Huntington(HBAN) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides a comprehensive overview of the company's financial performance, condition, and risk management strategies Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial condition and operational results, detailing performance drivers, risk management, and capital Executive Overview Q1 2023 net income rose to $602 million, driven by increased net interest income and a $57 million gain from the RPS business sale Q1 2023 vs. Q1 2022 Performance Summary | Metric | Q1 2023 | Q1 2022 | Change | | :--- | :--- | :--- | :--- | | Net Income | $602 million | $460 million | +31% | | Diluted EPS | $0.39 | $0.29 | +34% | | Net Interest Income | $1.4 billion | $1.1 billion | +23% | | Provision for Credit Losses | $85 million | $25 million | +240% | | Noninterest Income | $512 million | $499 million | +3% | | Noninterest Expense | $1.1 billion | $1.1 billion | +3% | - Strategic activities included the March 2023 sale of the Retirement Plan Services (RPS) business for a $57 million gain, following 2022 acquisitions of digital payments firm Torana and investment bank Capstone Partners[15][16][17] - The company's economic forecast assumes a mild recession in 2023, with expectations of moderating inflation, lower GDP growth, and higher unemployment before a rebound in 2024[27] - No common stock was repurchased in Q1 2023, and the company does not expect to utilize its share repurchase program for the remainder of 2023 to prioritize capital for loan growth[25] Discussion of Results of Operations Q1 2023 saw 17% total revenue growth, with net interest income up 23% and noninterest income up 3%, alongside increased credit loss provisions Q1 2023 vs Q1 2022 Income Statement Highlights | Metric | Q1 2023 | Q1 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Net Interest Income | $1,409M | $1,146M | +23% | | Provision for Credit Losses | $85M | $25M | +240% | | Total Noninterest Income | $512M | $499M | +3% | | Total Noninterest Expense | $1,086M | $1,053M | +3% | | Net Income Attributable to Huntington | $602M | $460M | +31% | | Diluted EPS | $0.39 | $0.29 | +34% | Risk Management and Capital The company maintains a moderate-to-low risk appetite, with solid credit quality, strong liquidity, and robust capital ratios exceeding well-capitalized standards Credit Risk Credit risk is managed via a diversified loan portfolio, with stable ACL at 1.90% of loans, despite increased net charge-offs to 0.19% in Q1 2023 Loan and Lease Portfolio Composition (March 31, 2023) | Category | Amount (in millions) | Percentage | | :--- | :--- | :--- | | Total Commercial | $68,670 | 57% | | Total Consumer | $52,509 | 43% | | Total Loans and Leases | $121,179 | 100% | Key Credit Quality Metrics | Metric | March 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Nonperforming Assets (NPAs) | $578M | $594M | | NPA Ratio | 0.48% | 0.50% | | Nonaccrual Loans / Total Loans | 0.44% | 0.48% | | ACL / Total Loans | 1.90% | 1.90% | - Net charge-offs for Q1 2023 were $57 million (0.19% of average loans), a notable increase from $19 million (0.07%) in Q1 2022, driven by the commercial portfolio moving from net recoveries to net charge-offs[59][80] Market Risk Interest rate risk is managed with an asset-sensitive balance sheet, benefiting from rising rates, and a $44.2 billion derivative portfolio for hedging Interest Rate Sensitivity Analysis (at March 31, 2023) | Scenario (Gradual Parallel Shift) | NII at Risk (%) | EVE at Risk (%) (Immediate Shock) | | :--- | :--- | :--- | | +200 bps | +5.5% | -8.4% | | +100 bps | +2.8% | -3.2% | | -100 bps | -2.9% | +0.9% | | -200 bps | -6.1% | -0.9% | - The company uses a derivative portfolio with a notional value of $44.2 billion for asset and liability management, primarily consisting of interest rate swaps to convert fixed-rate assets/liabilities to variable and vice-versa[96] - Mortgage Servicing Rights (MSRs) were valued at $485 million, with hedging strategies employed to mitigate fair value changes due to interest rate movements[100] Liquidity Risk Liquidity is strong, supported by a 97% core deposit base ($140.4 billion) and $51.1 billion in contingent borrowing capacity, enhanced by an additional $24 billion Deposit Composition (at March 31, 2023) | Deposit Category | Amount (in millions) | Percentage of Total | | :--- | :--- | :--- | | Total Core Deposits | $140,419 | 97% | | Total Non-Core Deposits | $4,859 | 3% | | Total Deposits | $145,278 | 100% | | Insured Deposits | $100,186 | 69% | | Uninsured Deposits | $45,092 | 31% | - Available contingent borrowing capacity at the FHLB and Federal Reserve totaled $51.1 billion at quarter-end, with an additional $24 billion added early in the second quarter of 2023[115] - The parent company held $3.0 billion in cash and cash equivalents at quarter-end to meet its obligations, including dividends and debt service[118] Operational Risk Operational risk, including cyber threats, is managed through robust internal controls, committee oversight, and employee training, with no material losses to date - The company actively monitors for cyberattacks and has increased cybersecurity and fraud monitoring, including specific surveillance of remote connections, as a significant portion of the workforce can work remotely[123] - A multi-committee governance structure (Operational Risk, Legal, Funds Movement, Third Party Risk) oversees operational risks, with clear escalation paths to the Board's Risk, Audit, and Technology Committees[125] Compliance Risk Compliance risk is managed through a dedicated team and comprehensive employee training to ensure strict adherence to all applicable financial regulations - A dedicated compliance team and broad-based employee training are utilized to manage compliance risk across numerous regulations, including anti-money laundering, fair lending, and consumer privacy[128] Capital Capital ratios exceed well-capitalized standards, with CET1 at 9.55% and shareholders' equity up $1.0 billion, prioritizing loan growth over share repurchases Regulatory Capital Ratios (Consolidated) | Ratio | March 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | CET1 Risk-Based Capital | 9.55% | 9.36% | | Tier 1 Risk-Based Capital | 11.30% | 10.90% | | Total Risk-Based Capital | 13.53% | 13.09% | | Tier 1 Leverage | 8.79% | 8.60% | - Shareholders' equity increased by $1.0 billion (6%) from year-end 2022 to $18.8 billion, driven by earnings and improved AOCI[135] - No shares were repurchased in Q1 2023 under the $1.0 billion authorization, as the company does not expect to utilize the program in 2023 to prioritize funding for loan and lease growth[138] Business Segment Discussion Commercial Banking and Consumer & Business Banking were primary Q1 2023 earnings drivers, with RBHPCG boosted by a business sale, and Treasury/Other reporting a net loss Net Income by Business Segment (Q1 2023 vs Q1 2022) | Segment | Q1 2023 Net Income | Q1 2022 Net Income | | :--- | :--- | :--- | | Commercial Banking | $318M | $140M | | Consumer and Business Banking | $430M | $181M | | Vehicle Finance | $44M | $67M | | RBHPCG | $83M | $19M | | Treasury / Other | ($273M) | $53M | | Total Net Income | $602M | $460M | - The company announced an organizational realignment effective Q2 2023, consolidating Consumer and Business Banking, Vehicle Finance, and RBHPCG into a single new segment named Consumer & Regional Banking[140] Additional Disclosures This section outlines forward-looking statements, clarifies non-GAAP financial measures, and details critical accounting policies, focusing on ACL sensitivity to macroeconomic forecasts - The report uses non-GAAP measures like FTE net interest income and tangible common equity ratios to provide additional insight into performance and capital adequacy[162][163][164] - The Allowance for Credit Losses (ACL) is a critical accounting estimate highly sensitive to macroeconomic forecasts; a hypothetical 100% adverse economic scenario would result in an approximate $1.1 billion increase to the quantitative ACL[170][173][174] Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements, including Balance Sheets, Income Statements, and Cash Flows, with accompanying notes Consolidated Balance Sheets This section presents the company's consolidated financial position, detailing assets, liabilities, and shareholders' equity as of specific reporting dates Consolidated Balance Sheet Highlights | (in millions) | March 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $189,070 | $182,906 | | Net Loans and Leases | $119,037 | $117,402 | | Total Deposits | $145,278 | $147,914 | | Total Liabilities | $170,259 | $165,137 | | Total Shareholders' Equity | $18,758 | $17,731 | Consolidated Statements of Income This section presents the company's consolidated financial performance, detailing revenues, expenses, and net income for the reported periods Consolidated Income Statement Highlights (Three Months Ended) | (in millions) | March 31, 2023 | March 31, 2022 | | :--- | :--- | :--- | | Net Interest Income | $1,409 | $1,146 | | Provision for Credit Losses | $85 | $25 | | Total Noninterest Income | $512 | $499 | | Total Noninterest Expense | $1,086 | $1,053 | | Net Income Attributable to Huntington | $602 | $460 | Consolidated Statements of Comprehensive Income This section presents the company's comprehensive income, including net income and other comprehensive income items not recognized in net income Consolidated Statements of Changes in Shareholders' Equity This section details changes in the company's shareholders' equity, including net income, dividends, and other equity transactions Consolidated Statements of Cash Flows This section presents the company's cash inflows and outflows from operating, investing, and financing activities for the reported periods Notes to Unaudited Consolidated Financial Statements This section provides detailed disclosures and explanations of the accounting policies and financial instrument balances presented in the financial statements Quantitative and Qualitative Disclosures about Market Risk This section refers to the 'Market Risk' discussion within MD&A for quantitative and qualitative disclosures on market risk exposures Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of March 31, 2023, the company's disclosure controls and procedures were effective[347] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[348] PART II. OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and equity security sales Legal Proceedings The company is involved in routine legal matters, with an estimated possible loss range of $0 to $15 million, not expected to materially impact financial position - For certain legal matters, management estimates the aggregate range of reasonably possible loss is $0 to $15 million at March 31, 2023, in excess of any accrued liability[340] Risk Factors This section refers to the detailed risk factors outlined in Part I, 'Item 1A. Risk Factors' of the company's 2022 Annual Report on Form 10-K Unregistered Sales of Equity Securities and Use of Proceeds The company has a $1.0 billion common stock repurchase authorization, but no shares were repurchased during the first quarter of 2023 Share Repurchase Activity (Q1 2023) | Period | Total Shares Purchased | Average Price Paid | Remaining Authorization (Approx. $) | | :--- | :--- | :--- | :--- | | Jan 2023 | 0 | N/A | $1,000,000,000 | | Feb 2023 | 0 | N/A | $1,000,000,000 | | Mar 2023 | 0 | N/A | $1,000,000,000 | | Total | 0 | N/A | $1,000,000,000 | Exhibits This section provides an index of all exhibits filed with the Form 10-Q report, including CEO/CFO certifications and Inline XBRL data files