Huntington National Bank 2011 Annual Report Download - page 64

In addition to the initial credit analysis conducted during the approval process, our Credit Review group
performs testing to provide an independent review and assessment of the quality and / or risk of new loan
originations. This group is part of our Risk Management area, and conducts portfolio reviews on a risk-based
cycle to evaluate individual loans, validate risk ratings, as well as test the consistency of the credit processes.
Our standardized loan grading system considers many components that directly correlate loan quality and
likelihood of repayment, one of which is guarantor support. On an annual basis, or more frequently if warranted,
we consider, among other things, the guarantor’s reputation and credit worthiness, along with various key
financial metrics such as liquidity and net worth, assuming such information is available. Our assessment of the
guarantor’s credit strength, or lack thereof, is reflected in our risk ratings for such loans, which is directly tied to,
and an integral component of, our ALLL methodology. When a loan goes to impaired status, viable guarantor
support is considered in the determination of the recognition of loan loss.
If our assessment of the guarantor’s credit strength yields an inherent capacity to perform, we will seek
repayment from the guarantor as part of the collection process and have done so successfully. However, we do
not formally track the repayment success from guarantors.
Substantially all commercial loans categorized as Classified (see Note 3 of Notes to Consolidated Financial
Statements) are managed by our SAD. The SAD is a specialized group of credit professionals that handle the
day-to-day management of workouts, commercial recoveries, and problem loan sales. Its responsibilities include
developing and implementing action plans, assessing risk ratings, and determining the appropriateness of the
allowance, the accrual status, and the ultimate collectability of the Classified loan portfolio.
Our commercial loan portfolio, including CRE loans, is diversified by product type, customer size, and
geography throughout our footprint. No outstanding commercial loans and leases comprised an industry or
geographic concentration of lending. Certain segments of our commercial loan portfolio are discussed in further
detail below.
C&I PORTFOLIO
The C&I portfolio is comprised of loans to businesses where the source of repayment is associated with the
on-going operations of the business. Generally, the loans are secured with the financing of the borrower’s assets,
such as equipment, accounts receivable, or inventory. In many cases, the loans are secured by real estate,
although the operation, sale, or refinancing of the real estate is not a primary source of repayment for the loan.
For loans secured by real estate, appropriate appraisals are obtained at origination and updated on an as needed
basis in compliance with regulatory requirements.
There were no commercial loan segments considered an industry or geographic concentration of lending.
Currently, higher-risk segments of the C&I portfolio include loans to borrowers supporting the home building
industry, contractors, and automotive suppliers. We manage the risks inherent in this portfolio through
origination policies, a defined loan concentration policy with established limits, on-going loan level reviews and
portfolio level reviews, recourse requirements, and continuous portfolio risk management activities. Our
origination policies for this portfolio include loan product-type specific policies such as LTV and debt service
coverage ratios, as applicable.
While C&I borrowers have been challenged by the weak economy, problem loans have trended downward,
reflecting a combination of proactive risk identification as well as some relative improvement in economic
conditions. Nevertheless, some borrowers may no longer have sufficient capital to withstand the extended stress.
As a result, these borrowers may not be able to comply with the original terms of their credit agreements. We
continue to focus attention on the portfolio management process to proactively identify borrowers that may be
facing financial difficulty to assess all potential solutions. The impact of the economic environment is further
evidenced by the level of line-of-credit activity, as borrowers continued to maintain relatively low utilization
percentages.
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