Huntington Bancshares (HBAN) Q2 2025: Fee Income Mix Hits 66%, Accelerating Non-Interest Revenue Diversification

July 18, 2025 | By EarningsIQ Research

Huntington Bancshares’ Q2 delivered robust organic growth, with a strategic pivot toward fee-based revenues and geographic expansion via the Veritex acquisition. The bank’s disciplined risk and funding posture, combined with a rising fee income mix, positions HBAN for continued outperformance even as loan and deposit competition intensifies. Investors should focus on execution in new markets and the durability of fee-driven growth as the bank’s business model evolves.

Summary

• Fee Income Expansion: Payments, wealth, and capital markets now represent two-thirds of fee mix, deepening revenue resilience.
• Strategic Texas Entry: Veritex acquisition positions HBAN for accelerated growth in high-opportunity markets.
• Operating Leverage Upside: Positive leverage and expense discipline support sustained capital generation and reinvestment.

Performance Analysis

HBAN’s Q2 results underscore a business model in transition, balancing strong traditional banking growth with a deliberate shift toward fee-based income streams. Average loans and deposits each grew by nearly $10 billion year-over-year, reflecting both core and new-market momentum. Sequentially, average loan balances rose $2.3 billion, and deposits increased $1.8 billion, with disciplined deposit pricing keeping cost of funds in check.

Non-interest income growth was a standout, with strategic areas—payments, wealth, and capital markets—up 11% year-over-year and now comprising 66% of the fee income mix, up six points in two years. Net interest margin (NIM) ticked up to 3.11%, aided by lower hedging drag, while credit quality remained top-tier, with net charge-offs down to 20 basis points. Expense growth, primarily incentive-driven, was offset by revenue momentum, yielding improved operating leverage and a 16% increase in tangible book value per share.

• Commercial Lending Acceleration: Texas, Carolinas, and specialty verticals drove 40% of total loan growth, signaling traction in new initiatives.
• Deposit Franchise Strength: Primary bank relationships expanded 4% in consumer and 6% in business banking, supporting stable funding costs.
• Capital and Liquidity Buffer: Adjusted CET1 rose to 9%, with liquidity coverage at two times uninsured deposits, providing flexibility for strategic moves.

HBAN’s business model evolution—toward fee income and geographic diversification—was matched by prudent risk management and capital allocation, setting a foundation for continued above-peer growth.

Executive Commentary

Strategic Positioning

1. Fee Income Diversification

HBAN’s deliberate push into payments, wealth management, and capital markets is reshaping its revenue profile. These segments collectively now make up 66% of total fee income, up from 60% two years ago. This shift reduces reliance on spread income, making the bank’s earnings more resilient to rate cycles and competitive lending.

2. Geographic Expansion and Veritex Acquisition

The Veritex acquisition is a springboard for Texas growth, positioning HBAN in Dallas-Fort Worth and Houston—two of the fastest-growing U.S. metros. The deal brings local talent, a strong commercial franchise, and over 30 branches, immediately making Texas HBAN’s third-largest deposit market upon close. Integration will test HBAN’s ability to translate its Midwest playbook to a new region, but early feedback from employees and customers is positive.

3. Core Deposit and Relationship Growth

Deposit strategy remains centered on acquiring and deepening primary relationships, driving both funding stability and cross-sell potential. Growth in checking and low-cost funding categories supports margin defense as competition intensifies.

4. Capital Allocation and Risk Discipline

Capital management is conservative, with adjusted CET1 at 9% and a target range of 9-10%. Liquidity coverage is robust, and risk management remains a core cultural tenet, allowing HBAN to pursue growth while maintaining flexibility for opportunistic capital deployment post-Veritex close.

5. Efficiency and Operating Leverage

Expense discipline and reengineering are driving positive operating leverage, even as investments in new markets and businesses accelerate. The efficiency ratio, while stable, is expected to improve as newer investments mature and scale.

Key Considerations

HBAN’s Q2 was defined by strategic execution and a clear focus on sustainable, diversified growth. The following considerations will shape the bank’s trajectory into the second half and beyond:

Key Considerations:

• Fee Mix Evolution: Payments, wealth, and capital markets now anchor the fee income base, reducing earnings volatility.
• Texas and Southeast Build-Out: Integration of Veritex and continued branch expansion in the Carolinas are high-stakes growth levers.
• Deposit Cost Management: Stable deposit costs amidst loan growth reflect strong franchise value, but competitive pressures may intensify.
• Operating Leverage Focus: Incentive-driven expense growth is offset by top-line momentum, but efficiency gains will be tested as investments ramp up.
• Credit Quality Vigilance: Net charge-offs and criticized assets remain controlled, but close monitoring is warranted as loan books expand in new markets.

Risks

Risks center on integration execution in Texas, the sustainability of above-peer loan and deposit growth, and potential shifts in the competitive or rate environment. While credit quality is currently strong, rapid expansion in new geographies and loan categories could elevate risk if underwriting discipline slips. Expense growth tied to incentive compensation and new market investments may pressure efficiency if revenue momentum slows.

Forward Outlook

For Q3 2025, HBAN guided to:

• ~1% sequential average loan growth
• Flat deposits, with sequential growth expected in Q4
• Stable net interest income, with NIM projected at 3.08%–3.10%
• Fee revenues around $550 million
• Expenses of approximately $1.22 billion, up $20 million QoQ due to marketing spend

For full-year 2025, management raised guidance:

• Net interest income growth of 8%–9% (up from 5%–7%)
• Loan growth of 6%–8%
• Deposit growth of 4%–6%
• Fee income growth of 4%–6% (tracking to lower end, with upside from capital markets)
• Expense growth of 5%–6%, with positive operating leverage
• Net charge-off guidance lowered to 20–30 basis points

Management cited robust loan pipelines, stable deposit trends, and strong fee business momentum as drivers of the improved outlook, but flagged economic and competitive uncertainty as watchpoints.

• Continued focus on primary relationship growth and disciplined deposit pricing
• Integration of Veritex expected to close in Q4, with updated guidance to follow

Takeaways

HBAN’s quarter showcased a business model in healthy transition, balancing traditional spread banking with a growing fee-driven engine and geographic expansion. Strategic discipline and capital strength underpin the bank’s ability to invest for growth while maintaining risk controls.

• Fee Income Shift: Strategic fee areas now anchor revenue growth and reduce reliance on interest rate cycles.
• Expansion Execution: Texas and Carolinas initiatives will be key to sustaining above-peer growth rates and testing HBAN’s integration playbook.
• Efficiency Watch: Investors should monitor expense discipline and operating leverage as incentive accruals and new market investments ramp up.

Conclusion

Huntington Bancshares enters the second half of 2025 with a strengthened, diversified business model and clear momentum in both core and new markets. The strategic pivot toward fee income and disciplined expansion positions the bank for durable value creation, provided execution risks remain contained.

Industry Read-Through

HBAN’s results highlight several broader industry themes: Regional banks are increasingly prioritizing fee income streams as a hedge against NIM compression and funding competition. Geographic expansion via targeted M&A remains a key lever, but integration and local execution are critical to capturing intended synergies. Expense discipline and operating leverage are differentiators, especially as incentive-driven costs rise with revenue outperformance. For peers, the ability to deepen primary relationships and manage deposit costs will separate winners as the cycle matures.

HBAN Financials Regional Banks Fee Income Texas Expansion Deposit Growth Operating Leverage