Huntington National Bank 2011 Annual Report Download - page 209

Liability derivatives included in accrued expenses and other liabilities
December 31,
2011 2010
(dollar amounts in thousands)
Interest rate contracts designated as hedging instruments ................ $ — $ —
Interest rate contracts not designated as hedging instruments ............. 252,962 233,805
Foreign exchange contracts not designated as hedging instruments ......... 4,318 3,107
Total contracts ................................................. $257,280 $236,912
Fair value hedges are purchased to convert deposits and subordinated and other long-term debt from fixed-
rate obligations to floating rate. The changes in fair value of the derivative are, to the extent that the hedging
relationship is effective, recorded through earnings and offset against changes in the fair value of the hedged
item.
The following table presents the change in fair value for derivatives designated as fair value hedges as well
as the offsetting change in fair value on the hedged item:
Year ended December 31,
2011 2010 2009
(dollar amounts in thousands)
Interest rate contracts
Change in fair value of interest rate swaps hedging deposits(1) ........... $ 801 $ 6,108 $ 1,430
Change in fair value of hedged deposits(1) ........................... (1,050) (6,744) 9,417
Change in fair value of interest rate swaps hedging subordinated notes(2) . . . 45,480 19,319 (99,913)
Change in fair value of hedged subordinated notes(2) ................... (45,480) (19,319) 99,913
Change in fair value of interest rate swaps hedging other long-term
debt(2) ..................................................... 2,493 1,847 (6,201)
Change in fair value of hedged other long-term debt(2) ................. (2,493) (1,847) 6,201
(1) Effective portion of the hedging relationship is recognized in Interest expense — deposits in the
Consolidated Statements of Income. Any resulting ineffective portion of the hedging relationship is
recognized in noninterest income in the Consolidated Statements of Income.
(2) Effective portion of the hedging relationship is recognized in Interest expense — subordinated notes and
other-long-term debt in the Consolidated Statements of Income. Any resulting ineffective portion of the
hedging relationship is recognized in noninterest income in the Consolidated Statements of Income.
For cash flow hedges, interest rate swap contracts were entered into that pay fixed-rate interest in exchange
for the receipt of variable-rate interest without the exchange of the contract’s underlying notional amount, which
effectively converts a portion of its floating-rate debt to a fixed-rate debt. This reduces the potentially adverse
impact of increases in interest rates on future interest expense. Other LIBOR-based commercial and industrial
loans were effectively converted to fixed-rate by entering into contracts that swap certain variable-rate interest
payments for fixed-rate interest payments at designated times.
To the extent these derivatives are effective in offsetting the variability of the hedged cash flows, changes in
the derivatives’ fair value will not be included in current earnings but are reported as a component of OCI in the
Consolidated Statements of Shareholders’ Equity. These changes in fair value will be included in earnings of
future periods when earnings are also affected by the changes in the hedged cash flows. To the extent these
derivatives are not effective, changes in their fair values are immediately included in noninterest income.
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