Huntington National Bank 2007 Annual Report Download - page 64

Non-interest income increased $1.5 million primarily reflecting a $2.0 million increase in automobile operating lease income,
reflecting an increase in operating lease assets. Beginning in the 2007 fourth quarter, all lease originations were recorded as
operating leases as a result of our recent decision to no longer purchase lease residual value insurance on lease originations. Leases
originated prior to October 2007 continue to be covered by lease residual value insurance. This increase was partially offset by a
$0.6 million decrease in non-related automobile operating lease income, reflecting declines in lease termination income and
insurance related revenues.
Non-interest expense increased $3.2 million primarily reflecting: (1) $1.6 million increase in automobile operating lease expense,
reflecting an increase in operating lease assets, as noted previously; and (2) an increase in provisions for lease residual value related
losses due to seasonality as well as a softening in general in used car values.
Net charge-offs totaled $10.9 million, or an annualized 0.79% of average related loans and leases, for the 2007 fourth quarter as
compared with $8.3 million, or an annualized 0.61%, in the 2007 third quarter. These increases reflected seasonal factors as well as
the softening economy in our markets.
The ROA decreased to 0.44% from 0.70%, and the ROE decreased to 12.8% from 21.4%.
2007 VERSUS 2006
Dealer Sales contributed $42.4 million of the company’s net income in 2007, down from $59.8 million, or 29%, from 2006. This
decrease primarily reflected: (1) $14.7 million increase to the provision for credit losses due to economic weaknesses in our
markets, (2) $9.2 million decrease in net automobile operating lease income due to lower average operating lease assets,
(3) $6.6 million decline in non-related automobile operating lease non-interest income, reflecting declines in lease termination
income and servicing income due to lower underlying balances, and (4) $1.8 million decline in net interest income due to
tightening yields. These factors were partially offset by the benefit of a decreased provision for income taxes, and a $5.4 million
decline in non-related automobile operating lease non-interest expense, primarily reflecting a decline in lease residual value
insurance and other residual value related losses due to an overall decline in the lease portfolio. The ROA decreased to 0.83% from
1.13%, however the ROE increased to 23.3% from 22.9%.
2006 VERSUS 2005
Dealer Sales contributed $59.8 million, or 13%, of the company’s net income in 2006, down from $66.5 million, or 10%, from
2005. This decrease primarily reflected the negative impacts of a lower contribution from automobile operating lease assets and a
decline in net interest income, partially offset by the benefits of a lower provision for credit losses, growth in non-interest income
before automobile operating lease income, and a decline in non-interest expense before automobile operating lease expense. Net
interest income declined $10.6 million, reflecting a 6% decline in average loans and leases, as well as tightening yields. The ROA
was unchanged at 1.13%, and ROE increased to 22.9% from 18.7%.
Private Financial and Capital Markets Group (PFCMG)
(This section should be read in conjunction with Significant Items 1, 3, and 6.)
OBJECTIVES,STRATEGIES,AND PRIORITIES
The PFCMG provides products and services designed to meet the needs of higher net worth customers. Revenue results from the
sale of trust, asset management, investment advisory, brokerage, and private banking products and services. PFCMG 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 higher 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 Huntington Funds, which consists of 31
proprietary mutual funds, including 11 variable annuity funds. Huntington Fund assets represented 28% of the approximately
$16.3 billion total assets under management at December 31, 2007. The Huntington Investment Company offers brokerage and
investment advisory services to both Regional Banking and PFCMG customers through a combination of licensed investment sales
representatives and licensed personal bankers
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 sales team has been utilized
as the distribution source for trust and investment management.
62
MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED