Quarterly report pursuant to Section 13 or 15(d)

Loans and Leases and Allowance for Credit Losses

v2.4.0.6
Loans and Leases and Allowance for Credit Losses
3 Months Ended
Mar. 31, 2013
Loans / Leases and Allowance for Credit Losses [Abstract]  
Loans / Leases AND ALLOWANCE FOR CREDIT LOSSES

3. Loans / Leases AND ALLOWANCE FOR CREDIT LOSSES

 

Loans and leases for which Huntington has the intent and ability to hold for the foreseeable future, or until maturity or payoff, are classified in the Unaudited Condensed Consolidated Balance Sheets as loans and leases. Except for loans which are accounted for at fair value, loans and leases are carried at the principal amount outstanding, net of unamortized deferred loan origination fees and costs and net of unearned income. At March 31, 2013, and December 31, 2012, the aggregate amount of these net unamortized deferred loan origination fees and costs and net unearned income was $174.3 million and $174.5 million, respectively.

 

Loan and Lease Portfolio Composition

 

The following table provides a detailed listing of Huntington's loan and lease portfolio at March 31, 2013 and December 31, 2012:

 

          March 31,     December 31,
(dollar amounts in thousands)   2013     2012
                 
Loans and leases:          
    Commercial and industrial $ 17,266,611   $ 16,970,689
    Commercial real estate   5,058,876     5,399,240
    Automobile   5,035,997     4,633,820
    Home equity   8,473,654     8,335,342
    Residential mortgage   5,050,884     4,969,672
    Other consumer   397,502     419,662
  Loans and leases   41,283,524     40,728,425
  Allowance for loan and lease losses   (746,769)     (769,075)
Net loans and leases $ 40,536,755   $ 39,959,350

As shown in the table above, the primary loan and lease portfolios are: C&I, CRE, automobile, home equity, residential mortgage, and other consumer. For ACL purposes, these portfolios are further disaggregated into classes. The classes within each portfolio are as follows:

 

Portfolio Class
   
Commercial and industrial Owner occupied
  Purchased credit-impaired
  Other commercial and industrial
   
Commercial real estate Retail properties
  Multi family
  Office
  Industrial and warehouse
  Purchased credit-impaired
  Other commercial real estate
   
Automobile NA (1)
   
Home equity Secured by first-lien
  Secured by junior-lien
   
Residential mortgage Residential mortgage
  Purchased credit-impaired
   
Other consumer Other consumer
  Purchased credit-impaired
   
(1) Not applicable. The automobile loan portfolio is not further segregated into classes.

Fidelity Bank acquisition

(See Note 19 for additional information regarding the Fidelity Bank acquisition).

 

On March 30, 2012, Huntington acquired the loans of Fidelity Bank located in Dearborn, Michigan from the FDIC. Under the agreement, loans with a fair value of $523.9 million were transferred to Huntington.  These loans were recorded at fair value in accordance with applicable accounting guidance, ASC 805. The fair values for the loans were estimated using discounted cash flow analyses using interest rates currently being offered for loans with similar terms (Level 3), and reflected an estimate of probable losses and the credit risk associated with the loans.

 

Purchased Credit-Impaired Loans

 

Purchased loans with evidence of deterioration in credit quality since origination for which it is probable at acquisition that we will be unable to collect all contractually required payments are considered to be credit impaired. Purchased credit-impaired loans are initially recorded at fair value, which is estimated by discounting the cash flows expected to be collected at the acquisition date. Because the estimate of expected cash flows reflects an estimate of future credit losses expected to be incurred over the life of the loans, an allowance for credit losses is not recorded at the acquisition date. The excess of cash flows expected at acquisition over the estimated fair value, referred to as the accretable yield, is recognized in interest income over the remaining life of the loan, or pool of loans, on a level-yield basis. The difference between the contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable difference. A subsequent decrease in the estimate of cash flows expected to be received on purchased credit-impaired loans generally results in the recognition of an allowance for credit losses. Subsequent increases in cash flows result in reversal of any nonaccretable difference (or allowance for loan and lease losses to the extent any has been recorded) with a positive impact on interest income subsequently recognized. The measurement of cash flows involves assumptions and judgments for interest rates, prepayments, default rates, loss severity, and collateral values. All of these factors are inherently subjective and significant changes in the cash flow estimates over the life of the loan can result.

 

The following table presents a rollforward of the accretable yield for three-month periods ended March 31, 2013 and 2012:

 

           
  Three Months Ended March 31,
(dollar amounts in thousands) 2013   2012
Balance, beginning of period $ 23,251   $ ---
Impact of acquisition/purchase on March 30, 2012   ---     27,586
Accretion   (3,319)     ---
Reclassification from nonaccretable difference   15,228     ---
Balance, end of period $ 35,160   $ 27,586

At March 31, 2013, there was no allowance for loan losses recorded on the purchased impaired loan portfolio. The following table reflects the outstanding balance of all contractually required payments and carrying amounts of the acquired loans at March 31, 2013 and December 31, 2012:

           
  March 31, 2013   December 31, 2012
(dollar amounts in thousands)   Ending Balance     Unpaid Balance     Ending Balance     Unpaid Balance
Commercial and industrial $ 53,328   $ 78,632   $ 54,472   $ 80,294
Commercial real estate   118,133     217,938     126,923     226,093
Residential mortgage   2,348     4,013     2,243     4,104
Other consumer   157     238     140     245
Total $ 173,966   $ 300,821   $ 183,778   $ 310,736

Loan and Lease Purchases and Sales

 

The following table summarizes significant portfolio loan and lease purchase and sale activity for the three-month periods ended March 31, 2013 and 2012:

 

                                 
      Commercial Commercial   Home Residential Other  
  and Industrial Real Estate Automobile Equity Mortgage Consumer Total
  (dollar amounts in thousands)                            
                                 
  Portfolio loans and leases purchased during the:                            
    Three-month period ended March 31, 2013 $ 21,541 $ --- $ --- $ --- $ --- $ --- $ 21,541
                                 
    Three-month period ended March 31, 2012 $ 477,501 $ 378,122 $ --- $ 13,025 $ 62,324 $ 85 $ 931,057
                                 
  Portfolio loans and leases sold or transferred to loans held for sale during the:                            
    Three-month period ended March 31, 2013 $ 27,602 $ 3,903 $ --- $ --- $ 4,391 $ --- $ 35,896
                                 
    Three-month period ended March 31, 2012 $ 53,447 $ 21,469 $ 1,300,000 $ --- $ --- $ --- $ 1,374,916

NALs and Past Due Loans

 

Loans are considered past due when the contractual amounts due with respect to principal and interest are not received within 30 days of the contractual due date.

 

Any loan in any portfolio may be placed on nonaccrual status prior to the policies described below when collection of principal or interest is in doubt. When a borrower with debt is discharged in a Chapter 7 bankruptcy and not reaffirmed by the borrower, the loan is determined to be collateral dependent and placed on nonaccrual status.

 

All classes within the C&I and CRE portfolios (except for purchased credit-impaired loans) are placed on nonaccrual status at 90-days past due. Residential mortgage loans are placed on nonaccrual status at 150-days past due, with the exception of residential mortgages guaranteed by government organizations which continue to accrue interest at the rate guaranteed by the government agency. First-lien home equity loans are placed on nonaccrual status at 150-days past due. Junior-lien home equity loans are placed on nonaccrual status at the earlier of 120-days past due or when the related first-lien loan has been identified as nonaccrual. Automobile and other consumer loans are generally charged-off when the loan is 120-days past due.

 

For all classes within all loan portfolios, when a loan is placed on nonaccrual status, any accrued interest income is reversed with current year accruals charged to interest income, and prior year amounts charged-off as a credit loss.

 

For all classes within all loan portfolios, cash receipts received on NALs are applied entirely against principal until the loan or lease has been collected in full, after which time any additional cash receipts are recognized as interest income. However, for secured non-reaffirmed debt in a Chapter 7 bankruptcy, payments are applied to principal and interest when the borrower has demonstrated a capacity to continue payment of the debt and collection of the debt is reasonably assured. For unsecured non-reaffirmed debt in a Chapter 7 bankruptcy where the carrying value has been fully charged-off, payments are recorded as loan recoveries.

 

Regarding all classes within the C&I and CRE portfolios, the determination of a borrower's ability to make the required principal and interest payments is based on an examination of the borrower's current financial statements, industry, management capabilities, and other qualitative measures. For all classes within the consumer loan portfolio, the determination of a borrower's ability to make the required principal and interest payments is based on multiple factors, including number of days past due and, in some instances, an evaluation of the borrower's financial condition. When, in Management's judgment, the borrower's ability to make required principal and interest payments resumes and collectability is no longer in doubt, the loan or lease is returned to accrual status. For these loans that have been returned to accrual status, cash receipts are applied according to the contractual terms of the loan.

 

The following table presents NALs by loan class at March 31, 2013 and December 31, 2012:

 

    2013   2012
(dollar amounts in thousands) March 31,   December 31,
             
Commercial and industrial:          
  Owner occupied $ 52,730   $ 53,009
  Other commercial and industrial   28,198     37,696
Total commercial and industrial $ 80,928   $ 90,705
             
Commercial real estate:          
  Retail properties $ 39,587   $ 31,791
  Multi family   17,077     19,765
  Office   26,632     30,341
  Industrial and warehouse   3,398     6,841
  Other commercial real estate   24,109     38,390
Total commercial real estate $ 110,803   $ 127,128
             
Automobile $ 6,770   $ 7,823
             
Home equity:          
  Secured by first-lien $ 31,119   $ 27,091
  Secured by junior-lien   32,286     32,434
Total home equity $ 63,405   $ 59,525
             
Residential mortgage:          
Residential mortgage $ 118,405   $ 122,452
Total residential mortgages $ 118,405   $ 122,452
             
Other consumer          
Other consumer $ ---   $ ---
Total nonaccrual loans $ 380,311   $ 407,633
             

The following table presents an aging analysis of loans and leases, including past due loans, by loan class at March 31, 2013 and December 31, 2012: (1)

 

March 31, 2013
                              90 or more
(dollar amounts in thousands) Past Due       Total Loans   days past due
  30-59 Days 60-89 Days 90 or more days Total   Current and Leases   and accruing
                                   
Commercial and industrial:                                
  Owner occupied $ 10,278 $ 4,681 $ 35,348 $ 50,307   $ 4,348,198 $ 4,398,505   $ ---
  Purchased credit-impaired   2,022   1,264   26,547   29,833     23,495   53,328     26,547
  Other commercial and industrial   19,123   3,468   15,545   38,136     12,776,642   12,814,778     ---
Total commercial and industrial $ 31,423 $ 9,413 $ 77,440 $ 118,276   $ 17,148,335 $ 17,266,611   $ 26,547(2)
                                   
Commercial real estate:                                
  Retail properties $ 3,919 $ --- $ 8,390 $ 12,309   $ 1,272,278 $ 1,284,587   $ ---
  Multi family   4,777   1,272   11,204   17,253     925,197   942,450     ---
  Office   4,773   73   12,722   17,568     913,422   930,990     ---
  Industrial and warehouse   2,933   ---   1,909   4,842     555,747   560,589     ---
  Purchased credit-impaired   2,538   1,812   56,007   60,357     57,776   118,133     56,007
  Other commercial real estate   4,064   415   14,500   18,979     1,203,148   1,222,127     ---
Total commercial real estate $ 23,004 $ 3,572 $ 104,732 $ 131,308   $ 4,927,568 $ 5,058,876   $ 56,007(2)
                                   
Automobile $ 22,610   4,927 $ 3,534 $ 31,071   $ 5,004,926 $ 5,035,997   $ 3,531
                                   
Home equity:                                
  Secured by first-lien $ 20,634 $ 9,592 $ 33,713 $ 63,939   $ 4,581,046 $ 4,644,985   $ 7,602
  Secured by junior-lien   36,537   9,509   29,307   75,353     3,753,316   3,828,669     7,442
Total home equity $ 57,171 $ 19,101 $ 63,020 $ 139,292   $ 8,334,362 $ 8,473,654   $ 15,044
                                   
Residential mortgage:                                
  Residential mortgage $ 114,753 $ 40,632 $ 172,524 $ 327,909   $ 4,720,627 $ 5,048,536   $ 94,360(3)
  Purchased credit-impaired   ---   ---   423   423     1,925   2,348     423
Total residential mortgage $ 114,753 $ 40,632 $ 172,947 $ 328,332   $ 4,722,552 $ 5,050,884   $ 94,783
                                   
Other consumer:                                
  Other consumer $ 4,407 $ 1,639 $ 1,107 $ 7,153   $ 390,192 $ 397,345   $ 1,107
  Purchased credit-impaired   ---   ---   ---   ---     157   157     ---
Total other consumer $ 4,407 $ 1,639 $ 1,107 $ 7,153   $ 390,349 $ 397,502   $ 1,107
                                   
Total loans and leases $ 253,368 $ 79,284 $ 422,780 $ 755,432   $ 40,528,092 $ 41,283,524   $ 197,019
                                   
December 31, 2012
                              90 or more
(dollar amounts in thousands) Past Due       Total Loans   days past due
  30-59 Days 60-89 Days 90 or more days Total   Current and Leases   and accruing
                                   
Commercial and industrial:                                
  Owner occupied $ 11,409 $ 6,302 $ 31,997 $ 49,708   $ 4,236,211 $ 4,285,919   $ ---
  Purchased credit-impaired   986   3,533   26,648   31,167     23,305   54,472     26,648
  Other commercial and industrial   20,273   4,211   14,786   39,270     12,591,028   12,630,298     ---
Total commercial and industrial $ 32,668 $ 14,046 $ 73,431 $ 120,145   $ 16,850,544 $ 16,970,689   $ 26,648
                                   
Commercial real estate:                                
  Retail properties $ 3,459 $ 4,203 $ 9,677 $ 17,339   $ 1,413,520 $ 1,430,859   $ ---
  Multi family   7,961   1,314   12,062   21,337     963,063   984,400     ---
  Office   1,054   2,415   23,335   26,804     909,310   936,114     ---
  Industrial and warehouse   6,597   118   5,433   12,148     584,754   596,902     ---
  Purchased credit-impaired   556   1,751   56,660   58,967     67,956   126,923     56,660
  Other commercial real estate   2,725   2,192   25,463   30,380     1,293,662   1,324,042     ---
Total commercial real estate $ 22,352 $ 11,993 $ 132,630 $ 166,975   $ 5,232,265 $ 5,399,240   $ 56,660
                                   
Automobile $ 36,267 $ 7,803 $ 4,438 $ 48,508   $ 4,585,312 $ 4,633,820   $ 4,418
                                   
Home equity                                
  Secured by first-lien $ 26,288 $ 9,992 $ 28,322 $ 64,602   $ 4,315,985 $ 4,380,587   $ 5,202
  Secured by junior-lien   34,365   16,553   35,150   86,068     3,868,687   3,954,755     12,998
Total home equity $ 60,653 $ 26,545 $ 63,472 $ 150,670   $ 8,184,672 $ 8,335,342   $ 18,200
                                   
Residential mortgage                                
  Residential mortgage $ 118,582 $ 44,747 $ 164,035 $ 327,364   $ 4,640,065 $ 4,967,429   $ 92,925(4)
  Purchased credit-impaired   58   ---   609   667     1,576   2,243     609
Total residential mortgage $ 118,640 $ 44,747 $ 164,644 $ 328,031   $ 4,641,641 $ 4,969,672   $ 93,534
                                   
Other consumer                                
  Other consumer $ 7,431 $ 2,117 $ 1,672 $ 11,220   $ 408,302 $ 419,522   $ 1,672
  Purchased credit-impaired   ---   76   ---   76     64   140     ---
Total other consumer $ 7,431 $ 2,193 $ 1,672 $ 11,296   $ 408,366 $ 419,662   $ 1,672
                                   
Total loans and leases $ 278,011 $ 107,327 $ 440,287 $ 825,625   $ 39,902,800 $ 40,728,425   $ 201,132
                                   
                                   
(1) NALs are included in this aging analysis based on the loan's past due status.
(2) All amounts represent accruing purchased impaired loans related to the FDIC-assisted Fidelity Bank acquisition. Under the applicable accounting guidance (ASC 310-30), the loans were recorded at fair value upon acquisition and remain in accruing status.
(3) Includes $88,596 thousand guaranteed by the U.S. government.
(4) Includes $90,816 thousand guaranteed by the U.S. government.

Allowance for Credit Losses

 

Huntington maintains two reserves, both of which reflect Management's judgment regarding the appropriate level necessary to absorb credit losses inherent in our loan and lease portfolio: the ALLL and the AULC. Combined, these reserves comprise the total ACL. The determination of the ACL requires significant estimates, including the timing and amounts of expected future cash flows on impaired loans and leases, consideration of current economic conditions, and historical loss experience pertaining to pools of homogeneous loans and leases, all of which may be susceptible to change.

 

The appropriateness of the ACL is based on Management's current judgments about the credit quality of the loan portfolio. These judgments consider on-going evaluations of the loan and lease portfolio, including such factors as the differing economic risks associated with each loan category, the financial condition of specific borrowers, the level of delinquent loans, the value of any collateral and, where applicable, the existence of any guarantees or other documented support. Further, Management evaluates the impact of changes in interest rates and overall economic conditions on the ability of borrowers to meet their financial obligations when quantifying our exposure to credit losses and assessing the appropriateness of our ACL at each reporting date. In addition to general economic conditions and the other factors described above, additional factors also considered include: the impact of declining residential real estate values; the diversification of CRE loans; the development of new or expanded Commercial business segments such as healthcare, ABL, and energy, and the overall condition of the manufacturing industry. Also, the ACL assessment includes the on-going assessment of credit quality metrics, and a comparison of certain ACL benchmarks to current performance. Management's determinations regarding the appropriateness of the ACL are reviewed and approved by the Company's board of directors.

 

The ALLL consists of two components: (1) the transaction reserve, which includes a loan level allocation per ASC 310-10, specific reserves related to loans considered to be impaired, and loans involved in troubled debt restructurings allocated per ASC 310-40, and (2) the general reserve. The transaction reserve component includes both (1) an estimate of loss based on pools of commercial and consumer loans and leases with similar characteristics and (2) an estimate of loss based on an impairment review of each impaired C&I and CRE loan greater than $1.0 million. For the C&I and CRE portfolios, the estimate of loss based on pools of loans and leases with similar characteristics is made by applying a PD factor and a LGD factor to each individual loan based on a continuously updated loan grade, using a standardized loan grading system. The PD factor and an LGD factor are determined for each loan grade using statistical models based on historical performance data. The PD factor considers on-going reviews of the financial performance of the specific borrower, including cash flow, debt-service coverage ratio, earnings power, debt level, and equity position, in conjunction with an assessment of the borrower's industry and future prospects. The LGD factor considers analysis of the type of collateral and the relative LTV ratio. These reserve factors are developed based on credit migration models that track historical movements of loans between loan ratings over time and a combination of long-term average loss experience of our own portfolio and external industry data using a 24-month emergence period.

 

In the case of more homogeneous portfolios, such as automobile loans, home equity loans, and residential mortgage loans, the determination of the transaction reserve also incorporates PD and LGD factors. The estimate of loss is based on pools of loans and leases with similar characteristics. The PD factor considers current credit scores unless the account is delinquent, in which case a higher PD factor is used. The credit score provides a basis for understanding the borrowers past and current payment performance, and this information is used to estimate expected losses over the 12-month emergence period. The performance of first-lien loans ahead of our junior-lien loans is available to use as part of our updated score process. The LGD factor considers analysis of the type of collateral and the relative LTV ratio. Credit scores, models, analyses, and other factors used to determine both the PD and LGD factors are updated frequently to capture the recent behavioral characteristics of the subject portfolios, as well as any changes in loss mitigation or credit origination strategies, and adjustments to the reserve factors are made as required. Models utilized in the ALLL estimation process are subject to the Company's model validation policies.

 

The general reserve consists of the economic reserve and risk-profile reserve components. The economic reserve component considers the potential impact of changing market and economic conditions on portfolio performance. The risk-profile component considers items unique to our structure, policies, processes, and portfolio composition, as well as qualitative measurements and assessments of the loan portfolios including, but not limited to, management quality, concentrations, portfolio composition, industry comparisons, and internal review functions.

 

The estimate for the AULC is determined using the same procedures and methodologies as used for the ALLL. The loss factors used in the AULC are the same as the loss factors used in the ALLL while also considering a historical utilization of unused commitments. The AULC is reflected in accrued expenses and other liabilities in the Unaudited Condensed Consolidated Balance Sheet.

 

The ACL is increased through a provision for credit losses that is charged to earnings, based on Management's quarterly evaluation of the factors previously mentioned, and is reduced by charge-offs, net of recoveries, and the ACL associated with securitized or sold loans. There were no material changes in assumptions or estimation techniques compared with prior periods that impacted the determination of the current period's ALLL and AULC.

 

The following table presents ALLL and AULC activity by portfolio segment for the three-month periods ended March 31, 2013 and 2012:

 

      Commercial Commercial   Home Residential Other    
  and Industrial Real Estate Automobile Equity Mortgage Consumer Total
(dollar amounts in thousands)                            
                                 
Three-month period ended March 31, 2013:                            
                                 
  ALLL balance, beginning of period $ 241,051 $ 285,369 $ 34,979 $ 118,764 $ 61,658 $ 27,254 $ 769,075
    Loan charge-offs   (13,013)   (22,368)   (5,688)   (26,531)   (7,901)   (8,641)   (84,142)
    Recoveries of loans previously charged-off   9,696   9,590   3,094   6,549   1,753   1,773   32,455
    Provision for loan and lease losses   364   (5,155)   3,588   17,076   7,559   5,956   29,388
    Allowance for loans sold or transferred to loans held for sale   ---   ---   ---   ---   (7)   ---   (7)
  ALLL balance, end of period $ 238,098 $ 267,436 $ 35,973 $ 115,858 $ 63,062 $ 26,342 $ 746,769
                                 
  AULC balance, beginning of period $ 33,868 $ 4,740 $ --- $ 1,356 $ 3 $ 684 $ 40,651
    Provision for unfunded loan commitments and letters of credit   (33)   (336)   ---   556   3   14   204
  AULC balance, end of period $ 33,835 $ 4,404 $ --- $ 1,912 $ 6 $ 698 $ 40,855
                                 
  ACL balance, end of period $ 271,933 $ 271,840 $ 35,973 $ 117,770 $ 63,068 $ 27,040 $ 787,624

      Commercial Commercial   Home Residential Other    
  and Industrial Real Estate Automobile Equity Mortgage Consumer Total
(dollar amounts in thousands)                            
                                 
Three-month period ended March 31, 2012:                            
                                 
  ALLL balance, beginning of period $ 275,367 $ 388,706 $ 38,282 $ 143,873 $ 87,194 $ 31,406 $ 964,828
    Loan charge-offs   (33,506)   (21,402)   (7,610)   (25,265)   (11,745)   (8,432)   (107,960)
    Recoveries of loans previously charged-off   5,011   10,896   4,532   1,536   1,175   1,818   24,968
    Provision for loan and lease losses   (846)   (38,706)   2,043   48,754   12,505   8,178   31,928
    Allowance for loans sold or transferred to loans held for sale   ---   ---   (695)   ---   ---   ---   (695)
  ALLL balance, end of period $ 246,026 $ 339,494 $ 36,552 $ 168,898 $ 89,129 $ 32,970 $ 913,069
                                 
  AULC balance, beginning of period $ 39,658 $ 5,852 $ --- $ 2,134 $ 1 $ 811 $ 48,456
    Provision for unfunded loan commitments and letters of credit   2,618   (72)   ---   (26)   ---   (42)   2,478
  AULC balance, end of period $ 42,276 $ 5,780 $ --- $ 2,108 $ 1 $ 769 $ 50,934
                                 
  ACL balance, end of period $ 288,302 $ 345,274 $ 36,552 $ 171,006 $ 89,130 $ 33,739 $ 964,003

Any loan in any portfolio may be charged-off prior to the policies described below if a loss confirming event has occurred. Loss confirming events include, but are not limited to, bankruptcy (unsecured), continued delinquency, foreclosure, or receipt of an asset valuation indicating a collateral deficiency and that asset is the sole source of repayment. Additionally, discharged, collateral dependent non-reaffirmed debt in Chapter 7 bankruptcy filings will result in a charge-off to estimated collateral value, less anticipated selling costs.

 

C&I and CRE loans are either charged-off or written down to net realizable value at 90-days past due. Automobile loans and other consumer loans are charged-off at 120-days past due. First-lien and junior-lien home equity loans are charged-off to the estimated fair value of the collateral, less anticipated selling costs, at 150-days past due and 120-days past due, respectively. Residential mortgages are charged-off to the estimated fair value of the collateral, less anticipated selling costs, at 150-days past due.

 

Credit Quality Indicators

 

To facilitate the monitoring of credit quality for C&I and CRE loans, and for purposes of determining an appropriate ACL level for these loans, Huntington utilizes the following categories of credit grades:

 

Pass = Higher quality loans that do not fit any of the other categories described below.

 

OLEM = The credit risk may be relatively minor yet represent a risk given certain specific circumstances. If the potential weaknesses are not monitored or mitigated, the loan may weaken or inadequately protect Huntington's position in the future. For these reasons, Huntington considers the loans to be potential problem loans.

 

Substandard = Inadequately protected loans by the borrower's ability to repay, equity, and/or the collateral pledged to secure the loan. These loans have identified weaknesses that could hinder normal repayment or collection of the debt. It is likely Huntington will sustain some loss if any identified weaknesses are not mitigated.

 

Doubtful = Loans that have all of the weaknesses inherent in those loans classified as Substandard, with the added elements of the full collection of the loan is improbable and that the possibility of loss is high.

 

The categories above, which are derived from standard regulatory rating definitions, are assigned upon initial approval of the loan or lease and subsequently updated as appropriate.

 

Commercial loans categorized as OLEM, Substandard, or Doubtful are considered Criticized loans. Commercial loans categorized as Substandard or Doubtful are also considered Classified loans.

 

For all classes within all consumer loan portfolios, each loan is assigned a specific PD factor that is partially based on the borrower's most recent credit bureau score (FICO), which we update quarterly. A FICO credit bureau score is a credit score developed by Fair Isaac Corporation based on data provided by the credit bureaus. The FICO credit bureau score is widely accepted as the standard measure of consumer credit risk used by lenders, regulators, rating agencies, and consumers. The higher the FICO credit bureau score, the higher likelihood of repayment and therefore, an indicator of higher credit quality.

 

Huntington assesses the risk in the loan portfolio by utilizing numerous risk characteristics.  The classifications described above, and also presented in the table below, represent one of those characteristics that are closely monitored in the overall credit risk management processes. The table below shows an increase in FICO scores less than 650 for the automobile portfolio, and to a lesser degree, the home equity and residential mortgage portfolios. These increases do not reflect a deterioration in asset quality for the portfolios, as other risk characteristics mitigate any increased level of risk associated with the FICO score distribution. 

The following table presents each loan and lease class by credit quality indicator at March 31, 2013 and December 31, 2012:

 

    March 31, 2013  
  Credit Risk Profile by UCS classification  
(dollar amounts in thousands) Pass OLEM Substandard Doubtful Total  
Commercial and industrial:                      
  Owner occupied $ 4,039,666 $ 163,029 $ 194,963 $ 847 $ 4,398,505  
  Purchased credit-impaired   4,143   4,241   44,944   ---   53,328  
  Other commercial and industrial   12,341,169   103,482   369,186   941   12,814,778  
Total commercial and industrial $ 16,384,978 $ 270,752 $ 609,093 $ 1,788 $ 17,266,611  
                         
Commercial real estate:                      
  Retail properties $ 1,108,198 $ 53,496 $ 122,893 $ --- $ 1,284,587  
  Multi family   862,711   28,545   51,080   114   942,450  
  Office   825,373   25,013   80,604   ---   930,990  
  Industrial and warehouse   512,156   9,570   38,863   ---   560,589  
  Purchased credit-impaired   15,486   14,223   88,227   197   118,133  
  Other commercial real estate   1,092,942   42,046   87,139   ---   1,222,127  
Total commercial real estate $ 4,416,866 $ 172,893 $ 468,806 $ 311 $ 5,058,876  
                         
    Credit Risk Profile by FICO score (1)  
    750+ 650-749 <650 Other (2) Total  
Automobile $ 2,367,944 $ 2,059,788 $ 772,540 $ 135,725 $ 5,335,997 (3)
                         
Home equity:                      
  Secured by first-lien $ 2,841,421 $ 1,394,209 $ 358,284 $ 51,071 $ 4,644,985  
  Secured by junior-lien   1,921,096   1,353,986   498,480   55,107   3,828,669  
Total home equity $ 4,762,517 $ 2,748,195 $ 856,764 $ 106,178 $ 8,473,654  
                         
Residential mortgage:                      
  Residential mortgage $ 2,557,420 $ 1,687,397 $ 712,712 $ 91,007 $ 5,048,536  
  Purchased credit-impaired   616   640   1,092   ---   2,348  
Total residential mortgage $ 2,558,036 $ 1,688,037 $ 713,804 $ 91,007 $ 5,050,884  
                         
Other consumer:                      
  Other consumer $ 155,349 $ 156,683 $ 56,805 $ 28,508 $ 397,345  
  Purchased credit-impaired   ---   ---   157   ---   157  
Total other consumer $ 155,349 $ 156,683 $ 56,962 $ 28,508 $ 397,502  
                         
                         
    December 31, 2012  
  Credit Risk Profile by UCS classification  
(dollar amounts in thousands) Pass OLEM Substandard Doubtful Total  
Commercial and industrial:                      
  Owner occupied $ 3,970,597 $ 108,731 $ 205,822 $ 769 $ 4,285,919  
  Purchased credit-impaired   1,663   6,555   46,254   ---   54,472  
  Other commercial and industrial   12,146,017   145,111   337,805   1,365   12,630,298  
Total commercial and industrial $ 16,118,277 $ 260,397 $ 589,881 $ 2,134 $ 16,970,689  
                         
Commercial real estate:                      
  Retail properties $ 1,184,987 $ 63,976 $ 181,896 $ --- $ 1,430,859  
  Multi family   902,616   24,098   57,548   138   984,400  
  Office   826,533   26,488   83,093   ---   936,114  
  Industrial and warehouse   540,484   15,132   41,286   ---   596,902  
  Purchased credit-impaired   10,052   18,085   98,786   ---   126,923  
  Other commercial real estate   1,177,213   43,454   103,262   113   1,324,042  
Total commercial real estate $ 4,641,885 $ 191,233 $ 565,871 $ 251 $ 5,399,240  
                         
    Credit Risk Profile by FICO score (1)  
    750+ 650-749 <650 Other (2) Total  
Automobile $ 2,233,439 $ 1,900,824 $ 682,518 $ 117,039 $ 4,933,820 (3)
                         
Home equity:                      
  Secured by first-lien $ 2,618,888 $ 1,345,621 $ 357,019 $ 59,059 $ 4,380,587  
  Secured by junior-lien   2,046,143   1,375,636   491,226   41,750   3,954,755  
Total home equity $ 4,665,031 $ 2,721,257 $ 848,245 $ 100,809 $ 8,335,342  
                         
Residential mortgage                      
  Residential mortgage $ 2,561,210 $ 1,673,485 $ 711,750 $ 20,984 $ 4,967,429  
  Purchased credit-impaired   373   1,303   567   ---   2,243  
Total residential mortgage $ 2,561,583 $ 1,674,788 $ 712,317 $ 20,984 $ 4,969,672  
                         
Other consumer                      
  Other consumer $ 169,792 $ 167,389 $ 59,815 $ 22,526 $ 419,522  
  Purchased credit-impaired   ---   93   47   ---   140  
Total other consumer $ 169,792 $ 167,482 $ 59,862 $ 22,526 $ 419,662  
                         
                         
(1) Reflects currently updated customer credit scores.  
(2) Reflects deferred fees and costs, loans in process, loans to legal entities, etc.  
(3) Includes $0.3 billion of loans reflected as loans held for sale related to an automobile securitization expected to be completed in 2013.  

Impaired Loans

 

For all classes within the C&I and CRE portfolios, all loans with an outstanding balance of $1.0 million or greater are evaluated on a quarterly basis for impairment. Generally, consumer loans within any class are not individually evaluated on a regular basis for impairment. All TDRs, regardless of the outstanding balance amount, are also considered to be impaired. Loans acquired with evidence of deterioration of credit quality since origination for which it is probable, at acquisition, that all contractually required payments will not be collected are also considered to be impaired.

 

Once a loan has been identified for an assessment of impairment, the loan is considered impaired when, based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. This determination requires significant judgment and use of estimates, and the eventual outcome may differ significantly from those estimates.

 

When a loan in any class has been determined to be impaired, the amount of the impairment is measured using the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, the observable market price of the loan, or the fair value of the collateral, less anticipated selling costs, if the loan is collateral dependent. When the present value of expected future cash flows is used, the effective interest rate is the original contractual interest rate of the loan adjusted for any premium or discount. When the contractual interest rate is variable, the effective interest rate of the loan changes over time. A specific reserve is established as a component of the ALLL when a loan has been determined to be impaired. Subsequent to the initial measurement of impairment, if there is a significant change to the impaired loan's expected future cash flows, or if actual cash flows are significantly different from the cash flows previously estimated, Huntington recalculates the impairment and appropriately adjusts the specific reserve. Similarly, if Huntington measures impairment based on the observable market price of an impaired loan or the fair value of the collateral of an impaired collateral dependent loan, Huntington will adjust the specific reserve.

 

When a loan within any class is impaired, the accrual of interest income is discontinued unless the receipt of principal and interest is no longer in doubt. Interest income on TDRs is accrued when all principal and interest is expected to be collected under the post-modification terms. Cash receipts received on nonaccruing impaired loans within any class are generally applied entirely against principal until the loan has been collected in full, after which time any additional cash receipts are recognized as interest income. Cash receipts received on accruing impaired loans within any class are applied in the same manner as accruing loans that are not considered impaired.

 

The following tables present the balance of the ALLL attributable to loans by portfolio segment individually and collectively evaluated for impairment and the related loan and lease balance at March 31, 2013 and December 31, 2012:

                                 
      Commercial Commercial     Residential Other  
(dollar amounts in thousands) and Industrial Real Estate Automobile Home Equity Mortgage Consumer Total
                                 
ALLL at March 31, 2013:                            
                                 
  Portion of ALLL balance:                            
                                 
    Attributable to purchased credit-impaired loans $ --- $ --- $ --- $ --- $ --- $ --- $ ---
    Attributable to loans individually evaluated for impairment   15,438   26,228   1,072   6,488   14,666   160   64,052
    Attributable to loans collectively evaluated for impairment   222,660   241,208   34,901   109,370   48,396   26,182   682,717
  Total ALLL balance $ 238,098 $ 267,436 $ 35,973 $ 115,858 $ 63,062 $ 26,342 $ 746,769
                                 
                                 
Loan and Lease Ending Balances at March 31, 2013:                            
                                 
  Portion of loan and lease ending balance:                            
                                 
    Attributable to purchased credit-impaired loans $ 53,328 $ 118,133 $ --- $ --- $ 2,348 $ 157 $ 173,966
    Individually evaluated for impairment   126,201   274,929   41,149   173,323   372,357   2,514   990,473
    Collectively evaluated for impairment   17,087,082   4,665,814   4,994,848   8,300,331   4,676,179   394,831   40,119,085
  Total loans and leases evaluated for impairment $ 17,266,611 $ 5,058,876 $ 5,035,997 $ 8,473,654 $ 5,050,884 $ 397,502 $ 41,283,524
                                 
                                 

                                 
                   
(dollar amounts in thousands) Commercial and Industrial Commercial Real Estate Automobile Home Equity Residential Mortgage Other Consumer Total
                                 
ALLL at December 31, 2012                            
                                 
  Portion of ALLL balance:                            
                                 
    Attributable to purchased credit-impaired loans $ --- $ --- $ --- $ --- $ --- $ --- $ ---
    Attributable to loans individually evaluated for impairment   11,694   31,133   1,446   4,783   14,176   213   63,445
    Attributable to loans collectively evaluated for impairment   229,357   254,236   33,533   113,981   47,482   27,041   705,630
  Total ALLL balance: $ 241,051 $ 285,369 $ 34,979 $ 118,764 $ 61,658 $ 27,254 $ 769,075
                                 
Loan and Lease Ending Balances at December 31, 2012                            
                                 
  Portion of loan and lease ending balances:                            
                                 
    Attributable to purchased credit-impaired loans $ 54,472 $ 126,923 $ --- $ --- $ 2,243 $ 140 $ 183,778
    Individually evaluated for impairment   119,535   298,891   43,607   117,532   374,526   2,657   956,748
    Collectively evaluated for impairment   16,796,682   4,973,426   4,590,213   8,217,810   4,592,903   416,865   39,587,899
  Total loans and leases evaluated for impairment $ 16,970,689 $ 5,399,240 $ 4,633,820 $ 8,335,342 $ 4,969,672 $ 419,662 $ 40,728,425
                                 

The following tables present by class the ending, unpaid principal balance, and the related ALLL, along with the average balance and interest income recognized only for loans and leases individually evaluated for impairment and purchased credit-impaired loans: (1), (2)

                    Three Months Ended  
  March 31, 2013   March 31, 2013  
          Unpaid           Interest  
      Ending Principal Related   Average Income  
(dollar amounts in thousands) Balance Balance (5) Allowance   Balance Recognized  
                             
With no related allowance recorded:                        
  Commercial and industrial:                        
    Owner occupied $ 4,251 $ 4,292 $ ---   $ 3,741 $ 42  
    Purchased credit-impaired   53,328   78,632   ---     53,900   1,017  
    Other commercial and industrial   1,319   2,340   ---     16,310   234  
  Total commercial and industrial $ 58,898 $ 85,264 $ ---   $ 73,951 $ 1,293  
                             
  Commercial real estate:                        
    Retail properties $ 54,681 $ 67,958 $ ---   $ 54,237 $ 704  
    Multi family   5,590   5,732   ---     5,642   88  
    Office   14,157   18,926   ---     17,849   220  
    Industrial and warehouse   13,722   14,844   ---     14,496   197  
    Purchased credit-impaired   118,133   217,938   ---     122,528   2,254  
    Other commercial real estate   10,762   11,019   ---     10,277   97  
  Total commercial real estate $ 217,045 $ 336,417 $ ---   $ 225,029 $ 3,560  
                             
  Automobile $ --- $ --- $ ---   $ --- $ ---  
                             
  Home equity:                        
    Secured by first-lien $ --- $ --- $ ---   $ --- $ ---  
    Secured by junior-lien   ---   ---   ---     ---   ---  
  Total home equity $ --- $ --- $ ---   $ --- $ ---  
                             
  Residential mortgage:                        
    Residential mortgage $ --- $ --- $ ---   $ --- $ ---  
    Purchased credit-impaired   2,348   4,013   ---     2,296   45  
  Total residential mortgage $ 2,348 $ 4,013 $ ---   $ 2,296 $ 45  
                             
  Other consumer                        
    Other consumer $ --- $ --- $ ---   $ --- $ ---  
    Purchased credit-impaired   157   238   ---     148   3  
  Total other consumer $ 157 $ 238 $ ---   $ 148 $ 3  
                             
With an allowance recorded:                        
  Commercial and industrial: (3)                        
    Owner occupied $ 44,037 $ 56,021 $ 5,772   $ 44,251 $ 351  
    Purchased credit-impaired   ---   ---   ---     ---   ---  
    Other commercial and industrial   76,594   110,519   9,666     51,313   658  
  Total commercial and industrial $ 120,631 $ 166,540 $ 15,438   $ 95,564 $ 1,009  
                             
  Commercial real estate: (4)                        
    Retail properties $ 55,656 $ 67,791 $ 5,324   $ 55,818 $ 456  
    Multi family   16,811   18,269   2,565     17,103   177  
    Office   45,123   50,196   9,341     41,787   384  
    Industrial and warehouse   19,991   21,265   939     20,166   186  
    Purchased credit-impaired   ---   ---   ---     ---   ---  
    Other commercial real estate   38,436   47,019   8,059     44,980   379  
  Total commercial real estate $ 176,017 $ 204,540 $ 26,228   $ 179,854 $ 1,582  
                             
  Automobile $ 41,149 $ 42,500 $ 1,072   $ 42,378 $ 437  
                             
  Home equity:                        
    Secured by first-lien $ 112,731 $ 118,217 $ 2,099   $ 94,494 $ 942  
    Secured by junior-lien   60,592   82,353   4,389     50,933   592  
  Total home equity $ 173,323 $ 200,570 $ 6,488   $ 145,427 $ 1,534  
                             
  Residential mortgage (6):                        
    Residential mortgage $ 372,357 $ 412,074 $ 14,666   $ 373,441 $ 2,872  
    Purchased credit-impaired   ---   ---   ---     ---   ---  
  Total residential mortgage $ 372,357 $ 412,074 $ 14,666   $ 373,441 $ 2,872  
                             
  Other consumer:                        
    Other consumer $ 2,514 $ 2,532 $ 160   $ 2,585 $ 23  
    Purchased credit-impaired   ---   ---   ---     ---   ---  
  Total other consumer $ 2,514 $ 2,532 $ 160   $ 2,585 $ 23  

                 
  December 31, 2012
          Unpaid    
      Ending Principal Related
(dollar amounts in thousands) Balance Balance (5) Allowance
                 
With no related allowance recorded:            
  Commercial and industrial:            
    Owner occupied $ 1,050 $ 1,091 $ ---
    Purchased credit-impaired   54,472   80,294   ---
    Other commercial and industrial   31,841   54,520   ---
  Total commercial and industrial $ 87,363 $ 135,905 $ ---
                 
  Commercial real estate:            
    Retail properties $ 54,216 $ 56,569 $ ---
    Multi family   5,719   5,862   ---
    Office   20,051   24,843   ---
    Industrial and warehouse   15,013   17,476   ---
    Purchased credit-impaired   126,923   226,093   ---
    Other commercial real estate   10,479   10,728   ---
  Total commercial real estate $ 232,401 $ 341,571 $ ---
                 
                 
  Home equity:            
    Secured by first-lien $ --- $ --- $ ---
    Secured by junior-lien   ---   ---   ---
  Total home equity $ --- $ --- $ ---
                 
  Residential mortgage:            
    Residential mortgage $ --- $ --- $ ---
    Purchased credit-impaired   2,243   4,104   ---
  Total residential mortgage $ 2,243 $ 4,104 $ ---
                 
  Other consumer            
    Other consumer $ --- $ --- $ ---
    Purchased credit-impaired   140   245   ---
  Total other consumer $ 140 $ 245 $ ---
                 
With an allowance recorded:            
  Commercial and industrial: (3)            
    Owner occupied $ 46,266 $ 56,925 $ 5,730
    Purchased credit-impaired   ---   ---   ---
    Other commercial and industrial   40,378   52,996   5,964
  Total commercial and industrial $ 86,644 $ 109,921 $ 11,694
                 
  Commercial real estate: (4)            
    Retail properties $ 65,004 $ 73,000 $ 8,144
    Multi family   17,410   18,531   2,662
    Office   40,375   45,164   9,214
    Industrial and warehouse   22,450   25,374   1,092
    Purchased credit-impaired   ---   ---   ---
    Other commercial real estate   48,174   63,148   10,021
  Total commercial real estate $ 193,413 $ 225,217 $ 31,133
                 
  Automobile $ 43,607 $ 44,790 $ 1,446
                 
  Home equity:            
    Secured by first-lien $ 76,258 $ 80,831 $ 1,329
    Secured by junior-lien   41,274   63,390   3,454
  Total home equity $ 117,532 $ 144,221 $ 4,783
                 
  Residential mortgage (6):            
    Residential mortgage $ 374,526 $ 413,583 $ 14,176
    Purchased credit-impaired   ---   ---   ---
  Total residential mortgage $ 374,526 $ 413,583 $ 14,176
                 
  Other consumer:            
    Other consumer $ 2,657 $ 2,657 $ 213
    Purchased credit-impaired   ---   ---   ---
  Total other consumer $ 2,657 $ 2,657 $ 213

                                     
(1) These tables do not include loans fully charged-off.          
(2) All automobile, home equity, residential mortgage, and other consumer impaired loans included in these tables are considered impaired due to their status as a TDR.          
(3) At March 31, 2013, $43,313 thousand of the $120,631 thousand commercial and industrial loans with an allowance recorded were considered impaired due to their status as a TDR. At December 31, 2012, $44,265 thousand of the $86,644 thousand commercial and industrial loans with an allowance recorded were considered impaired due to their status as a TDR.          
(4) At March 31, 2013, $30,976 thousand of the $176,017 thousand commercial real estate loans with an allowance recorded were considered impaired due to their status as a TDR. At December 31, 2012, $31,605 thousand of the $193,413 thousand commercial real estate loans with an allowance recorded were considered impaired due to their status as a TDR.          
(5) The differences between the ending balance and unpaid principal balance amounts represent partial charge-offs.          
(6) At March 31, 2013, $28,712 thousand of the $372,357 thousand residential mortgages loans with an allowance recorded were guaranteed by the U.S. government. At December 31, 2012, $28,695 thousand of the $374,526 thousand residential mortgage loans with an allowance recorded were guaranteed by the U.S. government.          

TDR Loans

 

TDRs are modified loans where a concession was provided to a borrower experiencing financial difficulties. Loan modifications are considered TDRs when the concessions provided are not available to the borrower through either normal channels or other sources. However, not all loan modifications are TDRs.

 

TDR Concession Types

 

The Company's standards relating to loan modifications consider, among other factors, minimum verified income requirements, cash flow analysis, and collateral valuations. Each potential loan modification is reviewed individually and the terms of the loan are modified to meet a borrower's specific circumstances at a point in time. All commercial TDRs are reviewed and approved by our SAD. The types of concessions provided to borrowers include:

 

  • Interest rate reduction: A reduction of the stated interest rate to a nonmarket rate for the remaining original life of the debt.

     

  • Amortization or maturity date change beyond what the collateral supports, including any of the following:

     

  • Lengthens the amortization period of the amortized principal beyond market terms. This concession reduces the minimum monthly payment and increases the amount of the balloon payment at the end of the term of the loan. Principal is generally not forgiven.
  • Reduces the amount of loan principal to be amortized. This concession also reduces the minimum monthly payment and increases the amount of the balloon payment at the end of the term of the loan. Principal is generally not forgiven.
  • Extends the maturity date or dates of the debt beyond what the collateral supports. This concession generally applies to loans without a balloon payment at the end of the term of the loan.

 

  • Chapter 7 bankruptcy: A bankruptcy court's discharge of a borrower's debt is considered a concession when the borrower does not reaffirm the discharged debt.

 

  • Other: A concession that is not categorized as one of the concessions described above. These concessions include, but are not limited to: principal forgiveness, collateral concessions, covenant concessions, and reduction of accrued interest.

 

Principal forgiveness may result from any TDR modification of any concession type. However, the aggregate amount of principal forgiven as a result of loans modified as TDRs during the three-month periods ended March 31, 2013 and 2012, was not significant.

 

TDRs by Loan Type

 

Following is a description of TDRs by the different loan types:

 

Commercial loan TDRs – Commercial accruing TDRs often result from loans receiving a concession with terms that are not considered a market transaction to Huntington. The TDR remains in accruing status as long as the customer is less than 90-days past due on payments per the restructured loan terms and no loss is expected.

 

Commercial nonaccrual TDRs result from either: (1) an accruing commercial TDR being placed on nonaccrual status, or (2) a workout where an existing commercial NAL is restructured and a concession was given. At times, these workouts restructure the NAL so that two or more new notes are created. The primary note is underwritten based upon our normal underwriting standards and is sized so projected cash flows are sufficient to repay contractual principal and interest. The terms on the secondary note(s) vary by situation, and may include notes that defer principal and interest payments until after the primary note is repaid. Creating two or more notes often allows the borrower to continue a project or weather a temporary economic downturn and allows Huntington to right-size a loan based upon the current expectations for a borrower's or project's performance.

 

Our strategy involving TDR borrowers includes working with these borrowers to allow them to refinance elsewhere, as well as allow them time to improve their financial position and remain our customer through refinancing their notes according to market terms and conditions in the future.  A subsequent refinancing or modification of a loan may occur when either the loan matures according to the terms of the TDR-modified agreement or the borrower requests a change to the loan agreements. At that time, the loan is evaluated to determine if it is creditworthy. It is subjected to the normal underwriting standards and processes for other similar credit extensions, both new and existing. The refinanced note is evaluated to determine if it is considered a new loan or a continuation of the prior loan.  A new loan is considered for removal of the TDR designation, whereas a continuation of the prior note requires a continuation of the TDR designation.  In order for a TDR designation to be removed, the borrower must no longer be experiencing financial difficulties and the terms of the refinanced loan must not represent a concession. 

 

Residential Mortgage loan TDRs – Residential mortgage TDRs represent loan modifications associated with traditional first-lien mortgage loans in which a concession has been provided to the borrower. The primary concessions given to residential mortgage borrowers are amortization or maturity date changes and interest rate reductions. Residential mortgages identified as TDRs involve borrowers unable to refinance their mortgages through the Company's normal mortgage origination channels or through other independent sources. Some, but not all, of the loans may be delinquent.

 

Automobile, Home Equity, and Other Consumer loan TDRs The Company may make similar interest rate, term, and principal concessions as with residential mortgage loan TDRs.

 

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.

 

The following tables present by class and by the reason for the modification, the number of contracts, post-modification outstanding balance, and the financial effects of the modification for the three-month periods ended March 31, 2013 and 2012:

    New Troubled Debt Restructurings During The Three-Month Period Ended(1)
    March 31, 2013   March 31, 2012
      Post-modification         Post-modification    
      Outstanding       Outstanding  
(dollar amounts in thousands) Number of Ending Financial effects   Number of Ending Financial effects
  Contracts Balance of modification(2)   Contracts Balance of modification(2)
                         
C&I - Owner occupied:                      
                         
  Interest rate reduction 9 $ 4,668 $ (465)   10 $ 3,781 $ 134
  Amortization or maturity date change 11   4,853   (25)   17   2,722   (47)
  Other 5   1,673   (1)   4   1,511   1,379
Total C&I - Owner occupied 25 $ 11,194 $ (491)   31 $ 8,014 $ 1,466
                         
C&I - Other commercial and industrial:                      
                         
  Interest rate reduction 5 $ 17,569 $ 1   6 $ 1,316 $ 45
  Amortization or maturity date change 35   22,060   2,705   28   4,456   (8)
  Other 7   5,039   211   15   29,502   249
Total C&I - Other commercial and industrial 47 $ 44,668 $ 2,917   49 $ 35,274 $ 286
                         
CRE - Retail properties:                      
                         
  Interest rate reduction --- $ --- $ ---   4 $ 2,795 $ (2)
  Amortization or maturity date change 4   499   (1)   5   1,758   (18)
  Other 2   3,829   (19)   ---   ---   ---
Total CRE - Retail properties 6 $ 4,328 $ (20)   9 $ 4,553 $ (20)
                         
CRE - Multi family:                      
                         
  Interest rate reduction 3 $ 2,164 $ 11   2 $ 334 $ (5)
  Amortization or maturity date change 2   742   (1)   10   1,501   (73)
  Other 1   3,956   (33)   4   2,032   (121)
Total CRE - Multi family 6 $ 6,862 $ (23)   16 $ 3,867 $ (199)