HUNTINGTON BANCSHARES INC MD

This section provides a review of financial performance on a consolidated basis. Key unaudited interim consolidated balance sheet and unaudited interim 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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Average Balance Sheet / Net Interest Income

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

(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.

2024 2Q Form 10-Q 9

Quarterly Net Interest Income

Net interest income for the second quarter of 2024 decreased $34 million, or 3%, from the second quarter of 2023. FTE net interest income, a non-GAAP financial measure, for the second quarter of 2024 decreased $32 million, or 2%, from the second quarter of 2023. The decrease in FTE net interest income primarily reflected a 12 basis point decrease in the FTE NIM to 2.99% and a $7.8 billion, or 6%, increase in average interest-bearing liabilities, partially offset by a $3.2 billion, or 2%, increase in average earning assets. The lower NIM was primarily driven by higher cost of funds given the higher interest rate environment and a $13.0 billion, or 12%, increase in interest-bearing deposits, partially offset by higher loan and lease and investment security yields.

Quarterly Average Balance Sheet

Average assets for the second quarter of 2024 were $194.6 billion, an increase of $3.8 billion, or 2%, from the second quarter of 2023, primarily due to increases in average loans and leases of $2.0 billion, or 2%, and average total securities of $1.3 billion, or 3%. The increase in average loans and leases was driven by growth in average consumer loans of $1.8 billion, or 3%, and average commercial loans and leases of $267 million.

Average liabilities for the second quarter of 2024 increased $3.4 billion, or 2%, from the second quarter of 2023, primarily due to an increase in average deposits of $8.0 billion, or 6%, partially offset by a decrease in total borrowings of $5.1 billion, or 24%. Average deposits increased due to an increase in average interest-bearing deposits of $13.0 billion, or 12%, partially offset by a decrease in noninterest-bearing deposits of $4.9 billion, or 14%. The increase in average interest-bearing deposits was primarily due to increases in average money market deposits and certificates of deposits, partially offset by decreases in savings and other domestic deposits. The decrease in total borrowings was primarily due to lower FHLB borrowings driven by normal management of funding needs.

Average shareholders’ equity for the second quarter of 2024 increased $410 million, or 2%, from the second quarter of 2023 primarily due to earnings, net of dividends, partially offset by an increase in average accumulated other comprehensive loss.

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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.

2024 2Q Form 10-Q 11

Year to Date Net Interest Income

Net interest income for the first six-month period of 2024 decreased $156 million, or 6%, from the year-ago period. FTE net interest income, a non-GAAP financial measure, for the first six-month period of 2024 decreased $150 million, or 5%, from the year-ago period. The decrease in FTE net interest income reflected a 25 basis point decrease in the FTE NIM to 3.00% and a $9.8 billion, or 8%, increase in interest-bearing liabilities, partially offset by a $3.9 billion, or 2%, increase in average total earning assets.

The NIM compression was primarily due to the higher rate environment driving higher cost of funds, partially offset by an increase in loans and lease and investment security yields.

Year to Date Average Balance Sheet

Average assets for the first six-month period of 2024 were $192.4 billion, an increase of $4.6 billion, or 2%, from the year-ago period, primarily due to increases in average loans and leases of $1.8 billion, or 1%, interest-earning deposits with banks of $1.6 billion, or 18%, and total securities of $499 million, or 1%. The increase in average loans and leases included growth in average consumer loans of $1.5 billion, or 3%, and average commercial loans and leases of $307 million.

Average liabilities for the first six-month period of 2024 increased $3.9 billion, or 2%, from the year-ago period, primarily due to an increase in average deposits, partially offset by a decrease in average borrowings. Total average deposits increased $6.3 billion, or 4%, due to an increase in average interest-bearing deposits of $12.6 billion, or 11%, partially offset by a decrease in noninterest-bearing deposits of $6.3 billion, or 17%. The increase in average interest-bearing deposits was driven by increases in average money market deposits and certificates of deposits, partially offset by decreases in savings and other domestic deposits and interest-bearing demand deposits. Average borrowings decreased $2.8 billion, or 15%, driven by a decrease in short-term FHLB borrowings.

Average shareholders’ equity for the first six-month period of 2024 increased $695 million, or 4%, from the year-ago period primarily due to earnings, net of dividends.

Provision for Credit Losses

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

The provision for credit losses for the second quarter of 2024 was $100 million, an increase of $8 million, or 9%, compared to the second quarter of 2023. The increase in provision expense over the prior year quarter reflects increased charge-off activity in the current quarter, primarily in the Commercial portfolio, compared to the year ago quarter, partially offset by an increase in the coverage ratio in the prior year quarter. Provision for credit losses for the first six-month period of 2024 was $207 million, an increase of $30 million, or 17%, compared to the year-ago period. The increase over the prior year-to-date period reflects increased charge-off activity in the Commercial portfolio in the current year and an increase in loan growth in 2024 driving allowance builds, partially offset by a modest reduction in overall coverage ratios in 2024. Overall coverage ratios remain reflective of the current macroeconomic environment including recognition of near-term recessionary risks.

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

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Noninterest Income

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

Noninterest income for the second quarter of 2024 was $491 million, a decrease of $4 million, or 1%, from the year-ago quarter. Other noninterest income decreased $28 million, or 85%, primarily due to an $18 million favorable mark-to-market on pay-fixed swaptions recognized in the second quarter of 2023 and $9 million of contra-revenue related to premium costs and mark-to-market associated with credit risk transfer transactions, inclusive of the CLN transaction, recognized in the second quarter of 2024. Partially offsetting these decreases, capital markets and advisory fees increased $11 million, or 18%, primarily due to higher merger and acquisition advisory service fees. Payments and cash management revenue increased $8 million, or 5%, reflecting higher debit card transaction revenue and commercial treasury management revenue. Wealth and asset management revenue increased $7 million, or 8%, reflecting higher fixed annuity commissions and an increase in assets under management.

Noninterest income for the first six-month period of 2024 decreased $49 million, or 5%, from the year-ago period. Other noninterest income decreased $84 million, or 88%, primarily due to a $57 million gain on the sale of our RPS business and an $18 million favorable mark-to-market on pay-fixed swaptions recognized in the first six-month period of 2023, and $11 million of contra-revenue related to premium costs and mark-to-market associated with credit risk transfer transactions recognized in the first six-month period of 2024. Leasing revenue decreased $10 million, or 20%, primarily driven by a decrease in operating lease income. Partially offsetting these decreases, payments and cash management revenue increased $17 million, or 6%, reflecting higher debit card transaction revenue and commercial treasury management revenue. Wealth and asset management revenue increased $15 million, or 9%, reflecting higher fixed annuity commission and assets under management. Customer deposit and loan fees increased $8 million, or 5%, primarily reflecting higher deposit fees.

2024 2Q Form 10-Q 13

Noninterest Expense

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

Noninterest expense for the second quarter of 2024 was $1.1 billion, an increase of $67 million, or 6%, from the year-ago quarter. Personnel costs increased $50 million, or 8%, primarily due to higher salary, incentive compensation, and benefit expense. Outside data processing and other services increased $17 million, or 11%, reflecting higher technology and data expense. In addition, the second quarter of 2024 included $6 million of additional expense attributable to the FDIC DIF special assessment within deposit and other insurance expense.

Noninterest expense for the first six-month period of 2024 increased $118 million, or 6%, from the year-ago period. Personnel costs increased $40 million, or 3%, primarily due to increases in salary, incentive compensation, and benefit expense, partially offset by a $35 million decrease in severance expense related to staffing efficiencies. Deposit and other insurance expense increased $36 million, or 84%, primarily due to $38 million of additional expense attributable to the FDIC DIF special assessment. Outside data processing increased $32 million, or 11%, primarily due higher technology and data expense. Professional services increased $14 million, or 38%, driven by an increase in consulting fees.

Provision for Income Taxes

The provision for income taxes in the second quarter of 2024 was $106 million, compared to $134 million in the second quarter of 2023. The provision for income taxes for the six-month periods ended June 30, 2024 and June 30, 2023 was $192 million and $278 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 the second quarter of 2024 and second quarter of 2023 was 18.2% and 19.3%, respectively. The effective tax rates for the six-month periods ended June 30, 2024 and June 30, 2023 were 17.5% and 19.2%, respectively. The variance between the second quarter of 2024 compared to the second quarter of 2023, and the six-month period ended June 30, 2024 compared to the six-month period ended June 30, 2023 provision for income taxes and effective tax rates related primarily to lower pretax income and discrete tax benefits.

The net federal deferred tax asset was $693 million, and the net state deferred tax asset was $114 million at June 30, 2024.

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 2019.

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