Huntington National Bank 2006 Annual Report Download - page 26

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MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
A
VERAGE
B
ALANCE
S
HEET
—L
OANS
, L
EASES
,
AND
O
THER
E
ARNING
A
SSETS
2006 versus 2005
Average total commercial loans increased $1.2 billion, or 12% ($0.7 billion merger-related) from 2005. This growth reflected a
$0.7 billion, or 14%, increase in average middle market commercial and industrial (C&I) loans, a $0.4 billion, or 10%, increase in
average middle market commercial real estate loans (CRE), and a $0.2 billion, or 9%, increase in average small business loans.
Average residential mortgages increased $0.5 billion, or 12% ($0.3 billion merger-related). Average home equity loans increased
$0.2 billion, or 5%, but would have increased less than 1% were it not for the Unizan merger.
Compared with the prior year, average total automobile loans and leases decreased $0.4 billion, or 8%, with the Unizan merger
having no significant impact. The decrease reflected the combination of two factors: (1) continued softness in loan and lease
production levels over this period from low consumer demand and competitive pricing and (2) little growth in automobile loans
as we continued a program of selling a portion of current loan production. Average automobile operating lease assets declined
$0.3 billion, or 74%, as this portfolio continued to run off. Total automobile loan and lease exposure at quarter end was 15%,
down from 18% a year earlier.
Average total investment securities increased $0.6 million, or 15%, from 2005.
2005 versus 2004
Average total loans and leases increased $2.2 billion, or 10%, from 2004, primarily due to growth in consumer loans. Average
total consumer loans increased $1.4 billion, or 11%, due to a $0.9 billion, or 27%, increase in average residential mortgages and a
$0.5 billion, or 12%, increase in average home equity loans.
Average total automobile loans decreased $0.2 billion, or 11%, reflecting the sale of automobile loans, loan pay downs, and
slowing production. Partially offsetting the decline in automobile loans was $0.2 billion, or 10%, growth in direct financing leases
due to the continued migration from operating lease assets.
Average total commercial loans increased $0.8 billion, or 8%, from 2004. This reflected a $0.4 billion, or 8%, increase in middle
market C&I loans, a $0.2 billion, or 7%, increase in middle market CRE loans, and a $0.2 billion, or 11%, increase in average
small business C&I and CRE loans.
Average total investment securities declined $0.7 billion, or 14%, from 2004.
A
VERAGE
B
ALANCE
S
HEET
—D
EPOSITS AND
O
THER
F
UNDING
2006 versus 2005
Average total core deposits in 2006 increased $1.8 billion, or 10% ($1.3 billion merger-related), from 2005. Most of the increase
reflected higher average core certificates of deposit, which increased $1.7 billion ($0.5 billion merger-related) resulting from
continued customer demand for higher, fixed rate deposit products. Average interest bearing demand deposits increased
$0.1 billion ($0.2 billion merger-related) and average non-interest bearing deposits increased $0.2 billion ($0.1 billion merger-
related). Average savings and other domestic time deposits declined $0.2 billion, despite $0.4 billion of increase related to the
Unizan merger.
We use the non-core funding ratio (total liabilities less core deposits and accrued expenses and other liabilities divided by total
assets) to measure the extent to which funding is dependent on wholesale deposits and borrowing sources. For 2006, the average
non-core funding ratio was 33%, down from 34% in 2005.
2005 versus 2004
Average total core deposits in 2005 were $17.5 billion, up $1.0 billion, or 6%, from 2004, reflecting a $0.6 billion, or 24%,
increase in certificates of deposit, a $0.5 billion, or 6%, increase in average interest bearing demand deposit accounts, primarily
money market accounts, and a $0.1 billion, or 5%, increase in non-interest bearing deposits. These increases were partially offset
by a $0.3 billion, or 8%, decline in savings and other domestic time deposits. With interest rates rising throughout the year,
demand for certificates of deposit increased as customers transferred funds from lower rate savings and other domestic time
deposits into higher fixed-rate term deposit accounts.
Provision for Credit Losses
(This section should be read in conjunction with Significant Factor 3 and the Credit Risk section.)
The provision for credit losses is the expense necessary to maintain the ALLL and the AULC at a level adequate to absorb our
estimate of probable inherent credit losses in the loan and lease portfolio and the portfolio of unfunded loan commitments.
24