Annual report pursuant to Section 13 and 15(d)

ALLOWANCE FOR CREDIT LOSSES

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ALLOWANCE FOR CREDIT LOSSES
 12 Months Ended
Dec. 31, 2020
Credit Loss [Abstract]  
Allowance for Credit Losses 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.
Allowance for Loan and Lease Losses and Allowance for Credit Losses - Roll-forward
The following table presents ALLL and AULC activity by portfolio segment for the years ended December 31, 2020, 2019, and 2018:
(dollar amounts in millions) Commercial Consumer Total
Year ended December 31, 2020:
ALLL balance, beginning of period $ 552  $ 231  $ 783 
Cumulative-effect of change in accounting principle for financial instruments - credit losses (1) 180  211  391 
Loan charge-offs (374) (166) (540)
Recoveries of loans previously charged-off 32  59  91 
Provision for loan and lease losses 846  243  1,089 
ALLL balance, end of period
 $ 1,236  $ 578  $ 1,814 
AULC balance, beginning of period $ 102  $ 2  $ 104 
Cumulative-effect of change in accounting principle for financial instruments - credit losses (1) (38) 40  2 
Provision (reduction in allowance) for unfunded loan commitments
and letters of credit
 (17) (24) (41)
Unfunded commitment losses (13) —  (13)
AULC balance, end of period $ 34  $ 18  $ 52 
ACL balance, end of period $ 1,270  $ 596  $ 1,866 
Year ended December 31, 2019:
ALLL balance, beginning of period $ 542  $ 230  $ 772 
Loan charge-offs (165) (197) (362)
Recoveries of loans previously charged-off 40  57  97 
Provision for loan and lease losses 135  142  277 
Allowance for loans sold or transferred to loans held for sale —  (1) (1)
ALLL balance, end of period $ 552  $ 231  $ 783 
AULC balance, beginning of period $ 94  $ 2  $ 96 
Provision (reduction in allowance) for unfunded loan commitments
and letters of credit
 10  —  10 
Unfunded commitment losses (2) —  (2)
AULC balance, end of period $ 102  $ 2  $ 104 
ACL balance, end of period $ 654  $ 233  $ 887 
 
Year ended December 31, 2018:
ALLL balance, beginning of period $ 482  $ 209  $ 691 
Loan charge-offs (79) (189) (268)
Recoveries of loans previously charged-off 65  58  123 
Provision for loan and lease losses 74  152  226 
ALLL balance, end of period $ 542  $ 230  $ 772 
AULC balance, beginning of period $ 84  $ 3  $ 87 
Provision (reduction in allowance) for unfunded loan commitments
and letters of credit
 10  (1) 9 
AULC balance, end of period $ 94  $ 2  $ 96 
ACL balance, end of period $ 636  $ 232  $ 868 
(1)Relates to day one impact of the CECL adjustment as a result of the implementation of ASU 2016-13.
At December 31, 2020, the ACL was $1.9 billion, an increase of $979 million from the December 31, 2019 balance of $887 million. Of the increase, $586 million relates primarily to the deterioration in the macroeconomic outlook resulting from the COVID-19 pandemic as evidenced in part by the changes in assumed unemployment rate levels during 2020. When estimating the January 1, 2020 CECL implementation adjustment, the assumed unemployment rate for fourth quarter 2020 in the base case scenario was 3.75%. When estimating the December 31, 2020 ACL, the assumed unemployment rate for fourth quarter 2020 in the base case scenario was 7.20%. The remaining increase of $393 million was related to the transition to the CECL lifetime loss methodology. The majority of the increase in the ACL from 2019 year-end levels related to the commercial portfolio.
The suite of CECL models are generally dependent on the rate of change in unemployment rather than the absolute unemployment levels. Additionally, the economic scenarios used in the December 31, 2020 ACL determination contained significant judgmental assumptions around the ultimate number of COVID-19 cases and the level and timing of government stimulus. Given the impact of the unemployment variable utilized within the models and the uncertainty associated with key economic scenario assumptions, the December 31, 2020 ACL included a material general reserve component to capture this economic uncertainty risk not addressed within the quantitative transaction reserve.
NCOs increased $184 million, or 69%, in 2020. The increase was driven by commercial NCOs, which were centered in our oil and gas portfolio, partially offset by a decline in other consumer.