Huntington National Bank 2010 Annual Report Download - page 201

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
Derivative financial instruments are recorded in the consolidated balance sheet 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 counter party credit risk. At
December 31, 2010 and 2009, aggregate credit risk associated with these derivatives, net of collateral that has
been pledged by the counterparty, was $39.9 million and $20.3 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, 2010, Huntington pledged $203.4 million of investment securities and cash collateral to
counterparties, while other counterparties pledged $85.2 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 $5.3 million in collateral.
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