Huntington Bancshares Incorporated Q2 FY2025 earnings call

• Strong operating performance with robust organic growth in loans, deposits, and fees, ahead of annual plans.
• Driven revenue and profit growth supported by earning asset growth, expanded net interest margin, value-added fee services, and positive operating leverage.
• Stable credit performance with net charge-offs at 20 basis points, top-tier credit quality.
• Strong financial foundation with adjusted CET1 at 9%, tangible book value up 16% year-over-year, adjusted ROTCE at 17.6%.
• Strategic initiatives: Added middle market team in Florida, expanded franchise in North and South Carolina, announced acquisition of Veritex to accelerate growth in Texas.

Loan Performance: Average loans grew by almost $10 billion year-over-year. New initiatives contributed $900 million (approx. 40% of total loan growth), with key drivers including Texas, North/South Carolina regions, Financial Institutions Group, and Funds Finance. Existing businesses contributed the remaining loan growth. Commercial real estate balances declined by $240 million but showed deceleration in balance decline. Deposit Performance: Average deposits increased by almost $10 billion, driven by household growth and deepening primary bank relationships. Cost of deposits declined by 1 basis point. Net Interest Income: Grew $42 million sequentially (2.9%) and 12% year-over-year. Net interest margin was 3.11%, up 1 basis point from prior quarter. Fee Income: Strategic fee income areas (payments, wealth, capital markets) grew 11% year-over-year, now representing 66% of the fee income mix.

• Loans: Growth range raised to 6%-8% from prior outlook.
• Deposits: Range raised to 4%-6%.
• Net interest income: Full year guidance increased to 8%-9% from 5%-7%.
• Fee income: Range 4%-6%, tracking lower end but potential for higher based on second half performance.
• Expenses: Full year expense growth 5%-6%, focused on positive operating leverage.
• Credit: Full year net charge-off guidance lowered to 20-30 basis points.

• Economic uncertainty: Potential headwinds from economic instability.
• Competitive environment: Possible increased competition for loans and deposits, which could impact growth and margins.

Q: Zach, a question for you on the new net interest income guidance range. It feels like you have enough momentum to hit the higher end of that range. But curious in your mind what you see as the threats to hitting that higher end?

A: Zachary Wasserman notes the biggest threat is economic instability and uncertainties that emerged earlier in the year, though not currently substantial.

Q: Jon Arfstrom: Can you give us some of the feedback you've heard maybe pro and cons from internal and external partners on the Veritex acquisition announcement?

A: Stephen Steinour and Brantley Standridge report positive feedback, with encouragement from long shareholders, excitement from Veritex colleagues, and optimism about synergies in expanding retail, wealth, and commercial offerings in Texas.

Q: L. Erika Penala: Given your loan growth, it was notable that deposit costs -- interest-bearing deposit costs went down 2 basis points. Talk a little bit about the competition you're seeing against perhaps some of the organic growth initiatives that I'm guessing are helping, and how we should think about deposit growth and deposit cost trends.

A: Zachary Wasserman states deposit gathering teams are performing well, driven by primary bank relationships, and expects stable deposit costs assuming no rate cuts, with potential for further cost reduction if rates decline.

Q: Manan Gosalia: On loan growth to maybe nitpick on what is a good story. The growth from the new initiatives slowed this quarter. Is it getting more competitive as some of your peers ramp up?

A: Zachary Wasserman notes seasonality and expects continued strong loan growth from new initiatives, with run rate solid and supporting mid- to high single-digit growth in the long term.

Q: Ebrahim Poonawala: Given all the Texas focus, give us a mark-to-market on Carolinas in terms of the build-out. Are we still looking to hire new bankers, kind of the time line of new branch openings?

A: Brantley Standridge states continued investment in North and South Carolina, with plans to hire bankers and open branches, including 2 already opened and several more by year-end, with more in 2026.

Q: Steven Alexopoulos: On the funding strategy, it looks like you plan to use up some of your excess liquidity in the half and even in the third quarter. What's the thought behind not growing deposits a bit more aggressively here?

A: Zachary Wasserman explains it's about optimizing funding and loan growth to drive NIM, with deposit gathering continuing and expected sequential growth in Q4.

Q: Kenneth Usdin: Just a quick question on the NII for the 3Q, it's stable. So we've got a day back, and then there's a lot of balance sheet momentum. Just wondering what's driving the flat potential results for the third quarter and why that could -- why would it be better?

A: Zachary Wasserman notes a modest headwind from hedge drag and cash optimization, but expects NIM to trend around 308-310 basis points, with strong asset repricing trends supporting growth.

Q: Peter Winter: I wanted to -- I realize you guys are focused on generating top quartile profitability, and you have very strong ROTCE -- you had strong positive operating leverage this quarter, but -- how are you thinking about the efficiency ratio over the medium term?

A: Zachary Wasserman and Stephen Steinour state the focus is on operating leverage trends, with expected improvement in the efficiency ratio driven by positive operating leverage, though continued investments in new businesses may restrain immediate improvement.

Q: Christopher McGratty: Zach, on the operating leverage, I think in your prepared remarks, you talked about you're getting more than you thought at the beginning of the year. I'm interested, does this narrative get easier, harder about the same as you kind of go into next year?

A: Zachary Wasserman states the trend of operating leverage is similar, with strong NIM and fee growth contributing, and focus on maintaining positive operating leverage.

Q: Matthew O'Connor: Just want to ask about the targeted capital levels kind of more medium term. You've got to the low end of your range, including AOCI. I know you just got not buy back stock until the deal closes. But how do you think more medium term, like whether it's the lower end or the higher end of that 9% to 10%, you screen real well in [ Key CAR. ] There's positive drivers there for others this past cycle. So I feel good about years going forward. There's maybe some relief from the rating agencies. So how do you think about that 9% to 10% in light of that?

A: Zachary Wasserman states the 9%-10% adjusted CET1 range is good, with focus on funding high-return loan growth and gradually returning capital to shareholders after Veritex acquisition close.