Huntington National Bank 2012 Annual Report Download - page 51

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Commercial Credit
The primary factors considered in commercial credit approvals are the financial strength of the borrower, assessment of the
borrower’s management capabilities, cash flows from operations, industry sector trends, type and sufficiency of collateral, type of
exposure, transaction structure, and the general economic outlook. While these are the primary factors considered, there are a number
of other factors that may be considered in the decision process. We utilize a centralized preview and senior loan approval committee,
led by our chief credit officer. The risk rating (see next paragraph) and complexity of the credit determines the threshold for approval
of the senior loan committee with a minimum credit exposure of $10.0 million. For loans not requiring senior loan committee
approval, with the exception of small business loans, credit officers who understand each local region and are experienced in the
industries and loan structures of the requested credit exposure are involved in all loan decisions and have the primary credit authority.
For small business loans, we utilize a centralized loan approval process for standard products and structures. In this centralized
decision environment, certain individuals who understand each local region may make credit-extension decisions to preserve our
commitment to the communities we operate in. In addition to disciplined and consistent judgmental factors, a sophisticated credit
scoring process is used as a primary evaluation tool in the determination of approving a loan within the centralized loan approval
process.
In commercial lending, on-going credit management is dependent on the type and nature of the loan. We monitor all significant
exposures on an on-going basis. All commercial credit extensions are assigned internal risk ratings reflecting the borrower’s PD and
LGD. This two-dimensional rating methodology provides granularity in the portfolio management process. The PD is rated and
applied at the borrower level. The LGD is rated and applied based on the specific type of credit extension and the quality and lien
position associated with the underlying collateral. The internal risk ratings are assessed at origination and updated at each periodic
monitoring event. There is also extensive macro portfolio management analysis on an on-going basis. We continually review and
adjust our risk-rating criteria based on actual experience, which provides us with the current risk level in the portfolio and is the basis
for determining an appropriate ACL amount for the commercial portfolio. A centralized portfolio management team monitors and
reports on the performance of the entire commercial portfolio, including small business loans, to provide consistent oversight.
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 credit processes.
Our standardized loan grading system considers many components that directly correlate to 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 creditworthiness, 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 a 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 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.
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,
and/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.