Huntington National Bank 2008 Annual Report Download - page 120

discussed below. 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:
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 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
As described in Note 1, Huntington utilizes a variety of derivative financial instruments to reduce certain risks. 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 counter party credit risk. At December 31, 2008 and 2007,
aggregate credit risk associated with these derivatives, net of collateral that has been pledged by the counterparty, was $40.7 million
and $31.4 million, respectively. The credit risk associated with interest rate swaps is calculated after considering master netting
agreements.
At December 31, 2008, Huntington pledged $312.1 million cash collateral to various counterparties, while various other
counterparties pledged $232.1 million to Huntington to satisfy collateral netting agreements. In the event of credit downgrades,
Huntington could be required to provide an additional $27.0 million in collateral.
A total of $2.8 million of the unrecognized net gains on cash flow hedges is expected to be recognized in 2009.
DERIVATIVES USED IN ASSET AND LIABILITY MANAGEMENT ACTIVITIES
The following table presents the gross notional values of derivatives used in Huntington’s Asset and Liability Management activities
at December 31, 2008, identified by the underlying interest rate-sensitive instruments:
(in thousands)
Fair Value
Hedges
Cash Flow
Hedges Total
Instruments associated with:
Loans $ — $5,305,000 $5,305,000
Deposits 80,000 — 80,000
Federal Home Loan Bank advances — 280,000 280,000
Subordinated notes 675,000 — 675,000
Other long-term debt 50,000 — 50,000
Total notional value at December 31, 2008 $805,000 $5,585,000 $6,390,000
118
Notes to Consolidated Financial Statements Huntington Bancshares Incorporated