Huntington National Bank 2005 Annual Report Download - page 117

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NOTES TOCONSOLIDATED FINANCIAL STATEMENTS HUNTINGTON BANCSHARES INCORPORATED
At December 31, 2005, 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 thousands of dollars) Actual change change
Constant pre-payment rate 12.76% $(4,900) $(9,500)
Discount rate 9.42 (3,900) (7,600)
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). During 2005, the economic reserve associated with unfunded
loan commitments was transferred from the ALLL to the AULC. This transfer had no impact on net income. 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) 2005 2004 2003
Allowance for loan and leases losses, beginning of year (ALLL) $ 271,211 $299,732 $300,503
Loan and lease losses (115,848) (126,115) (201,534)
Recoveries of loans previously charged off 35,791 47,580 39,725
Net loan and lease losses (80,057) (78,535) (161,809)
Provision for loan and lease losses 83,782 57,397 164,616
Economic reserve transfer (6,253) ——
Allowance for assets sold and securitized(1) (336) (7,383) (3,578)
Allowance for loan and lease losses, end of year $268,347 $271,211 $299,732
Allowance for unfunded loan commitments and letters of credit, beginning of year (AULC) $ 33,187 $ 35,522 $ 36,145
Provision for unfunded loan commitments and letters of credit losses (2,483) (2,335) (623)
Economic reserve transfer 6,253 ——
Allowance for unfunded loan commitments and letters of credit, end of year $ 36,957 $ 33,187 $ 35,522
Total allowances for credit losses (ACL) $305,304 $304,398 $335,254
Recorded balance of impaired loans, at end of year(2):
With specific reserves assigned to the loan and lease balances $ 41,525 $ 51,875 $ 54,853
With no specific reserves assigned to the loan and lease balances 14,032 29,296 —
Total $ 55,557 $ 81,171 $ 54,853
Average balance of impaired loans for the year(2) $ 29,441 $ 54,445 $ 33,970
Allowance for loan and lease losses on impaired loans(2) 14,526 23,447 26,249
(1) In conjunction with the automobile loan sales and securitizations in 2005, 2004, and 2003, 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.
(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 2005 and 2004 on impaired loans while they were considered impaired was less than $0.1 million and $1.1 million, respectively. There was no interest recognized in 2003 on impaired
loans while they were considered impaired.
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