Huntington Bancshares Incorporated — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; comparisons are primarily with 2018. Huntington is a regional bank holding company headquartered in Columbus, Ohio, operating across seven states, with consumer and business banking, commercial banking, vehicle finance, and private-client businesses.
Financial performance and condition
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Total revenue (FTE) | $4.693 billion | $4.540 billion | +3% |
| Net interest income (GAAP) | $3.213 billion | $3.189 billion | +1% |
| Net interest margin (FTE) | 3.26% | 3.33% | -7 basis points |
| Noninterest income | $1.454 billion | $1.321 billion | +10% |
| Provision for credit losses | $287 million | $235 million | +22% |
| Noninterest expense | $2.721 billion | $2.647 billion | +3% |
| Net income | $1.411 billion | $1.393 billion | +1% |
| Diluted EPS | $1.27 | $1.20 | +6% |
| Efficiency ratio | 56.6% | 56.9% | Improved 0.3 points |
Average earning assets rose 3% and average loans and leases rose 4%. Funding costs increased 28 basis points, partly offset by higher asset yields and a greater benefit from noninterest-bearing funding. Mortgage banking income increased 55%, supported by higher volumes and salable spreads; card and payment-processing income rose 10%.
At year-end, total assets were $109.0 billion, loans and leases were $75.4 billion, deposits were $82.3 billion, long-term debt was $9.85 billion, and shareholders’ equity was $11.8 billion. Loans increased 1% from 2018, while deposits declined 3%. Core deposits were 97% of deposits. Unpledged investment securities available as a liquidity source totaled $19.5 billion; management said the Bank had sufficient liquidity for the foreseeable future. Consolidated cash and cash equivalents were $1.17 billion, down from $2.67 billion.
Operating cash flow was $1.57 billion, investing cash outflow was $1.88 billion, and financing cash outflow was $1.20 billion. Regulatory capital remained above well-capitalized standards: consolidated CET1 was 9.88%, total risk-based capital was 13.04%, and Tier 1 leverage was 9.26%. Tangible common equity to tangible assets was 7.88%.
Material changes and fourth-quarter results
- Full-year net income rose modestly, while diluted EPS grew faster, aided in part by a lower average diluted share count following repurchases.
- Credit costs and losses increased: net charge-offs were $265 million, or 0.35% of average loans, versus $145 million, or 0.20%, in 2018. Nonperforming assets rose 29% to $498 million, primarily because of commercial and oil-and-gas exposures. Nonaccrual loans reached $468 million from $340 million.
- Commercial Banking net income fell 11% to $553 million, mainly due to higher credit losses and expenses. Consumer and Business Banking net income rose 26% to $635 million. Vehicle Finance net income rose 6% to $172 million; Regional Banking and Private Client Group net income declined 5% to $113 million.
- Fourth-quarter net income was $317 million, down 5% year over year; diluted EPS was $0.28 versus $0.29. FTE net interest margin fell to 3.12% from 3.41%, and FTE net interest income declined 7%. Noninterest income rose 13%, while noninterest expense declined 1%.
Outlook, commentary, risks and unusual items
- Management expected continued economic expansion in 2020, with consumer lending supporting balance-sheet growth. Commercial customers were described as performing well, but volatility and uncertainty were restraining overall commercial loan growth. The filing provides no specific numerical earnings or revenue guidance.
- CECL was adopted January 1, 2020. Huntington estimated an approximately $393 million increase in the allowance for credit losses, to about $1.280 billion, roughly 44% above the 2019 year-end balance. Management cited consumer portfolio duration and economic scenarios as key drivers; the company elected a three-year regulatory-capital phase-in.
- Interest-rate sensitivity, deposit competition, economic weakness in manufacturing-oriented markets, credit deterioration—particularly in oil and gas—cybersecurity and third-party operational risks, regulatory compliance, and the transition from LIBOR were identified as material risks.
- Unusual or notable items included $15 million of fourth-quarter expense related to position reductions, a gain on sale of Wisconsin retail branches, and $24 million of net securities losses for the year. The company reported no significant items under its defined disclosure framework for 2019.
- Capital actions included raising the quarterly common dividend 7% to $0.15 beginning in the third quarter and repurchasing $441 million of common stock during 2019. The Board had authorized up to $513 million of repurchases through the second quarter of 2020, subject to applicable approvals and conditions.
- Management estimated pending legal and regulatory matters could produce aggregate losses of $0–$20 million above recorded accruals where a range could be estimated. It cautioned that this is not the maximum exposure and outcomes could be material to a particular period.
Important facts for investors to verify
- Whether rising commercial charge-offs and oil-and-gas nonaccruals persisted after year-end, and how they affected credit provisions and reserve adequacy.
- Whether the CECL allowance increase and related capital phase-in matched the disclosed estimates.
- Whether margin pressure continued as interest rates, deposit pricing, and funding mix changed.
- How deposit balances, wholesale funding, liquidity sources, and debt maturities evolved after December 31, 2019.
- Whether repurchases and dividends proceeded as planned, subject to regulatory and Board constraints, and how capital ratios developed.
- The status and possible financial impact of legal contingencies, LIBOR transition arrangements, and cybersecurity or operational incidents.