HUNTINGTON BANCSHARES INC MD

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

For a discussion of our results of operations for 2022 versus 2021, see “Part II, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations” Discussion of Results of Operations included in our 2022 Form 10-K, filed with the SEC on February 17, 2023. In addition, discussion of our results of operations for 2022 versus 2021 for noninterest income and business segment discussion where prior period results have been adjusted to conform to the current presentation are included within this MD&A.

Average Balance Sheet / Net Interest Income

Our primary source of revenue is net interest income, which is the difference between interest income from earning assets (primarily loans, leases, and securities), and interest expense of funding sources (primarily interest-bearing deposits and borrowings). Earning asset balances and related funding sources, as well as changes in the levels of interest rates, impact net interest income. The difference between the average yield on earning assets and the average rate paid for interest-bearing liabilities is the net interest spread. Noninterest-bearing sources of funds, such as demand deposits and shareholders’ equity, also support earning assets. The impact of the noninterest-bearing sources of funds, often referred to as “free” funds, is captured in the net interest margin, which is calculated as net interest income divided by average earning assets. Both the net interest margin and net interest spread are presented on an FTE basis, which means that tax-free interest income has been adjusted to a pretax equivalent income, assuming a 21% tax rate.

2023 Form 10-K 47

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

(2)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.

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

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

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

(2)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.

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

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

(5)Reflects the benefit of $89 million mark-to-market of interest rate caps for 2021. There was no impact for 2022.

2023 Form 10-K 49

The following table shows changes in fully-taxable equivalent interest income, interest expense, and net interest income due to volume and rate variances for major categories of earning assets and interest-bearing liabilities:

(1)The change in interest income or expense due to both rate and volume has been allocated between the factors in proportion to the relationship of the absolute dollar amounts of the change in each.

(2)Calculated assuming a 21% tax rate.

Net Interest Income

Net interest income for 2023 increased $166 million, or 3%, from 2022. FTE net interest income, a non-GAAP financial measure, for 2023 increased $177 million, or 3%, from 2022. The increase in FTE net interest income reflected an increase in yields on loans and leases and investment securities and an $8.3 billion, or 5%, increase in average total earning assets, partially offset by higher cost of funds and a $15.3 billion, or 13%, increase in average interest-bearing liabilities.

Net interest income for 2023 included $30 million of net interest income from purchase accounting accretion, compared to $61 million and $21 million from purchase accounting accretion and accelerated PPP loan fees recognized upon forgiveness payments from the SBA, respectively, in 2022.

Average Balance Sheet

Average assets of $187.6 billion for 2023 increased $8.8 billion, or 5%, from 2022, primarily due to increases in average loans and leases of $5.7 billion, or 5%, and average interest-earning deposits with banks of $4.5 billion, or 92%, partially offset by a decrease in average 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 $4.0 billion, or 6%, and average consumer loans of $1.6 billion, or 3%.

Average liabilities for 2023 increased $8.4 billion, or 5%, from 2022, primarily due to increases in average borrowings and deposits. Average borrowings increased $5.2 billion, or 46%, driven by new debt issuances and higher FHLB borrowings reflecting actions taken as part of ongoing management of funding needs. Total average deposits increased $2.5 billion, or 2%, primarily due to an increase in average interest-bearing deposits of $10.1 billion, or 10%, largely due to increases in average certificates of deposits and money market deposits, partially offset by a decrease in average noninterest-bearing deposits of $7.6 billion, or 18%.

Average shareholders’ equity for 2023 increased $371 million, or 2%, from 2022 primarily due to earnings net of dividends, a reduction in average accumulated other comprehensive loss driven by changes in interest rates, and the net issuance of preferred stock.

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Provision for Credit Losses

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

The provision for credit losses is the expense necessary to maintain the ACL at levels appropriate to absorb our estimate of credit losses expected over the life of the loan and lease portfolio, securities portfolio, and unfunded lending commitments.

The provision for credit losses in 2023 was $402 million, an increase of $113 million, or 39%, from 2022. The increase in provision expense over the prior year was driven by a combination of loan and lease growth and modest overall ACL coverage ratio builds throughout 2023 that is reflective of the current macroeconomic environment.

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

Noninterest Income

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

2023 noninterest income was $1.9 billion, a decrease of $60 million, or 3%, from the prior year. Gain on sale of loans decreased $43 million, or 75%, primarily resulting from the strategic decision to retain the guaranteed portion of SBA loans at origination. Customer deposit and loan fees decreased $38 million, or 11%, primarily due to program changes and a reduction in loan commitment fees. Mortgage banking income decreased $35 million, or 24%, primarily reflecting lower secondary marketing spreads and lower salable volume. Capital markets and advisory fees decreased $17 million, or 6%, primarily due to lower interest rate derivative and trading fees, partially offset by an increase in advisory fees. Partially offsetting these decreases, other noninterest income increased $37 million, or 86%, primarily due to a $57 million gain on the sale of our RPS business, including associated goodwill allocation, partially offset by $24 million of unfavorable mark-to-market related to the pay-fixed swaptions program. Wealth and asset management revenue increased $28 million, or 9%, primarily due to an increase in annuity commissions. Payments and cash management revenue increased $24 million, or 4%, primarily due to higher debit and credit card transaction revenue.

2023 Form 10-K 51

2022 noninterest income was $2.0 billion, an increase of $92 million, or 5%, from the prior year. Capital markets and advisory fees increased $109 million, or 70%, primarily reflecting higher advisory fees supported by the impact of Capstone Partners acquisition, in addition to an increase in syndication, foreign exchange, and interest rate derivative fees. Payments and cash management revenue increased $60 million, or 12%, primarily due to the full-period impact on volume due to TCF customers, partially offset by program changes. Gain on sale of loans increased $48 million primarily due to sales of SBA loans during the first through third quarters of 2022. Customer deposit and loan fees increased $40 million, or 13%, primarily due to the full-period impact on volume due to TCF customers, partially offset by the impact from program changes. Wealth and asset management revenue increased $31 million, or 12%, primarily due to the full-period impact of the TCF acquisition and an increase in sales. Leasing revenue increased $27 million, or 27%, primarily due to the full-period impact of the TCF acquisition. Partially offsetting these decreases, mortgage banking income decreased $165 million, or 53%, primarily reflecting lower salable volume and secondary marketing spreads and bank owned life insurance decreased $13 million, or 19%, primarily due to valuation adjustments and lower benefit claims.

Noninterest expense was $4.6 billion, an increase of $373 million, or 9%, from the prior year. Deposit and other insurance expense increased $235 million primarily due to the FDIC DIF special assessment of $214 million and the 2 basis point higher base assessment rate enacted for the banking industry at the beginning of 2023. Personnel costs increased $128 million, or 5%, primarily due to $52 million of expense related to staffing efficiency initiatives, the impact of merit increases, and the impact of the Capstone Partners acquisition, partially offset by $8 million of acquisition-related expenses recognized in the prior year. Marketing expense increased $24 million, or 26%, primarily reflecting actions taken to deepen and acquire new customer relationships. Professional services expense increased $22 million, or 29%, primarily due to an increase in consulting fees related to regulatory and scale initiatives. Partially offsetting these increases, lease financing equipment depreciation decreased $18 million, or 40%, and outside data processing and other services decreased $5 million, or 1%, primarily due to a decrease of $41 million in acquisition-related expenses, partially offset by higher technology investments. Net occupancy remained unchanged as corporate real estate and branch consolidation expenses and a decrease in gain on sale of fixed assets were offset by $32 million in acquisition-related expenses recognized in the prior year.

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Provision for Income Taxes

(This section should be read in conjunction with Note 1 - “Significant Accounting Policies” and Note 18 - “Income Taxes” of the Notes to Consolidated Financial Statements.)

The provision for income taxes was $413 million for 2023, compared with $515 million in 2022. The effective tax rates for 2023 and 2022 were 17.3% and 18.6%, respectively. Both years 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 decrease in the effective tax rate was largely due to lower pretax income, higher general business credits and an increase in discrete tax benefits, partially offset by capital losses recognized in 2022.

The net federal deferred tax asset was $616 million, and the net state deferred tax asset was $94 million at December 31, 2023. As of December 31, 2023 and 2022, there was no valuation allowance on federal deferred taxes. In 2023, a decrease of $1 million in the provision for state income taxes, net of federal tax effect, was recorded for the portion of state deferred tax assets that are not more likely than not to be realized, compared to a decrease of $3 million, net of federal tax effect, in 2022.