Huntington National Bank 2010 Annual Report Download - page 67

and sufficiency of collateral, type of exposure, transaction structure, and the general economic outlook. While
these are the primary factors considered, there are a number of other factors that may be considered in the
decision process. For all loans exceeding $5.0 million, we utilize a centralized senior loan committee, led by
our chief credit officer. For loans less than $5.0 million, with the exception of small business loans, credit
officers who understand each local region and are experienced in the industries and loan structures of the
requested credit exposure are involved in all loan decisions and have the primary credit authority. For small
business loans less than $5.0 million, we utilize a centralized loan approval process for standard products and
structures. In this centralized decision environment, certain individuals who understand each local region may
make credit-extension decisions to preserve our commitment to the communities we operate in. In addition to
disciplined and consistent judgmental factors, a sophisticated credit scoring process is used as a primary
evaluation tool in the determination of approving a loan within the centralized loan approval process.
In commercial lending, on-going credit management is dependent on the type and nature of the loan. We
monitor all significant exposures on an on-going basis. All commercial credit extensions are assigned internal
risk ratings reflecting the borrower’s probability-of-default and loss-given-default (severity of loss). This two-
dimensional rating methodology provides granularity in the portfolio management process. The probabili-
ty-of-default is rated and applied at the borrower level. The loss-given-default is rated and applied based on
the type of credit extension and the underlying collateral. The internal risk ratings are assessed and updated
with each periodic monitoring event. There is also extensive macro portfolio management analysis on an on-
going basis. As an example, the retail properties class of the CRE portfolio has received more frequent
evaluation at the individual loan level given the weak environment, portfolio concentration, and stressed
performance trends (see Retail Properties discussion). We continually review and adjust our risk-rating criteria
based on actual experience, which provides us with the current risk level in the portfolio and is the basis for
determining an appropriate ACL amount for this portfolio.
In addition to the initial credit analysis initiated during the approval process, the Credit Review group
performs testing to provide an independent review and assessment of the quality and / or risk of the new loan
production. This group is part of our Risk Management area, and conducts portfolio reviews on a risk-based
cycle to evaluate individual loans, validate risk ratings, as well as test the consistency of credit processes.
Similarly, to provide consistent oversight, a centralized portfolio management team monitors and reports on
the performance of small business banking loans.
The commercial loan ratings described above are categorized as follows:
Pass: Commercial loans categorized as Pass are higher quality loans that do not fit any of the other
categories described below.
OLEM: Commercial loans categorized as OLEM are potentially weak. The credit risk may be
relatively minor yet represents a risk given certain specific circumstances. If the potential weaknesses are
not monitored or mitigated, the asset may weaken or inadequately protect our position in the future.
Substandard: Commercial loans categorized as Substandard are inadequately protected by the
borrower’s ability to repay, equity, and/or the collateral pledged to secure the loan. These loans have
identified weaknesses that could hinder normal repayment or collection of the debt. It is likely that we
will sustain some loss if any identified weaknesses are not mitigated.
Doubtful: Commercial loans categorized as Doubtful have all of the weaknesses inherent in those
loans classified as Substandard, with the added elements that the full collection of the loan is improbable
and the possibility of loss is high.
Commercial loans rated as OLEM, Substandard, or Doubtful are considered Criticized. Commercial loans
rated as Substandard or Doubtful are considered Classified. Commercial loans may be designated as Criticized
when warranted by individual borrower performance or by industry and environmental factors. Commercial
Criticized loans are subjected to additional monthly reviews to adequately assess the borrower’s credit status
and develop appropriate action plans. We re-evaluate the risk-rating of these Criticized commercial loans as
conditions change, potentially resulting in a further rating adjustment. Changes in the rating can be impacted
by borrower performance, external factors such as industry and economic changes, as well as structural
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