Huntington National Bank 2007 Annual Report Download - page 60

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LINESOFBUSINESSDISCUSSION
This section reviews financial performance from a line of business perspective and should be read in conjunction with the
Discussion of Results of Operations, Note 24 of the Notes to Consolidated Financial Statements, and other sections for a full
understanding of consolidated financial performance.
We have three distinct lines of business: Regional Banking, Dealer Sales, and the Private Financial and Capital Markets Group
(PFCMG). A fourth segment includes our Treasury function and other unallocated assets, liabilities, revenue, and expense. Lines of
business results are determined based upon our management reporting system, which assigns balance sheet and income statement
items to each of the business segments. The process is designed around our organizational and management structure and,
accordingly, the results derived are not necessarily comparable with similar information published by other financial institutions.
An overview of this system is provided below, along with a description of each segment and discussion of financial results.
Huntington Bancshares Incorporated
Regional Banking
- Retail banking
- Small Business Banking
- Commercial banking
- Mortgage banking
Dealer Sales Treasury/OtherPFCMG
- Consumer auto loans and
leases
- Dealership inventory
financing
- Dealership real estate /
working capital
- Asset management
- Private banking
- Brokerage
- Capital markets
- Investment securities
- Bank owned life
insurance
- Insurance
- Other expenses not
directly allocated to other
business segments
ACQUISITION OF SKY FINANCIAL
The businesses acquired in the Sky Financial merger were fully integrated into each of the corresponding Huntington lines of
business as of July 1, 2007. The Sky Financial merger had the largest impact to Regional Banking, but also impacted PFCMG and
Treasury/Other. For Regional Banking, the merger added four new banking regions and strengthened our presence in five regions
where Huntington previously operated. The merger did not significantly impact Dealer Sales.
After completion of the Sky Financial acquisition, we combined Sky Financial’s operations with ours. Methodologies were
implemented to estimate the approximate effect of the acquisition for the entire company; however, these methodologies were not
designed to estimate the approximate effect of the acquisition to individual lines of business. As a result, the effect of the
acquisition to the individual lines of business is not quantifiable. In the following individual line of business discussions, 2007
fourth quarter results are compared with 2007 third quarter results. We believe that this comparison provides a more meaningful
analysis because: (1) the impacts of the Sky Financial acquisition are included in both the 2007 fourth quarter and 2007 third
quarter results, and (2) the comparisons of full-year 2007 to full-year 2006 are distorted as a result of the non-quantifiable impact
of the Sky Financial acquisition to the individual lines of business.
FUNDS TRANSFER PRICING
We use a centralized funds transfer pricing (FTP) methodology to attribute appropriate net interest income to the business
segments. The Treasury/Other business segment charges (credits) an internal cost of funds for assets held in (or pays for funding
provided by) each line of business. The FTP rate is based on prevailing market interest rates for comparable duration assets (or
liabilities). Deposits of an indeterminate maturity receive an FTP credit based on vintage-based pool rates. Other assets, liabilities,
and capital are charged (credited) with a four-year moving average FTP rate. The intent of the FTP methodology is to eliminate all
interest rate risk from the lines of business by providing matched duration funding of assets and liabilities. The result is to
centralize the financial impact, management, and reporting of interest rate and liquidity risk in Treasury/Other where it can be
monitored and managed.
58
MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED