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“Huntington Bank has been an amazing place to work. I feel valued as a colleague of Huntington Bank. I believe we are an inclusive organization and when our CEO says Welcome to ALL he truly means it. This is an innovative company always looking for new ways to improve culture and technology for customers and colleagues. I am proud to work for Huntington Bank and look forward to many more years with this organization.”

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Founded in 1866, Huntington Bancshares Incorporated is a regional bank holding company for the Huntington National Bank, providing financial products and services to consumers and businesses including banking, payments, risk management, and wealth management. It is the top originator of SBA 7(a) small-business loans in the country. The company primarily operates in the Midwest, though Huntington National Bank branches are expanding in the South as well.

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Huntington Bancshares (HBAN): Company Profile, Stock Price, News, Rankings

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Huntington Bancshares

huntington bancshares

Greetings, and welcome to the Huntington Bancshares Second Quarter twenty twenty five Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. Would now like to turn the conference over to your host, Eric Wasserstrom, Director of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to our second quarter call. Our presenters today are Steve Steinour, Chairman, President and CEO Brand Stanridge, President of Consumer and Regional Banking and Zach Wasserman, Chief Financial Officer. Brendan Lawler, Chief Credit Officer will join us for the Q and A. Earnings documents, which include our forward looking statements disclaimer and non GAAP information and copies of the slides we will be reviewing are available on the Investor Relations section of our website, which is www.ir.huntington.com.

As a reminder, this call is being recorded and a replay will be available starting about one 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. Now turning to our results, I'll begin by outlining some key highlights, then Brandt will talk about our opportunity with Veritex, and Zach will follow with a 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 has delivered strong and consistent results through the years. For this reason, we are well positioned to maintain our strong performance. On slide five, there are four 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.

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 disciplined customer selection. And fourth, 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 and the communities we serve, while driving value for our shareholders. Turning to slide six, I'll recap our performance in the second quarter. We grew average loans by almost $10,000,000,000 year over year supported by both core businesses and new initiatives.

Average deposit growth also increased by almost $10,000,000,000 over the same timeframe, highlighting the power of our deposit franchise to fund asset growth. Our deposit strategy remains focused on acquiring and deepening primary bank relationships, which we grew by 46% year over year in consumer and business banking respectively. Importantly, we maintained disciplined deposit pricing while delivering this growth. Our investments in value added fee services continues to deliver with 11% growth year over year in our strategic fee income areas of payments, wealth and capital markets. In the quarter, we drove adjusted CET1 higher to 9% hitting the lower bound of our targeted operating range of 9% to 10%.

Credit performance remains top tier as debt charge offs further improved by six basis points from the prior quarter to just 20 basis points. Our liquidity remains strong with two times coverage of uninsured deposits. Notably, our tangible book value increased 16% year over year. This 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. 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. To recap the key elements of this important announcement, let me turn it over to Brandt.

Thanks, Steve. Looking at Slide seven. As we spoke about earlier this week, this partnership with Veritex brings four key benefits to Huntington. First, Veritex has a meaningful presence in Dallas Fort Worth and Houston and will serve as a springboard for substantial future growth in the state.

Second, it brings together an outstanding group of new colleagues who relationships and a strong commercial banking franchise. We are especially pleased Malcolm Holland will be joining us as Chairman of Texas. 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. And fourth, we view this transaction as financially attractive for both sets of shareholders and expect a seamless integration. Turning to slide eight.

We expect that our partnership with Veritex will generate several significant areas of opportunity. First, Veritex's reach and relationships will help us accelerate commercial lending and capital markets opportunities across commercial real estate, corporate, middle market and regional banking. Second, 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 fast track the build out of a Texas consumer franchise. Veritex has more than 30 branches in the Dallas Fort Worth and Houston MSAs, and we plan to add the full breadth of our branch based and digital capabilities.

In summary, the acquisition of Veritex is an important milestone for Huntington, and we're looking forward to closing this transaction in the fourth quarter. Now let me turn it to Zach to cover Huntington's financial results for the quarter.

Thanks, Brent, and good morning, everyone. Slide nine provides highlights of our second quarter results. On a reported basis, earnings per common share were $0.34 As a reminder, this includes a $04 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 ROTCE was 16.1% for the quarter.

As Steve noted, adjusted for the items this quarter, ROTCE was 17.6%. Average loan balances grew by 2,300,000,000 or 1.8% from the prior quarter. Average deposits increased by $1,800,000,000 or 1.1% versus the prior quarter. Reported common equity Tier one ended the quarter at 10.5%. Adjusted CET1 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. We continue to demonstrate strong credit performance with net charge offs of 20 basis points. Allowance for credit losses ended the quarter at 1.86%. 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. As Steve said, the business is performing exceptionally well and continues to build momentum. Turning to slide 11. Loan balances grew 7.9% year over year, driven in particular by strength in commercial loans and contributions from our new initiatives. During the quarter, new initiatives grew 900,000,000 accounting for approximately 40% of the total loan growth.

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. Of the remaining $1,400,000,000 of loan growth from existing businesses, we delivered $500,000,000 from Regional Banking, dollars 500,000,000 from Indirect Auto, 400,000,000 from Middle Market and $200,000,000 from Corporate and Specialty Banking. Partially offsetting this growth was a $240,000,000 decline in commercial real estate balances. As we have highlighted previously, we are seeing a deceleration in the pace of balance decline in CRE as originations are accelerating while the rate of runoff is decreasing. Turning to slide 12.

Like Steve mentioned earlier, our results continue to demonstrate the strength of our deposit franchise. As I noted, average balances increased by $1,800,000,000 or 1.1%, driven by continued household growth and the deepening of primary bank relationships. Our overall cost of deposits declined by one basis point this quarter, reflecting our disciplined deposit pricing. On to slide 13. During the quarter, we drove $42,000,000 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 one basis point from the prior quarter. This increase included a two basis point benefit from lower drag from the hedging program. This was partially offset by a one basis point impact from higher average cash balances. As I noted at a mid quarter conference, our expectations for our run rate NIM for 2025 have increased by a few basis points from the prior outlook and we saw the benefit coming through in the second quarter.

Turning 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. Turning to 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. On an adjusted basis, non interest income increased by 7% or $34,000,000 compared to the prior year. 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 six percentage points from two years ago.

Looking ahead, we see strong momentum across these businesses and expect them to remain key drivers of fee growth going forward. Moving to slide 17. Within payments, we delivered 7% year over year growth in the second quarter, 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. 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 Nielsen report.

Moving to wealth management on Slide 18. Wealth fees continued to gain momentum and increased by 13% on a year over year basis. Assets under management grew 12% from the prior year, supported by a 12% increase in advisory households. Over the last twelve months, we have gathered approximately $1,800,000,000 in net flows as we deepen our advisory penetration into our customer base. Moving to slide 19.

Capital markets grew 15% year over year supported by commercial loan production related capital markets activity including notable strength in underwriting, syndications and financial risk management products. Turning to slide 20. GAAP non interest expense in the quarter was $1,200,000,000 in line with the guidance I provided in the mid quarter update. Growth from the prior quarter was primarily driven by incentive and performance related compensation due to our increased outlook for revenue and profit growth this year. 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. We continue to see strong traction in our programs to drive reengineering efficiency in our baseline operating costs, supporting sustained growth and investments to drive revenue. Slide 21 recaps our capital position. We continue to increase our common equity Tier one. Our capital management strategy remains focused on our top priority of funding high return loan growth, while also driving adjusted CET1 inclusive of AOCI higher into our target operating range of 9% to 10%.

Turning to slide 22. We are executing on our strategic initiatives and achieving strong growth, while maintaining our disciplined credit management approach. Credit quality continues to perform very well. Losses grew $37,000,000 from last quarter and ended Q2 at 1.86%. Turning to Slide 23.

Forward looking credit metrics remain stable. The criticized asset ratio was 3.82, while the non performing asset ratio has been in a tight range for several quarters. 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. 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. On deposits, we're raising our range to 4% to 6%.

We are highly focused on expanding primary bank relationships and acquiring new households, while remaining disciplined in our deposit pricing. For net interest income, we're increasing full year guidance to 8% to 9% from a prior range of 5% to 7%, 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%. 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 increased revenue and profit outlook for the year, expenses from incentive compensation and volume related drivers will be higher than the original budget.

We remain focused on driving positive operating leverage this year. Our latest outlook represents a larger amount of positive operating leverage for 2025 than the outlook from the beginning of the year. On credit, given the strong performance in the first half, we're 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. We anticipate net interest income to be relatively stable sequentially in the third quarter. Fee revenues are expected to be around $550,000,000 We expect expenses of approximately 1,220,000,000 which will be about $20,000,000 higher than Q2. Most of that increase is from the calendarization of marketing activities that are weighted this year to the third quarter tied to the rollout of the new Huntington brand campaign. We're very excited to unveil a new suite of TV, print and digital branding and messaging.

We think it is a phenomenal representation of our legacy and where we're going in the future and will continue to power leading pace of growth in customer acquisition and deepening. Lastly, tax rate in the second half of the year is expected to be around 19% consistent with our statutory rate and a bit higher than the first half level, which benefited from some discrete items. Turning to slide 25. In closing, our focus remains squarely on driving long term shareholder value creation and our performance is a direct reflection of our disciplined execution. We operate a powerful scaled franchise with multiple growth levers 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 embedded in our culture and we've consistently demonstrated top tier performance in stressed environments as measured by DFAST and CCAR results. Our focus on adjusted CET1 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 and reinforcing our long term value creation strategy. 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.

With that, we will conclude our prepared remarks and move to Q and A.

We will now take questions. We ask that as a courtesy to your peers, each person ask only one question and one related follow-up. If you have additional questions, please return to the queue. Thank you.

We'll now be conducting a question and answer session. Thank you. Our first question is from Jon Arfstrom with RBC Capital Markets.

Hey. 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?

Yes. Great question, John. Thank you. And I would agree, we are well on track to potentially hit the higher end of that range. As we give these ranges, we always want to be a little conservative given the uncertainty.

I think hitting the higher end of the range is certainly in the cards for us. I think about the kind of the ingredients to that, we are tracking well in the loan growth range, feeling really good about the momentum in loans, particularly even just into the third quarter here starting off very, very nicely. And then NIM, I think, sure we'll unpack NIM in further questions, but generally expecting NIM to be quite stable here in the back half of the year and those two things together should be the product of that. I think I don't feel, to be honest, a lot of threat against that range. But I think the biggest thing that we're watching clearly is just the stability of the economic environment and the stability of the environment vis a vis some of the uncertainties emerged earlier in the year.

It doesn't appear that those are coming back in any substantial way, but were they too that could potentially present a headwind.

Okay. Thank you on that. And then Steve or Brandt, can you give us some of the feedback you've heard maybe pro and con from internal, external partners on the Veritex acquisition announcement? I think some expected you to be acquisitive, others did not given the core momentum. But just curious what kind of feedback may be positive or negative that you've received? Thank you.

John, I'll start, but I'm going pass to Brant because he's really been upfront leading the diligence and he'll lead the integration as well. We've got very good feedback. And we have encouragement over the last couple of years if we from some of our long shareholders, if we saw an opportunity to make a strategic acquisition to given the success of TCF, to look hard at it. Now this one came together very quickly. It happened to be ideal for us because our focus has been Dallas and Houston.

And as you saw on Monday from the announcement, we already have a sizable presence in Texas. We've been there since 02/2009. We really like this Veritex team and Malcolm staying with us is a huge deal. We were there Wednesday and Thursday, met many of the employees. And we've got some great new colleagues coming on board. Brent, what would you like to add to

John, really good question. We as Steve mentioned, we were there the last two days. And I'll tell you, we left even more impressed with the colleagues and even more opportunistic about the opportunities that exist. As we mentioned on the call Monday, there are a number of synergies that we believe exist, whether it's expanding retail banking, wealth offerings, expanding in our commercial bank and some of our specialty offerings there, new geographies that this potentially opens, all of those things we leave even more encouraged about the opportunity that exists.

Our next question is from Erika Najarian with UBS. Yes.

My first question is for Zach. Zach, it seems like we're observing differentiation in deposit trends 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 two basis points. I guess maybe talk a little bit about competition 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, again, like in absence of any rate cuts and what data you could see if the Fed does cut?

Yes. Great question, Erica. Thank you. And just to kind of set it up, very pleased with how deposits are performing here. Came into the second quarter expecting deposits to be around flat in the quarter and we ended up growing more than 1% and on a core basis even faster than that.

So the deposit gathering teams are just performing really, really well and obviously driven underlying by growth in primary bank relationships. As you noted, we did see deposit costs continue to trend down into the second quarter. Our working expectation at this point is we'll continue to drive solid deposit growth over the back half of the year here just given the slightly stronger loan growth as well that we're seeing. That will likely drive deposit costs at a pretty stable range from here assuming no rate reductions. Obviously if there are some rate reductions I would expect to see further opportunities to drive down costs in light of that and beta performance, you know, like we've seen in the past.

Not seeing any notable, you know, major change in the competitive environment. With that being said, you know, across the industry, we are seeing an encouraging frankly sign of growth, you know, reoccurring now on the loan side broadly. So presumably over time that will drive some higher competition, but we're not seeing that at this point. That's the posture we've got.

Thank you. And my second question would be for Steve and Brandt. I think John asked about the feedback from the community and investors. And I'm wondering sort of what the feedback was from the lenders. I think Steve had a really good quote on Monday about a Texas bank for Texas businesses or something like that.

And I guess I'm wondering how Veritex lender sort of embraced Huntington coming from out of state to speak. And also, you've mentioned that as you make impacts in the community, you started getting inbound inquiries. And I guess I'm also wondering as a follow-up to that, if that deal sort of also started maybe some inbound inquiries with other Texas teams?

Eric, I'll start, and Steve may add to that. First of all, as Steve mentioned, we were there the last two days, and we had a chance to meet with many of the Veritex colleagues. And I will say that the general reaction from that group is 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. 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. There's also a level of excitement around our local structure. This is an organization that's obviously been headquartered in Texas.

And now with our regional structure and regional presidents in Texas, Malcolm as the Chairman of our Texas organization, that creates a level of comfort, a level of sense that, 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 there in Texas.

Erica, I'll add. We also visited with our team in Texas and felt an equal level of excitement. Our confidence in making this move was in part predicated on the success and growth we've had since 02/2009. So we've got a couple of 100 colleagues in Texas, a 100 forward facing bankers, and they've just done a great job for us. So the combined teams will have a couple of 100 new business oriented individuals and give us the opportunity to put 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 we've seen in the past. So we're going to build it out.

Texas alone, Brent, I think shared Monday, huge economic engine. And we Texas will become our third largest state in terms of deposits when we close this. So very, very grateful for the opportunity to work with Malcolm and the terrific team at Veritex.

Our next question is from Manon Gosalia with Morgan Stanley.

Hi, good morning. Zach, can you unpack the change? Good morning. Zach, was wondering if you can unpack the change in the expense guide. Think you mentioned incentive compensation being higher and that's, I guess, fair given the better top line. But if NII reaches the higher end of your guidance range, is it fair to assume that expenses will reach the higher end too?

Yes. Great question, Wenon. Thank you. And as you noted, and I highlighted in the prepared remarks as well, that really the primary driver of a slightly higher expense outlook is the higher revenue and profit outlook for the year and 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 high class problem clearly.

Overall, the way we look at it, we love how this is shaping up here. We have more positive operating leverage now than we had in the original budget, something like half a point to maybe even a point more operating leverage. So it's really good. I would note that part of what happens when you 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 accrual of incentive compensation. So the part of the growth into Q2 was a sort of catch up of accruals that would have otherwise been made earlier this year if we had known the outperformance earlier.

So I feel really good about it. I do think that we try to calibrate these ranges generally so they're all consistent with each other. So to the extent, we're at the higher end of the revenue ranges, then you're at the higher end of the expense range as well to answer your questions specifically about that.

Got it. And then secondly, 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? Is it just the base effect?

Or maybe I'm just reading too much into a one quarter number?

So you may be nitpicking Manas a little bit more than probably is reasonable. Honestly, we see that just a terrific level of production, something like $1,000,000,000 of growth here. And as you look out into the back half of the year, we're expecting to see that or better continued contribution. Remember, there's seasonality in all these businesses here. So I attribute too much to it.

We obviously had a very, very strong fourth quarter and first quarter here. But I think the run rate we're on is pretty solid and should continue to support as we look out into 'twenty six and beyond, not to give formal guidance, but we continue to see the opportunity to drive mid to high single digit loan growth and those new initiatives being a big part of that.

And Manon, we had a number of loans and capital markets activities just spilled into July. So we actually had a very strong start for what's typically a slow couple of weeks.

Our next question is from Ebrahim Poonawala with Bank of America.

Hey, good morning. Maybe I guess given all the Texas focus, maybe I was wondering if you or Brent could spend some time on just 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 timeline of new branch openings? I just would love to know how all of that is gaining traction and kind of outlook there.

Ebrahim, it's a very good question. We remain incredibly optimistic about Texas, North Carolina and South Carolina. In fact, as you know, if you look at the performance of those markets from an economic perspective, those combined are outpacing the rest of the country in job growth and population growth by almost 2x. And so we're going to continue to invest in both. We continue to look for really strong bankers to support what we're doing in North and South Carolina, and we feel good about where we are today.

We are continuing to build out our branch network. We opened two 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 open next year.

So we continue to invest there. Obviously, we've talked a lot about Texas this week and the investment, and this will create a springboard for potentially more.

And just on that, and I appreciate that probably for now, the strategic priorities are clear over the next six to twelve months to get VBTX done, what you said. As you look forward from an inorganic standpoint, would it make more sense to do additional deals in Texas versus Carolinas? Just are there differences in the markets where M and A is a better way to incrementally grow versus the other?

The way we think about it, Ebrahim, is we're going to drive the core. That is our focus. We've had a 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 'twenty six and beyond in terms of core growth. We happen to find an opportunity to combine with a terrific organization, great people. The leadership that Malcolm will provide on an ongoing basis is an important part of our overall consideration. And we do think Texans like to do business with Texans.

And we now have hundreds of bankers in Texas once we close this partnership. 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 Steven Alexopoulos with TD Cowen.

Hey, good morning everybody. I wanted to first drill it. The funding strategy for you, it looks like you plan to use up some of your excess liquidity the half and even in the third quarter. What's the thought behind not growing deposits a bit more aggressively here to fund loan growth? It competitive environment today or because you guys expect rates will be lower over the next couple of quarters? What gives you the expectation here?

Yes. Stephen, thank you. You were clipping out a little bit as you spoke, but I think I got the gist of your question. So I'll take that. Look, really, what I would characterize what we're doing now is just intense optimization of funding and loan growth to drive the best NIM outlook that we can.

And I mentioned in the prepared remarks that we were running with a little bit of elevated cash in the second quarter, frankly, as a function of how strong the deposit gathering had been. It just gives us the opportunity now to fund leveraging some of that and optimize NIM and really just continue to keep everything in a great balance. I do think the deposit gathering program is very much continuing. And as we get into Q4, I would expect sequential growth again. And generally, as we look out over time, and certainly that's our advanced planning for 2026 at this point, I expect to see deposit growth fairly well matching loan growth over the longer term.

Got it. Thanks, Vivek. I can just drill in. So the noninterest bearing deposits were down in the quarter. I don't remember you guys ever being $0.17 and $08 I'm curious if that's a trough.

And is this a function of customers' cash, right, in their business, which is a positive indicator for loan growth? Or are customers just migrating out into higher yielding products? Thanks.

Yes, good question. We're seeing pretty stable trends from here in the overall noninterest bearing mix, not expecting anything really significant in terms of trend in the next couple of quarters here. The way we would look at it is really low cost funding and kind of checking being part of that. And if you one of the nice slides we have in the presentation highlights the growth in checking, which is a great category for us, lower in the spectrum of costs as you know and that's been growing pretty nicely. So I think that in the actual non interest bearing category, some modest continued mix shift but not much.

But really our focus is in growing that kind of lower overall category of funding costs in checking and that's some really nice performance there over the course of this year. Thanks, Stephen.

Our next question is from Ken Upton with Autonomous Research.

Hey, good morning. Just a quick question on the NII for the 3Q at Staples. 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 result for the third quarter and why that could why wouldn't it be better? Like what's the negative as an offset?

Yes. Good question. Zach, this is Zach. I'll take that one. And it could well come in better.

Think I'm expecting a couple of bps likely lower NIM probably trending around the 3.083% level for Q3 and Q4. So that's just a little bit of extra headwind there. I think if I unpack the NIM into the third quarter, one thing that we're seeing is a bit more a few basis points of hedge drag coming back up as some of our forward starting received fixed swaps come online and some of the pay fixed swaps that we've had over the last couple of years begin to mature. Obviously, still also benefiting, however, from strong fixed asset repricing trends. And as I just noted in Stephen's question, a bit of optimization of cash and securities into the third quarter. So that's really the kind of the modest headwind there, but it will still represent I think 8% to 9% year over year growth and spread revenues are really, really strong and that's what the full year is tracking to also over the course of this year.

Okay. And then just one 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 growth drivers that you're seeing on the fee side aside from the pluses and minus around capital markets? Thanks.

Sure. Yes, absolutely. Great question, Ken. If you think about our fee drivers and we profile this in a lot of detail at the Investor Day in February, Payments, wealth management and of course capital markets are the three primary areas of growth. And those three 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 significant opportunities over not only short term but the longer term there.

Huntington Bancshares (HBAN) Q2 2025 Earnings Call Transcript

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