Huntington National Bank 2010 Annual Report Download - page 79

classified as TDRs until contractually repaid or charged-off. No consideration is given to removing individual
loans from the pools.
Residential mortgage loans not guaranteed by a U.S. government agency such as the FHA, VA, and the
USDA, including restructured loans, are reported as accrual or nonaccrual based upon delinquency status.
NALs are those that are greater than 180 days contractually past due. Loans guaranteed by U.S. government
organizations continue to accrue interest upon delinquency.
Residential mortgage loan TDR classifications resulted in an impairment adjustment of $6.6 million in
2010. Prior to the TDR classification, residential mortgage loans individually had minimal ALLL associated
with them because the ALLL is calculated on a total portfolio pooled basis.
Other Consumer loan TDRs — Generally, these are TDRs associated with home equity borrowings and
automobile loans. We make similar interest rate, term, and principal concessions as with residential mortgage
loan TDRs. The TDR classification for these other consumer loans resulted in an impairment adjustment of
$1.3 million in 2010.
Commercial loan TDRs — Commercial accruing TDRs represent loans in which a loan rated as Classified
is current on contractual principal and interest but undergoes a loan modification. Accruing TDRs often result
from loans rated as Classified receiving an extension on the maturity of their loan, for example, to allow
additional time for the sale or lease of underlying CRE collateral. Often, it is prudent to extend the maturity
rather than foreclose on a commercial loan, particularly for borrowers who are generating cash flows to
support contractual interest payments. These borrowers cannot obtain the modified loan through other
independent sources because of their current financial circumstances, therefore a concession is provided and
the modification is classified as a TDR. The TDR remains in accruing status as long as the customer is current
on payments and no loss is probable.
Commercial nonaccrual TDRs result from either workouts where an existing commercial NAL is
restructured into multiple new loans, or from an accruing commercial TDR being placed on nonaccrual status.
At December 31, 2010, approximately $19.9 million of our commercial nonaccrual TDRs resulted from such
workouts. The remaining $12.0 million represented the reclassifications of accruing TDRs to NALs.
For certain loan workouts, we create two or more new notes. The senior note is underwritten based upon
our normal underwriting standards at current market rates and is sized so projected cash flows are sufficient to
repay contractual principal and interest. The terms on the subordinate note(s) vary by situation, but often defer
interest payments until after the senior note is repaid. Creating two or more notes often allows the borrower to
continue a project or weather a temporary economic downturn and allows us to right-size a loan based upon
the current expectations for a project performance. The senior note is considered for return to accrual status if
the borrower has sustained sufficient cash flows for a six-month period of time and we believe no loss is
probable. This six-month period could extend before or after the restructure date. Subordinated notes created
in the workout are charged-off immediately. Any interest or principal payments received on the subordinated
notes are applied to the principal of the senior note first until the senior note is repaid. Further payments are
recorded as recoveries on the subordinated note.
As the loans are already considered Classified, an adequate ALLL has been recorded when appropriate.
Consequently, a TDR classification on commercial loans does not usually result in significant additional
reserves. We consider removing the TDR status on commercial loans if the loan is at a market rate of interest
and after the loan has performed in accordance with the restructured terms for a sustained period of time,
generally one year.
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