Huntington National Bank 2004 Annual Report Download - page 51

Download and view the complete annual report

Please find page 51 of the 2004 Huntington National Bank annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 142

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142

MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
Borrower exposures may be designated as ‘‘watch list’’ accounts when warranted by individual company performance, or by industry
and environmental factors. Such accounts are subjected to additional quarterly reviews by the business line management, the loan
review group, and credit administration in order to adequately assess the borrower’s credit status and to take appropriate action.
A specialized credit workout group manages problem credits and handles commercial recoveries, workouts, and problem loan sales, as
well as the day-to-day management of relationships rated substandard or worse. The group is responsible for developing an action
plan, assessing the risk rating, and determining the adequacy of the reserve, the accrual status, and the ultimate collectibility of the
credits managed.
Consumer Credit
Consumer credit approvals are based on, among other factors, the financial strength of the borrower, type of exposure, transaction
structure, and the general economic outlook. Consumer credit decisions are generally made in a centralized environment utilizing
decision models. There is also individual credit authority granted to certain individuals on a regional basis to preserve the Company’s
local decision-making focus. Each credit extension is assigned a specific probability-of-default and loss-in-event-of-default. The
probability-of-default is generally a function of the borrower’s credit bureau score, while the loss-in-event-of-default is related to the
type of collateral and the loan-to-value ratio associated with the credit extension.
In consumer lending, credit risk is managed from a loan type and vintage performance analysis. All portfolio segments are
continuously monitored for changes in delinquency trends and other asset quality indicators. Management makes extensive use of
portfolio assessment models to continuously monitor the quality of the portfolio and identify under-performing segments. This
information is then incorporated into future origination strategies. The independent risk management group has a consumer process
review component to ensure the effectiveness and efficiency of the consumer credit processes.
Collection action is initiated on an ‘‘as needed’’ basis through a centrally managed collection and recovery function. The collection
group employs a series of collection methodologies designed to maintain a high level of effectiveness while maximizing efficiency. In
addition to the retained consumer loan portfolio, the collection group is responsible for collection activity on all sold and securitized
loans and leases.
Non-Performing Assets (NPAs)
(This section should be read in conjunction with Significant Factor 4.)
NPAs consist of loans and leases that are no longer accruing interest, loans and leases that have been renegotiated to below market
rates based upon financial difficulties of the borrower, and real estate acquired through foreclosure. C&I, CRE, and small business
loans are generally placed on non-accrual status when collection of principal or interest is in doubt or when the loan is 90 days past
due. When interest accruals are suspended, accrued interest income is reversed with current year accruals charged to earnings and
prior-year amounts generally charged-off as a credit loss. Consumer loans and leases, excluding residential mortgages, are not placed
on non-accrual status but are charged-off in accordance with regulatory statutes, which is generally no more than 120 days past due.
Residential mortgages, while highly secured, are placed on non-accrual status within 180 days past due as to principal and 210 days
past due as to interest, regardless of collateral. When, in Management’s judgment, the borrower’s ability and intent to make periodic
interest and principal payments resume and collectibility is no longer in doubt, the loan is returned to accrual status. A charge-off on
a residential mortgage loan is recorded when the loan has been foreclosed and the loan balance exceeds the fair value of the real estate.
The fair value of the collateral, less the cost to sell, is then recorded as real estate owned.
At September 30, 2004, the Company adopted a new policy of placing home equity loans and lines on non-accrual status when they
exceed 180 days past due. Such loans were previously classified as accruing loans and leases past due 90 days or more. This policy
change conforms the home equity loans and lines classification to that of other consumer loans secured by residential real estate.
49