Huntington Bancshares Incorporated Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

FAIR VALUES OF ASSETS AND LIABILITIES

FAIR VALUES OF ASSETS AND LIABILITIES

12 Months Ended

Dec. 31, 2023

Following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy. Assets and liabilities measured at fair value rarely transfer between Level 1 and Level 2 measurements. There were no such transfers during the years ended December 31, 2023 and 2022.

Loans held for sale

Huntington has elected to apply the fair value option for mortgage loans originated with the intent to sell which are included in loans held for sale. Mortgage loans held for sale are classified as Level 2 and are estimated using security prices for similar product types.

Loans held for investment

Certain mortgage loans originated with the intent to sell for which the FVO was elected have been reclassified to loans held for investment. These loans continue to be measured at fair value. The fair value is determined using fair value of similar mortgage-backed securities adjusted for loan specific variables.

Available-for-sale and trading account securities

Securities accounted for at fair value include both the available-for-sale and trading account portfolios. Huntington determines the fair value of securities utilizing quoted market prices obtained for identical or similar assets, third-party pricing services, third-party valuation specialists and other observable inputs such as recent trade observations. AFS and trading securities classified as Level 1 use quoted market prices (unadjusted) in active markets for identical securities at the measurement date. Level 1 positions in these portfolios consist of U.S. Treasury securities. When quoted market prices are not available, fair values are classified as Level 2 using quoted prices for similar assets in active markets, quoted prices of identical or similar assets in markets that are not active, and inputs that are observable for the asset, either directly or indirectly, for substantially the full term of the financial instrument. Level 2 positions in these portfolios consist of U.S. Government and agency debt securities, agency mortgage backed securities, private-label asset-backed securities, certain municipal securities, and other securities. For Level 2 securities Huntington primarily uses prices obtained from third-party pricing services to determine the fair value of securities. Huntington independently evaluates and corroborates the fair value received from pricing services through various methods and techniques, including references to dealer or other market quotes, by reviewing valuations of comparable instruments, and by comparing the prices realized on the sale of similar securities. If relevant market prices are limited or unavailable, valuations may require significant management judgment or estimation to determine fair value, in which case the fair values are classified as Level 3. The Level 3 positions predominantly consist of direct purchase municipal securities. A significant change in the unobservable inputs for these securities may result in a significant change in the ending fair value measurement of these securities.

The direct purchase municipal securities are classified as Level 3 and require estimates to determine fair value which results in greater subjectivity. The fair value is determined by utilizing a discounted cash flow valuation technique employed by a third-party valuation specialist. The third-party specialist uses assumptions related to yield, prepayment speed, conditional default rates and loss severity based on certain factors such as, credit worthiness of the counterparty, prevailing market rates, and analysis of similar securities. Huntington evaluates the fair values provided by the third-party specialist for reasonableness.

Derivative assets and liabilities

Derivatives classified as Level 2 primarily consist of interest rate contracts, which are valued using a discounted cash flow method that incorporates current market interest rates. In addition, Level 2 includes foreign exchange and commodity contracts, which are valued using exchange traded swaps, exchange traded options, and futures market data. Level 2 also includes exchange traded options and forward commitments to deliver mortgage-backed securities, which are valued using quoted prices.

Derivatives classified as Level 3 consist of interest rate lock agreements related to mortgage loan commitments, the Visa® share swap, and credit default swaps.

MSRs

MSRs are accounted for using the fair value method and are classified as Level 3. Refer to Note 7 - “Mortgage Loan Sales and Servicing Rights” for information on valuation methodology.

Assets and Liabilities measured at fair value on a recurring basis


	Fair Value Measurements at Reporting Date Using						Netting Adjustments (1)		At December 31, 2023
(dollar amounts in millions)	Level 1		Level 2		Level 3
Assets
Trading account securities:
U.S. Treasury securities	$	91	$	—	$	—	$	—	$	91

Other agencies	—		2		—		—		2

Municipal securities	—		32		—		—		32

Total trading account securities	91		34		—		—		125
Available-for-sale securities:
U.S. Treasury securities	2,856		—		—		—		2,856
Residential CMO	—		3,184		—		—		3,184
Residential MBS	—		11,382		—		—		11,382
Commercial MBS	—		1,827		—		—		1,827
Other agencies	—		155		—		—		155
Municipal securities	—		38		3,335		—		3,373
Private-label CMO	—		99		20		—		119
Asset-backed securities	—		281		75		—		356
Corporate debt	—		2,043		—		—		2,043
Other securities/sovereign debt	—		10		—		—		10
Total available-for-sale securities	2,856		19,019		3,430		—		25,305

Other securities	30		2		—		—		32
Loans held for sale	—		506		—		—		506
Loans held for investment	—		120		54		—		174
MSRs	—		—		515		—		515
Other assets:
Derivative assets	—		1,720		3		(1,330)		393
Assets held in trust for deferred compensation plans	177		—		—		—		177
Liabilities

Derivative liabilities	$	—	$	1,416	$	5	$	(751)	$	670


	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
Year Ended December 31, 2023
Opening balance	$	494	$	(2)	$	3,248	$	20	$	74	$	16
Transfers into Level 3	—		—		—		—		—		41
Transfers out of Level 3 (1)	—		(23)		—		—		—		—
Total gains/losses for the period:
Included in earnings:
Mortgage banking income	7		25		—		—		—		—

Interest and fee income	—		—		(2)		(1)		—		(3)


Noninterest income	—		(2)		—		—		—		—
Included in OCI	—		—		73		—		1		—
Purchases/originations	63		—		928		1		—		—
Sales	(1)		—		—		—		—		—


Settlements	(48)		—		(912)		—		—		—
Closing balance	$	515	$	(2)	$	3,335	$	20	$	75	$	54
Change in unrealized gains or losses for the period included in earnings for assets held at end of the reporting date	$	7	$	(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	—		—		47		—		1		—


	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
Year Ended December 31, 2022
Opening balance	$	351	$	4	$	3,477	$	20	$	70	$	19

Transfers out of Level 3 (1)	—		(3)		—		—		—		—
Total gains/losses for the period:
Included in earnings:
Mortgage banking income	114		(3)		—		—		—		1

Interest and fee income	—		—		(5)		(3)		—		—
Provision for credit losses	—		—		(4)		—		—		—


Included in OCI	—		—		(262)		—		(1)		—
Purchases/originations/acquisitions	85		—		1,087		4		31		—

Repayments	—		—		—		—		—		(4)

Settlements	(56)		—		(1,045)		(1)		(26)		—
Closing balance	$	494	$	(2)	$	3,248	$	20	$	74	$	16
Change in unrealized gains or losses for the period included in earnings for assets held at end of the reporting date	$	114	$	(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	—		—		(257)		—		(1)		—


	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
Year Ended December 31, 2021
Opening balance	$	210	$	41	$	2,951	$	9	$	10	$	23

Transfers out of Level 3 (1)	—		(132)		—		—		—		—
Total gains/losses for the period:
Included in earnings:
Mortgage banking income	27		88		—		—		—		—
Interest and fee income	—		—		(1)		(2)		—		—
Included in OCI	—		—		(46)		—		—		—
Purchases/originations/acquisitions	194		7		1,835		11		115		—
Sales	—		—		(369)		—		—		—
Repayments	—		—		—		—		—		(4)
Settlements	(80)		—		(893)		2		(55)		—
Closing balance	$	351	$	4	$	3,477	$	20	$	70	$	19
Change in unrealized gains or losses for the period included in earnings (or changes in net assets) for assets held at end of the reporting date	$	27	$	(41)	$	—	$	—	$	—	$	—
Change in unrealized gains or losses for the period included in other comprehensive income for assets held at the end of the reporting period	—		—		(47)		—		—		—

(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 December 31, 2023

Loans held for sale	$	506	$	489	$	17	$	—	$	—	$	—
Loans held for investment	174		184		(10)		2		3		(1)
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 (losses) gains from fair value changes:


	Year Ended December 31,
(dollar amounts in millions)	2023		2022		2021

Loans held for sale (1)	$	10	$	(26)	$	(31)
Loans held for investment	(5)		1		(1)

(1)The net gains (losses) from fair value changes are included in Mortgage banking income on the 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, for example, when there is evidence of impairment. 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 Unobservable Inputs (Level 3)				Total Gains/(Losses) Year Ended
(dollar amounts in millions)	December 31, 2023		December 31, 2022		December 31, 2023		December 31, 2022		December 31, 2021
Collateral-dependent loans	$	40	$	16	$	(21)	$	(1)	$	(4)

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 that include 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

The following table presents quantitative information about the significant unobservable inputs for assets and liabilities measured at fair value:


	Quantitative Information about Level 3 Fair Value Measurements (1)
			At December 31, 2023							At December 31, 2022
(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	%	-	37	%	9	%	5	%	-	40	%	7	%
		Spread over forward interest rate swap rates	5	%	-	13	%	5	%	5	%	-	13	%	6	%






Municipal securities and asset-backed securities	Discounted cash flow	Discount rate	4	%	-	6	%	5	%	5	%	-	5	%	5	%
		Cumulative default	—	%	-	64	%	6	%	—	%	-	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.

Components of credit loss estimates including 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 below. 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 December 31, 2023
Financial Assets
Cash and short-term assets	$	10,323	$	—	$	—	$	10,323	$	10,323
Trading account securities	—		—		125		125		125
Available-for-sale securities	—		—		25,305		25,305		25,305
Held-to-maturity securities	15,750		—		—		15,750		13,718
Other securities	693		—		32		725		725
Loans held for sale	—		10		506		516		516
Net loans and leases (1)	119,553		—		174		119,727		116,781
Derivative assets	—		—		393		393		393
Assets held in trust for deferred compensation plans	—		—		177		177		177
Financial Liabilities
Deposits (2)	151,230		—		—		151,230		151,183
Short-term borrowings	620		—		—		620		620
Long-term debt	12,394		—		—		12,394		12,276
Derivative liabilities	—		—		670		670		670
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 (2)	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.

(2)Includes $1.4 billion and $462 million in time deposits in excess of the FDIC insurance coverage limit at December 31, 2023 and December 31, 2022, respectively.

The following table presents the level in the fair value hierarchy for estimated fair values:


	Estimated Fair Value Measurements at Reporting Date Using						Netting		Presented Balance
(dollar amounts in millions)	Level 1		Level 2		Level 3		Adjustments (1)
At December 31, 2023
Financial Assets
Trading account securities	$	91	$	34	$	—	$	—	$	125
Available-for-sale securities	2,856		19,019		3,430		—		25,305
Held-to-maturity securities	—		13,718		—		—		13,718
Other securities (2)	30		2		—		—		32
Loans held for sale	—		506		10		—		516
Net loans and leases	—		120		116,661		—		116,781
Derivative assets	—		1,720		3		(1,330)		393
Financial Liabilities
Deposits	—		135,627		15,556		—		151,183
Short-term borrowings	—		620		—		—		620
Long-term debt	—		8,929		3,347		—		12,276
Derivative liabilities	—		1,416		5		(751)		670
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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