Greetings. Welcome to Huntington Bancshares Fourth Quarter Earnings Call. At this time all participants are in listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I'd now like to turn the conference over to your host, Tim Sedabres, Director of Investor Relations..

Thank you, operator. Welcome, everyone, and good morning. Copies of the slides we will be reviewing today can be found on the Investor Relations section of our website at www.huntington.com. As a reminder, this call is being recorded and a replay will be available starting about one hour from the close of the call.

Our presenters today are Steve Steinour, Chairman, President and CEO; Zach Wasserman, Chief Financial Officer; Rich Pohle, Chief Credit Officer, will join us for the Q&A. Earnings documents, which include our forward-looking statements disclaimer and non-GAAP information are available on the Investor Relations section of our website.

With that, let me now turn it over to Steve..

Thanks, Tim. Good morning, everyone, and welcome. Thank you for joining the call today. We are very pleased to announce our fourth quarter results, which included GAAP net income of $645 million and adjusted net income of $657 million. For the full-year, reported GAAP net income was $2.2 billion, and adjusted net income was $2.3 billion.

Both results reflect record earnings for Huntington. 2022 marked a year of numerous successes driven by our team's execution of organic growth initiatives, realization of both expense and revenue synergies from the TCF acquisition. An unwavering focus on credit discipline and proactive balance sheet management.

We ended the year with substantial momentum. Clearly, the economic environment is becoming increasingly challenging. However, Huntington is better positioned today than at any time since I joined over a dozen years ago. And over those years, we've transformed the risk profile of the bank and remained highly disciplined.

We are taking proactive steps now to again position Huntington to outperform, and we entered the year with solid capital levels, top-tier reserves, a growing core deposit base and strong credit metrics. We continue to see opportunities to grow revenue and profit. Now on to slide four.

First, we finished the year with our fourth consecutive quarter of record pre-provision net revenue. This was supported by higher interest income driven by earning asset growth and an expanded net interest margin. Revenue growth has been exceptional over the course of the year, and we intend to protect and grow that revenue base.

Second, we delivered broad-based loan growth ex PPP up 10% year-over-year. As we drove this growth, we also optimized for return while still exceeding our loan growth outlook.

One example of this optimization is indirect auto, where our production in the quarter was approximately 15% lower than the prior quarter, while our new loan yields increased by over 100 basis points. Importantly, we continue to grow our deposit base with multiple consecutive quarters of growth.

We believe this is a differentiator for Huntington in this environment. It also demonstrates the breadth of our franchise and our colleagues' ability to acquire and deepen primary bank customer relationships.

Third, our financial results for the fourth quarter and full-year reflect a top-tier return profile and were at or above our medium-term targets. These results demonstrate the earnings power of the company, and we expect to continue to deliver on these targets.

As we intended, we delivered common equity Tier 1 capital to the middle of our 9% to 10% operating range. We are also very pleased to announce a new two-year share repurchase program. Fourth, we ended ‘22 with strong momentum across the business that we carry into this new year. We remain focused on growth, aligned with our risk appetite.

Importantly, we have the capital, credit reserves and strength of balance sheet that give us confidence to continue to deliver on our organic growth priorities. Slide five highlights the tremendous earnings power of the franchise, which has improved sequentially over the course of the year. PPNR is over 60% higher than pre-pandemic levels.

Our return on tangible common equity is top tier. We managed our asset sensitivity throughout the year and deliberately positioned the company to benefit from higher interest rates, which resulted in significant revenue growth.

We've also been prudent in taking actions to protect this revenue base should we experience lower rates over the next few years. We will continue to be dynamic in this regard with our goal of reducing volatility and creating a tight quarter around the path of spread revenue.

At our Investor Day in November, we shared with you our highly defined set of strategic priorities. We expect these strategies will drive sustained revenue growth and support gains in efficiency over the long-term. As you also heard, this management team is a group of experienced operators.

To further accelerate the execution of these strategies and support increased efficiency, we will be taking a series of actions during ‘23 to align our organizational structure with a focus on our critical priorities. We expect these actions will result in new growth and efficiency opportunities.

We will share more details on these actions as they're finalized over the course of the first quarter However, one element will be a voluntary retirement program for our middle and senior management. Overall, I believe this program will be important to support our colleagues and create value for our shareholders.

In closing, we are well positioned for continued growth. We have the strategies and the momentum in our businesses to support growth. We also benefit from highly engaged colleagues who have consistently delivered outstanding customer service and are a true differentiator.

We have a credit discipline to outperform and remain focused on rigorous expense management, investment prioritization and capital allocation. We remain committed to our long track record of managing to positive annual operating leverage and are intently focused on driving shareholder value.

Zach, over to you to provide more detail on our financial performance..

capital markets, payments and wealth management. During 2023, several other factors are offsetting that growth including our anticipated holding of the majority of our SBA loan production on sheet, thereby reducing near-term fee revenue in favour of longer-term high-return spread revenue.

Lower income of approximately $23 million associated with purchase accounting accretion in fees. Please refer to slide 30 for more details. Lower operating lease revenue as we continue to transition to more capital leases. Importantly, we expect this will result in lower operating lease depreciation expense as well.

Lower mortgage banking income for the full-year 2023 versus 2022. And finally, in light of the economic outlook, we are implementing risk mitigating deposit policy changes that will result in a lower incidence of overdrafts and related service charges. In addition, we are reducing NSF fees to 0 in the first quarter.

This will result in an approximate $5 million reduction in fee income per quarter, which we expect to be more than offset by lower associated charge-offs. As you know, the first quarter is generally a seasonal low for overall fee income. We expect fee income will grow sequentially throughout the remainder of the year.

On expenses, as Steve noted, we intend to hold growth to a low level given the environment, even as we remain committed to funding critical long-term investments. We plan to manage core underlying expense growth between 2% and 4% for the full-year.

This level of expense growth benefits from the ongoing efficiency initiatives we've discussed previously, such as Operation accelerate, branch optimization and the organizational alignment actions that Steve highlighted.

Added to the core expense growth, we expect approximately $60 million higher expenses from the full-year run rate of Capstone in Toronto, and $33 million of increased FDIC insurance expense associated with the surcharge.

In addition, we expect the first half of the year to include some amount of restructuring charges associated with the expense management actions we are taking. We will provide more details about these actions later in the quarter.

Overall, our low expense growth coupled with expanded revenues, is expected to support another year of positive operating leverage. We expect net charge-offs will be on the low end of our long-term through-the-cycle range of 25 to 45 basis points. Our 2023 guidance reflects the current macroeconomic outlook.

We will continue to be diligent in analyzing the macro environment and will react as needed to manage as the year plays out. We ended 2022 in a position of strength and have good momentum. We have every expectation of continuing to outperform this year. With that, we will conclude our prepared remarks and move to questions and answers.

Tim, over to you..

Thank you, Zach. Operator, we will now take questions. We ask that as a courtesy to your peers, each person ask only one question and one related follow-up. And then if that person has additional questions, he or she can add themselves back into the queue..

[Operator Instructions] Our first question is from the line of Manan Gosalia with Morgan Stanley. Please proceed with your question..

Hey, good morning. Hey, question on deposit growth. You mentioned deposit competition has intensified quite a bit. And we can see from the CD rates that you're offering in the market that you've been proactively raising the CD rates and offering more 14-month CDs.

So just given all of that, can you talk about how much of the projected deposit growth in 2023 will be driven by CDs? And what the overall deposit mix is likely to look like?.

Sure. Yes. This is Zach. I'll take that question. Thank you for asking it. Generally speaking, we're seeing our deposit growth continue to trend pretty well in line with the outlook that we've given between 1% and 4% growth for the full-year. So, we think we're on that run rate.

I think it will be balanced between both consumer and partial and to your point, we'll continue to the mix of that deposit gathering will continue to trend as we expected and it is baked into our overall rate and beta expectations for higher rate products like time deposits like money market et cetera.

I think we're beginning -- we're operating in this rate cycle clearly at a lower level of mix of those products than we were, for example, the last rate cycle.

So, we'll see that trend higher throughout the course of the next several quarters, but in line with our general expectations, it all comes back to our focus on deepening relationships with our existing customers and our primary bank relationships. And so, we think it's working pretty well and expected to continue as we go to….

Got it. And then maybe on the NIM trajectory from here, can you comment on if we're close to peak. And given what you said on the hedges and the fact that the program, at least for now. I mean how should we think about a floor for NIM from here over the course of the next four to eight quarters, as I said, does start cutting rates..

Yes. On the topic of NIM, I think just take a step back, we've significantly benefited over the last two quarters from explicit actions to manage asset sensitivity seen more than 60 basis points NIM expansion in the last three quarters alone.

And that was very intentional with in mind towards continuing our top-tier performance in NIM over the course of long periods of time that we've done. As we stand now, as we start to look into, we do believe there's more room to go on asset bases, and we'll see yields continuing to increase out over the next few quarters.

However, we're further along in that process probably three quarters of the way through than we are on the deposit beta side, but we also expect, as we said, rates continue to track higher over the course of the next several quarters, we're probably only about halfway through the deposit beta cycle.

And when you couple that dynamic with what is currently expectation, the yield curve that we'll see short-end rates fall towards the latter part of 2024. It is reasonable to project a somewhat downward trajectory of NIM over the course of 2023.

Our goal will be to manage NIM, as we've said on a number of occasions previously within a tighter corridor in 2023 as we can, really protecting the downside hedging program and ultimately driving towards sequential and sustained growth in net interest income on a dollar basis.

And I think when we couple what we expect to be a pretty strong NIM level overall with the loan growth that we expect to continue to drive, again, to the guidance 5% to 7% over the course of this year, we'll see that NII on dollar rate is continuing to expand, and it's about focus..

Great. Thank you..

Thank you..

Our next question is from the line of Steven Alexopoulos with JP Morgan. Please proceed with your questions..

Hey, good morning, everyone..

Good morning, Steven..

I want to start sort of follow-up, Zach. With the NIM expected to trend down given all the hedges and protection you've put in place to sort of tighten that ban.

And can you frame for us how much downside could we see what's the range?.

Yes. Thanks, even, for the question. Look, I think the trend is something on the order of single-digit reduction on kind of a quarterly basis as we go throughout 2023. There's a range of uncertainty. So, I want to be clear, not being overly precise, you just think about all the factors that are going to play into that.

The Fed funds actions, which, as you know, from staring at the dot plots are not aligned with the market expectation. So how that all plays out, I think it's going to be the most important factor the pace and trajectory of beta, which at this point seems to be fairly well linear across time, but we'll have to wait and see how that goes.

And clearly, the big one is the economy where that tracks over the near term. So, it's difficult to be overly precise, so I'm trying not to and bring back to dollar. Our goal will be to drive NII on a dollar basis.

I said, I do expect some downward trajectory in them and probably something on the order of single digits on a sequential basis each quarter..

Got it. That's helpful. And then Zack, when we look at, you're obviously expecting more loan growth than deposit growth, a fairly large issuance of sub debt this quarter. Could you walk us through the funding strategy? I know you said you expect the overall growth in average earning assets.

But what's the funding strategy? It seems like you have to do much more than just on the deposit side? And maybe what will be the cost of that?.

Yes. I think it's an important point.

And it's something that we feel is a point of strength and an advantage at this point in the cycle, given that we're coming to the early to middle stage of the cycle has still a very advantageous overall position in terms of loan-to-deposit ratio, the mix of important categories of spot like time deposits in our noncustomer funding kind of relative to history.

And so, it allows us, as I've mentioned on a number of previous occasions to utilize the balance source of funding. If you look back at what happened in 2022, we grew loans at 10% deposits were more in the 2.5% range.

Clearly, loan deposit ratios have tracked up, and we used a broad range of other funding sources like long-term debt like the FHLB and other noncustomer sources to balance out. The same is going to be true for 2023, albeit to a somewhat less degree thinking about loan growth in that mid- to high single-digits range, 5% to 7%.

Deposit growth in the 1% to 4% does imply we'll continue to see loan-to-deposit ratios tick up. And you'll see us, therefore, continue to utilize other balance funding sources like the Federal Home Loan Bank, other noncustomer sources of funding there. The rates that we're seeing are pretty reasonable.

The incremental economics certainly on that loan growth continued very accretive to return on capital and the overall cost of deposits and funding within that beta expectation so NIM expectation. Could I just talk on that question..

Got it. Thanks for taking my questions..

Thank you, Steven..

Our next question is from the line of Ken Usdin with Jefferies. Please proceed with your questions..

Hey, good morning. Hey, Zach, I wanted to ask you; I know we talked about this last quarter. The security swaps that you had added a nice amount of net interest income again.

And I'm just wondering, can you help us understand just the benefit from that, if ineffectiveness helped that again? And just how does that go -- like how do we track that going forward relative to just interest rates in terms of the benefits that you should get from there?.

Yes. They were a very powerful benefit. I think it's -- they're protected, as you know, about one-third a whole would have otherwise been AOCI Mark reduction, which was their primary attention originally, but also have played out in terms of really strong reported yields in the securities portfolio.

Roughly half of the approximately 50 bps increase in securities yield was from that hedging program to give you a sense of the scale of it. And I think where it goes from here in terms of incremental benefit is going to be, to some degree, a function of just where that mid-portion of the curve goes and at this point, it's fairly well topped out.

I'm not expecting a ton more lift there. The lift from that has reduced somewhat from the third quarter, but it still is very accretive we're not adding to that portfolio now. And so, I think we're getting the benefit that we expected from it..

Okay. Great. And then one follow-up on deposit beta. 17% total cumulative so far through the cycle.

Can you just remind us what you're thinking about betas from here and just to be super clear for us, if you don't mind, on I think you guys usually do talk on total?.

Yes, sure. So, it was 17%, to give sense is kind of tracking across time, it was 6% in Q2, 11% Q3, 17% in Q4. So, continues to track and kind of in the additional 5 to 6% to 7% range each quarter. And the expectation is to go out into Q1, it can be sort of more of the same, continuing out over until we get into the middle part of the year.

Our planning assumption Ken, is something on the order of 35% total through the cycle, which would indicate we're about halfway through to the prior point that I made.

With nothing that I'll tell you where we're intently focused is on the day-to-day management and really very, very rigorous looking client by client in the commercial portfolio, geography by geography in the in the consumer portfolio and ensuring that we can stay competitive and ensure we've got a strong deposit franchise.

And so, we'll continue to wait and see and manage against that. If the outlook changes will let you know. But at this point, it continues to track according to that broad expectation..

Okay, great. Thank you, Zach..

Thank you..

Our next question is from the line of Erika Najarian with UBS. Please proceed with your questions..

Hi, good morning. You mentioned on slide 18 that you expect to be at the low end of your net charge-off range. The tone very quickly changed this week from some land into hard landing.

I guess my question here is this may be obvious to us that have covered the company for a while, but what makes you confident despite the deteriorating economic outlook that you could stay at the low end of that already pretty low range and given some of -- there was a -- I wouldn't call them up here, but there was a company that reported pretty eye-popping delinquency numbers in auto this morning.

I'm wondering if you could give us what's going on with auto credit trends underneath. And again, we remind us why you feel confident about how that portfolio would perform in an economic downturn..

Erika, it's Rich. Let me take that. I'll go -- I'll answer your second question first with respect to auto. So, we are seeing delinquencies in our portfolio. And again, remember, this is a prime and super prime portfolio.

And as we talked about at Investor Day, we've been in this business for decades, and we've got very sophisticated custom scorecards that we use in our client selection process.

So, we feel very good about where this business is today and spend through numerous cycles and it's proven itself that it can outperform peers from a loss content through various cycles. So, we feel good about that. The delinquencies right now are right where we would expect them to be from a seasonal standpoint.

If you go back and you look at where would have been in that 2018 and 2019 area. We're still trending below those pre-COVID levels. So, we feel good there. And we've been very proactive as it relates to how we're managing our loan to values in that space as well. So I don't have any real concerns about our indirect auto space.

I feel very comfortable with how that business is growing. With respect to the overall comfort that we have in our net charge-off forecast. I think it goes back to our customer makeup. As I talked about at Investor Day, on the consumer side, we are overwhelmingly a secured creditor. 95% of our loans are secured.

And again, we've got that prime focus and high FICOs of origination around 770. So, it is a very strong book and throughout all of that back I just talked about auto, but even RV Marine resi, all of those portfolios are showing very well from a delinquency standpoint. So, we feel good there.

On the commercial side, we have taken a lot of steps to reposition this book over the last several years going through into more specialty businesses, more larger companies, public companies so we feel that we've mitigated the loss content in that portfolio as well.

So even though, as Zach pointed out, we're looking at more of a mild recession than a severe landing that's why we feel comfortable with where we are from a charge-off forecast at that low end. Now clearly, if the economy worsens, where we land within that range is going to depend on where the economy goes and how the Fed reacts.

But at this point, we're comfortable with where we put that guidance..

But Erika, this is Steve. A number of the guidance is through the cycle, and we've been well below the through-the-cycle average. And at this point, we're guiding to the lowest end of the range. And we've been strategic on how we position the lending activities now for a dozen years.

We've been very disciplined Richard team, along with the lending teams that have adhere to the discipline, didn't open up in some of the areas of my benefit to frothy and recent vintages. So, we've got a really good core book on both the commercial side.

And as a super prime and secured lender generally on the consumer side, we actually think of that as a lower risk book. So, our aggregate out low risk profile and discipline over many years will serve us well, certainly in auto and frankly, the entire portfolio..

And my second question is on that 6% to 9% PPNR growth, medium-term target. Clearly, you expect to hit that this year. And I'm wondering, obviously, it gets more difficult if the Fed is cutting which a lot of investors expect for 2024.

And maybe the question is I know we'll hear more from you on this expense management actions that you're taking for which you will incur a restructuring charge.

But is that an example of the commitment that Huntington has to deliver this PPNR growth range with consistency over the medium term on an annual basis, even if the revenue tailwinds dissipate, like rates?.

Erika, this is Zach. I'll take that one. And the answer to your question is yes. We in terms of that very much is a sign of our trying to look ahead.

Look at not only 2023 but also over the entirety of the strategic plan in Horizon and ensure that we're setting up the overall financial performance in terms of revenue and the growth rate of overall expenses such that we can achieve the objectives in terms of profit growth -- that is a very deeply held objective and we're not looking in the short term, but in the long term to achieve it.

As we talked about at Fairmont Investor Day, there are multiple strategic levers that we use to manage overall expenses to grow less than revenue to support that PPNR growth.

And even as we drive a faster growth rate of the expenses -- or sorry, the investments within expenses to drive ultimately business growth over the long term, but the efficiency drivers, operation accelerate that is going in reengineering, major customer-facing processes, taking waste and cost out of the system as we improve productivity our long track record of optimizing the consumer and retail branch distribution network, which is still very relevant, still it made, but it does represent an opportunity over time to reduce and to harvest expense saves and things like this organizational alignment, which are designed to help us to improve efficiency and hold cost growth at a low level.

I will note, it's in the guidance that I've given in terms of overall core expense growth for 2023. But importantly, also helps us to achieve our strategic objectives. Align our organization yet even more towards our most important strategic priorities and to operate as efficiently and at pace as we can.

So, we are extremely focused on driving that long-term efficiency program, which is an important component of the PPNR guidance. And I do expect we'll achieve the financial medium-term targets this year. That's what's baked into an implied by our overall guidance..

I think Erika, Steve, if I could add on just a bit and as you'll remember from the Investor Day deck, shared a number of economic scenarios. And we were asked a question and commented that we would take action that the scenarios that the economy worsened and the more challenging scenario emerged.

We've already closed 32 branches this month we are taking action consistent with our prior statement and the commitment around driving towards these medium-term financial goals. We're looking ahead as well to ‘24 with how we're positioning the reinvestment off of the expense actions. So, team is doing a great job.

It's a quick pivot, if you will, from a record year and a record quarter. But it's with a very clear set of actions and plan and we're executing..

Thank you..

Thanks for your questions, Erika..

The next question is from the line of Jon Arfstrom with RBC Capital Markets. Please proceed with your questions..

Hey, thanks. Good morning, everyone..

Good morning, Jon..

Just to follow-up on Erika's first question. You guys talked about your buyback being on pause because you're watching the path of the economy. In the first half, you talked a little bit about the economic outlook since the Investor Day was slightly worse, yet Rich, you sound pretty confident.

It feels like you feel good about your credit outlook just help us square that a little bit more. Are you actually seeing erosion maybe outside of your portfolios? Or help us understand your overall thinking because it seems like it's pretty positive from my view..

Well, I would say it's positive right now, and we're certainly cautious as we enter a downturn, but everything that I'm looking at right now, Jon, is holding water exactly where we thought it would be our delinquencies, both in commercial and consumer are right where we would expect them to be.

We had a very sharp drop in our commercial delinquencies and our commercial real estate delinquencies are essentially nothing. The [indiscernible] momentum and NPA momentum that we've got both down 20% year-over-year, puts us in really good stead as we enter a downturn. So, we're looking at everything.

Every portfolio we're going deep into to make sure that we're proactive in identifying potential issues and trying to get ahead of them in terms of working with customers as there's potential problems. But certainly, the headwinds are there in the economy, but we feel good about where the portfolio is positioned.

Like I said, we're not going to bat 1,000. We do have higher losses forecasted in ‘23 than we had in ‘22. So, we understand that it's going to be a more challenging environment, but we feel good where we're sitting..

Okay. And then can you guys’ touch on the one fee line that stood out was Capital Markets. Can you touch on what you're seeing there? You talked about Capstone and then some of your other businesses. Are these referrals coming to Capstone internally.

Is it business generated on their own? And what do you think there in terms of the longer-term runway?.

In terms of -- so this Zach. I'll take that one. Capital markets is a real bright spot for us. the core underlying capital markets, excluding Capstone, grew 26% revenue year-over-year in 2022, and we expect another run rate of double-digit teams are above revenue growth as we go into '23.

So, we're seeing just really sustained traction in the underlying strategy there is to deepen relationships with additional clients continue to penetrate that set of services and products into our core customer base and reap the benefits of it.

It's been an area as you know that we've been investing in considerably over time, and we're seeing that play through into incremental revenue growth. And then Capstone to your point, is a nice addition to that. And I would tell you that Capstone is doing really, really well. They beat the plan for Q3.

Overall, more than the $100 million run rate, if you look at the back half of revenues. I look at the back half of '22, and we expect that to continue and sustain and continue to grow as we go into '23.

It's early days, I would say, in getting client referrals from the Huntington base, but at the beginning, we are seeing, particularly as late to the pipeline and in the future, a lot of positive engagement of core Huntington clients with the Capstone team and with the service set there.

And so, it's going to be an area that there's continues to bear fruit and we're quite bullish about the opportunity to grow capstones what was previously $100 million revenue run rate up into something that continues to perform well and above that as we go forward over time. So, it's definitely a strong point at this point..

I'll add to that a little bit, Jon, if I can. So, Capstone's had a good performance thus far. They had a very strong pipeline coming into the year. Obviously, multiples of change valuation is impacted by that. Timing becomes a little more uncertain. But we're really pleased with that. The integration into the bank channels is going very, very well.

The core businesses, foreign exchange, a record year, Institutional Sales & Trading. Commodities has had a very good performance.

So, a number of the businesses are doing very, very well at the core and expect that they'll continue to so that the laggard is, as you would expect, the rates businesses given the inverted curve and but this is a very strategic growth for us.

We're continuing to invest in it and the integration of both Capstone and the combined efforts of our core teams and what you earn district at the Investor Day make us very bullish about '23 and beyond..

Okay. Thank you..

Thank you, Jon..

The next question is from the line of Scott Siefers with Piper Sandler. Please proceed with your question..

Good morning, guys. Hey, I just wanted I just wanted to ask one back on credit. Just sort of in light of your updated economic assumptions, what sort of additional reserving needs do you think Huntington might have? I mean you're already starting with 190 plus reserve here.

So, I mean does that seem sufficient in light of what you're thinking? Or would it continue to drift upward a bit?.

Scott, it's Rich. I'll take that. So, as you saw, we held our coverage levels flat in the second quarter then we had two incremental builds in Q3 and Q4. So, the 190 coverage that we're sitting with today, we think is fully reflective of the current economic scenario.

Now where the reserve goes from there is really going to be a function in the short-term where the economy is having, we see significant degradation to react to that or that isn't as bad will react there. So, it's hard to answer it.

We go through that process every quarter in terms of looking at the economic scenario that's in front of us and what the potential for improvement or degradation is, and we make the call at the end of the quarter based on all that. So, the near term is really going to depend on where the economy shapes up.

I would say that longer term, as we've been past the downturn, however long it might be, we do think that we will bring the reserve coverage down over time. It's just a question of the timing around that. And then year-end reserves that reflects this adjusted thinking in terms of the baseline economic scenario goes off in the comment and a problem..

Thank you and then it’s just actually a piggyback question. Just the expense guidance for the full-year. I'm presuming that includes the restructuring charges to which you alluded earlier.

I know you said you're talking in more detail about those later, but do you have maybe an approximate level of what we might expect just to get a sense for what the sort of underlying expense growth might look like from here on out?.

Yes. Thanks, Scott, for asking the question. I want to take the opportunity to clarify. The guidance we've given is 2% to 4% growth in underlying core. And then on top of that, the run rate for Capstone, which is around $60 million plus the FDIC surcharge we estimate to be $33 million to be relatively precise about that.

We have not yet fully sized the potential restructuring costs from the organizational alignment actions that Steve mentioned. So that is yet to be included in that guidance, just to put a very specific point on that.

And there I don't expect it to be overly large, but we'll have to see, ultimately, it will be a function of a number of factors, including the final nature of the changes and importantly, as Steve noted, we're instituting a voluntary retirement program, which by a certain name has a function of employee selection and take up on their own and so they'll be some degree of variability until we have a sense of where that program lay in.

So that -- more to come on that. There's a few opportunities during the first quarter for us to provide additional updates around the nature of the program and the size of our on and we intend to do that as we to get further out in the Q1..

Perfect..

There's some pickup on that expense, that one-time expense that we would expect to see just in the run rate in ‘23, and there may be other things we can do to absorb that also not the forecast..

Okay. Perfect. Thank you all very much..

The next question comes from the line of Matt O'Connor with Deutsche Bank. Please proceed with your question..

Good morning. I just want to push on the buybacks. You've got almost 9.5% CET1 capital. You've got very strong reserves. You got a very strong capital generation, solid loan growth, but not good at consumer a ton of capital, seem pretty confident on credit.

So, I guess I'm just trying to better understand why you wouldn't buy back stock in the first half and then just to kind of throw it out there, it feels like the uncertainty might increase as we look to the back half.

So, what would make you kind of more confident to buy back in the second half heading into maybe more macro uncertainty?.

Yes, Matt, it's a good question. I think just take a step back to probably to frame it. the expectation now as we get out over the course of the totality of '23 and certainly as we think about '24 and beyond to get back to a more normal mix overall payout ratios between dividends and share purchases and retaining capital to grow.

And so, I think you could see this buyback is really just the program with the repurchase program as being indicative of that part of that, and I think a really healthy sign.

And when we thought a little more tactically zooming in into the near term, I just really want to see the depth of the economic environment during the course of '23 before you make any substantive or significant commitments. And hopefully, the launch of that is understood.

How long exactly does it take to get clarity to your point, is somewhat uncertain. I suspect we'll know a bit more over the course of Q1 and as we get into Q2. It's more resolved at that point than I think we'd be more active but still highly uncertain we'll have to see and be dynamic.

But generally speaking, the size of the program was designed to keep us in the middle of our CET1 operating range over the course of the proceeding periods. And so that will be our plan to generally manage in that way. More clarity in the near term..

Okay.

And then as we think about potential uses of the capital besides buyback, just remind us your appetite for bolt-on deals and I guess, specifically within fees, right? Because we kind of step back right now in net interest income, maybe it’s not peaking, but it’s probably not going to be a key driver of growth as we get through this year and beyond? And I know you guys have been talking about kind of better balancing some of that fee mix over time.

So, what’s the appetite to do something, whether it’s small or maybe bigger than you find in the past?.

Matt, it’s Steve. We are interested in building our fee income opportunities and net revenue stream. And so, if we can find things that we think make sense, that would enhance our current business lines and/or what we can offer to our customers, we would be interested.

Just as last year, we were fortunate to get cash on the board and a fintech opinions [indiscernible] So we’ll be looking at the as the year progresses, whether it makes sense to bolster the acquisition on the fee side of our businesses. But that’s not sort of an intended set aside on that buyback conclusions that just related.

Our capital priorities haven’t changed..

Okay. Thank you very much..

Thank you. At this time, we've reached the end of the question-and-answer session. And I will now turn the floor back to Mr. Steinour for closing remarks..

So, thank you very much for joining us today. As you know, we're very pleased with the record year for Huntington and a third straight quarter of record net income, fourth straight quarter of PPNR growth. We come into this year with a lot of momentum.

We think we're well positioned to manage through a model recession, and we remain committed to and confident of our ability to continue creating value for our shareholders. And as a reminder, the Board executives, our colleagues are a top 10 shareholder collectively, reflecting our strong alignment, strong alignment with our shareholders.

So, thank you for your support and interest in Huntington. Have a great day..

This concludes today's conference. You may disconnect at this time, and thank you for your participation..