Huntington Bancshares Incorporated — Q1 2023 Form 10-Q
Business context and reporting period. Huntington is a diversified regional bank holding company headquartered in Columbus, Ohio. This unaudited filing covers the three months ended March 31, 2023; balance-sheet comparisons are to December 31, 2022 unless noted.
Key financial results
| Metric | Q1 2023 | Comparison |
|---|---|---|
| Net income attributable to Huntington | $602 million; diluted EPS $0.39 | Up 31% and 34%, respectively, year over year |
| Net interest income | $1.409 billion; FTE NIM 3.40% | NII up 23%; NIM up 52 basis points year over year |
| Noninterest income / expense | $512 million / $1.086 billion | Income up 3%; expense up 3% year over year |
| Efficiency ratio | 55.6% | Improved from 62.9% year over year |
| Credit provision and allowance | Provision $85 million; total ACL $2.299 billion, or 1.90% of loans | Provision up $60 million year over year; ACL up $28 million from year-end |
| Loans and deposits | Loans and leases $121.2 billion; deposits $145.3 billion | Loans up $1.7 billion; deposits down $2.6 billion from year-end |
| Assets, debt, and equity | Assets $189.1 billion; short- and long-term debt $20.0 billion; equity $18.8 billion | Assets up $6.2 billion; debt up $8.3 billion; equity up $1.0 billion from year-end |
| Liquidity and capital | Cash and cash equivalents $10.4 billion; CET1 ratio 9.55%; tangible common equity/tangible assets 5.77% | CET1 was 9.36% and tangible ratio 5.55% at year-end |
| Cash flows | Operating +$130 million; investing −$2.299 billion; financing +$5.834 billion | Operating cash flow was $849 million in Q1 2022 |
Material changes and notable items
- Higher interest rates and loan growth drove stronger net interest income and margin, partly offset by higher deposit and borrowing costs.
- Q1 included a $57 million gain from the sale of the Retirement Plan Services business. Personnel costs included $36 million for a voluntary retirement program and $6 million for organizational realignment.
- Average loans grew 8% year over year, while average noninterest-bearing deposits declined $4.5 billion. Core deposits were $140.4 billion, 97% of total deposits; reported uninsured deposits were $45.1 billion, or 31% of deposits.
- Net charge-offs rose to $57 million, or 0.19% of average loans annualized, from $19 million and 0.07% a year earlier. Nonperforming assets decreased to $578 million from $594 million at year-end.
- Available-for-sale securities had $3.445 billion of gross unrealized losses; held-to-maturity securities had $2.046 billion. The filing states that management expects to receive contractual cash flows from the debt securities, with a disclosed prior-period charge-off on one municipal bond.
Outlook, management commentary, and risks
- Management’s economic forecast assumed a mild 2023 recession, with growth returning in 2024, moderating inflation, and higher unemployment. The company provided no specific earnings or revenue guidance in the text supplied.
- Management said liquidity and capital resources were sufficient for obligations over the next 12 months and foreseeable future. Available contingent FHLB and Federal Reserve borrowing capacity was $51.1 billion at quarter-end; incremental collateral pledges increased capacity by approximately $24 billion early in Q2, subject to Federal Reserve approval.
- Management identified uncertainty from March 2023 bank failures and market volatility, inflation, interest rates, possible deposit outflows, securities-value declines, recession, and potential new regulatory capital, long-term debt, or FDIC assessment requirements. The impact of potential regulatory actions was not yet quantifiable.
- A hypothetical 100%-adverse-scenario ACL sensitivity indicated an approximately $1.1 billion increase versus the quantitative allowance estimate; management emphasized this was not an expected increase.
- The board authorized up to $1.0 billion of share repurchases through December 2024, but none occurred in Q1. Huntington said it did not expect to use the program in 2023 while prioritizing organic capital for loan growth.
- Litigation and regulatory matters had an estimated aggregate reasonably possible loss range of $0–$15 million in excess of any accrual, where estimable; the filing says the range is not maximum exposure. The company reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Deposit stability and funding costs, including uninsured-deposit trends and the extent to which increased borrowings persist.
- Realized or potential securities losses, liquidity available under stress, and the conditions attached to reported contingent borrowing capacity.
- Credit performance, especially charge-offs, commercial real estate and other commercial exposures, and the assumptions supporting the ACL.
- How much earnings growth reflects the rate environment versus sustainable underlying revenue, and the effect of deposit repricing on future NIM.
- The effects of the RPS sale, retirement and realignment costs, and the Q2 segment reorganization on comparability of future results.
- Any subsequent regulatory proposals or assessments and changes to capital requirements, dividends, or the planned share-repurchase program.