Q4 2024 Earnings Call Transcript

Greetings, and welcome to the Huntington Bancshares Fourth Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Tim Sedabres, Director of Investor Relations. Please go ahead.

Thank you, operator. Welcome, everyone, and good morning. Copies of the slides, we will be reviewing today, can be found on the Investor Relations section of our website, www.huntington.com. As a reminder, this call is being recorded and a replay will be available starting about one hour from the close of the call.

Our presenters today are Steve Steinour, Chairman, President and CEO; and Zach Wasserman, Chief Financial Officer; Brendan Lawlor, Chief Credit Officer will join us for the Q&A. Earnings documents, which include our forward-looking statements disclaimer and non-GAAP information are available on the Investor Relations section of our website. With that, let me now turn it over to Steve.

Thanks, Tim. Good morning, everyone, and welcome. Thank you for joining the call today. Building on a good third quarter, we delivered very strong fourth quarter results, which Zach will detail later. 2024 was an exceptional year for Huntington with our teams delivering accelerated growth over the course of the year.

We're very grateful to our 20,000 colleagues who drove these results, while living our purpose every day, as we make people's lives better, help businesses thrive and strengthen the communities we serve. Now on to Slide 4. There are five key messages we want to leave you with today. First, we drove record fee revenues and accelerated growth of loans and deposits. This reflected contributions from both existing and new businesses.

Our investments into new geographies and capabilities are delivering attractive returns and we're seeing accelerated contributions from these new areas. We delivered sequential growth in both spread and fee revenues in the quarter. We move into 2025 with strong momentum. We are poised to deliver record net interest income and fee revenues for the full year.

Third, we are executing our down beta action plans and lowering deposit pricing. This supports management of net interest margin through a dynamic interest rate environment. Fourth, we are achieving strong credit performance. This is a direct result of our disciplined client selection and rigorous portfolio management aligned with our aggregate moderate-to-low-risk appetite.

Fifth, through execution of our growth strategies, we are driving profit momentum into 2025 and beyond. I'll move us on to Slide 5 to recap our performance last year. 2024 was a breakout year for Huntington. Our many years of consistent and disciplined management benefited us as we came into the year with robust liquidity and capital as well as stable credit. This position of strength enabled us to accelerate growth in our core, add new capabilities and teams and expand into new geographies in North and South Carolina as well as Texas.

We're just getting started here. We believe our investments and focused execution will deliver robust organic growth in future years. The results in 2024 included growing average deposits by over $7.5 billion and growing average loans by over $3.5 billion. Our growth accelerated over the course of the year with our new initiatives increasing contributions to our overall results.

Additionally, our fee revenue businesses are performing exceptionally well. Within payments, we brought in-house our merchant acquiring capabilities and increased treasury management products and services. Within wealth management, we're expanding advisory household relationships 9% year-over-year and gathering increased wealth assets from our customers. Capital markets set a new quarterly record for revenue in the fourth quarter at $120 million, an increase of 74% from a year ago.

Turning to Slide 6. Let me take a moment to share the top-level revenue trends we've delivered. The organic growth we are driving continues to significantly outpace our peer group. We are well positioned to drive attractive and sustained revenue. These revenue growth trends support expanding PPNR into 2025 and beyond.

Now let's turn to Slide 7. The growth opportunities today are the most attractive they've been since I joined Huntington. We have three primary areas of focus. These include executing the organic growth strategy I shared earlier, driving revenues higher and maintaining our consistent approach to risk management. We have numerous growth levers, both in our existing markets and businesses as well as the collective set of expanded geographies and new capabilities.

We see substantive opportunities to expand loans, deposits and value-added fee revenues. These efforts will result in sustained revenue expansion in both fee and spread revenue. Huntington benefits from a consistent approach to risk management that has served us well for many years. We expect this bedrock principle to remain unchanged as we maintain our aggregate moderate- to low-risk appetite.

Zach, over to you to provide more detail on our financial performance.

Thanks, Steve, and good morning, everyone. Slide 8 provides highlights of our fourth quarter results. We reported earnings per common share of $0.34. Return on tangible common equity or ROTCE came in at 16.4% for the quarter. Average loan balances increased by $7 billion or 5.7% versus last year.

Average deposits increased by $9.7 billion or 6.5% versus last year. CET1 ended the quarter at 10.5% and increased roughly 30 basis points from last year. Adjusted common equity Tier 1, including AOCI was 8.7%. Tangible book value per share has increased by 6.9% year-over-year.

We maintained strong credit performance and are positioned to continue to outperform. Net charge-offs were 30 basis points, stable from the prior quarter. Allowance for credit losses ended the quarter at 1.88%. Turning to Slide 9. Consistent with our plan and prior guidance, year-over-year average loan growth continued to accelerate.

Loan growth in the fourth quarter increased 5.7% year-over-year, rising from 3.1% year-over-year in Q3. Average loan balances increased sequentially by $3.7 billion or 2.9%. This exceptional loan growth reflects strong production and contributions from our existing and new businesses. During the quarter, new initiatives represented $1.1 billion in growth or 30% of the total net loan growth. Growth from new initiatives continued to accelerate as we have guided previously, increasing from approximately $700 million and $500 million in the prior two quarters.

Of the $3.1 billion of loan growth from existing businesses, we saw $766 million from auto, $421 million from regional banking, commercial and industrial, $511 million from asset finance, $327 million from higher auto floorplan balances, $85 million from seasonally higher balances within distribution finance, $165 million from all other consumer categories net, including increases from residential mortgage and home equity, offset by lower RV and marine balances and approximately $800 million collectively across the commercial bank. Of the $1.1 billion of loan growth from new initiatives, the largest contributions in the quarter came from Funds Finance, North and South Carolina and Texas.

Offsetting a portion of this growth was lower commercial real estate balances, which declined by $465 million. Turning to Slide 10. The result of our accelerated loan growth continues to be a differentiated position compared to our peers. Over the last year through the third quarter, the peer group reported lower loan balances, down nearly 3% at the median. During this time, Huntington outperformed the median by approximately 6%.

Importantly, we have sustained deposit growth to self-fund our expanded loan balances with deposit growth also substantially outperforming peers on a cumulative basis. Turning to Slide 11. We delivered deposit growth through the fourth quarter. Average deposits increased by $2.9 billion or 1.9%. This growth was led by our commercial customers.

Non-interest-bearing deposits expanded, growing by approximately $800 million on average, totaling 18.6% of total deposits. We lowered our overall cost of deposits in the quarter by 24 basis points to 2.16%. This is consistent with the trajectory we shared in our mid-quarter update and reflects our disciplined deposit pricing. On to Slide 12. During the quarter, we drove a $45 million or 3.3% growth in net interest income.

This reflects over 6% growth year-over-year and net interest income has increased for the third consecutive quarter. Net interest margin was 3.03% for the fourth quarter, up 5 basis points from the prior quarter. The change in net interest margin included 3 basis points lower spread net of free funds, more than offset by 3 basis points benefit from lower cash balances and a 5 basis-point benefit from lower drag from the hedging program. Turning to Slide 13. Our level of cash and securities at year end decreased to 28% of total assets, as we saw modestly lower cash balances in the quarter.

We expect to operate at or around this level going forward. We have continued to reinvest securities cash flows into treasuries and, as previously stated, expect to manage the duration of the portfolio at approximately the current range. As previously disclosed, we sold approximately $1 billion of corporate securities during the fourth quarter. This repositioning was beneficial to risk-weighted assets and capital ratios and resulted in a pre-tax loss of $21 million with an earn back of less than two years.

Turning to Slide 14. We continue to manage our hedging program with two objectives in mind, to protect net interest margin from a lower rate environment as well as to protect capital from a potential higher rate environment. We have remained relatively stable in our hedging position since November. We continue to monitor the likelihood of potential rate scenarios and will remain dynamic as we adjust to the rate environment. Moving to Slide 15. On a GAAP basis, non-interest income increased by $154 million from the prior year.

On a core underlying basis, adjusting for the impacts of the loss on securities, CRT transactions and the pay fixed swaptions mark-to-market from the prior year, fee revenues increased by $96 million or 20%. Moving to Slide 16. We have continued to see powerful acceleration from our focus on three strategic fee businesses. For the full year, fee revenues as a percentage of total revenue increased to 28% from 26% the prior year. Within payments, we saw 8% growth year-over-year in the fourth quarter, driven by a 16% increase in commercial payment revenues, benefiting from higher treasury management fees and the launch of our new merchant acquiring model.

Wealth management fees increased by 8% from the prior year. AUM continued to grow, increasing 16% from the prior year, with wealth advisory households having increased by 9%. Finally, Capital Markets completed a record quarter with $120 million in revenue. That's up 74% from the prior year.

Our Capstone Group had a phenomenal quarter, helping to lead our strong capital markets results. Turning to Slide 17. GAAP non-interest expense increased sequentially by $48 million and underlying core expenses increased by $57 million from Q3. The primary driver of the increase in expenses was in personnel costs, largely comprised of higher revenue-driven compensation expense, which was $42 million higher in the quarter. Slide 18 recaps our capital position. Common equity Tier 1 ended the quarter at 10.5%.

Our adjusted CET1 ratio, inclusive of AOCI, was 8.7%, up approximately 10 basis points from a year ago. Our capital management strategy remains focused on driving our top priority to fund high-return loan growth while also driving capital ratios higher. We intend to drive adjusted CET1 inclusive of AOCI into our operating range of 9% to 10%. On Slide 19, credit quality continues to perform very well.

Net charge-offs were 30 basis points for the quarter, stable from Q3 and within 1 basis point of that level over the past four quarters. For the full year, net charge-offs also totaled 30 basis points, well within our through-the-cycle range. Allowance for credit losses was at 1.88%, lower by 5 basis points from the prior quarter. This reflects the continued strong credit performance and loan portfolio growth.

Turning to Slide 20. The criticized asset ratio improved for the third consecutive quarter to 3.76%. The non-performing asset ratio ended the quarter at 63 basis points, relatively stable over the prior three quarters. Let's turn to Slide 21 for our outlook for 2025. We expect to continue to drive robust loan growth with balances expected to increase between 5% and 7% for the full year. Deposits are also expected to sustain growth with balances increasing between 3% and 5%.

We see net interest income on a dollar basis growing between 4% and 6% this year. As noted, this level would reflect record net interest income on a full year basis. We will maintain our focus on key fee revenue areas, including payments, wealth management and capital markets, which we expect to lead to noninterest income growth between 4% and 6% for 2025. Expense growth will be driven by sustained investments in revenue-producing initiatives, albeit at a moderately lower pace of growth than we saw in full year 2024. We expect expense growth between 3.5% and 4.5%. The pace of expense growth will in part be driven by revenue levels and the associated variable compensation expense.

Importantly, we see positive operating leverage for full year 2025. Related to credit, we expect net charge-offs for the year to be between 25 and 35 basis points. The effective tax rate for the year is expected to be approximately 19%. Let me also share a couple of thoughts on where we see trends for the first quarter compared to the fourth quarter. We expect average loan balances to grow approximately 2%, average deposits to be relatively stable sequentially, net interest income on a dollar basis to be lower by approximately 2% to 3%, reflecting normal day count headwinds as well as a modestly lower net interest margin.

Fee revenues normalizing in the first quarter given seasonality and recognizing the record level we delivered in the fourth quarter. Fee revenues are expected to be approximately $500 million in the first quarter and then expand from that level over the course of the year. Expenses are likewise expected to be lower in the first quarter, given the strong year-end production levels we delivered in the fourth quarter. We forecast expenses to be down approximately 2% from the fourth quarter, the exact level of which will fluctuate dependent on revenue-driven compensation.

With that, we'll conclude our prepared remarks and move to Q&A. Tim, over to you.

Thank you, Zach. Operator, we will now take questions. We ask that as a courtesy to your peers, each person ask only one question and one related follow-up. And then if that person has additional questions, he or she can add themselves back into the queue. Thank you.

[Operator Instructions] Today's first question is coming from Manan Gosalia of Morgan Stanley. Please go ahead.

Hi, good morning.

Good morning.

Zach, can you talk about the confidence around the NII guidance range? It's a tighter range than last year. And I ask because I know there's a lot of uncertainty from trade and immigration and tax policy. So I just wanted to get a sense of what's embedded in that guide from a macro perspective.

Yes. Great question, Manan. I appreciate your focus on that and the short answer to your question is we're very confident that we can drive revenue growth within that range. Ultimately, when we see the year playing out, obviously, still pretty dynamic here in terms of short-term rate outlook and even what's going on in the belly in the longer term part of the curve.

But we see the ability to manage the NIM within any reasonable range of zero cuts to up to two or three cuts at approximately flat throughout the course of 2025, rising as we go into 2026 and beyond with the normal upward sloping yield curve and just continued growth in the -- in high return areas, but generally flat in NIM for 2025. It's really going to be loan growth therefore and earnings asset growth overall that drives the revenue performance this year. And we think we've set the range at a level that's very achievable and within the run rates that we're seeing now.

Got it. And you're growing loans faster than deposits this year. It sounds like you're reversing some of the trend that we've seen in 2024. Can you talk about what's driving that? And does that give you more room to flex on deposit costs as you go through the year?

Yes. That's another good one. Look, in terms of loan growth, we're running right now in the -- in the fourth quarter, we just posted 5.7% growth, greater than the 5% that we've been calling out for some time in terms of the exit growth rate we'd see. Feel really good about that.

As we noted in some of the prepared remarks, about 60% of that coming from the core, 40% from the new initiatives. So really good mix of growth. As we go into 2025, that 5% to up to 7% growth in loans is for the most part just sort of continuing on that run rate. But we think the growth composition in 2025 will be approximately half-and-half between the core and the new initiatives.

So continuing to see nice balance, but certainly great performance in -- across the board. As we -- as you think about the loan-to-deposit ratio, we were very intentional over the course of the last couple of years to drive strong deposit growth. I think we've talked a number of times before this that to some degree, we were prefunding what we expected to be accelerating loan growth and so hopefully -- so pleased to see that plan play out well. As we think about the plan for '25, growing deposits still pretty well here, between 3% and 5%, our core funding most of the loan growth, but also benefiting from the fact that we have taken the loan to deposit ratio down a bit.

So I think that does set us up pretty well to continue to drive the beta plan, which has outperformed thus far into the first quarter and see further down deposit pricing even as we accelerate loan growth.

Great. Thank you.

Thank you. The next question is coming from John Pancari of Evercore. Please go ahead.

Good morning.

Hi, John.

On -- related to that growth that you're just talking about on the loan side, can you maybe help us with the new money loan production yield that you're bringing on these new loans at, so overall, new money production yield versus your existing yield? And then maybe more specifically underneath that, what is the new money yield on that $1.1 billion this quarter generated from the new initiatives?

I appreciate the question, John. And I'm not going to dive into the depths of that, but I'll sort of talk a bit about this at a high level. The yields we're seeing ultimately are very consistent with kind of spread levels we've got in the business overall. That's why you're seeing that pretty consistent level of NIM.

Obviously, the business being roughly 50% fixed asset production. Those are keyed off of the belly of the curve, the other 50% being variable keyed off of the shorter end. One of the things I didn't say, just a minute ago, when Manan was asking was that, if you sort of unpack what's going on in yields and NIM, we continue to benefit from quite a bit of fixed asset repricing given where the belly is and so all those things will help us together to get to that stable NIM we talked about before.

Okay. All right, Zach. Thank you. And then just hopping to capital.

The -- I know the CET1 at 10.5% that's down to -- adjusted for AOCI 8.7% and I know, you're targeting 9% to 10% including of that. So fair to assume, I know buybacks are still kind of on hold. How long do you see that? Do you see a potential change in that outlook as you look at the capital generation that you're forecasting for the year?

Just trying to think of how we should think about capital return.

Yes. Good question. As you think about capital for us, we're focused on the goals that we've had that are unchanged, most important of which is funding high-return loan growth and so we're pleased that that's really been a great opportunity for us to deploy our internally generated capital. That adjusted CET1 ratio of 8.7%, our objective remains the same, which is to drive that up into the 9% to 10% operating range and I expect that we'll do that within the first half of 2025 and then continue to drive that higher solidly within that range.

My working forecast at this point, John, is that if we continue to see RWA growth and loan growth as we're forecasting, it will likely be bouncing around the kind of the low 9s throughout the course of 2025. It obviously also depends on where the longer end of the yield curve is, just where the AOCI marks trend. Yet under that scenario, there's relatively little capacity to do share repurchases in the near term. Over the longer term, as we continue to drive share -- CET1 up into that range, I would expect us to return to more normal distribution, including share repurchases. So, 2025 will to some degree really be dependent on that pace of loan growth and where the longer end of the yield curve ends up coming through.

Okay, great. All right. Thanks, Zach.

Thank you.

Thank you. The next question is coming from Ebrahim Poonawala of Bank of America. Please go ahead.

Hi, good morning.

Morning, Ebrahim.

I guess, Zach, just following up on the comments around the loan-to-deposit ratio, as we think about, let's say, loan growth meets deposit growth in '25, just talk about your expectations around the incremental margin and what's the incremental cost of deposits that's -- that are coming on relative to where you see the rest of the book repricing?

Yes. Good questions. With the loan-to-deposit ratio, we ended with -- exiting Q4 level was 79%. So it really gives us a powerful opportunity to continue to drive loan growth faster than deposit growth for some period of time, even though we're looking to core fund.

And look, the marginal spreads we're seeing now are very consistent of us mentioned earlier in John's prior question too, what we've seen in the past and I think obviously, in the near term, we'll continue to see acquisition deposit rates come down and benefit from the lower yield curve is what's going on with Fed funds reductions. But over the longer term, we'll continue to see that NIM begin to rise as we go into 2025 and -- the end of '25, excuse me, into '26 and beyond.

Got it. And I guess just one quick one on the fee outlook around payments, wealth management cap market. How much of the fee growth is tied to lending or I'm just trying to think through if lending or loan growth are slower, could you still have a fee revenue backdrop which could be in line or better than, what you've guided this morning?

No. Fundamentally, the fee strategies are there to support the overall core business and so the faster the core business grows, the more fee revenues opportunities there are, of course, and it will give you a sense as you look at some of our new growth initiatives in the Carolinas, in Texas and some of the new specialty commercial businesses. As those grow, we're seeing nice pull-through in terms of fees, particularly treasury management, Ebrahim. With that being said, the -- another core element of the fee strategy is really penetrating the opportunity more fully.

So wealth management, for example, I wouldn't consider to be highly correlated with loan growth more around, kind of what we're seeing in terms of penetration. So, it's broadly correlated, but I think also very independent in terms of the strategies that we're driving. My expectation over the long term is we'll see payments, wealth management, capital markets all being high single-digit to low double-digit growth in revenues in a pretty sustainable way over the course of the long term.

Got it. Thank you.

Thank you.

Thank you. The next question is coming from Brian Foran of Truist. Please go ahead.

Hi, all. I guess--

Hi, Brian.

Hi, I definitely recognize that your '25 loan and deposit growth guide. Most of your peers so far seem to be like flat, up 2%, so you're continuing peer-leading growth. But just in terms of like -- it's kind of like flat to decelerating in terms of growth rates from where we are now and conceptually like why would you decelerate? Is it macro inputs or is it seasoning of investments?

Or what would -- to the extent your growth rates are flat to decelerating, what would drive that kind of change in the derivative, I guess?

Yes. Great question, Brian, and appreciate you recognizing this peer leading performance, because we certainly feel pretty good about that. The way I think about it is sustaining the current run rate of loan growth. Again, we talked earlier 5.7% year-over-year in Q4, it's pretty much spot in the middle of the loan growth range and certainly, there's potential that will be at the high end of that range, which would represent acceleration actually of loan growth.

Deposit growth of 3% to 5% is somewhat of a deceleration from the growth rate we saw in 2024, but really reflective of us not needing to grow deposits as much and purposely driving down the cost of deposits and benefiting from frankly that, that really advantageous position we have in loan-to-deposit ratio. So a great way to manage the NIM overall in the face of a sort of dynamic interest rate environment we've got at this point. Over the longer term, I would expect to fairly well match up fund with core deposits kind of in the business model as you go out past '25, but we're kind of managing, just the dynamic nature of the environment right now and so that's how I think about it, sustaining about accelerating loans and really purposely managing the deposit volumes to ensure that we can have a solid NIM and drive overall revenue growth, which is the objective in the end.

Brian, this is Steve. There's also seasonality. We're a very large asset finance lender, as you know, and that typically has a very strong fourth quarter and so annualizing up that fourth quarter, it doesn't reflect seasonality in asset finance and some other businesses that are seasonal in nature, but we're coming into '25 with momentum. We have had -- we're about 50% better this year to last year with pipelines in most of the businesses.

So we've got a lot of confidence in the loan growth within the range, we talked about, and perhaps if the outlook continues to be robust, we'll have an opportunity to exceed.

That's really helpful. Maybe as a follow-up, the eight -- I was going to say, eight states and three verticals. The eight verticals and three states, anything you would highlight as kind of the standout on the good side? Do you think that's been maybe a little bit more challenging?

And as you think about investments for '25, is it mostly about continuing to invest in the eight and the three? Or is there anything that could potentially be new verticals or new states on the docket?

Well, Brian, great question. Thank you. We've invested in the core markets as well as these three new geographic markets and then these eight verticals. So, we've added several hundred of RMs and new business generators in the last year and a half.

We're very pleased with the overall performance. We've had some outstanding results. We're off to a strong start in both Carolinas and Texas. Our Funds Finance business has ramped up faster than any business we've had -- any specialty business we've had.

They're all doing reasonably well. In aggregate, they're ahead, meaningfully ahead of expectations. But the regional geographies of the Carolinas and Texas on a direct expense basis, all actually made money last year. So we like the start.

We're confident. We have excellent colleagues, who are -- who have joined us and we're well positioned to continue that growth. So organic growth is our priority and we'll continue to look for growth from those, where we've made investments and at the same time, as you saw earlier this month, we launched two others with aero, defense and FIG and there will potentially be additional specialty verticals as we go forward, probably not at the rate of the last year and a half.

Thanks so much.

Thank you.

[Operator Instructions] The next question is coming from Jon Arfstrom of RBC Capital Markets. Please go ahead.

Hi, thanks. Good morning.

Hi, Jon.

Hi, Steve, just maybe following up on that a little bit on loan growth. You -- or in your prepared comments, you said this -- these are some of the most attractive opportunities you've seen since you've joined Huntington and 50% higher pipelines. Can you talk a little bit about the borrower feedback that you're hearing over the last few months? And then if you could touch a little bit also on the core growth, the $3.1 billion in core growth was obviously much stronger and you guys flagged lower CRE.

So just kind of curious, if there's a sentiment change and what's driving that core growth?

Yes. Jon, the borrower sentiment, the customer sentiment, I should say, is consistently positive. The outlook post-election has changed. You see it in the confidence measures indices that are both consumer and business and so when I'm out, I've probably been out with 100 or so customers and prospects since the election and it's almost 100% or more positive about '25 and beyond.

So there is a -- there is a consensus, I think, of expected growth, increased inventories. We saw record asset finance in the fourth quarter, about $600 million more than we did previously as a record and I think that reflects sort of an unlocking of expectations. So, there is a lot of deferred finance activities, I think, in the first half of the year and then waiting to see the election and then decisions were made and significant investments reflected in the fourth quarter. December was a very robust month for us, for example, in the asset finance side.

So we're heading in. The momentum we have is reflective, I think, of the settlement and gives us a lot of confidence as we come into the year. In terms of core growth, we -- again, we have some seasonality in that core growth in the fourth quarter with asset finance. And commercial real estate, we believe is close to bottoming out.

We're prepared to increase the outstandings and commitments in CRE, the book has performed exceptionally well. In aggregate, the Group is performing exceptionally well. So while we're talking about loan growth, in the same way about fees and deposits with our 2024 performance and so we come into the new year with a lot of confidence in terms of our growth.

Yes. Good. That's very helpful, Steve. And then one more for you with the new administration coming in and some changes in the regulatory leadership, what regulatory changes would you like to see, what could help Huntington? Thanks.

I think the business community as a whole will benefit from a more positive pro-business orientation with the new administration and so I think you'll see more of acquisition and combinations in the business community as a whole. I think in banking, we will have more stability and less uncertainty about liquidity and capital and other issues. I think the banks generally are well capitalized and this overhang of Basel III, I think, will get addressed fairly quickly. Beyond that, I believe a more constructive dialogue about willingness to do business with less oversight and constraint is probable and we'll just have to see if that develops.

Okay. Thank you. Very nice results. Yes.

Thank you.

Thank you. The next question is coming from Matt O'Connor of Deutsche Bank. Please go ahead.

Hi everyone. This is Nate Stein on behalf of Matt O'Connor. I wanted to ask about the NIM components. In October, you said NIM should be above 3% in the second half of '25, but you're above 3% now. I heard you say modestly lower NIM in the first quarter, but can you elaborate on your NIM outlook for the full year?

Sure. Thank -- excuse me, this is Zach. Thanks for the question. Across the course of the year, I'm expecting to see approximately 3% NIM, plus or minus a few basis points on a quarterly basis, but generally pretty flat throughout the course of this year.

As I mentioned a minute ago, we do continue to see the opportunity to drive NIM higher as we go into '26 and beyond, particularly driven by the just continued normalization of an upward sloping yield curve. If you kind of unpack the drivers of NIM in 2025 -- excuse me, one major benefit for us, which we've seen come through powerfully throughout the course of '24 as well as fixed asset repricing. To give you a sense, in 2024, we had about 12 basis points of benefit from fixed asset re-pricing. As we go into 2025, I'm seeing continued benefit and just based on the kind of increases in the belly of the curve in the slightly longer part of the yield curve recently, seeing about 10 basis points likely a benefit from fixed asset re-pricing in 2025. So that will continue to be a really powerful headwind also back -- it will continue into 2026 and beyond, by the way.

So that will be one of the drivers of a longer term, continue to move higher in NIM. And then another factor that will be helpful for us is deposit pricing and interest-bearing liability costs continuing to reduce. We did significantly accelerate beyond what our initial plan had been deposit pricing actions in the fourth quarter. It's one of the reasons why we drove outperformance in the fourth quarter more than we would have expected and we continue to feel pretty confident here about being able to drive beta as we previously indicated and see deposit costs come down through the course of the year.

Clearly, that will be to some degree a function of what's going on with the interest rate environment and are we in an extended pause or are there further rate reductions and what the strong market and client sentiment is around where interest rates will go, but we do see further opportunity to reduce funding costs. The offset to that clearly would be the 50% of our loans that are in variable pricing status will follow SOFR. SOFR will come down into the first quarter from the fourth quarter on average, just given the kind of late Q4 Fed fund reduction we saw in December. So that's one of the reasons why I've called out likely a little lower net interest margin here in the first quarter.

But over the course of the year, we're able to balance the variable yield impact with funding cost reductions and then the last factor is hedging. We saw in the fourth quarter a benefit as the hedge drag continued to reduce as we had previously indicated. I expect to see a further modest benefit as we get into the middle part of this year and then, if the curve stays as it is, probably a few basis points of drag into the back half of the year. If you look kind of across the totality of the year in terms of hedging, likely a couple of basis points benefit on a full-year basis and relatively similar here between Q4 and Q4. So several puts and takes.

If I take a step back, for us, the NIM outlook for 2025, it's a pretty dynamic environment and the drivers are different on a quarterly basis. But the net result of that should be about flat throughout the course of this year and then rising as we go into '26 and beyond.

Okay, great. Thank you. And then separately, can you talk about the securities repositioning you did this quarter? You sold $1 billion of securities and I get there was a big march up in the long end of the yield curve, but are you planning on doing more of these repositionings?

Yes, great question. So the short answer to your question in terms of more is not likely. The repositioning that we did was selling about $1 billion of corporate securities that had a higher risk-weighted asset -- excuse me, weight on them and so by selling them and repositioning the portfolio, we were able to unlock capital. Also at a pretty attractive earn back.

The teams have now completed the reinvestment of new securities at the higher yields and we expect to see a less than two-year payback on that. So pretty tactical, pretty marginal, I think in overall size, but attractive in and of itself. One of the things that is different with Huntington than perhaps others in the regional banking space is that because we had so effectively hedged the securities portfolio before the rate cycle began that the opportunity to do significant repositioning is simply just smaller and so, the plan we have with the securities portfolio is just to continue the current approach and benefit from those hedges that we have put in place in the past.

Thank you.

Thank you. The next question is coming from Erika Najarian of UBS. Please go ahead.

Hi, good morning.

Good morning, Erika.

Just a question -- good morning. The question I'm getting a lot from investors, and I'm sure you'll address this in Investor Day, is where are you sort of in the investment cycle? I think that investors have fully embraced the accelerated revenue growth at Huntington and really appreciated that you invested when everybody else was battening down the hatches. And as we think about just going forward, do you feel like the opportunities are still there and that you're going to be at a heavier lift from an investment standpoint for now and I'm sure we'll hear about it in a few weeks or is there sort of a point of time where you feel like you can enjoy widening positive operating leverage because you had so front-loaded the investment spend?

Erika, this is Steve. Thanks for the question. We have a momentum in the investment decisions we've made -- as a result of the investment decisions we've made, and we have been approached on almost all of those specialty businesses, those verticals and essentially, the same in the regions as well. So we're seeing business come to us -- business opportunities come to us via a number of avenues, sometimes directly in the management, sometimes through colleagues, but very seldom in the last year and a half have we used a recruiting firm for any of our new colleagues and these investments.

So there is a list of areas that we've maintained over the years that we have explored. We continue to update that list if we happen to have an approach going forward that we think makes sense or we see an opportunity that makes sense, we will look to pursue that. So we are not at the end of an investment cycle. Having said that, we have significant momentum now and confidence in our growth and the potential, because so many of these are relatively new to continue to press forward and we intend to do that and we'll talk more about it at the upcoming IR Day on February 6. But we're performing exceptionally well.

We have momentum. The last -- I think, it would be a mistake to pull back prematurely and I believe, we're going to see more opportunity again in '25.

Got it. And just a follow up. I know it's an off-cycle year for category for banks on the stress test. I'm wondering, how you feel about participating this year and readdressing that stress capital buffer?

Yes, Erika, this is Zach. I'll take that one. Our stress capital buffer right now is at the minimum, 2.5% and so, which we were pleased to see.

So you'll leave it alone. Got it.

Clarifying to that, I think, we'll leave that one alone. We run internal stress tests every single year. It's a very rigorous process. We continue to feel very, very good about the ability for the capital base to withstand stress environments as we go from here.

Yes, because as you saw a year and a half ago, the quality of the deposit franchise, the absolute amount of insured to total on the backup facilities that Zach and our treasury team have put in place gives us just a unique position of confidence combined with capital and stable credit, excuse me, notwithstanding challenges at that moment. We remain very confident in our credits as you've heard and we'll run the stress test and, obviously, review output carefully and we're in a period where there's more geopolitical volatility, et cetera, but we think our capital and overall position is very strong and when we look at capital plus reserves, we're top tier.

Excellent. Thank you.

Thank you, Erika.

Thank you. We're showing time for one final question. The final question today is coming from Brian Foran of Truist. Please go ahead.

Hi, I was just trying to wrap my head around provisioning for and reserve build first release in '25, and I know under CECL, it's almost impossible to forecast and guide with any kind of precision. But can you just talk about like where you're, on the one hand, you got a reserve for loan growth, which is pretty good. On the other hand, I didn't realize it till just now, but I mean, your criticized assets are now down 20% over nine months and your reserve is pretty high versus peers while your charge-offs are pretty low. But kind of where do you see the puts and takes?

I mean, should we think about dollars of reserve release in '25 or is it more about provision that brings the ratio down, but is a stable reserve in dollars or just kind of any kind of central tendency that you would give us on, whether we should be thinking about reserve release build or somewhere in between?

Yes. Brian, great question. This is Zach. I'll take that.

And if you think about our reserve, just take a kind of step back and frame it strategically and then I'll zoom in a little bit more tactically and answer some of -- the most of your questions. But strategically, the goal for us is to always maintain a very rigorous and robust reserve. Really, as Steve just noted a second ago, not only protection against credit scenarios, but also in a better form of capital. So we feel really good about where the reserve has been and if we look across the arc of time, when we -- look, at CECL day 1, our credit reserve was 1.70%.

In the kind of worst period of COVID, that had risen to around 2.3% of our memory reserves made in the early part of 2020. You know, when much of the industry pretty rapidly reduced those reserves in 2021. We also reduced them somewhat, but nowhere near at the same pace, because we knew that the economic environment was still somewhat unsettled and had a lot to play out as ultimately came to pass and so, put us in a really strong position. With that being said, we always expected that as the economic uncertainties that have really been out there for the last couple of years, will there be a soft landing, will there be a hard landing, will there be no landing at all?

What will be the kind of the trajectory of the interest rate environment and even the political environment uncertainties? As those would resolve, there would be an opportunity if those results favorably as they ultimately have been doing to reduce reserves and also fundamentally to watch the performance of the book, which has been really good and so what you've seen, for example, last four quarters is a gradual and modest release of reserves -- reserve ratio, even as we've actually maintained dollars or increased dollars at the loan growth, but as the loan portfolio grew. So where we stand today, 188 is obviously higher than that CECL day 170, presuming that the economy continues to perform well, that the outlooks continue to be solid and particularly, given the loan growth we expect to see, it is not improbable to see that ACL coverage ratio as a percent continue to go down even if the dollars might be flat to higher given loan growth.

So that's sort of how I think about it strategically. To your point, we look at this quarter by quarter by quarter, it really is an extraordinarily rigorous analysis. There's no predetermination of any of that. We're going to see the world play out on each quarter.

But assuming that everything continues to play out as we're talking about, I would assume that over time there will be further reduction in the ACL coverage ratio and we'll continue to drive loan growth higher, so the dollars may be more flat to growing, but the ratio would likely decline.

That's awesome. If I could sneak one last one in. I get a lot of questions about if M&A kind of eases, will Huntington be a buyer? And I would say with the context, there's three or four other regional banks, five or six even that I cover who I get the same question.

So it's not unique to you. But maybe, you could just remind us where you are in terms of deal mode, attractive, unattractive right now, on the priority list, not on the priority list. Certainly appreciate you've shown the ability to grow organically and there's a lot on your plate there, but it is something that comes up a lot.

Brian, it's Steve, great question. I was wondering when this might come up. We've said over the years that we're very focused on driving top-quartile organic growth. We've just made a significant number of investments and in the core as well as what we talk about with these regional expansions and eight verticals, so the core also is getting a fair amount of investment in.

And we're managing expense, Zach has shared this over time, reducing core expense as -- on a continuous basis through a number of actions and yet investing over, so there's a net expense growth. We really like this equation. We believe we have significant core opportunity of growth as well as with these new investments and we're very focused on that. The business is performing exceptionally well.

And we've shown the ability over time to be able to do, I think, in the last decade, two bolt-on depository acquisitions and we're thrilled with Capstone and they just had a record quarter. So, there is a capacity to do things, but the priority is organic growth. And we're -- as we've said before, we're highly disciplined in the selection. TCF was a home run near $500 million of expense reduction, big revenue generation synergies and some great businesses along with great colleagues.

So if it makes sense, we would look, but our priority to be very clear is organic growth. Thanks for the question.

Thank you. That brings us to the end of the question-and-answer session. I would like to turn the floor back over to Mr. Steinour for closing comments.

So in closing, our team just delivered exceptional results for the fourth quarter and highlighted by our leading loan and deposit growth and record fee income. Our credit trends, as you saw, remain stable. We're very pleased with the overall risk management disciplines we have had in place now for years. Our management team is focused.

We're executing our strategies that I've shared earlier, and we expect to sustain the growth momentum into '25 and beyond that we just illustrated. We look forward to sharing more details on the growth outlook during our upcoming Investor Day on February 6. We hope many of you will be able to join us in person for this event. As a reminder, collectively, the Board executives and our colleagues are top 10 shareholder, and we believe this strong alignment is important to sustaining value creation for all shareholders and second, finally, thank you to all my colleagues. Just you did an outstanding job, great quarter.

So for those on the call, we're out -- we're grateful for your interest in Huntington, have a great day.

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.