(Mark One) | ||
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þ
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Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
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For the fiscal year ended December 31, 2006
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or
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o
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Maryland
(State or other jurisdiction of incorporation or organization) |
31-0724920
(I.R.S. Employer Identification No.) |
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41 S. High Street, Columbus, Ohio
(Address of principal executive offices) |
43287
(Zip Code) |
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o |
Part I. |
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Item 1. |
Business
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4 | ||||
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Item 1A. |
Risk Factors
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11 | ||||
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Item 1B. |
Unresolved Staff Comments
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17 | ||||
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Item 2. |
Properties
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17 | ||||
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Item 3. |
Legal Proceedings
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17 | ||||
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Item 4. |
Submission of Matters to a Vote of Security Holders
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17 | ||||
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Part II. |
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Item 5. |
Market for Registrants Common Equity, Related Shareholder Matters, and Issuer
Purchases of Equity Securities
|
17 | ||||
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Item 6. |
Selected Financial Data
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19 | ||||
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Item 7. |
Managements Discussion and Analysis of Financial Condition
and Results of Operations
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19 | ||||
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Item 7A. |
Quantitative and Qualitative Disclosures About Market Risk
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19 | ||||
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Item 8. |
Financial Statements and Supplementary Data
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19 | ||||
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Item 9. |
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
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19 | ||||
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Item 9A. |
Controls and Procedures
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19 | ||||
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Item 9A(T). |
Controls and Procedures
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19 | ||||
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Item 9B. |
Other Information
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20 | ||||
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Part III. |
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Item 10. |
Directors, Executive Officers and Corporate Governance
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20 | ||||
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Item 11. |
Executive Compensation
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20 | ||||
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Item 12. |
Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
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20 | ||||
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Item 13. |
Certain Relationships and Related Transactions, and Director Independence
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20 | ||||
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Item 14. |
Principal Accounting Fees and Services
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20 | ||||
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Part IV. |
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Item 15. |
Exhibits and Financial Statement Schedules
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20 | ||||
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Signatures | 22 |
3
|
202 banking offices in Ohio | | 12 banking offices in Kentucky | |||
|
112 banking offices in Michigan | | 4 private banking offices in Florida | |||
|
26 banking offices in West Virginia | | one foreign office in the Cayman Islands | |||
|
25 banking offices in Indiana | | one foreign office in Hong Kong |
4
| 10% of the subsidiary banks capital and surplus for transfers to its parent corporation or to any individual non-bank subsidiary of the parent, and | ||
| an aggregate of 20% of the subsidiary banks capital and surplus for transfers to such parent together with all such non-bank subsidiaries of the parent. |
5
6
| makes regulatory capital requirements sensitive to differences in risk profiles among banking organizations, | ||
| takes off-balance sheet exposures into explicit account in assessing capital adequacy, and | ||
| minimizes disincentives to holding liquid, low-risk assets. |
| Tier 1, or core capital, includes common equity, non-cumulative perpetual preferred stock (excluding auction rate issues), and minority interests in equity accounts of consolidated subsidiaries, less both goodwill and, with certain limited exceptions, all other intangible assets. Bank holding companies, however, may include up to a limit of 25% of cumulative preferred stock in their Tier 1 capital. | ||
| Tier 2, or supplementary capital, includes, among other things, cumulative and limited-life preferred stock, hybrid capital instruments, mandatory convertible securities, qualifying subordinated debt, and the allowance for loan and lease losses, subject to certain limitations. | ||
| Total capital is Tier 1 plus Tier 2 capital. |
7
| well-capitalized if it has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or greater, and a Tier 1 leverage ratio of 5% or greater and is not subject to a regulatory order, agreement, or directive to meet and maintain a specific capital level for any capital measure; | ||
| adequately-capitalized if it has a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4% or greater, and, generally, a Tier 1 leverage ratio of 4% or greater and the institution does not meet the definition of a well-capitalized institution; | ||
| under-capitalized if it does not meet one or more of the adequately-capitalized tests; | ||
| significantly under-capitalized if it has a total risk-based capital ratio that is less than 6%, a Tier 1 risk-based capital ratio that is less than 3%, or a Tier 1 leverage ratio that is less than 3%; and | ||
| critically under-capitalized if it has a ratio of tangible equity, as defined in the regulations, to total assets that is equal to or less than 2%. |
8
| underwriting insurance or annuities; | ||
| providing financial or investment advice; | ||
| underwriting, dealing in, or making markets in securities; | ||
| merchant banking, subject to significant limitations; | ||
| insurance company portfolio investing, subject to significant limitations; and | ||
| any activities previously found by the Federal Reserve to be closely related to banking. |
9
| provide notice to our customers regarding privacy policies and practices, | ||
| inform our customers regarding the conditions under which their non-public personal information may be disclosed to non-affiliated third parties, and | ||
| give our customers an option to prevent disclosure of such information to non-affiliated third parties. |
| increasing the number of risk-weight categories, | ||
| expanding the use of external ratings for credit risk, | ||
| expanding the range of collateral and guarantors to qualify for a lower risk weight, and | ||
| basing residential mortgage risk ratings on loan-to-value ratios. |
10
11
12
13
14
15
16
17
Total | Total Number of Shares | Maximum Number of | ||||||||||||||
Number of | Average | Purchased as Part of | Shares that May Yet Be | |||||||||||||
Shares | Price Paid | Publicly Announced | Purchased Under the | |||||||||||||
Period | Purchased | Per Share | Plans or Programs (1) | Plans or Programs (1) | ||||||||||||
October 1, 2006 to
October 31, 2006
|
400,000 | $ | 24.38 | 400,000 | 6,500,000 | |||||||||||
November 1, 2006 to
November 30, 2006
|
2,650,000 | 24.60 | 3,050,000 | 3,850,000 | ||||||||||||
December 1, 2006 to
December 31, 2006
|
0 | 0.00 | 3,050,000 | 3,850,000 | ||||||||||||
Total
|
3,050,000 | $ | 0.00 | 3,050,000 | 3,850,000 | |||||||||||
18
19
20
Annual | ||||
Report Page | ||||
Report of Independent Registered Public Accounting Firm
|
82 | |||
|
||||
Consolidated Balance Sheets as of December 31, 2006 and 2005
|
83 | |||
|
||||
Consolidated Statements of Income for the years ended December 31, 2006, 2005 and 2004
|
84 | |||
|
||||
Consolidated Statements of Changes in Shareholders Equity For the years ended
December 31, 2006, 2005 and 2004
|
85 | |||
|
||||
Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004
|
86 | |||
|
||||
Notes to Consolidated Financial Statements
|
87-126 |
(1) | We are not filing separately financial statement schedules because of the absence of conditions under which they are required or because the required information is included in the consolidated financial statements or the related notes. | ||
(2) | The exhibits required by this item are listed in the Exhibit Index of this Form 10-K. The management contracts and compensation plans or arrangements required to be filed as exhibits to this Form 10-K are listed as Exhibits 10(a) through 10(v) in the Exhibit Index. |
21
By:
|
/s/ Thomas E. Hoaglin | By: | /s/ Donald R. Kimble | |||
|
||||||
|
Thomas E. Hoaglin | Donald R. Kimble | ||||
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Chairman, President, Chief Executive | Executive Vice President and | ||||
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Officer, and Director (Principal Executive | Chief Financial Officer | ||||
|
Officer) | (Principal Financial Officer) | ||||
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||||||
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By: | /s/ Thomas P. Reed | ||||
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||||||
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Thomas P. Reed | |||||
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Senior Vice President and Controller | |||||
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(Principal Accounting Officer) |
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||
Raymond J. Biggs *
|
David L. Porteous * | |
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Raymond J. Biggs
|
David L. Porteous | |
Director
|
Director | |
|
||
Don M. Casto III *
|
Kathleen H. Ransier * | |
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Don M. Casto III
|
Kathleen H. Ransier | |
Director
|
Director | |
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||
Michael J. Endres *
|
Gene E. Little * | |
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Michael J. Endres
|
Gene E. Little | |
Director
|
Director | |
|
||
Karen A. Holbrook *
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Wm. J. Lhota * | |
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||
Karen A. Holbrook
|
Wm. J. Lhota | |
Director
|
Director | |
|
||
John B. Gerlach, Jr. *
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||
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John B. Gerlach, Jr.
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Director
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||
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||
David P. Lauer *
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David P. Lauer
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||
Director
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||
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* /s/ Donald R. Kimble
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||
Donald R. Kimble
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||
Donald R. Kimble
Attorney-in-fact for each of the persons indicated |
22
SEC File or | ||||||||||
Exhibit | Registration | Exhibit | ||||||||
Number | Document Description | Report or Registration Statement | Number | Reference | ||||||
2.1
|
Agreement and Plan of Merger, dated December 20, 2006 by and among Huntington Bancshares Incorporated, Penguin Acquisition, LLC and Sky Financial Group, Inc. | Current Report on Form 8-K dated December 22, 2006. | 000-02525 | 2.1 | ||||||
|
||||||||||
3.1
|
Articles of Restatement of Charter, Articles of Amendment to Articles of Restatement of Charter, and Articles Supplementary. | Annual Report on Form 10-K for the year ended December 31, 1993. | 000-02525 | 3 | (i) | |||||
|
||||||||||
3.2
|
Articles of Amendment to Articles of Restatement of Charter. | Quarterly Report on Form 10-Q for the quarter ended March 31, 1998. | 000-02525 | 3(i | )(c) | |||||
|
||||||||||
3.3
|
Amended and Restated Bylaws as of February 21, 2007. | |||||||||
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||||||||||
3.4
|
Articles Supplementary. | |||||||||
|
||||||||||
4.1
|
Instruments defining the Rights of Security Holders reference is made to Articles Fifth, Eighth, and Tenth of Articles of Restatement of Charter, as amended and supplemented. Instruments defining the rights of holders of long-term debt will be furnished to the Securities and Exchange Commission upon request. | |||||||||
|
||||||||||
10.1
|
* Form of Executive Agreement for certain executive officers. | Current Report on Form 8-K dated November 21, 2005. | 000-02525 | 99.1 | ||||||
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||||||||||
10.2
|
* Form of Executive Agreement for certain executive officers. | Current Report on Form 8-K dated November 21, 2005. | 000-02525 | 99.2 | ||||||
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||||||||||
10.3
|
* Form of Executive Agreement for certain executive officers. | Current Report on Form 8-K dated November 21, 2005. | 000-02525 | 99.3 | ||||||
|
||||||||||
10.4
|
* Huntington Bancshares Incorporated Management Incentive Plan, as amended and restated effective for plan years beginning on or after January 1, 2004. | Quarterly Report on Form 10-Q for the quarter ended June 30, 2004. | 000-02525 | 10 | (a) | |||||
|
||||||||||
10.5
|
* Restated Huntington Supplemental Retirement Income Plan. | Annual Report on Form 10-K for the year ended December 31, 1999. | 000-02525 | 10 | (n) | |||||
|
||||||||||
10.6
|
* Deferred Compensation Plan and Trust for Directors | Post-Effective Amendment No. 2 to Registration Statement on Form S-8 filed on January 28, 1991. | 33-10546 | 4 | (a) | |||||
|
||||||||||
10.7
|
* Deferred Compensation Plan and Trust for Huntington Bancshares Incorporated Directors | Registration Statement on Form S-8 filed on July 19, 1991. | 33-41774 | 4 | (a) | |||||
|
||||||||||
10.8
|
* First Amendment to Huntington Bancshares Incorporated Deferred Compensation Plan and Trust for Huntington Bancshares Incorporated Directors | Quarterly Report 10-Q for the quarter ended March 31, 2001 | 000-02525 | 10 | (q) | |||||
|
||||||||||
10.9
|
* Executive Deferred Compensation Plan, as amended and restated on February 18, 2004 | Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 | 000-02525 | 10 | (c) | |||||
|
||||||||||
10.10
|
* The Huntington Supplemental Stock Purchase and Tax Savings Plan and Trust (as amended and restated as of February 9, 1990) | Registration Statement on Form S-8 filed on November 26, 1991 | 33-44208 | 4 | (a) | |||||
|
||||||||||
10.11
|
* First Amendment to The Huntington Supplemental Stock Purchase and Tax Savings Plan and Trust Plan | Annual Report on Form 10-K for the year ended December 31, 1997 | 000-02525 | 10 | (o)(2) | |||||
|
||||||||||
10.12
|
* 1990 Stock Option Plan | Registration Statement on Form S-8 filed on October 18, 1990 | 33-37373 | 4 | (a) | |||||
|
23
SEC File or | ||||||||||
Exhibit | Registration | Exhibit | ||||||||
Number | Document Description | Report or Registration Statement | Number | Reference | ||||||
10.13
|
* First Amendment to Huntington Bancshares Incorporated 1990 Stock Option Plan | Annual Report on Form 10-K for the year ended December 31, 1991 | 000-02525 | 10(q | )(2) | |||||
|
||||||||||
10.14
|
* Second Amendment to Huntington Bancshares Incorporated 1990 Stock Option Plan | Annual Report on Form 10-K for the year ended December 31, 1996 | 000-02525 | 10(n | )(3) | |||||
|
||||||||||
10.15
|
* Third Amendment to Huntington Bancshares Incorporated 1990 Stock Option Plan | Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 | 000-02525 | 10 | (b) | |||||
|
||||||||||
10.16
|
* Fourth Amendment to Huntington Bancshares Incorporated 1990 Stock Option Plan | Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 | 000-02525 | 10 | (a) | |||||
|
||||||||||
10.17
|
* Fifth Amendment to Huntington Bancshares Incorporated 1990 Stock Option Plan | Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 | 000-02525 | 10 | (b) | |||||
|
||||||||||
10.18
|
* Amended and Restated 1994 Stock Option Plan | Annual Report on Form 10-K for the year ended December 31, 1996 | 000-02525 | 10 | (r) | |||||
|
||||||||||
10.19
|
* First Amendment to Huntington Bancshares Incorporated 1994 Stock Option Plan | Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 | 000-02525 | 10 | (a) | |||||
|
||||||||||
10.20
|
* First Amendment to Huntington Bancshares Incorporated Amended and Restated 1994 Stock Option Plan | Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 | 000-02525 | 10 | (c) | |||||
|
||||||||||
10.21
|
* Second Amendment to Huntington Bancshares Incorporated Amended and Restated 1994 Stock Option Plan | Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 | 000-02525 | 10 | (d) | |||||
|
||||||||||
10.22
|
* Third Amendment to Huntington Bancshares Incorporated Amended and Restated 1994 Stock Option Plan | Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 | 000-02525 | 10 | (e) | |||||
|
||||||||||
10.23
|
* Huntington Bancshares Incorporated 2001 Stock and Long-Term Incentive Plan | Quarterly Report 10-Q for the quarter ended March 31, 2001 | 000-02525 | 10 | (r) | |||||
|
||||||||||
10.24
|
* First Amendment to the Huntington Bancshares Incorporated 2001 Stock and Long-Term Incentive Plan | Quarterly Report 10-Q for the quarter ended March 31, 2002 | 000-02525 | 10 | (h) | |||||
|
||||||||||
10.25
|
* Second Amendment to the Huntington Bancshares Incorporated 2001 Stock and Long-Term Incentive Plan | Quarterly Report 10-Q for the quarter ended March 31, 2002 | 000-02525 | 10 | (i) | |||||
|
||||||||||
10.26
|
* Huntington Bancshares Incorporated 2004 Stock and Long-Term Incentive Plan | Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 | 000-02525 | 10 | (b) | |||||
|
||||||||||
10.27
|
* First Amendment to the 2004 Stock and Long-Term Incentive Plan | Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 | 000-02525 | 10 | (e) | |||||
|
||||||||||
10.28
|
* Huntington Bancshares Incorporated Employee Stock Incentive Plan (incorporating changes made by first amendment to Plan) | Registration Statement on Form S-8 filed on December 13, 2001. | 333-75032 | 4 | (a) | |||||
|
||||||||||
10.29
|
* Second Amendment to Huntington Bancshares Incorporated Employee Stock Incentive Plan | Annual Report on Form 10-K for the year ended December 31, 2002 | 000-02525 | 10 | (s) | |||||
|
||||||||||
10.30
|
* Performance criteria and potential awards for executive officers for fiscal year 2005 under the Management Incentive Plan and for a long-term incentive award cycle beginning on January 1, 2005 and ending on December 31, 2007 under the 2004 Stock and Long-Term Incentive Plan | Current Report on Form 8-K dated February 15, 2005 | 000-02525 | 99.1 | ||||||
|
||||||||||
10.31
|
* Compensation Schedule for Non-Employee Directors of Huntington Bancshares Incorporated, effective July 19, 2005 | Current Report on Form 8-K dated July 19, 2005 | 000-02525 | 99.1 | ||||||
|
||||||||||
10.32
|
* Employment Agreement, dated February 15, 2004, between Huntington Bancshares Incorporated and Thomas E. Hoaglin | Annual Report on Form 10-K for the year ended December 31, 2003 | 000-02525 | 10 | (n) | |||||
|
||||||||||
10.33
|
* Letter Agreement between Huntington Bancshares Incorporated and Raymond J. Biggs, acknowledged and agreed to by Mr. Biggs on May 1, 2005 | Annual Report on Form 10-K for the year ended December 31, 2005 | 000-02525 | 10 | (t) | |||||
|
||||||||||
10.34
|
Schedule identifying material details of Executive Agreements 2006 | |||||||||
|
24
SEC File or | ||||||||||
Exhibit | Registration | Exhibit | ||||||||
Number | Document Description | Report or Registration Statement | Number | Reference | ||||||
10.35
|
* Performance criteria and potential awards for executive officers for fiscal year 2006 under the Management Incentive Plan and for a long-term incentive award cycle beginning on January 1, 2006 and ending on December 31, 2008 under the 2004 Stock and Long-Term Incentive Plan | Current Report on Form 8-K dated February 21, 2006 | 000-02525 | 99.1 | ||||||
|
||||||||||
10.36
|
* Restricted Stock Unit Grant Notice with
three year vesting |
Current Report on Form 8-K dated July 24, 2006 | 000-02525 | 99.1 | ||||||
|
||||||||||
10.37
|
* Restricted Stock Unit Grant Notice with
six month vesting |
Current Report on Form 8-K dated July 24, 2006 | 000-02525 | 99.2 | ||||||
|
||||||||||
10.38
|
* Restricted Stock Unit Deferral Agreement | Current Report on Form 8-K dated July 24, 2006 | 000-02525 | 99.3 | ||||||
|
||||||||||
10.39
|
* Director Deferred Stock Award Notice | Current Report on Form 8-K dated July 24, 2006 | 000-02525 | 99.4 | ||||||
|
||||||||||
12.1
|
Ratio of Earnings to Fixed Charges. | |||||||||
|
||||||||||
13.1
|
Portions of our 2006 Annual Report to shareholders | |||||||||
|
||||||||||
14.1
|
Code of Business Conduct and Ethics dated January 14, 2003 and revised on February 14, 2006 and Financial Code of Ethics for Chief Executive Officer and Senior Financial Officers, adopted January 18, 2003 and revised on April 19, 2005 | |||||||||
|
||||||||||
21.1
|
Subsidiaries of the Registrant | |||||||||
|
||||||||||
23.1
|
Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm. | |||||||||
|
||||||||||
24.1
|
Power of Attorney | |||||||||
|
||||||||||
31.1
|
Rule 13a-14(a) Certification Chief Executive Officer. | |||||||||
|
||||||||||
31.2
|
Rule 13a-14(a) Certification Chief Financial Officer. | |||||||||
|
||||||||||
32.1
|
Section 1350 Certification Chief Executive Officer. | |||||||||
|
||||||||||
32.2
|
Section 1350 Certification Chief Financial Officer. |
25
ATTEST:
|
HUNTINGTON BANCSHARES
INCORPORATED |
|
|
||
|
||
|
||
/s/ Richard A. Cheap
|
/s/ Thomas E. Hoaglin | |
_____________________
|
_____________________(SEAL) | |
Name: Richard A. Cheap
|
Name: Thomas E. Hoaglin | |
Title: Secretary
|
Title: Chief Executive Officer |
2
Name | Effective Date | |||
Thomas E. Hoaglin
|
January 1, 2006 |
Name | Effective Date | |||
Daniel B. Benhase
|
January 1, 2006 | |||
Richard A. Cheap
|
January 1, 2006 | |||
Donald R. Kimble
|
January 1, 2006 | |||
Mary W. Navarro
|
January 1, 2006 | |||
Nicholas G. Stanutz
|
January 1, 2006 |
Name | Effective Date | |||
James W. Nelson
|
January 1, 2006 |
26
Year Ended December 31, | ||||||||||||||||||||
(in thousands of dollars) | 2006 | 2005 | 2004 | 2003 | 2002 | |||||||||||||||
|
||||||||||||||||||||
Earnings:
|
||||||||||||||||||||
Income before taxes
|
$ | 514,061 | $ | 543,574 | $ | 552,666 | $ | 523,987 | $ | 522,705 | ||||||||||
Add: Fixed charges, excluding
interest on deposits
|
345,253 | 243,239 | 191,648 | 179,903 | 169,788 | |||||||||||||||
Earnings available for fixed charges,
excluding interest on deposits
|
859,314 | 786,813 | 744,314 | 703,890 | 692,493 | |||||||||||||||
Add: Interest on deposits
|
717,167 | 446,919 | 257,099 | 288,271 | 385,733 | |||||||||||||||
Earnings available for fixed charges,
including interest on deposits
|
$ | 1,576,481 | $ | 1,233,732 | $ | 1,001,413 | $ | 992,161 | $ | 1,078,226 | ||||||||||
|
||||||||||||||||||||
Fixed Charges:
|
||||||||||||||||||||
Interest expense, excluding
interest on deposits
|
$ | 334,175 | $ | 232,435 | $ | 178,842 | $ | 168,499 | $ | 157,888 | ||||||||||
Interest factor in net rental
|
11,078 | 10,804 | 12,806 | 11,404 | 11,900 | |||||||||||||||
expense
|
||||||||||||||||||||
Total fixed charges, excluding
interest on deposits
|
345,253 | 243,239 | 191,648 | 179,903 | 169,788 | |||||||||||||||
Add: Interest on deposits
|
717,167 | 446,919 | 257,099 | 288,271 | 385,733 | |||||||||||||||
Total fixed charges, including
interest on deposits
|
$ | 1,062,420 | $ | 690,158 | $ | 448,747 | $ | 468,174 | $ | 555,521 | ||||||||||
|
||||||||||||||||||||
Ratio of Earnings to Fixed Charges
|
||||||||||||||||||||
Excluding interest on deposits
|
2.49x | 3.23x | 3.88x | 3.91x | 4.08x | |||||||||||||||
Including interest on deposits
|
1.48x | 1.79x | 2.23x | 2.12x | 1.94x |
27
Year Ended December 31,
(in thousands of dollars, except per share amounts)
2006
2005
2004
2003
2002
$
2,070,519
$
1,641,765
$
1,347,315
$
1,305,756
$
1,293,195
1,051,342
679,354
435,941
456,770
543,621
1,019,177
962,411
911,374
848,986
749,574
65,191
81,299
55,062
163,993
194,426
953,986
881,112
856,312
684,993
555,148
185,713
167,834
171,115
167,840
153,564
43,115
133,015
285,431
489,698
657,074
3,095
1,211
14,206
40,039
182,470
(73,191
)
(8,055
)
15,763
5,258
4,902
402,337
338,277
332,083
366,318
343,694
561,069
632,282
818,598
1,069,153
1,341,704
541,228
481,658
485,806
447,263
418,037
31,286
103,850
235,080
393,270
518,970
(1,151
)
(6,666
)
48,973
428,480
384,312
402,509
396,292
388,167
1,000,994
969,820
1,122,244
1,230,159
1,374,147
514,061
543,574
552,666
523,987
522,705
52,840
131,483
153,741
138,294
198,974
461,221
412,091
398,925
385,693
323,731
(13,330
)
$
461,221
$
412,091
$
398,925
$
372,363
$
323,731
principle per common share basic
$ 1.95
$ 1.79
$ 1.74
$ 1.68
$ 1.34
1.95
1.79
1.74
1.62
1.34
principle per common share diluted
1.92
1.77
1.71
1.67
1.33
1.92
1.77
1.71
1.61
1.33
1.000
0.845
0.750
0.670
0.640
$
35,329,019
$
32,764,805
$
32,565,497
$
30,519,326
$
27,539,753
4,512,618
4,597,437
6,326,885
6,807,979
4,246,801
3,014,326
2,557,501
2,537,638
2,275,002
2,189,793
4,942,671
5,168,959
6,650,367
5,816,660
3,613,527
2,945,597
2,582,721
2,374,137
2,196,348
2,238,761
35,111,236
32,639,011
31,432,746
28,971,701
26,063,281
6.63
%
5.65
%
4.89
%
5.35
%
6.23
%
3.34
2.32
1.56
1.86
2.61
3.29
%
3.33
%
3.33
%
3.49
%
3.62
%
1.31
%
1.26
%
1.27
%
1.29
%
1.24
%
15.7
16.0
16.8
17.0
14.5
59.4
60.0
65.0
63.9
65.6
52.1
47.7
43.9
41.6
48.1
8.39
7.91
7.55
7.58
8.59
10.3
24.2
27.8
26.4
38.1
6.87
7.19
7.18
6.79
7.22
8.00
8.34
8.42
7.98
8.51
8.93
9.13
9.08
8.53
8.34
12.79
12.42
12.48
11.95
11.25
8,081
7,602
7,812
7,983
8,177
381
344
342
338
343
(1) | Comparisons for presented periods are impacted by a number of factors. Refer to the Significant Factors Influencing Financial Performance Comparisons for additional discussion regarding these key factors. |
(2) | Due to the adoption of FASB Interpretation No. 46 Consolidation of Variable Interest Entities. |
(3) | Includes Federal Home Loan Bank advances, other long-term debt, and subordinated notes. |
(4) | On a fully taxable equivalent (FTE) basis assuming a 35% tax rate. |
(5) | Non-interest expense less amortization of intangibles divided by the sum of FTE net interest income and non-interest income excluding securities gains. |
10
| Introduction Provides overview comments on important matters including risk factors, the now-terminated written regulatory agreement with the Federal Reserve Bank of Cleveland and critical accounting policies and use of significant estimates. These are essential for understanding our performance and prospects. | |
| Discussion of Results of Operations Reviews financial performance. It also includes a Significant Factors Influencing Financial Performance Comparisons section that summarizes key issues helpful for understanding performance trends. Key consolidated balance sheet and income statement trends are also discussed in this section. | |
| Risk Management and Capital Discusses credit, market, and operational risks, including how these are managed, as well as performance trends. It also includes a discussion of liquidity policies, how we fund ourselves, and related performance. In addition, there is a discussion of guarantees and/or commitments made for items such as standby letters of credit and commitments to sell loans, and a discussion that reviews the adequacy of capital, including regulatory capital requirements. | |
| Lines of Business Discussion Provides an overview of financial performance for each of our major lines of business and provides additional discussion of trends underlying consolidated financial performance. | |
| Results for the Fourth Quarter Provides a discussion of results for the 2006 fourth quarter compared with the year-earlier quarter. |
11
| Total allowances for credit losses The allowances for credit losses (ACL) is the sum of the allowance for loan and lease losses (ALLL) and the allowance for unfunded loan commitments and letters of credit (AULC). At December 31, 2006, the ACL was $312.2 million. The amount of the ACL was determined by judgments regarding the quality of the loan portfolio and loan commitments. All known relevant internal and external factors that affected loan collectibility were considered. The ACL represents the estimate of the level of reserves appropriate to absorb inherent credit losses in the loan and lease portfolio, as well as unfunded loan commitments. We believe the process for determining the ACL considers all of the potential factors that could result in credit losses. However, the process includes judgmental and quantitative elements that may be subject to significant change. To the extent actual outcomes differ from our estimates, additional provision for credit losses could be required, which could adversely affect earnings or financial performance in future periods. At December 31, 2006, the ACL as a percent of total loans and leases was 1.19%. Based on the December 31, 2006 balance sheet, a 10 basis point increase in this ratio to 1.29% would require $25.2 million in additional reserves (funded by additional provision for credit losses), which would have negatively impacted 2006 net income by approximately $16.3 million, or $0.07 per share. A discussion about the process used to estimate the ACL is presented in the Credit Risk section of Managements Discussion and Analysis in this report. |
12
| Fair value Measurements A significant portion of our assets is carried at fair value, including securities, derivatives, mortgage servicing rights (MSRs) and trading assets. Additionally, a smaller portion is carried at the lower of fair value or cost, including held-for-sale loans, while another portion is evaluated for impairment using fair value measurements. At December 31, 2006, approximately $4.8 billion of our assets were recorded at either fair value or at the lower of fair value or cost. |
The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The majority of assets reported at fair value are based on quoted market prices or on internally developed models that utilize independently sourced market parameters, including interest rate yield curves, option volatilities, and currency rates. | |
We estimate the fair value of a financial instrument using a variety of valuation methods. Where financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value. When observable market prices do not exist, we estimate fair value. Our valuation methods consider factors such as liquidity and concentration concerns and, for the derivatives portfolio, counterparty credit risk. Other factors such as model assumptions, market dislocations and unexpected correlations can affect estimates of fair value. Imprecision in estimating these factors can impact the amount of revenue or loss recorded for a particular position. |
Trading securities and securities available-for-sale | |
Substantially all of our securities are valued based on quoted market prices. However, certain securities are less actively traded. These securities do not always have quoted market prices. The determination of their fair value, therefore, requires judgment, as this determination may require benchmarking to similar instruments or analyzing default and recovery rates. Examples include certain collateralized mortgage and debt obligations and high-yield debt securities. | |
Our derivative positions are valued using internally developed models based on observable market parameters (parameters that are actively quoted and can be validated to external sources) or model values where quoted market prices do not exist, including industry-pricing services. | |
Loans held-for-sale | |
The fair value of loans in the held-for-sale portfolio is generally based on observable market prices of similar instruments. If market prices are not available, fair value is determined using internally developed models, based on the estimated cash flows, adjusted for credit risk. The credit risk adjustment is discounted using a rate that is appropriate for each maturity and incorporates the effects of interest rate changes. | |
Goodwill and Intangible Assets | |
Goodwill and intangible assets represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Goodwill impairment testing is performed at the reporting unit level annually as of September 30th, or more frequently if events or circumstances indicate possible impairment. Fair values of reporting units are determined using a combination of a discounted cash flow analyses based on internal forecasts and market-based valuation multiples for comparable businesses. No impairment was identified as a result of the testing performed during 2006 or 2005. Note 9 to the Consolidated Financial Statements contains additional information regarding goodwill and the carrying values by lines of business. | |
MSRs and other servicing rights | |
MSRs and certain other servicing rights do not trade in an active, open market with readily observable prices. While sales of MSRs occur, the precise terms and conditions are typically not readily available. Therefore, we estimate the fair value of the MSRs on a monthly basis using a third-party valuation software package. Fair value is estimated based upon discounted net cash flows calculated from a combination of loan level data and market assumptions. The valuation software combines loans based on common characteristics that impact servicing cash flows (investor, remittance cycle, interest rate, product type, etc.) in order to project net cash flows. | |
Market valuation assumptions (including discount rate, servicing costs, etc.) are also populated within the software. Valuation assumptions are periodically reviewed against available market data (e.g., broker surveys) for reasonableness and adjusted if deemed appropriate. The recorded MSR asset balance is adjusted up or down to estimated fair value based upon the final month-end valuation, which utilized the month-end rate curve and prepayment assumptions. Note 5 of the Notes to Consolidated Financial Statements contains an analysis of the impact to the fair value of MSRs resulting from changes in the estimates used by management. |
13
| Income Taxes The calculation of our provision for income taxes is complex and requires the use of estimates and judgments. We have two accruals for income taxes: Our accrued income taxes represent the net estimated amount currently due or to be received from taxing jurisdictions, including any reserve for potential audit issues, and is reported as a component of accrued expenses and other liabilities in our consolidated balance sheet; our deferred federal income tax liability represents the estimated impact of temporary differences between how we recognize our assets and liabilities under GAAP, and how such assets and liabilities are recognized under the federal tax code. |
In the ordinary course of business, we operate in various taxing jurisdictions and are subject to income and non-income taxes. The effective tax rate is based in part on our interpretation of the relevant current tax laws. We believe the aggregate liabilities related to taxes are appropriately reflected in the consolidated financial statements. We review the appropriate tax treatment of all transactions taking into consideration statutory, judicial, and regulatory guidance in the context of our tax positions. In addition, we rely on various tax opinions, recent tax audits, and historical experience. | |
From time to time, we engage in business transactions that may have an effect on our tax liabilities. Where appropriate, we have obtained opinions of outside experts and have assessed the relative merits and risks of the appropriate tax treatment of business transactions taking into account statutory, judicial, and regulatory guidance in the context of its tax position. However, changes to our estimates of accrued taxes can occur due to changes in tax rates, implementation of new business strategies, resolution of issues with taxing authorities regarding previously taken tax positions and newly enacted statutory, judicial, and regulatory guidance. Such changes can affect the amount of our accrued taxes and can be material to our financial position and/or results of operations. The potential impact to our operating results for any of these changes cannot be reasonably estimated. |
14
Year Ended December 31,
Change from 2005
Change from 2004
(in thousands, except per share amounts)
2006
Amount
%
2005
Amount
%
2004
2003
2002
$
2,070,519
$
428,754
26.1
%
$
1,641,765
$
294,450
21.9
%
$
1,347,315
$
1,305,756
$
1,293,195
1,051,342
371,988
54.8
679,354
243,413
55.8
435,941
456,770
543,621
1,019,177
56,766
5.9
962,411
51,037
5.6
911,374
848,986
749,574
65,191
(16,108
)
(19.8
)
81,299
26,237
47.7
55,062
163,993
194,426
953,986
72,874
8.3
881,112
24,800
2.9
856,312
684,993
555,148
185,713
17,879
10.7
167,834
(3,281
)
(1.9
)
171,115
167,840
153,564
89,955
12,550
16.2
77,405
9,995
14.8
67,410
61,649
62,051
58,835
5,216
9.7
53,619
(1,180
)
(2.2
)
54,799
57,844
62,109
51,354
7,006
15.8
44,348
2,774
6.7
41,574
41,446
42,888
43,775
3,039
7.5
40,736
(1,561
)
(3.7
)
42,297
43,028
43,123
43,115
(89,900
)
(67.6
)
133,015
(152,416
)
(53.4
)
285,431
489,698
657,074
41,491
13,158
46.4
28,333
1,547
5.8
26,786
58,180
32,751
3,095
1,884
N.M.
1,211
(12,995
)
(91.5
)
14,206
40,039
(73,191
)
(65,136
)
N.M.
(8,055
)
(23,818
)
N.M.
15,763
5,258
4,902
182,470
116,927
23,091
24.6
93,836
(5,381
)
(5.4
)
99,217
104,171
100,772
561,069
(71,213
)
(11.3
)
632,282
(186,316
)
(22.8
)
818,598
1,069,153
1,341,704
541,228
59,570
12.4
481,658
(4,148
)
(0.9
)
485,806
447,263
418,037
78,779
4,141
5.5
74,638
2,523
3.5
72,115
66,118
67,368
71,281
189
0.3
71,092
(4,849
)
(6.4
)
75,941
62,481
59,539
69,912
6,788
10.8
63,124
(218
)
(0.3
)
63,342
65,921
68,323
31,728
5,449
20.7
26,279
1,679
6.8
24,600
25,648
26,655
31,286
(72,564
)
(69.9
)
103,850
(131,230
)
(55.8
)
235,080
393,270
518,970
27,053
(7,516
)
(21.7
)
34,569
(2,307
)
(6.3
)
36,876
42,448
33,085
19,252
604
3.2
18,648
(1,139
)
(5.8
)
19,787
21,979
22,661
13,864
1,291
10.3
12,573
110
0.9
12,463
13,009
15,198
9,962
9,133
N.M.
829
12
1.5
817
816
2,019
1,151
N.M.
(1,151
)
(6,666
)
48,973
106,649
24,089
29.2
82,560
(14,008
)
(14.5
)
96,568
97,872
93,319
1,000,994
31,174
3.2
969,820
(152,424
)
(13.6
)
1,122,244
1,230,159
1,374,147
514,061
(29,513
)
(5.4
)
543,574
(9,092
)
(1.6
)
552,666
523,987
522,705
52,840
(78,643
)
(59.8
)
131,483
(22,258
)
(14.5
)
153,741
138,294
198,974
461,221
49,130
11.9
412,091
13,166
3.3
398,925
385,693
323,731
(13,330
)
$
461,221
$
49,130
11.9
%
$
412,091
$
13,166
3.3
%
$
398,925
$
372,363
$
323,731
236,699
6,557
2.8
%
230,142
229
0.1
%
229,913
229,401
242,279
239,920
6,445
2.8
233,475
(381
)
(0.2
)
233,856
231,582
244,012
$ 1.95
$ 0.16
8.9
%
$ 1.79
$ 0.05
2.9
%
$ 1.74
$ 1.68
$ 1.34
1.95
0.16
8.9
1.79
0.05
2.9
1.74
1.62
1.34
1.92
0.15
8.5
1.77
0.06
3.5
1.71
1.67
1.33
1.92
0.15
8.5
1.77
0.06
3.5
1.71
1.61
1.33
1.000
0.16
18.3
0.845
0.10
12.7
0.750
0.670
0.640
Revenue fully taxable equivalent (FTE)
Net interest income
$
1,019,177
$
56,766
5.9
%
$
962,411
$
51,037
5.6
%
$
911,374
$
848,986
$
749,574
FTE adjustment
16,025
2,632
19.7
13,393
1,740
14.9
11,653
9,684
5,205
1,035,202
59,398
6.1
975,804
52,777
5.7
923,027
858,670
754,779
561,069
(71,213
)
(11.3
)
632,282
(186,316
)
(22.8
)
818,598
1,069,153
1,341,704
$
1,596,271
$
(11,815
)
(0.7
)%
$
1,608,086
$
(133,539
)
(7.7
)%
$
1,741,625
$
1,927,823
$
2,096,483
(1) | Comparisons for presented periods are impacted by a number of factors. Refer to the Significant Factors Influencing Financial Performance Comparisons for additional discussion regarding these key factors. |
(2) | Due to adoption of FASB Interpretation No. 46 for variable interest entities. |
(3) | On a fully taxable equivalent (FTE) basis assuming a 35% tax rate. |
15
| $78.6 million decline in income tax expense as the effective tax rate for 2006 was 10.3%, down from 24.2% in 2005. The lower 2006 income tax expense reflected the favorable impact of an $84.5 million reduction related to the resolution of a federal income tax audit covering tax years 2002 and 2003 that resulted in the release of federal income tax reserves, as well as the recognition of federal tax loss carry backs. The 2005 effective tax rate of 24.2% was favorably impacted by a combination of factors including the benefit of a federal tax loss carry back, partially offset by the net impact of repatriating foreign earnings. | |
| $56.8 million, or 6%, increase in net interest income, reflecting a 7% increase in average earning assets, as the net interest margin of 3.29% declined 4 basis points from 3.33% in the prior year. The increase in average earning assets reflected 7% growth in average total loans and leases, including 12% growth in average total commercial loans and 3% growth in average total consumer loans, and a 15% increase in average investment securities. Growth in earning assets was positively impact by the acquisition of Unizan Financial Corp. (Unizan) on March 1, 2006. | |
| A $16.1 million decline in provision for credit losses, reflecting overall net improvement in our credit risk performance as reflected in a decline in our allowance for credit losses as a percent of period end loans and leases to 1.04% at December 31, 2006, from 1.10% at the end of 2005. |
| $71.2 million, or 11%, decline in non-interest income. Contributing to the decrease was an $89.9 million expected decline in operating lease income, and a $65.1 million increase in securities losses, reflecting the impact of a balance sheet restructuring in late 2006. Partially offsetting these negative factors were increases in several other components of non-interest income, primarily due to the Unizan acquisition, including a $23.1 million increase in other income, a $17.9 million increase in service charges on deposit accounts, a $13.2 million increase in mortgage banking income, a $12.6 million increase in trust services income, a $7.0 million increase in other service charges and fees, a $5.2 million increase in brokerage and insurance income, and a $1.9 million increase in gains on sales of automobile loans. | |
| $31.2 million, or 3%, increase in non-interest expense, reflecting increases in several components of non-interest expense, primarily related to the acquisition of Unizan, including a $59.6 million increase in personnel costs, a $24.1 million increase in other expense, a $9.1 million increase in amortization of intangibles, a $6.8 million increase in equipment expense, a $5.4 million increase in marketing expense, and a $4.1 million increase in outside data processing and other services, partially offset by a $72.6 million expected decrease in operating lease expense and a $7.5 million decline in professional services. |
16
| $152.4 million, or 14%, decline in non-interest expense, primarily reflecting a $131.2 million decline in operating lease expenses, a $9.9 million decline in SEC-related expenses, a $4.8 million decline in net occupancy expense, a $4.1 million decline in personnel costs, and a $2.9 million decline in Unizan system conversion expenses. | |
| $51.0 million, or 6%, increase in net interest income, reflecting a 6% increase in average earning assets, as the net interest margin of 3.33% was unchanged from the prior year. The increase in average earning assets reflected 10% growth in average total loans and leases, including 11% growth in average total consumer loans and 8% growth in average total commercial loans, partially offset by a 14% decline in average investment securities. | |
| $22.3 million decline in income tax expense as the effective tax rate for 2005 was 24.2%, down from 27.8% in 2004. The lower 2005 income tax expense reflected a combination of factors including the benefit of a federal tax loss carry back, partially offset by the net impact of repatriating foreign earnings. |
| $186.3 million, or 23%, decline in non-interest income. Contributing to the decrease were a $152.4 million decline in operating lease income, a $23.8 million decline in securities gains as the current year had $8.1 million of securities losses and the prior year had $15.8 million of securities gains, a $13.0 million decline in gains on sales of automobile loans, a $5.4 million decline in other income, and a $3.3 million decline in service charges on deposit accounts. These declines were partially offset by a $10.0 million increase in trust services income and a $2.8 million increase in other service charges and fees. | |
| $26.2 million, or 48%, increase in the provision for credit losses, reflecting higher levels of non-performing assets and problem credits, as well as growth in the loan portfolio. |
1. | Unizan acquisition. The merger with Unizan Financial Corp. (Unizan) was completed on March 1, 2006. At the time of acquisition, Unizan had assets of $2.5 billion, including $1.6 billion of loans and core deposits of $1.5 billion. Unizan results were only in consolidated results for 10 months of 2006. As a result, performance comparisons between 2006 and 2005 are affected, as Unizan results were not in 2005 results. Comparisons of 2006 reported results compared with 2005 pre-merger results are impacted as follows: |
| Increased certain reported period-end balance sheet and credit quality items (e.g., non-performing loans). | |
| Increased reported average balance sheet, revenue, expense, and credit quality results (e.g., net charge-offs). | |
| Increased reported non-interest expense items as a result of costs incurred as part of merger-integration activities, most notably employee retention bonuses, outside programming services related to systems conversions, and marketing expenses related to customer retention initiatives. Merger costs were $3.7 million for 2006, $0.7 million for 2005, and $3.6 million for 2004. |
Given the impact of the merger on reported 2006 results, we believe that an understanding of the impacts of the merger is necessary to understand better underlying performance trends. When comparing post-merger period results to pre-merger periods, two terms relating to the impact of the Unizan merger on reported results are used: |
| Merger-related refers to amounts and percentage changes representing the impact attributable to the merger. | |
| Merger costs represent expenses associated with merger integration activities. |
17
An analysis reflecting the estimated impact of the Unizan merger on our reported average balance sheet and income statement can be found in Table 30 Estimated Impact of Unizan Merger. |
2. | Mortgage servicing rights (MSRs) and related hedging. MSR values are very sensitive to movements in interest rates as expected future net servicing income depends on the projected outstanding principal balances of the underlying loans, which can be greatly reduced by prepayments. Prepayments usually increase when mortgage interest rates decline and decrease when mortgage interest rates rise. |
| Prior to 2006, we recognized impairment when our valuation of MSRs was less than the recorded book value. We recognized temporary impairment due to changes in interest rates through a valuation reserve and recorded a direct write-down of the book value of MSRs for other-than-temporary declines in valuation. Changes and fluctuations in interest rate levels between quarters resulted in some quarters reporting an MSR temporary impairment, with others reporting a recovery of previously recognized MSR temporary impairment. Such swings in MSR valuations have significantly impacted quarterly mortgage banking income trends throughout this period. | |
| Beginning in 2006, we adopted Statement of Financial Accounting Standards (Statement) No. 156, Accounting for Servicing of Financial Assets (an amendment of FASB Statement No. 140) , which allowed us to carry MSRs at fair value. This resulted in a $5.1 million pre-tax ($0.01 per common share) positive impact in 2006. Under the fair value approach, servicing assets and liabilities are recorded at fair value at each reporting date. Changes in fair value between reporting dates are recorded as an increase or decrease in mortgage banking income. MSR assets are included in other assets. (See Tables 3, 6, and 7.) | |
| Prior to 2005, we used investment securities gains/(losses) as a balance sheet hedge to offset MSR valuation changes. Such gains/(losses) were reported as securities gains/(losses). Beginning in 2005, we used trading account securities and derivatives to offset MSR valuation changes. The valuations of trading securities and derivatives that we use generally react to interest rate changes in an opposite direction compared with changes in MSR valuations. As a result, changes in interest rate levels that impact MSR valuations should result in corresponding offsetting, or partially offsetting, trading gains or losses. As such, in quarters where MSR fair values decline, the fair values of trading account securities and derivatives typically increase, resulting in a recognition of trading gains that offset, or partially offset, the decline in fair value recognized for the MSR, and vice versa. Such trading gains or losses are also recorded as an increase or decrease in mortgage banking income. Net interest income on securities used to hedge MSRs is recorded in interest income. |
3. | Automobile leases originated through April 2002 are accounted for as automobile operating leases. Automobile leases originated before May 2002 are accounted for using the operating lease method of accounting because they do not qualify as direct financing leases. Automobile operating leases are carried in other assets with the related rental income, other revenue, and credit recoveries reflected as automobile operating lease income, a component of non-interest income. Under this accounting method, depreciation expenses, as well as other costs and charge-offs, are reflected as automobile operating lease expense, a component of non-interest expense. With no new automobile operating leases originated since April 2002, the automobile operating lease assets have declined rapidly since then. The level of automobile operating lease assets and related automobile operating lease income and expense declined to a point of diminished materiality by the end of 2006. However, since automobile operating lease income and expense represented a significant percentage of total non-interest income and expense, respectively, throughout these reporting periods, their downward trend influenced total revenue, total non-interest income, and total non-interest expense trends. |
In contrast, automobile leases originated since April 2002 are accounted for as direct financing leases, an interest earning asset included in total loans and leases with the related income reflected as interest income and included in the calculation of the net interest margin. Credit charge-offs and recoveries are reflected in the allowance for loan and lease losses (ALLL), with related changes in the ALLL reflected in the provision for credit losses. To better understand overall trends in automobile lease exposure, it is helpful to compare trends in the combined total of direct financing leases plus automobile operating leases. |
4. | Effective tax rate. Various items impacted the effective tax rate for 2006 and 2005. For 2006, impacts included an $84.5 million ($0.35 per common share) reduction of federal income tax expense from the release of tax reserves as a result of the resolution of the federal income tax audit for 2002 and 2003, and the recognition of a federal tax loss carry back. For 2005, federal income tax expense benefited by $26.9 million ($0.12 per common share) from the positive impact of a federal tax loss carry-back, partially offset by a $5.0 million after tax ($0.02 per common share) increase in tax expense from the repatriation of foreign earnings. |
18
5. | Share-based compensation. In 2006, we adopted Statement No. 123R, Share-Based Payment, which resulted in recognizing as personnel expense, the impact of share-based compensation, primarily in the form of stock option grants. Adoption of stock option expensing added $18.6 million, pre-tax, to personnel expense in 2006. (See Note 19 to the Consolidated Financial Statements.) | |
6. | Balance sheet restructuring. In 2006, we utilized the excess capital resulting from the favorable resolution to certain federal income tax audits to restructure certain under-performing components of the balance sheet. We believe that these actions will benefit the net interest margin in future periods. Our actions included the review of $2.1 billion of securities for potential sale, the refinancing of a portion of our FHLB funding, and the sale of approximately $100 million of residential mortgage loans. The review of securities for sale resulted in an initial impairment of $57.5 million, which was recorded as a securities loss. The completion of this review resulted in an additional $9.0 million of securities losses, as well as $6.8 million of other than temporary impairment on certain sub-prime mortgage backed securities not included in the initial review. Total securities losses as a result of these actions totaled $73.3 million. The refinancing of FHLB funding and the sale of mortgage loans resulted in total charges of $4.4 million, resulting in total balance sheet restructuring costs of $77.7 million ($0.21 per common share). | |
7. | Other significant items influencing earnings performance comparisons. |
2006 |
| $10.0 million pre-tax contribution to the Huntington Foundation. | |
| $7.4 million pre-tax equity investment gains. | |
| $5.5 million pre-tax increase in automobile lease residual value losses. This increase reflected higher relative losses on certain vehicles sold at auction, most notably high-line imports and larger sport utility vehicles. | |
| $4.8 million in severance and consolidation expenses, pre-tax. This reflected fourth quarter severance-related expenses associated with a reduction of 75 Regional Banking staff positions, as well as costs associated with the previously announced retirements of a vice chairman and an executive vice president. | |
| $3.3 million pre-tax gain on the sale of MasterCard ® stock. | |
| $3.2 million pre-tax negative impact associated with the write-down of equity method investments. | |
| $2.3 million pre-tax unfavorable impact due to a cumulative adjustment to defer home equity annual fees. |
2005 |
| $8.8 million pre-tax investment securities losses, resulting from our decision to reduce our exposure to certain unsecured federal agency securities. | |
| $6.5 million pre-tax impact to provision expense associated with the charge-off of a single large commercial credit. | |
| $5.1 million of pre-tax severance and consolidation expenses associated with the consolidation of certain operations functions, including the closing of an item-processing center in Michigan. This item increased non-interest expense. | |
| $3.7 million pre-tax expense associated with the now-closed SEC investigation and regulatory-related written agreements. | |
| $2.6 million pre-tax write-offs of equity investments. This item lowered non-interest income. |
2004 |
| $14.2 million pre-tax gain on the sale of automobile loans associated with the objective of lowering total credit exposure to this sector. | |
| $13.6 million pre-tax expense associated with the now-closed SEC investigation and regulatory-related written agreements. | |
| $11.1 million pre-tax reduction to provision expense, reflecting a recovery of a single large commercial credit previously charged-off in 2002. | |
| $7.8 million pre-tax property lease impairments. This item increased non-interest expense. |
19
| $3.7 million pre-tax one-time funding cost adjustment for a securitization structure consolidated in a prior period, which lowered interest expense and increased net interest income, as well as the net interest margin. |
2006 | 2005 | 2004 | |||||||||||||||||||||||
(in thousands of dollars) | After-tax | EPS | After-tax | EPS | After-tax | EPS | |||||||||||||||||||
Net income GAAP
|
$ | 461,221 | $ | 412,091 | $ | 398,925 | |||||||||||||||||||
Earnings per share, after tax
|
$ | 1.92 | $ | 1.77 | $ | 1.71 | |||||||||||||||||||
Change from prior year $
|
0.15 | 0.06 | 0.10 | ||||||||||||||||||||||
Change from prior year %
|
8.5 | % | 3.5 | % | 6.2 | % | |||||||||||||||||||
Significant items favorable (unfavorable)
impact:
|
Earnings (2 | ) | EPS | Earnings (2 | ) | EPS | Earnings (2 | ) | EPS | ||||||||||||||||
Reduction to federal income tax
expense
(3)
|
$ | 84,541 | $ | 0.35 | $ | | $ | | $ | | $ | | |||||||||||||
Equity investment gains
|
7,436 | 0.02 | | | | | |||||||||||||||||||
MSR FAS 156 accounting change
|
5,143 | 0.01 | | | | | |||||||||||||||||||
Gain on sale of MasterCard stock
|
3,341 | 0.01 | | | | | |||||||||||||||||||
Balance sheet restructuring
|
(77,698 | ) | (0.21 | ) | (8,770 | ) | (0.02 | ) | | | |||||||||||||||
Huntington Foundation contribution
|
(10,000 | ) | (0.03 | ) | | | | | |||||||||||||||||
Automobile lease residual value losses
|
(5,549 | ) | (0.01 | ) | | | | | |||||||||||||||||
Severance and consolidation expenses
|
(4,750 | ) | (0.01 | ) | (5,064 | ) | (0.01 | ) | | | |||||||||||||||
Unizan merger costs
|
(3,749 | ) | (0.01 | ) | | | (3,610 | ) | (0.01 | ) | |||||||||||||||
Adjustment for equity method investments
|
(3,240 | ) | (0.01 | ) | | | | | |||||||||||||||||
Adjustment to defer home equity annual fees
|
(2,254 | ) | (0.01 | ) | | | | | |||||||||||||||||
Net impact of federal tax loss carry
back
(3)
|
| | 26,936 | 0.12 | | | |||||||||||||||||||
MSR mark-to-market net of hedge-related trading
activity
(4)
|
| | (7,318 | ) | (0.02 | ) | (7,174 | ) | (0.02 | ) | |||||||||||||||
Single commercial credit net charge-off net of allocated reserves
|
| | (6,464 | ) | (0.02 | ) | | | |||||||||||||||||
Net impact of repatriating foreign earnings
(3)
|
| | (5,040 | ) | (0.02 | ) | | | |||||||||||||||||
SEC and regulatory related expenses
|
| | (3,715 | ) | (0.01 | ) | (13,597 | ) | (0.05 | ) | |||||||||||||||
Write-off of equity investments
|
| | (2,598 | ) | (0.01 | ) | | | |||||||||||||||||
MSR hedging-related securities gains/(losses)
|
| | | | 15,763 | 0.04 | |||||||||||||||||||
Gain on sale of automobile loans
|
| | | | 14,206 | 0.04 | |||||||||||||||||||
Single commercial credit recovery
|
| | | | 11,095 | 0.03 | |||||||||||||||||||
One-time adjustment to consolidated securitization
|
| | | | 3,682 | 0.01 | |||||||||||||||||||
Property lease impairment
|
| | | | (7,846 | ) | (0.02 | ) |
20
2006
2005
Increase (Decrease) From
Increase (Decrease) From
Previous Year Due To
Previous Year Due To
Fully tax equivalent basis
(2)
Yield/
Yield/
(in millions of dollars)
Volume
Rate
Total
Volume
Rate
Total
$
100.7
$
246.9
$
347.6
$
118.6
$
177.7
$
296.3
30.4
46.9
77.3
(29.8
)
19.9
(9.9
)
(4.3
)
10.7
6.4
3.8
6.2
10.0
126.8
304.5
431.3
92.6
203.8
296.4
52.7
217.6
270.3
41.7
148.1
189.8
12.6
25.3
37.9
(0.3
)
21.6
21.3
9.5
15.8
25.3
(4.7
)
6.1
1.4
(21.5
)
59.9
38.4
(39.0
)
66.4
27.4
53.3
318.6
371.9
(2.3
)
242.2
239.9
73.5
(14.1
)
59.4
94.9
(38.4
)
56.5
(3.7
)
(3.7
)
$
73.5
$
(14.1
)
$
59.4
$
94.9
$
(42.1
)
$
52.8
(1) | The change in interest rates due to both rate and volume has been allocated between the factors in proportion to the relationship of the absolute dollar amounts of the change in each. |
(2) | Calculated assuming a 35% tax rate. |
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
Average Balances
Change from 2005
Change from 2004
Fully taxable equivalent basis
(1)
(in millions of dollars)
2006
Amount
%
2005
Amount
%
2004
2003
2002
$
53
$
%
$
53
$
(13
)
(19.7
)%
$
66
$
37
$
33
92
(115
)
(55.6
)
207
102
97.1
105
14
7
321
59
22.5
262
(57
)
(17.9
)
319
87
72
275
(43
)
(13.5
)
318
75
30.9
243
564
322
4,197
514
14.0
3,683
(742
)
(16.8
)
4,425
3,533
2,859
570
95
20.0
475
63
15.3
412
334
135
4,767
609
14.6
4,158
(679
)
(14.0
)
4,837
3,867
2,994
5,504
687
14.3
4,817
361
8.1
4,456
4,633
4,810
1,244
(434
)
(25.9
)
1,678
258
18.2
1,420
1,219
1,151
2,703
795
41.7
1,908
(14
)
(0.7
)
1,922
1,800
1,670
3,947
361
10.1
3,586
244
7.3
3,342
3,019
2,821
2,414
190
8.5
2,224
221
11.0
2,003
1,787
1,642
11,865
1,238
11.6
10,627
826
8.4
9,801
9,439
9,273
2,057
14
0.7
2,043
(242
)
(10.6
)
2,285
3,260
2,744
2,031
(391
)
(16.1
)
2,422
230
10.5
2,192
1,423
452
4,088
(377
)
(8.4
)
4,465
(12
)
(0.3
)
4,477
4,683
3,196
4,970
218
4.6
4,752
508
12.0
4,244
3,400
2,976
4,581
500
12.3
4,081
869
27.1
3,212
2,076
1,438
439
54
14.0
385
(8
)
(2.0
)
393
426
534
14,078
395
2.9
13,683
1,357
11.0
12,326
10,585
8,144
25,943
1,633
6.7
24,310
2,183
9.9
22,127
20,024
17,417
(287
)
(19
)
7.1
(268
)
30
(10.1
)
(298
)
(330
)
(344
)
25,656
1,614
6.7
24,042
2,213
10.1
21,829
19,694
17,073
31,451
2,143
7.3
29,308
1,611
5.8
27,697
24,593
20,845
93
(258
)
(73.5
)
351
(540
)
(60.6
)
891
1,697
2,602
825
(20
)
(2.4
)
845
2
0.2
843
774
744
567
349
N.M.
218
2
0.9
216
218
293
2,463
278
12.7
2,185
101
4.8
2,084
2,020
1,923
$
35,112
$
2,473
7.6
%
$
32,639
$
1,206
3.8
%
$
31,433
$
28,972
$
26,063
Deposits:
$
3,530
$
151
4.5
%
$
3,379
$
149
4.6
%
$
3,230
$
3,080
$
2,902
7,742
84
1.1
7,658
451
6.3
7,207
6,193
5,161
2,992
(163
)
(5.2
)
3,155
(276
)
(8.0
)
3,431
3,462
3,583
5,050
1,716
51.5
3,334
645
24.0
2,689
3,115
4,175
19,314
1,788
10.2
17,526
969
5.9
16,557
15,850
15,821
1,113
203
22.3
910
317
53.5
593
389
295
3,242
123
3.9
3,119
1,282
69.8
1,837
1,419
731
515
58
12.7
457
(51
)
(10.0
)
508
500
337
24,184
2,172
9.9
22,012
2,517
12.9
19,495
18,158
17,184
1,800
421
30.5
1,379
(31
)
(2.2
)
1,410
1,600
1,856
1,369
264
23.9
1,105
(166
)
(13.1
)
1,271
1,258
279
3,574
(490
)
(12.1
)
4,064
(1,315
)
(24.4
)
5,379
4,559
3,335
27,397
2,216
8.8
25,181
856
3.5
24,325
22,495
19,752
1,239
(257
)
(17.2
)
1,496
(8
)
(0.5
)
1,504
1,201
1,170
2,946
363
14.1
2,583
209
8.8
2,374
2,196
2,239
$
35,112
$
2,473
7.6
%
$
32,639
$
1,206
3.8
%
$
31,433
$
28,972
$
26,063
(1)
Fully taxable equivalent (FTE) yields are calculated
assuming a 35% tax rate.
(2)
Loan and lease and deposit average rates include impact of
applicable derivatives and non-deferrable fees.
(3)
For purposes of this analysis, non-accrual loans are reflected
in the average balances of loans.
(4)
2005 reflects a net reclassification of $500 million from
middle market commercial real estate to middle market commercial
and industrial.
Interest Income/Expense
Average Rate
(2)
2006
2005
2004
2003
2002
2006
2005
2004
2003
2002
$
3.2
$
1.1
$
0.7
$
0.6
$
0.8
6.00
%
2.16
%
1.05
%
1.53
%
2.38
%
3.8
8.5
4.4
0.6
0.3
4.19
4.08
4.15
4.02
4.11
16.1
6.0
5.5
1.6
1.1
5.00
2.27
1.73
1.80
1.56
16.8
17.9
13.0
30.0
20.5
6.10
5.64
5.35
5.32
6.35
229.4
158.7
171.7
159.6
173.0
5.47
4.31
3.88
4.52
6.05
38.5
31.9
28.8
23.5
10.1
6.75
6.71
6.98
7.04
7.47
267.9
190.6
200.5
183.1
183.1
5.62
4.58
4.14
4.73
6.12
406.0
279.0
196.5
223.5
264.5
7.38
5.79
4.41
4.82
5.50
100.5
107.8
64.2
51.3
52.6
8.08
6.43
4.52
4.21
4.57
201.7
113.2
88.0
89.4
96.2
7.46
5.93
4.58
4.97
5.76
302.2
221.0
152.2
140.7
148.8
7.65
6.16
4.55
4.66
5.27
173.9
137.5
110.3
105.6
110.6
7.20
6.18
5.50
5.91
6.73
882.1
637.5
459.0
469.8
523.9
7.43
6.00
4.68
5.00
5.65
135.1
133.3
165.1
242.1
237.9
6.57
6.52
7.22
7.43
8.67
102.9
119.6
109.6
72.8
23.2
5.07
4.94
5.00
5.12
5.14
238.0
252.9
274.7
314.9
261.1
5.82
5.66
6.14
6.73
8.17
369.7
288.6
208.6
166.4
166.2
7.44
6.07
4.92
4.89
5.59
249.1
212.9
163.0
112.2
91.4
5.44
5.22
5.07
5.40
6.35
39.8
39.2
29.5
36.4
50.0
9.07
10.23
7.51
8.55
9.35
896.6
793.6
675.8
629.9
568.7
6.37
5.80
5.48
5.95
6.98
1,778.7
1,431.1
1,134.8
1,099.7
1,092.6
6.86
5.89
5.13
5.50
6.27
2,086.5
1,655.2
1,358.9
1,315.6
1,298.4
6.63
5.65
4.89
5.35
6.23
212.4
135.5
74.1
73.0
88.9
2.74
1.77
1.03
1.18
1.71
50.2
42.9
44.1
67.7
80.2
1.68
1.36
1.28
1.96
2.24
214.8
118.7
90.4
114.3
187.0
4.25
3.56
3.36
3.67
4.48
477.4
297.1
208.6
255.0
356.1
3.02
2.10
1.56
2.00
2.76
55.6
30.8
11.3
4.6
7.4
4.99
3.39
1.90
1.17
2.50
169.1
109.4
33.1
24.1
17.3
5.22
3.51
1.80
1.70
2.36
15.1
9.6
4.1
4.6
4.9
2.93
2.10
0.82
0.92
1.47
717.2
446.9
257.1
288.3
385.7
3.47
2.40
1.58
1.91
2.69
72.2
34.3
13.0
15.7
29.0
4.01
2.49
0.93
0.98
1.56
60.0
34.7
33.3
24.4
5.6
4.38
3.13
2.62
1.94
2.00
201.9
163.5
132.5
128.5
123.3
5.65
4.02
2.46
2.82
3.70
1,051.3
679.4
435.9
456.9
543.6
3.84
2.70
1.79
2.03
2.75
$
1,035.2
$
975.8
$
923.0
$
858.7
$
754.8
2.79
2.95
3.10
3.32
3.48
0.50
0.38
0.23
0.17
0.14
3.29
%
3.33
%
3.33
%
3.49
%
3.62
%
Year Ended December 31,
Change from 2005
Change from 2004
(in thousands of dollars)
2006
Amount
%
2005
Amount
%
2004
$
185,713
$
17,879
10.7
%
$
167,834
$
(3,281
)
(1.9
)%
$
171,115
89,955
12,550
16.2
77,405
9,995
14.8
67,410
58,835
5,216
9.7
53,619
(1,180
)
(2.2
)
54,799
51,354
7,006
15.8
44,348
2,774
6.7
41,574
43,775
3,039
7.5
40,736
(1,561
)
(3.7
)
42,297
41,491
13,158
46.4
28,333
1,547
5.8
26,786
3,095
1,884
N.M.
1,211
(12,995
)
(91.5
)
14,206
(73,191
)
(65,136
)
N.M.
(8,055
)
(23,818
)
N.M.
15,763
116,927
23,091
24.6
93,836
(5,381
)
(5.4
)
99,217
517,954
18,687
3.7
499,267
(33,900
)
(6.4
)
533,167
43,115
(89,900
)
(67.6
)
133,015
(152,416
)
(53.4
)
285,431
$
561,069
$
(71,213
)
(11.3
)%
$
632,282
$
(186,316
)
(22.8
)%
$
818,598
$23.1 million increase in other income ($7.1 million
merger-related), primarily reflecting $7.0 million in
higher equity investment gains, a $5.7 million increase in
equipment operating lease income, $3.3 million gain on sale
of
MasterCard
®
stock, and a $2.6 million increase in corporate derivative
sales.
$17.9 million, or 11% ($5.3 million merger-related),
increase in service charges on deposit accounts, reflecting a
$14.3 million, or 13%, increase in personal service
charges, primarily NSF/ OD, and a $3.6 million, or 6%,
increase in commercial service charge income.
$13.2 million, or 46%, increase in mortgage banking income,
primarily reflecting a $12.6 million positive impact
between years related to MSR valuation net of hedge-related
trading activity. Specifically, in 2006, MSR recoveries were
$4.9 million, with $1.3 million of net trading losses
associated with MSR hedging, resulting in a net positive
MSR-related impact of $3.6 million. In 2005, MSR recoveries
were $4.4 million, with $13.4 million of net trading
losses associated with
MSR hedging, resulting in a net
reduction in mortgage-banking income in 2005 of
$9.0 million. The Unizan merger had no material impact on
mortgage banking income comparisons.
$12.6 million, or 16%
($5.5 million merger-related), increase in trust services
income, reflecting (1) a $6.5 million, or 18%,
increase in personal trust income, mostly merger-related,
(2) a $3.7 million, or 14%, increase in fees from
Huntington Funds, reflecting 11% fund asset growth, and
(3) a $1.8 million, or 17%, increase in institutional
trust fees.
$7.0 million, or 16%
($1.0 million merger-related), increase in other service
charges and fees, primarily reflecting a $5.3 million, or
17%, increase in fees generated by higher debit card volume.
$5.2 million, or 10%
($1.5 million merger-related), increase in brokerage and
insurance income, primarily reflecting higher annuities sales
related to the continued focus on investment product sales in
our retail banking offices.
$65.1 million increase in investment securities losses,
reflecting the $73.2 million of investment securities
impairment and losses during 2006 as the balance sheet
restructuring was completed.
$23.8 million decline in net securities gains, as the
current year reflected $8.1 million of securities losses,
compared with $15.8 million of gains in 2004.
$13.0 million decline in gains on sale of automobile loans
as the year-ago period included $14.2 million of such gains.
$5.4 million, or 5%, decline in other income reflected a
combination of factors including lower income from automobile
lease terminations, the $2.6 million write-off of equity
investments, lower investment banking income, and lower equity
investment gains.
$3.3 million, or 2%, decline in service charges on deposit
accounts, all driven by a decline in commercial service charges,
reflecting a combination of lower activity and a preference by
commercial customers to pay for services with higher
compensating balances rather than fees as interest rates
increased. Consumer service charges increased slightly.
$10.0 million, or 15%, increase in trust services due to
higher personal trust and mutual fund fees, reflecting a
combination of higher market value of assets, as well as
increased activity.
$2.8 million, or 7%, increase in other service charges and
fees, due to higher debit card fees, partially offset by lower
bill pay fees as a result of a decision to eliminate fees for
this service beginning in the 2004 fourth quarter.
Year Ended December 31,
Change from 2005
Change from 2004
(in thousands of dollars)
2006
Amount
%
2005
Amount
%
2004
$
18,217
$
(6,717
)
(26.9
)%
$
24,934
$
2,225
9.8
%
$
22,709
24,659
2,478
11.2
22,181
485
2.2
21,696
(15,144
)
3,215
(17.5
)
(18,359
)
660
(3.5
)
(19,019
)
10,173
(1,590
)
(18.5
)
8,583
(1,441
)
(14.4
)
10,024
37,905
566
1.5
37,339
1,929
5.4
35,410
4,871
500
11.4
4,371
2,993
N.M.
1,378
(1,285
)
12,092
(90.4
)
(13,377
)
(3,375
)
33.7
(10,002
)
$
41,491
$
13,158
46.4
%
$
28,333
$
1,547
5.8
%
$
26,786
$
131,104
$
39,845
43.7
%
$
91,259
$
14,152
18.4
%
$
77,107
404
N.M.
(404
)
4,371
91.5
(4,775
)
8,252,000
976,000
13.4
7,276,000
415,000
6.0
6,861,000
(1)
In 2006, Huntington adopted Statement No. 156, under which
MSRs were recorded and accounted for at fair value. Prior
periods reflect temporary impairment or recovery, based on
accounting for MSRs at the lower of cost or market.
(2)
At period end.
Year Ended December 31,
Change from 2005
Change from 2004
(in thousands of dollars)
2006
Amount
%
2005
Amount
%
2004
$
425,657
$
46,068
12.1
%
$
379,589
$
3,321
0.9
%
$
376,268
115,571
13,502
13.2
102,069
(7,469
)
(6.8
)
109,538
541,228
59,570
12.4
481,658
(4,148
)
(0.9
)
485,806
78,779
4,141
5.5
74,638
2,523
3.5
72,115
71,281
189
0.3
71,092
(4,849
)
(6.4
)
75,941
69,912
6,788
10.8
63,124
(218
)
(0.3
)
63,342
31,728
5,449
20.7
26,279
1,679
6.8
24,600
27,053
(7,516
)
(21.7
)
34,569
(2,307
)
(6.3
)
36,876
19,252
604
3.2
18,648
(1,139
)
(5.8
)
19,787
13,864
1,291
10.3
12,573
110
0.9
12,463
9,962
9,133
N.M.
829
12
1.5
817
1,151
N.M.
(1,151
)
106,649
24,089
29.2
82,560
(14,008
)
(14.5
)
96,568
969,708
103,738
12.0
865,970
(21,194
)
(2.4
)
887,164
31,286
(72,564
)
(69.9
)
103,850
(131,230
)
(55.8
)
235,080
$
1,000,994
$
31,174
3.2
%
$
969,820
$
(152,424
)
(13.6
)%
$
1,122,244
$59.6 million, or 12%, increase in personnel expense, with
Unizan contributing $25.8 million, or 43%, of the increase.
The remaining $33.8 million increase included
$17.0 million increase in share-based compensation
primarily related to the expensing of stock options, which began
in 2006, and $9.0 million in higher performance and
sales-related compensation.
$24.1 million, or 29% ($10.0 million merger-related),
increase in other expense, including a $10.0 million
donation to the Huntington Foundation in the fourth quarter,
which will result in reduced contributions in future periods,
$5.5 million of higher residual value losses on automobile
leases, $3.7 million of Unizan merger-related costs, and
$3.5 million related to the fourth quarter restructuring of
certain FHLB advances.
$9.1 million increase in the amortization of intangibles,
substantially all merger-related.
$6.8 million, or 11%, increase in equipment expense
($1.7 million merger-related), reflecting higher
depreciation associated with recent technology investments.
$5.4 million, or 21% ($0.9 million merger-related),
increase in marketing expense, reflecting increased campaign and
market research expenses.
$4.1 million, or 6%, increase in outside data processing
and other services ($1.7 million merger-related), with
$2.0 million related to Unizan system conversion
merger-related costs and a $1.7 million increase in debit
card processing costs due to higher activity levels.
$7.5 million, or 22%, decline in professional services
expenses, despite Unizan adding $4.9 million, including a
reduction in SEC/regulatory related expenses, as well as
declines in collections and other consulting expenses.
$14.0 million, or 15%, decrease in other expense,
reflecting decreased SEC and regulatory-related expenses in
2005, $5.8 million of costs related to investments in
partnerships generating tax benefits in the year-ago period, and
lower litigation related expense accruals and lower insurance
costs in 2005.
$4.8 million, or 6%, decline in net occupancy expense, as
2004 included a $7.8 million loss caused by property lease
impairments, partially offset by lower rental income and higher
depreciation expense in 2005.
$4.1 million, or 1%, decline in personnel costs, mainly due
to lower commission and benefit expense, partially offset by
higher salaries and severance.
Year Ended December 31,
(in thousands of dollars)
2006
2005
2004
2003
2002
$
92,613
$
351,213
$
890,930
$
1,696,535
$
2,602,154
$
37,512
$
121,101
$
265,542
$
458,644
$
615,453
2,021
6,531
13,457
21,623
28,542
3,582
5,383
6,432
9,431
13,079
43,115
133,015
285,431
489,698
657,074
28,591
94,816
215,047
350,550
463,783
2,695
9,034
20,033
42,720
55,187
31,286
103,850
235,080
393,270
518,970
$
11,829
$
29,165
$
50,351
$
96,428
$
138,104
At December 31,
(in millions of dollars)
2006
2005
2004
2003
2002
$
5,953
22.7
%
$
5,084
20.6
%
$
4,666
19.3
%
$
4,416
19.7
%
$
4,757
21.7
%
987
3.8
1,522
6.2
1,602
6.6
1,264
5.6
983
4.5
2,874
11.0
2,015
8.2
1,917
7.9
1,919
8.6
1,896
8.7
3,861
14.8
3,537
14.4
3,519
14.5
3,183
14.2
2,879
13.2
2,540
9.6
2,224
9.1
2,118
8.8
1,887
8.4
1,695
7.7
12,354
47.1
10,845
44.1
10,303
42.6
9,486
42.3
9,331
42.6
Consumer:
Automobile loans
2,126
8.1
1,985
8.1
1,949
8.1
2,992
13.4
3,042
13.9
Automobile leases
1,769
6.8
2,289
9.3
2,443
10.1
1,902
8.5
874
4.0
Home equity
4,927
18.8
4,763
19.3
4,647
19.2
3,746
16.7
3,142
14.3
Residential mortgage
4,549
17.4
4,193
17.0
3,829
15.9
2,531
11.3
1,746
8.0
Other loans
428
1.7
397
1.4
389
1.7
418
2.0
452
2.1
13,799
52.8
13,627
55.1
13,257
55.0
11,589
51.9
9,256
42.3
26,153
99.9
24,472
99.2
23,560
97.6
21,075
94.2
18,587
84.9
28
0.1
189
0.8
587
2.4
1,260
5.6
2,201
10.0
37
0.2
1,119
5.1
$
26,181
100.0
%
$
24,661
100.0
%
$
24,147
100.0
%
$
22,372
100.0
%
$
21,907
100.0
%
$
3,923
15.0
%
$
4,463
18.1
%
$
4,979
20.6
%
$
6,191
27.7
%
$
7,236
33.0
%
(1)
There were no commercial loans outstanding that would be
considered a concentration of lending to a particular industry
or group of industries.
(2)
Total automobile loans and leases, operating lease assets, and
securitized loans.
At December 31,
(in millions of dollars)
2006
2005
2004
2003
2002
$
4,735
$
3,998
$
3,632
$
3,463
$
4,031
631
615
645
635
534
587
471
389
318
192
5,953
5,084
4,666
4,416
4,757
1,897
1,725
1,164
898
851
7,850
6,809
5,830
5,314
5,608
3,861
3,537
3,519
3,183
2,879
643
499
954
989
844
4,504
4,036
4,473
4,172
3,723
$
12,354
$
10,845
$
10,303
$
9,486
$
9,331
At December 31, 2006
Geographic Region
West
Total
Percent of
(in thousands of dollars)
Ohio
Michigan
Virginia
Indiana
Other
Amount
Total
$
413,850
$
181,180
$
29,101
$
71,873
$
$
696,004
15.5
%
333,798
169,781
49,751
17,028
1,644
572,002
12.7
377,375
80,249
11,602
23,372
2,106
494,704
11.0
234,783
182,105
13,278
39,318
2,372
471,856
10.5
306,186
58,764
26,070
68,845
3
459,868
10.2
279,756
119,529
18,729
9,881
427,895
9.5
194,262
128,387
23,965
49,005
5,604
401,223
8.9
124,679
53,828
4,844
1,043
184,394
4.1
119,470
41,788
10,780
11,418
183,456
4.1
104,767
60,718
4,523
5,154
175,162
3.9
113,322
15,126
504
4,988
6,144
140,084
3.1
88,183
18,839
6,995
1,882
115,899
2.6
57,213
28,136
11,114
1,821
98,284
2.2
63,686
12,809
1,700
5,514
83,709
1.9
$
2,811,330
$
1,151,239
$
212,956
$
311,142
$
17,873
$
4,504,540
100.0
%
At December 31,
(in thousands of dollars)
2006
2005
2004
2003
2002
$
35,657
$
28,888
$
24,179
$
33,745
$
79,691
34,831
15,763
4,582
18,434
19,875
25,852
28,931
14,601
13,607
19,060
32,527
17,613
13,545
9,695
9,443
15,266
10,720
7,055
144,133
101,915
63,962
75,481
128,069
47,898
14,214
8,762
6,918
7,915
1,589
1,026
35,844
4,987
739
49,487
15,240
44,606
11,905
8,654
$
193,620
$
117,155
$
108,568
$
87,386
$
136,723
0.55
%
0.42
%
0.27
%
0.36
%
0.69
%
0.74
0.48
0.46
0.41
0.74
$
59,114
$
56,138
$
54,283
$
55,913
$
61,526
and leases
0.23
%
0.23
%
0.23
%
0.27
%
0.33
%
1.19
1.25
1.29
1.59
1.81
217
300
476
444
263
161
261
280
384
246
(1)
Non-performing loans and leases include loans and leases on
non-accrual status and restructured loans and leases. For all
periods presented, there were no restructured loans and leases
that were not also on non-accrual status.
(2)
Beginning in 2006, OREO includes balances of loans in
foreclosure, which are fully guaranteed by the
U.S. Government, that were reported in 90 day past due
loans and leases in prior periods.
(3)
At December 31, 2004, other real estate owned included
$35.7 million of properties that related to the workout of
$5.9 million of mezzanine loans. These properties were
subject to $29.8 million of non-recourse debt to another
financial institution. These properties were sold in 2005.
Year Ended December 31,
(in thousands of dollars)
2006
2005
2004
2003
2002
$
117,155
$
108,568
$
87,386
$
136,723
$
227,493
222,043
171,150
137,359
222,043
260,229
33,843
(43,999
)
(7,547
)
(3,795
)
(16,632
)
(17,124
)
(46,191
)
(38,819
)
(37,337
)
(109,905
)
(152,616
)
(59,469
)
(64,861
)
(43,319
)
(83,886
)
(136,774
)
(29,762
)
(51,336
)
(31,726
)
(60,957
)
(44,485
)
$
193,620
$
117,155
$
108,568
$
87,386
$
136,723
(1)
In 2004, new non-performing assets included $35.7 million
of properties that relate to the workout of $5.9 million of
mezzanine loans. These properties were subject to
$29.8 million of non-recourse debt to another financial
institution. These properties were sold in 2005.
(2)
Beginning in 2006, OREO includes balances of loans in
foreclosure, which are fully guaranteed by the
U.S. Government, that were reported in 90 day past due
loans and leases in prior periods.
At December 31,
2006
2005
2004
2003
2002
0.86
%
0.89
%
0.83
%
N.A.
N.A.
0.18
0.21
0.32
N.A.
N.A.
1.04
1.10
1.15
1.42
%
1.62
%
0.15
0.15
0.14
0.17
0.19
1.19
%
1.25
%
1.29
%
1.59
%
1.81
%
At December 31,
(in thousands of dollars)
2006
2005
2004
2003
2002
$
83,046
22.9
%
$
82,963
20.8
%
$
87,485
19.8
%
$
103,237
21.0
%
$
106,998
25.6
%
63,729
14.7
60,667
14.4
54,927
14.9
63,294
15.1
35,658
15.5
42,978
9.7
40,056
9.1
32,009
9.0
30,455
8.9
26,914
9.1
189,753
47.3
183,686
44.3
174,421
43.7
196,986
45.0
169,570
50.2
28,400
14.9
33,870
17.5
41,273
18.6
58,375
23.2
51,621
21.1
32,572
18.8
30,245
19.5
29,275
19.3
25,995
17.7
16,878
16.9
13,349
17.4
13,172
17.1
18,995
16.3
11,124
12.0
8,566
9.4
7,994
1.6
7,374
1.6
7,247
2.1
7,252
2.1
8,085
2.4
82,315
52.7
84,661
55.7
96,790
56.3
102,746
55.0
85,150
49.8
45,783
$
272,068
100.0
%
$
268,347
100.0
%
$
271,211
100.0
%
$
299,732
100.0
%
$
300,503
100.0
%
40,161
36,957
33,187
35,522
36,145
$
312,229
$
305,304
$
304,398
$
335,254
$
336,648
(1)
Percentages represent the percentage of each loan and lease
category to total loans and leases.
(2)
Prior to 2003, an unallocated component of the ALLL was
maintained.
Year Ended December 31,
(in thousands of dollars)
2006
2005
2004
2003
2002
$
268,347
$
271,211
$
299,732
$
300,503
$
345,402
23,785
Loan and lease charge-offs
(14,706
)
(22,247
)
(21,095
)
(86,217
)
(112,430
)
(4,156
)
(534
)
(2,477
)
(3,092
)
(4,343
)
(3,009
)
(4,311
)
(5,650
)
(6,763
)
(13,383
)
(7,165
)
(4,845
)
(8,127
)
(9,855
)
(17,726
)
(19,922
)
(16,707
)
(10,270
)
(16,311
)
(18,587
)
(41,793
)
(43,799
)
(39,492
)
(112,383
)
(148,743
)
(20,262
)
(25,780
)
(45,335
)
(57,890
)
(57,675
)
(13,527
)
(12,966
)
(11,690
)
(5,632
)
(1,335
)
(33,789
)
(38,746
)
(57,025
)
(63,522
)
(59,010
)
(24,950
)
(20,129
)
(17,514
)
(14,166
)
(13,395
)
(4,767
)
(2,561
)
(1,975
)
(915
)
(888
)
(14,393
)
(10,613
)
(10,109
)
(10,548
)
(12,316
)
(77,899
)
(72,049
)
(86,623
)
(89,151
)
(85,609
)
(119,692
)
(115,848
)
(126,115
)
(201,534
)
(234,352
)
Commercial:
8,389
8,669
19,175
10,414
7,727
602
399
12
164
127
454
401
144
1,744
1,415
1,056
800
156
1,908
1,542
4,696
4,756
4,704
4,686
4,071
Total commercial
14,141
14,225
24,035
17,008
13,340
11,975
13,792
16,761
17,603
18,559
3,040
1,302
853
(75
)
(95
)
15,015
15,094
17,614
17,528
18,464
3,096
2,510
2,440
2,052
1,555
262
229
215
83
16
4,802
3,733
3,276
3,054
4,065
23,175
21,566
23,545
22,717
24,100
37,316
35,791
47,580
39,725
37,440
(82,376
)
(80,057
)
(78,535
)
(161,809
)
(196,912
)
62,312
83,782
57,397
164,616
182,211
(6,253
)
(336
)
(7,383
)
(3,578
)
(30,198
)
$
272,068
$
268,347
$
271,211
$
299,732
$
300,503
$
36,957
$
33,187
$
35,522
$
36,145
$
23,930
325
2,879
(2,483
)
(2,335
)
(623
)
12,215
6,253
40,161
36,957
33,187
35,522
36,145
$
312,229
$
305,304
$
304,398
$
335,254
$
336,648
0.32
%
0.33
%
0.35
%
0.81
%
1.13
%
1.19
1.25
1.29
1.59
1.81
Long-term Targets
(1)
0.20% - 0.30%
0.15% - 0.25%
0.50% - 0.60%
0.65% - 0.75%
0.50% - 0.60%
0.40% - 0.50%
0.15% +/-
0.35% - 0.45%
(1)
Assumes loan and lease portfolio mix comparable to
December 31, 2006, and stable economic environment.
At December 31,
(in thousands of dollars)
2006
2005
2004
2003
2002
$
6,318
$
13,578
$
1,920
$
75,803
$
104,703
3,553
135
2,465
2,928
4,216
2,555
3,910
5,506
5,019
11,968
6,108
4,045
7,971
7,947
16,184
15,225
11,951
5,566
11,625
14,516
27,651
29,574
15,457
95,375
135,403
8,330
11,988
28,574
40,266
39,115
10,445
11,664
10,837
5,728
1,431
18,775
23,652
39,411
45,994
40,546
21,854
17,619
15,074
12,114
11,840
4,505
2,332
1,760
832
872
9,591
6,880
6,833
7,494
8,251
54,725
50,483
63,078
66,434
61,509
$
82,376
$
80,057
$
78,535
$
161,809
$
196,912
0.11
%
0.28
%
0.04
%
1.64
%
2.18
%
0.29
0.01
0.17
0.24
0.37
0.09
0.20
0.29
0.28
0.72
0.15
0.11
0.24
0.26
0.57
0.63
0.54
0.28
0.65
0.88
0.23
0.28
0.16
1.01
1.46
0.40
0.59
1.25
1.24
1.43
0.51
0.48
0.49
0.40
0.32
0.46
0.53
0.88
0.98
1.27
0.44
0.37
0.36
0.36
0.40
0.10
0.06
0.05
0.04
0.06
2.18
1.79
1.74
1.76
1.55
0.39
0.37
0.51
0.63
0.76
0.32
%
0.33
%
0.35
%
0.81
%
1.13
%
Net Interest Income at Risk (%)
-200
-100
+100
+200
-4.0
%
-2.0
%
-2.0
%
-4.0
%
0.0
%
0.0
%
-0.2
%
-0.4
%
-1.3
%
-0.5
%
+0.1
%
+0.3
%
Economic Value of Equity at Risk (%)
-200
-100
+100
+200
-12.0
%
-5.0
%
-5.0
%
-12.0
%
+0.5
%
+1.4
%
-4.7
%
-11.3
%
-0.8
%
+0.5
%
-2.5
%
-6.2
%
At December 31,
(in millions of dollars)
2006
2005
2004
2003
2002
$
3,616
14.4
%
$
3,390
15.1
%
$
3,392
16.3
%
$
2,987
16.2
%
$
3,058
17.5
%
7,751
30.9
7,380
32.9
7,786
37.5
6,411
34.7
5,390
30.8
2,986
11.9
3,094
13.8
3,503
16.9
3,591
19.4
3,546
20.3
5,365
21.4
3,988
17.8
2,755
13.3
2,731
14.8
3,753
21.4
19,718
78.6
17,852
79.6
17,436
84.0
15,720
85.1
15,747
90.0
1,192
4.8
887
4.0
794
3.8
520
2.8
240
1.4
3,346
13.4
3,200
14.3
2,097
10.1
1,772
9.6
1,093
6.2
792
3.2
471
2.1
441
2.1
475
2.5
419
2.4
$
25,048
100.0
%
$
22,410
100.0
%
$
20,768
100.0
%
$
18,487
100.0
%
$
17,499
100.0
%
$
6,063
30.7
%
$
5,352
30.0
%
$
5,294
30.4
%
$
4,255
27.1
%
$
3,981
25.3
%
13,655
69.3
12,500
70.0
12,142
69.6
11,465
72.9
11,766
74.7
$
19,718
100.0
%
$
17,852
100.0
%
$
17,436
100.0
%
$
15,720
100.0
%
$
15,747
100.0
%
$
4,984
19.9
%
$
4,521
20.2
%
3,572
14.3
3,498
15.6
2,276
9.1
1,951
8.7
1,717
6.9
578
2.6
2,757
11.0
2,791
12.5
2,420
9.7
2,264
10.1
1,514
6.0
1,464
6.5
819
3.3
728
3.2
172
0.7
162
0.7
20,231
80.9
17,957
80.1
59
0.2
65
0.3
1,162
4.6
1,180
5.3
3,596
14.3
3,208
14.3
$
25,048
100.0
%
$
22,410
100.0
%
(1)
Prior period amounts have been reclassified to conform to the
current period business segment structure.
(2)
Comprised largely of brokered deposits and negotiable CDs.
At December 31,
(in millions of dollars)
2006
2005
2004
2003
2002
$
1,632
$
1,820
$
1,124
$
1,378
$
2,459
4.25
%
3.46
%
1.31
%
0.73
%
1.49
%
$
2,366
$
1,820
$
1,671
$
2,439
$
2,504
1,822
1,319
1,356
1,707
2,072
4.02
%
2.41
%
0.88
%
1.22
%
1.98
%
At December 31,
(in thousands of dollars)
2006
2005
2004
$
1,856
$23,675
$25,136
1,431,410
1,615,488
1,945,762
2,929,658
2,887,357
2,268,047
$4,362,924
$4,526,520
$4,238,945
Amortized
Cost
Fair Value
Yield
(1)
$
800
$
800
5.60
%
1,046
1,056
5.59
1,846
1,856
5.59
1,848
1,847
4.82
9,560
9,608
5.01
4,353
4,355
4.98
1,261,423
1,265,651
5.76
1,277,184
1,281,461
5.75
149,819
149,853
5.13
98
96
4.03
149,917
149,949
5.13
1,427,101
1,431,410
5.69
42
42
7.69
10,553
10,588
5.76
165,624
165,229
5.84
410,248
415,564
6.68
586,467
591,423
6.43
586,088
590,062
6.13
586,088
590,062
30,000
30,056
6.20
1,544,572
1,552,748
6.31
1,574,572
1,582,804
6.31
4,800
4,784
3.90
2,750
2,706
4.45
44
86
150,754
150,754
6,481
7,039
6.40
164,829
165,369
5.31
$
4,340,903
$
4,362,924
6.09
%
(1)
Weighted average yields were calculated using amortized cost on
a fully taxable equivalent basis, assuming a 35% tax rate.
At December 31, 2006
One Year
One to
After
Percent
(in millions of dollars)
or Less
Five Years
Five Years
Total
of Total
$
2,911
$
3,431
$
1,508
$
7,850
63.5
%
447
772
9
1,228
9.9
999
1,566
711
3,276
26.6
$
4,357
$
5,769
$
2,228
$
12,354
100.0
%
$
4,182
$
4,468
$
1,896
$
10,546
85.4
%
175
1,301
332
1,808
14.6
$
4,357
$
5,769
$
2,228
$
12,354
100.0
%
35.3
%
46.7
%
18.0
%
100.0
%
December 31, 2006
Senior Unsecured
Subordinated
Notes
Notes
Short-Term
Outlook
Moodys Investor Service
A3
Baal
P-2
Stable
Standard and Poors
BBB+
BBB
A-2
Stable
Fitch Ratings
A
A-
F1
Stable
Moodys Investor Service
A2
A3
P-1
Stable
Standard and Poors
A-
BBB+
A-2
Stable
Fitch Ratings
A
A-
F1
Stable
At December 31, 2006
One Year
1 to 3
3 to 5
More than
(in millions of dollars)
or Less
Years
Years
5 Years
Total
$
15,055
$
$
$
$
15,055
6,498
2,125
494
876
9,993
98
660
409
1,062
2,229
1,676
1,676
152
1,135
1,287
200
400
397
997
32
58
51
136
277
Well-
At December 31,
Capitalized
(in millions of dollars)
Minimums
2006
2005
2004
2003
2002
$
31,155
$
29,599
$
29,542
$
28,164
$
27,030
5.00
%
8.00
%
8.34
%
8.42
%
7.98
%
8.51
%
6.00
8.93
9.13
9.08
8.53
8.34
10.00
12.79
12.42
12.48
11.95
11.25
6.87
7.19
7.18
6.79
7.22
7.65
7.91
7.86
7.31
7.29
Merger-related refers to amounts and percentage
changes representing the impact attributable to the merger.
Merger costs represent expenses associated with
merger integration activities, primarily systems conversion cost
and employee retention compensation.
Twelve Months Ended
Unizan
December 31,
Change
Other
Merger
Merger
2006
2005
Amount
%
Related
Costs
Amount
$
5,501
$
4,817
$
684
14.2
%
$
58
$
$
626
3,950
3,586
364
10.2
603
(239
)
2,414
2,224
190
8.5
190
Total commercial
11,865
10,627
1,238
11.6
661
577
4,088
4,465
(377
)
(8.4
)
59
(436
)
4,970
4,752
218
4.6
186
32
4,581
4,081
500
12.3
340
160
439
383
56
14.6
140
(84
)
Total consumer
14,078
13,681
397
2.9
725
(328
)
$
25,943
$
24,308
$
1,635
6.7
%
$
1,386
$
$
249
$
3,530
$
3,379
$
151
4.5
%
$
144
$
$
7
7,742
7,658
84
1.1
202
(118
)
2,992
3,156
(164
)
(5.2
)
426
(590
)
5,050
3,334
1,716
51.5
517
1,199
Total core deposits
19,314
17,527
1,787
10.2
1,289
498
Other deposits
4,870
4,485
385
8.6
150
235
$
24,184
$
22,012
$
2,172
9.9
%
$
1,439
$
$
733
(in thousands)
$
1,035,202
$
975,804
$
59,398
6.1
%
$
58,980
$
$
418
$
185,713
$
167,834
$
17,879
10.7
%
$
5,260
$
$
12,619
89,955
77,405
12,550
16.2
5,510
7,040
58,835
53,619
5,216
9.7
1,520
3,696
43,775
40,736
3,039
7.5
2,620
419
51,354
44,348
7,006
15.8
1,030
5,976
41,491
28,333
13,158
46.4
860
12,298
(73,191
)
(8,055
)
(65,136
)
N.M.
(65,136
)
3,095
1,211
1,884
N.M.
1,884
116,927
93,836
23,091
24.6
7,120
15,971
Sub-total before automobile operating lease income
517,954
499,267
18,687
3.7
23,920
(5,233
)
Automobile operating lease income
43,115
133,015
(89,900
)
(67.6
)
(89,900
)
$
561,069
$
632,282
$
(71,213
)
(11.3
)%
$
23,920
$
$
(95,133
)
$
541,228
$
481,658
$
59,570
12.4
%
$
25,750
$
695
$
33,125
71,281
71,092
189
0.3
4,300
260
(4,371
)
78,779
74,638
4,141
5.5
1,670
1,531
940
69,912
63,124
6,788
10.8
1,720
45
5,023
27,053
34,569
(7,516
)
(21.7
)
4,910
137
(12,563
)
31,728
26,279
5,449
20.7
890
734
3,825
19,252
18,648
604
3.2
1,220
148
(764
)
13,864
12,573
1,291
10.3
159
1,132
9,962
829
9,133
N.M.
9,134
(1
)
106,649
82,560
24,089
29.2
10,090
40
13,959
Sub-total before automobile operating lease expense
969,708
865,970
103,738
12.0
59,684
3,749
40,305
Automobile operating lease expense
31,286
103,850
(72,564
)
(69.9
)
(72,564
)
$
1,000,994
$
969,820
$
31,174
3.2
%
$
59,684
$
3,749
$
(32,259
)
Unizan
Fourth Quarter
Change
Other
Merger
Merger
2006
2005
Amount
%
Related
Costs
Amount
%
(in millions)
$
5,831
$
4,946
$
885
17.9
%
$
70
$
$
815
16.5
%
3,938
3,598
340
9.4
723
(383
)
(10.6
)
2,543
2,230
313
14.0
313
14.0
Total commercial
12,312
10,774
1,538
14.3
793
745
6.9
3,949
4,355
(406
)
(9.3
)
71
(477
)
(11.0
)
4,973
4,781
192
4.0
223
(31
)
(0.6
)
4,635
4,165
470
11.3
409
61
1.5
430
393
37
9.4
167
(130
)
(33.1
)
Total consumer
13,987
13,694
293
2.1
870
(577
)
(4.2
)
$
26,299
$
24,468
$
1,831
7.5
%
$
1,663
$
$
168
0.7
%
$
3,580
$
3,444
$
136
3.9
%
$
173
$
$
(37
)
(1.1
)%
7,767
7,496
271
3.6
243
28
0.4
2,849
2,984
(135
)
(4.5
)
511
(646
)
(21.6
)
5,380
3,891
1,489
38.3
620
869
22.3
Total core deposits
19,576
17,815
1,761
9.9
1,547
214
1.2
Other deposits
5,132
4,627
505
10.9
180
325
7.0
$
24,708
$
22,442
$
2,266
10.1
%
$
1,727
$
$
539
2.4
%
$
262,104
$
247,513
$
14,591
5.9
%
$
17,694
$
$
(3,103
)
(1.3
)%
$
48,548
$
42,083
$
6,465
15.4
%
$
1,578
$
$
4,887
11.6
%
23,511
20,425
3,086
15.1
1,653
1,433
7.0
14,600
13,101
1,499
11.4
456
1,043
8.0
10,804
10,389
415
4.0
786
(371
)
(3.6
)
13,784
11,488
2,296
20.0
309
1,987
17.3
6,169
8,818
(2,649
)
(30.0
)
258
(2,907
)
(33.0
)
(15,804
)
(8,770
)
(7,034
)
80.2
(7,034
)
80.2
1,252
455
797
N.M.
797
N.M.
32,398
26,799
5,599
20.9
2,136
3,463
12.9
135,262
124,788
10,474
8.4
7,176
3,298
2.6
Automobile operating lease income
5,344
22,534
(17,190
)
(76.3
)
(17,190
)
(76.3
)
$
140,606
$
147,322
$
(6,716
)
(4.6
)%
$
7,176
$
$
(13,892
)
(9.4
)%
$
137,944
$
116,111
$
21,833
18.8
%
$
7,725
$
(373
)
$
14,481
12.5
%
17,279
17,940
(661
)
(3.7
)
1,290
(1,951
)
(10.9
)
20,695
19,693
1,002
5.1
501
(82
)
583
3.0
18,151
16,093
2,058
12.8
516
1,542
9.6
8,958
7,440
1,518
20.4
1,473
24
21
0.3
6,207
7,145
(938
)
(13.1
)
267
(1,205
)
(16.9
)
4,619
4,453
166
3.7
366
(200
)
(4.5
)
3,610
3,084
526
17.1
1
525
17.0
2,993
218
2,775
N.M.
2,786
(11
)
(5.0
)
43,365
20,995
22,370
N.M.
3,027
1
19,342
92.1
263,821
213,172
50,649
23.8
17,951
(429
)
33,127
15.5
Automobile operating lease expense
3,969
17,183
(13,214
)
(76.9
)
(13,214
)
(76.9
)
$
267,790
$
230,355
$
37,435
16.3
%
$
17,951
$
(429
)
$
19,913
8.6
%
(in thousands of dollars)
Regional Banking
Dealer Sales
PFCMG
Treasury/Other
Total
$
349,548
$
59,894
$
53,157
$
(1,378)
$
461,221
57,119
(6,391
)
5,555
(7,153)
49,130
19.5
%
(9.6
)%
11.7
%
N.M.
%
11.9
%
$
349,548
$
59,894
$
53,157
$
(1,378)
$
461,221
57,119
(6,391
)
5,555
(7,153)
49,130
19.5
%
(9.6
)%
11.7
%
N.M.
%
11.9
%
$
292,429
$
66,285
$
47,602
$
5,775
$
412,091
42,466
(6,881
)
2,728
(25,147)
13,166
17.0
%
(9.4
)%
6.1
%
(81.3)
%
3.3
%
$
292,429
$
66,285
$
47,602
$
5,775
$
412,091
42,466
1,717
2,728
(23,763)
23,148
17.0
%
2.7
%
6.1
%
(80.4)
%
6.0
%
$
249,963
$
73,166
$
44,874
$
30,922
$
398,925
Restructuring releases
(748)
(748
)
Gain on sale of automobile loans
(8,598
)
(636)
(9,234
)
$
249,963
$
64,568
$
44,874
$
29,538
$
388,943
(1)
See Significant Factors Influencing Financial Performance
Comparisons section.
Increased certain reported period-end balance sheet and credit
quality items (e.g. non-performing loans).
Increased reported average balance sheet, revenue, expense and
credit quality results (e.g. net charge-offs)
Change
from
(in millions of dollars)
2006
2005
2005
2004
$
3,519
11
%
$
3,179
$
2,957
2,609
3
2,524
2,373
2,161
6
2,039
1,762
1,268
N.M.
378
341
2,399
2
2,356
2,200
1,581
6
1,492
1,351
1,046
12
921
830
985
986
813
3,538
5
3,381
2,592
$
19,106
11
%
$
17,256
$
15,219
(1)
Eastern Ohio results reflect the impact of the Unizan
acquisition.
Change
from
(in millions of dollars)
2006
2005
2005
2004
$
4,744
6
%
$
4,496
$
4,186
3,594
3
3,495
3,266
2,182
19
1,829
1,551
1,554
N.M.
570
523
2,827
5
2,687
2,610
2,299
1
2,271
2,089
1,499
7
1,399
1,341
829
14
728
656
182
(8)
198
214
$
19,710
12
%
$
17,673
$
16,436
(1)
Eastern Ohio results reflect the impact of the Unizan
acquisition.
Change From 2005
Change From 2004
2006
Amount
%
2005
Amount
%
2004
Net interest income
$
883,536
$
104,123
13.4
%
$
779,413
$
101,460
15.0
%
$
677,953
Provision for credit losses
45,320
(5,926
)
(11.6
)
51,246
43,532
N.M.
7,714
838,216
110,049
15.1
728,167
57,928
8.6
670,239
181,266
15,889
9.6
165,377
(1,082
)
(0.7
)
166,459
17,084
1,154
7.2
15,930
(481
)
(2.9
)
16,411
1,197
283
31.0
914
(91
)
(9.1
)
1,005
38,982
800
2.1
38,182
1,920
5.3
36,262
50,809
6,955
15.9
43,854
2,733
6.6
41,121
62,147
15,985
34.6
46,162
(215
)
(0.5
)
46,377
Total non-interest income before securities gains
351,485
41,066
13.2
310,419
2,784
0.9
307,635
Securities gains
(18
)
(100.0
)
18
4
28.6
14
351,485
41,048
13.2
310,437
2,788
0.9
307,649
Personnel costs
272,573
29,877
12.3
242,696
(3,486
)
(1.4
)
246,182
Other expense
379,362
33,345
9.6
346,017
(1,129
)
(0.3
)
347,146
651,935
63,222
10.7
588,713
(4,615
)
(0.8
)
593,328
537,766
87,875
19.5
449,891
65,331
17.0
384,560
188,218
30,756
19.5
157,462
22,865
17.0
134,597
$
349,548
$
57,119
19.5
%
$
292,429
$
42,466
17.0
%
$
249,963
Net interest income
$
883,536
$
104,123
13.4
%
$
779,413
$
101,460
15.0
%
$
677,953
Tax equivalent
adjustment
(2)
1,021
(35
)
(3.3
)
1,056
41
4.0
1,015
884,557
104,088
13.3
780,469
101,501
14.9
678,968
351,485
41,048
13.2
310,437
2,788
0.9
307,649
$
1,236,042
$
145,136
13.3
%
$
1,090,906
$
104,289
10.6
%
$
986,617
$
1,236,042
$
145,154
13.3
%
$
1,090,888
$
104,285
10.6
%
$
986,603
SELECTED AVERAGE BALANCES
(in millions of dollars)
Commercial
$
4,107
$
531
14.8
%
$
3,576
$
303
9.3
%
$
3,273
Middle market commercial real estate
Construction
1,207
(416
)
(25.6
)
1,623
232
16.7
1,391
Commercial
2,486
853
52.2
1,633
20
1.2
1,613
Small business loans
2,414
190
8.5
2,224
221
11.0
2,003
Total commercial
10,214
1,158
12.8
9,056
776
9.4
8,280
Consumer
2
(1
)
(33.3
)
3
(1
)
(25.0
)
4
4,630
202
4.6
4,428
485
12.3
3,943
3,956
446
12.7
3,510
816
30.3
2,694
305
35
13.0
270
(37
)
(12.1
)
307
Total consumer
8,893
682
8.3
8,211
1,263
18.2
6,948
$
19,107
$
1,840
10.7
%
$
17,267
$
2,039
13.4
%
$
15,228
Non-interest bearing deposits
$
3,312
$
184
5.9
%
$
3,128
$
142
4.8
%
$
2,986
Interest bearing demand deposits
6,996
82
1.2
6,914
449
6.9
6,465
Savings deposits
2,347
(246
)
(9.5
)
2,593
(179
)
(6.5
)
2,772
Domestic time deposits
6,588
1,971
42.7
4,617
828
21.9
3,789
Foreign time deposits
472
49
11.6
423
6
1.4
417
$
19,715
$
2,040
11.5
%
$
17,675
$
1,246
7.6
%
$
16,429
(1)
Operating basis, see Lines of Business section for definition.
(2)
Calculated assuming a 35% tax rate.
Change From 2005
Change From 2004
2006
Amount
%
2005
Amount
%
2004
1.71
%
0.13
%
1.58
%
0.06
%
1.52
%
30.6
1.7
28.9
4.7
24.2
4.58
0.12
4.46
0.05
4.41
52.7
(1.3
)
54.0
(6.1
)
60.1
$
2,499
$
(7,000
)
(73.7
)%
$
9,499
$
8,523
N.M.
%
$
976
6,264
1,789
40.0
4,475
988
28.3
3,487
15,225
3,274
27.4
11,951
6,385
N.M.
5,566
23,988
(1,937
)
(7.5
)
25,925
15,896
N.M.
10,029
(78
)
(107
)
N.M.
29
(1
)
(3.3
)
30
20,215
2,980
17.3
17,235
3,416
24.7
13,819
4,473
2,312
N.M.
2,161
634
41.5
1,527
8,324
2,517
43.3
5,807
(136
)
(2.3
)
5,943
32,934
7,702
30.5
25,232
3,913
18.4
21,319
$
56,922
$
5,765
11.3
%
$
51,157
$
19,809
63.2
%
$
31,348
0.06
%
(0.21
)%
0.27
%
0.24
%
0.03
%
0.17
0.03
0.14
0.02
0.12
0.63
0.09
0.54
0.26
0.28
0.23
(0.06
)
0.29
0.17
0.12
(3.90
)
(4.87
)
0.97
0.22
0.75
0.44
0.05
0.39
0.04
0.35
0.11
0.05
0.06
0.06
2.73
0.58
2.15
0.22
1.93
0.37
0.06
0.31
0.31
0.30
%
%
0.30
%
0.09
%
0.21
%
$
33
$
10
43.5
%
$
23
$
1
4.5
%
$
22
35
19
N.M.
16
14
N.M.
2
26
(3
)
(10.3
)
29
14
93.3
15
29
11
61.1
18
6
50.0
12
15
4
36.4
11
4
57.1
7
138
41
42.3
97
39
67.2
58
50
35
N.M.
15
6
66.7
9
$
188
$
76
67.9
%
$
112
$
45
67.2
%
$
67
$
47
$
6
14.6
%
$
41
$
(41
)
(95.3
)%
$
43
221
8
3.8
213
(7
)
(3.2
)
220
1.14
%
(0.08
)%
1.22
%
(0.11
)%
1.33
%
160.1
(59.5
)
219.6
(159.7
)
379.3
144.1
(59.5
)
203.6
(138.2
)
341.8
0.71
0.16
0.55
0.20
0.35
0.97
0.33
0.64
0.24
0.40
(1)
Operating basis, see Lines of Business section for definition.
Change From 2005
Change From 2004
2006
Amount
%
2005
Amount
%
2004
4,888
359
7.9
%
4,529
(137
)
(2.9
)%
4,666
$
5,847
$
717
14.0
%
$
5,130
$
625
13.9
%
$
4,505
12,833
1,253
10.8
11,580
549
5.0
11,031
3,573
328
10.1
3,245
(159
)
(4.7
)
3,404
371
37
11.1
334
334
988
44
4.7
944
240
34.1
704
559,574
44,884
8.7
514,690
11,759
2.3
502,931
2.84
0.04
1.4
2.80
0.43
18.1
2.37
289,868
44,725
18.2
245,143
33,751
16.0
211,392
49
%
4
%
45
%
5
%
40
%
$
2,414
$
190
8.5
%
$
2,224
$
88
4.1
%
$
2,136
2,426
325
15.5
2,101
123
6.2
1,978
317
47
17.6
269
5
2.0
264
60,470
6,472
12.0
53,998
3,141
6.2
50,857
2.27
(0.07
)
(3.0
)
2.34
0.13
6.0
2.21
$
7,807
$
849
12.2
%
$
6,958
$
611
9.6
%
$
6,347
4,286
479
12.6
3,807
564
17.4
3,243
467
35
8.2
432
(31
)
(6.6
)
463
5,694
1,058
22.8
4,636
(877
)
(15.9
)
5,513
$
3,039
$
84
2.8
%
$
2,955
$
715
31.9
%
$
2,240
170
(17
)
(9.1
)
187
10
5.6
177
530
(53
)
(9.0
)
583
47
8.8
536
$
2,822
$
(462
)
(14.1
)
$
3,284
$
(909
)
(21.7
)
$
4,193
1,040
(242
)
(18.9
)
1,282
(1,276
)
(49.9
)
2,559
1,558
(131
)
(7.7
)
1,689
45
2.7
1,644
12,953
1,371
11.8
11,582
827
7.7
10,755
8,252
976
13.4
7,276
415
6.0
6,861
131.1
39.8
43.7
91.3
14.2
18.4
77.1
(1)
Operating basis, see Lines of Business section for definition.
(2)
Periods prior to 2Q06 exclude Unizan.
(3)
Unizan mortgage loans in Retail Banking.
Change From 2005
Change From 2004
2006
Amount
%
2005
Amount
%
2004
Net interest income
$
134,931
$
(10,595
)
(7.3
)%
$
145,526
$
(4,217
)
(2.8
)%
$
149,743
14,206
(11,716
)
(45.2
)
25,922
(18,775
)
(42.0
)
44,697
120,725
1,121
0.9
119,604
14,558
13.9
105,046
43,115
(89,900
)
(67.6
)
133,015
(152,416
)
(53.4
)
285,431
657
37
6.0
620
(168
)
(21.3
)
788
3,624
(412
)
(10.2
)
4,036
1,386
52.3
2,650
3
3
3
N.M.
98
31
46.3
67
6
9.8
61
6
2
50.0
4
3
N.M.
1
36,364
4,233
13.2
32,131
1,308
4.2
30,823
Total non-interest income before securities gains
83,867
(86,009
)
(50.6
)
169,876
(149,878
)
(46.9
)
319,754
Securities gains
N.M.
(469
)
(100.0
)
469
83,867
(86,009
)
(50.6
)
169,876
(150,347
)
(47.0
)
320,223
31,286
(72,564
)
(69.9
)
103,850
(131,230
)
(55.8
)
235,080
21,808
645
3.0
21,163
(1,857
)
(8.1
)
23,020
59,354
(3,137
)
(5.0
)
62,491
(5,344
)
(7.9
)
67,835
112,448
(75,056
)
(40.0
)
187,504
(138,431
)
(42.5
)
325,935
92,144
(9,832
)
(9.6
)
101,976
2,642
2.7
99,334
32,250
(3,441
)
(9.6
)
35,691
925
2.7
34,766
$
59,894
$
(6,391
)
(9.6
)%
$
66,285
$
1,717
2.7
%
$
64,568
$
134,931
$
(10,595
)
(7.3
)%
$
145,526
$
(4,217
)
(2.8
)%
$
149,743
N.M.
N.M.
134,931
(10,595
)
(7.3
)
145,526
(4,217
)
(2.8
)
149,743
83,867
(86,009
)
(50.6
)
169,876
(150,347
)
(47.0
)
320,223
$
218,798
$
(96,604
)
(30.6
)%
$
315,402
$
(154,564
)
(32.9
)%
$
469,966
$
218,798
$
(96,604
)
(30.6
)%
$
315,402
$
(154,095
)
(32.8
)%
$
469,497
SELECTED AVERAGE BALANCES
(in millions of dollars)
$
821
$
85
11.5
%
$
736
$
(22
)
(2.9
)%
$
758
(5
)
(100.0
)
5
5
17
(34
)
(66.7
)
51
(25
)
(32.9
)
76
838
46
5.8
792
(47
)
(5.6
)
839
2,031
(391
)
(16.1
)
2,422
230
10.5
2,192
2,055
15
0.7
2,040
(241
)
(10.6
)
2,281
N.M.
N.M.
126
21
20.0
105
28
36.4
77
4,212
(355
)
(7.8
)
4,567
17
0.4
4,550
$
5,050
$
(309
)
(5.8
)%
$
5,359
$
(30
)
(0.6
)%
$
5,389
$
93
$
(258
)
(73.5
)%
$
351
$
(540
)
(60.6
)%
$
891
$
51
$
(12
)
(19.0
)%
$
63
$
(3
)
(4.5
)%
$
66
2
2
2
4
4
4
$
57
$
(12
)
(17.4
)%
$
69
$
(3
)
(4.2
)%
$
72
(1)
Operating basis, see Lines of Business section for definition.
(2)
Calculated assuming a 35% tax rate.
Change From 2005
Change From 2004
2006
Amount
%
2005
Amount
%
2004
1.13
%
0.01
%
1.12
%
0.13
%
0.99
%
22.9
4.2
18.7
2.9
15.8
2.63
(0.05
)
2.68
(0.07
)
2.75
51.4
(8.0
)
59.4
(10.0
)
69.4
$
(174
)
$
(1,606
)
N.M.
%
$
1,432
$
1,461
N.M.
%
$
(29
)
(174
)
(1,606
)
N.M.
1,432
1,461
N.M.
(29
)
Consumer
10,445
(1,219
)
(10.5
)
11,664
827
7.6
10,837
8,408
(3,551
)
(29.7
)
11,959
(16,585
)
(58.1
)
28,544
(18
)
(100.0
)
18
18
N.M.
1,156
285
32.7
871
190
27.9
681
20,009
(4,503
)
(18.4
)
24,512
(15,550
)
(38.8
)
40,062
$
19,835
$
(6,109
)
(23.5
)%
$
25,944
$
(14,089
)
(35.2
)%
$
40,033
(0.02
)%
(0.21
)%
0.19
%
0.19
%
%
(0.02
)
(0.20
)
0.18
0.18
Consumer
0.51
0.03
0.48
(0.01
)
0.49
0.41
(0.18
)
0.59
(0.66
)
1.25
N.M.
N.M.
N.M.
N.M.
N.M.
0.92
0.09
0.83
(0.05
)
0.88
0.48
(0.06
)
0.54
(0.34
)
0.88
0.39
%
(0.09
)%
0.48
%
(0.26
)%
0.74
$
$
N.M.
%
$
$
N.M.
%
$
Middle market commercial real estate
N.M.
N.M.
N.M.
N.M.
N.M.
N.M.
$
$
N.M.
%
$
$
N.M.
%
$
$
6
$
(4
)
(40
)%
$
10
$
3
43
%
$
7
35
(4
)
(10.3
)
39
2
5.4
37
0.71
%
(0.03
)%
0.74
%
0.05
%
0.69
%
N.M.
N.M.
N.M.
N.M.
N.M.
N.M.
N.M.
N.M.
N.M.
N.M.
(1)
Operating basis, see Lines of Business section for definition.
Change From 2005
Change From 2004
2006
Amount
%
2005
Amount
%
2004
350
(19
)
(5.1
)%
369
(38
)
(9
)%
407
$
1,716.6
$
213.8
14.2
%
$
1,502.8
$
(84.2
)
(5.3
)%
$
1,586.9
48.6
%
(7.5
)%
56.2
%
6.7
%
49.5
%
68.4
3.2
65.2
0.2
65.0
$
343.5
$
(222.6
)
(39.3
)%
$
566.1
$
(494.1
)
(46.6
)%
$
1,060.2
96.9
%
(1.8
)%
98.7
%
(0.5
)%
99.2
%
52.9
(0.5
)
53.4
(0.6
)
54.0
41.5
(0.2
)
41.7
(0.7
)
42.4
(1)
Operating basis, see Lines of Business section for definition.
Change From 2005
Change From 2004
2006
Amount
%
2005
Amount
%
2004
$
73,342
$
(68
)
(0.1
)%
$
73,410
$
11,319
18.2
%
$
62,091
5,665
1,534
37.1
4,131
1,480
55.8
2,651
67,677
(1,602
)
(2.3
)
69,279
9,839
16.6
59,440
3,726
44
1.2
3,682
(301
)
(7.6
)
3,983
38,101
4,451
13.2
33,650
(3,442
)
(9.3
)
37,092
88,755
12,267
16.0
76,488
10,083
15.2
66,405
(1,170
)
(261
)
28.7
(909
)
(268
)
41.8
(641
)
539
49
10.0
490
38
8.4
452
26,582
4,903
22.6
21,679
(4,779
)
(18.1
)
26,458
156,533
21,453
15.9
135,080
1,331
1.0
133,749
(33
)
(103
)
N.M.
70
(218
)
(75.7
)
288
156,500
21,350
15.8
135,150
1,113
0.8
134,037
87,471
11,888
15.7
75,583
1,749
2.4
73,834
54,925
(687
)
(1.2
)
55,612
5,005
9.9
50,607
142,396
11,201
8.5
131,195
6,754
5.4
124,441
81,781
8,547
11.7
73,234
4,198
6.1
69,036
28,624
2,992
11.7
25,632
1,470
6.1
24,162
$
53,157
$
5,555
11.7
%
$
47,602
$
2,728
6.1
%
$
44,874
$
73,342
$
(68
)
(0.1
)%
$
73,410
$
11,319
18.2
%
$
62,091
418
52
14.2
366
277
N.M.
89
73,760
(16
)
(0.0
)
73,776
11,596
18.6
62,180
156,500
21,350
15.8
135,150
1,113
0.8
134,037
$
230,260
$
21,334
10.2
%
$
208,926
$
12,709
6.5
%
$
196,217
$
230,293
$
21,437
10.3
%
$
208,856
$
12,927
6.6
%
$
195,929
$
573
$
68
13.5
%
$
505
$
80
18.8
%
$
425
16
(34
)
(68.0
)
50
26
N.M.
24
224
224
(9
)
(3.9
)
233
813
34
4.4
779
97
14.2
682
340
16
4.9
324
23
7.6
301
625
54
9.5
571
53
10.2
518
8
(2
)
(20.0
)
10
1
11.1
9
973
68
7.5
905
77
9.3
828
$
1,786
$
102
6.1
%
$
1,684
$
174
11.5
%
$
1,510
$
167
$
(21
)
(11.2
)%
$
188
$
10
5.6
%
$
178
744
2
0.3
742
2
0.3
740
36
(6
)
(14.3
)
42
(5
)
(10.6
)
47
184
37
25.2
147
42
40.0
105
21
2
10.5
19
(4
)
(17.4
)
23
$
1,152
$
14
1.2
%
$
1,138
$
45
4.1
%
$
1,093
(1)
Operating basis, see Lines of Business section for definition.
(2)
Calculated assuming a 35% tax rate.
Change From 2005
Change From 2004
2006
Amount
%
2005
Amount
%
2004
2.50
%
0.09
%
2.41
%
(0.12
)%
2.53
%
35.4
(1.2
)
36.6
2.7
33.9
3.93
(0.22
)
4.15
0.32
3.83
61.8
(1.0
)
62.8
(0.7
)
63.5
$
3,993
$
1,346
50.9
%
$
2,647
$
1,674
N.M.
%
$
973
(156
)
274
(63.7
)
(430
)
(4,914
)
N.M.
4,484
3,837
1,620
73.1
2,217
(3,240
)
(59.4
)
5,457
Home equity loans & lines of credit
1,639
1,273
N.M.
366
(889
)
(70.8
)
1,255
Residential mortgage
32
(139
)
(81.3
)
171
(62
)
(26.6
)
233
Other loans
111
(91
)
(45.0
)
202
(7
)
(3.3
)
209
1,782
1,043
N.M.
739
(958
)
(56.5
)
1,697
$
5,619
$
2,663
90.1
%
$
2,956
$
(4,198
)
(58.7
)%
$
7,154
Middle market commercial and industrial
0.70
%
0.18
%
0.52
%
0.29
%
0.23
%
Middle market commercial real estate
(0.07
)
0.09
(0.16
)
(1.90
)
1.74
0.47
0.19
0.28
(0.52
)
0.80
Home equity loans & lines of credit
0.48
0.37
0.11
(0.31
)
0.42
Residential mortgage
0.01
(0.02
)
0.03
(0.01
)
0.04
Other loans
1.39
(0.63
)
2.02
(0.30
)
2.32
0.18
0.10
0.08
(0.12
)
0.20
0.31
%
0.13
%
0.18
%
(0.29
)%
0.47
%
Non-performing loans and leases (in millions of dollars)
$
3
$
(2
)
(40.0
)%
$
5
$
3
N.M.
%
$
2
N.M.
(2
)
(100.0
)
2
3
3
N.M.
(2
)
(100
)
2
6
1
20.0
5
(1
)
(16.7
)
6
N.M.
(36
)
(100
)
36
$
6
$
1
20.0
%
$
5
$
(37
)
(88.1
)%
$
42
$
6
$
1
27.7
%
$
5
$
1
17.5
%
$
4
16
16
2
14.3
14
0.87
%
(0.06
)%
0.93
%
0.08
%
0.85
%
266.7
(53.3
)
320.0
86.7
233.3
266.7
(53.3
)
320.0
201.0
119.0
0.33
0.04
0.29
(0.08
)
0.37
0.33
0.04
0.29
(2.22
)
2.51
(1)
Operating basis, see Lines of Business section for definition.
Change From 2005
Change From 2004
2006
Amount
%
2005
Amount
%
2004
836
114
15.8
%
722
(8
)
(1.1
)%
730
684
23
3.5
661
(8
)
(1.2
)
669
$
5,470
$
(26
)
(0.5
)%
$
5,496
$
274
5.2
%
$
5,222
27,759
3,418
14.0
24,341
(2,331
)
(8.7
)
26,672
2,690
65
2.5
2,625
330
14.4
2,295
5,455
955
21.2
4,500
(1,001
)
(18.2
)
5,501
41,374
4,412
11.9
36,962
(2,728
)
(6.9
)
39,690
N.M.
N.M.
13,611
1,552
12.9
12,059
226
1.9
11,833
$
54,985
$
5,964
12.2
$
49,021
$
(2,502
)
(4.9
)
$
51,523
17,108
1,165
7.3
15,943
808
5.3
15,135
$
37,877
$
4,799
14.5
%
$
33,078
$
(3,310
)
(9.1
)%
$
36,388
$
202,127
$
18,399
10.0
%
$
183,728
$
14,128
8.3
%
$
169,600
534,639
50,776
10.5
483,863
(53,809
)
(10.0
)
537,672
$
43,020
$
6,468
17.7
%
$
36,552
$
2,965
8.8
%
$
33,587
30,178
3,670
13.8
26,508
5,030
23.4
21,478
12,014
1,771
17.3
10,243
1,551
17.8
8,692
4,542
508
12.6
4,034
466
13.1
3,568
$
89,754
$
12,417
16.1
$
77,337
$
10,012
14.9
$
67,325
999
150
17.7
849
(71
)
(7.7
)
920
$
88,755
$
12,267
16.0
%
$
76,488
$
10,083
15.2
%
$
66,405
$
6.6
$
1.1
19.6
%
$
5.5
$
0.2
3.8
%
$
5.3
3.9
0.4
10.5
3.5
0.4
12.9
3.1
0.9
(0.2
)
(18.4
)
1.1
0.3
39.5
0.8
0.0
0.0
7.9
0.0
0.0
N.M.
0.8
0.2
24.9
0.6
0.0
7.0
1
$
12.2
$
1.4
13.0
%
$
10.8
$
1.0
10.2
%
$
9.8
$
10.8
$
1.5
16.2
%
$
9.3
$
0.4
4.5
%
$
8.9
3.9
0.4
10.5
3.5
0.4
12.9
3.1
31.0
2.9
10.3
28.1
1.0
3.7
27.1
6.0
1.3
27.3
4.7
1.0
27.0
3.7
$
51.6
$
6.0
13.3
%
$
45.6
$
2.8
6.5
%
$
42.8
29
29
29
4.8
%
(0.1
)%
4.9
%
(0.4
)%
5.3
%
$
3,495
$
335
10.6
%
$
3,160
$
(55
)
(1.7
)%
$
3,215
1,138
(23
)
(2.0
)
1,161
158
15.8
1,003
57,595
1,771
3.2
55,824
(12,425
)
(18.2
)
68,249
2,750
172
6.7
2,578
(1,061
)
(29.2
)
3,639
(1)
Operating basis, see Lines of Business section for definition.
(2)
Includes Capital Markets employees.
(3)
Periods prior to 2Q06 exclude Unizan.
(4)
Includes variable annuity funds.
(5)
Sales (dollars invested) of mutual funds and annuities divided
by banks retail deposits.
(6)
Investment program revenue per million of the banks retail
deposits.
(7)
Contribution of investment program to pretax profit per million
of the banks retail deposits. Contribution is difference
between program revenue and program expenses.
(1)
Operating basis, see Lines of Business section for definition.
(2)
Reconciling difference between companys actual effective
tax rate and 35% tax rate allocated to each business segment.
Change From 2005
Change From 2004
2006
Amount
%
2005
Amount
%
2004
$
1,019,177
$
56,766
5.9
%
$
962,411
$
51,037
5.6
%
$
911,374
65,191
(16,108
)
(19.8
)
81,299
26,237
47.6
55,062
953,986
72,874
8.3
881,112
24,800
2.9
856,312
43,115
(89,900
)
(67.6
)
133,015
(152,416
)
(53.4
)
285,431
185,713
17,879
10.7
167,834
(3,281
)
(1.9
)
171,115
58,835
5,216
9.7
53,619
(1,180
)
(2.2
)
54,799
89,955
12,550
16.2
77,405
9,995
14.8
67,410
41,491
13,158
46.4
28,333
1,547
5.8
26,786
43,775
3,039
7.5
40,736
(1,561
)
(3.7
)
42,297
51,354
7,006
15.8
44,348
2,774
6.7
41,574
120,022
24,975
26.3
95,047
(4,170
)
(4.2
)
99,217
634,260
(6,077
)
(0.9
)
640,337
(148,292
)
(18.8
)
788,629
(73,191
)
(65,136
)
N.M.
(8,055
)
(23,818
)
N.M.
15,763
561,069
(71,213
)
(11.3
)
632,282
(172,110
)
(21.4
)
804,392
31,286
(72,564
)
(69.9
)
103,850
(131,230
)
(55.8
)
235,080
541,228
59,570
12.4
481,658
(4,148
)
(0.9
)
485,806
428,480
44,168
11.5
384,312
(18,197
)
(4.5
)
402,509
1,000,994
31,174
3.2
969,820
(153,575
)
(13.7
)
1,123,395
514,061
(29,513
)
(5.4
)
543,574
6,265
1.2
537,309
52,840
(78,643
)
(59.8
)
131,483
(16,883
)
(11.4
)
148,366
$
461,221
$
49,130
11.9
%
$
412,091
$
23,148
6.0
%
$
388,943
$
1,019,177
$
56,766
5.9
%
$
962,411
$
51,037
5.6
%
$
911,374
16,025
2,632
19.7
13,393
1,740
14.9
11,653
1,035,202
59,398
6.1
975,804
52,777
5.7
923,027
561,069
(71,213
)
(11.3
)
632,282
(172,110
)
(21.4
)
804,392
$
1,596,271
$
(11,815
)
(0.7
)%
$
1,608,086
$
(119,333
)
(6.9
)%
$
1,727,419
$
1,669,462
$
53,321
3.3
%
$
1,616,141
$
(95,515
)
(5.6
)%
$
1,711,656
SELECTED AVERAGE BALANCES
(in millions of dollars)
$
5,501
$
684
14.2
%
$
4,817
$
361
8.1
%
$
4,456
1,223
(455
)
(27.1
)
1,678
258
18.2
1,420
2,727
819
42.9
1,908
(14
)
(0.7
)
1,922
2,414
190
8.5
2,224
221
11.0
2,003
11,865
1,238
11.6
10,627
826
8.4
9,801
2,031
(391
)
(16.1
)
2,422
230
10.5
2,192
2,057
14
0.7
2,043
(242
)
(10.6
)
2,285
4,970
218
4.6
4,752
508
12.0
4,244
4,581
500
12.3
4,081
869
27.1
3,212
439
54
14.0
385
(8
)
(2.0
)
393
14,078
395
2.9
13,683
1,357
11.0
12,326
$
25,943
$
1,633
6.7
%
$
24,310
$
2,183
9.9
%
$
22,127
$
93
$
(258
)
(73.5
)%
$
351
$
(540
)
(60.6
)%
$
891
$
3,530
$
151
4.5
%
$
3,379
$
149
4.6
%
$
3,230
7,742
84
1.1
7,658
451
6.3
7,207
2,383
(252
)
(9.6
)
2,635
(184
)
(6.5
)
2,819
6,772
2,008
42.1
4,764
870
22.3
3,894
3,242
123
3.9
3,119
1,282
69.8
1,837
515
58
12.7
457
(51
)
(10.0
)
508
$
24,184
$
2,172
9.9
%
$
22,012
$
2,517
12.9
%
$
19,495
(1)
Operating basis, see Lines of Business section for definition.
(2)
Calculated assuming a 35% tax rate.
Change From 2005
Change From 2004
2006
Amount
%
2005
Amount
%
2004
1.31
%
0.05
%
1.26
%
0.02
%
1.24
%
15.7
(0.3
)
16.0
(0.4
)
16.4
3.29
(0.04
)
3.33
0.00
3.33
59.4
(0.6
)
60.0
(5.6
)
65.6
$
6,318
$
(7,260
)
(53.5
)%
$
13,578
$
11,658
N.M.
%
$
1,920
6,108
2,063
51.0
4,045
(3,926
)
(49.3
)
7,971
15,225
3,274
27.4
11,951
6,385
N.M.
5,566
27,651
(1,923
)
(6.5
)
29,574
14,117
91.3
15,457
10,445
(1,219
)
(10.5
)
11,664
827
7.6
10,837
8,330
(3,658
)
(30.5
)
11,988
(16,586
)
(58.0
)
28,574
21,854
4,235
24.0
17,619
2,545
16.9
15,074
4,505
2,173
93.2
2,332
572
32.5
1,760
9,591
2,711
39.4
6,880
47
0.7
6,833
54,725
4,242
8.4
50,483
(12,595
)
(20.0
)
63,078
$
82,376
$
2,319
2.9
%
$
80,057
$
1,522
1.9
%
$
78,535
0.11
%
(0.17
)%
0.28
%
0.24
%
0.04
%
0.15
0.04
0.11
(0.13
)
0.24
0.63
0.09
0.54
0.26
0.28
0.23
(0.05
)
0.28
0.12
0.16
0.51
0.03
0.48
(0.01
)
0.49
0.40
(0.19
)
0.59
(0.66
)
1.25
0.44
0.07
0.37
0.01
0.36
0.10
0.04
0.06
0.01
0.05
2.18
0.39
1.79
0.05
1.74
0.39
0.02
0.37
(0.14
)
0.51
0.32
%
(0.01
)%
0.33
%
(0.02
)%
0.35
%
Non-performing loans and leases
(in millions of dollars)
$
36
$
8
28.6
%
$
28
$
4
16.7
%
$
24
35
19
N.M.
16
12
N.M.
4
26
(3
)
(10.3
)
29
14
93.3
15
32
14
77.8
18
4
28.6
14
15
4
36.4
11
4
57.1
7
144
42
41.2
102
38
59.4
64
50
35
N.M.
15
(30
)
(66.7
)
45
$
194
$
77
65.8
%
$
117
$
8
7.3
%
$
109
$
59
$
3
5.4
%
$
56
$
2
3.7
%
$
54
272
4
1.5
268
(3
)
(1.1
)
271
1.04
%
(0.06
)%
1.10
%
(0.05
)%
1.15
%
189.0
(74.0
)
263.0
(161.0
)
424.0
166.0
(75.9
)
241.9
(48.0
)
289.9
0.55
0.13
0.42
0.15
0.27
0.74
0.26
0.48
0.02
0.46
8,081
479
6.3
%
7,602
(210
)
(2.7
)%
7,812
(1)
Operating basis, see Lines of Business section for definition.
$20.2 million pre-tax ($13.1 million after tax or
$0.05 per common share) negative impact related to costs
associated with the completion of the balance sheet
restructuring announced in the 2006 third quarter. This
consisted of $9.0 million pre-tax of investment securities
losses as well as $6.8 million of additional impairment on
certain asset-backed securities not included in the third
quarter restructuring, and $4.4 million pre-tax of other
balance sheet restructuring expenses, most notably FHLB funding
refinancing costs.
$10.0 million pre-tax ($6.5 million after tax or
$0.03 per common share) contribution to the Huntington
Foundation.
$5.2 million pre-tax ($3.6 million after tax or
$0.02 per common share) increase in automobile lease
residual value losses. This increase reflected higher relative
losses on vehicles sold at auction, most notably high-line
imports and larger sport utility vehicles.
$4.5 million pre-tax ($2.9 million after tax or
$0.01 per common share) in severance and consolidation
expenses. This reflected severance-related expenses associated
with a reduction of 75 Regional Banking staff positions, as well
as costs associated with the previously announced retirements of
a vice chairman and an executive vice president.
$3.3 million pre-tax ($2.1 million after tax or
$0.01 per common share) in equity investment gains.
$2.5 million pre-tax ($1.6 million after tax or
$0.01 per common share) negative impact reflecting a
mortgage servicing rights (MSR)
mark-to
-market net of
hedge-related trading activity.
$2.6 million pre-tax ($1.7 million after tax or
$0.01 per common share) gain related to the sale of
MasterCard
®
stock.
Three Months Ended
Impact
(2)
(in millions, except per share)
Pre-tax
EPS
$
87.7
(3)
$
0.37
3.3
0.01
2.6
0.01
(20.2
)
(0.05
)
(10.0
)
(0.03
)
(5.2
)
(0.01
)
(4.5
)
(0.01
)
(2.5
)
(0.01
)
$
100.6
(3)
$
0.44
7.0
(3)
0.03
(8.8
)
(0.02
)
(1.6
)
(0.01
)
(1)
Includes significant items with $0.01 EPS impact or greater
(2)
Favorable (unfavorable) impact on GAAP earnings; pre-tax
unless otherwise noted
(3)
After-tax
$6.5 million, or 15% ($1.6 million merger-related),
increase in service charges on deposit accounts, reflecting a
$4.0 million, or 14%, increase in personal service charges,
primarily NSF/OD, and a $2.4 million, or 17%, increase in
commercial service charge income.
$5.6 million increase in other income ($2.1 million
merger-related), reflecting $2.8 million in higher equity
investment gains, and the $2.6 million gain on sale of
MasterCard
®
stock.
$3.1 million, or 15% ($1.7 million merger-related),
increase in trust services income, reflecting (1) a
$1.6 million increase in higher personal trust income,
mostly merger-related, and (2) a $1.0 million increase
in fees from Huntington Funds, reflecting 12% fund asset growth.
$2.3 million, or 20% ($0.3 million merger-related),
increase in other service charges and fees, primarily reflecting
a $1.5 million, or 18%, increase in fees generated by
higher debit card volume.
$1.5 million, or 11% ($0.5 million merger-related),
increase in brokerage and insurance income, reflecting the
continued focus on both brokerage and insurance sales in our
retail banking offices.
$2.6 million, or 30%, decline in mortgage banking income,
reflecting a $2.5 million negative impact of MSR valuation
adjustments net of hedge-related losses in the current quarter
compared with a negative $1.7 million in the year-ago
quarter. The current quarter also included $1.1 million of
lower secondary marketing income, as well as a $0.9 million
loss on the sale of certain mortgage loans.
$15.8 million of investment securities losses in the
current quarter reflecting the completion of the investment
portfolio restructuring, compared with $8.8 million of
securities losses related to the balance sheet restructuring in
the year-ago quarter.
$22.4 million increase in other expense, including
$3.0 million of merger-related expense, reflecting a
$10.0 million contribution to the Huntington Foundation,
the effect of which will be to reduce contributions in future
periods, $5.2 million of higher residual value losses on
automobile leases, and $3.5 million related to the
restructuring of FHLB advances.
$21.8 million, or 19%, increase in personnel expense, with
Unizan contributing $7.7 million of the increase. The
remaining $14.1 million increase included $4.5 million
of severance and consolidation costs associated with a reduction
of 75 staff positions in Regional Banking and costs associated
with the previously announced retirements of a vice chairman and
an executive vice president. The staff reductions in Regional
Banking are expected to reduce annualized personnel costs by
approximately $5 million. The increase from the prior
quarter also reflected $5.1 million of share-based
compensation expense, reflecting the stock option expensing
begun in 2006.
$2.8 million increase in the amortization of intangibles,
substantially all merger-related.
$2.1 million, or 13%, increase in equipment expense
($0.5 million merger-related), reflecting higher
depreciation associated with recent technology investments.
$1.5 million, or 20%, increase in professional services
expenses, all merger-related.
$1.0 million, or 5%, increase in outside data processing
and other services ($0.5 million merger-related).
4Q06
4Q05
Change from 4Q05
0.86
%
0.89
%
(0.03
)%
0.18
0.21
(0.03
)
1.04
%
1.10
%
(0.06
)%
2006
2005
(in thousands of dollars, except per share amounts)
Fourth
Third
Second
First
Fourth
Third
Second
First
$
544,841
$
538,988
$
521,903
$
464,787
$
442,476
$
420,858
$
402,326
$
376,105
286,852
283,675
259,708
221,107
198,800
179,221
160,426
140,907
257,989
255,313
262,195
243,680
243,676
241,637
241,900
235,198
15,744
14,162
15,745
19,540
30,831
17,699
12,895
19,874
242,245
241,151
246,450
224,140
212,845
223,938
229,005
215,324
48,548
48,718
47,225
41,222
42,083
44,817
41,516
39,418
23,511
22,490
22,676
21,278
20,425
19,671
19,113
18,196
14,600
14,697
14,345
15,193
13,101
13,948
13,544
13,026
13,784
12,989
13,072
11,509
11,488
11,449
11,252
10,159
6,169
8,512
13,616
13,194
8,818
8,285
3,351
7,879
10,804
12,125
10,604
10,242
10,389
10,104
10,139
10,104
1,252
863
532
448
455
502
254
(15,804
)
(57,332
)
(35
)
(20
)
(8,770
)
101
614
32,398
26,268
28,841
29,420
26,799
24,041
19,496
23,500
135,262
89,330
150,876
142,486
124,788
132,918
119,279
122,282
5,344
8,580
12,143
17,048
22,534
27,822
36,891
45,768
140,606
97,910
163,019
159,534
147,322
160,740
156,170
168,050
137,944
133,823
137,904
131,557
116,111
117,476
124,090
123,981
20,695
18,664
19,569
19,851
19,693
18,062
18,113
18,770
17,279
18,109
17,927
17,966
17,940
16,653
17,257
19,242
18,151
17,249
18,009
16,503
16,093
15,531
15,637
15,863
8,958
6,438
6,292
5,365
7,440
8,323
9,347
9,459
6,207
7,846
10,374
7,301
7,145
6,364
6,934
5,836
4,619
4,818
4,990
4,825
4,453
4,512
4,801
4,882
3,610
3,416
3,764
3,074
3,084
3,102
3,293
3,094
2,993
2,902
2,992
1,075
218
203
204
204
43,365
23,177
21,880
18,227
20,995
21,189
20,579
19,797
263,821
236,442
243,701
225,744
213,172
211,415
220,255
221,128
3,969
5,988
8,658
12,671
17,183
21,637
27,881
37,149
267,790
242,430
252,359
238,415
230,355
233,052
248,136
258,277
115,061
96,631
157,110
145,259
129,812
151,626
137,039
125,097
27,346
(60,815
)
45,506
40,803
29,239
43,052
30,614
28,578
$
87,715
$
157,446
$
111,604
$
104,456
$
100,573
$
108,574
$
106,425
$
96,519
239,881
240,896
244,538
234,363
229,718
233,456
235,671
235,053
$
0.37
$
0.65
$
0.46
$
0.45
$
0.44
$
0.47
$
0.45
$
0.41
0.250
0.250
0.250
0.250
0.215
0.215
0.215
0.200
$
257,989
$
255,313
$
262,195
$
243,680
$
243,676
$
241,637
$
241,900
$
235,198
4,115
4,090
3,984
3,836
3,837
3,734
2,961
2,861
262,104
259,403
266,179
247,516
247,513
245,371
244,861
238,059
140,606
97,910
163,019
159,534
147,322
160,740
156,170
168,050
$
402,710
$
357,313
$
429,198
$
407,050
$
394,835
$
406,111
$
401,031
$
406,109
(1)
On a fully taxable equivalent (FTE) basis assuming a 35%
tax rate.
Quarterly common stock summary
2006
2005
(in thousands, except per share)
Fourth
Third
Second
First
Fourth
Third
Second
First
$
24.970
$
24.820
$
24.410
$
24.750
$
24.640
$
25.410
$
24.750
$
24.780
22.870
23.000
23.120
22.560
20.970
22.310
22.570
22.150
23.750
23.930
23.580
24.130
23.750
22.470
24.140
23.900
24.315
23.942
23.732
23.649
23.369
24.227
23.771
23.216
common stock
$
0.250
$
0.250
$
0.250
$
0.250
$
0.215
$
0.215
$
0.215
$
0.200
236,426
237,672
241,729
230,968
226,699
229,830
232,217
231,824
239,881
240,896
244,538
234,363
229,718
233,456
235,671
235,053
235,474
237,921
237,361
245,183
224,106
229,006
230,842
232,192
$
12.80
$
13.15
$
12.38
$
12.56
$
11.41
$
11.45
$
11.40
$
11.15
3,050
8,100
4,831
5,175
2,598
1,818
Margin analysis-as a % of average earning
assets
(2)
6.86
%
6.73
%
6.55
%
6.21
%
6.01
%
5.72
%
5.52
%
5.21
%
3.58
3.51
3.21
2.89
2.67
2.41
2.16
1.90
3.28
%
3.22
%
3.34
%
3.32
%
3.34
%
3.31
%
3.36
%
3.31
%
0.98
%
1.75
%
1.25
%
1.26
%
1.22
%
1.32
%
1.31
%
1.20
%
11.3
21.0
14.9
15.5
15.5
16.5
16.3
15.5
Capital adequacy
2006
2005
(in millions of dollars)
December 31,
September 30,
June 30,
March 31,
December 31,
September 30,
June 30,
March 31,
$
31,155
$
31,330
$
31,614
$
31,298
$
29,599
$
29,352
$
29,973
$
30,267
8.00
%
7.99
%
7.62
%
8.53
%
8.34
%
8.50
%
8.50
%
8.45
%
8.93
8.95
8.45
8.94
9.13
9.42
9.18
9.04
12.79
12.81
12.29
12.91
12.42
12.70
12.39
12.33
6.87
7.13
6.46
6.97
7.19
7.39
7.36
7.42
7.65
7.97
7.29
7.80
7.91
8.19
8.05
7.84
8.70
8.30
8.39
8.15
7.89
7.97
8.03
7.76
(1)
High and low stock prices are intra-day quotes obtained from
NASDAQ.
(2)
Presented on a fully taxable equivalent basis assuming a 35% tax
rate.
December 31,
(in thousands, except number of shares)
2006
2005
$
1,080,163
$
966,445
440,584
74,331
74,168
22,391
36,056
8,619
270,422
294,344
4,362,924
4,526,520
7,849,912
6,809,208
4,504,540
4,036,171
2,125,821
1,985,304
1,769,424
2,289,015
4,926,900
4,762,743
4,548,918
4,193,139
427,910
396,586
26,153,425
24,472,166
(272,068
)
(268,347
)
25,881,357
24,203,819
1,089,028
1,001,542
372,772
360,677
28,331
189,003
570,876
212,530
59,487
4,956
1,062,851
899,628
$
35,329,019
$
32,764,805
$
3,615,745
$
3,390,044
20,640,368
18,548,943
791,657
470,688
25,047,770
22,409,675
1,676,189
1,889,260
996,821
1,155,647
2,229,140
2,418,419
1,286,657
1,023,371
443,921
743,655
40,161
36,957
594,034
530,320
32,314,693
30,207,304
issued 257,866,255 shares; outstanding 235,474,366 and
224,106,172 shares, respectively
2,560,569
2,491,326
(506,946
)
(693,576
)
(55,066
)
(22,093
)
1,015,769
781,844
3,014,326
2,557,501
$
35,329,019
$
32,764,805
Year Ended December 31,
(in thousands, except per share amounts)
2006
2005
2004
$
1,775,445
$
1,428,371
$
1,132,599
2,154
1,466
1,474
231,294
157,716
171,852
23,901
19,865
17,884
37,725
34,347
23,506
2,070,519
1,641,765
1,347,315
717,167
446,919
257,099
72,222
34,334
13,053
60,016
34,647
33,253
201,937
163,454
132,536
1,051,342
679,354
435,941
1,019,177
962,411
911,374
65,191
81,299
55,062
953,986
881,112
856,312
185,713
167,834
171,115
89,955
77,405
67,410
58,835
53,619
54,799
51,354
44,348
41,574
43,775
40,736
42,297
43,115
133,015
285,431
41,491
28,333
26,786
3,095
1,211
14,206
(73,191
)
(8,055
)
15,763
116,927
93,836
99,217
561,069
632,282
818,598
541,228
481,658
485,806
78,779
74,638
72,115
71,281
71,092
75,941
69,912
63,124
63,342
31,728
26,279
24,600
31,286
103,850
235,080
27,053
34,569
36,876
19,252
18,648
19,787
13,864
12,573
12,463
9,962
829
817
(1,151
)
106,649
82,560
96,568
1,000,994
969,820
1,122,244
514,061
543,574
552,666
52,840
131,483
153,741
$
461,221
$
412,091
$
398,925
236,699
230,142
229,913
239,920
233,475
233,856
$
1.95
$
1.79
$
1.74
1.92
1.77
1.71
1.000
0.845
0.750
Common Stock
Treasury Stock
Accumulated
Preferred Stock
Other
Comprehensive
Retained
(in thousands)
Shares
Amount
Shares
Amount
Shares
Amount
Income (Loss)
Earnings
Total
$
257,866
$
2,483,542
(28,858
)
$
(548,576
)
$
2,678
$
337,358
$
2,275,002
398,925
398,925
(22,112
)
(22,112
)
9,694
9,694
(1,163
)
(1,163
)
385,344
($0.75 per share)
(172,687
)
(172,687
)
678
2,432
46,561
47,239
(16
)
165
2,756
2,740
257,866
2,484,204
(26,261
)
(499,259
)
(10,903
)
563,596
2,537,638
412,091
412,091
(21,333
)
(21,333
)
10,954
10,954
(811
)
(811
)
400,901
($0.845 per share)
(193,843
)
(193,843
)
2,999
1,866
36,195
39,194
(9,591
)
(231,656
)
(231,656
)
4,123
226
1,144
5,267
257,866
2,491,326
(33,760
)
(693,576
)
(22,093
)
781,844
2,557,501
461,221
461,221
48,270
48,270
1,802
1,802
269
269
511,562
12,110
12,110
(83,314
)
(83,314
)
($1.00 per share)
(239,406
)
(239,406
)
53,366
25,350
522,390
575,756
18,574
18,574
(15,981
)
(378,835
)
(378,835
)
(3,007
)
2,013
43,836
40,829
310
(14
)
(761
)
(451
)
$
257,866
$
2,560,569
(22,392
)
$
(506,946
)
$
(55,066
)
$
1,015,769
$
3,014,326
Year Ended December 31,
(in thousands of dollars)
2006
2005
2004
$
461,221
$
412,091
$
398,925
65,191
81,299
55,062
111,649
172,977
306,113
(69,411
)
(66,593
)
(22,125
)
(288,047
)
(32,110
)
140,962
24,784
275,765
(302,041
)
(29,800
)
(63,600
)
(44,667
)
(2,537,999
)
(2,572,346
)
(1,858,262
)
2,532,908
2,501,471
1,861,272
73,191
8,055
(15,763
)
(119,228
)
(42,310
)
(8,740
)
224,459
674,699
528,216
(48,681
)
7
11,229
60,772
604,286
463,001
881,305
2,829,529
1,995,764
2,386,479
(3,015,922
)
(2,832,258
)
(2,438,158
)
245,635
1,534,395
(338,022
)
(1,012,345
)
(4,216,309
)
128,666
280,746
451,264
(47,207
)
(57,288
)
(56,531
)
(7,760
)
20,415
2,910
411,296
(1,141,958
)
(1,443,416
)
936,766
1,655,736
2,273,046
(292,211
)
682,027
(245,071
)
250,000
148,830
(4,080
)
(100,000
)
2,517,210
809,589
1,088
(2,771,417
)
(925,030
)
(3,000
)
935,000
925,000
(1,158,942
)
(1,719,403
)
(1,455,000
)
(107,154
)
(231,117
)
(200,628
)
(168,075
)
(378,835
)
(231,656
)
41,842
39,194
47,239
(155,784
)
2,675
1,424,057
479,971
(464,584
)
508,857
1,040,776
1,505,360
996,503
$
1,520,747
$
1,040,776
$
1,505,360
$
410,298
$
230,186
$
34,904
1,024,635
640,679
422,060
15,058
115,929
37,166
28,877
35,662
575,756
Nature of
Operations
Huntington Bancshares
Incorporated (Huntington) is a multi-state diversified financial
holding company organized under Maryland law in 1966 and
headquartered in Columbus, Ohio. Through its subsidiaries,
Huntington is engaged in providing full-service commercial and
consumer banking services, mortgage banking services, automobile
financing, equipment leasing, investment management, trust
services, and discount brokerage services, as well as reinsuring
private mortgage, credit life and disability insurance, and
other insurance and financial products and services.
Huntingtons banking offices are located in Ohio, Michigan,
West Virginia, Indiana, and Kentucky. Certain activities are
also conducted in other states including Arizona, Florida,
Georgia, Maryland, Nevada, New Jersey, North Carolina,
Pennsylvania, South Carolina, Tennessee, and Vermont. Huntington
also has a limited purpose foreign office in the Cayman Islands
and another in Hong Kong.
Basis of
Presentation
The consolidated financial
statements include the accounts of Huntington and its
majority-owned subsidiaries and are presented in accordance with
accounting principles generally accepted in the United States
(GAAP). All significant intercompany transactions and balances
have been eliminated in consolidation. Companies in which
Huntington holds more than a 50% voting equity interest or are a
variable interest entity (VIE) in which Huntington absorbs
the majority of expected losses are consolidated. VIEs in which
Huntington does not absorb the majority of expected losses are
not consolidated. For consolidated entities where Huntington
holds less than a 100% interest, Huntington recognizes a
minority interest liability (included in accrued expenses and
other liabilities) for the equity held by others and minority
interest expense (included in other non-interest expenses) for
the portion of the entitys earnings attributable to
minority interests. Investments in companies that are not
consolidated are accounted for using the equity method when
Huntington has the ability to exert significant influence. Those
investments in non-marketable securities for which Huntington
does not have the ability to exert significant influence are
generally accounted for using the cost method and are
periodically evaluated for impairment. Investments in private
investment partnerships are carried at fair value. Investments
in private investment partnerships and investments that are
accounted for under the equity method or the cost method are
included in accrued income and other assets and
Huntingtons proportional interest in the investments
earnings are included in other non-interest income.
Huntington evaluates VIEs in which it holds a beneficial
interest for consolidation. VIEs, as defined by the Financial
Accounting Standards Board (FASB) Interpretation
(FIN) No. 46 (Revised 2003),
Consolidation of
Variable Interest Entities
(FIN 46R), are legal
entities with insubstantial equity, whose equity investors lack
the ability to make decisions about the entitys
activities, or whose equity investors do not have the right to
receive the residual returns of the entity if they occur.
The preparation of financial statements in conformity with GAAP
requires Management to make estimates and assumptions that
affect amounts reported in the financial statements. Actual
results could differ from those estimates. See Mortgage
Banking Activities for more information about a
reclassification of certain trading activities associated with
mortgage servicing rights. Certain other prior period amounts
have been reclassified to conform to the current years
presentation.
Securities
Securities purchased with the intention of recognizing
short-term profits are classified as trading account securities
and reported at fair value. The unrealized gains or losses on
trading account securities are recorded in other non-interest
income. All other securities are classified as investment
securities. Investment securities include securities designated
as available for sale and non-marketable equity securities.
Unrealized gains or losses on investment securities designated
as available for sale are reported as a separate component of
accumulated other comprehensive income/loss in the consolidated
statement of shareholders equity. Declines in the value of
debt and marketable equity securities that are considered
other-than-temporary are recorded in non-interest income as
securities losses.
Securities transactions are recognized on the trade date (the
date the order to buy or sell is executed). The amortized cost
of specific securities sold is used to compute realized gains
and losses. Interest and dividends on securities, including
amortization of premiums and accretion of discounts using the
effective interest method over the period to maturity, are
included in interest income.
Non-marketable equity securities include stock acquired for
regulatory purposes, such as Federal Home Loan Bank stock
and Federal Reserve Bank stock. These securities are generally
accounted for at cost and are included in investment securities.
Investments are reviewed quarterly for indicators of
other-than-temporary impairment. This determination requires
significant judgment. In making this judgment, Management
evaluates, among other factors, the duration and extent to which
the fair value of an investment is less than its cost and intent
and ability to hold the investment. Investments with an
indicator of impairment are further evaluated to determine the
likelihood of a significant adverse effect on the fair value and
amount of the impairment as necessary.
Loans and
Leases
Loans and direct financing leases
for which Huntington has the intent and ability to hold for the
foreseeable future, or until maturity or payoff, are classified
in the balance sheet as loans and leases. Loans and leases are
carried at the principal amount outstanding, net of unamortized
deferred loan origination fees and costs and net of unearned
income. Direct financing leases are reported at the aggregate of
lease payments receivable and estimated residual values, net of
unearned and deferred income. Interest income is accrued as
earned using the interest method based on unpaid principal
balances. Huntington defers the fees it receives from the
origination of loans and leases, as well as the direct costs of
those activities, and amortizes these fees and costs on a
level-yield basis over the estimated lives of the related loans.
Management evaluates direct financing leases individually for
impairment.
Loans that Huntington has the intent and ability to sell or
securitize are classified as held for sale. Loans held for sale
are carried at the lower of aggregate cost or fair value. Fair
value is determined based on prevailing market prices for loans
with similar characteristics. Subsequent declines in fair value
are recognized either as a charge-off or as non-interest income,
depending on the length of time the loan has been recorded as
held for sale. When a decision is made to sell a loan that was
not originated or initially acquired with the intent to sell,
the loan is reclassified into held for sale. Such
reclassifications may occur, and have occurred in the past
several years, due to a change in strategy in managing the
balance sheet. See Note 5 for further information on recent
securitization activities.
Automobile loans and leases include loans secured by automobiles
and leases of automobiles that qualify for the direct financing
method of accounting. Substantially all of the direct financing
leases that qualify for that accounting method do so because the
present value of the lease payments and the guaranteed residual
value are at least 90% of the cost of the vehicle. Huntington
records the residual values of its leases based on estimated
future market values of the automobiles as published in the
Automotive Lease Guide (ALG), an authoritative industry source.
Beginning in October 2000, Huntington purchased residual value
insurance for its entire automobile lease portfolio to mitigate
the risk of declines in residual values. Residual value
insurance provides for the recovery of the vehicle residual
value specified by the ALG at the inception of the lease. As a
result, the risk associated with market driven declines in used
car values is mitigated. Currently, Huntington has three
distinct residual value insurance policies in place to address
the residual risk in the portfolio. One residual value insurance
policy covers all vehicles leased between October 1, 2000
and April 30, 2002, and has an associated total payment cap
of $50 million. Any losses above the cap result in
additional depreciation expense. A second policy covers all
originations from May 2002 through June 2005, and does not have
a cap. A third policy, similar in structure to the referenced
second policy, is in effect until July 1, 2007, and has
covered all originations since June 30, 2005. Leases
covered by the last two policies qualify for the direct
financing method of accounting. Leases covered by the first
policy are accounted for using the operating lease method of
accounting and are recorded as operating lease assets in
Huntingtons consolidated balance sheet.
Residual values on leased automobiles and equipment are
evaluated quarterly for impairment. Impairment of the residual
values of direct financing leases is recognized by writing the
leases down to fair value with a charge to other non-interest
expense. Residual value losses arise if the fair value at the
end of the lease term is less than the residual value embedded
in the original lease contract. For leased automobiles, residual
value insurance covers the difference between the recorded
residual value and the fair value of the automobile at the end
of the lease term as evidenced by ALG Black Book valuations.
This insurance, however, does not cover residual losses that
occur when the automobile is sold for a value below ALG Black
Book value at the time of sale, which may arise when the
automobile has excess wear and tear and/or excess mileage, not
reimbursed by the lessee. In any event, the insurance provides a
minimum level of coverage of residual value such that the net
present value of the minimum lease payments plus the portion of
the residual value that is guaranteed exceeds 90 percent of
the fair value of the automobile at the inception of the lease.
For leased equipment, the residual component of a direct
financing lease represents the estimated fair value of the
leased equipment at the end of the lease term. Huntington relies
on industry data, historical experience, and independent
appraisals to establish these residual value estimates.
Additional information regarding product life cycle, product
upgrades, as well as insight into competing products are
obtained through relationships with industry contacts and are
factored into residual value estimates where applicable.
Commercial and industrial loans and commercial real estate loans
are generally placed on non-accrual status and stop accruing
interest when principal or interest payments are 90 days or
more past due or the borrowers creditworthiness is in
doubt. A loan may remain in accruing status when it is
sufficiently collateralized, which means the collateral covers
the full repayment of principal and interest, and is in the
process of active collection.
Commercial and industrial and commercial real estate loans are
evaluated periodically for impairment in accordance with the
provisions of Statement No. 114,
Accounting by Creditors
for Impairment of a Loan,
as amended. This Statement
requires an
allowance to be established as a component of the allowance for
loan and lease losses when it is probable that all amounts due
pursuant to the contractual terms of the loan or lease will not
be collected and the recorded investment in the loan or lease
exceeds its fair value. Fair value is measured using either the
present value of expected future cash flows discounted at the
loans or leases effective interest rate, the
observable market price of the loan or lease, or the fair value
of the collateral if the loan or lease is collateral dependent.
Consumer loans and leases, excluding residential mortgage and
home equity loans, are subject to mandatory charge-off at a
specified delinquency date and are not classified as
non-performing prior to being charged off. These loans and
leases are generally charged off in full no later than when the
loan or lease becomes 120 days past due. Residential
mortgage loans are placed on non-accrual status when principal
payments are 180 days past due or interest payments are
210 days past due. A charge-off on a residential mortgage
loan is recorded when the loan has been foreclosed and the loan
balance exceeds the fair value of the collateral. The fair value
of the collateral is then recorded as real estate owned and is
reflected in other assets in the consolidated balance sheet.
(See Note 4 for further information.)
A home equity
charge-off occurs when it is determined that there is not
sufficient equity in the loan to cover Huntingtons
position. A write down in value occurs as determined by
Huntingtons internal processes, with subsequent losses
incurred upon final disposition. In the event the first mortgage
is purchased to protect Huntingtons interests, the
charge-off process is the same as residential mortgage loans
described above.
Huntington uses the cost recovery method of accounting for cash
received on non-performing loans and leases. Under this method,
cash receipts are applied entirely against principal until the
loan or lease has been collected in full, after which time any
additional cash receipts are recognized as interest income.
When, in managements judgment, the borrowers ability
to make periodic interest and principal payments resumes and
collectibility is no longer in doubt, the loan or lease is
returned to accrual status. When interest accruals are
suspended, accrued interest income is reversed with current year
accruals charged to earnings and prior year amounts generally
charged off as a credit loss.
Sold
Loans
Loans that are sold are accounted
for in accordance with Statement No. 140,
Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities.
For loan sales with servicing retained, an
asset is also recorded for the right to service the loans sold,
based on the fair value of the servicing rights.
Gains and losses on the loans sold and servicing rights
associated with loan sales are determined when the related loans
are sold to the trust or third party. Fair values of the
servicing rights are based on the present value of expected
future cash flows from servicing the underlying loans, net of
adequate compensation to service the loans. The present value of
expected future cash flows is determined using assumptions for
market interest rates, ancillary fees, and prepayment rates.
Management also uses these assumptions to assess automobile loan
servicing rights for impairment periodically. The servicing
rights are recorded in other assets in the consolidated balance
sheets. Servicing revenues on mortgage and automobile loans are
included in mortgage banking income and other non-interest
income, respectively.
Allowance for Credit
Losses
The allowance for credit losses
(ACL) reflects Managements judgment as to the level
of the ACL considered appropriate to absorb probable inherent
credit losses. This judgment is based on the size and current
risk characteristics of the portfolio, a review of individual
loans and leases, historical and anticipated loss experience,
and a review of individual relationships where applicable.
External influences such as general economic conditions,
economic conditions in the relevant geographic areas and
specific industries, regulatory guidelines, and other factors
are also assessed in determining the level of the allowance.
The determination of the allowance requires significant
estimates, including the timing and amounts of expected future
cash flows on impaired loans and leases, consideration of
current economic conditions, and historical loss experience
pertaining to pools of homogeneous loans and leases, all of
which may be susceptible to change. The allowance is increased
through a provision that is charged to earnings, based on
Managements quarterly evaluation of the factors previously
mentioned, and is reduced by charge-offs, net of recoveries, and
the allowance associated with securitized or sold loans.
The ACL consists of two components, the transaction reserve,
which includes a specific reserve in accordance with Statement
No. 114, and the economic reserve. Loan and lease losses
related to the transaction reserve are recognized and measured
pursuant to Statement No. 5,
Accounting for
Contingencies,
and Statement No. 114, while losses
related to the economic reserve are recognized and measured
pursuant to Statement No. 5. The two components are more
fully described below.
The transaction reserve component of the ACL includes both
(a) an estimate of loss based on pools of commercial and
consumer loans and leases with similar characteristics and
(b) an estimate of loss based on an impairment review of
each loan greater than $500,000 that is considered to be
impaired. For commercial loans, the estimate of loss based on
pools of loans and leases with similar characteristics is made
through the use of a standardized loan grading system that is
applied on an
individual loan level and updated on a continuous basis. The
reserve factors applied to these portfolios were developed based
on internal credit migration models that track historical
movements of loans between loan ratings over time and a
combination of long-term average loss experience of our own
portfolio and external industry data. In the case of more
homogeneous portfolios, such as consumer loans and leases, the
determination of the transaction reserve is based on reserve
factors that include the use of forecasting models to measure
inherent loss in these portfolios. Models and analyses are
updated frequently to capture the recent behavioral
characteristics of the subject portfolios, as well as any
changes in loss mitigation or credit origination strategies.
Adjustments to the reserve factors are made as needed based on
observed results of the portfolio analytics.
The economic reserve incorporates our determination of the
impact of risks associated with the general economic environment
on the portfolio. The economic reserve is designed to address
economic uncertainties and is determined based on economic
indices as well as a variety of other economic factors that are
correlated to the historical performance of the loan portfolio.
Currently, two national and two regionally focused indices are
utilized. The two national indices are: (1) the Real
Consumer Spending, and (2) Consumer Confidence. The two
regionally focused indices are: (1) the Institute for
Supply Management Manufacturing, and (2) Non-agriculture
Job Creation. Because of this more quantitative approach to
recognizing risks in the general economy, the economic reserve
may fluctuate from
period-to
-period,
subject to a minimum level specified by policy.
Other Real Estate
Owned
Other real estate owned (OREO) is
comprised principally of commercial and residential real estate
properties obtained in partial or total satisfaction of loan
obligations. In 2006, OREO also included government insured
loans in foreclosure. OREO obtained in satisfaction of a loan is
recorded at the estimated fair value less anticipated selling
costs based upon the propertys appraised value at the date
of transfer, with any difference between the fair value of the
property and the carrying value of the loan charged to the
allowance for loan losses. Subsequent changes in value are
reported as adjustments to the carrying amount, not to exceed
the initial carrying value of the assets at the time of
transfer. Changes in value subsequent to transfer are recorded
in non-interest expense. Gains or losses not previously
recognized resulting from the sale of OREO are recognized in
non-interest expense on the date of sale.
Resell and Repurchase
Agreements
Securities purchased under
agreements to resell and securities sold under agreements to
repurchase are generally treated as collateralized financing
transactions and are recorded at the amounts at which the
securities were acquired or sold plus accrued interest. The fair
value of collateral either received from or provided to a third
party is continually monitored and additional collateral is
obtained or is requested to be returned to Huntington as deemed
appropriate.
Goodwill and Other
Intangible Assets
Under the purchase
method of accounting, the net assets of entities acquired by
Huntington are recorded at their estimated fair value at the
date of acquisition. The excess cost of the acquisition over the
fair value of net assets acquired is recorded as goodwill. Other
intangible assets are amortized either on an accelerated or
straight-line basis over their estimated useful lives. Goodwill
and other intangible assets are evaluated for impairment on an
annual basis at
September 30
th
of each year or whenever events or changes in circumstances
indicate that the carrying value may not be recoverable.
Mortgage Banking
Activities
Huntington recognizes the
rights to service mortgage loans as separate assets, which are
included in other assets in the consolidated balance sheets,
only when purchased or when servicing is contractually separated
from the underlying mortgage loans by sale or securitization of
the loans with servicing rights retained. Servicing rights are
initially recorded at fair value. All mortgage servicing rights
are subsequently carried at fair value, and are included in
other assets.
To determine the fair value of MSRs, Huntington uses a static
discounted cash flow methodology incorporating current market
interest rates. A static model does not attempt to forecast or
predict the future direction of interest rates; rather it
estimates the amount and timing of future servicing cash flows
using current market interest rates. The current mortgage
interest rate influences the prepayment rate; and therefore, the
timing and magnitude of the cash flows associated with the
servicing asset, while the discount rate determines the present
value of those cash flows. Expected mortgage loan prepayment
assumptions are derived from a third party model. Management
believes these prepayment assumptions are consistent with
assumptions used by other market participants valuing similar
MSRs.
Huntington hedges the value of MSRs using derivative
instruments. Huntington values its derivative instruments using
observable market prices, when available. In the absence of
observable market prices, Huntington uses discounted cash flow
models to estimate the fair value of its derivatives. The
interest rates used in these cash flow models are based on
forward yield curves. Changes in fair value of these derivatives
are reported as a component of mortgage banking income. In 2006,
Huntington reclassified trading gains/losses associated with
MSRs from other non-interest income to mortgage banking income.
Prior periods have been reclassified to conform to this
presentation.
Premises and
Equipment
Premises and equipment are
stated at cost, less accumulated depreciation and amortization.
Depreciation is computed principally by the straight-line method
over the estimated useful lives of the related assets. Buildings
and building improvements are depreciated over an average of 30
to 40 years and 10 to 20 years, respectively. Land
improvements and furniture and fixtures are depreciated over
10 years, while equipment is depreciated over a range of
three to seven years. Leasehold improvements are amortized over
the lesser of the assets useful life or the term of the
related leases, including any renewal periods for which renewal
is reasonably assured. Maintenance and repairs are charged to
expense as incurred, while improvements that extend the useful
life of an asset are capitalized and depreciated over the
remaining useful life.
Operating Lease
Assets
Operating lease assets consist of
automobiles leased to consumers. These assets are reported at
cost, including net deferred origination fees or costs, less
accumulated depreciation. Net deferred origination fees or costs
include the referral payments Huntington makes to automobile
dealers, which are deferred and amortized on a straight-line
basis over the life of the lease.
Rental income is accrued on a straight line basis over the lease
term. Net deferred origination fees or costs are amortized over
the life of the lease to operating lease income. Depreciation
expense is recorded on a straight-line basis over the term of
the lease. Leased assets are depreciated to the estimated
residual value at the end of the lease term. Depreciation
expense is included in operating lease expense in the
non-interest expense section of the consolidated statements of
income. On a quarterly basis, residual values of operating
leases are evaluated individually for impairment under Statement
No. 144,
Accounting for the Impairment or Disposal of
Long-Lived Assets.
Under that Statement, when aggregate
future cash flows from the operating lease, including the
expected realizable fair value of the leased asset at the end of
the lease, are less than the book value of the lease, an
immediate impairment write-down is recognized. Otherwise,
reductions in the expected residual value result in additional
depreciation of the leased asset over the remaining term of the
lease. Upon disposition, a gain or loss is recorded for any
difference between the net book value of the lease and the
proceeds from the disposition of the asset, including any
insurance proceeds.
Also, on a quarterly basis, Management evaluates the amount of
residual value losses that it anticipates will result from the
estimated fair value of leased assets being less than the
residual value inherent in the lease. When estimating fair
value, Management takes into consideration policy caps that
exist in one of its residual value insurance policies and
whether it expects aggregate claims under such policies to
exceed the cap. Residual value losses exceeding any insurance
policy cap are reflected in higher depreciation expense over the
remaining life of the affected automobile lease.
Credit losses, included in operating lease expense, occur when a
lease is terminated early because the lessee cannot make the
required lease payments. These credit-generated terminations
result in Huntington taking possession of the automobile earlier
than expected. When this occurs, the market value of the
automobile may be less than Huntingtons book value,
resulting in a loss upon sale. Rental income payments accrued,
but not received, are written off when they reach 120 days
past due and at that time, the asset is evaluated for impairment.
Starting in 2004, Huntington also began purchasing equipment for
lease to customers under operating lease arrangements. These
operating lease arrangements required the lessee to make a fixed
monthly rental payment over a specified lease term, typically
from 36 to 84 months. The equipment, net of accumulated
depreciation, are reported in other assets in the consolidated
balance sheet.
Bank Owned Life
Insurance
Huntingtons bank owned
life insurance policies are carried at their cash surrender
value. Huntington recognizes tax-free income from the periodic
increases in the cash surrender value of these policies and from
death benefits.
Derivative Financial
Instruments
A variety of derivative
financial instruments, principally interest rate swaps, are used
in asset and liability management activities to protect against
the risk of adverse price or interest rate movements. These
instruments provide flexibility in adjusting the Companys
sensitivity to changes in interest rates without exposure to
loss of principal and higher funding requirements.
Huntington also uses derivatives, principally loan sale
commitments, in the hedging of its mortgage loan interest rate
lock commitments and its mortgage loans held for sale. Mortgage
loan sale commitments and the related interest rate lock
commitments are carried at fair value on the consolidated
balance sheet with changes in fair value reflected in mortgage
banking revenue.
Derivative financial instruments, primarily interest rate swaps,
are accounted for in accordance with Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities
(Statement No. 133), as amended. This Statement
requires every derivative instrument to be recorded in the
consolidated balance sheet as either an asset or a liability (in
other assets or other liabilities, respectively) measured at its
fair value, with changes to that fair value being recorded
through earnings unless specific criteria are met to account for
the derivative using hedge accounting.
For those derivatives which hedge accounting is applied,
Huntington formally documents the hedging relationship and the
risk management objective and strategy for undertaking the
hedge. This documentation identifies the hedging instrument, the
hedged item or transaction, the nature of the risk being hedged,
and, unless the hedge meets all of the criteria to assume there
is no ineffectiveness, the method that will be used to assess
the effectiveness of the hedging instrument and how
ineffectiveness will be measured. The methods utilized to assess
retrospective hedge effectiveness, as well as the frequency of
testing, vary based on the type of item being hedged and the
designated hedge period. For specifically designated fair value
hedges of certain fixed-rate debt, Huntington utilizes the
short-cut method when all the criteria of paragraph 68 of
Statement No. 133 are met. For other fair value hedges of
fixed-rate debt including certificates of deposit, Huntington
utilizes the dollar offset or the regression method to evaluate
hedge effectiveness on a quarterly basis. For fair value hedges
of portfolio loans and mortgage loans held for sale, the
regression method is used to evaluate effectiveness on a daily
basis. For cash flow hedges, the dollar offset method is applied
on a quarterly basis. For hedging relationships that are
designated as fair value hedges, changes in the fair value of
the derivative are, to the extent that the hedging relationship
is effective, recorded through earnings and offset against
changes in the fair value of the hedged item. For cash flow
hedges, changes in the fair value of the derivative are, to the
extent that the hedging relationship is effective, recorded as
other comprehensive income and subsequently recognized in
earnings at the same time that the hedged item is recognized in
earnings. Any portion of a hedge that is ineffective is
recognized immediately as other non-interest income. When a cash
flow hedge is discontinued because the originally forecasted
transaction is not probable of occurring, any net gain or loss
in accumulated other comprehensive income is recognized
immediately as other non-interest income.
Like other financial instruments, derivatives contain an element
of credit risk, which is the possibility that Huntington will
incur a loss because a counter-party fails to meet its
contractual obligations. Notional values of interest rate swaps
and other off-balance sheet financial instruments significantly
exceed the credit risk associated with these instruments and
represent contractual balances on which calculations of amounts
to be exchanged are based. Credit exposure is limited to the sum
of the aggregate fair value of positions that have become
favorable to Huntington, including any accrued interest
receivable due from counterparties. Potential credit losses are
minimized through careful evaluation of counterparty credit
standing, selection of counterparties from a limited group of
high quality institutions, collateral agreements, and other
contract provisions.
Advertising
Costs
Advertising costs are expensed as
incurred as a marketing expense, a component of non-interest
expense.
Income
Taxes
Income taxes are accounted for
under the asset and liability method. Accordingly, deferred tax
assets and liabilities are recognized for the future book and
tax consequences attributable to temporary differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are determined using enacted tax rates expected
to apply in the year in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income at the time of enactment of such change in tax rates. Any
interest due for payment of income taxes is included in the
provision for income taxes.
Treasury
Stock
Acquisitions of treasury stock are
recorded at cost. The reissuance of shares in treasury for
acquisitions, stock option exercises, or for other corporate
purposes, is recorded at weighted-average cost.
Share-Based
Compensation
On January 1, 2006,
Huntington adopted the fair value recognition provisions of FASB
Statement No. 123 (revised 2004),
Share-Based Payment
(Statement No. 123R) relating to its share-based
compensation plans. Prior to January 1, 2006, Huntington
had accounted for share-based compensation plans under the
intrinsic value method promulgated by Accounting Principles
Board (APB) Opinion 25,
Accounting for Stock Issued
to Employees
(APB 25), and related interpretations. In
accordance with APB 25, compensation expense for employee
stock options was generally not recognized for options granted
that had an exercise price equal to the market value of the
underlying common stock on the date of grant.
Under the modified prospective method of Statement
No. 123R, compensation expense is recognized during the
year ended December 31, 2006, for all unvested stock
options, based on the grant date fair value estimated in
accordance with the original provisions of Statement
No. 123,
Accounting for Stock-Based Compensation
(Statement No. 123
)
and for all share-based
payments granted after January 1, 2006, based on the grant
date fair value estimated in accordance with the provisions of
Statement No. 123R. Share-based compensation expense is
recorded in personnel costs in the consolidated statements of
income. Huntingtons financial results for the prior
periods have not been restated.
Segment
Results
Accounting policies for the lines
of business are the same as those used in the preparation of the
consolidated financial statements with respect to activities
specifically attributable to each business line. However, the
preparation of business line results requires management to
establish methodologies to allocate funding costs and benefits,
expenses, and other financial elements to each line of business.
Changes are made in these methodologies utilized for certain
balance sheet and income statement allocations performed by
Huntingtons management reporting system, as appropriate.
Statement of Cash
Flows
Cash and cash equivalents are
defined as Cash and due from banks and Federal
funds sold and securities purchased under resale
agreements.
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 is measured based on the
fair value of the equity or liability instruments issued.
Huntington adopted Statement No. 123R, effective
January 1, 2006. The impact of adoption to
Huntingtons results of operations is presented in
Note 19.
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 Huntingtons 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 these hybrid financial instruments to
be carried at fair value. Statement No. 155 also
establishes a requirement to evaluate interests in securitized
financial assets, including collateralized mortgage obligations
and mortgage-backed securities, to identify embedded derivatives
that would need to be separately accounted for from the
financial asset.
In January 2007, the FASB issued Derivatives Implementation
Group Issue No. B40 addressing application of Statement
No. 155 to collateralized mortgage obligations and
mortgage-backed securities. Based on the FASBs conclusions
regarding the applicability of Statement No. 155 to
collateralized mortgage obligations and mortgage-backed
securities, Management does not believe that the implementation
issue will have a significant impact to its financial position
or its results of operations. Huntington adopted Statement
No. 155 effective January 1, 2006, with no impact to
reported financial results.
FASB Statement
No. 156,
Accounting for Servicing of Financial
Assets
an amendment of FASB Statement
No. 140
(Statement
No. 156)
In March 2006, the FASB
issued Statement No. 156, an amendment of Statement
No. 140. This Statement requires all separately recognized
servicing rights be initially measured at fair value, if
practicable. For each class of separately recognized servicing
assets and liabilities, this statement permits Huntington to
choose either to report servicing assets and liabilities at fair
value or at amortized cost. Under the fair value approach,
servicing assets and liabilities are recorded at fair value at
each reporting date with changes in fair value recorded in
earnings in the period in which the changes occur. Under the
amortized cost method, servicing assets and liabilities are
amortized in proportion to and over the period of estimated net
servicing income or net servicing loss and are assessed for
impairment based on fair value at each reporting date.
Huntington elected to adopt the provisions of Statement
No. 156 for mortgage servicing rights effective
January 1, 2006, and has recorded mortgage servicing right
assets using the fair value provision of the standard. The
adoption of Statement No. 156 resulted in an
$18.6 million increase in the carrying value of mortgage
servicing right assets as of January 1, 2006. The
cumulative effect of this change
was $12.1 million, net of taxes, which is reflected as an
increase in retained earnings in the Consolidated Statements of
Changes in Shareholders Equity.
(See Note 5)
FASB
Statement No. 158,
Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans
an amendment of FASB Statements No. 87, 88, 106 and
132R
(Statement
No. 158)
In September 2006, the FASB issued Statement No. 158, as an
amendment to FASB Statements No. 87, 88, 106 and 132R.
Statement No. 158 requires an employer to recognize in its
statement of financial position the funded status of its defined
benefit plans and to recognize as a component of other
comprehensive income, net of tax, any unrecognized transition
obligations and assets, the actuarial gains and losses and prior
service costs and credits that arise during the period. The
recognition provisions of Statement No. 158 are to be
applied prospectively and are effective for fiscal years ending
after December 15, 2006. In addition, Statement
No. 158 requires a fiscal year end measurement of plan
assets and benefit obligations, eliminating the use of earlier
measurement dates currently permissible. However, the new
measurement date requirement will not be effective until fiscal
years ended after December 15, 2008. Currently, Huntington
utilizes a measurement date of September 30th. The adoption
of Statement No. 158 as of December 31, 2006 resulted
in a write-down of its pension asset by $125.1 million, and
decreased accumulated other comprehensive income by
$83.0 million, net of taxes
(See Note 21).
FASB Interpretation
No. 48 (FIN 48),
Accounting for Uncertainty
in Income Taxes
In July 2006, the FASB
issued FIN 48,
Accounting for Uncertainty in Income
Taxes.
This Interpretation of FASB Statement No. 109,
Accounting for Income Taxes,
contains guidance on the
recognition and measurement of uncertain tax positions.
Huntington will be required to recognize the impact of a tax
position if it is more likely than not that it will be sustained
upon examination, based upon the technical merits of the
position. The effective date for application of this
interpretation is for periods beginning after December 15,
2006. The cumulative effect of applying the provisions of this
Interpretation must be reported as an adjustment to the opening
balance of retained earnings for that fiscal period. Management
does not expect that the impact of this new pronouncement will
be material to Huntingtons financial condition, results of
operations, or cash flows.
FASB Statement
No. 157,
Fair Value Measurements (Statement
No. 157)
In September 2006, the FASB
issued Statement No. 157. This Statement establishes a
common definition for fair value to be applied to GAAP guidance
requiring use of fair value, establishes a framework for
measuring fair value, and expands disclosure about such fair
value measurements. Statement No. 157 is effective for
fiscal years beginning after November 15, 2007. Management
is currently assessing the impact this Statement will have on
its consolidated financial position and results of operations.
FASB Statement
No. 159,
The Fair Value Option for Financial
Assets and Financial Liabilities (Statement
No. 159)
In February 2007, the FASB
issued Statement No. 159. This Statement permits entities
to choose to measure financial instruments and certain other
financial assets and financial liabilities at fair value. This
Statement is effective for fiscal years beginning after
November 15, 2007. The Company is currently assessing the
impact this Statement will have on its consolidated financial
position and results of operations.
3.
INVESTMENT SECURITIES
Unrealized
(in thousands of dollars)
Amortized Cost
Gross Gains
Gross Losses
Fair Value
$
1,846
$
15
$
(5
)
$
1,856
1,277,184
4,830
(553
)
1,281,461
149,917
102
(70
)
149,949
1,427,101
4,932
(623
)
1,431,410
1,574,572
11,372
(3,140
)
1,582,804
586,467
7,332
(2,376
)
591,423
586,088
4,046
(72
)
590,062
164,829
607
(67
)
165,369
$
4,340,903
$
28,304
$
(6,283
)
$
4,362,924
Unrealized
(in thousands of dollars)
Amortized Cost
Gross Gains
Gross Losses
Fair Value
$
24,199
$
131
$
(655
)
$
23,675
1,309,598
680
(31,256
)
1,279,022
349,385
115
(13,034
)
336,466
1,658,983
795
(44,290
)
1,615,488
1,788,694
4,990
(4,904
)
1,788,780
544,781
5,003
(4,934
)
544,850
402,959
171
(9,561
)
393,569
159,522
751
(115
)
160,158
$
4,579,138
$
11,841
$
(64,459
)
$
4,526,520
2006
2005
(in thousands of dollars)
Amortized Cost
Fair Value
Amortized
Fair Value
$
7,490
$
7,473
$
1,765
$
1,765
203,728
203,867
394,254
382,549
170,075
169,680
199,670
196,154
3,802,375
3,824,111
3,838,730
3,800,751
150,754
150,754
89,661
89,661
6,481
7,039
55,058
55,640
$
4,340,903
$
4,362,924
$
4,579,138
$
4,526,520
Less than 12 Months
Over 12 Months
Total
Unrealized
Unrealized
Unrealized
(in thousands of dollars)
Fair Value
Losses
Fair Value
Losses
Fair Value
Losses
$
99
$
$
146
$
(5
)
$
245
$
(5
)
131,122
(522
)
10,188
(31
)
141,310
(553
)
99,531
(69
)
697
(1
)
100,228
(70
)
230,653
(591
)
10,885
(32
)
241,538
(623
)
297,916
(2,147
)
59,925
(993
)
357,841
(3,140
)
141,355
(764
)
69,060
(1,612
)
210,415
(2,376
)
38,309
(72
)
38,309
(72
)
500
(2
)
4,697
(65
)
5,197
(67
)
$
708,832
$
(3,576
)
$
144,713
$
(2,707
)
$
853,545
$
(6,283
)
4.
LOANS AND LEASES
At December 31,
(in thousands of dollars)
2006
2005
$
624,656
$
486,488
44,893
39,570
669,549
526,058
3,983
3,125
(86,849
)
(58,476
)
$
586,683
$
470,707
$
857,127
$
1,209,088
1,068,766
1,296,303
1,925,893
2,505,391
(810
)
(565
)
(155,659
)
(215,811
)
$
1,769,424
$
2,289,015
(in thousands of dollars)
2006
2005
$
76,488
$
89,177
105,337
219,728
(91,639
)
(231,814
)
(33,680
)
(603
)
$
56,506
$
76,488
At December 31,
(in thousands of dollars)
2006
2005
$
58,393
$
55,273
37,947
18,309
32,527
17,613
15,266
10,720
144,133
101,915
49,487
15,240
$
193,620
$
117,155
$
59,114
$
56,138
5.
LOAN SALES AND
SECURITIZATIONS
Year Ended December 31,
(in thousands of dollars)
2006
2005
2004
$
10,805
$
20,286
$
17,662
4,748
2,113
16,249
(7,637
)
(11,528
)
(13,625
)
(66
)
$
7,916
$
10,805
$
20,286
$
9,457
$
11,658
$
21,361
(in thousands of dollars)
2006
$
91,259
18,631
109,890
29,013
2,474
(4,086
)
(11,058
)
4,871
$
131,104
(1)
Represents decrease in value due to passage of time, including
the impact from both regularly scheduled loan principal payments
and partial loan paydowns.
(2)
Represents decrease in value associated with loans that paid off
during the period.
(3)
Represents change in value resulting primarily from
market-driven changes in interest rates.
Decline in fair
value due to
10%
20%
adverse
adverse
(in thousands of dollars)
Actual
change
change
12.84
%
$
(5,984
)
$
(11,529
)
9.41
(4,753
)
(9,182
)
Year Ending December 31,
(in thousands of dollars)
2005
2004
$
(4,775
)
$
(6,153
)
(15,814
)
(18,110
)
20,185
19,488
$
(404
)
$
(4,775
)
(in thousands of dollars)
2006
2005
2004
$
24,659
$
22,181
$
21,696
2,539
2,022
1,725
765
797
541
$
27,963
$
25,000
$
23,962
Year Ended December 31,
(in thousands of dollars)
2006
2005
2004
$
268,347
$
271,211
$
299,732
23,785
(119,692
)
(115,848
)
(126,115
)
37,316
35,791
47,580
(82,376
)
(80,057
)
(78,535
)
62,312
83,782
57,397
(6,253
)
(336
)
(7,383
)
$
272,068
$
268,347
$
271,211
$
36,957
$
33,187
$
35,522
325
2,879
(2,483
)
(2,335
)
6,253
$
40,161
$
36,957
$
33,187
$
312,229
$
305,304
$
304,398
$
35,212
$
41,525
$
51,875
25,662
14,032
29,296
$
60,874
$
55,557
$
81,171
$
65,907
$
29,441
$
54,445
7,612
14,526
23,447
(1)
During 2005, the economic reserve associated with unfunded loan
commitments was transferred from the ALLL to the AULC. This
transfer had no impact on net income.
(2)
In conjunction with the automobile loan sales and
securitizations in 2006, 2005, and 2004, an allowance for loan
and lease losses attributable to the associated loans sold was
included as a component of the loans carrying value upon
their sale.
(3)
Includes impaired commercial and industrial loans and commercial
real estate loans with outstanding balances greater than
$500,000. A loan is impaired when it is probable that Huntington
will be unable to collect all amounts due according to the
contractual terms of the loan agreement. Impaired loans are
included in non-performing assets. The amount of interest
recognized in 2006, 2005 and 2004 on impaired loans while they
were considered impaired was less than $0.1 million, less
than $0.1 million, and $1.1 million, respectively. The
recovery of the investment in impaired loans with no specific
reserves generally is expected from the sale of collateral, net
of costs to sell that collateral.
(in thousands of dollars)
March 1, 2006
$
575,793
(194,996
)
380,797
17,466
(202
)
257
748
2,845
6,616
8,577
417,104
(45,000
)
(18,252
)
(63,252
)
$
353,852
(in thousands of dollars)
March 1, 2006
$
66,544
3,096
300,416
1,666,604
(23,785
)
1,642,819
48,521
21,603
353,852
63,252
22,012
2,522,115
1,696,124
79,140
102,950
23,464
7,123
37,521
1,946,322
$
575,793
(in thousands, except per share amounts)
2006
2005
$
1,030,789
$
1,032,083
(66,301
)
(87,959
)
964,488
944,124
565,853
660,986
(1,012,840
)
(1,041,532
)
517,501
563,578
(54,837
)
(137,173
)
$
462,664
$
426,405
$
1.92
$
1.67
1.90
1.65
240,924
255,417
244,145
258,879
Regional
Dealer
Treasury/
Huntington
(in thousands of dollars)
Banking
Sales
PFCMG
Other
Consolidated
$
199,971
$
$
12,559
$
$
212,530
Goodwill acquired during the period
335,884
22,462
358,346
$
535,855
$
$
35,021
$
$
570,876
Gross
Carrying
Accumulated
Net
(in thousands of dollars)
Amount
Amortization
Carrying Value
$
23,655
$
(19,631
)
$
4,024
45,000
(7,525
)
37,475
6,570
(456
)
6,114
11,430
(796
)
10,634
1,622
(382
)
1,240
$
88,277
$
(28,790
)
$
59,487
$
23,655
$
(18,816
)
$
4,839
130
(13
)
117
$
23,785
$
(18,829
)
$
4,956
Amortization
(in thousands of dollars)
Expense
$
10,040
8,856
7,928
7,106
6,312
10.
AUTOMOBILE OPERATING LEASE
ASSETS
At December 31,
(in thousands of dollars)
2006
2005
$
90,940
$
460,596
(23
)
(272
)
(62,586
)
(271,321
)
$
28,331
$
189,003
11.
PREMISES AND EQUIPMENT
At December 31,
(in thousands of dollars)
2006
2005
$
79,273
$
67,787
270,942
246,745
154,097
149,466
491,428
477,192
995,740
941,190
(622,968
)
(580,513
)
$
372,772
$
360,677
Year Ended December 31,
(in thousands of dollars)
2006
2005
2004
$
52,333
$
50,355
$
50,097
11,602
11,010
13,081
12.
SHORT-TERM BORROWINGS
At December 31,
(in thousands of dollars)
2006
2005
$
520,354
$
931,097
1,111,959
888,985
2,677
2,480
41,199
66,698
$
1,676,189
$
1,889,260
Year Ended December 31,
(in thousands of dollars)
2006
2005
$
1,065,649
$
1,125,159
3.33%
2.17
%
$
1,213,673
$
1,356,733
13.
FEDERAL HOME LOAN BANK
ADVANCES
14.
SUBORDINATED NOTES
At December 31,
(in thousands of dollars)
2006
2005
$
206,186
$
206,186
103,093
103,093
23,428
152,303
158,620
193,122
193,361
248,908
212,526
214,277
147,091
147,834
$
1,286,657
$
1,023,371
(1)
Variable effective rate at December 31, 2006, based on
three month LIBOR + 0.70.
(2)
Variable effective rate at December 31, 2006, based on
three month LIBOR + 0.625.
15.
OTHER LONG-TERM DEBT
At December 31,
(in thousands of dollars)
2006
2005
$
808,112
$
1,576,033
408,745
792,386
962,283
50,000
50,000
$
2,229,140
$
2,418,419
(1)
Variable effective rate at December 31, 2006, based on one
month LIBOR +0.33.
(2)
Variable effective rate at December 31, 2006, based on one
month LIBOR +0.67.
Year Ended December 31,
(in thousands of dollars)
2006
2005
2004
$
1,448
$
(41,014
)
$
(18,555
)
Related tax benefit
(752
)
14,445
6,689
696
(26,569
)
(11,866
)
73,191
8,055
(15,763
)
(25,617
)
(2,819
)
5,517
47,574
5,236
(10,246
)
48,270
(21,333
)
(22,112
)
2,772
16,852
14,914
(970
)
(5,898
)
(5,220
)
1,802
10,954
9,694
(128,175
)
414
(1,248
)
(1,789
)
44,716
437
626
(83,045
)
(811
)
(1,163
)
$
(32,973
)
$
(11,190
)
$
(13,581
)
Unrealized gains
Unrealized gains
and losses on
and losses on
cash flow hedging
Defined benefit
(in thousands of dollars)
investment securities
derivatives
pension plans
Total
$
9,429
$
(5,442
)
$
(1,309
)
$
2,678
(22,112
)
9,694
(1,163
)
(13,581
)
(12,683
)
4,252
(2,472
)
(10,903
)
(21,333
)
10,954
(811
)
(11,190
)
(34,016
)
15,206
(3,283
)
(22,093
)
48,270
1,802
(83,045
)
(32,973
)
$
14,254
$
17,008
$
(86,328
)
$
(55,066
)
Total
Average
Number
Price
of Shares
Paid Per
Repurchase Programs
Purchased
Share
4,831,000
$
23.46
11,150,000
23.81
15,981,000
$
23.71
Year ended December 31,
(in thousands, except per share amounts)
2006
2005
2004
$
461,221
$
412,091
$
398,925
236,699
230,142
229,913
3,221
3,333
3,943
239,920
233,475
233,856
$
1.95
$
1.79
$
1.74
1.92
1.77
1.71
19.
SHARE-BASED COMPENSATION
Share-based
(in millions, except per share amounts)
compensation expense
$
(18.6
)
(12.1
)
$
(0.05
)
(0.05
)
2006
2005
2004
4.96
%
4.07
%
3.78
%
4.24
3.34
3.20
22.2
26.3
30.9
6.0
6.0
6.0
$
4.21
$
5.28
$
5.78
Year Ended
December 31,
(in millions, except per share amounts)
2005
2004
$
412.1
$
398.9
(11.9
)
(14.4
)
$
400.2
$
384.5
$
1.79
$
1.74
1.74
1.67
1.77
1.71
1.71
1.64
Weighted-
Weighted-
Average
Average
Remaining
Aggregate
Exercise
Contractual
Intrinsic
(in thousands, except per share amounts)
Options
Price
Life (Years)
Value
21,004
$21.11
1,486
23.38
656
16.56
(2,014
)
18.34
(559
)
22.56
20,573
$21.36
4.8
$59,930
14,639
$20.72
4.5
$53,279
(1)
Relates to option plans acquired from the merger with Unizan.
Weighted-
Weighted-
Average
Average
Grant Date
Restricted
Grant Date
Fair Value
Stock
Fair Value
(in thousands, except per share amounts)
Options
Per Share
Units
Per Share
7,956
$5.53
$
1,486
4.21
476
23.37
19
4.61
(3,025
)
5.60
(502
)
5.40
(8)
23.34
5,934
$5.17
468
$
23.37
(1)
Relates to option plans acquired from the merger with Unizan.
Options Outstanding
Exercisable Options
Weighted-
Average
Weighted-
Weighted-
Remaining
Average
Average
Contractual
Exercise
Exercise
(in thousands, except per share amounts)
Shares
Life (Years)
Price
Shares
Price
738
4.7
$14.21
738
$14.21
7,133
4.7
18.03
5,844
17.61
10,439
5.6
22.86
5,803
22.14
2,263
2.1
27.22
2,254
27.23
20,573
4.8
$21.36
14,639
$20.72
20.
INCOME TAXES
At December 31,
(in thousands of dollars)
2006
2005
2004
$
340,665
$
163,383
$
12,779
222
210
340,887
163,593
12,779
(288,475
)
(32,681
)
140,962
428
571
(288,047
)
(32,110
)
140,962
$
52,840
$
131,483
$
153,741
2006
2005
2004
(in thousands of dollars)
Amount
Rate
Amount
Rate
Amount
Rate
$
179,921
35.0
%
$
190,251
35.0
%
$
193,433
35.0
%
(10,449
)
(2.0
)
(8,741
)
(1.6
)
(7,640
)
(1.4
)
(15,321
)
(3.0
)
(14,257
)
(2.6
)
(14,804
)
(2.7
)
(10,157
)
(2.0
)
(6,651
)
(1.2
)
(6,278
)
(1.1
)
(33,086
)
(6.4
)
(28,705
)
(5.3
)
(7,130
)
(1.4
)
(6,878
)
(1.3
)
(7,768
)
(1.4
)
5,741
1.1
(52,604
)
(10.2
)
1,666
0.3
723
0.1
(3,202
)
(0.6
)
$
52,840
10.3
%
$
131,483
24.2
%
$
153,741
27.8
%
At December 31,
(in thousands of dollars)
2006
2005
$
132,085
$
123,934
37,872
54,457
14,082
9,645
87,241
74,020
266,843
266,493
547,488
830,303
2,807
41,409
32,123
26,375
91,031
71,106
673,449
969,193
406,606
702,700
37,315
40,955
$
443,921
$
743,655
Post-Retirement
Pension Benefits
Benefits
2006
2005
2006
2005
Weighted-average assumptions used to determine benefit
obligations at December 31
Discount rate
5.74
%
5.43
%
5.74
%
5.43
%
Rate of compensation increase
5.00
5.00
N/A
N/A
Weighted-average assumptions used to determine net periodic
benefit cost for the years ended December 31
Discount rate
5.43
%
5.81
%
5.43
%
5.81
%
Expected return on plan assets
8.00
7.00
N/A
N/A
Rate of compensation increase
5.00
5.00
N/A
N/A
Post-Retirement
Pension Benefits
Benefits
(in thousands of dollars)
2006
2005
2006
2005
$
418,091
$
336,007
$
43,616
$
55,504
17,262
13,936
1,302
1,377
22,157
19,016
2,332
2,903
(7,491
)
(6,897
)
(3,540
)
(3,738
)
(11,523
)
(9,375
)
1,700
(12,792
)
65,404
2,811
(12,430
)
7,613
82,084
4,605
(11,888
)
$
425,704
$
418,091
$
48,221
$
43,616
Pension Benefits
(in thousands of dollars)
2006
2005
$
440,787
$
353,222
30,232
40,798
29,800
63,600
(12,313
)
(9,936
)
(7,491
)
(6,897
)
40,228
87,565
$
481,015
$
440,787
Pension Benefits
Post-Retirement Benefits
(in thousands of dollars)
2006
2005
2004
2006
2005
2004
$
17,552
$
14,186
$
12,159
$
1,302
$
1,378
$
1,302
22,157
19,016
17,482
2,332
2,903
3,209
(33,577
)
(25,979
)
(21,530
)
(1
)
(4
)
1
1,104
1,104
1,104
1
1
1
489
379
583
(722
)
(126
)
3,565
3,642
3,151
17,509
10,689
7,936
$
27,206
$
21,551
$
19,200
$
4,505
$
5,638
$
6,198
Fair Value
2006
2005
(in thousands of dollars)
Balance
%
Balance
%
$
820
%
$
164
%
331,022
69
300,080
68
133,641
28
125,971
29
15,532
3
14,572
3
$
481,015
100
%
$
440,787
100
%
Pension
Post-Retirement
(in thousands of dollars)
Benefits
Benefits
2007
$
22,412
$4,134
2008
23,105
4,201
2009
23,876
4,275
2010
24,864
4,356
2011
26,526
4,439
2012 through 2016
144,273
21,926
Before
After
Adoption of
Adoption of
(in thousands of dollars)
Statement No. 158
Adjustments
Statement No. 158
$ 1,187,932
$(125,081)
$ 1,062,851
35,454,100
(125,081)
35,329,019
591,354
2,680
594,034
488,637
(44,716)
443,921
32,356,729
(42,036)
32,314,693
27,979
(83,045)
(55,066)
3,097,371
(83,045)
3,014,326
(in thousands of dollars)
December 31, 2006
$55,311
75,230
(in thousands of dollars)
December 31, 2006
$(78,209)
(3,808)
(4,311)
$(86,328)
Pension
Post-Retirement
(in thousands of dollars)
Benefits
Benefits
$
22,696
$
(43,616
)
153,308
(11,586
)
1,788
3,476
6
7,728
177,798
(43,998
)
1,018
$
177,798
$
(42,980
)
2006
2005
Carrying
Carrying
(in thousands of dollars)
Amount
Fair Value
Amount
Fair Value
$
1,594,915
$
1,594,915
$
1,063,167
$
1,063,167
36,056
36,056
8,619
8,619
270,422
270,422
294,344
294,344
4,362,924
4,362,924
4,526,520
4,526,520
25,811,357
25,945,357
24,203,819
24,222,819
44,793
44,793
30,274
30,274
(25,047,770
)
(23,754,770
)
(22,409,675
)
(21,338,675
)
(1,676,189
)
(1,676,189
)
(1,889,260
)
(1,889,260
)
(996,821
)
(996,821
)
(1,155,647
)
(1,155,647
)
(2,229,140
)
(2,229,140
)
(1,023,371
)
(1,023,371
)
(1,286,657
)
(1,351,657
)
(2,418,419
)
(2,479,419
)
(27,041
)
(27,041
)
(27,427
)
(27,427
)
Loans held for
sale
valued using outstanding commitments
from investors.
Investment
securities
based on quoted market prices,
where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable
instruments. Retained interests in securitized assets are valued
using a discounted cash flow analysis. The carrying amount and
fair value of securities exclude the fair value of
asset/liability management interest rate contracts designated as
hedges of securities available for sale.
Loans and direct
financing leases
variable-rate loans that
reprice frequently are based on carrying amounts, as adjusted
for estimated credit losses. The fair values for other loans and
leases are estimated using discounted cash flow analyses and
employ interest rates currently being offered for loans and
leases with similar terms. The rates take into account the
position of the yield curve, as well as an adjustment for
prepayment risk, operating costs, and profit. This value is also
reduced by an estimate of probable losses in the loan and lease
portfolio.
Deposits
demand deposits, savings accounts, and money market deposits
are, by definition, equal to the amount payable on demand. The
fair values of fixed-rate time deposits are estimated by
discounting cash flows using interest rates currently being
offered on certificates with similar maturities.
Debt
fixed-rate, long-term debt is based upon quoted market prices
or, in the absence of quoted market prices, discounted cash
flows using rates for similar debt with the same maturities. The
carrying amount of variable-rate obligations approximates fair
value.
Fair Value
Cash Flow
(in thousands of dollars)
Hedges
Hedges
Total
$
635,000
$
315,000
$
950,000
325,000
325,000
750,000
750,000
50,000
50,000
$
1,435,000
$
640,000
$
2,075,000
Weighted-Average Rate
Average
Notional
Maturity
Fair
(in thousands of dollars)
Value
(years)
Value
Receive
Pay
$
800,000
9.7
$
4,008
5.31
%
5.59
%
635,000
6.4
(13,459
)
4.54
5.27
640,000
2.6
(191
)
5.36
4.91
$
2,075,000
6.5
$
(9,642
)
5.09
%
5.28
%
Average
Notional
Maturity
Fair
Weighted-Average
(in thousands of dollars)
Value
(years)
Value
Strike Rate
$
500,000
2.1
$
1,668
5.5
%
At December 31,
(in thousands of dollars)
2006
2005
$
236
$
669
1,176
172
1,412
841
(838
)
(328
)
(699
)
(1,947
)
(1,537
)
(2,275
)
$
(125
)
$
(1,434
)
At December 31,
(in millions of dollars)
2006
2005
$
4,416
$
3,316
3,374
3,046
1,645
1,567
1,156
1,079
54
47
25.
OTHER REGULATORY MATTERS
Tier 1
Total Capital
Tier 1 Leverage
(in millions of dollars)
2006
2005
2006
2005
2006
2005
Amount
$
2,784
$
2,701
$
3,986
$
3,678
$
2,784
$
2,701
Ratio
8.93
%
9.13
%
12.79
%
12.42
%
8.00
%
8.34
%
Amount
$
1,990
$
1,902
$
3,214
$
3,087
$
1,990
$
1,902
Ratio
6.47
%
6.82
%
10.44
%
10.56
%
5.81
%
6.21
%
Balance Sheets
December 31,
(in thousands of dollars)
2006
2005
Cash and cash equivalents
$
412,724
$
227,115
Due from The Huntington National Bank
31,481
250,771
Due from non-bank subsidiaries
277,245
205,208
Investment in The Huntington National Bank
2,035,175
1,660,905
Investment in non-bank subsidiaries
725,875
584,259
Accrued interest receivable and other assets
45,592
128,303
$
3,528,092
$
3,056,561
Short-term borrowings
$
3,252
$
3,034
Long-term borrowings
329,898
309,279
Dividends payable, accrued expenses, and other liabilities
180,616
186,747
513,766
499,060
3,014,326
2,557,501
$
3,528,092
$
3,056,561
Statements of Income
Year Ended December 31,
(in thousands of dollars)
2006
2005
2004
$
575,000
$
180,000
$
400,000
47,476
3,800
8,202
13,167
35,253
13,417
10,880
8,770
7,638
9,539
30,539
34,603
23
406
(810
)
656,085
258,768
463,050
31,427
25,060
32,227
17,856
22,772
4,317
20,040
24,741
36,738
69,323
72,573
73,282
586,762
186,195
389,768
(20,922
)
(2,499
)
(4,223
)
607,684
188,694
393,991
(142,672
)
208,061
(9,073
)
(3,791
)
15,336
14,007
$
461,221
$
412,091
$
398,925
Statements of Cash Flows
Year Ended December 31,
(in thousands of dollars)
2006
2005
2004
$
461,221
$
412,091
$
398,925
146,463
(223,397
)
(4,934
)
2,150
2,674
2,690
170,367
(49,557
)
(13,609
)
780,201
141,811
383,072
370,049
154,152
117,314
(397,216
)
(206,765
)
(80,197
)
(27,167
)
(52,613
)
37,117
250,200
(249,515
)
(99,437
)
(101,541
)
(231,117
)
(200,628
)
(168,075
)
(378,835
)
(231,656
)
41,842
39,194
47,239
(567,425
)
(492,527
)
(222,377
)
185,609
(403,329
)
197,812
227,115
630,444
432,632
$
412,724
$
227,115
$
630,444
$
17,856
$
22,754
$
18,495
Regional
Dealer
Treasury/
Huntington
INCOME STATEMENTS
(in thousands of dollars)
Banking
Sales
PFCMG
Other
Consolidated
$
883,536
$
134,931
$
73,342
$
(72,632
)
$
1,019,177
(45,320
)
(14,206
)
(5,665
)
(65,191
)
351,485
83,867
156,500
(30,783
)
561,069
(651,935
)
(112,448
)
(142,396
)
(94,215
)
(1,000,994
)
(188,218
)
(32,250
)
(28,624
)
196,252
(52,840
)
$
349,548
$
59,894
$
53,157
$
(1,378
)
$
461,221
$
779,413
$
145,526
$
73,410
$
(35,938
)
$
962,411
(51,246
)
(25,922
)
(4,131
)
(81,299
)
310,437
169,876
135,150
16,819
632,282
(588,713
)
(187,504
)
(131,195
)
(62,408
)
(969,820
)
(157,462
)
(35,691
)
(25,632
)
87,302
(131,483
)
$
292,429
$
66,285
$
47,602
$
5,775
$
412,091
$
677,953
$
149,743
$
62,091
$
21,587
$
911,374
(7,714
)
(44,697
)
(2,651
)
(55,062
)
307,649
320,223
134,037
42,483
804,392
(593,328
)
(325,935
)
(124,441
)
(79,691
)
(1,123,395
)
(134,597
)
(34,766
)
(24,162
)
45,159
(148,366
)
249,963
64,568
44,874
29,538
388,943
748
748
8,598
636
9,234
$
249,963
$
73,166
$
44,874
$
30,922
$
398,925
Assets
Deposits
At December 31,
At December 31,
BALANCE SHEETS
(in millions of dollars)
2006
2005
2006
2005
$
20,933
$
18,850
$
20,231
$
17,957
5,003
5,613
59
65
2,153
2,010
1,162
1,180
7,240
6,292
3,596
3,208
$
35,329
$
32,765
$
25,048
$
22,410
2006
(in thousands, of dollars except per share data)
Fourth
Third
Second
First
$
544,841
$
538,988
$
521,903
$
464,787
(286,852
)
(283,675
)
(259,708
)
(221,107
)
257,989
255,313
262,195
243,680
(15,744
)
(14,162
)
(15,745
)
(19,540
)
140,606
97,910
163,019
159,534
(267,790
)
(242,430
)
(252,359
)
(238,415
)
115,061
96,631
157,110
145,259
(27,346
)
60,815
(45,506
)
(40,803
)
$
87,715
$
157,446
$
111,604
$
104,456
$
0.37
$
0.66
$
0.46
$
0.45
0.37
0.65
0.46
0.45
2005
(in thousands of dollars, except per share data)
Fourth
Third
Second
First
$
442,476
$
420,858
$
402,326
$
376,105
(198,800
)
(179,221
)
(160,426
)
(140,907
)
243,676
241,637
241,900
235,198
(30,831
)
(17,699
)
(12,895
)
(19,874
)
147,322
160,740
156,170
168,050
(230,355
)
(233,052
)
(248,136
)
(258,277
)
129,812
151,626
137,039
125,097
(29,239
)
(43,052
)
(30,614
)
(28,578
)
$
100,573
$
108,574
$
106,425
$
96,519
$
0.44
$
0.47
$
0.46
$
0.42
0.44
0.47
0.45
0.41
28
*
|
- | Owned jointly between The Huntington National Bank and Huntington Bancshares Incorporated. | |
**
|
- | Less than 100% owned. | |
***
|
- | Owned by HNB 2000-B (Q) LLC and HNB 2000-B (NQ) LLC in proportion to assets sold. |
29
30
Signatures | Title | |
/s/ Thomas E. Hoaglin
|
Chairman, President, Chief Executive Officer, and Director (Principal Executive Officer) | |
/s/ Donald R. Kimble
|
Executive Vice President and Chief Financial Officer (Principal Financial Officer) | |
/s/ Thomas P. Reed
|
Senior Vice President and Controller (Principal Accounting Officer) | |
/s/ Raymond J. Biggs
|
Director | |
/s/ Don M. Casto III
|
Director | |
/s/ Michael J. Endres
|
Director | |
/s/ John B. Gerlach, Jr.
|
Director | |
/s/ Karen A. Holbrook
|
Director | |
/s/ David P. Lauer
|
Director | |
/s/ Wm. J. Lhota
|
Director | |
/s/ David L. Porteous
|
Director | |
/s/ Kathleen H. Ransier
|
Director | |
/s/ Gene E. Little
|
Director |
31
1. | I have reviewed this Annual Report on Form 10-K of Huntington Bancshares Incorporated; | ||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report; | ||
4. | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and | ||
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and | ||
c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial information; and | ||
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
/s/ Thomas E. Hoaglin | ||||
Thomas E. Hoaglin | ||||
Chief Executive Officer | ||||
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1. | I have reviewed this Annual Report on Form 10-K of Huntington Bancshares Incorporated; | ||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report; | ||
4. | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and | ||
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and | ||
c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial information; and | ||
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
/s/ Donald R. Kimble | ||||
Donald R. Kimble | ||||
Chief Financial Officer | ||||
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/s/ Thomas E. Hoaglin | ||||||
Thomas E. Hoaglin | ||||||
Chief Executive Officer
February 22, 2007 |
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/s/ Donald R. Kimble | ||||||
Donald R. Kimble | ||||||
Chief Financial Officer
February 22, 2007 |
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