Huntington National Bank 2005 Annual Report Download - page 116

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NOTES TOCONSOLIDATED FINANCIAL STATEMENTS HUNTINGTON BANCSHARES INCORPORATED
The unpaid principal balance of residential mortgage loans serviced for third parties was $7.3 billion, $6.9 billion, and
$6.4 billion at December 31, 2005, 2004, and 2003, respectively.
A summary of loans serviced at December 31, 2005 and for the year ended, were as follows:
Year Ended
(in millions of dollars) At December 31, 2005 December 31, 2005
Principal Balance Average Balance
Loans serviced for others $ 7,276 $ 7,013
Loans held in portfolio and held for sale 4,306 4,227
Loans serviced $11,582 $11,240
Changes in the carrying value of mortgage servicing rights and the associated valuation allowance for the three years ended
December 31, 2005, and the fair value at the end of each period were as follows:
Year Ended December 31,
(in thousands of dollars) 2005 2004 2003
Balance, beginning of year $ 77,107 $ 71,087 $ 29,271
New servicing assets 28,260 23,738 52,896
Amortization (18,359) (19,019) (25,966)
Impairment recovery 4,371 1,378 14,957
Sales (120) (77) (71)
Balance, end of year $ 91,259 $ 77,107 $ 71,087
Fair value, end of year $ 109,560 $ 84,084 $ 74,684
Servicing rights are evaluated quarterly for impairment based on the fair value of those rights, using a disaggregated approach.
The fair value of the servicing rights is determined by estimating the present value of future net cash flows, taking into
consideration market loan prepayment speeds, discount rates, servicing costs, and other economic factors. Seven risk tranches are
used in the evaluation of mortgage servicing rights for impairment: three tranches for servicing rights on 30-year fixed-rate
mortgage loans (based on interest rate bands of below 6.00%; 6.00% up to 6.99%; and 7.00% and above), three tranches for
servicing rights on 15-year fixed-rate mortgage loans (based on interest rate bands of below 5.50%; 5.50% up to 6.49%; and
6.50% and above), and one tranche encompassing balloon and adjustable rate mortgages. Huntington began using the expanded
interest rate bands in the fourth quarter of 2003. Temporary impairment is recognized in a valuation allowance against the
mortgage servicing rights. Huntington also analyzes its mortgage servicing rights periodically for other-than-temporary
impairment. Other-than-temporary impairment is recognized as a direct reduction of the carrying value of the mortgage servicing
right and cannot be recovered. No other-than-temporary impairment was recognized in the three years ended December 31,
2005. Servicing rights are amortized over the period of, and in proportion to, the estimated future net servicing revenue.
Amortization is recorded as a reduction of mortgage banking income, which is reflected in non-interest income in Huntington’s
consolidated income statement.
Changes in the impairment allowance for mortgage servicing rights for the three years ended December 31, 2005, were as follows:
Year Ending December 31,
(in thousands of dollars) 2005 2004 2003
Balance, beginning of year $ (4,775) $ (6,153) $(21,110)
Impairment charges (15,814) (18,110) (10,713)
Impairment recovery 20,185 19,488 25,670
Balance, end of year $ (404) $ (4,775) $ (6,153)
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