Huntington National Bank 2010 Annual Report Download - page 41

Economy
The weak residential real estate market and U.S. economy has had a significant adverse impact on the
financial services industry as a whole, and specifically on our financial results. In addition, the U.S. recession
during 2008 and 2009 and continued high Midwest unemployment have hindered any significant economic
recovery. However, some indications of recovery are beginning to take hold. Following is a discussion of
certain economic trends in our market area, particularly Ohio and Michigan.
The median home prices in the Midwest market have been directionally consistent with the nationwide
averages. In the years preceding the economic crisis, home prices in Michigan and Ohio did not increase as
rapidly as the national trend and became more in line with the national averages during the crisis. Therefore,
when real estate prices began to decline in 2008, the impact in our Midwest markets was reduced because pre-
crisis originations were not based on values that were as inflated as in other parts of the country. Home prices
in the Midwest are generally expected to follow the national growth rates over the next two years. Residential
real estate sales in the Midwest have been consistent with national averages. Single family home building
permits are expected to increase both nationally and in the Midwest through 2013.
Year-over-year changes in median household income in the Midwest have been consistent with national
averages and directionally similar with national trends. Both the U.S. and Midwest are expected to have slight,
but positive, income growth over the next two years. Unemployment in the Midwest has been consistently
higher than the national average for most of the past decade. However, the relative difference is expected to
narrow over the next two years, with the Midwest unemployment rate converging to the U.S. average. The
exception is Michigan, which has the second highest unemployment level in the country. From October 2009
through October 2010, Indiana’s employment growth of 1.1% was among the strongest in the country. Over
this same time period, Ohio’s manufacturing employment grew 1.4%, which was significantly higher than the
0.8% national average. Cleveland’s overall employment growth of 1.0% exceeded the national growth rate of
0.6%.
According to the FRB-Cleveland Beige Book in December 2010, manufacturers in our footprint indicated
that new orders and production were stable or rose slightly during the last two months of 2010. Inventory
levels were balanced with incoming order demand and capacity utilization trending up for some manufacturers
and steel producers. Overall, manufacturers were cautiously optimistic and expect at least modest growth
during 2011.
Partially resulting from these economic conditions in our footprint, we experienced higher than historical
levels of loan delinquencies and NCOs during 2009 and 2010. The pronounced downturn in the residential real
estate market that began in early 2007 resulted in lower residential real estate values and higher delinquencies
and NCOs, not only in consumer mortgage loans but also in commercial loans to builders and developers of
residential real estate. The value of our investment securities backed by residential and commercial real estate
was also negatively impacted by a lack of liquidity in the financial markets and anticipated credit losses.
Commercial real estate loans for retail businesses were also challenged by the difficult consumer economic
conditions over this period. However, as further discussed in the Credit Risk section, we experienced
significant improvement in credit performance during 2010.
Legislative and Regulatory
Legislative and regulatory reforms continue to be adopted which impose additional restrictions on current
business practices. Recent actions affecting us included an amendment to Regulation E relating to certain
overdraft fees for consumer deposit accounts and the passage of the Dodd-Frank Act.
Effective July 1, 2010, the Federal Reserve Board amended Regulation E to prohibit charging overdraft
fees for ATM or point-of-sale debit card transactions that overdraw the customer’s account unless the customer
opts-in to the discretionary overdraft service. For us, such fees were approximately $90 million per year prior
to the amendment. This change in Regulation E requires us to alert our consumer customers we can no longer
allow an overdraft unless they opt-in to our discretionary overdraft service. To date, the number of customers
choosing to opt-in has been higher than our expectations. Also, during the second half of 2010, we voluntarily
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