Huntington National Bank 2005 Annual Report Download - page 94

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MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
time deposits and interest bearing demand deposits. This transfer of funds into certificates of deposit less than $100,000 and out
of other deposit accounts reflected customer preference for higher fixed rate term deposit accounts. Average certificates of deposit
less than $100,000 increased $1.0 billion, or 39%, with this increase partially offset by a 12% decline in savings and other
domestic time deposits, as well as a 2% decline in interest bearing demand deposits.
Non-interest income decreased $35.6 million, or 19%, from the year-ago quarter, mostly attributed to the $30.8 million decline in
operating lease income, reflecting the continued run-off of the operating lease portfolio. The remaining categories decreased a
total of $4.9 million with the primary drivers being:
– $10.9 million decline in securities gains as the current quarter reflected $8.8 million of securities losses related to the
repositioning of a portion of the investment securities portfolio. This contrasts with $2.1 million of securities gains in the
year-ago quarter.
Partially offset by:
– $3.1 million, or 18%, increase in trust services income, due primarily to higher mutual fund, personal trust, and
institutional trust assets under management.
– $2.1 million, or 24%, increase in mortgage banking income, primarily reflecting higher secondary marketing income.
Non-interest expense decreased $50.7 million, or 18%, from the year-ago quarter with $29.6 million of the decline reflecting the
run-off of the operating lease portfolio. Of the remaining $21.1 million decline from the year-ago quarter, the primary drivers
were:
– $8.1 million, or 31%, decline in net occupancy expense as the year-ago quarter included a $7.8 million property lease
impairment.
– $7.3 million, or 28%, decline in other expense, as the year-ago quarter included $5.5 million of SEC/regulatory-related
expenses and $1.7 million in residual value losses on automobile leases.
– $6.6 million, or 5%, decline in personnel expense, primarily reflecting lower incentive compensation and benefits expense.
– $2.1 million, or 22%, decline in professional services, due primarily to lower legal and consulting expense.
Partially offset by:
– $1.8 million, or 33%, increase in marketing expense related to increased advertising expenditures.
– $1.1 million increase in outside data processing and other services with the largest increase in debit card processing
expense, up $0.6 million.
Our effective tax rate was 22.5% in the 2005 fourth quarter, down from 29.0% in the year-ago quarter. As previously disclosed,
the effective tax rate in each quarter of 2005 included the positive impact on net income due to a federal tax loss carry back, tax
exempt income, bank owned life insurance, asset securitization activities, and general business credits from investment in low
income housing and historic property partnerships.
Credit Quality
Total net charge-offs for the 2005 fourth quarter were $17.6 million, or an annualized 0.29% of average total loans and leases.
This was down from $20.9 million, or an annualized 0.36%, in the year-ago quarter.
Total commercial net charge-offs in the fourth quarter were $3.6 million, or an annualized 0.13%, down from $5.2 million, or an
annualized 0.21%, in the year-ago quarter. This reflected net recoveries in the current quarter in middle market C&I and CRE
loans, which lowered total commercial net charge-offs by $2.0 million and $2.7 million, respectively, from the year-ago quarter.
This benefit was partially offset by a $3.1 million increase in small business loan net charge-offs, which totaled $4.5 million in the
current quarter, or an annualized 0.80% of related loans.
Total consumer net charge-offs in the fourth quarter were $14.0 million, or an annualized 0.41% of related loans. This compared
with $15.8 million, or 0.49%, in the year-ago quarter. The decline from the year-ago quarter reflected primarily lower automobile
loan and lease net charge-offs and lower home equity net charge-offs. Total automobile loan and lease net charge-offs in the 2005
fourth quarter were $6.6 million, or an annualized 0.61% of related loans and leases, down from $7.5 million, or an annualized
0.70%, in the year-ago quarter. Home equity loan net charge-offs in the current quarter were $4.5 million, or an annualized
0.39%, down from $5.3 million, or 0.48%, in the year-ago quarter.
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