Huntington Bancshares (HBAN) 2025 Conference June 11, 2025 08:15 AM ET Speaker0 Up next, we have Huntington Bank. I'll get our disclosures out of the way For important disclosures, please see the Morgan Stanley research disclosure website, morganstanley.com/researchdisclosures. The taking of photographs and use of recording devices is not allowed. If you have any questions, please reach out to your Morgan Stanley sales representative. And with that out of the way, we're delighted to have with us today Hunti ...

M&T Bank (MTB) 2025 Conference June 11, 2025 07:30 AM ET Speaker0 Good morning, and welcome to day two of the sixteenth Annual Morgan Stanley US Financial Conference. I'm Manan Ghisalia, the mid cap banks analyst. We have M and T kicking off for us. I'll get our usual disclosure out of the way, which is for important disclosures. Please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. The taking of photographs and use of recording devices is not allowed. If you ha ...

Core Insights - Popular, Inc. (BPOP) shares reached a 52-week high of $107.15, with a 10.6% increase over the past six months, outperforming its industry and peers [1][6] Financial Performance - The company achieved a four-year compound annual growth rate (CAGR) of 5.6% in revenues, 6.8% in net loans, and 3.4% in total deposits from 2020 to 2024, indicating strong organic growth [4] - Net interest income (NII) grew at a CAGR of 5.3% during the same period, supported by increased loan balances and improved asset yields [7] - The net interest margin (NIM) expanded from 2.88% in 2021 to 3.40% in Q1 2025, with expectations for further improvement due to loan repricing and declining deposit costs [7] Sales and Earnings Estimates - Zacks Consensus Estimates project sales of $3.13 billion for 2025, reflecting a year-over-year growth of 6.54% [5] - Earnings estimates for 2025 and 2026 have been revised upward by 1.2% and 4.6%, respectively, indicating expected growth of 17.1% for 2025 and 20% for 2026 [14] Strategic Initiatives - The company has invested $300 million in technology infrastructure and made strategic acquisitions to enhance efficiency and client experience since launching its transformation program in 2022 [8] - A $500 million share repurchase program was initiated in August 2024, with $160 million remaining as of March 31, 2025 [10] Liquidity and Capital Management - Popular maintains a robust liquidity position of $6.6 billion and total debt of $1.4 billion, indicating low refinancing risk [9] - The company raised its quarterly dividend by 12.9% to $0.70 per share in late 2024, with an annualized dividend growth of 12.86% over the past five years [9] Profitability Metrics - BPOP's trailing 12-month return on equity (ROE) is 12.22%, significantly higher than the industry average of 9.74% and its peers, F.N.B. (7.97%) and Pinnacle Financial Partners (9.29%) [10][11] Challenges - Operating costs have increased at a CAGR of 6.7% from 2020 to 2024, primarily due to technology investments and personnel expenses [12] - The credit profile faces challenges, with nearly 50% of the loan portfolio in commercial loans, which are more vulnerable in a weakening economic environment [13] Valuation - BPOP trades at a P/E (F1) multiple of 10.04X, which is lower than the industry average of 11.1X, indicating a potentially attractive investment opportunity [16][20]

Core Viewpoint - State Street Corp (STT) is well-positioned for growth due to higher interest rates, improved fee income efforts, strategic acquisitions, and a solid balance sheet, although rising expenses and concentrated fee-based revenues pose concerns [1] Growth Drivers - Higher interest rates are expected to aid net interest revenues, with net interest income (NII) projected to have a compound annual growth rate (CAGR) of 3.1% over the next three years, despite a decline in NIM from 1.20% to 1.10% in 2023 [2][3] - Total fee revenues showed a four-year CAGR of 1.7%, driven by increased client activity and market volatility, with AUC/A and AUM recording CAGRs of 4.7% and 8%, respectively [4] Strategic Initiatives - State Street is expanding through strategic acquisitions, including partnerships with smallcase and Ethic Inc., and acquiring global custody businesses from Mizuho Financial Group [7][8] - The company is also restructuring its global operations, consolidating its European joint ventures, and enhancing its service offerings to drive revenue and cost synergies [9] Financial Health - As of March 31, 2025, State Street had total debt of $36.7 billion and cash and deposits totaling $124.1 billion, with a 10% increase in quarterly dividends to 76 cents per share and a $5 billion share buyback authorization [11][12] - The company aims to distribute approximately 80% of its earnings to shareholders this year, indicating a sustainable capital distribution strategy [12] Challenges - Rising operating expenses have been a concern, with total non-interest expenses showing a four-year CAGR of 2.3%, and projected increases of 3%, 2.1%, and 4.7% in the coming years [13][14] - Fee income, which constituted 78.3% of total revenues in Q1 2025, faces risks from market volatility and concentration risk, which could significantly impact the company's financial position [15][16] Market Performance - Shares of STT have increased by 28.9%, outperforming the industry average of 19%, and currently hold a Zacks Rank 3 (Hold) [17]

Core Viewpoint - Capital One Financial Corporation (COF) is positioned for growth due to strong consumer loan demand and solid credit card and online banking operations, despite concerns over elevated expenses and deteriorating asset quality [1][7]. Growth Drivers - COF's revenue growth has been bolstered by strategic acquisitions, including the recent $35.3 billion acquisition of Discover Financial, which is expected to unlock significant shareholder value [2]. - The Credit Card segment is anticipated to maintain strength, with a projected compound annual growth rate (CAGR) of 3.1% by 2027, despite a slight revenue decline in 2020 [3][6]. Revenue Growth - Total revenues are expected to grow at a CAGR of 4.2%, supported by strong loan demand and high interest rates, with Domestic Credit Card division revenues projected to increase by 3% in 2025 [6][7]. Net Interest Margin - COF's net interest margin (NIM) is on an upward trend, increasing from 6.63% in 2023 to 6.88% in 2024, with projections of 7.03% in 2025 and 7.27% in 2027 [8][9]. Balance Sheet Position - As of March 31, 2025, COF had total debt of $41.8 billion and cash and cash equivalents of $48.6 billion, indicating a strong liquidity profile [9]. Capital Distribution Plans - COF has restored its quarterly dividend to 60 cents per share and has a share repurchase program authorized for up to $5 billion, with $3.88 billion remaining as of March 31, 2025 [10][11]. Challenges - Deteriorating asset quality is a significant concern, with provisions for credit losses and net charge-offs (NCOs) increasing, reflecting a CAGR of 13.4% and 11.4% respectively from 2019 to 2024 [13]. - COF has experienced rising expenses, with a CAGR of 6.8% over the last five years, driven by increased marketing costs and inflationary pressures [16][18].

Financial Data and Key Metrics Changes - The company has seen a significant increase in deposits, now totaling $140 billion, making it the largest digital-only bank in the country [15] - Fee-based income has grown from $1.6 billion to $2 billion from 2019 to the present, reflecting a 5% CAGR, with recent growth accelerating to double digits [19][20] - The company aims for mid-teens returns, focusing on improving net interest margin (NIM) and maintaining low credit losses [38][39] Business Line Data and Key Metrics Changes - The Corporate Finance business has shown strong growth, with assets growing at over 10% CAGR and income at over 20% [20] - The retail bank has increased its customer base from under 2 million to over 3 million in five years, indicating strong growth in the deposit business [21] - The Dealer Financial Services segment remains a core focus, with the company being the largest bank originator of auto loans in the country [12][15] Market Data and Key Metrics Changes - The auto finance market is experiencing increased competition, particularly in the super-prime and subprime segments, while the company remains strong in the prime and used vehicle markets [61][62] - The company has noted a favorable short-term impact from potential increases in used car prices due to tariffs, which could benefit collections and recoveries [27] Company Strategy and Development Direction - The company is focusing on areas where it has demonstrated strengths, such as Dealer Financial Services and Corporate Finance, while divesting from less core areas like credit cards and personal lending [11][18] - The management emphasizes the importance of a focused business model, aiming to streamline operations and enhance competitive advantages [5][16] - The company is committed to maintaining a disciplined approach to capital management and expense control while investing in technology and branding [102] Management's Comments on Operating Environment and Future Outlook - Management expresses confidence in the company's ability to navigate the current macroeconomic environment, highlighting improvements in credit risk management and operational efficiency [32][36] - There is a cautious optimism regarding consumer behavior, with strong new vehicle purchases and encouraging payment activity among delinquent customers [33][35] - The management acknowledges the uncertainty surrounding tariffs but believes the company is in a structurally sound position to handle potential impacts [28][32] Other Important Information - The company has successfully restructured its securities to improve income streams and reduce interest rate risk [30] - The management is focused on achieving a net interest margin in the high threes, with expectations for NIM expansion in the coming quarters [38][58] Q&A Session Summary Question: What prompted the shift to a more focused strategy? - The company recognized the need to concentrate on areas with demonstrated strengths and competitive advantages, leading to a pivot in strategy [11][18] Question: How does the company view the current competitive landscape in auto finance? - The company sees increased competition primarily in the super-prime and subprime segments but remains confident in its position within the prime and used vehicle markets [61][62] Question: What are the expectations for fee income growth? - The company anticipates continued growth in fee income, overcoming the loss from the credit card business and aiming for double-digit growth in the future [89] Question: How is the company managing capital and share repurchases? - The company is currently in a wait-and-see mode regarding share repurchases due to macroeconomic and regulatory uncertainties, but sees potential for organic capital generation [92][95] Question: What is the outlook for credit losses in retail auto? - Management is encouraged by recent trends in credit performance but remains cautious about the macro environment, indicating no immediate changes to loss outlook [75][76]

Core Viewpoint - Bank of Hawaii Corporation (BOH) is positioned to benefit from increasing loan and deposit balances, enhancing its balance sheet and net interest income (NII) growth, with analysts showing optimism in the stock's earnings potential for 2025 and 2026 [1][6]. Loan and Deposit Growth - BOH has experienced a compound annual growth rate (CAGR) of 6% in net loans and leases from 2018 to 2024, while its deposit base has seen a CAGR of 5.4% during the same period, continuing this upward trend into the first quarter of 2025 [2][3]. NII and NIM Performance - The company's NII increased by 10.4% in the first quarter of 2025, with a net interest margin (NIM) rise of 21 basis points to 2.32%. The NII has a seven-year CAGR of 1.4% ending in 2024, and is projected to grow by 9% in 2025 [4]. Earnings Strength - Despite a 6.3% decline in earnings over the past three to five years, BOH is expected to achieve a projected earnings per share (EPS) growth rate of 22.4% over the next three to five years, significantly outpacing the industry growth rate of 7.3% [5][6]. Earnings Estimates - The Zacks Consensus Estimate for BOH's earnings per share for 2025 is $4.32, reflecting a year-over-year growth estimate of 22.44%. For 2026, the estimate is $5.11, with a growth rate of 18.28% [7]. Capital Position - As of March 31, 2025, BOH's Tier 1 capital ratio and total capital ratio were 13.93% and 14.97%, respectively, indicating a strong capital position that supports its capital distribution efficiency [7]. Dividend and Share Repurchase - The company currently pays a dividend of $0.70 per share, with a payout ratio of 78%. A share repurchase program is in place, with $126 million available under the authorization as of March 31, 2025 [8]. Balance Sheet Strength - BOH has a strong balance sheet with liquidity of $935.2 million and total debt of $608.3 million as of March 31, 2025, suggesting it can manage its borrowings effectively even in adverse economic conditions [9]. Price Performance - BOH's shares have increased by 23.9% over the past year, outperforming the industry growth of 20.9% [10].

Financial Data and Key Metrics Changes - First quarter GAAP earnings per common share were $0.47 while distributable earnings were a loss of $0.09 per common share [15] - Net interest income declined to $14.6 million, primarily due to the movement of non-core assets to nonaccrual status [15] - Book value per share remained flat at $10.61, with total leverage declining to 3.5 times [18] Business Line Data and Key Metrics Changes - The total CRE loan portfolio was bifurcated into $5.9 billion core loans and $1.2 billion non-core loans [7] - Core portfolio payoffs resulted in a 5% decline to $5.9 billion, with 78% concentration in multifamily [8] - Non-core portfolio was reduced by 6% to $740 million, with expectations to further reduce it to approximately $270 million in the second quarter [10] Market Data and Key Metrics Changes - The multifamily sector showed resilience with a 1% increase in rents in Q1 2025 despite macroeconomic pressures [5] - The twelve-month default rate for the SBA business was 3.2%, slightly better than the industry average of 3.4% [12] - Freddie Mac volume was down in Q1 due to tightened processes, with a more robust pipeline expected in Q2 [58] Company Strategy and Development Direction - The company initiated a balance sheet repositioning plan in Q4 2024, focusing on liquidating non-core assets to reinvest in the core portfolio [14] - The strategy aims to restore net interest margin (NIM) to peer group levels by 2025, with accretion expected in 2026 [14] - The company remains committed to supporting the Portland mixed-use asset project, aiming for stabilization and eventual exit of components [11][43] Management's Comments on Operating Environment and Future Outlook - Management noted that the recovery in the commercial real estate (CRE) market is affected by tariffs and recession risks, but the multifamily sector remains strong [5] - The company expects to maintain its current dividend level until the earnings profile warrants an increase [14] - Management expressed confidence in navigating the shifting policy landscape in the SBA business, despite anticipated moderation in volume [12][51] Other Important Information - The company completed the UDF merger, generating a bargain purchase gain of $102.5 million, which added $167.1 million of equity to the balance sheet [17] - Liquidity remains healthy with unrestricted cash over $200 million and $1 billion of total unencumbered assets [20] Q&A Session Summary Question: Impact of April's volatility on non-core book expectations - Management indicated that ongoing conversations with various parties are progressing well and do not expect material diversion from pricing or timing expectations [23][24] Question: Near-term expectations for distributable earnings trajectory - Management highlighted that the repositioning of assets is a key catalyst for future earnings improvement, with expectations for a gradual upward trend post-liquidation [30] Question: Current views on share repurchases versus liquidity - Management is balancing the benefits of share repurchases with the need to maintain liquidity given upcoming debt maturities [31] Question: Catalyst for CLO interest coverage issues - Management noted that elevated rates are impacting NOIs, leading to increased modifications and stress within CLOs [39] Question: Status of the Portland asset and future plans - Management confirmed that the asset is currently levered and will remain so, with plans to stabilize and sequentially exit components as they improve [43][44] Question: Expected moderation in SBA volumes - Management anticipates SBA volumes to be below the $1.5 billion mark for at least a couple of quarters due to policy changes and administrative delays [52]

Financial Data and Key Metrics Changes - First quarter GAAP earnings per common share were $0.47 while distributable earnings were a loss of $0.09 per common share [13] - Net interest income declined to $14.6 million in the quarter, primarily due to non-core assets moving to nonaccrual status [13] - Book value per share remained flat at $10.61, with total leverage declining to 3.5 times [17] Business Line Data and Key Metrics Changes - The total CRE loan portfolio was bifurcated into $5.9 billion core loans and $1.2 billion non-core loans, with a 5% decline in the core portfolio [6] - The core portfolio generated a levered yield of 10.2%, resulting in $43.4 million of net interest income [8] - Non-core portfolio liquidations surpassed targets by close to 2x, generating $28 million of liquidity [8] Market Data and Key Metrics Changes - The multifamily sector showed resilience with a 1% increase in rents in Q1 2025, despite macroeconomic pressures [4] - The twelve-month default rate for the company was 3.2%, slightly better than the industry average of 3.4% [10] - The SBA business experienced high volumes at $343 million, although moderation is anticipated [10] Company Strategy and Development Direction - The company initiated a balance sheet repositioning plan in Q4 2024, focusing on liquidating non-core assets to reinvest in the core portfolio [12] - The strategy aims to restore net interest margin (NIM) to peer group levels by the end of 2025, with accretion expected in 2026 [12] - The company remains committed to supporting the Portland mixed-use asset project, aiming for stabilization and eventual exit [9][44] Management's Comments on Operating Environment and Future Outlook - Management noted that the macro environment remains challenging, but the multifamily sector is benefiting from excess demand [4][25] - The company expects to maintain its current dividend level until the earnings profile warrants an increase [12] - Future earnings trajectory is expected to improve post-liquidation of non-core assets and reinvestment into the core portfolio [31] Other Important Information - The company completed the UDF merger, resulting in a bargain purchase gain of $102.5 million, adding $167.1 million of equity to the balance sheet [16] - Liquidity remains healthy with unrestricted cash over $200 million and $1 billion of total unencumbered assets [19] Q&A Session Summary Question: Impact of April's volatility on non-core book expectations - Management indicated that ongoing conversations with various parties are progressing well and do not expect significant impact from April's volatility [22][24] Question: Near-term expectations for distributable earnings trajectory - Management expects the second quarter earnings profile to be similar to Q1, with improvements anticipated post-reinvestment of equity [28][31] Question: Current views on share repurchases - Management is evaluating share repurchases against liquidity needs and upcoming debt maturities, indicating confidence in accessing capital markets [32][35] Question: Catalyst for CLO interest coverage issues - Management noted that elevated rates are impacting NOIs, leading to increased modifications in the portfolio [40] Question: Status of the Portland asset and future plans - The asset will remain levered, with plans to stabilize and sequentially exit components as they improve [43][44] Question: Expected moderation in SBA volumes - Management anticipates SBA volumes to be below $1.5 billion for the next few quarters due to policy changes and staffing issues at the SBA [52][54]

Group 1 - The loan growth of Popular, Inc. (BPOP) is expected to slow down this year but will remain positive, supporting the bottom line [1] - The average net interest margin for Popular, Inc. is anticipated to be higher this year compared to the previous year [1]