Huntington National Bank 2015 Annual Report Download - page 185

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Reclassified gains and losses on swaps related to loans and investment securities and swaps related to subordinated debt are
recorded within interest income and interest expense, respectively. During the next twelve months, Huntington expects to reclassify to
earnings approximately $3 million after-tax, of unrealized gains on cash flow hedging derivatives currently in OCI.
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.
The following table presents the gains and (losses) recognized in noninterest income for the ineffective portion of interest rate
contracts for derivatives designated as cash flow hedges for the years ending December 31, 2015, 2014, and 2013:
December 31,
(dollar amounts in thousands) 2015 2014 2013
Derivatives in cash flow hedging relationships
Interest rate contracts:
Loans $ (763) $ 74 $ 878
Derivatives used in mortgage banking activities
Mortgage loan origination hedging activity
Huntington’s mortgage origination hedging activity is related to the hedging of the mortgage pricing commitments to customers
and the secondary sale to third parties. The value of a newly originated mortgage is not firm until the interest rate is committed or
locked. The interest rate lock commitments are derivative positions offset by forward commitments to sell loans.
Huntington uses two types of mortgage-backed securities in its forward commitment to sell loans. The first type of forward
commitment is a “To Be Announced” (or TBA), the second is a “Specified Pool” mortgage-backed security. Huntington uses these
derivatives to hedge the value of mortgage-backed securities until they are sold.
The following table summarizes the derivative assets and liabilities used in mortgage banking activities:
(dollar amounts in thousands) December 31, 2015 December 31, 2014
Derivative assets:
Interest rate lock agreements $ 6,721 $ 4,064
Forward trades and options 2,468 35
Total derivative assets 9,189 4,099
Derivative liabilities:
Interest rate lock agreements (220) (259)
Forward trades and options (1,239) (3,760)
Total derivative liabilities (1,459) (4,019)
Net derivative asset $ 7,730 $ 80
MSR hedging activity
Huntington’s MSR economic hedging activity uses securities and derivatives to manage the value of the MSR asset and to
mitigate the various types of risk inherent in the MSR asset, including risks related to duration, basis, convexity, volatility, and yield
curve. The hedging instruments include forward commitments, interest rate swaps, and options on interest rate swaps.
The total notional value of these derivative financial instruments at December 31, 2015 and 2014, was $0.5 billion and $0.6
billion, respectively. The total notional amount at December 31, 2015 corresponds to trading assets with a fair value of less than $1
million and trading liabilities with a fair value of $1 million. Net trading gains (losses) related to MSR hedging for the years ended
December 31, 2015, 2014, and 2013, were $(2) million, $7 million, and $(25) million, respectively. These amounts are included in
mortgage banking income in the Consolidated Statements of Income.