Huntington National Bank 2008 Annual Report Download - page 18

Download and view the complete annual report

Please find page 18 of the 2008 Huntington National Bank annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 132

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132

The table below provides a description and the valuation methodologies used for financial instruments measured at fair value, as
well as the general classification of such instruments pursuant to the valuation hierarchy. The fair values measured at each level of
the fair value hierarchy can be found in Note 19 of the Notes to the Consolidated Financial Statements.
Table 2 — Fair Value Measurement of Financial Instruments
Financial Instrument
(1)
Hierarchy Valuation methodology
Loans held-for-sale Level 2 Loans held-for-sale are estimated using security prices for similar
product types.
Investment Securities & Trading
Account Securities
(2)
Level 1 Consist of U.S. Treasury and other federal agency securities, and money
market mutual funds which generally have quoted prices.
Level 2 Consist of U.S. Government and agency mortgage-backed securities and
municipal securities for which an active market is not available. Third-
party pricing services provide a fair value estimate based upon trades of
similar financial instruments.
Level 3 Consist of asset-backed securities and certain private label CMOs, for
which we estimate the fair value. Assumptions used to determine the
fair value of these securities have greater subjectivity due to the lack of
observable market transactions. Generally, there are only limited trades
of similar instruments and a discounted cash flow approach is used to
determine fair value.
Mortgage Servicing Rights (MSRs)
(3)
Level 3 MSRs do not trade in an active, open market with readily observable
prices. Although sales of MSRs do occur, the precise terms and
conditions typically are not readily available. Fair value is based
upon the final month-end valuation, which utilizes the month-end
rate curve and prepayment assumptions.
Derivatives
(4)
Level 1 Consist of exchange traded options and forward commitments to
deliver mortgage-backed securities which have quoted prices.
Level 2 Consist of basic asset and liability conversion swaps and options, and
interest rate caps. These derivative positions are valued using internally
developed models that use readily observable market parameters.
Level 3 Consist of interest rate lock agreements related to mortgage loan
commitments. The determinination of fair value includes assumptions
related to the likelihood that a commitment will ultimately result in a
closed loan, which is a significant unobservable assumption.
Equity Investments
(5)
Level 3 Consist of equity investments via 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. These investments do not have
readily observable prices. Fair value is based upon a variety of factors,
including but not limited to, current operating performance and future
expectations of the particular investment, industry valuations of
comparable public companies, and changes in market outlook.
(1) Refer to Notes 1 and 19 of the Notes to the Consolidated Financial Statements for additional information.
(2) Refer to Note 4 of the Notes to the Consolidated Financial Statements for additional information.
(3) Refer to Note 6 of the Notes to the Consolidated Financial Statements for additional information.
(4) Refer to Note 20 of the Notes to the Consolidated Financial Statements for additional information.
(5) Certain equity investments are accounted for under the equity method and, therefore, are not subject to the fair value disclosure requirements.
Alt-A mortgage-backed / Private-label collateralized mortgage obligation (CMO) securities, included within our Level 3 investment
securities portfolio, represent mortgage-backed securities collateralized by first-lien residential mortgage loans. As the lowest level
input that is significant to the fair value measurement in its entirety is Level 3, we classify all securities within this portfolio as
Level 3. The securities are priced with the assistance of an outside third-party consultant using a discounted cash flow approach
16
Management’s Discussion and Analysis Huntington Bancshares Incorporated