Huntington National Bank 2012 Annual Report Download - page 193

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Huntington believes the general partner of each limited partnership has the power to direct the activities which most significantly
affect their performance of each partnership, therefore, Huntington has determined that it is not the primary beneficiary of any LIHTC
partnership. Huntington uses the equity or effective yield method to account for its investments in these entities. These investments
are included in accrued income and other assets. At December 31, 2012 and 2011, Huntington has commitments of $391.9 million
and $376.1 million, respectively, of which $380.0 million and $322.5 million, respectively, were funded. The unfunded portion is
included in accrued expenses and other liabilities.
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, 2012, and December 31,
2011, were as follows:
At December 31,
(dollar amounts in thousands) 2012 2011
Contract amount represents credit risk
Commitments to extend credit
Commercial $ 9,209,094 $ 8,006,068
Consumer 6,189,447 5,903,840
Commercial real estate 797,605 609,791
Standby letters of credit 514,705 585,791
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 customer’s credit quality. These
arrangements normally require the payment of a fee by the customer, 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 $1.4 million and $1.6 million at December 31, 2012 and 2011, 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, 2012, Huntington had $515 million of standby letters-of-credit outstanding, of which 80% were collateralized.
Included in this $515 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, 2012, approximately $93 million of the standby letters-of-credit were rated strong with sufficient asset quality,
liquidity, and good debt capacity and coverage, approximately $393 million were rated average with acceptable asset quality,
liquidity, and modest debt capacity; and approximately $29 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 classified as loans held for sale. At December
31, 2012 and 2011, Huntington had commitments to sell residential real estate loans of $849.8 million and $629.0 million,
respectively. These contracts mature in less than one year.