Huntington National Bank 2012 Annual Report Download - page 53

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Credit quality data regarding the ACL and NALs, segregated by core CRE loans and noncore CRE loans, is presented in the
following table:
Table 11 - Commercial Real Estate - Core vs. Noncore Portfolios
(dollar amounts in millions)
December 31, 2012
Ending Nonaccrual
Balance Prior NCOs ACL $ ACL % Credit Mark (1) Loans
Total core $ 3,937 $ 21 $ 100 2.54 %3.06 % $ 41
N
oncore - SAD (2) 597 145 129 21.61 36.93 82
N
oncore - Other 865 18 61 7.05 8.95 4
Total noncore 1,462 163 190 13.00 21.72 86
Total commercial real estate $ 5,399 $ 184 $ 290 5.37 %8.49 % $ 127
December 31, 2011
Ending Nonaccrual
Balance Prior NCOs ACL $ ACL % Credit Mark (1) Loans
Total core $ 3,978 $ 25 $ 125 3.14 % 3.75 % $ 26
N
oncore - SAD (2) 735 253 182 24.76 44.03 195
N
oncore - Other 1,113 17 88 7.91 9.29 9
Total noncore 1,848 270 270 14.61 25.50 204
Total commercial real estate $ 5,826 $ 295 $ 395 6.78 % 11.27 % $ 230
(1) Calculated as (Prior NCOs + ACL $) / (Ending Balance + Prior NCOs)
(
2
)
N
oncore loans are managed by SAD, the area responsible for managing loans and relationships designated as Classified loans.
As shown in the above table, the ending balance of the CRE portfolio at December 31, 2012, declined $0.4 billion, or 7%,
compared with December 31, 2011. The majority of this decline occurred in the noncore segment, and was a result of payoffs and
NCOs as we actively focus on the noncore portfolio to reduce our overall CRE exposure. This reduction demonstrates our continued
commitment to achieving a materially lower risk profile in the CRE portfolio, consistent with our overall objective of maintaining an
aggregate moderate-to-low risk profile. We will continue to support our core developer customers as appropriate, however, we do not
believe that significant additional CRE activity is appropriate given the current market conditions.
Also as shown above, substantial reserves for the noncore portfolio have been established. At December 31, 2012, the ACL
related to the noncore portfolio was 13.00%. The combination of the existing ACL and prior NCOs represents the total credit actions
taken on each segment of the portfolio. From this data, we calculate a credit mark that provides a consistent measurement of the
cumulative credit actions taken against a specific portfolio segment. The 36.93% credit mark associated with the SAD-managed
noncore portfolio is an indicator of the proactive portfolio management strategy employed for this portfolio.
Consumer Credit
Consumer credit approvals are based on, among other factors, the financial strength and payment history of the borrower, type of
exposure, and the transaction structure. Consumer credit decisions are generally made in a centralized environment utilizing decision
models. Importantly, certain individuals who understand each local region have the authority to make credit extension decisions to
preserve our focus on the local communities we operate in. Each credit extension is assigned a specific PD and LGD. The PD is
generally based on the borrower’s most recent credit bureau score (FICO), which we update quarterly, while the LGD is related to the
type of collateral and the LTV ratio associated with the credit extension.
In consumer lending, credit risk is managed from a segment (i.e., loan type, collateral position, geography, etc.) and vintage
performance analysis. All portfolio segments are continuously monitored for changes in delinquency trends and other asset quality
indicators. We make extensive use of portfolio assessment models to continuously monitor the quality of the portfolio, which may
result in changes to future origination strategies. The on-going analysis and review process results in a determination of an
appropriate ALLL amount for our consumer loan portfolio. The independent risk management group has a consumer process review
component to ensure the effectiveness and efficiency of the consumer credit processes.