Huntington National Bank 2015 Annual Report Download - page 182

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Estimated Fair Value Measurements at Reporting Date Using
December 31, 2014
(dollar amounts in thousands) Level 1 Level 2 Level 3
Financial Assets
Held-to-maturity securities $ — $ 3,382,715 $ — $ 3,382,715
Net loans and direct financing leases — — 45,110,406 45,110,406
Financial Liabilities
Deposits — 48,183,798 4,271,006 52,454,804
Short-term borrowings — — 2,397,101 2,397,101
Long-term debt — — 4,286,304 4,286,304
The short-term nature of certain assets and liabilities result in their carrying value approximating fair value. These include
trading account securities, customers’ acceptance liabilities, short-term borrowings, bank acceptances outstanding, FHLB
advances, and cash and short-term assets, which include cash and due from banks, interest-bearing deposits in banks, and federal
funds sold and securities purchased under resale agreements. Loan commitments and letters-of-credit generally have short-term,
variable-rate features and contain clauses that limit Huntington’s exposure to changes in customer credit quality. Accordingly, their
carrying values, which are immaterial at the respective balance sheet dates, are reasonable estimates of fair value.
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 marketplace.
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
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.