SELECTED FINANCIAL DATA | HUNTINGTON BANCSHARES INCORPORATED |
Year Ended December 31, | ||||||||||||||||||||
(in thousands of dollars, except per share amounts) | 2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||||||
Interest income
|
$ | 2,742,963 | $ | 2,070,519 | $ | 1,641,765 | $ | 1,347,315 | $ | 1,305,756 | ||||||||||
Interest expense
|
1,441,451 | 1,051,342 | 679,354 | 435,941 | 456,770 | |||||||||||||||
Net interest income
|
1,301,512 | 1,019,177 | 962,411 | 911,374 | 848,986 | |||||||||||||||
Provision for credit losses
|
643,628 | 65,191 | 81,299 | 55,062 | 163,993 | |||||||||||||||
Net interest income after provision for credit losses
|
657,884 | 953,986 | 881,112 | 856,312 | 684,993 | |||||||||||||||
Service charges on deposit accounts
|
254,193 | 185,713 | 167,834 | 171,115 | 167,840 | |||||||||||||||
Automobile operating lease income
|
7,810 | 43,115 | 133,015 | 285,431 | 489,698 | |||||||||||||||
Securities (losses) gains
|
(29,738 | ) | (73,191 | ) | (8,055 | ) | 15,763 | 5,258 | ||||||||||||
Other non-interest income
|
444,338 | 405,432 | 339,488 | 346,289 | 406,357 | |||||||||||||||
Total non-interest income
|
676,603 | 561,069 | 632,282 | 818,598 | 1,069,153 | |||||||||||||||
Personnel costs
|
686,828 | 541,228 | 481,658 | 485,806 | 447,263 | |||||||||||||||
Automobile operating lease expense
|
5,161 | 31,286 | 103,850 | 235,080 | 393,270 | |||||||||||||||
Other non-interest expense
|
619,855 | 428,480 | 384,312 | 401,358 | 389,626 | |||||||||||||||
Total non-interest expense
|
1,311,844 | 1,000,994 | 969,820 | 1,122,244 | 1,230,159 | |||||||||||||||
Income before income taxes
|
22,643 | 514,061 | 543,574 | 552,666 | 523,987 | |||||||||||||||
(Benefit) provision for income taxes
|
(52,526 | ) | 52,840 | 131,483 | 153,741 | 138,294 | ||||||||||||||
Income before cumulative effect of change in accounting principle
|
75,169 | 461,221 | 412,091 | 398,925 | 385,693 | |||||||||||||||
Cumulative effect of change in accounting principle, net of
tax(2)
|
| | | | (13,330 | ) | ||||||||||||||
Net income
|
$ | 75,169 | $ | 461,221 | $ | 412,091 | $ | 398,925 | $ | 372,363 | ||||||||||
Income before cumulative effect of change in accounting
principle per common share basic
|
$0.25 | $1.95 | $1.79 | $1.74 | $1.68 | |||||||||||||||
Net income per common share basic
|
0.25 | 1.95 | 1.79 | 1.74 | 1.62 | |||||||||||||||
Income before cumulative effect of change in accounting
principle per common share diluted
|
0.25 | 1.92 | 1.77 | 1.71 | 1.67 | |||||||||||||||
Net income per common share diluted
|
0.25 | 1.92 | 1.77 | 1.71 | 1.61 | |||||||||||||||
Cash dividends declared per common share
|
1.060 | 1.000 | 0.845 | 0.750 | 0.670 | |||||||||||||||
Balance sheet highlights
|
||||||||||||||||||||
Total assets (period end)
|
$ | 54,697,468 | $ | 35,329,019 | $ | 32,764,805 | $ | 32,565,497 | $ | 30,519,326 | ||||||||||
Total long-term debt (period
end)(3)
|
6,954,909 | 4,512,618 | 4,597,437 | 6,326,885 | 6,807,979 | |||||||||||||||
Total shareholders equity (period end)
|
5,949,140 | 3,014,326 | 2,557,501 | 2,537,638 | 2,275,002 | |||||||||||||||
Average long-term
debt(3)
|
5,714,572 | 4,942,671 | 5,168,959 | 6,650,367 | 5,816,660 | |||||||||||||||
Average shareholders equity
|
4,631,912 | 2,945,597 | 2,582,721 | 2,374,137 | 2,196,348 | |||||||||||||||
Average total assets
|
44,711,676 | 35,111,236 | 32,639,011 | 31,432,746 | 28,971,701 | |||||||||||||||
Key ratios and statistics
|
||||||||||||||||||||
Margin analysis as a % of average earnings assets
|
||||||||||||||||||||
Interest
income(4)
|
7.02 | % | 6.63 | % | 5.65 | % | 4.89 | % | 5.35 | % | ||||||||||
Interest expense
|
3.66 | 3.34 | 2.32 | 1.56 | 1.86 | |||||||||||||||
Net interest
margin(4)
|
3.36 | % | 3.29 | % | 3.33 | % | 3.33 | % | 3.49 | % | ||||||||||
Return on average total assets
|
0.17 | % | 1.31 | % | 1.26 | % | 1.27 | % | 1.29 | % | ||||||||||
Return on average total shareholders equity
|
1.6 | 15.7 | 16.0 | 16.8 | 17.0 | |||||||||||||||
Return on average tangible shareholders
equity(5)
|
3.9 | 19.5 | 17.4 | 18.5 | 18.8 | |||||||||||||||
Efficiency
ratio(6)
|
62.5 | 59.4 | 60.0 | 65.0 | 63.9 | |||||||||||||||
Dividend payout ratio
|
N.M. | 52.1 | 47.7 | 43.9 | 41.6 | |||||||||||||||
Average shareholders equity to average assets
|
10.36 | 8.39 | 7.91 | 7.55 | 7.58 | |||||||||||||||
Effective tax rate
|
N.M. | 10.3 | 24.2 | 27.8 | 26.4 | |||||||||||||||
Tangible equity to tangible assets (period
end)(7)
|
5.08 | 6.93 | 7.19 | 7.18 | 6.80 | |||||||||||||||
Tier 1 leverage ratio (period end)
|
6.77 | 8.00 | 8.34 | 8.42 | 7.98 | |||||||||||||||
Tier 1 risk-based capital ratio (period end)
|
7.51 | 8.93 | 9.13 | 9.08 | 8.53 | |||||||||||||||
Total risk-based capital ratio (period end)
|
10.85 | 12.79 | 12.42 | 12.48 | 11.95 | |||||||||||||||
Other data
|
||||||||||||||||||||
Full-time equivalent employees (period end)
|
11,925 | 8,081 | 7,602 | 7,812 | 7,983 | |||||||||||||||
Domestic banking offices (period end)
|
625 | 381 | 344 | 342 | 338 |
(1) | Comparisons for presented periods are impacted by a number of factors. Refer to the Significant Factors Influencing Financial Performance Comparisons for additional discussion regarding these key factors. |
(2) | Due to the adoption of FASB Interpretation No. 46 Consolidation of Variable Interest Entities. |
(3) | Includes Federal Home Loan Bank advances, subordinated notes, and other long-term debt. |
(4) | On a fully taxable equivalent (FTE) basis assuming a 35% tax rate. |
(5) | Net income less expense for amortization of intangibles (net of tax) for the period divided by average tangible common shareholders equity. Average tangible common shareholders equity equals average total common shareholders equity less other intangible assets and goodwill. Other intangible assets are net of deferred tax. |
(6) | Non-interest expense less amortization of intangibles divided by the sum of FTE net interest income and non-interest income excluding securities gains. |
(7) | Tangible common shareholders equity divided by tangible assets (total assets less goodwill and other intangible assets). Other intangible assets are net of deferred tax. |
12
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION | HUNTINGTON BANCSHARES INCORPORATED |
| Introduction Provides overview comments on important matters including risk factors, acquisitions, and other items. These are essential for understanding our performance and prospects. | |
| Discussion of Results of Operations Reviews financial performance from a consolidated company perspective. It also includes a Significant Items Influencing Financial Performance Comparisons section that summarizes key issues helpful for understanding performance trends including our acquisition of Sky Financial Group, Inc. (Sky Financial) and our relationship with Franklin Credit Management Corporation (Franklin). Key consolidated balance sheet and income statement trends are also discussed in this section. | |
| Risk Management and Capital Discusses credit, market, liquidity, and operational risks, including how these are managed, as well as performance trends. It also includes a discussion of liquidity policies, how we fund ourselves, and related performance. In addition, there is a discussion of guarantees and/or commitments made for items such as standby letters of credit and commitments to sell loans, and a discussion that reviews the adequacy of capital, including regulatory capital requirements. | |
| Lines of Business Discussion Provides an overview of financial performance for each of our major lines of business and provides additional discussion of trends underlying consolidated financial performance. | |
| Results for the Fourth Quarter Provides a discussion of results for the 2007 fourth quarter compared with the year-ago quarter. |
13
MANAGEMENTS DISCUSSION AND ANALYSIS | HUNTINGTON BANCSHARES INCORPORATED |
| Total Allowances for Credit Losses The allowance for credit losses (ACL) is the sum of the allowance for loan and lease losses (ALLL) and the allowance for unfunded loan commitments and letters of credit (AULC). At December 31, 2007, the ACL was $645.0 million. The amount of the ACL was determined by judgments regarding the quality of the loan portfolio and loan commitments. All known relevant internal and external factors that affected loan collectibility were considered. The ACL represents the estimate of the level of reserves appropriate to absorb inherent credit losses in the loan and lease portfolio, as well as unfunded loan commitments. We believe the process for determining the ACL considers all of the potential factors that could result in credit losses. However, the process includes judgmental and quantitative elements that may be subject to significant change. To the extent actual outcomes differ from our estimates, additional provision for credit losses could be required, which could adversely affect earnings or financial performance in future periods. At December 31, 2007, the ACL as a percent of total loans and leases was 1.61%. Based on the balances at December 31, 2007, a 10 basis point increase in this ratio to 1.71% would require $40.0 million in additional reserves (funded by additional provision for credit losses), which would have negatively impacted 2007 net income by approximately $26.0 million, or $0.09 per share. |
14
MANAGEMENTS DISCUSSION AND ANALYSIS | HUNTINGTON BANCSHARES INCORPORATED |
| Fair Value Measurements The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The majority of assets reported at fair value are based on quoted market prices or on internally developed models that utilize independently sourced market parameters, including interest rate yield curves, option volatilities, and currency rates. |
15
MANAGEMENTS DISCUSSION AND ANALYSIS | HUNTINGTON BANCSHARES INCORPORATED |
| Income Taxes The calculation of our provision for federal income taxes is complex and requires the use of estimates and judgments. We have two accruals for income taxes: Our income tax receivable represents the estimated amount currently due from the federal government, net of any reserve for potential audit issues, and is reported as a component of accrued income and other assets in our consolidated balance sheet; our deferred federal income tax liability represents the estimated impact of temporary differences between how we recognize our assets and liabilities under GAAP, how such assets and liabilities are recognized under the federal tax code, and is reported as a component of accrued expenses and other liabilities in our consolidated balance sheet. |
16
MANAGEMENTS DISCUSSION AND ANALYSIS | HUNTINGTON BANCSHARES INCORPORATED |
| Increased the absolute level of reported average balance sheet, revenue, expense, and the absolute level of certain credit quality results. | |
| Increased the absolute level of reported non-interest expense items because of costs incurred as part of merger integration activities, most notably employee retention bonuses, outside programming services related to systems conversions, occupancy expenses, and marketing expenses related to customer retention initiatives. These net merger costs were $85.1 million for 2007, $3.7 million for 2006, and $0.7 million for 2005. |
| Merger-related refers to amounts and percentage changes representing the impact attributable to the merger. | |
| Merger costs represent non-interest expenses primarily associated with merger integration activities, including severance expense for key executive personnel. | |
| Non-merger-related refers to performance not attributable to the merger, and includes merger efficiencies, which represent non-interest expense reductions realized as a result of the merger. |
17
MANAGEMENTS DISCUSSION AND ANALYSIS | HUNTINGTON BANCSHARES INCORPORATED |
18
MANAGEMENTS DISCUSSION AND ANALYSIS | HUNTINGTON BANCSHARES INCORPORATED |
Year Ended December 31, | ||||||||||||||||||||||||||||||||||||
Change from 2006 | Change from 2005 | |||||||||||||||||||||||||||||||||||
(in thousands, except per share amounts) | 2007 | Amount | % | 2006 | Amount | % | 2005 | 2004 | 2003 | |||||||||||||||||||||||||||
Interest income
|
$ | 2,742,963 | $ | 672,444 | 32.5 | % | $ | 2,070,519 | $ | 428,754 | 26.1 | % | $ | 1,641,765 | $ | 1,347,315 | $ | 1,305,756 | ||||||||||||||||||
Interest expense
|
1,441,451 | 390,109 | 37.1 | 1,051,342 | 371,988 | 54.8 | 679,354 | 435,941 | 456,770 | |||||||||||||||||||||||||||
Net interest income
|
1,301,512 | 282,335 | 27.7 | 1,019,177 | 56,766 | 5.9 | 962,411 | 911,374 | 848,986 | |||||||||||||||||||||||||||
Provision for credit losses
|
643,628 | 578,437 | N.M. | 65,191 | (16,108 | ) | (19.8 | ) | 81,299 | 55,062 | 163,993 | |||||||||||||||||||||||||
Net interest income after provision for credit losses
|
657,884 | (296,102 | ) | (31.0 | ) | 953,986 | 72,874 | 8.3 | 881,112 | 856,312 | 684,993 | |||||||||||||||||||||||||
Service charges on deposit accounts
|
254,193 | 68,480 | 36.9 | 185,713 | 17,879 | 10.7 | 167,834 | 171,115 | 167,840 | |||||||||||||||||||||||||||
Trust services
|
121,418 | 31,463 | 35.0 | 89,955 | 12,550 | 16.2 | 77,405 | 67,410 | 61,649 | |||||||||||||||||||||||||||
Brokerage and insurance income
|
92,375 | 33,540 | 57.0 | 58,835 | 5,216 | 9.7 | 53,619 | 54,799 | 57,844 | |||||||||||||||||||||||||||
Other service charges and fees
|
71,067 | 19,713 | 38.4 | 51,354 | 7,006 | 15.8 | 44,348 | 41,574 | 41,446 | |||||||||||||||||||||||||||
Bank owned life insurance income
|
49,855 | 6,080 | 13.9 | 43,775 | 3,039 | 7.5 | 40,736 | 42,297 | 43,028 | |||||||||||||||||||||||||||
Mortgage banking
|
29,804 | (11,687 | ) | (28.2 | ) | 41,491 | 13,158 | 46.4 | 28,333 | 26,786 | 58,180 | |||||||||||||||||||||||||
Securities (losses) gains
|
(29,738 | ) | 43,453 | (59.4 | ) | (73,191 | ) | (65,136 | ) | N.M. | (8,055 | ) | 15,763 | 5,258 | ||||||||||||||||||||||
Automobile operating lease income
|
7,810 | (35,305 | ) | (81.9 | ) | 43,115 | (89,900 | ) | (67.6 | ) | 133,015 | 285,431 | 489,698 | |||||||||||||||||||||||
Other
|
79,819 | (40,203 | ) | (33.5 | ) | 120,022 | 24,975 | 26.3 | 95,047 | 113,423 | 144,210 | |||||||||||||||||||||||||
Total non-interest income
|
676,603 | 115,534 | 20.6 | 561,069 | (71,213 | ) | (11.3 | ) | 632,282 | 818,598 | 1,069,153 | |||||||||||||||||||||||||
Personnel costs
|
686,828 | 145,600 | 26.9 | 541,228 | 59,570 | 12.4 | 481,658 | 485,806 | 447,263 | |||||||||||||||||||||||||||
Outside data processing and other services
|
127,245 | 48,466 | 61.5 | 78,779 | 4,141 | 5.5 | 74,638 | 72,115 | 66,118 | |||||||||||||||||||||||||||
Net occupancy
|
99,373 | 28,092 | 39.4 | 71,281 | 189 | 0.3 | 71,092 | 75,941 | 62,481 | |||||||||||||||||||||||||||
Equipment
|
81,482 | 11,570 | 16.5 | 69,912 | 6,788 | 10.8 | 63,124 | 63,342 | 65,921 | |||||||||||||||||||||||||||
Amortization of intangibles
|
45,151 | 35,189 | N.M. | 9,962 | 9,133 | N.M. | 829 | 817 | 816 | |||||||||||||||||||||||||||
Marketing
|
46,043 | 14,315 | 45.1 | 31,728 | 5,449 | 20.7 | 26,279 | 24,600 | 25,648 | |||||||||||||||||||||||||||
Professional services
|
40,320 | 13,267 | 49.0 | 27,053 | (7,516 | ) | (21.7 | ) | 34,569 | 36,876 | 42,448 | |||||||||||||||||||||||||
Telecommunications
|
24,502 | 5,250 | 27.3 | 19,252 | 604 | 3.2 | 18,648 | 19,787 | 21,979 | |||||||||||||||||||||||||||
Printing and supplies
|
18,251 | 4,387 | 31.6 | 13,864 | 1,291 | 10.3 | 12,573 | 12,463 | 13,009 | |||||||||||||||||||||||||||
Automobile operating lease expense
|
5,161 | (26,125 | ) | (83.5 | ) | 31,286 | (72,564 | ) | (69.9 | ) | 103,850 | 235,080 | 393,270 | |||||||||||||||||||||||
Other
|
137,488 | 30,839 | 28.9 | 106,649 | 24,089 | 29.2 | 82,560 | 95,417 | 91,206 | |||||||||||||||||||||||||||
Total non-interest expense
|
1,311,844 | 310,850 | 31.1 | 1,000,994 | 31,174 | 3.2 | 969,820 | 1,122,244 | 1,230,159 | |||||||||||||||||||||||||||
Income before income taxes
|
22,643 | (491,418 | ) | (95.6 | ) | 514,061 | (29,513 | ) | (5.4 | ) | 543,574 | 552,666 | 523,987 | |||||||||||||||||||||||
(Benefit) provision for income taxes
|
(52,526 | ) | (105,366 | ) | N.M. | 52,840 | (78,643 | ) | (59.8 | ) | 131,483 | 153,741 | 138,294 | |||||||||||||||||||||||
Income before cumulative effect of change in accounting principle
|
75,169 | (386,052 | ) | (83.7 | ) | 461,221 | 49,130 | 11.9 | 412,091 | 398,925 | 385,693 | |||||||||||||||||||||||||
Cumulative effect of change in accounting principle, net of
tax(2)
|
| | | | | | | | (13,330 | ) | ||||||||||||||||||||||||||
Net income
|
$ | 75,169 | $ | (386,052 | ) | (83.7 | )% | $ | 461,221 | $ | 49,130 | 11.9 | % | $ | 412,091 | $ | 398,925 | $ | 372,363 | |||||||||||||||||
Average common shares basic
|
300,908 | 64,209 | 27.1 | % | 236,699 | 6,557 | 2.8 | % | 230,142 | 229,913 | 229,401 | |||||||||||||||||||||||||
Average common shares diluted
|
303,455 | 63,535 | 26.5 | 239,920 | 6,445 | 2.8 | 233,475 | 233,856 | 231,582 | |||||||||||||||||||||||||||
Per common share:
|
||||||||||||||||||||||||||||||||||||
Income before cumulative effect of change in accounting
principle basic
|
$ | 0.25 | $ | (1.70 | ) | (87.2 | )% | $ | 1.95 | $ | 0.16 | 8.9 | % | $ | 1.79 | $ | 1.74 | $ | 1.68 | |||||||||||||||||
Net income basic
|
0.25 | (1.70 | ) | (87.2 | ) | 1.95 | 0.16 | 8.9 | 1.79 | 1.74 | 1.62 | |||||||||||||||||||||||||
Income before cumulative effect of change in accounting
principle diluted
|
0.25 | (1.67 | ) | (87.0 | ) | 1.92 | 0.15 | 8.5 | 1.77 | 1.71 | 1.67 | |||||||||||||||||||||||||
Net income diluted
|
0.25 | (1.67 | ) | (87.0 | ) | 1.92 | 0.15 | 8.5 | 1.77 | 1.71 | 1.61 | |||||||||||||||||||||||||
Cash dividends declared
|
1.060 | 0.06 | 6.0 | 1.000 | 0.16 | 18.3 | 0.845 | 0.750 | 0.670 | |||||||||||||||||||||||||||
Revenue fully taxable equivalent (FTE)
|
||||||||||||||||||||||||||||||||||||
Net interest income
|
$ | 1,301,512 | $ | 282,335 | 27.7 | % | $ | 1,019,177 | $ | 56,766 | 5.9 | % | $ | 962,411 | $ | 911,374 | $ | 848,986 | ||||||||||||||||||
FTE adjustment
|
19,249 | 3,224 | 20.1 | 16,025 | 2,632 | 19.7 | 13,393 | 11,653 | 9,684 | |||||||||||||||||||||||||||
Net interest
income(3)
|
1,320,761 | 285,559 | 27.6 | 1,035,202 | 59,398 | 6.1 | 975,804 | 923,027 | 858,670 | |||||||||||||||||||||||||||
Non-interest income
|
676,603 | 115,534 | 20.6 | 561,069 | (71,213 | ) | (11.3 | ) | 632,282 | 818,598 | 1,069,153 | |||||||||||||||||||||||||
Total
revenue(3)
|
$ | 1,997,364 | $ | 401,093 | 25.1 | % | $ | 1,596,271 | $ | (11,815 | ) | (0.7 | )% | $ | 1,608,086 | $ | 1,741,625 | $ | 1,927,823 | |||||||||||||||||
(1) | Comparisons for presented periods are impacted by a number of factors. Refer to the Significant Factors Influencing Financial Performance Comparisons for additional discussion regarding these key factors. |
(2) | Due to adoption of FASB Interpretation No. 46 for variable interest entities. |
(3) | On a fully taxable equivalent (FTE) basis assuming a 35% tax rate. |
19
MANAGEMENTS DISCUSSION AND ANALYSIS | HUNTINGTON BANCSHARES INCORPORATED |
| $78.6 million decline in provision for income taxes as the effective tax rate for 2006 was 10.3%, down from 24.2% in 2005. The lower 2006 provision for income taxes reflected the favorable impact of an $84.5 million reduction related to the resolution of a federal income tax audit covering tax years 2002 and 2003 that resulted in the release of federal income tax |
20
MANAGEMENTS DISCUSSION AND ANALYSIS | HUNTINGTON BANCSHARES INCORPORATED |
reserves, as well as the recognition of federal tax loss carry backs. The 2005 effective tax rate of 24.2% was favorably impacted by a combination of factors including the benefit of a federal tax loss carry back, partially offset by the net impact of repatriating foreign earnings. |
| $56.8 million, or 6%, increase in net interest income, reflecting a 7% increase in average earning assets, as the net interest margin of 3.29% declined 4 basis points from 3.33% in the prior year. The increase in average earning assets reflected 7% growth in average total loans and leases, including 12% growth in average total commercial loans and 3% growth in average total consumer loans, and a 15% increase in average investment securities. Growth in earning assets was positively impacted by the acquisition of Unizan on March 1, 2006. | |
| $16.1 million decline in provision for credit losses, reflecting overall net improvement in our credit risk performance as reflected in a decline in our allowance for credit losses as a percent of period end loans and leases to 1.04% at December 31, 2006, from 1.10% at the end of 2005. |
| $71.2 million, or 11%, decline in non-interest income. Contributing to the decrease was an $89.9 million expected decline in operating lease income, and a $65.1 million increase in securities losses, reflecting the impact of a balance sheet restructuring in late 2006. Partially offsetting these negative factors were increases in several other components of non-interest income, primarily due to the Unizan acquisition. | |
| $31.2 million, or 3%, increase in non-interest expense, reflecting increases in several components of non-interest expense, primarily related to the acquisition of Unizan. |
21
MANAGEMENTS DISCUSSION AND ANALYSIS | HUNTINGTON BANCSHARES INCORPORATED |
1. | Sky Financial Acquisition. The merger with Sky Financial was completed on July 1, 2007. At the time of acquisition, Sky Financial had assets of $16.8 billion, including $13.3 billion of loans, and total deposits of $12.9 billion. Sky Financial results are reflected in our consolidated results for six months of 2007. The impacts on the 2007 reported results compared with premerger reporting periods are as follows: |
| Increased the absolute level of reported average balance sheet, revenue, expense, and credit quality results (e.g., net charge-offs). | |
| Increased reported non-interest expense items as a result of costs incurred as part of merger integration activities, most notably employee retention bonuses, outside programming services related to systems conversions, and marketing expenses related to customer retention initiatives. These net merger costs were $85.1 million in 2007. This included $13.4 million severance expense relating to the retirement of Sky Financials former chairman, president, and chief executive officer, who was appointed Huntingtons president and chief operating officer at the time of the acquisition, but subsequently retired on December 31, 2007. |
2. | Franklin Relationship Restructuring. Performance for 2007 included a $423.6 million ($275.4 million after-tax, or $0.91 per common share based upon the annual average outstanding diluted common shares) negative impact related to our Franklin relationship acquired in the Sky Financial acquisition. On December 28, 2007, the loans associated with Franklin were restructured, resulting in a $405.8 million provision for credit losses and a $17.9 million reduction of net interest income. The net interest income reduction reflected the placement of the Franklin loans on nonaccrual status from November 16, 2007, until December 28, 2007. |
22
MANAGEMENTS DISCUSSION AND ANALYSIS | HUNTINGTON BANCSHARES INCORPORATED |
Participated |
||||||||||||||||||||
(in thousands of dollars) | Franklin | Tribeca | Subtotal | to others | Total | |||||||||||||||
Variable rate, term loan (Facility A)
|
$ | 600,000 | $ | 400,000 | $ | 1,000,000 | $ | (175,303 | ) | $ | 824,697 | |||||||||
Variable rate, subordinated term loan (Facility B)
|
318,937 | 91,133 | 410,070 | (73,994 | ) | 336,076 | ||||||||||||||
Fixed rate, junior subordinated term loan (Facility C)
|
125,000 | | 125,000 | (8,224 | ) | 116,776 | ||||||||||||||
Line of credit
facility(1)
|
1,033 | | 1,033 | | 1,033 | |||||||||||||||
Other variable rate term loans
|
4,327 | 44,537 | 48,864 | (22,269 | ) | 26,595 | ||||||||||||||
Subtotal
|
1,049,297 | 535,670 | 1,584,967 | $ | (279,790 | ) | $ | 1,305,177 | ||||||||||||
Participated to others
|
(194,045 | ) | (85,745 | ) | (279,790 | ) | ||||||||||||||
Total principal owed to Huntington
|
855,252 | 449,925 | 1,305,177 | |||||||||||||||||
Amounts charged off
|
(116,776 | ) | | (116,776 | ) | |||||||||||||||
Total book value of loans
|
$ | 738,476 | $ | 449,925 | $ | 1,188,401 | ||||||||||||||
3. | Unizan Acquisition. The merger with Unizan was completed on March 1, 2006. At the time of acquisition, Unizan had assets of $2.5 billion, including $1.6 billion of loans and core deposits of $1.5 billion. Unizan results were included in our consolidated results for ten months of 2006. As a result, performance comparisons between 2006 and 2005 are affected. Significant activity related to the Unizan acquisition is indicated in the Results of Operations section. | |
4. | Balance Sheet Restructuring. In 2006, we utilized the excess capital resulting from the favorable resolution to certain federal income tax audits to restructure certain under-performing components of the balance sheet. Our actions included the review of $2.1 billion of securities for potential sale, the refinancing of a portion of our FHLB funding, and the sale of approximately $100 million of mortgage loans. The review of securities for sale resulted in an initial impairment of $57.3 million, which was recorded as a securities loss. The completion of this review resulted in an additional $9.0 million of securities losses, as well as $6.8 million of other-than-temporary impairment on certain sub-prime mortgage backed securities not included in the initial review. Total securities losses as a result of these actions totaled $73.1 million. The refinancing of FHLB funding and the sale of mortgage loans resulted in total charges of $4.4 million, resulting in total balance sheet restructuring costs of $77.5 million ($0.21 per common share). | |
5. | Mortgage Servicing Rights (MSRs) and Related Hedging. Included in net market-related losses are net losses or gains from our MSRs and the related hedging. Additional information regarding MSRs is located under the Market Risk heading of the Risk Management and Capital section. Net income included the following net impact of MSR hedging activity (see Table 10): |
Per |
|||||||||||||||||||
Net interest |
Non-interest |
Pretax |
Net |
common |
|||||||||||||||
(amounts in thousands except per common share) | income | income | income | income | share | ||||||||||||||
2007
|
$ | 5,797 | $ | (24,784 | ) | $ | (18,987 | ) | $ | (12,342 | ) | $ | (0.04 | ) | |||||
2006
|
36 | 3,586 | (1) | 3,622 | 2,354 | 0.01 | |||||||||||||
2005
|
1,688 | (9,006 | ) | (7,318 | ) | (4,757 | ) | (0.02 | ) |
6. | Other Net Market-Related Losses. Other net market-related losses include losses and gains related to the following market-driven activities: gains and losses from public equity investing included in other non-interest income, net securities gains and losses, net gains and losses from the sale of loans held-for-sale, and the impact from the extinguishment of debt. |
23
MANAGEMENTS DISCUSSION AND ANALYSIS | HUNTINGTON BANCSHARES INCORPORATED |
Total net market-related losses also include the net impact of MSRs and related hedging (see item 5 above). Net income included the following impact from other net market-related losses: |
Securities |
Loss on |
Per |
|||||||||||||||||||||||||
gains/ |
Public equity |
loans |
Debt |
Pretax |
Net |
common |
|||||||||||||||||||||
(amounts in thousands except per common share) | (losses) | investments | held-for-sale | extinguishment | income | income | share | ||||||||||||||||||||
2007
|
$ | (30,486 | ) | $ | (20,009 | ) | $ | (34,003 | ) | $ | 8,058 | $ | (76,440 | ) | $ | (49,686 | ) | $ | (0.16 | ) | |||||||
2006
|
(55 | ) | 7,436 | | | 7,381 | 4,798 | 0.02 | |||||||||||||||||||
2005
|
715 | | | | 715 | 465 | |
7. | Visa® Indemnification. Performance for 2007 included an accrual of $24.9 million ($16.2 million after-tax, or $0.05 per common share) for estimated indemnification losses arising from third-party litigation against Visa®. Management expects that the value of our future ownership in Visa®, currently not reflected in the financial statements, will ultimately more than offset this accrual. However, no assurance can be given that the proceeds received, if any, resulting from this future ownership would be sufficient to cover the accrued indemnity liabilities. | |
8. | Effective Tax Rate. Various items impacted the effective tax rates for 2007, 2006, and 2005. For 2007, our effective tax rate was favorably impacted by lower net income and the impact of tax exempt income, bank owned life insurance, asset securitization activities, and general business credits from investments in low income housing and historic property partnerships. For 2006, impacts included the effects of an $84.5 million ($0.35 per common share) reduction of provision for income taxes from the release of tax reserves as a result of the resolution of the federal income tax audit for 2002 and 2003, and the recognition of a federal tax loss carry back. For 2005, the effective tax rate benefited $26.9 million ($0.12 per common share) from the positive impact of a federal tax loss carry back, partially offset by a net $5.0 million after tax ($0.02 per common share) increase from the repatriation of foreign earnings. | |
9. | Other Significant Items Influencing Earnings Performance Comparisons. In addition to the items discussed separately in this section, a number of other items impacted financial results. These included: |
| $10.8 million pretax negative impact primarily due to increases to litigation reserves on existing cases. |
| $10.0 million pretax contribution to the Huntington Foundation. | |
| $5.5 million pretax increase in automobile lease residual value losses. This increase reflected higher relative losses on certain vehicles sold at auction, most notably high-line imports and larger sport utility vehicles. | |
| $4.8 million in severance and consolidation pretax expenses. This reflected fourth quarter severance-related expenses associated with a reduction of 75 Regional Banking staff positions, as well as costs associated with the retirements of a vice chairman and an executive vice president. | |
| $3.7 million of Unizan pretax merger costs, primarily associated with systems conversion expenses. | |
| $3.3 million pretax gain on the sale of MasterCard® stock. | |
| $3.2 million pretax negative impact associated with the write-down of equity method investments. | |
| $2.3 million pretax unfavorable impact due to a cumulative adjustment to defer home equity annual fees. |
| $8.8 million pretax investment securities losses, resulting from the decision to reduce exposure to certain unsecured federal agency securities. | |
| $5.1 million of pretax severance and consolidation expenses associated with the consolidation of certain operations functions, including the closing of an item-processing center in Michigan. | |
| $3.7 million pretax expense associated with the closed SEC investigation and regulatory-related written agreements. | |
| $2.6 million pretax write-offs of equity investments. |
24
MANAGEMENTS DISCUSSION AND ANALYSIS | HUNTINGTON BANCSHARES INCORPORATED |
2007 | 2006 | 2005 | ||||||||||||||||||||||
(in thousands of dollars) | After-tax | EPS | After-tax | EPS | After-tax | EPS | ||||||||||||||||||
Net income GAAP
|
$ | 75,169 | $ | 461,221 | $ | 412,091 | ||||||||||||||||||
Earnings per share, after tax
|
$ | 0.25 | $ | 1.92 | $ | 1.77 | ||||||||||||||||||
Change from prior year $
|
(1.67 | ) | 0.15 | 0.06 | ||||||||||||||||||||
Change from prior year %
|
(87.0 | )% | 8.5 | % | 3.5 | % | ||||||||||||||||||
Significant items favorable (unfavorable) impact: | Earnings(2) | EPS(3) | Earnings(2) | EPS(3) | Earnings(2) | EPS(3) | ||||||||||||||||||
Franklin Credit relationship restructuring
|
$ | (423,645 | ) | $ | (0.91 | ) | $ | | $ | | $ | | $ | | ||||||||||
Net market-related (losses) gains
|
(95,427 | ) | (0.20 | ) | 5,860 | 0.02 | (6,603 | ) | (0.02 | ) | ||||||||||||||
Merger costs
|
(85,084 | ) | (0.18 | ) | (3,749 | ) | (0.01 | ) | ||||||||||||||||
Visa®
anti-trust indemnification
|
(24,870 | ) | (0.05 | ) | | | | | ||||||||||||||||
Litigation losses
|
(10,767 | ) | (0.02 | ) | | | | | ||||||||||||||||
Reduction to federal income tax
expense(4)
|
| | 84,541 | 0.35 | | | ||||||||||||||||||
MSR FAS 156 accounting change
|
| | 5,143 | 0.01 | | | ||||||||||||||||||
Gain on sale of
MasterCard®
stock
|
| | 3,341 | 0.01 | | | ||||||||||||||||||
Balance sheet restructuring
|
| | (77,525 | ) | (0.21 | ) | (8,770 | ) | (0.02 | ) | ||||||||||||||
Huntington Foundation contribution
|
| | (10,000 | ) | (0.03 | ) | | | ||||||||||||||||
Automobile lease residual value losses
|
| | (5,549 | ) | (0.01 | ) | | | ||||||||||||||||
Severance and consolidation expenses
|
| | (4,750 | ) | (0.01 | ) | (5,064 | ) | (0.01 | ) | ||||||||||||||
Accounting adjustment for certain equity investments
|
| | (3,240 | ) | (0.01 | ) | | | ||||||||||||||||
Adjustment to defer home equity annual fees
|
| | (2,254 | ) | (0.01 | ) | | | ||||||||||||||||
Net impact of federal tax loss carry
back(4)
|
| | | | 26,936 | 0.12 | ||||||||||||||||||
Net impact of repatriating foreign
earnings(4)
|
| | | | (5,040 | ) | (0.02 | ) | ||||||||||||||||
SEC and regulatory related expenses
|
| | | | (3,715 | ) | (0.01 | ) | ||||||||||||||||
Write-off of equity investments
|
| | | | (2,598 | ) | (0.01 | ) |
25
MANAGEMENTS DISCUSSION AND ANALYSIS | HUNTINGTON BANCSHARES INCORPORATED |
2007 | 2006 | |||||||||||||||||||||||
Increase (Decrease) From |
Increase (Decrease) From |
|||||||||||||||||||||||
Previous Year Due To | Previous Year Due To | |||||||||||||||||||||||
Fully-taxable equivalent
basis(2) |
Yield/ |
Yield/ |
||||||||||||||||||||||
(in millions of dollars) | Volume | Rate | Total | Volume | Rate | Total | ||||||||||||||||||
Loans and direct financing leases
|
$ | 519.8 | $ | 97.8 | $ | 617.6 | $ | 100.7 | $ | 247.1 | $ | 347.8 | ||||||||||||
Securities
|
(27.7 | ) | 23.2 | (4.5) | 30.3 | 49.8 | 80.1 | |||||||||||||||||
Other earning assets
|
60.2 | 2.4 | 62.6 | (4.4 | ) | 7.8 | 3.4 | |||||||||||||||||
Total interest income from earning assets
|
552.3 | 123.4 | 675.7 | 126.6 | 304.7 | 431.3 | ||||||||||||||||||
Deposits
|
281.2 | 28.0 | 309.2 | 52.7 | 217.6 | 270.3 | ||||||||||||||||||
Short-term borrowings
|
18.3 | 2.3 | 20.6 | 12.6 | 25.3 | 37.9 | ||||||||||||||||||
Federal Home Loan Bank advances
|
32.2 | 10.4 | 42.6 | 9.5 | 15.8 | 25.3 | ||||||||||||||||||
Subordinated notes and other long-term debt, including capital
securities
|
6.6 | 11.1 | 17.7 | (21.5 | ) | 59.9 | 38.4 | |||||||||||||||||
Total interest expense of interest-bearing liabilities
|
338.3 | 51.8 | 390.1 | 53.3 | 318.6 | 371.9 | ||||||||||||||||||
Net interest income
|
$ | 214.0 | $ | 71.6 | $ | 285.6 | $ | 73.3 | $ | (13.9 | ) | $ | 59.4 | |||||||||||
(1) | The change in interest rates due to both rate and volume has been allocated between the factors in proportion to the relationship of the absolute dollar amounts of the change in each. |
(2) | Calculated assuming a 35% tax rate. |
Twelve Months Ended |
||||||||||||||||||||||||||||
December 31, | Change | Non-merger Related | ||||||||||||||||||||||||||
Merger |
||||||||||||||||||||||||||||
(in millions) | 2007 | 2006 | Amount | % | Related | Amount | %(1) | |||||||||||||||||||||
Loans/Leases
|
||||||||||||||||||||||||||||
Total commercial
|
$ | 17,443 | $ | 11,865 | $ | 5,578 | 47.0 | % | $ | 4,373 | $ | 1,205 | 7.4 | % | ||||||||||||||
Automobile loans and leases
|
4,118 | 4,088 | 30 | 0.7 | 216 | (186 | ) | (4.3 | ) | |||||||||||||||||||
Home equity
|
6,173 | 4,970 | 1,203 | 24.2 | 1,193 | 10 | 0.2 | |||||||||||||||||||||
Residential mortgage
|
4,939 | 4,581 | 358 | 7.8 | 556 | (198 | ) | (3.9 | ) | |||||||||||||||||||
Other consumer
|
529 | 439 | 90 | 20.5 | 72 | 18 | 3.5 | |||||||||||||||||||||
Total consumer
|
15,759 | 14,078 | 1,681 | 11.9 | 2,037 | (356 | ) | (2.2 | ) | |||||||||||||||||||
Total loans
|
$ | 33,202 | $ | 25,943 | $ | 7,259 | 28.0 | % | $ | 6,410 | $ | 849 | 2.6 | % | ||||||||||||||
Deposits
|
||||||||||||||||||||||||||||
Demand deposits non-interest bearing
|
$ | 4,438 | $ | 3,530 | $ | 908 | 25.7 | % | $ | 915 | $ | (7 | ) | (0.2 | )% | |||||||||||||
Demand deposits interest bearing
|
3,129 | 2,138 | 991 | 46.4 | 730 | 261 | 9.1 | |||||||||||||||||||||
Money market deposits
|
6,173 | 5,604 | 569 | 10.2 | 498 | 71 | 1.2 | |||||||||||||||||||||
Savings and other domestic time deposits
|
3,895 | 2,992 | 903 | 30.2 | 1,297 | (394 | ) | (9.2 | ) | |||||||||||||||||||
Core certificates of deposit
|
8,057 | 5,050 | 3,007 | 59.5 | 2,315 | 692 | 9.4 | |||||||||||||||||||||
Total core deposits
|
25,692 | 19,314 | 6,378 | 33.0 | 5,755 | 623 | 2.5 | |||||||||||||||||||||
Other deposits
|
5,374 | 4,870 | 504 | 10.3 | 672 | (168 | ) | (3.0 | ) | |||||||||||||||||||
Total deposits
|
$ | 31,066 | $ | 24,184 | $ | 6,882 | 28.5 | % | $ | 6,427 | $ | 455 | 1.5 | % | ||||||||||||||
26
MANAGEMENTS DISCUSSION AND ANALYSIS | HUNTINGTON BANCSHARES INCORPORATED |
27
MANAGEMENTS DISCUSSION AND ANALYSIS | HUNTINGTON BANCSHARES INCORPORATED |
Average Balances | ||||||||||||||||||||||||||||||||||||
Change from |
||||||||||||||||||||||||||||||||||||
Change from 2006 | 2005 | |||||||||||||||||||||||||||||||||||
Fully-taxable equivalent
basis(1) |
||||||||||||||||||||||||||||||||||||
(in millions of dollars) | 2007 | Amount | % | 2006 | Amount | % | 2005 | 2004 | 2003 | |||||||||||||||||||||||||||
Assets
|
||||||||||||||||||||||||||||||||||||
Interest bearing deposits in banks
|
$ | 260 | $ | 207 | N.M. | % | $ | 53 | $ | | | % | $ | 53 | $ | 66 | $ | 37 | ||||||||||||||||||
Trading account securities
|
642 | 550 | N.M. | 92 | (115 | ) | (55.6 | ) | 207 | 105 | 14 | |||||||||||||||||||||||||
Federal funds sold and securities purchased under resale
agreement
|
591 | 270 | 84.1 | 321 | 59 | 22.5 | 262 | 319 | 87 | |||||||||||||||||||||||||||
Loans held for sale
|
362 | 87 | 31.6 | 275 | (43 | ) | (13.5 | ) | 318 | 243 | 564 | |||||||||||||||||||||||||
Investment securities:
|
||||||||||||||||||||||||||||||||||||
Taxable
|
3,653 | (544 | ) | (13.0 | ) | 4,197 | 514 | 14.0 | 3,683 | 4,425 | 3,533 | |||||||||||||||||||||||||
Tax-exempt
|
646 | 76 | 13.3 | 570 | 95 | 20.0 | 475 | 412 | 334 | |||||||||||||||||||||||||||
Total investment securities
|
4,299 | (468 | ) | (9.8 | ) | 4,767 | 609 | 14.6 | 4,158 | 4,837 | 3,867 | |||||||||||||||||||||||||
Loans and
leases:(3)
Commercial: |
||||||||||||||||||||||||||||||||||||
Middle market commercial and
industrial(4)
|
8,252 | 2,694 | 48.5 | 5,558 | 741 | 15.4 | 4,817 | 4,456 | 4,633 | |||||||||||||||||||||||||||
Construction(4)
|
1,511 | 261 | 20.9 | 1,250 | (428 | ) | (25.5 | ) | 1,678 | 1,420 | 1,219 | |||||||||||||||||||||||||
Commercial(4)
|
4,267 | 1,516 | 55.1 | 2,751 | 843 | 44.2 | 1,908 | 1,922 | 1,800 | |||||||||||||||||||||||||||
Middle market commercial real estate
|
5,778 | 1,777 | 44.4 | 4,001 | 415 | 11.6 | 3,586 | 3,342 | 3,019 | |||||||||||||||||||||||||||
Small business commercial and industrial and commercial real
estate(4)
|
3,413 | 1,107 | 48.0 | 2,306 | 82 | 3.7 | 2,224 | 2,003 | 1,787 | |||||||||||||||||||||||||||
Total commercial
|
17,443 | 5,578 | 47.0 | 11,865 | 1,238 | 11.6 | 10,627 | 9,801 | 9,439 | |||||||||||||||||||||||||||
Consumer:
|
||||||||||||||||||||||||||||||||||||
Automobile loans
|
2,633 | 576 | 28.0 | 2,057 | 14 | 0.7 | 2,043 | 2,285 | 3,260 | |||||||||||||||||||||||||||
Automobile leases
|
1,485 | (546 | ) | (26.9 | ) | 2,031 | (391 | ) | (16.1 | ) | 2,422 | 2,192 | 1,423 | |||||||||||||||||||||||
Automobile loans and leases
|
4,118 | 30 | 0.7 | 4,088 | (377 | ) | (8.4 | ) | 4,465 | 4,477 | 4,683 | |||||||||||||||||||||||||
Home equity
|
6,173 | 1,203 | 24.2 | 4,970 | 218 | 4.6 | 4,752 | 4,244 | 3,400 | |||||||||||||||||||||||||||
Residential mortgage
|
4,939 | 358 | 7.8 | 4,581 | 500 | 12.3 | 4,081 | 3,212 | 2,076 | |||||||||||||||||||||||||||
Other loans
|
529 | 90 | 20.5 | 439 | 54 | 14.0 | 385 | 393 | 426 | |||||||||||||||||||||||||||
Total consumer
|
15,759 | 1,681 | 11.9 | 14,078 | 395 | 2.9 | 13,683 | 12,326 | 10,585 | |||||||||||||||||||||||||||
Total loans and leases
|
33,202 | 7,259 | 28.0 | 25,943 | 1,633 | 6.7 | 24,310 | 22,127 | 20,024 | |||||||||||||||||||||||||||
Allowance for loan and lease losses
|
(382 | ) | (95 | ) | 33.1 | (287 | ) | (19 | ) | 7.1 | (268 | ) | (298 | ) | (330 | ) | ||||||||||||||||||||
Net loans and leases
|
32,820 | 7,164 | 27.9 | 25,656 | 1,614 | 6.7 | 24,042 | 21,829 | 19,694 | |||||||||||||||||||||||||||
Total earning assets
|
39,356 | 7,905 | 25.1 | 31,451 | 2,143 | 7.3 | 29,308 | 27,697 | 24,593 | |||||||||||||||||||||||||||
Automobile operating lease assets
|
| (93 | ) | N.M. | 93 | (258 | ) | (73.5 | ) | 351 | 891 | 1,697 | ||||||||||||||||||||||||
Cash and due from banks
|
930 | 105 | 12.7 | 825 | (20 | ) | (2.4 | ) | 845 | 843 | 774 | |||||||||||||||||||||||||
Intangible assets
|
2,019 | 1,452 | N.M. | 567 | 349 | N.M. | 218 | 216 | 218 | |||||||||||||||||||||||||||
All other assets
|
2,789 | 326 | 13.2 | 2,463 | 278 | 12.7 | 2,185 | 2,084 | 2,020 | |||||||||||||||||||||||||||
Total Assets
|
$ | 44,712 | $ | 9,600 | 27.3 | % | $ | 35,112 | $ | 2,473 | 7.6 | % | $ | 32,639 | $ | 31,433 | $ | 28,972 | ||||||||||||||||||
Liabilities and Shareholders Equity
|
||||||||||||||||||||||||||||||||||||
Deposits:
|
||||||||||||||||||||||||||||||||||||
Demand deposits non-interest bearing
|
$ | 4,438 | $ | 908 | 25.7 | % | $ | 3,530 | $ | 151 | 4.5 | % | $ | 3,379 | $ | 3,230 | $ | 3,080 | ||||||||||||||||||
Demand deposits interest bearing
|
3,129 | 991 | 46.4 | 2,138 | 218 | 11.4 | 1,920 | 1,953 | 1,822 | |||||||||||||||||||||||||||
Money market deposits
|
6,173 | 569 | 10.2 | 5,604 | (134 | ) | (2.3 | ) | 5,738 | 5,254 | 4,371 | |||||||||||||||||||||||||
Savings and other domestic time deposits
|
3,895 | 903 | 30.2 | 2,992 | (163 | ) | (5.2 | ) | 3,155 | 3,431 | 3,462 | |||||||||||||||||||||||||
Core certificates of deposit
|
8,057 | 3,007 | 59.5 | 5,050 | 1,716 | 51.5 | 3,334 | 2,689 | 3,115 | |||||||||||||||||||||||||||
Total core deposits
|
25,692 | 6,378 | 33.0 | 19,314 | 1,788 | 10.2 | 17,526 | 16,557 | 15,850 | |||||||||||||||||||||||||||
Other domestic time deposits of $100,000 or more
|
1,494 | 381 | 34.2 | 1,113 | 203 | 22.3 | 910 | 593 | 389 | |||||||||||||||||||||||||||
Brokered time deposits and negotiable CDs
|
3,239 | (3 | ) | (0.1 | ) | 3,242 | 123 | 3.9 | 3,119 | 1,837 | 1,419 | |||||||||||||||||||||||||
Deposits in foreign offices
|
641 | 126 | 24.5 | 515 | 58 | 12.7 | 457 | 508 | 500 | |||||||||||||||||||||||||||
Total deposits
|
31,066 | 6,882 | 28.5 | 24,184 | 2,172 | 9.9 | 22,012 | 19,495 | 18,158 | |||||||||||||||||||||||||||
Short-term borrowings
|
2,245 | 445 | 24.7 | 1,800 | 421 | 30.5 | 1,379 | 1,410 | 1,600 | |||||||||||||||||||||||||||
Federal Home Loan Bank advances
|
2,027 | 658 | 48.1 | 1,369 | 264 | 23.9 | 1,105 | 1,271 | 1,258 | |||||||||||||||||||||||||||
Subordinated notes and other long-term debt
|
3,688 | 114 | 3.2 | 3,574 | (490 | ) | (12.1 | ) | 4,064 | 5,379 | 4,559 | |||||||||||||||||||||||||
Total interest bearing liabilities
|
34,588 | 7,191 | 26.2 | 27,397 | 2,216 | 8.8 | 25,181 | 24,325 | 22,495 | |||||||||||||||||||||||||||
All other liabilities
|
1,054 | (185 | ) | (14.9 | ) | 1,239 | (257 | ) | (17.2 | ) | 1,496 | 1,504 | 1,201 | |||||||||||||||||||||||
Shareholders equity
|
4,632 | 1,686 | 57.2 | 2,946 | 363 | 14.1 | 2,583 | 2,374 | 2,196 | |||||||||||||||||||||||||||
Total Liabilities and Shareholders Equity
|
$ | 44,712 | $ | 9,600 | 27.3 | % | $ | 35,112 | $ | 2,473 | 7.6 | % | $ | 32,639 | $ | 31,433 | $ | 28,972 | ||||||||||||||||||
Net interest income
|
||||||||||||||||||||||||||||||||||||
Net interest rate spread
|
||||||||||||||||||||||||||||||||||||
Impact of non-interest bearing funds on margin
|
||||||||||||||||||||||||||||||||||||
Net Interest Margin
|
||||||||||||||||||||||||||||||||||||
(1) | Fully-taxable equivalent (FTE) yields are calculated assuming a 35% tax rate. |
(2) | Loan and lease and deposit average rates include impact of applicable derivatives and non-deferrable fees. |
(3) | For purposes of this analysis, non-accrual loans are reflected in the average balances of loans. |
(4) | 2006 reflects a net reclassification of average balances and related interest income from small business commercial and industrial and commercial real estate to middle market commercial and industrial and middle market commercial real estate. |
28
MANAGEMENTS DISCUSSION AND ANALYSIS | HUNTINGTON BANCSHARES INCORPORATED |
Interest Income/Expense | Average Rate(2) | |||||||||||||||||||||||||||||||||||||
2007 | 2006 | 2005 | 2004 | 2003 | 2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||||||||||||||||||||
$ | 12.5 | $ | 3.2 | $ | 1.1 | $ | 0.7 | $ | 0.6 | 4.80 | % | 6.00 | % | 2.16 | % | 1.05 | % | 1.53 | % | |||||||||||||||||||
37.5 | 3.8 | 8.5 | 4.4 | 0.6 | 5.84 | 4.19 | 4.08 | 4.15 | 4.02 | |||||||||||||||||||||||||||||
29.9 | 16.1 | 6.0 | 5.5 | 1.6 | 5.05 | 5.00 | 2.27 | 1.73 | 1.80 | |||||||||||||||||||||||||||||
20.6 | 16.8 | 17.9 | 13.0 | 30.0 | 5.69 | 6.10 | 5.64 | 5.35 | 5.32 | |||||||||||||||||||||||||||||
221.9 | 229.4 | 158.7 | 171.7 | 159.6 | 6.07 | 5.47 | 4.31 | 3.88 | 4.52 | |||||||||||||||||||||||||||||
43.4 | 38.5 | 31.9 | 28.8 | 23.5 | 6.72 | 6.75 | 6.71 | 6.98 | 7.04 | |||||||||||||||||||||||||||||
265.3 | 267.9 | 190.6 | 200.5 | 183.1 | 6.17 | 5.62 | 4.58 | 4.14 | 4.73 | |||||||||||||||||||||||||||||
614.2 | 413.1 | 279.0 | 196.5 | 223.5 | 7.44 | 7.43 | 5.79 | 4.41 | 4.82 | |||||||||||||||||||||||||||||
117.4 | 100.9 | 107.8 | 64.2 | 51.3 | 7.77 | 8.08 | 6.43 | 4.52 | 4.21 | |||||||||||||||||||||||||||||
318.2 | 205.1 | 113.2 | 88.0 | 89.4 | 7.46 | 7.46 | 5.93 | 4.58 | 4.97 | |||||||||||||||||||||||||||||
435.6 | 306.0 | 221.0 | 152.2 | 140.7 | 7.54 | 7.65 | 6.16 | 4.55 | 4.66 | |||||||||||||||||||||||||||||
256.4 | 163.0 | 137.5 | 110.3 | 105.6 | 7.51 | 7.07 | 6.18 | 5.50 | 5.91 | |||||||||||||||||||||||||||||
1,306.2 | 882.1 | 637.5 | 459.0 | 469.8 | 7.49 | 7.43 | 6.00 | 4.68 | 5.00 | |||||||||||||||||||||||||||||
188.7 | 135.1 | 133.3 | 165.1 | 242.1 | 7.17 | 6.57 | 6.52 | 7.22 | 7.43 | |||||||||||||||||||||||||||||
80.3 | 102.9 | 119.6 | 109.6 | 72.8 | 5.41 | 5.07 | 4.94 | 5.00 | 5.12 | |||||||||||||||||||||||||||||
269.0 | 238.0 | 252.9 | 274.7 | 314.9 | 6.53 | 5.82 | 5.66 | 6.14 | 6.73 | |||||||||||||||||||||||||||||
479.8 | 369.7 | 288.6 | 208.6 | 166.4 | 7.77 | 7.44 | 6.07 | 4.92 | 4.89 | |||||||||||||||||||||||||||||
285.9 | 249.1 | 212.9 | 163.0 | 112.2 | 5.79 | 5.44 | 5.22 | 5.07 | 5.40 | |||||||||||||||||||||||||||||
55.5 | 39.8 | 39.2 | 29.5 | 36.4 | 10.51 | 9.07 | 10.23 | 7.51 | 8.55 | |||||||||||||||||||||||||||||
1,090.2 | 896.6 | 793.6 | 675.8 | 629.9 | 6.92 | 6.37 | 5.80 | 5.48 | 5.95 | |||||||||||||||||||||||||||||
2,396.4 | 1,778.7 | 1,431.1 | 1,134.8 | 1,099.7 | 7.22 | 6.86 | 5.89 | 5.13 | 5.50 | |||||||||||||||||||||||||||||
2,762.2 | 2,086.5 | 1,655.2 | 1,358.9 | 1,315.6 | 7.02 | 6.63 | 5.65 | 4.89 | 5.35 | |||||||||||||||||||||||||||||
| | | | | | | | | | |||||||||||||||||||||||||||||
40.3 | 19.3 | 10.6 | 8.3 | 10.0 | 1.29 | 0.90 | 0.55 | 0.42 | 0.55 | |||||||||||||||||||||||||||||
232.5 | 193.1 | 124.9 | 65.8 | 63.0 | 3.77 | 3.45 | 2.18 | 1.25 | 1.44 | |||||||||||||||||||||||||||||
90.7 | 50.2 | 42.9 | 44.1 | 67.7 | 2.33 | 1.68 | 1.36 | 1.28 | 1.96 | |||||||||||||||||||||||||||||
391.3 | 214.8 | 118.7 | 90.4 | 114.3 | 4.86 | 4.25 | 3.56 | 3.36 | 3.67 | |||||||||||||||||||||||||||||
754.8 | 477.4 | 297.1 | 208.6 | 255.0 | 3.55 | 3.02 | 2.10 | 1.56 | 2.00 | |||||||||||||||||||||||||||||
75.7 | 55.6 | 30.8 | 11.3 | 4.6 | 5.07 | 4.99 | 3.39 | 1.90 | 1.17 | |||||||||||||||||||||||||||||
175.4 | 169.1 | 109.4 | 33.1 | 24.1 | 5.41 | 5.22 | 3.51 | 1.80 | 1.70 | |||||||||||||||||||||||||||||
20.5 | 15.1 | 9.6 | 4.1 | 4.6 | 3.19 | 2.93 | 2.10 | 0.82 | 0.92 | |||||||||||||||||||||||||||||
1,026.4 | 717.2 | 446.9 | 257.1 | 288.3 | 3.85 | 3.47 | 2.40 | 1.58 | 1.91 | |||||||||||||||||||||||||||||
92.8 | 72.2 | 34.3 | 13.0 | 15.7 | 4.13 | 4.01 | 2.49 | 0.93 | 0.98 | |||||||||||||||||||||||||||||
102.6 | 60.0 | 34.7 | 33.3 | 24.4 | 5.06 | 4.38 | 3.13 | 2.62 | 1.94 | |||||||||||||||||||||||||||||
219.6 | 201.9 | 163.5 | 132.5 | 128.5 | 5.96 | 5.65 | 4.02 | 2.46 | 2.82 | |||||||||||||||||||||||||||||
1,441.4 | 1,051.3 | 679.4 | 435.9 | 456.9 | 4.17 | 3.84 | 2.70 | 1.79 | 2.03 | |||||||||||||||||||||||||||||
$ | 1,320.8 | $ | 1,035.2 | $ | 975.8 | $ | 923.0 | $ | 858.7 | |||||||||||||||||||||||||||||
2.85 | 2.79 | 2.95 | 3.10 | 3.32 | ||||||||||||||||||||||||||||||||||
0.51 | 0.50 | 0.38 | 0.23 | 0.17 | ||||||||||||||||||||||||||||||||||
3.36 | % | 3.29 | % | 3.33 | % | 3.33 | % | 3.49 | %1 |
29
MANAGEMENTS DISCUSSION AND ANALYSIS | HUNTINGTON BANCSHARES INCORPORATED |
Twelve Months Ended December 31, | ||||||||||||||||||||||||||||
Change from 2006 | Change from 2005 | |||||||||||||||||||||||||||
(in thousands of dollars) | 2007 | Amount | % | 2006 | Amount | % | 2005 | |||||||||||||||||||||
Service charges on deposit accounts
|
$ | 254,193 | $ | 68,480 | 36.9 | % | $ | 185,713 | $ | 17,879 | 10.7 | % | $ | 167,834 | ||||||||||||||
Trust services
|
121,418 | 31,463 | 35.0 | 89,955 | 12,550 | 16.2 | 77,405 | |||||||||||||||||||||
Brokerage and insurance income
|
92,375 | 33,540 | 57.0 | 58,835 | 5,216 | 9.7 | 53,619 | |||||||||||||||||||||
Other service charges and fees
|
71,067 | 19,713 | 38.4 | 51,354 | 7,006 | 15.8 | 44,348 | |||||||||||||||||||||
Bank owned life insurance income
|
49,855 | 6,080 | 13.9 | 43,775 | 3,039 | 7.5 | 40,736 | |||||||||||||||||||||
Mortgage banking
|
29,804 | (11,687 | ) | (28.2 | ) | 41,491 | 13,158 | 46.4 | 28,333 | |||||||||||||||||||
Securities losses
|
(29,738 | ) | 43,453 | (59.4 | ) | (73,191 | ) | (65,136 | ) | N.M. | (8,055 | ) | ||||||||||||||||
Other income
|
79,819 | (40,203 | ) | (33.5 | ) | 120,022 | 24,975 | 26.3 | 95,047 | |||||||||||||||||||
Sub-total before automobile operating lease income
|
668,793 | 150,839 | 29.1 | 517,954 | 18,687 | 3.7 | 499,267 | |||||||||||||||||||||
Automobile operating lease income
|
7,810 | (35,305 | ) | (81.9 | ) | 43,115 | (89,900 | ) | (67.6 | ) | 133,015 | |||||||||||||||||
Total non-interest income
|
$ | 676,603 | $ | 115,534 | 20.6 | % | $ | 561,069 | $ | (71,213 | ) | (11.3 | )% | $ | 632,282 | |||||||||||||
30
MANAGEMENTS DISCUSSION AND ANALYSIS | HUNTINGTON BANCSHARES INCORPORATED |
Twelve Months Ended |
||||||||||||||||||||||||||||
December 31, | Change | Non-merger Related | ||||||||||||||||||||||||||
Merger |
||||||||||||||||||||||||||||
(in thousands) | 2007 | 2006 | Amount | % | Related | Amount | %(1) | |||||||||||||||||||||
Service charges on deposit accounts
|
$ | 254,193 | $ | 185,713 | $ | 68,480 | 36.9 | % | $ | 48,220 | $ | 20,260 | 8.7 | % | ||||||||||||||
Trust services
|
121,418 | 89,955 | 31,463 | 35.0 | 14,018 | 17,445 | 16.8 | |||||||||||||||||||||
Brokerage and insurance income
|
92,375 | 58,835 | 33,540 | 57.0 | 34,122 | (582 | ) | (0.6 | ) | |||||||||||||||||||
Other service charges and fees
|
71,067 | 51,354 | 19,713 | 38.4 | 11,600 | 8,113 | 12.9 | |||||||||||||||||||||
Bank owned life insurance income
|
49,855 | 43,775 | 6,080 | 13.9 | 3,614 | 2,466 | 5.2 | |||||||||||||||||||||
Mortgage banking income
|
29,804 | 41,491 | (11,687 | ) | (28.2 | ) | 12,512 | (24,199 | ) | (44.8 | ) | |||||||||||||||||
Securities losses
|
(29,738 | ) | (73,191 | ) | 43,453 | (59.4 | ) | 566 | 42,887 | (59.1 | ) | |||||||||||||||||
Other income
|
79,819 | 120,022 | (40,203 | ) | (33.5 | ) | 12,780 | (52,983 | ) | (39.9 | ) | |||||||||||||||||
Sub-total before automobile operating lease income
|
668,793 | 517,954 | 150,839 | 29.1 | 137,432 | 13,407 | 2.0 | |||||||||||||||||||||
Automobile operating lease income
|
7,810 | 43,115 | (35,305 | ) | (81.9 | ) | | (35,305 | ) | (81.9 | ) | |||||||||||||||||
Total non-interest income
|
$ | 676,603 | $ | 561,069 | $ | 115,534 | 20.6 | % | $ | 137,432 | $ | (21,898 | ) | (3.1 | )% | |||||||||||||
(1) | Calculated as non-merger related/(prior period + merger-related) |
| $53.0 million, or 40%, decline in other income. This decline primarily reflected: (a) $34.0 million loss in 2007 on loans held-for-sale, and (b) $20.0 million of public equity investment losses in 2007 compared with $7.4 million of such gains in 2006. | |
| $35.3 million, or 82%, decline in automobile operating lease income. | |
| $24.2 million, or 45%, decrease in mortgage banking income primarily reflecting a $28.4 million net negative impact between periods related to MSR valuation, net of hedge-related trading activity (see Table 10). |
| $42.9 million less in investment securities losses. Virtually all of the losses in 2006 related to the balance sheet restructuring (see Significant Items) and 2007 losses primarily related to the securities impairment losses recognized on certain investment securities. | |
| $20.3 million, or 9%, increase in service charges on deposit accounts, primarily reflecting higher personal and commercial service charge income. | |
| $17.4 million, or 17%, increase in trust services income. This increase reflected: (a) $9.7 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 other service charges and fees primarily reflecting increased debit card fees due to higher volume. |
| $23.1 million increase in other income ($7.1 million Unizan merger-related), primarily reflecting $7.0 million in higher equity investment gains, a $5.7 million increase in equipment operating lease income, a $3.3 million gain on sale of MasterCard® stock, and a $2.6 million increase in corporate derivative sales. | |
| $17.9 million, or 11% ($5.3 million Unizan merger-related), increase in service charges on deposit accounts, reflecting a $14.3 million, or 13%, increase in personal service charges, primarily non-sufficient fund/overdraft fees, and a $3.6 million, or 6%, increase in commercial service charge income. |
31
MANAGEMENTS DISCUSSION AND ANALYSIS | HUNTINGTON BANCSHARES INCORPORATED |
| $13.2 million, or 46%, increase in mortgage banking income, primarily reflecting a $12.6 million positive impact between years related to MSR valuation, net of hedge-related trading activity. | |
| $12.6 million, or 16% ($5.5 million merger-related), increase in trust services income, primarily reflecting (a) $6.5 million, or 18%, increase in personal trust income, mostly Unizan merger-related, and (b) $3.7 million, or 14%, increase in fees from Huntington Funds, reflecting 11% fund asset growth. | |
| $7.0 million, or 16% ($1.0 million Unizan merger-related), increase in other service charges and fees, primarily reflecting a $5.3 million, or 17%, increase in fees generated by higher debit card volume. |
| $65.1 million increase in investment securities losses, reflecting the $73.2 million of investment securities impairment and losses during 2006 as the balance sheet restructuring was completed. |
Twelve Months Ended December 31, | ||||||||||||||||||||||||||||
Change from 2006 | Change from 2005 | |||||||||||||||||||||||||||
(In thousands of dollars) | 2007 | Amount | % | 2006 | Amount | % | 2005 | |||||||||||||||||||||
Mortgage Banking Income
|
||||||||||||||||||||||||||||
Origination and secondary marketing
|
$ | 25,965 | $ | 7,748 | 42.5 | % | $ | 18,217 | $ | (6,717 | ) | (26.9 | )% | $ | 24,934 | |||||||||||||
Servicing fees
|
36,012 | 11,353 | 46.0 | 24,659 | 2,478 | 11.2 | 22,181 | |||||||||||||||||||||
Amortization of capitalized
servicing(1)
|
(20,587 | ) | (5,443 | ) | 35.9 | (15,144 | ) | 3,215 | (17.5 | ) | (18,359 | ) | ||||||||||||||||
Other mortgage banking income
|
13,198 | 3,025 | 29.7 | 10,173 | 1,590 | 18.5 | 8,583 | |||||||||||||||||||||
Sub-total
|
54,588 | 16,683 | 44.0 | 37,905 | 566 | 1.5 | 37,339 | |||||||||||||||||||||
MSR valuation
adjustment(1)
|
(16,131 | ) | (21,002 | ) | N.M. | 4,871 | 500 | 11.4 | 4,371 | |||||||||||||||||||
Net trading losses related to MSR hedging
|
(8,653 | ) | (7,368 | ) | N.M. | (1,285 | ) | 12,092 | (90.4 | ) | (13,377 | ) | ||||||||||||||||
Total mortgage banking income
|
$ | 29,804 | $ | (11,687 | ) | (28.2 | )% | $ | 41,491 | $ | 13,158 | 46.4 | % | $ | 28,333 | |||||||||||||
Capitalized mortgage servicing
rights(2)
|
$ | 207,894 | $ | 76,790 | 58.6 | % | $ | 131,104 | $ | 39,845 | 43.7 | % | $ | 91,259 | ||||||||||||||
MSR
allowance(2)
|
| | | | 404 | N.M. | (404 | ) | ||||||||||||||||||||
Total mortgages serviced for others (in millions)
(2)
|
15,088 | 6,836 | 82.8 | 8,252 | 976 | 13.4 | 7,276 | |||||||||||||||||||||
Net Impact of MSR Hedging
|
||||||||||||||||||||||||||||
MSR valuation
adjustment(1)
|
$ | (16,131 | ) | $ | (21,002 | ) | N.M. | % | $ | 4,871 | $ | 500 | 11.4 | % | $ | 4,371 | ||||||||||||
Net trading losses related to MSR hedging
|
(8,653 | ) | (7,368 | ) | N.M. | (1,285 | ) | 12,092 | (90.4 | ) | (13,377 | ) | ||||||||||||||||
Net interest income related to MSR hedging
|
5,797 | 5,761 | N.M. | 36 | (1,652 | ) | (97.9 | ) | 1,688 | |||||||||||||||||||
Net impact of MSR hedging
|
$ | (18,987 | ) | $ | (22,609 | ) | N.M. | % | $ | 3,622 | $ | 10,940 | N.M. | % | $ | (7,318 | ) | |||||||||||
(1) | The change in fair value for the period represents the MSR valuation adjustment, net of amortization of capitalized servicing. |
(2) | At period end. |
32
MANAGEMENTS DISCUSSION AND ANALYSIS | HUNTINGTON BANCSHARES INCORPORATED |
Twelve Months Ended December 31, | ||||||||||||||||||||||||||||
Change from 2006 | Change from 2005 | |||||||||||||||||||||||||||
(In thousands of dollars) | 2007 | Amount | % | 2006 | Amount | % | 2005 | |||||||||||||||||||||
Salaries
|
$ | 557,254 | $ | 131,597 | 30.9 | % | $ | 425,657 | $ | 46,068 | 12.1 | % | $ | 379,589 | ||||||||||||||
Benefits
|
129,574 | 14,003 | 12.1 | 115,571 | 13,502 | 13.2 | 102,069 | |||||||||||||||||||||
Personnel costs
|
686,828 | 145,600 | 26.9 | 541,228 | 59,570 | 12.4 | 481,658 | |||||||||||||||||||||
Outside data processing and other services
|
127,245 | 48,466 | 61.5 | 78,779 | 4,141 | 5.5 | 74,638 | |||||||||||||||||||||
Net occupancy
|
99,373 | 28,092 | 39.4 | 71,281 | 189 | 0.3 | 71,092 | |||||||||||||||||||||
Equipment
|
81,482 | 11,570 | 16.5 | 69,912 | 6,788 | 10.8 | 63,124 | |||||||||||||||||||||
Amortization of intangibles
|
45,151 | 35,189 | N.M. | 9,962 | 9,133 | N.M. | 829 | |||||||||||||||||||||
Marketing
|
46,043 | 14,315 | 45.1 | 31,728 | 5,449 | 20.7 | 26,279 | |||||||||||||||||||||
Professional services
|
40,320 | 13,267 | 49.0 | 27,053 | (7,516 | ) | (21.7 | ) | 34,569 | |||||||||||||||||||
Telecommunications
|
24,502 | 5,250 | 27.3 | 19,252 | 604 | 3.2 | 18,648 | |||||||||||||||||||||
Printing and supplies
|
18,251 | 4,387 | 31.6 | 13,864 | 1,291 | 10.3 | 12,573 | |||||||||||||||||||||
Other
|
137,488 | 30,839 | 28.9 | 106,649 | 24,089 | 29.2 | 82,560 | |||||||||||||||||||||
Sub-total before automobile operating lease expense
|
1,306,683 | 336,975 | 34.8 | 969,708 | 103,738 | 12.0 | 865,970 | |||||||||||||||||||||
Automobile operating lease expense
|
5,161 | (26,125 | ) | (83.5 | ) | 31,286 | (72,564 | ) | (69.9 | ) | 103,850 | |||||||||||||||||
Total non-interest expense
|
$ | 1,311,844 | $ | 310,850 | 31.1 | % | $ | 1,000,994 | $ | 31,174 | 3.2 | % | $ | 969,820 | ||||||||||||||
Twelve Months Ended |
||||||||||||||||||||||||||||||||
December 31, | Change | Non-merger Related | ||||||||||||||||||||||||||||||
Merger |
Merger |
|||||||||||||||||||||||||||||||
(in thousands) | 2007 | 2006 | Amount | Percent | Related | Costs | Amount | %(1) | ||||||||||||||||||||||||
Personnel costs
|
$ | 686,828 | $ | 541,228 | $ | 145,600 | 26.9 | % | $ | 136,500 | $ | 31,183 | $ | (22,083 | ) | (3.1 | )% | |||||||||||||||
Outside data processing and other services
|
127,245 | 78,779 | 48,466 | 61.5 | 24,524 | 18,527 | 5,415 | 4.4 | ||||||||||||||||||||||||
Net occupancy
|
99,373 | 71,281 | 28,092 | 39.4 | 20,368 | 8,755 | (1,031 | ) | (1.0 | ) | ||||||||||||||||||||||
Equipment
|
81,482 | 69,912 | 11,570 | 16.5 | 9,598 | 1,981 | (9 | ) | (0.0 | ) | ||||||||||||||||||||||
Amortization of intangibles
|
45,151 | 9,962 | 35,189 | 353.2 | 34,862 | | 327 | 0.7 | ||||||||||||||||||||||||
Marketing
|
46,043 | 31,728 | 14,315 | 45.1 | 8,722 | 13,523 | (7,930 | ) | (14.7 | ) | ||||||||||||||||||||||
Professional services
|
40,320 | 27,053 | 13,267 | 49.0 | 5,414 | 6,183 | 1,670 | 4.3 | ||||||||||||||||||||||||
Telecommunications
|
24,502 | 19,252 | 5,250 | 27.3 | 4,448 | 1,150 | (348 | ) | (1.4 | ) | ||||||||||||||||||||||
Printing and supplies
|
18,251 | 13,864 | 4,387 | 31.6 | 2,748 | 1,501 | 138 | 0.8 | ||||||||||||||||||||||||
Other expense
|
137,488 | 106,649 | 30,839 | 28.9 | 26,096 | 2,281 | 2,462 | 1.8 | ||||||||||||||||||||||||
Sub-total before automobile operating lease expense
|
1,306,683 | 969,708 | 336,975 | 34.8 | 273,280 | 85,084 | (21,389 | ) | (1.6 | ) | ||||||||||||||||||||||
Automobile operating lease expense
|
5,161 | 31,286 | (26,125 | ) | (83.5 | ) | | | (26,125 | ) | (83.5 | ) | ||||||||||||||||||||
Total non-interest expense
|
$ | 1,311,844 | $ | 1,000,994 | $ | 310,850 | 31.1 | % | $ | 273,280 | $ | 85,084 | $ | (47,514 | ) | (3.5 | )% | |||||||||||||||
(1) | Calculated as non-merger related / (prior period + merger-related + merger-costs) |
| $26.1 million, or 84%, decline in automobile operating lease expense. | |
| $22.1 million, or 3%, decline in personnel costs reflecting merger efficiencies including the impact of the reductions to full-time equivalent staff during 2007. |
33
MANAGEMENTS DISCUSSION AND ANALYSIS | HUNTINGTON BANCSHARES INCORPORATED |
| $7.9 million, or 15%, decline in marketing expense. |
| $5.4 million, or 4%, increase in outside data processing and other services expenses related to: (a) higher debit card transaction volume, and (b) additional expenditures related to technology-related initiatives. | |
| $2.5 million, or 2%, increase in other non-interest expense primarily reflecting: (a) $24.9 million Visa® indemnification charge, and (b) $10.8 million increase to litigation reserves, partially offset by (a) $10.0 million reduction in Huntington charitable foundation contribution, (b) $7.4 million reduction in lease residual value expenses, (c) $7.3 million gains on debt extinguishment, and (d) merger efficiencies. |
| $59.6 million, or 12%, increase in personnel expense, with Unizan contributing $25.8 million, or 43%, of the increase. The remaining $33.8 million increase included a $17.0 million increase in share-based compensation, primarily related to the expensing of stock options, which began in 2006, and $9.0 million in higher performance and sales-related compensation. | |
| $24.1 million, or 29% ($10.0 million Unizan merger-related), increase in other expense, including a $10.0 million donation to the Huntington Foundation in the fourth quarter, $5.5 million of higher residual value losses on automobile leases, $3.7 million of Unizan merger costs, and $3.5 million related to the fourth quarter restructuring of certain FHLB advances. | |
| $9.1 million increase in the amortization of intangibles, substantially all Unizan merger-related. | |
| $6.8 million, or 11%, increase in equipment expense ($1.7 million Unizan merger-related), reflecting higher depreciation associated with recent technology investments. | |
| $5.4 million, or 21% ($0.9 million Unizan merger-related), increase in marketing expense, reflecting increased campaign and market research expenses. | |
| $4.1 million, or 6%, increase in outside data processing and other services ($1.7 million Unizan merger-related), with $2.0 million Unizan merger costs and a $1.7 million increase in debit card processing costs due to higher activity levels. |
| $7.5 million, or 22%, decline in professional services expenses, despite Unizan adding $4.9 million, including a reduction in SEC/regulatory related expenses from 2005, as well as declines in collections and other consulting expenses. |
34
MANAGEMENTS DISCUSSION AND ANALYSIS | HUNTINGTON BANCSHARES INCORPORATED |
35
MANAGEMENTS DISCUSSION AND ANALYSIS | HUNTINGTON BANCSHARES INCORPORATED |
At December 31, | ||||||||||||||||||||||||||||||||||||||||
(in millions of dollars) | 2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||||||||||||||||||||||||||
Commercial(1)
|
||||||||||||||||||||||||||||||||||||||||
Middle market commercial and
industrial(2)
|
$ | 10,158 | 25.3 | % | $ | 5,961 | 22.8 | % | $ | 5,084 | 20.6 | % | $ | 4,666 | 19.3 | % | $ | 4,416 | 19.7 | % | ||||||||||||||||||||
Construction
|
1,946 | 4.9 | 1,229 | 4.7 | 1,522 | 6.2 | 1,602 | 6.6 | 1,264 | 5.6 | ||||||||||||||||||||||||||||||
Commercial
|
5,858 | 14.6 | 2,722 | 10.4 | 2,015 | 8.2 | 1,917 | 7.9 | 1,919 | 8.6 | ||||||||||||||||||||||||||||||
Total middle market real estate
|
7,804 | 19.5 | 3,951 | 15.1 | 3,537 | 14.4 | 3,519 | 14.5 | 3,183 | 14.2 | ||||||||||||||||||||||||||||||
Small business commercial and industrial and commercial real
estate
|
4,347 | 10.8 | 2,442 | 9.2 | 2,224 | 9.1 | 2,118 | 8.8 | 1,887 | 8.4 | ||||||||||||||||||||||||||||||
Total commercial
|
22,309 | 55.6 | 12,354 | 47.1 | 10,845 | 44.1 | 10,303 | 42.6 | 9,486 | 42.3 | ||||||||||||||||||||||||||||||
Consumer:
|
||||||||||||||||||||||||||||||||||||||||
Automobile loans
|
3,114 | 7.8 | 2,126 | 8.1 | 1,985 | 8.1 | 1,949 | 8.1 | 2,992 | 13.4 | ||||||||||||||||||||||||||||||
Automobile leases
|
1,180 | 2.9 | 1,769 | 6.8 | 2,289 | 9.3 | 2,443 | 10.1 | 1,902 | 8.5 | ||||||||||||||||||||||||||||||
Home equity
|
7,290 | 18.2 | 4,927 | 18.8 | 4,763 | 19.3 | 4,647 | 19.2 | 3,746 | 16.7 | ||||||||||||||||||||||||||||||
Residential mortgage
|
5,447 | 13.6 | 4,549 | 17.4 | 4,193 | 17.0 | 3,829 | 15.9 | 2,531 | 11.3 | ||||||||||||||||||||||||||||||
Other loans
|
715 | 1.7 | 428 | 1.7 | 397 | 1.4 | 389 | 1.7 | 418 | 2.0 | ||||||||||||||||||||||||||||||
Total consumer
|
17,746 | 44.2 | 13,799 | 52.8 | 13,627 | 55.1 | 13,257 | 55.0 | 11,589 | 51.9 | ||||||||||||||||||||||||||||||
Total loans and direct financing leases
|
40,055 | 99.8 | 26,153 | 99.9 | 24,472 | 99.2 | 23,560 | 97.6 | 21,075 | 94.2 | ||||||||||||||||||||||||||||||
Automobile operating lease assets
|
68 | 0.2 | 28 | 0.1 | 189 | 0.8 | 587 | 2.4 | 1,260 | 5.6 | ||||||||||||||||||||||||||||||
Securitized loans
|
| | | | | | | | 37 | 0.2 | ||||||||||||||||||||||||||||||
Total credit exposure
|
$ | 40,123 | 100.0 | % | $ | 26,181 | 100.0 | % | $ | 24,661 | 100.0 | % | $ | 24,147 | 100.0 | % | $ | 22,372 | 100.0 | % | ||||||||||||||||||||
Total automobile
exposure(3)
|
$ | 4,362 | 10.9 | % | $ | 3,923 | 15.0 | % | $ | 4,463 | 18.1 | % | $ | 4,979 | 20.6 | % | $ | 6,191 | 27.7 | % | ||||||||||||||||||||
By Business
Segment(4)
|
||||||||||||||||||||||||||||||||||||||||
Regional Banking:
|
||||||||||||||||||||||||||||||||||||||||
Central Ohio
|
$ | 5,110 | 12.8 | % | $ | 3,570 | 13.6 | % | ||||||||||||||||||||||||||||||||
Northwest Ohio
|
2,284 | 5.7 | 462 | 1.8 | ||||||||||||||||||||||||||||||||||||
Greater Cleveland
|
3,097 | 7.7 | 1,920 | 7.3 | ||||||||||||||||||||||||||||||||||||
Greater Akron/Canton
|
2,021 | 5.0 | 1,326 | 5.1 | ||||||||||||||||||||||||||||||||||||
Southern Ohio/Kentucky
|
2,660 | 6.6 | 2,190 | 8.4 | ||||||||||||||||||||||||||||||||||||
Mahoning Valley
|
928 | 2.3 | | | ||||||||||||||||||||||||||||||||||||
Ohio Valley
|
870 | 2.2 | | | ||||||||||||||||||||||||||||||||||||
West Michigan
|
2,478 | 6.2 | 2,421 | 9.3 | ||||||||||||||||||||||||||||||||||||
East Michigan
|
1,750 | 4.4 | 1,630 | 6.2 | ||||||||||||||||||||||||||||||||||||
Western Pennsylvania
|
1,054 | 2.6 | | | ||||||||||||||||||||||||||||||||||||
Pittsburgh
|
901 | 2.2 | | | ||||||||||||||||||||||||||||||||||||
Central Indiana
|
1,421 | 3.5 | 963 | 3.7 | ||||||||||||||||||||||||||||||||||||
West Virginia
|
1,156 | 2.9 | 1,124 | 4.3 | ||||||||||||||||||||||||||||||||||||
Other
Regional(2)
|
6,177 | 15.6 | 3,806 | 14.5 | ||||||||||||||||||||||||||||||||||||
Regional Banking
|
31,907 | 79.7 | 19,412 | 74.2 | ||||||||||||||||||||||||||||||||||||
Dealer Sales
|
5,563 | 13.9 |