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
Jun. 30, 2012
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 (at least 12 months), or until maturity or payoff, are classified in the Unaudited Condensed Consolidated Balance Sheets as loans and leases. Except for loans which are subject to fair value requirements, 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, 2012, and December 31, 2011, the aggregate amount of these net unamortized deferred loan origination fees and costs and net unearned income was $294.3 million and $122.5 million, respectively.

 

Loan and Lease Portfolio Composition

 

The following table provides a detailed listing of Huntington's loan and lease portfolio at June 30, 2012, and December 31, 2011:

 

          June 30,     December 31,
(dollar amounts in thousands)   2012     2011
                 
Loans and leases:          
    Commercial and industrial $ 16,321,850   $ 14,699,371
    Commercial real estate   5,907,709     5,825,709
    Automobile   3,807,680     4,457,446
    Home equity   8,343,830     8,215,413
    Residential mortgage   5,123,027     5,228,276
    Other consumer   455,084     497,568
  Loans and leases   39,959,180     38,923,783
  Allowance for loan and lease losses   (859,646)     (964,828)
Net loans and leases $ 39,099,534   $ 37,958,955

 

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 impaired
  Other commercial and industrial
   
Commercial real estate Retail properties
  Multi family
  Office
  Industrial and warehouse
  Purchased impaired
  Other commercial real estate
   
Automobile NA (1)
   
Home equity Secured by first-lien
  Secured by junior-lien
   
Residential mortgage Residential mortgage
  Purchased impaired
   
Other consumer Other consumer
  Purchased 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, approximately $520.6 million of loans were transferred to Huntington.  These loans were recorded at fair value in accordance with ASC 805, “Business Combinations”. 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.

 

Loans Acquired With Deteriorated Credit Quality

 

ASC 310-30, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer”, provides guidance for accounting for acquired loans that have experienced a deterioration of credit quality at the time of acquisition for which it is probable that the investor will be unable to collect all contractually required payments. Based on the timing of the Fidelity Bank acquisition occurring on the last business day of the 2012 first quarter, the assessment to determine if any of these loans were acquired with deteriorated credit quality in accordance with ASC 310-30 was not completed until the 2012 second quarter.

 

The excess of cash flows expected at acquisition over the initial investment in the loan is referred to as the accretable yield and is recognized in interest income over the remaining life of the loan, or pool of loans, in situations where there is a reasonable expectation about the timing and amount of cash flows expected to be collected. The difference between the contractually required payments at acquisition and the cash flows expected to be collected at acquisition, considering the impact of prepayments, is referred to as the nonaccretable difference. Subsequent decreases to the expected cash flows will generally result in an increase to the allowance for loan and lease 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. The measurement of undiscounted cash flows involves assumptions and judgments for credit risk, interest rate risk, prepayment risk, default rates, loss severity, payment speeds, 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 reflects the contractually required payments receivable, cash flows expected to be collected, and fair value of the loans at the acquisition date of March 30, 2012:

 

(in thousands)    
Contractually required payments including interest $ 348,547
Less: nonaccretable difference   (119,011)
Cash flows expected to be collected   229,536
Less: accretable yield   (27,586)
Fair value of loans acquired $ 201,950

The fair values for loans were estimated using discounted cash flow analyses, including prepayment assumptions and using interest rates currently being offered for loans with similar terms (Level 3). This value was reduced by an estimate of probable losses and the credit risk associated with the loans.

 

The following table presents a rollforward of the accretable yield from the beginning of the period to the end of the period:

 

  Three Months Ended June 30,   Six Months Ended June 30,
(dollar amounts in thousands) 2012     2012  
Balance, beginning of period $ 27,586     $ ---  
Impact of acquisition/purchase on March 30, 2012   ---       27,586  
Accretion   (2,825)       (2,825)  
Balance, end of period $ 24,761     $ 24,761  

At June 30, 2012, there was no allowance for loan losses recorded on the purchased impaired loan portfolio and no adjustment to either the accretable or nonaccretable yield was required. The following table reflects the outstanding balance of all contractually required payments and carrying amounts of the acquired loans at June 30, 2012:

     
  June 30, 2012
(in thousands)   Ending Balance     Unpaid Balance
Commercial and industrial $ 57,875   $ 84,966
Commercial real estate   135,638     229,124
Residential mortgage   2,355     4,338
Other consumer   632     1,189
Total $ 196,500   $ 319,617

Loan and Lease Purchases and Sales

 

The following table summarizes significant portfolio loan and lease purchase and sale activity for the three-month and six-month periods ended June 30, 2012 and 2011:

 

                                 
      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 June 30, 2012 $ --- $ --- $ --- $ --- $ --- $ --- $ ---
    Six-month period ended June 30, 2012 $ 477,501 $ 378,122 $ --- $ 13,025 $ 62,324 $ 85 $ 931,057
                                 
    Three-month period ended June 30, 2011 $ --- $ --- $ --- $ --- $ --- $ --- $ ---
    Six-month period ended June 30, 2011   ---   ---   ---   ---   ---   ---   ---
                                 
  Portfolio loans and leases sold or transferred to loans held for sale during the:                            
    Three-month period ended June 30, 2012 $ 71,718 $ 26,273 $ 1,483,748 $ --- $ 179,621 $ --- $ 1,761,360
    Six-month period ended June 30, 2012 $ 125,165 $ 47,742 $ 2,783,748 $ --- $ 179,621   --- $ 3,136,276
                                 
    Three-month period ended June 30, 2011 $ 69,483 $ 8,330 $ --- $ --- $ 87,215 $ --- $ 165,028
    Six-month period ended June 30, 2011 $ 155,482 $ 56,123 $ --- $ --- $ 170,757 $ --- $ 382,362

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.

 

All classes within the C&I and CRE portfolios 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. 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 not placed on nonaccrual status, but 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.

 

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, 2012, and December 31, 2011:

 

      2012   2011
(dollar amounts in thousands)   June 30,     December 31,
             
Commercial and industrial:          
  Owner occupied $ 71,335   $ 88,415
  Purchased impaired   ---     ---
  Other commercial and industrial   62,343     113,431
Total commercial and industrial $ 133,678   $ 201,846
             
Commercial real estate:          
  Retail properties $ 64,425   $ 58,415
  Multi family   29,883     39,921
  Office   22,123     33,202
  Industrial and warehouse   17,246     30,119
  Purchased impaired   ---     ---
  Other commercial real estate   85,740     68,232
Total commercial real estate $ 219,417   $ 229,889
             
Automobile $ ---   $ ---
             
Home equity:          
  Secured by first-lien $ 18,632   $ 20,012
  Secured by junior-lien   27,391     20,675
Total home equity $ 46,023   $ 40,687
             
Residential mortgage:          
  Residential mortgage $ 75,048   $ 68,658
  Purchased impaired   ---     ---
Total residential mortgages $ 75,048   $ 68,658
             
Other consumer          
  Other consumer $ ---   $ ---
  Purchased impaired   ---     ---
Total other consumer $ ---   $ ---
Total nonaccrual loans (1) $ 474,166   $ 541,080
             
(1) All loans acquired as part of the FDIC-assisted Fidelity Bank acquisition accrue interest as performing loans or as purchased impaired loans in accordance with ASC 310-30; therefore, none of the acquired loans were reported as nonaccrual at June 30, 2012.

The following table presents an aging analysis of loans and leases, including past due loans, by loan class at June 30, 2012, and December 31, 2011: (1)

 

June 30, 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 $ 11,700 $ 4,124 $ 47,421 $ 63,245   $ 4,123,480 $ 4,186,725   $ 1,846
  Purchased impaired   2,802   1,541   17,071   21,414     36,461   57,875     17,071
  Other commercial and industrial   22,168   3,776   25,873   51,817     12,025,433   12,077,250     341
Total commercial and industrial $ 36,670 $ 9,441 $ 90,365 $ 136,476   $ 16,185,374 $ 16,321,850   $ 19,258(2)
                                   
Commercial real estate:                                
  Retail properties $ 2,938 $ 628 $ 36,797 $ 40,363   $ 1,587,004 $ 1,627,367   $ ---
  Multi family   5,210   3,040   19,893   28,143     944,178   972,321     ---
  Office   18,163   2,815   19,409   40,387     977,783   1,018,170     ---
  Industrial and warehouse   3,397   1,126   4,234   8,757     682,813   691,570     ---
  Purchased impaired   8,807   1,381   38,054   48,242     87,396   135,638     38,125
  Other commercial real estate   6,074   19,250   28,279   53,603     1,409,040   1,462,643     ---
Total commercial real estate $ 44,589 $ 28,240 $ 146,666 $ 219,495   $ 5,688,214 $ 5,907,709   $ 38,125(2)
                                   
Automobile $ 29,410   6,355 $ 3,338 $ 39,103   $ 3,768,577 $ 3,807,680   $ 3,338
                                   
Home equity:                                
  Secured by first-lien $ 18,105 $ 8,720 $ 30,008 $ 56,833   $ 4,093,850 $ 4,150,683   $ 11,375
  Secured by junior-lien   27,648   13,334   26,630   67,612     4,125,535   4,193,147     6,801
Total home equity $ 45,753 $ 22,054 $ 56,638 $ 124,445   $ 8,219,385 $ 8,343,830   $ 18,176
                                   
Residential mortgage:                                
  Residential mortgage $ 143,368 $ 48,264 $ 168,835 $ 360,467   $ 4,760,205 $ 5,120,672   $ 99,641(3)
  Purchased impaired   220   402   1,494   2,116     239   2,355     1,494
Total residential mortgage $ 143,588 $ 48,666 $ 170,329 $ 362,583   $ 4,760,444 $ 5,123,027   $ 101,135
                                   
Other consumer:                                
  Other consumer $ 6,547 $ 1,997 $ 913 $ 9,457   $ 444,995 $ 454,452   $ 913
  Purchased impaired   ---   112   288   400     232   632     288
Total other consumer $ 6,547 $ 2,109 $ 1,201 $ 9,857   $ 445,227 $ 455,084   $ 1,201
                                   
December 31, 2011
                              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 $ 10,607 $ 7,433 $ 58,513 $ 76,553   $ 3,936,203 $ 4,012,756   $ ---
  Other commercial and industrial   32,962   7,579   60,833   101,374     10,585,241   10,686,615     ---
Total commercial and industrial $ 43,569 $ 15,012 $ 119,346 $ 177,927   $ 14,521,444 $ 14,699,371   $ ---
                                   
Commercial real estate:                                
  Retail properties $ 3,090 $ 823 $ 33,952 $ 37,865   $ 1,547,618 $ 1,585,483   $ ---
  Multi family   5,022   1,768   28,317   35,107     908,438   943,545     ---
  Office   3,134   792   30,041   33,967     990,897   1,024,864     ---
  Industrial and warehouse   2,834   115   18,203   21,152     708,390   729,542     ---
  Other commercial real estate   6,894   3,625   48,739   59,258     1,483,017   1,542,275     ---
Total commercial real estate $ 20,974 $ 7,123 $ 159,252 $ 187,349   $ 5,638,360 $ 5,825,709   $ ---
                                   
Automobile $ 42,162 $ 9,046 $ 6,265 $ 57,473   $ 4,399,973 $ 4,457,446   $ 6,265
Home equity:                                
  Secured by first-lien   17,260   8,822   29,259   55,341     3,760,238   3,815,579     9,247
  Secured by junior-lien   32,334   18,357   31,626   82,317     4,317,517   4,399,834     10,951
Residential mortgage   134,228   45,774   204,648   384,650     4,843,626   5,228,276     141,901(4)
Other consumer   7,655   1,502   1,988   11,145     486,423   497,568     1,988
                                   
(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 $85,678 thousand guaranteed by the U.S. government.
(4) Includes $96,703 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, Asset Based Lending, 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 under ASC 310-10, specific reserves related to loans considered to be impaired, and loans involved in troubled debt restructurings allocated under 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, however, 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 needed.

 

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. Management did not substantially change any material aspect of the overall approach in the determination of either the ALLL or AULC, and 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, 2012 and 2011: (1)

 

      Commercial Commercial   Home Residential Other    
  and Industrial Real Estate Automobile Equity Mortgage Consumer Total
(dollar amounts in thousands)                            
                                 
Three-month period ended June 30, 2012: (1)                            
                                 
  ALLL balance, beginning of period $ 246,026 $ 339,494 $ 36,552 $ 168,898 $ 89,129 $ 32,970 $ 913,069
    Loan charge-offs   (23,718)   (35,747)   (4,999)   (23,083)   (11,903)   (8,642)   (108,092)
    Recoveries of loans previously charged-off   8,040   6,569   4,550   2,038   1,117   1,533   23,847
    Provision for loan and lease losses   50,200   (4,925)   (1,446)   (12,291)   886   4,052   36,476
    Allowance for loans sold or transferred to loans held for sale   ---   ---   (4,440)   ---   (1,214)   ---   (5,654)
                                 
  ALLL balance, end of period $ 280,548 $ 305,391 $ 30,217 $ 135,562 $ 78,015 $ 29,913 $ 859,646
                                 
  AULC balance, beginning of period $ 42,276 $ 5,780 $ --- $ 2,108 $ 1 $ 769 $ 50,934
    Provision for unfunded loan commitments and letters of credit   568   (555)   ---   82   3   (54)   44
                                 
  AULC balance, end of period $ 42,844 $ 5,225 $ --- $ 2,190 $ 4 $ 715 $ 50,978
                                 
  ACL balance, end of period $ 323,392 $ 310,616 $ 30,217 $ 137,752 $ 78,019 $ 30,628 $ 910,624
                                 
Six-month period ended June 30, 2012: (1)                            
                                 
  ALLL balance, beginning of period $ 275,367 $ 388,706 $ 38,282 $ 143,873 $ 87,194 $ 31,406 $ 964,828
    Loan charge-offs   (57,224)   (57,149)   (12,609)   (48,348)   (23,648)   (17,074)   (216,052)
    Recoveries of loans previously charged-off   13,051   17,465   9,082   3,574   2,292   3,351   48,815
    Provision for loan and lease losses   49,354   (43,631)   597   36,463   13,391   12,230   68,404
    Allowance for loans sold or transferred to loans held for sale   ---   ---   (5,135)   ---   (1,214)   ---   (6,349)
                                 
  ALLL balance, end of period $ 280,548 $ 305,391 $ 30,217 $ 135,562 $ 78,015 $ 29,913 $ 859,646
                                 
  AULC balance, beginning of period $ 39,658 $ 5,852 $ --- $ 2,134 $ 1 $ 811 $ 48,456
    Provision for unfunded loan commitments and letters of credit   3,186   (627)   ---   56   3   (96)   2,522
                                 
  AULC balance, end of period $ 42,844 $ 5,225 $ --- $ 2,190 $ 4 $ 715 $ 50,978
                                 
  ACL balance, end of period $ 323,392 $ 310,616 $ 30,217 $ 137,752 $ 78,019 $ 30,628 $ 910,624
                                 
(1) In accordance with ASC 805, no allowance for credit losses was recorded for the loans acquired in the FDIC-assisted Fidelity Bank acquisition.

      Commercial Commercial   Home Residential Other    
  and Industrial Real Estate Automobile Equity Mortgage Consumer Total
(dollar amounts in thousands)                            
                                 
Three-month period ended June 30, 2011:                            
                                 
  ALLL balance, beginning of period $ 299,563 $ 511,068 $ 50,862 $ 149,371 $ 96,741 $ 25,621 $ 1,133,226
    Loan charge-offs   (28,230)   (40,723)   (6,877)   (27,359)   (17,330)   (8,182)   (128,701)
    Recoveries of loans previously charged-off   9,526   13,128   4,622   1,918   875   1,098   31,167
    Provision for loan and lease losses   157   (19,599)   6,821   22,514   20,220   6,835   36,948
    Allowance for loans sold or transferred to loans held for sale   ---   ---   ---   ---   (1,514)   ---   (1,514)
                                 
  ALLL balance, end of period $ 281,016 $ 463,874 $ 55,428 $ 146,444 $ 98,992 $ 25,372 $ 1,071,126
                                 
  AULC balance, beginning of period $ 30,706 $ 8,433 $ --- $ 2,241 $ 1 $ 830 $ 42,211
    Provision for unfunded loan commitments and letters of credit   635   (1,801)   ---   8   ---   7   (1,151)
                                 
  AULC balance, end of period $ 31,341 $ 6,632 $ --- $ 2,249 $ 1 $ 837 $ 41,060
                                 
  ACL balance, end of period $ 312,357 $ 470,506 $ 55,428 $ 148,693 $ 98,993 $ 26,209 $ 1,112,186
                                 
Six-month period ended June 30, 2011:                            
                                 
  ALLL balance, beginning of period $ 340,614 $ 588,251 $ 49,488 $ 150,630 $ 93,289 $ 26,736 $ 1,249,008
    Loan charge-offs   (81,965)   (117,371)   (16,852)   (55,682)   (40,351)   (15,487)   (327,708)
    Recoveries of loans previously charged-off   21,070   22,093   9,885   3,526   4,964   3,553   65,091
    Provision for loan and lease losses   1,297   (29,099)   12,907   47,970   42,604   10,570   86,249
    Allowance for loans sold or transferred to loans held for sale   ---   ---   ---   ---   (1,514)   ---   (1,514)
                                 
  ALLL balance, end of period $ 281,016 $ 463,874 $ 55,428 $ 146,444 $ 98,992 $ 25,372 $ 1,071,126
                                 
  AULC balance, beginning of period $ 32,726 $ 6,158 $ --- $ 2,348 $ 1 $ 894 $ 42,127
    Provision for unfunded loan commitments and letters of credit   (1,385)   474   ---   (99)   ---   (57)   (1,067)
                                 
  AULC balance, end of period $ 31,341 $ 6,632 $ --- $ 2,249 $ 1 $ 837 $ 41,060
                                 
  ACL balance, end of period $ 312,357 $ 470,506 $ 55,428 $ 148,693 $ 98,993 $ 26,209 $ 1,112,186

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.

 

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 = Potentially weak loans. 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.

 

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 generally 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 lower credit risk.

The following table presents each loan and lease class by credit quality indicator at June 30, 2012, and December 31, 2011:

 

    June 30, 2012  
  Credit Risk Profile by UCS classification  
(dollar amounts in thousands) Pass OLEM Substandard Doubtful Total  
Commercial and industrial:                      
  Owner occupied $ 3,822,996 $ 102,504 $ 260,205 $ 1,020 $ 4,186,725  
  Purchased impaired   1,051   15,967   40,830   27   57,875  
  Other commercial and industrial   11,475,884   166,148   432,578   2,640   12,077,250  
Total commercial and industrial $ 15,299,931 $ 284,619 $ 733,613 $ 3,687 $ 16,321,850  
                         
Commercial real estate:                      
  Retail properties $ 1,300,320 $ 54,694 $ 272,353 $ --- $ 1,627,367  
  Multi family   869,938   34,528   67,693   162   972,321  
  Office   888,164   35,844   94,158   4   1,018,170  
  Industrial and warehouse   622,314   7,486   61,770   ---   691,570  
  Purchased impaired   5,507   45,926   84,076   129   135,638  
  Other commercial real estate   1,188,881   64,241   209,405   116   1,462,643  
Total commercial real estate $ 4,875,124 $ 242,719 $ 789,455 $ 411 $ 5,907,709  
                         
    Credit Risk Profile by FICO score (1)  
    750+ 650-749 <650 Other (2) Total  
Automobile $ 2,487,741 $ 2,084,794 $ 634,529 $ 84,365 $ 5,291,429 (3)
                         
Home equity:                      
  Secured by first-lien $ 2,427,346 $ 1,387,435 $ 317,207 $ 18,695 $ 4,150,683  
  Secured by junior-lien   2,034,628   1,580,078   575,773   2,668   4,193,147  
Total home equity $ 4,461,974 $ 2,967,513 $ 892,980 $ 21,363 $ 8,343,830  
                         
Residential mortgage:                      
  Residential mortgage $ 2,641,238 $ 1,805,850 $ 708,150 $ 110,001 $ 5,265,239  
  Purchased impaired   357   1,357   475   166   2,355  
Total residential mortgage $ 2,641,595 $ 1,807,207 $ 708,625 $ 110,167 $ 5,267,594 (4)
                         
Other consumer:                      
  Other consumer $ 174,380 $ 185,857 $ 70,368 $ 23,847 $ 454,452  
  Purchased impaired   -   232   300   100   632  
Total other consumer $ 174,380 $ 186,089 $ 70,668 $ 23,947 $ 455,084  
                         
                         
    December 31, 2011  
  Credit Risk Profile by UCS classification  
(dollar amounts in thousands) Pass OLEM Substandard Doubtful Total  
Commercial and industrial:                      
  Owner occupied $ 3,624,103 $ 101,897 $ 285,561 $ 1,195 $ 4,012,756  
  Other commercial and industrial   10,108,946   145,963   425,882   5,824   10,686,615  
Total commercial and industrial $ 13,733,049 $ 247,860 $ 711,443 $ 7,019 $ 14,699,371  
                         
Commercial real estate:                      
  Retail properties $ 1,191,471 $ 122,337 $ 271,675 $ --- $ 1,585,483  
  Multi family   801,717   48,094   93,449   285   943,545  
  Office   896,230   67,050   61,476   108   1,024,864  
  Industrial and warehouse   649,165   9,688   70,621   68   729,542  
  Other commercial real estate   1,112,751   110,276   318,479   769   1,542,275  
Total commercial real estate $ 4,651,334 $ 357,445 $ 815,700 $ 1,230 $ 5,825,709  
                         
    Credit Risk Profile by FICO score (1)  
    750+ 650-749 <650 Other (2) Total  
Automobile $ 2,635,082 $ 2,276,990 $ 707,141 $ 88,233 $ 5,707,446 (5)
Home equity:                      
  Secured by first-lien   2,196,566   1,287,444   329,670   1,899   3,815,579  
  Secured by junior-lien   2,119,292   1,646,117   625,298   9,127   4,399,834  
Residential mortgage   2,454,401   1,752,409   723,377   298,089   5,228,276  
Other consumer   185,333   206,749   83,431   22,055   497,568  
                         
                         
(1) Reflects currently updated customer credit scores.  
(2) Reflects deferred fees and costs, loans in process, loans to legal entities, etc.  
(3) Includes $1,483,749 thousand of loans reflected as loans held for sale.  
(4) Includes $144,567 thousand of loans reflected as loans held for sale.  
(5) Includes $1,250,000 thousand of loans reflected as loans held for sale.  

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. Also, 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 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 June 30, 2012, and December 31, 2011:

                                 
      Commercial Commercial     Residential Other  
  and Industrial Real Estate Automobile Home Equity Mortgage Consumer Total
                                 
ALLL at June 30, 2012:                            
(dollar amounts in thousands)                            
                                 
  Portion of ending balance:                            
                                 
    Attributable to loans purchased with deteriorated credit quality $ --- $ --- $ --- $ --- $ --- $ --- $ ---
    Attributable to loans individually evaluated for impairment   17,797   49,200   937   1,239   12,347   341   81,861
    Attributable to loans collectively evaluated for impairment   262,751   256,191   29,280   134,323   65,668   29,572   777,785
  Total ALLL balance $ 280,548 $ 305,391 $ 30,217 $ 135,562 $ 78,015 $ 29,913 $ 859,646
                                 
                                 
Loans and Leases at June 30, 2012:                            
(dollar amounts in thousands)                            
                                 
  Portion of ending balance:                            
                                 
    Attributable to loans purchased with deteriorated credit quality $ 57,875 $ 135,638 $ --- $ --- $ 2,355 $ 632 $ 196,500
    Attributable to loans individually evaluated for impairment   119,650   355,920   34,460   67,371   327,300   3,151   907,852
    Attributable to loans collectively evaluated for impairment   16,144,325   5,416,151   3,773,220   8,276,459   4,793,372   451,301   38,854,828
  Total loans evaluated for impairment (1) $ 16,321,850 $ 5,907,709 $ 3,807,680 $ 8,343,830 $ 5,123,027 $ 455,084 $ 39,959,180
                                 
                                 

                                 
                   
  Commercial and Industrial Commercial Real Estate Automobile Home Equity Residential Mortgage Other Consumer Total
                                 
ALLL at December 31, 2011                            
(dollar amounts in thousands)                            
                                 
  Portion of ending balance:                            
                                 
    Attributable to loans individually evaluated for impairment $ 30,613 $ 55,306 $ 1,393 $ 1,619 $ 16,091 $ 530 $ 105,552
    Attributable to loans collectively evaluated for impairment   244,754   333,400   36,889   142,254   71,103   30,876   859,276
  Total ALLL balance: $ 275,367 $ 388,706 $ 38,282 $ 143,873 $ 87,194 $ 31,406 $ 964,828
                                 
                                 
Loans and Leases at December 31, 2011:                            
(dollar amounts in thousands)                            
                                 
  Portion of ending balance:                            
                                 
    Attributable to loans individually evaluated for impairment $ 153,724 $ 387,402 $ 36,574 $ 52,593 $ 335,768 $ 6,220 $ 972,281
    Attributable to loans collectively evaluated for impairment   14,545,647   5,438,307   4,420,872   8,162,820   4,892,508   491,348   37,951,502
  Total loans evaluated for impairment $ 14,699,371 $ 5,825,709 $ 4,457,446 $ 8,215,413 $ 5,228,276 $ 497,568 $ 38,923,783
                                 
                                 

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: (1), (2)

                    Three Months Ended   Six Months Ended
  June 30, 2012   June 30, 2012   June 30, 2012
          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 $ 5,240 $ 16,451 $ ---   $ 8,038 $ 36   $ 5,614 $ 60
    Purchased impaired   57,875   82,114   ---     70,641   832     70,641   832
    Other commercial and industrial   4,981   4,983   ---     11,114   162     8,196   255
  Total commercial and industrial $ 68,096 $ 103,548 $ ---   $ 89,793 $ 1,030   $ 84,451 $ 1,147
                                     
  Commercial real estate:                                
    Retail properties $ 51,090 $ 54,559 $ ---   $ 54,861 $ 722   $ 51,532 $ 1,476
    Multi family   5,946   6,089   ---     6,033   96     6,112   193
    Office   9,670   14,943   ---     4,010   27     2,598   52
    Industrial and warehouse   6,395   7,495   ---     6,799   100     7,178   206
    Purchased impaired   135,638   211,667   ---     174,299   1,950     174,299   1,950
    Other commercial real estate   18,628   38,015   ---     16,113   125     18,067   273
  Total commercial real estate $ 227,367 $ 332,768 $ ---   $ 262,115 $ 3,020   $ 259,786 $ 4,150
                                     
                                     
  Home equity:                                
    Secured by first-lien $ --- $ --- $ ---   $ --- $ ---   $ --- $ ---
    Secured by junior-lien   ---   ---   ---     ---   ---     ---   ---
  Total home equity $ --- $ --- $ ---   $ --- $ ---   $ --- $ ---
                                     
  Residential mortgage:                                
    Residential mortgage $ --- $ --- $ ---   $ --- $ ---   $ --- $ ---
    Purchased impaired   2,355   4,338   ---     4,805   34     4,805   34
  Total residential mortgage $ 2,355 $ 4,338 $ ---   $ 4,805 $ 34   $ 4,805 $ 34
                                     
  Other consumer                                
    Other consumer $ --- $ --- $ ---   $ --- $ ---   $ --- $ ---
    Purchased impaired   632   935   ---     864   9     864   9
  Total other consumer $ 632 $ 935 $ ---   $ 864 $ 9   $ 864 $ 9
                                     
With an allowance recorded:                                
  Commercial and industrial: (3)                                
    Owner occupied $ 35,386 $ 45,480 $ 5,504   $ 33,400 $ 293   $ 38,411 $ 695
    Purchased impaired   ---   ---   ---     ---   ---     ---   ---
    Other commercial and industrial   74,043   98,632   12,293     86,688   627     87,909   1,482
  Total commercial and industrial $ 109,429 $ 144,112 $ 17,797   $ 120,088 $ 920   $ 126,320 $ 2,177
                                     
  Commercial real estate: (4)                                
    Retail properties $ 127,718 $ 157,655 $ 28,871   $ 118,628 $ 906   $ 121,163 $ 3,185
    Multi family   28,160   33,756   4,681     25,288   206     31,312   828
    Office   7,840   8,734   1,683     17,218   51     20,167   158
    Industrial and warehouse   23,013   31,289   2,282     22,596   74     24,547   353
    Purchased impaired   ---   ---   ---     ---   ---     ---   ---
    Other commercial real estate   77,460   91,743   11,683     75,986   456     77,907   1,618
  Total commercial real estate $ 264,191 $ 323,177 $ 49,200   $ 259,716 $ 1,693   $ 275,096 $ 6,142
                                     
  Automobile $ 34,460 $ 34,460 $ 937   $ 34,991 $ 794   $ 35,518 $ 1,616
                                     
  Home equity:                                
    Secured by first-lien $ 51,238 $ 51,238 $ 527   $ 47,568 $ 561   $ 43,659 $ 1,040
    Secured by junior-lien   16,133   16,133   712     15,919   222     16,196   437
  Total home equity $ 67,371 $ 67,371 $ 1,239   $ 63,487 $ 783   $ 59,855 $ 1,477
                                     
  Residential mortgage (6):                                
    Residential mortgage $ 327,300 $ 355,214 $ 12,347   $ 325,842 $ 2,866   $ 329,151 $ 5,803
    Purchased impaired   ---   ---   ---     ---   ---     ---   ---
  Total residential mortgage $ 327,300 $ 355,214 $ 12,347   $ 325,842 $ 2,866   $ 329,151 $ 5,803
                                     
  Other consumer:                                
    Other consumer $ 3,151 $ 3,151 $ 341   $ 3,748 $ 26   $ 4,572 $ 59
    Purchased impaired   ---   ---   ---     ---   ---     ---   ---
  Total other consumer $ 3,151 $ 3,151 $ 341   $ 3,748 $ 26   $ 4,572 $ 59

                 
  December 31, 2011
          Unpaid    
      Ending Principal Related
(dollar amounts in thousands) Balance Balance (5) Allowance
                 
With no related allowance recorded:            
  Commercial and industrial:            
    Owner occupied $ --- $ --- $ ---
    Other commercial and industrial   ---   ---   ---
  Total commercial and industrial $ --- $ --- $ ---
                 
  Commercial real estate:            
    Retail properties $ 43,970 $ 45,192 $ ---
    Multi family   6,292   6,435   ---
    Office   1,191   1,261   ---
    Industrial and warehouse   8,163   9,945   ---
    Other commercial real estate   22,396   38,401   ---
  Total commercial real estate $ 82,012 $ 101,234 $ ---
                 
With an allowance recorded:            
  Commercial and industrial:            
    Owner occupied $ 53,613 $ 77,205 $ 7,377
    Other commercial and industrial   100,111   117,469   23,236
  Total commercial and industrial $ 153,724 $ 194,674 $ 30,613
                 
  Commercial real estate:            
    Retail properties $ 129,396 $ 161,596 $ 30,363
    Multi family   38,154   45,138   4,753
    Office   23,568   42,287   2,832
    Industrial and warehouse   29,435   47,373   3,136
    Other commercial real estate   84,837   119,212   14,222
  Total commercial real estate $ 305,390 $ 415,606 $ 55,306
                 
  Automobile $ 36,574 $ 36,574 $ 1,393
  Home equity:            
    Secured by first-lien   35,842   35,842   626
    Secured by junior-lien   16,751   16,751   993
  Residential mortgage   335,768   361,161   16,091
  Other consumer   6,220   6,220   530

                                     
(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 June 30, 2012, $40,280 thousand of the $109,429 thousand commercial and industrial loans with an allowance recorded were considered impaired due to their status as a TDR.          
(4) At June 30, 2012, $33,105 thousand of the $264,191 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 June 30, 2012, $16,946 thousand of the $327,300 thousand residential mortgages 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. Commercial loan modifications, including those classified as 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.

 

  • 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 ended June 30, 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 refinancing or modification of a loan occurs 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.

 

In accordance with ASC 310-20-35, 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 driven 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.

 

TDR concessions and classification may reduce the ALLL within certain classes, specifically the C&I and CRE portfolios. The reduction is derived from the type of concessions given to the borrowers and the resulting application of the transaction reserve calculation within the ALLL.  Our TDRs may include multiple concessions and the disclosure classifications are based on the primary concession provided to the borrower. The majority of our concessions for C&I and CRE loans during the period are situations in which we extended the maturity date which is normally coupled with an increase in the interest rate (in these cases, the primary concession is the maturity date extension).

 

The transaction reserve for non-TDR loans is calculated based upon several estimated probability factors, such as PD and LGD, both of which were previously discussed above.  Upon the occurrence of a TDR in our C&I and CRE portfolios, the transaction reserve is measured based on the estimation of the probable discounted future cash flows expected to be collected on the modified loan in accordance with ASC 310-10.  The resulting TDR ALLL calculation often results in a minimal or zero ALLL amount because (1) it is probable all cash flows will be collected and, (2) due to the 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.

 

However, TDR concessions and classification may increase the ALLL to certain loans, such as consumer loans.  The concessions made to these loans 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 probable discounted cash flows expected to be collected on the modified loan in accordance with ASC 310-10. The resulting TDR ALLL calculation often results in a higher ALLL amount because (1) it may not be probable all cash flows will be collected and, (2) due to the rate decrease, the discounting of the cash flows on the modified loan, using the pre-modification interest rate, indicates it is not probable that all cash flows will be collected.

 

 

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.

 

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 net change in ALLL resulting from the modification for the three-month and six-month periods ending June 30, 2012:

      New Troubled Debt Restructurings During The
      Three-Month Period Ended June 30, 2012 (1), (2)
        Post-modification    
        Outstanding Net change in
(dollar amounts in thousands)   Number of Ending ALLL resulting
    Contracts Balance from modification
               
C&I - Owner occupied:            
               
  Interest rate reduction   4 $ 1,187 $ (1)
  Amortization or maturity date change   30   8,312   861
  Other   4   1,260   (114)
Total C&I - Owner occupied   38 $ 10,759 $ 746
               
C&I - Other commercial and industrial:            
               
  Interest rate reduction   11 $ 3,750 $ 247
  Amortization or maturity date change   43   19,554   822
  Other   3   1,500   176
Total C&I - Other commercial and industrial   57 $ 24,804 $ 1,245
               
CRE - Retail properties: