UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY PERIOD ENDED June 30, 2006
Commission File Number 0-2525
Huntington Bancshares Incorporated
     
Maryland   31-0724920
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
41 South High Street, Columbus, Ohio 43287
Registrant’s telephone number (614) 480-8300
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ            Accelerated filer o            Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No
There were 237,531,790 shares of Registrant’s without par value common stock outstanding on July 31, 2006.
 
 

Huntington Bancshares Incorporated
INDEX
         
Part I.  
Financial Information
   
   
 
   
Item 1.  
Financial Statements (Unaudited)
   
   
 
   
      3
   
 
   
      4
   
 
   
      5
   
 
   
      6
   
 
   
      7
   
 
   
Item 2.     27
   
 
   
Item 3.     97
   
 
   
Item 4.     97
   
 
   
Part II.      
   
 
   
Item 2.     97
   
 
   
Item 4.     97
   
 
   
Item 6.     98
   
 
   
Signatures  
 
  99
  EX-10(E)
  EX-31.1
  EX-31.2
  EX-32.1
  EX-32.2

2

Huntington Bancshares Incorporated
Condensed Consolidated Balance Sheets
                         
    June 30,     December 31,     June 30,  
(in thousands, except number of shares)   2006     2005     2005  
    (Unaudited)             (Unaudited)  
Assets
                       
Cash and due from banks
  $ 876,121     $ 966,445     $ 976,432  
Federal funds sold and securities purchased under resale agreements
    365,592       74,331       121,310  
Interest bearing deposits in banks
    37,576       22,391       22,758  
Trading account securities
    113,376       8,619       328,715  
Loans held for sale
    298,871       294,344       395,053  
Investment securities
    5,124,682       4,526,520       3,849,955  
Loans and leases:
                       
Commercial and industrial loans
    7,473,158       6,809,208       6,206,393  
Commercial real estate loans
    4,558,610       4,036,171       4,518,875  
Automobile loans
    2,059,836       1,985,304       2,045,771  
Automobile leases
    2,042,215       2,289,015       2,458,432  
Home equity loans
    4,888,958       4,638,841       4,683,577  
Residential mortgage loans
    4,739,814       4,193,139       4,152,203  
Other consumer loans
    591,990       520,488       501,897  
 
Total loans and leases
    26,354,581       24,472,166       24,567,148  
Allowance for loan and lease losses
    (287,517 )     (268,347 )     (254,784 )
 
Net loans and leases
    26,067,064       24,203,819       24,312,364  
 
Operating lease assets
    131,943       229,077       353,678  
Bank owned life insurance
    1,070,909       1,001,542       983,302  
Premises and equipment
    365,763       360,677       356,697  
Goodwill
    571,697       212,530       212,200  
Other intangible assets
    64,141       4,956       5,376  
Accrued income and other assets
    1,178,042       859,554       1,071,134  
 
Total assets
  $ 36,265,777     $ 32,764,805     $ 32,988,974  
 
 
                       
Liabilities and shareholders’ equity Liabilities
                       
Deposits in domestic offices
                       
Demand deposits — non-interest bearing
  $ 3,530,828     $ 3,390,044     $ 3,221,352  
Interest bearing
    20,585,420       18,548,943       18,677,408  
Deposits in foreign offices
    476,684       470,688       431,816  
 
Total deposits
    24,592,932       22,409,675       22,330,576  
Short-term borrowings
    2,125,932       1,889,260       1,266,535  
Federal Home Loan Bank advances
    1,271,678       1,155,647       903,864  
Other long-term debt
    2,716,784       2,418,419       3,034,154  
Subordinated notes
    1,255,278       1,023,371       1,046,283  
Allowance for unfunded loan commitments and letters of credit
    38,914       36,957       37,511  
Deferred income tax liability
    615,543       743,655       784,504  
Accrued expenses and other liabilities
    709,560       530,320       954,772  
 
Total liabilities
    33,326,621       30,207,304       30,358,199  
 
 
                       
Shareholders’ equity
                       
Preferred stock — authorized 6,617,808 shares; none outstanding
    —       —       —  
Common stock — without par value; authorized 500,000,000 shares; issued 257,866,255 shares; outstanding 237,361,333; 224,106,172 and 230,842,020 shares, respectively
    2,552,094       2,491,326       2,487,981  
Less 20,504,922; 33,760,083 and 27,024,235 treasury shares respectively.
    (457,758 )     (693,576 )     (526,814 )
Accumulated other comprehensive loss
    (44,091 )     (22,093 )     (720 )
Retained earnings
    888,911       781,844       670,328  
 
Total shareholders’ equity
    2,939,156       2,557,501       2,630,775  
 
Total liabilities and shareholders’ equity
  $ 36,265,777     $ 32,764,805     $ 32,988,974  
 
      See notes to unaudited condensed consolidated financial statements

3

Huntington Bancshares Incorporated
Condensed Consolidated Statements of Income
(Unaudited)
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
(in thousands, except per share amounts)   2006   2005   2006   2005
 
Interest and fee income
                               
Loans and leases
                               
Taxable
  $ 445,924     $ 352,341     $ 845,270     $ 677,936  
Tax-exempt
    520       383       1,029       695  
Investment securities
                               
Taxable
    60,517       37,355       112,960       75,590  
Tax-exempt
    5,894       4,341       11,606       8,648  
Other
    9,048       7,906       15,825       15,562  
 
Total interest income
    521,903       402,326       986,690       778,431  
 
Interest expense
    173,032       104,559       321,346       193,727  
Deposits
                               
Short-term borrowings
    20,969       7,086       35,634       11,914  
Federal Home Loan Bank advances
    17,077       8,663       31,565       17,346  
Subordinated notes and other long-term debt
    48,630       40,118       92,270       78,346  
 
Total interest expense
    259,708       160,426       480,815       301,333  
 
Net interest income
    262,195       241,900       505,875       477,098  
Provision for credit losses
    15,745       12,895       35,285       32,769  
 
Net interest income after provision for credit losses
    246,450       229,005       470,590       444,329  
 
Operating lease income
    14,851       38,097       34,241       84,829  
Service charges on deposit accounts
    47,225       41,516       88,447       80,934  
Trust services
    22,676       19,113       43,954       37,309  
Brokerage and insurance income
    14,345       13,544       29,538       26,570  
Bank owned life insurance income
    10,604       10,139       20,846       20,243  
Other service charges and fees
    13,072       11,252       24,581       21,411  
Mortgage banking income
    20,355       (2,376 )     38,187       9,685  
Securities gains (losses), net
    (35 )     (343 )     (55 )     614  
Gains on sales of automobile loans
    532       254       980       254  
Other income
    19,394       24,974       41,834       42,371  
 
Total non-interest income
    163,019       156,170       322,553       324,220  
 
Operating lease expense
    10,804       28,879       25,411       66,827  
Personnel costs
    137,904       124,090       269,461       248,071  
Net occupancy
    17,927       17,257       35,893       36,499  
Outside data processing and other services
    19,569       18,113       39,420       36,883  
Equipment
    18,009       15,637       34,512       31,500  
Professional services
    6,292       9,347       11,657       18,806  
Marketing
    10,374       6,934       17,675       12,770  
Telecommunications
    4,990       4,801       9,815       9,683  
Printing and supplies
    3,764       3,293       6,838       6,387  
Amortization of intangibles
    2,992       204       4,067       408  
Other expense
    19,734       19,581       36,025       38,579  
 
Total non-interest expense
    252,359       248,136       490,774       506,413  
 
Income before income taxes
    157,110       137,039       302,369       262,136  
Provision for income taxes
    45,506       30,614       86,309       59,192  
 
Net income
  $ 111,604     $ 106,425     $ 216,060     $ 202,944  
 
 
                               
Average common shares — basic
    241,729       232,217       236,349       232,021  
Average common shares — diluted
    244,538       235,671       239,451       235,362  
 
                               
Per common share
                               
Net income — basic
  $ 0.46     $ 0.46     $ 0.91     $ 0.87  
Net income — diluted
    0.46       0.45       0.90       0.86  
Cash dividends declared
    0.250       0.215       0.500       0.415  
      See notes to unaudited condensed consolidated financial statements

4

Condensed Consolidated Statements of Changes in Shareholders’ Equity
                                                         
                                    Accumulated        
                                    Other        
    Common Stock   Treasury Shares   Comprehensive   Retained    
(in thousands)   Shares   Amount   Shares   Amount   Income (Loss)   Earnings   Total
 
Six Months Ended June 30, 2005 (Unaudited):
                                                       
Balance, beginning of period
    257,866     $ 2,484,204       (26,261 )   $ (499,259 )   $ (10,903 )   $ 563,596     $ 2,537,638  
Comprehensive Income:
                                                       
Net income
                                            202,944       202,944  
Unrealized net gains on investment securities arising during the period, net of reclassification of net realized gains
                                    5,248               5,248  
Unrealized gains on cash flow hedging derivatives
                                    4,935               4,935  
 
                                                       
Total comprehensive income
                                                    213,127  
 
                                                       
Cash dividends declared ($0.415 per share)
                                            (96,212 )     (96,212 )
Treasury shares purchased
                    (1,818 )     (44,178 )                     (44,178 )
Stock options exercised
            1,882       852       16,159                       18,041  
Other
            1,895       203       464                       2,359  
 
 
                                                       
Balance, end of period (Unaudited)
    257,866     $ 2,487,981       (27,024 )   $ (526,814 )   $ (720 )   $ 670,328     $ 2,630,775  
 
 
                                                       
Six Months Ended June 30, 2006 (Unaudited):
                                                       
Balance, beginning of period
    257,866     $ 2,491,326       (33,760 )   $ (693,576 )   $ (22,093 )   $ 781,844     $ 2,557,501  
Comprehensive Income:
                                                       
Net income
                                            216,060       216,060  
Cumulative effect of change in accounting principle for servicing financial assets, net of tax of $6,521
                                            12,110       12,110  
Unrealized net losses on investment securities arising during the period, net of reclassification of net realized gains
                                    (35,707 )             (35,707 )
Unrealized gains on cash flow hedging derivatives
                                    13,709               13,709  
 
                                                       
Total comprehensive income
                                                    206,172  
 
                                                       
Cash dividends declared ($0.50 per share)
                                            (121,103 )     (121,103 )
Shares issued pursuant to acquisition
            53,366       25,350       522,390                       575,756  
Stock based compensation expense
            8,547                                       8,547  
Treasury shares purchased
                    (12,931 )     (303,943 )                     (303,943 )
Stock options exercised, net of related tax effects
            (1,196 )     880       18,445                       17,249  
Other
            51       (44 )     (1,074 )                     (1,023 )
 
 
                                                       
Balance, end of period (Unaudited)
    257,866     $ 2,552,094       (20,505 )   $ (457,758 )   $ (44,091 )   $ 888,911     $ 2,939,156  
 
See notes to unaudited condensed consolidated financial statements.

5

Huntington Bancshares Incorporated
Condensed Consolidated Statements of Cash Flows
(Unaudited)
                 
    Six Months Ended
    June 30,
(in thousands of dollars)   2006   2005
 
Operating activities
               
Net income
  $ 216,060     $ 202,944  
Adjustments to reconcile net income to net cash provided by operating activites:
               
Provision for credit losses
    35,285       32,769  
Depreciation on operating lease assets
    23,666       61,263  
Amortization of mortgage servicing rights
    —       9,948  
Other depreciation and amortization
    37,679       39,153  
Mortgage servicing rights impairment charges
    —       6,471  
Mortgage servicing rights valuation adjustment
    (10,669 )     —  
Stock-based compensation expense
    8,547       —  
Deferred income tax (benefit) expense
    (123,830 )     4,305  
Increase in trading account securities
    (27,290 )     (19,085 )
Originations of loans held for sale
    (1,318,453 )     (1,065,372 )
Principal payments on and proceeds from loans held for sale
    1,313,926       893,788  
Losses (gains) on sales of investment securities
    55       (614 )
Gains on sales/securitizations of loans
    (980 )     (254 )
Increase of cash surrender value of bank owned life insurance
    (20,846 )     (20,243 )
Increase (decrease) in payable to investors in sold loans
    4,498       (134,561 )
Other, net
    (235,146 )     (113,052 )
 
Net cash used for operating activities
    (97,498 )     (102,540 )
 
 
               
Investing activities
               
Increase in interest bearing deposits in banks
    (12,089 )     (360 )
Net cash received for acquisition
    66,507       —  
Proceeds from:
               
Maturities and calls of investment securities
    241,871       207,874  
Sales of investment securities
    376,263       1,476,685  
Purchases of investment securities
    (1,024,048 )     (1,273,933 )
Net loan and lease originations, excluding sales
    (246,265 )     (1,056,834 )
Purchases of equipment for operating lease assets
    (10,934 )     (8,353 )
Proceeds from sale of operating lease assets
    82,139       174,427  
Proceeds from sale of premises and equipment
    4,100       989  
Purchases of premises and equipment
    (12,645 )     (28,500 )
Proceeds from sales of other real estate
    6,767       41,899  
 
Net cash used for investing activities
    (528,334 )     (466,106 )
 
 
               
Financing activities
               
Increase in deposits
    495,827       1,562,607  
Increase in short-term borrowings
    157,532       59,302  
Proceeds from issuance of subordinated notes
    250,000       —  
Proceeds from Federal Home Loan Bank advances
    2,162,050       557,789  
Maturity of Federal Home Loan Bank advances
    (2,148,969 )     (925,013 )
Proceeds from issuance of long-term debt
    935,000       —  
Maturity of long-term debt
    (635,549 )     (975,000 )
Tax benefits in excess of recognized compensation cost for share-based payments
    668       —  
Dividends paid on common stock
    (103,096 )     (92,520 )
Repurchases of common stock
    (303,943 )     (44,178 )
Net proceeds from issuance of common stock
    17,249       18,041  
 
Net cash provided by financing activities
    826,769       161,028  
 
Change in cash and cash equivalents
    200,937       (407,618 )
Cash and cash equivalents at beginning of period
    1,040,776       1,505,360  
 
Cash and cash equivalents at end of period
  $ 1,241,713     $ 1,097,742  
 
 
               
Supplemental disclosures:
               
Income taxes paid
  $ 194,505     $ 95,611  
Interest paid
    463,979       279,823  
Non-cash activities
               
Common stock dividends accrued, paid in subsequent quarter
    46,884       39,613  
Stock issued for purchase acquisition
    575,756       —  
See notes to unaudited condensed consolidated financial statements.

6

Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 — Basis of Presentation
     The accompanying unaudited condensed consolidated financial statements of Huntington Bancshares Incorporated (Huntington or the Company) reflect all adjustments consisting of normal recurring accruals, which are, in the opinion of Management, necessary for a fair presentation of the consolidated financial position, the results of operations, and cash flows for the periods presented. These unaudited condensed consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission (SEC or Commission) and, therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been omitted. The Notes to Consolidated Financial Statements appearing in Huntington’s 2005 Annual Report on Form 10-K (2005 Form 10-K), which include descriptions of significant accounting policies, as updated by the information contained in this report, should be read in conjunction with these interim financial statements.
     Certain amounts in the prior-year’s financial statements have been reclassified to conform to the 2006 presentation.
     For statement of cash flows purposes, cash and cash equivalents are defined as the sum of “Cash and due from banks” and “Federal funds sold and securities purchased under resale agreements.”
Note 2 — New Accounting Pronouncements
Financial Accounting Standards Board (FASB) Statement No. 123 (revised 2004), Share-Based Payment (Statement No. 123R) — Statement No. 123R was issued in December 2004, requiring that the compensation cost relating to share-based payment transactions be recognized in the financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. Statement No. 123R covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. Statement No. 123R replaces FASB Statement No. 123, Accounting for Stock-Based Compensation (Statement No.123) , and supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). Statement No. 123, as originally issued in 1995, established as preferable a fair-value-based method of accounting for share-based payment transactions with employees. Effective January 1, 2006, Huntington has adopted Statement No. 123R. The impact of adoption to Huntington’s results of operations is presented in Note 10.
FASB Statement No. 154, Accounting Changes and Error Corrections — a replacement of APB Opinion No. 20 and FASB Statement No. 3 (Statement No. 154) — In May 2005, the FASB issued Statement No. 154, which replaces APB Opinion No. 20, Accounting Changes , and Statement No. 3, Reporting Accounting Changes in Interim Financial Statements . Statement No. 154 changes the requirements for the accounting for and reporting of a change in accounting principle. Statement No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The impact of this new pronouncement was not material to Huntington’s financial condition, results of operations, or cash flows.
FASB Statement No. 155, Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140 (Statement No. 155) — On February 16, 2006, the FASB issued Statement No. 155, which amends Statement No. 133 to simplify the accounting for certain derivatives embedded in other financial instruments (hybrid financial instruments) by permitting fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise required bifurcation, provided that the entire hybrid financial instrument is accounted for on a fair value basis. Statement No. 155 also establishes the requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, which replaces the interim guidance in Derivative Instrument Group Issue D1, Recognition and Measurement of Derivatives: Application of Statement No. 133 to Beneficial Interests in Securitized