Detailed Narrative
Veritex Acquisition and Texas Expansion
Huntington is poised to accelerate growth in Texas through its partnership with Veritex, which closes next Monday. The acquisition will make Huntington the 14th largest depository in Texas and 5th largest in Dallas, ahead of most regional peers. Management expects 1 percentage point improvement in efficiency ratio and 30 basis points lift to ROTCE from cost synergies, with greater opportunity in revenue growth by leveraging Veritex's network for consumer, small business, and digital capabilities, and offering fee-based services like payments, wealth management, and capital markets to Veritex's commercial and consumer customers.
Organic Growth Strategy
The company's foundational organic growth strategy focuses on delivering national scale capabilities through local market relationships, which has resulted in outperforming peers in loan and deposit growth. This approach drives powerful growth, enables investment to compound competitive advantage, and results in meaningful operating leverage, contributing to long-term shareholder value. The Carolinas expansion, initiated a couple of years ago, is performing well with experienced teams and planned branch build-outs, while Texas expansion is also showing strong early results.
Operating Leverage and Efficiency
Huntington has achieved significant positive operating leverage, with 500 basis points on a trailing 12-month adjusted basis and an outlook for over 250 basis points improvement in efficiency ratio for full year 2025. This is driven by strong revenue generation and disciplined cost efficiency programs that reduce baseline expenses by about 1% annually, creating capacity for robust investments in technology, marketing, and talent.
Capital Management and Shareholder Returns
The company's capital management prioritizes funding high-return loan growth and supporting its strong dividend yield. Adjusted CET1 ended at 9.2%, up 30 basis points year-over-year, within the target operating range of 9%-10%. Given strong capital generation, Huntington expects capacity for share repurchases, with a baseline assumption of approximately $50 million per quarter through 2026, while continuing to drive CET1 towards the midpoint of its range.
Credit Quality and Risk Management
Credit performance remains strong with net charge-offs at 22 basis points and an allowance for credit losses at 1.86%. The criticized asset ratio was 3.79%, and the nonperforming asset ratio declined 3 basis points sequentially. Management attributes this to a long-standing aggregate moderate to low-risk appetite, disciplined client selection, active portfolio management, and diversification, which have helped avoid recent industry-reported issues.
Deposit Gathering and Funding Costs
Average deposits increased by $1.4 billion or 0.8% sequentially, and the overall cost of deposits declined by 2 basis points. The company's focus on growing households and deepening primary bank relationships, combined with sophisticated analytical and operational approaches, has driven sustained deposit gathering with disciplined pricing. Management expects funding costs to decrease further with additional Fed rate cuts.
Fee Income Business Momentum
Noninterest income increased 14% year-over-year on an adjusted basis, with strong performance across Payments (up 10%, commercial payments up 20%), Wealth Management (up 12%, AUM up 11%, advisory households up 9%, $1.7 billion net flows), and Capital Markets (up 21%, supported by advisory, syndications, and commercial banking activities). The advisory backlog is building, and the leveraged finance and private equity platform is fully built out.