Huntington National Bank 2005 Annual Report Download - page 48

MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
Mortgage banking income and the net impact of MSR hedging activities for the three years ended December 31, 2005, was as
follows:
Table 7 — Mortgage Banking Income and Net Impact of MSR Hedging
Year Ended December 31,
Change from 2004 Change from 2003
(in thousands of dollars) 2005 Amount % 2004 Amount % 2003
Mortgage Banking Income
Origination fees $ 10,781 $ (1,596) (12.9)% $ 12,377 $ (4,895) (28.3)% $ 17,272
Secondary marketing 10,986 2,646 31.7 8,340 (15,267) (64.7) 23,607
Servicing fees 22,181 485 2.2 21,696 4,790 28.3 16,906
Amortization of capitalized servicing (18,359) 660 (3.5) (19,019) 6,947 (26.8) (25,966)
Other mortgage banking income 11,750 4,226 56.2 7,524 (3,880) (34.0) 11,404
Sub-total 37,339 6,421 20.8 30,918 (12,305) (28.5) 43,223
MSR recovery 4,371 2,993 N.M. 1,378 (13,579) (90.8) 14,957
Total mortgage banking income $ 41,710 $ 9,414 29.1% $ 32,296 $(25,884) (44.5)% $ 58,180
Capitalized mortgage servicing rights(1) $ 91,259 $14,152 18.4% $ 77,107 $ 6,020 8.5% $ 71,087
MSR allowance(1) (404) 4,371 (91.5) (4,775) 1,378 (22.4) (6,153)
Total mortgages serviced for others(1) 7,276,000 415,000 6.0 6,861,000 467,000 7.3 6,394,000
Net Impact of MSR Hedging
MSR recovery $ 4,371 $ 2,993 N.M.% $ 1,378 $ (13,579) (90.8)% $ 14,957
Net trading losses related to MSR hedging(2) (13,377) (7,867) N.M. (5,510) (5,510) N.M. —
Net interest income related to MSR hedging 1,688 238 16.4 1,450 1,450 N.M. —
Other MSR hedge activity(4) — 4,492 N.M. (4,492) (4,492) N.M. —
Net impact of MSR hedging(3) $ (7,318) $ (144) 2.0% $ (7,174) $(22,131) N.M.% $ 14,957
N.M., not a meaningful value.
(1) At period end.
(2) Included in other non-interest income.
(3) The tables above exclude securities gains or losses related to the investment securities portfolio.
(4) Included in other mortgage banking income.
2005 versus 2004 Performance
Non-interest income decreased $186.3 million, or 23%, from 2004 with $148.7 million of the decline reflecting the decrease in
operating lease income. Of the remaining $37.7 million decline from 2004, the primary drivers were:
– $23.8 million decline in net securities gains, as the current year reflected $8.1 million of securities losses, primarily related
to $8.8 million of securities losses due to the fourth quarter restructuring of a part of the securities portfolio, compared
with $15.8 million of gains in 2004 taken to mitigate the net impact of the MSR impairment.
– $17.0 million, or 18%, decline in other income reflected a combination of factors including an increase in MSR hedge-
related trading losses, lower income from automobile lease terminations, the $2.1 million write-off of an equity investment
in the 2005 second quarter, lower investment banking income, and lower equity investment gains.
– $13.0 million decline in gains on sale of automobile loans as the year-ago period included $14.2 million of such gains.
– $3.3 million, or 2%, decline in service charges on deposit accounts, all driven by a decline in commercial service charges,
reflecting a combination of lower activity and a preference by commercial customers to pay for services with higher
compensating balances rather than fees as interest rates increased. Consumer service charges increased slightly reflecting
higher activity-related personal service charges, mostly offset by lower maintenance fees on deposit accounts, as well as
lower personal NSF and overdraft service charges.
– $1.6 million, or 4%, decline in bank owned life insurance income.
– $1.2 million, or 2%, decline in brokerage and insurance income, reflecting lower annuity sales.
Partially offset by:
– $10.0 million, or 15%, increase in trust services due to higher personal trust and mutual fund fees, reflecting a
combination of higher market value of assets, as well as increased activity.
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