Huntington National Bank 2011 Annual Report Download - page 39

EXECUTIVE OVERVIEW
2011 Financial Performance Review
In 2011, we reported net income of $542.6 million, or $0.59 per common share, up $230.3 million from
2010 (see Table 2). The primary driver of the increase was improved credit quality during 2011, which resulted
in a decline in provision for credit losses by $460.5 million, or 73%, when compared to 2010. This benefit to net
income was offset somewhat by a decline in noninterest income of 6% and an increase in noninterest expense of
3%. Despite the challenging economic and extended low interest rate environment coupled with impacts of
government-mandated reductions in fee income during 2011, and a slower mortgage market, we were able to
produce a return on average total assets of 1.01%, up from 0.59% in 2010. We also saw continuing results from
our strategic business investments and Optimal Customer Relationship (OCR) sales approach. (Also, see
Significant Items Influencing Financial Performance Comparisons within the Discussion of Results of
Operations.)
Fully-taxable equivalent net interest income was $1.6 billion in 2011, up slightly from 2010. Average
earning assets increased $1.2 billion, or 2%, including a $1.6 billion, or 4% increase in total loans and leases.
This reflected benefits from our strategic C&I initiatives focusing on large corporate, asset based lending, and
equipment finance. It also reflected growth in the automobile portfolio. These increases were partially offset by a
decline in our CRE portfolio, reflecting the continued execution of our plan to reduce total CRE exposure,
primarily in the noncore portfolio. Average core deposits grew $1.9 billion, or 5%, reflecting our consumer
household and commercial relationship growth. This growth continued even as we continued to focus on
fundamentally changing our deposit mix and driving down the overall cost of funds. The net interest margin
declined 6 basis points to 3.38% from 3.44%. The decline reflected lower loan and securities yields due to the
extended low interest rate environment, partially offset by the positive impacts of growth in low cost deposits and
lower deposit pricing.
Noninterest income was $1.0 billion in 2011, a 6% decrease compared with 2010. We experienced growth
in certain fee businesses during the year including capital markets fees and brokerage income. We also had a gain
on sale of loans from our 2011 third quarter automobile securitization. These increases were offset by declines in
mortgage banking income, as originations decreased 28% from the prior year. Additionally, we experienced
declines in service charges on deposit accounts, reflecting our implementation of changes to Regulation E and
our “Fair Play” banking philosophy which were somewhat offset by activity growth due to a 10% increase in
consumer households during 2011.
Noninterest expense was $1.7 billion in 2011, a 3% increase compared with 2010. This reflected increases
in personnel costs, expenses associated with the conversion to a new debit card processor, and the costs related to
implementation of strategic initiatives. These increases were partially offset by declines in OREO and
foreclosure expenses, as credit quality continued to improve, as well as lower professional services costs.
Credit quality performance continued to show strong improvement as our NALs and NCOs declined and
reserve coverage increased. Compared with the prior year, NALs declined 30%. NCOs were $437.1 million, or
an annualized 1.12% of average total loans and leases, down from $874.5 million, or an annualized 2.35% in
2010. While the ACL as a percentage of loans and leases was 2.60%, down from 3.39% at December 31, 2010, it
is near peer averages and our ACL as a percentage of total NALs increased to 187% from 166%. The level of
Criticized commercial loans also declined $0.9 billion, or 30%, from last year. The provision for credit losses
declined $460.5 million, or 73%, from 2010.
At December 31, 2011, our regulatory Tier 1 and Total risk-based capital were $2.8 billion and $2.2 billion,
respectively, above the well-capitalized regulatory thresholds. Our tangible common equity ratio improved 74
basis points to 8.30% and our Tier 1 common risk-based capital ratio improved 71 basis points to 10.00% from
December 31, 2010. During the 2011 fourth quarter, we replaced a portion of our trust preferred securities with
preferred stock, which we believe will qualify as additional Tier 1 risk-based capital under regulations arising
from the Dodd-Frank Act.
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