Huntington National Bank 2015 Annual Report Download - page 123

115
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 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. If the fair value is higher than the carrying amount of the loan the excess is recognized first as a
recovery and then as noninterest income. 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.
For loan sales with servicing retained, a servicing asset is recorded on the day of the sale 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. 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
economically hedges the value of certain MSRs using derivative instruments and trading securities. Changes in fair value of these
derivatives and trading 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.