Huntington National Bank 2012 Annual Report Download - page 119

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Huntington evaluates its investment securities portfolio on a quarterly basis for indicators of OTTI. Huntington assesses whether
OTTI has occurred when the fair value of a debt security is less than the amortized cost basis at the balance sheet date. Management
reviews the amount of unrealized loss, the length of time the security has been in an unrealized loss position, the credit rating history,
market trends of similar security classes, time remaining to maturity, and the source of both interest and principal payments to identify
securities which could potentially be impaired. OTTI is considered to have occurred (1) if Huntington intends to sell the security;
(2) if it is more likely than not Huntington will be required to sell the security before recovery of its amortized cost basis; or (3) the
present value of expected cash flows are not sufficient to recover all contractually required principal and interest payments. For
securities that Huntington does not expect to sell, or it is not more likely than not to be required to sell, the OTTI is separated into
credit and noncredit components. A discounted cash flow analysis, which includes evaluating the timing of the expected cash flows,
is completed for all debt securities subject to credit impairment. The measurement of the credit loss component is equal to the
difference between the debt security’s cost basis and the present value of its expected future cash flows discounted at the security’s
effective yield. The credit-related OTTI, represented by the expected loss in principal, is recognized in noninterest income. The
remaining difference between the security’s fair value and the present value of future expected cash flows is due to factors that are not
credit-related and, therefore, are recognized in OCI. Huntington believes that it will fully collect the carrying value of securities on
which noncredit-related OTTI has been recognized in OCI. Noncredit-related OTTI results from other factors, including increased
liquidity spreads and extension of the security. For securities which Huntington does expect to sell, or if it is more likely than not
Huntington will be required to sell the security before recovery of its amortized cost basis, all OTTI is recognized in earnings.
Presentation of OTTI is made in the Consolidated Statements of Income on a gross basis with a reduction for the amount of OTTI
recognized in OCI. Once an OTTI is recorded, when future cash flows can be reasonably estimated, future cash flows are re-allocated
between interest and principal cash flows to provide for a level-yield on the security.
Securities transactions are recognized on the trade date (the date the order to buy or sell is executed). The carrying value plus any
related OCI balance of sold securities is used to compute realized gains and losses. Interest and dividends on securities, including
amortization of premiums and accretion of discounts using the effective interest method over the period to maturity, are included in
interest income.
Nonmarketable equity securities include stock acquired for regulatory purposes, such as Federal Home Loan Bank stock and
Federal Reserve Bank stock. These securities are accounted for at cost, evaluated for impairment, and included in available-for-sale
and other securities.
Loans and Leases — Loans and direct financing leases for which Huntington has the intent and ability to hold for the foreseeable
future, or until maturity or payoff, are classified in the Consolidated Balance Sheets as loans and leases. Except for loans which are
subject to fair value requirements, loans and leases are carried at the principal amount outstanding, net of unamortized deferred loan
origination fees and costs and net of unearned income. Direct financing leases are reported at the aggregate of lease payments
receivable and estimated residual values, net of unearned and deferred income. Interest income is accrued as earned using the interest
method based on unpaid principal balances. Huntington defers the fees it receives from the origination of loans and leases, as well as
the direct costs of those activities. Huntington also acquires loans at a premium and at a discount to their contractual values.
Huntington amortizes loan discounts, premiums, and net loan origination fees and costs on a level-yield basis over the estimated lives
of the related loans.
Troubled debt restructurings are loans for which the original contractual terms have been modified to provide a concession to a
borrower experiencing financial difficulties. Loan modifications are considered TDRs when the concessions provided are not available
to the borrower through either normal channels or other sources. However, not all loan modifications are TDRs. Modifications
resulting in troubled debt restructurings may include changes to one or more terms of the loan, including but not limited to, a change
in interest rate, an extension of the amortization period, a reduction in payment amount and partial forgiveness or deferment of
principal or accrued interest.
Residual values on leased automobiles and equipment are evaluated quarterly for impairment. Impairment of the residual values
of direct financing leases determined to be other than temporary is recognized by writing the leases down to fair value with a charge to
other noninterest expense. Residual value losses arise if the expected fair value at the end of the lease term is less than the residual
value recorded at the lease origination, net of estimated amounts reimbursable by the lessee. Future declines in the expected residual
value of the leased equipment would result in expected losses of the leased equipment.
For leased equipment, the residual component of a direct financing lease represents the estimated fair value of the leased
equipment at the end of the lease term. Huntington uses industry data, historical experience, and independent appraisals to establish
these residual value estimates. Additional information regarding product life cycle, product upgrades, as well as insight into
competing products are obtained through relationships with industry contacts and are factored into residual value estimates where
applicable.