Huntington National Bank 2012 Annual Report Download - page 186

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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, 2012
and 2011, aggregate credit risk associated with these derivatives, net of collateral that has been pledged by the counterparty, was $17.4
million and $36.4 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, 2012, Huntington pledged $181.1 million of investment securities and cash collateral to counterparties, while
other counterparties pledged $162.5 million of investment securities and cash collateral to Huntington to satisfy collateral netting
agreements. In the event of credit downgrades, Huntington would not be required to provide additional collateral.
The following table presents the gross notional values of derivatives used in Huntington’s asset and liability management
activities at December 31, 2012, identified by the underlying interest rate-sensitive instruments:
Fair Value Cash Flow
(dollar amounts in thousands) Hedges Hedges Total
Instruments associated with:
Loans $ --- $ 9,188,000 $ 9,188,000
Deposits 691,875 --- 691,875
Subordinated notes 598,000 --- 598,000
Other long-term debt 35,000 --- 35,000
Total notional value at December 31, 2012 $ 1,324,875 $ 9,188,000 $ 10,512,875
The following table presents additional information about the interest rate swaps and caps used in Huntington’s asset and liability
management activities at December 31, 2012:
Average Weighted-Average
Notional Maturity Fair Rate
(dollar amounts in thousands ) Value (years) Value Receive Pay
Asset conversion swaps
Receive fixed - generic $ 9,188,000 2.9 $ 58,678 1.01 % 0.47 %
Total asset conversion swaps 9,188,000 2.9 58,678 1.01 0.47
Liability conversion swaps
Receive fixed - generic 1,324,875 3.2 110,544 2.88 0.39
Total liability conversion swaps 1,324,875 3.2 110,544 2.88 0.39
Total swap portfolio $ 10,512,875 2.9 $ 169,222 1.25 % 0.46 %
These derivative financial instruments were entered into for the purpose of managing the interest rate risk of assets and liabilities.
Consequently, net amounts receivable or payable on contracts hedging either interest earning assets or interest bearing liabilities were
accrued as an adjustment to either interest income or interest expense. The net amounts resulted in an increase to net interest income
of $107.5 million, $113.9 million, and $192.2 million for the years ended December 31, 2012, 2011, and 2010, respectively.