Huntington National Bank 2005 Annual Report Download - page 43

MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
Table 4 — Change in Net Interest Income Due to Changes in Average Volume and Interest Rates(1)
2005 2004
Increase (Decrease) From Increase (Decrease) From
Previous Year Due To Previous Year Due To
Yield/ Yield/
Fully tax equivalent basis(2)
(in millions of dollars) Volume Rate Total Volume Rate Total
Loans and direct financing leases $ 118.6 $ 177.7 $296.3 $ 110.8 $(75.7) $ 35.1
Securities (29.8) 19.9 (9.9) 42.1 (24.7) 17.4
Other earning assets 3.8 6.2 10.0 1.4 (10.5) (9.1)
Total interest income in earning assets 92.6 203.8 296.4 154.3 (110.9) 43.4
Deposits 41.7 148.1 189.8 21.5 (52.7) (31.2)
Short-term borrowings (0.3) 21.6 21.3 (1.8) (0.9) (2.7)
Federal Home Loan Bank advances (4.7) 6.1 1.4 0.3 8.6 8.9
Subordinated notes and other long-term debt, including capital securities (39.0) 66.4 27.4 21.6 (13.9) 7.7
Total interest expense in interest-bearing liabilities (2.3) 242.2 239.9 41.6 (58.9) (17.3)
Net interest income before funding cost adjustment 94.9 (38.4) 56.5 112.7 (52.0) 60.7
Funding cost adjustment — (3.7) (3.7) — 3.7 3.7
Net interest income $ 94.9 $ (42.1) $ 52.8 $ 112.7 $(48.3) $ 64.4
(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.
2005 versus 2004 Performance
Fully taxable equivalent net interest income increased $52.8 million, or 6%, from 2004, reflecting the favorable impact of a
$1.6 billion, or 6%, increase in average earning assets, as the fully taxable equivalent net interest margin remained unchanged at
3.33%.
The stability of the net interest margin reflected a combination of factors including the benefit of a shift in the earning asset mix
from lower-yielding investments to higher-yielding loans as a result of decreasing the level of excess liquidity and redirecting part
of the proceeds of securities sales to fund loan growth. In addition, the margin also benefited from an increase in non-interest
bearing funds. These benefits were partially offset by the negative impact of intense loan and deposit price competition and share
repurchases.
2004 versus 2003 Performance
Fully taxable equivalent net interest income increased $64.4 million, or 7%, in 2004 from 2003. This reflected the benefit of a
13% increase in average earning assets, partially offset by the negative impact of an effective 5% decline in the net interest margin
to 3.33% from 3.49%.
The net interest margin declined in the first half of 2004, primarily reflecting the sale of higher-margin automobile loans. Such
sales totaled $1.4 billion in the first half of 2004 but only $0.2 billion in the second half of 2004. The decline in the net interest
margin in the first half of the year also reflected, to a lesser degree, the growth in lower-margin investment securities, as well as
the impact of rising interest rates. The net interest margin stabilized in the second half of the year as automobile loan sales
diminished and lower cost deposit growth was strong.
A VERAGE B ALANCE S HEET
Table 5 shows average annual balance sheets and net interest margin analysis for the last five years. It details average balances for
total assets and liabilities, as well as shareholders’ equity, and their various components, most notably loans and leases, deposits,
and borrowings. It also shows the corresponding interest income or interest expense associated with each earning asset and
interest bearing liability category along with the average rate, with the difference resulting in the net interest spread. The net
interest spread plus the positive impact from the non-interest bearing funds represent the net interest margin.
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