Huntington Bancshares: Sustained Growth Through Strong Loan Quality

Current Loan Portfolio Quality

Huntington Bancshares' current loan portfolio quality is robust, with expectations to receive all contractual cash flows from its debt securities. Despite $76 million in past-due office portfolio balances, the allowance for credit losses remains stable, and the criticized asset ratio has improved. Commercial portfolios show strength and stability.

"Based on an evaluation of available information including security type, counterparty credit quality, past events, current conditions, and reasonable and supportable forecasts that are relevant to collectability of cash flows, as of March 31, 2024, Huntington has concluded that it expects to receive all contractual cash flows from each security held in its AFS and HTM debt securities portfolio." --- (HBAN, sec filing, 2024/Q1)

"At March 31, 2024, there was $76 million of outstanding balances in the office portfolio that were 30 or more days past due. Credit Quality" --- (HBAN, sec filing, 2024/Q1)

"of 25 to 45 basis points. Allowance for credit losses at 1.95% declined by 2 basis points from the prior quarter, effectively flat and reflects both modestly improved economic outlook, as well as an increased loan portfolio.On slide 20, the criticized asset ratio declined 7% from the prior quarter, driven by broad-based improvements across commercial portfolios." --- (HBAN, earning call, 2024/Q2)

"All other commercial portfolios were relatively unchanged on a net basis. Within other commercial, we saw notable strength in regional and business banking balances, as a result of sustained production levels and the continued retention of all SBA loan production on balance sheet. In total consumer loans," --- (HBAN, earning call, 2024/Q1)

"The table below provides the composition of our total loan and lease portfolio: Table 6 - Loan and Lease Portfolio Composition (dollar amounts in millions) At March 31, 2024 At December 31, 2023 Commercial: Commercial and industrial $ 51,500 42 % $ 50,657 42 % Commercial real estate 12,342 10 12,422 10 Lease financing 5,133 4 5,228 4 Total commercial 68,975 56 68,307 56 Consumer: Residential mortgage 23,744 20 23,720 20 Automobile 12,662 10 12,482 10 Home equity 10,047 8 10,113 8 RV and marine 5,887 5 5,899 5 Other consumer 1,452 1 1,461 1 Total consumer 53,792 44 53,675 44 Total loans and leases $ 122,767 100 % $ 121,982 100 %" --- (HBAN, sec filing, 2024/Q1)

Risk Management Practices

Huntington Bancshares employs a disciplined approach to managing credit quality, maintaining a moderate-to-low risk appetite. They actively manage operational risks, credit risks, and interest rate risks to ensure financial stability, adjusting derivative positions as needed to align with broader risk management objectives.

"24 Huntington Bancshares Incorporated Operational Risk Operational risk is the risk of loss due to human error, third-party performance failures, or inadequate or failed internal systems and controls, including the use of financial or other quantitative methodologies that may not adequately predict future results; violations of, or noncompliance with, laws, rules, regulations, prescribed practices, or ethical standards; and external influences such as market conditions, fraudulent activities, disasters, failed business contingency plans, and security risks." --- (HBAN, sec filing, 2024/Q1)

"The majority of our credit risk is associated with lending activities, as the acceptance and management of credit risk is central to profitable lending." --- (HBAN, sec filing, 2024/Q1)

"We have continued our disciplined approach to managing credit quality consistent with our aggregate moderate-to-low, through-the-cycle risk appetite." --- (HBAN, sec filing, 2024/Q1)

"If the credit quality of our customer base materially deteriorates or the risk profile of a market, industry, or group of customers changes materially, our net income and capital could be materially adversely affected which, in turn could have a material adverse effect on our financial condition and results of operations." --- (HBAN, sec filing, 2024/Q1)

"The volume, maturity, and mix of derivative positions change frequently as we adjust our broader interest rate risk management objectives and the balance sheet positions to be hedged." --- (HBAN, sec filing, 2024/Q1)

Impact of Economic Conditions

Huntington Bancshares has incorporated economic uncertainties, including inflation, higher interest rates, and global conflicts, into their Allowance for Credit Losses (ACL). They benefit from fixed-rate loan repricing and continuously develop action plans for various economic and interest rate scenarios, ensuring sustained loan quality and growth.

"The economic scenarios used included elevated levels of economic uncertainty including the impact of specific challenges in the commercial real estate Industry, recent inflation levels, the U.S. labor market, the expected path of interest rate changes by the Federal Reserve, and the impact of significant conflicts on-going around the world." --- (HBAN, sec filing, 2024/Q1)

"While we have incorporated estimates of economic uncertainty into our ACL, the ultimate impact of specific challenges in the commercial real estate industry, recent inflation levels, higher interest rates, and the significant conflicts on-going around the world will have on the economy remains unknown." --- (HBAN, sec filing, 2024/Q1)

"We continue to benefit from fixed-rate loan repricing with loan yields expanding by 9 basis points from the prior quarter. As a reminder, we continue to analyze and develop action plans for a wide range of potential economic and interest rate scenarios for both short term rates as well as the slope and belly of the curve." --- (HBAN, earning call, 2024/Q2)

Competitive Positioning

Huntington Bancshares maintains a strong competitive position through robust capital liquidity and strategic talent acquisition. They are also managing net interest margins effectively within the competitive environment and strategically shifting financial product mixes to enhance their market stance.

"Our competitive position remains strong with robust capital liquidity. We continue to seize the opportunities to add talented bankers across our businesses." --- (HBAN, earning call, 2024/Q2)

"More importantly, through this cycle and beyond, we will continue growing our customer base, increasing customer engagement and capturing higher wallet share to extend our leadership position. On the note of share gains, this year we extended our number one position by gaining 40 basis points year over year and 220 basis points since 2019." --- (JPM, Investor Day, 2024/05/20)

"And we believe our data capabilities are a key competitive differentiator and we continue to make strategic investments to improve our client experience and platform reliability." --- (C, Investor Day, 2024/06/18)

"I do think that a lot of -- one of the key factors in managing a flat NIM will be that continued execution on reducing the trajectory of interest rate cuts rising and then begin to driving them lower. And of course, the real ability to do that is a function of what the competitive environment is and what customers believe the rate path is." --- (HBAN, earning call, 2024/Q2)

"The mix of it, as I noted in one of the earlier questions, is actively shifting out of more time into more money market, that sort of value driver from here, which will help us set up the ability to move beta down at a faster rate going forward." --- (HBAN, earning call, 2024/Q2)

Customer Base and Loan Demand

Huntington Bancshares is experiencing strong customer demand for loans, driven by a focus on acquiring and deepening primary bank customer relationships. The bank has successfully booked customers and loans across various regions, including the Carolinas and Texas, contributing to sequential growth in commercial banking revenues.

"Thank you for taking the question. So I think my question is on customer -- overall customer demand on loans have sort of been answered." --- (HBAN, earning call, 2024/Q2)

"Our core deposits come from a base of primary bank customer relationships, and we continue to focus on acquiring and deepening those relationships resulting in our granular and diversified deposit base." --- (HBAN, sec filing, 2024/Q1)

"We're really pleased with how they're doing. Every one of them has booked customers, is booking loans." --- (HBAN, earning call, 2024/Q2)

"Payments revenue is up 7% in the first quarter. Wealth revenue is up 10%. In capital markets, we saw commercial banking related revenues, around two-thirds of the capital markets activities that are really highly correlated to the pace and volume of commercial banking, that grew sequentially into the first quarter -- of the second sequential quarter of growth there." --- (HBAN, earning call, 2024/Q1)

"The early traction is really very positive. We're seeing customers already being acquired, loans being booked, and the pipelines across all of the five new areas of focus for the three commercial verticals, Carolinas and Texas." --- (HBAN, earning call, 2024/Q1)

Financial Performance and Key Metrics

Huntington Bancshares' financial performance is closely tied to the quality of its loan portfolio. The company monitors loans made to financially distressed borrowers to gauge modification effectiveness. Consolidated financial performance reviews and the economic impact of underlying loans on VIEs further highlight the importance of loan quality in driving overall financial health.

"The performance of loans made to borrowers experiencing financial difficulty in which modifications were made is closely monitored to understand the effectiveness of modification efforts." --- (HBAN, sec filing, 2024/Q1)

"DISCUSSION OF RESULTS OF OPERATIONS This section provides a review of financial performance on a consolidated basis." --- (HBAN, sec filing, 2024/Q1)

"2024 1Q Form 10-Q 69 The economic performance of the VIE is most significantly impacted by the performance of the underlying loans." --- (HBAN, sec filing, 2024/Q1)

Regulatory Environment

The regulatory environment remains challenging and dynamic, impacting capital and operational stability. Huntington Bancshares, like its peers, faces evolving regulations, potential scrutiny, and the need for heightened controls, which could affect its growth and loan quality.

"We did that in the past and we will continue to do that going forward. And the last point on regulatory environment, it is a tough environment as you can see day in and day out." --- (JPM, event transcript, 2024/05/20)

"And as we discuss, capital will be subject to how the regulatory environment continues to evolve." --- (C, event transcript, 2024/06/18)

"specifically called out JPMorgan Chase, which likely damaged their reputation and ability to operate in favorable regulatory environments." --- (WFC, event transcript, 2024/04/30)

"And we also witnessed the collapse and failure of a handful of regional banks in the United States, as well as a dynamic regulatory environment that continues to evolve." --- (C, event transcript, 2024/06/18)

"by our regulators, we remain at risk of further regulatory actions. Additionally, as we implement heightened controls and oversight, new issues could be found that need to be remediated and these may result in additional regulatory actions. Let me now discuss our businesses." --- (WFC, event transcript, 2024/04/30)

Technological Advancements in Banking

Huntington Bancshares is leveraging technological advancements through new banking initiatives, aligning with industry trends where major players like JPMorgan Chase and U.S. Bank are utilizing data and innovation to enhance client services and discover new opportunities.

"formation of Global Banking helps accelerate our efforts to serve more clients across the globe, but we are also harnessing the power of our data to discover new clients as well as to improve our understanding of clients' needs to bring them differentiated solution, ultimately serve them in a bespoke manner." --- (JPM, event transcript, 2024/05/20)

"Don Relyea, our Chief Innovation Officer, recently sat down with @JimMarous for the 'Banking Transformed' podcast to discuss our innovation journey." --- (USB, Twitter, 2024/06/28)

"So the three new initiatives, especially banking last year, and the Carolinas off to a really good start." --- (HBAN, earning call, 2024/Q1)

Future Outlook and Growth Prospects

Huntington Bancshares anticipates accelerated loan growth throughout 2024, supported by both commercial and consumer loans. This momentum is expected to continue into 2025, driving solid revenue and profit expansion. The company also forecasts stable expense growth, ensuring a robust financial outlook.

"We expect the pace of future year-over-year loan growth to accelerate over the course of 2024. Loan growth in the quarter was supported by both commercial and consumer loan categories." --- (HBAN, earning call, 2024/Q2)

"And importantly, the keeping for us is that trajectory, growing net interest income on a dollar basis out of the first quarter into the second quarter, and continuing on to the third and fourth quarter, and the outcome of that's going to be solidly expanding revenue growth and solidly expanding profit growth as well." --- (HBAN, earning call, 2024/Q1)

"We expect this growth momentum will carry through the year and into 2025, further supporting our revenue and profitability outlook." --- (Huntington Bancshares, press release, 2024/04/19)

"Expense outlook is unchanged, expecting 4.5% core expense growth for the full year." --- (HBAN, earning call, 2024/Q1)

"focus is on driving revenue growth and as I noted we continue to forecast that the combination of this margin outlook, coupled with accelerating loan growth, will drive solid revenue expansion from here." --- (HBAN, earning call, 2024/Q1)