Huntington National Bank 2003 Annual Report Download - page 53

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MANAGEMENT’S DISCUSSION AND ANALYSIS
resulting in a $14.1 million pre-tax temporary MSR impairment charge. Just the opposite occurred in the second half of 2003, as the
rise in market interest rates resulted in a higher valuation of the MSR asset, resulting in $15.0 million of MSR impairment net
recoveries for the full year. This change in MSR valuation resulted in a $29.1 million increase in mortgage banking income between
these periods. At December 31, 2003, the value of capitalized MSRs was 1.11% of loans serviced for others. 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 7 of the Notes to the Consolidated Financial Statements.)
• $14.3 million, or 9%, increase in deposit service charges. This increase occurred despite the loss of $4.2 million, or 3%, of 2002
deposit service charges related to the sold Florida banking operations. Deposit service charges in banking regions other than Florida
increased $18.5 million, or 12%, in 2003 compared with 2002. This increase reflected the growth in deposit accounts, as well as an
increase in consumer NSF service charges and overdraft fees.
• $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.
Partially offset by:
• $4.3 million decline in brokerage and insurance income. This decline was principally due to the $6.9 million of 2002 brokerage and
insurance income related to the sold Florida banking and insurance operations, partially offset by a $2.7 million increase in income
generated by other areas compared with 2002, mostly related to insurance agency revenue from mortgage refinancing and title
insurance fees.
2002 versus 2001 Performance
Non-interest income for 2002 was up $141.8 million, or 12%, from 2001. As shown in Table 8, the impact of the 2002 gain from the
sale of the Florida banking operation and the Merchant Services restructuring, partially offset by the decline in operating lease income
(as this portfolio continued to run-off) accounted for $172.4 million of the increase, with the remaining components of non-interest
income down $30.6 million from 2001 (see Significant Factors items 2 and 8).
Contributing to this $30.6 million decrease were:
• $22.5 million decline in mortgage banking income, with $3.3 million reflecting the sale of the Florida banking operations which had
virtually no mortgage banking income in 2002 but $3.3 million in 2001. The remaining $19.2 million decline in mortgage banking
income included $14.1 million of temporary MSR impairment charges in 2002 compared with $6.3 million of such impairment in
2001. In addition, the company retained MSRs in 2002 compared with the general practice of selling them in 2001. This resulted in
fewer gains on sales of servicing and related hedge gains, as well as more amortization expense of the related MSRs being recorded.
Total mortgage loans originated in 2002 were $4.1 billion, up from $3.5 billion in 2001 due to heavy refinancing activity as
borrowers took advantage of very low interest rates. At December 31, 2002, the value of capitalized mortgage servicing rights was
0.78% of loans serviced for others.
• $12.9 million decline in brokerage and insurance income, reflecting a $17.7 million decrease due to the sale of the Florida banking
and insurance operations, which had $6.9 million and $24.6 million of such income in 2002 and 2001, respectively, partially offset by
a the positive impact of higher annuity sales, though fees associated with mutual fund sales declined.
• $11.4 million decline in service charges on deposit accounts, with $27.2 million reflecting the sale of the Florida banking and
insurance operations, which had $4.2 million and $31.4 million of such income in 2002 and 2001, respectively, partially offset by a
$15.8 million increase in deposit service charges, primarily personal and commercial service charges.
Partially offset by:
• $13.6 million increase in other income representing a $16.9 million increase in other income spread over a number of miscellaneous
fee and service income categories, partially offset by a $3.3 million reduction due to the sale of the Florida banking and insurance
operations, which had $1.1 million and $7.2 million of such income in 2002 and 2001, respectively.
Total non-interest income associated with the sold Florida banking and insurance operations was $13.3 million and $77.0 million in
2002 and 2001, respectively.
HUNTINGTON BANCSHARES INCORPORATED 51