Huntington National Bank 2005 Annual Report Download - page 85

MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
Private Financial and Capital Markets Group
Objectives, Strategies, and Priorities
The Private Financial and Capital Markets Group (PFCMG) provides products and services designed to meet the needs of our
higher net worth customers. Revenue is derived through the sale of trust, asset management, investment advisory, brokerage,
insurance, and private banking products and services. It also focuses on financial solutions for corporate and institutional
customers that include investment banking, sales and trading of securities, mezzanine capital financing, and risk management
products. To serve our customers, a unique distribution model is used that employs a single, unified sales force to deliver
products and services mainly through Regional Banking distribution channels.
PFCMG provides investment management and custodial services to our 29 proprietary mutual funds, including ten variable
annuity funds. The Huntington Investment Company offers brokerage and investment advisory services to both Regional Banking
and PFCMG customers through more than 100 licensed investment sales representatives and nearly 700 licensed personal bankers.
PFCMG’s insurance entities provide a complete array of insurance products including individual life insurance products ranging
from basic term life insurance, to estate planning, group life and health insurance, property and casualty insurance, mortgage title
insurance, and reinsurance for payment protection products. Income and related expenses from the sale of brokerage and
insurance products is shared with the line of business that generated the sale or provided the customer referral, most notably
Regional Banking.
PFCMG’s primary goals are to consistently increase assets under management by offering innovative products and services that
are responsive to the clients’ changing financial needs and to grow the balance sheet mainly through improved cross-selling
efforts. PFCMG has been successful in introducing innovative investment management products such as offering services that
utilize enhanced option techniques. We opened two new trust offices in Florida mid-year 2005, which, by year-end, had total
trust assets of $145 million.
PFCMG has reacted to the challenge of slower annuity sales by expanding and diversifying product offerings, focusing on growing
managed assets, and by continuing to place less reliance on traditional transaction-based investment product sales.
2005 versus 2004 Performance
PFCMG contributed $47.2 million, or 11%, of our net operating earnings for 2005, up $2.6 million, or 6%, from 2004. The
improvement reflected a $12.5 million, or 6%, increase in revenue partially offset by the negative impact of a $6.8 million, or 5%,
increase in non-interest expense and a $1.5 million increase in the provision for credit losses. PFCMG’s ROA and ROE for 2005
were 2.40% and 36.3%, respectively, compared to 2.52% and 33.7%, respectively, for 2004.
The overall improvement in revenue for 2005 was largely the result of improved net interest income and continued success in the
trust and asset management business. Net interest income increased $11.1 million as a result of higher loan and lease balances.
Average loan balances increased $173 million, or 11%, with growth in both commercial and consumer loans, up 14% and 9%,
respectively. Consumer loan growth continued to be largely driven by growth in residential real estate loans. Trust services
revenue grew $10.1 million, or 15%. The growth in trust services revenue was largely the result of higher trust assets, especially
assets under management. At December 31, 2005, assets under management totaled $10.8 billion, up 10% from $9.8 billion at the
end of 2004. Total trust assets were $45.6 billion, up 7% from $42.8 billion at the end of 2004. The investment performance of
our proprietary mutual funds also contributed to PFCMG’s success in 2005. Huntington Fund assets increased to $3.5 billion at
year end, up 13% over 2004, with equity fund assets exceeding $1.3 billion, a 15% increase. In addition, four of the nine
Huntington equity funds had a Morningstar ‘‘4 Star’’ rating and one Huntington fixed income fund had a Morningstar ‘‘5 Star’’
rating for the periods ended December 31, 2005. Brokerage and insurance revenues declined 9%. A flattening yield curve
negatively impacted the sale of fixed income products, such as annuities, in 2005.
2004 versus 2003 Performance
PFCMG contributed $44.6 million, or 11%, of our net operating earnings for 2004, up $14.5 million, or 48%, from 2003. The
improvement reflected a $21.9 million increase in total revenue combined with a $8.0 million decrease in the provision for credit
losses, partially offset by the negative impact of a $7.6 million increase in non-interest expense. The ROA and ROE for 2004 were
2.52% and 33.7%, respectively, compared with 2.00% and 26.4%, respectively, for 2003.
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