Huntington National Bank 2011 Annual Report Download - page 42

servicers to remedy deficiencies and unsafe or unsound practices and to enhance residential mortgage servicing
and foreclosure processes. It is unclear what impact this may ultimately have on market costs to service.
2012 Expectations
As we have done since early 2010, we will continue to execute our core strategy, making selective
investments in initiatives to grow long-term profitability. We will remain disciplined in our growth and pricing of
loans and deposits and are encouraged by the net interest margin expansion during the 2011 fourth quarter. We
continue to expect credit quality to improve. We will stay focused on increasing customer cross-sell, and work to
improve operating efficiency. While there continues to be a high level of uncertainty and volatility surrounding
the economy, late in the year we saw more encouraging signs.
Over the course of 2012, net interest income is expected to show modest improvement from the 2011 fourth
quarter level. The momentum we are seeing in total loan and low-cost deposit growth is expected to continue.
Earlier in 2012, those benefits are expected to be mostly offset by downward pressure on the net interest margin
due to the anticipated continued mix shift to lower-rate, higher quality loans and lower securities reinvestment
rates given the low absolute level of interest rates and shape of the yield curve. Our C&I portfolio is expected to
continue to show meaningful growth with much of this reflecting the positive impact from strategic initiatives to
expand our commercial lending expertise into areas like specialty banking, asset based lending, and equipment
financing, in addition to our long-standing continued support of middle market and small business lending. For
automobile loans, we will continue to evaluate the use of automobile loan securitizations to limit total on-balance
sheet exposure as we expect to see continued strong levels of originations. On December 31, 2011, we
transferred $1.3 billion of automobile loans to loans held for sale, as we plan to complete another securitization
during the first half of 2012. Residential mortgages and home equity loans are expected to show modest growth,
with CRE likely to experience slowing declines.
We anticipate the increase in total loans to modestly outpace growth in total deposits, reflecting a
heightened focus on our overall cost of funding and the continued shift towards low- and no-cost demand
deposits and money market deposit accounts.
Noninterest income is expected to show a modest increase throughout 2012 from 2011 fourth quarter levels.
This is primarily due to anticipated growth in new customers and increased contribution from key fee income
activities including capital markets, treasury management services, and brokerage, reflecting the impact of our
cross-sell and product penetration initiatives throughout the company.
We anticipate making progress on improving our operating efficiency ratio; though this will likely reflect
the benefit of revenue growth as we expect expenses could increase. While we will continue our focus on
improving operating efficiencies, improvement could be offset by additional regulatory costs and expenses
associated with strategic actions, such as in-store branch partnerships and the consolidation of certain traditional
branches.
Nonaccrual loans and net charge-offs are expected to continue to decline. The level of provision for credit
losses is currently in line with our long-term expectations. However, there could be some quarterly volatility
given the absolute low level and the uncertain and uneven nature of the economic recovery.
We anticipate the effective 2012 tax rate to approximate 35% of income before income taxes, less
approximately $65-$75 million of permanent tax differences primarily related to tax-exempt income,
tax-advantaged investments, and general business credits.
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