(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
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