Huntington Bancshares Incorporated Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUES OF ASSETS AND LIABILITIES

FAIR VALUES OF ASSETS AND LIABILITIES

9 Months Ended

Sep. 30, 2023

See Note 19 “Fair Value of Assets and Liabilities” to the Consolidated Financial Statements appearing in Huntington’s 2022 Annual Report on Form 10-K for a description of the valuation methodologies used for instruments measured at fair value. Assets and liabilities measured at fair value rarely transfer between Level 1 and Level 2 measurements. There were no such transfers during the three-month and nine-month periods ended September 30, 2023 and 2022.

Assets and Liabilities measured at fair value on a recurring basis


	Fair Value Measurements at Reporting Date Using						Netting Adjustments (1)		At September 30, 2023
(dollar amounts in millions)	Level 1		Level 2		Level 3
Assets
Trading account securities:
U.S. Treasury securities	$	90	$	—	$	—	$	—	$	90


Municipal securities	—		20		—		—		20
Corporate debt	—		11		—		—		11
Total trading account securities	90		31		—		—		121
Available-for-sale securities:
U.S. Treasury securities	5		—		—		—		5
Residential CMO	—		3,131		—		—		3,131
Residential MBS	—		10,916		—		—		10,916
Commercial MBS	—		1,729		—		—		1,729
Other agencies	—		159		—		—		159
Municipal securities	—		40		3,437		—		3,477
Private-label CMO	—		98		20		—		118
Asset-backed securities	—		276		75		—		351
Corporate debt	—		1,973		—		—		1,973
Other securities/sovereign debt	—		4		—		—		4
Total available-for-sale securities	5		18,326		3,532		—		21,863
Other securities	29		1		—		—		30
Loans held for sale	—		601		—		—		601
Loans held for investment	—		122		53		—		175
MSRs	—		—		547		—		547
Other assets:
Derivative assets	—		2,383		4		(1,923)		464
Assets held in trust for deferred compensation plans	161		—		—		—		161
Liabilities



Derivative liabilities	—		2,232		5		(1,160)		1,077


	Fair Value Measurements at Reporting Date Using						Netting Adjustments (1)		At December 31, 2022
(dollar amounts in millions)	Level 1		Level 2		Level 3
Assets
Trading account securities:

Municipal securities	$	—	$	19	$	—	$	—	$	19


Available-for-sale securities:
U.S. Treasury securities	103		—		—		—		103
Residential CMOs	—		2,914		—		—		2,914
Residential MBS	—		12,263		—		—		12,263
Commercial MBS	—		1,953		—		—		1,953
Other agencies	—		182		—		—		182
Municipal securities	—		42		3,248		—		3,290
Private-label CMO	—		108		20		—		128
Asset-backed securities	—		298		74		—		372
Corporate debt	—		2,214		—		—		2,214
Other securities/sovereign debt	—		4		—		—		4
Total available-for-sale securities	103		19,978		3,342		—		23,423
Other securities	31		1		—		—		32
Loans held for sale	—		520		—		—		520
Loans held for investment	—		169		16		—		185
MSRs	—		—		494		—		494
Other assets:
Derivative assets	—		2,161		3		(1,808)		356
Assets held in trust for deferred compensation plans	155		—		—		—		155
Liabilities
Derivative liabilities	—		2,332		5		(1,345)		992

(1)Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle positive and negative positions and cash collateral held or placed with the same counterparties.

The following tables present a rollforward of the balance sheet amounts measured at fair value on a recurring basis and classified as Level 3. The classification of an item as Level 3 is based on the significance of the unobservable inputs to the overall fair value measurement. However, Level 3 measurements may also include observable components of value that can be validated externally. Accordingly, the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology.


	Level 3 Fair Value Measurements
					Available-for-sale securities						Loans held for investment
(dollar amounts in millions)	MSRs		Derivative instruments		Municipal securities		Private- label CMO		Asset-backed securities
Three months ended September 30, 2023
Opening balance	$	505	$	(2)	$	3,496	$	20	$	75		$	33
Transfers into Level 3	—		—		—		—		—			21
Transfers out of Level 3 (1)	—		(8)		—		—		—			—
Total gains/losses for the period:
Included in earnings:
Mortgage banking income	37		9		—		—		—			—

Interest and fee income	—		—		(2)		—		—			(3)
Included in OCI	—		—		17		—		—			—
Purchases/originations	18		—		160		—		—			—

Repayments	—		—		—		—		—			2

Settlements	(13)		—		(234)		—		—			—
Closing balance	$	547	$	(1)	$	3,437	$	20	$	75		$	53
Change in unrealized gains or losses for the period included in earnings for assets held at end of the reporting date	$	37	$	(3)	$	—	$	—	$	—		$	—
Change in unrealized gains or losses for the period included in other comprehensive income for assets held at the end of the reporting period	—		—		12		—		—			—
Three months ended September 30, 2022
Opening balance	$	463	$	(5)	$	3,377	$	22	$	44		$	17

Transfers out of Level 3 (1)	—		(6)		—		—		—			—
Total gains/losses for the period:
Included in earnings:
Mortgage banking income	17		2		—		—		—			—


Included in OCI	—		—		(66)		—		—			—
Purchases/originations	20		—		309		—		26			—

Repayments	—		—		—		—		—			(1)

Settlements	(14)		—		(288)		(1)		—			—
Closing balance	$	486	$	(9)	$	3,332	$	21	$	70		$	16
Change in unrealized gains or losses for the period included in earnings for assets held at end of the reporting date	$	17	$	(8)	$	—	$	—	$	—		$	—
Change in unrealized gains or losses for the period included in other comprehensive income for assets held at the end of the reporting period	—		—		(69)		—		(1)			—
(1)Transfers out of Level 3 represent the settlement value of the derivative instruments (i.e., interest rate lock agreements) that are transferred to loans held for sale, which is classified as Level 2.



	Level 3 Fair Value Measurements
					Available-for-sale securities						Loans held for investment
(dollar amounts in millions)	MSRs		Derivative instruments		Municipal securities		Private- label CMO		Asset-backed securities
Nine months ended September 30, 2023
Opening balance	$	494	$	(2)	$	3,248	$	20	$	74	$	16
Transfers into Level 3	—		—		—		—		—		40
Transfers out of Level 3 (1)	—		(18)		—		—		—		—
Total gains/losses for the period:
Included in earnings:
Mortgage banking income	40		19		—		—		—		—
Interest and fee income	—		—		(2)		(1)		—		(3)

Included in OCI	—		—		13		—		1		—
Purchases/originations	49		—		715		1		—		—



Settlements	(36)		—		(537)		—		—		—
Closing balance	$	547	$	(1)	$	3,437	$	20	$	75	$	53
Change in unrealized gains or losses for the period included in earnings for assets held at end of the reporting date	$	40	$	1	$	—	$	—	$	—	$	—
Change in unrealized gains or losses for the period included in other comprehensive income for assets held at the end of the reporting period	—		—		2		—		—		—
Nine months ended September 30, 2022
Opening balance	$	351	$	4	$	3,477	$	20	$	71	$	19

Transfers out of Level 3 (1)	—		(6)		—		—		—		—
Total gains/losses for the period:
Included in earnings
Mortgage banking income	112		(7)		—		—		—		—
Interest and fee income	—		—		(2)		(2)		—		—
Provision for credit losses	—		—		(4)		—		—		—
Included in OCI	—		—		(274)		—		(1)		—
Purchases/originations	68		—		867		4		26		—

Repayments	—		—		—		—		—		(3)

Settlements	(45)		—		(732)		(1)		(26)		—
Closing balance	$	486	$	(9)	$	3,332	$	21	$	70	$	16
Change in unrealized gains or losses for the period included in earnings for assets held at end of the reporting date	$	112	$	(17)	$	—	$	—	$	—	$	—
Change in unrealized gains or losses for the period included in other comprehensive income for assets held at the end of the reporting period	—		—		(274)		—		(1)		—
(1)Transfers out of Level 3 represent the settlement value of the derivative instruments (i.e., interest rate lock agreements) that are transferred to loans held for sale, which is classified as Level 2.

Assets and liabilities under the fair value option

The following table presents the fair value and aggregate principal balance of certain assets and liabilities under the fair value option:


	Total Loans						Loans that are 90 or more days past due
(dollar amounts in millions)	Fair value carrying amount		Aggregate unpaid principal		Difference		Fair value carrying amount		Aggregate unpaid principal		Difference
At September 30, 2023

Loans held for sale	$	601	$	598	$	3	$	—	$	—	$	—
Loans held for investment	175		185		(10)		3		3		—
At December 31, 2022

Loans held for sale	$	520	$	513	$	7	$	—	$	—	$	—
Loans held for investment	185		190		(5)		11		11		—

The following table presents the net gains (losses) from fair value changes.



	Three months ended September 30,				Nine months ended September 30,
(dollar amounts in millions)	2023		2022		2023		2022
Loans held for sale (1)	$	(4)	$	(22)	$	(4)	$	(56)
Loans held for investment	(2)		—		(5)		1

(1)The net gains (losses) from fair value changes are included in Mortgage banking income on the Unaudited Consolidated Statements of Income.

Assets and Liabilities measured at fair value on a nonrecurring basis

Certain assets and liabilities may be required to be measured at fair value on a nonrecurring basis in periods subsequent to their initial recognition. These assets and liabilities are not measured at fair value on an ongoing basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment. The amounts presented represent the fair value on the various measurement dates throughout the period. The gains (losses) represent the amounts recorded during the period regardless of whether the asset is still held at period end.

The amounts measured at fair value on a nonrecurring basis were as follows:


	Fair Value Measurements Using Significant Other Unobservable Inputs (Level 3)				Total Losses
					Three months ended September 30,				Nine months ended September 30,
(dollar amounts in millions)	At September 30, 2023		At December 31, 2022		2023		2022		2023		2022

Collateral-dependent loans	$	24	$	16	$	6	$	—	$	13	$	(1)

Loans held for sale	—		—		—		1		—		1

Huntington records nonrecurring adjustments of collateral-dependent loans held for investment. Such amounts are generally based on the fair value of the underlying collateral supporting the loan. Appraisals are generally obtained to support the fair value of the collateral and incorporate measures such as recent sales prices for comparable properties and cost of construction. Periodically, in cases where the carrying value exceeds the fair value of the collateral less cost to sell, an impairment charge is recognized in the form of a charge-off.

Significant unobservable inputs for assets and liabilities measured at fair value on a recurring and nonrecurring basis

The table below presents quantitative information about the significant unobservable inputs for assets and liabilities measured at fair value on a recurring and nonrecurring basis:


	Quantitative Information about Level 3 Fair Value Measurements
			At September 30, 2023 (1)							At December 31, 2022 (1)
(dollar amounts in millions)	Valuation Technique	Significant Unobservable Input	Range					Weighted Average		Range					Weighted Average
Measured at fair value on a recurring basis:
MSRs	Discounted cash flow	Constant prepayment rate	4	%	-	33	%	7	%	5	%	-	40	%	7	%
		Spread over forward interest rate swap rates	5	%	-	13	%	6	%	5	%	-	13	%	6	%






Municipal securities and asset-backed securities	Discounted cash flow	Discount rate	5	%	-	6	%	6	%	5	%	-	5	%	5	%
		Cumulative default	—	%	-	64	%	7	%	—	%	-	64	%	7	%
		Loss given default	20	%	-	20	%	20	%	20	%	-	20	%	20	%

(1) Certain disclosures related to quantitative level 3 fair value measurements do not include those deemed to be immaterial.

The following provides a general description of the impact of a change in an unobservable input on the fair value measurement and the interrelationship between unobservable inputs, where relevant/significant. Interrelationships may also exist between observable and unobservable inputs.

Credit loss estimates, such as probability of default, constant default, cumulative default, loss given default, cure given deferral, and loss severity, are driven by the ability of the borrowers to pay their loans and the value of the underlying collateral and are impacted by changes in macroeconomic conditions, typically increasing when economic conditions worsen and decreasing when conditions improve. An increase in the estimated prepayment rate typically results in a decrease in estimated credit losses and vice versa. Higher credit loss estimates generally result in lower fair values. Credit spreads generally increase when liquidity risks and market volatility increase and decrease when liquidity conditions and market volatility improve.

Discount rates and spread over forward interest rate swap rates typically increase when market interest rates increase and/or credit and liquidity risks increase and decrease when market interest rates decline and/or credit and liquidity conditions improve. Higher discount rates and credit spreads generally result in lower fair market values.

Fair values of financial instruments

Many of the assets and liabilities subject to the disclosure requirements are not actively traded, requiring fair values to be estimated by management. These estimations necessarily involve the use of judgment about a wide variety of factors, including but not limited to, relevancy of market prices of comparable instruments, expected future cash flows, and appropriate discount rates.

The short-term nature of certain assets and liabilities result in their carrying value approximating fair value. These include trading account securities, customers’ acceptance liabilities, short-term borrowings, bank acceptances outstanding, FHLB advances, and cash and short-term assets, which include cash and due from banks, interest-bearing deposits in banks, interest-bearing deposits at the Federal Reserve Bank, and federal funds sold. Loan commitments and letters-of-credit generally have short-term, variable-rate features and contain clauses that limit Huntington’s exposure to changes in customer credit quality. Accordingly, their carrying values, which are immaterial at the respective balance sheet dates, are reasonable estimates of fair value.

Certain assets, the most significant being operating lease assets, bank owned life insurance, and premises and equipment, do not meet the definition of a financial instrument and are excluded from this disclosure. Similarly, mortgage servicing rights and relationship intangibles are not considered financial instruments and are not included in following tables. Accordingly, this fair value information is not intended to, and does not, represent Huntington’s underlying value.

The following table provides the carrying amounts and estimated fair values of Huntington’s financial instruments:


(dollar amounts in millions)	Amortized Cost		Lower of Cost or Market		Fair Value or Fair Value Option		Total Carrying Amount		Estimated Fair Value
At September 30, 2023
Financial Assets
Cash and short-term assets	$	11,693	$	—	$	—	$	11,693	$	11,693
Trading account securities	—		—		121		121		121
Available-for-sale securities	—		—		21,863		21,863		21,863
Held-to-maturity securities	16,148		—		—		16,148		13,309
Other securities	688		—		30		718		718
Loans held for sale	—		2		601		603		603
Net loans and leases (1)	118,470		—		175		118,645		114,540
Derivative assets	—		—		464		464		464
Assets held in trust for deferred compensation plans	—		—		161		161		161
Financial Liabilities
Deposits	148,867		—		—		148,867		148,771
Short-term borrowings	681		—		—		681		681
Long-term debt	12,822		—		—		12,822		12,584
Derivative liabilities	—		—		1,077		1,077		1,077
At December 31, 2022
Financial Assets
Cash and short-term assets	$	6,918	$	—	$	—	$	6,918	$	6,918
Trading account securities	—		—		19		19		19
Available-for-sale securities	—		—		23,423		23,423		23,423
Held-to-maturity securities	17,052		—		—		17,052		14,754
Other securities	822		—		32		854		854
Loans held for sale	—		9		520		529		529
Net loans and leases (1)	117,217		—		185		117,402		112,591
Derivative assets	—		—		356		356		356
Assets held in trust for deferred compensation plans	—		—		155		155		155
Financial Liabilities
Deposits	147,914		—		—		147,914		147,796
Short-term borrowings	2,027		—		—		2,027		2,027
Long-term debt	9,686		—		—		9,686		9,564
Derivative liabilities	—		—		992		992		992

(1)Includes collateral-dependent loans.

The following table presents the level in the fair value hierarchy for the estimated fair values at September 30, 2023 and December 31, 2022:


	Estimated Fair Value Measurements at Reporting Date Using						Netting Adjustments (1)		Presented Balance
(dollar amounts in millions)	Level 1		Level 2		Level 3
At September 30, 2023
Financial Assets
Trading account securities	$	90	$	31	$	—			$	121
Available-for-sale securities	5		18,326		3,532				21,863
Held-to-maturity securities	—		13,309		—				13,309
Other securities (2)	29		1		—				30
Loans held for sale	—		603		—				603
Net loans and leases	—		122		114,418				114,540
Derivative assets	—		2,383		4		$	(1,923)	464
Financial Liabilities
Deposits	—		134,529		14,242				148,771
Short-term borrowings	—		681		—				681
Long-term debt	—		9,275		3,309				12,584
Derivative liabilities	—		2,232		5		(1,160)		1,077
At December 31, 2022
Financial Assets
Trading account securities	$	—	$	19	$	—			$	19
Available-for-sale securities	103		19,978		3,342				23,423
Held-to-maturity securities	—		14,754		—				14,754
Other securities (2)	31		1		—				32
Loans held for sale	—		520		9				529
Net loans and leases	—		169		112,422				112,591
Derivative assets	—		2,161		3		$	(1,808)	356
Financial Liabilities
Deposits	—		142,081		5,715				147,796
Short-term borrowings	—		2,027		—				2,027
Long-term debt	—		8,680		884				9,564
Derivative liabilities	—		2,332		5		(1,345)		992

(2)Excludes securities without readily determinable fair values.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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