Huntington Bancshares' Q2 Earnings: Growth Versus Expense Pressures in a High-Rate Environment

Huntington Bancshares (NASDAQ: HBAN) delivered another quarter of solid financial performance in Q2 2025, with net interest income rising 12% year-over-year to $1.5 billion, driven by robust loan and deposit growth. Yet, rising operational costs—exemplified by a $58 million hit from securities repositioning—highlight challenges in maintaining profitability amid a tightening economic landscape. As the bank pursues strategic expansion through its $1.9 billion acquisition of Veritex Holdings, the question remains: Can Huntington sustain its growth trajectory while optimizing expenses and capital efficiency?

Net Interest Income Growth: A Steady Engine

Huntington's core earnings growth is undeniable. The 12% annual rise in net interest income reflects effective management of rate-sensitive assets, with average loans up 8% year-over-year. Commercial lending—critical to Huntington's portfolio—grew at a similar pace, while consumer loans expanded 6%. Deposit growth of 6% further underscores the bank's ability to attract low-cost funding, a key advantage in a high-rate environment. The would likely show stability, though narrowing pressures persist as rates plateau.

Loan/Deposit Growth Sustainability: High Rates, High Hurdles

While loan growth remains strong, sustaining momentum in a slowing economy poses risks. Commercial borrowers may face tighter credit conditions, and consumer demand for loans could weaken if job market softness persists. Deposits, however, present a brighter outlook: Huntington's $210 billion in deposits (up 6% annually) reflect disciplined pricing and a diversified customer base. The bank's Texas expansion via Veritex—a $13 billion asset acquisition—adds high-growth markets like Houston and Dallas, potentially boosting loan pipelines. Yet, integrating Veritex's operations will require expense discipline, as merger-related costs could offset near-term synergies.

Credit Quality: Resilience Amid Caution

Huntington's credit metrics remain stellar. Net charge-offs of 0.20% of loans—a 6-basis-point improvement from Q1—signal prudent underwriting. The allowance for credit losses (ACL) increased to $2.5 billion (1.86% of loans), reflecting cautious provisioning. This contrasts with broader industry trends where charge-offs are ticking up due to economic uncertainty. Huntington's conservative approach is prudent but may limit returns unless loan growth accelerates further.

The Expense Conundrum: Rising Costs Threaten Margins

Despite strong top-line growth, expenses are a concern. The $58 million decline in securities repositioning earnings and $3 million in notable items shaved $0.04 from Q2 EPS. While one-time items may normalize, recurring costs—such as technology upgrades for the Veritex integration or regulatory compliance—could pressure margins. Huntington's Q2 non-interest expense data (not yet fully disclosed) will be critical. A could reveal whether expenses are outpacing revenue growth.

Capital Efficiency: Strengths and Strategic Risks

Capital metrics remain healthy. The CET1 ratio improved to 10.6%, and tangible book value rose 16% annually to $9.13 per share. The Veritex deal, while modestly accretive, requires $1.9 billion in shares, diluting existing holders. The bank aims to recoup dilution within a year, but execution risks—such as regulatory delays or integration missteps—could extend that timeline. Investors must weigh the long-term Texas market opportunity against near-term share count pressures.

Investment Implications: Hold Until Expense Clarity Emerges

Huntington's Q2 results affirm its execution in core banking metrics, but rising expenses and merger-related uncertainties cloud the near-term outlook. The stock trades at a 12.8x forward P/E, reasonable given its regional stability but unexciting for growth investors. A hold rating is warranted until:

Historically, following earnings releases since 2022, a buy-and-hold strategy would have seen a 57.14% win rate within three days, but this dropped to 35.71% over ten days and 28.57% after a month. This pattern of short-term gains followed by underperformance reinforces the need for caution and a hold stance until clearer operational trends emerge.

1. Expense trends stabilize: Post-merger, Huntington must demonstrate that operational synergies outweigh one-time costs.
2. Loan growth momentum persists: Sustaining 8%+ loan growth in Texas and other markets will test the bank's underwriting rigor.
3. Dividend sustainability: The $0.155 quarterly payout (yielding ~2.5%) remains secure, but EPS growth must outpace dilution.

Conclusion

Huntington's fundamentals—strong NII growth, disciplined credit, and Texas expansion—position it well for mid-term success. However, the path to higher profitability hinges on reining in expenses and executing the Veritex merger flawlessly. For now, investors should remain cautious, waiting for clearer signals of expense management before committing to a buy. The bank's defensive profile and dividend make it a hold for conservative portfolios, but aggressive growth bets may need to wait.