Zach Wasserman
Chief Financial Officer at Huntington Bancshares
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 floor plan 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 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 at 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 pretax 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 4th-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 nonperforming 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 non-interest income growth between 4% and 6% for 2025. Expense growth will be driven by sustained investments and 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 basis points and 35 basis points. The effective tax rate for the year is expected to be approximately 19%.
Let me also share a couple 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 normalizing in the first quarter given seasonality and recognizing the record level we delivered in the 4th-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 4th-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.
