V-shaped recovery? More like a U, Huntington chief says

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Huntington Bancshares in Columbus, Ohio, is hunkering down.

Stephen Steinour, the $114 billion-asset company’s chairman, president and CEO, delivered a sobering message Thursday while reporting first-quarter earnings. Steinour, who led Huntington through the financial crisis, told analysts he fears the recovery from the coronavirus pandemic will be slow and arduous.

While many bankers have expressed hopes for a sharp "V-shaped" rebound once the pandemic ends, Steinour said he is squarely in the camp that believes in a "U-shaped" recovery where "the economy doesn’t recover back to pre-COVID levels until 2022.”

That view especially holds true in the energy sector.

Nonaccrual loans in Huntington's oil-and-gas portfolio more than tripled from the end of 2019 to $195 million, or roughly 16% of the entire book.

About 15% of Huntington's provision was tied to those borrowers. The company's oil-and-gas reserve now covers a fifth of that portfolio.

The energy sector faces "a very long recovery," says Huntington CEO Stephen Steinour.

Steinour, who worked with troubled oil-and-gas credits as a banker in the 1980s, drew comparisons between that era and today.

“You can see there was a very long recovery” in the late 1980s, Steinour said during Thursday's call. “I think that’s where we are now.”

The energy sector comprises just 1.5% of Huntington's overall loan portfolio.

Economic fallout from the coronavirus outbreak has sapped demand for oil, resulting in a massive supply glut that has hammered oil-and-gas firms and their lenders. The energy market went into a tailspin Monday as May futures contracts for WTI crude traded at negative prices.

Like Huntington, other energy lenders set aside more money to cover energy exposure.

Comerica increased its reserve to represent a tenth of its $2.1 billion energy portfolio, while Texas Capital Bancshares boosted its coverage to 8.8% of its $1.3 billion book.

Provision expenses took a toll on their quarterly results. The $76.3 billion-asset Comerica lost $65 million, while the $36 billion-asset Texas Capital reported a loss of $16.7 million.

Harris Simmons, chairman and CEO of the $71 billion-asset Zions Bancorp. in Salt Lake City, said risk in energy lending will need to be watched closely over the next six to 12 months. While the balance of supply and demand should improve, Simmons said he expects a “new normal" where prices may not return to pre-pandemic levels.

"These are unprecedented market conditions that over the short run are going to be driven by totally unseen before shifts in demand," Simmons said during his company’s earnings call.

As for overall loan exposure, Huntington's $441 million provision boosted its loan-loss allowance to 1.93% of total loans, or nearly double where it was just three months earlier. The company set aside a total of $287 million last year.

Elevated provisioning will likely continue over several quarters, Chief Financial Officer Zachary Wasserman said during the earnings call.

“You should expect us to be conservative,” he said.

Net income fell 87% from a year earlier to $48 million.

While facing challenges with commercial lending, Steinour expressed comfort with the resiliency of Huntington's consumer portfolio, which includes $12.9 billion in indirect auto loans.

“We haven’t had a charge-off in auto in two decades," Steinour said. “I have a lot of confidence in that portfolio.”

Steinour also provided an update on Huntington's participation in the Paycheck Protection Program. The company was among the 10 biggest participants in the program's initial round, securing approvals for nearly 26,000 PPP loans totaling roughly $6 billion.

Nearly 1,000 Huntington employees have been working on Paycheck Protection applications, Steinour said.

“We’re working seven days a week, multiple shifts,” he said.

“We’re doing everything we can to help as many small businesses as possible," he added. “I haven’t seen anything like it and I hope I never do again. One pandemic for a career is enough."

Steinour, like most bankers, said he believes the additional $310 billion of funds will run out quickly.

“It won’t be enough," he said. "There’s a clear need. I agree with that."

Jon Prior and Paul Davis contributed to this report.

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Earnings Credit quality Paycheck Protection Program Huntington Bancshares Coronavirus Energy industry