Huntington National Bank 2012 Annual Report Download - page 52

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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 leveraged lending.
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 some C&I borrowers have been challenged by the continued weakness in the economy, problem loans have trended
downward, reflecting a combination of proactive risk identification and effective workout strategies implemented by our SAD.
Nevertheless, some borrowers may no longer have sufficient capital to withstand the extended stress and 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.
CRE PORTFOLIO
We manage the risks inherent in this portfolio specific to CRE lending, focusing on the quality of the developer, and the specifics
associated with each project. Generally, we: (1) limit our loans to 80% of the appraised value of the commercial real estate at
origination, (2) require net operating cash flows to be 125% of required interest and principal payments, and (3) if the commercial real
estate is nonowner occupied, require that at least 50% of the space of the project be preleased. We actively monitor both geographic
and project-type concentrations and performance metrics of all CRE loan types, with a focus on higher-risk classes. Both macro-level
and loan-level stress-test scenarios based on existing and forecast market conditions are part of the on-going portfolio management
process for the CRE portfolio.
Dedicated real estate professionals originated the majority of the portfolio, with the remainder obtained from prior bank
acquisitions. Appraisals are obtained from approved vendors, and are reviewed by an internal appraisal review group comprised of
certified appraisers to ensure the quality of the valuation used in the underwriting process. The portfolio is diversified by project type
and loan size, and this diversification represents a significant portion of the credit risk management strategies employed for this
portfolio. Subsequent to the origination of the loan, the Credit Review group performs testing to provide an independent review and
assessment of the quality of the underwriting and/or risk of new loan originations.
Appraisal values are obtained in conjunction with all originations and renewals, and on an as needed basis, in compliance with
regulatory requirements. We continue to perform on-going portfolio level reviews within the CRE portfolio. These reviews generate
action plans based on occupancy levels or sales volume associated with the projects being reviewed. Property values are updated
using appraisals on a regular basis to ensure appropriate decisions regarding the on-going management of the portfolio reflect the
changing market conditions. This highly individualized process requires working closely with all of our borrowers, as well as an in-
depth knowledge of CRE project lending and the market environment.
In 2010, we segregated our CRE portfolio into core and noncore segments. We believe segregating noncore CRE from core CRE
improved our ability to understand the nature, performance prospects, and problem resolution opportunities of these segments, thus
allowing us to continue to deal proactively with any emerging credit issues. We have not subsequently originated any noncore CRE
loans.
A CRE loan is generally considered core when the borrower is an experienced, well-capitalized developer in our Midwest
footprint, and had either an established meaningful relationship with us that generated an acceptable return on capital or demonstrated
the prospect of becoming one. The core CRE portfolio was $3.9 billion at December 31, 2012, representing 73% of total CRE loans.
The performance of the core portfolio has met our expectations based on the consistency of the asset quality metrics within the
portfolio. Based on our extensive project level assessment process, including forward-looking collateral valuations, we continue to
believe the credit quality of the core portfolio is stable. Loans are not reclassified between the core and noncore segments based on
performance.