HUNTINGTON BANCSHARES INC MD

5. ALLOWANCE FOR CREDIT LOSSES

Allowance for Credit Losses - Roll-forward

The following tables present ACL activity by portfolio segment.

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At June 30, 2024, the ACL was $2.4 billion, a marginal increase of $23 million compared to December 31, 2023. The increase in the total ACL was primarily driven by loan and lease portfolio growth.

The commercial ACL was $1.7 billion at June 30, 2024 and $1.6 billion at December 31, 2023. The increase of $22 million since year end was primarily due to loan growth in the commercial portfolio.

The consumer ACL was $772 million, at June 30, 2024, relatively consistent compared to $771 million at December 31, 2023.

The baseline economic scenario used in the June 30, 2024 ACL determination projected the Federal Reserve to complete two 25 basis point rate cuts by the end of 2024. Further subsequent cuts of 25 basis points per quarter are expected in 2025 and 2026 until reaching 3% by 2027. Inflation is forecasted to approach the Federal Reserve’s target level of 2% by the end of 2024. Unemployment is projected to gradually increase, peaking at 4.1% in the first quarter of 2025 before marginally improving to 4.0% by 2026.

The economic scenarios used included elevated levels of economic uncertainty including the impact of specific challenges in the commercial real estate Industry, recent inflation levels, the U.S. labor market, the expected path of interest rate changes by the Federal Reserve, and the impact of significant conflicts on-going around the world. Given the uncertainty associated with key economic scenario assumptions, the June 30, 2024 ACL included a general reserve that consists of various risk profile components to address uncertainty not measured within the quantitative transaction reserve.

6. MORTGAGE LOAN SALES AND SERVICING RIGHTS

Residential Mortgage Portfolio

The following table summarizes activity relating to residential mortgage loans sold with servicing retained.

(1)Included in mortgage banking income.

The following table summarizes the changes in MSRs recorded using the fair value method.

(1)Represents decrease in value due to passage of time, including the impact from both regularly scheduled principal payments and partial loan paydowns.

(2)Represents decrease in value associated with loans that paid off during the period.

(3)Represents change in value resulting primarily from market-driven changes in interest rates.

A summary of key assumptions and the sensitivity of the MSR value to changes in these assumptions follows:

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7. BORROWINGS

Borrowings with original maturities of one year or less are classified as short-term and were comprised of the following:

The carrying value of assets pledged as collateral against repurchase agreements totaled $156 million and $840 million as of June 30, 2024 and December 31, 2023, respectively. Assets pledged as collateral are reported in available-for-sale securities and held-to-maturity securities on the Unaudited Consolidated Balance Sheets. The repurchase agreements have maturities within 60 days. No amounts have been offset against the agreements.

Huntington’s long-term debt consisted of the following:

(1) Represents secured borrowings collateralized by auto loans with a weighted average rate of 5.38% due through 2029. See Note 14 - “Variable Interest Entities” for additional information.

During the second quarter of 2024, the Bank completed a CLN transaction whereby it issued $478 million of unsecured credit linked notes to third-party investors. There are five classes of notes, each maturing on May 20, 2032. One note class bears interest at a fixed rate of 6.153% and the remaining four note classes bear interest at SOFR plus a spread rate that ranges from 1.40% to 8.25% (weighted average spread of 3.04%). As of June 30, 2024, the weighted average contractual interest rate on the CLNs was 6.98%. Huntington has elected the fair value option for these notes. See Note 12 - “Fair Values of Assets and Liabilities” for additional information. The notes transfer a portion of the risk of losses to third-party investors on a $4.0 billion reference pool of Huntington’s auto-secured loans. To the extent losses exceed certain thresholds, the principal and interest payable on the notes may be reduced by a portion of the Company's aggregate net losses on the reference pool of loans, with losses allocated to note classes in reverse order of payment priority.

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8. OTHER COMPREHENSIVE INCOME

The components of Huntington’s OCI were as follows:

(1)Foreign investments are deemed to be permanent in nature and, therefore, Huntington does not provide for taxes on foreign currency translation adjustments.

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Activity in accumulated OCI was as follows:

(1)AOCI amounts at June 30, 2024 and June 30, 2023 include $54 million and $62 million, respectively, of net unrealized losses (after-tax) on securities transferred from the available-for-sale securities portfolio to the held-to-maturity securities portfolio. The net unrealized losses will be recognized in earnings over the remaining life of the security using the effective interest method.

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9. SHAREHOLDERS' EQUITY

Preferred Stock

The following is a summary of Huntington’s non-cumulative, non-voting, perpetual preferred stock outstanding.

(1) Redeemable at Huntington’s option on the date stated or on a quarterly basis thereafter.

(2) Liquidation value and redemption price per share of $1,000, plus any declared and unpaid dividends.

(3) Dividend rate converted to 3-month CME Term SOFR +26 bps spread adjustment +270 bps effective July 15, 2023. Prior to July 15, 2023, the dividend rate was 3-mo. LIBOR +270 bps.

(4) Liquidation value and redemption price per share of $100,000, plus any declared and unpaid dividends.

(5) Dividend rate converted to 3-month CME Term SOFR +26 bps spread adjustment +288 bps effective July 15, 2023. Prior to July 15, 2023, the dividend rate was 3-mo. LIBOR +288 bps.

(6) Liquidation value and redemption price per share of $25,000, plus any declared and unpaid dividends.

The following table presents the dividends declared for each series of Preferred shares.

10. EARNINGS PER SHARE

Basic earnings per share is the amount of earnings (adjusted for preferred stock dividends and the impact of preferred stock repurchases and redemptions) available to each share of common stock outstanding during the reporting period. Diluted earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period adjusted to include the effect of potentially dilutive common shares. Potentially dilutive common shares include incremental shares issued for stock options, restricted stock units and awards, and distributions from deferred compensation plans. Potentially dilutive common shares are excluded from the computation of diluted earnings per share in periods in which the effect would be antidilutive.

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The calculation of basic and diluted earnings per share was as follows:

(1)Reflects the total number of shares related to outstanding options that have been excluded from the computation of diluted earnings per share because the impact would have been anti-dilutive.

11. REVENUE FROM CONTRACTS WITH CUSTOMERS

Revenue is segregated based on the nature of product and services offered as part of contractual arrangements. Certain sources of revenue are recognized within interest or fee income and are outside of the scope of ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). Other sources of revenue fall within the scope of ASC 606 and are generally recognized within noninterest income. These revenues are included within various sections of the Unaudited Consolidated Financial Statements. The following table shows Huntington’s total noninterest income segregated between revenue with contracts with customers within the scope of ASC 606 and revenue within the scope of other GAAP Topics.

The following table illustrates the disaggregation by operating segment and major revenue stream and reconciles disaggregated revenue to segment revenue presented in Note 16 - “Segment Reporting”. 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. Additionally, during the second quarter of 2023, we completed an organizational realignment and now report ontwo business segments. Prior period results for each reporting update have been adjusted to conform to the current presentation.

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Huntington generally provides services for customers in which it acts as principal. Payment terms and conditions vary amongst services and customers, and thus impact the timing and amount of revenue recognition. Some fees may be paid before any service is rendered and accordingly, such fees are deferred until the obligations pertaining to those fees are satisfied. Most Huntington contracts with customers are cancelable by either party without penalty or they are short-term in nature, with a contract duration of less than one year. Accordingly, most revenue deferred for the reporting period ended June 30, 2024 is expected to be earned within one year. Huntington does not have significant balances of contract assets or contract liabilities and any change in those balances during the reporting period ended June 30, 2024 was determined to be immaterial.