1
                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                      QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995MARCH 31, 1996

                          Commission File Number 0-2525

                       HUNTINGTON BANCSHARES INCORPORATED

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

                   41 SOUTH HIGH STREET, COLUMBUS, OHIO 43287

                  Registrant's telephone number (614) 480-8300

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

         Yes   X                    No
              -----                     -----===                        ===

There were 133,642,449132,891,485 shares of Registrant's without par value common stock
outstanding on October 31, 1995.April 30, 1996.

                                                                               1
   2
PART I. FINANCIAL INFORMATION
1. FINANCIAL STATEMENTS
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CONSOLIDATED BALANCE SHEETS


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Part I. Financial Information 1. Financial Statements - -------------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS - ---------------------------------------------------------------------------------------------------------- (in thousands of dollars) September 30, DecemberMARCH 31, September 30,DECEMBER 31, MARCH 31, 1996 1995 1994 19941995 ------------ ------------- ------------ ------------------------ ASSETS Cash and due from banks ................................ $ 852,399 $ 885,327 $ 832,696banks.................................. $789,092 $860,958 $896,514 Interest bearing deposits in banks ..................... 1,259 3,059 2,168banks....................... 1,666 284,393 1,366 Trading account securities ............................. 19,135 9,427 22,319securities............................... 13,466 12,924 25,558 Federal funds sold and securities purchased under resale agreements ................. 276,747 5,329 281,800agreements................... 5,833 197,531 21,125 Mortgages held for sale ................................ 156,051 138,997 191,274sale.................................. 155,528 159,705 117,404 Securities available for sale - at fair value .......... 4,290,570 3,304,493 2,733,266value............ 4,954,577 4,721,144 3,442,958 Investment securities - fair value $419,773; $474,147$75,392 ; $69,196; and $491,767, respectively ........................ 416,236 475,692 488,291$453,454, respectively......................... 74,213 67,604 452,054 Total loans (1) ........................................ 13,457,831 12,264,436 11,871,412.......................................... 13,369,308 13,261,667 12,817,663 Less allowance for loan losses .................... 198,573 200,492 205,964losses...................... 197,375 194,456 201,088 ----------- ------------------------ ----------- Net loans .............................................. 13,259,258 12,063,944 11,665,448loans................................................ 13,171,933 13,067,211 12,616,575 ----------- ------------------------ ----------- Premises and equipment ................................. 296,708 288,793 287,897equipment................................... 310,985 296,465 294,512 Customers' acceptance liability ........................ 59,785 53,883 64,249liability.......................... 68,312 56,926 61,300 Accrued income and other assets ........................ 544,982 541,696 420,510assets.......................... 592,377 529,737 491,168 ----------- ------------------------ ----------- TOTAL ASSETS ........................................... $20,173,130 $17,770,640 $16,989,918ASSETS............................................. $20,137,982 $20,254,598 $18,420,534 =========== ======================== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Total deposits (1) ..................................... $12,544,500 $11,965,067 $11,602,246....................................... $13,006,213 $12,636,582 $12,188,579 Short-term borrowings .................................. 4,047,206 2,898,201 2,661,627borrowings.................................... 3,150,974 3,514,773 3,088,467 Bank acceptances outstanding ........................... 59,785 53,883 64,249outstanding............................. 68,312 56,926 61,300 Long-term debt ......................................... 1,622,411 1,214,052 1,088,134debt........................................... 1,985,806 2,103,024 1,253,032 Accrued expenses and other liabilities ................. 416,429 227,617 171,841liabilities................... 424,167 424,428 319,527 ----------- ------------------------ ----------- Total Liabilities ................................. 18,690,331 16,358,820 15,588,097Liabilities................................... 18,635,472 18,735,733 16,910,905 ----------- ------------------------ ----------- Shareholders' equity Preferred stock - authorized 6,617,808 shares; none outstanding Common stock - without par value; authorized 200,000,000 shares; issued and outstanding 141,394,248; 131,119,504;141,402,769; 141,402,769 ; and 130,540,584134,400,331 shares, respectively ......................... 1,056,146 912,318 902,427respectively........................... 1,056,209 1,056,209 914,020 Less 6,877,908; 904,739;8,392,446; 8,351,978; and 1,130,0541,215,779 treasury shares, respectively ................ (144,262) (16,577) (22,952)respectively.................. (193,213) (180,632) (22,168) Capital surplus ................................... 235,661 215,084 217,056surplus..................................... 241,079 235,802 235,184 Net unrealized (losses) gains (losses) on securities available for sale ........................... 7,162 (63,289) (33,577)sale............................. (3,954) 40,972 (17,806) Retained earnings ................................. 328,092 364,284 338,867earnings................................... 402,389 366,514 400,399 ----------- ------------------------ ----------- Total Shareholders' Equity ........................ 1,482,799 1,411,820 1,401,821Equity.......................... 1,502,510 1,518,865 1,509,629 ----------- ------------------------ ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............. $20,173,130 $17,770,640 $16,989,918EQUITY............... $20,137,982 $20,254,598 $18,420,534 =========== ============= =========== ===========
See notes to consolidated financial statements. (1) See page 8 See notes to consolidated financial statements. (1) See page 7 for detail of total loans and total deposits. 2 3 - --------------------------------------------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME - ---------------------------------------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars, except per share amounts) THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, 1995 1994 1995 1994MARCH 31, Interest and fee income -------------------------------- -------------------------------1996 1995 ---------------------------- Loans ........................................ $ 290,129 $ 273,109 Securities ................................... $296,472 $248,330 $ 857,639 $716,340 Investment securities..................... 7,284 8,528 22,690 23,318 Securities available for sale ............ 70,410 38,308 188,469 133,281 Mortgages held for sale .................. 3,351 4,149 7,628 23,61080,653 65,370 Other .................................... 342 2,409 4,033 4,297 ----------- ----------- ----------- -----------........................................ 3,514 3,918 ------------ ------------ TOTAL INTEREST INCOME .............. 377,859 301,724 1,080,459 900,846 ----------- ----------- ----------- -----------374,296 342,397 ------------ ------------ Interest Expense Deposits ................................. 111,549 74,485 313,207 212,112..................................... 113,535 95,506 Short-term borrowings .................... 57,054 27,297 156,763 70,993........................ 44,537 47,514 Long-term debt ........................... 22,678 16,391 67,812 38,941 ----------- ----------- ----------- -----------............................... 31,506 23,168 ------------ ------------ TOTAL INTEREST EXPENSE .............. 191,281 118,173 537,782 322,046 ----------- ----------- ----------- -----------............. 189,578 166,188 ------------ ------------ NET INTEREST INCOME ................. 186,578 183,551 542,677 578,800 ----------- ----------- ----------- -----------................ 184,718 176,209 ------------ ------------ Provision for loan losses .................. 7,187 1,113 16,582 12,796 ----------- ----------- ----------- -----------......................... 11,823 4,608 ------------ ------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES .... 179,391 182,438 526,095 566,004 ----------- ----------- ----------- -----------172,895 171,601 ------------ ------------ Total non-interest income (1)............... 61,204 53,793 180,029 171,444 ..................... 68,162 57,887 Total non-interest expense (1).............. 138,850 151,356 426,957 449,990 ----------- ----------- ----------- ----------- .................... 143,496 144,641 ------------ ------------ INCOME BEFORE INCOME TAXES ........ 101,745 84,875 279,167 287,458......... 97,561 84,847 Provision for income taxes.................. 35,808 28,973 100,207 97,361 ----------- ----------- ----------- -----------taxes ........................ 34,736 29,985 ------------ ------------ NET INCOME ........................................... $ 65,93762,825 $ 55,902 $ 178,960 $190,097 =========== =========== =========== ===========54,862 ============ ============ PER COMMON SHARE (2) Net income ............................ $0.48 $0.41 $1.29 $1.40................................... $ 0.47 $ 0.39 Cash dividends declared................ $0.20 $0.19 $0.58 $0.49declared ...................... $ 0.20 $ 0.19 AVERAGE COMMON SHARES OUTSTANDING .......... 137,182,768 136,107,853 139,112,764 136,257,881
See notes to consolidated financial statements. (1) See page 9................. 135,054,096 140,192,042 See notes to consolidated financial statements. (1) See page 8 for detail of non-interest income and non-interest expense. (2) Adjusted for the five percent stock dividend distributed July 31, 1995. 3 4 - --------------------------------------------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------ (in thousands, except per share amounts)----------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) NET UNREALIZED GAINS (LOSSES) COMMON COMMON TREASURY TREASURY CAPITAL (LOSSES) ON RETAINED SHARES STOCK SHARES STOCK SURPLUS SECURITIES EARNINGS TOTAL - ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ------- ------------ -------- ---------- -------- -------- -------- ----------- Three Months Ended March 31, 1995: Nine Months Ended September 30, 1994: BALANCE, BEGINNING OF PERIOD ............... 104,411Balance, beginning of period 131,120 $ 902,107 (608) $ (15,290) $216,168 -- $ 221,652 $1,324,637 Change in accounting method912,318 (905) ($ 16,577) $215,084 ($63,289) $364,284 $1,411,820 Stock issued for securities ....... $ 65,548 1,624 67,172acquisition 3,279 1,690 19,947 (985) 8,474 29,126 Net income ............. 190,097 190,09754,862 54,862 Cash dividends declared ($.49.19 per share) .... (67,447) (67,447) Five-for-four stock split ......... 26,088 (160)(25,986) (25,986) Stock options exercised ........... 279 6,394 721 (5,470) 1,64519 337 116 (398) 55 Treasury shares purchased ........... (1,798) (42,127) (42,127)(957) (17,331) (17,331) Treasury shares sold: Shareholder dividend reinvestment plan .. 752 18,417 30 (1,298) 17,149425 7,780 6 (792) 6,994 Employee stock purchase and otherbenefit plans ... 405 9,654 137 (291) 9,500202 3,623 31 (45) 3,609 Conversion of convertible notes ............. 41 320 3201 12 12 Change in net unrealized gains (losses) on securities available for sale ............ (99,125) (99,125)46,468 46,468 -------- ----------- -------- --------- ------- --------- --------- -------- --------- ----------- BALANCE, END OF PERIOD ... 130,540 $902,427 (1,130) $(22,952) $217,056 $(33,577) $338,867 $1,401,821-------- -------- ---------- Balance, end of period 134,400 $ 914,020 (1,216) ($ 22,168) $235,184 ($17,806) $400,399 $1,509,629 ======== =========== ======== ========= ======= ========= ========= ======== ========= =========== Nine======== ======== ========== Three Months Ended September 30, 1995: BALANCE, BEGINNING OF PERIOD .............. 131,120March 31, 1996: Balance, beginning of period 141,403 $ 912,318 (905)1,056,209 (8,352) ($180,632) $235,802 $ (16,577) $215,084 $ (63,289) $ 364,284 $1,411,82040,972 $366,514 $1,518,865 Stock issued for acquisitions ....... 3,510 3,434 20,061 (985) 8,474 30,984acquisition 4,733 102,760 5,037 107,797 Net income ........... 178,960 178,96062,825 62,825 Cash dividenddividends declared ($.58.20 per share) ... (79,852) (79,852) 5% stock dividend .... 6,732 140,146 (45) (140,272) (126)(26,950) (26,950) Stock options exercised ........... 184 3,233 76 (2,342) 96719 376 (298) 78 Treasury shares purchased ........... (7,726) (159,368) (159,368)(5,189) (124,313) (124,313) Treasury shares sold: Shareholder dividend reinvestment plan .............. 1,213 21,434 310 (1,114) 20,630326 7,050 390 7,440 Employee stock purchase and otherbenefit plans ... 401 7,016 130 (46) 7,100 Conversion of convertible notes ................ 32 248 24871 1,546 148 1,694 Change in net unrealized gains (losses) on securities available for sale ... 71,436 71,436(44,926) (44,926) -------- ----------- -------- --------- ------- --------- --------- -------- --------- ----------- BALANCE, END OF PERIOD .... 141,394 $1,056,146 (6,878)-------- -------- ---------- Balance, end of period 141,403 $ (144,262) $235,661 $ 7,162 $328,092 $1,482,7991,056,209 (8,392) ($193,213) $241,079 ($ 3,954) $402,389 $1,502,510 ======== =========== ======== ========= ======= ========= ========= ======== ========= =================== ======== ==========
See notes to consolidated financial statements. 4 5 - ------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS - ---------------------------------------------------------------------------------------------------------- (in thousands of dollars) NINETHREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 1996 1995 1994 ----------------------- ------------- OPERATING ACTIVITIES OPERATING ACTIVITIES Net Income.......................................................Income ........................................................... $ 178,96062,825 $ 190,09754,862 Adjustments to reconcile net income to net cash provided by operating activities Provision for loan losses................................... 16,582 12,796 Provision for other real estate............................. (2,263) (2,889)losses .................................. 11,823 4,608 Provision for depreciation and amortization................. 47,182 66,378amortization ................ 21,178 14,364 Deferred income tax expense................................. 18,034 24,500(benefit) expense ...................... (66) 814 Increase in trading account securities...................... (9,708) (355) (Increase) decreasesecurities ..................... (542) (16,131) Decrease in mortgages held for sale.............. (17,054) 841,064sale ........................ 4,177 21,593 Net gains on sales of securities available for sale......... (8,142) (2,545) Net gains on calls of investment securities................. (612) (104) (Increase) decrease........................... (7,090) (60) Decrease (increase) in accrued income receivable............ (26,900) 13,060receivable ........... 1,199 (3,590) Net (increase) decrease in other assets..................... (28,534) 52,387assets ............................... 506 14,020 Increase (decrease) in accrued expenses..................... 114,417 (29,411)expenses .................... 20,968 (3,703) Net (decrease) increase (decrease) in other liabilities................ 16,953 (67,736) ---------- ----------liabilities ............... (374) 71,222 ----------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES........... 298,915 1,097,242 ---------- ----------ACTIVITIES .......... 114,604 157,999 ----------- --------- INVESTING ACTIVITIES Decrease in interest bearing deposits in banks.................. 1,800 10,442banks ....................... 282,927 1,693 Proceeds from:from : Maturities and calls of investment securities........................... 27,106 20,797securities .................... 6,061 24,091 Maturities of securities available for sale................... 212,750 239,777 Calls of investment securities................................ 34,686 44,459 Sales and calls of securities available for sale.............. 2,388,018 2,195,640 Purchases of: Investment securities......................................... (2,660) (222,352) Securitiessale ............ 69,208 109,170 Sales of securities available for sale................................. (3,377,820) (1,356,416)sale ........................... 1,032,686 603,745 Purchases of securities available for sale ........................... (1,060,567) (664,461) Proceeds from sales of loans ......................................... 35,657 -- Net loan originations............................................. (1,071,526) (952,145)originations, excluding sales ............................... (37,302) (423,254) Proceeds from disposal of premises and equipment.................. 2,344 833equipment ..................... 522 111 Purchases of premises and equipment............................... (23,255) (19,511)equipment .................................. (11,769) (5,498) Proceeds from sales of other real estate.......................... 26,446 26,968estate ............................. 2,299 18,244 Net cash received from purchase/salepurchase of subsidiaries.............. 148,490 -- ---------- ---------- NET CASH USED FOR INVESTING ACTIVITIES................ (1,633,621) (11,508) ---------- ---------- FINANCING ACTIVITIES Increase (decrease) in total deposits........................... 231,223 (424,786) Increase (decrease) in short-term borrowings.................... 1,144,187 (533,836) Proceeds from issuance of long-term debt........................ 590,000 350,000 Payment of long-term debt....................................... (181,565) (26,415) Dividends on common stock....................................... (59,348) (50,298) Acquisition of treasury stock................................... (159,368) (42,127) Sales of treasury stock......................................... 7,100 9,500 Proceeds from exercise of stock options......................... 967 1,645 ---------- ----------subsidiaries ...................... 631 33,463 ----------- --------- NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 320,353 (302,696) ----------- --------- FINANCING ACTIVITIES.. 1,573,196 (716,317) ---------- ----------ACTIVITIES Decrease in total deposits ........................................... (61,715) (20,322) (Decrease) increase in short-term borrowings ......................... (377,841) 185,448 Proceeds from issuance of long-term debt ............................. 200,000 50,000 Payment of long-term debt ............................................ (317,275) (11,065) Dividends paid on common stock ....................................... (26,589) (25,708) Acquisition of treasury stock ........................................ (124,313) (17,331) Proceeds from issuance of treasury stock ............................. 9,212 10,658 ----------- --------- NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (698,521) 171,680 ----------- --------- CHANGE IN CASH AND CASH EQUIVALENTS................... 238,490 369,417EQUIVALENTS ................ (263,564) 26,983 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD......PERIOD ... 1,058,489 890,656 745,079 ---------- --------------------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............ $1,129,146 $1,114,496 ========== ==========PERIOD ......... $ 794,925 $ 917,639 =========== =========
See notes to consolidated financial statements. 5 6 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- A. The accompanying unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods. The Notes to the Consolidated Financial Statements appearing in Huntington's 19941995 Annual Report to Shareholders should be read in conjunction with these interim financial statements. B. On January 1, 1995,1996, Huntington adopted Financial Accounting Standards Board Statement No. 114,121, "Accounting by Creditors for the Impairment of a Loan"Long-Lived Assets and for Long-Lived Assets to be Disposed of" (FAS 114), as amended by FAS 118. Under121). The Statement prescribes the accounting for the impairment of long-lived assets and goodwill related to those assets. The new rules specify when assets should be reviewed for impairment, how to determine whether an asset or group of assets is impaired, how to measure an impairment loss, and what financial statement disclosures are necessary. Also prescribed is the 1995 allowanceaccounting for loan losses relatedlong-lived assets and identifiable intangibles that a company plans to loansdispose of, other than those that are identified for evaluation in accordance with FAS 114part of a discontinued operation. Any impairment of a long-lived asset resulting from management's review is based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for collateral-dependent loans. Prior to 1995, the allowance for loan losses related to these loans was based on undiscounted cash flows or the fair value of the collateral for collateral-dependent loans. Huntington uses the cost recovery method in accounting for cash received on non-accrual loans. Under this method, cash receipts are generally applied entirely against principal until the loan has been collected in full, after which time any additional cash receipts arebe recognized as interest income. Under FAS 114, $20.7 milliona component of non-performing loans presented in the table on page 23 of this report are considered impaired. Included in this amount is $13.3 million of impaired loans for which the related allowance for loan losses is $7.9 million and $7.4 million of impaired loans that as a result of write-downs do not have an allowance for loan losses. As more fully described in Management's Discussion and Analysis, Huntington also adopted FAS 122, "Accounting for Mortgage Servicing Rights", in the third quarter of 1995.non-interest expense. The adoption of FAS 122121 did not have a material effect on Huntington's consolidated financial statements. C. Huntington acquired Security National Corporation (Security)Peoples Bank of Lakeland (Lakeland), a $189$551 million one-bank holding company headquartered in Maitland, Florida on May 1, 1995, and Reliance Bank of Florida (Reliance), a $98 millioncommercial bank headquartered in Melbourne,Lakeland, Florida, on May 16, 1995.January 23, 1996. Huntington paid $46.2 million in cash and issued approximately 3.54.7 million shares of common stock in exchange for all the common stock of Security and Reliance. Prior year financial statements were not restated for these immaterial pooling-of-interests transactions. On July 16, 1995, Huntington consummated the acquisition of First Seminole Bank (First Seminole), a $51 million bank headquartered in Lake Mary, Florida. Huntington paid cash of $8.4 million for all of the stock of First Seminole in aLakeland. The transaction was accounted for as a purchase. In August 1995, Huntington entered into a merger agreement with Peoples Bankpurchase; accordingly, the results of Lakeland (Peoples), a $534 million commercial bank headquarteredhave been included in Lakeland, Florida. Huntington is to exchange a combinationthe consolidated financial statements from the date of its common stock and cash for the outstanding common stock of Peoples in a purchase transaction. The acquisition is expected to be completed in January 1996, subject to approval by Peoples shareholders and applicable regulatory authorities. 6 7acquisition. D. Per common share amounts have been calculated based on the weighted average number of common shares outstanding in each period, adjusted for the five percent stock dividend issued July 31, 1995. The dilutive effects of unexercised stock options and convertible debentures were not significant for any period presented. E. Certain amounts in the prior year's financial statements have been reclassified to conform with the 19951996 presentation. These reclassifications had no effect on net income. 6 7 8 - -------------------------------------------------------------------------------------------------------------------------------------------- FINANCIAL REVIEW - ------------------------------------------------------------ LOAN PORTFOLIO COMPOSITION - ------------------------------------------------------------
- -------------------------------------------------------------------------------------------------- LOAN PORTFOLIO COMPOSITION - -------------------------------------------------------------------------------------------------------------------------------------------------------------- (in thousands of dollars) SEPTEMBER 30,MARCH 31, DECEMBER 31, SEPTEMBER 30,MARCH 31, 1996 1995 1994 1994 ------------- ------------ -------------1995 ----------- ----------- ----------- Commercial ....................................Commercial................................. $ 4,106,7634,243,363 $ 3,610,8924,190,237 $ 3,566,660 Tax-free ...................................... 53,539 58,006 60,4033,962,921 Real Estate Construction.............................. 364,721 304,769 286,999 Commercial................................ 1,540,534 1,378,398 1,373,936 Residential............................... 1,546,754 1,624,367 1,465,988 Consumer ...................................... 5,059,492 4,641,946 4,523,251Estate................................ Construction.......................... 374,178 367,889 325,736 Commercial............................ 1,614,090 1,578,891 1,457,381 Residential........................... 1,148,113 1,176,715 1,668,562 Consumer................................... 5,078,645 5,094,036 4,726,277 Lease financing................................ 786,028 646,058 594,175financing............................ 910,919 853,899 676,786 ----------- ----------- ----------- TOTAL LOANS............................... $13,457,831 $12,264,436 $11,871,412LOANS .......................... $13,369,308 $13,261,667 $12,817,663 =========== =========== ===========
- ------------------------------------------------------------ DEPOSIT COMPOSITION - ------------------------------------------------------------
- -------------------------------------------------------------------------------------------------- DEPOSIT COMPOSITION - -------------------------------------------------------------------------------------------------- (in thousands of dollars) SEPTEMBER 30,MARCH 31, DECEMBER 31, SEPTEMBER 30,MARCH 31, 1996 1995 1994 1994 ------------- ------------ -------------1995 ----------- ----------- ----------- Demand deposits Non-interest bearing ...................................... $ 1,989,6242,010,396 $ 2,169,0952,088,074 $ 2,062,8062,147,204 Interest bearing ......................... 2,686,800 2,646,785 2,632,437..................... 2,873,281 2,772,845 2,553,270 Savings deposits .............................. 2,118,333 2,227,406 2,308,881.......................... 2,486,925 2,207,378 2,134,725 Certificates of deposit of $100,000 or more.... 916,157 605,763 582,991more 990,825 909,403 725,822 Other domestic time deposits .................. 4,523,528 3,909,061 3,589,791.............. 4,447,207 4,384,949 4,356,152 Foreign time deposits ................ 310,058 406,957 425,340..................... 197,579 273,933 271,406 ----------- ----------- ----------- TOTAL DEPOSITS .................. $12,544,500 $11,965,067 $11,602,246....................... $13,006,213 $12,636,582 $12,188,579 =========== =========== ===========
87 98 - -------------------------------------------------------------------------------- FINANCIAL REVIEW - -------------------------------------------------------------------------------- ANALYSIS OF NON-INTEREST INCOME - --------------------------------------------------------------------------------
(in thousands of dollars) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30,MARCH 31, PERCENT SEPTEMBER 30, PERCENT1996 1995 1994 CHANGE 1995 1994 CHANGE - ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Service charges on deposit accounts.... $21,109 $19,628 7.55% $ 64,110 $ 57,419 11.65%accounts $22,461 $22,514 (0.24)% Mortgage banking ...................... 9,678 9,246 4.67 28,278 41,737 (32.25).................. 8,877 9,573 (7.27) Trust services ........................ 7,312 6,732 8.62 22,953 21,762 5.47.................... 8,793 8,055 9.16 Securities gains .................. 7,090 60 N.M. Credit card fees ...................... 5,939 5,846 1.59 16,305 15,126 7.79 Securities gains ...................... 2,315 648 N.M. 8,754 2,649 N.M................... 4,836 3,945 22.59 Investment product sales .............. 2,159 1,694 27.45 5,829 5,317 9.63.......... 3,239 1,699 90.64 Electronic banking fees ........... 1,666 954 74.63 Other ................................. 12,692 9,999 26.93 33,800 27,434 23.20............................. 11,200 11,087 1.02 ------- ------- -------- -------- TOTAL NON-INTEREST INCOME ............. $61,204 $53,793 13.78% $180,029 $171,444 5.01%......... $68,162 $57,887 17.75% ======= ======= ======== ========
- -------------------------------------------------------------------------------- ANALYSIS OF NON-INTEREST EXPENSE - --------------------------------------------------------------------------------
(in thousands of dollars) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30,MARCH 31, PERCENT SEPTEMBER 30, PERCENT1996 1995 1994 CHANGE 1995 1994 CHANGE - ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Salaries ........................................................ $ 54,39155,819 $ 57,740 (5.80)% $165,473 $172,354 (3.99)56,108 (0.52)% Commissions ........................... 3,074 3,547 (13.34) 6,694 9,252 (27.65)....................... 3,607 1,688 113.68 Employee benefits ..................... 13,958 13,388 4.26 45,038 45,067 (0.06)................. 17,216 15,661 9.93 Net occupancy ..................... 10,874 10,686 1.76 Equipment ......................... 10,039 10,593 (5.23) 30,804 30,329 1.57 Equipment ............................. 9,470 9,651 (1.88) 28,865 28,641 0.78 FDIC insurance ........................ 5,807 5,992 (3.09) 18,892 19,053 (0.85)9,614 9,802 (1.92) Credit card ....................... 3,572 3,118 14.56 Printing and supplies ................. 3,508 3,734 (6.05) 10,442 10,910 (4.29) Credit card ........................... 3,398 3,777 (10.03) 9,712 10,067 (3.53)............. 3,495 3,572 (2.16) Advertising ........................... 3,149 2,684 17.32 9,092 11,168 (18.59)....................... 2,865 3,031 (5.48) Legal and loan collection.............. 1,857 1,719 8.03 5,885 4,928 19.42collection.......... 1,894 2,123 (10.79) FDIC insurance .................... 519 6,536 (92.06) Other ................................. 30,199 38,531 (21.62) 96,060 108,221 (11.24) -------- --------............................. 34,021 32,316 5.28 -------- -------- TOTAL NON-INTEREST EXPENSE............. $138,850 $151,356 (8.26)% $426,957 $449,990 (5.12)EXPENSE......... $143,496 $144,641 (0.79)% ======== ======== ======== ========
N.M. - Not meaningful 9 8 10 2.9 Management's Discussion and Analysis - ------------------------------------ OVERVIEW Huntington reported net income of $65.9$62.8 million, or $.48$.47 per share, for the thirdfirst quarter of 19951996 compared with $55.9$54.9 million, or $.41$.39 per share, for the same period last year. For the first nine months of the year, net income was $179.0 million, or $1.29Though Huntington anticipates earnings per share versus $190.1 million, or $1.40 per share,for all of 1996 to exceed the previous year, the 20.5% increase in the first nine months of 1994. Huntington achieved returns on average assets (ROA) of 1.34% and 1.27% in the third quarter and first nine months, respectively, of 1995 and returns on average equity (ROE) of 17.03% and 15.75% in these same periods. ROA was 1.35% and 1.53% and ROE was 15.77% and 18.14%is higher than what is expected for the comparable periodsentire year due to net income in 1994. The increase in earnings for the recent quarter compared with the same three months of last year is principally the result of Huntington's strong loan growth and effective management of non-interest expenses. This improvement follows the downturn in earnings experienced by Huntington during the second half of 19941995 being much stronger than last year's first six months. Returns on average assets and representsaverage equity were 1.26% and 16.02%, respectively, in the third consecutivemost recent quarter versus 1.23% and 15.08% in the first three months of increased net income. Huntington also continues to benefit from its exceptional asset quality and solid capital position.1995. Total assets were $20.2$20.1 billion at September 30, 1995,March 31, 1996, relatively flat with year end but up 13.5% from December 31, 1994, and 18.7%9.3% from one year ago. Average total loans grew to $13.2 billion forIn terms of asset composition, the third quarter of the year, compared with $11.7 billion for the same period last year. Securities available for sale were $4.3 billion at the most recent quarter end versus $2.7 billion at September 30, 1994. This increasebalance sheet reflects a large decrease in temporary investments from December 31, 1995, that was substantially offset by increases in securities and loans arising from the acquisition of Peoples Bank of Lakeland, Florida (Lakeland) in January 1996. The growth in investments from the first quarter of 1995 was the result of programs directed by Huntington's Asset/Liability Management Committee (ALCO) in the second half of last year to neutralize the interest rate risk exposure arising from customer-driven business sectors. Huntington also experienced solid loan growth over the past twelve months. Excluding the effects of $340 million of principally fixed-rate residential mortgage loans that were sold in the recent two quarters, average total loans increased 8.2%. Total deposits at September 30,grew 2.9% from year-end 1995, of $12.5 billion were higher than both December 31 and September 30, 1994, principallyin large part because of bank acquisitions consummated during 1995the Lakeland acquisition, and an increase in6.7% from the same time deposits of $100,000 or more. The mix of deposits has also changed, as retail customers have shifted their investment preferences, opting for the higher yields available through certificates of deposit.one year ago. Huntington's short-term and long-term borrowings are up from a year ago, largelydecreased during the quarter just ended as a result of the reduced temporary 9 10 investments referred to above. Borrowings have increased purchasesfrom the end of term federal funds and additionalthe first quarter of last year because of bank notes issued by its lead subsidiary,Huntington and other funds obtained in the wholesale market to support the higher asset base. Huntington issued 4.7 million common shares and paid cash of $46.2 million in exchange for all of Lakeland's common shares outstanding. As the business combination was recorded under the purchase method of accounting, the results of Lakeland have been included in the consolidated financial statements from the date of acquisition. The Huntington National Bank.$551 million of assets arising from the Lakeland transaction brings Huntington's total assets in Central and West Coast Florida to $1.2 billion. Shareholders' equity was $1.5 billion atflat with both December 31 and March 31, 1995. Huntington continues to maintain an appropriate balance between capital adequacy and returns to shareholders. A primary tool used by management in this regard has been the common stock repurchase program. At the most recent quarter end.quarter-end, Huntington's regulatory capital ratios, including those of its bank subsidiaries, show continued strength and exceedexceeded the levels established for well-capitalized institutions. 10 11(See "Capital" section for further information). RESULTS OF OPERATIONS NET INTEREST INCOME For the quarter ended September 30, 1995, Huntington reported net interest income of $186.6$184.7 million for the three months ended March 31, 1996, up from $176.2 million in the same period of 1995. The increase was principally attributable to growth in earning assets of 10.2%. The net interest margin was 4.03% during the recent quarter, 5 basis points higher than the immediately preceding quarter but 23 basis points less than the first three months of 1995. The lower margin from one year ago was 10 11 the result of increased deposit rates (partially offset by reduced wholesale funding rates), a reduced yield on the investment securities portfolio, and a change in the mix of earning assets. For the quarter just ended, interest rate swaps and other off-balance sheet financial instruments used for asset/liability management purposes reduced interest income by $9.1 million and increased interest expense by $6.0 million. These products decreased interest income by $4.5 million and increased interest expense by $7.0 million in the same period one year ago. Included in the preceding amounts is amortization of deferred gains and losses from terminated contracts, that decreased net interest income by $10.2 million in 1996 and $3.9 million in 1995. Expressed in terms of the margin, the effect of the off-balance sheet portfolio was a reduction of 33 basis points and 28 basis points for the respective quarters ended March 31, of which 21 basis points and 10 basis points related to amortization of net losses from closed positions. A swap strategy used by Huntington to create synthetic fixed rate wholesale liabilities, while lowering funding costs from what would have resulted from a comparable cash instrument, resulted in the majority of the remaining margin reduction attributable to the off-balance sheet portfolio. NON-INTEREST INCOME Non-interest income, excluding securities transactions, was $61.1 million for the first three months of 1996 compared with $183.6$57.8 million during the same period one year ago. The 5.7% increase was driven by higher fee income from retail investment sales, credit cards, trust, and electronic banking services. Mortgage banking income was $8.9 million in the first quarter of 1996 versus $9.6 million for the quarter ended March 31, 1995. Net servicing fees were down $1.2 million due to a reduction in the average volume of loans serviced for others by Huntington as a result of large servicing sales that occurred in 1995. The decrease in servicing income was partially offset by 11 12 more origination fees, as mortgage loan production increased from $163 million in the first three months of 1995 to $355 million in the quarter just ended. Gains from servicing sales were $4.2 million lower quarter-to-quarter, as Huntington sold no servicing rights in 1996, compared with $350 million sold in the same period last year. Net interestSubstantially mitigating the effect of the reduced gains from servicing sales were gains from the sale of certain portfolio loans and the positive impact of a new accounting standard adopted by Huntington in third quarter 1995 related to the capitalization of mortgage servicing rights. At the recent quarter end, the mortgage loan servicing portfolio (including loans serviced by Huntington on its own behalf) totaled $5.7 billion. Huntington realized income was $542.7from securities transactions of $7.1 million in the recent quarter. These gains resulted principally from collateralized mortgage obligations and mortgage backed securities that were sold to reduce price and/or prepayment risk. NON-INTEREST EXPENSE Non-interest expense in the first ninethree months of 1996 was $143.5 million, a slight decline from $144.6 million one year ago. Most major categories of non-interest expense were flat to down with FDIC insurance showing the biggest decrease, as Huntington benefited from the reduction in assessment rates on bank deposits that occurred in the latter part of 1995. This was largely offset by higher commissions and increased personnel costs related to corporate-sponsored retirement and benefit programs, as well as certain other costs following the Lakeland acquisition. Fringe benefit costs are typically higher early in the year versus $578.8 millionand trend downward in the corresponding period of 1994. The net interest margin, on a fully tax equivalent basis, was 4.18% and 4.21%, respectively, for the three and nine months ended September 30, 1995. For the same periods one year ago, the margin was 4.89% and 5.11%, respectively. Though spreads available in the marketplace remained narrow, net interest income was up quarter-to-quarter as loan growth and purchases of investment securities fueled a 19.0% increase in average earning assets. Huntington anticipates that the margin will continue to decline in the fourth quarter, primarily due to the larger securities portfolio, competitive pressure on loan pricing, and changes in deposit mix.subsequent quarters. 12 13 INTEREST RATE RISK MANAGEMENT INTEREST RATE RISK MANAGEMENT Huntington seeks to achieve consistent growth in net interest income and net income while managing volatility arising from shifts in interest rates. This is accomplished with the oversight of ALCO which is comprised of key members of executive management. ALCO establishesoversees risk management, establishing broad policies and specific operating limits that govern the managementa variety of risks inherent in Huntington's operations including interest rate, liquidity, price, and market risk as well as ensure maintenance of adequate liquidity. Both on-risks. On and off-balance sheet strategies and tactical programs are regularly reviewed and monitored regularly by ALCO to confirm theirensure consistency with approved risk tolerances. Interest rate risk management is a dynamic process, encompassing both the business flows onto the balance sheet objectives and their appropriateness in light ofthe changing market and business conditions. Active and effectiveenvironment. Effective management of interest rate risk requires the use of a variety ofbegins with appropriately diversified financial instruments and funding sources. On-balanceTo accomplish its overall balance sheet investmentobjectives, Huntington regularly uses a multiple of markets: money market, bond market, and funding vehicles, along with off-balance sheetfutures and options market. In addition, dealers in over-the-counter financial instruments such asprovide availability of interest rate swaps interest rate caps/floors,as needed. Measurement and financial futures represent the primary means by which Huntington responds to the balance sheet mismatches created by customer loan and deposit preferences and to changing market conditions. Huntington monitors itsmonitoring of interest rate risk exposure by measuringis an ongoing process. A key element in this process is Huntington's estimation of the amount that net interest income will change over a twelve to twenty-four month period given a directional shift in interest rates. Estimated netThe income simulation model used by Huntington captures all assets and liabilities and off-balance sheet financial instruments, accounting for significant variables which are believed to be affected by interest income-at-risk is determined using multiplerates. These include prepayment speeds on real estate mortgages and consumer installment credits, cash flow assumptions on other financial instruments, and changing balance 13 14 sheet volume assumptions. The model captures embedded options, e.g. interest rate caps and balance sheet scenarios to providefloors or call options, and accounts for changes in rate relationships as various rate indices lead and lag changes in short-term market rates. While these assumptions are inherently uncertain, management believes that the model provides an accurate indication of the company's interest rate risk exposure and is a rangemore relevant depiction of possible outcomes for evaluating its risk tolerance.interest rate risks than less sophisticated measures. Management reporting of this information is regularly shared with the Board of Directors. At September 30, 1995,March 31, 1996, the results of Huntington's internal interest sensitivity analysis indicated that net interest income would be relatively unchanged by a 100 basis points increase or decrease in the federal funds rate (assuming the change occurs evenly over the next year and that corresponding changes in other market rates occur as forecasted). A decrease ofNet interest income is expected to increase 1.5% if rates were to fall 200 basis points could reduce net interest income by approximately .9%. Underlying these estimates is the assumption that certain core deposits, which have not repriced upward during the last 300 basis 11 12 point increase in short-term rates, will not reprice downward in a falling rate environment.points. A 200 basis points increaserise in rates could result in a decreasedecline in net interest income of .2% to 1.6%2.7%. Huntington uses a range in measuring its "at-risk" position in a rising rate scenario because of varying assumptions regarding the volume and rate behaviors of certain loans and core deposits. Interest rate swaps are the principal off-balance sheet vehicles used by Huntington forActive interest rate risk management.management includes the use of various types of off-balance sheet financial instruments, primarily interest rate swaps. For example, risk created by different indices on assets and liabilities, by unequal terms to maturity of assets and liabilities, and by products that are appealing to customers but incompatible with current risk limits are but a few risks that can be eliminated or decreased in a cost efficient manner. The overall swap strategy has also enabled Huntington to lower the costs of raising wholesale liabilities and has allowed management to synthetically alter, or customize, the repricing characteristics of selected on-balance sheet financial instruments. "Asset conversion swaps" are used by Huntington to convert variable rate loans and other floating rate assets to fixed rate assets. Similarly, "liability conversion swaps" have been used to change the repricing characteristics of various on-balance sheet liabilities, primarily in connection with ALCO programs to lower the cost of raising wholesale liabilities. "Basis swaps" represent contracts in which both parties receive floating rates of interest according to different indices and are used to protect against changes in spreads. Financial futures and interest rate caps/floors, as well as forward delivery contracts purchased in connection with mortgage banking activities, are also integral to risk management. Thesefunds. Other off-balance sheet financial instruments used to control risk effectively include financial futures, interest rate caps and floors, options, and forward rate agreements. These instruments are used regularly in mortgage banking, securities investing, and wholesale funding. The use of these products versus similar cash instruments is often preferable to securities or other on-balance sheet alternatives because, though 14 15 they provide similar protection against interest rate movements,perform financially quite similarly, they may require less capital and preserve liquidity. Inaccess to the third quarter of 1995, interest rate swaps and other off-balance sheet financial instruments usedmarketplace for risk management purposes reduced interest income by $9.5 million and increased interest expense by $3.8 million. On a year-to-date basis, the decrease in interest income was $22.2 million and interest expense increased $16.8 million. For the same periods last year, these products increased interest income by $5.3 million and $27.5 million and increased (decreased) interest expense by $.8 million and ($12.9) million. Included in the preceding amounts is amortization of deferred gains and losses from terminated contracts, that decreased net interest income by $8.9 million for the most recent quarter and $18.6 million for the first nine months of 1995, and increased net interest income by $5.9 million and $19.2 million, respectively, in the three and nine months ended September 30, 1994. Expressed in terms of the net interest margin, the effect of the off-balance sheet portfolio was a reduction of 29 basis points and 30 basis points, respectively, for the third quarter and first nine months of 1995 versus an addition of 12 basis points and 35 basis points in the corresponding periods one year ago.future needs. The following table illustrates the approximate market values, estimated maturities and weighted average rates of the interest rate swaps used by Huntington in its interest rate risk management program. The valuation of interest rate swap contracts is largely a function of the financial market's expectations regarding the future direction of interest rates. Since year end, expectations regarding the future direction of interestAt March 31, 1996, forward rates have shifted, with the marketplace now anticipating flat to slightly lower short-term rates over the next several months versus the expectations which prevailedwere somewhat higher than those prevailing at the end of 1994 for significantly higher rates.recent year end. Consequently, the netinterest rate swap portfolio ended the first quarter with an unrealized loss of $29.6$9.5 million at the end of September 1995 was down considerably from $268.9versus a $10.9 million unrealized gain at December 31, 1994. The31. Current market values at the most recent quarter end are not necessarily indicative of the future impact of the swaps on net interest income. This will depend, 12 13 in large part, on the shape of the yield curve as well as interest rate levels. Management has made no assumptions with respect to future changes in interest rates forFor purposes of the variable rate information and the indexed amortizing swap maturities presented below.in the table below, management made no assumptions with respect to future changes in interest rates.
Average Average Rate Notional Maturity Market -------------------------- (dollars in millions) Value (years) Value Receive Pay - --------------------- -------- -------- ----------- ------- ----- ------- --- September 30, 1995: March 31, 1996: ASSET CONVERSION SWAPS Receive fixed $ 809 2.44 ($ 6.8) 5.59% 5.89%875 2.32 $ (3.5) 5.70% 5.39% Receive fixed-amortizing 395 2.49 ( 6.2) 5.58 5.8899 2.25 (1.1) 5.27 5.50 ------ ------------- TOTAL ASSET CONVERSION SWAPS $1,204 2.46 ($13.0) 5.59% 5.89%$ 974 2.31 $ (4.6) 5.65% 5.40% ====== ============= LIABILITY CONVERSION SWAPS Receive fixed $1,016 3.53$1,401 2.71 $ 15.1 6.28% 5.84%12.7 5.90% 5.40% Receive fixed-amortizing 283 2.73 ( 6.9) 5.39 5.83197 3.25 (4.6) 5.63 5.40 Pay fixed 2,258 .83 ( 21.2) 5.91 7.011,801 .46 (12.7) 5.48 7.15 ------ ------------- TOTAL LIABILITY CONVERSION SWAPS $3,557 1.75 ($13.0) 5.98% 6.58%$3,399 1.55 $ (4.6) 5.67% 6.33% ====== ============= BASIS PROTECTION SWAPS $ 700 1.33 ($ 3.6) 6.14% 6.02%250 2.95 $ (.3) 5.38% 5.58% ====== =============
15 16 The pay rates on Huntington's receive fixed swaps vary based on movements in the applicable London inter-bank offered rate (LIBOR). Receive fixed liability conversion swaps with a notional value of $150 million have embedded written LIBOR-based caps. Also, receive fixed liability conversion swaps with a notional value of $415 million and receive fixed asset conversion swaps with a notional value of $200 million have embedded written LIBOR-based call options. The portfolio of amortizing swaps consists of contracts with notional values that are indexed to the prepayment experience of a specified pool of mortgage loans LIBOR or Constant Maturity U.S. Treasury yields (CMT). As market interest rates change, the amortization of the notional values will also change, generally slowing as rates increase and accelerating when rates fall. Basis swaps are contracts which provide for both parties to receive floating rates of interest according to different indices. Allindices and are used to protect against changes in spreads. The receive and pay amounts applicable to Huntington's basis swaps are determined by LIBOR the prime rate, or other indices common to the banking industry. The basis swaps have embedded written periodic caps and, in some cases, purchased periodic floors. The notional values of the swap portfolio represent contractually determined amounts on which calculations of interest payments to be exchanged are based. These notional values do not represent direct credit exposures. At September 30, 1995,March 31, 1996, Huntington's credit risk from interest rate swaps used for asset/liability management purposes was $44.4$42.2 million, which is significantly less than the notional value of the contracts, and represents the sum of the aggregate fair value of positions that have become favorable to Huntington, including any accrued interest receivable due from counterparties. In order to minimize the risk that a swap counterparty will not satisfy its interest payment obligation under the terms of the contract, Huntington performs credit 13 14 reviews on all counterparties, restricts the number of counterparties used to a select group of high quality institutions, obtains collateral, and enters into formal netting arrangements. Huntington 16 17 has never experienced any past due amounts from a swap counterparty and does not anticipate non-performance in the future by any such counterparties. The following table summarizes activity in the interest rate swap portfolio used for asset/liability management purposes during the quarterfirst three months of 1996 and nine months ended September 30, 1995 and 1994:1995:
Asset Liability Basis Conversion Conversion Protection ------------------------------------------------------------------------- (in millions) Balance at June 30,December 31, 1995 $ 1,307 $3,3571,115 $ 7003,142 $ 250 Additions --- 465 ---175 500 -- Maturities/Amortization (78) (265) ---(13) (243) -- Terminations (25) --- ---(303) -- -- ------- ------ ------------- ------- Balance at September 30, 1995March 31, 1996 $ 1,204 $3,557974 $ 7003,399 $ 250 ======= ====== ====== Balance at June 30, 1994 $ 1,863 $1,851 $2,900 Additions 250 780 --- Maturities/Amortization (5) (40) (100) Terminations (200) --- (250) ------- ------ ------ Balance at September 30, 1994 $ 1,908 $2,591 $2,550 ======= ====== ============= Balance at December 31, 1994 $ 2,508 $3,332 $1,000$ 3,332 $ 1,000 Additions --- 1,040 ----- 525 -- Maturities/Amortization (109) (481)(31) (100) (300) Terminations (1,195) (334) ----- (34) -- ------- ------ ------------- ------- Balance at September 30,March 31, 1995 $ 1,204 $3,5572,477 $ 3,723 $ 700 ======= ====== ====== Balance at December 31, 1993 $ 2,281 $1,821 $2,800 Additions 463 995 350 Maturities/Amortization (236) (225) (100) Terminations (600) --- (500) ------- ------ ------ Balance at September 30, 1994 $ 1,908 $2,591 $2,550 ======= ====== =============
Terminations reflect the decisions made by ALCO to modify, refine, or change balance sheet management strategies, as a result of either a change in overall interest rate risk tolerances or changes in balance sheet composition. The terminations that occurred in the first three quarters of 1995 were associated with ALCO directed programs to realign Huntington's interest rate sensitivity posture in light of prevailing economic and market conditions and trends in the customer-driven balance sheet. At September 30, 1995,March 31, 1996, Huntington had deferred approximately 14 15 $45.3$27.8 million of net realized losses from terminated interest rate swaps, which are to be amortized as yield adjustments over the remaining term of the original contracts, as presented below. 17 18
Amortizing In ------------------------------------------------------------- 1995-------------------------------------- 1996 1997 1998 1999 Total ---- ---- ---- ---- ---- ----- (in millions) SEPTEMBER 30, 1995:MARCH 31, 1996: Deferred gains $ 4.5 $ 15.010.6 $ 8.3 $ 7.0 $5.7 $ 40.55.7 $ 31.6 Deferred losses (13.3) (51.4)(38.3) (19.4) (1.3) (.4) (85.8)(59.4) ------- ------- ------ ------ ------ ----- ---- ------------- Net (losses) gains $ (8.8) $(36.4) $(11.1)(27.7) $ (11.1) $ 5.7 $5.3 $(45.3)$ 5.3 $ (27.8) ======= ======= ====== ====== ====== ===== ==== =============
The total notional amount of off-balance sheet instruments used by Huntington on behalf of customers (for which the related interest rate risk is offset by third party contracts) was $454$452 million at September 30, 1995.March 31, 1996. Total credit exposure from such contracts, represented by those instruments with a positive fair value, was $1.7$1.3 million at the most recent quarter end. These separate activities, which are accounted for at fair value, are not a significant part of Huntington's operations. Accordingly, they have been excluded from the above discussion of off-balance sheet financial instruments and the related tables. NON-INTEREST INCOME Non-interest income, exclusive of securities transactions, for the third quarter and first nine months of 1995 was $58.9 million and $171.3 million, compared with $53.1 million and $168.8 million for the corresponding periods one year ago. The quarter-to-quarter increase was driven by improvements in all major categories. Huntington's non-interest income also showed broad-based growth on a year-to-date basis, as increased service charges on deposits, credit card fees, trust revenues, and other income more than offset a 32.3% decline in mortgage banking income (see following table for an analysis of mortgage banking income). Other non-interest income was up during the respective periods principally as a result of increased trading account profits and higher income from certain fee based initiatives. During the first nine months of 1995, Huntington realized net gains from securities transactions of $8.8 million. The majority of these gains resulted from the sale of callable agency securities, the proceeds from which were reinvested into securities of moderately longer duration. 15 16 The major components of mortgage banking income were as follows:
Third Quarter Nine Months ------------------- -------------------- 1995 1994 1995 1994 ------ ------- ------- ------- (in thousands) Net servicing fees $3,334 $ 5,576 $11,720 $16,913 Fee income 1,363 2,393 3,611 11,849 Gain on sale of servicing rights --- 2,981 5,295 10,745 Other income (expense) 4,981 (1,704) 7,652 2,230 ------ ------- ------- ------- $9,678 $ 9,246 $28,278 $41,737 ====== ======= ======= =======
Net servicing fees in the third quarter and first nine months of 1995 were considerably less than the amounts reported in the corresponding periods of last year, principally because of sales of servicing rights. A summary of the servicing portfolio follows:
As of September 30, 1995 1994 ---- ---- (in thousands of dollars) Loan principal $5,169,294 $6,627,351 Weighted average: Coupon rate 8.11% 8.15% Contractual maturity 20 yrs. 21 yrs.
The decrease in fee income reflected in the above table is the result of a significant drop in mortgage loan production, as the decline in origination volumes that began in 1994 (and was much more pronounced in the second half of the year) continued into 1995. During the most recent quarter, Huntington sold no servicing rights, compared with sales in the same period of 1994 of $700 million. For the nine months ended September 30, 1995, $421 million of servicing rights were sold, versus $1.9 billion in the first three quarters of last year. Other mortgage banking income is up largely because of the adoption of Financial Accounting Standards Board Statement No. 122, "Accounting for Mortgage Servicing Rights" (FAS 122) in the third quarter of 1995. FAS 122, an amendment of Statement 65, requires the recognition of rights to service loans for others as separate assets, however those servicing rights are acquired. FAS 122 also requires that a mortgage banking enterprise assess its capitalized servicing rights for impairment based on the fair value of those rights, using a disaggregated approach for mortgage servicing rights that are capitalized after adoption of the new standard. The increased income from FAS 122 implementation relates primarily to 1995 sales of retail loan production for which the retained servicing rights were capitalized. Other mortgage banking 16 17 income in the third quarter of 1994 was adversely affected by the lower of cost or market value adjustment with respect to mortgages held for sale. NON-INTEREST EXPENSE Non-interest expense in the third quarter of 1995 was $138.9 million, down 8.3% from the same three months in 1994. This represents the fourth consecutive quarter that non-interest expense has been reduced. A decline in non-interest expense of 5.1% occurred from the first nine months of 1994 to the corresponding period this year. These decreases were a direct result of initiatives begun in 1994 to reduce operating costs by restructuring certain business activities, including the retail delivery system and the mortgage company. Moreover, these cost reductions were achieved despite the completion of three bank acquisitions during 1995 and were primarily attributable to reduced personnel costs. PROVISION FOR INCOME TAXES The provision for income taxes was $35.8 million in the most recent quarter, an increase of 23.6% from the same period one year ago. For the first nine months of the year, the provision for income taxes was $100.2 million versus $97.4 million in the corresponding period of 1994. The higher provision in 1995, when comparing the respective quarters, is largely the result of increased pre-tax earnings. The year-to-date provision for income taxes was significantly affected by a one-time charge of $2.1 million related to the May 1995 conversion of an existing thrift to a bank charter as well as various non-deductible expenses incurred in connection with bank acquisitions consummated over the past twelve months. ASSET QUALITY Huntington's exposure to credit risk is actively managed through the use of underwriting standards which emphasize "in-market" lending to established borrowers. Highly leveraged transactions and excessive industry or other concentrations are avoided. Huntington's managementThe credit administration function also employs extensive monitoring procedures to ensure that problem loans are promptly identified and that loans adhere to corporate policy. These procedures provide executive management with the adequacy of the allowance for loan losses (ALL), including timely reviews of specific credits, monthly analysis of delinquencies, assessment of current economic conditions,information necessary to implement appropriate change and other relevant factors. Huntington's assettake corrective action as needed. Asset quality remains among the best of the largest banking companies in the country.continues to be strong. Non-performing loans, which represent only .34%include loans that are no longer accruing interest and loans that have been renegotiated based upon financial difficulties of total loansthe borrower, totaled $63.1 million at the most recent quarter end were as follows: 17and represented .47% of 18 18
September 30, December 31, September 30, 1995 1994 1994 ----- ----- ----- (in millions) Commercial $21.8 $21.0 $26.0 Construction 3.1 4.6 6.2 Commercial real estate 10.5 10.1 18.5 Residential mortgage 10.6 8.7 3.0 Consumer .3 .1 .1 ----- ----- ----- Total $46.3 $44.5 $53.8 ===== ===== =====
Net charge-offs (annualized) as a percentage of average19 total loans. Huntington also has certain loans were .31%which are past due ninety days or more but have not been placed on nonaccrual status. These loans, which total $25.8 million at March 31, 1996, are primarily consumer and .24%, respectively,residential real estate loans that are considered well-secured and in the third quarter andprocess of collection or are being extended. Other real estate owned (ORE) totaled $20.3 million at the end of the first ninethree months of 1995, indicative of Huntington's continued high credit quality. For1996, down from $26.6 million at the same periods one year ago, these ratios were .26% and .22%. The ALL as a percentage of total loans was 1.48% as of September 30, 1995, compared with ratios of 1.63% at year-end 1994 and 1.73% one year ago. Huntington believes this decrease is appropriate, as the ratio of the ALL to non-performing loans remains strong at 429%. In addition to the improvements in credit quality referred to above, net other real estate (ORE) declined significantly during the past twelve months from $51.6 million to $23.7 million at September 30, 1995.time last year. Huntington's management continues to aggressively pursue the sale of its ORE to further reduce these non-performing assets. The allowance for loan losses (ALL) is maintained at a level considered appropriate by management based on its estimate of losses inherent in the loan portfolio. The procedures employed by Huntington in evaluating the adequacy of the ALL include an analysis of specific credits that are generally selected for review on the basis of size and relative risk, portfolio trends, current and historical loss experience, prevailing economic conditions, and other relevant factors. The provision for loan losses was $11.8 million in the first three months of 1996 versus $4.6 million in the same period one year ago. Annualized net charge-offs as a percent of average total loans were .34% for the quarter just ended, roughly flat with full year 1995. At the recent quarter end, the ALL represented 1.48% of total loans and covered 312.8% of non-performing loans; when combined with the allowance for other real estate, it was 225% of total non-performing assets. CAPITAL Huntington'sHuntington places significant emphasis on the maintenance of strong capital, position remains strong. Shareholders' equitywhich promotes investor confidence, provides access to the national markets under favorable terms, and enhances the ability to capitalize on business growth and acquisition opportunities. The company also recognizes the importance of managing excess capital and continually strives to maintain an 19 20 appropriate balance between capital adequacy and returns to shareholders. Capital is managed at each subsidiary based upon the most recent quarter end was approximately $1.5 billion, an increase of 5.9% from one year ago.respective risks and growth opportunities, as well as regulatory requirements. Average equity to average assets was 7.87%7.89% in the thirdfirst quarter of 1995 and 8.10% for the first nine months of the year, versus 8.54% and 8.42%1996, compared with 8.15% in the same periods in 1994. At September 30, 1995, the Tier 1 and total risk-basedperiod last year. Presented below are Huntington's regulatory capital ratios were 8.46% and 12.17%, respectively, and exceeded the corresponding minimumrelated levels to be considered "well capitalized" of 6% and 10%, respectively. Huntington's Tier 1 leverage ratio of 6.96% also exceeded the minimum regulatory requirement of 5%.established for "well-capitalized" institutions:
March 31, 1996 "Well Capitalized" -------------- ------------------ Tier 1 risk-based capital 7.94% 6.00% Total risk-based capital 11.53 10.00 Leverage 6.62 5.00
On April 27, 1995,February 21, 1996, the Board of Directors authorized Huntington to repurchase up to 10.510 million additional shares of its common stock (as adjusted for the 5% stock dividend issued in July 1995).through open market purchases and privately negotiated transactions. The authorization represents a continuation of the common stock repurchase program begun in August 1987 Common Stock Repurchase Program and provides that the shares will be reserved for reissue in connection with Huntington's benefit plans as well as for other corporate purposes. Approximately 7.7The company acquired 5.2 million shares were acquired in the first three quarters of 1995quarter just ended at an aggregate cost of $159.4 million. Certain of these shares are to be used in the pending purchase business combination with Peoples Bank of Lakeland, Florida. As of September 30, 1995, approximately 5.8$124.3 million, leaving 8.7 million shares were available for repurchase. Huntington's management believes that the majority of the remaining authorized shares will be repurchased by the end of the first quarter 1996. 181997. 20 19 - -------------------------------------------------------------------------------- CONSOLIDATED FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------21
_____________________________________________________________________________________ CONSOLIDATED FINANCIAL HIGHLIGHTS - ----------------------------------------------------------------------------------------------- (in thousands of dollars, except per share amounts)
- -------------------------------------------- ----------- ----------- ----------------- THREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 1996 1995 1994 % CHANGE ----------- ----------- ----------------- NET INCOME................................ $65,937 $55,902 18.0%INCOME.................................. $62,825 $54,862 14.5 % PER COMMON SHARE AMOUNTS (1)............................ Net income........................... $ 0.48 $ 0.41 17.1income............................. $0.47 $0.39 20.5 Cash dividends declared.............. $ 0.20 $ 0.19declared................ $0.20 $0.19 5.3 AVERAGE SHARES OUTSTANDING (1)........... 137,182,768 136,107,853 0.8............. 135,054,096 140,192,042 (3.7) KEY RATIOS Return on: Average total assets................. 1.34% 1.35% (0.7)assets................... 1.26% 1.23% 2.4 Average shareholders' equity......... 17.03% 15.77% 8.0equity........... 16.02% 15.08% 6.2 Efficiency ratio.......................... 56.74% 63.44% (10.6)ratio............................ 58.24% 61.90% (5.9) Average equity/average assets............. 7.87% 8.54% (7.8) NET INTEREST MARGIN....................... 4.18% 4.89% (14.5)
assets............... 7.89% 8.15% (3.2) Net Interest Margin......................... 4.03% 4.26% (5.4) - -------------------------------------------------------------------------------------- ----------- ----------- -------- NINE MONTHS ENDED SEPTEMBER 30,--------- AT MARCH 31, 1996 1995 1994 % CHANGE ----------- ----------- -------- NET INCOME................................ $178,960 $190,097 (5.9)--------- Total Loans................................. $13,369,308 $12,817,663 4.3 % PER COMMON SHARE AMOUNTS (1)............. Net income........................... $ 1.29 $ 1.40 (7.9) Cash dividends declared.............. $ 0.58 $ 0.49 18.4 AVERAGE SHARES OUTSTANDING (1)........... 139,112,764 136,257,881 2.1 KEY RATIOS Return on: Average total assets................. 1.27% 1.53% (17.0) Average shareholders' equity......... 15.75% 18.14% (13.2) Efficiency ratio.......................... 59.63% 60.18% (0.9) Average equity/average assets............. 8.10% 8.42% (3.8) NET INTEREST MARGIN....................... 4.21% 5.11% (17.6)
- ------------------------------------------ ----------- ----------- -------- AT SEPTEMBER 30, 1995 1994 % CHANGE ----------- ----------- -------- Total Loans............................... $13,457,831 $11,871,412 13.4%Deposits.............................. $13,006,213 $12,188,579 6.7 Total Deposits............................ $12,544,500 $11,602,246 8.1 Total Assets.............................. $20,173,130 $16,989,918 18.7Assets................................ $20,137,982 $18,420,534 9.3 Shareholders' Equity...................... $ 1,482,799 $ 1,401,821 5.8Equity........................ $1,502,510 $1,509,629 (0.5) Period-End Shares Outstanding (1)......... 134,516,340 135,881,057 (1.0)........... 133,010,323 139,843,779 (4.9) Shareholders' Equity Per Common Share (1). $ 11.02 $ 10.32 6.8... $11.30 $10.80 4.6 Total Risk-Adjusted Assets................ $16,116,690 $13,682,649 17.8Assets.................. $16,618,923 $14,895,301 11.6 Tier 1 Risk-Based Capital Ratio........... 8.46% 9.90% (14.5)Ratio............. 7.94% 9.58% (17.1) Total Risk-Based Capital Ratio............ 12.17% 14.06% (13.4)Ratio.............. 11.53% 13.51% (14.7) Tier 1 Leverage Ratio..................... 6.96% 8.15% (14.6)
Ratio....................... 6.62% 7.81% (15.2) (1) Adjusted for the five percent stock dividend distributed July 31, 1995. 19
21 20 - -------------------------------------------------------------------------------- FINANCIAL REVIEW - -------------------------------------------------------------------------------- Investment Securities - amortized cost & fair values by maturity at September 30, 1995 and December 31, 1994 - --------------------------------------------------------------------------------22
__________________________________________________________________________________ FINANCIAL REVIEW - ------------------------------------------------------------------------------------------------------------ INVESTMENT SECURITIES - AMORTIZED COST & FAIR VALUES BY MATURITY AT MARCH 31, 1996 AND DECEMBER 31, 1995 - ---------------------------------------------------------------------------------------------------------- (in thousands of dollars) SEPTEMBER 30, 1995MARCH 31, 1996 December 31, 19941995 - ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- AMORTIZED COST FAIR VALUE Amortized Cost Fair Value - ---------------------------------------------------------------------------------------------------------------- U.S. Treasury 1-5 years.............................. $ 156 $ 156 $ 150 $ 150 -------- -------- -------- -------- Total...............................years...................... $156 $156 $156 $156 ------- ------- ------- ------- Total....................... 156 156 150 150 -------- -------- -------- -------- Federal agencies Mortgage-backed securities 1-5 years.............................. - - 371 344 6-10 years............................. 3,882 3,985 4,812 4,806 Over 10 years.......................... 2,652 2,737 3,130 3,133 -------- -------- -------- -------- Total............................... 6,534 6,722 8,313 8,283 -------- -------- -------- -------- Other agencies 1-5 years.............................. 243,376 242,902 101,774 99,446 6-10 years............................. 49,859 49,857 207,043 205,358 Over 10 years.......................... - - 433 350 -------- -------- -------- -------- Total............................... 293,235 292,759 309,250 305,154 -------- -------- -------- -------- Total U.S. Treasury and Federal agencies.... 299,925 299,637 317,713 313,587 -------- -------- -------- --------156 156 ------- ------- ------- ------- States and political subdivisions Under 1 year........................... 42,173 42,679 56,361 57,080year................... 29,488 29,805 27,340 27,592 1-5 years.............................. 48,786 51,166 72,812 74,975years...................... 21,924 22,552 23,637 24,496 6-10 years............................. 15,624 16,175 18,433 18,059years..................... 18,619 18,789 12,638 13,040 Over 10 years.......................... 5,561 6,009 6,043 6,196 -------- -------- -------- -------- Total............................... 112,144 116,029 153,649 156,310 -------- -------- -------- -------- Other Under 1 year........................... 1,500 1,500 1,508 1,508 1-5 years.............................. 505 505 5 5 6-10 years............................. 879 819 1,504 1,424 Over 10 years.......................... 1,283 1,283 1,313 1,313 -------- -------- -------- -------- Total............................... 4,167 4,107 4,330 4,250 -------- -------- -------- --------years.................. 4,026 4,090 3,833 3,912 ------- ------- ------- ------- Total....................... 74,057 75,236 67,448 69,040 ------- ------- ------- ------- Total Investment Securities................. $416,236 $419,773 $475,692 $474,147 ======== ======== ======== ========Securities......... $74,213 $75,392 $67,604 $69,196 ======= ======= ======= =======
2022 21 - -------------------------------------------------------------------------------- FINANCIAL REVIEW - -------------------------------------------------------------------------------- Securities Available for Sale - amortized cost & fair values by maturity at September 30, 1995 and December 31, 1994 - --------------------------------------------------------------------------------23
_______________________________________________________________________________ FINANCIAL REVIEW - ----------------------------------------------------------------------------------------------------------------------- SECURITIES AVAILABLE FOR SALE - AMORTIZED COST & FAIR VALUES BY MATURITY AT MARCH 31, 1996 AND DECEMBER 31, 1995 - ----------------------------------------------------------------------------------------------------------------------- (in thousands of dollars) SEPTEMBER 30, 1995MARCH 31, 1996 December 31, 19941995 - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ AMORTIZED COST FAIR VALUE Amortized Cost Fair Value - -------------------------------------------------------------------------------------------------------------_______________________________________________________________________________________________________________________ U.S. Treasury Under 1 year.......................... $ 118,049 $ 118,921 $ 25,399 $ 25,320year......................... $178,980 $180,191 $176,502 $178,264 1-5 years............................. 368,259 366,915 662,106 643,100years............................ 525,996 517,515 228,234 231,018 6-10 years............................ 162,441 155,144 166,909 147,671years........................... 162,265 153,987 162,352 160,596 ---------- ---------- ---------- ---------- Total.............................. 648,749 640,980 854,414 816,091Total............................. 867,241 851,693 567,088 569,878 ---------- ---------- ---------- ---------- Federal agencies Mortgage-backed securities Under 1 year.......................... 726 737 - -year......................... 1,156 1,167 1,097 1,124 1-5 years............................. 135,589 138,926 17,727 16,922years............................ 81,432 84,440 110,192 114,723 6-10 years............................ 698,421 702,315 369,061 362,716years........................... 819,997 821,075 712,804 724,317 Over 10 years......................... 90,925 92,537 114,742 110,119years........................ 7,822 8,187 58,762 60,695 ---------- ---------- ---------- ---------- Total.............................. 925,661 934,515 501,530 489,757Total............................. 910,407 914,869 882,855 900,859 ---------- ---------- ---------- ---------- Other agencies Under 1 year.......................... 38,727 39,095 531,082 526,617year......................... 123,365 124,413 53,912 54,499 1-5 years............................. 1,640,855 1,653,243 506,740 499,748years............................ 1,819,936 1,821,039 1,928,431 1,953,446 6-10 years............................ 180,519 177,835 382,849 369,404years........................... 199,152 197,355 234,393 234,920 Over 10 years......................... 482,661 477,425 323,451 304,660years........................ 472,981 472,046 509,735 514,568 ---------- ---------- ---------- ---------- Total.............................. 2,342,762 2,347,598 1,744,122 1,700,429Total............................. 2,615,434 2,614,853 2,726,471 2,757,433 ---------- ---------- ---------- ---------- Total U.S. Treasury and Federal agencies... 3,917,172 3,923,093 3,100,066 3,006,277agencies.. 4,393,082 4,381,415 4,176,414 4,228,170 ---------- ---------- ---------- ---------- Other Under 1 year.......................... 1,711 1,717 - -year......................... 951 983 6,818 6,826 1-5 years............................. 685 688 95,410 94,887years............................ 20,471 21,450 22,352 23,578 6-10 years............................ 249,719 255,822 165,422 164,087years........................... 261,260 267,799 230,651 240,965 Over 10 years......................... 101,962 102,193 32,854 32,818years........................ 276,951 275,972 212,950 214,605 Marketable equity securities..........securities......... 8,359 7,0576,958 8,359 6,4247,000 ---------- ---------- ---------- ---------- Total.............................. 362,436 367,477 302,045 298,216Total............................. 567,992 573,162 481,130 492,974 ---------- ---------- ---------- ---------- Total Securities Available for Sale........ $4,279,608 $4,290,570 $3,402,111 $3,304,493Sale....... $4,961,074 $4,954,577 $4,657,544 $4,721,144 ========== ========== ========== ==========
2123 22 - -------------------------------------------------------------------------------- FINANCIAL REVIEW - -------------------------------------------------------------------------------- LOAN LOSS EXPERIENCE - --------------------------------------------------------------------------------24
________________________________________________________________________________ FINANCIAL REVIEW ____________________________________________________________________________________________________________________________ LOAN LOSS EXPERIENCE ____________________________________________________________________________________________________________________________ (in thousands of dollars) THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,1996 1995 1994 1995 1994 -------------------------------- -------------------------------------------------------------------------------------------------- IQ IVQ IIIQ IIQ IQ -------- ---------------------------------------------------- ALLOWANCE FOR LOAN LOSSES, BEGINNING OF PERIOD ........... $194,456 $198,573 $198,264 $212,479$201,088 $200,492 $211,835 Loan losses ................................................................................. (15,707) (21,500) (13,557) (12,613) (34,068) (31,520)(10,718) (9,793) Recoveries of loans previously charged off ................... 4,603 3,494 3,222 4,985 10,490 12,8533,312 3,956 Provision for loan losses ..................................................... 11,823 12,139 7,187 1,113 16,582 12,7964,787 4,608 Allowance of assets acquired ........................(sold)/other .......... 2,200 1,750 3,457 - 5,077 -(205) 1,825 -------- -------- ---------- -------- -------- Allowance for loan losses, end of period ............--------- ALLOWANCE FOR LOAN LOSSES, END OF PERIOD ........... $197,375 $194,456 $198,573 $205,964 $198,573 $205,964$198,264 $201,088 ======== ======== ========== ======== ================= AS A % OF AVERAGE TOTAL LOANS Net loan losses -- annualized ......................................... 0.34% 0.53% 0.31% 0.26% 0.24% 0.22%0.23% 0.19% Provision for loan losses -- annualized ..................... 0.36% 0.36% 0.22% 0.04% 0.17%0.15% 0.15% Allowance for loan losses as a % of total loans ......... 1.48% 1.73%1.47% 1.48% 1.73%1.51% 1.57% Net loan loss coverage (1) ................................................... 9.85x 6.19x 10.54x 11.27x 12.54x 16.08x
(1) Income before taxes and the provision for loan losses to net loan losses. - --------------------------------------------------------------------------------
13.15x 15.33x (1) Income before taxes and the provision for loan losses to net loan losses. ____________________________________________________________________________________________________________________________ NON-PERFORMING ASSETS AND PAST DUE LOANS (Quarter-End) 1996 1995 1994 ---------------------------------- ---------------------- (in thousands of dollars) III Q II Q I Q IV Q III Q -------------------------------------------------------------- ------------------------------------------------------------------- IQ IVQ IIIQ IIQ IQ -------- ---------------------------------------------------- Non-accrual loans ................................... $ 41,997 $ 41,554 $ 41,576 $ 41,929 $ 40,313.................................. $57,530 $50,669 $41,997 $41,554 $41,576 Renegotiated loans ................................................................... 5,578 4,299 4,313 13,424 11,568 2,550 13,547 -------- -------- ---------- -------- -------- ----------------- TOTAL NON-PERFORMING LOANS ................................................... 63,108 54,968 46,310 54,978 53,144 44,479 53,860 -------- -------- ---------- -------- -------- ----------------- Other real estate, net ........................................................... 20,386 22,026 23,668 24,029 26,558 51,909 51,558 -------- -------- ---------- -------- -------- ----------------- TOTAL NON-PERFORMING ASSETS ......................... $ 69,978 $ 79,007 $ 79,702 $ 96,388 $105,418........................ $83,494 $76,994 $69,978 $79,007 $79,702 ======== ======== ======== ======== ================== ========= ========= NON-PERFORMING LOANS AS A % OF TOTAL LOANS ................................................................... 0.47% 0.41% 0.34% 0.42% 0.41% 0.36% 0.45% NON-PERFORMING ASSETS AS A % OF TOTAL LOANS AND OTHER REAL ESTATE ....................... 0.62% 0.58% 0.52% 0.60% 0.62% 0.78% 0.88% ALLOWANCE FOR LOAN LOSSES AS A % OF NON-PERFORMING LOANS ........................................................... 312.76% 353.76% 428.79% 360.62% 378.38% 450.76% 382.41% ALLOWANCE FOR LOAN LOSSES AND OTHER REAL ESTATE AS A % OF NON-PERFORMING ASSETS ....................... 225.01% 238.65% 263.26% 234.30% 235.10% 193.13% 181.70% ACCRUING LOANS PAST DUE 90 DAYS OR MORE ............. $ 24,001 $ 20,685 $ 19,771 $ 20,877 $ 24,182............ $25,824 $27,018 $24,001 $20,685 $19,771 ======== ======== ================= ======== ========
2224 23 - --------------------------------------------------------------------------------25 _____________________________________________________________________________ CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA) - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------- Fully Tax Equivalent Basis (1) 3RD1ST QUARTER 1995 2ND1996 4TH QUARTER 1995 --------------------- -------------------- (in millions of dollars) ------------------ ------------------- AVERAGE YIELD/ AVERAGE YIELD/ BALANCE RATE BALANCE RATE --------------------- -------------------------------------- ------------------- ASSETS Interest bearing deposits in banks..................................... $ 2 5.73% $ 3 5.03%banks................................. $39 5.70 % $74 6.10 % Trading account securities............................................. 24 7.54 23 8.07securities......................................... 19 5.64 20 6.88 Federal funds sold and securities purchased ....................... 27 6.19 48 5.52 under resale agreements.... 22 7.49 70 6.70agreements Mortgages held for sale................................................ 174 7.73 109 7.52 Securities available for sale.......................................... 4,170 6.77 3,601 6.76 Investment securities.................................................. 421 7.92 439 7.74sale............................................ 127 7.18 129 6.78 Securities: Taxable....................................................... 4,835 6.55 4,550 6.74 Tax exempt.................................................... 106 9.09 110 10.04 -------- -------- Total Securities......................................... 4,941 6.60 4,660 6.82 -------- -------- Loans Commercial........................................................ 4,045 8.09 4,027 8.55 Tax-free.......................................................... 54 10.53 55 10.75Commercial.................................................... 4,212 7.76 4,178 7.91 Real Estate Construction................................................. 349 8.68 324 8.38 Mortgage..................................................... 3,058 8.59 3,100 8.20 Consumer.......................................................... 4,979 9.05 4,805 8.90Construction............................................. 364 8.52 369 8.54 Mortgage................................................. 2,760 8.48 3,011 8.56 Consumer...................................................... 5,079 8.99 5,099 8.97 Lease Financing.................................................. 747 7.53 690 7.43 ------- -------Financing.............................................. 880 7.90 826 7.93 -------- -------- Total Loans.................................................. 13,232 8.56 13,001 8.54Loans.............................................. 13,295 8.41 13,483 8.53 Allowance for loan losses....................................losses................................ 198 201 ------- -------198 -------- -------- Net loans.................................................... 13,034 9.04 12,800 9.00 ------- -------loans................................................ 13,097 8.87 13,285 8.93 -------- -------- Total earning assets......................................... 18,045 8.37% 17,246 8.38% ------- -------assets..................................... 18,448 8.14 % 18,414 8.26 % -------- -------- Cash and due from banks................................................ 783 796banks............................................ 746 766 All other assets....................................................... 876 838 ------- -------assets................................................... 988 895 -------- -------- TOTAL ASSETS........................................................... $19,506 $18,679 ======= =======ASSETS....................................................... $19,984 $19,877 -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Demand deposits Non-interest bearing.......................................... $2,391 $2,241 Interest bearing.............................................. $ 2,194 $ 2,159 Interest bearing.................................................. 2,488 2.45% 2,533 2.45%2,506 2.53 % 2,514 2.48 % Savings deposits....................................................... 2,020 2.76 2,013 2.68deposits................................................... 2,249 3.03 2,084 2.93 Certificates of deposit of $100,000 or more............................ 878 5.78 770 5.84more........................ 977 5.52 926 5.68 Other domestic time deposits........................................... 4,467deposits....................................... 4,458 5.69 4,447 5.544,458 5.76 Foreign time deposits.................................................. 318 6.32 264 6.57 -------deposits.............................................. 268 6.15 189 6.50 -------- ------- Total deposits.................................................... 12,365 3.57 12,186 3.49 ------- -------deposits................................................ 12,849 4.36 12,412 4.38 -------- -------- Short-term borrowings.................................................. 3,786 5.96 3,348 6.13borrowings.............................................. 3,078 5.72 3,682 5.91 Long-term debt......................................................... 1,403 6.36 1,208 7.23 ------- -------debt..................................................... 2,016 6.20 1,850 6.76 -------- -------- Interest bearing liabilities...................................... 15,360 4.92% 14,583 4.93% ------- -------liabilities.................................. 15,552 4.87 % 15,703 5.02 % -------- -------- All other liabilities.................................................. 416 390liabilities.............................................. 464 447 Shareholders' equity................................................... 1,536 1,547 ------- -------equity............................................... 1,577 1,486 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $19,506 $18,679 ======= =======$19,984 $19,877 ======== ======== Net interest rate spread............................................... 3.45% 3.45%spread........................................... 3.27 % 3.24 % Impact of non-interest bearing funds on margin......................... 0.73% 0.76%margin..................... 0.76 % 0.74 % NET INTEREST MARGIN.................................................... 4.18% 4.21%
MARGIN................................................ 4.03 % 3.98 % (1) Fully tax equivalent yields are calculated assuming a 35% tax rate. 23 25 24 - --------------------------------------------------------------------------------26 CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA) - --------------------------------------------------------------------------------
__________________________________________________________________________________________________________________________________ Fully Tax Equivalent Basis (1) 3RD QUARTER 1995 2ND QUARTER 1995 1ST QUARTER 1995 4TH QUARTER 1994 3RD QUARTER 1994 ---------------- ---------------- ---------------- (in millions of dollars) ----------------- ----------------- ------------------- AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/ BALANCE RATE BALANCE RATE BALANCE RATE ---------------- ---------------- --------------------------------- ----------------- ------------------- ASSETSAssets Interest bearing deposits in banks..................................... $ 3 4.50% $ 2 8.80% $ 3 7.46%banks............................ $2 5.73 % $3 5.03 % $3 4.50 % Trading account securities.............................................securities.................................... 24 7.54 23 8.07 27 6.68 15 6.21 17 6.61 Federal funds sold and securities purchased under resale agreements....agreement........................................... 22 7.49 70 6.70 45 6.56 115 4.91 188 4.48 Mortgages held for sale................................................sale....................................... 174 7.73 109 7.52 106 8.42 135Securities: Taxable.................................................. 4,473 6.76 3,913 6.75 214 7.74 Securities available for sale.......................................... 3,501 6.58 2,977 6.33 2,553 5.98 Investment securities.................................................. 458 8.09 475 8.09 498 8.09 Loans Commercial........................................................ 3,776 8.65 3,562 8.75 3,511 8.47 Tax-free.......................................................... 56 10.77 593,819 6.63 Tax exempt............................................... 118 10.55 127 10.29 140 10.28 62 9.87 Real Estate Construction................................................. 315 8.57 302 7.82 275 8.02 Mortgage..................................................... 3,111 8.09 2,905 8.06 2,822 8.04 Consumer.......................................................... 4,678 8.58 4,578 8.24 4,440 8.12 Lease Financing.................................................. 660 7.24 620 7.24 574 7.26 ------- ------- ------- Total Loans..................................................Securities.................................... 4,591 6.86 4,040 6.86 3,959 6.75 ------- ------- ------- Loans Commercial............................................... 4,099 8.13 4,082 8.58 3,832 8.68 Real Estate Construction........................................ 349 8.68 324 8.38 315 8.57 Mortgage............................................ 3,058 8.59 3,100 8.20 3,111 8.09 Consumer................................................. 4,979 9.05 4,805 8.90 4,678 8.58 Lease Financing......................................... 747 7.53 690 7.43 660 7.24 ------- ------- ------- Total Loans......................................... 13,232 8.56 13,001 8.54 12,596 8.42 12,026 8.29 11,684 8.17 Allowance for loan losses....................................losses........................... 198 201 203 205 212 ------- ------- ------- Net loans....................................................loans........................................... 13,034 9.04 12,800 9.00 12,393 8.87 11,821 8.60 11,472 8.48 ------- ------- ------- Total earning assets.........................................assets................................ 18,045 8.37 % 17,246 8.38 % 16,736 8.26% 15,745 8.11% 15,158 7.98%8.26 % ------- ------- ------- Cash and due from banks................................................banks....................................... 783 796 774 770 737 All other assets.......................................................assets.............................................. 876 838 798 759 781 ------- ------- ------- TOTAL ASSETS...........................................................Total Assets.................................................. $19,506 $18,679 $18,105 $17,069 $16,465 ======= ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITYLiabilities and Shareholders' Equity Demand deposits Non-interest bearing.............................................. $ 2,119 $ 2,127 $ 2,061bearing..................................... $2,194 $2,159 $2,119 Interest bearing..................................................bearing......................................... 2,488 2.45 % 2,533 2.45 % 2,622 2.42% 2,652 2.30% 2,695 2.21%2.42 % Savings deposits.......................................................deposits.............................................. 2,020 2.76 2,013 2.68 2,097 2.62 2,171 2.43 2,264 2.23 Certificates of deposit of $100,000 or more............................more................... 878 5.78 770 5.84 671 5.59 581 4.88 589 4.38 Other domestic time deposits...........................................deposits.................................. 4,467 5.69 4,447 5.54 4,156 5.14 3,678 4.62 3,553 4.23 Foreign time deposits..................................................deposits......................................... 318 6.32 264 6.57 274 6.31 296 5.41 199 4.66 ------- ------- ------- Total deposits....................................................deposits........................................... 12,365 4.34 12,186 4.24 11,939 3.24 11,505 3.50 11,359 3.183.94 ------- ------- ------- Short-term borrowings..................................................borrowings......................................... 3,786 5.96 3,348 6.13 3,137 5.99 2,797 5.06 2,519 4.30 Long-term debt.........................................................debt................................................ 1,403 6.36 1,208 7.23 1,246 7.44 1,138 8.19 938 6.99 ------- ------- ------- Interest bearing liabilities......................................liabilities............................. 15,360 4.92 % 14,583 4.93 % 14,203 4.71% 13,313 4.23% 12,756 3.68%4.71 % ------- ------- ------- All other liabilities..................................................liabilities......................................... 416 390 308 220 242 Shareholders' equity...................................................equity.......................................... 1,536 1,547 1,475 1,409 1,406 ------- ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITYTotal Liabilities and Shareholders' Equity $19,506 $18,679 $18,105 $17,069 $16,465 ======= ======= ======= Net interest rate spread............................................... 3.55% 3.88% 4.30%spread...................................... 3.45 % 3.45 % 3.55 % Impact of non-interest bearing funds on margin......................... 0.71% 0.66% 0.59% NET INTEREST MARGIN.................................................... 4.26% 4.54% 4.89%
margin................ 0.73 % 0.76 % 0.71 % Net Interest Margin........................................... 4.18 % 4.21 % 4.26 % (1) Fully tax equivalent yields are calculated assuming a 35% tax rate. 24 26 25 - --------------------------------------------------------------------------------27 _______________________________________________ SELECTED QUARTERLY INCOME STATEMENT DATA
_________________________________________________________________________________________________________ 1996 1995 1994 ---------------------------------- ------------------------- ------------------------------------------ (in thousands of dollars, except per share amounts) IQ IVQ IIIQ IIQ IQ IVQ IIIQ - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- TOTAL INTEREST INCOME........................INCOME.................... $374,296 $381,437 $377,859 $360,203 $342,397 $318,875 $301,724 TOTAL INTEREST EXPENSE.......................EXPENSE................... 189,578 199,551 191,281 180,313 166,188 141,625 118,173 -------- -------- -------- -------- -------- Net Interest Income..........................NET INTEREST INCOME...................... 184,718 181,886 186,578 179,890 176,209 177,250 183,551 Provision for loan losses....................losses................ 11,823 12,139 7,187 4,787 4,608 2,488 1,113 -------- -------- -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES..................LOSSES.............. 172,895 169,747 179,391 175,103 171,601 174,762 182,438 -------- -------- -------- -------- -------- Service charges on deposit accounts .........accounts...... 22,461 21,008 21,109 20,487 22,514 19,417 19,628 Mortgage banking ............................ 9,678 7,959 10,641 8,630 9,246........................ 8,877 9,752 8,274 6,613 9,573 Trust services ........................................................ 8,793 7,424 7,312 7,586 8,055 6,686 6,732Securities gains ........................ 7,090 302 2,315 6,379 60 Credit card fees ............................ 5,939 5,467 4,899 5,873 5,846 Securities gains (losses).................... 2,315 6,379 60 (55) 648........................ 4,836 5,450 4,669 4,399 3,945 Investment product sales .................................... 3,239 2,292 2,159 1,971 1,699 1,307 1,694Electronic banking fees ................. 1,666 1,740 1,270 1,068 954 Other .......................................................................... 11,200 18,830 12,692 10,021 11,087 9,012 9,999 -------- -------- -------- -------- -------- TOTAL NON-INTEREST INCOME ................... 61,204 59,870 58,955 50,870 53,793............... 68,162 66,798 59,800 58,524 57,887 -------- -------- -------- -------- -------- Salaries .................................................................... 55,819 54,695 54,391 54,974 56,108 54,314 57,740 Commissions .............................................................. 3,607 3,149 3,074 1,932 1,688 1,523 3,547 Employee benefits .................................................. 17,216 12,752 13,958 15,419 15,661 13,091 13,388 Net occupancy .......................................................... 10,874 10,459 10,039 10,079 10,686 9,962 10,593 Equipment .................................................................. 9,614 9,406 9,470 9,593 9,802 10,151 9,651 FDIC insurance .............................. 5,807 6,549 6,536 6,218 5,992Credit card ............................. 3,572 3,695 3,398 3,196 3,118 Printing and supplies .......................................... 3,495 3,705 3,508 3,362 3,572 3,911 3,734 Credit card ................................. 3,398 3,196 3,118 3,426 3,777 Advertising .............................................................. 2,865 2,179 3,149 2,912 3,031 4,152 2,684 Legal and loan collection .................................. 1,894 2,758 1,857 1,905 2,123 3,370 1,719FDIC insurance .......................... 519 1,820 151 6,549 6,536 Other ....................................... 30,199 32,477 33,384 36,498 38,531................................... 34,021 32,646 34,451 31,131 32,316 -------- -------- -------- -------- -------- TOTAL NON-INTEREST EXPENSE .................. 138,850 142,398 145,709 146,616 151,356.............. 143,496 137,264 137,446 141,052 144,641 -------- -------- -------- -------- -------- INCOME BEFORE INCOME TAXES ................................ 97,561 99,281 101,745 92,575 84,847 79,016 84,875 Provision for income taxes ................................ 34,736 33,752 35,808 34,414 29,985 26,520 28,973 -------- -------- -------- -------- -------- NET INCOME .................................. $ 65,937 $ 58,161 $ 54,862 $ 52,496 $ 55,902.............................. $62,825 $65,529 $65,937 $58,161 $54,862 ======== ======== ======== ======== ======== PER COMMON SHARE (1) Net income ................................ $ 0.48 $ 0.42 $ 0.39 $ 0.39 $ 0.41............................ $0.47 $0.49 $0.48 $0.42 $0.39 Cash dividends declared ................... $ 0.20 $ 0.19 $ 0.19 $ 0.19 $ 0.19............... $0.20 $0.20 $0.20 $0.19 $0.19 FULLY TAX EQUIVALENT MARGIN: Net Interest Income .............................................. $184,718 $181,886 $186,578 $179,890 $176,209 $177,250 $183,551 Tax Equivalent Adjustment (2) .......................... 1,368 1,523 1,635 1,723 1,885 2,042 2,211 -------- -------- -------- -------- -------- Tax Equivalent Net Interest Income ..........$186,086 $183,409 $188,213 $181,613 $178,094 $179,292 $185,762======== ======== ======== ======== ======== ========
(1) Adjusted for the five percent stock dividend distributed July 31, 1995. (2) Calculated assuming a 35% tax rate. 25 27 2628 PART II. OTHER INFORMATION In accordance with the instructions to Part II, the other specified items in this part have been omitted because they are not applicable or the information has been previously reported. Item 6. Exhibits6.Exhibits and Reports on Form 8-K (a) Exhibits 3. ( i )( a ) Articles of Restatement of Charter, Articles of Amendment to Articles of Restatement of Charter, and Articles Supplementary -- previously filed as Exhibit 3(i) to Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated herein by reference. ( i )( b ) Articles of Amendment to Articles of Restatement of Charter, filed with the State Department of Assessments and Taxation of the State of Maryland on May 3, 1996. ( ii ) By LawsBylaws -- previously filed as Exhibit 3(b) to Annual Report on Form 10-K for the year ended December 31, 1987, and incorporated herein by reference. 4. Instruments defining the Rights of Security Holders: Reference is made to Articles Fifth, Eighth and Tenth of Articles of Restatement of Charter, previously filed as Exhibit 3(i) to Form 10-K for the year ended December 31, 1993, and incorporated herein by reference. Also, reference is made to Rights Plan, dated February 22, 1990, previously filed as Exhibit 1 to Registration Statement on Form 8-A, and incorporated herein by reference and to Amendment No. 1 to the Rights Agreement, dated as of August 16, 1995, previously filed as Exhibit 4(b) to Form 8-K filed with the Securities and Exchange Commission on August 28, 1995, and incorporated herein by reference. Instruments defining the rights of holders of long-term debt will be furnished to the Securities and Exchange Commission upon request. 11. Computation of Earnings Per Share 27. Financial Data Schedule (b) Reports on Form 8-K 1. A report on Form 8-K, dated July 12, 1995,January 10, 1996, was filed under report item numbers 5 and 7, concerning Huntington's results of operations for the fourth quarter and year ended June 30,December 31, 1995. A second report on Form 8-K , dated August 16, 1995, was filed under report item numbers 5 and 7, concerning Amendment No. 1 to the Rights Agreement between Huntington and the Huntington Trust Company, N.A., as Rights Agent. 2628 2729 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Huntington Bancshares Incorporated ---------------------------------- (Registrant) Date: November 14, 1995May 15, 1996 /s/ Ralph K. Frasier ------------------------------------------------------- Ralph K. Frasier General Counsel and Secretary Date: November 14, 1995May 15, 1996 /s/ John D. Van Fleet -------------------------------------------------------- John D. Van Fleet Senior Vice President, Corporate Controller, and Principal Accounting Officer (Chief Accounting Officer) 2729