Yahoo Finance

Zachary Wasserman

Thanks, Steve, and good morning, everyone. Slide 7 provides highlights of our first-quarter results. We reported earnings per common share of $0.34. Return on tangible common equity, or ROTCE, came in at 16.7% for the quarter. As Steve noted, preprovision net revenue, PPNR, expanded by 24% year over year to $783 million.
Adjusted for notable items, PPNR rose 18% year over year. Average loan balances grew by $2.7 billion or 2.1% from the prior quarter. Average deposits increased by $2.2 billion or 1.4% versus prior quarter. Reported CET1 ended the quarter at 10.6%, increasing approximately 40 basis points from last year. Tangible book value per share has increased by over 13% year over year. We continue to demonstrate strong credit performance with net charge-offs of 26 basis points. Allowance for credit losses ended the quarter at 1.87%.
Turning to Slide 8. Consistent with our plan and prior guidance, loan balances grew for the sixth consecutive quarter driven by commercial loans which increased $2.2 billion or 3.1% from the prior quarter. Year over year, loans grew 7.3%, driven by continued production in the core business and contributions from the new initiatives. During the quarter, growth from new initiatives continued to accelerate from the prior quarter, and represented $1.3 billion or approximately half of the total growth. The primary drivers of new initiative loan growth in the quarter included financial institutions group, mortgage servicing, funds finance in North and South Carolina and Texas.
Of the remaining $1.4 billion of loan growth from existing businesses, we delivered $697 million from corporate and specialty banking, $439 million from regional banking, commercial and industrial, $209 million from seasonally higher balances within distribution finance, and $301 million from auto. Offsetting a portion of this growth was lower commercial real estate balances which declined by $261 million.
Turning to slide 9. Since the first quarter of 2023, we have consistently delivered deposit growth well above peer levels, and our positive momentum continued into the first quarter of 2025. Average balances increased by $2.2 billion or 1.4% driven by continued household growth. We lowered our overall cost of deposits in the quarter by 13 basis points to 2.03%. This outperformed the expectations we shared in January and reflects our disciplined deposit pricing.
On to Slide 10. During the quarter, we drove $31 million or 2.2% growth in net interest income. This reflects almost 11% growth year over year and the fourth consecutive quarter of net interest income dollar growth. Net interest margin was 3.1% for the first quarter, up 7 basis points from the prior quarter. The increase in interest margin from the prior quarter included 2 basis points higher spread net of free funds, a 1-basis-point reduction from higher cash balances, a 4-basis-point benefit from lower drag from the hedging program, and a 3-basis-point benefit from interest recoveries and other smaller items. We were very pleased with the performance of the underlying 307 basis points of NIM in the quarter, which beat our earlier expectations primarily as a result of strong performance in deposit beta.
Turning to slide 11. Our level of cash and securities at quarter end remained at 28% of total assets, consistent with the prior quarter, and we held modestly higher cash balances in the quarter. We have continued to reinvest cash flows into treasuries, which now represent 20% of our total securities portfolio, up 8% from a year ago. As I have previously stated, we expect to manage the duration of the portfolio at approximately the current range.
Turning to slide 12. We continue to manage our hedging program to both protect net interest margin from a lower rate environment as well as protect capital from potential higher rates. Over the last 12 months, we have reduced our asset sensitivity to a near-neutral level. During the first quarter, we added to our down rate risk hedges with approximately $4 billion in floor spreads. We continue to analyze multiple potential rate scenarios and will remain dynamic as we continue to calibrate to the most likely rate environment.
Moving to slide 13. On a GAAP basis, noninterest income increased by 6% or $27 million from the prior year. We continue to see solid growth, driven by payments, wealth management, and capital markets. As a reminder, the first quarter is generally a seasonal low for fee revenues, and we expect fee revenues to grow over the course of the year.
Moving to slide 14. Within Payments, we saw 6% group growth year over year in the first quarter driven by a 15% increase in commercial payment revenues. Treasury management fees grew 10% as we continue to penetrate and deepen within our customer base and benefited from an increasing contribution from our new merchant acquiring model.
Moving to wealth management on slide 15. Fees increased by 15% on a year-over-year basis. AUM continued to grow, increasing 6% from the prior year, with wealth advisory households up 11% year on year. We've gathered approximately $1.4 billion in net flows over the last year as we continue to execute our strategy to deepen our advisory penetration into our customer base.
Moving to slide 16. Capital markets grew 20% year over year supported by commercial loan production-related capital markets activity including notable strength in underwriting and syndications. Turning to Slide 17. GAAP noninterest expense decreased sequentially by $26 million, driven by lower personnel expenses primarily because of a seasonal reduction in incentives and revenue-driven compensation.
Slide 18 recaps our capital position. We continue to drive common equity Tier 1 higher, and our capital management strategy remains focused on our top priority to fund high-return loan growth while continuing to drive adjusted CET1 inclusive of AOCI into our operating range of 9% to 10% over time. As Steve stated in his remarks, the Board approved a $1 billion share repurchase program, which provides Huntington flexibility in our expected capital distribution plan over the next several years. The timing of repurchases will be discretionary and depend on a number of factors including the macroeconomic and interest rate environment as well as the pace of loan growth. We would expect any repurchases in 2025 to be modest.
Turning to slide 19. Credit quality continues to outperform. Net charge-offs decreased 4 basis points in the quarter. Allowance for credit losses was 1.87%, lower by 1 basis point from the prior quarter and up $32 million sequentially, reflecting strong loan portfolio growth and continued solid credit performance. Turning to slide 20. The criticized asset ratio increased to 3.98%. The nonperforming asset ratio ended the quarter 2 basis points lower at 61 basis points.
Let's turn to slide 21 for our outlook for 2025. Clearly, there is more uncertainty in the economic outlook for 2025 today than there was at the beginning of the year. As Steve noted earlier, we run the business with a highly dynamic approach where we continually analyze multiple potential economic scenarios and ensure that we have action plans ready not only to manage but to outperform in all of them. The business performed exceptionally well in Q1, and we have momentum going into Q2.
Based on our results thus far in 2025, our full-year guidance is the best estimate for how we will perform this year. On loans, we continue to expect growth within the prior range of 5% to 7%. Based on the robust performance in Q1 and the momentum that is carrying into Q2, we are well on track to achieve that objective, notwithstanding the less certain economic outlook. In a less volatile economic environment, we would likely have increased our guidance. On deposits, we expect to drive growth within the prior range of 3% to 5% as we focus on growing primary banking relationships and new households.
For net interest income, we're increasing our guidance on a dollar basis, to plus 5% to 7% based on our strong first-quarter performance and benefiting from a stronger NIM. As noted previously, this level would reflect record net interest income on a full-year basis. Fee revenues are tracking within the 4% to 6% prior range. Expense growth is also tracking to the prior range of 3.5% to 4.5%, driven by sustained investments in revenue-producing initiatives and overall growth in the business. On credit, we continue to expect net charge-offs for the year to be between 25 and 35 basis points.
I will also share some color on expectations for the second quarter. We expect sequential average loan growth between 1% and 2%. Deposits are expected to grow as well as we focus on self-funding our loan growth. We expect net interest income to grow modestly into the second quarter, driven by earning asset growth and a relatively stable run rate NIM. Fee revenues are expected to grow modestly from their seasonal Q1 low.
We expect expenses of approximately $1.170 billion with the sequential increase of approximately $20 million, driven approximately half from the full-quarter impact of annual merit and the remainder from higher expected revenue-driven compensation from growing fee revenues. Lastly, we expect Q2 net charge-offs within our full-year range.
Turning to slide 22. In closing, we remain focused on driving long-term shareholder value creation. Our performance is driven by our culture and our purpose. We operate a powerful franchise that is both scaled and diversified with multiple sustainable growth levers from a position of strength. Risk management is deeply embedded in our culture.
Throughout the years, we have consistently demonstrated top-tier performance in stressed environments as measured by DFAST and CCAR data. Our focus on adjusted CET1, inclusive of AOCI, demonstrates the rigor of our capital management approach. Our liquidity remains top tier in the industry. The organic growth we are driving continues to significantly outpace our peer group and support the attractive revenue and profit growth we are delivering.
With that, we will conclude our prepared remarks. And before we move to Q&A, let me take a moment and thank Tim Sedabres for his leadership of our Investor Relations program over the past four years. Many of you know him well, given the strong relationships, and his counsel has been of great value to us. Tim will be taking on a new role within our finance organization as part of his development plan, leading our corporate forecasting and profitability team.
We look forward to accepting our new Head of IR in the coming weeks. Tim, thank you, and over to you for questions and answers.

Tim Sedabres

Thank you, Zach. Operator, we will now take questions. (Operator Instructions) Thank you.

Question and Answer Session

Operator

(Operator Instructions) Erika Najarian, UBS.

Erika Najarian

My first question is for Zach. The net interest margin clearly came in higher than expectations. Sort of just wanted to unpack what you said. Should we think about flat net interest margin trends relative to the 3.10%, or should we take out the interest recoveries? And as we contemplate what you've said in the past and obviously the usual rate positioning that you showed us, should we then apply sort of that flat net interest margin thought process for the rest of the year?

Zachary Wasserman

Just let me unpack a bit of that. So for the first quarter, as I noted in the prepared remarks, really the big driver of the outperformance for us was deposit pricing. And frankly, the teams executed exceptionally well and beat our own internal plan. If you just think about that topic for a second, through the fourth quarter of last year, we achieved a cumulative deposit beta of down 24%. And our expectations as we went into this year was to see continued sort of gradual improvement on that down beta getting to the high 30s by the end of 2025, we achieved actually 37% just in the first quarter. So it was a significant acceleration of that performance and just really, really great results.
And that's really primarily what drove us above the -- what we expected to be flat to the 3.03% roughly level we were at in Q4. As I think about the kind of run rate from here to the second part of your question, we're looking at our current run rate is around 3.07%, Erika, to answer your question. And I see under most scenarios here and there is clearly a wider range of scenarios that one might think about at this point.
But there are most of those of either zero cuts or as many as 3 or 4 that are in the curve right now, pretty consistent within a few basis points outcome around that 3.07% for the remainder of this year. So pretty flat within the reasonable range of 3.07% for the next three quarters. I continue to model numerous scenarios, as you know, out over the longer term, and all of those really continue to indicate the opportunity for us to see rising NIMs at 2026, aligned to what we talked about at length at our Investor Day a couple of months ago. So pretty similar kind of shape of that curve just phase shifted up a little bit to 3.07% in the near term.

Erika Najarian

And my second question, if I may, is for Steve. I thought the $1 billion in buyback authorization is interesting. It's pretty clear from the performance in the quarter and your outlook that your business momentum continues to be best-in-class because, to your point, you were able to zig when everyone else was zagging given your superior capital and risk management in '23. So is that just really a message of if tariff uncertainty continues to hit the banking sector, you wanted flexibility to support your stock because you see inherent higher value?
I'm just trying to -- not to put words in your mouth, but in the over a decade that I've covered you, you've never been a huge fan of buybacks. So I just wanted to get your thought process on that.

Stephen Steinour

Thank you, Erika. Since you've covered us a bit before, we've had a consistent approach to capital allocation for us to grow. And we're getting really good growth now as you pointed out, best-in-class, second to the dividend and third to other uses including buybacks. We expect a buyback of it this year, and we've got a multi-year opportunity. And so depending on the economic situation, we're prepared now to do buybacks and expect that we will on some modest basis this year and then continuing as we go forward.

Operator

John Pancari, Evercore ISI.

John Pancari

On the deposit cost progress in the quarter, definitely better than expected. Can you maybe give us a little bit of color on what -- where you're seeing that success? Is it tied in to the new efforts on the certain product side? Or is it programs that you've been pushing through and across the pricing programs across the product. Just if you could help us kind of in a better picture around the success on that front versus the competitive backdrop?

Zachary Wasserman

Yeah. Good question, John. This is Zach. I'll take it.
In general, I would characterize the outcome that really is a function of the consistent plan we've had around down beta. So not really any sort of change in that strategy, just a great execution of it and outperformance of it. Just if I remind you to the five key levers that we had highlighted as integral to our down beta plan over the last several quarters, the first was decreasing the mix of CDs within the overall funding base and secondly, shortening their duration, thereby setting us up to be ready to see a higher beta on that product set over time. That continues to work very well.
I will note, by the way, in the CD area, we're seeing historical CDs expire, and we're retaining the large majority of those customers at significantly lower rates, something like approximately 100 basis points lower. And that's a meaningful piece of that overall deposit cost reduction. The third part of our down-rated plan was as we acquired in volume, acquiring that in money market as opposed to time deposit. And that really kind of a high beta product allows us to continue to manage through for potential future industry reductions.
Fourth, we reduced our go-to-market pricing. I think as we've talked about a number of times in the past, we are incredibly segmented in terms of how we think about deposit pricing in the consumer and business world very much on a regional basis in the commercial world, looking at industry segments and size bands. And we look almost every day, if not certainly every week at where is the competitive pricing. And we have purposely reduced our pricing within that overall sphere.
And then lastly, fifth, selectively reducing pricing on existing segments. And we had a lot of confidence as we came into the year that we would be able to execute our overall beta plan very, very well. And we challenged ourselves to some degree to go even harder than that. And to the team's credit, they really performed very, very well.
And the last thing I'll say is, to some degree, you may remember when we set Q1 guidance, we also expected deposits to be about flat actually quarter to quarter. And not only do we outperform on deposit costs, we actually outperformed on volume as well and grew that. I think it's just another testament to the deposit franchise is incredibly strong.

John Pancari

And then on loan growth, you indicated that the new initiatives generated about half of the loan growth in the quarter. And can you help us a little bit in terms of what new yields you're bringing the paper on? I mean, there's questions out there like you've got to win that share from someone. And therefore, is it pricing that's getting you there? Or is it just getting -- stepping up the focus in these areas where you haven't had before since there are new businesses?
And I know the margins have been competitive because of your funding dynamics. But how about the new loan yields? Is there any way to help us think about what yields these new papers coming on at.

Zachary Wasserman

Yeah. So it's a great question, John. And the short answer -- I will unpack it in more detail, but the short answer is the new yields are coming on pretty consistent with our overall production yields, not leveraging any kind of overly aggressive pricing to win there. We are seeing -- I think we've talked about this a lot. We have hired extraordinarily experienced bankers who have deep connectivity and relationships and the model we have to bring the expertise of a large bank down to a local level in the Carolinas and Texas, and then separately, the expertise, the deep, deep expertise of our industry vertical specialist banking leaders is really what's causing us to win here, not pricing.
And in fact, when I look at the return on capital of those deals through our capital approval committees, they look very attractive. Just as an indication, we talked about the fact that the Carolinas achieved profitability last year during the year is a great sense of how the pricing is going. So not leveraging overall pricing there and seeing a lot of good strength. And I think when we look at the outcome of NIM, that's a testament to that. We're not seeing any kind of degradation in our run rate now, even as we really accelerate loan growth throughout the last part of last year (inaudible) and the guidance would grow with that as well.

Operator

Ebrahim Poonawala, Bank of America.

Ebrahim Poonawala

Just maybe one question is, you had very, very strong first quarter, I think, head and shoulders above most of your peers. Just talk to us in terms of how things evolved during the quarter, Steve? Did things start off extremely strong, and then March and maybe in the last couple of weeks, have you seen that weakness that we all worry about in terms of the economy and clients being on the sidelines? Or just how would you describe how the quarter evolved.

Stephen Steinour

We actually announced it at year-end. We have a very strong pipeline coming into the first quarter. And we also had activity that didn't close in the fourth quarter that's billed into the first. So we had a good start.
January was a very good month, but we've had each of the months have been very good. There hasn't been a tail off per se, but some of the activity that we actually thought would fund in the first quarter had been deferred just a modest amount that, and it's largely equipment finance and tariff-related issues or concerns.
But as you know, at a really good first quarter, our pipeline going into the second quarter, again, with high probability close is almost the same level as it was in the first quarter. So our second quarter, unless something dramatically happens, should be reasonably strong as well. So we're not seeing a material drop off by any stretch and things that are being deferred have the potential to be stacked into the second half of this year, and we usually have a very strong fourth quarter.

Ebrahim Poonawala

That's helpful, Steve. And I guess the other component to growth is you picked up a lot of talent. I'm just wondering, is there an amount of growth that's coming from the bankers that you've hired, bringing on their books of business, which should happen no matter what is there a component of that, that we should keep in mind when we think about Huntington's loan or deposit growth?

Stephen Steinour

Absolutely. Our new colleagues -- remember there's roughly an average 20-year tenure on that, and they are outstanding. We just had our Board session in Charlotte to meet the entire teams and in the North and South Carolina obviously very enthused by our directors about what has been accomplished and encouragement to do more. So we -- they're an important part of the overall results, and we expect that they'll have runway now for years. But I would also suggest the core is performing very, very well.
And our colleagues in the more traditional business lines, if you will, just are doing a great job. Our commercial real estate, which has run off quite a bit in last year is stabilizing, and we expect to have a stable, if not modest growth in this year. So it's all coming together as planned. We shared these expectations at the Investor Day just roughly 60 days ago, and we're executing against it. And we're not changing our plan now.
We will enforce, and we're going to continue to execute.

Operator

Manan Gosalia, Morgan Stanley.

Manan Gosalia

Steve, can you expand on what you're hearing on the ground from clients since April 2? What is the sentiment? What are they telling you? And what actions are they taking in this environment?

Stephen Steinour

There's a wide range of issues, if you will, to talk about in this regard. I'll try to do it in a summary fashion. We have customers that are not reliant on imports or exports. If anything, they feel more bullish because there's less potential less competition, certainly, that's price competition as a result of the interim tariff activity. We've got a lot of trade that goes on between Canada and Mexico, that is exempt because of USMCA.
And so no effect if you'll recall the auto dealers did very, very well, some of their best years in a COVID environment where they had more margin on due and used as well. So there are pockets of real strength here. There are other areas, large distribution finance, for example, where there's some import restriction being developed through tariffs, and that utilization has dropped off a bit. I mentioned equipment finance, where some of what we finance gets imported and decisions to defer have been made. But again, a broad spectrum, there are winners not just losers.
I think the headlines suggest well everybody is impacted and in a negative way, that is not the case. There are a number of businesses that are going to do very well. And as you know, we have a very broadly diversified portfolio. So we'll have those that are going to be winners and some others that will be temporarily impacted.

Manan Gosalia

Very helpful. And then maybe as a follow-up, you saw a pretty strong loan growth this quarter. You noted that you would have increased the guide in normal circumstances. But then you also said you're not really expecting a drop-off in loan growth in the second quarter. So your guide would then imply a pretty meaningful slowdown in loan growth in the second half of the year relative to what you're seeing right now?
So are you just being more conservative here? And if not, what would cause you to pull back on loan growth in this environment?

Stephen Steinour

We have had an aggregate moderate to low risk appetite for decades. That hasn't changed, and that's not going to change. So we'll run the company with that in mind. It's our policies, our credit processes, et cetera. And we will be consistent in generating new business.
We're being a bit cautious with that second half guidance and hopefully, overly cautious because this could be an exceptional year. We've got a very strong start. We'll comp in the second quarter. If things come together with the individual tariff negotiations with a variety of countries, I think we'll have an opportunity to beat that guide.

Operator

John Arfstrom, RBC Capital Markets.

Jon Arfstrom

Echo that on Tim, nice job. Thanks for everything. Steve, where are you the most focused right now in terms of risk management? You have obviously a strong record historically in risk. But what are you telling your teams to kind of double and triple check at this point?

Stephen Steinour

Well, thanks for the question. My -- most of my career early on was in risk and credit risk specifically. So we are -- we've been very, very diligent on portfolio management now for a number of years, and we will continue to do that. But the things stale information things that might reflect some challenge with our customers, our view is we're here to support our customers. And so if there's bad news, we want to hear it, and we want to be in a position to help them get through it.
And so it's a very constructive view and that's both consumers and business. And so there's an active outreach effort, if you will, that with an extra alert around the environment that we're emphasizing. There's no one particular portfolio of unique focus. I would say the portfolio management efforts are and have been broad-based and will continue. And as we get more capabilities in terms of data and use of data.
Think of what's coming with Generative AI. We'll do more and more inquiry and review.

Jon Arfstrom

Okay. Good. That's good. And then, Zach, for you, just on the noninterest income guide for modest growth sequentially. It looks like in your materials, you're pointing to the year-over-year growth rates.
And I'm just curious how you want us to think about that modest growth. And I guess I'm particularly interested in capital markets and what kind of a bounce back you expect there?

Zachary Wasserman

Yeah. Great question, John. Just in the area of fees, I will note that we feel really, really good about the strategy and where this is going over the moderate term, 11% year-over-year growth in those key fee areas of focus, payments, wealth management, capital markets is in line with what we discussed at Investor Day and just the underlying trends there look exceptionally good. As you go into Q2, we are expecting to be higher quarter to quarter, as I noted. The amount of that will be a function of kind of where we land in the equity market levels to some degree, that affects our wealth management income and cap markets.
What's interesting in the cap market space, I think we've discussed this in before, about 2/3 of that business is commercial loan production related. And we are expecting to have a solid quarter of growth in commercial loan production, and that should flow through the market activities. We noted in the presentation that the strength in risk management activities, for example, and loan syndication. So that should continue -- we should see that continue to track higher. Obviously, M&A advisory is the one that is the most sensitive probably of any of our businesses to uncertainty.
And we did come into Q1, expecting to have a somewhat stronger Q1 than it ultimately came to pass. We saw some delays of deal-making activity. And I think that's going to be, to some degree, what happens there a function of how this uncertainty in the economy resolves. If I talk to our M&A adviser team, they're still pretty bullish on the year, I will say. I mean the pipeline looks good, looks not only good in terms of size, but in terms of quality, the companies that and are very high quality and should be able to transact.
And to some degree, it's just going to come down to things closing a couple of weeks before the quarter or potentially pushing it out to the next. So I do expect to see growth. And so I pull back maybe lastly, John, to answer the question you didn't ask, but it's related in that fee guide of 4% to 6%, I think the biggest puts and takes for us that will push us to the top end versus the bottom of that range is really that M&A advisory world, what happens with cap markets. And so that will be what we have to watch here. But strategically, the team are executing exceptionally well and that we've got some of these trends behind us.

Stephen Steinour

Jon, just to add a bit, we had a record number of caps on a record number of initiatives in the first quarter. So the year is set up very well. Obviously, current activities will cause some delay, but this could be a very strong capital market share for us on the IB side as well.

Operator

David Long, Raymond James.

David Long

I understand that the credit market -- the credit metrics for you guys look real good right now. But specifically, what is the -- what has the uncertain backdrop impact been on your quantitative CECL model and overall reserve levels?

Brendan Lawlor

David, this is Brendan. I'll take that. first of all, we've modeled many scenarios as we try to come up with the reserve on a quarterly basis as we think about the economic environment in the component of it, we would -- we're a Moody's shop and so we use a baseline scenario, a somewhat positive scenario, which at this point doesn't look much different than the baseline scenario. And then we also incorporate a downside scenario. We will wait the output that comes out of our modeling to drive the quantitative.
And what we've seen over the last quarter is that as the scenarios for Moody's have softened, we have seen much more of the risk being picked up through the quantitative modeling that we've done. And so that's where we then will step in and provide the qualitative side of it to get to the strong reserve coverage that we have posted and been pretty consistent with. So I feel really good about the position we're sitting in at this point. And we look forward to -- as this evolves, we'll reevaluate every quarter through that same lens.

Stephen Steinour

David, as you'll recall, we have typically top tier or even best in all the DFAST prior tests. So there's a consistency in terms of stress credit risk within the portfolio. It's one of the reasons for the last 15 years that we released quarterly data on the consumer book. and that those trends are consistent now for that period of time. If anything, they've actually become a bit more conservative over time.
So we feel very good about the credit foundation within the company and optimistic about the future performance. The modeling we do would reflect that.

David Long

Got it. Second thing that I wanted to ask about was, what does the pipeline look like for continuing to build out in the Carolinas and Texas and the newer verticals as well as are there any new geographies or new verticals planned for the rest of the year?

Stephen Steinour

As we announced at the Investor Day, we expect to add one to two new verticals every year. We had an accelerated effort early on, but we do expect to add verticals this year. And I think it was last September, we announced we were planning to open 55 branches over five years in Carolinas. It looks like that will be closer to three, so that's a bit of acceleration, three years. And we're continuing to look to increase our capabilities in a variety of our markets.
We're adding colleagues in Chicago, a substantial number of colleagues as an example. So we're pressing forward, building out the franchise in multiple ways, both preexisting and the newer aspects of it.

David Long

Got it. So it sounds like you guys continue to play offense despite an increase in uncertainty in the economic backdrop?

Stephen Steinour

Well, we are very cognizant of what's going on around us. We have contingent plans. We've got a range of of opportunities both on the expense and management side that are well laid out internally. So we and our Board know what we'll do under various scenarios. But we are going to continue to execute the plan.
We've delivered great growth. We are optimistic that we're going to get through this challenging period of uncertainty. And as the country is still in good shape, the economy in good shape, then we're going to move forward with it. There will be pockets of issues, no doubt. But that's why we have such a well-diversified and actively managed portfolio.

Operator

Matt O'Connor, Deutsche Bank.

Matt O’Connor

I wanted to ask a question regarding slide 62, the criticized commercial loans. You guys are one of the few that give all this detail. And the credit overall is quite strong, but always looking for kind of early indicators of the inflection. And when I look at the upgrades to past, and the paydowns, they were both down a decent amount. I'm just wondering if you guys also view that as kind of like are early indicator of some short reflection?
Or is it just a matter of seasonality, timing and things going to get so good? Or just elaborate on that chart because I thought it was pretty interesting.

Brendan Lawlor

Sure, Matt. This is Brendan. I'll take that. We spent a lot of time talking about that as the quarter evolved, and really, what you're seeing pick up specifically in that line item of the upgrades to pass, there were several transactions that were slated to close as we got closer to the end of the month. of March that really just drifted into April, and they just didn't -- the refinancing or the support that they were bringing in.
It drifted over into the first two weeks of the month. And so what we've seen is for the quarter, we had an 8% increase in crit-class overall. I'd say to you about 1/3 of that got picked up. Would -- if it had closed two weeks earlier would have been picked up in this number. So it was a little bit of timing, frankly, than anything else, and that's what gives us comfort that even the strong position that we're sitting in from here, I think we're going to -- we'll probably be flattish for the remainder of this year.

Stephen Steinour

As you know, Matt, we've come down very substantially over the last year. At some point, we'll plateau. I don't think we're at the plateau yet a little more bullish on our ability to manage the book than what Brendan just related, but it will plateau. And we don't believe we have significant loss content in the credit or class at this stage. Brendan and I review the top 50 every month and have confidence in that modest loss expectation.
Thank you for the question.

Operator

Ken Houston, Autonomous Research.

This is Ben on from Ken's team. Zach, a question for you. Can you just talk about how you expect the drag from the hedging program, the trajectory throughout the rest of the year just given this new rate curve? You got the 4-basis-point benefit to NIM this quarter. And then just how are you thinking of using that hedging program out into the rest of the year and out into the medium term just to manage the rate sensitivity of the bank, just given the volatility in the rate curve?

Zachary Wasserman

Yeah. You got it, Ben, excellent question. So in terms of hedging, maybe I'll answer your second one first, more strategically, how we think I'll come back to the nuances around the hedged trajectory. We've been very intentional coming through in the discussions we've had in the last several quarters of gradually reducing our asset sensitivity as rates reach their peak and as we now expect to have likely a down trajectory but still with a fair amount of uncertainty around whether that will happen and when. And so we think this sort of neutral positioning that we're at now is really very optimal.
It's our general expect now. I will say we look at it every single month, and we made it rigorously and we dynamically manage it, so it could change. But at this point, our posture is to maintain that neutrality through the end of this calendar year. As you go out into '26 at this point, less declarative, I would say, I'm expecting probably a regrowth in asset sensitivity as we go into 2026. But at this point, we've got a fair line of sight to the rest of this year and it's pretty neutral.
And that neutrality is really what kind of underlies the statements I made earlier, I think it was Erika, who asked us in terms of just the kind of the potential range of scenarios around there. We see a pretty flat NIM outcome within a few bps of the $3.07 run rate NIM we generated in Q1 for the rest of this year and then rising into next year and it's sort of supported by that neutral position. So now let me get to the trajectory this year. In the fourth quarter, last -- two quarters ago, we had an 8-basis-point drag from hedging. As we came into the first quarter, our guidance had indicated and actually what came to pass exactly was a 4-basis-point reduction of that. So it's a benefit of 4 bps in Q1, and it left us with a hedge drag of 4 bps in the quarter.
Where we expect to get down to about neutral by the middle of this year, we could get back all 4 bps into Q2. It might be a little bit more leaking into Q3. We'll see it will be dependent on what really happens obviously with Fed fund actions here, but effectively neutral and then probably a little bit of drag coming back in by the end of the year.
If you take the implied forward from March 31, it will be something like 4 bps of drag by Q4 of '25. And so you can imagine in your mind's eye sort of a U shape, right, a 4 bps drag going down to roughly 0 and then going back up to 4.
So that's why I think about it just sort of the beginning of this year to the run rate exit of this year, it's about neutral. It's not that much delta between that. But again, if rates are different. We'll see obviously a different result there. Just if I share one last one with you.
You look out it looks about flat to that 4%, maybe even reducing a little bit as you go out from there. So I think most of the action will occur this year and then it will be about neutrals as we go out into '26.

Operator

Ladies and gentlemen, we've reached the end of the question-and-answer session. I'd like to turn the call back to Mr. Steve Steinour for closing remarks.

Stephen Steinour

Thank you for joining us today. In closing, our teams continue to deliver exceptional results, highlighted by our leading loan to deposit growth and PPNR growth. Looking forward into 2025, while the economic outlook is less certain, we have momentum, and we feel confident in our strategy. We have experienced management teams and contingency playbooks to deploy to manage through various economic scenarios. We've never been better positioned.
We've never been better positioned, and we're confident in our ability to continue to drive outperformance. So finally, thank you to the nearly 20,000 Huntington colleagues. We would not be able to take care of our customers and drive this level of performance, outstanding performance, without your efforts. Thank you for your interest in Huntington today. Have a great one.

Operator

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.