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
Sep. 30, 2013
Loans / Leases and Allowance for Credit Losses [Abstract]  
Loans / Leases AND ALLOWANCE FOR CREDIT LOSSES

3. Loans / Leases AND ALLOWANCE FOR CREDIT LOSSES

 

Loans and leases for which Huntington has the intent and ability to hold for the foreseeable future, or until maturity or payoff, are classified in the Unaudited Condensed Consolidated Balance Sheets as loans and leases. Except for loans which are accounted for at fair value, loans and leases are carried at the principal amount outstanding, net of unamortized deferred loan origination fees and costs and net of unearned income. At September 30, 2013, and December 31, 2012, the aggregate amount of these net unamortized deferred loan origination fees and costs and net unearned income was $172.5 million and $174.5 million, respectively.

 

Loan and Lease Portfolio Composition

 

The following table provides a detailed listing of Huntington's loan and lease portfolio at September 30, 2013 and December 31, 2012:

 

          September 30,     December 31,
(dollar amounts in thousands)   2013     2012
                 
Loans and leases:          
    Commercial and industrial $ 17,334,533   $ 16,970,689
    Commercial real estate   4,872,725     5,399,240
    Automobile   6,317,112     4,633,820
    Home equity   8,346,685     8,335,342
    Residential mortgage   5,306,964     4,969,672
    Other consumer   377,814     419,662
  Loans and leases   42,555,833     40,728,425
  Allowance for loan and lease losses   (666,030)     (769,075)
Net loans and leases $ 41,889,803   $ 39,959,350

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

 

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

Fidelity Bank acquisition

 

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

 

Purchased Credit-Impaired Loans

 

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

 

The following table presents a rollforward of the accretable yield for three-month and nine-month periods ended September 30, 2013 and 2012:

                       
  Three Months Ended September 30,   Nine Months Ended September 30,
(dollar amounts in thousands) 2013   2012   2013   2012
Balance, beginning of period $ 32,705   $ 24,761   $ 23,251   $ ---
Impact of acquisition/purchase on March 30, 2012   ---     ---     ---     27,586
Additions   ---     ---     ---     ---
Accretion   (4,605)     (2,982)     (11,705)     (5,807)
Reclassification from nonaccretable difference   1,152     ---     17,706     ---
Balance, end of period $ 29,252   $ 21,779   $ 29,252   $ 21,779

At September 30, 2013, there was $2.2 million of allowance for loan losses recorded on the purchased impaired loan portfolio. The following table reflects the outstanding balance of all contractually required payments and carrying amounts of the acquired loans at September 30, 2013 and December 31, 2012:

           
  September 30, 2013   December 31, 2012
(dollar amounts in thousands)   Ending Balance     Unpaid Balance     Ending Balance     Unpaid Balance
Commercial and industrial $ 43,638   $ 63,023   $ 54,472   $ 80,294
Commercial real estate   89,246     172,618     126,923     226,093
Residential mortgage   2,287     3,619     2,243     4,104
Other consumer   127     223     140     245
Total $ 135,298   $ 239,483   $ 183,778   $ 310,736

Loan and Lease Purchases and Sales

 

The following table summarizes significant portfolio loan and lease purchase and sale activity for the three-month and nine-month periods ended September 30, 2013 and 2012:

                                 
      Commercial Commercial   Home Residential Other  
  and Industrial Real Estate Automobile Equity Mortgage Consumer Total
  (dollar amounts in thousands)                            
                                 
  Portfolio loans and leases purchased during the:
    Three-month period ended September 30, 2013 $ 28,432 $ --- $ --- $ --- $ --- $ --- $ 28,432
    Nine-month period ended September 30, 2013 $ 84,169 $ --- $ --- $ --- $ --- $ --- $ 84,169
                                 
    Three-month period ended September 30, 2012 $ 58,638 $ --- $ --- $ --- $ --- $ --- $ 58,638
    Nine-month period ended September 30, 2012 $ 536,139 $ 378,122 $ --- $ 13,025 $ 62,324 $ 85 $ 989,695
                                 
  Portfolio loans and leases sold or transferred to loans held for sale during the:
    Three-month period ended September 30, 2013 $ 70,823 $ --- $ --- $ --- $ 49,931 $ --- $ 120,754
    Nine-month period ended September 30, 2013 $ 153,889 $ 3,991 $ --- $ --- $ 205,335   --- $ 363,215
                                 
    Three-month period ended September 30, 2012 $ 65,768 $ 4,812 $ --- $ --- $ --- $ --- $ 70,580
    Nine-month period ended September 30, 2012 $ 190,933 $ 52,554 $ 2,783,748 $ --- $ 179,621 $ --- $ 3,206,856

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 September 30, 2013 and December 31, 2012:

 

    2013   2012
(dollar amounts in thousands) September 30,   December 31,
             
Commercial and industrial:          
  Owner occupied $ 43,493   $ 53,009
  Other commercial and industrial   24,541     37,696
Total commercial and industrial $ 68,034   $ 90,705
             
Commercial real estate:          
  Retail properties $ 30,383   $ 31,791
  Multi family   11,295     19,765
  Office   18,461     30,341
  Industrial and warehouse   4,959     6,841
  Other commercial real estate   15,197     38,390
Total commercial real estate $ 80,295   $ 127,128
             
Automobile $ 5,972   $ 7,823
             
Home equity:          
  Secured by first-lien $ 30,347   $ 27,091
  Secured by junior-lien   32,198     32,434
Total home equity $ 62,545   $ 59,525
             
Residential mortgage:          
Residential mortgage $ 116,260   $ 122,452
Total residential mortgages $ 116,260   $ 122,452
             
Other consumer          
Other consumer $ ---   $ ---
Total nonaccrual loans $ 333,106   $ 407,633
             

The following table presents an aging analysis of loans and leases, including past due loans, by loan class at September 30, 2013 and December 31, 2012: (1)

September 30, 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 $ 7,858 $ 3,665 $ 30,621 $ 42,144   $ 4,349,691 $ 4,391,835   $ ---
  Purchased credit-impaired   402   774   19,217   20,393     23,245   43,638     19,217
  Other commercial and industrial   11,235   3,297   10,109   24,641     12,874,419   12,899,060     ---
Total commercial and industrial $ 19,495 $ 7,736 $ 59,947 $ 87,178   $ 17,247,355 $ 17,334,533   $ 19,217(2)
                                   
Commercial real estate:                                
  Retail properties $ 2,822 $ 2,022 $ 5,851 $ 10,695   $ 1,224,025 $ 1,234,720   $ ---
  Multi family   2,059   823   8,253   11,135     960,380   971,515     ---
  Office   4,501   1,201   15,887   21,589     948,001   969,590     ---
  Industrial and warehouse   3,049   1,194   2,729   6,972     520,784   527,756     ---
  Purchased credit-impaired   2,545   3,109   44,026   49,680     39,566   89,246     44,026
  Other commercial real estate   2,375   568   9,628   12,571     1,067,327   1,079,898     ---
Total commercial real estate $ 17,351 $ 8,917 $ 86,374 $ 112,642   $ 4,760,083 $ 4,872,725   $ 44,026(2)
                                   
Automobile $ 34,808 $ 7,554 $ 3,683 $ 46,045   $ 6,271,067 $ 6,317,112   $ 3,599
                                   
Home equity:                                
  Secured by first-lien $ 17,554 $ 7,830 $ 28,877 $ 54,261   $ 4,699,206 $ 4,753,467   $ 6,493
  Secured by junior-lien   31,079   14,030   30,418   75,527     3,517,691   3,593,218     6,551
Total home equity $ 48,633 $ 21,860 $ 59,295 $ 129,788   $ 8,216,897 $ 8,346,685   $ 13,044
                                   
Residential mortgage:                                
  Residential mortgage $ 114,101 $ 37,628 $ 164,564 $ 316,293   $ 4,988,384 $ 5,304,677   $ 95,569(3)
  Purchased credit-impaired   106   ---   178   284     2,003   2,287     179
Total residential mortgage $ 114,207 $ 37,628 $ 164,742 $ 316,577   $ 4,990,387 $ 5,306,964   $ 95,748
                                   
Other consumer:                                
  Other consumer $ 6,326 $ 1,430 $ 1,100 $ 8,856   $ 368,831 $ 377,687   $ 1,102
  Purchased credit-impaired   ---   ---   ---   ---     127   127     ---
Total other consumer $ 6,326 $ 1,430 $ 1,100 $ 8,856   $ 368,958 $ 377,814   $ 1,102
                                   
Total loans and leases $ 240,820 $ 85,125 $ 375,141 $ 701,086   $ 41,854,747 $ 42,555,833   $ 176,736
                                   
December 31, 2012
                              90 or more
(dollar amounts in thousands) Past Due       Total Loans   days past due
  30-59 Days 60-89 Days 90 or more days Total   Current and Leases   and accruing
                                   
Commercial and industrial:                                
  Owner occupied $ 11,409 $ 6,302 $ 31,997 $ 49,708   $ 4,236,211 $ 4,285,919   $ ---
  Purchased credit-impaired   986   3,533   26,648   31,167     23,305   54,472     26,648
  Other commercial and industrial   20,273   4,211   14,786   39,270     12,591,028   12,630,298     ---
Total commercial and industrial $ 32,668 $ 14,046 $ 73,431 $ 120,145   $ 16,850,544 $ 16,970,689   $ 26,648(2)
                                   
Commercial real estate:                                
  Retail properties $ 3,459 $ 4,203 $ 9,677 $ 17,339   $ 1,413,520 $ 1,430,859   $ ---
  Multi family   7,961   1,314   12,062   21,337     963,063   984,400     ---
  Office   1,054   2,415   23,335   26,804     909,310   936,114     ---
  Industrial and warehouse   6,597   118   5,433   12,148     584,754   596,902     ---
  Purchased credit-impaired   556   1,751   56,660   58,967     67,956   126,923     56,660
  Other commercial real estate   2,725   2,192   25,463   30,380     1,293,662   1,324,042     ---
Total commercial real estate $ 22,352 $ 11,993 $ 132,630 $ 166,975   $ 5,232,265 $ 5,399,240   $ 56,660(2)
                                   
Automobile $ 36,267 $ 7,803 $ 4,438 $ 48,508   $ 4,585,312 $ 4,633,820   $ 4,418
                                   
Home equity                                
  Secured by first-lien $ 26,288 $ 9,992 $ 28,322 $ 64,602   $ 4,315,985 $ 4,380,587   $ 5,202
  Secured by junior-lien   34,365   16,553   35,150   86,068     3,868,687   3,954,755     12,998
Total home equity $ 60,653 $ 26,545 $ 63,472 $ 150,670   $ 8,184,672 $ 8,335,342   $ 18,200
                                   
Residential mortgage                                
  Residential mortgage $ 118,582 $ 44,747 $ 164,035 $ 327,364   $ 4,640,065 $ 4,967,429   $ 92,925(4)
  Purchased credit-impaired   58   ---   609   667     1,576   2,243     609
Total residential mortgage $ 118,640 $ 44,747 $ 164,644 $ 328,031   $ 4,641,641 $ 4,969,672   $ 93,534
                                   
Other consumer                                
  Other consumer $ 7,431 $ 2,117 $ 1,672 $ 11,220   $ 408,302 $ 419,522   $ 1,672
  Purchased credit-impaired   ---   76   ---   76     64   140     ---
Total other consumer $ 7,431 $ 2,193 $ 1,672 $ 11,296   $ 408,366 $ 419,662   $ 1,672
                                   
Total loans and leases $ 278,011 $ 107,327 $ 440,287 $ 825,625   $ 39,902,800 $ 40,728,425   $ 201,132
                                   
                                   
(1) NALs are included in this aging analysis based on the loan's past due status.
(2) All amounts represent accruing purchased impaired loans related to the FDIC-assisted Fidelity Bank acquisition. Under the applicable accounting guidance (ASC 310-30), the loans were recorded at fair value upon acquisition and remain in accruing status.
(3) Includes $81,770 thousand guaranteed by the U.S. government.
(4) Includes $90,816 thousand guaranteed by the U.S. government.

Allowance for Credit Losses

 

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

 

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

 

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

 

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

 

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

 

During the quarter, we made enhancements to our commercial risk rating system used for assessing credit risk when determining our ACL. The enhancements made during the quarter provide greater granularity in overall corporate risk ratings and incorporate a broader set of financial metrics in the determination of the PD and LGD. The PD and LGD factors combine to represent the transaction reserve component for a given credit exposure.

 

In conjunction with the enhancements to our commercial risk rating system noted above, we enhanced our process for incorporating risk inherent in the economic and risk profile components of our general reserve, which is discussed more fully in Note 1 of Form 10-K. These enhancements allow Huntington to better reflect the credit exposure inherent in our portfolio, as well as overall risks in the economic environment. These changes did not have a material impact on our overall ACL.

 

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.

 

During a 2013 third quarter review of our consumer portfolios, we identified additional loans associated with borrowers who had filed Chapter 7 bankruptcy and had not reaffirmed their debt, thus meeting the definition of collateral dependent per OCC guidance, and as such, considered a concession, placed on nonaccrual status, and written down to collateral value, less anticipated selling costs. As a result of our review of the existing consumer portfolios, NCOs increased by $13.1 million and the ALLL increased by $6.0 million based on our estimated exposure. We will finalize the review during the 2013 fourth quarter.

 

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 nine-month periods ended September 30, 2013 and 2012:

      Commercial Commercial   Home Residential Other    
  and Industrial Real Estate Automobile Equity Mortgage Consumer Total
(dollar amounts in thousands)                            
                                 
Three-month period ended September 30, 2013:
                                 
  ALLL balance, beginning of period $ 233,679 $ 255,849 $ 39,990 $ 115,626 $ 63,802 $ 24,130 $ 733,076
    Loan charge-offs   (9,226)   (22,759)   (6,000)   (30,206)   (7,435)   (9,626)   (85,252)
    Recoveries of loans previously charged-off   7,565   10,196   3,279   3,031   2,646   2,793   29,510
    Provision for loan and lease losses   30,030   (78,764)   (10,182)   35,617   (7,691)   19,756   (11,234)
    Allowance for loans sold or transferred to loans held for sale   ---   ---   ---   ---   (70)   ---   (70)
  ALLL balance, end of period $ 262,048 $ 164,522 $ 27,087 $ 124,068 $ 51,252 $ 37,053 $ 666,030
                                 
  AULC balance, beginning of period $ 37,471 $ 4,408 $ --- $ 1,688 $ 6 $ 650 $ 44,223
    Provision for unfunded loan commitments and letters of credit   13,621   8,394   ---   59   7   553   22,634
  AULC balance, end of period $ 51,092 $ 12,802 $ --- $ 1,747 $ 13 $ 1,203 $ 66,857
                                 
  ACL balance, end of period $ 313,140 $ 177,324 $ 27,087 $ 125,815 $ 51,265 $ 38,256 $ 732,887
                                 
Nine-month period ended September 30, 2013:
                                 
  ALLL balance, beginning of period $ 241,051 $ 285,369 $ 34,979 $ 118,764 $ 61,658 $ 27,254 $ 769,075
    Loan charge-offs   (31,220)   (59,320)   (16,907)   (74,504)   (25,028)   (25,653)   (232,632)
    Recoveries of loans previously charged-off   24,656   31,596   10,129   12,692   5,471   5,869   90,413
    Provision for loan and lease losses   27,561   (93,123)   (1,114)   67,116   9,485   29,583   39,508
    Allowance for loans sold or transferred to loans held for sale   ---   ---   ---   ---   (334)   ---   (334)
  ALLL balance, end of period $ 262,048 $ 164,522 $ 27,087 $ 124,068 $ 51,252 $ 37,053 $ 666,030
                                 
  AULC balance, beginning of period $ 33,868 $ 4,740 $ --- $ 1,356 $ 3 $ 684 $ 40,651
    Provision for unfunded loan commitments and letters of credit   17,224   8,062   ---   391   10   519   26,206
  AULC balance, end of period $ 51,092 $ 12,802 $ --- $ 1,747 $ 13 $ 1,203 $ 66,857
                                 
  ACL balance, end of period $ 313,140 $ 177,324 $ 27,087 $ 125,815 $ 51,265 $ 38,256 $ 732,887

      Commercial Commercial   Home Residential Other    
  and Industrial Real Estate Automobile Equity Mortgage Consumer Total
(dollar amounts in thousands)                            
                                 
Three-month period ended September 30, 2012:
                                 
  ALLL balance, beginning of period $ 280,548 $ 305,391 $ 30,217 $ 135,562 $ 78,015 $ 29,913 $ 859,646
    Loan charge-offs   (22,522)   (26,513)   (7,925)   (48,710)   (17,644)   (8,872)   (132,186)
    Recoveries of loans previously charged-off   9,499   9,139   3,906   2,114   764   1,669   27,091
    Provision for loan and lease losses   (10,444)   (7,641)   7,187   33,639   5,809   5,869   34,419
    Allowance for loans sold or transferred to loans held for sale   ---   ---   (104)   ---   276   ---   172
  ALLL balance, end of period $ 257,081 $ 280,376 $ 33,281 $ 122,605 $ 67,220 $ 28,579 $ 789,142
                                 
  AULC balance, beginning of period $ 42,844 $ 5,225 $ --- $ 2,190 $ 4 $ 715 $ 50,978
    Provision for unfunded loan commitments and letters of credit   3,263   (125)   ---   (513)   (1)   (39)   2,585
  AULC balance, end of period $ 46,107 $ 5,100 $ --- $ 1,677 $ 3 $ 676 $ 53,563
                                 
  ACL balance, end of period $ 303,188 $ 285,476 $ 33,281 $ 124,282 $ 67,223 $ 29,255 $ 842,705
                                 
Nine-month period ended September 30, 2012:
                                 
  ALLL balance, beginning of period $ 275,367 $ 388,706 $ 38,282 $ 143,873 $ 87,194 $ 31,406 $ 964,828
    Loan charge-offs   (79,746)   (83,662)   (20,534)   (97,058)   (41,292)   (25,946)   (348,238)
    Recoveries of loans previously charged-off   22,550   26,604   12,988   5,688   3,056   5,020   75,906
    Provision for loan and lease losses   38,910   (51,272)   7,784   70,102   19,200   18,099   102,823
    Allowance for loans sold or transferred to loans held for sale   ---   ---   (5,239)   ---   (938)   ---   (6,177)
  ALLL balance, end of period $ 257,081 $ 280,376 $ 33,281 $ 122,605 $ 67,220 $ 28,579 $ 789,142
                                 
  AULC balance, beginning of period $ 39,658 $ 5,852 $ --- $ 2,134 $ 1 $ 811 $ 48,456
    Provision for unfunded loan commitments and letters of credit   6,449   (752)   ---   (457)   2   (135)   5,107
  AULC balance, end of period $ 46,107 $ 5,100 $ --- $ 1,677 $ 3 $ 676 $ 53,563
                                 
  ACL balance, end of period $ 303,188 $ 285,476 $ 33,281 $ 124,282 $ 67,223 $ 29,255 $ 842,705

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

 

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

 

Credit Quality Indicators

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

The following table presents each loan and lease class by credit quality indicator at September 30, 2013 and December 31, 2012:

    September 30, 2013  
  Credit Risk Profile by UCS classification  
(dollar amounts in thousands) Pass OLEM Substandard Doubtful Total  
Commercial and industrial:                      
  Owner occupied $ 4,035,048 $ 169,877 $ 184,075 $ 2,835 $ 4,391,835  
  Purchased credit-impaired   5,123   1,970   35,635   910   43,638  
  Other commercial and industrial   12,297,970   213,288   383,695   4,107   12,899,060  
Total commercial and industrial $ 16,338,141 $ 385,135 $ 603,405 $ 7,852 $ 17,334,533  
                         
Commercial real estate:                      
  Retail properties $ 1,103,417 $ 32,465 $ 98,838 $ --- $ 1,234,720  
  Multi family   916,230   14,715   40,456   114   971,515  
  Office   862,359   20,884   85,475   872   969,590  
  Industrial and warehouse   481,288   17,668   28,800   ---   527,756  
  Purchased credit-impaired   11,988   5,941   71,317   ---   89,246  
  Other commercial real estate   986,227   17,854   75,518   299   1,079,898  
Total commercial real estate $ 4,361,509 $ 109,527 $ 400,404 $ 1,285 $ 4,872,725  
                         
    Credit Risk Profile by FICO score (1)  
    750+ 650-749 <650 Other (2) Total  
Automobile $ 2,836,051 $ 2,427,360 $ 874,804 $ 178,897 $ 6,317,112  
                         
Home equity:                      
  Secured by first-lien $ 2,946,368 $ 1,413,536 $ 316,154 $ 77,409 $ 4,753,467  
  Secured by junior-lien   1,827,991   1,264,222   429,749   71,256   3,593,218  
Total home equity $ 4,774,359 $ 2,677,758 $ 745,903 $ 148,665 $ 8,346,685  
                         
Residential mortgage:                      
  Residential mortgage $ 2,772,000 $ 1,733,926 $ 714,181 $ 84,570 $ 5,304,677  
  Purchased credit-impaired   428   1,130   729   ---   2,287  
Total residential mortgage $ 2,772,428 $ 1,735,056 $ 714,910 $ 84,570 $ 5,306,964  
                         
Other consumer:                      
  Other consumer $ 148,866 $ 146,839 $ 44,214 $ 37,768 $ 377,687  
  Purchased credit-impaired   ---   89   38   ---   127  
Total other consumer $ 148,866 $ 146,928 $ 44,252 $ 37,768 $ 377,814  
                         
                         
    December 31, 2012  
  Credit Risk Profile by UCS classification  
(dollar amounts in thousands) Pass OLEM Substandard Doubtful Total  
Commercial and industrial:                      
  Owner occupied $ 3,970,597 $ 108,731 $ 205,822 $ 769 $ 4,285,919  
  Purchased credit-impaired   1,663   6,555   46,254   ---   54,472  
  Other commercial and industrial   12,146,017   145,111   337,805   1,365   12,630,298  
Total commercial and industrial $ 16,118,277 $ 260,397 $ 589,881 $ 2,134 $ 16,970,689  
                         
Commercial real estate:                      
  Retail properties $ 1,184,987 $ 63,976 $ 181,896 $ --- $ 1,430,859  
  Multi family   902,616   24,098   57,548   138   984,400  
  Office   826,533   26,488   83,093   ---   936,114  
  Industrial and warehouse   540,484   15,132   41,286   ---   596,902  
  Purchased credit-impaired   10,052   18,085   98,786   ---   126,923  
  Other commercial real estate   1,177,213   43,454   103,262   113   1,324,042  
Total commercial real estate $ 4,641,885 $ 191,233 $ 565,871 $ 251 $ 5,399,240  
                         
    Credit Risk Profile by FICO score (1)  
    750+ 650-749 <650 Other (2) Total  
Automobile $ 2,233,439 $ 1,900,824 $ 682,518 $ 117,039 $ 4,933,820 (3)
                         
Home equity:                      
  Secured by first-lien $ 2,618,888 $ 1,345,621 $ 357,019 $ 59,059 $ 4,380,587  
  Secured by junior-lien   2,046,143   1,375,636   491,226   41,750   3,954,755  
Total home equity $ 4,665,031 $ 2,721,257 $ 848,245 $ 100,809 $ 8,335,342  
                         
Residential mortgage                      
  Residential mortgage $ 2,561,210 $ 1,673,485 $ 711,750 $ 20,984 $ 4,967,429  
  Purchased credit-impaired   373   1,303   567   ---   2,243  
Total residential mortgage $ 2,561,583 $ 1,674,788 $ 712,317 $ 20,984 $ 4,969,672  
                         
Other consumer                      
  Other consumer $ 169,792 $ 167,389 $ 59,815 $ 22,526 $ 419,522  
  Purchased credit-impaired   ---   93   47   ---   140  
Total other consumer $ 169,792 $ 167,482 $ 59,862 $ 22,526 $ 419,662  
                         
(1) Reflects currently updated customer credit scores.  
(2) Reflects deferred fees and costs, loans in process, loans to legal entities, etc.  
(3) Included $0.3 billion of loans reflected as loans held for sale related to an automobile securitization expected to be completed in 2013. During the 2013 second quarter, this amount was transferred from loans held for sale to the automobile portfolio based on Management's intent and ability to hold these loans for the foreseeable future.  

Impaired Loans

 

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

 

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

 

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

 

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

 

The following tables present the balance of the ALLL attributable to loans by portfolio segment individually and collectively evaluated for impairment and the related loan and lease balance at September 30, 2013 and December 31, 2012:

                                 
      Commercial Commercial     Residential Other  
(dollar amounts in thousands) and Industrial Real Estate Automobile Home Equity Mortgage Consumer Total
                                 
ALLL at September 30, 2013:
                                 
  Portion of ALLL balance:
                                 
    Attributable to purchased credit-impaired loans $ 1,190 $ 916 $ --- $ --- $ 57 $ --- $ 2,163
    Attributable to loans individually evaluated for impairment   10,340   30,704   676   5,015   12,711   77   59,523
    Attributable to loans collectively evaluated for impairment   250,518   132,902   26,411   119,053   38,484   36,976   604,344
  Total ALLL balance $ 262,048 $ 164,522 $ 27,087 $ 124,068 $ 51,252 $ 37,053 $ 666,030
                                 
                                 
Loan and Lease Ending Balances at September 30, 2013:
                                 
  Portion of loan and lease ending balance:
                                 
    Attributable to purchased credit-impaired loans $ 43,638 $ 89,246 $ --- $ --- $ 2,287 $ 127 $ 135,298
    Individually evaluated for impairment   115,590   268,406   36,953   165,025   378,334   959   965,267
    Collectively evaluated for impairment   17,175,305   4,515,073   6,280,159   8,181,660   4,926,343   376,728   41,455,268
  Total loans and leases evaluated for impairment $ 17,334,533 $ 4,872,725 $ 6,317,112 $ 8,346,685 $ 5,306,964 $ 377,814 $ 42,555,833
                                 
                                 

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

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

                    Three Months Ended   Nine Months Ended
  September 30, 2013   September 30, 2013   September 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 $ 4,144 $ 4,185 $ ---   $ 4,960 $ 42   $ 4,456 $ 126
    Purchased credit-impaired   ---   ---   ---     ---   ---     ---   ---
    Other commercial and industrial   18,204   24,912   ---     14,254   168     12,389   473
  Total commercial and industrial $ 22,348 $ 29,097 $ ---   $ 19,214 $ 210   $ 16,845 $ 599
                                     
  Commercial real estate:                                
    Retail properties $ 40,698 $ 42,255 $ ---   $ 38,514 $ 557   $ 47,186 $ 1,867
    Multi family   4,197   4,315   ---     4,203   63     4,836   220
    Office   9,155   13,819   ---     9,183   313     13,168   845
    Industrial and warehouse   7,107   8,228   ---     9,282   129     11,467   478
    Purchased credit-impaired   ---   ---   ---     ---   ---     ---   ---
    Other commercial real estate   6,212   7,103   ---     6,216   159     8,581   382
  Total commercial real estate $ 67,369 $ 75,720 $ ---   $ 67,398 $ 1,221   $ 85,238 $ 3,792
                                     
  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   127   223   ---     129   4     139   11
  Total other consumer $ 127 $ 223 $ ---   $ 129 $ 4   $ 139 $ 11
                                     
With an allowance recorded:                                
  Commercial and industrial: (3)                                
    Owner occupied $ 40,258 $ 47,148 $ 4,052   $ 39,656 $ 332   $ 42,155 $ 1,024
    Purchased credit-impaired   43,638   63,023   1,190     46,942   1,485     50,421   3,775
    Other commercial and industrial   52,984   86,121   6,288     61,563   886     62,320   2,510
  Total commercial and industrial $ 136,880 $ 196,292 $ 11,530   $ 148,161 $ 2,703   $ 154,896 $ 7,309
                                     
  Commercial real estate: (4)                                
    Retail properties $ 87,520 $ 115,601 $ 6,587   $ 67,209 $ 448   $ 58,928 $ 1,303
    Multi family   13,733   14,425   1,891     13,646   159     15,295   490
    Office   54,762   60,471   12,969     49,486   490     46,543   1,291
    Industrial and warehouse   13,167   14,479   1,376     10,381   303     16,535   671
    Purchased credit-impaired   89,246   172,618   916     97,719   3,038     110,124   7,721
    Other commercial real estate   31,855   40,401   7,881     32,579   332     37,436   1,150
  Total commercial real estate $ 290,283 $ 417,995 $ 31,620   $ 271,020 $ 4,770   $ 284,861 $ 12,626
                                     
  Automobile $ 36,953 $ 38,513 $ 676   $ 38,732 $ 817   $ 40,555 $ 2,121
                                     
  Home equity:                                
    Secured by first-lien $ 95,268 $ 98,189 $ 1,940   $ 90,952 $ 1,062   $ 92,723 $ 2,953
    Secured by junior-lien   69,757   85,651   3,075     64,553   873     57,743   2,186
  Total home equity $ 165,025 $ 183,840 $ 5,015   $ 155,505 $ 1,935   $ 150,466 $ 5,139
                                     
  Residential mortgage (6):                                
    Residential mortgage $ 378,334 $ 3,420,179 $ 12,711   $ 356,855 $ 2,971   $ 365,148 $ 8,713
    Purchased credit-impaired   2,287   3,619   57     2,169   78     2,232   198
  Total residential mortgage $ 380,621 $ 3,423,798 $ 12,768   $ 359,024 $ 3,049   $ 367,380 $ 8,911
                                     
  Other consumer:                                
    Other consumer $ 959 $ 959 $ 77   $ 2,171 $ 29   $ 2,378 $ 83
    Purchased credit-impaired   ---   ---   ---     ---   ---     ---   ---
  Total other consumer $ 959 $ 959 $ 77   $ 2,171 $ 29   $ 2,378 $ 83

                    Three Months Ended   Nine Months Ended
  December 31, 2012   September 30, 2012   September 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 $ 1,050 $ 1,091 $ ---   $ 4,702 $ 1   $ 5,310 $ 61
    Purchased credit-impaired   54,472   80,294   ---     62,740   935     64,627   1,767
    Other commercial and industrial   31,841   54,520   ---     9,274   88     8,556   343
  Total commercial and industrial $ 87,363 $ 135,905 $ ---   $ 76,716 $ 1,024   $ 78,493 $ 2,171
                                     
  Commercial real estate:                                
    Retail properties $ 54,216 $ 56,569 $ ---   $ 53,317 $ 531   $ 52,127 $ 2,007
    Multi family   5,719   5,862   ---     5,413   85     5,879   278
    Office   20,051   24,843   ---     8,695   138     4,631   191
    Industrial and warehouse   15,013   17,476   ---     9,779   106     8,045   312
    Purchased credit-impaired   126,923   226,093   ---     134,279   2,004     138,858   3,954
    Other commercial real estate   10,479   10,728   ---     15,070   140     17,068   412
  Total commercial real estate $ 232,401 $ 341,571 $ ---   $ 226,553 $ 3,004   $ 226,608 $ 7,154
                                     
                                     
  Home equity: