Huntington National Bank 2011 Annual Report Download - page 207

also reduced by an estimate of probable 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.
20. 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
A variety of derivative financial instruments, principally interest rate swaps, cap, floors, and collars, are
used in asset and liability management activities to protect against the risk of adverse price or interest rate
movements. These instruments provide flexibility in adjusting Huntington’s sensitivity to changes in interest
rates without exposure to loss of principal and higher funding requirements. Huntington records derivatives at
fair value, as further described in Note 19. Collateral agreements are regularly entered into as part of the
underlying derivative agreements with Huntington’s counterparties to mitigate counterparty credit risk. At
December 31, 2011 and 2010, aggregate credit risk associated with these derivatives, net of collateral that has
been pledged by the counterparty, was $36.4 million and $39.9 million, respectively. The credit risk associated
with derivatives used in asset and liability management activities is calculated after considering master netting
agreements.
At December 31, 2011, Huntington pledged $233.5 million of investment securities and cash collateral to
counterparties, while other counterparties pledged $127.0 million of investment securities and cash collateral to
Huntington to satisfy collateral netting agreements. In the event of credit downgrades, Huntington could be
required to provide an additional $3.5 million in collateral.
The following table presents the gross notional values of derivatives used in Huntington’s asset and liability
management activities at December 31, 2011, identified by the underlying interest rate-sensitive instruments:
Fair Value
Hedges
Cash Flow
Hedges Total
(dollar amounts in thousands)
Instruments associated with:
Loans ........................................ $ — $7,035,000 $7,035,000
Investment securities ............................ — 50,000 50,000
Deposits ...................................... 988,912 — 988,912
Subordinated notes ............................. 598,000 — 598,000
Other long-term debt ............................ 35,000 — 35,000
Total notional value at December 31, 2011 ........... $1,621,912 $7,085,000 $8,706,912
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