Huntington Bancshares Incorporated (HBAN) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents strong financial metrics, optimistic guidance, and strategic partnerships with Veritex and Cadence, which are expected to drive revenue and cost synergies. Despite some uncertainties in expense guidance, the positive operating leverage, increased fee income, and robust loan growth outlook contribute to a positive sentiment. The company's focus on digital investments and shareholder returns through share repurchases further supports a positive stock price movement. Given these factors, a positive stock price reaction is anticipated over the next two weeks.
Key Financial Performance
Revenue Growth 11% year-over-year increase. This growth was attributed to the company's differentiated operating model and strategic investments in high-growth states.
Adjusted EPS Growth 16% year-over-year increase. This was driven by strong organic loan and deposit growth, expanding fee revenues, improving margins, and positive operating leverage.
Operating Leverage 290 basis points of positive operating leverage. This was achieved through significant revenue outperformance and disciplined cost management.
Average Loan Growth 14.4% year-over-year increase. Excluding the Veritex portfolio, organic loan growth was 8.6%, driven by expansion into Texas and the Carolinas, as well as strong performance in funds finance and financial institutions group commercial verticals.
Average Deposit Growth 8.6% year-over-year increase. Core deposits grew 3.4% excluding Veritex, supported by disciplined pricing and growth in primary banking relationships.
Net Interest Income (NII) Growth 14% year-over-year increase. This was driven by contributions from Veritex's core NIM and disciplined management of asset yields and funding costs.
Net Interest Margin (NIM) 3.15% for the fourth quarter, up 2 basis points from the prior quarter. This was attributed to contributions from Veritex's core NIM.
Fee Income Growth Payments grew 5%, wealth management grew 10% (16% adjusted for a sale), and capital markets had its second strongest revenue quarter. Loan and deposit fees increased by over 20%.
Operating Expenses Core operating expenses increased by just $7 million sequentially, reflecting cost discipline and continuous expense reengineering.
Adjusted ROTCE Increased by 40 basis points year-over-year, driven by robust PPNR expansion and an increase in the capital base.
Tangible Book Value Growth 19% year-over-year increase, while returning 40% of earnings through dividends.
Net Charge-Offs 24 basis points, with forward-looking credit metrics remaining stable.
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Operating Highlights
New fintech solutions: Integrated partnerships to deliver new fintech solutions for consumer and small business customers.
Digital capabilities: Continued investment in industry-leading digital capabilities.
Geographic expansion: Expanded branch build-out in North and South Carolina and middle market banking in Texas.
Partnerships: Veritex and Cadence partnerships augment scale and density in high-growth states.
Loan growth: Generated organic loan growth of $10.1 billion in 2025, exceeding the $9.5 billion added through Veritex partnership.
Deposit growth: Core deposits grew $5.5 billion year-over-year, reflecting strong relationship-oriented deposit gathering capabilities.
Cost synergies: Realized targeted cost synergies from Veritex and expect similar results from Cadence by Q4 2026.
Customer-centric approach: Focused on deepening customer relationships and expanding wallet share with diversified portfolios.
Partnership integration: Efficient integration of Veritex and Cadence partnerships, with Veritex fully integrated in 187 days and Cadence integration expected mid-2026.
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Risk or Challenges
Integration of Veritex and Cadence: The integration of Veritex and Cadence involves operational risks, including potential customer disruption, talent retention challenges, and the risk of not achieving targeted cost and revenue synergies. The expedited integration timelines may also increase the likelihood of errors or inefficiencies.
Deposit Environment: The deposit environment remains competitive, which could pressure the bank's ability to maintain disciplined pricing and achieve its growth targets. This could impact funding costs and overall profitability.
Credit Quality: The criticized asset ratio rose to 4.2%, primarily due to Veritex's commercial real estate loans. This could pose a risk to credit quality and financial stability if these assets underperform.
Economic and Market Conditions: The bank's growth strategy is heavily reliant on expanding in high-growth states and sectors. Any economic downturn or adverse market conditions in these areas could significantly impact the bank's performance.
Loan Growth vs. Deposit Growth: The bank expects loans to grow faster than deposits in the first quarter of 2026, which could create funding imbalances and liquidity risks.
Cost Management: While the bank has shown cost discipline, the integration of new partnerships and continued investments could lead to higher-than-expected expenses, impacting operating leverage and profitability.
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Guidance & Outlook
Revenue Growth: Net interest income is expected to grow between 10% and 13% in 2026, supported by 11% to 12% growth in loans and 8% to 9% growth in deposits. Fee revenues are projected to grow between 13% and 16%, driven by core value-added services and contributions from new Capital Markets teams.
Loan and Deposit Growth: Loans are expected to grow by 11% to 12%, while deposits are projected to grow by 8% to 9% in 2026. Deposits are expected to grow at a level consistent with loan growth by Q2 2026, ensuring robust core funding for continued loan growth.
Net Interest Margin (NIM): Further expansion in net interest margin is anticipated in 2026, driven by lower hedge drag and fixed asset repricing.
Operating Leverage: The company expects to deliver 150 to 200 basis points of operating leverage in 2026, supported by cost synergies from recent partnerships.
Partnership Synergies: Cost synergies from Veritex are expected to be fully realized by Q2 2026, while Cadence synergies are expected to be fully realized by Q4 2026. Revenue synergies from these partnerships are anticipated to contribute to growth in the second half of 2026 and into 2027.
Credit Quality: Net charge-offs are expected to range between 25 and 35 basis points in 2026, with losses likely at the lower end initially and normalizing closer to the midpoint over time.
Capital Management: The company plans to initiate programmatic share repurchases in 2026, with approximately $50 million per quarter expected after the Cadence partnership closes.
Tax Rate: The effective tax rate for 2026 is expected to be between 19% and 20%.
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Shareholder Return Plan
Dividend Yield: 40% of earnings were returned through dividends in 2025.
Share Repurchase Program: The company intends to initiate programmatic share repurchases in 2026, with an expected capacity to add approximately $50 million per quarter of repurchases.
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Key Q&A
Q:What is the baseline for core expenses and how does it relate to the Cadence addition and cost savings?
A:The baseline for core expenses is approximately $4.825 billion, excluding 2 months of Veritex. The total expense growth is projected at 10%-11% year-on-year, including Veritex and Cadence expenses. Cadence adds $1.1 billion in expenses for 11 months, with 75% of Cadence cost synergies expected to accrue in 2026. Investments back into the business are also included in the expense trajectory.
Q:How does the partnership approach with Veritex and Cadence create revenue and cost synergies?
A:The partnership approach allows for faster decision-making and creates certainty for colleagues, which helps achieve cost synergies, particularly those related to personnel. The collaboration with Veritex and Cadence teams has been strong, and the partnership model is expected to drive both cost and revenue synergies.
Q:Can you provide a tighter range on expected first-quarter expenses or early 2026 expenses?
A:The CFO declined to provide quarterly guidance but emphasized the focus on achieving positive operating leverage. The marginal profitability from Cadence is significant, with a 50% marginal efficiency ratio before full cost synergies.
Q:What revenue synergies from Veritex and Cadence are included in the guidance?
A:Very little revenue synergies are included in the guidance. A detailed plan for revenue synergies will be shared later in the quarter. Investments in digital technology, marketing, and people are expected to drive future revenue growth.
Q:What is the starting point for FY 2025 baseline core expenses?
A:The starting point for FY 2025 baseline core expenses is $4.871 billion.
Q:Are you still on track for the $2 pro forma EPS in 2027 as suggested in the merger deck?
A:Yes, the company is on track for the $2 pro forma EPS in 2027. The drivers include seamless integration, cost synergies, and revenue synergies, which are not yet included in the guidance. The company expects mid-to-high teens EPS growth in 2026 and similar growth in 2027.
Q:What is the fee contribution from the capital market deals?
A:The capital market deals add $80 million to $90 million in revenues, with core fees expected to grow by 7%-8% in 2026. Payments, capital markets, and wealth management are key drivers of fee growth.
Q:What level of investments is embedded in the mid-single-digit Huntington expense growth?
A:Investments are expected to grow by 20%, focusing on digital and technology capabilities, marketing, and people. Key initiatives include new commercial specialty verticals, geographic expansion, and digital customer acquisition.
Q:What level of Purchase Accounting Adjustments (PAA) is embedded in the NII guide?
A:The PAA is expected to contribute 7-10 basis points to the net interest margin (NIM), aligned with prior expectations.
Q:Is there any AI-related investment spend included in the guidance?
A:Yes, AI-related investments are included under digital and technology investments. AI is being used to drive cost savings, productivity, and customer experience improvements.
Q:What is the credit guidance and what factors influence it?
A:The credit guidance is based on historical performance, with an expected range of 25-35 basis points. The company expects to be at the lower end of this range in 2026.
Q:What is the expected deposit beta with upcoming rate cuts?
A:The deposit beta is expected to remain in the high 30s to 40% range, aligned with prior guidance.
Q:What is the rate of growth for technology investments?
A:The company plans to provide more details on technology investments later in the quarter. Investments are focused on customer-facing capabilities, digital marketing, and value-added services.
Q:Are there any plans to tweak the loan portfolio after the acquisitions?
A:The company is satisfied with the combined loan portfolio but may manage commercial real estate construction exposure over time.
Q:What is the expected expense run rate exiting 2026?
A:The CFO did not provide a specific exit run rate but emphasized a full-year efficiency ratio of around 55% and improving into 2027.
Q:What is the expected loan growth rate exiting 2026?
A:The underlying loan growth momentum is expected to be 8%-9%, with potential for higher growth due to revenue synergies from the partnerships with Veritex and Cadence.
Q:How does the company view the integration of acquisitions and potential for future M&A?
A:The company is focused on integrating Veritex and Cadence, emphasizing organic growth. Future M&A would need to be strategic, meet financial and risk metrics, and add value.
Q:Review of Unclear Management Responses
A:The CFO avoided providing specific quarterly expense guidance and an exact exit run rate for 2026 expenses. Additionally, detailed revenue synergies from Veritex and Cadence were not included in the guidance, with plans to share more information later in the quarter.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Cadence view
Consumer
NII
PAA
Slide core
TM Capital
addition
advantage
approach customer
approach partnership
base cost
breadth
capability approach
capacity
category
commitment fee
contribution core
core funding
cost synergy
count Cadence
creation model
decline
deposit fee
expense base
flywheel value
glove process
integration
lending
migration
moment
platform capability
point leverage
product
state
system
talent
update
value service
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Frequently Asked Questions
Where does this earnings call transcript come from?
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Who creates the AI Summary and Key Q&A highlights shown above the transcript?
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