HUNTINGTON BANCSHARES INC /MD/ (HBAN) FY 2023 MD&A

Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

This MD&A provides information we believe necessary for understanding our financial condition, changes in financial condition, results of operations, and cash flows. The MD&A should be read in conjunction with the Consolidated Financial Statements, Notes to Consolidated Financial Statements, and other information contained in this report. The forward-looking statements in this section and other parts of this report involve assumptions, risks, uncertainties, and other factors, including statements regarding our plans, objectives, goals, strategies, and financial performance. Our actual results could differ materially from the results anticipated in these forward-looking statements as a result of factors set forth under the caption “Forward-Looking Statements” and those set forth in Item 1A.

EXECUTIVE OVERVIEW

Acquisitions and Divestitures

In March 2023, Huntington completed the sale of the RPS business and entered into an ongoing partnership with the purchaser. The sale of our RPS business resulted in a $57 million gain including associated goodwill allocation, recorded within other noninterest income.

In June 2022, Huntington completed the acquisition of Capstone Partners, a top tier middle market investment bank and advisory firm. The transaction brings a national scale to serve middle market business owners throughout the corporate lifecycle, building on Huntington’s regional banking foundation. Capstone Partners related revenue, including mergers and acquisitions, capital raising and other advisory-related fees, is recognized within capital markets fees in the Consolidated Statements of Income. For further information, refer to Note 3 - “Business Combinations” of the Notes to Consolidated Financial Statements.

In May 2022, Huntington completed the acquisition of Torana, now known as Huntington ChoicePay, a digital payments business focused on business to consumer payments. This acquisition, along with the formation of our enterprise-wide payments group, reflects one of our strategic priorities to accelerate our payments capabilities and expand the services provided to our customers.

In June 2021, Huntington closed the acquisition of TCF Financial Corporation. TCF was a financial holding company headquartered in Detroit, Michigan with operations across the Midwest. The acquisition brought increased scale and market density, as well as added new markets and capabilities. Our operating results include the impact of TCF subsequent to the acquisition on June 9, 2021. For further information, refer to Note 3 - “Business Combinations” of the Notes to Consolidated Financial Statements.

Reporting Updates

During the fourth quarter of 2023, we updated the presentation of our noninterest income categories to align product and service types more closely with how we strategically manage our business. For a description of each updated noninterest income revenue stream refer to Note 15 - “Revenue from Contracts with Customers” of the Notes to the Consolidated Financial Statements.

During the fourth quarter of 2023, we revised our FTP methodology for non-maturity deposits, which has been enhanced to consider the internally modeled weighted average life by non-maturity deposit type. In general, the impact of the FTP methodology revision resulted in a higher cost of funds allocation as compared with the previous method.

To align with our strategic priorities, during the second quarter of 2023, we completed an organizational realignment and now report on 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. Huntington’s business segments are based on our internally-aligned segment leadership structure, which is how management monitors results and assesses performance. The organizational realignment primarily involved consolidating our previously reported Consumer and Business Banking, Vehicle Finance and RBHPCG, into one new business segment called Consumer & Regional Banking.

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During the second quarter of 2023, we revised our process for assessing and monitoring the risk and performance of non-real estate secured commercial loans, primarily loans to REITs. These loans were reclassified from commercial real estate to the commercial and industrial loan category to align reporting with this process revision.

For the reporting updates discussed above, prior period results have been adjusted to conform to the current presentation.

2023 Financial Performance Review

Selected Financial Data

(1)    On an FTE basis assuming a 21% tax rate.

In 2023, we reported net income of $2.0 billion, a $287 million, or 13%, decrease from the prior year. Earnings per common share on a diluted basis for the year were $1.24, down 14% from the prior year. The current year reported net income was negatively impacted by the recognition of the FDIC DIF special assessment totaling $214 million, or $169 million after tax ($0.11 per common share), to recover the cost associated with protecting uninsured depositors as part of the 2023 bank failures and $69 million, or $55 million after tax ($0.04 per common share), of expense from staffing related initiatives and the consolidation of corporate locations. The prior year’s reported net income was negatively impacted by acquisition-related expenses totaling $95 million, or $76 million after tax ($0.05 per common share).

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Net interest income for 2023 was $5.4 billion, up $166 million, or 3%, from 2022. FTE net interest income, a non-GAAP financial measure, increased $177 million, or 3%, from 2022. The increase in FTE net interest income reflected an increase in earning asset yields and the benefit of a $8.3 billion, or 5%, increase in average earning assets, partially offset by higher cost of funds and a $15.3 billion, or 13%, increase in average interest-bearing liabilities. Average earning asset growth included a $5.7 billion, or 5%, increase in loans and leases and a $4.5 billion, or 92%, increase in interest-earning deposits with banks, partially offset by a $1.4 billion, or 3%, decrease in average securities. The growth in average interest-bearing liabilities included a $10.1 billion, or 10%, increase in average interest-bearing deposits and a $5.2 billion, or 46%, increase in average borrowings.

The provision for credit losses increased $113 million, or 39%, to $402 million, primarily 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 ACL was $2.4 billion, or 1.97% of total loans and leases, at December 31, 2023, compared to $2.3 billion, or 1.90% of total loans and leases, at December 31, 2022.

Noninterest income of $1.9 billion, decreased $60 million, or 3%, from the prior year primarily due to lower gain on sale of loans, customer deposit and loan fees, and mortgage banking income, in addition to $24 million of unfavorable mark-to-market on the pay-fixed swaptions program, partially offset by a $57 million gain on the sale of our RPS business and increases in payments and cash management revenue and wealth and asset management revenue. Noninterest expense of $4.6 billion, increased $373 million, or 9%, from the prior year primarily due to the FDIC DIF special assessment of $214 million and an increase in personnel costs, partially offset by a decrease in acquisition-related expenses.

Total assets at December 31, 2023 were $189.4 billion, an increase of $6.5 billion, or 4%, compared to December 31, 2022. The increase in total assets was primarily driven by increases in interest-earning deposits with banks of $3.6 billion, or 71%, and loans and leases of $2.5 billion, or 2%. Total liabilities at December 31, 2023 were $170.0 billion, an increase of $4.8 billion, or 3%, compared to December 31, 2022. The increase in total liabilities was primarily driven by increases in total deposits of $3.3 billion, or 2%, and borrowings of $1.3 billion, or 11%.

The tangible common equity to tangible assets ratio was 6.14% at December 31, 2023, up 59 basis points from December 31, 2022, primarily due to an increase in tangible common equity related to earnings, net of dividends, and a decrease in accumulated other comprehensive loss due in part from a modest decline in interest rates at year-end, partially offset by higher tangible assets. CET1 risk-based capital ratio was 10.25%, up from 9.36% at December 31, 2022. The increase in regulatory capital ratios was primarily driven by earnings and a decrease in risk-weighted assets, partially offset by dividends. The decrease in risk-weighted assets was largely driven by the synthetic CRT related to an approximately $3 billion portfolio of on-balance sheet prime indirect auto loans.

Business Overview

General

Our general business objectives are to:

•Build on our 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 through our distinguished brand and culture;

•Extend our digital leadership with focus on ease of use, access to information, and self-service across products and services;

•Leverage expertise and capabilities to acquire and deepen relationships and launching of select partnerships;

•Maintain positive operating leverage and execute disciplined capital management; and

•Provide stability and resilience through risk management, while maintaining an aggregate moderate-to-low, through-the-cycle risk appetite.

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Economy

Inflation continues to trend lower while remaining at levels above the Federal Reserve’s long run target. The Federal Reserve has shifted policy to a more balanced interest rate view and continues to further evaluate the impact of their monetary tightening and the overall health of the economy. The economy has continued to expand with fourth quarter of 2023 growth trending towards 2.0%. Equity markets have remained buoyant anticipating easier policy from the Federal Reserve in 2024. Further banking regulation has been delayed as recent regulatory proposals have been in their comment periods for an extended amount of time, with clarity on proposed amendments to the regulatory capital rule and long-term debt requirements for banks anticipated.

The consensus economic outlook assumes a soft landing through the first half of 2024 with modest growth in the second half of 2024. Inflation is expected to continue to fall, approaching target levels of 2% by the third quarter of 2024, as the Federal Reserve actions will likely result in lower GDP growth and higher unemployment.

Our 2023 results reflect the execution of our growth strategy and leveraging the strength of our balance sheet, delivered through sustained deposit growth, bolstered capabilities across our payments and other fee revenue areas, and expansion of our CET1. We have continued our disciplined management of credit consistent with our aggregate moderate-to-low, through-the-cycle risk appetite. With our disciplined and proactive approach, we believe Huntington is well positioned to manage through the uncertain economic outlook on the horizon. We remain focused on delivering profitable growth and driving value for our shareholders.

Legislative and Regulatory

A comprehensive discussion of legislative and regulatory matters affecting us can be found in Item 1: Business - “Regulatory Matters” section of this Form 10-K.

DISCUSSION OF RESULTS OF OPERATIONS

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.

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(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.

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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.

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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.

RISK MANAGEMENT AND CAPITAL

Risk Governance

Risk awareness, identification and assessment, reporting, and active management are key elements in overall risk management. Controls include, among other, effective segregation of duties, access management, and authorization and reconciliation procedures, as well as staff education and a disciplined assessment process.

We use a multi-faceted approach to risk governance. It begins with the Board of Directors, which has defined our risk appetite as aggregate moderate-to-low, through-the-cycle. This does not preclude engagement in select higher risk activities. Rather, the definition is intended to represent an aggregate view of where we want our overall risk to be managed.

Three Board committees primarily oversee implementation and monitoring of the risk appetite:

•Our Risk Oversight Committee assists the Board in overseeing management of material risks, the approval and monitoring of our capital position and plan that aligns to our overall aggregate moderate-to-low, through-the-cycle risk appetite, the risk governance structure, compliance with applicable laws and regulations, and determining adherence to the board’s stated risk appetite. The ROC has oversight responsibility of our key risk exposures: credit, market, liquidity, compliance, operational, strategic, and reputational. Both our Chief Risk Officer and Credit Review Director report directly to the ROC. This committee also oversees our capital management and planning process, ensures that the amount and quality of capital are adequate in relation to expected and unexpected risks, and that our capital levels exceed “well-capitalized” requirements.

•Our Technology Committee assists our Board in fulfilling its oversight responsibilities with respect to all technology and cybersecurity strategies and plans. The Technology Committee is charged with evaluating Huntington’s capability to properly perform all technology functions necessary for its business plan, including projected growth, technology capacity, planning, operational execution, product development, and management capacity. Our Technology Committee provides oversight of technology investments and plans to drive efficiency as well as to meet defined standards for risk, information security, and redundancy. Our Technology Committee oversees the allocation of technology costs and ensures that they are understood by the Board. Our Technology Committee monitors and evaluates innovation and technology trends that may affect our strategic plans, including monitoring of overall industry trends. The Technology Committee reviews and provides oversight of our continuity and disaster recovery planning and preparedness.

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•Our Audit Committee oversees the integrity of the consolidated financial statements, including policies, procedures, and practices regarding the preparation of financial statements, the financial reporting process, disclosures, and internal control over financial reporting. The Audit Committee also provides assistance to our Board in overseeing the internal audit department and the independent registered public accounting firm’s qualifications and independence; compliance with our Financial Code of Ethics for the chief executive officer and senior financial officers; compliance with corporate securities trading policies; compliance with legal and regulatory requirements; and financial risk exposures in coordination with the ROC.

Our Audit and Risk Oversight Committees routinely hold executive sessions with our key officers engaged in accounting and risk management. On a periodic basis, the two committees meet in joint session to cover matters relevant to both, such as the construct and appropriateness of the ACL, which is reviewed quarterly. All directors have access to information provided to each committee and all scheduled meetings are open to all directors.

Our Risk Oversight and Technology Committees hold joint sessions to cover matters relevant to both such as cybersecurity and IT risk and control projects and risk assessments.

Further, through our Human Resources and Compensation Committee, our Board seeks to ensure its overall compensation programs are balanced and align the interests of management, creditors, and shareholders. We utilize a variety of compensation-related tools to induce appropriate behavior, including common stock ownership thresholds for the chief executive officer and certain members of senior management, equity deferrals, recoupment provisions, and the right to terminate compensation plans at any time.

Management has implemented an Enterprise Risk Management and Risk Appetite Framework. Critically important is our self-assessment process, in which each first-line business segment produces an analysis of its risks and the strength of its risk controls. The segment analyses are combined with assessments by our second-line risk management organization of major risk sectors (e.g., credit, market, liquidity, operational, compliance, strategic, and reputation) to produce an overall enterprise risk assessment. Outcomes of the process include a determination of the quality of the overall control environment, the direction of risk, and our position compared to the Board’s defined risk appetite.

Management also utilizes a wide range of metrics (key risk indicators) to monitor risk positions throughout the Company. In general, thresholds for each metric are established, which allows the Company to operate within an aggregate moderate-to-low, through-the-cycle risk appetite. Deviations from the thresholds will indicate if the risk being measured exceeds desired tolerance, which may then necessitate corrective action.

We also have executive level committees to manage and oversee risk, including: ALCO, Credit Policy and Strategy, Risk Management, and Capital Management. Each committee focuses on specific categories of risk and is supported by a series of subcommittees that are tactical in nature. We believe this structure helps ensure appropriate escalation of issues and overall communication of strategies.

Huntington utilizes three lines of defense with regard to risk management: (1) business segments, (2) corporate risk management, and (3) internal audit and credit review. To induce greater ownership of risk within our business segments, segment risk officers have been embedded in the business to identify and monitor risk, elevate and remediate issues, establish controls, perform self-testing, and oversee the self-assessment process. Corporate Risk Management establishes policies, sets operating limits, reviews new or modified products/processes, oversees first-line risk-taking activity, and produces the enterprise risk assessment. The Chief Risk Officer has significant input into the design and outcome of incentive compensation plans. Internal audit and credit review provide additional assurance that risk-related functions are operating as intended.

Huntington classifies/aggregates risk into seven risk pillars. Huntington recognizes that risks can be interrelated or embedded within each other, and therefore managing across risk pillars is a key component of the framework. The following defines the Company’s risk pillars:

•Credit risk, which is the risk of loss due to loan and lease customers or other counterparties not being able to meet their financial obligations under agreed upon terms;

•Market risk, which occurs when fluctuations in interest rates impact earnings and capital. Financial impacts are realized through changes in the interest rates of balance sheet assets and liabilities (net interest margin) or directly through valuation changes of capitalized MSR and/or trading assets (noninterest income);

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•Liquidity risk, which is the risk to current or anticipated earnings or capital arising from an inability to meet obligations when they come due. Liquidity risk includes the inability to access funding sources or manage fluctuations in funding levels. Liquidity risk also results from the failure to recognize or address changes in market conditions that affect our ability to liquidate assets quickly and with minimal loss in value;

•Operational risk, which is the risk of loss arising from inadequate or failed internal processes or systems, including information security breaches or cyberattacks, human errors or misconduct, or adverse external events. Operational losses result from internal fraud, external fraud, inadequate or inappropriate employment practices and workplace safety, failure to meet professional obligations involving customers, products, and business practices, damage to physical assets, business disruption and systems failures, and failures in execution, delivery, and process management;

•Compliance risk, which exposes us to money penalties, enforcement actions, or other sanctions as a result of non-conformance with laws, rules, and regulations that apply to the financial services industry;

•Strategic risk, which is defined as risk to current or anticipated earnings, capital, or enterprise value arising from adverse business decisions, improper implementation of business decisions or lack of responsiveness to industry / market changes; and

•Reputation risk, which is the risk that negative publicity regarding an institution’s business practices, whether true or not, will cause a decline in the customer base, costly litigation, or revenue reductions.

A comprehensive discussion of risk management and capital matters affecting us can be found in the Risk Factors section included in Item 1A: Risk Factors and the “Regulatory Matters” section of Item 1: Business of this Form 10-K.

Some of the more significant processes used to manage and control credit, market, liquidity, operational, and compliance risks are described in the following sections.

Credit Risk

Credit risk is the risk of financial loss if a counterparty is not able to meet the agreed upon terms of the financial obligation. The majority of our credit risk is associated with lending activities, as the acceptance and management of credit risk is central to profitable lending. We also have credit risk associated with our investment securities portfolios (see Note 4 - "Investment Securities and Other Securities" of the Notes to Consolidated Financial Statements). We engage with other financial counterparties for a variety of purposes including investing, asset and liability management, mortgage banking, and trading activities. A variety of derivative financial instruments, principally interest rate swaps, caps, swaptions, swaption collars, floors, forward contracts, and forward starting interest rate swaps are used in asset and liability management activities to protect against the risk of adverse price or interest rate movements. We also use derivatives, principally loan sale commitments, in hedging our mortgage loan interest rate lock commitments and mortgage loans held for sale. While there is credit risk associated with derivative activity, we believe this exposure is minimal. (See Note 1 - "Significant Accounting Policies" of the Notes to Consolidated Financial Statements.)

We focus on the early identification, monitoring, and management of all aspects of our credit risk. In addition to the traditional credit risk mitigation strategies of credit policies and processes, market risk management activities, and portfolio diversification, we use quantitative measurement capabilities utilizing external data sources, enhanced modeling technology, and internal stress testing processes. Our ongoing expansion of portfolio management resources is central to our commitment to maintaining an aggregate moderate-to-low, through-the-cycle risk appetite. In our efforts to identify risk mitigation techniques, we have focused on product design features, origination policies, and solutions for delinquent or stressed borrowers.

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The maximum level of credit exposure to individual credit borrowers is limited by policy guidelines based on the perceived risk of each borrower or related group of borrowers. Authority to grant commitments sits with the independent credit administration function, with limited exceptions, and is closely monitored and regularly updated. Concentration risk is managed through limits on loan type, industry, and loan quality factors. We focus predominantly on extending credit to consumer and commercial customers with existing or expandable relationships within our primary banking markets, although we will consider lending opportunities outside our primary markets if we believe the associated risks are acceptable and aligned with strategic initiatives. Although we offer a broad set of products, we continue to develop new lending products and opportunities. Each of these new products and opportunities goes through a rigorous development and approval process prior to implementation to ensure our overall objective of maintaining an aggregate moderate-to-low risk portfolio profile.

The checks and balances in the credit process and the separation of the credit administration and risk management functions are designed to appropriately assess and sanction the level of credit risk being accepted, facilitate the early recognition of credit problems when they occur, and provide for effective problem asset management and resolution. For example, we do not extend additional credit to delinquent borrowers except in certain circumstances that substantially improve our overall repayment or collateral coverage position.

Loan and Lease Credit Exposure Mix

At December 31, 2023, our loans and leases totaled $122.0 billion, representing a $2.5 billion, or 2%, increase compared to $119.5 billion at December 31, 2022.

The table below provides the composition of our total loan and lease portfolio:

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Total commercial loans and leases were $68.3 billion at December 31, 2023 and represented 56% of our total loan and lease credit exposure at that date. Our commercial loan portfolio is diversified by product type, customer size, and geography, and is comprised of the following (see Commercial Credit discussion):

C&I – C&I loans are made to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, or other projects, and to institutional sponsors supporting REITs. We focus on borrowers doing business within our geographic markets. C&I loans are generally underwritten individually and secured with the assets of the company and/or the personal guarantee of the business owners. The financing of owner-occupied facilities is considered a C&I loan even though there is improved real estate as collateral. This treatment is a result of the credit decision process, which focuses on cash flow from operations of the business to repay the debt. The operation, sale, rental, or refinancing of the real estate is not considered the primary repayment source for these types of loans. As we have expanded our C&I portfolio, we have developed a series of “vertical specialties” to ensure that new products or lending types are embedded within a structured, centralized Commercial Lending area with designated, experienced credit officers. These specialties are comprised of either targeted industries (for example, healthcare, technology & telecom, finance and insurance, etc.) and/or lending disciplines (equipment finance, distribution finance, asset-based lending, etc.), all of which requires a high degree of expertise and oversight to effectively mitigate and monitor risk. As such, we have dedicated colleagues and teams focused on bringing value-added expertise to these specialty customers.

CRE – The CRE portfolio includes both CRE commercial and CRE construction loans. CRE commercial loans are loans to developers. We mitigate our risk on these loans by requiring collateral values that exceed the loan amount and underwriting the loan with projected cash flow in excess of the debt service requirement. These loans are made to finance properties such as apartment buildings, office and industrial buildings, and retail shopping centers, and are repaid through cash flows related to the operation, sale, or refinance of the property. Appropriate appraisals are obtained at origination and updated on an as needed basis in compliance with regulatory requirements and our credit policies. CRE construction loans are loans to developers, companies, or individuals used for the construction of a commercial or residential property for which repayment will be generated by the sale or permanent financing of the property. Our CRE construction portfolio primarily consists of multi-family, retail, and warehouse property types. Generally, these loans are for construction projects that have been pre-sold or pre-leased, or have secured permanent financing, as well as loans to real estate companies with significant equity invested in each project. These loans are managed by a specialized real estate lending group that actively monitors the construction phase and manages the loan disbursements according to the predetermined construction schedule.

Lease Financing – Lease financing products are designed to address the diverse financing needs of small to large companies primarily for the acquisition of equipment. Our lease financing portfolio will utilize a variety of origination partners and third-party sources including equipment manufacturers, dealers, or vendors set up under program structures to generate transactions from a nationwide footprint. High level business lines comprise of industrial finance, specialty finance, healthcare finance, technology finance, and specialized transportation, franchise, & government.

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Total consumer loans were $53.7 billion at December 31, 2023 and represented 44% of our total loan and lease credit exposure at that date. The consumer portfolio is comprised primarily of residential mortgages, automobile loans, home equity loans and lines-of-credit, and RV and marine finance (see Consumer Credit discussion).

Residential mortgage – Residential mortgage loans represent loans to consumers for the purchase or refinance of a residence. These loans are generally financed over a 15-year to 30-year term, and in most cases, are extended to borrowers to finance their primary residence. Applications are underwritten centrally using consistent credit policies and processes. All residential mortgage loan decisions utilize a full appraisal for collateral valuation. Huntington has not originated or acquired residential mortgages that allow negative amortization or allow the borrower multiple payment options.

Automobile – Automobile loans are comprised primarily of loans made through automotive dealerships and include exposure in selected states outside of our primary banking markets. The exposure outside of our core footprint states represents 17% of the total exposure, with no individual state representing more than 6%. Applications are underwritten using an automated underwriting system that applies consistent policies and processes across the portfolio.

Home equity – Home equity lending includes both home equity loans and lines-of-credit. This type of lending, which is secured by a first-lien or junior-lien on the borrower’s residence, allows customers to borrow against the equity in their home or refinance existing mortgage debt. Products include closed-end loans which are generally fixed-rate with principal and interest payments, and variable-rate, interest-only lines-of-credit which do not require payment of principal during the 10-year revolving period. The home equity line of credit converts to a 20-year amortizing structure at the end of the revolving period. Applications are underwritten centrally in conjunction with an automated underwriting system. The home equity underwriting criteria is based on minimum credit scores, debt-to-income ratios, and LTV ratios, with current collateral valuations. The underwriting for the floating rate lines of credit also incorporates a stress analysis for rising interest rates.

RV and marine – RV and marine loans are loans provided to consumers for the purpose of financing recreational vehicles and boats. Loans are originated on an indirect basis through a series of dealerships across 35 states. The loans are underwritten centrally using an application and decisioning system similar to automobile loans. The current portfolio includes 24% of the balances within our core footprint states.

Other consumer – Other consumer loans primarily consists of consumer loans not secured by real estate, including credit cards, personal unsecured loans, and overdraft balances. We originate these products within our established set of credit policies and guidelines.

Our loan and lease portfolio is a managed mix of consumer and commercial credits. We manage the overall credit exposure and portfolio composition via a credit concentration policy. The policy designates specific loan types, collateral types, and loan structures to be formally tracked and assigned maximum exposure limits as a percentage of capital. Commercial lending by NAICS categories, specific limits for CRE project types, loans secured by residential real estate, large dollar exposures, and designated high risk loan categories represent examples of specifically tracked components of our concentration management process. There are no identified concentrations that exceed the assigned exposure limit. Our concentration management policy is approved by the ROC and is used to ensure a high quality, well diversified portfolio that is consistent with our overall objective of maintaining an aggregate moderate-to-low, through-the-cycle risk appetite. Changes to existing concentration limits, incorporating specific information relating to the potential impact on the overall portfolio composition and performance metrics, require the approval of the ROC prior to implementation.

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The table below provides our total loan and lease portfolio segregated by industry type. The changes in the industry composition from December 31, 2022 are consistent with the portfolio growth metrics.

(1)    Non-real estate secured commercial loans to REITs, which are classified in the C&I loan category, are included in the real estate, finance and insurance, and

health care industry types.

(2)    Amounts include $3.3 billion and $2.3 billion of auto dealer services loans at December 31, 2023 and December 31, 2022, respectively.

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Commercial Credit

The primary factors considered in commercial credit approvals are the financial strength of the borrower, assessment of the borrower’s management capabilities, cash flows from operations, industry sector trends, type and sufficiency of collateral, type of exposure, transaction structure, and the general economic outlook. While these are the primary factors considered, there are a number of other factors that may be considered in the decision process. We require the signature approval of both the appropriate line of business leaders and independent credit executives. The risk rating, credit exposure amount, and complexity of the credit determines the threshold for approval. Credit officers who understand each local region and are experienced in the industries and loan structures of the requested credit exposure are involved in all loan decisions and have the primary credit authority, with the exception of small business loans. For small business loans, we utilize a centralized loan approval process for standard products and structures. In this centralized decision environment, certain individuals who understand each local region may make credit-extension decisions to preserve our commitment to the communities in which we operate. In addition to disciplined and consistent judgmental factors, a sophisticated credit scoring process is used as a primary evaluation tool in the determination of approving a loan.

In commercial lending, on-going credit management is dependent on the type and nature of the loan. We monitor all significant exposures. All commercial credit extensions are assigned internal risk ratings reflecting the borrower’s PD and LGD. This two-dimensional rating methodology provides granularity in the portfolio management process. The PD is rated and applied at the borrower level. The LGD is rated and applied based on the specific type of credit extension and the quality and lien position associated with the underlying collateral. The internal risk ratings are assessed at origination and updated at each periodic monitoring event. There is also extensive macro-portfolio management analysis. We review and adjust our risk-rating criteria based on actual experience, which provides us with the current risk level in the portfolio. A centralized portfolio management function monitors and reports on the performance of the entire commercial portfolio, including small business loans, to provide consistent oversight.

In addition to the initial credit analysis conducted during the approval process, our credit review group performs testing to provide an independent review and assessment of the quality and risk of new loan originations. This group is part of our Risk Management area and conducts portfolio reviews on a risk-based cycle to evaluate individual loans, validate risk ratings, and test the consistency of credit processes.

Our standardized loan grading system considers many components that directly correlate to loan quality and likelihood of repayment, one of which is guarantor support. On an at least annual basis, we consider, among other things, the guarantor’s reputation and creditworthiness, where available, along with various key financial metrics such as liquidity and net worth. Our assessment of the guarantor’s credit strength, or lack thereof, is reflected in our risk ratings for such loans, which is directly tied to, and an integral component of, our ACL methodology. When a loan goes to impaired status, viable guarantor support is considered in the determination of a credit loss.

If our assessment of the guarantor’s credit strength yields an inherent capacity to perform, we will seek repayment from the guarantor as part of the collection process and have done so successfully.

Substantially all loans categorized as Classified (See Note 5 - “Loans and Leases” of the Notes to Consolidated Financial Statements) are managed by FRG. FRG is a specialized group of credit professionals that handle the day-to-day management of workouts, commercial recoveries, and problem loan sales. Its responsibilities include developing and implementing action plans, assessing risk ratings, and determining the appropriateness of the allowance, the accrual status, and the ultimate collectability of the Classified loan portfolio.

C&I PORTFOLIO

We manage the risks inherent in the C&I portfolio through origination policies, a defined loan concentration policy with established limits, on-going loan-level and portfolio-level reviews, recourse requirements, and continuous portfolio risk management activities. Our origination policies for the C&I portfolio include loan product-type specific policies such as LTV and debt service coverage ratios, as applicable.

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The C&I portfolio continues to have solid origination activity while we maintain a focus on high quality originations. We continue to maintain a proactive approach to identifying borrowers that may be facing financial difficulty in order to maximize the potential credit outcomes. Subsequent to the origination of the loan, the credit review group provides an independent review and assessment of the quality of the underwriting and risk of new loan originations.

CRE PORTFOLIO

We manage the risks inherent in this portfolio specific to CRE lending, focusing on the quality of the developer and the specifics associated with each project. Generally, we: (1) limit our loans to 80% of the appraised value of the commercial real estate at origination, (2) require net operating cash flows to be 120% of required interest and principal payments, and (3) if the commercial real estate is non-owner occupied, require that pre-leasing generates break-even interest-only debt service. We actively monitor property-type concentrations and both geographic and property-type performance metrics of all CRE loan types, with a focus on loans identified as higher risk based on the risk rating methodology. Both macro-level and loan-level stress-test scenarios based on existing and forecast market conditions are part of the on-going portfolio management process for the CRE portfolio.

Dedicated real estate professionals originate and manage the portfolio. The portfolio is diversified by property-type and loan size, and this diversification represents a significant portion of the credit risk management strategies employed for this portfolio. Subsequent to the origination of the loan, the credit review group provides an independent review and assessment of the quality of the underwriting and risk of new loan originations.

The following tables present our commercial real estate portfolio by property-type and geographic location.

(1)Geographic location based on location of underlying collateral.

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Appraisal values are obtained in conjunction with all originations and renewals, and on an as-needed basis, in compliance with regulatory requirements and to ensure appropriate decisions regarding the on-going management of the portfolio reflect the changing market conditions. Appraisals are obtained from approved vendors and are reviewed by an internal appraisal review group comprised of certified appraisers to ensure the quality of the valuation used in the underwriting process. We continue to perform on-going portfolio level reviews within the CRE portfolio. These reviews generate action plans based on occupancy levels or leasing revenues associated with the projects being reviewed. This highly individualized process requires working closely with all of our borrowers, as well as an in-depth knowledge of CRE project lending and the market environment.

Following the COVID-19 pandemic, remote work options have led to increased vacancy rates and underutilization of office space across the country. Our office portfolio, which is predominantly suburban and multi-tenant loans, totaled $1.8 billion, or 1%, of total loans and leases, as of December 31, 2023. We have established ACL reserves of approximately 10% for our office portfolio. At December 31, 2023, there was $25 million of outstanding balances in the office portfolio that were 30 or more days past due.

LEASE FINANCING

We manage the risks inherent in the Lease Financing portfolio through external consumer and business credit scoring solutions, internally developed custom probability of default and loss given default models, continuous portfolio risk management activities, and equipment and customer diversification. Our origination policies are aligned by transaction size with increased use of the personal guarantee of principals and external credit scoring tools for smaller transactions and expanded financial analysis and reporting requirements for larger transactions. Our program focuses on high-quality manufacturer, distributor, vendor, or third party originations sources with in-depth partner diligence. The lease financing group may use manufacturer loss risk share programs that provide additional transaction support, but the origination strategy prioritizes strong customer financial condition.

High level business lines are comprised of Industrial Finance, Specialty Finance, Healthcare Finance, Technology Finance, and Specialized Transportation, Franchise, and Government with multiple segments under each main line. We also have specific equipment types or industries designated as low tolerance with additional front-end guidance and diligence requirements. Subsequent to the origination of the lease, the credit review group provides an independent review and assessment of the quality of the underwriting and risk of new lease originations.

Consumer Credit

Consumer credit approvals are based on, among other factors, the financial strength and payment history of the borrower, type of exposure, and transaction structure. Consumer credit decisions are generally made in a centralized environment utilizing decision models. Importantly, certain individuals who understand each local region have the authority to make credit extension decisions to preserve our focus on the local communities in which we operate. For all classes within the consumer loan portfolio, loans are assigned pool level PD factors based on the FICO range within which the borrower’s credit bureau score falls. The credit bureau score is widely accepted as the standard measure of consumer credit risk used by lenders, regulators, rating agencies, and consumers. The LGD is related to the type of collateral associated with the credit extension, which typically does not change over the course of the loan term. This allows Huntington to maintain a current view of the customer for credit risk management and ACL purposes.

In consumer lending, credit risk is managed from a segment (i.e., loan type, collateral position, geography, etc.) and vintage performance analysis. All portfolio segments are continuously monitored for changes in delinquency trends and other asset quality indicators. We make extensive use of portfolio assessment models to continuously monitor the quality of the portfolio, which may result in changes to future origination strategies. The credit review group conducts ongoing independent credit origination and process reviews to ensure the effectiveness and efficiency of the consumer credit processes.

Collection actions by our customer assistance team are initiated as needed through a centrally managed collection and recovery function. We employ a series of collection methodologies designed to maintain a high level of effectiveness, while maximizing efficiency. In addition to the consumer loan portfolio, the customer assistance team is responsible for collection activity on all sold and securitized consumer loans and leases. Collection practices include a single contact point for the majority of the residential real estate secured portfolios.

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RESIDENTIAL REAL ESTATE SECURED PORTFOLIOS

The properties securing our residential mortgage and home equity portfolios are primarily located within our geographic footprint. Huntington continues to support our local markets with consistent underwriting across all residential secured products. The residential secured portfolio originations continue to be of high quality. Our portfolio management strategies associated with our Home Savers group allow us to focus on effectively helping our customers with appropriate solutions for their specific circumstances.

Huntington underwrites all residential mortgage applications centrally, with a focus on higher quality borrowers. We do not originate residential mortgages that allow negative amortization or allow the borrower multiple payment options. Residential mortgages are originated based on a completed full appraisal during the credit underwriting process. We update values in compliance with applicable regulations to facilitate our portfolio management, as well as our workout and loss mitigation functions.

We are subject to repurchase risk associated with residential mortgage loans sold in the secondary market. An appropriate level of reserve for representations and warranties related to residential mortgage loans sold has been established to address this repurchase risk inherent in the portfolio.

AUTOMOBILE PORTFOLIO

Our strategy in the automobile portfolio continues to focus on high quality borrowers as measured by both FICO and internal custom scores, combined with appropriate LTVs, terms, and profitability. Our strategy and operational capabilities allow us to appropriately manage the origination quality across the entire portfolio, including our newer markets. Although increased origination volume and entering new markets can be associated with increased risk levels, we believe our disciplined strategy and operational processes significantly mitigate these risks.

We have continued to consistently execute our value proposition and take advantage of available market opportunities. Importantly, we have maintained our high credit quality standards while also maintaining strong origination volume.

RV AND MARINE PORTFOLIO

Our strategy in the RV and Marine portfolio focuses on high quality borrowers, combined with appropriate LTVs, terms, and profitability. Although entering new markets can be associated with increased risk levels, we believe our disciplined strategy and operational processes significantly mitigate these risks.

Credit Quality

(This section should be read in conjunction with Note 5 - “Loans and Leases and Note 6 - “Allowance for Credit Losses” of the Notes to Consolidated Financial Statements.)

We believe the most meaningful way to assess overall credit quality performance is through an analysis of specific performance ratios. This approach forms the basis of the discussion in the sections immediately following: NPAs, NALs, ACL, and NCOs. In addition, we utilize delinquency rates, risk distribution and migration patterns, product segmentation, and origination trends in the analysis of our credit quality performance.

Credit quality performance in 2023 reflected NCOs of $273 million, or 0.23%, of average total loans and leases, an increase from $121 million, or 0.11%, in the prior year, driven by an $143 million increase in Commercial NCOs. NPAs increased $117 million, or 20%, to $711 million, primarily driven by increases in commercial and industrial and commercial real estate NALs.

NPAs and NALs

NPAs consist of (1) NALs, which represent loans and leases no longer accruing interest, (2) OREO properties, and (3) other NPAs. Any loan or lease in our portfolio may be placed on nonaccrual status prior to the policies described below when collection of principal or interest is in doubt. Also, when a borrower with discharged non-reaffirmed debt in a Chapter 7 bankruptcy is identified and the loan or lease is determined to be collateral dependent, the loan is placed on nonaccrual status.

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Commercial loans and leases are placed on nonaccrual status at 90-days past due, or earlier if repayment of principal and interest is in doubt. Of the $498 million of commercial related NALs at December 31, 2023, $260 million, or 52%, represent loans and leases that were less than 30-days past due, demonstrating our continued commitment to proactive credit risk management. With the exception of residential mortgage loans guaranteed by government organizations which continue to accrue interest, first lien loans secured by residential mortgage collateral are placed on nonaccrual status at 150-days past due. Junior-lien home equity loans are placed on nonaccrual status at the earlier of 120-days past due or when the related first-lien loan has been identified as nonaccrual. Automobile, RV and marine, and other consumer loans are generally fully charged-off at 120-days past due, and if not fully charged-off are placed on non-accrual.

When loans and leases are placed on nonaccrual, any accrued interest is reversed against interest income. When, in our judgment, the borrower’s ability to make required interest and principal payments has resumed and collectability is no longer in doubt, the loan or lease could be returned to accrual status.

The following table reflects period-end NALs and NPAs detail:

(1)Other nonperforming assets include certain impaired investment securities and/or nonaccrual loans held-for-sale.

(2)Nonperforming assets divided by the sum of loans and leases, other real estate owned, and other NPAs.

ACL

Our ACL is comprised of two different components, both of which in our judgment are appropriate to absorb lifetime expected credit losses in our loan and lease portfolio: the ALLL and the AULC.

We use statistically-based models that employ assumptions about current and future economic conditions throughout the contractual life of the loan. The process of estimating expected credit losses is based on three key parameters: PD, EAD, and LGD. Beyond the reasonable and supportable period (two to three years), the economic variables revert to a historical equilibrium at a pace dependent on the state of the economy reflected within the economic scenario.

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Future economic conditions consider multiple macroeconomic scenarios provided to us by an independent third party and are reviewed through the Allowance for Credit Loss Development Methodology Committee described below. These macroeconomic scenarios contain certain variables that are influential to our modeling process, the most significant being unemployment rates and GDP. The probability weights assigned to each scenario are generally expected to be consistent from period to period. Any changes in probability weights must be supported by appropriate documentation and approval of senior management. Additionally, we consider whether to adjust the modeled estimates to address possible limitations within the models or factors not captured within the macroeconomic scenarios. Lifetime losses for most of our loans and leases are evaluated collectively based on similar risk characteristics, risk ratings, origination credit bureau scores, delinquency status, and remaining months within loan agreements, among other factors.

The baseline scenario used for the 2023 fourth quarter assumes softening of the labor market is underway and will continue through early 2025 causing the unemployment rate to gradually increase, peaking at 4.1% in the first quarter of 2025 before marginally improving to 3.9% by 2027. The overnight federal funds rate is forecasted to have peaked during the third quarter of 2023, remaining at this terminal level until mid-2024 as the Federal Reserve continues to address inflation levels and tightness in the labor market. The Federal Reserve is expected to start cutting rates in the third quarter of 2024 at a rate of 25 basis points per quarter until reaching 3% in late 2026. Inflation is forecasted to drop from 3.3% year over year at the end of 2023 to the Federal Reserve’s target rate of 2% by the fourth quarter of 2024. The GDP forecast for 2024 has fallen from prior year end, a result of elevated interest rates and tightening credit conditions over the past year. GDP is now forecasted to be 1.5% by the fourth quarter of 2024.

Management uses a probability-weighted approach that incorporates a baseline, an adverse and a more favorable economic scenario when formulating the quantitative estimate for the allowance. The table below is intended to show how the forecasted path of unemployment and GDP in the baseline scenario has changed between those used in the year 2022 and 2023 ACL determination:

(1)Values reflect the baseline scenario forecast inputs for each period presented, not updated for subsequent actual amounts.

Management continues to assess the uncertainty in the macroeconomic environment, including ongoing risks in the commercial real estate environment, current inflation levels, political uncertainty, and geopolitical instability, considering multiple macroeconomic forecasts that reflected a range of possible outcomes. While we have incorporated estimates of economic uncertainty into our ACL, the ultimate impact of specific challenges in the commercial real estate industry, recent inflation levels, higher interest rates, and the significant conflicts on-going around the world will have on the economy remains unknown.

Management develops additional analytics to support adjustments to our modeled results. Our Allowance for Credit Loss Development Methodology Committee reviewed model results of each economic scenario for appropriate usage, concluding that the quantitative transaction reserve will continue to utilize scenario weighting. Given the uncertainty associated with key economic scenario assumptions, the December 31, 2023 ACL included a general reserve that consists of various risk profile components, including profiles to capture uncertainty not addressed within the quantitative transaction reserve.

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Our Allowance for Credit Loss Development Methodology Committee is responsible for developing the methodology, assumptions and estimates used in the calculation, as well as determining the appropriateness of the ACL. The ALLL represents the estimate of lifetime expected losses in the loan and lease portfolio at the reported date. The loss modeling process uses an EAD concept to calculate total expected losses on both funded balances and unfunded lending commitments, where appropriate. Losses related to the unfunded lending commitments are then recorded as AULC within other liabilities in the Consolidated Balance Sheet. A liability for expected credit losses for off-balance sheet credit exposures is recognized if Huntington has a present contractual obligation to extend the credit and the obligation is not unconditionally cancelable.

The AULC is determined by applying the same quantitative reserve determination process to the unfunded portion of the loan exposures adjusted by an applicable funding expectation. (See Note 1 - "Significant Accounting Policies" of the Notes to Consolidated Financial Statements).

Our ACL evaluation process includes the on-going assessment of credit quality metrics, and a comparison of certain ACL benchmarks to current performance. For further information, including the ALLL and AULC activity by portfolio segment, refer to Note 6 - “Allowance for Credit Losses” of the Notes to Consolidated Financial Statements.

The table below reflects the allocation of our ALLL among our various loan and lease categories as well as certain coverage metrics of the reported ALLL and ACL:

(1)Percentages represent the percentage of each loan and lease category to total loans and leases.

At December 31, 2023, the ACL was $2.4 billion, or 1.97%, of total loans and leases, compared to $2.3 billion, or 1.90%, at December 31, 2022. The increase in the total ACL was primarily driven by a combination of loan and lease growth and modest overall coverage ratio builds throughout 2023. The ACL coverage ratio at December 31, 2023 is reflective of the current macro-economic environment.

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NCOs

A loan in any portfolio may be charged-off prior to the policies described below if a loss confirming event has occurred. Loss confirming events include, but are not limited to, bankruptcy (unsecured), continued delinquency, foreclosure, or receipt of an asset valuation indicating a collateral deficiency where that asset is the sole source of repayment. Additionally, discharged, collateral dependent non-reaffirmed debt in Chapter 7 bankruptcy filings will result in a charge-off to estimated collateral value, less anticipated selling costs at the time of discharge.

Commercial loans and leases are either charged-off or written down to net realizable value by 90-days past due with the exception of administrative small ticket lease delinquencies. Automobile loans, RV and marine, and other consumer loans are generally fully charged-off at 120-days past due. First-lien and junior-lien home equity loans are charged-off to the estimated fair value of the collateral, less anticipated selling costs, at 150-days past due and 120-days past due, respectively. Residential mortgages are charged-off to the estimated fair value of the collateral, less anticipated selling costs, at 150-days past due. The remaining balance is in delinquent status until a modification can be completed, or the loan goes through the foreclosure process.

The following table reflects NCO detail: