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

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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 September 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 Third Quarter Results Compared to 2022 Third Quarter

For the quarter, we reported net income of $547 million, or $0.35 per diluted common share, compared with $594 million, or $0.39 per diluted common share, in the year-ago quarter.

Net interest income was $1.4 billion, a decrease of $36 million, or 3%, from the year-ago quarter. FTE net interest income, a non-GAAP financial measure, decreased $33 million, or 2%, from the year-ago quarter. The decrease in FTE net interest income primarily reflects a 22 basis point decrease in the FTE NIM to 3.20% and a $15.2 billion, or 13%, increase in average interest-bearing liabilities, partially offset by a $6.9 billion, or 4%, increase in average earning assets.

2023 3Q Form 10-Q 5

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The provision for credit losses decreased $7 million from the year-ago quarter to $99 million in the 2023 third quarter. The ACL increased $138 million from the year-ago quarter to $2.4 billion in the 2023 third quarter, or 1.96% of total loans and leases, compared to $2.2 billion, or 1.89% of total loans and leases. The increase in the total ACL was driven by a combination of loan and lease growth and increasing coverage levels that recognize the near-term recessionary risks.

Noninterest income was $509 million, an increase of $11 million, or 2%, and noninterest expense increased $37 million, or 4%, from the year-ago quarter. The increase in noninterest income was primarily due to a $33 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 service charges on deposit accounts, partially offset by decreases in capital markets fees and gain on sale of loans. The increase in noninterest expense was primarily due to increases in personnel costs, deposit and other insurance expense, professional services, equipment expense and outside data processing and other services.

Total assets at September 30, 2023 were $186.7 billion, an increase of $3.7 billion, or 2%, compared to December 31, 2022. The increase in total assets was primarily driven by increases in interest-bearing deposits at the Federal Reserve Bank of $4.9 billion, or 100%, and loans and leases of $1.3 billion, or 1%, partially offset by a decrease in total investment securities of $2.4 billion, or 6%. Total liabilities at September 30, 2023 were $168.1 billion, an increase of $3.0 billion, or 2%, compared to December 31, 2022. The increase in total liabilities was primarily driven by increases in long-term debt of $3.1 billion, or 32%, and total deposits of $1.0 billion, or 1%, partially offset by a decrease in short-term borrowings of $1.3 billion, or 66%.

The tangible common equity to tangible assets ratio was 5.70% at September 30, 2023, up 15 basis points from December 31, 2022, driven by current period earnings, partially offset by dividends and AOCI impacts driven by higher interest rates. CET1 risk-based capital ratio was 10.10%, up from 9.36% from December 31, 2022. The increase in regulatory capital ratios was primarily driven by current period earnings and a decline in risk-weighted assets, 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 recent quarter, inflation continued to trend lower while remaining at elevated levels above the Federal Reserve’s target. The Federal Reserve raised interest rates one time in July and paused in September to further evaluate the impact of their tightening and the overall health of the economy. The economy has continued to expand with second quarter 2023 GDP growth of 2.4%. Market volatility has picked up as the yield curve has steepened. Loan growth and deposits have stabilized across the banking sector and further banking regulation has been proposed with the release of amendments to the regulatory capital rule and long-term debt requirements for banks.

The consensus economic outlook assumes a slowdown over the next three quarters with a return to modest growth in the second half of 2024. Inflation is expected to continue to fall, approaching target levels of 2% by the third quarter of 2024, as the Federal Reserve actions will likely result in lower GDP growth and higher unemployment.

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Our quarterly results reflect continued execution of our growth strategy and leveraging the strength of our balance sheet, delivered through sustained core deposit growth and expansion of common equity tier 1 driven to above 10% by earnings and capital optimization. We have continued our disciplined management of credit consistent 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 dynamic environment. We remain focused on delivering profitable growth and driving value for our shareholders.

Other Recent Developments

Following the failure of several financial institutions in the first half of 2023 and resulting losses to the FDIC’s Deposit Insurance Fund, the FDIC issued 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 special assessment would be applied at an annual rate of approximately 12.5 basis points and assessed over eight quarters, subject to change 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 $199 million. 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 monitor the status of the proposed rule and the impact to our future operating results. We expect to record the impact when the final rule is enacted.

On July 27, 2023, the Federal Banking Agencies, the FDIC, the Federal Reserve, and the OCC, released a notice of proposed rulemaking that would make significant amendments to the Basel III Capital Rules applicable to both the Company and the Bank. In general, the proposed rule would align the regulatory capital calculation methodology for Category III and IV banking organizations with the methodology applicable to Category I and II banking organizations. In addition to calculating risk-weighted assets under the current U.S. standardized approach, the proposal introduces a new “Expanded Risk-Based Approach,” including standardized approaches for credit risk, operational risk and credit valuation adjustment risk, as well as a new approach for market risk that would be based upon internal models and standardized supervisory models. If adopted as proposed, Huntington would be required to calculate its risk-based capital ratios under both the current U.S. standardized approach and the Expanded Risk-Based Approach and would be subject to the lower of the two resulting ratios for each risk-based capital ratio. In addition, the proposal would require banking organizations to recognize most elements of AOCI in regulatory capital, including unrealized gains and losses on available-for-sale securities, and lower thresholds for deductions from CET1 capital for mortgage servicing assets and deferred tax assets, among other things. The proposal, if enacted, would have an effective date of July 1, 2025, with certain elements, such as the recognition of AOCI in regulatory capital and changes in risk-weighted assets calculated under the Expanded Risk-Based Approach, having a three-year phase-in period. We are in the process of evaluating this proposed rulemaking and assessing its potential impact on the Company and the Bank if adopted as proposed.

2023 3Q Form 10-Q 7

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On August 29, 2023, the Federal Banking Agencies released a notice of proposed rulemaking that would require certain large banking organizations such as Huntington to issue and maintain minimum amounts of eligible long-term debt and comply with clean holding company requirements similar to requirements currently applicable to U.S. global systemically important banking organizations. Under the proposal, the Company and the Bank would each be required to maintain a minimum amount of eligible long-term debt equal to the greater of 6% of total risk-weighted assets, 3.5% of average total consolidated assets, and 2.5% of total leverage exposure (if subject to the supplementary leverage ratio). To comply with the requirement, the Bank would be required to issue incremental eligible long-term debt to the Company, and the Company would be required to issue incremental eligible long-term debt externally. The proposed rule would also allow banking organizations to include, as part of the required minimum amounts, certain existing long-term debt. Once the rule is finalized, covered institutions would have three years to comply with the new requirements following a phased-in approach, with 25% of the long-term debt requirement by one year after finalization of the rule, 50% after two years, and 100% after three years. In addition, the clean holding company requirements would limit or prohibit the Company from entering into certain transactions that could impede its orderly resolution, including, for example, prohibiting the Company from issuing short-term debt to, or entering into qualified financial contracts with, non-affiliates and entering into contracts that could spread losses to subsidiaries, as well as limiting the amount of the Company’s liabilities that are not eligible long-term debt. We are in the process of evaluating this proposed rulemaking and assessing its potential impact on the Company and the Bank if adopted as proposed.

On October 25, 2023, the Federal Reserve released a notice of proposed rulemaking that would lower the maximum interchange fee that a large debit card issuer can receive on a debit card transaction. Under the proposal, the base component would initially decrease from 21.0 cents to 14.4 cents, the ad valorem component would decrease from 5.0 basis points to 4.0 basis points multiplied by the value of the transaction, and the fraud-prevention adjustment would increase from 1.0 cents to 1.3 cents for debit card transactions performed from the effective date of the final rule to June 30, 2025. In addition, the proposal would adopt an approach for future adjustments to the interchange fee cap, which would occur every other year based on issuer cost data gathered from large debit card issuers. We will continue to monitor the status of the proposed rule and are beginning the process of evaluating this proposed rulemaking and assessing the scale of its adverse impact on the Company and the Bank.

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.”

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Table 1 - Selected Quarterly Income Statement Data

	Three months ended September 30,			Change
(amounts in millions, except per share data)	2023				2022			Amount		Percent
Interest income	$	2,313			$	1,589		$	724	46	%
Interest expense	945				185			760		NM
Net interest income	1,368				1,404			(36)		(3)
Provision for credit losses	99				106			(7)		(7)
Net interest income after provision for credit losses	1,269				1,298			(29)		(2)
Service charges on deposit accounts	97				93			4		4
Card and payment processing income	103				96			7		7
Capital markets fees	49				73			(24)		(33)
Trust and investment management services	62				60			2		3
Mortgage banking income	27				26			1		4
Leasing revenue	32				29			3		10
Insurance income	31				28			3		11
Gain on sale of loans	2				15			(13)		(87)
Bank owned life insurance income	18				13			5		38

Other noninterest income	88				65			23		35
Total noninterest income	509				498			11		2
Personnel costs	622				614			8		1
Outside data processing and other services	149				145			4		3
Equipment	65				60			5		8
Net occupancy	67				63			4		6
Marketing	29				24			5		21
Professional services	27				18			9		50
Deposit and other insurance expense	25				15			10		67
Amortization of intangibles	12				13			(1)		(8)
Lease financing equipment depreciation	6				11			(5)		(45)
Other noninterest expense	88				90			(2)		(2)
Total noninterest expense	1,090				1,053			37		4
Income before income taxes	688				743			(55)		(7)
Provision for income taxes	136				146			(10)		(7)
Income after income taxes	552				597			(45)		(8)
Income attributable to non-controlling interest	5				3			2		67
Net income attributable to Huntington	547				594			(47)		(8)
Dividends on preferred shares	37				29			8		28

Net income applicable to common shares	$	510			$	565		$	(55)	(10)	%

Average common shares—basic	1,448				1,443			5		—	%
Average common shares—diluted	1,468				1,465			3		—
Net income per common share—basic	$	0.35			$	0.39		$	(0.04)	(10)
Net income per common share—diluted	0.35				0.39			(0.04)		(10)
Return on average total assets	1.16		%		1.31		%
Return on average common shareholders’ equity	12.4				13.9
Return on average tangible common shareholders’ equity (1)	19.5				21.9
Net interest margin (2)	3.20				3.42
Efficiency ratio (3)	57.0				54.4


Revenue and Net Interest Income—FTE (non-GAAP)
Net interest income	$	1,368			$	1,404		$	(36)	(3)	%
FTE adjustment (2)	11				8			3		38
Net interest income, FTE (non-GAAP) (2)	1,379				1,412			(33)		(2)
Noninterest income	509				498			11		2
Total revenue, FTE (non-GAAP) (2)	$	1,888			$	1,910		$	(22)	(1)	%

(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.

2023 3Q Form 10-Q 9

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Table 2 - Selected Year to Date Income Statement Data

	Nine months ended September 30,				Change
(amounts in millions, except per share data)	2023		2022		Amount		Percent
Interest income	$	6,566	$	4,115	$	2,451	60	%
Interest expense	2,443		304		2,139		NM
Net interest income	4,123		3,811		312		8
Provision for credit losses	276		198		78		39
Net interest income after provision for credit losses	3,847		3,613		234		6
Service charges on deposit accounts	267		295		(28)		(9)
Card and payment processing income	298		278		20		7
Capital markets fees	165		169		(4)		(2)
Trust and investment management services	192		188		4		2
Mortgage banking income	86		119		(33)		(28)
Leasing revenue	83		91		(8)		(9)
Insurance income	95		86		9		10
Gain on sale of loans	13		55		(42)		(76)
Bank owned life insurance income	50		41		9		22
Net (losses) gains on sales of securities	(4)		—		(4)		NM
Other noninterest income	271		160		111		69
Total noninterest income	1,516		1,482		34		2
Personnel costs	1,884		1,771		113		6
Outside data processing and other services	448		463		(15)		(3)
Equipment	193		202		(9)		(4)
Net occupancy	181		185		(4)		(2)
Marketing	86		69		17		25
Professional services	64		56		8		14
Deposit and other insurance expense	68		53		15		28
Amortization of intangibles	38		40		(2)		(5)
Lease financing equipment depreciation	22		36		(14)		(39)
Other noninterest expense	242		249		(7)		(3)
Total noninterest expense	3,226		3,124		102		3
Income before income taxes	2,137		1,971		166		8
Provision for income taxes	414		371		43		12
Income after income taxes	1,723		1,600		123		8
Income attributable to non-controlling interest	15		7		8		114
Net income attributable to Huntington	1,708		1,593		115		7
Dividends on preferred shares	106		85		21		25

Net income applicable to common shares	$	1,602	$	1,508	$	94	6	%

Average common shares—basic	1,446		1,441		5		—	%
Average common shares—diluted	1,468		1,464		4		—
Net income per common share—basic	$	1.11	$	1.05	$	0.06	6
Net income per common share—diluted	1.09		1.03		0.06		6


Revenue and Net Interest Income—FTE (Non-GAAP)
Net interest income	$	4,123	$	3,811	$	312	8	%
FTE adjustment	31		22		9		41
Net interest income, FTE (non-GAAP) (1)	4,154		3,833		321		8
Noninterest income	1,516		1,482		34		2
Total revenue, FTE (non-GAAP) (1)	$	5,670	$	5,315	$	355	7	%

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

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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 September 30, 2023						Three months ended September 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	$	9,286	$	127	5.45	%	$	3,204	$	19	2.39	%	$	6,082	NM
Interest-bearing deposits in banks	261		4		6.59		260		2		3.31		1		—
Securities:
Trading account securities	128		1		4.98		24		—		4.12		104		NM
Available-for-sale securities:
Taxable	19,834		259		5.22		21,677		165		3.06		(1,843)		(9)
Tax-exempt	2,807		37		5.08		2,917		25		3.39		(110)		(4)
Total available-for-sale securities	22,641		296		5.20		24,594		190		3.09		(1,953)		(8)
Held-to-maturity securities—taxable	16,356		99		2.43		17,188		95		2.21		(832)		(5)



Other securities	859		19		9.22		804		7		3.21		55		7
Total securities	39,984		415		4.15		42,610		292		2.74		(2,626)		(6)
Loans held for sale	633		10		6.42		986		13		4.98		(353)		(36)
Loans and leases: (4)
Commercial:
Commercial and industrial	49,448		776		6.15		46,029		515		4.37		3,419		7



Commercial real estate	12,955		253		7.63		13,671		165		4.75		(716)		(5)
Lease financing	5,050		73		5.60		4,981		63		4.95		69		1
Total commercial	67,453		1,102		6.39		64,681		743		4.50		2,772		4
Consumer:
Residential mortgage	23,278		213		3.66		21,552		174		3.23		1,726		8
Automobile	12,747		145		4.51		13,514		120		3.53		(767)		(6)
Home equity	10,108		195		7.66		10,431		143		5.43		(323)		(3)
RV and marine	5,813		73		4.96		5,454		59		4.29		359		7
Other consumer	1,385		40		11.67		1,332		32		9.55		53		4
Total consumer	53,331		666		4.97		52,283		528		4.02		1,048		2
Total loans and leases	120,784		1,768		5.76		116,964		1,271		4.28		3,820		3
Total earning assets	170,948		2,324		5.39		164,024		1,597		3.86		6,924		4
Cash and due from banks	1,559						1,697						(138)		(8)
Goodwill and other intangible assets	5,722						5,781						(59)		(1)
All other assets	10,576						10,154						422		4
Allowance for loan and lease losses	(2,206)						(2,099)						(107)		(5)
Total assets	$	186,599					$	179,557					$	7,042	4	%
Liabilities and shareholders’ equity:
Interest-bearing deposits:
Demand deposits—interest-bearing	$	39,757	$	199	1.98	%	$	42,038	$	42	0.40	%	$	(2,281)	(5)	%
Money market deposits	41,445		327		3.12		34,058		25		0.29		7,387		22
Savings and other domestic deposits	17,774		6		0.15		21,439		1		0.02		(3,665)		(17)
Core certificates of deposit (5)	11,348		119		4.17		2,040		1		0.10		9,308		NM
Other domestic deposits of $250,000 or more	406		4		3.78		193		—		0.35		213		110
Negotiable CDs, brokered and other deposits	4,634		58		4.93		4,124		23		2.25		510		12

Total interest-bearing deposits	115,364		713		2.45		103,892		92		0.35		11,472		11
Short-term borrowings	859		17		7.60		2,609		22		3.31		(1,750)		(67)
Long-term debt	13,772		215		6.27		8,251		71		3.40		5,521		67
Total interest-bearing liabilities	129,995		945		2.88		114,752		185		0.64		15,243		13
Demand deposits—noninterest-bearing	32,786						42,116						(9,330)		(22)
All other liabilities	5,028						4,340						688		16
Total liabilities	167,809						161,208						6,601		4
Total Huntington shareholders’ equity	18,741						18,317						424		2
Non-controlling interest	49						32						17		53
Total equity	18,790						18,349						441		2
Total liabilities and equity	$	186,599					$	179,557					$	7,042	4	%
Net interest rate spread					2.51						3.22
Impact of noninterest-bearing funds on margin					0.69						0.20
Net interest margin/NII (FTE)			$	1,379	3.20	%			$	1,412	3.42	%

(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.

2023 3Q Form 10-Q 11

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Quarterly Net Interest Income

Net interest income for the 2023 third quarter decreased $36 million, or 3%, from the 2022 third quarter. FTE net interest income, a non-GAAP financial measure, for the 2023 third quarter decreased $33 million, or 2%, from the 2022 third quarter. The decrease in FTE net interest income primarily reflects a 22 basis point decrease in the FTE NIM to 3.20% and a $15.2 billion, or 13%, increase in average interest-bearing liabilities, partially offset by a $6.9 billion, or 4%, increase in average earning assets. The NIM compression was primarily driven by higher cost of funds and an increase in deposits held at the Federal Reserve Bank, partially offset by the higher rate environment driving an increase in loan and lease and investment security yields.

Quarterly Average Balance Sheet

Average assets for the 2023 third quarter increased $7.0 billion, or 4%, to $186.6 billion from the 2022 third quarter, primarily due to an increase in average interest-bearing deposits at the Federal Reserve Bank of $6.1 billion, and average loans and leases of $3.8 billion, or 3%, partially offset by a decrease in average total securities of $2.6 billion, or 6%. The increase in average loans and leases was driven by growth in average commercial loans and leases of $2.8 billion, or 4%, and average consumer loans of $1.0 billion, or 2%.

Average liabilities for the 2023 third quarter increased $6.6 billion, or 4%, from the 2022 third quarter, primarily due to increases in average borrowings and deposits. Average borrowings increased $3.8 billion, or 35%, driven by new debt issuances and additional FHLB borrowings reflecting actions taken as part of normal management of funding needs. Average deposits increased $2.1 billion, primarily due to an increase in average interest-bearing deposits of $11.5 billion, or 11%, partially offset by a decrease in noninterest-bearing deposits of $9.3 billion, or 22%. The increase in average deposits was primarily due to increases in average certificate of deposits and money market deposits, partially offset by decreases in savings and other domestic deposits and interest-bearing demand deposits.

Average shareholders’ equity for the 2023 third quarter increased $424 million, or 2%, from the 2022 third quarter primarily due to earnings, partially offset by an increase in average accumulated other comprehensive loss driven by changes in interest rates.

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Table 4 - Consolidated YTD Average Balance Sheets and Net Interest Margin (1)
	Nine months ended
	September 30, 2023						September 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	$	8,825	$	339	5.12	%	$	4,629	$	29	0.84	%	$	4,196	91	%
Interest-bearing deposits in banks	246		14		7.60		200		3		1.85		46		23
Securities:
Trading account securities	61		2		4.98		33		1		3.75		28		85
Available-for-sale securities:
Taxable	20,702		743		4.79		22,509		378		2.24		(1,807)		(8)
Tax-exempt	2,731		99		4.79		2,887		66		3.04		(156)		(5)
Total available-for-sale securities	23,433		842		4.79		25,396		444		2.33		(1,963)		(8)
Held-to-maturity securities—taxable	16,696		303		2.42		16,336		251		2.05		360		2



Other securities	1,003		40		5.37		841		18		2.83		162		19
Total securities	41,193		1,187		3.84		42,606		714		2.23		(1,413)		(3)
Loans held for sale	548		25		6.13		1,086		33		4.00		(538)		(50)
Loans and leases: (4)
Commercial:
Commercial and industrial	49,559		2,208		5.88		44,641		1,343		3.97		4,918		11



Commercial real estate	13,323		729		7.21		13,412		389		3.83		(89)		(1)
Lease financing	5,137		212		5.44		4,938		185		4.95		199		4
Total commercial	68,019		3,149		6.10		62,991		1,917		4.01		5,028		8
Consumer:
Residential mortgage	22,793		603		3.53		20,536		478		3.10		2,257		11
Automobile	12,971		408		4.20		13,512		347		3.44		(541)		(4)
Home equity	10,173		563		7.40		10,406		360		4.62		(233)		(2)
RV and marine	5,554		194		4.67		5,293		166		4.19		261		5
Other consumer	1,341		115		11.49		1,301		90		9.21		40		3
Total consumer	52,832		1,883		4.76		51,048		1,441		3.77		1,784		3
Total loans and leases	120,851		5,032		5.52		114,039		3,358		3.91		6,812		6

Total earning assets	171,663		6,597		5.14		162,560		4,137		3.40		9,103		6
Cash and due from banks	1,598						1,672						(74)		(4)
Goodwill and other intangible assets	5,738						5,660						78		1
All other assets	10,594						10,092						502		5
Allowance for loan and lease losses	(2,174)						(2,067)						(107)		(5)
Total assets	$	187,419					$	177,917					$	9,502	5	%
Liabilities and Shareholders’ Equity:
Interest-bearing deposits:
Demand deposits—interest-bearing	$	40,058	$	498	1.66	%	$	41,467	$	56	0.18	%	$	(1,409)	(3)	%
Money market deposits	39,181		754		2.57		33,512		37		0.15		5,669		17
Savings and other domestic deposits	18,818		15		0.11		21,480		3		0.02		(2,662)		(12)
Core certificates of deposit (5)	8,659		245		3.79		2,274		2		0.10		6,385		NM
Other domestic deposits of $250,000 or more	326		8		3.27		244		—		0.24		82		34
Negotiable CDs, brokered and other deposits	4,650		169		4.85		3,522		30		1.14		1,128		32

Total interest-bearing deposits	111,692		1,689		2.02		102,499		128		0.17		9,193		9
Short-term borrowings	3,478		151		5.80		3,139		36		1.52		339		11
Long-term debt	13,700		603		5.87		7,401		140		2.51		6,299		85
Total interest-bearing liabilities	128,870		2,443		2.53		113,039		304		0.36		15,831		14
Demand deposits—noninterest-bearing	34,933						42,157						(7,224)		(17)
All other liabilities	4,960						4,158						802		19
Total liabilities	168,763						159,354						9,409		6
Total Huntington shareholders’ equity	18,607						18,534						73		—
Non-controlling interest	49						29						20		69
Total equity	18,656						18,563						93		1
Total liabilities and shareholders’ equity	$	187,419					$	177,917					$	9,502	5	%
Net interest rate spread					2.61						3.04
Impact of noninterest-bearing funds on margin					0.63						0.11
Net interest margin/NII			$	4,154	3.24	%			$	3,833	3.15	%

(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.

2023 3Q Form 10-Q 13

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Year to Date Net Interest Income

Net interest income for the first nine-month period of 2023 increased $312 million, or 8%, from the year-ago period. FTE net interest income, a non-GAAP financial measure, for the first nine-month period of 2023 increased $321 million, or 8%, from the year-ago period. The increase in FTE net interest income reflected the benefit of a 9 basis point increase in the FTE NIM to 3.24% and a $9.1 billion, or 6%, increase in average total earning assets, partially offset by a $15.8 billion, or 14%, increase in interest-bearing liabilities and lower purchase accounting accretion and accelerated PPP loan fees recognized upon forgiveness payments from the SBA.

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 an increase in deposits held at the Federal Reserve Bank.

Net interest income for the first nine-month period of 2023 included $24 million of net interest income from purchase accounting accretion, compared to $50 million and $20 million from purchase accounting accretion and accelerated PPP loan fees recognized upon forgiveness payments from the SBA, respectively, in the year-ago period.

Year to Date Average Balance Sheet

Average assets for the first nine-month period of 2023 increased $9.5 billion, or 5%, to $187.4 billion from the year-ago period, primarily due to increases in average loans and leases of $6.8 billion, or 6%, and interest-bearing deposits at the Federal Reserve Bank of $4.2 billion, or 91%, partially offset by a decrease in total securities of $1.4 billion, or 3%. The increase in average loans and leases was driven by growth in average commercial loans and leases of $5.0 billion, or 8%, and average consumer loans of $1.8 billion, or 3%.

Average liabilities for the first nine-month period of 2023 increased $9.4 billion, or 6%, from the year-ago period, primarily due to increases in average borrowings and deposits. Average borrowings increased $6.6 billion, or 63%, driven by higher long-term FHLB borrowings and new debt issuances reflecting actions taken as part of normal management of funding needs. Total average deposits increased $2.0 billion, or 1%, primarily due to an increase in average interest-bearing deposits of $9.2 billion, or 9%, largely due to increases in average certificates of deposits and money market deposits, partially offset by a decrease in noninterest-bearing deposits of $7.2 billion, or 17%.

Average shareholders’ equity for the first nine-month of 2023 increased $73 million from the year-ago period primarily due to earnings, partially offset by an increase in average accumulated other comprehensive loss driven by changes in interest rates.

Provision for Credit Losses

(This section should be read in conjunction with the “Credit Risk” section.)

The provision for credit losses for the 2023 third quarter was $99 million, a decrease of $7 million, compared to the 2022 third quarter. On a year-to-date basis, the provision for credit losses for the first nine-month period of 2023 was $276 million, an increase of $78 million, or 39%, compared to the year-ago period. The decrease in provision expense over the prior year quarter was driven by a marginal reduction in loan and lease balances during the 2023 third quarter, compared to strong loan and lease growth in third quarter 2022. The increase over the prior year-to-date period was driven by modest allowance builds and higher levels of Commercial charge-off activity in 2023.

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


Table 5 - Provision for Credit Losses
	Three months ended		Nine months ended
	September 30,			September 30,		September 30,		September 30,
(dollar amounts in millions)	2023			2022		2023		2022
Provision for loan and lease losses	$	104		$	80	$	266	$	151
Provision for unfunded lending commitments	(5)			26		10		43
Provision for securities	—			—		—		4
Total provision for credit losses	$	99		$	106	$	276	$	198

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Noninterest Income

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


Table 6 - Noninterest Income
	Three months ended		Nine months ended
	September 30,			September 30,		Change		September 30,		September 30,		Change
(dollar amounts in millions)	2023			2022		Percent		2023		2022		Percent
Service charges on deposit accounts	$	97		$	93	4	%	$	267	$	295	(9)	%
Card and payment processing income	103			96		7		298		278		7
Capital markets fees	49			73		(33)		165		169		(2)
Trust and investment management services	62			60		3		192		188		2
Mortgage banking income	27			26		4		86		119		(28)
Leasing revenue	32			29		10		83		91		(9)
Insurance income	31			28		11		95		86		10
Gain on sale of loans	2			15		(87)		13		55		(76)
Bank owned life insurance income	18			13		38		50		41		22
Net (losses) gains on sales of securities	—			—		—		(4)		—		(100)
Other noninterest income	88			65		35		271		160		69
Total noninterest income	$	509		$	498	2	%	$	1,516	$	1,482	2	%

Noninterest income for the 2023 third quarter was $509 million, an increase of $11 million, or 2%, from the year-ago quarter. Other noninterest income increased $23 million, or 35%, primarily due to a $33 million increase from favorable mark-to-market on pay-fixed swaptions. Additional increases included card and payment processing income of $7 million, or 7%, primarily driven by an increase in debit card usage, bank owned life insurance income of $5 million, or 38%, and service charges on deposit accounts of $4 million, or 4%. Partially offsetting these increases, capital markets fees decreased $24 million, or 33%, primarily driven by lower syndication and interest rate derivative fees, and gain on sale of loans decreased $13 million, or 87%, primarily resulting from the strategic decision to retain the guaranteed portion of SBA loans at origination.

Noninterest income for the first nine-month period of 2023 increased $34 million, or 2%, from the year-ago period. Other noninterest income increased $111 million, or 69%, primarily due to a $57 million gain on the sale of our RPS business, including associated goodwill allocation, and a $50 million increase from favorable mark-to-market on pay-fixed swaptions. Card and payments processing income increased $20 million, or 7%, largely due to an increase in debit card usage. Partially offsetting these increases, gain on sale of loans decreased $42 million, or 76%, primarily resulting from the strategic decision to retain the guaranteed portion of SBA loans at origination. Mortgage banking decreased $33 million, or 28%, primarily reflecting lower salable volume and spreads. Service charges on deposits accounts decreased $28 million, or 9%, primarily reflecting the impact from program changes.

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Noninterest Expense

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


Table 7 - Noninterest Expense
	Three months ended		Nine months ended
	September 30,			September 30,		Change		September 30,	September 30,		Change
(dollar amounts in millions)	2023			2022		Percent			2023		2022		Percent
Personnel costs	$	622		$	614	1	%		$	1,884	$	1,771	6	%
Outside data processing and other services	149			145		3			448		463		(3)
Equipment	65			60		8			193		202		(4)
Net occupancy	67			63		6			181		185		(2)
Marketing	29			24		21			86		69		25
Professional services	27			18		50			64		56		14
Deposit and other insurance expense	25			15		67			68		53		28
Amortization of intangibles	12			13		(8)			38		40		(5)
Lease financing equipment depreciation	6			11		(45)			22		36		(39)
Other noninterest expense	88			90		(2)			242		249		(3)
Total noninterest expense	$	1,090		$	1,053	4	%		$	3,226	$	3,124	3	%
Number of employees (average full-time equivalent)	19,826			19,997		(1)	%		20,073		19,884		1	%

Noninterest expense for the 2023 third quarter was $1.1 billion, an increase of $37 million, or 4%, from the year-ago quarter. There were no acquisition-related expenses for the 2023 third quarter, compared to $10 million in the year-ago quarter. Deposit and other insurance expense increased $10 million, or 67%, primarily due to the 2 basis point higher base assessment rate enacted for the banking industry at the beginning of 2023 and a shift in balance sheet mix. Professional services increased $9 million, or 50%, largely due to an increase in consulting fees. Personnel costs increased $8 million, or 1%, primarily reflecting $8 million of severance expense related to staffing efficiencies. Additionally, net occupancy expense for the 2023 third quarter included $7 million of corporate real estate consolidation expense.

Noninterest expense for the first nine-month period of 2023 increased $102 million, or 3%, from the year-ago period. There were no acquisition-related expenses for the first nine-month period of 2023, compared to $80 million in the year-ago period. Personnel costs increased $113 million, or 6%, primarily due to $50 million of expense related to staffing efficiencies, the impact of Capstone Partners acquisition, and merit increases, partially offset by an $8 million decrease in acquisition-related expenses. Marketing expense increased $17 million, or 25%, primarily reflecting actions taken to deepen and acquire new customer relationships. Deposit and other insurance expense increased $15 million, or 28%, primarily due to the 2 basis point higher base assessment rate enacted for the banking industry at the beginning of 2023 and a shift in balance sheet mix. Partially offsetting these increases, outside data processing decreased $15 million, or 3%, primarily due to a decrease of $39 million in acquisition-related expenses, partially offset by higher technology investments, and lease financing equipment depreciation decreased $14 million, or 39%. Net occupancy decreased $4 million, or 2%, primarily due to a $22 million decrease in acquisition-related expenses, partially offset by an increase in corporate real estate and branch consolidation expense and a decrease in gain on sale of fixed assets.

Provision for Income Taxes

The provision for income taxes in the 2023 third quarter was $136 million, compared to $146 million in the 2022 third quarter. The provision for income taxes for the nine-month periods ended September 30, 2023 and September 30, 2022 were $414 million and $371 million, respectively. All periods included the benefits from general business credits, tax-exempt income, tax-exempt bank owned life insurance income, and investments in qualified affordable housing projects. The effective tax rate for both the 2023 third quarter and 2022 third quarter was 19.7%. The effective tax rates for the nine-month periods ended September 30, 2023 and September 30, 2022 were 19.4% and 18.8%, respectively. The variance between the nine-month period ended September 30, 2023 compared to the nine-month period ended September 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.

16 Huntington Bancshares Incorporated

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The net federal deferred tax asset was $570 million, and the net state deferred tax asset was $108 million at September 30, 2023.

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.

2023 3Q Form 10-Q 17

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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 September 30, 2023				At December 31, 2022
Commercial:
Commercial and industrial	$	49,422	41	%	$	48,121	41	%



Commercial real estate	12,668		11		13,640		11
Lease financing	5,161		4		5,252		4
Total commercial	67,251		56		67,013		56
Consumer:
Residential mortgage	23,427		19		22,226		19
Automobile	12,724		11		13,154		11
Home equity	10,118		8		10,375		9
RV and marine	5,937		5		5,376		4
Other consumer	1,396		1		1,379		1
Total consumer	53,602		44		52,510		44
Total loans and leases	$	120,853	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.

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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 September 30, 2023				At December 31, 2022
Commercial loans and leases:
Real estate and rental and leasing (1)	$	16,272	13	%	$	16,310	14	%
Retail trade (2)	10,776		9		9,894		8
Manufacturing	7,564		6		7,809		7
Finance and insurance (1)	4,856		4		5,005		4
Health care and social assistance (1)	4,370		4		4,293		4
Wholesale Trade	3,656		3		3,922		3
Accommodation and food services	3,137		3		3,335		3
Transportation and warehousing	3,101		3		3,246		3
Professional, scientific, and technical services	1,998		2		1,899		2
Utilities	1,932		2		1,298		1
Other Services	1,816		2		2,097		2
Construction	1,679		1		1,757		1
Admin./Support/Waste Mgmt. and Remediation Services	1,446		1		1,370		1
Arts, entertainment, and recreation	1,357		1		1,424		1
Information	1,246		1		1,167		1
Public administration	651		1		667		1
Educational services	434		—		513		—
Agriculture, forestry, fishing, and hunting	407		—		455		—
Management of companies and enterprises	128		—		127		—
Mining, quarrying, and oil and gas extraction	123		—		196		—
Unclassified/other	302		—		229		—
Total commercial loans and leases by industry category	67,251		56		67,013		56
Residential mortgage	23,427		19		22,226		19
Automobile	12,724		11		13,154		11
Home equity	10,118		8		10,375		9
RV and marine	5,937		5		5,376		4
Other consumer loans	1,396		1		1,379		1
Total loans and leases	$	120,853	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 $2.9 billion and $2.3 billion of auto dealer services loans at September 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 third quarter reflected NCOs of $73 million, or 0.24% of average total loans and leases, annualized, an increase of $29 million, compared to $44 million, or 0.15%, in the year-ago quarter. The increase was driven by a $30 million increase in commercial NCOs to $45 million in the 2023 third quarter. NPAs increased from December 31, 2022 by $40 million, or 7%, largely driven by an increase in commercial NALs.

2023 3Q Form 10-Q 19

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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 $430 million of commercial related NALs at September 30, 2023, $286 million, or 67%, 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 September 30, 2023			At December 31, 2022
Nonaccrual loans and leases (NALs):
Commercial and industrial	$	314		$	288
Commercial real estate	102			92
Lease financing	14			18
Residential mortgage	75			90
Automobile	4			4
Home equity	82			76
RV and marine	1			1

Total nonaccrual loans and leases	592			569



Other real estate, net	14			11
Other NPAs (1)	28			14
Total nonperforming assets	$	634		$	594

Nonaccrual loans and leases as a % of total loans and leases	0.49		%	0.48		%
NPA ratio (2)	0.52			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

The baseline scenario used for the 2023 third quarter assumes softening of the labor market is underway and will continue through the middle of 2025 causing the unemployment rate to gradually increase, peaking at 4.2% in mid-2025 and remaining at that level through 2027. The overnight federal funds rate is forecasted to have peaked during the third quarter of 2023, remaining at this terminal level until mid-2024 as the Federal Reserve continues to address inflation levels and tightness in the labor market. The expectation is that the Federal Reserve would then start to cut rates in the second half of 2024, although monetary policy remains restrictive until the end of 2026. The federal funds rate is forecasted to return to its neutral rate of 2.5% in early 2027. Inflation is forecasted to drop from an average of 4.1% in 2023 to 2.7% in 2024, approaching the Federal Reserve target level of 2% by third quarter 2024, as a result of the Federal Reserve’s actions. The GDP forecast for the fourth quarter 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 1.9% by the fourth quarter of 2024.

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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	%


3Q 2023	N/A		N/A		3.7		4.0		4.2

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


3Q 2023	N/A		N/A		0.3		1.5		1.9

(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 political uncertainty, 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, higher interest rates, and the significant conflicts on-going around the world 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 September 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.

2023 3Q Form 10-Q 21

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The table below reflects the allocation of our ALLL among our various loan and lease categories as well as certain coverage metrics of the reported ALLL and ACL:


Table 12 - Allocation of Allowance for Credit Losses

(dollar amounts in millions)	At September 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	$	973		44	%	41	%	$	939		45	%	41	%
Commercial real estate	483			22		11		433			20		11
Lease financing	48			2		4		52			2		4
Total commercial	1,504			68		56		1,424			67		56
Consumer
Residential mortgage	200			10		19		187			8		19
Automobile	143			6		11		141			7		11
Home equity	115			5		8		105			5		9
RV and marine	151			7		5		143			7		4
Other consumer	95			4		1		121			6		1
Total consumer	704			32	%	44	%	697			33	%	44	%
Total ALLL	2,208							2,121
AULC	160							150
Total ACL	$	2,368						$	2,271
Total ALLL as a % of
Total loans and leases	1.83		%					1.77		%
Nonaccrual loans and leases	373							373
NPAs	348							357
Total ACL as % of
Total loans and leases	1.96		%					1.90		%
Nonaccrual loans and leases	400							400
NPAs	373							382

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

At September 30, 2023, the ACL was $2.4 billion, or 1.96% 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 overall coverage ratio builds throughout 2023. The ACL coverage ratio at September 30, 2023 is reflective of the current macro-economic environment including recognition of the near-term recessionary risks.

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NCOs

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


Table 13 - Net Charge-off Analysis
	Three months ended			Nine months ended
	September 30,				September 30,			September 30,			September 30,
(dollar amounts in millions)	2023				2022			2023			2022
Net charge-offs (recoveries) by loan and lease type:
Commercial:
Commercial and industrial	$	32			$	16		$	68		$	(11)
Commercial real estate	11				(3)			36			1
Lease financing	2				2			(3)			4
Total commercial	45				15			101			(6)
Consumer:
Residential mortgage	1				(1)			2			(2)
Automobile	4				3			12			3
Home equity	—				(2)			(1)			(5)
RV and marine	3				2			7			6
Other consumer	20				27			58			75
Total consumer	28				29			78			77
Total net charge-offs	$	73			$	44		$	179		$	71




Net charge-offs (recoveries) - annualized percentages:
Commercial:
Commercial and industrial	0.26		%		0.14		%	0.18		%	(0.03)		%



Commercial real estate	0.35				(0.07)			0.37			0.01
Lease financing	0.12				0.17			(0.08)			0.11
Total commercial	0.27				0.10			0.20			(0.01)
Consumer:
Residential mortgage	0.01				(0.02)			0.01			(0.01)
Automobile	0.14				0.07			0.13			0.03
Home equity	(0.01)				(0.07)			(0.02)			(0.06)
RV and marine	0.16				0.17			0.16			0.16
Other consumer	6.09				8.09			5.88			7.72
Total consumer	0.21				0.22			0.20			0.20
Net charge-offs as a % of average loans and leases	0.24		%		0.15		%	0.20		%	0.08		%

NCOs were an annualized 0.24% of average loans and leases in the current quarter, up from 0.15% in the 2022 third quarter. NCOs for the commercial portfolios were higher, with annualized net charge-offs of 0.27% in the current quarter, compared to 0.10% in the year-ago quarter, reflecting the continued normalization of net charge-offs. Consumer charge-offs were modestly lower in the quarter, compared to the year-ago quarter.

NCOs were an annualized 0.20% of average loans and leases for the first nine-month period of 2023, up from 0.08% in the year ago period. NCOs for the commercial portfolios were higher with annualized net charge-offs of 0.20% in the current period compared to net recoveries of 0.01% in the year-ago period. Consumer charge-offs remained consistent in the period, compared to the year-ago period.

2023 3Q Form 10-Q 23

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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 September 30, 2023	-5.3	-2.7	2.9	5.6
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 September 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.

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Table 15 - Economic Value of Equity at Risk

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

At September 30, 2023	1.7	1.9	-3.2	-6.7
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 and market rates, 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. Contract remediation efforts coordinated by the LIBOR transition team were complete as of June 2023. Upon the discontinuation of LIBOR, loans and leases that reference LIBOR were 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.

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.

In the second quarter of 2023, all cleared derivatives that referenced LIBOR 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 referenced LIBOR were transitioned to a SOFR-based replacement rate as set forth in the related contract. Those derivatives that did not have a clearly defined or practicable replacement benchmark rate set forth in the related contract used 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 received 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 were economically similar to the instruments held prior to the transition.

2023 3Q Form 10-Q 25

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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 September 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 September 30, 2023
Asset conversion swaps
Securities (1):

Pay Fixed - Receive SOFR	$	10,791	3.34		$	992	1.37	%	5.40	%
Pay Fixed - Receive SOFR - forward starting (2)	928		8.71		43		2.81		—
Loans:
Receive Fixed - Pay SOFR - forward starting (3)	1,400		4.45		(53)		2.90		—

Receive Fixed - Pay SOFR	9,275		3.31		(486)		2.77		5.31


Liability conversion swaps

Receive Fixed - Pay SOFR	7,568		3.65		(400)		2.95		4.82


Purchased swaption collars
Purchased Interest Rate Swaption Collars (4)	2,000		0.41		(12)		3.20 / 4.50		—
Purchased floors
Purchased Floor Spread - SOFR (4)	5,000		2.54		24		2.97 / 3.97		—

Basis swaps

Pay SOFR- Receive Fed Fund (economic hedges) (5)	174		2.83		—		5.33		5.32
Pay Fed Fund - Receive SOFR (economic hedges) (5)	1		12.06		—		5.36		5.33
Purchased swaptions
Pay Fixed - Receive SOFR Swaptions (economic hedges)	15,450		0.71		98		5.03		—
Total swap portfolio	$	52,587			$	206





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 (6)	91		7.31	12		1.62		—
Pay Fixed - Receive SOFR - forward starting (7)	1,926		6.17	85		2.17		—
Loans:
Receive Fixed - Pay SOFR - forward starting (8)	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 (4)	4,800		0.27	(6)		2.87 / 4.05		—
Basis swaps
Pay SOFR- Receive Fed Fund (economic hedges) (5)	174		3.58	—		4.33		4.31
Pay Fed Fund - Receive SOFR (economic hedges) (5)	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)Forward starting swaps effective starting from April 2025 to October 2027.

(3)Forward starting swaps effective starting from July 2024 to January 2025.

(4)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.

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

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

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

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

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As of September 30, 2023, we have $15.5 billion of interest rate swaptions with an average strike price of 5.03% 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 September 30, 2023, we had a total of $547 million of capitalized MSRs representing the right to service $33.0 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 secured funding sources from the FHLB and Federal Reserve 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 September 30, 2023, management believes current sources of liquidity are sufficient to meet Huntington’s on and off-balance sheet obligations.

2023 3Q Form 10-Q 27

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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 $144.2 billion at September 30, 2023 which comprised 97% of total deposits, compared to $142.1 billion, and 96% of total deposits, at December 31, 2022. The $2.1 billion 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 September 30, 2023				At December 31, 2022
Total deposits by type:
Demand deposits—noninterest-bearing	$	31,666	21	%	$	38,242	26	%
Demand deposits—interest-bearing	39,822		27		43,136		29
Money market deposits	42,996		29		36,082		24
Savings and other domestic deposits	17,350		12		20,357		14
Core certificates of deposit (1)	12,372		8		4,324		3
Total core deposits:	144,206		97		142,141		96
Other domestic deposits of $250,000 or more	446		—		220		—
Negotiable CDs, brokered and other deposits	4,215		3		5,553		4

Total deposits	$	148,867	100	%	$	147,914	100	%









Total core deposits:
Commercial	$	61,379	43	%	$	64,107	45	%
Consumer	82,827		57		78,034		55
Total core deposits	$	144,206	100	%	$	142,141	100	%

Total deposits (insured/uninsured):
Insured deposits	$	104,183	70	%	$	100,631	68	%


Uninsured deposits (2)	44,684		30		47,283		32

Total deposits	$	148,867	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 September 30, 2023, the Bank Call Report uninsured deposit balance was $49.1 billion, which includes $4.5 billion of inter-company deposits. As of December 31, 2022, the Bank Call Report uninsured deposit balance was $84.6 billion, which includes $37.3 billion of inter-company deposits.

Cash and cash equivalents were $11.4 billion and $6.7 billion at September 30, 2023 and December 31, 2022, respectively. The $4.7 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.

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Total investment securities were $38.1 billion at September 30, 2023, compared to $40.5 billion at December 31, 2022. The $2.4 billion decrease in securities compared to December 31, 2022, was primarily due to runoff during the period. At September 30, 2023, the duration of the investment securities portfolio was 4.5 years, or 3.6 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 September 30, 2023, investment securities with market value of $5.2 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 $18.2 billion at September 30, 2023, compared to $17.5 billion at December 31, 2022. The increase from year-end is primarily due to increases in long-term FHLB borrowings and senior notes, partially offset by decreases in negotiable CDs, brokered and other deposits, and short-term FHLB borrowings.

Bank Liquidity and Sources of Funding

Our primary sources of funding for the Bank are consumer and commercial core deposits. At September 30, 2023, these core deposits funded 77% of total assets (119% 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 September 30, 2023, the Bank’s available contingent borrowing capacity at the FHLB and Federal Reserve totaled $79.9 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 September 30, 2023.

At September 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 $4.1 billion and $3.5 billion at September 30, 2023 and December 31, 2022 in cash and cash equivalents, respectively.

On October 18, 2023, our Board of Directors declared a quarterly common stock cash dividend of $0.155 per common share. The dividend is payable on January 2, 2024, to shareholders of record on December 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 October 18, 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 January 16, 2024 to shareholders of record on January 1, 2024. On September 12, 2023, our Board of Directors declared a quarterly dividend for the Series I Preferred Stock payable on December 1, 2023 to shareholders of record on November 15, 2023. Total cash demands required for preferred stock dividends are expected to be approximately $38 million per quarter.

During the first nine months of 2023, the Bank paid preferred and common dividends to the parent company of $34 million and $1.4 billion, respectively. To meet any additional liquidity needs, the parent company may issue debt or equity securities.

2023 3Q Form 10-Q 29

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At September 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.

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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 September 30, 2023			At December 31, 2022
Total risk-weighted assets	Consolidated	$	140,688		$	141,940
	Bank	140,738			141,571
CET1 risk-based capital	Consolidated	14,211			13,290
	Bank	14,574			14,133
Tier 1 risk-based capital	Consolidated	16,705			15,467
	Bank	15,785			15,334
Tier 2 risk-based capital	Consolidated	3,141			3,106
	Bank	2,350			2,313
Total risk-based capital	Consolidated	19,846			18,573
	Bank	18,135			17,647
CET1 risk-based capital ratio	Consolidated	10.10		%	9.36		%
	Bank	10.36			9.98
Tier 1 risk-based capital ratio	Consolidated	11.87			10.90
	Bank	11.22			10.83
Total risk-based capital ratio	Consolidated	14.11			13.09
	Bank	12.89			12.47
Tier 1 leverage ratio	Consolidated	9.43			8.60
	Bank	8.53			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 September 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 September 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 and a decline in risk-weighted assets, partially offset by dividends and the CECL transitional amount.

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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 $18.5 billion at September 30, 2023, an increase of $752 million, or 4%, when compared with December 31, 2022. The increase was primarily driven by earnings, net of dividends, and the issuance of perpetual preferred stock, partially offset by accumulated other comprehensive loss driven by changes in interest rates.

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%, 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%, effective for the period of October 1, 2023 through September 30, 2024. Although we were not subject to the Federal Reserve’s 2023 supervisory stress test, our 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 nine months ended September 30, 2023, we 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 and proposed changes to regulatory capital requirements, we do not expect to utilize the share repurchase program through 2024. 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.

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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.

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.

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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.

Capital Markets delivers corporate risk management, institutional sales and trading, debt and equity issuance, and additional 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 nine-month periods ending September 30, 2023 and September 30, 2022 is presented in the following table:


Table 19 - Net Income by Business Segment
	Nine months ended September 30,
(dollar amounts in millions)	2023		2022
Consumer & Regional Banking	$	1,617	$	670
Commercial Banking	1,002		803



Treasury / Other	(911)		120
Net income attributable to Huntington	$	1,708	$	1,593

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Consumer & Regional Banking

Table 20 - Key Performance Indicators for Consumer & Regional Banking
	Nine months ended September 30,						Change
(dollar amounts in millions)	2023			2022			Amount			Percent
Net interest income	$	3,569		$	2,237		$	1,332		60	%
Provision for credit losses	192			189			3			2
Noninterest income	953			979			(26)			(3)
Noninterest expense	2,283			2,179			104			5
Provision for income taxes	430			178			252			142	%
Net income attributable to Huntington	$	1,617		$	670		$	947		141	%
Number of employees (average full-time equivalent)	11,673			12,002			(329)			(3)	%
Total average assets	$	70,791		$	68,967		$	1,824		3
Total average loans/leases	64,914			62,558			2,356			4
Total average deposits	105,019			106,025			(1,006)			(1)
Net interest margin	4.47		%	2.77		%	1.70		%	61
NCOs	$	106		$	85		$	21		25
NCOs as a % of average loans and leases	0.22		%	0.18		%	0.04		%	22
Total assets under management (in billions)—eop	$	22.3		$	20.2		$	2.1		10
Total trust assets (in billions)—eop	163.4			138.2			25.2			18

Consumer & Regional Banking reported net income of $1.6 billion in the nine-month period of 2023, an increase of $947 million, or 141%, compared to the year-ago period. Segment net interest income increased $1.3 billion, or 60%, primarily due to a 170 basis point increase in NIM driven by the higher rate environment and a $2.4 billion, or 4%, increase in average loans and leases. Noninterest income decreased $26 million, or 3%, primarily due to decreases in service charges primarily reflecting the 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 $104 million, or 5%, primarily due to gains from branch sales in the nine-month period of 2022, in addition to increases in personnel expense, deposit and other insurance expense, and overhead allocations.


Commercial Banking

Table 21 - Key Performance Indicators for Commercial Banking
	Nine months ended September 30,						Change
(dollar amounts in millions)	2023			2022			Amount			Percent
Net interest income	$	1,722		$	1,327		$	395		30	%
Provision for credit losses	84			9			75			NM
Noninterest income	479			470			9			2
Noninterest expense	830			763			67			9
Provision for income taxes	270			215			55			26
Income attributable to non-controlling interest	15			7			8			114	%
Net income attributable to Huntington	$	1,002		$	803		$	199		25	%
Number of employees (average full-time equivalent)	2,258			2,079			179			9	%
Total average assets	$	64,184		$	58,699		$	5,485		9
Total average loans/leases	55,719			51,185			4,534			9
Total average deposits	36,242			34,269			1,973			6
Net interest margin	3.95		%	3.29		%	0.66		%	20
NCOs	$	73		$	(13)		$	86		NM
NCOs as a % of average loans and leases	0.17		%	(0.03)		%	0.20		%	NM

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Commercial Banking reported net income of $1.0 billion in the nine-month period of 2023, compared to $803 million in the year-ago period. Segment net interest income increased $395 million, or 30%, primarily due to a 66 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 $75 million, due to a combination of coverage level builds in the commercial real estate portfolio and C&I loan growth during 2023. Noninterest income increased $9 million, or 2%, primarily due to increases in capital markets fees, primarily due to higher advisory fees supported by the impact of the Capstone Partners acquisition, partially offset by lower interest rate derivative and syndication fees, and in trust and investment management services. Partially offsetting these increases was a decrease in service charges on deposit accounts. Noninterest expense increased $67 million, or 9%, 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 $911 million in the nine-month period of 2023, a decrease of $1.0 billion, 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 $1.4 billion, primarily due to an increase in FTP credit rates on deposits allocated to the business segments.

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.

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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.

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.

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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 September 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.

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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 fourth 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 fourth quarter of 2023. In response to the recession, the Federal Reserve starts lowering the federal funds rate in the first quarter of 2024 with significant rate reductions by the end of 2024. 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 5.5% and 7.8% at the end of 2023 and 2024, respectively. This forecast reflects unemployment rates that are approximately 1.8% and 3.6% higher than baseline scenario projections of 3.7% 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 September 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 $1.1 billion at September 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.

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