Quarterly report pursuant to Section 13 or 15(d)

Loans and Leases and Allowance for Credit Losses

v2.4.0.8
Loans and Leases and Allowance for Credit Losses
3 Months Ended
Jun. 30, 2014
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 June 30, 2014, and December 31, 2013, the aggregate amount of these net unamortized deferred loan origination fees and costs and net unearned income was $177.2 million and $192.9 million, respectively.

 

Loan and Lease Portfolio Composition

 

The following table provides a detailed listing of Huntington's loan and lease portfolio at June 30, 2014 and December 31, 2013:

 

          June 30,     December 31,
(dollar amounts in thousands)   2014     2013
                 
Loans and leases:          
    Commercial and industrial $ 18,899,458   $ 17,594,276
    Commercial real estate   4,990,317     4,850,094
    Automobile   7,685,725     6,638,713
    Home equity   8,405,078     8,336,318
    Residential mortgage   5,707,424     5,321,088
    Other consumer   391,773     380,011
  Loans and leases   46,079,775     43,120,500
  Allowance for loan and lease losses   (635,101)     (647,870)
Net loans and leases $ 45,444,674   $ 42,472,630

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.

Camco Financial acquisition

 

On March 1, 2014, Huntington completed its acquisition of Camco Financial in a stock and cash transaction valued at $109.5 million. Loans with a fair value of $559.4 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.

    March 1,
(dollar amounts in thousands)   2014
Contractually required payments including interest $ 14,363
Less: nonaccretable difference   (11,234)
Cash flows expected to be collected   3,129
Less: accretable yield   (143)
Fair value of loans acquired $ 2,986

The following table presents a rollforward of the accretable yield for purchased credit impaired loans by acquisition for three-month and six-month periods ended June 30, 2014 and 2013:

                       
  Three Months Ended June 30,   Six Months Ended June 30,
(dollar amounts in thousands) 2014   2013   2014   2013
                       
Fidelity Bank                      
Balance, beginning of period $ 24,758   $ 35,160   $ 27,995   $ 23,251
Additions   ---     ---     ---     ---
Accretion   (3,647)     (3,781)     (7,651)     (7,100)
Reclassification from nonaccretable difference   3,485     1,326     4,252     16,554
Balance, end of period $ 24,596   $ 32,705   $ 24,596   $ 32,705
                       
Camco Financial                      
Balance, beginning of period $ 134   $ ---   $ ---   $ ---
Impact of acquisition/purchase on March 1, 2014   ---     ---     143     ---
Additions   ---     ---     ---     ---
Accretion   (5,173)     ---     (5,182)     ---
Reclassification from nonaccretable difference   5,193     ---     5,193     ---
Balance, end of period $ 154   $ ---   $ 154   $ ---

The allowance for loan losses recorded on the purchased credit-impaired loan portfolio at June 30, 2014 and December 31, 2013 was $3.1 million and $2.4 million, respectively. The following table reflects the ending and unpaid balances of all contractually required payments and carrying amounts of the acquired loans by acquisition at June 30, 2014 and December 31, 2013:

           
  June 30, 2014   December 31, 2013
(dollar amounts in thousands)   Ending Balance     Unpaid Balance     Ending Balance     Unpaid Balance
                       
Fidelity Bank                      
Commercial and industrial $ 34,704   $ 49,914   $ 35,526   $ 50,798
Commercial real estate   55,256     119,152     82,073     154,869
Residential mortgage   2,359     3,242     2,498     3,681
Other consumer   53     133     129     219
Total $ 92,372   $ 172,441   $ 120,226   $ 209,567
                       
Camco Financial                      
Commercial and industrial $ 673   $ 1,706   $ ---   $ ---
Commercial real estate   2,039     3,879     ---     ---
Total $ 2,712   $ 5,585   $ ---   $ ---

Loan Purchases and Sales

 

The following table summarizes significant portfolio loan purchase and sale activity for the three-month and six-month periods ended June 30, 2014 and 2013

    Commercial and Industrial Commercial Real Estate Automobile Home Equity Residential Mortgage Other Consumer Total
               
                               
(dollar amounts in thousands)                            
                               
Portfolio loans and leases purchased during the:
  Three-month period ended June 30, 2014 $ 165,482 $ --- $ --- $ --- $ --- $ --- $ 165,482
  Six-month period ended June 30, 2014 $ 205,603 $ --- $ --- $ --- $ --- $ --- $ 205,603
                               
  Three-month period ended June 30, 2013 $ 34,196 $ --- $ --- $ --- $ --- $ --- $ 34,196
  Six-month period ended June 30, 2013 $ 55,737 $ --- $ --- $ --- $ --- $ --- $ 55,737
                               
Portfolio loans and leases sold or transferred to loans held for sale during the:
  Three-month period ended June 30, 2014 $ 50,472 $ 7,395 $ --- $ --- $ --- $ 7,592 $ 65,459
  Six-month period ended June 30, 2014 $ 104,731 $ 7,434 $ --- $ --- $ ---   7,592 $ 119,757
                               
  Three-month period ended June 30, 2013 $ 55,464 $ 87 $ --- $ --- $ 151,013 $ --- $ 206,564
  Six-month period ended June 30, 2013 $ 83,066 $ 3,991 $ --- $ --- $ 155,403 $ --- $ 242,460

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 June 30, 2014 and December 31, 2013:

 

    2014   2013
(dollar amounts in thousands) June 30,   December 31,
             
Commercial and industrial:          
  Owner occupied $ 33,378   $ 38,321
  Other commercial and industrial   41,896     18,294
Total commercial and industrial $ 75,274   $ 56,615
             
Commercial real estate:          
  Retail properties $ 26,253   $ 27,328
  Multi family   13,352     9,289
  Office   10,671     18,995
  Industrial and warehouse   4,159     6,310
  Other commercial real estate   10,963     11,495
Total commercial real estate $ 65,398   $ 73,417
             
Automobile $ 4,384   $ 6,303
             
Home equity:          
  Secured by first-lien $ 39,764   $ 36,288
  Secured by junior-lien   29,502     29,901
Total home equity $ 69,266   $ 66,189
             
Residential mortgage:          
Residential mortgage $ 110,635   $ 119,532
Total residential mortgages $ 110,635   $ 119,532
             
Other consumer          
Other consumer $ ---   $ ---
Total nonaccrual loans $ 324,957   $ 322,056
             

The following table presents an aging analysis of loans and leases, including past due loans, by loan class at June 30, 2014 and December 31, 2013: (1)

June 30, 2014
                              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 $ 6,809 $ 3,082 $ 24,724 $ 34,615   $ 4,236,698 $ 4,271,313   $ ---
  Purchased credit-impaired   642   1,040   9,952   11,634     23,743   35,377     9,977
  Other commercial and industrial   7,680   3,262   10,155   21,097     14,571,671   14,592,768     ---
Total commercial and industrial $ 15,131 $ 7,384 $ 44,831 $ 67,346   $ 18,832,112 $ 18,899,458   $ 9,977(2)
                                   
Commercial real estate:                                
  Retail properties $ 1,703 $ 841 $ 6,828 $ 9,372   $ 1,366,874 $ 1,376,246   $ ---
  Multi family   3,510   246   10,288   14,044     1,042,683   1,056,727     ---
  Office   1,968   978   6,019   8,965     936,700   945,665     ---
  Industrial and warehouse   2,197   618   974   3,789     510,914   514,703     ---
  Purchased credit-impaired   3,546   6,851   27,267   37,664     19,631   57,295     27,267
  Other commercial real estate   2,460   2,271   5,112   9,843     1,029,838   1,039,681     ---
Total commercial real estate $ 15,384 $ 11,805 $ 56,488 $ 83,677   $ 4,906,640 $ 4,990,317   $ 27,267(2)
                                   
Automobile $ 39,465 $ 7,662 $ 2,976 $ 50,103   $ 7,635,622 $ 7,685,725   $ 2,895
                                   
Home equity:                                
  Secured by first-lien $ 16,816 $ 9,106 $ 30,067 $ 55,989   $ 4,896,673 $ 4,952,662   $ 5,801
  Secured by junior-lien   23,175   12,337   32,495   68,007     3,384,409   3,452,416     9,111
Total home equity $ 39,991 $ 21,443 $ 62,562 $ 123,996   $ 8,281,082 $ 8,405,078   $ 14,912
                                   
Residential mortgage:                                
  Residential mortgage $ 115,573 $ 40,103 $ 136,859 $ 292,535   $ 5,412,530 $ 5,705,065   $ 81,315
  Purchased credit-impaired   ---   ---   36   36     2,323   2,359     35
Total residential mortgage $ 115,573 $ 40,103 $ 136,895 $ 292,571   $ 5,414,853 $ 5,707,424   $ 81,350(3)
                                   
Other consumer:                                
  Other consumer $ 5,881 $ 1,160 $ 607 $ 7,648   $ 384,072 $ 391,720   $ 607
  Purchased credit-impaired   ---   ---   ---   ---     53   53     ---
Total other consumer $ 5,881 $ 1,160 $ 607 $ 7,648   $ 384,125 $ 391,773   $ 607
                                   
Total loans and leases $ 231,425 $ 89,557 $ 304,359 $ 625,341   $ 45,454,434 $ 46,079,775   $ 137,008
                                   
December 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 $ 5,935 $ 1,879 $ 25,658 $ 33,472   $ 4,314,400 $ 4,347,872   $ ---
  Purchased credit-impaired   241   433   14,562   15,236     20,290   35,526     14,562
  Other commercial and industrial   10,342   3,075   11,210   24,627     13,186,251   13,210,878     ---
Total commercial and industrial $ 16,518 $ 5,387 $ 51,430 $ 73,335   $ 17,520,941 $ 17,594,276   $ 14,562(2)
                                   
Commercial real estate:                                
  Retail properties $ 19,372 $ 1,228 $ 5,252 $ 25,852   $ 1,237,717 $ 1,263,569   $ ---
  Multi family   2,425   943   6,726   10,094     1,015,497   1,025,591     ---
  Office   1,635   545   12,700   14,880     927,413   942,293     ---
  Industrial and warehouse   465   3,714   4,395   8,574     464,319   472,893     ---
  Purchased credit-impaired   1,311   ---   39,142   40,453     41,620   82,073     39,142
  Other commercial real estate   5,922   1,134   7,192   14,248     1,049,427   1,063,675     ---
Total commercial real estate $ 31,130 $ 7,564 $ 75,407 $ 114,101   $ 4,735,993 $ 4,850,094   $ 39,142(2)
                                   
Automobile $ 45,174 $ 8,863 $ 5,140 $ 59,177   $ 6,579,536 $ 6,638,713   $ 5,055
                                   
Home equity                                
  Secured by first-lien $ 20,551 $ 8,746 $ 28,472 $ 57,769   $ 4,784,375 $ 4,842,144   $ 6,338
  Secured by junior-lien   28,965   13,071   31,392   73,428     3,420,746   3,494,174     7,645
Total home equity $ 49,516 $ 21,817 $ 59,864 $ 131,197   $ 8,205,121 $ 8,336,318   $ 13,983
                                   
Residential mortgage                                
  Residential mortgage $ 101,584 $ 41,784 $ 158,956 $ 302,324   $ 5,016,266 $ 5,318,590   $ 90,115
  Purchased credit-impaired   194   ---   339   533     1,965   2,498     339
Total residential mortgage $ 101,778 $ 41,784 $ 159,295 $ 302,857   $ 5,018,231 $ 5,321,088   $ 90,454(4)
                                   
Other consumer                                
  Other consumer $ 6,465 $ 1,276 $ 998 $ 8,739   $ 371,143 $ 379,882   $ 998
  Purchased credit-impaired   69   ---   ---   69     60   129     ---
Total other consumer $ 6,534 $ 1,276 $ 998 $ 8,808   $ 371,203 $ 380,011   $ 998
                                   
Total loans and leases $ 250,650 $ 86,691 $ 352,134 $ 689,475   $ 42,431,025 $ 43,120,500   $ 164,194
                                   
(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 acquisitions. Under the applicable accounting guidance (ASC 310-30), the loans were recorded at fair value upon acquisition and remain in accruing status.
(3) Includes $51,641 thousand guaranteed by the U.S. government.
(4) Includes $87,985 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 increasing or decreasing 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 determination 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, specific reserves related to loans considered to be impaired, and loans involved in troubled debt restructurings, 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 regularly 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 borrower's 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 and six-month periods ended June 30, 2014 and 2013:

      Commercial Commercial   Home Residential Other    
  and Industrial Real Estate Automobile Equity Mortgage Consumer Total
(dollar amounts in thousands)                            
                                 
Three-month period ended June 30, 2014:
                                 
  ALLL balance, beginning of period $ 266,979 $ 160,306 $ 25,178 $ 113,177 $ 39,068 $ 27,210 $ 631,918
    Loan charge-offs   (23,245)   (2,998)   (6,632)   (13,201)   (6,062)   (6,689)   (58,827)
    Recoveries of loans previously charged-off   12,648   5,189   3,706   4,710   2,656   1,275   30,184
    Provision for loan and lease losses   22,130   (25,151)   4,906   1,257   11,529   17,155   31,826
    Allowance for loans sold or transferred to loans held for sale   ---   ---   ---   ---   ---   ---   ---
  ALLL balance, end of period $ 278,512 $ 137,346 $ 27,158 $ 105,943 $ 47,191 $ 38,951 $ 635,101
                                 
  AULC balance, beginning of period $ 46,316 $ 9,127 $ --- $ 1,791 $ 8 $ 2,126 $ 59,368
    Provision for unfunded loan commitments and letters of credit   (1,566)   (1,597)   ---   186   ---   536   (2,441)
  AULC balance, end of period $ 44,750 $ 7,530 $ --- $ 1,977 $ 8 $ 2,662 $ 56,927
                                 
  ACL balance, end of period $ 323,262 $ 144,876 $ 27,158 $ 107,920 $ 47,199 $ 41,613 $ 692,028
                                 
Six-month period ended June 30, 2014:
                                 
  ALLL balance, beginning of period $ 265,801 $ 162,557 $ 31,053 $ 111,131 $ 39,577 $ 37,751 $ 647,870
    Loan charge-offs   (39,582)   (13,108)   (14,676)   (34,260)   (15,048)   (15,164)   (131,838)
    Recoveries of loans previously charged-off   20,379   16,286   7,108   10,082   3,783   2,571   60,209
    Provision for loan and lease losses   31,914   (28,389)   3,673   18,990   18,879   14,920   59,987
    Allowance for loans sold or transferred to loans held for sale   ---   ---   ---   ---   ---   (1,127)   (1,127)
  ALLL balance, end of period $ 278,512 $ 137,346 $ 27,158 $ 105,943 $ 47,191 $ 38,951 $ 635,101
                                 
  AULC balance, beginning of period $ 49,596 $ 9,891 $ --- $ 1,763 $ 9 $ 1,640 $ 62,899
    Provision for unfunded loan commitments and letters of credit   (4,846)   (2,361)   ---   214   (1)   1,022   (5,972)
  AULC balance, end of period $ 44,750 $ 7,530 $ --- $ 1,977 $ 8 $ 2,662 $ 56,927
                                 
  ACL balance, end of period $ 323,262 $ 144,876 $ 27,158 $ 107,920 $ 47,199 $ 41,613 $ 692,028

      Commercial Commercial   Home Residential Other    
  and Industrial Real Estate Automobile Equity Mortgage Consumer Total
(dollar amounts in thousands)                            
                                 
Three-month period ended June 30, 2013:
                                 
  ALLL balance, beginning of period $ 238,098 $ 267,436 $ 35,973 $ 115,858 $ 63,062 $ 26,342 $ 746,769
    Loan charge-offs   (8,981)   (14,194)   (5,219)   (17,766)   (9,692)   (7,386)   (63,238)
    Recoveries of loans previously charged-off   7,395   11,810   3,756   3,112   1,072   1,303   28,448
    Provision for loan and lease losses   (2,833)   (9,203)   5,480   14,422   9,617   3,871   21,354
    Allowance for loans sold or transferred to loans held for sale   ---   ---   ---   ---   (257)   ---   (257)
  ALLL balance, end of period $ 233,679 $ 255,849 $ 39,990 $ 115,626 $ 63,802 $ 24,130 $ 733,076
                                 
  AULC balance, beginning of period $ 33,835 $ 4,404 $ --- $ 1,912 $ 6 $ 698 $ 40,855
    Provision for unfunded loan commitments and letters of credit   3,636   4   ---   (224)   ---   (48)   3,368
  AULC balance, end of period $ 37,471 $ 4,408 $ --- $ 1,688 $ 6 $ 650 $ 44,223
                                 
  ACL balance, end of period $ 271,150 $ 260,257 $ 39,990 $ 117,314 $ 63,808 $ 24,780 $ 777,299
                                 
Six-month period ended June 30, 2013:
                                 
  ALLL balance, beginning of period $ 241,051 $ 285,369 $ 34,979 $ 118,764 $ 61,658 $ 27,254 $ 769,075
    Loan charge-offs   (21,994)   (36,561)   (10,907)   (44,298)   (17,593)   (16,027)   (147,380)
    Recoveries of loans previously charged-off   17,091   21,400   6,850   9,661   2,825   3,076   60,903
    Provision for loan and lease losses   (2,469)   (14,359)   9,068   31,499   17,176   9,827   50,742
    Allowance for loans sold or transferred to loans held for sale   ---   ---   ---   ---   (264)   ---   (264)
  ALLL balance, end of period $ 233,679 $ 255,849 $ 39,990 $ 115,626 $ 63,802 $ 24,130 $ 733,076
                                 
  AULC balance, beginning of period $ 33,868 $ 4,740 $ --- $ 1,356 $ 3 $ 684 $ 40,651
    Provision for unfunded loan commitments and letters of credit   3,603   (332)   ---   332   3   (34)   3,572
  AULC balance, end of period $ 37,471 $ 4,408 $ --- $ 1,688 $ 6 $ 650 $ 44,223
                                 
  ACL balance, end of period $ 271,150 $ 260,257 $ 39,990 $ 117,314 $ 63,808 $ 24,780 $ 777,299

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 the collateral may be inadequate to 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, which we update quarterly. A credit bureau score is a credit score developed by Fair Isaac Corporation based on data provided by the credit bureaus. The 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 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 following table presents each loan and lease class by credit quality indicator at June 30, 2014 and December 31, 2013:

    June 30, 2014  
  Credit Risk Profile by UCS classification  
(dollar amounts in thousands) Pass OLEM Substandard Doubtful Total  
Commercial and industrial:                      
  Owner occupied $ 4,001,530 $ 105,226 $ 158,574 $ 5,983 $ 4,271,313  
  Purchased credit-impaired   4,307   672   26,167   4,231   35,377  
  Other commercial and industrial   13,941,853   222,642   414,020   14,253   14,592,768  
Total commercial and industrial $ 17,947,690 $ 328,540 $ 598,761 $ 24,467 $ 18,899,458  
                         
Commercial real estate:                      
  Retail properties $ 1,308,627 $ 9,349 $ 57,460 $ 810 $ 1,376,246  
  Multi family   998,890   14,482   42,955   400   1,056,727  
  Office   834,505   25,288   83,871   2,001   945,665  
  Industrial and warehouse   486,423   2,362   25,918   ---   514,703  
  Purchased credit-impaired   7,144   100   48,989   1,062   57,295  
  Other commercial real estate   962,005   9,271   67,615   790   1,039,681  
Total commercial real estate $ 4,597,594 $ 60,852 $ 326,808 $ 5,063 $ 4,990,317  
                         
    Credit Risk Profile by FICO score (1)  
    750+ 650-749 <650 Other (2) Total  
Automobile $ 3,633,353 $ 2,888,327 $ 943,156 $ 220,889 $ 7,685,725  
                         
Home equity:                      
  Secured by first-lien $ 3,108,652 $ 1,352,840 $ 275,292 $ 215,878 $ 4,952,662  
  Secured by junior-lien   1,821,778   1,123,018   376,909   130,711   3,452,416  
Total home equity $ 4,930,430 $ 2,475,858 $ 652,201 $ 346,589 $ 8,405,078  
                         
Residential mortgage:                      
  Residential mortgage $ 3,191,048 $ 1,755,629 $ 649,868 $ 108,520 $ 5,705,065  
  Purchased credit-impaired   591   1,168   600   ---   2,359  
Total residential mortgage $ 3,191,639 $ 1,756,797 $ 650,468 $ 108,520 $ 5,707,424  
                         
Other consumer:                      
  Other consumer $ 172,405 $ 166,257 $ 42,440 $ 10,618 $ 391,720  
  Purchased credit-impaired   ---   53   ---   ---   53  
Total other consumer $ 172,405 $ 166,310 $ 42,440 $ 10,618 $ 391,773  
                         
                         
    December 31, 2013  
  Credit Risk Profile by UCS classification  
(dollar amounts in thousands) Pass OLEM Substandard Doubtful Total  
Commercial and industrial:                      
  Owner occupied $ 4,052,579 $ 130,645 $ 155,994 $ 8,654 $ 4,347,872  
  Purchased credit-impaired   5,015   661   27,693   2,157   35,526  
  Other commercial and industrial   12,630,512   211,860   364,343   4,163   13,210,878  
Total commercial and industrial $ 16,688,106 $ 343,166 $ 548,030 $ 14,974 $ 17,594,276  
                         
Commercial real estate:                      
  Retail properties $ 1,153,747 $ 16,003 $ 93,819 $ --- $ 1,263,569  
  Multi family   972,526   16,540   36,411   114   1,025,591  
  Office   847,411   4,866   87,722   2,294   942,293  
  Industrial and warehouse   431,057   14,138   27,698   ---   472,893  
  Purchased credit-impaired   13,127   3,586   62,577   2,783   82,073  
  Other commercial real estate   977,987   16,270   68,653   765   1,063,675  
Total commercial real estate $ 4,395,855 $ 71,403 $ 376,880 $ 5,956 $ 4,850,094  
                         
    Credit Risk Profile by FICO score (1)  
    750+ 650-749 <650 Other (2) Total  
Automobile $ 2,987,323 $ 2,517,756 $ 945,604 $ 188,030 $ 6,638,713  
                         
Home equity:                      
  Secured by first-lien $ 3,018,784 $ 1,412,445 $ 299,681 $ 111,234 $ 4,842,144  
  Secured by junior-lien   1,811,102   1,213,024   413,695   56,353   3,494,174  
Total home equity $ 4,829,886 $ 2,625,469 $ 713,376 $ 167,587 $ 8,336,318  
                         
Residential mortgage                      
  Residential mortgage $ 2,837,590 $ 1,710,183 $ 699,541 $ 71,276 $ 5,318,590  
  Purchased credit-impaired   588   989   921   ---   2,498  
Total residential mortgage $ 2,838,178 $ 1,711,172 $ 700,462 $ 71,276 $ 5,321,088  
                         
Other consumer                      
  Other consumer $ 161,858 $ 157,675 $ 45,370 $ 14,979 $ 379,882  
  Purchased credit-impaired   ---   60   69   ---   129  
Total other consumer $ 161,858 $ 157,735 $ 45,439 $ 14,979 $ 380,011  
                         
(1) Reflects currently updated customer credit scores.  
(2) Reflects deferred fees and costs, loans in process, loans to legal entities, etc.  

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 considered for individual evaluation 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. A specific reserve is established as a component of the ALLL when a commercial 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. The consumer portfolios are assessed on a pooled basis using a discounted cash flow basis.

 

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 June 30, 2014 and December 31, 2013:

                                 
      Commercial Commercial     Residential Other  
(dollar amounts in thousands) and Industrial Real Estate Automobile Home Equity Mortgage Consumer Total
                                 
ALLL at June 30, 2014:
                                 
  Portion of ALLL balance:
                                 
    Attributable to purchased credit-impaired loans $ 2,858 $ --- $ --- $ --- $ 213 $ 10 $ 3,081
    Attributable to loans individually evaluated for impairment   15,902   27,524   1,017   22,680   21,338   125   88,586
    Attributable to loans collectively evaluated for impairment   259,752   109,822   26,141   83,263   25,640   38,816   543,434
  Total ALLL balance $ 278,512 $ 137,346 $ 27,158 $ 105,943 $ 47,191 $ 38,951 $ 635,101
                                 
Loan and Lease Ending Balances at June 30, 2014:
                                 
  Portion of loan and lease ending balance:
                                 
    Attributable to purchased credit-impaired loans $ 35,377 $ 57,295 $ --- $ --- $ 2,359 $ 53 $ 95,084
    Individually evaluated for impairment   157,727   269,301   36,120   269,539   405,402   3,616   1,141,705
    Collectively evaluated for impairment   18,706,354   4,663,721   7,649,605   8,135,539   5,299,663   388,104   44,842,986
  Total loans and leases evaluated for impairment $ 18,899,458 $ 4,990,317 $ 7,685,725 $ 8,405,078 $ 5,707,424 $ 391,773 $ 46,079,775
                                 

                                 
                   
(dollar amounts in thousands) Commercial and Industrial Commercial Real Estate Automobile Home Equity Residential Mortgage Other Consumer Total
                                 
ALLL at December 31, 2013
                                 
  Portion of ALLL balance:
                                 
    Attributable to purchased credit-impaired loans $ 2,404 $ --- $ --- $ --- $ 36 $ --- $ 2,440
    Attributable to loans individually evaluated for impairment   6,129   34,935   682   8,003   10,555   136   60,440
    Attributable to loans collectively evaluated for impairment   257,268   127,622   30,371   103,128   28,986   37,615   584,990
  Total ALLL balance: $ 265,801 $ 162,557 $ 31,053 $ 111,131 $ 39,577 $ 37,751 $ 647,870
                                 
Loan and Lease Ending Balances at December 31, 2013
                                 
  Portion of loan and lease ending balances:
                                 
    Attributable to purchased credit-impaired loans $ 35,526 $ 82,073 $ --- $ --- $ 2,498 $ 129 $ 120,226
    Individually evaluated for impairment   108,316   268,362   37,084   208,981   387,937   1,041   1,011,721
    Collectively evaluated for impairment   17,450,434   4,499,659   6,601,629   8,127,337   4,930,653   378,841   41,988,553
  Total loans and leases evaluated for impairment $ 17,594,276 $ 4,850,094 $ 6,638,713 $ 8,336,318 $ 5,321,088 $ 380,011 $ 43,120,500
                                 

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   Six Months Ended
  June 30, 2014   June 30, 2014   June 30, 2014
          Unpaid           Interest       Interest
      Ending Principal Related   Average Income   Average Income
(dollar amounts in thousands) Balance Balance (5) Allowance   Balance Recognized   Balance Recognized
                                     
With no related allowance recorded:                                
  Commercial and industrial:                                
    Owner occupied $ 3,012 $ 3,012 $ ---   $ 3,680 $ 35   $ 4,293 $ 84
    Purchased credit-impaired   ---   ---   ---     ---   ---     ---   ---
    Other commercial and industrial   8,739   17,408   ---     7,558   89     7,584   186
  Total commercial and industrial $ 11,751 $ 20,420 $ ---   $ 11,238 $ 124   $ 11,877 $ 270
                                     
  Commercial real estate:                                
    Retail properties $ 51,004 $ 52,562 $ ---   $ 55,039 $ 632   $ 54,665 $ 1,237
    Multi family   ---   ---   ---     ---   ---     ---   ---
    Office   4,861   8,499   ---     2,394   40     4,400   229
    Industrial and warehouse   4,628   4,687   ---     5,114   68     7,100   176
    Purchased credit-impaired   57,295   123,030   ---     67,008   5,315     72,030   7,733
    Other commercial real estate   9,280   9,761   ---     6,849   79     6,338   136
  Total commercial real estate $ 127,068 $ 198,539 $ ---   $ 136,404 $ 6,134   $ 144,533 $ 9,511
                                     
  Automobile $ --- $ --- $ ---   $ --- $ ---   $ --- $ ---
                                     
  Home equity:                                
    Secured by first-lien $ --- $ --- $ ---   $ --- $ ---   $ --- $ ---
    Secured by junior-lien   ---   ---   ---     ---   ---     ---   ---
  Total home equity $ --- $ --- $ ---   $ --- $ ---   $ --- $ ---
                                     
  Residential mortgage:                                
    Residential mortgage $ --- $ --- $ ---   $ --- $ ---   $ --- $ ---
    Purchased credit-impaired   ---   ---   ---     ---   ---     ---   ---
  Total residential mortgage $ --- $ --- $ ---   $ --- $ ---   $ --- $ ---
                                     
  Other consumer                                
    Other consumer $ --- $ --- $ ---   $ --- $ ---   $ --- $ ---
    Purchased credit-impaired   ---   ---   ---     ---   ---     ---   ---
  Total other consumer $ --- $ --- $ ---   $ --- $ ---   $ --- $ ---
                                     
With an allowance recorded:                                
  Commercial and industrial: (3)                                
    Owner occupied $ 40,746 $ 44,604 $ 3,092   $ 40,748 $ 390   $ 39,796 $ 789
    Purchased credit-impaired   35,377   51,621   2,858     35,887   3,282     35,767   4,775
    Other commercial and industrial   105,230   123,442   12,810     78,200   688     64,840   1,279
  Total commercial and industrial $ 181,353 $ 219,667 $ 18,760   $ 154,835 $ 4,360   $ 140,403 $ 6,843
                                     
  Commercial real estate: (4)                                
    Retail properties $ 68,573 $ 96,764 $ 5,423   $ 64,092 $ 487   $ 66,349 $ 1,064
    Multi family   16,903   22,390   2,462     17,024   164     15,827   315
    Office   52,647   55,030   8,622     54,025   610     52,723   1,146
    Industrial and warehouse   8,015   8,958   693     8,658   61     8,897   109
    Purchased credit-impaired   ---   ---   ---     ---   ---     ---   ---
    Other commercial real estate   53,390   63,443   10,324     50,778   541     47,501   1,015
  Total commercial real estate $ 199,528 $ 246,585 $ 27,524   $ 194,577 $ 1,863   $ 191,297 $ 3,649
                                     
  Automobile $ 36,120 $ 36,366 $ 1,017   $ 34,594 $ 719   $ 35,424 $ 1,402
                                     
  Home equity:                                
    Secured by first-lien $ 130,081 $ 136,330 $ 7,453   $ 122,449 $ 1,371   $ 118,307 $ 2,610
    Secured by junior-lien   139,458   178,767   15,227     123,839   1,547     115,545   2,861
  Total home equity $ 269,539 $ 315,097 $ 22,680   $ 246,288 $ 2,918   $ 233,852 $ 5,471
                                     
  Residential mortgage (6):                                
    Residential mortgage $ 405,402 $ 454,662 $ 21,338   $ 387,019 $ 2,984   $ 387,325 $ 5,848
    Purchased credit-impaired   2,359   3,242   213     2,308   219     2,371   318
  Total residential mortgage $ 407,761 $ 457,904 $ 21,551   $ 389,327 $ 3,203   $ 389,696 $ 6,166
                                     
  Other consumer:                                
    Other consumer $ 3,616 $ 3,651 $ 125   $ 2,731 $ 60   $ 2,168 $ 93
    Purchased credit-impaired   53   133   10     90   5     103   7
  Total other consumer $ 3,669 $ 3,784 $ 135   $ 2,821 $ 65   $ 2,271 $ 100

                    Three Months Ended   Six Months Ended
  December 31, 2013   June 30, 2013   June 30, 2013
          Unpaid           Interest       Interest
      Ending Principal Related   Average Income   Average Income
(dollar amounts in thousands) Balance Balance (5) Allowance   Balance Recognized   Balance Recognized
                                     
With no related allowance recorded:                                
  Commercial and industrial:                                
    Owner occupied $ 5,332 $ 5,373 $ ---   $ 4,668 $ 42   $ 4,204 $ 84
    Purchased credit-impaired   ---   ---   ---     ---   ---     ---   ---
    Other commercial and industrial   11,884   15,031   ---     6,603   71     11,456   306
  Total commercial and industrial $ 17,216 $ 20,404 $ ---   $ 11,271 $ 113   $ 15,660 $ 390
                                     
  Commercial real estate:                                
    Retail properties $ 55,773 $ 64,780 $ ---   $ 48,806 $ 606   $ 51,522 $ 1,310
    Multi family   ---   ---   ---     4,662   70     5,152   158
    Office   9,069   13,721   ---     12,473   311     15,161   531
    Industrial and warehouse   9,682   10,803   ---     10,625   152     12,560   349
    Purchased credit-impaired   82,073   154,869   ---     112,163   2,531     117,083   4,753
    Other commercial real estate   6,002   6,924   ---     9,250   127     9,764   224
  Total commercial real estate $ 162,599 $ 251,097 $ ---   $ 197,979 $ 3,797   $ 211,242 $ 7,325
                                     
                                     
  Home equity:                                
    Secured by first-lien $ --- $ --- $ ---   $ --- $ ---   $ --- $ ---
    Secured by junior-lien   ---   ---   ---     ---   ---     ---   ---
  Total home equity $ --- $ ---