Huntington National Bank 2006 Annual Report Download - page 119

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS HUNTINGTON BANCSHARES INCORPORATED
22. 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:
2006 2005
Carrying Carrying
(in thousands of dollars) Amount Fair Value Amount Fair Value
Financial Assets:
Cash and short-term assets $ 1,594,915 $ 1,594,915 $ 1,063,167 $ 1,063,167
Trading account securities 36,056 36,056 8,619 8,619
Mortgages held for sale 270,422 270,422 294,344 294,344
Investment securities 4,362,924 4,362,924 4,526,520 4,526,520
Net loans and direct financing leases 25,811,357 25,945,357 24,203,819 24,222,819
Derivatives 44,793 44,793 30,274 30,274
Financial Liabilities:
Deposits (25,047,770) (23,754,770) (22,409,675) (21,338,675)
Short-term borrowings (1,676,189) (1,676,189) (1,889,260) (1,889,260)
Federal Home Loan Bank advances (996,821) (996,821) (1,155,647) (1,155,647)
Subordinated notes (2,229,140) (2,229,140) (1,023,371) (1,023,371)
Other long term debt (1,286,657) (1,351,657) (2,418,419) (2,479,419)
Derivatives (27,041) (27,041) (27,427) (27,427)
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:
–L
OANS 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.
117