Huntington National Bank 2014 Annual Report Download - page 171

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The following table shows the number of shares, market value, and dividends received on shares of Huntington stock held by the
defined contribution plan:
December 31,
(dollar amounts in thousands, except share amounts) 2014 2013
Shares in Huntington common stock 12,883,333 13,624,429
Market value of Huntington common stock $ 135,533 $ 131,476
Dividends received on shares of Huntington stock 2,694 2,567
17. FAIR VALUES OF ASSETS AND LIABILITIES
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.
Mortgage loans held for sale
Huntington 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.
Available-for-sale securities and trading account securities
Securities accounted for at fair value include both the available-for-sale and trading portfolios. Huntington uses prices obtained
from third party pricing services and recent trades to determine the fair value of securities. AFS and trading securities are classified as
Level 1 using quoted market prices (unadjusted) in active markets for identical securities that Huntington has the ability to access at
the measurement date. Less than 1% of the positions in these portfolios are Level 1, and consist of U.S. Treasury securities and money
market mutual funds. 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. 83% of the positions in these portfolios are
Level 2, and consist of U.S. Government and agency debt securities, agency mortgage backed securities, asset-backed securities,
municipal securities and other securities. For both Level 1 and Level 2 securities, management uses various methods and techniques
to corroborate prices obtained from the pricing service, including reference to dealer or other market quotes, and by reviewing
valuations of comparable instruments. 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. 17% of our
positions are Level 3, and consist of non-agency Alt-A asset-backed securities, private-label CMO securities, CDO-preferred
securities and 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 Alt-A, private label CMO and CDO-preferred securities portfolios are classified as Level 3 and as such use significant
estimates to determine the fair value of these securities which results in greater subjectivity. The Alt-A and private label CMO
securities portfolios are subjected to a monthly review of the projected cash flows, while the cash flows of the CDO-preferred
securities portfolio are reviewed quarterly. These reviews are supported with analysis from independent third parties, and are used as a
basis for impairment analysis.
Alt-A mortgage-backed and private-label CMO securities are collateralized by first-lien residential mortgage loans. The securities
valuation methodology incorporates values obtained from a third-party pricing specialist using a discounted cash flow approach and a
proprietary pricing model and includes assumptions management believes market participants would use to value the securities under
current market conditions. The model uses inputs such as estimated prepayment speeds, losses, recoveries, default rates that are
implied by the underlying performance of collateral in the structure or similar structures, house price depreciation / appreciation rates
that are based upon macroeconomic forecasts and discount rates that are implied by market prices for similar securities with similar
collateral structures. The remaining Alt-A mortgage-backed securities were sold during the third quarter of 2014.
CDO-preferred securities are CDOs backed by a pool of debt securities issued by financial institutions. The collateral generally
consists of trust-preferred securities and subordinated debt securities issued by banks, bank holding companies, and insurance
companies. A full cash flow analysis is used to estimate fair values and assess impairment for each security within this portfolio. We
engage a third-party pricing specialist with direct industry experience in CDO-preferred securities valuations to provide assistance in
estimating the fair value and expected cash flows for each security in this portfolio. The PD of each issuer and the market discount
rate are the most significant inputs in determining fair value. Management evaluates the PD assumptions provided by the third-party
pricing specialist by comparing the current PD to the assumptions used the previous quarter, actual defaults and deferrals in the
current period, and trend data on certain financial ratios of the issuers. Huntington also evaluates the assumptions related to discount
rates. Relying on cash flows is necessary because there was a lack of observable transactions in the market and many of the original
sponsors or dealers for these securities are no longer able to provide a fair value.