Huntington National Bank 2010 Annual Report Download - page 43

these organizations against losses due to material breaches of these representations and warranties. At
December 31, 2010, we have a reserve for such losses of $20.2 million, which is included in accrued expenses
and other liabilities.
2011 Expectations
Borrower and consumer confidence remains a major factor impacting growth opportunities for 2011. We
continue to believe that the economy will remain relatively stable throughout 2011, with the potential for
improvement in the latter half. Challenges to earnings growth include (1) revenue headwinds as a result of
regulatory and legislative actions, (2) anticipated higher interest rates as we enter 2011, which is expected to
reduce mortgage banking income, and (3) continued investments in growing our businesses.
Reflecting these factors, pre-tax, pre-provision income levels are expected to remain in line with 2010
second half performance. Nevertheless, net income growth from the 2010 fourth quarter level is anticipated
throughout the year. This will primarily reflect on-going reductions in credit costs. We expect the absolute
levels of NCOs, NPAs, and Criticized loans will continue to decline, resulting in lower levels of provision
expense. Given the significant credit-related improvements in 2010, coupled with our expectation for continued
improvement, our return to more normalized levels of credit costs could occur earlier than previously
expected.
The net interest margin is expected to be flat or increase slightly from the 2010 fourth quarter. We
anticipate continued benefit from lower deposit pricing. In addition, the absolute growth in loans compared
with deposits is anticipated to be more comparable, thus reducing the absolute growth in lower yield
investment securities.
The automobile loan portfolio is expected to continue its strong growth, and we anticipate continued
growth in C&I loans. Home equity and residential mortgages are likely to show only modest growth. CRE
loans are expected to continue to decline, but at a slower rate.
Core deposits are expected to show continued growth. Further, we expect the shift toward lower-cost
demand deposit accounts will continue.
Fee income, compared with the 2010 fourth quarter, will be negatively impacted by lower interchange
fees due to regulatory fee change and a decline in mortgage banking revenues due to a higher interest rate
environment as we enter 2011. With regard to interchange fees, if enacted as recently outlined, the Federal
Reserve’s proposed interchange fee structure will significantly lower interchange revenue. Other fee categories
are expected to grow, reflecting the impact of our cross-sell initiatives throughout the Company, as well as the
positive impact from strategic initiatives. Over time, we anticipate more than offsetting revenue challenges
with revenue we expect to generate by accelerating customer growth and cross-sell results. Expense levels
early in the year should be up modestly from 2010 fourth quarter performance, with increases later in the year
due to continued investments to grow the business.
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