping to share. And the feedback that I've gotten has been, I think, pretty positive. The performance of the business in the last 2 years is manifestly evidenced that the strategy is working. And we have every expectation we'll continue to see that level of outperformance going forward.

Okay. Okay. One of the interesting comments at Investor Day was the branch expansion in the Carolinas, we could get to Texas in a second. But potential to accelerate it, it sounds like revenues are maybe a little bit better. It sounds like expenses are well under control or are in variable comp. What's the potential for maybe accelerating some of that? And how do you balance it?

We're so pleased with how the business is performing in the Carolinas. See that when we launched that business, it was just about a year ago, just a little over a year ago. And we quickly hired a commercial focused team quickly started to gather relationships -- full banking relationships, loans, but also deposits, fee businesses. The team reached profit earlier than 1 year. I mean it really was an exceptionally good performance. And that's what gave us the confidence to then really expand the full relationship and the full franchise into the Carolinas will be -- we have intention to launch 55 branches there over the next several years and put a significant marketing investment to back up the totality of the Huntington product line. To your question, I think there's plenty of opportunities for us to accelerate that. We have opened, to give you a sense, 16 new branches in the last 2 years. And they have -- we've really refined the model to the point we're pulling in the paybacks on those somewhere between 3/4 of 1 year and 1.5 years and we have really significant acceleration of performance. The model now to roll out new retail locations is exceptionally well optimized, and so it really provides a terrific payback. So I would expect we probably will, in fact, accelerate that, and just continue the momentum we've got.

Okay. Great. And then in Texas, can you talk about the decision kind of if or win to add new branches in Texas?

Yes. In Texas, it's such a huge market. Texas is the eighth largest economy in the world, if you were to measure kind of at a national level. And in particular, the Texas so-called Metroplex, the central -- the state between Dallas and Houston and San Antonio and Austin. It's just incredibly growth oriented. And so our approach has been to be very realistic and execution oriented there. We launched into Dallas with our middle market and national specialty businesses that we expanded into Houston, those 2 teams are doing really well. We're seeing nice growth, very solid performance there. Over time we may launch into other cities there from a middle market and commercial perspective. And I would expect them to be equally successful if we do that. Obviously, it's such a big area, both geographically and just economically would mean that the commitment on a full franchise expense would just be orders of magnitude bigger than what we just talked about in the Carolinas. So that's one of the considerations we want to continue to build the business before we'd be ready for that. But we could very well go down that track, I think, in the future. It's an incredibly great opportunity. And at least the early successes we're seeing in the commercial business gave us a lot of confidence.

I know Steve loves that market. It's a terrific market. There's a couple of minutes left, by the way, if anybody has anything? Okay. You hinted at this earlier, but you talked about the potential to exceed the longer-term margin averages at Investor Day, maybe over time. What kind of an environment do you need to see to have that happen?

Yes, I think I've touched on it a little bit earlier, but as I think about the NIM, the two most significant long-term tailwinds to the NIM that would help to continue to have it rise into 2026, 2027 are one, fixed asset repricing. We continue to benefit significantly from the higher rate environment now than was the case several years ago. Just to give you a sense in the loan book, between $3 billion and $4 billion a quarter matures and then is reinitiated in those same categories at a pretty big delta in terms of what the current rate environment is. And so we saw a 12 basis points of NIM benefit from fixed asset repricing last year. This year, we've given guidance we expect around 10 basis points. Conservatively between '26 and 2027, I would think that there's another 15 basis points to go there, assuming that the yield curve continues to be roughly where it's forecasted to be. And so that's a really big tailwind. The second one is deposit and liability cost reduction, both in terms of just down beta management as interest rates come down, but also more fundamentally, our business is keyed off of acquiring and deepening primary bank relationships, which, over time, grows the low and no interest-bearing categories within the funding stack. And so we'll benefit from ever more advantaged funding. So those 2 things really are the biggest drivers of NIM benefit over time. To the extent that the yield curve, as I noted earlier, begins to be at a more of a normal upward sloping environment, that it obviously makes it easier to accomplish all that stuff. And so we'll see how that plays out. But I'm very confident we'll see NIMs flat this year and then generally rising as we go into '26 and '27.

Okay. It seems like a great message. Thank you.

Nice job. Thanks for hosting us.

Thanks for hosting us.