Huntington National Bank 2014 Annual Report Download - page 138

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TDR Impact on Credit Quality
Huntington’s ALLL is largely determined by updated risk ratings assigned to commercial loans, updated borrower credit scores
on consumer loans, and borrower delinquency history in both the commercial and consumer portfolios. These updated risk ratings and
credit scores consider the default history of the borrower, including payment redefaults. As such, the provision for credit losses is
impacted primarily by changes in borrower payment performance rather than the TDR classification. TDRs can be classified as either
accrual or nonaccrual loans. Nonaccrual TDRs are included in NALs whereas accruing TDRs are excluded from NALs as it is
probable that all contractual principal and interest due under the restructured terms will be collected.
Our TDRs may include multiple concessions and the disclosure classifications are presented based on the primary concession
provided to the borrower. The majority of our concessions for the C&I and CRE portfolios are the extension of the maturity date
coupled with an increase in the interest rate. In these instances, the primary concession is the maturity date extension.
TDR concessions may also result in the reduction of the ALLL within the C&I and CRE portfolios. This reduction is derived
from payments and the resulting application of the reserve calculation within the ALLL. The transaction reserve for non-TDR C&I
and CRE loans is calculated based upon several estimated probability factors, such as PD and LGD, both of which were previously
discussed. Upon the occurrence of a TDR in our C&I and CRE portfolios, the reserve is measured based on discounted expected cash
flows or collateral value, less anticipated selling costs, of the modified loan in accordance with ASC 310-10. The resulting TDR
ALLL calculation often results in a lower ALLL amount because (1) the discounted expected cash flows or collateral value, less
anticipated selling costs, indicate a lower estimated loss, (2) if the modification includes a rate increase, the discounting of the cash
flows on the modified loan, using the pre-modification interest rate, exceeds the carrying value of the loan, or (3) payments may occur
as part of the modification. The ALLL for C&I and CRE loans may increase as a result of the modification, as the discounted cash
flow analysis may indicate additional reserves are required.
TDR concessions on consumer loans may increase the ALLL. The concessions made to these borrowers often include interest
rate reductions, and therefore, the TDR ALLL calculation results in a greater ALLL compared with the non-TDR calculation as the
reserve is measured based on the estimation of the discounted expected cash flows or collateral value, less anticipated selling costs, on
the modified loan in accordance with ASC 310-10. The resulting TDR ALLL calculation often results in a higher ALLL amount
because (1) the discounted expected cash flows or collateral value, less anticipated selling costs, indicate a higher estimated loss or,
(2) due to the rate decrease, the discounting of the cash flows on the modified loan, using the pre-modification interest rate, indicates a
reduction in the expected cash flows or collateral value, less anticipated selling costs. In certain instances, the ALLL may decrease as
a result of payments made in connection with the modification.
Commercial loan TDRs – In instances where the bank substantiates that it will collect its outstanding balance in full, the note is
considered for return to accrual status upon the borrower sustaining sufficient cash flows for a six-month period of time. This six-
month period could extend before or after the restructure date. If a charge-off was taken as part of the restructuring, any interest or
principal payments received on that note are applied to first reduce the bank’s outstanding book balance and then to recoveries of
charged-off principal, unpaid interest, and/or fee expenses while the TDR is in nonaccrual status.
Residential Mortgage, Automobile, Home Equity, and Other Consumer loan TDRs – Modified loans identified as TDRs are
aggregated into pools for analysis. Cash flows and weighted average interest rates are used to calculate impairment at the pooled-loan
level. Once the loans are aggregated into the pool, they continue to be classified as TDRs until contractually repaid or charged-off.
Residential mortgage loans not guaranteed by a U.S. government agency such as the FHA, VA, and the USDA, including TDR
loans, are reported as accrual or nonaccrual based upon delinquency status. Nonaccrual TDRs are those that are greater than 150-days
contractually past due. Loans guaranteed by U.S. government organizations continue to accrue interest upon delinquency.