In the second quarter earnings call for Huntington, CEO Steve Steinour and CFO Zach Wasserman discussed the company's strong performance and growth strategies. They highlighted the expansion of net interest income and fee revenues, as well as their focus on credit performance. The company's liquidity and capital base put them in a position to drive growth, and they are investing in new geographies and businesses. Overall, Huntington is committed to making people's lives better, helping businesses thrive, and strengthening the communities they serve.

During the quarter, the company saw accelerated loan growth and increased average deposit balances. They also strengthened their capital and liquidity positions, with reported common equity Tier 1 of 10.4% and coverage of uninsured deposits at a peer-leading level. Credit quality remained stable and the company continued to grow their primary bank relationships. They also added new deposit-focused capabilities and brought their merchant acquiring business in-house. This was all made possible by their sustained and disciplined approach to credit, resulting in expanded profitability for the company.

The company is pleased with their results in the CCAR stress test exercise and their credit losses are second best in their peer group. The economy is holding up and the company sees growth opportunities in new initiatives, teams, and geographies. The company reported earnings per common share of $0.30 and a return on tangible common equity of 16.1%. Loan and deposit balances have increased year-over-year and credit quality remains strong. The company's loan growth is accelerating and they are on track to meet their full-year plan.

The bank expects loan growth to increase in the future, with both commercial and consumer loan categories contributing to the growth. In the second quarter, commercial loans saw an increase of $689 million, while CRE balances decreased. The bank also saw growth in new geographies and specialty verticals, as well as in auto floor plan, regional and business banking, and consumer loans. Deposit growth also continued to be strong, with an increase of $2.9 billion in the second quarter. Deposit costs increased by 9 basis points, but at a slower rate compared to the previous quarter. June deposit costs were only slightly higher than May.

The company is actively implementing their down beta action plan and has seen a robust deposit growth, allowing them to selectively reduce rates and change terms in anticipation of potential rate cuts. Their deposit growth has outperformed their peers and has allowed them to fund loan growth with deposits while managing their loan to deposit ratio lower. Non-interest bearing mix shift is tracking as expected and net interest income increased from the previous quarter. The net interest margin decreased slightly due to higher cash balances, but loan yields have expanded.

The company is analyzing different economic and interest rate scenarios and expects two rate cuts by the end of the year. They anticipate stable net interest margin and plan to reinvest securities cash flows in short-term HQLA. Their hedging program is designed to protect margin and capital in different rate environments, and they have added more forward-starting receive fix swaps to reduce asset sensitivity in a down rate scenario by one-third by the middle of next year.

The company will continue to manage their hedging program to protect capital and stabilize NIM. Their fee revenue growth is driven by capital markets, payments, and wealth management. These three areas represent two-thirds of their total fee revenues. In the second quarter, non-interest income increased by $24 million, excluding the impacts of CRT transactions. Non-interest expenses decreased by $20 million, and core expenses came in better than expected, partly due to discrete benefits.

In the second quarter, core expenses increased due to higher personnel expenses and merit increases. The company expects further increase in core expenses in the third quarter. The company's capital position remains strong, with a focus on driving capital ratios higher. In this year's CCAR exercise, the company's performance was in the top quartile compared to peers. Credit quality remains strong, with net charge-offs and allowance for credit losses within the company's target range.

The criticized asset ratio declined on slide 20, driven by improvements in commercial portfolios. Non-performing assets increased slightly, but are still below previous levels. The company's outlook for the full year remains unchanged, with expectations for loan and deposit growth. Net interest income is expected to continue increasing in the second half, while expenses are being managed well. Credit is performing as expected. The call then opened up for Q&A, with the first question focusing on how the company plans to manage deposit beta if there are rate cuts by the end of the year. The speaker mentioned a previous downside beta of 20% on total deposits, but hinted that it could potentially be better due to the company's competitiveness in the deposit market in the first half of the year.

Steve Steinour, CEO of a company, was asked about their actions to manage a potential decrease in interest rates. He mentioned that they have already begun implementing their "down beta playbook," which includes reducing acquisition rates and shifting the acquisition mix. He also stated that the company is prepared to implement their full playbook when rates are expected to decrease later this year. As for loan spreads, the company is experiencing competition but is still driving growth in the second quarter.

The company saw double the growth in the second quarter compared to the first quarter and is pleased with the acceleration. They are focused on driving growth in new areas with attractive spreads and optimizing capital. The spread environment is generally flat and they are trying to drive returns in areas with good spreads and fee business performance. The question was asked about expected deposit trends for the rest of the quarter and the company believes they have enough deposits to fund loan growth, but it may not be as expensive as it was in June.

Zach Wasserman, responding to a question, discusses the expectations for loan and deposit growth in the second half of the year. He mentions that the bank has been performing well in terms of deposit gathering, with a 15% outperformance compared to peers and a favorable beta. This has allowed them to prefund future loan growth and decrease the loan to deposit ratio. Wasserman also notes that they have been outperforming their initial budget on deposit growth, which is one of the reasons why they have increased their deposit growth forecast.

The speaker expects growth in the second quarter and fourth quarter, and plans to manage the increased lending volumes and down beta. They are being cautious with pricing strategies, but believe they are in a position of strength to execute down beta. The balance sheet is expected to benefit from a lower short range rate curve due to asset sensitivity management plans.

The company is intentionally reducing asset sensitivity in anticipation of rates topping out and beginning to fall. This will be achieved through a combination of increasing fixed swaps and expiration of pay fixed swaps. The NIM is expected to remain stable in the next few quarters, with benefits from fixed asset repricing and a decrease in hedge drag. However, the NIM is also dependent on rate changes and interest-bearing liability costs. The company sees opportunities to increase NIM in the long-term in an upward sloping yield curve environment.

Steven Alexopoulos asks Zach Wasserman about the potential impact of two interest rate cuts this year on the net interest income (NII) outlook. Wasserman explains that their current NII range takes into account the possibility of rate cuts, but they are confident in their ability to manage a flat net interest margin (NIM). He also mentions that loan growth is expected to accelerate in the second half of the year, with potential for even faster growth if new initiatives perform well. He also mentions that there was more commercial real estate (CRE) run-off in the second quarter than expected.

The company expects to see higher loan volumes and increased revenues due to new initiatives and strong performance. The growth trajectory is expected to continue steadily, but not necessarily accelerate. The company is pleased with the progress of the new initiatives and expects to see a steady increase in loan growth.

Steve Steinour, the CEO of the company, answered questions from Scott Siefers from Piper Sandler. Siefers asked about the overall customer demand for loans and specifically about the auto loan sector. Steinour explained that the auto business has been performing well and they see it as a great opportunity, not just a buffer. They will continue to generate significant growth in this area and manage their exposure through securitization. The quality of the auto loan portfolio is strong, with a focus on low default frequency. While used car pricing can have a slight impact on losses, it is not a significant concern for the company.

The speaker, Scott Siefers, asks Zach Wasserman about the company's costs and how they are tracking for the year. Wasserman responds that they are on track and there has been a slight delay in expenses, but they are still in line with their initial expectations. He also mentions that there will be a steady deceleration in the rate of year-over-year growth in expenses, with a goal of reaching low-single-digits by the fourth quarter and continuing that trend into 2025. The loan to deposit ratio is currently at 80%, but it is unclear if it will stay at that level.

The speaker is pleased with the bank's deposit growth and expects it to continue at a similar rate to loan growth. They anticipate the loan to deposit ratio to stay relatively flat, with a slight increase in loan growth over the next few months. The bank is actively acquiring new customers and shifting towards more money market deposits to drive value and decrease beta.

The slow progression of deposit costs is expected to accelerate on the way down. Non-interest bearing has seen a meaningful deceleration and is almost done with the mix shift. Expenses are expected to have a lower growth rate in 2025 compared to 2024 due to investments in growth initiatives and data and automation capabilities.

Matt O'Connor asked about the risk transfers that Huntington Bank has executed and the high rate mentioned in the media. Zach Wasserman explained that these transactions are part of the bank's overall capital plan, which includes increasing adjusted CET1 and funding high-return loan growth. They expect to achieve their goals in a few quarters.

The prime driver of creating capital to support objectives is organic earnings and core earnings power. CRT and CLN transactions are helpful for RWA and balance sheet optimization. The second quarter yield was exceptionally good, resulting in a reduction in risk-weighted assets and funding of $500 million. The cost of the transaction was only $7 million plus some upfront costs, unlocking 17 bps of CET1. These transactions are seen as tactical and opportunistic, not the core driver. The bank has visibility on loan growth for the next couple of quarters.

The company has partial visibility into the fourth quarter and no significant visibility into 2025. However, they have some insight from customers and expect them to perform well next year. Credit has been performing well and the commercial real estate book is in good shape. There was a rebound in fee income.

In the third quarter, the merchant acquiring division is expected to add $6 million to fees, which could result in fee income coming in at the upper end of the 5% to 7% range. The company is pleased with their fee income performance, which saw a 6% increase from the first quarter and a 5% year-over-year growth rate. They expect to continue this momentum and land within their 5% to 7% full-year range. The three priority areas of focus for the company are capital markets, payments, and wealth management, which are all experiencing strong growth. The company is particularly pleased with the growth in their advisory business and expects this trend to continue.

The speaker is pleased with the bank's second quarter results, which showed growth in both spread and fee revenues. They attribute this to their organic growth strategies and investments, and believe that momentum is building for the bank. They also mention that they are closely monitoring economic performance and credit trends, and will adjust their reserve levels accordingly.

The company's competitive position is strong due to its strong capital liquidity and the addition of talented bankers. The company remains focused on its long-term strategic objectives and has a strong alignment with delivering value for shareholders. The Board, executives, and colleagues are top shareholders. The company thanks its 20,000 colleagues for their support and concludes the conference call.

This summary was generated with AI and may contain some inaccuracies.