Huntington National Bank 2007 Annual Report Download - page 63

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credit deterioration of the Franklin relationship acquired in the Sky Financial merger, with a smaller portion due to the negative
impact of the economic weakness in our Midwest markets, most notably among our borrowers in eastern Michigan and northern
Ohio, and within the single family real estate development portfolio. Net interest income, non-interest income, non-interest
expense, average total loans, and average total deposits all increased from the prior year primarily due to the Sky Financial
acquisition. The ROA decreased to 0.37% from 1.66%, and the ROE decreased to 6.4% from 29.8%.
2006 VERSUS 2005
Regional Banking contributed $340.8 million, or 74%, of the company’s net income in 2006, up from $287.9 million, or 18%, from
2005. This increase primarily reflected a $138.4 million, or 13% increase in fully-taxable equivalent revenue partially offset by a
$63.0 million, or 11%, increase in non-interest expense and a $28.5 million increase in provision for income taxes. These increases
were largely due to the Unizan acquisition. Net interest income increased 13%, primarily due to a $1.1 billion increase in average
loan balances and a 13 basis point increase in the net interest margin. The ROA increased to 1.66% from 1.56%, and the ROE
increased to 29.8% from 28.4%.
Dealer Sales
(This section should be read in conjunction with Significant Item 1, 3, and 9.)
OBJECTIVES,STRATEGIES,AND PRIORITIES
Our Dealer Sales line of business provides a variety of banking products and services to more than 3,700 automotive dealerships
within our primary banking markets, as well as in Arizona, Florida, Georgia, Nevada, New Jersey, New York, North Carolina,
South Carolina, and Tennessee. Dealer Sales finances the purchase of automobiles by customers at the automotive dealerships;
purchases automobiles from dealers and simultaneously leases the automobiles to consumers under long-term leases; finances
dealerships’ new and used vehicle inventories, land, buildings, and other real estate owned by the dealership, and their working
capital needs; and provides other banking services to the automotive dealerships and their owners. Competition from the financing
divisions of automobile manufacturers and from other financial institutions is intense. Dealer Sales’ production opportunities are
directly impacted by the general automotive sales business, including programs initiated by manufacturers to enhance and increase
sales directly. We have been in this line of business for over 50 years.
The Dealer Sales strategy has been to focus on developing relationships with the dealership through its finance department, general
manager, and owner. An underwriter who understands each local market makes loan decisions, though we prioritize maintaining
pricing discipline over market share.
Table 35 — Key Performance Indicators for Dealer Sales
(in thousands unless otherwise noted) 2007 2006 Amount Percent Fourth Third Amount Percent
Twelve Months Ended
December 31, Change from 2006 2007 Change from 3Q07
Net income $ 42,362 $ 59,809 $(17,447) (29.2)% $5,860 $9,277 $(3,417) (36.8)%
Total average assets (in millions
of dollars) 5,110 5,313 (203) (3.8) 5,342 5,243 99 1.9
Return on average equity 23.3% 22.9% 0.4% 1.7 12.8% 21.4% (8.6)% (40.2)
Automobile loans production (in millions) $1,910.7 $1,716.6 194.1 11.3 $487.1 $473.9 $ 13.2 2.8
Automobile leases production (in millions) 316.3 343.5 (27.2) (7.9) 76.9 81.8 (4.9) (6.0)
2007 FOURTH QUARTER VERSUS 2007 THIRD QUARTER
Dealer Sales contributed $5.9 million of the company’s net income for the fourth quarter of 2007. This compares with $9.3 million
for the third quarter of 2007, a decline of $3.4 million, or 37%. The $3.4 million decline primarily reflected a $3.7 million increase
to the provision for credit losses due to seasonal factors as well as the softening economy in our markets.
Net interest income increased $0.1 million reflecting a $139 million increase in average total loan and lease balances, partially offset
by a 5 basis point decline in the net interest margin. Indirect automobile loans and middle-market commercial loans showed good
growth, however these increases were partially offset by declines in average direct finance leases as new lease originations were
recorded as operating leases (see below). The decline in the net interest margin to 2.44% for the 2007 fourth quarter from 2.49%
for the 2007 third quarter reflected a continuation of competitive pricing pressures and the resulting lower margins on new
production as compared with margins on loans and leases that are being repaid.
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MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED