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, 2007
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 365,924,668 shares of Registrant’s common stock ($0.01 par value) outstanding on July 31, 2007.
 
 

 

Huntington Bancshares Incorporated
INDEX
             
       
 
           
  Financial Statements (Unaudited)        
 
           
 
  Condensed Consolidated Balance Sheets at June 30, 2007, December 31, 2006, and June 30, 2006     3  
 
           
 
  Condensed Consolidated Statements of Income for the three month and six month periods ended June 30, 2007 and 2006     4  
 
           
 
  Condensed Consolidated Statements of Changes in Shareholders’ Equity for the six month periods ended June 30, 2007 and 2006     5  
 
           
 
  Condensed Consolidated Statements of Cash Flows for the six month periods ended June 30, 2007 and 2006     6  
 
           
 
  Notes to Unaudited Condensed Consolidated Financial Statements     7  
 
           
  Management's Discussion and Analysis of Financial Condition and Results of Operations     24  
 
           
  Quantitative and Qualitative Disclosures about Market Risk     77  
 
           
  Controls and Procedures     77  
 
           
  Controls and Procedures     77  
 
           
Part II. Other Information        
 
           
  Submission of Matters to a Vote of Security Holders     78  
 
           
  Exhibits     78  
 
           
        80  
  EX-10.3
  EX-12.1
  EX-31.1
  EX-31.2
  EX-32.1
  EX-32.2

2

Part 1. Financial Information
Item 1. Financial Statements
Huntington Bancshares Incorporated
Condensed Consolidated Balance Sheets
(Unaudited)
                         
    2007   2006
(in thousands, except number of shares)   June 30,   December 31,   June 30,
     
Assets
                       
Cash and due from banks
  $ 818,877     $ 1,080,163     $ 876,121  
Federal funds sold and securities purchased under resale agreements
    857,080       440,584       365,592  
Interest bearing deposits in banks
    271,133       74,168       37,576  
Trading account securities
    619,836       36,056       113,376  
Loans held for sale
    348,272       270,422       298,871  
Investment securities
    3,863,182       4,362,924       5,124,682  
Loans and leases
    26,811,513       26,153,425       26,354,581  
Allowance for loan and lease losses
    (307,519 )     (272,068 )     (287,517 )
     
Net loans and leases
    26,503,994       25,881,357       26,067,064  
     
Bank owned life insurance
    1,107,042       1,089,028       1,070,909  
Premises and equipment
    398,436       372,772       365,763  
Goodwill
    569,738       570,876       571,697  
Other intangible assets
    54,646       59,487       64,141  
Accrued income and other assets
    1,008,450       1,091,182       1,309,985  
     
Total Assets
  $ 36,420,686     $ 35,329,019     $ 36,265,777  
     
 
                       
Liabilities and Shareholders’ Equity Liabilities
                       
Deposits
  $ 24,599,912     $ 25,047,770     $ 24,592,932  
Short-term borrowings
    2,860,939       1,676,189       2,125,932  
Federal Home Loan Bank advances
    1,397,398       996,821       1,271,678  
Other long-term debt
    2,016,199       2,229,140       2,716,784  
Subordinated notes
    1,494,197       1,286,657       1,255,278  
Accrued expenses and other liabilities
    987,900       1,078,116       1,364,017  
     
Total Liabilities
    33,356,545       32,314,693       33,326,621  
     
 
                       
Shareholders’ equity
                       
Preferred stock — authorized 6,617,808 shares; none outstanding
    —       —       —  
Common stock — No par value and authorized 500,000,000 shares; issued 257,866,255 shares; outstanding 235,474,366 and 237,361,333 shares, respectively.
    —       2,560,569       2,552,094  
Par value of $0.01 and authorized 1,000,000,000 shares at June 30, 2007; issued 257,866,255 shares; outstanding 236,244,063 shares
    2,579       —       —  
Capital surplus
    2,565,185       —       —  
Treasury shares at cost, 21,622,192; 22,391,889 and 20,504,922, respectively
    (489,633 )     (506,946 )     (457,758 )
Accumulated other comprehensive loss:
                       
Unrealized (losses) gains on investment securities
    (17,243 )     14,254       (69,723 )
Unrealized gains on cash flow hedging derivatives
    18,158       17,008       28,915  
Pension and other postretirement benefit adjustments
    (81,705 )     (86,328 )     (3,283 )
Retained earnings
    1,066,800       1,015,769       888,911  
     
Total Shareholders’ Equity
    3,064,141       3,014,326       2,939,156  
     
Total Liabilities and Shareholders’ Equity
  $ 36,420,686     $ 35,329,019     $ 36,265,777  
     
      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)   2007   2006   2007   2006
 
Interest and fee income
                               
Loans and leases
                               
Taxable
  $ 466,904     $ 445,924     $ 928,045     $ 845,270  
Tax-exempt
    114       520       585       1,029  
Investment securities
                               
Taxable
    49,684       60,852       104,799       112,960  
Tax-exempt
    6,528       5,894       12,621       11,606  
Other
    19,231       8,713       31,360       15,825  
 
Total interest income
    542,461       521,903       1,077,410       986,690  
 
Interest expenses
                               
Deposits
    198,108       173,032       394,831       321,346  
Short-term borrowings
    23,271       20,969       43,108       35,634  
Federal Home Loan Bank advances
    16,009       17,077       28,519       31,565  
Subordinated notes and other long-term debt
    51,682       48,630       102,006       92,270  
 
Total interest expense
    289,070       259,708       568,464       480,815  
 
Net interest income
    253,391       262,195       508,946       505,875  
Provision for credit losses
    60,133       15,745       89,539       35,285  
 
Net interest income after provision for credit losses
    193,258       246,450       419,407       470,590  
 
Service charges on deposit accounts
    50,017       47,225       94,810       88,447  
Trust services
    26,764       22,676       52,658       43,954  
Brokerage and insurance income
    17,199       14,345       33,281       29,538  
Other service charges and fees
    14,923       13,072       28,131       24,581  
Bank owned life insurance income
    10,904       10,604       21,755       20,846  
Mortgage banking income
    7,122       13,616       16,473       26,810  
Securities losses
    (5,139 )     (35 )     (5,035 )     (55 )
Other income
    34,403       41,516       59,297       88,432  
 
Total non-interest income
    156,193       163,019       301,370       322,553  
 
Personnel costs
    135,191       137,904       269,830       269,461  
Outside data processing and other services
    25,701       19,569       47,515       39,420  
Net occupancy
    19,417       17,927       39,325       35,893  
Equipment
    17,157       18,009       35,376       34,512  
Marketing
    8,986       10,374       16,682       17,675  
Professional services
    8,101       6,292       14,583       11,657  
Telecommunications
    4,577       4,990       8,703       9,815  
Printing and supplies
    3,672       3,764       6,914       6,838  
Amortization of intangibles
    2,519       2,992       5,039       4,067  
Other expense
    19,334       30,538       42,760       61,436  
 
Total non-interest expense
    244,655       252,359       486,727       490,774  
 
Income before income taxes
    104,796       157,110       234,050       302,369  
Provision for income taxes
    24,275       45,506       57,803       86,309  
 
Net income
  $ 80,521     $ 111,604     $ 176,247     $ 216,060  
 
 
Average common shares — basic
    236,032       241,729       235,809       236,349  
Average common shares — diluted
    239,008       244,538       238,881       239,451  
 
Per common share
                               
Net income — basic
  $ 0.34     $ 0.46     $ 0.75     $ 0.91  
Net income — diluted
    0.34       0.46       0.74       0.90  
Cash dividends declared
    0.265       0.250       0.530       0.500  
      See notes to unaudited condensed consolidated financial statements

4

Huntington Bancshares Incorporated
Condensed Consolidated Statements of Changes in Shareholders’ Equity
(Unaudited)
                                                                                 
                                                            Accumulated          
                                                            Other          
    Preferred Stock   Common Stock   Capital     Treasury Stock   Comprehensive     Retained      
(in thousands)   Shares     Amount     Shares     Amount     Surplus     Shares     Amount     Loss     Earnings     Total
 
Six Months Ended June 30, 2006:
                                                                               
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  
Unrealized net losses on investment securities arising during the period, net of reclassification (1) for net realized losses, net of tax of ($19,461).
                                                            (35,707 )             (35,707 )
Unrealized gains on cash flow hedging derivatives, net of tax of $7,382.
                                                            13,709               13,709  
 
                                                                               
Total comprehensive income
                                                                            194,062  
 
                                                                               
Cumulative effect of change in accounting principle for servicing financial assets, net of tax of $6,521
                                                                    12,110       12,110  
Cash dividends declared ($0.50 per share)
                                                                    (121,103 )     (121,103 )
Shares issued pursuant to acquisition
                            53,366               25,350       522,390                       575,756  
Recognition of the fair value of share-based compensation
                            8,547                                               8,547  
Treasury shares purchased
                                            (12,931 )     (303,943 )                     (303,943 )
Stock options exercised
                            (1,196 )             880       18,445                       17,249  
Other
                            51               (44 )     (1,074 )                     (1,023 )
 
 
Balance, end of period
    —       —       257,866       2,552,094       —       (20,505 )     (457,758 )     (44,091 )     888,911       2,939,156  
 
 
                                                                               
Six Months Ended June 30, 2007:
                                                                               
Balance, beginning of period
    —       —       257,866       2,560,569       —       (22,392 )     (506,946 )     (55,066 )     1,015,769       3,014,326  
Comprehensive Income:
                                                                               
Net income
                                                                    176,247       176,247  
Unrealized net losses on investment securities arising during the period, net of reclassification (1) for net realized gains, net of tax of ($30,423)
                                                            (31,497 )             (31,497 )
Unrealized gains on cash flow hedging derivatives, net of tax of $619
                                                            1,150               1,150  
Amortization included in net periodic benefit costs:
                                                                               
Net actuarial loss, net of tax of ($2,188)
                                                            4,063               4,063  
Prior service costs, net of tax of ($108)
                                                            200               200  
Transition obligation, net of tax of ($194)
                                                            360               360  
 
                                                                               
Total comprehensive income
                                                                            150,523  
 
                                                                               
Assignment of $0.01 par value per share for each share of Common Stock
                            (2,557,990 )     2,557,990                                       —  
Cash dividends declared ($0.53 per share)
                                                                    (125,216 )     (125,216 )
Recognition of the fair value of share-based compensation
                                    7,816                                       7,816  
Stock options exercised
                                    (2,851 )     881       19,911                       17,060  
Other
                                    2,230       (111 )     (2,598 )                     (368 )
 
 
Balance, end of period
    —     $ —       257,866     $ 2,579     $ 2,565,185       (21,622 )   $ (489,633 )   $ (80,790 )   $ 1,066,800     $ 3,064,141  
 
(1)   Reclassification adjustments represent net unrealized gains or losses as of December 31 of the prior year on investment securities that were sold during the current year. For the six months ended June 30, 2007 and 2006, the reclassification adjustments were $5,035, net of tax of ($1,762), and $55, net of tax of ($19), respectively.
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)   2007   2006
 
Operating activities
               
Net income
  $ 176,247     $ 216,060  
Adjustments to reconcile net income to net cash provided by operating activites:
               
Provision for credit losses
    89,539       35,285  
Depreciation and amortization
    41,280       61,345  
Increase in accrued income taxes
    51,460       9,085  
Deferred income tax benefit
    (111,297 )     (123,830 )
Net increase in trading account securities
    (583,780 )     (27,290 )
Pension contribution
    —       (29,800 )
Originations of loans held for sale
    (1,280,343 )     (1,318,453 )
Principal payments on and proceeds from loans held for sale
    1,185,067       1,313,926  
Other, net
    (51,260 )     (233,826 )
 
Net cash provided by operating activities
    (483,087 )     (97,498 )
 
 
               
Investing activities
               
Increase in interest bearing deposits in banks
    (123,345 )     (12,089 )
Net cash received in acquisitions
    —       66,507  
Proceeds from:
               
Maturities and calls of investment securities
    242,945       241,871  
Sales of investment securities
    550,070       376,263  
Purchases of investment securities
    (340,837 )     (1,024,048 )
Proceeds from sales of loans
    108,588       —  
Net loan and lease originations, excluding sales
    (817,197 )     (246,265 )
Proceeds from sale of operating lease assets
    23,031       82,139  
Purchases of premises and equipment
    (53,029 )     (12,645 )
Other, net
    6,989       (67 )
 
Net cash used for investing activities
    (402,785 )     (528,334 )
 
 
               
Financing activities
               
(Decrease) increase in deposits
    (442,428 )     495,827  
Increase in short-term borrowings
    1,184,750       157,532  
Proceeds from issuance of subordinated notes
    250,010       250,000  
Proceeds from Federal Home Loan Bank advances
    850,600       2,162,050  
Maturity/redemption of Federal Home Loan Bank advances
    (450,023 )     (2,148,969 )
Proceeds from issuance of long-term debt
    —       935,000  
Maturity of long-term debt
    (240,099 )     (635,549 )
Dividends paid on common stock
    (124,003 )     (103,096 )
Repurchases of common stock
    —       (303,943 )
Other, net
    12,275       17,917  
 
Net cash provided by financing activities
    1,041,082       826,769  
 
Increase in cash and cash equivalents
    155,210       200,937  
Cash and cash equivalents at beginning of period
    1,520,747       1,040,776  
 
Cash and cash equivalents at end of period
  $ 1,675,957     $ 1,241,713  
 
 
               
Supplemental disclosures:
               
Income taxes paid
  $ 169,822     $ 194,505  
Interest paid
    580,982       463,979  
Non-cash activities
               
Common stock dividends accrued, paid in subsequent qu