13. FAIR VALUES OF ASSETS AND LIABILITIES

Huntington follows the fair value accounting guidance under ASC 820 and ASC 825.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A three-level valuation hierarchy was established for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, 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 to the valuation methodology are unobservable and significant to the fair value measurement.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Transfers in and out of Level 1, 2, or 3 are recorded at fair value at the beginning of the reporting period.

Following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Financial Instrument		Hierarchy		Valuation methodology
Mortgage loans held for sale		Level 2		Huntington elected to apply the fair value option for mortgage loans originated with the intent to sell which are included in loans held for sale. Mortgage loans held for sale are estimated using security prices for similar product types. At June 30, 2011, mortgage loans held for sale had an aggregate fair value of $222.9 million and an aggregate outstanding principal balance of $214.7 million. Interest income on these loans is recorded in interest and fee income — loans and leases. Included in mortgage banking income were net gains resulting from origination and sale of these loans, including net realized gains of $11.7 million and $19.4 million for the three-month periods ended June 30, 2011, and 2010, respectively. Of such gains, the change in fair value while held as loans were $1.8 million and $8.8 million for the three-month periods ended June 30, 2011 and 2010, respectively. Net gains resulting from origination and sale of these loans, including net realized gains of $44.5 million and $34.5 million for the six-month periods ended June 30, 2011, and 2010, respectively. Of such gains, the change in fair value while held as loans were $7.9 million and $11.3 million for the six-month periods ended June 30, 2011 and 2010, respectively.
Available-for-sale securities & trading account securities		Level 1		Consist primarily of U.S. Treasury and money market mutual funds, which have quoted prices.
		Level 2		Consist of U.S. Government and agency mortgage-backed and other agency securities, municipal securities, and other 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 certain asset-backed securities, pooled-trust-preferred securities, private-label CMOs, and municipal securities for which fair value is estimated. 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.

Financial Instrument		Hierarchy		Valuation methodology
Automobile loans		Level 3		Consists of automobile loan receivables measured at fair value. The key assumptions used to determine the fair value of the automobile loan receivables included projections of expected losses and prepayment of the underlying loans in the portfolio and a market assumption of interest rate spreads. The net gains and losses, before tax, from fair value changes reflected in interest and fee income — other and noninterest income for the three-month periods ended June 30, 2011 and 2010 was $1.1 million and $(3.3) million, respectively, which is net of a $2.1 million and $0.1 million, respectively net gain associated with instrument specific credit risk. The net gains and losses, before tax, from fair value changes for the six-month periods ended June 30, 2011 and 2010 was $(1.4) million and $4.3 million, respectively, which is net of a $2.2 million and $0.6 million, respectively net gain associated with instrument specific credit risk. Instrument specific credit risk was determined based on estimated credit losses inherent in the beginning period fair value calculation as compared to actual credit losses incurred during the period plus estimated credit losses inherent in the end of period fair value calculation.
MSRs		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 determined on an income approach model based upon month-end interest rate curve and prepayment assumptions.
Derivatives		Level 1		Consist of exchange traded options and forward commitments to deliver mortgage-backed securities which are valued using quoted prices.
		Level 2		Consist of basic asset and liability conversion swaps and options, and interest rate caps. These derivative positions are valued using a discounted cash flow method that incorporates current market interest rates.
		Level 3		Consist primarily of interest rate lock agreements related to mortgage loan commitments. The determination 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.
Securitization trust notes payable		Level 2		Consists of certain securitization trust notes payable related to the automobile loans measured at fair value. The notes payable are valued based on interest rates for similar financial instruments. The net gains and losses, before tax, from fair value changes reflected in interest expense - subordinated notes and other long-term debt and noninterest income for the three-month periods ended June 30, 2011 and 2010 was $(1.4) million and $(5.9) million, respectively. The net gains and losses, before tax, from fair value changes for the six-month periods ended June 30, 2011 and 2010 was $(3.6) million and $(2.2) million, respectively.

Assets and Liabilities measured at fair value on a recurring basis

Assets and liabilities measured at fair value on a recurring basis at June 30, 2011, December 31, 2010, and June 30, 2010 are summarized below:

		Fair Value Measurements at Reporting Date Using												Netting				Balance at
(dollar amounts in thousands)		Level 1				Level 2				Level 3				Adjustments (1)				June 30, 2011
Assets
Mortgage loans held for sale		$	—			$	222,880			$	—			$	—			$	222,880
Trading account securities:
U.S. Treasury securities			—				—				—				—				—
Federal agencies: Mortgage-backed			—				7,917				—				—				7,917
Federal agencies: Other agencies			—				—				—				—				—
Municipal securities			—				35,719				—				—				35,719
Other securities			53,039				2,096				—				—				55,135
			53,039				45,732				—				—				98,771
Available-for-sale and other securities:
U.S. Treasury securities			52,301				—				—				—				52,301
Federal agencies: Mortgage-backed (2)			—				3,922,705				—				—				3,922,705
TLGP securities			—				156,303				—				—				156,303
Federal agencies: Other agencies (2)			—				1,222,274				—				—				1,222,274
Municipal securities			—				308,896				123,800				—				432,696
Private-label CMO			—				—				88,770				—				88,770
Asset-backed securities			—				683,788				165,742				—				849,530
Covered bonds			—				600,055				—				—				600,055
Corporate debt			—				407,969				—				—				407,969
Other securities			53,520				9,932				—				—				63,452
			105,821				7,311,922				378,312				—				7,796,055
Automobile loans			—				—				400,935				—				400,935
MSRs			—				—				104,997				—				104,997
Derivative assets			4,373				377,969				2,102				(77,904	)			306,540

Liabilities
Securitization trust notes payable			—				231,017				—				—				231,017
Derivative liabilities			6,582				207,567				1,684				—				215,833
Other liabilities			2,064				—				—				—				2,064

		Fair Value Measurements at Reporting Date Using												Netting				Balance at
(dollar amounts in thousands)		Level 1				Level 2				Level 3				Adjustments (1)				December 31, 2010
Assets
Mortgage loans held for sale		$	—			$	754,117			$	—			$	—			$	754,117
Trading account securities:
U.S. Treasury securities			47,430				—				—				—				47,430
Federal agencies: Mortgage-backed			—				10,860				—				—				10,860
Federal agencies: Other agencies			—				24,853				—				—				24,853
Municipal securities			—				30,205				—				—				30,205
Other securities			69,017				3,039				—				—				72,056
			116,447				68,957				—				—				185,404
Available-for-sale and other securities:
U.S. Treasury securities			51,781				—				—				—				51,781
Federal agencies: Mortgage-backed			—				4,754,404				—				—				4,754,404
TLGP securities			—				183,467				—				—				183,467
Federal agencies: Other agencies (3)			—				2,058,376				—				—				2,058,376
Municipal securities			—				305,909				149,806				—				455,715
Private-label CMO			—				—				121,925				—				121,925
Asset-backed securities			—				1,044,438				162,684				—				1,207,122
Covered bonds			—				367,209				—				—				367,209
Corporate debt			—				323,389				—				—				323,389
Other securities			53,286				9,848				—				—				63,134
			105,067				9,047,040				434,415				—				9,586,522
Automobile loans			—				—				522,717				—				522,717
MSRs			—				—				125,679				—				125,679
Derivative assets			23,514				390,361				2,817				(70,559	)			346,133

Liabilities
Securitization trust notes payable			—				356,089				—				—				356,089
Derivative liabilities			3,990				233,399				1,851				—				239,240
Other liabilities			—				—				—				—				—

		Fair Value Measurements at Reporting Date Using												Netting				Balance at
(dollar amounts in thousands)		Level 1				Level 2				Level 3				Adjustments (1)				June 30, 2010
Assets
Mortgage loans held for sale		$	—			$	404,817			$	—			$	—			$	404,817
Trading account securities:
U.S. Treasury securities			—				—				—				—				—
Federal agencies: Mortgage-backed			—				15,026				—				—				15,026
Federal agencies: Other agencies			—				—				—				—				—
Municipal securities			—				23,170				—				—				23,170
Other securities			64,285				4,377				—				—				68,662
			64,285				42,573				—				—				106,858
Available-for-sale and other securities:
U.S. Treasury securities			50,328				—				—				—				50,328
Federal agencies: Mortgage-backed			—				4,505,951				—				—				4,505,951
TLGP securities			184,757				—				—				—				184,757
Federal agencies: Other agencies			1,874,835				28,613				—				—				1,903,448
Municipal securities			—				113,788				262,128				—				375,916
Private-label CMO			—				—				394,611				—				394,611
Asset-backed securities			—				801,685				218,940				—				1,020,625
Covered bonds			—				—				—				—				—
Corporate debt			—				—				—				—				—
Other securities			55,061				8,106				—				—				63,167
			2,164,981				5,458,143				875,679				—				8,498,803
Automobile loans			470,825				—				186,388				—				657,213
MSRs			—				—				132,405				—				132,405
Derivative assets			1,663				454,249				8,469				(84,912	)			379,469

Liabilities
Securitization trust notes payable			494,512				—				—				—				494,512
Derivative liabilities			13,682				265,499				1,977				—				281,158
Other liabilities			—				—				—				—				—

(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.
(2)		During the 2011 second quarter, Huntington transferred $469.1 million of federal agencies, mortgage-backed securities from the available-for-sale securities portfolio to the held-to-maturity securities portfolio. These securities are valued at amortized cost and no longer classified within the fair value hierarchy. All amounts were previously classified as level 2 in the fair value hierarchy.
(3)		Amounts were transferred from Level 1 to Level 2 in the 2010 fourth quarter due to lack of sufficient market activity for these securities.

The tables below present a rollforward of the balance sheet amounts for the three-month and six-month periods ended June 30, 2011 and 2010, 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 include changes in fair value due in part to observable factors that are part of the valuation methodology.

		Level 3 Fair Value Measurements
		Three Months Ended June 30, 2011
										Available-for-sale securities
																		Asset-
						Derivative				Municipal				Private-				backed				Automobile				Equity
(dollar amounts in thousands)		MSRs				instruments				securities				label CMO				securities				loans				investments
Balance, beginning of period		$	119,207			$	(832	)		$	135,276			$	115,546			$	165,599			$	458,851			$	—
Total gains / losses:
Included in earnings			(14,210	)			1,411				—				59				9				1,127				—
Included in OCI			—				—				—				(110	)			3,293				—				—
Purchases			—				—				1,760				—				—				—				—
Sales			—				—				—				(20,958	)			—				—				—
Repayments			—				—				—				—				—				(59,043	)			—
Issuances			—				—				—				—				—				—				—
Settlements			—				(161	)			(13,236	)			(5,767	)			(3,159	)			—				—
Transfers in / out of Level 3			—				—				—				—				—				—				—
Balance, end of period		$	104,997			$	418			$	123,800			$	88,770			$	165,742			$	400,935			$	—
The amount of total gains or losses for the period included in earnings (or OCI) attributable to the change in unrealized gains or losses relating to assets still held at reporting date		$	(14,210	)		$	1,250			$	—			$	(1,164	)		$	3,293			$	1,127			$	—
		Level 3 Fair Value Measurements
		Three Months Ended June 30, 2010
										Available-for-sale securities
																		Asset-
						Derivative				Municipal				Private-				backed				Automobile				Equity
(dollar amounts in thousands)		MSRs				instruments				securities				label CMO				securities				loans				investments
Balance, beginning of period		$	162,106			$	(833	)		$	318,597			$	462,731			$	219,079			$	183,845			$	—
Total gains / losses:
Included in earnings			(29,701	)			5,547				—				(1,742	)			(445	)			4,845				—
Included in OCI			—				—				—				14,277				4,387				—				—
Purchases			—				—				—				—				—				—				—
Sales			—				—				—				(57,394	)			(793	)			—				—
Repayments			—				—				—				—				—				(2,302	)			—
Issuances			—				—				—				—				—				—				—
Settlements			—				1,778				(56,469	)			(23,261	)			(3,288	)			—				—
Transfers in / out of Level 3			—				—				—				—				—				—				—
Balance, end of period		$	132,405			$	6,492			$	262,128			$	394,611			$	218,940			$	186,388			$	—
The amount of total gains or losses for the period included in earnings (or OCI) attributable to the change in unrealized gains or losses relating to assets still held at reporting date		$	(29,701	)		$	5,330			$	—			$	12,535			$	3,942			$	4,845			$	—

		Level 3 Fair Value Measurements
		Six Months Ended June 30, 2011
										Available-for-sale securities
																		Asset-
						Derivative				Municipal				Private-				backed				Automobile				Equity
(dollar amounts in thousands)		MSRs				instruments				securities				label CMO				securities				loans				investments
Balance, beginning of period		$	125,679			$	966			$	149,806			$	121,925			$	162,684			$	522,717			$	—
Total gains / losses:
Included in earnings			(20,682	)			(293	)			—				(383	)			(3,261	)			(1,384	)			—
Included in OCI			—				—				—				3,617				13,590				—				—
Purchases			—				—				1,760				—				—				—				—
Sales			—				—				—				(20,958	)			—				—				—
Repayments			—				—				—				—				—				(120,398	)			—
Issuances			—				—				—				—				—				—				—
Settlements			—				(255	)			(27,766	)			(15,431	)			(7,271	)			—				—
Transfers in / out of Level 3			—				—				—				—				—				—				—
Balance, end of period		$	104,997			$	418			$	123,800			$	88,770			$	165,742			$	400,935			$	—
The amount of total gains or losses for the period included in earnings (or OCI) attributable to the change in unrealized gains or losses relating to assets still held at reporting date		$	(20,682	)		$	(548	)		$	—			$	1,774			$	13,590			$	(1,384	)		$	—
		Level 3 Fair Value Measurements
		Six Months Ended June 30, 2010
										Available-for-sale securities
																		Asset-
						Derivative				Municipal				Private-				backed				Automobile				Equity
(dollar amounts in thousands)		MSRs				instruments				securities				label CMO				securities				loans				investments
Balance, beginning of period		$	176,427			$	(4,236	)		$	11,515			$	477,319			$	407,098			$	—			$	25,872
Total gains / losses:
Included in earnings			(44,022	)			8,939				—				(3,832	)			(4,495	)			10,104				—
Included in OCI			—				—				—				24,967				8,574				—				—
Purchases			—				—				—				—				—				—				—
Sales			—				—				—				(57,394	)			(2,631	)			—				—
Repayments			—				—				—				—				—				(3,735	)			—
Issuances			—				—				—				—				—				—				—
Settlements			—				1,789				(73,024	)			(46,449	)			(5,533	)			—				—
Transfers in / out of Level 3 (1)			—				—				323,637				—				(184,073	)			180,019				(25,872	)
Balance, end of period		$	132,405			$	6,492			$	262,128			$	394,611			$	218,940			$	186,388			$	—
The amount of total gains or losses for the period included in earnings (or OCI) attributable to the change in unrealized gains or losses relating to assets still held at reporting date		$	(44,022	)		$	8,733			$	—			$	21,135			$	4,079			$	10,104			$	—

(1)		Transfers in / out of Level 3 include a transfer in of $323.6 million relating to municipal securities, due to lack of observable market data, a transfer out of $184.1 million of securities, and a transfer in of $180.0 million of loans both related to the consolidation of a 2009 automobile trust.

The table below summarizes the classification of gains and losses due to changes in fair value, recorded in earnings for Level 3 assets and liabilities for the three-month and six-month periods ended June 30, 2011 and 2010:

		Level 3 Fair Value Measurements
		Three Months Ended June 30, 2011
										Available-for-sale securities
																		Asset-
						Derivative				Municipal				Private-				backed				Automobile				Equity
(dollar amounts in thousands)		MSRs				instruments				securities				label CMO				securities				loans				investments
Classification of gains and losses in earnings:
Mortgage banking income (loss)		$	(14,210	)		$	(774	)		$	—			$	—			$	—			$	—			$	—
Securities gains (losses)			—				—				—				(124	)			(59	)			—				—
Interest and fee income			—				—				—				183				68				(2,786	)			—
Noninterest income			—				2,185				—				—				—				3,913				—
Total		$	(14,210	)		$	1,411			$	—			$	59			$	9			$	1,127			$	—

		Level 3 Fair Value Measurements
		Three Months Ended June 30, 2010
										Available-for-sale securities
																		Asset-
						Derivative				Municipal				Private-				backed				Automobile				Equity
(dollar amounts in thousands)		MSRs				instruments				securities				label CMO				securities				loans				investments
Classification of gains and losses in earnings:
Mortgage banking income (loss)		$	(29,701	)		$	5,547			$	—			$	—			$	—			$	—			$	—
Securities gains (losses)			—				—				—				(2,264	)			(560	)			—				—
Interest and fee income			—				—				—				522				115				(3,180	)			—
Noninterest income			—				—				—				—				—				8,025				—
Total		$	(29,701	)		$	5,547			$	—			$	(1,742	)		$	(445	)		$	4,845			$	—

		Level 3 Fair Value Measurements
		Six Months Ended June 30, 2011
										Available-for-sale securities
																		Asset-
						Derivative				Municipal				Private-				backed				Automobile				Equity
(dollar amounts in thousands)		MSRs				instruments				securities				label CMO				securities				loans				investments
Classification of gains and losses in earnings:
Mortgage banking income (loss)		$	(20,682	)		$	662			$	—			$	—			$	—			$	—			$	—
Securities gains (losses)			—				—				—				(912	)			(3,436	)			—				—
Interest and fee income			—				—				—				529				175				(5,225	)			—
Noninterest income			—				(955	)			—				—				—				3,841				—
Total		$	(20,682	)		$	(293	)		$	—			$	(383	)		$	(3,261	)		$	(1,384	)		$	—

		Level 3 Fair Value Measurements
		Six Months Ended June 30, 2010
										Available-for-sale securities
																		Asset-
						Derivative				Municipal				Private-				backed				Automobile				Equity
(dollar amounts in thousands)		MSRs				instruments				securities				label CMO				securities				loans				investments
Classification of gains and losses in earnings:
Mortgage banking income (loss)		$	(44,022	)		$	8,939			$	—			$	—			$	—			$	—			$	—
Securities gains (losses)			—				—				—				(4,868	)			(4,417	)			—				—
Interest and fee income			—				—				—				1,036				(78	)			(4,400	)			—
Noninterest income			—				—				—				—				—				14,504				—
Total		$	(44,022	)		$	8,939			$	—			$	(3,832	)		$	(4,495	)		$	10,104			$	—

Assets and Liabilities measured at fair value on a nonrecurring basis

Certain assets and liabilities may be required to be measured at fair value on a nonrecurring basis in periods subsequent to their initial recognition. These assets and liabilities are not measured at fair value on an ongoing basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment. At June 30, 2011, assets measured at fair value on a nonrecurring basis were as follows:

						Fair Value Measurements Using
						Quoted Prices				Significant				Significant				Total
						In Active				Other				Other				Gains/(Losses)
						Markets for				Observable				Unobservable				For the Six
		Fair Value at				Identical Assets				Inputs				Inputs				Months Ended
(dollar amounts in millions)		June 30, 2011				(Level 1)				(Level 2)				(Level 3)				June 30, 2011
Impaired loans		$	83.7			$	—			$	—			$	83.7			$	(21.2	)
Accrued income and other assets			38.7				—				—				38.7			$	(1.1	)

Periodically, Huntington records nonrecurring adjustments of collateral-dependent loans measured for impairment when establishing the ACL. Such amounts are generally based on the fair value of the underlying collateral supporting the loan. Appraisals are generally obtained to support the fair value of the collateral and incorporate measures such as recent sales prices for comparable properties and cost of construction. In cases where the carrying value exceeds the fair value of the collateral less cost to sell, an impairment charge is recognized. At June 30, 2011, Huntington identified $83.7 million of impaired loans for which the fair value is recorded based upon collateral value. For the six-month period ended June 30, 2011, nonrecurring fair value impairment of $21.2 million were recorded within the provision for credit losses.

Other real estate owned properties are initially valued based on appraisals and third party price opinions, less estimated selling costs. At June 30, 2011, Huntington had $38.7 million of OREO assets. For the six-month period ended June 30, 2011, fair value losses of $1.1 million were recorded within noninterest expense.

Fair values of financial instruments

The carrying amounts and estimated fair values of Huntington’s financial instruments at June 30, 2011, December 31, 2010, and June 30, 2010, are presented in the following table:

		June 30, 2011								December 31, 2010								June 30, 2010
		Carrying				Fair				Carrying				Fair				Carrying				Fair
(dollar amounts in thousands)		Amount				Value				Amount				Value				Amount				Value
Financial Assets:
Cash and short-term assets		$	1,100,580			$	1,100,580			$	982,926			$	982,926			$	1,415,244			$	1,415,244
Trading account securities			98,771				98,771				185,404				185,404				106,858				106,858
Loans held for sale			224,860				224,860				793,285				793,285				777,843				777,843
Available-for-sale and other securities			8,099,716				8,099,716				9,895,244				9,895,244				8,803,718				8,803,718
Held-to-maturity securities			670,478				670,145				—				—				—				—
Net loans and direct financing leases			38,055,326				36,738,480				36,857,499				35,403,910				35,567,535				34,048,771
Derivatives			306,540				306,540				346,133				346,133				379,469				379,469
Financial Liabilities:
Deposits			(41,402,355	)			(41,566,202	)			(41,853,898	)			(41,993,567	)			(39,848,507	)			(40,110,589	)
Short-term borrowings			(2,022,946	)			(1,990,819	)			(2,040,732	)			(1,982,545	)			(1,093,218	)			(1,085,958	)
Federal Home Loan Bank advances			(220,224	)			(220,224	)			(172,519	)			(172,519	)			(599,798	)			(599,798	)
Other long-term debt			(1,635,247	)			(1,644,067	)			(2,144,092	)			(2,157,358	)			(2,569,934	)			(2,562,062	)
Subordinated notes			(1,496,461	)			(1,457,274	)			(1,497,216	)			(1,377,851	)			(1,195,210	)			(1,008,921	)
Derivatives			(215,833	)			(215,833	)			(239,240	)			(239,240	)			(281,158	)			(281,158	)