Q2 2025 Huntington Bancshares Inc Earnings Call
Greetings and welcome to the Huntington Bank. Share second quarter 2025 earnings call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, that conference is being recorded.
Speaker Change: I would now like to turn the conference over to your host, Eric werrong, director of investor relations.
Please go ahead.
Speaker Change: Thank you and good morning, everyone. Welcome to our second quarter call our presenter. Today are Steve steinour chairman president and CEO
Speaker Change: Brand Stan, Ridge, president of consumer, and Regional Banking and Zach. Wasserman Chief Financial Officer. Brendan lawlor Chief credit officer. Will join us for the Q&A.
Speaker Change: Earnings documents. Which include our forward-looking statements disclaimer, and non-gaap information and copies of the slides. We will be reviewing our available on the investor relations section of our website, which is www.huntington.com
Speaker Change: As a reminder, this call is being recorded and a replay will be available starting about 1 hour after the close of the call with that. Let me turn it over to Steve. Thanks, Eric. Good morning, everyone and welcome. Thank you for joining the call today.
Speaker Change: Now turning to our results, I'll begin by outlining some key highlights. Then Brandt will talk about our opportunity with ferrets and Zach will follow with the detailed review of the second quarter financials. As the environment around us continues to evolve. We remain committed to our vision of being the leading People, First customer-centered Bank in the country.
We are focused on our core growth strategies and excited by the opportunities, in front of us, including our recently announced acquisition of veritex which will greatly accelerate. Our growth in Texas. These opportunities are consistent with our long-standing aggregate moderate to low risk appetite, which is delivered strong and consistent results through the years
Speaker Change: For this reason, we are well positioned to maintain our strong performance on slide 5. There are 4 key messages. We want to leave you with today. First, we're delivering a strong operating performance with robust organic growth in loans, deposits and fees. The business is performing exceptionally well, and through the second quarter, we are ahead of our plans for the year.
I'd like to thank all of my colleagues for their extraordinary efforts this quarter and everything they do for our customers and Company every day.
Second, we're driving strong revenue and profit growth year-over-year. Consistent with the strategy we shared at investor Day in February.
This performance is supported by our earning asset. Growth expanded, net interest margin value, added fee services and positive operating Leverage.
Speaker Change: Third credit performance continues to be stable at a low level of losses.
Reflecting the ProActive Management of our loan portfolios and our rigorous credit screening and discipline customer selection.
Speaker Change: And forth our strong financial Foundation, enables us to outperform through a range of potential economic scenarios. All of these factors contribute to our ability to support our customers colleagues. In the communities, we serve while driving value for our shareholders.
Turning to slide 6, I'll recap our performance in the second quarter, we grew average, loans by almost 10 billion dollars year-over-year supported by both core businesses and new initiatives.
Average deposit growth also increased by almost 10 billion dollars over the same time. Frame highlighting the power of our deposit franchise to fund asset growth.
Speaker Change: Our deposit strategy remains focused on acquiring and deepening primary Bank relationships.
Speaker Change: Which we grew by 4 and 6% year-over-year in consumer and business banking respectively.
Speaker Change: Importantly, we maintain disciplined deposit pricing while delivering this growth.
Speaker Change: Adjusted cet1 higher to 9% hitting the lower bound of our targeted operating range of 9 to 10%.
Speaker Change: Credit performance remains top tier as net charge offs. Further improved by 6 basis points from the prior quarter to just 20 basis points.
Speaker Change: Our liquidity remains strong with 2 times coverage of uninsured deposits, notably, our tangible Book value increased 16% year-over-year.
Growth in capital, per share, coupled with our strong level of adjusted rotce at 17.6% illustrates how our model is a powerful driver of value creation.
We also Advanced several strategic initiatives. We added a new Middle Market team in Florida and continued to roll out our full franchise expansion, in North and South Carolina with Branch openings.
Speaker Change: But most significant among our strategic advancements was our announced acquisition of veritex.
This combination will significantly accelerate our already strong. Organic growth in Texas.
Speaker Change: To recap the key elements of this important announcement. Let me turn it over to Brant. Thanks Steve, looking at slide 7 as we spoke about earlier this week. This partnership with veritex brings 4 key benefits to Huntington.
First.
Brant: Veritex has a meaningful presence in Dallas Fort Worth and Houston and will serve as a springboard for substantial future growth in the state.
Speaker Change: Second, it brings together an outstanding group of new colleagues who have deep local relationships and a strong Commercial Banking franchise. We are especially pleased Malcolm Holland will be joining us as chairman of Texas.
Speaker Change: Third. This combination is fully aligned with our model of delivering broad-based capabilities and Industry, expertise through local relationships and enables us to bring our full portfolio of products and services to customers in Texas.
Speaker Change: And forth. We view this transaction as financially attractive for both sets of shareholders and expect a seamless integration.
Speaker Change: Turning to slide 8, we expect that our partnership with veritex Will generate several significant areas of opportunity first
Veritex has reached and relationships will help us accelerate commercial lending and capital markets opportunities.
Across commercial real estate corporate Middle Market and Regional banking.
Second.
Speaker Change: There are a range of incremental fee income streams, we believe that will grow across both commercial and consumer customers including in payments and wealth management.
And third, we see the opportunity to Fastrac the build out of a Texas consumer franchise.
Veritex has more than 30 branches in the Dallas Fort Worth in Houston msas and we plan to add the full breadth of our branch-based and digital capabilities.
Speaker Change: In summary, the acquisition of veritex is an important milestone for Huntington.
Speaker Change: And we're looking forward to closing this transaction in the fourth quarter.
Speaker Change: Now, let me turn it to Zack to cover Huntington's Financial results for the quarter. Thanks, Brent, and good morning, everyone.
Zack: Slide 9 provides highlights of our second quarter results, on a reported basis earnings per common, share worth 34 cents.
Zack: As a reminder, this includes a 4-cent impact related to a Securities repositioning. And a notable item, EPS excluding these items grew 27% from last year.
Return on tangible. Common Equity or roce was 16.1% for the quarter as Steve noted adjusted for the items this quarter rotce was 17.6%.
Zack: Average loan balance is grew by 2.3 billion or 1.8% from the prior quarter. Average deposits. Increase by 1.8 billion, or 1.1% versus the prior quarter. Reported common Equity, Tier 1 ended the quarter at 10.5%.
Zack: Adjust. The ct1 was 9% up, 40 basis points from last year and ended Q2 at the lower bound of our Target. Operating range. As Steve mentioned tangible book, value per share continued to grow increasing 16% year-over-year.
Zack: We continue to demonstrate strong credit performance, with net, charge offs of 20 basis points.
Zack: Allowance for credit losses ended the quarter at 1.86%.
Zack: Let's turn to slide 10.
we generated 8% year-over-year, Revenue growth and 8% year-over-year, ppnr growth on a reported basis on an adjusted basis, ppnr grew, 15% year-over-year,
Steve Steinour: as Steve said, the business is performing exceptionally, well and continues to build momentum
And contributions from our new initiatives.
Steve Steinour: During the quarter, new initiatives, grew 900 million accounting for approximately 40% of the total loan growth.
Steve Steinour: The primary drivers within new initiatives, were our Texas and North and South Carolina Regions. And among our National Specialty, verticals the financial institutions, group and funds Finance,
Steve Steinour: Of the remaining 1.4 billion of loan growth from existing businesses. We delivered 500 million from Regional banking, 500 million from indirect Auto
Steve Steinour: 400 million from Middle Market and 200 million, from corporate and Specialty banking,
Steve Steinour: Partially offsetting. This growth was a 240 million decline in commercial real estate balances. As we have highlighted previously, we are seeing a deceleration in the pace of balance, decline in CRA as originations are accelerating. While the rate of runoff is decreasing
Steve Steinour: turning to slide 12 like Steve mentioned earlier, our results continue to demonstrate the strength of our deposit franchise.
Steve Steinour: As I noted average balance is increased by 1.8 billion or 1.1% driven by continued household growth and the deepening of primary Bank relationships.
Steve Steinour: Our overall cost of deposits declined by 1 basis. Point, this quarter reflecting our discipline deposit pricing on to slide 13.
Steve Steinour: During the quarter, we drove 42 million or 2.9% sequential growth in net interest income. This is almost 12% growth on a year-over-year basis.
Net interest margin was 3.11% for the second quarter up 1 basis point from the prior quarter.
Steve Steinour: This increase included a 2 basis point benefit from lower drag from the hedging program. This was partially offset by a 1 basis. Point impact from higher average cash balances.
Steve Steinour: As I noted at a mid-quarter conference, our expectations for our run rate, nym for 2025 have increased by a few basis points from the prior Outlook, and we saw the benefit coming through in the second quarter.
Steve Steinour: Turn to slide 14 as just discussed. We held modestly higher, average cash balances in the quarter and our average level of cash and securities at quarter end remained at 28% of total assets.
Steve Steinour: Turning the slide 15. We continue to manage our hedging program to accomplish our core objectives of protecting capital from a potential higher rate environment while protecting Nim from a potential lower rate environment. Over the last year, we have reduced our asset sensitivity to a near neutral position, and we expect to maintain that relative neutrality for the next year.
As you know, we frequently review the most likely Paths of interest rates and actively modulate our positioning to the most likely scenario.
Moving to slide 16.
Steve Steinour: On an adjusted basis, non-interest income increased by 7% or 34 million compared to the prior year.
Steve Steinour: Our key areas of strategic, Focus payments wealth and capital markets, collectively grew 11% year-over-year. These areas now represent 66% of the fee income, mix an increase of 6 percentage points from 2 years ago.
Steve Steinour: Looking ahead, we see strong momentum across these businesses and expect them to remain key drivers of fee. Growth going forward.
Steve Steinour: Moving to slide 17 within payments. We delivered 7%. Year-over-year growth in the second quarter.
Steve Steinour: Driven by an 18% increase in commercial payment revenues treasury management, fees grew, 10% driven by continued, success, deepening relationships, across our customer base, and growing contributions from our new Merchant acquiring model.
Steve Steinour: Our commercial card portfolio. Also performed. Well achieving the second highest growth rate in commercial card. Spend across the industry in 2024, according to the recent nilson report,
Steve Steinour: Moving to wealth management on slide 18.
Steve Steinour: Wealth fees, continued to gain momentum and increased by 13% on a year-over-year basis.
Steve Steinour: assets under management grew 12% from the prior year, supported by a 12% increase in advisory households
over the last 12 months, we have gathered, approximately 1.8 billion dollars in net flows as we deepen our advisory penetration into our customer base. Moving to slide 19.
Steve Steinour: Capital markets, grew 15% year-over-year supported by commercial Loan Production related Capital markets activity, including notable strengths in underwriting syndications and Financial Risk Management products.
Turning to slide 20.
Speaker Change: Gap. Non-interest expense in the quarter was 1.2 billion in line with the guidance. I provided in the mid-quarter update.
Speaker Change: Performance related compensation due to our increased outlook for revenue and profit growth this year.
Speaker Change: Our posture on expense management remains focused on driving positive operating, leverage both this year and over the long range financial plan. We're pleased with the continued solid trend of operating efficiency improvements. We are delivering
Speaker Change: We continue to see strong Traction in our programs to drive re-engineering efficiency in our Baseline operating costs.
Speaker Change: Supporting sustained growth and Investments to drive Revenue.
Speaker Change: Slide 21 recap, our Capital position.
We continue to increase our common Equity, Tier 1.
Speaker Change: Our Capital Management strategy remains focused on our top priority of funding higher return. Loan growth while also driving adjusted. Ct1 inclusive of aoci higher into our Target operating range of 9 to 10%.
Speaker Change: Turning to slide 22. We are executing on our strategic initiatives and achieving strong growth while maintaining our disciplined Credit Management approach.
Speaker Change: Credit quality continues to perform very well.
Speaker Change: The allowance for credit losses, grew 37 million from last quarter, and ended Q2 at 1.86%.
Speaker Change: Turn the slide 23.
Forward-looking credit metrics, remain stable to criticize asset ratio was 3.82%. While the non-performing asset ratio has been in a tight range for several quarters.
Speaker Change: Let's turn to slide 24 while economic uncertainty remains elevated. We are encouraged by signs of improving sentiment compared to earlier this year, the growth environment improved month by month during the second quarter, and Q3 is starting off quite strongly. The Outlook Illustrated on this page is for Standalone, Huntington excluding the potential impacts from closing. Our acquisition of veritex, we will provide an update on those impacts as we get closer to the close, which we expect to occur in the fourth quarter.
Speaker Change: on loans we're seeing strong growth above our prior Outlook and thus, we are increasing our growth range to 6 to 8%
This reflects the robust performance in Q2 and our expectation for continued momentum into the second half.
Speaker Change: On deposits. We're raising our range to 4 to 6%.
Speaker Change: We are highly focused on expanding primary Bank relationships and acquiring new households while remaining disciplined in our deposit pricing.
Speaker Change: For net interest income. We're increasing fully your guidance to 829% from a prior range of 5 to 7%.
Speaker Change: Reflecting the outlook for higher loan and asset growth and the benefits from The increased Nim Outlook I referenced earlier.
This level would represent record net. Interest income on a full year basis.
We are maintaining the range for the expected growth in fee income at 4 to 6%.
Speaker Change: Where we end up in this range will largely be a function of the second half performance of capital markets, we are currently tracking to the lower end of this range. However, the pipeline for advisory revenues is strong, creating the potential for a robust finish to the year. Similar to what we saw in the fourth quarter of last year. If that occurred, we could end up in the higher part of the range.
On expenses, we forecast full year, expense growth of 5 to 6%, given the increase revenue and profit outlook for the year expenses from incentive compensation and volume related drivers will be higher than the original budget.
Speaker Change: We remain focused on driving positive operating leverage to this year. Our latest Outlook represents a larger amount of positive operating leverage for 2025, then the Outlook from the beginning of the year.
Speaker Change: On credit, given the strong performance. In the first half were lowering our full year. Net charge off guidance to 20 to 30 basis points.
I will also take the opportunity to share some color on expectations for the third quarter.
We expect approximately 1% sequential growth in average loans.
Deposits are expected to be approximately flat into Q3 with expected sequential growth into Q4.
Speaker Change: We anticipate net interest income to be relatively stable sequentially in the third quarter.
Speaker Change: Fee revenues are expected to be around 550 million. We expect expenses of approximately 1 billion 220 million, which will be about 20 million higher than Q2. Most of that. Increase is from the calendar of marketing activities that are weighted this year, to the third quarter tied to the roll out of the new Huntington brand campaign. We're very excited to unveil a new suite of TV print and digital, branding and messaging.
First half level, which benefited from some discrete items.
Speaker Change: Turning to slide 25 in closing, our Focus remains squarely, on driving long-term shareholder value creation and our performance as a direct reflection of our disciplined execution.
Speaker Change: We operate a powerful scaled franchise with multiple growth lovers and our performance in the quarter, underscores the durability of our model and ability to deliver on our medium-term guidance.
Risk management is deeply invested in our culture and we've consistently demonstrated top tier performance in stressed environments as measured by dfast and car results. Our focus on adjusted, ct1 reflects the rigor of our Capital Management approach and our liquidity remains top tier in the industry. The organic growth. We are driving continues to significantly outpace our peer group supporting the attractive revenue and profit growth. We're delivering
Speaker Change: and reinforcing our long-term value creation strategy.
Speaker Change: And this position of strength, opens up strategic options, like the veritex acquisition that will further contribute to our long-term growth. Our sustained growth in tangible book value per share and our strong return on Capital are driving robust, continued growth in the fundamental drivers of shareholder value.
Speaker Change: With that, we will conclude our prepared remarks and move to Q&A. Thank you Zack, we will now take questions. We ask that as a courtesy to your peers. Each person asked only 1 question and 1 related follow-up. If you have additional questions, please return to the queue. Thank you.
We'll now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove your question from the queue for participants using speaker equipment, may be necessary to pick up the handset before pressing the star Keys 1 moment. Please while we pull for questions.
Speaker Change: Thank you. Our first question is from John arfstrom with RBC Capital markets
Uh, thanks. Good morning.
Speaker Change: Job.
Hey um, Zack, a question for you on the new that interest income guidance range. It, it feels like you have enough momentum to hit the higher end of that range. But
Curious in your mind, what you see is the threats to to hitting that higher end.
Speaker Change: Yeah, great. Great question, John. Thank you and and I would agree. We, we are well on track to potentially hit the higher end of that range. You know, as we give these ranges, we always want to be a little conservative given the uncertainty, but but I think hitting the higher end of the range is, is certainly in the cards for us. You know, I think about the kind of the ingredients to that, uh, we are tracking well, in the loan growth range, feeling really good about the the momentum and Loans, particularly even just into the third quarter here, starting off, very very nicely and then NY, you know, I think I'm sure we'll unpack them in in further questions, but generally expecting them to be quite stable here in the back half of the, of the year. And, and those 2 things together should be the product of that, you know, I think I don't feel to, to be honest, a lot of threat against that range. But I think that the, the biggest thing that that, that we're watching clearly is just the, the stability of the economic environment and the stability of the environment Visa, be some of the uncertainties that that, you know, emerged earlier in the year, it does it appear that those are coming back in any
Speaker Change: Substantial way. But you know were they too that that that could potentially present a headwind?
Speaker Change: Okay. Um, thank you on that. And then, uh, Steve or brand. Can you give us some of the feedback you've heard maybe pro and con
Speaker Change: Uh, from internal external Partners on the veritex acquisition announcement. I think some expected you to be a quiz of others did not given the core momentum but just curious what kind of, you know, feedback, maybe positive or negative that you've received. Thank you.
Speaker Change: John I'll start put on the passage to Brant because he's really uh been out front leading the diligence and he'll lead the integration as well. Um uh we've got very good feedback and we we had encouragement over the last couple of years if we, uh, from some of our long shareholders. If if we saw an opportunity to
Speaker Change: And, uh, we've got some great new colleagues coming on board. Brent, what would you like to add to that? John really good question. We, as Steve mentioned, we were there the last 2 days and I'll tell you, we left even more impressed with the comp colleagues, and even more opportunistic, about the opportunity that exists, um, as we mentioned on the the call Monday, there are a number of of synergies that we believe exists, whether it's expanding retail banking, wealth offerings expanding in our Commercial Bank and some of our specialty offerings there. Uh, new geographies that this potentially opens, all of those things, we leave even more encouraged about the opportunity that exists.
Okay, thank you. Thanks John.
Our next question is from Erika najarian with UBS.
Erika Najarian: Yes. Um my first question is for Zack. Um, you know Zach it seems like we're observing excuse me. Um, differentiation in in deposit Trends, um, this quarter among Regional Banks. And I guess the question I have is given your loan growth. It was notable that deposit costs. Interest bearing deposit costs went down to basis points. I guess maybe talk a little bit about, um, you know, the competitions, we're seeing against perhaps some of the organic growth initiatives.
Erika Najarian: Initiatives that I, I'm guessing are helping and how we should think about deposit growth and deposit, um, cost Trends, you know, again like in in absence of, you know, any any rate cuts and what beta, you could see if the FED does cut.
Speaker Change: Yep. Uh great. Great question. Erica. Thank you. And uh, you know, just to kind of set it up very pleased with how deposits are performing here. We, you know, we came into the second quarter expecting deposits to be around flat in the quarter and ended up growing, you know, more than a percent. And you know, the core basis is even faster than that. So the the deposit Gathering teams are just performing really really well and obviously driven underlying by growth in in primary Bank relationships. Um you know, and I said as you noted we did see depos Community Trend down into the second quarter. You know, our working expectations at this point as well. Continue to drive solid deposit growth, over the back half of the Year here. Just given the the slightly stronger loan growth as well that we're seeing. That will likely Drive deposit costs at a pretty stable range from here, um, assuming no rate reductions.
Obviously if there are some rate reductions, I would expect to see, you know, further opportunity to drive down costs in light of that and and beta performance. You know, like we've seen in the past um not not seeing any notable, you know, major change in the competitive environment. With that being said you know across the industry we are seeing uh an encouraging frankly sign of
Growth uh you know re reoccurring now on the loan side broadly and so presumably over time that will drive some some higher competition. But we're not we're not seeing that at this point. Um
Speaker Change: And that's that's the posture we've got.
Speaker Change: Thank you. Uh, and my second question would be for um, Stephen Brandt, um, you know, I think John asked about the feedback, um, you know, um, and from the community and investors, and I'm wondering sort of what the feedback it uh, was from the lender's. I think Steve had a really good quote on Monday about, you know, a Texas bank for Texas businesses or something like that. And I guess I'm wondering how um the you know the veritex lender, sort of um, you know, embraced, um, Huntington, um, you know, coming from, you know, out of date to speak and also you know you've mentioned that you know as you make impacts in the community, you know, you started getting inbound inquiries and I guess I'm also wondering you know, as a follow-up to that if that deal sort of also started maybe some inbound inquiries with other Texas teams.
Speaker Change: Um Erica I'll start and and Steve Steve may add to that. First of all, as as Steve mentioned, we were there the last 2 days and we had a chance to meet with many of the veritex colleagues.
Speaker Change: And I will say that the general reaction from that group is uh excitement.
Having Huntington will bring more capabilities to the table. They have a great customer base that they've established deep relationships with. And now there's a view that potentially, they can do quite a bit more for those customers.
Speaker Change: There's also been quite a bit of customer Outreach on the part of the veritex colleagues and from the customers, there's a view that there will be more opportunity. More opportunity to expand a larger balance sheet, more capabilities.
Speaker Change: That's that's that's obviously been on headquartered in in Texas. And now with our regional structure and Regional presidents, uh, in Texas Malcolm as the chairman of our Texas, uh, organization that creates a level of comfort. Um, a level of sense that, uh, that team will own the success of our Texas business. And I think there's a great deal of optimism as to what the collective team. And what we could do in this partnership together to really expand, uh, uh, their, their in Texas Erika I'll add. We also visited with our team in Texas and, uh, uh, felt an equal level of excitement. Um, you know, our confidence in, in, in making this move was in part, uh, predicated on the success and growth we've had since 2009. So we've got a couple of hundred colleagues in Texas 100 uh uh forward facing Bankers uh and and and they've just done a great job for us. So the combined teams will have a couple of hundred
Hundred, um, um, um, uh, new business oriented individuals. And, and uh, uh, and and give us the opportunity to put the full, the, the full platform in place for our capabilities. So, this is a big deal for us. We think it's a springboard, we're very excited. We will continue to invest in Texas and we're getting some inbounds as um uh as we've seen in the past. So we're we're going to, we're going to build it out.
Speaker Change: The Texas alone, uh, Branch. I think shared shared Monday.
Huge economic and and and uh we Texas will become our third largest state in terms of deposits when we close this. So um very very uh uh grateful for the opportunity to work with Malcolm and the terrific team at Fair attacks.
Speaker Change: Thank you.
Speaker Change: Our next question is from Menan dosia with Morgan Stanley.
Menan dosia: Hi, good morning. Um Zach can you unpack the change?
Speaker Change: Good morning. Um, Zach. I was wondering if you can unpack the change in the expense guide. Um, I think you mentioned incentive compensation being higher and that's, I guess Fair given that the better Top Line. But, if, um, knee reaches the higher end of your guidance range, is it fair to assume that expenses will reach the higher end too?
Yeah, great a great question man. Thank you. And you know, as you noted and I highlight in the third marks as well that really the primary driver of of a slightly higher expense Outlook is is the higher revenue and profit outlook for the year, um, in that in that being reflected into incentive compensation. I will also note that just higher volumes, generally have driven some of the costs higher as well again which is a it's a high class problem clearly, you know? Overall the way we look at it we we love how this is shaping up here.
we have more positive operating leverage now
Speaker Change: Uh, than we had in the, in the original budget, something like half a point to maybe even a point more operating numbers so it's really good. I, I would note that part of what happens when you when you you know see kind of Midway through the year. Like we are this year that the year really is trending. So strongly you've got to catch up in some of that that acru up incentive compensation to the part of the the growth into Q2 was a sort of a catch up of uh a cruels that that would have otherwise been made earlier this year if we had known the outperformance earlier. So
Speaker Change: Feel really good, really, really good about it. I do think that, you know, uh, we we try to calibrate these ranges generally, so they're all consistent with each other so, 2 things that we're at the higher end of the of the revenue ranges. Then you're at the higher end of the, the expense range as well to to answer your questions, specifically about that.
Speaker Change: Got it. Um, and then, uh, secondly on Long growth, um, to maybe nitpick on what, uh, what is a good story. Um, the growth from the new initiatives, uh, slow. This quarter, is it getting more competitive as some of your peers ramp up? Um, is it just the base effect? Or maybe I'm just reading too much into a 1 quarter number
Speaker Change: Of uh, of loans. Uh and uh,
Uh, Capital markets activities just spilled into July. So we've actually had a very strong start for what's, what's typically a, a, a slow couple weeks?
Speaker Change: That that's fair. Thank you.
Speaker Change: Our next question is from Ibrahim unawa with Bank of America.
Good morning. Maybe. I guess giving all the taxes to focus. Maybe I was wondering if you a brand could spend some time on just give us a mark to Market on
Carolina's. Uh in terms of the build out um are we still looking to hire new Bankers, kind of the timeline of New Branch openings? Uh yeah, just would love to know how all of that is gaining traction and kind of out of there.
Uh Abraham is a very good question. We remain incredibly optimistic about Texas, North Carolina and South Carolina. In fact as you know,
Speaker Change: if you look at the performance of those markets from an economic perspective, those combined are outpacing the rest of the country and job growth and population growth by almost 2X
Speaker Change: And so, we're going to continue to invest in.
Speaker Change: Continue to look for, uh, really strong Bankers to support what we're doing in North and South Carolina. And we feel good about where we are today. Um, We are continuing to build out our Branch Network. We've opened to already. We have several more opening between now and the end of the year and next year will be our big year for that. We'll have more than 20 of the next year so we we continue to invest there. Obviously, we've talked a lot about Texas this week and and and the investment. And this will create a springboard for a potentially more.
Speaker Change: It and just on that. And I, I appreciate that. Probably for now
Speaker Change: Um, the Strategic priorities are clear over the next 6 to 12 months to get vbts done what you said as you look forward.
From an inorganic standpoint. Would it make more sense to do additional deals in Texas versus Carolina? Just are there. Differences in the markets, where m&a is a better way to incrementally grow versus the other.
Uh the way we think about Abraham is is we're going to drive the core where that is our Focus.
We've had uh, terrific couple of years. We have clear momentum as we go into the back half of this year and many of the Investments are not mature, they're not performing at what will be their mature levels. So we're optimistic about 26 and Beyond
Um, uh, in terms of core growth, we happen to find find an opportunity to combine with a terrific organization. Great people. Um, the leadership, uh, that, that Malcolm will provide an ongoing basis. An important part of our, our, our overall consideration. And we do think Texans like to do business with Texas. And we now have hundreds of Bankers in Texas once we close this, uh, uh, partnership.
Um uh, but we're going to look to drive the core in Texas as we do in the Carolinas and elsewhere in the franchise.
Our next question is from Stephen alexopoulos. With TD Cowen.
Stephen Alexopoulos: Hey, good morning everybody.
I wanted to First drill it so on the funding strategy for you, it looks like you plan to use up some of your excess liquidity and then haven't even been in the third quarter.
Speaker Change: What's a thought behind not growing deposits. A bit more aggressively here to find loan growth competitive environment today or because you guys expect rates will be lower, you know, over the next couple of quarters. What, what gives you this to be patient here?
Speaker Change: Yeah. Um, uh, Stephen. Thank you. You were clipping out a little bit as you spoke but I think I got the gist of your questions. So I'll, I'll take that. And you know, look really what I would, I would characterize. What we're doing now is just intense optimization of funding and Loan growth to drive the best in the amount look that we that we can. And, you know, I mentioned in the prepared remarks that we were running with a little bit of elevated cash.
Speaker Change: Deposit growth fairly well matching loan growth over the longer term.
Speaker Change: Got it and and thanks just drill in. So the non-interest bearing deposit
Speaker Change: We're down in the quarter. I don't remember you guys ever being in 17 and I'm curious. That's a trough.
And is this a function of customers?
Speaker Change: Cash right in their business which is a positive indicator for a low growth or customers. Just migrating out to higher yielding products. Thanks.
Speaker Change: Yeah good. Good question. We're seeing you know pretty stable Trends from here in the overall non-interest bearing mix not expecting anything really significant in terms of Trend in the next couple of quarters here. You know the way we look at it is really low cost uh funding and and kind of checking being part of that. And if you 1 of the nice slides, we have in the presentation highlights the growth and checking which is a great category for us lower in in the spectrum of of costs as you know and that's been been growing pretty nicely so you know I think that uh
In the actual non-expiring category, you know, some modest continued mix shift, but not not much, but really our focus is in growing that kind of lower um, overall category of the funding costs and and checking and that's just a really nice performance there over the over the course of this year.
Speaker Change: Thanks for taking.
Ken Austin: Our next question is from Ken Austin with autonomous research.
Hey, good morning. Um just a quick question on the the knee for the 3Q. It's stable. So we get a day day day back and then there's a lot of balance sheet momentum. Just wondering what's driving the flat. Uh potential result for the third quarter. And why, why that could why wouldn't it be better? Like what what's the negative as an offset?
Yeah, good. Good question. Is that this is that will take that 1 and it could well, come in better. I think I'm expecting a couple bips likely, um, uh, lower Nim, probably trending around the 308 and 3 to 310 level for Q3 and Q4. So that's just a little bit of extra headwind there. I think, if I unpack the, the Nim into the third quarter, um, uh, 1, 1 thing that we're seeing is is a bit more, a few basis points of of hedge, drag coming back up. As of our forward, starting receive fix swaps come online and some of the pay fix swaps that we've had over the last couple years begin to mature. Obviously still also benefiting however from strong fixed asset repricing Trends and you know, as I just noted in Stephen's question, a bit of optimization of cash and securities into the uh, into the third quarter. So that's really the kind of the the the modest headwind there. But it'll still represent these
I think 8 to 9% year-over-year growth and spread revenues are really, really strong. And and that's what the full year is tracking to. Also
Ken Austin: Over the course of this year.
Okay. And then just 1 on the fees and similar you mentioned towards the low end but with capital markets a bit of a flex Factor. Can you just talk about the the growth drivers that you're seeing um in on the fees side aside from you know the plus and the minus around Capital markets. Thanks sure. Yeah absolutely great. Great question k.
Ken Austin: You know, you think about the the, our fee drivers and we profiled this in a lot of detail at the investor Day in February.
Payments wealth management and of course Capital markets. You are are the 3 primary areas of of of growth and you know those 3 areas together grew 11% year-over-year in the second quarter which by the way, is pretty emblematic of the long term growth rate. We expect to see from those really, really, um, significant opportunities over. Not only the short term, but the longer term there, you know, in terms of payments, we continue to see a commercial payments, treasury management, and our Merchant acquiring uh, a business. Really being key areas of of continued sustained growth over the back half of the year. And I'd expect to see similar kind of growth rates to what we've seen recently. And as we continue on over the next several quarters wealth as well um continues to to perform very very well. The team is just um, really really executing the plan. Growing households growing AUM, really Drive driven fundamentally by acquisition
Ken Austin: Of of new assets under management and positive net flows. Um so those are really the kind of the year-over-year growth Trends. We've been seeing in payments and wealth, management are quite consistent now to see over the next several quarters as well.
Ken Austin: Thanks Zach.
Thank you.
Our next question is from Peter, Winder with da Davidson.
Speaker Change: Pop core file possibility and you have very strong uh Roxy and you had strong positive operating leverage uh this quarter. But how are you thinking about the efficiency ratio over the medium-term? It it has been stable uh the past 5 quarters around.
59%, and the top quartile banks are kind of in the mid-50s.
Yeah, good. Good question, Peter. I'll take that and give me a couple things. I'd say, 1 is, you know, we don't look at the level of efficiency ratio per se. As any, you know, sacrifice Target. It is so much as, you know, a function of the mix of the revenue, uh, characteristics of the company between the spread and free fee revenue and even kind of the the mix of fee revenues. As, you know, so what is much more important to us than the level is the trend?
And, uh, ultimately, you know, I think I mentioned earlier in most questions that we're expecting to see, very, very strong, um, expansion in in operating levers this year. And, um,
Speaker Change: It's not a really contribute to a continued uh, Improvement in the fee, uh, in the efficiency ratio. As we as we go into the back half of this year and and, you know, our working long-range plan continues to integrate positive, operating leverage, you know, each year as we go forward as well, just to continue to, to grind that lower,
Steve Steinour: Peter this is Steve. We we believe we still have substantial investment opportunities in a number of these newer businesses and certainly the geographies uh, that we're in. And um, uh, assuming we can, we can, uh, Drive profitable growth at the, the levels that we have historically, we would continue to invest that. That and so that'll put a, a little bit of a, a restraint on, on translating the operating leverage into
A better efficiency ratio over time. Uh, um, over time we will we will clearly uh uh meaningfully improve that that efficiency ratio.
Speaker Change: Got it. Thanks Steve. And then
Speaker Change: Last, you know, quite a strong. Uh but there was a 76 million increase in non-performing assets. And on the cni side, I was just wondering what drove the increase in, and if you could just talk about how criticized loans are are tracking, uh, this quarter.
Speaker Change: Sure, Peter this is Brandon. I'll take that for you with respect to criticize loans. We we did see it decrease down to 3.82% of uh the total loan book and and a lot of that came through. There was a 5% decrease in our um,
Substandard category. So, you know, we are seeing the, the Improvement on the, you know, the deeper part of the criticized book, The npas for the quarter were up honestly. As you as you said, you know, overall we've been in this sort of 60 to 63 basis point range for the last 6 quarters. Um, the 76 million you referenced specifically. This really is there's not a major Trend in there. It's just, you know, 1-off transactions. That that moved into that category as we actively manage the portfolio.
Thank you.
Speaker Change: Our next question is from Chris, McGrady with KBW.
All right. Good morning. Thanks for the question.
Zach on the operating leverage thinking you're prepared to Mark. She talked about you're getting more than you thought. At the beginning of the year I'm interested. Um, does this narrative get easier or harder about the same as you kind of go into next year?
Speaker Change: Yeah, it's a good question. Um Chris thank you and yeah look at uh
Speaker Change: The the trend level of operating numbers that were generated at this point, you know, something between 1 and a half and 2% is is a pretty solid level clearly um, you know, generally speaking as we do our budgeting over the long term we're looking for something like around 1 or 1 and a half percent operating, leverage on a, on a year-by-year basis. So it's not that different. Um, clearly we've seen a very nice picture.
Speaker Change: Pick up and Nim this year relative to last year and that's, you know, really contributing but but fees growing nicely as well. And uh, and and you know, the whole expense Management program is, is operating, you know, you can't couldn't be more pleased with how we're driving re-engineering into the base. Funneling additional, uh, expense capacity to investment categories and keeping the overall expenses growing in a really well controlled level. So, um, it's, it's not that dissimilar. Uh but certainly uh really pleased with how we're doing this year.
Great, uh, and it's my follow-up. I'm interested in, um, just deposit, pricing differences.
In your legacy and new markets, trying to think about funding the growth initiatives, the 6040 that you're kind of running with. Now, is there a notable differences in your Midwest markets versus your Southeast?
Say, you know, the, the, the places where we have, you know, just great depth. And, um, and uh, density in our business, we, we often have the strongest deposit Gathering performance, but it's, it's really hard to generalize. We're seeing good performance, kind of across the board. And, and I'll tell you just, you know, it's an exceptionally rigorous process as we optimize for the for the next unit of
Speaker Change: Where deposit Gathering is happening and so, you know, really really efficient kind of across the board here.
All right, thanks so much.
Our next question is from Matt o'conor with Deutsche Bank.
Matt O'Conor: Good morning, just want to ask about our targeted Capital levels. Uh ask about targeted Capital levels kind of more medium-term. Uh you've got to the low end of your range including aoci. I know you're just going to, um, uh, you know, not buy back stock to 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 know, you you screen real well and see car. Um, there's positive drivers there for others this past, uh, uh, cycle. Um, so you probably feel good about yours going forward. There's maybe some relief from the rating agencies
Speaker Change: So, how do you think about that 9 to 10 in light of all that? Thank you.
Look the the 90% operating range for a just to see G1 is a is a really good range for us and you know, uh 1 as you know, the way we think about capital is always wanting to be strong, always wanting to be in a position of strength, not only with capital but but frankly with liquidity with credit with all elements of the business to be able to, to really be there for our customers through a whole cycle, ultimately capture opportunities, particularly the entire times of of disruption of more broadly in the in the economy and that clearly played out extraordinarily well for us the last couple of years. So you know we always want to be on the conservative end here. With that being said, you know, really pleased to hit the the low end of that operating range and in in the second quarter, our assumption at this point is we'll continue to drive higher into that range up up toward the midpoint of the range.
Speaker Change: But even as we do that, we'll be able to both accomplish the goal of funding High return, loan growth and um, you know, gradually beginning to uh, to do regular Capital distributions in the form of a repurchase. You know, once we get through the, the close of of the veritex acquisition. So, you know, I think the the thing that that is very encouraging to us is just as we're executing the program to drive, strategically the return on Capital higher 17.6%, adjusted basis in in the second quarter is a good example of that. The internal earnings power and capital generation of the model will really
Speaker Change: if we create a lot of flexibility to accomplish all of those goals,
Speaker Change: Okay, thank you. That's it for me.
Thank you.
Speaker Change: Thank you. There are no further questions at this time. I'd like to hand the floor back over to management for any closing remarks.
So, thank you for joining us today. In closing, our teams continue to deliver exceptional results. We're very pleased with the quarter highlighted by our leading loan, deposit and ppnr growth.
Speaker Change: We have never been better positioned, and we're confident in our ability to drive continued. Strong performance.
So finally thank you to the nearly 20,000 Huntington colleagues. We obviously not be able to take care of our customers and drive this outstanding performance without your phenomenal efforts. And let me say Welcome to our new colleagues, who will be joining us from veritex. Thank you for your interest in Huntington. Have a great day.
This concludes today's conference. We thank you for your participation. You may now disconnect your lines.