HBAN 10-Q Quarter ended June 30, 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 June 30, 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 829,674,914 shares of Registrant’s common stock ($0.01 par value) outstanding on June 30, 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 Second Quarter Results

For the quarter, we reported net income of $150.7 million, or $0.17 per common share, compared with $151.8 million, or $0.17 per common share, in the prior quarter ( see Table 1 ).

Fully-taxable equivalent net interest income was $431.5 million for the quarter, down $1.4 million, or less than 1%, from the prior quarter. The decrease reflected a 4 basis point decrease in the net interest margin, partially offset by a $0.2 billion increase in average earnings assets as well as an additional day in the quarter. The primary items affecting the net interest margin were a 7 basis point negative impact from the mix and yield of earning assets, which was partially offset by a 3 basis point positive impact from the mix and cost of deposits.

The provision for credit losses decreased $4.9 million, or 16%, from the prior quarter. This reflected a $16.9 million, or 33%, decrease in NCOs to $34.8 million, or an annualized 0.34% of average total loans and leases, from $51.7 million, or an annualized 0.51%, in the prior quarter.

Noninterest income decreased $3.6 million, or 1%, from the prior quarter. The decrease in noninterest income reflected the $11.6 million, or 26%, decrease in mortgage banking income as the benefit of net mortgage servicing rights decreased by $11.6 million. Other income decreased $7.9 million, or 24%, as the prior quarter included a $7.6 million gain on the sale of Low Income Housing Tax Credit investments. These were partially offset by a $7.1 million, or 12%, increase in service charges on deposit accounts that follow yearly seasonal trends in customer activity, an 8% annualized growth in consumer checking households, and a $4.4 million, or 56%, increase in capital markets activity.

Noninterest expense increased $3.1 million, or 1%, from the prior quarter due to a $5.0 million, or 2%, increase in personnel costs, reflecting higher commission expense and a $3.3 million, or 30%, seasonal increase in marketing. These were partially offset by a $2.9 million decline in OREO and foreclosure expense.

The period-end ACL as a percentage of total loans and leases decreased to 1.86% from 1.91% in the prior quarter. The ACL as a percentage of period-end NALs increased 7 percentage points to 214%. NALs declined by $16.8 million, or 4%, to $363.5 million, or 0.87% of total loans. The decreases primarily reflected meaningful improvement in commercial real estate NALs.

The tangible common equity to tangible asset ratio decreased to 8.78% from 8.92% in the prior quarter, resulting primarily from net unrealized losses on available-for-sale debt securities and cash flow hedging derivatives during the quarter, partially offset by retained earnings. Our Tier 1 common risk-based capital ratio at quarter end was 10.71%, up from 10.62% in the prior quarter. The regulatory Tier 1 risk-based capital ratio at June 30, 2013 was 12.24%, up from 12.16%, at March 31, 2013. All capital ratios were impacted by the repurchase of 10.0 million common shares over the quarter at an average price per share of $7.50.

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.

During the 2013 second quarter, we continued to demonstrate progress in our strategic priorities. We returned to pre-recession, normal credit levels, reflecting our disciplined and prudent lending approach and also continued to experience double-digit household growth. Expenses were managed to levels slightly below our expectations. Revenue was relatively unchanged as strategic growth overcame multiple environmental headwinds and the prior quarters’ gains from the sale of Low Income Housing Tax Credit investments. We remain on track to deliver sustainable levels of long-term profitability. Existing strategic investments continue to mature and we are focused on expense management and a more robust continuous improvement effort across the enterprise.

Economy

Consumer lending and deposits increased over the same quarter last year as consumer confidence in the recovery rises. Our commercial loan pipeline continues to be strong as business owners are seeing more signs of economic growth. Employment across our Midwest markets continues to improve with Ohio creating the largest month-to-month employment increase in the nation in May and Michigan coming in third.

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Legislative and Regulatory

Regulatory reforms continue to be released, which impose additional restrictions on current business practices. Recent items affecting us include the Federal Reserve’s Comprehensive Capital Analysis and Review and the recently issued final Basel III rule.

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.

Beginning with our Capital Plan submission in January 2014, we will be subject to the Federal Reserve’s Comprehensive Capital Analysis and Review (CCAR) process. One of the primary additional elements of CCAR will be supervisory stress tests conducted by the Federal Reserve under different hypothetical macro-economic scenarios in addition to the stress tests routinely conducted by management. After completing its review, the Federal Reserve may object or not object to our proposed capital actions, such as plans to pay or increase common stock dividends or increase common stock repurchase programs. Beginning with our January 2014 submission, we will be subject to the OCC’s Annual Stress Test at the bank-level. The OCC stipulated that it will consult closely with the Federal Reserve to provide common stress scenarios which can be used at both the depository institution and bank holding company levels.

Basel III Capital rules for U.S. banking organizations – On July 2, 2013, the Federal Reserve voted to adopt final Basel III capital rules for U.S. banking organizations. The final rules establish an integrated regulatory capital framework and will implement in the United States the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act. Under the final rule, minimum requirements will increase for both the quantity and quality of capital held by banking organizations. Consistent with the international Basel framework, the final rule includes a new minimum ratio of common equity tier 1 capital (Tier I Common) to risk-weighted assets and a common equity tier 1 capital conservation buffer of 2.5% of risk-weighted assets that will apply to all supervised financial institutions. The rule also raises the minimum ratio of tier 1 capital to risk-weighted assets and includes a minimum leverage ratio of 4% for all banking organizations. These new minimum capital ratios will become effective for us on January 1, 2015 and will be fully phased-in on January 1, 2019.

Following the Basel III regulatory capital levels that we must satisfy to avoid limitations on capital distributions and discretionary bonus payments during the applicable transition period, from January 1, 2015 until January 1, 2019.

The final rule emphasizes common equity tier 1 capital, the most loss-absorbing form of capital, and implements strict eligibility criteria for regulatory capital instruments. The final rule also improves the methodology for calculating risk-weighted assets to enhance risk sensitivity. Banks and regulators use risk weighting to assign different levels of risk to different classes of assets.

We have evaluated the impact of the Basel III final rule on our regulatory capital ratios and estimate a reduction of approximately 60 basis points to our Basel I Tier I Common risk-based capital ratio based on our June 30, 2013 balance sheet composition. The estimate is based on management’s current interpretation, expectations, and understanding of the final U.S. Basel III rules. We anticipate that our capital ratios, on a Basel III basis, will continue to exceed the well capitalized minimum capital requirements. We are evaluating options to mitigate the capital impact of the final rule prior to its effective implementation date.

Expectations

We are seeing an uptick in manufacturing across our markets led by the auto industry along with continued investments in the local oil and gas exploration industry. We believe these developments, along with recent upward revisions to economic growth forecasts in 2014, will trigger further business investment. We also are seeing a stronger than expected housing recovery across much of our region. We believe this, along with an increase in consumer confidence, will lead to more consumer spending. We will remain disciplined as we manage our returns on an aggregate moderate-to-low risk profile.

Net interest income is expected to modestly grow over the remainder of 2013. We anticipate an increase in total loans will be partially offset by a reduction in total securities, as the portfolio’s cash flow is not reinvested into additional securities. However, those benefits to net interest income are expected to be mostly offset by continued downward NIM pressure. NIM for 2013 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.

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The C&I portfolio is expected to see growth consistent with the anticipated increase in customer activity. Our C&I loan 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. Given automobile loan yields are relatively more attractive than similar duration securities and the recent decline in estimated securitization gains, we currently do not anticipate any automobile securitizations in the second half of 2013. Residential mortgages and home equity loan balances are expected to increase modestly. CRE loans are expected to remain in the current $5 billion range.

We anticipate the increase in total loans will outpace growth in total deposits. This reflects our continued focus on the overall cost of funds, as well as the continued shift towards low- and no-cost demand deposits and money market deposit accounts.

Noninterest income, when compared with 2012 levels, is expected to be flat to slightly down, excluding the impact of any automobile loan sales and any net MSR impact. The anticipated slowdown in mortgage banking activity is expected to be mostly offset by continued growth in new customers, increased contribution from higher cross-sell, and the continued maturation of our previous strategic investments.

Effective December 31, 2013, the benefits earned in the Company’s pension plan will be frozen, as approved by the board of directors on July 17, 2013. As a result of the accounting treatment for the unamortized prior service pension cost and the change in the projected benefit obligation related to the curtailment, a one-time non-cash pre-tax gain of approximately $35 million, or $0.03 per share, is expected to be recognized in the 2013 third quarter.

Third quarter expenses are expected to modestly increase due to higher commission expense and higher occupancy and equipment expense related to our continued in-store expansion. Expenses will be consistent with previous expectations, with a modest downward bias related to the pension related expense and excluding the aforementioned one-time gain. We continue to evaluate additional cost saving opportunities and remain committed to posting positive operating leverage in 2013.

NPAs are expected to experience continued improvement. This quarter, NCOs were slightly below our expected normalized range of 35 to 55 basis points. The level of provision for credit losses was below our long-term expectation, and we continue to expect moderate quarterly volatility.

The effective tax rate for 2013 is expected to be in the range of 25% to 28%, primarily reflecting the impacts 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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Table 2—Selected Year to Date Income Statement Data(1)

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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:

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

Table 3—Significant Items Influencing Earnings Performance Comparison