Huntington National Bank 2010 Annual Report Download - page 42

reduced certain overdraft fees and introduced 24-Hour Grace
TM
on overdrafts as part of our Fair Play banking
philosophy designed to build on our foundation of service excellence. We expect our 24-Hour Grace
TM
service
to accelerate acquisition of new checking customers, while improving retention of existing customers.
The recently passed Dodd-Frank Act is complex and we continue to assess how this legislation and
subsequent rule-making will affect us. As hundreds of regulations are promulgated, we will continue to
evaluate impacts such as changes in regulatory costs and fees, modifications to consumer products or
disclosures required by the CFPB, and the requirements of the enhanced supervision provisions, among others.
Two areas where we are focusing on the financial impact are: interchange fees and the exclusion of trust-
preferred securities from our Tier I regulatory capital.
Currently, interchange fees are approximately $90 million per year. In the future, the Dodd-Frank Act
gives the Federal Reserve, and no longer the banks or system owners, the ability to set the interchange rate
charged to merchants for the use of debit cards. The ultimate impact to us will depend on rules yet to be
issued by the Federal Reserve. Proposed rules were issued on December 28, 2010, and the Dodd-Frank Act
requires final interchange rules to be issued by April 21, 2011, and effective no later than July 21, 2011.
Based on the Federal Reserve’s proposed rules, a maximum interchange rate of $0.07 would reduce our annual
interchange fees by approximately 85%. A maximum interchange rate of $0.12 would reduce our annual
interchange fees by approximately 75%.
At December 31, 2010, we had $569.9 million of outstanding trust-preferred securities that, if disallowed,
would reduce our regulatory Tier 1 risk-based capital ratio by approximately 130 basis points. Even with this
reduction, our capital ratios would remain above Well-capitalized levels. There is a three year phase-in period
beginning on January 1, 2013, that we believe will provide sufficient time to evaluate and address the impacts
of this new legislation on our capital structure. Accordingly, we do not anticipate this potential change will
have a significant impact to our business.
During the 2010 third quarter, the Basel Committee on Banking Supervision revised the Capital Accord
(Basel III), which narrows the definition of capital and increases capital requirements for specific exposures.
The new capital requirements will be phased-in over six years beginning in 2013. If these revisions were
adopted currently, we estimate they would have a negligible impact on our regulatory capital ratios based on
our current understanding of the revisions to capital qualification. We await clarification from our banking
regulators on their interpretation of Basel III and any additional requirements to the stated thresholds. The
FDIC has approved issuance of an interagency proposed rulemaking to implement certain provisions of
Section 171 of the Dodd-Frank Act (Section 171). Section 171 provides that the capital requirements generally
applicable to insured banks shall serve as a floor for other capital requirements the agencies establish. The
FDIC noted that the advanced approaches of Basel III allow for reductions in risk-based capital requirements
below those generally applicable to insured banks and, accordingly, need to be modified to be consistent with
Section 171.
Recent Industry Developments
Foreclosure Documentation — We evaluated our foreclosure documentation procedures given the recent
announcements made by other financial institutions regarding problems associated with their foreclosure
activities. As a result of our review, we have determined that we do not have any significant issues relating to
so-called “robo-signing,” foreclosure affidavits were completed and signed by employees with personal
knowledge of the contents of the affidavits, and there is no reason to conclude that foreclosures were filed that
should not have been filed. Additionally, we have identified and are implementing process and control
enhancements to ensure that affidavits continue to be prepared in compliance with applicable state law. We are
consulting with local foreclosure counsel as necessary with respect to additional requirements imposed by the
courts in which foreclosure proceedings are pending, which could impact our foreclosure actions.
Representation and Warranty Reserve — We primarily conduct our loan sale and securitization activity
with Fannie Mae and Freddie Mac. In connection with these and other sale and securitization transactions, we
make certain representations and warranties that the loans meet certain criteria, such as collateral type and
underwriting standards. In the future, we may be required to repurchase individual loans and / or indemnify
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