Huntington Bancshares expects strong growth in commercial lending, CFO says (NASDAQ:HBAN)

Even though interest rates are rising, which could lead businesses to pull back on spending or taking on new debt, Huntington Bancshares (NASDAQ:HBAN) is seeing strong demand for commercial loans.

“Businesses are investing in equipment and automation to help deal with labor constraints. We’re still seeing that demand,” said Zach Wasserman, Huntington’s (HBAN) senior vice president and chief financial officer in an interview with Seeking Alpha.

Average loans and leases in Q2 increased to $113.9B from $111.1B in the prior quarter. During the quarter, the bank saw a healthy mix of commercial and consumer lending. “But we see commercial being a more outsized driver going forward,” Wasserman said. Companies are seeing opportunities for mergers and acquisitions.

The bank’s commercial loan pipeline is quite strong, he added, with the total pipeline almost double what it was last year. Particularly encouraging is the later portion of the pipeline, which are closer to originating the loans, is about a third higher than it was last year.

Like most banks, Huntington Bancshares’ (HBAN) net interest income is rising as the Federal Reserve raises rates from near zero. HBAN’s noninterest income, though, has declined for the past three quarters.

“Overall fee income has been pressured over the last several quarters,” Wasserman said. The biggest factor is mortgage banking revenue, which is now falling to a more normalized historical level after 2020 and 2021 experienced an “extraordinarily high level of activity” due to the very low mortgage interest rates. That part of its business “probably has a little further down to go,” but it’s almost at the bottom, he said.

While the mortgage banking business recedes from the frantic pandemic activity, Huntington (HBAN) sees its payments, capital markets, and wealth management businesses gaining traction. “Those are driving significant growth in noninterest income” and will help raise fee income overall, Wasserman said. “We expect to see noninterest income growth going up from here.”

Another cause for optimism is the bank’s deposit growth. “Given strong loan growth, it’s important to fund it with low-cost deposits,” he said. Unlike some other bank’s Huntington’s deposits rose in Q2, with average core deposits rising to $141.8B from $139.1b in Q1.

“We remain disciplined on deposit pricing, with our total cost of deposits coming in at just 7 basis points for the second quarter,” said Wasserman during the company’s Q2 earnings call.