Huntington CEO sees pockets of lending strength amid 'mild' recession

Huntington Bancshares in Columbus, Ohio, had steady growth in loans and interest income through 2022, culminating the year with higher revenue, margins and profits in the fourth quarter. It expects continued momentum this year, despite rising deposit costs and the specter of an economic downturn.

Steve Steinour, chairman, president and CEO of the $183 billion-asset regional bank, said he expects a "mild recession" this year, one spurred by festering inflation and high interest rates. Slowing economic activity could create areas of lending weakness and potential threats to credit quality, Steinour said in an interview after posting earnings Friday. These include health care systems that are already grappling with lofty staffing costs and office property landlords, who are struggling to fill space amid the pandemic-era shift to remote work.

Consumer demand already has tapered in areas such as mortgages, too.

Steinour said that ultimately means fewer lending opportunities and a slower pace of growth. Yet he said asset-based lending across multiple sectors, including the Midwest's bread-and-butter manufacturing sector, is ripe for ongoing growth this year as the United States continues to recover from the supply-chain snarls caused by the pandemic.

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Major government-backed infrastructure projects also are in the works, creating opportunities to lend into projects spanning new roads and bridges.

After increasing fourth-quarter loans about 9% from a year earlier, Huntington forecast average loans would grow 5% to 7% this year, led by commercial borrowing.

"There are challenges, but there are also tailwinds," Steinour said.

Huntington's fourth-quarter net interest income swelled 29% from a year earlier, reflecting both loan growth and higher rates.

Net interest income is expected to increase 8% to 11% this year, driven by continued earning asset growth. Noninterest income is projected to be roughly flat this year. It dipped 3% year over year in the fourth quarter to $499 million.

The bank repported total revenue of $1.97 billion, up from $1.65 billion a year earlier.

Huntington's net interest margin expanded 10 basis points during the fourth quarter to 3.52%. But Steinour said the margin likely will come under modest pressure this year, despite continued strong lending and loan yields.

He said deposit costs — and competition for deposits — rose late in 2022 and are expected to climb further, as more customers seek higher interest rates on their savings and other accounts. The Federal Reserve boosted its benchmark rate multiple times last year to combat inflation. Rate hikes bolster interest income on adjustable-rate loans at first and then, from banks' perspective, benefit new loans.

Depositors tend to follow suit at a lag, but they are now clamoring for rate increases that will affect Huntington's deposit costs and, by extension, net interest margin this year, Huntington executives said. They expect Huntington to increase depositsl modestly to fund lending, but it will have to pay more to do so.

"Competition for deposits has intensified, beginning in earnest in September and continuing into the fourth quarter," Chief Financial Officer Zachary Wasserman said on Huntington's earnings call Friday.

Brian Foran, an analyst at Autonomous Research, said with deposit repricing "only in the middle innings," Huntington's net interest margin "probably starts the year near the highs and ends a little lower."

Huntington posted a fourth-quarter profit of $645 million, or 42 cents per share, up from $401 million, or 26 cents a share, a year earlier.

Setting aside one-time items, adjusted earnings were 43 cents per share. Analysts polled by FactSet had been expecting 40 cents a share.