Huntington Grows Loans as Deposit Costs Pinch Margin
Net interest income rose 9% QoQ to $2.052 billion as loan growth outweighed modestly higher funding costs.
Huntington Bancshares (HBAN), the regional bank, increased net interest income by $161 million, or 9% QoQ, to $2.052 billion as its expanded balance sheet offset pressure from deposit costs. Net interest margin compressed 3 bps to 3.21% after the rate paid on interest-bearing deposits rose 8 bps and loan yields gained 2 bps. The margin remained 10 bps above the year-earlier level because funding costs had declined YoY.
Commercial lending drove the expansion. Average loans and leases rose 9% QoQ and 42% YoY to $189.3 billion, including balances added through the Cadence and Veritex acquisitions. Average commercial loans increased 11% QoQ, with commercial-and-industrial balances up 11% and commercial real estate up 13%.
Consumer loans grew 5% QoQ as residential mortgages increased 10% and home-equity balances rose 5%. Automobile loans declined 3% from the first quarter, tempering growth outside the mortgage portfolio.
Average deposits increased 9% QoQ and 37% YoY to $223.4 billion, also reflecting the acquisitions. Noninterest-bearing demand deposits rose 13% QoQ, while interest-bearing demand and time deposits grew 18% and 17%, respectively. Huntington allowed some higher-cost acquired deposits to run off, though the broader mix shift left funding costs modestly higher during the quarter.
Fee businesses added another source of revenue growth. Noninterest income rose 15% QoQ to $785 million, led by a 66% increase in mortgage-banking revenue, while payments and cash management, wealth and asset management, and capital-markets fees also advanced. The efficiency ratio improved 570 bps to 61.5% as acquisition-related costs declined, though adjusted expenses rose 10% QoQ on higher personnel and technology-related spending.
Capital absorbed the balance-sheet growth and continued share repurchases. Huntington's common-equity Tier 1 ratio declined 20 bps QoQ to 10.0%, extending its slide from 10.6% in the third quarter of 2024 as higher risk-weighted assets and buybacks outweighed earnings. The bank repurchased $159 million of shares, bringing first-half repurchases to $309 million under the $3 billion authorization approved in April.
Credit signals were mixed. The provision for credit losses declined by $26 million QoQ to $132 million, and the annualized net charge-off rate improved 1 bp to 0.25%. Nonperforming assets climbed 19% to $1.612 billion, however, lifting the NPA ratio by 13 bps to 0.85% as nonaccruals increased across commercial-and-industrial, residential-mortgage and commercial-real-estate loans.
Management described the operating environment as constructive after relative economic uncertainty in the prior quarter. Robust pipelines supported that view, and Huntington expects the integrations' full earnings power to become evident by the fourth quarter.