Introduction
Huntington Bancshares Inc. (NASDAQ:HBAN) is a regional bank holding company with a rich history dating back to 1866. Headquartered in Columbus, Ohio, the company has established a strong foothold across the Midwest and surrounding regions, providing a comprehensive suite of banking, payments, wealth management, and risk management products and services to consumers, small and middle-market businesses, corporations, municipalities, and other organizations.
Huntington's Business Overview and Extensive History
Huntington Bancshares was founded in 1866 as The Huntington National Bank and has since grown to become a $201 billion asset regional bank holding company. The company operates 975 branches across 12 states, serving a diverse customer base that includes consumers, small and middle-market businesses, corporations, municipalities, and other organizations. Huntington's core business segments include Consumer Regional Banking and Commercial Banking, which collectively offer a wide range of financial products and services, including lending, deposit-taking, treasury management, and wealth management.
Over its long history, Huntington has demonstrated resilience and adaptability in the face of various challenges. The bank successfully navigated through the Great Depression and numerous economic downturns, emerging stronger and continuing to grow its business. In 1966, the company reorganized and became a bank holding company known as Huntington Bancshares Incorporated, marking a significant milestone in its corporate structure.
Huntington's expansion beyond its home state began in 1983 when it opened its first branch in Florida. This move initiated the company's regional expansion strategy, which has continued to this day. In 2009, Huntington made a strategic acquisition of rival bank FirstMerit Corporation, significantly expanding its branch network and customer base. This acquisition played a crucial role in helping Huntington weather the Great Recession and position itself for future growth.
Today, Huntington maintains a strong presence in the Midwest, Mid-Atlantic, and Southeastern regions of the United States, offering a comprehensive suite of financial services. The company's growth has been driven by a combination of organic expansion and strategic acquisitions, allowing it to diversify its offerings and strengthen its market position over the decades.
Financial Performance and Resilience
Huntington's financial performance has been characterized by resilience and disciplined execution. In the latest reported quarter (Q3 2024), the company delivered strong results, with net income of $517 million and earnings per share of $0.33. This performance was underpinned by accelerated loan growth, continued deposit growth, robust fee revenue generation, and stable credit quality.
The company's loan portfolio grew by 3.1% year-over-year, driven by contributions from both core businesses and new initiatives. Deposit growth remained robust, with average deposits increasing by 5.6% year-over-year. Huntington's fee revenue strategies, focused on payments, wealth management, and capital markets, delivered a 12% year-over-year increase in core fee revenues, excluding the impact of certain notable items.
Huntington's credit quality has remained a hallmark of its performance, with net charge-offs holding steady at 30 basis points of average loans and leases. The company's allowance for credit losses stood at 1.93% of total loans and leases, reflecting its disciplined approach to risk management and its aggregate moderate-to-low risk appetite.
In the third quarter of 2024, Huntington reported total revenue of $1.874 billion and net income of $517 million. The company's operating cash flow (OCF) for the quarter was -$310 million, while free cash flow (FCF) stood at -$480 million. Noninterest income increased by 3% compared to the prior year quarter, driven by higher capital markets and advisory fees, wealth and asset management revenue, and mortgage banking income. This increase was partially offset by a $33 million favorable mark-to-market on pay-fixed swaptions recognized in the prior year quarter. Noninterest expense increased 4% year-over-year, primarily due to higher personnel costs and outside data processing and other services, partially offset by decreases in deposit and other insurance expense and net occupancy.
Navigating the Interest Rate Environment
Huntington has demonstrated its ability to navigate the evolving interest rate environment through proactive balance sheet management. The company has actively executed its "down-beta" playbook, dynamically managing deposit pricing and funding costs to mitigate the impact of rate cuts. This strategy has enabled Huntington to maintain a strong net interest margin and position the company for continued net interest income growth in the coming years.
The company's net interest margin was 2.98% in the third quarter of 2024, with a projected trajectory of further expansion through 2025 as Huntington continues to benefit from deposit repricing and the optimization of its funding mix. The company projects a cumulative deposit beta in the mid-to-high 30s by Q4 2025 and in the mid-40s range by Q4 2026, demonstrating its ability to manage deposit costs effectively in a changing rate environment.
Outlook and Strategic Initiatives
Looking ahead, Huntington remains focused on driving sustained organic growth and profitability. The company's guidance for the fourth quarter of 2024 includes accelerating loan growth of 4-5% year-over-year and deposit growth of 4-5% year-over-year. Huntington also expects core fee revenues to grow approximately 8-9% year-over-year in the fourth quarter, supported by momentum in its payments, wealth management, and capital markets businesses. Net interest income is expected to be flat to up 1% year-over-year, while core expenses are projected to grow around 3% year-over-year. The company anticipates net charge-offs to be relatively similar to Q3 2024 levels, with a tax rate between 18-19%.
For the full year 2025, Huntington expects to deliver record net interest income levels based on the current interest rate outlook, which includes two additional 25bps rate cuts by year-end 2024 and five more 25bps cuts in 2025. The company intends to drive its adjusted CET1 ratio (inclusive of AOCI) into its operating range of 9-10%, demonstrating its commitment to maintaining a strong capital position.
To fuel this growth, Huntington continues to invest strategically in its franchise, including the recently completed expansion into the Carolinas and the insourcing of its merchant acquiring capabilities. These initiatives are expected to contribute to the company's fee revenue trajectory, with the merchant acquiring business alone forecasted to add approximately 1 percentage point to overall fee revenue growth in 2025.
Business Segments and Performance
Huntington operates through two main business segments: Consumer Regional Banking and Commercial Banking.
The Consumer Regional Banking segment focuses on providing a full range of banking products and services to consumer customers through Huntington's network of branches and digital channels. For the first nine months of 2024, this segment reported net interest income of $3.01 billion, up 10% year-over-year, and noninterest income of $968 million, up 2% year-over-year. The segment's net income attributable to Huntington was $1.10 billion, representing a 14% increase year-over-year. Key products in this segment include residential mortgages, home equity loans and lines of credit, automobile loans, RV and marine financing, credit cards, checking and savings accounts, certificate of deposits, and wealth management services.
The Commercial Banking segment provides a broad suite of products and services to small and middle-market businesses, government, and institutional clients. For the first nine months of 2024, this segment reported net interest income of $1.58 billion, down 4% year-over-year, and noninterest income of $490 million, up 2% year-over-year. The segment's net income attributable to Huntington was $853 million, representing a 9% decrease year-over-year. Key offerings in this segment include commercial loans and leases, commercial and industrial loans, commercial real estate loans, international banking services, and treasury management products.
In addition to these two main segments, Huntington also has a Treasury & Other function that includes unallocated assets, liabilities, revenue, and expenses.
Liquidity and Capital Position
Huntington maintains a strong liquidity position, with $12.6 billion in cash and cash equivalents at September 30, 2024, an increase of $2.5 billion compared to December 31, 2023. This increase was primarily due to higher interest-bearing deposits at the Federal Reserve Bank. The company also maintains significant borrowing capacity, with available contingent borrowing capacity totaling $82.2 billion at September 30, 2024, through both the Federal Home Loan Bank (FHLB) and the Federal Reserve.
Risks and Challenges
As with any financial institution, Huntington faces a range of risks and challenges, including exposure to interest rate fluctuations, competitive pressures, regulatory changes, and macroeconomic uncertainties. The company's performance is closely tied to the health of the regional economies it serves, and any significant economic downturns or disruptions could impact its lending activities and credit quality.
Furthermore, the banking industry as a whole continues to grapple with the ongoing effects of the COVID-19 pandemic, changes in consumer behavior, and the evolving competitive landscape driven by fintech and digital banking innovations. Huntington's ability to adapt and respond to these dynamics will be crucial to its long-term success.
Conclusion
Huntington Bancshares has a rich history and a proven track record of navigating the complexities of the regional banking industry. Through disciplined execution, strategic investments, and a relentless focus on customer service, the company has consistently delivered strong financial performance and positioned itself as a leading regional banking institution.
As Huntington continues to capitalize on growth opportunities, enhance its digital capabilities, and maintain its credit quality, the company remains well-equipped to create value for its shareholders and contribute to the communities it serves. With a clear strategic vision, robust financial performance across its business segments, and a strong liquidity position, Huntington is poised to navigate the evolving banking landscape and drive sustainable growth in the years to come.