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, 2021

See Note 20 “Fair Value of Assets and Liabilities” to the Consolidated Financial Statements appearing in Huntington’s 2020 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, 2021 and 2020.

Assets and Liabilities measured at fair value on a recurring basis

Assets and liabilities measured at fair value on a recurring basis at September 30, 2021 and December 31, 2020 are summarized in the following tables:


	Fair Value Measurements at Reporting Date Using						Netting Adjustments (1)		September 30, 2021
(dollar amounts in millions)	Level 1		Level 2		Level 3
Assets
Trading account securities:



Municipal securities	$	—	$	77	$	—	$	—	$	77

	—		77		—		—		77
Available-for-sale securities:
U.S. Treasury securities	5		—		—		—		5
Residential CMOs	—		3,734		—		—		3,734
Residential MBS	—		14,337		—		—		14,337
Commercial MBS	—		1,498		—		—		1,498
Other agencies	—		264		—		—		264
Municipal securities	—		52		3,582		—		3,634
Private-label CMO	—		102		18		—		120
Asset-backed securities	—		250		35		—		285
Corporate debt	—		1,773		—		—		1,773
Other securities/sovereign debt	—		4		—		—		4
	5		22,014		3,635		—		25,654
Other securities	62		24		—		—		86
Loans held for sale	—		1,297		—		—		1,297
Loans held for investment	—		119		20		—		139
MSRs	—		—		338		—		338
Other assets:
Derivative assets	—		1,567		19		(686)		900
Assets held in trust for deferred compensation plans	151		—		—		—		151
Liabilities

Other liabilities:

Derivative liabilities	—		1,056		7		(813)		250


	Fair Value Measurements at Reporting Date Using						Netting Adjustments (1)		December 31, 2020
(dollar amounts in millions)	Level 1		Level 2		Level 3
Assets
Trading account securities:

Municipal securities	$	—	$	62	$	—	$	—	$	62


Available-for-sale securities:
U.S. Treasury securities	5		—		—		—		5
Residential CMOs	—		3,666		—		—		3,666
Residential MBS	—		7,935		—		—		7,935
Commercial MBS	—		1,163		—		—		1,163
Other agencies	—		62		—		—		62
Municipal securities	—		53		2,951		—		3,004
Private-label CMO	—		—		9		—		9
Asset-backed securities	—		182		10		—		192
Corporate debt	—		445		—		—		445
Other securities/sovereign debt	—		4		—		—		4
	5		13,510		2,970		—		16,485
Other securities	59		—		—		—		59
Loans held for sale	—		1,198		—		—		1,198
Loans held for investment	—		71		23		—		94
MSRs	—		—		210		—		210
Other assets:
Derivative assets	—		1,903		43		(889)		1,057
Assets held in trust for deferred compensation plans	73		—		—		—		73
Liabilities

Other liabilities:

Derivative liabilities	—		1,031		2		(917)		116

(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 for the three-month and nine-month periods ended September 30, 2021 and 2020, for financial instruments measured 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 Three Months Ended September 30, 2021
					Available-for-sale securities						Loans held for investment
(dollar amounts in millions)	MSRs		Derivative instruments		Municipal securities		Private- label CMO		Asset-backed securities
Opening balance	$	327	$	23	$	3,609	$	18	$	46		$	21

Transfers out of Level 3 (1)	—		(39)		—		—		—			—
Total gains/losses for the period:
Included in earnings	1		28		(1)		—		—			—
Included in OCI	—		—		(8)		—		—			—
Purchases/originations	31		—		260		—		—			—
Sales	—		—		(17)		—		—			—
Repayments	—		—		—		—		—			(1)

Settlements	(21)		—		(261)		—		(11)			—
Closing balance	$	338	$	12	$	3,582	$	18	$	35		$	20
Change in unrealized gains or losses for the period included in earnings for assets held at end of the reporting date	$	1	$	(12)	$	—	$	—	$	—		$	—
Change in unrealized gains or losses for the period included in other comprehensive income for assets held at the end of the reporting period	—		—		(10)		—		—			—


	Level 3 Fair Value Measurements Three Months Ended September 30, 2020
	MSRs		Derivative instruments		Available-for-sale securities						Loans held for investment
(dollar amounts in millions)					Municipal securities		Private- label CMO		Asset-backed securities
Opening balance	$	172	$	40	$	3,102	$	5	$	56	$	25

Transfers out of Level 3 (1)	—		(64)		—		—		—		—
Total gains/losses for the period:
Included in earnings	19		72		(1)		—		—		—
Included in OCI	—		—		60		—		—		—
Purchases/originations	—		—		154		—		—		—

Repayments	—		—		—		—		—		(1)

Settlements	—		—		(226)		—		(7)		—
Closing balance	$	191	$	48	$	3,089	$	5	$	49	$	24
Change in unrealized gains or losses for the period included in earnings for assets held at end of the reporting date	$	18	$	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	—		—		62		—		—		—



	Level 3 Fair Value Measurements Nine Months Ended September 30, 2021
					Available-for-sale securities						Loans held for investment
(dollar amounts in millions)	MSRs		Derivative instruments		Municipal securities		Private- label CMO		Asset-backed securities
Opening balance	$	210	$	41	$	2,951	$	9	$	10		$	23

Transfers out of Level 3 (1)	—		(109)		—		—		—			—
Total gains/losses for the period:
Included in earnings	27		73		(1)		—		—			—
Included in OCI	—		—		(13)		—		—			—
Purchases/originations/acquisitions	162		7		1,613		8		75			—
Sales	—		—		(369)		—		—			—
Repayments	—		—		—		—		—			(3)

Settlements	(61)		—		(599)		1		(50)			—
Closing balance	$	338	$	12	$	3,582	$	18	$	35		$	20
Change in unrealized gains or losses for the period included in earnings for assets held at end of the reporting date	$	27	$	(33)	$	—	$	—	$	—		$	—
Change in unrealized gains or losses for the period included in other comprehensive income for assets held at the end of the reporting period	—		—		(14)		—		—			—



	Level 3 Fair Value Measurements Nine Months Ended September 30, 2020
					Available-for-sale securities							Loans held for investment
(dollar amounts in millions)	MSRs		Derivative instruments		Municipal securities			Private- label CMO		Asset- backed securities
Opening balance	$	7	$	6	$	2,999		$	2	$	48	$	26
Fair value election for servicing assets previously measured using the amortized method	205		—		—			—		—		—
Transfers out of Level 3 (1)	—		(139)		—			—		—		—
Total gains/losses for the period:
Included in earnings	(21)		181		(2)			—		—		—
Included in OCI	—		—		61			—		—		—
Purchases/originations	—		—		491			3		28		—

Repayments	—		—		—			—		—		(2)

Settlements	—		—		(460)			—		(27)		—
Closing balance	$	191	$	48	$	3,089		$	5	$	49	$	24
Change in unrealized gains or losses for the period included in earnings for assets held at end of the reporting date	$	(22)	$	42	$	—		$	—	$	—	$	—
Change in unrealized gains or losses for the period included in other comprehensive income for assets held at the end of the reporting period	—		—		64		—	—		—		—

(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.

The following tables summarize the classification of gains and losses due to changes in fair value, recorded in earnings for Level 3 assets and liabilities for the three-month and nine-month periods ended September 30, 2021 and 2020:



	Level 3 Fair Value Measurements Three Months Ended September 30, 2021
					Available-for-sale securities
(dollar amounts in millions)	MSRs		Derivative instruments		Municipal securities
Classification of gains and losses in earnings:
Mortgage banking income	$	1	$	28	$	—

Interest and fee income	—		—		(1)


Total	$	1	$	28	$	(1)



	Level 3 Fair Value Measurements Three Months Ended September 30, 2020
					Available-for-sale securities
(dollar amounts in millions)	MSRs		Derivative instruments		Municipal securities
Classification of gains and losses in earnings:
Mortgage banking income	$	19	$	72	$	—

Interest and fee income	—		—		(1)


Total	$	19	$	72	$	(1)



	Level 3 Fair Value Measurements Nine Months Ended September 30, 2021

(dollar amounts in millions)	MSRs		Derivative instruments		Municipal securities
Classification of gains and losses in earnings:
Mortgage banking income	$	27	$	73	$	—

Interest and fee income	—		—		(1)


Total	$	27	$	73	$	(1)



	Level 3 Fair Value Measurements Nine Months Ended September 30, 2020
					Available-for-sale securities
(dollar amounts in millions)	MSRs		Derivative instruments		Municipal securities
Classification of gains and losses in earnings:
Mortgage banking income	$	(21)	$	181	$	—

Interest and fee income	—		—		(2)


Total	$	(21)	$	181	$	(2)

Assets and liabilities under the fair value option

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


	September 30, 2021
(dollar amounts in millions)	Total Loans						Loans that are 90 or more days past due
Assets	Fair value carrying amount		Aggregate unpaid principal		Difference		Fair value carrying amount		Aggregate unpaid principal		Difference
Loans held for sale	$	1,297	$	1,260	$	37	$	—	$	—	$	—
Loans held for investment	139		143		(4)		3		4		(1)


	December 31, 2020
(dollar amounts in millions)	Total Loans						Loans that are 90 or more days past due
Assets	Fair value carrying amount		Aggregate unpaid principal		Difference		Fair value carrying amount		Aggregate unpaid principal		Difference
Loans held for sale	$	1,198	$	1,134	$	64	$	2	$	2	$	—
Loans held for investment	94		99		(5)		7		8		(1)

The following table present the net gains (losses) from fair value changes for the three-month and nine-month periods ended September 30, 2021 and 2020.


	Net gains (losses) from fair value changes
(dollar amounts in millions)	Three Months Ended September 30,				Nine Months Ended September 30,
Assets	2021		2020		2021		2020
Loans held for sale (1)	$	(4)	$	13	$	(30)	$	35

(1)The net gains (losses) from fair value changes are included in Mortgage banking income on the Unaudited Condensed 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 at September 30, 2021 were as follows:


			Fair Value Measurements Using						Total Gains/(Losses) Nine Months Ended September 30, 2021
(dollar amounts in millions)	Fair Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)

Collateral-dependent loans	$	18	$	—	$	—	$	18	$	(2)

Loans held for sale	—		—		—		—		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 at September 30, 2021 and December 31, 2020:


	Quantitative Information about Level 3 Fair Value Measurements at September 30, 2021 (1)
(dollar amounts in millions)	Fair Value		Valuation Technique	Significant Unobservable Input	Range				Weighted Average
Measured at fair value on a recurring basis:
MSRs	$	338	Discounted cash flow	Constant prepayment rate	8	%	-	21%	12	%
				Spread over forward interest rate swap rates	3	%	-	11%	5	%
Derivative assets	19		Consensus Pricing	Net market price	(4)	%	-	10%	1	%
				Estimated pull through %	6	%	-	100%	90	%




Municipal securities	3,582		Discounted cash flow	Discount rate	—	%	-	2%	1	%
Asset-backed securities	35			Cumulative default	—	%	-	64%	5	%
				Loss given default	5	%	-	90%	24	%







Measured at fair value on a nonrecurring basis:


Collateral-dependent loans	18		Appraisal value	N/A					N/A


	Quantitative Information about Level 3 Fair Value Measurements at December 31, 2020 (1)
(dollar amounts in millions)	Fair Value		Valuation Technique	Significant Unobservable Input	Range				Weighted Average
Measured at fair value on a recurring basis:
MSRs	$	210	Discounted cash flow	Constant prepayment rate	8	%	-	24%	17	%
				Spread over forward interest rate swap rates	4	%	-	11%	5	%
Derivative assets	43		Consensus Pricing	Net market price	(4)	%	-	11%	3	%
				Estimated pull through %	1	%	-	100%	88	%




Municipal securities	2,951		Discounted cash flow	Discount rate	—	%		1%	1	%
Asset-backed securities	10			Cumulative default	—	%		39%	4	%
				Loss given default	5	%		80%	25	%







Measured at fair value on a nonrecurring basis:
Collateral-dependent loans	144		Appraisal value	N/A					NA

(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.

Net market price and pull through percentages generally increase when market interest rates increase and decline when market interest rates decline. Higher net market price and pull through percentages generally result in higher fair values.

Fair values of financial instruments

The following table provides the carrying amounts and estimated fair values of Huntington’s financial instruments at September 30, 2021 and December 31, 2020:


	September 30, 2021
(dollar amounts in millions)	Amortized Cost		Lower of Cost or Market		Fair Value or Fair Value Option		Total Carrying Amount		Estimated Fair Value
Financial Assets
Cash and short-term assets	$	10,188	$	—	$	—	$	10,188	$	10,188
Trading account securities	—		—		77		77		77
Available-for-sale securities	—		—		25,654		25,654		25,654
Held-to-maturity securities	12,455		—		—		12,455		12,619
Other securities	563		—		86		649		649
Loans held for sale	—		38		1,297		1,335		1,335
Net loans and leases (1)	108,321		—		139		108,460		108,385
Derivative assets	—		—		900		900		900
Assets held in trust for deferred compensation plans	—		—		151		151		151
Financial Liabilities
Deposits	141,898		—		—		141,898		142,261
Short-term borrowings	435		—		—		435		435
Long-term debt	7,779		—		—		7,779		7,908
Derivative liabilities	—		—		250		250		250


	December 31, 2020
(dollar amounts in millions)	Amortized Cost		Lower of Cost or Market		Fair Value or Fair Value Option		Total Carrying Amount		Estimated Fair Value
Financial Assets
Cash and short-term assets	$	6,712	$	—	$	—	$	6,712	$	6,712
Trading account securities	—		—		62		62		62
Available-for-sale securities	—		—		16,485		16,485		16,485
Held-to-maturity securities	8,861		—		—		8,861		9,255
Other securities	359		—		59		418		418
Loans held for sale	—		77		1,198		1,275		1,275
Net loans and leases (1)	79,700		—		94		79,794		80,477
Derivative assets	—		—		1,057		1,057		1,057
Assets held in trust for deferred compensation plans	—		—		73		73		73
Financial Liabilities
Deposits	98,948		—		—		98,948		99,021
Short-term borrowings	183		—		—		183		183
Long-term debt	8,352		—		—		8,352		8,568
Derivative liabilities	—		—		116		116		116

(1)Includes collateral-dependent loans.

The following table presents the level in the fair value hierarchy for the estimated fair values at September 30, 2021 and December 31, 2020:


	Estimated Fair Value Measurements at Reporting Date Using						Netting Adjustments (1)		September 30, 2021
(dollar amounts in millions)	Level 1		Level 2		Level 3
Financial Assets
Trading account securities	$	—	$	77	$	—			$	77
Available-for-sale securities	5		22,014		3,635				25,654
Held-to-maturity securities	—		12,619		—				12,619
Other securities (2)	62		24		—				86
Loans held for sale	—		1,297		38				1,335
Net loans and direct financing leases	—		119		108,266				108,385
Derivative assets	—		1,567		19		$	(686)	900
Financial Liabilities
Deposits	—		137,142		5,119				142,261
Short-term borrowings	—		435		—				435
Long-term debt	—		7,147		761				7,908
Derivative liabilities	—		1,056		7		(813)		250


	Estimated Fair Value Measurements at Reporting Date Using						Netting Adjustments (1)		December 31, 2020
(dollar amounts in millions)	Level 1		Level 2		Level 3
Financial Assets
Trading account securities	$	—	$	62	$	—			$	62
Available-for-sale securities	5		13,510		2,970				16,485
Held-to-maturity securities	—		9,255		—				9,255
Other securities (2)	59		—		—				59
Loans held for sale	—		1,198		77				1,275
Net loans and direct financing leases	—		71		80,406				80,477
Derivative assets	—		1,903		43		$	(889)	1,057
Financial Liabilities
Deposits	—		96,656		2,365				99,021
Short-term borrowings	—		183		—				183
Long-term debt	—		7,999		569				8,568
Derivative liabilities	—		1,031		2		(917)		116

(2)Excludes securities without readily determinable fair values.

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 FRB, federal funds sold, and securities purchased under resale agreements. 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, deposit base, and other customer relationship intangibles are not considered financial instruments and are not included above. Accordingly, this fair value information is not intended to, and does not, represent Huntington’s underlying value. 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.

- 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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