Huntington National Bank 2011 Annual Report Download - page 59

Some of the more significant processes used to manage and control credit, market, liquidity, operational,
and compliance risks are described in the following paragraphs.
Credit Risk
Credit risk is the risk of financial loss if a counterparty is not able to meet the agreed upon terms of the
financial obligation. The majority of our credit risk is associated with lending activities, as the acceptance and
management of credit risk is central to profitable lending. We also have significant credit risk associated with our
available-for-sale and other investment and held-to-maturity securities portfolio (see Notes 4 and 5 of the Notes
to Consolidated Financial Statements). We engage with other financial counterparties for a variety of purposes
including investing, asset and liability management, mortgage banking, and for trading activities. Given the
current level of global financial issues, we believe it is important to provide clarity around our exposure in this
specific area (see European Sovereign Debt and Counterparty Exposure section). While there is credit risk
associated with derivative activity, we believe this exposure is minimal.
The significant change in the economic conditions and the resulting changes in borrower behavior over the
past several years resulted in our continuing focus on the identification, monitoring, and managing of our credit
risk. In addition to the traditional credit risk mitigation strategies of credit policies and processes, market risk
management activities, and portfolio diversification, we added more quantitative measurement capabilities
utilizing external data sources, enhanced use of modeling technology, and internal stress testing processes. The
continued expansion of our portfolio management resources demonstrates our commitment to maintaining an
aggregate moderate-to-low risk profile. In our efforts to continue to identify risk mitigation techniques, we have
focused on product design features, origination policies, and treatment strategies for delinquent or stressed
borrowers.
The maximum level of credit exposure to individual credit borrowers is limited by policy guidelines based
on the perceived risk of each borrower or related group of borrowers. All authority to grant commitments is
delegated through the independent credit administration function and is closely monitored and regularly updated.
Concentration risk is managed through limits on loan type, geography, industry, and loan quality factors. We
continue to focus predominantly on extending credit to retail and commercial customers with existing or
expandable relationships within our primary banking markets, although we will consider lending opportunities
outside our primary markets if we believe the associated risks are acceptable and aligned with strategic
initiatives. We continue to add new borrowers that meet our targeted risk and profitability profile. Although we
offer a broad set of products, we continue to develop new lending products and opportunities. Each of these new
products and opportunities goes through a rigorous development and approval process prior to implementation to
ensure our overall objective of maintaining an aggregate moderate-to-low risk portfolio profile.
The checks and balances in the credit process and the independence of the credit administration and risk
management functions are designed to appropriately assess the level of credit risk being accepted, facilitate the
early recognition of credit problems when they occur, and to provide for effective problem asset management
and resolution. For example, we do not extend additional credit to delinquent borrowers except in certain
circumstances that substantially improve our overall repayment or collateral coverage position.
Asset quality metrics improved significantly in 2011, reflecting our proactive portfolio management
initiatives as well as some stabilization in a still relatively weak economy. The improvements in the asset quality
metrics, including lower levels of NPAs, commercial Criticized and Classified assets, and delinquencies have all
been achieved through these policies and commitments. Our portfolio management policies demonstrate our
commitment to maintaining an aggregate moderate-to-low risk profile. To that end, we continue to expand
resources in our risk management areas.
Although credit quality significantly improved in 2011, the weak residential real estate market and U.S.
economy continued to negatively impact us and the financial services industry as a whole. The pronounced
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