Huntington Bancshares Incorporated — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are primarily with December 31, 2023. Huntington is a regional bank holding company headquartered in Columbus, Ohio, with approximately 970 branches and private client offices.
Financial performance
- Profit: Net income attributable to Huntington was $419 million, down 30% from $602 million a year earlier. Diluted EPS was $0.26 versus $0.39; net income applicable to common shares was $383 million.
- Revenue and margin: Net interest income was $1.287 billion, down 9%. FTE net interest income was $1.300 billion, down 8%, and FTE net interest margin fell 39 basis points to 3.01%. Total FTE revenue was $1.767 billion, down 8%.
- Credit costs: Provision for credit losses was $107 million, up 26%. Net charge-offs were $92 million, or 0.30% of average loans annualized, versus $57 million and 0.19% a year ago. Nonaccrual loans were $716 million; nonperforming assets were $738 million.
- Expenses and efficiency: Noninterest expense rose 5% to $1.137 billion; the efficiency ratio increased to 63.7% from 55.6%. The effective tax rate was 16.8%, compared with 19.2%.
- Cash flow: Operating activities provided $464 million, compared with $130 million a year earlier. Investing activities used $2.262 billion and financing activities provided $3.849 billion. Cash and cash equivalents increased $2.051 billion to $12.180 billion.
- Balance sheet and funding: Total assets were $193.5 billion, up 2% from year-end; loans and leases were $122.8 billion, up 1%. Deposits were $153.2 billion, up $2.0 billion; core deposits represented 96% of deposits. Long-term debt was $14.9 billion, up $2.5 billion, while short-term borrowings declined to $182 million.
- Capital: Consolidated CET1 ratio was 10.2%, unchanged from year-end; tangible common equity to tangible assets was 6.0%, versus 6.1%. Total shareholders’ equity was $19.4 billion.
Changes versus comparable periods
- Higher funding costs pressured earnings: interest expense increased 77% year over year, while average interest-bearing liabilities rose 10%. Higher loan and securities yields and 3% growth in average earning assets only partly offset the impact; management also cited deposits held at the Federal Reserve.
- Noninterest income declined 9%, mainly because Q1 2023 included a $57 million gain from the sale of the Retirement Plan Services business. Payments and cash management and wealth and asset management revenue increased, partly offsetting lower capital markets and advisory fees.
- Consumer & Regional Banking net income increased 6% to $348 million. Commercial Banking net income decreased 18% to $242 million. Treasury / Other recorded a $171 million loss, compared with a $22 million loss a year earlier, principally reflecting a $189 million decline in net interest income associated with higher funding costs.
- Compared with year-end, AOCI worsened by $203 million, primarily reflecting changes in interest rates. Loan growth drove a modest increase in the allowance for credit losses.
Outlook, risks and unusual items
- Outlook: The filing provides no quantified company earnings or revenue guidance. Management described a consensus economic outlook of a soft landing in the second half of 2024 to early 2025, while noting that delayed rate cuts could weaken GDP growth and raise unemployment. The ACL baseline assumed four 25-basis-point Federal Reserve cuts by year-end 2024; this is a reserve-model assumption, not company guidance.
- Credit and macroeconomic risks: Management cited uncertainty around inflation, higher interest rates, geopolitical events and commercial real estate. The CRE portfolio was $12.3 billion; office loans were $1.8 billion, with approximately 12% reserve coverage and $76 million at least 30 days past due. The filing’s illustrative 100%-adverse-scenario analysis indicated a hypothetical approximately $1.1 billion increase in quantitative ACL, excluding qualitative adjustments; management cautioned this is not an expected reserve increase.
- Liquidity and market risks: Management said liquidity was sufficient for obligations over the next 12 months and foreseeable future. Available contingent FHLB and Federal Reserve borrowing capacity was $81.9 billion. Uninsured deposits were 30% of deposits; the company warns that unexpected withdrawals or forced securities sales could adversely affect it. The securities portfolio had substantial unrealized losses, and changes in rates can affect securities values, earnings and AOCI.
- Other risks: The filing highlights regulatory changes and costs, including potential capital and long-term debt requirements, cybersecurity, competition and economic volatility. Huntington reported no material cybersecurity losses to date.
- Unusual and other items: Q1 included $32 million of additional FDIC deposit insurance special assessment expense and $7 million of staffing-efficiency-related expense. Q1 2023 included the RPS sale gain and $42 million of voluntary retirement and organizational realignment expenses. Huntington repurchased no shares in Q1 and said it did not expect to use its buyback authorization through 2024, while reserving discretion to resume repurchases. Litigation-related reasonably possible losses were estimated at $0–$20 million above any accrued liability; the company said the estimate is not its maximum exposure.
Important facts for investors to verify
- Whether deposit pricing and funding costs stabilize, and how that affects net interest margin and earnings.
- Trends in commercial and consumer charge-offs, nonaccrual loans, and the adequacy of the $2.415 billion ACL.
- Office and broader CRE loan performance, including past-due balances and reserve coverage.
- Deposit mix and uninsured deposit trends, as well as the availability and use of contingent funding.
- Interest-rate exposure, unrealized securities losses, AOCI, and the effect of any securities sales or rate changes.
- Changes in regulatory capital requirements, FDIC assessment costs, and the company’s capital return plans.