Huntington National Bank 2013 Annual Report Download - page 50

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There were no commercial loan segments considered an industry or geographic concentration of lending. Currently, higher-risk
segments of the C&I portfolio include loans to borrowers supporting the home building industry, contractors, and leveraged lending.
We manage the risks inherent in this portfolio through origination policies, a defined loan concentration policy with established limits,
on-going loan level reviews and portfolio level reviews, recourse requirements, and continuous portfolio risk management activities.
Our origination policies for this portfolio include loan product-type specific policies such as LTV and debt service coverage ratios, as
applicable.
The C&I portfolio continues to have strong origination activity as evidenced by the growth over the past 12 months. The credit
quality of the portfolio continues to improve as we maintain focus on high quality originations. Problem loans have trended
downward, reflecting a combination of proactive risk identification and effective workout strategies implemented by the SAD. We
continue to maintain a proactive approach to identifying borrowers that may be facing financial difficulty in order to maximize the
potential solutions.
CRE PORTFOLIO
We manage the risks inherent in this portfolio specific to CRE lending, focusing on the quality of the developer and the specifics
associated with each project. Generally, we: (1) limit our loans to 80% of the appraised value of the commercial real estate at
origination, (2) require net operating cash flows to be 125% of required interest and principal payments, and (3) if the commercial real
estate is nonowner occupied, require that at least 50% of the space of the project be preleased. We actively monitor both geographic
and project-type concentrations and performance metrics of all CRE loan types, with a focus on loans identified as higher risk based
on the risk rating methodology. Both macro-level and loan-level stress-test scenarios based on existing and forecast market conditions
are part of the on-going portfolio management process for the CRE portfolio.
Dedicated real estate professionals originated the majority of the portfolio, with the remainder obtained from prior bank
acquisitions. Appraisals are obtained from approved vendors, and are reviewed by an internal appraisal review group comprised of
certified appraisers to ensure the quality of the valuation used in the underwriting process. The portfolio is diversified by project type
and loan size, and this diversification represents a significant portion of the credit risk management strategies employed for this
portfolio. Subsequent to the origination of the loan, the Credit Review group performs testing to provide an independent review and
assessment of the quality of the underwriting and/or risk of new loan originations.
Appraisal values are obtained in conjunction with all originations and renewals, and on an as needed basis, in compliance with
regulatory requirements. We continue to perform on-going portfolio level reviews within the CRE portfolio. These reviews generate
action plans based on occupancy levels or sales volume associated with the projects being reviewed. Property values are updated
using appraisals on a regular basis to ensure appropriate decisions regarding the on-going management of the portfolio reflect the
changing market conditions. This highly individualized process requires working closely with all of our borrowers, as well as an in-
depth knowledge of CRE project lending and the market environment.
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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 in a centralized environment utilizing decision
models. Importantly, certain individuals who understand each local region have the authority to make credit extension decisions to
preserve our focus on the local communities we operate in. Each credit extension is assigned a specific PD and LGD. The PD is
generally based on the borrower’s most recent credit bureau score (FICO), which we update quarterly, while the LGD is related to the
type of collateral and the LTV ratio associated with the credit extension.
In consumer lending, credit risk is managed from a segment (i.e., loan type, collateral position, geography, etc.) and vintage
performance analysis. All portfolio segments are continuously monitored for changes in delinquency trends and other asset quality
indicators. We make extensive use of portfolio assessment models to continuously monitor the quality of the portfolio, which may
result in changes to future origination strategies. The on-going analysis and review process results in a determination of an
appropriate ALLL amount for our consumer loan portfolio. The independent risk management group has a consumer process review
component to ensure the effectiveness and efficiency of the consumer credit processes.
Collection action is initiated as needed through a centrally managed collection and recovery function. The collection group
employs a series of collection methodologies designed to maintain a high level of effectiveness while maximizing efficiency. In
addition to the consumer loan portfolio, the collection group is responsible for collection activity on all sold and securitized consumer
loans and leases. Collection practices include a single contact point for the majority of the residential real estate secured portfolios.