Huntington National Bank 2003 Annual Report Download - page 79

Download and view the complete annual report

Please find page 79 of the 2003 Huntington National Bank annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 146

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146

MANAGEMENT’S DISCUSSION AND ANALYSIS
slightly from 0.38% the prior year, both relatively low levels and reflecting the less seasoned nature of this portfolio. Until the direct
financing lease portfolio matures, related net charge-offs are also expected to increase.
Non-interest income decreased 24%, driven by the decline in operating lease income as that portfolio continued to run-off. Similarly,
non-interest expense declined 21%, primarily reflecting the decline in operating lease expense. Other non-interest expense declined 6%
primarily due to lower residual value insurance costs, while personnel costs increased 9%, primarily due to higher benefits costs and
production-related salary costs.
The return on average assets and return on average equity for Dealer Sales, were 0.80% and 13.3%, respectively, up from 0.35% and
down from 13.6% in 2002.
2002 versus 2001 Performance
Dealer Sales earnings in 2002 were $23.9 million compared with a $20.2 million operating loss in 2001. Higher provision for loan and
lease losses, losses on terminated operating leases, and a soft used car market, all had adverse impacts on the Dealer Sales segment in
2002 and 2001.
Net interest income improved $32.0 million in 2002 versus 2001, reflecting a $644 million, or 25%, increase in average consumer loans.
This consumer loan growth reflected a $381 million, or 17%, increase in average automobile loans, and a $268 million increase in
average direct financing leases. Direct financing leases are earning assets and contribute interest income to the net interest margin.
Average direct financing leases more than doubled from 2001 average balances, reflecting the fact that since April 2002, all new
automobile leases have been recorded as direct financing leases. Therefore, this is a young and rapidly growing portfolio.
In contrast, operating leases are running off as no new operating leases have been recorded since April 2002. Operating lease income is
reflected as rental income, a component of non-interest income, with the depreciation of the automobiles reflected as operating lease
expense, a component of non-interest expense. As a result, both operating lease income and operating lease expense will trend down
over time in-line with declines in the portfolio balance. These declines materially impact Dealer Sales’ trends in non-interest income
and non-interest expense, as they represent the largest non-interest income and non-interest expense components, 96% and 85%,
respectively, in 2002. Reflecting this dynamic, non-interest income and non-interest expense both declined 4% from 2001.
Provision for loan and lease losses in 2002 declined $32.5 million from 2001, which included a $55 million specific reserve addition for
the lower quality auto loans and leases originated in 2001 and prior years. Partially offsetting this decline was a provision increase due
to growth in automobile loans and direct financing leases.
HUNTINGTON BANCSHARES INCORPORATED 77