Huntington National Bank 2012 Annual Report Download - page 40

32
Net Interest Income / Average Balance Sheet
Our primary source of revenue is net interest income, which is the difference between interest income from earning assets
(primarily loans, securities, and direct financing leases), and interest expense of funding sources (primarily interest-bearing deposits
and borrowings). Earning asset balances and related funding sources, as well as changes in the levels of interest rates, impact net
interest income. The difference between the average yield on earning assets and the average rate paid for interest-bearing liabilities is
the net interest spread. Noninterest-bearing sources of funds, such as demand deposits and shareholders’ equity, also support earning
assets. The impact of the noninterest-bearing sources of funds, often referred to as “free” funds, is captured in the net interest margin,
which is calculated as net interest income divided by average earning assets. Both the net interest margin and net interest spread are
presented on a fully-taxable equivalent basis, which means that tax-free interest income has been adjusted to a pretax equivalent
income, assuming a 35% tax rate.
The following table shows changes in fully-taxable equivalent interest income, interest expense, and net interest income due to
volume and rate variances for major categories of earning assets and interest-bearing liabilities:
Table 4 - Change in Net Interest Income Due to Changes in Average Volume and Interest Rates(1)
2012 2011
Increase (Decrease) From Increase (Decrease) From
Previous Year Due To Previous Year Due To
Fully-taxable equivalent basis(2) Yield/ Yield/
(dollar amounts in millions) Volume Rate Total Volume Rate Total
Loans and direct financing leases $ 58.6 $ (105.6) $ (47.0) $ 77.5 $ (213.1) $ (135.6)
Investment securities 1.9 (2.1) (0.2) 0.1 (31.7) (31.6)
Other earning assets 24.2 (11.5) 12.7 (16.7) 12.5 (4.2)
Total interest income from earning assets 84.7 (119.2) (34.5) 60.9 (232.3) (171.4)
Deposits (3.0) (94.8) (97.8) (4.2) (174.9) (179.1)
Short-term borrowings (1.2) (0.3) (1.5) 1.1 (0.6) 0.5
Federal Home Loan Bank advances 0.8 (0.8) --- (0.9) (1.4) (2.3)
Subordinated notes and other long-term debt,
including capital securities (32.0) 10.0 (22.0) (14.1) 9.4 (4.7)
Total interest expense of interest-bearing liabilities (35.4) (85.9) (121.3) (18.1) (167.5) (185.6)
N
et interest income $ 120.1 $ (33.3) $ 86.8 $ 79.0 $ (64.8) $ 14.2
(
1
)
The change in interest rates due to both rate and volume has been allocated between the factors in proportion to the relationship of the
absolute dollar amounts of the change in each.
(
2
)
Calculated assuming a 35% tax rate.