Huntington National Bank 2010 Annual Report Download - page 208

$192.7 million, respectively, are funded. The unfunded portion is included in accrued expenses and other
liabilities.
22. COMMITMENTS AND CONTINGENT LIABILITIES
Commitments to extend credit
In the ordinary course of business, Huntington makes various commitments to extend credit that are not
reflected in the Consolidated Financial Statements. The contract amounts of these financial agreements at
December 31, 2010, and December 31, 2009, were as follows:
2010 2009
At December 31,
(Dollar amounts in millions)
Contract amount represents credit risk
Commitments to extend credit
Commercial ................................................ $5,933 $5,834
Consumer .................................................. 5,406 5,028
Commercial real estate ........................................ 546 1,075
Standby letters of credit ......................................... 607 577
Commitments to extend credit generally have fixed expiration dates, are variable-rate, and contain clauses
that permit Huntington to terminate or otherwise renegotiate the contracts in the event of a significant
deterioration in the customer’s credit quality. These arrangements normally require the payment of a fee by the
customer, the pricing of which is based on prevailing market conditions, credit quality, probability of funding,
and other relevant factors. Since many of these commitments are expected to expire without being drawn
upon, the contract amounts are not necessarily indicative of future cash requirements. The interest rate risk
arising from these financial instruments is insignificant as a result of their predominantly short-term, variable-
rate nature.
Standby letters of credit are conditional commitments issued to guarantee the performance of a customer
to a third party. These guarantees are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing, and similar transactions. Most of these arrangements mature
within two years. The carrying amount of deferred revenue associated with these guarantees was $2.2 million
and $2.8 million at December 31, 2010 and 2009, respectively.
Through the Company’s credit process, Huntington monitors the credit risks of outstanding standby letters
of credit. When it is probable that a standby letter of credit will be drawn and not repaid in full, losses are
recognized in the provision for credit losses. At December 31, 2010, Huntington had $0.6 billion of standby
letters of credit outstanding, of which 73% were collateralized. Included in this $0.6 billion total are letters of
credit issued by the Bank that support securities that were issued by customers and remarketed by The
Huntington Investment Company, the Company’s broker-dealer subsidiary.
Huntington uses an internal loan grading system to assess an estimate of loss on its loan and lease
portfolio. The same loan grading system is used to help monitor credit risk associated with standby letters of
credit. Under this risk rating system as of December 31, 2010, approximately $72.2 million of the standby
letters of credit were rated strong with sufficient asset quality, liquidity, and good debt capacity and coverage,
approximately $460.2 million were rated average with acceptable asset quality, liquidity, and modest debt
capacity; and approximately $74.5 million were rated substandard with negative financial trends, structural
weaknesses, operating difficulties, and higher leverage.
Commercial letters of credit represent short-term, self-liquidating instruments that facilitate customer
trade transactions and generally have maturities of no longer than 90 days. The goods or cargo being traded
normally secures these instruments.
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