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, investment banking, capital markets, and advisory
services, equipment financing, inventory finance, investment management, trust
services, brokerage services, insurance products and services, and other
financial products and services. At June 30, 2022, our 1,032 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
In June 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.
In May 2022, Huntington completed the acquisition of Torana, now known as
Huntington Choice Pay, a digital payments business focused on business to
consumer payments. This acquisition along with the formation of our
enterprise-wide payments group reflects one of our strategic priorities to
accelerate our payments capabilities and expand the services provided to our
customers.
In June 2022, Huntington completed the acquisition of Capstone Partners, a top
tier middle market investment bank and advisory firm. The transaction brings a
national scale to serve middle market business owners throughout the corporate
lifecycle, building on Huntington's regional banking foundation. Capstone
Partners related revenue, including mergers and acquisitions, capital raising
and other advisory-related fees, is recognized within capital markets fees in
the Consolidated Statements of Income.
Summary of 2022 Second Quarter Results Compared to 2021 Second Quarter
For the quarter, we reported net income of $539 million, or $0.35 per diluted
common share, compared with a net loss of $15 million, or $0.05 per diluted
common share, in the year-ago quarter. The 2022 second quarter reported net
income benefited from the full-quarter impact of the TCF acquisition and organic
growth, while the year-ago quarter was negatively impacted by the TCF
acquisition initial provision for credit losses of $294 million, or $239 million
after tax ($0.21 per diluted common share) in addition to acquisition-related
expenses totaling $269 million, or $218 million after-tax ($0.19 per diluted
common share).
2022 2Q Form 10-Q 5
--------------------------------------------------------------------------------
Table of Content
Net interest income was $1.3 billion, up $423 million, or 50% from the year-ago
quarter. FTE net interest income, a non-GAAP financial measure, increased $423
million, or 50%, from the year-ago quarter. The increase in FTE net interest
income reflected the benefit from a $33.8 billion, or 27%, increase in average
earning assets and a 49 basis point increase in the FTE NIM to 3.15%. Average
earning assets growth included a $26.6 billion, or 30%, increase in average
loans and leases and a $11.8 billion, or 38%, increase in average securities.
The year-over-year increase in NIM was primarily due to improvements in yields
on earning assets largely driven by the Federal Reserve's rate increases in
addition to the 2021 second quarter unfavorable impact from the $55 million
mark-to-market of interest rate caps.
The provision for credit losses decreased $144 million from the year-ago quarter
to $67 million in the 2022 second quarter. The decrease in provision for credit
losses was primarily due to the TCF acquisition initial provision for credit
losses of $294 million recognized in the year-ago quarter, partially offset by
loan and lease growth. The ACL decreased $154 million from the year-ago quarter
to $2.2 billion in the 2022 second quarter to 1.87% of total loans and leases,
compared to $2.3 billion, or 2.09% of total loans and leases. The decrease in
ACL as a percentage of total loans and leases was driven by overall improved
credit quality over the last year while recognizing the near-term recessionary
risks. NCOs decreased $54 million from the year-ago-quarter to $8 million. Total
NCOs represented an annualized 0.03% of average loans and leases in the current
quarter, down from 0.28% in the year-ago quarter.
Noninterest income was $485 million, an increase of $41 million, or 9%, and
noninterest expense decreased $54 million, or 5%, from the year-ago quarter. The
increase to noninterest income was primarily due to the full-quarter benefit
from the TCF acquisition, completed in June 2021. The decrease to noninterest
expense was primarily due to a reduction in acquisition-related expenses of $245
million and execution of cost reduction initiatives, partially offset by the
full-quarter impact from the TCF acquisition.
The tangible common equity to tangible assets ratio was 5.80% at June 30, 2022,
down 108 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 and the impact from the acquisitions of
Capstone Partners and Torana, partially offset by earnings. CET1 risk-based
capital ratio was 9.05%, down from 9.33% from December 31, 2021. The regulatory
Tier 1 risk-based capital ratio was 10.63% compared to 10.99% at December 31,
2021. The decrease in regulatory capital ratios was primarily driven by
risk-weighted assets growth and goodwill recognized, partially offset by
earnings.
During the first six months of 2022, Huntington repurchased no shares of common
stock under the current repurchase authorization which began the third quarter
of 2021 and expired June 30, 2022. As of June 30, 2022, the end of the current
repurchase authorization, Huntington 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.
6 Huntington Bancshares Incorporated
--------------------------------------------------------------------------------
Table of Content
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 welcoming 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 current
government guidelines.
Economy
Growth in economic activity and demand for goods and services, alongside labor
shortages, supply chain complications and geopolitical matters, have contributed
to rising inflation. In response, the FRB has raised interest rates and began
reducing the size of its balance sheet. Furthermore, the FRB signaled that it
would continue to implement these policy actions in order to bring inflation
down. 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. Our businesses and financial
results may be impacted by a variety of other factors as well, such as an
economic slowdown or recession.
We delivered positive results this quarter, driven by continued execution of
strategic initiatives in addition to loan and lease and revenue growth. Further,
we added capabilities through the acquisitions of Capstone Partners and Torana
during the quarter. Additionally, we saw net interest income expansion, average
deposit growth and demonstrated disciplined expense management. 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 remain focused on delivering profitable growth.
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 ".
© Edgar Online, source Glimpses