Huntington Bancshares Incorporated (HBAN) Q2 2026 Earnings Report, Transcript and Summary

Greetings, and welcome to the Huntington Bancshares Second Quarter 2020 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Eric Wasserstrom.

Thank you, operator. Good morning, and welcome, everyone, to our second quarter call. Our presenters today are Steve Steinour, Chairman, President and CEO; and Brant Standridge, President of Consumer and Regional Banking; and Zach Wasserman, Chief Financial Officer; Brendan Lawler, Chief Credit Officer, will join us for Q&A. Earnings documents, which include our forward-looking statements disclaimer and non-GAAP information and copies of the slides we will be reviewing today are available on the Investor Relations section of our website, which is www.ir.huntington.com. As a reminder, this call is being recorded, and a replay will be available starting about 1 hour after the close of the call. With that, let me now turn it over to Steve.

Thanks, Eric. Good morning, and thank you for joining us. Starting on Slide 3. We delivered an exceptional quarter marked by strong organic growth, expanding revenue and profitability and the successful completion of the Cadence systems conversion. . We achieved these results while continuing to invest in our businesses, technology and support areas. These accomplishments reflect exceptional preparation, coordination and execution from thousands of colleagues -- and I want to thank our colleagues for their tremendous work. They manage a complex conversion while continuing to serve customers, generate growth and deliver another strong quarter. The operating environment remains constructive. Visibility on economic trends has improved since last quarter. Customer activity remained steady across our footprint and commercial demand is broad-based. Our clients continue to take a long-term approach to investment decisions. Huntington is now at an inflection point. Our core businesses are performing at a high level. Our conversions are complete, and we are positioned to capture the benefits of our investments as well as the recent partnerships and expanded footprint. We continue to view Texas and the South as a springboard to significant future growth now and for the long term. We have a terrific team of new leaders and colleagues who are excited about the opportunities ahead and are already delivering additional revenue. We are laser focused on the continuing integration of our colleagues and working together as 1 team on behalf of our customers and shareholders. All of these efforts create a clear path toward accelerating organic growth in revenue, earnings and increasing tangible book value in the years ahead. There are 4 key messages I'd like to leave you with. First, we have strategically repositioned our company with substantial operating scale across regions and capabilities, creating multiple growth engines for the long term. Second, we are laser-focused on generating organic growth and are well positioned to expand across the franchise. Third, we are delivering on our commitments on partner cost and revenue synergies. And fourth, our execution is powering robust long-term value creation. We are growing revenue and earnings, expanding ROTCE, increasing tangible book value and generating capital that allows us to invest in the franchise while increasing shareholder value. On Slide 4, our strategy continues to produce leading results, reflecting the strength of our core franchise, contributions from our investments and partnerships and benefits of disciplined execution across the company. The outcomes reinforce our confidence in achieving our '27 ROTCE target of 18% to 19%. Turning to Slide 5. Franchise continues to perform at a very high level. Since 2024, we've delivered peer-leading organic loan and deposit growth while completing 2 bank combinations and conversions as well as making substantial progress on the integration work that is expanding our earnings power and long-term growth opportunities. Turning to Slide 6. Our culture remains 1 of the most important competitive advantages and has been acknowledged through the numerous awards that we've won. While driving the integration of Veritex and Cadence, we've received several new awards, including United States best digital bank for consumers by Euromoney, J.D. Power Best Mobile Banking app and website experience for customer satisfaction. Forbes is the best place to work and 15 Coalition Greenwich's Best Bank awards, including #1 for overall satisfaction, #1 for ease of doing business with, and #1 for trust. I am very proud of what our colleagues have delivered for our customers and shareholders. With that, I'll now hand it over to Brant to discuss the successful Cadence conversion, which he has led and the many opportunities ahead as we continue realizing the benefits of the partnerships. Grant, thank you for your outstanding leadership, and thank you to our colleagues at cross Huntington and Cadence. Your dedication, teamwork and focus on serving customers continues to be outstanding.

Thank you, Steve. Turning to Slide 7. Last month, we successfully completed the Cadence systems conversion with strong engagement from both customers and colleagues. I want to reiterate our thanks to colleagues across the entire company for the dedication and preparation that made this possible. . The conversion was completed just 235 days after announcement and reflects the strength of our integration playbook, our disciplined execution and the deployment of AI-enabled tools to automate a number of the manual processes. Importantly, our customers and colleague engagement remains strong and in a result that very few banks achieve, we actually grew deposits during the conversion weekend and the weeks that followed. This outcome demonstrates both the quality of the customer experience and the trust customers place in our franchise and in our colleagues that continue to serve them. During this conversion process, we trained and transitioned 4,500 colleagues on to Huntington Systems. We onboarded hundreds of thousands of customers to Huntington platforms converted ATM and ITM locations, completed signage changes across more than 4,000 signs and provided early customized treasury products, onboarding and training to over 6000 high-value commercial customers. These are tangible examples of the detailed planning and thoughtful execution that went into the conversion. With this major operational milestone now behind us, our focus shifts from conversion to growth. Turning to Slide 8. We remain on track to attain the $365 million in cost synergies in the fourth quarter, and the revenue opportunity is developing as we planned. Let me highlight just a few examples. One of our core objectives is to bring Huntington's broader capabilities, larger balance sheet and specialized expertise to customers across the entire Cadence footprint. We are already seeing meaningful proof points. For example, our pipelines reflect expanding client commitments by nearly $1 billion across energy, commercial real estate and our auto floorplan businesses, including more than $500 million of additional commitments in energy and CRE and approximately $440 million of auto floor plan pipelines. These opportunities simply were not available prior to combining the franchises. Capital Markets is another strong example. Since closing, we've completed more than 10 transactions with customers in the Cadence footprint, generating approximately $12 million of fees while building a robust pipeline of future opportunities. We're increasingly being brought into larger, more advisory client discussions where our scale and capabilities and expertise allow us to capture additional economics and strengthen our customer relationships. Payments is developing similarly our merchant services, treasury management and commercial card capabilities have created new revenue opportunities while helping us deepen primary operating relationships with customers. Another encouraging proof point is how the Cadence franchise is performing from a deposit perspective. Since closing, production has remained in line with our targets as we successfully transitioned the franchise towards Huntington's relationship-based model. We're retaining approximately 80% of maturing CD balances. We've reduced higher cost wholesale funding and broker deposits, and we're increasing the growth of checking accounts. We also remain disciplined with pricing. With our pricing analytics capabilities, we're able to optimize rates at the local market level allowing us to remain competitive and protect customer relationships. Another key area of synergy is digital deposit acquisition. Since February, new checking household acquisition across the cadence footprint has almost doubled from approximately 3,100 households per month to 5,900 households per month. It's important to note this is before we have undertaken any of the plan and substantive marketing investment in these regions and is an early proof point of the power of Huntington's digital deposit acquisition capabilities. Now as we enter the third quarter, we're excited to begin the ramp-up of our marketing activities to drive further engagement and activity. These results reinforce a point we've long emphasized. Our objective is not simply to gather deposits. Our objective is to grow profitable primary bank relationships. That's why household growth, checking account growth and customer engagement metrics are so important to us. Those relationships ultimately create opportunities across payments, wealth, treasury management, lending and capital markets. At the same time, we're adding experienced bankers across high-growth markets, including Dallas, Houston, Fort Worth, Austin, Nashville and Atlanta, while expanding the private bank, specialty banking and treasury management capabilities through the Cadence footprint. Taken together, these results reinforce what attracted us to Cadence in the first place. This partnership was never simply about cost synergies. It was about a springboard for growth across Texas in the South. While we're still early in realizing the full opportunity, the customer activity, production trends revenue synergies, deposit performance and pipeline we're seeing today reinforce our confidence in the long-term growth and earnings potential of the combined franchise. With that, I'll turn it over to Zach to discuss the quarter's financial results in detail.

Thank you, Brant. Turning to Slide 9. Our second quarter results demonstrate strong execution across the company. I want to underscore 3 key ideas. First, the core franchise continues to perform exceptionally well. We delivered another quarter of strong organic loan and deposit growth, expanded fee revenues and demonstrated excellent credit performance, all reflecting our disciplined approach to growth. Second, integration execution is translating into financial benefits with Veritex's cost saves achieved cadence cost synergies on track and revenue synergies building as expected. Third, we continue to make meaningful progress toward our financial targets. Adjusted PPNR increased 12% quarter-over-quarter. Net interest income increased 8.5%. Value-added fee revenues increased 15%, and we generated 210 basis points of positive operating leverage on a trailing 12-month basis. As we move through the back half of the year, we expect the fourth quarter to provide a clear view of the earnings power of the combined organization, supported by continued growth, expense discipline and synergy realization. Slide 10 demonstrates why we have such strong conviction in this outlook. Our results underscore our tremendous revenue momentum. Growth continues to be driven by 3 factors: first, organic loan growth remains strong and broad-based across the franchise. Second, deposit growth continues to outpace loan growth providing ample core funding to support future expansion. Third, our investments in value-added fee services continue to produce strong returns. Payments, wealth management and capital markets each generated excellent growth that we expect to continue for many years to come as we sustain our investment in these capabilities. This revenue growth, combined with our focus on generating operating efficiencies is driving high PPNR growth. These elements form the core of our value creation flywheel. Our differentiated model generates peer-leading revenue growth. That increasing revenue, coupled with sustained reengineering of our baseline operating expenses enables us to maintain a high growth rate of investment back into the business. These ongoing investments create sustainable and increasing competitive differentiation. This creates a virtuous cycle, enabling us to continue to deliver high revenue growth, superior profitability and generate substantial capital returns to our shareholders. Let me now walk through the drivers of the quarter's results. Turning to Slide 11 and broad-based loan growth continued in the quarter. Average loans increased $15 billion or 8.6% sequentially into the second quarter. Normalizing for the day count effect of the cadence balance sheet in the first quarter, average loans increased $2.2 billion or 1.2%, an outstanding level of continued organic expansion. This growth was led by commercial and industrial categories with significant contributions from corporate and specialty. We drove particularly strong activity from the financial institutions group, industrials diversified businesses, corporate mortgage finance and Native American financial services with additional contributions from asset finance and middle market C&I. Commercial real estate balances modestly declined during the quarter as planned and auto production was lower. Turning to Slide 12. Q2 was another quarter of robust deposit growth. as we core fund our balance sheet. Average deposits increased $18.8 billion or 9.2% sequentially into the second quarter. Normalizing for cadence day count in Q1, Deposits grew organically $4 billion or 1.8% sequentially, outpacing loan growth. Importantly, the growth continues to be driven by customer acquisition and deepening of primary bank relationships which supports solid core funding. Primary banking relationships increased across each of our customer segments with consumer PBRs growing 4%. Business Banking PBRs growing 5% and and commercial PBRs growing 8% year-over-year. Deposit costs increased 6 basis points during the quarter, including approximately 1 basis point from the full quarter impact of Cadence and and 5 basis points from the legacy Huntington franchise. Our deposit strategy remains disciplined, focused on driving valuable and granular funding that enables us to sustain our high growth rate while maintaining attractive spreads. As Brant discussed, we are also seeing encouraging results from our early optimization efforts within the Cadence footprint, including strong retention of maturing CDs and production trends that are tracking in line with our expectations. With the conversion successfully behind us, we are now positioned to execute on optimization across the combined deposit portfolio. Turning to Slide 13. This combination of strong core funded asset growth generated $2.1 billion in net interest income, a sequential increase of 8.5%. As we look out over the remainder of the year, we expect loans to grow sequentially each quarter going forward, funded by continued expansion in core deposits. Pipelines continue to support our conviction in our continued revenue momentum over the back half of 2026 and into next year. Turning to net interest margin on Slide 14. Our NIM increased 10 basis points year-over-year and declined 3 basis points sequentially. The -- the year-over-year increase reflects the migration of our assets into higher-yielding categories, combined with yield expansion, while the quarter-over-quarter decline reflected the full quarter impact of the Cadence balance sheet and higher funding costs. We believe Q2 is the trough for our NIM and expect expansion from here driven by 3 factors: first, we expect to benefit from additional fixed asset repricing; second, toward the end of the quarter, we released the additional liquidity we had intentionally added in the first quarter. While the prior addition of this liquidity was appropriate from a risk management position and neutral to NII dollars, it did create a temporary drag on NIM, which we've now alleviated. And third, as I noted, we see meaningful opportunities for optimization within the Cadence deposit portfolio. These actions will partially mitigate further increases in overall deposit costs. Turning to Slide 15. Fee income continues to be a significant source of strength across all categories and an important contributor to our growth flywheel. We grew value-added fee revenues more than 60% year-over-year. Excluding the impact of Cadence and the acquisition of the Janney Capital Markets business, as well as last year's sale of our Corporate Trust business, value-added fee revenues grew approximately 30% on an organic basis year-over-year, reflecting exceptionally strong underlying core momentum. In our key strategic areas of focus, payments grew 10% year-over-year. Wealth Management grew 12% year-over-year. Capital Markets grew 46% year-over-year and loan and deposit fees grew 19% year-over-year. Importantly, these businesses are benefiting from both strong organic growth and the additional opportunities created by our new partnerships. We believe this strength contributes to a powerful revenue and earnings profile that is increasingly diversified with growing emphasis on capital-light recurring fee revenues that support our ability to deliver sustained growth over time. Moving to expenses on Slide 16. Noninterest expense was $1.8 billion, up $35 million from the prior quarter. Excluding onetime items, Noninterest expense was $1.7 billion, up $145 million sequentially, driven primarily by the full quarter impact of the Cadence expense base. Other drivers included $27 million of increased personnel costs due to higher incentive and performance-based compensation, the full quarter impact of merit changes and day count. We remain on track to achieve the combined $435 million of run rate expense synergies from Veritex and Cadence cumulatively by the fourth quarter. Importantly, in addition to those partnership-driven expense synergies, our ongoing expense efficiency reengineering program is continuing to drive meaningful benefit. This year, we're on track to deliver more than 1.5% expense reduction to our baseline operating expenses well in excess of our long-term 1% per year target. This creates additional investment capacity to fuel long-term growth. As noted, these combined actions drove 210 basis points of positive operating leverage over the past year while we continue to invest across our franchise. We are tracking toward our targeted Q4 core efficiency ratio in the mid- to low 54% range. Turning to Slide 17. Our capital position remains strong, supporting organic growth, a solid dividend yield and increased capital return through share repurchases. We've consistently grown tangible book value at our targeted high single-digit to low double-digit pace over the last few years. Year-to-date, we have completed $310 million of our $550 million planned share repurchase program for 2026. We expect to repurchase an additional $1.1 billion to $1.2 billion in 2027. Slide 18 summarizes how we create shareholder value through disciplined management of growth, expenses, capital and integration execution. Our underlying earnings power generated 13% tangible book value per share growth before distributions, enabling us to sustain a 3% dividend yield and repurchased $160 million of shares in the quarter. Year-to-date share repurchases have reduced outstanding shares by approximately 1%. The business continues to generate very strong return on capital. Adjusted return on tangible common equity was 16.7% on a trailing 4-quarter basis and 17.5% in Q2. The power of the core businesses augmented by the partnerships and integration position us to drive the next phase of value creation with ROTCE forecasted in the 18% to 19% range. Turning to Slide 19. Credit performance remained strong and consistent with our expectations. Net charge-offs continued to trend near the low end of our guided range, and we hold substantial reserve coverage. Our criticized asset ratio declined during the quarter and we expect that trend to continue as we execute our normal credit management strategies. NPAs remain elevated due to increases in government guaranteed loan categories, which have virtually no loss content and downgrades of select commercial credits. Importantly, we continue to see stable trends across the broader portfolio. We're very pleased with credit performance and remain confident in maintaining top-tier credit outcomes. Turning to Slide 20. This year's CCAR results again reinforced the strength and consistency of our credit profile under the Federal Reserve's severely adverse scenario. Huntington delivered a top-tier outcome on modeled credit losses with cumulative loan losses of 5.9% of average loans, which is second lowest in our regional peer group and an improvement from 6.1% in the 2024 cycle. Just as importantly, our allowance remains strong relative to the Fed's modeled stress losses, underscoring the resilience of the balance sheet. The strength of our franchise has been validated time and again in the Fed stress tests. The results demonstrate the strength of our through-the-cycle approach to credit and capital management as well as the durability of our financial performance while supporting continued capacity to fund organic growth and return excess capital over time. Turning to Slide 21. The trends on this slide demonstrate the strength of our operating model. We expect continued revenue momentum supported by loan and deposit growth, strong fee income, cost and revenue synergy realization and ongoing efficiency enhancement. As those factors come together, as I noted earlier, we expect the fourth quarter to provide a clear view of the earnings power of the combined company and a solid launch point for 2027. We expect this strong revenue formation, combined with expense synergies and our continued focus on efficiency to drive solid PPNR growth. As I noted, we're on track to achieve a core efficiency ratio in the mid- to low 54% range by the fourth quarter. The outcome of all of these measures is that we anticipate continued high tangible book value per share growth while returning capital to shareholders. Turning to Slide 22. Over the last year, we've transformed the franchise and successfully entered new markets, building scale in regions that will support strong secular growth opportunities for many years to come. This positions us to drive significant value creation over short and longer-term horizons. We continue to march toward the expectations we've set for 2027. These include EPS growth of approximately 30% from the 2025 level, driven by a combination of strong organic growth, expanding fee income and increasing revenue synergy realization. Similarly, continued operating leverage, expense discipline and full synergy capture support further profitability improvement and our expected progression to the 18% to 19% ROTCE. Combined with ongoing tangible book value per share growth and meaningful share repurchases, we believe these factors create a clear line of sight to our 2027 earnings objective of $1.90 to $1.93 per share. Turning to Slide 23 for our full year outlook. As we look at the balance of 2026, the key message is that we expect continued momentum and progress toward our 2026 and 2027 goals. We continue to manage dynamically and have multiple growth levers to achieve our objectives. Looking at net interest income, we expect continued NII expansion driven by high-quality loan growth and core deposit funding with some incremental pressure on funding costs. Our outlook for average loans is now tracking at or above the high end of the range reflecting continued and our primary bank relationships. Based on these expectations, we expect to be at the bottom end of the NII range or perhaps modestly below it. Turning to noninterest income. Performance across payments, wealth and capital markets remains very strong. Based on year-to-date performance and pipeline activity, we continue to view the business as tracking to the high end of or potentially above our guidance range. These expectations to support our revenue growth outlook. -- and we're tracking toward the overall level of revenue growth embedded in our full year guidance, while maintaining our discipline around pricing, credit and capital allocation. On expenses, we continue to execute against our expense synergy targets and remain on track to achieve the $435 million of annualized run rate cost synergies by the fourth quarter. We're accomplishing this while continuing to invest in attractive growth opportunities and reengineer our core expense base. The strength in our fee income streams create some modest upward pressure on expenses which we intend to mitigate through management actions. Credit performance remains excellent, and we now expect net charge-offs to be in the lower half of our 25 to 35 basis point charge-off range. Our tax rate will also likely come in a bit better than our current full year outlook, given the strong performance in the first half of the year, and we expect to repurchase at least $550 million of stock in total this year. The key takeaway here is that the fundamental drivers of our earnings outlook remain intact, and we're excited about the trajectory of our business as we enter the second half of the year and look forward into 2027. Turning to Slide 24. Our operating model continues to perform, generating strong revenue, earnings, tangible book value per share growth and strong ROTCE. This supports the investments we make in our capabilities, which enable our long-term competitive vibrancy and the substantial value we create for shareholders. With that, we'll conclude our prepared remarks and move to Q&A.

Thank you, Zach. We will now take questions. We ask that as a courtesy to your peers, each person ask 1 question and 1 related follow-up question. If you have additional questions, please return to the queue. Thank you. .

[Operator Instructions] Our first question comes from the line of Erika Najarian with UBS.

Good morning. So I do have to say that and it's -- the stock opened down 5%, it's still down 5%. I think the Street is feeling a little bit some sort of way that you put in your slide that your outlook is unchanged, but that your net interest income outlook, you said fact that it was going to be at the low end or below. So maybe just unpacking that dynamic. You mentioned sort of incremental pressure on deposit costs. Could you maybe sort of break down what's happening from a competitive dynamic standpoint versus some of the deposit cost optimization? Because I know that the revenue synergies that you've been flagging had been very much based on some of the deposit cost optimization of that cadence base. So help us walk through what you're assuming for deposit specifically without a Fed rate hike and how you expect the margin to perform with a rate hike?

Sure. Thanks, Erika, and it's great to be with you. I'll address some of the various points you'raised in your comments in question that I think Brant will tack on as well. . So look, on the guidance, I'll just share our overall revenue outlook continues to be very robust. And ultimately, our objective is driving overall revenue growth. We're seeing on spread, the the mix is sort of shifting more toward volume driven, but we're expecting to see quite strong loan growth here as we go into the back half of the year. Remember that the second half of the year is typically our strongest sequential period in terms of loan growth, and we're seeing quite a bit of strong pipelines and indication that we'll see solid loan growth. I do expect to see NIMs also expand into the third and fourth quarter, driven by the the factors we discussed. And so that will help us to drive a very strong spread revenue growth. The other thing that's balancing that importantly is continued outperformance on fees. We continue to see fees grow even stronger than our expectation. And just as I noted, that we might be at the lower end or potentially just a touch below on the NII, which like to be at the higher end or above on fees. So we think the net of those things will continue to allow us to track toward that approximately 37% overall revenue growth this year. On deposit costs, what I'll tell you is, look, we're not expecting any change in the competitive environment. It is competitive, but we're also seeing great opportunity to drive volume growth and to ultimately drive optimization within the overall combined deposit base, particularly now that we've gotten through the Cadence systems conversion. So really confident about our ability to execute on that. Maybe, Brant, do you want to pick up on.

Yes. Erica, this is Brant. If I could just tag on and to highlight the points just made, it is competitive, but we see it as being rational. And as you know, and we've discussed in the past, we look at pricing across 56 different rate regions in our new expanded footprint, and we have a very granular view of it. And we're still seeing similar pricing to what we saw in the first quarter. And we're still seeing the Midwest be the most competitive market we're in. And obviously, the Carolinas, the Southeast and Texas would slightly trail that. And as Zach described, we have a number of levers that give us confidence going forward. First of all, our focus has been and still is on consumer and business primary bank acquisition and we're seeing acquisition rates that are exceeding our expectations. In fact, with the addition of the Cadence footprint, checking household acquisition is actually up 31% year-over-year. And just as a a point of context, 50% of our deposits are consumer. 50% of our deposits are business. And so when you look at the opportunities in both, I'll just start with the business side. And one of the areas that gives us a lot of leverage into the future as the national commercial deposit verticals that have been created and expanded. In fact, if you just look at our mortgage servicing vertical that we stood up a little over a year ago. That group added $1.7 billion in deposits just this past quarter. So that is one example. On the consumer side, we're seeing production expectations in the Cadence footprint be above our expectations. In fact, digital acquisition and the new footprint is up 60% just since September, I mean since January. And then when you talk about the cost component, we are seeing the mix change that we had anticipated. You referenced revenue synergies. And one of the components of the revenue synergies was the mix change. We are seeing now our concentration of liquid deposits, savings, checking MMA and that will be 80% of our volume versus 40%. And then not to forget about this, but we have been investing in the Carolinas, -- we opened 2 branches this time last year. We've opened 8 since the beginning of this year, and those branches have generated over $300 million in new deposits and frankly, are about double the expectations that we had originally set for those. And lastly, I mentioned Colorado, and we've also invested specifically in Chicago and those markets on a combined basis just over the course of the last year have generated over $800 million in growth. So we do look at pricing on a very granular basis. And then as it relates to our ability to respond to either a rising rate environment or a falling rate environment, this data that we have around the front book and the back book really gives us the ability to be nimble no matter what that environment would be.

Erika, this is Steve. I'll just come on top of the responses from Zach and Brant for a minute, we've got a possible or more likely rising rate environment. We chose to front-end load a bit, and we've got rising expectations, as you heard from Zach, second half loan generations typically much better than the first half and fourth quarter is our best quarter, typically. So we're getting ahead of it, and that's a conscious decision. And very, very pleased to have the conversion behind us because now we can focus on running the core as with the benefit of the entire franchise.

Got it. And my follow-up question is, and I have to ask it this way, given that there are not many stocks that I cover that are less than 10x next year's earnings. So the jumping off point to the $1.90 and $1.93 really matters. . So Zach, you mentioned higher PPNR at 4Q '26 on Slide 21. The Street on an operating basis is at $1.34 billion. Is the Street in the right place? I mean, granted there's puts and takes in terms of a little -- maybe a little adjustment to NII PPNR for 2?

Yes. I appreciate it. Look, I'm not going to talk specifically about consensus. I'll share with you our outlook, and you all can interpret that and create models. But what I'll tell you is -- our expectations for growth into 2027 are unchanged. We continue to be marching toward those objectives. And I'd really tell you they are threefold in our view. One is the earnings per share of $1.90 to $1.93. The second is return on tangible common equity and generating significant positive return on capital between 18% and 19%. And then importantly, continue to drive capital accretion on a tangible book value per share basis of greater than 10%. And we're on track for that. If I think about the back half of the year, I think Q4 will really be the strongest quarter from an earnings perspective, and it will be incrementally driven by significant run rate cost synergies from Cadence, which were now that the conversion is through really executing through the course of this quarter, Q3, it will be fully in the run rate into Q4. That will be the biggest sequential driver of increased profitability into the fourth quarter. And so I expect the Q4 EPS to be very strong by my calculus, it will imply low teens year-over-year growth in terms of that trended Q4 level into the full year 2027 earnings per share, which is well within the current earnings growth trend we've got. And if I double-click into that, sure, my view about the model would work for that high single digits loan and deposit growth, a stable to rising NIM, strong spread revenue, therefore, continued extraordinarily good fee revenue and I hope we can unpack more of that in this call because we are seeing, as I noted, outperformance on fee revenue, we expect to see high single digit to likely low double-digit fee revenue growth. On expenses, we're expecting to see between 400 and 500 basis points of total operating leverage, and that will be a function of the full run rate of the cost synergies and another year of baseline reengineering of our cost base. One of the things that I shared in the prepared remarks, but I'll just elaborate here. For the last 7 years, we've generated 1.3% on average per year reduction in OpEx of the company. 2026 is actually more than that, 1.6%. Next year will be more again, and we already have that program defined. The operating actions are already part of our plan. You couple that then with stable credit and a lower share count from all the share repurchases we're doing, that's the ingredients to get to a teens double EPS growth. So from our perspective, there's a lot of the year left to play out here in 2026, but we're continuing to drive toward that extraordinarily strong Q4 and then into '27.

Erika, it's Steve. Just to emphasize a couple of points. We're 17.5% on equity during a quarter where we had the biggest conversion in our history, and we think it was very successful conversion by the way. So strong performance with the growth metrics and the returns, and the operating leverage came through. I think we adjusted -- we moved the efficiency ratio improved by 1% during the quarter. Now this was a really busy quarter, 5000 new colleagues, [indiscernible] customer accounts, 400-plus branch and office locations. So converting. And we did this 140 days after closing. So the team has done, I think, a tremendous job delivering on an accelerated basis, a really high-quality conversion, putting us in a position now to accelerate in the back half of the year and beyond as we go forward in one suite of systems. So we feel really good about where we are. There's opportunity for us in multiple areas in terms of driving further revenue and the operating expenses that we said we would take out. We've got them frankly nailed. So we'll deliver the...

Our next question comes from the line of Manan Gosalia with Morgan Stanley.

Maybe on the NII guide for the year. As we look at the underlying pieces, loan growth is coming in better than last quarter. deposit growth is running higher than loan growth. So you're clearly prefunding some loan growth from the second half of the year. You've also released liquidity, so I guess relative to last quarter, what is tracking more negatively that drives you to the low end or below the low end of the NII guide? Is it deposit costs? Is it loan spreads?

Yes. Thanks, Manan. This is Zach. I'll take that. Look, the biggest single change in our outlook around NIM and is deposit cost and the pricing environment around that. By the way, that's not overly surprising. If you see now in the industry, we're seeing -- frankly, a quite healthy environment of banks now regrowing and getting back to loan growth, which is clearly good for the economy. And that then also means the need to core fund that and some incremental competition on deposits. And further, the interest rate environment is probably even bigger change going from an expectation of 4 to as many as 7 rate reductions over a 2-year period now to an expectation of 1 to maybe 2 hikes here over the over the coming periods. So that's not surprising to see that delta. But the way we think about it, and we try to really be clear about this as we talk about it is we have multiple levers. We dynamically optimize the business and are continually driving ultimately to the goal, which is revenue growth, earnings growth. And so as there's slightly lower NIM trajectory, there's also better loan growth trajectory, better fee growth trajectory ways to optimize that. I will tell you as well, look, getting to the conversion and through that period for Cadence now unlocks the opportunity for us to really go in and manage that deposit base as well and is a nuance and granular way as we can. And and that gives us a lot of confidence we'll see a benefit from that as we go throughout the course of the second half of the year.

And Manan, to the point that Zach was making, as we go through the quarter and as we went through the first and second quarter, where we have a large significant focus on creating outstanding revenue and earnings per share growth, but we also are looking closely at return. And we're doing that at the individual deposit level and at the individual asset class level. One example of a place that we've seen a lot of spread compression is in the auto business. And so as a result of that, we pulled down auto volumes in the first and second quarter because they didn't meet our return threshold. So it really as Zach pointed out, not only can we optimize across a number of revenue and expense opportunities, but we are also optimizing from a return perspective just based on what we're seeing in competition on either the asset or deposit side.

Got it. And then if I think about, I guess, the jumping off point for 2027, if we do like a mid-teens -- or sorry, low teens EPS growth rate gets us to about $0.42, $0.43 of EPS to maybe about $1.65 or so annual run rate. So as you think about the bridge between that and the $1.90 to $1.93, what would be the 2 or 3 biggest drivers that would get you there? .

Yes. Thanks, Ben. Look, I think I sort of onsites a lot in Eric's question earlier. I think we'd see high single-digit to low double-digit overall revenue growth, which is really very much balanced between spread and fee revenues with fees continue to outperform and grow the fastest in the revenue mix. I think expenses, we're expecting to see very strong expense management actions into the into 2027, as I mentioned, between 400 and 500 basis points of positive operating leverage. The credit continues to be very stable. We've seen charge-offs this year be within a very tight range. Our expectation is next year, something very similar to that. And by the way, if that continues and if the economy continues to be resilient, which it appears to do, that will give us the opportunity to gradually reduce ACL coverage likely -- and then you've got lower share count, and we're seeing meaningful opportunity to repurchase shares. If we see the stock at this point is extraordinarily undervalued and are therefore leaning into share repurchases. And you'll see the benefit of that coming through into lower share count. So those are the kind of building blocks to get you to that.

And Manan, if I could just add 1 example. As you look forward to 2027, one of the areas is the springboard that we have in Texas. It's one of the fastest-growing economies, as you know, in the world. It is -- there's a lot of folks investing there, a lot of organizations investing there. But we're not only investing but we have scale. 12 months ago, we were not in the top 400 banks in Texas. Today, we're top 8. We had no presence in Dallas and Houston. Today, we're top 5. We had no branches. Today, we have $140 million, we had only a handful of colleagues revenue producing there. Now we have 955 and we had just less than $5 billion in loans. Now we have $31 billion and $26 billion in deposits. And so -- it's a dynamic growing market that we have this massive springboard. And we're not only investing but we have scale and frankly, a model that combines national expertise with local that's appreciated by the market.

Our next question comes from the line of John Arfstrom with RBC Capital Markets.

Other side of this, on the fee income guide, can you talk a little bit more about your confidence in the higher end of that or above and what's driving it? Just kind of what's the other side of the revenue guide?

Sure. Thanks, John. I'll take that. Look, on fees, we continue to be really, really pleased with how the business is performing. Let me just -- I'll reiterate a couple of statistics. In the first quarter, organically year-over-year growth was 18%, and this quarter accelerated to 30% organic growth. Over the medium term, as we do long-range planning, we typically plan for high single digits to low double digits. But frankly, in the near term, I'm expecting very sustainable double-digit growth now for quite some period of time based on what's happening. And really underlying that the reason why we're seeing that is really several things. One is significant investment over time that we put into each of our core fee businesses, payments. We've been building out very significant treasury management, commercial payments, merchant acquiring, and a lot of new innovative payment products. And so we're seeing, particularly given the growth we're seeing in our commercial banking business, generally, lots of opportunity then to penetrate payments opportunities. I will tell you that as we think about the cadence of revenue synergy, that's going to be 1 of the biggest building blocks over time for what we see there. The second is wealth. And we've been building out the wealth teams very robustly in a lot of individual markets throughout the country and also really working to better knit together wealth with our core banking business. And what that's driving is just what we talked about in a number of our Investor Days, which is penetration of the customer base. We've almost doubled the percentage of our customers who are using well services over the last several years, and we continually generate household growth in the very high single digits to low double digits over a number of quarters now, which drives AUM growth as well in that double-digit level. So that's a very sustainable growth rate at that level. And then cap markets, I will tell you, just we are incredibly proud and thankful for the work of the Capital Markets team because they've been just doing exceptionally well. And really what that does is it rides on the commercial banking activity that we've got. All of our capital markets businesses are really key toward supporting our commercial banking activity. And so as that is robust, that's the fundamental underpinning of that. We've also been building out new capabilities. The team at this time last year was not doing anywhere near as much loan syndication, for example, as they're doing now, which is a major driver of revenue growth amongst many others. Over time, I will note that we've shown the ability in cap markets to really effectively add bolt-on M&A as well and the Capstone and the TMG teams are just doing phenomenal to add to ultimately that organic growth rate. So we see all of these as really the sustainable ingredients to grow fees as a percent of revenue. And and to help us to outperform only this year but it's next as well.

Jon, as we come into the second half, pipelines look really good as well. So -- we've had a very busy quarter with the conversion-related activities, delivering the results that are published today. But we've also maintained this effort in terms of growing customer relationships, and you got a sense of that for Brant earlier, and it's reflected in the pipeline. So one of the issues we've had historically is could we keep the organic growth rate intact as we move forward with these partnerships. And I think we've answered that call. We're looking forward to the second half.

Yes. Okay. I did want to ask on that, and maybe you just answered it, Steve. But it's hard to tell maybe the growth was a little slower this quarter in terms of the organic growth. But just -- is that fair or not? Or are you satisfied with that 1.2% core loan growth?

Well, it's a little slower, but about 1 point of that is indirect auto. As you think about the first 2 quarters of the year, it's probably around $2 billion of lower production than we would typically have because we don't like the returns. So the emphasis and discipline around returns because we're not going to change the risk profile has moderated the growth. Now we've seen this before. It typically runs a couple of quarters and then somebody fills up, maybe it goes a little bit longer this time, but it will -- this is a business that will revert to the norm, and we'll be back to to historical production in the foreseeable future in that category. The rest of it is performing reasonably well. We had a fair amount of pre-runoff, a little more than we expected. We've talked before in the earnings call that we wanted to see some balancing of our commercial real estate between 10% and 11% of total and our construction commitments reduced a bit. That is happening faster than we expected. So we had those 2 small headwinds that are restraining the overall net, but both of those are temporary. And -- and like where this positions us on both a risk and return perspective over time.

Our next question comes from the line of John Pancari with Evercore ISI.

In the interest of time, I'm just going to ask 1 question. On your NII outlook again on the qualification of lower end or below that, I hear you on the drivers of the pressure that you -- in the answer to Manan's question. Could you maybe talk about your confidence in this updated NII guide and that it will not be negatively revised again. What gives you that confidence? Is it the fact that I know, Steve, you noted that some of the loan growth was prefunded. Is it that factor? When it comes to deposit pricing competition, I know the industry is certainly seeing some intensifying pressure there. But I think this is key here and part of what's influencing your stock's multiple. So we love the get your confidence on that front?

Yes. Great question, John. Thank you. Look, there's a lot of the year left to play out, and we are proven to be very dynamic operators to help us to achieve our goals. So that's what gives us the confidence. We've got all of the tools at our disposal to achieve the objectives that we've set. We're growing loan volume. We're core funding that with deposits. As you noted, we actually grew faster in deposits than loans in the second quarter that would obviously allow us to do the reverse as we go into the second half of the year if we choose to. We're seeing a strong opportunity to optimize in the combined deposit base of the organization. And frankly, it is not our expectation that anything really meaningfully changes in terms of the environment. It will remain competitive, but we've got lots of tools at our disposal. And I think Brant really effectively illustrated that in some of his earlier comments. So look, ultimately, the goal is revenue growth and not just NII revenue growth or total revenue growth. So we feel very good about the multiple levers we've got, the multiple paths to achieve to achieve our goals.

And I would say it's revenue growth and the returns. So there's a balance to this equation, translating to earnings and high levels of return John. And so 17.5% on equity now, all of 18% to 19%, we've got the expenses. The revenue synergies look good, really good. So we're sitting here with the confidence and we'll navigate wherever we see modest issues or like we did with this auto thing. . We don't -- we're not going to trade off return to volumes. So the team is now positioned post the conversion for us to grow in these next couple of quarters and beyond and we like how we're setting up for the second half.

Our last question comes from the line of Ken Usdin with Autonomous Research.

I just want to try to hone a little bit more so into the NII. So you got loan and deposit growth in the second half, clear from the guidance. The size of the balance sheet, though was definitely smaller than people thought in this kind of tough to understand average quarter. Can you give us a higher range as you can for where the AEA will be for the 4Q exit that implies that NII again?

Yes. Part of what I think you're seeing in the average earning assets for the quarter was the actions we've taken to optimize liquidity and to bring down some of the cash -- elevated cash levels. And so that probably obfuscated some of the trends. Look, I think what I'd point you back toward is the loan and deposit guidance, ultimately my expectation for cash and securities here as we exit this quarter is very much to what we were running last Q4, if you want to use that as a modeling input. And the objective function that we've got here at this point is to continue to drive, as I noted, strong low-end deposit growth. My general expectation is in the sort of 2% to 3% per quarter range.

So you mentioned in the slide deck that you expect organic -- I think you said deposit growth dollars should outgrow loan growth dollars from here. So is it fair to say that now that you've reset the balance sheet, that average earning assets should grow pretty close to what deposit growth grows?

I think it's a reasonable assumption. I think, look, our expectation is we'll see deposit and loan growth growing quite well relative to each other. I think the difference between those growth rates won't be overly notable here as we go into the back half of the year. Our objective over time is to match fund. We feel like the loan-to-deposit ratio is in a great spot.

Okay. And sorry, 1 more, just just on deposit costs, given that there's still some things to work on post conversion now I know you mentioned that there's a little bit of an upward bias. But like can you give us any sense of where June 30 spot deposit costs were versus the average? And then just what type of upward pressure you would see, assuming there's no rate cut to at least to give a common basis maybe to talk about it in no rate hike, I meant.

I want to be careful of getting overly precise here. As we noted, we expect to see the overall NIM are managing ultimately NII dollars and no is an important element of that. We expect the NIM just to rise modestly into the low 3.20s in the third quarter. And then into the mid- to high 3.20s in the fourth quarter. And that will be some modest several basis points of incremental deposit pricing, but offset by as I noted, opportunities to optimize within the combined deposit base and fixed asset repricing and the optimization of liquidity. So those are the kind of ingredients overall. And we will drive toward that dynamically to achieve the overall revenue objectives we've set.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back to Mr. Steinour for closing remarks.

Thank you, operator. Over the last several years, we've transformed Huntington into a stronger more diversified superregional bank. We've expanded into attractive growth markets, broadened our business mix, added new capabilities and reduced risk through greater geographic and revenue diversification. And this has resulted in excellent financial performance, growing tangible book value and returning substantial capital to shareholders while our aggregate moderate to low risk appetite has been maintained -- so we believe the company is very well positioned for continued growth and the recent partnerships further strengthen that long-term opportunity. . I'd like to close with 3 key points. First, the core franchise is performing at a high level. We're seeing strong momentum in loans, deposits and our value-added fee businesses with capital markets, wealth and payments, all contributing to durable earnings growth. Second, the integration has progressed very smoothly. The June conversion was a major milestone in both the port franchise and new regions are performing very well. So this gives us confidence in the cost synergy path and the increase with the opportunity to deepen customer relationships across the broader platform. The Cadence conversion now complete, we're encouraged by growing pipelines and seeing increasing opportunities to convert that activity into revenue synergies as we previously committed. Third, we remain on track to deliver our financial targets. The path to 27 is clear organic revenue growth, disciplined expense management synergy realization and strong capital generation. The fourth quarter will provide a clearer view of the earnings power of the go-forward franchise. We've got strong momentum, a clear plan and a team that executes. So I want to thank our colleagues for an exceptional quarter, and thank you all for joining us today.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.