00:00I want to start, Zach, with the consumer. There's a story about Albertsons. The shares are just tanking today. And
00:06it's on my radar because Albertsons is saying that a softer consumer demand, in addition to a competitive environment, is
00:14hitting the company this quarter. And there's concern about that. We have higher oil prices, as we just heard from
00:21Charlie. Diesel above $5 a gallon, gas above $4 a gallon. How is the Huntington Bank consumer doing?
00:28What we're seeing actually is not that. We're seeing a lot of resilience and strength in the consumer franchise that
00:34we're seeing. Both spending activities continue to be very normal. Borrowing activities continue to be very normal. And I think
00:42partly what it probably is, Tim, is a little bit of that further evidence of a K-shaped economy.
00:48Our business is very much keyed toward the mass affluent and higher income segments of the consumer populace. And in
00:59that group, we're still seeing strong employment, strong consumer spending, and fairly normal trends.
01:04Just following up here, talk to us a little bit about your loan growth. I know that that's been an
01:10important category for your business. What does that tell you about specifically business clients and their plans for the future?
01:18You know, the pipelines that we have for loan growth, as we think about the second half of the year,
01:23are stronger today than they were three months ago when I was talking to you before.
01:28So we're seeing a continued acceleration, actually, in customer demand for borrowing, which is obviously a healthy sign for the
01:35economy generally.
01:36Well, what's interesting is if you look at the results from the second quarter of the 10 large regional banks
01:43in and around Huntington size, eight of those 10 were growing loans annualized rate of between nine and above percent,
01:50which is very fast, actually.
01:52And if you look back over the last three years, it is by far the fastest quarter of loan growth
01:57across the entire large banking sector.
01:59And so I think you're just seeing that kind of reflected not only in what I'm seeing on the ground
02:04for our own business, but broadly across the sector.
02:08Your stock has tanked quite a bit today. We saw the decline in net interest margin that you reported.
02:15Talk to us a little bit about that, like us investors overreacting, or what is that that we're seeing in
02:20the decline in the stock?
02:22Sure. Well, look, spread revenue is just a little under three quarters of our revenue.
02:27And so anytime there's a movement in the margin, investors react to that. And I understand that.
02:32I think, you know, the thing that probably is being missed is that just as there's somewhat more competition around
02:38deposit costs, which have modestly reduced the interest margin,
02:42we're seeing the offsetting benefit in terms of higher fee revenues.
02:45Value added fee services grew 30% year on year in the second quarter.
02:51And that's organically, not including any acquisitions.
02:54And of course, it's even faster given the partnerships that we've completed and integrated now.
02:58So we're seeing the opportunity to manage our revenues overall.
03:02And the guidance we've given for revenue growth in total is effectively unchanged.
03:07So, you know, from our perspective, the business performs exceptionally well.
03:10We're seeing a very strong second half of the year, albeit with a little different mix in terms of the
03:15revenues, Nina.
03:16All right. So, yeah, let's talk about the second half.
03:18I mean, what is your outlook, Zach, when it comes to interest rates and the impact it could have on
03:23you guys?
03:24Because we are increasingly talking about a higher rate environment here in the United States.
03:28You know, it's a big change, Carol, from what we had thought six months ago, right?
03:33We were just thinking about this internally a little bit earlier today.
03:36I mean, coming into this year, there were six rate reductions over the coming six quarters.
03:41Now there's the forecast for two and a half rate increases baked into the curve.
03:45So, you know, that's the kind of environment we're in now.
03:48It's a lot of choppy, volatile expectation.
03:51Our view is that we're going to have a higher for longer rate environment for at least the foreseeable future.
03:56And if there is a rate change, it is likely to be up.
03:59With that being said, I think we'll have to wait and see whether that actually comes to pass.
04:04And, you know, I think we're all waiting with bated breath for what happens in September.
04:09But that's a problem, the uncertainty.
04:12And we have a great column.
04:14My team knows I'm obsessed by Simon White about the most fundamental macro risk is back.
04:19And it is about specifically the volatility of inflation is also sharply rising.
04:23And, you know, it impacts everything.
04:25Goods prices, borrowing rates, Fed policy and cash flows.
04:29It becomes more uncertain when the...
04:31I'm going to send it to Zach on the terminal.
04:32Zach's on the terminal, so I'm just going to ID him the link, okay, in case he hasn't seen it
04:36yet.
04:37Because people can't make decisions.
04:39People won't take loans, businesses, people like...
04:42And so it's hard.
04:42This is the new normal, Carol.
04:44This is the new normal that we're in right now at this point.
04:47But it's tough, right, for you and your clients.
04:50It is hard.
04:51It does make it hard.
04:52There's no doubt about that.
04:53I think, look, what is really encouraging is to see that in the macro economy generally, we have seen an
05:00extraordinary amount of resilience, notwithstanding this uncertainty.
05:04You know, go back to Liberation Day and the changes around potential, you know, tariff policy.
05:11Then we have inflation and interest rate uncertainty as we came into this year.
05:16And then, obviously, geopolitical conflicts that bleed into lots of different elements of the economy.
05:21And notwithstanding all of that, you continue to see employment be strong, consumer spending be robust, corporate activity continue to
05:30be pretty strong.
05:30Obviously, there's an AI infrastructure investment super cycle going on that helps.
05:37But I think it's broader than that.
05:38How does it...
05:39I'm just curious how that uncertainty affects your role.
05:44Like, you have to figure out...
05:46You have to make predictions about the future.
05:48You have to decide on how much to spend, where to open branches, who to hire, and how much to
05:52pay.
05:52All these folks.
05:54Everything you just highlighted there is uncertainty.
05:56So, how does that change the way that you think about the way that you deploy resources?
06:01Look, we definitely need to be on our toes and more dynamic.
06:05The frequency with which we are looking at, channel checking, what's happening in the environment, understanding really on the ground,
06:13what are we seeing right now so that we can pivot as we need to is heightened for sure.
06:18And I think, you know, for us, the dynamic way that we manage the business.
06:24We're always, as a CFO, I'm always thinking about two sides of the coin.
06:27I want to invest as much as is possible to drive competitive differentiation, to drive sustainable long-term growth.
06:34But I also want to be able to modulate that.
06:36And, in fact, we're doing both at the same time, Tim.
06:39I'll tell you, this year, for the last seven years, we have re-engineered more than 1% of the
06:44cost base out of the company every year.
06:46This year is 1.6%.
06:48So, we're doing more of that.
06:50And yet, we're also investing more.
06:51The average investment rate, growth rate, for the last six years has been 20%.
06:56This year is 32% more investments in technology, in marketing, in hiring new people.
07:01And so, you've got to be doing both of those things.
07:04And I think, you know, frankly, it's the companies that have the capability to manage dynamically in that way that
07:11really can continue to be successful and find the pockets of profitable growth in this, you know, new normal of
07:16uncertainty.
07:17Zach, you reported quarterly earnings today.
07:20There's a proposal out from the SEC to make that voluntary and to shift to semi-annual reporting.
07:27There was a comment period that ended earlier this month where a huge amount, as in 99% of respondents
07:33to the SEC, said that they don't think it's a good idea.
07:37Do you think you would change the frequency of your reporting if you were given the chance to?
07:43I think that our key stakeholders, our investors, appreciate the frequency with which we are sharing information.
07:48I mean, frankly, Nina, we not only report every quarter, you know, at the quarter end, but then at least
07:55once a quarter, if not twice, we're up on stage at a major conference talking about financial projections, talking about
08:00what we're seeing on the ground.
08:02And I think, you know, investors have been accustomed to that and, frankly, value that.
08:06So, you know, we'd be pretty reactive to what our stakeholders want, which I believe at this point is continued
08:12with that frequency of at least quarterly.
08:14Okay.
08:15Just one follow-up.
08:16You mentioned AI earlier.
08:18Big question amongst the CFOs that I'm speaking to for the CFO briefing is this question as to how do
08:23you keep a tab or lid on costs to make sure that AI spending for tokens doesn't go through your
08:30budget?
08:30How do you manage that at Huntington?
08:32Yeah, it's a big area of focus.
08:35I will tell you at this point, we're still very much defaulted toward we want our teams to lean into
08:40to quickly adopt this technology, and we want to see all of the innovation and promise of it first.
08:49With that being said, what I'm thinking about as a CFO, and as an aside, I co-lead with our
08:54chief technology officer, the company's AI efforts, and so I'm particularly close to this,
08:58is in the background we are building a lot of infrastructure to be able to, in fact, manage token costs
09:04and optimize the cost of AI as we go forward.
09:07And a lot of that's going to come down to what's the best model for the right use case at
09:12the right time to be able to optimize that.
09:14I'm personally pretty sanguine here.
09:16From what we're seeing, we're seeing significant ROI at this, but albeit at the very early stages.
09:22We are just at the cusp of this revolution.
09:25Zach, you're not saying to the guys down the hall, hey, get off of the AI, it's costing us money.
09:29Are you doing that?
09:30I'm actually, it's funny you say that.
09:32We are celebrating usage.
09:33We are trying to encourage people to use it as much as we possibly can.
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