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, distribution finance (formerly referred to as
inventory finance), investment management, trust services, brokerage services,
insurance products and services, and other financial products and services. At
September 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 Third Quarter Results Compared to 2021 Third Quarter
For the quarter, we reported net income of $594 million, or $0.39 per diluted
common share, compared with $377 million, or $0.22 per diluted common share, in
the year-ago quarter.
2022 3Q Form 10-Q 5
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Net interest income was $1.4 billion, up $244 million, or 21% from the year-ago
quarter. FTE net interest income, a non-GAAP financial measure, increased $245
million, or 21%, from the year-ago quarter. The increase in FTE net interest
income primarily reflects a 51 basis point increase in the FTE NIM to 3.42% and
a $4.9 billion, or 3%, increase in average earning assets. The year-over-year
increase in NIM was driven by the higher rate environment driving an increase in
loan and lease and investment security yields, partially offset by higher cost
of funds. Average earning assets growth included a $7.3 billion, or 7%, increase
in average loans and leases and a $6.7 billion, or 19%, increase in average
securities, partially offset by an $8.3 billion, or 72%, decrease in deposits
held at the FRB.
The provision for credit losses increased $168 million from the year-ago quarter
to $106 million in the 2022 third quarter. The increase in provision for credit
losses was primarily due to loan and lease growth. The ACL increased $25 million
from the year-ago quarter to $2.2 billion in the 2022 third quarter, or 1.89% of
total loans and leases, compared to $2.2 billion, or 2.01% of total loans and
leases. The decrease in ACL as a percentage of total loans and leases reflects
the overall improved credit performance of the loan and lease portfolio, while
also recognizing the uncertainty in the near-term macroeconomic outlook. NCOs
decreased $11 million from the year-ago-quarter to $44 million. Total NCOs
represented an annualized 0.15% of average loans and leases in the current
quarter, down from 0.20% in the year-ago quarter.
Noninterest income was $498 million, a decrease of $37 million, or 7%, and
noninterest expense decreased $236 million, or 18%, from the year-ago quarter.
The decrease in noninterest income was primarily due to decreases in mortgage
banking income and service charges on deposit accounts, partially offset by an
increase in capital markets fees. The decrease in noninterest expense was
primarily due to a reduction in acquisition-related expenses of $224 million and
execution of cost reduction initiatives associated with the TCF acquisition.
The tangible common equity to tangible assets ratio was 5.32% at September 30,
2022, down 156 basis points from December 31, 2021, primarily due to a decrease
in tangible common equity related to higher interest rates causing an increase
in accumulated other comprehensive loss, partially offset by undistributed
earnings. CET1 risk-based capital ratio was 9.27%, down from 9.33% from
December 31, 2021. The decrease in regulatory capital ratios was primarily
driven by dividends, risk-weighted assets growth, and goodwill recognized,
partially offset by earnings.
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 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.
6 Huntington Bancshares Incorporated
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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 has been
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 including loan and lease growth, higher deposit balances
and expanded fee income while maintaining disciplined expense management. The
recent addition of Capstone Partners has expanded the expertise we bring to
customers, is benefiting our continued efforts to deepen relationships with
commercial customers and is increasing our fee income opportunities. Credit
continues to perform well in keeping with our aggregate moderate-to-low,
through-the-cycle risk appetite. 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 ".
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