Huntington National Bank 2005 Annual Report Download - page 76

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MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
construction loans and an 11% increase in small business loans. Both consumer and commercial loan growth slowed significantly
near the end of 2005, reflecting industry trends and an increasingly competitive environment.
Since we focus on developing relationships, we monitor the ‘‘cross-sell’’ ratio as an indicator of our sales performance. This ratio
measures success in selling multiple products to households. In Retail Banking, the 90-day cross-sell ratio improved 18% over the
prior year, and the small business cross-sell ratio increased 6%. In addition, customer bases continued to expand. Period-end
Retail Banking non-interest bearing checking account (DDA) households were 11,759, or 2%, higher than a year earlier, with the
number of small business DDA relationships up 3,141, or 6%. The DDA is viewed as the primary banking relationship account as
most additional services are cross-sold to customers after first establishing a DDA account. As a result, growth in average deposits
was also broad-based:
Regional Banking Average Deposits:
Increase
from
(in millions of dollars) 2005 2004
Region
Central Ohio $ 4,520 8%
Northern Ohio 4,060 7
Southern Ohio/Kentucky 1,828 18
West Michigan 2,687 3
East Michigan 2,273 9
West Virginia 1,397 4
Indiana 728 11
Mortgage and equipment leasing groups 198 (7)
Total $ 17,691 8%
The 8% increase in average deposits reflected 7% growth in average interest bearing demand deposits, which includes money
market deposit accounts, and 22% increase in domestic time deposits. Interest-bearing and non-interest bearing deposits grew 7%
and 5%, respectively, from the year-ago period, while savings deposits declined 7%. The number of on-line consumer banking
customers at December 31, 2005, grew 16% to more than 245,000 customers, which represented a relatively high 45% penetration
of Retail Banking households, and indicated a deepening relationship with those customers.
The growth in revenue was accomplished without significant increases in Regional Banking’s expense base. Regional Banking’s
efficiency ratio declined to 54% from 60% for 2004, reflecting strong revenue growth and a continued focus on expense
management, while still making investments in distribution and technology.
2004 versus 2003 Performance
Regional Banking contributed $250.4 million, or 64%, of our net operating earnings in 2004, up $79.2 million, or 46%, from
2003. This increase primarily reflected an $89.1 million, or 92%, reduction in provision for credit losses. The decline in the
provision for credit losses reflected significantly improved credit quality performance as represented by a 72% decline in net
charge-offs and a 6% decline in year-end NPAs. Revenue increased $63.5 million, or 7%, reflecting a 12% increase in net interest
income. Higher net interest income was driven by a 15% increase in average loans and a 2 basis point rise in net interest margin.
The ROA and ROE for Regional Banking were 1.52% and 24.2%, respectively, up from 1.16% and 16.9% in 2003.
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