Huntington National Bank 2006 Annual Report Download - page 67

MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
Private Financial and Capital Markets Group
(See Significant Factors 1 and 5)
Objectives, Strategies, and Priorities
The Private Financial and Capital Markets Group (PFCMG) provides products and services designed to meet the needs of 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
high net worth 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 10 variable annuity funds, which represented approximately $3.9 billion in assets
under management at December 31, 2006. 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
600 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 our clients’ changing financial needs and to grow the balance sheet mainly through increased loan volume
achieved through improved cross-selling efforts. To grow managed assets, the Huntington Investment Company (HIC) sales team
has been utilized as the distribution source for trust and investment management. Additionally, PFCMG has been successful in
introducing innovative investment management products.
2006 versus 2005 Performance
PFCMG contributed $53.2 million, or 12% of the company’s operating earnings for the year ended December 31, 2006, up
$5.6 million, or 12%, from the previous year. The improvement reflected a $21.3 million increase in fully taxable equivalent
revenue; partially offset by a $1.5 million increase in the provision for credit losses and an $11.2 million increase in total non-
interest expense. The ROA and ROE for 2006 were 2.50% and 35.4%, respectively, compared to 2.41% and 36.6%, respectively,
for 2005.
The overall improvement in performance for 2006 was largely the result of continued success in the trust and asset management
business. At December 31, 2006, assets under management were $12.2 billion, a 13% increase from December 31, 2005. Total
trust assets amounted to nearly $52 billion, a 13% increase from the prior year and total trust fees increased 16% year over year.
The Unizan acquisition completed in the first quarter 2006 contributed $1.1 billion of the $6.0 billion growth in total trust assets,
and $0.8 billion of the $1.1 billion growth in managed assets, and $5.2 million of the $12.3 million increase in trust income.
Core growth in managed assets resulted from the continued success of utilizing the HIC sales team as the distribution source for
trust and investment management products and services. Approximately $243 million in new Huntington Asset Management
Accounts (HAMA), which are primarily sold through HIC, were opened during 2006. We also expanded our trust presence in the
Florida market by opening two new offices in mid-year 2005 and by opening new offices in Dayton, Indianapolis, and St.
Petersburg in the second quarter 2006. By December 31, 2006, total managed assets for these new offices was approximately
$220 million. The solid investment performance of our proprietary mutual funds was reflected in strong growth in fund assets. At
December 31, 2006, Huntington Fund assets were $3.9 billion, an 11% increase from December 31, 2005, and equity fund assets
were $1.5 billion, a 15% increase from the year ago period. In addition, three of the eight equity funds eligible for rating had an
overall Morningstar ‘‘4 Star’’ or ‘‘5 Star’’ rating and one fixed-income fund had a Morningstar ‘‘5 Star’’ rating.
Brokerage and insurance revenue also grew significantly in 2006, with brokerage revenue increasing $4.4 million, or 12%, and
insurance revenue increasing $1.6 million, or 13%. The growth in brokerage revenue resulted primarily from double digit
increases in both mutual fund and annuity sales volume, while the increase in insurance revenue was fueled by a 16% increase in
revenue from the agency business combined with the formation of a captive insurance company which now provides various
insurance coverage for the Bank’s automobile loan and lease business.
PFCMG showed modest balance sheet growth for 2006. Average loan balances increased 6%, while average deposit balances
increased by only 1%. PFCMG’s total loan growth of 6% was consistent with the Bank’s total loan growth of 7%, but PFCMG’s
growth occurred largely in consumer loans, which increased 8% year over year, driven by growth in residential mortgage loans.
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