Huntington National Bank 2011 Annual Report Download - page 40

Business Overview
General
Our general business objectives are: (1) grow net interest income and fee income, (2) increase cross-sell and
share-of-wallet across all business segments, (3) improve efficiency ratio, and (4) continue to strengthen risk
management, including sustained improvement in credit metrics.
The main challenges to accomplishing our primary objectives in 2011 resulted from: (1) an economy that,
while more stable than a year earlier, remained fragile, (2) a prolonged low interest rate environment, which put
pressure on our net interest margin, (3) lost fee income due to new regulations, and (4) more overhead and
expenses related to increased risk management as a consequence of the Dodd-Frank Act. As is the nature of a
mature industry with arguably overcapacity, we faced strong competition from other banks and financial service
firms in our markets. This is expected to continue. To address these challenges, beginning in the second half of
2009 and continuing today, we place strategic emphasis on developing and expanding resources to improve
cross-sell performance within our consumer and business customer bases. In this regard, our OCR methodology
continued to deliver strong success in 2011. On the consumer side, consumer checking account households grew
10.3%, which was more than 50% higher than in 2010, and nearly four times the rate of growth in 2009. Our
cross-sell performance also continued to improve. At the end of the year, 73.5% of our consumer checking
account households utilized over four products. This compared with 69.4% a year earlier. Growth in commercial
relationships was 8.4% in 2011. At the end of the year, 31.4% of our commercial relationships used over four
products or services, up from 24.2% a year earlier. Our “Fair Play” philosophy, coupled with an increasingly
effective OCR focus, while positively impacting 2011 results, also positions us for better long-term performance.
Economy
During 2011, there continued to be a high level of uncertainty and volatility surrounding the economy,
though late in the year we saw more encouraging signs. Unemployment rates as of December 2011 for Ohio,
Pennsylvania, and West Virginia were below the national unemployment average. Indiana, Michigan, and
Kentucky were slightly above the national average, but they also declined, and the rate in Michigan was the
lowest since September 2008. Midwest housing prices generally did not rise as much during the housing boom
years, and have therefore not gone down as much during the housing crisis. Midwest housing markets are
expected to continue to reflect the general state of the labor markets, which are expected to continue to improve.
Manufacturing exports are a regional strength. Michigan and Ohio are two of the top 10 states for
manufacturing exports, and Indiana is number 11. For Michigan in particular, the future success of export growth
will likely hold a key to long-term economic growth.
Both office and industrial vacancy rates have been easing downward, but have remained generally high
relative to the national average. Therefore, stresses in these loan classes will likely persist. However, vacancy
rates should continue to ease downward assuming an economic recovery and expansionary phase in 2012.
However, issues may exist in markets with especially high vacancy rates.
Legislative and Regulatory
Regulatory reforms continued to be adopted which impose additional restrictions on business practices.
Recent actions affecting us included the Federal Reserve’s capital plan review and maturity extension program,
and other rules and regulations that have been issued pursuant to the Dodd-Frank Act.
Capital Plan Review — We are participating in the Federal Reserve’s Capital Plan Review (CapPR) stress
test process and made our capital plan submission in January 2012. The Federal Reserve will evaluate our capital
plan based on our risk profile and the strength of our internal capital assessment process under regulatory capital
standards currently applicable and in accordance with our plans to address proposed revisions to the regulatory
capital framework as set forth in Basel III and relevant provisions of the Dodd-Frank Act. The Federal Reserve’s
evaluation will take into consideration any capital distribution plans, such as plans to increase common stock
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