Huntington National Bank 2014 Annual Report Download - page 190

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Commitments to extend credit generally have fixed expiration dates, are variable-rate, and contain clauses that permit Huntington
to terminate or otherwise renegotiate the contracts in the event of a significant deterioration in the customer’s credit quality. These
arrangements normally require the payment of a fee by the customer, the pricing of which is based on prevailing market conditions,
credit quality, probability of funding, and other relevant factors. Since many of these commitments are expected to expire without
being drawn upon, the contract amounts are not necessarily indicative of future cash requirements. The interest rate risk arising from
these financial instruments is insignificant as a result of their predominantly short-term, variable-rate nature.
Standby letters-of-credit are conditional commitments issued to guarantee the performance of a customer to a third party. These
guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing,
and similar transactions. Most of these arrangements mature within two years. The carrying amount of deferred revenue associated
with these guarantees was $4.4 million and $2.1 million at December 31, 2014 and 2013, respectively.
Through the Company’s credit process, Huntington monitors the credit risks of outstanding standby letters-of-credit. When it is
probable that a standby letter-of-credit will be drawn and not repaid in full, losses are recognized in the provision for credit losses. At
December 31, 2014, Huntington had $497 million of standby letters-of-credit outstanding, of which 80% were collateralized.
Included in this $497 million total are letters-of-credit issued by the Bank that support securities that were issued by customers and
remarketed by The Huntington Investment Company, the Company’s broker-dealer subsidiary.
Huntington uses an internal grading system to assess an estimate of loss on its loan and lease portfolio. This same loan grading
system is used to monitor credit risk associated with standby letters-of-credit. Under this risk rating system as of December 31, 2014,
approximately $137 million of the standby letters-of-credit were rated strong with sufficient asset quality, liquidity, and good debt
capacity and coverage, approximately $360 million were rated average with acceptable asset quality, liquidity, and modest debt
capacity; and none were rated substandard with negative financial trends, structural weaknesses, operating difficulties, and higher
leverage.
Commercial letters-of-credit represent short-term, self-liquidating instruments that facilitate customer trade transactions and
generally have maturities of no longer than 90 days. The goods or cargo being traded normally secures these instruments.
Commitments to sell loans
Activity related to our mortgage origination activity supports the hedging of the mortgage pricing commitments to customers and
the secondary sale to third parties. At December 31, 2014 and 2013, Huntington had commitments to sell residential real estate loans
of $545.0 million and $452.6 million, respectively. These contracts mature in less than one year.
Litigation
The nature of Huntington’s business ordinarily results in a certain amount of pending as well as threatened claims, litigation,
investigations, regulatory and legal and administrative cases, matters, and proceedings, all of which are considered incidental to the
normal conduct of business. When the Company determines it has meritorious defenses to the claims asserted, it vigorously defends
itself. The Company considers settlement of cases when, in Management’s judgment, it is in the best interests of both the Company
and its shareholders to do so.
On at least a quarterly basis, Huntington assesses its liabilities and contingencies in connection with threatened and outstanding
regulatory legal, and administrative cases, matters and proceedings, utilizing the latest information available. For cases, matters and
proceedings where it is both probable the Company will incur a loss and the amount can be reasonably estimated, Huntington
establishes an accrual for the loss. Once established, the accrual is adjusted as appropriate to reflect any relevant developments. For
cases, matters or proceedings where a loss is not probable or the amount of the loss cannot be estimated, no accrual is established.
In certain cases, matters and proceedings, exposure to loss exists in excess of the accrual to the extent such loss is reasonably
possible, but not probable. Management believes an estimate of the aggregate range of reasonably possible losses, in excess of
amounts accrued, for current legal proceedings is from $0 to approximately $130.0 million at December 31, 2014. For certain other
cases, matters and proceedings, Management cannot reasonably estimate the possible loss at this time. Any estimate involves
significant judgment, given the varying stages of the proceedings (including the fact that many of them are currently in preliminary
stages), the existence of multiple defendants in several of the current proceedings whose share of liability has yet to be determined, the
numerous unresolved issues in many of the proceedings, and the inherent uncertainty of the various potential outcomes of such
proceedings. Accordingly, Management’s estimate will change from time-to-time, and actual losses may be more or less than the
current estimate.