HUNTINGTON BANCSHARES INC MD

Overview

Our business segments are based on our internally-aligned segment leadership structure, which is how management monitors results and assesses performance. We have 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.

Business segment results are determined based upon our management practices, which assigns balance sheet and income statement items to each of the business segments. The process is designed around our organizational and management structure and, accordingly, the results derived are not necessarily comparable with similar information published by other financial institutions.

Revenue Sharing

Revenue is recorded in the business segment responsible for the related product or service. Fee sharing is recorded to allocate portions of such revenue to other business segments involved in selling to or providing service to customers. Results of operations for the business segments reflect these fee sharing allocations.

Expense Allocation

The management process that develops the business segment reporting utilizes various estimates and allocation methodologies to measure the performance of the business segments. Expenses are allocated to business segments using a two-phase approach. The first phase consists of measuring and assigning unit costs (activity-based costs) to activities related to product origination and servicing. These activity-based costs are then extended, based on volumes, with the resulting amount allocated to business segments that own the related products. The second phase consists of the allocation of overhead costs to the business segments from Treasury / Other. We utilize a full-allocation methodology, where all Treasury / Other expenses, except reported acquisition-related expenses, if any, and a small amount of other residual unallocated expenses, are allocated to the business segments.

2024 3Q Form 10-Q 31

Funds Transfer Pricing (FTP)

We use an active and centralized FTP methodology to attribute appropriate net interest income to the business segments. The intent of the FTP methodology is to transfer interest rate risk from the business segments by providing modeled duration funding of assets and liabilities. The result is to centralize the financial impact, management, and reporting of interest rate risk in the Treasury / Other function where it can be centrally monitored and managed. The Treasury / Other function charges (credits) an internal cost of funds for assets held in (or pays for funding provided by) each business segment. The FTP rate is based on prevailing market interest rates for comparable duration assets (or liabilities). The primary components of the FTP rate include a base (market) rate, a liquidity premium, and option cost.

Net Income by Business Segment

Net income by business segment is presented in the following table.

Consumer & Regional Banking reported net income of $1.1 billion in the nine-month period of 2024, an increase of $132 million, or 14%, compared to the year-ago period. Segment net interest income increased $268 million, or 10%, primarily due to a $3.5 billion, or 5%, increase in average loans and leases and a 16 basis point increase in NIM. Provision for credit losses increased $35 million, or 18%, primarily driven by an increase in charge-off activity compared to the year-ago period. Noninterest income increased $15 million, or 2%, primarily due to increases in wealth and asset management revenue, reflecting higher fixed income commissions and assets under management, payments and cash management revenue, reflecting higher card transaction revenue, mortgage banking income, and customer deposit and loan fees, partially offset by a $57 million gain on the sale of our RPS business recognized in the nine-month period of 2023. Noninterest expense increased $81 million, or 4%, primarily due to the allocation of higher indirect expenses.

32 Huntington Bancshares Incorporated

Commercial Banking reported net income of $853 million in the first nine-month period of 2024, a decrease of $82 million, or 9%, compared to the year-ago period. Segment net interest income decreased $58 million, or 4%, primarily due to a $1.1 billion, or 2%, decrease in average loans and leases and an 8 basis point decrease in NIM driven primarily by higher deposit rates. Noninterest income increased $11 million, or 2%, primarily due to increases in capital markets and advisory fees, commitment and other loan fees, and payment and cash management fees, partially offset by a decrease in leasing revenue. Noninterest expense increased $53 million, or 6%, primarily due to higher personnel expense reflecting an investment in teams related to expansion across new geographies and industry verticals, higher incentive compensation mainly due to increased capital markets and advisory fees, and higher allocation of indirect expenses. Outside data and other processing services expense also increased, primarily due to increased capital markets activity.

Treasury / Other

The Treasury / Other function includes revenue and expense related to assets, liabilities, derivatives, and equity not directly assigned or allocated to one of the business segments. Assets include investment securities and bank owned life insurance.

Net interest income includes the impact of administering our investment securities portfolios, the net impact of derivatives used to hedge interest rate sensitivity as well as the financial impact associated with our FTP methodology, as described above. Noninterest income includes miscellaneous fee income not allocated to other business segments, such as bank owned life insurance income and securities and trading asset gains or losses. Noninterest expense includes certain corporate administrative, acquisition-related expenses, if any, and other miscellaneous expenses not allocated to other business segments. The provision for income taxes for the business segments is calculated at a statutory 21% tax rate, although our overall effective tax rate is lower.

Treasury / Other reported a net loss of $541 million in the first nine-month period of 2024, an increase in net loss of $348 million, compared to the year-ago period, driven by a decrease net interest income, partially offset by an increase in provision benefit for income taxes. Net interest income decreased $383 million primarily due to a higher cost of funds. Provision benefit for income taxes increased $120 million primarily due to lower pre-tax income.

2024 3Q Form 10-Q 33