Huntington National Bank 2012 Annual Report Download - page 34

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EXECUTIVE OVERVIEW
2012 Financial Performance Review
In 2012, we reported net income of $641.0 million, or $0.71 per common share, an increase of $98.4 million compared with 2011
(see Table 2). The increase primarily reflected a $117.2 million, or 12%, increase in noninterest income and an $81.4 million, or 5%,
increase in net interest income. This was partially offset by a $107.4 million, or 6%, increase in noninterest expense. Despite the
challenging economic and extended low interest rate environment combined with impacts of government-mandated reductions in fee
income during 2012, return on average total assets increased to 1.15%, compared with 1.01% in 2011. Results from our strategic
business investments and OCR sales approach continued in 2012. (Also, see Significant Items Influencing Financial Performance
Comparisons within the Discussion of Results of Operations.)
Fully-taxable equivalent net interest income was $1.7 billion in 2012, an increase of $86.8 million, or 5%, compared with 2011.
Average earning assets increased $2.1 billion, or 4%, including a $1.3 billion, or 3%, increase in total loans and leases and a $0.8
billion increase in loans held for sale. This reflected benefits from our strategic C&I initiatives focusing on the equipment finance,
dealer floorplan, large corporate, and middle market segments. This increase was partially offset by a decline in our automobile loans,
reflecting the impact of our continued program of securitization and sale of such loans. Additionally, our CRE portfolio declined,
reflecting continued runoff of the noncore portfolio. Average core deposits grew $3.1 billion, or 8%, reflecting our consumer
household and commercial relationship growth. This growth continued even as we focused on fundamentally changing our deposit
mix and reducing the overall cost of funds. The net interest margin increased 3 basis points to 3.41% from 3.38%. The increase
reflected the positive impact of a 29 basis point decline in total deposit costs that was partially offset by a 24 basis point decline in the
yield on earning assets and a 2 basis point decrease related to non-deposit funding and other items.
Noninterest income was $1.1 billion in 2012, a 12% increase compared with 2011. This included a $107.7 million, or 129%,
increase in mortgage banking income, a $26.2 million, or 82%, increase in gain on sale of loans, an $18.7 million, or 8%, increase in
service charges on deposit accounts, an $11.6 million, or 32%, increase in capital market fees, and an $11.2 million bargain purchase
gain related to the acquisition of Fidelity Bank. These positive impacts were partially offset by a $29.4 million, or 26%, decrease in
electronic banking income, which was negatively impacted by over $55 million from the Durbin amendment, and a $16.0 million, or
11%, decrease in other income reflecting a $16.5 million, or 62%, decrease in automobile operating lease income. This year’s results
showed the continued benefit of our investments and our differentiated strategy. These investments, combined with adding over
133,000 consumer households, a 12% increase, and 12,700 commercial relationships, a 9% increase, has allowed us to grow revenue
and pretax income by more than $200 million and $117 million, respectively.
Noninterest expense was $1.8 billion in 2012, a 6% increase compared with 2011. This included a $95.7 million, or 11%,
increase in personnel costs primarily reflecting an increase in the number of full-time equivalent employees as well as higher incentive
based compensation and a $10.4 million, or 11%, increase in equipment expense, primarily reflecting the implementation of strategic
initiatives, including opening 37, or 6%, net new branches. These increases were offset partially by a $9.3 million, or 12%, decrease in
deposit and other insurance expense. The current year results also included $14.1 million of noninterest expense related to the Fidelity
acquisition, which closed on March 30, 2012.
Credit quality performance continued to show improvement as both our NALs and NCOs declined and coverage ratios increased.
Compared with the prior year, NALs declined 25%. NCOs were $342.5 million, or 0.85% of average total loans and leases, down
from $437.1 million, or 1.12% in 2011. Of the current year’s NCOs, $34.6 million related to regulatory guidance requiring consumer
loans discharged under Chapter 7 bankruptcy to be charged down to collateral value. The ACL as a percentage of loans and leases
was 1.99%, down from 2.60% at December 31, 2011 and our ACL as a percentage of total NALs increased to 199% from 187%. The
level of Criticized commercial loans also declined $0.5 billion, or 25%, from last year. The provision for credit losses declined $26.7
million, or 15%, from 2011.
At December 31, 2012, our regulatory Tier 1 common risk-based capital ratio was 10.48%, up from 10.00% at December 31,
2011, and our tangible common equity ratio increased to 8.76% from 8.30% over this same period. The regulatory Tier 1 risk-based
capital ratio at December 31, 2012, was 12.02%, down from 12.11%, at December 31, 2011. This decline reflected the redemption of
$230 million of trust preferred securities and the repurchase of 23.3 million common shares at an average price of $6.36 per share.
Reinvesting excess capital to grow the business organically remains our first priority. Importantly, through dividends and share
repurchases, we have the flexibility, subject to market conditions and regulatory approval, to return a meaningful amount of our
earnings to our shareholders. We continue to evaluate other capital actions. As we have shown over the last several years, we will
continue to maintain a high level of discipline when considering mergers and acquisitions.