Huntington National Bank 2010 Annual Report Download - page 64

values and higher delinquencies and NCOs, including loans to builders and developers of residential real
estate. In addition, continued high unemployment, among other factors, throughout 2010, has slowed any
significant recovery from the U.S. recession during 2008 and 2009. As a result, we experienced higher than
historical levels of delinquencies and NCOs in our loan portfolios during 2009 and 2010. The value of our
investment securities backed by residential and commercial real estate was also negatively impacted by a lack
of liquidity in the financial markets and anticipated credit losses.
Loan and Lease Credit Exposure Mix
At December 31, 2010, our loans and leases totaled $38.1 billion, representing a 4% increase from
December 31, 2009. The composition of the portfolio has changed significantly over the past 12 months. From
December 31, 2009, to December 31, 2010, the consumer loan portfolio increased $2.2 billion, or 13%,
primarily driven by the automobile loan portfolio. In 2010, our indirect automobile finance business generated
significant levels of high credit-quality loan originations, and we also adopted a new accounting standard
resulting in the consolidation of a $0.8 billion automobile loan securitization. At December 31, 2010, these
securitized loans had a remaining balance of $522.7 million. These increases were partially offset by a
$0.9 billion, or 4%, decline in the commercial loan portfolio, primarily as a result of a planned strategy to
reduce the concentration of our noncore CRE portfolio.
At December 31, 2010, commercial loans totaled $19.7 billion, and represented 52% of our total credit
exposure. Our commercial loan portfolio is diversified along product type, size, and geography within our
footprint, and is comprised of the following (see Commercial Credit discussion):
C&I loans — C&I loans are made to commercial customers for use in normal business operations to
finance working capital needs, equipment purchases, or other projects. The majority of these borrowers
are customers doing business within our geographic regions. C&I loans are generally underwritten
individually and secured with the assets of the company and/or the personal guarantee of the business
owners. The financing of owner-occupied facilities is considered a C&I loan even though there is
improved real estate as collateral. This treatment is a function of the credit decision process, which
focuses on cash flow from operations of the business to repay the debt. The operation, sale, rental, or
refinancing of the real estate is not considered the primary repayment source for these types of loans. As
we look to expand C&I loan growth, we have further developed our ABL capabilities by adding
experienced ABL professionals to take advantage of market opportunities resulting in better leveraging of
the manufacturing base in our primary markets. We have also added a national banking group with
sufficient resources to ensure we appropriately recognize and manage the risks associated with this type
of lending.
CRE loans — CRE loans consist of loans for income-producing real estate properties, real estate
investment trusts, and real estate developers. We mitigate our risk on these loans by requiring collateral
values that exceed the loan amount and underwriting the loan with projected cash flow in excess of the
debt service requirement. These loans are made to finance properties such as apartment buildings, office
and industrial buildings, and retail shopping centers; and are repaid through cash flows related to the
operation, sale, or refinance of the property.
Construction CRE loans — Construction CRE loans are loans to individuals, companies, or develop-
ers used for the construction of a commercial or residential property for which repayment will be
generated by the sale or permanent financing of the property. Our construction CRE portfolio primarily
consists of retail, residential (land, single family, and condominiums), office, and warehouse product
types. Generally, these loans are for construction projects that have been presold, preleased, or have
secured permanent financing, as well as loans to real estate companies with significant equity invested in
each project. These loans are underwritten and managed by a specialized real estate lending group that
actively monitors the construction phase and manages the loan disbursements according to the predeter-
mined construction schedule.
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