Huntington National Bank 2004 Annual Report Download - page 125

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS HUNTINGTON BANCSHARES INCORPORATED
19. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of Huntington’s financial instruments at December 31 are presented in the
following table:
2004 2003
Carrying Fair Carrying Fair
(in thousands of dollars) Amount Value Amount Value
Financial Assets:
Cash and short-term assets $ 1,527,758 $ 1,527,758 $ 1,030,130 $ 1,030,130
Trading account securities 309,630 309,630 7,589 7,589
Mortgages held for sale 223,469 223,469 226,729 226,729
Investment securities 4,238,945 4,238,945 4,929,060 4,929,060
Net loans and direct financing leases 23,289,066 23,528,066 20,775,386 21,256,386
Customers’ acceptance liability 11,299 11,299 9,553 9,553
Derivatives 41,809 41,809 100,180 100,180
Financial Liabilities:
Deposits (20,768,161) (19,915,161) (18,487,395) (17,903,395)
Short-term borrowings (1,207,233) (1,207,233) (1,452,304) (1,452,304)
Bank acceptances outstanding (11,299) (11,299) (9,553) (9,553)
Federal Home Loan Bank advances (1,271,088) (1,271,088) (1,273,000) (1,273,000)
Subordinated notes (1,039,793) (1,039,793) (990,470) (990,470)
Other long term debt (4,016,004) (4,094,004) (4,544,509) (4,613,509)
Derivatives (4,903) (4,903) (95,008) (95,008)
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:
–M ORTGAGES HELD FOR SALE — valued using outstanding commitments from investors.
–I NVESTMENT 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 instruments. 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.
–L OANS 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.
–D EPOSITS — 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.
–D
EBT — 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.
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