Huntington National Bank 2012 Annual Report Download - page 177

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MSRs
MSRs do not trade in an active market with readily observable prices. Accordingly, the fair value of these assets is classified as
Level 3. Huntington determines the fair value of MSRs using an income approach model based upon our month-end interest rate curve
and prepayment assumptions. The model, which is operated and maintained by a third party, utilizes assumptions to estimate future
net servicing income cash flows, including estimates of time decay, payoffs, and changes in valuation inputs and assumptions.
Servicing brokers and other sources of information (e.g. discussion with other mortgage servicers and industry surveys) are used to
obtain information on market practice and assumptions. On at least a quarterly basis, third party marks are obtained from at least one
service broker. Huntington reviews the valuation assumptions against this market data for reasonableness and adjusts the assumptions
if deemed appropriate. Any recommended change in assumptions and / or inputs are presented for review to the Mortgage Price Risk
Subcommittee for final approval.
Derivatives
Derivatives classified as Level 1 consist of exchange traded options and forward commitments to deliver mortgage-backed
securities which are valued using quoted prices. Asset and liability conversion swaps and options, and interest rate caps are classified
as Level 2. These derivative positions are valued using a discounted cash flow method that incorporates current market interest rates.
Derivatives classified as Level 3 consist primarily of interest rate lock agreements related to mortgage loan commitments. The
determination of fair value includes assumptions related to the likelihood that a commitment will ultimately result in a closed loan,
which is a significant unobservable assumption. A significant increase or decrease in the external market price would result in a
significantly higher or lower fair value measurement.
Securitization trust notes payable
Consists of certain securitization trust notes payable related to the automobile loan receivables measured at fair value. The notes
payable are classified as Level 2 and are valued based on interest rates for similar financial instruments.
Assets and Liabilities measured at fair value on a recurring basis
Assets and liabilities measured at fair value on a recurring basis at December 31, 2012 and 2011 are summarized below:
Fair Value Measurements at Reporting Date Using Netting Balance at
(dollar amounts in thousands) Level 1 Level 2 Level 3 Adjustments (1) December 31, 2012
Assets
Mortgage loans held for sale $ --- $ 452,949 $ --- $ --- $ 452,949
Trading account securities:
Federal agencies: Mortgage-backed --- --- --- --- ---
Municipal securities --- 15,218 --- --- 15,218
Other securities 75,729 258 --- --- 75,987
75,729 15,476 --- --- 91,205
Available-for-sale and other securities:
U.S. Treasury securities 52,311 --- --- --- 52,311
Federal agencies: Mortgage-backed (2) --- 4,264,670 --- --- 4,264,670
Federal agencies: Other agencies --- 359,626 --- --- 359,626
Municipal securities --- 439,772 61,228 --- 501,000
Private-label CMO --- 22,793 48,775 --- 71,568
Asset-backed securities --- 919,046 110,037 --- 1,029,083
Covered bonds --- 290,625 --- --- 290,625
Corporate debt --- 668,142 --- --- 668,142
Other securities 17,177 3,898 --- --- 21,075
69,488 6,968,572 220,040 --- 7,258,100
Automobile loans --- --- 142,762 --- 142,762
MSRs --- --- 35,202 --- 35,202
Derivative assets 6,368 465,517 13,180 (99,368) 385,697
Liabilities
Securitization trust notes payable --- --- --- --- ---
Derivative liabilities 6,813 228,312 478 (83,415) 152,188
Other liabilities --- --- --- --- ---