Huntington National Bank 2003 Annual Report Download - page 51

MANAGEMENT’S DISCUSSION AND ANALYSIS
2002 versus 2001 Performance
Average total loans and leases for 2002 were $17.4 billion, down $0.7 billion, or 4%, from 2001, as shown in Table 4. This decrease
resulted from the impact of the sold Florida related loans, partially offset by a $1.5 billion, or 23%, increase in consumer loans and
leases in the remaining loan portfolios. Average Florida related loans were $0.3 billion in 2002 and $2.6 billion in 2001 (see Table 7).
The increase in non-Florida consumer loans and leases was attributable to an emphasis, beginning in late 2001, on the generation of
residential mortgages. This coincided with heavy demand for refinancing mortgage assets due to the declining interest rate
environment. As a result, average non-Florida residential mortgages increased $0.6 billion, or 74%. Non-Florida home equity loans
and lines increased $0.3 billion, or 11%. Average non-Florida automobile loans and leases increased $0.6 billion, or 25%. Also
contributing to growth in average loans and leases, on this same basis, was a $0.4 billion, or 13%, increase in CRE loans. In contrast,
average non-Florida C&I loans declined $0.3 billion, or 5%, reflecting a combination of low demand due to the weak economic
environment and reduced shared national credit exposure.
The $0.3 billion, or 10%, decline in average investment securities in 2002 reflected the continued run off of lower-margin securities,
mostly in the first half of 2001, and was unaffected by the sold Florida banking operations.
Average operating lease assets were $2.6 billion in 2002, down 12% from the prior year, reflecting no new operating leases being
originated since April 2002, and the run-off of the existing operating leases.
A
VERAGE B ALANCE S HEET D ISCUSSION —D EPOSITS AND O THER F UNDING
2003 versus 2002 Performance
As shown in Table 16, deposits were $18.5 billion at December 31, 2003, with 84% representing core deposits, down from 87% at the
end of the prior year.
Average core deposits were $15.4 billion in 2003, up 1%, as shown in Table 4. This increase reflected 20% growth in interest bearing
demand deposits and 6% growth in non-interest bearing demand deposits, areas where growth initiatives were concentrated. However,
most of this growth was offset by a 25% decline in average retail certificates of deposit. As interest rates declined throughout the first
half of 2003, retail certificates of deposits (CDs) became a relatively expensive source of funding and, as a result, were de-emphasized.
Average total deposits, which include core deposits, were $18.2 billion, up 6% from the prior year, and additionally reflected significant
growth in brokered time deposits and negotiable CDs, both of which were relatively lower cost deposits.
Management uses the non-core funding ratio (total liabilities less core deposits and accrued expenses and other liabilities divided by
total assets) to measure the extent to which funding is dependent on wholesale deposits and borrowing sources. For 2003, the average
non-core funding ratio was 35%, up from 28% in 2002. This reflected the fact that balance sheet growth during 2003 exceeded that of
core deposits and, therefore, required funding through brokered CDs, Federal Home Loan Bank (FHLB) advances, and other long-
term debt. As previously mentioned, though it had no significant impact on average balances, $250 million of secured long-term debt
was extinguished in the fourth quarter of 2003.
2002 versus 2001 Performance
As shown in Table 16, deposits were $17.5 billion at December 31, 2002, with 87% representing core deposits, down from 93% at the
end of the prior year, which included the Florida deposits subsequently sold.
Average core deposits were $15.3 billion in 2002 as shown in Table 4. The sale of the Florida banking operations reduced average core
deposits outstanding by $3.8 billion compared with 2001 (see Table 7). Partially offsetting the impact of these sold deposits was growth
in non-Florida core deposit funding of $1.4 billion, or 10%, from the prior year. This growth was driven by a $1.3 billion, or 37%,
increase in average non-Florida interest bearing demand deposits reflecting the combined benefits of enhanced sales efforts and
consumers moving funds out of the equity markets. Average brokered time deposits and negotiable certificates of deposits, on the same
basis, increased $0.6 billion reflecting their relatively lower cost and Management’s strategy to further diversify its funding sources.
Average borrowings in 2002, comprised of short-term notes, advances from the FHLB, subordinated notes, and long-term debt
including capital securities, totaled $5.5 billion, little changed from the prior year.
HUNTINGTON BANCSHARES INCORPORATED 49