Huntington National Bank 2013 Annual Report Download - page 116

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In the case of a discontinued cash flow hedge of a recognized asset or liability, as long as the hedged item continues to exist on
the balance sheet, the effective portion of the changes in fair value of the hedging derivative will no longer be recorded to other
comprehensive income. The balance applicable to the discontinued hedging relationship will be recognized in earnings over the
remaining life of the hedged item as an adjustment to yield. If the discontinued hedged item was a forecasted transaction that is not
expected to occur, any amounts recorded on the balance sheet related to the hedged item, including any amounts recorded in
accumulated other comprehensive income, are immediately reclassified to current period earnings.
In the case of either a fair value hedge or a cash flow hedge, if the previously hedged item is sold or extinguished, the basis
adjustment to the underlying asset or liability or any remaining unamortized other comprehensive income balance will be reclassified
to current period earnings.
In all other situations in which hedge accounting is discontinued, the derivative will be carried at fair value on the consolidated
balance sheets, with changes in its fair value recognized in current period earnings unless re-designated as a qualifying hedge.
Like other financial instruments, derivatives contain an element of credit risk, which is the possibility that Huntington will incur a
loss because the counterparty fails to meet its contractual obligations. Notional values of interest rate swaps and other off-balance
sheet financial instruments significantly exceed the credit risk associated with these instruments and represent contractual balances on
which calculations of amounts to be exchanged are based. Credit exposure is limited to the sum of the aggregate fair value of positions
that have become favorable to Huntington, including any accrued interest receivable due from counterparties. Potential credit losses
are mitigated through careful evaluation of counterparty credit standing, selection of counterparties from a limited group of high
quality institutions, collateral agreements, and other contract provisions. Huntington considers the value of collateral held and
collateral provided in determining the net carrying value of derivatives.
Huntington offsets the fair value amounts recognized for derivative instruments and the fair value for the right to reclaim cash
collateral or the obligation to return cash collateral arising from derivative instrument(s) recognized at fair value executed with the
same counterparty under a master netting arrangement.
Repossessed Collateral — Repossessed collateral, also referred to as other real estate owned (OREO), is comprised principally
of commercial and residential real estate properties obtained in partial or total satisfaction of loan obligations, and is carried at the
lower of cost or fair value. Collateral obtained in satisfaction of a loan is recorded at the estimated fair value less anticipated selling
costs based upon the property’s appraised value at the date of foreclosure, with any difference between the fair value of the property
and the carrying value of the loan recorded as a charge-off. Subsequent declines in value are reported as adjustments to the carrying
amount and are recorded in noninterest expense. Gains or losses resulting from the sale of collateral are recognized in noninterest
expense at the date of sale.
Collateral — We pledge assets as collateral as required for various transactions including security repurchase agreements, public
deposits, loan notes, derivative financial instruments, short-term borrowings and long-term borrowings. Assets that have been pledged
as collateral, including those that can be sold or repledged by the secured party, continue to be reported on our Consolidated Balance
Sheets.
We also accept collateral, primarily as part of various transactions including derivative and security resale agreements. Collateral
accepted by us, including collateral that we can sell or repledge, is excluded from our Consolidated Balance Sheets.
The market value of collateral we have accepted or pledged is regularly monitored and additional collateral is obtained or
provided as necessary to ensure appropriate collateral coverage in these transactions.
Premises and Equipment — Premises and equipment are stated at cost, less accumulated depreciation and amortization.
Depreciation is computed principally by the straight-line method over the estimated useful lives of the related assets. Buildings and
building improvements are depreciated over an average of 30 to 40 years and 10 to 30 years, respectively. Land improvements and
furniture and fixtures are depreciated over an average of 5 to 20 years, while equipment is depreciated over a range of 3 to 10 years.
Leasehold improvements are amortized over the lesser of the asset’s useful life or the lease term, including any renewal periods for
which renewal is reasonably assured. Maintenance and repairs are charged to expense as incurred, while improvements that extend the
useful life of an asset are capitalized and depreciated over the remaining useful life. Premises and equipment is evaluated for
impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
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 when purchased, or when servicing is contractually separated
from the underlying mortgage loans by sale or securitization of the loans with servicing rights retained.