Huntington National Bank 2005 Annual Report Download

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2005 ANNUAL REPORT

Table of contents

  • Page 1
    2005 ANNUAL REPORT

  • Page 2
    ... company headquartered in Columbus, Ohio. Its principal markets are Ohio, Michigan, West Virginia, Indiana, and Kentucky. Founded in 1866, Huntington serves its customers as the "local bank with national resources." Nearly 8,000 associates provide consumer and commercial banking, mortgage banking...

  • Page 3
    ...Our Midwest Focus 20 Lines of Business 25 Directors and Managers 26 Stock and Dividend Information 27 Financial Information INSIDE BACK COVER Contact and Other Information "Simply the Best" service is our promise to deliver the kind of experience that makes customers feel special...a differentiated...

  • Page 4
    ... services company. We have made numerous investments to improve customer service. State-of-the-art banking office platform technology is now in place, giving Huntington associates more comprehensive information to use in serving customers better. We opened 18 new banking offices in growing markets...

  • Page 5
    ... at the end of 2005. Over this same period, our net charge-off ratio dropped from 0.81% to 0.33%, and our provision for credit losses declined 68% from $257 million to $81 million. A foundational Huntington objective is to deliver above average total returns to our shareholders. There are three ways...

  • Page 6
    ...in middle market commercial real estate loans, and 11% growth in small business loans. _ 5% growth in average total core deposits. _ 57% expense efficiency ratio in the 2005 fourth quarter, down from 66% in the year-earlier quarter. _ Good credit quality performance including...0.33% net charge-off...

  • Page 7
    ... and increases our market share in the Dayton and Columbus areas. It also resulted in the creation of a new Eastern Ohio Region, our eighth. We are pleased to have the Unizan associates on the Huntington team, and we are very excited about the opportunity to serve our new customers with expanded...

  • Page 8
    ... 2005 2004 % Change NET INCOME $ 412,091 $ 398,925 3.3% PER COMMON SHARE AMOUNTS Net income per common share - diluted Cash dividends declared per common share Book value per share (1) $ 1.77 0.845 11.41 $ 1.71 0.75 10.96 3.5% 12.7 4.1 PERFORMANCE RATIOS Return on average assets Return...

  • Page 9
    ... BANKING OFFICES: 113 ATM LOCATIONS: 222 West Virginia BANKING OFFICES: 26 ATM LOCATIONS: 110 Indiana BANKING OFFICES: 23 ATM LOCATIONS: 74 Private Financial and Capital Markets Group FLORIDA Kentucky BANKING OFFICES: 12 ATM LOCATIONS: 33 Mortgage Banking MARYLAND NEW JERSEY Total (1) BANKING...

  • Page 10
    ...-in-hand with high-tech acumen. Last year, huntington.com was again named to the top five of financial web sites by Watchfire® GómezPro, ahead of Chase, National City, Fifth Third and others. And our frontline customer service software, ESS, allows associates to do their jobs faster and easier...

  • Page 11

  • Page 12
    STEVE MILLER Vice President, Business Banking

  • Page 13
    ..., our new Business Banking web site. Most financial institutions offer basic access and products, while Business Online provides up-to-the-minute account information and transaction capabilities, expanded customized reporting and 24-hour access. "It started with a vision," says Pam Erickson, Vice...

  • Page 14
    ... Banking, the account relationship associates take care of client service. Once the relationship is established, they support our commercial bankers by being a single point of contact for customers - to solve problems, open accounts and process loans. Kathy Loken, Vice President, Commercial Banking...

  • Page 15

  • Page 16
    RANDY BATEMAN Senior Vice President and Chief Investment Officer

  • Page 17
    ...network and five top-performing funds turned that all around by the end of last year. "Good numbers are not an accident," says Senior Vice President, Private Financial and Capital Markets Group, Kirk Mentzer. "We've needed to differentiate on service because with investments, service is the product...

  • Page 18
    DONNIE OLDAKER Assistant Vice President, Dealer Sales

  • Page 19
    INVESTING TIME TO FOSTER STRONG ALLIANCES C&O Motors, in St. Albans, WV, has been doing business with Huntington's Assistant Vice President, Dealer Sales, Donnie Oldaker, for more than 10 years. While most banks deal only with a dealership's finance department regarding customer lending, Oldaker ...

  • Page 20
    CONNECTION

  • Page 21
    ...'Simply the Best' service, we spent a great deal of time listening to our customers," explains Ashley. "We learned that customers demand that we do it right and that we are available when they need us. They desire a personal connection with us. We also learned that customers don't think any bank can...

  • Page 22
    ...and services include home equity loans, first mortgage loans, installment loans, small business loans, and deposit products, as well as cash management, investment, and insurance services. COMMERCIAL BANKING PROFILE Customer base comprised of middle-market and larger corporations with annual sales...

  • Page 23
    ...company. Retail customers own small businesses, buy houses, finance cars, open trust accounts, buy insurance, and seek investment advice and trading access. Our products meet these needs, and a retail banking office associate is often the first point of contact to develop additional relationships...

  • Page 24
    ...cash management, interest rate risk management, trade financing, foreign exchange, equipment and technology leasing, 401(k) plan services, investment management, custody services, and a full range of private banking products. Our standard sales process includes system-wide relationship and business...

  • Page 25
    ..., Florida, Georgia, North Carolina, Pennsylvania, South Carolina, and Tennessee. Products and services include indirect consumer loans and leases, as well as dealer ï¬,oor plan and other commercial financing and banking services. REVIEW Dealer Sales has been a major Huntington line of business for...

  • Page 26
    ... fee income through the sale of other banking services. Private Financial and Capital Markets Group associates deliver all banking, investment, insurance, and capital markets products with the objective of providing nothing less than "Simply the Best" service. MUTUAL FUNDS: NOT A DEPOSIT. NOT FDIC...

  • Page 27
    ... Banking Age: 59 Melinda S. Ackerman Executive Vice President, Human Resources Director Age: 58 Daniel B. Benhase Senior Executive Vice President, Private Financial and Capital Markets Group Age: 46 Richard A. Cheap General Counsel and Secretary Age: 54 Wilton W. Dolloff Executive Vice President...

  • Page 28
    ... Dividend 10% Stock Dividend 10% Stock Dividend 10% Stock Dividend - - - - - 7-31-96 7-31-97 7-31-98 7-30-99 7-31-00 - - - - - (1) RESTATED FOR STOCK DIVIDENDS AND STOCK SPLITS AS APPLICABLE. 10-YEAR TOTAL RETURN TO SHAREHOLDERS DECEMBER 31, 1995 TO DECEMBER 31, 2005 (ASSUMES INITIAL INVESTMENT...

  • Page 29
    2005 FINANCIAL INFORMATION HUNTINGTON BANCSHARES INCORPORATED 30 31 96 97 99 100 101 102 103 Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Reports of Management Reports of Independent Registered Public Accounting Firm Consolidated ...

  • Page 30
    ...) Net Charge-offs Investment Portfolio Market Risk Interest Rate Risk Price Risk Lease Residual Risk Liquidity Risk Sources of Liquidity Parent Company Liquidity Credit Ratings Off-Balance Sheet Arrangements Operational Risk Capital LINES OF BUSINESS DISCUSSION Regional Banking Dealer Sales Private...

  • Page 31
    ... Investment Securities Maturity Schedule of Commercial Loans Credit Ratings Contractual Obligations Capital Adequacy Lines of Business - GAAP Earnings vs. Operating Earnings Reconciliation Regional Banking Dealer Sales Private Financial and Capital Markets Group Treasury/Other Total Company...

  • Page 32
    ... Net interest income after provision for credit losses Service charges on deposit accounts Operating lease income Gain on sales of automobile loans Gain on sale of branch offices Gain on sale of Florida operations Merchant services gain Securities gains (losses) Other non-interest income Total...

  • Page 33
    ... credit life and disability insurance; and sell other insurance and financial products and services. Our banking offices are located in Ohio, Michigan, West Virginia, Indiana, and Kentucky. Certain activities are also conducted in Arizona, Florida, Georgia, Maryland, Nevada, New Jersey, North...

  • Page 34
    ...risk of loss resulting from inadequate or failed internal processes, people and systems, or external events. More information on risks is set forth in Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2005. Securities and Exchange Commission Formal Investigation On June...

  • Page 35
    ... or analyzing default and recovery rates. Examples include certain collateralized mortgage and debt obligations and high-yield debt securities. Our securities available-for-sale are valued using quoted market prices. Our derivative positions are valued using internally developed models based on...

  • Page 36
    ... from changes in the estimates used by Management. - INCOME TAXES - The calculation of our periodic 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...

  • Page 37
    ...fees Mortgage banking Bank owned life insurance income Gain on sales of automobile loans Gain on sale of branch offices Gain on sale of Florida operations Merchant services gain Securities gains (losses) Other Total non-interest income Personnel costs Operating lease expense Outside data processing...

  • Page 38
    ...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 $17.0 million decline in other income reï¬,ecting primarily MSR-hedge related trading losses, and a $3.3 million decline in service charges on deposit accounts...

  • Page 39
    ...accounted for as direct financing leases, an interest earning asset included in total loans and leases with the related income reï¬,ected as interest income and included in the calculation of the net interest margin. Credit charge-offs and recoveries are reï¬,ected in the ALLL, with related changes...

  • Page 40
    ...net income due to a federal tax loss carry back, tax exempt income, bank owned life insurance, asset securitization activities, and general business credits from investment in low income housing and historic property partnerships. In addition, the 2005 third quarter and full-year effective tax rates...

  • Page 41
    ... the closing of an item-processing center in Michigan. This item increased non-interest expense. - $2.1 million pre-tax write-off of an equity investment in the 2005 second quarter. This item lowered non-interest income. 2004 - $7.8 million pre-tax of property lease impairments. This item increased...

  • Page 42
    ... on earning assets (primarily loans, direct financing leases, and securities) and interest expense on funding sources (including interest bearing deposits and borrowings.) Earning asset balances and related funding, as well as changes in the levels of interest rates, impact net interest income...

  • Page 43
    ... and direct financing leases Securities Other earning assets Total interest income in earning assets Deposits Short-term borrowings Federal Home Loan Bank advances Subordinated notes and other long-term debt, including capital securities Total interest expense in interest-bearing liabilities Net...

  • Page 44
    ... $28,126 Assets Interest bearing deposits in banks Trading account securities Federal funds sold and securities purchased under resale agreements Loans held for sale Investment securities: Taxable Tax-exempt Total investment securities Loans and leases:(3) Commercial: Middle market commercial and...

  • Page 45
    ...Rate(2) 2005 $ 1.1 8.5 6.0 17.9 158.7 31.9 190.6 279.0 101.0 110.6 211.6 137.5 628.1 133.3 119.6 252.9 297.2 222.3 30.6 803.0 1,431.1 1,655.2 $ 2004 0.7 4.4 5.5 13.0 171.7 28.8 200... 20.5 33.1 4.1 257.1 13.0 33.3 132.5 435.9 - 73.0 67.7 100.4 241.1 18.5 24.1 4.6 288.3 15.7 24.4 128.5 456.9 - 88.9...

  • Page 46
    ... deposits. With interest rates rising throughout the year, demand for certificates of deposit less than $100,000 increased as customers transferred funds from lowerrate savings and other domestic time deposits into higher fixed-rate term deposit accounts. We use the non-core funding ratio (total...

  • Page 47
    ... on deposit accounts Trust services Brokerage and insurance income Other service charges and fees Mortgage banking Bank owned life insurance income Securities gains (losses) Other Sub-total before operating lease income Operating lease income Sub-total including operating lease income Gain on sales...

  • Page 48
    ...investment banking income, and lower equity investment gains. - $13.0 million decline in gains on sale of automobile loans as the year-ago period included $14.2 million of such gains. - $3.3 million, or 2%, decline in service charges on deposit accounts, all driven by a decline in commercial service...

  • Page 49
    ... in trust services income primarily due to higher personal trust income and proprietary mutual fund fees. - $3.3 million increase in service charges on deposit accounts, reï¬,ecting higher NSF and overdraft fees, partially offset by lower personal and commercial account maintenance charges. 47

  • Page 50
    ... to investments in partnerships generating tax benefits in the year-ago period, and lower litigation related expense accruals and lower insurance costs in the current period. - $4.8 million, or 6%, decline in net occupancy expense, as 2004 included a $7.8 million loss caused by property lease...

  • Page 51
    ...Market Risk section.) Operating lease assets represent automobile leases originated before May 2002. This operating lease portfolio is running-off over time since all automobile lease originations after April 2002 have been recorded as direct financing leases and are reported in the automobile loan...

  • Page 52
    ... degree. Operating lease expense totaled $108.4 million for 2005, down 54% from a year ago, also reï¬,ecting the continued decline in operating lease assets, with the decline related to lower depreciation and residual losses at termination expenses. The ratio of operating lease credit losses, net of...

  • Page 53
    ... represents the risk of loss due to changes in the market value of assets and liabilities due to changes in interest rates, exchange rates, residual values, and equity prices. Liquidity risk arises from the possibility that funds may not be available to satisfy current or future commitments based...

  • Page 54
    ...customers with existing or expandable relationships within our primary markets. As a result, shared national credit exposure declined in 2002 and 2003. The on-going sale of automobile loans is an example of the proactive management of concentration risk. The checks and balances in the credit process...

  • Page 55
    ... real estate Small business commercial and industrial and commercial real estate Total commercial Consumer: Automobile loans Automobile leases Home equity Residential mortgage Other loans Total consumer Total loans and direct financing leases Operating lease assets Securitized loans Total credit...

  • Page 56
    ...both middle market and small business commercial real estate loans, were well diversified by the type of property, as reï¬,ected in the following table: Table 12 - Commercial Real Estate Loans by Property Type and Location At December 31, 2005 Geographic Region (in thousands of dollars) Ohio $ 341...

  • Page 57
    ... income is reversed with current year accruals charged to earnings and prior-year amounts generally charged-off as a credit loss. Consumer loans and leases, excluding residential mortgages and home equity lines and leases, are not placed on non-accrual status but are charged-off in accordance with...

  • Page 58
    ... Small business commercial and industrial and commercial real estate Residential mortgage Home equity Total non-accrual loans and leases Renegotiated loans Total non-performing loans and leases Other real estate, net: Residential Commercial(1) Total other real estate, net Total non-performing assets...

  • Page 59
    ... referred to as the specific reserve. For middle market commercial and industrial, middle market commercial real estate, and small business loans, the estimate of loss is based on characteristics of each loan through the use of a standardized loan grading system, which is applied on an individual...

  • Page 60
    ... of dollars) 2005 2004 2003 2002 2001 Commercial: Middle market commercial and industrial Middle market commercial real estate Small business commercial and industrial and commercial real estate Total commercial Consumer: Automobile loans and leases Home equity Residential mortgage Other loans...

  • Page 61
    ... real estate Total commercial Consumer: Automobile loans Automobile leases Automobile loans and leases Home equity Residential mortgage Other loans Total consumer Total recoveries Net loan and lease charge-offs Provision for loan and lease losses Economic reserve transfer Allowance for assets...

  • Page 62
    ... in 2004. Total automobile loan and lease net charge-offs in 2005 were $23.7 million, or an annualized 0.53% of related loans and leases, down from $39.4 million, or 0.88%, in 2004. This reduction reï¬,ected the impact of previous loan sales. Home equity net charge-offs in the current year were $17...

  • Page 63
    ... market commercial real estate Small business commercial and industrial and commercial real estate Total commercial Consumer: Automobile loans Automobile leases Automobile loans and leases Home equity Residential mortgage Other loans Total consumer Total net charge-offs Net charge-offs - annualized...

  • Page 64
    ... rate risk are employed: income simulation and economic value analysis. An income simulation analysis is used to measure the sensitivity of forecasted net interest income to changes in market rates over a one-year time horizon. Although bank owned life insurance and automobile operating lease assets...

  • Page 65
    ... MSRs. We also have price risk from securities owned by our broker-dealer subsidiaries, foreign exchange positions, investments in private equity limited partnerships, and marketable equity securities held by our insurance subsidiaries. We have established loss limits on the trading portfolio and on...

  • Page 66
    ... of wholesale funding include domestic time deposits of $100,000 or more, brokered deposits and negotiable CDs, deposits in foreign offices, short-term borrowings, Federal Home Loan Bank (FHLB) advances, other long-term debt, and subordinated notes. At December 31, 2005, total wholesale funding was...

  • Page 67
    ...fices Total deposits Total core deposits: Commercial Personal Total core deposits By Business Segment(1) Regional Banking: Central Ohio Northern Ohio Southern Ohio/Kentucky West Michigan East Michigan West Virginia Indiana Mortgage and equipment leasing groups Regional Banking Dealer Sales Private...

  • Page 68
    ... 10 years Total private label CMO Asset backed securities Under 1 year 1-5 years 6-10 years Over 10 years Total asset backed securities Other Under 1 year 1-5 years 6-10 years Over 10 years Non-marketable equity securities Marketable equity securities Total other Total investment securities $ - 23...

  • Page 69
    ... parent company obtains funding to meet obligations from dividends received from direct subsidiaries, net taxes collected from subsidiaries included in the Federal consolidated tax return, fees for services provided to subsidiaries, and the issuance of debt securities. We intend to maintain the Bank...

  • Page 70
    ... Ratings affirmed their current ratings and changed the outlook to Stable from Negative. Credit ratings as of December 31, 2005 for the parent company and the Bank were: Table 26 - Credit Ratings December 31, 2005 Senior Unsecured Notes Huntington Bancshares Incorporated Moody's Investor Service...

  • Page 71
    ... of deposit and other time deposits Other long-term debt Federal Home Loan Bank advances Short-term borrowings Subordinated notes Operating lease obligations Operational Risk As with all companies, there is risk inherent in the day-to-day operations that could result in losses due to human error...

  • Page 72
    ... assets ratio at December 31, 2005, was 7.91%, up from 7.86% at the end of 2004. The ratio was favorably impacted by the addition of lower risk-weighted assets during the year, e.g., residential mortgages, home equity loans, and investment securities, partially offset by the impact of share...

  • Page 73
    ... use a centralized funds transfer pricing (FTP) methodology to attribute appropriate net interest income to the business segments. The Treasury/Other business segment charges (credits) an internal cost of funds for assets held in (or pays for funding provided by) each line of business. The FTP rate...

  • Page 74
    ... - Lines of Business - GAAP Earnings vs. Operating Earnings Reconciliation(1) (in thousands of dollars) Regional Banking Dealer Sales PFCMG Treasury/Other Total 2005 Net income - GAAP Change from prior year - $ Change from prior year - % Net income - operating Change from prior year - $ Change...

  • Page 75
    ... and Commercial Banking units. Retail products and services include home equity loans and lines of credit, first mortgage loans, direct installment loans, small business loans, personal and business deposit products, as well as sales of investment and insurance services. Retail Banking accounts for...

  • Page 76
    ... was also broad-based: Regional Banking Average Deposits: Increase from 2004 (in millions of dollars) 2005 Region Central Ohio Northern Ohio Southern Ohio/Kentucky West Michigan East Michigan West Virginia Indiana Mortgage and equipment leasing groups Total $ 4,520 4,060 1,828 2,687 2,273 1,397...

  • Page 77
    ... market commercial and industrial Middle market commercial real estate Construction Commercial Small business loans Total commercial Consumer Auto loans - indirect Home equity loans & lines of credit Residential mortgage Other loans Total consumer Total loans & leases Operating lease assets Deposits...

  • Page 78
    ... - annualized percentages Commercial Middle market commercial and industrial Middle market commercial real estate Small business loans Total commercial Consumer Auto loans Home equity loans & lines of credit Residential mortgage Other loans Total consumer Total net charge-offs Non-performing assets...

  • Page 79
    ...-time equivalent (eop) # banking offices (eop) # ATMs (eop) # DDA households (eop) # New relationships 90-day cross-sell (average) # on-line customers (eop) % on-line retail household penetration (eop) Small Business Average loans (in millions) Average deposits (in millions) # employees - full-time...

  • Page 80
    ...and the Operating Lease Assets Section.) Objectives, Strategies, and Priorities Our Dealer Sales line of business provides a variety of banking products and services to more than 3,500 automotive dealerships within our primary banking markets, as well as in Arizona, Florida, Georgia, North Carolina...

  • Page 81
    ...quality, as the provision for credit losses fell $11.9 million. While revenue fell $163.2 million, or 26%, this decrease was largely caused by the run-off of the operating leases, which was also reï¬,ected in the $158.2 million decline in operating lease expenses. Dealer Sales ROA was 1.01%, up from...

  • Page 82
    ... dollars) Net interest income Provision for credit losses Net interest income after provision for credit losses Operating lease income Service charges on deposit accounts Brokerage and insurance income Trust services Mortgage banking Other service charges and fees Other income Securities gains Total...

  • Page 83
    ... - annualized percentages Commercial Middle market commercial and industrial Middle market commercial real estate Total commercial Consumer Auto leases Auto loans Home equity loans & lines of credit Other loans Total consumer Total net charge-offs Non-performing assets (NPA) (in millions of dollars...

  • Page 84
    ... 31 - Dealer Sales(1) AND A NALYSIS H U N T I N G TO N B A N C S H A R E S I N C O R P O R AT E D Change From 2004 2005 Amount % 2004 Change From 2003 Amount % 2003 SUPPLEMENTAL DATA # employees - full-time equivalent Automobile loans Production (in millions) % Production new vehicles Average...

  • Page 85
    ...term life insurance, to estate planning, group life and health insurance, property and casualty insurance, mortgage title insurance, and reinsurance for payment protection products. Income and related expenses from the sale of brokerage and insurance products is shared with the line of business that...

  • Page 86
    ...AVERAGE BALANCES (in millions of dollars) Loans: Commercial Middle market commercial and industrial Middle market commercial real estate Construction Commercial Total commercial Consumer Home equity loans & lines of credit Residential mortgage Other loans Total consumer Total loans & leases Deposits...

  • Page 87
    ... - annualized percentages Commercial Middle market commercial and industrial Middle market commercial real estate Total commercial Consumer Home equity loans & lines of credit Residential mortgage Other loans Total consumer Total net charge-offs Non-performing assets (NPA) (in millions of dollars...

  • Page 88
    ...2003 PRIVATE FINANCIAL SUPPLEMENTAL DATA # employees - full-time equivalent (eop)(2) # licensed bankers (eop) Brokerage and Insurance Income (in thousands) Mutual fund revenue Annuities revenue 12b-1 fees Discount brokerage commissions and other Total retail investment sales Investment banking fees...

  • Page 89
    ... to market rates, in the credit provided to other lines of business for their non-interest bearing sources of funding and an 18% decline in average investment securities balances. Net securities gains declined by $23.1 million, driven by a current year net securities losses of $8.1 million...

  • Page 90
    ... thousands of dollars) Net interest income Provision for credit losses Net interest income after provision for credit losses Service charges on deposit accounts Brokerage and insurance income Mortgage banking Bank owned life insurance income Other income Securities gains (losses) Total non-interest...

  • Page 91
    ... Middle market commercial real estate Construction Commercial Small business loans Total commercial Consumer Auto leases - indirect Auto loans - indirect Home equity loans & lines of credit Residential mortgage Other loans Total consumer Total loans & leases Operating lease assets Deposits: Non...

  • Page 92
    ... Middle market commercial real estate Small business loans Total commercial Consumer Auto leases Auto loans Home equity loans & lines of credit Residential mortgage Other loans Total consumer Total net charge-offs Non-performing assets (NPA) (in millions of dollars) Middle market commercial and...

  • Page 93
    ... 5%, reï¬,ecting current automobile loan production and loan sales. Average direct financing leases declined 2% from the year-ago quarter, reï¬,ecting declining production levels due to lower consumer demand and aggressive price competition. Average operating lease assets declined $0.4 billion, or...

  • Page 94
    ... home equity net charge-offs. Total automobile loan and lease net charge-offs in the 2005 fourth quarter were $6.6 million, or an annualized 0.61% of related loans and leases, down from $7.5 million, or an annualized 0.70%, in the year-ago quarter. Home equity loan net charge-offs in the current...

  • Page 95
    ...a combined basis, the ACL as a percent of total loans and leases was 1.25% at December 31, 2005, down from 1.29% a year earlier. The ACL as a percent of NPAs was 261% at December 31, 2005, down from 280% a year earlier. The provision for credit losses in the 2005 fourth quarter was $30.8 million, an...

  • Page 96
    ... credit losses Service charges on deposit accounts Trust services Brokerage and insurance income Other service charges and fees Mortgage banking income (loss) Bank owned life insurance income Gains on sales of automobile loans Securities gains (losses) Other income Sub-total before operating lease...

  • Page 97
    ... Common stock price, per share High (1) Low (1) Close Average closing price Dividends, per share Cash dividends declared on common stock Common shares outstanding Average - basic Average - diluted Ending Book value per share Common share repurchases Number of shares repurchased Quarterly key ratios...

  • Page 98
    ... in conformity with accounting principles generally accepted in the United States. Huntington's management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2005. In making this assessment, Management used the criteria set forth by the...

  • Page 99
    ... and Shareholders of Huntington Bancshares Incorporated Columbus, Ohio We have audited management's assessment, included in the accompanying Report on Management's Assessment of Internal Control over Financial Reporting, that Huntington Bancshares Incorporated and subsidiaries (the ''Company...

  • Page 100
    ... Columbus, Ohio We have audited the accompanying consolidated balance sheets of Huntington Bancshares Incorporated and subsidiaries (the ''Company'') as of December 31, 2005 and 2004, and the related consolidated statements of income, changes in shareholders' equity, and cash ï¬,ows for the years...

  • Page 101
    ...for sale Investment securities Loans and leases: Commercial and industrial loans Commercial real estate loans Automobile loans Automobile leases Home equity loans Residential mortgage loans Other consumer loans Loans and leases Allowance for loan and lease losses Net loans and leases Bank owned life...

  • Page 102
    ... charges and fees Mortgage banking income Bank owned life insurance income Gains on sales of automobile loans Gain on sale of branch offices Securities gains (losses), net Other income Total non-interest income Personnel costs Operating lease expense Outside data processing and other services Net...

  • Page 103
    ... Minimum pension liability adjustment Total comprehensive income Cash dividends declared ($0.67 per share) Stock options exercised Treasury shares purchased Other Balance - December 31, 2003 Comprehensive income: Net income Unrealized net losses on investment securities arising during the year, net...

  • Page 104
    ...of investment securities Gains on sales /securitizations of loans Gain on sale of branch offices Loss on early extinguishment of debt Restructuring reserve releases Increase of cash surrender value of bank owned life insurance (Decrease) increase in payable to investors in sold loans Other, net Net...

  • Page 105
    ...and selling other insurance and financial products and services. Huntington's 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...

  • Page 106
    ..., 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...

  • Page 107
    ... 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...

  • Page 108
    ...aggregate basis. Fair value is determined using available secondary market prices for loans with similar coupons, maturities, and credit quality. Huntington recognizes the rights to service mortgage loans as separate assets, which are included in other assets in the consolidated balance sheets, only...

  • Page 109
    ...occurs, the market value of the automobile may be less than Huntington's 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. - BANK OWNED LIFE INSURANCE...

  • Page 110
    ...last three years: Year Ended December 31, (in millions of dollars, except per share amounts) 2005 2004 2003 Assumptions Risk-free interest rate Expected dividend yield Expected volatility of Huntington's common stock Expected option term (years) Pro forma results Net income, as reported Less pro...

  • Page 111
    ... for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The impact of this new pronouncement is not expected to be material to Huntington's financial condition, results of operations, or cash ï¬,ows. - STATEMENT NO. 123 (REVISED 2004), Share-Based...

  • Page 112
    ...in thousands of dollars) Amortized Cost Gross Gains Gross Losses Fair Value 2005 U.S. Treasury Federal agencies Mortgage-backed securities Other agencies Total Federal agencies Asset-backed securities Municipal securities Private label CMO Other securities Total investment securities $ 24,199...

  • Page 113
    ... agencies Mortgage-backed securities Other agencies Total Federal agencies Asset-backed securities Municipal securities Private label CMO Other securities Total temporarily impaired securities As of December 31, 2005, Management has evaluated these investment securities with unrealized losses...

  • Page 114
    ... value of leased assets Gross investment in consumer lease financing receivables Deferred origination fees and costs Unearned income Total net investment in consumer lease financing receivables The future lease rental payments due from customers on direct financing leases at December 31, 2005...

  • Page 115
    ... of year New servicing assets Amortization Impairment charges Adoption of FIN 46 Carrying value, end of year Fair value, end of year Huntington has retained servicing responsibilities and receives annual servicing fees from 0.55% to 1.00% of the outstanding loan balances. Servicing income, net of...

  • Page 116
    ... millions of dollars) At December 31, 2005 Principal Balance Year Ended December 31, 2005 Average Balance $ 7,013 4,227 $11,240 Loans serviced for others Loans held in portfolio and held for sale Loans serviced $ 7,276 4,306 $11,582 Changes in the carrying value of mortgage servicing rights and...

  • Page 117
    ...in 2005, 2004, and 2003, an allowance for loan and lease losses attributable to the associated loans sold was included as a component of the loan's carrying value upon their sale. (2) Includes impaired commercial and industrial loans and commercial real estate loans with outstanding balances greater...

  • Page 118
    ... 31, 2005 and 2004. From a credit risk perspective, 87% of the home equity loans had a loan to value ratio of less than 90% at December 31, 2005. The charge-off policy for home equity loans is described in Note 1. 7. OPERATING LEASE ASSETS For periods before May 2002, Huntington purchased vehicles...

  • Page 119
    ...,174 0.93% $1,500,267 Average balance during the year Average interest rate during the year Maximum month-end balance during the year Commercial paper is issued by Huntington Bancshares Financial Corporation, a non-bank subsidiary, with principal and interest guaranteed by the parent company. 117

  • Page 120
    ...006,004 100,000 860,000 50,000 $4,016,004 The Huntington National Bank Parent company (matured in December 2005) 4.69% Securitization trust note payable due 2012(1) 7.88% Class C preferred securities of REIT subsidiary, no maturity Total other long-term debt (1) Variable effective rate at December...

  • Page 121
    ... losses (gains) from sales of investment securities during the year: Realized net losses (gains) Related tax (benefit) expense Net Total unrealized losses on investment securities arising during the year, net of reclassification of net realized losses (gains) Unrealized gains (losses) on cash...

  • Page 122
    ... shares from time to time in the open market or through privately negotiated transactions, depending on market conditions. Listed below is the share repurchase activity for the year ended December 31, 2005: Total Number of Shares Purchased 4,415,700 5,175,000 9,590,700 Average Price Paid Per Share...

  • Page 123
    ...7, 2005, Huntington released from escrow 86,118 shares of Huntington common stock, which were previously issued in September 2002, to former shareholders of LeaseNet, Inc. A total of 373,896 common shares, previously held in escrow, was returned to Huntington. All shares in escrow had been accounted...

  • Page 124
    ... credit losses Net operating loss & other carryforwards Fair value adjustments Other Total deferred tax assets before valuation allowance Valuation allowance Net deferred tax assets Deferred tax liabilities: Lease financing Pension and other employee benefits Mortgage servicing rights Other Total...

  • Page 125
    ... Internal Revenue Code. In addition, Huntington has an unfunded defined benefit post-retirement plan that provides certain health care and life insurance benefits to retired employees who have attained the age of 55 and have at least 10 years of vesting service under this plan. For any employee...

  • Page 126
    ...) Changes due to: Actual return on plan assets Employer contributions Settlements Benefits paid Total changes Fair value of plan assets at end of measurement year (September 30) Huntington's accumulated benefit obligation under the Plan was $372 million and $294 million at September 30, 2005 and...

  • Page 127
    ...27 5 100% Balance $ - 164 300,080 125,971 14,572 Cash Huntington Huntington Huntington Huntington funds - money market funds - equity funds funds - fixed income funds common stock Fair value of plan assets (September 30) $ 440,787 $353,222 The number of shares of Huntington common stock held...

  • Page 128
    ... short-term assets Trading account securities Loans held for sale Investment securities Net loans and direct financing leases Customers' acceptance liability Derivatives Financial liabilities: Deposits Short-term borrowings Bank acceptances outstanding Federal Home Loan Bank advances Subordinated...

  • Page 129
    ..., as adjusted for estimated credit losses. The fair values for other loans and leases are estimated using discounted cash ï¬,ow 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...

  • Page 130
    ... derivatives designated as cash ï¬,ow hedges. Derivatives used to manage Huntington's interest rate risk at December 31, 2005, are shown in the table below: Notional Value Average Maturity (years) Fair Value Weighted-Average Rate Receive Pay (in thousands of dollars) Asset conversion swaps Receive...

  • Page 131
    ... rate risk management activities to assess the impact on the net interest margin. Fair Value Hedges Cash Flow Hedges (in thousands of dollars) Total Instruments associated with: Investment securities Loans Deposits Federal Home Loan Bank advances Subordinated notes Other long-term debt Total...

  • Page 132
    ... options contain both credit and market risk. They are used to manage ï¬,uctuating interest rates as exposure to loss from interest rate contracts changes. Supplying these derivatives to customers results in fee income. These instruments are carried at fair value in other assets with gains and...

  • Page 133
    ... under capital leases. SECURITIES AND EXCHANGE COMMISSION FORMAL INVESTIGATION On June 2, 2005, Huntington filed a Form 8-K announcing that the Commission approved the settlement of its previously announced formal investigation into certain financial accounting matters. Huntington consented to pay...

  • Page 134
    ...ces or on deposit at the Federal Reserve Bank. During 2005 and 2004, the average balance of these deposits were $57.6 million and $70.4 million, respectively. Under current Federal Reserve regulations, the Bank is limited as to the amount and type of loans it may make to the parent company and non...

  • Page 135
    ... Huntington National Bank Due from non-bank subsidiaries Investment in The Huntington National Bank Investment in non-bank subsidiaries Goodwill Accrued interest receivable and other assets Total assets LIABILITIES AND SHAREHOLDERS' EQUITY Short-term borrowings Long-term borrowings Dividends payable...

  • Page 136
    ... Huntington National Bank Non-bank subsidiaries Interest from The Huntington National Bank Non-bank subsidiaries Management fees from subsidiaries Other Total income Expense Personnel costs Interest on borrowings Other Total expense Income before income taxes and equity in undistributed net income...

  • Page 137
    ... Investing activities Repayments from subsidiaries Advances to subsidiaries Proceeds from sale of securities available for sale Net cash provided by (used in) investing activities Financing activities Proceeds from issuance of long-term borrowings Payment of borrowings Dividends paid on common stock...

  • Page 138
    ... and Commercial Banking units. Retail products and services include home equity loans and lines of credit, first mortgage loans, direct installment loans, small business loans, personal and business deposit products, as well as sales of investment and insurance services. Retail Banking accounts for...

  • Page 139
    ... financial information reconciled to Huntington's 2005, 2004, and 2003 reported results by line of business: Regional Banking Dealer Sales Treasury/ Other Huntington Consolidated INCOME STATEMENTS (in thousands of dollars) PFCMG 2005 Net interest income Provision for credit losses Non-interest...

  • Page 140
    ...is a summary of the unaudited quarterly results of operations, for the years ended December 31, 2005 and 2004: 2005 (in thousands of dollars, except per share data) Fourth $ 442,476 (198,800) 243,676 (30,831) 147,322 (230,355) 129,812 (29,239) $ 100,573 $0.44 0.44 Fourth $ 359,215 (120,147) 239,068...

  • Page 141
    ... Fitch Ratings, New York, New York CUSTOMER CONTACTS Corporate Headquarters (614) 480-8300 Customer Service Center (800) 480-BANK (2265) Business Direct (800) 480-2001 Dealer Sales (800) 445-8460 The Huntington Investment Company (800) 322-4600 Mortgage Group (800) 562-6871 Private Financial and...

  • Page 142
    HUNTINGTON BANCSHARES INCORPORATED Huntington Center, 41 S. High Street Columbus, Ohio 43287 (614) 480-8300 huntington.com and Huntington® are federally registered service marks of Huntington Bancshares Incorporated. © 2006 Huntington Bancshares Incorporated. ® 03006AR