Prepared remarks
Greetings, and welcome to the Huntington Bancshares Fourth Quarter 2024 Earnings Conference Call. 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.
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.
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.
Questions and answers
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, that's a great question, Manan. I appreciate your focus on it. The short answer is that we are very confident in our ability to achieve revenue growth within that range. As we look at the year ahead, the short-term rate outlook remains quite dynamic, and there are uncertainties regarding the longer-term curve. However, we believe we can manage the net interest margin within a reasonable range of zero to two or three cuts, remaining approximately flat throughout 2025. We expect to see some increase as we move into 2026 and beyond, aligned with the typical upward-sloping yield curve and continued growth in high-return areas, while maintaining a generally flat net interest margin for 2025. Ultimately, it will be loan growth and earnings asset growth that drive our revenue performance this year. We believe the range we have set is very achievable given our current run rates.
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 point. Currently, in the fourth quarter, we've achieved loan growth of 5.7%, exceeding the 5% growth rate we had anticipated. I'm really pleased with that. As mentioned in our prepared remarks, about 60% of this growth is coming from our core business, while 40% is from new initiatives, indicating a healthy mix. Looking ahead to 2025, we expect loan growth to continue within the range of 5% to 7%, with a projected composition of around half from core and half from new initiatives. This shows a nice balance and strong overall performance. Regarding the loan-to-deposit ratio, we've been deliberate in fostering strong deposit growth over the past couple of years, anticipating future loan growth. I'm happy to see our strategy unfold successfully. For 2025, we're aiming for deposit growth between 3% and 5%, which will underpin most of our loan growth, while also benefiting from a slight reduction in the loan-to-deposit ratio. This positions us well to implement our beta plan, which has performed well so far this quarter, allowing for potential reductions in deposit pricing even as we ramp up 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 the topic of growth in the loan sector, could you provide insight into the yield on new money loan production compared to your existing yield? Additionally, can you specify the new money yield on the $1.1 billion generated from the new initiatives this quarter?
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.
Thank you, Zach. Regarding capital, I see that CET1 is at 10.5%, which adjusts to 8.7% when considering AOCI. You're aiming for a target range of 9% to 10%. Can we assume that buybacks remain on hold for now? How long do you anticipate this will last, and do you expect any changes in that outlook based on your capital generation forecasts for the year? I’m trying to understand how we should approach capital return.
Yes, that's a good question. Our focus on capital remains unchanged, primarily on funding high-return loan growth, which has provided us with a solid opportunity to utilize our internally generated capital. Our adjusted CET1 ratio is 8.7%, and our goal is to increase it to the 9% to 10% operating range, which I anticipate achieving in the first half of 2025 and continuing to strengthen within that range. My current forecast suggests that if we see growth in risk-weighted assets and loan growth as expected, we will likely hover around the low 9% range throughout 2025. This will also depend on the longer end of the yield curve and how the AOCI marks trend. In this scenario, there will be limited capacity for share repurchases in the near term. However, in the longer term, as we work to raise CET1 into the target range, I expect to return to more normal distributions, including share repurchases. Therefore, the progress in 2025 will largely depend on the rate of loan growth and where the longer end of the yield curve settles.
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.
Zach, following up on the comments about the loan-to-deposit ratio, could you discuss your expectations regarding incremental margin and the incremental cost of deposits as we consider loan growth matching deposit growth in 2025, especially in relation to the repricing of the rest of the book?
Yes. Good questions. Our loan-to-deposit ratio at the end of Q4 was 79%. This positions us well to pursue loan growth at a rate faster than deposit growth for a while, even as we aim to fund from core sources. The marginal spreads we are observing now align with what we discussed earlier in response to John's question and reflect patterns we've seen previously. In the near term, we expect acquisition deposit rates to decrease and benefit from the lower yield curve due to Fed funds reductions. However, in the long run, we anticipate that our net interest margin will start to increase as we progress into 2025 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 designed to support the overall core business, so as the core business grows faster, more opportunities for fee revenues arise. You can see this reflected in some of our new growth initiatives in the Carolinas and Texas, as well as in new specialty commercial businesses. As these areas expand, we're experiencing a positive impact on fees, especially in treasury management, Ebrahim. Additionally, a key aspect of the fee strategy is fully exploring the available opportunities. For instance, wealth management is not necessarily linked to loan growth but rather focuses on our penetration in that market. While there is a general correlation, the strategies we are implementing are also quite independent. I anticipate that payments, wealth management, and capital markets will all achieve high single-digit to low double-digit growth in revenues in a sustainable manner over 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 believe...
Hi, Brian.
Hi, I understand your 2025 loan and deposit growth guidance. Most of your competitors appear to be experiencing flat or 2% growth, while you are continuing to lead in growth. However, regarding the current growth rates, they seem to be stabilizing or slowing down. Can you explain why you might see a deceleration? Is it due to macroeconomic factors or the maturing of investments? What could potentially lead to that change in your growth rates?
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 is also seasonality to consider. As you know, we are a significant asset finance lender, and this typically results in a strong fourth quarter. When we annualize that fourth quarter, it does not account for the seasonality seen in asset finance and other seasonal businesses. However, we are entering 2025 with momentum. Compared to last year, we have improved by about 50% in our pipelines across most of the businesses. Therefore, we are quite confident in the loan growth within the range we discussed, and if the outlook remains strong, we may have the chance to exceed expectations.
That's really helpful. As a follow-up, regarding the eight states and three verticals, what would you highlight as the notable positives? Do you think there have been some challenges? When you consider investments for '25, is the focus primarily on continuing to invest in those eight and three, or might there be opportunities for new verticals or new states in the future?
Thank you for the great question, Brian. We have made investments in our core markets as well as in three new geographic areas and eight verticals. Over the past year and a half, we have added several hundred relationship managers and new business generators, and we are very pleased with our overall performance. Our results have been outstanding, and we have had a strong start in both the Carolinas and Texas. Our Funds Finance business has grown faster than any specialty business we’ve had before, and all our divisions are performing well overall, significantly exceeding expectations. Notably, both the Carolinas and Texas generated profits on a direct expense basis last year, which is encouraging. We are confident in our talented team that has joined us, and we are well-positioned to maintain this growth. Organic growth remains our priority, and we will continue to look for further opportunities in the areas where we have invested. Additionally, we recently launched two new initiatives in aerospace, defense, and FIG, with the possibility of adding more specialty verticals going forward, although not at the pace of the past year and a half.
Thanks so much.
Thank you.
The next question is coming from Jon Arfstrom of RBC Capital Markets. Please go ahead.
Hi, thanks. Good morning.
Hi, Jon.
Hi Steve, I wanted to follow up a bit on loan growth. In your prepared comments, you mentioned that these are some of the most attractive opportunities you've seen since joining Huntington and that you have 50% higher pipelines. Can you discuss the feedback from borrowers that you've received over the past few months? Additionally, I'd like to hear your thoughts on the core growth, as the $3.1 billion in core growth was notably stronger and you indicated lower commercial real estate. I'm curious if there has been a change in sentiment and what is driving that core growth.
Yes, the borrower and customer sentiment is consistently positive. The outlook after the election has shifted, as indicated by the confidence measures for both consumers and businesses. Since the election, I've engaged with around 100 customers and prospects, and there's nearly unanimous optimism about 2025 and beyond. There seems to be a shared expectation of growth and increased inventories. We recorded our highest asset finance in the fourth quarter, approximately $600 million more than our previous record, reflecting a surge in confidence. A lot of finance activities were delayed until after the election, and as decisions were made, we saw significant investments in the fourth quarter. December, for instance, was a very strong month for us in asset finance. The momentum we’re experiencing is a positive indicator as we enter the year. Regarding core growth, we typically see some seasonality in the fourth quarter linked to asset finance. We believe commercial real estate is nearing its bottom, and we are ready to increase our outstandings and commitments in that area, as the portfolio has performed exceptionally well. Overall, the Group is thriving. While we discuss loan growth, we also consider fees and deposits as we look ahead to our 2024 performance, and we enter the new year with a great deal of confidence regarding 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, this is Zach. Thanks for the question. Throughout the year, I expect to see a net interest margin of around 3%, give or take a few basis points each quarter, but generally stable. As I mentioned earlier, we still see opportunities to drive the net interest margin higher into 2026 and beyond, mainly due to the ongoing normalization of an upward sloping yield curve. Looking at the factors influencing net interest margin in 2025, one significant advantage we've experienced is from fixed asset repricing, which has had a strong impact this year. In 2024, we benefited by about 12 basis points from this, and I anticipate continued benefits moving into 2025, projecting around 10 basis points from fixed asset repricing as rates rise in the middle to longer end of the yield curve. This trend will also carry into 2026 and beyond, contributing to an increase in net interest margin over the long term.
Additionally, we expect that the costs of deposits and interest-bearing liabilities will continue to decrease. We accelerated our actions on deposit pricing in the fourth quarter, which contributed to our better-than-expected performance. We remain confident in our ability to manage deposit costs down throughout the year, though this will depend on the interest rate environment and overall market sentiment regarding rate changes. There's also the consideration that half of our loans are tied to variable pricing, which will follow SOFR. SOFR is expected to decrease in the first quarter, partly due to the Fed's rate cut in December. This may lead to a slightly lower net interest margin in the first quarter, but over the year, we can balance the impact of variable yields with reductions in funding costs. Lastly, regarding hedging, we saw benefits in the fourth quarter as hedge drag continued to decrease, and I expect a modest benefit in the middle of this year, although there might be a small drag in the latter part of the year.
Overall, looking at the total year, there are various factors at play. If I take a step back, the outlook for net interest margin in 2025 is dynamic, with different drivers each quarter, but overall we anticipate it to remain flat this year and rise into 2026 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, that's a good question. In short, we are not likely to do more repositioning. We sold about $1 billion of corporate securities that had a higher risk-weighted asset, which allowed us to unlock capital by reshaping the portfolio. This was done at a fairly attractive earn back. Our teams have now finished reinvesting in new securities that offer higher yields, and we expect to see payback in under two years. While this repositioning may be tactical and marginal in overall size, it remains beneficial. One thing that sets Huntington apart from others in the regional banking sector is our effective hedging of the securities portfolio before the rate cycle began. This has limited the opportunity for significant repositioning, so our plan is to continue with our current approach and leverage the hedges we established previously.
Thank you.
Thank you. The next question is coming from Erika Najarian of UBS. Please go ahead.
Hi, good morning.
Good morning, Erika.
Good morning. Many investors have been asking me about where we stand in the investment cycle. They have really embraced the accelerated revenue growth at Huntington and appreciate that you chose to invest when others were pulling back. As we look ahead, do you believe there are still opportunities available, and will you need to invest more heavily for the time being? I'm sure we'll learn more about this in a few weeks. Is there a point where you feel you can benefit from greater positive operating leverage due to having made significant upfront investments?
Thank you for the question. We are experiencing strong momentum from our investment decisions, which have attracted interest in nearly all of our specialty businesses and regions. We are receiving business opportunities through various channels, often directly from management or colleagues, and we have rarely used recruiting firms for new hires over the past year and a half. We have maintained a list of areas to explore over the years, and we continue to update it as new opportunities arise that we believe make sense. We are not at the end of an investment cycle; in fact, we are currently benefiting from significant momentum and confidence in our growth potential. Many of our initiatives are relatively new, and we plan to pursue them actively. We will provide more details at our upcoming Investor Relations Day on February 6. Our performance has been exceptional, and I think it would be a mistake to pull back too soon. I expect to see more opportunities in 2025.
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, that's a great question, Brian. This is Zach. To provide some context on our reserve, strategically, we aim to maintain a strong and comprehensive reserve, not just for protection against credit risks but also as a solid capital form. We feel confident about our current reserve levels. Looking back, when we started under CECL, our credit reserve was 1.70%. During the peak of the COVID period, it increased to approximately 2.3%. While many in the industry drastically reduced reserves in 2021, we did so more cautiously, aware of the ongoing economic uncertainties. As these uncertainties regarding soft, hard, or no landings, along with the interest rate and political environment, start to clarify, we see an opportunity to potentially lower reserves if the outcomes remain positive, which they have been. Over the past four quarters, we have gradually released some reserves, even while increasing or maintaining reserve dollars due to loan growth.
Currently, our reserve ratio is at 1.88%, which is above the initial 1.70% under CECL. If the economy continues to perform well and loan growth remains strong, it’s plausible for the ACL coverage ratio to decline, even if reserve dollars hold steady or increase. We analyze this situation rigorously on a quarterly basis and do not predetermine outcomes. Assuming positive trajectory continues, we anticipate further reductions in the ACL coverage ratio while driving loan growth, leading to stable or growing reserve dollars but a declining ratio.
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.
It's great to hear your question, Brian. We've consistently emphasized our commitment to achieving top-quartile organic growth. Recently, we've made substantial investments in our core business, as well as in regional expansions and eight verticals. This means our core is also receiving considerable investment. We're managing expenses effectively, with Zach providing updates on our continuous reduction of core expenses through various measures, even as we invest, leading to a net increase in expenses. We're confident in this strategy and see significant growth opportunities in our core, alongside these new investments. Overall, the business is performing exceptionally well. Over the past decade, we've successfully completed two bolt-on depository acquisitions, and we're really pleased with Capstone, which has just recorded a strong quarter. We have the capacity to pursue additional opportunities, but our main focus remains on organic growth. As we've mentioned previously, our approach to selection is highly disciplined. The TCF acquisition was a major success, leading to nearly $500 million in expense reductions, substantial revenue synergies, and the addition of excellent businesses and colleagues. If a deal makes sense, we would consider it, but to be clear, our priority is organic growth. Thank you for your 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.
In conclusion, our team achieved remarkable results for the fourth quarter, highlighted by strong growth in loans and deposits, along with record fee income. Our credit trends remain stable, and we are very satisfied with the risk management practices we've maintained for years. Our management team is focused on executing our previously discussed strategies, and we anticipate maintaining this growth momentum into 2025 and beyond. We look forward to providing more details about our growth outlook during our upcoming Investor Day on February 6, and we hope many of you will join us in person for this event. As a reminder, the Board, executives, and our colleagues together are top shareholders, which we believe is vital for sustaining value creation for all shareholders. Finally, I want to thank all my colleagues for their outstanding efforts during this great quarter. We appreciate everyone on the call and thank you for your interest in Huntington. Have a wonderful 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.