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These excerpts taken from the HBAN 10-K filed Feb 26, 2008. Table
19 — ACL as a Percent of Total Period End Loans and
Leases
The increase in the ACL at December 31, 2007, compared with
the prior year-end, is primarily related to the increase in the
transaction reserve component of the ALLL due to the Franklin
relationship. Another factor in the ACL increase was the
declining credit quality in the residential real estate
development portfolio.
A change in the transaction reserve component of the ALLL is a
direct indicator of the direction of credit risk in the
portfolio. The increase in the transaction reserve component at
December 31, 2007, compared with the prior year-end,
reflected the impact of increasing monitored credits during
2007, primarily resulting from softness in the residential and
commercial real estate markets in the Midwest, and the impact of
the Sky Financial acquisition. The economic reserve is a
calculated addition to the transaction reserve to capture
potential volatility associated with the economic environment.
With the acquisition of Sky Financial, we adjusted our
methodology to calculate the economic reserve component of the
ALLL. While we continue to utilize the same primary economic
indicators, after the acquisition of Sky Financial, we now apply
the resulting factor to the exposure associated with the loan
and lease portfolio instead of relating it to the calculated
transaction reserve component. The Sky Financial reserve
methodology included an unallocated portion, which we combined
into our existing economic reserve. As the economic environment
changes in future periods, the economic reserve will directly be
affected by such changes. We believe that this new calculation
is a better measure of the macro-economic environment’s
impact on the credit performance of our portfolio.
Given the expectation of continued stress in commercial real
estate markets, as well as weak performance of the eastern
Michigan and northern Ohio economies, we expect modest increases
in the ALLL ratio during 2008.
Table 19 — ACL as a Percent of Total Period End Loans and Leases
The increase in the ACL at December 31, 2007, compared with the prior year-end, is primarily related to the increase in the transaction reserve component of the ALLL due to the Franklin relationship. Another factor in the ACL increase was the declining credit quality in the residential real estate development portfolio. A change in the transaction reserve component of the ALLL is a direct indicator of the direction of credit risk in the portfolio. The increase in the transaction reserve component at December 31, 2007, compared with the prior year-end, reflected the impact of increasing monitored credits during 2007, primarily resulting from softness in the residential and commercial real estate markets in the Midwest, and the impact of the Sky Financial acquisition. The economic reserve is a calculated addition to the transaction reserve to capture potential volatility associated with the economic environment. With the acquisition of Sky Financial, we adjusted our methodology to calculate the economic reserve component of the ALLL. While we continue to utilize the same primary economic indicators, after the acquisition of Sky Financial, we now apply the resulting factor to the exposure associated with the loan and lease portfolio instead of relating it to the calculated transaction reserve component. The Sky Financial reserve methodology included an unallocated portion, which we combined into our existing economic reserve. As the economic environment changes in future periods, the economic reserve will directly be affected by such changes. We believe that this new calculation is a better measure of the macro-economic environment’s impact on the credit performance of our portfolio. Given the expectation of continued stress in commercial real estate markets, as well as weak performance of the eastern Michigan and northern Ohio economies, we expect modest increases in the ALLL ratio during 2008.
This excerpt taken from the HBAN 10-K filed Feb 22, 2007. Table 16 — ACL as a Percent
of Total Period End Loans and Leases
N.A., not applicable.
A change in the transaction reserve component of the ACL is a
direct indicator of the direction of credit risk in the
portfolio. The decline in 2006 from 0.89% to 0.86% is consistent
with our general assessment that there is less inherent credit
risk in the portfolio today than in the prior period. The
economic reserve is a calculated multiplier to the transaction
reserve to capture potential volatility associated with the
economic environment. The general improvement in the economy,
combined with Huntington’s very consistent loss levels
result in the lowering of the economic reserve component.
36
MANAGEMENT’S
DISCUSSION
AND
ANALYSIS
HUNTINGTON
BANCSHARES
INCORPORATED
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