1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,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, 1997MARCH 31, 1998
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 191,241,481192,332,918 shares of Registrant's without par value common stock
outstanding on October 31, 1997.April 30, 1998.
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PART I. FINANCIAL INFORMATION
1. FINANCIAL STATEMENTS (UNAUDITED)
- -----------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) SEPTEMBER 30, DECEMBERMarch 31, SEPTEMBER 30,December 31, March 31,
1998 1997 1996 1996
--------------1997
--------------- -------------- --------------
ASSETS
Cash and due from banks ...................................banks............................................ $ 1,032,2221,023,138 $ 1,071,3611,142,450 $ 1,025,829976,777
Interest bearing deposits in banks ........................ 7,580 3,418 3,002banks................................. 2,378 39,618 1,761
Trading account securities ................................ 54,297 1,873 11,444securities......................................... 19,489 7,082 2,856
Federal funds sold and securities
purchased under resale agreements .................... 309,882 21,066 24,668agreements............................. 8,573 509,119 12,618
Mortgages held for sale ................................... 145,584 121,422 116,793sale............................................ 314,034 192,948 112,364
Securities available for sale - at fair value ............. 5,435,715 5,209,393 5,222,930value...................... 6,345,104 5,709,814 5,631,819
Investment securities - fair value $35,078; $354,702;$31,912; $33,383;
and $376,473, respectively ........................... 34,514 345,135 367,308$60,092, respectively..................................... 31,631 33,010 59,662
Total loans (1) ........................................... 17,692,634 16,758,155 16,359,080.................................................... 17,748,389 17,738,248 17,453,995
Less allowance for loan losses ....................... 257,883 230,778 230,989
------------ ------------ ------------losses................................ 258,262 258,171 241,647
----------- ----------- -----------
Net loans ................................................. 17,434,751 16,527,377 16,128,091
------------ ------------ ------------loans.......................................................... 17,490,127 17,480,077 17,212,348
----------- ----------- -----------
Premises and equipment .................................... 392,777 380,460 381,332equipment............................................. 400,331 389,481 389,036
Customers' acceptance liability ........................... 21,858 56,248 56,023liability.................................... 26,518 27,818 59,247
Accrued income and other assets ........................... 706,955 634,193 661,040
------------ ------------ ------------assets.................................... 1,147,156 1,199,123 709,251
----------- ----------- -----------
TOTAL ASSETS .............................................. $ 25,576,135 $ 24,371,946 $ 23,998,460
============ ============ ============ASSETS....................................................... $26,808,479 $26,730,540 $25,167,739
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits (1) ........................................ $ 17,589,786 $ 16,402,312 $ 16,153,791................................................. $17,700,544 $17,983,718 $16,976,046
Short-term borrowings ..................................... 2,905,003 4,107,923 3,920,210borrowings.............................................. 3,241,383 3,141,671 3,474,015
Bank acceptances outstanding .............................. 21,858 56,248 56,023
Long-term debt ............................................ 2,365,831 1,585,863 1,720,712outstanding....................................... 26,518 27,818 59,247
Medium-term notes.................................................. 2,577,150 2,332,150 1,597,500
Subordinated notes and other long-term debt........................ 483,854 498,889 556,265
Company obligated mandatorily redeemable preferred capital
securities of Huntington Capital I ...................................subsidiary trust.................................. 200,000 --- ---200,000 200,000
Accrued expenses and other liabilities .................... 547,666 433,942 381,035
------------ ------------ ------------liabilities............................. 504,936 520,903 456,521
----------- ----------- -----------
Total Liabilities .................................... 23,630,144 22,586,288 22,231,771
------------ ------------ ------------Liabilities............................................. 24,734,385 24,705,149 23,319,594
----------- ----------- -----------
Shareholders' equity
Preferred stock - authorized 6,617,808 shares;
none outstanding
Common stock - without par value; authorized 300,000,000 shares;
issued and outstanding 193,282,613; 182,265,457;193,279,797; 193,279,797; and
182,233,920182,384,332 shares, respectively ............................ 1,528,771 1,290,968 1,290,938respectively......................... 1,528,768 1,528,768 1,291,071
Less 2,148,882; 9,284,844;961,290; 1,543,371; and 7,514,6886,831,006
treasury shares, respectively ................... (49,494) (204,634) (160,641)........................... (25,218) (36,791) (154,822)
Capital surplus ...................................... 401,847 401,176 403,651
Net unrealized gains (losses) on securities
available for sale .............................. 2,793 (13,931) (33,506)surplus............................................... 394,715 404,235 418,866
Retained earnings .................................... 62,074 312,079 266,247
------------ ------------ ------------earnings............................................. 165,419 114,379 353,954
Accumulated other comprehensive income........................ 10,410 14,800 (60,924)
----------- ----------- -----------
Total Shareholders' Equity ........................... 1,945,991 1,785,658 1,766,689
------------ ------------ ------------Equity.................................... 2,074,094 2,025,391 1,848,145
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................ $ 25,576,135 $ 24,371,946 $ 23,998,460
============ ============ ============EQUITY......................... $26,808,479 $26,730,540 $25,167,739
=========== =========== ===========
See notes to consolidated financial statements.
(1) See page 89 for detail of total loans and total deposits.
See notes to unaudited consolidated financial statements.
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- ---------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
- ----------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED-------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars, except per share amounts) SEPTEMBER 30, SEPTEMBER 30,
------------------------------ -------------------------------
1997 1996 1997 1996THREE MONTHS ENDED MARCH 31,
-----------------------------------
Interest and fee income ........................... ------------ ------------ ------------ -------------1998 1997
-------------- --------------
Loans ........................................Loans....................................................... $ 409,395400,807 $ 356,331 $ 1,203,144 $ 1,046,769
Securities ................................... 88,221 86,180 267,955 265,365
Other ........................................ 5,205 2,942 10,614 10,882
------------ ------------382,968
Securities.................................................. 97,171 90,490
Other....................................................... 4,502 2,416
------------ ------------
TOTAL INTEREST INCOME .............. 502,821 445,453 1,481,713 1,323,016
------------ ------------INCOME............................. 502,480 475,874
------------ ------------
Interest Expense
Deposits ..................................... 168,861 146,103 479,733 431,636expense
Deposits.................................................... 162,252 148,373
Short-term borrowings ........................ 44,888 44,271 145,087 133,659
Long-term debt ............................... 31,914 28,843 89,226 91,688
------------ ------------borrowings....................................... 39,270 46,098
Medium-term notes........................................... 35,992 23,319
Subordinated notes and other long-term debt................. 10,118 10,533
------------ ------------
TOTAL INTEREST EXPENSE ............. 245,663 219,217 714,046 656,983
------------ ------------EXPENSE............................ 247,632 228,323
------------ ------------
NET INTEREST INCOME ................ 257,158 226,236 767,667 666,033
------------ ------------ ------------ ------------INCOME............................... 254,848 247,551
Provision for loan losses ......................... 28,351 22,978 81,562 51,333
------------ ------------losses........................................ 22,181 22,380
------------ ------------
NET INTEREST INCOME
AFTER PROVISION FOR LOAN LOSSES 228,807 203,258 686,105 614,700
------------ ------------LOSSES.............. 232,667 225,171
------------ ------------
Total non-interest income (1) ..................... 96,097 81,384 254,329 235,894.................................... 96,767 76,731
Total non-interest expense (1) .................... 244,910 168,473 614,576 510,502
------------ ------------................................... 197,790 183,861
------------ ------------
INCOME BEFORE INCOME TAXES ......... 79,994 116,169 325,858 340,092TAXES........................ 131,644 118,041
Provision for income taxes ........................ 38,762 38,725 123,844 114,955
------------ ------------taxes....................................... 42,158 40,862
------------ ------------
NET INCOME .........................INCOME........................................ $ 41,23289,486 $ 77,444 $ 202,014 $ 225,137
============ ============77,179
============ ============
PER COMMON SHARE (2)
Net income
................................... $0.22Basic................................................... $0.47 $0.41
Diluted................................................. $0.46 $0.40 $1.06 $1.16
Cash dividends declared ......................declared...................................... $0.20 $0.18 $0.56 $0.50
AVERAGE COMMON SHARES OUTSTANDING (2) ............. 191,245,312 191,710,810 190,562,120 193,293,766............................. 192,161,096 189,082,054
See notes to consolidated financial statements.
(1) See page 910 for detail of non-interest income and non-interest expense.
(2) Adjusted for stock splits and stock dividends, as applicable.
See notes to unaudited consolidated financial statements.
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- -------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NET
UNREALIZED
COMMON COMMON TREASURY TREASURY CAPITAL GAINS(LOSSES) RETAINED
SHARES STOCK SHARES STOCK SURPLUS ON SECURITIES EARNINGS TOTALAccumulated
Other
Common Common Treasury Treasury Capital Comprehensive Retained
Shares Stock Shares Stock Surplus Income Earnings Total
- -------------------------------------------- --------------------------------------------------------------------------------- ---------- -------- --------- -------- ------------ ---------- --------------------- -------------------------
NineThree Months Ended September 30, 1996:
Balance, beginning of period 163,172 $1,075,057 (8,352) ($180,632) $382,732 $42,790 $452,746 $1,772,693
Stock issued for acquisitions 4,733 102,760 5,037 107,797
Net income 225,137 225,137
Cash dividends declared
($.50 per share) (82,556) (82,556)
Stock options exercised 179 3,566 (2,984) 582
10% stock dividend 10,431 208,110 2,837 78,030 2,444 (288,790) (206)
Treasury shares purchased (8,066) (190,294) (582) (190,876)
Treasury shares sold:
Shareholder dividend reinvestment plan 994 22,378 386 22,764
Employee benefit plans 160 3,551 246 3,797
Conversion of convertible notes 50 342 342
Change in net unrealized gains (losses)
on securities available for sale (76,296) (76,296)
Pre-merger transactions of pooled
subsidiary 8,581 7,429 16,372 (40,290) (16,489)
------- ---------- ------ -------- -------- ------ -------- ----------
Balance, end of period 182,234 $1,290,938 (7,515) ($160,641) $403,651 ($33,506) $266,247 $1,766,689
======= ========== ====== ======== ======== ====== ======== ==========
Nine Months Ended September 30,March 31, 1997:
Balance, beginning of period 182,265 $1,290,968 (9,285) ($204,634)$(204,634) $401,176 ($13,931)$(13,931) $312,079 $1,785,658
Comprehensive Income:
Net income 77,179 77,179
Unrealized net holding losses on
securities available for sale
arising during the period (46,993) (46,993)
-----------
Total comprehensive income 30,186
-----------
Cash dividends declared ($0.18 per share) (33,069) (33,069)
Stock issued for acquisition 2,881 65,220 12,560 77,780
Net income 202,014 202,014
Cash dividends declared
($.56 per share) (89,668) (89,668)3,468 78,527 15,122 93,649
Stock options exercised 242 3,415 (1,921) 1,494
10% stock dividend 9,181 236,214 5,274 124,920 (51,487) (309,847) (200)61 978 (686) 292
Treasury shares purchased (1,930) (53,427) (2,748) (56,175)(1,429) (37,578) (37,578)
Treasury shares sold:
Shareholder dividend reinvestment plan 534 11,968 2,345 14,313285 6,325 1,101 7,426
Employee benefit plans 135 3,044 810 3,854
Change in net unrealized gains (losses)
on securities available for sale 16,724 16,72469 1,560 434 1,994
Pre-merger transactions of pooled
subsidiary 1,836 1,589 41,112 (52,504) (9,803)119 103 1,719 (2,234) (413)
------- ---------- ----------- --------- -------- -------- ------ -------- ----------
Balance, end of period 193,282 $1,528,771 (2,149)182,384 $1,291,071 (6,831) $(154,822) $418,866 $(60,924) $353,954 $1,848,145
======= ========== ===== ========= ======== ======== ======== ==========
THREE MONTHS ENDED MARCH 31, 1998:
BALANCE, BEGINNING OF PERIOD 193,279 $1,528,768 (1,543) $ (36,791) $404,235 $ 14,800 $114,379 $2,025,391
COMPREHENSIVE INCOME:
NET INCOME 89,486 89,486
UNREALIZED NET HOLDING LOSSES
ON SECURITIES AVAILABLE FOR
SALE ARISING DURING THE PERIOD (4,390) (4,390)
----------
TOTAL COMPREHENSIVE INCOME 85,096
----------
CASH DIVIDENDS DECLARED ($49,494) $401,847 $2,7930.20 PER SHARE) (38,446) (38,446)
STOCK ISSUED FOR ACQUISITION 160 3,883 (3,815) 68
STOCK OPTIONS EXERCISED 403 7,218 (5,907) 1,311
TREASURY SHARES SOLD TO
EMPLOYEE BENEFIT PLANS 19 472 202 674
------- ---------- ------ -------- -------- -------- -------- ----------
BALANCE, END OF PERIOD 193,279 $1,528,768 (961) $(25,218) $394,715 $ 62,074 $1,945,99110,410 $165,419 $2,074,094
======= ========== ====== ======== ======== ============== ======== ==========
See notes to unaudited consolidated financial statements.
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- ---------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
----------------------------------------
(in thousands of dollars) NINE MONTHS ENDED SEPTEMBER 30,1998 1997
1996
---------------- ---------------------------------- ---------------
OPERATING ACTIVITIES
Net Income .......................................................Income............................................................... $ 202,01489,486 $ 225,13777,179
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses ................................ 81,562 51,333losses............................................. 22,181 22,380
Provision for depreciation and amortization .............. 46,605 65,813amortization........................... 17,768 15,296
Deferred income tax expense .............................. 20,954 10,975
(Increase) decreaseexpense........................................... 5,358 8,780
Increase in trading account securities ........ (52,424) 1,480securities................................ (12,407) (983)
(Increase) decrease in mortgages held for sale ........... (24,162) 51,538sale........................ (121,086) 9,058
Net gains on sales of securities ......................... (6,944) (13,379)
Net gains on sales of loans .............................. (7,432) 0securities...................................... (3,089) (2,098)
Decrease in accrued income receivable .................... 12,939 6,355receivable................................. 10,106 2,108
Net decrease (increase) in other assets............................... 17,152 (18,685)
Increase in accrued expenses.......................................... 11,907 20,667
Net (decrease) increase in other assets ............................. (55,722) (38,990)
Increase (decrease) in accrued expenses .................. 60,226 (18,488)
Net increase (decrease) in other liabilities ............. 34,844 (26,314)
----------- -----------liabilities.......................... (30,835) 37,654
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES .......... 312,460 315,460
----------- -----------
INVESTING ACTIVITIES
(Increase) decreaseACTIVITIES.......................... 6,541 171,356
---------- ----------
Investing Activities
Decrease in interest bearing deposits in banks ........ (4,162) 286,952banks........................... 37,240 1,657
Proceeds from :from:
Maturities and calls of investment securities ............ 88,306 78,309securities....................... 1,348 28,677
Maturities and calls of securities available for sale .... 606,012 381,855sale............... 191,087 175,283
Sales of securities available for sale ................... 1,876,997 2,096,102................................................ 485,158 596,740
Purchases of:
Investment securities .................................... (2,962) (15,530)securities............................................... - (1,595)
Securities available for sale ............................ (2,267,962) (2,416,828)sale....................................... (1,300,626) (827,663)
Proceeds from sales of loans ..................................... 408,258 94,755loans............................................. 24,548 25,667
Net loan originations, excluding sales ........................... (1,092,320) (912,377)sales................................... (56,882) (433,233)
Proceeds from disposal of premises and equipment ................. 6,381 1,616equipment......................... 117 4,208
Purchases of premises and equipment .............................. (39,487) (39,131)equipment...................................... (21,905) (12,997)
Proceeds from sales of other real estate ......................... 13,848 14,000estate................................. 4,802 3,333
Net cash (paid) received from purchase of subsidiaries ........... (6,665) 631
----------- -----------subsidiaries.......................... - 9,204
---------- ----------
NET CASH USED FOR INVESTING ACTIVITIES ............. (413,756) (429,646)
----------- -----------ACTIVITIES......................... (635,113) (430,719)
---------- ----------
FINANCING ACTIVITIES
Increase in total deposits ....................................... 717,165 251,802
(Decrease) increase in total deposits.................................... (284,643) 94,197
Increase (decrease) in short-term borrowings ..................... (1,213,266) 282,071borrowings............................. 99,712 (129,585)
Proceeds from issuance of long-term debt ......................... 1,442,500 450,424debt................................. - 22,676
Payment of long-term debt ........................................ (462,704) (863,244)debt................................................ (15,000) (17,000)
Proceeds from issuance of medium-term notes.............................. 325,000 342,500
Payment of medium-term notes............................................. (80,000) (295,000)
Proceeds from issuance of capital securities............................. - 200,000
Dividends paid on common stock, including pre-merger dividends
of pooled subsidiary ..................................... (101,221) (92,143)subsidiary................................................ (38,339) (33,299)
Repurchase of common stock ....................................... (56,175) (199,381)stock............................................... - (37,578)
Proceeds from issuance of common stock ........................... 24,674 31,397
----------- -----------stock................................... 1,984 9,420
---------- ----------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 350,973 (139,074)
----------- -----------ACTIVITIES...................... 8,714 156,331
---------- ----------
CHANGE IN CASH AND CASH EQUIVALENTS ................ 249,677 (253,260)EQUIVALENTS............................ (619,858) (103,032)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ...PERIOD............... 1,651,569 1,092,427
1,303,757
----------- --------------------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .........PERIOD..................... $1,031,711 $ 1,342,104 $ 1,050,497
=========== ===========989,395
========== ==========
See notes to unaudited consolidated financial statements. 5
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NOTES TO UNAUDITED 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 19961997 Annual Report to Shareholders should be read in conjunction
with these interim financial statements.
B. In June 1996,Pursuant to the Financial Accounting Standards Board (FASB) issued
Statement No.
125, "Accounting130, "Reporting Comprehensive Income", the Consolidated Statements of Changes in
Shareholders' Equity include a new measure called "Comprehensive Income".
Comprehensive Income includes net income as well as certain items that are
reported directly within a separate component of stockholders' equity that
bypass net income. Currently, Huntington's only component of Other Comprehensive
Income is the unrealized gains (losses) on securities available for Transferssale. The
related before and Servicing of Financial Assets
and Extinguishments of Liabilities" (FAS 125). The standard provides that,
following a transfer of financial assets, an entity is to recognize the
financial and servicing assets it controls and the liabilities it has incurred,
derecognize financial assets when control has been surrendered, and derecognize
liabilities when extinguished. The Statement is effective for transactions
occurring after December 31, 1996. The FASB also subsequently issued FAS No. 127
that delayed until January 1, 1998, the effective date of certain provisions of
FAS 125. Transactions subject to the later effective date include securities
lending, repurchase agreements, dollar rolls, and similar secured financing
arrangements. Application of the new rules did not have a material impact on
Huntington's accompanying consolidated financial statements. Huntington also
does not expect a material impact in the future.tax amounts are as follows:
March 31,
--------------------------
1998 1997
-------- ---------
Unrealized holding losses arising during the period:
Gross $(3,704) $(74,928)
Related tax benefit 1,322 29,299
------- --------
Net (2,382) (45,629)
------- --------
Reclassification adjustment for net gains realized
during the period:
Gross (3,089) (2,098)
Related tax expense 1,081 734
------- --------
Net (2,008) (1,364)
------- --------
Total Other Comprehensive Income (Loss) $(4,390) $(46,993)
======= ========
In FebruaryJune 1997, the FASB issued Statement No. 128, "Earnings Per
Share" (FAS 128),131, "Disclosure about
Segments of an Enterprise and Related Information". The provisions of this
Statement require disclosure of financial and descriptive information about an
enterprise's operating segments. The Statement defines an operating segment as a
component of an enterprise that engages in business activities that generate
revenue and incur expense. A segment is further defined as a component whose
operating results are reviewed by the chief operating decision maker in the
determination of resource allocation and performance, and for which discrete
financial information is available. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
This Statement is effective for fiscal years beginning after December 15, 1997;
however, it is not required to be adopted on December 31, 1997. At that
time, Huntington will report both basic and diluted earnings per share, with all
prior periods restatedapplied for interim reporting in the initial
year of application. Accordingly, no segment information is included in the
notes to conform to the new method. The impact of FAS 128 is
not expected to be material.these financial statements.
C. On September 30, 1997, Huntington completed the acquisition of First Michigan
Bank Corporation (First Michigan), a $3.7 billion bank holding company
headquartered in Holland, Michigan. Huntington issued approximately 32.2 million
shares of its common stock in exchange for all of the outstanding common stock
of First Michigan. First Michigan had total loans and deposits of $2.7 billion
and $3.1 billion, respectively, and total equity of $286 million at the date of
acquisition. The transaction
6
7
was accounted for as a pooling of interests; accordingly, all financial
information appearing in this report, except dividends per share, has been
restated to include the results of First Michigan.
The separate results of operations for Huntington and First Michigan
were as follows ($ in millions, except per share):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1997 1996 1997 1996
------ ------ ------ ------
Net Interest Income:
Huntington $218.7 $191.7 $655.4 $565.7
First Michigan 38.5 34.5 112.3 100.3
------ ------ ------ ------
Combined $257.2 $226.2 $767.7 $666.0
====== ====== ====== ======
Net Income (Loss):
Huntington $ 75.7 $ 66.4 $214.7 $194.3
First Michigan (34.5) 11.0 (12.7) 30.8
------ ------ ------ ------
Combined $ 41.2 $ 77.4 $202.0 $225.1
====== ====== ====== ======
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Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
Earnings (loss) per common share
outstanding:
Huntington $ .48 $ .42 $1.36 $1.20
First Michigan (1.24) .39 (.46) 1.09
Combined $ .22 $ .40 $1.06 $1.16
In connection withMarch 31,
For the merger,Three Months Ended 1997
- -------------------------- --------
Net Interest Income:
Huntington incurred a restructuring
charge of $35.0 million consisting primarily of personnel, facilities, and
systems costs, as well as $12.2 million of professional fees and other costs to
effect the merger (reported on a combined basis as "Special Charges"). Other
one-time costs related to the acquisition were an additional loan loss provision
of $4.8 million and non-interest expenses of $4.0 million. In addition, the
acquired portfolio of investment securities held-to-maturity was sold and/or
transferred to the available-for-sale category to maintain Huntington's existing
interest rate risk position.
In October 1997,$ 211.5
First Michigan 36.1
--------
Combined $ 247.6
========
Net Income:
Huntington completed its acquisition of The Bank of
Winter Park (Winter Park), a $90 million bank headquartered in Winter Park,
Florida.$ 66.5
First Michigan 10.7
--------
Combined $ 77.2
========
Earnings (basic) per common share outstanding:
Huntington exchanged approximately 364,000 shares of its common stock
for the outstanding shares of Winter Park in a transaction accounted for as a
purchase. The results of Winter Park will be included in the consolidated
financial statements from the date of acquisition.
Huntington acquired Citi-Bancshares, Inc. (Citi-Bancshares), a $548
million one-bank holding company headquartered in Leesburg, Florida, in February
1997. Huntington exchanged common stock and cash for all the common stock of
Citi-Bancshares. The transaction was accounted for as a purchase; accordingly,
the results of Citi-Bancshares have been included in the consolidated financial
statements from the date of acquisition.$ .42
First Michigan .39
Combined $ .41
D. In January 1997, Huntington Capital I, a Delaware statutory business trust
owned by Huntington, issued $200 million of company obligated mandatorily
redeemable capital securities. All of the common securities of Huntington
Capital I are owned by Huntington. The proceeds from the issuance of the capital
securities ($200 million) and common securities ($6.2 million) were used by
Huntington Capital I to purchase from Huntington $206.2 million of Floating Rate
Junior Subordinated Debentures. The subordinated debentures are the sole assets
of the trust, bear interest at a variable annual rate equal to LIBOR plus .70%,
and mature on February 1, 2027. Interest payments made on the capital securities
are reported as a component of interest expense on long-term debt.
E. Per common share amounts have been calculated based on the weighted average
number of common shares outstanding in each period, adjusted for stock dividends
and stock splits, as applicable. The dilutive effects of unexercised stock
options and convertible debentures were not significant for any period
presented.
F. Certain amounts in the prior year's financial statements have been
reclassified to conform with the 19971998 presentation. These reclassifications had
no effect on net income.
F. Basic earnings per share is the amount of earnings for the period available
to each share of common stock outstanding during the reporting period. Diluted
earnings per share is the amount of earnings available to each share of common
stock outstanding during the reporting period adjusted for the potential
issuance of common shares for stock options and the conversion impact of
convertible equity instruments.
7
8
The calculation of basic and diluted earnings per share for each of the
periods ended March 31 is as follows:
(In thousands, except per share amounts) 1998 1997
-------- --------
Net income $ 89,486 $ 77,179
======== ========
Average common shares outstanding 192,161 189,082
Dilutive effect of stock options 2,211 2,138
-------- --------
Diluted common shares outstanding 194,372 191,220
======== ========
Earnings per share
Basic $ .47 $ .41
Diluted $ .46 $ .40
Average common shares outstanding and the dilutive effect of stock options have
been adjusted for subsequent stock dividends and stock splits, as applicable.
8
9
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL REVIEW
- --------------------------------------------------------------------------------------------------------------------
LOAN PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) SEPTEMBER 30, DECEMBERMARCH 31, SEPTEMBER 30,December 31, March 31,
1998 1997 1996 1996
-------------- -------------- --------------1997
----------- ----------- -----------
Commercial.............................................Commercial.................................... $ 5,341,0035,441,107 $ 5,129,8365,270,660 $ 5,032,8065,391,832
Real Estate
Construction...................................... 884,724 699,013 631,209
Commercial........................................ 2,278,754 2,138,361 2,172,214
Residential....................................... 1,272,806 1,485,568 1,483,914Construction............................. 846,715 863,635 755,219
Commercial............................... 2,367,823 2,370,652 2,228,117
Residential.............................. 1,083,566 1,228,446 1,600,137
Consumer
Loans.............................................. 6,415,914 6,122,730 5,995,248
Leases............................................. 1,499,433 1,182,647 1,043,689
-------------- -------------- --------------Loans..................................... 6,423,582 6,462,716 6,153,585
Leases.................................... 1,585,596 1,542,139 1,325,105
----------- ----------- -----------
TOTAL LOANS....................................... $ 17,692,634 $ 16,758,155 $ 16,359,080
============== ============== ==============LOANS.............................. $17,748,389 $17,738,248 $17,453,995
=========== =========== ===========
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
DEPOSIT COMPOSITION
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) SEPTEMBER 30, DECEMBERMARCH 31, SEPTEMBER 30,December 31, March 31,
1998 1997 1996 1996
-------------- -------------- --------------1997
----------- ----------- -----------
Demand deposits
Non-interest bearing..............................bearing..................... $ 2,544,0222,516,765 $ 2,825,5862,549,518 $ 2,696,3372,786,287
Interest bearing.................................. 3,591,275 3,181,512 3,076,517bearing......................... 3,785,550 3,762,862 3,213,361
Savings deposits....................................... 3,023,174 3,040,719 3,004,803deposits.............................. 3,229,359 3,133,014 3,204,941
Other domestic time deposits.................. 6,012,135 6,115,534 5,680,917
----------- ----------- -----------
Total core deposits...................... 15,543,809 15,560,928 14,885,506
----------- ----------- -----------
Certificates of deposit of $100,000 or more............ 2,106,091 1,506,914 1,572,934
Other domestic time deposits........................... 6,057,623 5,437,131 5,463,246more... 2,018,818 1,903,657 1,707,040
Foreign time deposits.................................. 267,601 410,450 339,954
-------------- -------------- --------------deposits......................... 137,917 519,133 383,500
----------- ----------- -----------
TOTAL DEPOSITS.................................... $ 17,589,786 $ 16,402,312 $ 16,153,791
============== ============== ==============DEPOSITS........................... $17,700,544 $17,983,718 $16,976,046
=========== =========== ===========
89
9
FINANCIAL REVIEW10
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL REVIEW
- ---------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF NON-INTEREST INCOME
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars)
THREE MONTHS ENDED
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-----------------------MARCH 31,
---------------------------------- PERCENT
---------------------- PERCENT1998 1997 1996 CHANGE 1997 1996 CHANGE
- ----------------------------------- -------- --------- -------- -------- -------- -------------------------------------------------------------------------- --------------------------------------------------
Service charges on deposit accounts $ 30,382 $ 27,262 11.44% $ 86,817 $ 80,235 8.20%.............................. $30,837 $27,594 11.8.%
Mortgage banking .................. 20,672 11,897 73.76 39,826 33,522 18.81................................................. 14,157 8,997 57.4
Trust services .................... 12,124 10,381 16.79 36,083 31,514 14.50................................................... 12,583 12,145 3.6
Brokerage and insurance income.................................... 8,285 7,084 17.0
Electronic banking fees ........... 5,947 3,452 72.28 16,503 8,013 105.95fees........................................... 5,731 4,364 31.3
Credit card fees .................. 5,073 4,255 19.22 13,791 17,859 (22.78)
Investment product sales .......... 4,987 3,054 63.29 14,321 10,463 36.87fees.................................................. 4,859 4,195 15.8
Other............................................................. 17,226 10,254 68.0
-------- -------
Total non-interest income before securities gains................. 93,678 74,633 25.5
-------- -------
Securities gains .................. 1,242 6,172 N.M. 6,944 13,379 (48.10)
Other ............................. 15,670 14,911 5.09 40,044 40,909 (2.11)gains.................................................. 3,089 2,098 47.2
-------- -------- -------- ---------------
TOTAL NON-INTEREST INCOME ......... $ 96,097 $ 81,384 18.08% $254,329 $235,894 7.81%........................................ $96,767 $76,731 26.1%
======== ======== ======== ===============
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF NON-INTEREST INCOMEEXPENSE
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars)
THREE MONTHS ENDED
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-----------------------MARCH 31,
---------------------------------- PERCENT
---------------------- PERCENT1998 1997 1996 CHANGE 1997 1996 CHANGE
- ----------------------------------- -------- --------- -------- -------- -------- --------
Salaries .......................... $ 76,068 $ 69,480 9.48% $223,025 $203,276 9.72%
Commissions ....................... 6,139 3,407 80.19 15,287 11,006 38.90
Employee benefits ................. 18,259 17,129 6.60 54,744 55,620 (1.57)------------------------------------------------------------------ --------------------------------------------------
Personnel and related costs....................................... $104,712 $97,241 7.7 %
Outside data processing and other services........................ 16,586 12,567 32.0
Equipment ......................... 14,503 12,854 12.83 41,863 36,735 13.96........................................................ 15,149 13,188 14.9
Net occupancy ..................... 12,772 12,351 3.41 37,754 37,673 0.22
Advertising ....................... 6,139 3,495 75.65 19,306 11,711 64.85.................................................... 13,439 13,332 0.8
Marketing......................................................... 6,932 8,965 (22.7)
Telecommunications................................................ 6,023 4,967 21.3
Legal and other professional services............................. 5,788 5,429 6.6
Printing and supplies ............. 5,384 4,771 12.85 15,345 14,386 6.67
Credit cardsupplies............................................. 5,761 4,927 16.9
Franchise and electronic banking 3,581 4,490 (20.24) 10,433 12,479 (16.40)
Legal and loan collection ......... 3,541 2,235 58.43 9,443 7,102 32.96
Special charges ................... 47,163 0 N.M. 47,163 0 N M
Other ............................. 51,361 38,261 34.24 140,213 120,514 16.35other taxes......................................... 5,500 5,240 5.0
Amortization of intangible assets................................. 3,393 2,946 15.2
Other............................................................. 14,507 15,059 (3.7)
-------- -------- -------- ---------------
TOTAL NON-INTEREST EXPENSE ........ $244,910 $168,473 45.37% $614,576 $510,502 20.39%....................................... $197,790 183,861 7.6 %
======== ======== ======== ===============
N.M. - Not meaningful
910
1011
MANAGEMENT'S DISCUSSION AND ANALYSIS
INTRODUCTION
FORWARD-LOOKING STATEMENTS
Congress passed the Private Securities Litigation Report Act of 1995 to
encourage corporations to provide investors with information about the company's
anticipated future financial performance, goals, and strategies. The act
provides a safe harbor for such disclosure, or in other words, protection from
unwarranted litigation if actual results are not the same as management's
expectations.
Huntington Bancshares Incorporated (Huntington) desires to provide its
shareholders with sound information about past performance and future trends.
Consequently, this Quarterly Report, including Management's Discussion and
Analysis - ------------------------------------
INTRODUCTION
Management's discussionof Financial Condition and analysisResults of Operations, contains
forward-looking statements that are intended to enhance the reader's ability to assess the
future financial performance of Huntington Bancshares Incorporated (Huntington).
Because these statements are subject to numerous assumptions, risks, and
uncertainties, actualuncertainties. Actual results could bediffer materially different. The followingfrom those contained in or
implied by Huntington's statements due to a variety of factors among others, may have such an impact:including:
changes in economic conditions; movements in interest rates; competitive
pressures on product pricing and services; success and timing of business
strategies; andsuccessful integration of acquired businesses; the nature and extent
of legislative and regulatorygovernmental actions and reforms.
On September 30,reforms; and extended disruption of vital
infrastructure. The management of Huntington encourages readers of this report
to understand forward-looking statements to be strategic objectives rather than
absolute targets of future performance.
ACQUISITIONS
In December 1997, Huntington completedsigned a definitive agreement with
NationsBank Corporation (NationsBank) to acquire sixty banking offices in
Florida. The branch acquisition is expected to add approximately $1.6 billion in
loans and $2.6 billion in deposits. The deposit premium, which is subject to
final determination based upon the acquisition of First
Michigan Bank Corporation (First Michigan), a $3.6 billion bank holding company
headquartered in Holland, Michigan. Huntington issued approximately 32.2 million
shares of its common stock in exchange for alldeposit levels at the closing of the
outstanding common stock
of First Michigan in a pooling of interests transaction. First Michigan had
total loans and deposits of $2.7 billion and $3.1 billion, respectively, and
total equity of $285.8 million at the date of acquisition. In connection with
the transaction, Huntington incurred a $35.0 million restructuring charge
consisting primarily of personnel, facilities, and systems costs as well as
$12.2 million of professional fees and other costsis projected to effect the merger
(reported on a combined basis as "Special Charges"). Other one-time costsbe approximately $523 million. The transaction is
expected to close late in the second quarter related to the First Michiganof 1998.
Although Huntington continually monitors and investigates suitable
acquisition were an additional loan loss
provisionopportunities, Huntington has no material written or oral
acquisition agreements or understandings with specific entities except as
described above.
OVERVIEW
Huntington reported earnings of $4.8$89.5 million and non-interest expenses of $4.0 million. All
financial information appearing in this report, except dividends per share, has
been restated for the pooling of interests with First Michigan.
Huntington completed its acquisition of The Bank of Winter Park, a $90
million institution headquartered in Winter Park, Florida (Winter Park), on
October 31, 1997. The transaction was
10
11
accounted for as a purchase; accordingly, the results of Winter Park will be
included in Huntington's consolidated financial statements from the date of
acquisition.
OVERVIEW
Huntington's net income, excluding merger-related charges, was $87.5
million, or $.46 per share, for the thirdfirst quarter of
19971998 compared with $77.4$77.2 million or $.40 per share, for the same period last year. On this same basis,
net income was $248.2 million, or $1.31Basic earnings
per share duringwere $.47, an increase of 14.6% from $.41 per share for the first
ninethree months of 1997. On a diluted basis, the year versus $225.1 million, or $1.16 per share in the comparable period
of 1996. Reported net income, including merger-related charges, was $41.2
million, or $.22 per share, in the recent quarterresults were $.46 and
$202.0 million, or $1.06
per share, year-to-date.
Excluding the impact of merger-related charges,$.40, respectively. Huntington's return on average
equity (ROE) of 17.79% for the third quarter and 17.76% for the nine months just
ended was up from 17.75% and 16.98% in the same periods one year ago. On this
same basis, return on average assets (ROA) also improved to 1.37% and 1.32%was 1.38% for
the quarter just ended versus 1.27% one year ago. Return on average equity (ROE)
was 17.73%, respectively, versus 1.33% and 1.30%up from 17.42% in the comparable periods last year.
Including merger-related charges, ROE was 8.41% and 14.48%, respectively, in the
three and nine months just ended; ROA was 0.65% and 1.08%, respectively, in
these same periods.first quarter of 1997.
Total assets were $25.6$26.8 billion at September 30, 1997, up 4.9%March 31, 1998, an increase of 6.5%
from one year end and 6.6% from third quarter 1996. Thisago but flat with the recent year-end. The increase over the last
twelve months is the result of a larger investment securities portfolio as well
as loan growth was attributable to a
broad-based increase in loans, with particularly strong results in the consumer
category.
Total deposits grew 7.2% from December 31, 1996, and 8.9% compared with
one year ago. Core deposits represent Huntington's most significant source of
funding; when combined with other core funding sources, they provide
approximately 70% of Huntington's funding needs.
Huntington's wholesale liability mix changed somewhat since year end,
as certain short-term borrowings were replaced upon maturity with medium term
notes having a contractual term greater than
11
12
one year (a component of long-term debt). The January 1997 issuance of $200
million of capital securities by a special-purpose subsidiary of Huntington
provided additional long-term funding. The capital securities were a
cost-effective means of strengthening Huntington's regulatory capital position.
Shareholders' equity increased 9.0% in the firstlast nine months of 1997, and was up 10.1% from onehigher volumes of mortgages
held for sale. Average total loans outstanding for the recent quarter grew 6.5%
over the same period last year, ago. The higher equity was primarilyafter adjusting for the resultimpact of retained earnings andsingle-family
residential mortgage loans sold in
11
12
the common stock issued bypast several months. During the first quarter of 1998, Huntington
experienced only a modest increase in its February
1997 acquisitionloans outstanding. The slower rate of
Citi-Bancshares, Inc.growth is attributable to competitive pressures combined with large prepayments
in the commercial lending portfolio. Huntington believes it is critical to
maintain its pricing discipline in the lending process. Accordingly, should
current trends in the marketplace continue, future loan growth may also be
suppressed.
Core deposits were flat with year end but were up $658.3 million
from March 31, 1997. Average core deposits increased $1.1 billion, or 7.2%,
a $548 million one-bank holding
company headquarteredversus the first quarter of last year, fueled by 7.9% growth in Leesburg, Florida.transaction
accounts.
Huntington's wholesale liability position also expanded in the past
year as new asset volumes outpaced deposit growth. Most of the incremental
wholesale funding was in the form of unsecured medium-term bank notes.
LINES OF BUSINESS
Huntington segments its operations into five distinct lines of
business: Retail Banking, Corporate Banking, Dealer Sales, Private Financial
Group, and Treasury/Other. Line of business results are determined based upon
Huntington's business profitability reporting system, which assigns balance
sheet and income statement items to each of the business segments. The process
is designed around Huntington's organizational and management structure, and
accordingly, the results are not necessarily comparable with similar information
published by other financial institutions. A detailed description of the lines
of business is contained in Huntington's Annual Report on Form 10-K for the year
ended December 31, 1997.
The following summary contains selected financial information by
business segment for the three months ended March 31, 1998:
(In thousands of dollars)
Average Average
Revenues Net Income Total Assets Total Deposits
-------- ---------- ------------ --------------
Retail Banking $186,009 $40,044 $7,486,890 $15,153,177
Corporate Banking 72,942 23,985 5,880,611 919,816
Dealer Sales 42,042 12,118 5,116,160 56,551
Private Financial Group 20,806 5,454 629,878 503,309
Treasury / Other 29,816 7,885 7,216,761 849,359
-------- ------- ----------- -----------
Total $351,615 $89,486 $26,330,300 $17,482,212
======== ======= =========== ===========
12
13
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income was $257.2 million and $767.7 million,
respectively, for the three and nine months ended September 30, 1997, an
increase of 13.7% for the quarter and 15.3% year-to-date. Interest rate swapswas $254.8 million, up $7.3
million, or 2.9%, from the same period a year ago. The increase was largely the
result of growth in investment securities and other off-balance sheet financial instruments used for asset/liability
management purposes provided a benefitearning assets, as the
highly competitive marketplace continues to erode loan margins across much of
$1.2 millionthe banking industry. Huntington's margin dropped from 4.39% in the recent quarter and
$3.5 million for the first ninethree
months of 1997 versus reductionsto 4.30% in the same
periods one year ago of $12.4 million and $43.0 million. Higher loan volumes
also contributedquarter just ended. Management expects margin
compression to be a continuing challenge in the increaseensuing quarters which may
continue to depress growth in net interest income. The net interest
margin, on a fully tax equivalent basis, was 4.41% during the three months just
ended compared with 4.25% in the third quarter of 1996. The latter percentage
was negatively impacted by off-balance sheet interest rate contracts that
reduced the margin by 27 basis points, a significant component of which was
amortization of net losses from closed positions. At September 30, 1997,
deferred gains and losses remaining to be amortized were immaterial.
PROVISION FOR LOAN LOSSES
The provision for loan losses including the additional provision of
$4.8 million from the First Michigan acquisition, was $28.4$22.2 million in the thirdfirst quarter of
1997, up1998, down slightly from $23.0$22.4 million in the same 12
13
period last year. The year-to-date provision was $81.6 million, compared with
$51.3 million for the first nine months of 1996. NetAnnualized
net charge-offs (annualized) as a percentpercentage of average total loans were .41%was .51% for the recent
three months, compared with .42% in the quarter just endedsame period last year and .46%.50% for the nine months, versus .46% and .38% for the respective periods last year.full
year 1997.
NON-INTEREST INCOME
Non-interest income, excluding securities transactions, was $94.9
million and $247.4 million, respectively, in the recent three and nine month
periods. Adjusted for non-recurring items, the most significant component of
which was a third quarter 1997 gain of $7.0 million onnet gains from the sale of single family
residential loans (includedinvestment
securities, was $93.7 million for the first quarter of 1998, compared with $74.6
million for the first three months of 1997. The 25.5% increase is attributable
to higher mortgage banking income associated with strong origination activity,
growth in "mortgage banking income"), non-interestservice charges on deposit accounts, and income was up 14.1%generated from the
three months ended September 30, 1996. On this same basis,
the increase for the nine months was 10.9%. Growth$400 million Bank Owned Life Insurance policy purchased by Huntington in
electronicDecember 1997. Electronic banking fees investment product sales, and trustbrokerage revenues was particularly strong.also showed
considerable improvement.
NON-INTEREST EXPENSE
Non-interest expense excluding the restructuring chargeincreased 7.6%, or $13.9 million, from one year
ago. The primary drivers were higher sales commissions (a component of
"Personnel and other
merger-related costs, was $193.7 millionrelated costs"); increases in the three months just endedoutside services, in part due to
Year 2000 expenses; and
$563.4 million in the first nine months of the year, up from $168.5 million and
$510.5 million in the year-ago periods. Higher advertising, marketing, and
volume driven expenses in 1997 represent the majority of the increase. Personnel
costs (salaries, commissions, and benefits) were up approximately 11.6% for the
quarter and 8.6% on a year-to-date basis, which is indicative of more full-time
equivalent employees and normal salary adjustments. The larger organization,
fueled by higher business volumes, acquisitions, and new business initiatives,
also contributed to an increase in various other componentsthe number of non-interest
expense. The efficiency ratioATMs deployed by Huntington
that fueled an increase in telecommunications costs. In addition, 1997 purchase
acquisitions impacted last year's first quarter expenses only partially but
affected results for all of the recent three months was 55.1% comparedquarter.
"Year 2000" expenses relate to professional fees for outside services
(primarily programming) as well as internal staff costs that have been, and will
continue to be, incurred to alter programs that have time-sensitive software
which may recognize a "00" date as the year 1900 versus 2000. Huntington
anticipates substantially all reprogramming will be completed by December 31,
1998, allowing the opportunity in 1999 to fully test the systems and make any
further refinements that are needed. The failure of certain third parties to
adequately address Year 2000 could also adversely impact Huntington.
Consequently, Huntington is communicating with 55.9%customers, suppliers, and others
to identify any potential problems. Huntington's management estimates an
additional $8.2 million of Year 2000 costs will be incurred in thirdthe future to get
Huntington's systems fully compliant. These costs, however, are not expected to
materially impact Huntington's results of operations in any one period.
During the recent quarter, 1996.the operations of Huntington's Western
Michigan region, formerly First Michigan Bank Corporation, were successfully
converted to Huntington's primary
13
14
PROVISION FOR INCOME TAXES
The provision for income taxes was $38.8 millionoperating platform. This is expected to create efficiencies as well as the
opportunity to enhance the products and services provided customers in the
third quarter
and $123.8 million in the first nine months of the year, versus $38.7 million
and $115.0 million, respectively, in the same periods of 1996. The higher
effective tax rate in 1997 was attributable to nondeductible costs incurred in
connection with the FirstWestern Michigan acquisition.market.
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.
The Asset and Liability Management Committee (ALCO) oversees financial risk
management, establishing broad policies and specific operating limits that
govern a variety of financial risks inherent in Huntington's operations,
including interest rate, liquidity, counterparty settlement, and market risks.
On and off-balance sheet strategies and tactics are reviewed and monitored
regularly by ALCO to ensure consistency with approved risk tolerances.
Interest rate risk management is a dynamic process, encompassing both
the
business flows onto the balance sheet, wholesale investment and funding, and the
changing market and business environment. Effective management of interest rate
risk begins with appropriately diversified investments and funding sources. To
accomplish its overall balance sheet objectives, Huntington regularly accesses a
variety of global markets--money, bond, and futures and options--as well as
numerous trading exchanges. In addition, dealers in over-the-counter financial
instruments provide availability of interest rate swaps as needed.
Measurement and monitoring of interest rate risk is 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. The income simulation model used by
Huntington captures all assets, liabilities, and off-balance sheet financial
instruments, accounting for 14
15
significant variables whichthat are believed to be
affected by interest rates. These include prepayment speeds on mortgages and
consumer installment loans, cash flows of loans and deposits, principal
amortization and maturities on other financialrevolving credit instruments, and balance sheet growth
assumptions. The model also captures embedded options, e.g.for example, interest
rate caps/caps, floors or call options, and accounts for changes in rate
relationships, as various rate indices lead or lag changes in market rates.
While these assumptions are inherently uncertain, management utilizesassigns
probabilities and, therefore, believes that, at any point in time, the model
provides ana reasonably accurate estimate of Huntington's interest rate risk
exposure. Management reporting of thisThis information is regularly shared with the Board of Directors.
At September 30, 1997,March 31, 1998, the results of Huntington's interest sensitivity
analysis indicated that net interest income would be relatively unchanged by a
100 basis points increase or a 100-200 basis pointspoint 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). NetIf interest rates rose 100 basis points, net
interest income would be expected to decrease 1.5% if rates roseby 1.2%. An increase of 200 basis
points.points would result in a 2.4% reduction.
Active interest rate risk management necessitates the use of various
types of off-balance sheet financial instruments, primarily interest rate swaps.
Risk that is created by different indices on products, by unequal terms to maturity of
assets and liabilities, and by products that are appealing to customers but
incompatible with current risk limits can be eliminated or decreased in a cost
efficient manner by utilizing interest rate swaps. In
addition,Often, the swap strategy has
enabled Huntington to lower the overall cost of raising wholesale funds.
Similarly, financial futures, interest rate caps and floors, options, and
forward rate agreements are used to control financial
14
15
risk effectively. Off-balance sheet instruments are often preferableperform identically to similar
cash instruments but are often preferable because though performing identically, they require less capital
while preserving access to the marketplace.
15
16
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 valuationprogram at March 31, 1998:
Average Average Rate
Notional Maturity Market -------------
(Dollars in millions) Value (years) Value Receive Pay
----- ------- ----- ------- ---
ASSET CONVERSION SWAPS
Received fixed $ 575 1.85 $ .1 6.15% 5.66%
====== ======
LIABILITY CONVERSION SWAPS
Receive fixed $1,980 1.55 $ 26.0 6.28% 5.68%
Receive fixed-amortizing 185 1.25 ( .2) 5.63% 5.69%
Pay fixed 400 0.62 .2 5.73% 5.49%
------ ------
TOTAL LIABILITY CONVERSION
SWAPS $2,565 1.38 $ 26.0 6.15% 5.65%
====== ======
BASIS PROTECTION SWAPS $ 785 1.05 $( .5) 5.68% 5.72%
====== ======
As is the case with cash securities, the market value of interest rate
swap contractsswaps is largely a function of the financial market's expectations regarding the
future direction of interest rates. Accordingly, current market values are not
necessarily indicative of the future impact of the swaps on net interest income.
This will depend, in large part, on the shape of the yield curve as well as
interest rate levels. WithManagement made no assumptions regarding future changes in
interest rates with respect to the variable rate information and the indexed
amortizing swap maturities presented in the table below, management made no assumptions regarding future changes in interest
rates.
Average Average Rate
Notional Maturity Market ----------------
(dollars in millions) Value (years) Value Receive Pay
- -----------------------------------------------------------------------------------------
September 30, 1997:
ASSET CONVERSION SWAPS
Receive fixed $ 700 1.33 ($1.7) 5.80% 5.72%
Receive fixed-amortizing 92 .75 (.3) 5.27 5.84
------ -----
TOTAL ASSET CONVERSION SWAPS $ 792 1.26 ($2.0) 5.73% 5.74%
====== =====
LIABILITY CONVERSION SWAPS
Receive fixed $1,490 2.10 $20.0 6.30% 5.74%
Receive fixed-amortizing 190 1.75 (2.2) 5.63 5.66
------ -----
TOTAL LIABILITY CONVERSION SWAPS $1,680 2.06 $17.8 6.22% 5.73%
====== =====
BASIS PROTECTION SWAPS $ 435 1.60 ($ .3) 5.78% 5.77%
====== =====
above.
The pay rates on Huntington's receive-fixed swaps vary based on
movements in the applicable London inter-bankinterbank offered rate (LIBOR). Receive-fixed assetAsset
conversion swaps and liability conversion swaps with a notional valuevalues of $200$300
million and $500 million, respectively, have embedded written LIBOR-based call
options. Also, receive-fixed liability
conversion swaps with a notional value of $150 million have embedded written
LIBOR-based caps. The portfolio of amortizing swaps consists primarily of contracts that
are indexed to the prepayment experience of a specified pool of mortgage loans.
As market interest rates change, the amortization of the notional value of the
swap will also change, generally slowing as rates increase and accelerating when
rates fall. Basis 16
17
swaps are contracts whichthat provide for both parties to receive
interest payments according to different rate indices and are used to protect
against changes in spreads between market rates. The receive and pay amounts
applicable to Huntington's basis swaps are based predominantly on LIBOR.
The contractual interest payments are based on the notional values of
the swap portfolio represent contractual amounts
on which interest payments to be exchanged are based.portfolio. These notional values do not represent direct credit
exposures. At September 30, 1997,March 31, 1998, Huntington's credit risk from interest rate swaps
used for asset/liability management purposes was $50.9$72.1 million, which 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
15
16
under the terms of the contract, Huntington performs credit 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 has never experienced any past due amounts from a swap
counterparty
and does not anticipate nonperformance in the future by any such counterparties.counterparty.
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 $250$195 million at the recent quarter-end.March 31, 1998. Total
credit exposure from such contracts is not material. 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.
ASSET QUALITYtable.
CREDIT RISK
Huntington's exposure to credit risk is managed through the use of
consistent underwriting standards that emphasize "in-market" lending to
established borrowers. Highly leveraged transactions andas well as excessive
industry orand other concentrations are avoided. The credit administration
function also
17
18 employs extensive monitoring procedures to ensure problem loans
are promptly identified and that loans adhere to corporate policy. These
procedures provide executive management with the information necessary to
implement appropriate change and take corrective action as needed.
Asset qualityHuntington continues to be strong.compare favorably with its peers in terms of
asset quality. Non-performing assets, consisting of loans that are no longer
accruing interest, loans that have been renegotiated based upon financial
difficulties of the borrower, and real estate acquired through foreclosure,
totaled $92.2$95.1 million at September 30, 1997, or .52%March 31, 1998. Non-performing loans represented .47%
of total loans and non-performing assets as a percentage of total loans and
other real estate. Non-performing loans represented .44%estate were only .54%, as of total loans and loansthis same date. Loans past due ninety
days or more but continuing to accrue interest, (primarilyincluding consumer and
residential real estate)estate credits, were $43.1 million at
the recent quarter-end.$65.0 million.
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 evaluatingto evaluate 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
historicalhistoric loss experience, prevailing economic conditions, and other relevant
factors. The reserve ratio increased to 1.46% at the recent quarter end versus
1.38% one year ago. At September 30, 1997,March 31, 1998, the ALL represented 1.46% of total loans and covered non-performing loans 3.29 times; when3.1
times. When the ALL is combined with the allowance for other real estate it was 277.3%owned,
the reserves were 270% of total non-performingnonperforming assets.
CAPITAL
Huntington recognizes the importance of managing capital and
continually strives to maintain an appropriate balance between capital adequacy
and returns to shareholders. Huntington places significant emphasis on the
maintenance of strong capital, which promotes investor confidence, provides
access to the national markets under favorable terms, and enhances
16
17
business growth and acquisition opportunities. Huntington also recognizes the importance of managing excess
capital and continually strives to maintain an appropriate balance between
capital adequacy and returns to shareholders. Capital is managed at each
subsidiary based upon the respective risks and growth opportunities, as well as
regulatory requirements.
18
19
Huntington's ratio of average equity to average assets was 7.67% in the recent quarterfirst
three months of 1998 was 7.77%, compared with 7.47%7.31% in the same three months one year ago.
Huntington showed improvement during the first nine months of the year in each
of the key regulatory capital ratios, as the above-mentioned capital securities
issued by a special-purpose subsidiary of Huntington are considered a component
ofperiod last
year. At March 31, 1998, Tier 1 capital under Federal Reserve Board guidelines. In addition,and Total Risk-based Capital Ratios were 8.91%
and 11.57%, respectively. Huntington's two bank subsidiaries also had regulatory
capital ratios in excess of the levels established for "well-capitalized"
institutions.
On February 21, 1996,In March 1998, Huntington filed a registration statement with the
Securities and Exchange Commission for the purpose of registering for sale up to
8.5 million shares of its common stock. Management continues to evaluate various
capital management alternatives in connection with the pending branch
acquisition, and is uncertain as to the ultimate size and timing of the common
stock offering. Huntington is, however, committed to maintaining its long
history of strong capital and expects, subject to market conditions and other
developments, to issue a combination of trust preferred securities and
subordinated notes on or before the closing of the acquisition.
The Board of Directors authorized Huntington, on February 21, 1996, to
repurchase up to 12.1 million additional shares of its common stock (as adjusted
for subsequent stock dividends) through open market purchases and privately
negotiated transactions. The authorization represents a continuation of the
common stock repurchase program begun in August 1987 and provides that the
shares will be reserved for reissue in connection with Huntington's benefit
plans as well as for other corporate purposes. The repurchase program is
currently suspended but Huntington purchased 1.9 million
shares in the first nine months of 1997 at an aggregate cost of $53.4 million,
leavinghas approximately 2.6 million shares
available for repurchase. Upon announcement ofremaining under the merger with First Michigan, Huntington suspended its common stock repurchase
program. The program was temporarily reactivated for the limited purpose of
acquiring shares for reissue in the purchase business combination with Winter
Park. With the closing of the Winter Park acquisition in October 1997, the
common stock repurchase program has again been suspended.
19authorization.
17
2018
- ------------------------------------------------------------------------
CONSOLIDATED FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
--------------- --------------- ----------------------------- -------------- ------------
THREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 1998 1997 1996 % CHANGE
--------------- --------------- ---------------Change
-------------- -------------- ------------
NET INCOME .............................. $ 41,232 $ 77,444 (46.8)%INCOME......................................... $89,486 $77,179 15.9%
PER COMMON SHARE AMOUNTS (1)
Net income
......................... $ 0.22 $ 0.40 (45.0)Basic.................................... $0.47 $0.41 14.6
Diluted.................................. $0.46 $0.40 15.0
Cash dividends declared ............ $ 0.20 $ 0.18declared....................... $0.20 $0.18 11.1
AVERAGE COMMON SHARES OUTSTANDING (1) ... 191,245 191,711 (0.2).............. 192,161 189,082 1.6
KEY RATIOS
Return on:
Average total assets ............... 0.65% 1.33% (51.1)assets.......................... 1.38% 1.27% 8.7
Average shareholders' equity ....... 8.41% 17.75% (52.6)equity.................. 17.73% 17.42% 1.8
Efficiency ratio ........................ 55.11% 55.88% (1.4)ratio................................... 56.32% 56.64% (0.6)
Average equity/average assets ........... 7.67% 7.47% 2.7assets...................... 7.77% 7.31% 6.3
Net interest margin ..................... 4.41% 4.25% 3.8margin................................ 4.30% 4.39% (2.1)
- ----------------------------------------- --------------- --------------- ---------------
NINE MONTHS ENDED SEPTEMBER 30, .........--------------------------------------------------- -------------- -------------- ------------
AT MARCH 31, 1998 1997 1996 % CHANGE
--------------- --------------- ---------------
NET INCOME ..............................Change
-------------- -------------- ------------
Total Loans........................................ $17,748,389 $17,453,995 1.7%
Total Deposits..................................... $17,700,544 $16,976,046 4.3
Total Assets....................................... $26,808,479 $25,167,739 6.5
Shareholders' Equity............................... $ 202,0142,074,094 $ 225,137 (10.3)%
PER COMMON SHARE AMOUNTS (1)
Net income ......................... $ 1.06 $ 1.16 (8.6)
Cash dividends declared ............ $ 0.56 $ 0.50 12.0
AVERAGE COMMON SHARES OUTSTANDING (1) ... 190,562 193,294 (1.4)
KEY RATIOS
Return on:
Average total assets ............... 1.08% 1.30% (16.9)
Average shareholders' equity ....... 14.48% 16.98% (14.7)
Efficiency ratio ........................ 55.26% 57.20% (3.4)
Average equity/average assets ........... 7.45% 7.64% (2.5)
Net interest margin ..................... 4.43% 4.20% 5.5
- ----------------------------------------- --------------- --------------- ---------------
AT SEPTEMBER 30, ........................ 1997 1996 % CHANGE
--------------- --------------- ---------------
Total Loans ............................. $ 17,692,634 $ 16,359,080 8.2%
Total Deposits .......................... $ 17,589,786 $ 16,153,791 8.9
Total Assets ............................ $ 25,576,135 $ 23,998,460 6.6
Shareholders' Equity .................... $ 1,945,991 $ 1,766,689 10.11,848,145 12.2
Period-End Shares Outstanding (1) ....... 191,133,731 190,673,644 0.2.................. 192,319 191,584 0.4
Shareholders' Equity Per Common Share (1) $ 10.18 $ 9.27 9.8.......... $10.78 $9.65 11.7
Regulatory Capital Data:
(2)
Total Risk-Adjusted Assets ........... $ 21,389,111 $ 19,448,930 10.0Assets...................... $22,553,563 $20,547,936 9.8
Tier 1 Risk-Based Capital Ratio ...... 8.86% 8.32% 6.5Ratio................. 8.91% 9.04% (1.4)
Total Risk-Based Capital Ratio ....... 11.95%Ratio.................. 11.57% 3.312.18% (5.0)
Tier 1 Leverage Ratio ................ 7.54% 6.99% 7.9
(1) Adjusted for stock splits and stock dividends, as applicable.
(2) Estimated.Ratio........................... 7.72% 7.62% 1.3
20(1) Adjusted for stock splits and stock dividends, as applicable.
18
21
FINANCIAL REVIEW19
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL REVIEW
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES - AMORTIZED COST & FAIR VALUES BY MATURITY AT SEPTEMBER 30, 1997MARCH 31, 1998 AND DECEMBER 31, 19961997
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) SEPTEMBER 30, 1997MARCH 31, 1998 December 31, 19961997
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
AMORTIZED COST FAIR VALUE Amortized Cost Fair Value
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
U SU.S. Treasury Under 1 year ...............and Federal Agencies
1-5 years......................... $ 8,541656 $ 8,260
1-5 years ..................656 $ 156656 $ 156 18,776 19,152
6-10 years ................. --- ---
Over 10 years .............. --- ---656
------- ------- -------- --------
Total ................... 156 156 27,317 27,412
------- -------
-------- --------
Federal agencies
Mortgage-backed securities
Under 1 year ............... --- --- 532 532
1-5 years .................. --- --- 17,607 18,089
6-10 years ................. --- --- 43,641 43,476
Over 10 years .............. --- --- 759 731Total.......................... 656 656 656 656
------- ------- -------- --------
Total ................... --- --- 62,539 62,828
------- ------- -------- --------
Other agencies
Under 1 year ............... --- --- 15,385 15,438
1-5 years .................. --- --- 4,549 4,442
6-10 years ................. --- --- 1,769 1,799
Over 10 years .............. --- --- 0 0
------- ------- -------- --------
Total ................... --- --- 21,703 21,679
------- ------- -------- --------
States and political subdivisions
Under 1 year ............... 5,908 5,971 72,428 73,106year...................... 6,818 6,795 6,311 6,310
1-5 years .................. 14,160 14,402 119,196 124,242years......................... 12,561 12,655 13,592 13,719
6-10 years ................. 11,147 11,360 35,484 38,866years........................ 8,880 9,040 9,605 9,788
Over 10 years .............. 3,143 3,189 6,468 6,569years..................... 2,716 2,766 2,846 2,910
------- ------- -------- --------
Total ................... 34,358 34,922 233,576 242,783
------- -------
-------- --------Total.......................... 30,975 31,256 32,354 32,727
------- ------- ------- -------
Total Investment Securities ..... $34,514 $35,078 $345,135 $354,702Securities............ $31,631 $31,912 $33,010 $33,383
======= ======= ======== =============== =======
2119
22
FINANCIAL REVIEW20
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL REVIEW
- -----------------------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE - AMORTIZED COST & FAIR VALUES BY MATURITY AT SEPTEMBER 30, 1997MARCH 31, 1998 AND DECEMBER 31, 19961997
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) SEPTEMBER 30, 1997MARCH 31, 1998 December 31, 19961997
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
AMORTIZED COST FAIR VALUE Amortized Cost Fair Value
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
U SU.S. Treasury
Under 1 year .................year................................ $ 11,353701 $ 11,425706 $ 58,5721,001 $ 58,8351,012
1-5 years .................... 425,441 425,278 583,352 577,103years................................... 305,370 306,419 409,364 407,936
6-10 years ................... 240,781 233,100 159,747 153,489years.................................. 749,542 746,054 320,497 320,726
---------- ---------- ---------- ----------
Total ..................... 677,575 669,803 801,671 789,427Total.................................... 1,055,613 1,053,179 730,862 729,674
---------- ---------- ---------- ----------
Federal agencies
Mortgage-backed securities
Under 1 year ................. 3,732 3,732 2,657 2,124year................................ 903 902 2,223 2,216
1-5 years .................... 160,146 160,098 232,118 235,189years................................... 273,230 272,911 169,877 170,177
6-10 years ................... 610,004 1,165,700 859,063 847,419years.................................. 218,440 218,173 497,496 494,016
Over 10 years ................ 600,941 43,649 260,727 261,071years............................... 794,371 798,102 698,906 705,031
---------- ---------- ---------- ----------
Total ..................... 1,374,823 1,373,179 1,354,565 1,345,803Total.................................... 1,286,944 1,290,088 1,368,502 1,371,440
---------- ---------- ---------- ----------
Other agencies
Under 1 year ................. 2,980 2,999 168,825 168,894year................................ 991 994 984 992
1-5 years .................... 1,470,244 1,471,843 1,890,087 1,891,146years................................... 1,827,588 1,830,565 1,590,592 1,594,409
6-10 years ................... 782,707 784,499 178,910 177,583years.................................. 833,746 837,532 787,682 792,359
Over 10 years ................ 458,372 460,389 343,946 341,968years............................... 630,666 629,983 509,713 512,160
---------- ---------- ---------- ----------
Total ..................... 2,714,303 2,719,730 2,581,768 2,579,591Total.................................... 3,292,991 3,299,074 2,888,971 2,899,920
---------- ---------- ---------- ----------
Other
Under 1 year ................. 17,921 18,313 24,194 24,905year................................ 11,125 11,074 13,940 13,925
1-5 years .................... 203,329 207,594 19,750 20,371years................................... 215,838 218,876 211,943 214,772
6-10 years ................... 150,795 155,290 161,377 162,417years.................................. 194,527 199,339 199,849 205,771
Over 10 years ................ 283,890 284,320 267,301 267,430years............................... 263,294 265,698 210,688 213,183
Marketable equity securities . 8,480 7,486 20,700 19,449securities................ 8,670 7,776 62,164 61,129
---------- ---------- ---------- ----------
Total ..................... 664,415 673,003 493,322 494,572Total.................................... 693,454 702,763 698,584 708,780
---------- ---------- ---------- ----------
Total Securities Available for Sale $5,431,116 $5,435,715 $5,231,326 $5,209,393Sale.............. $6,329,002 $6,345,104 $5,686,919 $5,709,814
========== ========== ========== ==========
2220
23
FINANCIAL REVIEW21
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL REVIEW
- ------------------------------------------------------------------------------------------------------------------------------------
LOAN LOSS EXPERIENCE
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------1998 1997
1996 1997 1996
--------- --------- --------- ----------------- -----------------------------------------------
I Q IV Q III Q II Q I Q
-------- -------- -------- -------- --------
ALLOWANCE FOR LOAN LOSSES, BEGINNING OF PERIOD $ 247,867 $ 226,669 $ 230,778 $ 222,487PERIOD............... $258,171 $257,883 $247,867 $241,647 $230,778
Allowance of assets acquired/other ............ 0 0 6,177 2,200other........................... -- 1,600 -- 149 6,028
Loan losses ...................................losses.................................................. (27,566) (33,344) (24,354) (23,511) (77,379) (60,390)(30,301) (22,724)
Recoveries of loans previously charged off ....off................... 5,476 5,797 6,019 4,853 16,745 15,3595,541 5,185
Provision for loan losses .....................losses.................................... 22,181 26,235 28,351 22,978 81,562 51,333
--------- --------- --------- ---------30,831 22,380
-------- -------- -------- -------- --------
ALLOWANCE FOR LOAN LOSSES END OF PERIOD ....... $ 257,883 $ 230,989 $ 257,883 $ 230,989
========= ========= ========= =========PERIOD...................... $258,262 $258,171 $257,883 $247,867 $241,647
======== ======== ======== ======== ========
AS A % OF AVERAGE TOTAL LOANS
Net loan losses--annualized .................losses--annualized................................ 0.51% 0.61% 0.41% 0.46% 0.46% 0.38%0.56% 0.42%
Provision for loan losses--annualized .......losses--annualized...................... 0.51% 0.59% 0.63% 0.57% 0.62% 0.43%0.70% 0.53%
Allowance for loan losses as a % of total loansloans.............. 1.46% 1.41% 1.46% 1.41%1.46% 1.39% 1.38%
Net loan loss coverage (1) .................... 5.91 x 7.46 x 6.72 x 8.69 x
................................... 6.96x 5.79x 5.91x 6.41x 8.01x
(1) Income before taxes and the provision for loan losses to net loan losses.
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NON-PERFORMING ASSETS AND PAST DUE LOANS
(Quarter-End) 1998 1997
1996
----------------------------------- ---------------------------- ----------------------------------------------
(in thousands of dollars) I Q IV Q III Q II Q I Q IV Q III Q
------- ------- ------- ------- -------
Non-accrual loans ......................loans............................................ $79,888 $65,981 $72,385 $61,105 $64,764
$55,040 $57,346
Renegotiated loans .....................loans........................................... 3,173 5,822 6,069 4,449 4,490 4,422 5,725
------- ------- ------- ------- -------
TOTAL NON-PERFORMING LOANS .............LOANS................................... 83,061 71,803 78,454 65,554 69,254 59,462 63,071
------- ------- ------- ------- -------
Other real estate, net .................net....................................... 12,005 15,343 13,762 14,434 20,300 17,208 16,321
------- ------- ------- ------- -------
TOTAL NON-PERFORMING ASSETS ............ASSETS.................................. $95,066 $87,146 $92,216 $79,988 $89,554 $76,670 $79,392
======= ======= ======= ======= =======
NON-PERFORMING LOANS AS A
% OF TOTAL LOANS .....................LOANS........................................... 0.47% 0.40% 0.44% 0.37% 0.40% 0.35% 0.39%
NON-PERFORMING ASSETS AS A
% OF TOTAL LOANS AND OTHER REAL ESTATEESTATE..................... 0.54% 0.49% 0.52% 0.45% 0.51% 0.46% 0.48%
ALLOWANCE FOR LOAN LOSES AS A % OF
NON-PERFORMING LOANS .................LOANS....................................... 310.93% 359.55% 328.71% 378.11% 348.93% 388.11% 366.24%
ALLOWANCE FOR LOAN LOSSES AND OTHER REAL
ESTATE AS A % OF NON-PERFORMING ASSETSASSETS..................... 270.07% 294.32% 277.31% 306.51% 266.89% 297.12% 282.47%
ACCRUING LOANS PAST DUE 90 DAYS OR MOREMORE...................... $64,959 $49,608 $43,120 $40,967 $42,023 $39,267 $40,301
======= ======= ======= ======= =======
2321
2422
- --------------------------------------------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Fully Tax Equivalent Basis (1) 3RD1ST QUARTER 1998 4th Quarter 1997
2ND QUARTER 1997-------------------------- ----------------------
(in millions of dollars) ---------------------------- ---------------------------
AVERAGE YIELD/ AVERAGE YIELD/Average Yield/
BALANCE RATE BALANCE RATEBalance Rate
----------- ---------- -------- --------- --------
ASSETS----------
ASSETS
Interest bearing deposits in banks ................................banks.................................... $ 17 5.51%9 5.35% $ 2 4.69%5 5.37%
Trading account securities ........................................securities............................................ 8 5.90 11 5.675.48 12 5.89
Federal funds sold and securities purchased under resale agreements 75 5.50 39 5.50agreements... 21 6.57 20 5.48
Mortgages held for sale ........................................... 146 7.31 115 7.70sale............................................... 219 7.24 177 8.27
Securities:
Taxable ..................................................... 5,241 6.36 5,422 6.36Taxable......................................................... 5,906 6.35 5,308 6.37
Tax exempt .................................................. 255 9.10 275 9.05exempt...................................................... 237 9.23 246 9.39
------- ------
Total Securities........................................... 6,143 6.46 5,554 6.51
------- Total Securities ....................................... 5,496 6.49 5,697 6.50
------- -------
Loans
Commercial ................................................... 5,264------
Loans:
Commercial....................................................... 5,306 8.58 5,312 8.55 5,405 8.56
Real Estate
Construction ............................................ 862 8.90 788 8.92
Mortgage ................................................ 3,865 8.73 3,845 8.73Construction................................................ 823 8.85 875 8.93
Mortgage.................................................... 3,520 8.65 3,639 8.65
Consumer
Loans .................................................. 6,366 9.15 6,242 9.28
Leases ................................................. 1,465 7.53 1,382 7.63Loans...................................................... 6,428 9.40 6,441 9.22
Leases..................................................... 1,564 7.13 1,521 7.43
------- ------
Total Consumer loans....................................... 7,992 8.96 7,962 8.88
------- ------
Total Loans ............................................. 17,822 8.75 17,662 8.80Loans........................................................... 17,641 8.78 17,788 8.74
Allowance for loan losses/loan fees ..................... 254 250fees................................... 265 268
------- -------
Net loans ............................................... 17,568 9.15 17,412 9.31loans............................................................. 17,376 9.20 17,520 9.14
------- -------
Total earning assets .................................... 23,564 8.53% 23,526 8.61%assets.................................................. 24,041 8.48% 23,556 8.51%
------- -------
Cash and due from banks ........................................... 905 920banks............................................... 917 951
All other assets .................................................. 1,132 1,042assets...................................................... 1,637 1,190
------- -------
TOTAL ASSETS ...................................................... $25,347 $25,238ASSETS.......................................................... $26,330 $25,429
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Core deposits
Non-interest bearing demand deposits .........................deposits.................................... $ 2,7752,979 $ 2,7392,954
Interest bearing demand deposits ............................. 3,193 2.74% 3,239 2.54%deposits................................. 3,250 2.68% 3,257 2.61%
Savings deposits ............................................. 3,048 3.28 3,121 3.36deposits................................................. 3,028 3.44 3,017 3.40
Other domestic time deposits ................................. 5,995 5.65 5,809 5.61deposits..................................... 6,093 5.64 6,089 5.66
------- -------
Total core deposits ..................................... 15,011 4.30 14,908 4.21deposits......................................... 15,350 4.32 15,317 4.31
------- -------
Certificates of deposit of $100,000 or more ....................... 2,085 5.70 1,940 5.63more........................... 1,935 5.78 2,004 5.79
Foreign time deposits ............................................. 379 5.75 501 5.71deposits................................................. 198 5.85 248 5.91
------- -------
Total deposits ............................................... 17,475 4.55 17,349 4.45deposits................................................... 17,483 4.54 17,569 4.54
------- -------
Short-term borrowings ............................................. 3,300 5.27 3,568 5.23
Long-termborrowings................................................. 3,050 5.22 2,442 5.11
Medium-term notes..................................................... 2,520 5.79 2,171 5.83
Subordinated notes and other long-term debt,
including trust preferred securities .............. 2,100 5.99 1,984 6.08capital securities....................................... 691 5.85 704 6.23
------- -------
Interest bearing liabilities ................................. 20,100liabilities..................................... 20,765 4.83% 20,162 4.75%19,932 4.81%
------- -------
All other liabilities ............................................. 528 481liabilities................................................. 539 570
Shareholders' equity .............................................. 1,944 1,856equity.................................................. 2,047 1,973
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........................ $25,347 $25,238EQUITY............................ $26,330 $25,429
======= =======
Net interest rate spread ..........................................spread.............................................. 3.65% 3.70% 3.86%
Impact of non-interest bearing funds on margin .................... 0.71% 0.68%margin........................ 0.65% 0.74%
NET INTEREST MARGIN ............................................... 4.41% 4.54%
MARGIN................................................... 4.30% 4.44%
(1) Fully tax equivalent yields are calculated assuming a 35% tax rate.
2422
2523
- ----------------------------------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
- ---------------------------------------------------------------------------------------------------------------
1ST QUARTER---------------------------------------------------------------------------------------------------------
3rd Quarter 1997 4TH QUARTER 1996 3RD QUARTER 1996
----------------------------- ------------------------------- --------------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE RATE BALANCE RATE BALANCE RATE
------------2nd Quarter 1997 1st Quarter 1997
------------------------- ------------------------ --------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Rate Balance Rate Balance Rate
--------- ----------- --------- ---------- --------- ------------ --------- ------------ ---------
$ 17 5.51% $ 2 5.68% $ 1 6.74%
$ 2 5.25% $ 3 5.37%8 5.90 11 5.67 8 5.29
16 5.69 15 5.8375 5.50 39 5.71 41 5.52
36 5.48 24 6.21146 7.30 115 7.63 87 7.74 101 7.97 109 8.237.71
5,241 6.36 5,422 6.36 5,433 6.35
5,167 6.34 5,129 6.37255 9.10 275 9.05 283 9.18
281--------- --------- ---------
5,496 6.49 5,697 6.50 5,716 6.49
--------- --------- ---------
5,264 8.65 5,405 8.65 5,221 8.60
862 9.10 788 9.17 285 9.29
------------ ------------ ------------
5,716 6.50 5,448 6.49 5,414 6.52
------------ ------------ ------------
5,221 8.51 5,004 7.81 4,917 7.91
728 8.75 667 8.48 600 8.529.05
3,865 8.72 3,845 8.74 3,695 8.67 3,637 8.66
3,638 8.686,366 9.15 6,242 9.24 6,144 8.91 6,074 8.91 5,922 8.968.88
1,465 7.53 1,382 7.63 1,252 7.84
1,112 7.90 991 7.88
------------ ------------ --------------------- --------- ---------
7,831 8.85 7,624 8.95 7,396 8.70
--------- --------- ---------
17,822 8.77 17,662 8.82 17,040 8.64 16,494 8.44 16,068 8.498.68
254 250 240
237 233
------------ ------------ --------------------- --------- ---------
17,568 9.18 17,412 9.32 16,800 9.08 16,257 8.75 15,835 8.86
------------ ------------ ------------9.10
--------- --------- ---------
23,564 8.52% 23,526 8.62% 22,893 8.42% 22,097 8.16% 21,633 8.25%
------------ ------------ ------------8.43%
--------- --------- ---------
905 920 884
892 8731,132 1,042 1,046
1,035 976
------------ ------------ --------------------- --------- ---------
$25,347 $25,238 $24,583
========= ========= =========
$ 24,5832,775 $ 23,787 $ 23,249
============ ============ ============2,739 $ 2,623
$ 2,683 $ 2,6473,193 2.78% 3,239 2.55% 3,161 2.59% 3,087 2.59% 3,106 2.56%2.60%
3,048 3.19 3,121 3.34 3,006 3.22 2,925 3.20 2,878 3.093.21
5,995 5.65 5,809 5.61 5,525 5.59 5,452 5.69 5,461 5.62
------------ ------------ ------------5.60
--------- --------- ---------
15,011 4.29 14,908 4.21 14,315 4.17
14,147 4.22 14,092 4.16
------------ ------------ --------------------- --------- ---------
2,085 5.76 1,940 5.68 1,652 5.47 1,536 5.58 1,552 5.455.52
379 5.83 501 5.79 401 5.65 390 5.71 343 5.85
------------ ------------ ------------5.73
--------- --------- ---------
17,475 4.54 17,349 4.46 16,368 4.35 16,073 4.42 15,987 4.35
------------ ------------ ------------
4,116 5.14 3,926 5.16 3,269 5.32
1,8204.38
--------- --------- ---------
2,822 5.25 3,154 5.19 3,639 5.10
1,785 5.91 1,531 5.73 1,816 6.22
------------ ------------ ------------
19,681 4.68% 18,847 4.67% 18,4251,621 5.96 1,612 5.87
793 6.23 777 6.42 684 6.16
--------- --------- ---------
20,100 4.83% 20,162 4.77% 19,680 4.70%
------------ ------------ ------------
482 477 441--------- --------- ---------
528 481 483
1,944 1,856 1,797
1,780 1,736
------------ ------------ ------------
$ 24,583 $ 23,787 $ 23,249
============ ============ ============
3.74% 3.49% 3.55%
0.65% 0.70% 0.70%--------- --------- ---------
$25,347 $25,238 $24,583
========= ========= =========
3.69% 3.85% 3.73%
0.72% 0.69% 0.66%
4.41% 4.54% 4.39% 4.19% 4.25%
2523
26
- --------------------------------------------------------------------------------24
- ----------------------------------------------------------------------------------
SELECTED QUARTERLY INCOME STATEMENT DATA
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1998 1997
1996
------------------------------------ ------------------------------- ----------------------------------------------------
(in thousands of dollars, except per share amounts) IIIQ IIQ IQ IVQ IIIQI Q IV Q III Q II Q I Q
- --------------------------------------------------------------------------------------------------------------------- ---------- -------- -------- -------- --------
TOTAL INTEREST INCOME .............................INCOME................................ $502,480 $499,760 $502,821 $503,018 $475,874
$452,716 $445,453
TOTAL INTEREST EXPENSE ............................EXPENSE............................... 247,632 240,197 245,663 240,060 228,323 223,664 219,217
-------- -------- -------- -------- --------
NET INTEREST INCOME ...............................INCOME.................................. 254,848 259,563 257,158 262,958 247,551
229,052 226,236
Provision for loan losses .........................losses............................ 22,181 26,235 28,351 30,831 22,380 25,038 22,978
-------- -------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES .......................LOSSES.......................... 232,667 233,328 228,807 232,127 225,171 204,014 203,258
-------- -------- -------- -------- --------
Service charges on deposit accounts ................................ 30,837 31,035 30,382 28,841 27,594
27,434 27,262
Mortgage banking ...................................................................... 14,157 15,889 20,672 10,157 8,997
10,420 11,897
Trust services .......................................................................... 12,583 12,019 12,124 11,81411,815 12,145
10,724 10,381Brokerage and insurance income....................... 8,285 6,131 7,615 6,254 7,084
Electronic banking fees ...........................fees.............................. 5,731 6,153 5,947 6,192 4,364
3,999 3,452
Credit card fees ..................................fees..................................... 4,859 6,583 5,073 4,5234,522 4,195
5,235 4,255
Investment product sales .......................... 4,987 4,315 5,019 3,487 3,054
Securities gains .................................. 1,242gains..................................... 3,089 1,034 1,243 3,604 2,098
4,240 6,172
Other ............................................. 15,670 12,055 12,319 12,631 14,911Other................................................ 17,226 9,666 13,041 10,116 10,254
-------- -------- -------- -------- --------
TOTAL NON-INTEREST INCOME .................................................... 96,767 88,510 96,097 81,501 76,731 78,170 81,384
-------- -------- -------- -------- --------
Salaries .......................................... 76,068 74,769 72,188 70,041 69,480
Commissions ....................................... 6,139 4,437 4,711 3,581 3,407
Employee benefits ................................. 18,259 16,813 19,672 13,668 17,129Personnel and related costs.......................... 104,712 97,224 101,323 97,000 97,241
Outside data processing and other services........... 16,586 16,745 14,450 14,351 12,567
Equipment ......................................... 14,503 14,173 13,187 14,152 12,854........................................... 15,149 16,004 14,504 14,172 13,188
Net occupancy ............................................................................ 13,439 11,756 12,772 11,650 13,332
12,002 12,351
Advertising ....................................... 6,139 5,830 7,337 3,236 3,495Marketing............................................ 6,932 8,187 7,845 7,785 8,965
Telecommunications................................... 6,023 5,636 5,642 5,283 4,967
Legal and other professional services................ 5,788 8,318 6,095 5,089 5,429
Printing and supplies ............................. 5,384 5,035 4,926 5,216 4,771
Credit cardsupplies................................ 5,761 6,240 5,383 5,034 4,927
Franchise and electronic banking ................ 3,581 3,965 2,887 3,875 4,490
Legal and loan collection ......................... 3,541 3,186 2,716 4,004 2,235other taxes............................ 5,500 4,576 4,685 5,335 5,240
Amortization of intangible assets.................... 3,393 3,285 3,382 3,406 2,946
Special charges ...................................charges...................................... -- -- 47,163 0 0 0 0
Other ............................................. 51,361 45,947 42,905 35,233 38,261-- --
Other................................................ 14,507 10,561 21,666 16,700 15,059
-------- -------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE .................................................. 197,790 188,532 244,910 185,805 183,861 165,008 168,473
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES ........................Income Before Income Taxes .......................... 131,644 133,306 79,994 127,823 118,041 117,176 116,169
Provision for income taxes .................................................. 42,158 42,657 38,762 44,220 40,862 38,044 38,725
-------- -------- -------- -------- --------
NET INCOME .................................................................................. $ 89,486 $ 90,649 $ 41,232 $ 83,603$83,603 $ 77,179 $ 79,132 $ 77,444
======== ======== ======== ======== ========
PER COMMON SHARE (1)
Net income
...................................... $ 0.22 $ 0.44 $ 0.41 $ 0.42 $ 0.40Basic........................................... $0.47 $0.47 $0.22 $0.44 $0.41
Diluted......................................... $0.46 $0.47 $0.21 $0.43 $0.40
Cash dividends declared ......................... $ 0.20 $ 0.18 $ 0.18 $ 0.18 $ 0.18Dividends Declared............................. $0.20 $0.20 $0.20 $0.18 $0.18
FULLY TAX EQUIVALENT MARGIN:
Net Interest Income ................................................................ $254,848 $259,563 $257,158 $262,958 $247,551 $229,052 $226,236
Tax Equivalent Adjustment (2) ............................................ 2,655 2,754 3,115 2,948 3,047 3,018 3,026
-------- -------- -------- -------- --------
Tax Equivalent Net Interest Income .................................. $257,503 $262,317 $260,273 $265,906 $250,598 $232,070 $229,262
========
======== ======== ======== ======== ========
(1) Adjusted for stock splits and stock dividends, as applicable.
(2) Calculated assuming a 35% tax rate.
24
25
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: May 15, 1998 /s/ RALPH K. FRASIER
------------------------------------
Ralph K. Frasier
General Counsel and Secretary
Date: May 15, 1998 /s/ GERALD R. WILLIAMS
------------------------------------
Gerald R. Williams
Executive Vice President and
Chief Financial Officer
(principal accounting officer)
26 27
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. 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 -- previously
filed as Exhibit 3(i)(b) to Quarterly Report
on Form 10-Q for the quarter ended March 31,
1996, and incorporated herein by reference.
( i )( c ) Articles of Amendment to Articles
of Restatement of Charter.
( ii ) Bylaws -- previously filed as Exhibit
3(b)2(ii) to Annual Report on Form 10-K for the
year ended December 31, 1987,1997, 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 as amended by Articles of Amendment to
Articles of Restatement of Charter
previously filed as Exhibit 3(i)(b) to
Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, and incorporated herein by reference.supplemented. 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
27
28
(b) Reports on Form 8-K
1. A Reportreport on Form 8-K, dated JulyJanuary 14,
1997,1998, was filed under report itemsitem numbers 5
and 7, concerning Huntington's results of
operations for the fourth quarter and year
ended June 30,
1997, and the merger of certain of its bank
subsidiaries.December 31, 1997.
27
2. A Reportreport on Form 8-K, dated September 30,
1997,March 11, 1998,
was filed under report items 2,item number 5 and
7,
concerning the completionretirement of Huntington's
acquisition of First Michigan Bank
Corporation. That report was amended by a
Report on Form 8-K/A, dated September 30,
1997, to includeZuheir Sofia,
President, Chief Operating Officer, and
Treasurer, and certain required financial
information of First Michigan Bank
Corporation.
28
29
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, 1997 /s/ Ralph K. Frasier
--------------------
Ralph K. Frasier
General Counsel and Secretary
Date: November 14, 1997 /s/ Gerald R. Williams
----------------------
Gerald R. Williams
Executive Vice President and
Chief Financial Officer
(principal accounting officer)
29
post-retirement
matters.