Huntington National Bank 2011 Annual Report Download - page 216

22. COMMITMENTS AND CONTINGENT LIABILITIES
Commitments to extend credit
In the ordinary course of business, Huntington makes various commitments to extend credit that are not
reflected in the Consolidated Financial Statements. The contract amounts of these financial agreements at
December 31, 2011, and December 31, 2010, were as follows:
At December 31,
2011 2010
(dollar amounts in millions)
Contract amount represents credit risk
Commitments to extend credit
Commercial .................................................... $8,006 $5,933
Consumer ..................................................... 5,904 5,406
Commercial real estate ........................................... 610 546
Standby letters of credit ............................................ 586 607
Commitments to extend credit generally have fixed expiration dates, are variable-rate, and contain clauses
that permit Huntington to terminate or otherwise renegotiate the contracts in the event of a significant
deterioration in the borrower’s credit quality. These arrangements normally require the payment of a fee by the
borrower, the pricing of which is based on prevailing market conditions, credit quality, probability of funding,
and other relevant factors. Since many of these commitments are expected to expire without being drawn upon,
the contract amounts are not necessarily indicative of future cash requirements. The interest rate risk arising from
these financial instruments is insignificant as a result of their predominantly short-term, variable-rate nature.
Standby letters-of-credit are conditional commitments issued to guarantee the performance of a borrower to
a third party. These guarantees are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing, and similar transactions. Most of these arrangements mature within
two years. The carrying amount of deferred revenue associated with these guarantees was $1.6 million and $2.2
million at December 31, 2011 and 2010, respectively.
Through the Company’s credit process, Huntington monitors the credit risks of outstanding standby
letters-of-credit. When it is probable that a standby letter-of-credit will be drawn and not repaid in full, losses are
recognized in the provision for credit losses. At December 31, 2011, Huntington had $586 million of standby
letters-of-credit outstanding, of which 80% were collateralized. Included in this $586 million total are
letters-of-credit issued by the Bank that support securities that were issued by customers and remarketed by The
Huntington Investment Company, the Company’s broker-dealer subsidiary.
Huntington uses an internal loan grading system to assess an estimate of loss on its loan and lease portfolio.
The same loan grading system is used to help monitor credit risk associated with standby letters-of-credit. Under
this risk rating system as of December 31, 2011, approximately $116 million of the standby letters-of-credit were
rated strong with sufficient asset quality, liquidity, and good debt capacity and coverage, approximately $411
million were rated average with acceptable asset quality, liquidity, and modest debt capacity; and approximately
$59 million were rated substandard with negative financial trends, structural weaknesses, operating difficulties,
and higher leverage.
Commercial letters-of-credit represent short-term, self-liquidating instruments that facilitate customer trade
transactions and generally have maturities of no longer than 90 days. The goods or cargo being traded normally
secures these instruments.
Commitments to sell loans
Huntington enters into forward contracts relating to its mortgage banking business to hedge the exposures
from commitments to make new residential mortgage loans with existing customers and from mortgage loans
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