Huntington(HBAN) - 2023 Q2 - Quarterly Report

Glossary of Acronyms and Terms Provides definitions for key acronyms and terms used throughout the financial report PART I. FINANCIAL INFORMATION Presents unaudited consolidated financial statements and management's discussion and analysis of the company's financial condition, results of operations, and cash flows Item 1. Financial Statements (Unaudited) Presents the unaudited consolidated financial statements, including balance sheets, income statements, comprehensive income statements, statements of changes in shareholders' equity, and cash flow statements, along with their accompanying notes Consolidated Balance Sheets Summarizes the company's financial position, detailing assets, liabilities, and shareholders' equity at specific points in time Total Assets, Liabilities, and Shareholders' Equity | Metric | June 30, 2023 (Millions) | Dec 31, 2022 (Millions) | | :----- | :----------------------- | :---------------------- | | Total Assets | $188,505 | $182,906 | | Total Liabilities | $169,667 | $165,137 | | Total Huntington Shareholders' Equity | $18,788 | $17,731 | Consolidated Statements of Income Reports the company's financial performance over specific periods, detailing revenues, expenses, and net income Net Income Attributable to Huntington | Period | 2023 (Millions) | 2022 (Millions) | Change (Millions) | Change (%) | | :----- | :-------------- | :-------------- | :---------------- | :--------- | | 3 months ended June 30 | $559 | $539 | $20 | 4% | | 6 months ended June 30 | $1,161 | $999 | $162 | 16% | Net Income Per Common Share (Diluted) | Period | 2023 | 2022 | Change | Change (%) | | :----- | :--- | :--- | :----- | :--------- | | 3 months ended June 30 | $0.35 | $0.35 | $0.00 | 0% | | 6 months ended June 30 | $0.74 | $0.64 | $0.10 | 16% | Consolidated Statements of Comprehensive Income Presents the total comprehensive income, including net income and other comprehensive income (loss) items not recognized in the income statement Comprehensive Income (Loss) Attributable to Huntington | Period | 2023 (Millions) | 2022 (Millions) | Change (Millions) | | :----- | :-------------- | :-------------- | :---------------- | | 3 months ended June 30 | $308 | $(245) | $553 | | 6 months ended June 30 | $1,253 | $(870) | $2,123 | Other Comprehensive Income (Loss), net of tax | Period | 2023 (Millions) | 2022 (Millions) | Change (Millions) | | :----- | :-------------- | :-------------- | :---------------- | | 3 months ended June 30 | $(251) | $(784) | $533 | | 6 months ended June 30 | $92 | $(1,869) | $1,961 | Consolidated Statements of Changes in Shareholders' Equity Details the changes in each component of shareholders' equity over the reporting periods, reflecting net income, dividends, and other transactions - Total Huntington Shareholders' Equity at June 30, 2023, was $18,788 million, an increase from $17,731 million at December 31, 2022, primarily due to net income and the issuance of Series J Preferred Stock, partially offset by dividends[210] Consolidated Statements of Cash Flows Reports the cash generated and used by operating, investing, and financing activities over the reporting periods Net Cash Provided by Operating Activities | Period | 2023 (Millions) | 2022 (Millions) | Change (Millions) | Change (%) | | :----- | :-------------- | :-------------- | :---------------- | :--------- | | 6 months ended June 30 | $760 | $1,824 | $(1,064) | (58%) | Net Cash (Used in) Provided by Investing Activities | Period | 2023 (Millions) | 2022 (Millions) | Change (Millions) | | :----- | :-------------- | :-------------- | :---------------- | | 6 months ended June 30 | $(1,132) | $(9,205) | $8,073 | Net Cash Provided by Financing Activities | Period | 2023 (Millions) | 2022 (Millions) | Change (Millions) | Change (%) | | :----- | :-------------- | :-------------- | :---------------- | :--------- | | 6 months ended June 30 | $4,747 | $5,767 | $(1,020) | (18%) | - Cash and cash equivalents at the end of the period increased to $11,079 million at June 30, 2023, from $3,908 million at June 30, 2022[211] Notes to Unaudited Consolidated Financial Statements Provides detailed explanations and additional information supporting the amounts presented in the consolidated financial statements 1. BASIS OF PRESENTATION Outlines the accounting principles, reclassifications, and organizational changes affecting the financial statements' presentation - Reclassified non-real estate secured commercial loans (primarily REITs) from Commercial Real Estate (CRE) to the Commercial and Industrial (C&I) loan category to align reporting with revised risk assessment processes[214] - Completed an organizational realignment, now reporting on two business segments: Consumer & Regional Banking and Commercial Banking, with prior period results adjusted to conform[215] - Adopted ASU 2022-02 (Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings (TDR) and Vintage Disclosures) effective January 1, 2023, eliminating TDR accounting while enhancing disclosure requirements for certain loan modifications[216] 2. ACCOUNTING STANDARDS UPDATE Discusses the adoption of new accounting standards and their impact on the financial statements - Adopted ASU 2022-02, which eliminates TDR accounting and enhances disclosure requirements for certain loan modifications when a borrower is experiencing financial difficulty; the adoption did not result in a material impact on financial statements[219] - ASU 2023-02, permitting proportional amortization for tax equity investments, is effective for fiscal years beginning after December 15, 2023, with no material impact expected upon adoption[220] 3. INVESTMENT SECURITIES AND OTHER SECURITIES Details the composition, fair value, and unrealized gains/losses of the company's investment securities portfolio Total Available-for-Sale Securities | Metric | June 30, 2023 (Millions) | Dec 31, 2022 (Millions) | | :----- | :----------------------- | :---------------------- | | Amortized Cost | $26,823 | $27,103 | | Fair Value | $23,233 | $23,423 | | Gross Unrealized Losses | $(3,687) | $(3,818) | Total Held-to-Maturity Securities | Metric | June 30, 2023 (Millions) | Dec 31, 2022 (Millions) | | :----- | :----------------------- | :---------------------- | | Amortized Cost | $16,578 | $17,052 | | Fair Value | $14,308 | $14,754 | | Gross Unrealized Losses | $(2,270) | $(2,302) | - At June 30, 2023, all Held-to-Maturity (HTM) debt securities are considered investment grade, and there were no HTM debt securities considered past due[229] - No allowance for credit losses related to investment securities was recognized as of June 30, 2023, or December 31, 2022[230] 4. LOANS AND LEASES Provides a comprehensive overview of the loan and lease portfolio, including composition, credit quality, and modifications Loan and Lease Portfolio Overview Summarizes the total loans and leases and their composition by commercial and consumer categories Total Loans and Leases | Metric | June 30, 2023 (Millions) | Dec 31, 2022 (Millions) | Change (Millions) | Change (%) | | :----- | :----------------------- | :---------------------- | :---------------- | :--------- | | Total Loans and Leases | $121,225 | $119,523 | $1,702 | 1.4% | Loan and Lease Portfolio Composition (June 30, 2023) | Category | Amount (Millions) | % of Total | | :------- | :---------------- | :--------- | | Commercial | $68,143 | 56% | | Consumer | $53,082 | 44% | Lease Financing Details the company's lease financing receivables and the interest income recognized from these leases - Total lease financing receivables were $5,143 million at June 30, 2023, down from $5,252 million at December 31, 2022[236] - Interest income recognized for sales-type and direct financing leases was $70 million for the three months ended June 30, 2023, and $138 million for the six months ended June 30, 2023[236] Nonaccrual and Past Due Loans and Leases Reports on loans and leases that are not accruing interest or are significantly past due Total Nonaccrual Loans and Leases (NALs) | Metric | June 30, 3023 (Millions) | Dec 31, 2022 (Millions) | Change (Millions) | Change (%) | | :----- | :----------------------- | :---------------------- | :---------------- | :--------- | | Total NALs | $510 | $569 | $(59) | (10.4%) | - Loans 90 or more days past due and accruing decreased to $169 million at June 30, 2023, from $207 million at December 31, 2022[238] Credit Quality Indicators Describes the methodologies used to assess the credit quality of the commercial and consumer loan portfolios - Credit quality indicators for the Commercial portfolio are based on internally defined categories of credit grades[245] - Credit quality indicators for the Consumer portfolio are based on updated customer credit scores refreshed at least quarterly[245] Modifications to Debtors Experiencing Financial Difficulty Details the types and amounts of loan modifications provided to borrowers facing financial challenges Total Loans Modified for Borrowers Experiencing Financial Difficulty | Period | Total (Millions) | % of Total Loan Class | | :----- | :--------------- | :-------------------- | | 3 months ended June 30, 2023 | $297 | 0.24% | | 6 months ended June 30, 2023 | $439 | 0.36% | - The primary modification types for loans to borrowers experiencing financial difficulty were term extensions ($289 million in Q2 2023) and interest rate reductions ($36 million YTD 2023)[259] - Loans are considered to be in payment default at 90 or more days past due[262] TDR Loans Reports on troubled debt restructurings (TDRs) for prior periods, given the adoption of new accounting standards New Troubled Debt Restructurings (TDRs) (2022) | Period | Number of Contracts | Post-modification Outstanding Recorded Investment (Millions) | | :----- | :------------------ | :------------------------------------------------------- | | 3 months ended June 30, 2022 | 927 | $112 | | 6 months ended June 30, 2022 | 1,829 | $163 | Pledged Loans Discloses the amount of loans pledged as collateral for borrowings and advances from financial institutions - The Bank's borrowings and advances from the Federal Reserve and FHLB are secured by $99.2 billion of loans at June 30, 2023, up from $70.9 billion at December 31, 2022[270] 5. ALLOWANCE FOR CREDIT LOSSES Details the allowance for credit losses (ACL) and the factors influencing its changes, including economic forecasts ACL Balance, End of Period | Metric | June 30, 2023 (Millions) | Dec 31, 2022 (Millions) | Change (Millions) | Change (%) | | :----- | :----------------------- | :---------------------- | :---------------- | :--------- | | Total ACL | $2,342 | $2,271 | $71 | 3.1% | - The commercial ACL increased by $66 million since year-end, driven by a combination of loan and lease growth and modest deterioration in the macro-economic forecast[275] - The baseline economic scenario for the June 30, 2023 ACL determination projects the federal funds rate to have peaked at approximately 5.1% in Q3 2023, inflation to drop to 2.5% by 2024, and unemployment to gradually increase to 4.2% by Q4 2024[276] 6. MORTGAGE LOAN SALES AND SERVICING RIGHTS Reports on residential mortgage loans sold with servicing retained and the fair value of mortgage servicing rights (MSRs) Residential Mortgage Loans Sold with Servicing Retained | Period | 2023 (Millions) | 2022 (Millions) | | :----- | :-------------- | :-------------- | | 3 months ended June 30 | $1,117 | $1,313 | | 6 months ended June 30 | $1,979 | $3,247 | - The fair value of Mortgage Servicing Rights (MSRs) at June 30, 2023, was $505 million, representing the right to service $32.7 billion in mortgage loans[119][279][281] - MSR fair values are sensitive to movements in interest rates, and hedging strategies are employed to reduce this risk[120] 7. BORROWINGS Provides details on the company's short-term and long-term borrowings, including FHLB advances Total Short-Term Borrowings | Metric | June 30, 2023 (Millions) | Dec 31, 2022 (Millions) | | :----- | :----------------------- | :---------------------- | | Total Short-Term Borrowings | $1,680 | $2,027 | Total Long-Term Debt | Metric | June 30, 2023 (Millions) | Dec 31, 2022 (Millions) | | :----- | :----------------------- | :---------------------- | | Total Long-Term Debt | $14,711 | $9,686 | | FHLB Advances | $5,708 | $211 | 8. OTHER COMPREHENSIVE INCOME Details the components of other comprehensive income (loss) and the accumulated other comprehensive income (AOCI) balance Other Comprehensive Income (Loss), net of tax | Period | 2023 (Millions) | 2022 (Millions) | | :----- | :-------------- | :-------------- | | 3 months ended June 30 | $(251) | $(784) | | 6 months ended June 30 | $92 | $(1,869) | - The Accumulated Other Comprehensive Income (AOCI) balance at June 30, 2023, was $(3,006) million, compared to $(3,098) million at December 31, 2022[284] 9. SHAREHOLDERS' EQUITY Reports on the carrying amount of preferred stock and cash dividends declared on preferred shares Total Preferred Stock Carrying Amount | Metric | June 30, 2023 (Millions) | Dec 31, 2022 (Millions) | | :----- | :----------------------- | :---------------------- | | Total Preferred Stock | $2,484 | $2,167 | Total Cash Dividends Declared on Preferred Shares | Period | 2023 (Millions) | 2022 (Millions) | | :----- | :-------------- | :-------------- | | 3 months ended June 30 | $40 | $28 | | 6 months ended June 30 | $69 | $56 | 10. EARNINGS PER SHARE Presents the diluted earnings per common share for the reporting periods Diluted Earnings Per Common Share | Period | 2023 | 2022 | Change | Change (%) | | :----- | :--- | :--- | :----- | :--------- | | 3 months ended June 30 | $0.35 | $0.35 | $0.00 | 0% | | 6 months ended June 30 | $0.74 | $0.64 | $0.10 | 16% | 11. NONINTEREST INCOME Details the components and changes in noninterest income, distinguishing between revenue from customer contracts and other GAAP topics Total Noninterest Income | Period | 2023 (Millions) | 2022 (Millions) | Change (Millions) | Change (%) | | :----- | :-------------- | :-------------- | :---------------- | :--------- | | 3 months ended June 30 | $495 | $485 | $10 | 2% | | 6 months ended June 30 | $1,007 | $984 | $23 | 2% | - Noninterest income from contracts with customers (ASC 606) for the six months ended June 30, 2023, was $709 million, up from $630 million in the prior year[295] - Noninterest income within the scope of other GAAP topics for the six months ended June 30, 2023, was $298 million, down from $354 million in the prior year[295] 12. FAIR VALUES OF ASSETS AND LIABILITIES Reports on assets and liabilities measured at fair value on a recurring basis, including loans held for sale and investment - Total Assets measured at fair value on a recurring basis were $24,738 million at June 30, 2023[300] - Total Liabilities measured at fair value on a recurring basis were $935 million at June 30, 2023[300] - Loans held for sale measured at fair value were $543 million at June 30, 2023, and loans held for investment measured at fair value were $175 million[308] 13. DERIVATIVE FINANCIAL INSTRUMENTS Details the notional value of derivative instruments and their impact on income, distinguishing between hedging and non-hedging derivatives Total Notional Value of Derivatives | Metric | June 30, 2023 (Millions) | Dec 31, 2022 (Millions) | | :----- | :----------------------- | :---------------------- | | Total Notional Value | $112,522 | $86,512 | - Derivatives designated as hedging instruments at June 30, 2023, included $48,379 million in interest rate contracts and $215 million in foreign exchange contracts[328] - Net gains recognized in income for derivatives not designated as hedging instruments for the six months ended June 30, 2023, were $66 million, compared to a net loss of $(35) million in the prior year period[329] 14. VARIABLE INTEREST ENTITIES Reports on unconsolidated variable interest entities (VIEs), including total assets, maximum exposure to loss, and affordable housing tax credit investments Unconsolidated VIEs - Total Assets and Maximum Exposure to Loss | Metric | June 30, 2023 (Millions) | Dec 31, 2022 (Millions) | | :----- | :----------------------- | :---------------------- | | Total Assets | $2,875 | $2,572 | | Maximum Exposure to Loss | $2,861 | $2,558 | - Net affordable housing tax credit investments were $2,186 million at June 30, 2023[367] - Tax credits and other tax benefits recognized from affordable housing tax credit investments were $131 million for the six months ended June 30, 2023, up from $107 million in the prior year period[368] 15. COMMITMENTS AND CONTINGENT LIABILITIES Discloses commitments to extend credit, standby letters of credit, and potential losses from litigation and regulatory matters Commitments to Extend Credit (June 30, 2023) | Category | Contract Amount (Millions) | | :------- | :----------------------- | | Commercial | $32,589 | | Consumer | $19,496 | | Commercial real estate | $2,929 | | Standby letters of credit and guarantees | $749 | - Management estimates the aggregate range of reasonably possible loss from litigation and regulatory matters to be $0 to $20 million at June 30, 2023, in excess of any accrued liability[379] - The FDIC proposed a special assessment to recover costs associated with recent bank failures; the estimated impact for Huntington is approximately $115 million, potentially $199 million if inter-company bank subsidiary deposits are included[28][381] 16. SEGMENT REPORTING Outlines the company's new organizational structure and reports net income by its two primary business segments - Huntington completed an organizational realignment in Q2 2023, now reporting on two business segments: Consumer & Regional Banking and Commercial Banking, with a Treasury / Other function[161][382] Net Income Attributable to Huntington by Business Segment (Six months ended June 30, 2023) | Segment | Amount (Millions) | | :------ | :---------------- | | Consumer & Regional Banking | $1,086 | | Commercial Banking | $657 | | Treasury / Other | $(582) | | Total | $1,161 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides a detailed discussion and analysis of the company's financial condition, changes in financial condition, results of operations, and cash flows, including an executive overview, discussion of financial performance, risk management, capital, and business segment results Executive Overview Presents a high-level summary of the company's recent performance, strategic initiatives, and the economic environment Acquisitions and Divestitures Summarizes recent strategic transactions, including acquisitions to enhance capabilities and divestitures to streamline operations - Completed the acquisition of Torana (now Huntington Choice Pay), a digital payments business, in May 2022 to accelerate payments capabilities[15] - Completed the acquisition of Capstone Partners, an investment bank and advisory firm, in June 2022 to bring national scale to serve middle market business owners[16] - Closed the sale of the Retirement Plan Services (RPS) business in March 2023, resulting in a $57 million gain[17] Summary of 2023 Second Quarter Results Compared to 2022 Second Quarter Highlights key financial performance metrics for the second quarter of 2023 compared to the same period in 2022 Key Financial Highlights (Q2 2023 vs. Q2 2022) | Metric | Q2 2023 (Millions) | Q2 2022 (Millions) | Change (Millions) | Change (%) | | :----- | :----------------- | :----------------- | :---------------- | :--------- | | Net Income | $559 | $539 | $20 | 4% | | Net Interest Income | $1,300 | $1,215 | $85 | 7% | | Provision for Credit Losses | $92 | $67 | $25 | 37% | | Noninterest Income | $495 | $485 | $10 | 2% | | Noninterest Expense | $1,050 | $1,018 | $32 | 3% | - Total assets at June 30, 2023, were $188.5 billion, an increase of $5.6 billion (3%) compared to December 31, 2022, primarily driven by increases in interest-bearing deposits at Federal Reserve Bank and loans and leases[22] - The tangible common equity to tangible assets ratio was 5.80% at June 30, 2023, up 25 basis points from December 31, 2022, and the CET1 risk-based capital ratio was 9.82%, up from 9.36%[23] General (Economy, Objectives) Discusses the prevailing economic conditions, the company's strategic objectives, and future outlook - During Q2 2023, inflation continued to trend lower but remained elevated; the Federal Reserve raised interest rates once in May and paused in June, leading to subsided market volatility and stabilized deposits[24] - The economic forecast assumes a slowdown over the next 12 months with a return to modest growth in 2024, expecting inflation to moderate, resulting in lower GDP growth and higher unemployment[25] - General business objectives include: - Build on 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 - Extend digital leadership with focus on ease of use, access to information, and self-service - Leverage expertise to acquire and deepen relationships and launch 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[25] Other Recent Developments (FDIC Special Assessment, Basel III Capital Rules) Covers recent significant events, including regulatory proposals and their potential financial implications - The FDIC proposed a special assessment in May 2023 to recover costs from recent bank failures; the estimated impact for Huntington is approximately $115 million, potentially $199 million if inter-company bank subsidiary deposits are included[28] - The Federal Banking Agencies released a notice of proposed rulemaking on July 27, 2023, to revise the Basel III Capital Rules, which Huntington is currently evaluating for potential impact[30] Discussion of Results of Operations Analyzes the company's financial performance, focusing on key revenue and expense drivers Quarterly Net Interest Income Examines the net interest income and net interest margin for the most recent quarter, highlighting changes and contributing factors Net Interest Income (Q2 2023 vs. Q2 2022) | Metric | Q2 2023 (Millions) | Q2 2022 (Millions) | Change (Millions) | Change (%) | | :----- | :----------------- | :----------------- | :---------------- | :--------- | | Net Interest Income | $1,346 | $1,261 | $85 | 7% | | FTE Net Interest Income (non-GAAP) | $1,357 | $1,267 | $90 | 7% | | FTE Net Interest Margin (NIM) | 3.11% | 3.15% | -0.04% | -4 bps | - The increase in FTE net interest income primarily reflects a $13.7 billion (8%) increase in average earning assets, partially offset by a 4 basis point decrease in the FTE NIM due to higher cost of funds and the impact from higher cash balances[19][40] Average Balance Sheet (Quarterly) Analyzes the average balances of assets and liabilities for the quarter, identifying significant changes and their drivers - Average assets for Q2 2023 increased $14.2 billion (8%) to $190.7 billion from Q2 2022, primarily due to a $7.5 billion increase in average interest-bearing deposits at the Federal Reserve Bank and a $7.4 billion (6%) increase in average loans and leases[41] - Average liabilities for Q2 2023 increased $13.5 billion (9%) from Q2 2022, primarily due to a $12.4 billion (135%) increase in average borrowings and an $8.4 billion (8%) increase in average interest-bearing deposits, partially offset by a $7.8 billion (18%) decrease in noninterest-bearing deposits[42] Year to Date Net Interest Income Reviews the net interest income and net interest margin for the year-to-date period, detailing factors influencing performance Net Interest Income (YTD 2023 vs. YTD 2022) | Metric | YTD 2023 (Millions) | YTD 2022 (Millions) | Change (Millions) | Change (%) | | :----- | :------------------ | :------------------ | :---------------- | :--------- | | Net Interest Income | $2,755 | $2,407 | $348 | 14% | | FTE Net Interest Income (non-GAAP) | $2,775 | $2,421 | $354 | 15% | | FTE Net Interest Margin (NIM) | 3.25% | 3.02% | 0.23% | 23 bps | - The NIM expansion was driven by the higher rate environment, increasing loan and lease and investment security yields, partially offset by higher cost of funds and higher cash balances[50] Average Balance Sheet (YTD) Analyzes the average balances of assets and liabilities for the year-to-date period, identifying significant changes and their drivers - Average assets for the first six months of 2023 increased $10.8 billion (6%) to $187.8 billion from the year-ago period, primarily due to increases in average loans and leases ($8.3 billion, 7%) and interest-bearing deposits at the Federal Reserve Bank ($3.2 billion, 60%)[52] - Average liabilities for the first six months of 2023 increased $10.8 billion (7%) from the year-ago period, primarily due to increases in average borrowings ($8.1 billion, 78%) and average interest-bearing deposits ($8.0 billion, 8%), partially offset by a $6.2 billion (15%) decrease in noninterest-bearing deposits[53] Provision for Credit Losses Discusses the provision for credit losses, explaining the factors contributing to its changes over the reporting periods Provision for Credit Losses | Period | 2023 (Millions) | 2022 (Millions) | Change (Millions) | Change (%) | | :----- | :-------------- | :-------------- | :---------------- | :--------- | | 3 months ended June 30 | $92 | $67 | $25 | 37% | | 6 months ended June 30 | $177 | $92 | $85 | 92% | - The increase in provision expense was driven by allowance builds that reflect modest deterioration in the current macro-economic forecast and a combination of loan and lease growth[56] Noninterest Income Analyzes the various sources of noninterest income and the factors influencing their changes Total Noninterest Income | Period | 2023 (Millions) | 2022 (Millions) | Change (Millions) | Change (%) | | :----- | :-------------- | :-------------- | :---------------- | :--------- | | 3 months ended June 30 | $495 | $485 | $10 | 2% | | 6 months ended June 30 | $1,007 | $984 | $23 | 2% | - The Q2 2023 increase was primarily due to an $18 million increase from favorable mark-to-market on pay-fixed swaptions, and additional increases in card and payments processing, bank owned life insurance, and trust and investment management services[21][59] - The YTD 2023 increase was primarily due to a $57 million gain on the sale of the RPS business and a $17 million increase from favorable mark-to-market on pay-fixed swaptions, partially offset by decreases in mortgage banking income and service charges on deposit accounts[60] Noninterest Expense Examines the components of noninterest expense and the factors driving their changes, including personnel and marketing costs Total Noninterest Expense | Period | 2023 (Millions) | 2022 (Millions) | Change (Millions) | Change (%) | | :----- | :-------------- | :-------------- | :---------------- | :--------- | | 3 months ended June 30 | $1,050 | $1,018 | $32 | 3% | | 6 months ended June 30 | $2,136 | $2,071 | $65 | 3% | - Personnel costs increased $36 million (Q2) and $105 million (YTD) primarily due to the impact of the Capstone Partners acquisition, merit increases, and voluntary retirement program expense[61][62] - Marketing expense increased $8 million (Q2) and $12 million (YTD) reflecting actions to deepen and acquire new customer relationships[61][62] - These increases were partially offset by reductions in acquisition-related expenses (Q2: $24 million, YTD: $70 million) and outside data processing and other services[61][62] Provision for Income Taxes Reports on the provision for income taxes and effective tax rates, explaining the variances and contributing factors Provision for Income Taxes | Period | 2023 (Millions) | 2022 (Millions) | Change (Millions) | Change (%) | | :----- | :-------------- | :-------------- | :---------------- | :--------- | | 3 months ended June 30 | $134 | $120 | $14 | 12% | | 6 months ended June 30 | $278 | $225 | $53 | 24% | Effective Tax Rates | Period | 2023 | 2022 | | :----- | :--- | :--- | | 3 months ended June 30 | 19.3% | 18.1% | | 6 months ended June 30 | 19.2% | 18.3% | - The variance in provision and effective tax rates primarily relates to a reduction in capital losses, partially offset by an increase in tax credits and the impact of stock-based compensation[63] Risk Management and Capital Discusses the company's strategies and performance related to managing credit, market, liquidity, operational, and compliance risks, as well as capital adequacy Credit Risk Analyzes the company's exposure to credit risk, including loan portfolio composition, credit quality, and allowance for credit losses Loan and Lease Credit Exposure Mix Details the composition of the loan and lease portfolio by commercial and consumer categories Loan and Lease Portfolio Composition (June 30, 2023) | Category | Amount (Millions) | % of Total | | :------- | :---------------- | :--------- | | Commercial | $68,143 | 56% | | Consumer | $53,082 | 44% | | Total Loans and Leases | $121,225 | 100% | - During Q2 2023, Huntington revised its process for assessing and monitoring non-real estate secured commercial loans, reclassifying primarily REIT loans from CRE to the C&I loan category[71] Commercial Credit Provides specific insights into the credit quality and risk management practices for the commercial loan portfolio Consumer Credit Provides specific insights into the credit quality and risk management practices for the consumer loan portfolio Credit Quality Reports on key credit quality indicators, including net charge-offs and nonperforming assets - Net Charge-offs (NCOs) for Q2 2023 were $49 million, or 0.16% of average total loans and leases (annualized), an increase of $41 million compared to $8 million (0.03%) in Q2 2022[80] - Nonperforming Assets (NPAs) decreased by $37 million (6%) from December 31, 2022, largely driven by a decrease in commercial Nonaccrual Loans (NALs)[80] NPAs and NALs Details the levels of nonaccrual loans and leases (NALs) and nonperforming assets (NPAs) Nonaccrual Loans and Leases (NALs) and Nonperforming Assets (NPAs) | Metric | June 30, 2023 (Millions) | Dec 31, 2022 (Millions) | | :----- | :----------------------- | :---------------------- | | Total NALs | $510 | $569 | | Total NPAs | $557 | $594 | | NALs as a % of total loans and leases | 0.42% | 0.48% | | NPA ratio | 0.46% | 0.50% | - Of the $357 million of commercial NALs at June 30, 2023, $207 million (58%) were less than 30-days past due, demonstrating proactive credit risk management[82] ACL Discusses the Allowance for Credit Losses (ACL), its changes, and the underlying economic assumptions and sensitivity analysis Total Allowance for Credit Losses (ACL) | Metric | June 30, 2023 (Millions) | Dec 31, 2022 (Millions) | | :----- | :----------------------- | :---------------------- | | Total ACL | $2,342 | $2,271 | | Total ACL as % of Total loans and leases | 1.93% | 1.90% | - The increase in the total ACL was driven by a combination of loan and lease growth and modest deterioration in the current macro-economic forecast[95] - The baseline scenario for Q2 2023 assumes the unemployment rate will gradually increase, peaking at 4.2% by the end of 2024, and the overnight federal funds rate peaked at approximately 5.1% during Q2 2023[88] - A hypothetical sensitivity analysis applying a 100% weighting to an adverse scenario would result in an approximate $1.2 billion increase in ACL at June 30, 2023[202] NCOs Reports on net charge-offs (NCOs) and their trends, providing insights into the company's credit loss experience Net Charge-offs (NCOs) as a % of Average Loans and Leases (Annualized) | Period | 2023 | 2022 | Change (bps) | | :----- | :--- | :--- | :----------- | | 3 months ended June 30 | 0.16% | 0.03% | 13 | | 6 months ended June 30 | 0.17% | 0.05% | 12 | - Commercial NCOs were an annualized 0.16% in Q2 2023, compared to net recoveries of 0.07% in the year-ago quarter, reflecting the continued normalization of net charge-offs[97] Market Risk Assesses the company's exposure to market risk, including interest rate risk and price risk, and the strategies used to manage them Net Interest Income at Risk Quantifies the potential impact of interest rate changes on net interest income Net Interest Income at Risk (%) | Basis point change scenario | -200 | -100 | +100 | +200 | | :------------------------ | :--- | :--- | :--- | :--- | | At June 30, 2023 | -5.4 | -2.6 | 2.8 | 6.4 | | At December 31, 2022 | -4.1 | -2.0 | 2.0 | 4.0 | - The balance sheet is asset sensitive at both June 30, 2023, and December 31, 2022, with changes in sensitivity attributed to hedging activity, funding mix, deposit modeling assumptions, and market rates[105] Economic Value of Equity at Risk Quantifies the potential impact of interest rate changes on the economic value of equity Economic Value of Equity at Risk (%) | Basis point change scenario | -200 | -100 | +100 | +200 | | :------------------------ | :--- | :--- | :--- | :--- | | At June 30, 2023 | 0.3 | 1.4 | -3.3 | -7.4 | | At December 31, 2022 | 9.0 | 5.9 | -8.0 | -17.3 | - The change in sensitivity from December 31, 2022, was primarily driven by updated deposit modeling assumptions, market rates, continued yield curve inversion, changes in the funding mix, and hedging activity[108] Use of Derivatives to Manage Interest Rate Risk Explains how derivative instruments are utilized to mitigate interest rate risk and manage earnings volatility - Huntington uses derivative instruments (e.g., interest rate swaps, caps, floors) to minimize significant fluctuations in earnings caused by changes in market interest rates[110] - All LIBOR-based instruments have transitioned to SOFR-based replacement rates, with contract remediation efforts completed as of June 2023[109][112] - During the six months ended June 30, 2023, the company entered into $9.6 billion of interest rate swaptions to reduce the impact on capital from rising rates[118] MSRs Discusses Mortgage Servicing Rights (MSRs), their fair value, and the hedging strategies employed to manage associated risks - At June 30, 2023, Huntington had $505 million of capitalized Mortgage Servicing Rights (MSRs), representing the right to service $32.7 billion in mortgage loans[119] - MSR fair values are sensitive to movements in interest rates, and hedging strategies are employed to reduce the risk of MSR fair value changes or impairment[120] Price Risk Describes the company's exposure to price risk from financial instruments carried at fair value and the limits established to manage this risk - Price risk arises from adverse movements in the prices of financial instruments carried at fair value, including trading securities, broker-dealer securities, foreign exchange positions, derivatives, and equity investments[122] - The company has established loss limits on its trading portfolio, foreign exchange exposure, and marketable equity securities to manage price risk[122] Liquidity Risk Addresses the company's liquidity position, sources of funding, and management of off-balance sheet arrangements Bank Liquidity and Sources of Funding Details the bank's core deposits, contingent borrowing capacity, and readiness for federal funding programs - Core deposits were $142.9 billion at June 30, 2023, comprising 97% of total deposits, an increase of $728 million from December 31, 2022, primarily driven by consumer core deposits[126][128] - The Bank's available contingent borrowing capacity at the FHLB and Federal Reserve totaled $77.2 billion at June 30, 2023, up from $53.5 billion at December 31, 2022, reflecting optimization through pledged assets[134] - The Bank has taken steps to support readiness for the Federal Reserve's Bank Term Funding Program but has not participated through June 30, 2023[135] Parent Company Liquidity Reports on the parent company's cash and cash equivalents and estimated cash demands for dividends - The parent company had $3.7 billion in cash and cash equivalents at June 30, 2023, up from $3.5 billion at December 31, 2022[138] - Estimated cash demands for common stock dividends are approximately $224 million per quarter ($0.155 per common share), and for preferred stock dividends, approximately $38 million per quarter[139] Off-Balance Sheet Arrangements Describes various off-balance sheet commitments and contingent liabilities, such as credit extensions and guarantees - Off-balance sheet arrangements include commitments to extend credit, interest rate swaps, caps and floors, swaption collars, financial guarantees (standby letters-of-credit), and commitments by the Bank to sell mortgage loans[143] Operational Risk Defines operational risk and outlines the company's strategies and governance structure for managing it, including cybersecurity - Operational risk is defined as the risk of loss due to human error, third-party performance failures, inadequate internal systems and controls, noncompliance, and external influences[144] - The company actively monitors cyberattacks and has not experienced any material losses to date, employing defense-in-depth strategies and internal training[145][146] - Operational risks are governed by dedicated committees including the Operational Risk Committee, Legal, Regulatory, and Compliance Committee, Funds Movement Committee, and Third Party Risk Management Committee[147] Compliance Risk Discusses the company's exposure to compliance risk from federal and state laws and regulations, and its mitigation efforts - The company is subject to numerous federal and state laws, rules, and regulations, leading to increased overall compliance risk[149] - A team of compliance experts and colleague training are utilized to ensure conformance with applicable laws and regulations[149] Capital Reports on the company's capital adequacy, including regulatory capital ratios, shareholders' equity, and share repurchase programs Shareholders' Equity Details the components of shareholders' equity and regulatory capital ratios, along with stress capital buffer requirements Regulatory Capital Ratios (Consolidated) | Metric | June 30, 2023 | Dec 31, 2022 | | :----- | :------------ | :----------- | | CET1 risk-based capital ratio | 9.82% | 9.36% | | Tier 1 risk-based capital ratio | 11.58% | 10.90% | | Total risk-based capital ratio | 13.82% | 13.09% | | Tier 1 leverage ratio | 9.01% | 8.60% | - Shareholders' equity totaled $18.8 billion at June 30, 2023, an increase of $1.1 billion (6%) compared with December 31, 2022, primarily driven by earnings (net of dividends) and the issuance of perpetual preferred stock[157] - Huntington's indicative Stress Capital Buffer (SCB) requirement associated with its 2023 Capital Plan is 3.2%, effective for the period of October 1, 2023, through September 30, 2024[158] Share Repurchases Provides information on authorized share repurchase programs and actual repurchase activity - The Board authorized the repurchase of up to $1.0 billion of common shares within the eight-quarter period ending December 31, 2024[160] - No shares of common stock were repurchased during the six months ended June 30, 2023[160] - The company does not expect to utilize the share repurchase program during 2023, as organic capital is expected to be used for funding loan and lease growth[160] Business Segment Discussion Analyzes the financial performance and strategic focus of the company's distinct business segments Overview Introduces the company's new organizational structure and the scope of its primary business segments - During Q2 2023, Huntington completed an organizational realignment, now reporting on two business segments: Consumer & Regional Banking and Commercial Banking[161] - The Consumer & Regional Banking segment consolidates the previously reported Consumer and Business Banking, Vehicle Finance, and RBHPCG[161] - The Treasury / Other function includes technology and operations, other unallocated assets, liabilities, revenue, and expense[174] Consumer & Regional Banking Describes the products, services, and strategic focus of the Consumer & Regional Banking segment - The Consumer & Regional Banking segment provides a wide array of financial products and services to consumer and business customers, including deposits, lending, payments, mortgage banking, dealer financing, investment management, trust, brokerage, and insurance[162] - The segment emphasizes its 'Fair Play' banking philosophy, offering differentiated products such as 24-Hour Grace®, Money Scout℠, $50 Safety Zone℠, Standby Cash®, Early Pay, Instant Access, The Hub, and Huntington Heads Up®[163] - Key offerings include Consumer Lending (direct and indirect loans, dealer finance), Regional Banking (serving small to mid-sized businesses, 1 SBA lender), Branch Banking, and Wealth Management[164][165][166][167][168] Commercial Banking Describes the products, services, and strategic focus of the Commercial Banking segment, serving mid-market to large corporate clients - The Commercial Banking segment provides expertise and comprehensive product offerings to mid-market to large corporate clients across a national footprint[169] - The segment leverages internal partnerships for wealth management, trust, insurance, payments (including Huntington ChoicePay), and treasury management capabilities[169] - It includes Middle Market Banking, Corporate, Specialty, and Government Banking, Asset Finance, Commercial Real Estate Banking, and Capital Markets[169] Treasury / Other Explains the role and financial impact of the Treasury / Other function, including technology, operations, and unallocated items - The Treasury / Other function includes technology and operations, other unallocated assets, liabilities, revenue, and expense[174] - Net interest income in this function includes the impact of investment securities portfolios, net impact of derivatives used to hedge interest rate sensitivity, and the financial impact of the Funds Transfer Pricing (FTP) methodology[184] Revenue Sharing Describes the methodology for allocating revenue across business segments based on product and service responsibility - Revenue is initially recorded in the business segment responsible for the related product or service, with fee sharing then allocating portions to other business segments involved in selling or servicing customers[176] Expense Allocation Explains the two-phase approach used to allocate expenses to business segments, covering activity-based costing and overhead allocation - Expenses are allocated to business segments using a two-phase approach: activity-based costing for product origination/servicing, followed by the allocation of overhead costs from Treasury / Other using a full-allocation methodology[177] Funds Transfer Pricing (FTP) Details the centralized methodology used to attribute net interest income to segments and manage interest rate risk - A centralized FTP methodology is used to attribute appropriate net interest income to business segments and to transfer interest rate risk from segments to the Treasury / Other function for centralized monitoring and management[178] Net Income by Business Segment Presents the net income attributable to Huntington for each business segment Net Income Attributable to Huntington by Business Segment (Six months ended June 30, 2023) | Segment | Amount (Millions) | | :------ | :---------------- | | Consumer & Regional Banking | $1,086 | | Commercial Banking | $657 | | Treasury / Other | $(582) | | Total | $1,161 | Consumer & Regional Banking (Detailed) Provides a detailed analysis of the financial performance of the Consumer & Regional Banking segment - Net income for Consumer & Regional Banking was $1.1 billion for the six months ended June 30, 2023, an increase of $773 million compared to the year-ago period[180] - Segment net interest income increased $1.0 billion (76%), primarily due to a 199 basis point increase in Net Interest Margin (NIM) driven by the higher rate environment[180] - Noninterest income decreased $28 million (4%), primarily due to lower service charges, mortgage banking income, and gain on sale of loans, partially offset by a $57 million gain on the sale of the RPS business[180] Commercial Banking (Detailed) Provides a detailed analysis of the financial performance of the Commercial Banking segment - Net income for Commercial Banking was $657 million for the six months ended June 30, 2023, an increase of $102 million (18%) compared to the year-ago period[182] - Segment net interest income increased $303 million (36%), primarily due to a 73 basis point increase in NIM and an increase in average loans and leases[182] - Noninterest income increased $33 million (11%), primarily due to higher capital markets fees supported by the Capstone Partners acquisition[182] Treasury / Other (Detailed) Provides a detailed analysis of the financial performance of the Treasury / Other function - The Treasury / Other function reported a net loss of $582 million for the six months ended June 30, 2023, a decrease of $713 million compared to the year-ago period[185] - Net interest income for Treasury / Other decreased $972 million, primarily due to an increase in Funds Transfer Pricing (FTP) credit rates on deposits allocated to the business segments[185] Additional Disclosures Includes important supplementary information such as forward-looking statements, non-GAAP measures, and critical accounting policies Forward-Looking Statements Provides cautionary language regarding forward-looking statements, outlining inherent risks and uncertainties - The report contains forward-looking statements subject to numerous assumptions, risks, and uncertainties, including changes in economic, political, or industry conditions, deterioration in business conditions, impacts of bank failures, rising interest rates, cybersecurity risks, and regulatory changes[188] - Huntington does not assume any obligation to update forward-looking statements to reflect circumstances or events that occur after the date they were made, except as required by federal securities laws[189] Non-GAAP Financial Measures Explains the use of non-GAAP financial measures and provides context for their presentation - Non-GAAP financial measures, such as Fully-Taxable Equivalent (FTE) net interest income, are used to provide an insightful picture of the interest margin for comparison purposes and to assess the comparability of revenue from taxable and tax-exempt sources[191] - The FTE basis assumes a federal statutory tax rate of 21 percent[191] Non-Regulatory Capital Ratios Lists non-regulatory capital ratios used by the company and clarifies their differences from regulatory capital measures - The company considers non-regulatory capital ratios, such as: - Tangible common equity to tangible assets - Tangible equity to tangible assets - Tangible common equity to risk-weighted assets using Basel III definitions[200] - These ratios differ from regulatory capital ratios by excluding goodwill and other intangible assets and are considered non-GAAP financial measures[193] Critical Accounting Policies and Use of Significant Estimates Identifies key accounting policies requiring significant judgment and estimates, such as the allowance for credit losses - Critical accounting policies include the allowance for credit losses (ACL), fair value measurement, and goodwill[196] - Macroeconomic forecasts, particularly unemployment rates and GDP, are among the most significant judgments influencing the ACL estimate, and changes in these forecasts could materially affect estimated credit losses[198] - A hypothetical sensitivity analysis applying a 100% weighting to an adverse scenario would result in an approximate $1.2 billion increase in ACL at June 30, 2023[202] Item 3. Quantitative and Qualitative Disclosures about Market Risk Provides quantitative and qualitative disclosures regarding market risk, including changes in market risk exposures from previous reports - Quantitative and qualitative disclosures about market risk for the current period can be found in the Market Risk section of this report, which includes changes in market risk exposures from disclosures presented in Huntington's 2022 Annual Report on Form 10-K[388] Item 4. Controls and Procedures Details the effectiveness of the company's disclosure controls and procedures and reports on any material changes in internal control over financial reporting - Huntington's management, with the participation of its CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[389] - There have been no material changes in internal control over financial reporting during the quarter ended June 30, 2023[390] PART II. OTHER INFORMATION This section contains other information not included in the financial statements or management's discussion and analysis, such as legal proceedings, risk factors, unregistered sales of equity securities, and exhibits Item 1. Legal Proceedings Refers to Note 15 "Commitments and Contingent Liabilities" for information on legal and regulatory matters, including the estimated range of possible loss and the FDIC special assessment - Information required by this item is set forth in Note 15 "Commitments and Contingent Liabilities" under the caption "Litigation and Regulatory Matters"[392] Item 1A. Risk Factors Directs readers to the 2022 Annual Report on Form 10-K for a comprehensive discussion of risk factors that could materially affect the company's business, financial condition, or results of operations - Readers should carefully consider the risk factors discussed in Part I, "Item 1A. Risk Factors" in the 2022 Annual Report on Form 10-K, which could materially affect the company's business, financial condition, or results of operations[393] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds States that this item is not applicable and reports no common stock repurchases during the second quarter of 2023 under the authorized $1.0 billion repurchase program - No shares were purchased under the publicly-announced share repurchase authorizations from April 1, 2023, to June 30, 2023[394] - The maximum approximate dollar value that may yet be purchased under the plans or programs is $1,000,000,000[394] Item 5. Other Information Discloses that the Chief Credit Officer adopted a Rule 10b5-1(c) trading plan for the sale of up to 93,290.0445 shares of common stock - Richard A. Pohle, Chief Credit Officer, adopted a trading plan intended to satisfy Rule 10b5-1(c) for the sale of up to 93,290.0445 shares of common stock, terminating by August 1, 2024[395] Item 6. Exhibits Provides an index of exhibits filed with the report, including articles of incorporation, bylaws, certifications, and XBRL documents, and notes that certain documents are incorporated by reference - The exhibit index includes Articles Supplementary, Articles of Restatement, Bylaws, a Separation Agreement, Rule 13a-14(a) Certifications (CEO and CFO), Section 1350 Certifications (CEO and CFO), and Inline XBRL Taxonomy documents[399] - The report incorporates by reference documents previously filed with the SEC, which are considered part of this document unless superseded[397] Signatures Contains the signatures of the Chairman, President, and Chief Executive Officer, and the Chief Financial Officer, certifying the report - The report is signed by Stephen D. Steinour, Chairman, President, and Chief Executive Officer, and Zachary Wasserman, Chief Financial Officer, on July 28, 2023[403]