Huntington National Bank 2009 Annual Report Download - page 71

Durin
g
2009, portfolio reviews resulted in reclassifications of certain CRE loans to C&I loans. These net
reclassifications totaled
$
1.4 billion, and were primaril
y
associated with: (a) loans to businesses secured b
y
th
e
real estate and buildin
g
s that house their operations as these owner-occupied loans secured b
y
real estate were
underwritten based on the cash flow of the business, and (b) healthcare entities and colle
g
es and universities
.
We
b
e
li
eve t
h
at
l
oans un
d
erwr
i
tten
b
ase
d
on cas
hfl
ow
f
rom o
p
erat
i
ons s
h
ou
ld b
e cons
id
ere
d
as commerc
i
a
l
l
oans secure
dby
rea
l
estate, rat
h
er t
h
an t
h
e CRE port
f
o
li
ow
hi
c
hi
s rea
l
estate pro
j
ect or
i
ente
d
.
W
i
t
hi
nt
h
e CRE port
f
o
li
o, t
h
es
i
n
gl
e
f
am
ily h
ome
b
u
ild
er an
d
reta
il
propert
i
es se
g
ments cont
i
nue
d
to
be
stressed throu
g
hout 2009 as a result of the continued decline in the housin
g
markets and
g
eneral economic
conditions. As previousl
y
mentioned above, these se
g
ments were considered to be the hi
g
hest risk se
g
ments i
n
2009 w
i
t
hi
n our CRE
p
ort
f
o
li
o, an
d
are
di
scusse
df
urt
h
er
b
e
l
ow
.
S
in
gl
e Fami
ly
Home Bui
ld
ers
At December 31, 2009 we had
$
857 million of CRE loans to sin
g
le famil
y
home builders. Such loans
represented 2% of total loans and leases. Of this portfolio se
g
ment,
6
7% were to finance pro
j
ects currentl
y
under construction, 1
5
% to finance land under develo
p
ment, and 18% to finance land held for develo
p
ment
.
The $857 million re
p
resented a $732 million, or 46%, decrease com
p
ared with $1,589 million at December 31
,
2008. T
h
e
d
ecrease pr
i
mar
ily
re
fl
ecte
d
t
h
e rec
l
ass
ifi
cat
i
on o
fl
oans secure
dby
1-4
f
am
ily
res
id
ent
i
a
l
rea
l
estat
e
renta
l
propert
i
es to C&I
l
oans, cons
i
stent w
i
t
hi
n
d
ustr
y
pract
i
ces
i
nt
h
e
d
e
fi
n
i
t
i
on o
f
t
hi
sse
g
ment. Ot
h
e
r
factors contributin
g
to the decrease in exposure include no new ori
g
inations in this portfolio se
g
ment in 2009
,
increased propert
y
sale activit
y
, and substantial char
g
e-offs. The increased sale activit
y
was evident throu
g
hout
2009. Base
d
on t
h
e port
f
o
li
o mana
g
ement processes,
i
nc
l
u
di
n
g
c
h
ar
g
e-o
ff
act
i
v
i
t
y
, over t
h
e past 30 mont
h
s, w
e
believe that we have substantiall
y
addressed the credit issues in this portfolio. We do not expect an
y
futur
e
si
g
nificant credit impact from this portfolio se
g
ment
.
R
etai
l
Pro
p
erties
O
ur portfolio of CRE loans secured b
y
retail properties totaled $2,115 million, or approximatel
y
6% of
total loans and leases, at December 31, 2009. Loans within this portfolio se
g
ment declined
$
150 million, o
r
7%,
f
rom Decem
b
er 31, 2008. Cre
di
t approva
li
nt
hi
s port
f
o
li
ose
g
ment
i
s
g
enera
lly d
epen
d
ent on pre-
l
eas
i
n
g
requirements, and net operatin
g
income from the pro
j
ect must cover debt service b
y
specified percenta
g
e
s
w
h
en t
h
e
l
oan
i
s
f
u
lly f
un
d
e
d
.
Th
e wea
k
ness o
f
t
h
e econom
i
cenv
i
ronment
i
n our geograp
hi
c reg
i
ons s
i
gn
ifi
cant
l
y
i
mpacte
d
t
h
e pro
j
ects
t
h
at secure t
h
e
l
oans
i
nt
hi
s port
f
o
li
ose
g
ment. Lower occupanc
y
rates, re
d
uce
d
renta
l
rates,
i
ncrease
d
unemplo
y
ment levels compared with recent
y
ears, and the expectation that these levels will continue t
o
increase for the foreseeable future are expected to adversel
y
affect our borrowers’ abilit
y
to repa
y
these loans
.
We
h
ave
i
ncrease
d
t
h
e
l
eve
l
o
f
cre
di
tr
i
s
k
mana
g
ement act
i
v
i
t
y
to t
hi
s port
f
o
li
ose
g
ment, an
d
we ana
ly
ze ou
r
reta
il
propert
yl
oans
i
n
d
eta
il by
com
bi
n
i
n
g
propert
y
t
y
pe,
g
eo
g
rap
hi
c
l
ocat
i
on, tenants, an
d
ot
h
er
d
ata, t
o
assess and mana
g
e our credit concentration risks.
Core and Noncore port
f
olio
s
Each CRE loan is classified as either core or noncore. We se
g
mented the CRE portfolio into thes
e
desi
g
nations in order to provide more clarit
y
around our portfolio mana
g
ement strate
g
ies and to provide
a
ddi
t
i
ona
l
c
l
ar
i
t
yf
or our
i
nvestors. A CRE
l
oan
i
s
g
enera
lly
cons
id
ere
d
core w
h
en t
h
e
b
orrower
i
sa
n
exper
i
ence
d
,we
ll
-cap
i
ta
li
ze
dd
eve
l
oper
i
n our M
id
west
f
ootpr
i
nt, an
dh
as e
i
t
h
er an esta
bli
s
h
e
d
mean
i
n
gf
u
l
relationship or the prospective of establishin
g
one, that
g
enerates an acceptable return on capital. The core
CRE portfolio was
$
4.0 billion at December 31, 2009, representin
g
52% of total CRE loans. Persona
l
g
uarantees support approximatel
y
9
5
% of this portfolio. Based on the extensive pro
j
ect level assessmen
t
process,
i
nc
l
u
di
n
gf
orwar
d
-
l
oo
ki
n
g
co
ll
atera
l
va
l
uat
i
ons, we are com
f
orta
bl
ew
i
t
h
t
h
e cre
di
t qua
li
t
y
o
f
t
h
e cor
e
p
ortfolio at this time.
A CRE loan is
g
enerall
y
considered noncore based on a lack of a substantive relationship outside of th
e
credit product, with no immediate prospects for improvement. The noncore CRE portfolio totaled
$
3.7 billio
n
63