Huntington National Bank 2007 Annual Report Download - page 108

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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, Federal Home Loan
Bank Advances and cash and short-term assets, which include cash and due from banks, interest-bearing deposits in banks, and
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 and non-mortgage
servicing rights, deposit base, and other customer relationship intangibles are not considered financial instruments and are not
discussed below. 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.
The following methods and assumptions were used by Huntington to estimate the fair value of the remaining classes of financial
instruments:
–LOANS HELD FOR SALE — generally based on collateral value and observable market prices of similar instruments. If market prices
are not available, fair value is determined using internally developed models based on the estimated cash flows, adjusted for
credit risk. The credit risk adjustment is discounted using a rate that is appropriate for each maturity and incorporates the
effects of interest rate changes.
–INVESTMENT SECURITIES — based on quoted market prices, where available. If quoted market prices are not available, fair values
are based on quoted market prices of comparable securities. Retained interests in securitized assets are valued using a discounted
cash flow analysis. The carrying amount and fair value of securities exclude the fair value of asset/liability management interest
rate contracts designated as hedges of securities available for sale.
–LOANS AND DIRECT FINANCING LEASES — variable-rate loans that reprice frequently are based on carrying amounts, as adjusted for
estimated credit losses. The fair values for other loans and leases are estimated using discounted cash flow analyses and employ
interest rates currently being offered for loans and leases with similar terms. The rates take into account the position of the yield
curve, as well as an adjustment for prepayment risk, operating costs, and profit. This value is also reduced by an estimate of
probable losses in the loan and lease portfolio.
–DEPOSITS — demand deposits, savings accounts, and money market deposits are, by definition, equal to the amount payable on
demand. The fair values of fixed-rate time deposits are estimated by discounting cash flows using interest rates currently being
offered on certificates with similar maturities.
–DEBT — fixed-rate, long-term debt is based upon quoted market prices or, in the absence of quoted market prices, discounted
cash flows using rates for similar debt with the same maturities. The carrying amount of variable-rate obligations approximates
fair value and do not reflect the impact of Huntington’s own credit risk.
20. DERIVATIVE FINANCIAL INSTRUMENTS
DERIVATIVES USED IN ASSET AND LIABILITY MANAGEMENT ACTIVITIES
The following table presents the gross notional values of derivatives used in Huntington’s Asset and Liability Management activities
at December 31, 2007, identified by the underlying interest rate-sensitive instruments:
(in thousands )
Fair Value
Hedges
Cash Flow
Hedges Total
Instruments associated with:
Deposits $ 560,000 $315,000 $ 875,000
Federal Home Loan Bank advances — 525,000 525,000
Subordinated notes 750,000 — 750,000
Other long-term debt 50,000 — 50,000
Total notional value at December 31, 2007 $1,360,000 $840,000 $2,200,000
106
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS HUNTINGTON BANCSHARES INCORPORATED