Huntington National Bank 2010 Annual Report Download - page 128

information, with reasonably narrow bid / ask spreads, and where received quoted prices do not vary widely.
When the financial instruments are not actively traded, other observable market inputs, such as quoted prices
of securities with similar characteristics, may be used, if available, to determine fair value. Inactive markets
are characterized by low transaction volumes, price quotations that vary substantially among market
participants, or in which minimal information is released publicly. When observable market prices do not exist,
we estimate fair value primarily by using cash flow and other financial modeling methods. Our valuation
methods consider factors such as liquidity and concentration concerns and, for the derivatives portfolio,
counterparty credit risk. Other factors such as model assumptions, market dislocations, and unexpected
correlations can affect estimates of fair value. Changes in these underlying factors, assumptions, or estimates
in any of these areas could materially impact the amount of revenue or loss recorded.
Assets and liabilities carried at fair value inherently result in a higher degree of financial statement
volatility. Assets measured at fair value include mortgage loans held for sale, available-for-sale and other
certain securities, certain securitized automobile loans, derivatives, certain MSRs, trading account securities,
and certain securitization trust notes payable. At December 31, 2010, approximately $11.5 billion of our assets
and $0.6 billion of our liabilities were recorded at fair value. In addition to the above mentioned on-going fair
value measurements, fair value is also the unit of measure for recording business combinations.
FASB ASC Topic 820, Fair Value Measurements, establishes a framework for measuring the fair value of
financial instruments that considers the attributes specific to particular assets or liabilities and establishes a
three-level hierarchy for determining fair value based on the transparency of inputs to each valuation as of the
fair value measurement date. The three levels are defined as follows:
• Level 1 — quoted prices (unadjusted) for identical assets or liabilities in active markets.
• Level 2 — inputs include quoted prices for similar assets and liabilities in active markets, quoted prices
of identical or similar assets or liabilities in markets that are not active, and inputs that are observable
for the asset or liability, either directly or indirectly, for substantially the full term of the financial
instrument.
• Level 3 — inputs that are unobservable and significant to the fair value measurement. Financial
instruments are considered Level 3 when values are determined using pricing models, discounted cash
flow methodologies, or similar techniques, and at least one significant model assumption or input is
unobservable.
At the end of each quarter, we assess the valuation hierarchy for each asset or liability measured. As
necessary, assets or liabilities may be transferred within hierarchy levels due to changes in availability of
observable market inputs to measure fair value at the measurement date.
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