Ohio banks say 'Howdy' to commercial loan opportunities in Texas

Bloomberg

Higher-for-longer interest rates are dampening commercial loan demand at regional banks, but Texas expansions are helping two midsize lenders, Fifth Third Bancorp and Huntington Bancshares , to lasso middle-market clients.

The Ohio-based banks are seeing more stability from business clients in the Lone Star State than in some other parts of their footprints, Fifth Third and Huntington leaders said Friday on first-quarter earnings calls. Fifth Third has been building a middle-market banking operation in major metro areas of Texas for the last five years, and Huntington recently tapped a Texas market president in Dallas to cultivate its local commercial business.

While the Southeast, including the Carolinas and Florida, has been core to both banks' growth plans, lending in the land where everything's bigger has been helping them offset the negative impacts of economic uncertainty at a time when the near-term interest rate outlook remains unknown.

Texas, Florida and North Carolina have all consistently seen a rise in gross domestic product, population and company relocations in the last five years, priming them for financial institutions' expansion plans.

"Texas has been a really nice story for us," Fifth Third CEO Tim Spence said on the bank's earnings call. "It's a really nice complement to the strong commercial banking team that we built out in California a few years back, in terms of expanding the middle-market footprint. So we expect to see growth in that area."

The $214.5-billion Fifth Third first planted a flag in Texas more than a decade ago with an energy vertical, and it began augmenting its middle-market business in earnest in 2019, focusing on Houston and Dallas. The company now employs some 175 folks in the state, with a concentration in commercial and industrial loans, Spence said.

Huntington's operation in Texas is much newer and smaller. The $193.5 billion-asset bank unveiled its Texas expansion plans in February, but it's already seeing results in the form of both loans on the books and a burgeoning pipeline for future credits.

Huntington Chairman and CEO Steve Steinour recently visited Dallas, where the Columbus, Ohio-based bank planted its initial Texas office.

"I really like our new colleagues," who are led by market president Clint Bryant, Steinour said Friday in an interview. He added that the Texas economy is "booming."

Huntington is eyeing a gradual statewide expansion as it solidifies its footing. Its business plan calls for serving Texas middle-market clients with revenues under $1 billion.

Huntington announced in October that it would enter 2024 in expansion mode. Since then, it has launched an expansion into the Carolinas and established verticals in fund finance, healthcare and Native American banking.

Texas is the most recent initiative, but Huntington may not be done. The company is open to adding new bankers and capabilities, Steinour said Friday on a conference call with analysts.

To date, the new markets and verticals have produced a loan pipeline "approaching $2 billion," as well as a sizable deposit portfolio, Chief Financial Officer Zach Wasserman said on the conference call. "The early traction has been really positive," he said.

Huntington reports loan growth, higher funding costs

Huntington announced quarterly net income totaling $419 million Friday, a 30% year-over-year decline that it attributed to higher funding costs. On the plus side, Huntington reported solid year-over-year growth in loans and deposits, and executives said that they expect both trends to continue throughout 2024.

The bank reiterated previously stated guidance calling for full-year 2024 deposit growth in the 2% to 4% range, with Wasserman suggesting the end result would be nearer the top end.

In a similar vein, Steinour labeled Huntington's commercial loan pipeline "very robust," adding that it grew each month during the quarter ending March 31. The company's 2024 guidance targets loan growth in the 3% to 5% range.

Approximately 40% of the first-quarter loan and deposit growth that Huntington reported originated in its new markets and verticals, according to Wasserman.

Investors appeared to view Huntington's results in a positive light. Shares closed up about 1% at $13.28 Friday.

Commercial banking

Huntington unveils new expansion push into Texas

The Columbus, Ohio, regional bank will focus first on Dallas before venturing statewide. Its move into the Lone Star State comes three months after announcing a similar initiative in the Carolinas.

By John Reosti

March 7

Fifth Third beats estimates

While Fifth Third's end-of-period loan balances were down 1% from the prior quarter to $117 billion, middle-market loan demand in Texas, along with longer-term geographic priorities like Tennessee, the Carolinas, Kentucky and Indiana was a bright spot, Spence said.

Overall, the bank brought in $480 million of net income in the first quarter, down 2% sequentially. The bank beat analysts' estimates on net interest income, expenses and fees. Its stock price was up 6% Friday, to $36.25.

Piper Sandler analysts wrote in a note that most investors expected Fifth Third to soften its 2024 performance expectations, but by maintaining its guidance and logging a "better-than-expected" first-quarter performance, the bank's earnings report "looks like a win."

Fifth Third Chief Financial Officer Bryan Preston said on the call that the Cincinnati-based bank expects its full-year average total loans to be down 2% from 2023, but that commercial and consumer balances should increase in low-single-digit percentage points by the end of the fourth quarter.

Spence added that any loan growth will likely be driven by taking market share. Fifth Third's middle-market clients aren't pessimistic per se, but they also aren't leaning forward on merger-and-acquisition or inventory-building opportunities, he said.

"The places where we are expecting to see growth in the second half of the year are the places where we made investments to be able to do it," Spence said.

In 2023, Fifth Third's middle-market loan production was split 50-50 between its Midwest markets, including Chicago, and other parts of the country. The latter geographies include the Southeast markets, plus Texas and California.