Huntington National Bank 2003 Annual Report Download - page 42

MANAGEMENT’S DISCUSSION AND ANALYSIS
6. L ONG - TERM D EBT E XTINGUISHMENT .In the fourth quarter of 2003, the company prepaid $250 million of high-cost, repurchase
agreements, resulting in a $15.3 million pre-tax loss being recorded in non-interest expense. This debt, which carried an average rate
of 4.98% and matured in 2006, was replaced by funding at significantly lower rates. (See Note 16 of the Notes to Consolidated
Financial Statements.)
Table 3 reflects the impact on reported (GAAP) net income and earnings per common share of these six items, which affect
comparability in 2001-2003. GAAP income adjusted for these six items was the primary measurement Management used to assess
underlying performance trends during this period. This adjusted earnings analysis is performed to help assess performance excluding
the impact of such items, so that management and investors can better discern underlying performance trends during the period and is
not intended to replace reported (GAAP) net income.
Table 3—Reconciliation of GAAP Earnings to Earnings Adjusted for Significant Items
2003 2002 2001
(in thousands of dollars) Pre-tax After-tax EPS Pre-tax After-tax EPS Pre-tax After-tax EPS
Net Income—GAAP $523,987 $372,363 $ 1.61 $ 522,705 $323,731 $ 1.33 $ 95,477 $134,796 $0.54
Change from prior year—$ $ 48,632 $ 0.28 $188,935 $ 0.79
Change from prior year—% 15.0% 21.1% NM NM
Restructuring charges (releases) (6,666) (4,333) (0.02) 48,973 31,832 0.13 79,957 51,972 0.21
Loss from Florida operations — — — 2,329 1,525 0.01 18,743 14,013 0.05
Gain on sale of Florida operations — — — (182,470) (61,422) (0.25) — — —
Merchant Services gain — — — (24,550) (15,957) (0.07) — — —
Gain on sale of automobile loans (40,039) (26,025) (0.11) — — — — — —
Cum. effect of change in accounting N/A 13,330 0.06 — — — — — —
Gain on sale of branch offices (13,112) (8,523) (0.04) — — — — — —
Long-term debt extinguishment 15,250 9,913 0.04 — — — — — —
Net Income—Adjusted $479,420 $356,725 $ 1.54 $ 366,987 $279,709 $ 1.15 $194,177 $200,781 $0.80
Change from prior year—$ $ 77,016 $ 0.39 $ 78,928 $ 0.35
Change from prior year—% 27.5% 33.9% 39.3% 43.8%
NM, not a meaningful value.
N/A, not available.
As shown in Table 3, 2003 GAAP net income was up 15% over 2002, with earnings per share up 21%. The higher growth rate in
earnings per common share reflected the full-year impact of the 19.2 million shares repurchased in 2002, plus 4.3 million shares
repurchased in the 2003 first quarter. This compared favorably with net income and earnings per common share in 2002 and 2001 of
$323.7 million, or $1.33 per share, and $134.8 million, or $0.54 per share, respectively. Net income and earnings per share for 2003
adjusted for the impact of the noted significant items, were up 28% and 34%, respectively, from 2002. Likewise, 2002 net income and
earnings per share on an adjusted basis were up 39% and 44%, respectively, from 2001.
While not reflected as adjustments in Table 3, the following is a list of other factors impacting comparability of certain performance
trends including balance sheet and income statement categories and other financial metrics.
7. 2002
AND 2003 F OURTH Q UARTER C REDIT A CTIONS .In early 2002, the company strengthened the credit workout group, whose
mission is the early identification and aggressive resolution of problem C&I and CRE loans. In the 2002 fourth quarter, this group
identified an economically attractive opportunity to sell $47 million of non-performing assets (NPAs) with $21 million of related
charge-offs. Also in that quarter, a $30 million credit exposure to one health care finance company, classified as a NPA during the
quarter, was charged-off. In the 2003 fourth quarter, this group identified for sale $99 million lower-quality commercial loans,
including $43 million of NPAs, with $27 million of related charge-offs, including $17 million associated with the sold NPAs. These
actions significantly lowered the level of NPAs and resulted in higher current period net charge-offs. Because these sold loans had
specific loan loss reserves sufficient to absorb the charge-offs associated with them, the loan loss reserve declined accordingly,
though the NPA coverage ratio increased to 384% at the end of 2003.
40 HUNTINGTON BANCSHARES INCORPORATED