As everyone takes their seats, we could put up the first ARS question, like we've been doing for everyone else. Next up with us, very pleased to have Huntington Bancshares. From the company, we have Zach Wasserman, Chief Financial Officer. And when we talk to Zach, he's going to kick it off with some introductory remarks, and then we're going to dive into Q&A.
Thanks, Jason. Good morning, or I should say now we have good afternoon officially, and thanks, Jason, and thanks to Barclays for hosting us today. On this anniversary of September 11th, I'd also like to say our thoughts and prayers go out to the families and their victims. I'd like to start my prepared remarks today by welcoming everyone who's listening and also everyone here in the room. Really appreciate your interest in Huntington. This morning, I'll start by sharing a few insights of what we're seeing so far this quarter, and also provide some updates to our 2023 financial guidance points. We'll then turn back over to Jason for Q&A. Before I start, I will remind you that my remarks, including the Q&A period, will contain forward-looking statements.
Such statements are based on information and assumptions available at this time and are subject to changes, risks, and uncertainties, which may cause actual results to differ materially. We assume no obligation to update such statements. For a complete discussion of risks and uncertainties, please refer to material filed with the SEC, including our most recent Forms 10-K, 10-Q, and 8-K filings. To begin, there are five key messages I would like to share with you today. First, Huntington has a distinguished deposit franchise, and we have delivered sustained core deposit growth over the course of the last year. Our strategies to acquire and deepen primary bank customer relationships are yielding results. We have delivered continued deposit growth while remaining disciplined on pricing and managing overall deposit beta.
Secondly, we have, and we will continue to drive capital ratios higher, supported by robust earnings generation and capital optimization initiatives. Third, credit quality continues to perform very well, with disciplined credit and risk management being a hallmark of Huntington. Fourth, we're remaining dynamic as we manage through the current interest rate environment, positioning the company to benefit from a higher for longer rate scenario while remaining poised to protect revenues in potential down rate scenarios. Finally, given the strong foundation we have in place, with growing deposits and liquidity, expanding capital and strong credit, we're positioned to remain on our front foot. We're focused on executing our strategy, including self-funding, revenue-producing initiatives, and proactively managing expenses. Let me spend a moment expanding.
Related to deposits, we are seeing consistent average deposit growth through July and August, and our full-year deposit growth outlook remains unchanged at positive 1%-3% for the full year. While there's a sustained level of competition for core deposits, the breadth of our business, including commercial, business banking, and consumer customers, supports our optimized approach to deposit gathering. In consumer, deposits have increased for nine months in a row through August. Within commercial, we have seen deposit balances modestly grow quarter to date. Overall deposit betas are tracking to our expectations, and we continue to forecast total deposit beta to be approximately 40% through the cycle. We also are preparing for potential down beta moves later in 2024 to ensure we are well-positioned to bring down deposit rates should we see a beginning of rate reductions next year.
On the capital front, we are executing on our plan to drive capital higher and prepare for new requirements. Our Common Equity Tier 1, adjusted to include AOCI, net of cash flow hedges on loans, was 8.12% at the quarter end. This benefits from the significant hedging program we had put in place earlier cycle to protect capital and AOCI uprate moves. Compared to our peer set, our adjusted CET1 is top quartile. We shared at earnings our plan to drive adjusted CET1 to be at or above 9% by the end of 2024. We are still assessing the potential impacts of Basel III and other new regulatory impacts to capital. However, our forecast for 9%+ level for CET1, inclusive of AOCI by the end of 2024, puts us in a strong relative position.
Related to credit metrics, we delivered exceptional results in the first half of 2023, with net charge-offs year-to-date of 17 basis points. Our full-year outlook continues to project net charge-offs between 20 basis points and 30 basis points and reflects ongoing normalization in the back half of the year, albeit remaining at the low end of our through the cycle expected range of 25 basis points-45 basis points. Our ACL reserve coverage at 1.93% is top quartile compared to peers, and 40 basis points higher than the peer median. In regards to our interest rate positioning, we are seeing the higher for longer rate environment play out consistent with our expectations. We continue to project net interest income dollars stabilizing around year-end and then expanding over the course of 2024, given a modestly rising net interest margin.
We have also remained dynamic in our hedging program during the quarter. On the capital protection front, we continue to optimize our hedges, extending duration of protection, and added approximately $6 billion notional of pay-fixed swaps during the quarter to take us to around $15.5 billion, which would protect approximately 35%-45% of securities value at risk in up 200 basis points or 300 basis points scenarios. On the NIM protection side, while the inverted curve has made it more challenging to efficiently add downside protection hedges during much of this year, we may be nearing the point where those strategies can be extended. During the quarter, we added $2 billion notional to our forward starting receive fixed collar strategy. We continue to evaluate other strategies in this area. We remain very disciplined on expense management.
As discussed, we entered 2023 expecting a challenging revenue environment and therefore set up a series of proactive actions on top of our ongoing efficiency program to keep expense growth to a very low level. We increased the size of our ongoing branch optimization program, streamlined operations within our segments to realign them, and executed a voluntary retirement program. The result of these actions has been a low level of underlying expense growth of approximately 4% year-over-year, excluding Capstone and Torana, one of the lowest growth rates in the peer group. As we prepare for 2024, we remain focused on continuing this rigorous proactive expense management approach. We are driving the next leg of operational efficiencies, leveraging business process offshoring. We continue to execute on our Operation Accelerate program and scrutinize every area of our business to drive efficiency.
We execute on these programs even as we continue to self-fund investments in key revenue-producing initiatives. We will also support and enhance our capabilities to operate the business within our aggregate moderate to low risk appetite in a changing environment. The net of this proactive management of baseline costs while ensuring critical investments are made, is the right balance as we position it to manage through and, and drive, to powerful growth into 2025 and 2026. Before I turn it over to Jason for Q&A, let me share a few updates related to our full year guidance. For loan growth, we still forecast 5%-6% growth for the full year, unchanged from prior outlook. We are purposely optimizing loan production for returns and capital accretion, with loan growth decelerating throughout the course of this year.
Net interest income, benefiting from loan growth and the higher rate environment, is expected to grow between 3% and 5%, again, unchanged from our prior guidance. Fee revenues, despite a continued challenging capital markets environment, are projected to grow within the prior range of guidance we shared at earnings. Expenses we now see coming in at around 2% core underlying level, plus the $50 million from Capstone and Torana, and the $30 million from the 2 basis points higher 2023 FDIC run rate assessment costs. For the third quarter, we see total expenses between $1.075 billion and $1.085 billion. Net charge-offs for the full year, we continue to expect between 20 basis points and 30 basis points as credit continues to normalize.
On capital, we continue to drive CET1 reported at to the level of 10% by the end of this year at the top of our target operating range. In closing, we continue to closely monitor the macro environment to ensure Huntington remains well positioned to outperform. We're balancing the growth of the business, which will support revenues, with the higher capital trajectory we discussed, and remain dynamic in managing the impacts on the environment. With those opening remarks, let me turn it over to Jason for the opening queue.
Thanks, Zach. Appreciate that. And before I delve into some questions here, I just want to clarify one thing. You kind of went through the updated guidance for full year 2023, and it looked like everything exactly matched kind of what you said in July, although on expenses, you said up 2% versus kind of maybe up 1%-2% previously. Let me just talk to what kind of... I know it's not a big number, but maybe just talk to kind of what the specific driver is there.
On expenses?
Yeah.
Yeah. Appreciate the question, and again, it's great to be with you all. You know, on expenses, just to take a step back and frame that, as I noted, as we came into 2023, we knew that this year would be exceptionally difficult, and so we set up a series of proactive actions, and I think that's what's allowing us to keep the growth at that, you know, low level of 2%.
I think, you know, at the margin, what we want to do, and this is the balance that we need to strike, is to drive significant efficiencies in the underlying run rate cost in the baseline, while continuing to support self-funding, albeit, but continuing to support, you know, a run rate level of investment in our key strategic growth areas that will really continue to support the competitive strength and growth opportunities for the company over the medium term. While also putting in the necessary costs to develop operational capabilities to allow us to meet, you know, new regulatory standards and requirements that are coming through. So that's really the puts and the takes that are taking us to that 2% level for this year.
Okay, thanks for that. Maybe we just kind of delve into, you know, some of the things you're seeing in this footprint. You know, you talked about, you know, sticking with 5%-6%, you know, loan growth, including that there's some optimization you're doing. Maybe just talk to, first off, kind of just what you're hearing from customers, both consumer and corporate, in terms of kind of loan demand, and kind of how you're thinking about the outlook there, and then maybe just talk to, you know, what optimization opportunities you're looking at going forward.
Sure. In terms of what we're seeing from clients and sort of a bellwether indicator on the economy, you know, broadly speaking, what we continue to see is pretty encouraging and I think corroborated to an overall macroeconomic metrics, which continue to indicate and positive economic trajectory here. On the commercial side, I think, you know, generally speaking, we're seeing our clients still have the opportunity to grow their own revenues, that they've managed through the inflationary environment in a way that's allowed them to protect their profits, broadly. And are, you know, are dealing with the impacts of the higher interest rate environment. Clearly, the longer the higher interest rate environment and this high inflation environment persists, there are more and more one-off or idiosyncratic situations that are causing pressure.
And so to some degree, that's part of the driver of why we think credit will normalize modestly, albeit still at a very low level, from here. But, you know, from our perspective, we're continuing to see opportunities to drive growth in loans, areas like our corporate specialty business and distribution finance and equipment finance, to name a couple. On the consumer side, likewise, continue to see fairly solid trends within the consumer business. Debit card spending is very consistent in its level of growth that we've seen for a while, which I think indicates health and ongoing customer resiliency. Clearly, in some pockets, like for example, in mortgage, the higher interest rate environment is obviously causing challenges to incremental growth there.
But we continue to see opportunities to drive loan growth in the consumer. Lower and shorter-graded mortgage products in our auto and RV marine business continuing, you know, fairly well on track. No significant move in terms of production levels, but continuing to drive production there. You know, I think in terms of optimization, you know, for us, the most important thing we've been orienting the balance sheet strategy to do is to drive capital higher in the near term. And we've been purposely decelerating loan growth. It was 10% at the end of 2024, 5% by Q1, 3% year-over-year by Q2. I think much of the growth we'll see at this point for this year has come in already.
In the next couple of quarters will be fairly neutral in terms of growth, but that really will allow us to continue to drive capital higher, as we've discussed. I think it's a good posture. The other thing that bringing the loan growth down has enabled us to do is to at the margin alleviate some of the pressure on funding. And I think that's what is enabling us, while we're continuing to grow deposits and feel good about where that trajectory is going, to manage the overall deposit cost beta consistent with our prior expectations. You know, what's critical in our view is that we calibrate the level of loan growth to support that growing capital, and to ensure that the marginal returns on assets that are being funded continue to be really accretive and positive.
I think in the level that we've got them now, we're really achieving that balance well.
So you touched on deposits. You know, you guys have been able to outpace peers in terms of kind of core deposit growth. Let me just talk to kind of how you're able to do that?
Yeah. You know, the power of the deposit franchise to us is the foundation of value of the company. And so it's been an area that has gotten tremendous attention, you know, over many years, to drive the kind of deposit gathering capabilities you're now seeing in place now. You know, fundamentally, it's driven by our strategy of acquiring and deepening primary bank relationships. As we came into this year, we had been on a significant growth trajectory in our commercial business. And my expectation in 2023, early this year, was to see much of the deposit growth throughout the course of this year to be commercial-led.
What has actually played out has been more consumer-led, and we've been really leaning into consumer, particularly after the market events of March, to really continue to sustain and drive growth from here. And so feeling really good about the balance of where deposits are coming between consumer and commercial. Of course, much of the growth is coming in the categories you'd expect of time deposits and money market, but I will tell you, the lion's share of it comes from our existing customers. So it really is a deepening of customer relationships. As we, you know, mentioned the current mark, still see growth this quarter, continue to see growth throughout the rest of this year as well, within that targeted range.
I would say, just maybe in the last comment, that we're beginning to see a nice balance as we go forward here, of both commercial and consumer growing at relatively similar rates. And so I think, finding opportunities to grow efficiently in both those categories as well.
Then you've been, like, fairly active in terms of managing the balance sheet to protect both NIM and capital. You know, there's a cost to doing so, but I guess you kind of talked about protecting or being kind of well-positioned for the current rate backdrop for higher or longer, as well as ways to capitalize if they do raise. How do you go about that? How do you manage it? Kind of what gives you confidence that you can actually grow management's income next year? I think one of the few banks to kind of publicly, you know, say that's going to be your plan.
You know, I think the balance sheet strategy is, you know, designed to support the strategic objectives that I mentioned earlier, grow capital, but also to grow and really harvest the yield opportunities that are here in this higher for longer rate environment. We continue to be asset sensitive, and so as we've seen the interest rate environment and forward outlook tick up, so has our own internal outlook for revenue optimization and NIM support. You know, we're seeing fixed asset repricing come through very nicely. And so I think the opportunity to continue that in the RV marine portion of our asset base. In our mortgage book, we're seeing that fixed asset repricing come through.
And also consistently looking at opportunities to continue to collar the NIM as we go out further, leveraging the hedging portfolio. I would say that at this moment in time, it's difficult to add substantively to downrate NIM protection strategies, given the inverted yield curve and given already a forecast in expectation of the yield curve of declining rates. With that being said, as I mentioned in the prepared remarks, we're probably getting closer to that opportunity. And so those are things that underlie the outlook we've got.
Maybe just dive more into, you know, the fee income side. You guys have done a good job in terms of building out payments, wealth management, investment banking. You know, it feels like those areas are actually doing maybe a bit better, more recently, more color in terms of revenues there.
Yeah. In for the full year outlook, our fee projection continues to be within the range that we gave before, which was down 2%-4% annualized, excluding the impact of our mark-to-market, potentially impact option, capital hedging protection portfolio. And kind of within that, you know, the three major strategic drivers for our fee business, capital markets, payments, and wealth management, all performing as in line with our expectations. You know, really challenging one this year has been capital markets. That is both in the advisory side of capital markets that comes with the business we acquired last year, Capstone, which in and of itself is doing really well, beating our own business case, but is down from the trend rates it was achieving earlier this year, just given the market environment.
I do think we're incrementally getting better as we go throughout time here. Q2 will probably see the retrospect was the most challenging quarter there. The other element of our capital markets business that is having some bit of new pressure is the element of it that comes from... It's related to loan production on the commercial side. As we bring down commercial loan production, there are less opportunities for debt syndication, fee revenues, or interest rate swap protection programs provide to our clients. With that being said, we're now seeing the expected sequential growth of capital markets into the third quarter, and I would expect that to continue as we go on from here. So, still challenging operating environment. We are seeing, however, improved overall sequential growth aligned to our expectations. On the payment side, a lot of really robust growth.
Our card business continues to chug along very well. I think I mentioned the debit card trajectory looks good. Credit card, likewise, is growing nicely off of last year's new product launch. And on the commercial side, treasury management continues to perform exceptionally well. The growth in our treasury management business really fundamentally driven by penetrating those services deeper within the customer base. And then lastly, on wealth management, you know, key area of focus for us that we detailed extensively in last year's Investor Day, really encouraging what we're seeing there. Continue to set new internal records around asset gathering, managed asset portfolios, and, you know, benefiting from significant penetration into the client base. And so all three of those are performing really well.
I think, longer term, those key businesses will really be critical and we're, you know, if anything, just leaning in more, to drive them.
And then, you know, we're kind of entering the 2024 budget season. You know, you talked about 2% underlying expense growth for 2023, aided by a lot of initiatives that you guys have, that you guys have talked a lot about. Just how do you kind of think about the expense environment, for next year in light of, you know, economic backdrop?
Yeah. Yeah, I think, I mean, the thought process and positioning for 2024 is virtually identical to how we had thought about 2023 at this time last year. i.e., it's going to be a somewhat more challenging year. We're going to see revenue growth with challenges, undoubtedly, particularly in the first half of 2024. And as we want to set up the expense base to be growing as low as possible while also striking a balance. We want to make sure that our core strategic initiatives continue to be self-funded, and we set ourselves up competitive with competitive strength to really capture the kind of growth opportunities that look to be available as we exit 2024 and go out into 2025.
And so you know, we're beginning now to set up to both lean into the ongoing efficiency programs that we have. We have a program called Operation Accelerate, which is about reengineering customer-facing processes. We've got our ongoing physical branch rationalization program, but we're also now adding to that. And the next leg of growth really is around business process offshoring, where there's, I think, good opportunity for us to find efficiencies, as well as looking at efficiency opportunities throughout the breadth of the business, particularly in areas that wouldn't be likely to grow as fast in the near term as others.
And so there'll be, you know, just as much, if not more, focus on restructuring the baseline costs as we go into 2024, as we've had this year, a significant amount of focus, while also, as I mentioned, continuing to fund the key growth initiatives we've got in a number of our key strategies. And also dealing with, you know, at the margin, the kind of costs that are required to support new regulations that are coming down the pike, and so addressing those as well.
Got it. I guess maybe credit quality. You know, you talked to, you know, net charge of 20 basis points-30 basis points this year, so I guess some normalization in the back half of the year.
Yes.
Albeit, that's still below the 25-45 number you guys talk about on a normalized basis. Can you talk about, you know, trends you're seeing, you know, with respect to delinquencies, non-performers, charge-offs, any particular areas of the portfolio you're particularly focused on?
Yep. So overall, our credit performance continues to be exceptionally good. 17 basis points of charge-offs through the first half of the year. Projection for the full year between 2020 and 2030. So to your point, it does imply some higher charge-offs in the back half of the year, but continuing to be at a level which is well below kind of the level we expect to see through the cycle. So a very strongly performing amount. You know, through Q2, we had seen non-performing assets tick lower for eight quarters in a row. My expectation is we'll see that modestly tick up into the third quarter. I think, when we look across our portfolio, there really are no significant pockets of any concern. We're watching the entirety of the portfolio exceptionally closely and rigorously.
At this point, for the most part, what we're seeing is what you'd expect to see in a well-underwritten portfolio. Little idiosyncratic one-offs that are a function of the kind of cumulative nature of the interest rate environment and the inflationary environment for so long. Certainly, we're looking and monitoring very carefully the Commercial Real Estate exposures of the company. At 11% of assets, it's a lower amount of exposure than most of our peer group, and we have a 3% credit reserve against it, so we feel good about where that is. But I do think CRE will be a good environment and a cycle that still plays out over quite a long period of time, and so we're watching and managing that carefully. No fundamental concerns at this point.
Other areas are largely, as I said, idiosyncratic. In the consumer book, likewise, no material change in delinquency trends of that business. One place we're watching more as a bellwether that is truly substantive for our own economics is in our TLAC portfolio. That's clearly variably priced, and if anywhere it's going to feel pressure initially, it's probably there. And so we're seeing a modest tick-up in delinquencies there. But again, nothing that's particularly substantive or would move the needle for Huntington as an overall enterprise.
I know you mentioned the 1.93 ACL ratio, which is much, but well above peers. I guess maybe just talk through kind of what drives that, and, like, does that mean we really shouldn't see a big increase going forward, given you have a, you know, 17 basis points of charge-offs on a 1.93 reserve is-
Yep.
A nice-
Yeah, we feel, you know, really good about the one point nine three percent ACL coverage. And I think not only in covering potential risk in the portfolio, but certainly also when you couple that with our level of capital, inclusive of AOCI, would put us at the one of the highest loss-absorbing capacities in the period. You know, I think from here, I'm not expecting to see very substantive changes in that for the foreseeable future. It's clearly a function of the economic forecast, and so, you know, we saw a few basis points higher ACL coverage in the second quarter, which was largely a function of just changes in the macroeconomic forecast that were coming through.
So to the extent that those macroeconomic forecasts are largely stable, I would expect to see, you know, only within the middle range, plus or minus a few basis points potentially. You know, over the longer term, I would expect to see that ratio come down. To give you a sense, CECL day one for Huntington were around 170, and we've actually probably shifted more toward a lower risk category since that time, over the last three years. But for the foreseeable future, until we have more clarity around where the cycle is going to go, I wouldn't expect substantive moves in that ratio from this point.
Got it. We could maybe put up the next ARS question, which asks about impact on RWAs from Basel III Endgame. And I guess, Zach, since we last spoke in July, we had, you know, the Basel III Endgame proposal, we had the long-term debt requirement NPR. There's been talks of liquidity changes for coming, particularly for regionals. Can you help to size it, dimensionalize those things, and just, you know, how does that impact Huntington's operations going forward?
Well, certainly the Basel III proposal has more regulatory dissent than has been the case for other recent proposals. So there's a certain probability that the final rules could be different than what's there now. And you know, what we saw come through in the NPR certainly included a fair amount of significantly higher RWAs than, for example, the European and global standards. Not to mention, you know, a number of double counts and other elements that are being advocated around now. With that being said, if you analyze what's in there, I think, for the industry, what we've seen is expectations of anywhere between 5% and 15% higher RWAs across the industry. I would expect Huntington to be at the lower end of that spectrum and the kind of mid-single-digit increase in RWAs.
Almost no impact from the fundamental review of the trading book and the kind of market impact, relatively small exposure there, fairly de minimis for us on RWA impact. Operational risk, that's where the most substantive increase will be. On the credit risk side, probably likely to be neutral to maybe slightly higher or potentially slightly lower. But net-net, I think, you know, sort of mid-single digits is what we're expecting. If I take a step back, you know, our approach here has been to drive capital, inclusive of AOCI, up to that 9% level by the end of 2024. Which would put us, in our estimation, very well ahead and ready to deal with the RWA Basel III driven requirements that would presumably come after that, you know, without much difficulty. And so I think that's the plan we've got at this point.
Certainly, well, and we'll be able to deal with it as we go forward at that point. On TLAC. You know, we were pleased to see the proposed rule would grandfather in bank level issued unsecured debt for the initial period of implementation, which would reduce the overall new issuance, you know, load that the industry would have to make. For us, we've assumed our modeling would indicate a relatively small incremental holdco debt required, and really not a substantive economic impact relative to the next alternative funding.
When you talk about, so you know, 9% by the end of 2024, which I think is, it puts you in a good position. You know, when can you start thinking about share buybacks again?
You know, our plan at this point is, and we, of course, you know, discuss this with the board each quarter, and this could change, but our operating posture at this point is to have no share repurchases through the end of 2024. And that the path to drive capital higher is both organic capital generation and to some degree, at the margin balance sheet optimization. You know, if efficient opportunities can be developed there. And then as we get into 2025, you know, likely at that point, get back into a more normalized capital distribution model that could include share repurchases as well, depending on where the world is and where the, you know, the final adjudication of these new capital requirements might be at that point as well.
And then any thoughts about potential, LCR liquidity-type proposals?
You know, we'll, we'll see. I for Huntington, liquidity is exceptionally strong. We've talked about that over time. Our cash and available borrowing capacity of $90 billion is more than 200% of our deposit. That's almost double the next best peer. So... And we already meet a fully unmodified LCR coverage ratio, irrespective of any tailoring. And so I don't have any concerns that we would have to fundamentally change what we're doing or alter the business model with respect to liquidity. But certainly, there's a number of operational capabilities around liquidity management that are in focus, and that's, you know, part of the program.
Got it. And one of the things we talked about previously, TCF acquisition of revenue synergies. You guys laid out a $300 million plus type number. Just kind of where are you on that journey, and kind of what do you think you get there?
Yeah. You know, what we discussed at Investor Day was revenue growth opportunities coming from TCF of roughly $300 million in the roughly by 2025, which would represent us, you know, between the time of acquisition in 2025, about a 1% lift in the revenue character of the company. We continue to see the opportunity to generate that. It was about a third consumer. This was growing the Huntington consumer approach, the consumer product set, and the consumer productivity into the acquired TCF geographies, particularly Michigan, Chicago, Minnesota, Denver. That's all doing very well. We're seeing the kind of productivity uplifts within the branch and our digital acquisition channels that you would expect.
Interestingly, the kind of mix of where that revenue is coming is changing a little bit to be more weighted toward deposits, but again, generating, you know, really significant value and on track. Another third was roughly commercial. This was growing out our, particularly our middle market business into the TCF geographies, whereas TCF really did not have a substantive sized, you know, middle market or mid-corporate business. We've hired those teams. They are building pipelines and driving forward. Again, that kind of up fully toward deposits than we would originally, but I think on track with the overall revenue that we had set. And then the final third of that opportunity were three smaller ones: business banking, growing our SBA business into the TCF geographies, wealth management, and then the combined efficiency of the asset management business.
And likewise, those are all really doing well. To give you a sense from an SBA loan production, we talk a lot about how Huntington is the number one SBA loan producer in the country by units of loans produced. We're now number one in Colorado and number two in Minnesota, from zero activity prior to the TCF acquisition, just as an indication of the progress there. And the wealth management business is being built out in Minnesota, Chicago, Denver, are also performing very well.
So it begs the question, acquisition's gone very well. You know, I guess what are your thoughts on additional bank acquisitions? Is it possible in the current environment? You know, kind of what's your thought on that?
You know, we are focused on our organic growth program and see plenty of opportunities to grow organically without doing M&A. So that's our strategy at this point. We're certainly pleased with the performance of the acquisitions that we did last year in 2022. And so I do think that over time, you know, over the course of time, fee-based business acquisitions are certainly possible within our strategy. And you think of the kind of synergistic value creation that will come and has already come from Capstone and then our Torana, our B2C payments platform acquisition from last year. Those are really attractive over time.
But for the time being, I think, there's enough uncertainty in the economic industry environment, certainly the regulatory environment as well, that staying focused on where we've got the clear manifest opportunity on the organic side is our priority.
Any audience questions? I see one in the front here.
I mean, given your outperformance versus your sort of similarly sized peers and given the sort of both Basel III and the LTD proposals, any thoughts on, you know, as you grow, crossing over that from Category four to Category three, or is that just too far away to contemplate?
Yeah, it's a really good question. It is far out there in time for us, but I would tell you as well that the requirements for Category three, it's a pretty substantive step from Category four, and it's one of the things that requires some technological capabilities that take some lead time to build. And the other thing I would say is that the regulatory expectations and the whole tailoring concept is clearly in some discussion right now. And so I think that the kind of capabilities that would be indicated in Category three are becoming more and more expectations in Category four as well. So certainly that's we're on the long-term roadmap to build those kind of capabilities.
And I think, you know, when and if we would cross that threshold, we would be ready. Great question.
And then finally, you know, in November, you guys had your first investor day in 12 years, which is amazing how much has happened since then, that was unexpected. You know, there you talked about, you know, medium-term goals of a 6%-9% PPNR growth. I think a 20%+ ROTCE type target. When you think about today's environment, are those type of metrics still kind of doable over the medium term?
Yeah. So we thought long and hard about those metrics when we set them. Firstly, what they were: profit growth, positive operating leverage, return on capital. We really thought it was the tightest set and the most critically aligned to value creation set of metrics we could choose. We also thought about the level. These were intended to reflect a three to five year period, really kind of on average over that period. Between 6% and 9% profit growth, I continue to believe is a very solidly achievable level within the kind of opportunity set that we've got for ourselves. And, you know, that would be growing spread revenues, growing fee revenues even faster than loans, and driving ongoing efficiency of the business, and continues to be the playbook.
On operating leverage, likewise, you know, over the course of that time, we should see improvements in operating efficiency, and there's, you know, considerable work underway to drive that, and I have strong confidence we'll achieve that. ROE is clearly going to be the hardest one, if capital requirements are higher. You know, I think across the industry, you will see some impact of capital, of TLAC, of, you know, a more conservative security strategy, probably 100 basis points-300 basis points of ROE impact across the industry. Not giving guidance for Huntington at this point, but I think it will be within that range, and so that'll be the most challenging metric in the near term.
With that being said, over the long term, I'm personally pretty optimistic that we would be able to drive and find ways to continue to improve ROE over time. And I think it'll be growing the fee base even faster, driving even the next leg of operating efficiencies, and I don't think we've even seen or even having touched the implications of artificial intelligence in terms of the opportunity to drive operating improved efficiencies. And it'll be and very importantly, driving better balance sheet mix and, you know, just continuing to make the balance sheet work hard in terms of ROE. Certainly, that's been one of the key drivers to this year, and it gives us a lot of credit so we can continue to.
So, near term, some challenge, but over the long term, I think, you know, feel good about the ability to, to move that back over time.
With that, please join me in thanking Zach for his time today.