HUNTINGTON BANCSHARES INC MD

Overview

Our business segments are based on our internally-aligned segment leadership structure, which is how management monitors results and assesses performance. We have two business segments: Consumer & Regional Banking and Commercial Banking. The Treasury / Other function includes technology and operations, and 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.

2024 1Q Form 10-Q 27

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). The primary components of the FTP rate include a base (market) rate, a liquidity premium, and option cost.

Net Income by Business Segment

Net income by business segment is presented in the following table.

28 Huntington Bancshares Incorporated

Consumer & Regional Banking reported net income of $348 million in the three-month period of 2024, an increase of $20 million, or 6%, compared to the year-ago period. Segment net interest income increased $85 million, or 10%, primarily due to a 13 basis point increase in NIM driven by the higher rate environment and a $2.9 billion, or 5%, increase in average loans and leases. Noninterest income decreased $36 million, or 10%, primarily due to a $57 million gain on the sale of our RPS business in the three-month period of 2023, partially offset by increases in payments and cash management revenue, reflecting higher debit card transaction revenue, and wealth and asset management revenue, reflecting higher assets under management and fixed income commissions. Noninterest expense increased $23 million, or 3%, primarily due to the allocation of higher indirect expenses.

Commercial Banking reported net income of $242 million in the first three-month period of 2024, a decrease of $54 million, or 18%, compared to the year-ago period. Segment net interest income decreased $18 million, or 3%, primarily due to a decrease in average loans and leases and deposits as well as a 5 basis point decrease in NIM driven by a lower spread on deposits primarily due to shift in product mix. The provision for credit losses increased $22 million, primarily due to increased charge-off activity in the current quarter. Noninterest income decreased $11 million, or 7%, primarily due to decreases in capital markets and other advisory fees and customer deposits and loan fees, partially offset by an increase in payments and cash management revenue, reflecting higher commercial treasury management revenue. Noninterest expense increased $16 million, or 6%, primarily due to an increase in personnel costs reflecting an increase in average full-time equivalent employees. Also higher were allocated overhead and outside data and other processing services. These increases were partially offset by a decrease in lease financing equipment depreciation.

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 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.

2024 1Q Form 10-Q 29

Treasury / Other reported a net loss of $171 million in the first three-month period of 2024, an increase in net loss of $149 million, compared to the year-ago period, driven by a decrease in net interest income, partially offset by a decrease in provision for income taxes. Net interest income decreased $189 million primarily due to a higher cost of funds. Provision for income taxes decreased $50 million primarily due to lower pre-tax income.