管理層發言
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. Please go ahead.
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 are 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. Tim, over to you.
Thank you, Zach. Operator, we will now take questions. We ask that as a courtesy to your peers, each person asks 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.
分析師問答
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. Great question, Manan. I appreciate your focus on that, and the short answer to your question is we're very confident that we can drive revenue growth within that range. Ultimately, when we see the year playing out, obviously, still pretty dynamic here in terms of short-term rate outlook and even what's going on in the belly in the longer term part of the curve. But we see the ability to manage the NIM within any reasonable range of zero cuts to up to two or three cuts at approximately flat throughout the course of 2025, rising as we go into 2026 and beyond with the normal upward sloping yield curve and just continued growth in the high-return areas, but generally flat in NIM for 2025. It's really going to be loan growth therefore and earnings asset growth overall that drives the revenue performance this year. And we think we've set the range at a level that's very achievable and within the run rates that we're seeing now.
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 achieved a loan growth rate of 5.7%, exceeding the 5% target we've been communicating. This growth is encouraging, with about 60% coming from our core business and 40% from new initiatives, indicating a healthy mix. Looking ahead to 2025, we anticipate loan growth in the range of 5% to 7%, mostly maintaining the current rate, but we expect a closer split of growth between core and new initiatives. Our loan-to-deposit ratio has been purposefully managed over the last couple of years to support strong deposit growth as we prepared for expected increases in loan growth, and it's gratifying to see that strategy succeed. For 2025, we plan to continue growing deposits by about 3% to 5%, providing core funding for most loan growth while benefiting from a reduced loan-to-deposit ratio. This positions us well to maintain our beta plan, which has performed well so far in the first quarter, allowing for further adjustments 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 loan production, could you clarify the yield on new money loans compared to your existing yield? Specifically, what is 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. Moving on to capital, I see that the CET1 is at 10.5%, which is adjusted for AOCI to 8.7%. You're aiming for a target range of 9% to 10% including that. Can we expect any changes regarding buybacks? How long are they expected to remain on hold? I'm trying to understand your capital generation outlook for the year and how we should approach capital return.
Yes. That's a good question. When considering our capital, we remain focused on our unchanged goals, primarily centered on funding high-return loan growth. We are pleased that we've found great opportunities to utilize our internally generated capital. Our adjusted CET1 ratio is at 8.7%, and our objective remains to elevate that into the 9% to 10% operating range. I anticipate achieving this within the first half of 2025, and then continuing to increase it steadily within that range. My current forecast suggests that if we continue to see growth in risk-weighted assets and loans as predicted, it will likely fluctuate in the low 9s throughout 2025. This is also subject to changes in the longer end of the yield curve and how AOCI marks progress. Given this scenario, we would have limited capacity for share repurchases in the near term. However, as we work towards getting our CET1 into that target range, I anticipate returning to more normal capital distribution, including share repurchases. Therefore, our plans for 2025 will be to some extent contingent upon the pace of loan growth and the final results of the longer end of the yield curve.
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.
I guess, Zach, just following up on the comments around the loan-to-deposit ratio, as we think about, let's say, loan growth meets deposit growth in '25, just talk about your expectations around the incremental margin and what's the incremental cost of deposits that are coming on relative to where you see the rest of the book repricing?
Yes, those are great questions. The loan-to-deposit ratio at the end of Q4 was 79%. This presents a strong opportunity for us to increase loan growth at a pace that exceeds deposit growth for a period, even as we aim to core fund. Currently, the marginal spreads we're experiencing are in line with what we discussed earlier in relation to John's question, reflecting our historical trends. In the short term, we anticipate a decrease in acquisition deposit rates, benefiting from the lower yield curve due to reductions in Fed funds. However, in the long run, we expect to see our net interest margin rise as we move into the end of 2025 and into 2026 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 there to support the overall core business and so the faster the core business grows, the more fee revenue opportunities there are, of course, and it will give you a sense as you look at some of our new growth initiatives in the Carolinas, in Texas, and some of the new specialty commercial businesses. As those grow, we're seeing nice pull-through in terms of fees, particularly treasury management, Ebrahim. With that being said, another core element of the fee strategy is really penetrating the opportunity more fully. So, wealth management, for example, I wouldn't consider to be highly correlated with loan growth more around, kind of what we're seeing in terms of penetration. So, it's broadly correlated, but I think also very independent in terms of the strategies that we're driving. My expectation over the long term is we'll see payments, wealth management, capital markets all being high single-digit to low double-digit growth in revenues in a pretty sustainable way over the course of 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, everyone. I think...
Hi, Brian.
Hi, I understand your 2025 loan and deposit growth guidance. Most of your competitors are either flat or up 2%, so you're showing leadership in growth. However, it appears that growth rates are becoming stable or slowing from where we currently stand, and I'm curious about the reasons for this potential deceleration. Is it due to macroeconomic factors or perhaps the maturation of investments? What could lead to a change in the 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 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’s also seasonality to consider. As a major asset finance lender, we typically experience a strong fourth quarter, and annualizing that quarter doesn’t capture the seasonality in asset finance and other seasonal businesses. However, we are entering '25 with strong momentum. Our pipelines in most businesses are approximately 50% better this year compared to last. We are confident in loan growth within our projected range, and if the outlook remains positive, we may have the chance to exceed our expectations.
That's really helpful. As a follow-up, can you discuss the eight states and three verticals? Is there anything that stands out positively among them? Have there been any challenges? Also, regarding investments for '25, will the focus primarily be on the eight and the three, or are there possibilities for new verticals or states?
Thank you for the question, Brian. We've made investments in our core markets along with 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. We are very satisfied with our overall performance, having achieved outstanding results. We’ve had a strong start in both the Carolinas and Texas. Our Funds Finance business has grown quicker than any of our previous specialty businesses. Overall, they are performing significantly better than expected. Importantly, both the Carolinas and Texas have been profitable on a direct expense basis over the last year. We are pleased with this progress, remain confident, and are supported by an excellent team. We believe we are well positioned for sustained growth. Organic growth is our focus, and we will keep seeking opportunities in the areas where we have invested. Additionally, as mentioned earlier this month, we launched two new initiatives in aerospace, defense, and financial institutions, with the possibility for more specialty verticals as we move forward, likely at a slower pace than we have seen recently.
Thanks so much.
Thank you.
The next question is from Jon Arfstrom of RBC Capital Markets. Please go ahead.
Hi, thanks. Good morning.
Hi, Jon.
Hi, Steve, I wanted to follow up on loan growth. In your prepared comments, you mentioned that these are some of the most attractive opportunities you've encountered since joining Huntington, along with 50% higher pipelines. Can you share some insights on the borrower feedback you’ve received over the past few months? Additionally, the $3.1 billion in core growth was notably strong, and you indicated a decline in commercial real estate. I’m curious if there has been a change in sentiment and what factors are contributing to that core growth.
Yes, Jon, customer sentiment remains consistently positive. The outlook after the election has shifted. Confidence measures for both consumers and businesses reflect this change. Since the election, I have interacted with around 100 customers and prospects, and nearly all of them express optimism regarding the future, particularly for 2025 and beyond. There appears to be a general expectation of growth and increased inventories. In the fourth quarter, we experienced record asset finance, about $600 million more than our previous record, indicating a shift in expectations. A lot of financing activities that were postponed are now taking place as the election outcomes allow for significant investment decisions. December was particularly strong for us in asset finance. As we move forward, the momentum we have is indicative of this settlement, and we feel confident entering the new year. Regarding core growth, we do notice some seasonality in the fourth quarter related to asset finance. We believe commercial real estate is nearing its lowest point, and we are ready to increase our commitments in that area, as our book has performed exceptionally well. Overall, the Group is doing remarkably well. While we discuss loan growth, we also see opportunities with fees and deposits as we head into 2024, giving us a strong sense of confidence in our growth prospects.
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 this year, I expect to see around 3% net interest margin, give or take a few basis points each quarter, generally remaining flat. As I mentioned earlier, we believe there’s potential to increase net interest margin as we move into 2026 and later, particularly due to the ongoing normalization of an upward sloping yield curve. In terms of the factors affecting net interest margin in 2025, a significant advantage we’ve seen is from fixed asset repricing, which was notably beneficial in 2024, providing about 12 basis points of benefit. Looking ahead to 2025, I anticipate continued benefits from fixed asset repricing, likely around 10 basis points, driven by recent increases in the middle and longer segments of the yield curve. This trend will continue into 2026 and beyond, contributing to the upward movement of net interest margin. Another favorable aspect is the anticipated reduction in deposit pricing and interest-bearing liability costs.
We notably accelerated our deposit pricing actions in the fourth quarter, which contributed to our unexpected strong performance, and we remain confident in our ability to manage these costs effectively through the year. Of course, this will depend partly on the interest rate environment and market sentiment regarding future interest rate moves, but there is still room to decrease funding costs. Conversely, about 50% of our loans are variable rate, tied to SOFR, which is expected to decrease from the fourth to the first quarter due to the recent Fed rate cuts, impacting the net interest margin slightly in the early part of the year. However, we aim to offset the effects of variable rates with reductions in funding costs, and hedging will also play a role. We noticed some benefits in the fourth quarter as hedge drag lessened, and I anticipate a modest advantage as we move into the middle of this year, although there may be a slight drag later in the year if the curve remains stable. Overall, for the year, we expect net interest margin to balance out to flat, with an increase moving into 2026 and thereafter.
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, great question. The short answer is that further repositioning is not likely. We repositioned by selling about $1 billion of corporate securities that carried a higher risk-weight. By selling those and adjusting the portfolio, we were able to free up capital at a good earn-back rate. The teams have completed reinvestment in new securities at higher yields, which we expect to have a payback period of less than two years. While it's a tactical move and relatively small in overall size, it's still attractive. Unlike some others in the regional banking space, we had effectively hedged our securities portfolio before the rate cycle started, which means the chance for significant repositioning is limited. Our plan is to maintain the current strategy for the securities portfolio and take advantage of the hedges we've implemented 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 are asking where we currently stand in the investment cycle. They've recognized and appreciated our accelerated revenue growth at Huntington and noted our willingness to invest when others were being cautious. As we look ahead, do you believe there are still opportunities available, and will you need to maintain a significant investment effort for a while longer? I'm sure we'll discuss this in a few weeks. Alternatively, is there a point where you expect to benefit from improved operating leverage due to the substantial investments made earlier?
Thank you for the question, Erika. We have strong momentum from our investment decisions, and we have been approached regarding nearly all of our specialty businesses and regions. Business opportunities are coming to us 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 maintain a list of areas we have explored over the years and continue to update it whenever a promising opportunity arises. We are not at the end of an investment cycle; rather, we have significant momentum and confidence in our growth potential. Since many of these areas are relatively new, we plan to keep moving forward and will discuss this further at our upcoming Investor Relations Day on February 6. We are performing exceptionally well and believe it would be a mistake to pull back too soon. I anticipate there will be even 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, Brian, that's a great question. This is Zach. I'll address it. To give you some strategic context regarding our reserve, we always aim to maintain a rigorous and robust reserve not only to guard against credit scenarios but also as an effective form of capital. We feel confident in our current reserve positioning. Historically, such as on CECL day one, our credit reserve was 1.70%. During the tough COVID period, it rose to about 2.3% as we made early adjustments in 2020. While many in the industry reduced their reserves quickly in 2021, we did so as well, but at a more measured pace, recognizing that the economic environment was still uncertain. This decision has placed us in a strong position. Looking ahead, we’ve anticipated the economic uncertainties that have been prevalent for the last couple of years, such as the likelihood of a soft landing, hard landing, or no landing at all, along with interest rate and political uncertainties.
As these issues start to resolve favorably, we will see opportunities to reduce our reserves, particularly as we monitor the performance of our portfolio, which has been strong. In the last four quarters, we’ve gradually released some reserves while also maintaining or increasing our reserves in dollar terms due to loan growth. Currently, our reserve ratio is 1.88, which is higher than the initial CECL day one figure of 1.70. Assuming the economy continues to perform well and we maintain a solid outlook, especially with the loan growth we anticipate, it is possible for our ACL coverage ratio to decrease even if the dollar amounts remain flat or increase due to loan growth. We analyze this on a quarter-by-quarter basis, ensuring a thorough review without any predetermined outcomes. If everything continues as expected, we would likely see further reductions in the ACL coverage ratio over time, with loan growth continuing, leading to stable or growing dollar amounts but a likely decline in the 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.
Brian, it's Steve, great question. I was anticipating this topic. We have consistently emphasized our commitment to achieving top-quartile organic growth. Recently, we have made numerous investments in our core operations, along with our regional expansions and eight verticals, so we are also investing significantly in the core. Additionally, we're managing expenses effectively, as Zach has mentioned over time, continuously reducing core expenses through various measures while still investing, resulting in net expense growth. We are very pleased with this balance. We believe there is a substantial opportunity for growth in our core, along with our new investments, and we are highly focused on that. The business is performing exceptionally well. Over the last decade, we have successfully executed two bolt-on depository acquisitions and are very pleased with Capstone, which just reported a record quarter. Our focus remains on organic growth, and we approach potential acquisitions with discipline. TCF turned out to be a major success, providing nearly $500 million in expense reductions, significant revenue synergies, and strong businesses alongside great partners. If an opportunity makes sense, we would consider it, but to be absolutely clear, our primary focus is on organic growth. Thank you for the 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 closing, our team delivered outstanding results for the fourth quarter, highlighted by significant loan and deposit growth along with record fee income. Our credit trends remain stable, and we are very satisfied with the risk management practices we have maintained for years. Our management team is focused and effectively executing the strategies I previously mentioned. We anticipate that this growth momentum will continue into 2025 and beyond. We look forward to providing more insights on our growth outlook during our upcoming Investor Day on February 6, and we hope many of you can join us in person for this event. Additionally, the Board, executives, and our team together hold a significant stake as shareholders, which we believe is crucial for creating value for all shareholders. Lastly, I want to thank all my colleagues for their exceptional efforts this quarter. For those on the call, we appreciate your interest in Huntington. Have a great 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.