Huntington National Bank 2007 Annual Report Download - page 18

Loans Held-for-sale
Loans held-for-sale are carried at the lower of (a) historical amortized cost or (b) fair value. The fair value of loans held-for-
sale is generally based on 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 adjusted cash
flows are discounted using a rate that is appropriate for each maturity and incorporates the effects of interest rate changes. At
December 31, 2007, loans held-for-sale included $73 million acquired from Sky Financial. The value of the Sky Financial
impaired commercial loans held-for-sale is primarily determined by analyzing the underlying collateral of the loan and the
external market prices of similar assets.
Other Investments - Equity Investments
We make certain equity investments through investments in equity funds (holding both private and publicly traded equity
securities), directly in companies as a minority interest investor, and directly in companies in conjunction with our mezzanine
lending activities. We measure these equity investments at fair value, with adjustments to the fair value recognized as a
component of other non-interest income. For additional information regarding equity investments, please refer to “Price Risk”
in the “Risk Management and Capital” section of this report.
–INCOME TAXES — The calculation of our provision for federal income taxes is complex and requires the use of estimates and
judgments. We have two accruals for income taxes: Our income tax receivable represents the estimated amount currently due
from the federal government, net of any reserve for potential audit issues, and is reported as a component of “accrued income
and other assets” in our consolidated balance sheet; our deferred federal income tax liability represents the estimated impact of
temporary differences between how we recognize our assets and liabilities under GAAP, how such assets and liabilities are
recognized under the federal tax code, and is reported as a component of “accrued expenses and other liabilities” in our
consolidated balance sheet.
In the ordinary course of business, we operate in various taxing jurisdictions and are subject to income and non-income taxes.
The effective tax rate is based in part on our interpretation of the relevant current tax laws. We believe the aggregate liabilities
related to taxes are appropriately reflected in the consolidated financial statements. We review the appropriate tax treatment of
all transactions taking into consideration statutory, judicial, and regulatory guidance in the context of our tax positions. In
addition, we rely on various tax opinions, recent tax audits, and historical experience.
From time to time, we engage in business transactions that may have an effect on our tax liabilities. Where appropriate, we have
obtained opinions of outside experts and have assessed the relative merits and risks of the appropriate tax treatment of business
transactions taking into account statutory, judicial, and regulatory guidance in the context of the tax position. However, changes
to our estimates of accrued taxes can occur due to changes in tax rates, implementation of new business strategies, resolution of
issues with taxing authorities regarding previously taken tax positions and newly enacted statutory, judicial, and regulatory
guidance. Such changes can affect the amount of our accrued taxes and can be material to our financial position and/or results
of operations. The potential impact of our operating results for any of these changes cannot be reasonably estimated. For
additional information regarding income taxes, please refer to Note 17 of the Notes to the Consolidated Financial Statements.
Recent Accounting Pronouncements and Developments
Note 2 to the Consolidated Financial Statements discusses new accounting policies adopted during 2007 and the expected impact
of accounting policies recently issued but not yet required to be adopted. To the extent the adoption of new accounting standards
materially affect financial condition, results of operations, or liquidity, the impacts are discussed in the applicable section of this
MD&A and the Notes to the Consolidated Financial Statements.
Acquisitions
SKY FINANCIAL GROUP,INC.(SKY FINANCIAL)
The merger with Sky Financial was completed on July 1, 2007. At the time of acquisition, Sky Financial had assets of $16.8 billion,
including $13.3 billion of loans, and total deposits of $12.9 billion. The impact of this acquisition was included in our consolidated
results for the last six months of 2007. Additionally, in September of 2007, Sky Bank and Sky Trust, National Association (Sky
Trust), merged into the Bank and systems integration was completed. As a result, performance comparisons between 2007 and
2006 are affected.
As a result of this acquisition, we have a significant loan relationship with Franklin. This relationship is discussed in greater detail
in the “Significant Items” section of this report.
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MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED