Huntington National Bank 2011 Annual Report Download - page 70

European Sovereign Debt and Counterparty Exposure
In the normal course of business, we engage with other financial institutions for a variety of purposes
resulting from ordinary banking activities such as payment processing, transactions entered into for risk
management purposes (see Note 20 of the Notes to Consolidated Financial Statements), and for investment
diversification. As a result, we are exposed to credit risk, or risk of loss, if the other financial institution fails to
perform according to the terms of our contract or agreement.
Current European credit pressures have increased concerns about correlated adverse effects upon financial
institutions. Specifically, there has been heightened emphasis on direct credit exposure to certain sovereigns, in
particular, Greece, Ireland, Portugal, Spain and Italy, as well as to financial institutions headquartered in those
countries. We analyze and assess each financial institution prior to approval as a counterparty. Our Treasury
Credit Risk group within Credit Administration is responsible for the initial risk assessment as well as on-going
monitoring. We actively manage the level of exposure to each financial institution, with regular assessment of the
exposure limits by our Credit Policy and Strategy Committee. We believe our overall exposure to financial
institutions on a gross basis, including direct credit exposure to any of these named sovereigns and their banks, is
not significant in the aggregate. Nonetheless, we minimize this risk through active monitoring and management
of each contract or agreement.
Credit Quality
We believe the most meaningful way to assess overall credit quality performance for 2011 is through an
analysis of credit quality performance ratios. This approach forms the basis of most of the discussion in the
sections immediately following: NPAs and NALs, TDRs, ACL, and NCOs. In addition, we utilize delinquency
rates, risk distribution and migration patterns, and product segmentation in the analysis of our credit quality
performance.
Credit quality performance in 2011 improved significantly throughout the year as evidenced by the
improvement of every key asset quality metric. NPAs declined 30% from December 31, 2010, to December 31,
2011, along with declines in both commercial Criticized and Classified assets levels over the same period.
Delinquent loan levels declined across all loan portfolios. We anticipate these positive trends will continue in
2012, although at a slower rate compared to 2011.
NPAs, NALs, and TDRs
(This section should be read in conjunction with Significant Item 6 and Note 3 of the Notes to Consolidated
Financial Statements.)
NPAs and NALs
NPAs consist of (1) NALs, which represent loans and leases no longer accruing interest, (2) impaired loans
held for sale, (3) OREO properties, and (4) other NPAs. Any loan in our portfolio may be placed on nonaccrual
status prior to the policies described below when collection of principal or interest is in doubt.
C&I and CRE loans are placed on nonaccrual status at 90-days past due. With the exception of residential
mortgage loans guaranteed by government organizations which continue to accrue interest, residential mortgage
loans are placed on nonaccrual status at 150-days past due. First-lien and second-lien home equity loans are
placed on nonaccrual status at 150-days past due and 120-days past due, respectively. Automobile and other
consumer loans are not placed on nonaccrual status, but are generally charged-off when the loan is 120-days past
due. When interest accruals are suspended, accrued interest income is reversed with current year accruals
charged to earnings and prior year amounts generally charged-off as a credit loss. When, in our judgment, the
borrower’s ability to make required interest and principal payments has resumed and collectability is no longer in
doubt, the loan or lease is returned to accrual status.
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