Huntington National Bank 2005 Annual Report Download - page 75

MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
Regional Banking
(This section should be read in conjunction with Significant Factors 2 and 4.)
Objectives, Strategies and Priorities
Our Regional Banking line of business provides traditional banking products and services to consumer, small business, and
commercial customers located in its seven operating regions within the five states of Ohio, Michigan, West Virginia, Indiana, and
Kentucky. It provides these services through a banking network of 334 branches, over 900 ATMs, plus on-line and telephone
banking channels. Each region is further divided into Retail and Commercial Banking units. Retail products and services include
home equity loans and lines of credit, first mortgage loans, direct installment loans, small business loans, personal and business
deposit products, as well as sales of investment and insurance services. Retail Banking accounts for 60% and 79% of total
Regional Banking loans and deposits, respectively. Commercial Banking serves middle market commercial banking relationships,
which use a variety of banking products and services including, but not limited to, commercial loans, international trade, cash
management, leasing, interest rate protection products, capital market alternatives, 401(k) plans, and mezzanine investment
capabilities.
We have a business model that emphasizes the delivery of a complete set of banking products and services offered by larger
banks, but distinguished by local decision-making about the pricing and the offering of these products. Our strategy has been to
focus on building a deeper relationship with our customers by providing a ‘‘Simply the Best’’ service experience. This focus on
service required investments in state-of-the-art platform technology in our branches and award-winning retail and business web
sites for our customers, extensive development and training of associates, and internal processes that empower our local bankers
to serve our customers better. We expect the combination of local decision-making and ‘‘Simply the Best’’ service will result in a
competitive advantage and drive revenue and earnings growth.
2005 versus 2004 Performance
Regional Banking contributed $290.6 million, or 71%, of our net operating earnings for 2005, up $40.2 million, or 16%, from
operating earnings last year. This improved performance primarily reflected a $104.6 million, or 11%, increase in fully taxable
equivalent revenue partially offset by a $43.4 million increase in provision for credit losses. Improved expense management
resulted in flat year-over-year expenses. Regional Banking’s ROA was 1.57%, up from 1.52% for 2004, with a ROE of 28.7%, up
from 24.2% in 2004.
Revenue growth reflected a 15% increase in net interest income resulting from strong loan growth and improved profitability of
core deposits. Higher loan and deposit balances reflected improved sales efforts. Average loans and leases increased strongly across
all regions:
Regional Banking Average Loans & Leases:
Increase
from
(in millions of dollars) 2005 2004
Region
Central Ohio $ 3,220 7%
Northern Ohio 2,892 8
Southern Ohio/Kentucky 2,031 16
West Michigan 2,355 7
East Michigan 1,491 10
West Virginia 923 11
Indiana 978 22
Mortgage and equipment leasing groups 3,381 30
Total $ 17,271 13%
Average loans and leases grew in most categories compared with 2004, including residential mortgages, commercial loans, and
home equity loans and lines of credit. Residential mortgage and home equity growth rates were strong, with 2005 growth rates of
30% and 11%, respectively. Residential mortgage loans grew, as interest rates remained low, even though there was a 22% decline
in closed loan origination volume from 2004. Commercial loan growth reflected a 17% increase in average middle-market CRE
73