Huntington Bancshares Incorporated — 2022 Q1 Form 10-Q
Reporting period: Three months ended March 31, 2022. Amounts are in U.S. dollars; financial statement amounts are generally in millions. Huntington is a regional bank holding company headquartered in Columbus, Ohio. The June 2021 TCF acquisition means Q1 2022 includes acquired operations, while Q1 2021 does not, limiting year-over-year comparability.
Financial performance and condition
| Metric | Q1 2022 | Comparison / context |
|---|---|---|
| Net income attributable to Huntington | $460 million; diluted EPS $0.29 | Down from $532 million and $0.48 in Q1 2021; net income fell 14% and diluted EPS 40%. |
| Net interest income | $1.146 billion | Up 18% year over year. FTE net interest income, a non-GAAP measure, was $1.154 billion, up 18%. |
| Net interest margin | 2.88% FTE | Down 60 basis points from 3.48% in Q1 2021. |
| Total revenue | $1.653 billion FTE | Up 20% year over year. |
| Noninterest income / expense | $499 million / $1.053 billion | Income up 26%; expense up 33%, with both increases primarily reflecting TCF. |
| Efficiency ratio | 62.9% | Compared with 57.0% in Q1 2021. |
| Credit costs and quality | Provision $25 million; net charge-offs $19 million, or 0.07% annualized | Q1 2021 had a $60 million provision benefit and $64 million of net charge-offs, or 0.32%. Nonperforming assets were $708 million, down from $750 million at year-end 2021. |
| Loans and deposits | Loans and leases $112.8 billion; deposits $147.0 billion | At December 31, 2021: $111.3 billion and $143.3 billion, respectively. |
| Debt | Short-term borrowings $652 million; long-term debt $6.508 billion | At year-end 2021: $334 million and $7.108 billion, respectively. |
| Cash flows | Operating cash flow $849 million; investing cash flow use $5.355 billion; financing cash flow $3.508 billion | Q1 2021 operating cash flow was a use of $111 million. Cash and cash equivalents ended at $4.524 billion, versus $8.589 billion a year earlier. |
| Capital and equity | Consolidated CET1 ratio 9.22%; total risk-based capital ratio 13.03%; shareholders’ equity $18.5 billion | CET1 was 9.33% at year-end 2021. Equity decreased $845 million in the quarter, primarily due to lower AOCI as interest rates rose. Tangible common equity to tangible assets was 6.28%. |
Material changes and notable items
- TCF drove much of the growth in average earning assets, loans, securities, deposits, revenue, and expenses. Average earning assets rose 42% year over year; average loans and leases rose 38%.
- Net interest margin was pressured by the absence of the prior-year $144 million interest-rate-cap mark-to-market benefit and lower accelerated PPP fees. Q1 2022 included $19 million of purchase-accounting accretion.
- Noninterest income growth included higher deposit service charges, card income, leasing revenue, and loan-sale gains. Mortgage banking income fell 51%, reflecting lower secondary marketing spreads and salable originations.
- Q1 2022 other comprehensive loss was $1.085 billion, including unrealized losses on available-for-sale securities and cash flow hedges. Accumulated other comprehensive loss reached $1.314 billion at quarter-end.
- Huntington transferred $4.2 billion of securities from available-for-sale to held-to-maturity during the quarter. A related $58 million after-tax unrealized loss in AOCI is to be amortized into interest income over the securities’ remaining lives.
Outlook, risks, and contingencies
- Management described loan and lease growth, deposit growth, and disciplined expense management as positive, and said credit performance remained consistent with its moderate-to-low risk appetite. The filing provides no specific earnings or financial guidance.
- The Federal Reserve had begun raising rates amid inflation, labor shortages, and supply-chain complications. Huntington noted uncertainty around the effects of inflation, higher rates, geopolitical instability, and COVID-19 on customers, the economy, credit losses, and results.
- Under Huntington’s illustrative 100%-adverse economic scenario, modeled ACL would be approximately $2.4 billion higher than the quantitative allowance, excluding qualitative adjustments. The filing states this is a sensitivity analysis, not an expected increase.
- Interest-rate sensitivity modeling showed estimated net interest income increases of 3.1% and 6.0% under gradual +100 and +200 basis-point scenarios, respectively; the -25 basis-point scenario showed a 1.8% decrease. These are modeled sensitivities, not forecasts.
- Huntington said it believed the Bank and parent company had sufficient liquidity and capital for obligations over the next 12 months and foreseeable future. Core deposits were 98% of deposits; unpledged securities totaled $11.9 billion.
- Huntington signed an agreement to acquire Capstone Partners, with closing expected late in Q2 2022, subject to regulatory approval and customary conditions. It made no share repurchases in Q1, citing the pending acquisition and loan growth; $650 million of an $800 million authorization had been completed.
- Legal and regulatory matters are routine but outcomes remain uncertain. For matters where a loss range could be estimated, the aggregate reasonably possible loss was $0–$15 million above accrued liabilities, if any; the filing says this is not maximum exposure.
- Other disclosed risks include TCF integration and realization of expected benefits, interest-rate and market volatility, LIBOR transition, cybersecurity and fraud threats, regulatory compliance, and uncertain economic and geopolitical conditions.
Investor verification priorities
- Assess underlying earnings trends separately from TCF acquisition effects and the unusually favorable Q1 2021 credit and interest-rate-cap comparisons.
- Track deposit retention and funding costs, loan growth and mix, margin sensitivity as rates change, and the planned securities portfolio positioning.
- Monitor credit performance and reserve assumptions, especially commercial real estate, inflation- and geopolitical-related risks, and changes in delinquencies or charge-offs.
- Review the effect of rising rates and AOCI losses on tangible equity, capital ratios, and securities fair values.
- Verify Capstone’s approval and closing, integration costs and benefits, and any remaining share-repurchase authorization or capital-distribution changes.