HUNTINGTON BANCSHARES DEP(HBANM) - 2023 Q4 - Annual Report

Part I Business Huntington Bancshares is a multi-state regional bank providing commercial and consumer services, realigned into two segments, emphasizing "Fair Play Banking" and subject to extensive regulation - Huntington is a multi-state regional bank holding company headquartered in Columbus, Ohio, with 999 full-service branches and private client group offices as of December 31, 2023[18] - In the second quarter of 2023, the company realigned its structure into two new reportable business segments: Consumer & Regional Banking and Commercial Banking[20] - The company's competitive strategy includes its "Fair Play Banking" philosophy, featuring products like 24-Hour Grace®, Asterisk-Free Checking®, and Standby Cash® to attract and retain customers[21][36] Deposit Market Share in Top 10 MSAs (as of June 30, 2023) | MSA | Rank | Deposits (in millions) | Market Share | | :--- | :--- | :--- | :--- | | Columbus, OH | 1 | $41,638 | 40% | | Detroit, MI | 4 | $16,844 | 9% | | Cleveland, OH | 2 | $14,254 | 11% | | Chicago, IL | 11 | $9,149 | 2% | | Minneapolis-St. Paul, MN | 4 | $6,565 | 3% | | Grand Rapids, MI | 1 | $5,605 | 19% | | Indianapolis, IN | 5 | $5,501 | 6% | | Akron, OH | 1 | $5,054 | 28% | | Cincinnati, OH | 5 | $4,497 | 2% | | Pittsburgh, PA | 7 | $4,422 | 2% | Business Segments Huntington consolidated into Consumer & Regional Banking and Commercial Banking segments in Q2 2023, serving diverse client needs from consumers to large corporations - The Consumer & Regional Banking segment combines previously separate units to provide financial products to consumer and business customers through channels like branches, online banking, and call centers[21] - The Commercial Banking segment serves mid-market to large corporate clients with offerings including Middle Market Banking, Corporate/Specialty Banking, Asset Finance, Commercial Real Estate Banking, and Capital Markets[28] - Huntington is the 1 SBA lender in the nation by loan volume as of the federal fiscal year ended September 30, 2023[25] Regulatory Matters Huntington operates under extensive regulation as a Category IV banking organization, subject to enhanced capital, liquidity, and consumer protection standards, including Basel III and CCAR - Huntington and the Bank are classified as a Category IV banking organization, subjecting them to enhanced prudential standards for firms with $100 billion or more in total consolidated assets[41][55] - The company's Stress Capital Buffer (SCB) requirement was set at 3.2% for the period of October 1, 2023, through September 30, 2024, a decrease from the previous 3.3%[73] - In November 2023, the FDIC issued a final rule for a special assessment to cover losses from 2023 bank failures. Huntington recognized an estimated expense of approximately $214 million in Q4 2023 related to this assessment[99] Regulatory Capital Ratios (Consolidated) as of Dec 31, 2023 | Ratio | Minimum Regulatory (%) | Minimum + Buffer (%) | Actual (%) | | :--- | :--- | :--- | :--- | | CET1 risk-based capital | 4.50% | 7.70% | 10.25% | | Tier 1 risk-based capital | 6.00% | 9.20% | 11.98% | | Total risk-based capital | 8.00% | 11.20% | 14.17% | | Tier 1 leverage | 4.00% | N/A | 9.32% | Environmental, Social, and Governance (ESG) Huntington's ESG strategy, overseen by its Board, focuses on sustainable value creation through a $40 billion Community Plan, emissions reduction, high employee engagement, and diverse governance - Launched a five-year, $40 billion Community Plan in June 2021 to support small businesses, affordable housing, and economic justice. As of September 30, 2023, the company has achieved $24.9 billion of this commitment[117] - Established new Scope 1 and 2 emissions reduction goals in 2023 and is progressing towards its goal of using 50% renewable energy[120] - Maintained high employee engagement in 2023, with 85% favorability on trust, 82% on culture, and 84% on engagement, placing it in the top quartile among peers for Culture and Trust[124] - As of December 31, 2023, the combined middle, senior, and executive management levels were 48% diverse (women or racially/ethnically diverse), and the total workforce was 67% diverse[131] Risk Factors Huntington faces significant credit, market, liquidity, operational, compliance, strategic, and reputation risks, including interest rate fluctuations, cybersecurity threats, and regulatory changes - Credit Risk: The ACL of $2.4 billion at Dec 31, 2023, may not be adequate to cover lifetime losses if economic conditions worsen, affecting net income and capital[139] - Market Risk: Changes in interest rates can significantly reduce net interest income and negatively impact the value of loans and securities. Rising rates reduce the value of fixed-rate securities, impacting OCI and tangible equity[144][146] - Liquidity Risk: The company is dependent on dividends from its subsidiary bank for funds. A loss of depositor confidence or diminished access to capital markets could impair its ability to meet obligations[153][155][158] - Operational & Cybersecurity Risk: The company faces significant risks from system failures, cyber-attacks (such as denial of service, hacking, and phishing), and reliance on third-party vendors, which could lead to data breaches, financial loss, and reputational harm[162][163][167] - Compliance Risk: Operating in a highly regulated industry exposes the company to risks from changing laws and regulations. Failure to comply could result in fines, penalties, and business restrictions[189] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[207] Cybersecurity Huntington's cybersecurity program, overseen by the Board's Technology Committee and led by the CISO, integrates into ERM, follows NIST, and employs multi-faceted strategies to mitigate threats - Cybersecurity practices are integrated into the company's Enterprise Risk Management (ERM) approach and follow the NIST cybersecurity framework[209] - The Technology Committee of the Board of Directors oversees the management of cybersecurity threats, receiving regular reports from the Chief Information Security Officer (CISO)[211] - The company employs a multi-faceted strategy including technical safeguards, third-party risk management, employee training, and collaboration with public and private entities to mitigate cyber risks[212] - A member of the Board of Directors has an extensive cybersecurity background, having served as the first-ever U.S. National Cyber Director[213] Properties Huntington's headquarters are in Columbus, Ohio, with commercial headquarters in Detroit, Michigan, and numerous other owned or leased facilities deemed adequate for operations - Headquarters are located in the Huntington Center in Columbus, Ohio, and the commercial headquarters is in the Detroit Tower, Detroit, Michigan[215] - The company owns or leases numerous other facilities, including operations centers, offices, and branches, which are considered adequate for business operations[216] Legal Proceedings Information on legal proceedings is incorporated by reference from Note 22 of the Notes to Consolidated Financial Statements - Details on legal proceedings are provided in Note 22 - "Commitments and Contingent Liabilities" of the Notes to Consolidated Financial Statements[217] Mine Safety Disclosures This item is not applicable to the company - Not applicable[218] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Huntington's common stock trades on Nasdaq under "HBAN," with a $100 investment in 2018 growing to $136 by 2023, underperforming the S&P 500 but slightly outperforming the KBW Bank Index - The company's common stock is traded on the Nasdaq Global Stock Market under the symbol "HBAN"[221] Five-Year Cumulative Total Return Comparison | | 2018 ($) | 2019 ($) | 2020 ($) | 2021 ($) | 2022 ($) | 2023 ($) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | HBAN | $100 | $132 | $117 | $149 | $142 | $136 | | S&P 500 | $100 | $131 | $156 | $200 | $164 | $207 | | KBW Bank Index | $100 | $136 | $122 | $169 | $133 | $132 | Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, Huntington's net income decreased 13% to $2.0 billion due to a $214 million FDIC assessment, despite a 3% rise in net interest income, while maintaining strong credit and capital ratios - Completed the sale of the Retirement Plan Services (RPS) business in March 2023, resulting in a $57 million gain[228] - In Q4 2023, updated noninterest income presentation and revised the Funds Transfer Pricing (FTP) methodology for non-maturity deposits[232][233] 2023 vs. 2022 Financial Highlights | Metric | 2023 (M) | 2022 (M) | Change (M) | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Income | $1,951 | $2,238 | ($287) | (13)% | | Diluted EPS | $1.24 | $1.45 | ($0.21) | (14)% | | Net Interest Income | $5,439 | $5,273 | $166 | 3% | | Noninterest Income | $1,921 | $1,981 | ($60) | (3)% | | Noninterest Expense | $4,574 | $4,201 | $373 | 9% | Discussion of Results of Operations In 2023, net interest income grew 3% to $5.4 billion, while noninterest income decreased 3% to $1.9 billion, and noninterest expense rose 9% to $4.6 billion, largely due to a $214 million FDIC assessment - FTE net interest income increased by $177 million (3%) in 2023, driven by a $8.3 billion (5%) increase in average earning assets and higher yields, partially offset by higher funding costs[256] - The provision for credit losses increased by $113 million (39%) to $402 million in 2023, driven by loan growth and modest ACL coverage ratio builds reflecting the current macroeconomic environment[263] - Noninterest income decreased by $60 million (3%), primarily due to lower gains on loan sales, reduced customer fees, and a decline in mortgage banking income. This was partially offset by a $57 million gain on the sale of the RPS business[264] - Noninterest expense increased by $373 million (9%), largely due to a $214 million FDIC special assessment and a $128 million (5%) increase in personnel costs[266] - The effective tax rate decreased to 17.3% in 2023 from 18.6% in 2022, mainly due to lower pretax income and higher general business credits[268] Risk Management and Capital Huntington manages risk through a comprehensive framework covering credit, market, liquidity, operational, compliance, strategic, and reputation, maintaining strong capital levels with a CET1 ratio of 10.25% and $2.4 billion ACL at year-end 2023 - Risk governance is overseen by three Board committees (Risk Oversight, Technology, Audit) and guided by an aggregate moderate-to-low, through-the-cycle risk appetite[271] - Total loans and leases increased 2% to $122.0 billion at year-end 2023. The portfolio is split 56% commercial and 44% consumer[285] - The Allowance for Credit Losses (ACL) was $2.4 billion, or 1.97% of total loans and leases, at December 31, 2023, up from 1.90% at year-end 2022[345] - Net charge-offs increased to 0.23% of average loans in 2023 from 0.11% in 2022, reflecting normalization, particularly in commercial portfolios[350] - The CET1 risk-based capital ratio improved to 10.25% at Dec 31, 2023, from 9.36% at Dec 31, 2022, driven by earnings and a decrease in risk-weighted assets[421] Business Segment Discussion In 2023, Consumer & Regional Banking net income rose 28% to $1.3 billion, Commercial Banking net income grew 8% to $1.2 billion, while Treasury/Other reported a $543 million net loss due to higher funding costs Net Income (Loss) by Business Segment (in millions) | Segment | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Consumer & Regional Banking | $1,315 | $1,027 | $1,337 | | Commercial Banking | $1,179 | $1,087 | $939 | | Treasury / Other | ($543) | $124 | ($981) | | Total Net Income | $1,951 | $2,238 | $1,295 | - Consumer & Regional Banking: Net income increased by $288 million (28%) in 2023, driven by a $504 million increase in net interest income. Noninterest income was slightly down but included a $57 million gain from the sale of the RPS business[435] - Commercial Banking: Net income increased by $92 million (8%) in 2023. Net interest income grew by $355 million, but the provision for credit losses increased by $127 million, reflecting concerns in the commercial real estate portfolio[439] - Treasury / Other: Reported a net loss of $543 million in 2023, a $667 million decrease from 2022 net income, primarily due to a $693 million drop in net interest income from higher funding costs[443] Financial Statements and Supplementary Data This section incorporates consolidated financial statements, with PricewaterhouseCoopers LLP issuing an unqualified opinion on financial statements and internal controls, noting the valuation of the Allowance for Credit Losses as a critical audit matter - The independent auditor, PricewaterhouseCoopers LLP, provided an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2023[475] - A critical audit matter was identified related to the valuation of the general reserve of the Allowance for Credit Losses, citing the significant management judgment and subjectivity involved[483][484] Consolidated Balance Sheet Highlights (in millions) | | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $189,368 | $182,906 | | Net Loans and Leases | $119,727 | $117,402 | | Total Deposits | $151,230 | $147,914 | | Total Liabilities | $169,970 | $165,137 | | Total Shareholders' Equity | $19,353 | $17,731 | Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of December 31, 2023, with no material changes to internal control over financial reporting in Q4 2023 - The CEO and CFO concluded that Huntington's disclosure controls and procedures were effective as of December 31, 2023[793] - No changes in internal control over financial reporting occurred during the quarter ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, these controls[795] Other Information On November 20, 2023, Chief Marketing and Communications Officer Julie C. Tutkovics adopted a Rule 10b5-1 trading plan for the potential sale of up to 178,395 shares of common stock - Chief Marketing and Communications Officer, Julie C. Tutkovics, adopted a Rule 10b5-1 trading plan on November 20, 2023, for the sale of up to 178,395 shares[796] Part III Directors, Executive Officers, and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the company's 2024 Proxy Statement - Information is incorporated by reference from the registrant's definitive Proxy Statement for the 2024 Annual Shareholders' Meeting[799] Executive Compensation Details on executive officer and director compensation are incorporated by reference from the company's 2024 Proxy Statement - Information is incorporated by reference from the registrant's definitive Proxy Statement for the 2024 Annual Shareholders' Meeting[800] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of December 31, 2023, 34,359,531 securities were issuable under approved equity plans at a $4.53 weighted-average exercise price, with 14,508,872 remaining available for future issuance Equity Compensation Plan Information as of December 31, 2023 | Plan Category | Number of securities to be issued upon exercise (a) | Weighted-average exercise price of outstanding options (b) ($) | Number of securities remaining available for future issuance (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 34,359,531 | $4.53 | 14,508,872 | | Equity compensation plans not approved by security holders | — | — | — | | Total | 34,359,531 | $4.53 | 14,508,872 | Certain Relationships and Related Transactions, and Director Independence Information on related person transactions and director independence is incorporated by reference from the company's 2024 Proxy Statement - Information is incorporated by reference from the registrant's definitive Proxy Statement for the 2024 Annual Shareholders' Meeting[804] Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the "Audit Matters" section of the company's 2024 Proxy Statement - Information is incorporated by reference from the registrant's definitive Proxy Statement for the 2024 Annual Shareholders' Meeting[805] Part IV Exhibits and Financial Statement Schedules This section lists financial statements, schedules, and exhibits filed with or incorporated by reference into the Form 10-K, including governing documents and certifications - This section incorporates by reference the consolidated financial statements from Item 8 and lists all exhibits filed with the report[807][808] Form 10-K Summary This item is not applicable to the company - Not applicable[809]