Huntington National Bank 2010 Annual Report Download - page 71

As shown in the above table, the ending balance of the CRE portfolio at December 31, 2010, declined
$1.0 billion compared with December 31, 2009. This decline was entirely centered in the noncore segment of
the portfolio and was a result of payoffs and NCOs as we actively focus on the noncore portfolio to reduce
our overall CRE exposure. This reduction occurred in a very difficult market, and demonstrates our
commitment to maintaining a moderate-to-low risk profile. We anticipate further noncore CRE declines in
future periods based on our overall strategy to reduce our overall CRE exposure.
Also as shown above, substantial reserves for the noncore portfolio have been established. At
December 31, 2010, the ACL related to the noncore portfolio was 16.63%. The combination of the existing
ACL and prior NCOs represents the total credit actions taken on each segment of the portfolio. From this data,
we calculate a credit mark that provides a consistent measurement of the cumulative credit actions taken
against a specific portfolio segment. We believe the combined credit activity is appropriate for each of the
CRE segments.
Within the CRE portfolio, the retail properties and single family home builder classes continue to be
stressed as a result of the continued decline in the housing markets and general economic conditions and are
discussed below.
Retail Properties
Our portfolio of CRE loans secured by retail properties totaled $1.8 billion, or approximately 5% of total
loans and leases, at December 31, 2010. Loans within this portfolio segment declined $0.4 billion, or 17%,
from $2.1 billion at December 31, 2009. Credit approval in this portfolio segment is generally dependent on
preleasing requirements, and net operating income from the project must cover debt service by specified
percentages when the loan is fully funded.
The weakness of the economic environment in our geographic regions continued to impact the projects
that secure the loans in this portfolio segment. Lower occupancy rates, reduced rental rates, and the
expectation these levels will remain stressed for the foreseeable future may adversely affect some of our
borrowers’ ability to repay these loans. We have increased the level of credit risk management activity on this
portfolio segment, and we analyze our retail property loans in detail by combining property type, geographic
location, and other data, to assess and manage our credit concentration risks. We review the majority of this
portfolio segment on a monthly basis.
Single Family Home Builders
At December 31, 2010, we had $0.6 billion of CRE loans to single family home builders. Such loans
represented 1% of total loans and leases. The $0.6 billion represented a $0.3 billion, or 35%, decrease
compared with $0.9 billion at December 31, 2009. The decrease primarily reflected runoff activity as few new
loans have been originated since 2008, property sale activity, and NCOs. Based on portfolio management
processes over the past three years, including NCO activity, we believe we have substantially addressed the
credit issues in this portfolio. We do not anticipate any future significant credit impact from this portfolio
segment.
FRANKLIN RELATIONSHIP
In 2010, we sold our portfolio of Franklin-related loans to unrelated third parties. Also, we recorded
$87.0 million of Franklin-related NCOs, of which $75.5 million related to the loan sales. The 2010 provision
for credit losses included $87.0 million related to Franklin, with $75.5 million related to the loan sales. At
December 31, 2010, the only Franklin-related nonperforming assets remaining were $9.5 million of OREO
properties, which were marked to the lower of cost or fair value less costs to sell.
Consumer Credit
Consumer credit approvals are based on, among other factors, the financial strength and payment history
of the borrower, type of exposure, and the transaction structure. Consumer credit decisions are generally made
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