Huntington Bancshares is already the largest lender in the Small Business Administration’s flagship program, and now its executives are testing a plan to establish an even bigger footprint.
The Columbus, Ohio, bank’s success in the SBA’s 7(a) program has prompted consideration of a potential expansion outside of its Midwestern franchise, CEO Steve Steinour said in an interview Thursday. Company executives hatched the idea following Huntington’s acquisition last year of
“We’re running a bit of an experiment, testing whether this can become a bit of a broader business outside our geography,” Steinour said.
“Part of that was an outgrowth of the expansion in Minnesota and Colorado. … We’ll take what we learn, and maybe it takes us somewhere.”
During the first quarter at Huntington, strong results from SBA loans and the wealth-management business cushioned a drop-off in fee income generated by home sales. Meanwhile, the $176.9 billion-asset bank said that it is expecting a substantial second-half boost once its
Huntington — the nation’s leading SBA 7(a) lender by number of loans — had previously been holding on to its production. But with secondary-market premiums on the rise, it opted to resume loan sales, netting $27 million on sales of $187 million for the three months ending March 31.
“Generally, that run rate will continue as we go forward,” Chief Financial Officer Zach Wasserman said Thursday during a conference call with analysts. “The team is performing exceptionally strongly right now, doing really well driving production.”
According to the SBA, Huntington had closed 2,279 7(a) loans through March 31. The program’s second-most active lender, Wells Fargo, had closed 915. The 7(a) program offers guarantees of up to 85% on loans as large as $5 million.
Steinour said the bank’s 7(a) growth is attributable largely to its ongoing expansion efforts in Chicago, Denver and Minnesota’s Twin Cities — markets the company entered by
Also during the first quarter, Huntington reported record $65 million in trust and investment management fees, up 25% year over year and 3% on a linked-quarter basis.
At $42 million, quarterly revenue from its capital markets business declined 11% from the fourth quarter of 2021. But both Wasserman and Steinour said they anticipate that the Capstone deal, which is expected to close in the second quarter, will yield material benefits — perhaps as much as $30 million per quarter, according to Wasserman.
Steinour, who described Boston-based Capstone as a “top-tier middle-market investment bank and advisory firm,” said there are obvious synergies between Huntington and the “many thousands” of small and medium-sized businesses it serves.
“They generally don’t have access to the sophistication of larger investment banks or investment banks, period,” he said. “There’s an advisory component to this that we think … will create loyalty, and that stickiness will create long-term value for us.”
Overall, Huntington reported quarterly net income of $460 million, up 14% on a linked-quarter basis but down from 13.5% from the first quarter of 2021, when its results included $76 million of Paycheck Protection Program income.
Huntington reported deposits of $143 billion on March 31, which was level with the quarter ending Dec. 31. Loans, which totaled $111.1 billion, were up 2% from the fourth quarter of last year. Steinour said pipeline activity has been robust, so he’s expecting loan growth to continue throughout 2022.
“Momentum is building,” Steinour said. “The pipelines are all up from the last quarter. Business banking is a multiple of what it was at this time last year, so it shows you the power of the combined franchises.”
Like most home lenders, Huntington Bancshares felt the sting of a contracting mortgage market in the first quarter, with revenues in the business falling a whopping 51% year over year and 20% from the quarter ending Dec. 31. The Mortgage Bankers Association is projecting a 36% drop in mortgage origination volume this year.
Huntington completed the TCF systems conversion during the fourth quarter, so the newly combined company has had only a few months of operating on the same platform, Steinour said.
“I don’t think we’re on all cylinders yet,” he said. “We’ll need a couple more quarters to get everybody at the productivity levels we want.”
Like a number of other banks, Huntington reported exceptionally strong credit quality for the quarter ending March 31. Net chargeoffs declined to a record-low seven basis points of average total loans and leases, down from 32 basis points a year earlier. Nonaccrual loans declined for a third consecutive quarter, falling to 0.60% of total loans.
“The underlying economy is really good,” Steinour said. “We could be wrong, but we’re bullish about 2022, and we’re not calling for a recession in 2023 or 2024 at this stage.”
