Huntington National Bank 2008 Annual Report Download

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2008 ANNUAL REPORT

Table of contents

  • Page 1
    2008 ANNUAL REPORT

  • Page 2
    ... bank holding company headquartered in Columbus, Ohio. Its principal markets are Ohio, Michigan, Pennsylvania, Indiana, West Virginia, and Kentucky. Founded in 1866, Huntington serves its customers as the "local bank with national resources." Nearly 11,000 associates provide consumer and commercial...

  • Page 3
    GREAT OPPORTUNITIES ARISE IN CHALLENGING TIMES STEPHEN D. STEINOUR | CHAIRMAN, PRESIDENT, AND CHIEF EXECUTIVE OFFICER TO OUR SHAREHOLDERS AND FRIENDS: It is hard to find the words to adequately describe 2008. For many of our customers, it was the most difficult year they have faced in decades, ...

  • Page 4
    ...I have found that companies that focus on cultivating customer relationships win. When you are positioned in the market as the "local" bank, like Huntington, customer loyalty for generations can occur. In these days of impersonalized service, a bank that demonstrates it truly cares about meeting the...

  • Page 5
    ... market share. STRENGTHS Our product and services menu for both retail customers and commercial businesses is robust. We already have what is essential to compete. Our technology is very good. Over the years, we invested significantly in our information technology platforms. Our internet banking...

  • Page 6
    ... sustainable growth. A company where our customers, communities, shareholders, and associates all win. Thank you for your support. Let me share my perspectives on some key issues. First of all, credit management is perhaps the most important discipline for a bank. As we go about our business, it is...

  • Page 7
    NET INCOME (in millions) $461 $399 $412 DILUTED EARNINGS PER SHARE $1.92 $1.71 $1.77 $75 ($114) $.25 ($.44) 04 05 06 07 08 04 05 06 07 08 AVERAGE TOTAL LOANS AND LEASES (in billions) $41.0 $33.2 AVERAGE TOTAL CORE DEPOSITS (in billions) $31.7 $24.3 $22.1 $16.6 $17.6 $19.4 $25.9 $25...

  • Page 8
    ...fied Public Accountant Retired Managing Partner Deloitte & Touche LLP Joined Board: 2003 STEPHEN D. STEINOUR (1) Chairman, President, and Chief Executive Officer Huntington Bancshares Incorporated Joined Board: 2009 COMMITTEES (1) EXECUTIVE (2) RISK (3) AUDIT (4) COMPENSATION (5) PENSION REVIEW...

  • Page 9
    ...OFFICES Auto Finance and Dealer Services Arizona Florida Pennsylvania Tennessee Texas Virginia Private Financial Group Florida Mortgage Banking Maryland New Jersey International Banking Services Cayman Islands Hong Kong LEGEND FOR THE REGIONAL MAP WEST MICHIGAN Banking Offices: 68 ATM Locations...

  • Page 10
    ... STOCK PRICE 2008 HIGH LOW CLOSE 2007 2006 2005 2004 2003 $ 14.87 4.37 7.66 $ 24.14 13.50 14.76 $ 24.97 22.56 23.75 $ 25.41 20.97 23.75 $ 25.38 20.89 24.74 $ 22.55 17.78 22.50 20-YEAR DIVIDEND HISTORY CASH DIVIDENDS DECLARED (1) STOCK DIVIDEND/SPLITS DISTRIBUTION DATE OF STOCK DIVIDEND...

  • Page 11
    ... of Financial 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...

  • Page 12
    ...Policies and Use of Significant Estimates Total Allowances for Credit Losses Fair Value Measurements Loans Held-for-sale Investment Securities and Trading Account Securities Mortgage Servicing Rights (MSRs) Derivatives Equity Investments Goodwill Pension Other Real Estate Owned (OREO) Income Taxes...

  • Page 13
    ... Parent Company Liquidity Credit Ratings Off-Balance Sheet Arrangements Operational Risk Capital LINES OF BUSINESS DISCUSSION Acquisition of Sky Financial Funds Transfer Pricing Fee Sharing Treasury/Other Net Income by Business Segment Regional Banking Objectives, Strategies, and Priorities 2008...

  • Page 14
    ...Net (loss) income per common share - diluted Cash dividends declared per common share Balance sheet highlights Total assets (period end) Total long-term debt (period end)(2) Total shareholders' equity (period end) Average long-term debt(2) Average shareholders' equity Average total assets Key ratios...

  • Page 15
    ..., mortgage banking services, automobile financing, equipment leasing, investment management, trust services, brokerage services, customized insurance service programs, and other financial products and services. Our banking offices are located in Ohio, Michigan, Pennsylvania, Indiana, West Virginia...

  • Page 16
    ... control, though efforts are made to manage those risks while optimizing returns. Among the risks assumed are: (1) credit risk, which is the risk of loss due to loan and lease customers or other counterparties not being able to meet their financial obligations under agreed upon terms, (2) market...

  • Page 17
    ... securities, mortgage loans held-for-sale, derivatives, mortgage servicing rights (MSRs), and trading assets. At December 31, 2008, approximately $5.1 billion of our assets were recorded at fair value. In addition to the above mentioned ongoing fair value measurements, fair value is also the unit...

  • Page 18
    ... related to the likelihood that a commitment will ultimately result in a closed loan, which is a significant unobservable assumption. Consist of equity investments via equity funds (holding both private and publicly-traded equity securities), directly in companies as a minority interest investor...

  • Page 19
    ...are priced by utilizing a third-party pricing service that determines the fair value based upon trades of similar financial instruments. Cash flow analyses of the first and second-tier bank trust preferred securities issued by banks and bank holding companies were conducted to test for any OTTI, and...

  • Page 20
    ... of comparable public companies were selected and applied to the reporting units' results to calculate fair value. Using this approach, the Private Financial & Capital Markets Group and Insurance reporting units passed the first step, and as a result, no further impairment testing was required and...

  • Page 21
    ... funds are valued at quoted redemption value. Huntington common stock is traded on a national securities exchange and is valued at the last reported sales price. The discount rate and expected return on plan assets used to determine the benefit obligation and pension expense for December 31, 2008...

  • Page 22
    ... mergers used to determine "merger-related" impacts. Balance Sheet Items Sky Financial For average loans and leases, as well as total average deposits, Sky Financial's balances as of June 30, 2007, adjusted for purchase accounting adjustments, and transfers of loans to loans held-for-sale, were used...

  • Page 23
    ... 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 Electronic banking Bank owned life insurance income Automobile operating lease income Mortgage banking Securities...

  • Page 24
    ... 2008, the parent company had sufficient cash for operations and does not have any debt maturities for several years. Further, the Bank has a manageable level of debt maturities during the next 12-month period. In the 2008 fourth quarter, the FDIC introduced the Temporary Liquidity Guarantee Program...

  • Page 25
    ...non-merger-related declines in total average residential mortgages, as well as the lack of growth in non-merger-related total average home equity loans, reflected the continued softness in the real estate markets, as well as loan sales. Growth in non-merger-related average total deposits was good in...

  • Page 26
    ... in an accounting principle; (3) large and infrequent tax assessments/refunds; (4) a large gain/loss on the sale of an asset; and (5) outsized commercial loan net charge-offs related to fraud. In addition, for the periods covered by this report, the impact of the Franklin relationship is deemed...

  • Page 27
    ... LOSSES. Other net market-related gains or losses included gains and losses related to the following market-driven activities: net securities gains and losses, gains and losses from public and private equity investments included in other noninterest income, net losses from the sale of loans included...

  • Page 28
    ...(4) Franklin Credit relationship Net market-related losses Merger/Restructuring costs Asset impairment Litigation losses Reduction to federal income tax expense(4) Gain on sale of MasterCard» stock Huntington Foundation contribution Severance and consolidation expenses FHLB refinancing Accounting...

  • Page 29
    ... 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 30
    ...primarily other domestic time deposits of $100,000 or more reflecting increases in commercial and public fund deposits. Changes from the prior year also reflected customers transferring funds from lower rate to higher rate accounts such as certificates of deposit as short-term rates had fallen. 2007...

  • Page 31
    ... Commercial real estate Total commercial Automobile loans and leases Home equity Residential mortgage Other consumer Total consumer Total loans and leases Deposits Demand deposits - noninterest bearing Demand deposits - interest bearing Money market deposits Savings and other domestic time deposits...

  • Page 32
    ...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: Commercial and industrial Construction Commercial Commercial real...

  • Page 33
    Management's Discussion and Analysis Huntington Bancshares Incorporated Interest Income/Expense Average Rate(2) 2008 $ 7.7 57.5 10.7 ... 200.5 250.6 66.9 141.5 208.4 459.0 165.1 109.6 274.7 208.6 163.0 29.5 675.8 1,134.8 2008 2.53% 5.28 2.46 6.01 5.62 6.83 5.81 5.67 5.05 5.61 5.49 5.59 7.17 5.65 ...

  • Page 34
    ....2 3.8 27.0 9.9 (69.8) N.M. 73.9 (0.2) N.M. 4.5% Service charges on deposit accounts Brokerage and insurance income Trust services Electronic banking Bank owned life insurance income Mortgage banking Securities losses Other income Sub-total Automobile operating lease income Total noninterest income...

  • Page 35
    ... Mortgage Banking Income Origination and secondary marketing Servicing fees Amortization of capitalized servicing(1) Other mortgage banking income Sub-total MSR valuation adjustment(1) Net trading losses related to MSR hedging Total mortgage banking income Average trading account securities used...

  • Page 36
    ... million of revenues associated with the acquisition of Unified Fund Services, and (b) $4.8 million increase in Huntington Fund fees due to growth in Huntington Funds' managed assets. - $8.1 million, or 13%, increase in electronic banking income primarily reflecting increased debit card fees due to...

  • Page 37
    ... Professional services Marketing Telecommunications Printing and supplies Other Sub-total Automobile operating lease expense Total noninterest expense N.M., not a meaningful value. 2008 VERSUS 2007 Table 14 - Noninterest Expense - Estimated Merger-Related Impact - 2008 vs. 2007 Twelve Months...

  • Page 38
    ... outside data processing and other services reflecting merger efficiencies. - $7.3 million, or 6%, decline in net occupancy expense, reflecting merger efficiencies. As a participating FDIC insured bank, we were assessed quarterly deposit insurance premiums totaling $24.1 million during 2008. However...

  • Page 39
    .... Both the IRS and state tax officials have proposed adjustments to the Company's previously filed tax returns. Management believes that the tax positions taken by the Company related to such proposed adjustments were correct and supported by applicable statutes, regulations, and judicial authority...

  • Page 40
    ... customers with existing or expandable relationships within our primary banking markets. Also, we continue to add new borrowers that meet our targeted risk and profitability profile. The checks and balances in the credit process and the independence of the credit administration and risk management...

  • Page 41
    ...Franklin Credit Management Corporation Construction Commercial Total commercial real estate Total commercial Consumer: Automobile loans Automobile leases Home equity Residential mortgage Other loans Total consumer Total loans and direct financing leases Automobile operating lease assets Total credit...

  • Page 42
    ... 5,830 4,473 $10,303 Commercial and industrial loans Franklin Credit Management Corporation Dealer floor plan loans Equipment direct financing leases Commercial and industrial loans and leases Commercial real estate loans Total commercial loans and leases Commercial credit approvals are based on...

  • Page 43
    ...in the servicing and resolution of performing, reperforming, and nonperforming residential mortgage loans. Franklin's portfolio consists of loans secured by 1-4 family residential real estate that generally fall outside the underwriting standards of the Federal National Mortgage Association (FNMA or...

  • Page 44
    ... term loan (Facility B) Fixed rate, junior subordinated term loan (Facility C) Line of credit facility Other variable rate term loans Subtotal Participated to others Total principal owed to Huntington Previously charged off(1) Total book value of loans (1) Includes $4.1 million of interest payments...

  • Page 45
    ... some impact on the performance of the mortgages representing the collateral for our loans to Franklin, we believe that its short-term nature will not materially impact the cash flow assumptions used in our analysis supporting our 2008 fourth quarter actions. Cash collections through mid-February...

  • Page 46
    ... home builder Office Multi family Industrial and warehouse Lines to real estate companies Raw land and other land uses Health care Hotel Other Total We manage the risks inherent in this portfolio through origination policies, concentration limits, on-going loan level reviews, recourse requirements...

  • Page 47
    ... Home Builders" and "Retail properties" discussions). These reviews often generate an updated appraisal based on the current occupancy or sales volume associated with the project being reviewed. At the portfolio level, we actively monitor the concentrations and performance metrics of all loan types...

  • Page 48
    ...mortgage lien on the property. 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. The weighted average cumulative LTV ratio at origination of our home equity portfolio was 75% at December 31, 2008...

  • Page 49
    ... 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 loans, are not placed on nonaccrual status but are charged-off in accordance with...

  • Page 50
    ...(NALs): Commercial and industrial Franklin Credit Management Corporation Commercial real estate Residential mortgage Home equity Total nonaccrual loans and leases Other real estate, net: Residential(1) Commercial Total other real estate, net Impaired loans held-for-sale(2) Other nonperforming assets...

  • Page 51
    ..., (in thousands) 2008 2007 2006 2005 2004 Nonperforming assets, beginning of year New nonperforming assets Franklin Credit Management Corporation(1) Acquired nonperforming assets Returns to accruing status Loan and lease losses Payments Sales Nonperforming assets, end of year $ 472,902 $ 193...

  • Page 52
    ....6 19.7 16.3 1.7 56.3 100.0% Commercial: Commercial and industrial Franklin Credit Management Corporation Commercial real estate Total commercial Consumer: Automobile loans and leases Home equity Residential mortgage Other loans Total consumer Total allowance for loan and lease losses Allowance for...

  • Page 53
    ... and lease charge-offs Commercial: Franklin Credit Management Corporation Other commecial and industrial Commercial and industrial Construction Commercial Commercial real estate Total commercial Consumer: Automobile loans Automobile leases Automobile loans and leases Home equity Residential mortgage...

  • Page 54
    ... loans and leases Home equity Residential mortgage Other loans Total consumer Total net charge-offs Net charge-offs - annualized percentages: Commercial: Franklin Credit Management Corporation Other commercial and industrial Commercial and industrial Construction Commercial Commercial real estate...

  • Page 55
    ...Florida markets, resulting from loans made to our Private Banking customers in that area, (c) less than 10% of the portfolio originated via the broker channel, and (d) conservatively assessed the borrowers' ability to repay at the time of underwriting the loan, we continue to believe our home equity...

  • Page 56
    ... Marketable equity securities Total other Total investment securities (1) The average duration assumes a market driven pre-payment rate on securities subject to pre-payment. (2) Weighted average yields were calculated using amortized cost on a fully taxable equivalent basis, assuming a 35% tax rate...

  • Page 57
    ... securities Private label CMO securities Alt-A mortgage-backed securities Pooled-trust-preferred securities (1) Credit ratings reflect the lowest current rating assigned by a nationally recognized credit rating agency. Given the current economic conditions, the asset-backed securities and private...

  • Page 58
    ... Private-label CMO securities Table 33 details our asset-backed and private-label CMO securities exposure: Huntington Bancshares Incorporated Table 33 - Mortgage Loan Backed and Pooled Trust Preferred Securities Selected Data At December 31, 2008 (in thousands) ALT-A MORTGAGE-BACKED SECURITIES...

  • Page 59
    ... estimates for time periods beyond the one-year simulation horizon. The models used for these measurements take into account prepayment speeds on mortgage loans, mortgage-backed securities, and consumer installment loans, as well as cash flows of other assets and liabilities. Balance sheet growth...

  • Page 60
    ... loans, a shift in deposits towards fixed-rate time deposits from money market accounts, and the impact of expected faster prepayments on mortgage assets going forward, offset by the net increase in receive fixed-rate, pay variable-rate interest rate swaps executed during 2008. Mortgage Servicing...

  • Page 61
    ... in companies (public and private), and direct equity or venture capital interests in private companies in connection with our mezzanine lending activities. These investments are reported as a component of "accrued income and other assets" on our consolidated balance sheet. At December 31, 2008, we...

  • Page 62
    Management's Discussion and Analysis Huntington Bancshares Incorporated investments were in funds that focus on the financial services sector that, during 2008, performed worse than the broad equity market. Investment decisions that incorporate credit risk require the approval of the independent ...

  • Page 63
    ... offices Total deposits Total core deposits: Commercial Personal Total core deposits By Business Segment(1) Regional Banking: Central Ohio Northwest Ohio Greater Cleveland Greater Akron/Canton Southern Ohio/Kentucky Mahoning Valley West Michigan East Michigan Pittsburgh Central Indiana West Virginia...

  • Page 64
    ...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. At December 31, 2008, the parent company had $1.1 billion in cash...

  • Page 65
    ... year ended December 31, 2008) The most recent credit ratings for the parent company and the Bank are as follows: Table 40 - Credit Ratings February 13, 2009 Senior Unsecured Notes Huntington Bancshares Incorporated Moody's Investor Service Standard and Poor's Fitch Ratings The Huntington National...

  • Page 66
    ... of credit issued by the Bank that support $0.5 billion of securities that were issued by our customers and sold by The Huntington Investment Company (HIC), our broker-dealer subsidiary. If the Bank's short-term credit ratings were downgraded, the Bank could be required to obtain funding in order to...

  • Page 67
    ... be convertible at any time, at the option of the holder, into 83.668 shares of Huntington common stock. As shown in Table 42, our consolidated tangible equity to assets ratio was 7.66% at December 31, 2008, an increase from 5.08% at December 31, 2007. The 258 basis point increase from December 31...

  • Page 68
    ...Mortgage banking - Operations and technology services Auto Finance and Dealer Services - Consumer auto loans and leases - Dealership inventory financing - Dealership real estate / working capital PFCMIG - Asset management - Private banking - Brokerage Treasury/Other - Investment securities - Bank...

  • Page 69
    ... and services include home equity loans and lines of credit, 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, 2008, Retail Banking (including Home Lending) accounted for...

  • Page 70
    ...Total average assets (in millions) Total average loans/leases (in millions) Total average deposits (in millions) Net interest margin Net charge-offs (NCOs) NCOs as a % of average loans and leases Return on average equity Retail banking # DDA households (eop) Retail banking # new relationships 90-day...

  • Page 71
    ... within our primary banking markets, as well as in Arizona, Florida, Tennessee, Texas, and Virginia. AFDS finances the purchase of automobiles by customers at the automotive dealerships; finances dealerships' new and used vehicle inventories, land, buildings and other real estate owned by the...

  • Page 72
    ...as our serviced-loan portfolio continued to run-off, lower fee income from the sale of Huntington Plus loans as this program was reduced and ultimately discontinued in 2008, and declines in fee income associated with customers exercising their purchase options on leased vehicles. Noninterest expense...

  • Page 73
    ... commercial insurance agency services. PFCMIG also focuses on financial solutions for corporate and institutional customers that include investment banking, sales and trading of securities, mezzanine capital financing, and interest rate risk management products. To serve higher net worth customers...

  • Page 74
    ... increased charge-offs in the home equity portfolio, and (b) a decrease in total managed assets to $13.3 billion from $16.3 billion reflecting the impact of lower market values associated with the decline in the general economic and market conditions. 2007 VERSUS 2006 PFCMIG reported net income...

  • Page 75
    ... million pre-tax ($0.81 per common share) negative impact related to our relationship with Franklin consisting of: - $438.0 million of provision for credit losses, - $9.0 million of interest income reversals as the loans were placed on nonaccrual loan status, and - $7.3 million of interest rate swap...

  • Page 76
    ... the continuation of customers transferring funds from lower rate to higher rate accounts like certificates of deposits as short-term rates have fallen. Specifically, average core certificates of deposit increased $1.8 billion, or 17%, whereas average money market deposits and savings and other...

  • Page 77
    ... Amount Percent (7.4)% 3.1 (21.0) 4.3 2.4 N.M. (3.5) 0.0 N.M. (6.9)% Service charges on deposit accounts Brokerage and insurance income Trust services Electronic banking Bank owned life insurance income Automobile operating lease income Mortgage banking income Securities (losses) gains Other income...

  • Page 78
    ...rate benefit of 37.6%. The effective tax rates in prior quarter and year-ago quarters were 18.5% and a benefit of 39.9% respectively. CREDIT QUALITY Credit quality performance in the 2008 fourth quarter was negatively impacted by the Franklin relationship actions (see "Franklin Relationship" located...

  • Page 79
    ..., ratio was 0.50% at December 31, 2008, up from 0.35% at the end of the year-ago quarter. The 15 basis point increase in the 90-day delinquent ratio from December 31, 2007, primarily reflected increases in loan balances over 90-days delinquent in our commercial real estate and residential mortgage...

  • Page 80
    ... for credit losses Net interest income (loss) after provision for credit losses Service charges on deposit accounts Brokerage and insurance income Trust services Electronic banking Bank owned life insurance income Automobile operating lease income Mortgage banking (loss) income Securities (losses...

  • Page 81
    ..., except per share amounts) Huntington Bancshares Incorporated 2008 Fourth Third Second First Fourth 2007 Third Second First 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...

  • Page 82
    ...of 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, 2008. In making this assessment, Management used the criteria...

  • Page 83
    ... of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2008 of the Company and our report dated February 23, 2009 expressed an unqualified opinion on those financial statements. Columbus, Ohio February 23...

  • 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, 2008 and 2007, and the related consolidated statements of income, changes in shareholders' equity, and cash flows...

  • Page 85
    ...697,468 Assets Cash and due from banks Federal funds sold and securities purchased under resale agreements Interest bearing deposits in banks Trading account securities Loans held for sale Investment securities Loans and leases: Commercial and industrial loans and leases Commercial real estate loans...

  • Page 86
    ... Short-term borrowings Federal Home Loan Bank advances Subordinated notes and other long-term debt Total interest expense 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...

  • Page 87
    ... Cumulative effect of change in accounting principle for servicing financial assets, net of tax of $6,521 Cumulative effect of change in accounting for funded status of pension plans, net of tax of $44,861 Cash dividends declared ($1.00 per share) Shares issued pursuant to acquisition Recognition of...

  • Page 88
    ... real estate Other, net Net cash (used for) provided by investing activities Financing activities Increase (decrease) in deposits (Decrease) increase in short-term borrowings Proceeds from issuance of subordinated notes Maturity/redemption of subordinated notes Proceeds from Federal Home Loan Bank...

  • Page 89
    ...and services. Huntington's banking offices are located in Ohio, Michigan, Pennsylvania, Indiana, West Virginia, and Kentucky. Selected financial service activities are also conducted in other states including: Auto Finance and Dealer Services offices in Arizona, Florida, Nevada, New Jersey, New York...

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

  • Page 91
    ... current year accruals charged to earnings and prior year amounts generally charged-off as a credit loss. - SOLD LOANS AND LEASES - Loans or direct financing leases that are sold are accounted for in accordance with FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets...

  • Page 92
    ... MSRs. Huntington hedges the value of MSRs using derivative instruments and trading account securities. Changes in fair value of these derivatives and trading account securities are reported as a component of mortgage banking income. - PREMISES AND EQUIPMENT - Premises and equipment are stated at...

  • Page 93
    ...the related interest rate lock commitments are carried at fair value on the consolidated balance sheet with changes in fair value reflected in mortgage banking revenue. Huntington also uses certain derivative financial instruments to offset changes in value of its residential mortgage loan servicing...

  • Page 94
    ... Payment (Statement No. 123R), relating to its share-based compensation plans. Under these provisions, compensation expense is recognized based on the fair value of unvested stock options and awards over the requisite service period. - SEGMENT RESULTS - Accounting policies for the lines of business...

  • Page 95
    Notes to Consolidated Financial Statements Huntington Bancshares Incorporated In October 2008, the FASB issued FSP 157-3, "Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active." This FSP addresses application issues related to Statement No. 157, Fair Value ...

  • Page 96
    ...400 ATMs and served communities in Ohio, Pennsylvania, Indiana, Michigan, and West Virginia. Under the terms of the merger agreement, Sky Financial shareholders received 1.098 shares of Huntington common stock, on a tax-free basis, and a taxable cash payment of $3.023 for each share of Sky Financial...

  • Page 97
    ... Over 10 years Non-marketable equity securities Marketable equity securities Total investment securities (1) Non-marketable equity securities are valued at amortized cost. At December 31, 2008, the carrying value of investment securities pledged to secure public and trust deposits, trading account...

  • Page 98
    ...31, 2008, $8.4 billion of commercial and industrial loans and home equity loans were pledged to secure potential discount window borrowings from the Federal Reserve Bank, and $6.6 billion of qualifying real estate loans were pledged to secure advances from the Federal Home Loan Bank. Qualifying real...

  • Page 99
    ... FRANKLIN CREDIT MANAGEMENT RELATIONSHIP Franklin is a specialty consumer finance company primarily engaged in the servicing and resolution of performing, reperforming, and nonperforming residential mortgage loans. Franklin's portfolio consists of loans secured by 1-4 family residential real estate...

  • Page 100
    ...of these loans. Huntington is currently performing a detailed review of all loans in this portfolio segment. Collateral characteristics of individual loans including project type (strip center, big box store, etc.), geographic location by zip code, lease-up status, and tenant information (anchor and...

  • Page 101
    ... Changes due to status of executive officers and directors Balance, end of year 6. MORTGAGE SERVICING RIGHTS For the years ended December 31, 2008 and 2007, Huntington sold $2.8 billion and $1.9 billion of residential mortgage loans with servicing retained, resulting in net pre-tax gains of $27...

  • Page 102
    ...-banking loans, and $500,000 for all other loans. A loan is impaired when it is probable that Huntington will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are included in non-performing assets. The amount of interest recognized in 2008...

  • Page 103
    ... the year ended December 31, 2008, primarily related to final purchase accounting adjustments of acquired bank branches, operating facilities, and other contingent obligations primarily from the Sky Financial acquisition made on July 1, 2007. Huntington transferred goodwill relating to the insurance...

  • Page 104
    ... LOAN BANK ADVANCES Huntington's long-term advances from the Federal Home Loan Bank had weighted average interest rates of 1.23% and 5.11% at December 31, 2008 and 2007, respectively. These advances, which predominantly had variable interest rates, were collateralized by qualifying real estate loans...

  • Page 105
    ... Guarantee Program (TLGP) with the FDIC. Huntington anticipates using the resultant proceeds to satisfy all maturing unsecured debt obligations in 2009. LOAN SECURITIZATIONS Consolidated loan securitizations at December 31, 2008, consist of auto loan and lease securitization trusts formed in 2008...

  • Page 106
    ... page under Parent Company. The trust securities are the obligations of the trusts and are not consolidated within Huntington's balance sheet. A list of trust preferred securities outstanding at December 31, 2008 follows: Principal amount of subordinated note/debenture issued to trust(1) $158,366...

  • Page 107
    ... Statements TROUBLED ASSET RELIEF PROGRAM (TARP) Huntington Bancshares Incorporated On November 14, 2008, Huntington received $1.4 billion of equity capital by issuing to the U.S. Department of Treasury 1.4 million shares of Huntington's 5.00% Series B Non-voting Cumulative Preferred Stock...

  • Page 108
    Notes to Consolidated Financial Statements Huntington Bancshares Incorporated would be dilutive, net (loss) income available to common shareholders is adjusted by the associated preferred dividends. The calculation of basic and diluted (loss) earnings per share for each of the three years ended ...

  • Page 109
    ...respectively. The tax benefits recognized related to share-based compensation for the years ended December 31, 2008, 2007, and 2006, were $4.9 million, $7.6 million and $6.5 million, respectively. Huntington's stock option activity and related information for the year ended December 31, 2008, was as...

  • Page 110
    ...31, 2008, the Company believes there are adequate authorized shares to satisfy anticipated stock option exercises in 2009. On January 14, 2009, Huntington announced that Stephen D. Steinour, has been elected Chairman, President and Chief Executive Officer. In connection with his employment agreement...

  • Page 111
    ...to Consolidated Financial Statements The following is a summary of the provision for income taxes (benefit): Huntington Bancshares Incorporated Year Ended December 31, (in thousands) 2008 2007 2006 Current tax (benefit) provision Federal State Total current tax (benefit) provision Deferred tax...

  • Page 112
    ...the employee's base salary at the time of retirement, with a maximum of $50,000 of coverage. On January 1, 2008, Huntington transitioned to fiscal year-end measurement date of plan assets and benefit obligations as required by FASB Statement No. 158, Employer's Accounting for Defined Benefit Pension...

  • Page 113
    ... returns on the underlying mix of invested assets. The following table reconciles the beginning and ending balances of the benefit obligation of the Plan and the post-retirement benefit plan with the amounts recognized in the consolidated balance sheets at December 31: Post-Retirement Benefits 2008...

  • Page 114
    ...31, 2008, the accumulated benefit obligation exceeded the fair value of Huntington's plan assets by $26 million. The following table shows the components of net periodic benefit cost recognized in the three years ended December 31, 2008: Pension Benefits (in thousands) Post-Retirement Benefits 2006...

  • Page 115
    ...money market Huntington funds - equity funds Huntington funds - fixed income funds Huntington common stock Fair value of plan assets 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 December 31, 2008, Plan...

  • Page 116
    ... further minimum pension liability adjustments associated with these plans. On December 31, 2006, Huntington adopted the recognition provisions of Statement No. 158, which required Huntington to recognize the funded status of the defined benefit plans on its Consolidated Balance Sheet. Statement No...

  • Page 117
    ...loans held for sale are estimated using security prices for similar product types and, therefore, are classified in Level 2. MORTGAGE SERVICING RIGHTS MSRs do not trade in an active, open market with readily observable prices. For example, sales of MSRs do occur, but the precise terms and conditions...

  • Page 118
    ... 668,906 Level 3 Netting Adjustments(1) Balance at December 31, 2008 $ 88,677 3,956,484 378,437 167,438 458,995 36,893 83,367 Assets Trading account securities Investment securities Mortgage loans held for sale Mortgage servicing rights Derivative assets Equity investments Liabilities Derivative...

  • Page 119
    ... (83,367) Financial Assets: Cash and short-term assets Trading account securities Loans held for sale Investment securities Net loans and direct financing leases Derivatives Financial Liabilities: Deposits Short-term borrowings Federal Home Loan Bank advances Other long term debt Subordinated notes...

  • Page 120
    .... The fair values of fixed-rate time deposits are estimated by discounting cash flows using interest rates currently being offered on certificates with similar maturities. Debt Fixed-rate, long-term debt is based upon quoted market prices, which are inclusive of Huntington's credit risk. In the...

  • Page 121
    Notes to Consolidated Financial Statements Huntington Bancshares Incorporated The following table presents additional information about the interest rate swaps and caps used in Huntington's asset and liability management activities at December 31, 2008: Notional Value Average Maturity (years) Fair...

  • Page 122
    ...) 2008 $3,821 783 $4,604 IN 2007 $- 9 $ 9 Interest rate contracts Loans FHLB Advances Total DERIVATIVES USED TRADING ACTIVITIES Various derivative financial instruments are offered to enable customers to meet their financing and investing objectives and for their risk management purposes...

  • Page 123
    ... short-term, variable-rate nature. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing...

  • Page 124
    ... in the United States District Court for the Southern District of Ohio, Eastern Division, against Huntington, the Huntington Bancshares Incorporated Pension Review Committee, the Huntington Investment and Tax Savings Plan (the Plan) Administrative Committee, and certain of the Company's officers and...

  • Page 125
    ... items as calculated under regulatory accounting practices. Failure to meet minimum capital requirements can initiate certain actions by regulators that, if undertaken, could have a material adverse effect on Huntington's and The Huntington National Bank's financial statements. Applicable capital...

  • Page 126
    ...year and retained net income for the preceding two years, less any required transfers to surplus or common stock. At December 31, 2008, the bank could not have declared and paid additional dividends to the parent company without regulatory approval. 23. PARENT COMPANY FINANCIAL STATEMENTS The parent...

  • Page 127
    ... Investing activities Net cash paid for acquisition Repayments from subsidiaries Advances to subsidiaries Net cash used in investing activities Financing activities Proceeds from issuance of long-term borrowings Payment of borrowings Dividends paid on preferred stock Dividends paid on common stock...

  • Page 128
    ... 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. At December 31, 2008, Retail Banking accounted...

  • Page 129
    Notes to Consolidated Financial Statements Huntington Bancshares Incorporated Listed below is certain operating basis financial information reconciled to Huntington's 2008, 2007, and 2006 reported results by line of business: INCOME STATEMENTS 2008 Net interest income Provision for credit losses ...

  • Page 130
    Notes to Consolidated Financial Statements 25. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) Huntington Bancshares Incorporated The following is a summary of the unaudited quarterly results of operations, for the years ended December 31, 2008 and 2007: 2008 (in thousands, except per share data) ...

  • Page 131
    ...Investor Relations Huntington Bancshares Incorporated Huntington Center, HC0935 41 South High Street Columbus, Ohio 43287 [email protected] (614) 480-5676 DIRECT STOCK PURCHASE AND DIVIDEND REINVESTMENT PLAN Computershare Investment Plan (CIP) is a direct stock purchase and dividend...

  • Page 132
    Huntington Center, 41 South High Street Columbus, Ohio 43287 (614) 480-8300 huntington.com HUNTINGTON BANCSHARES INCORPORATED ® Member FDIC. and Huntington® are federally registered service marks of Huntington Bancshares Incorporated. © 2009 Huntington Bancshares Incorporated. 03009AR