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DATE

  • Friday, July 18, 2025, at 9 a.m. EDT

CALL PARTICIPANTS

  • Chairman, President, and Chief Executive Officer — Stephen Steinour
  • Chief Operating Officer — Brent Stanridge
  • Chief Financial Officer — Zach Wasserman

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TAKEAWAYS

  • Net Interest Income Guidance: Full-year net interest income guidance for 2025 raised to a range of 8%-9%, up from the previous 5%-7%, attributed to higher loan and asset growth along with improved net interest margin (NIM) outlook.
  • Loan Growth: Average loan balances increased by $2.3 billion, or 1.8%, sequentially in Q2 2025; Total loan balances grew 7.9% year over year, with commercial and new market initiatives leading growth.
  • Deposit Growth: Average deposits increased by $1.8 billion, or 1.1%, from the previous quarter, and Deposit growth guidance increased to 4%-6% for the full year 2025, reflecting continued expansion of primary bank relationships.
  • Deposit Costs: Overall cost of deposits declined by one basis point during Q2 2025, demonstrating disciplined pricing despite deposit growth.
  • Fee Income and Strategic Areas: Non-interest income rose 7%, or $34 million, year over year on an adjusted basis, with payments, wealth, and capital markets collectively up 11% year over year and now accounting for 66% of fee income.
  • Net Interest Margin: NIM was 3.11%, up one basis point from the prior quarter, with stability expected for the remainder of the year.
  • Profitability Metrics: Earnings per share (GAAP) were $0.34; EPS excluding notable items grew 27% year over year; Adjusted return on tangible common equity (ROTCE) was 17.6%; Tangible book value per share increased 16% year over year.
  • Credit Performance: Net charge-offs improved by six basis points quarter over quarter to 20 basis points; Allowance for credit losses (GAAP) ended at 1.86% of loans; Full-year net charge-off guidance lowered to 20-30 basis points for 2025.
  • Capital Position: Reported common equity Tier 1 (CET1) ended at 10.5%; adjusted CET1 at 9%, up 40 basis points year-over-year and at the lower bound of the 9%-10% targeted range for adjusted CET1.
  • Expense Outlook: Full-year expense growth forecast set at 5%-6% for 2025 due to increased incentive compensation and higher volumes tied to stronger revenue and profit outlook.
  • Strategic Initiatives: Acquisition of Veritex Holdings (VBTX -1.92%), announced and expected to close in Q4, expected to accelerate organic growth in Texas; new middle market team added in Florida; franchise expansion continuing in North and South Carolina with several new branch openings underway.
  • Hedging Program: Asset sensitivity positioned near-neutral with expectations to maintain relative neutrality over the next year; hedges managed to protect capital in both higher and lower rate scenarios.

SUMMARY

Management confirmed the Veritex acquisition as a transformative step for Huntington Bancshares (HBAN -1.91%), projecting significant expansion in Texas through deepening commercial and consumer relationships and rapid franchise build-out. Commercial banking performance was highlighted by new market initiatives, particularly in Texas and the Carolinas, with national specialty groups such as the Financial Institutions Group and Funds Finance driving incremental loan growth. Growing fee income mix in payments, wealth management, and capital markets signals increased contribution from value-added services to overall revenue, with commercial payment revenues up 18% year over year. Deposit franchise strength was reinforced by household growth and controlled pricing, while liquidity buffers remained robust, with coverage of uninsured deposits at two times. Strategic capital management focused on supporting high-return loan growth and driving adjusted CET1 higher within the target range was emphasized.

  • Commentary indicated positive operating leverage improvements for 2025 compared to prior expectations, with volume and performance-based compensation as primary expense drivers.
  • Wasserman said, "There is not a lot of threat against that [NII guidance] range," signaling confidence barring resumed macro uncertainty.
  • The integration of Veritex aims to supplement local leadership -- specifically naming Malcolm Holland as Chairman of Texas -- and to broaden Huntington's reach in key metropolitan areas via more than 30 added branches in Dallas-Fort Worth and Houston.
  • Stanridge highlighted, "Veritex has a meaningful presence in Dallas-Fort Worth and Houston and will serve as a springboard for substantial future growth in the state."
  • Forward-looking credit quality metrics remained stable, evidenced by a criticized asset ratio of 3.82% and non-performing asset ratios holding within a consistent range.

INDUSTRY GLOSSARY

  • NIM (Net Interest Margin): A measure of the difference between interest income generated and interest paid relative to average earning assets.
  • PPNR (Pre-Provision Net Revenue): Income before accounting for the provision for credit losses, reflecting core earnings strength.
  • ROTCE (Return on Tangible Common Equity): Net income available to common shareholders divided by tangible common equity, measuring profitability relative to the tangible capital base.
  • CET1 (Common Equity Tier 1): The core capital that a bank holds in its capital structure, critical for regulatory capital requirements.
  • AOCI (Accumulated Other Comprehensive Income): A component of equity reflecting unrealized gains or losses on certain investments and derivative instruments.
  • Criticized Assets: Loans and other assets that are performing but have elevated risk characteristics according to regulatory guidelines.
  • Net Charge-Offs: The dollar amount of loans written off as uncollectible, net of amounts recovered on previously charged-off loans, expressed as a percentage of total loans.

Full Conference Call Transcript

Stephen Steinour: Thanks, Eric. Good morning, everyone, and welcome. Thank you for joining the call today. Now turning to our results, I'll begin by outlining some key highlights, then Brent will talk about our opportunity with Veritex, and Zach will follow with a detailed review of the second quarter financials. As the environment around us continues to evolve, we remain committed to our vision of being the leading people-first, customer-centered bank in the country. We are focused on our core growth strategies and excited by the opportunities in front of us, including our recently announced acquisition of Veritex, which will greatly accelerate our growth.

These opportunities are consistent with our long-standing aggregate to low-risk appetite, which has delivered strong and consistent results through the years. For this reason, we are well-positioned to maintain our strong performance.

On slide five, there are four key messages we want to leave you with today. First, we are delivering a strong operating performance with robust organic growth in loans, deposits, and fees. The business is performing exceptionally well, and through the second quarter, we are ahead of our plans for the year. I'd like to thank all of my colleagues for their extraordinary efforts this quarter and everything they do for our customers and company every day. Second, we are driving strong revenue and profit growth year over year, consistent with the strategy we shared at investor day in February. This performance is supported by our earning asset growth, expanded net interest margin, value-added fee services, and positive operating leverage.

Third, credit performance continues to be stable at a low level of losses, reflecting the proactive management of our loan portfolios and our rigorous credit screening and disciplined customer selection. Fourth, our strong financial foundation enables us to outperform through a range of potential economic scenarios. All of these factors contribute to our ability to support our customers, colleagues, and the communities we serve while driving value for our shareholders.

Turning to slide six, I'll recap our performance in the second quarter. We grew average loans by almost $10 billion year over year, supported by both core businesses and new initiatives. Average deposit growth also increased by almost $10 billion over the same time frame, highlighting the power of our deposit franchise to fund asset growth. Our deposit strategy remains focused on acquiring and deepening primary bank relationships, which we grew by 4% and 6% year over year in consumer and business banking, respectively. Importantly, we maintained disciplined deposit pricing while delivering this growth.

Our investments in value-added fee services continue to deliver with 11% growth year over year in our strategic fee income areas of payments, wealth, and capital markets. In the quarter, we drove adjusted CET1 higher to 9%, hitting the lower bound of our targeted operating range of 9% to 10%. Credit performance remains top tier as net charge-offs further improved by six basis points from the prior quarter to just 20 basis points. Our liquidity remains strong with two times coverage of uninsured deposits. Notably, our tangible book value increased 16% year over year.

This growth in capital per share, coupled with our strong level of adjusted ROTCE at 17.6%, illustrates how our model is a powerful driver of value creation. We also advanced several strategic initiatives. We added a new middle market team in Florida and continued to roll out our full franchise expansion in North and South Carolina with branch openings. But most significant among our strategic advancements was our announced acquisition of Veritex. This combination will significantly accelerate our already strong organic growth in Texas. To recap the key elements of this important announcement, let me turn it over to Brent.

Brent Stanridge: Thanks, Stephen. Looking at slide seven, as we spoke about earlier this week, this partnership with Veritex brings four key benefits to Huntington Bancshares Incorporated. First, Veritex has a meaningful presence in Dallas-Fort Worth and Houston and will serve as a springboard for substantial future growth in the state. Second, it brings together an outstanding group of new colleagues who have deep local relationships and a strong commercial banking franchise. We are especially pleased Malcolm Holland will be joining us as Chairman of Texas. Third, this combination is fully aligned with our model of delivering broad-based capabilities and industry expertise through local relationships and enables us to bring our full portfolio of products and services to customers in Texas.

And fourth, we view this transaction as financially attractive for both sets of shareholders and expect a seamless integration.

Turning to slide eight, we expect that our partnership with Veritex will generate several significant areas of opportunity. First, Veritex's reach and relationships will help us accelerate commercial lending and capital markets opportunities across commercial real estate, corporate, middle market, and regional banking. Second, there are a range of incremental fee income streams we believe will grow across both commercial and consumer customers, including in payments and wealth management. And third, we see the opportunity to fast-track the build-out of a Texas consumer franchise. Veritex has more than 30 branches in the Dallas-Fort Worth and Houston MSAs, and we plan to add the full breadth of our branch-based and digital capabilities.

In summary, the acquisition of Veritex is an important milestone for Huntington Bancshares Incorporated, and we're looking forward to closing this transaction in the fourth quarter. Now let me turn it to Zach to cover Huntington's financial results for the quarter.

Zach Wasserman: Thanks, Brent, and good morning, everyone. Slide nine provides highlights of our second quarter results. On a reported basis, earnings per common share were $0.34. As a reminder, this includes a $0.04 impact related to a securities repositioning and a notable item. EPS, excluding these items, grew 27% from last year. Return on tangible common equity, or ROTCE, was 16.1% for the quarter. As Stephen noted, adjusted for the items this quarter, ROTCE was 17.6%. Average loan balances grew by $2.3 billion, or 1.8%, from the prior quarter. Average deposits increased by $1.8 billion, or 1.1%, versus the prior quarter. Reported common equity Tier 1 ended the quarter at 10.5%.

Adjusted CET1 was 9%, up 40 basis points from last year, and ended Q2 at the lower bound of our target operating range. As Stephen mentioned, tangible book value per share continued to grow, increasing 16% year over year. We continue to demonstrate strong credit performance, with net charge-offs of 20 basis points. Allowance for credit losses ended the quarter at 1.86%.

Let's turn to slide ten. We generated 8% year-over-year revenue growth and 8% year-over-year PPNR growth on a reported basis. On an adjusted basis, PPNR grew 15% year over year. As Stephen said, the business is performing exceptionally well and continues to build momentum. Turning to slide eleven, loan balances grew 7.9% year over year, driven in particular by strength in commercial loans and contributions from our new initiatives. During the quarter, new initiatives grew $900 million, accounting for approximately 40% of the total loan growth. The primary drivers within new initiatives were our Texas and North and South Carolina regions, and among our national specialty verticals, the Financial Institutions Group and Funds Finance.

Of the remaining $1.4 billion of loan growth, existing businesses delivered $500 million from regional banking, $500 million from indirect auto, $400 million from middle market, and $200 million from corporate and specialty banking. Partially offsetting this growth was a $240 million decline in commercial real estate balances. As we have highlighted previously, we are seeing a deceleration in the pace of balance decline in CRE, as originations are accelerating while the rate of runoff is decreasing.

Turning to slide twelve, like Stephen mentioned earlier, our results continue to demonstrate the strength of our deposit franchise. As I noted, average balances increased by $1.8 billion, or 1.1%, driven by continued household growth and the deepening of primary bank relationships. Our overall cost of deposits declined by one basis point this quarter, reflecting our disciplined deposit pricing. On to slide thirteen. During the quarter, we drove $42 million, or 2.9%, sequential growth in net interest income. This is almost 12% growth on a year-over-year basis. NIM, or net interest margin, was 3.11% for the second quarter, up one basis point from the prior quarter.

This increase included a two basis point benefit from lower drag from the hedging program. This was partially offset by a one basis point impact from higher average cash balances.

As I noted at a mid-quarter conference, our NIM outlook improved by a few basis points from the prior outlook, and we saw the benefit coming through in the second quarter. Turning to slide fourteen. As just discussed, we held modestly higher average cash balances in the quarter, and our average level of cash and securities at quarter-end remained at 28% of total assets. Turning to slide fifteen. We continue to manage our hedging program to accomplish our core objectives of protecting capital in a potential higher rate environment while protecting NIM from a potential lower rate environment. Over the last year, we have reduced our asset sensitivity to a near-neutral position.

We expect to maintain that relative neutrality for the next year. As you know, we frequently review the most likely paths of interest rates and actively modulate our positioning to the most likely scenario.

Moving to slide sixteen, on an adjusted basis, non-interest income increased by 7%, or $34 million, compared to the prior year. Our key areas of strategic focus—payments, wealth, and capital markets—collectively grew 11% year over year. These areas now represent 66% of the fee income mix, an increase of six percentage points from two years ago. Looking ahead, we see strong momentum across these businesses and expect them to remain key drivers of fee growth going forward. Moving to slide seventeen. Within payments, we delivered 7% year-over-year growth in the second quarter, driven by an 18% increase in commercial payment revenues.

Treasury management fees grew 10%, driven by continued success deepening relationships across our customer base and growing contributions from our new merchant acquiring model. Our commercial card portfolio also performed well, achieving the second-highest growth rate in commercial card spend across the industry in 2024, according to the recent Nielsen report.

Moving to wealth management on slide eighteen. Wealth fees continued to gain momentum and increased by 13% on a year-over-year basis. Assets under management grew 12% from the prior year, supported by a 12% increase in advisory households. Over the last twelve months, we have gathered approximately $1.8 billion in net flows as we deepen our advisory penetration into our customer base. Moving to slide nineteen. Capital markets grew 15% year over year, supported by commercial loan production-related capital markets activity, including notable strength in underwriting, syndications, and financial risk management products.

Turning to slide twenty. GAAP non-interest expense in the quarter was $1.2 billion, in line with the guidance I provided in the mid-quarter update. Growth from the prior quarter was primarily driven by incentive and performance-related compensation due to our increased outlook for revenue and profit growth this year. Our posture on expense management remains focused on driving positive operating leverage, both this year and over the long-range financial plan. We're pleased with the continued solid trend of operating efficiency improvements we are delivering. We continue to see strong traction in our program to drive reengineering efficiency in our baseline operating costs, supporting sustained growth and investments to drive revenue.

Slide twenty-one recaps our capital position. We continue to increase our common equity Tier 1. Our capital management strategy remains focused on our top priority of funding high-return loan growth while also driving adjusted CET1, inclusive of AOCI, higher into our target operating range of 9% to 10%. Turning to slide twenty-two, we are executing on our strategic initiatives and achieving strong growth while maintaining our disciplined credit management approach. Credit quality continues to perform very well. The allowance for credit losses grew $37 million from last quarter and ended Q2 at 1.86%.

Turning to slide twenty-three. Forward-looking credit metrics remained stable. The criticized asset ratio was 3.82%, and the non-performing asset ratio has been in a tight range for several quarters. Let's turn to slide twenty-four. While economic uncertainty remains elevated, we are encouraged by signs of improving sentiment compared to earlier this year. The growth environment improved month by month during the second quarter, and Q3 is starting off quite positively. The outlook illustrated on this page is for standalone Huntington Bancshares Incorporated, excluding the potential impacts from closing our acquisition of Veritex. We will provide an update on those impacts as we get closer to the close, which we expect to occur in the fourth quarter.

On loans, we are above our prior outlook, and thus we are increasing our growth range to 6% to 8%. This reflects the robust performance in Q2 and our expectation for continued momentum into the second half. On deposits, we're raising our range to 4% to 6%. We are highly focused on expanding primary bank relationships and acquiring new households while remaining disciplined in our deposit pricing. For net interest income, we're increasing full-year guidance to 8% to 9% from a prior range of 5% to 7%, reflecting the outlook for higher loan and asset growth and the benefits from the increased NIM outlook I referenced earlier. This level would represent record net interest income on a full-year basis.

We are maintaining the range for the expected growth in fee income at 4% to 6%. Where we end up in this range will largely be a function of our pipeline for advisory revenues, which is strong, creating the potential for a robust finish to the year similar to what we saw in the fourth quarter of last year. If that occurred, we could end up in the higher part of the range.

On expenses, we forecast full-year expense growth of 5% to 6%. Given the increased revenue and profit outlook for the year, expenses from incentive compensation and volume-related drivers will be higher than the original budget. We remain focused on driving positive operating leverage this year. Our latest outlook represents a larger amount of positive operating leverage for 2025 than the outlook from the beginning of the year. On credit, given the strong performance in the first half, we're lowering our full-year net charge-off guidance to 20 to 30 basis points. I will also take the opportunity to share some color on expectations for the third quarter. We expect approximately 1% sequential growth in average loans.

Deposits are expected to be approximately flat into Q3, with expected sequential growth into Q4. We anticipate net interest income to be relatively stable sequentially in the third quarter. Fee revenues are expected to be around $550 million. We expect expenses of approximately $1.22 billion, which will be about $20 million higher than Q2. Most of that increase is from the calendarization of marketing activities that are weighted this year to the third quarter, tied to the rollout of the new Huntington brand campaign. We're very excited to unveil a new suite of TV, print, and digital branding and messaging.

We think it is a phenomenal representation of our legacy and where we're going in the future and will continue to power a leading pace of growth in customer acquisition and deepening. Lastly, the tax rate in the second half of the year is expected to be around 19%, consistent with our statutory rate and a bit higher than the first half level, which benefited from some discrete items.

Turning to slide twenty-five, in closing, our focus remains squarely on driving long-term shareholder value creation, and our performance is a direct reflection of our disciplined execution. We operate a powerful scaled franchise with multiple growth levers, and our performance in the quarter underscores the durability of our model and ability to deliver on our medium-term guidance. Risk management is deeply embedded in our culture, and we've consistently demonstrated top-tier performance in stressed environments as measured by DFAST and CCAR results. Our focus on adjusted CET1 reflects the rigor of our capital management approach, and our liquidity remains top-tier in the industry.

The organic growth we are driving continues to significantly outpace our peer group, supporting the attractive revenue and profit growth we're delivering and reinforcing our long-term value creation strategy. And this position of strength, like the Veritex acquisition, will further contribute to our long-term growth. Our sustained growth in tangible book value per share and our strong return on capital are driving robust continued growth in the fundamental drivers of shareholder value. With that, we will conclude our prepared remarks and move to Q&A.

Operator: Thank you, Zach. We will now take questions. We ask that as a courtesy to your peers, each person asks only one question and one related follow-up. If you have additional questions, please return to the queue. Thank you. We'll now be conducting a question-and-answer session. One moment, please, while we poll for questions. Thank you. Our first question is from John Armstrong with RBC Capital Markets.

John Armstrong: Thanks. Good morning. Zach, a question for you on the new net interest income guidance range. It feels like you have enough momentum to hit the higher end of that range, but I'm curious in your mind what you see as the threats to hitting that higher end.

Zach Wasserman: Yeah. Great question, John. Thank you. And I would agree, we are well on track to potentially get to the higher end of that range. You know, as we give these ranges, we always want to be a little conservative given the uncertainty, but I think hitting the higher end of the range is certainly in the cards for us. You know, I think about the kind of the ingredient to that. We are tracking well in the loan growth range, feeling really good about the momentum in loans, particularly even just into the third quarter here starting off very, very nicely.

And then NIM, you know, I think, I'm sure we'll unpack NIM in further questions, but generally expecting NIM to be quite stable here in the back half of the year, and those two things together should be the product of that. You know, I think I don't feel, to be honest, a lot of threat against that range. I think the biggest thing that we're watching clearly is just the stability of the economic environment and the stability of the environment vis-a-vis some of the uncertainties that emerged earlier in the year. It doesn't appear that those are coming back in any substantial way, but were they to, that could potentially present a headwind.

John Armstrong: Okay. Thank you on that. And then, Stephen or Brent, can you give us some of the feedback you've heard, maybe pro and con, from internal and external partners on the Veritex acquisition announcement? I think some expected you to be acquisitive, others did not, given the core momentum, but just curious what kind of feedback, maybe positive or negative, that you've received. Thank you.

Stephen Steinour: John, I'll start, but I'm going to pass it to Brent because he's really been upfront leading the diligence, and he'll lead the integration as well. We've gotten very good feedback, and we've had encouragement over the last couple of years from some of our long shareholders. If we saw an opportunity to make a strategic acquisition, given the success of TCF, to look hard at it. Now this one came together very quickly. It happened to be ideal for us because our focus has been Dallas and Houston, and as you saw on Monday from the announcement, we already have a sizable presence in Texas. We've been there since 2009.

We really like this Veritex team, and Malcolm staying with us is a huge deal. We were there Wednesday and Thursday, met many of the employees, and we've got some great new colleagues coming on board. Brent, what would you like to add to that?

Brent Stanridge: John, really good question. As Stephen mentioned, we were there the last two days, and I'll tell you, we left even more impressed with the colleagues and even more opportunistic about the opportunity that exists. As we mentioned on the call Monday, there are a number of synergies that we believe exist, whether it's expanding retail banking, wealth offerings, expanding in our commercial bank and some of our specialty offerings there, new geographies that this potentially opens. All of those things we leave even more encouraged about the opportunity that exists.

Operator: Okay. Thank you. Our next question is from Erika Najarian with UBS.

Erika Najarian: Yes. My first question is for Zach. You know, Zach, it seems like we're observing differentiation in deposit trends this quarter among regional banks. And I guess the question I have is, given your loan growth, it was notable that deposit cost interest-bearing deposit costs went down two basis points. I guess maybe talk a little bit about, you know, competition you're seeing, I guess, perhaps some of the organic growth initiatives that I'm guessing are helping, and how we should think about deposit growth and deposit cost trends, you know, again, like, in the absence of, you know, any rate cuts and what data you could see if the Fed does cut.

Zach Wasserman: Yep. Great question, Erika. Thank you. And, you know, just to kind of set it up, very pleased with how deposits are performing here. We came into the second quarter expecting deposits to be around flat in the quarter and ended up growing more than a percent, and on a core basis even faster than that. So the deposit gathering teams are just performing really, really well and, obviously, driven underlying by growth in primary bank relationships. You know, and as you noted, we did see deposit costs continue to trend out into the second quarter.

Our working expectation at this point is we'll see to drive solid deposit growth over the back half of the year here, just given the slightly stronger loan growth as well that we're seeing. That will likely drive deposit costs at a pretty stable range from here, assuming no rate reductions. Obviously, if there are some rate reductions, I would expect to see further opportunities to drive down costs in light of that and beta performance like we've seen in the past. Not seeing any notable, you know, major change in the competitive environment.

With that being said, you know, across the industry, we are seeing an encouraging, frankly, sign of growth, you know, reoccurring now on the loan side broadly. So presumably over time, that will drive some higher competition, but we're not seeing that at this point. That's the posture we've got.

Erika Najarian: Thank you. And my second question would be for Stephen and Brent. You know, I think John asked about the feedback, you know, from the community and investors. And I'm wondering sort of what the feedback was from the lenders. I think Stephen had a really good quote on Monday about, you know, Texas bank for Texas businesses or something like that. And I guess I'm wondering how the, you know, the Veritex lenders sort of, you know, embraced Huntington, you know, coming from, you know, out of state this week. And also, you know, you've mentioned that, you know, as you make impacts in the community, you know, you started getting inbound inquiries.

And I guess I'm also wondering, you know, as a follow-up to that, if that deal sort of also started maybe some inbound inquiries with others of Texas teams.

Brent Stanridge: Erika, I'll start, and Stephen may add to that. First of all, as Stephen mentioned, we were there the last two days, and we had a chance to meet with many of the Veritex colleagues. I will say that the general reaction from that group is excitement. Having Huntington will bring more capabilities to the table. They have a great customer base that they've established, deep relationships with, and now there's a view that potentially they can do quite a bit more for those customers. There's also been quite a bit of customer outreach on the part of the Veritex colleagues.

And from the customers, there's a view that there will be more opportunity to expand, a larger balance sheet, more capabilities. There's also a level of excitement around our local structure. This is an organization that's obviously been headquartered in Texas. And now with our regional structure and regional presidents in Texas, Malcolm as the chairman of our Texas organization, that creates a level of comfort, a level of sense that team will own the success of our Texas business. And I think there's a great deal of optimism as to what the collective team and what we could do in this partnership together to really expand there in Texas.

Stephen Steinour: Erika, I'll add. We've also visited with our team in Texas and felt an equal level of excitement. You know, our confidence in making this move was in part predicated on the success and growth we've had since 2009. We've got a couple hundred colleagues in Texas, a hundred forward-facing bankers, and they've just done a great job for us. So the combined teams will have a couple of hundred new business-oriented individuals and give us the opportunity to put the full platform in place for our capability. So this is a big deal for us. We think it's a springboard. We're very excited.

We will continue to invest in Texas, and we're getting some inbounds as we've seen in the past. So we're going to build it out. Texas alone, as I think I shared Monday, is a huge economic and demographic opportunity, and Texas will become our third-largest state in terms of deposits when we close this. So very, very grateful for the opportunity to work with Malcolm and the terrific team at Veritex.

Operator: Thank you. Our next question is from Manan Gosalia with Morgan Stanley.

Manan Gosalia: Hi. Good morning. Zach, can you unpack the change? Good morning. Zach, I was wondering if you can unpack the change in the expense guide. I think you mentioned incentive compensation being higher, and that's, I guess, fair given the better top line. But if NII reaches the higher end of your guidance range, is it fair to assume that expenses will reach the higher end too?

Zach Wasserman: Yeah. Great question, Manan. Thank you. And as you noted and I highlighted in the prepared remarks as well, really the primary driver of a slightly higher expense outlook is the higher revenue and profit outlook for the year, and that reflected into incentive compensation. I will also note that just higher volumes generally have driven some of the costs higher as well, again, which is a high-class problem, clearly. You know, overall, the way we look at it, we love how this is shaping up here. We have more positive operating leverage now than we had in the original budget, something like half a point to maybe even a point more operating leverage, so it's really good.

I would note that part of what happens when you see kind of midway through the year like we are this year, that the year really is trending so strongly, you've got to catch up in some of that accrual of incentive compensation. So part of the growth into Q2 was a sort of catch-up of accruals that would have otherwise been made earlier this year if we'd known the outperformance earlier. So feel really good, really good about it. I do think that, you know, we try to calibrate these ranges generally so they're all consistent with each other.

So to the extent we're at the higher end of the revenue ranges, then you're at the higher end of the expense range as well to answer your question specifically about that.

Manan Gosalia: Got it. And then, secondly, on loan growth, to maybe nitpick on what is a good story. The growth from the new initiatives slowed this quarter. Is it getting more competitive as some of your peers ramp up? Is it just a base effect, or maybe I'm just reading too much into a one-quarter number?

Zach Wasserman: Well, so you may be nitpicking, Manan, a little bit more than probably is reasonable. Honestly, we see that just a terrific level of production, something like a billion dollars of growth here. And as you look out into the back half of the year, we're expecting to see, you know, that or better continued contribution. Remember, there's seasonality in all these businesses here. So I wouldn't attribute too much to it.

We obviously had a very, very strong fourth quarter and first quarter here, but I think the run rate we're on is pretty solid and should continue to support as we look out into 2026 and beyond, not to give formal guidance, but we continue to see the opportunity to drive, you know, mid to high single-digit loan growth and those new initiatives being a big part of that.

Stephen Steinour: And then, Manan, we had a number of loans and capital market activities just spill into July. So we actually had a very strong start for what's typically a slow couple of weeks.

Manan Gosalia: That's fair. Thank you.

Operator: Our next question is from Ebrahim Poonawala with Bank of America.

Ebrahim Poonawala: Hey. Maybe, I guess, given all the Texas focus, maybe I was wondering if you or Brent could spend some time on just give us a mark to market on Carolina's in terms of the build-out. Are we still looking to hire new bankers, kind of the timeline of new branch openings? Just would love to know how all of that is gaining traction and kind of out of there.

Brent Stanridge: Ebrahim, it's a very good question. We remain incredibly optimistic about Texas, North Carolina, and South Carolina. In fact, as you know, if you look at the performance of those markets from an economic perspective, those combined are outpacing the rest of the country in job growth and population growth by almost 2x. And so we're going to continue to invest in both. We continue to look for really strong bankers to support what we're doing in North and South Carolina, and we feel good about where we are today. We are continuing to build out our branch network. We opened two already. We have several more opening between now and the end of the year.

And next year will be our big year for that. We'll have more than 20 open next year. So we continue to invest there. Obviously, we've talked a lot about Texas this week and the investment, and this will create a springboard for potentially more.

Ebrahim Poonawala: And just on that, and I appreciate that probably for now, the strategic priorities are clear over the next six to twelve months to get VBTX done. What you said, as you look forward, from an inorganic standpoint, would it make more sense to do additional deals in Texas versus Carolina? Just are there differences in the markets where M&A is a better way to incrementally grow versus the other?

Stephen Steinour: The way we think about it, Ebrahim, is we're going to drive the core. That is our focus. We've had a terrific couple of years. We have clear momentum as we go into the back half of this year. And many of the investments are not mature. They're not performing at what will be their mature levels. So we're optimistic about 2026 and beyond in terms of core growth. We happen to find an opportunity to combine with a terrific organization, great people, the leadership that Malcolm will provide on an ongoing basis, an important part of our overall consideration.

And we do think Texans like to do business with Texans, and we now have hundreds of bankers in Texas once we close this partnership. But we're going to look to drive the core in Texas as we do in the Carolinas and elsewhere in the franchise.

Ebrahim Poonawala: Good. Thank you.

Operator: Our next question is from Steven Alexopoulos with TD Cowen.

Steven Alexopoulos: I wanted to first drill up. So the funding strategy for looks like you're planning to use up some of your excess liquidity in the half and even in the third quarter. What's the thought behind not growing deposits a bit more aggressively here to loan growth? Is it the competitive environment today, or because you guys expect rates will be lower over the next couple of quarters? What gives you this to be patient here?

Zach Wasserman: Yeah. Steven, thank you. You were clipping out a little bit as you spoke, but I think I got the gist of your question. So I'll take that. And, you know, look, really, when I would characterize what we're doing now is just intense optimization of funding and loan growth to drive the best NIM outlook that we can. And, you know, I mentioned in the prepared remarks that we were running with a little bit of elevated cash in the second quarter, frankly, as a function of how strong the deposit gathering had been.

It just gives us the opportunity now to fund leveraging some of that and optimize NIM and really just continue to keep everything in a great balance. I do think, you know, the deposit gathering program is very much continuing, and as we get into Q4, I would expect sequential growth again. And generally, as we look out over time, and certainly that's our advanced planning for 2026 at this point, expect to see deposit growth fairly well matching loan growth over the longer term.

Steven Alexopoulos: Got it. And thanks for that. Could you just drill in so the non-interest-bearing deposit, were down in the quarter. I don't remember you guys ever being seventeen and a half cents. I'm curious if this is a trough. And is this a function of customers cashing out, right, in their business, which is a positive indicator for loan growth, or customers just migrating out into higher-yielding products?