Company: HBAN
Filing Date: 2025-02-14
Form Type: 10-K
Source: 0000049196-25-000020
Chunk: 214

Company: HUNTINGTON BANCSHARES INC /MD/
Filing Date: 2025-02-14
Form: 10-K
Item: Item 7
Chunk 214
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 2024.

Use of Derivatives to Manage Credit Risk

We may utilize credit derivatives as a tool to manage credit risk within the portfolio by purchasing credit protection over certain types of loan products. When we purchase credit protection, such as a CDS, we pay a fee to the seller, or CDS counterparty, in return for the right to receive a payment if a specified credit event occurs. 

2024 Form 10-K     73

Table of Contents

MSRs

(This section should be read in conjunction with Note 6 - “Mortgage Loan Sales and Servicing Rights” of Notes to Consolidated Financial Statements.)

At December 31, 2024, we had a total of $573 million of capitalized MSRs representing the right to service $33.7 billion in mortgage loans. 

MSR fair values are sensitive to movements in interest rates as expected future net servicing income depends on the projected outstanding principal balances of the underlying loans, which can be reduced by prepayments and declines in credit quality. Prepayments usually increase when mortgage interest rates decline and decrease when mortgage interest rates rise. We also employ hedging strategies to reduce the risk of MSR fair value changes or impairment. However, volatile changes in interest rates can diminish the effectiveness of these economic hedges. Changes in the MSR value net of hedge-related trading activity are recorded in the mortgage banking income category of noninterest income. 

MSR assets are included in servicing rights and other intangible assets in the Consolidated Financial Statements.

Price Risk

Price risk represents the risk of loss arising from adverse movements in the prices of financial instruments that are carried at fair value and are subject to fair value accounting. We have price risk from trading securities, securities owned by our broker-dealer subsidiaries, foreign exchange positions, derivative instruments, and equity investments. We have established loss limits on the trading portfolio, on the amount of foreign exchange exposure that can be maintained, and on the amount of marketable equity securities that can be held. 

Liquidity Risk 

Liquidity risk is the possibility of us being unable to meet current and future financial obligations in a timely manner. The goal of liquidity management is to ensure adequate, stable, reliable, and cost-effective sources of funds to satisfy changes in loan and lease demand, unexpected levels of deposit withdrawals, investment opportunities, and other contractual obligations. We consider core earnings, strong capital ratios, and credit quality essential for maintaining high credit ratings, which allows us cost-effective access to market-based liquidity. We mitigate liquidity risk by maintaining