Huntington National Bank 2014 Annual Report Download - page 181

175
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 nonmortgage servicing
rights, deposit base, and other customer relationship intangibles are not considered financial instruments and are not included above.
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:
Held-to-maturity securities
Fair values are determined by using models that are based on security-specific details, as well as relevant industry and economic
factors. The most significant of these inputs are quoted market prices, and interest rate spreads on relevant benchmark securities.
Loans 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 expected losses and the credit risk associated in the loan and
lease portfolio. The valuation of the loan portfolio reflected discounts that Huntington believed are consistent with transactions
occurring in the market place.
Deposits
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.
Debt
Fixed-rate, long-term debt is based upon quoted market prices, which are inclusive of Huntington’s credit risk. In the absence of
quoted market prices, discounted cash flows using market rates for similar debt with the same maturities are used in the determination
of fair value.
18. DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are recorded in the Consolidated Balance Sheets as either an asset or a liability (in accrued
income and other assets or accrued expenses and other liabilities, respectively) and measured at fair value.
Derivatives used in Asset and Liability Management Activities
Huntington engages in balance sheet hedging activity, principally for asset liability management purposes, to convert fixed
rate assets or liabilities into floating rate or vice versa. Balance sheet hedging activity is arranged to receive hedge accounting
treatment and is classified as either fair value or cash flow hedges. Fair value hedges are purchased to convert deposits and
subordinated and other long-term debt from fixed-rate obligations to floating rate. Cash flow hedges are used to convert floating rate
loans made to customers into fixed rate loans.
The following table presents the gross notional values of derivatives used in Huntington’s asset and liability management
activities at December 31, 2014, identified by the underlying interest rate-sensitive instruments:
Fair Value Cash Flow
(dollar amounts in thousands) Hedges Hedges Total
Instruments associated with:
Loans $ --- $ 9,300,000 $ 9,300,000
Deposits 69,100 --- 69,100
Subordinated notes 475,000 --- 475,000
Long-term debt 2,285,000 --- 2,285,000
Total notional value at December 31, 2014 $ 2,829,100 $ 9,300,000 $ 12,129,100