Huntington National Bank 2006 Annual Report Download - page 23

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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)
2006 2005
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 $ 100.7 $ 246.9 $ 347.6 $ 118.6 $ 177.7 $296.3
Securities 30.4 46.9 77.3 (29.8) 19.9 (9.9)
Other earning assets (4.3) 10.7 6.4 3.8 6.2 10.0
Total interest income from earning assets 126.8 304.5 431.3 92.6 203.8 296.4
Deposits 52.7 217.6 270.3 41.7 148.1 189.8
Short-term borrowings 12.6 25.3 37.9 (0.3) 21.6 21.3
Federal Home Loan Bank advances 9.5 15.8 25.3 (4.7) 6.1 1.4
Subordinated notes and other long-term debt, including capital securities (21.5) 59.9 38.4 (39.0) 66.4 27.4
Total interest expense of interest-bearing liabilities 53.3 318.6 371.9 (2.3) 242.2 239.9
Net interest income before funding cost adjustment 73.5 (14.1) 59.4 94.9 (38.4) 56.5
Funding cost adjustment ——— — (3.7) (3.7)
Net interest income $ 73.5 $ (14.1) $ 59.4 $ 94.9 $ (42.1) $ 52.8
(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.
2006 versus 2005
Fully taxable equivalent net interest income increased $59.4 million, or 6% ($59.0 million merger-related), from 2005, reflecting
the favorable impact of a $2.1 billion, or 7%, increase in average earning assets, as the fully taxable equivalent net interest margin
declined 4 basis points to 3.29%. Average total loans and leases increased $1.6 billion, or 7% ($1.4 billion merger-related). The
remaining increase in average total loans and leases was $0.2 billion, up 1% from a year-ago, which primarily reflected growth in
commercial loans and residential mortgages, mostly offset by a decline in total average automobile loans and leases reflecting a
decline in automobile leases and little growth in automobile loans given the ongoing program of selling a portion of related loan
production.
Average interest bearing deposits increased $2.0 billion from 2005, mostly related to the acquisition of Unizan. Interest expense
paid on total deposits and interest bearing liabilities increased at a faster rate than earning assets throughout 2006, reducing the
overall spread between interest revenue on earning assets and interest costs paid on interest bearing liabilities. Non-interest
bearing deposits grew at a 4% rate, reflecting the addition of Unizan. These added balances favorably impacted the margin for
2006, offsetting lower non-deferred loan fees and the reduction in net interest margin as noted above.
2005 versus 2004
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.
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 represents the net interest margin.
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