HBAN 10-Q Quarter ended March 31, 2013

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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 March 31, 2013

Commission File Number 1-34073

Huntington Bancshares Incorporated

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. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

There were 838,757,987 shares of Registrant’s common stock ($0.01 par value) outstanding on March 31, 2013.

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HUNTINGTON BANCSHARES INCORPORATED

INDEX

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Glossary of Acronyms and Terms

The following listing provides a comprehensive reference of common acronyms and terms used throughout the document:

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When we refer to “we,” “our,” and “us” in this report, we mean Huntington Bancshares Incorporated and our consolidated subsidiaries, unless the context indicates that we refer only to the parent company, Huntington Bancshares Incorporated. When we refer to the “Bank” in this report, we mean our only bank subsidiary, The Huntington National Bank, and its subsidiaries.

INTRODUCTION

We are a multi-state diversified regional bank holding company organized under Maryland law in 1966 and headquartered in Columbus, Ohio. Through the Bank, we have 147 years of servicing the financial needs of our customers. Through our subsidiaries, we provide full-service commercial and consumer banking services, mortgage banking services, automobile financing, equipment leasing, investment management, trust services, brokerage services, customized insurance service programs, and other financial products and services. Our over 700 banking offices are located in Indiana, Kentucky, Michigan, Ohio, Pennsylvania, and West Virginia. Selected financial services and other activities are also conducted in various other states. International banking services are available through the headquarters office in Columbus, Ohio and a limited purpose office located in the Cayman Islands and another limited purpose office located in Hong Kong. Our foreign banking activities, in total or with any individual country, are not significant.

This MD&A provides information we believe necessary for understanding our financial condition, changes in financial condition, results of operations, and cash flows. The MD&A included in our 2012 Form 10-K should be read in conjunction with this MD&A as this discussion provides only material updates to the 2012 Form 10-K. This MD&A should also be read in conjunction with the financial statements, notes and other information contained in this report.

Our discussion is divided into key segments:

A reading of each section is important to understand fully the nature of our financial performance and prospects.

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EXECUTIVE OVERVIEW

Summary of 2013 First Quarter Results

For the quarter, we reported net income of $151.8 million, or $0.17 per common share, compared with $167.3 million, or $0.19 per common share, in the prior quarter ( see Table 1 ).

Fully-taxable equivalent net interest income was $430.1 million for the quarter, down $9.4 million, or 2%, from the prior quarter. The decrease reflected the seasonal impact of a fewer number of calendar days in the quarter, as well as a 3 basis point decrease in NIM, partially offset by a $0.3 billion increase in average earnings assets. The primary items affecting the NIM were a 5 basis point negative impact from the mix and yield of earning assets and a 3 basis point lower benefit from noninterest-bearing funds, which were partially offset by a 5 basis point positive impact from the reduction in total funding costs.

The provision for credit losses decreased $9.9 million, or 25%, from the prior quarter. This reflected an $18.4 million, or 26%, decrease in NCOs to $51.7 million, or an annualized 0.51% of average total loans and leases, from $70.1 million, or an annualized 0.69%, in the prior quarter.

Noninterest income decreased $45.4 million, or 15%, from the prior quarter. Gain on sale of loans decreased $18.1 million, or 87%, primarily related to the prior quarter automobile loan securitization. Mortgage banking income decreased $16.5 million, or 27%, primarily due to lower origination and secondary marketing income. Lower than expected commercial customer transactions negatively impacted both capital markets revenue and service charges on commercial deposit accounts, more than offsetting the favorable impact from continued commercial customer relationship growth of 11.9% annualized during the quarter. The decrease in service charges on deposit accounts also reflects typical seasonality and the February 2013 implementation of a new posting order for consumer transaction accounts. The full-year impact from the new posting order, which was incorporated into previous 2013 guidance, is estimated to be between $25 million and $30 million. Consumer household checking account growth of 11.8% annualized during the quarter partially offset the unfavorable impact from the new posting order.

Noninterest expense decreased $27.8 million, or 6%, from the prior quarter. Professional services decreased $15.3 million, 68%, primarily reflecting the decline in regulatory-related expenses. Other expenses decreased $8.2 million, or 20%, due to lower litigation and travel expenses, while marketing decreased $5.5 million, or 33%, as the latest advertising campaign did not launch until late in the quarter. Personnel costs increased $4.9 million, or 2%, reflecting approximately $8 million of costs related to the annual payroll tax resets, partially offset by approximately $5 million in lower commission expense due to lower levels of capital markets and other customer-related activities.

The period-end ACL as a percentage of total loans and leases decreased to 1.91% from 1.99% in the prior quarter. The ACL as a percentage of period end NALs increased 8 percentage points to 207%. NALs declined by $27.3 million, or 7%, to $380.3 million, or 0.92% of total loans. The decreases primarily reflect continued improvement in commercial NALs.

The tangible common equity to tangible asset ratio increased to 8.92% from 8.76% in the prior quarter. Our Tier 1 common risk-based capital ratio at quarter end was 10.62%, up from 10.48% in the prior quarter. The regulatory Tier 1 risk-based capital ratio at March 31, 2013 was 12.16%, up from 12.02%, at December 31, 2012. All capital ratios were impacted by the repurchase of 4.7 million common shares over the quarter at an average price per share of $7.07.

The Federal Reserve completed its review of our January 2013 capital plan submission and did not object to our proposed capital actions. This allows us to increase our quarterly common stock dividend to $0.05 per common share and gives us the potential to repurchase up to $227.0 million of common stock through the first quarter of 2014. Reinvesting excess capital to organically grow the business remains our priority. Importantly, dividends and share repurchases provide us additional means of creating long-term shareholder value.

Business Overview

General

Our general business objectives are: (1) grow net interest income and fee income, (2) increase cross-sell and share-of-wallet across all business segments, (3) improve efficiency ratio, (4) continue to strengthen risk management, including sustained improvement in credit metrics, and (5) maintain strong capital and liquidity positions.

The year is off to a solid start, and the first quarter results continue to demonstrate that our strategies are working. We have differentiated ourselves by investing in innovative products and customer services, including our Fair Play approach. As a result, we are continuing to see double digit household growth and recognition by national entities of our customer service execution. Our growth has occurred in a challenging economic and regulatory environment. While some companies are hesitant to invest in light of the uncertain economy, we will continue to look for areas where we can improve efficiency, continue to deliver positive operating leverage, and selectively invest in our businesses in order to drive our long-term profitability.

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Economy

The FRB of Philadelphia Coincident Economic Activity Index, a proxy for overall economic growth, indicates the recoveries in Michigan, Ohio, and Indiana have been stronger than in the overall nation since the recession ended in June 2009. Led by Indiana and Michigan, five of our six footprint states are forecasted to grow faster than the overall nation over the six months beginning in March 2013. For the 12 months ended January 31, 2013, home prices rose 13.9% in the Detroit MSA, well above the S&P Case Shiller index for the nation, which rose 8.1%. In aggregate, housing markets in our footprint states have mirrored the national recovery trend. Firming of natural gas prices and a gradual improvement in the global economy should also provide some additional support to economic growth as the year progresses.

Legislative and Regulatory

Regulatory reforms continue to be adopted which impose additional restrictions on current business practices. Recent items affecting us include the Federal Reserve’s Capital Plan Review and a recently issued CFPB bulletin.

Capital Plans Rule / Supervisory and Company-Run Stress Test Requirements – During 2012, we participated in the Federal Reserve’s Capital Plan Review (CapPR) process and made our capital plan submission in January 2013. On March 14, 2013, we announced that the Federal Reserve had completed its review of our capital plan submission and did not object to our proposed capital actions. The capital plan review process included reviews of our internal capital planning process and our plans to make capital distributions, such as dividend payments or stock repurchases, as well as a stress test requirement designed to test our capital adequacy throughout times of economic and financial stress.

CFPB Issues Bulletin on Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act – On March 21, 2013, the CFPB issued a bulletin to provide guidance about compliance with requirements of the Equal Credit Opportunity Act (ECOA) for indirect auto lenders that permit auto dealers to increase consumer interest rates and that compensate dealers with a share of the increased interest revenues. The Bulletin states that indirect auto lenders may be liable for pricing disparities on a prohibited basis within the lender’s portfolio arising from dealer markup and compensation policies. The Bulletin further states that indirect auto lenders should take steps to ensure they are operating in compliance with ECOA. Those steps may include, but are not limited to, eliminating dealer pricing discretion or, if dealer pricing discretion is retained, imposing controls on dealer pricing discretion, testing the lender’s portfolio, monitoring dealer compliance, and when unexplained disparities on prohibited bases are found, addressing the effects of such discretion through corrective action against dealers and remuneration of affected consumers. Our indirect auto lending business is subject to this Bulletin, and we are currently evaluating this regulatory guidance to ensure it is appropriately incorporated into the operation and conduct of our business.

Expectations

We are starting to see positive signs in both our business and consumer customer bases as the economic recovery progresses. We believe the soundness of our strategy will continue to drive growth and improve our profitability. Our retail customers and our mortgage lending businesses are benefiting from recovering housing markets. Although a recent uptick among our business customers of drawing down cash balances to support working capital needs and to fund new projects has negative near-term implications on our balance sheet, we are encouraged by this activity as it suggests improving confidence among business owners and implies a more robust long-term economic outlook. Competition continues to pressure asset yields and more recently loan structure, but we will remain disciplined as we manage our aggregate moderate-to-low risk profile.

Net interest income is expected to modestly grow over the course of 2013, as we anticipate an increase in total loans, excluding the impact of any future loan securitizations. However, those benefits to net interest income are expected to be mostly offset by downward NIM pressure. 2013 NIM is not expected to fall below the mid 3.30%’s due to continued deposit repricing and mix shift opportunities while maintaining a disciplined approach to loan pricing.

The C&I portfolio is expected to continue to see growth in 2013, although we expect growth will be more heavily weighted to the back half of the year as the economic recovery progresses. Our C&I sales pipeline remains robust with much of this reflecting the positive impact from our investments in specialized commercial verticals, focused OCR sales process and continued support of middle market and small business lending. While on-balance sheet loans are expected to increase, we will continue to evaluate the use of automobile loan securitizations due to our expectation of continued strong levels of originations. We currently anticipate one securitization in the second half of 2013. Residential mortgages and home equity loan balances are expected to increase modestly. CRE loans likely will experience declines from current levels but are expected to remain in the $5.0 billion range.

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Excluding potential future automobile loan securitizations, we anticipate the increase in total loans will modestly outpace growth in total deposits. This reflects our continued focus on the overall cost of funds, the continued shift towards low- and no-cost demand deposits and money market deposit accounts.

Noninterest income over the course of the year, excluding the impact of any automobile loan sales and any net MSR impact, is expected to be at similar levels as 2012. The anticipated slowdown in mortgage banking activity is expected to be offset by continued growth in new customers, increased contribution from higher cross-sell, and the continued maturation of our previous strategic investments.

Noninterest expense in the 2013 first quarter was below our expected average quarterly run rate for the year. The second quarter is expected to increase due to higher commission expense related to a more normal level of commercial customer-related activity, annual merit increases, higher marketing expense as we continue the launch our new media campaign, and equipment related to our continued in-store expansion. We remain committed to posting positive operating leverage in 2013 as growth in total revenue is expected to outpace total expense growth.

Overall credit quality is expected to experience continued improvement, and NCOs while in the normalized range this quarter, are expected to remain volatile but reach normalized levels by the end of 2013. The level of provision for credit losses was at the low end of our long-term expectation, and we expect some quarterly volatility within each of the loan categories given the absolute low level of the provision for credit losses and the uncertain and uneven nature of the economic recovery.

We anticipate an effective tax rate for the remainder of 2013 to be in the range of 25% to 28%, primarily reflecting the impact of tax-exempt income, tax advantaged investments, and general business credits.

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DISCUSSION OF RESULTS OF OPERATIONS

This section provides a review of financial performance from a consolidated perspective. It also includes a “Significant Items” section that summarizes key issues important for a complete understanding of performance trends. Key Unaudited Condensed Consolidated Balance Sheet and Unaudited Condensed Statement of Income trends are discussed. All earnings per share data are reported on a diluted basis. For additional insight on financial performance, please read this section in conjunction with the “Business Segment Discussion.”

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Significant Items

Definition of Significant Items

From time-to-time, revenue, expenses, or taxes, are impacted by items judged by us to be outside of ordinary banking activities and / or by items that, while they may be associated with ordinary banking activities, are so unusually large that their outsized impact is believed by us at that time to be infrequent or short-term in nature. We refer to such items as Significant Items. Most often, these Significant Items result from factors originating outside the company; e.g., regulatory actions / assessments, windfall gains, changes in accounting principles, one-time tax assessments / refunds, litigation actions, etc. In other cases, they may result from our decisions associated with significant corporate actions outside of the ordinary course of business; e.g., merger / restructuring charges, recapitalization actions, goodwill impairment, etc.

Even though certain revenue and expense items are naturally subject to more volatility than others due to changes in market and economic environment conditions, as a general rule volatility alone does not define a Significant Item. For example, changes in the provision for credit losses, gains / losses from investment activities, asset valuation writedowns, etc., reflect ordinary banking activities and are, therefore, typically excluded from consideration as a Significant Item.

We believe the disclosure of Significant Items provides a better understanding of our performance and trends to ascertain which of such items, if any, to include or exclude from an analysis of our performance; i.e., within the context of determining how that performance differed from expectations, as well as how, if at all, to adjust estimates of future performance accordingly. To this end, we adopted a practice of listing Significant Items in our external disclosure documents; e.g., earnings press releases, investor presentations, Forms 10-Q and 10-K.

Significant Items for any particular period are not intended to be a complete list of items that may materially impact current or future period performance.

Significant Items Influencing Financial Performance Comparisons

Earnings comparisons were impacted by the Significant Items summarized below:

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The following table reflects the earnings impact of the above-mentioned Significant Items for periods affected by this Results of Operations discussion:

Table 2 - Significant Items Influencing Earnings Performance Comparison

The following tables detail the change in our average balance sheet and the net interest margin:

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Table 3 - Consolidated Quarterly Average Balance Sheets