Huntington Bancshares won't be entering 2024 in a defensive crouch.
Steve Steinour, the $186.7 billion-asset regional bank's chairman and CEO, acknowledged gathering economic storm clouds on Friday, saying that higher credit losses are likely next year. Still, he believes that now is the right time to "play offense," as he put it on a conference call with analysts.
"There are moments to take advantage, and this is one of them," Steinour said on the hour-long call.
The Columbus, Ohio-based bank plans to add commercial bankers, expand its capital markets and wealth management business lines and continue investing in digital banking offerings. "We think we're in a very strong position to be aggressive when most banks cannot or will not," Steinour said in an interview prior to the conference call.
Huntington reported noninterest expenses totaling $1.1 billion for the quarter ending Sept. 30, up 4% on both a linked-quarter and year-over-year basis. It's forecasting a 4%-5% increase in the fourth quarter, with growth carrying over into 2024.
Steinour's comments come as a number of larger rivals in the regional bank space have announced aggressive plans to cut costs in an effort to become leaner and more efficient as the economy cools.
The $543 billion-asset Truist Financial in Charlotte, North Carolina, has been
Huntington, too, is pursuing cost savings. The company expects to consolidate some office space and shutter 34 branches in the first quarter of 2024. The branch closures reflect the ongoing shift in customer preferences to online and mobile platforms.
"Over half of our customers interact with us via a digital channel," Steinour said on the call. "They can bank with us in a branch if they choose, but more and more of them are getting used to using digital channels. That means we can thin the [branch] network out."
Huntington is switching to growth mode at a time when its customer base is exhibiting what Steinour calls "underlying strength," and despite what he sees as warning signs about the economy. "Conditions are softening," said Steinour, who has led Huntington since January 2009. "I think there will be higher losses and a tougher credit environment at some point."
"We've been in a recession-readiness plan now for a year," Steinour added. "Obviously we've been wrong."
If the economy does turn south in 2024, Huntington "will be playing from a position of strength," Chief Financial Officer Zach Wasserman said on the conference call. To conserve capital, Huntington
Both Steinour and Wasserman said growing capital is a paramount priority as Huntington heads into 2024. Adjusted to reflect the impact of other comprehensive income, Huntington's Common Equity Tier 1 capital ratio stood at 8% on Sept. 30, more than enough to qualify the bank as well capitalized, but below its target level of 9% to 10%.
"We want to drive capital higher toward our goal," Wasserman said.
While Huntington recorded an uptick in problem loans and charge-offs in the third quarter, both metrics remained low by historical levels. Nonperforming assets jumped six basis points on a linked-quarter basis to 0.52% of total assets on Sept. 30, though the ratio was level with the results from the third quarter of 2022 and down dramatically from Sept. 30, 2021.
Similarly, while increased from June 30, 2023 levels, Huntington's third-quarter net charge-off ratio of 0.24% of total loans remained slightly below the low end of its target range of 25 to 45 basis points.
"I think what you're seeing is a bounce off a very low bottom," Deputy Chief Credit Officer Brendan Lawlor said on the conference call.
Huntington reported third-quarter net income of $547 million on Friday, down 8% from the same period in 2022. The decline was primarily reflective of a $760 million year-over-year increase in interest expenses.
Huntington's deposits totaled $148.9 billion on Sept. 30, up 1.8% year over year. The bank is expecting a further 1% increase in the fourth quarter. Similarly, it is predicting a 1% increase in loans, which totaled $120.8 billion on Sept. 30.
"We're growing loans," Steinour said. "We're not trying to shrink our way to higher equity."
