Huntington National Bank 2004 Annual Report Download - page 56

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MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
Prior to the first quarter of 2004, the ALLL included an AULC component. To reflect the nature of this reserve and consistent with
better disclosure, in the 2004 first quarter the AULC was reclassified as a separate liability on the balance sheet. This reclassification
had no impact on net income, shareholders’ equity, or the amount of total credit reserves.
The table below presents the components of the ACL expressed as a percent of total period end loans and leases as of December 31,
2004 and December 31, 2003:
At December 31,
2004 2003
Transaction reserve 0.78% 0.88%
Specific reserve 0.05 0.14
Economic reserve 0.32 0.40
Total ALLL 1.15 1.42
Total AULC 0.14 0.17
Total ACL 1.29% 1.59%
Net Charge-offs
Total net charge-offs as a percent of average total loans and leases were 0.35% in 2004, down from 0.81% in 2003, and 1.13% in 2002.
(See Table 16.) The decline from 2003 primarily reflected lower C&I and small business net charge-offs.
Total consumer net charge-offs represented 0.51% of such loans in 2004, down from 0.63% in 2003, and 0.76% in 2002. The primary
driver of this improvement was the origination of higher quality automobile loans and leases over this period, as well as the increased
significance of residential mortgages in the consumer loan portfolio mix. Total net charge-offs as a percent of average total loans and
leases were 0.81% in 2003, down from 1.13% in 2002. The decline from 2002 primarily reflected lower C&I and CRE net charge-offs,
both of which were impacted by significant NPA sales in the 2003 and 2002 fourth quarters.
The company has established the following long-term net charge-off ratio targets for certain portfolio segments, and for the total
portfolio, assuming a comparable portfolio mix, as well as a stable economic environment:
Long-term Targets(1)
Middle market C&I 0.20% - 0.30%
Middle market CRE 0.15% - 0.25%
Small business 0.40% - 0.50%
Automobile loans 0.75% - 0.85%
Automobile direct finance leases 0.50% - 0.60%
Home equity loans and lines 0.30% - 0.40%
Residential loans 0.10% +/–
Total loans and leases 0.35% - 0.45%
(1) Assumes loan and lease portfolio mix comparable to December 31, 2004, and stable economic environment.
Investment Portfolio
Investment decisions that incorporate credit risk require the approval of the independent credit administration function. The degree
of initial due diligence and subsequent review is a function of the type, size, and collateral of the investment. Performance is
monitored on a regular basis, and reported to the Market Risk Committee (MRC) and the executive credit risk committee.
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