Huntington National Bank 2004 Annual Report Download - page 45

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MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
$202.6 million, or 41%, from 2003. Excluding operating lease income, non-interest income decreased $47.9 million, or 8%, from a
year ago with the primary drivers being:
– $25.9 million decline in mortgage banking income reflected a combination of factors, all basically related to the lower level of
mortgage originations as interest rates increased during 2004. Such factors included lower net secondary marketing revenue as
sales declined, and a 91% reduction in MSR recovery.
– $25.8 million decline in gains on the sale of automobile loans reflecting both a decline in loan sales, $1.5 billion in 2004 vs.
$2.1 billion in 2003, as well as lower relative gains on the sales. The spread between the average interest rate on the pool of sold
loans and the current market rates at the time of the sale was narrower on the loan pools sold in 2004 than in 2003, thus
resulting in lower gains.
– $13.1 million decline in gains on sale of branch offices reflecting no such sales in 2004.
– $3.0 million decline in brokerage and insurance income primarily due to lower title insurance-related fees, and reduced credit
life insurance revenue, as well as a decline in annuity fee income due to a 6% decline in annuity sales.
Partially offset by:
– $10.5 million increase in securities gains primarily related to MSR temporary impairment hedging activity.
– $5.8 million increase in trust services income primarily due to higher personal trust income and proprietary mutual fund fees.
– $3.3 million increase in service charges on deposit accounts reflecting higher NSF and overdraft fees, partially offset by lower
personal and commercial account maintenance charges.
2003 versus 2002 Performance
Non-interest income for 2003 declined $272.6 million, or 20%, from 2002. As noted above, comparisons with prior-period results
were heavily influenced by the decline in operating leases and related operating lease income. Reflecting the run-off of the operating
lease portfolio, operating lease income declined $167.4 million, or 25%, from 2002. Excluding operating lease income, non-interest
income decreased $105.2 million, or 15%, from the prior year with the primary drivers being:
– $182.5 million related to the 2002 gain on the sale of the Florida banking operations.
– $24.6 million related to the 2002 gain on the Merchant Service restructuring.
– $4.3 million decline in brokerage and insurance income principally reflecting the loss of $6.9 million of revenue due to the
2002 sale of the Florida banking and insurance operations, partially offset by a $2.7 million increase in income generated by
other areas, mostly related to insurance agency revenue from mortgage refinancing and title insurance fees.
Partially offset by:
– $40.0 million of gains on the sale of automobile loans compared with none in 2002 as this program was initiated in 2003.
– $26.1 million increase in mortgage banking income, including $29.1 million for recoveries of previously recognized MSR
valuation temporary impairments. A record $6.1 billion of mortgages were originated in 2003 due to heavy refinancing activity
as borrowers continued to take advantage of very low interest rates. (See Note 5 of the Notes to the Consolidated Financial
Statements.)
– $14.3 million increase in deposit service charges. This increase reflected the growth in deposit accounts, as well as an increase
in consumer NSF service charges and overdraft fees, partially offset by the loss of $4.2 million in service charge revenue due to
the 2002 sale of the Florida banking operations.
– $14.1 million increase in other income reflecting a combination of items including higher lease termination income and fees,
securitization income, fees from customer interest rate swaps, and customer trading gains.
– $13.1 million of gains related to the 2003 sale of banking offices in West Virginia.
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