Huntington National Bank 2011 Annual Report Download - page 161

and may include notes that defer principal and interest payments until after the primary note is repaid.
Creating two or more notes often allows the borrower to continue a project or weather a temporary
economic downturn and allows Huntington to right-size a loan based upon the current expectations for a
borrower’s or project’s performance.
Our strategy involving TDR borrowers includes working with these borrowers to allow them to
refinance elsewhere as well as allow them time to improve their financial position and remain our customer
through refinancing their notes according to market terms and conditions in the future. A refinancing or
modification of a loan occurs when either the loan matures according to the terms of the TDR-modified
agreement or the borrower requests a change to the loan agreements. At that time, the loan is evaluated to
determine if it is creditworthy. It is subjected to the normal underwriting standards and processes for other
similar credit extensions, both new and existing.
In accordance with ASC 310-20-35, the refinanced note is evaluated to determine if it is considered a
new loan or a continuation of the prior loan. A new loan is considered for removal of the TDR designation,
whereas a continuation of the prior note requires a continuation of the TDR designation. In order for a TDR
designation to be removed, the borrower must no longer be experiencing financial difficulties and the terms
of the refinanced loan must not represent a concession.
Residential Mortgage loan TDRs — Residential mortgage TDRs represent loan modifications
associated with traditional first-lien mortgage loans in which a concession has been provided to the
borrower. The primary concessions given to residential mortgage borrowers are amortization or maturity
date changes and interest rate reductions. Residential mortgages identified as TDRs involve borrowers
unable to refinance their mortgages through the Company’s normal mortgage origination channels or
through other independent sources. Some, but not all, of the loans may be delinquent.
Other Consumer loan TDRs — Generally, these are TDRs associated with home equity borrowings and
automobile loans. The Company may make similar interest rate, term, and principal concessions as with
residential mortgage loan TDRs.
TDR Impact on Credit Quality
Huntington’s ALLL is largely driven by updated risk ratings assigned to commercial loans, updated
borrower credit scores on consumer loans, and borrower delinquency history in both the commercial and
consumer portfolios. As such, the provision for credit losses is impacted primarily by changes in borrower
payment performance rather than the TDR classification. TDRs can be classified as either accrual or nonaccrual
loans. Nonaccrual TDRs are included in NALs whereas accruing TDRs are excluded from NALs as it is probable
that all contractual principal and interest due under the restructured terms will be collected.
TDR concessions and classification may reduce the ALLL within certain classes, specifically the C&I and
CRE portfolios. The reduction is derived from the type of concessions given to the borrowers and the resulting
application of the transaction reserve calculation within the ALLL. Generally, Huntington’s concessions on TDR
loans involve an increase in interest rate and extension of maturity. The transaction reserve for non-TDR loans is
calculated based upon several estimated probability factors, such as PD and LGD, both of which were previously
discussed above. Upon the occurrence of a TDR, the transaction reserve is measured based on the estimation of
the probable discounted future cash flows expected to be collected on the modified loan. The resulting TDR
ALLL calculation often results in a minimal or zero ALLL amount because (1) it is probable all cash flows will
be collected and, (2) due to the rate increase, the discounting of the cash flows on the modified loan, using the
pre-modification interest rate, exceeds the carrying value of the loan.
However, TDR concessions and classification may increase the ALLL to certain loans, such as consumer
loans. The concessions made to these loans often include interest rate reductions and therefore the TDR ALLL
calculation results in a greater ALLL compared with the non-TDR calculation.
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