Huntington Bancshares Incorporated — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Unaudited consolidated results. Huntington is a regional bank holding company headquartered in Columbus, Ohio.
Financial performance and position
- Earnings: Net income was $48 million, down from $358 million in Q1 2019. Net income available to common shareholders was $30 million; diluted EPS was $0.03 versus $0.32.
- Revenue and margins: GAAP net interest income was $790 million, down 4% year over year; the company’s fully taxable-equivalent (FTE) figure was $796 million. FTE net interest margin was 3.14%, down 25 basis points. Total FTE revenue was $1.157 billion, compared with $1.148 billion.
- Credit costs: Provision for credit losses rose to $441 million from $67 million. Net charge-offs were $117 million, or an annualized 0.62% of average loans, versus $71 million and 0.38% in Q1 2019.
- Other income and expense: Noninterest income increased to $361 million from $319 million, led by mortgage banking and capital markets. Noninterest expense was $652 million, essentially unchanged from $653 million.
- Profitability: Return on average assets was 0.17%, compared with 1.35%; return on average common equity was 1.1%, compared with 13.8%.
- Balance sheet: Total assets were $113.9 billion at March 31, up from $109.0 billion at year-end. Loans and leases were $78.0 billion, up 3% from year-end; deposits were $86.8 billion, up 5%.
- Allowance: Allowance for loan and lease losses was $1.504 billion and total allowance for credit losses, including unfunded commitments, was $1.603 billion. The total allowance equaled 2.05% of loans and leases.
- Cash flow and liquidity: Operating cash flow was $498 million; investing cash flow was negative $4.322 billion and financing cash flow was positive $4.421 billion. Cash and cash equivalents ended at $1.767 billion. Core deposits were 95% of deposits; unused FHLB borrowing capacity was $19.1 billion, and unpledged securities totaled $10.7 billion.
- Debt and capital: Long-term debt was $9.796 billion and short-term borrowings were $2.826 billion. Consolidated CET1 ratio was 9.47%, versus 9.88% at year-end and 9.84% a year earlier; total risk-based capital ratio was 12.74%.
Material changes versus comparable periods
- Q1 earnings fell sharply as credit-loss provisions increased amid COVID-19 disruption and deterioration in the economic outlook.
- Commercial charge-offs and reserves were particularly affected by oil and gas exposures and a large coal-related credit. Commercial Banking reported an $86 million loss, compared with $130 million of income in Q1 2019.
- Mortgage banking income increased to $58 million from $21 million, reflecting stronger mortgage production and spreads. FTE net interest income declined as lower asset yields outweighed reduced funding costs.
- Period-end loans increased $2.6 billion from year-end, primarily from commercial line-of-credit draws late in March. Deposits increased $4.5 billion, including commercial and seasonal government deposit inflows.
Outlook, risks, and unusual items
- Management said the pandemic’s duration and economic effects were highly uncertain and expected negative impacts in future quarters. It warned that weaker growth, higher unemployment, and deterioration in affected industries could increase defaults, credit losses, and the allowance. Updated forecasts received after the quarter-end estimate implied further allowance increases if those forecasts held or worsened.
- Huntington offered payment deferrals, fee waivers, and suspension of foreclosures and repossessions. As of April 16, 2020, it had processed about 26,000 PPP applications totaling more than $6.1 billion; these are post-quarter-end figures.
- The company adopted CECL on January 1, 2020. Adoption increased the allowance by $393 million and reduced retained earnings by about $306 million after tax. Q1 provision expense included the further reserve build. Prior-period figures remain under the earlier accounting method.
- Management did not expect to repurchase shares for the balance of 2020, citing economic deterioration, though it retained discretion to resume. The board declared a quarterly common dividend of $0.15 per share after quarter-end.
- Management estimated aggregate possible litigation and regulatory losses of $0–$20 million in excess of any accrual at March 31; it cautioned that the estimate is uncertain and is not the maximum exposure.
- COVID-19 also heightened operational and cybersecurity risks, including phishing attempts targeting remote workers. The filing reported no material cyber losses to date.
Important facts for investors to verify
- How subsequent economic forecasts, borrower relief programs, and realized defaults affect the allowance and future credit costs.
- Exposure and performance trends in oil and gas, coal, and other pandemic-impacted commercial and consumer portfolios.
- Whether deposit and loan growth, funding costs, and the lower-rate environment sustain net interest income and margin.
- Capital, liquidity, dividends, and the timing of any resumption of share repurchases.
- The filing distinguishes GAAP net interest income ($790 million) from FTE net interest income ($796 million); compare like-for-like measures. It also presents both a $393 million CECL adoption increase and detailed roll-forward components totaling $393 million.