Huntington National Bank 2006 Annual Report Download

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2006 ANNUAL REPORT
® and Huntington®
© 2007 Huntington Bancshares Incorporated.

Table of contents

  • Page 1
    2006 ANNUAL REPORT

  • Page 2
    ...as a % of total loans and leases and other real estate (OREO)(1) Allowance for credit losses (ACL) as a % of total loans and leases(1) ACL as a % of NPLs(1) ACL as a % of NPAs (1) BALANCE SHEET - DECEMBER 31, Total loans and leases Total assets Total deposits Total shareholders' equity $ 26,153,425...

  • Page 3
    ... AND CHIEF EXECUTIVE OFFICER TO OUR SHAREHOLDERS AND FRIENDS: I closed my letter last year noting that our "local bank with national resources" business model and value proposition of delivering a "Simply the Best" customer experience were both working. The progress we made in 2006 confirms...

  • Page 4
    ...on-line account opening process and opened eight new banking offices. We also began offering on-site check processing for business customers. The Private Financial and Capital Markets Group increased assets under management by 13%. This reï¬,ected the outstanding performance by the Huntington Funds...

  • Page 5
    ... Sky's shareholders, as well as the customary regulatory approvals. (See important related disclosures in the 2006 Annual Report on Form 10-K.) In each of these transactions, a key factor in the decision to join Huntington was the attractiveness of our "local bank with national resources" business...

  • Page 6
    ...of James Dunlap, Mary Navarro and Michael Prescott were expanded as they were appointed Regional Banking Group Presidents. Other key Regional Banking appointments included Jon Greenwood as head of Retail Sales and Service and Jeff Rosen, head of Business Banking. In the credit area, Richard Witherow...

  • Page 7
    ... INCOME (MILLIONS) $461 $399 $372 $324 $412 DILUTED EARNINGS PER SHARE $1.92 $1.61 $1.33 $1.71 $1.77 02 03 04 05 06 02 03 04 05 06 RETURN ON AVERAGE EQUITY 17.0% 16.8% 14.5% CASH DIVIDENDS DECLARED $1.00 $.845 $.75 $.64 $.67 16.0% 15.7% 02 03 04 05 06 02 03 04 05 06 LETTER...

  • Page 8
    ... INVESTMENT OF $1,000 AND REINVESTMENT OF ALL DIVIDENDS) 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 $3,000 $2,500 $2,243 $2,000 $1,865 $1,500 $1,000 10-Year Compound Average Annual Total Return Huntington 6.4% S&P 500 8.4% FORWARD-LOOKING STATEMENT DISCLOSURE This annual report...

  • Page 9
    ... Condition and Results of Operations Reports of Management Reports of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Changes in Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated...

  • Page 10
    ... Code Table 13 - Commercial Real Estate Loans by Property Type and Borrower Location Consumer Credit Non-Performing Assets (NPAs) Table 14 - Non-Performing Assets and Past Due Loans and Leases Table 15 - Non-Performing Asset Activity Allowances for Credit Losses Table 16 - ACL as a Percent of Total...

  • Page 11
    ... Economic Value of Equity at Risk Price Risk Liquidity Risk Sources of Liquidity Table 23 - Deposit Composition Table 24 - Federal Funds Purchased and Repurchase Agreements Table 25 - Investment Securities Table 26 - Maturity Schedule of Commercial Loans Parent Company Liquidity Credit Ratings Table...

  • Page 12
    ...credit losses Net interest income after provision for credit losses Service charges on deposit accounts Automobile operating lease income Gain on sales of automobile loans Gain on sale of Florida operations Securities (losses) gains Other non-interest income Total non-interest income Personnel costs...

  • Page 13
    ... 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 Carolina, Pennsylvania, South Carolina, Tennessee...

  • Page 14
    ... to cash to meet operating needs, and (4) operational risk, which is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. More information on risk is set forth under the heading ''Risk Factors'' included in Item 1A of our Annual Report...

  • Page 15
    ... 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...

  • Page 16
    ... and retail banking; Sky Trust, asset management services; and Sky Insurance, retail and commercial insurance agency services. Under the terms of the agreement, Sky Financial shareholders will receive 1.098 shares of Huntington common stock, on a taxfree basis, and a taxable cash payment of $3.023...

  • Page 17
    ... Net interest income after provision for credit losses Service charges on deposit accounts Trust services Brokerage and insurance income Other service charges and fees Bank owned life insurance income Automobile operating lease income Mortgage banking Gain on sales of automobile loans Securities...

  • Page 18
    ... 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...

  • Page 19
    ... 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...

  • Page 20
    ... 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...

  • Page 21
    ... 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 2006 - $10.0 million pre-tax contribution to the Huntington Foundation. - $7.4 million pre-tax equity investment...

  • Page 22
    ... accounting change Gain on sale of MasterCard stock Balance sheet restructuring Huntington Foundation contribution Automobile lease residual value losses Severance and consolidation expenses Unizan merger costs Adjustment for equity method investments Adjustment to defer home equity annual fees Net...

  • Page 23
    ... and direct financing leases Securities Other earning assets Total interest income from earning assets Deposits Short-term borrowings Federal Home Loan Bank advances Subordinated notes and other long-term debt, including capital securities Total interest expense of interest-bearing liabilities Net...

  • Page 24
    ...923 $26,063 Assets Interest bearing deposits in banks Trading account securities Federal funds sold and securities purchased under resale agreement Loans held for sale Investment securities: Taxable Tax-exempt Total investment securities Loans and leases:(3) Commercial: Middle market commercial and...

  • Page 25
    ...H A R E S I N C O R P O R AT E D Interest Income/Expense Average Rate(2) 2006 $ 3.2 3.8 16.1 16.8 229.4 38.5 267.9 406.0 100.5 201.7 302.2 173.9 882.1 ... 212.9 39.2 793.6 1,431.1 1,655.2 $ 2004 0.7 4.4 5.5 13.0 171.7 28.8 200.5 196.5 64.2 88.0 152.2 110.3 459.0 165.1 109.6 274.7 208.6 163.0 29.5...

  • Page 26
    ... mergerrelated). Average savings and other domestic time deposits declined $0.2 billion, despite $0.4 billion of increase related to the Unizan merger. We use the non-core funding ratio (total liabilities less core deposits and accrued expenses and other liabilities divided by total assets) to...

  • Page 27
    ... (11.3)% Service charges on deposit accounts Trust services Brokerage and insurance income Other service charges and fees Bank owned life insurance income Mortgage banking Gain on sales of automobile loans Securities gains (losses) Other Sub-total before automobile operating lease income Automobile...

  • Page 28
    ...in trust services due to higher personal trust and mutual fund fees, reï¬,ecting 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...

  • Page 29
    ...(1) Net trading (losses) gains related to MSR hedging Total mortgage banking income Capitalized mortgage servicing rights(2) MSR allowance(2) Total mortgages serviced for others(2) $ 131,104 - 8,252,000 91,259 (404) 7,276,000 N.M., not a meaningful value. (1) In 2006, Huntington adopted Statement...

  • Page 30
    ... 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. Partially offset by: - $7.5 million, or 22%, decline in professional...

  • Page 31
    ... of dollars) 2006 2005 2004 2003 2002 Balance Sheet: Average automobile operating lease assets outstanding Income Statement: Net rental income Fees Recoveries - early termination losses Total automobile operating lease income Depreciation and residual losses at termination Losses - early...

  • Page 32
    ... loss due to changes in the market value of assets and liabilities due to changes in interest rates, exchange rates, and equity prices. Liquidity risk arises from the possibility that funds may not be available to satisfy current or future commitments based on external macro market issues, investor...

  • Page 33
    ... Commercial Total middle market 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...

  • Page 34
    ... market CRE loans and small business CRE loans totaled $4.5 billion at December 31, 2006. These loans were predominantly for properties located in our primary banking markets, and were diversified by the type of property, as reï¬,ected in the following table: Table 13 - Commercial Real Estate Loans...

  • Page 35
    ... on minimum FICO credit scores, debt-to-income ratios, and loan-to-value ratios. We offer closed-end home equity loans with a fixed interest rate and level monthly payments and a variable-rate, interest-only home equity line of credit. At December 31, 2006, we had $1.7 billion of home equity loans...

  • Page 36
    ... are suspended, accrued interest income is reversed with current year accruals charged to earnings and prior-year amounts generally charged-off as a credit loss. Consumer loans and leases, excluding residential mortgages and home equity lines and leases, are not placed on non-accrual status but...

  • Page 37
    ... market commercial real estate Small business commercial and industrial and commercial real estate Residential mortgage Home equity Total non-performing loans and leases Other real estate, net: Residential(2) Commercial(3) Total other real estate, net Total non-performing assets Non-performing loans...

  • Page 38
    ... loan ratings over time and a combination of long-term average loss experience of our own portfolio and external industry data. In the case of more homogeneous portfolios, such as consumer loans and leases, the determination of the transaction reserve is based on reserve factors that include the use...

  • Page 39
    ... of dollars) 2006 2005 2004 2003 2002 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 40
    ... 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 sold...

  • Page 41
    ... 19 - Long-term Net Charge-off Ratio Targets Long-term Targets(1) Middle market C&I Middle market CRE Small business C&I and CRE Automobile loans Automobile direct financing leases Home equity loans and lines Residential loans Total portfolio (1) Assumes loan and lease portfolio mix comparable to...

  • Page 42
    ... 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 43
    ... 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 44
    ... at fair value and are subject to mark-to-market accounting. We have price risk from trading securities, which includes instruments to hedge MSRs. We also have price risk from securities owned by our broker-dealer activities, the foreign exchange positions, investments in private equity limited...

  • Page 45
    ... Commercial Personal Total core deposits By Business Segment(1) Regional Banking: Central Ohio Northern Ohio Southern Ohio/Kentucky Eastern Ohio West Michigan East Michigan West Virginia Indiana Mortgage and equipment leasing groups Regional Banking Dealer Sales Private Financial and Capital Markets...

  • Page 46
    ... include the sale or maturity of investment securities, the sale or securitization of loans, and the issuance of common and preferred securities. The Bank also has access to the Federal Reserve's discount window. At December 31, 2006, a total of $3.1 billion of commercial loans had been pledged...

  • Page 47
    ...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 $ 800 1,046 - - 1,846 $4,362,924 $4,526,520 $4,238,945 Fair Value $ 800 1,056 - - 1,856...

  • Page 48
    ..., funding of non-bank subsidiaries, repurchases of our stock, debt service, and operating expenses. The 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...

  • Page 49
    ...: Table 27 - Credit Ratings December 31, 2006 Senior Unsecured Notes Huntington Bancshares Incorporated Moody's Investor Service Standard and Poor's Fitch Ratings The Huntington National Bank Moody's Investor Service Standard and Poor's Fitch Ratings Subordinated Notes Short-Term Outlook A3 BBB...

  • Page 50
    ... common shares. This authorization may be used to help mitigate the dilutive earnings impact resulting from the issuance of stock options and restricted stock. All purchases under the current authorization will be made from time-to-time in the open market or through privately negotiated transactions...

  • Page 51
    ...to estimate the approximate effect of the Unizan merger used to determine ''merger-related'' impacts. Balance Sheet Items For loans and leases, as well as core deposits, balances as of the acquisition date are pro-rated to the post-merger period being used in the comparison. For example, to estimate...

  • Page 52
    ... 733 Net interest income - FTE Service charges on deposit accounts Trust services Brokerage and insurance income Bank owned life insurance income Other service charges and fees Mortgage banking income (loss) Securities gains (losses) Gains on sales of automobile loans Other income Sub-total before...

  • Page 53
    ... 539 Net interest income - FTE Service charges on deposit accounts Trust services Brokerage and insurance income Bank owned life insurance income Other service charges and fees Mortgage banking income (loss) Securities gains (losses) Gains on sales of automobile loans Other income Sub-total before...

  • Page 54
    ... 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 55
    ... D Table 31 - Lines of Business - GAAP Earnings vs. Operating Earnings Reconciliation(1) (in thousands of dollars) Regional Banking Dealer Sales PFCMG Treasury/Other Total 2006 Net income - GAAP Change from prior year -$ Change from prior year - % Net income - operating Change from prior year...

  • Page 56
    ... 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. At December 31, 2006, Retail Banking accounted for 59% and 78% of total Regional Banking loans...

  • Page 57
    ... point increase in net interest margin. Higher loan and deposit balances reï¬,ected improved sales efforts. Average loans and leases increased across all regions: Regional Banking Average Loans & Leases Change from 2005 (in millions of dollars) 2006 2005 2004 Region Central Ohio Northern Ohio...

  • Page 58
    ...Regional Banking Average Deposits Change from 2005 (in millions of dollars) 2006 2005 2004 Region Central Ohio Northern Ohio Southern Ohio/Kentucky Eastern Ohio(1) West Michigan East Michigan West Virginia Indiana Mortgage and equipment leasing groups Total deposits N.M., not a meaningful value...

  • Page 59
    ...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 Trust services Mortgage banking Other service charges and fees Other income Total non-interest income before securities...

  • Page 60
    ...dollars) Net charge-offs by loan type 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 Net charge...

  • Page 61
    ...) # employees - full-time equivalent (eop) # business DDA relationships (eop)(2) # New relationships 90-day cross-sell (average)(2) Commercial Banking Average loans (in millions) Average deposits (in millions) # employees - full-time equivalent # customers (eop)(2) Mortgage Banking Average loans (in...

  • Page 62
    ... 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, New Jersey, North Carolina...

  • Page 63
    ... increase resulted from higher servicing related income and gains on sales of automobile loans from our ongoing program of selling up to 50% of our automobile loan and lease current production, offset in part by a decline in lease termination income. Loans sold in 2006 totaled $710 million compared...

  • Page 64
    ... for credit losses Net interest income after provision for credit losses Automobile operating lease income Service charges on deposit accounts Brokerage and insurance income Trust services Mortgage banking Other service charges and fees Other income Total non-interest income before securities gains...

  • Page 65
    ...market commercial and industrial Total commercial Consumer Auto leases Auto loans Home equity loans & lines of credit Other loans Total consumer Total net charge-offs Non-performing loans and leases (in millions of dollars) Middle market commercial and industrial Middle market commercial real estate...

  • Page 66
    ... AT E D Change From 2005 2006 Amount % 2005 Change From 2004 Amount % 2004 SUPPLEMENTAL DATA # employees - full-time equivalent Automobile loans Production (in millions) % Production new vehicles Average term (in months) Automobile leases Production (in millions) % Production new vehicles Average...

  • Page 67
    ... higher net worth customers. Revenue is derived through the sale of trust, asset management, investment advisory, brokerage, insurance, and private banking products and services. It also focuses on financial solutions for corporate and institutional customers that include investment banking, sales...

  • Page 68
    ... has been impacted by a redirection of private banking sweep account balances to the Huntington Funds during 2006. Additionally, customers have used deposits to fund new HAMA's as well as pay down lines of credit due to rising interest rates. Our results for 2006 also reï¬,ected the benefit of...

  • Page 69
    ...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 Trust services Mortgage banking Other service charges and fees Other income Total non-interest income before securities...

  • Page 70
    ... dollars) Net charge-offs by loan type 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 Net charge-offs - annualized percentages...

  • Page 71
    ... sales Investment banking fees Insurance fees and revenue Total brokerage and insurance income Fee sharing Total brokerage and insurance income Mutual fund sales volume (in thousands)(3) Annuities sales volume (in thousands)(3) Trust Services Income (in thousands) Personal trust revenue Huntington...

  • Page 72
    ... three business segments. Assets in this segment include investment securities and bank owned life insurance. Net interest income includes the net impact of administering our investment securities portfolios as part of overall liquidity management. A match-funded transfer pricing system is used to...

  • Page 73
    ... 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 Total non-interest income before securities gains...

  • Page 74
    ...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 Automobile operating lease assets Deposits...

  • Page 75
    ... of dollars) Net charge-offs by loan type Commercial Middle market commercial and industrial 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...

  • Page 76
    ...December 31, 2006 - GAAP earnings Equity investment gains Gain on sale of MasterCardË› stock Balance sheet restructuring Huntington Foundation contribution Automobile lease residual value losses Severance and consolidation expenses MSR mark-to-market net of hedge-related trading activity December 31...

  • Page 77
    ...-related, and (2) a $1.0 million increase in fees from Huntington Funds, reï¬,ecting 12% fund asset growth. - $2.3 million, or 20% ($0.3 million merger-related), increase in other service charges and fees, primarily reï¬,ecting a $1.5 million, or 18%, increase in fees generated by higher debit card...

  • Page 78
    ... increase in outside data processing and other services ($0.5 million merger-related). Income Taxes The provision for income taxes in the 2006 fourth quarter was $27.3 million with an effective tax rate of 23.8%, up from 22.5% in the year-ago quarter. Credit Quality Total net charge-offs for the...

  • Page 79
    ... of NPAs were secured by residential real estate or guaranteed by the U.S. Government, which have an inherently lower potential for loss, and (2) a reporting change in 2006 to include in NPAs foreclosed loans insured by HUD and serviced by Huntington, that had been previously reported as 90-day...

  • Page 80
    ... for credit losses Service charges on deposit accounts Trust services Brokerage and insurance income Other service charges and fees Mortgage banking income Bank owned life insurance income Gains on sales of automobile loans Securities gains (losses) Other income Sub-total before operating lease...

  • Page 81
    ... 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 82
    ... the financial statements 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, 2006. In making this assessment, Management used the criteria...

  • Page 83
    ... generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reï¬,ect the transactions and dispositions of the assets of the...

  • Page 84
    ... Incorporated Columbus, Ohio We have audited the accompanying consolidated balance sheets of Huntington Bancshares Incorporated and subsidiaries (the ''Company'') as of December 31, 2006 and 2005, and the related consolidated statements of income, changes in shareholders' equity, and cash ï¬,ows...

  • Page 85
    ... offices Deposits Short-term borrowings Federal Home Loan Bank advances Other long-term debt Subordinated notes Deferred income tax liability Allowance for unfunded loan commitments and letters of credit Accrued expenses and other liabilities Total liabilities Shareholders' equity Preferred stock...

  • Page 86
    ... for credit losses Service charges on deposit accounts Trust services Brokerage and insurance income Other service charges and fees Bank owned life insurance income Automobile operating lease income Mortgage banking income Gains on sales of automobile loans Securities gains (losses), net Other...

  • Page 87
    ...change in accounting for funded status of pension plans, net of tax of $44,716 Cash dividends declared ($1.00 per share) Shares issued pursuant to acquisition Recognition of the fair value of share-based compensation Treasury shares purchased Stock options exercised Other Balance - December 31, 2006...

  • Page 88
    ... Home Loan Bank advances Proceeds from issuance of long-term debt Maturity of long-term debt Purchase of minority interest in consolidated subsidiaries Dividends paid on common stock Repurchases of common stock Other, net Net cash (used for) provided by financing activities Change in cash and cash...

  • Page 89
    ... 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, Pennsylvania, South Carolina, Tennessee, and...

  • Page 90
    ... and costs and net of unearned income. Direct financing leases are reported at the aggregate of lease payments receivable and estimated residual values, net of unearned and deferred income. Interest income is accrued as earned using the interest method based on unpaid principal balances. Huntington...

  • Page 91
    ...The fair value of the collateral is then recorded as real estate owned and is reï¬,ected in other assets in the consolidated balance sheet. (See Note 4 for further information.) A home equity charge-off occurs when it is determined that there is not sufficient equity in the loan to cover Huntington...

  • Page 92
    ... market prices, Huntington uses discounted cash ï¬,ow models to estimate the fair value of its derivatives. The interest rates used in these cash ï¬,ow models are based on forward yield curves. Changes in fair value of these derivatives are reported as a component of mortgage banking income. In 2006...

  • Page 93
    ... 36 to 84 months. The equipment, net of accumulated depreciation, are reported in other assets in the consolidated balance sheet. - BANK OWNED LIFE INSURANCE - Huntington's bank owned life insurance policies are carried at their cash surrender value. Huntington recognizes tax-free income from the...

  • Page 94
    ... Payment (Statement No. 123R) relating to its share-based compensation plans. Prior to January 1, 2006, Huntington had accounted for share-based compensation plans under the intrinsic value method promulgated by Accounting Principles Board (APB) Opinion 25, Accounting for Stock Issued to Employees...

  • Page 95
    ... by Huntington's management reporting system, as appropriate. - STATEMENT OF CASH FLOWS - Cash and cash equivalents are defined as ''Cash and due from banks'' and ''Federal funds sold and securities purchased under resale agreements.'' 2. NEW ACCOUNTING STANDARDS STANDARDS ADOPTED IN 2006: - FASB...

  • Page 96
    ... of dollars) Amortized Cost Gross Gains Gross Losses Fair Value 2006 U.S. Treasury Federal Agencies Mortgage-backed securities Other agencies Total Federal agencies Asset-backed securities Municipal securities Private label collaterized mortgage obligations Other securities Total investment...

  • Page 97
    ...526,520 Other securities include Federal Home Loan Bank and Federal Reserve Bank stock, corporate debt and marketable equity securities. Contractual maturities of investment securities as of December 31 were: 2006 (in thousands of dollars) 2005 Fair Value $ 7,473 203,867 169,680 3,824,111 150,754...

  • Page 98
    ... 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, 2006...

  • Page 99
    ... million in 2006, 2005 and 2004, respectively. Huntington adopted Statement No. 156 as of January 1, 2006. Automobile loan servicing rights are accounted for under the amortization provision of that statement. A servicing asset is established at fair value at the time of the sale using the following...

  • Page 100
    ...leases to a trust in a securitization transaction. The securitization did not qualify for sale accounting under Statement No. 140 and therefore, is accounted for as a secured financing. There were no automobile loan securitizations in 2005 or 2004. RESIDENTIAL MORTGAGE LOANS During 2006, Huntington...

  • Page 101
    ... estimating the present value of future net cash ï¬,ows, taking into consideration market loan prepayment speeds, discount rates, servicing costs, and other economic factors. Temporary impairment was recognized in a valuation allowance against the mortgage servicing rights. Changes in the impairment...

  • Page 102
    ... and retail banking; Sky Trust, asset management services; and Sky Insurance, retail and commercial insurance agency services. Under the terms of the agreement, Sky Financial shareholders will receive 1.098 shares of Huntington common stock, on a taxfree basis, and a taxable cash payment of $3.023...

  • Page 103
    ...Purchase price Carrying value of net assets acquired Excess of purchase price over carrying value of net assets acquired Purchase accounting adjustments: Loans and leases Premises and equipment Accrued income and other assets Deposits Subordinated notes Deferred federal income tax liability Accrued...

  • Page 104
    ... securities Loans and leases Allowance for loan and lease losses Net loans and leases Bank owned life insurance Premises and equipment Goodwill Other intangible assets Accrued income and other assets Total assets Liabilities Deposits Short-term borrowings Federal Home Loan Bank advances Subordinated...

  • Page 105
    ...accounting, administration, distribution and transfer agent services to mutual funds. Unified will operate as a wholly owned subsidiary of Huntington. The total purchase price for Unified has been allocated to the tangible and intangible assets and liabilities based on their respective fair values...

  • Page 106
    ... monthly rental payment over a specified lease term, typically from 36 to 66 months. Rental income is earned by Huntington on these operating lease assets and reported as non-interest income. The assets are depreciated over the term of the lease to the estimated fair value at the end of the lease...

  • Page 107
    ... 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. 13. FEDERAL HOME LOAN BANK ADVANCES Huntington's long-term...

  • Page 108
    ... Huntington National Bank 5.68% Securitization trust note payable due 2012(1) 6.02% Securitization trust note payable due 2018(2) 7.88% Class C preferred securities of REIT subsidiary, no maturity Total other long-term debt (1) Variable effective rate at December 31, 2006, based on one month LIBOR...

  • Page 109
    ... investment securities arising during the year, net of reclassification of net realized losses (gains) Unrealized gains on cash ï¬,ow hedging derivatives arising during the year: Unrealized net gains Related tax expense Net Defined benefit pension plans: Cumulative effect of change in accounting...

  • Page 110
    ...of cash to Huntington. This was reï¬,ected as an adjustment to treasury shares. Listed below is the share repurchase activity for the year ended December 31, 2006: Total Number of Shares Purchased 4,831,000 11,150,000 15,981,000 Average Price Paid Per Share $ 23.46 23.81 $ 23.71 Repurchase Programs...

  • Page 111
    ... as if Huntington had applied the fair value method of accounting of Statement No. 123 in measuring compensation costs for stock options. Year Ended December 31, (in millions, except per share amounts) 2005 2004 Pro forma results Net income, as reported Pro forma expense, net of tax Pro forma...

  • Page 112
    ... at December 31, 2006 (1) Relates to option plans acquired from the merger with Unizan. The aggregate intrinsic value represents the amount by which the fair value of underlying stock exceeds the option exercise price. The total intrinsic value of stock options exercised during 2006, 2005, and 2004...

  • Page 113
    ... or exceeded $27.00. As of December 31, 2006, 1.4 million shares under option remain unvested. Huntington's board of directors has approved all of the plans. Shareholders have approved each of the plans, except for the broad-based Employee Stock Incentive Plan. Of the 25.3 million awards to grant or...

  • Page 114
    ... 31, (in thousands of dollars) 2006 2005 Deferred tax assets: Allowances for credit losses Loss and other carry-forwards Fair Value Adjustments Pension and other employee benefits Other Net deferred tax assets Deferred tax liabilities: Lease financing Fair value adjustments Pension and other...

  • Page 115
    ...and losses Total changes Projected benefit obligation at end of measurement year (September 30) The investment objective of the Plan is to maximize the return on Plan assets over a long time horizon, while meeting the Plan obligations. At September 30, 2006, Plan assets were invested 72% in equity...

  • Page 116
    ...Huntington's policy to recognize settlement gains and losses as incurred. Management expects net periodic pension cost to approximate $17.6 million and net periodic post-retirement benefits cost to approximate $5.5 million for 2007. The estimated transition asset and prior service cost for the Plan...

  • Page 117
    ...At September 30, 2006 and 2005, The Huntington National Bank, as trustee, held all Plan assets. The Plan assets consisted of investments in a variety of Huntington mutual funds and Huntington common stock as follows: Fair Value 2006 (in thousands of dollars) 2005 % -% 69 28 3 100% Balance $ 164 300...

  • Page 118
    ... loss Prior service cost Transition liability Defined benefit pension plans The following table presents the funded status of the Plan and the post-retirement benefit plan with the amounts recognized in the consolidated balance sheet as of December 31, 2005 prior to the adoption of Statement...

  • Page 119
    ... Fair Value Carrying Amount Financial Assets: Cash and short-term assets Trading account securities Mortgages held for sale Investment securities Net loans and direct financing leases Derivatives Financial Liabilities: Deposits Short-term borrowings Federal Home Loan Bank advances Subordinated...

  • Page 120
    ... used in Huntington's Asset and Liability Management activities at December 31, 2006, identified by the underlying interest rate-sensitive instruments: (in thousands of dollars) Fair Value Hedges Cash Flow Hedges Total Instruments associated with: Deposits Federal Home Loan Bank advances...

  • Page 121
    ... that Huntington used in its mortgage banking activities: At December 31, (in thousands of dollars) 2006 2005 Derivative assets: Interest rate lock agreements Forward trades and options Total derivative assets Derivative liabilities: Interest rate lock agreements Forward trades and options Total...

  • Page 122
    ... or cargo being traded normally secures these instruments. COMMITMENTS TO SELL LOANS Huntington enters into forward contracts relating to its mortgage banking business. At December 31, 2006 and 2005, Huntington had commitments to sell residential real estate loans of $319.9 million and $348...

  • Page 123
    ... corporate governance, internal audit, risk management, accounting policies and procedures, and financial and regulatory reporting. The agreement called for independent third-party reviews, as well as the submission of written plans and progress reports by Management. On May 10, 2006, Huntington...

  • Page 124
    ...' equity Total liabilities and shareholders' equity Statements of Income (in thousands of dollars) Year Ended December 31, 2006 2005 2004 Income Dividends from The Huntington National Bank Non-bank subsidiaries Interest from The Huntington National Bank Non-bank subsidiaries Management fees from...

  • Page 125
    ... 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 59% and 78% of total Regional Banking average loans and deposits...

  • Page 126
    ... sales directly. Huntington has been in this line of business for over 50 years. Private Financial and Capital Markets Group (PFCMG): This segment provides products and services designed to meet the needs of higher net worth customers. Revenue is derived through the sale of trust, asset management...

  • Page 127
    ... financial information reconciled to Huntington's 2006, 2005, and 2004 reported results by line of business: Regional Banking Dealer Sales Treasury/ Other Huntington Consolidated INCOME STATEMENTS (in thousands of dollars) PFCMG 2006 Net interest income Provision for credit losses Non-interest...

  • Page 128
    ... expense Net interest income Provision for credit losses Non-interest income Non-interest expense Income before income taxes (Provision) benefit for income taxes Net income Net income per common share - Basic Net income per common share - Diluted (in thousands of dollars, except per share data...

  • Page 129
    ... by visiting Huntington's investor relations web site at: huntington.com. 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...

  • Page 130
    Huntington Center, 41 S. High Street Columbus, Ohio 43287 (614) 480-8300 huntington.com HUNTINGTON BANCSHARES INCORPORATED ® and Huntington® are federally registered service marks of Huntington Bancs ncshares Incorporated. © 2007 Huntington Bancshares Incorporated. 03007AR