Huntington National Bank 2007 Annual Report Download - page 70

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Net Charge-offs
(This section should be read in conjunction with Significant Items 1 and 2.)
Total net charge-offs for the 2007 fourth quarter were $377.9 million, or an annualized 3.77% of average total loans and leases,
including $308.5 million due to the Franklin credit deterioration. There were no Franklin-related net charge-offs in the 2007 third
quarter. This compared with net charge-offs of $23.0 million, or an annualized 0.35%, in the year-ago quarter, and $47.1 million,
or an annualized 0.47%, in the 2007 third quarter.
Total commercial net charge-offs in the 2007 fourth quarter were $344.6 million, or an annualized 6.18%. Non-Franklin-related
total commercial net charge-offs in the current quarter were $36.1 million and represented an annualized 0.70% of related loans.
This was higher than an annualized 0.22% in the year-ago period, and the annualized 0.31% in the prior quarter.
Total consumer net charge-offs in the current quarter were $33.3 million, or an annualized 0.75%. This was higher than an
annualized 0.46% in the year-ago period and 0.67% in the prior quarter. Automobile loan and lease net charge-offs were
$10.4 million, or an annualized 0.96% in the 2007 fourth quarter, up from 0.54% in the year-ago period and 0.73% in the prior
period. This increase reflected both the impact of the Sky Financial portfolio, as well as seasonal factors. Residential mortgage net
charge-offs were $3.3 million, or an annualized 0.25% of related average balances. This was higher than an annualized 0.19% in
the year-ago quarter, but down from an annualized 0.32% in the prior quarter. Home equity net charge-offs in the 2007 fourth
quarter were $12.2 million, or an annualized 0.67%, up from an annualized 0.47%, in the year-ago quarter and an annualized
0.58% in the prior quarter. The economic weakness in our markets, most notably among our borrowers in eastern Michigan and
northern Ohio, continue to impact residential mortgage and home equity net charge-offs.
Nonaccrual Loans (NALs) and Nonperforming Assets (NPAs)
(This section should be read in conjunction with Significant Items 1 and 2.)
NALs were $319.8 million at December 31, 2007, and represented 0.80% of related assets. This compared with $144.1 million, or
0.55%, at the end of the year-ago period, and $249.4 million, or 0.62%, at September 30, 2007. The $70.4 million, or 28%, increase
in NALs from the end of the prior quarter reflected a $47.0 million increase in middle market CRE NALs, reflecting the continued
softness in the residential real estate development markets, particularly among our borrowers in eastern Michigan and northern
Ohio, as well as increases in small business and residential mortgage NALs due to the continued overall economic weakness in our
markets.
NPAs, which include NALs, were $1.7 billion at December 31, 2007. This compared with $193.6 million at the end of the year-ago
period and $435.0 million at September 30, 2007. The $1.2 billion increase in NPAs from the end of the prior quarter reflected:
– $1.2 billion of restructured Franklin loans. Though classified as NPAs, these restructured loans were current and accruing
interest and are expected to continue to perform per terms of the restructuring agreement.
– $70.4 million increase in NALs, discussed above.
– $6.4 million, or 9%, increase in OREO.
Partially offset by:
– $27.0 million reduction in impaired loans held-for-sale, reflecting a decline of $73.6 million due primarily to sales, as well
as impairment and other reductions. The declines were partially offset by $46.6 million of new loans transferred to loans
held-for-sale.
– $11.9 million decline in other NPAs, which represent certain investment securities backed by mortgage loans to borrowers
with lower FICO scores, with the reduction reflecting the current quarter’s $11.6 million of investment securities
impairment charge.
The over 90-day delinquent, but still accruing, ratio was 0.35% at December 31, 2007, up from 0.23% at the end of the year-ago
quarter and from 0.29% at September 30, 2007.
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MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED