Huntington National Bank 2008 Annual Report Download - page 71

consumer deposits increased $618 million, or 3%, reflecting increased marketing efforts for consumer time deposit accounts in the
fourth quarter. The decline in number of DDA households was centered primarily in our Central Indiana region, which has had
significant consumer account attrition resulting from the Sky Financial acquisition. We are optimistic that this account attrition
trend will curtail in 2009. Although the number of DDA households declined, total consumer deposits for our Central Indiana
region increased $23 million, or 2%. The increase in consumer deposits was offset by a $706 million, or 8%, decline in commercial
deposits, reflecting the weakening economic conditions and interest rate declines.
Noninterest income decreased $29.4 million, or 21%, primarily reflecting: (a) $5.2 million decrease in service charges on deposit
accounts primarily due to a decrease in nonsufficient fund and overdraft fees, a continuing trend as a result of current economic
conditions, (b) $17.2 million decrease in mortgage banking income primarily reflecting a $15.6 million decline in the net hedging
impact of MSRs, and (c) $5.6 million decline in other noninterest income primarily resulting from interest rate swap losses
recognized in the fourth quarter, of which, one loan relationship in the Greater Cleveland region accounted for approximately
80%.
Noninterest expense increased $8.5 million, or 4%, reflecting: (a) $2.4 million increase in marketing expense as a result of
considerable marketing efforts in the 2008 fourth quarter, (b) $2.0 million increase in personnel expense resulting from lower
salary deferrals driven by lower origination activity (c) $1.4 million increase in commercial loan collections expense, and
(d) $1.1 million increase in franchise and other taxes.
2008 VERSUS 2007
Regional Banking reported net income of $276.9 million in 2008, compared with net income of $309.2 million in 2007. The
$32.3 million decline included a $345.9 million increase in provision for credit losses reflecting a $132.0 million increase in NCOs,
and a $526 million increase in NALs compared with the prior year-end. The increase in NCOs was driven by the $92.1 million
increase in the commercial loan portfolio. The increase in NALs was primarily driven by the commercial NALs, which increased
$490 million. The increase in both NCOs and NALs reflected the overall economic weakness across our regions. The increase in the
CRE segment of our commercial loan portfolio was primarily centered in the single family home builder segment. The increase to
provision for credit losses was partially offset by the net positive impact of the Sky Financial acquisition on July 1, 2007. The
acquisition increased net interest income, noninterest income, noninterest expense, average total loans and average total deposits
from the prior year.
2007 VERSUS 2006
Regional Banking reported net income of $309.2 million in 2007, compared with $311.6 million in 2006. This decrease primarily
reflected a $132.3 million increase in the provision for credit losses. This increase was largely due to the negative impact of the
economic weakness in our Midwest markets, most notably among our borrowers in eastern Michigan and northern Ohio, and
within the single family real estate development portfolio. The increase to the provision for credit losses was partially offset by the
net positive impact of the Sky Financial acquisition on July 1, 2007. The acquisition increased net interest income, noninterest
income, noninterest expense, average total loans, and average total deposits from the prior year.
Auto Finance and Dealer Services (AFDS)
(This section should be read in conjunction with Significant Item 6.)
OBJECTIVES,STRATEGIES,AND PRIORITIES
Our AFDS line of business provides a variety of banking products and services to more than 3,400 automotive dealerships within
our primary banking markets, as well as in Arizona, Florida, Tennessee, Texas, and Virginia. AFDS finances the purchase of
automobiles by customers at the automotive dealerships; finances dealerships’ new and used vehicle inventories, land, buildings
and other real estate owned by the dealership; finances dealership working capital needs; and provides other banking services to
the automotive dealerships and their owners. Competition from the financing divisions of automobile manufacturers and from
other financial institutions is intense. AFDS’ production opportunities are directly impacted by the general automotive sales
business, including programs initiated by manufacturers to enhance and increase sales directly. We have been in this line of
business for over 50 years.
The AFDS strategy has been to focus on developing relationships with the dealership through its finance department, general
manager, and owner. An underwriter who understands each local market makes loan decisions, though we prioritize maintaining
pricing discipline over market share.
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Management’s Discussion and Analysis Huntington Bancshares Incorporated