Huntington National Bank 2010 Annual Report Download - page 114

Net interest income increased $60.9 million, or 22%, reflecting a 47 basis point increase in the net
interest margin. Average total loans were essentially unchanged. The net interest margin increase primarily
reflected the implementation of a risk-based pricing strategy in CRE portfolio lending that began in early
2009. Average total loans reflected a $1.6 billion increase in average consumer automobile loans that resulted
from record loan origination levels, as well as the consolidation of previously unconsolidated automobile loan
trust (see below). These increases were partially offset by a $1.2 billion decline in average CRE loans resulting
from the aggressive management of this portfolio and our on-going commitment to reducing our noncore CRE
portfolio.
On January 1, 2010, we adopted a new accounting standard to consolidate a previously off-balance sheet
automobile loan securitization transaction. At the end of the 2009 first quarter, we transferred $1.0 billion of
automobile loans to a trust in a securitization transaction that was part of a funding strategy. At the time of the
consolidation, the trust was holding $0.8 billion of loans and we elected to account for these loans, as well as
the underlying debt, at fair value. At December 31, 2010, these loans had a remaining balance of $0.5 billion.
Average total deposits increased $0.1 billion, or 21%, reflecting our commitment to strengthening
relationships with core customers and prospects, as well as new commercial automobile dealer relationships
developed in 2010.
Noninterest income, excluding operating lease income, increased $15.9 million. Results for 2009 included
a $5.9 million nonrecurring loss from the securitization transaction and a $0.7 million nonrecurring gain from
the sale of related securities. In addition, results for 2010 included a $4.0 million net gain resulting from
valuation adjustments of the loans and associated notes payable held by the consolidated trust discussed above,
a $5.7 million improvement in fee income from derivative trading activities, and a $3.1 million increase in
CRE loan fees. Partially offsetting these increases was a $3.9 million decrease in servicing income also
attributed to the automobile securitization trust consolidation.
Noninterest expense, excluding operating lease expense, increased $12.1 million. This increase reflected a
$6.6 million increase in personnel expense, much of which related to increased loan origination activities,
including the rebuilding of the commercial real estate team, and a $1.4 million increase in allocated costs
primarily related to higher production and other activity levels. Also, commercial real estate credit-related
expenses (e.g. appraisals, loan collections, taxes, and OREO expenses) increased $6.2 million. These increases
were partially offset by a $4.7 million decrease in losses associated with sales of vehicles returned at the end
of their lease terms, as used vehicle values throughout 2010 have been at higher relative levels and the number
of vehicles being returned has declined compared to the year-ago period.
Net automobile operating lease income increased $0.5 million, reflecting lower depreciation expense
attributed to improvement in estimated vehicle residual values. Net automobile operating lease income is
expected to decline in future periods as a result of the discontinuation of all lease origination activities in 2008
and the resulting continued runoff of the automobile operating lease portfolio.
2009 vs. 2008
AFCRE reported a net loss of $588.2 million in 2009, compared with a net loss of $14.2 million in 2008.
The provision for credit losses increased $811.3 million reflecting: (1) economic weaknesses in our markets,
(2) an increase in commercial reserves resulting from credit actions taken during 2009, and (3) a $566.4 million
increase in NCOs, also reflecting the impact of economic conditions on our borrowers. Net interest income
declined $74.9 million reflecting both a decline in average loan balances and a 47 basis point decrease in the
net interest margin. The decrease in the net interest margin resulted from changes in funding cost allocation
methodologies as well as the impact of increased NALs. The decline in loan balances was primarily due to the
2009 securitization transaction.
Noninterest income (excluding operating lease income of $51.8 million during 2009 and $39.8 million in
2008) decreased $12.2 million reflecting a $5.9 million nonrecurring loss from the 2009 securitization
transaction as well as declines in various other fee generating activities, much of which was attributed to
adverse market conditions. Noninterest expense (excluding operating lease expense of $43.4 million in 2009
100