Huntington National Bank 2004 Annual Report Download - page 70

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MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
Non-interest expense increased $25.0 million, or 4%, virtually all reflecting a 10% increase in personnel costs due to higher medical
and pension benefit costs. The efficiency ratio increased slightly to 62% compared with 61% in 2003, primarily due to slower
revenue growth.
The return on average assets and return on average equity for Regional Banking, were 1.40% and 22.2%, respectively, up from 1.18%
and 17.0% in 2003.
2003 versus 2002 Performance
Regional Banking contributed $172.9 million of the Company’s net operating earnings in 2003, up 53% from $113.2 million in 2002.
This increase reflected the benefits of a 9% growth in revenue and 30% reduction in provision for credit losses, partially offset by 4%
growth in non-interest expense. Revenue growth reflected a 4% increase in net interest income driven by an 8% increase in average
loans and leases and a 4% increase in average deposits.
Net interest income increased 4%, reflecting an 8% increase in average total loans and leases, partially offset by a 24 basis point, or an
effective 5%, decline in the net interest margin to 4.40%. The growth in average loans reflected strong growth in home equity loans,
residential mortgages, and small business loans, partially offset by an 8% decline in C&I loans. Average total deposits increased 4%,
led by strong growth in interest-bearing and noninterest-bearing deposits, partially offset by a decline in average retail CDs. The
decline in the net interest margin reflected the impact of the more rapid decline in variable-rate loans than on deposits, which were at
historically low levels making it difficult to lower deposit rates commensurate with the decline in market rates.
The provision for credit losses declined 30%, reflecting the 20% decline in net charge-offs and 46% decline in period end NPAs.
Non-interest income increased 20% reflecting significantly higher mortgage banking income, a 13% increase in service charges on
deposits, and a 52% increase in brokerage and insurance income.
Non-interest expense increased 4% and included an 8% increase in personnel costs. The increase in personnel costs reflected
investments in strengthening Regional Banking’s management team, business banking sales force, and credit administration team, as
well as increased performance-based incentive compensation.
With revenue growth of 9% exceeding expense growth of 4%, the efficiency ratio declined to 61% from 64% in 2002.
The return on average assets and return on average equity for Regional Banking, were 1.18% and 17.0%, respectively, up from 0.84%
and 12.4% in 2002.
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