Huntington National Bank 2009 Annual Report Download - page 67

commitments. This was a detailed, labor-intensive process desi
g
ned to enhance our understandin
g
of eac
h
borrower’s financial position, and to ensure that this understandin
g
was accuratel
y
reflected in our internal ris
k
ratin
g
s
y
stem. Our ob
j
ective was to identif
y
current and potential credit risks across the portfolio consistent
with our expectation that the econom
y
in our markets will not improve for the foreseeable future.
Our activit
y
in the 2009 third quarter represented a continuation of the portfolio mana
g
ement processe
s
established in the first two quarters of 2009. We continue to full
y
assess our criticized loans over
$
500,000 o
n
a mont
hly b
as
i
s, an
dh
ave ma
i
nta
i
ne
d
t
h
e
di
sc
i
p
li
ne assoc
i
ate
d
w
i
t
h
t
h
eon
g
o
i
n
g
“noncr
i
t
i
c
i
ze
d
”rev
i
ew
process established in the 2009 second quarter. In man
y
cases, we directl
y
contacted the borrower and obtaine
d
the most recent financial information available, includin
g
interim financial results. In addition, we discussed
t
h
e
i
mpact o
f
t
h
e econom
i
cenv
i
ronment on t
h
e
f
uture
di
rect
i
on o
f
t
h
e
i
r compan
y
,
i
n
d
ustr
y
prospects, co
ll
atera
l
va
l
ues, an
d
ot
h
er
b
orrower-s
p
ec
ifi
c
i
n
f
ormat
i
on.
In t
h
e 2009
f
ourt
h
quarter, we
fi
na
li
ze
d
an
i
n
i
t
i
at
i
ve to se
g
re
g
ate our CRE port
f
o
li
o
i
nto core an
d
noncore
components. T
hi
s
di
st
i
nct
i
on
i
s
b
ase
d
on
b
orrower c
h
aracter
i
st
i
cs, re
l
at
i
ons
hi
p pro
fi
ta
bili
t
y
,an
dl
ocat
i
on o
f
t
he
pro
j
ects. Those desi
g
nated as core relationships will be supported and
g
rown in the comin
gy
ears. Thos
e
borrowers desi
g
nated as noncore will be mana
g
ed effectivel
y
, with a
g
oal of si
g
nificantl
y
reducin
g
th
e
exposure. Opportun
i
t
i
es to expan
d
some o
f
t
h
ese noncore re
l
at
i
ons
hi
ps to a
l
eve
l
o
f
pro
fi
ta
bili
t
y
ma
y
ar
i
se
,
resu
l
t
i
n
gi
n a rec
l
ass
ifi
cat
i
on to a core
d
es
ig
nat
i
on. A
ddi
t
i
ona
li
n
f
ormat
i
on re
g
ar
di
n
g
t
h
e
d
es
ig
nat
i
on can
be
found in the “Core and Noncore Portfolios” section located within the “Commercial Real Estate” section
.
Also, durin
g
the 2009 fourth quarter, we conducted a review of our ACL practices and methodolo
g
ies
.
We experienced increasin
g
char
g
e-offs throu
g
hout 2009, and continued to see increases in criticized and
c
l
ass
ifi
e
dl
oans, a
l
t
h
ou
gh i
ncreases
i
nt
h
e secon
dh
a
lf
o
f
2009 were at a s
l
ower rate compare
d
w
i
t
h
t
h
e
fi
rst
h
a
lf
o
f
2009. T
h
e
l
eve
l
o
f
cr
i
t
i
c
i
ze
dl
oans, one
i
n
di
cator o
f
poss
ibl
e
f
uture
l
osses, reac
h
e
di
ts
high
est po
i
nt
in
the 2009 fourth quarter. Even thou
g
h there were declines in both the inflow and absolute level of NALs, th
e
inflow of
$
495 million remained si
g
nificant. Based on these asset qualit
y
trends, alon
g
with the unstable an
d
f
ra
gil
e econom
y
part
i
cu
l
ar
ly i
n our M
id
west mar
k
ets, as we
ll
as cont
i
nue
d
e
l
evate
d
quarter
ly
c
h
ar
g
e-o
ff
s, t
h
e
ACL was substantiall
y
increased. Much of our concern relates to our CRE portfolio and, to a lesser de
g
ree,
our C&I portfolio. Re
g
ardin
g
our CRE portfolio, hi
g
her vacanc
y
rates, lower rents, and fallin
g
propert
y
values
are o
f
s
ig
n
ifi
cant concern. Loss
i
nt
h
e event o
fd
e
f
au
l
t on man
y
c
l
asses o
f
CRE propert
i
es
h
as
i
ncrease
d
su
b
stant
i
a
lly
t
h
rou
gh
out 2009 an
di
s expecte
d
to cont
i
nue
i
nto 2010. C&I
b
orrowers
h
ave
b
een su
ff
er
i
n
gf
ro
m
the weak econom
y
for several consecutive
y
ears, and man
y
borrowers no lon
g
er have sufficient capital t
o
w
i
t
h
stan
d
protracte
d
stress an
d
, as a resu
l
t, ma
y
not
b
ea
bl
e to comp
ly
w
i
t
h
t
h
eor
igi
na
l
terms o
f
t
h
e
i
r cre
di
t
a
g
reemen
t
s
.
Last
ly
,w
i
t
h
respect to our commerc
i
a
ll
oan exposure to automo
bil
e
d
ea
l
ers, we
h
ave
h
a
d
an on
g
o
i
n
g
rev
i
ew process
i
np
l
ace
f
or some t
i
me now. Our automo
bil
e
d
ea
l
er commerc
i
a
ll
oan port
f
o
li
o
i
s pre
d
om
i
nant
ly
comprised of lar
g
er, “well-capitalized”, multi-franchised dealer
g
roups underwritten to conservative credi
t
standards. These dealer
g
roups have lar
g
el
y
remained profitable on a consolidated basis due to franchise
di
vers
i
t
y
an
d
as
hif
to
f
sa
l
es emp
h
as
i
sto
high
er-mar
gi
n, use
d
ve
hi
c
l
es, as we
ll
as a
f
ocus on t
h
e serv
i
c
e
d
epartment. A
ddi
t
i
ona
lly
, our port
f
o
li
o
i
sc
l
ose
ly
mon
i
tore
d
t
h
rou
gh
rece
i
pt an
d
rev
i
ew o
f
mont
hly d
ea
l
er
financial statements and on
g
oin
g
floor plan inventor
y
audits, which allow for rapid response to weakenin
g
tren
d
s. As a resu
l
t, we
h
ave not exper
i
ence
d
an
y
s
ig
n
ifi
cant
d
eter
i
orat
i
on
i
nt
h
e cre
di
t qua
li
t
y
o
f
ou
r
automo
bil
e
d
ea
l
er commerc
i
a
ll
oan
p
ort
f
o
li
oan
d
rema
i
n com
f
orta
bl
ew
i
t
h
our ex
p
ectat
i
on o
f
no mater
i
a
l
losses, even
g
iven the substantial stress associated with our dealership closin
g
s announced b
y
Chr
y
sler an
d
General Motors. The more recent announcement re
g
ardin
g
the Saturn dealerships also has had no impact on
our v
i
ew o
f
t
h
e
p
ort
f
o
li
o
.
(See “Automo
b
i
l
eIn
d
ustr
y
” section
l
ocate
d
wit
h
in t
h
e “Commercia
l
an
d
In
d
ustria
l
Port
f
o
l
io” section
f
or a
dd
itiona
l
in
f
ormation.
)
In summar
y
,we
h
ave esta
bli
s
h
e
d
an on
g
o
i
n
g
port
f
o
li
o mana
g
ement process
i
nvo
l
v
i
n
g
eac
hb
us
i
nes
s
se
g
ment, prov
idi
n
g
an
i
mprove
d
v
i
ew o
f
emer
gi
n
g
r
i
s
ki
ssues at a
b
orrower
l
eve
l
,en
h
ance
d
on
g
o
i
n
g
monitorin
g
capabilities, and stren
g
thened actions and timeliness to miti
g
ate emer
g
in
g
loan risks. Given our
state
d
v
i
ew o
f
cont
i
nue
d
econom
i
c wea
k
ness
f
or t
h
e
f
oreseea
bl
e
f
uture, we ant
i
c
ip
ate some
l
eve
l
o
f
a
ddi
t
i
ona
l
ne
g
at
i
ve cre
di
tm
ig
rat
i
on. W
hil
e we can
gi
ve no assurances
gi
ven mar
k
et uncerta
i
nt
i
es, we
b
e
li
eve t
h
at as a
59