Huntington National Bank 2006 Annual Report Download - page 57

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MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
Revenue growth reflected a 13% increase in net interest income resulting from a $1.8 billion increase in average loan balances
and a 12 basis point increase in net interest margin. Higher loan and deposit balances reflected improved sales efforts. Average
loans and leases increased across all regions:
Regional Banking Average Loans & Leases
Change
from
(in millions of dollars) 2006 2005 2005 2004
Region
Central Ohio $ 3,519 11% $ 3,179 $ 2,957
Northern Ohio 2,609 3 2,524 2,373
Southern Ohio/Kentucky 2,161 6 2,039 1,762
Eastern Ohio(1) 1,268 N.M. 378 341
West Michigan 2,399 2 2,356 2,200
East Michigan 1,581 6 1,492 1,351
West Virginia 1,046 12 921 830
Indiana 985 — 986 813
Mortgage and equipment leasing groups 3,538 5 3,381 2,592
Total loans and leases $ 19,106 11% $17,256 $15,219
N.M., not a meaningful value.
(1) Eastern Ohio results reflect the impact of the Unizan acquisition.
Average loans and leases grew in most categories compared to 2005, including residential mortgages, commercial loans, and home
equity loans and lines of credit. Residential mortgage and home equity growth rates in 2006 were 13% and 5%, respectively.
Residential mortgage loans grew, as interest rates remained low, even though there was a 14% decline in closed loan origination
volume from 2005. Commercial loan growth reflected a 15% increase in middle-market commercial and industrial loans as well
as a 13% growth in middle-market CRE.
Provision for credit losses decreased $5.9 million, or 12%, compared to 2005. This reduction was driven by a decrease in the
allowance for loan losses from 1.22% in 2005 to 1.14% in 2006, but was partially offset by an increase in net charge-offs,
including the impact of the Unizan acquisition. The net charge-off ratio remained flat at 0.30% of total average loans.
The increase in non-interest expense was driven primarily by the acquisition of Unizan, but also reflected increased marketing
spending to acquire new checking accounts and higher costs related to additional branches. During the year, we opened 8 new
banking offices while consolidating 5 offices and relocating several others. The efficiency ratio improved to 52.7% in 2006,
compared to 54.0% in 2005.
Many of the key operating performance drivers improved compared with 2005. Since we focus on developing relationships, we
monitor the ‘‘cross-sell’’ ratio as an indicator of our sales performance. This ratio measures success in selling multiple products to
households. In Retail Banking the 90-day cross-sell ratio was 2.84, up from 2.80 one year ago, while the small business cross-sell
ratio was 2.27, down from 2.34 one year ago. In addition, customer bases continued to expand. Period-end Retail Banking non-
interest bearing checking account (DDA) households totaled 559,574, an increase of 44,884, or 9%, from 2005. The number of
small business DDA relationships was up 6,472, or 12%. The DDA is viewed as the primary banking relationship account as most
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