INTRODUCTION
We are a multi-state diversified regional bank holding company organized under
Maryland law in 1966 and headquartered in Columbus, Ohio. Through the Bank, we
have over 150 years of servicing the financial needs of our customers. Through
our subsidiaries, we provide full-service commercial and consumer banking
services, mortgage banking services, automobile financing, recreational vehicle
and marine financing, equipment financing, inventory finance, investment
management, trust services, brokerage services, insurance products and services,
and other financial products and services. At March 31, 2022, our 1,030
full-service branches and private client group offices are primarily located in
Ohio, Colorado, Illinois, Indiana, Kentucky, Michigan, Minnesota, Pennsylvania,
West Virginia and Wisconsin. Select financial services and other activities are
also conducted in various other states. International banking services are
available through the headquarters office in Columbus, Ohio. Our foreign banking
activities, in total or with any individual country, are not significant.
This MD&A provides information we believe necessary for understanding our
financial condition, changes in financial condition, results of operations, and
cash flows. The MD&A included in our 2021 Annual Report on Form 10-K should be
read in conjunction with this MD&A as this discussion provides only material
updates to the 2021 Annual Report on Form 10-K. This MD&A should also be read in
conjunction with the Unaudited Condensed Consolidated Financial Statements,
Notes to Unaudited Condensed Consolidated Financial Statements, and other
information contained in this report.
EXECUTIVE OVERVIEW
On June 9, 2021, Huntington closed the acquisition of TCF Financial Corporation.
Historical periods prior to June 9, 2021 reflect results of legacy Huntington
operations. Subsequent to closing, results reflect all post-acquisition
activity. See Note 3 "Acquisition of TCF Financial Corporation" of the Notes to
Unaudited Condensed Consolidated Financial Statements appearing in Huntington's
2021 Annual Report on Form 10-K for further information.
On March 1, 2022, Huntington announced the signing of a definitive agreement to
acquire Capstone Partners, a top tier middle market investment bank and advisory
firm. The transaction is expected to close late in the second quarter of 2022,
subject to receipt of required regulatory approval and satisfaction of customary
closing conditions.
Summary of 2022 First Quarter Results Compared to 2021 First Quarter
For the quarter, we reported net income of $460 million, or $0.29 per diluted
common share, compared with $532 million, or $0.48 per diluted common share, in
the year-ago quarter. The 2022 first quarter reported net income benefited from
the TCF acquisition and organic growth, while the year-ago quarter was favorably
impacted by the provision for credit losses benefit and the mark-to-market of
interest rate caps.
Net interest income was $1.1 billion, up $174 million, or 18% from the year-ago
quarter. FTE net interest income increased $176 million, or 18%, from the
year-ago quarter. The increase in FTE net interest income reflected the benefit
from a $48.3 billion, or 42%, increase in average earning assets, partially
offset by a 60 basis point decrease in the FTE net interest margin to 2.88%.
Average earning asset growth included a $30.9 billion, or 38%, increase in
average loans and leases and a $16.5 billion, or 63% increase in average
securities. The year-over-year decrease in NIM was driven by the 2021 first
quarter benefit of a $144 million mark-to-market adjustment on interest rate
caps and a $34 million decrease in accelerated PPP loan fees recognized upon
forgiveness payments, partially offset by an increase in securities yields and
the 2022 first quarter benefit of $19 million of net interest income from
purchase accounting accretion.
2022 1Q Form 10-Q 5
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The provision for credit losses increased $85 million from the year-ago quarter
to $25 million in the 2022 first quarter. The ACL increased $368 million from
the year-ago quarter to $2.1 billion, or 1.87%, of total loans and leases,
compared to $1.7 billion, or 2.17% of total loans and leases, primarily due to
the acquisition of TCF and organic loan and lease growth. The decrease in ACL as
a percentage of total loans and leases reflected the overall continued general
improvement in economic conditions, however both inflationary and geopolitical
risks remain. NCOs decreased $45 million from the year-ago-quarter to $19
million. Total NCOs represented an annualized 0.07% of average loans and leases
in the current quarter, down from 0.32% in the year-ago quarter.
Noninterest income was $499 million, an increase of $104 million, or 26%, and
noninterest expense increased $260 million, or 33%, from the year-ago quarter.
The increases in both noninterest income and noninterest expense were primarily
impacted by the acquisition of TCF.
The tangible common equity to tangible assets ratio was 6.28% at March 31, 2022,
down 60 basis points from December 31, 2021, primarily due to a decrease in
tangible common equity related to higher interest rates causing a decrease in
accumulated other comprehensive income. Common Equity Tier 1 (CET1) risk-based
capital ratio was 9.22%, down from 9.33% from December 31, 2021. The regulatory
Tier 1 risk-based capital ratio was 10.84% compared to 10.99% at December 31,
2021. The decrease in regulatory capital ratios was primarily driven by growth
in risk-weighted assets.
During the 2022 first quarter, considering the pending acquisition of Capstone
Partners and growth in the loan and lease portfolio, Huntington repurchased no
shares of common stock under the current repurchase authorization. In July of
2021, our Board authorized the repurchase of up to $800 million of common shares
which began the third quarter of 2021 and goes through the second quarter of
2022. Purchases of common stock under the authorization may include open market
purchases, privately negotiated transactions, and accelerated share repurchase
programs. As of March 31, 2022, Huntington has completed $650 million of the
share repurchase authorization.
Business Overview
General
Our general business objectives are:
•Build on our vision to become the country's leading people-first, digitally
powered bank
•Drive sustainable long-term revenue growth and efficiency
•Deliver a Category of One customer experience through proactive and
personalized guidance, differentiated products, and expertise
•Extend our digital capabilities with focus on ease of use, access to
information, and self-service across products and services
•Add scale and scope by acquiring and deepening relationships and launching of
select partnerships
•Maintain positive operating leverage and execute disciplined capital management
•Execute effective risk management with an aggregate moderate-to-low,
through-the-cycle risk appetite
COVID-19
The COVID-19 pandemic has caused unprecedented disruption that has affected
daily living and has negatively impacted the economy. As further discussed in
"Discussion of Results of Operations," the volatility in the markets and
economic uncertainty caused by the pandemic continue to have impact.
Huntington reacted quickly to the changes required by the pandemic as a result
of the commitment and flexibility of our colleagues coupled with well-prepared
business continuity plans. We continue to make progress towards our new
operating model and have begun to welcome more of our colleagues back to the
office as part of our Coming Back Together plan. We offer Workplace Flex to help
employees achieve work/life harmony in support of the business. We achieve this
with flexible work arrangements, parental leave, and other health, wellness and
financial benefits and services that assist employees and their families. We
continue to monitor the impact of the virus and evolving government guidelines.
6 Huntington Bancshares Incorporated
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Throughout the pandemic, we have worked with our customers to originate and
renew business loans as well as originate loans made available through the SBA
PPP, a lending program established as part of the relief to American consumers
and businesses in the CARES Act. During the 2022 first quarter, we continued to
work with our customers who received PPP loan forgiveness, though we have not
had any new originations. Through March 2022, $10.1 billion of the PPP loans
have been forgiven by the SBA of the original $11.4 billion of PPP loans
originated by both Huntington and TCF prior to acquisition. As of March 31,
2022, we have outstanding PPP loan balances of $645 million, net of forgiveness
and customer payments, with balances continuing to decline.
Economy
Growth in economic activity and demand for goods and services, alongside labor
shortages and supply chain complications, have contributed to rising inflation.
In response, the FRB has begun raising interest rates and signaled that it will
continue to raise rates, taper its purchase of mortgage and other bonds and
reduce the size of the balance sheet over time. The timing and impact of
inflation and rising interest rates on our business and related financial
results will depend on future developments, which are highly uncertain and
difficult to predict.
We delivered positive results this quarter, driven by continued execution of
strategic initiatives and loan and lease growth. Additionally, we saw net
interest income expansion, deposit growth and demonstrated disciplined expense
management with continued reductions in noninterest expense. Credit continues to
perform well in keeping with our aggregate moderate-to-low risk profile
through-the-cycle. Through our disciplined and proactive approach, we believe
Huntington is well positioned to manage through the uncertainty in the
macroeconomic environment. We continue to look forward with optimism and remain
focused on delivering profitable growth.
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