Huntington National Bank 2005 Annual Report Download - page 52

MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
Operating lease assets performance for the five years ended December 31, 2005, was as follows:
Table 9 — Operating Lease Performance
Year Ended December 31,
(in thousands of dollars) 2005 2004 2003 2002 2001
Balance Sheet:
Average operating lease assets outstanding $372,132 $896,773 $1,696,535 $2,601,666 $2,969,902
Income Statement:
Net rental income $126,519 $267,202 $ 458,644 $ 615,453 $ 654,625
Fees 6,531 13,457 21,623 28,542 27,573
Recoveries — early terminations 5,383 6,432 9,431 13,079 9,535
Total operating lease income 138,433 287,091 489,698 657,074 691,733
Depreciation and residual losses at termination 99,342 216,445 350,550 463,783 506,267
Losses — early terminations 9,034 20,033 42,720 55,187 52,359
Total operating lease expense 108,376 236,478 393,270 518,970 558,626
Net earnings contribution $ 30,057 $ 50,613 $ 96,428 $ 138,104 $ 133,107
Earnings ratios(1)
Net rental income 34.0% 29.8% 27.0% 23.7% 22.0%
Depreciation and residual losses at termination 26.7 24.1 20.7 17.8 17.0
(1) As a percent of average operating lease assets.
2005 versus 2004 Performance
Average operating lease assets in 2005 were $0.4 billion, down $0.5 billion, or 59% from a year-ago.
The net earnings contribution from operating leases was $30.1 million in 2005, down 41% from $50.6 million in 2004. Operating
lease income, which totaled $138.4 million in 2005, and represented 22% of non-interest income, declined 52% from 2004,
reflecting the decline in average operating leases. The majority of this decline was reflected in lower net rental income, down 53%
from 2004. Lower fees and recoveries from early terminations also contributed to the decline in total operating lease income, but
to a much lesser degree. Operating lease expense totaled $108.4 million for 2005, down 54% from a year ago, also reflecting the
continued decline in operating lease assets, with the decline related to lower depreciation and residual losses at termination
expenses.
The ratio of operating lease credit losses, net of recoveries, to average operating lease assets was 0.98% in 2005, down from 1.52%
in 2004.
2004 versus 2003 Performance
Average operating lease assets in 2004 declined 47% from the prior year. The net earnings contribution from operating leases was
$50.6 million in 2004, down 48% from $96.4 million in 2003. Operating lease income, which totaled $287.1 million in 2004, and
represented 35% of non-interest income, declined 41% from 2003 reflecting the decline in average operating leases. The majority
of this decline was reflected in lower net rental income, down 42% from 2003. Lower fees and recoveries from early terminations
also contributed to the decline in total operating lease income, but to a much lesser degree. Operating lease expense totaled
$236.5 million, down 40% from a year ago, also reflecting the continued decline in operating lease assets, with the decline
primarily related to lower depreciation and residual losses at termination expenses.
The ratio of operating lease asset credit losses to average operating lease assets, net of recoveries, was 1.52% in 2004, down from
1.96% in 2003.
Provision for Income Taxes
The provision for income taxes was $131.5 million in 2005, $153.7 million in 2004, and $138.3 million in 2003. The effective tax
rate was 24.2%, 27.8%, and 26.4% in 2005, 2004, and 2003, respectively. The lower effective tax rate in 2005 compared with 2004
reflected an increasing benefit from tax-exempt income and a federal tax loss carryback, partially offset by the effect of the
repatriation of foreign earnings. The higher effective tax rate in 2004 compared with 2003 reflected a reduction in tax benefits
(credits) from investments in partnerships and the impact of higher non-deductible expenses.
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