Huntington Bancshares Incorporated (HBAN) Earnings Call Transcript & Summary

Hello, and welcome to the 2020 Annual Meeting of Shareholders for Huntington Bancshares Incorporated. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Stephen D. Steinour, Chairman, President and CEO of Huntington Bancshares Incorporated. Mr. Steinour, the floor is yours.

Welcome to the 2020 Annual Meeting of Shareholders of Huntington Bancshares Incorporated. I'm pleased you're with us today. Today's virtual online meeting is a live audio only webcast. So thank you for participating in our virtual online meeting today during these challenging times. The safety and security of our community is a top priority, and we appreciate your support and understanding. Turning to Slide 2. I'd like to introduce our Board members who are nominated for reelection at this meeting: Dave Porteous, our Lead Director; Lizabeth Ardisana; Alanna Cotton; Tanny Crane; Bob Cubbin; Steve Elliott; Gina France; Mike Hochschwender; Chris Inglis; Allie Kline; Rick Neu and Ken Phelan. I call your attention to the annual meeting guidelines that are available to each shareholder of the filed section in the lower left of your screen. A representative from Computershare, who will be acting as the inspector of election for this meeting, duly appointed proxies and representatives of PricewaterhouseCoopers are also in attendance. If you need a copy of the annual report or the proxy statement, the links are available online. Now if you've not voted or wish to change your vote, you may do so now by clicking on the link available online. Any shareholder who has already voted and does not want to change their vote need not take any further action. I'd like to ask Mark Muth, Director of Investor Relations, if there are any questions specific to the proposals at this time.

No questions at this time, Steve.

Thank you. We'll pause a moment to allow shareholders to vote. [Voting]

The online voting will now be closed. Based on the preliminary review of the votes cast, the inspector has informed me that all the nominees for the Board of Directors have been elected. The appointment of PricewaterhouseCoopers as the company's auditors for 2020 has been ratified and the advisory resolution to approve the compensation of executive officers has been approved. The final report will be issued on Form 8-K and available online in a few days. So this concludes the formal meeting. Now I'd like to offer some comments and then to the extent there's time, we'll proceed to your questions. Before we begin, I'd like to direct your attention to our safe harbor statement on Slide 4. I'll make some forward-looking statements today in my presentation. So I ask that you please review this important slide. Let's start on Slide 5. Today's agenda is different from what we expected it to be just a few months ago. The fact that we're holding our annual shareholders meeting virtually is a reflection on how much the world, our business and our lives have changed. Thank you for joining us for this new experience. The COVID-19 pandemic has caused significant disruption around the world. It has affected all of us in a profound way. It's changed how business is conducted in the short-term and maybe the long-term as well. Extreme market volatility has altered the global landscape and changed the way we interact with our customers, whose lives have also changed immeasurably. The pandemic has affected our colleagues who are on the front lines with our customers every day while also balancing their personal lives in this uncertain and unprecedented time. It has challenged us to serve our customers in new ways. But I'm proud to say that it's also brought out the best of Huntington and our colleagues. I'm eager to share with you the great purpose-driven work being done on behalf of our shareholders, our customers, our colleagues and our communities. I'll also review another year of good performance in 2019 in which we delivered record net income for the fifth consecutive year and positive operating leverage on an adjusted basis for the seventh year -- consecutive year. Finally, I'll close with a general Q&A session. The executive leadership team and I always look forward to your questions and insights and the webcast will provide that opportunity. You can submit your questions at any time during my presentation through Ask A Question field on the virtual meeting platform, and our Investor Relations Director will pose those to us on your behalf. So let's turn to Slide 6 and begin. From the outset of the pandemic, our purpose of looking out for people guided our planning and our response. We mobilized and adjusted quickly because we were unified in our commitment to do the right thing for all of our stakeholders. Our inspired response is a clear illustration of why I believe our purpose is a strategic advantage for Huntington. We recognize that the pandemic is first and foremost a public health crisis. With the safety and well-being of our colleagues and our customers as our top priority, we quickly reached out to reassure our colleagues and customers alike that we were there for them and prepared to assist them during this challenging time. We quickly took action to ensure safety while still meeting the needs of our customers and colleagues. In our branches, we moved early to drive through only with in-person meetings by appointments only in order to adhere to social distancing guidelines. We closed all in-store branches and traditional branches which did not have a drive through. As states begin to issue stay-at-home orders, we implemented a work from home policy for most of our colleagues and now have more than 80% of our colleagues working remotely. This is possible because of the commitment and flexibility of our colleagues and also because of the tremendous work done by our technology teams to keep everyone connected and productive. We also benefited from the diligent work performed by our business continuity planning teams over the years which provided us with a critical head start in our response. We've increased our communications with colleagues, not only to keep them informed but also to keep them engaged and connected when they are working at home. We've similarly increased our communications with our customers to provide them the financial information they need. Finally, we added new benefits such as emergency paid time off and other programs for those directly impacted by the virus, and we took actions to enhance the mental and physical well-being of our colleagues. As we began to assess its impacts, it became clear immediately that many of our customers would face financial hardships because of the pandemic. Again, we took swift action and announced a variety of relief measures that included loan payment deferrals, fee waivers and suspension of foreclosures and repossessions. Customer response has been very favorable. These measures addressed our customers' critical short-term needs, but we believe they also demonstrated our purpose in action showing our customers that we are there for them now, and we'll continue to support them in the future. We see these actions as a continuation of our fair play banking philosophy. We've always held a steadfast belief that it's in our mutual best interest to work with our customers during tough times, and we will do so again now. Relationships are strengthened in these moments. One of our most noteworthy efforts has been the implementation of the Small Business Administration Paycheck Protection Program. When signed into law, thousands of colleagues from across the bank mobilized to help small business and commercial customers access this emergency funding. As the #1 SBA lender in America, we knew we needed to lead, and we delivered for our customers. Over the last 3 weeks, we've redeployed and trained over 700 colleagues to support the heavy volume of SBA applications. And I'm pleased to say that we processed almost 26,000 applications in record time with a loan volume of more than $6.1 billion. We were able to process almost everyone's applications into the SBA E-Tran system before it closed when funding was exhausted on April 16. It's just simply remarkable, and I thank our colleagues who helped us deliver this important program designed to keep America's small business engine running. We entered 2020 with a relatively healthy economic backdrop across our footprint, and prospects for the national economy appear to be picking up. However, the pandemic has altered the trajectory for the foreseeable future. And we believe the economy will be challenged for some time. It appears that the reopening of the economy will be more protracted than initially expected. This conservative view on the economic outlook also informs our thinking on how we manage capital, liquidity and credit. As we've discussed previously, over the past decade, we fundamentally changed Huntington's enterprise risk management. It's now strengthened the company as compared to a weakness during the prior cycle. Our ability to respond to this pandemic in accordance with our purpose is anchored in our strong capital and liquidity positions, a solid underlying earnings of the company and the disciplined credit and enterprise risk management foundation we've built and the extensive strategic and crisis planning we've done over the past several years. We are well positioned to be a source of strength for our colleagues, our customers and our communities, and we intend to provide that support. It seems so long ago now given the dramatic developments in the past several weeks, but Slide 7 begins our report card for 2019. We're pleased with our full year 2019 results and the continued momentum across the bank despite a challenging environment. The bank achieved record net income for the fifth consecutive year and positive operating leverage on an adjusted basis for the seventh consecutive year. Positive operating leverage means that we grew our revenues faster than we grew our expenses, resulting in an improved operating efficiency ratio. 2019 also marked the ninth consecutive year of an increased cash dividend. Coupling the dividend was $441 million of share repurchases during the year. We returned over $1 billion to our shareholders in 2019, which represented a total payout ratio of 79%. Now much has changed since the end of 2019, and we faced the continued challenge of a historically low interest rate and a resulting constrained revenue environment. However, we remain confident that our strong overall financial position will serve us well in this challenging time. We strengthened our balance sheet in 2019. And as I mentioned earlier, today, we are well positioned with robust capital and ample liquidity. Further, we implemented a comprehensive hedging strategy to reduce interest rate risk and took actions to reduce our expense run rate in response to the lower revenue growth outlook. Our strong performance in 2019 also reflected continued execution of our 2018 strategic plan. We remain prudent with our allocation of capital to ensure we're earning adequate returns and taking appropriate risks consistent with our aggregate moderate to low-risk profile. With the focus on building the capabilities that will differentiate us as we grow, we continued investing in mobile and digital technology, customer experience and enterprise risk management, especially cyber risk, while also investing in the growth and development of our colleagues. Slide 9 shows our year-end totals for assets, deposits and revenue. Our assets of $109 billion made Huntington the 33rd largest bank holding company in the U.S. Our deposit base at year-end was $82 billion, which represented the 24th largest bank holding company in the U.S. Our total revenue of $4.7 billion represents $153 million increase from 2018. Huntington was a Fortune 1000 company in 2019, and we are closing in on the revenue threshold to become a Fortune 500 company. Slide 10 shows the details of our fifth consecutive year of record net income. We reported net income of $1.4 billion in 2019, which represents earnings per share of $1.27, a 6% increase from 2018. Turning to the drivers of top quartile financial performance on Slide 11. We're very pleased with the 30 basis point improvement in our efficiency ratio compared to 2018. Our 2019 efficiency ratio of 57% ranks us among the most efficient banks in the nation. We're also pleased with our 2019 return on tangible common equity of 17%, which continues to distinguish us from our peers as a top-performing regional bank. Slide 12 illustrates the continued strength of our capital ratios, common equity Tier 1 ratio or CET1, ended the year at 9.9%, and we continue to manage CET1 within our 9% to 10% operating guideline. Our tangible common equity ratio of 7.9% at 2019 year-end represented a 67 basis point improvement over 2018 year-end. Dividends per common share totaled $0.58 in 2019, our ninth consecutive year of increased dividends to our shareholders. Slide 13 highlights our share performance in 2019, total shareholder return, or TSR, is the price appreciation of the common shares assuming reinvestment of dividends. Our TSR for 2019 of nearly 32% placed us slightly above the 31% TSR for our peer group. Taking a longer term view from 2010 to 2019, Huntington's cumulative total shareholder return of 428% outpaced our peer average by 191%. While recently our share performance has been negatively impacted by the pandemic, the 10-year return demonstrates the continued progress we're making executing our strategic plan. Turning to Slide 14. Strong corporate governance has been a hallmark of Huntington. I believe we have one of the strongest, most engaged Boards in Corporate America, and we're well prepared to address an evolving industry highlighted by rapid technological change, unique risks like cybersecurity and an increasing need to deliver an omnichannel customer experience. I'd like to recognize 5 of those directors. We're pleased to add 3 new very talented directors to our Board in 2019, Allie Kline, Alanna Cotton and Ken Phelan. Allie and Alanna are leading experts in consumer marketing brands and new products, and Ken brings a deep background in banking and risk management. But we're also saying farewell to 2 of our directors. Kathy Ransier is one of our longest serving directors, having served since 2003. She is the chairwoman of our Community Development Committee. Kathy's insights and advocacy will be greatly missed, and we thank her for her tremendous efforts over the years and wish her well in retirement. Finally, Pete Kight is stepping back from the Board today. He is a leading expert on financial technology, electronic banking and payment. Pete became a director in 2012. We want to thank Pete as well for his many contributions, especially in advancing Huntington's technology strategy. The strategy represents how we operate on behalf of our shareholders and customers that our purpose represents why. Huntington is a purpose-driven organization, and our purpose is much more than a guiding principle. It's the cornerstone of our culture that helps every colleague make a difference for our customers and communities and each other. Our purpose simply stated is to make people's lives better, help businesses thrive and strengthen the communities we serve. And throughout the bank, our purpose is deeply ingrained in our culture, our brand and our value creation model. Our colleagues are focused on not just what they do, but as importantly, how they do it. There's an ethos build over the years of doing the right thing, and it guides how we serve our customers every day. At Huntington, our promise is to look out for people. Our values drive how we engage as part of our communities and how we do business. Our purpose and our values were instrumental in the development of our strategic plan and will be instrumental in achieving our financial goals as we believe that purpose drives performance. As shown on Slide 16, we always like to remind our shareholders that there's a high level of alignment between the Board, management, our colleagues and our shareholders. The Board and our colleagues are collectively the top 10 shareholder of Huntington and all of us are appropriately focused on driving sustained long-term performance. We have measures in place to ensure that management's interests are aligned with those of our long-term shareholders. We have long-standing hold-until-retirement and clawback provisions with all of our equity awards. We are all long-term shareholders. Turning to Slide 17. Much of our strategic focus for the future is on mobile and digital technology. And while rapidly emerging mobile and digital capabilities will define the customer experience in the future, it's also important for us to recognize the progress we've already made. And there's no better example of this than the 2 J.D. Power Awards we earned in 2019 for highest customer satisfaction in both online banking and mobile banking across the country. These were national awards, not just regional. While we're honored by these recognitions, we're not resting on our success, though they do provide independent affirmation of our investments in digital and mobile capabilities and are resulting in a real competitive advantage. These outcomes and future capabilities will deliver for our customers, will deliver for our customers -- will deliver -- we will deliver for our customers come from tremendous collaboration from all parts of Huntington. From our technology and omnichannel teams to our marketing and operations groups, because of their commitment to innovating for our customers, I'm confident we'll continue to enhance our already distinguished customer experience. Closely connected to our purpose is our commitment to corporate sustainability which is detailed each year in our environmental, social and governance, or ESG report. The 2018 edition provided a comprehensive view of our purpose and values in action. The 2019 edition we will post to huntington.com later this spring, and I encourage you to read it. In keeping with our efforts to reduce our environmental footprint, this is an online document only. But if you do not have access to the Internet, our Investor Relations team can print and e-mail you a copy. So we have now some time for shareholders to ask questions or to be heard. Mark, will you review the procedures for this question-and-answer period.

Thanks, Steve. We always welcome the views, comments and questions of our shareholders. To ensure that this session is meaningful and constructive, we ask that questions and remarks be limited to those of concern or interest to all shareholders. Matters which are of a personal or individual nature generally may be raised by contacting Investor Relations. You may submit questions online by clicking on the Dialogue icon in the upper right corner of the meeting screen.

[Operator Instructions]

I am seeing no questions, Steve.

All right. Well, this concludes the Q&A period. We'll try to respond directly to questions that you might have had, but for any reason weren't able to ask here, contact our Investor Relations team. Thank you for joining us today for our first virtual annual shareholders meeting. I'm grateful for your support during this past year. I look forward to hearing from you over the year. I now declare this meeting concluded. Have a nice day, everyone. Thank you.

This concludes today's meeting. You may now disconnect.