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 September 30, 2005

Commission File Number 0-2525

Huntington Bancshares Incorporated

Maryland (State or other jurisdiction of incorporation or organization)		31-0724920 (I.R.S. Employer 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.

Yes þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes þ No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

There were 228,197,076 shares of Registrant’s without par value common stock outstanding on October 31, 2005.

 

 

Huntington Bancshares Incorporated

INDEX

Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at September 30, 2005, December 31, 2004, and September 30, 2004			3
Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2005 and 2004			4
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended September 30, 2005 and 2004			5
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2005 and 2004			6
Notes to Unaudited Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
Item 3. Quantitative and Qualitative Disclosures about Market Risk			83
Item 4. Controls and Procedures			83
Part II. Other Information
Item 2. Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities			84
Item 6. Exhibits			84
Signatures			85
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Part 1. Financial Information

Item 1. Financial Statements

Huntington Bancshares Incorporated

Condensed Consolidated Balance Sheets

		September 30,				December 31,				September 30,
(in thousands, except number of shares)		2005				2004				2004
		(Unaudited)								(Unaudited)
Assets
Cash and due from banks		$	803,425			$	877,320			$	1,053,358
Federal funds sold and securities purchased under resale agreements			78,325				628,040				838,833
Interest bearing deposits in banks			22,379				22,398				36,155
Trading account securities			191,418				309,630				120,334
Loans held for sale			449,096				223,469				205,913
Investment securities			4,304,898				4,238,945				4,150,044
Loans and leases			24,496,287				23,560,277				22,587,259
Allowance for loan and lease losses			(253,943	)			(271,211	)			(282,650	)
Net loans and leases			24,242,344				23,289,066				22,304,609
Operating lease assets			274,190				587,310				717,411
Bank owned life insurance			993,407				963,059				954,911
Premises and equipment			358,876				355,115				356,438
Goodwill and other intangible assets			217,703				215,807				216,011
Customers’ acceptance liability			7,463				11,299				8,787
Accrued income and other assets			819,464				844,039				845,436
Total assets		$	32,762,988			$	32,565,497			$	31,808,240
Liabilities and shareholders’ equity
Liabilities
Deposits		$	22,349,122			$	20,768,161			$	20,109,025
Short-term borrowings			1,502,566				1,207,233				1,215,887
Federal Home Loan Bank advances			1,155,656				1,271,088				1,270,454
Other long-term debt			2,795,431				4,016,004				4,094,185
Subordinated notes			1,034,343				1,039,793				1,040,901
Allowance for unfunded loan commitments and letters of credit			38,098				33,187				30,007
Bank acceptances outstanding			7,463				11,299				8,787
Deferred federal income tax liability			768,344				783,628				723,525
Accrued expenses and other liabilities			489,290				897,466				854,552
Total liabilities			30,140,313				30,027,859				29,347,323
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 229,005,823; 231,605,281 and 230,153,486 shares, respectively			2,490,919				2,484,204				2,482,904
Less 28,860,432; 26,260,974 and 27,712,769 treasury shares, respectively			(575,941	)			(499,259	)			(526,967	)
Accumulated other comprehensive loss			(21,839	)			(10,903	)			(13,812	)
Retained earnings			729,536				563,596				518,792
Total shareholders’ equity			2,622,675				2,537,638				2,460,917
Total liabilities and shareholders’ equity		$	32,762,988			$	32,565,497			$	31,808,240

See notes to unaudited condensed consolidated financial statements

Condensed Consolidated Statements of Changes in Shareholders’ Equity

																						Accumulated
																						Other
		Common Stock								Treasury Shares												Comprehensive				Retained
(in thousands)		Shares				Amount				Shares				Amount								Income				Earnings/				Total
Nine Months Ended September 30, 2004 (Unaudited):
Balance, beginning of period			257,866			$	2,483,542				(28,858	)		$	(548,576	)						$	2,678			$	337,358			$	2,275,002
Comprehensive Income:
Net income																											307,786				307,786
Unrealized net holding losses on securities available for sale arising during the period, net of reclassification adjustment for net gains included in net income																							(19,555	)							(19,555	)
Unrealized gains on derivative instruments used in cash flow hedging relationships																							3,065								3,065
Total comprehensive income																															291,296
Cash dividends declared ($0.55 per share)																											(126,352	)			(126,352	)
Stock options exercised							(564	)			985				18,865																18,301
Other							(74	)			160				2,744																2,670
Balance, end of period (Unaudited)			257,866			$	2,482,904				(27,713	)		$	(526,967	)						$	(13,812	)		$	518,792			$	2,460,917
Nine Months Ended September 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																											311,518				311,518
Unrealized net holding losses on securities available for sale arising during the period, net of reclassification adjustment for net gains included in net income																							(18,304	)							(18,304	)
Unrealized gains on derivative instruments used in cash flow hedging relationships																							7,368								7,368
Total comprehensive income																															300,582
Cash dividends declared ($0.63 per share)																											(145,578	)			(145,578	)
Treasury shares purchased											(4,416	)			(108,610	)															(108,610	)
Stock options exercised							3,172				1,729				33,353																36,525
Other							3,543				88				(1,425	)															2,118
Balance, end of period (Unaudited)			257,866			$	2,490,919				(28,860	)		$	(575,941	)						$	(21,839	)		$	729,536			$	2,622,675

See notes to unaudited condensed consolidated financial statements.

Huntington Bancshares Incorporated

Condensed Consolidated Statements of Cash Flows

(Unaudited)

		Nine Months Ended
		September 30,
(in thousands of dollars)		2005				2004
Operating activities
Net income		$	311,518			$	307,786
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses			50,468				42,408
Depreciation on operating lease assets			82,119				171,152
Amortization of mortgage servicing rights			14,574				13,866
Other depreciation and amortization			56,780				67,923
Mortgage servicing rights impairment charges (recovery)			(3,986	)			(640	)
Deferred income tax (benefit) expense			(9,422	)			83,140
Decrease (increase) in trading account securities			118,212				(112,745	)
Originations of loans held for sale			(1,603,271	)			(1,364,329	)
Principal payments on and proceeds from loans held for sale			1,704,813				1,384,895
Gains on sales of investment securities			(715	)			(13,663	)
Gains on sales/securitizations of loans			(756	)			(12,693	)
Increase of cash surrender value of bank owned life insurance			(30,347	)			(31,813	)
(Decrease) increase in payable to investors in sold loans			(128,469	)			33,053
Other, net			(228,596	)			(44,003	)
Net cash provided by operating activities			332,922				524,337
Investing activities
Decrease (increase) in interest bearing deposits in banks			19				(2,528	)
Proceeds from:
Maturities and calls of investment securities			333,605				746,386
Sales of investment securities			1,715,426				1,655,459
Purchases of investment securities			(2,146,993	)			(1,530,657	)
Proceeds from sales/securitizations of loans			—				1,534,395
Net loan and lease originations, excluding sales			(1,332,014	)			(3,216,666	)
Purchases of operating lease assets			(16,546	)			(11,479	)
Proceeds from sale of operating lease assets			239,194				368,663
Proceeds from sale of premises and equipment			189				340
Purchases of premises and equipment			(42,069	)			(43,924	)
Proceeds from sales of other real estate			47,755				9,800
Net cash used for investing activities			(1,201,434	)			(490,211	)
Financing activities
Increase in deposits			1,587,653				1,610,167
Increase (decrease) in short-term borrowings			295,333				(236,417	)
Proceeds from issuance of subordinated notes			—				148,830
Maturity of subordinated notes			—				(100,000	)
Proceeds from Federal Home Loan Bank advances			809,589				454
Maturity of Federal Home Loan Bank advances			(925,021	)			(3,000	)
Proceeds from issuance of long-term debt			—				675,000
Maturity of long-term debt			(1,308,145	)			(1,130,000	)
Dividends paid on common stock			(142,422	)			(121,773	)
Repurchases of common stock			(108,610	)			—
Net proceeds from issuance of common stock			36,525				18,301
Net cash provided by financing activities			244,902				861,562
Change in cash and cash equivalents			(623,610	)			895,688
Cash and cash equivalents at beginning of period			1,505,360				996,503
Cash and cash equivalents at end of period		$	881,750			$	1,892,191
Supplemental disclosures:
Income taxes paid		$	146,911			$	14,031
Interest paid			447,864				302,801
Non-cash activities
Mortgage loans securitized			—				115,929
Common stock dividends accrued, paid in subsequent quarter			39,167				36,254

See notes to unaudited condensed consolidated financial statements.

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 the Consolidated Financial Statements appearing in Huntington’s 2004 Annual Report on Form 10-K (2004 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 2005 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 123R) – Statement 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 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 123R replaces FASB Statement No. 123, Accounting for Stock-Based Compensation (Statement 123), and supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). Statement 123, as originally issued in 1995, established as preferable a fair-value-based method of accounting for share-based payment transactions with employees. However, that Statement permitted entities the option of continuing to apply the guidance in APB 25, as long as the footnotes to financial statements disclosed pro forma net income under the preferable fair-value-based method. In its 2004 Form 10-K, Huntington disclosed adopting Statement 123R effective January 1, 2005. Subsequently however, new guidance was issued by the SEC that provides the option to postpone adoption of Statement 123R until the first annual reporting period that begins after June 15, 2005. As such, Huntington has postponed the adoption of Statement 123R until January 1, 2006. (Pro forma disclosures required by Statement 123 are provided in Note 10.)

     Statement 123R will require the immediate recognition at the grant date of the full share-based compensation expense for grants to retirement eligible employees, as the explicit vesting period is non-substantive. The estimated effect of applying the explicit vesting period approach versus the non-substantive approach is not material to any period presented.

Staff Accounting Bulletin No. 107, Share Based Payments (SAB 107) – On March 29, 2005, the SEC issued SAB 107 to provide public companies additional guidance in applying the provisions of Statement 123R. Among other things, SAB 107 describes the SEC staff’s expectations in determining the assumptions that underlie the fair value estimates and discusses the interaction of Statement 123R with certain existing SEC guidance. Huntington will adopt the provisions of SAB 107 in conjunction with the adoption of Statement 123R beginning January 1, 2006.

FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations (FIN 47) – In March 2005, the FASB issued FIN 47, which clarifies that the term “conditional asset retirement obligation” as used in FASB Statement No. 143, Accounting for Asset Retirement Obligations . FIN 47 refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. An entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. FIN 47 becomes effective for fiscal years ending after December 15, 2005. Huntington does not expect the impact of adopting FIN 47 will be significant.

Financial Accounting Standards Board (FASB) Statement No. 154, Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20 and FASB Statement No. 3 (Statement 154) – In May 2005, the FASB issued Statement 154, which replaces APB Opinion No. 20, Accounting Changes , and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements . Statement 154 changes the requirements for the accounting for and reporting of a change in accounting principle. Statement 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 is not expected to be material to Huntington’s financial condition, results of operations, or cash flows.

FASB Staff Position No. 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (FSP 106-2) – In December 2003, a law was enacted that expands Medicare benefits, primarily adding a prescription drug benefit for Medicare-eligible retirees beginning in 2006. The law also provides a federal subsidy to companies that sponsor postretirement benefit plans providing prescription drug coverage. FSP 106-2 specifies that any Medicare subsidy must be taken into account in measuring the employer’s postretirement health care benefit obligation and will also reduce the net periodic postretirement cost in future periods. During the first quarter of 2005, government authorities issued further clarification on certain aspects of the Medicare Act. Huntington will register for the Medicare subsidy and the expected impact of a $15.5 million reduction in the post retirement obligation will be recognized over a 10-year period beginning October 1, 2005.

Proposed FASB interpretation of FASB Statement No. 109 – Accounting for Uncertain Tax Positions – In July 2005, the FASB issued an exposure draft of a proposed interpretation on accounting for uncertain tax positions under SFAS No. 109, Accounting for Income Taxes. The Exposure Draft contains proposed guidance on the recognition and measurement of uncertain tax positions. If adopted as proposed, the Company would be required to recognize, in its financial statements, the best estimate of the impact of a tax position, only if that tax position is probable of being sustained on audit based solely on the technical merits of the position. The proposed effective date for the Interpretation was originally scheduled for December 31, 2005 with a cumulative effect of a change in accounting principle to be recorded upon the initial adoption. The FASB now expects to issue a final Interpretation, which would include amendments to Statement 109, in the first quarter of 2006. The Company is currently evaluating the impact this proposed interpretation will have on its financial statements.

Note 3 – Securities and Exchange Commission Formal Investigation

     On June 2, 2005, Huntington filed a Form 8-K announcing that the Commission approved the settlement of its previously announced formal investigation into certain financial accounting matters. Huntington consented to pay a penalty of $7.5 million. This civil money penalty had no 2005 financial impact on Huntington’s results, as reserves for this amount were established and expensed in 2004.

Note 4 – Formal Regulatory Supervisory Agreements

     On March 1, 2005, Huntington announce