hban-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

Huntington Bancshares Incorporated

(Exact name of registrant as specified in its charter)


Maryland	1-34073	31-0724920
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(I.R.S. Employer Identification No.)

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	Trading Symbol(s)	Name of exchange on which registered
Depositary Shares (each representing a 1/40th interest in a share of 5.875% Series C Non-Cumulative, perpetual preferred stock)	HBANN	NASDAQ
Depositary Shares (each representing a 1/40th interest in a share of 6.250% Series D Non-Cumulative, perpetual preferred stock)	HBANO	NASDAQ
Depositary Shares (each representing a 1/40th interest in a share of 4.500% Series H Non-Cumulative, perpetual preferred stock)	HBANP	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

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 1,018,052,923 shares of the registrant’s common stock ($0.01 par value) outstanding on March 31, 2021.

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HUNTINGTON BANCSHARES INCORPORATED

INDEX


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)			41
Condensed Consolidated Balance Sheets at March 31, 2021 and December 31, 2020			41
Condensed Consolidated Statements of Income for the three months ended March 31, 2021 and 2020			42
Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2021 and 2020			43
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2021 and 2020			44
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020			45
Notes to Unaudited Condensed Consolidated Financial Statements			47
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			5
Executive Overview			5
Discussion of Results of Operations			7
Risk Management and Capital:			15
Credit Risk			16
Market Risk			23
Liquidity Risk			27
Operational Risk			29
Compliance Risk			30
Capital			30
Business Segment Discussion			32
Additional Disclosures			36
Item 3. Quantitative and Qualitative Disclosures about Market Risk			81
Item 4. Controls and Procedures			81
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			81
Item 1A. Risk Factors			81

Item 6. Exhibits			82
Signatures			83

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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
AFS						Available-for-Sale

ALLL						Allowance for Loan and Lease Losses
AOCI						Accumulated Other Comprehensive Income
ASC						Accounting Standards Codification

AULC						Allowance for Unfunded Loan 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
CCAR						Comprehensive Capital Analysis and Review
CDs						Certificates of Deposit
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 of Cincinnati
FICO						Fair Isaac Corporation

FRB						Federal Reserve Board
FTE						Fully-Taxable Equivalent
FTP						Funds Transfer Pricing
FVO						Fair Value Option
GAAP						Generally Accepted Accounting Principles in the United States of America
HTM						Held-to-Maturity
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
LCR						Liquidity Coverage Ratio
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						Noninterest Income
NIM						Net Interest Margin
NPAs						Nonperforming Assets

2021 1Q Form 10-Q 3

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OCC						Office of the Comptroller of the Currency
OCI						Other Comprehensive Income (Loss)

OLEM						Other Loans Especially Mentioned
OREO						Other Real Estate Owned
PCD						Purchased-Credit-Deteriorated
PPP						Paycheck Protection Program
PPPLF						Paycheck Protection Program Liquidity Facility
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
UCS						Uniform Classification System
VIE						Variable Interest Entity
XBRL						eXtensible Business Reporting Language

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PART I. FINANCIAL INFORMATION

When we refer to “we”, “our”, and “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

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, equipment financing, investment management, trust services, brokerage services, insurance products and services, and other financial products and services. Our 814 full-service branches and private client group offices are located in Ohio, Illinois, Indiana, Kentucky, Michigan, Pennsylvania, and West Virginia. 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.

On December 13, 2020, we announced the signing of a definitive merger agreement (the “TCF/Huntington Merger Agreement”). Under the terms of the agreement, which was unanimously approved by the boards of directors of both companies, TCF Financial Corporation, the parent company of TCF National Bank will merge into Huntington in an all-stock transaction. TCF is a financial holding company headquartered in Detroit, Michigan with reported total assets of $47.8 billion based on their balance sheet at December 31, 2020.

Under the terms of the Merger Agreement, TCF shareholders will receive 3.0028 shares of Huntington common stock for each share of TCF common stock. Holders of TCF common stock will also receive cash in lieu of fractional shares. Each outstanding share of 5.70% Series C Non-Cumulative Perpetual Preferred Stock of TCF will be converted into the right to receive one share of a newly created series of preferred stock of Huntington.

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 Form 10-K should be read in conjunction with this MD&A as this discussion provides only material updates to the 2020 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

Summary of 2021 First Quarter Results Compared to 2020 First Quarter

For the quarter, we reported net income of $532 million, or $0.48 per common share, compared with $48 million, or $0.03 per common share, in the year-ago quarter.

Fully-taxable equivalent net interest income was $978 million, up $182 million, or 23%, from the year-ago quarter. This increase reflected the benefit from the $12.3 billion, or 12%, increase in average earning assets and a 34 basis point increase in the FTE net interest margin to 3.48%.

The provision for credit losses decreased $501 million year-over-year to $(60) million in the 2021 first quarter. Net charge-offs decreased $53 million to $64 million. Both Commercial NCOs of $49 million and Consumer NCOs of $15 million were down on both a year-over-year basis. Total NCOs represented an annualized 0.32% of average loans and leases in the current quarter, down from 0.62% in the year-ago quarter.

Noninterest income was $395 million, up $34 million, or 9%, from the year ago quarter. Mortgage banking income increased $42 million, or 72%. Partially offsetting these increases, service charges on deposit accounts decreased $18 million, or 21%.

2021 1Q Form 10-Q 5

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Noninterest expense for the 2021 first quarter increased $141 million, or 22%, from the year-ago quarter Personnel costs increased $73 million, or 18%. Outside data processing and other services increased $30 million, or 35%. Other noninterest expense increased $22 million, or 43%, primarily reflecting a $25 million donation to The Columbus Foundation.

Common Equity Tier 1 risk-based capital ratio was 10.33%, up from 9.47% a year ago. The regulatory Tier 1 risk-based capital ratio was 13.32% compared to 10.81% at March 31, 2020. The increase in regulatory capital ratios was driven by earnings, adjusted for the CECL transition, offset by the repurchase of $5 million of common stock over the last four quarters (all during 2020 fourth quarter) and cash dividends. The balance sheet growth impact on regulatory capital ratios was largely offset by a change in asset mix during 2020 related to the PPP loans and elevated deposits at the Federal Reserve, both of which are 0% risk weighted. The regulatory Tier 1 risk-based capital ratio also reflects the issuance of $500 million of Series F preferred stock, $500 million of Series G preferred stock and $500 million of Series H preferred stock in the 2020 second quarter, 2020 third quarter, and 2021 first quarter, respectively.

Business Overview

General

Our general business objectives are:

•Consistent organic revenue and balance sheet growth.

•Invest in our businesses, particularly technology and risk management.

•Deliver positive long-term operating leverage.

•Maintain aggregate moderate-to-low risk appetite.

•Disciplined capital management.

COVID-19

The COVID-19 pandemic continues to cause significant, unprecedented disruption that affects daily living and negatively impacts the economy. As further discussed in “Discussion of Results of Operations,” the current interest rate environment, borrower and counterparty credit quality and market volatility, among other factors, continue to impact our performance. Though we are unable to estimate the magnitude, we expect the pandemic and the resulting economic environment will continue to affect our future operating results.

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. While state and local governments have eased temporary business closures and we have opened our branches, we expect our colleagues who have been operating remotely to continue for a period of time. While the approved vaccines are being administered throughout our footprint, it remains unknown when, or if, there will be a return to historical norms of economic and social activity.

We continue to work with our customers to originate and renew business loans as well as originate loans made available through the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”), a lending program established as part of the relief to American consumers and businesses in the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Several subsequent congressional acts have reopened and extended the PPP loan program. During the 2021 first quarter, we have processed over 17,000 applications totaling approximately $1.8 billion under the reopened PPP.

Pending acquisition of TCF Financial Corporation

In late March 2021, Huntington and TCF shareholders approved the proposed merger of TCF with and into Huntington. The integration planning continues to proceed as expected. We expect that the transaction will be completed late in the second quarter of 2021, subject to regulatory approval and the satisfaction of other customary closing conditions set forth in the merger agreement.

Economy

Our first quarter results reflected a very strong beginning to what will be an important year for Huntington. The economic recovery continues to gain its footing, and we are seeing encouraging signs across our footprint and our individual businesses. Our lending pipelines are up across the board, and customer sentiment is improving —

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supporting our confidence in more robust loan demand later in the year. Additionally, we continue to see strong core deposit inflows and expect this elevated level of liquidity will remain for some time.

DISCUSSION OF RESULTS OF OPERATIONS

This section provides a review of financial performance from a consolidated perspective. It also includes a “Significant Items” section (See Non-GAAP Financial Measures) that summarizes key issues important for a complete understanding of performance trends. 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”.

2021 1Q Form 10-Q 7

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Table 1 - Selected Quarterly Income Statement Data

	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,
(amounts in millions, except per share data)	2021			2020			2020			2020			2020
Interest income	$	869		$	878		$	892		$	902		$	975
Interest expense	(103)			53			75			110			185
Net interest income	972			825			817			792			790
Provision for credit losses	(60)			103			177			327			441
Net interest income after provision for credit losses	1,032			722			640			465			349
Mortgage banking income	100			90			122			96			58
Service charges on deposit accounts	69			78			76			60			87
Card and payment processing income	65			65			66			59			58
Trust and investment management services	52			49			48			45			47
Capital markets fees	29			34			27			31			33
Insurance income	27			25			24			25			23
Bank owned life insurance income	16			14			17			17			16
Gain on sale of loans	3			13			13			8			8
Net (losses) gains on sales of securities	—			—			—			(1)			—
Other noninterest income	34			41			37			51			31
Total noninterest income	395			409			430			391			361
Personnel costs	468			426			453			418			395
Outside data processing and other services	115			111			98			90			85
Equipment	46			49			44			46			41
Net occupancy	42			39			40			39			40
Professional services	17			21			12			11			11
Amortization of intangibles	10			10			10			10			11
Marketing	14			15			9			5			9
Deposit and other insurance expense	8			8			6			9			9
Other noninterest expense	73			77			40			47			51
Total noninterest expense	793			756			712			675			652
Income before income taxes	634			375			358			181			58
Provision for income taxes	102			59			55			31			10
Net income	532			316			303			150			48
Dividends on preferred shares	31			35			28			19			18
Net income applicable to common shares	$	501		$	281		$	275		$	131		$	30

Average common shares—basic	1,018			1,017			1,017			1,016			1,018
Average common shares—diluted	1,041			1,036			1,031			1,029			1,035
Net income per common share—basic	$	0.49		$	0.28		$	0.27		$	0.13		$	0.03
Net income per common share—diluted	0.48			0.27			0.27			0.13			0.03
Return on average total assets	1.76		%	1.04		%	1.01		%	0.51		%	0.17		%
Return on average common shareholders’ equity	18.7			10.4			10.2			5.0			1.1
Return on average tangible common shareholders’ equity (1)	23.7			13.3			13.2			6.7			1.8
Net interest margin (2)	3.48			2.94			2.96			2.94			3.14
Efficiency ratio (3)	57.0			60.2			56.1			55.9			55.4
Effective tax rate	16.1			15.8			15.2			17.2			17.0

Revenue—FTE
Net interest income	$	972		$	825		$	817		$	792		$	790
FTE adjustment	6			5			5			5			6
Net interest income (2)	978			830			822			797			796
Noninterest income	395			409			430			391			361
Total revenue (2)	$	1,373		$	1,239		$	1,252		$	1,188		$	1,157

(1)Net income 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.

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Significant Items

Table 2 list certain items that we believe are significant to understanding corporate performance and trends (See Non-GAAP Financial Measures included in “Additional Disclosures” section). There was one Significant Item in the 2021 first quarter: $21 million of noninterest expense related to the pending acquisition of TCF. This resulted in a negative impact of $(0.02) per common share. There were no Significant Items in the other periods presented.


Table 2 - Significant Items Influencing Earnings Performance Comparison
	Three Months Ended
	March 31, 2021
(dollar amounts in millions, share amounts in thousands)	Amount		EPS (1)
Net income	$	532
Earnings per share, after-tax			$	0.48

Significant Items—favorable (unfavorable) impact:	Earnings		EPS (1)
Mergers and acquisitions, net expenses	$	(21)
Tax impact	4
Mergers and acquisitions, after tax	$	(17)	$	(0.02)

(1)Based upon the quarterly average outstanding diluted common shares.

2021 1Q Form 10-Q 9

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Net Interest Income / Average Balance Sheet

The following tables detail the change in our average balance sheet and the net interest margin:


Table 3 - Consolidated Average Balance Sheet and Net Interest Margin Analysis
	Average Balances
	Three Months Ended										Change
	March 31,		December 31,		September 30,		June 30,		March 31,		1Q21 vs. 1Q20
(dollar amounts in millions)	2021		2020		2020		2020		2020		Amount		Percent
Assets:
Interest-bearing deposits in Federal Reserve Bank	$	6,065	$	5,507	$	5,857	$	3,413	$	680	$	5,385	792	%
Interest-bearing deposits in banks	177		205		177		169		150		27		18
Securities:
Trading account securities	52		53		49		39		95		(43)		(45)
Available-for-sale securities:
Taxable	14,827		12,048		10,670		11,179		11,671		3,156		27
Tax-exempt	2,650		2,710		2,749		2,728		2,753		(103)		(4)
Total available-for-sale securities	17,477		14,758		13,419		13,907		14,424		3,053		21
Held-to-maturity securities—taxable	8,269		8,844		8,932		9,798		9,428		(1,159)		(12)



Other securities	412		420		430		474		445		(33)		(7)
Total securities	26,210		24,075		22,830		24,218		24,392		1,818		7
Loans held for sale	1,392		1,319		1,259		1,039		865		527		61
Loans and leases: (3)
Commercial:
Commercial and industrial	34,352		34,850		34,669		35,284		30,849		3,503		11
Commercial real estate:
Construction	1,053		1,085		1,175		1,201		1,165		(112)		(10)
Commercial	6,122		6,092		6,045		5,885		5,566		556		10
Commercial real estate	7,175		7,177		7,220		7,086		6,731		444		7
Total commercial	41,527		42,027		41,889		42,370		37,580		3,947		11
Consumer:
Automobile	12,665		12,857		12,889		12,681		12,924		(259)		(2)
Home equity	8,809		8,919		8,878		8,897		9,026		(217)		(2)
Residential mortgage	12,094		12,100		11,817		11,463		11,391		703		6
RV and marine	4,193		4,181		4,020		3,706		3,590		603		17
Other consumer	973		1,032		1,049		1,082		1,185		(212)		(18)
Total consumer	38,734		39,089		38,653		37,829		38,116		618		2
Total loans and leases	80,261		81,116		80,542		80,199		75,696		4,565		6
Allowance for loan and lease losses	(1,809)		(1,804)		(1,720)		(1,557)		(1,239)		(570)		(46)
Net loans and leases	78,452		79,312		78,822		78,642		74,457		3,995		5
Total earning assets	114,105		112,222		110,665		109,038		101,783		12,322		12
Cash and due from banks	1,080		1,113		1,173		1,299		914		166		18
Intangible assets	2,176		2,185		2,195		2,206		2,217		(41)		(2)
All other assets	7,443		7,279		7,216		7,205		6,472		971		15
Total assets	$	122,995	$	120,995	$	119,529	$	118,191	$	110,147	$	12,848	12	%
Liabilities and Shareholders’ Equity:
Interest-bearing deposits:
Demand deposits—interest-bearing	$	26,812	$	25,094	23,865		$	23,878	$	21,202	$	5,610	26	%
Money market deposits	26,247		26,144		26,200		25,728		24,697		1,550		6
Savings and other domestic deposits	12,277		11,468		11,157		10,609		9,632		2,645		27
Core certificates of deposit (4)	1,384		1,479		2,035		3,003		3,943		(2,559)		(65)
Other domestic time deposits of $250,000 or more	115		139		175		230		321		(206)		(64)
Brokered deposits and negotiable CDs	3,355		4,100		4,182		4,114		2,884		471		16

Total interest-bearing deposits	70,190		68,424		67,614		67,562		62,679		7,511		12
Short-term borrowings	208		239		162		826		3,383		(3,175)		(94)
Long-term debt	7,766		8,799		9,318		9,802		10,076		(2,310)		(23)
Total interest-bearing liabilities	78,164		77,462		77,094		78,190		76,138		2,026		3
Demand deposits—noninterest-bearing	29,095		28,140		27,435		25,660		20,054		9,041		45
All other liabilities	2,412		2,452		2,322		2,396		2,319		93		4
Shareholders’ equity	13,324		12,941		12,678		11,945		11,636		1,688		15
Total liabilities and shareholders’ equity	$	122,995	$	120,995	$	119,529	$	118,191	$	110,147	$	12,848	12	%

(3)For purposes of this analysis, NALs are reflected in the average balances of loans.

(4)Includes consumer certificates of deposit of $250,000 or more.

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Table 3 - Consolidated Average Balance Sheet and Net Interest Margin Analysis (Continued)

	Average Yield Rates (2)
	Three Months Ended
	March 31,		December 31,		September 30,		June 30,		March 31,
Fully-taxable equivalent basis (1)	2021		2020		2020		2020		2020
Assets:
Interest-bearing deposits in Federal Reserve Bank	0.10	%	0.10	%	0.10	%	0.10	%	1.08	%
Interest-bearing deposits in banks	0.08		0.12		0.13		0.33		1.52
Securities:
Trading account securities	3.64		3.65		3.18		1.99		3.21
Available-for-sale securities:
Taxable	1.32		1.53		1.89		2.30		2.62
Tax-exempt	2.52		2.59		2.71		2.75		3.30
Total available-for-sale securities	1.50		1.72		2.06		2.39		2.75
Held-to-maturity securities—taxable	2.02		2.11		2.28		2.39		2.50



Other securities	1.66		1.85		1.23		0.57		2.07
Total securities	1.67		1.87		2.13		2.35		2.64
Loans held for sale	2.64		2.96		2.82		3.22		3.39
Loans and leases: (3)
Commercial:
Commercial and industrial	3.99		3.64		3.67		3.62		4.12
Commercial real estate:
Construction	3.41		3.36		3.40		3.66		4.75
Commercial	2.64		2.62		2.63		2.94		4.00
Commercial real estate	2.75		2.73		2.75		3.06		4.13
Total commercial	3.78		3.48		3.52		3.53		4.12
Consumer:
Automobile	3.71		3.88		3.93		3.84		4.05
Home equity	3.71		3.76		3.79		3.73		4.75
Residential mortgage	3.13		3.27		3.41		3.51		3.70
RV and marine	4.30		4.53		4.60		4.71		4.91
Other consumer	11.17		11.12		11.23		11.10		12.39
Total consumer	3.78		3.93		4.00		4.00		4.45
Total loans and leases	3.78		3.70		3.75		3.75		4.29
Total earning assets	3.11		3.13		3.22		3.35		3.88
Liabilities:
Interest-bearing deposits:
Demand deposits—interest-bearing	0.04		0.04		0.05		0.07		0.43
Money market deposits	0.06		0.10		0.28		0.40		0.81
Savings and other domestic deposits	0.04		0.05		0.06		0.10		0.17
Core certificates of deposit (4)	0.51		0.56		1.03		1.55		1.91
Other domestic time deposits of $250,000 or more	0.22		0.51		0.92		1.25		1.56
Brokered deposits and negotiable CDs	0.18		0.19		0.19		0.18		1.22

Total interest-bearing deposits	0.06		0.08		0.18		0.28		0.68
Short-term borrowings	0.19		0.26		0.30		0.47		1.46
Long-term debt (5)	(5.88)		1.72		1.87		2.58		2.70
Total interest-bearing liabilities	(0.53)		0.27		0.39		0.57		0.98


Net interest rate spread	3.64		2.86		2.83		2.78		2.90
Impact of noninterest-bearing funds on margin	(0.16)		0.08		0.13		0.16		0.24
Net interest margin	3.48	%	2.94	%	2.96	%	2.94	%	3.14	%

(1)FTE yields are calculated assuming a 21% tax rate.

(2) Average yield rates include the impact of applicable derivatives. Loan and lease and deposit average yield rates also include impact of applicable non-deferrable and amortized fees.

(3) For purposes of this analysis, NALs are reflected in the average balances of loans.

(4) Includes consumer certificates of deposit of $250,000 or more.

(5) Reflects the net mark-to-market impact of interest rate caps of $144 million or 741 bps and $5 million or 23 bps for 1Q 2021 and 4Q 2020, respectively.

2021 1Q Form 10-Q 11

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2021 First Quarter versus 2020 First Quarter

FTE net interest income for the 2021 first quarter increased $182 million, or 23%, from the 2020 first quarter. This increase reflected a $12.3 billion, or 12%, increase in average earning assets, and a 34 basis point increase in the FTE net interest margin to 3.48%. Net interest income in the 2021 first quarter included a $144 million net mark-to-market of interest rate caps, which favorably impacted the NIM by approximately 51 basis points (and long-term debt costs by approximately 741 basis points), and $45 million of deferred PPP loan fees recognized upon receipt of forgiveness payments from the SBA, which favorably impacted the NIM by approximately 16 basis points. The year-over-year decrease in earning asset yields and average liability costs also reflected the impact of lower interest rates and changes in balance sheet mix, including elevated deposits at the Federal Reserve Bank.

Average earning assets for the 2021 first quarter increased $12.3 billion, or 12%, from the year-ago quarter, primarily reflecting a $5.4 billion, or 792%, increase in interest-bearing deposits at the Federal Reserve Bank, a $4.6 billion, or 6%, increase in average total loans and leases, and a $1.8 billion, or 7%, increase in average securities. Average C&I loans increased $3.5 billion, or 11%, primarily reflecting the $5.8 billion of average PPP loans partially offset by lower C&I and dealer floorplan utilization rates. Average residential mortgage loans increased $0.7 billion, or 6%, reflecting continued robust portfolio mortgage production. Average RV and marine loans increased $0.6 billion, or 17%, reflecting strong consumer demand and continued strong production levels.

Average total interest-bearing liabilities for the 2021 first quarter increased $2.0 billion, or 3%, from the year-ago quarter. Average total deposits increased $16.6 billion, or 20%, while average total core deposits increased $16.3 billion, or 20%. The increase in average total core deposits was primarily driven by increased liquidity levels in reaction to the economic downturn, business and commercial growth related to the PPP loans, consumer growth largely related to government stimulus, increased consumer and business banking account production, and reduced attrition. Specifically within core deposits, average total demand deposits increased $14.7 billion, or 36%, average savings and other domestic deposits increased $2.6 billion, or 27%, and average money market deposits increased $1.6 billion, or 6%. Partially offsetting these increases, average core CDs decreased $2.6 billion, or 65%, reflecting the maturity of balances related to the 2018 consumer deposit growth initiatives. Average total debt decreased $5.5 billion, or 41%, reflecting the repayment of short-term borrowings, the maturity and issuance of $3.2 billion and $1.3 billion of long-term debt, respectively, over the past five quarters, and the purchase of $0.5 billion of long-term debt under the tender offer completed in November 2020, all due to the strong core deposit growth.

2021 First Quarter versus 2020 Fourth Quarter

Compared to the 2020 fourth quarter, FTE net interest income increased $148 million, or 18%, reflecting a $1.9 billion, or 2% increase in average earning assets and 54 basis points of NIM expansion. Both the net interest income increase and the NIM expansion primarily reflected the net impacts of the mark-to-market of interest rate caps and the deferred PPP loan fees recognized upon receipt of forgiveness payments from the SBA. The mark-to-market of interest rate caps was $144 million in the 2021 first quarter compared to $5 million in the 2020 fourth quarter. The accelerated recognition of deferred PPP loan fees were $45 million in the 2021 first quarter compared to $5 million in the 2020 fourth quarter.

Average earning assets increased $1.9 billion, or 2%, primarily reflecting a $2.1 billion, or 9%, increase in average securities, partially offset by a $0.9 billion, or 1%, decrease in average loans and leases. The increase in average securities reflected the purchase of securities to deploy excess liquidity. Average C&I loans decreased $0.5 billion, or 1%, primarily reflecting the $0.4 billion decrease in average PPP loans.

Average total interest-bearing liabilities increased $0.7 billion, or 1%, when compared to the 2020 fourth quarter. Average total deposits increased $2.7 billion, or 3%, and average total core deposits increased $3.5 billion, or 4%. The increase in average total core deposits was primarily driven by consumer growth largely related to government stimulus, increased liquidity levels among our commercial customers, seasonality in government banking, and improved consumer and business banking account retention. Specifically, within core deposits, average total demand deposits increased $2.7 billion, or 5%. Average total debt decreased $1.1 billion, or 12%, primarily reflecting the maturity of $1.1 billion of long-term debt, the purchase of $0.5 billion of long-term debt under the tender offer completed in November 2020, and the repayment of short-term borrowings, all due to the strong core deposit growth.

12 Huntington Bancshares Incorporated

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Provision for Credit Losses

(This section should be read in conjunction with the “Credit Risk” section.)

The provision for credit losses is the expense necessary to maintain the ALLL and the AULC at levels appropriate to absorb our estimate of credit losses expected over the life of the loan and lease portfolio and the portfolio of unfunded loan commitments and letters of credit.

The provision for credit losses for the 2021 first quarter was $(60) million, a decrease of $501 million, or 114%, compared to the 2020 first quarter. The reduction in provision expense over the prior year was primarily attributed to the improvement in the forecasted macroeconomic environment resulting from anticipated lower unemployment and higher GDP.

Noninterest Income

The following table reflects noninterest income for each of the periods presented:


Table 4 - Noninterest Income
	Three Months Ended				1Q21 vs. 1Q20			1Q21 vs. 4Q20
	March 31,		December 31,			March 31,		Change				Change
(dollar amounts in millions)	2021		2020			2020		Amount		Percent		Amount		Percent
Mortgage banking income	$	100	$	90		$	58	$	42	72	%	$	10	11	%
Service charges on deposit accounts	69		78			87		(18)		(21)		(9)		(12)
Card and payment processing income	65		65			58		7		12		—		—
Trust and investment management services	52		49			47		5		11		3		6
Capital markets fees	29		34			33		(4)		(12)		(5)		(15)
Insurance income	27		25			23