Huntington Bancshares Incorporated (NASDAQ:HBAN) closed Friday's regular trading session at approximately $17.36, marking a weekly decline of 4.9%. The drop came after the company's second-quarter earnings report, which highlighted ongoing challenges from rising deposit costs and a narrowing net interest margin.
The stock's decline was largely driven by investor concerns over the timing of funding and loan growth. Organic deposits increased by 1.8% sequentially, outpacing organic loan growth of 1.2%. This suggests the bank secured funding ahead of a pickup in loan demand, resulting in higher deposit costs. Deposit costs rose by six basis points, while the net interest margin contracted by three basis points to 3.21%.
Thursday's 4.8% drop accounted for the bulk of the weekly loss, with the S&P 500 Index falling 1.2% on the same day. Trading volume surged to 68.6 million shares, well above the 50-day average of 22.0 million, indicating heightened investor attention.
Despite the margin pressure, Huntington reported a strong quarter overall. Net income rose 39% from the prior quarter to $727 million, with adjusted earnings per share of $0.39. Net interest income increased 40% year-over-year to $2.05 billion. Noninterest income climbed 15% sequentially to $785 million, driven by growth in capital markets and advisory fees.
Balance sheet expansion was primarily fueled by acquisitions. Average loans grew 42% year-over-year when including acquired portfolios, but organic loan growth was just 1.2% sequentially. Deposits advanced 1.8% on an organic basis, reflecting the bank's focus on funding growth.
Chief Financial Officer Zach Wasserman described the current net interest margin of 3.21% as the "trough," expressing confidence in margin improvement during the second half of the year. He noted, "I expect fourth-quarter earnings per share to be very strong." CEO Steve Steinour added that loan pipelines remained "robust" entering the second half, and the company completed the Cadence systems conversion in mid-June.
Analysts remained cautious following the report. Stephens analyst Matt Olney lowered his price target to $19 from $20, maintaining an Equal Weight rating, citing that competition leaves "little room for error." Credit quality remained stable, with net charge-offs at 0.25%, down one basis point sequentially. However, nonperforming assets rose 13 basis points to 0.85%.
Huntington's narrowing margins contrasted with the broader regional banking industry, where net interest margins mostly increased in the second quarter. The Federal Reserve's upcoming July 28-29 meeting and the release of second-quarter GDP data next week will be closely watched by traders.
Looking ahead, risks remain tied to funding costs and acquisition integration. A faster pace of deposit repricing or weaker loan demand could delay the anticipated margin recovery. The CET1 ratio declined to 10.0% from 10.2%, while nonperforming assets edged higher, underscoring the need for careful execution.
