Huntington National Bank 2012 Annual Report Download - page 125

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Mortgage Servicing Rights — Huntington recognizes the rights to service mortgage loans as separate assets, which are included
in accrued income and other assets in the Consolidated Balance Sheets, only when purchased or when servicing is contractually
separated from the underlying mortgage loans by sale or securitization of the loans with servicing rights retained.
For loan sales with servicing retained, a servicing asset is recorded at fair value for the right to service the loans sold. To
determine the fair value of a MSR, Huntington uses an option adjusted spread cash flow analysis incorporating market implied
forward interest rates to estimate the future direction of mortgage and market interest rates. The forward rates utilized are derived
from the current yield curve for U.S. dollar interest rate swaps and are consistent with pricing of capital markets instruments. The
current and projected mortgage interest rate influences the prepayment rate and, therefore, the timing and magnitude of the cash flows
associated with the MSR. Expected mortgage loan prepayment assumptions are derived from a third party model. Management
believes these prepayment assumptions are consistent with assumptions used by other market participants valuing similar MSRs. The
servicing rights are recorded in accrued income and other assets in the Consolidated Balance Sheets. Servicing revenues on mortgage
loans are included in mortgage banking income.
At the time of initial capitalization, MSRs may be grouped into servicing classes based on the availability of market inputs used in
determining fair value and the method used for managing the risks of the servicing assets. MSR assets are recorded using the fair
value method or the amortization method. The election of the fair value or amortization method is made at the time each servicing
class is established. All newly created MSRs since 2009 were recorded using the amortization method. Any change in the fair value
of MSRs carried under the fair value method, as well as amortization and impairment of MSRs under the amortization method, during
the period is recorded in mortgage banking income, which is reflected in the Consolidated Statements of Income. Huntington hedges
the value of certain MSRs using derivative instruments and trading securities. Changes in fair value of these derivatives and trading
account securities are reported as a component of mortgage banking income.
Goodwill and Other Intangible Assets — Under the acquisition method of accounting, the net assets of entities acquired by
Huntington are recorded at their estimated fair value at the date of acquisition. The excess cost of the acquisition over the fair value of
net assets acquired is recorded as goodwill. Other intangible assets are amortized either on an accelerated or straight-line basis over
their estimated useful lives. Goodwill is evaluated for impairment on an annual basis at October 1st of each year or whenever events
or changes in circumstances indicate that the carrying value may not be recoverable. Other intangible assets are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
Pension and Other Postretirement Benefits — We recognize the funded status of the postretirement benefit plans on the
Consolidated Balance Sheets. Net postretirement benefit cost charged to current earnings related to these plans is based on various
actuarial assumptions regarding expected future experience.
Certain employees are participants in various defined contribution and other non-qualified supplemental retirement plans. Our
contributions to these plans are charged to current earnings.
In addition, we maintain a 401(k) plan covering substantially all employees. Employer contributions to the plan, which are
charged to current earnings, are based on employee contributions.
Share-Based Compensation — We use the fair value based method of accounting for awards of HBAN stock granted to
employees under various stock option and restricted share plans. Stock compensation costs are recognized prospectively for all new
awards granted under these plans. Compensation expense relating to share options is calculated using a methodology that is based on
the underlying assumptions of the Black-Scholes option pricing model and is charged to expense over the requisite service period (e.g.
vesting period). Compensation expense relating to restricted stock awards is based upon the fair value of the awards on the date of
grant and is charged to earnings over the requisite service period (e.g., vesting period) of the award.
Stock Repurchases — Acquisitions of Huntington stock are recorded at cost. The re-issuance of shares is recorded at weighted-
average cost.
Income Taxes — Income taxes are accounted for under the asset and liability method. Accordingly, deferred tax assets and
liabilities are recognized for the future book and tax consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are
determined using enacted tax rates expected to apply in the year in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income at the time of enactment of
such change in tax rates. Any interest or penalties due for payment of income taxes are included in the provision for income taxes. To
the extent that we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is recorded.
All positive and negative evidence is reviewed when determining how much of a valuation allowance is recognized on a quarterly
basis. In determining the requirements for a valuation allowance, sources of possible taxable income are evaluated including future
reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and
carryforwards, taxable income in appropriate carryback years, and tax-planning strategies. Huntington applies a more likely than not
recognition threshold for all tax uncertainties. Huntington reviews the tax positions quarterly.