Prepared remarks
Greetings, and welcome to the Huntington Bancshares second quarter 2026 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Eric Wasserstrom.
Thank you, operator. Good morning, and welcome everyone to our second quarter call. Our presenters today are Steve Steinour, Chairman, President, and Chief Executive Officer; Brant Standridge, President of Consumer and Regional Banking; and Zach Wasserman, Chief Financial Officer. Brendan Lawlor, Chief Credit Officer, will join us for Q&A. Earnings documents, which include our forward-looking statements, disclaimer and Non-GAAP information, and copies of the slides we will be reviewing today, 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 now turn it over to Stephen.
Thanks, Eric. Good morning, and thank you for joining us. Starting on slide three, we delivered an exceptional quarter marked by strong organic growth, expanding revenue and profitability, and the successful completion of the Cadence systems conversion. We achieved these results while continuing to invest in our businesses, technology, and support areas. These accomplishments reflect exceptional preparation, coordination, and execution from thousands of colleagues, and I want to thank our colleagues for their tremendous work. They managed a complex conversion while continuing to serve customers, generate growth, and deliver another strong quarter. The operating environment remains constructive. Visibility on economic trends has improved since last quarter. Customer activity remains steady across our footprint, and commercial demand is broad based. Our clients continue to take a long-term approach to investment decisions.
Huntington is now at an inflection point. Our core businesses are performing at a high level, our conversions are complete, and we are positioned to capture the benefits of our investments, as well as the recent partnerships and expanded footprint. We continue to view Texas and the South as a springboard to significant future growth now and for the long term. We have a terrific team of new leaders and colleagues who are excited about the opportunities ahead and are already delivering additional revenue. We are laser focused on the continuing integration of our colleagues and working together as one team on behalf of our customers and shareholders. All of these efforts create a clear path toward accelerating organic growth in revenue, earnings, and increasing tangible book value in the years ahead. There are four key messages I'd like to leave you with. First, we have strategically repositioned our company with substantial operating scale across regions and capabilities, creating multiple growth engines for the long term.
Second, we are laser focused on generating organic growth and are well-positioned to expand across the franchise. Third, we are delivering on our commitments on partner cost and revenue synergies. Fourth, our execution is powering robust long-term value creation. We are growing revenue and earnings, expanding ROTCE, increasing tangible book value, and generating capital that allows us to invest in the franchise while increasing shareholder value. On slide four, our strategy continues to produce leading results reflecting the strength of our core franchise, contributions from our investments and partnerships, and benefits of disciplined execution across the company. The outcomes reinforce our confidence in achieving our 2027 ROTCE target of 18%-19%. Turning to slide five. The core franchise continues to perform at a very high level. Since 2024, we've delivered peer-leading organic loan and deposit growth while completing two bank combinations and conversions, as well as making substantial progress on the integration work that is expanding our earnings power and long-term growth opportunities.
Turning to slide six. Our culture remains one of the most important competitive advantages and has been acknowledged through the numerous awards that we've won. While driving the integrations of Veritex and Cadence, we've received several new awards, including United States Best Digital Bank for Consumers by Euromoney, J.D. Power Best Mobile Banking App and Website Experience for Customer Satisfaction, Forbes as the Best Place to Work, and 15 Coalition Greenwich Best Bank Awards, including number one for overall satisfaction, number one for ease of doing business with, and number one for trust. I am very proud of what our colleagues have delivered for our customers and shareholders. With that, I'll now hand it over to Brant to discuss the successful Cadence conversion, which he has led, and the many opportunities ahead as we continue realizing the benefits of the partnerships. Brant, thank you for your outstanding leadership, and thank you to our colleagues across Huntington and Cadence. Your dedication, teamwork, and focus on serving customers continues to be outstanding.
Thank you, Steve. Turning to slide seven. Last month, we successfully completed the Cadence systems conversion with strong engagement from both customers and colleagues. I want to reiterate our thanks to colleagues across the entire company for the dedication and preparation that made this possible. The conversion was completed just 235 days after announcement and reflects the strength of our integration playbook, our disciplined execution, and the deployment of AI-enabled tools to automate a number of the manual processes. Importantly, our customers' and colleague engagement remains strong and, in a result that very few banks achieve, we actually grew deposits during the conversion weekend and the weeks that followed. This outcome demonstrates both the quality of the customer experience and the trust customers place in our franchise and in our colleagues that continue to serve them. During this conversion process, we trained and transitioned 4,500 colleagues onto Huntington systems.
We onboarded hundreds of thousands of customers to Huntington platforms, converted ATM and ITM locations, completed signage changes across more than 4,000 signs, and provided early customized treasury products, onboarding, and training to over 6,000 high-value commercial customers. These are tangible examples of the detailed planning and thoughtful execution that went into the conversion. With this major operational milestone now behind us, our focus shifts from conversion to growth. Turning to slide eight. We remain on track to attain the $365 million in cost synergies in the fourth quarter, and the revenue opportunity is developing as we planned. Let me highlight just a few examples. One of our core objectives is to bring Huntington's broader capabilities, larger balance sheet, and specialized expertise to customers across the entire Cadence footprint. We are already seeing meaningful proof points.
For example, our pipelines reflect expanding client commitments by nearly $1 billion across energy, commercial real estate, and our auto floorplan businesses, including more than $500 million of additional commitments in energy and CRE, and approximately $440 million of auto floorplan pipelines. These opportunities simply were not available prior to combining the franchises. Capital markets is another strong example. Since closing, we've completed more than 10 transactions with customers in the Cadence footprint, generating approximately $12 million of fees while building a robust pipeline of future opportunities. We're increasingly being brought into larger, more advisory client discussions, where our scale and capabilities and expertise allow us to capture additional economics and strengthen our customer relationships. Payments is developing similarly. Our merchant services, treasury management, and commercial card capabilities have created new revenue opportunities while helping us deepen primary operating relationships with customers.
Another encouraging proof point is how the Cadence franchise is performing from a deposit perspective. Since closing, production has remained in line with our targets as we successfully transition the franchise towards Huntington's relationship-based model. We're retaining approximately 80% of maturing CD balances. We've reduced higher cost wholesale funding and broker deposits, and we're increasing the growth of checking accounts. We also remain disciplined with pricing. With our pricing analytics capabilities, we're able to optimize rates at the local market level, allowing us to remain competitive and protect customer relationships. Another key area of synergy is digital deposit acquisition. Since February, new checking household acquisition across the Cadence footprint has almost doubled from approximately 3,100 households per month to 5,900 households per month. It's important to note this is before we have undertaken any of the planned and substantive marketing investment in these regions, and is an early proof point of the power of Huntington's digital deposit acquisition capabilities.
Now as we enter the third quarter, we're excited to begin the ramp-up of our marketing activities to drive further engagement and activity. These results reinforce a point we've long emphasized. Our objective is not simply to gather deposits. Our objective is to grow profitable primary bank relationships. That's why household growth, checking account growth, and customer engagement metrics are so important to us. Those relationships ultimately create opportunities across payments, wealth, treasury management, lending, and capital markets. At the same time, we're adding experienced bankers across high growth markets including Dallas, Houston, Fort Worth, Austin, Nashville, and Atlanta, while expanding the private bank, specialty banking, and treasury management capabilities through the Cadence footprint. Taken together, these results reinforce what attracted us to Cadence in the first place.
This partnership was never simply about cost synergies. It was about a springboard for growth across Texas and the South. While we're still early in realizing the full opportunity, the customer activity, production trends, revenue synergies, deposit performance, and pipeline we're seeing today reinforce our confidence in the long-term growth and earnings potential of the combined franchise. With that, I'll turn it over to Zach to discuss the quarter's financial results in detail.
Thank you, Brant. Turning to slide nine. Our second quarter results demonstrate strong execution across the company. I want to underscore three key ideas. First, the core franchise continues to perform exceptionally well. We delivered another quarter of strong organic loan and deposit growth, expanded fee revenues, and demonstrated excellent credit performance, all reflecting our disciplined approach to growth. Second, integration execution is translating into financial benefits, with Veritex cost saves achieved, Cadence cost synergies on track, and revenue synergies building as expected. Third, we continue to make meaningful progress toward our financial targets. Adjusted PPNR increased 12% quarter-over-quarter. Net interest income increased 8.5%. Value added fee revenues increased 15%, and we generated 210 basis points of positive operating leverage on a trailing 12-month basis. As we move through the back half of the year, we expect the fourth quarter to provide a clear view of the earnings power of the combined organization, supported by continued growth, expense discipline, and synergy realization.
Slide 10 demonstrates why we have such strong conviction in this outlook. Our results underscore our tremendous revenue momentum. Growth continues to be driven by three factors. First, organic loan growth remains strong and broad-based across the franchise. Second, deposit growth continues to outpace loan growth, providing ample core funding to support future expansion. Third, our investments in value-added fee services continue to produce strong returns. Payments, wealth management, and capital markets each generated excellent growth that we expect to continue for many years to come as we sustain our investment in these capabilities. This revenue growth, combined with our focus on generating operating efficiencies, is driving high PPNR growth. These elements form the core of our value creation flywheel. Our differentiated model generates peer-leading revenue growth. That increasing revenue, coupled with sustained reengineering of our baseline operating expenses, enables us to maintain a high growth rate of investment back into the business.
These ongoing investments create sustainable and increasing competitive differentiation. This creates a virtuous cycle, enabling us to continue to deliver high revenue growth, superior profitability, and generate substantial capital returns to our shareholders. Let me now walk through the drivers of the quarter's results. Turning to slide 11. Broad-based loan growth continued in the quarter. Average loans increased $15 billion, or 8.6%, sequentially into the second quarter. Normalizing for the day count effect of the Cadence balance sheet in the first quarter, average loans increased to $2.2 billion or 1.2%, an outstanding level of continued organic expansion. This growth was led by commercial and industrial categories, with significant contributions from corporate and specialty. We drove particularly strong activity from the financial institutions group, industrials, diversified businesses, corporate mortgage finance, and Native American financial services, with additional contributions from asset finance and middle-market C&I. Commercial real estate balances modestly declined during the quarter as planned, and auto production was lower.
Turning to slide 12. Q2 was another quarter of robust deposit growth as we core fund our balance sheet. Average deposits increased $18.8 billion or 9.2% sequentially into the second quarter. Normalizing for Cadence day count in Q1, deposits grew organically $4 billion or 1.8% sequentially, outpacing loan growth. Importantly, the growth continues to be driven by customer acquisition and deepening of primary bank relationships, which supports solid core funding. Primary banking relationships increased across each of our customer segments, with consumer PBRs growing 4%, business banking PBRs growing 5%, and commercial PBRs growing 8% year-over-year. Deposit costs increased six basis points during the quarter, including approximately one basis point from the full quarter impact of Cadence and five basis points from the legacy Huntington franchise. Our deposit strategy remains disciplined, focused on driving valuable and granular funding that enables us to sustain our high growth rate while maintaining attractive spreads.
As Brant discussed, we are also seeing encouraging results from our early optimization efforts within the Cadence footprint, including strong retention of maturing CDs and production trends that are tracking in line with our expectations. With the conversion successfully behind us, we are now positioned to execute on optimization across the combined deposit portfolio. Turning to slide 13. This combination of strong core funded asset growth generated $2.1 billion in net interest income, a sequential increase of 8.5%. As we look out over the remainder of the year, we expect loans to grow sequentially each quarter going forward, funded by continued expansion in core deposits. Pipelines continue to support our conviction and our continued revenue momentum over the back half of 2026 and into next year. Turning to net interest margin on slide 14. Our NIM increased 10 basis points year-over-year and declined three basis points sequentially.
The year-over-year increase reflects the migration of our assets into higher yielding categories combined with yield expansion. While the quarter-over-quarter decline reflected the full quarter impact of the Cadence balance sheet and higher funding costs. We believe Q2 is the trough for our NIM and expect expansion from here driven by three factors. First, we expect to benefit from additional fixed asset repricing. Second, toward the end of the quarter, we released the additional liquidity we had intentionally added in the first quarter. While the prior addition of this liquidity was appropriate from a risk management position and neutral to NII dollars, it did create a temporary drag on NIM, which we've now alleviated. And third, as I noted, we see meaningful opportunities for optimization within the Cadence deposit portfolio. These actions will partially mitigate further increases in overall deposit costs.
Turning to slide 15. Fee income continues to be a significant source of strength across all categories and an important contributor to our growth flywheel. We grew value-added fee revenues more than 60% year-over-year. Excluding the impact of Cadence and the acquisition of the Janney Capital Markets business, as well as last year's sale of our corporate trust business, value-added fee revenues grew approximately 30% on an organic basis year-over-year, reflecting exceptionally strong underlying core momentum. In our key strategic areas of focus, payments grew 10% year-over-year, wealth management grew 12% year-over-year, capital markets grew 46% year-over-year, and loan and deposit fees grew 19% year-over-year. Importantly, these businesses are benefiting from both strong organic growth and the additional opportunities created by our new partnerships. We believe this strength contributes to a powerful revenue and earnings profile that is increasingly diversified, with growing emphasis on capital-light recurring fee revenues that support our ability to deliver sustained growth over time.
Moving to expenses on slide 16. Non-interest expense was $1.8 billion, up $35 million from the prior quarter. Excluding one-time items, non-interest expense was $1.7 billion, up $145 million sequentially, driven primarily by the full quarter impact of the Cadence expense base. Other drivers included $27 million of increased personnel costs due to higher incentive and performance-based compensation, the full quarter impact of merit changes, and day count. We remain on track to achieve the combined $435 million of run rate expense synergies from Veritex and Cadence cumulatively by the fourth quarter. Importantly, in addition to those partnership-driven expense synergies, our ongoing expense efficiency reengineering program is continuing to drive meaningful benefit. This year, we're on track to deliver more than 1.5% expense reduction to our baseline operating expenses, well in excess of our long-term 1% per year target.
This creates additional investment capacity to fuel long-term growth. As noted, these combined actions drove 210 basis points of positive operating leverage over the past year, while we continue to invest across our franchise. We are tracking toward our targeted Q4 core efficiency ratio in the mid to low 54% range. Turning to slide 17. Our capital position remains strong, supporting organic growth, a solid dividend yield, and increased capital return through share repurchases. We've consistently grown tangible book value at our targeted high single digit to low double digit pace over the last few years. Year-to-date, we have completed $310 million of our $550 million planned share repurchase program for 2026. We expect to repurchase an additional $1.1 billion-$1.2 billion in 2027. Slide 18 summarizes how we create shareholder value through disciplined management of growth, expenses, capital, and integration execution.
Our underlying earnings power generated 13% tangible book value per share growth before distributions, enabling us to sustain a 3% dividend yield and repurchase $160 million of shares in the quarter. Year-to-date, share repurchases have reduced outstanding shares by approximately 1%. The business continues to generate very strong return on capital. Adjusted return on tangible common equity was 16.7% on a trailing four-quarter basis and 17.5% in Q2. The power of the core businesses, augmented by the partnerships and integration, position us to drive the next phase of value creation, with ROTCE forecasted in the 18%-19% range. Turning to slide 19. Credit performance remains strong and consistent with our expectations. Net charge-offs continue to trend near the low end of our guided range, and we hold substantial reserve coverage. Our criticized asset ratio declined during the quarter. We expect that trend to continue as we execute our normal credit management strategies.
NPAs remain elevated due to increases in government guaranteed loan categories, which have virtually no loss content, and downgrades of select commercial credits. Importantly, we continue to see stable trends across the broader portfolio. We're very pleased with credit performance and remain confident in maintaining top-tier credit outcomes. Turning to slide 20. This year's CCAR results again reinforce the strength and consistency of our credit profile under the Federal Reserve's severely adverse scenario. Huntington delivered a top-tier outcome on modeled credit losses with cumulative loan losses of 5.9% of average loans, which is second lowest in our regional peer group and an improvement from 6.1% in the 2024 cycle. Just as importantly, our allowance remains strong relative to the Fed's modeled stress losses, underscoring the resilience of the balance sheet. The strength of our franchise has been validated time and again in the Fed's stress tests.
The results demonstrate the strength of our through-the-cycle approach to credit and capital management, as well as the durability of our financial performance, while supporting continued capacity to fund organic growth and return excess capital over time. Turning to slide 21. The trends on this slide demonstrate the strength of our operating model. We expect continued revenue momentum supported by loan and deposit growth, strong fee income, cost and revenue synergy realization, and ongoing efficiency enhancement. As those factors come together, as I noted earlier, we expect the fourth quarter to provide a clear view of the earnings power of the combined company and a solid launch point for 2027. We expect this strong revenue formation, combined with expense synergies and our continued focus on efficiency to drive solid PPNR growth. As I noted, we're on track to achieve a core efficiency ratio in the mid to low 54% range by the fourth quarter.
The outcome of all of these measures is that we anticipate continued high tangible book value per share growth while returning capital to shareholders. Turning to slide 22. Over the last year, we've transformed the franchise and successfully entered new markets, building scale in regions that will support strong secular growth opportunities for many years to come. This positions us to drive significant value creation over short and longer-term horizons. We continue to march toward the expectations we've set for 2027. These include EPS growth of approximately 30% from the 2025 level, driven by a combination of strong organic growth, expanding fee income, and increasing revenue synergy realization. Similarly, continued operating leverage, expense discipline, and full synergy capture support further profitability improvement and our expected progression to the 18%-19% ROTCE. Combined with ongoing tangible book value per share growth and meaningful share repurchases, we believe these factors create a clear line of sight to our 2027 earnings objective of $1.90-$1.93 per share.
Turning to slide 23 for our full-year outlook. As we look at the balance of 2026, the key message is that we expect continued momentum and progress toward our 2026 and 2027 goals. We continue to manage dynamically and have multiple growth levers to achieve our objectives. Looking at net interest income, we expect continued NII expansion driven by high-quality loan growth and core deposit funding, with some incremental pressure on funding costs. Our outlook for average loans is now tracking at or above the high end of the range, reflecting continued end market demand, particularly among commercial customers. We also expect continued strong deposit growth to core fund this expansion, driven by growth in our primary bank relationships. Based on these expectations, we expect to be at the bottom end of the NII range or perhaps modestly below it. Turning to non-interest income, performance across payments, wealth, and capital markets remains very strong.
Based on year-to-date performance and pipeline activity, we continue to view the business as tracking to the high end of or potentially above our guidance range. These expectations support our revenue growth outlook, and we're tracking toward the overall level of revenue growth embedded in our full-year guidance while maintaining our discipline around pricing, credit, and capital allocation. On expenses, we continue to execute against our expense synergy targets and remain on track to achieve the $435 million of annualized run rate cost synergies by the fourth quarter. We're accomplishing this while continuing to invest in attractive growth opportunities and re-engineer our core expense base. The strength in our fee income streams creates some modest upward pressure on expenses, which we intend to mitigate through management actions. Credit performance remains excellent, and we now expect net charge-offs to be in the lower half of our 25 basis points-35 basis point charge-off range.
Our tax rate will also likely come in a bit better than our current full-year outlook, given the strong performance in the first half of the year. We expect to repurchase at least $550 million of stock in total this year. The key takeaway here is that the fundamental drivers of our earnings outlook remain intact, and we're excited about the trajectory of our business as we enter the second half of the year and look forward into 2027. Turning to slide 24. Our operating model continues to perform, generating strong revenue, earnings, tangible book value per share growth, and strong ROTCE. This supports the investments we make in our capabilities, which enable our long-term competitive vibrancy and the substantial value we create for shareholders. With that, we'll conclude our prepared remarks and move to Q&A.
Thank you, Zach. We will now take questions. We ask that, as a courtesy to your peers, each person ask one question and one related follow-up question. If you have additional questions, please return to the queue. Thank you.
Questions and answers
Thank you. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from the line of Erika Najarian with UBS. Please proceed with your question.
Hi. Good morning. I do have to say this: the stock opened down five percent and is still down five percent. I think the street is feeling a bit that you stated your outlook is unchanged, but Zach said NII would be at the low end or below. Could you unpack that dynamic? You mentioned incremental pressure on deposit costs. Could you break down what's happening from a competitive dynamic standpoint versus deposit cost optimization? Also, what are you assuming for deposits specifically without a Fed rate hike and how do you expect the margin to perform with a rate hike?
Sure. Thanks, Erika. Good morning. I'll address the points you raised and then Brant can add color as well. On guidance, our overall revenue outlook remains robust. Our focus is driving overall revenue growth. The mix is shifting more toward volume-driven growth; we expect quite strong loan growth into the back half of the year. The second half is typically our strongest sequential period for loan growth; our pipelines indicate solid loan growth ahead. I expect NIMs to expand into the third and fourth quarters driven by the factors we've discussed. That will help drive strong spread revenue growth. At the same time, we are outperforming on fees; fees continue to grow stronger than expected. While NII may be at the lower end or a touch below guidance, we expect fees to be at the higher end or above guidance. The net of these should allow us to track toward our overall revenue growth objectives. On deposit cost, we are not expecting a meaningful change in the competitive environment; it remains competitive but rational. We see opportunity to drive volume growth and to optimize the combined deposit base, particularly now that the Cadence systems conversion is complete. We are confident in our ability to execute on that optimization. Brant, would you like to add?
Erika, this is Brant. To tag on Zach's points: it is competitive, but still rational. We price across 56 different rate regions in our expanded footprint and have a granular view. The Midwest is generally the most competitive market; the Carolinas, Southeast, and Texas slightly trail. We have several levers that give us confidence. Our focus remains on consumer and business primary bank acquisition; acquisition rates are exceeding expectations. With Cadence, checking household acquisition is up 31% year-over-year. About half of our deposits are consumer and half business. On the business side, national commercial deposit verticals give us leverage. For example, our mortgage servicing vertical added $1.7 billion in deposits this past quarter. On the consumer side, production expectations in the Cadence footprint are above expectations; digital acquisition there is up 60% since January. Regarding mix and revenue synergies: we're now seeing a change toward more liquid deposits—savings, checking, MMAs—representing about 80% of volume versus 40% previously. We're also investing in markets like the Carolinas, Colorado, and Chicago; branch openings and local efforts have generated substantial deposits, in some cases above expectations. Our granular view of pricing allows us to be nimble whether rates rise or fall.
Erika, this is Steve. With a more likely rising rate environment, we chose to front-load a bit given rising expectations. Second-half loan generation is typically stronger, and fourth quarter is usually our best quarter. Getting the Cadence conversion behind us lets us focus on running the combined franchise. This was a conscious decision to position the company for the back half of the year.
Got it. Thank you for that. My follow-up: given there are not many stocks I cover trading at under 10x next year's earnings, the starting point to $1.90-$1.93 per share really matters. Zach, you mentioned higher PPNR in Q4 on slide 21. The Street on an operating basis is at $1.34 billion for PPNR for 4Q26. Is the Street in the right place?
Appreciate it, Erika. I won't comment on consensus specifically, but I'll share our outlook. Our expectations for growth into 2027 are unchanged. We have three objectives: EPS of $1.90-$1.93, ROTCE of 18%-19%, and tangible book value per share accretion greater than 10% before distributions. I expect Q4 to be our strongest quarter from an earnings perspective, driven in part by the full run-rate cost synergies from Cadence becoming fully implemented after the conversion. That will be a significant sequential driver into Q4. By my calculus, the Q4 outcome will imply low-teens year-over-year growth in the trended Q4 level into full-year 2027, consistent with current earnings growth trends. The model assumptions behind that include high single-digit loan and deposit growth, a stable to rising NIM, continued strong fee revenue growth—likely high single-digit to low double-digit for fees—and between 400 and 500 basis points of operating leverage driven by cost synergies and baseline reengineering.
We've averaged about 1.3% OPEX reduction per year the last seven years; 2026 is about 1.6%, and we expect more next year. Combine stable credit, lower share count from repurchases, and these operating actions, and that gets you to teens-level EPS growth toward the 2027 objective. There's still a lot of the year left to play out but we remain focused on driving toward a very strong Q4 and into 2027.
Erika, to emphasize: we're at 17.5% ROTCE after a quarter with our biggest conversion ever, and we believe it was successful. We delivered growth metrics and returns. Our efficiency ratio improved about 1% during the quarter despite the activity. We added about 5,000 colleagues and migrated a large number of customer accounts and locations in a compressed timeframe. The team executed well and we've got the tools and runway to deliver the $435 million in synergies.
Thank you.
Thank you. Our next question comes from the line of Manan Gosalia with Morgan Stanley. Please proceed with your question.
Good morning. On the NII guide for the year: loan growth is coming in better than last quarter and deposit growth is running higher than loan growth. You're prefunding some loan growth for the second half and you've released the liquidity. Relative to last quarter, what is tracking more negatively that drives you to the low end or below the NII guide? Is it deposit costs or loan spreads?
Thanks, Manan. The biggest single change in our outlook around NIM is deposit costs and the pricing environment. We're seeing a healthy environment of banks regrowing and driving loan growth, which increases the need to core fund and adds some competition on deposits. Also, the interest rate outlook has changed since earlier expectations—fewer expected cuts and now possibly hikes—so that affects the deposit pricing dynamic. We have multiple levers and will dynamically optimize the business to achieve our revenue and earnings goals. Having completed the Cadence conversion now allows us to manage the combined deposit base more granularly, which gives us confidence we'll capture benefits through the second half.
Manan, as Zach noted, we focus on creating outstanding revenue and EPS growth while managing return. We review returns at the individual deposit and asset class level. One example is the auto business: we've seen spread compression there and pulled back volumes in Q1 and Q2 because returns didn't meet thresholds. We'll optimize across revenue and expense opportunities and are selectively managing volume by return, not pursuing growth that would erode returns.
If I think about the jumping off point for 2027: if mid-to-low teens EPS growth gets us to about $0.42-$0.43 quarterly, roughly $1.65 annual run rate, what are the two or three biggest drivers that close the gap to $1.90-$1.93?
Manan, the drivers are: 1) high single-digit to low double-digit overall revenue growth balanced between spread and fee revenues, with fees growing fastest; 2) very strong expense management and operating leverage into 2027—400 to 500 basis points of operating leverage driven by cost synergies and reengineering; and 3) stable credit performance, potential modest reductions in ACL over time, and a lower share count from meaningful repurchases. Those ingredients combined should drive the progression toward our EPS target for 2027.
One more point on the drivers: Texas is a springboard for future growth. Twelve months ago we were not in the top 400 banks in Texas; today we're top eight. We had no presence in Dallas and Houston and now are top five. We’ve rapidly expanded branches and colleagues and grown loans and deposits substantially. That scale in a fast-growing market supports growth into 2027.
Got it. Thank you.
Thank you. Our next question comes from the line of Jon Arfstrom with RBC Capital Markets. Please proceed with your question.
Thanks. On the fee income guide, can you talk about your confidence in being at the high end or above? What's driving the fee revenue strength and what's the other side of the revenue guide?
Jon, we're very pleased with fee performance. Organically, fee growth was about 18% year-over-year in Q1 and about 30% organic year-over-year in Q2. I expect sustainable double-digit fee growth for a while. The drivers are significant, multi-year investments in payments, wealth, and capital markets. Payments: we've built treasury management, commercial payments, merchant acquiring, and new products that penetrate commercial banking relationships. Wealth: we've been expanding teams and better integrating wealth with core banking, increasing penetration and AUM growth. Capital markets: the team is supporting commercial banking activity and has expanded capabilities such as loan syndication and bolt-on M&A that add revenue. Cadence provides incremental opportunity for revenue synergies in payments and other fee businesses. These investments and stronger commercial activity underpin our confidence in fees tracking to the high end or above guidance.
Jon, pipelines look very good going into the second half. Despite the heavy conversion activity this quarter, we maintained growth in customer relationships and pipeline. That supports continued fee momentum.
Okay. I wanted to ask about organic growth; is 1.2% core loan growth fair and are you satisfied with it?
Jon, loan growth was a little slower due to two factors: lower indirect auto production—about $2 billion less production than typical because returns didn't meet our thresholds—and faster-than-expected reductions in some CRE and construction commitments as we rebalanced CRE to targeted levels. Both are temporary and reflect disciplined focus on returns and risk. The rest of the portfolio performed reasonably well and these headwinds should moderate going forward.
Yep. Okay. All right. Thanks. Cheers.
Thank you. Our next question comes from the line of John Pancari with Evercore ISI. Please proceed with your question.
Good morning. In the interest of time, one question: on your NII outlook and the qualification that you might be at the low end or below, what gives you confidence that this updated NII guide will not be revised down again? Is it the prefunding factor for loan growth, or something else that gives you confidence given intensifying deposit pricing pressure in the industry?
Great question, John. We are dynamic operators with the tools to achieve our objectives. We grew deposits faster than loans in Q2, enabling flexibility going forward. We see strong opportunities to optimize the combined deposit base and remain confident in our ability to manage pricing and volumes to deliver revenue growth. Getting through the Cadence conversion unlocks our ability to optimize more granularly. Our objective is total revenue growth—not just NII—and we have multiple levers to reach our targets while managing pricing, credit, and capital allocation.
John, it's about revenue growth and returns. We're targeting high levels of return—17.5% now and 18%-19% goal—and we will balance revenue and expense actions to get there. We've got the synergy path and the revenue opportunities. We'll manage where necessary to protect returns.
Thanks, Steve. Appreciate it.
Thank you. Our last question comes from the line of Ken Usdin with Autonomous Research. Please proceed with your question.
Good morning. I want to hone in on NII. You have loan and deposit growth guidance for the second half. The size of the balance sheet in the quarter was smaller than some expected. Can you give a range for where average earning assets would be at the Q4 exit that implies your NII outlook?
Ken, part of what affected average earning assets this quarter was actions to optimize liquidity and reduce elevated cash levels. My expectation for cash and securities exiting this quarter is similar to what we ran last Q4, if you want to use that as a modeling input. Our objective is to continue to drive strong loan and deposit growth, roughly in a 2%-3% per quarter range sequentially for loans, which will drive AEA growth as well.
You mentioned deposits should outgrow loans going forward. Now that the balance sheet is reset, is it fair to say average earning assets should grow close to deposit growth?
That's a reasonable assumption. We expect deposit and loan growth to track well relative to each other in the back half of the year. Our objective over time is to match fund and keep the loan-to-deposit ratio in a healthy place.
One more: given there's still work post-conversion, can you give a sense of where June 30 spot deposit costs were versus the average and what upward pressure you might see assuming no rate cut?
I want to avoid overprecision, but the NIM path we expect is modest expansion: low 3.20% range in Q3, then mid-to-high 3.20s in Q4. That implies modest incremental deposit pricing pressure, partly offset by fixed asset repricing, liquidity optimization, and internal deposit optimization across the combined portfolio. We will manage dynamically to achieve our revenue objectives.
Thanks.
Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back to Mr. Steinour for our closing remarks.
Thank you, operator. Over the last several years, we've transformed Huntington into a stronger, more diversified super regional bank. We've expanded into attractive growth markets, broadened our business mix, added new capabilities, and reduced risk through greater geographic and revenue diversification. This has resulted in excellent financial performance, growing tangible book value, and returning substantial capital to shareholders, while our aggregate moderate to low risk appetite has been maintained. We believe the company is very well positioned for continued growth, and the recent partnerships further strengthen that long-term opportunity. I'd like to close with three key points. First, the core franchise is performing at a high level. We're seeing strong momentum in loans, deposits, and our value-added fee businesses with capital markets, wealth, and payments all contributing to durable earnings growth.
Second, the integration has progressed very smoothly. Both the core franchise and new regions are performing very well. This gives us confidence in the cost synergy path and the increase of the opportunity to deepen customer relationships across the broader platform. With the Cadence conversion now complete, we're encouraged by growing pipelines and seeing increasing opportunities to convert that activity into revenue synergies as we previously committed. Third, we remain on track to deliver our financial targets. The Path to 2027 is clear: organic revenue growth, disciplined expense management, synergy realization, and strong capital generation. The fourth quarter will provide a clearer view of the earnings power of the go-forward franchise. We've got strong momentum, a clear plan, and a team that executes. I want to thank our colleagues for an exceptional quarter. Thank you all for joining us today.
This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.