Huntington National Bank 2003 Annual Report Download - page 93

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MANAGEMENT’S DISCUSSION AND ANALYSIS
Results for the Fourth Quarter
Table 26 presents the company’s results of operations for the most recent eight quarters, and Table 27 presents selected stock,
performance ratios, and capital data for the same periods.
E
ARNINGS
D
ISCUSSION
Fourth quarter 2003 earnings were $93.3 million, or $0.40 per common share, up 35% and 38%, respectively, from 2002 fourth quarter
results. The following significant items impacted results for the 2003 fourth quarter:
• $16.3 million pretax ($10.6 million after-tax or $0.05 per share) gain on sale of $1.0 billion of automobile loans.
• $15.3 million pretax ($9.9 million after-tax or $0.04 per share) loss associated with extinguishing $250 million of long-term debt.
• $3.5 million pretax ($2.3 million after-tax or $0.01 per share) mortgage servicing rights (MSR) impairment recovery.
• $99 million sale of lower quality loans, including $43 million of non-performing assets (NPAs).
ROA and ROE were 1.22% and 16.6%, respectively, for the 2003 fourth quarter, compared with 1.02% and 12.7%, respectively, for the
year-ago quarter.
Compared with the year-ago quarter, 2003 fourth quarter fully taxable equivalent net interest income increased $26.2 million, or 13%,
reflecting a $4.3 billion, or 20%, increase in average earning assets, partially offset by a 20 basis point, or an effective 6%, decline in the
fully taxable equivalent net interest margin to 3.42% from 3.62%. During the fourth quarter, $250 million of high cost, long-term
repurchase agreements were extinguished. This debt extinguishment will reduce funding costs in future quarters, but resulted in a one-
time non-interest expense loss of $15.3 million.
The 20% increase in average earning assets from a year ago reflected an 18% increase in average loans and leases and a 38% increase in
average investment securities.
The $3.2 billion, or 18%, increase in average total loans and leases was primarily driven by growth in consumer loans. Average
automobile loans and leases increased $1.6 billion, or 44%, with $1.0 billion due to the 2003 third quarter adoption of FIN 46. Average
residential mortgages increased $0.8 billion, or 48%, reflecting strong growth in adjustable rate mortgages. Average home equity loans
and lines increased $0.5 billion, or 16%. Total average C&I and CRE loans were up $0.3 billion, or 3%, from a year ago, reflecting 11%
growth in middle-market CRE loans and 10% growth in small business loans, partially offset by a 4% decline in middle-market
commercial loans.
Average investment securities increased $1.2 billion, or 38%, from the 2002 fourth quarter primarily reflecting the investment of a
portion of the proceeds from the sale of automobile loans and the securitization and retention of residential mortgage loans by the
mortgage banking business. Automobile loan sales totaled $2.1 billion for all of 2003, including $1.0 billion in the fourth quarter.
Average mortgages held for sale were down $0.2 billion, or 37%, from the year-ago quarter due to lower production of mortgage loans
for sale in the fourth quarter of 2003.
Compared with the year-ago quarter, average core deposits increased $0.5 billion, or 4%, and included a $1.2 billion, or 22%, increase
in interest bearing demand deposits, primarily money market accounts. This increase was partially offset by a $0.8 billion, or 25%,
decline in retail CDs reflecting the reduced emphasis on this relatively higher cost source of funds. Average non-interest bearing
deposits increased $0.2 billion, or 6%, from the year-ago quarter.
Non-interest income declined $25.3 million, or 9%, compared with the year-ago quarter. Comparisons with prior-period results are
heavily influenced by the decline in operating lease income. Reflecting the run-off of the operating lease portfolio, operating lease
income declined $44.0 million, or 29%, from the year-ago quarter. Excluding operating lease income, non-interest income increased
$18.6 million, or 15%, from the year-ago quarter. The primary drivers of the $18.6 million increase were:
• $16.3 million gain on the sale of $1.0 billion of automobile loans in the current quarter as compared with none in the year-ago
quarter.
• $4.1 million increase in mortgage banking income, including the benefit of the $3.5 million MSR impairment recovery in the current
quarter as compared with a $6.2 million MSR impairment charge a year ago, partially offset by lower origination fee income and net
marketing income.
• $3.3 million, or 8%, increase in service charges on deposit accounts.
HUNTINGTON BANCSHARES INCORPORATED 91