8-K: Huntington Bancshares Reports Mixed Q4 Earnings Amidst Strategic Shifts

Huntington Bancshares reported a decrease in fourth-quarter earnings per common share to $0.15, impacted by special assessments and mark-to-market adjustments, while also showing growth in deposits and capital.

Summary

• Huntington Bancshares Incorporated announced its fourth-quarter 2023 earnings, with net income at $243 million, or $0.15 per common share.
• Adjusted earnings per common share were $0.27, excluding the impact of Notable Items, primarily the FDIC Deposit Insurance Fund special assessment.
• The company experienced a $74 million reduction in pre-tax income due to mark-to-market adjustments on pay-fixed swaptions.
• Net interest income decreased by $52 million from the prior quarter and $146 million from the year-ago quarter.
• Noninterest income decreased by $104 million from the prior quarter, but increased by $3 million excluding mark-to-market adjustments.
• Average total deposits increased by $1.5 billion from the prior quarter and $4.0 billion from the year-ago quarter.
• Average total loans and leases increased by $445 million from the prior quarter and $2.3 billion from the year-ago quarter.
• The net charge-off rate was 0.31% of average total loans and leases for the quarter.
• The Common Equity Tier 1 (CET1) risk-based capital ratio increased to 10.25%, and the tangible common equity (TCE) ratio increased to 6.14%.
• Huntington completed a synthetic Credit Risk Transfer (CRT) transaction during the quarter, reducing risk-weighted assets by approximately $2.4 billion.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While there are positives like deposit and capital growth, the significant decrease in earnings and net interest income, along with increased nonperforming assets, temper the overall outlook. The company is taking steps to optimize capital, but the results are mixed.

Positives

• Average total deposits increased by $1.5 billion, or 1%, from the prior quarter and $4.0 billion, or 3%, from the year-ago quarter.
• Ending core deposits increased by $1.2 billion, or 1%, from the prior quarter.
• Average total loans and leases increased by $445 million from the prior quarter.
• The Common Equity Tier 1 (CET1) risk-based capital ratio increased 15 basis points to 10.25%.
• The tangible common equity (TCE) ratio increased 44 basis points from the prior quarter to 6.14%.
• Huntington completed a synthetic Credit Risk Transfer (CRT) transaction, reducing risk-weighted assets by approximately $2.4 billion.
• The company is seeing attractive growth opportunities as they move into 2024.

Negatives

• Earnings per common share (EPS) for the quarter were $0.15, lower by $0.20 from the prior quarter, and lower by $0.27 from the year-ago quarter.
• Net interest income decreased $52 million, or 4%, from the prior quarter, and decreased $146 million, or 10%, from the year-ago quarter.
• Noninterest income decreased $104 million, or 20%, from the prior quarter.
• The mark-to-market of the pay-fixed swaptions hedging program reduced pre-tax income by $74 million, or $0.04 on an EPS basis.
• Net charge-offs of 0.31% of average total loans and leases for the quarter increased from prior periods.
• Nonperforming assets increased to a ratio of 0.58%.

Risks

• Changes in general economic, political, or industry conditions could impact results.
• Deterioration in business and economic conditions, including inflation and supply chain issues, could pose challenges.
• The impact of pandemics, including COVID-19, could affect the global economy and financial markets.
• Recent bank failures and volatility could lead to increased regulatory requirements and costs.
• Unexpected outflows of uninsured deposits could require the sale of investment securities at a loss.
• Rising interest rates could negatively impact the value of the investment portfolio.
• Cybersecurity risks and uncertainty in U.S. fiscal and monetary policy could affect the company.
• Competitive pressures on product pricing and services could impact profitability.
• Governmental actions, examinations, and regulations could affect future results.

Future Outlook

Huntington believes the operating environment is generally more constructive compared to last quarter and is positioned to accelerate loan growth in 2024, leveraging its brand and customer relationships to drive revenue and profitability.

Management Comments

• We are pleased to deliver fourth quarter results highlighted by the continuation of our organic growth efforts with sustained deposit and loan growth as well as the further expansion of common equity tier 1 capital, said Steve Steinour, chairman, president, and CEO.
• We are entering the new year from a position of strength with robust liquidity and capital, which allows us to remain focused on executing our growth strategy and serving our customers.
• We are maintaining our disciplined approach to managing credit quality, consistent with our aggregate moderate-to-low risk appetite, and believe Huntington is well-positioned as we operate through this dynamic environment.
• Customers are generally well positioned and are continuing to invest in their businesses.
• We intend to capitalize on our position of strength and to further acquire and deepen customer relationships.

Industry Context

The results reflect the challenges and opportunities in the banking sector, including the impact of interest rate changes, regulatory pressures, and the need for capital optimization. The company's focus on deposit growth and capital expansion aligns with industry trends aimed at strengthening financial positions.

Comparison to Industry Standards

• Huntington's net interest margin of 3.07% is lower than some peers, reflecting the impact of higher funding costs.
• The CET1 ratio of 10.25% is within the range of regional banks, indicating a solid capital position.
• The completion of the CRT transaction is a strategic move to optimize capital, similar to actions taken by other banks to manage risk-weighted assets.
• The increase in nonperforming assets to 0.58% is a trend seen across the industry, reflecting the current economic environment.
• Compared to peers like KeyCorp and Fifth Third, Huntington's deposit growth is in line with the industry average, but the decrease in net interest income is a concern.

Stakeholder Impact

• Shareholders will be concerned about the decrease in earnings per share and net interest income.
• Employees may be affected by the ongoing branch consolidations and staffing efficiencies.
• Customers may benefit from the company's focus on growth and customer relationships.
• Creditors will be monitoring the company's capital ratios and credit quality metrics.

Next Steps

• Huntington intends to capitalize on its position of strength and to further acquire and deepen customer relationships.
• The company plans to continue executing its growth strategy and serving its customers.
• Huntington will focus on managing credit quality and navigating the dynamic environment.

Key Dates

Keywords

earnings, financial results, banking, deposits, loans, capital, net interest income, noninterest income, credit quality, risk management, FDIC, CET1, TCE, CRT, swaptions