8-K: Huntington Bancshares Announces Additional FDIC Special Assessment Expense and Declares Preferred Stock Dividend

Huntington Bancshares will recognize an additional $32 million expense related to the FDIC's special assessment and has declared a quarterly dividend on its Series I preferred stock.

Summary

• Huntington Bancshares Incorporated has announced an estimated additional expense of $32 million, on a pre-tax basis, related to the FDIC's special assessment to recoup losses from bank failures in the first half of 2023.
• This additional expense is due to updated estimates from the FDIC regarding uninsured deposit losses and recoverable assets from the closures of Silicon Valley Bank and Signature Bank.
• The company had previously recognized an accrued liability and related expense of approximately $214 million in the fourth quarter of 2023 for this special assessment.
• The FDIC special assessment is based on an insured depository institution's estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion of uninsured deposits.
• The FDIC will collect the special assessment at a quarterly rate of 3.36 basis points over eight quarterly assessment periods, subject to change.
• Huntington's Board of Directors has also declared a quarterly cash dividend on its 5.70% Series I Non-Cumulative Perpetual Preferred Stock of $356.25 per share, equivalent to $0.35625 per depositary share.
• The dividend is payable on June 3, 2024, to shareholders of record on May 15, 2024.

Sentiment

Score: 4

Explanation: The sentiment is slightly negative due to the additional expense related to the FDIC special assessment, although the dividend declaration is a positive factor. The overall tone is cautious due to the various risks and uncertainties mentioned.

Positives

• The declaration of a quarterly cash dividend on the Series I preferred stock provides income to investors.
• The company is proactively addressing the FDIC special assessment and providing transparency on the financial impact.

Negatives

• The additional $32 million expense related to the FDIC special assessment will negatively impact the company's Q1 2024 earnings.
• The FDIC special assessment is subject to change, which could lead to further expenses or an extended collection period.

Risks

• Changes in economic, political, or industry conditions could impact the company's performance.
• Deterioration in business and economic conditions, including inflation, supply chain issues, and geopolitical instability, could pose challenges.
• The impact of pandemics, including COVID-19, could affect the global economy and financial markets.
• Recent bank failures and market volatility could lead to increased regulatory requirements and costs.
• Unexpected outflows of uninsured deposits could require the company to sell investment securities at a loss.
• Rising interest rates could negatively impact the value of the company's investment portfolio.
• Cybersecurity risks and uncertainty in U.S. fiscal and monetary policy could also pose challenges.

Future Outlook

The company acknowledges that the FDIC may periodically adjust the estimates for the special assessment, which could result in extending the assessment period, imposing additional assessments, or ceasing collection early. The company also highlights various risks and uncertainties that could affect future results.

Management Comments

• Huntington recognized an accrued liability and related expense of approximately $214 million in the fourth quarter of 2023 related to the FDIC special assessment.
• Huntington estimates that an additional expense of approximately $32 million, on a pre-tax basis, will be recognized during the first quarter of 2024 related to the FDIC DIF special assessment.

Industry Context

The FDIC special assessment is a result of the bank failures in the first half of 2023, impacting the entire banking industry. Huntington's announcement reflects the broader industry's need to address these regulatory changes and their financial implications.

Comparison to Industry Standards

• Many regional and national banks are facing similar FDIC special assessments due to the 2023 bank failures, including institutions like First Republic Bank (now part of JP Morgan Chase) and Signature Bank.
• The 3.36 basis points quarterly assessment rate is consistent with the FDIC's guidelines for all affected institutions.
• The impact of the assessment varies based on the amount of uninsured deposits each bank held as of December 31, 2022, making direct comparisons challenging without detailed data for each institution.
• Other banks have also reported similar expenses related to the FDIC assessment, such as Truist Financial Corporation and KeyCorp, indicating a widespread impact across the sector.

Stakeholder Impact

• Shareholders will be impacted by the additional expense, which may affect earnings per share.
• Preferred shareholders will receive the declared dividend.
• The company's financial stability and regulatory compliance are important for all stakeholders, including employees, customers, and creditors.

Next Steps

• Huntington will recognize the additional $32 million expense in its Q1 2024 financial results.
• The company will continue to monitor the FDIC's adjustments to the special assessment.
• The declared dividend will be paid on June 3, 2024.

Key Dates

Keywords

FDIC, special assessment, dividend, preferred stock, Huntington Bancshares, uninsured deposits, bank failures, financial expense, regulatory, HBANM