Huntington Bancshares (HBAN) Q1 2025: Net Interest Margin Rises to 3.1% on Disciplined Deposit Strategy

2025-04-17 | By EarningsIQ Research

Huntington Bancshares delivered a standout first quarter, with net interest margin (NIM) climbing to 3.1% driven by disciplined deposit pricing and robust loan growth. The bank leveraged its multi-year investment in talent and new verticals to outpace peers in deposit and loan expansion, while maintaining a conservative risk posture. Management’s tone remains confident, but guidance reflects caution amid economic uncertainty, positioning HBAN for steady performance regardless of macro volatility.

Summary

• Deposit Cost Discipline: Lower deposit costs and strong household growth drove NIM above expectations.
• Loan Growth Engine: New initiatives and core businesses contributed to broad-based, high-quality loan expansion.
• Strategic Caution: Guidance remains intentionally conservative despite momentum, reflecting macro risk awareness.

Performance Analysis

Huntington’s first quarter showcased outperformance across core banking metrics, with NIM reaching 3.1%, up seven basis points sequentially, propelled by disciplined deposit pricing and a strong funding mix. Average loans grew by $2.7 billion (2.1% QoQ), with new business initiatives accounting for roughly half of this expansion. Deposit balances increased by $2.2 billion (1.4% QoQ), reflecting continued success in acquiring and deepening primary relationships across consumer and business banking.

Fee income rose more than 6% YoY, led by double-digit growth in payments, wealth management, and capital markets. Notably, capital markets revenue advanced 20% YoY, supported by strength in loan syndications and underwriting. The bank’s cost discipline was evident as non-interest expense declined sequentially, aided by lower seasonal incentives. Credit quality remained robust, with net charge-offs at 26 basis points and allowance for credit losses at 1.87%, reflecting a conservative reserve posture.

• Deposit Beta Execution: The bank’s five-pronged down beta plan reduced deposit costs by 13 basis points, outperforming internal targets.
• New Market Penetration: Loan growth in the Carolinas and Texas, via talent acquisition and vertical expansion, contributed to higher profitability without sacrificing pricing discipline.
• Capital Strength: CET1 improved to 10.6%, supporting a new $1 billion multi-year share repurchase authorization and future capital flexibility.

Overall, HBAN’s results position it ahead of plan for 2025, with a strong pipeline and resilient credit metrics providing visibility into the coming quarters.

Executive Commentary

Strategic Positioning

1. Deposit Franchise and Pricing Discipline

HBAN’s granular, segmented approach to deposit pricing—reducing reliance on CDs, shortening durations, and acquiring balances in money market accounts—enabled the bank to lower deposit costs while growing volumes. This approach, coupled with regionally tailored pricing and active repricing of maturing CDs, underpinned the quarter’s NIM outperformance and positions the bank well for future rate shifts.

2. Loan Growth via New Verticals and Geographies

Strategic hiring and expansion into the Carolinas and Texas have yielded outsized loan growth, with new initiatives contributing $1.3 billion in the quarter. The bank’s model of deploying experienced bankers with deep local and vertical expertise allows it to win share without aggressive pricing. Management emphasized that new loan yields are consistent with overall production, maintaining attractive risk-adjusted returns.

3. Fee Revenue Diversification

Payments, wealth management, and capital markets are now core engines of non-interest income, each posting double-digit YoY growth. The build-out of new verticals, such as Financial Institutions Group and Aerospace and Defense, and investments in merchant acquiring and advisory penetration, are expected to drive further fee expansion in 2025 and beyond.

4. Proactive Risk and Credit Management

Credit risk remains a central focus, with management running multiple economic scenarios and maintaining a top-quartile reserve ratio. The bank’s criticized asset ratio and non-performing asset levels remain stable, and the portfolio is actively managed for early warning signs. Management’s willingness to be “overly cautious” in guidance reflects its long-standing moderate-to-low risk appetite.

5. Capital Allocation Flexibility

The $1 billion multi-year share repurchase authorization signals confidence in capital strength, though management expects actual buybacks in 2025 to be modest and opportunistic. The priority remains funding high-return loan growth and maintaining a CET1 operating range of 9% to 10%.

Key Considerations

HBAN’s quarter was defined by operational outperformance, but management’s tone and actions reflect a cautious optimism in light of macro uncertainty. The bank’s ability to execute on both growth and risk management will be tested as the year progresses.

Key Considerations:

• Deposit Cost Management: Sustained discipline in deposit pricing will be critical as competition for funding intensifies and rate volatility persists.
• Expansion Leverage: Continued success in new markets and verticals hinges on integrating talent and maintaining underwriting standards.
• Fee Revenue Trajectory: Payments and capital markets momentum must persist to offset potential slowdowns in lending or margin compression.
• Credit Cycle Vigilance: Proactive credit monitoring and scenario planning must continue as economic headwinds could materialize in the second half.

Risks

HBAN faces heightened macroeconomic and policy uncertainty, including potential tariff impacts, interest rate volatility, and sector-wide funding competition. Management’s conservative guidance suggests awareness of possible headwinds, particularly if economic conditions deteriorate or if fee revenue growth slows. The expansion into new geographies and verticals, while a source of growth, introduces integration and credit risks that require ongoing oversight.

Forward Outlook

For Q2 2025, Huntington guided to:

• Sequential average loan growth of 1% to 2%
• Modest deposit growth, self-funding loan expansion
• Net interest income expected to grow modestly, with stable NIM around 3.07%
• Fee revenue and expenses to rise modestly from Q1 seasonal lows
• Net charge-offs within the 25–35 basis point full-year range

For full-year 2025, management maintained guidance for:

• Loan growth of 5% to 7%
• Deposit growth of 3% to 5%
• Net interest income up 5% to 7%
• Fee revenue growth of 4% to 6%
• Expense growth of 3.5% to 4.5%

Management highlighted continued momentum and a robust pipeline, but noted that guidance reflects a conservative stance given economic uncertainty and potential tariff impacts.

Takeaways

HBAN’s Q1 results reinforce its position as a high-performing regional bank, with a proven playbook for balancing growth and risk. The bank’s ability to sustain NIM outperformance and fee revenue expansion will be closely watched as macro conditions evolve.

• Deposit and Loan Outperformance: The bank’s granular pricing and targeted expansion strategies are yielding above-peer growth without sacrificing profitability or risk controls.
• Risk Management as Differentiator: Conservative reserve levels and scenario planning underpin resilience, but vigilance will be key amid rising uncertainty.
• Watch for Fee Growth and Margin Stability: Sustained strength in payments and capital markets, alongside stable NIM, are pivotal for maintaining the current trajectory.

Conclusion

Huntington Bancshares enters the remainder of 2025 with strong momentum, a robust balance sheet, and a cautious but confident outlook. The bank’s disciplined approach to growth, risk, and capital allocation provides a solid foundation, but execution on fee expansion and credit vigilance will be critical as macro headwinds persist.

Industry Read-Through

HBAN’s quarter offers a blueprint for regional banks navigating a volatile environment: disciplined deposit pricing, targeted geographic and vertical expansion, and active risk management are proving effective in driving profitable growth. The bank’s success in lowering deposit costs and maintaining margin, even as it expands into new markets, sets a high bar for peers facing similar funding and credit challenges. The focus on fee diversification, especially in payments and capital markets, highlights the importance of non-interest income as a buffer against margin compression. As rate and policy uncertainty continue, banks with dynamic playbooks and proven risk frameworks are best positioned to outperform.

HBAN Financials Regional Banking Deposit Growth Net Interest Margin Risk Management Fee Income