Huntington National Bank 2003 Annual Report Download - page 58

MANAGEMENT’S DISCUSSION AND ANALYSIS
For full-year 2004, C&I and CRE net charge-offs are expected to decline reflecting the improvements made in underwriting, the
origination of higher quality loans and leases, and the success in lowering individual concentrations in larger C&I and CRE credits, as
well as the 2003 fourth quarter sale of lower credit quality commercial loans, including NPAs. Further improvement in the consumer
net charge-off ratio is also expected. Net charge-offs for the total portfolio are expected to be in the 0.50%-0.60% range.
N
ON - PERFORMING A SSETS
Non-performing assets (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.
When, in Management’s judgment, the borrower’s ability and intent to make periodic interest and principal payments resumes and
collectibility is no longer in doubt, the loan is returned to accrual status. C&I and CRE 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 security. 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.
Table 11—Non-Performing Assets and Past Due Loans and Leases
December 31,
(in thousands of dollars) 2003 2002 2001 2000 1999
Non-accrual Loans and Leases
C&I $43,387 $ 91,861 $159,637 $ 55,804 $42,958
CRE 22,399 26,765 48,360 26,702 26,916
Residential mortgage 9,695 9,443 11,836 10,174 11,866
Total Non-accrual Loans and Leases 75,481 128,069 219,833 92,680 81,740
Renegotiated loans — — 1,276 1,304 1,330
Total Non-performing Loans and Leases (NPLs) 75,481 128,069 221,109 93,984 83,070
Other real estate, net 11,905 8,654 6,384 11,413 15,171
Total Non-performing Assets (NPAs) $87,386 $136,723 $227,493 $105,397 $98,241
Accruing loans and leases past due 90 days or more $55,913 $ 61,526 $ 76,013 $ 66,665 $54,567
NPLs as a % of total loans and leases 0.36% 0.69% 1.20% 0.53% 0.46%
NPLs as a % of total loans and leases and other real estate 0.41 0.74 1.23 0.60 0.55
Allowance for loan and lease losses as a percent of:
NPLs 444 263 167 282 330
NPAs 384 246 162 251 279
Accruing loans and leases past due 90 days or more to total
loans and leases 0.27 0.33 0.41 0.38 0.30
Note: For 2003, the amount of interest income which would have been recorded under the original terms for total loans and leases classified as non-accrual or renegotiated
was $6.3 million. Amounts actually collected and recorded as interest income for these loans and leases was $3.0 million.
Total NPAs were $87.4 million at December 31, 2003, down 36% from $136.7 million at December 31, 2002, and down 62% from
$227.5 million at the end of 2001. Expressed as a percent of total loans and leases and other real estate, the year-end positions for 2003,
2002, and 2001 were 0.41%, 0.74%, and 1.23%, respectively (see Table 11).
During 2001, credit quality trends were deteriorating, particularly in the C&I and CRE portfolio, caused by a deteriorating economy
and previous decisions in credit underwriting. Management strengthened the independent loan review function and undertook an
aggressive review of these portfolios to ensure that all credits were properly graded and action plans on individual credits were
initiated, where appropriate. In addition, credit underwriting standards were tightened and the credit approval process was redesigned.
In early 2002, the credit workout group was further strengthened, with the objective of aggressively seeking economically advantageous
opportunities to reduce the level of NPAs, including NPA sales. These efforts were reflected in the significant NPA portfolio sales in the
56 HUNTINGTON BANCSHARES INCORPORATED