Huntington National Bank 2011 Annual Report Download - page 60

downturn in the residential real estate market that began in early 2007 resulted in significantly lower residential
real estate values and higher delinquencies and NCOs, including loans to builders and developers of residential
real estate. In addition, continued high unemployment, among other economic conditions, throughout 2010 and
2011, slowed any significant recovery from the 2008-2009 U.S. recession. As a result, we continued to
experience higher than historical levels of delinquencies and NCOs in our loan portfolios, with some continued
negative pressure on the value of our investment securities backed by residential assets.
Loan and Lease Credit Exposure Mix
At December 31, 2011, our loans and leases totaled $38.9 billion, representing a 2% increase from
December 31, 2010, primarily reflecting growth in the C&I, residential mortgage, and home equity portfolios.
These increases were partially offset by a decline in the automobile portfolio reflecting the 2011 third quarter
automobile securitization and the transfer of automobile loans to loans held for sale related to a planned
automobile securitization (see Automobile Portfolio discussion), and the continued decline of the CRE portfolio
reflecting our planned strategy to reduce our noncore CRE exposure.
At December 31, 2011, commercial loans totaled $20.5 billion, and represented 52% of our total credit
exposure. Our commercial loan portfolio is diversified along product type, customer size, and geography within
our footprint, and is comprised of the following (see Commercial Credit discussion):
C&I loans — C&I loans are made to commercial customers for use in normal business operations to
finance working capital needs, equipment purchases, or other projects. The majority of these borrowers are
customers doing business within our geographic regions. C&I loans are generally underwritten individually
and secured with the assets of the company and/or the personal guarantee of the business owners. The
financing of owner occupied facilities is considered a C&I loan even though there is improved real estate as
collateral. This treatment is a function of the credit decision process, which focuses on cash flow from
operations of the business to repay the debt. The operation, sale, rental, or refinancing of the real estate is
not considered the primary repayment source for these types of loans. As we look to grow our C&I loan
portfolio, we have further developed our ABL capabilities by adding experienced ABL professionals to take
advantage of market opportunities resulting in better leveraging of the manufacturing base in our primary
markets. Also, our Equipment Finance area is targeting larger equipment financings in the manufacturing
sector in addition to our core products. We also expanded our large corporate banking group with sufficient
resources to ensure we appropriately recognize and manage the risks associated with this type of lending.
CRE loans — CRE loans consist of loans for income-producing real estate properties, real estate
investment trusts, and real estate developers. We mitigate our risk on these loans by requiring collateral
values that exceed the loan amount and underwriting the loan with projected cash flow in excess of the debt
service requirement. These loans are made to finance properties such as apartment buildings, office and
industrial buildings, and retail shopping centers, and are repaid through cash flows related to the operation,
sale, or refinance of the property.
Construction CRE loans — Construction CRE loans are loans to individuals, companies, or developers
used for the construction of a commercial or residential property for which repayment will be generated by
the sale or permanent financing of the property. Our construction CRE portfolio primarily consists of retail,
residential (land, single family, and condominiums), office, and warehouse project types. Generally, these
loans are for construction projects that have been presold, preleased, or have secured permanent financing,
as well as loans to real estate companies with significant equity invested in each project. These loans are
underwritten and managed by a specialized real estate lending group that actively monitors the construction
phase and manages the loan disbursements according to the predetermined construction schedule.
Total consumer loans were $18.4 billion at December 31, 2011, and represented 48% of our total credit
exposure. The consumer portfolio was diversified primarily among automobile, home equity loans and
lines-of-credit, and residential mortgages (see Consumer Credit discussion).
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