Huntington National Bank 2008 Annual Report Download - page 118

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changes in market outlook. Due to the absence of quoted market prices and inherent lack of liquidity and the long-term nature of
such assets, these equity investments are included in Level 3. Certain equity investments are accounted for under the equity
method and, therefore, are not subject to the fair value disclosure requirements.
DERIVATIVES
Huntington uses derivatives for a variety of purposes including asset and liability management, mortgage banking, and for trading
activities. Level 1 derivatives consist of exchange traded options and forward commitments to deliver mortgage backed securities
which have quoted prices. Level 2 derivatives include basic asset and liability conversion swaps and options, and interest rate caps.
Derivative instruments offered to customers are adjusted for credit considerations related to the customer based upon individual
credit considerations. These derivative positions are valued using internally developed models that use readily observable market
parameters. Derivatives in Level 3 consist of interest rate lock agreements related to mortgage loan commitments. The valuation
includes assumptions related to the likelihood that a commitment will ultimately result in a closed loan, which is a significant
unobservable assumption.
ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS
Assets and liabilities measured at fair value on a recurring basis are summarized below:
(in thousands) Level 1 Level 2 Level 3
Netting
Adjustments
(1)
Balance at
December 31, 2008
Fair Value Measurements at
Reporting Date Using
Assets
Trading account securities $ 51,888 $ 36,789 $ 88,677
Investment securities 626,130 2,342,812 $987,542 3,956,484
Mortgage loans held for sale 378,437 378,437
Mortgage servicing rights 167,438 167,438
Derivative assets 233 668,906 8,182 $(218,326) 458,995
Equity investments 36,893 36,893
Liabilities
Derivative liabilities 11,588 377,248 50 (305,519) 83,367
(1) Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle positive and negative positions and cash collateral held or placed with the same
counterparties.
The table below presents a rollforward of the balance sheet amounts for the year ended December 31, 2008, for financial
instruments measured on a recurring basis and classified as Level 3. The classification of an item as Level 3 is based on the
significance of the unobservable inputs to the overall fair value measurement. However, Level 3 measurements may also include
observable components of value that can be validated externally. Accordingly, the gains and losses in the table below included
changes in fair value due in part to observable factors that are part of the valuation methodology. During the 2008 third quarter,
the market for private label CMOs became less liquid, and as a result, inputs into the determination of the fair values of
Huntington’s private label CMOs could not be determined principally from or corroborated by observable market data.
Consequently, Management has transferred these securities into Level 3. Transfers into Level 3 are presented in the tables below at
fair value at the beginning of the reporting period.
(in thousands)
Mortgage
Servicing Rights
Net Interest
Rate Locks
Investment
Securities
Equity
investments
Level 3 Fair Value Measurements
Year Ended December 31, 2008
Balance, January 1, 2008 $ 207,894 $ (46) $ 834,489 $41,516
Total gains/losses:
Included in earnings (40,769) 8,683 (198,812) (9,242)
Included in other comprehensive loss (303,389)
Purchases, issuances, and settlements 313 (505) (127,793) 4,619
Transfers in/out of Level 3 783,047
Balance, December 31, 2008 $167,438 $8,132 $ 987,542 $36,893
The amount of total gains or losses for the period included in earnings
(or other comprehensive loss) attributable to the change in unrealized
gains or losses relating to assets still held at reporting date $ (40,769) $8,179 $(502,201) $(3,469)
116
Notes to Consolidated Financial Statements Huntington Bancshares Incorporated