HUNTINGTON BANCSHARES INCORPORATED INTRODUCTION
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 should be read in conjunction with the Consolidated Financial Statements , Notes to Consolidated Financial Statements , and other information contained in this report. The forward-looking statements in this section and other parts of this report involve assumptions, risks, uncertainties, and other factors, including statements regarding our plans, objectives, goals, strategies, and financial performance. Our actual results could differ materially from the results anticipated in these forward-looking statements as a result of factors set forth under the caption "Forward-Looking Statements" and those set forth in Item 1A. EXECUTIVE OVERVIEW 2020 Financial Performance Review In 2020, we reported net income of$817 million , a 42% decrease from the prior year. Earnings per common share on a diluted basis for the year were$0.69 , down 46% from the prior year. Fully-taxable equivalent net interest income for 2020 increased$6 million from 2019. This reflected the impact of 9% average earning asset growth and a 4% growth of average interest-bearing liabilities. FTE net interest margin decreased 27 basis points to 2.99%. Average earning asset growth reflects a$4.4 billion , or 6%, increase in average loans and leases. The NIM compression reflected an 87 basis point decline in average earning asset yields, a 19 basis point decline in the benefit from noninterest-bearing funds, partially offset by a 79 basis point decrease in average funding costs. The provision for credit losses was$1.0 billion , up$761 million , or 265%. The increase in provision expense over the prior year was primarily attributed to the deterioration in the macroeconomic environment resulting from the COVID-19 pandemic and risk rating downgrades within the commercial portfolio. Noninterest income was$1.6 billion , up$137 million , or 9%, from the prior year. Among the primary drivers, mortgage banking income increased$199 million , or 119%, primarily reflecting higher secondary marketing spreads and an increase in salable mortgage originations. Offsetting this increase, service charges on deposit accounts decreased$71 million , or 19%, primarily reflecting reduced customer activity and pandemic-related fee waivers and other noninterest income decreased$23 million , or 13%, reflecting several notable items impacting both periods as well as lower fixed income brokerage revenue, deposit placement fees and operating lease income. Notable items in 2020 include a$13 million gain on the annuitization of a retiree health plan and a$5 million gain on the sale of the retirement plan services recordkeeping business, whereas 2019 included a$14 million gain from the sale ofWisconsin retail branches. Noninterest expense was$2.8 billion , up$74 million , or 3%, from the prior year. Contributing to the increase, personnel costs were up$38 million , or 2%, primarily reflecting increased salaries, incentives, commissions, contract help and overtime expense partially offset by lower payroll taxes. Outside data processing and other services increased$38 million , or 11%, primarily driven by expenses related to technology investments. Equipment expense increased$17 million driven by increased depreciation and software development expense. Offsetting these increases, other noninterest expense decreased$10 million , or 4%, primarily as a result of lower travel and business development expenses partially offset by an increase in the contribution to theColumbus Foundation . 2020 Form 10-K 46 -------------------------------------------------------------------------------- Table of Contents The tangible common equity to tangible assets ratio was 7.16%, down 72 basis points. The regulatory Common Equity Tier 1 (CET1) risk-based capital ratio was 10.00%, up 12 basis points. The regulatory Tier 1 risk-based capital ratio was 12.47%, up 121 basis points. 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 theFederal Reserve , both of which are 0% risk weighted. The capital impact of earnings, adjusted for the CECL transition was largely offset by the repurchase of$92 million of common stock over the last four quarters (primarily in the 2020 first quarter) and cash dividends. The regulatory Tier 1 risk-based capital ratio also reflects the issuance of$500 million of Series F preferred stock and$500 million of Series G preferred stock in the 2020 second quarter and third 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 has caused and continues to cause significant, unprecedented disruption that affects daily living and negatively impacts the global economy. The pandemic has resulted in temporary closures of many businesses and the institution of social distancing and shelter in place requirements in many states and communities, increasing unemployment levels and causing volatility in the financial markets. As further discussed in "Discussion of Results of Operations," the reduction in interest rates, borrower and counterparty credit deterioration and market volatility, among other factors, impacted our 2020 performance. Though we are unable to estimate the magnitude, we expect the pandemic and related global economic crisis will adversely affect our future operating results.Huntington was able to react quickly to these changes because of the commitment and flexibility of its workforce coupled with well-prepared business continuity plans. To ensure the safety of our branch colleagues, while still meeting the needs of our customers, we moved to the use of branches with drive-thru only, with in-person meetings by appointment during shelter-in-place orders. For other colleagues, we have implemented a work-from-home approach with increased communication to keep them informed, engaged, productive and connected. Additional benefits have been provided, including medical, emergency paid time off and other programs for those whose families have been directly impacted by the virus. While state and local governments have partially eased temporary business closures and shelter in place requirements and we have opened our branches, we expect our colleagues who have been operating remotely to continue for some period of time. While vaccines have been approved and are being administered throughout our footprint, it remains unknown when, or if, there will be a return to historical normal economic and social activity. For our customers, we have established a variety of temporary relief programs which include loan payment deferrals, late fee and overdraft waivers and the suspension of foreclosure and repossessions. We continue to work with our customers to originate and renew business loans as well as originated loans made available through the initial Small Business Administration Paycheck Protection Program, 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"). The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act ("Economic Aid Act") reopens and extends the PPP loan program. As ofFebruary 19, 2021 , we have processed approximately 16,000 applications totaling$1.8 billion under the reopened program. CARES Act The CARES Act was passed byCongress and signed into law onMarch 27, 2020 . It provides for financial stimulus and government lending programs at unprecedented levels. The benefits of these programs within the economy remain uncertain.
The
CARES Act includes a total allocation of$659 billion for loans to be issued by financial institutions through the SBA. This program is known as the PPP. PPP loans are forgivable, in whole or in part, if the 47Huntington Bancshares Incorporated -------------------------------------------------------------------------------- Table of Contents proceeds are used for payroll and other permitted purposes in accordance with the requirements of the PPP. These loans carry a fixed rate of 1.00% and terms of two or five years, if not forgiven, in whole or in part. The loans also require deferral of principal and interest repayment. The loans are 100% guaranteed by the SBA. The SBA pays the originating bank a processing fee ranging from 1% to 5%, based on the size of the loan. In addition, the FRB has implemented a liquidity facility available to financial institutions participating in the PPP ("PPPLF"). In conjunction with the PPP, the PPPLF will allow the Federal Reserve Banks to lend to member banks on a non-recourse basis with PPP loans as collateral. Additionally, the CARES Act provides for relief on existing and new SBA loans through Small Business Debt Relief. As part of the SBA Small Business Debt Relief, the SBA will automatically pay principal, interest and fees of certain SBA loans for a period of six months for both existing loans and new loans issued prior toSeptember 27, 2020 . To aid small- and medium-sized businesses across our footprint in 2020, we funded more than 38,000 loans in the amount of$6.6 billion through the SBA's PPP. As ofDecember 31, 2020 , we have an outstanding PPP loan balance of$6.1 billion and have received PPP forgiveness payments of$225 million from the SBA. BetweenJanuary 1, 2021 andFebruary 19, 2021 , we have received PPP forgiveness payments of an additional$1.2 billion from the SBA. The CARES Act also provides for Mortgage Payment Relief and a foreclosure moratorium. Refer to the " Credit Risk " section for additional details on customer relief. Economic Aid Act The Economic Aid Act became law onDecember 27, 2020 . The Act reopens and expands the PPP loan program throughMarch 31, 2021 . The changes to the PPP program allow new borrowers to apply for a loan under the original PPP loan program ("First Draw Loan") and the creation of an additional PPP loan for eligible borrowers ("Second Draw Loan"). The Economic Aid Act also revises certain PPP requirements, including aspects of loan forgiveness on existing PPP loans. Federal Reserve Board Actions The FRB has taken a range of actions to support the flow of credit to households and businesses. For example, onMarch 15, 2020 , the FRB reduced the target range for the federal funds rate to 0 to 0.25% and announced that it would increase its holdings ofU.S. Treasury securities and agency mortgage-backed securities and begin purchasing agency commercial mortgage-backed securities. The FRB has also encouraged depository institutions to borrow from the discount window and has lowered the primary credit rate for such borrowing by 150 basis points while extending the term of such loans up to 90 days. Reserve requirements have been reduced to zero as ofMarch 26, 2020 . The FRB has established, or has taken steps to establish, a range of facilities and programs to support theU.S. economy andU.S. marketplace participants in response to economic disruptions associated with COVID-19, including among others, Main Street Lending facilities to purchase loan participations, under specified conditions, from banks lending to small and mediumU.S. businesses. During 2020, we participated in the Main Street Lending program originating$117 million of loans under these facilities. Economy Our 2020 results reflect strong execution across the bank given the pandemic and economic challenges faced by our customers, colleagues, communities and the country. We proactively managed through the continued low interest rate environment and unprecedented economic volatility experienced in the wake of the pandemic. The economy in our footprint continues to strengthen as demonstrated by the strong close to the year in commercial lending and our increasing loan pipelines. Additionally, many of the key economic indicators in the region such as unemployment rate, consumer confidence and consumer retail spending, are recovering more quickly than the nation as a whole. We believe thatHuntington enters 2021 with strong momentum. We are positioned to advance the strategy and long-term financial performance of the company through investments in technology, digital innovation, marketing and people as well as the recently announced acquisition of TCF. Legislative and Regulatory A comprehensive discussion of legislative and regulatory matters affecting us can be found in Item 1: Business - " Regulatory Matters " section of this Form 10-K. 2020 Form 10-K 48 --------------------------------------------------------------------------------
Table of Contents
Table 1 - Selected Year to Date Income Statements
(amounts in millions, except per share data)
Year Ended December 31,
Change from 2019 Change from 2018
2020 Amount Percent 2019 Amount Percent 2018
Interest income $ 3,647 $ (554) (13) % $ 4,201 $ 252 6 % $ 3,949
Interest expense 423 (565) (57) 988 228 30 760
Net interest income 3,224 11 - 3,213 24 1 3,189
Provision for credit losses 1,048 761 265 287 52 22 235
Net interest income after provision
for credit losses 2,176 (750) (26) 2,926 (28) (1) 2,954
Mortgage banking income 366 199 119 167 59 55 108
Service charges on deposit accounts 301 (71) (19) 372 8 2 364
Card and payment processing income 248 2 1 246 22 10
224
Trust and investment management services 189 11 6 178 7 4 171 Capital markets fees 125 2 2 123 15 14 108 Insurance income 97 9 10 88 6 7 82 Bank owned life insurance income 64 (2) (3) 66 (1) (1) 67 Gain on sale of loans 42 (13) (24) 55 - - 55 Net (losses) gains on sales of securities (1) 23 96 (24) (3) (14) (21) Other noninterest income 160 (23) (13) 183 20 12 163 Total noninterest income 1,591 137 9 1,454 133 10 1,321 Personnel costs 1,692 38 2 1,654 95 6 1,559 Outside data processing and other services 384 38 11 346 52 18 294 Equipment 180 17 10 163 (1) (1) 164 Net occupancy 158 (1) (1) 159 (25) (14) 184 Professional services 55 1 2 54 (6) (10) 60 Amortization of intangibles 41 (8) (16) 49 (4) (8) 53 Marketing 38 1 3 37 (16) (30) 53 Deposit and other insurance expense 32 (2) (6) 34 (29) (46) 63 Other noninterest expense 215 (10) (4) 225 8 4 217 Total noninterest expense 2,795 74 3 2,721 74 3 2,647 Income before income taxes 972 (687) (41) 1,659 31 2 1,628 Provision for income taxes 155 (93) (38) 248 13 6 235 Net income 817 (594) (42) 1,411 18 1 1,393 Dividends on preferred shares 100 26 35 74 4 6 70 Net income applicable to common shares$ 717 $ (620) (46) %$ 1,337 $ 14 1 %$ 1,323 Average common shares-basic 1,017 (22) (2) % 1,039 (43) (4) % 1,082 Average common shares-diluted 1,033 (23) (2) 1,056 (50) (5) 1,106 Per common share: Net income-basic$ 0.71 $ (0.58) (45) %$ 1.29 $ 0.07 6 %$ 1.22 Net income-diluted 0.69 (0.58) (46) 1.27 0.07 6 1.20 Cash dividends declared 0.60 0.02 3 0.58 0.08 16 0.50 Revenue-FTE Net interest income$ 3,224 $ 11 - %$ 3,213 $ 24 1 %$ 3,189 FTE adjustment 21 (5) (19) 26 (4) (13) 30 Net interest income(1) 3,245 6 - 3,239 20 1 3,219 Noninterest income 1,591 137 9 1,454 133 10 1,321 Total revenue(1)$ 4,836 $ 143 3 %$ 4,693 $ 153 3 %$ 4,540
(1) On a fully-taxable equivalent (FTE) basis assuming a 21% tax rate.
49Huntington Bancshares Incorporated -------------------------------------------------------------------------------- Table of Contents DISCUSSION OF RESULTS OF OPERATIONS This section provides a review of financial performance from a consolidated perspective. Key consolidated balance sheet and income statement 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 ." For a discussion of our results of operations for 2019 versus 2018, see "Part II, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations" Discussion of Results of Operations included in our 2019 Form 10-K, filed with theSEC onFebruary 14, 2020 . Net Interest Income / Average Balance Sheet Our primary source of revenue is net interest income, which is the difference between interest income from earning assets (primarily loans, securities, and direct financing leases), and interest expense of funding sources (primarily interest-bearing deposits and borrowings). Earning asset balances and related funding sources, as well as changes in the levels of interest rates, impact net interest income. The difference between the average yield on earning assets and the average rate paid for interest-bearing liabilities is the net interest spread. Noninterest-bearing sources of funds, such as demand deposits and shareholders' equity, also support earning assets. The impact of the noninterest-bearing sources of funds, often referred to as "free" funds, is captured in the net interest margin, which is calculated as net interest income divided by average earning assets. Both the net interest margin and net interest spread are presented on a fully-taxable equivalent basis, which means that tax-free interest income has been adjusted to a pretax equivalent income, assuming a 21% tax rate. The following table shows changes in fully-taxable equivalent interest income, interest expense, and net interest income due to volume and rate variances for major categories of earning assets and interest-bearing liabilities: Table 2 - Change in Net Interest Income Due to Changes in Average Volume and Interest Rates (1) 2020 2019 Increase (Decrease) From Increase (Decrease) From (dollar amounts in millions) Previous Year Due To Previous Year Due To Yield/ Yield/ Fully-taxable equivalent basis (2) Volume Rate Total Volume Rate Total Loans and leases$ 200 $ (655) $ (455) $ 127 $ 108 $ 235 Investment securities 23 (122) (99) (12) 10 (2) Other earning assets 50 (55) (5) 20 (5) 15 Total interest income from earning assets 273 (832) (559) 135 113 248 Deposits 38 (425) (387) 17 177 194 Short-term borrowings (21) (20) (41) (6) 12 6 Long-term debt 6 (143) (137) 12 16 28 Total interest expense of interest-bearing liabilities 23 (588) (565) 23 205 228 Net interest income$ 250 $ (244) $ 6 $ 112 $ (92) $ 20 (1)The change in interest income or expense due to both rate and volume has been allocated between the factors in proportion to the relationship of the absolute dollar amounts of the change in each. (2)Calculated assuming a 21% tax rate. 2020 Form 10-K 50 -------------------------------------------------------------------------------- Table of Contents Table 3 - Consolidated Average Balance Sheet and Net Interest Margin Analysis (dollar amounts in millions) Average Balances Change from 2019 Change from 2018 Fully-taxable equivalent basis (1) 2020 Amount Percent 2019 Amount Percent 2018
Assets
Interest-bearing deposits in Federal Reserve Bank (2)$ 3,874 $ 3,322 602 %$ 552 $ 430 352 %$ 122 Interest-bearing deposits in banks 176 34 24 142 54 61 88 Securities: Trading account securities 59 (77) (57) 136 40 42 96 Available-for-sale securities: Taxable 11,392 498 5 10,894 194 2 10,700 Tax-exempt 2,735 (172) (6) 2,907 (556) (16) 3,463 Total available-for-sale securities 14,127 326 2 13,801 (362) (3)
14,163
Held-to-maturity securities-taxable 9,248 603 7 8,645 2 - 8,643 Other securities 443 (28) (6) 471 (113) (19) 584 Total securities 23,877 824 4 23,053 (433) (2) 23,486 Loans held for sale 1,121 305 37 816 181 29 635 Loans and leases: (3) Commercial: Commercial and industrial 33,917 3,368 11 30,549 1,662 6 28,887 Commercial real estate: Construction 1,156 (15) (1) 1,171 25 2 1,146 Commercial 5,898 196 3 5,702 (347) (6) 6,049 Commercial real estate 7,054 181 3 6,873 (322) (4) 7,195 Total commercial 40,971 3,549 9 37,422 1,340 4 36,082 Consumer: Automobile loans and leases 12,838 495 4 12,343 51 - 12,292 Home equity 8,930 (486) (5) 9,416 (499) (5) 9,915 Residential mortgage 11,694 607 5 11,087 1,180 12 9,907 RV and marine 3,876 425 12 3,451 604 21 2,847 Other consumer 1,086 (173) (14) 1,259 56 5 1,203 Total consumer 38,424 868 2 37,556 1,392 4 36,164 Total loans and leases 79,395 4,417 6 74,978 2,732 4 72,246 Allowance for loan and lease losses (1,581) (795) (101) (786) (39) (5) (747) Net loans and leases 77,814 3,622 5 74,192 2,693 4 71,499 Total earning assets 108,443 8,902 9 99,541 2,964 3 96,577 Cash and due from banks 1,124 282 33 842 (342) (29) 1,184 Intangible assets 2,201 (45) (2) 2,246 (65) (3) 2,311 All other assets 7,045 917 15 6,128 471 8 5,657 Total assets$ 117,232 $ 9,261 9 %$ 107,971 $ 2,989 3 %$ 104,982 Liabilities and Shareholders' Equity Interest-bearing deposits: Demand deposits-interest-bearing$ 23,514 $ 3,656 18 %$ 19,858 $ 563 3 %$ 19,295 Money market deposits 25,695 1,923 8 23,772 2,326 11 21,446 Savings and other domestic deposits 10,720 804 8 9,916 (1,167) (11)
11,083
Core certificates of deposit (4) 2,610 (2,980) (53) 5,590 1,402 33 4,188 Other domestic time deposits of$250,000 or more 216 (103) (32) 319 39 14 280 Brokered time deposits and negotiable CDs 3,822 1,006 36 2,816 (687) (20) 3,503 Total interest-bearing deposits 66,577 4,306 7 62,271 2,476 4 59,795 Short-term borrowings 1,147 (1,297) (53) 2,444 (304) (11) 2,748 Long-term debt 9,496 164 2 9,332 340 4 8,992 Total interest-bearing liabilities 77,220 3,173 4 74,047 2,512 4
71,535
Demand deposits-noninterest-bearing 25,336 5,275 26 20,061 (330) (2) 20,391 All other liabilities 2,373 70 3 2,303 306 15 1,997 Shareholders' equity 12,303 743 6 11,560 501 5 11,059
Total liabilities and shareholders' equity
9 %$ 107,971 $ 2,989 3
%
(1)FTE yields are calculated assuming a 21% tax rate. (2)Deposits inFederal Reserve Bank were treated as non-earning assets prior to 4Q 2018. (3)For purposes of this analysis, nonaccrual loans are reflected in the average balances of loans. (4)Includes consumer certificates of deposit of$250,000 or more 51Huntington Bancshares Incorporated -------------------------------------------------------------------------------- Table of Contents Table 3 - Consolidated Average Balance Sheet and Net Interest Margin Analysis (Continued) (dollar amounts in millions) Interest Income / Expense Average Rate (5) Fully-taxable equivalent basis (1) 2020 2019 2018 2020 2019 2018
Assets
Interest-bearing deposits in Federal Reserve Bank (2)$ 6 $ 12 $ 3 0.15 % 2.12 % 2.33 % Interest-bearing deposits in banks 1 3 2 0.47 2.01 1.97 Securities: Trading account securities 2 3 1 3.10 2.17 0.80 Available-for-sale securities: Taxable 237 295 280 2.08 2.71 2.61 Tax-exempt 77 105 122 2.84 3.61 3.53 Total available-for-sale securities 314 400 402 2.23 2.90
2.84
Held-to-maturity securities-taxable 216 218 211 2.33 2.52 2.44 Other securities 6 16 25 1.41 3.47 4.34 Total securities 538 637 639 2.25 2.76 2.72 Loans held for sale 34 31 26 3.06 3.76 4.15 Loans and leases: (3) Commercial: Commercial and industrial 1,290 1,441 1,337 3.80 4.72 4.63 Commercial real estate: Construction 44 64 60 3.84 5.51 5.26 Commercial 181 273 283 3.07 4.79 4.67 Commercial real estate 225 337 343 3.19 4.91 4.77 Total commercial 1,515 1,778 1,680 3.70 4.75 4.66 Consumer: Automobile loans and leases 504 500 456 3.93 4.05 3.71 Home equity 358 508 512 4.01 5.40 5.16 Residential mortgage 406 422 371 3.47 3.81 3.74 RV and marine 181 171 145 4.68 4.95 5.09 Other consumer 125 165 145 11.48 13.11 12.04 Total consumer 1,574 1,766 1,629 4.10 4.70 4.50 Total loans and leases 3,089 3,544 3,309 3.89 4.73 4.58 Total earning assets$ 3,668 $ 4,227 $ 3,979 3.38 % 4.25 % 4.12 % Liabilities and Shareholders' Equity Interest-bearing deposits: Demand deposits-interest-bearing$ 32 $ 116 $ 78 0.14 % 0.58 % 0.40 % Money market deposits 100 260 148 0.39 1.09 0.69 Savings and other domestic deposits 10 22 24 0.09 0.22
0.22
Core certificates of deposit (4) 38 119 72 1.44 2.13
1.72
Other domestic time deposits of$250,000 or more 3 7 3 1.18 1.82
1.25
Brokered time deposits and negotiable CDs 15 61 66 0.38 2.18
1.88
Total interest-bearing deposits 198 585 391 0.30 0.94 0.65 Short-term borrowings 13 54 48 1.18 2.23 1.74 Long-term debt 212 349 321 2.24 3.74 3.57 Total interest-bearing liabilities 423 988 760 0.55 1.34 1.06 Net interest income$ 3,245 $ 3,239 $ 3,219 Net interest rate spread 2.83 2.91 3.06 Impact of noninterest-bearing funds on margin 0.16 0.35 0.27 Net interest margin 2.99 % 3.26 % 3.33 % (1)FTE yields are calculated assuming a 21% tax rate. (2)Deposits inFederal Reserve Bank were treated as non-earning assets prior to 4Q 2018. (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)Average rates include the impact of applicable derivatives. Loan and lease and deposit average rates also include impact of applicable non-deferrable and amortized fees. 2020 Form 10-K 52
-------------------------------------------------------------------------------- Table of Contents 2020 versus 2019 Fully-taxable equivalent net interest income for 2020 increased$6 million from 2019. The increase reflects the benefit of a$8.9 billion , or 9%, increase in average total earning assets partially offset by a 27 basis point decrease in the FTE NIM to 2.99%. Average earning assets for 2020 increased$8.9 billion , or 9%, from the prior year, reflecting loan growth of$4.4 billion , or 6% and an increase of$3.3 billion or 602% in interest-bearing deposits at theFederal Reserve Bank . Average loans and leases increased$4.4 billion , or 6%, primarily reflecting an increase of$3.5 billion in average commercial loans, primarily PPP loans, and an increase in average residential mortgage loans and RV and marine loans. Average total interest-bearing liabilities increased$3.2 billion , reflecting an increase in average total interest-bearing deposits of$4.3 billion , or 7%, partially offset by a$1.3 billion or 53%, decrease in shortterm borrowings. The increase in average in interest bearing deposits was primarily driven by business and commercial growth related to the PPP loans and increased liquidity levels in reaction to the economic downturn, consumer growth largely related to government stimulus, increased consumer and business banking account production, and reduced attrition. Specifically within core deposits, average total interest bearing demand deposits increased$3.7 billion , or 18%, and average money market deposits increased$1.9 billion , or 8%. These increases were partially offset by a decrease in average core CDs of$3.0 billion , or 53% reflecting the maturity of balances related to the 2018 consumer deposit growth initiatives. Brokered deposits and negotiable CDs increased$1.0 billion or 36%, reflecting balance growth in new and existing brokered deposit accounts. The NIM compression reflected an 87 basis point decline in average earning asset yields, a 19 basis point decline in the benefit from noninterest-bearing funds, partially offset by a 79 basis point decrease in average funding costs. The decline in average earning asset yields is primarily due to lower interest rates on loans (down 84 basis points), a decline in securities yields and elevated deposits at theFederal Reserve Bank . The decline in average funding costs is primarily driven by lower cost of interest-bearing deposits (down 64 basis points) and long-term debt (down 150 basis points). 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 in 2020 was$1.0 billion , up$761 million , or 265%, from 2019. The increase in provision expense over the prior year was primarily attributed to the deterioration in the macroeconomic environment resulting from the COVID-19 pandemic and risk rating downgrades within the commercial portfolio. 53Huntington Bancshares Incorporated -------------------------------------------------------------------------------- Table of Contents Noninterest Income The following table reflects noninterest income for each of the periods presented: Table 4 - Noninterest Income Year Ended December 31, (dollar amounts in millions) Change from 2019 Change from 2018 2020 Amount Percent 2019 Amount Percent 2018 Mortgage banking income$ 366 $ 199 119 %$ 167 $ 59 55 %$ 108 Service charges on deposit accounts 301 (71) (19) 372 8 2 364 Card and payment processing income 248 2 1 246 22 10 224 Trust and investment management services 189 11 6 178 7 4 171 Capital markets fees 125 2 2 123 15 14 108 Insurance income 97 9 10 88 6 7 82 Bank owned life insurance income 64 (2) (3) 66 (1) (1) 67 Gain on sale of loans 42 (13) (24) 55 - - 55 Net (losses) gains on sales of securities (1) 23 96 (24) (3) (14) (21) Other noninterest income 160 (23) (13) 183 20 12 163 Total noninterest income$ 1,591 $ 137 9 %$ 1,454 $ 133 10 %$ 1,321 2020 versus 2019 Noninterest income was$1.6 billion , up$137 million , or 9%, from the prior year. Mortgage banking income increased$199 million , or 119%, primarily reflecting higher secondary marketing spreads and an increase in salable mortgage originations. Trust and investment management income increased$11 million due to an increase in investment management account fees and an increase in personal trust income reflecting strong sales activities and market performance. While there were no material gains or losses on sales of securities in the current year, 2019 included$22 million of net losses related to the$2 billion portfolio repositioning. Offsetting these increases, service charges on deposit accounts decreased$71 million , or 19%, primarily reflecting reduced customer activity and elevated deposits. Gains on the sale of loans decreased$13 million , or 24%, due largely to a decline in SBA sales gains. Other noninterest income decreased$23 million , or 13%, reflecting several notable items impacting both periods as well as lower fixed income brokerage revenue, lower deposit placement fees and operating lease income. Notable items in 2020 included a$13 million gain on the annuitization of a retiree health plan and a$5 million gain on the sale of the retirement plan services recordkeeping business whereas 2019 included a$14 million gain from the sale ofWisconsin retail branches. 2020 Form 10-K 54 -------------------------------------------------------------------------------- Table of Contents Noninterest Expense
The following table reflects noninterest expense for each of the periods presented:
Table 5 - Noninterest Expense
Year Ended December 31,
(dollar amounts in millions) Change from 2019 Change from 2018
2020 Amount Percent 2019 Amount Percent 2018
Personnel costs $ 1,692 $ 38 2 % $ 1,654 $ 95 6 % $ 1,559
Outside data processing and
other services 384 38 11 346 52 18 294
Equipment 180 17 10 163 (1) (1) 164
Net occupancy 158 (1) (1) 159 (25) (14) 184
Professional services 55 1 2 54 (6) (10) 60
Amortization of intangibles 41 (8) (16) 49 (4) (8) 53
Marketing 38 1 3 37 (16) (30) 53
Deposit and other insurance
expense 32 (2) (6) 34 (29) (46) 63
Other noninterest expense 215 (10) (4) 225 8 4 217
Total noninterest expense $ 2,795 $ 74 3 % $ 2,721 $ 74 3 % $ 2,647
Number of employees (average
full-time equivalent) 15,578 (86) (1) % 15,664 (29) - % 15,693
2020 versus 2019
Noninterest expense was $2.8 billion , up $74 million , or 3%, from the prior
year. Personnel costs increased $38 million , or 2%, primarily reflecting
increased salaries, incentives, commissions, contract help and overtime expense
partially offset by lower payroll taxes. Outside data processing and other
services increased $38 million , or 11%, primarily driven by expenses related to
technology investments. Equipment expense increased $17 million driven by
increased depreciation and software development expense. Other noninterest
expense decreased $10 million , or 4%, primarily as a result of a $23 million
decrease in travel and business development expense and a $7 million insurance
recovery in third quarter 2020. These decreases were partially offset by the $7
million of expense related to the November 2020 debt tender and a $20 million
donation to The Columbus Foundation compared to a $5 million donation during
2019.
Provision for Income Taxes
(This section should be read in conjunction with Note 1 - " Significant
Accounting Policies " and Note 19 - " Income Taxes " of the Notes to
Consolidated Financial Statements.)
2020 versus 2019
The provision for income taxes was $155 million for 2020 compared with a
provision for income taxes of $248 million in 2019. The effective tax rates for
2020 and 2019 were 15.9% and 15.0%, respectively. Both years included the
benefits from tax-exempt income, tax-advantaged investments, general business
credits, investments in qualified affordable housing projects, excess tax
deductions for stock-based compensation, and capital losses.
As of December 31, 2020 and 2019 there was no valuation allowance on federal
deferred taxes. In 2020, a $5 million increase in the provision for state income
taxes, net of federal, was recorded for the portion of state deferred tax assets
that are not more likely than not to be realized, compared to 2019, where there
was essentially no change.
RISK MANAGEMENT AND CAPITAL
Risk Governance
We use a multi-faceted approach to risk governance. It begins with the Board of
Directors defining our risk appetite as aggregate moderate-to-low. This does not
preclude engagement in select higher risk activities. Rather, the definition is
intended to represent an aggregate view of where we want our overall risk to be
managed.
55 Huntington Bancshares Incorporated
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Table of Contents
Three board committees primarily oversee implementation of this desired risk
appetite and monitoring of our risk profile:
•The Audit Committee oversees the integrity of the consolidated financial
statements, including policies, procedures, and practices regarding the
preparation of financial statements, the financial reporting process,
disclosures, and internal control over financial reporting. The Audit Committee
also provides assistance to the board in overseeing the internal audit division
and the independent registered public accounting firm's qualifications and
independence; compliance with our Financial Code of Ethics for the chief
executive officer and senior financial officers; and compliance with corporate
securities trading policies.
•The Risk Oversight Committee assists the board of directors in overseeing
management of material risks, the approval and monitoring of the Company's
capital position and plan supporting our overall aggregate moderate-to-low risk
profile, the risk governance structure, compliance with applicable laws and
regulations, and determining adherence to the board's stated risk appetite. The
committee has oversight responsibility with respect to the full range of
inherent risks: credit, market, liquidity, legal, compliance/regulatory,
operational, strategic, and reputational. The ROC provides assistance to the
Board in overseeing the credit review division. This committee also oversees our
capital management and planning process, ensures that the amount and quality of
capital are adequate in relation to expected and unexpected risks, and that our
capital levels exceed "well-capitalized" requirements.
•The Technology Committee assists the board of directors in fulfilling its
oversight responsibilities with respect to all technology, cyber security, and
third-party risk management strategies and plans. The committee is charged with
evaluating Huntington's capability to properly perform all technology functions
necessary for its business plan, including projected growth, technology
capacity, planning, operational execution, product development, and management
capacity. The committee provides oversight of technology investments and plans
to drive efficiency as well as to meet defined standards for risk, information
security, and redundancy. The Committee oversees the allocation of technology
costs and ensures that they are understood by the board of directors. The
Technology Committee monitors and evaluates innovation and technology trends
that may affect the Company's strategic plans, including monitoring of overall
industry trends. The Technology Committee reviews and provides oversight of the
Company's continuity and disaster recovery planning and preparedness.
The Audit and Risk Oversight Committees routinely hold executive sessions with
our key officers engaged in accounting and risk management. On a periodic basis,
the two committees meet in joint session to cover matters relevant to both, such
as the construct and appropriateness of the ACL, which is reviewed quarterly.
All directors have access to information provided to each committee and all
scheduled meetings are open to all directors.
The Risk Oversight and Technology Committees routinely hold joint sessions to
cover matters relevant to both such as cybersecurity and IT risk and control
projects and risk assessments.
Further, through its Compensation Committee, the board of directors seeks to
ensure its system of rewards is risk-sensitive and aligns the interests of
management, creditors, and shareholders. We utilize a variety of
compensation-related tools to induce appropriate behavior, including common
stock ownership thresholds for the chief executive officer and certain members
of senior management, a requirement to hold until retirement or exit from the
Company, a portion of net shares received upon exercise of stock options or
release of restricted stock awards (50% for executive officers and 25% for other
award recipients), equity deferrals, recoupment provisions, and the right to
terminate compensation plans at any time.
Management has implemented an Enterprise Risk Management and Risk Appetite
Framework. Critically important is our self-assessment process, in which each
business segment produces an analysis of its risks and the strength of its risk
controls. The segment analyses are combined with assessments by our risk
management organization of major risk sectors (e.g., credit, market, liquidity,
operational, compliance, strategic, and reputation) to produce an overall
enterprise risk assessment. Outcomes of the process include a determination of
the quality of the overall control process, the direction of risk, and our
position compared to the defined risk appetite.
Management also utilizes a wide series of metrics (key risk indicators) to
monitor risk positions throughout the Company. In general, a range for each
metric is established, which allows the Company, in aggregate, to operate
2020 Form 10-K 56
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within an aggregate moderate-to-low risk profile. Deviations from the range will
indicate if the risk being measured exceeds desired tolerance, which may then
necessitate corrective action.
We also have four executive level committees to manage risk: ALCO, Credit Policy
and Strategy, Risk Management, and Capital Management. Each committee focuses on
specific categories of risk and is supported by a series of subcommittees that
are tactical in nature. We believe this structure helps ensure appropriate
escalation of issues and overall communication of strategies.
Huntington utilizes three lines of defense with regard to risk management:
(1) business segments, (2) corporate risk management, and (3) internal audit and
credit review. To induce greater ownership of risk within its business segments,
segment risk officers have been embedded in the business to identify and monitor
risk, elevate and remediate issues, establish controls, perform self-testing,
and oversee the self-assessment process. Corporate Risk Management establishes
policies, sets operating limits, reviews new or modified products/processes,
ensures consistency and quality assurance within the segments, and produces the
enterprise risk assessment. The Chief Risk Officer has significant input into
the design and outcome of incentive compensation plans as they apply to risk.
Internal Audit and Credit Review provide additional assurance that risk-related
functions are operating as intended.
A comprehensive discussion of risk management and capital matters affecting us
can be found in the Risk Factors section included in Item 1A: Risk Factors and
the " Regulatory Matters " section of Item 1: Business of this Form 10-K.
Some of the more significant processes used to manage and control credit,
market, liquidity, operational, and compliance risks are described in the
following sections.
Credit Risk
Credit risk is the risk of financial loss if a counterparty is not able to meet
the agreed upon terms of the financial obligation. The majority of our credit
risk is associated with lending activities, as the acceptance and management of
credit risk is central to profitable lending. We also have credit risk
associated with our investment securities portfolios (see Note 4 - " Investment
Securities and Other Securities " of the Notes to Consolidated Financial
Statements). We engage with other financial counterparties for a variety of
purposes including investing, asset and liability management, mortgage banking,
and trading activities. A variety of derivative financial instruments,
principally interest rate swaps, caps, floors, and collars, are used in asset
and liability management activities to protect against the risk of adverse price
or interest rate movements. Huntington also uses derivatives, principally loan
sale commitments, in hedging its mortgage loan interest rate lock commitments
and its mortgage loans held for sale. While there is credit risk associated with
derivative activity, we believe this exposure is minimal. (See Note 1 -
" Significant Accounting Policies " of the Notes to Consolidated Financial
Statements.)
We focus on the early identification, monitoring, and management of all aspects
of our credit risk. In addition to the traditional credit risk mitigation
strategies of credit policies and processes, market risk management activities,
and portfolio diversification, we use quantitative measurement capabilities
utilizing external data sources, enhanced modeling technology, and internal
stress testing processes. Our continued ongoing expansion of portfolio
management resources is central to our our commitment to maintaining an
aggregate moderate-to-low risk profile. In our efforts to identify risk
mitigation techniques, we have focused on product design features, origination
policies, and solutions for delinquent or stressed borrowers.
The maximum level of credit exposure to individual credit borrowers is limited
by policy guidelines based on the perceived risk of each borrower or related
group of borrowers. All authority to grant commitments sits with the independent
credit administration function and is closely monitored and regularly updated.
Concentration risk is managed through limits on loan type, geography, industry,
and loan quality factors. We focus predominantly on extending credit to retail
and commercial customers with existing or expandable relationships within our
primary banking markets, although we will consider lending opportunities outside
our primary markets if we believe the associated risks are acceptable and
aligned with strategic initiatives. Although we offer a broad set of products,
we continue to develop new lending products and opportunities. Each of these new
products and opportunities goes through a rigorous development and approval
process prior to implementation to ensure our overall objective of maintaining
an aggregate moderate-to-low risk portfolio profile.
57 Huntington Bancshares Incorporated
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The checks and balances in the credit process and the separation of the credit
administration and risk management functions are designed to appropriately
assess and sanction the level of credit risk being accepted, facilitate the
early recognition of credit problems when they occur, and provide for effective
problem asset management and resolution. For example, we do not extend
additional credit to delinquent borrowers except in certain circumstances that
substantially improve our overall repayment or collateral coverage position.
Over the course of 2020, we have assessed the impact of COVID-19 on our loan
portfolio as we would with any natural disaster or significant economic decline.
Huntington proactively addressed the situation by offering our customers payment
deferrals and the suspension of late fees, while also suspending repossession
and foreclosures. We believe that these decisions were prudent due to the
widespread impact economic conditions had on both commercial and consumer
borrowers. During the third quarter, we re-instated late fees and repossessions,
while continuing to offer payment help to impacted borrowers. The longer term
impact of our response is dependent upon a number of variables, including the
prolonged impact of the COVID-19 virus and its impact on the economic recovery.
Continued weakness in the labor market could lead to increased delinquencies and
defaults in our consumer portfolio. Additionally, increased economic
deterioration could lead to elevated default rates in our Commercial portfolio,
specifically industries highly impacted by COVID-19.
Huntington initiated a customer centric payment deferral plan in mid-March 2020 .
The response across the consumer portfolios was immediate, with substantial
deferral activity across the portfolio in March and April. Our commercial loan
deferral activity was initiated in April and May. The vast majority of the
deferrals granted to our customers, both commercial and consumer, have expired
with positive subsequent payment patterns. The remaining deferrals in the
consumer portfolios are centered in the residential portfolio, consistent with
the generally longer-term payment deferral time frames. The post deferral
performance to date for the consumer portfolios has been positive. Our customer
assistance teams remain well positioned to continue to help our consumer
customers who have been impacted by the current economic conditions. The
commercial deferrals were primarily 90 days in length and began to expire in the
third quarter of 2020 as expected. For commercial borrowers requiring additional
modifications to existing terms and conditions, expiring deferrals were replaced
with modified terms and conditions, including payment terms in some instances,
to the extent appropriate, as we continue to work with our customers.
The table below summarizes our deferral activity as of December 31, 2020 ,
September 30, 2020 , and June 30, 2020 under our COVID-19-related forbearance and
other customer accommodation programs that are guided by the CARES Act.
Table 6 - Loan and Lease Portfolio Deferrals
December 31, 2020 September 30, 2020 June 30, 2020
Deferred Deferred % of Deferred Deferred % of Deferred Deferred % of
(dollar amounts in millions) # of Loans Balance Portfolio # of Loans Balance Portfolio # of Loans Balance Portfolio
Commercial:
Commercial and industrial 331$ 75 - % 429$ 431 1 % 5,584$ 3,186 9 % Commercial real estate: Construction 1 - - % 8 40 3 % 27 90 8 % Commercial 18 76 1 % 77 471 8 % 536 1,719 29 % Commercial real estate 19 76 1 % 85 511 7 % 563 1,809 25 % Total commercial 350 151 - % 514 942 2 % 6,147 4,995 12 % Consumer: Automobile 348 5 - % 1,226 20 - % 21,984 426 3 % Home equity 196 15 - % 627 49 1 % 3,321 267 3 % Residential mortgage (1) 967 150 1 % 2,121 411 3 % 3,322 1,002 9 % RV and marine 15 1 - % 88 4 - % 2,200 117 3 % Other consumer 3 - - % 169 1 - % 1,336 12 1 % Total consumer 1,529 171 - % 4,231 485 1 % 32,163 1,824 5 % Total loans and leases 1,879$ 322 - % 4,745$ 1,427 2 % 38,310$ 6,819 9 % (1) Residential mortgage deferrals include GNMA serviced loans that entered forbearance and then subsequently were bought out of the pool: 750 loans for$108 million atDecember 31, 2020 and 1,272 loans for$178 million atSeptember 30, 2020 . 2020 Form 10-K 58 -------------------------------------------------------------------------------- Table of Contents Loan and Lease Credit Exposure Mix AtDecember 31, 2020 , our loans and leases totaled$81.6 billion , representing a$6.2 billion , or 8%, increase compared to$75.4 billion atDecember 31, 2019 . Total commercial loans and leases were$42.6 billion atDecember 31, 2020 , and represented 52% of our total loan and lease credit exposure. Our commercial loan portfolio is diversified by product type, customer size, and geography within our footprint, and is comprised of the following (see Commercial Credit discussion): C&I - C&I loans and leases are made to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, or other projects. We focus on borrowers doing business within our geographic regions. C&I loans and leases are generally underwritten individually and secured with the assets of the company and/or the personal guarantee of the business owners. The financing of owner-occupied facilities is considered a C&I loan even though there is improved real estate as collateral. This treatment is a result of the credit decision process, which focuses on cash flow from operations of the business to repay the debt. The operation, sale, rental, or refinancing of the real estate is not considered the primary repayment source for these types of loans. As we have expanded our C&I portfolio, we have developed a series of "vertical specialties" to ensure that new products or lending types are embedded within a structured, centralized Commercial Lending area with designated, experienced credit officers. These specialties are comprised of either targeted industries (for example, Healthcare, Food & Agribusiness, Finance and Insurance, etc.) and/or lending disciplines (Equipment Finance, Asset Based Lending, etc.), all of which requires a high degree of expertise and oversight to effectively mitigate and monitor risk. As such, we have dedicated colleagues and teams focused on bringing value-added expertise to these specialty clients. CRE - CRE loans consist of loans to developers and REITs supporting income-producing or for-sale commercial real estate properties. We mitigate our risk on these loans by requiring collateral values that exceed the loan amount and underwriting the loan with projected cash flow in excess of the debt service requirement. These loans are made to finance properties such as apartment buildings, office and industrial buildings, and retail shopping centers, and are repaid through cash flows related to the operation, sale, or refinance of the property. For loans secured by real estate, appropriate appraisals are obtained at origination and updated on an as needed basis in compliance with regulatory requirements. Construction CRE - Construction CRE loans are loans to developers, companies, or individuals used for the construction of a commercial or residential property for which repayment will be generated by the sale or permanent financing of the property. Our construction CRE portfolio primarily consists of retail, multi-family, office, and warehouse project types. Generally, these loans are for construction projects that have been pre-sold or pre-leased, or have secured permanent financing, as well as loans to real estate companies with significant equity invested in each project. These loans are underwritten and managed by a specialized real estate lending group that actively monitors the construction phase and manages the loan disbursements according to the predetermined construction schedule. Total consumer loans and leases were$39.0 billion atDecember 31, 2020 , and represented 48% of our total loan and lease credit exposure. The consumer portfolio is comprised primarily of automobile loans, home equity lines-of-credit, residential mortgages, and RV and marine finance (see Consumer Credit discussion). Automobile - Automobile loans are comprised primarily of loans made through automotive dealerships and include exposure in selected states outside of our primary banking markets. The exposure outside of our core footprint states represents 27% of the total exposure, with no individual state representing more than 6%. Applications are underwritten using an automated underwriting system that applies consistent policies and processes across the portfolio. Home equity - Home equity lending includes both home equity loans and lines-of-credit. This type of lending, which is secured by a first-lien or junior-lien on the borrower's residence, allows customers to borrow against the equity in their home or refinance existing mortgage debt. Products include closed-end loans which are generally fixed-rate with principal and interest payments, and variable-rate, interest-only lines-of-credit which do not require payment of principal during the 10-year revolving period. The home equity line of credit converts to a 20-year amortizing structure at the end of the revolving period. Applications are underwritten centrally in conjunction with an automated underwriting system. The home equity underwriting criteria is based on 59Huntington Bancshares Incorporated -------------------------------------------------------------------------------- Table of Contents minimum credit scores, debt-to-income ratios, and LTV ratios, with current collateral valuations. The underwriting for the floating rate lines of credit also incorporates a stress analysis for rising interest rates. Residential mortgage - Residential mortgage loans represent loans to consumers for the purchase or refinance of a residence. These loans are generally financed over a 15-year to 30-year term, and in most cases, are extended to borrowers to finance their primary residence. Applications are underwritten centrally using consistent credit policies and processes. All residential mortgage loan decisions utilize a full appraisal for collateral valuation.Huntington has not originated or acquired residential mortgages that allow negative amortization or allow the borrower multiple payment options. RV and marine - RV and marine loans are loans provided to consumers for the purpose of financing recreational vehicles and boats. Loans are originated on an indirect basis through a series of dealerships across 34 states. The loans are underwritten centrally using an application and decisioning system similar to automobile loans. The current portfolio includes 23% of the balances within our core footprint states. Other consumer - Other consumer loans primarily consists of consumer loans not secured by real estate, including credit cards, personal unsecured loans, and overdraft balances. We originate these products within our established set of credit policies and guidelines. The table below provides the composition of our total loan and lease portfolio: Table 7 - Loan and Lease Portfolio Composition At December 31, (dollar amounts in millions) 2020 2019 2018 2017 2016 Commercial: Commercial and industrial$ 35,373 43 %$ 30,664 41 %$ 30,605 41 %$ 28,107 40 %$ 28,059 42 % Commercial real estate: Construction 1,035 1 1,123 1 1,185 2 1,217 2 1,446 2 Commercial 6,164 8 5,551 7 5,657 8 6,008 9 5,855 9 Commercial real estate 7,199 9 6,674 8 6,842 10 7,225 11 7,301 11 Total commercial 42,572 52 37,338 49 37,447 51 35,332 51 35,360 53 Consumer: Automobile 12,778 16 12,797 17 12,429 16 12,100 17 10,969 16 Home equity 8,894 11 9,093 12 9,722 13 10,099 14 10,106 15 Residential mortgage 12,141 15 11,376 15 10,728 14 9,026 13 7,725 12 RV and marine 4,190 5 3,563 5 3,254 4 2,438 3 1,846 3 Other consumer 1,033 1 1,237 2 1,320 2 1,122 2 956 1 Total consumer 39,036 48 38,066 51 37,453 49 34,785 49 31,602 47 Total loans and leases$ 81,608 100 %$ 75,404 100 %$ 74,900 100 %$ 70,117 100 %$ 66,962 100 % Our loan portfolio is a managed mix of consumer and commercial credits. At the corporate level, we manage the overall credit exposure and portfolio composition via a credit concentration policy. The policy designates specific loan types, collateral types, and loan structures to be formally tracked and assigned maximum exposure limits as a percentage of capital. C&I lending by NAICS categories, specific limits for CRE project types, loans secured by residential real estate, large dollar exposures, and designated high risk loan categories represent examples of specifically tracked components of our concentration management process. There are no identified concentrations that exceed the assigned exposure limit. Our concentration management policy is approved by the ROC of the Board of Directors and is used to ensure a high quality, well diversified portfolio that is consistent with our overall objective of maintaining an aggregate moderate-to-low risk profile. Changes to existing concentration limits, incorporating specific information relating to the potential impact on the overall portfolio composition and performance metrics, require the approval of the ROC prior to implementation. 2020 Form 10-K 60 -------------------------------------------------------------------------------- Table of Contents The table below provides our total loan and lease portfolio segregated by industry type. The changes in the industry composition fromDecember 31, 2019 are consistent with the portfolio growth metrics. Table 8 - Loan and Lease Portfolio by Industry Type (dollar amounts in millions) December 31, 2020 December 31, 2019 PPP Loans Total Loans (2) Commercial loans and leases: Real estate and rental and leasing$ 192 $ 6,962 9 %$ 6,662 9 % Manufacturing 826 5,556 7 5,248 7 Retail trade (1) 631 5,111 6 5,239 7 Health care and social assistance 801 3,646 4 2,498 3 Finance and insurance 123 3,389 4 3,307 4 Accommodation and food services 781 3,100 4 2,072 3 Wholesale trade 374 2,652 3 2,437 3 Professional, scientific, and technical services 704 2,051 3 1,360 2 Other services 312 1,613 2 1,310 2 Transportation and warehousing 184 1,401 2 1,207 2 Construction 586 1,389 2 900 1 Admin./Support/Waste Mgmt. and Remediation Services 239 975 1 731 1 Information 77 829 1 649 1 Utilities 19 793 1 546 1 Arts, entertainment, and recreation 73 744 1 690 1 Educational services 111 735 1 463 - Public Administration 12 662 1 261 - Mining, quarrying, and oil and gas extraction 27 601 - 1,304 2 Agriculture, forestry, fishing and hunting 19 157 - 154 - Management of companies and enterprises 16 144 - 105 - Unclassified/Other 10 64 - 195 - Total commercial loans and leases by industry 6117000000 category$ 6,117 42,572 52 % 37,338 49 % Automobile 12,778 16 12,797 17 Home Equity 8,894 11 9,093 12 Residential mortgage 12,141 15 11,376 15 RV and marine 4,190 5 3,563 5 Other consumer loans 1,033 1 1,237 2 Total loans and leases$ 81,608 100 %$ 75,404 100 % (1) Amounts include$2.4 billion and$3.7 billion of auto dealer services loans atDecember 31, 2020 andDecember 31, 2019 , respectively. (2) Total loans include PPP loans outstanding atDecember 31, 2020 . Commercial Credit The primary factors considered in commercial credit approvals are the financial strength of the borrower, assessment of the borrower's management capabilities, cash flows from operations, industry sector trends, type and sufficiency of collateral, type of exposure, transaction structure, and the general economic outlook. While these are the primary factors considered, there are a number of other factors that may be considered in the decision process. We utilize centralized preview and loan approval committees, led by our credit officers. The risk rating, credit exposure amount, and complexity of the credit determines the threshold for approval. Credit officers who understand each local region and are experienced in the industries and loan structures of the requested credit exposure are involved in all loan decisions not requiring loan committee approval and have the primary credit authority, with the exception of small business loans. For small business loans, we utilize a centralized loan approval process for standard products and structures. In this centralized decision environment, certain individuals who understand each local region may make credit-extension decisions to preserve our commitment to the communities 61Huntington Bancshares Incorporated -------------------------------------------------------------------------------- Table of Contents in which we operate. In addition to disciplined and consistent judgmental factors, a sophisticated credit scoring process is used as a primary evaluation tool in the determination of approving a loan. In commercial lending, on-going credit management is dependent on the type and nature of the loan. We monitor all significant exposures. All commercial credit extensions are assigned internal risk ratings reflecting the borrower's PD and LGD. This two-dimensional rating methodology provides granularity in the portfolio management process. The PD is rated and applied at the borrower level. The LGD is rated and applied based on the specific type of credit extension and the quality and lien position associated with the underlying collateral. The internal risk ratings are assessed at origination and updated at each periodic monitoring event. There is also extensive macro-portfolio management analysis. We review and adjust our risk-rating criteria based on actual experience, which provides us with the current risk level in the portfolio and is the basis for determining an appropriate ACL amount. A centralized portfolio management team monitors and reports on the performance of the entire commercial portfolio, including small business loans, to provide consistent oversight. In addition to the initial credit analysis conducted during the approval process, our Credit Review group performs testing to provide an independent review and assessment of the quality and risk of new loan originations. This group is part of our Risk Management area and conducts portfolio reviews on a risk-based cycle to evaluate individual loans, validate risk ratings, and test the consistency of credit processes. Our standardized loan grading system considers many components that directly correlate to loan quality and likelihood of repayment, one of which is guarantor support. On an at least annual basis, we consider, among other things, the guarantor's reputation and creditworthiness, where available, along with various key financial metrics such as liquidity and net worth. Our assessment of the guarantor's credit strength, or lack thereof, is reflected in our risk ratings for such loans, which is directly tied to, and an integral component of, our ACL methodology. When a loan goes to impaired status, viable guarantor support is considered in the determination of a credit loss. If our assessment of the guarantor's credit strength yields an inherent capacity to perform, we will seek repayment from the guarantor as part of the collection process and have done so successfully. Substantially all loans categorized as Classified (See Note 5 " Loans / Leases " of the Notes to Consolidated Financial Statements) are managed by FRG. FRG is a specialized group of credit professionals that handle the day-to-day management of workouts, commercial recoveries, and problem loan sales. Its responsibilities include developing and implementing action plans, assessing risk ratings, and determining the appropriateness of the allowance, the accrual status, and the ultimate collectability of the Classified loan portfolio. C&I PORTFOLIO We manage the risks inherent in the C&I portfolio through origination policies, a defined loan concentration policy with established limits, on-going loan-level and portfolio-level reviews, recourse requirements, and continuous portfolio risk management activities. Our origination policies for the C&I portfolio include loan product-type specific policies such as LTV and debt service coverage ratios, as applicable. The C&I portfolio continues to have solid origination activity while we maintain a focus on high quality originations. We continue to maintain a proactive approach to identifying borrowers that may be facing financial difficulty in order to maximize the potential credit outcomes. Subsequent to the origination of the loan, the Credit Review group provides an independent review and assessment of the quality of the underwriting and risk of new loan originations. 2020 Form 10-K 62 -------------------------------------------------------------------------------- Table of Contents CRE PORTFOLIO We manage the risks inherent in this portfolio specific to CRE lending, focusing on the quality of the developer and the specifics associated with each project. Generally, we: (1) limit our loans to 80% of the appraised value of the commercial real estate at origination, (2) require net operating cash flows to be 120% of required interest and principal payments, and (3) if the commercial real estate is non-owner occupied, require that pre-leasing generate break-even interest-only debt service. We actively monitor both geographic and project-type concentrations and performance metrics of all CRE loan types, with a focus on loans identified as higher risk based on the risk rating methodology. Both macro-level and loan-level stress-test scenarios based on existing and forecast market conditions are part of the on-going portfolio management process for the CRE portfolio. Dedicated real estate professionals originate and manage the portfolio. The portfolio is diversified by project type and loan size, and this diversification represents a significant portion of the credit risk management strategies employed for this portfolio. Subsequent to the origination of the loan, the Credit Review group provides an independent review and assessment of the quality of the underwriting and risk of new loan originations. Appraisal values are obtained in conjunction with all originations and renewals, and on an as-needed basis, in compliance with regulatory requirements and to ensure appropriate decisions regarding the on-going management of the portfolio reflect the changing market conditions. Appraisals are obtained from approved vendors and are reviewed by an internal appraisal review group comprised of certified appraisers to ensure the quality of the valuation used in the underwriting process. We continue to perform on-going portfolio level reviews within the CRE portfolio. These reviews generate action plans based on occupancy levels or sales volume associated with the projects being reviewed. This highly individualized process requires working closely with all of our borrowers, as well as an in-depth knowledge of CRE project lending and the market environment. Consumer Credit Consumer credit approvals are based on, among other factors, the financial strength and payment history of the borrower, type of exposure, and transaction structure. Consumer credit decisions are generally made in a centralized environment utilizing decision models. Importantly, certain individuals who understand each local region have the authority to make credit extension decisions to preserve our focus on the local communities in which we operate. For all classes within the consumer loan portfolio, loans are assigned pool level PD factors based on the FICO range within which the borrower's credit bureau score falls. The credit bureau score is widely accepted as the standard measure of consumer credit risk used by lenders, regulators, rating agencies, and consumers. The LGD is related to the type of collateral associated with the credit extension, which typically does not change over the course of the loan term. This allowsHuntington to maintain a current view of the customer for credit risk management and ACL purposes. In consumer lending, credit risk is managed from a segment (i.e., loan type, collateral position, geography, etc.) and vintage performance analysis. All portfolio segments are continuously monitored for changes in delinquency trends and other asset quality indicators. We make extensive use of portfolio assessment models to continuously monitor the quality of the portfolio, which may result in changes to future origination strategies. The independent risk management group has a consumer process review component to ensure the effectiveness and efficiency of the consumer credit processes. Collection actions by our customer assistance team are initiated as needed through a centrally managed collection and recovery function. We employ a series of collection methodologies designed to maintain a high level of effectiveness, while maximizing efficiency. In addition to the consumer loan portfolio, the customer assistance team is responsible for collection activity on all sold and securitized consumer loans and leases. Collection practices include a single contact point for the majority of the residential real estate secured portfolios. 63Huntington Bancshares Incorporated -------------------------------------------------------------------------------- Table of Contents AUTOMOBILE PORTFOLIO Our strategy in the automobile portfolio continues to focus on high quality borrowers as measured by both FICO and internal custom scores, combined with appropriate LTVs, terms, and profitability. Our strategy and operational capabilities allow us to appropriately manage the origination quality across the entire portfolio, including our newer markets. Although increased origination volume and entering new markets can be associated with increased risk levels, we believe our disciplined strategy and operational processes significantly mitigate these risks. We have continued to consistently execute our value proposition and take advantage of available market opportunities. Importantly, we have maintained our high credit quality standards while expanding the portfolio. RESIDENTIAL REAL ESTATE SECURED PORTFOLIOS The properties securing our residential mortgage and home equity portfolios are primarily located within our geographic footprint.Huntington continues to support our local markets with consistent underwriting across all residential secured products. The residential secured portfolio originations continue to be of high quality. Our portfolio management strategies associated with our Home Savers group allow us to focus on effectively helping our customers with appropriate solutions for their specific circumstances.Huntington underwrites all residential mortgage applications centrally, with a focus on higher quality borrowers. We do not originate residential mortgages that allow negative amortization or allow the borrower multiple payment options. Residential mortgages are originated based on a completed full appraisal during the credit underwriting process. We update values in compliance with applicable regulations to facilitate our portfolio management, as well as our workout and loss mitigation functions. We are subject to repurchase risk associated with residential mortgage loans sold in the secondary market. An appropriate level of reserve for representations and warranties related to residential mortgage loans sold has been established to address this repurchase risk inherent in the portfolio. RV ANDMARINE PORTFOLIO Our strategy in the RV and Marine portfolio focuses on high quality borrowers, combined with appropriate LTVs, terms, and profitability. Although entering new markets can be associated with increased risk levels, we believe our disciplined strategy and operational processes significantly mitigate these risks. Credit Quality (This section should be read in conjunction with Note 5 " Loans / Lease s and Note 6 " Allowance for Credit Losses " of the Notes to Consolidated Financial Statements.) We believe the most meaningful way to assess overall credit quality performance is through an analysis of specific performance ratios. This approach forms the basis of the discussion in the sections immediately following: NPAs, NALs, TDRs, ACL, and NCOs. In addition, we utilize delinquency rates, risk distribution and migration patterns, product segmentation, and origination trends in the analysis of our credit quality performance. Credit quality performance in 2020 was weaker than prior periods primarily due to the deterioration in the economic environment as a result of the COVID-19 pandemic. Total NCOs were$449 million or 0.57% of average total loans and leases, an increase from$265 million or 0.35% in the prior year. There was a 13% increase in NPAs from the prior year. The ACL to total loans ratio was 2.29% atDecember 31, 2020 compared to 1.18% atDecember 31, 2019 , which primarily reflects the transition to the CECL lifetime loss methodology and the deterioration in the macroeconomic outlook resulting from the COVID-19 pandemic. 2020 Form 10-K 64 -------------------------------------------------------------------------------- Table of Contents NPAs and NALs NPAs consist of (1) NALs, which represent loans and leases no longer accruing interest, (2) OREO properties, and (3) other NPAs. Any loan in our portfolio may be placed on nonaccrual status prior to the policies described below when collection of principal or interest is in doubt. Also, when a borrower with discharged non-reaffirmed debt in a Chapter 7 bankruptcy is identified and the loan is determined to be collateral dependent, the loan is placed on nonaccrual status. Commercial loans are placed on nonaccrual status at 90-days past due, or earlier if repayment of principal and interest is in doubt. Of the$368 million of commercial related NALs atDecember 31, 2020 ,$226 million , or 61%, represent loans that were less than 30-days past due, demonstrating our continued commitment to proactive credit risk management. With the exception of residential mortgage loans guaranteed by government organizations which continue to accrue interest, first lien loans secured by residential mortgage collateral are placed on nonaccrual status at 150-days past due. Junior-lien home equity loans are placed on nonaccrual status at the earlier of 120-days past due or when the related first-lien loan has been identified as nonaccrual. Automobile, RV and marine and other consumer loans are generally fully charged-off at 120-days past due. When loans are placed on nonaccrual, accrued interest income is reversed with current year accruals charged to interest income and prior year amounts generally charged-off as a credit loss. When, in our judgment, the borrower's ability to make required interest and principal payments has resumed and collectability is no longer in doubt, the loan or lease could be returned to accrual status. The following table reflects period-end NALs and NPAs detail for each of the last five years: Table 9 - Nonaccrual Loans and Leases and Nonperforming Assets (1) December 31, (dollar amounts in millions) 2020 2019 2018 2017 2016 Nonaccrual loans and leases (NALs): Commercial and industrial$ 353 $ 323 $ 188 $ 161 $ 234 Commercial real estate 15 10 15 29 20 Automobile 4 4 5 6 6 Home equity 70 59 62 68 72 Residential mortgage 88 71 69 84 91 RV and marine 2 1 1 1 - Other consumer - - - - - Total nonaccrual loans and leases 532 468 340 349 423 Other real estate, net: Residential 4 9 19 24 31 Commercial - 2 4 9 20 Total other real estate, net 4 11 23 33 51 Other NPAs (1) 27 19 24 7 7 Total nonperforming assets$ 563 $ 498 $ 387 $ 389 $ 481 Nonaccrual loans and leases as a % of total loans and leases 0.65 % 0.62 % 0.45 % 0.50 % 0.63 % NPA ratio (2) 0.69 0.66 0.52 0.55 0.72 (1)Other nonperforming assets include certain impaired investment securities and/or nonaccrual loans held-for-sale. (2)Nonperforming assets divided by the sum of loans and leases, other real estate owned, and other NPAs. 65Huntington Bancshares Incorporated -------------------------------------------------------------------------------- Table of Contents 2020 versus 2019 Total NPAs increased by$65 million , or 13%, compared withDecember 31, 2019 . The increase was due to a$30 million , or 9%, increase in the C&I portfolio. OREO balances decreased$7 million , or 64%, from the prior year. The following table reflects period-end accruing loans and leases 90 days or more past due for each of the last five years: Table 10 - Accruing Past Due Loans and Leases December 31, (dollar amounts in millions) 2020 2019 2018 2017 2016 Accruing loans and leases past due 90 days or more: Commercial and industrial (1)$ 10 $ 11 $ 7 $ 9 $ 18 Commercial real estate - - - 3 17 Automobile 9 8 8 7 10 Home equity 14 14 17 18 12 Residential mortgage (excluding loans guaranteed by theU.S. Government) 30 20 32 21 15 RV and marine 3 2 1 1 1 Other consumer 3 7 6 5 4 Total, excl. loans guaranteed by the U.S. Government 69 62 71 64 77 Add: loans guaranteed byU.S. Government 102 109 99 51 52 Total accruing loans and leases past due 90 days or more, including loans guaranteed by the U.S. Government$ 171 $ 171 $ 170 $ 115 $ 129 Ratios: Excluding loans guaranteed by theU.S. Government , as a percent of total loans and leases 0.08 % 0.08 % 0.09 % 0.09 % 0.12 % Guaranteed byU.S. Government , as a percent of total loans and leases 0.13 0.14 0.13 0.07 0.08 Including loans guaranteed by theU.S. Government , as a percent of total loans and leases 0.21 0.23 0.23 0.16 0.19 (1)Amounts includeHuntington Technology Finance administrative lease delinquencies and accruing purchase impaired loans related to acquisitions. TDR Loans TDRs are modified loans where a concession was provided to a borrower experiencing financial difficulties. TDRs can be classified as either accruing or nonaccruing loans. Nonaccruing TDRs are included in NALs whereas accruing TDRs are excluded from NALs, as it is probable that all contractual principal and interest due under the restructured terms will be collected. TDRs primarily reflect our loss mitigation efforts to proactively work with borrowers in financial difficulty or to comply with regulations regarding the treatment of certain bankruptcy filing and discharge situations. OnMarch 22, 2020 andApril 7, 2020 , the federal bank regulatory agencies including the FRB and OCC released statements encouraging financial institutions to work prudently with borrowers that may be unable to meet their contractual obligations because of the effects of COVID-19. The statements go on to explain that, in consultation with the FASB staff, the federal bank regulatory agencies concluded that short-term modifications (e.g. six months) made on a good faith basis to borrowers who were current as of the implementation date of a relief program are not TDRs. Section 4013 of the CARES Act, as amended by Section 541 of the Consolidated Appropriations Act of 2021, ("CARES Act") further addresses COVID-19 related modifications occurring betweenMarch 1, 2020 throughJanuary 1, 2022 and specifies that such COVID-19 related modifications on loans that were current as ofDecember 31, 2019 are not TDRs. For COVID-19 related loan modifications occurring during 2020, which met the loan modification criteria under the CARES Act,Huntington elected to suspend TDR accounting. For loan modifications not eligible for the CARES Act,Huntington applied the interagency regulatory guidance that was clarified onApril 7, 2020 . Accordingly, insignificant concessions (related to the current COVID-19 crisis) granted through payment deferrals, fee waivers, or other short-term modifications (generally 6 months or less) and provided to borrowers less than 30 days past due at March 17, 2020 Form 10-K 66 -------------------------------------------------------------------------------- Table of Contents 2020 were not deemed to be TDRs. Therefore, modified loans that met the required guidelines for relief are excluded from the TDR disclosures below. Over the past five years, the accruing component of the total TDR balance has been consistently over 80%, indicating there is no identified credit loss and the borrowers continue to make their monthly payments. As ofDecember 31, 2020 , over 78% of the$435 million of accruing TDRs secured by residential real estate (Residential mortgage and Home equity in Table 11) are current on their required payments, with over 53% of the accruing pool having had no delinquency in the past 12 months. There is limited migration from the accruing to non-accruing components, and virtually all of the charge-offs within this group of loans come from the non-accruing TDR balances. The table below presents our accruing and nonaccruing TDRs at period-end for each of the past five years: Table 11 - Accruing and Nonaccruing Troubled Debt Restructured Loans (dollar amounts in millions) December 31, 2020 2019 2018 2017 2016 TDRs-accruing: Commercial and industrial$ 193 $ 213 $ 269 $ 300 $ 210 Commercial real estate 33 37 54 78 77 Automobile 50 40 35 30 26 Home equity 187 226 252 265 270 Residential mortgage 248 223 218 224 243 RV and marine 6 3 2 1 - Other consumer 9 11 9 8 4 Total TDRs-accruing 726 753 839 906 830 TDRs-nonaccruing: Commercial and industrial 95 109 97 82 107 Commercial real estate 3 6 6 15 5 Automobile 2 2 3 4 5 Home equity 30 26 28 28 28 Residential mortgage 51 42 44 55 59 RV and marine 1 1 - - - Other consumer - - - - - Total TDRs-nonaccruing 182 186 178 184 204 Total TDRs$ 908 $ 939 $ 1,017 $ 1,090 $ 1,034 Our strategy is to structure TDRs in a manner that avoids new concessions subsequent to the initial TDR terms. However, there are times when subsequent modifications are required, such as when a loan matures. Often loans are performing in accordance with the TDR terms, and a new note is originated with similar modified terms. These loans are subjected to the normal underwriting standards and processes for similar credit extensions, both new and existing. If the loan is not performing in accordance with the existing TDR terms, typically an individualized approach to repayment is established. In accordance with GAAP, the refinanced note is evaluated to determine if it is considered a new loan or a continuation of the prior loan. A new loan is considered for the removal of the TDR designation. A continuation of the prior note requires the continuation of the TDR designation. The types of concessions granted include below market interest rates, longer amortization or extended maturity date changes beyond what the collateral supports, as well as principal forgiveness based on the borrower's specific needs at a point in time. Our policy does not limit the number of times a loan may be modified. A loan may be modified multiple times if it is considered to be in the best interest of both the borrower and us. Commercial loans are not automatically considered to be accruing TDRs upon the granting of a concession. If the loan is in accruing status and no loss is expected based on the modified terms, the modified TDR remains in accruing status. For loans that are on nonaccrual status before the modification, reasonable assurance of repayment under modified terms and demonstrated repayment performance for a minimum of six months is needed to return to accruing status. This six-month period could extend before or after the restructure date. 67Huntington Bancshares Incorporated -------------------------------------------------------------------------------- Table of Contents Any granted change in terms or conditions that are not readily available in the market for that borrower, requires the designation as a TDR. There are no provisions for the removal of the TDR designation based on payment activity for consumer loans. A loan may be returned to accrual status when all contractually due interest and principal has been paid and the borrower demonstrates the financial capacity to continue to pay as agreed, with the risk of loss diminished. ACL Our total credit reserve is comprised of two different components, both of which in our judgment are appropriate to absorb lifetime credit losses in our loan and lease portfolio: the ALLL and the AULC. Combined, these reserves comprise the total ACL. EffectiveJanuary 1, 2020 ,Huntington adopted ASU 2016-13 Financial Instruments - Credit Losses (ASC Topic 326): Measurement of Credit Losses on Financial Instruments. Upon adoption of ASU 2016-13,Huntington implemented new credit loss models within our loan and lease portfolio. These models incorporate historical loss experience, as well as current and future economic conditions over a reasonable and supportable period beyond the balance sheet date. We make various judgments combined with historical loss experience to generate a loss rate that is applied to the outstanding loan or receivable balance to produce a reserve for expected credit losses. We use a combination of statistically-based models that utilize assumptions about current and future economic conditions throughout the contractual life of the loan. The process of estimating expected credit losses is based on several key parameters: Probability of Default (PD), Exposure at Default (EAD), and Loss Given Default (LGD). Beyond the reasonable and supportable period (two to three years), the economic variables revert to a historical equilibrium at a pace dependent on the state of the economy reflected within the economic scenario. These three parameters, PD, EAD, and LGD, are utilized to estimate the cumulative credit losses over the remaining expected life of the loan. We also consider the likelihood a previously charged-off account will be recovered. This calculation is dependent on how long ago the account was charged-off and future economic conditions, which estimate the likelihood and magnitude of recovery. Our models are developed using internal historical loss experience covering the full economic cycle and consider the impact of account characteristics on expected losses. Future economic conditions consider multiple macroeconomic scenarios provided to us by an independent third party and are reviewed through the appropriate committee governance channels discussed below. These macroeconomic scenarios contain certain geography based variables that are influential to our modeling process, the most significant being unemployment rates and GDP. The probability weights assigned to each scenario are generally expected to be consistent from period to period. Any changes in probability weights must be supported by appropriate documentation and approval of senior management. Additionally, we consider whether to adjust the modeled estimates to address possible limitations within the models or factors not captured within the macroeconomic scenarios. Lifetime losses for most of our loans and receivables are evaluated collectively based on similar risk characteristics, risk ratings, origination credit bureau scores, delinquency status, and remaining months within loan agreements, among other factors. The macroeconomic scenarios evaluated byHuntington during 2020 continued to reflect the impact of the COVID-19 pandemic. The baseline scenario used at year-end assumes that the worst of the economic disruption from the pandemic has passed, with the expectation that subsequent waves of the virus will not carry the same level of economic disruption experienced to date. The unemployment variable is incorporated within our models as both a rate of change and level variable. Historically, changes in unemployment have taken gradual paths resulting in more measured impacts. The baseline scenario forecasts stronger GDP growth throughout 2021 compared to the fourth quarter 2020 forecast driven by additional fiscal stimulus anticipated in 2021. 2020 Form 10-K 68 --------------------------------------------------------------------------------
Table of Contents The table below is intended to show how the forecasted path of these key macroeconomic variables has changed since CECL implementation: Table 12 - Forecasted Key Macroeconomic Variables
2019 2020 2021
Baseline scenario forecast Q4 Q2 Q4 Q2 Q4
Unemployment rate (1)
4Q 2019 (2) 3.5% 3.5% 3.8% 4.3% 4.5%
4Q 2020 n/a n/a 7.2% 7.5% 7.2%
Gross Domestic Product (1)
4Q 2019 (2) 1.9% 2.0% 0.8% 2.9% 3.6%
4Q 2020 n/a n/a 3.0% 3.8% 5.8%
(1)Values reflect the baseline scenario forecast inputs for each period
presented, not updated for subsequent actual amounts.
(2)Base case estimates for stated period in Q4 2019 used to model January 1st
2020 implementation adjustment.
The uncertainty related to the COVID-19 pandemic prompted management to continue
to assess the macroeconomic environment through the end of the year. Management
considered multiple macro-economic forecasts that reflected a range of possible
outcomes in order to capture the continued severity of and the economic
disruption associated with the pandemic. While we have incorporated our
estimated impact of COVID-19 into our allowance for credit losses, the ultimate
impact of COVID-19 is still uncertain, including the success of the vaccination
programs underway, the resulting rate of virus abatement, how long economic
activities will be impacted and what effect the unprecedented levels of
government fiscal and monetary actions will have on the economy and our credit
losses.
Given significant COVID-19 specific government relief programs and potential
stimulus packages, as well as certain limitations of our models in the current
economic environment particularly the level of unemployment, management
developed additional analytics to support adjustments to our modeled results.
The Bank's governance committees reviewed model results of each economic
scenario for appropriate usage, concluding that the quantitative transactional
reserve (collectively assessed) will continue to utilize the scenario weighting
approach established in prior quarters. Given the impact of the unemployment
variable utilized within the models and the uncertainty associated with key
economic scenario assumptions, the December 31, 2020 ACL included a material
general reserve component to capture this economic uncertainty risk not
addressed within the quantitative transaction reserve.
Our ACL methodology committee is responsible for developing the methodology,
assumptions and estimates used in the calculation, as well as determining the
appropriateness of the ACL. The ALLL represents the estimate of lifetime
expected losses in the loan and lease portfolio at the reported date. The loss
modeling process uses an EAD concept to calculate total expected losses on both
funded balances and unfunded commitments, where appropriate. Losses related to
the unfunded commitments are then recorded as AULC within other liabilities in
the Consolidated Balance Sheet. A liability for expected credit losses for
off-balance sheet credit exposures is recognized if Huntington has a present
contractual obligation to extend the credit and the obligation is not
unconditionally cancelable.
Huntington adopted ASC Topic 326 using the modified retrospective method for all
financial assets in scope of the standard. Results for reporting periods
beginning after January 1, 2020 are presented under ASC Topic 326, while prior
period amounts continue to be reported in accordance with previously applicable
GAAP. Upon adoption, Huntington recorded an increase to the ACL of $393 million
and a corresponding decrease to retained earnings of approximately $306 million ,
net of tax of $87 million . The overall increase to the ACL at January 1, 2020
was comprised of a $180 million increase in the commercial ALLL, a $211 million
increase in the consumer ALLL, and a $2 million increase to the AULC. The
increase in the commercial portfolio was largely attributable to adjustments to
cover heightened risks of future deterioration in the oil and gas and leveraged
lending portfolios. The increase in the consumer portfolio was largely
attributable to the longer asset duration associated with many of these
products.
The AULC is determined by applying the same quantitative reserve determination
process to the unfunded portion of the loan exposures adjusted by an applicable
funding expectation. (See Note 1 - " Significant Accounting Policies " of the
Notes to Consolidated Financial Statements).
69 Huntington Bancshares Incorporated
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Our ACL evaluation process includes the on-going assessment of credit quality
metrics, and a comparison of certain ACL benchmarks to current performance.
While the total ACL balance increased year over year, all of the relevant
benchmarks remain strong, while reflecting the level of uncertainty around the
future macroeconomic environment resulting from the COVID-19 pandemic.
2020 Form 10-K 70
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The following table reflects activity in the ALLL and AULC for each of the last
five years:
Table 13 - Summary of Allowance for Credit Losses
(dollar amounts in millions) Year Ended December 31,
2020 2019 2018 2017 2016
ALLL, beginning of year $ 783 $ 772 $ 691 $ 638 $ 598
Cumulative-effect of change in accounting
principle for financial instruments -
credit losses (1) 391 - - - -
Loan and lease charge-offs
Commercial:
Commercial and industrial (328) (160) (68) (68) (77)
Commercial real estate:
Construction (1) - (1) 2 (2)
Commercial (46) (5) (10) (6) (14)
Commercial real estate (47) (5) (11) (4) (16)
Total commercial (375) (165) (79) (72) (93)
Consumer:
Automobile (60) (57) (58) (64) (50)
Home equity (16) (21) (21) (20) (26)
Residential mortgage (7) (9) (11) (11) (11)
RV and marine (18) (15) (14) (13) (3)
Other consumer (64) (95) (85) (72) (44)
Total consumer (165) (197) (189) (180) (134)
Total charge-offs (540) (362) (268) (252) (227)
Recoveries of loan and lease charge-offs
Commercial:
Commercial and industrial 29 32 36 26 32
Commercial real estate:
Construction 1 2 2 3 4
Commercial 3 6 27 12 38
Total commercial real estate 4 8 29 15 42
Total commercial 33 40 65 41 74
Consumer:
Automobile 27 25 24 22 18
Home equity 10 13 15 15 17
Residential mortgage 4 3 5 5 5
RV and marine 6 4 5 3 -
Other consumer 11 12 9 7 4
Total consumer 58 57 58 52 44
Total recoveries 91 97 123 93 118
Net loan and lease charge-offs (449) (265) (145) (159) (109)
Provision for loan and lease losses 1,089 277 226 212 169
Allowance for assets sold and securitized
or transferred to loans held for sale - (1) - - (20)
ALLL, end of year 1,814 783 772 691 638
AULC, beginning of year 104 96 87 98 72
Cumulative-effect of change in accounting
principle for financial instruments -
credit losses (1) 2 - - - -
Provision for (Reduction in) unfunded
loan commitments and letters of credit
losses (41) 10 9 (11) 22
Fair value of acquired AULC - - - - 4
Unfunded commitment losses (13) (2) - - -
AULC, end of year 52 104 96 87 98
ACL, end of year $ 1,866 $ 887 $ 868 $ 778 $ 736
(1)Relates to day one impact of the CECL adjustment as a result of the
implementation of ASU 2016-13.
71 Huntington Bancshares Incorporated
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The table below reflects the allocation of our ALLL among our various loan
categories and the reported ACL during each of the past five years:
Table 14 - Allocation of Allowance for Credit Losses (1)
(dollar amounts in
millions) December 31,
2020 2019 2018 2017 2016
ACL
Commercial
Commercial and industrial $ 939 43 % $ 469 41 % $ 422 41 % $ 377 40 % $ 356 42 %
Commercial real estate 297 9 83 8 120 10 105 11 95 11
Total commercial 1,236 52 552 49 542 51 482 51 451 53
Consumer
Automobile 166 16 57 17 56 16 53 17 48 16
Home equity 124 11 50 12 55 13 60 14 65 15
Residential mortgage 79 15 23 15 25 14 21 13 33 12
RV and marine 129 5 21 5 20 4 15 3 5 3
Other consumer 80 1 80 2 74 2 60 2 36 1
Total consumer 578 48 231 51 230 49 209 49 187 47
Total ALLL 1,814 100 % 783 100 % 772 100 % 691 100 % 638 100 %
AULC 52 104 96 87 98
Total ACL $ 1,866 $ 887 $ 868 $ 778 $ 736
Total ALLL as % of:
Total loans and leases 2.22 % 1.04 % 1.03 % 0.99 % 0.95 %
Nonaccrual loans and
leases 341 167 228 198 151
NPAs 323 157 200 178 133
Total ACL as % of:
Total loans and leases 2.29 % 1.18 % 1.16 % 1.11 % 1.10 %
Nonaccrual loans and
leases 351 190 256 223 174
NPAs 332 178 225 200 153
(1)Percentages represent the percentage of each loan and lease category to total
loans and leases.
2020 versus 2019
At December 31, 2020 , the ALLL was $1.8 billion or 2.22% of total loans and
leases, compared to $783 million or 1.04% at December 31, 2019 . Of the increase,
$640 million relates primarily to the deterioration in the macroeconomic outlook
resulting from the COVID-19 pandemic, with the remaining $391 million related to
transition to the CECL lifetime loss methodology. The majority of the increase
was related to the commercial portfolio. The ALLL to total loans and leases
ratio increased 118 basis points to 2.22%
As referenced above, the implementation of CECL resulted in a January 1 adoption
impact of $391 million . The ACL to total loans ratio was 2.29% at December 31,
2020 compared to 1.18% at December 31, 2019 , which primarily reflects the
transition to the CECL lifetime loss methodology and the deterioration in the
macroeconomic outlook resulting from the COVID-19 pandemic.
NCOs
A loan in any portfolio may be charged-off prior to the policies described below
if a loss confirming event has occurred. Loss confirming events include, but are
not limited to, bankruptcy (unsecured), continued delinquency, foreclosure, or
receipt of an asset valuation indicating a collateral deficiency where that
asset is the sole source of repayment. Additionally, discharged, collateral
dependent non-reaffirmed debt in Chapter 7 bankruptcy filings will result in a
charge-off to estimated collateral value, less anticipated selling costs at the
time of discharge.
Commercial loans are either charged-off or written down to net realizable value
by 90-days past due with the exception of administrative small ticket lease
delinquencies. Automobile loans, RV and marine, and other consumer loans are
generally fully charged-off at 120-days past due. First-lien and junior-lien
home equity loans are charged-off to the estimated fair value of the collateral,
less anticipated selling costs, at 150-days past due and 120-days past due,
respectively. Residential mortgages are charged-off to the estimated fair value
of the collateral, less anticipated selling costs, at 150-days past due. The
remaining balance is in delinquent status until a modification can be completed,
or the loan goes through the foreclosure process.
2020 Form 10-K 72
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The following table reflects NCO detail for each of the last five years:
Table 15 - Net Loan and Lease Charge-offs
(dollar amounts in millions) Year Ended
2020 2019 2018 2017 2016
Net charge-offs by loan and lease type:
Commercial:
Commercial and industrial $ 299 $ 128 $ 32 $ 42 $ 45
Commercial real estate:
Construction - (2) (1) (5) (2)
Commercial 43 (1) (17) (6) (24)
Commercial real estate 43 (3) (18) (11) (26)
Total commercial 342 125 14 31 19
Consumer:
Automobile 33 32 34 42 32
Home equity 6 8 6 5 9
Residential mortgage 3 6 6 6 6
RV and marine 12 11 9 10 2
Other consumer 53 83 76 65 41
Total consumer 107 140 131 128 90
Total net charge-offs $ 449 $ 265 $
145
Net charge-offs - annualized percentages: Commercial: Commercial and industrial 0.88 % 0.42 % 0.11 % 0.15 % 0.19 % Commercial real estate: Construction (0.05) (0.15) (0.13) (0.36) (0.19) Commercial 0.74 (0.02) (0.26) (0.10) (0.49) Commercial real estate 0.61 (0.04) (0.24) (0.15) (0.44) Total commercial 0.84 0.33 0.04 0.09 0.06 Consumer: Automobile 0.26 0.26 0.27 0.36 0.30 Home equity 0.07 0.08 0.06 0.05 0.10 Residential mortgage 0.03 0.06 0.06 0.08 0.09 RV and marine 0.31 0.31 0.32 0.48 0.33 Other consumer 4.84 6.62 6.27 6.36 5.53 Total consumer 0.28 0.37
0.36 0.39 0.32 Net charge-offs as a % of average loans 0.57 % 0.35 % 0.20 % 0.23 % 0.19 %
2020 versus 2019 NCOs increased$184 million , or 69%, in 2020. The increase was driven by commercial NCOs, which were centered in our oil and gas portfolio, partially offset by a decline in other consumer. Market Risk Market risk refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices and commodity prices, including the correlation among these factors and their volatility. When the value of an instrument is tied to such external factors, the holder faces market risk. We are primarily exposed to interest rate risk as a result of offering a wide array of financial products to our customers and secondarily to price risk from trading securities, securities owned by our broker-dealer subsidiaries, foreign exchange positions, equity investments, and investments in securities backed by mortgage loans.Huntington measures market risk exposure via financial simulation models, which provide management with insights on the potential impact to net interest income and other key metrics as a result of changes in market interest rates. Models are used to simulate cash flows and accrual characteristics of the balance sheet based on assumptions regarding the slope or shape of the yield curve, the direction and volatility of interest rates, and the 73Huntington Bancshares Incorporated -------------------------------------------------------------------------------- Table of Contents changing composition and characteristics of the balance sheet resulting from strategic objectives and customer behavior. Assumptions and models provide insight on forecasted balance sheet growth and composition, and the pricing and maturity characteristics of current and future business. In measuring the financial risks associated with interest rate sensitivity inHuntington's balance sheet,Huntington compares a set of alternative interest rate scenarios to the results of a base case scenario derived using market forward rates. The market forward reflects the market consensus regarding the future level and slope of the yield curve across a range of tenor points. The standard set of interest rate scenarios includes two types: "shock" scenarios which are instantaneous parallel rate shifts, and "ramp" scenarios where the parallel shift is applied gradually over the first 12 months of the forecast on a pro rata basis. In both shock and ramp scenarios with falling rates,Huntington presumes that market rates cannot go below 0%. The scenarios are inclusive of all interest rate risk hedging activities. Forward starting hedges are included to the extent that they have been transacted and that they start within the measurement horizon. Table 16 - Net Interest Income at Risk Net Interest Income at Risk (%) Basis point change scenario -25 +100 +200 Board policy limits -1.3 % -2.0 % -4.0 % December 31, 2020 -1.1 3.4 7.3 December 31, 2019 NA 1.0 2.3 The NII at Risk results included in the table above reflect the analysis used monthly by management. It models gradual ("ramp" as defined above) +100 and +200 basis point parallel shifts in market interest rates, implied by the forward yield curve over the next twelve months as well as an instantaneous parallel shock of -25 basis points. With the continued decline in rates, the down 100 basis point ramp scenario can produce a distorted view of interest rate risks metrics. As a result, the down 100 basis point ramp scenario was replaced with the down 25 basis point shock scenario by the Board as a policy metric beginningSeptember 30, 2020 . Management does consider additional scenarios with forecasted negative market rates which would result in margin deterioration. The increase in sensitivity was driven by the impact of lower forecast rates on non-maturity deposits resulting in slower balance runoff and higher securities prepayments in the implied forward scenario resulting in more opportunity for reinvestment at higher rates in rising rate environments. Additionally, an increase in the securities portfolio and the hedge program have also resulted in increased sensitivity. Our NII at Risk is within our Board of Directors' policy limits for the -25, +100 and +200 basis point scenarios. The NII at Risk shows that our balance sheet is asset sensitive at bothDecember 31, 2020 , andDecember 31, 2019 . Table 17 - Economic Value of Equity at Risk Economic Value of Equity at Risk (%) Basis point change scenario -25 +100 +200 Board policy limits -1.5 % -6.0 % -12.0 % December 31, 2020 -0.7 1.4 -0.1 December 31, 2019 NA -3.1 -9.1 The EVE results included in the table above reflect the analysis used monthly by management. It models immediate -25, +100 and +200 basis point parallel shifts ("shocks" as defined above) in market interest rates. With the continued decline in rates, the down 100 basis point shock scenario can produce a distorted view of interest rate risks metrics. As a result, the down 100 basis point shock scenario was replaced with the down 25 basis point shock scenario by the Board as a policy metric beginningSeptember 30, 2020 . Management does consider additional scenarios with forecasted negative market rates to understand the impact on EVE. We are within our Board of Directors' policy limits for the -25, +100 and +200 basis point scenarios. The EVE depicts an asset sensitive balance sheet profile. The change in sensitivity was driven primarily by lower interest rates slowing deposit runoff and to a lesser extent, expected securities portfolio runoff. We have LIBOR-based exposure in the form of certain variable rate loans, derivatives, Series B preferred stock, long term debt and other securities and financial arrangements. To address the discontinuance of LIBOR in its current form, we have established a LIBOR transition team and project plan under the oversight of the CRO and CFO, 2020 Form 10-K 74 -------------------------------------------------------------------------------- Table of Contents providing periodic updates to the ROC. In reviewing the contract fallback language, certain contracts were identified as needing updated provisions for transition. The LIBOR transition team is coordinating remediation, where necessary. Our technology team has undertaken core loan servicing system projects to support alternative reference rates with some already operational and others with target project completion dates in the first half of 2021. Additionally, we have developed a SOFR-enabled interest rate risk monitoring framework and a strategy for managing interest rate risk during the transition from LIBOR to SOFR. During the fourth quarter of 2020,Huntington began indexing new retail adjustable rate mortgages to SOFR (Secured Overnight Funding Rate). We continue to monitor market developments and regulatory updates, including the recent announcements from the ICE Benchmark Administrator to extend the cessation date for several USD LIBOR tenors toJune 30, 2023 . For a discussion of the risks associated with the LIBOR transition to alternative reference rates, refer to "Item 1A: Risk Factors." Use of Derivatives to Manage Interest Rate Risk An integral component of our interest rate risk management strategy is the use of derivative instruments to minimize significant fluctuations in earnings caused by changes in market interest rates. Examples of derivative instruments that we may use as part of our interest rate risk management strategy include interest rate swaps, interest rate floors, interest rate caps, forward contracts, and forward starting interest rate swaps.Huntington has entered into a number of interest rate derivative contracts to manage our interest rate risk position which are economic hedges (i.e., do not receive hedge accounting treatment). The impact of changes in the fair value of derivatives designated as economic hedges are reported in current period earnings. While these interest rate derivatives are used to reduce the long-term interest rate sensitivity, these economic hedges can result in short-term volatility in net interest income as a result of the changes in interest rates. Table 18 shows all swap, floor and cap positions that are utilized for purposes of managing our exposures to the variability of interest rates. These positions are used to convert the contractual interest rate index of agreed-upon amounts of assets and liabilities (i.e., notional amounts) to another interest rate index or to hedge forecasted transactions for the variability in cash flows attributable to the contractually specified interest rate. The volume, maturity and mix of portfolio derivative positions change frequently as we adjust our broader interest rate risk management objectives and the balance sheet positions to be hedged. For further information, including the notional amount and fair values of these derivatives, refer to Note 21 " Derivative Financial Instruments " of the Notes to Consolidated Financial Statements. 75Huntington Bancshares Incorporated --------------------------------------------------------------------------------
Table of Contents
The following table presents additional information about the interest rate
swaps, floors and caps used in
December 31, 2020
Average
Maturity Fair Weighted-Average Weighted-Average
(dollar amounts in millions) Notional Value (years) Value Fixed Rate Reset Rate
Asset conversion swaps
Receive Fixed - Pay 1 month LIBOR $ 6,525 2.03 $ 231 1.81 % 0.15 %
Pay Fixed - Receive 1 month LIBOR (1) 3,076 1.99 3 0.17 0.15
Receive Fixed - Pay 1 month LIBOR - forward starting (2) 750 3.29 23 1.24
-
Pay Fixed - Receive 1 month LIBOR - forward starting (3) 408 9.08 2 0.68
-
Liability conversion swaps Receive Fixed - Pay 1 month LIBOR 5,397 2.02 262 2.28
0.15
Receive Fixed - Pay 3 month LIBOR 800 0.21 5 1.31
0.22
Basis swapsPay SOFR- Receive Fed Fund (economic hedges) (4) $ 230 4.66 $ - 0.09
0.10
Pay Fed Fund - Receive SOFR (economic hedges) (4) 41 1.98 - 0.09 0.09 Total swap portfolio$ 17,227 $ 526 December 31, 2020 Average Maturity Fair Weighted-Average Weighted-Average (dollar amounts in millions) Notional Value (years) Value Floor Strike Reset Rate Interest rate floors Purchased Interest Rate Floors - 1 month LIBOR $ 7,200 0.37$ 59 1.81 % 0.15 % Purchased Floor Spread - 1 month LIBOR 400 1.74 7 2.50 / 1.50
0.15
Purchased Floor Spread - 1 month LIBOR forward starting (5) 2,500 3.72 76 1.65 / 0.70
-
Purchased Floor Spread - 1 month LIBOR (economic hedges) 1,000 2.29 18 1.75 / 1.00
0.16
Interest rate caps Purchased Cap - 1 month LIBOR (economic hedges) 5,000 6.91 91 0.98 0.15 Total floors portfolio$ 16,100 $ 251 December 31, 2019 Average Maturity Fair Weighted-Average Weighted-Average (dollar amounts in millions) Notional Value (years) Value Fixed Rate Reset Rate Asset conversion swaps Receive Fixed - Pay 1 month LIBOR $ 5,387 2.87$ 51 1.89 %
1.73%
Receive Fixed - Pay 1 month LIBOR - forward starting (6) 3,250 4.02 (28) 1.32 - Liability conversion swaps Receive Fixed - Pay 1 month LIBOR 5,250 2.97 146 2.37
1.72
Receive Fixed - Pay 3 month LIBOR 2,290 0.84 5 1.80 1.94 Total swap portfolio$ 16,177 $ 174 December 31, 2019 Average Maturity Fair Weighted-Average Weighted-Average (dollar amounts in millions) Notional Value (years) Value Floor Strike Reset Rate Interest rate floors Purchased Interest Rate Floors - 1 month LIBOR $ 9,200 1.45$ 36 1.84 % 1.54 % Purchased Floor Spread - 1 month LIBOR 400 2.74 8 2.50 / 1.50
1.79
Purchased Floor Spread - 1 month LIBOR - forward starting (7) 150 4.34 2 1.75 / 1.00 - Total floors portfolio $ 9,750$ 46 (1)Amounts include interest rate swaps as fair value hedges of fixed-rate investment securities using the last-of-layer method. (2)Forward starting swaps will become effectiveApril 2021 . (3)Forward starting swaps will become effective fromJanuary 2021 toMay 2021 . (4)Swaps have variable pay and variable receive resets. Weighted Average Fixed Rate column represents pay rate reset. (5)Forward starting floor spreads will become effective fromMarch 2021 toJune 2021 . (6)Forward starting swaps will become effective fromJanuary 2020 toJune 2021 . (7)Forward starting floors will become effective fromMarch 2021 toJune 2021 . 2020 Form 10-K 76 -------------------------------------------------------------------------------- Table of Contents MSRs (This section should be read in conjunction with Note 7 - " Mortgage Loan Sales and Servicing Rights " of Notes to Consolidated Financial Statements.) OnJanuary 1, 2020 ,Huntington made an irrevocable election to subsequently measure all classes of residential MSRs at fair value in order to eliminate any potential measurement mismatch between our economic hedges and the MSRs. The impact of the irrevocable election was not material. AtDecember 31, 2020 , we had a total of$210 million of capitalized MSRs representing the right to service$23 billion in mortgage loans. MSR fair values are sensitive to movements in interest rates as expected future net servicing income depends on the projected outstanding principal balances of the underlying loans, which can be reduced by prepayments. Prepayments usually increase when mortgage interest rates decline and decrease when mortgage interest rates rise. We also employ hedging strategies to reduce the risk of MSR fair value changes or impairment. However, volatile changes in interest rates can diminish the effectiveness of these economic hedges. We report changes in the MSR value net of hedge-related trading activity in the mortgage banking income category of noninterest income. MSR assets are included in servicing rights and other intangible assets in the Consolidated Financial Statements. Price Risk Price risk represents the risk of loss arising from adverse movements in the prices of financial instruments that are carried at fair value and are subject to fair value accounting. We have price risk from trading securities, securities owned by our broker-dealer subsidiaries, foreign exchange positions, derivative instruments, and equity investments. We have established loss limits on the trading portfolio, on the amount of foreign exchange exposure that can be maintained, and on the amount of marketable equity securities that can be held. Liquidity Risk Liquidity risk is the possibility of us being unable to meet current and future financial obligations in a timely manner. Liquidity is managed to ensure stable, reliable, and cost-effective sources of funds to satisfy demand for credit, deposit withdrawals and investment opportunities. We consider core earnings, strong capital ratios, and credit quality essential for maintaining high credit ratings, which allows us cost-effective access to market-based liquidity. We rely on a large, stable core deposit base and a diversified base of wholesale funding sources to manage liquidity risk. The ALCO is appointed by the ROC to oversee liquidity risk management and the establishment of liquidity risk policies and limits. Liquidity Risk is managed centrally by Corporate Treasury. The position is evaluated daily, weekly, and monthly by analyzing the composition of all funding sources, reviewing projected liquidity commitments by future months, and identifying sources and uses of funds. The overall management of our liquidity position is also integrated into retail and commercial pricing policies to ensure a stable core deposit base. Liquidity risk is reviewed and managed continuously for the Bank and the parent company, as well as its subsidiaries. In addition, liquidity working groups meet regularly to identify and monitor liquidity positions, provide policy guidance, review funding strategies, and oversee the adherence to, and maintenance of, the contingency funding plans. Our primary source of liquidity is our core deposit base. Core deposits comprised approximately 96% of total deposits atDecember 31, 2020 . We also have available unused wholesale sources of liquidity, including advances from the FHLB, issuance through dealers in the capital markets, and access to certificates of deposit issued through brokers. Liquidity is further provided by unencumbered, or unpledged, investment securities that totaled$10.8 billion as ofDecember 31, 2020 . The treasury department also prepares a contingency funding plan that details the potential erosion of funds in the event of a systemic financial market crisis or institutional-specific stress scenario. An example of an institution specific event would be a downgrade in our public credit rating by a rating agency due to factors such as deterioration in asset quality, a large charge to earnings, a decline in profitability or other financial measures, or a significant merger or acquisition. Examples of systemic events unrelated to us that could have an effect on our access to liquidity would be terrorism or war, natural disasters, political events, or the default or bankruptcy of a major corporation, mutual fund or hedge fund. Similarly, market speculation or rumors about us, or the banking industry in general, may adversely affect the cost and availability of normal funding sources. The liquidity contingency plan therefore outlines the process for addressing a liquidity crisis. The plan provides for an 77Huntington Bancshares Incorporated -------------------------------------------------------------------------------- Table of Contents evaluation of funding sources under various market conditions. It also assigns specific roles and responsibilities and communication protocols for effectively managing liquidity through a problem period. During 2020,Huntington heightened its overall liquidity risk management process, including additional communication, monitoring, and reporting, given changes in the economic environment as a result of COVID-19. Overnight funding markets continue to demonstrate ample liquidity with the ability to obtain short-term funding. We continue to closely monitor wholesale funding markets and all government sponsored programs in relation toHuntington's liquidity position. Investment securities portfolio (This section should be read in conjunction with Note 4 - " InvestmentSecurities and Other Securities " of the Notes to Consolidated Financial Statements.) Our investment securities portfolio is evaluated under established ALCO objectives. Changing market conditions could affect the profitability of the portfolio, as well as the level of interest rate risk exposure. The composition and contractual maturity of the portfolio is presented on the following two tables: Table 19 -Investment Securities andOther Securities Portfolio Summary (dollar amounts in millions) At December 31, Available-for-sale securities, at fair value: 2020 2019 2018U.S. Treasury , Federal agency, and other agency securities$ 12,831 $ 10,458 $ 9,968 Municipal securities 3,004 3,055 3,440 Other 650 636 372 Total available-for-sale securities$ 16,485
Held-to-maturity securities, at cost: Federal agency and other agency securities$ 8,858 $ 9,066 $ 8,560 Municipal securities 3 4 5 Total held-to-maturity securities$ 8,861
Other securities: Other securities, at cost: Non-marketable equity securities (1)$ 359 $ 387 $ 543 Other securities, at fair value: Mutual Funds 50 53 20 Marketable equity securities 9 1 2 Total other securities$ 418 $ 441 $ 565 Duration in years (2) 3.4 4.5 4.3
(1)Consists of FHLB and FRB restricted stock holdings carried at par. (2)The average duration assumes a market driven prepayment rate on securities subject to prepayment.
2020 Form 10-K 78
--------------------------------------------------------------------------------Table of Contents Table 20 - Investment Securities Portfolio Composition and Contractual Maturity
At December 31, 2020
1 year or less After 1 year through 5 years After 5 years through 10 years After 10 years Total
(dollar amounts in millions) Amount Yield (1) Amount Yield (1) Amount Yield (1) Amount Yield (1) Amount Yield (1)
Available-for-sale securities, at fair value:
U.S. Treasury $ - - % $ 5 0.14 % $ - - % $ - - % $ 5 0.14 %
Federal agencies:
Residential CMO - - 55 1.87 - - 3,611 2.39 3,666 2.39
Residential MBS - - - - - - 7,935 1.59 7,935 1.59
Commercial MBS - - - - - - 1,163 2.17 1,163 2.17
Other agencies 1 3.44 45 2.52 16 2.48 - - 62 2.53
Total U.S. Treasury , Federal agencies
and other agencies 1 3.46 105 2.06 16 2.49 12,709 1.87 12,831 1.87
Municipal securities 289 2.41 1,016 2.13 1,186 2.77 513 3.20 3,004 2.58
Private-label CMO - - 4 0.54 3 2.50 2 1.73 9 1.49
Asset-backed securities 10 1.14 2 2.74 31 1.60 149 3.64 192 3.16
Corporate debt 1 3.30 26 1.80 418 1.78 - - 445 1.78
Other securities/Sovereign debt 3 2.60 1 1.64 - - - - 4 2.42
Total available-for-sale securities$ 304 2.38 %$ 1,154 2.11 %$ 1,654 2.49 %$ 13,373 1.94 %$ 16,485
2.01 %
Held-to-maturity securities, at cost: Federal agencies: Residential CMO $ - - %$ 25 3.07 % $ - - %$ 1,754 2.67 %$ 1,779 2.67 % Residential MBS - - - - - - 3,715 2.01 3,715 2.01 Commercial MBS - - 86 3.04 34 2.77 2,998 2.97 3,118 2.97 Other agencies - - 49 2.47 97 2.47 100 2.53 246 2.50 Total Federal agencies and other agencies - - 160 2.87 131 2.55 8,567 2.49 8,858 2.50 Municipal securities - - - - - - 3 2.63 3 2.63 Total held-to-maturity securities $ - - %$ 160 2.87 %$ 131 2.55 %$ 8,570 2.49 %$ 8,861 2.50 % (1)Weighted average yields were calculated using amortized cost on a fully-taxable equivalent basis, assuming a 21% tax rate where applicable. Bank Liquidity and Sources of Funding Our primary sources of funding for the Bank are retail and commercial core deposits. AtDecember 31, 2020 , these core deposits funded 77% of total assets (116% of total loans). Other sources of liquidity include non-core deposits, FHLB advances, wholesale debt instruments, and securitizations. Demand deposit overdrafts have been reclassified as loan balances and were$14 million and$25 million atDecember 31, 2020 andDecember 31, 2019 , respectively. The following table reflects contractual maturities of certain deposits atDecember 31, 2020 . Table 21 - Maturity Schedule of time deposits, brokered deposits, and negotiable CDs At December 31, 2020 3 Months 3 Months 6 Months 12 Months (dollar amounts in millions) or Less to 6 Months to 12 Months or More Total Other domestic time deposits of$250,000 or more and brokered deposits and negotiable CDs$ 4,237 $ 54 $ 45$ 18 $ 4,354 Other domestic time deposits of$100,000 or more and brokered deposits and negotiable CDs$ 4,326 $ 197 $ 162$ 83 $ 4,768 79Huntington Bancshares Incorporated -------------------------------------------------------------------------------- Table of Contents The following table reflects deposit composition detail for each of the last three years: Table 22 - Deposit Composition At December 31, (dollar amounts in millions) 2020 2019 2018 (1) By Type: Demand deposits-noninterest-bearing$ 28,553 29 %$ 20,247 25 %$ 21,783 26
%
Demand deposits-interest-bearing 26,757 27 20,583 25 20,042 24 Money market deposits 26,248 27 24,726 30 22,721 27 Savings and other domestic deposits 11,722 12 9,549 12 10,451 12 Core certificates of deposit (2) 1,425 1 4,356 5 5,924 7 Total core deposits: 94,705 96 79,461 97 80,921 96 Other domestic deposits of$250,000 or more 131 - 313 - 337 - Brokered deposits and negotiable CDs 4,112 4 2,573 3 3,516 4 Total deposits$ 98,948 100 %$ 82,347 100 %$ 84,774 100 % Total core deposits: Commercial$ 44,698 47 %$ 34,957 44 %$ 37,268 46 % Consumer 50,007 53 44,504 56 43,653 54 Total core deposits$ 94,705 100 %$ 79,461 100 %$ 80,921 100 % (1)December 31, 2018 includes$210 million of noninterest-bearing and$662 million of interesting bearing deposits classified as held-for-sale. (2)Includes consumer certificates of deposit of$250,000 or more. The Bank maintains borrowing capacity at the FHLB and theFederal Reserve Bank Discount Window. The Bank does not consider borrowing capacity from the Federal Reserve Bank Discount Window as a primary source of liquidity. Total loans and securities pledged to the Federal Reserve Bank Discount Window and the FHLB are$53.4 billion and$39.6 billion atDecember 31, 2020 andDecember 31, 2019 , respectively. To the extent we are unable to obtain sufficient liquidity through core deposits, we may meet our liquidity needs through sources of wholesale funding, asset securitization or sale. Sources of wholesale funding include other domestic deposits of$250,000 or more, brokered deposits and negotiable CDs, short-term borrowings, and long-term debt. AtDecember 31, 2020 , total wholesale funding was$12.8 billion , a decrease from$15.3 billion atDecember 31, 2019 . The decrease from the prior year-end primarily relates to an decrease in short-term borrowings and maturity, redemption and tender of long-term debt, partially offset by a increase in brokered deposits and negotiable CDs. AtDecember 31, 2020 , we believe the Bank has sufficient liquidity to meet its cash flow obligations for the foreseeable future. Table 23 - Maturity Schedule of Commercial Loans At December 31, 2020 One Year One to After Percent (dollar amounts in millions) or Less Five Years Five Years Total of total Commercial and industrial$ 9,329 $ 21,603 $ 4,441 $ 35,373 83 % Commercial real estate-construction 381 579 75 1,035 3 Commercial real estate-commercial 1,053 3,694 1,417 6,164 14 Total$ 10,763 $ 25,876 $ 5,933 $ 42,572 100 % Variable-interest rates$ 8,798 $ 20,693 $ 3,578 $ 33,069 78 % Fixed-interest rates 1,965 5,183 2,355 9,503 22 Total$ 10,763 $ 25,876 $ 5,933 $ 42,572 100 % Percent of total 25 % 61 % 14 % 100 % AtDecember 31, 2020 , the market value of investment securities pledged to secure public and trust deposits, trading account liabilities,U.S. Treasury demand notes, and security repurchase agreements totaled$14.4 billion . There were no securities of a single issuer, which are not governmental or government-sponsored, that exceeded 10% of shareholders' equity atDecember 31, 2020 . 2020 Form 10-K 80 -------------------------------------------------------------------------------- Table of Contents Parent Company Liquidity The parent company's funding requirements consist primarily of dividends to shareholders, debt service, income taxes, operating expenses, funding of nonbank subsidiaries, repurchases of our stock, and acquisitions. The parent company obtains funding to meet obligations from dividends and interest received from the Bank, interest and dividends received from direct subsidiaries, net taxes collected from subsidiaries included in the federal consolidated tax return, fees for services provided to subsidiaries, and the issuance of debt securities. AtDecember 31, 2020 andDecember 31, 2019 , the parent company had$4.4 billion and$3.1 billion , respectively, in cash and cash equivalents. OnJanuary 20, 2021 , the Board of Directors declared a quarterly common stock cash dividend of$0.15 per common share. The dividend is payable onApril 1, 2021 , to shareholders of record onMarch 18, 2021 . Based on the current quarterly dividend of$0.15 per common share, cash demands required for common stock dividends are estimated to be approximately$153 million per quarter. OnJanuary 20, 2021 , the Board of Directors declared a quarterly Series B, Series C, Series D, Series E, Series F, and Series G Preferred Stock dividend payable onApril 15, 2021 to shareholders of record onApril 1, 2021 . Total cash demands required for Series B, Series C, Series D, Series E, Series F, and Series G Preferred Stock are expected to be approximately$31 million per quarter. During 2020, the Bank paid preferred and common dividends of$45 million and$1.5 billion , respectively. To meet any additional liquidity needs, the parent company may issue debt or equity securities from time to time. Off-Balance Sheet Arrangements In the normal course of business, we enter into various off-balance sheet arrangements. These arrangements include commitments to extend credit, interest rate swaps and floors, financial guarantees contained in standby letters-of-credit issued by the Bank, and commitments by the Bank to sell mortgage loans. COMMITMENTS TO EXTEND CREDIT Commitments to extend credit generally have fixed expiration dates, are variable-rate, and contain clauses that permitHuntington to terminate or otherwise renegotiate the contracts in the event of a significant deterioration in the customer's credit quality. These arrangements normally require the payment of a fee by the customer, the pricing of which is based on prevailing market conditions, credit quality, probability of funding, and other relevant factors. Since many of these commitments are expected to expire without being drawn upon, the contract amounts are not necessarily indicative of future cash requirements. The interest rate risk arising from these financial instruments is insignificant as a result of their predominantly short-term, variable-rate nature. See Note 23 - " Commitments and Contingent Liabilities " of the Notes to Consolidated Financial Statements for more information. INTEREST RATE SWAPS Balance sheet hedging activity is arranged to receive hedge accounting treatment and is classified as either fair value or cash flow hedges. Fair value hedges are purchased to convert deposits and long-term debt from fixed-rate obligations to floating rate. Cash flow hedges are also used to convert floating rate loans made to customers into fixed rate loans. See Note 21 - " Derivative Financial Instruments " of the Notes to Consolidated Financial Statements for more information. STANDBY LETTERS-OF-CREDIT Standby letters-of-credit are conditional commitments issued to guarantee the performance of a customer to a third-party. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. Most of these arrangements mature within two years and are expected to expire without being drawn upon. Standby letters-of-credit are included in the determination of the amount of risk-based capital that the parent company and the Bank are required to hold. Through our credit process, we monitor the credit risks of outstanding standby letters-of-credit. When it is probable that a standby letter-of-credit will be drawn and not repaid in full, a loss is recognized in the provision for credit losses. See Note 23 - " Commitments and Contingent Liabilities " of the Notes to Consolidated Financial Statements for more information. 81Huntington Bancshares Incorporated -------------------------------------------------------------------------------- Table of Contents COMMITMENTS TO SELL LOANS Activity related to our mortgage origination activity supports the hedging of the mortgage pricing commitments to customers and the secondary sale to third parties. In addition, we have commitments to sell residential real estate loans. These contracts mature in less than one year. See Note 23 - " Commitments and Contingent Liabilities " of the Notes to Consolidated Financial Statements for more information. We believe that off-balance sheet arrangements are properly considered in our liquidity risk management process. Table 24 - Contractual Obligations (1) (dollar amounts in millions) At December 31, 2020 Less than 1 1 to 3 3 to 5 More than Year Years Years 5 Years Total Deposits without a stated maturity$ 96,966 $ - $ - $ -$ 96,966 Certificates of deposit and other time deposits 1,591 336 55 - 1,982 Short-term borrowings 183 - - - 183 Long-term debt 1,866 3,629 1,442 1,254 8,191 Operating lease obligations 43 79 58 77 257 Purchase commitments 121 113 45 67 346 (1)Amounts do not include associated interest payments. Operational Risk Operational risk is the risk of loss due to human error, third-party performance failures, inadequate or failed internal systems and controls, including the use of financial or other quantitative methodologies that may not adequately predict future results; violations of, or noncompliance with, laws, rules, regulations, prescribed practices, or ethical standards; and external influences such as market conditions, fraudulent activities, disasters, failed business contingency plans, and security risks. We continuously strive to strengthen our system of internal controls to ensure compliance with laws, rules, and regulations, and to improve the oversight of our operational risk. We actively monitor cyberattacks such as attempts related to online deception and loss of sensitive customer data. We evaluate internal systems, processes and controls to mitigate loss from cyber-attacks and, to date, have not experienced any material losses. Cybersecurity threats have increased, primarily through COVID-19 themed phishing campaigns. We are actively monitoring our email gateways for malicious phishing email campaigns. We have also increased our cybersecurity monitoring activities through the implementation of specific monitoring of remote connections by geography and volume of connections to detect anomalous remote logins, since a significant portion of our workforce is now working remotely. Our objective for managing cyber security risk is to avoid or minimize the impacts of external threat events or other efforts to penetrate our systems. We work to achieve this objective by hardening networks and systems against attack, and by diligently managing visibility and monitoring controls within our data and communications environment to recognize events and respond before the attacker has the opportunity to plan and execute on its own goals. To this end we employ a set of defense in-depth strategies, which include efforts to make us less attractive as a target and less vulnerable to threats, while investing in threat analytic capabilities for rapid detection and response. Potential concerns related to cyber security may be escalated to our board-level Technology Committee, as appropriate. As a complement to the overall cyber security risk management, we use a number of internal training methods, both formally through mandatory courses and informally through written communications and other updates. Internal policies and procedures have been implemented to encourage the reporting of potential phishing attacks or other security risks. We also use third-party services to test the effectiveness of our cyber security risk management framework, and any such third parties are required to comply with our policies regarding information security and confidentiality. To mitigate operational risks, we have an Operational Risk Committee, a Legal, Regulatory, and Compliance Committee, a Funds Movement Committee, and a Third Party Risk Management Committee. The responsibilities of these committees, among other duties, include establishing and maintaining management information systems to monitor material risks and to identify potential concerns, risks, or trends that may have a significant impact and 2020 Form 10-K 82 -------------------------------------------------------------------------------- Table of Contents ensuring that recommendations are developed to address the identified issues. In addition, we have aModel Risk Oversight Committee that is responsible for policies and procedures describing how model risk is evaluated and managed and the application of the governance process to implement these practices throughout the enterprise. These committees report any significant findings and remediation recommendations to the Risk Management Committee. Potential concerns may be escalated to our ROC and the Audit Committee, as appropriate. Significant findings or issues are escalated by the Third Party Risk Management Committee to the Technology Committee of the Board, as appropriate. The goal of this framework is to implement effective operational risk-monitoring techniques and strategies; minimize operational, fraud, and legal losses; minimize the impact of inadequately designed models and enhance our overall performance. Compliance Risk Financial institutions are subject to many laws, rules, and regulations at both the federal and state levels. These broad-based laws, rules, and regulations include, but are not limited to, expectations relating to anti-money laundering, lending limits, client privacy, fair lending, prohibitions against unfair, deceptive or abusive acts or practices, protections for military members as they enter active duty, and community reinvestment. The volume and complexity of recent regulatory changes have increased our overall compliance risk. As such, we utilize various resources to help ensure expectations are met, including a team of compliance experts dedicated to ensuring our conformance with all applicable laws, rules, and regulations. Our colleagues receive training for several broad-based laws and regulations including, but not limited to, anti-money laundering and customer privacy. Additionally, colleagues engaged in lending activities receive training for laws and regulations related to flood disaster protection, equal credit opportunity, fair lending, and/or other courses related to the extension of credit. We set a high standard of expectation for adherence to compliance management and seek to continuously enhance our performance. Capital (This section should be read in conjunction with the " Regulatory Matters " section included in Part I, Item 1: Business and Note 24 - " Other Regulatory Matters " of the Notes to Consolidated Financial Statements.) Both regulatory capital and shareholders' equity are managed at the Bank and on a consolidated basis. We have an active program for managing capital and maintain a comprehensive process for assessing the Company's overall capital adequacy. We believe our current levels of both regulatory capital and shareholders' equity are adequate. TheU.S. federal banking regulatory agencies have permitted BHCs and banks to phase-in, for regulatory capital purposes, the day-one impact of the new CECL accounting rule on retained earnings over a period of three years. As part of its response to the impact of COVID-19, theU.S. federal banking regulatory agencies issued a final rule that provides the option to temporarily delay certain effects of CECL on regulatory capital for two years, followed by a three-year transition period. The final rule allows BHCs and banks to delay for two years 100% of the day-one impact of adopting CECL and 25% of the cumulative change in the reported allowance for credit losses since adopting CECL.Huntington has elected to adopt the final rule, which is reflected in the regulatory capital data presented below. 83Huntington Bancshares Incorporated -------------------------------------------------------------------------------- Table of Contents Regulatory Capital We are subject to the Basel III capital requirements including the standardized approach for calculating risk-weighted assets in accordance with subpart D of the final capital rule. The following table presents risk-weighted assets and other financial data necessary to calculate certain financial ratios, including CET1, which we use to measure capital adequacy. Table 25 - Capital Under Current Regulatory Standards (Basel III) At December 31, (dollar amounts in millions) 2020 2019 CET 1 risk-based capital ratio: Total shareholders' equity$ 12,992 11,795 Regulatory capital adjustments: CECL transitional amount (1) 453 - Shareholders' preferred equity and related surplus (2,196) (1,207) Accumulated other comprehensive loss (income) offset (192) 256 Goodwill and other intangibles, net of taxes (2,107) (2,153)
Deferred tax assets that arise from tax loss and credit carryforwards (63)
(44)
CET 1 capital 8,887 8,647
Additional tier 1 capital
Shareholders' preferred equity and related surplus 2,196 1,207
Tier 1 capital 11,083 9,854
Long-term debt and other tier 2 qualifying instruments 660 672
Qualifying allowance for loan and lease losses 1,113 887
Total risk-based capital $ 12,856 $ 11,413
Risk-weighted assets (RWA) $ 88,878 $ 87,512
CET 1 risk-based capital ratio 10.00 % 9.88 %
Other regulatory capital data:
Tier 1 risk-based capital ratio 12.47 11.26
Total risk-based capital ratio 14.46 13.04
Tier 1 leverage ratio 9.32 9.62
(1)The CECL transitional amount includes the impact of
At December 31,
2020 2019
Consolidated capital calculations:
Common shareholders' equity $ 10,800 $ 10,592
Preferred shareholders' equity 2,192 1,203
Total shareholders' equity 12,992 11,795
Goodwill (1,990) (1,990)
Other intangible assets (1) (151) -
Total tangible equity 10,851 9,805
Preferred shareholders' equity (2,192) (1,203)
Total tangible common equity $ 8,659 $ 8,602
Total assets $ 123,038 $ 109,002
Goodwill (1,990) (1,990)
Other intangible assets (1) (151) (183)
Total tangible assets $ 120,897 $ 106,829
Tangible equity / tangible asset ratio 8.98 % 9.01 %
Tangible common equity / tangible asset ratio 7.16 7.88
Tangible common equity / RWA ratio 9.74 9.62
(1)Other intangible assets are net of deferred tax liability.
2020 Form 10-K 84
--------------------------------------------------------------------------------Table of Contents The following table presents certain regulatory capital data at both the consolidated and Bank levels for each of the periods presented: Table 27 - Regulatory Capital Data (1)
At December 31,
(dollar amounts in millions) Basel III
2020 2019
Total risk-weighted assets Consolidated $ 88,878 $ 87,512
Bank 88,601 87,298
CET 1 risk-based capital Consolidated 8,887 8,647
Bank 9,438 9,747
Tier 1 risk-based capital Consolidated 11,083 9,854
Bank 10,601 10,621
Tier 2 risk-based capital Consolidated 1,774 1,559
Bank 1,431 1,243
Total risk-based capital Consolidated 12,856 11,413
Bank 12,032 11,864
CET 1 risk-based capital ratio Consolidated 10.00 % 9.88 %
Bank 10.65 11.17
Tier 1 risk-based capital ratio Consolidated 12.47
11.26
Bank 11.97 12.17
Total risk-based capital ratio Consolidated 14.46 13.04
Bank 13.58 13.59
Tier 1 leverage ratio Consolidated 9.32 9.26
Bank 8.94 10.01
At December 31, 2020 , we maintained Basel III capital ratios in excess of the
well-capitalized standards established by the FRB. The balance sheet growth
impact on regulatory capital ratios was largely offset by a change in asset mix
during 2020 related to PPP loans and elevated deposits at the Federal Reserve ,
both of which are 0% risk weighted. The capital impact of earnings, adjusted for
the CECL transition, was largely offset by the repurchase of $92 million of
common stock over the last four quarters (primarily in the 2020 first quarter)
and cash dividends. The regulatory Tier 1 risk-based capital and total
risk-based capital ratios also reflect the issuance of $500 million of Series F
preferred stock and $500 million of Series G preferred stock in the 2020 second
quarter and third quarter, respectively.
Shareholders' Equity
We generate shareholders' equity primarily through the retention of earnings,
net of dividends and share repurchases. Other potential sources of shareholders'
equity include issuances of common and preferred stock. Our objective is to
maintain capital at an amount commensurate with our risk profile and risk
tolerance objectives, to meet both regulatory and market expectations, and to
provide the flexibility needed for future growth and business opportunities.
Shareholders' equity totaled $13.0 billion at December 31, 2020 , an increase of
$1.2 billion or 10% when compared with December 31, 2019 due to the issuance of
$500 million of Series F Preferred Stock and $500 million of Series G Preferred
Stock in the 2020 second quarter and third quarter, respectively.
On February 2, 2021 , Huntington issued $500 million of preferred stock.
Huntington issued 20,000,000 depositary shares, each representing a 1/40th
ownership interest in a share of 4.50% Series H Non-Cumulative Perpetual
Preferred Stock (Preferred H Stock), par value $0.01 per share, with a
liquidation preference of $1,000 per share (equivalent to $25 per depositary
share).
On June 25, 2020 , we were notified by the FRB that certain large BHCs, including
Huntington , were required to update and resubmit their capital plans because of
changes in financial markets and the macroeconomic outlook that could have a
material impact on the BHC's risk profile and financial condition required the
use of updated scenarios. On December 18, 2020 , we were notified by the FRB that
under both of the severely adverse and the alternative severely adverse economic
stress scenarios in the supervisory stress tests, our modeled capital ratios
85 Huntington Bancshares Incorporated
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would continue to exceed the minimum requirements under the FRB's capital
adequacy rules. In addition, the FRB announced that they were extending, through
March 31, 2021 , the time period for the FRB to notify certain large BHCs,
including Huntington , whether the FRB will recalculate BHC's stress capital
buffer.
The FRB also announced that certain large BHCs, including Huntington , will be
permitted to make both dividend and share repurchases during the first quarter
of 2021, subject to limits based on the amount of dividends paid in the second
quarter of 2020 and the Bank's average net income for the four preceding
quarters. Our first quarter dividend that was declared by the Board of Directors
on January 22, 2021 complies with these limits. The FRB will conduct additional
analysis each quarter to determine if the restrictions on first quarter capital
distributions should be extended to future quarters.
Dividends
We consider disciplined capital management as a key objective, with dividends
representing one component. Our strong capital ratios position us to take
advantage of additional capital management opportunities.
Share Repurchases
From time to time the Board of Directors authorizes the Company to repurchase
shares of our common stock. Although we announce when the Board of Directors
authorizes share repurchases, we typically do not give any public notice before
we repurchase our shares. Future stock repurchases may be private or open-market
repurchases, including block transactions, accelerated or delayed block
transactions, forward transactions, and similar transactions. Various factors
determine the amount and timing of our share repurchases, including our capital
requirements, the number of shares we expect to issue for employee benefit plans
and acquisitions, market conditions (including the trading price of our stock),
and regulatory and legal considerations.
BUSINESS SEGMENT DISCUSSION
Overview
Our business segments are based on our internally-aligned segment leadership
structure, which is how we monitor results and assess performance. We have four
major business segments: Consumer and Business Banking, Commercial Banking,
Vehicle Finance, and Regional Banking and The Huntington Private Client Group
(RBHPCG). The Treasury / Other function includes technology and operations,
other unallocated assets, liabilities, revenue, and expense.
Business segment results are determined based upon our management practices,
which assigns balance sheet and income statement items to each of the business
segments. The process is designed around our organizational and management
structure and, accordingly, the results derived are not necessarily comparable
with similar information published by other financial institutions.
For a discussion of business segment trends for 2019 versus 2018, see "Part II,
Item 7: Management's Discussion and Analysis of Financial Condition and Results
of Operations" Business Segment Discussion included in our 2019 Form 10-K, filed
with the SEC on February 14, 2020 .
Revenue Sharing
Revenue is recorded in the business segment responsible for the related product
or service. Fee sharing is recorded to allocate portions of such revenue to
other business segments involved in selling to, or providing service to
customers. Results of operations for the business segments reflect these fee
sharing allocations.
2020 Form 10-K 86
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Expense Allocation
The management process that develops the business segment reporting utilizes
various estimates and allocation methodologies to measure the performance of the
business segments. Expenses are allocated to business segments using a two-phase
approach. The first phase consists of measuring and assigning unit costs
(activity-based costs) to activities related to product origination and
servicing. These activity-based costs are then extended, based on volumes, with
the resulting amount allocated to business segments that own the related
products. The second phase consists of the allocation of overhead costs to all
four business segments from Treasury / Other. We utilize a full-allocation
methodology, where all Treasury / Other expenses and a small amount of other
residual unallocated expenses, are allocated to the four business segments.
Funds Transfer Pricing (FTP)
We use an active and centralized FTP methodology to attribute appropriate net
interest income to the business segments. The intent of the FTP methodology is
to transfer interest rate risk from the business segments by providing matched
duration funding of assets and liabilities. The result is to centralize the
financial impact, management, and reporting of interest rate risk in the
Treasury / Other function where it can be centrally monitored and managed. The
Treasury / Other function charges (credits) an internal cost of funds for assets
held in (or pays for funding provided by) each business segment. The FTP rate is
based on prevailing market interest rates for comparable duration assets (or
liabilities).
Net Income by Business Segment
Net income by business segment for the past three years is presented in the
following table:
Table 28 - Net Income by Business Segment
Year Ended December 31,
(dollar amounts in millions) 2020 2019 2018
Consumer and Business Banking $ 270 $ 635 $ 502
Commercial Banking 78 553 624
Vehicle Finance 120 172 162
RBHPCG 85 113 119
Treasury / Other 264 (62) (14)
Net income $ 817 $ 1,411 $ 1,393
Treasury / Other
The Treasury / Other function includes revenue and expense related to assets,
liabilities, derivatives and equity not directly assigned or allocated to one of
the four business segments. Assets include investment securities and bank owned
life insurance.
Net interest income includes the impact of administering our investment
securities portfolios, the net impact of derivatives used to hedge interest rate
sensitivity as well as the financial impact associated with our FTP methodology,
as described above. Noninterest income includes miscellaneous fee income not
allocated to other business segments, such as bank owned life insurance income
and securities and trading asset gains or losses. Noninterest expense includes
certain corporate administrative, and other miscellaneous expenses not allocated
to other business segments. The provision for income taxes for the business
segments is calculated at a statutory 21% tax rate, although our overall
effective tax rate is lower.
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Consumer and Business Banking
Table 29 - Key Performance Indicators for Consumer and Business Banking
Year Ended December 31, Change from 2019
(dollar amounts in millions unless
otherwise noted) 2020 2019 Amount Percent 2018
Net interest income $ 1,436 $ 1,766 $ (330) (19) % $ 1,727
Provision for credit losses 265 114 151 132 137
Noninterest income 945 825 120 15 744
Noninterest expense 1,774 1,673 101 6 1,699
Provision for income taxes 72 169 (97) (57) 133
Net income $ 270 $ 635 $ (365) (57) % $ 502
Number of employees (average
full-time equivalent) 7,908 8,000 (92) (1) % 8,348
Total average assets $ 28,853 $ 25,411 $ 3,442 14 $ 25,147
Total average loans/leases 25,453 22,130 3,323 15 22,037
Total average deposits 56,960 51,645 5,315 10 47,782
Net interest margin 2.48 % 3.37 % (0.89) % (26) 3.56 %
NCOs $ 102 $ 128 $ (26) (20) $ 108
NCOs as a % of average loans and
leases 0.40 % 0.58 % (0.18) % (31) 0.49 %
2020 versus 2019
Consumer and Business Banking, including Home Lending, reported net income of
$270 million in 2020, a decrease of $365 million , or 57%, compared with net
income of $635 million in 2019. Segment net interest income decreased $330
million , or 19%, due to decreased spread on deposits. The provision for credit
losses increased $151 million , or 132% due to the deteriorating economic
environment as a result of the COVID-19 pandemic. Noninterest income increased
$120 million , or 15%, primarily due to increased mortgage banking income,
partially offset by lower service charge income reflecting reduced customer
activity and elevated deposit levels. Noninterest expense increased $101
million , or 6%, due to increased personnel and allocated overhead, slightly
offset by lower occupancy and equipment expense as a result of branch
consolidations and divestitures, along with decreased travel.
Home Lending, an operating unit of Consumer and Business Banking, reflects the
result of the origination, sale, and servicing of mortgage loans less referral
fees and net interest income for mortgage banking products distributed by the
retail branch network and other business segments. Home Lending reported net
income of $78 million in 2020, compared with a net income of $23 million in the
prior year. Noninterest income increased $179 million , driven primarily by
higher secondary marketing spreads and an increase in salable mortgage
originations. Noninterest expense increased $80 million due to higher personnel
expense as a result of higher origination volumes.
Commercial Banking
Table 30 - Key Performance Indicators for Commercial Banking
Year Ended December 31, Change from 2019
(dollar amounts in millions unless
otherwise noted) 2020 2019 Amount Percent 2018
Net interest income $ 903 $ 1,037 $ (134) (13) % $ 1,013
Provision for credit losses 626 132 494 374 42
Noninterest income 364 359 5 1 321
Noninterest expense 542 564 (22) (4) 502
Provision for income taxes 21 147 (126) (86) 166
Net income $ 78 $ 553 $ (475) (86) % $ 624
Number of employees (average
full-time equivalent) 1,276 1,317 (41) (3) % 1,256
Total average assets $ 35,490 $ 33,843 $ 1,647 5 $ 31,209
Total average loans/leases 27,234 27,151 83 - 26,137
Total average deposits 23,321 21,072 2,249 11 22,197
Net interest margin 3.04 % 3.49 % (0.45) % (13) 3.53 %
NCOs $ 302 $ 93 $ 209 225 $ (7)
NCOs as a % of average loans and
leases 1.11 % 0.34 % 0.77 % 226 (0.03) %
2020 Form 10-K 88-------------------------------------------------------------------------------- Table of Contents 2020 versus 2019 Commercial Banking reported net income of$78 million in 2020, a decrease of$475 million , or 86%, compared to the year ago period. Segment net interest income decreased$134 million , or 13%, primarily due to a 45 basis point decrease in net interest margin driven by a sharp decline in the benefit of deposits. The provision for credit losses increased$494 million , or 374%, due to the deteriorating economic environment as a result of the COVID-19 pandemic, as well as an increase incurred losses largely driven by oil and gas, a coal-related credit and a large retail mall REIT relationship. Noninterest income increased$5 million , or 1%, largely driven by an increase in treasury management related revenue reflecting the impact of lower earnings credits on commercial deposit service charges, partially offset by a decline in the gains on sale of loans and leases. Noninterest expense decreased$22 million , or 4%, primarily due to personnel expense reflecting a reduction in incentives and a 3% reduction in full-time equivalent employees, and lower travel and business development expense as a result of COVID-19 related shelter-in-place ordinances, partially offset by an increase in outside data processing and other services. Vehicle Finance
Table 31 - Key Performance Indicators for Vehicle Finance
Year Ended December 31, Change from 2019
(dollar amounts in millions unless
otherwise noted) 2020 2019 Amount Percent 2018
Net interest income $ 430 $ 397 $ 33 8 % $ 392
Provision (reduction in allowance)
for credit losses 146 44 102 232 55
Noninterest income 9 12 (3) (25) 11
Noninterest expense 141 148 (7) (5) 143
Provision for income taxes 32 45 (13) (29) 43
Net income $ 120 $ 172 $ (52) (30) % $ 162
Number of employees (average
full-time equivalent) 266 265 1 - % 264
Total average assets $ 19,760 $ 19,393 $ 367 2 $ 18,430
Total average loans/leases 19,939 19,466 473 2 18,484
Total average deposits 653 333 320 96 338
Net interest margin 2.15 % 2.04 % 0.11 % 5 2.12 %
NCOs $ 45 $ 43 $ 2 5 $ 43
NCOs as a % of average loans and
leases 0.23 % 0.22 % 0.01 % 5 0.23 %
2020 versus 2019
Vehicle Finance reported net income of $120 million in 2020, a decrease of $52
million , or 30%, compared with net income of $172 million in 2019. The decrease
was primarily driven by a $102 million increase in the provision for loan losses
due to the changes in the economic outlook as a result of the COVID-19 pandemic.
Segment net interest income increased $33 million or 8%, due to a 11 basis point
increase in the net interest margin and a $0.5 billion increase in average loan
balances. The increase in average loan balances reflects strong indirect auto
and RV and marine originations over the past 12 months which have more than
offset lower commercial balances as a result of lower floor plan line
utilization. Noninterest income decreased $3 million primarily as a result of
lower servicing revenue as the remaining underlying serviced loans were
repurchased during the latter half of 2020, while noninterest expense decreased
$7 million , or 5%, primarily reflecting lower allocated overhead.
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Regional Banking and The Huntington Private Client Group Table 32 - Key Performance Indicators for
Year Ended December 31, Change from 2019
(dollar amounts in millions unless
otherwise noted) 2020 2019 Amount Percent 2018
Net interest income $ 160 $ 198 $ (38) (19) % $ 203
Provision (reduction in allowance) for
credit losses 11 (3) 14 467 1
Noninterest income 201 198 3 2 193
Noninterest expense 243 256 (13) (5) 244
Provision for income taxes 22 30 (8) (27) 32
Net income $ 85 $ 113 $ (28) (25) % $ 119
Number of employees (average full-time
equivalent) 1,018 1,057 (39) (4) % 1,026
Total average assets $ 6,845 $ 6,438 $ 407 6 $ 5,802
Total average loans/leases 6,574 6,132 442 7 5,487
Total average deposits 6,531 5,983 548 9 5,926
Net interest margin 2.36 % 3.18 % (0.82) % (26) 3.32 %
NCOs $ - $ 1 $ (1) (100) $ -
NCOs as a % of average loans and leases 0.01 % 0.02 % (0.01) % (50) - %
Total assets under management (in
billions)-eop $ 19.8 $ 17.5 $ 2.3 13 $ 15.3
Total trust assets (in billions)-eop 123.0 121.8 1.2 1 105.1
eop-End of Period.
2020 versus 2019
RBHPCG reported net income of $85 million in 2020, a decrease of $28 million , or
25%, compared with a net income of $113 million in 2019. Net interest income
decreased $38 million , or 19%, due to an 82 basis point decrease in net interest
margin, reflecting both lower deposit and loan spreads. Average loans increased
$0.4 billion , or 7%, primarily due to residential real estate mortgage loans,
and average deposits increased $0.5 billion , or 9%, primarily related to PPP,
stimulus, and higher customer liquidity levels. Noninterest income increased $3
million , or 2%, primarily due to the gain on sale of Retirement Plan Services
recordkeeping and administrative services, higher residential title and life
insurance fees, and an increase in assets under management. Noninterest expense
decreased $13 million , or 5%, primarily due to lower travel and business
development expense as well as lower sponsorships due to delays or cancellation
of events.
RESULTS FOR THE FOURTH QUARTER
Earnings Discussion
In the 2020 fourth quarter, we reported net income of $316 million , a decrease
of $1 million , from the 2019 fourth quarter. Diluted earnings per common share
for the 2020 fourth quarter were $0.27 , a decrease of $0.01 from the year-ago
quarter.
Net Interest Income / Average Balance Sheet
FTE net interest income for the 2020 fourth quarter increased $44 million , or
6%, from the 2019 fourth quarter. This reflected a $12.2 billion , or 12%,
increase in average earning assets, partially offset by an 18 basis point
decrease in the FTE net interest margin to 2.94%. The NIM compression reflected
a 90 basis point decrease in average earning asset yields and a 25 basis point
decrease in the benefit of non-interest bearing funding sources, partially
offset by a 97 basis point decrease in the cost of interest bearing liabilities.
These decreases reflected the impact of lower interest rates and changes in
balance sheet mix, including elevated deposits at the Federal Reserve Bank .
2020 Form 10-K 90
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Fourth Quarter Change
(dollar amounts in millions) 2020 2019 Amount Percent
Loans/Leases
Commercial and industrial $ 34,850 $ 30,373 $ 4,477 15 %
Commercial real estate 7,177 6,806 371 5
Total commercial 42,027 37,179 4,848 13
Automobile 12,857 12,607 250 2
Home equity 8,919 9,192 (273) (3)
Residential mortgage 12,100 11,330 770 7
RV and marine 4,181 3,564 617 17
Other consumer 1,032 1,231 (199) (16)
Total consumer 39,089 37,924 1,165 3
Total loans/leases 81,116 75,103 6,013 8
Total securities 24,075 23,161 914 4
Loans held-for-sale and other earning assets 7,031 1,798 5,233 291
Total earning assets $ 112,222 $ 100,062 $ 12,160 12 %
Average earning assets for the 2020 fourth quarter increased $12.2 billion , or
12%, from the year-ago quarter, primarily reflecting a $6.0 billion , or 8%,
increase in average total loans and leases. Average C&I loans increased $4.5
billion , or 15%, primarily reflecting $6.2 billion of average PPP loans,
partially offset by a $0.9 billion decrease in dealer floorplan loans. Average
residential mortgage loans increased $0.8 billion , or 7%, reflecting robust
mortgage production in the second half of 2020. Average RV and marine loans
increased $0.6 billion , or 17%, reflecting strong consumer demand and continued
strong production levels. Average held-for-sale and other earning assets
increased $5.2 billion , or 291%, primarily reflecting the $4.8 billion increase
in interest bearing deposits at the Federal Reserve Bank . Average total
securities increased $0.9 billion , or 4%, primarily reflecting the net purchase
of securities during the 2020 fourth quarter and the $0.2 billion mark-to-market
of the available-for-sale portfolio.
Table 34 - Average Interest-Bearing Liabilities - 2020 Fourth Quarter vs. 2019 Fourth Quarter
Fourth Quarter Change
(dollar amounts in millions) 2020 2019 Amount Percent
Interest-bearing deposits:
Demand deposits: interest-bearing 25,094 20,140 4,954 25
Money market deposits 26,144 24,560 1,584 6
Savings and other domestic deposits 11,468 9,552 1,916 20
Core certificates of deposit 1,479 4,795 (3,316) (69)
Other domestic deposits of $250,000 or more 139 313 (174) (56)
Brokered deposits and negotiable CDs 4,100 2,589 1,511 58
Total interest-bearing deposits 68,424 61,949 6,475 10
Short-term borrowings 239 1,965 (1,726) (88)
Long-term debt 8,799 9,886 (1,087) (11)
Total interest-bearing liabilities $ 77,462 $ 73,800 $ 3,662 5 %
Average total interest-bearing liabilities for the 2020 fourth quarter increased
$3.7 billion , or 5%, from the year-ago quarter. Average interest-bearing demand
deposits increased $5.0 billion , or 25%, average savings and other domestic
deposits increased $1.9 billion , or 20%, and average money market deposits
increased $1.6 billion , or 6%. Average brokered deposits and negotiable CDs
increased $1.5 billion , or 58%, reflecting balance growth in new and existing
brokered deposit accounts. Partially offsetting these increases, average core
CDs decreased $3.3 billion , or 69%, reflecting the maturity of balances related
to the 2018 consumer deposit growth initiatives. Average total debt decreased
$2.8 billion , or 24%, reflecting the repayment of shortterm borrowings, the
maturity and issuance of $2.1 billion and $1.2 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.
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Provision for Credit Losses
The provision for credit losses increased $24 million to $103 million in the
2020 fourth quarter compared to $79 million from the year-ago quarter.
Noninterest Income
Table 35 - Noninterest Income - 2020 Fourth Quarter vs. 2019 Fourth Quarter
Fourth Quarter Change
(dollar amounts in millions) 2020 2019 Amount Percent
Mortgage banking income $ 90 $ 58 $ 32 55 %
Service charges on deposit accounts 78 95 (17) (18)
Card and payment processing income 65 64 1 2
Trust and investment management services 49 47 2 4
Capital markets fees 34 31 3 10
Insurance income 25 24 1 4
Bank owned life insurance income 14 17 (3) (18)
Gain on sale of loans 13 16 (3) (19)
Net (losses) gains on sales of securities - (22) 22 100
Other noninterest income 41 42 (1) (2)
Total noninterest income $ 409 $ 372 $ 37 10 %
Noninterest income for the 2020 fourth quarter increased $37 million , or 10%,
from the year-ago quarter. Mortgage banking income increased $32 million , or
55%, primarily reflecting higher volume and overall salable spreads, partially
offset by a $16 million decrease in income from net mortgage servicing rights
(MSR) risk management. The 2020 fourth quarter included no net gains or losses
on sales of securities, while the year-ago quarter included $22 million of net
losses related to the $2 billion portfolio repositioning completed in the
quarter. Service charges on deposits accounts decreased $17 million , or 18%,
primarily reflecting reduced customer activity and elevated deposits.
Noninterest Expense
Table 36 - Noninterest Expense - 2020 Fourth Quarter vs. 2019 Fourth Quarter
Fourth Quarter Change
(dollar amounts in millions) 2020 2019 Amount Percent
Personnel costs $ 426 $ 426 $ - - %
Outside data processing and other services 111 89 22 25
Equipment 49 42 7 17
Net occupancy 39 41 (2) (5)
Professional services 21 14 7 50
Amortization of intangibles 10 12 (2) (17)
Marketing 15 9 6 67
Deposit and other insurance expense 8 10 (2) (20)
Other noninterest expense 77 58 19 33
Total noninterest expense $ 756 $ 701 $ 55 8 %
Number of employees (average full-time
equivalent) 15,477 15,495 (18) - %
Noninterest expense for the 2020 fourth quarter increased $55 million , or 8%,
from the year-ago quarter. Outside data processing and other services expense
increased $22 million , or 25%, primarily driven by expenses related to
technology investments. Other noninterest expense increased $19 million , or 33%,
primarily reflecting a $20 million donation to The Columbus Foundation and $7
million of expense from the November 2020 debt tender, partially offset by a $4
million final true-up of the earn out related to the Hutchinson, Shockey, Erley
& Co. acquisition in the year-ago quarter. Equipment expense increased $7
million , or 17%, primarily reflecting increased depreciation expense related to
technology investments as well as expense related to the branch and facilities
consolidations announced in the 2020 third quarter. Professional services
expense increased $7 million , or 50%, due to $8 million of TCF merger-related
expense. Marketing increased $6 million , or 67%, primarily reflecting strategic
2020 Form 10-K 92
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marketing campaigns. The 2020 fourth quarter and 2019 fourth quarter included $6
million and $25 million of total noninterest expense, respectively, related to
the previously-announced position reductions and consolidation of branches and
other corporate facilities.
Provision for Income Taxes
(This section should be read in conjunction with Note 1 - " Significant
Accounting Policies " and Note 19 - " Income Taxes " of the Notes to
Consolidated Financial Statements.)
The provision for income taxes was $59 million in the 2020 fourth quarter
compared to $55 million in the 2019 fourth quarter. The effective tax rates for
the 2020 fourth quarter and 2019 fourth quarter were 15.8% and 14.8%,
respectively.
At December 31, 2020 , the Company had a net federal deferred tax liability of
$158 million and a net state deferred tax asset of $24 million .
Credit Quality
NCOs
NCOs increased $39 million year-over-year to $112 million . The increase in
commercial NCOs was related to the loss incurred on loan sales from one retail
mall REIT relationship, while the decrease in consumer NCOs reflected continued
strong performance in those portfolios. NCOs represented an annualized 0.55% of
average loans and leases in the current quarter, relatively unchanged from the
prior quarter and up from 0.39% in the year-ago quarter.
NALs
Asset quality metrics remained in line with overall expectations. The consumer
portfolio metrics remained relatively stable, reflecting normal seasonal
impacts. The commercial portfolio metrics reflected continued volatility in the
oil and gas portfolio, while the remainder of the commercial portfolio has
performed well.
NALs increased $64 million , or 14%, from the year-ago quarter to $532 million ,
or 0.65% of total loans and leases. The year-over-year increase was primarily in
the C&I portfolio. OREO balances decreased $7 million , or 64%, from the year-ago
quarter. NPAs increased to $563 million , or 0.69% of total loans and leases and
OREO. On a linked quarter basis, NALs decreased $37 million , or 7%, while NPAs
decreased $39 million , or 6%.
ACL
(This section should be read in conjunction with Note 5 - " Loans / Leases "
and Note 6 - " Allowance for Credit Losses " of the Notes to Consolidated Financial Statements.) The ALLL increased by$1.0 billion from the year ago quarter, increasing as a percentage of total loans and leases to 2.22% compared to 1.04% a year ago. The ALLL as a percentage of period-end total NALs increased to 341% from 167% over the same period. The ACL increased by$1.0 billion from the year-ago quarter to$1.9 billion , or 2.29% of total loans and leases. On a linked quarter basis, the ACL decreased$12 million . We believe the levels of the ALLL and ACL are appropriate given the current level of problem loans and the economic outlook. 93Huntington Bancshares Incorporated -------------------------------------------------------------------------------- Table of Contents Table 37 - Selected Quarterly Financial Information Three Months Ended (amounts in millions, except per share data) December 31, September 30, June 30, March 31, 2020 2020 2020 2020 Interest income$ 878 $ 892 $ 902 $ 975 Interest expense 53 75 110 185 Net interest income 825 817 792 790 Provision for credit losses 103 177 327 441 Net interest income after provision for credit losses 722 640 465 349 Total noninterest income 409 430 391 361 Total noninterest expense 756 712 675 652 Income before income taxes 375 358 181 58 Provision (benefit) for income taxes 59 55 31 10 Net income 316 303 150 48 Dividends on preferred shares 35 28 19 18
Net income applicable to common shares
275$ 131 $ 30 Common shares outstanding Average-basic 1,017 1,017 1,016 1,018 Average-diluted 1,036 1,031 1,029 1,035 Ending 1,017 1,017 1,017 1,014 Book value per common share$ 10.62 $ 10.54 $ 10.44 $ 10.42 Tangible book value per common share (1) 8.51 8.43 8.32 8.28 Per common share Net income-basic$ 0.28 $ 0.27 $ 0.13 $ 0.03 Net income-diluted 0.27 0.27 0.13 0.03 Return on average total assets 1.04 % 1.01 % 0.51 % 0.17 % Return on average common shareholders' equity 10.4 10.2 5.0 1.1 Return on average tangible common shareholders' equity (2) 13.3 13.2 6.7 1.8 Efficiency ratio (3) 60.2 56.1 55.9 55.4 Effective tax rate 15.8 15.2 17.2 17.0 Margin analysis-as a % of average earning assets (5) Interest income (4) 3.13 % 3.22 % 3.35 % 3.88 % Interest expense 0.19 0.26 0.41 0.74 Net interest margin (4) 2.94 % 2.96 % 2.94 % 3.14 % Revenue-FTE Net interest income$ 825 $ 817 $ 792 $ 790 FTE adjustment 5 5 5 6 Net interest income (4) 830 822 797 796 Noninterest income 409 430 391 361 Total revenue (4)$ 1,239 $ 1,252 $ 1,188 $ 1,157 Table 38 -Selected Quarterly Capital Data Capital adequacy (Basel III)
2020
(dollar amounts in millions)December 31 ,
$ 88,878 $ 88,417 $ 87,323 $ 90,193 Tier 1 leverage ratio (period end) 9.32 % 9.31 % 8.86 % 9.01 % CET 1 risk-based capital ratio 10.00 9.89 9.84 9.47 Tier 1 risk-based capital ratio (period end) 12.47 12.37 11.79 10.81 Total risk-based capital ratio (period end) 14.46 14.39 13.84 12.74 Tangible common equity / tangible asset ratio (5) (7) 7.16 7.27 7.28 7.52 Tangible equity / tangible asset ratio (6) (7) 8.98 9.13 8.74 8.60 Tangible common equity / risk-weighted assets ratio (7) 9.74 9.70 9.69 9.32 (1)Other intangible assets are net of deferred tax liability. (2)Net income applicable to common shares excluding expense for amortization of intangibles for the period divided by average tangible shareholders' equity. Average tangible shareholders' equity equals average total shareholders' equity less average intangible assets and goodwill. Expense for amortization of intangibles and average intangible assets are net of deferred tax liability. 2020 Form 10-K 94 -------------------------------------------------------------------------------- Table of Contents (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 (losses). (4)Presented on a FTE basis assuming a 21% tax rate. (5)Tangible common equity (total common equity less goodwill and other intangible assets) divided by tangible assets (total assets less goodwill and other intangible assets). Other intangible assets are net of deferred tax. (6)Tangible equity (total equity less goodwill and other intangible assets) divided by tangible assets (total assets less goodwill and other intangible assets). Other intangible assets are net of deferred tax. (7)Tangible equity, tangible common equity, and tangible assets are non-GAAP financial measures. Additionally, any ratios utilizing these financial measures are also non-GAAP. These financial measures have been included as they are considered to be critical metrics with which to analyze and evaluate financial condition and capital strength. Other companies may calculate these financial measures differently. Table 39 - Selected Quarterly Financial Information Three Months Ended (amounts in millions, except per share data) December 31, September 30, June 30, March 31, 2019 2019 2019 2019 Interest income$ 1,011 $ 1,052 $ 1,068 $ 1,070 Interest expense 231 253 256 248 Net interest income 780 799 812 822 Provision for credit losses 79 82 59 67 Net interest income after provision for credit losses 701 717 753 755 Total noninterest income 372 389 374 319 Total noninterest expense 701 667 700 653 Income before income taxes 372 439 427 421 Provision (benefit) for income taxes 55 67 63 63 Net income 317 372 364 358 Dividends on preferred shares 19 18 18 19 Net income applicable to common shares$ 298 $ 354 $ 346 $ 339 Common shares outstanding Average-basic 1,029 1,035 1,045 1,047 Average-diluted 1,047 1,051 1,060 1,066 Ending 1,020 1,033 1,038 1,046 Book value per share$ 10.38 $ 10.37 $ 10.08 $ 9.78 Tangible book value per share (1) 8.25 8.25 7.97 7.67 Per common share Net income-basic$ 0.29 $ 0.34 $ 0.33 $ 0.32 Net income -diluted 0.28 0.34 0.33 0.32 Return on average total assets 1.15 % 1.37 % 1.36 % 1.35 % Return on average common shareholders' equity 11.1 13.4 13.5 13.8 Return on average tangible common shareholders' equity (2) 14.3 17.3 17.7 18.3 Efficiency ratio (3) 58.4 54.7 57.6 55.8 Effective tax rate 14.8 15.4 14.6 15.0
Margin analysis-as a % of average earning assets (5) Interest income (4)
4.03 % 4.21 % 4.35 % 4.40 %
Interest expense 0.91 1.01 1.04 1.01
Net interest margin (4) 3.12 % 3.20 % 3.31 % 3.39 %
Revenue-FTE
Net interest income $ 780 $ 799 $ 812 $ 822
FTE adjustment 6 6 7 7
Net interest income (4) 786 805 819 829
Noninterest income 372 389 374 319
Total revenue (4) $ 1,158 $ 1,194 $ 1,193 $ 1,148
95 Huntington Bancshares Incorporated
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Table 40 - Selected Quarterly Capital Data
Capital adequacy (Basel III) 2019
(dollar amounts in millions) December 31,
September 30, June 30, March 31, Total risk-weighted assets
$ 87,512 $ 86,719 $ 86,332 $ 85,966
Tier 1 leverage ratio 9.26 % 9.34 % 9.24 % 9.16 %
Tier 1 risk-based capital ratio 9.88 10.02 9.88 9.84
Total risk-based capital ratio 11.26 11.41 11.28 11.25
Tier 1 common risk-based capital ratio 13.04 13.29 13.13 13.11
Tangible common equity / tangible asset ratio
(5)(7) 7.88 8.00 7.80 7.57
Tangible equity / tangible asset ratio (6)(7) 9.01 9.13 8.93 8.71
Tangible common equity / risk-weighted assets
ratio (7) 9.62 9.83 9.58 9.34
(1)Other intangible assets are net of deferred tax liability.
(2)Net income applicable to common shares excluding expense for amortization of
intangibles for the period divided by average tangible shareholders' equity.
Average tangible shareholders' equity equals average total shareholders' equity
less average intangible assets and goodwill. Expense for amortization of
intangibles and average intangible assets are net of deferred tax.
(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 (losses).
(4)Presented on a FTE basis assuming a 21% tax rate.
(5)Tangible common equity (total common equity less goodwill and other
intangible assets) divided by tangible assets (total assets less goodwill and
other intangible assets). Other intangible assets are net of deferred tax.
(6)Tangible equity (total equity less goodwill and other intangible assets)
divided by tangible assets (total assets less goodwill and other intangible
assets). Other intangible assets are net of deferred tax.
(7)Tangible equity, tangible common equity, and tangible assets are non-GAAP
financial measures. Additionally, any ratios utilizing these financial measures
are also non-GAAP. These financial measures have been included as they are
considered to be critical metrics with which to analyze and evaluate financial
condition and capital strength. Other companies may calculate these financial
measures differently.
ADDITIONAL DISCLOSURES
Forward-Looking Statements
This report, including MD&A, contains certain forward-looking statements,
including, but not limited to, certain plans, expectations, goals, projections,
and statements, which are not historical facts and are subject to numerous
assumptions, risks, and uncertainties. Statements that do not describe
historical or current facts, including statements about beliefs and
expectations, are forward-looking statements. Forward-looking statements may be
identified by words such as expect, anticipate, believe, intend, estimate, plan,
target, goal, or similar expressions, or future or conditional verbs such as
will, may, might, should, would, could, or similar variations. The
forward-looking statements are intended to be subject to the safe harbor
provided by Section 27A of the Securities Act of 1933, Section 21E of the
Securities Exchange Act of 1934, and the Private Securities Litigation Reform
Act of 1995.
While there is no assurance that any list of risks and uncertainties or risk
factors is complete, below are certain factors which could cause actual results
to differ materially from those contained or implied in the forward-looking
statements: changes in general economic, political, or industry conditions; the
magnitude and duration of the COVID-19 pandemic and its impact on the global
economy and financial market conditions and our business, results of operations,
and financial condition; uncertainty in U.S. fiscal and monetary policy,
including the interest rate policies of the Federal Reserve Board ; volatility
and disruptions in global capital and credit markets; movements in interest
rates; reform of LIBOR; competitive pressures on product pricing and services;
success, impact, and timing of our business strategies, including market
acceptance of any new products or services including those implementing our
"Fair Play" banking philosophy; the nature, extent, timing, and results of
governmental actions, examinations, reviews, reforms, regulations, and
interpretations, including those related to the Dodd-Frank Wall Street Reform
and Consumer Protection Act and the Basel III regulatory capital reforms, as
well as those involving the OCC, Federal Reserve , FDIC , and CFPB ; the occurrence
of any event, change or other circumstances that could give rise to the right of
one or both of the parties to terminate the merger agreement between Huntington
and TCF; the outcome of any legal proceedings that may be instituted against
Huntington or TCF; delays in completing the transaction; the failure to obtain
necessary regulatory approvals (and the risk that such approvals may result in
the imposition of conditions that could adversely affect the combined company or
the expected benefits of the transaction); the failure to obtain shareholder
approvals or to satisfy any of the other conditions to the transaction on a
timely basis or at all; the possibility that the anticipated benefits of the
transaction are not realized when expected or at all, including as a result of
the impact of, or problems arising from, the integration of the two
2020 Form 10-K 96
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companies or as a result of the strength of the economy and competitive factors
in the areas where Huntington and TCF do business; the possibility that the
transaction may be more expensive to complete than anticipated, including as a
result of unexpected factors or events; diversion of management's attention from
ongoing business operations and opportunities; potential adverse reactions or
changes to business or employee relationships, including those resulting from
the announcement or completion of the transaction; the ability to complete the
transaction and integration of Huntington and TCF successfully; the dilution
caused by Huntington's issuance of additional shares of its capital stock in
connection with the transaction; and other factors that may affect the future
results of Huntington and TCF.
All forward-looking statements speak only as of the date they are made and are
based on information available at that time. Neither Huntington nor TCF assumes
any obligation to update forward-looking statements to reflect circumstances or
events that occur after the date the forward-looking statements were made or to
reflect the occurrence of unanticipated events except as required by federal
securities laws. As forward-looking statements involve significant risks and
uncertainties, caution should be exercised against placing undue reliance on
such statements.
Non-GAAP Financial Measures
This document contains GAAP financial measures and non-GAAP financial measures
where management believes it to be helpful in understanding our results of
operations or financial position. Where non-GAAP financial measures are used,
the comparable GAAP financial measure, as well as the reconciliation to the
comparable GAAP financial measure, can be found herein.
Fully-Taxable Equivalent Basis
Interest income, yields, and ratios on a FTE basis are considered non-GAAP
financial measures. Management believes net interest income on a FTE basis
provides an insightful picture of the interest margin for comparison purposes.
The FTE basis also allows management to assess the comparability of revenue
arising from both taxable and tax-exempt sources. The FTE basis assumes a
federal statutory tax rate of 21 percent. We encourage readers to consider the
Consolidated Financial Statements and other financial information contained
in this Form 10-K in their entirety, and not to rely on any single financial
measure.
Non-Regulatory Capital Ratios
In addition to capital ratios defined by banking regulators, the Company
considers various other measures when evaluating capital utilization and
adequacy, including:
•Tangible common equity to tangible assets,
•Tangible equity to tangible assets, and
•Tangible common equity to risk-weighted assets using Basel III definitions.
These non-regulatory capital ratios are viewed by management as useful
additional methods of reflecting the level of capital available to withstand
unexpected market conditions. Additionally, presentation of these ratios allows
readers to compare our capitalization to other financial services companies.
These ratios differ from capital ratios defined by banking regulators
principally in that the numerator excludes goodwill and other intangible assets,
the nature and extent of which varies among different financial services
companies. These ratios are not defined in GAAP or federal banking regulations.
As a result, these non-regulatory capital ratios disclosed by the Company are
considered non-GAAP financial measures.
Because there are no standardized definitions for these non-regulatory capital
ratios, the Company's calculation methods may differ from those used by other
financial services companies. Also, there may be limits in the usefulness of
these measures to investors. As a result, we encourage readers to consider the
Consolidated Financial Statements and other financial information contained in
this Form 10-K in their entirety, and not to rely on any single financial
measure.
Risk Factors
More information on risk is discussed in the Risk Factors section included in
Item 1A: " Risk Factors " of this report. Additional information regarding
risk factors can also be found in the Risk Management and Capital discussion of
this report, as well as the " Regulatory Matters " section included in Item 1
: Business of this report.
97 Huntington Bancshares Incorporated
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Critical Accounting Policies and Use of Significant Estimates
Our Consolidated Financial Statements are prepared in accordance with GAAP. The
preparation of financial statements in conformity with GAAP requires us to
establish accounting policies and make estimates that affect amounts reported in
our Consolidated Financial Statements. Note 1 - " Significant Accounting
Policies " of the Notes to Consolidated Financial Statements, which is
incorporated by reference into this MD&A, describes the significant accounting
policies we used in our Consolidated Financial Statements.
An accounting estimate requires assumptions and judgments about uncertain
matters that could have a material effect on the Consolidated Financial
Statements. Estimates are made under facts and circumstances at a point in time,
and changes in those facts and circumstances could produce results substantially
different from those estimates. Our most significant accounting policies and
estimates and their related application are discussed below.
Allowance for Credit Losses
Our ACL at December 31, 2020 represents our current estimate of the lifetime
credit losses expected from our loan and lease portfolio and our unfunded loan
commitments and letters of credit. Management estimates the allowance for credit
losses by projecting probability of default, loss given default and exposure at
default conditional on economic parameters, for the remaining contractual term.
Internal factors that impact the quarterly allowance estimate include the level
of outstanding balances, the portfolio performance and assigned risk ratings.
One of the most significant judgments influencing the allowance for credit
losses estimate is the macro-economic forecasts. Key external economic
parameters that directly impact our loss modeling framework include forecasted
footprint unemployment rates and Gross Domestic Product. Changes in the economic
forecasts could significantly affect the estimated credit losses which could
potentially lead to materially different allowance levels from one reporting
period to the next.
Given the dynamic relationship between macro-economic variables within our
modeling framework, it is difficult to estimate the impact of a change in any
one individual variable on the allowance. As a result, management uses a
probability-weighted approach that incorporates a baseline, an adverse and a
more favorable economic scenario when formulating the quantitative estimate this
quarter.
However, to illustrate a hypothetical sensitivity analysis, management
calculated a quantitative allowance using a 100% weighting applied to an adverse
scenario. This scenario includes assumptions around new infections and COVID-19
deaths being significantly above the baseline projections, leading to a much
slower re-opening of the economy. Under this scenario, as an example, the
unemployment rate remains elevated for a prolonged period and is estimated to
remain at 10.2% and 8.7% at the end of 2021 and 2022, respectively. These
numbers represent approximately 3% higher unemployment estimates than baseline
scenario projections of 7.2% and 5.6%, respectively for the same time periods.
To demonstrate the sensitivity to key economic parameters, management calculated
the difference between a 100% baseline weighting and a 100% adverse scenario
weighting for modeled results. This would result in an incremental quantitative
allowance impact of approximately $700 million.
The resulting difference is not intended to represent an expected increase in
allowance levels for a number of reasons including the following:
•Management uses a weighted approach applied to multiple economic scenarios for
its allowance estimation process;
•The highly uncertain economic environment;
•The difficulty in predicting the inter-relationships between the economic
parameters used in the various economic scenarios; and
•The sensitivity estimate does not account for any general reserve components
and associated risk profile adjustments incorporated by management as part of
its overall allowance framework.
We regularly review our ACL for appropriateness by performing on-going
evaluations of the loan and lease portfolio. In doing so, we consider factors
such as the differing economic risks associated with each loan category, the
financial condition of specific borrowers, the level of delinquent loans, the
value of any collateral and, where applicable, the existence of any guarantees
or other documented support. We also evaluate the impact of changes in key
economic parameters and overall economic conditions on the ability of borrowers
to meet their financial
2020 Form 10-K 98
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obligations when quantifying our exposure to credit losses and assessing the
appropriateness of our ACL at each reporting date. There is no certainty that
our ACL will be appropriate over time to cover losses in our portfolio as
economic and market conditions may ultimately differ from our reasonable and
supportable forecast. Additionally, events adversely affecting specific
customers, industries, or our markets, such as the current COVID-19 pandemic,
could severely impact our current expectations. If the credit quality of our
customer base materially deteriorates or the risk profile of a market, industry,
or group of customers changes materially, our net income and capital could be
materially adversely affected which, in turn, could have a material adverse
effect on our financial condition and results of operations. The extent to which
the current COVID-19 pandemic has and will continue to negatively impact our
businesses, financial condition, liquidity and results will depend on future
developments, which are highly uncertain and cannot be forecasted with precision
at this time. For more information, see Note 5 - " Loans / Leases " and
Note 6 - " Allowance for C redit Losses " of the Notes to Consolidated
Financial Statements.
Fair Value Measurement
Certain assets and liabilities are measured at fair value on a recurring basis,
including securities and derivative instruments. Assets and liabilities carried
at fair value inherently include subjectivity and may require the use of
significant assumptions, adjustments and judgment including, among others,
discount rates, rates of return on assets, cash flows, default rates, loss
rates, terminal values and liquidation values. A significant change in
assumptions may result in a significant change in fair value, which in turn, may
result in a higher degree of financial statement volatility and could result in
significant impact on our results of operations, financial condition or
disclosures of fair value information.
The fair value hierarchy requires use of observable inputs first and
subsequently unobservable inputs when observable inputs are not available. Our
fair value measurements involve various valuation techniques and models, which
involve inputs that are observable (Level 1 or Level 2 in fair value hierarchy),
when available. The level of judgment required to determine fair value is
dependent on the methods or techniques used in the process. Assets and
liabilities that are measured at fair value using quoted prices in active
markets (Level 1) do not require significant judgment while the valuation of
assets and liabilities when quoted market prices are not available (Levels 2 and
3) may require significant judgment to assess whether observable or unobservable
inputs for those assets and liabilities provide reasonable determination of fair
value. The fair values measured at each level of the fair value hierarchy,
additional discussion regarding fair value measurements, and a brief description
of how fair value is determined for categories that have unobservable inputs,
can be found in Note 20 - " Fair Value of Assets and Liabilities " of the
Notes to Consolidated Financial Statements.
Goodwill and Intangible Assets
The acquisition method of accounting requires that acquired assets and
liabilities are recorded at their fair values as of the date of acquisition.
This often involves estimates based on third party valuations or internal
valuations based on discounted cash flow analyses or other valuation techniques,
all of which are inherently subjective. Acquisitions typically result in
goodwill, the amount by which the cost of net assets acquired in a business
combination exceeds their fair value, which is subject to impairment testing at
least annually. The amortization of identified intangible assets recognized in a
business combination is based upon the estimated economic benefits to be
received over their economic life, which is also subjective. Customer attrition
rates that are based on historical experience are used to determine the
estimated economic life of certain intangibles assets, including but not limited
to, customer deposit intangibles.
The emergence of COVID-19 as a global pandemic during 2020 has resulted in
significant deterioration of the economic environment which has impacted
expected earnings. The heightened uncertainty in the economic environment has
remained throughout 2020. As a result, management performed an assessment of the
goodwill balance at December 31, 2020. A qualitative assessment was deemed to be
sufficient and reasonable and the result of this assessment indicated it was
probable that the fair value of each of our reporting units continues to exceed
the respective carrying values and therefore management determined that a full
goodwill test was not warranted. Goodwill assessments are highly sensitive to
economic projections and the related assumptions and estimates used by
management. In the event of a prolonged economic downturn or further
deterioration in the economic outlook, continued assessments of our goodwill
balance could be required in future periods. Any impairment charge would
99 Huntington Bancshares Incorporated
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not affect Huntington's regulatory capital ratios, tangible common equity ratio
or liquidity position. For more information, see Note 8 - " Goodwill and Other
Intangible Assets " of the Notes to Consolidated Financial Statements.
Recent Accounting Pronouncements and Developments
Note 2 - " Accounting Standards Update " of the Notes to Consolidated
Financial Statements discusses new accounting pronouncements adopted during 2020
and the expected impact of accounting pronouncements recently issued but not yet
required to be adopted. To the extent the adoption of new accounting standards
materially affect financial condition, results of operations, or liquidity, the
impacts are discussed in the applicable section of this MD&A and the Notes to
Consolidated Financial Statements.
Item 7A: Quantitative and Qualitative Disclosures About Market Risk
Information required by this item is set forth under the heading of " Market
Risk " in Item 7: MD&A, which is incorporated by reference into this item.
Item 8: Financial Statements and Supplementary Data
Information required by this item is set forth in the Reports of Independent
Registered Public Accounting Firm , Consolidated Financial Statements and
Notes to Consolidated Financial Statements , and Selected Quarterly Income Statements , which is incorporated by reference into this item.
2020 Form 10-K 100
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REPORT OF MANAGEMENT'S EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Management of Huntington Bancshares Incorporated (Huntington or the Company)
is responsible for the financial information and representations contained in
the Consolidated Financial Statements and other sections of this report. The
Consolidated Financial Statements have been prepared in conformity with
accounting principles generally accepted in the United States . In all material
respects, they reflect the substance of transactions that should be included
based on informed judgments, estimates, and currently available information.
Management maintains a system of internal accounting controls, which includes
the careful selection and training of qualified personnel, appropriate
segregation of responsibilities, communication of written policies and
procedures, and a broad program of internal audits. The costs of the controls
are balanced against the expected benefits. During 2020, the audit committee of
the board of directors met regularly with Management, Huntington's internal
auditors, and the independent registered public accounting firm,
PricewaterhouseCoopers LLP , to review the scope of their audits and to discuss
the evaluation of internal accounting controls and financial reporting matters.
The independent registered public accounting firm and the internal auditors have
free access to, and meet confidentially with, the audit committee to discuss
appropriate matters. Also, Huntington maintains a disclosure review committee.
This committee's purpose is to design and maintain disclosure controls and
procedures to ensure that material information relating to the financial and
operating condition of Huntington is properly reported to its chief executive
officer, chief financial officer, chief auditor, and the audit committee of the
board of directors in connection with the preparation and filing of periodic
reports and the certification of those reports by the chief executive officer
and the chief financial officer.
REPORT OF MANAGEMENT'S ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal
control over financial reporting as such term is defined in Rules 13a-15(f) and
15d-15(f) of the Securities Exchange Act of 1934, as amended. Huntington's
Management assessed the effectiveness of the Company's internal control over
financial reporting as of December 31, 2020. In making this assessment,
Management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control-Integrated
Framework (2013). Based on that assessment, Management concluded that, as of
December 31, 2020, the Company's internal control over financial reporting is
effective based on those criteria. The Company's internal control over financial
reporting as of December 31, 2020 has been audited by PricewaterhouseCoopers
LLP , an independent registered public accounting firm, as stated in their report
appearing on the next page.
[[Image Removed: hban-20201231_g3.jpg]]
Stephen D. Steinour - Chairman, President, and Chief Executive Officer
[[Image Removed: hban-20201231_g4.jpg]]
Zachary Wasserman - Senior Executive Vice President and Chief Financial Officer
February 26, 2021
101 Huntington Bancshares Incorporated
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Huntington Bancshares Incorporated
Opinions on the Financial Statements and Internal Control over Financial
Reporting
We have audited the accompanying consolidated balance sheets of Huntington
Bancshares Incorporated and its subsidiaries (the "Company") as of December 31,
2020 and 2019, and the related consolidated statements of income, of
comprehensive income, of changes in shareholders' equity and of cash flows for
each of the three years in the period ended December 31, 2020, including the
related notes (collectively referred to as the "consolidated financial
statements"). We also have audited the Company's internal control over financial
reporting as of December 31, 2020, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 2020 and 2019, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2020 in conformity
with accounting principles generally accepted in the United States of America .
Also in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2020, based on
criteria established in Internal Control - Integrated Framework (2013) issued by
the COSO.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for the allowance for credit losses as of January 1, 2020. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management's Assessment of Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company's consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with thePublic Company Accounting Oversight Board (United States ) (PCAOB) and are required to be independent with respect to the Company in accordance with theU.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing
procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.
Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis for
our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting
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includes those policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the
current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that (i)
relates to accounts or disclosures that are material to the consolidated
financial statements and (ii) involved our especially challenging, subjective,
or complex judgments. The communication of critical audit matters does not alter
in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or
disclosures to which it relates.
Valuation of Allowance for Credit Losses - General Reserve
As described in Notes 1 and 6 to the consolidated financial statements, management's estimate of the allowance for credit losses includes a general reserve component which consists of various risk-profile reserve components. The risk-profile components consider items unique to the Company's structure, policies, processes, and portfolio composition. The general reserve also considers qualitative measurements and assessments of the Company's loan portfolios including, but not limited to, economic uncertainty, concentrations, portfolio composition, industry comparisons, and internal review functions. The principal considerations for our determination that performing procedures relating to the valuation of the general reserve component of the allowance for credit losses is a critical audit matter are (i) the valuation involved the application of significant judgment and estimation by management when determining the general reserve calculation, which in turn led to a high degree of auditor judgment and subjectivity in performing procedures and evaluating audit evidence relating to the assumptions used in the general reserve, (ii) the significant audit effort in evaluating management's methodology, significant assumptions and calculations relating to the general reserve component, and (iii) the audit effort included the involvement of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to valuation of the Company's general reserve component of allowance for credit losses. These procedures also included, among others, testing management's process for determining the general reserve component, including evaluating the appropriateness of management's methodology, testing the completeness and accuracy of data utilized by management and evaluating the reasonableness of significant assumptions relating to the general reserve component. Evaluating management's assumptions relating to the general reserve component involved evaluating whether the assumptions used were reasonable considering portfolio composition, relevant market data, and indicators of economic uncertainty. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of management's methodology, significant assumptions and calculations relating to the general reserve component. [[Image Removed: hban-20201231_g5.jpg]]Columbus, Ohio February 26, 2021 We have served as the Company's auditor since 2015. 103Huntington Bancshares Incorporated -------------------------------------------------------------------------------- Table of ContentsHuntington Bancshares Incorporated Consolidated Balance Sheets December 31, (dollar amounts in millions) 2020 2019
Assets
Cash and due from banks $ 1,319 $ 1,045 Interest-bearing deposits at Federal Reserve Bank 5,276 125 Interest-bearing deposits in banks 117 102 Trading account securities 62 99 Available-for-sale securities 16,485 14,149 Held-to-maturity securities 8,861 9,070 Other securities 418 441
Loans held for sale (includes $1,198 and $781 respectively, measured at fair value)(1)
1,275 877
Loans and leases (includes $94 and $81 respectively, measured at fair value)(1)
81,608 75,404
Allowance for loan and lease losses (1,814) (783)
Net loans and leases 79,794 74,621
Bank owned life insurance 2,577 2,542
Premises and equipment 757 763
Goodwill 1,990 1,990
Servicing rights and other intangible assets 428 475
Other assets 3,679 2,703
Total assets $ 123,038 $ 109,002
Liabilities and shareholders' equity
Liabilities
Deposits:
Demand deposits-noninterest-bearing $ 28,553 $ 20,247
Interest-bearing 70,395 62,100
Total Deposits 98,948 82,347
Short-term borrowings 183 2,606
Long-term debt 8,352 9,849
Other liabilities 2,562 2,405
Total liabilities 110,045 97,207
Commitments and Contingent Liabilities (Note 23)
Shareholders' equity
Preferred stock 2,191 1,203
Common stock 10 10
Capital surplus 8,781 8,806
Less treasury shares, at cost (59) (56)
Accumulated other comprehensive loss 192 (256)
Retained earnings 1,878 2,088
Total shareholders' equity 12,993 11,795
Total liabilities and shareholders' equity $ 123,038 $ 109,002
Common shares authorized (par value of $0.01) 1,500,000,000 1,500,000,000
Common shares outstanding 1,017,196,776 1,020,003,482
Treasury shares outstanding 5,062,054 4,537,605
Preferred stock, authorized shares 6,617,808 6,617,808
Preferred shares outstanding 750,500 740,500
(1)Amounts represent loans for which
2020 Form 10-K 104
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Huntington Bancshares Incorporated
Consolidated Statements of Income
Year Ended December 31,
(dollar amounts in millions, except per share data, share
amounts in thousands) 2020 2019 2018
Interest and fee income:
Loans and leases $ 3,085 $ 3,541 $ 3,305
Available-for-sale securities
Taxable 237 295 279
Tax-exempt 61 83 97
Held-to-maturity securities-taxable 215 218 211
Other securities-taxable 6 16 25
Other interest income 43 48 32
Total interest income 3,647 4,201 3,949
Interest expense
Deposits 197 585 391
Short-term borrowings 13 54 48
Long-term debt 213 349 321
Total interest expense 423 988 760
Net interest income 3,224 3,213 3,189
Provision for credit losses 1,048 287 235
Net interest income after provision for credit losses 2,176 2,926 2,954
Mortgage banking income 366 167 108
Service charges on deposit accounts 301 372 364
Card and payment processing income 248 246 224
Trust and investment management services 189 178 171
Capital markets fees 125 123 108
Insurance income 97 88 82
Bank owned life insurance income 64 66 67
Gain on sale of loans 42 55 55
Net (losses) gains on sales of securities (1) (24) (21)
Other noninterest income 160 183 163
Total noninterest income 1,591 1,454 1,321
Personnel costs 1,692 1,654 1,559
Outside data processing and other services 384 346 294
Equipment 180 163 164
Net occupancy 158 159 184
Professional services 55 54 60
Amortization of intangibles 41 49 53
Marketing 38 37 53
Deposit and other insurance expense 32 34 63
Other noninterest expense 215 225 217
Total noninterest expense 2,795 2,721 2,647
Income before income taxes 972 1,659 1,628
Provision for income taxes 155 248 235
Net income 817 1,411 1,393
Dividends on preferred shares 100 74 70
Net income available to common shareholders $ 717 $ 1,337 $ 1,323
Average common shares-basic 1,017,117 1,038,840 1,081,542 Average common shares-diluted 1,032,683 1,056,079 1,105,985 Per common share: Net income-basic $ 0.71 $ 1.29 $ 1.22 Net income-diluted 0.69 1.27 1.20 See Notes to Consolidated Financial Statements 105Huntington Bancshares Incorporated -------------------------------------------------------------------------------- Table of ContentsHuntington Bancshares Incorporated Consolidated Statements of Comprehensive Income Year Ended December 31, (dollar amounts in millions) 2020 2019 2018 Net income $ 817 $ 1,411 $ 1,393 Other comprehensive income, net of tax:
Total unrealized gains (losses) on available-for-sale securities 216
335 (84)
Change in fair value related to cash flow hedges 234 23 -
Change in accumulated unrealized gains (losses) for pension and other post-retirement obligations
(2) (5) 4
Other comprehensive income (loss), net of tax 448 353 (80)
Comprehensive income $ 1,265 $ 1,764 $ 1,313
See Notes to Consolidated Financial Statements
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Huntington Bancshares Incorporated
Consolidated Statements of Changes in Shareholders' Equity
Accumulated
Other
(dollar amounts in millions, except per Preferred Stock Common Stock Capital Treasury Stock Comprehensive Retained
share data, share amounts in thousands) Amount Shares Amount Surplus Shares Amount Gain (Loss) Earnings Total
Year Ended December 31, 2020
Balance, beginning of year $ 1,203 1,024,541 $ 10 $ 8,806 (4,537) $ (56) $ (256) $ 2,088 $ 11,795
Cumulative-effect of change in accounting
principle
(ASU 2016-13), net of tax (306) (306)
Net income 817 817
Other comprehensive income (loss) 448 448
Net proceeds from issuance of Preferred
Stock 988 988
Repurchases of common stock (7,504) - (92) (92)
Cash dividends declared:
Common ($0.60 per share) (621) (621)
Preferred (100) (100)
Recognition of the fair value of
share-based compensation 77 77
Other share-based compensation activity 5,372 - (9) - (9)
Other (151) - (1) (525) (3) - (4)
Balance, end of year $ 2,191 1,022,258 $ 10 $ 8,781 (5,062) $ (59) $ 192 $ 1,878 $ 12,993
Year Ended December 31, 2019
Balance, beginning of year $ 1,203 1,050,584 $ 11 $ 9,181 (3,817) $ (45) $ (609) $ 1,361 $ 11,102
Net income 1,411 1,411
Other comprehensive income
(loss) 353 353
Repurchases of common stock (31,494) (1) (440) (441)
Cash dividends declared:
Common ($0.58 per share) (611) (611)
Preferred (74) (74)
Recognition of the fair value of
share-based compensation 83 83
Other share-based compensation
activity 5,451 - (18) (18)
Other - - - (720) (11) 1 (10)
Balance, end of year $ 1,203 1,024,541 $ 10 $ 8,806 (4,537) $ (56) $ (256) $ 2,088 $ 11,795
Year Ended December 31, 2018
Balance, beginning of year $ 1,071 1,075,295 $ 11 $ 9,707 (3,268) $ (35) $ (528) $ 588 $ 10,814
Cumulative-effect of change in
accounting principle
(ASU 2016-01), net of tax (1) 1 -
Net income 1,393 1,393
Other comprehensive income (loss) (80) (80)
Net proceeds from issuance of
Preferred Series E Stock 495 495
Repurchases of common stock (61,644) - (939) (939)
Cash dividends declared:
Common ($0.50 per share) (541) (541)
Preferred (70) (70)
Conversion of Preferred Series A
Stock to Common Stock (363) 30,330 363 -
Recognition of the fair value of
share-based compensation 78 78
Other share-based compensation
activity 6,603 - (31) (10) (41)
Other - - 3 (549) (10) - (7)
Balance, end of year $ 1,203 1,050,584 $ 11 $ 9,181 (3,817) $ (45) $ (609) $ 1,361 $ 11,102
See Notes to Consolidated Financial Statements
107 Huntington Bancshares Incorporated
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Huntington Bancshares Incorporated
Consolidated Statements of Cash Flows
Year Ended December 31,
(dollar amounts in millions) 2020 2019 2018
Operating activities
Net income $ 817 $ 1,411 $ 1,393
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Provision for credit losses 1,048 287 235
Depreciation and amortization 367 386 493
Share-based compensation expense 77 83 78
Deferred income tax expense (93) 23 63
Net change in:
Trading account securities 37 (32) (11)
Loans held for sale (534) (214) (301)
Other assets (1,077) (593) (235)
Other liabilities 683 194 22
Other, net (2) 29 (11)
Net cash provided by (used in) operating activities 1,323 1,574 1,726
Investing activities
Change in interest bearing deposits in banks (81) (112) 90
Cash paid for acquisition of a business, net of cash received - - (15)
Proceeds from:
Maturities and calls of available-for-sale securities 5,697 2,124 2,109
Maturities and calls of held-to-maturity securities 3,042 1,021 743
Sales of available-for-sale securities 392 3,903 1,419
Purchases of available-for-sale securities (11,104) (6,036) (2,485)
Purchases of held-to-maturity securities - (1,519) (338)
Net proceeds from sales of portfolio loans 1,113 1,049 697
Principal payments received from finance leases 704 714 -
Net loan and lease activity, excluding sales and purchases (6,844) (2,149) (5,333)
Purchases of premises and equipment (119) (107) (110)
Purchases of loans and leases (1,506) (445) (542)
Net cash paid for branch disposition - (548) -
Other, net 67 228 102
Net cash provided by (used in) investing activities (8,639) (1,877) (3,663)
Financing activities
Increase (decrease) in deposits 16,601 (1,702) 7,733
(Decrease) Increase in short-term borrowings (2,373) 586 (3,025)
Net proceeds from issuance of long-term debt 1,386 1,796 2,229
Maturity/redemption of long-term debt (3,052) (743) (2,798)
Dividends paid on preferred stock (84) (74) (70)
Dividends paid on common stock (614) (597) (514)
Repurchases of common stock (92) (441) (939)
Net proceeds from issuance of preferred stock 988 - 495
Payments related to tax-withholding for share based compensation awards
(20) (26) (27)
Other, net 1 2 5
Net cash provided by (used for) financing activities 12,741 (1,199) 3,089
Increase (decrease) in cash and cash equivalents 5,425 (1,502) 1,152
Cash and cash equivalents at beginning of period 1,170 2,672 1,520
Cash and cash equivalents at end of period $ 6,595 $ 1,170 $ 2,672
Year Ended December 31,
(dollar amounts in millions) 2020 2019 2018
Supplemental disclosures:
Interest paid $ 453 $ 989 $ 742
Income taxes paid (refunded) 81 111 (52)
Non-cash activities:
Loans transferred to held-for-sale from portfolio 1,139 963 818
Loans transferred to portfolio from held-for-sale 53 19 51
Transfer of securities from held-to-maturity to
available-for-sale - - 2,833
Transfer of securities from available-for-sale to
held-to-maturity 2,842 - 2,707
108 Huntington Bancshares Incorporated
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Huntington Bancshares Incorporated
Notes to Consolidated Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - Huntington Bancshares Incorporated (Huntington or the
Company) is a multi-state diversified regional bank holding company organized
under Maryland law in 1966 and headquartered in Columbus, Ohio . Through its
subsidiaries, including its bank subsidiary, The Huntington National Bank (the
Bank), Huntington is engaged in providing full-service commercial, small
business, consumer banking services, mortgage banking services, automobile
financing, recreational vehicle and marine financing, equipment leasing,
investment management, trust services, brokerage services, insurance programs,
and other financial products and services. Huntington's banking offices are
located in Ohio, Illinois , Michigan , Pennsylvania , Indiana , West Virginia , and
Kentucky . 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 .
Basis of Presentation - The Consolidated Financial Statements include the
accounts of Huntington and its majority-owned subsidiaries and are presented in
accordance with GAAP. All intercompany transactions and balances are eliminated
in consolidation. Entities in which Huntington holds a controlling financial
interest are consolidated. For a voting interest entity, a controlling financial
interest is generally where Huntington holds, directly or indirectly, more than
50 percent of the outstanding voting shares. For a variable interest entity
(VIE), a controlling financial interest is where Huntington has the power to
direct the activities of an entity that most significantly impact the entity's
economic performance and has an obligation to absorb losses or the right to
receive benefits from the VIE. For consolidated entities where Huntington holds
less than a 100% interest, Huntington recognizes non-controlling interest
(included in shareholders' equity) for the equity held by minority shareholders
and non-controlling profit or loss (included in noninterest expense) for the
portion of the entity's earnings attributable to minority interests. Investments
in companies that are not consolidated are accounted for using the equity method
when Huntington has the ability to exert significant influence. Investments in
non-marketable equity securities for which Huntington does not have the ability
to exert significant influence are generally accounted for using the cost method
adjusted for impairment and other changes in observable prices. Investments in
private investment partnerships that are accounted for under the equity method
or the cost method are included in other assets and Huntington's earnings in
equity investments are included in other noninterest income. Investments
accounted for under the cost and equity methods are periodically evaluated for
impairment.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that significantly affect amounts
reported in the Consolidated Financial Statements. Huntington utilizes processes
that involve the use of significant estimates and the judgments of management in
determining the amount of its allowance for credit losses, income taxes, as well
as fair value measurements of investment securities, derivative instruments,
goodwill, other intangible assets, pension assets and liabilities, short-term
borrowings, mortgage servicing rights, and loans held for sale. As with any
estimate, actual results could differ from those estimates.
For statements of cash flows purposes, cash and cash equivalents are defined as
the sum of cash and due from banks and interest-bearing deposits at Federal
Reserve Bank .
Resale and Repurchase Agreements - Securities purchased under agreements to
resell and securities sold under agreements to repurchase are treated as
collateralized financing transactions and are recorded at the amounts at which
the securities were acquired or sold plus accrued interest. The fair value of
collateral either received from or provided to a third-party is monitored and
additional collateral is obtained or requested to be returned to Huntington in
accordance with the agreement.
Securities - Securities purchased with the intention of recognizing short-term
profits or which are actively bought and sold are classified as trading account
securities and reported at fair value. The unrealized gains or losses on trading
account securities are recorded in other noninterest income. Debt securities
purchased that Huntington has the positive intent and ability to hold to their
maturity are classified as held-to-maturity securities. Held-to-maturity
securities are recorded at amortized cost. All other debt securities are
classified as available for sale
2020 Form 10-K 109
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securities. Available-for-sale securities are recognized and measured at fair
value with any change in the fair value recognized in other comprehensive
income. All equity securities are classified as other securities.
Securities transactions are recognized on the trade date (the date the order to
buy or sell is executed). The carrying value plus any related accumulated OCI
balance of sold securities is used to compute realized gains and losses.
Interest on securities, including amortization of premiums and accretion of
discounts using the effective interest method over the period to maturity, is
included in interest income.
Non-marketable equity securities include stock held for membership and
regulatory purposes, such as FHLB stock and FRB stock. These securities are
accounted for at cost, evaluated for impairment, and are included in other
securities. Other securities also include mutual funds and other marketable
equity securities. These securities are carried at fair value, with changes in
fair value recognized in other noninterest income.
Loans and Leases - Loans for which Huntington has the intent and ability to hold
for the foreseeable future, or until maturity or payoff, except loans for which
the fair value option has been elected, are carried at the principal amount
outstanding, net of charge-offs, unamortized deferred loan origination fees and
costs, premiums and discounts, and unearned income. Direct financing leases are
reported at the aggregate of lease payments receivable and estimated residual
values, net of unearned and deferred income, and any initial direct costs
incurred to originate these leases. Interest income is accrued as earned using
the interest method. Huntington defers the fees it receives from the origination
of loans and leases, as well as the direct costs of those activities. Huntington
also acquires loans at premiums and/or discounts to their contractual values.
Huntington amortizes loan discounts, premiums, and net loan origination fees and
costs over the contractual lives of the related loans using the effective
interest method.
Troubled debt restructurings are loans for which the original contractual terms
have been modified to provide a concession to a borrower experiencing financial
difficulties. Loan modifications are considered TDRs when the concessions
provided are not available to the borrower through either normal channels or
other sources. However, not all loan modifications are TDRs. Modifications
resulting in troubled debt restructurings may include changes to one or more
terms of the loan, including but not limited to, a change in interest rate, an
extension of the repayment period, a reduction in payment amount, and partial
forgiveness or deferment of principal or accrued interest.
Impairment of the residual values of direct financing leases is evaluated
quarterly, with impairment arising if the expected fair value is less than the
carrying amount. Huntington assesses net investments in leases (including
residual values) for impairment and recognizes impairment losses in accordance
with the impairment guidance for financial instruments. As such, net investments
in leases may be reduced by an allowance for credit losses, with changes
recognized as provision expense.
For leased equipment, the residual component of a direct financing lease
represents the estimated fair value of the leased equipment at the end of the
lease term. Huntington uses industry data, historical experience, and
independent appraisals to establish these residual value estimates. Additional
information regarding product life cycle, product upgrades, as well as insight
into competing products are obtained through relationships with industry
contacts and are factored into residual value estimates where applicable.
Loans Held for Sale - Loans in which Huntington does not have the intent and
ability to hold for the foreseeable future are classified as loans held for
sale. Loans held for sale are carried at (a) the lower of cost or fair value
less costs to sell, or (b) fair value where the fair value option is elected.
The fair value option is generally elected for mortgage loans originated with
the intent to sell to facilitate hedging of the loans. The fair value of such
loans is estimated based on the inputs that include prices of mortgage backed
securities adjusted for other variables such as, interest rates, expected credit
defaults and market discount rates. The adjusted value reflects the price we
expect to receive from the sale of such loans.
Nonaccrual and Past Due Loans - Loans are considered past due when the
contractual amounts due with respect to principal and interest are not received
within 30 days of the contractual due date.
Any loan in any portfolio may be placed on nonaccrual status prior to the
policies described below when collection of principal or interest is in doubt.
When a borrower with debt is discharged in a Chapter 7 bankruptcy and the debt
is not reaffirmed by the borrower, the loan is determined to be collateral
dependent and placed on nonaccrual status, unless there is a co-borrower or the
repayment is likely to occur based on objective evidence.
110 Huntington Bancshares Incorporated
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All classes within the C&I and CRE portfolios are placed on nonaccrual status at
90-days past due. First-lien home equity loans are placed on nonaccrual status
at 150-days past due. Junior-lien home equity loans are placed on nonaccrual
status at the earlier of 120-days past due or when the related first-lien loan
has been identified as nonaccrual. Automobile, RV and marine and other consumer
loans are placed on non-accrual, if not charged off, when the loan is 120-days
past due. Residential mortgage loans are placed on nonaccrual status at 150-days
past due, with the exception of residential mortgages guaranteed by government
agencies which continue to accrue interest at the rate guaranteed by the
government agency.
For all classes within all loan portfolios, when a loan is placed on nonaccrual
status, any accrued interest income, to the extent it is recognized in the
current year, is reversed and charged to interest income.
For all classes within all loan portfolios, cash receipts on NALs are applied
against principal until the loan or lease has been collected in full, including
the charged-off portion, after which time any additional cash receipts are
recognized as interest income. However, for secured non-reaffirmed debt in a
Chapter 7 bankruptcy, payments are applied to principal and interest when the
borrower has demonstrated a capacity to continue payment of the debt and
collection of the debt is reasonably assured. For unsecured non-reaffirmed debt
in a Chapter 7 bankruptcy where the carrying value has been fully charged-off,
payments are recorded as loan recoveries.
Within the C&I and CRE portfolios, the determination of a borrower's ability to
make the required principal and interest payments is based on an examination of
the borrower's current financial statements, industry, management capabilities,
and other qualitative measures. For all classes within the consumer loan
portfolio, the determination of a borrower's ability to make the required
principal and interest payments is based on multiple factors, including number
of days past due and, in some instances, an evaluation of the borrower's
financial condition. When, in management's judgment, the borrower's ability to
make required principal and interest payments resumes and collectability is no
longer in doubt, supported by sustained repayment history, the loan is returned
to accrual status. For loans that are returned to accrual status, cash receipts
are applied according to the contractual terms of the loan.
Collateral-dependent Loans - Certain commercial and consumer loans for which
repayment is expected to be provided substantially through the operation or sale
of the loan collateral are considered to be collateral-dependent. Commercial
collateral-dependent loans are generally secured by business assets and/or
commercial real estate. Consumer collateral-dependent loans are primarily
secured by residential real estate or automobiles.
Allowance for Credit Losses - Huntington maintains allowance for credit losses
on its loan and lease portfolio, held-to-maturity securities as well as on
available-for-sale securities. The allowance for credit losses on loan and lease
portfolio and held-to-maturity securities are provided through an expected loss
methodology referred to as current expected credit loss ("CECL") methodology.
The allowance for credit losses on AFS securities is provided when a credit loss
is deemed to have occurred for securities which Huntington does not intend to
sell or is not required to sell. The CECL methodology also applies to credit
exposures on off-balance-sheet loan commitments, financial guarantees not
accounted for as insurance, including standby letters of credit, and other
similar instruments not recognized as derivative financial instruments.
Loans - The allowance for credit losses is deducted from the amortized cost
basis of a financial asset or a group of financial assets so that the balance
sheet reflects the net amount Huntington expects to collect. Amortized cost is
the principal balance outstanding, net of purchase premiums and discounts, fair
value hedge accounting adjustments, and deferred fees and costs. Subsequent
changes (favorable and unfavorable) in expected credit losses are recognized
immediately in net income as a credit loss expense or a reversal of credit loss
expense. Management estimates the allowance by projecting
probability-of-default, loss-given-default and exposure-at-default depending on
loan risk characteristics and economic parameters for each month of the
remaining contractual term. Commercial loan risk characteristics include but are
not limited to risk ratings, industry type and maturity type. Consumer loan risk
characteristics include but are not limited to FICO scores, LTV and loan
vintages. The economic parameters are developed using available information
relating to past events, current conditions, and reasonable and supportable
forecasts. Huntington's reasonable and supportable forecast period reverts to a
historical norm based on inputs within approximately two to three years. The
reversion period is dependent on the state of the economy at the beginning of
the forecast. Historical credit experience provides the basis for the estimation
of expected credit losses, with adjustments made for differences in current
loan-specific risk
2020 Form 10-K 111
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characteristics such as differences in underwriting standards, portfolio mix,
delinquency levels and terms, as well as for changes in the micro- and
macro-economic environments. The contractual terms of financial assets are
adjusted for expected prepayments and any extensions outside of Huntington's
control.
The allowance for credit losses is measured on a collective basis when similar
risk characteristics exist. Loans that are determined to have unique risk
characteristics are evaluated on an individual basis by management. If a loan is
determined to be collateral dependent, or meets the criteria to apply the
collateral dependent practical expedient, expected credit losses are determined
based on the fair value of the collateral at the reporting date, less costs to
sell as appropriate. Loans with unique risk characteristics that are not subject
to collateral dependent accounting, are assessed using a discounted cash flows
methodology.
Management believes the products within each of the entity's portfolio classes
exhibit similar risk characteristics. Huntington has identified its portfolio
classes as disclosed in Note 5 - " Loans and Leases ".
In addition to the transactional reserve described above, Huntington also
maintains a general reserve that consists of various risk-profile reserve
components. The risk-profile components consider items unique to Huntington's
structure, policies, processes and portfolio composition, as well as qualitative
measurements and assessments of the loan portfolios including, but not limited
to, economic uncertainty, concentrations, portfolio composition, industry
comparisons and internal review functions.
Huntington has elected to exclude accrued interest receivable from the
measurement of its ACL given the well-defined non-accrual policies in place for
all loan portfolios which results in timely reversal of outstanding interest
through interest income. For certain loans on active deferral related to
COVID-19, the collection of interest may be delayed for an extended period of
time. The accrued interest on these active deferral loans is contemplated in
establishing the ACL.
The estimate for the off-balance sheet exposures, the AULC, is determined using
the same procedures and methodologies as used for the loan and lease portfolio
supplemented by the information related to future draws and related credit loss
expectations. The AULC is recorded in other liabilities in the Consolidated
Balance Sheets.
Prior to the implementation of ASU 2016-13 (CECL) on January 1, 2020, the
allowance for credit losses was subject to the guidance included in ASC 310 and
ASC 450. Under the guidance, the bank was required to use an incurred loss
methodology to estimate credit losses that were estimated to be incurred in the
loan portfolio and that could ultimately materialize into confirmed losses in
the form of charge-offs. The incurred loss methodology was a backward-looking
approach to loss recognition and based on the concept of a triggering event
having taken place, causing a loss to be inherent within the portfolio. This
methodology under ASC 450 was predicated on a loss emergence period that was
applied at a portfolio level. Loss emergence periods, PD's and LGD's were all
based on historical loss experience within the loan portfolios. Consideration of
forward looking macro-economic expectations was not permitted under this
allowance methodology. Additionally, loans that were identified as impaired
under the definition of ASC 310, were required to be assessed on an individual
basis. The allowance for credit losses and resulting provision expense levels
for comparative periods presented in this document were estimated in accordance
with these requirements.
HTM Securities - The allowance for held-to-maturity debt securities is estimated
using a CECL methodology. Any expected credit loss is provided through the
allowance for credit loss on HTM securities and is deducted from the amortized
cost basis of the security so that the balance sheet reflects the net amount
Huntington expects to collect. Nearly all of Huntington's HTM debt securities
are issued by U.S. government entities and agencies. These securities are either
explicitly or implicitly guaranteed by the U.S. government, are highly rated by
major rating agencies, and have a long history of no credit losses. Accordingly,
there is a zero credit loss expectation on these securities.
Prior to the implementation of ASU 2016-13 (CECL) on January 1, 2020, Huntington
evaluated its HTM securities portfolio on a quarterly basis for indicators of
OTTI. Huntington assessed whether OTTI had occurred when the fair value of a
debt security was less than the amortized cost at the balance sheet date. If an
OTTI was deemed to have occurred, the credit portion of the OTTI was recognized
in noninterest income while the noncredit portion was recognized in OCI. In
determining the credit portion, Huntington used a discounted cash flow analysis
which included evaluating the timing and amount of the expected cash flows.
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AFS Securities - Huntington evaluates its available-for-sale investment
securities portfolio on a quarterly basis for indicators of impairment.
Huntington assesses whether an impairment has occurred when the fair value of a
debt security is less than the amortized cost at the balance sheet date.
Management reviews the amount of unrealized loss, the credit rating history,
market trends of similar security classes, time remaining to maturity, and the
source of both interest and principal payments to identify securities which
could potentially be impaired. For those debt securities that Huntington intends
to sell or is more likely than not required to sell, before the recovery of
their amortized cost basis, the difference between fair value and amortized cost
is considered to be impaired and is recognized in noninterest income. For those
debt securities that Huntington does not intend to sell or is not more likely
than not required to sell, prior to expected recovery of amortized cost basis,
the credit portion of the impairment is recognized through an allowance in
noninterest income while the noncredit portion is recognized in OCI. In
determining the credit portion, Huntington uses a discounted cash flow analysis,
which includes evaluating the timing and amount of the expected cash flows.
Non-credit-related impairment results from other factors, including increased
liquidity spreads and higher interest rates.
Prior to the implementation of ASU 2016-13 (CECL) on January 1, 2020, Huntington
evaluated its AFS securities portfolio in accordance with the methodology
specified in the preceding paragraph except that the credit portion of the
impairment would reduce the amortized cost basis of the security. Any subsequent
increase in the expected cash flows would be recognized as an adjustment to
interest income.
Charge-off of Uncollectible Loans - Any loan in any portfolio may be charged-off
prior to the policies described below if a loss confirming event has occurred.
Loss confirming events include, but are not limited to, bankruptcy (unsecured),
continued delinquency, foreclosure, or receipt of an asset valuation indicating
a collateral deficiency and that asset is the sole source of repayment.
Additionally, discharged, collateral dependent non-reaffirmed debt in Chapter 7
bankruptcy filings will result in a charge-off to estimated collateral value,
less anticipated selling costs, unless the repayment is likely to occur based on
objective evidence.
C&I and CRE loans are generally either charged-off or written down to net
realizable value at 90-days past due. Automobile, RV and marine and other
consumer loans are generally charged-off at 120-days past due. First-lien and
junior-lien home equity loans are charged-off to the estimated fair value of the
collateral, less anticipated selling costs, at 150-days past due and 120-days
past due, respectively. Residential mortgages are charged-off to the estimated
fair value of the collateral at 150-days past due.
Collateral - Huntington pledges assets as collateral as required for various
transactions including security repurchase agreements, public deposits, loan
notes, derivative financial instruments, short-term borrowings and long-term
borrowings. Assets that have been pledged as collateral, including those that
can be sold or repledged by the secured party, continue to be reported on the
Consolidated Balance Sheets.
Huntington also accepts collateral, primarily as part of various transactions
including derivative instruments and security resale agreements. Collateral
received is excluded from the Consolidated Balance Sheets.
The market value of collateral accepted or pledged is regularly monitored and
additional collateral is obtained or provided as necessary to ensure appropriate
collateral coverage in these transactions.
Premises and Equipment - Premises and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation is computed principally
by the straight-line method over the estimated useful lives of the related
assets. Buildings and building improvements are depreciated over an average of
30 to 40 years and 10 to 30 years, respectively. Land improvements and furniture
and fixtures are depreciated over an average of 5 to 20 years, while equipment
is depreciated over a range of 3 to 10 years. Leasehold improvements are
amortized over the lesser of the asset's useful life or the lease term,
including any renewal periods for which renewal is reasonably assured.
Maintenance and repairs are charged to expense as incurred, while improvements
that extend the useful life of an asset are capitalized and depreciated over the
remaining useful life. Amounts in premises and equipment may include items
classified as held-for-sale, which are carried at lower of cost or fair value,
less costs to sell. Premises and equipment are evaluated for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable.
Mortgage Servicing Rights - Huntington recognizes the rights to service mortgage
loans as an asset when servicing is contractually separated from the underlying
mortgage loans by sale or securitization of the loans with
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servicing rights retained or when purchased. MSRs are included in servicing
rights and other intangible assets in the Consolidated Balance Sheets. At the
time of initial capitalization, MSRs may be grouped into servicing classes based
on the availability of market inputs used in determining fair value and the
method used for managing the risks of the servicing assets. All MSR assets are
recorded using the fair value method. Any change in the fair value of MSRs
during the period is recorded in mortgage banking income. Huntington
economically hedges the value of certain MSRs using derivative instruments and
trading securities. Changes in fair value of these derivatives and trading
securities are reported as a component of mortgage banking income.
Goodwill and Other Intangible Assets - Under the acquisition method of
accounting, the net assets of entities acquired by Huntington are recorded at
their estimated fair value at the date of acquisition. The excess cost of
consideration paid over the fair value of net assets acquired is recorded as
goodwill. Other intangible assets with finite useful lives are amortized either
on an accelerated or straight-line basis over their estimated useful lives.
Goodwill is evaluated for impairment on an annual basis at October 1st of each
year or whenever events or changes in circumstances indicate that the carrying
value may not be recoverable. Other intangible assets are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable.
Operating Leases (Lessee) - Huntington has elected not to include non-lease
components in the measurement of right-of-use assets, and as such allocates the
costs attributable to such components, where those costs are not separately
identifiable, via per-square-foot costing analysis developed by the entity for
owned and leased spaces. Huntington uses a portfolio approach to develop
discount rates as its lease portfolio is comprised of substantially all branch
space and office space used in the entity's operations. That rate, an input used
in the measurement of the entity's right-of-use assets, leverages an incremental
borrowing rate of appropriate tenor and collateralization.
Derivative Financial Instruments - A variety of derivative financial
instruments, principally interest rate swaps, caps, floors, and collars, are
used in asset and liability management activities to protect against the risk of
adverse price or interest rate movements. These instruments provide flexibility
in adjusting Huntington's sensitivity to changes in interest rates without
exposure to loss of principal and higher funding requirements.
Huntington also uses derivatives, principally loan sale commitments, in hedging
its mortgage loan interest rate lock commitments and its mortgage loans held for
sale. Mortgage loan sale commitments and the related interest rate lock
commitments are carried at fair value on the Consolidated Balance Sheets with
changes in fair value reflected in mortgage banking income. Huntington also uses
certain derivative financial instruments to offset changes in value of its MSRs.
These derivatives consist primarily of forward interest rate agreements and
forward mortgage contracts. The derivative instruments used are not designated
as qualifying hedges. Accordingly, such derivatives are recorded at fair value
with changes in fair value reflected in mortgage banking income.
Derivative financial instruments are recorded in the Consolidated Balance Sheets
as either an asset or a liability (in other assets and other liabilities,
respectively) and measured at fair value. On the date a derivative contract is
entered into, we designate it as either:
•a qualifying hedge of the fair value of a recognized asset or liability or of
an unrecognized firm commitment (fair value hedge);
•a qualifying hedge of the variability of cash flows to be received or paid
related to a recognized asset, liability or forecasted transaction (cash flow
hedge); or
•a trading instrument or a non-qualifying (economic) hedge.
Changes in the fair value of a derivative that has been designated and qualifies
as a fair value hedge, along with the changes in the fair value of the hedged
asset or liability that is attributable to the hedged risk, are recorded in
current period earnings. Changes in the fair value of a derivative that has been
designated and qualifies as a cash flow hedge are recorded in other
comprehensive income, net of income taxes, and reclassified into earnings in the
period during which the hedged item affects earnings. Changes in the fair value
of derivatives held for trading purposes or which do not qualify for hedge
accounting are reported in current period earnings.
For those derivatives to which hedge accounting is applied, Huntington formally
documents the hedging relationship and the risk management objective and
strategy for undertaking the hedge. This documentation identifies the hedging
instrument, the hedged item or transaction, the nature of the risk being hedged,
and, unless
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the hedge meets all of the criteria to assume there is no ineffectiveness, the
method that will be used to assess the effectiveness of the hedging instrument.
Except for specifically designated fair value hedges of certain fixed-rate debt
for which Huntington utilizes the short-cut method when certain criteria are
met, Huntington utilizes the regression method to evaluate hedge effectiveness
on all its qualifying hedges on a quarterly basis.
Hedge accounting is discontinued prospectively when:
•the derivative is no longer effective or expected to be effective in offsetting
changes in the fair value or cash flows of a hedged item (including firm
commitments or forecasted transactions);
•the derivative expires, is sold, terminated, or exercised;
•the forecasted transaction is no longer probable of occurring;
•the hedged firm commitment no longer meets the definition of a firm commitment;
or
•the designation of the derivative as a hedging instrument is removed.
When hedge accounting is discontinued and the derivative no longer qualifies as
an effective fair value or cash flow hedge, the derivative continues to be
carried on the balance sheet at fair value.
In the case of a discontinued fair value hedge of a recognized asset or
liability, as long as the hedged item continues to exist on the balance sheet,
the hedged item will no longer be adjusted for changes in fair value. The basis
adjustment that had previously been recorded to the hedged item during the
period from the hedge designation date to the hedge discontinuation date is
recognized as an adjustment to the yield of the hedged item over the remaining
life of the hedged item.
In the case of a discontinued cash flow hedge of a recognized asset or
liability, as long as the hedged item continues to exist on the balance sheet,
the changes in fair value of the hedging derivative will no longer be recorded
to other comprehensive income. The balance applicable to the discontinued
hedging relationship will be recognized in earnings over the remaining life of
the hedged item as an adjustment to yield. If the discontinued hedged item was a
forecasted transaction that is not expected to occur, any amounts recorded in
accumulated other comprehensive income are immediately reclassified to current
period earnings.
In the case of either a fair value hedge or a cash flow hedge, if the previously
hedged item is sold or extinguished, the basis adjustment to the underlying
asset or liability or any remaining unamortized amount in accumulated other
comprehensive income will be recognized in the current period earnings.
In all other situations in which hedge accounting is discontinued, the
derivative will be carried at fair value on the consolidated balance sheets,
with changes in its fair value recognized in current period earnings unless
re-designated as a qualifying hedge.
Like other financial instruments, derivatives contain an element of credit risk,
which is the possibility that Huntington will incur a loss because the
counterparty fails to meet its contractual obligations. Notional values of
interest rate swaps and other off-balance sheet financial instruments
significantly exceed the credit risk associated with these instruments and
represent contractual balances on which calculations of amounts to be exchanged
are based. Credit exposure is limited to the sum of the aggregate fair value of
positions that have become favorable to Huntington , including any accrued
interest receivable due from counterparties. Potential credit losses are
mitigated through trading derivatives through central clearing parties, careful
evaluation of counterparty credit standing, selection of counterparties from a
limited group of high quality institutions, collateral agreements, and other
contract provisions. Huntington considers the value of collateral held and
collateral provided in determining the net carrying value of derivatives.
Huntington offsets the fair value amounts recognized for derivative instruments
and the fair value for the right to reclaim cash collateral or the obligation to
return cash collateral arising from derivative instruments recognized at fair
value executed with the same counterparty under a master netting arrangement.
Fair Value Measurements - The Company records or discloses certain of its assets
and liabilities at fair value. Fair value is defined as the exchange price that
would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. Fair
value measurements are classified within one of three levels in a valuation
hierarchy based upon the observability of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as follows:
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•Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
for identical assets or liabilities in active markets.
•Level 2 - inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable for the
asset or liability, either directly or indirectly, for substantially the full
term of the financial instrument.
•Level 3 - inputs to the valuation methodology are unobservable and significant
to the fair value measurement.
A financial instrument's categorization within the valuation hierarchy is based
upon the lowest level of input that is significant to the fair value
measurement.
Bank Owned Life Insurance - Huntington's bank owned life insurance policies are
recorded at their cash surrender value. Huntington recognizes tax-exempt income
from the periodic increases in the cash surrender value of these policies and
from death benefits. A portion of the cash surrender value is supported by
holdings in separate accounts. Book value protection for the separate accounts
is provided by the insurance carriers and a highly rated major bank.
Transfers of Financial Assets and Securitizations - Transfers of financial
assets in which we have surrendered control over the transferred assets are
accounted for as sales. In assessing whether control has been surrendered,
Huntington considers whether the transferee would be a consolidated affiliate,
the existence and extent of any continuing involvement in the transferred
financial assets, and the impact of all arrangements or agreements made
contemporaneously with, or in contemplation of, the transfer, even if they were
not entered into at the time of transfer. Control is generally considered to
have been surrendered when (i) the transferred assets have been legally isolated
from Huntington or any of its consolidated affiliates, even in bankruptcy or
other receivership, (ii) the transferee (or, if the transferee is an entity
whose sole purpose is to engage in securitization or asset-backed financing that
is constrained from pledging or exchanging the assets it receives, each
third-party holder of its beneficial interests) has the right to pledge or
exchange the assets (or beneficial interests) it received without any
constraints that provide more than a trivial benefit to Huntington , and
(iii) neither Huntington nor its consolidated affiliates and agents have
(a) both the right and obligation under any agreement to repurchase or redeem
the transferred assets before their maturity, (b) the unilateral ability to
cause the holder to return specific financial assets that also provides
Huntington with a more-than-trivial benefit (other than through a cleanup call)
or (c) an agreement that permits the transferee to require Huntington to
repurchase the transferred assets at a price so favorable that it is probable
that it will require Huntington to repurchase them.
If the sale criteria are met, the transferred financial assets are removed from
the balance sheet and a gain or loss on sale is recognized. If the sale criteria
are not met, the transfer is recorded as a secured borrowing in which the assets
remain on the balance sheet and the proceeds from the transaction are recognized
as a liability. For the majority of financial asset transfers, it is clear
whether or not Huntington has surrendered control. For other transfers, such as
in the case of complex transactions or where Huntington have continuing
involvement, we generally obtain a legal opinion as to whether the transfer
results in a true sale by law.
Gains and losses on the loans and leases sold and servicing rights associated
with loan and lease sales are determined when the related loans or leases are
sold to either a securitization trust or third-party. For loan or lease sales
with servicing retained, a servicing asset is recorded at fair value for the
right to service the loans sold.
Pension and Other Postretirement Benefits - Huntington recognizes the funded
status of the postretirement benefit plans on the Consolidated Balance Sheets.
Net postretirement benefit cost charged to current earnings related to these
plans is predominantly based on various actuarial assumptions regarding expected
future experience.
Certain employees are participants in various defined contribution and other
non-qualified supplemental retirement plans. Contributions to defined
contribution plans are charged to current earnings.
In addition, Huntington maintains a 401(k) plan covering substantially all
employees. Employer contributions to the plan are charged to current earnings.
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Noninterest Income - Huntington recognizes revenue when the performance
obligations related to the transfer of goods or services under the terms of a
contract are satisfied. Some obligations are satisfied at a point in time while
others are satisfied over a period of time. Revenue is recognized as the amount
of consideration to which Huntington expects to be entitled to in exchange for
transferring goods or services to a customer. When consideration includes a
variable component, the amount of consideration attributable to variability is
included in the transaction price only to the extent it is probable that
significant revenue recognized will not be reversed when uncertainty associated
with the variable consideration is subsequently resolved. Generally, the
variability relating to the consideration is explicitly stated in the contracts,
but may also arise from Huntington's customer business practices, for example,
waiving certain fees related to customer's deposit accounts such as NSF fees.
Huntington's contracts generally do not contain terms that require significant
judgement to determine the variability impacting the transaction price.
Revenue is segregated based on the nature of product and services offered as
part of contractual arrangements. Revenue from contracts with customers is
broadly segregated as follows:
•Service charges on deposit accounts include fees and other charges Huntington
receives to provide various services, including but not limited to, maintaining
an account with a customer, providing overdraft services, wire transfer,
transferring funds, and accepting and executing stop-payment orders. The
consideration includes both fixed (e.g., account maintenance fee) and
transaction fees (e.g., wire-transfer fee). The fixed fee is recognized over a
period of time while the transaction fee is recognized when a specific service
(e.g., execution of wire-transfer) is rendered to the customer. Huntington may,
from time to time, waive certain fees (e.g., NSF fee) for customers but
generally does not reduce the transaction price to reflect variability for
future reversals due to the insignificance of the amounts. Waiver of fees
reduces the revenue in the period the waiver is granted to the customer.
•Card and payment processing income includes interchange fees earned on debit
cards and credit cards. All other fees (e.g., annual fees), and interest income
are recognized in accordance with ASC 310. Huntington recognizes interchange
fees for services performed related to authorization and settlement of a
cardholder's transaction with a merchant. Revenue is recognized when a
cardholder's transaction is approved and settled.
Certain volume or transaction based interchange expenses (net of rebates) paid
to the payment network reduce the interchange revenue and are presented net on
the income statement. Similarly, rewards payable under a reward program to
cardholders are recognized as a reduction of the transaction price and are
presented net against the interchange revenue.
•Trust and investment management services includes fee income generated from
personal, corporate and institutional customers. Huntington also provides
investment management services, cash management services and tax reporting to
customers. Services are rendered over a period of time, over which revenue is
recognized. Huntington may also recognize revenue from referring a customer to
outside third-parties including mutual fund companies that pay distribution
(12b-1) fees and other expenses. 12b-1 fees are received upon initially placing
an account holder's funds with a mutual fund company as well as in the future
periods as long as the account holder (i.e., the fund investor), remains
invested in the fund. The transaction price includes a variable consideration
which is considered constrained as it is not probable that a significant revenue
reversal in the amount of cumulative revenue recognized will not occur.
Accordingly, those fees are recognized as revenue when the uncertainty
associated with the variable consideration is subsequently resolved, that is,
initial fees are recognized in the initial period while the future fees are
recognized in future periods.
•Insurance income includes agency commissions that are recognized when
Huntington sells insurance policies to customers. Huntington is also entitled to
renewal commissions and, in some cases, profit sharing which are recognized in
subsequent periods. The initial commission is recognized when the insurance
policy is sold to a customer. Renewal commission is variable consideration and
is recognized in subsequent periods when the uncertainty around variable
consideration is subsequently resolved (i.e., when customer renews the policy).
Profit sharing is also variable consideration that is not recognized until the
variability surrounding realization of revenue is resolved (i.e., Huntington has
reached a minimum volume of sales). Another source of variability is the ability
of the policy holder to cancel the policy anytime. In such cases, Huntington may
be
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required, under the terms of the contract, to return part of the commission
received. A policy cancellation reserve is established for such expected
cancellations.
•Other noninterest income includes a variety of other revenue streams including
capital markets revenue, miscellaneous consumer fees and marketing allowance
revenue. Revenue is recognized when, or as, the performance obligation is
satisfied. Inherent variability in the transaction price is not recognized until
the uncertainty affecting the variability is resolved.
Control is transferred to a customer either at a point in time or over time. A
performance obligation is deemed satisfied when the control over goods or
services is transferred to the customer. To determine when control is
transferred at a point in time, Huntington considers indicators, including but
not limited to the right to payment for the asset, transfer of significant risk
and rewards of ownership of the asset and acceptance of the asset by the
customer.
Revenue is recorded in the business segment responsible for the related product
or service. Fee sharing arrangements exist to allocate portions of such revenue
to other business segments involved in selling to, or providing service to,
customers. Business segment results are determined based upon management's
reporting system, which assigns balance sheet and income statement items to each
of the business segments. The process is designed around Huntington's
organizational and management structure and, accordingly, the results derived
are not necessarily comparable with similar information published by other
financial institutions.
Income Taxes - Income taxes are accounted for under the asset and liability
method. Accordingly, deferred tax assets and liabilities are recognized for the
future book and tax consequences attributable to temporary differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are determined
using enacted tax rates expected to apply in the year in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income at the
time of enactment of such change in tax rates.
Any interest or penalties due for payment of income taxes are included in the
provision for income taxes. To the extent we do not consider it more likely than
not that a deferred tax asset will be recovered, a valuation allowance is
recorded. All positive and negative evidence is reviewed when determining how
much of a valuation allowance is recognized on a quarterly basis. In determining
the requirements for a valuation allowance, sources of possible taxable income
are evaluated including future reversals of existing taxable temporary
differences, future taxable income exclusive of reversing temporary differences
and carryforwards, taxable income in appropriate carryback years, and
tax-planning strategies. Huntington applies a more likely than not recognition
threshold for all tax uncertainties.
Share-Based Compensation - Huntington uses the fair value based method of
accounting for awards of HBAN stock granted to employees under various
share-based compensation plans. Share-based compensation costs are recognized
prospectively for all new awards granted under these plans. Compensation expense
relating to stock options is calculated using a methodology that is based on the
underlying assumptions of the Black-Scholes option pricing model and is charged
to expense over the requisite service period (e.g., vesting period).
Compensation expense relating to restricted stock awards is based upon the fair
value of the awards on the date of grant and is charged to earnings over the
requisite service period (e.g., vesting period) of the award.
Stock Repurchases - Acquisitions of Huntington stock are recorded at cost.
Segment Results - Accounting policies for the business segments are the same as
those used in the preparation of the Consolidated Financial Statements with
respect to activities specifically attributable to each business segment.
However, the preparation of business segment results requires management to
establish methodologies to allocate funding costs and benefits, expenses, and
other financial elements to each business segment, which are described in Note
26 - " Segment Reporting ".
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2. ACCOUNTING STANDARDS UPDATE
Accounting standards adopted in current period
Standard Summary of guidance Effects on financial statements
ASU 2016-13 - •Eliminates the probable recognition •Management adopted the guidance on January 1, 2020
Financial Instruments threshold for credit losses on through a cumulative-effect adjustment to retained
- Credit Losses. financial assets measured at amortized earnings and implemented changes to relevant systems,
Issued June 2016 cost, replacing the current incurred processes, and controls where necessary.
loss framework with an expected credit •The adoption of ASU 2016-13 on January 1, 2020 resulted
loss model. in an increase to our total ACL of $393 million. This
•Requires those financial assets represented an increase of 44% from the 2019 year end ACL
subject to the new guidance to be level of $887 million. For more detail on the day 1
presented at the net amount expected adoption impacts, please refer to Note 6 - Allowance for
to be collected (i.e., net of expected Credit Losses.
credit losses). •The ASU eliminated the current accounting model for
•Measurement of expected credit losses purchased-credit-impaired loans, but requires an allowance
should be based on relevant to be recognized for purchased-credit-deteriorated (PCD)
information including historical assets (those that have experienced
experience, current conditions, and more-than-insignificant deterioration in credit quality
reasonable and supportable forecasts since
origination).
that affect the collectability of the accounted for as PCD upon adoption.
reported amount. •At
adoption,
•The guidance will require additional respect to HTM securities as the portfolio consists almost
quantitative and qualitative entirely of agency-backed securities that inherently have
disclosures related to the credit risk minimal nonpayment risk.
inherent in Huntington's portfolio and
how management monitors the
portfolio's credit quality.
ASU 2019-12 - Income •The ASU simplifies the accounting for •Management early adopted the guidance on October 1, 2020. Taxes (Topic 740): income taxes by removing exceptions to Simplifying the the:
•The ASU did not have a material impact on Huntington's
Accounting for Income •Incremental approach for intra-period Consolidated Financial Statements.
Taxes tax allocation when there is a loss
Issued: December 2019 from continuing operations and income
or a gain from other items;
•Requirement to recognize a deferred
tax liability for equity method
investments when a foreign subsidiary
becomes an equity method investment;
•Ability not to recognize a deferred
tax liability for a foreign subsidiary
when a foreign equity method
investment becomes a subsidiary; and,
•General methodology for calculating
income taxes in an interim period when
a year-to-date loss exceeds the
anticipated loss for the year.
•The ASU also simplifies various other
aspects of the accounting for income
taxes.
2020 Form 10-K 119-------------------------------------------------------------------------------- Table of Contents Standard Summary of guidance Effects on financial statements ASU 2020-04 - •The ASU provides optional expedients •Management early adopted the guidance on Reference Rate Reform and exceptions for applyingU.S. GAAP October 1, 2020. (Topic 848): to contracts, hedging relationships, •While neither the ASU or the amendment had a Facilitation of the and other transactions affected by material impact on Huntington's Consolidated Effects of Reference reference rate reform if certain Financial Statements, they do ease the Rate Reform on criteria are met, including the administrative burden of accounting for Financial Reporting following: contracts
impacted by reference rate reform. Issued: March 2020; •Modifications of contracts within the Amended: January 2021 scope of Topics 310, Receivables, and
470, Debt, should be accounted for by
prospectively adjusting the effective
interest rate;
•Modifications of contracts within the
scope of Topic 842, Leases, should be
accounted for as a continuation of the
existing contracts with no
reassessments of the lease
classification or discount rate;
•The ASU also provides optional
expedients for various hedging
relationships, allowing hedge
accounting to continue uninterrupted,
provided certain criteria are met;
and,
•An entity may make a one time
election to sell, transfer, or both
sell and transfer debt securities
classified as held to maturity if
certain criteria are met.
•Topic 848 was subsequently amended in
January 2021, allowing entities to
elect certain optional expedients and
exceptions in Topic 848 relating to
derivative contracts and hedge
accounting affected by the discounting
transition initiated by certain
central clearing parties.
3. PENDING ACQUISITION OF TCF FINANCIAL CORPORATION
On December 13, 2020, Huntington 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 valued at approximately
$6.0 billion based on the closing stock price on the day preceding the
announcement. 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. Following the merger, Huntington will operate with
dual headquarters for banking operations in Detroit, Michigan and Columbus,
Ohio .
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 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 . Subject to receipt of regulatory
approvals and satisfaction of other customary closing conditions, including
approval of both TCF and Huntington shareholders, the transaction is anticipated
to close in the second quarter of 2021.
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4. INVESTMENT SECURITIES AND OTHER SECURITIES
Debt securities purchased in which Huntington has the intent and ability to hold
to their maturity are classified as held-to-maturity securities. All other debt
and equity securities are classified as either available-for-sale or other
securities.
The following tables provide amortized cost, fair value, and gross unrealized
gains and losses by investment category at December 31, 2020 and 2019:
Unrealized
Amortized Gross Gross
(dollar amounts in millions) Cost (1) Gains Losses Fair Value
December 31, 2020
Available-for-sale securities:
U.S. Treasury $ 5 $ - $ - $ 5
Federal agencies:
Residential CMO 3,550 121 (5) 3,666
Residential MBS 7,843 97 (5) 7,935
Commercial MBS 1,151 21 (9) 1,163
Other agencies 60 2 - 62
Total U.S. Treasury , federal agency and other agency
securities 12,609 241 (19) 12,831
Municipal securities 2,928 91 (15) 3,004
Private-label CMO 9 - - 9
Asset-backed securities 185 7 - 192
Corporate debt 440 5 - 445
Other securities/Sovereign debt 4 - - 4
Total available-for-sale securities $ 16,175 $ 344 $ (34) $ 16,485
Held-to-maturity securities:
Federal agencies:
Residential CMO $ 1,779 $ 88 $ - $ 1,867
Residential MBS 3,715 103 - 3,818
Commercial MBS 3,118 191 - 3,309
Other agencies 246 12 - 258
Total federal agency and other agency securities 8,858 394 - 9,252
Municipal securities 3 - - 3
Total held-to-maturity securities $ 8,861 $ 394 $ - $ 9,255
Other securities, at cost: Non-marketable equity securities: Federal Home Loan Bank stock $ 60 $ - $ - $ 60 Federal Reserve Bank stock 299 - - 299 Other securities, at fair value Mutual funds 50 - - 50 Equity securities 8 1 - 9 Total other securities $ 417 $ 1 $ - $ 418
(1)Amortized cost amounts excludes accrued interest receivable, which is recorded within other assets on the Consolidated Balance Sheets. At December 31, 2020, accrued interest receivable on available-for-sale securities and held-to-maturity securities totaled $32 million and $20 million, respectively.
2020 Form 10-K 121
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Unrealized
Amortized Gross Gross
(dollar amounts in millions) Cost Gains Losses Fair Value
December 31, 2019
Available-for-sale securities:
U.S. Treasury $ 10 $ - $ - $ 10
Federal agencies:
Residential CMO 5,055 48 (18) 5,085
Residential MBS 4,180 45 (3) 4,222
Commercial MBS 979 1 (4) 976
Other agencies 165 1 (1) 165
Total U.S. Treasury , federal agency and other agency
securities 10,389 95 (26) 10,458
Municipal securities 3,044 34 (23) 3,055
Private-label CMO 2 - - 2
Asset-backed securities 575 6 (2) 579
Corporate debt 49 2 - 51
Other securities/Sovereign debt 4 - - 4
Total available-for-sale securities $ 14,063 $ 137 $ (51) $ 14,149
Held-to-maturity securities:
Federal agencies:
Residential CMO $ 2,351 $ 33 $ (3) $ 2,381
Residential MBS 2,463 50 - 2,513
Commercial MBS 3,959 34 - 3,993
Other agencies 293 2 - 295
Total federal agency and other agency securities 9,066 119 (3) 9,182
Municipal securities 4 - - 4
Total held-to-maturity securities $ 9,070 $ 119 $ (3) $ 9,186
Other securities, at cost: Non-marketable equity securities: Federal Home Loan Bank stock $ 90 $ - $ - $ 90 Federal Reserve Bank stock 297 - - 297 Other securities, at fair value Mutual funds 53 - - 53 Equity securities 1 - - 1 Total other securities $ 441 $ - $ - $ 441 122Huntington Bancshares Incorporated -------------------------------------------------------------------------------- Table of Contents The following table provides the amortized cost and fair value of securities by contractual maturity at December 31, 2020 and 2019. Expected maturities may differ from contractual maturities as issuers may have the right to call or prepay obligations with or without incurring penalties. 2020 2019 Amortized Fair Amortized Fair (dollar amounts in millions) Cost Value Cost Value Available-for-sale securities: Under 1 year $ 308 $ 304 $ 231 $ 229 After 1 year through 5 years 1,145 1,154 1,196 1,189 After 5 years through 10 years 1,607 1,654 1,594 1,606 After 10 years 13,115 13,373 11,042 11,125 Total available-for-sale securities $ 16,175 $ 16,485 $ 14,063 $ 14,149 Held-to-maturity securities: Under 1 year $ - $ - $ - $ - After 1 year through 5 years 160 169 17 17 After 5 years through 10 years 131 138 300 305 After 10 years 8,570 8,948
8,753 8,864 Total held-to-maturity securities $ 8,861 $ 9,255 $ 9,070 $ 9,186
The following tables provide detail on investment securities with unrealized
losses aggregated by investment category and the length of time the individual
securities have been in a continuous loss position at December 31, 2020 and
2019:
Less than 12 Months Over 12 Months Total
Fair Gross Unrealized Fair Gross Unrealized Fair Gross Unrealized
(dollar amounts in millions) Value Losses Value Losses Value Losses
December 31, 2020
Available-for-sale securities:
Federal agencies:
Residential CMO $ 302 $ (5) $ - $ - $ 302 $ (5)
Residential MBS 1,633 (5) - - 1,633 (5)
Commercial MBS 321 (9) - - 321 (9)
Other agencies - - - - - -
Total federal agency and other agency
securities 2,256 (19) - - 2,256 (19)
Municipal securities 110 (3) 490 (12) 600 (15)
Asset-backed securities 15 - - - 15 -
Corporate debt 51 - - - 51 -
Total temporarily impaired
available-for-sale securities $ 2,432 $ (22) $ 490 $ (12) $ 2,922 $ (34)
2020 Form 10-K 123
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Less than 12 Months Over 12 Months Total
Fair Gross Unrealized Fair Gross Unrealized Fair Gross Unrealized
(dollar amounts in millions) Value Losses Value Losses Value Losses
December 31, 2019
Available-for-sale securities:
Federal agencies:
Residential CMO $ 1,206 $ (10) $ 519 $ (8) $ 1,725 $ (18)
Residential MBS 1,169 (3) 9 - 1,178 (3)
Commercial MBS 472 (2) 272 (2) 744 (4)
Other agencies 86 (1) - - 86 (1)
Total federal agency and other agency
securities 2,933 (16) 800 (10) 3,733 (26)
Municipal securities 273 (4) 1,204 (19) 1,477 (23)
Asset-backed securities 116 (1) 37 (1) 153 (2)
Corporate debt 1 - - - 1 -
Total temporarily impaired
available-for-sale securities $ 3,323 $ (21) $ 2,041 $ (30) $ 5,364 $ (51)
Held-to-maturity securities:
Federal agencies:
Residential CMO $ 218 $ (1) $ 112 $ (2) $ 330 $ (3)
Residential MBS 317 - - - 317 -
Commercial MBS 81 - - - 81 -
Other agencies 58 - - - 58 -
Total federal agency and other agency
securities 674 (1) 112 (2) 786 (3)
Municipal securities 4 - - - 4 -
Total temporarily impaired
held-to-maturity securities $ 678 $ (1) $ 112 $ (2) $ 790 $ (3)
During 2020, Huntington transferred a total of $2.8 billion of securities from
the AFS portfolio to the HTM portfolio. At the time of the transfers, AOCI
included a combined total of $21 million of unrealized gains attributed to these
securities. This gain will be amortized into interest income over the remaining
life of the securities.
At December 31, 2020 and December 31, 2019, the carrying value of investment
securities pledged to secure public and trust deposits, trading account
liabilities, U.S. Treasury demand notes, security repurchase agreements and to
support borrowing capacity totaled $14.4 billion and $3.8 billion, respectively.
There were no securities of a single issuer, which were not governmental or
government-sponsored, that exceeded 10% of shareholders' equity at either
December 31, 2020 or December 31, 2019. At December 31, 2020, all HTM debt
securities are considered AAA rated. In addition, there were no HTM debt
securities considered past due at December 31, 2020.
AFS Securities Impairment/HTM Securities Allowance for Credit Losses
Based on an evaluation of available information including security type,
counterparty credit quality, past events, current conditions, and reasonable and
supportable forecasts that are relevant to collectability, Huntington has
concluded that it expects to receive all contractual cash flows from each
security held in its AFS and HTM debt securities portfolio. As such, no
allowance or impairment is recorded with respect to securities as of
December 31, 2020.
124 Huntington Bancshares Incorporated
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5. LOANS / LEASES
Loans and leases which Huntington has the intent and ability to hold for the
foreseeable future, or until maturity or payoff, are classified in the
Consolidated Balance Sheets as loans and leases. The total balance of
unamortized premiums, discounts, fees, and costs, recognized as part of loans
and leases, was a net premium of $491 million and $525 million at December 31,
2020 and 2019, respectively.
Loan and Lease Portfolio Composition
The following table provides a detailed listing of Huntington's loan and lease
portfolio at December 31, 2020 and December 31, 2019.
At December 31,
(dollar amounts in millions) 2020 2019
Loans and leases:
Commercial and industrial $ 35,373 $ 30,664
Commercial real estate 7,199 6,674
Automobile 12,778 12,797
Home equity 8,894 9,093
Residential mortgage 12,141 11,376
RV and marine 4,190 3,563
Other consumer 1,033 1,237
Total Loans and leases 81,608 75,404Allowance for loan and lease losses (1,814) (783) Net loans and leases
$ 79,794 $ 74,621
Equipment Leases
Huntington leases equipment to customers, and substantially all such
arrangements are classified as either sales-type or direct financing leases,
which are included in C&I loans. These leases are reported at the aggregate of
lease payments receivable and estimated residual values, net of unearned and
deferred income, and any initial direct costs incurred to originate these
leases. Renewal options for leases are at the option of the lessee, and are not
included in the measurement of lease receivables as they are not considered
reasonably certain of exercise. Purchase options are typically at fair value,
and as such those options are not considered in the measurement of lease
receivables or in lease classification.
For leased equipment, the residual component of a direct financing lease
represents the estimated fair value of the leased equipment at the end of the
lease term. Huntington uses industry data, historical experience, and
independent appraisals to establish these residual value estimates. Additional
information regarding product life cycle, product upgrades, as well as insight
into competing products are obtained through relationships with industry
contacts and are factored into residual value estimates where applicable. Upon
expiration of a lease, residual assets are remarketed, resulting in an extension
of the lease by the lessee, a lease to a new customer, or purchase of the
residual asset by the lessee or another party. Huntington also purchases
insurance guaranteeing the value of certain residual assets.
Huntington assesses net investments in leases (including residual values) for
impairment and recognizes any impairment losses in accordance with the
impairment guidance for financial instruments. As such, net investments in
leases may be reduced by an allowance for credit losses, with changes recognized
as provision expense.
2020 Form 10-K 125
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The following table presents net investments in lease financing receivables by
category at December 31, 2020 and 2019:
At December 31,
(dollar amounts in millions) 2020 2019
Commercial and industrial:
Lease payments receivable $ 1,737 $ 1,841
Estimated residual value of leased assets 664 728
Gross investment in commercial and industrial lease financing
receivables 2,401 2,569
Deferred origination costs 21 19
Deferred fees (200) (249)Total net investment in commercial and industrial lease financing receivables
$ 2,222 $ 2,339
The carrying value of residual values guaranteed was $93 million as of
December 31, 2020. The future lease rental payments due from customers on
sales-type and direct financing leases at December 31, 2020, totaled $1.7
billion and were due as follows: $0.6 billion in 2021, $0.4 billion in 2022,
$0.3 billion in 2023, $0.2 billion in 2024, $0.1 billion in 2025, and $0.1
billion thereafter. Interest income recognized for these types of leases was
$106 million, $108 million, and $100 million for the years 2020, 2019, and 2018
respectively.
Nonaccrual and Past Due Loans
The following table presents NALs by loan class at December 31, 2020 and 2019:
December 31, 2020 December 31, 2019
Nonaccrual loans Totalnonaccrual Nonaccrual loans Total nonaccrual (dollar amounts in millions)
with no ACL loans with no ACL loans
Commercial and industrial $ 69 $ 353 $ 109 $ 323
Commercial real estate 8 15 2 10
Automobile - 4 - 4
Home equity - 70 - 59
Residential mortgage - 88 - 71
RV and marine - 2 - 1
Other consumer - - - -
Total nonaccrual loans $ 77 $ 532 $ 111 $ 468
The amount of interest that would have been recorded under the original terms
for total NAL loans was $33 million, $26 million, and $22 million for 2020,
2019, and 2018, respectively. The total amount of interest recorded to interest
income for NAL loans was $6 million, $9 million, and $12 million in 2020, 2019,
and 2018, respectively.
The following table presents an aging analysis of loans and leases, including
past due loans and leases, by loan class at December 31, 2020 and 2019:
December 31, 2020
90 or
Past Due (1)(2) more days
(dollar amounts in 30-59 60-89 90 or Loans Accounted Total Loans past due
millions) Days Days more days Total Current for Under FVO and Leases and accruing
Commercial and industrial $ 60 $ 38 $ 95
$ 193 $ 35,180 $ - $ 35,373 $ 10 (3) Commercial real estate - 1 11 12 7,187 - 7,199 - Automobile 84 22 12 118 12,660 - 12,778 9 Home equity 35 15 61 111 8,782 1 8,894 14 Residential mortgage 114 38 194 346 11,702 93 12,141 132 (4) RV and marine 17 3 3 23 4,167 - 4,190 3 Other consumer 9 4 3 16 1,017 - 1,033 3
Total loans and leases $ 319 $ 121 $ 379
$ 819 $ 80,695 $ 94 $
81,608 $ 171
126Huntington Bancshares Incorporated -------------------------------------------------------------------------------- Table of Contents December 31, 2019 90 or Past Due (1) more days (dollar amounts in 30-59 60-89 90 or Loans Accounted Total Loans past due millions) Days Days more days Total Current for Under FVO and Leases and accruing
Commercial and industrial $ 65 $ 31 $ 69
$ 165 $ 30,499 $ - $ 30,664 $ 11 (3) Commercial real estate 3 1 7 11 6,663 - 6,674 - Automobile 95 19 11 125 12,672 - 12,797 8 Home equity 50 19 51 120 8,972 1 9,093 14 Residential mortgage 103 49 170 322 10,974 80 11,376 129 (4) RV and marine 13 4 2 19 3,544 - 3,563 2 Other consumer 13 6 7 26 1,211 - 1,237 7
Total loans and leases $ 342 $ 129 $ 317
$ 788 $ 74,535 $ 81 $
75,404 $ 171
(1)NALs are included in this aging analysis based on the loan's past due status. (2)At December 31, 2020, the principal balance of loans in payment deferral programs offered in response to the COVID-19 pandemic which are performing according to their modified terms are generally not considered delinquent. (3)Amounts includeHuntington Technology Finance administrative lease delinquencies. (4)Amounts include mortgage loans insured byU.S. government agencies. Credit Quality Indicators To facilitate the monitoring of credit quality for commercial loans, and for the purposes of determining an appropriate ACL level for these loans,Huntington utilizes the following internally defined categories of credit grades: •Pass - Higher quality loans that do not fit any of the other categories described below. •OLEM - The credit risk may be relatively minor yet represents a risk given certain specific circumstances. If the potential weaknesses are not monitored or mitigated, the loan may weaken or the collateral may be inadequate to protectHuntington's position in the future. For these reasons,Huntington considers the loans to be potential problem loans. •Substandard - Inadequately protected loans resulting from the borrower's ability to repay, equity, and/or the collateral pledged to secure the loan. These loans have identified weaknesses that could hinder normal repayment or collection of the debt. It is likelyHuntington will sustain some loss if any identified weaknesses are not mitigated. •Doubtful - Loans that have all of the weaknesses inherent in those loans classified as Substandard, with the added elements of the full collection of the loan is improbable and that the possibility of loss is high. Loans are generally assigned a category of "Pass" rating upon initial approval and subsequently updated as appropriate based on the borrower's financial performance. Commercial loans categorized as OLEM, Substandard, or Doubtful are considered Criticized loans. Commercial loans categorized as Substandard or Doubtful are both considered Classified loans. For all classes within the consumer loan portfolios, loans are assigned pool level PD factors based on the FICO range within which the borrower's credit bureau score falls. A credit bureau score is a credit score developed by FICO based on data provided by the credit bureaus. The credit bureau score is widely accepted as the standard measure of consumer credit risk used by lenders, regulators, rating agencies, and consumers. The higher the credit bureau score, the higher likelihood of repayment and therefore, an indicator of higher credit quality.Huntington assesses the risk in the loan portfolio by utilizing numerous risk characteristics. The classifications described above, and also presented in the table below, represent one of those characteristics that are closely monitored in the overall credit risk management processes. 2020 Form 10-K 127 -------------------------------------------------------------------------------- Table of Contents The following table presents each loan and lease class by vintage and credit quality indicator at December 31, 2020: As of December 31, 2020 Revolver Term Loans Amortized Cost Basis by Origination Year Revolver Total at Total (dollar amounts in Amortized Cost Converted to millions) 2020 2019 2018 2017 2016 Prior Basis Term Loans Total (3) Commercial and industrial Credit Quality Indicator (1): Pass $ 13,757 $ 4,525 $ 2,758 $ 1,347 $ 974 $ 916 $ 8,894 $ 2 $ 33,173 OLEM 421 116 69 30 33 22 124 - 815 Substandard 196 144 188 224 46 159 423 - 1,380 Doubtful 2 - 1 - - 1 1 - 5 Total Commercial and industrial $ 14,376 $ 4,785 $ 3,016 $ 1,601 $ 1,053 $ 1,098 $ 9,442 $ 2 $ 35,373 Commercial real estate Credit Quality Indicator (1): Pass $ 1,742 $ 1,610 $ 1,122 $ 507 $ 507 $ 539 $ 633 $ - $ 6,660 OLEM 94 78 63 37 28 14 4 - 318 Substandard 27 46 10 29 58 14 36 - 220 Doubtful - - - - - 1 - - 1 Total Commercial real estate $ 1,863 $ 1,734 $ 1,195 $ 573 $ 593 $ 568 $ 673 $ - $ 7,199 Automobile Credit Quality Indicator (2): 750+ $ 2,670 $ 2,013 $ 1,144 $ 742 $ 317 $ 81 $ - $ - $ 6,967 650-749 1,965 1,343 755 386 175 52 - - 4,676 <650 312 301 244 157 84 37 - - 1,135 Total Automobile $ 4,947 $ 3,657 $ 2,143 $ 1,285 $ 576 $ 170 $ - $ - $ 12,778 Home equity Credit Quality Indicator (2): 750+ $ 793 $ 26 $ 26 $ 32 $ 89 $ 451 $ 4,373 $ 192 $ 5,982 650-749 147 9 8 11 27 157 1,906 181 2,446 <650 1 1 1 1 6 70 286 99 465 Total Home equity $ 941 $ 36 $ 35 $ 44 $ 122 $ 678 $ 6,565 $ 472 $ 8,893 Residential mortgage Credit Quality Indicator (2): 750+ $ 3,269 $ 1,370 $ 891 $ 1,064 $ 762 $ 1,243 $ 1 $ - $ 8,600 650-749 991 435 307 278 171 495 - - 2,677 <650 34 89 111 108 81 348 - - 771 Total Residential mortgage $ 4,294 $ 1,894 $ 1,309 $ 1,450 $ 1,014 $ 2,086 $ 1 $ - $ 12,048 RV and marine Credit Quality Indicator (2): 750+ $ 1,136 $ 525 $ 589 $ 337 $ 153 $ 254 $ - $ - $ 2,994 650-749 348 215 201 136 64 129 - - 1,093 <650 4 15 21 22 12 29 - - 103 Total RV and marine $ 1,488 $ 755 $ 811 $ 495 $ 229 $ 412 $ - $ - $ 4,190 Other consumer Credit Quality Indicator (2): 750+ $ 69 $ 58 $ 26 $ 8 $ 4 $ 14 $ 340 $ 2 $ 521 650-749 36 56 17 5 2 3 294 30 443 <650 2 8 3 1 - 1 26 28 69 Total Other consumer $ 107 $ 122 $ 46 $ 14 $ 6 $ 18 $ 660 $ 60 $ 1,033 (1)Consistent with the credit quality disclosures, indicators for the Commercial portfolio are based on internally defined categories of credit grades which are generally refreshed at least semi-annually. (2)Consistent with the credit quality disclosures, indicators for the Consumer portfolio are based on updated customer credit scores refreshed at least quarterly. (3)The total amount of accrued interest recorded for these loans at December 31, 2020, presented in other assets within the Consolidated Balance Sheets, was $146 million and $123 million for commercial and consumer, respectively. 128Huntington Bancshares Incorporated --------------------------------------------------------------------------------
Table of Contents The following tables present each loan and lease class by credit quality indicator at December 31, 2019:
December 31, 2019
Credit Risk Profile by UCS Classification
(dollar amounts in millions) Pass OLEM Substandard Doubtful Total
Commercial and industrial $ 28,477 $ 634 $ 1,551 $ 2 $ 30,664
Commercial real estate 6,487 98 88 1 6,674
Credit Risk Profile by FICO Score (1), (2)
750+ 650-749 <650 Total
Automobile $ 6,759 $ 4,661 $ 1,377 12,797
Home equity 5,763 2,772 557 9,092
Residential mortgage 7,976 2,742 578 11,296
RV and marine 2,391 1,053 119 3,563
Other consumer 546 571 120 1,237
(1)Excludes loans accounted for under the fair value option.
(2)Reflects updated customer credit scores.
TDR Loans
On March 22, 2020 and April 7, 2020, the federal bank regulatory agencies
including the FRB and OCC released statements encouraging financial institutions
to work prudently with borrowers that may be unable to meet their contractual
obligations because of the effects of COVID-19. The statements go on to explain
that, in consultation with the FASB staff, the federal bank regulatory agencies
concluded that short-term modifications (e.g. six months) made on a good faith
basis to borrowers who were current as of the implementation date of a relief
program are not TDRs. Section 4013 of the CARES Act, as amended by Section 541
of the Consolidated Appropriations Act of 2021, ("CARES Act") further addresses
COVID-19 related modifications occurring between March 1, 2020 through January
1, 2022 and specifies that such COVID-19 related modifications on loans that
were current as of December 31, 2019 are not TDRs.
For COVID-19 related loan modifications occurring during 2020, which met the
loan modification criteria under the CARES Act, Huntington elected to suspend
TDR accounting. For loan modifications not eligible for the CARES Act,
Huntington applied the interagency regulatory guidance that was clarified on
April 7, 2020. Accordingly, insignificant concessions (related to the current
COVID-19 crisis) granted through payment deferrals, fee waivers, or other
short-term modifications (generally 6 months or less) and provided to borrowers
less than 30 days past due at March 17, 2020 were not deemed to be TDRs.
Therefore, modified loans that met the required guidelines for relief are
excluded from the TDR disclosures below.
The amount of interest that would have been recorded under the original terms
for total accruing TDR loans was $46 million, $52 million, and $51 million for
2020, 2019, and 2018, respectively. The total amount of actual interest recorded
to interest income for these loans was $43 million, $49 million, and $48 million
for 2020, 2019, and 2018, respectively.
TDR Concession Types
The Company's standards relating to loan modifications consider, among other
factors, minimum verified income requirements, cash flow analyses, and
collateral valuations. Each potential loan modification is reviewed individually
and the terms of the loan are modified to meet a borrower's specific
circumstances at a point in time. All commercial TDRs are reviewed and approved
by our FRG.
Following is a description of TDRs by the different loan types:
Commercial loan TDRs - Our strategy involving commercial TDR borrowers includes
working with these borrowers to allow them to refinance elsewhere, as well as
allow them time to improve their financial position and remain a Huntington
customer through refinancing their notes according to market terms and
conditions in the future. A subsequent refinancing or modification of a loan
may occur when either the loan matures according to the terms of the
TDR-modified agreement or the borrower requests a change to the loan agreements.
At that time, the loan is evaluated to determine if the borrower is
creditworthy. It is subjected to the normal underwriting standards and processes
for other similar credit extensions, both new and existing. The refinanced note
is evaluated to determine if it is considered a new loan or a continuation of
the prior loan.
2020 Form 10-K 129
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Consumer loan TDRs - Residential mortgage TDRs represent loan modifications
associated with traditional first-lien mortgage loans in which a concession has
been provided to the borrower. The primary concessions given to residential
mortgage borrowers are amortization or maturity date changes and interest rate
reductions. Residential mortgages identified as TDRs involve borrowers unable to
refinance their mortgages through the Company's normal mortgage origination
channels or through other independent sources. Some, but not all, of the loans
may be delinquent. The Company may make similar interest rate, term, and
principal concessions for Automobile, Home Equity, RV and Marine and Other
Consumer loan TDRs.
TDR Impact on Credit Quality
Huntington's ALLL is largely determined by risk ratings assigned to commercial
loans, updated borrower credit scores on consumer loans, and borrower
delinquency history in both the commercial and consumer portfolios. These risk
ratings and credit scores consider the default history of the borrower,
including payment redefaults. As such, the provision for credit losses is
impacted primarily by changes in borrower payment performance rather than the
TDR classification. TDRs can be classified as either accrual or nonaccrual
loans. Nonaccrual TDRs are included in NALs whereas accruing TDRs are excluded
from NALs as it is probable that all contractual principal and interest due
under the restructured terms will be collected.
The Company's TDRs may include multiple concessions and the disclosure
classifications are presented based on the primary concession provided to the
borrower. The majority of the concessions for the C&I and CRE portfolios are the
extension of the maturity date, but could also include an interest rate
concession. In these instances, the primary concession is the maturity date
extension.
The following table presents, by class and modification type, the number of
contracts, post-modification outstanding balance, and the financial effects of
the modification for the years ended December 31, 2020 and 2019.
New Troubled Debt Restructurings (1)
Year Ended December 31, 2020
Post-modification Outstanding Recorded Investment (2)
Number of Interest rate Amortization or Chapter 7
(dollar amounts in millions) Contracts reduction maturity date change bankruptcy Other Total
Commercial and industrial 317 $ - $ 123 $ - $ 58 $ 181
Commercial real estate 13 - 3 - - 3
Automobile 3,018 - 29 6 - 35
Home equity 273 - 6 8 2 16
Residential mortgage 585 - 79 7 - 86
RV and marine 168 - 4 1 - 5
Other consumer 622 3 - - 1 4
Total new TDRs 4,996 $ 3 $ 244 $ 22 $ 61 $ 330
Year Ended December 31, 2019
Post-modification Outstanding Recorded Investment (2)
Number of Interest rate Amortization or Chapter 7
(dollar amounts in millions) Contracts reduction maturity date change bankruptcy Other Total
Commercial and industrial 482 $ - $ 172 $ - $ 7 $ 179
Commercial real estate 29 - 13 - - 13
Automobile 2,971 - 19 7 - 26
Home equity 306 - 9 8 - 17
Residential mortgage 330 - 35 2 - 37
RV and marine 139 - 1 2 - 3
Other consumer 972 8 - - - 8
Total new TDRs 5,229 $ 8 $ 249 $ 19 $ 7 $ 283
(1)TDRs may include multiple concessions. The disclosure classification is based
on the primary concession provided to the borrower.
(2)Post-modification balances approximate pre-modification balances. The
aggregate amount of charge-offs as a result of a restructuring are not
significant.
130 Huntington Bancshares Incorporated
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The financial effects of modification represent the impact on the provision
(recovery) for loan and lease losses. Amounts for the years ended December 31,
2020 and December 31, 2019 were $6 million and $(2) million, respectively.
Pledged Loans
The Bank has access to the Federal Reserve's discount window and advances from
the FHLB. As of December 31, 2020 and 2019, these borrowings and advances are
secured by $43.0 billion and $39.6 billion, respectively, of loans.
6. ALLOWANCE FOR CREDIT LOSSES
On January 1, 2020, Huntington adopted ASU 2016-13 Financial Instruments -
Credit Losses (ASC Topic 326): Measurement of Credit Losses on Financial
Instruments, which replaced the incurred loss methodology with an expected loss
methodology that is referred to as the current expected credit loss ("CECL")
methodology. The measurement of expected credit losses under CECL is applicable
to financial assets measured at amortized cost, including loan receivables and
held-to-maturity debt securities. It also applies to off-balance sheet exposures
not accounted for as insurance and net investments in leases accounted for under
ASC Topic 842. Additionally, ASC Topic 326 made changes to the accounting for
AFS debt securities, including a requirement to present credit losses as an
allowance rather than as a write-down on AFS debt securities that management
does not intend to sell, or believes will not be required to sell.
Huntington adopted ASC Topic 326 using the modified retrospective method for all
financial assets in scope of the standard. Results for reporting periods
beginning after January 1, 2020 are presented under ASC Topic 326, while prior
period amounts continue to be reported in accordance with previously applicable
GAAP. Upon adoption, Huntington recorded an increase to the ACL of $393 million
and a corresponding decrease to retained earnings of approximately $306 million,
net of tax of $87 million. The overall increase to the ACL at adoption is
comprised of a $180 million increase in the commercial ALLL, a $211 million
increase in the consumer ALLL, and a $2 million increase to the AULC.
2020 Form 10-K 131
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Allowance for Loan and Lease Losses and Allowance for Credit Losses -
Roll-forward
The following table presents ALLL and AULC activity by portfolio segment for the
years ended December 31, 2020, 2019, and 2018:
(dollar amounts in millions) Commercial Consumer Total
Year ended December 31, 2020: ALLL balance, beginning of period $ 552 $ 231 $
783
Cumulative-effect of change in accounting principle for financial instruments - credit losses (1)
180 211 391
Loan charge-offs (374) (166) (540)
Recoveries of loans previously charged-off 32 59 91
Provision for loan and lease losses 846 243 1,089 ALLL balance, end of period $ 1,236 $ 578 $ 1,814 AULC balance, beginning of period $ 102 $ 2 $
104
Cumulative-effect of change in accounting principle for financial instruments - credit losses (1)
(38) 40 2
Provision (reduction in allowance) for unfunded loan
commitments
and letters of credit (17) (24) (41)
Unfunded commitment losses (13) - (13)
AULC balance, end of period $ 34 $ 18 $ 52
ACL balance, end of period $ 1,270 $ 596 $ 1,866
Year ended December 31, 2019:
ALLL balance, beginning of period $ 542 $ 230 $ 772
Loan charge-offs (165) (197) (362)
Recoveries of loans previously charged-off 40 57 97
Provision for loan and lease losses 135 142
277
Allowance for loans sold or transferred to loans held for sale - (1) (1) ALLL balance, end of period $ 552 $ 231 $ 783 AULC balance, beginning of period $ 94 $ 2 $
96
Provision (reduction in allowance) for unfunded loan commitments and letters of credit 10 - 10 Unfunded commitment losses (2) - (2) AULC balance, end of period $ 102 $ 2 $ 104 ACL balance, end of period $ 654 $ 233 $ 887 Year ended December 31, 2018: ALLL balance, beginning of period $ 482 $ 209 $ 691 Loan charge-offs (79) (189) (268) Recoveries of loans previously charged-off 65 58
123
Provision for loan and lease losses 74 152 226 ALLL balance, end of period $ 542 $ 230 $ 772 AULC balance, beginning of period $ 84 $ 3 $
87
Provision (reduction in allowance) for unfunded loan commitments and letters of credit 10 (1) 9 AULC balance, end of period $ 94 $ 2 $ 96 ACL balance, end of period $ 636 $ 232 $ 868 (1)Relates to day one impact of the CECL adjustment as a result of the implementation of ASU 2016-13. At December 31, 2020, the ACL was $1.9 billion, an increase of $979 million from the December 31, 2019 balance of $887 million. Of the increase, $586 million relates primarily to the deterioration in the macroeconomic outlook resulting from the COVID-19 pandemic as evidenced in part by the changes in assumed unemployment rate levels during 2020. When estimating the January 1, 2020 CECL implementation adjustment, the assumed unemployment rate for fourth quarter 2020 in the base case scenario was 3.75%. When estimating the December 31, 2020 ACL, the assumed unemployment rate for fourth quarter 2020 in the base case scenario was 7.20%. The remaining increase of $393 million was related to the transition to the CECL lifetime loss methodology. The majority of the increase in the ACL from 2019 year-end levels related to the commercial portfolio. 132Huntington Bancshares Incorporated -------------------------------------------------------------------------------- Table of Contents The suite of CECL models are generally dependent on the rate of change in unemployment rather than the absolute unemployment levels. Additionally, the economic scenarios used in the December 31, 2020 ACL determination contained significant judgmental assumptions around the ultimate number of COVID-19 cases and the level and timing of government stimulus. Given the impact of the unemployment variable utilized within the models and the uncertainty associated with key economic scenario assumptions, the December 31, 2020 ACL included a material general reserve component to capture this economic uncertainty risk not addressed within the quantitative transaction reserve. NCOs increased $184 million, or 69%, in 2020. The increase was driven by commercial NCOs, which were centered in our oil and gas portfolio, partially offset by a decline in other consumer. 7. MORTGAGE LOAN SALES AND SERVICING RIGHTS Residential Mortgage Portfolio The following table summarizes activity relating to residential mortgage loans sold with servicing retained for the years ended December 31, 2020, 2019, and 2018: Year Ended December 31, (dollar amounts in millions) 2020 2019 2018 Residential mortgage loans sold with servicing retained $ 8,436 $ 4,841 $ 3,846 Pretax gains resulting from above loan sales (1) 311 119 87 (1)Recorded in mortgage banking income. The following table summarizes the changes in MSRs recorded using the fair value method for the years ended December 31, 2020 and 2019 (1): Year Ended December 31, (dollar amounts in millions) 2020 2019 (1) Fair value, beginning of period $
7 $ 10 Fair value election for servicing assets previously measured using the amortized method
205 -
New servicing assets created 102 -
Change in fair value during the period due to:
Time decay (2) (9) (1)
Payoffs (3) (43) (1)
Changes in valuation inputs or assumptions (4) (52) (1)
Fair value, end of period $ 210 $ 7
Weighted-average life (years) 7.6 6.4
(1)Prior to January 1, 2020, substantially all of Huntington's MSR assets were
recorded at amortized cost.
(2)Represents decrease in value due to passage of time, including the impact
from both regularly scheduled principal payments and partial loan paydowns.
(3)Represents decrease in value associated with loans that paid off during the
period.
(4)Represents change in value resulting primarily from market-driven changes in
interest
MSRs do not trade in an active, open market with readily observable prices.
Therefore, the fair value of MSRs is estimated using a discounted future cash
flow model. Changes in the assumptions used may have a significant impact on the
valuation of MSRs. MSR values are highly sensitive to movement in interest rates
as expected future net servicing income depends on the projected outstanding
principal balances of the underlying loans, which can be greatly impacted by the
level of prepayments.
2020 Form 10-K 133
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For MSRs under the fair value method, a summary of key assumptions and the
sensitivity of the MSR value to changes in these assumptions at December 31,
2020, and December 31, 2019 follows:
December 31, 2020 December 31, 2019 (1)
Decline in fair value due to Decline in fair value due to
10% 20% 10% 20%
adverse adverse adverse adverse
(dollar amounts in millions) Actual change change Actual change change
Constant prepayment rate (annualized) 17.36 % $ (12) $ (23) 8.21 % $ - $ - Spread over forward interest rate swap rates 519 bps (4) (8) 824 bps - - (1)Prior to January 1, 2020, substantially all ofHuntington's MSR assets were recorded at amortized cost. Total servicing, late and other ancillary fees included in mortgage banking income was $64 million, $63 million, and $60 million for the years ended December 31, 2020, 2019, and 2018, respectively. The unpaid principal balance of residential mortgage loans serviced for third parties was $23.5 billion, $22.4 billion, and $21.0 billion at December 31, 2020, 2019, and 2018, respectively. 8. GOODWILL AND OTHER INTANGIBLE ASSETS Business segments are based on segment leadership structure, which reflects how segment performance is monitored and assessed. We have four major business segments: Consumer and Business Banking, Commercial Banking, Vehicle Finance, and Regional Banking and The Huntington Private Client Group (RBHPCG). TheTreasury / Other function includes technology and operations, other unallocated assets, liabilities, revenue, and expense. A rollforward of goodwill by business segment for the years ended December 31, 2020 and 2019, is presented in the table below: Consumer & Business Commercial Vehicle Treasury/
(dollar amounts in millions) Banking Banking Finance RBHPCG Other
Consolidated
Balance, January 1, 2019 $ 1,393 $ 426 $ - $ 170 $ - $
1,989
Goodwill acquired during the period - - - - - - Adjustments - 1 - - - 1 Balance, December 31, 2019 1,393 427 - 170 - 1,990 Goodwill acquired during the period - - - - - - Adjustments - - - - - -
Balance, December 31, 2020 $ 1,393 $ 427
$ - $ 170 $ - $
1,990
Goodwill is not amortized but is evaluated for impairment on an annual basis at October 1 of each year or whenever events or changes in circumstances indicate the carrying value may not be recoverable. No impairment was recorded in 2020 or 2019. The emergence of COVID-19 as a global pandemic early in 2020 led to significant deterioration in the economic environment which has impacted expected earnings. Following qualitative assessments of the goodwill balance in each of the first 3 quarters of 2020, management conducted its annual goodwill impairment test effective October 1, 2020. Impairment was not identified in any of the Bank's reporting units during the annual test and further deterioration in the economic environment was not identified leading up to year end.Goodwill assessments are highly sensitive to economic projections and the related assumptions and estimates used by management. 134Huntington Bancshares Incorporated -------------------------------------------------------------------------------- Table of Contents At December 31, 2020 and 2019,Huntington's other intangible assets consisted of the following: Gross Net Carrying Accumulated Carrying
(dollar amounts in millions) Amount Amortization Value December 31, 2020 Core deposit intangible $ 310 $ (150) $ 160 Customer relationship
101 (70) 31
Total other intangible assets $ 411 $ (220) $ 191 December 31, 2019 Core deposit intangible $ 310 $ (120) $ 190 Customer relationship
115 (73) 42
Total other intangible assets $ 425 $ (193) $ 232
The estimated amortization expense of other intangible assets for the next five
years is as follows:
Amortization
(dollar amounts in millions) Expense
2021 $ 38
2022 36
2023 34
2024 32
2025 31
9. PREMISES AND EQUIPMENT
Premises and equipment were comprised of the following at December 31, 2020 and
2019:
At December 31,
(dollar amounts in millions) 2020 2019
Land and land improvements $ 198 $ 189
Buildings 586 587
Leasehold improvements 203 205
Equipment 736 742
Total premises and equipment 1,723 1,723
Less accumulated depreciation and amortization (966) (960)
Net premises and equipment $ 757 $ 763
Depreciation and amortization charged to expense and rental income credited to
net occupancy expense for the three years ended December 31, 2020, 2019, and
2018 were:
(dollar amounts in millions) 2020 2019 2018
Total depreciation and amortization of premises and equipment $ 119 $ 116 $ 130
Rental income credited to occupancy expense 10 11 13
10. OPERATING LEASES At December 31, 2020,Huntington was obligated under non-cancelable leases for branch and office space. These leases are all classified as operating due to the amount of time such spaces are occupied relative to the underlying assets useful lives. Many of these leases contain renewal options, most of which are not included in measurement of the right-of-use asset as they are not considered reasonably certain of exercise (i.e.,Huntington does not currently have a significant economic incentive to exercise these options). Some leases contain escalation clauses calling for rentals to be adjusted for increased real estate taxes and other operating expenses or proportionately adjusted for increases in the consumer or other price indices. Occasionally, Huntington will sublease the land and buildings for which it has obtained the right to use; substantially all of those sublease arrangements are classified as operating, with sublease income recognized on a straight-line basis over the contractual term of the arrangement. 2020 Form 10-K 135 -------------------------------------------------------------------------------- Table of Contents Net lease assets and liabilities at December 31, 2020 and 2019 are as follows: At December 31, (dollar amounts in millions) Classification 2020 2019 Assets Operating lease assets Other assets $ 199 $ 210 Liabilities Lease liabilities Other liabilities $ 220 $ 233
Net lease cost for the years ended December 31, 2020 and 2019 are as follows:
Year Ended December 31,
(dollar amounts in millions) Classification 2020 2019
Operating lease cost Net occupancy $ 50 $ 47
Short-term lease cost Net occupancy 1 1
Sublease income Net occupancy (2) (3)
Net lease cost $ 49 $ 45
Maturity of lease liabilities at December 31, 2020 are as follows: (dollar amounts in millions)
Total
2021 $ 43
2022 42
2023 37
2024 32
2025 26
Thereafter 77
Total lease payments $ 257
Less: Interest (37)
Total lease liabilities $ 220
Additional supplemental information related to the Company's operating leases as of December 31, 2020 and 2019 are as follows:
Year Ended December 31,
(dollar amounts in millions) 2020 2019
Cash paid for amounts included in the measurement of lease liabilities for Operating cash flows
$ (53) $ (54)
Right-of-use assets obtained in exchange for lease obligations for Operating leases
23 40
Weighted-average remaining lease term (years) for
Operating leases 7.17 7.31
Weighted-average discount rate for Operating
leases 4.26 % 4.56 %
11. SHORT-TERM BORROWINGS Borrowings with original maturities of one year or less are classified as short-term and were comprised of the following at December 31, 2020 and 2019:
At December 31,
(dollar amounts in millions) 2020 2019
Federal funds purchased and securities sold under agreements to repurchase
$ 71 $ 1,041
Federal Home Loan Bank advances - 1,500
Other borrowings 112 65
Total short-term borrowings $ 183 $ 2,606
136 Huntington Bancshares Incorporated
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12. LONG-TERM DEBT
Huntington's long-term debt consisted of the following:
At December 31,
(dollar amounts in millions) 2020 2019
The Parent Company:
Senior Notes:
3.19% Huntington Bancshares Incorporated medium-term notes due 2021 $ 802 $ 993
2.33% Huntington Bancshares Incorporated senior notes due 2022 699 972
2.67% Huntington Bancshares Incorporated senior notes due 2024 838 798
4.05% Huntington Bancshares Incorporated senior notes due 2025 553 528
2.60% Huntington Bancshares Incorporated senior notes due 2030 743 -
Subordinated Notes:
7.00% Huntington Bancshares Incorporated subordinated notes due 2020 - 305
3.55% Huntington Bancshares Incorporated subordinated notes due 2023
256 247
Huntington Capital I Trust Preferred 0.94% junior subordinated debentures due 2027 (1)
69 70
Huntington Capital II Trust Preferred 0.86% junior subordinated debentures due 2028 (2)
32 32
Sky Financial Capital Trust III 1.64% junior subordinated debentures due 2036 (3)
72 72
Sky Financial Capital Trust IV 1.64% junior subordinated debentures due 2036 (3)
74 74
Camco Financial Statutory Trust I 1.57% due 2037 (4) 4 4
Total notes issued by the parent 4,142 4,095
The Bank:
Senior Notes:
2.47% Huntington National Bank senior notes due 2020 - 699
2.42% Huntington National Bank senior notes due 2020 (5) - 300
2.43% Huntington National Bank senior notes due 2020 - 500
2.97% Huntington National Bank senior notes due 2020 - 499
0.79% Huntington National Bank senior notes due 2021 (6) 298 299
3.33% Huntington National Bank senior notes due 2021 752 759
2.55% Huntington National Bank senior notes due 2022 710 691
3.16% Huntington National Bank senior notes due 2022 511 507
1.83% Huntington National Bank senior notes due 2023 489 -
3.60% Huntington National Bank senior notes due 2023 773 778
Subordinated Notes:
3.86% Huntington National Bank subordinated notes due 2026 233 231
Total notes issued by the bank 3,766 5,263
FHLB Advances:
1.54% weighted average rate, varying maturities greater than one year 3 5
Other:
Huntington Technology Finance nonrecourse debt, 3.63% weighted average interest rate, varying maturities
266 312
2.12% Huntington Preferred Capital II - Class F securities (7) 75 74
2.12% Huntington Preferred Capital II - Class G securities (7) 50 50
2.24% Huntington Preferred Capital II - Class I securities (8) 50 50
Total long-term debt $ 8,352 $ 9,849
(1)Variable effective rate at December 31, 2020, based on three-month LIBOR
+0.70%
(2)Variable effective rate at December 31, 2020, based on three-month LIBOR
+0.625%
(3)Variable effective rate at December 31, 2020, based on three-month LIBOR
+1.40%
(4)Variable effective rate at December 31, 2020, based on three-month LIBOR
+1.33%
(5)Variable effective rate at December 31, 2019, based on three-month LIBOR
+0.51%
(6)Variable effective rate at December 31, 2020, based onthree-month LIBOR
+0.55%
(7)Variable effective rate at December 31, 2020, based on three-month LIBOR
+1.88%
(8)Variable effective rate at December 31, 2020, based on three-month LIBOR
+2.00%
2020 Form 10-K 137
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Amounts above are net of unamortized discounts and adjustments related to
hedging with derivative financial instruments. We use interest rate swaps to
hedge interest rate risk of certain fixed-rate debt by converting the debt to a
variable rate. See Note 21 - " Derivative Financial Instruments " for more
information regarding such financial instruments.
The following table presents senior notes issued during 2020:
Date of Issuance Issuer Amount % of face value Interest Rate Term Maturity
January 2020 Bank $ 500 million 99.916 % 1.80 % fixed February 3, 2023
January 2020 Parent 750 million 99.597 2.55 fixed February 4, 2030
During 2020, Huntington retired $500 million of senior notes, which resulted in
net pre-tax loss of $7 million These transactions have been recorded as loss on
early extinguishment of debt, and reflected in other noninterest expense, in the
Consolidated Income Statement.
Long-term debt maturities for the next five years and thereafter are as follows:
(dollar amounts in millions) 2021 2022 2023 2024 2025 Thereafter Total
The Parent Company:
Senior notes $ 800 $ 700 $ - $ 800 $ 500 $ 750 $ 3,550
Subordinated notes - - 250 - - 253 503
The Bank:
Senior notes 1,044 1,198 1,202 - - - 3,444
Subordinated notes - - - - - 250 250
FHLB Advances - 1 1 - - 1 3
Other 22 141 136 103 39 - 441
Total $ 1,866 $ 2,040 $ 1,589 $ 903 $ 539 $ 1,254 $ 8,191
These maturities are based upon the par values of the long-term debt.
The terms of certain long-term debt obligations contain various restrictive
covenants including limitations on the acquisition of additional debt, dividend
payments, and the disposition of subsidiaries. As of December 31, 2020,
Huntington was in compliance with all such covenants.
13. OTHER COMPREHENSIVE INCOME
The components of Huntington's OCI for the years ended December 31, 2020, 2019,
and 2018, were as follows:
2020
Tax (expense)
(dollar amounts in millions) Pretax Benefit After-tax
Unrealized gains (losses) on available-for-sale
securities arising during the period $ 235 $ (52) $ 183 Less: Reclassification adjustment for realized net losses (gains) included in net income
42 (9) 33
Net change in unrealized holding gains (losses) on available-for-sale securities
277 (61) 216
Net change in fair value on cash flow hedges 302 (68) 234
Net change in pension and other post-retirement
obligations (3) 1 (2)
Total other comprehensive income (loss) $ 576 $ (128) $ 448
2019
Tax (expense)
(dollar amounts in millions) Pretax Benefit After-tax
Unrealized gains (losses) on available-for-sale securities arising during the period
$ 403 $ (89) $ 314 Less: Reclassification adjustment for realized net losses (gains) included in net income
26 (5) 21
Net change in unrealized holding gains (losses) on available-for-sale securities
429 (94) 335
Net change in fair value on cash flow hedges 26 (3) 23
Net change in pension and other post-retirement obligations (7) 2 (5)
Total other comprehensive income (loss) $ 448 $ (95) $ 353
138 Huntington Bancshares Incorporated --------------------------------------------------------------------------------
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2018
Tax (expense)
(dollar amounts in millions) Pretax Benefit After-tax
Unrealized gains (losses) on available-for-sale securities arising during the period
$ (151) $ 35 $ (116)
Less: Reclassification adjustment for net gains (losses) included in net income
41 (9) 32
Net change in unrealized holding gains (losses) on available-for-sale debt securities
(110) 26 (84)
Net change in pension and post-retirement obligations 4 - 4
Total other comprehensive income (loss) $ (106) $ 26 $ (80)
Activity in accumulated OCI for the years ended December 31, 2020 and 2019 were
as follows:
Change in Unrealized
Unrealized fair value gains (losses) for
gains (losses) on related to pension and other
debt cash flow post-retirement
(dollar amounts in millions) securities (1) hedges obligations Total
December 31, 2018 $ (363) $ - $ (246) $ (609)
Other comprehensive income before
reclassifications 314 23 - 337
Amounts reclassified from accumulated OCI to
earnings 21 - (5) 16
Period change 335 23 (5) 353
December 31, 2019 (28) 23 (251) (256)
Other comprehensive income before
reclassifications 183 234 - 417
Amounts reclassified from accumulated OCI to
earnings 33 - (2) 31
Period change 216 234 (2) 448
December 31, 2020 $ 188 $ 257 $ (253) $ 192
(1)AOCI amounts at December 31, 2020, 2019, and 2018 include $69 million, $121
million, and $137 million, respectively, net of unrealized losses on securities
transferred from the available-for-sale securities portfolio to the
held-to-maturity securities portfolio. The net unrealized losses will be
recognized in earnings over the remaining life of the security using the
effective interest method.
14. SHAREHOLDERS' EQUITY
The following is a summary of Huntington's non-cumulative, non-voting, perpetual
preferred stock outstanding as of December 31, 2020.
(dollar amounts in millions, share amounts in thousands)
Total Shares Carrying
Series Issuance Date Outstanding Amount Dividend Rate Earliest Redemption Date
Series B 12/28/2011 35,500 $ 23 3-mo. LIBOR + 270 bps 1/15/2017
Series D 3/21/2016 400,000 386 6.25 % 4/15/2021
Series D 5/5/2016 200,000 199 6.25 4/15/2021
Series C 8/16/2016 100,000 100 5.875 10/15/2021
Series E 2/27/2018 5,000 495 5.70 4/15/2023
Series F 5/27/2020 5,000 494 5.625 7/15/2030
Series G 8/3/2020 5,000 494 4.45 10/15/2027
Total 750,500 $ 2,191
Series B, D, and C of preferred stock has a liquidation value and redemption
price per share of $1,000, plus any declared and unpaid dividends. Series E
preferred stock has a liquidation value and redemption price per share of
$100,000, plus any declared and unpaid dividends. All preferred stock has no
stated maturity and redemption is solely at the option of the Company. Under
current rules, any redemption of the preferred stock is subject to prior
approval of the FRB.
Preferred F Stock issued and outstanding
During the 2020 second quarter, Huntington issued $500 million of preferred
stock. Huntington issued 500,000 depositary shares, each depositary shares
representing a 1/100th ownership interest in a share of 5.625% Series F
Non-Cumulative Perpetual Preferred Stock (Series F Preferred Stock), par value
$0.01 per share, with a liquidation preference of $100,000 per share (equivalent
to $1,000 per depositary share). Each holder of a depositary share will be
entitled to all proportional rights and preferences of the Series F Preferred
Stock (including dividend, voting,
2020 Form 10-K 139
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redemption, and liquidation rights). Costs of $6 million related to the issuance
of the Series F Preferred Stock are reported as a direct deduction from the face
amount of the stock.
Dividends on the Series F Preferred Stock will be non-cumulative and payable
quarterly in arrears, when, as and if authorized by the Company's board of
directors or a duly authorized committee of the board and declared by the
Company, at an annual rate of 5.625% per year on the liquidation preference of
$100,000 per share, equivalent to $1,000 per depositary share. The dividend
payment dates will be the fifteenth day of each January, April, July and
October, which commenced on October 15, 2020.
The Series F Preferred Stock is perpetual and has no maturity date. Huntington
may redeem the Series F Preferred Stock at its option, (i) in whole or in part,
from time to time, on any dividend payment date on or after July 15, 2030 or
(ii) in whole but not in part, within 90 days following a regulatory capital
treatment event, in each case, at a redemption price equal to $100,000 per share
(equivalent to $1,000 per depositary share), plus any declared and unpaid
dividends, without regard to any undeclared dividends, on the Series F Preferred
Stock prior to the date fixed for redemption. If Huntington redeems the Series F
Preferred Stock, the depositary will redeem a proportional number of depositary
shares. Neither the holders of Series Preferred F Stock nor holders of
depositary shares will have the right to require the redemption or repurchase of
the Series F Preferred Stock or the depositary shares.
Preferred G Stock issued and outstanding
During the 2020 third quarter, Huntington issued $500 million of preferred
stock. Huntington issued 500,000 depositary shares, each depositary shares
representing a 1/100th ownership interest in a share of 4.450% Series G
Non-Cumulative Perpetual Preferred Stock (Series G Preferred Stock), par value
$0.01 per share, with a liquidation preference of $100,000 per share (equivalent
to $1,000 per depositary share). Each holder of a depositary share will be
entitled to all proportional rights and preferences of the Series G Preferred
Stock (including dividend, voting, redemption, and liquidation rights). Costs of
$6 million related to the issuance of the Series G Preferred Stock are reported
as a direct deduction from the face amount of the stock.
Dividends on the Series G Preferred Stock will be non-cumulative and payable
quarterly in arrears, when, as and if authorized by the Company's board of
directors or a duly authorized committee of the board and declared by the
Company, at an annual rate of 4.450% per year on the liquidation preference of
$100,000 per share, equivalent to $1,000 per depositary share. The dividend
payment dates will be the fifteenth day of each January, April, July and
October, commencing on January 15, 2021.
The Series G Preferred Stock is perpetual and has no maturity date. Huntington
may redeem the Series G Preferred Stock at its option, (i) in whole or in part,
from time to time, on any dividend payment date on or after October 15, 2027 or
(ii) in whole but not in part, within 90 days following a regulatory capital
treatment event, in each case, at a redemption price equal to $100,000 per share
(equivalent to $1,000 per depositary share), plus any declared and unpaid
dividends, without regard to any undeclared dividends, on the Series G Preferred
Stock prior to the date fixed for redemption. If Huntington redeems the Series G
Preferred Stock, the depositary will redeem a proportional number of depositary
shares. Neither the holders of Series Preferred G Stock nor holders of
depositary shares will have the right to require the redemption or repurchase of
the Series G Preferred Stock or the depositary shares.
Preferred H Stock issued and outstanding
On February 2, 2021, Huntington issued $500 million of preferred stock.
Huntington issued 20,000,000 depositary shares, each representing a 1/40th
ownership interest in a share of 4.50% Series H Non-Cumulative Perpetual
Preferred Stock (Preferred H Stock), par value $0.01 per share, with a
liquidation preference of $1,000 per share (equivalent to $25 per depositary
share). Each holder of a depositary share, will be entitled to all proportional
rights and preferences of the Preferred H Stock (including dividend, voting,
redemption, and liquidation rights). Costs of $16 million related to the
issuance of the Preferred H Stock are reported as a direct deduction from the
face amount of the stock.
Dividends on the Preferred H Stock will be non-cumulative and payable quarterly
in arrears, when, as and if authorized by the Company's board of directors or a
duly authorized committee of the board and declared by the Company, at an annual
rate of 4.50% per year on the liquidation preference of $1,000 per share,
equivalent to $25
140 Huntington Bancshares Incorporated
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per depositary share. The dividend payment dates will be the fifteenth day of
each January, April, July and October, commencing on July 15, 2021, or the next
business day if any such day is not a business day.
The Preferred H Stock is perpetual and has no maturity date. Huntington may
redeem the Preferred H Stock at its option, (i) in whole or in part, from time
to time, on any dividend payment date on or after April 15, 2026 or (ii) in
whole but not in part, within 90 days following a regulatory capital treatment
event, in each case, at a redemption price equal to $1,000 per share (equivalent
to $25 per depositary share), plus any declared and unpaid dividends and, in the
case of a redemption following a regulatory capital treatment event, the
pro-rated portion of dividends, whether or not declared, for the dividend period
in which such redemption occurs. If Huntington redeems the Preferred H Stock,
the depositary will redeem a proportional number of depositary shares. Neither
the holders of Preferred H Stock nor holders of depositary shares will have the
right to require the redemption or repurchase of the Preferred H Stock or the
depositary shares. Any redemption of the Preferred H Stock is subject to
Huntington's receipt of any required prior approval by the Board of Governors of
the Federal Reserve System.
The following table presents the dividends declared for each series of Preferred
shares for the years ended December 31, 2020, 2019, and 2018:
(amounts in millions, except per share data) Cash Dividend
Declared Per
Preferred Series Share Amount ($)
Year Ended December 31, 2020
Series B $ 35.91 $ (1)
Series C 58.76 (6)
Series D 62.50 (37)
Series E 5,700.00 (29)
Series F 3,468.75 (17)
Series G 1,915.97 (10)
$ (100)
Year Ended December 31, 2019
Series B $ 51.22 $ (2)
Series C 58.76 (6)
Series D 62.50 (37)
Series E 5,700.00 (29)
$ (74)
Year Ended December 31, 2018
Series B $ 49.11 $ (3)
Series C 58.76 (6)
Series D 62.50 (37)
Series E 4,892.50 (24)
$ (70)
15. EARNINGS PER SHARE
Basic earnings per share is the amount of earnings (adjusted for dividends
declared on preferred stock) available to each share of common stock outstanding
during the reporting period. Diluted earnings per share is the amount of
earnings available to each share of common stock outstanding during the
reporting period adjusted to include the effect of potentially dilutive common
shares. Potentially dilutive common shares include incremental shares issued for
stock options, restricted stock units and awards, and distributions from
deferred compensation plans. Potentially dilutive common shares are excluded
from the computation of diluted earnings per share in periods in which the
effect would be antidilutive.
2020 Form 10-K 141
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The calculation of basic and diluted earnings per share for each of the three
years ended December 31 was as follows:
Year Ended December 31,
(amounts in millions, except per share data, share
count in thousands) 2020 2019 2018
Net income $ 817 $ 1,411 $ 1,393
Preferred stock dividends (100) (74) (70)
Net income available to common shareholders $ 717 $ 1,337 $ 1,323
Average common shares issued and outstanding 1,017,117 1,038,840 1,081,542
Dilutive potential common shares
Stock options and restricted stock units and awards 10,613 12,994 16,529
Shares held in deferred compensation plans 4,953 4,245 3,511
Dilutive impact of Preferred Stock (1) - - 4,403
Other - - -
Dilutive potential common shares 15,566 17,239 24,443
Total diluted average common shares issued and
outstanding 1,032,683 1,056,079 1,105,985
Basic earnings per common share $ 0.71 $ 1.29 $ 1.22
Diluted earnings per common share $ 0.69 $ 1.27 $ 1.20
Anti-dilutive awards (2) 9,760 5,253 2,307
(1)The 2018 total diluted average common shares issued and outstanding was
impacted by using the if-converted method.
(2)Reflects the total number of shares related to outstanding options that have
been excluded from the computation of diluted earnings per share because the
impact would have been anti-dilutive.
16. NONINTEREST INCOME
Huntington earns a variety of revenue including interest and fees from customers
as well as revenues from non-customers. Certain sources of revenue are
recognized within interest or fee income and are outside of the scope of ASC
Topic 606, Revenue from Contracts with Customers ("ASC 606"). Other sources of
revenue fall within the scope of ASC 606 and are generally recognized within
noninterest income. These revenues are included within various sections of the
Consolidated Financial Statements. The following table shows Huntington's total
noninterest income segregated between contracts with customers within the scope
of ASC 606 and those within the scope of other GAAP Topics.
Year Ended December 31,
(dollar amounts in millions) 2020 2019 2018
Noninterest income
Noninterest income from contracts with customers $ 884 $ 939 $ 881
Noninterest income within the scope of other GAAP
topics 707 515 440
Total noninterest income $ 1,591 $ 1,454 $ 1,321
142 Huntington Bancshares Incorporated
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The following table illustrates the disaggregation by operating segment and
major revenue stream and reconciles disaggregated revenue to segment revenue
presented in Note 26 - " Segment Reporting ":
Year Ended December 31, 2020
Consumer & Commercial Vehicle Treasury / Huntington
(dollar amounts in millions) Business Banking Banking Finance RBHPCG Other ConsolidatedMajor Revenue Streams Service charges on deposit accounts $ 217 $ 74 $ 6 $ 4 $ - $ 301 Card and payment processing income 221 15 - - - 236 Trust and investment management services 44 5 - 140 - 189 Insurance income 43 7 - 46 1 97 Other noninterest income 26 22 2 11 - 61 Net revenue from contracts with customers $ 551 $ 123 $ 8 $ 201 $ 1 $ 884 Noninterest income within the scope of other GAAP topics 394 241 1 - 71 707
Total noninterest income $ 945 $ 364
$ 9 $ 201 $ 72 $ 1,591
Year Ended December 31, 2019
Consumer & Commercial Vehicle Treasury / Huntington
(dollar amounts in millions) Business Banking Banking Finance RBHPCG Other ConsolidatedMajor Revenue Streams Service charges on deposit accounts $ 297 $ 64 $ 7 $ 4 $ - $ 372 Card and payment processing income 218 15 - - - 233 Trust and investment management services 34 4 - 139 1 178 Insurance Income 34 6 - 47 1 88 Other noninterest income 32 24 4 6 2 68 Net revenue from contracts with customers $ 615 $ 113 $ 11 $ 196 $ 4 $ 939 Noninterest income within the scope of other GAAP topics 210 246 1 2 56 515
Total noninterest income $ 825 $ 359
$ 12 $ 198 $ 60 $ 1,454
Year Ended December 31, 2018
Consumer & Commercial Vehicle Treasury / Huntington
(dollar amounts in millions) Business Banking Banking Finance RBHPCG Other ConsolidatedMajor Revenue Streams Service charges on deposit accounts $ 290 $ 64 $ 5 $ 4 $ - $ 363 Card and payment processing income 198 11 - - - 209 Trust and investment management services 28 4 - 139 - 171 Insurance Income 34 5 - 41 2 82 Other noninterest income 38 6 3 8 1 56 Net revenue from contracts with customers $ 588 $ 90 $ 8 $ 192 $ 3 $ 881 Noninterest income within the scope of other GAAP topics 156 231 3 1 49 440
Total noninterest income $ 744 $ 321
$ 11 $ 193 $ 52 $ 1,321
Huntington generally provides services for customers in which it acts as
principal. Payment terms and conditions vary amongst services and customers, and
thus impact the timing and amount of revenue recognition. Some fees may be paid
before any service is rendered and accordingly, such fees are deferred until the
obligations pertaining to those fees are satisfied. Most Huntington contracts
with customers are cancelable by either party without penalty or they are
short-term in nature, with a contract duration of less than one year.
Accordingly, most revenue deferred for the reporting period ended December 31,
2020 is expected to be earned within one year. Huntington does not have
significant balances of contract assets or contract liabilities and any change
in those balances during the reporting period ended December 31, 2020 was
determined to be immaterial.
2020 Form 10-K 143
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17. SHARE-BASED COMPENSATION
Huntington sponsors nonqualified and incentive share based compensation plans.
These plans provide for the granting of stock options, restricted stock awards,
restricted stock units, performance share units and other awards to officers,
directors, and other employees. Compensation costs are included in personnel
costs on the Consolidated Statements of Income.
Huntington issues shares to fulfill stock option exercises and restricted stock
unit and award vesting from available authorized common shares. At December 31,
2020, Huntington believes there are adequate authorized common shares to satisfy
anticipated stock option exercises and restricted stock unit award vesting in
2021.
The following table presents total share-based compensation expense and related
tax benefit for the three years ended December 31, 2020, 2019, and 2018:
(dollar amounts in millions) 2020 2019 2018
Share-based compensation expense $ 77 $ 83 $ 78
Tax benefit 13 15 14
2018 Long-Term Incentive Plan
In 2018, shareholders approved the Huntington Bancshares Incorporated 2018
Long-Term Incentive Plan (the 2018 Plan). Shares remaining under the 2015
Long-Term Incentive Plan have been incorporated into the 2018 Plan. Accordingly,
the total number of shares authorized under the 2018 Plan is 33 million shares.
At December 31, 2020, 5 million shares from the Plan were available for future
grants.
Stock Options
Stock options are granted at the closing market price on the date of the grant.
Options granted typically vest ratably over four years or when other conditions
are met. Stock options, which represented a portion of the grant values, have no
intrinsic value until the stock price increases. Options granted on or after May
1, 2015 have a contractual term of ten years. All options granted on or before
April 30, 2015 have a contractual term of seven years.
Huntington uses the Black-Scholes option pricing model to value options in
determining the share-based compensation expense. Forfeitures are estimated at
the date of grant based on historical rates, and are updated as necessary, and
reduce the compensation expense recognized. The risk-free interest rate is based
on the U.S. Treasury yield curve in effect at the date of grant. The expected
dividend yield is based on the dividend rate and stock price at the date of the
grant. Expected volatility is based on the estimated volatility of Huntington's
stock over the expected term of the option.
The following table presents the weighted average assumptions used in the option
pricing model at the grant date for options granted in the three years ended
December 31, 2020, 2019, and 2018:
Assumptions 2020 2019 2018
Risk-free interest rate 0.48 % 2.41 % 2.88 %
Expected dividend yield 6.98 4.36 3.71
Expected volatility of Huntington's common stock 39.7 22.5 24.0
Expected option term (years) 6.5 6.5 6.5
Weighted-average grant date fair value per share $ 1.49 $ 1.91
$ 2.58
144 Huntington Bancshares Incorporated
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Huntington's stock option activity and related information for the year ended
December 31, 2020, was as follows:
Weighted- Weighted-Average
(dollar amounts in millions, except per share Average Remaining Aggregate
and options amounts in thousands) Options Exercise Price Contractual Life (Years) Intrinsic Value Outstanding at January 1, 2020
11,309 $ 12.23
Granted 4,378 8.60
Exercised (1,372) 7.56
Forfeited/expired (163) 13.25
Outstanding at December 31, 2020 14,152 $ 11.55 7.4 $ 25
Expected to vest (1) 7,994 $ 11.18 8.6 $ 17
Exercisable at December 31, 2020 5,919 $ 12.09 5.6 $ 7
(1)The number of options expected to vest reflect an estimate of 239,000 shares
expected to be forfeited.
The aggregate intrinsic value represents the amount by which the fair value of
underlying stock exceeds the "in-the-money" option exercise price. The total
intrinsic value of options exercised for the years ended December 31, 2020,
2019, and 2018 were $6 million, $16 million and $52 million, respectively. For
the years ended December 31, 2020, 2019, and 2018, cash received for the
exercises of stock options was $1 million, $2 million and $5 million,
respectively. The tax benefit realized for the tax deductions from option
exercises totaled $1 million, $3 million and $10 million in 2020, 2019, and
2018, respectively.
Restricted Stock Units and Performance Share Units
Huntington also grants restricted stock units and performance share units. These
units are granted at the closing market price on the date of the grant.
Restricted stock units are issued at no cost to the recipient, and can be
settled only in shares at the end of the vesting period. Restricted stock units
do not provide the holder with voting rights or cash dividends during the
vesting period, but do accrue a dividend equivalent that is paid upon vesting,
and are subject to certain service restrictions. Performance share units are
payable contingent upon Huntington achieving certain predefined performance
objectives over the three-year measurement period. The fair value of these units
reflect the closing market price of Huntington's common stock on the grant date.
The following table summarizes the status of Huntington's restricted stock
units, and performance share units as of December 31, 2020, and activity for the
year ended December 31, 2020:
Restricted Stock Units Performance Share Units
Weighted- Weighted-
Average Average
Grant Date Grant Date
(amounts in thousands, except per share Fair Value Fair Value
amounts) Quantity Per Share Quantity Per Share
Nonvested at January 1, 2020 15,289 $ 13.42 2,769 $ 13.49
Granted 7,360 8.98 2,154 8.57
Vested (5,416) 12.39 (1,626) 12.19
Forfeited (581) 12.49 (22) 12.93
Nonvested at December 31, 2020 16,652 $ 12.05 3,275 $ 11.74
The weighted-average fair value at grant date of nonvested shares granted for
the years ended December 31, 2020, 2019, and 2018 were $8.90, $13.91, and
$14.98, respectively. The total fair value of awards vested during the years
ended December 31, 2020, 2019, and 2018 was $86 million, $69 million, and $62
million, respectively. As of December 31, 2020, the total unrecognized
compensation cost related to nonvested shares was $91 million with a
weighted-average expense recognition period of 2.4 years.
2020 Form 10-K 145
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18. BENEFIT PLANS
Huntington sponsors a non-contributory defined benefit pension plan covering
substantially all employees hired or rehired prior to January 1, 2010. The plan,
which was modified in 2013, no longer accrues service benefits to participants
and provides benefits based upon length of service and compensation levels.
Huntington's funding policy is to contribute an annual amount that is at least
equal to the minimum funding requirements but not more than the amount
deductible under the Internal Revenue Code. There were no required minimum
contributions during 2020.
The following table shows the weighted-average assumptions used to determine the
benefit obligation at December 31, 2020 and 2019, and the net periodic benefit
cost for the years then ended:
Pension Benefits
2020 2019
Weighted-average assumptions used to determine benefit obligations Discount rate
2.50 % 3.40 %
Weighted-average assumptions used to determine net periodic benefit cost Discount rate
3.40 4.41
Expected return on plan assets 5.00 5.25
The expected long-term rate of return on plan assets is an assumption reflecting
the average rate of earnings expected on the funds invested or to be invested to
provide for the benefits included in the projected benefit obligation. The
expected long-term rate of return is established at the beginning of the plan
year based upon historical returns and projected returns on the underlying mix
of invested assets.
The following table reconciles the beginning and ending balances of the benefit
obligation of the Plan with the amounts recognized in the consolidated balance
sheets at December 31:
Pension Benefits
(dollar amounts in millions) 2020 2019Projected benefit obligation at beginning of measurement year $ 923
$ 821
Changes due to:
Service cost 3 2
Interest cost 26 32
Benefits paid (29) (29)
Settlements (19) (14)
Actuarial assumptions and gains (losses) 122 111
Total changes 103 102
Projected benefit obligation at end of measurement year $ 1,026
$ 923
The increase in the benefit obligation compared with the end of the prior year
is primarily attributed to a decrease in the discount rate.
The following table reconciles the beginning and ending balances of the fair
value of plan assets at the December 31, 2020 and 2019 measurement dates:
Pension Benefits
(dollar amounts in millions) 2020
2019
Fair value of plan assets at beginning of measurement year $ 931
$ 828
Changes due to:
Actual return on plan assets 164 145
Settlements (16) (13)
Benefits paid (29) (29)
Total changes 119 103
Fair value of plan assets at end of measurement year $ 1,050 $ 931
As of December 31, 2020, the difference between the accumulated benefit obligation and the fair value of Huntington's plan assets was $24 million and is recorded in other assets. 146 Huntington Bancshares Incorporated --------------------------------------------------------------------------------
Table of Contents The following table shows the components of net periodic benefit costs recognized in the three years ended December 31, 2020, 2019 and 2018:
Pension Benefits (1)
(dollar amounts in millions) 2020 2019 2018
Service cost $ 3 $ 2 $ 3
Interest cost 26 32 29
Expected return on plan assets (42) (44) (49)
Amortization of loss 9 6 9
Settlements 5 5 7
Benefit costs $ 1 $ 1 $ (1)
(1) The pension costs are recognized in noninterest income - other income in
the Consolidated Statements of Income .
It is Huntington's policy to recognize settlement gains and losses as incurred.
Assuming no cash contributions are made to the plan during 2021, Huntington
expects net periodic pension benefit, excluding any expense of settlements, to
approximate $6 million for 2021.
At December 31, 2020 and 2019, The Huntington National Bank, as trustee, held
all plan assets. The plan assets consisted of investments in a variety of cash
equivalent, corporate and government fixed income, and equity investments as
follows:
Fair Value
(dollar amounts in millions) 2020 2019
Cash equivalents:
Mutual funds-money market $ 20 2 % $ 7 1 %
Fixed income:
Corporate obligations 522 50 460 49
U.S. Government obligations 208 20 199 21
Municipal obligations 6 - 5 1
Collective trust funds 118 11 105 11
Equities:
Common stock 48 5 53 6
Preferred stock 5 - 5 1
Limited liability companies 39 4 43 4
Collective trust funds 33 3 35 4
Limited partnerships 51 5 19 2
Fair value of plan assets $ 1,050 100 % $ 931 100 %
Investments of the Plan are accounted for at cost on the trade date and are
reported at fair value. The valuation methodologies used to measure the fair
value of pension plan assets vary depending on the type of asset. At
December 31, 2020, cash equivalent money market funds and U.S. Treasury bills
are valued at the closing price reported from an actively traded exchange and
are classified as Level 1. Fixed income investments are valued using unadjusted
quoted prices from active markets for similar assets are classified as Level 2.
Common and preferred stock are valued using the year-end closing price as
determined by a national securities exchange and are classified as Level 1.
Collective trust funds and limited liability companies are valued at net asset
value per unit as a practical expedient, which is calculated based on the fair
values of the underlying investments held by the fund less its liabilities as
reported by the issuer of the fund. The investment in the limited partnerships
is reported at net asset value per share as determined by the general partners
of each limited partnership, based on their proportionate share of the
partnership's fair value as recorded in the partnership's audited financial
statements.
The investment objective of the plan is to maximize the return on plan assets
over a long-time period, while meeting the plan obligations. At December 31,
2020, plan assets were invested 2% in cash equivalents, 17% in equity
investments, and 81% in bonds, with an average duration of 15.3 years on bond
investments. The estimated life of benefit obligations was 13.5 years. Although
it may fluctuate with market conditions, Huntington has targeted a long-term
allocation of plan assets of 20% to 50% in equity investments and 80% to 50% in
bond investments. The allocation of plan assets between equity investments and
fixed income investments will change from time to time.
2020 Form 10-K 147
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At December 31, 2020, the following table shows when benefit payments were
expected to be paid:
(dollar amounts in millions) Pension Benefits
2021 $ 58
2022 55
2023 53
2024 51
2025 50
2026 through 2030 243
Huntington also sponsors an unfunded defined benefit post-retirement plan as
well as other nonqualified retirement plans.
The following table presents the amounts recognized in the Consolidated Balance
Sheets at December 31, 2020 and 2019, for all defined benefit and nonqualified
retirement plans:
(dollar amounts in millions) 2020 2019
Other liabilities $ 48 $ 67
The following tables present the amounts recognized in OCI as of December 31,
2020, 2019, and 2018, and the changes in accumulated OCI for the years ended
December 31, 2020, 2019, and 2018:
(dollar amounts in millions) 2020 2019 2018
Net actuarial loss $ (253) $ (261) $ (257)
Prior service cost - 10 11
Defined benefit pension plans $ (253) $ (251) $ (246)
2020
Tax (expense)
(dollar amounts in millions) Pretax Benefit After-tax
Net actuarial (loss) gain:
Amounts arising during the year $ (7) $ 2 $ (5)
Amortization included in net periodic benefit costs 17 (4) 13
Prior service cost:
Amounts arising during the year (11) 3 (8)
Amortization included in net periodic benefit costs (2) - (2)
Total recognized in OCI $ (3) $ 1 $ (2)
2019
Tax (expense)
(dollar amounts in millions) Pretax Benefit After-tax
Net actuarial (loss) gain:
Amounts arising during the year $ (17) $ 5 $ (12)
Amortization included in net periodic benefit costs 12 (3) 9
Prior service cost:
Amortization included in net periodic benefit costs (2) - (2)
Total recognized in OCI $ (7) $ 2 $ (5)
2018
Tax (expense)
(dollar amounts in millions) Pretax Benefit After-tax
Net actuarial (loss) gain:
Amounts arising during the year $ (5) $ 2 $ (3)
Amortization included in net periodic benefit costs 13 (3) 10
Prior service cost:
Amortization included in net periodic benefit costs (4) 1 (3)
Total recognized in OCI $ 4 $ - $ 4
148 Huntington Bancshares Incorporated
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Huntington has a defined contribution plan that is available to eligible
employees. Huntington's expense related to the defined contribution plans for
the years ended December 31, 2020, 2019, and 2018 was $47 million, $51 million,
and $46 million, respectively.
The following table shows the number of shares, market value, and dividends
received on shares of Huntington stock held by the defined contribution plan:
December 31,
(dollar amounts in millions, share amounts in thousands) 2020 2019 Shares in Huntington common stock
10,121 10,334
Market value of Huntington common stock $ 128 $
156
Dividends received on shares of Huntington stock 6
6
19. INCOME TAXES
The following is a summary of the provision (benefit) for income taxes:
Year Ended December 31,
(dollar amounts in millions) 2020 2019 2018
Current tax provision (benefit)
Federal $ 236 $ 209 $ 152
State 12 16 20
Total current tax provision 248 225 172
Deferred tax provision (benefit)
Federal (103) 24 71
State 10 (1) (8)
Total deferred tax provision (93) 23 63
Provision for income taxes $ 155 $ 248 $ 235
The following is a reconciliation for provision for income taxes:
Year Ended December 31,
(dollar amounts in millions) 2020 2019 2018
Provision for income taxes computed at the statutory rate $ 204
$ 348 $ 342
Increases (decreases):
General business credits (99) (88) (80)
Capital loss (25) (62) (60)
Tax-exempt income (17) (21) (23)
Tax-exempt bank owned life insurance income (13) (14) (14)
Affordable housing investment amortization, net of tax
benefits 78 70 64
State income taxes, net 17 11 10
Stock based compensation 1 (5) (14)
Impact from TCJA - - (3)
Other 9 9 13
Provision for income taxes $ 155 $ 248 $ 235
2020 Form 10-K 149--------------------------------------------------------------------------------
Table of Contents The significant components of deferred tax assets and liabilities at December 31, 2020 and 2019 were as follows:
At December 31,
(dollar amounts in millions) 2020 2019
Deferred tax assets:
Allowances for credit losses $ 448 $ 184
Net operating and other loss carryforward 128 99
Lease liability 54
47
Purchase accounting and other intangibles 30
33
Pension and other employee benefits 10 12 Fair value adjustments - 77 Other assets 5 11 Total deferred tax assets 675 463 Deferred tax liabilities: Lease financing 409 359 Loan origination costs 137 119 Operating assets 85 74 Fair value adjustments 55 - Right-of-use asset 46 41 Mortgage servicing rights 43 36 Other liabilities 23 11 Total deferred tax liabilities 798
640
Net deferred tax liability before valuation allowance (123) (177) Valuation allowance (11) (6) Net deferred tax liability $ (134) $ (183) At December 31, 2020, Huntington's net deferred tax asset related to net operating loss and other carryforwards was $128 million. This was comprised of federal net operating loss carryforwards of $45 million, which will begin expiring in 2029, $39 million of state net operating loss carryforwards, which will begin expiring in 2021, and a capital loss carryforward of $42 million, which will begin expiring in 2022. The Company has established a valuation allowance on its state deferred tax assets as it believes it is more likely than not, portions will not be realized. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and city jurisdictions. Federal income tax audits have been completed for tax years through 2009. In 2019, the 2010 and 2011 audits were submitted to the Congressional Joint Committee on Taxation of the U.S. Congress for approval. During the 2020 third quarter, the Joint Committee referred the audit back to the IRS exam team for reconsideration. This action led to the re-characterization of the audit resolution from a settlement to an uncertain tax position. While the statute of limitations remains open for tax years 2012 through 2019, the IRS has advised that tax years 2012 through 2014 will not be audited and is currently examining the 2015 and 2016 federal income tax returns. Also, with few exceptions, the Company is no longer subject to state and local income tax examinations for tax years before 2016. The following table provides a reconciliation of the beginning and ending amounts of gross unrecognized tax benefits: (dollar amounts in millions) 2020
2019
Unrecognized tax benefits at beginning of year $ - $ -
Gross increases for tax positions taken during prior years 46 -
Unrecognized tax benefits at end of year $ 46 $ -
Due to the complexities of some of these uncertainties, the ultimate resolution
may result in a liability that is materially different from the current estimate
of the tax liabilities. We do not currently anticipate that the amount of
unrecognized tax benefits will significantly change over the next 12 months.
Any interest and penalties on income tax assessments or income tax refunds are
recognized in the Consolidated Statements of Income as a component of provision
for income taxes. The amounts of accrued tax-related interest and penalties were
immaterial at December 31, 2020 and 2019. Further, the amount of net interest
and penalties
150 Huntington Bancshares Incorporated
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related to unrecognized tax benefits was immaterial for all periods presented.
All of the gross unrecognized tax benefits would impact the Company's effective
tax rate if recognized.
At December 31, 2020, retained earnings included approximately $12 million of
base year reserves of acquired thrift institutions, for which no deferred
federal income tax liability has been recognized. Under current law, if these
bad debt reserves are used for purposes other than to absorb bad debt losses,
they will be subject to federal income tax at the corporate tax rate enacted at
the time. The amount of unrecognized deferred tax liability relating to the
cumulative bad debt deduction was approximately $3 million at December 31, 2020.
20. FAIR VALUES OF ASSETS AND LIABILITIES
Following is a description of the valuation methodologies used for instruments
measured at fair value, as well as the general classification of such
instruments pursuant to the valuation hierarchy.
Loans held for sale
Huntington has elected to apply the fair value option for mortgage loans
originated with the intent to sell which are included in loans held for sale.
Mortgage loans held for sale are classified as Level 2 and are estimated using
security prices for similar product types.
Loans held for investment
Certain mortgage loans originated with the intent to sell for which the FVO was
elected have been reclassified to mortgage loans held for investment. These
loans continue to be measured at fair value. The fair value is determined using
fair value of similar mortgage-backed securities adjusted for loan specific
variables.
Huntington elected the fair value option for certain consumer loans with
deteriorated credit quality. These consumer loans are classified as Level 3. The
key assumption used to determine the fair value of the consumer loans is
discounted cash flows.
Available-for-sale securities and trading account securities
Securities accounted for at fair value include both the available-for-sale and
trading portfolios. Huntington determines the fair value of securities utilizing
quoted market prices obtained for identical or similar assets, third-party
pricing services, third-party valuation specialists and other observable inputs
such as recent trade observations. AFS and trading securities classified as
Level 1 use quoted market prices (unadjusted) in active markets for identical
securities at the measurement date. Less than 1% of the positions in these
portfolios are Level 1, and consist of U.S. Treasury securities and money market
mutual funds. When quoted market prices are not available, fair values are
classified as Level 2 using quoted prices for similar assets in active markets,
quoted prices of identical or similar assets in markets that are not active, and
inputs that are observable for the asset, either directly or indirectly, for
substantially the full term of the financial instrument. Level 2 represents 82%
of the positions in these portfolios, which consists of U.S. Government and
agency debt securities, agency mortgage backed securities, private-label
asset-backed securities, certain municipal securities and other securities. For
Level 2 securities Huntington primarily uses prices obtained from third-party
pricing services to determine the fair value of securities. Huntington
independently evaluates and corroborates the fair value received from pricing
services through various methods and techniques, including references to dealer
or other market quotes, by reviewing valuations of comparable instruments, and
by comparing the prices realized on the sale of similar securities. If relevant
market prices are limited or unavailable, valuations may require significant
management judgment or estimation to determine fair value, in which case the
fair values are classified as Level 3, which represent 18% of the positions. The
Level 3 positions predominantly consist of direct purchase municipal securities.
A significant change in the unobservable inputs for these securities may result
in a significant change in the ending fair value measurement of these
securities.
The direct purchase municipal securities are classified as Level 3 and require
significant estimates to determine fair value which results in greater
subjectivity. The fair value is determined by utilizing a discounted cash flow
valuation technique employed by a third-party valuation specialist. The
third-party specialist uses assumptions related to yield, prepayment speed,
conditional default rates and loss severity based on certain factors such as,
2020 Form 10-K 151
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credit worthiness of the counterparty, prevailing market rates, and analysis of
similar securities. Huntington evaluates the fair values provided by the
third-party specialist for reasonableness.
Derivative assets and liabilities
Derivatives classified as Level 2 consist of foreign exchange and commodity
contracts, which are valued using exchange traded swaps and futures market data.
In addition, Level 2 includes interest rate contracts, which are valued using a
discounted cash flow method that incorporates current market interest rates.
Level 2 also includes exchange traded options and forward commitments to deliver
mortgage-backed securities, which are valued using quoted prices.
Derivatives classified as Level 3 consist of interest rate lock agreements
related to mortgage loan commitments and the Visa® share swap. The determination
of fair value of the interest rate locks includes assumptions related to the
likelihood that a commitment will ultimately result in a closed loan, which is a
significant unobservable assumption. A significant increase or decrease in the
external market price would result in a significantly higher or lower fair value
measurement.
Assets and Liabilities measured at fair value on a recurring basis
Assets and liabilities measured at fair value on a recurring basis at
December 31, 2020 and 2019 are summarized below:
Fair Value Measurements at Reporting Date Using (dollar amounts in millions)
Level 1 Level 2 Level 3 Netting Adjustments (1) December 31, 2020
Assets
Trading account securities:
Municipal securities $ - $ 62 $ - $ - $ 62
Available-for-sale securities:
U.S. Treasury securities 5 - - - 5
Residential CMOs - 3,666 - - 3,666
Residential MBS - 7,935 - - 7,935
Commercial MBS - 1,163 - - 1,163
Other agencies - 62 - - 62
Municipal securities - 53 2,951 - 3,004
Private-label CMO - - 9 - 9
Asset-backed securities - 182 10 - 192
Corporate debt - 445 - - 445
Other securities/sovereign debt - 4 - - 4
5 13,510 2,970 - 16,485
Other securities 59 - - - 59
Loans held for sale - 1,198 - - 1,198
Loans held for investment - 71 23 - 94
MSRs - - 210 - 210
Derivative assets - 1,903 43 (889) 1,057
Liabilities
Derivative liabilities - 1,031 2 (917) 116
152 Huntington Bancshares Incorporated
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Fair Value Measurements at Reporting Date Using
(dollar amounts in millions) Level 1 Level 2 Level 3 Netting Adjustments (1) December 31, 2019
Assets
Trading account securities:
Federal agencies: Other agencies $ - $ 4 $ - $ - $ 4
Municipal securities - 63 - - 63
Other securities 30 2 - - 32
30 69 - - 99
Available-for-sale securities:
U.S. Treasury securities 10 - - - 10
Residential CMOs - 5,085 - - 5,085
Residential MBS - 4,222 - - 4,222
Commercial MBS - 976 - - 976
Other agencies - 165 - - 165
Municipal securities - 56 2,999 - 3,055
Private-label CMO - - 2 - 2
Asset-backed securities - 531 48 - 579
Corporate debt - 51 - - 51
Other securities/sovereign debt - 4 - - 4
10 11,090 3,049 - 14,149
Other securities 54 - - - 54
Loans held for sale - 781 - - 781
Loans held for investment - 55 26 - 81
MSRs - - 7 - 7
Derivative assets - 848 8 (404) 452
Liabilities
Derivative liabilities - 519 2 (417) 104
(1)Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle positive and negative positions and cash collateral held or placed with the same counterparties.
2020 Form 10-K 153
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The tables below present a rollforward of the balance sheet amounts for the
years ended December 31, 2020, 2019, and 2018 for financial instruments measured
on a recurring basis and classified as Level 3. The classification of an item as
Level 3 is based on the significance of the unobservable inputs to the overall
fair value measurement. However, Level 3 measurements may also include
observable components of value that can be validated externally. Accordingly,
the gains and losses in the table below include changes in fair value due in
part to observable factors that are part of the valuation methodology.
Level 3 Fair Value Measurements
Year Ended December 31, 2020
Available-for-sale securities
Private- Asset-
Derivative Municipal label backed Loans held for
(dollar amounts in millions) MSRs instruments securities CMO securities investment
Opening balance $ 7 $ 6 $ 2,999 $ 2 $ 48 $ 26
Fair value election for serving assets
previously measured using the amortized
method 205 - - - -
Transfers out of Level 3 (1) - (198) - - - -
Total gains/losses for the period:
Included in earnings (104) 233 (2) - - -
Included in OCI - - 65 - - -
Purchases/originations 102 - 623 7 28 -
Repayments - - - - - (3)
Settlements - - (734) - (66) -
Closing balance $ 210 $ 41 $ 2,951 $ 9 $ 10 $ 23
Change in unrealized gains or losses for the
period included in earnings for assets held
at end of the reporting date $ (104) $ 34 $ - $ - $ - $ -
Change in unrealized gains or losses for the
period included in other comprehensive income
for assets held at the end of the reporting
period $ - $ - $ 68 $ - $ - $ -
Level 3 Fair Value Measurements
Year Ended December 31, 2019
Available-for-sale securities
Private- Asset-
Derivative Municipal label backed Loans held for
(dollar amounts in millions) MSRs instruments securities CMO securities investment
Opening balance $ 10 $ 2 $ 3,165 $ - $ - $ 30
Transfers out of Level 3 (1) - (62) - - - -
Total gains/losses for the period:
Included in earnings (3) 66 (1) - - 1
Included in OCI - - 77 - - -
Purchases/originations - - 254 2 55 -
Repayments - - - - - (5)
Settlements - - (496) - (7) -
Closing balance $ 7 $ 6 $ 2,999 $ 2 $ 48 $ 26
Change in unrealized gains or losses for the
period included in earnings (or changes in
net assets) for assets held at end of the
reporting date $ (3) $ 3 $ - $ - $ - $ -
Change in unrealized gains or losses for the
period included in other comprehensive
income for assets held at the end of the
reporting period $ - $ - $ 74 $ - $ - $ -
154 Huntington Bancshares Incorporated
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Level 3 Fair Value Measurements
Year Ended December 31, 2018
Available-for-sale securities
Asset-
Derivative Municipal Loans held for backed
(dollar amounts in millions) MSRs instruments securities investment securities
Opening balance $ 11 $ (1) $ 3,167 $ 24 $ 38
Transfers out of Level 3 (1) - (35) - - -
Total gains/losses for the period:
Included in earnings (1) 35 (3) (2) -
Included in OCI - - (52) 11 -
Purchases/originations - - 658 - -
Sales - - - (33) -
Repayments - - - - (8)
Settlements - 3 (605) - -
Closing balance $ 10 $ 2 $ 3,165 $ - $ 30Change in unrealized gains or losses for the period included in earnings (or changes in net assets) for assets held at end of the reporting date
$ (1) $ - $ - $ - $ -
Change in unrealized gains or losses for the period included in other comprehensive income for assets held at the end of the reporting period
$ - $ - $ (52) $ - $ -
(1) Transfers out of Level 3 represent the settlement value of the derivative
instruments (i.e. interest rate lock agreements) that are transferred to loans
held for sale, which is classified as Level 2.
The tables below summarize the classification of gains and losses due to changes
in fair value, recorded in earnings for Level 3 assets and liabilities for the
years ended December 31, 2020, 2019, and 2018:
Level 3 Fair Value Measurements
Year Ended December 31, 2020
Available-for-sale
securities
Derivative Municipal
(dollar amounts in millions) MSRs instruments securities
Classification of gains and losses in earnings:
Mortgage banking income $ (104) $ 233 $ -
Interest and fee income - - (2)
Total $ (104) $ 233 $ (2)
Level 3 Fair Value Measurements
Year Ended December 31, 2019
Available-for-sale
securities
Derivative Municipal
(dollar amounts in millions) MSRs instruments securities Loans held for investment
Classification of gains and losses in
earnings:
Mortgage banking income $ (3) $ 66 $ - $ -
Interest and fee income - - (1) 1
Total $ (3) $ 66 $ (1) $ 1
Level 3 Fair Value Measurements
Year Ended December 31, 2018
Available-for-sale securities
Asset-
Derivative Municipal backed
(dollar amounts in millions) MSRs instruments securities securities
Classification of gains and losses in earnings:
Mortgage banking income (loss) $ (1) $ 35 $ - $ -
Securities gains (losses) - - - (2)
Interest and fee income - - (3) -
Total $ (1) $ 35 $ (3) $ (2)
2020 Form 10-K 155
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Assets and liabilities under the fair value option
The following tables present the fair value and aggregate principal balance of
certain assets and liabilities under the fair value option:
December 31, 2020
Total Loans Loans that are 90 or more days past due
Fair value Aggregate Fair value Aggregate
(dollar amounts in carrying unpaid carrying unpaid
millions) amount principal Difference amount principal Difference
Assets
Loans held for sale $ 1,198 $ 1,134 $ 64 $ 2 $ 2 $ -
Loans held for investment 94 99 (5) 7 8 (1)
December 31, 2019
Total Loans
Loans that are 90 or more days past due
Fair value Aggregate Fair value Aggregate
(dollar amounts in carrying unpaid carrying unpaid
millions) amount principal Difference amount principal Difference
Assets
Loans held for sale $ 781 $ 755 $ 26 $ 2 $ 2 $ -
Loans held for investment 81 87 $ (6) 3 4 (1)
The following tables present the net gains from fair value changes for the years ended December 31, 2020, 2019, and 2018:
Net gains (losses) from fair value
changes Year Ended December 31,
(dollar amounts in millions) 2020 2019 2018
Assets
Loans held for sale (1) $ 38 $ 7 $ 5
Loans held for investment 1 1 -
(1)The net gains (losses) from fair value changes are included in Mortgage
banking income on the Consolidated Statements of Income.
Assets and Liabilities measured at fair value on a nonrecurring basis
Certain assets and liabilities may be required to be measured at fair value on a
nonrecurring basis in periods subsequent to their initial recognition. These
assets and liabilities are not measured at fair value on an ongoing basis;
however, they are subject to fair value adjustments in certain circumstances,
such as when there is evidence of impairment. The amounts presented represent
the fair value on the various measurement dates throughout the period. The
gains(losses) represent the amounts recorded during the period regardless of
whether the asset is still held at period end.
The amounts measured at fair value on a nonrecurring basis at December 31, 2020
were as follows:
Fair Value Measurements Using
Quoted Prices Significant Significant
In Active Other Other Total
Markets for Observable Unobservable Gains/(Losses)
Identical Assets Inputs Inputs Year Ended
(dollar amounts in millions) Fair Value (Level 1) (Level 2) (Level 3) December 31, 2020
Collateral-dependent loans $ 144 $ - $ - $ 144 $ (43)
Loans held for sale 124 - - 124 (63)
Huntington records nonrecurring adjustments of collateral-dependent loans held
for investment. Such amounts are generally based on the fair value of the
underlying collateral supporting the loan. Appraisals are generally obtained to
support the fair value of the collateral and incorporate measures such as recent
sales prices for comparable properties and cost of construction. Periodically,
in cases where the carrying value exceeds the fair value of the collateral less
cost to sell, an impairment charge is recognized in the form of a charge-off.
Loans held for sale are measured at lower of cost or fair value less costs to
sell. The fair value of loans held for sale is based on binding or non-binding
bids for the respective loans or similar loans.
156 Huntington Bancshares Incorporated
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Significant unobservable inputs for assets and liabilities measured at fair
value on a recurring and nonrecurring basis
The table below presents quantitative information about the significant
unobservable inputs for assets and liabilities measured at fair value on a
recurring and nonrecurring basis at December 31, 2020 and 2019:
Quantitative Information about Level 3 Fair Value Measurements at December 31, 2020 (1)
Weighted
(dollar amounts in millions) Fair Value Valuation Technique Significant Unobservable Input Range Average
Measured at fair value on a recurring basis:
MSRs $ 210 Discounted cash flow Constant prepayment rate 8 % - 24 % 17 %
Spread over forward interest rate swap rates 4 % - 11 % 5 %
Derivative assets 43 Consensus Pricing Net market price (4) % - 11 % 3 %
Estimated Pull through % 1 % - 100 % 88 %
Municipal securities 2,951 Discounted cash flow Discount rate - % - 1 % 1 %
Asset-backed securities 10 Cumulative default - % - 39 % 4 %
Loss given default 5 % - 80 % 25 %
Measured at fair value on a nonrecurring basis:
Collateral-dependent loans 144 Appraisal value NA NA
Quantitative Information about Level 3 Fair Value Measurements at December 31, 2019 (1)
Weighted
(dollar amounts in millions) Fair Value Valuation Technique Significant Unobservable Input Range Average
Measured at fair value on a recurring basis:
MSRs $ 7 Discounted cash flow Constant prepayment rate - % - 26 % 8 %
Spread over forward interest rate swap rates 5 % - 11 % 8 %
Derivative assets 8 Consensus Pricing Net market price (2) % - 11 % 2 %
Estimated Pull through % 2 % - 100 % 91 %
Municipal securities 2,999 Discounted cash flow Discount rate 2 % - 3 % 2 %
Asset-backed securities 48 Cumulative default - % - 39 % 4 %
Loss given default 5 % - 80 % 24 %
Measured at fair value on a nonrecurring basis:
MSRs 206 Discounted cash flow Constant prepayment rate 10 % 31 % 12 %
Spread over forward interest rate swap rates 5 % 11 % 9 %
Impaired loans 26 Appraisal value NA NA
(1) Certain disclosures related to quantitative level 3 fair value
measurements do not include those deemed to be immaterial.
The following provides a general description of the impact of a change in an
unobservable input on the fair value measurement and the interrelationship
between unobservable inputs, where relevant/significant. Interrelationships may
also exist between observable and unobservable inputs.
Credit loss estimates, such as probability of default, constant default,
cumulative default, loss given default, cure given deferral, and loss severity,
are driven by the ability of the borrowers to pay their loans and the value of
the underlying collateral and are impacted by changes in macroeconomic
conditions, typically increasing when economic conditions worsen and decreasing
when conditions improve. An increase in the estimated prepayment rate typically
results in a decrease in estimated credit losses and vice versa. Higher credit
loss estimates generally result in lower fair values. Credit spreads generally
increase when liquidity risks and market volatility increase and decrease when
liquidity conditions and market volatility improve.
Discount rates and spread over forward interest rate swap rates typically
increase when market interest rates increase and/or credit and liquidity risks
increase, and decrease when market interest rates decline and/or credit and
liquidity conditions improve. Higher discount rates and credit spreads generally
result in lower fair market values.
Net market price and pull through percentages generally increase when market
interest rates increase and decline when market interest rates decline. Higher
net market price and pull through percentages generally result in higher fair
values.
2020 Form 10-K 157
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Fair values of financial instruments
The following table provides the carrying amounts and estimated fair values of
Huntington's financial instruments at December 31, 2020 and December 31, 2019:
December 31, 2020
Lower of Total
Cost or Fair Value or Carrying Estimated Fair
(dollar amounts in millions) Amortized Cost Market Fair Value Option Amount Value
Financial Assets
Cash and short-term assets $ 6,712 $ - $ - $ 6,712 $ 6,712
Trading account securities - - 62 62 62
Available-for-sale securities - - 16,485 16,485 16,485
Held-to-maturity securities 8,861 - - 8,861 9,255
Other securities 359 - 59 418 418
Loans held for sale - 77 1,198 1,275 1,275
Net loans and leases (1) 79,700 - 94 79,794 80,477
Derivative assets - - 1,057 1,057 1,057
Financial Liabilities
Deposits 98,948 - - 98,948 99,021
Short-term borrowings 183 - - 183 183
Long-term debt 8,352 - - 8,352 8,568
Derivative liabilities - - 116 116 116
December 31, 2019
Lower of
Cost or Fair Value or Total Carrying Estimated Fair
(dollar amounts in millions) Amortized Cost Market Fair Value Option Amount Value
Financial Assets
Cash and short-term assets $ 1,272 $ - $ - $ 1,272 $ 1,272
Trading account securities - - 99 99 99
Available-for-sale securities - - 14,149 14,149 14,149
Held-to-maturity securities 9,070 - - 9,070 9,186
Other securities 387 - 54 441 441
Loans held for sale - 96 781 877 879
Net loans and leases (1) 74,540 - 81 74,621 75,177
Derivative assets - - 452 452 452
Financial Liabilities
Deposits 82,347 - - 82,347 82,344
Short-term borrowings 2,606 - - 2,606 2,606
Long-term debt 9,849 - - 9,849 10,075
Derivative liabilities - - 104 104 104
(1)Includes collateral-dependent loans.
158 Huntington Bancshares Incorporated --------------------------------------------------------------------------------
Table of Contents The following table presents the level in the fair value hierarchy for the estimated fair values at December 31, 2020 and December 31, 2019:
Estimated Fair Value Measurements at Reporting Date Using
Netting
(dollar amounts in millions) Level 1 Level 2 Level 3 Adjustments (1) December 31, 2020
Financial Assets
Trading account securities $ - $ 62 $ - $ 62
Available-for-sale securities 5 13,510 2,970 16,485
Held-to-maturity securities - 9,255 - 9,255
Other securities (2) 59 - - 59
Loans held for sale - 1,198 77 1,275
Net loans and direct financing leases - 71 80,406 80,477
Derivative assets - 1,903 43 (889) 1,057
Financial Liabilities
Deposits - 96,656 2,365 99,021
Short-term borrowings - 183 - 183
Long-term debt - 7,999 569 8,568
Derivative liabilities - 1,031 2 (917) 116
Estimated Fair Value Measurements at Reporting Date Using Netting
(dollar amounts in millions) Level 1 Level 2 Level 3 Adjustments (1) December 31, 2019
Financial Assets
Trading account securities $ 30 $ 69 $ - $ 99
Available-for-sale securities 10 11,090 3,049 14,149
Held-to-maturity securities - 9,186 - 9,186
Other securities (2) 54 - - 54
Loans held for sale - 781 98 879
Net loans and direct financing leases - 55 75,122 75,177
Derivative assets - 848 8 (404) 452
Financial Liabilities
Deposits - 76,790 5,554 82,344
Short-term borrowings - - 2,606 2,606
Long-term debt - 9,439 636 10,075
Derivative liabilities - 519 2 (417) 104
(1)Amounts represent the impact of legally enforceable master netting agreements
that allow the Company to settle positive and negative positions and cash
collateral held or placed with the same counterparties.
(2)Excludes securities without readily determinable fair values.
The short-term nature of certain assets and liabilities result in their carrying
value approximating fair value. These include trading account securities,
customers' acceptance liabilities, short-term borrowings, bank acceptances
outstanding, FHLB advances, and cash and short-term assets, which include cash
and due from banks, interest-bearing deposits in banks, interest-bearing
deposits at Federal Reserve Bank, federal funds sold, and securities purchased
under resale agreements. Loan commitments and letters-of-credit generally have
short-term, variable-rate features and contain clauses that limit Huntington's
exposure to changes in customer credit quality. Accordingly, their carrying
values, which are immaterial at the respective balance sheet dates, are
reasonable estimates of fair value.
Certain assets, the most significant being operating lease assets, bank owned
life insurance, and premises and equipment, do not meet the definition of a
financial instrument and are excluded from this disclosure. Similarly, mortgage
servicing rights, deposit base, and other customer relationship intangibles are
not considered financial instruments and are not included above. Accordingly,
this fair value information is not intended to, and does not, represent
Huntington's underlying value. Many of the assets and liabilities subject to the
disclosure requirements are not actively traded, requiring fair values to be
estimated by Management. These estimations necessarily involve the use of
judgment about a wide variety of factors, including but not limited to,
relevancy of market prices of comparable instruments, expected future cash
flows, and appropriate discount rates.
2020 Form 10-K 159
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21. DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are recorded in the Consolidated Balance Sheets
as either an asset or a liability (in other assets or other liabilities,
respectively) and measured at fair value.
Derivative financial instruments can be designated as accounting hedges under
GAAP. Designating a derivative as an accounting hedge allows Huntington to
recognize gains and losses on the hedging instruments in the income statement
line item where the gains and losses on the hedged item are recognized. Gains
and losses on derivatives that are not designated in an effective hedge
relationship under GAAP immediately impact earnings within the period they
occur.
The following table presents the fair values and notional values of all
derivative instruments included in the Consolidated Balance Sheets at
December 31, 2020 and December 31, 2019. Amounts in the table below are
presented gross without the impact of any net collateral arrangements.
December 31, 2020 December 31, 2019
(dollar amounts in Notional Notional
millions) Value Asset Liability Value Asset Liability
Derivatives designated as Hedging Instruments
Interest rate contracts $ 27,056 $ 719 $ 51 $ 25,927 $ 256 $ 36 Derivatives not designated as Hedging Instruments Interest rate contracts 44,495
1,074 828 27,614 420 314
Foreign exchange
contracts 2,718 46 47 2,173 19 18
Commodities contracts 1,952 107 103 3,020 155 152
Equity contracts 517 - 4 427 6 1
Total Contracts $ 76,738 $ 1,946 $ 1,033 $ 59,161 $ 856 $ 521
The following table presents the amount of gain or loss recognized in income for
derivatives not designated as hedging instruments under ASC Subtopic 815-10 in
the Consolidated Income Statement for the years ended December 31, 2020 and
2019.
Location of Gain or (Loss)
Recognized in Income on Year Ended December 31,
(dollar amounts in millions) Derivative 2020 2019 2018
Interest rate contracts:
Customer Capital markets fees $ 47 $ 49 $ 41
Mortgage Banking Mortgage banking income 52 37 (19)
Interest and fee income on
Interest rate floors loans and leases (2) 4 -
Interest expense on long-term
Interest rate caps debt 5 - -
Foreign exchange contracts Capital markets fees 27 28 27
Commodities contracts Capital markets fees 4 (2) 6
Equity contracts Other noninterest expense (4) (4) 4
Total $ 129 $ 112 $ 59
Derivatives used in asset and liability management activities
Huntington engages in balance sheet hedging activity, principally for asset and
liability management purposes. Balance sheet hedging activity is generally
arranged to receive hedge accounting treatment that can be classified as either
fair value or cash flow hedges. Fair value hedges are executed to hedge changes
in fair value of outstanding fixed-rate debt and investment securities caused by
fluctuations in market interest rates. Cash flow hedges are executed to modify
interest rate characteristics of designated commercial loans in order to reduce
the impact of changes in future cash flows due to market interest rate changes.
160 Huntington Bancshares Incorporated
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The following table presents the gross notional values of derivatives used in
Huntington's asset and liability management activities at December 31, 2020 and
December 31, 2019, identified by the underlying interest rate-sensitive
instruments:
December 31, 2020
Fair Value Cash Flow
(dollar amounts in millions) Hedges Hedges Economic Hedges Total
Instruments associated with:
Investment securities $ 3,484 $ - $ - $ 3,484
Loans - 17,375 1,271 18,646
Long-term debt 6,197 - 5,000 11,197Total notional value at December 31, 2020 $ 9,681 $ 17,375
$ 6,271 $ 33,327
December 31, 2019
Fair Value Cash Flow
(dollar amounts in millions) Hedges Hedges Economic Hedges Total
Instruments associated with:
Investment securities $ - $ 12 $ - $ 12
Loans - 18,375 - 18,375
Long-term debt 7,540 - - 7,540Total notional value at December 31, 2019 $ 7,540 $ 18,387
$ - $ 25,927
These derivative financial instruments were entered into for the purpose of
managing the interest rate risk of assets and liabilities. Net amounts
receivable or payable on contracts hedging either interest earning assets or
interest bearing liabilities were accrued as an adjustment to either interest
income or interest expense. Also, recorded as an adjustment to interest income
were the amounts related to amortization of floor and forward-starting floor
premiums that were excluded from the hedge effectiveness, changes in the fair
value of economic hedges, as well as the amounts related to terminated hedges
reclassified from AOCI. The net amounts resulted in an increase (decrease) to
net interest income of $239 million, $(53) million, and $(36) million for the
years ended December 31, 2020, 2019, and 2018, respectively.
Fair Value Hedges
The changes in fair value of the fair value hedges are recorded through earnings
and offset against changes in the fair value of the hedged item.
Huntington has designated $3.1 billion of interest rate swaps as fair value
hedges of fixed-rate investment securities using the last-of-layer method. This
approach allows the Company to designate as the hedged item a stated amount of
the assets that are not expected to be affected by prepayments, defaults and
other factors affecting the timing and amount of cash flows. The fair value
basis adjustment on our hedged mortgage-backed securities is included in
available-for-sale securities on the Consolidated Statements of Financial
Condition.
The following table presents the change in fair value for derivatives designated
as fair value hedges as well as the offsetting change in fair value on the
hedged item for the years ended December 31, 2020 and 2019:
Year Ended December 31,
(dollar amounts in millions) 2020 2019 2018Interest rate contracts Change in fair value of interest rate swaps hedging investment securities (1)
$ 6 $ - $ -
Change in fair value of hedged investment securities (1) 3 - -
Change in fair value of interest rate swaps hedging long-term debt (2)
113 127 112
Change in fair value of hedged long term debt (2) (118) (125) (104)
(1)Recognized in Interest income-available-for-sale securities-taxable in the
Conso lidated Statements of Income . (2)Recognized in Interest expense - long-term debt in the Consolidated Statements of Income .
2020 Form 10-K 161
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Cumulative Amount of Fair Value
Amortized Cost Hedging Adjustment To Hedged Items
At December 31, At December 31,
(dollar amounts in millions) 2020 2019 2020 2019
Assets
Investment securities (1) $ 6,637 $ - $ 3 $ -
Liabilities
Long-term debt 6,383 7,578 232 114
(1)Amounts include the amortized cost basis of closed portfolios used to
designate hedging relationships in which the hedged item is the last layer
expected to be remaining at the end of the hedging relationship. As of
December 31, 2020, the amortized cost basis of the closed portfolios used in
these hedging relationships was $6.2 billion, the cumulative basis adjustments
associated with these hedging relationships was $2 million, and the amounts of
the designated hedged items were $3.1 billion.
The cumulative amount of fair value hedging adjustments remaining for any hedged
assets and liabilities for which hedge accounting has been discontinued is $(62)
million at December 31, 2020 and $(93) million at December 31, 2019.
Cash Flow Hedges
At December 31, 2020, Huntington has $17.4 billion of interest rate floors,
floor spreads, and swaps. These are designated as cash flow hedges for variable
rate commercial loans indexed to LIBOR. The change in the fair value of a
derivative instrument designated as a cash flow hedge is initially recognized in
OCI and is reclassified into income when the hedged item impacts earnings. The
initial premium paid for the interest rate floor contracts represents the time
value of the contracts and is not included in the measurement of hedge
effectiveness. Any change in fair value related to time value is recognized in
OCI. The initial premium paid is amortized on a straight line basis as a
reduction to interest income over the contractual life of these contracts.
Gains on interest rate floors, floor spreads, and swaps recognized in other
comprehensive income were $234 million and $23 million for the years ended
December 31, 2020 and 2019, respectively. No gains were recognized for the year
ended December 31, 2018. At December 31, 2020, the net gains recognized in AOCI
that are expected to be reclassified into earnings within the next 12 months
were $37 million.
Derivatives used in mortgage banking activities
Mortgage loan origination hedging activity
Huntington's mortgage origination hedging activity is related to economically
hedging of Huntington's mortgage pricing commitments to customers and the
secondary sale to third parties. The value of a newly originated mortgage is not
firm until the interest rate is committed or locked. Forward commitments to sell
economically hedge the possible loss on interest rate lock commitments due to
interest rate change. The net asset position of these derivatives at
December 31, 2020 and December 31, 2019 are $26 million and $6 million,
respectively. At December 31, 2020 and 2019, Huntington had commitments to sell
residential real estate loans of $2.9 billion and $1.4 billion, respectively.
These contracts mature in less than one year.
162 Huntington Bancshares Incorporated
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MSR hedging activity
Huntington's MSR economic hedging activity uses securities and derivatives to
manage the value of the MSR asset and to mitigate the various types of risk
inherent in the MSR asset, including risks related to duration, basis,
convexity, volatility, and yield curve. The hedging instruments include forward
commitments, TBA securities, Treasury futures contracts, interest rate swaps,
and options on interest rate swaps.
The notional value of the derivative financial instruments, the corresponding
net asset (liability) position recognized in other assets and/or other
liabilities, and net trading gains (losses) related to MSR hedging activity is
summarized in the following table:
MSR hedging activity At December 31,
(dollar amounts in millions) 2020 2019
Notional value $ 1,170 $ 778
Trading assets 43 19
Year December 31,
(dollar amounts in millions) 2020 2019 2018
Trading gains (losses) $ 52 $ 30 $ (8)
MSR hedging trading assets and liabilities are included in other assets and
other liabilities, respectively, in the Consolidated Balance Sheets. Trading
gains (losses) are included in mortgage banking income in the Consolidated
Statement of Income.
Derivatives used in customer related activities
Various derivative financial instruments are offered to enable customers to meet
their financing and investing objectives and for their risk management purposes.
Derivative financial instruments used in trading activities consist of
commodity, interest rate, and foreign exchange contracts. Huntington enters into
offsetting third-party contracts with approved, reputable counterparties with
substantially matching terms and currencies in order to economically hedge
significant exposure related to derivatives used in trading activities.
The interest rate or price risk of customer derivatives is mitigated by entering
into similar derivatives having offsetting terms with other counterparties. The
credit risk to these customers is evaluated and included in the calculation of
fair value. Foreign currency derivatives help the customer hedge risk and reduce
exposure to fluctuations in exchange rates. Transactions are primarily in liquid
currencies with Canadian dollars and Euros comprising a majority of all
transactions. Commodity derivatives help the customer hedge risk and reduce
exposure to fluctuations in the price of various commodities. Hedging of
energy-related products and base metals comprise the majority of these
transactions.
The net fair values of these derivative financial instruments, for which the
gross amounts are included in other assets or other liabilities at December 31,
2020 and December 31, 2019, were $70 million and $87 million, respectively. The
total notional values of derivative financial instruments used by Huntington on
behalf of customers, including offsetting derivatives, were $37 billion and $30
billion at December 31, 2020 and December 31, 2019, respectively. Huntington's
credit risk from customer derivatives was $882 million and $407 million at the
same dates, respectively.
Financial assets and liabilities that are offset in the Consolidated Balance
Sheets
Huntington records derivatives at fair value as further described in Note 20 -
" Fair Values of Assets and Liabilities ".
Derivative balances are presented on a net basis taking into consideration the
effects of legally enforceable master netting agreements. Additionally,
collateral exchanged with counterparties is also netted against the applicable
derivative fair values. Huntington enters into derivative transactions with two
primary groups: broker-dealers and banks, and Huntington's customers. Different
methods are utilized for managing counterparty credit exposure and credit risk
for each of these groups.
Huntington enters into transactions with broker-dealers and banks for various
risk management purposes. These types of transactions generally are high dollar
volume. Huntington enters into collateral and master netting agreements with
these counterparties, and routinely exchanges cash and high quality securities
collateral.
2020 Form 10-K 163
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Huntington enters into transactions with customers to meet their financing,
investing, payment and risk management needs. These types of transactions
generally are low dollar volume. Huntington enters into master netting
agreements with customer counterparties, however collateral is generally not
exchanged with customer counterparties.
In addition to the customer derivative credit exposure, aggregate credit risk
associated with broker-dealer and bank derivative transactions, net of
collateral that has been pledged by the counterparty, was $175 million and $22
million at December 31, 2020 and December 31, 2019, respectively. The credit
risk associated with derivatives is calculated after considering master netting
agreements.
At December 31, 2020, Huntington pledged $276 million of investment securities
and cash collateral to counterparties, while other counterparties pledged $387
million of investment securities and cash collateral to Huntington to satisfy
collateral netting agreements. In the event of credit downgrades, Huntington
would not be required to provide additional collateral.
The following tables present the gross amounts of these assets and liabilities
with any offsets to arrive at the net amounts recognized in the Consolidated
Balance Sheets at December 31, 2020 and December 31, 2019:
Offsetting of Financial Assets and Derivative Assets
Gross amounts not offset in the consolidated balance
Net amounts of sheets
assets
Gross amounts presented in
Gross amounts offset in the the
of recognized consolidated consolidated Financial Cash collateral
(dollar amounts in millions) assets balance sheets balance sheets instruments received Net amount
December 31, 2020 Derivatives $ 1,946 $ (889) $ 1,057 $ (112) $ (142) $ 803
December 31, 2019 Derivatives 856 (404) 452 (65) (29) 358
Offsetting of Financial Liabilities and Derivative Liabilities
Gross amounts not offset in the consolidated balance
Net amounts of sheets
liabilities
Gross amounts presented in
Gross amounts offset in the the
of recognized consolidated consolidated Financial Cash collateral
(dollar amounts in millions) liabilities balance sheets balance sheets instruments delivered Net amount
December 31, 2020 Derivatives $ 1,033 $ (917) $ 116 $ (9) $ (105) $ 2
December 31, 2019 Derivatives 521 (417) 104 - (75) 29
22. VIEs
Unconsolidated VIEs
The following tables provide a summary of the assets and liabilities included in
Huntington's Consolidated Financial Statements, as well as the maximum exposure
to losses, associated with its interests related to unconsolidated VIEs for
which Huntington holds an interest in, but is not the primary beneficiary of,
the VIE at December 31, 2020, and 2019:
December 31, 2020
Maximum
(dollar amounts in millions) Total Assets Total Liabilities Exposure to Loss
Trust Preferred Securities $ 14 $ 252 $ -
Affordable Housing Tax Credit Partnerships 956 500 956
Other Investments 308 72 308
Total $ 1,278 $ 824 $ 1,264
December 31, 2019
Maximum Exposure
(dollar amounts in millions) Total Assets Total Liabilities to Loss
Trust Preferred Securities $ 14 $ 252 $ -
Affordable Housing Tax Credit Partnerships 727 332 727
Other Investments 179 63 179
Total $ 920 $ 647 $ 906
164 Huntington Bancshares Incorporated
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Trust-Preferred Securities
Huntington has certain consolidated trusts whose assets, liabilities, equity,
income, and expenses are not included within Huntington's Consolidated Financial
Statements. These trusts have been formed for the sole purpose of issuing
trust-preferred securities, from which the proceeds are then invested in
Huntington junior subordinated debentures, which are reflected in Huntington's
Consolidated Balance Sheet as long-term debt. The trust securities are the
obligations of the trusts, and as such, are not consolidated within Huntington's
Consolidated Financial Statements.
A list of trust-preferred securities outstanding at December 31, 2020 follows:
Principal amount of Investment in
subordinated note/ unconsolidated
(dollar amounts in millions) Rate debenture issued to trust (1) subsidiary
Huntington Capital I 0.94 % (2) $ 70 $ 6
Huntington Capital II 0.86 (3) 32 3
Sky Financial Capital Trust III 1.64 (4) 72 2
Sky Financial Capital Trust IV 1.64 (4) 74 2
Camco Financial Trust 1.57 (5) 4 1
Total $ 252 $ 14
(1)Represents the principal amount of debentures issued to each trust, including
unamortized original issue discount.
(2)Variable effective rate at December 31, 2020, based on three-month LIBOR +
0.70%.
(3)Variable effective rate at December 31, 2020, based on three-month LIBOR +
0.625%.
(4)Variable effective rate at December 31, 2020, based on three-month LIBOR +
1.40%.
(5)Variable effective rate at December 31, 2020, based on three month LIBOR +
1.33%.
Each issue of the junior subordinated debentures has an interest rate equal to
the corresponding trust securities distribution rate. Huntington has the right
to defer payment of interest on the debentures at any time, or from time-to-time
for a period not exceeding five years provided that no extension period may
extend beyond the stated maturity of the related debentures. During any such
extension period, distributions to the trust securities will also be deferred
and Huntington's ability to pay dividends on its common stock will be
restricted. Periodic cash payments and payments upon liquidation or redemption
with respect to trust securities are guaranteed by Huntington to the extent of
funds held by the trusts. The guarantee ranks subordinate and junior in right of
payment to all indebtedness of the Company to the same extent as the junior
subordinated debt. The guarantee does not place a limitation on the amount of
additional indebtedness that may be incurred by Huntington.
Affordable Housing Tax Credit Partnerships
Huntington makes certain equity investments in various limited partnerships that
sponsor affordable housing projects utilizing the LIHTC pursuant to Section 42
of the Internal Revenue Code. The purpose of these investments is to achieve a
satisfactory return on capital, to facilitate the sale of additional affordable
housing product offerings, and to assist in achieving goals associated with the
Community Reinvestment Act. The primary activities of the limited partnerships
include the identification, development, and operation of multi-family housing
that is leased to qualifying residential tenants. Generally, these types of
investments are funded through a combination of debt and equity.
Huntington uses the proportional amortization method to account for a majority
of its investments in these entities. These investments are included in other
assets. Investments that do not meet the requirements of the proportional
amortization method are accounted for using the equity method. Investment losses
related to these investments are included in noninterest income in the
Consolidated Statements of Income.
The following table presents the balances of Huntington's affordable housing tax
credit investments and related unfunded commitments at December 31, 2020 and
2019.
December 31, December 31,
(dollar amounts in millions) 2020 2019
Affordable housing tax credit investments $ 1,568 $ 1,242 Less: amortization
(612) (515)
Net affordable housing tax credit investments $ 956 $
727
Unfunded commitments $ 500 $ 332
2020 Form 10-K 165
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The following table presents other information relating to Huntington's
affordable housing tax credit investments for the years ended December 31, 2020,
2019, and 2018:
Year Ended December 31,
(dollar amounts in millions) 2020 2019 2018
Tax credits and other tax benefits recognized $ 113 $ 98 $ 92
Proportional amortization expense included in provision
for income taxes 97 84 79
Other Investments
Other investments determined to be VIE's include investments in Small Business
Investment Companies, Historic Tax Credit Investments, certain equity method
investments, renewable energy financings, and other miscellaneous investments.
23. COMMITMENTS AND CONTINGENT LIABILITIES
Commitments to extend credit
In the ordinary course of business, Huntington makes various commitments to
extend credit that are not reflected in the Consolidated Financial Statements.
The contract amounts of these financial agreements at December 31, 2020, and
December 31, 2019 were as follows:
At December 31,
(dollar amounts in millions) 2020 2019
Contract amount representing credit risk
Commitments to extend credit:
Commercial $ 20,701 $ 18,326
Consumer 14,808 14,831
Commercial real estate 1,313 1,364
Standby letters of credit 581 587
Commercial letters of credit 21 8
Commitments to extend credit generally have fixed expiration dates, are
variable-rate, and contain clauses that permit Huntington to terminate or
otherwise renegotiate the contracts in the event of a significant deterioration
in the customer's credit quality. These arrangements normally require the
payment of a fee by the customer, the pricing of which is based on prevailing
market conditions, credit quality, probability of funding, and other relevant
factors. Since many of these commitments are expected to expire without being
drawn upon, the contract amounts are not necessarily indicative of future cash
requirements. The interest rate risk arising from these financial instruments is
insignificant as a result of their predominantly short-term, variable-rate
nature.
Standby letters of credit are conditional commitments issued to guarantee the
performance of a customer to a third-party. These guarantees are primarily
issued to support public and private borrowing arrangements, including
commercial paper, bond financing, and similar transactions. Most of these
arrangements mature within two years. The carrying amount of deferred revenue
associated with these guarantees was $5 million and $8 million at December 31,
2020 and December 31, 2019, respectively.
Commercial letters of credit represent short-term, self-liquidating instruments
that facilitate customer trade transactions and generally have maturities of no
longer than 90 days. The goods or cargo being traded normally secure these
instruments.
Litigation and Regulatory Matters
In the ordinary course of business, Huntington is routinely a defendant in or
party to pending and threatened legal and regulatory actions and proceedings.
In view of the inherent difficulty of predicting the outcome of such matters,
particularly where the claimants seek very large or indeterminate damages or
where the matters present novel legal theories or involve a large number of
parties, Huntington generally cannot predict what the eventual outcome of the
pending matters will be,
166 Huntington Bancshares Incorporated
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what the timing of the ultimate resolution of these matters will be, or what the
eventual loss, fines, or penalties related to each matter may be.
Huntington establishes an accrued liability when those matters present loss
contingencies that are both probable and estimable. In such cases, there may be
an exposure to loss in excess of any amounts accrued. Huntington thereafter
continues to monitor the matter for further developments that could affect the
amount of the accrued liability that has been previously established.
For certain matters, Huntington is able to estimate a range of possible loss. In
cases in which Huntington possesses information to estimate a range of possible
loss, that estimate is aggregated and disclosed below. There may be other
matters for which a loss is probable or reasonably possible but such an estimate
of the range of possible loss may not be possible. For those matters where an
estimate of the range of possible loss is possible, management currently
estimates the aggregate range of reasonably possible loss is $0 to $10 million
at December 31, 2020 in excess of the accrued liability (if any) related to
those matters. This estimated range of possible loss is based upon currently
available information and is subject to significant judgment, a variety of
assumptions, and known and unknown uncertainties. The matters underlying the
estimated range will change from time to time, and actual results may vary
significantly from the current estimate. The estimated range of possible loss
does not represent Huntington's maximum loss exposure.
Based on current knowledge, management does not believe that loss contingencies
arising from pending matters will have a material adverse effect on the
consolidated financial position of Huntington. Further, management believes that
amounts accrued are adequate to address Huntington's contingent liabilities.
However, in light of the inherent uncertainties involved in these matters, some
of which are beyond Huntington's control, and the large or indeterminate damages
sought in some of these matters, an adverse outcome in one or more of these
matters could be material to Huntington's results of operations for any
particular reporting period.
24. OTHER REGULATORY MATTERS
Huntington and the Bank are subject to certain risk-based capital and leverage
ratio requirements under the U.S. Basel III capital rules adopted by the Federal
Reserve, for Huntington, and by the OCC, for the Bank. These rules implement the
Basel III international regulatory capital standards in the United States, as
well as certain provisions of the Dodd-Frank Act. These quantitative
calculations are minimums, and the Federal Reserve and OCC may determine that a
banking organization, based on its size, complexity or risk profile, must
maintain a higher level of capital in order to operate in a safe and sound
manner.
Under the U.S. Basel III capital rules, Huntington's and the Bank's assets,
exposures and certain off-balance sheet items are subject to risk weights used
to determine the institutions' risk-weighted assets. These risk-weighted assets
are used to calculate the following minimum capital ratios for Huntington and
the Bank:
CET1 Risk-Based Capital Ratio, equal to the ratio of CET1 capital to
risk-weighted assets. CET1 capital primarily includes common shareholders'
equity subject to certain regulatory adjustments and deductions, including with
respect to goodwill, intangible assets, certain deferred tax assets, and AOCI.
Tier 1 Risk-Based Capital Ratio, equal to the ratio of Tier 1 capital to
risk-weighted assets. Tier 1 capital is primarily comprised of CET1 capital,
perpetual preferred stock and certain qualifying capital instruments.
Total Risk-Based Capital Ratio, equal to the ratio of total capital, including
CET1 capital, Tier 1 capital and Tier 2 capital, to risk-weighted assets. Tier 2
capital primarily includes qualifying subordinated debt and qualifying ALLL.
Tier 2 capital also includes, among other things, certain trust preferred
securities.
Tier 1 Leverage Ratio, equal to the ratio of Tier 1 capital to quarterly average
assets (net of goodwill, certain other intangible assets and certain other
deductions).
The total minimum regulatory capital ratios and well-capitalized minimum ratios
are reflected on the following page.
Failure to be well-capitalized or to meet minimum capital requirements could
result in certain mandatory and possible additional discretionary actions by
regulators that, if undertaken, could have an adverse material effect on our
operations or financial condition. Failure to be well-capitalized or to meet
minimum capital requirements could
2020 Form 10-K 167
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also result in restrictions on Huntington's or the Bank's ability to pay
dividends or otherwise distribute capital or to receive regulatory approval of
applications.
In addition to meeting the minimum capital requirements, under the U.S. Basel
III capital rules Huntington and the Bank must also maintain the required stress
capital buffer and Capital Conservation Buffer, respectively, to avoid becoming
subject to restrictions on capital distributions and certain discretionary bonus
payments to management. The Capital Conservation Buffer is calculated as a ratio
of CET1 capital to risk-weighted assets, and it effectively increases the
required minimum risk-based capital ratios. In March 2020, the Federal Reserve
replaced the existing Capital Conservation Buffer with the stress capital
buffer, which has been established as 2.5% for Huntington.
As of December 31, 2020, Huntington's and the Bank's regulatory capital ratios
were above the well-capitalized standards and met the applicable stress capital
buffer and the Capital Conservation Buffer, respectively. Please refer to the
table below for a summary of Huntington's and the Bank's regulatory capital
ratios as of December 31, 2020, calculated using the regulatory capital
methodology applicable during 2020.
Minimum Minimum Basel III
Regulatory Ratio+Capital Well- December 31,
Capital Conservation Capitalized 2020 2019
(dollar amounts in
millions) Ratios Buffer (1) Minimums Ratio Amount Ratio Amount
CET 1 risk-based
capital Consolidated 4.50 % 7.00 % N/A 10.00 % $ 8,887 9.88 % $ 8,647
Bank 4.50 7.00 6.50 % 10.65 9,438 11.17 9,747
Tier 1 risk-based
capital Consolidated 6.00 8.50 6.00 12.47 11,083 11.26 9,854
Bank 6.00 8.50 8.00 11.97 10,601 12.17 10,621
Total risk-based
capital Consolidated 8.00 10.50 10.00 14.46 12,856 13.04 11,413
Bank 8.00 10.50 10.00 13.58 12,032 13.59 11,864
Tier 1 leverage Consolidated 4.00 N/A N/A 9.32 11,083 9.26 9,854
Bank 4.00 N/A 5.00 8.94 10,601 10.01 10,621
(1) Reflects the stress capital buffer of 2.5% for Huntington and the Capital
Conservation Buffer of 2.5% for the Bank.
Huntington and its subsidiaries are also subject to various regulatory
requirements that impose restrictions on cash, debt, and dividends. The Bank is
required to maintain cash reserves based on the level of certain of its
deposits. This reserve requirement may be met by holding cash in banking offices
or on deposit at the FRB. During 2020 and 2019, the average balances of these
deposits were $3.9 billion and $0.6 billion, respectively.
Under current Federal Reserve regulations, the Bank is limited as to the amount
and type of loans it may make to the parent company and nonbank subsidiaries. At
December 31, 2020, the Bank could lend $1.2 billion to a single affiliate,
subject to the qualifying collateral requirements defined in the regulations.
Dividends from the Bank are one of the major sources of funds for the Company.
These funds aid the Company in the payment of dividends to shareholders,
expenses, and other obligations. Payment of dividends and/or return of capital
to the parent company is subject to various legal and regulatory limitations.
During 2020, the Bank paid dividends of $1.5 billion to the holding company.
Also, there are statutory and regulatory limitations on the ability of national
banks to pay dividends or make other capital distributions.
168 Huntington Bancshares Incorporated
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25. PARENT-ONLY FINANCIAL STATEMENTS
The parent-only financial statements, which include transactions with
subsidiaries, are as follows:
Balance Sheets December 31,
(dollar amounts in millions) 2020 2019
Assets
Cash and due from banks $ 4,466 $ 3,119
Due from The Huntington National Bank 297 47
Due from non-bank subsidiaries 37
34
Investment in The Huntington National Bank 12,509
12,833
Investment in non-bank subsidiaries 147
165
Accrued interest receivable and other assets 429
349
Total assets $ 17,885 $ 16,547 Liabilities and shareholders' equity Long-term borrowings $ 4,142 $ 4,095 Dividends payable, accrued expenses, and other liabilities 750 657 Total liabilities 4,892 4,752 Shareholders' equity (1) 12,993 11,795 Total liabilities and shareholders' equity $ 17,885
$ 16,547
(1)See Consolidated Statements of Changes in Shareholders' Equity. Statements of Income Year Ended December 31, (dollar amounts in millions) 2020 2019 2018 Income Dividends from: The Huntington National Bank $ 1,527 $ 685 $ 1,722 Non-bank subsidiaries 36 3 - Interest from: The Huntington National Bank 4 8 27 Non-bank subsidiaries 1 2 2 Other 11 2 (2) Total income 1,579 700 1,749 Expense Personnel costs 17 6 2 Interest on borrowings 115 143 124 Other 123 145 118 Total expense 255 294 244
Income before income taxes and equity in undistributed net income of subsidiaries
1,324 406 1,505
Provision (benefit) for income taxes (46) (63) (48)
Income before equity in undistributed net income of subsidiaries
1,370 469 1,553
Increase (decrease) in undistributed net income (loss)
of:
The Huntington National Bank (547) 908 (186)
Non-bank subsidiaries (6) 34 26
Net income $ 817 $ 1,411 $ 1,393
Other comprehensive income (loss) (1) 448 353 (80)
Comprehensive income $ 1,265 $ 1,764 $ 1,313
(1)See Consolidated Statements of Comprehensive Income for other comprehensive income (loss) detail.
2020 Form 10-K 169
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Statements of Cash Flows Year Ended December 31,
(dollar amounts in millions) 2020 2019 2018
Operating activities
Net income $ 817 $ 1,411 $ 1,393
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed net income of subsidiaries 553 (942) 197
Depreciation and amortization - (2) (2)
Other, net 89 (19) 121
Net cash (used for) provided by operating activities 1,459 448 1,709
Investing activities
Repayments from subsidiaries 8 701 21
Advances to subsidiaries (256) (11) (13)
(Purchases)/Proceeds from sale of securities (1) (38) -
Cash paid for acquisitions, net of cash received - - (15)
Net cash (used for) provided by investing activities (249) 652 (7)
Financing activities
Net proceeds from issuance of medium-term notes 747 797 501
Payment of medium-term notes - - (400)
Payment of long-term debt (800) - -
Dividends paid on common and preferred stock (698) (671) (584)
Repurchases of common stock (92) (441) (939)
Net proceeds from issuance of preferred stock 988 - 495
Other, net (8) (18) (41)
Net cash provided by (used for) financing activities 137 (333) (968)
Increase (decrease) in cash and cash equivalents 1,347 767 734
Cash and cash equivalents at beginning of year 3,119 2,352 1,618
Cash and cash equivalents at end of year $ 4,466 $ 3,119 $ 2,352
Supplemental disclosure:
Interest paid $ 113 $ 135 $ 126
26. SEGMENT REPORTING
Huntington's business segments are based on our internally-aligned segment
leadership structure, which is how management monitors results and assesses
performance. The Company has four major business segments: Consumer and Business
Banking, Commercial Banking, Vehicle Finance, Regional Banking and The
Huntington Private Client Group (RBHPCG). The Treasury / Other function includes
technology and operations, other unallocated assets, liabilities, revenue, and
expense.
Business segment results are determined based upon Huntington's management
reporting system, which assigns balance sheet and income statement items to each
of the business segments. The process is designed around the organizational and
management structure and, accordingly, the results derived are not necessarily
comparable with similar information published by other financial institutions.
Additionally, because of the interrelationships of the various segments, the
information presented is not indicative of how the segments would perform if
they operated as independent entities.
Revenue is recorded in the business segment responsible for the related product
or service. Fee sharing is recorded to allocate portions of such revenue to
other business segments involved in selling to, or providing service to
customers. Results of operations for the business segments reflect these fee
sharing allocations.
The management process that develops the business segment reporting utilizes
various estimates and allocation methodologies to measure the performance of the
business segments. Expenses are allocated to business segments using a two-phase
approach. The first phase consists of measuring and assigning unit costs
(activity-based costs) to activities related to product origination and
servicing. These activity-based costs are then extended, based on volumes, with
the resulting amount allocated to business segments that own the related
products. The second phase consists of the allocation of overhead costs to all
four business segments from Treasury / Other. Huntington
170 Huntington Bancshares Incorporated
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utilizes a full-allocation methodology, where all Treasury / Other expenses,
except a small amount of other residual unallocated expenses, are allocated to
the four business segments.
The management policies and processes utilized in compiling segment financial
information are highly subjective and, unlike financial accounting, are not
based on authoritative guidance similar to GAAP. As a result, reported segment
results are not necessarily comparable with similar information reported by
other financial institutions. Furthermore, changes in management structure or
allocation methodologies and procedures result in changes in reported segment
financial data. Accordingly, certain amounts have been reclassified to conform
to the current period presentation.
Huntington uses an active and centralized FTP methodology to attribute
appropriate net interest income to the business segments. The intent of the FTP
methodology is to transfer interest rate risk from the business segments by
providing matched duration funding of assets and liabilities. The result is to
centralize the financial impact, management, and reporting of interest rate risk
in the Treasury / Other function where it can be centrally monitored and
managed. The Treasury / Other function charges (credits) an internal cost of
funds for assets held in (or pays for funding provided by) each business
segment. The FTP rate is based on prevailing market interest rates for
comparable duration assets (or liabilities).
Consumer and Business Banking - The Consumer and Business Banking segment,
including Home Lending, provides a wide array of financial products and services
to consumer and small business customers including but not limited to checking
accounts, savings accounts, money market accounts, certificates of deposit,
mortgage loans, consumer loans, credit cards, and small business loans and
investment products. Other financial services available to customers include
insurance, interest rate risk protection, foreign exchange, and treasury
management. Business Banking is defined as serving companies with revenues up to
$20 million. Home Lending supports origination and servicing of consumer loans
and mortgages for customers who are generally located in our primary banking
markets across all segments.
Commercial Banking - Through a relationship banking model, this segment provides
a wide array of products and services to the middle market, large corporate,
real estate and government public sector customers located primarily within our
geographic footprint. The segment is divided into four business units:
Relationship Banking Group, Specialized Lending Group, Treasury
Management/Deposits Group and Capital Markets Group.
Vehicle Finance - Our products and services include providing financing to
consumers for the purchase of automobiles, light-duty trucks, recreational
vehicles, and marine craft at franchised and other select dealerships, and
providing financing to franchised dealerships for the acquisition of new and
used inventory. Products and services are delivered through highly specialized
relationship-focused bankers and product partners.
Regional Banking and The Huntington Private Client Group - The core business of
The Huntington Private Client Group is The Huntington Private Bank, which
consists of Private Banking, Wealth & Investment Management, and Retirement Plan
Services. The Huntington Private Bank provides high net-worth customers with
deposit, lending (including specialized lending options), and banking services.
The Huntington Private Bank also delivers wealth management and legacy planning
through investment and portfolio management, fiduciary administration, and trust
services. This group also provides retirement plan services to corporate
businesses. The Huntington Private Client Group provides corporate trust
services and institutional and mutual fund custody services.
2020 Form 10-K 171
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Consumer &
Income Statements Business Commercial Vehicle Treasury / Huntington
(dollar amounts in millions) Banking Banking Finance RBHPCG Other Consolidated
2020
Net interest income $ 1,436 $ 903 $ 430 $ 160 $ 295 $ 3,224
Provision (benefit) for credit
losses 265 626 146 11 - 1,048
Noninterest income 945 364 9 201 72 1,591
Noninterest expense 1,774 542 141 243 95 2,795
Provision (benefit) for income
taxes 72 21 32 22 8 155
Net income (loss) $ 270 $ 78 $ 120 $ 85 $ 264 $ 817
2019
Net interest income $ 1,766 $ 1,037 $ 397 $ 198 $ (185) $ 3,213
Provision (benefit) for credit
losses 114 132 44 (3) - 287
Noninterest income 825 359 12 198 60 1,454
Noninterest expense 1,673 564 148 256 80 2,721
Provision (benefit) for income
taxes 169 147 45 30 (143) 248
Net income (loss) $ 635 $ 553 $ 172 $ 113 $ (62) $ 1,411
2018
Net interest income $ 1,727 $ 1,013 $ 392 $ 203 $ (146) $ 3,189
Provision (benefit) for credit
losses 137 42 55 1 - 235
Noninterest income 744 321 11 193 52 1,321
Noninterest expense 1,699 502 143 244 59 2,647
Provision (benefit) for income
taxes 133 166 43 32 (139) 235
Net income (loss) $ 502 $ 624 $ 162 $ 119 $ (14) $ 1,393
Assets at Deposits at
December 31, December 31,
(dollar amounts in millions) 2020 2019 2020 2019
Consumer & Business Banking $ 30,758 $ 25,073 $ 60,910 $ 51,675
Commercial Banking 36,311 34,337 24,766 20,762
Vehicle Finance 19,789 20,155 722 376
RBHPCG 7,064 6,665 7,635 6,370
Treasury / Other 29,116 22,772 4,915 3,164
Total $ 123,038 $ 109,002 $ 98,948 $ 82,347
172 Huntington Bancshares Incorporated
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