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, 2022

FAIR VALUES OF ASSETS AND LIABILITIESSee Note 19 “Fair Value of Assets and Liabilities” to the Consolidated Financial Statements appearing in Huntington’s 2021 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, 2022 and 2021.

Assets and Liabilities measured at fair value on a recurring basis


	Fair Value Measurements at Reporting Date Using						Netting Adjustments (1)		September 30, 2022
(dollar amounts in millions)	Level 1		Level 2		Level 3
Assets
Trading account securities:



Municipal securities	$	—	$	32	$	—	$	—	$	32


Available-for-sale securities:
U.S. Treasury securities	5		—		—		—		5
Residential CMOs	—		3,035		—		—		3,035
Residential MBS	—		11,983		—		—		11,983
Commercial MBS	—		2,038		—		—		2,038
Other agencies	—		190		—		—		190
Municipal securities	—		44		3,332		—		3,376
Private-label CMO	—		121		21		—		142
Asset-backed securities	—		301		70		—		371
Corporate debt	—		2,162		—		—		2,162
Other securities/sovereign debt	—		4		—		—		4
Total available-for-sale securities	5		19,878		3,423		—		23,306
Other securities	47		3		—		—		50
Loans held for sale	—		758		—		—		758
Loans held for investment	—		166		16		—		182
MSRs	—		—		486		—		486
Other assets:
Derivative assets	—		2,521		2		(2,104)		419
Assets held in trust for deferred compensation plans	111		—		—		—		111
Liabilities



Derivative liabilities	—		2,652		11		(1,460)		1,203


	Fair Value Measurements at Reporting Date Using						Netting Adjustments (1)		December 31, 2021
(dollar amounts in millions)	Level 1		Level 2		Level 3
Assets
Trading account securities:

Municipal securities	$	—	$	46	$	—	$	—	$	46


Available-for-sale securities:
U.S. Treasury securities	5		—		—		—		5
Residential CMOs	—		4,649		—		—		4,649
Residential MBS	—		15,508		—		—		15,508
Commercial MBS	—		1,865		—		—		1,865
Other agencies	—		248		—		—		248
Municipal securities	—		49		3,477		—		3,526
Private-label CMO	—		86		20		—		106
Asset-backed securities	—		312		70		—		382
Corporate debt	—		2,167		—		—		2,167
Other securities/sovereign debt	—		4		—		—		4
Total available-for-sale securities	5		24,888		3,567		—		28,460
Other securities	65		7		—		—		72
Loans held for sale	—		1,270		—		—		1,270
Loans held for investment	—		152		19		—		171
MSRs	—		—		351		—		351
Other assets:
Derivative assets	—		1,055		10		(465)		600
Assets held in trust for deferred compensation plans	156		—		—		—		156
Liabilities
Derivative liabilities	—		737		6		(624)		119

(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, 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)			—
Three Months Ended September 30, 2021
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:
Mortgage banking income	1		28		—		—		—			—
Interest and fee income	—		—		(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
					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, 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)		—
Nine Months Ended September 30, 2021
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
Mortgage banking income	27		73		—		—		—		—
Interest and fee income	—		—		(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)		—		—		—

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


(dollar amounts in millions)	Total Loans						Loans that are 90 or more days past due
	Fair value carrying amount		Aggregate unpaid principal		Difference		Fair value carrying amount		Aggregate unpaid principal		Difference
September 30, 2022
Assets
Loans held for sale	$	758	$	781	$	(23)	$	—	$	—	$	—
Loans held for investment	182		187		(5)		3		3		—
December 31, 2021
Assets
Loans held for sale	$	1,270	$	1,237	$	33	$	—	$	—	$	—
Loans held for investment	171		177		(6)		4		4		—

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



(dollar amounts in millions)	Three Months Ended September 30,				Nine Months Ended September 30,
Assets	2022		2021		2022		2021
Loans held for sale (1)	$	(22)	$	(4)	$	(56)	$	(30)
Loans held for investment	—		—		1		—

(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 were as follows:


	Fair Value Measurements Using Significant Other Unobservable Inputs (Level 3)				Total Gains (Losses)
					Three Months Ended September 30,				Nine Months Ended September 30,
(dollar amounts in millions)	September 30, 2022		December 31, 2021		2022		2021		2022		2021

Collateral-dependent loans	$	47	$	39	$	—	$	—	$	(1)	$	(2)

Loans held for sale	61		—		1		(1)		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, 2022 (1)						At December 31, 2021 (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	5	%	-	22%	7	%	8	%	—%	23	%	12	%
		Spread over forward interest rate swap rates	5	%	-	13%	6	%	3	%	—%	11	%	5	%
Derivative instruments	Consensus Pricing	Net market price	(20)	%	-	6%	(3)	%	(4)	%	—%	8	%	1	%
		Estimated pull through %	5	%	-	100%	94	%	6	%	—%	100	%	92	%




Municipal securities and asset-backed securities	Discounted cash flow	Discount rate	4	%	-	5%	5	%	—	%	—%	2	%	1	%
		Cumulative default	—	%	-	64%	7	%	—	%	—%	64	%	5	%
		Loss given default	5	%	-	80%	25	%	5	%	—%	80	%	23	%

(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:


(dollar amounts in millions)	Amortized Cost		Lower of Cost or Market		Fair Value or Fair Value Option		Total Carrying Amount		Estimated Fair Value
September 30, 2022
Financial Assets
Cash and short-term assets	$	4,592	$	—	$	—	$	4,592	$	4,592
Trading account securities	—		—		32		32		32
Available-for-sale securities	—		—		23,306		23,306		23,306
Held-to-maturity securities	17,173		—		—		17,173		14,835
Other securities	768		—		50		818		818
Loans held for sale	—		135		758		893		900
Net loans and leases (1)	115,855		—		182		116,037		110,944
Derivative assets	—		—		419		419		419
Assets held in trust for deferred compensation plans	—		—		111		111		111
Financial Liabilities
Deposits	146,313		—		—		146,313		146,211
Short-term borrowings	426		—		—		426		426
Long-term debt	10,168		—		—		10,168		9,995
Derivative liabilities	—		—		1,203		1,203		1,203
December 31, 2021
Financial Assets
Cash and short-term assets	$	5,914	$	—	$	—	$	5,914	$	5,914
Trading account securities	—		—		46		46		46
Available-for-sale securities	—		—		28,460		28,460		28,460
Held-to-maturity securities	12,447		—		—		12,447		12,489
Other securities	576		—		72		648		648
Loans held for sale	—		406		1,270		1,676		1,621
Net loans and leases (1)	109,066		—		171		109,237		109,695
Derivative assets	—		—		600		600		600
Assets held in trust for deferred compensation plans	—		—		156		156		156
Financial Liabilities
Deposits	143,263		—		—		143,263		143,574
Short-term borrowings	334		—		—		334		334
Long-term debt	7,108		—		—		7,108		7,319
Derivative liabilities	—		—		119		119		119

(1)Includes collateral-dependent loans.

The following table presents the level in the fair value hierarchy for the estimated fair values at September 30, 2022 and December 31, 2021:


	Estimated Fair Value Measurements at Reporting Date Using						Netting Adjustments (1)		Presented Balance
(dollar amounts in millions)	Level 1		Level 2		Level 3
September 30, 2022
Financial Assets
Trading account securities	$	—	$	32	$	—			$	32
Available-for-sale securities	5		19,878		3,423				23,306
Held-to-maturity securities	—		14,835		—				14,835
Other securities (2)	47		3		—				50
Loans held for sale	—		758		142				900
Net loans and leases	—		166		110,778				110,944
Derivative assets	—		2,521		2		$	(2,104)	419
Financial Liabilities
Deposits	—		142,710		3,501				146,211
Short-term borrowings	—		426		—				426
Long-term debt	—		6,631		3,364				9,995
Derivative liabilities	—		2,652		11		(1,460)		1,203
December 31, 2021
Financial Assets
Trading account securities	$	—	$	46	$	—			$	46
Available-for-sale securities	5		24,888		3,567				28,460
Held-to-maturity securities	—		12,489		—				12,489
Other securities (2)	65		7		—				72
Loans held for sale	—		1,270		351				1,621
Net loans and leases	—		152		109,543				109,695
Derivative assets	—		1,055		10		$	(465)	600
Financial Liabilities
Deposits	—		139,047		4,527				143,574
Short-term borrowings	—		334		—				334
Long-term debt	—		6,441		878				7,319
Derivative liabilities	—		737		6		(624)		119

(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 and 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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