Huntington Bancshares Incorporated (HBAN) Earnings

Management highlights

- Overall Strategic & Operational Milestones • Successfully completed the Cadence Bank systems conversion 235 days after announcement, converting 4,500 colleagues, hundreds of thousands of customer accounts, over 4,000 signage updates, and onboarding 6,000 high-value commercial customers to customized treasury products. The conversion achieved the rare result of growing deposits during the conversion weekend and subsequent weeks. • The company has reached an inflection point after completing two bank combinations (Veritex and Cadence), with full integration now positioned to drive accelerating organic growth, expanded earnings, and higher tangible book value. • The combined franchise has established significant scale in high-growth Texas and the Southern U.S., serving as a long-term springboard for future growth. Huntington is now a top 8 bank in Texas and top 5 in Dallas/Houston, with 140 branches and 955 revenue-producing colleagues in the market. - Synergy Progress • On track to achieve $365 million in Cadence cost synergies by Q4 2026, and $435 million in total annualized run-rate cost synergies from recent acquisitions by Q4 2026. Revenue synergies are developing in line with original plans. • Early synergy proof points: expanded loan commitments across the Cadence footprint total nearly $1 billion across energy, commercial real estate, and auto floorplan; 10 completed capital markets transactions have generated $12 million in fees to date; new checking household acquisition in the Cadence footprint has almost doubled from 3,100 to 5,900 households per month prior to any targeted marketing investment. • 80% of maturing CD balances in the Cadence footprint have been retained, higher-cost wholesale/broker deposits are being reduced, and checking account growth is accelerating, aligning with Huntington's relationship-based deposit model. - Operational & Competitive Strengths • Delivered peer-leading organic loan and deposit growth since 2024 while completing two large acquisitions and conversions. Earned multiple industry awards, including Euromoney's U.S. Best Digital Bank for Consumers, J.D. Power top honors for mobile banking customer satisfaction, Forbes Best Place to Work, and 15 Coalition Greenwich Best Bank Awards including top rankings for overall satisfaction, ease of doing business, and trust. • The ongoing baseline expense reengineering program is on track to deliver a 1.6% reduction in 2026 operating expenses, exceeding the long-term 1% annual target, creating additional capacity for growth investment. Generated 210 basis points of positive operating leverage over the trailing 12 months. • Capital position remains strong, supporting organic growth, a 3% dividend yield, and ongoing share repurchases. Tangible book value per share has grown at a consistent high single-digit to low double-digit pace, in line with long-term targets. • Credit quality remains strong: the CCAR severely adverse stress test resulted in modeled cumulative loan losses of 5.9% of average loans, the second-lowest outcome among regional peers, down from 6.1% in the 2024 cycle. Allowances remain sufficiently strong to cover stress losses.

Guidance

- Full-year 2026 guidance: • Net interest income is expected to come in at the low end of the prior guidance range, or modestly below, due to incremental upward pressure on deposit costs. Average loan growth is tracking at or above the high end of the prior range, driven by strong commercial end-market demand, and core deposit growth is expected to continue outpacing loan growth. • Non-interest income is tracking at the high end of the prior guidance range, or potentially above, driven by stronger-than-expected performance across payments, wealth management, and capital markets. • Net charge-offs are expected to come in the lower half of the 25-35 basis point guided range, and the full-year effective tax rate is expected to be modestly better than prior projections. • Full-year 2026 share repurchases are expected to total at least $550 million, with an additional $1.1 to $1.2 billion in repurchases planned for 2027. • The company remains on track to reach a core efficiency ratio in the mid to low 54% range by Q4 2026. - Long-term 2027 guidance (unchanged from prior projections): • Target EPS of $1.90 to $1.93, representing approximately 30% EPS growth from the 2025 baseline. • Target ROTCE of 18% to 19%, supported by full synergy capture, operating leverage, and expense discipline. • Expected high single-digit to low double-digit annual revenue growth, balanced between spread and fee revenue, with fee revenue growing faster than spread revenue. Target 400-500 basis points of total annual operating leverage. • Expected continued high single-digit to low double-digit tangible book value per share growth, supported by earnings growth and share repurchases. - Short-term quarterly outlook: • Q2 2026 is expected to be the trough for NIM, with NIM expected to expand sequentially through Q3 and Q4 2026, reaching the low 320s in Q3 and mid to high 320s in Q4. Q4 2026 will be the first full quarter of full run-rate Cadence cost synergies, and will provide a clear view of the combined company's full earnings power as a launch point for 2027.

Segment performance

Overall Q2 2026 financial performance: Average total loans increased $15 billion (8.6%) sequentially; adjusting for Cadence balance sheet day count effects, organic average loans grew $2.2 billion (1.2%). Commercial and industrial (C&I) lending led growth, with contributions from corporate/specialty segments including financial institutions, industrials, diversified businesses, corporate mortgage finance, and Native American financial services. Commercial real estate balances saw a planned modest decline, and auto loan production was lower due to spread compression and return requirements. Average total deposits increased $18.8 billion (9.2%) sequentially; adjusting for Cadence day count effects, organic deposits grew $4 billion (1.8%), outpacing organic loan growth. Deposit growth was driven by expanding primary banking relationships: consumer PBRs grew 4% YoY, business banking PBRs grew 5% YoY, and commercial PBRs grew 8% YoY. Net interest income (NII) hit $2.1 billion, an 8.5% sequential increase. Net interest margin (NIM) rose 10 basis points YoY but declined 3 basis points sequentially. Value-added fee revenue grew 15% sequentially, with broad-based growth across segments: payments grew 10% YoY, wealth management grew 12% YoY, capital markets grew 46% YoY, and loan/deposit fees grew 19% YoY. Non-interest expense was $1.8 billion ($1.7 billion excluding one-time items, up $145 million sequentially). Trailing four-quarter adjusted ROTCE was 16.7%, and Q2 2026 adjusted ROTCE was 17.5%. Credit performance remained strong, with net charge-offs near the low end of the guided range.

Risks & headwinds

- Intensifying competition for deposits is creating incremental upward pressure on deposit costs, which has pressured NIM in Q2 2026. • Spread compression in the auto lending business has reduced returns below the company's internal thresholds, leading to intentional production cuts that have moderated overall loan growth in the near term. • NPAs remain elevated, driven by increases in virtually loss-free government guaranteed loan categories and downgrades of a small number of select commercial credits, though broader portfolio trends remain stable. • The operating environment remains dynamic, with potential changes in interest rates (including potential rate hikes) that could impact deposit costs and net interest margins.

Analyst Q&A

• Q: The stock is down on news that NII guidance is moving to the low end/below the prior range despite strong loan and deposit growth. What is driving the downward NII adjustment, and how does the competitive landscape look for deposit costs? /

  A: The biggest driver of the NII adjustment is higher-than-expected deposit costs, a trend seen across the industry. While the deposit environment remains competitive, it is still rational, with granular pricing across 56 regional markets that allows the bank to optimize dynamically. The bank is seeing stronger-than-expected deposit acquisition: checking household acquisition is up 31% YoY, with digital acquisition in the Cadence footprint up 60% since January, and new branches in growth markets are outperforming deposit targets by 2x. Stronger volume growth offsets modest NIM pressure, and NIM is expected to expand starting in Q3 now that the Cadence conversion is complete and deposit optimization can begin.

• Q: What are the key drivers to bridge from a 2027 low-teens EPS run rate to the bank's $1.90-$1.93 2027 EPS target? /

  A: The three core building blocks for the target are balanced strong revenue growth, disciplined expense management, and share buybacks that reduce the outstanding share count. Revenue will grow high single-digit to low double-digit, with fee revenue outperforming spread revenue. Expenses will benefit from full run-rate Cadence cost synergies and ongoing annual baseline expense reengineering, which has averaged 1.3% annual reductions over seven years and will hit 1.6% in 2026, with further reductions planned for 2027. The scale position in high-growth Texas also provides a strong long-term tailwind for revenue and earnings growth.

• Q: What is driving the stronger-than-expected fee revenue performance that has pushed fee guidance to the high end of the range? Is organic growth meeting expectations? /

  A: Fee revenue organic growth accelerated to 30% YoY in Q2, up from 18% YoY in Q1, driven by long-term investments in core fee businesses and the expanded footprint from recent acquisitions. Payments growth is supported by growing commercial banking penetration of treasury management and commercial payments, a core area of Cadence revenue synergy. Wealth management growth comes from expanded teams across new and existing markets. Capital markets growth is driven by increased activity tied to strong commercial banking growth and new capabilities like expanded loan syndication. Organic growth remains on track: the 1.2% core loan growth this quarter was moderated by intentional auto lending cuts (roughly $2 billion lower production year-to-date) and faster-than-planned commercial real estate runoff, both of which are intentional risk/return decisions, not a sign of weak demand. NIM expansion is still expected after the Q2 trough. What gives management confidence that NII guidance will not need further downward revisions? / A: The bank has multiple dynamic levers to offset any incremental pressure, including stronger loan and fee growth that offsets NIM pressure. Deposits grew faster than loans in Q2, providing pre-funding for second half loan growth that reduces the need for higher-cost funding. Post-conversion optimization of the Cadence deposit base is just starting, which will help reduce overall deposit costs. The environment is expected to remain competitive but stable, and management prioritizes overall earnings and return growth over hitting any single NII target, with current returns already strong at 17.5% ROTCE in Q2.