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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY PERIOD ENDED September 30, 2004

Commission File Number 0-2525

Huntington Bancshares Incorporated

     
Maryland   31-0724920
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

41 South High Street, Columbus, Ohio 43287

Registrant’s telephone number (614) 480-8300

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [  ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes [X] No [  ]

There were 231,105,691 shares of Registrant’s without par value common stock outstanding on October 31, 2004.

 

Huntington Bancshares Incorporated

INDEX

         
       
       
    3  
    4  
    5  
    6  
    7  
    19  
    77  
    77  
       
    78  
    78  
    80  
 Exhibit 10(A)
 Exhibit 10(B)
 Exhibit 31.1
 Exhibit 31.2
 Exhibit 32.1
 Exhibit 32.2

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Table of Contents

Part 1. Financial Information

Item 1. Financial Statements

Huntington Bancshares Incorporated

Condensed Consolidated Balance Sheets
                         
    September 30,   December 31,   September 30,
(in thousands, except number of shares)
   2004
   2003
   2003
    (Unaudited)           (Unaudited)
Assets
                        
Cash and due from banks
   $ 1,053,358     $ 899,689     $ 775,423  
Federal funds sold and securities purchased under resale agreements
     838,833       96,814       87,196  
Interest bearing deposits in banks
     36,155       33,627       37,857  
Trading account securities
     120,334       7,589       415  
Loans held for sale
     205,913       226,729       411,792  
Investment securities
     4,150,044       4,929,060       4,283,475  
Loans and leases
     22,587,259       21,075,118       21,172,747  
Allowance for loan and lease losses
     (282,650 )     (299,732 )     (336,398 )
 
    
 		      
 		      
 		  
Net loans and leases
     22,304,609       20,775,386       20,836,349  
 
    
 		      
 		      
 		  
Operating lease assets
     717,411       1,260,440       1,454,590  
Bank owned life insurance
     954,911       927,671       917,261  
Premises and equipment
     356,438       349,712       338,863  
Goodwill and other intangible assets
     216,011       217,009       217,212  
Customers’ acceptance liability
     8,787       9,553       9,208  
Accrued income and other assets
     844,689       786,047       759,282  
 
    
 		      
 		      
 		  
Total Assets
   $ 31,807,493     $ 30,519,326     $ 30,128,923  
 
    
 		      
 		      
 		  
Liabilities
                        
Deposits
   $ 20,109,025     $ 18,487,395     $ 18,833,856  
Short-term borrowings
     1,215,887       1,452,304       1,400,047  
Federal Home Loan Bank advances
     1,270,454       1,273,000       1,273,000  
Other long-term debt
     4,094,185       4,544,509       4,269,288  
Subordinated notes
     1,040,901       990,470       791,045  
Allowance for unfunded loan commitments and letters of credit
     30,007       35,522       33,737  
Bank acceptances outstanding
     8,787       9,553       9,208  
Accrued expenses and other liabilities
     1,577,330       1,451,571       1,277,286  
 
    
 		      
 		      
 		  
Total Liabilities
     29,346,576       28,244,324       27,887,467  
 
    
 		      
 		      
 		  
Shareholders’ Equity
                        
Preferred stock — authorized 6,617,808 shares; none outstanding
     —       —       —  
Common stock — without par value; authorized 500,000,000 shares; issued 257,866,255 shares; outstanding 230,153,486; 229,008,088 and 228,869,936 shares, respectively
     2,482,904       2,483,542       2,482,370  
Less 27,712,769; 28,858,167 and 28,996,319 treasury shares, respectively
     (526,967 )     (548,576 )     (550,766 )
Accumulated other comprehensive income (loss)
     (13,812 )     2,678       25,865  
Retained earnings
     518,792       337,358       283,987  
 
    
 		      
 		      
 		  
Total Shareholders’ Equity
     2,460,917       2,275,002       2,241,456  
 
    
 		      
 		      
 		  
Total Liabilities and Shareholders’ Equity
   $ 31,807,493     $ 30,519,326     $ 30,128,923  
 
    
 		      
 		      
 		  

See notes to unaudited condensed consolidated financial statements

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Table of Contents

Huntington Bancshares Incorporated

Condensed Consolidated Statements of Income
(Unaudited)

                                 
    Three Months Ended   Nine Months Ended
    September 30,
   September 30,
(in thousands, except per share amounts)
   2004
   2003
   2004
   2003
Interest and fee income
                                
Loans and leases
                                
Taxable
   $ 284,790     $ 277,906     $ 823,562     $ 813,845  
Tax-exempt
     474       588       1,423       1,997  
Securities
                                
Taxable
     38,987       36,311       127,059       110,450  
Tax-exempt
     7,032       6,199       21,792       16,171  
Other
     6,719       12,316       14,264       28,196  
 
    
 		      
 		      
 		      
 		  
Total Interest Income
     338,002       333,320       988,100       970,659  
 
    
 		      
 		      
 		      
 		  
Interest expenses
                                
Deposits
     64,812       67,565       183,810       223,658  
Short-term borrowings
     3,121       2,992       9,222       12,864  
Federal Home Loan Bank advances
     8,426       5,883       24,565       17,102  
Subordinated notes and other long-term debt including preferred capital securities
     34,585       36,409       98,197       92,364  
 
    
 		      
 		      
 		      
 		  
Total Interest Expense
     110,944       112,849       315,794       345,988  
 
    
 		      
 		      
 		      
 		  
Net Interest Income
     227,058       220,471       672,306       624,671  
Provision for credit losses
     11,785       51,615       42,408       137,652  
 
    
 		      
 		      
 		      
 		  
Net Interest Income After Provision for Credit Losses
     215,273       168,856       629,898       487,019  
 
    
 		      
 		      
 		      
 		  
Operating lease income
     64,412       117,624       231,985       384,391  
Service charges on deposit accounts
     43,935       42,294       129,368       123,077  
Trust services
     17,064       15,365       50,095       45,856  
Brokerage and insurance income
     13,200       13,807       41,920       43,500  
Mortgage banking
     4,448       30,193       23,474       48,503  
Bank owned life insurance income
     10,019       10,438       31,813       32,618  
Other service charges and fees
     10,799       10,499       30,957       32,209  
Gain on sales of automobile loans
     312       —       14,206       23,751  
Gain on sale of branch offices
     —       13,112       —       13,112  
Securities gains (losses)
     7,803       (4,107 )     13,663       3,978  
Other
     17,899       23,543       68,177       71,648  
 
    
 		      
 		      
 		      
 		  
Total Non-Interest Income
     189,891       272,768       635,658       822,643  
 
    
 		      
 		      
 		      
 		  
Personnel costs
     121,729       113,170       363,068       331,501  
Operating lease expense
     54,885       93,134       188,158       307,661  
Outside data processing and other services
     17,527       17,478       53,552       50,161  
Equipment
     15,295       16,328       47,609       49,081  
Net occupancy
     16,838       15,570       49,859       47,556  
Professional services
     12,219       11,116       27,354       30,273  
Marketing
     5,000       5,515       20,908       20,595  
Telecommunications
     5,359       5,612       15,191       16,707  
Printing and supplies
     3,201       3,658       9,315       9,592  
Amortization of intangibles
     204       204       612       612  
Restructuring reserve releases
     (1,151 )     —       (1,151 )     (6,315 )
Other
     22,317       18,397       66,755       55,270  
 
    
 		      
 		      
 		      
 		  
Total Non-Interest Expense
     273,423       300,182       841,230       912,694  
 
    
 		      
 		      
 		      
 		  
Income Before Income Taxes
     131,741       141,442       424,326       396,968  
Provision for income taxes
     38,255       37,230       116,540       104,536  
 
    
 		      
 		      
 		      
 		  
Income before cumulative effect of change in accounting principle
     93,486       104,212       307,786       292,432  
Cumulative effect of change in accounting principle, net of tax
     —       (13,330 )     —       (13,330 )
 
    
 		      
 		      
 		      
 		  
Net Income
   $ 93,486     $ 90,882     $ 307,786     $ 279,102  
 
    
 		      
 		      
 		      
 		  
Average common shares — diluted
     234,348       230,966       233,307       231,353  
Per Common Share:
                                
Income before cumulative effect of change in accounting principle — Diluted
   $ 0.40     $ 0.45     $ 1.32     $ 1.26  
Net Income — Diluted
     0.40       0.39       1.32       1.21  
Cash Dividends Declared
     0.200       0.175       0.550       0.495  

See notes to unaudited condensed consolidated financial statements

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Table of Contents

Huntington Bancshares Incorporated

Condensed Consolidated Statements of Changes in Shareholders’ Equity

                                                         
                                    Accumulated        
    Common Stock
   Treasury Shares
   Other
Comprehensive		   Retained    
(in thousands)
   Shares
   Amount
   Shares
   Amount
   Income
   Earnings
   Total
Nine Months Ended September 30, 2003 (Unaudited):
                                                        
Balance, beginning of period
     257,866     $ 2,484,421       (24,987 )   $ (475,399 )   $ 62,300     $ 118,471     $ 2,189,793  
Comprehensive Income:
                                                        
Net income
                                             279,102       279,102  
Unrealized net holding losses on securities available for sale arising during the period, net of reclassification adjustment for net gains included in net income
                                     (26,233 )             (26,233 )
Unrealized losses on derivative instruments used in cash flow hedging relationships
                                     (10,202 )             (10,202 )
 
                                                    
 		  
Total comprehensive income
                                                     242,667  
 
                                                    
 		  
Cash dividends declared ($0.495 per share)
                                             (113,586 )     (113,586 )
Stock options exercised
             (2,144 )     337       6,373                       4,229  
Treasury shares purchased
                     (4,300 )     (81,061 )                     (81,061 )
Other
             93       (46 )     (679 )                     (586 )
 
    
 		      
 		      
 		      
 		      
 		      
 		      
 		  
Balance, end of period (Unaudited)
     257,866     $ 2,482,370       (28,996 )   $ (550,766 )   $ 25,865     $ 283,987     $ 2,241,456  
 
    
 		      
 		      
 		      
 		      
 		      
 		      
 		  
Nine Months Ended September 30, 2004 (Unaudited):
                                                        
Balance, beginning of period
     257,866     $ 2,483,542       (28,858 )   $ (548,576 )   $ 2,678     $ 337,358     $ 2,275,002  
Comprehensive Income:
                                                        
Net income
                                             307,786       307,786  
Unrealized net holding losses on securities available for sale arising during the period, net of reclassification adjustment for net gains included in net income
                                     (19,555 )             (19,555 )
Unrealized gains on derivative instruments used in cash flow hedging relationships
                                     3,065               3,065  
 
                                                    
 		  
Total comprehensive income
                                                     291,296  
 
                                                    
 		  
Cash dividends declared ($0.550 per share)
                                             (126,352 )     (126,352 )
Stock options exercised
             (564 )     985       18,865                       18,301  
Other
             (74 )     160       2,744                       2,670  
 
    
 		      
 		      
 		      
 		      
 		      
 		      
 		  
Balance, end of period (Unaudited)
     257,866     $ 2,482,904       (27,713 )   $ (526,967 )   $ (13,812 )   $ 518,792     $ 2,460,917  
 
    
 		      
 		      
 		      
 		      
 		      
 		      
 		  

See notes to unaudited consolidated financial statements.

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Table of Contents

Huntington Bancshares Incorporated

Condensed Consolidated Statements of Cash Flows
(Unaudited)

                 
    Nine Months Ended
    September 30,
(in thousands)
   2004
   2003
Operating Activities
                
Net Income
   $ 307,786     $ 279,102  
Adjustments to reconcile net income to net cash provided by operating activities
                
Cumulative effect of change in accounting principle, net of tax
     —       13,330  
Provision for credit losses
     42,408       137,652  
Depreciation on operating lease assets
     187,022       290,474  
Other depreciation and amortization
     65,279       73,855  
Deferred income tax expense
     83,140       78,754  
Increase in trading account securities
     (112,745 )     (174 )
Decrease in loans held for sale
     20,566       116,587  
Gains on sales of investment securities
     (13,663 )     (3,978 )
Gains on sale of automobile loans
     (14,206 )     (23,751 )
Gains on sale of branch offices
     —       (13,112 )
Restructuring reserve releases
     (1,151 )     (6,315 )
Other, net
     (40,099 )     (155,245 )
 
    
 		      
 		  
Net Cash Provided by Operating Activities
     524,337       787,179  
 
    
 		      
 		  
Investing Activities
                
Increase in interest bearing deposits in banks
     (2,528 )     (557 )
Proceeds from:
                
Maturities and calls of investment securities
     746,386       1,343,838  
Sales of investment securities
     1,655,459       887,936  
Purchases of investment securities
     (1,530,657 )     (3,140,336 )
Proceeds from sales/securitizations of loans
     1,534,395       1,475,948  
Net loan and lease originations, excluding sales
     (3,216,666 )     (3,457,605 )
Net decrease in operating lease assets
     357,184       473,727  
Sale of branch offices
     —       (81,367 )
Proceeds from sale of premises and equipment
     340       6,825  
Purchases of premises and equipment
     (43,924 )     (44,076 )
Proceeds from sales of other real estate
     9,800       6,997  
Consolidation of cash of securitization trust
     —       58,500  
 
    
 		      
 		  
Net Cash Used for Investing Activities
     (490,211 )     (2,470,170 )
 
    
 		      
 		  
Financing Activities
                
Increase in total deposits
     1,610,167       1,525,808  
Decrease in short-term borrowings
     (236,417 )     (740,969 )
Proceeds from issuance of subordinated notes
     148,830       —  
Maturity of subordinated notes
     (100,000 )     (250,000 )
Proceeds from Federal Home Loan Bank advances
     454       270,000  
Maturity of Federal Home Loan Bank advances
     (3,000 )     (10,000 )
Proceeds from long-term debt
     675,000       1,450,000  
Maturity of long-term debt
     (1,130,000 )     (530,000 )
Dividends paid on common stock
     (121,773 )     (111,007 )
Repurchases of common stock
     —       (81,061 )
Net proceeds from issuance of common stock
     18,301       4,076  
 
    
 		      
 		  
Net Cash Provided by Financing Activities
     861,562       1,526,847  
 
    
 		      
 		  
Change in Cash and Cash Equivalents
     895,688       (156,144 )
Cash and Cash Equivalents at Beginning of Period
     996,503       1,018,763  
 
    
 		      
 		  
Cash and Cash Equivalents at End of Period
   $ 1,892,191     $ 862,619  
 
    
 		      
 		  
Supplemental disclosures:
                
Income taxes paid
   $ 14,031     $ 70,953  
Interest paid
     302,801       354,071  
Non-cash activities
               
Residential mortgage loans securitized and retained in securities available for sale
     115,929       171,586  
Common stock dividends accrued not paid
     36,254       30,901  

See notes to unaudited condensed consolidated financial statements.

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Table of Contents

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 – Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements of Huntington Bancshares Incorporated (Huntington) reflect all adjustments consisting of normal recurring accruals, which are, in the opinion of Management, necessary for a fair presentation of the consolidated financial position, the results of operations, and cash flows for the periods presented. These unaudited condensed consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission (SEC) and, therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been omitted. The Notes to the Consolidated Financial Statements appearing in Huntington’s 2003 Annual Report on Form 10-K (2003 Form 10-K), which include descriptions of significant accounting policies, as updated by the information contained in this report, should be read in conjunction with these interim financial statements.

     Certain amounts in the prior year’s financial statements have been reclassified to conform to the 2004 presentation.

     For statement of cash flows purposes, cash and cash equivalents are defined as the sum of “Cash and due from banks” and “Federal funds sold and securities purchased under resale agreements.” The statement of cash flows for the nine-months ended September 30, 2003, has been corrected to properly reflect the sale of branch offices during the third quarter of 2003.

Note 2 – New Accounting Pronouncements

Emerging Issues Task Force Issue No. 03-1, The Meaning of Other-Than-Temporary Impairments and Its Application to Certain Investments (EITF 03-1): The Emerging Issues Task Force reached a consensus about the criteria that should be used to determine when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. EITF 03-1 also included accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. On September 30, 2004, the FASB issued FSP 03-1-1 which delayed the effective date for the measurement and recognition guidance contained in paragraphs 10–20 of Issue 03-1 due to additional proposed guidance expected to be finalized in the fourth quarter of 2004.

     At September 30, 2004, Huntington had $2.5 billion of debt securities with current market values less than their amortized cost. These debt securities had an aggregate unrealized loss of $32.7 million at September 30, 2004. None of these securities were equity securities or debt securities that can contractually be prepaid or otherwise settled in such a way that Huntington would not recover substantially all of its cost. At September 30, 2004, a total of $26.8 million of these debt securities had market values that were 5% or more below their amortized cost. The aggregate unrealized loss for these securities was $1.5 million. The declines in value are the result of interest rate fluctuations and Huntington believes the declines are temporary; therefore, no impairment loss has been recorded except as described in the paragraph below. Until the final FSP 03-1-1 is finalized, Huntington cannot determine the impact that the proposed guidance might have on the financial statements.

     At September 30, 2004, Management made a decision, to sell $11 million of equity securities, with unrealized losses of $0.9 million. Consequently, Huntington recognized the unrealized losses in the third quarter of 2004.

Emerging Issues Task Force Issue No. 03-16, Accounting for Investment in Limite