Huntington National Bank 2013 Annual Report Download - page 187

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Through the Company’s credit process, Huntington monitors the credit risks of outstanding standby letters-of-credit. When it is
probable that a standby letter-of-credit will be drawn and not repaid in full, losses are recognized in the provision for credit losses. At
December 31, 2013, Huntington had $440 million of standby letters-of-credit outstanding, of which 84% were collateralized.
Included in this $440 million total are letters-of-credit issued by the Bank that support securities that were issued by customers and
remarketed by The Huntington Investment Company, the Company’s broker-dealer subsidiary.
Huntington uses an internal loan grading system to assess an estimate of loss on its loan and lease portfolio. The same loan
grading system is used to help monitor credit risk associated with standby letters-of-credit. Under this risk rating system as of
December 31, 2013, approximately $96 million of the standby letters-of-credit were rated strong with sufficient asset quality,
liquidity, and good debt capacity and coverage, approximately $343 million were rated average with acceptable asset quality,
liquidity, and modest debt capacity; and none were rated substandard with negative financial trends, structural weaknesses, operating
difficulties, and higher leverage.
Commercial letters-of-credit represent short-term, self-liquidating instruments that facilitate customer trade transactions and
generally have maturities of no longer than 90 days. The goods or cargo being traded normally secures these instruments.
Commitments to sell loans
Huntington enters into forward contracts relating to its mortgage banking business to hedge the exposures from commitments to
make new residential mortgage loans with existing customers and from mortgage loans classified as loans held for sale. At December
31, 2013 and 2012, Huntington had commitments to sell residential real estate loans of $452.6 million and $849.8 million,
respectively. These contracts mature in less than one year.
Litigation
The nature of Huntington’s business ordinarily results in a certain amount of claims, litigation, investigations, and legal and
administrative cases and proceedings, all of which are considered incidental to the normal conduct of business. When the Company
determines it has meritorious defenses to the claims asserted, it vigorously defends itself. The Company will consider settlement of
cases when, in Management’s judgment, it is in the best interests of both the Company and its shareholders to do so.
On at least a quarterly basis, Huntington assesses its liabilities and contingencies in connection with outstanding legal proceedings
utilizing the latest information available. For matters where it is probable, the Company will incur a loss and the amount can be
reasonably estimated, Huntington establishes an accrual for the loss. Once established, the accrual is adjusted as appropriate to reflect
any relevant developments. For matters where a loss is not probable or the amount of the loss cannot be estimated, no accrual is
established.
In certain cases, exposure to loss exists in excess of the accrual to the extent such loss is reasonably possible, but not probable.
Management believes an estimate of the aggregate range of reasonably possible losses, in excess of amounts accrued, for current legal
proceedings is from $0 to approximately $120.0 million at December 31, 2013. For certain other cases, Management cannot
reasonably estimate the possible loss at this time. Any estimate involves significant judgment, given the varying stages of the
proceedings (including the fact that many of them are currently in preliminary stages), the existence of multiple defendants in several
of the current proceedings whose share of liability has yet to be determined, the numerous unresolved issues in many of the
proceedings, and the inherent uncertainty of the various potential outcomes of such proceedings. Accordingly, Management’s estimate
will change from time-to-time, and actual losses may be more or less than the current estimate.
While the final outcome of legal proceedings is inherently uncertain, based on information currently available, advice of counsel,
and available insurance coverage, Management believes that the amount it has already accrued is adequate and any incremental
liability arising from the Company’s legal proceedings will not have a material effect on the Company's consolidated financial
position as a whole. However, in the event of unexpected future developments, it is possible that the ultimate resolution of these
matters, if unfavorable, may be material to the Company’s consolidated financial position in a particular period.
The following is a discussion of certain legal matters and events occurring through the date of this filing:
The Bank has been a defendant in three lawsuits, which collectively may be material, arising from its commercial lending,
depository, and equipment leasing relationships with Cyberco Holdings, Inc. (Cyberco), based in Grand Rapids, Michigan. In
November 2004, the Federal Bureau of Investigation and the IRS raided the Cyberco facilities and Cyberco's operations ceased. An
equipment leasing fraud was uncovered, whereby Cyberco sought financing from equipment lessors and financial institutions,
including the Bank, allegedly to purchase computer equipment from Teleservices Group, Inc. (Teleservices). Cyberco created
fraudulent documentation to close the financing transactions while, in fact, no computer equipment was ever purchased or leased from
Teleservices which proved to be a shell corporation.