What does Huntington’s Form 10-K disclose about its loans and leases (aka “receivables”) and the related allowance accounts?

Huntington Bancshares Incorporated (NASDAQ:HBAN) recently acquired the Ohio-based FirstMerit Corp., further increasing Huntington’s market share across eight states in the Midwest: Ohio, Pennsylvania, West Virginia, Kentucky, Indiana, Michigan, Wisconsin, and Illinois.  It is now the 33^rd largest bank holding company in the United States, according to the Federal Deposit Insurance Corporation (FDIC) as of the second quarter of 2016. As a lending institution, Huntington has a portfolio of several types of loans.

To follow are adapted excerpts from Huntington’s 2015 Form 10-k relating to its portfolio of loans and the related allowance accounts. These excerpts have been adapted for educational use and should not be relied upon for investment decisions.

For the sake of brevity in the questions that follow, “loans and leases” will be referred to as simply “loans.”

 Questions

1. What loan category is the largest category for Huntington according to the information provided from its Form 10-k for 2015 (Exhibit A)? What is the second largest? Third?
2. Now look at the size of each of the allowance accounts relative to the total loan balance (the column on the far right in Exhibit A. What is the largest allowance balance relative to the total loan balance? What is the second largest? Third?
3. Compare your responses for Questions 1 and 2. Is there a mismatch? What does this information indicate to you?
4. What is the overall net balance of loans as of December 31, 2015?
5. What type of loans has the highest total past due percentage (see Exhibit B)? What type of loans has the highest 90 or more days past due percentage (see Exhibit B)? Why would Huntington show the past due amounts in three separate categories: 30 – 59 days, 60 – 89 days, and 90 or more days? How does this information compare with your responses to Questions 1 and 2?
6. Now examine Exhibit C. What types of loans had the related allowance account increase during 2015? What types had the related allowance account decrease during the year?
7. In Exhibit C, how would “loan charge-offs” have impacted the balance sheet and income statement for 2015? What accounts would have increased and decreased?
8. In Exhibit C, how would “recoveries of loans previously charged off” have impacted the balance sheet and income statement for 2015? What accounts would have increased and decreased?
9. Also in Exhibit C, how would the “provision for loan and lease losses” usually have impacted the balance sheet and income statement for 2015? What accounts would have increased and decreased? Why is the provision for loan and lease losses negative during 2015?

Instructor Resources

These resources are provided to give the instructor flexibility for use of Accounting in the Headlines articles in the classroom. The blog posting itself can be assigned via a link to this site OR by distributing the student handout below. Alternatively, the PowerPoint file below contains a bullet point overview of the article and the discussion questions.

• Student handout (pdf) (word) (contains entire blog posting + discussion questions)
• PowerPoint file (brief article overview + discussion questions)
• Excel file (for further analysis and/or screen reader compatibility for schedules)

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