Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

229K characters. Original on sec.gov · Markdown

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 are committed to making people’s lives better, helping businesses thrive, and strengthening the communities we serve and have over 150 years of servicing the financial needs of our customers. Through our subsidiaries, we provide full-service commercial and consumer deposit, lending, and other banking services. This includes, but is not limited to, payments, mortgage banking, automobile, recreational vehicle and marine financing, investment banking, capital markets, advisory, equipment financing, distribution finance, investment management, trust, brokerage, insurance, and other financial products and services. At June 30, 2023, our 1,001 full-service branches and private client group offices are primarily located in Ohio, Colorado, Illinois, Indiana, Kentucky, Michigan, Minnesota, Pennsylvania, West Virginia, and Wisconsin. Select financial services and other activities are also conducted in various other states.

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 2022 Annual Report on Form 10-K should be read in conjunction with this MD&A as this discussion provides only material updates to the 2022 Annual Report on Form 10-K. This MD&A should also be read in conjunction with the Unaudited Consolidated Financial Statements, Notes to Unaudited Consolidated Financial Statements, and other information contained in this report.

EXECUTIVE OVERVIEW

Acquisitions and Divestitures

In May 2022, Huntington completed the acquisition of Torana, now known as Huntington Choice Pay, a digital payments business focused on business to consumer payments. This acquisition along with the formation of our enterprise-wide payments group reflects one of our strategic priorities to accelerate our payments capabilities and expand the services provided to our customers.

In June 2022, Huntington completed the acquisition of Capstone Partners, a top tier middle market investment bank and advisory firm. The transaction brings a national scale to serve middle market business owners throughout the corporate lifecycle, building on Huntington’s regional banking foundation. Capstone Partners related revenue, including mergers and acquisitions, capital raising and other advisory-related fees, is recognized within capital markets fees in the Consolidated Statements of Income.

In March 2023, we closed the sale of our RPS business and entered into an ongoing partnership with the purchaser. The sale of our RPS business resulted in a $57 million gain including associated goodwill allocation, recorded within other noninterest income.

Summary of 2023 Second Quarter Results Compared to 2022 Second Quarter

For the quarter, we reported net income of $559 million, or $0.35 per diluted common share, compared with $539 million, or $0.35 per diluted common share, in the year-ago quarter.

Net interest income was $1.3 billion, up $85 million, or 7% from the year-ago quarter. FTE net interest income, a non-GAAP financial measure, increased $90 million, or 7%, from the year-ago quarter. The increase in FTE net interest income primarily reflects $13.7 billion, or 8%, increase in average earning assets, partially offset by a 4 basis point decrease in the FTE NIM to 3.11% and an increase in average interest-bearing liabilities.

2023 2Q Form 10-Q 7

Table of Contents

The provision for credit losses increased $25 million from the year-ago quarter to $92 million in the 2023 second quarter. The increase in provision expense compared to the year-ago quarter was driven by allowance builds that reflect modest deterioration in the current macro-economic environment. The ACL increased $174 million from the year-ago quarter to $2.3 billion in the 2023 second quarter, or 1.93% of total loans and leases, compared to $2.2 billion, or 1.87% of total loans and leases. The increase in the total ACL was driven by a combination of loan and lease growth and modest deterioration in the current macro-economic forecast.

Noninterest income was $495 million, an increase of $10 million, or 2%, and noninterest expense increased $32 million, or 3%, from the year-ago quarter. The increase in noninterest income was primarily due to an $18 million increase from favorable mark-to-market on pay-fixed swaptions, included within other noninterest income, and additional increases in card and payments processing, bank owned life insurance, and trust and investment management services, partially offset by decreases in service charges on deposit accounts and mortgage banking income. The increase in noninterest expense was primarily due to increases in personnel costs, marketing expense, and outside data processing and other services, partially offset by reductions in acquisition-related expenses.

Total assets at June 30, 2023 were $188.5 billion, an increase of $5.6 billion, or 3%, compared to December 31, 2022. The increase in total assets was primarily driven by increases in interest-bearing deposits at Federal Reserve Bank of $4.5 billion, or 92%, and loans and leases of $1.7 billion, or 1%. Total liabilities at June 30, 2023 were $169.7 billion, an increase of $4.5 billion, or 3%, compared to December 31, 2022. The increase in total liabilities was primarily driven by an increase in long-term debt of $5.0 billion, or 52%.

The tangible common equity to tangible assets ratio was 5.80% at June 30, 2023, up 25 basis points from December 31, 2022, primarily due to an increase in tangible common equity related to current period earnings. CET1 risk-based capital ratio was 9.82%, up from 9.36% from December 31, 2022. The increase in regulatory capital ratios was primarily driven by current period earnings, partially offset by dividends and the CECL transitional amount.

General

Our general business objectives are to:

Build on our vision to be the country’s leading people-first, digitally powered bank
Drive sustainable long-term revenue growth and efficiency
Deliver a Category of One customer experience through our distinguished brand and culture
Extend our digital leadership with focus on ease of use, access to information, and self-service across products and services
Leverage expertise and capabilities to acquire and deepen relationships and launching of select partnerships
Maintain positive operating leverage and execute disciplined capital management
Stability and resilience through risk management, maintaining an aggregate moderate-to-low, through-the-cycle risk appetite

Economy

During the second quarter of 2023, inflation has continued to trend lower while remaining at elevated levels above the Federal Reserve’s target. The Federal Reserve raised interest rates one time in May and paused in June to further evaluate the impact of their tightening and the overall health of the economy. Market volatility has subsided, and deposits have generally stabilized across the banking sector. Over the same period, loan growth across the banking sector has decreased given economic uncertainty. Further, as a result of the recent bank failures, ongoing regulatory reforms are expected, including increased capital and long-term debt requirements, as well as a special assessment to repay losses to the FDIC’s Deposit Insurance Fund.

Our economic forecast assumes a slowdown over the next 12 months with a return to modest growth in 2024. We expect inflation to moderate through 2024 as the Federal Reserve actions continue to have an effect, and will likely result in lower GDP growth and higher unemployment.

8 Huntington Bancshares Incorporated

Table of Contents

Our quarterly results reflect continued execution of our strategy and the strength of our balance sheet, delivered through sustained deposit growth and increased capital levels driven by earnings and capital optimization. Credit continues to perform well in keeping with our aggregate moderate-to-low, through-the-cycle risk appetite. With our disciplined and proactive approach, including balance sheet and other efficiency efforts to increase capital, we believe Huntington is well positioned to manage through the uncertain economic outlook on the horizon. We remain focused on delivering profitable growth and driving value for our shareholders.

Other Recent Developments

Following the recent failure of two financial institutions and resulting losses to the FDIC’s Deposit Insurance Fund, the FDIC approved a notice of proposed rulemaking in May 2023 that would implement a special assessment to recover the cost associated with protecting uninsured depositors as part of those financial institution failures. Under the proposed rule, the assessment base for the special assessment would be equal to 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 $5 billion exclusion would be applied once to the aggregate amount of uninsured deposits.

The FDIC is proposing a special assessment at an annual rate of approximately 12.5 basis points to be assessed over eight quarters. The special assessment rate is subject to change prior to any final rule depending on any adjustments to the loss estimate, mergers or failures, or amendments to reported estimates of uninsured deposits. As proposed and based on The Huntington National Bank reported uninsured deposits as of December 31, 2022, the estimated impact of the special assessment is approximately $115 million. On July 24, 2023, the FDIC issued a Financial Institution Letter which clarified that inter-company subsidiary deposits should be included in reported uninsured deposits. If Huntington were to include these inter-company bank subsidiary deposits at December 31, 2022, the estimated impact of the special assessment would equal approximately $199 million. Huntington continues to assess these developments.

Any change to the terms of the final rule impacting the determination of uninsured deposits, exclusionary criteria, annual rate, or term of annual rate application would have a direct impact on the estimate of Huntington’s special assessment.

We continue to assess the impact of the special assessment to our future operating results and expect to record the impact when the final rule is enacted.

On July 27, 2023, the Federal Banking Agencies released a notice of proposed rulemaking to revise the Basel III Capital Rules applicable to the Company and the Bank. We are in the process of evaluating this proposed rulemaking and assessing its potential impact on Huntington.

DISCUSSION OF RESULTS OF OPERATIONS

This section provides a review of financial performance on a consolidated basis. Key unaudited consolidated balance sheet and unaudited income statement 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.”

2023 2Q Form 10-Q 9

Table of Contents


Table 1 - Selected Quarterly Income Statement Data

	Three months ended June 30,			Change
(amounts in millions, except per share data)	2023				2022			Amount		Percent
Interest income	$	2,225			$	1,331		$	894	67	%
Interest expense	879				70			809		NM
Net interest income	1,346				1,261			85		7
Provision for credit losses	92				67			25		37
Net interest income after provision for credit losses	1,254				1,194			60		5
Service charges on deposit accounts	87				105			(18)		(17)
Card and payment processing income	102				96			6		6
Capital markets fees	57				54			3		6
Trust and investment management services	68				63			5		8
Mortgage banking income	33				44			(11)		(25)
Leasing revenue	25				27			(2)		(7)
Insurance income	30				27			3		11
Gain on sale of loans	8				12			(4)		(33)
Bank owned life insurance income	16				11			5		45
Net (losses) gains on sales of securities	(5)				—			(5)		NM
Other noninterest income	74				46			28		61
Total noninterest income	495				485			10		2
Personnel costs	613				577			36		6
Outside data processing and other services	148				153			(5)		(3)
Equipment	64				61			3		5
Net occupancy	54				58			(4)		(7)
Marketing	32				24			8		33
Professional services	21				19			2		11
Deposit and other insurance expense	23				20			3		15
Amortization of intangibles	13				13			—		—
Lease financing equipment depreciation	8				11			(3)		(27)
Other noninterest expense	74				82			(8)		(10)
Total noninterest expense	1,050				1,018			32		3
Income before income taxes	699				661			38		6
Provision for income taxes	134				120			14		12
Income after income taxes	565				541			24		4
Income attributable to non-controlling interest	6				2			4		NM
Net income attributable to Huntington	559				539			20		4
Dividends on preferred shares	40				28			12		43

Net income applicable to common shares	$	519			$	511		$	8	2	%

Average common shares—basic	1,446				1,441			5		—	%
Average common shares—diluted	1,466				1,463			3		—
Net income per common share—basic	$	0.36			$	0.35		$	0.01	3
Net income per common share—diluted	0.35				0.35			—		—
Return on average total assets	1.18		%		1.22		%
Return on average common shareholders’ equity	12.7				12.8
Return on average tangible common shareholders’ equity (1)	19.9				19.9
Net interest margin (2)	3.11				3.15
Efficiency ratio (3)	55.9				57.3


Revenue and Net Interest Income—FTE (non-GAAP)
Net interest income	$	1,346			$	1,261		$	85	7	%
FTE adjustment (2)	11				6			5		83
Net interest income, FTE (non-GAAP) (2)	1,357				1,267			90		7
Noninterest income	495				485			10		2
Total revenue, FTE (non-GAAP) (2)	$	1,852			$	1,752		$	100	6	%

(1)Net income applicable to common shares 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 divided by the sum of FTE net interest income and noninterest income excluding securities gains.

10 Huntington Bancshares Incorporated

Table of Contents



Table 2 - Selected Year to Date Income Statement Data

	Six months ended June 30,				Change
(amounts in millions, except per share data)	2023		2022		Amount		Percent
Interest income	$	4,253	$	2,526	$	1,727	68	%
Interest expense	1,498		119		1,379		NM
Net interest income	2,755		2,407		348		14
Provision for credit losses	177		92		85		92
Net interest income after provision for credit losses	2,578		2,315		263		11
Service charges on deposit accounts	170		202		(32)		(16)
Card and payment processing income	195		182		13		7
Capital markets fees	116		96		20		21
Trust and investment management services	130		128		2		2
Mortgage banking income	59		93		(34)		(37)
Leasing revenue	51		62		(11)		(18)
Insurance income	64		58		6		10
Gain on sale of loans	11		40		(29)		(73)
Bank owned life insurance income	32		28		4		14
Net (losses) gains on sales of securities	(4)		—		(4)		NM
Other noninterest income	183		95		88		93
Total noninterest income	1,007		984		23		2
Personnel costs	1,262		1,157		105		9
Outside data processing and other services	299		318		(19)		(6)
Equipment	128		142		(14)		(10)
Net occupancy	114		122		(8)		(7)
Marketing	57		45		12		27
Professional services	37		38		(1)		(3)
Deposit and other insurance expense	43		38		5		13
Amortization of intangibles	26		27		(1)		(4)
Lease financing equipment depreciation	16		25		(9)		(36)
Other noninterest expense	154		159		(5)		(3)
Total noninterest expense	2,136		2,071		65		3
Income before income taxes	1,449		1,228		221		18
Provision for income taxes	278		225		53		24
Income after income taxes	1,171		1,003		168		17
Income attributable to non-controlling interest	10		4		6		150
Net income attributable to Huntington	1,161		999		162		16
Dividends on preferred shares	69		56		13		23

Net income applicable to common shares	$	1,092	$	943	$	149	16	%

Average common shares—basic	1,445		1,440		5		—	%
Average common shares—diluted	1,468		1,464		4		—
Net income per common share—basic	$	0.76	$	0.65	$	0.11	17
Net income per common share—diluted	0.74		0.64		0.10		16


Revenue and Net Interest Income—FTE (Non-GAAP)
Net interest income	$	2,755	$	2,407	$	348	14	%
FTE adjustment	20		14		6		43
Net interest income, FTE (non-GAAP) (1)	2,775		2,421		354		15
Noninterest income	1,007		984		23		2
Total revenue, FTE (non-GAAP) (1)	$	3,782	$	3,405	$	377	11	%

(1)On an FTE basis assuming a 21% tax rate.

2023 2Q Form 10-Q 11

Table of Contents

Average Balance Sheet / Net Interest Income

The following tables detail the change in our average balance sheet and the net interest margin.


Table 3 - Consolidated Quarterly Average Balance Sheet and Net Interest Margin (1)

	Three months ended June 30, 2023						Three months ended June 30, 2022						Change in
	Average		Interest		Yield/		Average		Interest		Yield/		Average Balances
(dollar amounts in millions)	Balances		Income (FTE) (2)		Rate (3)		Balances		Income (FTE) (2)		Rate (3)		Amount		Percent
Assets:
Interest-bearing deposits at Federal Reserve Bank	$	11,052	$	141	5.12	%	$	3,532	$	7	0.80	%	$	7,520	NM
Interest-bearing deposits in banks	229		5		7.79		161		1		1.32		68		42
Securities:
Trading account securities	34		1		4.92		30		1		3.99		4		13
Available-for-sale securities:
Taxable	20,920		252		4.82		21,672		123		2.25		(752)		(3)
Tax-exempt	2,745		33		4.87		2,859		19		2.71		(114)		(4)
Total available-for-sale securities	23,665		285		4.83		24,531		142		2.30		(866)		(4)
Held-to-maturity securities—taxable	16,762		102		2.42		17,234		90		2.10		(472)		(3)



Other securities	1,263		11		3.47		755		6		3.62		508		67
Total securities	41,724		399		3.82		42,550		239		2.24		(826)		(2)
Loans held for sale	559		8		6.05		1,033		10		4.08		(474)		(46)
Loans and leases: (4)
Commercial:
Commercial and industrial	50,194		746		5.87		44,763		427		3.78		5,431		12



Commercial real estate	13,342		243		7.22		13,202		119		3.56		140		1
Lease financing	5,155		71		5.45		4,919		61		4.98		236		5
Total commercial	68,691		1,060		6.10		62,884		607		3.83		5,807		9
Consumer:
Residential mortgage	22,765		200		3.51		20,527		158		3.09		2,238		11
Automobile	12,927		134		4.17		13,557		115		3.40		(630)		(5)
Home equity	10,154		187		7.42		10,373		115		4.44		(219)		(2)
RV and marine	5,478		63		4.59		5,317		55		4.12		161		3
Other consumer	1,330		39		11.59		1,291		30		9.08		39		3
Total consumer	52,654		623		4.74		51,065		473		3.70		1,589		3
Total loans and leases	121,345		1,683		5.51		113,949		1,080		3.77		7,396		6
Total earning assets	174,909		2,236		5.13		161,225		1,337		3.33		13,684		8
Cash and due from banks	1,639						1,669						(30)		(2)
Goodwill and other intangible assets	5,734						5,613						121		2
All other assets	10,638						10,107						531		5
Allowance for loan and lease losses	(2,174)						(2,053)						(121)		(6)
Total assets	$	190,746					$	176,561					$	14,185	8	%
Liabilities and shareholders’ equity:
Interest-bearing deposits:
Demand deposits—interest-bearing	$	39,772	$	167	1.68	%	$	41,712	$	11	0.10	%	$	(1,940)	(5)	%
Money market deposits	38,753		255		2.64		33,791		8		0.09		4,962		15
Savings and other domestic deposits	18,826		6		0.11		21,683		1		0.02		(2,857)		(13)
Core certificates of deposit (5)	8,820		83		3.78		2,228		—		0.07		6,592		NM
Other domestic deposits of $250,000 or more	320		2		3.27		225		—		0.23		95		42
Negotiable CDs, brokered and other deposits	4,502		57		5.07		2,981		5		0.72		1,521		51

Total interest-bearing deposits	110,993		570		2.06		102,620		25		0.10		8,373		8
Short-term borrowings	5,242		74		5.70		2,103		7		1.40		3,139		149
Long-term debt	16,252		235		5.79		7,024		38		2.16		9,228		131
Total interest-bearing liabilities	132,487		879		2.66		111,747		70		0.25		20,740		19
Demand deposits—noninterest-bearing	34,566						42,388						(7,822)		(18)
All other liabilities	4,796						4,168						628		15
Total liabilities	171,849						158,303						13,546		9
Total Huntington shareholders’ equity	18,844						18,228						616		3
Non-controlling interest	53						30						23		77
Total equity	18,897						18,258						639		3
Total liabilities and equity	$	190,746					$	176,561					$	14,185	8	%
Net interest rate spread					2.47						3.08
Impact of noninterest-bearing funds on margin					0.64						0.07
Net interest margin/NII (FTE)			$	1,357	3.11	%			$	1,267	3.15	%

(1)During the 2023 second quarter, the process for assessing and monitoring the risk and performance of non-real estate secured commercial loans was revised, primarily loans to REITs. These loans were reclassified from CRE to the C&I loan category to align reporting with this process revision. All prior period results have been adjusted to conform to the current presentation.

(2)FTE yields are calculated assuming a 21% tax rate.

(3)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.

(4)For purposes of this analysis, NALs are reflected in the average balances of loans and leases.

(5)Includes consumer certificates of deposit of $250,000 or more.

12 Huntington Bancshares Incorporated

Table of Contents

Quarterly Net Interest Income

Net interest income for the 2023 second quarter increased $85 million, or 7%, from the 2022 second quarter. FTE net interest income, a non-GAAP financial measure, for the 2023 second quarter increased $90 million, or 7%, from the 2022 second quarter. The increase in FTE net interest income primarily reflects $13.7 billion, or 8%, increase in average earning assets, partially offset by a 4 basis point decrease in the FTE NIM to 3.11% and an increase in average interest-bearing liabilities. The NIM compression was driven by higher cost of funds and the impact from higher cash balances, partially offset by the higher rate environment driving an increase in loan and lease and investment security yields.

Average Balance Sheet

Average assets for the 2023 second quarter increased $14.2 billion, or 8%, to $190.7 billion from the 2022 second quarter, primarily due to an increase in average interest-bearing deposits at the Federal Reserve Bank of $7.5 billion, and average loans and leases of $7.4 billion, or 6%, partially offset by a decrease in average total securities of $826 million, or 2%. The increase in average loans and leases was driven by growth in average commercial loans and leases of $5.8 billion, or 9%, and average consumer loans of $1.6 billion, or 3%.

Average liabilities for the 2023 second quarter increased $13.5 billion, or 9%, from the 2022 second quarter, primarily due to increases in average borrowings and deposits. Average borrowings increased $12.4 billion, or 135%, driven by long and short-term FHLB borrowings and new debt issuances reflecting actions taken as part of normal management of funding needs. Average deposits increased $551 million, primarily due to an increase in average interest-bearing deposits of $8.4 billion, or 8%, largely due to increases in average certificate of deposits and money market deposits, partially offset by a decrease in noninterest-bearing deposits of $7.8 billion, or 18%.

Average shareholders’ equity for the 2023 second quarter increased $616 million, or 3%, from the 2022 second quarter primarily due to earnings, partially offset by an increase in average accumulated other comprehensive loss driven by changes in interest rates.

2023 2Q Form 10-Q 13

Table of Contents


Table 4 - Consolidated YTD Average Balance Sheets and Net Interest Margin (1)
	Six months ended
	June 30, 2023						June 30, 2022						Change in
	Average		Interest		Yield/		Average		Interest		Yield/		Average Balances
(dollar amounts in millions)	Balances		Income (FTE) (2)		Rate (2)		Balances		Income (FTE) (2)		Rate (3)		Amount		Percent
Assets:
Interest-bearing deposits at Federal Reserve Bank	$	8,590	$	212	4.95	%	$	5,354	$	10	0.38	%	$	3,236	60	%
Interest-bearing deposits in banks	239		10		8.16		168		1		0.71		71		42
Securities:
Trading account securities	27		1		5.09		38		1		3.63		(11)		(29)
Available-for-sale securities:
Taxable	21,143		484		4.58		22,931		213		1.85		(1,788)		(8)
Tax-exempt	2,693		62		4.64		2,873		41		2.86		(180)		(6)
Total available-for-sale securities	23,836		546		4.59		25,804		254		1.96		(1,968)		(8)
Held-to-maturity securities—taxable	16,869		204		2.42		15,902		156		1.97		967		6



Other securities	1,075		21		3.83		860		11		2.64		215		25
Total securities	41,807		772		3.69		42,604		422		1.98		(797)		(2)
Loans held for sale	505		15		5.96		1,137		20		3.58		(632)		(56)
Loans and leases: (4)
Commercial:
Commercial and industrial	49,615		1,432		5.74		43,937		828		3.75		5,678		13



Commercial real estate	13,511		476		7.01		13,280		224		3.35		231		2
Lease financing	5,181		139		5.35		4,915		122		4.95		266		5
Total commercial	68,307		2,047		5.96		62,132		1,174		3.76		6,175		10
Consumer:
Residential mortgage	22,547		390		3.46		20,019		304		3.04		2,528		13
Automobile	13,085		263		4.05		13,510		227		3.39		(425)		(3)
Home equity	10,206		368		7.28		10,394		217		4.21		(188)		(2)
RV and marine	5,422		121		4.51		5,210		107		4.14		212		4
Other consumer	1,318		75		11.39		1,288		58		9.02		30		2
Total consumer	52,578		1,217		4.66		50,421		913		3.64		2,157		4
Total loans and leases	120,885		3,264		5.39		112,553		2,087		3.71		8,332		7

Total earning assets	172,026		4,273		5.01		161,816		2,540		3.17		10,210		6
Cash and due from banks	1,619						1,659						(40)		(2)
Goodwill and other intangible assets	5,747						5,598						149		3
All other assets	10,602						10,061						541		5
Allowance for loan and lease losses	(2,158)						(2,050)						(108)		(5)
Total assets	$	187,836					$	177,084					$	10,752	6	%
Liabilities and Shareholders’ Equity:
Interest-bearing deposits:
Demand deposits—interest-bearing	$	40,211	$	299	1.50	%	$	41,176	$	14	0.07	%	$	(965)	(2)	%
Money market deposits	38,031		427		2.27		33,235		12		0.07		4,796		14
Savings and other domestic deposits	19,348		9		0.09		21,501		2		0.02		(2,153)		(10)
Core certificates of deposit (5)	7,292		126		3.48		2,393		1		0.10		4,899		NM
Other domestic deposits of $250,000 or more	286		4		2.91		270		—		0.19		16		6
Negotiable CDs, brokered and other deposits	4,659		111		4.81		3,216		7		0.42		1,443		45

Total interest-bearing deposits	109,827		976		1.79		101,791		36		0.07		8,036		8
Short-term borrowings	4,809		134		5.64		3,408		14		0.83		1,401		41
Long-term debt	13,664		388		5.67		6,969		69		1.99		6,695		96
Total interest-bearing liabilities	128,300		1,498		2.35		112,168		119		0.21		16,132		14
Demand deposits—noninterest-bearing	36,023						42,177						(6,154)		(15)
All other liabilities	4,925						4,068						857		21
Total liabilities	169,248						158,413						10,835		7
Total Huntington shareholders’ equity	18,539						18,644						(105)		(1)
Non-controlling interest	49						27						22		81
Total equity	18,588						18,671						(83)		—
Total liabilities and shareholders’ equity	$	187,836					$	177,084					$	10,752	6	%
Net interest rate spread					2.66						2.96
Impact of noninterest-bearing funds on margin					0.59						0.06
Net interest margin/NII			$	2,775	3.25	%			$	2,421	3.02	%

(2)FTE yields are calculated assuming a 21% tax rate.

(3)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.

(4)For purposes of this analysis, NALs are reflected in the average balances of loans and leases.

(5)Includes consumer certificates of deposit of $250,000 or more.

14 Huntington Bancshares Incorporated

Table of Contents

Year to Date Net Interest Income

Net interest income for the first six-month period of 2023 increased $348 million, or 14%, from the year-ago period. FTE net interest income, a non-GAAP financial measure, for the first six-month period of 2023 increased $354 million, or 15%, from the year-ago period. The increase in FTE net interest income reflected the benefit of a 23 basis point increase in the FTE NIM to 3.25% and a $10.2 billion, or 6%, increase in average total earning assets, partially offset by a $16.1 billion, or 14%, increase in interest-bearing liabilities and lower accelerated PPP loan fees recognized upon forgiveness payments from the SBA and purchase accounting accretion.

The NIM expansion was driven by the higher rate environment driving an increase in loans and lease and investment security yields, partially offset by higher cost of funds and higher cash balances.

Net interest income for the first six-month period of 2023 included $18 million of net interest income from purchase accounting accretion, compared to $35 million and $16 million from purchase accounting accretion and accelerated PPP loan fees recognized upon forgiveness payments from the SBA, respectively, in the year-ago period.

Average Balance Sheet

Average assets for the first six-month period of 2023 increased $10.8 billion, or 6%, to $187.8 billion from the year-ago period, primarily due to increases in average loans and leases of $8.3 billion, or 7%, and interest-bearing deposits at the Federal Reserve Bank of $3.2 billion, or 60%, partially offset by a decrease in total securities of $797 million, or 2%. The increase in average loans and leases was driven by growth in average commercial loans and leases of $6.2 billion, or 10%, and average consumer loans of $2.2 billion, or 4%.

Average liabilities for the first six-month period of 2023 increased $10.8 billion, or 7%, from the year-ago period, primarily due to increases in average borrowings and deposits. Average borrowings increased $8.1 billion, or 78%, driven by higher long and short-term FHLB borrowings and new debt issuances reflecting actions taken as part of normal management of funding needs. Total average deposits increased $1.9 billion, or 1%, primarily due to an increase in average interest-bearing deposits of $8.0 billion, or 8%, largely due to increases in average certificates of deposits and money market deposits, partially offset by a decrease in noninterest-bearing deposits of $6.2 billion, or 15%.

Average shareholders’ equity for the first six-month of 2023 decreased $105 million, or 1%, from the year-ago period primarily due to an increase in average accumulated other comprehensive loss driven by changes in interest rates, partially offset by earnings.

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 ACL at levels appropriate to absorb our estimate of credit losses expected over the life of the loan and lease portfolio, securities portfolio, and unfunded lending commitments.

The provision for credit losses for the 2023 second quarter was $92 million, an increase of $25 million, compared to the 2022 second quarter. On a year-to-date basis, provision for credit losses for the first six-month period of 2023 was $177 million, an increase of $85 million, or 92%, compared to year-ago period. The increase in provision expense over the prior year quarter was driven by allowance builds that reflect modest deterioration in the current macro-economic forecast. The increase over the prior year-to-date period was driven by allowance builds associated with a combination of loan and lease growth and modest deterioration in the current macro-economic forecast.

2023 2Q Form 10-Q 15

Table of Contents

The components of the provision for credit losses were as follows:


Table 5 - Provision for Credit Losses
	Three months ended		Six months ended
	June 30,			June 30,		June 30,		June 30,
(dollar amounts in millions)	2023			2022		2023		2022
Provision for loan and lease losses	$	84		$	64	$	162	$	71
Provision for unfunded lending commitments	8			3		15		17
Provision for securities	—			—		—		4
Total provision for credit losses	$	92		$	67	$	177	$	92

Noninterest Income

The following table reflects noninterest income for each of the periods presented:


Table 6 - Noninterest Income
	Three months ended		Six months ended
	June 30,			June 30,		Change		June 30,		June 30,		Change
(dollar amounts in millions)	2023			2022		Percent		2023		2022		Percent
Service charges on deposit accounts	$	87		$	105	(17)	%	$	170	$	202	(16)	%
Card and payment processing income	102			96		6		195		182		7
Capital markets fees	57			54		6		116		96		21
Trust and investment management services	68			63		8		130		128		2
Mortgage banking income	33			44		(25)		59		93		(37)
Leasing revenue	25			27		(7)		51		62		(18)
Insurance income	30			27		11		64		58		10
Gain on sale of loans	8			12		(33)		11		40		(73)
Bank owned life insurance income	16			11		45		32		28		14
Net (losses) gains on sales of securities	(5)			—		(100)		(4)		—		(100)
Other noninterest income	74			46		61		183		95		93
Total noninterest income	$	495		$	485	2	%	$	1,007	$	984	2	%

Noninterest income for the 2023 second quarter was $495 million, an increase of $10 million, or 2%, from the year-ago quarter. Other noninterest income increased $28 million, or 61%, primarily due to an $18 million increase from favorable mark-to-market on pay-fixed swaptions. Additional increases included card and payment processing income of $6 million, or 6%, bank owned life insurance income of $5 million, or 45%, and trust and investment management fees of $5 million, or 8%. Partially offsetting these increases, service charges on deposit accounts decreased $18 million, or 17%, primarily reflecting the impact from program changes, and mortgage banking income decreased $11 million, or 25%, primarily reflecting lower net MSR risk management.

Noninterest income for the first six-month period of 2023 increased $23 million, or 2%, from the year-ago period. Other noninterest income increased $88 million, or 93%, primarily due to a $57 million gain on the sale of our RPS business, including associated goodwill allocation, and a $17 million increase from favorable mark-to-market on pay-fixed swaptions. Additional increases included capital markets fees of $20 million, or 21%, primarily reflecting Capstone Partners related advisory fees, partially offset by a decrease in interest rate derivative fees, and card and payments processing income of $13 million, or 7%, largely due to an increase in debit card usage. Partially offsetting these increases, mortgage banking decreased $34 million, or 37%, primarily reflecting lower salable volume and net MSR risk management. Service charges on deposits accounts decreased $32 million, or 16%, primarily reflecting impact from program changes. Gain on sale of loans decreased $29 million, or 73%, primarily resulting from the strategic decision to retain the guaranteed portion of SBA loans at origination. Leasing revenue decreased $11 million, or 18%, primarily driven by a decrease in operating lease income.

16 Huntington Bancshares Incorporated

Table of Contents

Noninterest Expense

The following table reflects noninterest expense for each of the periods presented:


Table 7 - Noninterest Expense
	Three months ended		Six months ended
	June 30,			June 30,		Change		June 30,	June 30,		Change
(dollar amounts in millions)	2023			2022		Percent			2023		2022		Percent
Personnel costs	$	613		$	577	6	%		$	1,262	$	1,157	9	%
Outside data processing and other services	148			153		(3)			299		318		(6)
Equipment	64			61		5			128		142		(10)
Net occupancy	54			58		(7)			114		122		(7)
Marketing	32			24		33			57		45		27
Professional services	21			19		11			37		38		(3)
Deposit and other insurance expense	23			20		15			43		38		13
Amortization of intangibles	13			13		—			26		27		(4)
Lease financing equipment depreciation	8			11		(27)			16		25		(36)
Other noninterest expense	74			82		(10)			154		159		(3)
Total noninterest expense	$	1,050		$	1,018	3	%		$	2,136	$	2,071	3	%
Number of employees (average full-time equivalent)	20,200			19,866		2	%		20,198		19,821		2	%

Noninterest expense for the 2023 second quarter was $1.1 billion, an increase of $32 million, or 3%, from the year-ago quarter. There were no acquisition-related expenses for the 2023 second quarter, compared to $24 million in the year-ago quarter. Personnel costs increased $36 million, or 6%, primarily reflecting higher expense due to the impact of the Capstone Partners acquisition and merit increases. Marketing expense increased $8 million, or 33%, primarily reflecting actions taken to deepen and acquire new customer relationships. Partially offsetting these increases, outside data processing and other services decreased $5 million, or 3%, primarily reflecting a decrease in acquisition-related expenses of $12 million, partially offset by higher technology investments.

Noninterest expense for the first six-month period of 2023 increased $65 million, or 3%, from the year-ago period. There were no acquisition-related expenses for the first six-month period of 2023, compared to $70 million in the year-ago period. Personnel costs increased $105 million, or 9%, primarily due to $36 million of voluntary retirement program expense and $6 million of organizational realignment expense, the impact of Capstone Partners acquisition and merit increases, partially offset by a $7 million decrease in acquisition-related expenses. Marketing expense increased $12 million, or 27%, primarily reflecting actions taken to deepen and acquire new customer relationships. Partially offsetting these increases, outside data processing decreased $19 million, or 6%, primarily due to a decrease of $37 million in acquisition-related expenses, partially offset by higher technology investments. Equipment expense decreased $14 million, or 10%, primarily reflecting the timing of technology equipment purchases and amortization.

Provision for Income Taxes

The provision for income taxes in the 2023 second quarter was $134 million, compared to $120 million in the 2022 second quarter. The provision for income taxes for the six-month periods ended June 30, 2023 and June 30, 2022 was $278 million and $225 million, respectively. All periods included the benefits from general business credits, capital losses, tax-exempt income, tax-exempt bank owned life insurance income, and investments in qualified affordable housing projects. The effective tax rates for the 2023 second quarter and 2022 second quarter were 19.3% and 18.1%, respectively. The effective tax rates for the six-month periods ended June 30, 2023 and June 30, 2022 were 19.2% and 18.3%, respectively. The variance between the 2023 second quarter compared to the 2022 second quarter, and the six month period ended June 30, 2023 compared to the six month period ended June 30, 2022 provision for income taxes and effective tax rates relates primarily to a reduction in capital losses, partially offset by an increase in tax credits and the impact of stock-based compensation.

The net federal deferred tax asset was $383 million, and the net state deferred tax asset was $87 million at June 30, 2023.

2023 2Q Form 10-Q 17

Table of Contents

We file income tax returns with the IRS and various state, city, and foreign jurisdictions. Federal income tax audits have been completed for tax years through 2016. Also, with few exceptions, the Company is no longer subject to state and local income tax examinations for tax years before 2018.

RISK MANAGEMENT AND CAPITAL

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 management, and authorization and reconciliation procedures, as well as staff education and a disciplined assessment process. 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, through-the-cycle.

We classify/aggregate risk into seven risk pillars; credit, market, liquidity, operational, compliance, strategic, and reputation. More information on risk can be found in Item 1A Risk Factors below, the Risk Factors section included in Item 1A of our 2022 Annual Report on Form 10-K and subsequent filings with the SEC. The MD&A included in our 2022 Annual Report on Form 10-K should be read in conjunction with this MD&A, as this discussion provides only material updates to the 2022 Annual Report on Form 10-K. This MD&A should also be read in conjunction with the Unaudited Consolidated Financial Statements, Notes to Unaudited 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 2022 Annual Report on 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 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, swaptions, swaption collars, and floors are used in asset and liability management activities to protect against the risk of adverse price or interest rate movements. We also use derivatives, principally loan sale commitments, in hedging our mortgage loan interest rate lock commitments and 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 disciplined portfolio management processes are central to our commitment to maintaining an aggregate moderate-to-low, through-the-cycle risk appetite. In our efforts to identify risk mitigation techniques, we have focused on product design features, origination policies, and solutions for delinquent or stressed borrowers.

Loan and Lease Credit Exposure Mix

Refer to the “Loan and Lease Credit Exposure Mix” section of our 2022 Annual Report on Form 10-K for a brief description of each portfolio segment. During the 2023 second quarter, Huntington revised its process for assessing and monitoring the risk and performance of non-real estate secured commercial loans, primarily loans to REITs. These loans were reclassified from CRE to the C&I loan category to align reporting with this process revision. All prior period results have been adjusted to conform to the current presentation.

18 Huntington Bancshares Incorporated

Table of Contents

The table below provides the composition of our total loan and lease portfolio:


Table 8 - Loan and Lease Portfolio Composition

(dollar amounts in millions)	At June 30, 2023				At December 31, 2022
Commercial:
Commercial and industrial	$	49,834	41	%	$	48,121	41	%



Commercial real estate	13,166		11		13,640		11
Lease financing	5,143		4		5,252		4
Total commercial	68,143		56		67,013		56
Consumer:
Residential mortgage	23,138		19		22,226		19
Automobile	12,819		11		13,154		11
Home equity	10,135		8		10,375		9
RV and marine	5,640		5		5,376		4
Other consumer	1,350		1		1,379		1
Total consumer	53,082		44		52,510		44
Total loans and leases	$	121,225	100	%	$	119,523	100	%

Our loan and lease portfolio is a managed mix of consumer and commercial credits. 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. Commercial lending by NAICS categories, specific limits for CRE project types, loans secured by residential real estate, large dollar exposures, and designated high risk loan categories 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 and is used to ensure a high quality, well diversified portfolio that is consistent with our overall objective of maintaining an aggregate moderate-to-low, through-the-cycle risk appetite. 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 2022 Annual Report on Form 10-K for our commercial credit underwriting and on-going credit management processes.

Consumer Credit

Refer to the “Consumer Credit” section of our 2022 Annual Report on Form 10-K for our consumer credit underwriting and on-going credit management processes.

2023 2Q Form 10-Q 19

Table of Contents

The table below provides our total loan and lease portfolio by industry type:


Table 9 - Loan and Lease Portfolio by Industry Type

(dollar amounts in millions)	At June 30, 2023				At December 31, 2022
Commercial loans and leases:
Real estate and rental and leasing (1)	$	16,372	14	%	$	16,310	14	%
Retail trade (2)	10,843		9		9,894		8
Manufacturing	7,754		6		7,809		7
Finance and insurance (1)	5,079		4		5,005		4
Health care and social assistance (1)	4,321		4		4,293		4
Wholesale Trade	3,777		3		3,922		3
Accommodation and food services	3,197		3		3,335		3
Transportation and warehousing	3,196		3		3,246		3
Professional, scientific, and technical services	2,102		2		1,899		2
Other Services	1,910		2		2,097		2
Utilities	1,809		1		1,298		1
Construction	1,707		1		1,757		1
Admin./Support/Waste Mgmt. and Remediation Services	1,431		1		1,370		1
Arts, entertainment, and recreation	1,302		1		1,424		1
Information	1,253		1		1,167		1
Public administration	667		1		667		1
Educational services	473		—		513		—
Agriculture, forestry, fishing, and hunting	418		—		455		—
Mining, quarrying, and oil and gas extraction	145		—		196		—
Management of companies and enterprises	126		—		127		—
Unclassified/other	261		—		229		—
Total commercial loans and leases by industry category	68,143		56		67,013		56
Residential mortgage	23,138		19		22,226		19
Automobile	12,819		11		13,154		11
Home equity	10,135		8		10,375		9
RV and marine	5,640		5		5,376		4
Other consumer loans	1,350		1		1,379		1
Total loans and leases	$	121,225	100	%	$	119,523	100	%

(1) Non-real estate secured commercial loans to REITs, which are classified in the C&I loan category, are included in the real estate, finance and insurance, and health care industry types.

(2) Amounts include $2.6 billion and $2.3 billion of auto dealer services loans at June 30, 2023 and December 31, 2022, respectively.

Credit Quality

(This section should be read in conjunction with Note 4 “Loans and Leases” and Note 5 “Allowance for Credit Losses” of the Notes to Unaudited Consolidated Financial Statements.)

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, 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.

Credit quality performance in the 2023 second quarter reflected NCOs of $49 million, or 0.16% of average total loans and leases, annualized, an increase of $41 million, compared to $8 million, or 0.03%, in the year-ago quarter. The increase was driven by a $38 million increase in commercial NCOs to $27 million in the 2023 second quarter, compared to net credit recoveries in the prior year period. NPAs decreased from December 31, 2022 by $37 million, or 6%, largely driven by a decrease in commercial NALs.

20 Huntington Bancshares Incorporated

Table of Contents

NPAs and NALs

(This section should be read in conjunction with Note 4 “Loans and Leases” and Note 5 “Allowance for Credit Losses” of the Notes to Consolidated Financial Statements and “Credit Quality” section appearing in Huntington’s 2022 Annual Report on Form 10-K.)

NPAs and NALs

Commercial loans and leases are placed on nonaccrual status at 90-days past due, or earlier if repayment of principal and interest is in doubt. Of the $357 million of commercial related NALs at June 30, 2023, $207 million, or 58%, represent loans and leases that were less than 30-days past due, demonstrating our continued commitment to proactive credit risk management.

The following table reflects period-end NALs and NPAs detail:


Table 10 - Nonaccrual Loans and Leases and Nonperforming Assets

(dollar amounts in millions)	At June 30, 2023			At December 31, 2022
Nonaccrual loans and leases (NALs):
Commercial and industrial	$	267		$	288
Commercial real estate	75			92
Lease financing	15			18
Residential mortgage	73			90
Automobile	4			4
Home equity	75			76
RV and marine	1			1

Total nonaccrual loans and leases	510			569



Other real estate, net	18			11
Other NPAs (1)	29			14
Total nonperforming assets	$	557		$	594

Nonaccrual loans and leases as a % of total loans and leases	0.42		%	0.48		%
NPA ratio (2)	0.46			0.50

(1) Other nonperforming assets include certain impaired investment securities and/or nonaccrual loans held-for-sale.

(2) Nonperforming assets divided by the sum of loans and leases, other real estate owned, and other NPAs.

ACL

(This section should be read in conjunction with Note 5 “Allowance for Credit Losses” of the Notes to Unaudited Consolidated Financial Statements.)

Our ACL 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.

We use statistically-based models that employ assumptions about current and future economic conditions throughout the contractual life of the loan. The process of estimating expected credit losses is based on three key parameters: PD, EAD, and 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.

Future economic conditions consider multiple macroeconomic scenarios provided to us by an independent third party and are reviewed through the appropriate committee governance channels described below. These macroeconomic scenarios contain certain variables that are influential to our modeling process, the most significant being unemployment rates and GDP. The probability weights assigned to each scenario are generally expected to be consistent from period to period and determined through our ACL process. 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 macroeconomic scenarios. Lifetime losses for most of our loans and leases 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.

2023 2Q Form 10-Q 21

Table of Contents

The baseline scenario used for the 2023 second quarter assumes weakening of the labor market is underway and will continue through the end of 2024 causing the unemployment rate to gradually increase, peaking at 4.2% by the end of 2024. The overnight federal funds rate is forecasted to have peaked at a rate of approximately 5.1% during the second quarter of 2023, remaining at this terminal level until the end of 2023 as the Federal Reserve continues to address elevated inflation levels. The expectation is that the Federal Reserve would then start to cut rates early in 2024, although monetary policy remains restrictive until the end of 2025. The federal funds rate returns to its neutral rate in early 2026. Inflation is forecasted to drop from an average of 8.0% in 2022, to 3.9% in 2023 and to 2.5% in 2024 as a result of the Federal Reserve’s actions, and as inflation pressures stemming from U.S labor market conditions, the housing market and global energy prices continue to soften. The GDP forecast for the second half of 2023 into 2024 has fallen somewhat from year end, a result of elevated interest rates and tightening credit conditions. GDP is now forecasted to be 2.3% by the fourth quarter of 2024.

Management uses a probability-weighted approach that incorporates a baseline, an adverse and a more favorable economic scenario when formulating that quantitative estimate for the allowance The table below is intended to show how the forecasted path of unemployment and GDP in the baseline scenario has changed since the end of 2022:


Table 11 - Forecasted Key Macroeconomic Variables
Baseline scenario forecast	2022		2023				2024
	Q4		Q2		Q4		Q2		Q4


Unemployment rate (1)
4Q 2022	3.7	%	3.9	%	4.1	%	4.1	%	3.9	%

2Q 2023	N/A		3.4		3.8		4.0		4.2


Gross Domestic Product (1)
4Q 2022	(0.1)	%	0.4	%	2.0	%	2.3	%	2.7	%

2Q 2023	N/A		1.6		1.1		2.1		2.3


(1) Values reflect the baseline scenario forecast inputs for each period presented, not updated for subsequent actual amounts.

Management continues to assess the uncertainty in the macroeconomic environment, including geopolitical instability and current inflation levels, considering multiple macroeconomic forecasts that reflected a range of possible outcomes. While we have incorporated estimates of economic uncertainty into our ACL, the ultimate impact of recent inflation levels and attempts to lower inflation through Federal Reserve rate actions will have on the economy remains unknown.

Management develops additional analytics to support adjustments to our modeled results. Our governance committees reviewed model results of each economic scenario for appropriate usage, concluding that the quantitative transactional reserve will continue to utilize scenario weighting. Given the uncertainty associated with key economic scenario assumptions, the June 30, 2023 ACL included a general reserve that consists of various risk profile components, including profiles to capture uncertainty not addressed within the quantitative transaction reserve.

Our ACL evaluation process includes the on-going assessment of credit quality metrics, and a comparison of certain ACL benchmarks to current performance. For further information, including the ALLL and AULC activity by portfolio segment, refer to Note 5 “Allowance for Credit Losses” of the Notes to the Unaudited Consolidated Financial Statements.

22 Huntington Bancshares Incorporated

Table of Contents

The table below reflects the allocation of our ALLL among our various loan and lease categories and the reported ACL:


Table 12 - Allocation of Allowance for Credit Losses

(dollar amounts in millions)	At June 30, 2023						At December 31, 2022
	Allocation of Allowance		% of Total ALLL		% of Total Loans and Leases (1)		Allocation of Allowance		% of Total ALLL		% of Total Loans and Leases (1)
Commercial
Commercial and industrial	$	994	46	%	41	%	$	939	45	%	41	%
Commercial real estate	442		20		11		433		20		11
Lease financing	47		2		4		52		2		4
Total commercial	1,483		68		56		1,424		67		56
Consumer
Residential mortgage	194		9		19		187		8		19
Automobile	144		7		11		141		7		11
Home equity	119		5		8		105		5		9
RV and marine	145		7		5		143		7		4
Other consumer	92		4		1		121		6		1
Total consumer	694		32	%	44	%	697		33	%	44	%
Total ALLL	2,177						2,121
AULC	165						150
Total ACL	$	2,342					$	2,271
Total ALLL as a % of
Total loans and leases	1.80%						1.77%
Nonaccrual loans and leases	427						373
NPAs	391						357
Total ACL as % of
Total loans and leases	1.93%						1.90%
Nonaccrual loans and leases	459						400
NPAs	420						382

(1)Percentages represent the percentage of each loan and lease category to total loans and leases.

At June 30, 2023, the ACL was $2.3 billion, or 1.93% of total loans and leases, compared to $2.3 billion, or 1.90%, at December 31, 2022. The increase in the total ACL was driven by a combination of loan and lease growth and modest deterioration in the current macro-economic forecast. The ACL coverage ratio at June 30, 2023 is reflective of the current macro-economic environment including recognition of the near-term recessionary risks.

2023 2Q Form 10-Q 23

Table of Contents

NCOs

The table below reflects NCO detail for each of the periods presented:


Table 13 - Net Charge-off Analysis
	Three months ended			Six months ended
	June 30,				June 30,			June 30,			June 30,
(dollar amounts in millions)	2023				2022			2023			2022
Net charge-offs (recoveries) by loan and lease type:
Commercial:
Commercial and industrial	$	20			$	(4)		$	36		$	(27)
Commercial real estate	7				(4)			25			4
Lease financing	—				(3)			(5)			2
Total commercial	27				(11)			56			(21)
Consumer:
Residential mortgage	1				(1)			1			(1)
Automobile	3				—			8			—
Home equity	—				(2)			(1)			(3)
RV and marine	2				1			4			4
Other consumer	16				21			38			48
Total consumer	22				19			50			48
Total net charge-offs	$	49			$	8		$	106		$	27




Net charge-offs (recoveries) - annualized percentages:
Commercial:
Commercial and industrial	0.15		%		(0.04)		%	0.14		%	(0.12)		%



Commercial real estate	0.23				(0.13)			0.37			0.06
Lease financing	—				(0.24)			(0.19)			0.08
Total commercial	0.16				(0.07)			0.16			(0.07)
Consumer:
Residential mortgage	0.01				(0.02)			0.01			(0.01)
Automobile	0.10				—			0.12			—
Home equity	(0.02)				(0.08)			(0.02)			(0.05)
RV and marine	0.13				0.10			0.16			0.15
Other consumer	5.17				6.60			5.76			7.53
Total consumer	0.17				0.15			0.19			0.19
Net charge-offs as a % of average loans and leases	0.16		%		0.03		%	0.17		%	0.05		%

NCOs were an annualized 0.16% of average loans and leases in the current quarter, up from 0.03% in the 2022 second quarter. NCOs for the commercial portfolios were higher, with annualized net charge-offs of 0.16% in the current quarter, compared to net recoveries of 0.07% in the year-ago quarter, reflecting the continued normalization of net charge-offs. Consumer charge-offs were modestly higher in the quarter, compared to the year-ago quarter.

NCOs were an annualized 0.17% of average loans and leases for the first six-month period of 2023, up from 0.05% in the year ago period. NCOs for the commercial portfolios were higher with annualized net charge-offs of 0.16% in the current period compared to net recoveries of 0.07% in the year-ago period. Consumer charge-offs remained consistent in the period, compared to the year-ago period.

24 Huntington Bancshares Incorporated

Table of Contents

Market Risk

(This section should be read in conjunction with the “Market Risk” section appearing in Huntington’s 2022 Annual Report on 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.

We measure 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. Our models incorporate market-based assumptions that include the impact of changing interest rates on prepayment rates of assets and runoff rates of deposits. The models also include our projections of the future volume and pricing of various business lines.

In measuring the financial risks associated with interest rate sensitivity in our balance sheet, we compare 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 immediate 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, we presume that market rates will not go below 0%. The scenarios are inclusive of all executed 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.

We use two approaches to model interest rate risk: Net interest income at risk (NII at risk) and economic value of equity at risk modeling sensitivity analysis (EVE at Risk).


Table 14 - Net Interest Income at Risk

	Net Interest Income at Risk (%)
Basis point change scenario	-200	-100	+100	+200

At June 30, 2023	-5.4	-2.6	2.8	6.4
At December 31, 2022	-4.1	-2.0	2.0	4.0

NII at Risk is used by management to measure the risk and impact to earnings over the next 12 months, using a variety of interest rate scenarios. The NII at Risk results included in the table above reflect the analysis used monthly by management. It models gradual “ramp” -200, -100, +100 and +200 basis point parallel shift scenarios, implied by the forward yield curve over the next 12 months.

The NII at Risk shows that the balance sheet is asset sensitive at both June 30, 2023, and December 31, 2022. A key driver of the change in sensitivity can be attributed to hedging activity, which has supported an increase to asset sensitivity in rising rate scenarios, while minimizing the impact to falling rate scenarios. Other drivers to the change in sensitivity include changes in the funding mix, deposit modeling assumptions, and market rates.

2023 2Q Form 10-Q 25

Table of Contents


Table 15 - Economic Value of Equity at Risk

	Economic Value of Equity at Risk (%)
Basis point change scenario	-200	-100	+100	+200

At June 30, 2023	0.3	1.4	-3.3	-7.4
At December 31, 2022	9.0	5.9	-8.0	-17.3

EVE at Risk provides a sensitivity analysis on shareholder’s equity for longer-term interest rate risk in the banking book. The EVE results included in the table above reflect the analysis used monthly by management. It models immediate -200, -100, +100 and +200 basis point parallel “shock” scenarios.

The change in sensitivity from December 31, 2022 was driven primarily by updated deposit modeling assumptions, market rates and continued yield curve inversion, as well as changes in the funding mix and hedging activity.

To address the discontinuance of LIBOR, we established a LIBOR transition team and project plan under the oversight of the CRO and CFO, providing periodic updates to the ROC. Huntington has outstanding LIBOR-based instruments that mature after June 30, 2023, including, loans and leases and notional derivatives. Contract remediation efforts coordinated by the LIBOR transition team are complete as of June 2023. Upon the discontinuation of LIBOR, all loans and leases that reference LIBOR have transitioned to a SOFR-based replacement rate as set forth in the related contract. For further details on the transition of notional derivatives, refer to the Use of Derivatives to Manage Interest Rate Risk section below. Source systems have been updated to support alternative reference rates. At this time alternative reference rates are predominantly SOFR based. As such, we have developed a SOFR-enabled interest rate risk monitoring framework and a strategy for managing interest rate risk during the transition from LIBOR to SOFR.

Use of Derivatives to Manage Interest Rate Risk

An integral component of our interest rate risk management strategy is the 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, caps and floors, collars, forward contracts, and forward starting interest rate swaps.

Table 16 shows all swap, swaption, swaption collar and floor 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 protect the fair value of asset and liabilities by converting the contractual interest rate on a specified amount of assets and liabilities (i.e., notional amounts) to another interest rate index. The positions are also used to hedge 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 derivative 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 13 “Derivative Financial Instruments” of the Notes to Unaudited Consolidated Financial Statements.

During the second quarter of 2023, all cleared derivatives that referenced LIBOR have transitioned from LIBOR to a SOFR-based replacement rate in accordance with the conventions established by the applicable clearinghouse. Upon the discontinuation of LIBOR, all over-the-counter derivatives that reference LIBOR will transition to a SOFR-based replacement rate as set forth in the related contract. Those derivatives that do not have a clearly defined or practicable replacement benchmark rate set forth in the related contract will use the LIBOR Act to replace LIBOR with a SOFR-based rate established by FRB rulemaking. For every LIBOR referenced instrument with a reset date after the LIBOR cessation date, counterparties would receive a LIBOR referenced instrument maturing on the first reset date after the LIBOR cessation date, and a forward starting SOFR instrument. The instruments received through the transition are economically similar to the instruments held prior to the transition. The LIBOR referenced instruments seen in the table below are those instruments that were received in the transition and have a corresponding forward starting SOFR referenced instrument. Both instruments are included in the table which results in a one-time increase in the notional amounts outstanding as the LIBOR referenced instruments will mature in the 2023 third quarter.

26 Huntington Bancshares Incorporated

Table of Contents

The following table presents additional information about the interest rate swaps, swaptions, swaption collars, and floors used in Huntington’s asset and liability management activities at June 30, 2023 and December 31, 2022.


Table 16 - Weighted-Average Maturity, Receive Rate and SOFR/LIBOR Reset Rate on Asset Liability Management Instruments

			Average Maturity (years)				Weighted-Average Fixed Rate		Weighted-Average Reset Rate
(dollar amounts in millions)	Notional Value			Fair Value
At June 30, 2023
Asset conversion swaps
Securities (1):
Pay Fixed - Receive 1 month LIBOR (2)	$	7,908	0.06		$	17	0.94	%	5.16	%
Pay Fixed - Receive SOFR	2,883		4.21		154		2.54		5.07
Pay Fixed - Receive SOFR - forward starting (3)	8,836		3.95		768		1.14		—
Loans:
Receive Fixed - Pay SOFR - forward starting (4)	2,950		2.77		(92)		1.97		—
Receive Fixed - Pay 1 month LIBOR (2)	1,550		0.04		(5)		1.13		5.18
Receive Fixed - Pay SOFR	10,350		3.43		(462)		2.74		5.07


Liability conversion swaps
Receive Fixed - Pay 1 month LIBOR (2)	1,331		0.03		2		2.01		5.19
Receive Fixed - Pay SOFR	6,240		4.44		(256)		3.16		3.49

Receive Fixed - Pay SOFR - forward starting (5)	1,331		1.35		(53)		2.01		—


Purchased floors
Purchased Floor Spread - SOFR (6)	5,000		2.79		37		3.97 / 2.97		—

Basis swaps

Pay SOFR- Receive Fed Fund (economic hedges) (7)	174		3.08		—		5.07		5.07
Pay Fed Fund - Receive SOFR (economic hedges) (7)	1		12.31		—		5.11		5.07
Purchased swaptions
Pay Fixed - Receive SOFR Swaptions (economic hedges)	9,550		0.59		48		4.59		—
Total swap portfolio	$	58,104			$	158





At December 31, 2022
Asset conversion swaps
Securities (1):
Pay Fixed - Receive 1 month LIBOR	$	8,024	3.89	$	834	0.93	%	4.37	%
Pay Fixed - Receive SOFR	366		7.02	49		1.46		3.82
Pay Fixed - Receive 1 month LIBOR - forward starting (8)	91		7.31	12		1.62		—
Pay Fixed - Receive SOFR - forward starting (9)	1,926		6.17	85		2.17		—
Loans:
Receive Fixed - Pay SOFR - forward starting (10)	2,950		4.91	(109)		2.64		—
Receive Fixed - Pay 1 month LIBOR	7,875		1.41	(390)		1.21		4.20
Receive Fixed - Pay SOFR	8,700		3.55	(351)		2.57		3.90
Liability conversion swaps
Receive Fixed - Pay 1 month LIBOR	1,430		1.85	(60)		2.01		4.25
Receive Fixed - Pay SOFR	6,299		4.91	(201)		3.16		3.36
Purchased swaption collars
Purchased Interest Rate Swaption Collars (6)	4,800		0.27	(6)		2.87 / 4.05		—
Basis swaps
Pay SOFR- Receive Fed Fund (economic hedges) (7)	174		3.58	—		4.33		4.31
Pay Fed Fund - Receive SOFR (economic hedges) (7)	1		12.81	—		4.35		4.33
Total swap portfolio	$	42,636		$	(137)

(1)Amounts include interest rate swaps as fair value hedges of fixed-rate investment securities using the portfolio layer method.

(2)LIBOR swap instruments are instruments received from LIBOR transition of clearinghouses and mature in July 2023.

(3)Forward starting swaps effective starting from July 2023 to October 2027.

(4)Forward starting swaps effective starting from July 2023 to January 2025.

(5)Forward starting swaps effective July 2023.

(6)The weighted average fixed rates for floor spread and swaption collars are the weighted average strike rates for the upper and lower bounds of the instruments.

(7)Swaps have variable pay and variable receive resets. Weighted average fixed fate column represents pay rate reset.

(8)Forward starting swaps effective starting from January 2023 to February 2023.

(9)Forward starting swaps effective starting from January 2023 to October 2027.

(10)Forward starting swaps effective starting from January 2023 to July 2024.

2023 2Q Form 10-Q 27

Table of Contents

During the six months ended June 30, 2023, we entered into $9.6 billion of interest rate swaptions with an average strike price of 4.59% to reduce the impact on capital from rising rates. These swaptions are economic hedges of interest rate risk attributable to our investment securities with the change in value of these instruments recorded in other noninterest income.

MSRs

(This section should be read in conjunction with Note 6 “Mortgage Loan Sales and Servicing Rights” of Notes to the Unaudited Consolidated Financial Statements.)

At June 30, 2023, we had a total of $505 million of capitalized MSRs representing the right to service $32.7 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 and declines in credit quality. 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 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 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 appearing in Huntington’s 2022 Annual Report on Form 10-K for our on-going liquidity risk management processes.)

Liquidity risk is the possibility of us being unable to meet current and future financial obligations in a timely manner. The goal of liquidity management is to ensure adequate, stable, reliable, and cost-effective sources of funds to satisfy changes in loan and lease demand, unexpected levels of deposit withdrawals, investment opportunities, and other contractual obligations. We consider core earnings, strong capital ratios, and credit quality essential for maintaining high credit ratings, which allows us cost-effective access to market-based liquidity. We mitigate liquidity risk by maintaining liquid assets in the form of cash and cash equivalents and securities. In addition, we maintain a large, stable core deposit base and a diversified base of readily available wholesale funding sources, including advances from the FHLB through pledged borrowing capacity, issuance through dealers in the capital markets, and access to certificates of deposit issued through brokers. Liquidity risk is reviewed and managed continuously for the Bank and the parent company, as well as its subsidiaries. At June 30, 2023, management believes current sources of liquidity are sufficient to meet Huntington’s on and off-balance sheet obligations.

28 Huntington Bancshares Incorporated

Table of Contents

We maintain a contingency funding plan that provides for liquidity stress testing, which assesses the potential erosion of funds in the event of an institution-specific event or systemic financial market crisis. Examples of institution specific events could include a downgrade in our public credit rating by a rating agency, a large charge to earnings, declines in profitability or other financial measures, declines in liquidity sources including reductions in deposit balances or access to contingent funding sources, or a significant merger or acquisition. Examples of systemic events unrelated to us that could have an effect on our access to liquidity would be terrorism or war, natural disasters, political events, seizure of a major financial institution, or the default or bankruptcy of a major, corporation, mutual fund, or hedge fund. Similarly, market speculation or rumors about us, or the banking industry in general, may adversely affect the cost and availability of normal funding sources. The contingency funding plan outlines the process for addressing a liquidity crisis and provides for an evaluation of funding sources under various market conditions. It also assigns specific roles and responsibilities and communication protocols for effectively managing liquidity through a problem period.

Our largest source of liquidity on a consolidated basis is core deposits, which provide stable and lower-cost funding. Core deposits were $142.9 billion at June 30, 2023 which comprised 97% of total deposits, compared to $142.1 billion, and 96% of total deposits, at December 31, 2022. The $728 million increase in core deposits, compared to December 31, 2022, was primarily driven by an increase in consumer core deposits, partially offset by a decrease in commercial core deposits driven by shifts to off-balance sheet liquidity solutions we provide for our customers. Our core deposits come from a base of primary bank customer relationships and we continue to focus on acquiring and deepening those relationships resulting in our granular and diversified deposit base.

The following table reflects deposit composition detail.


Table 17 - Deposit Composition

(dollar amounts in millions)	At June 30, 2023				At December 31, 2022
Total deposits by type:
Demand deposits—noninterest-bearing	$	33,340	23	%	$	38,242	26	%
Demand deposits—interest-bearing	40,387		27		43,136		29
Money market deposits	40,534		28		36,082		24
Savings and other domestic deposits	18,294		12		20,357		14
Core certificates of deposit (1)	10,314		7		4,324		3
Total core deposits:	142,869		97		142,141		96
Other domestic deposits of $250,000 or more	381		—		220		—
Negotiable CDs, brokered and other deposits	4,778		3		5,553		4

Total deposits	$	148,028	100	%	$	147,914	100	%









Total core deposits:
Commercial	$	61,450	43	%	$	64,107	45	%
Consumer	81,419		57		78,034		55
Total core deposits	$	142,869	100	%	$	142,141	100	%

Total deposits (insured/uninsured):
Insured deposits	$	104,912	71	%	$	100,631	68	%


Uninsured deposits (2)	43,116		29		47,283		32

Total deposits	$	148,028	100	%	$	147,914	100	%

(1)Includes consumer certificates of deposit of $250,000 or more.

(2)Represents consolidated Huntington uninsured deposits, determined by adjusting the amounts reported in the Bank Call Report (FFIEC 031) by inter-company deposits, which are not customer deposits and are therefore eliminated through consolidation. As of June 30, 2023, the Bank Call Report uninsured deposit balance was reported gross at $58.0 billion, which includes $3.8 billion of inter-company parent affiliate deposits and $11.1 billion of inter-company bank subsidiary deposits. As of December 31, 2022, the Bank Call Report uninsured deposit balance was $50.9 billion, which includes $3.6 billion of inter-company parent affiliate deposits and excludes $33.7 billion of inter-company bank subsidiary deposits.

Cash and cash equivalents were $11.1 billion and $6.7 billion at June 30, 2023 and December 31, 2022, respectively. The $4.4 billion increase in cash and cash equivalents is primarily due to an increase in interest-bearing deposits at the Federal Reserve Bank to support short-term liquidity.

2023 2Q Form 10-Q 29

Table of Contents

Total securities were $40.9 billion at June 30, 2023, compared to $41.3 billion at December 31, 2022. The $434 million decrease in securities compared to December 31, 2022, was primarily due to runoff and sales, partially offset by an increase in FHLB stock during the period. At June 30, 2023, the duration of the securities portfolio was 4.7 years, or 3.7 years net of hedging. Securities are pledged to secure borrowing capacity with the FHLB and the Federal Reserve, discussed further in the Bank Liquidity and Sources of Funding section below. At June 30, 2023, securities with market value of $6.5 billion were unpledged.

Sources of wholesale funding include other domestic deposits of $250,000 or more, negotiable CDs, brokered and other deposits, short-term borrowings, and long-term debt. Our wholesale funding totaled $21.6 billion at June 30, 2023, compared to $17.5 billion at December 31, 2022. The increase from year-end is primarily due to an increase in long-term FHLB borrowings. As of June 30, 2023, long-term FHLB borrowings have a weighted average life of 2.2 years.

Bank Liquidity and Sources of Funding

Our primary sources of funding for the Bank are consumer and commercial core deposits. At June 30, 2023, these core deposits funded 76% of total assets (118% of total loans and leases). To the extent we are unable to obtain sufficient liquidity through core deposits and cash and cash equivalents, we may meet our liquidity needs through sources of wholesale funding and asset securitization or sale.

The Bank maintains borrowing capacity at both the FHLB and the Federal Reserve secured by pledged loans and securities. The Bank does not consider borrowing capacity at the Federal Reserve a primary source of funding, however, it could be used as a potential source of liquidity in a stressed environment or during a market disruption. At June 30, 2023, the Bank’s available contingent borrowing capacity at the FHLB and Federal Reserve totaled $77.2 billion, compared to $53.5 billion at December 31, 2022. The increase reflects our optimization of contingent borrowing capacity through the pledge of incremental assets. The amount of available contingent borrowing capacity may fluctuate based on the level of borrowings outstanding and level of assets pledged.

Following the first quarter 2023 bank failures, the Federal Reserve Bank established the Bank Term Funding Program as an additional source of available liquidity to support depository institutions through pledging qualifying assets as collateral. The Bank has taken steps to support readiness but has not participated through June 30, 2023.

At June 30, 2023, we believe the Bank has sufficient liquidity and capital resources to meet its cash flow obligations over the next 12 months and 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.

The parent company had $3.7 billion and $3.5 billion at June 30, 2023 and December 31, 2022 in cash and cash equivalents, respectively.

On July 19, 2023, our Board of Directors declared a quarterly common stock cash dividend of $0.155 per common share. The dividend is payable on October 2, 2023, to shareholders of record on September 18, 2023. Based on the current quarterly dividend of $0.155 per common share, cash demands required for common stock dividends are estimated to be approximately $224 million per quarter. Additionally, on July 19, 2023, our Board of Directors declared a quarterly Series B, Series E, Series F, Series G, Series H, and Series J Preferred Stock dividend payable on October 16, 2023 to shareholders of record on October 1, 2023. On June 15, 2023, our Board of Directors declared a quarterly dividend for the Series I Preferred Stock payable on September 1, 2023 to shareholders of record on August 15, 2023. Total cash demands required for preferred stock dividends are expected to be approximately $38 million per quarter.

During the first six months of 2023, the Bank paid preferred and common dividends to the parent company of $22 million and $753 million, respectively. To meet any additional liquidity needs, the parent company may issue debt or equity securities.

30 Huntington Bancshares Incorporated

Table of Contents

At June 30, 2023, we believe the Company has sufficient liquidity and capital resources to meet its cash flow obligations over the next 12 months and for the foreseeable future.

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, caps and floors, swaption collars, 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 cyberattacks and, to date, have not experienced any material losses. Cybersecurity threats have increased, primarily through 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 has the option to work 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 govern 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 our Audit Committee, as appropriate. Significant findings or issues are escalated by the Third Party Risk Management Committee to the Technology Committee of the Board of Directors, as appropriate.

The goal of this framework is to implement effective operational risk-monitoring; minimize operational, fraud, and legal losses; minimize the impact of inadequately designed models and enhance our overall performance.

2023 2Q Form 10-Q 31

Table of Contents

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 hold ourselves to a high standard for adherence to compliance management and seek to continuously enhance our performance.

Capital

We consider disciplined capital management as a key objective. 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 our overall capital adequacy. We believe our current levels of both regulatory capital and shareholders’ equity are adequate.

The following table presents certain regulatory capital data at both the consolidated and Bank levels for each of the periods presented:


Table 18 - Regulatory Capital Data (1)

(dollar amounts in millions)		At June 30, 2023			At December 31, 2022
Total risk-weighted assets	Consolidated	$	141,432		$	141,940
	Bank	141,320			141,571
CET1 risk-based capital	Consolidated	13,885			13,290
	Bank	14,617			14,133
Tier 1 risk-based capital	Consolidated	16,379			15,467
	Bank	15,830			15,334
Tier 2 risk-based capital	Consolidated	3,161			3,106
	Bank	2,368			2,313
Total risk-based capital	Consolidated	19,540			18,573
	Bank	18,198			17,647
CET1 risk-based capital ratio	Consolidated	9.82		%	9.36		%
	Bank	10.34			9.98
Tier 1 risk-based capital ratio	Consolidated	11.58			10.90
	Bank	11.20			10.83
Total risk-based capital ratio	Consolidated	13.82			13.09
	Bank	12.88			12.47
Tier 1 leverage ratio	Consolidated	9.01			8.60
	Bank	8.40			8.54

(1) Huntington elected to temporarily delay certain effects of CECL on regulatory capital for two years, followed by a three-year transition period which began January 1, 2022 pursuant to a rule that allows bank holding companies 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. As of June 30, 2023 and December 31, 2022, we have phased in 50% and 25%, respectively, of the cumulative CECL deferral with the remaining impact to be recognized over the remainder of the three-year transition period.

At June 30, 2023, at both the consolidated and Bank level, we maintained Basel III capital ratios in excess of the well-capitalized standards established by the Federal Reserve. The increase in the consolidated CET1 risk-based capital ratio, compared to the prior year end, was primarily driven by current period earnings, partially offset by dividends and the CECL transitional amount.

32 Huntington Bancshares Incorporated

Table of Contents

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 appetite 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 $18.8 billion at June 30, 2023, an increase of $1.1 billion, or 6%, when compared with December 31, 2022. The increase was primarily driven by earnings, net of dividends, and the issuance of perpetual preferred stock.

Huntington is authorized to make capital distributions that are consistent with the requirements in the Federal Reserve’s capital rule, inclusive of the SCB requirement. Huntington’s SCB requirement associated with its 2022 Capital Plan is 3.3%, and is effective for the period of October 1, 2022 through September 30, 2023. On April 5, 2023, Huntington submitted its 2023 Capital Plan to the Federal Reserve for supervisory review. By notice dated June 28, 2023, the Federal Reserve informed Huntington that its indicative SCB requirement associated with its 2023 Capital Plan is 3.2%, and is effective for the period of October 1, 2023 through September 30, 2024. Although Huntington was not subject to the Federal Reserve’s 2023 supervisory stress test, Huntington’s indicative SCB was updated for 2023 based on the dividend add-on component of the SCB.

Share Repurchases

From time to time our 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.

On January 18, 2023, our Board authorized the repurchase of up to $1.0 billion of common shares within the eight quarter period ending December 31, 2024, subject to the Federal Reserve’s capital regulations. Purchases of common stock under the authorization may include open market purchases, privately negotiated transactions, and accelerated share repurchase programs. During the six months ended June 30, 2023, Huntington repurchased no shares of common stock under the current repurchase authorization. As part of the 2023 capital plan and our current expectation that organic capital will be used for funding loan and lease growth, we do not expect to utilize the share repurchase program during 2023. However, we may at our discretion resume share repurchases at any time while considering factors including, but not limited to, capital requirements and market conditions.

BUSINESS SEGMENT DISCUSSION

Overview

To align with our strategic priorities, during the second quarter 2023, we completed an organizational realignment and now report on two business segments: Consumer & Regional Banking and Commercial Banking. The Treasury / Other function includes technology and operations, other unallocated assets, liabilities, revenue, and expense. Huntington’s business segments are based on our internally-aligned segment leadership structure, which is how management monitors results and assesses performance. The organizational realignment primarily involved consolidating our previously reported Consumer and Business Banking, Vehicle Finance and RBHPCG, into one new business segment called Consumer & Regional Banking. Prior period results have been adjusted to conform to the new segment presentation.

Following is a description of our business segments and the Treasury/Other function:

Consumer & Regional Banking - The Consumer & Regional Banking segment provides a wide array of financial products and services to consumer and business customers including, but not limited to, deposits, lending, payments, mortgage banking, dealer financing, investment management, trust, brokerage, insurance, and other financial products and services. We serve our customers through our network of channels, including branches, online banking, mobile banking, telephone banking, and ATMs.

2023 2Q Form 10-Q 33

Table of Contents

We have a “Fair Play” banking philosophy: providing differentiated products and services, built on a strong foundation of customer friendly products and advocacy. Our brand resonates with consumers and businesses, helping us acquire new customers and deepen relationships with current customers. Our Fair Play banking suite of products includes 24-Hour Grace®, Perks and Asterisk-Free Checking®, Money Scout℠, $50 Safety Zone℠, Standby Cash®, Early Pay, Instant Access, The Hub, and Huntington Heads Up®.

Consumer & Regional Banking offers a comprehensive set of digitally powered consumer and business financial solutions to Consumer Lending, Regional Banking, Branch Banking, and Wealth Management customers.

Consumer Lending provides direct and indirect consumer loans, as well as dealer finance loans and deposits. The direct consumer loan products, including mortgage and home equity, are originated through branch, online, and third-party channels. Indirect consumer loans are originated through deep relationships with dealerships to finance consumer purchases of automobiles, recreational vehicles, marine craft, and powersports. We also provide dealer finance loans (including floorplan loans), deposits, and other financial products to these dealerships and their owners.

Regional Banking, along with our business and specialty banking offerings, is a dynamic part of our business and we are committed to being the bank of choice for businesses in our markets. Regional Banking is defined as serving small to mid-sized businesses. Beyond conventional lending solutions, Huntington offers access to capital markets, practice finance and SBA lending capabilities. We are the #1 SBA lender in the nation in units as of federal fiscal year end September 30, 2022. In addition, our payments business provides credit and debit cards and treasury management services to our customers. Huntington continues to develop products and services that are designed specifically to meet the needs of business customers and looks for ways to help companies find solutions to their financing needs.

Branch Banking provides a full range of financial products and services to consumer and business customers through our extensive branch and ATM network. The branch network offers full-service branches that are primarily located in Ohio, Colorado, Illinois, Indiana, Kentucky, Michigan, Minnesota, Pennsylvania, West Virginia, and Wisconsin.

Wealth Management has a comprehensive product offering, including private banking, wealth management and legacy planning through investment and portfolio management, fiduciary administration and trust services, institutional custody services, and full-service retail brokerage investments.

Commercial Banking - The Commercial Banking segment provides expertise through bankers, capabilities, and digital channels, and includes a comprehensive set of product offerings. Our target clients span from mid-market to large corporates across a national footprint. The Commercial Banking segment leverages internal partnerships for wealth management, trust, insurance, payments, and treasury management capabilities. In particular, our payments capabilities continue to expand as we develop unique solutions for our diverse client segments, including Huntington ChoicePay. This segment includes customers in Middle Market Banking, Corporate, Specialty, and Government Banking, Asset Finance, Commercial Real Estate Banking, and Capital Markets.

Middle Market Banking serves the banking needs of mid-sized clients who reside in our geographic footprint. We leverage our local presence to serve our clients, extending our full suite of banking products including lending, liquidity, treasury management and other payment services, and capital markets.

Corporate, Specialty, and Government Banking serves medium to large enterprises. We focus on specific industry verticals such as government and non-profits, healthcare, technology and telecommunications, franchises, financial sponsors, and global services. Our expertise in these markets allows us to uniquely serve our clients’ sophisticated banking, capital markets, and payments requirements.

Asset Finance serves our clients’ capital expenditure and working capital needs through equipment financing, asset-based lending, distribution finance, structured lending, and municipal financing solutions. Our relationship with large manufacturers is bolstered by a strong commitment to their dealers and financing needs.

Commercial Real Estate Banking provides banking solutions to commercial real estate developers and institutional sponsors across the nation. Within this group, Huntington Community Development improves the quality of life for our communities and the residents of low-to-moderate income neighborhoods by developing and delivering innovative products and services to support affordable housing and neighborhood stabilization, including tax credit investments.

34 Huntington Bancshares Incorporated

Table of Contents

Capital Markets delivers corporate risk management, institutional sales and trading, capital and equity raising, and advisory services.

Treasury / Other - 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 the business segments from Treasury / Other. We utilize a full-allocation methodology, where all Treasury / Other expenses, except reported acquisition-related expenses, if any, and a small amount of other residual unallocated expenses, are allocated to the 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 modeled 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).

Net Income by Business Segment

Net income by business segment for the six-month periods ending June 30, 2023 and June 30, 2022 is presented in the following table:


Table 19 - Net Income by Business Segment
	Six months ended June 30,
(dollar amounts in millions)	2023		2022
Consumer & Regional Banking	$	1,086	$	313
Commercial Banking	657		555



Treasury / Other	(582)		131
Net income attributable to Huntington	$	1,161	$	999

2023 2Q Form 10-Q 35

Table of Contents


Consumer & Regional Banking

Table 20 - Key Performance Indicators for Consumer & Regional Banking
	Six months ended June 30,						Change
(dollar amounts in millions)	2023			2022			Amount			Percent
Net interest income	$	2,358		$	1,341		$	1,017		76	%
Provision for credit losses	110			167			(57)			(34)
Noninterest income	646			674			(28)			(4)
Noninterest expense	1,519			1,452			67			5
Provision for income taxes	289			83			206			NM
Net income attributable to Huntington	$	1,086		$	313		$	773		NM
Number of employees (average full-time equivalent)	11,868			12,038			(170)			(1)	%
Total average assets	$	70,361		$	68,627		$	1,734		3
Total average loans/leases	64,497			62,085			2,412			4
Total average deposits	104,373			106,457			(2,084)			(2)
Net interest margin	4.48		%	2.49		%	1.99		%	80
NCOs	$	69		$	56		$	13		23
NCOs as a % of average loans and leases	0.21		%	0.18		%	0.03		%	17
Total assets under management (in billions)—eop	$	22.8		$	21.0		$	1.8		9
Total trust assets (in billions)—eop	156.7			129.3			27.4			21

Consumer & Regional Banking reported net income of $1.1 billion in the six-month period of 2023, an increase of $773 million compared to the year-ago period. Segment net interest income increased $1.0 billion, or 76%, primarily due to a 199 basis point increase in NIM driven by the higher rate environment. The provision for credit losses decreased $57 million, or 34%, primarily due to consumer recessionary risk profiles added in second quarter 2022. Average loans and leases increased $2.4 billion, or 4%. Average deposits decreased $2.1 billion, or 2%. Noninterest income decreased $28 million, or 4%, primarily due to decreases in service charges primarily reflecting impact from program changes, lower mortgage banking income primarily reflecting lower salable volume, and in gain on sale of loans resulting from the strategic decision to retain the guaranteed portion of SBA loans at origination, partially offset by a $57 million gain on the sale of our RPS business and an increase in card and payment processing income. Noninterest expense increased $67 million, or 5%, primarily due to gains from branch sales in the six-month period of 2022, higher personnel expense, and increased overhead allocations.

36 Huntington Bancshares Incorporated

Table of Contents


Commercial Banking

Table 21 - Key Performance Indicators for Commercial Banking
	Six months ended June 30,						Change
(dollar amounts in millions)	2023			2022			Amount			Percent
Net interest income	$	1,140		$	837		$	303		36	%
Provision for credit losses	67			(75)			142			NM
Noninterest income	323			290			33			11
Noninterest expense	552			494			58			12
Provision for income taxes	177			149			28			19
Income attributable to non-controlling interest	10			4			6			NM
Net income attributable to Huntington	$	657		$	555		$	102		18	%
Number of employees (average full-time equivalent)	2,240			2,026			214			11	%
Total average assets	$	64,477		$	57,532		$	6,945		12
Total average loans/leases	56,148			50,229			5,919			12
Total average deposits	36,019			33,451			2,568			8
Net interest margin	3.92		%	3.19		%	0.73		%	23
NCOs	$	36		$	(28)		$	64		NM
NCOs as a % of average loans and leases	0.13		%	(0.11)		%	0.24		%	NM

Commercial Banking reported net income of $657 million in the six-month period of 2023, compared to $555 million in the year-ago period. Segment net interest income increased $303 million, or 36%, primarily due to a 73 basis point increase in NIM, driven by the higher rate environment resulting in an increase in spreads and an increase in average loans and leases, partially offset by an increase in average deposits. The provision for credit losses increased $142 million, due to reserve releases in second quarter of 2022 along with modest deterioration in the macroeconomic environment in the current period. Noninterest income increased $33 million, or 11%, primarily due to an increase in capital markets fees, primarily due to higher advisory fees supported by the impact of the Capstone Partners acquisition, partially offset by lower service charges on deposit accounts and a decrease in leasing revenue. Noninterest expense increased $58 million, or 12%, primarily due to an increase in personnel costs reflecting the impact of the Capstone Partners acquisition and an increase in average full-time equivalent employees, partially offset by lower lease financing equipment depreciation, equipment expense, and outside data and other processing services.

Treasury / Other

The Treasury / Other function includes revenue and expense related to assets, liabilities, derivatives, and equity not directly assigned or allocated to one of the two 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, acquisition-related expenses, if any, 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.

Treasury / Other reported a net loss of $582 million in the six-month period of 2023, a decrease of $713 million, compared to the year-ago period, driven by a decrease in net interest income, partially offset by a decrease in provision for income tax. Treasury / Other net interest income decreased $972 million, primarily due to an increase in FTP credit rates on deposits allocated to the business segments.

2023 2Q Form 10-Q 37

Table of Contents

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, or industry conditions; deterioration in business and economic conditions, including persistent inflation, supply chain issues or labor shortages, instability in global economic conditions and geopolitical matters, as well as volatility in financial markets; the impact of pandemics, including the COVID-19 pandemic and related variants and mutations, and their impact on the global economy and financial market conditions and our business, results of operations, and financial condition; the impacts related to or resulting from recent bank failures and other volatility, including potential increased regulatory requirements and costs, such as FDIC special assessments, long-term debt requirements and heightened capital requirements, and potential impacts to macroeconomic conditions, which could affect the ability of depository institutions, including us, to attract and retain depositors and to borrow or raise capital; unexpected outflows of uninsured deposits which may require us to sell investment securities at a loss; rising interest rates which could negatively impact the value of our portfolio of investment securities; the loss of value of our investment portfolio which could negatively impact market perceptions of us and could lead to deposit withdrawals; the effects of social media on market perceptions of us and banks generally; cybersecurity risks; uncertainty in U.S. fiscal and monetary policy, including the interest rate policies of the Federal Reserve; volatility and disruptions in global capital and credit markets; movements in interest rates; transition away from 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; and other factors that may affect the future results of Huntington.

All forward-looking statements speak only as of the date they are made and are based on information available at that time. Huntington does not assume 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.

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.

Fully-Taxable Equivalent Basis

Interest income, yields, and ratios on an FTE basis are considered non-GAAP financial measures. Management believes net interest income on an 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 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.

38 Huntington Bancshares Incorporated

Table of Contents

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 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.

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 2022 Annual Report on 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 critical accounting policies include the allowance for credit losses, fair value measurement, and goodwill. The policies, assumptions, and judgments related to fair value measurement and goodwill are described in the Critical Accounting Policies and Use of Significant Estimates section within the MD&A of Huntington’s 2022 Annual Report on Form 10-K. The following details the policies, assumption, and judgments related to the allowance for credit losses.

Allowance for Credit Losses

Our ACL at June 30, 2023 represents our current estimate of the lifetime credit losses expected from our loan and lease portfolio and our unfunded lending commitments.

One of the most significant judgments influencing the ACL estimate is the macroeconomic forecasts. Key external economic parameters that directly impact our loss modeling framework include forecasted unemployment rates and GDP. 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 macroeconomic variables within our modeling 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.

2023 2Q Form 10-Q 39

Table of Contents

However, to illustrate a hypothetical sensitivity analysis, management calculated a quantitative allowance using a 100% weighting applied to an adverse scenario. This scenario contemplates persisting inflation concerns at the Federal Reserve causing the federal funds rate to remain elevated through third quarter of 2023, ongoing banking industry uncertainty and the tightening of lending standards. Increased geopolitical tensions between China and Taiwan impact the supply chain for semiconductors. The threat of a wider conflict causes consumer confidence to fall. Additionally, the Russian invasion lasts longer than in the baseline scenario further impacting the supply chain. The combination of elevated inflation, banking industry uncertainty, increasing supply chain shortages, political tensions and the federal funds rate remaining elevated cause the stock market to fall. The economy falls into a recession in the third quarter of 2023. Under this scenario, as an example, the unemployment rate increases from baseline levels and remains elevated for a prolonged period, the rate is estimated at 7.1% and 7.3% at the end of 2023 and 2024, respectively. This forecast reflects unemployment rates that are approximately 3.3% and 3.1% higher than baseline scenario projections of 3.8% and 4.2%, respectively, for the same time periods.

To demonstrate the sensitivity to key economic parameters used in the calculation of our ACL at June 30, 2023, management calculated the difference between our quantitative ACL and this 100% adverse scenario. Excluding consideration of qualitative adjustments, this sensitivity analysis would result in a hypothetical increase in our ACL of approximately $1.2 billion at June 30, 2023. This hypothetical increase is reflective of the sensitivity of the rate of change in the unemployment variable on our models.

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;
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 general reserve components and associated risk profile adjustments incorporated by management as part of its overall allowance framework.

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 geopolitical instability or risks of inflation including a near-term recession, 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 geopolitical instability and risks of inflation 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 Consolidated Financial Statements.

40 Huntington Bancshares Incorporated

Table of Contents

Previous: Cover and table of contents · Next: Item 1. Financial Statements