SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
Huntington Bancshares Incorporated
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
Registrant’s address: 41 South High Street, Columbus, Ohio 43287
Registrant’s telephone number, including area code: (614) 480-2265
Securities registered pursuant to Section 12(b) of the Act
|Title of class|
|Name of exchange on which registered|
|Depositary Shares (each representing a 1/40th interest in a share of 4.500% Series H Non-Cumulative, perpetual preferred stock)||HBANP||NASDAQ|
|Depositary Shares (each representing a 1/100th interest in a share of 5.70% Series I Non-Cumulative, perpetual preferred stock)||HBANM||NASDAQ|
|Common Stock—Par Value $0.01 per Share||HBAN||NASDAQ|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. x Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|Large Accelerated Filer||x||Accelerated filer||☐|
|Non-accelerated filer||☐||Smaller reporting company||☐|
|Emerging growth company ||☐|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes x No
There were 1,446,461,249 shares of the registrant’s common stock ($0.01 par value) outstanding on September 30, 2021.
HUNTINGTON BANCSHARES INCORPORATED
2 Huntington Bancshares Incorporated
Glossary of Acronyms and Terms
The following listing provides a comprehensive reference of common acronyms and terms used throughout the document:
|ACL|| ||Allowance for Credit Losses|
|ALLL|| ||Allowance for Loan and Lease Losses|
|AOCI||Accumulated Other Comprehensive Income|
|ASC|| ||Accounting Standards Codification|
|AULC|| ||Allowance for Unfunded Lending Commitments|
|Basel III|| ||Refers to the final rule issued by the FRB and OCC and published in the Federal Register on October 11, 2013|
|CARES Act||Coronavirus Aid, Relief, and Economic Security Act, as amended|
|C&I|| ||Commercial and Industrial|
|CDs|| ||Certificates of Deposit|
|CDI||Core Deposit Intangible|
|CECL||Current Expected Credit Loss|
|CET1|| ||Common Equity Tier 1 on a Basel III basis |
|CFPB|| ||Bureau of Consumer Financial Protection|
|CMO|| ||Collateralized Mortgage Obligations|
|COVID-19||Coronavirus Disease 2019|
|CRE|| ||Commercial Real Estate|
|EAD||Exposure at Default|
|EVE|| ||Economic Value of Equity|
|FASB||Financial Accounting Standards Board|
|FDIC|| ||Federal Deposit Insurance Corporation|
|FHLB|| ||Federal Home Loan Bank|
|FICO|| ||Fair Isaac Corporation|
|FRB|| ||Federal Reserve Bank|
|FTE|| ||Fully-Taxable Equivalent|
|FTP|| ||Funds Transfer Pricing|
|FVO||Fair Value Option|
|GAAP|| ||Generally Accepted Accounting Principles in the United States of America|
|IRS|| ||Internal Revenue Service|
|Last-of-Layer||Last-of-layer is a fair value hedge of the interest rate risk of a portfolio of similar prepayable assets whereby the last dollar amount within the portfolio of assets is identified as the hedged item|
|LGD||Loss Given Default|
|LIBOR|| ||London Interbank Offered Rate|
|LIHTC|| ||Low Income Housing Tax Credit|
|MBS|| ||Mortgage-Backed Securities|
|MD&A|| ||Management’s Discussion and Analysis of Financial Condition and Results of Operations|
|MSR|| ||Mortgage Servicing Right|
|NAICS|| ||North American Industry Classification System|
|NALs|| ||Nonaccrual Loans|
|NCO|| ||Net Charge-off|
|NII|| ||Net Interest Income|
|NIM|| ||Net Interest Margin|
|NPAs|| ||Nonperforming Assets|
|OCC|| ||Office of the Comptroller of the Currency|
|OCI|| ||Other Comprehensive Income (Loss)|
|OLEM|| ||Other Loans Especially Mentioned|
|PCD||Purchased Credit Deteriorated|
|PD||Probability of Default|
|PPP||Paycheck Protection Program|
|RBHPCG|| ||Regional Banking and The Huntington Private Client Group|
|ROC||Risk Oversight Committee|
|SBA||Small Business Administration|
|SEC|| ||Securities and Exchange Commission|
|TCF||TCF Financial Corporation|
|TDR|| ||Troubled Debt Restructuring|
|U.S. Treasury|| ||U.S. Department of the Treasury|
|UPB||Unpaid principal balance|
|VIE|| ||Variable Interest Entity|
|XBRL|| ||eXtensible Business Reporting Language|
4 Huntington Bancshares Incorporated
PART I. FINANCIAL INFORMATION
When we refer to “we”, “our”, “us”, “Huntington”, and “the Company” in this report, we mean Huntington Bancshares Incorporated and our consolidated subsidiaries, unless the context indicates that we refer only to the parent company, Huntington Bancshares Incorporated. When we refer to the “Bank” in this report, we mean our only bank subsidiary, The Huntington National Bank, and its subsidiaries.
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
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. Our 1,236 full-service branches and private client group offices are primarily located in Ohio, Colorado, Illinois, Indiana, Kentucky, Michigan, Minnesota, Pennsylvania, South Dakota, 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 2020 Annual Report on Form 10-K should be read in conjunction with this MD&A as this discussion provides only material updates to the 2020 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.
Acquisition of TCF Financial Corporation
On June 9, 2021, Huntington closed the acquisition of TCF Financial Corporation in an all-stock transaction valued at $7.2 billion. TCF was a financial holding company headquartered in Detroit, Michigan with operations across the Midwest. The acquisition added depth in existing markets and new markets for expansion and brings complimentary businesses together to drive synergies and growth. Historical periods prior to June 9, 2021 reflect results of legacy Huntington operations. Subsequent to closing, results reflect all post-acquisition activity. For further information, refer to Note 2 “Acquisition of TCF Financial Corporation” of the Notes to Unaudited Condensed Consolidated Financial Statements.
Summary of 2021 Third Quarter Results Compared to 2020 Third Quarter
For the quarter, we reported net income of $377 million, or $0.22 per common share, compared with $303 million, or $0.27 per common share, in the year-ago quarter. The reported net income benefited from a decline in provision for credit losses of $239 million and was impacted by TCF acquisition-related expenses totaling $234 million. After tax TCF acquisition-related expenses were $192 million or $(0.13) per common share.
Net interest income was $1.2 billion, up $343 million, or 42% from the year-ago quarter. FTE net interest income was $1.2 billion, up $345 million, or 42%, from the year-ago quarter. The increase in FTE net interest income reflected the benefit from the $48.7 billion, or 44%, increase in average earning assets, partially offset by a 6 basis point decrease in the FTE net interest margin to 2.90%. Average earning asset growth included a $29.4 billion, or 36%, increase in average loans and leases and a $13.1 billion, or 57% increase in average securities, both of which were impacted by the TCF acquisition in June 2021.
The provision for credit losses decreased $239 million from the year-ago quarter to a benefit of $62 million in the 2021 third quarter. The decrease reflected the benefit from improvement in the macroeconomic scenarios. NCOs decreased $58 million from the year-ago-quarter to $55 million. Both commercial NCOs of $47 million and consumer NCOs of $8 million were down on a year-over-year basis. Total NCOs represented an annualized 0.20% of average loans and leases in the current quarter, down from 0.56% in the year-ago quarter.
Noninterest income was $535 million, up $105 million, or 24%, and noninterest expense increased $577 million, or 81%, from the year ago quarter. The increases in both noninterest income and noninterest expense were primarily impacted by the acquisition of TCF.
Common Equity Tier 1 risk-based capital ratio was 9.57%, down from 9.89% a year ago. The regulatory Tier 1 risk-based capital ratio was 11.35% compared to 12.37% at September 30, 2020. The decrease in regulatory capital ratios was driven by the repurchase of 33.4 million common shares over the last three quarters, cash dividends, partially offset by earnings, adjusted for the CECL transition. The balance sheet growth as a result of the TCF acquisition was largely offset by the common stock issued related to the acquisition, net of goodwill and intangibles, as well as elevated deposits at the Federal Reserve Bank (both of which are 0% risk weighted). The regulatory Tier 1 risk-based capital and total risk-based capital ratios also reflect the issuance of $500 million of Series H preferred stock in the 2021 first quarter, the issuance of $175 million of Series I preferred stock in the 2021 second quarter resulting from the conversion of TCF preferred stock, partially offset by the redemption of $600 million of Series D preferred stock in the 2021 third quarter. Additionally, the total risk-based capital ratio reflects the issuance of $558 million of subordinated notes in the 2021 third quarter.
On July 21, 2021, the Board approved the repurchase of up to $800 million of common shares within the next four quarters. Purchases of common stock under the authorization may include open market purchases, privately negotiated transactions, and accelerated share repurchase programs. During the 2021 third quarter, Huntington repurchased a total of $500 million of common stock, representing 33.4 million common shares, at a weighted average price of $14.96.
Our general business objectives are:
•Pursue consistent organic revenue and balance sheet growth.
•Invest in our businesses, particularly technology and risk management.
•Deliver positive long-term operating leverage.
•Maintain an aggregate moderate-to-low, through-the-cycle risk appetite.
•Execute disciplined capital management.
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 lingering economic uncertainty caused by the pandemic continue to impact our performance.
Huntington was able to react quickly to the changes required by the pandemic because of the commitment and flexibility of its workforce coupled with well-prepared business continuity plans. We continue to monitor the impact of the virus and evolving government guidelines.
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. Several subsequent congressional acts have reopened and extended the PPP loan program. During the 2021 third quarter, we continued to work with our customers who received PPP loan forgiveness. Through September 2021, $8.5 billion of the PPP loans have been forgiven by the SBA of the original $11.4 billion of PPP loans originated by both Huntington and TCF prior to acquisition.
Uncertainty remains as to when there will be a return to historical norms of economic and social activity. Should current economic conditions deteriorate or if the pandemic worsens due to various factors, including through the spread of more easily communicable variants of COVID-19, such conditions could have an adverse effect on our business and results of operations and could adversely affect our financial condition.
6 Huntington Bancshares Incorporated
We continued to see increasing momentum in our business strategies during the quarter, delivering loan growth (excluding PPP) and fee income, including areas like wealth, capital markets, and cards and payments. Additionally, we continue to make strategic investments to drive sustained organic growth by dynamically managing expenses.
DISCUSSION OF RESULTS OF OPERATIONS
This section provides a review of financial performance on a consolidated basis. Key Unaudited Condensed Consolidated Balance Sheet and Unaudited Condensed Statement of Income trends are discussed. All earnings per share data are reported on a diluted basis. For additional insight on financial performance, please read this section in conjunction with the “Business Segment Discussion”.
|Table 1 - Selected Quarterly Income Statement Data|
| ||Three Months Ended|
|September 30,||June 30,||September 30,|
|(amounts in millions, except per share data)||2021||2021||2020|
|Interest income||$||1,205 ||$||935 ||$||892 |
|Interest expense||45 ||97 ||75 |
|Net interest income||1,160 ||838 ||817 |
|Provision for credit losses||(62)||211 ||177 |
|Net interest income after provision for credit losses||1,222 ||627 ||640 |
|Mortgage banking income||81 ||67 ||122 |
|Service charges on deposit accounts ||114 ||88 ||76 |
|Card and payment processing income||96 ||80 ||66 |
|Trust and investment management services||61 ||56 ||48 |
|Leasing revenue||42 ||12 ||3 |
|Capital markets fees||40 ||35 ||27 |
|Insurance income||25 ||25 ||24 |
|Bank owned life insurance income||15 ||16 ||17 |
|Gain on sale of loans||2 ||3 ||13 |
|Net gains (losses) on sales of securities||— ||10 ||— |
|Other noninterest income||59 ||52 ||34 |
|Total noninterest income||535 ||444 ||430 |
|Personnel costs||643 ||592 ||453 |
|Outside data processing and other services||304 ||162 ||98 |
|Equipment||79 ||55 ||44 |
|Net occupancy||95 ||72 ||40 |
|Lease financing equipment depreciation||19 ||5 ||— |
|Professional services||26 ||48 ||12 |
|Amortization of intangibles||13 ||11 ||10 |
|Marketing||25 ||15 ||9 |
|Deposit and other insurance expense||17 ||8 ||6 |
|Other noninterest expense||68 ||104 ||40 |
|Total noninterest expense||1,289 ||1,072 ||712 |
|Income (loss) before income taxes||468 ||(1)||358 |
|Provision for income taxes||90 ||14 ||55 |
|Income (loss) after income taxes||378 ||(15)||303 |
|Income attributable to non-controlling interest||1 ||— ||— |
|Net income (loss) attributable to Huntington Bancshares Inc||377 ||(15)||303 |
|Dividends on preferred shares||29 ||43 ||28 |
|Impact of preferred stock redemption||15 ||— ||— |
|Net income (loss) applicable to common shares||$||333 ||$||(58)||$||275 |
|Average common shares—basic||1,463 ||1,125 ||1,017 |
|Average common shares—diluted||1,487 ||1,125 ||1,031 |
|Net income (loss) per common share—basic||$||0.23 ||$||(0.05)||$||0.27 |
|Net income (loss) per common share—diluted||0.22 ||(0.05)||0.27 |
|Return on average total assets||0.86 ||%||(0.05)||%||1.01 ||%|
|Return on average common shareholders’ equity||7.6 ||(1.9)||10.2 |
|Return on average tangible common shareholders’ equity (1)||11.5 ||(2.1)||13.2 |
|Net interest margin (2)||2.90 ||2.66 ||2.96 |
|Efficiency ratio (3)||74.9 ||83.1 ||56.1 |
|Effective tax rate||19.0 ||(2,353.3)||15.2 |
|Revenue and Net Interest Income—FTE (Non-GAAP)|
|Net interest income||$||1,160 ||$||838 ||$||817 |
|FTE adjustment||7 ||6 ||5 |
|Net interest income, FTE (non-GAAP) (2)||1,167 ||844 ||822 |
|Noninterest income||535 ||444 ||430 |
|Total revenue, FTE (non-GAAP) (2)||$||1,702 ||$||1,288 ||$||1,252 |
(1)Net income (loss) excluding expense for amortization of intangibles for the period divided by average tangible common shareholders’ equity. Average tangible common shareholders’ equity equals average total common shareholders’ equity less average intangible assets and goodwill. Expense for amortization of intangibles and average intangible assets are net of deferred tax liability, and calculated assuming a 21% tax rate.
(2)On an FTE basis assuming a 21% tax rate.
(3)Noninterest expense less amortization of intangibles and goodwill impairment divided by the sum of FTE net interest income and noninterest income excluding securities gains (losses).
8 Huntington Bancshares Incorporated
|Table 2 - Selected Year to Date Income Statements|
| ||Nine Months Ended September 30,||Change|
|(amounts in millions, except per share data)||2021||2020||Amount||Percent|
|Interest income||$||3,009 ||$||2,769 ||$||240 ||9 ||%|
|Interest expense||39 ||370 ||(331)||(89)|
|Net interest income||2,970 ||2,399 ||571 ||24 |
|Provision for credit losses||89 ||945 ||(856)||(91)|
|Net interest income after provision for credit losses||2,881 ||1,454 ||1,427 ||98 |
|Mortgage banking income||248 ||277 ||(29)||(10)|
|Service charges on deposit accounts ||271 ||223 ||48 ||22 |
|Card and payment processing income||241 ||183 ||58 ||32 |
|Trust and investment management services||169 ||140 ||29 ||21 |
|Leasing revenue||58 ||14 ||44 ||314 |
|Capital markets fees||104 ||91 ||13 ||14 |
|Insurance income||77 ||72 ||5 ||7 |
|Bank owned life insurance income||47 ||49 ||(2)||(4)|
|Gain on sale of loans||8 ||30 ||(22)||(73)|
|Net gains (losses) on sales of securities||10 ||(1)||11 ||1,100 |
|Other noninterest income||141 ||104 ||37 ||36 |
|Total noninterest income||1,374 ||1,182 ||192 ||16 |
|Personnel costs||1,703 ||1,267 ||436 ||34 |
|Outside data processing and other services||581 ||273 ||308 ||113 |
|Equipment||180 ||132 ||48 ||36 |
|Net occupancy||209 ||119 ||90 ||76 |
|Lease financing equipment depreciation||24 ||1 ||23 ||2,300 |
|Professional services||91 ||34 ||57 ||168 |
|Amortization of intangibles||34 ||31 ||3 ||10 |
|Marketing||54 ||23 ||31 ||135 |
|Deposit and other insurance expense||33 ||24 ||9 ||38 |
|Other noninterest expense||245 ||135 ||110 ||81 |
|Total noninterest expense||3,154 ||2,039 ||1,115 ||55 |
|Income before income taxes||1,101 ||597 ||504 ||84 |
|Provision for income taxes||206 ||96 ||110 ||115 |
|Income after income taxes||895 ||501 |