Huntington National Bank 2004 Annual Report Download - page 50

MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
relationships within the Company’s primary markets. As a result, shared national credit exposure declined significantly over this
period. The sales of automobile loans are another example of the proactive management of concentration risk. (See Significant Factor 4.)
The checks and balances in the credit process and the independence of the credit administration and risk management functions are
designed to minimize problems and to facilitate the early recognition of problems when they do occur.
Commercial Credit
Commercial credit approvals are based on, among other factors, the financial strength of the borrower, assessment of the borrower’s
management, industry sector trends, type of exposure, transaction structure, and the general economic outlook. There are two
processes for approving credit risk exposures. The first involves a centralized loan approval process for the standard products and
structures utilized in small business lending, where individual credit authority is granted to certain individuals on a regional basis to
preserve the Company’s local decision-making focus. The second, and more prevalent approach, involves individual approval of
exposures. These approvals are consistent with the authority delegated to officers located in the geographic regions who are
experienced in the industries and loan structures over which they have responsibility.
Commercial and industrial loan commitments and balances outstanding by industry classification code as of December 31, 2004, were
as follows:
Table 11 — Commercial and Industrial Loans by Industry Classification Code(1)
At December 31, 2004
Commitments Loans Outstanding
(in thousands of dollars) Amount % Amount %
Industry Classification:
Services $ 2,351,512 23.5% $1,495,593 25.7%
Manufacturing 1,920,759 19.2 1,032,576 17.7
Retail trade 1,824,125 18.2 1,215,671 20.9
Finance, insurance, and real estate 1,560,404 15.6 792,147 13.6
Contractors and construction 805,445 8.0 377,841 6.5
Wholesale trade 766,071 7.7 461,297 7.9
Transportation, communications, and utilities 482,521 4.8 244,625 4.2
Agriculture and forestry 140,415 1.4 96,210 1.7
Energy 99,535 1.0 67,318 1.2
Public administration 18,886 0.2 13,298 0.2
Other 38,621 0.4 33,109 0.4
Total $10,008,294 100.0% $5,829,685 100.0%
(1) Includes middle market and small business C&I loans.
All C&I and CRE credit extensions are assigned internal risk ratings reflecting the borrower’s probability-of-default and loss-in-event-
of-default. This two-dimensional rating methodology, which has 192 individual loan grades, was implemented in 2003 and has
provided granularity in the portfolio management process. The probability-of-default is rated on a scale of 1-12 and is applied at the
borrower level. The loss-in-event-of-default is rated on a 1-16 scale and is associated with each individual credit exposure based on the
type of credit extension and the underlying collateral.
In commercial lending, ongoing credit management is dependent on the type and nature of the loan. In general, quarterly monitoring
is normal for all significant exposures. The internal risk ratings are revised and updated with each periodic monitoring event. There is
also extensive macro portfolio management analysis on an ongoing basis to continually update default probabilities and to estimate
future losses.
In addition to the initial credit analysis initiated by the portfolio manager during the underwriting process, the loan review group
performs independent credit reviews. The loan review group reviews individual loans and credit processes, and conducts a portfolio
review at each of the regions on a 15-month cycle. During the previous 15 months, approximately 61% of the total commercial
portfolio was reviewed by the independent loan review function.
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