Huntington National Bank 2006 Annual Report Download - page 120

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS HUNTINGTON BANCSHARES INCORPORATED
–D EBT — fixed-rate, long-term debt is based upon quoted market prices or, in the absence of quoted market prices, discounted
cash flows using rates for similar debt with the same maturities. The carrying amount of variable-rate obligations approximates
fair value.
23. DERIVATIVE FINANCIAL INSTRUMENTS
D
ERIVATIVES USED IN A SSET AND L IABILITY M ANAGEMENT A CTIVITIES
The following table presents the gross notional values of derivatives used in Huntington’s Asset and Liability Management
activities at December 31, 2006, identified by the underlying interest rate-sensitive instruments:
Fair Value Cash Flow
(in thousands of dollars) Hedges Hedges Total
Instruments associated with:
Deposits $ 635,000 $ 315,000 $ 950,000
Federal Home Loan Bank advances — 325,000 325,000
Subordinated notes 750,000 — 750,000
Other long-term debt 50,000 — 50,000
Total notional value at December 31, 2006 $ 1,435,000 $ 640,000 $ 2,075,000
The following table presents additional information about the interest rate swaps used in Huntington’s Asset and Liability
Management activities at December 31, 2006:
Average Weighted-Average Rate
Notional Maturity Fair
(in thousands of dollars) Value (years) Value Receive Pay
Liability conversion swaps
Receive fixed — generic $ 800,000 9.7 $ 4,008 5.31% 5.59%
Receive fixed — callable 635,000 6.4 (13,459) 4.54 5.27
Pay fixed — generic 640,000 2.6 (191) 5.36 4.91
Total liability conversion swaps $ 2,075,000 6.5 $ (9,642) 5.09% 5.28%
Interest rate caps used in Huntington’s Asset and Liability Management activities at December 31, 2006, are shown in the table
below:
Average
Notional Maturity Fair Weighted-Average
(in thousands of dollars) Value (years) Value Strike Rate
Interest rate caps — purchased $ 500,000 2.1 $ 1,668 5.5%
These derivative financial instruments were entered into for the purpose of altering 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 amount resulted in a decrease to net interest
income of ($3.1 million) in 2006 and an increase of $23.6 million and $24.0 million in 2005 and 2004, respectively.
The amounts recognized in connection with the ineffective portion of Huntington’s fair value hedging in 2006 was $1.4 million,
the amounts in 2005 and 2004 were insignificant. During 2006, 2005, and 2004, an insignificant net loss was recognized in
connection with the ineffective portion of its cash flow hedging instruments. No amounts were excluded from the assessment of
effectiveness during 2006, 2005, and 2004 for derivatives designated as either fair value or cash flow hedges.
At December 31, 2005, the fair value of the swap portfolio used for asset and liability management was a liability of
$13.9 million. These values must be viewed in the context of the overall financial structure of Huntington, including the
aggregate net position of all on- and off-balance sheet financial instruments. Collateral agreements are regularly entered into as
part of the underlying derivative agreements with Huntington’s counterparties to mitigate the credit risk associated with
derivatives. At December 31, 2006 and 2005, aggregate credit risk associated with these derivatives, net of collateral that has been
pledged by the counterparty, was $42.6 million and $26.2 million, respectively. The credit risk associated with interest rate swaps
is calculated after considering master netting agreements.
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