Huntington Bancshares (NASDAQ:HBAN) experienced a decline of 1.1% on Monday, closing at $17.18 amid elevated trading volume. The drop came after the regional bank reported net interest income that fell short of analyst expectations, casting doubt on the anticipated benefits from its recent acquisitions of Cadence and Veritex.
Bank of America (NYSE:BAC) analyst Ebrahim Poonawala downgraded HBAN from Buy to Neutral, while also lowering the price target from $20 to $18.50. This revision reflects concerns that the bank's net interest income growth is not translating proportionally into earnings. Despite a 40% year-over-year increase in net interest income, adjusted earnings per share rose only about 3%, highlighting a significant gap.
Net income climbed 36% to $727 million, but reported earnings per share dipped by a penny to $0.33, partly due to $152 million in pre-tax acquisition-related expenses. The bank's performance lagged behind some regional peers, with Fifth Third Bancorp (NASDAQ:FITB) slipping 0.9%, and KeyCorp (NYSE:KEY) and Regions Financial (NYSE:RF) each falling roughly 0.6%.
Poonawala noted that Huntington was "clearly not immune" to net-interest-income headwinds, with BofA flagging an approximate 2% miss on quarterly NII. The firm now expects NII for 2026 to come in slightly below the lower end of the bank's guidance range of 39%. The average price target from nine analysts stands at $19.78, implying an upside of roughly 15% from current levels, though targets range from a conservative $18 to an optimistic $22.
The impact of the Cadence and Veritex acquisitions was evident in loan and deposit growth. Average loans surged 42% year-over-year to $189.3 billion, while average deposits rose 37%. Sequentially, deposits increased by $18.8 billion compared to $15 billion in loans, resulting in $3.8 billion of extra funding growth. However, the cost of funding rose, and net interest margin contracted by three basis points to 3.21%. Management projects a net interest margin in the low-3.20% range for the third quarter, improving to mid-to-high 3.20% in the fourth quarter.
CEO Steve Steinour expressed confidence, stating, "By the fourth quarter, the full earnings power of these partnerships will be clearly evident." Bulls point to an adjusted return on tangible common equity of 17.5% and a 6% increase in tangible book value to $9.65 per share. HBAN trades at roughly 1.78 times tangible book value, with a trailing price-to-earnings ratio of approximately 13.2.
Credit quality remained manageable, though not without blemishes. Net charge-offs represented 0.25% of average loans, while the nonperforming-asset ratio rose 13 basis points to 0.85%. The CET1 capital ratio declined 20 basis points to 10.0%. Investors will be watching the next earnings report on October 22 for signs of margin recovery and identifiable acquisition savings.
Key risks include a delayed recovery in margins, higher deposit costs, or an uptick in problem loans that could push back the expected fourth-quarter improvement. Conversely, swifter cost reductions or gains in fee income could provide upside. The market remains cautious as it evaluates whether the merger synergies will materialize as promised.
