Huntington National Bank 2003 Annual Report Download - page 116

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. 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 servicing income, which is
reflected in non-interest income in Huntington’s consolidated income statement.
At December 31, 2003, the assumptions and the sensitivity of the current fair value of the Huntington’s mortgage servicing rights to
immediate 10% and 20% adverse changes in those assumptions were:
Decline in fair value due to
(in millions of dollars) Actual 10% adverse change 20% adverse change
Constant pre-payment rate 22.30% $(4.5) $(8.9)
Discount rate 8.90 (2.1) (4.1)
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.
8. Allowance for Loan and Lease Losses
A summary of the transactions in the allowance for loan and lease losses and details regarding impaired loans and leases follows for the
three years ended December 31:
(in thousands of dollars) 2003 2002 2001
Balance, Beginning of Year $ 336,648 $ 369,332 $ 264,929
Loan and lease losses (201,534) (234,352) (174,540)
Recoveries of previously charged off loans and leases 39,725 37,440 28,271
Net charge-offs (161,809) (196,912) (146,269)
Provision for loan and lease losses 163,993 194,426 257,326
Allowance of securitized or sold loans (1) (3,578) (31,462) (6,654)
Allowance of assets acquired — 1,264 —
Balance, End of Year $ 335,254 $ 336,648 $ 369,332
Recorded Balance of Impaired Loans, at end of year (2):
With related allowance for loan and lease losses $ 54,853 $ 91,578 $ 168,753
With no related allowance for loan and lease losses — 2,972 2,557
Total $ 54,853 $ 94,550 $ 171,310
Average Balance of Impaired Loans for the Year (2) $ 33,970 $ 87,286 $ 111,921
Allowance for Loan and Lease Losses on Impaired Loans (2) 26,249 37,984 65,125
(1) In conjunction with the automobile loan securitizations in 2003, 2002, and 2001, 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
$22.3 million.
(2) Includes impaired commercial and industrial and commercial real estate loans with outstanding balances greater then $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.
There was no interest recognized in 2003, 2002, and 2001 on impaired loans while they were considered impaired.
114 HUNTINGTON BANCSHARES INCORPORATED