Huntington Bancshares Incorporated — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; fourth-quarter results are also summarized. Huntington is a regional bank holding company headquartered in Columbus, Ohio, with banking operations across seven states. Its four reporting segments are Consumer and Business Banking, Commercial Banking, Vehicle Finance, and Regional Banking and The Huntington Private Client Group.
Financial performance and condition
| Metric | 2020 | Prior comparable period |
|---|---|---|
| Net income | $817 million | $1.411 billion in 2019; down 42% |
| Diluted earnings per share | $0.69 | $1.27 in 2019; down 46% |
| Net interest income, GAAP | $3.224 billion | $3.213 billion in 2019 |
| Net interest income, FTE | $3.245 billion | $3.239 billion in 2019 |
| Net interest margin, FTE | 2.99% | 3.26% in 2019; down 27 basis points |
| Noninterest income | $1.591 billion | $1.454 billion in 2019; up 9% |
| Noninterest expense | $2.795 billion | $2.721 billion in 2019; up 3% |
| Provision for credit losses | $1.048 billion | $287 million in 2019 |
| Net cash from operating activities | $1.323 billion | $1.574 billion in 2019 |
Interest income fell 13% as rates declined, while lower funding costs substantially offset the effect on net interest income. Average earning assets grew 9%; average loans and leases increased 6%. Mortgage banking income rose 119% to $366 million, supported by stronger originations and secondary-market spreads. Deposit service charges fell 19%, reflecting reduced customer activity, elevated deposits, and pandemic-related fee waivers.
At year-end, total assets were $123.0 billion, loans and leases were $81.6 billion, and deposits were $98.9 billion. Loans grew 8% from 2019, and deposits grew 20%. Cash and cash equivalents were $6.595 billion, including $5.276 billion of interest-bearing deposits at the Federal Reserve. Long-term debt was $8.352 billion and short-term borrowings were $183 million, down from $9.849 billion and $2.606 billion, respectively, at year-end 2019. Management reported sufficient liquidity for foreseeable needs; core deposits represented approximately 96% of deposits, and unpledged investment securities totaled $10.8 billion.
Consolidated CET1 capital was 10.00%, Tier 1 risk-based capital was 12.47%, and total risk-based capital was 14.46%. The tangible common equity to tangible assets ratio was 7.16%, compared with 7.88% a year earlier. The company declared $0.60 per common share in 2020 dividends. Cash flow from investing activities was a use of $8.639 billion, principally reflecting loan growth and securities purchases; financing activities provided $12.741 billion, largely from deposit growth.
Material changes and fourth-quarter results
- Credit costs rose sharply: provision expense increased $761 million year over year. Huntington attributed the increase to pandemic-related economic deterioration and commercial risk-rating downgrades.
- Net charge-offs were $449 million, or 0.57% of average loans and leases, versus $265 million and 0.35% in 2019. Year-end nonperforming assets were $563 million, up 13%; nonaccrual loans were $532 million.
- The allowance for credit losses was $1.866 billion, or 2.29% of loans, versus $887 million, or 1.18%, in 2019. The year-end reserve reflects both CECL adoption and pandemic-related economic uncertainty. CECL adoption added $393 million to the allowance and reduced retained earnings by approximately $306 million after tax.
- Fourth-quarter net income was $316 million, versus $317 million in the fourth quarter of 2019; diluted EPS was $0.27 versus $0.28. Fourth-quarter FTE NIM was 2.94%, down from 3.12% a year earlier. Provision expense was $103 million versus $79 million.
- Fourth-quarter noninterest income increased 10% to $409 million, while noninterest expense increased 8% to $756 million. Expense included $8 million of TCF merger-related professional fees, a $20 million Columbus Foundation donation, and $7 million related to a debt tender.
Outlook, significant items, and risks
Management provided no specific numeric earnings or financial guidance in the supplied filing text. It said the pandemic and related economic crisis are expected to adversely affect future results, with the magnitude and duration uncertain. Management also described improving regional economic indicators, stronger commercial loan pipelines, and momentum entering 2021, while continuing investment in technology, digital innovation, marketing, and personnel.
- TCF merger: Huntington agreed in December 2020 to acquire TCF Financial in an all-stock transaction valued at approximately $6.0 billion when announced. TCF shareholders are to receive 3.0028 Huntington shares per TCF share. Closing was anticipated in the second quarter of 2021, subject to shareholder and regulatory approvals. Huntington warned of integration costs, execution and employee-retention risks, and possible failure to achieve expected benefits. A $238.8 million termination fee could apply in specified circumstances.
- Pandemic programs: Huntington funded more than 38,000 PPP loans totaling $6.6 billion in 2020; $6.1 billion remained outstanding at year-end. It also originated $117 million under the Main Street Lending Program. Management noted continuing uncertainty about borrower performance and economic recovery.
- Credit estimate uncertainty: Management’s sensitivity analysis estimated that applying a 100% adverse-scenario weighting rather than a 100% baseline weighting would increase the modeled allowance by approximately $700 million. This was an illustrative sensitivity, not management’s expected reserve increase. The independent auditor identified valuation of the ACL general reserve as a critical audit matter.
- Other risks: Key exposures include credit deterioration, interest-rate and LIBOR-transition risk, deposit and funding confidence, cybersecurity and third-party operational risk, regulatory and compliance requirements, and merger execution. Management estimated reasonably possible litigation losses of $0–$10 million above accrued liabilities, while stating that pending matters were not expected to materially affect consolidated financial position.
- Unusual accounting and income items: 2020 included a $13 million gain from annuitizing a retiree health plan and a $5 million gain on sale of the retirement plan services recordkeeping business. Huntington also issued $500 million each of Series F and Series G preferred stock. Goodwill was $1.990 billion; management’s annual impairment assessment found no impairment.
The independent auditor issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal controls over financial reporting were effective as of December 31, 2020.
Most important facts for investors to verify
- Whether credit quality, charge-offs, commercial exposures—particularly oil and gas—and the adequacy of the CECL allowance evolve in line with the economic recovery.
- Whether deposit growth persists and how low rates, asset yields, and funding costs affect net interest margin and earnings.
- Regulatory and shareholder approval, closing timing, integration expenses, expected synergies, and capital effects of the TCF merger.
- Liquidity, capital ratios, dividends, and any changes to regulatory limits on capital distributions.
- Subsequent PPP forgiveness, loan performance, and the effect of pandemic-related assistance and deferrals on reported delinquencies and future losses.