0000049196us-gaap:FairValueMeasurementsRecurringMembersrt:MaximumMemberus-gaap:FairValueInputsLevel3Memberus-gaap:MeasurementInputDiscountRateMemberus-gaap:ValuationTechniqueDiscountedCashFlowMemberus-gaap:CorporateDebtSecuritiesMember2020-09-30
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2020March 31, 2021
Huntington Bancshares Incorporated
(Exact name of registrant as specified in its charter)
| | | | | | | | |
Maryland | 1-34073 | 31-0724920 |
(State or other jurisdiction of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification No.) |
Registrant’s address: 41 South High Street, Columbus, Ohio 43287
Registrant’s telephone number, including area code: (614) 480-2265
Securities registered pursuant to Section 12(b) of the Act
| | | | | | | | |
Title of class | Trading Symbol(s) | Name of exchange on which registered |
Common Stock—Par Value $0.01 per Share | HBAN | NASDAQ |
Depositary Shares (each representing a 1/40th interest in a share of 5.875% Series C Non-Cumulative, perpetual preferred stock) | HBANN | NASDAQ |
Depositary Shares (each representing a 1/40th interest in a share of 6.250% Series D Non-Cumulative, perpetual preferred stock) | HBANO | NASDAQ |
Depositary Shares (each representing a 1/40th interest in a share of 4.500% Series H Non-Cumulative, perpetual preferred stock) | HBANP | NASDAQ |
Common Stock—Par Value $0.01 per Share | HBAN | NASDAQ |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. x Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | |
Large Accelerated Filer | x | | Accelerated filer | ☐ |
| | | | | |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | | | Emerging growth company | ☐ |
| | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes x No
There were 1,017,310,5991,018,052,923 shares of the registrant’s common stock ($0.01 par value) outstanding on September 30, 2020.March 31, 2021.
HUNTINGTON BANCSHARES INCORPORATED
INDEX
2 Huntington Bancshares Incorporated
Glossary of Acronyms and Terms
The following listing provides a comprehensive reference of common acronyms and terms used throughout the document:
| | | | | | | | |
ACL | | Allowance for Credit Losses |
AFS | | Available-for-Sale |
| | |
ALLL | | Allowance for Loan and Lease Losses |
AOCI | | Accumulated Other Comprehensive Income |
ASC | | Accounting Standards Codification |
| | |
AULC | | Allowance for Unfunded Loan Commitments |
Basel III | | Refers to the final rule issued by the FRB and OCC and published in the Federal Register on October 11, 2013 |
CARES Act | | Coronavirus Aid, Relief, and Economic Security Act, as amended |
C&I | | Commercial and Industrial |
CCAR | | Comprehensive Capital Analysis and Review |
CDs | | Certificates of Deposit |
CECL | | Current Expected Credit Loss |
CET1 | | Common Equity Tier 1 on a Basel III basis |
CFPB | | Bureau of Consumer Financial Protection |
CMO | | Collateralized Mortgage Obligations |
COVID-19 | | Coronavirus Disease 2019 |
CRE | | Commercial Real Estate |
| | |
EAD | | Exposure at Default |
EVE | | Economic Value of Equity |
FASB | | Financial Accounting Standards Board |
FDIC | | Federal Deposit Insurance Corporation |
FHFA | | Federal Housing Finance Agency |
FHLB | | Federal Home Loan Bank of Cincinnati |
FICO | | Fair Isaac Corporation |
| | |
FRB | | Federal Reserve Board |
FTE | | Fully-Taxable Equivalent |
FTP | | Funds Transfer Pricing |
FVO | | Fair Value Option |
GAAP | | Generally Accepted Accounting Principles in the United States of America |
HTM | | Held-to-Maturity |
IRS | | Internal Revenue Service |
Last-of-Layer | | Last-of-layer is a fair value hedge of the interest rate risk of a portfolio of similar prepayable assets whereby the last dollar amount within the portfolio of assets is identified as the hedged item |
LCR | | Liquidity Coverage Ratio |
LIBOR | | London Interbank Offered Rate |
LIHTC | | Low Income Housing Tax Credit |
MBS | | Mortgage-Backed Securities |
MD&A | | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
MSR | | Mortgage Servicing Right |
NAICS | | North American Industry Classification System |
NALs | | Nonaccrual Loans |
NCO | | Net Charge-off |
NII | | Noninterest Income |
NIM | | Net Interest Margin |
NPAs | | Nonperforming Assets |
| | |
2020 3Q2021 1Q Form 10-Q 3
| | | | | | | | |
NPAs | | Nonperforming Assets |
| | |
OCC | | Office of the Comptroller of the Currency |
OCI | | Other Comprehensive Income (Loss) |
| | |
OLEM | | Other Loans Especially Mentioned |
OREO | | Other Real Estate Owned |
PCD | | Purchased-Credit-Deteriorated |
PPP | | Paycheck Protection Program |
PPPLF | | Paycheck Protection Program Liquidity Facility |
RBHPCG | | Regional Banking and The Huntington Private Client Group |
ROC | | Risk Oversight Committee |
| | |
| | |
| | |
SBA | | Small Business Administration |
SEC | | Securities and Exchange Commission |
TCF | | TCF Financial Corporation |
TDR | | Troubled Debt Restructuring |
U.S. Treasury | | U.S. Department of the Treasury |
UCS | | Uniform Classification System |
VIE | | Variable Interest Entity |
XBRL | | eXtensible Business Reporting Language |
4 Huntington Bancshares Incorporated
PART I. FINANCIAL INFORMATION
When we refer to “we”, “our”, and “us”, “Huntington”, and “the Company” in this report, we mean Huntington Bancshares Incorporated and our consolidated subsidiaries, unless the context indicates that we refer only to the parent company, Huntington Bancshares Incorporated. When we refer to the “Bank” in this report, we mean our only bank subsidiary, The Huntington National Bank, and its subsidiaries.
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
INTRODUCTION
We are a multi-state diversified regional bank holding company organized under Maryland law in 1966 and headquartered in Columbus, Ohio. Through the Bank, we have over 150 years of servicing the financial needs of our customers. Through our subsidiaries, we provide full-service commercial and consumer banking services, mortgage banking services, automobile financing, recreational vehicle and marine financing, equipment financing, investment management, trust services, brokerage services, insurance products and services, and other financial products and services. Our 839814 full-service branches and private client group offices are located in Ohio, Illinois, Indiana, Kentucky, Michigan, Pennsylvania, and West Virginia. 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. Our foreign banking activities, in total or with any individual country, are not significant.
On December 13, 2020, we 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. 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.
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 also 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.
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 included in our 20192020 Form 10-K should be read in conjunction with this MD&A as this discussion provides only material updates to the 20192020 Form 10-K. This MD&A should also be read in conjunction with the Unaudited Condensed Consolidated Financial Statements, Notes to Unaudited Condensed Consolidated Financial Statements, and other information contained in this report.
EXECUTIVE OVERVIEW
Summary of 2020 Third2021 First Quarter Results Compared to 2019 Third2020 First Quarter
For the quarter, we reported net income of $303$532 million, or $0.27$0.48 per common share, compared with $372$48 million, or $0.34$0.03 per common share, in the year-ago quarter.
Fully-taxable equivalent net interest income was $822$978 million, down $17up $182 million, or 2%23%, from the year-ago quarter. This decreaseincrease reflected the benefit from the $12.3 billion, or 12%, increase in average earning assets and a 2434 basis point decreaseincrease in the FTE net interest margin to 2.96%, partially offset by the benefit from the $11.0 billion, or 11%, increase in average earning assets.3.48%.
The provision for credit losses increased $95decreased $501 million year-over-year to $177$(60) million in the 2020 third2021 first quarter. Net charge-offs increased $40decreased $53 million to $113$64 million. The oilBoth Commercial NCOs of $49 million and gas portfolio accounted for approximately $44 million of the $89 million of commercial NCOs, nearly all of which resulted from charge-offs on loans sold in the quarter or under contract to be sold. Consumer NCOs of $24$15 million were down on both a year-over-year and linked quarter basis. Total NCOs represented an annualized 0.56%0.32% of average loans and leases in the current quarter, updown from 0.39%0.62% in the year-ago quarter.
Noninterest income was $430$395 million, up $41$34 million, or 11%9%, from the year ago quarter. Mortgage banking income increased $68$42 million, or 126%72%. Partially offsetting this increase,these increases, service charges on deposit accounts decreased $22$18 million, or 22%.
Noninterest expense for the 2020 third quarter increased $45 million, or 7%, from the year-ago quarter Personnel costs increased $47 million, or 12%, partially offset by a decrease in other noninterest expense of $9 million, or 18%21%.
2020 3Q2021 1Q Form 10-Q 5
Noninterest expense for the 2021 first quarter increased $141 million, or 22%, from the year-ago quarter Personnel costs increased $73 million, or 18%. Outside data processing and other services increased $30 million, or 35%. Other noninterest expense increased $22 million, or 43%, primarily reflecting a $25 million donation to The Columbus Foundation.
Common Equity Tier 1 risk-based capital ratio was 9.89%10.33%, downup from 10.02%9.47% a year ago. The regulatory Tier 1 risk-based capital ratio was 12.37%13.32% compared to 11.41%10.81% at September 30, 2019.March 31, 2020. The increase in regulatory capital ratios was driven by earnings, adjusted for the CECL transition, offset by the repurchase of $5 million of common stock over the last four quarters (all during 2020 fourth quarter) and cash dividends. The balance sheet growth we experiencedimpact on regulatory capital ratios was driven predominatelylargely offset by a change in asset mix during 2020 related to the PPP loans and elevated deposits at the Federal Reserve, both of which are 0% risk weighted, and as such did not have a material impact on the regulatory capital ratios. The capital impact of the repurchase of $284 million of common stock over the last four quarters (none in the 2020 second or third quarter) and cash dividends effectively offset earnings, adjusted for the CECL transition, on a year-over-year basis.weighted. 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 and $500 million of Series H preferred stock in the 2020 second quarter, 2020 third quarter, and third2021 first 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 incurrent interest rates,rate environment, borrower and counterparty credit deteriorationquality and market volatility, among other factors, continue to have an impact on our 2020 performance. Though we are unable to estimate the magnitude, we expect the pandemic and related globalthe resulting economic crisisenvironment will adverselycontinue to affect our future operating results.
Huntington was able to react quickly to thesethe changes required by the pandemic 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 a large portion of our colleagues willwho have been operating remotely to continue to operate remotely. Temporary business closures and shelter in place requirements could be reinstated if there is an increase in cases, andfor a period of time. While the approved vaccines are being administered throughout our footprint, it remains unknown when, or if, there will be a return to normalhistorical norms of 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 originatedoriginate loans made available through the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”), 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”). Several subsequent congressional acts have reopened and extended the PPP loan program. During the 2021 first quarter, we have processed over 17,000 applications totaling approximately $1.8 billion under the reopened PPP.
CARES ActPending acquisition of TCF Financial Corporation
In late March 2021, Huntington and TCF shareholders approved the proposed merger of TCF with and into Huntington. The CARES Act was passed by Congressintegration planning continues to proceed as expected. We expect that the transaction will be completed late in the second quarter of 2021, subject to regulatory approval and signed into law on March 27, 2020. It providesthe satisfaction of other customary closing conditions set forth in the merger agreement.
Economy
Our first quarter results reflected a very strong beginning to what will be an important year for financial stimulusHuntington. The economic recovery continues to gain its footing, and governmentwe are seeing encouraging signs across our footprint and our individual businesses. Our lending programs at unprecedented levels. The benefits of these programs withinpipelines are up across the economy remain uncertain. The CARES Act includes a total allocation of $659 billion for loans to be issued by financial institutions through the Small Business Administration (“SBA”). This programboard, and customer sentiment is known as the Paycheck Protection Program (“PPP”). PPP loans are forgivable, in whole or in part, if the 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%improving —
6 Huntington Bancshares Incorporated
and terms of two or five years, if not forgiven,supporting our confidence 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 participatingmore robust loan demand later 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.
year. 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 to September 27, 2020. To aid small- and medium-sized businesses across our footprint, we funded more than 38,000 loans with an outstanding balance of $6.3 billion as of September 30, 2020 through the SBA’s PPP. In late third quarter 2020, we started accepting and processing forgiveness applications for PPP loans of $150,000 or more with the anticipation that these applications be submitted to the SBA during fourth quarter 2020.
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.Federal Reserve Board Actions
The FRB has taken a range of actions to support the flow of credit to households and businesses. For example, on March 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 of U.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 of March 26, 2020.
The FRB has established, or has taken steps to establish, a range of facilities and programs to support the U.S. economy and U.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 medium U.S. businesses. During third quarter 2020, we participated in the Main Street Lending program originating $34 million of loans under these facilities. We may participate in some or all of the other facilities or programs, including as a lender, agent, or intermediary on behalf of clients or customers or in an advisory capacity in the future.
Economy
Our third quarter results reflect strong execution across the bank in a very challenging operating environment. Our past experience of helping customers in difficult economic moments builds long-term relationships which fuel our growth. During the third quarter, we extended 24-Grace for customers to our business customers and introduced our no-fee overdraft $50 Safety Zone for consumers and businesses. These actions are consistent with our purpose of looking out for our customers and is consistent with Huntington’s strategy to build the leading People-First, Digitally-Powered bank. We believe that Huntington is well-positioned to continue to support our customers and communities. While we are pleased with the third quarter results, the COVID-19 pandemic continues to alter the economic fundamentals in our footprint and we continue to believe the economysee strong core deposit inflows and expect this elevated level of liquidity will be challengedremain for the foreseeable future.some time.
DISCUSSION OF RESULTS OF OPERATIONS
This section provides a review of financial performance from a consolidated perspective. It also includes a “Significant Items” section (See Non-GAAP Financial Measures) that summarizes key issues important for a complete understanding of performance trends. Key Unaudited Condensed Consolidated Balance Sheet and Unaudited Condensed Statement of Income 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”. 2020 3Q2021 1Q Form 10-Q 7
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Table 1 - Selected Quarterly Income Statement Data |
| | | | | | | | | |
| Three Months Ended |
| September 30, | | June 30, | | March 31, | | December 31, | | September 30, |
(amounts in millions, except per share data) | 2020 | | 2020 | | 2020 | | 2019 | | 2019 |
Interest income | $ | 892 | | | $ | 902 | | | $ | 975 | | | $ | 1,011 | | | $ | 1,052 | |
Interest expense | 75 | | | 110 | | | 185 | | | 231 | | | 253 | |
Net interest income | 817 | | | 792 | | | 790 | | | 780 | | | 799 | |
Provision for credit losses | 177 | | | 327 | | | 441 | | | 79 | | | 82 | |
Net interest income after provision for credit losses | 640 | | | 465 | | | 349 | | | 701 | | | 717 | |
Service charges on deposit accounts | 76 | | | 60 | | | 87 | | | 95 | | | 98 | |
Card and payment processing income | 66 | | | 59 | | | 58 | | | 64 | | | 64 | |
Trust and investment management services | 48 | | | 45 | | | 47 | | | 47 | | | 44 | |
Mortgage banking income | 122 | | | 96 | | | 58 | | | 58 | | | 54 | |
Capital markets fees | 27 | | | 31 | | | 33 | | | 31 | | | 36 | |
Insurance income | 24 | | | 25 | | | 23 | | | 24 | | | 20 | |
Bank owned life insurance income | 17 | | | 17 | | | 16 | | | 17 | | | 18 | |
Gain on sale of loans and leases | 13 | | | 8 | | | 8 | | | 16 | | | 13 | |
Net (losses) gains on sales of securities | — | | | (1) | | | — | | | (22) | | | — | |
Other noninterest income | 37 | | | 51 | | | 31 | | | 42 | | | 42 | |
Total noninterest income | 430 | | | 391 | | | 361 | | | 372 | | | 389 | |
Personnel costs | 453 | | | 418 | | | 395 | | | 426 | | | 406 | |
Outside data processing and other services | 98 | | | 90 | | | 85 | | | 89 | | | 87 | |
Equipment | 44 | | | 46 | | | 41 | | | 42 | | | 41 | |
Net occupancy | 40 | | | 39 | | | 40 | | | 41 | | | 38 | |
Professional services | 12 | | | 11 | | | 11 | | | 14 | | | 16 | |
Amortization of intangibles | 10 | | | 10 | | | 11 | | | 12 | | | 12 | |
Marketing | 9 | | | 5 | | | 9 | | | 9 | | | 10 | |
Deposit and other insurance expense | 6 | | | 9 | | | 9 | | | 10 | | | 8 | |
Other noninterest expense | 40 | | | 47 | | | 51 | | | 58 | | | 49 | |
Total noninterest expense | 712 | | | 675 | | | 652 | | | 701 | | | 667 | |
Income before income taxes | 358 | | | 181 | | | 58 | | | 372 | | | 439 | |
Provision for income taxes | 55 | | | 31 | | | 10 | | | 55 | | | 67 | |
Net income | 303 | | | 150 | | | 48 | | | 317 | | | 372 | |
Dividends on preferred shares | 28 | | | 19 | | | 18 | | | 19 | | | 18 | |
Net income applicable to common shares | $ | 275 | | | $ | 131 | | | $ | 30 | | | $ | 298 | | | $ | 354 | |
| | | | | | | | | |
Average common shares—basic | 1,017 | | | 1,016 | | | 1,018 | | | 1,029 | | | 1,035 | |
Average common shares—diluted | 1,031 | | | 1,029 | | | 1,035 | | | 1,047 | | | 1,051 | |
Net income per common share—basic | $ | 0.27 | | | $ | 0.13 | | | $ | 0.03 | | | $ | 0.29 | | | $ | 0.34 | |
Net income per common share—diluted | 0.27 | | | 0.13 | | | 0.03 | | | 0.28 | | | 0.34 | |
Return on average total assets | 1.01 | % | | 0.51 | % | | 0.17 | % | | 1.15 | % | | 1.37 | % |
Return on average common shareholders’ equity | 10.2 | | | 5.0 | | | 1.1 | | | 11.1 | | | 13.4 | |
Return on average tangible common shareholders’ equity (1) | 13.2 | | | 6.7 | | | 1.8 | | | 14.3 | | | 17.3 | |
Net interest margin (2) | 2.96 | | | 2.94 | | | 3.14 | | | 3.12 | | | 3.20 | |
Efficiency ratio (3) | 56.1 | | | 55.9 | | | 55.4 | | | 58.4 | | | 54.7 | |
Effective tax rate | 15.2 | | | 17.2 | | | 17.0 | | | 14.8 | | | 15.4 | |
| | | | | | | | | |
Revenue—FTE | | | | | | | | | |
Net interest income | $ | 817 | | | $ | 792 | | | $ | 790 | | | $ | 780 | | | $ | 799 | |
FTE adjustment | 5 | | | 5 | | | 6 | | | 6 | | | 6 | |
Net interest income (2) | 822 | | | 797 | | | 796 | | | 786 | | | 805 | |
Noninterest income | 430 | | | 391 | | | 361 | | | 372 | | | 389 | |
Total revenue (2) | $ | 1,252 | | | $ | 1,188 | | | $ | 1,157 | | | $ | 1,158 | | | $ | 1,194 | |
8 Huntington Bancshares Incorporated
| Table 1 - Selected Quarterly Income Statement Data | | Table 1 - Selected Quarterly Income Statement Data |
| Table 2 - Selected Year to Date Income Statements | |
| | | Three Months Ended |
| | Nine Months Ended September 30, | | Change | | March 31, | | December 31, | | September 30, | | June 30, | | March 31, |
(amounts in millions, except per share data) | (amounts in millions, except per share data) | 2020 | | 2019 | | Amount | | Percent | (amounts in millions, except per share data) | 2021 | | 2020 | | 2020 | | 2020 | | 2020 |
Interest income | Interest income | $ | 2,769 | | | $ | 3,190 | | | $ | (421) | | | (13) | % | Interest income | $ | 869 | | | $ | 878 | | | $ | 892 | | | $ | 902 | | | $ | 975 | |
Interest expense | Interest expense | 370 | | | 757 | | | (387) | | | (51) | | Interest expense | (103) | | | 53 | | | 75 | | | 110 | | | 185 | |
Net interest income | Net interest income | 2,399 | | | 2,433 | | | (34) | | | (1) | | Net interest income | 972 | | | 825 | | | 817 | | | 792 | | | 790 | |
Provision for credit losses | Provision for credit losses | 945 | | | 208 | | | 737 | | | 354 | | Provision for credit losses | (60) | | | 103 | | | 177 | | | 327 | | | 441 | |
Net interest income after provision for credit losses | Net interest income after provision for credit losses | 1,454 | | | 2,225 | | | (771) | | | (35) | | Net interest income after provision for credit losses | 1,032 | | | 722 | | | 640 | | | 465 | | | 349 | |
Mortgage banking income | | Mortgage banking income | 100 | | | 90 | | | 122 | | | 96 | | | 58 | |
Service charges on deposit accounts | Service charges on deposit accounts | 223 | | | 277 | | | (54) | | | (19) | | Service charges on deposit accounts | 69 | | | 78 | | | 76 | | | 60 | | | 87 | |
Card and payment processing income | Card and payment processing income | 183 | | | 183 | | | — | | | — | | Card and payment processing income | 65 | | | 65 | | | 66 | | | 59 | | | 58 | |
Trust and investment management services | Trust and investment management services | 140 | | | 131 | | | 9 | | | 7 | | Trust and investment management services | 52 | | | 49 | | | 48 | | | 45 | | | 47 | |
Mortgage banking income | 277 | | | 109 | | | 168 | | | 154 | | |
Capital markets fees | Capital markets fees | 91 | | | 92 | | | (1) | | | (1) | | Capital markets fees | 29 | | | 34 | | | 27 | | | 31 | | | 33 | |
Insurance income | Insurance income | 72 | | | 64 | | | 8 | | | 13 | | Insurance income | 27 | | | 25 | | | 24 | | | 25 | | | 23 | |
Bank owned life insurance income | Bank owned life insurance income | 49 | | | 49 | | | — | | | — | | Bank owned life insurance income | 16 | | | 14 | | | 17 | | | 17 | | | 16 | |
Gain on sale of loans and leases | 30 | | | 39 | | | (9) | | | (23) | | |
Gain on sale of loans | | Gain on sale of loans | 3 | | | 13 | | | 13 | | | 8 | | | 8 | |
Net (losses) gains on sales of securities | Net (losses) gains on sales of securities | (1) | | | (2) | | | 1 | | | 50 | | Net (losses) gains on sales of securities | — | | | — | | | — | | | (1) | | | — | |
Other noninterest income | Other noninterest income | 118 | | | 140 | | | (22) | | | (16) | | Other noninterest income | 34 | | | 41 | | | 37 | | | 51 | | | 31 | |
Total noninterest income | Total noninterest income | 1,182 | | | 1,082 | | | 100 | | | 9 | | Total noninterest income | 395 | | | 409 | | | 430 | | | 391 | | | 361 | |
Personnel costs | Personnel costs | 1,267 | | | 1,228 | | | 39 | | | 3 | | Personnel costs | 468 | | | 426 | | | 453 | | | 418 | | | 395 | |
Outside data processing and other services | Outside data processing and other services | 273 | | | 257 | | | 16 | | | 6 | | Outside data processing and other services | 115 | | | 111 | | | 98 | | | 90 | | | 85 | |
Equipment | Equipment | 132 | | | 121 | | | 11 | | | 9 | | Equipment | 46 | | | 49 | | | 44 | | | 46 | | | 41 | |
Net occupancy | Net occupancy | 119 | | | 118 | | | 1 | | | 1 | | Net occupancy | 42 | | | 39 | | | 40 | | | 39 | | | 40 | |
Professional services | Professional services | 34 | | | 40 | | | (6) | | | (15) | | Professional services | 17 | | | 21 | | | 12 | | | 11 | | | 11 | |
Amortization of intangibles | Amortization of intangibles | 31 | | | 37 | | | (6) | | | (16) | | Amortization of intangibles | 10 | | | 10 | | | 10 | | | 10 | | | 11 | |
Marketing | Marketing | 23 | | | 28 | | | (5) | | | (18) | | Marketing | 14 | | | 15 | | | 9 | | | 5 | | | 9 | |
Deposit and other insurance expense | Deposit and other insurance expense | 24 | | | 24 | | | — | | | — | | Deposit and other insurance expense | 8 | | | 8 | | | 6 | | | 9 | | | 9 | |
Other noninterest expense | Other noninterest expense | 136 | | | 167 | | | (31) | | | (19) | | Other noninterest expense | 73 | | | 77 | | | 40 | | | 47 | | | 51 | |
Total noninterest expense | Total noninterest expense | 2,039 | | | 2,020 | | | 19 | | | 1 | | Total noninterest expense | 793 | | | 756 | | | 712 | | | 675 | | | 652 | |
Income before income taxes | Income before income taxes | 597 | | | 1,287 | | | (690) | | | (54) | | Income before income taxes | 634 | | | 375 | | | 358 | | | 181 | | | 58 | |
Provision for income taxes | Provision for income taxes | 96 | | | 193 | | | (97) | | | (50) | | Provision for income taxes | 102 | | | 59 | | | 55 | | | 31 | | | 10 | |
Net income | Net income | 501 | | | 1,094 | | | (593) | | | (54) | | Net income | 532 | | | 316 | | | 303 | | | 150 | | | 48 | |
Dividends declared on preferred shares | 65 | | | 55 | | | 10 | | | 18 | | |
Dividends on preferred shares | | Dividends on preferred shares | 31 | | | 35 | | | 28 | | | 19 | | | 18 | |
Net income applicable to common shares | Net income applicable to common shares | $ | 436 | | | $ | 1,039 | | | $ | (603) | | | (58) | % | Net income applicable to common shares | $ | 501 | | | $ | 281 | | | $ | 275 | | | $ | 131 | | | $ | 30 | |
| Average common shares—basic | Average common shares—basic | 1,017 | | | 1,042 | | | (25) | | | (2) | % | Average common shares—basic | 1,018 | | | 1,017 | | | 1,017 | | | 1,016 | | | 1,018 | |
Average common shares—diluted | Average common shares—diluted | 1,032 | | | 1,059 | | | (27) | | | (3) | | Average common shares—diluted | 1,041 | | | 1,036 | | | 1,031 | | | 1,029 | | | 1,035 | |
Net income per common share—basic | Net income per common share—basic | $ | 0.43 | | | $ | 1.00 | | | $ | (0.57) | | | (57) | | Net income per common share—basic | $ | 0.49 | | | $ | 0.28 | | | $ | 0.27 | | | $ | 0.13 | | | $ | 0.03 | |
Net income per common share—diluted | Net income per common share—diluted | 0.42 | | | 0.98 | | | (0.56) | | | (57) | | Net income per common share—diluted | 0.48 | | | 0.27 | | | 0.27 | | | 0.13 | | | 0.03 | |
| Return on average total assets | | Return on average total assets | 1.76 | % | | 1.04 | % | | 1.01 | % | | 0.51 | % | | 0.17 | % |
Return on average common shareholders’ equity | | Return on average common shareholders’ equity | 18.7 | | | 10.4 | | | 10.2 | | | 5.0 | | | 1.1 | |
Return on average tangible common shareholders’ equity (1) | | Return on average tangible common shareholders’ equity (1) | 23.7 | | | 13.3 | | | 13.2 | | | 6.7 | | | 1.8 | |
Net interest margin (2) | | Net interest margin (2) | 3.48 | | | 2.94 | | | 2.96 | | | 2.94 | | | 3.14 | |
Efficiency ratio (3) | | Efficiency ratio (3) | 57.0 | | | 60.2 | | | 56.1 | | | 55.9 | | | 55.4 | |
Effective tax rate | | Effective tax rate | 16.1 | | | 15.8 | | | 15.2 | | | 17.2 | | | 17.0 | |
| Revenue—FTE | Revenue—FTE | | Revenue—FTE | |
Net interest income | Net interest income | $ | 2,399 | | | $ | 2,433 | | | $ | (34) | | | (1) | % | Net interest income | $ | 972 | | | $ | 825 | | | $ | 817 | | | $ | 792 | | | $ | 790 | |
FTE adjustment | FTE adjustment | 16 | | | 20 | | | (4) | | | (20) | | FTE adjustment | 6 | | | 5 | | | 5 | | | 5 | | | 6 | |
Net interest income (2) | Net interest income (2) | 2,415 | | | 2,453 | | | (38) | | | (2) | | Net interest income (2) | 978 | | | 830 | | | 822 | | | 797 | | | 796 | |
Noninterest income | Noninterest income | 1,182 | | | 1,082 | | | 100 | | | 9 | | Noninterest income | 395 | | | 409 | | | 430 | | | 391 | | | 361 | |
Total revenue (2) | Total revenue (2) | $ | 3,597 | | | $ | 3,535 | | | $ | 62 | | | 2 | % | Total revenue (2) | $ | 1,373 | | | $ | 1,239 | | | $ | 1,252 | | | $ | 1,188 | | | $ | 1,157 | |
(1)Net income excluding expense for amortization of intangibles for the period divided by average tangible common shareholders’ equity. Average tangible common shareholders’ equity equals average total common shareholders’ equity less average intangible assets and goodwill. Expense for amortization of intangibles and average intangible assets are net of deferred tax liability, and calculated assuming a 21% tax rate.
(2)On an FTE basis assuming a 21% tax rate.
(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.
8 Huntington Bancshares Incorporated
Significant Items
Table 2 list certain items that we believe are significant to understanding corporate performance and trends (See Non-GAAP Financial Measures included in “Additional Disclosures” section). There was one Significant Item in the 2021 first quarter: $21 million of noninterest expense related to the pending acquisition of TCF. This resulted in a negative impact of $(0.02) per common share. There were no Significant Items in the other periods presented. | | | | | | | | | | | | | | | | | | | |
Table 2 - Significant Items Influencing Earnings Performance Comparison |
| Three Months Ended | | | | | | | | |
| March 31, 2021 | | | | |
(dollar amounts in millions, share amounts in thousands) | Amount | | EPS (1) | | | | | | | | |
Net income | $ | 532 | | | | | | | | | | | |
Earnings per share, after-tax | | | $ | 0.48 | | | | | | | | | |
| | | | | | | | | | | |
Significant Items—favorable (unfavorable) impact: | Earnings | | EPS (1) | | | | | | | | |
Mergers and acquisitions, net expenses | $ | (21) | | | | | | | | | | | |
Tax impact | 4 | | | | | | | | | | | |
Mergers and acquisitions, after tax | $ | (17) | | | $ | (0.02) | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
(1)Based upon the quarterly average outstanding diluted common shares.
2020 3Q2021 1Q Form 10-Q 9
Net Interest Income / Average Balance Sheet
The following tables detail the change in our average balance sheet and the net interest margin:
| Table 3 - Consolidated Average Balance Sheet and Net Interest Margin Analysis | Table 3 - Consolidated Average Balance Sheet and Net Interest Margin Analysis | Table 3 - Consolidated Average Balance Sheet and Net Interest Margin Analysis |
| | Average Balances | | | Average Balances | |
| | Three Months Ended | | Change | | Three Months Ended | | Change |
| | September 30, | | June 30, | | March 31, | | December 31, | | September 30, | | 3Q20 vs. 3Q19 | | March 31, | | December 31, | | September 30, | | June 30, | | March 31, | | 1Q21 vs. 1Q20 |
(dollar amounts in millions) | (dollar amounts in millions) | 2020 | | 2020 | | 2020 | | 2019 | | 2019 | | Amount | | Percent | (dollar amounts in millions) | 2021 | | 2020 | | 2020 | | 2020 | | 2020 | | Amount | | Percent |
Assets: | Assets: | | | | | | | | | | | | | | Assets: | | | | | | | | | | | | | |
Interest-bearing deposits in Federal Reserve Bank | Interest-bearing deposits in Federal Reserve Bank | $ | 5,857 | | | $ | 3,413 | | | $ | 680 | | | $ | 672 | | | $ | 514 | | | $ | 5,343 | | | 1,039 | % | Interest-bearing deposits in Federal Reserve Bank | $ | 6,065 | | | $ | 5,507 | | | $ | 5,857 | | | $ | 3,413 | | | $ | 680 | | | $ | 5,385 | | | 792 | % |
Interest-bearing deposits in banks | Interest-bearing deposits in banks | 177 | | | 169 | | | 150 | | | 176 | | | 149 | | | 28 | | | 19 | | Interest-bearing deposits in banks | 177 | | | 205 | | | 177 | | | 169 | | | 150 | | | 27 | | | 18 | |
Securities: | Securities: | | Securities: | |
Trading account securities | Trading account securities | 49 | | | 39 | | | 95 | | | 109 | | | 137 | | | (88) | | | (64) | | Trading account securities | 52 | | | 53 | | | 49 | | | 39 | | | 95 | | | (43) | | | (45) | |
Available-for-sale securities: | Available-for-sale securities: | | Available-for-sale securities: | |
Taxable | Taxable | 10,670 | | | 11,179 | | | 11,671 | | | 11,221 | | | 11,096 | | | (426) | | | (4) | | Taxable | 14,827 | | | 12,048 | | | 10,670 | | | 11,179 | | | 11,671 | | | 3,156 | | | 27 | |
Tax-exempt | Tax-exempt | 2,749 | | | 2,728 | | | 2,753 | | | 2,791 | | | 2,820 | | | (71) | | | (3) | | Tax-exempt | 2,650 | | | 2,710 | | | 2,749 | | | 2,728 | | | 2,753 | | | (103) | | | (4) | |
Total available-for-sale securities | Total available-for-sale securities | 13,419 | | | 13,907 | | | 14,424 | | | 14,012 | | | 13,916 | | | (497) | | | (4) | | Total available-for-sale securities | 17,477 | | | 14,758 | | | 13,419 | | | 13,907 | | | 14,424 | | | 3,053 | | | 21 | |
Held-to-maturity securities—taxable | Held-to-maturity securities—taxable | 8,932 | | | 9,798 | | | 9,428 | | | 8,592 | | | 8,566 | | | 366 | | | 4 | | Held-to-maturity securities—taxable | 8,269 | | | 8,844 | | | 8,932 | | | 9,798 | | | 9,428 | | | (1,159) | | | (12) | |
| Other securities | Other securities | 430 | | | 474 | | | 445 | | | 448 | | | 437 | | | (7) | | | (2) | | Other securities | 412 | | | 420 | | | 430 | | | 474 | | | 445 | | | (33) | | | (7) | |
Total securities | Total securities | 22,830 | | | 24,218 | | | 24,392 | | | 23,161 | | | 23,056 | | | (226) | | | (1) | | Total securities | 26,210 | | | 24,075 | | | 22,830 | | | 24,218 | | | 24,392 | | | 1,818 | | | 7 | |
Loans held for sale | Loans held for sale | 1,259 | | | 1,039 | | | 865 | | | 950 | | | 877 | | | 382 | | | 44 | | Loans held for sale | 1,392 | | | 1,319 | | | 1,259 | | | 1,039 | | | 865 | | | 527 | | | 61 | |
Loans and leases: (3) | Loans and leases: (3) | | Loans and leases: (3) | |
Commercial: | Commercial: | | Commercial: | |
Commercial and industrial | Commercial and industrial | 34,669 | | | 35,284 | | | 30,849 | | | 30,373 | | | 30,632 | | | 4,037 | | | 13 | | Commercial and industrial | 34,352 | | | 34,850 | | | 34,669 | | | 35,284 | | | 30,849 | | | 3,503 | | | 11 | |
Commercial real estate: | Commercial real estate: | | Commercial real estate: | |
Construction | Construction | 1,175 | | | 1,201 | | | 1,165 | | | 1,181 | | | 1,165 | | | 10 | | | 1 | | Construction | 1,053 | | | 1,085 | | | 1,175 | | | 1,201 | | | 1,165 | | | (112) | | | (10) | |
Commercial | Commercial | 6,045 | | | 5,885 | | | 5,566 | | | 5,625 | | | 5,762 | | | 283 | | | 5 | | Commercial | 6,122 | | | 6,092 | | | 6,045 | | | 5,885 | | | 5,566 | | | 556 | | | 10 | |
Commercial real estate | Commercial real estate | 7,220 | | | 7,086 | | | 6,731 | | | 6,806 | | | 6,927 | | | 293 | | | 4 | | Commercial real estate | 7,175 | | | 7,177 | | | 7,220 | | | 7,086 | | | 6,731 | | | 444 | | | 7 | |
Total commercial | Total commercial | 41,889 | | | 42,370 | | | 37,580 | | | 37,179 | | | 37,559 | | | 4,330 | | | 12 | | Total commercial | 41,527 | | | 42,027 | | | 41,889 | | | 42,370 | | | 37,580 | | | 3,947 | | | 11 | |
Consumer: | Consumer: | | | | | | | | | | | | | | Consumer: | | | | | | | | | | | | | |
Automobile | Automobile | 12,889 | | | 12,681 | | | 12,924 | | | 12,607 | | | 12,181 | | | 708 | | | 6 | | Automobile | 12,665 | | | 12,857 | | | 12,889 | | | 12,681 | | | 12,924 | | | (259) | | | (2) | |
Home equity | Home equity | 8,878 | | | 8,897 | | | 9,026 | | | 9,192 | | | 9,353 | | | (475) | | | (5) | | Home equity | 8,809 | | | 8,919 | | | 8,878 | | | 8,897 | | | 9,026 | | | (217) | | | (2) | |
Residential mortgage | Residential mortgage | 11,817 | | | 11,463 | | | 11,391 | | | 11,330 | | | 11,214 | | | 603 | | | 5 | | Residential mortgage | 12,094 | | | 12,100 | | | 11,817 | | | 11,463 | | | 11,391 | | | 703 | | | 6 | |
RV and marine | RV and marine | 4,020 | | | 3,706 | | | 3,590 | | | 3,564 | | | 3,528 | | | 492 | | | 14 | | RV and marine | 4,193 | | | 4,181 | | | 4,020 | | | 3,706 | | | 3,590 | | | 603 | | | 17 | |
Other consumer | Other consumer | 1,049 | | | 1,082 | | | 1,185 | | | 1,231 | | | 1,261 | | | (212) | | | (17) | | Other consumer | 973 | | | 1,032 | | | 1,049 | | | 1,082 | | | 1,185 | | | (212) | | | (18) | |
Total consumer | Total consumer | 38,653 | | | 37,829 | | | 38,116 | | | 37,924 | | | 37,537 | | | 1,116 | | | 3 | | Total consumer | 38,734 | | | 39,089 | | | 38,653 | | | 37,829 | | | 38,116 | | | 618 | | | 2 | |
Total loans and leases | Total loans and leases | 80,542 | | | 80,199 | | | 75,696 | | | 75,103 | | | 75,096 | | | 5,446 | | | 7 | | Total loans and leases | 80,261 | | | 81,116 | | | 80,542 | | | 80,199 | | | 75,696 | | | 4,565 | | | 6 | |
Allowance for loan and lease losses | Allowance for loan and lease losses | (1,720) | | | (1,557) | | | (1,239) | | | (787) | | | (799) | | | (921) | | | (115) | | Allowance for loan and lease losses | (1,809) | | | (1,804) | | | (1,720) | | | (1,557) | | | (1,239) | | | (570) | | | (46) | |
Net loans and leases | Net loans and leases | 78,822 | | | 78,642 | | | 74,457 | | | 74,316 | | | 74,297 | | | 4,525 | | | 6 | | Net loans and leases | 78,452 | | | 79,312 | | | 78,822 | | | 78,642 | | | 74,457 | | | 3,995 | | | 5 | |
Total earning assets | Total earning assets | 110,665 | | | 109,038 | | | 101,783 | | | 100,062 | | | 99,692 | | | 10,973 | | | 11 | | Total earning assets | 114,105 | | | 112,222 | | | 110,665 | | | 109,038 | | | 101,783 | | | 12,322 | | | 12 | |
Cash and due from banks | Cash and due from banks | 1,173 | | | 1,299 | | | 914 | | | 864 | | | 817 | | | 356 | | | 44 | | Cash and due from banks | 1,080 | | | 1,113 | | | 1,173 | | | 1,299 | | | 914 | | | 166 | | | 18 | |
Intangible assets | Intangible assets | 2,195 | | | 2,206 | | | 2,217 | | | 2,228 | | | 2,240 | | | (45) | | | (2) | | Intangible assets | 2,176 | | | 2,185 | | | 2,195 | | | 2,206 | | | 2,217 | | | (41) | | | (2) | |
All other assets | All other assets | 7,216 | | | 7,205 | | | 6,472 | | | 6,346 | | | 6,216 | | | 1,000 | | | 16 | | All other assets | 7,443 | | | 7,279 | | | 7,216 | | | 7,205 | | | 6,472 | | | 971 | | | 15 | |
Total assets | Total assets | $ | 119,529 | | | $ | 118,191 | | | $ | 110,147 | | | $ | 108,713 | | | $ | 108,166 | | | $ | 11,363 | | | 11 | % | Total assets | $ | 122,995 | | | $ | 120,995 | | | $ | 119,529 | | | $ | 118,191 | | | $ | 110,147 | | | $ | 12,848 | | | 12 | % |
Liabilities and Shareholders’ Equity: | Liabilities and Shareholders’ Equity: | | | | | | | | | | | | | | Liabilities and Shareholders’ Equity: | | | | | | | | | | | | | |
Interest-bearing deposits: | Interest-bearing deposits: | | Interest-bearing deposits: | |
Demand deposits—interest-bearing | Demand deposits—interest-bearing | $ | 23,865 | | | $ | 23,878 | | | 21,202 | | | $ | 20,140 | | | $ | 19,796 | | | $ | 4,069 | | | 21 | % | Demand deposits—interest-bearing | $ | 26,812 | | | $ | 25,094 | | | 23,865 | | | $ | 23,878 | | | $ | 21,202 | | | $ | 5,610 | | | 26 | % |
Money market deposits | Money market deposits | 26,200 | | | 25,728 | | | 24,697 | | | 24,560 | | | 24,266 | | | 1,934 | | | 8 | | Money market deposits | 26,247 | | | 26,144 | | | 26,200 | | | 25,728 | | | 24,697 | | | 1,550 | | | 6 | |
Savings and other domestic deposits | Savings and other domestic deposits | 11,157 | | | 10,609 | | | 9,632 | | | 9,552 | | | 9,681 | | | 1,476 | | | 15 | | Savings and other domestic deposits | 12,277 | | | 11,468 | | | 11,157 | | | 10,609 | | | 9,632 | | | 2,645 | | | 27 | |
Core certificates of deposit (4) | Core certificates of deposit (4) | 2,035 | | | 3,003 | | | 3,943 | | | 4,795 | | | 5,666 | | | (3,631) | | | (64) | | Core certificates of deposit (4) | 1,384 | | | 1,479 | | | 2,035 | | | 3,003 | | | 3,943 | | | (2,559) | | | (65) | |
Other domestic time deposits of $250,000 or more | Other domestic time deposits of $250,000 or more | 175 | | | 230 | | | 321 | | | 313 | | | 315 | | | (140) | | | (44) | | Other domestic time deposits of $250,000 or more | 115 | | | 139 | | | 175 | | | 230 | | | 321 | | | (206) | | | (64) | |
Brokered deposits and negotiable CDs | Brokered deposits and negotiable CDs | 4,182 | | | 4,114 | | | 2,884 | | | 2,589 | | | 2,599 | | | 1,583 | | | 61 | | Brokered deposits and negotiable CDs | 3,355 | | | 4,100 | | | 4,182 | | | 4,114 | | | 2,884 | | | 471 | | | 16 | |
| Total interest-bearing deposits | Total interest-bearing deposits | 67,614 | | | 67,562 | | | 62,679 | | | 61,949 | | | 62,323 | | | 5,291 | | | 8 | | Total interest-bearing deposits | 70,190 | | | 68,424 | | | 67,614 | | | 67,562 | | | 62,679 | | | 7,511 | | | 12 | |
Short-term borrowings | Short-term borrowings | 162 | | | 826 | | | 3,383 | | | 1,965 | | | 2,331 | | | (2,169) | | | (93) | | Short-term borrowings | 208 | | | 239 | | | 162 | | | 826 | | | 3,383 | | | (3,175) | | | (94) | |
Long-term debt | Long-term debt | 9,318 | | | 9,802 | | | 10,076 | | | 9,886 | | | 9,536 | | | (218) | | | (2) | | Long-term debt | 7,766 | | | 8,799 | | | 9,318 | | | 9,802 | | | 10,076 | | | (2,310) | | | (23) | |
Total interest-bearing liabilities | Total interest-bearing liabilities | 77,094 | | | 78,190 | | | 76,138 | | | 73,800 | | | 74,190 | | | 2,904 | | | 4 | | Total interest-bearing liabilities | 78,164 | | | 77,462 | | | 77,094 | | | 78,190 | | | 76,138 | | | 2,026 | | | 3 | |
Demand deposits—noninterest-bearing | Demand deposits—noninterest-bearing | 27,435 | | | 25,660 | | | 20,054 | | | 20,643 | | | 19,926 | | | 7,509 | | | 38 | | Demand deposits—noninterest-bearing | 29,095 | | | 28,140 | | | 27,435 | | | 25,660 | | | 20,054 | | | 9,041 | | | 45 | |
All other liabilities | All other liabilities | 2,322 | | | 2,396 | | | 2,319 | | | 2,386 | | | 2,336 | | | (14) | | | (1) | | All other liabilities | 2,412 | | | 2,452 | | | 2,322 | | | 2,396 | | | 2,319 | | | 93 | | | 4 | |
Shareholders’ equity | Shareholders’ equity | 12,678 | | | 11,945 | | | 11,636 | | | 11,884 | | | 11,714 | | | 964 | | | 8 | | Shareholders’ equity | 13,324 | | | 12,941 | | | 12,678 | | | 11,945 | | | 11,636 | | | 1,688 | | | 15 | |
Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | $ | 119,529 | | | $ | 118,191 | | | $ | 110,147 | | | $ | 108,713 | | | $ | 108,166 | | | $ | 11,363 | | | 11 | % | Total liabilities and shareholders’ equity | $ | 122,995 | | | $ | 120,995 | | | $ | 119,529 | | | $ | 118,191 | | | $ | 110,147 | | | $ | 12,848 | | | 12 | % |
(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.
10 Huntington Bancshares Incorporated
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Table 3 - Consolidated Average Balance Sheet and Net Interest Margin Analysis (Continued) |
| | | | | | | | | |
| Average Yield Rates (2) |
| Three Months Ended |
| September 30, | | June 30, | | March 31, | | December 31, | | September 30, |
Fully-taxable equivalent basis (1) | 2020 | | 2020 | | 2020 | | 2019 | | 2019 |
Assets: | | | | | | | | | |
Interest-bearing deposits in Federal Reserve Bank | 0.10 | % | | 0.10 | % | | 1.08 | % | | 1.66 | % | | 2.19 | % |
Interest-bearing deposits in banks | 0.13 | | | 0.33 | | | 1.52 | | | 1.81 | | | 2.38 | |
Securities: | | | | | | | | | |
Trading account securities | 3.18 | | | 1.99 | | | 3.21 | | | 2.45 | | | 2.36 | |
Available-for-sale securities: | | | | | | | | | |
Taxable | 1.89 | | | 2.30 | | | 2.62 | | | 2.63 | | | 2.67 | |
Tax-exempt | 2.71 | | | 2.75 | | | 3.30 | | | 3.43 | | | 3.63 | |
Total available-for-sale securities | 2.06 | | | 2.39 | | | 2.75 | | | 2.79 | | | 2.87 | |
Held-to-maturity securities—taxable | 2.28 | | | 2.39 | | | 2.50 | | | 2.50 | | | 2.51 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Other securities | 1.23 | | | 0.57 | | | 2.07 | | | 2.57 | | | 3.15 | |
Total securities | 2.13 | | | 2.35 | | | 2.64 | | | 2.68 | | | 2.74 | |
Loans held for sale | 2.82 | | | 3.22 | | | 3.39 | | | 3.40 | | | 3.69 | |
Loans and leases: (3) | | | | | | | | | |
Commercial: | | | | | | | | | |
Commercial and industrial | 3.67 | | | 3.62 | | | 4.12 | | | 4.31 | | | 4.57 | |
Commercial real estate: | | | | | | | | | |
Construction | 3.40 | | | 3.66 | | | 4.75 | | | 5.07 | | | 5.50 | |
Commercial | 2.63 | | | 2.94 | | | 4.00 | | | 4.36 | | | 4.67 | |
Commercial real estate | 2.75 | | | 3.06 | | | 4.13 | | | 4.48 | | | 4.81 | |
Total commercial | 3.52 | | | 3.53 | | | 4.12 | | | 4.34 | | | 4.61 | |
Consumer: | | | | | | | | | |
Automobile | 3.93 | | | 3.84 | | | 4.05 | | | 4.15 | | | 4.09 | |
Home equity | 3.79 | | | 3.73 | | | 4.75 | | | 5.03 | | | 5.38 | |
Residential mortgage | 3.41 | | | 3.51 | | | 3.70 | | | 3.73 | | | 3.80 | |
RV and marine | 4.60 | | | 4.71 | | | 4.91 | | | 4.96 | | | 4.96 | |
Other consumer | 11.23 | | | 11.10 | | | 12.39 | | | 12.71 | | | 13.34 | |
Total consumer | 4.00 | | | 4.00 | | | 4.45 | | | 4.59 | | | 4.72 | |
Total loans and leases | 3.75 | | | 3.75 | | | 4.29 | | | 4.47 | | | 4.67 | |
Total earning assets | 3.22 | | | 3.35 | | | 3.88 | | | 4.03 | | | 4.21 | |
Liabilities: | | | | | | | | | |
Interest-bearing deposits: | | | | | | | | | |
Demand deposits—interest-bearing | 0.05 | | | 0.07 | | | 0.43 | | | 0.63 | | | 0.57 | |
Money market deposits | 0.28 | | | 0.40 | | | 0.81 | | | 0.99 | | | 1.20 | |
Savings and other domestic deposits | 0.06 | | | 0.10 | | | 0.17 | | | 0.20 | | | 0.22 | |
Core certificates of deposit (4) | 1.03 | | | 1.55 | | | 1.91 | | | 2.09 | | | 2.17 | |
Other domestic time deposits of $250,000 or more | 0.92 | | | 1.25 | | | 1.56 | | | 1.70 | | | 1.85 | |
Brokered deposits and negotiable CDs | 0.19 | | | 0.18 | | | 1.22 | | | 1.67 | | | 2.21 | |
| | | | | | | | | |
Total interest-bearing deposits | 0.18 | | | 0.28 | | | 0.68 | | | 0.87 | | | 0.98 | |
Short-term borrowings | 0.30 | | | 0.47 | | | 1.46 | | | 1.66 | | | 2.28 | |
Long-term debt | 1.87 | | | 2.58 | | | 2.70 | | | 3.50 | | | 3.59 | |
Total interest-bearing liabilities | 0.39 | | | 0.57 | | | 0.98 | | | 1.24 | | | 1.36 | |
| | | | | | | | | |
| | | | | | | | | |
Net interest rate spread | 2.83 | | | 2.78 | | | 2.90 | | | 2.79 | | | 2.85 | |
Impact of noninterest-bearing funds on margin | 0.13 | | | 0.16 | | | 0.24 | | | 0.33 | | | 0.35 | |
Net interest margin | 2.96 | % | | 2.94 | % | | 3.14 | % | | 3.12 | % | | 3.20 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Table 3 - Consolidated Average Balance Sheet and Net Interest Margin Analysis (Continued) |
| | | | | | | | | |
| Average Yield Rates (2) |
| Three Months Ended |
| March 31, | | December 31, | | September 30, | | June 30, | | March 31, |
Fully-taxable equivalent basis (1) | 2021 | | 2020 | | 2020 | | 2020 | | 2020 |
Assets: | | | | | | | | | |
Interest-bearing deposits in Federal Reserve Bank | 0.10 | % | | 0.10 | % | | 0.10 | % | | 0.10 | % | | 1.08 | % |
Interest-bearing deposits in banks | 0.08 | | | 0.12 | | | 0.13 | | | 0.33 | | | 1.52 | |
Securities: | | | | | | | | | |
Trading account securities | 3.64 | | | 3.65 | | | 3.18 | | | 1.99 | | | 3.21 | |
Available-for-sale securities: | | | | | | | | | |
Taxable | 1.32 | | | 1.53 | | | 1.89 | | | 2.30 | | | 2.62 | |
Tax-exempt | 2.52 | | | 2.59 | | | 2.71 | | | 2.75 | | | 3.30 | |
Total available-for-sale securities | 1.50 | | | 1.72 | | | 2.06 | | | 2.39 | | | 2.75 | |
Held-to-maturity securities—taxable | 2.02 | | | 2.11 | | | 2.28 | | | 2.39 | | | 2.50 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Other securities | 1.66 | | | 1.85 | | | 1.23 | | | 0.57 | | | 2.07 | |
Total securities | 1.67 | | | 1.87 | | | 2.13 | | | 2.35 | | | 2.64 | |
Loans held for sale | 2.64 | | | 2.96 | | | 2.82 | | | 3.22 | | | 3.39 | |
Loans and leases: (3) | | | | | | | | | |
Commercial: | | | | | | | | | |
Commercial and industrial | 3.99 | | | 3.64 | | | 3.67 | | | 3.62 | | | 4.12 | |
Commercial real estate: | | | | | | | | | |
Construction | 3.41 | | | 3.36 | | | 3.40 | | | 3.66 | | | 4.75 | |
Commercial | 2.64 | | | 2.62 | | | 2.63 | | | 2.94 | | | 4.00 | |
Commercial real estate | 2.75 | | | 2.73 | | | 2.75 | | | 3.06 | | | 4.13 | |
Total commercial | 3.78 | | | 3.48 | | | 3.52 | | | 3.53 | | | 4.12 | |
Consumer: | | | | | | | | | |
Automobile | 3.71 | | | 3.88 | | | 3.93 | | | 3.84 | | | 4.05 | |
Home equity | 3.71 | | | 3.76 | | | 3.79 | | | 3.73 | | | 4.75 | |
Residential mortgage | 3.13 | | | 3.27 | | | 3.41 | | | 3.51 | | | 3.70 | |
RV and marine | 4.30 | | | 4.53 | | | 4.60 | | | 4.71 | | | 4.91 | |
Other consumer | 11.17 | | | 11.12 | | | 11.23 | | | 11.10 | | | 12.39 | |
Total consumer | 3.78 | | | 3.93 | | | 4.00 | | | 4.00 | | | 4.45 | |
Total loans and leases | 3.78 | | | 3.70 | | | 3.75 | | | 3.75 | | | 4.29 | |
Total earning assets | 3.11 | | | 3.13 | | | 3.22 | | | 3.35 | | | 3.88 | |
Liabilities: | | | | | | | | | |
Interest-bearing deposits: | | | | | | | | | |
Demand deposits—interest-bearing | 0.04 | | | 0.04 | | | 0.05 | | | 0.07 | | | 0.43 | |
Money market deposits | 0.06 | | | 0.10 | | | 0.28 | | | 0.40 | | | 0.81 | |
Savings and other domestic deposits | 0.04 | | | 0.05 | | | 0.06 | | | 0.10 | | | 0.17 | |
Core certificates of deposit (4) | 0.51 | | | 0.56 | | | 1.03 | | | 1.55 | | | 1.91 | |
Other domestic time deposits of $250,000 or more | 0.22 | | | 0.51 | | | 0.92 | | | 1.25 | | | 1.56 | |
Brokered deposits and negotiable CDs | 0.18 | | | 0.19 | | | 0.19 | | | 0.18 | | | 1.22 | |
| | | | | | | | | |
Total interest-bearing deposits | 0.06 | | | 0.08 | | | 0.18 | | | 0.28 | | | 0.68 | |
Short-term borrowings | 0.19 | | | 0.26 | | | 0.30 | | | 0.47 | | | 1.46 | |
Long-term debt (5) | (5.88) | | | 1.72 | | | 1.87 | | | 2.58 | | | 2.70 | |
Total interest-bearing liabilities | (0.53) | | | 0.27 | | | 0.39 | | | 0.57 | | | 0.98 | |
| | | | | | | | | |
| | | | | | | | | |
Net interest rate spread | 3.64 | | | 2.86 | | | 2.83 | | | 2.78 | | | 2.90 | |
Impact of noninterest-bearing funds on margin | (0.16) | | | 0.08 | | | 0.13 | | | 0.16 | | | 0.24 | |
Net interest margin | 3.48 | % | | 2.94 | % | | 2.96 | % | | 2.94 | % | | 3.14 | % |
(1)FTE yields are calculated assuming a 21% tax rate.
(2) Average yield rates include the impact of applicable derivatives. Loan and lease and deposit average yield rates also include impact of applicable non-deferrable and amortized fees.
(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) Reflects the net mark-to-market impact of interest rate caps of $144 million or 741 bps and $5 million or 23 bps for 1Q 2021 and 4Q 2020, respectively.
2020 3Q2021 1Q Form 10-Q 11
2020 Third2021 First Quarter versus 2019 Third2020 First Quarter
FTE net interest income for the 2020 third2021 first quarter increased $17$182 million, or 2%23%, from the 2019 third2020 first quarter. This increase reflected a $11.0$12.3 billion, or 11%12%, increase in average earning assets, partially offset byand a 2434 basis point decreaseincrease in the FTE net interest margin to 2.96%3.48%. The NIM compression reflected a 99 basis point year-over-year decrease in average earning asset yields and a 22 basis point decreaseNet interest income in the benefit2021 first quarter included a $144 million net mark-to-market of interest rate caps, which favorably impacted the NIM by approximately 51 basis points (and long-term debt costs by approximately 741 basis points), and $45 million of deferred PPP loan fees recognized upon receipt of forgiveness payments from noninterest-bearing funds, partially offsetthe SBA, which favorably impacted the NIM by a 97approximately 16 basis point decrease in average interest-bearing liability costs.points. The year-over-year decrease in earning asset yields was primarily driven byand average liability costs also reflected the impact of lower interest rates on commercial loan, home equity loan, and securities yields andchanges in balance sheet mix, including elevated deposits at the Federal Reserve Bank. The decrease in average interest-bearing liability costs primarily reflected lower interest-bearing deposit costs (down 80 basis points) and lower long-term debt costs (down 172 basis points), both due to lower interest rates.
Average earning assets for the 2020 third2021 first quarter increased $11.0$12.3 billion, or 11%12%, from the year-ago quarter, primarily reflecting a $5.4 billion, or 7%792%, increase in interest-bearing deposits at the Federal Reserve Bank, a $4.6 billion, or 6%, increase in average total loans and leases, and a $5.3$1.8 billion, or 1039%7%, increase in interest-bearing deposits at the Federal Reserve Bank.average securities. Average C&I loans increased $4.0$3.5 billion, or 13%11%, primarily reflecting the $6.1$5.8 billion of average PPP loans.loans partially offset by lower C&I and dealer floorplan utilization rates. Average automobileresidential mortgage loans increased $0.7 billion, or 6%, driven by strong production over the past year. Average residential mortgage loans increased $0.6 billion, or 5%, reflecting continued robust portfolio mortgage production over the past year. Partially offsetting these increases, average home equityproduction. Average RV and marine loans and lines of credit decreased $0.5increased $0.6 billion, or 5%17%, reflecting a shift instrong consumer preferences.demand and continued strong production levels.
Average total interest-bearing liabilities for the 2020 third2021 first quarter increased $2.9$2.0 billion, or 4%3%, from the year-ago quarter. Average total deposits increased $12.8$16.6 billion, or 16%20%, while average total core deposits increased $11.4$16.3 billion, or 14%20%. The increase in average total core deposits was primarily driven by increased liquidity levels in reaction to the economic downturn, 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 demand deposits increased $11.6$14.7 billion, or 29%36%, average money market deposits increased $1.9 billion, or 8%, and average savings and other domestic deposits increased $1.5$2.6 billion, or 15%27%, and average money market deposits increased $1.6 billion, or 6%. Partially offsetting these increases, average core CDs decreased $3.6$2.6 billion, or 64%, reflecting the maturity of balances related to the 2018 consumer deposit growth initiatives. Average brokered deposits and negotiable CDs increased $1.6 billion, or 61%, reflecting balance growth in new and existing brokered deposit accounts. Average total debt decreased $2.4 billion, or 20%, reflecting the repayment of short-term borrowings due to the strong core deposit growth.
2020 Third Quarter versus 2020 Second Quarter
Compared to the 2020 second quarter, FTE net interest income increased $25 million, or 3%, reflecting a 1% increase in average earning assets and 2 basis points of NIM expansion. The NIM expansion reflected an 18 basis point decrease in average interest-bearing liability costs, partially offset by a 13 basis point decrease in average earning asset yields and a 3 basis point decrease in the benefit from noninterest-bearing funds. The decrease in average interest-bearing liability costs primarily reflects lower interest-bearing deposit costs (down 10 basis points) and lower long-term borrowings costs (down 71 basis points), both due to the impact of lower interest rates. The decrease in earning asset yields was primarily driven by the impact of lower interest rates on securities yields as well as elevated deposits at the Federal Reserve Bank.
Average earning assets increased $1.6 billion, or 1%, primarily reflecting a $2.4 billion, or 72%, increase in interest-bearing deposits at the Federal Reserve Bank when compared to the 2020 second quarter. Total loans and leases increased $343 million, primarily reflecting increases in the consumer portfolios, partially offset by decreases in average commercial loans primarily reflecting lower commercial utilization rates, mainly within dealer floorplan. Partially offsetting this increase, average securities decreased $1.4 billion, or 6%, reflecting accelerated cash flows within the existing portfolio.
12 Huntington Bancshares Incorporated
Average total interest-bearing liabilities decreased $1.1 billion, or 1% when compared to the 2020 second quarter. Both average total deposits and average total core deposits increased $1.8 billion, or 2%. The increase in average total core deposits was primarily driven by increased consumer and business banking account production, low attrition, increased liquidity levels among our business banking customers, and the seasonal increase in public funds. Specifically within core deposits, average total demand deposits increased $1.8 billion, or 4%, average money market deposits increased $0.5 billion, or 2%, and average savings and other domestic deposits increased $0.5 billion, or 5%.Partially offsetting these increases, average core CDs decreased $1.0 billion, or 32%65%, reflecting the maturity of balances related to the 2018 consumer deposit growth initiatives. Average total debt decreased$1.1 $5.5 billion, or 11%41%, due toreflecting the repayment of short-term borrowings, as a resultthe maturity and issuance of $3.2 billion and $1.3 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 inflowsgrowth.
2021 First Quarter versus 2020 Fourth Quarter
Compared to the 2020 fourth quarter, FTE net interest income increased $148 million, or 18%, reflecting a $1.9 billion, or 2% increase in average earning assets and a $50054 basis points of NIM expansion. Both the net interest income increase and the NIM expansion primarily reflected the net impacts of the mark-to-market of interest rate caps and the deferred PPP loan fees recognized upon receipt of forgiveness payments from the SBA. The mark-to-market of interest rate caps was $144 million long-term debt maturityin the 2021 first quarter compared to $5 million in the 2020 thirdfourth quarter. The accelerated recognition of deferred PPP loan fees were $45 million in the 2021 first quarter compared to $5 million in the 2020 fourth quarter.
Average earning assets increased $1.9 billion, or 2%, primarily reflecting a $2.1 billion, or 9%, increase in average securities, partially offset by a $0.9 billion, or 1%, decrease in average loans and leases. The increase in average securities reflected the purchase of securities to deploy excess liquidity. Average C&I loans decreased $0.5 billion, or 1%, primarily reflecting the $0.4 billion decrease in average PPP loans.
Average total interest-bearing liabilities increased $0.7 billion, or 1%, when compared to the 2020 fourth quarter. Average total deposits increased $2.7 billion, or 3%, and average total core deposits increased $3.5 billion, or 4%. The increase in average total core deposits was primarily driven by consumer growth largely related to government stimulus, increased liquidity levels among our commercial customers, seasonality in government banking, and improved consumer and business banking account retention. Specifically, within core deposits, average total demand deposits increased $2.7 billion, or 5%. Average total debt decreased $1.1 billion, or 12%, primarily reflecting the maturity of $1.1 billion of long-term debt, the purchase of $0.5 billion of long-term debt under the tender offer completed in November 2020, and the repayment of short-term borrowings, all due to the strong core deposit growth.
2020 3Q Form 10-Q 1213
Huntington Bancshares Incorporated
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Table 4 - Consolidated YTD Average Balance Sheets and Net Interest Margin Analysis |
(dollar amounts in millions) | | | | | | | | | | | |
| YTD Average Balances | | YTD Average Rates (2) |
| Nine Months Ended September 30, | | Change | | Nine Months Ended September 30, |
Fully-taxable equivalent basis (1) | 2020 | | 2019 | | Amount | | Percent | | 2020 | | 2019 |
Assets: | | | | | | | | | | | |
Interest-bearing deposits in Federal Reserve Bank | $ | 3,326 | | | $ | 511 | | | $ | 2,815 | | | 551 | % | | 0.17 | % | | 2.32 | % |
Interest-bearing deposits in banks | 166 | | | 131 | | | 35 | | | 27 | | | 0.62 | | | 2.10 | |
Securities: | | | | | | | | | | | |
Trading account securities | 61 | | | 146 | | | (85) | | | (58) | | | 2.94 | | | 2.10 | |
Available-for-sale securities: | | | | | | | | | | | |
Taxable | 11,171 | | | 10,784 | | | 387 | | | 4 | | | 2.28 | | | 2.74 | |
Tax-exempt | 2,743 | | | 2,945 | | | (202) | | | (7) | | | 2.92 | | | 3.66 | |
Total available-for-sale securities | 13,914 | | | 13,729 | | | 185 | | | 1 | | | 2.41 | | | 2.94 | |
Held-to-maturity securities—taxable | 9,384 | | | 8,663 | | | 721 | | | 8 | | | 2.39 | | | 2.52 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Other securities | 450 | | | 479 | | | (29) | | | (6) | | | 1.28 | | | 3.75 | |
Total securities | 23,809 | | | 23,017 | | | 792 | | | 3 | | | 2.38 | | | 2.79 | |
Loans held for sale | 1,055 | | | 771 | | | 284 | | | 37 | | | 3.11 | | | 3.90 | |
Loans and leases: (3) | | | | | | | | | | | |
Commercial: | | | | | | | | | | | |
Commercial and industrial | 33,604 | | | 30,608 | | | 2,996 | | | 10 | | | 3.79 | | | 4.77 | |
Commercial real estate: | | | | | | | | | | | |
Construction | 1,180 | | | 1,169 | | | 11 | | | 1 | | | 3.93 | | | 5.56 | |
Commercial | 5,833 | | | 5,727 | | | 106 | | | 2 | | | 3.17 | | | 4.85 | |
Commercial real estate | 7,013 | | | 6,896 | | | 117 | | | 2 | | | 3.29 | | | 4.97 | |
Total commercial | 40,617 | | | 37,504 | | | 3,113 | | | 8 | | | 3.71 | | | 4.80 | |
Consumer: | | | | | | | | | | | |
Automobile | 12,832 | | | 12,253 | | | 579 | | | 5 | | | 3.94 | | | 4.02 | |
Home equity | 8,933 | | | 9,491 | | | (558) | | | (6) | | | 4.09 | | | 5.51 | |
Residential mortgage | 11,558 | | | 11,005 | | | 553 | | | 5 | | | 3.54 | | | 3.83 | |
RV and marine | 3,773 | | | 3,413 | | | 360 | | | 11 | | | 4.73 | | | 4.95 | |
Other consumer | 1,105 | | | 1,270 | | | (165) | | | (13) | | | 11.60 | | | 13.29 | |
Total consumer | 38,201 | | | 37,432 | | | 769 | | | 2 | | | 4.15 | | | 4.74 | |
Total loans and leases | 78,818 | | | 74,936 | | | 3,882 | | | 5 | | | 3.92 | | | 4.77 | |
Allowance for loan and lease losses | (1,506) | | | (786) | | | (720) | | | (92) | | | | | |
Net loans and leases | 77,312 | | | 74,150 | | | 3,162 | | | 4 | | | | | |
Total earning assets | 107,174 | | | 99,366 | | | 7,808 | | | 8 | | | 3.47 | % | | 4.32 | % |
Cash and due from banks | 1,128 | | | 835 | | | 293 | | | 35 | | | | | |
Intangible assets | 2,206 | | | 2,252 | | | (46) | | | (2) | | | | | |
All other assets | 6,966 | | | 6,054 | | | 912 | | | 15 | | | | | |
Total assets | $ | 115,968 | | | $ | 107,721 | | | $ | 8,247 | | | 8 | % | | | | |
Liabilities and Shareholders’ Equity: | | | | | | | | | | | |
Interest-bearing deposits: | | | | | | | | | | | |
Demand deposits—interest-bearing | $ | 22,985 | | | $ | 19,763 | | | $ | 3,222 | | | 16 | % | | 0.17 | % | | 0.57 | % |
Money market deposits | 25,544 | | | 23,507 | | | 2,037 | | | 9 | | | 0.49 | | | 1.13 | |
Savings and other domestic deposits | 10,468 | | | 10,039 | | | 429 | | | 4 | | | 0.11 | | | 0.23 | |
Core certificates of deposit (4) | 2,990 | | | 5,858 | | | (2,868) | | | (49) | | | 1.59 | | | 2.14 | |
Other domestic time deposits of $250,000 or more | 242 | | | 320 | | | (78) | | | (24) | | | 1.31 | | | 1.86 | |
Brokered deposits and negotiable CDs | 3,728 | | | 2,893 | | | 835 | | | 29 | | | 0.45 | | | 2.33 | |
| | | | | | | | | | | |
Total interest-bearing deposits | 65,957 | | | 62,380 | | | 3,577 | | | 6 | | | 0.37 | | | 0.96 | |
Short-term borrowings | 1,452 | | | 2,605 | | | (1,153) | | | (44) | | | 1.23 | | | 2.37 | |
Long-term debt | 9,730 | | | 9,145 | | | 585 | | | 6 | | | 2.39 | | | 3.82 | |
Total interest-bearing liabilities | 77,139 | | | 74,130 | | | 3,009 | | | 4 | | | 0.64 | | | 1.36 | |
Demand deposits—noninterest-bearing | $ | 24,394 | | | $ | 19,864 | | | 4,530 | | | 23 | | | — | | | — | |
All other liabilities | 2,347 | | | 2,277 | | | 70 | | | 3 | | | | | |
Shareholders’ equity | 12,088 | | | 11,450 | | | 638 | | | 6 | | | | | |
Total liabilities and shareholders’ equity | $ | 115,968 | | | $ | 107,721 | | | $ | 8,247 | | | 8 | % | | | | |
Net interest rate spread | | | | | | | | | 2.83 | | | 2.96 | |
Impact of noninterest-bearing funds on margin | | | | | | | | | 0.18 | | | 0.34 | |
Net interest margin | | | | | | | | | 3.01 | % | | 3.30 | % |
(1)FTE yields are calculated assuming a 21% tax rate.
(2)Average yield rates include the impact of applicable derivatives. Loan and lease and deposit average yield rates also include impact of applicable non-deferrable and amortized fees.
(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.
14 Huntington Bancshares Incorporated
2020 First Nine Months versus 2019 First Nine Months
FTE net interest income for the first nine-month period of 2020 decreased $38 million, or 2%. This decrease reflected a 29 basis point decrease in the FTE NIM to 3.01% partially offset by the benefit of a $7.8 billion, or 8%, increase in average total earning assets. Average loans and leases increased $3.9 billion, or 5%, primarily reflecting $3.4 billion average PPP loans and an increase in average automobile loans and RV and marine loans. Average earning asset yields decreased 85 basis points due to lower interest rates on loans (down 85 basis points), a decline in securities yields and elevated deposits at the Federal Reserve Bank. Average funding costs decreased 72 basis points, primarily driven by lower cost of interest-bearing deposits (down 59 basis points) and long-term debt (down 143 basis points). The benefit from noninterest-bearing funding declined 16 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 for the 2020 third2021 first quarter was $177$(60) million, an increasea decrease of $95$501 million, or 116%114%, compared to the 2019 third2020 first quarter. On a year-to-date basis,The reduction in provision for credit losses forexpense over the first nine-month period of 2020prior year was $945 million, an increase of $737 million, or 354%, compared to the year-ago period. The increase from 2019 isprimarily attributed to the deteriorationimprovement in the forecasted macroeconomic environment resulting from the COVID-19 pandemicanticipated lower unemployment and risk rating downgrades within the commercial portfolio.higher GDP.
Noninterest Income
The following table reflects noninterest income for each of the periods presented:
| Table 5 - Noninterest Income | |
Table 4 - Noninterest Income | | Table 4 - Noninterest Income |
| | Three Months Ended | | 3Q20 vs. 3Q19 | | 3Q20 vs. 2Q20 | | Three Months Ended | | 1Q21 vs. 1Q20 | | 1Q21 vs. 4Q20 |
| | September 30, | | June 30, | | | September 30, | | Change | | Change | | March 31, | | December 31, | | | March 31, | | Change | | Change |
(dollar amounts in millions) | (dollar amounts in millions) | 2020 | | 2020 | | | 2019 | | Amount | | Percent | | Amount | | Percent | (dollar amounts in millions) | 2021 | | 2020 | | | 2020 | | Amount | | Percent | | Amount | | Percent |
Mortgage banking income | | Mortgage banking income | $ | 100 | | | $ | 90 | | | | $ | 58 | | | $ | 42 | | | 72 | % | | $ | 10 | | | 11 | % |
Service charges on deposit accounts | Service charges on deposit accounts | $ | 76 | | | $ | 60 | | | | $ | 98 | | | $ | (22) | | | (22) | % | | $ | 16 | | | 27 | % | Service charges on deposit accounts | 69 | | | 78 | | | | 87 | | | (18) | | | (21) | | | (9) | | | (12) | |
Card and payment processing income | Card and payment processing income | 66 | | | 59 | | | | 64 | | | 2 | | | 3 | | | 7 | | | 12 | | Card and payment processing income | 65 | | | 65 | | | | 58 | | | 7 | | | 12 | | | — | | | — | |
Trust and investment management services | Trust and investment management services | 48 | | | 45 | | | | 44 | | | 4 | | | 9 | | | 3 | | | 7 | | Trust and investment management services | 52 | | | 49 | | | | 47 | | | 5 | | | 11 | | | 3 | | | 6 | |
Mortgage banking income | 122 | | | 96 | | | | 54 | | | 68 | | | 126 | | | 26 | | | 27 | | |
Capital markets fees | Capital markets fees | 27 | | | 31 | | | | 36 | | | (9) | | | (25) | | | (4) | | | (13) | | Capital markets fees | 29 | | | 34 | | | | 33 | | | (4) | | | (12) | | | (5) | | | (15) | |
Insurance income | Insurance income | 24 | | | 25 | | | | 20 | | | 4 | | | 20 | | | (1) | | | (4) | | Insurance income | 27 | | | 25 | | | | 23 | | | 4 | | | 17 | | | 2 | | | 8 | |
Bank owned life insurance income | Bank owned life insurance income | 17 | | | 17 | | | | 18 | | | (1) | | | (6) | | | — | | | — | | Bank owned life insurance income | 16 | | | 14 | | | | 16 | | | — | | | — | | | 2 | | | 14 | |
Gain on sale of loans and leases | 13 | | | 8 | | | | 13 | | | — | | | — | | | 5 | | | 63 | | |
Gain on sale of loans | | Gain on sale of loans | 3 | | | 13 | | | | 8 | | | (5) | | | (63) | | | (10) | | | (77) | |
Net (losses) gains on sales of securities | Net (losses) gains on sales of securities | — | | | (1) | | | | — | | | — | | | — | | | 1 | | | 100 | | Net (losses) gains on sales of securities | — | | | — | | | | — | | | — | | | — | | | — | | | — | |
Other noninterest income | Other noninterest income | 37 | | | 51 | | | | 42 | | | (5) | | | (12) | | | (14) | | | (27) | | Other noninterest income | 34 | | | 41 | | | | 31 | | | 3 | | | 10 | | | (7) | | | (17) | |
Total noninterest income | Total noninterest income | $ | 430 | | | $ | 391 | | | | $ | 389 | | | $ | 41 | | | 11 | % | | $ | 39 | | | 10 | % | Total noninterest income | $ | 395 | | | $ | 409 | | | | $ | 361 | | | $ | 34 | | | 9 | % | | $ | (14) | | | (3) | % |
2020 Third2021 First Quarter versus 2019 Third2020 First Quarter
Total noninterest income for the 2020 third2021 first quarter increased $41$34 million, or 11%9%, from the year-ago quarter. Mortgage banking income increased $68$42 million, or 126%72%, primarily reflecting an 89% increase in salable mortgage originations and higher secondary marketing spreads and a 73% increase in salableoffset by lower net mortgage originations. Partially offsetting this increase, service charges on deposit accounts decreased $22 million, or 22%, primarily reflecting reduced customer activity and elevated deposits. Capital markets fees decreased $9 million, or 25%, primarily reflecting reduced customer derivatives activity.
2020 Third Quarter versus 2020 Second Quarter
Compared to the 2020 second quarter, total noninterest income increased $39 million, or 10%. Mortgage banking income increased $26 million, or 27%, primarily reflecting higher secondary marketing spreads and a 6% increase in salable mortgage originations. Service charges on deposit accounts increased $16 million, or 27%, primarily reflecting a rebound in customer activity and pandemic-related fee waivers in the prior quarter.servicing income. Card
and payment processing income increased $7 million, or 12%, primarily reflecting increasedhigher debit card usage. Trust and ATM usage.investment management services increased $5 million, or 11%, reflecting record net asset flows, and positive equity market performance over the prior twelve months. Partially offsetting these increases, other noninterest income decreased $14 million, or 27%, primarily driven by the $13 million gain on the annuitization of a retiree health plan and $5 million gain on the sale of the retirement plan services recordkeeping business, both in the prior quarter.
| | | | | | | | | | | | | | | | | | | | | | | |
Table 6 - Noninterest Income—2020 First Nine Months Ended vs. 2019 First Nine Months Ended |
| Nine Months Ended September 30, | | Change |
(dollar amounts in millions) | 2020 | | 2019 | | Amount | | Percent |
Service charges on deposit accounts | $ | 223 | | | $ | 277 | | | $ | (54) | | | (19) | % |
Card and payment processing income | 183 | | | 183 | | | — | | | — | |
Trust and investment management services | 140 | | | 131 | | | 9 | | | 7 | |
Mortgage banking income | 277 | | | 109 | | | 168 | | | 154 | |
Capital markets fees | 91 | | | 92 | | | (1) | | | (1) | |
Insurance income | 72 | | | 64 | | | 8 | | | 13 | |
Bank owned life insurance income | 49 | | | 49 | | | — | | | — | |
Gain on sale of loans and leases | 30 | | | 39 | | | (9) | | | (23) | |
Net (losses) gains on sales of securities | (1) | | | (2) | | | 1 | | | 50 | |
Other noninterest income | 118 | | | 140 | | | (22) | | | (16) | |
Total noninterest income | $ | 1,182 | | | $ | 1,082 | | | $ | 100 | | | 9 | % |
Noninterest income for the first nine-month period of 2020 increased $100 million, or 9%, from the year-ago period. Mortgage banking income increased $168 million or 154%, primarily reflecting higher secondary marketing spreads and an increase in salable mortgage originations. Offsetting this increase, service charges on deposit accounts decreased $54$18 million, or 19%21%, primarily reflecting reduced customer activity and pandemic-related fee waivers.elevated deposits. Gain on sale of loans decreased $5 million, or 63%, primarily reflecting the lower SBA loan sales resulting from the strategic decision to retain SBA loans on the balance sheet.
2021 First Quarter versus 2020 Fourth Quarter
Compared to the 2020 fourth quarter, total noninterest income decreased $14 million, or 3%. Gain on sale of loans decreased $10 million, or 77%, primarily reflecting lower SBA loan sales resulting from the strategic decision to retain SBA loans on the balance sheet. Service charges on deposit accounts decreased $9 million, or 12%, primarily reflecting reduced customer activity and elevated deposits. Other noninterest income decreased $22$7 million, or 16%17%, primarily asreflecting a result of several notable items impacting both periods. The nine-month period of 2019 included a $14$6 million gain fromreduction in the sale of Wisconsin retail branches, a $4Visa Class B derivative fair value adjustment. Capital markets fees decreased $5 million, mark-to-market adjustment on economic hedges,or 15%, reflecting lower loan syndication fees and higher mezzanine gains and fixed income brokerage revenue.customer derivatives activity. Partially offsetting these decreases, the current year includedmortgage banking income increased $10 million, or 11%, primarily reflecting a $13$10 million gain on the annuitizationincrease in net MSR risk management activities.
Noninterest Expense
The following table reflects noninterest expense for each of the periods presented:
| Table 7 - Noninterest Expense | |
Table 5 - Noninterest Expense | | Table 5 - Noninterest Expense |
| | Three Months Ended | | 3Q20 vs. 3Q19 | | 3Q20 vs. 2Q20 | | Three Months Ended | | 1Q21 vs. 1Q20 | | 1Q21 vs. 4Q20 |
| | September 30, | | June 30, | | | September 30, | | Change | | Change | | March 31, | | December 31, | | | March 31, | | Change | | Change |
(dollar amounts in millions) | (dollar amounts in millions) | 2020 | | 2020 | | | 2019 | | Amount | | Percent | | Amount | | Percent | (dollar amounts in millions) | 2021 | | 2020 | | | 2020 | | Amount | | Percent | | Amount | | Percent |
Personnel costs | Personnel costs | $ | 453 | | | $ | 418 | | | | $ | 406 | | | $ | 47 | | | 12 | % | | $ | 35 | | | 8 | % | Personnel costs | $ | 468 | | | $ | 426 | | | | $ | 395 | | | $ | 73 | | | 18 | % | | $ | 42 | | | 10 | % |
Outside data processing and other services | Outside data processing and other services | 98 | | | 90 | | | | 87 | | | 11 | | | 13 | | | 8 | | | 9 | | Outside data processing and other services | 115 | | | 111 | | | | 85 | | | 30 | | | 35 | | | 4 | | | 4 | |
Equipment | Equipment | 44 | | | 46 | | | | 41 | | | 3 | | | 7 | | | (2) | | | (4) | | Equipment | 46 | | | 49 | | | | 41 | | | 5 | | | 12 | | | (3) | | | (6) | |
Net occupancy | Net occupancy | 40 | | | 39 | | | | 38 | | | 2 | | | 5 | | | 1 | | | 3 | | Net occupancy | 42 | | | 39 | | | | 40 | | | 2 | | | 5 | | | 3 | | | 8 | |
Professional services | Professional services | 12 | | | 11 | | | | 16 | | | (4) | | | (25) | | | 1 | | | 9 | | Professional services | 17 | | | 21 | | | | 11 | | | 6 | | | 55 | | | (4) | | | (19) | |
Amortization of intangibles | Amortization of intangibles | 10 | | | 10 | | | | 12 | | | (2) | | | (17) | | | — | | | — | | Amortization of intangibles | 10 | | | 10 | | | | 11 | | | (1) | | | (9) | | | — | | | — | |
Marketing | Marketing | 9 | | | 5 | | | | 10 | | | (1) | | | (10) | | | 4 | | | 80 | | Marketing | 14 | | | 15 | | | | 9 | | | 5 | | | 56 | | | (1) | | | (7) | |
Deposit and other insurance expense | Deposit and other insurance expense | 6 | | | 9 | | | | 8 | | | (2) | | | (25) | | | (3) | | | (33) | | Deposit and other insurance expense | 8 | | | 8 | | | | 9 | | | (1) | | | (11) | | | — | | | — | |
Other noninterest expense | Other noninterest expense | 40 | | | 47 | | | | 49 | | | (9) | | | (18) | | | (7) | | | (15) | | Other noninterest expense | 73 | | | 77 | | | | 51 | | | 22 | | | 43 | | | (4) | | | (5) | |
Total noninterest expense | Total noninterest expense | $ | 712 | | | $ | 675 | | | | $ | 667 | | | $ | 45 | | | 7 | % | | $ | 37 | | | 5 | % | Total noninterest expense | $ | 793 | | | $ | 756 | | | | $ | 652 | | | $ | 141 | | | 22 | % | | $ | 37 | | | 5 | % |
Number of employees (average full-time equivalent) | Number of employees (average full-time equivalent) | 15,680 | | | 15,703 | | | | 15,659 | | | 21 | | | — | % | | (23) | | | — | % | Number of employees (average full-time equivalent) | 15,449 | | | 15,477 | | | | 15,386 | | | 63 | | | — | % | | (28) | | | — | % |
2020 ThirdImpacts of Significant Items:
| | | | | | | | | | | | | | | | | |
| Three Months Ended |
| March 31, | | December 31, | | March 31, |
(dollar amounts in millions) | 2021 | | 2020 | | 2020 |
| | | | | |
Outside data processing and other services | 8 | | | — | | | — | |
Net occupancy | 3 | | | — | | | — | |
Equipment | 1 | | | — | | | — | |
Professional services | 8 | | | — | | | — | |
| | | | | |
Other noninterest expense | 1 | | | — | | | — | |
Total noninterest expense adjustments | $ | 21 | | | $ | — | | | $ | — | |
Adjusted Noninterest Expense (See Non-GAAP Financial Measures in the Additional Disclosures section):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | 1Q21 vs. 1Q20 | | 1Q21 vs. 4Q20 |
| March 31, | | December 31, | | March 31, | | Change | | Change |
(dollar amounts in millions) | 2021 | | 2020 | | 2020 | | Amount | | Percent | | Amount | | Percent |
Personnel costs | $ | 468 | | | $ | 426 | | | $ | 395 | | | $ | 73 | | | 18 | % | | $ | 42 | | | 10 | % |
Outside data processing and other services | 107 | | | 111 | | | 85 | | | 22 | | | 26 | | | (4) | | | (4) | |
Net occupancy | 39 | | | 39 | | | 40 | | | (1) | | | (3) | | | — | | | — | |
Equipment | 45 | | | 49 | | | 41 | | | 4 | | | 10 | | | (4) | | | (8) | |
Deposit and other insurance expense | 8 | | | 8 | | | 9 | | | (1) | | | (11) | | | — | | | — | |
Professional services | 9 | | | 21 | | | 11 | | | (2) | | | (18) | | | (12) | | | (57) | |
Marketing | 14 | | | 15 | | | 9 | | | 5 | | | 56 | | | (1) | | | (7) | |
Amortization of intangibles | 10 | | | 10 | | | 11 | | | (1) | | | (9) | | | — | | | — | |
Other noninterest expense | 72 | | | 77 | | | 51 | | | 21 | | | 41 | | | (5) | | | (6) | |
Total adjusted noninterest expense (Non-GAAP) | $ | 772 | | | $ | 756 | | | $ | 652 | | | $ | 120 | | | 18 | % | | $ | 16 | | | 2 | % |
2021 First Quarter versus 2019 Third2020 First Quarter
Total noninterest expense for the 2020 third2021 first quarter increased $45$141 million or 7%22%, from the year-ago quarter. Personnel costs increased $47$73 million, or 12%18%, primarily reflecting increased incentives and commissions, contract
16 Huntington Bancshares Incorporated
help, overtime, and equity compensation expense as well as $11 million of expense relatedfrom May to position reductions.March, and higher benefits costs. Outside data processing and other services increased $11$30 million, or 13%35%, reflecting technology investments to support our strategic growth initiatives and $8 million of TCF acquisition-related expense. Other noninterest expense increased $22 million, or 43%, primarily reflecting the impact ofa $25 million donation to The Columbus Foundation. Professional services expense increased technology costs. Partially offsetting these increases, other noninterest expense decreased $9$6 million, or 18%55%, reflecting $8 million of acquisition-related legal expense. Equipment expense increased $5 million, or 12%, primarily asreflecting
14 Huntington Bancshares Incorporated
technology investments. Marketing expense increased $5 million, or 56%, reflecting a result of lower travelreturn to pre-pandemic levels and business development expense and a $7 million insurance recovery.additional investment in strategic marketing initiatives including new Fair Play product launches.
2020 Third2021 First Quarter versus 2020 SecondFourth Quarter
Total noninterest expense increased $37 million, or 5%, from the 2020 secondfourth quarter. Personnel costs increased $35$42 million, or 8%10%, primarily reflecting increased incentive compensation as well as $11 million of expense related to position reductions. Outside data processing and other services increased $8 million, or 9%, primarily reflecting the impact of increased technology costs. Partially offsetting these increases, other non-interest expense decreased $7 million or 15% reflecting the insurance recovery.
| | | | | | | | | | | | | | | | | | | | | | | |
Table 8 - Noninterest Expense—2020 First Nine Months Ended vs. 2019 First Nine Months Ended |
| | | | | | | |
| Nine Months Ended September 30, | | Change |
(dollar amounts in millions) | 2020 | | 2019 | | Amount | | Percent |
Personnel costs | $ | 1,267 | | | $ | 1,228 | | | $ | 39 | | | 3 | % |
Outside data processing and other services | 273 | | | 257 | | | 16 | | | 6 | |
Equipment | 132 | | | 121 | | | 11 | | | 9 | |
Net occupancy | 119 | | | 118 | | | 1 | | | 1 | |
Professional services | 34 | | | 40 | | | (6) | | | (15) | |
Marketing | 23 | | | 28 | | | (5) | | | (18) | |
Amortization of intangibles | 31 | | | 37 | | | (6) | | | (16) | |
Deposit and other insurance expense | 24 | | | 24 | | | — | | | — | |
Other noninterest expense | 136 | | | 167 | | | (31) | | | (19) | |
Total noninterest expense | $ | 2,039 | | | $ | 2,020 | | | $ | 19 | | | 1 | % |
Noninterest expense increased $19 million, or 1%, from the year-ago period. Personnel costs increased $39 million, or 3%, primarily reflecting increased salaries, incentives and commissions, contract help and overtime expense as well as $11 milliona timing change implemented in the 2021 first quarter with respect to moving forward the annual grant of expense relatedequity compensation from May to position reductions. Outside data processing and other services increased $16 million, or 6%, primarily reflecting the impact of increased technology costs. Equipment expense increased $11 million driven by increased depreciation and software development expense. Other noninterest expense decreased $31 million, or 19%, primarily as a result of lower travel and business development expense, the $7 million insurance recovery in third quarter 2020 as well as a $5 million donation to the Columbus FoundationMarch, and higher operational losses in the first nine-months of 2019.benefits costs.
Provision for Income Taxes
The provision for income taxes in the 2020 third2021 first quarter was $55 million. This$102 million, compared with a provision for income taxes of $67 million in the 2019 third quarter and $31$10 million in the 2020 secondfirst quarter and $59 million in the 2020 fourth quarter. The provision for income taxes for the nine-month periods ended September 30, 2020 and September 30, 2019 was $96 million and $193 million, respectively. All periods included the benefits from tax-exempt income, tax-advantaged investments, general business credits, investments in qualified affordable housing projects, and capital losses. The effective tax rates for the 2021 first quarter, 2020 third quarter, 2019 thirdfirst quarter, and 2020 secondfourth quarter were 15.2%16.1%, 15.4%17.0%, and 17.2%, respectively. The effective tax rates for the nine-month periods ended September 30, 2020 and September 30, 2019 were 16.0% and 15.0%15.8%, respectively. The variance between the 2020 third2021 first quarter compared to the 2019 third2020 first quarter, and the nine- month period ended September 30, 2020 compared to the nine-month period ended September 30, 2019 in thefourth quarter provision for income taxes and effective tax rates relates primarily to lowerhigher pre-tax income and the impact of stock-based compensation. The net federal deferred tax liability was $155$149 million and the net state deferred tax asset was $32$24 million at September 30, 2020.March 31, 2021.
We file income tax returns with the IRS and various state and city jurisdictions. Federal income tax audits have been completed for tax years through 2009. In 2019, theThe 2010 and 2011 audit was submitted totax years remain under exam by 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. Negotiations with the IRS are ongoing. IRS. While the statute of limitations remains open for tax years 2012 through 2018,2019, 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 for 2015 through 2017. Variousreturns. Also, with few exceptions, the Company is no longer subject to state and other jurisdictions remain open to examination, including Ohio, Kentucky, Indiana, Michigan, Pennsylvania, West Virginia, and Illinois.local income tax examinations for tax years before 2016.
RISK MANAGEMENT AND CAPITAL
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. Risk awareness, identification and assessment, reporting, and active management are key elements in overall risk management. Controls include, among others, effective segregation of duties, access, and authorization and reconciliation procedures, as well as staff education and a disciplined assessment process.
We believe that our primary risk exposures are credit, market, liquidity, operational and compliance. More information on risk can be found in the Risk Factors section included in Item 1A of our 20192020 Form 10-K and subsequent filings with the SEC. The MD&A included in our 20192020 Form 10-K should be read in conjunction with this MD&A as this discussion provides only material updates to the Form 10-K. This MD&A should also be read in conjunction with the Unaudited Condensed Consolidated Financial Statements, Notes to Unaudited Condensed Consolidated Financial Statements, and other information contained in this report. Our definition, philosophy, and approach to risk management have not materially changed from the discussion presented in the 20192020 Form 10-K.
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 3 “Investment Securities and Other Securities” of the Notes to the Unaudited Condensed 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. HuntingtonWe also usesuse derivatives, principally loan sale commitments, in hedging itsour 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. 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 ongoing expansion of portfolio management resources demonstratesis central to 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.
WeOver the course of 2020 and into 2021, we have assessed the impact of the COVID-19 pandemic 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 viruspandemic and its impact on the economic recovery. Continued elevated unemploymentweakness 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, specificallyespecially for industries highly impacted by COVID-19.
18 Huntington Bancshares Incorporated
The table below summarizes ourpayment deferral activityprogram that Huntington initiated for its customers in March 2020 has largely ended, with less than 1% of the total deferrals remaining in place as of 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 9 - Loan and Lease Portfolio Deferrals |
| | September 30, 2020 | | June 30, 2020 |
| | Deferred | | | Deferred | | % of | | Deferred | | | Deferred | | % of |
(dollar amounts in millions) | | # of Loans | | | Balance | | Portfolio | | # of Loans | | | Balance | | Portfolio |
Commercial: | | | | | | | | | | | | | | |
Commercial and industrial | | 429 | | | | $ | 431 | | | 1 | % | | 5,584 | | | | $ | 3,186 | | | 9 | % |
Commercial real estate: | | | | | | | | | | | | | | |
Construction | | 8 | | | | 40 | | | 3 | % | | 27 | | | | 90 | | | 8 | % |
Commercial | | 77 | | | | 471 | | | 8 | % | | 536 | | | | 1,719 | | | 29 | % |
Commercial real estate | | 85 | | | | 511 | | | 7 | % | | 563 | | | | 1,809 | | | 25 | % |
Total commercial | | 514 | | | | 942 | | | 2 | % | | 6,147 | | | | 4,995 | | | 12 | % |
Consumer: | | | | | | | | | | | | | | |
Automobile | | 1,226 | | | | 20 | | | — | % | | 21,984 | | | | 426 | | | 3 | % |
Home equity | | 627 | | | | 49 | | | 1 | % | | 3,321 | | | | 267 | | | 3 | % |
Residential mortgage (1) | | 2,121 | | | | 411 | | | 3 | % | | 3,322 | | | | 1,002 | | | 9 | % |
RV and marine | | 88 | | | | 4 | | | — | % | | 2,200 | | | | 117 | | | 3 | % |
Other consumer | | 169 | | | | 1 | | | — | % | | 1,336 | | | | 12 | | | 1 | % |
Total consumer | | 4,231 | | | | 485 | | | 1 | % | | 32,163 | | | | 1,824 | | | 5 | % |
Total loans and leases | | 4,745 | | | | $ | 1,427 | | | 2 | % | | 38,310 | | | | $ | 6,819 | | | 9 | % |
| | | | | | | | | | | | | | |
(1) Includes 1,272 deferred loans or $178 million at September 30, 2020 which were securitized into GNMA pools and subsequently bought out.
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 predominately in April and May. The vast majority of the deferrals granted to our customers have expired, with positive subsequent payment patterns.31, 2021. The remaining deferrals in the Consumer portfoliosportfolio are centered in the Residential secured portfolio, consistent with the generally longer term payment deferral time frames.The post deferral performance to date forframes available on those loans. For the Consumer portfolios has been consistent with our expectations.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. Forfew commercial borrowers requiring additional modifications to existingfinancial help, the expired deferrals were replaced with modified terms and conditions expiring deferrals will be replaced with amendments and waivers, to the extent appropriate, as we continue to work closely with our customers. The post deferral payment activity has been positive across both the Commercial and Consumer portfolios to date.
2020 3Q Form 10-Q 1619 Huntington Bancshares Incorporated
Loan and Lease Credit Exposure Mix
Refer to the “Loan and Lease Credit Exposure Mix” section of our 20192020 Form 10-K for a brief description of each portfolio segment.
The table below provides the composition of our total loan and lease portfolio:
| Table 10 - Loan and Lease Portfolio Composition | |
Table 6 - Loan and Lease Portfolio Composition | | Table 6 - Loan and Lease Portfolio Composition |
| (dollar amounts in millions) | (dollar amounts in millions) | September 30, 2020 | | June 30, 2020 | | March 31, 2020 | | December 31, 2019 | | September 30, 2019 | (dollar amounts in millions) | March 31, 2021 | | December 31, 2020 | | September 30, 2020 | | June 30, 2020 | | March 31, 2020 |
Commercial: | Commercial: | | | | | | | | | | Commercial: | | | | | | | | | |
Commercial and industrial | Commercial and industrial | $ | 34,895 | | | 43 | % | | $ | 34,879 | | | 44 | % | | $ | 32,959 | | | 42 | % | | $ | 30,664 | | | 41 | % | | $ | 30,394 | | | 41 | % | Commercial and industrial | $ | 34,464 | | | 43 | % | | $ | 35,373 | | | 43 | % | | $ | 34,895 | | | 43 | % | | $ | 34,879 | | | 44 | % | | $ | 32,959 | | | 42 | % |
Commercial real estate: | Commercial real estate: | | Commercial real estate: | |
Construction | Construction | 1,154 | | | 1 | | | 1,200 | | | 1 | | | 1,180 | | | 2 | | | 1,123 | | | 1 | | | 1,157 | | | 2 | | Construction | 1,083 | | | 1 | | | 1,035 | | | 1 | | | 1,154 | | | 1 | | | 1,200 | | | 1 | | | 1,180 | | | 2 | |
Commercial | Commercial | 6,055 | | | 7 | | | 5,979 | | | 7 | | | 5,793 | | | 7 | | | 5,551 | | | 7 | | | 5,698 | | | 8 | | Commercial | 6,096 | | | 8 | | | 6,164 | | | 8 | | | 6,055 | | | 7 | | | 5,979 | | | 7 | | | 5,793 | | | 7 | |
Commercial real estate | Commercial real estate | 7,209 | | | 8 | | | 7,179 | | | 8 | | | 6,973 | | | 9 | | | 6,674 | | | 8 | | | 6,855 | | | 10 | | Commercial real estate | 7,179 | | | 9 | | | 7,199 | | | 9 | | | 7,209 | | | 8 | | | 7,179 | | | 8 | | | 6,973 | | | 9 | |
Total commercial | Total commercial | 42,104 | | | 51 | | | 42,058 | | | 52 | | | 39,932 | | | 51 | | | 37,338 | | | 49 | | | 37,249 | | | 51 | | Total commercial | 41,643 | | | 52 | | | 42,572 | | | 52 | | | 42,104 | | | 51 | | | 42,058 | | | 52 | | | 39,932 | | | 51 | |
Consumer: | Consumer: | | | | | | | | | | | | | | | | | | | | Consumer: | | | | | | | | | | | | | | | | | | | |
Automobile | Automobile | 12,925 | | | 17 | | | 12,678 | | | 16 | | | 12,907 | | | 17 | | | 12,797 | | | 17 | | | 12,292 | | | 15 | | Automobile | 12,591 | | | 16 | | | 12,778 | | | 16 | | | 12,925 | | | 17 | | | 12,678 | | | 16 | | | 12,907 | | | 17 | |
Home equity | Home equity | 8,904 | | | 11 | | | 8,866 | | | 11 | | | 9,010 | | | 11 | | | 9,093 | | | 12 | | | 9,300 | | | 12 | | Home equity | 8,727 | | | 11 | | | 8,894 | | | 11 | | | 8,904 | | | 11 | | | 8,866 | | | 11 | | | 9,010 | | | 11 | |
Residential mortgage | Residential mortgage | 12,031 | | | 15 | | | 11,621 | | | 15 | | | 11,398 | | | 15 | | | 11,376 | | | 15 | | | 11,247 | | | 15 | | Residential mortgage | 12,092 | | | 15 | | | 12,141 | | | 15 | | | 12,031 | | | 15 | | | 11,621 | | | 15 | | | 11,398 | | | 15 | |
RV and marine | RV and marine | 4,146 | | | 5 | | | 3,843 | | | 5 | | | 3,643 | | | 5 | | | 3,563 | | | 5 | | | 3,553 | | | 5 | | RV and marine | 4,218 | | | 5 | | | 4,190 | | | 5 | | | 4,146 | | | 5 | | | 3,843 | | | 5 | | | 3,643 | | | 5 | |
Other consumer | Other consumer | 1,046 | | | 1 | | | 1,073 | | | 1 | | | 1,145 | | | 1 | | | 1,237 | | | 2 | | | 1,251 | | | 2 | | Other consumer | 959 | | | 1 | | | 1,033 | | | 1 | | | 1,046 | | | 1 | | | 1,073 | | | 1 | | | 1,145 | | | 1 | |
Total consumer | Total consumer | 39,052 | | | 49 | | | 38,081 | | | 48 | | | 38,103 | | | 49 | | | 38,066 | | | 51 | | | 37,643 | | | 49 | | Total consumer | 38,587 | | | 48 | | | 39,036 | | | 48 | | | 39,052 | | | 49 | | | 38,081 | | | 48 | | | 38,103 | | | 49 | |
Total loans and leases | Total loans and leases | $ | 81,156 | | | 100 | % | | $ | 80,139 | | | 100 | % | | $ | 78,035 | | | 100 | % | | $ | 75,404 | | | 100 | % | | $ | 74,892 | | | 100 | % | Total loans and leases | $ | 80,230 | | | 100 | % | | $ | 81,608 | | | 100 | % | | $ | 81,156 | | | 100 | % | | $ | 80,139 | | | 100 | % | | $ | 78,035 | | | 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 definitionscategories 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 one of the strategies 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.
Commercial Credit
Refer to the “Commercial Credit” section of our 20192020 Form 10-K for our commercial credit underwriting and on-going credit management processes.
Consumer Credit
Refer to the “Consumer Credit” section of our 20192020 Form 10-K for our consumer credit underwriting and on-going credit management processes.
202021 1Q Form 10-Q Huntington Bancshares Incorporated17
The table below provides our total loan and lease portfolio segregated by industry type. The changes in the industry composition from December 31, 20192020 are consistent with the portfolio growth metrics.
| Table 11 - Loan and Lease Portfolio by Industry Type | | |
Table 7 - Loan and Lease Portfolio by Industry Type | | Table 7 - Loan and Lease Portfolio by Industry Type | |
| (dollar amounts in millions) | (dollar amounts in millions) | September 30, 2020 | | June 30, 2020 | | March 31, 2020 | | December 31, 2019 | | September 30, 2019 | | (dollar amounts in millions) | March 31, 2021 | | December 31, 2020 | | September 30, 2020 | | June 30, 2020 | | March 31, 2020 | |
Commercial loans and leases: | Commercial loans and leases: | | | | | | | | | | | Commercial loans and leases: | | | | | | | | | | |
Real estate and rental and leasing | Real estate and rental and leasing | $ | 7,056 | | | 9 | % | | $ | 7,117 | | | 9 | % | | $ | 6,991 | | | 9 | % | | $ | 6,662 | | | 9 | % | | $ | 6,826 | | | 9 | % | | Real estate and rental and leasing | $ | 6,854 | | | 9 | % | | $ | 6,962 | | | 9 | % | | $ | 7,056 | | | 9 | % | | $ | 7,117 | | | 9 | % | | $ | 6,991 | | | 9 | % | |
Manufacturing | Manufacturing | 5,658 | | | 7 | | | 6,147 | | | 8 | | | 5,846 | | | 7 | | | 5,248 | | | 7 | | | 5,141 | | | 7 | | | Manufacturing | 5,523 | | | 7 | | | 5,556 | | | 7 | | | 5,658 | | | 7 | | | 6,147 | | | 8 | | | 5,846 | | | 7 | | |
Retail trade (1) | Retail trade (1) | 4,922 | | | 6 | | | 5,053 | | | 6 | | | 5,886 | | | 8 | | | 5,239 | | | 7 | | | 5,031 | | | 7 | | | Retail trade (1) | 4,694 | | | 6 | | | 5,111 | | | 6 | | | 4,922 | | | 6 | | | 5,053 | | | 6 | | | 5,886 | | | 8 | | |
Health care and social assistance | Health care and social assistance | 3,566 | | | 4 | | | 3,534 | | | 4 | | | 2,815 | | | 4 | | | 2,498 | | | 3 | | | 2,604 | | | 3 | | | Health care and social assistance | 3,672 | | | 5 | | | 3,646 | | | 4 | | | 3,566 | | | 4 | | | 3,534 | | | 4 | | | 2,815 | | | 4 | | |
Finance and insurance | Finance and insurance | 3,197 | | | 4 | | | 3,345 | | | 4 | | | 3,670 | | | 5 | | | 3,307 | | | 4 | | | 3,308 | | | 4 | | | Finance and insurance | 3,343 | | | 4 | | | 3,389 | | | 4 | | | 3,197 | | | 4 | | | 3,345 | | | 4 | | | 3,670 | | | 5 | | |
Accommodation and food services | Accommodation and food services | 3,012 | | | 4 | | | 2,877 | | | 4 | | | 2,081 | | | 3 | | | 2,072 | | | 3 | | | 2,008 | | | 3 | | | Accommodation and food services | 3,281 | | | 4 | | | 3,100 | | | 4 | | | 3,012 | | | 4 | | | 2,877 | | | 4 | | | 2,081 | | | 3 | | |
Wholesale trade | Wholesale trade | 2,529 | | | 3 | | | 2,352 | | | 3 | | | 2,555 | | | 3 | | | 2,437 | | | 3 | | | 2,449 | | | 3 | | | Wholesale trade | 2,545 | | | 3 | | | 2,652 | | | 3 | | | 2,529 | | | 3 | | | 2,352 | | | 3 | | | 2,555 | | | 3 | | |
Professional, scientific, and technical services | Professional, scientific, and technical services | 2,086 | | | 3 | | | 2,177 | | | 3 | | | 1,615 | | | 2 | | | 1,360 | | | 2 | | | 1,347 | | | 2 | | | Professional, scientific, and technical services | 1,972 | | | 2 | | | 2,051 | | | 3 | | | 2,086 | | | 3 | | | 2,177 | | | 3 | | | 1,615 | | | 2 | | |
Other services | Other services | 1,641 | | | 2 | | | 1,510 | | | 2 | | | 1,358 | | | 2 | | | 1,310 | | | 2 | | | 1,324 | | | 2 | | | Other services | 1,578 | | | 2 | | | 1,613 | | | 2 | | | 1,641 | | | 2 | | | 1,510 | | | 2 | | | 1,358 | | | 2 | | |
Construction | Construction | 1,425 | | | 2 | | | 1,492 | | | 2 | | | 962 | | | 1 | | | 900 | | | 1 | | | 973 | | | 1 | | | Construction | 1,412 | | | 2 | | | 1,389 | | | 2 | | | 1,425 | | | 2 | | | 1,492 | | | 2 | | | 962 | | | 1 | | |
Transportation and warehousing | Transportation and warehousing | 1,408 | | | 2 | | | 1,338 | | | 2 | | | 1,211 | | | 2 | | | 1,207 | | | 2 | | | 1,242 | | | 2 | | | Transportation and warehousing | 1,307 | | | 2 | | | 1,401 | | | 2 | | | 1,408 | | | 2 | | | 1,338 | | | 2 | | | 1,211 | | | 2 | | |
Mining, quarrying, and oil and gas extraction | 674 | | | 1 | | | 930 | | | 1 | | | 1,162 | | | 1 | | | 1,304 | | | 2 | | | 1,375 | | | 2 | | | |
Admin./Support/Waste Mgmt. and Remediation Services | Admin./Support/Waste Mgmt. and Remediation Services | 932 | | | 1 | | | 916 | | | 1 | | | 693 | | | 1 | | | 731 | | | 1 | | | 687 | | | 1 | | | Admin./Support/Waste Mgmt. and Remediation Services | 949 | | | 1 | | | 975 | | | 1 | | | 932 | | | 1 | | | 916 | | | 1 | | | 693 | | | 1 | | |
Information | Information | 817 | | | 1 | | | 759 | | | 1 | | | 728 | | | 1 | | | 649 | | | 1 | | | 619 | | | 1 | | | Information | 793 | | | 1 | | | 829 | | | 1 | | | 817 | | | 1 | | | 759 | | | 1 | | | 728 | | | 1 | | |
Utilities | | Utilities | 754 | | | 1 | | | 793 | | | 1 | | | 647 | | | 1 | | | 573 | | | 1 | | | 629 | | | 1 | | |
Arts, entertainment, and recreation | Arts, entertainment, and recreation | 738 | | | 1 | | | 732 | | | 1 | | | 694 | | | 1 | | | 690 | | | 1 | | | 654 | | | 1 | | | Arts, entertainment, and recreation | 725 | | | 1 | | | 744 | | | 1 | | | 738 | | | 1 | | | 732 | | | 1 | | | 694 | | | 1 | | |
Utilities | 647 | | | 1 | | | 573 | | | 1 | | | 629 | | | 1 | | | 546 | | | 1 | | | 419 | | | 1 | | | |
Educational services | Educational services | 752 | | | — | | | 559 | | | — | | | 465 | | | — | | | 463 | | | — | | | 467 | | | 1 | | | Educational services | 686 | | | 1 | | | 735 | | | 1 | | | 752 | | | — | | | 559 | | | — | | | 465 | | | — | | |
Public administration | Public administration | 645 | | | — | | | 302 | | | — | | | 259 | | | — | | | 261 | | | — | | | 237 | | | — | | | Public administration | 640 | | | 1 | | | 662 | | | 1 | | | 645 | | | — | | | 302 | | | — | | | 259 | | | — | | |
Mining, quarrying, and oil and gas extraction | | Mining, quarrying, and oil and gas extraction | 511 | | | — | | | 601 | | | — | | | 674 | | | 1 | | | 930 | | | 1 | | | 1,162 | | | 1 | | |
Agriculture, forestry, fishing and hunting | Agriculture, forestry, fishing and hunting | 158 | | | — | | | 140 | | | — | | | 141 | | | — | | | 154 | | | — | | | 172 | | | — | | | Agriculture, forestry, fishing and hunting | 139 | | | — | | | 157 | | | — | | | 158 | | | — | | | 140 | | | — | | | 141 | | | — | | |
Management of companies and enterprises | Management of companies and enterprises | 132 | | | — | | | 115 | | | — | | | 104 | | | — | | | 105 | | | — | | | 112 | | | — | | | Management of companies and enterprises | 123 | | | — | | | 144 | | | — | | | 132 | | | — | | | 115 | | | — | | | 104 | | | — | | |
Unclassified/Other | Unclassified/Other | 109 | | | — | | | 90 | | | — | | | 67 | | | — | | | 195 | | | — | | | 254 | | | 1 | | | Unclassified/Other | 142 | | | — | | | 62 | | | — | | | 109 | | | — | | | 90 | | | — | | | 67 | | | — | | |
Total commercial loans and leases by industry category | Total commercial loans and leases by industry category | 42,104 | | | 51 | | | 42,058 | | | 52 | | | 39,932 | | | 51 | | | 37,338 | | | 49 | | | 37,249 | | | 51 | | | Total commercial loans and leases by industry category | 41,643 | | | 52 | | | 42,572 | | | 52 | | | 42,104 | | | 51 | | | 42,058 | | | 52 | | | 39,932 | | | 51 | | |
Automobile | Automobile | 12,925 | | | 17 | | | 12,678 | | | 16 | | | 12,907 | | | 17 | | | 12,797 | | | 17 | | | 12,292 | | | 15 | | | Automobile | 12,591 | | | 16 | | | 12,778 | | | 16 | | | 12,925 | | | 17 | | | 12,678 | | | 16 | | | 12,907 | | | 17 | | |
Home Equity | Home Equity | 8,904 | | | 11 | | | 8,866 | | | 11 | | | 9,010 | | | 11 | | | 9,093 | | | 12 | | | 9,300 | | | 12 | | | Home Equity | 8,727 | | | 11 | | | 8,894 | | | 11 | | | 8,904 | | | 11 | | | 8,866 | | | 11 | | | 9,010 | | | 11 | | |
Residential mortgage | 12,031 | | | 15 | | | 11,621 | | | 15 | | | 11,398 | | | 15 | | | 11,376 | | | 15 | | | 11,247 | | | 15 | | | |
Residential Mortgage | | Residential Mortgage | 12,092 | | | 15 | | | 12,141 | | | 15 | | | 12,031 | | | 15 | | | 11,621 | | | 15 | | | 11,398 | | | 15 | | |
RV and marine | RV and marine | 4,146 | | | 5 | | | 3,843 | | | 5 | | | 3,643 | | | 5 | | | 3,563 | | | 5 | | | 3,553 | | | 5 | | | RV and marine | 4,218 | | | 5 | | | 4,190 | | | 5 | | | 4,146 | | | 5 | | | 3,843 | | | 5 | | | 3,643 | | | 5 | | |
Other consumer loans | Other consumer loans | 1,046 | | | 1 | | | 1,073 | | | 1 | | | 1,145 | | | 1 | | | 1,237 | | | 2 | | | 1,251 | | | 2 | | | Other consumer loans | 959 | | | 1 | | | 1,033 | | | 1 | | | 1,046 | | | 1 | | | 1,073 | | | 1 | | | 1,145 | | | 1 | | |
Total loans and leases | Total loans and leases | $ | 81,156 | | | 100 | % | | $ | 80,139 | | | 100 | % | | $ | 78,035 | | | 100 | % | | $ | 75,404 | | | 100 | % | | $ | 74,892 | | | 100 | % | | Total loans and leases | $ | 80,230 | | | 100 | % | | $ | 81,608 | | | 100 | % | | $ | 81,156 | | | 100 | % | | $ | 80,139 | | | 100 | % | | $ | 78,035 | | | 100 | % | |
(1) Amounts include $2.0 billion, $2.4 billion, $2.2 billion, $2.8 billion $4.0 billion, $3.7 billion and $3.5$4.0 billion of auto dealer services loans at March 31, 2021, December 31, 2020, September 30, 2020, June 30, 2020 and March 31, 2020, December 31, 2019 and September 30, 2019, respectively.
Credit Quality
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.
2020 3Q Form 10-Q 1821 Huntington Bancshares Incorporated
Credit quality performance in the 2020 third2021 first quarter reflected total NCOs as a percent of average loans, annualized, of 0.56%0.32%, an increasedecrease from 0.54%0.55% in the prior quarter. Total NCOs were $113$64 million, an increasea decrease of $6$48 million from the prior quarter, primarily driven by a $9$41 million increasedecrease in Commercial NCOs, partially offset byand a $3$7 million decrease in Consumer NCOs .NCOs. NPAs decreased from the prior quarter by $111$19 million or 16%3% driven by reductions in the sale of oil and gas loans.commercial portfolio.
NPAs, NALs, AND TDRs
(This section should be read in conjunction with Note 4 “Loans / Leases” and Note 5 “Allowance for Credit Losses” of the Notes to Unaudited Condensed Consolidated Financial Statements and “Credit Quality” section of our 20192020 Form 10-K.) NPAs and NALs
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 $404$351 million of commercial related NALs at September 30, 2020, $273March 31, 2021, $241 million, or 68%69%, represented 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 quarters:
| Table 12 - Nonaccrual Loans and Leases and Nonperforming Assets (1) | |
Table 8 - Nonaccrual Loans and Leases and Nonperforming Assets | | Table 8 - Nonaccrual Loans and Leases and Nonperforming Assets |
| (dollar amounts in millions) | (dollar amounts in millions) | September 30, 2020 | | June 30, 2020 | | March 31, 2020 | | December 31, 2019 | | September 30, 2019 | (dollar amounts in millions) | March 31, 2021 | | December 31, 2020 | | September 30, 2020 | | June 30, 2020 | | March 31, 2020 |
Nonaccrual loans and leases (NALs): | Nonaccrual loans and leases (NALs): | | | | | | | | | | Nonaccrual loans and leases (NALs): | | | | | | | | | |
Commercial and industrial | Commercial and industrial | $ | 388 | | | $ | 485 | | | $ | 396 | | | $ | 323 | | | $ | 291 | | Commercial and industrial | $ | 343 | | | $ | 353 | | | $ | 388 | | | $ | 485 | | | $ | 396 | |
Commercial real estate | Commercial real estate | 16 | | | 28 | | | 30 | | | 10 | | | 12 | | Commercial real estate | 8 | | | 15 | | | 16 | | | 28 | | | 30 | |
Automobile | Automobile | 5 | | | 8 | | | 6 | | | 4 | | | 5 | | Automobile | 3 | | | 4 | | | 5 | | | 8 | | | 6 | |
Home equity | Home equity | 71 | | | 59 | | | 58 | | | 59 | | | 60 | | Home equity | 71 | | | 70 | | | 71 | | | 59 | | | 58 | |
Residential mortgage | Residential mortgage | 88 | | | 66 | | | 66 | | | 71 | | | 69 | | Residential mortgage | 90 | | | 88 | | | 88 | | | 66 | | | 66 | |
RV and marine | RV and marine | 1 | | | 2 | | | 2 | | | 1 | | | 1 | | RV and marine | 1 | | | 2 | | | 1 | | | 2 | | | 2 | |
Other consumer | Other consumer | — | | | — | | | — | | | — | | | — | | Other consumer | — | | | — | | | — | | | — | | | — | |
Total nonaccrual loans and leases | Total nonaccrual loans and leases | 569 | | | 648 | | | 558 | | | 468 | | | 438 | | Total nonaccrual loans and leases | 516 | | | 532 | | | 569 | | | 648 | | | 558 | |
Other real estate, net: | Other real estate, net: | | Other real estate, net: | |
Residential | Residential | 4 | | | 5 | | | 8 | | | 9 | | | 10 | | Residential | 2 | | | 4 | | | 4 | | | 5 | | | 8 | |
Commercial | Commercial | 1 | | | 2 | | | 2 | | | 2 | | | 2 | | Commercial | — | | | — | | | 1 | | | 2 | | | 2 | |
Total other real estate, net | Total other real estate, net | 5 | | | 7 | | | 10 | | | 11 | | | 12 | | Total other real estate, net | 2 | | | 4 | | | 5 | | | 7 | | | 10 | |
Other NPAs (2)(1) | Other NPAs (2)(1) | 28 | | | 58 | | | 18 | | | 19 | | | 32 | | Other NPAs (2)(1) | 26 | | | 27 | | | 28 | | | 58 | | | 18 | |
Total nonperforming assets | Total nonperforming assets | $ | 602 | | | $ | 713 | | | $ | 586 | | | $ | 498 | | | $ | 482 | | Total nonperforming assets | $ | 544 | | | $ | 563 | | | $ | 602 | | | $ | 713 | | | $ | 586 | |
| Nonaccrual loans and leases as a % of total loans and leases | Nonaccrual loans and leases as a % of total loans and leases | 0.70 | % | | 0.81 | % | | 0.72 | % | | 0.62 | % | | 0.58 | % | Nonaccrual loans and leases as a % of total loans and leases | 0.64 | % | | 0.65 | % | | 0.70 | % | | 0.81 | % | | 0.72 | % |
NPA ratio (3)(2) | NPA ratio (3)(2) | 0.74 | | | 0.89 | | | 0.75 | | | 0.66 | | | 0.64 | | NPA ratio (3)(2) | 0.68 | | | 0.69 | | | 0.74 | | | 0.89 | | | 0.75 | |
|
(1) Generally excludes loans that were under payment deferral or granted other assistance, including amendments or waivers of financial covenants in response to the COVID-19 pandemic.
(2) Other nonperforming assets include certain impaired investment securities and/or nonaccrual loans held-for-sale.
(3)(2) Nonperforming assets divided by the sum of loans and leases, other real estate owned, and other NPAs.
22 Huntington Bancshares Incorporated
2020 Third2021 First Quarter versus 20192020 Fourth Quarter.
Total NPAs increased $104decreased $19 million, or 21%3%, compared with December 31, 2019,2020, driven by a significant increase related to oildriven by reductions in C&I and gas loans within the C&I portfolio.CRE nonaccrual loans.
TDR Loans
(This section should be read in conjunction with Note 4 “Loans / Leases” of the Notes to Unaudited Condensed Consolidated Financial Statements and TDR Loans section of our 20192020 Form 10-K.) 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 further addresses COVID-19 related modifications and specifies that COVID-19 related modifications on loans that were current as of December 31, 2019 are not TDRs.
For COVID-19 related loan modifications which occurred from March 1, 2020 through September 30, 2020, and met the loan modification criteria under the CARES Act, Huntington elected to suspend TDR accounting for such loan modifications. 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.
Over the past five quarters, over 75%the accruing component of the total TDR balance remains accruing ashas been consistently over 75%, indicating there is no identified credit loss and the borrowers continue to make their monthly payments, resulting in no identified credit losses.payments. As of September 30, 2020,March 31, 2021, over 87%81% of the $455$428 million of accruing TDRs secured by residential real estate (residential mortgage and home equity in Table 13)9) are current on their required payments, with over 66%55% of the accruing pool
having had no delinquency in the past 12 months. There is limited migration from the accruing to non-accruingnonaccruing components, and virtually all of the charge-offs come from the non-accruingnonaccruing TDR balances.
The table below presents our accruing and nonaccruing TDRs at period-end for each of the past five quarters:
| Table 13 - Accruing and Nonaccruing Troubled Debt Restructured Loans | |
| Table 9 - Accruing and Nonaccruing Troubled Debt Restructured Loans (1) | | Table 9 - Accruing and Nonaccruing Troubled Debt Restructured Loans (1) |
(dollar amounts in millions) | (dollar amounts in millions) | September 30, 2020 | | June 30, 2020 | | March 31, 2020 | | December 31, 2019 | | September 30, 2019 | (dollar amounts in millions) | March 31, 2021 | | December 31, 2020 | | September 30, 2020 | | June 30, 2020 | | March 31, 2020 |
TDRs—accruing: | TDRs—accruing: | | | | | | | | | | TDRs—accruing: | | | | | | | | | |
Commercial and industrial | Commercial and industrial | $ | 189 | | | $ | 192 | | | $ | 219 | | | $ | 213 | | | $ | 225 | | Commercial and industrial | $ | 127 | | | $ | 193 | | | $ | 189 | | | $ | 192 | | | $ | 219 | |
Commercial real estate | Commercial real estate | 34 | | | 35 | | | 37 | | | 37 | | | 40 | | Commercial real estate | 32 | | | 33 | | | 34 | | | 35 | | | 37 | |
Automobile | Automobile | 53 | | | 52 | | | 42 | | | 40 | | | 39 | | Automobile | 51 | | | 50 | | | 53 | | | 52 | | | 42 | |
Home equity | Home equity | 199 | | | 209 | | | 219 | | | 226 | | | 233 | | Home equity | 179 | | | 187 | | | 199 | | | 209 | | | 219 | |
Residential mortgage | Residential mortgage | 256 | | | 229 | | | 227 | | | 223 | | | 221 | | Residential mortgage | 249 | | | 248 | | | 256 | | | 229 | | | 227 | |
RV and marine | RV and marine | 6 | | | 6 | | | 3 | | | 3 | | | 3 | | RV and marine | 7 | | | 6 | | | 6 | | | 6 | | | 3 | |
Other consumer | Other consumer | 10 | | | 10 | | | 11 | | | 11 | | | 10 | | Other consumer | 8 | | | 9 | | | 10 | | | 10 | | | 11 | |
Total TDRs—accruing | Total TDRs—accruing | 747 | | | 733 | | | 758 | | | 753 | | | 771 | | Total TDRs—accruing | 653 | | | 726 | | | 747 | | | 733 | | | 758 | |
TDRs—nonaccruing: | TDRs—nonaccruing: | | TDRs—nonaccruing: | |
Commercial and industrial | Commercial and industrial | 146 | | | 169 | | | 119 | | | 109 | | | 84 | | Commercial and industrial | 101 | | | 95 | | | 146 | | | 169 | | | 119 | |
Commercial real estate | Commercial real estate | 3 | | | 3 | | | 4 | | | 6 | | | 6 | | Commercial real estate | 3 | | | 3 | | | 3 | | | 3 | | | 4 | |
Automobile | Automobile | 2 | | | 2 | | | 2 | | | 2 | | | 3 | | Automobile | 2 | | | 2 | | | 2 | | | 2 | | | 2 | |
Home equity | Home equity | 29 | | | 26 | | | 25 | | | 26 | | | 26 | | Home equity | 30 | | | 30 | | | 29 | | | 26 | | | 25 | |
Residential mortgage | Residential mortgage | 48 | | | 43 | | | 42 | | | 42 | | | 44 | | Residential mortgage | 51 | | | 51 | | | 48 | | | 43 | | | 42 | |
RV and marine | RV and marine | 1 | | | 1 | | | 2 | | | 1 | | | 1 | | RV and marine | 1 | | | 1 | | | 1 | | | 1 | | | 2 | |
Other consumer | — | | | — | | | — | | | — | | | — | | |
| Total TDRs—nonaccruing | Total TDRs—nonaccruing | 229 | | | 244 | | | 194 | | | 186 | | | 164 | | Total TDRs—nonaccruing | 188 | | | 182 | | | 229 | | | 244 | | | 194 | |
Total TDRs | Total TDRs | $ | 976 | | | $ | 977 | | | $ | 952 | | | $ | 939 | | | $ | 935 | | Total TDRs | $ | 841 | | | $ | 908 | | | $ | 976 | | | $ | 977 | | | $ | 952 | |
(1)Loan modifications under the CARES Act, as amended and interagency regulatory guidance are not considered TDRs.
Overall TDRs decreased slightly in the quarter, but have remained relatively consistent overprimarily related to a decline in the past five quarters.C&I portfolio. Huntington continues to proactively work with our borrowing relationships that require assistance. The resulting loan structures enable our borrowers to meet their commitments and Huntington to retain earning assets. The accruing TDRs meet the well secured definition and have demonstrated a period of satisfactory payment performance.
ACL
(This section should be read in conjunction with Note 5 “Allowance for Credit Losses” of the Notes to Unaudited Condensed Consolidated Financial Statements.) Our total credit reserve is comprised of two different components, both of which in our judgment are appropriate to absorb lifetime expected credit losses in our loan and lease portfolio: the ALLL and the AULC. Combined, these reserves comprise the total ACL.
Effective January 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 lossThe models used within our loan and lease portfolio. These modelsportfolio 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
24 Huntington Bancshares Incorporated
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.
20 Huntington Bancshares Incorporated
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.Gross Domestic Product (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 economicmacroeconomic 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 by Huntington during the 2020 third2021 first quarter continued to reflect the impact of the COVID-19 pandemic. The baseline scenario used for the quarter 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. Given that expectation, unemployment is forecast at 9.8% at the end of third quarter, compared to 15.0% for the prior quarter. ThisThe unemployment variable is incorporated within our models as both a rate of change variable and an absolute level variable. Historically, changes in unemployment have taken gradual paths resulting in more measured impacts each quarter.
The baseline scenario forecasts stronger GDP growth for the rest of 2020 and throughout 2021 compared to the second quarter forecast driven by additional fiscal stimulus, which is now anticipated before the end of 2020.
The table below is intended to show how the forecasted path of these key macroeconomic variables has changed since the first quarter:end of 2020:
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Table 14 - Forecasted Key Macroeconomic Variables | |
Baseline scenario forecast | | 2020 | | 2021 | | | |
| Q4 | | Q2 | | Q4 | | | | | |
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Unemployment rate (1) | | | | | | | | | | | |
1Q 2020 | | 6.5 | % | | 6.7 | % | | 6.7 | % | | | | | |
2Q 2020 | | 9.0 | | | 9.2 | | | 9.3 | | | | | | |
3Q 2020 | | 9.5 | | | 9.3 | | | 9.1 | | | | | | |
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Gross Domestic Product (1) | | | | | | | | | | | |
1Q 2020 | | 2.4 | % | | 2.6 | % | | 3.3 | % | | | | | |
2Q 2020 | | 0.6 | | | 1.0 | | | 2.1 | | | | | | |
3Q 2020 | | 2.8 | | | 2.1 | | | 2.7 | | | | | | |
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(1) Values reflect the baseline scenario forecast inputs for each period presented, not updated for subsequent actual amounts. | |
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Table 10 - Forecasted Key Macroeconomic Variables |
Baseline scenario forecast | 2020 | | 2021 | | 2022 |
| Q4 | | Q2 | | Q4 | | Q2 | | Q4 |
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Unemployment rate (1) | | | | | | | | | |
4Q 2020 | 7.2 | % | | 7.5 | % | | 7.2 | % | | 6.4 | % | | 5.5 | % |
1Q 2021 | N/A | | 6.3 | | | 5.7 | | | 5.0 | | | 4.5 | |
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Gross Domestic Product (1) | | | | | | | | | |
4Q 2020 | 3.0 | % | | 3.8 | % | | 5.8 | % | | 4.4 | % | | 3.9 | % |
1Q 2021 | N/A | | 5.2 | | | 5.8 | | | 5.3 | | | 3.5 | |
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(1) Values reflect the baseline scenario forecast inputs for each period presented, not updated for subsequent actual amounts. |
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The uncertainty related to the COVID-19 pandemic prompted management to continue to assess the macroeconomic environment through the end of the quarter. Management considered multiple macro-economicmacroeconomic forecasts that reflected a range of possible outcomes in order to capture the 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 (“ACL”), the ultimate impact of COVID-19 is still uncertain, including 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 potentialadditional stimulus packages,spending enacted into law during the first quarter, 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.
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 fundamental uncertainty that remainsimpact of the unemployment variable utilized within the economy,models and contemplating the downside risksuncertainty associated with the third quarter baselinekey economic scenario assumptions, for example, that there willthe March 31, 2021 ACL included a material general reserve component as well as additional industry specific risk profiles to capture economic uncertainty not be a second wave ofaddressed within the virus that seriously disrupts business activity again, the executive level committee responsible for the governance process around the use of economic scenarios determined that it was appropriate to use a probability weighted scenario to estimate the appropriateness and adequacy of the allowance as of the 2020 third quarter.quantitative transaction reserve.
Our ACL development methodology committee is responsible for governance ofdeveloping 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 Unaudited Condensed 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.
26 Huntington Bancshares Incorporated
The table below reflects the allocation of our ALLL among our various loan categories during each of the past five quarters:
| Table 15 - Allocation of Allowance for Credit Losses (1) | |
Table 11 - Allocation of Allowance for Credit Losses (1) | | Table 11 - Allocation of Allowance for Credit Losses (1) |
| (dollar amounts in millions) | (dollar amounts in millions) | September 30, 2020 | | June 30, 2020 | | March 31, 2020 | | December 31, 2019 | | September 30, 2019 | (dollar amounts in millions) | March 31, 2021 | | December 31, 2020 | | September 30, 2020 | | June 30, 2020 | | March 31, 2020 |
ALLL | ALLL | | | | | | | | | | ALLL | | | | | | | | | |
Commercial | Commercial | | Commercial | |
Commercial and industrial | Commercial and industrial | $ | 912 | | | 43 | % | | $ | 923 | | | 44 | % | | $ | 837 | | | 42 | % | | $ | 469 | | | 41 | % | | $ | 441 | | | 41 | % | Commercial and industrial | $ | 865 | | | 43 | % | | $ | 939 | | | 43 | % | | $ | 912 | | | 43 | % | | $ | 923 | | | 44 | % | | $ | 837 | | | 42 | % |
Commercial real estate | Commercial real estate | 351 | | | 8 | | | 246 | | | 8 | | | 159 | | | 9 | | | 83 | | | 8 | | | 120 | | | 10 | | Commercial real estate | 332 | | | 9 | | | 297 | | | 9 | | | 351 | | | 8 | | | 246 | | | 8 | | | 159 | | | 9 | |
Total commercial | Total commercial | 1,263 | | | 51 | | | 1,169 | | | 52 | | | 996 | | | 51 | | | 552 | | | 49 | | | 561 | | | 51 | | Total commercial | 1,197 | | | 52 | | | 1,236 | | | 52 | | | 1,263 | | | 51 | | | 1,169 | | | 52 | | | 996 | | | 51 | |
Consumer | Consumer | | | | | | | | | | | | | | | | | | | | Consumer | | | | | | | | | | | | | | | | | | | |
Automobile | Automobile | 163 | | | 17 | | | 177 | | | 16 | | | 148 | | | 17 | | | 57 | | | 17 | | | 54 | | | 15 | | Automobile | 156 | | | 16 | | | 166 | | | 16 | | | 163 | | | 17 | | | 177 | | | 16 | | | 148 | | | 17 | |
Home equity | Home equity | 103 | | | 11 | | | 105 | | | 11 | | | 120 | | | 11 | | | 50 | | | 12 | | | 47 | | | 12 | | Home equity | 90 | | | 11 | | | 124 | | | 11 | | | 103 | | | 11 | | | 105 | | | 11 | | | 120 | | | 11 | |
Residential mortgage | Residential mortgage | 69 | | | 15 | | | 44 | | | 15 | | | 53 | | | 15 | | | 23 | | | 15 | | | 22 | | | 15 | | Residential mortgage | 73 | | | 15 | | | 79 | | | 15 | | | 69 | | | 15 | | | 44 | | | 15 | | | 53 | | | 15 | |
RV and marine | RV and marine | 116 | | | 5 | | | 125 | | | 5 | | | 97 | | | 5 | | | 21 | | | 5 | | | 20 | | | 5 | | RV and marine | 114 | | | 5 | | | 129 | | | 5 | | | 116 | | | 5 | | | 125 | | | 5 | | | 97 | | | 5 | |
Other consumer | Other consumer | 82 | | | 1 | | | 82 | | | 1 | | | 90 | | | 1 | | | 80 | | | 2 | | | 79 | | | 2 | | Other consumer | 73 | | | 1 | | | 80 | | | 1 | | | 82 | | | 1 | | | 82 | | | 1 | | | 90 | | | 1 | |
Total consumer | Total consumer | 533 | | | 49 | | | 533 | | | 48 | | | 508 | | | 49 | | | 231 | | | 51 | | | 222 | | | 49 | | Total consumer | 506 | | | 48 | | | 578 | | | 48 | | | 533 | | | 49 | | | 533 | | | 48 | | | 508 | | | 49 | |
Total ALLL | Total ALLL | 1,796 | | | 100 | % | | 1,702 | | | 100 | % | | 1,504 | | | 100 | % | | 783 | | | 100 | % | | 783 | | | 100 | % | Total ALLL | 1,703 | | | 100 | % | | 1,814 | | | 100 | % | | 1,796 | | | 100 | % | | 1,702 | | | 100 | % | | 1,504 | | | 100 | % |
AULC | AULC | 82 | | | | | 119 | | | | | 99 | | | | | 104 | | | | | 101 | | | | AULC | 38 | | | | | 52 | | | | | 82 | | | | | 119 | | | | | 99 | | | |
Total ACL | Total ACL | $ | 1,878 | | | $ | 1,821 | | | $ | 1,603 | | | $ | 887 | | | $ | 884 | | | Total ACL | $ | 1,741 | | | $ | 1,866 | | | $ | 1,878 | | | $ | 1,821 | | | $ | 1,603 | | |
Total ALLL as a % of | Total ALLL as a % of | Total ALLL as a % of |
Total loans and leases | Total loans and leases | | 2.21% | | 2.12% | | 1.93% | | 1.04% | | 1.05% | Total loans and leases | | 2.12% | | 2.22% | | 2.21% | | 2.12% | | 1.93% |
Nonaccrual loans and leases | Nonaccrual loans and leases | | 316 | | 263 | | 270 | | 167 | | 179 | Nonaccrual loans and leases | | 330 | | 341 | | 316 | | 263 | | 270 |
NPAs | NPAs | | 298 | | 239 | | 257 | | 157 | | 163 | NPAs | | 313 | | 323 | | 298 | | 239 | | 257 |
Total ACL as % of | Total ACL as % of | Total ACL as % of |
Total loans and leases | Total loans and leases | | 2.31% | | 2.27% | | 2.05% | | 1.18% | | 1.18% | Total loans and leases | | 2.17% | | 2.29% | | 2.31% | | 2.27% | | 2.06% |
Nonaccrual loans and leases | Nonaccrual loans and leases | | 330 | | 281 | | 287 | | 190 | | 202 | Nonaccrual loans and leases | | 338 | | 351 | | 330 | | 281 | | 287 |
NPAs | NPAs | | 311 | | 255 | | 273 | | 178 | | 184 | NPAs | | 320 | | 332 | | 311 | | 255 | | 273 |
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(1)Percentages represent the percentage of each loan and lease category to total loans and leases.
2020 Third2021 First Quarter versus 20192020 Fourth Quarter
At September 30, 2020,March 31, 2021, the ALLL was $1.8$1.7 billion, an increasea decrease of $1.0 billion$111 million compared to the December 31, 20192020 balance of $783 million. Of the increase, $622 million relates primarily to the deterioration in the macroeconomic economic 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.$1.8 billion. The ALLL to total loans and leases ratio increased 117decreased 10 basis points to 2.21%2.12%
As referenced above, the implementation of CECL resulted in a January 1 adoption impact of $391 million. The ACL to total loans ratio was 2.31%2.17% at September 30, 2020March 31, 2021 compared to 1.18%2.29% at December 31, 2019, which reflects the transition2020. The decrease was primarily related to the CECL lifetime loss methodology, the deteriorationa reduction in credit reserves reflecting an improvement in the macroeconomic outlook resulting from the COVID-19 pandemic and increased reserves related to the oil and gas portfolio.economic outlook.
2020 3Q Form 10-Q 2227 Huntington Bancshares Incorporated
NCOs
| Table 16 - Quarterly Net Charge-off Analysis (1) | |
Table 12 - Quarterly Net Charge-off Analysis | | Table 12 - Quarterly Net Charge-off Analysis |
| | Three Months Ended | | Three Months Ended |
| | September 30, | | June 30, | | | September 30, | | March 31, | | December 31, | | | March 31, |
(dollar amounts in millions) | (dollar amounts in millions) | 2020 | | 2020 | | | 2019 | (dollar amounts in millions) | 2021 | | 2020 | | | 2020 |
Net charge-offs (recoveries) by loan and lease type: | Net charge-offs (recoveries) by loan and lease type: | Net charge-offs (recoveries) by loan and lease type: |
Commercial: | Commercial: | | | | Commercial: | | | |
Commercial and industrial | Commercial and industrial | $ | 77 | | | $ | 80 | | | | $ | 40 | | Commercial and industrial | $ | 52 | | | $ | 58 | | | | $ | 84 | |
Commercial real estate: | Commercial real estate: | | | | Commercial real estate: | | | |
Construction | Construction | (1) | | | 1 | | | | (1) | | Construction | — | | | — | | | | — | |
Commercial | Commercial | 13 | | | (1) | | | | (1) | | Commercial | (3) | | | 32 | | | | (1) | |
Commercial real estate | Commercial real estate | 12 | | | — | | | | (2) | | Commercial real estate | (3) | | | 32 | | | | (1) | |
Total commercial | Total commercial | 89 | | | 80 | | | | 38 | | Total commercial | 49 | | | 90 | | | | 83 | |
Consumer: | Consumer: | | | | | | | Consumer: | | | | | | |
Automobile | Automobile | 10 | | | 10 | | | | 8 | | Automobile | 2 | | | 6 | | | | 7 | |
Home equity | Home equity | — | | | — | | | | 2 | | Home equity | — | | | 1 | | | | 5 | |
Residential mortgage | Residential mortgage | 1 | | | — | | | | 1 | | Residential mortgage | — | | | 1 | | | | 1 | |
RV and marine | RV and marine | 4 | | | 4 | | | | 2 | | RV and marine | 3 | | | 2 | | | | 2 | |
Other consumer | Other consumer | 9 | | | 13 | | | | 22 | | Other consumer | 10 | | | 12 | | | | 19 | |
Total consumer | Total consumer | 24 | | | 27 | | | | 35 | | Total consumer | 15 | | | 22 | | | | 34 | |
Total net charge-offs | Total net charge-offs | $ | 113 | | | $ | 107 | | | | $ | 73 | | Total net charge-offs | $ | 64 | | | $ | 112 | | | | $ | 117 | |
| | | Net charge-offs (recoveries) - annualized percentages: | Net charge-offs (recoveries) - annualized percentages: | Net charge-offs (recoveries) - annualized percentages: |
Commercial: | Commercial: | | | | Commercial: | | | |
Commercial and industrial | Commercial and industrial | 0.90 | % | | 0.90 | % | | | 0.52 | % | Commercial and industrial | 0.60 | % | | 0.67 | % | | | 1.09 | % |
Commercial real estate: | Commercial real estate: | | | | Commercial real estate: | | | |
Construction | Construction | (0.25) | | | (0.01) | | | | (0.40) | | Construction | (0.04) | | | (0.04) | | | | 0.08 | |
Commercial | Commercial | 0.80 | | | (0.03) | | | | (0.09) | | Commercial | (0.17) | | | 2.14 | | | | (0.06) | |
Commercial real estate | Commercial real estate | 0.63 | | | (0.03) | | | | (0.14) | | Commercial real estate | (0.15) | | | 1.81 | | | | (0.03) | |
Total commercial | Total commercial | 0.85 | | | 0.75 | | | | 0.40 | | Total commercial | 0.47 | | | 0.86 | | | | 0.89 | |
Consumer: | Consumer: | | | | | | | Consumer: | | | | | | |
Automobile | Automobile | 0.31 | | | 0.31 | | | | 0.26 | | Automobile | 0.05 | | | 0.21 | | | | 0.22 | |
Home equity | Home equity | (0.02) | | | 0.08 | | | | 0.11 | | Home equity | 0.02 | | | 0.01 | | | | 0.19 | |
Residential mortgage | Residential mortgage | 0.03 | | | 0.02 | | | | 0.03 | | Residential mortgage | 0.01 | | | 0.05 | | | | 0.02 | |
RV and marine | RV and marine | 0.38 | | | 0.37 | | | | 0.23 | | RV and marine | 0.29 | | | 0.21 | | | | 0.27 | |
Other consumer | Other consumer | 3.55 | | | 4.80 | | | | 7.07 | | Other consumer | 3.99 | | | 4.35 | | | | 6.45 | |
Total consumer | Total consumer | 0.24 | | | 0.30 | | | | 0.38 | | Total consumer | 0.16 | | | 0.22 | | | | 0.35 | |
Net charge-offs as a % of average loans | Net charge-offs as a % of average loans | 0.56 | % | | 0.54 | % | | | 0.39 | % | Net charge-offs as a % of average loans | 0.32 | % | | 0.55 | % | | | 0.62 | % |
(1) As a result of the COVID-19 pandemic, Huntington suspended repossessions for most of 2020 second quarter and foreclosures remain suspended. Additionally, loans in a payment deferral program which are performing according to their modified terms are generally not considered delinquent. While there were some changes to the charge-off process, we continued to accurately reflect the loss content associated with loans considered delinquent.
2020 Third2021 First Quarter versus 2020 SecondFourth Quarter
NCOs were an annualized 0.56%0.32% of average loans and leases in the current quarter, increasingdecreasing from 0.54%0.55% in the 2020 secondfourth quarter, and very close tobelow our average through-the-cycle target range of 0.35% - 0.55%. Annualized NCOs for the commercial portfolios were 0.85%0.47% in the current quarter compared to 0.75%0.86% in the 2020 secondfourth quarter. The commercial NCOs continue to be centered in our oil and gas portfolio. Consumer charge-offs were lower for the quarter, across the consumer portfolio, consistent with our expectations.
28 Huntington Bancshares Incorporated
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Table 17 - Year to Date Net Charge-off Analysis (1) |
| Nine Months Ended September 30, |
(dollar amounts in millions) | 2020 | | 2019 |
Net charge-offs (recoveries) by loan and lease type: | | | |
Commercial: | | | |
Commercial and industrial | $ | 241 | | | $ | 92 | |
Commercial real estate: | | | |
Construction | — | | | (2) | |
Commercial | 11 | | | (1) | |
Commercial real estate | 11 | | | (3) | |
Total commercial | 252 | | | 89 | |
Consumer: | | | |
Automobile | 27 | | | 23 | |
Home equity | 5 | | | 7 | |
Residential mortgage | 2 | | | 5 | |
RV and marine | 10 | | | 7 | |
Other consumer | 41 | | | 61 | |
Total consumer | 85 | | | 103 | |
Total net charge-offs | $ | 337 | | | $ | 192 | |
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Net charge-offs (recoveries) - annualized percentages: | | | |
Commercial: | | | |
Commercial and industrial | 0.96 | % | | 0.40 | % |
Commercial real estate: | | | |
Construction | (0.06) | | | (0.19) | |
Commercial | 0.25 | | | (0.03) | |
Commercial real estate | 0.20 | | | (0.06) | |
Total commercial | 0.83 | | | 0.32 | |
Consumer: | | | |
Automobile | 0.28 | | | 0.25 | |
Home equity | 0.09 | | | 0.10 | |
Residential mortgage | 0.02 | | | 0.06 | |
RV and marine | 0.34 | | | 0.29 | |
Other consumer | 4.99 | | | 6.41 | |
Total consumer | 0.30 | | | 0.37 | |
Net charge-offs as a % of average loans | 0.57 | % | | 0.34 | % |
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(1) As a result of the COVID-19 pandemic, Huntington suspended repossessions for most of 2020 second quarter and foreclosures remain suspended. Additionally, loans in a payment deferral program which are performing according to their modified terms are generally not considered delinquent. While there were some changes to the charge-off process, we continued to accurately reflect the loss content associated with loans considered delinquent.
2020 First Nine Months versus 2019 First Nine Months
NCOs increased $145 million in the first nine-month period of 2020 to $337 million. 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
(This section should be read in conjunction with the “Market Risk” section of our 20192020 Form 10-K for our on-going market risk management processes.)
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 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 in Huntington’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 forecasted scenarios are inclusive of allrealized income of 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.
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Table 18 - Net Interest Income at Risk |
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| Net Interest Income at Risk (%) |
Basis point change scenario | -25 | | +100 | | +200 |
Board policy limits | -1.3 | % | | -2.0 | % | | -4.0 | % |
September 30, 2020 | -0.9 | % | | 2.6 | % | | 5.3 | % |
December 31, 2019 | NA | | 1.0 | % | | 2.3 | % |
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Table 14 - Net Interest Income at Risk |
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| Net Interest Income at Risk (%) |
Basis point change scenario | -25 | | +100 | | +200 |
Board policy limits | -1.3 | % | | -2.0 | % | | -4.0 | % |
March 31, 2021 | -0.6 | | | 3.0 | | | 6.6 | |
December 31, 2020 | -1.1 | | | 3.4 | | | 7.3 | |
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 beginning September 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 both September 30, 2020,March 31, 2021, and December 31, 2019.2020. The change in sensitivity is primarily driven by changes in market rate expectations, and the size and mix of the balance sheet.
30 Huntington Bancshares Incorporated
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Table 19 - Economic Value of Equity at Risk |
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| Economic Value of Equity at Risk (%) |
Basis point change scenario | -25 | | +100 | | +200 |
Board policy limits | -1.5 | % | | -6.0 | % | | -12.0 | % |
September 30, 2020 | -1.0 | % | | 4.0 | % | | 4.1 | % |
December 31, 2019 | NA | | -3.1 | % | | -9.1 | % |
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Table 15 - Economic Value of Equity at Risk |
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| Economic Value of Equity at Risk (%) |
Basis point change scenario | -25 | | +100 | | +200 |
Board policy limits | -1.5 | % | | -6.0 | % | | -12.0 | % |
March 31, 2021 | — | | | -1.3 | | | -4.4 | |
December 31, 2020 | -0.7 | | | 1.4 | | | -0.1 | |
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 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 beginning September 30, 2020. Management does consider additional scenarios with forecasted negative market rates which would result in margin deterioration.
We are within our Board of Directors’ policy limits for the -25, +100 and +200 basis point scenarios. TheAs of March 31st, EVE depicts an asseta liability sensitive (long duration) balance sheet profile. The change in sensitivity from December 31st 2020’s asset sensitive (short duration) position was driven primarily by lower interest rates slowing depositchanges in the spot market rate curve impacting forecasted runoff expectations, and to a lesser extent, expected securities portfolio runoff.the size and shape of the balance sheet.
24 Huntington Bancshares Incorporated
Use of Derivatives to Manage Interest Rate Risk
An integral component of our interest rate risk management strategy is 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 ratecaps and floors, forward contracts, and forward starting interest rate swaps.
Table 2016 shows all swap, floor and floorcap positions that are utilized for purposes of managing our exposures to the variability of interest rates. The interest rates variability may impact either the fair value of the assets and liabilities or impact the cash flows attributable to net interest margin. These positions are used to convertprotect the fair value of asset and liabilities by converting the contractual interest rate index of agreed-upon amountson a specified amount of assets and liabilities (i.e., notional amounts) to another interest rate index orindex. The positions are also used to hedge forecasted transactions for the variability in cash flows attributable to the contractually specified interest rate by converting the variable rate index into a fixed rate. The volume, maturity and mix of portfolio swapsderivative 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 1312 “Derivative Financial Instruments” of the Notes to Unaudited Condensed Consolidated Financial Statements.
The following table presents additional information about the interest rate swaps, caps and floors used in Huntington’s asset and liability management activities at September 30, 2020March 31, 2021 and December 31, 2019.2020.
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Table 20 - Weighted-Average Maturity, Receive Rate and LIBOR Reset Rate on Asset Liability Management Instruments |
| September 30, 2020 |
| | | Average Maturity (years) | | | | Weighted-Average Fixed Rate | | Weighted-Average LIBOR Reset Rate |
(dollar amounts in millions) | Notional Value | | | Fair Value | | |
Asset conversion swaps | | | | | | | | | |
Receive Fixed - 1 month LIBOR | $ | 6,525 | | | 2.28 | | | $ | 286 | | | 1.81 | % | | 0.15 | % |
Receive Variable - 1 month LIBOR (a) | 2,940 | | | 1.68 | | | (2) | | | 0.14 | | | 0.15 | |
Receive Fixed - 1 month LIBOR - forward starting (b) | 750 | | | 3.54 | | | 24 | | | 1.24 | | | — | |
Receive Variable - 1 month LIBOR - forward starting (c) | 369 | | | 7.87 | | | — | | | 0.46 | | | — | |
Liability conversion swaps | | | | | | | | | |
Receive Fixed - 1 month LIBOR | 5,697 | | | 2.22 | | | 307 | | | 2.29 | | | 0.15 | |
Receive Fixed - 3 month LIBOR | 1,290 | | | 0.40 | | | 11 | | | 1.86 | | | 0.25 | |
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Total swap portfolio at September 30, 2020 | $ | 17,571 | | | | | $ | 626 | | | | | |
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| September 30, 2020 |
| | | Average Maturity (years) | | | | Weighted-Average Floor Strike | | Weighted-Average LIBOR Reset Rate |
(dollar amounts in millions) | Notional Value | | | Fair Value | | |
Interest rate floors | | | | | | | | | |
Purchased Interest Rate Floors - 1 month LIBOR | $ | 7,200 | | | 0.62 | | | $ | 88 | | | 1.81 | % | | 0.15 | % |
Floor Spread - 1 month LIBOR | 400 | | | 1.99 | | | 8 | | | 2.50 / 1.50 | | 0.14 | |
Floor Spread - 1 month LIBOR forward starting (d) | 2,500 | | | 3.97 | | | 77 | | | 1.65 / 0.70 | | — | |
Floor Spread - 1 month LIBOR (economic hedges) | 1,000 | | | 2.54 | | 20 | | | 1.75 / 1.00 | | 0.15 | |
Total floors portfolio at September 30, 2020 | $ | 11,100 | | | | | $ | 193 | | | | | |
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| December 31, 2019 |
| | | Average Maturity (years) | | | | Weighted-Average Fixed Rate | | Weighted-Average LIBOR Reset Rate |
(dollar amounts in millions) | Notional Value | | | Fair Value | | |
Asset conversion swaps | | | | | | | | | |
Receive Fixed - 1 month LIBOR | $ | 5,387 | | | 2.87 | | | $ | 51 | | | 1.89 | % | | 1.73% |
Receive Fixed - 1 month LIBOR - forward starting (e) | 3,250 | | | 4.02 | | | (28) | | | 1.32 | | | — | |
Liability conversion swaps | | | | | | | | | |
Receive Fixed - 1 month LIBOR | 5,250 | | | 2.97 | | | 146 | | | 2.37 | | | 1.72 | |
Receive Fixed - 3 month LIBOR | 2,290 | | | 0.84 | | | 5 | | | 1.80 | | | 1.94 | |
Total swap portfolio at December 31, 2019 | $ | 16,177 | | | | | $ | 174 | | | | | |
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| December 31, 2019 |
| | | Average Maturity (years) | | | | Weighted-Average Floor Strike | | Weighted-Average LIBOR Reset Rate |
(dollar amounts in millions) | Notional Value | | | Fair Value | | |
Interest rate floors | | | | | | | | | |
Purchased Interest Rate Floors - 1 month LIBOR | $ | 9,200 | | | 1.45 | | | $ | 36 | | | 1.84 | % | | 1.54 | % |
Floor Spread - 1 month LIBOR | 400 | | | 2.74 | | | 8 | | | 2.50 / 1.50 | | 1.79 | |
Floor Spread - 1 month LIBOR - forward starting (f) | 150 | | | 4.34 | | 2 | | | 1.75 / 1.00 | | — | |
Total floors portfolio at December 31, 2019 | $ | 9,750 | | | | | $ | 46 | | | | | |
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Table 16 - Weighted-Average Maturity, Receive Rate and LIBOR Reset Rate on Asset Liability Management Instruments |
| March 31, 2021 |
| | | Average Maturity (years) | | | | Weighted-Average Fixed Rate | | Weighted-Average LIBOR Reset Rate |
(dollar amounts in millions) | Notional Value | | | Fair Value | | |
Asset conversion swaps | | | | | | | | | |
Receive Fixed - Pay 1 month LIBOR | $ | 6,525 | | | 1.78 | | | $ | 219 | | | 1.81 | % | | 0.11 | % |
Pay Fixed - Receive 1 month LIBOR (1) | 2,957 | | | 2.48 | | | 38 | | | 0.22 | | | 0.11 | |
Receive Fixed - Pay 1 month LIBOR - forward starting (2) | 750 | | | 3.04 | | | 18 | | | 1.24 | | | — | |
Pay Fixed - Receive 1 month LIBOR - forward starting (3) | 233 | | | 9.35 | | | 9 | | | 1.12 | | | |
Liability conversion swaps | | | | | | | | | |
Receive Fixed - Pay 1 month LIBOR | 5,397 | | | 1.77 | | | 217 | | | 2.28 | | | 0.11 | |
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Basis Swaps | | | | | | | | | |
Pay SOFR- Receive Fed Fund (economic hedges) (4) | 230 | | | 4.41 | | | — | | | 0.07 | | | 0.02 | |
Pay Fed Fund - Receive SOFR (economic hedges) (4) | 41 | | | 1.73 | | | — | | | 0.01 | | | 0.07 | |
Total swap portfolio | $ | 16,133 | | | | | $ | 501 | | | | | |
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| March 31, 2021 |
| | | Average Maturity (years) | | | | Weighted-Average Strike | | Weighted-Average LIBOR Reset Rate |
(dollar amounts in millions) | Notional Value | | | Fair Value | | |
Interest rate floors | | | | | | | | | |
Purchased Interest Rate Floors - 1 month LIBOR | $ | 6,175 | | | 0.15 | | | $ | 28 | | | 1.76 | % | | 0.11 | % |
Purchased Floor Spread - 1 month LIBOR | 525 | | | 1.57 | | | 8 | | | 2.50 / 1.50 | | 0.11 | |
Purchased Floor Spread - 1 month LIBOR forward starting (5) | 2,375 | | | 3.56 | | | 59 | | | 1.56 / 0.65 | | — | |
Purchased Floor Spread - 1 month LIBOR (economic hedges) | 1,000 | | | 2.04 | | | 16 | | | 1.75 / 1.00 | | 0.11 | |
Interest rate caps | | | | | | | | | |
Purchased Cap - 1 month LIBOR (economic hedges) | 5,000 | | | 6.66 | | | 244 | | | 0.98 | | | 0.11 | |
Written Cap - 1 month LIBOR (economic hedges) | 1,500 | | | 6.58 | | | (25) | | | 2.94 | | | 0.11 | |
Written Cap - 1 month LIBOR forward starting (economic hedges) (2) | 1,500 | | | 6.59 | | | (24) | | | 3.00 | | | — | |
Total floors and caps portfolio | $ | 18,075 | | | | | $ | 306 | | | | | |
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| December 31, 2020 |
| | | Average Maturity (years) | | | | Weighted-Average Fixed Rate | | Weighted-Average LIBOR Reset Rate |
(dollar amounts in millions) | Notional Value | | | Fair Value | | |
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 (6) | 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 Swaps | | | | | | | | | |
Pay 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 | | | | | |
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| December 31, 2020 |
| | | Average Maturity (years) | | | | Weighted-Average Floor Strike | | Weighted-Average LIBOR Reset Rate |
(dollar amounts in millions) | Notional Value | | | Fair Value | | |
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 (7) | 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 and caps portfolio | $ | 16,100 | | | | | $ | 251 | | | | | |
(1)Amounts include interest rate swaps as fair value hedges of fixed-rate investment securities using the last-of-layer method.
(b)(2)Forward starting swaps will becomeand caps effective starting in April 2021.
(c)(3)Forward starting swaps will become effective starting from October 2020April 2021 to AprilMay 2021.
(d)(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 starting from April 2021 to June 2021.
(6)Forward starting swaps become effective starting from January 2021 to May 2021.
(7)Forward starting floors become effective starting from March 2021 to June 2021.
(e)Forward starting swaps will become effectiveDuring the fourth quarter of 2020, we purchased (long) $5.0 billion notional of interest rate caps with an average strike price of 98 basis points to reduce the impact on capital from January 2020rising rates and designated them as economic hedges of interest rate risk attributable to June 2021.our long-term debt. Subsequently, in the first quarter of 2021, we entered into an incremental $3.0 billion notional of written (short) interest rates caps with an average strike price of 297 basis points and created a collar-like position for hedging our interest rate risk.
(f)Forward starting floors will become effective from March 2021Net interest income in the current quarter included a $144 million mark-to-market of interest rate caps (including caps written in the first quarter of 2021). The mark-to-market is not included in the NII at Risk calculations above. As these positions are marked-to-market through net interest income each quarter, we expect impact in our reported net interest margin. However, the partial collar-like position that was created by selling the interest caps is expected to June 2021.dampen those impacts.
3226 Huntington Bancshares Incorporated
MSRs
On January 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.
At September 30, 2020,March 31, 2021, we had a total of $191$274 million of capitalized MSRs representing the right to service $23$24 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.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 Unaudited Condensed 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
(This section should be read in conjunction with the “Liquidity Risk” section of our 20192020 Form 10-K for our on-going liquidity risk management processes.)
During the first three quarters of 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 to Huntington’s liquidity position.
Our primary source of liquidity is our core deposit base. Core deposits comprised approximately 96%97% of total deposits at September 30, 2020.March 31, 2021. 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 $7.1$13.4 billion as of September 30, 2020.March 31, 2021.
Bank Liquidity and Sources of Funding
Our primary sources of funding for the Bank are retail and commercial core deposits. At September 30, 2020,March 31, 2021, these core deposits funded 76%79% of total assets (112%(124% of total loans). Other sources of liquidity include non-core deposits, FHLB advances, wholesale debt instruments, and securitizations. Demand deposit overdrafts that have been reclassified as loan balances were $17$16 million and $25$14 million at September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively.
2020 3Q2021 1Q Form 10-Q 3327
The following table reflects deposit composition detail for each of the last five quarters:
| Table 21 - Deposit Composition | |
Table 17 - Deposit Composition | | Table 17 - Deposit Composition |
| | | September 30, | | June 30, | | March 31, | | December 31, | | September 30, | | March 31, | | December 31, | | September 30, | | June 30, | | March 31, |
(dollar amounts in millions) | (dollar amounts in millions) | 2020 | | 2020 | | 2020 | | 2019 | | 2019 | (dollar amounts in millions) | 2021 | | 2020 | | 2020 | | 2020 | | 2020 |
By Type: | By Type: | | | | | | | | | | By Type: | | | | | | | | | |
Demand deposits—noninterest-bearing | Demand deposits—noninterest-bearing | $ | 27,466 | | | 29 | % | | $ | 27,574 | | | 29 | % | | $ | 21,039 | | | 24 | % | | $ | 20,247 | | | 25 | % | | $ | 20,553 | | | 25 | % | Demand deposits—noninterest-bearing | $ | 31,226 | | | 30 | % | | $ | 28,553 | | | 29 | % | | $ | 27,466 | | | 29 | % | | $ | 27,574 | | | 29 | % | | $ | 21,039 | | | 24 | % |
Demand deposits—interest-bearing | Demand deposits—interest-bearing | 24,242 | | | 25 | | | 22,961 | | | 25 | | | 23,115 | | | 27 | | | 20,583 | | | 25 | | | 19,976 | | | 24 | | Demand deposits—interest-bearing | 27,493 | | | 27 | | | 26,757 | | | 27 | | | 24,242 | | | 25 | | | 22,961 | | | 25 | | | 23,115 | | | 27 | |
Money market deposits | Money market deposits | 26,230 | | | 28 | | | 25,312 | | | 27 | | | 25,068 | | | 29 | | | 24,726 | | | 30 | | | 23,977 | | | 29 | | Money market deposits | 26,268 | | | 26 | | | 26,248 | | | 27 | | | 26,230 | | | 28 | | | 25,312 | | | 27 | | | 25,068 | | | 29 | |
Savings and other domestic deposits | Savings and other domestic deposits | 11,268 | | | 12 | | | 11,034 | | | 12 | | | 9,845 | | | 11 | | | 9,549 | | | 12 | | | 9,566 | | | 12 | | Savings and other domestic deposits | 13,115 | | | 13 | | | 11,722 | | | 12 | | | 11,268 | | | 12 | | | 11,034 | | | 12 | | | 9,845 | | | 11 | |
Core certificates of deposit (1) | Core certificates of deposit (1) | 1,586 | | | 2 | | | 2,478 | | | 3 | | | 3,599 | | | 4 | | | 4,356 | | | 5 | | | 5,443 | | | 7 | | Core certificates of deposit (1) | 1,329 | | | 1 | | | 1,425 | | | 1 | | | 1,586 | | | 2 | | | 2,478 | | | 3 | | | 3,599 | | | 4 | |
Total core deposits: | Total core deposits: | 90,792 | | | 96 | | | 89,359 | | | 96 | | | 82,666 | | | 95 | | | 79,461 | | | 97 | | | 79,515 | | | 97 | | Total core deposits: | 99,431 | | | 97 | | | 94,705 | | | 96 | | | 90,792 | | | 96 | | | 89,359 | | | 96 | | | 82,666 | | | 95 | |
Other domestic deposits of $250,000 or more | Other domestic deposits of $250,000 or more | 156 | | | — | | | 209 | | | — | | | 276 | | | — | | | 313 | | | — | | | 326 | | | — | | Other domestic deposits of $250,000 or more | 105 | | | — | | | 131 | | | — | | | 156 | | | — | | | 209 | | | — | | | 276 | | | — | |
Brokered deposits and negotiable CDs | Brokered deposits and negotiable CDs | 4,206 | | | 4 | | | 4,123 | | | 4 | | | 3,888 | | | 5 | | | 2,573 | | | 3 | | | 2,554 | | | 3 | | Brokered deposits and negotiable CDs | 2,648 | | | 3 | | | 4,112 | | | 4 | | | 4,206 | | | 4 | | | 4,123 | | | 4 | | | 3,888 | | | 5 | |
| Total deposits | Total deposits | $ | 95,154 | | | 100 | % | | $ | 93,691 | | | 100 | % | | $ | 86,830 | | | 100 | % | | $ | 82,347 | | | 100 | % | | $ | 82,395 | | | 100 | % | Total deposits | $ | 102,184 | | | 100 | % | | $ | 98,948 | | | 100 | % | | $ | 95,154 | | | 100 | % | | $ | 93,691 | | | 100 | % | | $ | 86,830 | | | 100 | % |
Total core deposits: | Total core deposits: | | | | | | | | | | | | | | | | | | | | Total core deposits: | | | | | | | | | | | | | | | | | | | |
Commercial | Commercial | $ | 43,018 | | | 47 | % | | $ | 41,630 | | | 47 | % | | $ | 38,064 | | | 46 | % | | $ | 34,957 | | | 44 | % | | $ | 35,247 | | | 44 | % | Commercial | $ | 46,539 | | | 47 | % | | $ | 44,698 | | | 47 | % | | $ | 43,018 | | | 47 | % | | $ | 41,630 | | | 47 | % | | $ | 38,064 | | | 46 | % |
Consumer | Consumer | 47,774 | | | 53 | | | 47,729 | | | 53 | | | 44,602 | | | 54 | | | 44,504 | | | 56 | | | 44,268 | | | 56 | | Consumer | 52,892 | | | 53 | | | 50,007 | | | 53 | | | 47,774 | | | 53 | | | 47,729 | | | 53 | | | 44,602 | | | 54 | |
Total core deposits | Total core deposits | $ | 90,792 | | | 100 | % | | $ | 89,359 | | | 100 | % | | $ | 82,666 | | | 100 | % | | $ | 79,461 | | | 100 | % | | $ | 79,515 | | | 100 | % | Total core deposits | $ | 99,431 | | | 100 | % | | $ | 94,705 | | | 100 | % | | $ | 90,792 | | | 100 | % | | $ | 89,359 | | | 100 | % | | $ | 82,666 | | | 100 | % |
(1) Includes consumer certificates of deposit of $250,000 or more.
The Bank maintains borrowing capacity at the FHLB and the Federal 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 $55.6$48.2 billion and $39.6$53.4 billion at September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. Unused borrowing capacity from
At March 31, 2021, the FHLBmarket value of investment securities pledged to secure public and trust deposits, trading account liabilities, U.S. Treasury demand notes, and security repurchase agreements totaled $31.7 billion and $14.3 billion$4.8 billion. There were no securities of a single issuer, which are not governmental or government-sponsored, that exceeded 10% of shareholders’ equity at September 30, 2020 and DecemberMarch 31, 2019, respectively.2021.
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. At September 30, 2020,March 31, 2021, total wholesale funding was $13.8$10.2 billion, a decrease from $15.3$12.8 billion at December 31, 2019.2020. The decrease from year-end primarily relatesis due to a decrease in short-term borrowings and other long-term debt, partially offset by an increase in brokered deposits and negotiable CDs.CD and long-term debt.
At September 30, 2020,March 31, 2021, we believe the Bank has sufficient liquidity to meet its cash flow obligations for the foreseeable future.
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.
During the 2020 second quarter and third2021 first quarter, Huntington issued $500 million of Series FH Preferred Stock and $500 million of Series G Preferred Stock, respectively.Stock. See Note 98 “Shareholders’ Equity” and Note 14 of our 2020 Form 10-K for further information. At September 30, 2020March 31, 2021 and December 31, 2019,2020, the parent company had $5.3$4.1 billion and $3.1$4.4 billion, respectively, in cash and cash equivalents.
On OctoberApril 21, 2020,2021, the Board of Directors declared a quarterly common stock cash dividend of $0.15 per common share. The dividend is payable on January 4,July 1, 2021, to shareholders of record on December 18, 2020.June 17, 2021. Based on the
28 Huntington Bancshares Incorporated
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. On OctoberApril 21, 2020,2021, the Board of
34 Huntington Bancshares Incorporated
Directors also declared a quarterly Series B, Series C, Series D, Series E, Series F, Series G and Series GH Preferred Stock dividend payable on JanuaryJuly 15, 2021 to shareholders of record on JanuaryJuly 1, 2021. CashTotal cash demands required for Series B, are expected to be less than $1 million per quarter. Cash demands required for Series C, Series D, Series E, Series F, Series G and Series GH are expected to be approximately $2 million, $9 million, $7 million, $7 million, and $6$37 million per quarter, respectively.quarter.
During the first ninethree months of 2020,2021, the Bank paid preferred and common dividends of $34$11 million and $1.2$0.3 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, floors and floors,caps, financial guarantees contained in standby letters-of-credit issued by the Bank, and commitments by the Bank to sell mortgage loans.
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 significant contracts, agreements, 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 and fraud 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 ensuring that recommendations are developed to address the identified issues. In addition, we have a Model 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. A separate Board Committee on Conversions and Integration is in place to monitor the activities, risks and progress of the TCF merger.
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
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.
As disclosed in our 2019 Form 10-K, the U.S. federal banking regulatory agencies 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, the U.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.
36 Huntington Bancshares Incorporated
The following table presents certain regulatory capital data at both the consolidated and Bank levels for each of the periods presented:
| Table 22 - Regulatory Capital Data (1) | | | | |
Table 18 - Regulatory Capital Data (1) | | Table 18 - Regulatory Capital Data (1) | | | |
| | | | Basel III | | | | Basel III |
(dollar amounts in millions) | (dollar amounts in millions) | | | September 30, 2020 | | June 30, 2020 | | | September 30, 2019 | (dollar amounts in millions) | | | March 31, 2021 | | December 31, 2020 | | | March 31, 2020 |
Total risk-weighted assets | Total risk-weighted assets | Consolidated | | $ | 88,417 | | | $ | 87,323 | | | | $ | 86,719 | | Total risk-weighted assets | Consolidated | | $ | 89,494 | | | $ | 88,878 | | | | $ | 90,193 | |
| | Bank | | 88,311 | | | 87,061 | | | | 86,831 | | | Bank | | 89,140 | | | 88,601 | | | | 90,016 | |
CET I risk-based capital | CET I risk-based capital | Consolidated | | 8,744 | | | 8,596 | | | | 8,685 | | CET I risk-based capital | Consolidated | | 9,240 | | | 8,887 | | | | 8,538 | |
| | Bank | | 9,399 | | | 9,214 | | | | 9,590 | | | Bank | | 9,667 | | | 9,438 | | | | 9,887 | |
Tier 1 risk-based capital | Tier 1 risk-based capital | Consolidated | | 10,939 | | | 10,297 | | | | 9,893 | | Tier 1 risk-based capital | Consolidated | | 11,920 | | | 11,083 | | | | 9,746 | |
| | Bank | | 10,562 | | | 10,378 | | | | 10,466 | | | Bank | | 10,831 | | | 10,601 | | | | 10,760 | |
Tier 2 risk-based capital | Tier 2 risk-based capital | Consolidated | | 1,783 | | | 1,790 | | | | 1,634 | | Tier 2 risk-based capital | Consolidated | | 1,729 | | | 1,774 | | | | 1,746 | |
| | Bank | | 1,442 | | | 1,446 | | | | 1,255 | | | Bank | | 1,436 | | | 1,431 | | | | 1,481 | |
Total risk-based capital | Total risk-based capital | Consolidated | | 12,723 | | | 12,087 | | | | 11,527 | | Total risk-based capital | Consolidated | | 13,649 | | | 12,856 | | | | 11,492 | |
| | Bank | | 12,005 | | | 11,824 | | | | 11,721 | | | Bank | | 12,267 | | | 12,032 | | | | 12,241 | |
CET I risk-based capital ratio | CET I risk-based capital ratio | Consolidated | | 9.89 | % | | 9.84 | % | | | 10.02 | % | CET I risk-based capital ratio | Consolidated | | 10.32 | % | | 10.00 | % | | | 9.47 | % |
| | Bank | | 10.64 | | | 10.58 | | | | 11.05 | | | Bank | | 10.85 | | | 10.65 | | | | 10.98 | |
Tier 1 risk-based capital ratio | Tier 1 risk-based capital ratio | Consolidated | | 12.37 | | | 11.79 | | | | 11.41 | | Tier 1 risk-based capital ratio | Consolidated | | 13.32 | | | 12.47 | | | | 10.81 | |
| | Bank | | 11.96 | | | 11.92 | | | | 12.05 | | | Bank | | 12.15 | | | 11.97 | | | | 11.95 | |
Total risk-based capital ratio | Total risk-based capital ratio | Consolidated | | 14.39 | | | 13.84 | | | | 13.29 | | Total risk-based capital ratio | Consolidated | | 15.25 | | | 14.46 | | | | 12.74 | |
| | Bank | | 13.59 | | | 13.58 | | | | 13.50 | | | Bank | | 13.76 | | | 13.58 | | | | 13.60 | |
Tier 1 leverage ratio | Tier 1 leverage ratio | Consolidated | | 9.31 | | | 8.86 | | | | 9.34 | | Tier 1 leverage ratio | Consolidated | | 9.85 | | | 9.32 | | | | 9.01 | |
| | Bank | | 9.01 | | | 8.95 | | | | 9.88 | | | Bank | | 8.98 | | | 8.94 | | | | 9.98 | |
(1) The September 30, 2020 and June 30, 2020 capitalCapital ratios reflect Huntington's election of a five-year transition to delay for two years the full impact of CECL on regulatory capital, followed by a three-year transition period.
At September 30, 2020,March 31, 2021, we maintained Basel III capital ratios in excess of the well-capitalized standards established by the FRB. The increase in capital ratios was driven by earnings, adjusted for the CECL transition, offset by the repurchase of $5 million of common stock over the last four quarters (all during 2020 fourth quarter) and cash
30 Huntington Bancshares Incorporated
dividends. The balance sheet growth impact on regulatory capital ratios was driven predominatelylargely offset by a change in asset mix during 2020 related to PPP loans and elevated deposits at the Federal Reserve bothBank (both of which are 0% risk weighted, and as such did not have a material impact on the regulatory capital ratios.weighted). The capital impact of the repurchase of $284 million of common stock over the last four quarters (noneyear-over-year change in the 2020 second or third quarter) and cash dividends effectively offset earnings, adjusted for the CECL transition, on a year-over-year basis. 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 and $500 million of Series H preferred stock in the 2020 second quarter, 2020 third quarter and third2021 first 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 $12.9$13.6 billion at September 30, 2020,March 31, 2021, an increase of $1.1$0.6 billion or 10%5% when compared with December 31, 2019 due to the issuance of2020.
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 FH Non-Cumulative Perpetual Preferred Stock and $500 million(Preferred H Stock), par value $0.01 per share, with a liquidation preference of Series G Preferred Stock in the 2020 second quarter and third quarter, respectively.$1,000 per share (equivalent to $25 per depositary share).
On June 25, 2020, we were notified by the FRB that that certain large BHCs, including Huntington, were required to update and resubmit their capital plans because 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 scenarioscenarios in the supervisory stress tests, our modeled capital ratios would continue to exceed the minimum requirements under the FRB's capital adequacy rules. In addition, the FRB assigned us a stress capital buffer of 2.5%, which is the minimum under the stress capital buffer framework. Our stress capital buffer is in effect from October 1, 2020, until September 30, 2021, unless the FRB provides us with a revised stress capital buffer in connection with our resubmitted capital plan, as discussed further below. The FRB may, but is not required to, recalculate a large BHC’s stress capital buffer after receiving an updated capital plan.
The FRB also announced that certain large BHCs, including Huntington, will not be permitted to make both dividend and share repurchases subject to certain limited exceptions, during the third and fourth quartersfirst quarter of 2020, but will be permitted to make dividend payments in the fourth quarter2021, subject to limits based on the amount of dividends paid in the second quarter of 2020 and the bank'sBank's average net income for the four preceding quarters and that the FRB was extending through March 31, 2021, the time period for the FRB to notify certain large BHCs, including Huntington, whether the FRB will recalculate a large BHC’s stress capital buffer.
On March 25, 2021, we were notified by the FRB that certain large BHCs, including Huntington, would continue to be permitted to make both dividend and share repurchases during the second 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 fourthsecond quarter dividend that was declared by the Board of Directors on October 21, 2020April 22, 2021 complies with these limits. In addition, the FRB announced that it was extending, through June 30, 2021, the time period for the FRB to notify certain large BHCs including Huntington, are required to update and resubmit their capital plans during fourth quarter 2020 to reflect ongoing stresses caused bywhether the COVID-19 pandemic. The FRB will conduct additional analysis each quarterrecalculate a large BHCs stress capital buffer.
While the FRB reserves the authority to determine ifrevoke or amend the amount of the distributions, or to further extend the restrictions on fourthsecond quarter capital distributions should be extended to future quarters.quarters, the FRB announced, on March 25, 2021, that for a bank, such as Huntington, that is not subject to the supervisory stress test in 2021 and on a two-year supervisory stress testing cycle, the restrictions on capital distributions will end after June 30, 2021 and the Bank’s SCB requirements based on the June 2020 stress test will remain in place.
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.
The Board has authorized the repurchase of common shares during the 2020 fourth quarter to offset compensation plan‐related share issuances as permitted by the FRB. We may, at our discretion, repurchase common shares as permitted by this Board authorization. Purchases of common shares under the authorization may include open market purchases, privately negotiated transactions, and accelerated share repurchase programs.
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.
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.
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
38 Huntington Bancshares Incorporated
Treasury / Other. We utilize a full-allocation methodology, where all Treasury / Other expenses, except reported Significant Items, if any, 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).
32 Huntington Bancshares Incorporated
Net Income by Business Segment
Net income by business segment for the nine-monthpast three-month periods ending September 30,March 31, 2021 and March 31, 2020 and September 30, 2019 is presented in the following table:
| Table 23 - Net Income by Business Segment | |
Table 19 - Net Income by Business Segment | | Table 19 - Net Income by Business Segment |
| | Nine Months Ended September 30, | | Three Months Ended March 31, |
(dollar amounts in millions) | (dollar amounts in millions) | 2020 | | 2019 | (dollar amounts in millions) | 2021 | | 2020 |
Consumer and Business Banking | Consumer and Business Banking | $ | 249 | | | $ | 505 | | Consumer and Business Banking | $ | 111 | | | $ | 60 | |
Commercial Banking | Commercial Banking | (45) | | | 421 | | Commercial Banking | 118 | | | (86) | |
Vehicle Finance | Vehicle Finance | 81 | | | 128 | | Vehicle Finance | 76 | | | 11 | |
RBHPCG | RBHPCG | 60 | | | 87 | | RBHPCG | 25 | | | 24 | |
Treasury / Other | Treasury / Other | 156 | | | (47) | | Treasury / Other | 202 | | | 39 | |
Net income | Net income | $ | 501 | | | $ | 1,094 | | Net income | $ | 532 | | | $ | 48 | |
Treasury / Other
The Treasury / Other function includes revenue and expense related to assets, liabilities, derivatives (including the mark-to-market of interest rate caps) , 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.
2020 3Q Form 10-Q 39 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer and Business Banking | | | | | |
| | | | | | | | | | | | |
Table 20 - Key Performance Indicators for Consumer and Business Banking | | | | | |
| Three Months Ended March 31, | | Change | | | | | |
(dollar amounts in millions) | 2021 | | 2020 | | Amount | | Percent | | | | | |
Net interest income | $ | 337 | | | $ | 364 | | | $ | (27) | | | (7) | % | | | | | |
Provision for credit losses | (36) | | | 82 | | | (118) | | | (144) | | | | | | |
Noninterest income | 236 | | | 212 | | | 24 | | | 11 | | | | | | |
Noninterest expense | 469 | | | 418 | | | 51 | | | 12 | | | | | | |
Provision for income taxes | 29 | | | 16 | | | 13 | | | 81 | | | | | | |
Net income | $ | 111 | | | $ | 60 | | | $ | 51 | | | 85 | % | | | | | |
Number of employees (average full-time equivalent) | 7,808 | | | 7,769 | | | 39 | | | 1 | % | | | | | |
Total average assets | $ | 30,718 | | | $ | 24,677 | | | $ | 6,041 | | | 24 | | | | | | |
Total average loans/leases | 27,069 | | | 21,593 | | | 5,476 | | | 25 | | | | | | |
Total average deposits | 62,333 | | | 51,296 | | | 11,037 | | | 22 | | | | | | |
Net interest margin | 2.16 | % | | 2.81 | % | | (0.65) | % | | (23) | | | | | | |
NCOs | $ | 14 | | | $ | 32 | | | $ | (18) | | | (56) | | | | | | |
NCOs as a % of average loans and leases | 0.21 | % | | 0.60 | % | | (0.39) | % | | (65) | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Consumer and Business Banking |
| | | | | | | |
Table 24 - Key Performance Indicators for Consumer and Business Banking |
| Nine Months Ended September 30, | | Change |
(dollar amounts in millions) | 2020 | | 2019 | | Amount | | Percent |
Net interest income | $ | 1,099 | | | $ | 1,371 | | | $ | (272) | | | (20) | % |
Provision for credit losses | 200 | | | 81 | | | 119 | | | 147 | |
Noninterest income | 704 | | | 596 | | | 108 | | | 18 | |
Noninterest expense | 1,288 | | | 1,247 | | | 41 | | | 3 | |
Provision for income taxes | 66 | | | 134 | | | (68) | | | (51) | |
Net income | $ | 249 | | | $ | 505 | | | $ | (256) | | | (51) | % |
Number of employees (average full-time equivalent) | 7,914 | | | 8,015 | | | (101) | | | (1) | % |
Total average assets | $ | 28,161 | | | $ | 25,486 | | | $ | 2,675 | | | 10 | |
Total average loans/leases | 24,772 | | | 22,226 | | | 2,546 | | | 11 | |
Total average deposits | 55,884 | | | 51,505 | | | 4,379 | | | 9 | |
Net interest margin | 2.59 | % | | 3.51 | % | | (0.92) | % | | (26) | |
NCOs | $ | 69 | | | $ | 97 | | | $ | (28) | | | (29) | |
NCOs as a % of average loans and leases | 0.37 | % | | 0.58 | % | | (0.21) | % | | (36) | |
2021 First Three Months versus 2020 First Nine Months versus 2019 First NineThree Months
Consumer and Business Banking, including Home Lending, reported net income of $249$111 million in the first nine-monththree-month period of 2020, a decrease2021, an increase of $256$51 million, or 51%85%, compared to the year-ago period. Segment net interest income decreased $272$27 million, or 20%7%, due to decreased spread on deposits.deposits and decreased loan margin, partially offset by PPP revenues. The provision for credit losses increased $119decreased $118 million, or 147%144%, primarily due to changes in the deterioratingforecasted economic environment as a result ofoutlook compared to the COVID-19 pandemic.year-ago period. Noninterest income increased $108$24 million, or 18%11%, primarily due to increased mortgage banking income, and increased debit and ATM interchange from higher
transaction volumes, partially offset by lower service charge income reflecting reduced customer activity and pandemic-related fee waivers.overdrafts. Noninterest expense increased $41$51 million, or 3%12%, mostly due to increased personnel and allocated expenses, slightly offset by lower occupancy and equipment expenseincentives as a result of branch consolidationshigher levels of production and divestitures, along with decreased travel and operational losses.origination volume.
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 $75$24 million in the first nine-monththree-month period of 2020,2021, compared with net income of $9$11 million in the year-ago period. Noninterest income increased $154$32 million, driven primarily by higher secondary marketing spreads and an increase in salable mortgage originations.originations and higher secondary marketing spreads. Noninterest expense increased $52$21 million due to higher personnel expense as a result of higher origination volumes.
40 Huntington Bancshares Incorporated
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Banking | | | | | |
| | | | | | | | | | | | |
Table 21 - Key Performance Indicators for Commercial Banking | | | | | |
| Three Months Ended March 31, | | Change | | | | | |
(dollar amounts in millions) | 2021 | | 2020 | | Amount | | Percent | | | | | |
Net interest income | $ | 199 | | | $ | 232 | | | $ | (33) | | | (14) | % | | | | | |
Provision for credit losses | 5 | | | 298 | | | (293) | | | (98) | | | | | | |
Noninterest income | 88 | | | 86 | | | 2 | | | 2 | | | | | | |
Noninterest expense | 133 | | | 129 | | | 4 | | | 3 | | | | | | |
Provision for income taxes | 31 | | | (23) | | | 54 | | | 235 | | | | | | |
Net income (loss) | $ | 118 | | | $ | (86) | | | $ | 204 | | | 237 | % | | | | | |
Number of employees (average full-time equivalent) | 1,271 | | | 1,273 | | | (2) | | | — | % | | | | | |
Total average assets | $ | 35,918 | | | $ | 34,810 | | | $ | 1,108 | | | 3 | | | | | | |
Total average loans/leases | 26,694 | | | 27,238 | | | (544) | | | (2) | | | | | | |
Total average deposits | 25,100 | | | 21,525 | | | 3,575 | | | 17 | | | | | | |
Net interest margin | 2.78 | % | | 3.15 | % | | (0.37) | % | | (12) | | | | | | |
NCOs | $ | 46 | | | $ | 75 | | | $ | (29) | | | (39) | | | | | | |
NCOs as a % of average loans and leases | 0.68 | % | | 1.11 | % | | (0.43) | % | | (39) | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Commercial Banking |
| | | | | | | |
Table 25 - Key Performance Indicators for Commercial Banking |
| Nine Months Ended September 30, | | Change |
(dollar amounts in millions) | 2020 | | 2019 | | Amount | | Percent |
Net interest income | $ | 693 | | | $ | 798 | | | $ | (105) | | | (13) | % |
Provision for credit losses | 611 | | | 103 | | | 508 | | | 493 | |
Noninterest income | 261 | | | 266 | | | (5) | | | (2) | |
Noninterest expense | 400 | | | 427 | | | (27) | | | (6) | |
Provision for income taxes | (12) | | | 113 | | | (125) | | | (111) | |
Net (loss) income | $ | (45) | | | $ | 421 | | | $ | (466) | | | (111) | % |
Number of employees (average full-time equivalent) | 1,280 | | | 1,323 | | | (43) | | | (3) | % |
Total average assets | $ | 35,454 | | | $ | 33,678 | | | $ | 1,776 | | | 5 | |
Total average loans/leases | 27,405 | | | 27,204 | | | 201 | | | 1 | |
Total average deposits | 23,076 | | | 21,105 | | | 1,971 | | | 9 | |
Net interest margin | 3.09 | % | | 3.58 | % | | (0.49) | % | | (14) | |
NCOs | $ | 232 | | | $ | 65 | | | $ | 167 | | | 257 | |
NCOs as a % of average loans and leases | 1.13 | % | | 0.32 | % | | 0.81 | % | | 253 | |
2021 First Three Months versus 2020 First Nine Months versus 2019 First NineThree Months
Commercial Banking reported net income of $118 million in the first three-month period of 2021, compared to a net loss of $45 million in the first nine-month period of 2020, compared to net income of $421$86 million in the year-ago period driven by increased provision for credit losses.period. The provision for credit losses increased $508decreased $293 million, or 493%98%, primarily due to changes in the deterioratingforecasted economic environment as a result ofoutlook compared to the COVID-19 pandemic, as well as an increase in reserves largely driven by the oil and gas portfolio and a $38 million coal-related commercial credit.year-ago period. Segment net interest income decreased $105$33 million, or 13%14%, primarily due to a 4937 basis point decrease in net interest margin driven by a sharp decline in the benefit of deposits. Noninterest income decreased $5increased $2 million, or 2%, largely driven by lower fixed income brokerage revenue partially offset by an increase in treasury management related revenue.revenue reflecting the impact of lower earnings credit rates on commercial deposits, partially offset by a decline in capital markets driven by decline in interest rate derivative income. Noninterest expense decreased $27increased $4 million, or 6%3%, primarily due to personnel expense reflecting an increase in incentives, partially offset by a reduction in incentives and a 3% reduction in full-time equivalent employees; lower allocated overhead; and lower travel and business development expense primarily reflecting reduced travel stemming from the COVID-19 pandemic.
34 Huntington Bancshares Incorporated
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Vehicle Finance | | | | | |
| | | | | | | | | | | | |
Table 22 - Key Performance Indicators for Vehicle Finance | | | | | |
| Three Months Ended March 31, | | Change | | | | | |
(dollar amounts in millions) | 2021 | | 2020 | | Amount | | Percent | | | | | |
Net interest income | $ | 107 | | | $ | 106 | | | $ | 1 | | | 1 | % | | | | | |
Provision for credit losses | (22) | | | 60 | | | (82) | | | (137) | | | | | | |
Noninterest income | 3 | | | 3 | | | — | | | — | | | | | | |
Noninterest expense | 35 | | | 35 | | | — | | | — | | | | | | |
Provision for income taxes | 21 | | | 3 | | | 18 | | | 600 | | | | | | |
Net income | $ | 76 | | | $ | 11 | | | $ | 65 | | | 591 | % | | | | | |
Number of employees (average full-time equivalent) | 254 | | | 263 | | | (9) | | | (3) | % | | | | | |
Total average assets | $ | 19,468 | | | $ | 20,215 | | | $ | (747) | | | (4) | | | | | | |
Total average loans/leases | 19,735 | | | 20,307 | | | (572) | | | (3) | | | | | | |
Total average deposits | 768 | | | 366 | | | 402 | | | 110 | | | | | | |
Net interest margin | 2.20 | % | | 2.08 | % | | 0.12 | % | | 6 | | | | | | |
NCOs | $ | 5 | | | $ | 10 | | | $ | (5) | | | (50) | | | | | | |
NCOs as a % of average loans and leases | 0.10 | % | | 0.19 | % | | (0.09) | % | | (47) | | | | | | |
2021 First Three Months versus 2020 First Three Months
Vehicle Finance reported net income of $76 million in the first three-month period of 2021, an increase of $65 million, or 591%, compared to the year-ago period. The provision for credit losses decreased $82 million due to changes in the forecasted economic outlook as compared to the year ago period. Segment net interest income increased $1 million, or 1%, due to a result of COVID-19 related shelter-in-place ordinances. The decrease was12 basis point increase in the net interest margin partially offset by an increasea 3% decrease in outside data processingaverage loan balances. The decrease in average loan balances of $0.6 billion is driven by average commercial balances as dealership inventory levels and other services. the resulting floor plan line utilization remain low. Additionally, RV / Marine balances increased $0.6 billion year over year, reflecting strong production levels over the past year, partially offset by a decline of $0.3 billion of auto balances. Noninterest income and expense were both comparable to year ago levels.
| Vehicle Finance | |
Regional Banking and The Huntington Private Client Group | | Regional Banking and The Huntington Private Client Group | |
| Table 26 - Key Performance Indicators for Vehicle Finance | |
Table 23 - Key Performance Indicators for Regional Banking and The Huntington Private Client Group | | Table 23 - Key Performance Indicators for Regional Banking and The Huntington Private Client Group | |
| | Nine Months Ended September 30, | | Change | | Three Months Ended March 31, | | Change | |
(dollar amounts in millions) | (dollar amounts in millions) | 2020 | | 2019 | | Amount | | Percent | (dollar amounts in millions) | 2021 | | 2020 | | Amount | | Percent | |
Net interest income | Net interest income | $ | 316 | | | $ | 291 | | | $ | 25 | | | 9 | % | Net interest income | $ | 34 | | | $ | 43 | | | $ | (9) | | | (21) | % | |
Provision for credit losses | Provision for credit losses | 118 | | | 27 | | | 91 | | | 337 | | Provision for credit losses | (7) | | | 1 | | | (8) | | | (800) | | |
Noninterest income | Noninterest income | 7 | | | 9 | | | (2) | | | (22) | | Noninterest income | 53 | | | 50 | | | 3 | | | 6 | | |
Noninterest expense | Noninterest expense | 103 | | | 112 | | | (9) | | | (8) | | Noninterest expense | 62 | | | 62 | | | — | | | — | | |
Provision for income taxes | Provision for income taxes | 21 | | | 33 | | | (12) | | | (36) | | Provision for income taxes | 7 | | | 6 | | | 1 | | | 17 | | |
Net income | Net income | $ | 81 | | | $ | 128 | | | $ | (47) | | | (37) | % | Net income | $ | 25 | | | $ | 24 | | | $ | 1 | | | 4 | % | |
Number of employees (average full-time equivalent) | Number of employees (average full-time equivalent) | 268 | | | 266 | | | 2 | | | 1 | % | Number of employees (average full-time equivalent) | 998 | | | 1,025 | | | (27) | | | (3) | % | |
Total average assets | Total average assets | $ | 19,766 | | | $ | 19,264 | | | $ | 502 | | | 3 | | Total average assets | $ | 6,815 | | | $ | 6,707 | | | $ | 108 | | | 2 | | |
Total average loans/leases | Total average loans/leases | 19,926 | | | 19,336 | | | 590 | | | 3 | | Total average loans/leases | 6,568 | | | 6,415 | | | 153 | | | 2 | | |
Total average deposits | Total average deposits | 618 | | | 329 | | | 289 | | | 88 | | Total average deposits | 7,059 | | | 6,100 | | | 959 | | | 16 | | |
Net interest margin | Net interest margin | 2.11 | % | | 2.01 | % | | 0.10 | % | | 5 | | Net interest margin | 1.92 | % | | 2.69 | % | | (0.77) | % | | (29) | | |
NCOs | NCOs | $ | 37 | | | $ | 30 | | | $ | 7 | | | 23 | | NCOs | $ | — | | | $ | — | | | $ | — | | | — | | |
NCOs as a % of average loans and leases | NCOs as a % of average loans and leases | 0.24 | % | | 0.21 | % | | 0.03 | % | | 14 | | NCOs as a % of average loans and leases | — | % | | — | % | | — | % | | — | | |
Total assets under management (in billions)—eop | | Total assets under management (in billions)—eop | $ | 20.7 | | | $ | 15.8 | | | $ | 4.9 | | | 31 | | |
Total trust assets (in billions)—eop | | Total trust assets (in billions)—eop | 136.0 | | | 123.7 | | | 12.3 | | | 10 | | |
eop - End of Period.
2020 3Q2021 1Q Form 10-Q 4135
2021 First Three Months versus 2020 First Nine Months versus 2019 First Nine Months
Vehicle Finance reported net income of $81 million in the first nine-month period of 2020, a decrease of $47 million, or 37%, compared to the year-ago period. This decrease is primarily driven by a $91 million increase in the provision for loan losses due to the deteriorating economic environment as a result of the COVID-19 pandemic. Segment net interest income increased $25 million, or 9%, due to a 10 basis point increase in the net interest margin and a 3% increase in average loan balances as a result of maintaining our pricing discipline while optimizing loan production volumes. This increase is partially offset by lower fees related to fee waivers and payment relief programs as a result of the COVID-19 pandemic. The increase in average loan balances of $0.6 billion reflects strong indirect auto and RV and marine originations over the past 12 months which have more than offset lower commercial balances resulting from lower floor plan line utilization. Noninterest income decreased $2 million primarily as a result of lower servicing revenue as the underlying serviced loans continue to run off, while noninterest expense decreased $9 million, or 8%, primarily reflecting lower allocated costs.
| | | | | | | | | | | | | | | | | | | | | | | |
Regional Banking and The Huntington Private Client Group |
| | | | | | | |
Table 27 - Key Performance Indicators for Regional Banking and The Huntington Private Client Group |
| Nine Months Ended September 30, | | Change |
(dollar amounts in millions) | 2020 | | 2019 | | Amount | | Percent |
Net interest income | $ | 122 | | | $ | 153 | | | $ | (31) | | | (20) | % |
Provision for credit losses | 16 | | | (3) | | | 19 | | | 633 | |
Noninterest income | 151 | | | 147 | | | 4 | | | 3 | |
Noninterest expense | 181 | | | 193 | | | (12) | | | (6) | |
Provision for income taxes | 16 | | | 23 | | | (7) | | | (30) | |
Net income | $ | 60 | | | $ | 87 | | | $ | (27) | | | (31) | % |
Number of employees (average full-time equivalent) | 1,024 | | | 1,059 | | | (35) | | | (3) | % |
Total average assets | $ | 6,793 | | | $ | 6,377 | | | $ | 416 | | | 7 | |
Total average loans/leases | 6,515 | | | 6,071 | | | 444 | | | 7 | |
Total average deposits | 6,424 | | | 5,939 | | | 485 | | | 8 | |
Net interest margin | 2.44 | % | | 3.31 | % | | (0.87) | % | | (26) | |
NCOs | $ | — | | | $ | — | | | $ | — | | | — | |
NCOs as a % of average loans and leases | — | % | | — | % | | — | % | | — | |
Total assets under management (in billions)—eop | $ | 18.1 | | | $ | 16.8 | | | $ | 1.3 | | | 8 | |
Total trust assets (in billions)—eop | 121.7 | | | 117.6 | | | 4.1 | | | 3 | |
eop - End of Period.
2020 First Nine Months versus 2019 First NineThree Months
RBHPCG reported net income of $60$25 million infor the first nine-monththree-month period of 2020, a decrease2021, an increase of $27$1 million, or 31%4%, compared to the year-ago period. Segment net interest income decreased $31$9 million, or 20%21%, due to an 87a 77 basis point decrease in net interest margin, reflecting both lower deposit and loan spreads. Average loans increased $0.4$0.2 billion, or 7%2%, primarily due to residential real estate mortgage loans, whileand average deposits increased $0.5$1.0 billion, or 8%.16%, primarily related to PPP, stimulus, and higher customer liquidity levels. Noninterest income increased $4$3 million, or 3%6%, primarily due to the sale of Retirement Plan Services recordkeeping and administrative services, higher residential title and life insurance fees, and an 8%a 31% increase in assets under management.management reflecting record net asset flows and positive equity markets. In addition, the title insurance business reported record fee income. Noninterest expenses were flat to prior year reflecting lower discretionary expense decreased $12 million, or 6%, primarily due to lower travel and business development expense as well as lower sponsorships due to delays or cancellation of events.
42 Huntington Bancshares Incorporated
continued cost controls.
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, socio-political, or industry conditions; the magnitude and duration of the COVID‐19COVID-19 pandemic and its impact on the global economy and financial market conditions and our business, financial condition, liquidity, and results of operations;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 satisfy any of the 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 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 ourthe future results.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. We do not assumeNeither 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.
36 Huntington Bancshares Incorporated
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.
Significant Items
From time-to-time, revenue, expenses, or taxes are impacted by items judged by Management to be outside of ordinary banking activities and/or by items that, while they may be associated with ordinary banking activities, are so unusually large that their outsized impact is believed by Management at that time to be infrequent or short-term in nature. We refer to such items as “Significant Items”. Most often, these Significant Items result from factors originating outside the Company; e.g., regulatory actions / assessments, windfall gains, one-time tax assessments / refunds, litigation actions, etc. In other cases, they may result from Management decisions associated with significant corporate actions outside of the ordinary course of business; e.g., merger / restructuring charges, recapitalization actions, goodwill impairment, etc.
Even though certain revenue and expense items are naturally subject to more volatility than others due to changes in market and economic environment conditions, as a general rule volatility alone does not define a Significant Item. For example, changes in the provision for credit losses, gains / losses from investment activities, asset valuation writedowns, etc., reflect ordinary banking activities and are, therefore, typically excluded from consideration as a Significant Item.
Management believes the disclosure of Significant Items, when appropriate, aids analysts/investors in better understanding corporate performance and trends so that they can ascertain which of such items, if any, they may wish to include/exclude from their analysis of the company’s performance - i.e., within the context of determining how that performance differed from their expectations, as well as how, if at all, to adjust their estimates of future performance accordingly. To this end, Management has adopted a practice of listing “Significant Items” in its external disclosure documents (e.g., earnings press releases, quarterly performance discussions, investor presentations, Forms 10-Q and 10-K).
Significant Items for any particular period are not intended to be a complete list of items that may materially impact current or future period performance.
Fully-Taxable Equivalent Basis
Interest income, yields, and ratios on ana FTE basis are considered non-GAAP financial measures. Management believes net interest income on ana 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 Unaudited Condensed Consolidated Financial Statements and other financial information contained in this Form 10-Q 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 Unaudited Condensed Consolidated Financial Statements and other financial information contained in this Form 10-Q in their entirety, and not to rely on any single financial measure.
Risk Factors
More information on risk can be found in Item 1A Risk Factors below and in the Risk Factors section included in Item 1A of our 20192020 Form 10-K. Additional information regarding risk factors can also be found in the Risk Management and Capital discussion of this report.
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 of the Notes to Consolidated Financial Statements included in our December 31, 20192020 Form 10-K, as supplemented by this report including 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 estimates relate to our ACL, valuation of financial instruments, contingent liabilities, income taxes,policies and deferred tax assets/liabilities. These significant accounting estimates and their related application are discussed in our December 31, 20192020 Form 10-K.
Allowance for Credit Losses
Our ACL at September 30, 2020March 31, 2021 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 modellingmodeling 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.estimate.
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
44 Huntington Bancshares Incorporated
the economy. Under this scenario, as an example, the unemployment rate remains elevated for a prolonged period and is estimated to remain at 11.8%8.0% and 9.6%6.5% at the end of 20212022 and 2022,2023, respectively. These numbers represent a 3%approximately 3.5% higher unemployment estimateestimates than baseline scenario projections of 8.8%4.5% and 6.6%4.2%, 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 $1.4 billion.$600 million.
38 Huntington Bancshares Incorporated
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.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 qualitativegeneral reserve components and associated risk profile adjustments incorporated by management as part of its overall allowance framework.
It is important to note that the baseline and adverse scenarios already incorporate material deterioration from those used in calculating the day one CECL adjustment on January 1st.
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 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 4 “Loans and Leases” and Note 5 “Allowance for Credit Losses” of the Notes to Unaudited Condensed Consolidated Financial Statements. Fair Value Measurement
Certain assets and liabilities are measured at fair value on a recurring basis, and include tradingincluding securities, available-for-sale securities, other securities, loans held for sale, loans held for investment, MSRs and derivative instruments. Assets and liabilities carried at fair value inherently include subjectivity and may require the use of significant assumptions, adjustments and judgment.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. Significant adjustmentsvolatility and assumptionscould 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 determining fair value include, but are not limited to, market liquidity and credit quality, where appropriate. Valuations of products using models or other techniques are sensitive to assumptions used for the significant inputs.
A significant portion of our assetsprocess. Assets and liabilities that are reportedmeasured at fair value are measured based onusing quoted prices in active markets (Level 1) do not require significant judgment while the valuation of assets and liabilities when quoted market prices orare not available (Levels 2 and 3) may require significant judgment to assess whether observable market / independent inputs and are classified within levels 1 and 2. Instruments valued using internally developed valuation models and other valuation techniques that use significantor unobservable inputs are classified within level 3for those assets and liabilities provide reasonable determination of the valuation hierarchy.
At the end of each quarter, we assess the valuation hierarchy for each asset or liability measured. As necessary, assets or liabilities may be transferred within hierarchy levels due to changes in availability of observable market inputs at the measurement date.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 1211 “Fair Values of Assets and Liabilities” of the Notes to Unaudited Condensed Consolidated Financial Statements.Goodwill and Intangible Assets
The emergenceacquisition method of COVID-19accounting requires that acquired assets and liabilities are recorded at their fair values as a global pandemic during 2020 has resulted in significant deterioration of the economic environmentdate 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 has impacted expected earnings. The heightened uncertaintyare inherently subjective. Acquisitions typically result in goodwill, the economic environment has continued intoamount by which the 2020 third quarter. Ascost of net assets acquired in a result, management performed a qualitative assessment of the goodwill balance at September 30, 2020. The result of this assessment indicated it was probable that thebusiness combination exceeds their fair value, of each of our reporting units continueswhich is subject 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 will likely be required in future periods. Any impairment charge would not affect Huntington’s regulatory capital ratios, tangible common equity ratio or liquidity position.testing at least annually. The
Recent Accounting Pronouncements and Developments2021 1Q Form 10-Q 39
Note 2 “
amortization of identified intangible assets recognized in a business combination is based upon the Notesestimated economic benefits to Unaudited Condensed Consolidated Financial Statements discusses new accounting pronouncements adopted during 2020 andbe received over their economic life, which is also subjective. Customer attrition rates that are based on historical experience are used to determine the expected impactestimated economic life of accounting pronouncements recently issuedcertain intangibles assets, including but not yet requiredlimited to, be adopted. To the extent the adoption of new accounting standards materially affects financial condition, results of operations, or liquidity, the impacts are discussed in the applicable section of this MD&A and the Notes to Unaudited Condensed Consolidated Financial Statements.customer deposit intangibles.
4640 Huntington Bancshares Incorporated
Item 1: Financial Statements
Huntington Bancshares Incorporated
Condensed Consolidated Balance Sheets
(Unaudited)
| | | September 30, | | December 31, | | March 31, | | December 31, |
(dollar amounts in millions) | (dollar amounts in millions) | 2020 | | 2019 | (dollar amounts in millions) | 2021 | | 2020 |
Assets | Assets | | | | Assets | | | |
Cash and due from banks | Cash and due from banks | $ | 1,029 | | | $ | 1,045 | | Cash and due from banks | $ | 1,096 | | | $ | 1,319 | |
Interest-bearing deposits at Federal Reserve Bank | Interest-bearing deposits at Federal Reserve Bank | 5,246 | | | 125 | | Interest-bearing deposits at Federal Reserve Bank | 7,493 | | | 5,276 | |
Interest-bearing deposits in banks | Interest-bearing deposits in banks | 109 | | | 102 | | Interest-bearing deposits in banks | 52 | | | 117 | |
Trading account securities | Trading account securities | 54 | | | 99 | | Trading account securities | 51 | | | 62 | |
Available-for-sale securities | Available-for-sale securities | 14,807 | | | 14,149 | | Available-for-sale securities | 19,375 | | | 16,485 | |
Held-to-maturity securities | Held-to-maturity securities | 8,557 | | | 9,070 | | Held-to-maturity securities | 7,815 | | | 8,861 | |
| Other securities | Other securities | 421 | | | 441 | | Other securities | 411 | | | 418 | |
Loans held for sale (includes $1,118 and $781 respectively, measured at fair value)(1) | 1,303 | | | 877 | | |
Loans and leases (includes $92 and $81 respectively, measured at fair value)(1) | 81,156 | | | 75,404 | | |
Loans held for sale (includes $1,531 and $1,198 respectively, measured at fair value)(1) | | Loans held for sale (includes $1,531 and $1,198 respectively, measured at fair value)(1) | 1,537 | | | 1,275 | |
Loans and leases (includes $118 and $94 respectively, measured at fair value)(1) | | Loans and leases (includes $118 and $94 respectively, measured at fair value)(1) | 80,230 | | | 81,608 | |
Allowance for loan and lease losses | Allowance for loan and lease losses | (1,796) | | | (783) | | Allowance for loan and lease losses | (1,703) | | | (1,814) | |
Net loans and leases | Net loans and leases | 79,360 | | | 74,621 | | Net loans and leases | 78,527 | | | 79,794 | |
Bank owned life insurance | Bank owned life insurance | 2,567 | | | 2,542 | | Bank owned life insurance | 2,581 | | | 2,577 | |
Premises and equipment | Premises and equipment | 752 | | | 763 | | Premises and equipment | 747 | | | 757 | |
Goodwill | Goodwill | 1,990 | | | 1,990 | | Goodwill | 1,990 | | | 1,990 | |
Servicing rights and other intangible assets | Servicing rights and other intangible assets | 419 | | | 475 | | Servicing rights and other intangible assets | 480 | | | 428 | |
Other assets | Other assets | 3,502 | | | 2,703 | | Other assets | 3,613 | | | 3,679 | |
Total assets | Total assets | $ | 120,116 | | | $ | 109,002 | | Total assets | $ | 125,768 | | | $ | 123,038 | |
Liabilities and shareholders’ equity | Liabilities and shareholders’ equity | | | | Liabilities and shareholders’ equity | | | |
Liabilities | Liabilities | | Liabilities | |
Deposits | Deposits | $ | 95,154 | | | $ | 82,347 | | Deposits | $ | 102,184 | | | $ | 98,948 | |
Short-term borrowings | Short-term borrowings | 222 | | | 2,606 | | Short-term borrowings | 219 | | | 183 | |
Long-term debt | Long-term debt | 9,174 | | | 9,849 | | Long-term debt | 7,210 | | | 8,352 | |
Other liabilities | Other liabilities | 2,649 | | | 2,405 | | Other liabilities | 2,555 | | | 2,562 | |
Total liabilities | Total liabilities | 107,199 | | | 97,207 | | Total liabilities | 112,168 | | | 110,045 | |
Commitments and contingencies (Note 15) | | | | |
Commitments and Contingent Liabilities (Note 14) | | Commitments and Contingent Liabilities (Note 14) | 0 | | 0 |
Shareholders’ equity | Shareholders’ equity | | Shareholders’ equity | |
Preferred stock | Preferred stock | 2,191 | | | 1,203 | | Preferred stock | 2,676 | | | 2,191 | |
Common stock | Common stock | 10 | | | 10 | | Common stock | 10 | | | 10 | |
Capital surplus | Capital surplus | 8,766 | | | 8,806 | | Capital surplus | 8,806 | | | 8,781 | |
Less treasury shares, at cost | Less treasury shares, at cost | (59) | | | (56) | | Less treasury shares, at cost | (59) | | | (59) | |
Accumulated other comprehensive gain (loss) | 257 | | | (256) | | |
Accumulated other comprehensive (loss) gain | | Accumulated other comprehensive (loss) gain | (56) | | | 192 | |
Retained earnings | Retained earnings | 1,752 | | | 2,088 | | Retained earnings | 2,223 | | | 1,878 | |
Total shareholders’ equity | Total shareholders’ equity | 12,917 | | | 11,795 | | Total shareholders’ equity | 13,600 | | | 12,993 | |
Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | $ | 120,116 | | | $ | 109,002 | | Total liabilities and shareholders’ equity | $ | 125,768 | | | $ | 123,038 | |
Common shares authorized (par value of $0.01) | Common shares authorized (par value of $0.01) | 1,500,000,000 | | | 1,500,000,000 | | Common shares authorized (par value of $0.01) | 1,500,000,000 | | | 1,500,000,000 | |
| Common shares outstanding | Common shares outstanding | 1,017,310,599 | | | 1,020,003,482 | | Common shares outstanding | 1,018,052,923 | | | 1,017,196,776 | |
Treasury shares outstanding | Treasury shares outstanding | 5,066,072 | | | 4,537,605 | | Treasury shares outstanding | 5,041,104 | | | 5,062,054 | |
Preferred stock, authorized shares | Preferred stock, authorized shares | 6,617,808 | | | 6,617,808 | | Preferred stock, authorized shares | 6,617,808 | | | 6,617,808 | |
| Preferred shares outstanding | Preferred shares outstanding | 750,500 | | | 740,500 | | Preferred shares outstanding | 1,250,500 | | | 750,500 | |
See Notes to Unaudited Condensed Consolidated Financial Statements
2020 3Q2021 1Q Form 10-Q 4741
| Huntington Bancshares Incorporated | Huntington Bancshares Incorporated | | Huntington Bancshares Incorporated | | |
Condensed Consolidated Statements of Income | Condensed Consolidated Statements of Income | | Condensed Consolidated Statements of Income | | |
(Unaudited) | (Unaudited) | | (Unaudited) | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, | | |
(dollar amounts in millions, except per share data, share count in thousands) | (dollar amounts in millions, except per share data, share count in thousands) | 2020 | | 2019 | | 2020 | | 2019 | (dollar amounts in millions, except per share data, share count in thousands) | 2021 | | 2020 | | |
Interest and fee income: | Interest and fee income: | | | | | | | | Interest and fee income: | | | | | |
Loans and leases | Loans and leases | $ | 764 | | | $ | 889 | | | $ | 2,327 | | | $ | 2,692 | | Loans and leases | $ | 752 | | | $ | 809 | | | |
Available-for-sale securities | Available-for-sale securities | | Available-for-sale securities | | |
Taxable | Taxable | 50 | | | 74 | | | 191 | | | 222 | | Taxable | 49 | | | 76 | | | |
Tax-exempt | Tax-exempt | 15 | | | 20 | | | 47 | | | 64 | | Tax-exempt | 13 | | | 18 | | | |
Held-to-maturity securities—taxable | Held-to-maturity securities—taxable | 51 | | | 54 | | | 169 | | | 164 | | Held-to-maturity securities—taxable | 42 | | | 59 | | | |
Other securities—taxable | Other securities—taxable | 1 | | | 3 | | | 4 | | | 13 | | Other securities—taxable | 2 | | | 2 | | | |
| Other | Other | 11 | | | 12 | | | 31 | | | 35 | | Other | 11 | | | 11 | | | |
Total interest income | Total interest income | 892 | | | 1,052 | | | 2,769 | | | 3,190 | | Total interest income | 869 | | | 975 | | | |
Interest expense: | Interest expense: | | | | | | | | Interest expense: | | | | | |
Deposits | Deposits | 31 | | | 154 | | | 182 | | | 449 | | Deposits | 11 | | | 105 | | | |
Short-term borrowings | Short-term borrowings | 0 | | | 13 | | | 13 | | | 46 | | Short-term borrowings | 0 | | | 12 | | | |
| Long-term debt | Long-term debt | 44 | | | 86 | | | 175 | | | 262 | | Long-term debt | (114) | | | 68 | | | |
Total interest expense | Total interest expense | 75 | | | 253 | | | 370 | | | 757 | | Total interest expense | (103) | | | 185 | | | |
Net interest income | Net interest income | 817 | | | 799 | | | 2,399 | | | 2,433 | | Net interest income | 972 | | | 790 | | | |
Provision for credit losses | Provision for credit losses | 177 | | | 82 | | | 945 | | | 208 | | Provision for credit losses | (60) | | | 441 | | | |
Net interest income after provision for credit losses | Net interest income after provision for credit losses | 640 | | | 717 | | | 1,454 | | | 2,225 | | Net interest income after provision for credit losses | 1,032 | | | 349 | | | |
Mortgage banking income | | Mortgage banking income | 100 | | | 58 | | | |
Service charges on deposit accounts | Service charges on deposit accounts | 76 | | | 98 | | | 223 | | | 277 | | Service charges on deposit accounts | 69 | | | 87 | | | |
Card and payment processing income | Card and payment processing income | 66 | | | 64 | | | 183 | | | 183 | | Card and payment processing income | 65 | | | 58 | | | |
Trust and investment management services | Trust and investment management services | 48 | | | 44 | | | 140 | | | 131 | | Trust and investment management services | 52 | | | 47 | | | |
Mortgage banking income | 122 | | | 54 | | | 277 | | | 109 | | |
Capital markets fees | Capital markets fees | 27 | | | 36 | | | 91 | | | 92 | | Capital markets fees | 29 | | | 33 | | | |
Insurance income | Insurance income | 24 | | | 20 | | | 72 | | | 64 | | Insurance income | 27 | | | 23 | | | |
Bank owned life insurance income | Bank owned life insurance income | 17 | | | 18 | | | 49 | | | 49 | | Bank owned life insurance income | 16 | | | 16 | | | |
Gain on sale of loans and leases | 13 | | | 13 | | | 30 | | | 39 | | |
Net (losses) gains on sales of securities | 0 | | | 0 | | | (1) | | | (2) | | |
Gain on sale of loans | | Gain on sale of loans | 3 | | | 8 | | | |
| | Other noninterest income | Other noninterest income | 37 | | | 42 | | | 118 | | | 140 | | Other noninterest income | 34 | | | 31 | | | |
Total noninterest income | Total noninterest income | 430 | | | 389 | | | 1,182 | | | 1,082 | | Total noninterest income | 395 | | | 361 | | | |
Personnel costs | Personnel costs | 453 | | | 406 | | | 1,267 | | | 1,228 | | Personnel costs | 468 | | | 395 | | | |
Outside data processing and other services | Outside data processing and other services | 98 | | | 87 | | | 273 | | | 257 | | Outside data processing and other services | 115 | | | 85 | | | |
Equipment | Equipment | 44 | | | 41 | | | 132 | | | 121 | | Equipment | 46 | | | 41 | | | |
Net occupancy | Net occupancy | 40 | | | 38 | | | 119 | | | 118 | | Net occupancy | 42 | | | 40 | | | |
Professional services | Professional services | 12 | | | 16 | | | 34 | | | 40 | | Professional services | 17 | | | 11 | | | |
Amortization of intangibles | Amortization of intangibles | 10 | | | 12 | | | 31 | | | 37 | | Amortization of intangibles | 10 | | | 11 | | | |
Marketing | Marketing | 9 | | | 10 | | | 23 | | | 28 | | Marketing | 14 | | | 9 | | | |
Deposit and other insurance expense | Deposit and other insurance expense | 6 | | | 8 | | | 24 | | | 24 | | Deposit and other insurance expense | 8 | | | 9 | | | |
| Other noninterest expense | Other noninterest expense | 40 | | | 49 | | | 136 | | | 167 | | Other noninterest expense | 73 | | | 51 | | | |
Total noninterest expense | Total noninterest expense | 712 | | | 667 | | | 2,039 | | | 2,020 | | Total noninterest expense | 793 | | | 652 | | | |
Income before income taxes | Income before income taxes | 358 | | | 439 | | | 597 | | | 1,287 | | Income before income taxes | 634 | | | 58 | | | |
Provision for income taxes | Provision for income taxes | 55 | | | 67 | | | 96 | | | 193 | | Provision for income taxes | 102 | | | 10 | | | |
Net income | Net income | 303 | | | 372 | | | 501 | | | 1,094 | | Net income | 532 | | | 48 | | | |
Dividends on preferred shares | Dividends on preferred shares | 28 | | | 18 | | | 65 | | | 55 | | Dividends on preferred shares | 31 | | | 18 | | | |
Net income applicable to common shares | Net income applicable to common shares | $ | 275 | | | $ | 354 | | | $ | 436 | | | $ | 1,039 | | Net income applicable to common shares | $ | 501 | | | $ | 30 | | | |
Average common shares—basic | Average common shares—basic | 1,017,253 | | | 1,034,940 | | | 1,017,052 | | | 1,042,246 | | Average common shares—basic | 1,017,512 | | | 1,017,643 | | | |
Average common shares—diluted | Average common shares—diluted | 1,031,460 | | | 1,051,273 | | | 1,031,573 | | | 1,059,064 | | Average common shares—diluted | 1,041,003 | | | 1,034,576 | | | |
Per common share: | Per common share: | | Per common share: | | |
Net income—basic | Net income—basic | $ | 0.27 | | | $ | 0.34 | | | $ | 0.43 | | | $ | 1.00 | | Net income—basic | $ | 0.49 | | | $ | 0.03 | | | |
Net income—diluted | Net income—diluted | 0.27 | | | 0.34 | | | 0.42 | | | 0.98 | | Net income—diluted | 0.48 | | | 0.03 | | | |
| | See Notes to Unaudited Condensed Consolidated Financial Statements |
4842 Huntington Bancshares Incorporated
Huntington Bancshares Incorporated
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, | |
(dollar amounts in millions) | (dollar amounts in millions) | 2020 | | 2019 | | 2020 | | 2019 | (dollar amounts in millions) | 2021 | | 2020 | |
Net income | Net income | $ | 303 | | | $ | 372 | | | $ | 501 | | | $ | 1,094 | | Net income | $ | 532 | | | $ | 48 | | |
| Unrealized net gains (losses) on available-for-sale securities arising during the period, net of reclassification for net realized gains and losses | Unrealized net gains (losses) on available-for-sale securities arising during the period, net of reclassification for net realized gains and losses | 5 | | | 69 | | | 240 | | | 349 | | Unrealized net gains (losses) on available-for-sale securities arising during the period, net of reclassification for net realized gains and losses | (216) | | | 173 | | |
| Change in fair value related to cash flow hedges | Change in fair value related to cash flow hedges | (40) | | | 28 | | | 279 | | | 82 | | Change in fair value related to cash flow hedges | (34) | | | 308 | | |
| Change in accumulated unrealized gains (losses) for pension and other post-retirement obligations | Change in accumulated unrealized gains (losses) for pension and other post-retirement obligations | 2 | | | 1 | | | (6) | | | 3 | | Change in accumulated unrealized gains (losses) for pension and other post-retirement obligations | 2 | | | 2 | | |
Other comprehensive income, net of tax | Other comprehensive income, net of tax | (33) | | | 98 | | | 513 | | | 434 | | Other comprehensive income, net of tax | (248) | | | 483 | | |
Comprehensive income | Comprehensive income | $ | 270 | | | $ | 470 | | | $ | 1,014 | | | $ | 1,528 | | Comprehensive income | $ | 284 | | | $ | 531 | | |
See Notes to Unaudited Condensed Consolidated Financial Statements
2020 3Q2021 1Q Form 10-Q 4943
Huntington Bancshares Incorporated
Condensed Consolidated Statements of Changes in Shareholders’ Equity
(Unaudited)
| (dollar amounts in millions, share amounts in thousands) | (dollar amounts in millions, share amounts in thousands) | Preferred Stock | | Common Stock | | Capital Surplus | | Treasury Stock | | Accumulated Other Comprehensive Gain (Loss) | | Retained Earnings | | | (dollar amounts in millions, share amounts in thousands) | Preferred Stock | | Common Stock | | Capital Surplus | | Treasury Stock | | Accumulated Other Comprehensive Gain (Loss) | | Retained Earnings | | |
Amount | | Shares | | Amount | | Shares | | Amount | | Total | Amount | | Shares | | Amount | | Shares | | Amount | | Total |
Three Months Ended September 30, 2020 | | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2021 | | Three Months Ended March 31, 2021 | | | | | | | | | | | | | | | | | |
Balance, beginning of period | Balance, beginning of period | $ | 1,697 | | | 1,022,309 | | | $ | 10 | | | $ | 8,743 | | | (4,999) | | | $ | (59) | | | $ | 290 | | | $ | 1,633 | | | $ | 12,314 | | Balance, beginning of period | $ | 2,191 | | | 1,022,258 | | | $ | 10 | | | $ | 8,781 | | | (5,062) | | | $ | (59) | | | $ | 192 | | | $ | 1,878 | | | $ | 12,993 | |
| Net income | Net income | | | | | | | | | | | | | | | 303 | | | 303 | | Net income | | | | | | | | | | | | | | | 532 | | | 532 | |
Other comprehensive income (loss), net of tax | Other comprehensive income (loss), net of tax | | (33) | | | (33) | | Other comprehensive income (loss), net of tax | | (248) | | | (248) | |
| Net proceeds from issuance of Preferred Stock | 494 | | | 494 | | |
Net proceeds from issuance of Series H Preferred Stock | | Net proceeds from issuance of Series H Preferred Stock | 485 | | | 485 | |
| Cash dividends declared: | Cash dividends declared: | | Cash dividends declared: | |
Common ($0.15 per share) | Common ($0.15 per share) | | (156) | | | (156) | | Common ($0.15 per share) | | (156) | | | (156) | |
Preferred Series B ($7.44 per share) | | 0 | | | 0 | | |
Preferred Series C ($14.69 per share) | | (1) | | | (1) | | |
Preferred Series D ($15.63 per share) | | (10) | | | (10) | | |
Preferred Series E ($1,425.00 per share) | | (7) | | | (7) | | |
Preferred Series F ($2,062.50 per share) | | (10) | | | (10) | | |
| Preferred | | Preferred | | (31) | | | (31) | |
Recognition of the fair value of share-based compensation | Recognition of the fair value of share-based compensation | | 21 | | | 21 | | Recognition of the fair value of share-based compensation | | 28 | | | 28 | |
| Other share-based compensation activity | Other share-based compensation activity | | 68 | | | 0 | | | 2 | | | — | | | 2 | | Other share-based compensation activity | | 836 | | | — | | | (3) | | | — | | | (3) | |
| Other | Other | | (67) | | | 0 | | | — | | | — | | | 0 | | Other | | 21 | | | — | | | — | | | — | |
Balance, end of period | Balance, end of period | $ | 2,191 | | | 1,022,377 | | | $ | 10 | | | $ | 8,766 | | | (5,066) | | | $ | (59) | | | $ | 257 | | | $ | 1,752 | | | $ | 12,917 | | Balance, end of period | $ | 2,676 | | | 1,023,094 | | | $ | 10 | | | $ | 8,806 | | | (5,041) | | | $ | (59) | | | $ | (56) | | | $ | 2,223 | | | $ | 13,600 | |
| Three Months Ended September 30, 2019 | | |
Three Months Ended March 31, 2020 | | Three Months Ended March 31, 2020 | |
Balance, beginning of period | Balance, beginning of period | $ | 1,203 | | | 1,042,140 | | | $ | 10 | | | $ | 9,030 | | | (4,299) | | | $ | (52) | | | $ | (273) | | | $ | 1,750 | | | $ | 11,668 | | Balance, beginning of period | $ | 1,203 | | | 1,024,541 | | | $ | 10 | | | $ | 8,806 | | | (4,537) | | | $ | (56) | | | $ | (256) | | | $ | 2,088 | | | $ | 11,795 | |
| Cumulative-effect adjustment (ASU 2016-01) | | Cumulative-effect adjustment (ASU 2016-01) | | | | | | | | | | | | | | | (306) | | | (306) | |
Net income | Net income | | | | | | | | | | | | | | | 372 | | | 372 | | Net income | | 48 | | | 48 | |
Other comprehensive income (loss), net of tax | Other comprehensive income (loss), net of tax | | 98 | | | 98 | | Other comprehensive income (loss), net of tax | | 483 | | | 483 | |
| Repurchase of common stock | Repurchase of common stock | | (5,213) | | | 0 | | | (68) | | | (68) | | Repurchase of common stock | | (7,088) | | | — | | | (88) | | | (88) | |
Cash dividends declared: | Cash dividends declared: | | Cash dividends declared: | |
Common ($0.15 per share) | Common ($0.15 per share) | | (158) | | | (158) | | Common ($0.15 per share) | | (155) | | | (155) | |
Preferred Series B ($12.51 per share) | | 0 | | | 0 | | |
Preferred Series C ($14.69 per share) | | (1) | | | (1) | | |
Preferred Series D ($15.63 per share) | | (10) | | | (10) | | |
Preferred Series E ($1,425.00 per share) | | (7) | | | (7) | | |
| | Preferred | | Preferred | | (18) | | | (18) | |
| Recognition of the fair value of share-based compensation | Recognition of the fair value of share-based compensation | | 16 | | | 16 | | Recognition of the fair value of share-based compensation | | 15 | | | 15 | |
| Other share-based compensation activity | Other share-based compensation activity | | 376 | | | 0 | | | 2 | | | 0 | | | 2 | | Other share-based compensation activity | | 1,299 | | | — | | | (5) | | | — | | | (5) | |
Other | Other | | (249) | | | (3) | | | (3) | | Other | | 3 | | | — | | | — | |
Balance, end of period | Balance, end of period | $ | 1,203 | | | 1,037,303 | | | $ | 10 | | | $ | 8,980 | | | (4,548) | | | $ | (55) | | | $ | (175) | | | $ | 1,946 | | | $ | 11,909 | | Balance, end of period | $ | 1,203 | | | 1,018,752 | | | $ | 10 | | | $ | 8,728 | | | (4,534) | | | $ | (56) | | | $ | 227 | | | $ | 1,657 | | | $ | 11,769 | |
|
See Notes to Unaudited Condensed Consolidated Financial Statements
5044 Huntington Bancshares Incorporated
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
(dollar amounts in millions, share amounts in thousands) | Preferred Stock | | Common Stock | | Capital Surplus | | Treasury Stock | | Accumulated Other Comprehensive Gain (Loss) | | Retained Earnings | | |
Amount | | Shares | | Amount | | | Shares | | Amount | | | | Total |
Nine Months Ended September 30, 2020 | | | | | | | | | | | | | | | | | |
Balance, beginning of period | $ | 1,203 | | | 1,024,541 | | | $ | 10 | | | $ | 8,806 | | | (4,537) | | | $ | (56) | | | $ | (256) | | | $ | 2,088 | | | $ | 11,795 | |
Cumulative-effect of change in accounting principle for financial instruments - credit losses (ASU 2016-13), net of tax | | | | | | | | | | | | | 0 | | | (306) | | | (306) | |
Net income | | | | | | | | | | | | | | | 501 | | | 501 | |
Other comprehensive income (loss), net of tax | | | | | | | | | | | | | 513 | | | | | 513 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Net proceeds from issuance of Preferred Stock | 988 | | | | | | | | | | | | | | | | | 988 | |
| | | | | | | | | | | | | | | | | |
Repurchases of common stock | | | (7,088) | | | 0 | | | (88) | | | | | | | | | | | (88) | |
Cash dividends declared: | | | | | | | | | | | | | | | | | |
Common ($0.45 per share) | | | | | | | | | | | | | | | (466) | | | (466) | |
| | | | | | | | | | | | | | | | | |
Preferred Series B ($28.56 per share) | | | | | | | | | | | | | | | (1) | | | (1) | |
Preferred Series C ($44.07 per share) | | | | | | | | | | | | | | | (4) | | | (4) | |
Preferred Series D ($46.88 per share) | | | | | | | | | | | | | | | (29) | | | (29) | |
Preferred Series E ($4,275.00 per share) | | | | | | | | | | | | | | | (21) | | | (21) | |
Preferred Series F ($2,062.50 per share) | | | | | | | | | | | | | | | (10) | | | (10) | |
| | | | | | | | | | | | | | | | | |
Recognition of the fair value of share-based compensation | | | | | | | 60 | | | | | | | | | | | 60 | |
Other share-based compensation activity | | | 4,924 | | | 0 | | | (12) | | | | | | | | | 0 | | | (12) | |
| | | | | | | | | | | | | | | | | |
Other | | | | | | | 0 | | | (529) | | | (3) | | | | | 0 | | | (3) | |
Balance, end of period | $ | 2,191 | | | 1,022,377 | | | $ | 10 | | | $ | 8,766 | | | (5,066) | | | $ | (59) | | | $ | 257 | | | $ | 1,752 | | | $ | 12,917 | |
| | | | | | | | | | | | | | | | | |
Nine Months Ended September 30, 2019 | | | | | | | | | | | | | | | | | |
Balance, beginning of period | $ | 1,203 | | | 1,050,584 | | | $ | 11 | | | $ | 9,181 | | | (3,817) | | | $ | (45) | | | $ | (609) | | | $ | 1,361 | | | $ | 11,102 | |
| | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | | | | | 1,094 | | | 1,094 | |
Other comprehensive income (loss), net of tax | | | | | | | | | | | | | 434 | | | | | 434 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Repurchases of common stock | | | (18,390) | | | (1) | | | (244) | | | | | | | | | | | (245) | |
Cash dividends declared: | | | | | | | | | | | | | | | | | |
Common ($0.43 per share) | | | | | | | | | | | | | | | (455) | | | (455) | |
| | | | | | | | | | | | | | | | | |
Preferred Series B ($39.47 per share) | | | | | | | | | | | | | | | (1) | | | (1) | |
Preferred Series C ($44.07 per share) | | | | | | | | | | | | | | | (4) | | | (4) | |
Preferred Series D ($46.88 per share) | | | | | | | | | | | | | | | (29) | | | (29) | |
Preferred Series E ($4,275.00 per share) | | | | | | | | | | | | | | | (21) | | | (21) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Recognition of the fair value of share-based compensation | | | | | | | 64 | | | | | | | | | | | 64 | |
Other share-based compensation activity | | | 5,109 | | | 0 | | | (21) | | | | | | | | | 0 | | | (21) | |
| | | | | | | | | | | | | | | | | |
Other | | | | | | | 0 | | | (731) | | | (10) | | | | | 1 | | | (9) | |
Balance, end of period | $ | 1,203 | | | 1,037,303 | | | $ | 10 | | | $ | 8,980 | | | (4,548) | | | $ | (55) | | | $ | (175) | | | $ | 1,946 | | | $ | 11,909 | |
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Huntington Bancshares Incorporated
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| | | Nine Months Ended September 30, | | Three Months Ended March 31, |
(dollar amounts in millions) | (dollar amounts in millions) | 2020 | | 2019 | (dollar amounts in millions) | 2021 | | 2020 |
Operating activities | Operating activities | | Operating activities | |
Net income | Net income | $ | 501 | | | $ | 1,094 | | Net income | $ | 532 | | | $ | 48 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | |
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | | Adjustments to reconcile net income to net cash (used in) provided by operating activities: | |
| Provision for credit losses | Provision for credit losses | 945 | | | 208 | | Provision for credit losses | (60) | | | 441 | |
Depreciation and amortization | Depreciation and amortization | 258 | | | 308 | | Depreciation and amortization | 71 | | | 119 | |
Share-based compensation expense | Share-based compensation expense | 60 | | | 64 | | Share-based compensation expense | 28 | | | 15 | |
Deferred income tax (benefit) expense | (123) | | | (6) | | |
Deferred income tax expense (benefit) | | Deferred income tax expense (benefit) | 61 | | | (37) | |
| Net change in: | Net change in: | | Net change in: | |
Trading account securities | Trading account securities | 45 | | | (51) | | Trading account securities | 11 | | | 63 | |
Loans held for sale | Loans held for sale | (395) | | | (356) | | Loans held for sale | (406) | | | (20) | |
Other assets | Other assets | (919) | | | (662) | | Other assets | 80 | | | (1,023) | |
Other liabilities | Other liabilities | 890 | | | 297 | | Other liabilities | (428) | | | 892 | |
| Other, net | (3) | | | 2 | | |
Net cash provided by (used in) operating activities | 1,259 | | | 898 | | |
| Net cash (used in) provided by operating activities | | Net cash (used in) provided by operating activities | (111) | | | 498 | |
Investing activities | Investing activities | | Investing activities | |
Change in interest bearing deposits in banks | Change in interest bearing deposits in banks | (80) | | | (121) | | Change in interest bearing deposits in banks | 189 | | | (26) | |
| Proceeds from: | Proceeds from: | | Proceeds from: | |
Maturities and calls of available-for-sale securities | Maturities and calls of available-for-sale securities | 3,657 | | | 1,338 | | Maturities and calls of available-for-sale securities | 1,758 | | | 669 | |
Maturities and calls of held-to-maturity securities | Maturities and calls of held-to-maturity securities | 2,028 | | | 656 | | Maturities and calls of held-to-maturity securities | 1,043 | | | 398 | |
Maturities and calls of other securities | 86 | | | 153 | | |
| Sales of available-for-sale securities | Sales of available-for-sale securities | 392 | | | 1,746 | | Sales of available-for-sale securities | 10 | | | 19 | |
| Purchases of available-for-sale securities | Purchases of available-for-sale securities | (5,988) | | | (3,174) | | Purchases of available-for-sale securities | (4,857) | | | (2,476) | |
Purchases of held-to-maturity securities | 0 | | | (516) | | |
Purchases of other securities | (66) | | | (5) | | |
| | Net proceeds from sales of portfolio loans | Net proceeds from sales of portfolio loans | 696 | | | 670 | | Net proceeds from sales of portfolio loans | 158 | | | 191 | |
Principal payments received under direct finance and sales-type leases | Principal payments received under direct finance and sales-type leases | 518 | | | 544 | | Principal payments received under direct finance and sales-type leases | 188 | | | 171 | |
Net loan and lease activity, excluding sales and purchases | Net loan and lease activity, excluding sales and purchases | (6,099) | | | (1,162) | | Net loan and lease activity, excluding sales and purchases | 1,402 | | | (2,926) | |
| Purchases of premises and equipment | Purchases of premises and equipment | (82) | | | (82) | | Purchases of premises and equipment | (22) | | | (11) | |
| Purchases of loans and leases | Purchases of loans and leases | (1,248) | | | (311) | | Purchases of loans and leases | (266) | | | (311) | |
| Net cash paid for branch disposition | 0 | | | (548) | | |
| Other, net | Other, net | 34 | | | 49 | | Other, net | 21 | | | (20) | |
Net cash provided by (used in) investing activities | (6,152) | | | (763) | | |
Net cash used in investing activities | | Net cash used in investing activities | (376) | | | (4,322) | |
Financing activities | Financing activities | | | | Financing activities | | | |
Increase (decrease) in deposits | 12,807 | | | (1,654) | | |
(Decrease) increase in short-term borrowings | (2,306) | | | 196 | | |
Increase in deposits | | Increase in deposits | 3,236 | | | 4,483 | |
Increase in short-term borrowings | | Increase in short-term borrowings | 53 | | | 458 | |
| Net proceeds from issuance of long-term debt | Net proceeds from issuance of long-term debt | 1,348 | | | 1,737 | | Net proceeds from issuance of long-term debt | 35 | | | 1,286 | |
Maturity/redemption of long-term debt | Maturity/redemption of long-term debt | (2,218) | | | (684) | | Maturity/redemption of long-term debt | (1,135) | | | (1,540) | |
Dividends paid on preferred stock | Dividends paid on preferred stock | (55) | | | (55) | | Dividends paid on preferred stock | (35) | | | (18) | |
Dividends paid on common stock | Dividends paid on common stock | (460) | | | (442) | | Dividends paid on common stock | (153) | | | (155) | |
Repurchases of common stock | Repurchases of common stock | (88) | | | (245) | | Repurchases of common stock | 0 | | | (88) | |
| Net proceeds from issuance of preferred stock | Net proceeds from issuance of preferred stock | 988 | | | 0 | | Net proceeds from issuance of preferred stock | 485 | | | 0 | |
| Payments related to tax-withholding for share based compensation awards | Payments related to tax-withholding for share based compensation awards | (19) | | | (26) | | Payments related to tax-withholding for share based compensation awards | (5) | | | (6) | |
Other, net | Other, net | 1 | | | 2 | | Other, net | 0 | | | 1 | |
Net cash provided by (used for) financing activities | 9,998 | | | (1,171) | | |
Increase (decrease) in cash and cash equivalents | 5,105 | | | (1,036) | | |
Net cash provided by financing activities | | Net cash provided by financing activities | 2,481 | | | 4,421 | |
Increase in cash and cash equivalents | | Increase in cash and cash equivalents | 1,994 | | | 597 | |
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 1,170 | | | 2,672 | | Cash and cash equivalents at beginning of period | 6,595 | | | 1,170 | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 6,275 | | | $ | 1,636 | | Cash and cash equivalents at end of period | $ | 8,589 | | | $ | 1,767 | |
522021 1Q Form 10-Q Huntington Bancshares Incorporated45
| | | Nine Months Ended September 30, | | Three Months Ended March 31, |
(dollar amounts in millions) | (dollar amounts in millions) | 2020 | | 2019 | (dollar amounts in millions) | 2021 | | 2020 |
Supplemental disclosures: | Supplemental disclosures: | | Supplemental disclosures: | |
Interest paid | Interest paid | $ | 307 | | | $ | 758 | | Interest paid | $ | 49 | | | $ | 197 | |
Income taxes paid | Income taxes paid | 48 | | | 54 | | Income taxes paid | 3 | | | 2 | |
| Non-cash activities | Non-cash activities | | Non-cash activities | |
Loans transferred to held-for-sale from portfolio | Loans transferred to held-for-sale from portfolio | 839 | | | 744 | | Loans transferred to held-for-sale from portfolio | 84 | | | 313 | |
Loans transferred to portfolio from held-for-sale | Loans transferred to portfolio from held-for-sale | 37 | | | 14 | | Loans transferred to portfolio from held-for-sale | 37 | | | 4 | |
Transfer of loans to OREO | 6 | | | 16 | | |
| | Transfer of securities from available-for-sale to held-to-maturity | Transfer of securities from available-for-sale to held-to-maturity | 1,520 | | | 0 | | Transfer of securities from available-for-sale to held-to-maturity | 0 | | | 1,520 | |
|
See Notes to Unaudited Condensed Consolidated Financial Statements
2020 3Q Form 10-Q 4653 Huntington Bancshares Incorporated
Huntington Bancshares Incorporated
Notes to Unaudited Condensed Consolidated Financial Statements
1. BASIS OF PRESENTATION
The accompanying Unaudited Condensed Consolidated Financial Statements of Huntington reflect all adjustments consisting of normal recurring accruals which are, in the opinion of Management, necessary for a fair statement of the consolidated financial position, the results of operations, and cash flows for the periods presented. These Unaudited Condensed Consolidated Financial Statements have been prepared according to the rules and regulations of the SEC and, therefore, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted. The Notes to Consolidated Financial Statements appearing in Huntington’s 20192020 Form 10-K, which include descriptions of significant accounting policies, as updated by the information contained in this report, should be read in conjunction with these interim financial statements.
For statement of cash flow purposes, cash and cash equivalents are defined as the sum of cash and due from banks and Interest-bearinginterest-bearing deposits at Federal Reserve Bank.
Certain prior period amounts have been reclassified to conform to current year’s presentation.
In conjunction with applicable accounting standards, all material subsequent events have been either recognized in the Unaudited Condensed Consolidated Financial Statements or disclosed in the Notes to Unaudited Condensed Consolidated Financial Statements. No subsequent events were disclosed for the current period.
54 Huntington Bancshares Incorporated
2. ACCOUNTING STANDARDS UPDATE
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Accounting standards adopted in current period |
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Standard | Summary of guidance | Effects on financial statements |
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ASU 2016-13 - Financial Instruments - Credit Losses.
Issued June 2016
| •Eliminates the probable recognition threshold for credit losses on financial assets measured at amortized cost, replacing the current incurred loss framework with an expected credit loss model.
•Requires those financial assets subject to the new guidance to be presented at the net amount expected to be collected (i.e., net of expected credit losses).
•Measurement of expected credit losses should be based on relevant information including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.
•The guidance will require additional quantitative and qualitative disclosures related to the credit risk inherent in Huntington’s portfolio and how management monitors the portfolio’s credit quality.
| •Management adopted the guidance on January 1, 2020 through a cumulative-effect adjustment to retained earnings and implemented changes to relevant systems, processes, and controls where necessary.
•The adoption of ASU 2016-13 on January 1, 2020 resulted in an increase to our total ACL of $393 million. This represented an increase of 44% from the 2019 year end ACL level of $887 million. For more detail on the day 1 adoption impacts, please refer to Note 5 - Allowance for Credit Losses.
•The ASU eliminated the current accounting model for purchased-credit-impaired loans, but requires an allowance to be recognized for purchased-credit-deteriorated (PCD) assets (those that have experienced more-than-insignificant deterioration in credit quality since origination). Huntington did not have any loans accounted for as PCD upon adoption.
•At adoption, Huntington did not record an allowance with respect to HTM securities as the portfolio consists almost entirely of agency-backed securities that inherently have minimal nonpayment risk.
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ASU 2019-04 -
Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments
Issued: April 2019
| •Clarifies various implementation issues related to Recognition and Measurement of Financial Instruments (ASC Topic 825), Current Expected Credit Losses (ASC Topic 326) and Derivatives and Hedging (ASC Topic 815).
•Provides additional implementation guidance on CECL issues that include, among others, (a) measurement of credit allowance on accrued interest; (b) treatment of credit allowance upon transfers between classifications or categories for loans and debt securities; (c) inclusion of recoveries in determining credit allowance amounts; (d) using projections of rate change for variable rate instruments; (e) vintage disclosures for lines-of-credit; (f) contractual extensions and renewals; (g) consideration of prepayments in calculating effective interest rate; and (h) consideration of costs to sell if the entity intends to sell the collateral when foreclosure is probable.
•Clarifies for Topic 815, among others, that (a) only interest rate risk may be hedged in a partial-term fair value hedge; (b) amortization of fair value basis adjustment may begin before the fair value hedge is discontinued; (c) hedged AFS securities should be disclosed at amortized cost for disclosures related to hedged assets; and (d) contractually specified interest rate should be considered when applying hypothetical derivative method while assessing hedge effectiveness.
•Clarifies among others, that (a) using observable price under measurement alternative provided by ASC Topic 321 is a non-recurring fair value measurement and entities should adhere to non-recurring fair value disclosure requirements of Topic 820; and (b) equity securities without readily determinable fair value accounted for under measurement alternative should be remeasured using historical exchange rates.
| •Management adopted the amendments on January 1, 2020.
•The ASU did not have a material impact on Huntington’s Unaudited Condensed Consolidated Financial Statements.
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2020 3Q2021 1Q Form 10-Q 55
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Standard | Summary of guidance | Effects on financial statements |
ASU 2019-08 - Compensation - Codification Improvements - Share-based Consideration Payable to a Customer
Issued: November 2019
| •The ASU requires that an entity measure and classify share-based payment awards granted to a customer by applying the guidance in Topic 718.
•The amount of share-based payment awards should be recorded as a reduction of the transaction price and is required to be measured on the basis of grant-date fair value of the share-based payment awards in accordance with Topic 718.
•The classification and subsequent measurement of the award are subject to the guidance in Topic 718 unless the share-based payment award is subsequently modified and the grantee is no longer a customer.
| •Management adopted the amendments on January 1, 2020.
•The ASU did not have a material impact on Huntington’s Unaudited Condensed Consolidated Financial Statements.
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ASU 2019-11 - Financial Instruments - Credit Losses (Topic 326): Codification Improvements to Topic 326
Issued: November 2019
| •The ASU clarifies or addresses stakeholders’ specific issues related to ASU 2016-13 as described below:
•Clarifies that the allowance for purchased financial assets with credit deterioration should include expected recoveries. If a method other than a discounted cash flow method is used to calculate allowance, expected recoveries should not result in an acceleration of the noncredit discount.
•Provides transition relief by permitting entities an accounting policy election to adjust the effective interest rate on existing TDRs using prepayment assumptions on the date of adoption of Topic 326 rather than the prepayment assumptions in effect immediately before the restructuring.
•Extends the disclosure relief for accrued interest receivable balances to additional relevant disclosures involving amortized cost basis.
•Clarifies that an entity should assess whether it reasonably expects the borrower will be able to continually replenish collateral securing the financial asset to apply the practical expedient related to collateral maintenance provision.
| •Management adopted the amendments on January 1, 2020.
•The ASU did not have a material impact on Huntington’s Unaudited Condensed Consolidated Financial Statements.
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56 Huntington Bancshares Incorporated
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Accounting standards yet to be adopted |
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Standard | Summary of guidance | Effects on financial statements |
ASU 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
Issued: December 2019
| •The ASU simplifies the accounting for income taxes by removing exceptions to the:
a.Incremental approach for intra-period tax allocation when there is a loss from continuing operations and income or a gain from other items;
b.Requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment;
c.Ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and
d.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.
| •The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.
•Early adoption of the ASU is permitted, including adoption in any interim period for which financial statements have not yet been issued. An entity that elects to early adopt in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period.
•The ASU is not expected to have a material impact on Huntington’s Unaudited Condensed Consolidated Financial Statements.
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ASU 2020-04 - Reference Rate Reform (Topic 848):Facilitation of the Effects of Reference Rate Reform on Financial Reporting
Issued: March 2020
| •The ASU provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met, including the following:
a.Modifications of contracts within the scope of Topics 310, Receivables, and 470, Debt, should be accounted for by prospectively adjusting the effective interest rate.
b.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 and the discount rate.
c.Modifications of contracts do not require an entity to reassess its original conclusion about whether that contract contains an embedded derivative that is clearly and closely related to the economic characteristics and risks of the host contract under Topic 815.
d.The ASU also provides optional expedients for various hedging relationships and do not require de-designation of hedging relationships if certain criteria are met.
e.An entity may make a one time election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that are classified as held to maturity before January 1, 2020.
| •The ASU is effective for all entities from the beginning of an interim period that includes or is subsequent to March 12, 2020 through December 31, 2022.
•The ASU is not expected to have a material impact Huntington’s Unaudited Condensed Consolidated Financial Statements.
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2. PENDING ACQUISITION OF TCF FINANCIAL CORPORATION
On December 13, 2020, Huntington announced the signing of a definitive merger agreement (the “ Merger Agreement”). Under the terms of the Merger Agreement, which was unanimously approved by the boards of directors of both companies, TCF Financial Corporation (“TCF”), 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.
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 also 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 1 share of a newly created series of preferred stock of Huntington.
On March 25, 2021, Huntington and TCF shareholders approved the merger. Huntington anticipates the transaction will be completed late in the second quarter of 2021, subject to regulatory approval and the satisfaction of other customary closing conditions set forth in the Merger Agreement.
48 Huntington Bancshares Incorporated
3. 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 September 30, 2020March 31, 2021 and December 31, 2019:2020:
| | | Unrealized | | | Unrealized | |
(dollar amounts in millions) | (dollar amounts in millions) | Amortized Cost | | Gross Gains | | Gross Losses | | Fair Value | (dollar amounts in millions) | Amortized Cost (1) | | Gross Gains | | Gross Losses | | Fair Value |
September 30, 2020 | | | | | | | | |
March 31, 2021 | | March 31, 2021 | | | | | | | |
Available-for-sale securities: | Available-for-sale securities: | | Available-for-sale securities: | |
U.S. Treasury | U.S. Treasury | $ | 5 | | | $ | 0 | | | $ | 0 | | | $ | 5 | | U.S. Treasury | $ | 5 | | | $ | 0 | | | $ | 0 | | | $ | 5 | |
Federal agencies: | Federal agencies: | | Federal agencies: | |
Residential CMO | Residential CMO | 4,343 | | | 157 | | | (2) | | | 4,498 | | Residential CMO | $ | 3,081 | | | $ | 100 | | | $ | (9) | | | $ | 3,172 | |
Residential MBS | Residential MBS | 5,669 | | | 98 | | | (6) | | | 5,761 | | Residential MBS | 10,708 | | | 61 | | | (124) | | | 10,645 | |
Commercial MBS | Commercial MBS | 787 | | | 22 | | | (2) | | | 807 | | Commercial MBS | 1,277 | | | 13 | | | (63) | | | 1,227 | |
Other agencies | Other agencies | 112 | | | 2 | | | 0 | | | 114 | | Other agencies | 44 | | | 2 | | | 0 | | | 46 | |
Total U.S. Treasury, federal agency and other agency securities | Total U.S. Treasury, federal agency and other agency securities | 10,916 | | | 279 | | | (10) | | | 11,185 | | Total U.S. Treasury, federal agency and other agency securities | 15,115 | | | 176 | | | (196) | | | 15,095 | |
Municipal securities | Municipal securities | 3,071 | | | 89 | | | (16) | | | 3,144 | | Municipal securities | 3,050 | | | 91 | | | (19) | | | 3,122 | |
Private-label CMO | Private-label CMO | 5 | | | 0 | | | 0 | | | 5 | | Private-label CMO | 50 | | | 0 | | | 0 | | | 50 | |
Asset-backed securities | Asset-backed securities | 197 | | | 6 | | | 0 | | | 203 | | Asset-backed securities | 244 | | | 4 | | | (1) | | | 247 | |
Corporate debt | Corporate debt | 267 | | | 0 | | | (1) | | | 266 | | Corporate debt | 888 | | | 0 | | | (31) | | | 857 | |
Other securities/Sovereign debt | Other securities/Sovereign debt | 4 | | | 0 | | | 0 | | | 4 | | Other securities/Sovereign debt | 4 | | | 0 | | | 0 | | | 4 | |
Total available-for-sale securities | Total available-for-sale securities | $ | 14,460 | | | $ | 374 | | | $ | (27) | | | $ | 14,807 | | Total available-for-sale securities | $ | 19,351 | | | $ | 271 | | | $ | (247) | | | $ | 19,375 | |
| Held-to-maturity securities: | Held-to-maturity securities: | | Held-to-maturity securities: | |
Federal agencies: | Federal agencies: | | Federal agencies: | |
Residential CMO | Residential CMO | $ | 1,959 | | | $ | 98 | | | $ | 0 | | | $ | 2,057 | | Residential CMO | $ | 1,604 | | | $ | 74 | | | $ | 0 | | | $ | 1,678 | |
Residential MBS | Residential MBS | 2,926 | | | 102 | | | 0 | | | 3,028 | | Residential MBS | 3,259 | | | 69 | | | (18) | | | 3,310 | |
Commercial MBS | Commercial MBS | 3,413 | | | 199 | | | 0 | | | 3,612 | | Commercial MBS | 2,719 | | | 114 | | | 0 | | | 2,833 | |
Other agencies | Other agencies | 256 | | | 14 | | | 0 | | | 270 | | Other agencies | 230 | | | 8 | | | 0 | | | 238 | |
Total federal agency and other agency securities | Total federal agency and other agency securities | 8,554 | | | 413 | | | 0 | | | 8,967 | | Total federal agency and other agency securities | 7,812 | | | 265 | | | (18) | | | 8,059 | |
Municipal securities | Municipal securities | 3 | | | 0 | | | 0 | | | 3 | | Municipal securities | 3 | | | 0 | | | 0 | | | 3 | |
Total held-to-maturity securities | Total held-to-maturity securities | $ | 8,557 | | | $ | 413 | | | $ | 0 | | | $ | 8,970 | | Total held-to-maturity securities | $ | 7,815 | | | $ | 265 | | | $ | (18) | | | $ | 8,062 | |
| Other securities, at cost: | Other securities, at cost: | | Other securities, at cost: | |
Non-marketable equity securities: | Non-marketable equity securities: | | Non-marketable equity securities: | |
Federal Home Loan Bank stock | Federal Home Loan Bank stock | $ | 64 | | | $ | — | | | $ | — | | | $ | 64 | | Federal Home Loan Bank stock | $ | 52 | | | $ | 0 | | | $ | 0 | | | $ | 52 | |
Federal Reserve Bank stock | Federal Reserve Bank stock | 299 | | | — | | | — | | | 299 | | Federal Reserve Bank stock | 300 | | | 0 | | | 0 | | | 300 | |
Other securities, at fair value | Other securities, at fair value | | Other securities, at fair value | |
Mutual funds | Mutual funds | 49 | | | — | | | — | | | 49 | | Mutual funds | 42 | | | 0 | | | 0 | | | 42 | |
Equity securities | Equity securities | 9 | | | — | | | — | | | 9 | | Equity securities | 16 | | | 1 | | | 0 | | | 17 | |
Total other securities | Total other securities | $ | 421 | | | $ | — | | | $ | — | | | $ | 421 | | Total other securities | $ | 410 | | | $ | 1 | | | $ | 0 | | | $ | 411 | |
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(1)Amortized cost amounts excludes accrued interest receivable, which is recorded within other assets on the Consolidated Balance Sheets. At March 31, 2021, accrued interest receivable on available-for-sale securities and held-to-maturity securities totaled $40 million and $18 million, respectively.
58 Huntington Bancshares Incorporated
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| | | Unrealized | | |
(dollar amounts in millions) | Amortized Cost | | Gross Gains | | Gross Losses | | Fair Value |
December 31, 2019 | | | | | | | |
Available-for-sale securities: | | | | | | | |
U.S. Treasury | $ | 10 | | | $ | 0 | | | $ | 0 | | | $ | 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 | | | 0 | | | 0 | | | 2 | |
Asset-backed securities | 575 | | | 6 | | | (2) | | | 579 | |
Corporate debt | 49 | | | 2 | | | 0 | | | 51 | |
Other securities/Sovereign debt | 4 | | | 0 | | | 0 | | | 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 | | | 0 | | | 2,513 | |
Commercial MBS | 3,959 | | | 34 | | | 0 | | | 3,993 | |
Other agencies | 293 | | | 2 | | | 0 | | | 295 | |
Total federal agency and other agency securities | 9,066 | | | 119 | | | (3) | | | 9,182 | |
Municipal securities | 4 | | | 0 | | | 0 | | | 4 | |
Total held-to-maturity securities | $ | 9,070 | | | $ | 119 | | | $ | (3) | | | $ | 9,186 | |
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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 | |
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2020 3Q2021 1Q Form 10-Q 5949
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Unrealized | | |
(dollar amounts in millions) | Amortized Cost (1) | | Gross Gains | | Gross Losses | | Fair Value |
December 31, 2020 | | | | | | | |
Available-for-sale securities: | | | | | | | |
U.S. Treasury | $ | 5 | | | $ | 0 | | | $ | 0 | | | $ | 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 | | | 0 | | | 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 | | | 0 | | | 0 | | | 9 | |
Asset-backed securities | 185 | | | 7 | | | 0 | | | 192 | |
Corporate debt | 440 | | | 5 | | | 0 | | | 445 | |
Other securities/Sovereign debt | 4 | | | 0 | | | 0 | | | 4 | |
Total available-for-sale securities | $ | 16,175 | | | $ | 344 | | | $ | (34) | | | $ | 16,485 | |
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Held-to-maturity securities: | | | | | | | |
Federal agencies: | | | | | | | |
Residential CMO | $ | 1,779 | | | $ | 88 | | | $ | 0 | | | $ | 1,867 | |
Residential MBS | 3,715 | | | 103 | | | 0 | | | 3,818 | |
Commercial MBS | 3,118 | | | 191 | | | 0 | | | 3,309 | |
Other agencies | 246 | | | 12 | | | 0 | | | 258 | |
Total federal agency and other agency securities | 8,858 | | | 394 | | | 0 | | | 9,252 | |
Municipal securities | 3 | | | 0 | | | 0 | | | 3 | |
Total held-to-maturity securities | $ | 8,861 | | | $ | 394 | | | $ | 0 | | | $ | 9,255 | |
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Other securities, at cost: | | | | | | | |
Non-marketable equity securities: | | | | | | | |
Federal Home Loan Bank stock | $ | 60 | | | $ | 0 | | | $ | 0 | | | $ | 60 | |
Federal Reserve Bank stock | 299 | | | 0 | | | 0 | | | 299 | |
Other securities, at fair value | | | | | | | |
Mutual funds | 50 | | | 0 | | | 0 | | | 50 | |
Equity securities | 8 | | | 1 | | | 0 | | | 9 | |
Total other securities | $ | 417 | | | $ | 1 | | | $ | 0 | | | $ | 418 | |
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(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.
50 Huntington Bancshares Incorporated
The following table provides the amortized cost and fair value of securities by contractual maturity at September 30, 2020March 31, 2021 and December 31, 2019.2020. Expected maturities may differ from contractual maturities as issuers may have the right to call or prepay obligations with or without incurring penalties.
| | | September 30, 2020 | | December 31, 2019 | | March 31, 2021 | | December 31, 2020 |
(dollar amounts in millions) | (dollar amounts in millions) | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | (dollar amounts in millions) | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Available-for-sale securities: | Available-for-sale securities: | | | | | | | | Available-for-sale securities: | | | | | | | |
Under 1 year | Under 1 year | $ | 349 | | | $ | 345 | | | $ | 231 | | | $ | 229 | | Under 1 year | $ | 366 | | | $ | 357 | | | $ | 308 | | | $ | 304 | |
After 1 year through 5 years | After 1 year through 5 years | 1,198 | | | 1,203 | | | 1,196 | | | 1,189 | | After 1 year through 5 years | 1,228 | | | 1,237 | | | 1,145 | | | 1,154 | |
After 5 years through 10 years | After 5 years through 10 years | 1,522 | | | 1,562 | | | 1,594 | | | 1,606 | | After 5 years through 10 years | 2,127 | | | 2,144 | | | 1,607 | | | 1,654 | |
After 10 years | After 10 years | 11,391 | | | 11,697 | | | 11,042 | | | 11,125 | | After 10 years | 15,630 | | | 15,637 | | | 13,115 | | | 13,373 | |
Total available-for-sale securities | Total available-for-sale securities | $ | 14,460 | | | $ | 14,807 | | | $ | 14,063 | | | $ | 14,149 | | Total available-for-sale securities | $ | 19,351 | | | $ | 19,375 | | | $ | 16,175 | | | $ | 16,485 | |
| Held-to-maturity securities: | Held-to-maturity securities: | | Held-to-maturity securities: | |
Under 1 year | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | |
| After 1 year through 5 years | After 1 year through 5 years | 137 | | | 145 | | | 17 | | | 17 | | After 1 year through 5 years | $ | 142 | | | $ | 148 | | | $ | 160 | | | $ | 169 | |
After 5 years through 10 years | After 5 years through 10 years | 173 | | | 181 | | | 300 | | | 305 | | After 5 years through 10 years | 121 | | | 126 | | | 131 | | | 138 | |
After 10 years | After 10 years | 8,247 | | | 8,644 | | | 8,753 | | | 8,864 | | After 10 years | 7,552 | | | 7,788 | | | 8,570 | | | 8,948 | |
Total held-to-maturity securities | Total held-to-maturity securities | $ | 8,557 | | | $ | 8,970 | | | $ | 9,070 | | | $ | 9,186 | | Total held-to-maturity securities | $ | 7,815 | | | $ | 8,062 | | | $ | 8,861 | | | $ | 9,255 | |
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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 September 30, 2020March 31, 2021 and December 31, 2019:2020:
| | | Less than 12 Months | | Over 12 Months | | Total | | Less than 12 Months | | Over 12 Months | | Total |
(dollar amounts in millions) | (dollar amounts in millions) | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | (dollar amounts in millions) | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses |
September 30, 2020 | | | | | | | | | | | | |
March 31, 2021 | | March 31, 2021 | | | | | | | | | | | |
Available-for-sale securities: | Available-for-sale securities: | | Available-for-sale securities: | |
Federal agencies: | Federal agencies: | | Federal agencies: | |
Residential CMO | Residential CMO | $ | 209 | | | $ | (2) | | | $ | 0 | | | $ | 0 | | | $ | 209 | | | $ | (2) | | Residential CMO | $ | 413 | | | $ | (9) | | | $ | 0 | | | $ | 0 | | | $ | 413 | | | $ | (9) | |
Residential MBS | Residential MBS | 1,849 | | | (6) | | | 0 | | | 0 | | | 1,849 | | | (6) | | Residential MBS | 7,919 | | | (124) | | | 0 | | | 0 | | | 7,919 | | | (124) | |
Commercial MBS | Commercial MBS | 27 | | | (2) | | | 0 | | | 0 | | | 27 | | | (2) | | Commercial MBS | 761 | | | (63) | | | 0 | | | 0 | | | 761 | | | (63) | |
Other agencies | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | |
| Total federal agency and other agency securities | Total federal agency and other agency securities | 2,085 | | | (10) | | | 0 | | | 0 | | | 2,085 | | | (10) | | Total federal agency and other agency securities | 9,093 | | | (196) | | | 0 | | | 0 | | | 9,093 | | | (196) | |
Municipal securities | Municipal securities | 166 | | | (3) | | | 684 | | | (13) | | | 850 | | | (16) | | Municipal securities | 163 | | | (7) | | | 463 | | | (12) | | | 626 | | | (19) | |
| Asset-backed securities | Asset-backed securities | 16 | | | 0 | | | 0 | | | 0 | | | 16 | | | 0 | | Asset-backed securities | 65 | | | (1) | | | 0 | | | 0 | | | 65 | | | (1) | |
Corporate debt | Corporate debt | 230 | | | (1) | | | 0 | | | 0 | | | 230 | | | (1) | | Corporate debt | 816 | | | (31) | | | 0 | | | 0 | | | 816 | | | (31) | |
| Total temporarily impaired securities | $ | 2,497 | | | $ | (14) | | | $ | 684 | | | $ | (13) | | | $ | 3,181 | | | $ | (27) | | |
Total temporarily impaired available-for-sale securities | | Total temporarily impaired available-for-sale securities | $ | 10,137 | | | $ | (235) | | | $ | 463 | | | $ | (12) | | | $ | 10,600 | | | $ | (247) | |
| Held-to-maturity securities: | Held-to-maturity securities: | | Held-to-maturity securities: | |
Federal agencies: | Federal agencies: | | Federal agencies: | |
Residential CMO | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | |
| Residential MBS | Residential MBS | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | Residential MBS | $ | 1,235 | | | (18) | | | 0 | | | 0 | | | 1,235 | | | (18) | |
Commercial MBS | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | |
Other agencies | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | |
Total federal agency and other agency securities | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | |
Municipal securities | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | |
Total temporarily impaired securities | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | |
| Total temporarily impaired held-to-maturity securities | | Total temporarily impaired held-to-maturity securities | $ | 1,235 | | | $ | (18) | | | $ | 0 | | | $ | 0 | | | $ | 1,235 | | | $ | (18) | |
602021 1Q Form 10-Q Huntington Bancshares Incorporated51
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Less than 12 Months | | Over 12 Months | | Total |
(dollar amounts in millions) | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized 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 | | | 0 | | | 1,178 | | | (3) | |
Commercial MBS | 472 | | | (2) | | | 272 | | | (2) | | | 744 | | | (4) | |
Other agencies | 86 | | | (1) | | | 0 | | | 0 | | | 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) | |
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Asset-backed securities | 116 | | | (1) | | | 37 | | | (1) | | | 153 | | | (2) | |
Corporate debt | 1 | | | 0 | | | 0 | | | 0 | | | 1 | | | 0 | |
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Total temporarily impaired securities | $ | 3,323 | | | $ | (21) | | | $ | 2,041 | | | $ | (30) | | | $ | 5,364 | | | $ | (51) | |
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Held-to-maturity securities: | | | | | | | | | | | |
Federal agencies: | | | | | | | | | | | |
Residential CMO | $ | 218 | | | $ | (1) | | | $ | 112 | | | $ | (2) | | | $ | 330 | | | $ | (3) | |
Residential MBS | 317 | | | 0 | | | 0 | | | 0 | | | 317 | | | 0 | |
Commercial MBS | 81 | | | 0 | | | 0 | | | 0 | | | 81 | | | 0 | |
Other agencies | 58 | | | 0 | | | 0 | | | 0 | | | 58 | | | 0 | |
Total federal agency and other agency securities | 674 | | | (1) | | | 112 | | | (2) | | | 786 | | | (3) | |
Municipal securities | 4 | | | 0 | | | 0 | | | 0 | | | 4 | | | 0 | |
Total temporarily impaired securities | $ | 678 | | | $ | (1) | | | $ | 112 | | | $ | (2) | | | $ | 790 | | | $ | (3) | |
During the 2020 first quarter, Huntington transferred $1.5 billion of securities from the AFS portfolio to the HTM portfolio. At the time of the transfer, AOCI included $22 million of unrealized gains attributed to these securities. This gain will be amortized into interest income over the remaining life of the securities. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Less than 12 Months | | Over 12 Months | | Total |
(dollar amounts in millions) | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses |
December 31, 2020 | | | | | | | | | | | |
Available-for-sale securities: | | | | | | | | | | | |
Federal agencies: | | | | | | | | | | | |
Residential CMO | $ | 302 | | | $ | (5) | | | $ | 0 | | | $ | 0 | | | $ | 302 | | | $ | (5) | |
Residential MBS | 1,633 | | | (5) | | | 0 | | | 0 | | | 1,633 | | | (5) | |
Commercial MBS | 321 | | | (9) | | | 0 | | | 0 | | | 321 | | | (9) | |
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Total federal agency and other agency securities | 2,256 | | | (19) | | | 0 | | | 0 | | | 2,256 | | | (19) | |
Municipal securities | 110 | | | (3) | | | 490 | | | (12) | | | 600 | | | (15) | |
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Asset-backed securities | 15 | | | 0 | | | 0 | | | 0 | | | 15 | | | 0 | |
Corporate debt | 51 | | | 0 | | | 0 | | | 0 | | | 51 | | | 0 | |
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Total temporarily impaired available-for-sale securities | $ | 2,432 | | | $ | (22) | | | $ | 490 | | | $ | (12) | | | $ | 2,922 | | | $ | (34) | |
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At September 30, 2020March 31, 2021 and December 31, 2019,2020, 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 $16.8$13.9 billion and $3.8$14.4 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 September 30, 2020March 31, 2021 or December 31, 2019.2020. At September 30, 2020,March 31, 2021, all HTM debt securities are considered AAA rated. In addition, there were no HTM debt securities considered past due at September 30, 2020.March 31, 2021.
AFS Securities ImpairmentImpairment/HTM Securities Allowance for Credit Losses
Based on an evaluation of available information aboutincluding 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 September 30,March 31, 2021 and December 31, 2020.
2020 3Q Form 10-Q 5261 Huntington Bancshares Incorporated
4. 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 Unaudited Condensed 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 $454$473 million and $525$491 million at September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively.
Loan and Lease Portfolio Composition
The following table provides a detailed listing of Huntington’s loan and lease portfolio at September 30, 2020March 31, 2021 and December 31, 2019.2020.
| (dollar amounts in millions) | (dollar amounts in millions) | September 30, 2020 | | December 31, 2019 | (dollar amounts in millions) | March 31, 2021 | | December 31, 2020 |
| Loans and leases: | Loans and leases: | | | | Loans and leases: | | | |
Commercial and industrial | Commercial and industrial | $ | 34,895 | | | $ | 30,664 | | Commercial and industrial | $ | 34,464 | | | $ | 35,373 | |
Commercial real estate | Commercial real estate | 7,209 | | | 6,674 | | Commercial real estate | 7,179 | | | 7,199 | |
Automobile | Automobile | 12,925 | | | 12,797 | | Automobile | 12,591 | | | 12,778 | |
Home equity | Home equity | 8,904 | | | 9,093 | | Home equity | 8,727 | | | 8,894 | |
Residential mortgage | Residential mortgage | 12,031 | | | 11,376 | | Residential mortgage | 12,092 | | | 12,141 | |
RV and marine | RV and marine | 4,146 | | | 3,563 | | RV and marine | 4,218 | | | 4,190 | |
Other consumer | Other consumer | 1,046 | | | 1,237 | | Other consumer | 959 | | | 1,033 | |
Loans and leases | Loans and leases | $ | 81,156 | | | $ | 75,404 | | Loans and leases | $ | 80,230 | | | $ | 81,608 | |
Allowance for loan and lease losses | Allowance for loan and lease losses | (1,796) | | | (783) | | Allowance for loan and lease losses | (1,703) | | | (1,814) | |
Net loans and leases | Net loans and leases | $ | 79,360 | | | $ | 74,621 | | Net loans and leases | $ | 78,527 | | | $ | 79,794 | |
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.
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.
The following table presents net investments in lease financing receivables by category at September 30, 2020March 31, 2021 and December 31, 2019.2020.
| (dollar amounts in millions) | (dollar amounts in millions) | September 30, 2020 | | December 31, 2019 | (dollar amounts in millions) | March 31, 2021 | | December 31, 2020 |
Commercial and industrial: | Commercial and industrial: | | | | Commercial and industrial: | | | |
Lease payments receivable | Lease payments receivable | $ | 1,751 | | | $ | 1,841 | | Lease payments receivable | $ | 1,714 | | | $ | 1,737 | |
Estimated residual value of leased assets | Estimated residual value of leased assets | 687 | | | 728 | | Estimated residual value of leased assets | 622 | | | 664 | |
Gross investment in commercial and industrial lease financing receivables | Gross investment in commercial and industrial lease financing receivables | 2,438 | | | 2,569 | | Gross investment in commercial and industrial lease financing receivables | 2,336 | | | 2,401 | |
Deferred origination costs | Deferred origination costs | 21 | | | 19 | | Deferred origination costs | 21 | | | 21 | |
Deferred fees | Deferred fees | (203) | | | (249) | | Deferred fees | (190) | | | (200) | |
Total net investment in commercial and industrial lease financing receivables | Total net investment in commercial and industrial lease financing receivables | $ | 2,256 | | | $ | 2,339 | | Total net investment in commercial and industrial lease financing receivables | $ | 2,167 | | | $ | 2,222 | |
The carrying value of residual values guaranteed was $97$77 million and $95$93 million as of September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. The future lease rental payments due from customers on sales-type and direct financing leases at September 30, 2020,March 31, 2021, totaled $1.8$1.7 billion and were due as follows: $0.6 billion in 2021, $0.5$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 $26$24 million and $28$27 million for the three-month periods ended September 30,March 31, 2021 and 2020, and 2019, respectively. For the nine-month periods ended September 30, 2020 and 2019, interest income recognized was $81 million and $81 million, respectively.
622021 1Q Form 10-Q Huntington Bancshares Incorporated53
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. See Note 1 “Significant Accounting Policies” to the Consolidated Financial Statements of the Annual Report on Form 10-K for the year ended December 31, 2019 for a description of the accounting policies related to the NALs.
The following table presents NALs by loan class at September 30, 2020March 31, 2021 and December 31, 20192020 (1):
| | | September 30, 2020 | | December 31, 2019 | | March 31, 2021 | | December 31, 2020 |
(dollar amounts in millions) | (dollar amounts in millions) | Nonaccrual loans with no ACL | Total nonaccrual loans | | Nonaccrual loans with no ACL | Total nonaccrual loans | (dollar amounts in millions) | Nonaccrual loans with no ACL | Total nonaccrual loans | | Nonaccrual loans with no ACL | Total nonaccrual loans |
Commercial and industrial | Commercial and industrial | $ | 65 | | $ | 388 | | | $ | 109 | | $ | 323 | | Commercial and industrial | $ | 103 | | $ | 343 | | | $ | 69 | | $ | 353 | |
Commercial real estate | Commercial real estate | 9 | | 16 | | | 2 | | 10 | | Commercial real estate | 0 | | 8 | | | 8 | | 15 | |
Automobile | Automobile | 0 | | 5 | | | 0 | | 4 | | Automobile | 0 | | 3 | | | 0 | | 4 | |
Home equity | Home equity | 0 | | 71 | | | 0 | | 59 | | Home equity | 0 | | 71 | | | 0 | | 70 | |
Residential mortgage | Residential mortgage | 0 | | 88 | | | 0 | | 71 | | Residential mortgage | 0 | | 90 | | | 0 | | 88 | |
RV and marine | RV and marine | 0 | | 1 | | | 0 | | 1 | | RV and marine | 0 | | 1 | | | 0 | | 2 | |
Other consumer | 0 | | 0 | | | 0 | | 0 | | |
| Total nonaccrual loans | Total nonaccrual loans | $ | 74 | | $ | 569 | | | $ | 111 | | $ | 468 | | Total nonaccrual loans | $ | 103 | | $ | 516 | | | $ | 77 | | $ | 532 | |
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(1) Generally excludes loans that were under payment deferral or granted other assistance, including amendments or waivers of financial covenants in response to the COVID-19 pandemic.
The following table presents an aging analysis of loans and leases, including past due loans and leases, by loan class at September 30, 2020March 31, 2021 and December 31, 2019:2020:
| | | September 30, 2020 | | | March 31, 2021 | |
| | Past Due (1)(2) | | | Loans Accounted for Under FVO | | Total Loans and Leases | | 90 or more days past due and accruing | | | Past Due (1) | | | Loans Accounted for Under FVO | | Total Loans and Leases | | 90 or more days past due and accruing | |
(dollar amounts in millions) | (dollar amounts in millions) | 30-59 Days | | 60-89 Days | | 90 or more days | | Total | | Current | | | | (dollar amounts in millions) | 30-59 Days | | 60-89 Days | | 90 or more days | | Total | | Current | | | |
Commercial and industrial | Commercial and industrial | $ | 54 | | | $ | 21 | | | $ | 113 | | | $ | 188 | | | $ | 34,707 | | | | $ | 0 | | | $ | 34,895 | | | $ | 10 | | (3) | Commercial and industrial | $ | 37 | | | $ | 20 | | | $ | 96 | | | $ | 153 | | | $ | 34,311 | | | | $ | 0 | | | $ | 34,464 | | | $ | 8 | | (3) |
Commercial real estate | Commercial real estate | 6 | | | 3 | | | 12 | | | 21 | | | 7,188 | | | | 0 | | | 7,209 | | | 0 | | | Commercial real estate | 1 | | | 1 | | | 2 | | | 4 | | | 7,175 | | | | 0 | | | 7,179 | | | 0 | | |
Automobile | Automobile | 61 | | | 20 | | | 12 | | | 93 | | | 12,832 | | | | 0 | | | 12,925 | | | 8 | | | Automobile | 50 | | | 12 | | | 6 | | | 68 | | | 12,523 | | | | 0 | | | 12,591 | | | 5 | | |
Home equity | Home equity | 23 | | | 11 | | | 58 | | | 92 | | | 8,811 | | | | 1 | | | 8,904 | | | 11 | | | Home equity | 23 | | | 11 | | | 58 | | | 92 | | | 8,634 | | | | 1 | | | 8,727 | | | 10 | | |
Residential mortgage | Residential mortgage | 104 | | | 32 | | | 202 | | | 338 | | | 11,602 | | | | 91 | | | 12,031 | | | 142 | | (4) | Residential mortgage | 78 | | | 26 | | | 194 | | | 298 | | | 11,677 | | | | 117 | | | 12,092 | | | 128 | | (4) |
RV and marine | RV and marine | 11 | | | 3 | | | 3 | | | 17 | | | 4,129 | | | | 0 | | | 4,146 | | | 2 | | | RV and marine | 11 | | | 3 | | | 2 | | | 16 | | | 4,202 | | | | 0 | | | 4,218 | | | 1 | | |
Other consumer | Other consumer | 8 | | | 3 | | | 2 | | | 13 | | | 1,033 | | | | 0 | | | 1,046 | | | 2 | | | Other consumer | 6 | | | 2 | | | 2 | | | 10 | | | 949 | | | | 0 | | | 959 | | | 2 | | |
Total loans and leases | Total loans and leases | $ | 267 | | | $ | 93 | | | $ | 402 | | | $ | 762 | | | $ | 80,302 | | | | $ | 92 | | | $ | 81,156 | | | $ | 175 | | | Total loans and leases | $ | 206 | | | $ | 75 | | | $ | 360 | | | $ | 641 | | | $ | 79,471 | | | | $ | 118 | | | $ | 80,230 | | | $ | 154 | | |
| | | December 31, 2019 | | | December 31, 2020 | |
| | Past Due (1) | | | Loans Accounted for Under FVO | | Total Loans and Leases | | 90 or more days past due and accruing | | | Past Due (1)(2) | | | Loans Accounted for Under FVO | | Total Loans and Leases | | 90 or more days past due and accruing | |
(dollar amounts in millions) | (dollar amounts in millions) | 30-59 Days | | 60-89 Days | | 90 or more days | | Total | | Current | | | | (dollar amounts in millions) | 30-59 Days | | 60-89 Days | | 90 or more days | | Total | | Current | | | | Loans Accounted for Under FVO | Total Loans and Leases | 90 or more days past due and accruing |
Commercial and industrial | Commercial and industrial | $ | 65 | | | $ | 31 | | | $ | 69 | | | $ | 165 | | | $ | 30,499 | | | | $ | 0 | | | $ | 30,664 | | | $ | 11 | | (3) | Commercial and industrial | $ | 60 | | | $ | 38 | | | $ | 95 | | | $ | 193 | | | $ | 35,180 | | | | $ | 0 | | $ | 35,373 | | $ | 10 | | (3) |
Commercial real estate | Commercial real estate | 3 | | | 1 | | | 7 | | | 11 | | | 6,663 | | | | 0 | | | 6,674 | | | 0 | | | Commercial real estate | 0 | | | 1 | | | 11 | | | 12 | | | 7,187 | | | | 0 | | | 7,199 | | | 0 | | |
Automobile | Automobile | 95 | | | 19 | | | 11 | | | 125 | | | 12,672 | | | | 0 | | | 12,797 | | | 8 | | | Automobile | 84 | | | 22 | | | 12 | | | 118 | | | 12,660 | | | | 0 | | | 12,778 | | | 9 | | |
Home equity | Home equity | 50 | | | 19 | | | 51 | | | 120 | | | 8,972 | | | | 1 | | | 9,093 | | | 14 | | | Home equity | 35 | | | 15 | | | 61 | | | 111 | | | 8,782 | | | | 1 | | | 8,894 | | | 14 | | |
Residential mortgage | Residential mortgage | 103 | | | 49 | | | 170 | | | 322 | | | 10,974 | | | | 80 | | | 11,376 | | | 129 | | (4) | Residential mortgage | 114 | | | 38 | | | 194 | | | 346 | | | 11,702 | | | | 93 | | | 12,141 | | | 132 | | (4) |
RV and marine | RV and marine | 13 | | | 4 | | | 2 | | | 19 | | | 3,544 | | | | 0 | | | 3,563 | | | 2 | | | RV and marine | 17 | | | 3 | | | 3 | | | 23 | | | 4,167 | | | | 0 | | | 4,190 | | | 3 | | |
Other consumer | Other consumer | 13 | | | 6 | | | 7 | | | 26 | | | 1,211 | | | | 0 | | | 1,237 | | | 7 | | | Other consumer | 9 | | | 4 | | | 3 | | | 16 | | | 1,017 | | | | 0 | | | 1,033 | | | 3 | | |
Total loans and leases | Total loans and leases | $ | 342 | | | $ | 129 | | | $ | 317 | | | $ | 788 | | | $ | 74,535 | | | | $ | 81 | | | $ | 75,404 | | | $ | 171 | | | Total loans and leases | $ | 319 | | | $ | 121 | | | $ | 379 | | | $ | 819 | | | $ | 80,695 | | | | $ | 94 | | | $ | 81,608 | | | $ | 171 | | |
(1)NALs are included in this aging analysis based on the loan’s past due status.
(2)At September 30, 2020, theThe 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 include Huntington Technology Finance administrative lease delinquencies.
(4)Amounts include mortgage loans insured by U.S. government agencies.
2020 3Q Form 10-Q 5463 Huntington Bancshares Incorporated
Credit Quality Indicators
See Note 35 “Loans / Leases and Allowance for Credit Losses” to the Consolidated Financial Statements of the Annual Report on Form 10-K for the year ended December 31, 20192020 for a description of the credit quality indicators Huntington utilizes for monitoring credit quality and for determining an appropriate ACL level.
To facilitate the monitoring of credit quality for commercial loans, and for 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 protect Huntington’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 likely Huntington 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 portfolio,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.
642021 1Q Form 10-Q Huntington Bancshares Incorporated55
The following table presentstables present each loan and lease class by vintage and credit quality indicator at September 30, 2020:March 31, 2021 and December 31, 2020 respectively:
| | | As of September 30, 2020 | | As of March 31, 2021 |
| | Term Loans Amortized Cost Basis by Origination Year | | Revolver Total at Amortized Cost Basis | | Revolver Total Converted to Term Loans | | | Term Loans Amortized Cost Basis by Origination Year | | Revolver Total at Amortized Cost Basis | | Revolver Total Converted to Term Loans | |
(dollar amounts in millions) | (dollar amounts in millions) | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Total (3) | (dollar amounts in millions) | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total (3) |
Commercial and industrial | Commercial and industrial | | | | | | | | | | | | | | | | | | | Commercial and industrial | | | | | | | | | | | | | | | | | | |
Credit Quality Indicator (1): | Credit Quality Indicator (1): | | Credit Quality Indicator (1): | |
Pass | Pass | | $ | 12,017 | | | $ | 5,057 | | | $ | 3,019 | | | $ | 1,621 | | | $ | 1,106 | | | $ | 1,084 | | | $ | 8,408 | | | $ | 2 | | | $ | 32,314 | | Pass | | $ | 4,040 | | | $ | 10,291 | | | $ | 4,087 | | | $ | 2,369 | | | $ | 1,215 | | | $ | 1,605 | | | $ | 8,656 | | | $ | 2 | | | $ | 32,265 | |
OLEM | OLEM | | 362 | | | 134 | | | 120 | | | 35 | | | 42 | | | 22 | | | 212 | | | 0 | | | 927 | | OLEM | | 122 | | | 282 | | | 98 | | | 91 | | | 41 | | | 92 | | | 128 | | | 0 | | | 854 | |
Substandard | Substandard | | 296 | | | 171 | | | 167 | | | 215 | | | 90 | | | 182 | | | 525 | | | 0 | | | 1,646 | | Substandard | | 54 | | | 216 | | | 110 | | | 176 | | | 184 | | | 212 | | | 386 | | | 0 | | | 1,338 | |
Doubtful | Doubtful | | 2 | | | 0 | | | 5 | | | 0 | | | 0 | | | 1 | | | 0 | | | 0 | | | 8 | | Doubtful | | 1 | | | 4 | | | 0 | | | 1 | | | 0 | | | 0 | | | 1 | | | 0 | | | 7 | |
Total Commercial and industrial | Total Commercial and industrial | | $ | 12,677 | | | $ | 5,362 | | | $ | 3,311 | | | $ | 1,871 | | | $ | 1,238 | | | $ | 1,289 | | | $ | 9,145 | | | $ | 2 | | | $ | 34,895 | | Total Commercial and industrial | | $ | 4,217 | | | $ | 10,793 | | | $ | 4,295 | | | $ | 2,637 | | | $ | 1,440 | | | $ | 1,909 | | | $ | 9,171 | | | $ | 2 | | | $ | 34,464 | |
| Commercial real estate | Commercial real estate | | Commercial real estate | |
Credit Quality Indicator (1): | Credit Quality Indicator (1): | | Credit Quality Indicator (1): | |
Pass | Pass | | $ | 1,366 | | | $ | 1,629 | | | $ | 1,203 | | | $ | 566 | | | $ | 601 | | | $ | 635 | | | $ | 675 | | | $ | 0 | | | $ | 6,675 | | Pass | | $ | 406 | | | $ | 1,605 | | | $ | 1,475 | | | $ | 1,077 | | | $ | 454 | | | $ | 999 | | | $ | 624 | | | $ | 0 | | | $ | 6,640 | |
OLEM | OLEM | | 61 | | | 74 | | | 73 | | | 56 | | | 20 | | | 23 | | | 1 | | | 0 | | | 308 | | OLEM | | 2 | | | 88 | | | 31 | | | 62 | | | 68 | | | 35 | | | 1 | | | 0 | | | 287 | |
Substandard | Substandard | | 21 | | | 48 | | | 13 | | | 40 | | | 44 | | | 20 | | | 38 | | | 0 | | | 224 | | Substandard | | 4 | | | 23 | | | 114 | | | 7 | | | 27 | | | 38 | | | 39 | | | 0 | | | 252 | |
Doubtful | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 2 | | | 0 | | | 0 | | | 2 | | |
| Total Commercial real estate | Total Commercial real estate | | $ | 1,448 | | | $ | 1,751 | | | $ | 1,289 | | | $ | 662 | | | $ | 665 | | | $ | 680 | | | $ | 714 | | | $ | 0 | | | $ | 7,209 | | Total Commercial real estate | | $ | 412 | | | $ | 1,716 | | | $ | 1,620 | | | $ | 1,146 | | | $ | 549 | | | $ | 1,072 | | | $ | 664 | | | $ | 0 | | | $ | 7,179 | |
| Automobile | Automobile | | Automobile | |
Credit Quality Indicator (2): | Credit Quality Indicator (2): | | Credit Quality Indicator (2): | |
750+ | 750+ | | $ | 2,145 | | | $ | 2,185 | | | $ | 1,293 | | | $ | 880 | | | $ | 406 | | | $ | 126 | | | $ | 0 | | | $ | 0 | | | $ | 7,035 | | 750+ | | $ | 771 | | | $ | 2,381 | | | $ | 1,817 | | | $ | 991 | | | $ | 608 | | | $ | 279 | | | $ | 0 | | | $ | 0 | | | $ | 6,847 | |
650-749 | 650-749 | | 1,528 | | | 1,546 | | | 878 | | | 465 | | | 224 | | | 78 | | | 0 | | | 0 | | | 4,719 | | 650-749 | | 479 | | | 1,895 | | | 1,161 | | | 642 | | | 315 | | | 163 | | | 0 | | | 0 | | | 4,655 | |
<650 | <650 | | 224 | | | 334 | | | 274 | | | 183 | | | 104 | | | 52 | | | 0 | | | 0 | | | 1,171 | | <650 | | 44 | | | 336 | | | 271 | | | 216 | | | 132 | | | 90 | | | 0 | | | 0 | | | 1,089 | |
| Total Automobile | Total Automobile | | $ | 3,897 | | | $ | 4,065 | | | $ | 2,445 | | | $ | 1,528 | | | $ | 734 | | | $ | 256 | | | $ | 0 | | | $ | 0 | | | $ | 12,925 | | Total Automobile | | $ | 1,294 | | | $ | 4,612 | | | $ | 3,249 | | | $ | 1,849 | | | $ | 1,055 | | | $ | 532 | | | $ | 0 | | | $ | 0 | | | $ | 12,591 | |
| Home equity | Home equity | | Home equity | |
Credit Quality Indicator (2): | Credit Quality Indicator (2): | | Credit Quality Indicator (2): | |
750+ | 750+ | | $ | 502 | | | $ | 29 | | | $ | 31 | | | $ | 36 | | | $ | 97 | | | $ | 498 | | | $ | 4,493 | | | $ | 192 | | | $ | 5,878 | | 750+ | | $ | 187 | | | $ | 780 | | | $ | 21 | | | $ | 22 | | | $ | 28 | | | $ | 479 | | | $ | 4,201 | | | $ | 189 | | | $ | 5,907 | |
650-749 | 650-749 | | 96 | | | 12 | | | 8 | | | 12 | | | 31 | | | 181 | | | 2,006 | | | 186 | | | 2,532 | | 650-749 | | 37 | | | 137 | | | 8 | | | 6 | | | 8 | | | 171 | | | 1,810 | | | 176 | | | 2,353 | |
<650 | <650 | | 0 | | | 1 | | | 1 | | | 1 | | | 7 | | | 76 | | | 304 | | | 103 | | | 493 | | <650 | | 1 | | | 1 | | | 1 | | | 1 | | | 2 | | | 74 | | | 286 | | | 100 | | | 466 | |
| Total Home equity | Total Home equity | | $ | 598 | | | $ | 42 | | | $ | 40 | | | $ | 49 | | | $ | 135 | | | $ | 755 | | | $ | 6,803 | | | $ | 481 | | | $ | 8,903 | | Total Home equity | | $ | 225 | | | $ | 918 | | | $ | 30 | | | $ | 29 | | | $ | 38 | | | $ | 724 | | | $ | 6,297 | | | $ | 465 | | | $ | 8,726 | |
| Residential mortgage | Residential mortgage | | Residential mortgage | |
Credit Quality Indicator (2): | Credit Quality Indicator (2): | | Credit Quality Indicator (2): | |
750+ | 750+ | | $ | 2,416 | | | $ | 1,545 | | | $ | 1,060 | | | $ | 1,229 | | | $ | 862 | | | $ | 1,429 | | | $ | 0 | | | $ | 0 | | | $ | 8,541 | | 750+ | | $ | 963 | | | $ | 3,204 | | | $ | 1,143 | | | $ | 727 | | | $ | 883 | | | $ | 1,723 | | | $ | 1 | | | $ | 0 | | | $ | 8,644 | |
650-749 | 650-749 | | 758 | | | 516 | | | 363 | | | 313 | | | 194 | | | 526 | | | 0 | | | 0 | | | 2,670 | | 650-749 | | 254 | | | 836 | | | 355 | | | 255 | | | 249 | | | 621 | | | 0 | | | 0 | | | 2,570 | |
<650 | <650 | | 25 | | | 74 | | | 101 | | | 102 | | | 73 | | | 354 | | | 0 | | | 0 | | | 729 | | <650 | | 7 | | | 37 | | | 90 | | | 113 | | | 106 | | | 408 | | | 0 | | | 0 | | | 761 | |
| Total Residential mortgage | Total Residential mortgage | | $ | 3,199 | | | $ | 2,135 | | | $ | 1,524 | | | $ | 1,644 | | | $ | 1,129 | | | $ | 2,309 | | | $ | 0 | | | $ | 0 | | | $ | 11,940 | | Total Residential mortgage | | $ | 1,224 | | | $ | 4,077 | | | $ | 1,588 | | | $ | 1,095 | | | $ | 1,238 | | | $ | 2,752 | | | $ | 1 | | | $ | 0 | | | $ | 11,975 | |
| RV and marine | RV and marine | | RV and marine | |
Credit Quality Indicator (2): | Credit Quality Indicator (2): | | Credit Quality Indicator (2): | |
750+ | 750+ | | $ | 988 | | | $ | 557 | | | $ | 629 | | | $ | 360 | | | $ | 163 | | | $ | 270 | | | $ | 0 | | | $ | 0 | | | $ | 2,967 | | 750+ | | $ | 267 | | | $ | 1,050 | | | $ | 491 | | | $ | 547 | | | $ | 311 | | | $ | 375 | | | $ | 0 | | | $ | 0 | | | $ | 3,041 | |
650-749 | 650-749 | | 264 | | | 231 | | | 217 | | | 147 | | | 69 | | | 141 | | | 0 | | | 0 | | | 1,069 | | 650-749 | | 46 | | | 351 | | | 193 | | | 182 | | | 126 | | | 176 | | | 0 | | | 0 | | | 1,074 | |
<650 | <650 | | 4 | | | 15 | | | 23 | | | 23 | | | 12 | | | 33 | | | 0 | | | 0 | | | 110 | | <650 | | 0 | | | 8 | | | 15 | | | 21 | | | 22 | | | 37 | | | 0 | | | 0 | | | 103 | |
| Total RV and marine | Total RV and marine | | $ | 1,256 | | | $ | 803 | | | $ | 869 | | | $ | 530 | | | $ | 244 | | | $ | 444 | | | $ | 0 | | | $ | 0 | | | $ | 4,146 | | Total RV and marine | | $ | 313 | | | $ | 1,409 | | | $ | 699 | | | $ | 750 | | | $ | 459 | | | $ | 588 | | | $ | 0 | | | $ | 0 | | | $ | 4,218 | |
| Other consumer | Other consumer | | Other consumer | |
Credit Quality Indicator (2): | Credit Quality Indicator (2): | | Credit Quality Indicator (2): | |
750+ | 750+ | | $ | 71 | | | $ | 64 | | | $ | 28 | | | $ | 8 | | | $ | 4 | | | $ | 10 | | | $ | 324 | | | $ | 2 | | | $ | 511 | | 750+ | | $ | 22 | | | $ | 59 | | | $ | 52 | | | $ | 21 | | | $ | 6 | | | $ | 16 | | | $ | 319 | | | $ | 2 | | | $ | 497 | |
650-749 | 650-749 | | 29 | | | 64 | | | 21 | | | 7 | | | 2 | | | 5 | | | 300 | | | 31 | | | 459 | | 650-749 | | 9 | | | 30 | | | 46 | | | 15 | | | 4 | | | 4 | | | 264 | | | 28 | | | 400 | |
<650 | <650 | | 1 | | | 9 | | | 3 | | | 1 | | | 1 | | | 2 | | | 28 | | | 31 | | | 76 | | <650 | | 0 | | | 2 | | | 7 | | | 3 | | | 1 | | | 1 | | | 25 | | | 23 | | | 62 | |
| Total Other consumer | Total Other consumer | | $ | 101 | | | $ | 137 | | | $ | 52 | | | $ | 16 | | | $ | 7 | | | $ | 17 | | | $ | 652 | | | $ | 64 | | | $ | 1,046 | | Total Other consumer | | $ | 31 | | | $ | 91 | | | $ | 105 | | | $ | 39 | | | $ | 11 | | | $ | 21 | | | $ | 608 | | | $ | 53 | | | $ | 959 | |
(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 September 30,March 31, 2021, presented in other assets within the Condensed Consolidated Balance Sheets, was $140 million and $119 million of commercial and consumer, respectively.
56 Huntington Bancshares Incorporated
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2020 |
| | Term Loans Amortized Cost Basis by Origination Year | | Revolver Total at Amortized Cost Basis | | Revolver Total Converted to Term Loans | | |
(dollar amounts in millions) | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | | | 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 | | | 0 | | | 815 | |
Substandard | | 196 | | | 144 | | | 188 | | | 224 | | | 46 | | | 159 | | | 423 | | | 0 | | | 1,380 | |
Doubtful | | 2 | | | 0 | | | 1 | | | 0 | | | 0 | | | 1 | | | 1 | | | 0 | | | 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 | | | $ | 0 | | | $ | 6,660 | |
OLEM | | 94 | | | 78 | | | 63 | | | 37 | | | 28 | | | 14 | | | 4 | | | 0 | | | 318 | |
Substandard | | 27 | | | 46 | | | 10 | | | 29 | | | 58 | | | 14 | | | 36 | | | 0 | | | 220 | |
Doubtful | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1 | | | 0 | | | 0 | | | 1 | |
Total Commercial real estate | | $ | 1,863 | | | $ | 1,734 | | | $ | 1,195 | | | $ | 573 | | | $ | 593 | | | $ | 568 | | | $ | 673 | | | $ | 0 | | | $ | 7,199 | |
| | | | | | | | | | | | | | | | | | |
Automobile | | | | | | | | | | | | | | | | | | |
Credit Quality Indicator (2): | | | | | | | | | | | | | | | | | | |
750+ | | $ | 2,670 | | | $ | 2,013 | | | $ | 1,144 | | | $ | 742 | | | $ | 317 | | | $ | 81 | | | $ | 0 | | | $ | 0 | | | $ | 6,967 | |
650-749 | | 1,965 | | | 1,343 | | | 755 | | | 386 | | | 175 | | | 52 | | | 0 | | | 0 | | | 4,676 | |
<650 | | 312 | | | 301 | | | 244 | | | 157 | | | 84 | | | 37 | | | 0 | | | 0 | | | 1,135 | |
| | | | | | | | | | | | | | | | | | |
Total Automobile | | $ | 4,947 | | | $ | 3,657 | | | $ | 2,143 | | | $ | 1,285 | | | $ | 576 | | | $ | 170 | | | $ | 0 | | | $ | 0 | | | $ | 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 | | | $ | 0 | | | $ | 8,600 | |
650-749 | | 991 | | | 435 | | | 307 | | | 278 | | | 171 | | | 495 | | | 0 | | | 0 | | | 2,677 | |
<650 | | 34 | | | 89 | | | 111 | | | 108 | | | 81 | | | 348 | | | 0 | | | 0 | | | 771 | |
| | | | | | | | | | | | | | | | | | |
Total Residential mortgage | | $ | 4,294 | | | $ | 1,894 | | | $ | 1,309 | | | $ | 1,450 | | | $ | 1,014 | | | $ | 2,086 | | | $ | 1 | | | $ | 0 | | | $ | 12,048 | |
| | | | | | | | | | | | | | | | | | |
RV and marine | | | | | | | | | | | | | | | | | | |
Credit Quality Indicator (2): | | | | | | | | | | | | | | | | | | |
750+ | | $ | 1,136 | | | $ | 525 | | | $ | 589 | | | $ | 337 | | | $ | 153 | | | $ | 254 | | | $ | 0 | | | $ | 0 | | | $ | 2,994 | |
650-749 | | 348 | | | 215 | | | 201 | | | 136 | | | 64 | | | 129 | | | 0 | | | 0 | | | 1,093 | |
<650 | | 4 | | | 15 | | | 21 | | | 22 | | | 12 | | | 29 | | | 0 | | | 0 | | | 103 | |
| | | | | | | | | | | | | | | | | | |
Total RV and marine | | $ | 1,488 | | | $ | 755 | | | $ | 811 | | | $ | 495 | | | $ | 229 | | | $ | 412 | | | $ | 0 | | | $ | 0 | | | $ | 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 | | | 0 | | | 1 | | | 26 | | | 28 | | | 69 | |
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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 Condensed Consolidated Balance Sheets, was $132$146 million and $125$123 million of commercial and consumer, respectively.
2020 3Q2021 1Q Form 10-Q 6557
The following table presents each loan and lease class by credit quality indicator at December 31, 2019.
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| December 31, 2019 |
(dollar amounts in millions) | Credit Risk Profile by UCS Classification |
Commercial | 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 | |
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| | | Credit Risk Profile by FICO Score (1), (2) |
Consumer | | | 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.
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.
TDR Loans
TDRs are modified loans where a concession was provided to a borrower experiencing financial difficulties. Loan modifications are considered TDRs when the concessions provided would not otherwise be considered. However, not all loan modifications are TDRs. See Note 35 “Loans / Leases and Allowance for Credit Losses” to the Consolidated Financial Statements of the Annual Report on Form 10-K for the year ended December 31, 20192020 for an additional discussion of TDRs.
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 further addresses COVID-19 related modifications and specifies that COVID-19 related modifications on loans that were current as of December 31, 2019 are not TDRs.
For COVID-19 related loan modifications which occurred from March 1, 2020 through September 30, 2020, and met the loan modification criteria under the CARES Act, Huntington elected to suspend TDR accounting for such loan modifications. 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.
66 Huntington Bancshares Incorporated
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 three-month and nine-month periods ended September 30, 2020March 31, 2021 and 2019.2020.
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| New Troubled Debt Restructurings (1) |
| Three Months Ended September 30, 2020 |
| Number of Contracts | | Post-modification Outstanding Recorded Investment (2) | | |
(dollar amounts in millions) | | Interest rate reduction | | Amortization or maturity date change | | Chapter 7 bankruptcy | | Other | | Total | |
Commercial and industrial | 39 | | | $ | 0 | | | $ | 28 | | | $ | 0 | | | $ | 0 | | | $ | 28 | | | |
Commercial real estate | 2 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | |
Automobile | 726 | | | 0 | | | 5 | | | 2 | | | 0 | | | 7 | | | |
Home equity | 90 | | | 0 | | | 2 | | | 3 | | | 1 | | | 6 | | | |
Residential mortgage | 242 | | | 0 | | | 40 | | | 2 | | | 0 | | | 42 | | | |
RV and marine | 30 | | | 0 | | | 1 | | | 0 | | | 0 | | | 1 | | | |
Other consumer | 122 | | | 1 | | | 0 | | | 0 | | | 0 | | | 1 | | | |
Total new TDRs | 1,251 | | | $ | 1 | | | $ | 76 | | | $ | 7 | | | $ | 1 | | | $ | 85 | | | |
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| Three Months Ended September 30, 2019 |
| Number of Contracts | | Post-modification Outstanding Recorded Investment (2) | | |
(dollar amounts in millions) | | Interest rate reduction | | Amortization or maturity date change | | Chapter 7 bankruptcy | | Other | | Total | |
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Commercial and industrial | 119 | | | $ | 0 | | | $ | 39 | | | $ | 0 | | | $ | 0 | | | $ | 39 | | | |
Commercial real estate | 7 | | | 0 | | | 1 | | | 0 | | | 0 | | | 1 | | | |
Automobile | 833 | | | 0 | | | 5 | | | 2 | | | 0 | | | 7 | | | |
Home equity | 76 | | | 0 | | | 2 | | | 3 | | | 0 | | | 5 | | | |
Residential mortgage | 69 | | | 0 | | | 9 | | | 0 | | | 0 | | | 9 | | | |
RV and marine | 46 | | | 0 | | | 1 | | | 0 | | | 0 | | | 1 | | | |
Other consumer | 385 | | | 2 | | | 0 | | | 0 | | | 0 | | | 2 | | | |
Total new TDRs | 1,535 | | | $ | 2 | | | $ | 57 | | | $ | 5 | | | $ | 0 | | | $ | 64 | | | |
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| New Troubled Debt Restructurings (1) |
| Nine Months Ended September 30, 2020 |
| Number of Contracts | | Post-modification Outstanding Recorded Investment (2) | | |
(dollar amounts in millions) | | Interest rate reduction | | Amortization or maturity date change | | Chapter 7 bankruptcy | | Other | | Total | |
Commercial and industrial | 277 | | | $ | 0 | | | $ | 116 | | | $ | 0 | | | $ | 58 | | | $ | 174 | | | |
Commercial real estate | 11 | | | 0 | | | 3 | | | 0 | | | 0 | | | 3 | | | |
Automobile | 2,582 | | | 0 | | | 26 | | | 5 | | | 0 | | | 31 | | | |
Home equity | 216 | | | 0 | | | 5 | | | 6 | | | 2 | | | 13 | | | |
Residential mortgage | 448 | | | 0 | | | 62 | | | 5 | | | 0 | | | 67 | | | |
RV and marine finance | 126 | | | 0 | | | 4 | | | 0 | | | 0 | | | 4 | | | |
Other consumer | 513 | | | 3 | | | 0 | | | 0 | | | 0 | | | 3 | | | |
Total new TDRs | 4,173 | | | $ | 3 | | | $ | 216 | | | $ | 16 | | | $ | 60 | | | $ | 295 | | | |
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| Nine Months Ended September 30, 2019 |
| Number of Contracts | | Post-modification Outstanding Recorded Investment (2) | | |
(dollar amounts in millions) | | Interest rate reduction | | Amortization or maturity date change | | Chapter 7 bankruptcy | | Other | | Total | |
Commercial and industrial | 335 | | | $ | 0 | | | $ | 114 | | | $ | 0 | | | $ | 0 | | | $ | 114 | | | |
Commercial real estate | 21 | | | 0 | | | 12 | | | 0 | | | 0 | | | 12 | | | |
Automobile | 2,227 | | | 0 | | | 14 | | | 6 | | | 0 | | | 20 | | | |
Home equity | 248 | | | 0 | | | 7 | | | 6 | | | 0 | | | 13 | | | |
Residential mortgage | 241 | | | 0 | | | 27 | | | 1 | | | 0 | | | 28 | | | |
RV and marine finance | 113 | | | 0 | | | 1 | | | 1 | | | 0 | | | 2 | | | |
Other consumer | 972 | | | 6 | | | 0 | | | 0 | | | 0 | | | 6 | | | |
Total new TDRs | 4,157 | | | $ | 6 | | | $ | 175 | | | $ | 14 | | | $ | 0 | | | $ | 195 | | | |
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(1)TDRs may include multiple concessions and the disclosure classifications are based on the primary concession provided to the borrower.
(2)Post-modification balances approximate pre-modification balances.
The financial effects of modification on the provision (recovery) for loan and lease losses for the three-month periods ended September 30, 2020 and 2019, were $1 million and $1 million respectively. For the nine-month periods ended September 30, 2020 and 2019, the financial effects of modification were $6 million and $(1) million, respectively.
Pledged Loans and Leases
The Bank has access to the Federal Reserve’s discount window and advances from the FHLB. As of September 30, 2020 and December 31, 2019, these borrowings and advances are secured by $43.4 billion and $39.6 billion, respectively, of loans. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| New Troubled Debt Restructurings (1) |
| Three Months Ended March 31, 2021 |
| Number of Contracts | | Post-modification Outstanding Recorded Investment (2) | | |
(dollar amounts in millions) | | Interest rate reduction | | Amortization or maturity date change | | Chapter 7 bankruptcy | | Other | | Total | |
Commercial and industrial | 12 | | | $ | 0 | | | $ | 5 | | | $ | 0 | | | $ | 0 | | | $ | 5 | | | |
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Automobile | 902 | | | 0 | | | 7 | | | 1 | | | 0 | | | 8 | | | |
Home equity | 62 | | | 0 | | | 1 | | | 2 | | | 0 | | | 3 | | | |
Residential mortgage | 86 | | | 0 | | | 13 | | | 1 | | | 0 | | | 14 | | | |
RV and marine | 49 | | | 0 | | | 1 | | | 0 | | | 0 | | | 1 | | | |
Other consumer | 97 | | | 0 | | | 0 | | | 0 | | | 1 | | | 1 | | | |
Total new TDRs | 1,208 | | | $ | 0 | | | $ | 27 | | | $ | 4 | | | $ | 1 | | | $ | 32 | | | |
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| Three Months Ended March 31, 2020 |
| Number of Contracts | | Post-modification Outstanding Recorded Investment (2) | | |
(dollar amounts in millions) | | Interest rate reduction | | Amortization or maturity date change | | Chapter 7 bankruptcy | | Other | | Total | |
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Commercial and industrial | 140 | | | $ | 0 | | | $ | 62 | | | $ | 0 | | | $ | 0 | | | $ | 62 | | | |
Commercial real estate | 7 | | | 0 | | | 2 | | | 0 | | | 0 | | | 2 | | | |
Automobile | 798 | | | 0 | | | 6 | | | 2 | | | 0 | | | 8 | | | |
Home equity | 63 | | | 0 | | | 1 | | | 2 | | | 0 | | | 3 | | | |
Residential mortgage | 101 | | | 0 | | | 9 | | | 2 | | | 0 | | | 11 | | | |
RV and marine | 28 | | | 0 | | | 1 | | | 0 | | | 0 | | | 1 | | | |
Other consumer | 249 | | | 1 | | | 0 | | | 0 | | | 0 | | | 1 | | | |
Total new TDRs | 1,386 | | | $ | 1 | | | $ | 81 | | | $ | 6 | | | $ | 0 | | | $ | 88 | | | |
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(1)TDRs may include multiple concessions and the disclosure classifications are based on the primary concession provided to the borrower.
(2)Post-modification balances approximate pre-modification balances.
The financial effects of modification on the provision for loan and lease losses for the three-month periods ended March 31, 2021 and 2020, were less than $1 million and $9 million, respectively.
Pledged Loans
The Bank has access to the Federal Reserve’s discount window and advances from the FHLB. As of March 31, 2021 and December 31, 2020, these borrowings and advances are secured by $44.1 billion and $43.0 billion, respectively, of loans.
6858 Huntington Bancshares Incorporated
5. 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.
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 economic parameters for each month of the remaining contractual term. Those 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 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.
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.
The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. Management believes the products within each of the entity’s portfolio classes exhibit similar risk characteristics. Huntington has identified its portfolio classes as disclosed above.
Allowance for Credit Losses - HTM Securities
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. As such, there is currently zero loss expectation for this portfolio.
Allowance for Credit Losses - AFS Securities
For individual debt securities classified as AFS, Huntington assesses whether a decline in fair value below the amortized cost basis has resulted from a credit loss or other factors. Any impairment relating to credit losses would be recognized through an allowance for credit losses. At September 30, 2020, it was determined that no allowance was required. Any impairment due to factors other than a credit loss, such as changes in market interest rates, is recognized in other comprehensive income, net of applicable taxes. Impairment is determined on an individual security basis. Therefore, an AFS debt security cannot be combined with other securities to determine whether the collective securities are impaired.
Allowance for Loan and Lease Losses and Allowance for Credit Losses - Roll-forward
The following table presentstables present ALLL and AULC activity by portfolio segment for the three-month and nine-month periods ended September 30, 2020March 31, 2021 and 2019.2020.
| (dollar amounts in millions) | (dollar amounts in millions) | | | Commercial | | Consumer | | Total | (dollar amounts in millions) | | Commercial | | Consumer | | Total |
Three-month period ended September 30, 2020: | | | | | | | | |
Three-month period ended March 31, 2021: | | Three-month period ended March 31, 2021: | | | | | | |
ALLL balance, beginning of period | ALLL balance, beginning of period | | | $ | 1,169 | | | $ | 533 | | | $ | 1,702 | | ALLL balance, beginning of period | | $ | 1,236 | | | $ | 578 | | | $ | 1,814 | |
| Loan charge-offs | Loan charge-offs | | | (101) | | | (40) | | | (141) | | Loan charge-offs | | (61) | | | (34) | | | (95) | |
Recoveries of loans previously charged-off | Recoveries of loans previously charged-off | | | 12 | | | 16 | | | 28 | | Recoveries of loans previously charged-off | | 12 | | | 19 | | | 31 | |
Provision for loan and lease losses | Provision for loan and lease losses | | | 183 | | | 24 | | | 207 | | Provision for loan and lease losses | | 10 | | | (57) | | | (47) | |
| ALLL balance, end of period | ALLL balance, end of period | | | $ | 1,263 | | | $ | 533 | | | $ | 1,796 | | ALLL balance, end of period | | $ | 1,197 | | | $ | 506 | | | $ | 1,703 | |
AULC balance, beginning of period | AULC balance, beginning of period | | | $ | 81 | | | $ | 38 | | | $ | 119 | | AULC balance, beginning of period | | $ | 34 | | | $ | 18 | | | $ | 52 | |
| Provision (reduction in allowance) for unfunded loan commitments and letters of credit | Provision (reduction in allowance) for unfunded loan commitments and letters of credit | | | (27) | | | (3) | | | (30) | | Provision (reduction in allowance) for unfunded loan commitments and letters of credit | | (6) | | | (7) | | | (13) | |
Unfunded commitment losses | Unfunded commitment losses | | | (7) | | | 0 | | | (7) | | Unfunded commitment losses | | (1) | | | 0 | | | (1) | |
AULC balance, end of period | AULC balance, end of period | | | $ | 47 | | | $ | 35 | | | $ | 82 | | AULC balance, end of period | | $ | 27 | | | $ | 11 | | | $ | 38 | |
ACL balance, end of period | ACL balance, end of period | | | $ | 1,310 | | | $ | 568 | | | $ | 1,878 | | ACL balance, end of period | | $ | 1,224 | | | $ | 517 | | | $ | 1,741 | |
Nine-month period ended September 30, 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 | | | (272) | | | (128) | | | (400) | | |
Recoveries of loans previously charged-off | | | 20 | | | 43 | | | 63 | | |
Provision for loan and lease losses | | | 783 | | | 176 | | | 959 | | |
| ALLL balance, end of period | | | $ | 1,263 | | | $ | 533 | | | $ | 1,796 | | |
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 | | | (7) | | | (7) | | | (14) | | |
Unfunded commitment losses | | | (10) | | | 0 | | | (10) | | |
AULC balance, end of period | | | $ | 47 | | | $ | 35 | | | $ | 82 | | |
ACL balance, end of period | | | $ | 1,310 | | | $ | 568 | | | $ | 1,878 | | |
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(dollar amounts in millions) | | | | | | | | | | | | | | | Commercial | | Consumer | | Total |
Three-month period ended March 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 | | | | | | | | | | | | | | | (88) | | | (48) | | | (136) | |
Recoveries of loans previously charged-off | | | | | | | | | | | | | | | 5 | | | 14 | | | 19 | |
Provision for loan and lease losses | | | | | | | | | | | | | | | 347 | | | 100 | | | 447 | |
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ALLL balance, end of period | | | | | | | | | | | | | | | $ | 996 | | | $ | 508 | | | $ | 1,504 | |
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 | | | | | | | | | | | | | | | (5) | | | (1) | | | (6) | |
Unfunded commitment losses | | | | | | | | | | | | | | | (1) | | | 0 | | | (1) | |
AULC balance, end of period | | | | | | | | | | | | | | | $ | 58 | | | $ | 41 | | | $ | 99 | |
ACL balance, end of period | | | | | | | | | | | | | | | $ | 1,054 | | | $ | 549 | | | $ | 1,603 | |
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(1)Relates to day one impact of the CECL adjustment as a result of the implementation of ASU 2016-13.
At March 31, 2021, the ACL was $1.7 billion, a decrease of $125 million from the December 31, 2020 balance of $1.9 billion. The decrease was primarily related to a reduction in credit reserves reflecting an improvement in the economic outlook. NCOs decreased $48 million, or 43%, in for the three-month period ended March 31, 2021. The decrease was driven by both commercial and consumer NCOs.
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 March 31, 2021 ACL determination contained significant judgmental assumptions around the ultimate number of COVID-19 cases and the economic impact of additional stimulus spending enacted into law during the first quarter. Given the impact of the unemployment variable utilized within the models and the uncertainty associated with key economic scenario assumptions, the March 31, 2021 ACL included a material general reserve component as well as additional industry specific risk profiles to capture economic uncertainty not addressed within the quantitative transaction reserve.
702021 1Q Form 10-Q Huntington Bancshares Incorporated59
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(dollar amounts in millions) | | | | | | | | | | | | | | | Commercial | | Consumer | | Total |
Three-month period ended September 30, 2019: |
ALLL balance, beginning of period | | | | | | | | | | | | | | | $ | 560 | | | $ | 214 | | | $ | 774 | |
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Loan charge-offs | | | | | | | | | | | | | | | (53) | | | (49) | | | (102) | |
Recoveries of loans previously charged-off | | | | | | | | | | | | | | | 15 | | | 14 | | | 29 | |
Provision for loan and lease losses | | | | | | | | | | | | | | | 39 | | | 43 | | | 82 | |
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ALLL balance, end of period | | | | | | | | | | | | | | | $ | 561 | | | $ | 222 | | | $ | 783 | |
AULC balance, beginning of period | | | | | | | | | | | | | | | $ | 99 | | | $ | 2 | | | $ | 101 | |
Provision (reduction in allowance) for unfunded loan commitments and letters of credit | | | | | | | | | | | | | | | — | | | — | | | — | |
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AULC balance, end of period | | | | | | | | | | | | | | | $ | 99 | | | $ | 2 | | | $ | 101 | |
ACL balance, end of period | | | | | | | | | | | | | | | $ | 660 | | | $ | 224 | | | $ | 884 | |
Nine-month period ended September 30, 2019: |
ALLL balance, beginning of period | | | | | | | | | | | | | | | $ | 542 | | | $ | 230 | | | $ | 772 | |
Loan charge-offs | | | | | | | | | | | | | | | (124) | | | (145) | | | (269) | |
Recoveries of loans previously charged-off | | | | | | | | | | | | | | | 35 | | | 42 | | | 77 | |
Provision for loan and lease losses | | | | | | | | | | | | | | | 108 | | | 95 | | | 203 | |
| | | | | | | | | | | | | | | | | | | |
ALLL balance, end of period | | | | | | | | | | | | | | | $ | 561 | | | $ | 222 | | | $ | 783 | |
AULC balance, beginning of period | | | | | | | | | | | | | | | $ | 94 | | | $ | 2 | | | $ | 96 | |
Provision (reduction in allowance) for unfunded loan commitments and letters of credit | | | | | | | | | | | | | | | 5 | | | — | | | 5 | |
| | | | | | | | | | | | | | | | | | | |
AULC balance, end of period | | | | | | | | | | | | | | | $ | 99 | | | $ | 2 | | | $ | 101 | |
ACL balance, end of period | | | | | | | | | | | | | | | $ | 660 | | | $ | 224 | | | $ | 884 | |
At September 30, 2020, the ACL was $1.9 billion, an increase of $991 million from the December 31, 2019 balance of $887 million. Of the increase, $598 million relates primarily to the deterioration in the macroeconomic outlook resulting from the COVID-19 pandemic and increased reserves related to oil and gas, with the remaining $393 million related to transition to the CECL lifetime loss methodology. The majority of the increase was related to the commercial portfolio.
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.
6. 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 three-month and nine-month periods ended September 30, 2020March 31, 2021 and 2019:2020:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, | |
(dollar amounts in millions) | (dollar amounts in millions) | | 2020 | | 2019 | | 2020 | | 2019 | (dollar amounts in millions) | | 2021 | | 2020 | |
Residential mortgage loans sold with servicing retained | Residential mortgage loans sold with servicing retained | | $ | 2,391 | | | $ | 1,238 | | | $ | 6,106 | | | $ | 3,025 | | Residential mortgage loans sold with servicing retained | | $ | 2,256 | | | $ | 1,428 | | |
Pretax gains resulting from above loan sales (1) | Pretax gains resulting from above loan sales (1) | | 98 | | | 26 | | | 196 | | | 61 | | Pretax gains resulting from above loan sales (1) | | 93 | | | 39 | | |
(1)Recorded in mortgage banking income
On January 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.
The following table summarizes the changes in MSRs recorded using the fair value method for the three-month and nine-month periods ended September 30,March 31, 2021 and 2020 and 2019 (1):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, | |
(dollar amounts in millions) | (dollar amounts in millions) | | 2020 | | 2019 (1) | | 2020 | | 2019 (1) | (dollar amounts in millions) | | 2021 | | 2020 (1) | |
Fair value, beginning of period | Fair value, beginning of period | | $ | 172 | | | $ | 9 | | | $ | 7 | | | $ | 10 | | Fair value, beginning of period | | $ | 210 | | | $ | 7 | | |
Fair value election for servicing assets previously measured using the amortized method | Fair value election for servicing assets previously measured using the amortized method | | — | | | — | | | 205 | | | — | | Fair value election for servicing assets previously measured using the amortized method | | — | | | 205 | | |
New servicing assets created | New servicing assets created | | 30 | | | 0 | | | 70 | | | 0 | | New servicing assets created | | 33 | | | 14 | | |
Change in fair value during the period due to: | Change in fair value during the period due to: | | Change in fair value during the period due to: | | |
Time decay (2) | Time decay (2) | | (2) | | | 0 | | | (6) | | | 0 | | Time decay (2) | | (3) | | | (2) | | |
Payoffs (3) | Payoffs (3) | | (13) | | | 0 | | | (29) | | | 0 | | Payoffs (3) | | (17) | | | (6) | | |
Changes in valuation inputs or assumptions (4) | Changes in valuation inputs or assumptions (4) | | 4 | | | (1) | | | (56) | | | (2) | | Changes in valuation inputs or assumptions (4) | | 51 | | | (53) | | |
Fair value, end of period | Fair value, end of period | | $ | 191 | | | $ | 8 | | | $ | 191 | | | $ | 8 | | Fair value, end of period | | $ | 274 | | | $ | 165 | | |
Weighted-average life (years) | Weighted-average life (years) | | 6.4 | | 6.2 | | 6.4 | | 6.2 | Weighted-average life (years) | | 7.0 | | 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 loan 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 rates and prepayment speeds.rates.
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.
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 September 30, 2020,March 31, 2021, and December 31, 20192020 follows:
| | | September 30, 2020 | | December 31, 2019 (1) | | March 31, 2021 | | December 31, 2020 (1) |
| | | Decline in fair value due to | | | Decline in fair value due to | | | Decline in fair value due to | | | Decline in fair value due to |
(dollar amounts in millions) | (dollar amounts in millions) | Actual | | 10% adverse change | | 20% adverse change | | Actual | | 10% adverse change | | 20% adverse change | (dollar amounts in millions) | Actual | | 10% adverse change | | 20% adverse change | | Actual | | 10% adverse change | | 20% adverse change |
Constant prepayment rate (annualized) | Constant prepayment rate (annualized) | 15.62 | % | | | $ | (9) | | | $ | (18) | | | 8.21 | % | | | $ | 0 | | | $ | 0 | | Constant prepayment rate (annualized) | 12.30 | % | | | $ | (15) | | | $ | (28) | | | 17.36 | % | | | $ | (12) | | | $ | (23) | |
Spread over forward interest rate swap rates | Spread over forward interest rate swap rates | 798 | | bps | | (5) | | | (11) | | | 824 | | bps | | 0 | | | 0 | | Spread over forward interest rate swap rates | 509 | | bps | | (6) | | | (12) | | | 519 | | bps | | (4) | | | (8) | |
(1)Prior to January 1, 2020, substantially all of Huntington’s MSR assets were recorded at amortized cost.
Total servicing, late fees and other ancillary fees included in mortgage banking income was $16$18 million and $17 million for both the three-month periods ended September 30,March 31, 2021 and 2020, and 2019. For both the nine-month periods ended September 30, 2020 and 2019, total servicing, late fees and other ancillary fees included in mortgage banking income was $47 million.respectively.
The unpaid principal balance of residential mortgage loans serviced for third parties was $23.3$23.6 billion and $22.4$23.5 billion at September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively.
7. LONG-TERM DEBT
In January 2020, the Bank issued $500 million of senior notes at 99.916% of face value. The senior notes mature on February 3, 2023 and have a fixed coupon rate of 1.80%. The senior notes may be redeemed one month prior to the maturity date at 100% of principal plus accrued and unpaid interest.
In January 2020, Huntington issued $750 million of senior notes at 99.597% of face value. The senior notes mature on February 4, 2030 and have a fixed coupon rate of 2.55%. The senior notes may be redeemed three months prior to the maturity date at 100% of principal plus accrued and unpaid interest.
7260 Huntington Bancshares Incorporated
On October 20, 2020, Huntington commenced a tender offer to purchase for cash up to $200 million aggregate principal amount of 3.15% Senior Notes due 2021 and up to $200 million aggregate principal amount of 2.30% Senior Notes due 2022. The tender offer will expire at 11:59 p.m., New York City time, on November 16, 2020, unless extended. To receive the applicable total tender offer consideration, holders of notes subject to the tender offer must validly tender their notes before the early tender deadline, which is 5:00 p.m., New York City time, on November 2, 2020. The tender offer is made only pursuant to the terms and conditions of the Offer to Purchase dated October 20, 2020.
8.7. OTHER COMPREHENSIVE INCOME
The components of Huntington’s OCI for the three-month and nine-month periods ended September 30,March 31, 2021 and 2020, and 2019, were as follows:
| | | | Three Months Ended September 30, 2020 | | Three Months Ended March 31, 2021 |
| | Tax (expense) | | Tax (expense) |
(dollar amounts in millions) | (dollar amounts in millions) | Pretax | | Benefit | | After-tax | (dollar amounts in millions) | Pretax | | Benefit | | After-tax |
| Unrealized gains (losses) on available-for-sale securities arising during the period | Unrealized gains (losses) on available-for-sale securities arising during the period | $ | 0 | | | $ | 0 | | | $ | 0 | | Unrealized gains (losses) on available-for-sale securities arising during the period | $ | (287) | | | $ | 64 | | | $ | (223) | |
Less: Reclassification adjustment for realized net losses (gains) included in net income | Less: Reclassification adjustment for realized net losses (gains) included in net income | 6 | | | (1) | | | 5 | | Less: Reclassification adjustment for realized net losses (gains) included in net income | 9 | | | (2) | | | 7 | |
Net change in unrealized holding gains (losses) on available-for-sale securities | Net change in unrealized holding gains (losses) on available-for-sale securities | 6 | | | (1) | | | 5 | | Net change in unrealized holding gains (losses) on available-for-sale securities | (278) | | | 62 | | | (216) | |
| Net change in fair value on cash flow hedges | Net change in fair value on cash flow hedges | (52) | | | 12 | | | (40) | | Net change in fair value on cash flow hedges | (44) | | | 10 | | | (34) | |
Net change in pension and other post-retirement obligations | Net change in pension and other post-retirement obligations | 3 | | | (1) | | | 2 | | Net change in pension and other post-retirement obligations | 3 | | | (1) | | | 2 | |
Total other comprehensive income (loss) | Total other comprehensive income (loss) | $ | (43) | | | $ | 10 | | | $ | (33) | | Total other comprehensive income (loss) | $ | (319) | | | $ | 71 | | | $ | (248) | |
| | | | Three Months Ended September 30, 2019 | | Three Months Ended March 31, 2020 |
| | Tax (expense) | | Tax (expense) |
(dollar amounts in millions) | (dollar amounts in millions) | Pretax | | Benefit | | After-tax | (dollar amounts in millions) | Pretax | | Benefit | | After-tax |
| Unrealized gains (losses) on available-for-sale securities arising during the period | Unrealized gains (losses) on available-for-sale securities arising during the period | $ | 81 | | | $ | (18) | | | $ | 63 | | Unrealized gains (losses) on available-for-sale securities arising during the period | $ | 217 | | | $ | (48) | | | $ | 169 | |
Less: Reclassification adjustment for realized net losses (gains) included in net income | Less: Reclassification adjustment for realized net losses (gains) included in net income | 8 | | | (2) | | | 6 | | Less: Reclassification adjustment for realized net losses (gains) included in net income | 5 | | | (1) | | | 4 | |
Net change in unrealized gains (losses) on available-for-sale securities | Net change in unrealized gains (losses) on available-for-sale securities | 89 | | | (20) | | | 69 | | Net change in unrealized gains (losses) on available-for-sale securities | 222 | | | (49) | | | 173 | |
| Net change in fair value on cash flow hedges | Net change in fair value on cash flow hedges | 36 | | | (8) | | | 28 | | Net change in fair value on cash flow hedges | 396 | | | (88) | | | 308 | |
Net change in pension and other post-retirement obligations | Net change in pension and other post-retirement obligations | 1 | | | 0 | | | 1 | | Net change in pension and other post-retirement obligations | 2 | | | 0 | | | 2 | |
Total other comprehensive income (loss) | Total other comprehensive income (loss) | $ | 126 | | | $ | (28) | | | $ | 98 | | Total other comprehensive income (loss) | $ | 620 | | | $ | (137) | | | $ | 483 | |
| | | | | | | | | | | | | | | | | |
| | | | | |
| Nine Months Ended September 30, 2020 |
| Tax (expense) |
(dollar amounts in millions) | Pretax | | Benefit | | After-tax |
| | | | | |
Unrealized gains (losses) on available-for-sale securities arising during the period | $ | 274 | | | $ | (61) | | | $ | 213 | |
Less: Reclassification adjustment for realized net losses (gains) included in net income | 35 | | | (8) | | | 27 | |
Net change in unrealized holding gains (losses) on available-for-sale securities | 309 | | | (69) | | | 240 | |
| | | | | |
| | | | | |
| | | | | |
Net change in fair value on cash flow hedges | 358 | | | (79) | | | 279 | |
Net change in pension and other post-retirement obligations (1) | (8) | | | 2 | | | (6) | |
Total other comprehensive income (loss) | $ | 659 | | | $ | (146) | | | $ | 513 | |
(1) Includes a settlement gain recognized in other noninterest income on the Unaudited Condensed Consolidated Statements of Income.
| | | | | | | | | | | | | | | | | |
| | | | | |
| Nine Months Ended September 30, 2019 |
| Tax (expense) |
(dollar amounts in millions) | Pretax | | Benefit | | After-tax |
| | | | | |
Unrealized gains (losses) on available-for-sale securities arising during the period | $ | 428 | | | $ | (95) | | | $ | 333 | |
Less: Reclassification adjustment for realized net losses (gains) included in net income | 21 | | | (5) | | | 16 | |
Net change in unrealized holding gains (losses) on available-for-sale securities | 449 | | | (100) | | | 349 | |
| | | | | |
| | | | | |
| | | | | |
Net change in fair value on cash flow hedges | 104 | | | (22) | | | 82 | |
Net change in pension and other post-retirement obligations | 3 | | | 0 | | | 3 | |
Total other comprehensive income (loss) | $ | 556 | | | $ | (122) | | | $ | 434 | |
Activity in accumulated OCI for the three-month and nine-month periods ended September 30,March 31, 2021 and 2020, and 2019, were as follows:
| | (dollar amounts in millions) | (dollar amounts in millions) | Unrealized gains (losses) on debt securities (1) | | Change in fair value related to cash flow hedges | | | Unrealized gains (losses) for pension and other post- retirement obligations (2) | | Total | (dollar amounts in millions) | Unrealized gains (losses) on debt securities (1) | | Change in fair value related to cash flow hedges | | | Unrealized gains (losses) for pension and other post- retirement obligations (2) | | Total |
Three Months Ended September 30, 2020 | | | | | | | | | |
Three Months Ended March 31, 2021 | | Three Months Ended March 31, 2021 | | | | | | | | |
Balance, beginning of period | Balance, beginning of period | $ | 207 | | | $ | 342 | | | | $ | (259) | | | $ | 290 | | Balance, beginning of period | $ | 188 | | | $ | 257 | | | | $ | (253) | | | $ | 192 | |
| Other comprehensive income before reclassifications | Other comprehensive income before reclassifications | 0 | | | (40) | | | | 0 | | | (40) | | Other comprehensive income before reclassifications | (223) | | | (34) | | | | 0 | | | (257) | |
| Amounts reclassified from accumulated OCI to earnings | Amounts reclassified from accumulated OCI to earnings | 5 | | | 0 | | | | 2 | | | 7 | | Amounts reclassified from accumulated OCI to earnings | 7 | | | 0 | | | | 2 | | | 9 | |
Period change | Period change | 5 | | | (40) | | | | 2 | | | (33) | | Period change | (216) | | | (34) | | | | 2 | | | (248) | |
Balance, end of period | Balance, end of period | $ | 212 | | | $ | 302 | | | | $ | (257) | | | $ | 257 | | Balance, end of period | $ | (28) | | | $ | 223 | | | | $ | (251) | | | $ | (56) | |
| Three Months Ended September 30, 2019 | | | | |
Three Months Ended March 31, 2020 | | Three Months Ended March 31, 2020 | | | |
Balance, beginning of period | Balance, beginning of period | $ | (83) | | | $ | 54 | | | | $ | (244) | | | $ | (273) | | Balance, beginning of period | $ | (28) | | | $ | 23 | | | | $ | (251) | | | $ | (256) | |
| Other comprehensive income before reclassifications | Other comprehensive income before reclassifications | 63 | | | 28 | | | | 0 | | | 91 | | Other comprehensive income before reclassifications | 169 | | | 308 | | | | 0 | | | 477 | |
Amounts reclassified from accumulated OCI to earnings | Amounts reclassified from accumulated OCI to earnings | 6 | | | 0 | | | | 1 | | | 7 | | Amounts reclassified from accumulated OCI to earnings | 4 | | | 0 | | | | 2 | | | 6 | |
Period change | Period change | 69 | | | 28 | | | | 1 | | | 98 | | Period change | 173 | | | 308 | | | | 2 | | | 483 | |
| Balance, end of period | Balance, end of period | $ | (14) | | | $ | 82 | | | | $ | (243) | | | $ | (175) | | Balance, end of period | $ | 145 | | | $ | 331 | | | | $ | (249) | | | $ | 227 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
(dollar amounts in millions) | Unrealized gains (losses) on debt securities (1) | | Change in fair value related to cash flow hedges | | | | Unrealized gains (losses) for pension and other post- retirement obligations (2) | | Total |
Nine Months Ended September 30, 2020 | | | | | | | | | |
Balance, beginning of period | $ | (28) | | | $ | 23 | | | | | $ | (251) | | | $ | (256) | |
| | | | | | | | | |
Other comprehensive income before reclassifications | 213 | | | 279 | | | | | 0 | | | 492 | |
| | | | | | | | | |
Amounts reclassified from accumulated OCI to earnings | 27 | | | 0 | | | | | (6) | | | 21 | |
Period change | 240 | | | 279 | | | | | (6) | | | 513 | |
Balance, end of period | $ | 212 | | | $ | 302 | | | | | $ | (257) | | | $ | 257 | |
| | | | | | | | | |
Nine Months Ended September 30, 2019 | | | | | | | | | |
Balance, beginning of period | $ | (363) | | | $ | 0 | | | | | $ | (246) | | | $ | (609) | |
| | | | | | | | | |
Other comprehensive income before reclassifications | 333 | | | 82 | | | | | 0 | | | 415 | |
Amounts reclassified from accumulated OCI to earnings | 16 | | | 0 | | | | | 3 | | | 19 | |
Period change | 349 | | | 82 | | | | | 3 | | | 434 | |
Balance, end of period | $ | (14) | | | $ | 82 | | | | | $ | (243) | | | $ | (175) | |
(1)AOCI amounts at September 30, 2020, June 30,March 31, 2021, December 31, 2020 and September 30, 2019March 31, 2020 include $74$60 million, $81$69 million and $126$87 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.
(2)Amounts for the nine months ended September 30, 2020 include a settlement gain recognized in other noninterest income on the Unaudited Condensed Consolidated Statements of Income.
742021 1Q Form 10-Q Huntington Bancshares Incorporated61
9.8. SHAREHOLDERS’ EQUITY
Preferred Stock
The following is a summary of Huntington’s non-cumulative, non-voting, perpetual preferred stock outstanding as of September 30, 2020.March 31, 2021.
| | (dollar amounts in millions) | (dollar amounts in millions) | | (dollar amounts in millions) | |
Series | Series | | | Issuance Date | | Total Shares Outstanding | | Carrying Amount | | Dividend Rate | | Earliest Redemption Date | Series | | | Issuance Date | | Total Shares Outstanding | | Carrying Amount | | Dividend Rate | | Earliest Redemption Date |
| Series B | Series B | | | 12/28/2011 | | 35,500 | | | $ | 23 | | | 3-mo. LIBOR + 270 bps | | 1/15/2017 | Series B | | | 12/28/2011 | | 35,500 | | | $ | 23 | | | 3-mo. LIBOR + 270 bps | | 1/15/2017 |
Series D | Series D | | | 3/21/2016 | | 400,000 | | | 386 | | | 6.25 | % | | 4/15/2021 | Series D | | | 3/21/2016 | | 400,000 | | | 386 | | | 6.25 | % | | 4/15/2021 |
Series D | Series D | | | 5/5/2016 | | 200,000 | | | 199 | | | 6.25 | % | | 4/15/2021 | Series D | | | 5/5/2016 | | 200,000 | | | 199 | | | 6.25 | % | | 4/15/2021 |
Series C | Series C | | | 8/16/2016 | | 100,000 | | | 100 | | | 5.875 | % | | 10/15/2021 | Series C | | | 8/16/2016 | | 100,000 | | | 100 | | | 5.875 | % | | 10/15/2021 |
Series E | Series E | | | 2/27/2018 | | 5,000 | | | 495 | | | 5.700 | % | | 4/15/2023 | Series E | | | 2/27/2018 | | 5,000 | | | 495 | | | 5.700 | % | | 4/15/2023 |
Series F | Series F | | | 5/27/2020 | | 5,000 | | | 494 | | | 5.625 | % | | 7/15/2030 | Series F | | | 5/27/2020 | | 5,000 | | | 494 | | | 5.625 | % | | 7/15/2030 |
Series G | Series G | | | 8/3/2020 | | 5,000 | | | 494 | | | 4.450 | % | | 10/15/2027 | Series G | | | 8/3/2020 | | 5,000 | | | 494 | | | 4.450 | % | | 10/15/2027 |
Series H | | Series H | | | 2/2/2021 | | 500,000 | | | 485 | | | 4.500 | % | | 4/15/2026 |
Total | Total | | | | | 750,500 | | | $ | 2,191 | | | | | | Total | | | | 1,250,500 | | | $ | 2,676 | | |
Series B, D, C and CH of preferred stock hashave a liquidation value and redemption price per share of $1,000, plus any declared and unpaid dividends. Series E, F, and G stock hashave 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.our option. Under current rules, any redemption of the preferred stock is subject to prior approval of the FRB.
The following table presents the dividends declared for each series of Preferred F Stock issuedshares for the three-month periods ended March 31, 2021 and outstanding2020:
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, 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, commencing 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 change in laws or regulations, 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 change in laws or regulations, in each case, at a redemption price equal to $100,000 per share (equivalent to $1,000 per depositary share), plus any declared and unpaid dividends, without regard to any undeclared dividends, on the Series G Preferred Stock prior to the date fixed for redemption. If Huntington redeems the Series G Preferred Stock, the depositary will redeem a proportional number of depositary shares. Neither the holders of Series Preferred G Stock nor holders of depositary shares will have the right to require the redemption or repurchase of the Series G Preferred Stock or the depositary shares. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2021 | | 2020 | | | |
(amounts in millions, except per share data) | | Cash Dividend Declared Per Share | | | | Cash Dividend Declared Per Share | | | | | | | |
Preferred Series | | | Amount ($) | | Amount ($) | | | | | | |
Series B | | $ | 7.35 | | | $ | 0 | | | $ | 11.33 | | $ | (1) | | | | | | | |
Series C | | 14.69 | | | (2) | | | 14.69 | | (1) | | | | | | | |
Series D | | 15.63 | | | (9) | | | 15.63 | | (9) | | | | | | | |
Series E | | 1,425.00 | | | (7) | | | 1,425.00 | | (7) | | | | | | | |
Series F | | 1,406.25 | | | (7) | | | 0 | | 0 | | | | | | | |
Series G | | 1,112.50 | | | (6) | | | 0 | | 0 | | | | | | | |
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Total | | | | $ | (31) | | | | $ | (18) | | | | | | | |
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10.9. 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.
62 Huntington Bancshares Incorporated
The calculation of basic and diluted earnings per share for the three-month and nine-month periods ended September 30,March 31, 2021 and 2020 and 2019 was as follows:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, | |
(dollar amounts in millions, except per share data, share count in thousands) | (dollar amounts in millions, except per share data, share count in thousands) | 2020 | | 2019 | | 2020 | | 2019 | (dollar amounts in millions, except per share data, share count in thousands) | 2021 | | 2020 | |
Basic earnings per common share: | Basic earnings per common share: | | | | | | | | Basic earnings per common share: | | | | |
Net income | Net income | $ | 303 | | | $ | 372 | | | $ | 501 | | | $ | 1,094 | | Net income | $ | 532 | | | $ | 48 | | |
Preferred stock dividends | Preferred stock dividends | (28) | | | (18) | | | (65) | | | (55) | | Preferred stock dividends | (31) | | | (18) | | |
Net income available to common shareholders | Net income available to common shareholders | $ | 275 | | | $ | 354 | | | $ | 436 | | | $ | 1,039 | | Net income available to common shareholders | $ | 501 | | | $ | 30 | | |
Average common shares issued and outstanding | Average common shares issued and outstanding | 1,017,253 | | | 1,034,940 | | | 1,017,052 | | | 1,042,246 | | Average common shares issued and outstanding | 1,017,512 | | | 1,017,643 | | |
Basic earnings per common share | Basic earnings per common share | $ | 0.27 | | | $ | 0.34 | | | $ | 0.43 | | | $ | 1.00 | | Basic earnings per common share | $ | 0.49 | | | $ | 0.03 | | |
Diluted earnings per common share: | Diluted earnings per common share: | | Diluted earnings per common share: | | |
| Dilutive potential common shares: | Dilutive potential common shares: | | Dilutive potential common shares: | | |
Stock options and restricted stock units and awards | Stock options and restricted stock units and awards | 9,005 | | | 11,930 | | | 9,628 | | | 12,681 | | Stock options and restricted stock units and awards | 18,397 | | | 12,363 | | |
Shares held in deferred compensation plans | Shares held in deferred compensation plans | 5,202 | | | 4,403 | | | 4,893 | | | 4,137 | | Shares held in deferred compensation plans | 5,094 | | | 4,570 | | |
| Dilutive potential common shares | Dilutive potential common shares | 14,207 | | | 16,333 | | | 14,521 | | | 16,818 | | Dilutive potential common shares | 23,491 | | | 16,933 | | |
Total diluted average common shares issued and outstanding | Total diluted average common shares issued and outstanding | 1,031,460 | | | 1,051,273 | | | 1,031,573 | | | 1,059,064 | | Total diluted average common shares issued and outstanding | 1,041,003 | | | 1,034,576 | | |
Diluted earnings per common share | Diluted earnings per common share | $ | 0.27 | | | $ | 0.34 | | | $ | 0.42 | | | $ | 0.98 | | Diluted earnings per common share | $ | 0.48 | | | $ | 0.03 | | |
Anti-dilutive awards (1) | Anti-dilutive awards (1) | 13,954 | | | 6,253 | | | 12,420 | | | 4,900 | | Anti-dilutive awards (1) | 1,666 | | | 8,045 | | |
(1)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.
76 Huntington Bancshares Incorporated
11.10. 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 Unaudited Condensed 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.
| (dollar amounts in millions) | (dollar amounts in millions) | | Three Months Ended September 30, | | Nine Months Ended September 30, | (dollar amounts in millions) | | Three Months Ended March 31, | |
Noninterest income | Noninterest income | | 2020 | | 2019 | | 2020 | | 2019 | Noninterest income | | 2021 | | 2020 | |
Noninterest income from contracts with customers | Noninterest income from contracts with customers | | $ | 224 | | | $ | 240 | | | $ | 652 | | | $ | 697 | | Noninterest income from contracts with customers | | $ | 222 | | | $ | 227 | | |
Noninterest income within the scope of other GAAP topics | Noninterest income within the scope of other GAAP topics | | 206 | | | 149 | | | 530 | | | 385 | | Noninterest income within the scope of other GAAP topics | | 173 | | | 134 | | |
Total noninterest income | Total noninterest income | | $ | 430 | | | $ | 389 | | | $ | 1,182 | | | $ | 1,082 | | Total noninterest income | | $ | 395 | | | $ | 361 | | |
The following table illustrates the disaggregation by operating segment and major revenue stream and reconciles disaggregated revenue to segment revenue presented in Note 1615 “Segment Reporting”. | | | | Three Months Ended September 30, 2020 | | Three Months Ended March 31, 2021 |
(dollar amounts in millions) | (dollar amounts in millions) | Consumer & Business Banking | | Commercial Banking | | Vehicle Finance | | RBHPCG | | Treasury / Other | | Huntington Consolidated | (dollar amounts in millions) | Consumer & Business Banking | | Commercial Banking | | Vehicle Finance | | RBHPCG | | Treasury / Other | | Huntington Consolidated |
Major Revenue Streams | Major Revenue Streams | | Major Revenue Streams | |
Service charges on deposit accounts | Service charges on deposit accounts | $ | 54 | | | $ | 19 | | | $ | 2 | | | $ | 1 | | | $ | 0 | | | $ | 76 | | Service charges on deposit accounts | $ | 48 | | | $ | 19 | | | $ | 2 | | | $ | 0 | | | $ | 0 | | | $ | 69 | |
Card and payment processing income | Card and payment processing income | 59 | | | 4 | | | 0 | | | 0 | | | 0 | | | 63 | | Card and payment processing income | 58 | | | 4 | | | 0 | | | 0 | | | 0 | | | 62 | |
Trust and investment management services | Trust and investment management services | 13 | | | 1 | | | 0 | | | 34 | | | 0 | | | 48 | | Trust and investment management services | 13 | | | 1 | | | 0 | | | 38 | | | 0 | | | 52 | |
Insurance income | Insurance income | 12 | | | 2 | | | 0 | | | 11 | | | (1) | | | 24 | | Insurance income | 12 | | | 2 | | | 0 | | | 13 | | | 0 | | | 27 | |
Other noninterest income | Other noninterest income | 6 | | | 6 | | | 1 | | | 3 | | | (3) | | | 13 | | Other noninterest income | 6 | | | 2 | | | 1 | | | 1 | | | 2 | | | 12 | |
Net revenue from contracts with customers | Net revenue from contracts with customers | $ | 144 | | | $ | 32 | | | $ | 3 | | | $ | 49 | | | $ | (4) | | | $ | 224 | | Net revenue from contracts with customers | $ | 137 | | | $ | 28 | | | $ | 3 | | | $ | 52 | | | $ | 2 | | | $ | 222 | |
Noninterest income within the scope of other GAAP topics | Noninterest income within the scope of other GAAP topics | 130 | | | 58 | | | (1) | | | (2) | | | 21 | | | 206 | | Noninterest income within the scope of other GAAP topics | 99 | | | 60 | | | 0 | | | 1 | | | 13 | | | 173 | |
Total noninterest income | Total noninterest income | $ | 274 | | | $ | 90 | | | $ | 2 | | | $ | 47 | | | $ | 17 | | | $ | 430 | | Total noninterest income | $ | 236 | | | $ | 88 | | | $ | 3 | | | $ | 53 | | | $ | 15 | | | $ | 395 | |
| | | Three Months Ended September 30, 2019 | | Three Months Ended March 31, 2020 |
(dollar amounts in millions) | (dollar amounts in millions) | Consumer & Business Banking | | Commercial Banking | | Vehicle Finance | | RBHPCG | | Treasury / Other | | Huntington Consolidated | (dollar amounts in millions) | Consumer & Business Banking | | Commercial Banking | | Vehicle Finance | | RBHPCG | | Treasury / Other | | Huntington Consolidated |
Major Revenue Streams | Major Revenue Streams | | Major Revenue Streams | |
Service charges on deposit accounts | Service charges on deposit accounts | $ | 79 | | | $ | 16 | | | $ | 2 | | | $ | 1 | | | $ | 0 | | | $ | 98 | | Service charges on deposit accounts | $ | 68 | | | $ | 17 | | | $ | 1 | | | $ | 1 | | | $ | 0 | | | $ | 87 | |
Card and payment processing income | Card and payment processing income | 56 | | | 4 | | | 0 | | | 0 | | | 0 | | | 60 | | Card and payment processing income | 52 | | | 4 | | | 0 | | | 0 | | | 0 | | | 56 | |
Trust and investment management services | Trust and investment management services | 9 | | | 1 | | | 0 | | | 34 | | | 0 | | | 44 | | Trust and investment management services | 10 | | | 1 | | | 0 | | | 36 | | | 0 | | | 47 | |
Insurance income | Insurance income | 8 | | | 2 | | | 0 | | | 10 | | | 0 | | | 20 | | Insurance income | 8 | | | 2 | | | 0 | | | 12 | | | 1 | | | 23 | |
Other noninterest income | Other noninterest income | 8 | | | 7 | | | 2 | | | 1 | | | 0 | | | 18 | | Other noninterest income | 8 | | | 3 | | | 1 | | | 1 | | | 1 | | | 14 | |
Net revenue from contracts with customers | Net revenue from contracts with customers | $ | 160 | | | $ | 30 | | | $ | 4 | | | $ | 46 | | | $ | 0 | | | $ | 240 | | Net revenue from contracts with customers | $ | 146 | | | $ | 27 | | | $ | 2 | | | $ | 50 | | | $ | 2 | | | $ | 227 | |
Noninterest income within the scope of other GAAP topics | Noninterest income within the scope of other GAAP topics | 63 | | | 71 | | | 0 | | | 1 | | | 14 | | | 149 | | Noninterest income within the scope of other GAAP topics | 66 | | | 59 | | | 1 | | | 0 | | | 8 | | | 134 | |
Total noninterest income | Total noninterest income | $ | 223 | | | $ | 101 | | | $ | 4 | | | $ | 47 | | | $ | 14 | | | $ | 389 | | Total noninterest income | $ | 212 | | | $ | 86 | | | $ | 3 | | | $ | 50 | | | $ | 10 | | | $ | 361 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2020 |
(dollar amounts in millions) | Consumer & Business Banking | | Commercial Banking | | Vehicle Finance | | RBHPCG | | Treasury / Other | | Huntington Consolidated |
Major Revenue Streams | | | | | |
Service charges on deposit accounts | $ | 161 | | | $ | 54 | | | $ | 4 | | | $ | 3 | | | $ | 0 | | | $ | 222 | |
Card and payment processing income | 163 | | | 11 | | | 0 | | | 0 | | | 0 | | | 174 | |
Trust and investment management services | 33 | | | 3 | | | 0 | | | 104 | | | 0 | | | 140 | |
Insurance income | 32 | | | 5 | | | 0 | | | 34 | | | 1 | | | 72 | |
Other noninterest income | 18 | | | 14 | | | 2 | | | 11 | | | (1) | | | 44 | |
Net revenue from contracts with customers | $ | 407 | | | $ | 87 | | | $ | 6 | | | $ | 152 | | | $ | 0 | | | $ | 652 | |
Noninterest income within the scope of other GAAP topics | 297 | | | 174 | | | 1 | | | (1) | | | 59 | | | 530 | |
Total noninterest income | $ | 704 | | | $ | 261 | | | $ | 7 | | | $ | 151 | | | $ | 59 | | | $ | 1,182 | |
| | | | | | | | | | | |
| Nine Months Ended September 30, 2019 |
(dollar amounts in millions) | Consumer & Business Banking | | Commercial Banking | | Vehicle Finance | | RBHPCG | | Treasury / Other | | Huntington Consolidated |
Major Revenue Streams | | | | | |
Service charges on deposit accounts | $ | 221 | | | $ | 48 | | | $ | 5 | | | $ | 3 | | | $ | 0 | | | $ | 277 | |
Card and payment processing income | 162 | | | 11 | | | 0 | | | 0 | | | 0 | | | 173 | |
Trust and investment management services | 25 | | | 2 | | | 0 | | | 103 | | | 1 | | | 131 | |
Insurance income | 25 | | | 5 | | | 0 | | | 33 | | | 1 | | | 64 | |
Other noninterest income | 24 | | | 17 | | | 4 | | | 5 | | | 2 | | | 52 | |
Net revenue from contracts with customers | $ | 457 | | | $ | 83 | | | $ | 9 | | | $ | 144 | | | $ | 4 | | | $ | 697 | |
Noninterest income within the scope of other GAAP topics | 139 | | | 183 | | | 0 | | | 3 | | | 60 | | | 385 | |
Total noninterest income | $ | 596 | | | $ | 266 | | | $ | 9 | | | $ | 147 | | | $ | 64 | | | $ | 1,082 | |
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 September 30, 2020March 31, 2021 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 March 31, 2021 was determined to be immaterial.
7864 Huntington Bancshares Incorporated
12.11. FAIR VALUES OF ASSETS AND LIABILITIES
See Note 1820 “Fair Value of Assets and Liabilities” to the Consolidated Financial Statements of the Annual Report on Form 10-K for the year ended December 31, 20192020 for a description of the valuation methodologies used for instruments measured at fair value. Assets and liabilities measured at fair value rarely transfer between Level 1 and Level 2 measurements. There were no such transfers during the three-month and nine-month periods ended September 30, 2020March 31, 2021 and 2019.2020.
Assets and Liabilities measured at fair value on a recurring basis
Assets and liabilities measured at fair value on a recurring basis at September 30, 2020March 31, 2021 and December 31, 20192020 are summarized below:
| | | Fair Value Measurements at Reporting Date Using | | Netting Adjustments (1) | | September 30, 2020 | | Fair Value Measurements at Reporting Date Using | | Netting Adjustments (1) | | March 31, 2021 |
(dollar amounts in millions) | (dollar amounts in millions) | Level 1 | | Level 2 | | Level 3 | | (dollar amounts in millions) | Level 1 | | Level 2 | | Level 3 | |
Assets | Assets | | | | | | | | | | Assets | | | | | | | | | |
Trading account securities: | Trading account securities: | | Trading account securities: | |
| Municipal securities | Municipal securities | $ | 0 | | | $ | 54 | | | $ | 0 | | | $ | — | | | $ | 54 | | Municipal securities | $ | 0 | | | $ | 48 | | | $ | 0 | | | $ | — | | | $ | 48 | |
| Corporate debt | | Corporate debt | 0 | | | 3 | | | 0 | | | — | | | 3 | |
| | | 0 | | | 51 | | | 0 | | | — | | | 51 | |
Available-for-sale securities: | Available-for-sale securities: | | Available-for-sale securities: | |
U.S. Treasury securities | U.S. Treasury securities | 5 | | | 0 | | | 0 | | | — | | | 5 | | U.S. Treasury securities | 5 | | | 0 | | | 0 | | | — | | | 5 | |
Residential CMOs | Residential CMOs | 0 | | | 4,498 | | | 0 | | | — | | | 4,498 | | Residential CMOs | 0 | | | 3,172 | | | 0 | | | — | | | 3,172 | |
Residential MBS | Residential MBS | 0 | | | 5,761 | | | 0 | | | — | | | 5,761 | | Residential MBS | 0 | | | 10,645 | | | 0 | | | — | | | 10,645 | |
Commercial MBS | Commercial MBS | 0 | | | 807 | | | 0 | | | — | | | 807 | | Commercial MBS | 0 | | | 1,227 | | | 0 | | | — | | | 1,227 | |
Other agencies | Other agencies | 0 | | | 114 | | | 0 | | | — | | | 114 | | Other agencies | 0 | | | 46 | | | 0 | | | — | | | 46 | |
Municipal securities | Municipal securities | 0 | | | 55 | | | 3,089 | | | — | | | 3,144 | | Municipal securities | 0 | | | 52 | | | 3,070 | | | — | | | 3,122 | |
Private-label CMO | Private-label CMO | 0 | | | 0 | | | 5 | | | — | | | 5 | | Private-label CMO | 0 | | | 39 | | | 11 | | | — | | | 50 | |
Asset-backed securities | Asset-backed securities | 0 | | | 154 | | | 49 | | | — | | | 203 | | Asset-backed securities | 0 | | | 200 | | | 47 | | | — | | | 247 | |
Corporate debt | Corporate debt | 0 | | | 266 | | | 0 | | | — | | | 266 | | Corporate debt | 0 | | | 857 | | | 0 | | | — | | | 857 | |
Other securities/sovereign debt | Other securities/sovereign debt | 0 | | | 4 | | | 0 | | | — | | | 4 | | Other securities/sovereign debt | 0 | | | 4 | | | 0 | | | — | | | 4 | |
| | 5 | | | 11,659 | | | 3,143 | | | — | | | 14,807 | | | 5 | | | 16,242 | | | 3,128 | | | — | | | 19,375 | |
Other securities | Other securities | 58 | | | — | | | — | | | — | | | 58 | | Other securities | 42 | | | 17 | | | 0 | | | — | | | 59 | |
Loans held for sale | Loans held for sale | 0 | | | 1,118 | | | 0 | | | — | | | 1,118 | | Loans held for sale | 0 | | | 1,531 | | | 0 | | | — | | | 1,531 | |
Loans held for investment | Loans held for investment | 0 | | | 68 | | | 24 | | | — | | | 92 | | Loans held for investment | 0 | | | 96 | | | 22 | | | — | | | 118 | |
MSRs | MSRs | — | | | 0 | | | 191 | | | — | | | 191 | | MSRs | 0 | | | 0 | | | 274 | | | — | | | 274 | |
Derivative assets | Derivative assets | 0 | | | 2,093 | | | 50 | | | (1,055) | | | 1,088 | | Derivative assets | 0 | | | 1,808 | | | 21 | | | (816) | | | 1,013 | |
Liabilities | Liabilities | | Liabilities | |
| Derivative liabilities | Derivative liabilities | 0 | | | 1,170 | | | 2 | | | (1,062) | | | 110 | | Derivative liabilities | 0 | | | 863 | | | 11 | | | (703) | | | 171 | |
|
2020 3Q2021 1Q Form 10-Q 7965
| | | Fair Value Measurements at Reporting Date Using | | Netting Adjustments (1) | | December 31, 2019 | | Fair Value Measurements at Reporting Date Using | | Netting Adjustments (1) | | December 31, 2020 |
(dollar amounts in millions) | (dollar amounts in millions) | Level 1 | | Level 2 | | Level 3 | | (dollar amounts in millions) | Level 1 | | Level 2 | | Level 3 | |
Assets | Assets | | | | | | | | | | Assets | | | | | | | | | |
Trading account securities: | Trading account securities: | | Trading account securities: | |
Federal agencies: Other agencies | $ | 0 | | | $ | 4 | | | $ | 0 | | | $ | — | | | $ | 4 | | |
| Municipal securities | Municipal securities | 0 | | | 63 | | | 0 | | | — | | | 63 | | Municipal securities | $ | 0 | | | $ | 62 | | | $ | 0 | | | $ | — | | | $ | 62 | |
Other securities | 30 | | | 2 | | | 0 | | | — | | | 32 | | |
| | | 30 | | | 69 | | | 0 | | | — | | | 99 | | |
Available-for-sale securities: | Available-for-sale securities: | | Available-for-sale securities: | |
U.S. Treasury securities | U.S. Treasury securities | 10 | | | 0 | | | 0 | | | — | | | 10 | | U.S. Treasury securities | 5 | | | 0 | | | 0 | | | — | | | 5 | |
Residential CMOs | Residential CMOs | 0 | | | 5,085 | | | 0 | | | — | | | 5,085 | | Residential CMOs | 0 | | | 3,666 | | | 0 | | | — | | | 3,666 | |
Residential MBS | Residential MBS | — | | | 4,222 | | | 0 | | | — | | | 4,222 | | Residential MBS | 0 | | | 7,935 | | | 0 | | | — | | | 7,935 | |
Commercial MBS | Commercial MBS | — | | | 976 | | | 0 | | | — | | | 976 | | Commercial MBS | 0 | | | 1,163 | | | 0 | | | — | | | 1,163 | |
Other agencies | Other agencies | 0 | | | 165 | | | 0 | | | — | | | 165 | | Other agencies | 0 | | | 62 | | | 0 | | | — | | | 62 | |
Municipal securities | Municipal securities | 0 | | | 56 | | | 2,999 | | | — | | | 3,055 | | Municipal securities | 0 | | | 53 | | | 2,951 | | | — | | | 3,004 | |
Private-label CMO | Private-label CMO | 0 | | | 0 | | | 2 | | | — | | | 2 | | Private-label CMO | 0 | | | 0 | | | 9 | | | — | | | 9 | |
Asset-backed securities | Asset-backed securities | 0 | | | 531 | | | 48 | | | — | | | 579 | | Asset-backed securities | 0 | | | 182 | | | 10 | | | — | | | 192 | |
Corporate debt | Corporate debt | 0 | | | 51 | | | 0 | | | — | | | 51 | | Corporate debt | 0 | | | 445 | | | 0 | | | — | | | 445 | |
Other securities/sovereign debt | Other securities/sovereign debt | 0 | | | 4 | | | 0 | | | — | | | 4 | | Other securities/sovereign debt | 0 | | | 4 | | | 0 | | | — | | | 4 | |
| | 10 | | | 11,090 | | | 3,049 | | | — | | | 14,149 | | | 5 | | | 13,510 | | | 2,970 | | | — | | | 16,485 | |
Other securities | Other securities | 54 | | | — | | | — | | | — | | | 54 | | Other securities | 59 | | | 0 | | | 0 | | | — | | | 59 | |
Loans held for sale | Loans held for sale | 0 | | | 781 | | | 0 | | | — | | | 781 | | Loans held for sale | 0 | | | 1,198 | | | 0 | | | — | | | 1,198 | |
Loans held for investment | Loans held for investment | 0 | | | 55 | | | 26 | | | — | | | 81 | | Loans held for investment | 0 | | | 71 | | | 23 | | | — | | | 94 | |
MSRs | MSRs | 0 | | | 0 | | | 7 | | | — | | | 7 | | MSRs | 0 | | | 0 | | | 210 | | | — | | | 210 | |
Derivative assets | Derivative assets | 0 | | | 848 | | | 8 | | | (404) | | | 452 | | Derivative assets | 0 | | | 1,903 | | | 43 | | | (889) | | | 1,057 | |
Liabilities | Liabilities | | Liabilities | |
Derivative liabilities | 0 | | | 519 | | | 2 | | | (417) | | | 104 | | |
| Derivative liabilities | | Derivative liabilities | 0 | | | 1,031 | | | 2 | | | (917) | | | 116 | |
(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.
The tables below present a rollforward of the balance sheet amounts for the three-month and nine-month periods ended September 30,March 31, 2021 and 2020, and 2019, 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 Three Months Ended March 31, 2021 |
| | | | | Available-for-sale securities | | Loans held for investment | |
(dollar amounts in millions) | MSRs | | Derivative instruments | | Municipal securities | | Private- label CMO | | Asset-backed securities | | |
Opening balance | $ | 210 | | | $ | 41 | | | $ | 2,951 | | | $ | 9 | | | $ | 10 | | | $ | 23 | | |
| | | | | | | | | | | | |
Transfers out of Level 3 (1) | 0 | | | (39) | | | 0 | | | 0 | | | 0 | | | 0 | | |
Total gains/losses for the period: | | | | | | | | | | | | |
Included in earnings | 51 | | | 8 | | | 0 | | | 0 | | | 0 | | | 0 | | |
Included in OCI | 0 | | | 0 | | | (4) | | | 0 | | | 0 | | | 0 | | |
Purchases/originations | 33 | | | 0 | | | 209 | | | 2 | | | 37 | | | 0 | | |
| | | | | | | | | | | | |
Repayments | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (1) | | |
| | | | | | | | | | | | |
Settlements | (20) | | | 0 | | | (86) | | | 0 | | | 0 | | | 0 | | |
Closing balance | $ | 274 | | | $ | 10 | | | $ | 3,070 | | | $ | 11 | | | $ | 47 | | | $ | 22 | | |
Change in unrealized gains or losses for the period included in earnings for assets held at end of the reporting date | $ | 51 | | | $ | (26) | | | $ | — | | | $ | — | | | $ | — | | | $ | 0 | | |
Change in unrealized gains or losses for the period included in other comprehensive income for assets held at the end of the reporting period | — | | | — | | | (5) | | | 0 | | | 0 | | | — | | |
| | | | | | | | | | | | |
8066 Huntington Bancshares Incorporated
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Level 3 Fair Value Measurements Three Months Ended September 30, 2020 |
| | | | | Available-for-sale securities | | Loans held for investment | |
(dollar amounts in millions) | MSRs | | Derivative instruments | | Municipal securities | | Private- label CMO | | Asset-backed securities | | |
Opening balance | $ | 172 | | | $ | 40 | | | $ | 3,102 | | | $ | 5 | | | $ | 56 | | | $ | 25 | | |
| | | | | | | | | | | | |
Transfers out of Level 3 (1) | 0 | | | (64) | | | 0 | | | 0 | | | 0 | | | 0 | | |
Total gains/losses for the period: | | | | | | | | | | | | |
Included in earnings | 19 | | | 72 | | | (1) | | | 0 | | | 0 | | | 0 | | |
Included in OCI | 0 | | | 0 | | | 60 | | | 0 | | | 0 | | | 0 | | |
Purchases/originations | 0 | | | 0 | | | 154 | | | 0 | | | 0 | | | 0 | | |
| | | | | | | | | | | | |
Repayments | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (1) | | |
| | | | | | | | | | | | |
Settlements | 0 | | | 0 | | | (226) | | | 0 | | | (7) | | | 0 | | |
Closing balance | $ | 191 | | | $ | 48 | | | $ | 3,089 | | | $ | 5 | | | $ | 49 | | | $ | 24 | | |
Change in unrealized gains or losses for the period included in earnings for assets held at end of the reporting date | $ | 18 | | | $ | 8 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | |
Change in unrealized gains or losses for the period included in other comprehensive income for assets held at the end of the reporting period | — | | | — | | | 62 | | | — | | | — | | | — | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Level 3 Fair Value Measurements Three Months Ended September 30, 2019 |
| MSRs | | Derivative instruments | | Available-for-sale securities | | Loans held for investment |
(dollar amounts in millions) | | | Municipal securities | | | | Asset-backed securities | |
Opening balance | $ | 9 | | | $ | 9 | | | $ | 3,202 | | | | | $ | 0 | | | $ | 28 | |
| | | | | | | | | | | |
Transfers out of Level 3 (1) | 0 | | | (20) | | | 0 | | | | | 0 | | | 0 | |
Total gains/losses for the period: | | | | | | | | | | | |
Included in earnings | (1) | | | 19 | | | (1) | | | | | 0 | | | 0 | |
Included in OCI | 0 | | | 0 | | | 24 | | | | | 0 | | | 0 | |
Purchases/originations | 0 | | | 0 | | | 28 | | | | | 55 | | | 0 | |
| | | | | | | | | | | |
Repayments | 0 | | | 0 | | | 0 | | | | | 0 | | | (1) | |
| | | | | | | | | | | |
Settlements | 0 | | | 0 | | | (159) | | | | | 0 | | | 0 | |
Closing balance | $ | 8 | | | $ | 8 | | | $ | 3,094 | | | | | $ | 55 | | | $ | 27 | |
Change in unrealized gains or losses for the period included in earnings for assets held at end of the reporting date | $ | (1) | | | $ | (1) | | | $ | 0 | | | | | $ | 0 | | | $ | 0 | |
Change in unrealized gains or losses for the period included in other comprehensive income for assets held at the end of the reporting period | $ | — | | | $ | — | | | 23 | | | | | | | $ | — | |
| | | Level 3 Fair Value Measurements Nine Months Ended September 30, 2020 | | | Level 3 Fair Value Measurements Three Months Ended March 31, 2020 |
| | | Available-for-sale securities | | Loans held for investment | | | MSRs | | Derivative instruments | | Available-for-sale securities | | Loans held for investment |
(dollar amounts in millions) | (dollar amounts in millions) | MSRs | | Derivative instruments | | Municipal securities | | Private- label CMO | | Asset-backed securities | | | (dollar amounts in millions) | | Municipal securities | | Private- label CMO | | Asset-backed securities | |
Opening balance | Opening balance | $ | 7 | | | $ | 6 | | | $ | 2,999 | | | $ | 2 | | | $ | 48 | | | $ | 26 | | | Opening balance | $ | 7 | | | $ | 6 | | | $ | 2,999 | | | $ | 2 | | | $ | 48 | | | $ | 26 | |
Fair value election for servicing assets previously measured using the amortized method | Fair value election for servicing assets previously measured using the amortized method | 205 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | Fair value election for servicing assets previously measured using the amortized method | 205 | | | — | | | — | | | — | | | — | | | — | |
Transfers out of Level 3 (1) | Transfers out of Level 3 (1) | 0 | | | (139) | | | 0 | | | 0 | | | 0 | | | 0 | | | Transfers out of Level 3 (1) | 0 | | | (20) | | | 0 | | | 0 | | | 0 | | | 0 | |
Total gains/losses for the period: | Total gains/losses for the period: | | | Total gains/losses for the period: | |
Included in earnings | Included in earnings | (21) | | | 181 | | | (2) | | | 0 | | | 0 | | | 0 | | | Included in earnings | (47) | | | 53 | | | (1) | | | 0 | | | 0 | | | 0 | |
Included in OCI | Included in OCI | 0 | | | 0 | | | 61 | | | 0 | | | 0 | | | 0 | | | Included in OCI | 0 | | | 0 | | | (68) | | | 0 | | | 0 | | | 0 | |
Purchases/originations | Purchases/originations | 0 | | | 0 | | | 491 | | | 3 | | | 28 | | | 0 | | | Purchases/originations | 0 | | | 0 | | | 73 | | | 0 | | | 27 | | | 0 | |
| Repayments | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (2) | | | |
| | Settlements | Settlements | 0 | | | 0 | | | (460) | | | 0 | | | (27) | | | 0 | | | Settlements | 0 | | | 0 | | | (66) | | | 0 | | | (6) | | | 0 | |
Closing balance | Closing balance | $ | 191 | | | $ | 48 | | | $ | 3,089 | | | $ | 5 | | | $ | 49 | | | $ | 24 | | | Closing balance | $ | 165 | | | $ | 39 | | | $ | 2,937 | | | $ | 2 | | | $ | 69 | | | $ | 26 | |
Change in unrealized gains or losses for the period included in earnings for assets held at end of the reporting date | Change in unrealized gains or losses for the period included in earnings for assets held at end of the reporting date | $ | (22) | | | $ | 42 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | Change in unrealized gains or losses for the period included in earnings for assets held at end of the reporting date | $ | (47) | | | $ | 34 | | | $ | — | | | $ | — | | | $ | — | | | $ | 0 | |
Change in unrealized gains or losses for the period included in other comprehensive income for assets held at the end of the reporting period | Change in unrealized gains or losses for the period included in other comprehensive income for assets held at the end of the reporting period | — | | | — | | | 64 | | | — | | | — | | | — | | | 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) | | | $ | 0 | | 0 | $ | 0 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Level 3 Fair Value Measurements Nine Months Ended September 30, 2019 |
| | | | | Available-for-sale securities | | Loans held for investment |
(dollar amounts in millions) | MSRs | | Derivative instruments | | Municipal securities | | | Asset- backed securities | |
Opening balance | $ | 10 | | | $ | 2 | | | $ | 3,165 | | | | $ | 0 | | | $ | 30 | |
| | | | | | | | | | |
Transfers out of Level 3 (1) | 0 | | | (44) | | | 0 | | | | 0 | | | 0 | |
Total gains/losses for the period: | | | | | | | | | | |
Included in earnings | (2) | | | 50 | | | (1) | | | | 0 | | | 0 | |
Included in OCI | 0 | | | 0 | | | 70 | | | | 0 | | | 0 | |
Purchases/originations | 0 | | | 0 | | | 136 | | | | 55 | | | 0 | |
| | | | | | | | | | |
Repayments | 0 | | | 0 | | | 0 | | | | 0 | | | (3) | |
| | | | | | | | | | |
Settlements | 0 | | | 0 | | | (276) | | | | 0 | | | 0 | |
Closing balance | $ | 8 | | | $ | 8 | | | $ | 3,094 | | | | $ | 55 | | | $ | 27 | |
Change in unrealized gains or losses for the period included in earnings for assets held at end of the reporting date | $ | (2) | | | $ | 6 | | | $ | 0 | | | | $ | 0 | | | $ | 0 | |
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 | | | | | | — | |
(1)Transfers out of Level 3 represent the settlement value of the derivative instruments (i.e. interest rate lock agreements) that is transferred to loans held for sale, which is classified as Level 2.
82 Huntington Bancshares Incorporated
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 three-month and nine-month periods ended September 30, 2020March 31, 2021 and 2019:2020:
| | | | Level 3 Fair Value Measurements Three Months Ended September 30, 2020 | | | Level 3 Fair Value Measurements Three Months Ended March 31, 2021 | |
| | | Available-for-sale securities | | | | |
(dollar amounts in millions) | (dollar amounts in millions) | MSRs | | Derivative instruments | | Municipal securities | | (dollar amounts in millions) | MSRs | | Derivative instruments | |
Classification of gains and losses in earnings: | Classification of gains and losses in earnings: | | | | | | | Classification of gains and losses in earnings: | | | | |
Mortgage banking income | Mortgage banking income | $ | 19 | | | $ | 72 | | | $ | 0 | | | Mortgage banking income | $ | 51 | | | $ | 8 | | |
| Interest and fee income | 0 | | | 0 | | | (1) | | | |
| | Total | Total | $ | 19 | | | $ | 72 | | | $ | (1) | | | Total | $ | 51 | | | $ | 8 | | |
| | | | Level 3 Fair Value Measurements Three Months Ended September 30, 2019 | | | Level 3 Fair Value Measurements Three Months Ended March 31, 2020 | |
| | | Available-for-sale securities | | | | Available-for-sale securities | |
(dollar amounts in millions) | (dollar amounts in millions) | MSRs | | Derivative instruments | | Municipal securities | | (dollar amounts in millions) | MSRs | | Derivative instruments | | Municipal securities | |
Classification of gains and losses in earnings: | Classification of gains and losses in earnings: | | | | | | | Classification of gains and losses in earnings: | | | | | | |
Mortgage banking income | Mortgage banking income | $ | (1) | | | $ | 19 | | | $ | 0 | | | Mortgage banking income | $ | (47) | | | $ | 53 | | | $ | 0 | | |
| Interest and fee income | Interest and fee income | 0 | | | 0 | | | (1) | | | Interest and fee income | 0 | | | 0 | | | (1) | | |
| Total | Total | $ | (1) | | | $ | 19 | | | $ | (1) | | | Total | $ | (47) | | | $ | 53 | | | $ | (1) | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Level 3 Fair Value Measurements Nine Months Ended September 30, 2020 | | |
| | | | | Available-for-sale securities | | | | | | | | |
(dollar amounts in millions) | MSRs | | Derivative instruments | | Municipal securities | | | | | | | | |
Classification of gains and losses in earnings: | | | | | | | | | | | | | |
Mortgage banking income | $ | (21) | | | $ | 181 | | | $ | 0 | | | | | | | | | |
| | | | | | | | | | | | | |
Interest and fee income | 0 | | | 0 | | | (2) | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Total | $ | (21) | | | $ | 181 | | | $ | (2) | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Level 3 Fair Value Measurements Nine Months Ended September 30, 2019 | | |
| | | | | Available-for-sale securities | | | | | | | | |
(dollar amounts in millions) | MSRs | | Derivative instruments | | Municipal securities | | | | | | | | |
Classification of gains and losses in earnings: | | | | | | | | | | | | | |
Mortgage banking income | $ | (2) | | | $ | 50 | | | $ | 0 | | | | | | | | | |
| | | | | | | | | | | | | |
Interest and fee income | 0 | | | 0 | | | (1) | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Total | $ | (2) | | | $ | 50 | | | $ | (1) | | | | | | | | | |
| | | | | | | | | | | | | |
2020 3Q2021 1Q Form 10-Q 8367
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:
| | | September 30, 2020 | | March 31, 2021 |
(dollar amounts in millions) | (dollar amounts in millions) | Total Loans | | Loans that are 90 or more days past due | (dollar amounts in millions) | Total Loans | | Loans that are 90 or more days past due |
Assets | Assets | Fair value carrying amount | | Aggregate unpaid principal | | Difference | | Fair value carrying amount | | Aggregate unpaid principal | | Difference | Assets | Fair value carrying amount | | Aggregate unpaid principal | | Difference | | Fair value carrying amount | | Aggregate unpaid principal | | Difference |
Loans held for sale | Loans held for sale | $ | 1,118 | | | $ | 1,057 | | | $ | 61 | | | $ | 1 | | | $ | 1 | | | $ | 0 | | Loans held for sale | $ | 1,531 | | | $ | 1,501 | | | $ | 30 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Loans held for investment | Loans held for investment | 92 | | | 97 | | | (5) | | | 5 | | | 5 | | | 0 | | Loans held for investment | 118 | | | 123 | | | (5) | | | 4 | | | 5 | | | (1) | |
|
| | | December 31, 2019 | | December 31, 2020 |
(dollar amounts in millions) | (dollar amounts in millions) | Total Loans | | Loans that are 90 or more days past due | (dollar amounts in millions) | Total Loans | | Loans that are 90 or more days past due |
Assets | Assets | Fair value carrying amount | | Aggregate unpaid principal | | Difference | | Fair value carrying amount | | Aggregate unpaid principal | | Difference | Assets | Fair value carrying amount | | Aggregate unpaid principal | | Difference | | Fair value carrying amount | | Aggregate unpaid principal | | Difference |
Loans held for sale | Loans held for sale | $ | 781 | | | $ | 755 | | | $ | 26 | | | $ | 2 | | | $ | 2 | | | $ | 0 | | Loans held for sale | $ | 1,198 | | | $ | 1,134 | | | $ | 64 | | | $ | 2 | | | $ | 2 | | | $ | 0 | |
Loans held for investment | Loans held for investment | 81 | | | 87 | | | (6) | | | 3 | | | 4 | | | (1) | | Loans held for investment | 94 | | | 99 | | | (5) | | | 7 | | | 8 | | | (1) | |
|
The following tablestable present the net gains (losses) from fair value changes for the three-month and nine-month periods ended September 30, 2020March 31, 2021 and 2019.2020.
| | | Net gains (losses) from fair value changes | | Net gains (losses) from fair value changes | | Net gains (losses) from fair value changes | |
(dollar amounts in millions) | (dollar amounts in millions) | | Three Months Ended September 30, | | Nine Months Ended September 30, | (dollar amounts in millions) | | Three Months Ended March 31, | |
Assets | Assets | | 2020 | | 2019 | | 2020 | | 2019 | Assets | | 2021 | | 2020 | |
Loans held for sale (1) | Loans held for sale (1) | | $ | 13 | | | $ | 6 | | | $ | 35 | | | $ | 12 | | Loans held for sale (1) | | $ | (34) | | | $ | 19 | | |
|
(1)The net gains (losses) from fair value changes are included in Mortgage banking income on the Unaudited Condensed 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 September 30, 2020March 31, 2021 were as follows:
| | | Fair Value Measurements Using | | | | | Fair Value Measurements Using | | | |
(dollar amounts in millions) | (dollar amounts in millions) | Fair Value | | Quoted Prices In Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Other Unobservable Inputs (Level 3) | | | Total Gains/(Losses) Nine Months Ended September 30, 2020
| (dollar amounts in millions) | Fair Value | | Quoted Prices In Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Other Unobservable Inputs (Level 3) | | | Total Gains/(Losses) Three Months Ended March 31, 2021
|
| Collateral-dependent loans | Collateral-dependent loans | 124 | | | 0 | | | 0 | | | 124 | | | | (39) | | Collateral-dependent loans | 12 | | | 0 | | | 0 | | | 12 | | | | (1) | |
| Loans held for sale | 107 | | | — | | | — | | | 107 | | | | (58) | | |
|
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.
8468 Huntington Bancshares Incorporated
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 September 30, 2020March 31, 2021 and December 31, 2019:2020:
| | | Quantitative Information about Level 3 Fair Value Measurements at September 30, 2020 (1) | | Quantitative Information about Level 3 Fair Value Measurements at March 31, 2021 (1) (1) |
(dollar amounts in millions) | (dollar amounts in millions) | Fair Value | | Valuation Technique | | Significant Unobservable Input | | Range | | Weighted Average | (dollar amounts in millions) | Fair Value | | Valuation Technique | | Significant Unobservable Input | | Range | | Weighted Average |
Measured at fair value on a recurring basis: | Measured at fair value on a recurring basis: | Measured at fair value on a recurring basis: |
MSRs | MSRs | $ | 191 | | | Discounted cash flow | | Constant prepayment rate | | 9 | % | - | 23% | | 16 | % | MSRs | $ | 274 | | | Discounted cash flow | | Constant prepayment rate | | 6 | % | - | 22% | | 12 | % |
| | Spread over forward interest rate swap rates | | 5 | % | - | 11% | | 8 | % | | Spread over forward interest rate swap rates | | 3 | % | - | 11% | | 5 | % |
Derivative assets | Derivative assets | 50 | | | Consensus Pricing | | Net market price | | (1) | % | - | 13% | | 4 | % | Derivative assets | 21 | | | Consensus Pricing | | Net market price | | (5) | % | - | 12% | | 1 | % |
| | Estimated Pull through % | | 4 | % | - | 100% | | 88 | % | | Estimated Pull through % | | 6 | % | - | 100% | | 90 | % |
| Municipal securities | Municipal securities | 3,089 | | | Discounted cash flow | | Discount rate | | 0 | % | - | 8% | | 3 | % | Municipal securities | 3,070 | | | Discounted cash flow | | Discount rate | | 0 | % | - | 2% | | 1 | % |
Asset-backed securities | Asset-backed securities | 49 | | | Cumulative default | | 0 | % | - | 39% | | 4 | % | Asset-backed securities | 47 | | | Cumulative default | | 0 | % | - | 39% | | 4 | % |
| | Loss given default | | 5 | % | - | 80% | | 24 | % | | Loss given default | | 5 | % | - | 80% | | 25 | % |
| Measured at fair value on a nonrecurring basis: | Measured at fair value on a nonrecurring basis: | Measured at fair value on a nonrecurring basis: |
| Collateral-dependent loans | Collateral-dependent loans | 124 | | | Appraisal value | | NA | | | NA | Collateral-dependent loans | 12 | | | Appraisal value | | N/A | | | | N/A |
|
| | | Quantitative Information about Level 3 Fair Value Measurements at December 31, 2019 (1) | | Quantitative Information about Level 3 Fair Value Measurements at December 31, 2020 (1) |
(dollar amounts in millions) | (dollar amounts in millions) | Fair Value | | Valuation Technique | | Significant Unobservable Input | | Range | | Weighted Average | (dollar amounts in millions) | Fair Value | | Valuation Technique | | Significant Unobservable Input | | Range | | Weighted Average |
Measured at fair value on a recurring basis: | Measured at fair value on a recurring basis: | | | | Measured at fair value on a recurring basis: | | | |
MSRs | MSRs | $ | 7 | | | Discounted cash flow | | Constant prepayment rate | | 0 | % | - | 26% | | 8 | % | MSRs | $ | 210 | | | Discounted cash flow | | Constant prepayment rate | | 8 | % | - | 24% | | 17 | % |
| | Spread over forward interest rate swap rates | | 5 | % | - | 11% | | 8 | % | | Spread over forward interest rate swap rates | | 4 | % | - | 11% | | 5 | % |
Derivative assets | Derivative assets | 8 | | | Consensus Pricing | | Net market price | | (2) | % | - | 11% | | 2 | % | Derivative assets | 43 | | | Consensus Pricing | | Net market price | | (4) | % | - | 11% | | 3 | % |
| | Estimated Pull through % | | 2 | % | - | 100% | | 91 | % | | Estimated Pull through % | | 1 | % | - | 100% | | 88 | % |
| Municipal securities | Municipal securities | 2,999 | | | Discounted cash flow | | Discount rate | | 2 | % | - | 3% | | 2 | % | Municipal securities | 2,951 | | | Discounted cash flow | | Discount rate | | 0 | % | | 1% | | 1 | % |
Asset-backed securities | Asset-backed securities | 48 | | | Cumulative default | | 0 | % | - | 39% | | 4 | % | Asset-backed securities | 10 | | | Cumulative default | | 0 | % | | 39% | | 4 | % |
| | Loss given default | | 5 | % | - | 80% | | 24 | % | | Loss given default | | 5 | % | | 80% | | 25 | % |
| Measured at fair value on a nonrecurring basis: | Measured at fair value on a nonrecurring basis: | | | | 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 | |
Collateral-dependent loans | | Collateral-dependent loans | 144 | | | Appraisal value | | N/A | | | | 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.
Fair values of financial instruments
The following table provides the carrying amounts and estimated fair values of Huntington’s financial instruments at September 30, 2020March 31, 2021 and December 31, 2019:2020:
| | | September 30, 2020 | | March 31, 2021 |
(dollar amounts in millions) | (dollar amounts in millions) | Amortized Cost | | Lower of Cost or Market | | Fair Value or Fair Value Option | | Total Carrying Amount | | Estimated Fair Value | (dollar amounts in millions) | Amortized Cost | | Lower of Cost or Market | | Fair Value or Fair Value Option | | Total Carrying Amount | | Estimated Fair Value |
Financial Assets | Financial Assets | | | | Financial Assets | | | |
Cash and short-term assets | Cash and short-term assets | $ | 6,384 | | | $ | — | | | $ | — | | | $ | 6,384 | | | $ | 6,384 | | Cash and short-term assets | $ | 8,641 | | | $ | — | | | $ | — | | | $ | 8,641 | | | $ | 8,641 | |
Trading account securities | Trading account securities | — | | | — | | | 54 | | | 54 | | | 54 | | Trading account securities | — | | | — | | | 51 | | | 51 | | | 51 | |
Available-for-sale securities | Available-for-sale securities | — | | | — | | | 14,807 | | | 14,807 | | | 14,807 | | Available-for-sale securities | — | | | — | | | 19,375 | | | 19,375 | | | 19,375 | |
Held-to-maturity securities | Held-to-maturity securities | 8,557 | | | — | | | — | | | 8,557 | | | 8,970 | | Held-to-maturity securities | 7,815 | | | — | | | — | | | 7,815 | | | 8,062 | |
Other securities | Other securities | 363 | | | — | | | 58 | | | 421 | | | 421 | | Other securities | 352 | | | — | | | 59 | | | 411 | | | 411 | |
Loans held for sale | Loans held for sale | — | | | 185 | | | 1,118 | | | 1,303 | | | 1,308 | | Loans held for sale | — | | | 6 | | | 1,531 | | | 1,537 | | | 1,537 | |
Net loans and leases (1) | Net loans and leases (1) | 79,268 | | | — | | | 92 | | | 79,360 | | | 80,490 | | Net loans and leases (1) | 78,409 | | | — | | | 118 | | | 78,527 | | | 78,603 | |
Derivative assets | Derivative assets | — | | | — | | | 1,088 | | | 1,088 | | | 1,088 | | Derivative assets | — | | | — | | | 1,013 | | | 1,013 | | | 1,013 | |
Financial Liabilities | Financial Liabilities | | Financial Liabilities | |
Deposits | Deposits | 95,154 | | | — | | | — | | | 95,154 | | | 95,350 | | Deposits | 102,184 | | | — | | | — | | | 102,184 | | | 102,231 | |
Short-term borrowings | Short-term borrowings | 222 | | | — | | | — | | | 222 | | | 222 | | Short-term borrowings | 219 | | | — | | | — | | | 219 | | | 219 | |
Long-term debt | Long-term debt | 9,174 | | | — | | | — | | | 9,174 | | | 9,440 | | Long-term debt | 7,210 | | | — | | | — | | | 7,210 | | | 7,305 | |
Derivative liabilities | Derivative liabilities | — | | | — | | | 110 | | | 110 | | | 110 | | Derivative liabilities | — | | | — | | | 171 | | | 171 | | | 171 | |
| | | December 31, 2019 | | December 31, 2020 |
(dollar amounts in millions) | (dollar amounts in millions) | Amortized Cost | | Lower of Cost or Market | | Fair Value or Fair Value Option | | Total Carrying Amount | | Estimated Fair Value | (dollar amounts in millions) | Amortized Cost | | Lower of Cost or Market | | Fair Value or Fair Value Option | | Total Carrying Amount | | Estimated Fair Value |
Financial Assets | Financial Assets | | | | Financial Assets | | | |
Cash and short-term assets | Cash and short-term assets | $ | 1,272 | | | $ | — | | | $ | — | | | $ | 1,272 | | | $ | 1,272 | | Cash and short-term assets | $ | 6,712 | | | $ | — | | | $ | — | | | $ | 6,712 | | | $ | 6,712 | |
Trading account securities | Trading account securities | — | | | — | | | 99 | | | 99 | | | 99 | | Trading account securities | — | | | — | | | 62 | | | 62 | | | 62 | |
Available-for-sale securities | Available-for-sale securities | — | | | — | | | 14,149 | | | 14,149 | | | 14,149 | | Available-for-sale securities | — | | | — | | | 16,485 | | | 16,485 | | | 16,485 | |
Held-to-maturity securities | Held-to-maturity securities | 9,070 | | | — | | | — | | | 9,070 | | | 9,186 | | Held-to-maturity securities | 8,861 | | | — | | | — | | | 8,861 | | | 9,255 | |
Other securities | Other securities | 387 | | | — | | | 54 | | | 441 | | | 441 | | Other securities | 359 | | | — | | | 59 | | | 418 | | | 418 | |
Loans held for sale | Loans held for sale | — | | | 96 | | | 781 | | | 877 | | | 879 | | Loans held for sale | — | | | 77 | | | 1,198 | | | 1,275 | | | 1,275 | |
Net loans and leases (1) | Net loans and leases (1) | 74,540 | | | — | | | 81 | | | 74,621 | | | 75,177 | | Net loans and leases (1) | 79,700 | | | — | | | 94 | | | 79,794 | | | 80,477 | |
Derivative assets | Derivative assets | — | | | — | | | 452 | | | 452 | | | 452 | | Derivative assets | — | | | — | | | 1,057 | | | 1,057 | | | 1,057 | |
Financial Liabilities | Financial Liabilities | | Financial Liabilities | |
Deposits | Deposits | 82,347 | | | — | | | — | | | 82,347 | | | 82,344 | | Deposits | 98,948 | | | — | | | — | | | 98,948 | | | 99,021 | |
Short-term borrowings | Short-term borrowings | 2,606 | | | — | | | — | | | 2,606 | | | 2,606 | | Short-term borrowings | 183 | | | — | | | — | | | 183 | | | 183 | |
Long-term debt | Long-term debt | 9,849 | | | — | | | — | | | 9,849 | | | 10,075 | | Long-term debt | 8,352 | | | — | | | — | | | 8,352 | | | 8,568 | |
Derivative liabilities | Derivative liabilities | — | | | — | | | 104 | | | 104 | | | 104 | | Derivative liabilities | — | | | — | | | 116 | | | 116 | | | 116 | |
(1)Includes collateral-dependent loans.
8670 Huntington Bancshares Incorporated
The following table presents the level in the fair value hierarchy for the estimated fair values at September 30, 2020March 31, 2021 and December 31, 2019:2020:
| | | Estimated Fair Value Measurements at Reporting Date Using | | Netting Adjustments (1) | September 30, 2020 | | Estimated Fair Value Measurements at Reporting Date Using | | Netting Adjustments (1) | March 31, 2021 |
(dollar amounts in millions) | (dollar amounts in millions) | Level 1 | | Level 2 | | Level 3 | | (dollar amounts in millions) | Level 1 | | Level 2 | | Level 3 | |
Financial Assets | Financial Assets | | | | | | | | Financial Assets | | | | | | | |
Trading account securities | Trading account securities | $ | 0 | | | $ | 54 | | | $ | 0 | | | $ | 54 | | Trading account securities | $ | 0 | | | $ | 51 | | | $ | 0 | | | $ | 51 | |
Available-for-sale securities | Available-for-sale securities | 5 | | | 11,659 | | | 3,143 | | | 14,807 | | Available-for-sale securities | 5 | | | 16,242 | | | 3,128 | | | 19,375 | |
Held-to-maturity securities | Held-to-maturity securities | 0 | | | 8,970 | | | 0 | | | 8,970 | | Held-to-maturity securities | 0 | | | 8,062 | | | 0 | | | 8,062 | |
Other securities (2) | Other securities (2) | 58 | | | 0 | | | 0 | | | 58 | | Other securities (2) | 42 | | | 17 | | | 0 | | | 59 | |
Loans held for sale | Loans held for sale | 0 | | | 1,118 | | | 190 | | | 1,308 | | Loans held for sale | 0 | | | 1,531 | | | 6 | | | 1,537 | |
Net loans and direct financing leases | Net loans and direct financing leases | 0 | | | 68 | | | 80,422 | | | 80,490 | | Net loans and direct financing leases | 0 | | | 96 | | | 78,507 | | | 78,603 | |
Derivative assets | Derivative assets | — | | | 2,093 | | | 50 | | | $ | (1,055) | | 1,088 | | Derivative assets | 0 | | | 1,808 | | | 21 | | | $ | (816) | | 1,013 | |
Financial Liabilities | Financial Liabilities | | Financial Liabilities | |
Deposits | Deposits | 0 | | | 92,779 | | | 2,571 | | | 95,350 | | Deposits | 0 | | | 99,998 | | | 2,233 | | | 102,231 | |
Short-term borrowings | Short-term borrowings | 0 | | | 0 | | | 222 | | | 222 | | Short-term borrowings | 0 | | | 219 | | | 0 | | | 219 | |
Long-term debt | Long-term debt | 0 | | | 8,877 | | | 563 | | | 9,440 | | Long-term debt | 0 | | | 6,736 | | | 569 | | | 7,305 | |
Derivative liabilities | Derivative liabilities | — | | | 1,170 | | | 2 | | | (1,062) | | 110 | | Derivative liabilities | 0 | | | 863 | | | 11 | | | (703) | | 171 | |
| | | Estimated Fair Value Measurements at Reporting Date Using | | Netting Adjustments (1) | December 31, 2019 | | Estimated Fair Value Measurements at Reporting Date Using | | Netting Adjustments (1) | December 31, 2020 |
(dollar amounts in millions) | (dollar amounts in millions) | Level 1 | | Level 2 | | Level 3 | | (dollar amounts in millions) | Level 1 | | Level 2 | | Level 3 | |
Financial Assets | Financial Assets | | | | | | | | Financial Assets | | | | | | | |
Trading account securities | Trading account securities | $ | 30 | | | $ | 69 | | | $ | 0 | | | $ | 99 | | Trading account securities | $ | 0 | | | $ | 62 | | | $ | 0 | | | $ | 62 | |
Available-for-sale securities | Available-for-sale securities | 10 | | | 11,090 | | | 3,049 | | | 14,149 | | Available-for-sale securities | 5 | | | 13,510 | | | 2,970 | | | 16,485 | |
Held-to-maturity securities | Held-to-maturity securities | 0 | | | 9,186 | | | 0 | | | 9,186 | | Held-to-maturity securities | 0 | | | 9,255 | | | 0 | | | 9,255 | |
Other securities (2) | Other securities (2) | 54 | | | 0 | | | 0 | | | 54 | | Other securities (2) | 59 | | | 0 | | | 0 | | | 59 | |
Loans held for sale | Loans held for sale | 0 | | | 781 | | | 98 | | | 879 | | Loans held for sale | 0 | | | 1,198 | | | 77 | | | 1,275 | |
Net loans and direct financing leases | Net loans and direct financing leases | 0 | | | 55 | | | 75,122 | | | 75,177 | | Net loans and direct financing leases | 0 | | | 71 | | | 80,406 | | | 80,477 | |
Derivative assets | Derivative assets | — | | | 848 | | | 8 | | | $ | (404) | | 452 | | Derivative assets | 0 | | | 1,903 | | | 43 | | | $ | (889) | | 1,057 | |
Financial Liabilities | Financial Liabilities | | Financial Liabilities | |
Deposits | Deposits | 0 | | | 76,790 | | | 5,554 | | | 82,344 | | Deposits | 0 | | | 96,656 | | | 2,365 | | | 99,021 | |
Short-term borrowings | Short-term borrowings | 0 | | | 0 | | | 2,606 | | | 2,606 | | Short-term borrowings | 0 | | | 183 | | | 0 | | | 183 | |
Long-term debt | Long-term debt | 0 | | | 9,439 | | | 636 | | | 10,075 | | Long-term debt | 0 | | | 7,999 | | | 569 | | | 8,568 | |
Derivative liabilities | Derivative liabilities | — | | | 519 | | | 2 | | | (417) | | 104 | | Derivative liabilities | 0 | | | 1,031 | | | 2 | | | (917) | | 116 | |
(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.
13.12. DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are recorded in the Unaudited Condensed 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 Unaudited Condensed Consolidated Balance Sheets at September 30, 2020March 31, 2021 and December 31, 2019.2020. Amounts in the table below are presented gross without the impact of any net collateral arrangements.
| | | September 30, 2020 | | December 31, 2019 | | March 31, 2021 | | December 31, 2020 |
(dollar amounts in millions) | (dollar amounts in millions) | Notional Value | | Asset | | Liability | | Notional Value | | Asset | | Liability | (dollar amounts in millions) | Notional Value | | Asset | | Liability | | Notional Value | | Asset | | Liability |
Derivatives designated as Hedging Instruments | Derivatives designated as Hedging Instruments | | | | | | | | | | Derivatives designated as Hedging Instruments | | | | | | | | | |
Interest rate contracts | Interest rate contracts | $ | 27,671 | | | $ | 858 | | | $ | 59 | | | $ | 25,927 | | | $ | 256 | | | $ | 36�� | | Interest rate contracts | $ | 24,937 | | | $ | 638 | | | $ | 42 | | | $ | 27,056 | | | $ | 719 | | | $ | 51 | |
Derivatives not designated as Hedging Instruments | Derivatives not designated as Hedging Instruments | | Derivatives not designated as Hedging Instruments | |
Interest rate contracts | Interest rate contracts | 33,837 | | | 1,109 | | | 919 | | | 27,614 | | | 420 | | | 314 | | Interest rate contracts | 55,792 | | | 1,034 | | | 686 | | | 44,495 | | | 1,074 | | | 828 | |
Foreign exchange contracts | Foreign exchange contracts | 2,691 | | | 23 | | | 24 | | | 2,173 | | | 19 | | | 18 | | Foreign exchange contracts | 2,737 | | | 44 | | | 42 | | | 2,718 | | | 46 | | | 47 | |
Commodities contracts | Commodities contracts | 1,899 | | | 153 | | | 149 | | | 3,020 | | | 155 | | | 152 | | Commodities contracts | 1,660 | | | 101 | | | 98 | | | 1,952 | | | 107 | | | 103 | |
Equity contracts | Equity contracts | 477 | | | 0 | | | 21 | | | 427 | | | 6 | | | 1 | | Equity contracts | 502 | | | 12 | | | 6 | | | 517 | | | 0 | | | 4 | |
Total Contracts | Total Contracts | $ | 66,575 | | | $ | 2,143 | | | $ | 1,172 | | | $ | 59,161 | | | $ | 856 | | | $ | 521 | | Total Contracts | $ | 85,628 | | | $ | 1,829 | | | $ | 874 | | | $ | 76,738 | | | $ | 1,946 | | | $ | 1,033 | |
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 Unaudited Condensed Consolidated Income Statement for the three-month and nine-month periods ended September 30,March 31, 2021 and 2020, and 2019, respectively.
| | | Location of Gain or (Loss) Recognized in Income on Derivative | | Amount of Gain or (Loss) Recognized in Income on Derivative | | Location of Gain or (Loss) Recognized in Income on Derivative | | Amount of Gain or (Loss) Recognized in Income on Derivative |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, | |
(dollar amounts in millions) | (dollar amounts in millions) | | 2020 | | 2019 | | 2020 | | 2019 | (dollar amounts in millions) | | 2021 | | 2020 | |
Interest rate contracts: | Interest rate contracts: | | | | | | | | | Interest rate contracts: | | | | | | | |
Customer | Customer | | Capital markets fees | | $ | 10 | | | $ | 15 | | | $ | 39 | | | $ | 38 | | Customer | | Capital markets fees | | $ | 12 | | | $ | 18 | | |
Mortgage Banking | Mortgage Banking | | Mortgage banking income | | 47 | | | 28 | | | 109 | | | 52 | | Mortgage Banking | | Mortgage banking income | | (6) | | | 96 | | |
Interest Rate Floors | | Interest and fee income on loans and leases | | 0 | | | (1) | | | 0 | | | 4 | | |
Interest rate floors | | Interest rate floors | | Interest and fee income on loans and leases | | (2) | | | 0 | | |
Interest rate caps | | Interest rate caps | | Interest expense on long-term debt | | 144 | | | 0 | | |
Foreign exchange contracts | Foreign exchange contracts | | Capital markets fees | | 7 | | | 7 | | | 18 | | | 22 | | Foreign exchange contracts | | Capital markets fees | | 6 | | | 6 | | |
Commodities contracts | Commodities contracts | | Capital markets fees | | 0 | | | 1 | | | 2 | | | (3) | | Commodities contracts | | Capital markets fees | | 0 | | | 2 | | |
| Equity contracts | Equity contracts | | Other noninterest expense | | (1) | | | (2) | | | (3) | | | (3) | | Equity contracts | | Other noninterest expense | | (7) | | | (2) | | |
Total | Total | | $ | 63 | | | $ | 48 | | | $ | 165 | | | $ | 110 | | Total | | $ | 147 | | | $ | 120 | | |
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
88 Huntington Bancshares Incorporated
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
72 Huntington Bancshares Incorporated
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.
The following table presents the gross notional values of derivatives used in Huntington’s asset and liability management activities at September 30, 2020March 31, 2021 and December 31, 2019,2020, identified by the underlying interest rate-sensitive instruments.
| | | September 30, 2020 | | March 31, 2021 |
(dollar amounts in millions) | (dollar amounts in millions) | Fair Value Hedges | | Cash Flow Hedges | | Economic Hedges | | Total | (dollar amounts in millions) | Fair Value Hedges | | Cash Flow Hedges | | Economic Hedges | | Total |
Instruments associated with: | Instruments associated with: | | | | | | | | Instruments associated with: | | | | | | | |
Investment securities | | Investment securities | $ | 3,190 | | | $ | 0 | | | $ | 0 | | | $ | 3,190 | |
Loans | Loans | $ | 0 | | | $ | 17,375 | | | $ | 1,000 | | | $ | 18,375 | | Loans | 0 | | | 16,350 | | | 1,271 | | | 17,621 | |
Investment securities | 3,309 | | | 0 | | | — | | | 3,309 | | |
| Long-term debt | Long-term debt | 6,987 | | | 0 | | | — | | | 6,987 | | Long-term debt | 5,397 | | | 0 | | | 8,000 | | | 13,397 | |
| Total notional value at September 30, 2020 | $ | 10,296 | | | $ | 17,375 | | | $ | 1,000 | | | $ | 28,671 | | |
Total notional value at March 31, 2021 | | Total notional value at March 31, 2021 | $ | 8,587 | | | $ | 16,350 | | | $ | 9,271 | | | $ | 34,208 | |
| | | December 31, 2019 | | December 31, 2020 |
(dollar amounts in millions) | (dollar amounts in millions) | Fair Value Hedges | | Cash Flow Hedges | | Economic Hedges | | Total | (dollar amounts in millions) | Fair Value Hedges | | Cash Flow Hedges | | Economic Hedges | | Total |
Instruments associated with: | Instruments associated with: | | | | | | | | Instruments associated with: | | | | | | | |
Investment securities | | Investment securities | $ | 3,484 | | | $ | 0 | | | $ | 0 | | | $ | 3,484 | |
Loans | Loans | $ | 0 | | | $ | 18,375 | | | $ | 0 | | | $ | 18,375 | | Loans | 0 | | | 17,375 | | | 1,271 | | | 18,646 | |
Investment securities | 0 | | | 12 | | | 0 | | | 12 | | |
| Long-term debt | Long-term debt | 7,540 | | | 0 | | | 0 | | | 7,540 | | Long-term debt | 6,197 | | | 0 | | | 5,000 | | | 11,197 | |
Total notional value at December 31, 2019 | $ | 7,540 | | | $ | 18,387 | | | $ | 0 | | | $ | 25,927 | | |
Total notional value at December 31, 2020 | | Total notional value at December 31, 2020 | $ | 9,681 | | | $ | 17,375 | | | $ | 6,271 | | | $ | 33,327 | |
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 the amortization of floors and forward-starting floors 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 $82$225 million and $(16)$16 million for the three-month periods ended September 30,March 31, 2021, and 2020, and 2019, respectively. For the nine-month periods ended September 30, 2020, and 2019, the net amounts resulted in an increase (decrease) to net interest income of $151 million and $(44) million, 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$2.8 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 our Unaudited Condensed Consolidated Statements of Financial Condition.
2020 3Q2021 1Q Form 10-Q 8973
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 three-month and nine-month periods ended September 30, 2020March 31, 2021 and 2019.2020.
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, | |
(dollar amounts in millions) | (dollar amounts in millions) | | 2020 | | 2019 | | 2020 | | 2019 | (dollar amounts in millions) | | 2021 | | 2020 | |
Interest rate contracts | Interest rate contracts | | | | | | | | | Interest rate contracts | | | | | |
Change in fair value of interest rate swaps hedging investment securities (1) | Change in fair value of interest rate swaps hedging investment securities (1) | | $ | 0 | | | $ | 0 | | | $ | (1) | | | $ | 0 | | Change in fair value of interest rate swaps hedging investment securities (1) | | $ | 43 | | | $ | 0 | | |
Change in fair value of hedged investment securities (1) | Change in fair value of hedged investment securities (1) | | 0 | | | 0 | | | 1 | | | 0 | | Change in fair value of hedged investment securities (1) | | (44) | | | 0 | | |
| Change in fair value of interest rate swaps hedging long-term debt (2) | Change in fair value of interest rate swaps hedging long-term debt (2) | | (36) | | | 36 | | | 159 | | | 165 | | Change in fair value of interest rate swaps hedging long-term debt (2) | | (50) | | | 200 | | |
Change in fair value of hedged long term debt (2) | Change in fair value of hedged long term debt (2) | | 35 | | | (32) | | | (160) | | | (162) | | Change in fair value of hedged long term debt (2) | | 52 | | | (190) | | |
As of September 30, 2020,March 31, 2021, and December 31, 2019,2020, the following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges.
| | | Amortized Cost | | Cumulative Amount of Fair Value Hedging Adjustment To Hedged Items | | Amortized Cost | | Cumulative Amount of Fair Value Hedging Adjustment To Hedged Items |
(dollar amounts in millions) | (dollar amounts in millions) | September 30, 2020 | | December 31, 2019 | | September 30, 2020 | | December 31, 2019 | (dollar amounts in millions) | March 31, 2021 | | December 31, 2020 | | March 31, 2021 | | December 31, 2020 |
Assets | | Assets | | | | | | | |
Investment securities (1) | Investment securities (1) | $ | 7,389 | | | $ | 0 | | | $ | 1 | | | $ | 0 | | Investment securities (1) | $ | 5,713 | | | $ | 6,637 | | | $ | 1 | | | $ | 3 | |
| Liabilities | | Liabilities | |
Long-term debt | Long-term debt | 7,210 | | | 7,578 | | | 274 | | | 114 | | Long-term debt | 5,538 | | | 6,383 | | | 180 | | | 232 | |
Total | $ | 14,599 | | | $ | 7,578 | | | $ | 275 | | | $ | 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 September 30, 2020,March 31, 2021, the amortized cost basis of the closed portfolios used in these hedging relationships was $7.2$5.3 billion, the cumulative basis adjustments associated with these hedging relationships was $1 million, and the amounts of the designated hedged items were $3.1$2.8 billion.
The cumulative amount of fair value hedging adjustments remaining for any hedged assets and liabilities for which hedge accounting has been discontinued was $(69)$(50) million and $(93)$(62) million at September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively.
Cash Flow Hedges
At September 30, 2020,March 31, 2021, Huntington has $17.4$16.4 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 and losses(losses) on interest rate floors, floor spreads, and swaps recognized in other comprehensive income were $(40)$(34) million and $28$308 million for the three-months periods ended September 30,March 31, 2021 and 2020, and 2019, respectively. For the nine-month periods ended September 30, 2020 and 2019, gains and losses on interest rate floors and swaps recognized in other comprehensive income were $279 million and, $82 million respectively.
Derivatives used in mortgage banking activities
Mortgage loan origination hedging activity
Huntington’s mortgage origination hedging activity is related to economically hedging 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 (liability) position of these derivatives at September 30, 2020March 31, 2021 and December 31, 20192020 are $44$65 million and $6$26 million, respectively. At September 30, 2020March 31, 2021 and December 31, 2019,2020, Huntington had commitments to sell residential real estate loans of $2.7$2.9 billion and $1.4$2.9 billion, respectively. These contracts mature in less than one year.
9074 Huntington Bancshares Incorporated
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 tradingnet asset (liability) position recognized in other assets andand/or other liabilities, and net trading gains (losses) related to MSR hedging activity is summarized in the following table:
| | (dollar amounts in millions) | (dollar amounts in millions) | September 30, 2020 | December 31, 2019 | (dollar amounts in millions) | March 31, 2021 | December 31, 2020 |
Notional value | Notional value | $ | 578 | | | $ | 778 | | Notional value | $ | 875 | | | $ | 1,170 | |
Trading assets | Trading assets | 56 | | | 19 | | Trading assets | 9 | | | 43 | |
| | | |
| | | Three Months Ended September 30, 2020 | | Nine Months Ended September 30, 2020 | | Three Months Ended March 31, 2021 | |
(dollar amounts in millions) | (dollar amounts in millions) | 2020 | 2019 | | 2020 | 2019 | (dollar amounts in millions) | 2021 | | 2020 | |
Trading gains | Trading gains | $ | (1) | | $ | 20 | | | $ | 61 | | $ | 44 | | Trading gains | $ | (46) | | | $ | 57 | | |
|
MSR hedging trading assets and liabilities are included in other assets and other liabilities, respectively, in the Unaudited Condensed Balance Sheets. Trading gains (losses) are included in mortgage banking income in the Unaudited Condensed 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 both September 30, 2020March 31, 2021 and December 31, 2019,2020, were $75$73 million and $87$70 million, respectively. The total notional values of derivative financial instruments used by Huntington on behalf of customers, including offsetting derivatives, were $32$46 billion and $30$37 billion at September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. Huntington’s credit risk from customer derivatives was $988$593 million and $407$882 million at the same dates, respectively.
Financial assets and liabilities that are offset in the Unaudited Condensed Consolidated Balance Sheets
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 2 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.
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 $94$420 million and $22$175 million at September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. The credit risk associated with derivatives is calculated after considering master netting agreements.
At September 30, 2020,March 31, 2021, Huntington pledged $285$69 million of investment securities and cash collateral to counterparties, while other counterparties pledged $345$434 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 Unaudited Condensed Consolidated Balance Sheets at September 30, 2020March 31, 2021 and December 31, 2019.2020.
| Offsetting of Financial Assets and Derivative Assets | | | | | Gross amounts offset in the unaudited condensed consolidated balance sheets | | Net amounts of assets presented in the unaudited condensed consolidated balance sheets | | Gross amounts not offset in the unaudited condensed consolidated balance sheets | | | | | Gross amounts offset in the unaudited condensed consolidated balance sheets | | Net amounts of assets presented in the unaudited condensed consolidated balance sheets | | Gross amounts not offset in the unaudited condensed consolidated balance sheets | |
(dollar amounts in millions) | (dollar amounts in millions) | | Gross amounts of recognized assets | | Financial instruments | | Cash collateral received | | Net amount | (dollar amounts in millions) | | Gross amounts of recognized assets | | Financial instruments | | Cash collateral received | | Net amount |
September 30, 2020 | | $ | 2,143 | | | $ | (1,055) | | | $ | 1,088 | | | $ | (130) | | | $ | (56) | | | $ | 902 | | |
December 31, 2019 | | 856 | | | (404) | | | 452 | | | (65) | | | (29) | | | 358 | | |
March 31, 2021 | | March 31, 2021 | | $ | 1,829 | | | $ | (816) | | | $ | 1,013 | | | $ | (82) | | | $ | (190) | | | $ | 741 | |
December 31, 2020 | | December 31, 2020 | | 1,946 | | | (889) | | | 1,057 | | | (112) | | | (142) | | | 803 | |
| Offsetting of Financial Liabilities and Derivative Liabilities | | | | | Gross amounts offset in the unaudited condensed consolidated balance sheets | | Net amounts of liabilities presented in the unaudited condensed consolidated balance sheets | | Gross amounts not offset in the unaudited condensed consolidated balance sheets | | | | | Gross amounts offset in the unaudited condensed consolidated balance sheets | | Net amounts of liabilities presented in the unaudited condensed consolidated balance sheets | | Gross amounts not offset in the unaudited condensed consolidated balance sheets | |
(dollar amounts in millions) | (dollar amounts in millions) | | Gross amounts of recognized liabilities | | Financial instruments | | Cash collateral delivered | | Net amount | (dollar amounts in millions) | | Gross amounts of recognized liabilities | | Financial instruments | | Cash collateral delivered | | Net amount |
September 30, 2020 | | $ | 1,172 | | | $ | (1,062) | | | $ | 110 | | | $ | (4) | | | $ | (63) | | | $ | 43 | | |
December 31, 2019 | | 521 | | | (417) | | | 104 | | | 0 | | | (75) | | | 29 | | |
March 31, 2021 | | March 31, 2021 | | $ | 874 | | | $ | (703) | | | $ | 171 | | | $ | (17) | | | $ | (173) | | | $ | (19) | |
December 31, 2020 | | December 31, 2020 | | 1,033 | | | (917) | | | 116 | | | (9) | | | (105) | | | 2 | |
14.13. VIEs
Unconsolidated VIEs
The following tables provide a summary of the assets and liabilities included in Huntington’s Unaudited Condensed 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, toof the VIE at September 30, 2020,March 31, 2021, and December 31, 2019:2020:
| | | September 30, 2020 | | March 31, 2021 |
(dollar amounts in millions) | (dollar amounts in millions) | Total Assets | | Total Liabilities | | Maximum Exposure to Loss | (dollar amounts in millions) | Total Assets | | Total Liabilities | | Maximum Exposure to Loss |
Trust Preferred Securities | Trust Preferred Securities | $ | 14 | | | $ | 252 | | | $ | 0 | | Trust Preferred Securities | $ | 14 | | | $ | 253 | | | $ | 0 | |
Affordable Housing Tax Credit Partnerships | Affordable Housing Tax Credit Partnerships | 862 | | | 414 | | | 862 | | Affordable Housing Tax Credit Partnerships | 945 | | | 445 | | | 945 | |
Other Investments | Other Investments | 271 | | | 74 | | | 271 | | Other Investments | 329 | | | 72 | | | 329 | |
Total | Total | $ | 1,147 | | | $ | 740 | | | $ | 1,133 | | Total | $ | 1,288 | | | $ | 770 | | | $ | 1,274 | |
9276 Huntington Bancshares Incorporated
| | | December 31, 2019 | | December 31, 2020 |
(dollar amounts in millions) | (dollar amounts in millions) | Total Assets | | Total Liabilities | | Maximum Exposure to Loss | (dollar amounts in millions) | Total Assets | | Total Liabilities | | Maximum Exposure to Loss |
Trust Preferred Securities | Trust Preferred Securities | $ | 14 | | | $ | 252 | | | $ | 0 | | Trust Preferred Securities | $ | 14 | | | $ | 252 | | | $ | 0 | |
Affordable Housing Tax Credit Partnerships | Affordable Housing Tax Credit Partnerships | 727 | | | 332 | | | 727 | | Affordable Housing Tax Credit Partnerships | 956 | | | 500 | | | 956 | |
Other Investments | Other Investments | 179 | | | 63 | | | 179 | | Other Investments | 308 | | | 72 | | | 308 | |
Total | Total | $ | 920 | | | $ | 647 | | | $ | 906 | | Total | $ | 1,278 | | | $ | 824 | | | $ | 1,264 | |
Trust-Preferred Securities
Huntington has certain wholly-owned trusts whose assets, liabilities, equity, income, and expenses are not included within Huntington’s Unaudited Condensed 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 Unaudited Condensed 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 Unaudited Condensed Consolidated Financial Statements.
A list of trust preferred securities outstanding at September 30, 2020March 31, 2021 follows:
| (dollar amounts in millions) | (dollar amounts in millions) | Rate | | Principal amount of subordinated note/ debenture issued to trust (1) | | Investment in unconsolidated subsidiary | (dollar amounts in millions) | Rate | | Principal amount of subordinated note/ debenture issued to trust (1) | | Investment in unconsolidated subsidiary |
Huntington Capital I | Huntington Capital I | 0.93 | % | (2) | $ | 70 | | | $ | 6 | | Huntington Capital I | 0.81 | % | (2) | $ | 70 | | | $ | 6 | |
Huntington Capital II | Huntington Capital II | 0.86 | | (3) | 32 | | | 3 | | Huntington Capital II | 0.74 | | (3) | 32 | | | 3 | |
Sky Financial Capital Trust III | Sky Financial Capital Trust III | 1.63 | | (4) | 72 | | | 2 | | Sky Financial Capital Trust III | 1.51 | | (4) | 72 | | | 2 | |
Sky Financial Capital Trust IV | Sky Financial Capital Trust IV | 1.63 | | (4) | 74 | | | 2 | | Sky Financial Capital Trust IV | 1.51 | | (4) | 74 | | | 2 | |
Camco Financial Trust | Camco Financial Trust | 1.56 | | (5) | 4 | | | 1 | | Camco Financial Trust | 1.44 | | (5) | 5 | | | 1 | |
Total | Total | | $ | 252 | | | $ | 14 | | Total | | $ | 253 | | | $ | 14 | |
(1)Represents the principal amount of debentures issued to each trust, including unamortized original issue discount.
(2)Variable effective rate at September 30, 2020,March 31, 2021, based on three-month LIBOR +0.70%.
(3)Variable effective rate at September 30, 2020,March 31, 2021, based on three-month LIBOR +0.625%.
(4)Variable effective rate at September 30, 2020,March 31, 2021, based on three-month LIBOR +1.40%.
(5)Variable effective rate at September 30, 2020,March 31, 2021, 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 Unaudited Condensed Consolidated Statements of Income.
The following table presents the balances of Huntington’s affordable housing tax credit investments and related unfunded commitments at September 30, 2020March 31, 2021 and December 31, 2019.2020.
| (dollar amounts in millions) | (dollar amounts in millions) | September 30, 2020 | | December 31, 2019 | (dollar amounts in millions) | March 31, 2021 | | December 31, 2020 |
Affordable housing tax credit investments | Affordable housing tax credit investments | $ | 1,452 | | | $ | 1,242 | | Affordable housing tax credit investments | $ | 1,582 | | | $ | 1,568 | |
Less: amortization | Less: amortization | (590) | | | (515) | | Less: amortization | (637) | | | (612) | |
Net affordable housing tax credit investments | Net affordable housing tax credit investments | $ | 862 | | | $ | 727 | | Net affordable housing tax credit investments | $ | 945 | | | $ | 956 | |
Unfunded commitments | Unfunded commitments | $ | 414 | | | $ | 332 | | Unfunded commitments | $ | 445 | | | $ | 500 | |
The following table presents other information relating to Huntington’s affordable housing tax credit investments for the three-month and nine-month periods ended September 30, 2020March 31, 2021 and 2019.2020.
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, | |
(dollar amounts in millions) | (dollar amounts in millions) | | 2020 | | 2019 | | 2020 | | 2019 | (dollar amounts in millions) | | 2021 | | 2020 | |
Tax credits and other tax benefits recognized | Tax credits and other tax benefits recognized | | $ | 29 | | | $ | 26 | | | $ | 88 | | | $ | 79 | | Tax credits and other tax benefits recognized | | $ | 33 | | | $ | 29 | | |
| Proportional amortization expense included in provision for income taxes | Proportional amortization expense included in provision for income taxes | | 25 | | | 22 | | | 75 | | | 66 | | Proportional amortization expense included in provision for income taxes | | 28 | | | 25 | | |
| |
There were no sales of affordable housing tax credit investments during the three-month and nine-month periods ended September 30, 2020March 31, 2021 and 2019.2020. There was no impairment recognized for the three-month and nine-month periods ended September 30, 2020March 31, 2021 and 2019.2020.
Other VIE’sinvestments
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, automobile securitizations, and other miscellaneous investments.
15.14. 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 Unaudited Condensed Consolidated Financial Statements. The contract amounts of these financial agreements at September 30, 2020March 31, 2021 and December 31, 2019,2020, were as follows:
| (dollar amounts in millions) | (dollar amounts in millions) | September 30, 2020 | | December 31, 2019 | (dollar amounts in millions) | March 31, 2021 | | December 31, 2020 |
Contract amount representing credit risk | Contract amount representing credit risk | | | | Contract amount representing credit risk | | | |
Commitments to extend credit: | Commitments to extend credit: | | Commitments to extend credit: | |
Commercial | Commercial | $ | 20,606 | | | $ | 18,326 | | Commercial | $ | 21,580 | | | $ | 20,701 | |
Consumer | Consumer | 14,734 | | | 14,831 | | Consumer | 14,966 | | | 14,808 | |
Commercial real estate | Commercial real estate | 1,271 | | | 1,364 | | Commercial real estate | 1,315 | | | 1,313 | |
Standby letters of credit | Standby letters of credit | 570 | | | 587 | | Standby letters of credit | 632 | | | 581 | |
Commercial letters of credit | Commercial letters of credit | 11 | | | 8 | | Commercial letters of credit | 12 | | | 21 | |
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.
9478 Huntington Bancshares Incorporated
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 $6 million and $5 million and $8 million at September 30, 2020March 31, 2021 and December 31, 2019,2020, 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
The following supplements the disclosure in Note 21 - Commitments and Contingencies to the Consolidated Financial Statements of the Corporation’s 2019 Annual Report on Form 10-K and Note 14 - Commitments and Contingencies to the Consolidated Financial Statements of the Corporation’s Quarterly Report on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020 (collectively, the prior commitments and contingencies disclosures).
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, 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 September 30, 2020March 31, 2021 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.
16.15. 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 4 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. For a description of our business segments, see Note 2426 -
Segment Reporting to the Consolidated Financial Statements of the Corporation’s 20192020 Annual Report on Form 10-K.
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.
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).
Listed in the table below is certain operating basis financial information reconciled to Huntington’s September 30, 2020,March 31, 2021, December 31, 2019,2020, and September 30, 2019,March 31, 2020, reported results by business segment.
| | | | Three Months Ended September 30, | | Three Months Ended March 31, |
Income Statements | Income Statements | Consumer & Business Banking | | Commercial Banking | | Vehicle Finance | | RBHPCG | | Treasury / Other | | Huntington Consolidated | Income Statements | Consumer & Business Banking | | Commercial Banking | | Vehicle Finance | | RBHPCG | | Treasury / Other | | Huntington Consolidated |
(dollar amounts in millions) | (dollar amounts in millions) | | (dollar amounts in millions) | |
2021 | | 2021 | | | | | | | | | | | |
Net interest income | | Net interest income | $ | 337 | | | $ | 199 | | | $ | 107 | | | $ | 34 | | | $ | 295 | | | $ | 972 | |
Provision (benefit) for credit losses | | Provision (benefit) for credit losses | (36) | | | 5 | | | (22) | | | (7) | | | 0 | | | (60) | |
Noninterest income | | Noninterest income | 236 | | | 88 | | | 3 | | | 53 | | | 15 | | | 395 | |
Noninterest expense | | Noninterest expense | 469 | | | 133 | | | 35 | | | 62 | | | 94 | | | 793 | |
Provision (benefit) for income taxes | | Provision (benefit) for income taxes | 29 | | | 31 | | | 21 | | | 7 | | | 14 | | | 102 | |
Net income (loss) | | Net income (loss) | $ | 111 | | | $ | 118 | | | $ | 76 | | | $ | 25 | | | $ | 202 | | | $ | 532 | |
2020 | 2020 | | | | | | | | | | | | 2020 | | | | | | | | | | | |
Net interest income | Net interest income | $ | 367 | | | $ | 221 | | | $ | 110 | | | $ | 39 | | | $ | 80 | | | $ | 817 | | Net interest income | $ | 364 | | | $ | 232 | | | $ | 106 | | | $ | 43 | | | $ | 45 | | | $ | 790 | |
Provision (benefit) for credit losses | Provision (benefit) for credit losses | 87 | | | 87 | | | (12) | | | 15 | | | 0 | | | 177 | | Provision (benefit) for credit losses | 82 | | | 298 | | | 60 | | | 1 | | | 0 | | | 441 | |
Noninterest income | Noninterest income | 274 | | | 90 | | | 2 | | | 47 | | | 17 | | | 430 | | Noninterest income | 212 | | | 86 | | | 3 | | | 50 | | | 10 | | | 361 | |
Noninterest expense | Noninterest expense | 450 | | | 135 | | | 34 | | | 56 | | | 37 | | | 712 | | Noninterest expense | 418 | | | 129 | | | 35 | | | 62 | | | 8 | | | 652 | |
Provision (benefit) for income taxes | Provision (benefit) for income taxes | 22 | | | 19 | | | 19 | | | 3 | | | (8) | | | 55 | | Provision (benefit) for income taxes | 16 | | | (23) | | | 3 | | | 6 | | | 8 | | | 10 | |
Net income (loss) | Net income (loss) | $ | 82 | | | $ | 70 | | | $ | 71 | | | $ | 12 | | | $ | 68 | | | $ | 303 | | Net income (loss) | $ | 60 | | | $ | (86) | | | $ | 11 | | | $ | 24 | | | $ | 39 | | | $ | 48 | |
2019 | | | | | | | | | | | | |
Net interest income | $ | 433 | | | $ | 263 | | | $ | 100 | | | $ | 48 | | | $ | (45) | | | $ | 799 | | |
Provision (benefit) for credit losses | 35 | | | 36 | | | 12 | | | (1) | | | 0 | | | 82 | | |
Noninterest income | 223 | | | 101 | | | 4 | | | 47 | | | 14 | | | 389 | | |
Noninterest expense | 421 | | | 142 | | | 36 | | | 63 | | | 5 | | | 667 | | |
Provision (benefit) for income taxes | 42 | | | 39 | | | 12 | | | 7 | | | (33) | | | 67 | | |
Net income (loss) | $ | 158 | | | $ | 147 | | | $ | 44 | | | $ | 26 | | | $ | (3) | | | $ | 372 | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Assets at | | Deposits at |
(dollar amounts in millions) | March 31, 2021 | | December 31, 2020 | | March 31, 2021 | | December 31, 2020 |
Consumer & Business Banking | $ | 30,627 | | | $ | 30,758 | | | $ | 65,437 | | | $ | 60,910 | |
Commercial Banking | 36,797 | | | 36,311 | | | 25,420 | | | 24,766 | |
Vehicle Finance | 19,208 | | | 19,789 | | | 849 | | | 722 | |
RBHPCG | 6,837 | | | 7,064 | | | 7,163 | | | 7,635 | |
Treasury / Other | 32,299 | | | 29,116 | | | 3,315 | | | 4,915 | |
Total | $ | 125,768 | | | $ | 123,038 | | | $ | 102,184 | | | $ | 98,948 | |
9680 Huntington Bancshares Incorporated
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
Income Statements | Consumer & Business Banking | | Commercial Banking | | Vehicle Finance | | RBHPCG | | Treasury / Other | | Huntington Consolidated |
(dollar amounts in millions) | | | | | |
2020 | | | | | | | | | | | |
Net interest income | $ | 1,099 | | | $ | 693 | | | $ | 316 | | | $ | 122 | | | $ | 169 | | | $ | 2,399 | |
Provision (benefit) for credit losses | 200 | | | 611 | | | 118 | | | 16 | | | 0 | | | 945 | |
Noninterest income | 704 | | | 261 | | | 7 | | | 151 | | | 59 | | | 1,182 | |
Noninterest expense | 1,288 | | | 400 | | | 103 | | | 181 | | | 67 | | | 2,039 | |
Provision (benefit) for income taxes | 66 | | | (12) | | | 21 | | | 16 | | | 5 | | | 96 | |
Net income (loss) | $ | 249 | | | $ | (45) | | | $ | 81 | | | $ | 60 | | | $ | 156 | | | $ | 501 | |
2019 | | | | | | | | | | | |
Net interest income | $ | 1,371 | | | $ | 798 | | | $ | 291 | | | $ | 153 | | | $ | (180) | | | $ | 2,433 | |
Provision (benefit) for credit losses | 81 | | | 103 | | | 27 | | | (3) | | | 0 | | | 208 | |
Noninterest income | 596 | | | 266 | | | 9 | | | 147 | | | 64 | | | 1,082 | |
Noninterest expense | 1,247 | | | 427 | | | 112 | | | 193 | | | 41 | | | 2,020 | |
Provision (benefit) for income taxes | 134 | | | 113 | | | 33 | | | 23 | | | (110) | | | 193 | |
Net income (loss) | $ | 505 | | | $ | 421 | | | $ | 128 | | | $ | 87 | | | $ | (47) | | | $ | 1,094 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Assets at | | Deposits at |
(dollar amounts in millions) | September 30, 2020 | | December 31, 2019 | | September 30, 2020 | | December 31, 2019 |
Consumer & Business Banking | $ | 30,966 | | | $ | 25,073 | | | $ | 59,302 | | | $ | 51,675 | |
Commercial Banking | 35,503 | | | 34,337 | | | 23,599 | | | 20,762 | |
Vehicle Finance | 19,664 | | | 20,155 | | | 777 | | | 376 | |
RBHPCG | 6,934 | | | 6,665 | | | 6,623 | | | 6,370 | |
Treasury / Other | 27,049 | | | 22,772 | | | 4,853 | | | 3,164 | |
Total | $ | 120,116 | | | $ | 109,002 | | | $ | 95,154 | | | $ | 82,347 | |
Item 3: Quantitative and Qualitative Disclosures about Market Risk
Quantitative and qualitative disclosures for the current period can be found in the Market Risk section of this report, which includes changes in market risk exposures from disclosures presented in Huntington’s 20192020 Form 10-K.
Item 4: Controls and Procedures
Disclosure Controls and Procedures
Huntington maintains disclosure controls and procedures designed to ensure that the information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the Exchange Act), are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Huntington’s Management, with the participation of its Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of Huntington’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2020.March 31, 2021. Based upon such evaluation, Huntington’s Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2020,March 31, 2021, Huntington’s disclosure controls and procedures were effective.
There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2020,March 31, 2021, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
PART II. OTHER INFORMATION
In accordance with the instructions to Part II, the other specified items in this part have been omitted because they are not applicable or the information has been previously reported.
Item 1: Legal Proceedings
Item 1A: Risk Factors
The COVID-19 pandemic is adverselyOperations affecting,of this report and will likely continue to adversely affect, our business, financial condition, liquidity, and results of operations.
The COVID-19 pandemic has negatively impacted the U.S. and global economy; disrupted U.S. and global supply chains; lowered equity market valuations; created significant volatility and disruption in financial markets; contributed to a decrease in the rates and yields on U.S. Treasury securities; resulted in ratings downgrades, credit deterioration, and defaults in many industries; increased demands on capital and liquidity; and increased unemployment levels and decreased consumer confidence. In addition, the pandemic has resulted in temporary closures of many businesses and the institution of social distancing and sheltering in place requirements in many states and communities, including those in our footprint. The pandemic has caused us, and could continue to cause us, to recognize credit losses in our loan portfolios and increases in our allowance for credit losses. Furthermore, the pandemic could cause us to recognize impairment of our goodwill and our financial assets. Sustained adverse effects may also increase our cost of capital, prevent us from satisfying our minimum regulatory capital ratios and other supervisory requirements, or result in downgrades in our credit ratings. The extent to which the COVID-19 pandemic impacts our business, financial condition, liquidity, and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the continued effectiveness of our business continuity plan, the direct and indirect impact of the pandemic on our customers, colleagues, counterparties and service providers, and actions takenincorporated herein by governmental authorities and other third parties in response to the pandemic.
Governmental authorities have taken significant measures to provide economic assistance to individual households and businesses, stabilize the markets, and support economic growth. The success of these measures is unknown, and they may not be sufficient to fully mitigate the negative impact of the pandemic. Additionally, some measures, such as a suspension of consumer and commercial loan payments and the reduction in interest rates to near zero, may have a negative impact on our business, financial condition, liquidity, and results of operations. We also face an increased risk of litigation and governmental and regulatory scrutiny as a result of the effects of the pandemic on market and economic conditions and actions governmental authorities take in response to those conditions.
The length of the pandemic and the effectiveness of the measures being put in place to address it are unknown. Until the effects of the pandemic subside, we expect continued draws on lines of credit, reduced revenues in our businesses, and increased customer defaults. Furthermore, the U.S. economy is experiencing a recession as a result of the pandemic, and our business could be materially and adversely affected by a prolonged recession. To the extent the pandemic adversely affects our business, financial condition, liquidity, or results of operations, it may also have the effect of heightening many of the other risks described in the section entitled “Risk Factors” in our 2019 Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q.
We participated in the SBA’s PPP as an eligible lender with the benefit of a government guaranty of loans to small business clients, many of whom may face difficulties even after being granted such a loan. We are also
98reference. Huntington Bancshares Incorporated
participating in the FRB’s Main Street Lending Program. We face increased risks, in terms of credit, fraud risk and litigation, in light of participation in these programs.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) and (b)
Not Applicable
(c)
| | | | | | | | | | | | | | | | | | |
Period | Total Number of Shares Purchased (1) | | Average Price Paid Per Share | | Maximum Number of Shares (or Approximate Dollar Value) that May Yet Be Purchased Under the Plans or Programs (2) |
July 1, 2020 to July 31, 2020 | — | | | $ | — | | | $ | — | |
AugustJanuary 1, 20202021 to AugustJanuary 31, 20202021 | — | | | — | | | — | | |
SeptemberFebruary 1, 2020 to September 30, 2020February 28, 2021 | — | | | — | | | — | | |
March 1, 2021 to March 31, 2021 | — | | | — | | | — | | |
Total | — | | | $ | — | | | $ | — | | |
(1)The reported shares were repurchased pursuant to Huntington’s publicly-announced share repurchase authorization.
(2)The number shown represents, as of the end of each period, the approximate dollar value of Common Stock that may yet be purchased under publicly-announced share repurchase authorizations. The shares may be purchased, from time-to-time, depending on market conditions.
The Board has authorized the repurchase
Item 6. Exhibits
Exhibit Index
This report incorporates by reference the documents listed below that we have previously filed with the SEC. The SEC allows us to incorporate by reference information in this document. The information incorporated by reference is considered to be a part of this document, except for any information that is superseded by information that is included directly in this document.
The SEC maintains an Internet web site that contains reports, proxy statements, and other information about issuers, like us, who file electronically with the SEC. The address of the site is http://www.sec.gov. The reports and other information filed by us with the SEC are also available free of charge by visiting the Investor Relations section ofat our website.internet web site. The address of the site is http://www.huntington.com. Except as specifically incorporated by reference into this Quarterly Report on Form 10-Q, information on those web sites is not part of this report. You also should be able to inspect reports, proxy statements, and other information about us at the offices of the Nasdaq National Market at 33 Whitehall Street, New York, New York 10004.
| Exhibit Number | Exhibit Number | Document Description | Report or Registration Statement | SEC File or Registration Number | Exhibit Reference | Exhibit Number | Document Description | Report or Registration Statement | SEC File or Registration Number | Exhibit Reference |
3.1 | 3.1 | | | | | 3.1 | | | | |
3.2 | 3.2 | | | | | 3.2 | | | | |
3.3 | 3.3 | | | | | 3.3 | | | | |
3.4 | 3.4 | | | | | 3.4 | | | | |
3.5 | 3.5 | | | | | 3.5 | | | | |
3.6 | | 3.6 | | | | |
10.1 | | 10.1 | | | | |
| 4.1(P) | 4.1(P) | Instruments defining the Rights of Security Holders—reference is made to Articles Fifth, Eighth, and Tenth of Articles of Restatement of Charter, as amended and supplemented. Instruments defining the rights of holders of long-term debt will be furnished to the Securities and Exchange Commission upon request. | | 4.1(P) | Instruments defining the Rights of Security Holders—reference is made to Articles Fifth, Eighth, and Tenth of Articles of Restatement of Charter, as amended and supplemented. Instruments defining the rights of holders of long-term debt will be furnished to the Securities and Exchange Commission upon request. | |
| 31.1 | 31.1 | | | 31.1 | | |
31.2 | 31.2 | | | 31.2 | | |
32.1 | 32.1 | | | 32.1 | | |
32.2 | 32.2 | | | 32.2 | | |
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* | Filed herewith |
** | Furnished herewith |
*** | |
10082 Huntington Bancshares Incorporated
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
HUNTINGTON BANCSHARES INCORPORATED
(Registrant)
| | | | | | | | | | | |
| | | |
Date: | OctoberApril 30, 20202021 | | /s/ Stephen D. Steinour |
| | | Stephen D. Steinour |
| | | Chairman, President, and Chief Executive Officer (Principal Executive Officer) |
| | |
Date: | OctoberApril 30, 20202021 | | /s/ Zachary Wasserman |
| | | Zachary Wasserman |
| | | Chief Financial Officer (Principal Financial Officer) |
2020 3Q2021 1Q Form 10-Q 10183