Huntington National Bank 2004 Annual Report Download - page 114

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS HUNTINGTON BANCSHARES INCORPORATED
At December 31, 2004, the fair value, assumptions and the sensitivity of the current fair value of Huntington’s mortgage servicing
rights to immediate 10% and 20% adverse changes in those assumptions were:
Decline in fair value due to
10% 20%
adverse adverse
(in millions of dollars) Actual change change
Constant pre-payment rate 21.70% $(4.8) $(9.1)
Discount rate 8.85 (2.2) (4.2)
Caution should be used when reading these sensitivities as a change in an individual assumption and its impact on fair value is shown
independent of changes in other assumptions. Economic factors are dynamic and may counteract or magnify sensitivities.
6. ALLOWANCES FOR CREDIT LOSSES (ACL)
The Company maintains two reserves, both of which are available to absorb possible credit losses: the allowance for loan and lease
losses (ALLL) and the allowance for unfunded loan commitments and letters of credit (AULC). When summed together, these
reserves constitute the total allowances for credit losses (ACL). The ALLL had historically included a component for unfunded loan
commitments and letters of credit. To reflect the nature of this reserve and consistent with better disclosure, in the first quarter of
2004 the AULC was reclassified as a separate liability on the balance sheet. Prior period balance sheet amounts have also been
reclassified to be consistent with the current years’s presentation. This reclassification had no impact on net income, shareholders’
equity, or the amount of total reserves aligned with credit risks. A summary of the transactions in the allowances for credit losses and
details regarding impaired loans and leases follows for the three years ended December 31:
Year Ended December 31,
(in thousands of dollars) 2004 2003 2002
Allowance for Loan and Leases Losses, Beginning of Period $ 299,732 $ 300,503 $ 345,402
Loan and lease losses (126,115) (201,534) (234,352)
Recoveries of loans previously charged off 47,580 39,725 37,440
Net loan and lease losses (78,535) (161,809) (196,912)
Provision for credit losses 55,062 163,993 194,426
Net change in allowance for unfunded loan commitments and letters of credit 2,335 623 (12,215)
Allowance for assets sold and securitized(1) (7,383) (3,578) (30,198)
Allowance for Loan and Lease Losses, End of Period $ 271,211 $ 299,732 $ 300,503
Allowance for Unfunded Loan Commitments and Letters of Credit, Beginning of Period $ 35,522 $ 36,145 $ 23,930
Net change (2,335) (623) 12,215
Allowance for Unfunded Loan Commitments and Letters of Credit, End of Period $ 33,187 $ 35,522 $ 36,145
Total Allowances for Credit Losses $ 304,398 $ 335,254 $ 336,648
Recorded Balance of Impaired Loans, at end of year(2):
With specific reserves assigned to the loan and lease balances $ 51,875 $ 54,853 $ 91,578
With no specific reserves assigned to the loan and lease balances 29,296 — 2,972
Total $ 81,171 $ 54,853 $ 94,550
Average Balance of Impaired Loans for the Year(2) $ 54,445 $ 33,970 $ 87,286
Allowance for Loan and Lease Losses on Impaired Loans(2) $ 23,447 $ 26,249 $ 37,984
(1) In conjunction with the automobile loan sales and securitizations in 2004, 2003, and 2002, an allowance for loan and lease losses attributable to the associated loans sold was included as a
component of the loan’s carrying value upon their sale. The allowance associated with the 2002 sale of the Florida banking and insurance operations was $22,297.
(2) Includes impaired commercial and industrial loans and commercial real estate loans with outstanding balances greater than $500,000. A loan is impaired when it is probable that Huntington will be
unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are included in non-performing assets. The amount of interest recognized in 2004 on
impaired loans while they were considered impaired was $1.1 million. There was no interest recognized in 2003 or 2002 on impaired loans while they were considered impaired.
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