Zachary Wasserman
Chief Financial Officer at Huntington Bancshares
Thanks, Steve, and good morning, everyone. Slide 6 provides highlights of our third quarter results. We reported earnings per common share of $0.33. The quarter included $6 million of notable items on a net basis and did not have an impact to earnings per share. Return on tangible common equity or ROTCE came in at 16.2% for the quarter. Adjusted for notable items, ROTCE was 16.3%. Pre-provision net revenue or PPNR increased by 8.3% from the prior quarter. This was driven by net interest income, which expanded by 2.9% and fee revenues, which increased by 6.5% from the prior quarter. Average loan balances increased by $3.7 billion or 3.1% versus last year. Average deposits continued to grow increasing by $8.3 billion or 5.6% on a year-over-year basis. Credit quality remains strong with net charge-offs of 30 basis points. Allowance for credit losses decreased by 2 basis points and ended the quarter at 1.93%.
Adjusted CET1 ended the quarter at 8.9% and increased roughly 30 basis points from last quarter. Supported by earnings as well as the recapture of AOCI from lower rates, tangible book value per share has increased by 21.5% year-over-year. Turning to Slide 7. Consistent with our plan and prior guidance, year-over-year average loan growth is accelerating. Q3 loan growth was 3.1% year-over-year rising from last quarter's 1.7% growth and the 1.3% we posted in Q1. Average loan balances increased sequentially by $1.1 billion. Excluding runoff from commercial real estate, loans increased by $1.6 billion or 1.3%. As Steve mentioned, end-of-period loans increased by 1.6% and represented a 6.3% annualized growth rate. Loan growth in the quarter was supported by strong contributions from core businesses and from new initiatives.
Our new initiatives collectively represented $700 million of growth in the quarter and included Carolinas, Texas, Fund Finance, Healthcare Asset-based Lending, and Native American Financial Services. Note this pace of growth was above the second quarter level as teams continue to ramp up and we expect growth in the fourth quarter to be further above these levels. Other drivers of loan growth in the third quarter included $595 million from consumer auto, $268 million from regional banking, $165 million from residential mortgage, $137 million from auto floor plan, $80 million from RV/Marine, $131 million from all other consumer categories on a net basis, and $109 million from all other commercial categories on a net basis. This growth was partially offset by a seasonal decline in distribution finance, which was lower by $747 million.
Generally we see the third quarter as the seasonal low point in the year for this business given inventory levels across our mix of programs. We expect inventories to build into the fourth quarter and resulting balances to be higher in the fourth quarter on average compared to the third quarter. Turning to Slide 8. As noted, we drove another quarter of solid deposit growth. Average deposits increased by $2.9 billion or 1.9% in the third quarter. On a full-quarter basis, total cost of deposits increased by 2 basis points in the third quarter and interest-bearing deposit costs were flat for the quarter. Within the quarter, there were notable declines in deposit costs. We saw total cost of deposits decline sequentially in both August and September with September costs lower by 7 basis points.
This is a direct result of our proactive and disciplined execution of our down beta action plans in advance of the Fed's 50 basis point rate cut in September and continuing into Q4. These actions reflect our active balancing of deposit volumes and rate. Given our robust deposit growth over the past year, we're in a strong position to optimize rates from here. We will remain very dynamic in managing the business and our action plan as this interest rate environment evolves. Our forecast is aligned with a forward curve, which projects two additional 25 basis point rate cuts by year-end and a further five 25 basis point rate cuts in 2025. As we noted in the past several quarters related to guidance on up beta, the performance and trajectory of down beta will be a function of the actual and projected path of rates and importantly, customer expectations for that path.
Based on the current rate outlook, we continue to project a cumulative down beta in the mid to high 30s by the fourth quarter of 2025 and in the mid-40s range by the fourth quarter of 2026. Turning to Slide 9. Our cumulative deposit growth since early 2023 totaled 7.1%. This level continues to well outpace the peer group. As a result, we've been able to decisively implement the down beta strategy, fund loan growth with deposits, and at the same time manage the loan-to-deposit ratio lower over the past year, which will support the continued acceleration of lending. On to Slide 10. For the quarter, net interest income increased by $39 million or 2.9% to $1.364 billion. We delivered sustained growth off of the trough levels from the first quarter of this year, consistent with our guidance.
Net interest margin was 2.98% for the third quarter. Reconciling the change in NIM from Q2, we saw a decrease of 1 basis point. This was due to spread net of free funds lower by 2 basis points, higher cash balances driving margin lower by 2 basis points, partially offset by lower drag from the hedging program which improved by 3 basis points. We continue to project full year net interest income to be within our prior guidance range. The fourth quarter level is expected to be flat to up 1% on a year-over-year basis and then resume growth over the first half of 2025 and accelerate in the second half. This is expected to result in record net interest income for 2025 based on current rate curve expectations. We continue to benefit from fixed rate loan repricing with loan yields expanding by 4 basis points from the prior quarter. This occurred even as SOFR moved lower during the quarter.
As a reminder, we continue to analyze and develop action plans for a wide range of potential economic and interest rate scenarios for both short-term rates as well as the slope and belly of the curve. As I noted earlier, our working assumption includes two additional rate cuts by year-end and a further five cuts in 2025 and underlies this net interest income outlook. Turning to Slide 11. Our level of cash and securities increased as we benefited from higher funding balances from sustained deposit growth. We expect cash and securities as a percentage of total average assets to remain at approximately 28% as the balance sheet grows over time. We are reinvesting securities cash flows in treasuries and expect to manage the unhedged duration of the portfolio at approximately the current range.
We have increased the average duration of new securities purchases from very short half year duration to slightly longer two to three year durations, which is a component of our strategy to systematically reduce asset sensitivity over the next several quarters. Turning to Slide 12. Over the course of the rate cycle, we've positioned the company to benefit from asset sensitivity as the rate environment moved higher and are now reducing our level of asset sensitivity as market expectations are increasingly weighted toward a down rate path. That strategy has worked well to maximize the benefit from the rate cycle and to protect capital while managing NIM within a tight corridor. On the bottom of the slide, there is an illustration of the asset sensitivity path over the next several quarters. In Q3, we lowered our asset sensitivity by more than one-third from the second quarter.
Looking forward, we expect the total cumulative reduction in asset sensitivity from Q2 to be greater than 50% by year-end 2024 and moving to above 60% by mid-2025. As always, we will continue to dynamically manage our hedging program to achieve our objectives of capital protection and NIM stabilization. Moving on to Slide 13. On an overall level, GAAP non-interest income increased by $32 million to $523 million for the third quarter. Adjusting for the impacts of CRT transactions and the pay fix swaptions mark-to-market from the prior year, fee revenues increased by $55 million or 12% on a core underlying basis. Moving on to Slide 14. Our strategy to increase the penetration and usage of value-added fee services is building on momentum we've created over the last several years.
Adjusted fee revenues as a percentage of total revenues have increased from 25% a year-ago to 28% in Q3. This reflects the focused effort on key initiatives across payments, wealth management, and capital markets. Within payments, revenues have increased by $4 million in the third quarter and have increased by $6 million year-over-year. Commercial payments revenues, including treasury management fees, have grown strongly increasing by 8% from the prior year. Debit card revenue grew by 3% year-over-year reflecting performance higher than industry averages yet clearly impacted by the relatively slower levels of consumer spending growth we are seeing economy-wide. Other card-based revenues continued to grow year-over-year supported by consumer credit card spending trends.
The addition of merchant acquiring in-house capabilities will further support our overall payments revenue growth as we enter the fourth quarter and carry into 2025. As Steve noted earlier, we see this initiative adding approximately 1 percentage point to overall fee revenue growth next year. Within wealth management, revenue growth was outstanding increasing 18% from the prior year. Advisory relationships have increased by 7% year-over-year and assets under management have increased 22% on a year-over-year basis. These results benefited from sustained positive net asset flows. Within capital markets, we saw exceptionally strong revenue growth increasing by $26 million or 50% from the prior year to $78 million. These results were driven by commercial banking related capital markets revenues, which are accelerating as we have previously guided as a result of higher commercial loan production.
As we look out into Q4, we expect to post another quarter of sequential growth in capital markets driven by continued underlying core banking related services and a robust advisory pipeline. We expect this positive momentum to carry into 2025. Moving on to Slide 15 on expenses. GAAP non-interest expense increased by $13 million and underlying core expenses also increased by $13 million. During the quarter we incurred $13 million of expenses related to efficiency programs, which will benefit our 2025 expense outlook and allow us to reinvest savings into key revenue producing initiatives. Additionally, this was partially offset by a $7 million benefit from the FDIC special assessment. Net, notable items for the quarter totaled $6 million. Excluding these items, core expenses came in slightly better than our expectations for the quarter at $1.124 billion.
The increase in core expenses quarter-over-quarter was primarily driven by personnel expenses due to higher salaries and benefit costs. We also saw $3 million of higher expenses related to merchant acquiring as we brought that business in-house and launched our services in October. We continue to forecast approximately 4.5% core expense growth for the full year. Slide 16 recaps our capital position. Common equity Tier-1 ended the quarter at 10.4%. Our adjusted CET1 ratio, inclusive of AOCI, was 8.9% and has grown 90 basis points from a year-ago. Our capital management strategy remains focused on driving capital ratios higher while maintaining our top priority to fund high return loan growth. We intend to drive adjusted CET1 inclusive of AOCI into our operating range of 9% to 10%.
On Slide 17, credit quality is coming in as we expected and continues to perform very well. Net charge-offs were 30 basis points in Q3, relatively stable over the past four quarters. Allowance for credit losses at 1.93% declined by 2 basis points from the prior quarter and reflects both modestly improved economic outlook as well as an increased loan portfolio. On Slide 18, the criticized asset ratio decreased by 9% from the prior quarter to 4.09%. The non-performing asset ratio declined by 1 basis point to 62 basis points. Turning to Slide 19. Our outlook for the full-year remains unchanged from our prior guidance. Our expectations for the fourth quarter include accelerating loan growth at approximately 4% to 5% on a year-over-year basis. Deposit growth is expected to increase between 4% and 5% on a year-over-year basis. We see full-year net interest income unchanged from our prior guidance range.
The fourth quarter level is expected to be flat to up 1% on a year-over-year basis and then resume growth in the first half of 2025 and accelerating in the second half. Core fee revenues adjusted for the swaptions and CRT items are expected to grow at approximately 8% to 9% year-over-year in the fourth quarter. Core expenses are well managed and tracking to our full-year outlook. For the fourth quarter, we expect growth of approximately 3% year-over-year subject to some variability given revenue driven compensation levels as well as expenses related to the insourcing of our merchant acquiring business, which brings with it direct offsetting fee revenues. This is consistent with our previous commentary to exit the year at a low single-digit year-over-year expense growth rate. Credit is performing well aligned with our expectations and net charge-offs are projected to be relatively similar to Q3. Our tax rate for the fourth quarter is likely to be between 18% and 19%.
With that, we'll conclude our prepared remarks and move over to Q&A. Tim, over to you.
