Detailed Narrative
Veritex Acquisition & Texas Expansion
The acquisition of Veritex is a significant strategic move, providing a springboard for substantial growth in Texas, particularly in Dallas-Fort Worth and Houston. This combination brings strong commercial banking relationships and will enable Huntington to offer its full suite of products and services, including expanding retail banking and wealth offerings. Malcolm Holland will join as Chairman of Texas, and the deal is expected to close in Q4 FY25, creating a combined team of hundreds of bankers in Texas.
Strong Organic Growth
The company reported robust organic growth, with average loans and deposits both increasing by almost $10 billion year-over-year. This growth is supported by core businesses and new initiatives, particularly in Texas and the Carolinas, and national specialty verticals like financial institutions group and funds finance. Primary bank relationships grew 4% in Consumer and 6% in Business Banking, demonstrating the strength of the deposit franchise and disciplined pricing.
Net Interest Income & Margin Performance
Net interest income (NII) grew 2.9% sequentially and nearly 12% year-over-year, reaching $1.49 billion. Net interest margin (NIM) was 3.11% for the second quarter, up 1 basis point QoQ. This increase included a 2 bps benefit from lower hedging drag, partially offset by 1 bp from higher average cash balances. Management expects NIM to be quite stable in H2, with full-year NII guidance raised to 8-9%.
Fee Income Momentum
Strategic fee income areas (payments, wealth, capital markets) collectively grew 11% year-over-year, now representing 66% of total fee income, an increase of 6 percentage points from two years ago. Commercial payments, treasury management, merchant acquiring, and commercial card portfolio drove payments growth. Wealth fees increased 13% YoY, supported by a 12% increase in advisory households and $1.8 billion in net flows. Capital Markets grew 15% YoY, driven by underwriting, syndications, and financial risk management products.
Credit Quality & Capital Strength
Credit performance remains strong, with net charge-offs improving by 6 basis points from the prior quarter to just 20 basis points. The allowance for credit losses ended the quarter at 1.86%. Adjusted CET1 reached 9%, the lower bound of the target operating range of 9% to 10%, and tangible book value per share increased 16% YoY. The company maintains strong liquidity with 2x coverage of uninsured deposits and a near-neutral asset sensitivity position.
Expense Management & Operating Leverage
GAAP noninterest expense in the quarter was $1.2 billion, with growth primarily driven by incentive and performance-related compensation due to increased revenue and profit outlook. The company is focused on driving positive operating leverage, expecting a larger amount for 2025 than initially planned. This commitment to operating efficiency improvements is supporting sustained growth and investments while grinding the efficiency ratio lower over time⏳.