Huntington Bancshares Incorporated — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Huntington is a regional bank holding company headquartered in Columbus, Ohio. Comparisons are affected by its June 9, 2021 all-stock acquisition of TCF Financial Corporation, valued at $7.2 billion; pre-acquisition periods reflect legacy Huntington only.
Financial performance
| Metric | Q3 2021 | Comparable period / change |
|---|---|---|
| Net income attributable to Huntington | $377 million | $303 million in Q3 2020 |
| Diluted earnings per common share | $0.22 | $0.27 in Q3 2020 |
| Net interest income | $1.160 billion | Up 42% year over year |
| FTE net interest margin | 2.90% | 2.96% in Q3 2020; 2.66% in Q2 2021 |
| Noninterest income | $535 million | Up 24% year over year |
| Noninterest expense | $1.289 billion | Up 81% year over year |
| Provision for credit losses | Benefit of $62 million | $177 million expense in Q3 2020 |
Net income benefited from the lower credit-loss provision but included $234 million of TCF acquisition-related expenses ($192 million after tax, or about $0.13 per common share). Higher net interest income primarily reflected the acquisition and a 44% increase in average earning assets; margin was partly pressured by lower rates and balance-sheet mix. Acquisition-related costs and the full-quarter contribution from TCF materially affect year-over-year comparisons.
For the first nine months, net income was $894 million versus $501 million; diluted EPS was $0.63 versus $0.42. Net interest income increased 24% to $2.970 billion, noninterest income increased 16% to $1.374 billion, and noninterest expense increased 55% to $3.154 billion. The nine-month credit-loss provision fell to $89 million from $945 million, while including $294 million of initial TCF acquisition credit provisions.
Balance sheet, cash flow, credit and capital
- Balance sheet at September 30: Total assets were $173.9 billion; loans and leases $110.6 billion; deposits $141.9 billion; total equity $19.5 billion. At December 31, 2020, assets were $123.0 billion, loans $81.6 billion, and deposits $98.9 billion; acquisition effects account for much of the growth.
- Liquidity and funding: Core deposits were $137.5 billion, or 97% of deposits. Unpledged investment securities were $14.8 billion. The parent company held $3.7 billion in cash and cash equivalents. Management said the Bank had sufficient liquidity for the foreseeable future.
- Debt and cash flow: Long-term debt was $7.779 billion and short-term borrowings $435 million. For the nine months, operating cash flow was $1.565 billion, investing cash flow was $789 million provided, financing cash flow was $796 million provided, and cash and cash equivalents ended at $9.745 billion.
- Credit: Q3 net charge-offs were $55 million, an annualized 0.20% of average loans, versus 0.56% a year earlier. The allowance for credit losses was $2.205 billion; its ratio to loans was 1.99%. Nonperforming assets were $893 million, or 0.81% of the relevant asset base, up from $563 million at year-end, largely due to TCF. Management cited improvement in the economic outlook as a key driver of lower provision expense.
- Capital and distributions: Consolidated CET1, Tier 1 and total risk-based capital ratios were 9.57%, 11.35% and 13.57%, respectively. Huntington repurchased $500 million of common stock in Q3 and had authorization for up to $800 million over four quarters. The Board declared a quarterly common dividend of $0.155 per share after quarter-end.
Outlook, risks and unusual items
- The filing provides no specific quantitative earnings or revenue guidance. Management described continued loan growth excluding PPP, fee-income momentum, and strategic investment in technology and risk management, while emphasizing expense discipline and positive long-term operating leverage.
- COVID-19, economic conditions, interest rates, government policy and the pace and success of TCF integration remain uncertainties. Management noted that the benefits and timing of acquisition synergies are not assured. TCF purchase-accounting valuations remained preliminary and subject to adjustment during the measurement period.
- Management’s adverse-scenario sensitivity analysis indicated a hypothetical ACL increase of approximately $700 million; this was explicitly not presented as an expected reserve increase. The filing states that ultimate pandemic-related credit effects remain uncertain.
- Interest-rate sensitivity for a gradual +100 and +200 basis-point increase was +4.0% and +8.2% in modeled net interest income, within Board limits. The -25 basis-point scenario was outside the policy limit at quarter-end; the Risk Oversight Committee revised that limit on October 19, 2021.
- Management estimated reasonably possible litigation and regulatory losses of $0–$15 million above accrued liabilities, where estimable; this is not the maximum exposure. It did not believe pending matters would materially affect consolidated financial position, but an adverse outcome could materially affect a particular period’s results.
- Other notable items included a $317 million nine-month after-tax other comprehensive loss, principally reflecting changes in securities and cash-flow hedge values, and $558 million of subordinated notes issued in Q3.
Most important facts for investors to verify
- How TCF integration costs, preliminary purchase accounting, and expected synergies affect future earnings and expenses.
- Whether credit quality and the $2.205 billion credit-loss allowance remain adequate if economic conditions worsen; the reported $700 million adverse-scenario sensitivity is hypothetical.
- Whether loan growth, fee income and net interest margin can offset acquisition-related and ongoing operating costs.
- Capital levels and the effects of share repurchases, dividends, preferred-stock redemptions and subordinated debt issuance.
- Interest-rate risk, including the revised downside-scenario policy limit, and the potential effect of changing rates on net interest income and mortgage servicing rights.
- Developments in litigation and regulatory matters, whose outcomes and aggregate exposure may differ from current estimates.