Huntington National Bank 2009 Annual Report Download - page 149

flows is determined usin
g
assumptions for market interest rates, ancillar
y
fees, and prepa
y
ment rates. Th
e
serv
i
c
i
n
g
r
igh
ts are recor
d
e
di
n accrue
di
ncome an
d
ot
h
er assets
i
nt
h
e conso
lid
ate
db
a
l
ance s
h
eets. Serv
i
c
i
n
g
revenues on mort
g
a
g
e and automobile loans are included in mort
g
a
g
e bankin
g
income and other non-interes
t
income, respectivel
y.
A
llowance
f
or Credit Losses — The allowance for credit losses (ACL) reflects Mana
g
ement’s
j
ud
g
ment as
to t
h
e
l
eve
l
o
f
t
h
e ACL cons
id
ere
d
appropr
i
ate to a
b
sor
b
pro
b
a
bl
e
i
n
h
erent cre
di
t
l
osses. T
hi
s
j
u
dg
ment
is
b
ase
d
on t
h
es
i
ze an
d
current r
i
s
k
c
h
aracter
i
st
i
cs o
f
t
h
e
p
ort
f
o
li
o, a rev
i
ew o
fi
n
di
v
id
ua
ll
oans an
dl
eases
,
historical and antici
p
ated loss ex
p
erience, and a review of individual relationshi
p
s where a
pp
licable. External
influences such as
g
eneral economic conditions, economic conditions in the relevant
g
eo
g
raphic areas an
d
spec
ifi
c
i
n
d
ustr
i
es, re
g
u
l
ator
yg
u
id
e
li
nes, an
d
ot
h
er
f
actors are a
l
so assesse
di
n
d
eterm
i
n
i
n
g
t
h
e
l
eve
l
o
f
t
he
a
ll
o
w
ance.
Th
e
d
eterm
i
nat
i
on o
f
t
h
ea
ll
owance requ
i
res s
ig
n
ifi
cant est
i
mates,
i
nc
l
u
di
n
g
t
h
et
i
m
i
n
g
an
d
amounts o
f
ex
p
ecte
df
uture cas
hfl
ows on
i
m
p
a
i
re
dl
oans an
dl
eases, cons
id
erat
i
on o
f
current econom
i
c con
di
t
i
ons, an
d
historical loss experience pertainin
g
to pools of homo
g
eneous loans and leases, all of which ma
y
b
e
suscept
ibl
etoc
h
an
g
e. T
h
ea
ll
owance
i
s
i
ncrease
d
t
h
rou
gh
a prov
i
s
i
on
f
or cre
di
t
l
osses t
h
at
i
sc
h
ar
g
e
d
t
o
earn
i
n
g
s,
b
ase
d
on Mana
g
ement’s quarter
ly
eva
l
uat
i
on o
f
t
h
e
f
actors prev
i
ous
ly
ment
i
one
d
,an
di
sre
d
uce
dby
c
h
ar
g
e-o
ff
s, net o
f
recover
i
es, an
d
t
h
ea
ll
owance assoc
i
ate
d
w
i
t
h
secur
i
t
i
ze
d
or so
ld l
oans
.
Th
e ACL cons
i
sts o
f
two com
p
onents, t
h
e transact
i
on reserve, w
hi
c
hi
nc
l
u
d
es s
p
ec
ifi
c reserves re
l
ate
d
t
o
l
oans cons
id
ere
d
to
b
e
i
mpa
i
re
d
an
dl
oans
i
nvo
l
ve
di
n trou
bl
e
dd
e
b
t restructur
i
n
g
s, an
d
t
h
e econom
i
c reserve
.
The two components are more full
y
described below
.
T
he transaction reserve com
p
onent of the ACL includes both (a) an estimate of loss based on
p
ools of
commerc
i
a
l
an
d
consumer
l
oans an
dl
eases w
i
t
h
s
i
m
il
ar c
h
aracter
i
st
i
cs an
d (b)
an est
i
mate o
fl
oss
b
ase
d
on an
impairment review of each loan
g
reater than
$
1 million. For commercial loans, the estimate of loss based o
n
pools of loans and leases with similar characteristics is made throu
g
h the use of a standardized loan
g
radin
g
s
y
stem that is applied on an individual loan level and updated on a continuous basis. The reserve factor
s
app
li
e
d
to t
h
ese port
f
o
li
os were
d
eve
l
ope
db
ase
d
on
i
nterna
l
cre
di
tm
ig
rat
i
on mo
d
e
l
st
h
at trac
khi
stor
i
ca
l
movements o
fl
oans
b
etween
l
oan rat
i
n
g
s over t
i
me an
d
a com
bi
nat
i
on o
fl
on
g
-term avera
g
e
l
oss exper
i
ence o
f
our own portfolio and external industr
y
data. In the case of more homo
g
eneous portfolios, such as consumer
l
oans an
dl
eases
,
t
h
e
d
eterm
i
nat
i
on o
f
t
h
e transact
i
on reserve
i
s
b
ase
d
on reserve
f
actors t
h
at
i
nc
l
u
d
et
h
e use o
f
f
orecast
i
n
g
mo
d
e
l
s to measure
i
n
h
erent
l
oss
i
nt
h
ese port
f
o
li
os. Mo
d
e
l
san
d
ana
ly
ses are up
d
ate
df
requent
ly
t
o
capture t
h
e recent
b
e
h
av
i
ora
l
c
h
aracter
i
st
i
cs o
f
t
h
esu
bj
ect port
f
o
li
os, as we
ll
as an
y
c
h
an
g
es
i
n
l
oss m
i
t
ig
at
i
o
n
or credit ori
g
ination strate
g
ies. Ad
j
ustments to the reserve factors are made as needed based on observe
d
resu
l
ts o
f
t
h
e port
f
o
li
o ana
ly
t
i
cs
.
T
he reserve incorporates our determination of the impact of risks associated with the
g
eneral economi
c
env
i
ronment on t
h
e port
f
o
li
o. Dur
i
n
g
t
h
e 2009
f
ourt
h
quarter, Mana
g
ement per
f
orme
d
arev
i
ew o
f
our ACL
practices. The review included an anal
y
sis of the adequac
y
of the ACL in li
g
ht of current economic conditions
,
as well as expected future performance. Based on the results of the review, Huntin
g
ton made the followin
g
en
h
ancements:
• Current market conditions, such as hi
g
her vacanc
y
rates and lower rents, have driven commercial rea
l
estate va
l
ues
l
ower an
d
cause
dl
oss
gi
ven
d
e
f
au
l
t (LGD) exper
i
ence to r
i
se s
ig
n
ifi
cant
ly
over t
h
e past
y
ear. Mana
g
ement
b
e
li
eves t
h
at
f
actors
d
r
i
v
i
n
g
t
h
e
high
er
l
osses w
ill
cont
i
nue to
b
eev
id
ent
f
or at
l
eas
t
the next 18 to 24 months, makin
g
it necessar
y
to develop c
y
clical LGD factors that are collateral
specific and based in part on market pro
j
ections.
• Probabilit
y
of Default (PD) factors have recentl
y
mi
g
rated hi
g
her for commercial and commercial rea
l
estate
l
oans. Base
d
on t
hi
sc
h
an
g
e
i
n mar
k
et con
di
t
i
ons, Mana
g
ement
h
as
i
ncrease
d
t
h
e
l
oss emer
g
enc
e
t
i
me
f
rame to 24 mont
h
s
f
rom 12 mont
h
s
.
• Mana
g
ement
h
as re
d
e
fi
ne
d
t
h
e
g
enera
l
reserve
i
n
b
roa
d
er terms to
i
ncorporate: (a) current an
d lik
e
ly
mar
k
et con
di
t
i
ons a
l
on
g
w
i
t
h
an assessment o
f
t
h
e potent
i
a
li
mpact o
f
t
h
ose con
di
t
i
ons,(
b
) uncerta
i
nt
y
141