Huntington National Bank 2010 Annual Report Download - page 121

evidence and our level of forecasted future taxable income, there was no impairment of the deferred tax asset
at December 31, 2010 and 2009. The total disallowed deferred tax asset for regulatory capital purposes
decreased to $161.3 million at December 31, 2010, from $260.1 million at December 31, 2009.
Credit Quality
Credit quality performance in the 2010 fourth quarter continued to show improvement. Total NCOs
declined $272.5 million, or 61%, compared with the year-ago quarter. The decline was largely centered in the
CRE portfolio as CRE NCOs declined $213.2 million. This decline in the CRE portfolio was partially offset
by an increase in residential mortgage NCOs, partially reflecting NCOs associated with loans sold during the
current quarter. Other key credit quality measurements also showed improvement, including significant
declines in NPAs and in the level of Criticized commercial loans. These declines reflected the positive impact
of significant levels of loan restructures, upgrades, and payment activity. Notably, the level of new additions
during the 2010 fourth quarter was more comparable to that in the first half of 2010 rather than the elevated
2010 third quarter level. The economic environment remains challenging. Yet, reflecting the benefit of our
focused credit actions, we continue to expect declines in total NPAs and Criticized loans going forward.
Delinquency trends across the entire loan and lease portfolio continued to improve, with a significant
opportunity for further improvement in the residential and home equity portfolios. Automobile loan delin-
quency rates continued to decline. Given the significant increase in new automobile origination volume, we
use a lagged delinquency measure to ensure that the underlying portfolio performance is consistent with our
expectations. Based on the lagged analysis and the origination quality, we remain comfortable with the on-
going performance of our automobile loan portfolio.
The current quarter’s NCOs were primarily related to reserves established in prior periods. Our ACL
declined $240.2 million to $1,291.1 million, or 3.39% of period-end total loans and leases at December 31,
2010, from $1,531.4 million, or 4.16%, at December 31, 2009. Importantly, our ACL as a percent of period-
end NALs increased to 166% from 80%, along with improved coverage ratios associated with NPAs and
Criticized assets. These improved coverage ratios indicate a strengthening of our reserves relative to troubled
assets from the end of the prior year-ago quarter.
NCOs
(This section should be read in conjunction with Significant Item 3.)
Total NCOs for the 2010 fourth quarter were $172.3 million, or an annualized 1.82% of average total
loans and leases. NCOs in the year-ago quarter were $444.7 million, or an annualized 4.80%.
Total C&I NCOs for the 2010 fourth quarter were $59.1 million, or an annualized 1.85%, down from
$109.8 million, or an annualized 3.49% of related loans, in the year-ago quarter. The decline reflected
improvement in the overall credit quality of the portfolio.
Current quarter CRE NCOs were $44.9 million, or an annualized 2.64%, down from $258.1 million, or
an annualized 12.21% in the year-ago quarter. The decline was consistent with the improving asset quality
metrics. NALs and Criticized loans at December 31, 2010, were at their lowest levels since 2008, and early
stage delinquency continued to improve. The 2010 fourth quarter CRE NCOs continued to be centered in retail
projects. The retail property portfolio remains the most susceptible to a continued decline in market conditions,
but we believe that the combination of prior NCOs and existing reserves positions us well to make effective
credit decisions in the future. While the office portfolio has experienced stress, we remain comfortable with
this exposure.
Total consumer NCOs in the current quarter were $68.3 million, or an annualized 1.50%, down from
$76.8 million, or an annualized 1.91% of average total consumer loans in the year-ago quarter. The 2010
fourth quarter results represented a continuation of our loss mitigation programs and active loss recognition
processes. This included accounts in all stages of performance, including bankruptcy.
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