Huntington National Bank 2008 Annual Report Download - page 29

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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. Given the “free” nature of noninterest bearing
sources of funds, the net interest margin is generally higher than the net interest spread. Both the net interest spread and net
interest margin are presented on a fully taxable equivalent basis, which means that tax-free interest income has been adjusted to a
pre-tax equivalent income, assuming a 35% tax rate.
The table below 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 5 — Change in Net Interest Income Due to Changes in Average Volume and Interest Rates
(1)
Fully-taxable equivalent basis
(2)
(in millions) Volume
Yield/
Rate Total Volume
Yield/
Rate Total
Increase (Decrease) From
Previous Year Due To
Increase (Decrease) From
Previous Year Due To
2008 2007
Loans and direct financing leases $504.7 $(449.6) $ 55.1 $519.8 $ 97.8 $617.6
Securities 17.0 (16.2) 0.8 (27.7) 23.2 (4.5)
Other earning assets 19.1 (18.7) 0.4 60.2 2.4 62.6
Total interest income from earning assets 540.8 (484.5) 56.3 552.3 123.4 675.7
Deposits 206.8 (301.5) (94.7) 224.0 85.2 309.2
Short-term borrowings 5.1 (55.6) (50.5) 18.3 2.3 20.6
Federal Home Loan Bank advances 49.3 (44.1) 5.2 32.2 10.4 42.6
Subordinated notes and other long-term debt, including capital securities 22.3 (57.1) (34.8) 6.6 11.1 17.7
Total interest expense of interest-bearing liabilities 283.5 (458.3) (174.8) 281.1 109.0 390.1
Net interest income $257.3 $ (26.2) $ 231.1 $271.2 $ 14.4 $285.6
(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.
2008 VERSUS 2007
Fully taxable equivalent net interest income for 2008 increased $231.1 million, or 18%, from 2007. This reflected the favorable
impact of a $8.4 billion, or 21%, increase in average earning assets, of which $7.8 billion represented an increase in average loans
and leases, partially offset by a decrease in the fully-taxable net interest margin of 11 basis points to 3.25%. The increase to average
earning assets, and to average loans and leases, reflected the Sky Financial acquisition.
27
Management’s Discussion and Analysis Huntington Bancshares Incorporated