Huntington National Bank 2006 Annual Report Download - page 99

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS HUNTINGTON BANCSHARES INCORPORATED
There is a potential for loan products to contain contractual terms that give rise to a concentration of credit risk that may
increase a lending institution’s exposure to risk of nonpayment or realization. Examples of these contractual terms include loans
that permit negative amortization, a loan-to-value of greater than 100%, and option adjustable-rate mortgages. Huntington does
not offer mortgage loan products that contain these terms. Huntington does offer a home equity loan product that is interest
only with an introductory rate that is below the market interest rate for the initial period of the loan term and increases when
that period ends. Home equity loans totaled $4.9 billion and $4.8 billion at December 31, 2006 and 2005, respectively, or 19% of
total loans at the end of each period. From a credit risk perspective, 87% of the home equity loans had a loan to value ratio of
less than 90% at December 31, 2006. The charge-off policy for home equity loans is described in Note 1. There were no other
economic, industry, or geographic concentration of credit risk in the loan and lease portfolio at December 31, 2006.
R
ELATED
P
ARTY
T
RANSACTIONS
Huntington has made loans to its officers, directors, and their associates. These loans were made in the ordinary course of
business under normal credit terms, including interest rate and collateralization, and do not represent more than the normal risk
of collection. These loans to related parties for the year ended December 31 are summarized as follows:
(in thousands of dollars) 2006 2005
Balance, beginning of year $ 76,488 $ 89,177
Loans made 105,337 219,728
Repayments (91,639) (231,814)
Changes due to status of executive officers and directors (33,680) (603)
Balance, end of year $ 56,506 $ 76,488
N
ON
-P
ERFORMING
A
SSETS AND
P
AST
D
UE
L
OANS
At December 31, 2006 and 2005, loans in non-accrual status and loans past due 90 days or more and still accruing interest, were
as follows:
At December 31,
(in thousands of dollars) 2006 2005
Commercial and industrial $ 58,393 $ 55,273
Commercial real estate 37,947 18,309
Residential mortgage 32,527 17,613
Home equity 15,266 10,720
Total non-performing loans 144,133 101,915
Other real estate, net 49,487 15,240
Total non-performing assets $ 193,620 $117,155
Accruing loans past due 90 days or more $ 59,114 $ 56,138
The amount of interest that would have been recorded under the original terms for total loans classified as non-accrual or
renegotiated was $14.2 million for 2006, $7.7 million for 2005, and $3.3 million for 2004. Amounts actually collected and
recorded as interest income for these loans totaled $3.4 million, $1.9 million, and $1.9 million for 2006, 2005, and 2004,
respectively.
5. LOAN SALES AND SECURITIZATIONS
A
UTOMOBILE LOANS
Huntington sold $0.7 billion, $0.4 billion and $1.5 billion of automobile loans in 2006, 2005 and 2004, respectively. Pre-tax gains
from the sales of automobile loans totaled $3.1 million, $1.2 million and $14.2 million in 2006, 2005 and 2004, respectively.
Huntington adopted Statement No. 156 as of January 1, 2006. Automobile loan servicing rights are accounted for under the
amortization provision of that statement. A servicing asset is established at fair value at the time of the sale using the following
assumptions: actual servicing income of 0.55% – 0.65%, adequate compensation for servicing of approximately 0.62%, other
ancillary fees of approximately 0.37%, a discount rate of 10% and an estimated return on payments prior to remittance to
investors. The servicing asset is then amortized against servicing income. Impairment, if any, is recognized when carrying value
exceeds the fair value as determined by calculating the present value of expected net future cash flows. The primary risk
characteristic for measuring servicing assets is payoff rates of the underlying loan pools. Valuation calculations rely on the
predicted payoff assumption and, if actual payoff is quicker than expected, then future value would be impaired.
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