Huntington National Bank 2005 Annual Report Download - page 38

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MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
DISCUSSION OF RESULTS OF OPERATIONS
This section provides a review of financial performance from a consolidated perspective. It also includes a Significant Factors
Influencing Financial Performance Comparisons section that summarizes key issues important for a complete understanding of
performance trends. Key consolidated balance sheet and income statement trends are discussed in this section. All earnings per
share data are reported on a diluted basis. For additional insight on financial performance, this section should be read in
conjunction with the Lines of Business Discussion.
Summary
2005 versus 2004
Earnings for 2005 were $412.1 million, or $1.77 per common share, up 3% and 4%, respectively, from $398.9 million, or $1.71
per common share, in 2004. The $13.2 million increase in net income primarily reflected:
– $152.4 million, or 14%, decline in non-interest expense, primarily reflecting a $128.1 million decline in operating lease
expenses, a $9.9 million decline in SEC-related expenses, a $4.8 million decline in net occupancy expense, a $4.1 million
decline in personnel costs, and a $2.9 million decline in Unizan system conversion expenses.
– $51.0 million, or 6%, increase in net interest income, reflecting a 6% increase in average earning assets, as the net interest
margin of 3.33% was unchanged from the prior year. The increase in average earning assets reflected 10% growth in
average total loans and leases, including 11% growth in average total consumer loans and 8% growth in average total
commercial loans, partially offset by a 14% decline in average investment securities.
– $22.3 million decline in income tax expense as the effective tax rate for 2005 was 24.2%, down from 27.8% in 2004. The
lower 2005 income tax expense reflected a combination of factors including the benefit of a federal tax loss carry back,
partially offset by the net impact of repatriating foreign earnings.
Partially offset by:
– $186.3 million, or 23%, decline in non-interest income. Contributing to the decrease were a $148.7 million decline in
operating lease income, a $23.8 million decline in securities gains as the current year had $8.1 million of securities losses
and the prior year had $15.8 million of securities gains, a $13.0 million decline in gains on sales of automobile loans, a
$17.0 million decline in other income reflecting primarily MSR-hedge related trading losses, and a $3.3 million decline in
service charges on deposit accounts. These declines were partially offset by a $10.0 million increase in trust services
income, a $9.4 million increase in mortgage banking income, and a $2.8 million increase in other service charges and fees.
– $26.2 million, or 48%, increase in the provision for credit losses, reflecting higher levels of non-performing assets and
problem credits, as well as growth in the loan portfolio.
The ROA and ROE for 2005 were 1.26% and 16.0%, respectively, down slightly from 1.27% and 16.8%, respectively, in 2004.
2004 versus 2003
Earnings for 2004 were $398.9 million, or $1.71 per common share, up 7% and 6%, respectively, from $372.4 million, or $1.61
per common share, in 2003. The $26.6 million increase in net income primarily reflected:
– $108.9 million, or 66%, decline in the provision for credit losses, reflecting lower levels of non-performing assets and
problem credits, only partially offset by the impact of loan growth.
– $107.9 million, or 9%, decline in non-interest expense, primarily reflecting a $156.8 million decline in operating lease
expenses, a $15.3 million loss on early extinguishment of debt expense in 2003, a $5.6 million decline in professional
services, and declines in equipment, marketing, telecommunications, and printing and supplies. These declines were
partially offset by a $38.5 million increase in personnel costs, a $13.5 million increase in net occupancy expense, a
$6.7 million increase in SEC/regulatory-related expenses, and $3.6 million of Unizan system conversion expenses, as the
prior year did not have these expenses.
– $62.4 million, or 7%, increase in net interest income, reflecting a 13% increase in average earning assets, partially offset by
the negative impact of a 16 basis point, or an effective 5%, decline in the net interest margin to 3.33% from 3.49%. The
increase in average earning assets reflected 11% growth in average total loans and leases, including 16% growth in average
total consumer loans, 4% growth in average total commercial loans, and a 25% increase in average investment securities.
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