1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY PERIOD ENDED JuneSeptember 30, 1999
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 230,313,894229,757,210 shares of Registrant's without par value common stock
outstanding on July 30,October 31, 1999.
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PART I. FINANCIAL INFORMATION
1. FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
JUNESEPTEMBER 30, DECEMBERDecember 31, JUNESeptember 30,
(in thousands of dollars) 1999 1998 1998
- ---------------------------------------------------------------------------- ------------------------ ------------ ------------------------
ASSETS
Cash and due from banks .................................................... $ 996,065972,164 $ 1,215,814 $ 1,151,7841,143,684
Interest bearing deposits in banks ......................................... 7,9787,325 102,564 278,4002,776
Trading account securities ................................................. 12,0583,964 3,839 30,24413,039
Federal funds sold and securities
purchased under resale agreements ..................................... 10,23310,310 135,764 707,377
Mortgages14,641
Loans held for sale .................................................... 236,260........................................................ 681,505 466,664 305,741300,076
Securities available for sale - at fair value .............................. 4,573,1605,086,596 4,781,415 4,467,9864,536,798
Investment securities - fair value $21,350;$20,129; $25,044;
and $29,898,$27,443, respectively ............................................. 21,30720,110 24,934 29,63726,937
Total loans (1) ............................................................ 20,152,69820,009,020 19,454,551 19,061,83919,137,552
Less allowance for loan losses ........................................ 293,274295,612 290,948 286,864286,122
----------- ----------- -----------
Net loans .................................................................. 19,859,42419,713,408 19,163,603 18,774,97518,851,430
----------- ----------- -----------
Bank owned life insurance .................................................. 746,618756,008 727,837 612,516620,614
Premises and equipment ..................................................... 443,485434,584 447,038 496,840526,454
Customers' acceptance liability ............................................ 14,94824,684 22,591 25,90618,027
Accrued income and other assets ............................................ 1,239,5441,263,964 1,204,273 1,305,8131,300,620
----------- ----------- -----------
TOTAL ASSETS ............................................................... $28,161,080$28,974,622 $28,296,336 $28,187,219$27,355,096
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits (1) ......................................................... $18,933,161$19,241,808 $19,722,772 $19,666,248$19,246,735
Short-term borrowings ...................................................... 2,275,9802,501,862 2,216,644 1,655,2441,782,208
Bank acceptances outstanding ............................................... 14,94824,684 22,591 25,90618,027
Medium-term notes .......................................................... 3,199,9003,424,150 2,539,900 3,147,1502,524,900
Subordinated notes and other long-term debt ................................ 700,518700,597 707,359 749,692731,779
Company obligated mandatorily redeemable preferred
capital securities of subsidiary trusts holding solely
junior subordinated debentures of the Parent Company ......................................... 300,000 300,000 300,000
Accrued expenses and other liabilities ..................................... 590,371622,356 638,275 509,130533,398
----------- ----------- -----------
Total Liabilities ..................................................... 26,014,87826,815,457 26,147,541 26,053,37025,137,047
----------- ----------- -----------
Shareholders' equity
Preferred stock - authorized 6,617,808 shares;
none issued or outstanding
Common stock - without par value; authorized 500,000,000 shares; issued
212,596,344,233,844,900, 212,596,344, and 193,279,797212,596,344 shares, respectively;
outstanding 209,710,432,229,807,644, 210,746,337, and
192,425,915211,476,187 shares, respectively ................................. 2,152,076 2,152,076 1,528,7682,285,494 2,137,915 2,139,742
Treasury stock ........................................................ (85,202)(112,229) (49,271) (22,832)
Capital surplus ....................................................... (18,043) (14,161) 393,296(28,765)
Accumulated other comprehensive income ................................ (55,564)(73,746) 24,693 15,37660,675
Retained earnings ..................................................... 152,93559,646 35,458 219,24146,397
----------- ----------- -----------
Total Shareholders' Equity ............................................ 2,146,2022,159,165 2,148,795 2,133,8492,218,049
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITYTotal Liabilities and Shareholders' Equity ................................. $28,161,080$28,974,622 $28,296,336 $28,187,219$27,355,096
=========== =========== ===========
(1) See page 12 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 SIXNINE MONTHS ENDED
(in thousands of dollars, except per share amounts) JUNESEPTEMBER 30, JUNESEPTEMBER 30,
- ----------------------------------------------------- ----------------------------- ----------------------------------------------------------------------------------- --------------------- -------------------------
1999 1998 1999 1998
------------ ------------ ------------ -------------------- -------- ---------- ----------
Interest and fee income
Loans .......................................... $ 415,451 $ 399,134 $ 825,632 $ 799,941........................................... $434,159 $421,745 $1,259,791 $1,221,686
Securities ..................................... 77,879 84,369 156,731 181,540...................................... 78,632 68,147 235,363 249,687
Other .......................................... 5,170 7,765 11,829 12,267
------------ ------------ ------------ ------------........................................... 3,503 15,329 15,332 27,596
-------- -------- ---------- ----------
TOTAL INTEREST INCOME ................ 498,500 491,268 994,192 993,748
------------ ------------ ------------ ------------................. 516,294 505,221 1,510,486 1,498,969
-------- -------- ---------- ----------
Interest expense
Deposits ....................................... 153,168 162,153 309,473 324,405........................................ 159,509 177,821 468,982 502,226
Short-term borrowings .......................... 30,528 24,343 61,003 58,165........................... 26,700 17,152 87,703 75,317
Medium-term notes .............................. 39,353 46,236 74,107 87,676............................... 46,575 42,163 120,682 129,839
Subordinated notes and other long-term debt .... 14,303 11,107 28,940 21,225
------------ ------------ ------------ ------------..... 15,079 16,570 44,019 37,795
-------- -------- ---------- ----------
TOTAL INTEREST EXPENSE ............... 237,352 243,839 473,523 491,471
------------ ------------ ------------ ------------................ 247,863 253,706 721,386 745,177
-------- -------- ---------- ----------
NET INTEREST INCOME .................. 261,148 247,429 520,669 502,277................... 268,431 251,515 789,100 753,792
Provision for loan losses ........................... 21,026 24,595 46,331 46,776
------------ ------------ ------------ ------------............................ 22,076 24,160 68,407 70,936
-------- -------- ---------- ----------
NET INTEREST INCOME
AFTER PROVISION FOR LOAN LOSSES.. 240,122 222,834 474,338 455,501
------------ ------------ ------------ ------------LOSSES .. 246,355 227,355 720,693 682,856
-------- -------- ---------- ----------
Total non-interest income (1) ....................... 117,276 119,656 227,148 215,075........................ 115,654 114,641 342,802 329,716
Total non-interest expense (1) ...................... 202,138 206,678 404,244 403,120
------------ ------------ ------------ ------------....................... 206,189 211,877 610,433 614,997
-------- -------- ---------- ----------
INCOME BEFORE INCOME TAXES ........... 155,260 135,812 297,242 267,456............ 155,820 130,119 453,062 397,575
Provision for income taxes .......................... 50,285 43,503 95,695 85,661
------------ ------------ ------------ ------------........................... 50,233 41,364 145,928 127,025
-------- -------- ---------- ----------
NET INCOME ....................................................... $105,587 $ 104,97588,755 $ 92,309307,134 $ 201,547 $ 181,795
============ ============ ============ ============270,550
======== ======== ========== ==========
PER COMMON SHARE (2)
Net income
Basic ........................................................................... $ 0.450.46 $ 0.400.38 $ 0.871.33 $ 0.781.16
Diluted ....................................................................... $ 0.450.46 $ 0.390.38 $ 0.861.32 $ 0.771.15
Cash dividends declared ................................................. $ 0.20 $ 0.18 $ 0.160.56 $ 0.36 $ 0.320.50
AVERAGE COMMON SHARES (2)
Basic ..................................... 230,975,889 232,759,820 231,217,450 232,638,050...................................... 230,133 232,886 230,851 232,721
Diluted ................................... 233,154,045 236,130,212 233,278,544 235,660,798.................................... 232,015 234,845 232,853 235,060
(1) See page 13 for detail of non-interest income and non-interest expense.
(2) Adjusted for the ten percent stock dividend distributed July 1999.dividends and stock splits, 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) ACCUMULATED
OTHER
COMMON COMMON TREASURY TREASURY CAPITAL COMPREHENSIVE RETAINED
SHARES STOCK SHARES STOCK SURPLUS INCOME EARNINGS TOTAL
- ------------------------------------------------------------------------------------- ------- ---------- -------- -------- ------------------ ------------- -------- ----------
SixNine Months Ended JuneSeptember 30, 1998:
Balance, beginning of period 193,279 $1,528,768$1,933,003 (1,543) $(36,791) $404,235 $ 14,800($36,791) $14,800 $114,379 $2,025,391
Comprehensive Income:
Net income 181,795 181,795270,550 270,550
Unrealized net holding gains on securities
available for sale arising during the
period 576 57645,875 45,875
----------
Total comprehensive income 182,371316,425
----------
Cash dividends declared (76,933) (76,933)(119,289) (119,289)
Stock issued for acquisition (3,815) 160 3,883 (3,815) 68
Stock options exercised 510 9,597 (7,328) 2,269(8,521) 642 12,151 3,630
10% stock dividend 19,317 218,871 (83) (219,243) (372)
Treasury shares purchased (315) (8,487) (8,487)
Treasury shares sold to
employee benefit plans 204 19 479 204 683
------- ---------- ------ -------- ----------------- -------- -------- ----------
Balance, end of period 193,279 $1,528,768 (854) $(22,832) $393,296 $ 15,376 $219,241 $2,133,849212,596 $2,139,742 (1,120) ($28,765) $60,675 $46,397 $2,218,049
======= ========== ====== ======== ================= ======== ======== ==========
SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 1999:1999
BALANCE, BEGINNING OF PERIOD 212,596 $2,152,076$2,137,915 (1,850) $(49,271) $(14,161) $ 24,693 $ 35,458($49,271) $24,693 $35,458 $2,148,795
COMPREHENSIVE INCOME:
NET INCOME 201,547 201,547307,134 307,134
UNREALIZED NET HOLDING LOSSES ON SECURITIES
AVAILABLE FOR SALE ARISING DURING THE
PERIOD (80,257) (80,257)(98,439) (98,439)
----------
TOTAL COMPREHENSIVE INCOME 121,290208,695
----------
CASH DIVIDENDS DECLARED (84,070) (84,070)(130,011) (130,011)
STOCK OPTIONS EXERCISED 227 6,221 (3,882) 2,339(5,005) 294 8,193 3,188
10% STOCK DIVIDEND 21,249 152,584 (304) (152,935) (351)
TREASURY SHARES PURCHASED (1,287) (42,861) (42,861)(2,201) (71,860) (71,860)
TREASURY SHARES SOLD TO
EMPLOYEE BENEFIT PLANS 24 709 709
------- ---------- ------ --------- -------- -------- -------- ----------------- ----------
BALANCE, END OF PERIOD 212,596 $2,152,076 (2,886) $(85,202) $(18,043) $(55,564) $152,935 $2,146,202233,845 $2,285,494 (4,037) ($112,229) ($73,746) $59,646 $2,159,165
======= ========== ====== ========= ======== ======== ======== ================= ==========
See notes to unaudited consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
SIXNINE MONTHS ENDED JUNESEPTEMBER 30,
-----------------------------------------------------------
(in thousands of dollars) 1999 1998
----------- -----------
OPERATING ACTIVITIES
Net Income ................................................................................................................................. $ 201,547307,134 $ 181,795270,550
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses ........................................ 46,331 46,776....................................... 68,407 70,936
Provision for depreciation and amortization ...................... 59,294 34,922..................... 85,691 57,887
Deferred income tax expense ...................................... 20,432 12,265..................................... 42,854 30,201
Increase in trading account securities ........................... (8,219) (23,162).......................... (125) (5,957)
Decrease (increase) in mortgagesmortgage loans held for sale ................... 230,404 (112,793)............. 328,262 (107,128)
Net gains on sales of securities available for sale .............. (4,530) (17,405)................................ (5,067) (28,020)
Net gains on sales of loans ........................................................................... -- (9,857)
(Increase) decrease in accrued income receivable ................. (12,849) 4,059................ (30,331) 28,041
Net increase in other assets ..................................... (81,392) (56,326)
Decrease.................................... (110,193) (91,078)
Increase (decrease) in accrued expenses ..................................... (23,459) (5,954)......................... 17,082 (32,225)
Net increase (decrease)decrease in other liabilities ..................... 15,531 (37,129)............................... (9,854) (33,509)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................ 443,090 17,191............... 693,860 149,841
----------- -----------
INVESTING ACTIVITIES
Decrease (increase) in interest bearing deposits in banks .................. 94,586 (238,782)............................ 95,239 36,842
Proceeds from :
Maturities and calls of investment securities .......................... 3,610 3,319......................... 4,796 5,999
Maturities and calls of securities available for sale .................. 425,168 387,959................. 570,841 932,590
Sales of securities available for sale ................................. 1,537,067 2,606,218................................ 1,660,969 3,422,023
Purchases of securities available for sale ................................. (1,875,651) (1,611,060)................................ (2,686,470) (2,959,346)
Proceeds from sales of loans ............................................... 2,853.............................................. -- 132,712
Net loan originations, excluding sales ..................................... (745,835) (53,807).................................... (1,168,814) (156,227)
Proceeds from disposal of premises and equipment ........................... 2,783 776.......................... 14,410 809
Purchases of premises and equipment ........................................ (37,704) (66,492)....................................... (52,801) (105,518)
Proceeds from sales of other real estate ................................... 5,727 7,058.................................. 11,180 9,452
Purchase of Bank Owned Life Insurance ........................................................................... -- (200,000)
Net cash received in purchase acquisitions ................................................................. -- 344,046
----------- -----------
NET CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES...... (587,396) 1,311,947ACTIVITIES .... (1,550,650) 1,463,382
----------- -----------
FINANCING ACTIVITIES
Decrease in total deposits ................................................. (789,583) (728,747)................................................ (480,924) (1,154,770)
Increase (decrease) in short-term borrowings ............................... 59,336 (1,486,427).............................. 285,218 (1,359,463)
Proceeds from issuance of long-term debt ..................................................................... -- 300,000
MaturityPayment of long-term debt ................................................. (7,000) (47,538)(65,538)
Proceeds from issuance of medium-term notes ................................ 1,675,000............................... 2,082,000 1,020,000
Payment of medium-term notes ............................................... (1,015,000) (205,000).............................................. (1,197,750) (827,250)
Proceeds from issuance of capital securities ............................................................. -- 100,000
Dividends paid on common stock ............................................. (83,914) (76,786)............................................ (125,895) (115,272)
Repurchase of common stock ................................................. (42,861) --................................................ (71,860) (8,487)
Proceeds from issuance of common stock ..................................... 3,048 2,952.................................... 3,897 4,313
----------- -----------
NET CASH USED FORPROVIDED BY (USED FOR) FINANCING ACTIVITIES ................... (200,974) (1,121,546).... 487,686 (2,106,467)
----------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS ...................... (345,280) 207,592..................... (369,104) (493,244)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................. 1,351,578 1,651,569
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................. $ 1,006,298982,474 $ 1,859,1611,158,325
=========== ===========
See notes to unaudited consolidated financial statements.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
A. Basis of PresentationBASIS OF PRESENTATION
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 consolidated financial
position, the results of operations, and cash flows for the periods presented.
These unaudited consolidated financial statements have been prepared according
to the rules and regulations of the Securities and Exchange Commission and,
therefore, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. The Notes to the Consolidated Financial Statements
appearing in Huntington's 1998 Annual Report on Form 10-K should be read in
conjunction with these interim financial statements.
B. ReclassificationsRECLASSIFICATIONS
Certain amounts in the prior year's financial statements have been
reclassified to conform withto the 1999 presentation. These reclassifications had no
effect on net income.
C. Comprehensive IncomeCOMPREHENSIVE 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 sale. The
related before and after tax amounts are as follows (in thousands):
THREE MONTHS ENDED SIXNINE MONTHS ENDED
JUNESEPTEMBER 30 JUNESEPTEMBER 30
---------------------- --------------------------------------------------
1999 1998 1999 1998
-------- -------- --------- --------
Unrealized holding gains (losses)
arisingArising during the period:
Unrealized net (losses) gains $(55,749)$(27,576) $ 22,000 $(119,815)80,688 $(147,391) $ 18,29698,984
Related tax benefit (expense) 19,848 (7,729) 42,502 (6,407)9,744 (28,489) 52,245 (34,896)
-------- -------- --------- --------
Net (35,901) 14,271 (77,313) 11,889(17,832) 52,199 (95,146) 64,088
-------- -------- --------- --------
Reclassification adjustment
forFor net gains realized
during the period
Realized net gains (2,220) (14,316) (4,530) (17,405)(537) (10,615) (5,067) (28,020)
Related tax expense 777 5,011 1,586 6,092188 3,715 1,774 9,807
-------- -------- --------- --------
Net (1,443) (9,305) (2,944) (11,313)
======== ======== ========= ========(349) (6,900) (3,293) (18,213)
-------- -------- --------- --------
Total Other Comprehensive Income $(37,344)$(18,181) $ 4,96645,299 $ (80,257)(98,439) $ 57645,875
======== ======== ========= ========
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D. New Accounting PronouncementsNEW ACCOUNTING PRONOUNCEMENTS
In JuneSeptember 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities". This Statement (as amended by
Statement No. 137) establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset
or liability measured at its fair value. The Statement requires that changes in
the derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows gains and losses from derivatives to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions for which
hedge accounting is applied.
Statement No. 133, as amended, is effective for fiscal years beginning
after JuneSeptember 15, 2000. It may be implemented earlier provided adoption occurs
as of the beginning of any fiscal quarter after issuance. The Statement cannot
be applied retroactively. This Statement must be applied to (a) all free-standing
derivative instruments and (b) certain derivative instruments embedded in hybrid
contracts that were issued, acquired, or substantively modified after December
31, 1997.
Huntington expects to adopt Statement No. 133, as
amended, in the first quarter of 2001. Based on information available, the
impact of adoption is not expected to be material to the Consolidated Financial
Statements.
E. Trust Preferred SecuritiesTRUST PREFERRED SECURITIES
In January 1997, Huntington Capital I ("the Trust"), a Delaware
statutory business trust owned by Huntington, issued $200 million of company
obligated mandatorily redeemable capital securities. The proceeds from the
issuance of the capital securities ($200 million) and common securities ($6.2
million) were used by the Trust to purchase from Huntington $206.2 million of
Floating Rate Junior Subordinated Debentures.
In JuneSeptember 1998, an additional $100 million of company obligated
mandatorily redeemable capital securities were issued by Huntington Capital II
("the Series B Trust"), a statutory business trust also owned by Huntington. The
proceeds, including $3.1 million of common securities purchased by Huntington,
were used by the Series B Trust to purchase from Huntington $103.1 million of
Series B Floating Rate Junior Subordinated Debentures.
The subordinated debentures are the sole assets of each trust and
Huntington owns all of the common securities of the trusts. Interest payments
made on the capital securities are reported as a component of interest expense
on long-term debt. The capital securities bear interest and mature as follows:
Variable Interest
Rate Maturity Date
----------------- -----------------------------
Huntington Capital I LIBOR + .70% February 1, 2027
Huntington Capital II LIBOR + .625% JuneSeptember 15, 2028
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The net proceeds received by Huntington from the sale of the capital
securities were used for general corporate purposes.
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F. Special ChargeSPECIAL CHARGE
In October 1998, Huntington announced several initiatives to strengthen
its financial performance. These initiatives included the realignment of the
banking network; the exit of underperforming product lines and delivery
channels; the reduction of 1,000 work force positions, or approximately 10% of
the total employee base; and other cost savings measures. As a result of the
above initiatives, Huntington incurred a special charge of $90 million in the
fourth quarter of 1998. Refer to Note 2 in the Notes to the Consolidated
Financial Statements appearing in Huntington's 1998 Annual Report on Form 10-K
for further information.
The table below summarizes the major components of the special charge,
as well as the related amounts applied against the reserve through JuneSeptember 30,
1999. Huntington expects that the remaining reserve of $31$21 million, which
represents estimated future cash outlays, will be substantially utilized by the
end of 1999.
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
EMPLOYEE OPERATIONS RETAIL EXIT
(in millions of dollars) COSTS EQUIPMENT BANK OFFICES COSTS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Special Charge $26 $ 12 $20 $32 $ 90
Utilization:
Cash (8) -- -- (7) (15)
Non-cash -- (12) (5) (4) (21)
--- ---- --- --- ----
Balance as of December 31, 1998 18 -- 15 21 54
--- ---- --- --- ----
Utilization (4) -- (4) (5) (13)
--- ---- --- --- ----
Balance as of March 31, 1999 14 -- 11 16 41
--- ---- --- --- ----
Utilization (2) -- (1) (7) (10)
--- ---- --- --- ----
Balance as of June 30, 1999 $1212 -- 10 9 31
--- ---- --- --- ----
Utilization (5) -- -- (5) (10)
--- ---- --- --- ----
Balance as of September 30, 1999 $ 7 $ -- $10 $ 94 $ 3121
=== ==== === === ====
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G. Earnings per ShareEARNINGS PER SHARE
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.
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The calculation of basic and diluted earnings per share for each of the
periods ended JuneSeptember 30, is as follows (in thousands, except per share
amounts):
THREE MONTHS ENDED SIXNINE MONTHS ENDED
JUNESEPTEMBER 30 JUNESEPTEMBER 30
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
Net Income $104,975$105,587 $ 92,309 $201,547 $181,79588,755 $307,134 $270,550
======== ======== ======== ========
Average common shares outstanding 230,976 232,760 231,217 232,638230,133 232,886 230,851 232,721
Dilutive effect of stock options 2,178 3,370 2,062 3,0231,882 1,959 2,002 2,339
-------- -------- -------- --------
Diluted common shares outstanding 233,154 236,130 233,279 235,661232,015 234,845 232,853 235,060
======== ======== ======== ========
Earnings per share
Basic $ .45.46 $ .40.38 $ .871.33 $ .781.16
Diluted $ .45.46 $ .39.38 $ .861.32 $ .771.15
Average common shares outstanding and the dilutive effect of stock options have
been adjusted for subsequent stock dividends and stock splits, as applicable.
H. 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. Results are revised periodically to reflect
enhancements to Huntington's profitability reporting system and changes in its
organizational structure. For a detailed description of the individual segments,
refer to Huntington's Management Discussion and Analysis.
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H. LINES OF BUSINESS - CONTINUED
THREE MONTHS ENDED JUNESEPTEMBER 30, 1999
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Private
Retail Corporate Dealer Financial Treasury/ Huntington
Banking Banking Sales Group Other Consolidated
-------- --------- ------- --------- --------- ------------
INCOME STATEMENT
(IN THOUSANDS OF DOLLARS)
- -------------------------
Net Interest Income (FTE) $139,501 $65,033 $46,343$143,439 $66,035 $52,807 $ 6,9086,955 $ 5,753 $263,5381,475 $270,711
Provision for Loan Losses 8,143 2,834 9,764 2858,304 4,040 9,130 602 -- 21,02622,076
Non-Interest Income 74,100 16,824 550 12,001 13,801 117,27670,471 17,927 1,107 11,798 14,351 115,654
Non-Interest Expense 133,287 32,217 12,034 10,139 14,461 202,138133,388 31,350 12,224 10,239 18,988 206,189
Income Taxes and FTE Adjustment 24,115 15,640 8,385 2,835 1,700 52,67523,971 16,138 10,822 2,629 (1,047) 52,513
-------- ------- ------- ------- ------- --------
Net Income $ 48,056 $31,166 $16,71048,247 $32,434 $21,738 $ 5,650 $ 3,393 $104,9755,283 $(2,115) $105,587
======== ======= ======= ======= ======= ========
Depreciation & Amortization $ 16,42113,855 $ 2,2352,119 $ 292282 $ 374 $10,400354 $ 29,7229,787 $ 26,397
======== ======= ======= ======= ======= ========
OTHER FINANCIAL DATA
(IN MILLIONS OF DOLLARS)
- ------------------------
Average Identifiable Assets (avg.) $ 7,0896,981 $ 7,2807,249 $ 6,0266,291 $ 578583 $ 7,7587,697 $ 28,73128,801
Average Total Deposits (avg.) 16,897 1,00616,792 1,007 64 516 590 19,073537 799 19,199
Capital Expenditures 35 1 -- -- 16 209 15
THREE MONTHS ENDED JUNESEPTEMBER 30, 1998
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Private
Retail Corporate Dealer Financial Treasury/ Huntington
Banking Banking Sales Group Other Consolidated
-------- --------- ------- --------- --------- ------------
INCOME STATEMENT
(IN THOUSANDS OF DOLLARS)
- -------------------------
Net Interest Income (FTE) $131,001 $63,600 $38,580$139,710 $67,782 $41,130 $ 7,869 $ 8,960 $250,0108,037 $(2,577) $254,082
Provision for Loan Losses 7,955 3,332 12,927 3815,924 7,743 10,296 197 -- 24,59524,160
Non-Interest Income 58,951 17,299 1,699 10,243 31,464 119,65656,788 18,804 2,034 10,465 26,550 114,641
Non-Interest Expense 134,336 36,448 12,515 9,960 13,419 206,678141,593 32,863 12,129 9,596 15,696 211,877
Income Taxes and FTE Adjustment 15,870 13,692 4,941 2,588 8,993 46,08416,213 15,219 6,865 2,883 2,751 43,931
-------- ------- ------- ------- ------- --------
Net Income $ 31,791 $27,42732,768 $30,761 $13,874 $ 9,8965,826 $ 5,183 $18,0125,526 $ 92,30988,755
======== ======= ======= ======= ======= ========
Depreciation & Amortization $ 12,97212,153 $ 1,5071,018 $ 14854 $ 296188 $ 2,2319,552 $ 17,15422,965
======== ======= ======= ======= ======= ========
OTHER FINANCIAL DATA
(IN MILLIONS OF DOLLARS)
- ------------------------
Average Identifiable Assets (avg.) $ 6,9977,359 $ 6,2496,893 $ 5,1415,362 $ 616633 $ 7,0697,268 $ 26,07227,515
Average Total Deposits (avg.) 15,336 978 66 473 601 17,45417,433 1,032 64 474 322 19,325
Capital Expenditures 7 119 2 -- -- 36 4419 40
10
11
SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 1999
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Private
Retail Corporate Dealer Financial Treasury/ Huntington
Banking Banking Sales Group Other Consolidated
-------- --------- --------------- --------- --------- ------------
INCOME STATEMENT
(IN THOUSANDS OF DOLLARS)
- -------------------------
Net Interest Income (FTE) $273,097 $131,758 $91,992 $14,404 $14,312 $525,563$416,536 $197,793 $144,799 $21,359 $15,787 $796,274
Provision for Loan Losses 17,966 7,245 20,715 40526,270 11,285 29,845 1,007 -- 46,33168,407
Non-Interest Income 139,362 32,683 941 23,495 30,667 227,148209,833 50,610 2,048 35,293 45,018 342,802
Non-Interest Expense 267,943 62,432 23,540 19,739 30,590 404,244401,331 93,782 35,764 29,978 49,578 610,433
Income Taxes and FTE Adjustment 42,132 31,550 16,206 5,911 4,790 100,58966,103 47,688 27,028 8,540 3,743 153,102
-------- -------- --------------- ------- ------- --------
Net Income $132,665 $ 84,41895,648 $ 63,214 $32,472 $11,84454,210 $17,127 $ 9,599 $201,5477,484 $307,134
======== ======== =============== ======= ======= ========
Depreciation & Amortization $ 32,96146,816 $ 4,2286,347 $ 558840 $ 747 $20,8001,101 $30,587 $ 59,29485,691
======== ======== =============== ======= ======= ========
OTHER FINANCIAL DATA
(IN MILLIONS OF DOLLARS)
- ------------------------
Average Identifiable Assets (avg.) $ 7,0527,028 $ 7,2357,240 $ 5,9156,042 $ 591588 $ 7,7847,755 $ 28,57728,653
Average Total Deposits (avg.) 17,028 1,004 62 522 486 19,10216,948 1,005 63 527 592 19,135
Capital Expenditures 8 213 3 -- -- 28 3837 53
SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Private
Retail Corporate Dealer Financial Treasury/ Huntington
Banking Banking Sales Group Other Consolidated
-------- --------- --------------- --------- --------- ------------
INCOME STATEMENT
(IN THOUSANDS OF DOLLARS)
- -------------------------
Net Interest Income (FTE) $264,960 $121,783 $80,291 $15,725 $24,754 $507,513$404,670 $189,565 $121,421 $23,762 $22,177 $761,595
Provision for Loan Losses 21,448 5,557 19,041 73027,372 13,300 29,337 927 -- 46,77670,936
Non-Interest Income 113,614 34,092 3,375 20,692 43,302 215,075170,402 52,896 5,409 31,157 69,852 329,716
Non-Interest Expense 263,324 69,385 24,883 19,542 25,986 403,120404,917 102,248 37,012 29,138 41,682 614,997
Income Taxes and FTE Adjustment 31,228 26,945 13,231 5,375 14,118 90,89747,441 42,164 20,096 8,258 16,869 134,828
-------- -------- --------------- ------- ------- --------
Net Income $ 62,57495,342 $ 53,988 $26,511 $10,770 $27,952 $181,79584,749 $ 40,385 $16,596 $33,478 $270,550
======== ======== =============== ======= ======= ========
Depreciation & Amortization $ 24,91537,068 $ 2,9623,980 $ 310364 $ 587775 $15,700 $ 6,148 $ 34,92257,887
======== ======== =============== ======= ======= ========
OTHER FINANCIAL DATA
(IN MILLIONS OF DOLLARS)
- ------------------------
Average Identifiable Assets (avg.) $ 6,8577,026 $ 6,3716,547 $ 5,0855,178 $ 613620 $ 7,2747,272 $ 26,20026,643
Average Total Deposits (avg.) 15,289 951 61 469 698 17,46816,012 978 62 471 571 18,094
Capital Expenditures 14 233 4 -- -- 50 6669 106
11
12
- ----------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------
FINANCIAL REVIEW
- ----------------------------------------------------------------------------------------------------
LOAN PORTFOLIO COMPOSITION
- ----------------------------------------------------------------------------------------------------
JUNE-------------------------------------------------------------------------------------------------
SEPTEMBER 30, December 31, JuneSeptember 30,
(in thousands of dollars) 1999 1998 1998
- ---------------------------------------------------- --------------------------------------------------------- ------------- ------------ ------------------------
Commercial .........................................(1) ............................... $ 6,185,2286,103,070 $ 6,026,736 $ 5,843,1905,894,899
Real Estate
Construction .................................. 1,040,861............................ 1,140,187 919,326 820,015826,301
Commercial .................................... 2,255,103.............................. 2,178,699 2,231,786 2,281,3302,254,991
Residential ................................... 1,418,090............................. 1,434,353 1,408,289 1,536,5101,478,354
Consumer
Loans .......................................... 6,995,922(1) ................................ 6,646,372 6,958,054 6,886,1076,908,927
Leases ......................................... 2,257,692................................... 2,506,509 1,910,642 1,695,101
----------- ----------- -----------
20,152,8961,774,429
------------ ------------ ------------
20,009,190 19,454,833 19,062,25319,137,901
Unearned Incomeincome on Loans ........................... (198)loans ..................... (170) (282) (414)
----------- ----------- -----------(349)
------------ ------------ ------------
TOTAL LOANS ................................... $20,152,698 $19,454,551 $19,061,839
=========== =========== ===========............................. $ 20,009,020 $ 19,454,551 $ 19,137,552
============ ============ ============
- ----------------------------------------------------------------------------------------------------
DEPOSIT COMPOSITION
- ----------------------------------------------------------------------------------------------------
JUNE-------------------------------------------------------------------------------------------------
SEPTEMBER 30, December 31, JuneSeptember 30,
(in thousands of dollars) 1999 1998 1998
- ---------------------------------------------------- --------------------------------------------------------- ------------- ------------ ------------------------
Demand deposits
Non-interest bearing ............................................. $ 2,864,8982,888,886 $ 3,129,199 $ 2,847,3072,863,784
Interest bearing ............................. 4,683,698........................ 4,549,729 4,642,147 4,618,6744,244,527
Savings deposits .................................. 3,979,230............................. 3,913,901 3,690,040 3,456,8103,636,995
Other domestic time deposits ...................... 5,374,687................. 5,707,685 6,186,985 6,694,770
----------- ----------- -----------6,560,886
------------ ------------ ------------
TOTAL CORE DEPOSITS .......................... 16,902,513..................... 17,060,201 17,648,371 17,617,561
----------- ----------- -----------17,306,192
------------ ------------ ------------
Certificates of deposit of $100,000 or more........ 1,634,203more .. 1,695,764 1,699,261 2,008,8871,825,802
Foreign time deposits ............................. 396,445........................ 485,843 375,140 39,800
----------- ----------- -----------114,741
------------ ------------ ------------
TOTAL DEPOSITS ............................... $18,933,161 $19,722,772 $19,666,248
=========== =========== ===========.......................... $ 19,241,808 $ 19,722,772 $ 19,246,735
============ ============ ============
(1) Balance at September 1999, excludes $25 million of business credit card and
$518 million of consumer credit card receivables, respectively, classified as
"held for sale".
12
13
- ----------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------
FINANCIAL REVIEW
- ----------------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF NON-INTEREST INCOME
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIXNINE MONTHS ENDED
(in thousands of dollars) JUNESEPTEMBER 30, JUNESEPTEMBER 30,
- ----------------------------------------------------------------------------------------------------------- --------------------- PERCENT --------------------- PERCENT
1999 1998 CHANGE 1999 1998 CHANGE
-------- -------- ------- -------- -------- -------
Service charges on deposit accounts ................................... $ 36,06541,700 $ 30,428 18.53%32,493 28.3% $113,541 $ 71,841 $ 59,918 19.90%
Mortgage banking ...................................... 17,224 15,191 13.38 33,182 29,348 13.06
Trust services ........................................ 13,143 12,745 3.12 26,577 25,328 4.9392,411 22.9%
Brokerage and insurance income ........................ 12,540 8,520 47.18 24,083 16,805 43.31............................ 14,620 10,057 45.4 38,703 26,862 44.1
Mortgage banking ................................... 14,282 15,270 (6.5) 47,464 44,618 6.4
Trust services ..................................... 12,625 12,502 1.0 39,202 37,830 3.6
Electronic banking fees ............................... 9,410 7,520 25.13 17,448 13,268 31.50............................ 9,771 7,897 23.7 27,219 21,165 28.6
Bank Owned Life Insurance income ......................................... 9,390 7,168 31.00 18,780 12,516 50.058,098 16.0 28,170 20,614 36.7
Credit card fees ...................................... 6,255 5,450 14.77 11,597 10,345 12.10................................... 6,626 5,197 27.5 18,223 15,542 17.3
Other ................................................. 11,029 18,318 (39.79) 19,110 30,142 (36.60).............................................. 6,103 12,512 (51.2) 25,213 42,654 (40.9)
-------- -------- -------- --------
TOTAL NON-INTEREST INCOME BEFORE SECURITIES GAINS...... 115,056 105,340 9.22 222,618 197,670 12.62GAINS .. 115,117 104,026 10.7 337,735 301,696 11.9
-------- -------- -------- --------
Securities gains ...................................... 2,220 14,316 (84.49) 4,530 17,405 (73.97)................................... 537 10,615 (94.9) 5,067 28,020 (81.9)
-------- -------- -------- --------
TOTAL NON-INTEREST INCOME ............................. $117,276 $119,656 (1.99)% $227,148 $215,075 5.61%.......................... $115,654 $114,641 0.9% $342,802 $329,716 4.0%
======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF NON-INTEREST EXPENSE
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIXNINE MONTHS ENDED
(in thousands of dollars) JUNESEPTEMBER 30, JUNESEPTEMBER 30,
- ----------------------------------------------------------------------------------------------------------- --------------------- PERCENT --------------------- PERCENT
1999 1998 CHANGE 1999 1998 CHANGE
-------- -------- ------- -------- -------- -------
Personnel and related costs ........................... $107,263 $108,483 (1.12)........................ $104,730 $111,744 (6.3)% $214,517 $213,195 0.62%$319,247 $324,939 (1.8)%
Net occupancy ...................................... 16,799 15,019 11.9 44,279 42,521 4.1
Equipment .......................................... 16,059 15,001 7.1 48,505 45,838 5.8
Outside data processing and other services............. 15,923 16,988 (6.27) 31,315 36,330 (13.80)
Equipment ............................................. 15,573 15,688 (0.73) 32,446 30,837 5.22
Net occupancy ......................................... 13,563 14,063 (3.56) 27,480 27,502 (0.08)services ......... 15,929 17,550 (9.2) 47,244 53,880 (12.3)
Amortization of intangible assets ..................... 9,336 3,393 175.15 18,664 6,786 175.04.................. 9,326 9,467 (1.5) 27,990 16,253 72.2
Marketing .......................................... 8,722 8,762 (0.5) 21,922 24,009 (8.7)
Telecommunications .................................... 6,935 7,450 (6.91) 13,999 13,463 3.98
Marketing ............................................. 6,902 8,315 (16.99) 13,200 15,247 (13.43)................................. 7,412 7,793 (4.9) 21,411 21,256 0.7
Printing and supplies .............................. 5,254 5,851 (10.2) 14,744 17,223 (14.4)
Legal and other professional services ................. 5,803 6,234 (6.91) 10,547 12,022 (12.27)
Printing and supplies ................................. 4,734 5,611 (15.63) 9,490 11,372 (16.55).............. 4,754 5,291 (10.1) 15,301 17,313 (11.6)
Franchise and other taxes ............................. 3,981 5,526 (27.96) 8,368 11,026 (24.11).......................... 3,598 5,523 (34.9) 11,966 16,549 (27.7)
Other ................................................. 12,125 14,927 (18.77) 24,218 25,340 (4.43).............................................. 13,606 9,876 37.8 37,824 35,216 7.4
-------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE ............................ $202,138 $206,678 (2.20)......................... $206,189 $211,877 (2.7)% $404,244 $403,120 0.28%$610,433 $614,997 (0.7)%
======== ======== ======== ========
13
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
INTRODUCTION
Forward-Looking Statements
- --------------------------OVERVIEW
Huntington Bancshares Incorporated (Huntington) is a multi-state bank
holding company headquartered in Columbus, Ohio. Its subsidiaries are engaged in
full-service commercial and consumer banking, mortgage banking, lease financing,
trust services, discount brokerage services, underwriting credit life and
disability insurance, issuing commercial paper guaranteed by Huntington, and
selling other insurance and financial products and services. Huntington's
subsidiaries operate domestically in offices located in Ohio, Michigan, Florida,
West Virginia, Indiana, and Kentucky. Huntington has foreign offices in the
Cayman Islands and Hong Kong.
In 1995, Congress passed the Private Securities Litigation Reform Act of 1995 to
encourage corporations to provide investors with information about the company's
anticipated
future financial performance, goals, and strategies. The actAct 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, thisThis
Form 10-Q, including Management's Discussion and Analysis of Financial Condition
and Results of Operations, contains forward-looking statements including certain
plans, expectations, goals, and projections--including without limitation those
relating to Huntington's Year 2000 readiness--that are subject to numerous
assumptions, risks, and uncertainties. Actual results could differ materially
from those contained in or implied by Huntington's statements due to a variety
of factors including:
o changes in economic conditions;
oconditions and movements in interest rates;
o competitive pressures on product pricing and services;
o success and timing of business strategies;
ostrategies and successful integration of
acquired businesses;
o the nature, extent, and timing of governmental actions and reforms; and,
o risks of Year 2000 disruption;disruption and
o extended disruption of vital
infrastructure.
The management of Huntington encourages readers of this Form 10-Q to
understand forward-looking statements to be strategic objectives rather than
absolute targets of future performance. OVERVIEWThe following discussion and analysis of
the financial performance of Huntington for the third quarter of 1999 should be
read in conjunction with the financial statements, notes and other information
contained herein.
Huntington reported net income of $105.0$105.6 million for the secondthird quarter
of 1999 versus $92.3$88.8 million one year ago. In these same periods, diluted
earnings per share increased 16.3%21.1%, from $.43$.38 to $.50.$.46. For the first sixnine months
of the year, net income was $201.5$307.1 million, compared with $181.8$270.6 million in the
same period last year. Diluted earnings per share for the sixnine month periods was
$.95$1.32 and $.85,$1.15, respectively, an increase of 11.8%14.8%. After adjustingReturn on average assets
(ROA) was 1.45% and 1.43% for the ten
percent stock dividend distributed July 30,third quarter and first nine months of 1999, diluted earnings per share for
the three and six months ended June 30, 1999, was $.45 and $.86,
respectively, compared with $.391.28% and $.771.36% for the same periods a year ago.
Return on average equity (ROE) increased to 19.07% in 1998.
In the recent three months,quarter, versus
16.43% in the third quarter last year. On a year-to-date basis, ROE was 19.01%
in 1999 and 17.27% in 1998.
Huntington's "cash basis" diluted earnings per share, which excludes the
effect of amortization of goodwill and other intangiblesintangible assets amortization, net of tax, rose to
$.48 on a post-stock dividend basis,$.49 in the recent three months, compared with $.41 per share in the same period last year.year's
third quarter. Cash basis ROA and ROE, which are computed using cash basis
earnings as a percentage of average tangible assets and average tangible equity
respectively, were 1.61%1.59% and 30.61%29.54%, respectively. Under this same basis for the first sixnine
months of 1999, ROA was 1.57% and ROE was 30.12%29.90%. Huntington's efficiency ratio
for the quarter just ended was 51.02%, a 5.4 percentage point improvement from
one year ago.
14
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
Huntington's efficiency ratio showed improvement for the fourth consecutive
quarter, and at 50.93% is fast approaching Huntington's goal of being under 50%
by December 31, 1999.
Total assets were $28.2$29.0 billion at JuneSeptember 30, 1999, in linecompared with
$27.4 billion twelve months ago. The increase was primarily the December 31, 1998, and June 30, 1998, amounts. Huntington's asset composition
changed over these periods as investment securities declined and total loans
increased. These changes are indicativeresult of the strategic repositioning of the
balance sheet that began last year for the purpose of driving higher equity
returns. Commercialstrong
loan growth, including real estate lending, was strongparticularly in the consumer area. Loans held for sale increased
during the recent quarter with average balancesdue to the recently announced decision by Huntington
to sell its retail and corporate credit card receivables. The sale closed in
October 1999. Commercial loans, including non-residential real estate, were up
approximately 8.4%6.3% versus the third quarter one year ago. In this same period,
consumer loans after adjusting for the out-of-market
credit card salegrew nearly 10%, primarily in the prior year, grew nearly 7.2%. This was driven by
significant increases inareas of vehicle lease volumesleasing and
home equity lending.
Core deposits totaled $17.0 billion at June 30, 1999. AverageOn the funding side of the balance sheet, average core deposits declined 2.5%were
$17.1 billion in the recent quarter, representing a decline of 2% versus the
second quartersame three months of last year (after adjusting
for the Florida branch acquisition that occurred late in the second quarter of
1998). This reduction was attributable, in large part, to maturities of more
expensive1998. Retail certificates of deposit.deposit drove the decrease as
all other categories were up from last year. Huntington continued to raise
short-term wholesale monies and issue unsecured medium-term notes as sources of
additional funding.
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 to similar information published by other
financial institutions. Below is a discussion of the business segment results,
which can be found in the notes to the unaudited consolidated financial
statements, for the three
and six months ended June 30, 1999 and 1998.statements.
Retail Banking - Retail Banking net income was $48.1$48.2 million and $84.4$132.7 million
for the secondthird quarter and the first sixnine months of 1999, respectively. This
represents a 51%47.2% and 35%39.1% increase, respectively, over 1998. ExcludingNon-interest
income for the impact
ofrecent quarter increased 24.1% over the Florida branch acquisition in 1998, net income increased 34% and 19%,
respectively. The increase was attained despite continued net interest margin
pressures, as non-interest income continued to show strong growthsame period a year ago
with strength in service charges, brokerage and insurance income, and electronic
banking income. Mortgage banking revenues were off 17.4% as higher market rates
curtailed new production. Non-interest expenses were flat versus the comparable
periods of 1998. This segment contributed 42%43% of Huntington's year-to-date 1999 year-to-date
net income and comprised 31% of its total loan portfolio.
Corporate Banking - Corporate Banking continued to post strong results asposted net income of $31.2$32.4 million for the
secondthird quarter, represented a 14%5.4% increase over 1998. For the first sixnine months, net income
was $63.2$95.6 million versus $54.0$84.7 million one year ago. RobustThe larger increase
year-to-date was the result of solid loan and deposit growth fueledin the higher earnings.first half
of the year. The recent quarter's performance was impacted by certain paydowns
of significant larger credits. This segment contributed 30%31% of Huntington's
secondthird quarter earnings and represented 35% of the total loan portfolio.
Dealer Sales - Net income totaled $16.7$21.7 million and $32.5$54.2 million for the recent
quarter and year-to-date periods, respectively, up 69%56.7% and 22% over 1998.
Significant loan growth, particularly the34.2% from one year
ago. Increased vehicle lease product, droveleasing volumes pushed net interest income higher.
Tighter expense control also helped to mitigate weakness in non-interest income.
This business line totaled 21% of Huntington's net income in the recent three
months and 30% of its outstanding loans.
15
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
totaled 16% of Huntington's net income in the recent three months and 30% of its
outstanding loans.
Private Financial Group - The Private Financial Group achieved net income of
$5.7 million for
the quarter just ended of $5.3 million, 9.3% lower than the year-ago quarter,
and $11.8$17.1 million for the first sixnine months, increasesan increase of 9% and 10%3.2% over the same
periods one year ago.period last year. Net interest income for the quarter declined 13.5% due to
lower loan and deposit volumes. Non-interest income increased for the same
period 12.7% primarily due to increases in service charges, trust revenue, and
credit card income. This segment represented 5% of Huntington's secondthird quarter
1999 operating results and 3% of total loans at JuneSeptember 30, 1999.
Treasury/Other - This segment reported a net incomeloss of $3.4$2.1 million and $9.6
million, respectively, infor the recent
quarter and six months. Huntington's
smaller investment portfolio, reducednet income of $7.5 million for the nine months just ended. In
comparing third quarter 1999 results to the same period last year, the primary
difference was $10.6 million of securities gains in 1998 versus only $.5 million
in this quarter. In terms of the nine month results, the lower securities gains
and increased amortization of intangibles subsequent to the Florida branch
acquisition of sixty branches in
Florida in June 1998 drove net income lowerdown versus last year.
RESULTS OF OPERATIONS
Net Interest IncomeNET INTEREST INCOME
- -------------------
Net interest income for the three and sixnine months ended JuneSeptember 30,
1999, was $261.1$268.4 million and $520.7$789.1 million, increases of 5.5%6.7% and 3.7%4.7%,
respectively, when compared with the same periods last year. The aforementioned loan growth
primarily drove this improvement. The net interest margin, on a fully tax
equivalent basis, was 4.14% during the three months just ended compared with
4.23%increase in the
secondrecent quarter of 1998. On a year-to-date basis,is primarily attributable to growth in earning assets, though the
net interest margin dropped from 4.27% a year agodid increase modestly to 4.16% for 1999. Margin compression
continues4.22%, compared with 4.18% in
terms of loan pricing pressures and accelerating competition for
core deposits, which has driven more expensive funding.
Provision For Loan Losses1998's third quarter. Higher earning assets also drove the year-to-date
increase.
PROVISION FOR LOAN LOSSES
- -------------------------
The provision for loan losses is the charge to earnings that management
estimates to be necessary to maintain the allowance for loan losses at a level
adequate to absorb inherent losses in the loan and lease portfolios. The
provision for loan losses was $21.0$22.1 million in the secondthird quarter of 1999, down
from $24.6$24.2 million one year ago. On a year-to-date basis, the provision was
$68.4 million, also down from $70.9 million in the same period of 1998. The provision for the
first half of the year was $46.3 million, in line with the first sixnine months of 1998.
The lower provision in the quarter was consistent with improvements in
actual loan losses as annualizedAnnualized net charge-offs as a percentage of average total loans were .38% for.39% and
.43% in the recent three and nine months versus .41%just ended. Loan losses totaled .52% and .48%
in the same periodperiods last year.
Non-Interest IncomeNON-INTEREST INCOME
- -------------------
Non-interestExcluding gains from securities transactions, non-interest income was
$117.3$115.1 million for the recent three months and $227.1$337.7 million for the first sixnine
months of 1999. Growth over the same quarter a
year ago wasyear. Substantial improvements were experienced in all categories.several
fee-based activities. Brokerage and insurance income increased 47% primarily45.4% in the
quarter due to an expanded sales forceHuntington's growing network of licensed investment and insurance
representatives, as well ascoupled with an advertising campaign promoting the company's
proprietary annuity product. The 28.3% increase in service charges was the
result of higher fee income from retail deposit accounts and growth in sales of
a proprietary annuity product.cash management products targeted to small businesses. Electronic banking income
was up 25% as a result23.7% primarily due to the increasing popularity of increased ATM/Huntington's check
card revenue and Web Bank fees from a growingproduct, along with an expanded number of on-line banking customer base. An
increase in fees generated by cash management products as well as expanded
banking presence in the state of Florida fueled an 18% improvement in service
charges on deposits. Mortgage banking revenue increased over 13% despite a
slowing of refinancing activity. Income from Bank Owned Life Insurance was $9.4
million and $18.8 million, respectively, in the three months and six months
16
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
banking customers. Income from Bank Owned Life Insurance was $9.4 million and
$28.2 million, respectively, in the three months and nine months ended JuneSeptember
30, 1999, compared with $7.5$8.1 million and $12.5$20.6 million for the same periods a
year ago. Included within other non-interest income for the recent quarternine month
period is $2.5 million of gains from the June 1998 sale of branch banking
offices in Michigan. Included in this category in thelast year ago quarter is a gain of $9.5
million from the June 1998 sale of Huntington's out-of-market credit card
portfolio.
Securities transactions fornetted gains of $.5 million in the quarter just
ended include a $23and $5.1 million gain from the sale byyear-to-date. Huntington ofsold a portion of its common
stock investment in Security First Technologies Corporation.Corporation in the second
quarter of 1999 at a gain of $23 million. Substantially offsetting this gain
were losses from the sale of fixed-income investments as Huntington repositioned
the portfolio of securities available for sale to improve future returns.
Non-Interest ExpenseNON-INTEREST EXPENSE
- --------------------
Non-interest expense totaled $202.1$206.2 million in the second quarter--athird quarter, a
decrease of 2.2%2.7% from one year ago--and $404.2 million forago. For the first sixnine months of 1999--a1999,
non-interest expense totaled $610.4 million, a slight increase of .3% overdecrease from the same
period in 1998. Excluding the
impact ofAdjusting for last year's Florida branch acquisition, which
largely impacted only the second half of 1998, non-interest expense declined
approximately 10% and 7%, respectively, over5.5%. Also adjusted for the same periods. Personnelpurchase acquisition, personnel costs
were down 7%6.3% and 5.5% for the recent three and nine month periods as
Huntington has substantially completed its planned staffing reductions.
Corporate-wide purchasing and related efficiency initiatives also
resulted in reductions inDecreased costs for outside services, printing and supplies, telecommunications,
and legal and other professional fees.services were the result of ongoing
corporate-wide efficiency initiatives. Increases in occupancy and equipment
expenses were the result of banking office additions and other strategic
spending, particularly in the state of Florida. Depreciation expense related to
Huntington's new operations center in Columbus, Ohio, also contributed to the
increase.
Huntington announced several strategic actions in 1998 that have
directly impacted the current year's results, including the closing/closing and/or sale
of approximately 3933 underperforming banking offices. During the first six months of
1999, Huntington closed 26 and
sold 37 of these offices;offices during the remainder arefirst nine months of 1999 with an additional
6 offices expected to be sold or closed during the second half of the year.prior to March 31, 2000. Huntington also
exited certain business activities, as discussed in the 1998 Annual Report on
Form 10-K.
YEAR 2000
The Year 2000 problem is the result of many existing computer programs
using only the last two-digits, as opposed to four digits, to indicate the year.
Such computer systems may be unable to recognize a year that begins with "20"
instead of "19". If not corrected, many computer programs could cause systems to
fail or other computer errors, leading to possible disruptions in operations or
creation of erroneous results.
Huntington engaged an independent consultant to establish a Year 2000
Program Management Office (PMO). The PMO organized Huntington's Year 2000
project management activities beyond the technical information services group
into all business units. The PMO helped create the methodology that is used in
every business unit and also afforded a quality assurance process with respect
to the actions taken to remedy the Year 2000 problem. A
17
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
multitude of internal personnel from various disciplines throughout the
Huntington organization have been actively working on this project.
Huntington systems have been tested and adjusted for the Year 2000 date
change. Today all Huntington systems are performing under stringent Year 2000
scenarios. Huntington met the Year 2000 readiness goals and timetables
established by the Federal Financial Institutions Examination Council (FFIEC).
Huntington, in an enterprise-wide effort, has carefully adhered to its
Year 2000 Plan (the Plan), which addresses all systems, software, hardware, and
infrastructure components. In connection therewith,with implementation of the Plan,
business processes were assessed and validated throughout the organization. The
Plan identified and addressed "Mission Critical" and "Non-mission Critical"
components for Information Technology (IT) systems, Non-information Technology
(Non-IT) systems, and business processes. IT includes, for example, systems that
service loan and deposit customers. Non-IT systems include, among other things,
security systems, elevators, utilities, and voice/data communications. An
application, system, or process is Mission Critical if it is vital to the
successful continuance of a core business activity. 17
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
Huntington's progress towards completingHuntington has fully
completed the Plan's goals for both IT and Non-IT systems, followedfollowing a five
phase approach recommended by federal bank regulators, as follows:
Mission Critical Non-mission Critical
---------------------- ----------------------
Percent Completion Percent Completion
Phase Complete Date Complete Date
- --------------------- -------- ---- -------- ----
Awareness 100% 06/30/1998 100% 06/30/1998
Assessment 100% 09/30/1998 100% 12/31/1998
Renovation 100% 06/30/1999 100% 06/30/1999
Testing/Validation 100% 06/30/1999 100% 06/30/1999
Implementation 100% 06/30/1999 98% 09/09/regulators.
Beginning November 1, 1999,
As indicated in the table above, implementation is pending only forHuntington placed a small portion of Non-mission Criticalfreeze on all changes to
major business processes and systems that arewill be in effect until March 1, 2000.
The purpose of this freeze is to further protect the organization from Year 2000
disruption caused by changes that have not been validated as Year 2000 ready
butbeing introduced to otherwise ready business processes and systems. A command
center has been established to address any incidents that may occur and
coordinate status reporting during this period. In addition, a call center
committee has been formed to handle the expected customer inquires and ensure
consistent communication is provided to all employees and customers. As part of
Huntington's contingency planning, staffing in all areas of the organization is
being coordinated through this command center to ensure adequate coverage in
case of an incident. Event drills are taking place in early December to train
employees to handle a sample failure scenario. While the company cannot predict
what will happen, Huntington is addressing a `worst case' scenario (i.e., loss
of power, loss of telecommunications, etc.) in its contingency planning.
Furthermore, Huntington has identified and performed "due diligence" on
approximately 350 vendors, with a focus on twenty-one vendors considered
"Mission Critical." Huntington has worked with each of these parties to test
transactions and/or interfaces between its processors, obtained appropriate
information from each party, and assessed each party's ability to be prepared
for which system delivery and installation extends into early September.the Year 2000. Huntington depends on various third-party vendors, suppliers,
and service providers. The activities undertaken by these third parties can vary
from processing and settlement of automated teller transactions to mortgage loan
processing. Huntington will be dependent on the continued service by its
vendors, suppliers, service providers, and ultimately its customers' continued
operations in order to avoid business interruptions. Any interruption in a third
party's ability to provide goods and services, such as issues with
telecommunication links, power, and transportation, could present problems.
Huntington has identified and performed "due diligence" on approximately 350
vendors, with a focus on twenty-one vendors considered "Mission Critical."
Huntington is presently working with each of these partiesproblems to
test transactions
and/or interfaces between its processors, obtain appropriate information from
each party, and assess each party'sHuntington's ability to be prepared for the Year 2000.
Over forty full-time staff members have been dedicated to the Year 2000
effort and, on a part-time basis, multitudes of internal personnel from various
disciplines throughout the Huntington organization have also actively worked on
this project. Furthermore, Huntington engaged an independent consultant to
establish a Year 2000 Program Management Office (PMO). The PMO organized
Huntington's Year 2000 project management activities beyond the technical
information services group into all business units. The PMO helped create the
methodology that is used in every business unit and also afforded a quality
assurance process with respect to the actions taken to remedy the Year 2000
problem.service its customers.
Identifiable costs for the Year 2000 project incurred in the secondthird
quarter and first sixnine months of 1999 were $3.5$1.9 million and $8.1$10.0 million,
respectively. Management estimates it will cost up to an additional $7$5 million
to keep its systems and business processes in complianceYear 2000 ready
18
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
and to implement elements of its contingency plan, if necessary. These expenses
are not expected to materially impact operating results in any one period. These estimated costsThe
estimates incorporate not only incremental third-party expenses for consultants
and others but also include salary and benefit costs of employees redeployed and
full implementation of athe command center, regional command posts, and a call
center to handle anticipated customer
inquiries before and after January 1, 2000. In addition, the estimated costs
also include
18
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------center. Also included are due diligence expenses related to monitoring
itsHuntington's vendors' and service providers' readiness.
Major business risks associated with the Year 2000 problem include, but
are not limited to, infrastructure failures, disruptions to the economy in
general, excessive cash withdrawal activity, closure of government offices,
foreign banks, and clearing houses, and increased non-performing loans and
credit losses in the event that borrowers fail to properly respond to the
problem, and other factors outside of Huntington's control. These risks, along
with unforeseen, and therefore unidentified circumstances involving Huntington's
systems, and the resulting possible inability to properly process core business
transactions and meet contractual servicing agreements, could expose Huntington
to loss of revenues, litigation, and asset quality deterioration.
The Year 2000 problem is unique in that it has never previously
occurred; thus, it is not possible to completely foresee or quantify the overall
or any specific financial or operational impactsimpact to Huntington or to third
parties which provide Mission Critical services to the company. Huntington has,
however, implemented several proactive processes to identify and mitigate risk
involving systems and processes over which it has control, including
strengthening its Business Resumption Plan for the Year 2000 by adding
alternatives for systems and networks in support of critical applications. The
modifications to Huntington's contingency plan are complete and have been tested
and validated for all core business processes.complete. Huntington's senior
management believes successful modifications to existing systems and conversions
to new systems will substantially reduce the risk of Year 2000 disruption.
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 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
19
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
financial instruments, accounting for significant variables that may be affected
by interest rates. These include prepayment speeds on mortgages and consumer
installment loans, cash flows of loans and deposits, principal amortization on
revolving credit instruments, and balance sheet growth assumptions. The model
also captures embedded options, for example, interest rate caps,
19
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- -------------------------------------------------------------------------------- floors, or call
options, and accounts for changes in rate relationships, as various rate indices
lead or lag changes in market rates. Management believes, at any point in time,
the model provides a reasonably accurate estimate of Huntington's interest rate
risk exposure, even though these assumptions are inherently uncertain. This
information is regularly shared with the Board of Directors.
At JuneSeptember 30, 1999, the results of Huntington's interest sensitivity
analysis indicated that net interest income would increase by approximately 2%
given a 100 basis point decrease and 3% given a 200 basis point 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).
Net interest income would be expected to decrease by
approximately 2% if rates rose 100 basis points and would drop an estimated 4%
in the event of a 200 basis point increase. Huntington is relatively neutral to
a 100 basis point drop in rates but would benefit 3% if rates declined 200 basis
points.
Active interest rate risk management necessitates the use of various
types of off-balance sheet financial instruments, primarily interest rate swaps.
Risk 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. 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 risk effectively.
Off-balance sheet instruments perform identically to similar cash instruments
but are often preferable because they require less capital while preserving
access to the marketplace.
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 at JuneSeptember 30, 1999:
Average Average Rate
Notional Maturity Market -----------------------------
(Dollars in millions) Value (years) Value Receive Pay
- -------------------------- -------- ------------------------------------- ----- ------- ----- ------- --------
ASSET CONVERSION SWAPS
ReceivedReceive fixed $1,245 2.88 $(12.0) 6.00% 5.07%$1,545 2.91 $(17.4) 6.09% 5.42%
====== ======
LIABILITY CONVERSION SWAPS
Receive fixed $1,850 4.03 $(11.3) 6.17% 5.10%$1,790 4.16 $(22.3) 6.18% 5.50%
Receive fixed-amortizing 131 0.41 (0.1)123 0.15 0.0 5.63% 5.09%5.38%
Pay fixed 875 0.72 (0.5) 5.01% 5.23%775 0.52 0.8 5.38% 5.28%
------ ------
TOTAL LIABILITY
CONVERSION SWAPS $2,856 2.85 $(11.9) 5.79% 5.14%$2,688 2.92 $(21.5) 5.92% 5.43%
====== ======
BASIS PROTECTION SWAPS $1,375 1.080.83 $ .1 5.01% 4.99%(0.1) 5.40% 5.41%
====== ======
20
21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
As is the case with cash securities, the market value of interest rate
swaps 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. Management 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 above.
The pay rates on Huntington's receive-fixed swaps vary based on
movements in the applicable London interbank offered rate (LIBOR). Receive-fixed
asset conversion swaps and pay-fixed liability conversion swaps with notional
values of $950 million and $550 million, respectively, have embedded written
LIBOR-based call options. 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 swaps are contracts that 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. These notional values do not represent direct credit
exposures. At JuneSeptember 30, 1999, Huntington's credit risk from interest rate
swaps used for asset/liability management purposes was $58.7$59.6 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 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.
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 $822 million$1 billion at JuneSeptember 30, 1999. 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 table.
CREDIT RISK
Huntington's exposure to credit risk is managed through the use of
consistent underwriting standards that emphasize "in-market" lending. Highly
leveraged transactions as well as excessive industry and other concentrations
are avoided. The credit administration function employs extensive risk
management techniques, including forecasting, to ensure that loans adhere to
corporate policy and problem loans are promptly identified. These procedures
provide executive management with the information necessary to implement policy
adjustments where necessary, and take corrective actions on a proactive basis.
21
22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
Non-performing assets consist 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. Commercial and real
estate loans are placed on non-accrual status and stop accruing interest when
collection of principal or interest is in doubt or generally when the loan is 90
days past due. When interest accruals are suspended, accrued interest income is
reversed with current year accruals charged to earnings and prior year amounts
generally charged off as a credit loss. Consumer loans are not placed on
non-accrual status; rather they are charged off in accordance with regulatory
statutes, which is generally no more than 120 days. A charge off may be delayed
in circumstances when collateral is repossessed and anticipated to sell at a
future date. Total non-performing assets were $93.6$93.3 million and $101.7$95.8 million,
respectively, at JuneSeptember 30, 1999, and 1998. As of the recent quarter end,same dates,
non-performing loans represented .38%.39% of total loans, versus .42% a year ago.
Non-performingwhile non-performing
assets as a percent of total loans and other real estate were .46%.47% and .53% for the comparable periods..50%,
respectively. Loans past due ninety days or more but continuing to accrue
interest were $54.3$64.8 million at JuneSeptember 30, 1999, up only slightly from $50.6 million one
year ago and $51.0 from March 31, 1999.ago.
The allowance for loan losses (ALL) is maintained at a level considered
appropriate by management, based on its estimate of probable losses inherent in
the loan portfolio. The procedures employed by Huntington to evaluate the
adequacy of the ALL include an analysis of specific credits and the application
of relevant reserve factors that represent relative risk (based on portfolio
trends, current and historic loss experience, and prevailing economic
conditions) to specific portfolio segments. Specific reserves are established on
larger, impaired commercial and industrial and commercial real estate credits
and are based on discounted cash flow models using the loan's initial effective
rate or the fair value of the collateral for collateral-dependent loans.
Allocated reserves include management's assessment of portfolio performance,
internal controls, impacts from mergers and acquisitions, and other pertinent
risk factors. For analytical purposes, the ALL has been allocated to various
portfolio segments. However, the total ALL, less the portion attributable to
reserves as prescribed under provisions of SFAS No. 114, is available to absorb
losses from any segment of the portfolio. Unallocated reserves are based on
levels of criticized/classified assets, delinquencies present in the accruing loan
portfolios, and the level of nonperforming loans. Total unallocated reserves
were 12%10% at the recent quarter end versus 13%12% one year ago. The reserve ratio
was 1.46%1.48% at the recent quarter end versuscompared with 1.50% at Junethe end of last
year's third quarter. As of September 30, 1998. The1999, the ALL covered non-performing
loans nearlyapproximately 3.8 times and when combined with the allowance for other
real estate owned, was 311%316% of total nonperforming assets.
22
23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
CAPITAL
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 business growth and acquisition
opportunities. Huntington also recognizes the importance of managing 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. Huntington's ratio of average equity to average assets was 7.52%7.63%
in the recent quarter compared with 8.02%7.79% in the same three months of last year.
For the sixnine month period, the ratio was 7.49%7.54%, versus 7.90%7.86% in the first halfthree
quarters of 1998.
22
23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
Risk-based capital guidelines established by the Federal Reserve Board
set minimum capital requirements and require institutions to calculate
risk-based capital ratios by assigning risk weightings to assets and off-balance
sheet items, such as interest rate swaps and loan commitments. These guidelines
further define "well-capitalized" levels for Tier 1, Total Capital, and Leverage
ratio purposes at 6%, 10%, and 5%, respectively. At the recent quarter-end,
Huntington's Tier 1 risk-based capital ratio was 7.29%7.32%, its total risk-based
capital ratio was 10.65%10.62%, and its leverage ratio was 6.45%6.58%, each of which
exceeds the well-capitalized requirements. Huntington's bank subsidiary also had
regulatory capital ratios in excess of the levels established for
well-capitalized institutions.
InHuntington's common stock repurchase program was reactivated in the
third quarter of 1998, the Board of Directors authorized the
reactivation of Huntington's common stock repurchase program.1998. In connection with the reinstatement of the program, the
Board of Directors also increased the number of shares authorized for repurchase
to 1516.5 million (before(after adjusting for the aforementioned ten percent stock dividend)dividend paid July
1999), up from approximately 3 million shares remaining when the plan was
suspended. The shares are to be purchased through open market and privately
negotiated transactions. Repurchased shares will be reserved for reissue in
connection with Huntington's dividend reinvestment, stock option, and other
benefit plans as well as for stock dividends and other corporate purposes. In
the first halfnine months of thethis year, Huntington repurchased approximately 1.3 million shares. Adjusted for the
recently issued stock dividend, approximately 13.82.6
million shares, remainleaving 12.6 million shares available for repurchase under the
program.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk exposures that affect
the quantitative and qualitative disclosures presented in Huntington's Annual
Report on Form 10-K for the year ended December 31, 1998. Quantitative and
qualitative disclosures for the current period arecan be found on pages 1819 through
21.
23
24
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
FOR THE THREE MONTHS ENDED JUNESEPTEMBER 30, 1999 1998 % Change
- ------------------------------------------------------------------------------------------------------- -------- -------- --------
NET INCOME ............................................ $104,975..................................... $105,587 $ 92,309 13.7%88,755 19.0%
PER COMMON SHARE AMOUNTS (1)
Net income
Basic ..................................................................... $ 0.450.46 $ 0.40 12.50.38 21.1
Diluted ................................................................. $ 0.450.46 $ 0.39 15.40.38 21.1
Cash dividends declared ........................................... $ 0.20 $ 0.18 $ 0.16 12.511.1
AVERAGE COMMON SHARES OUTSTANDING-DILUTED (1) ......... 233,154 236,130 (1.3).. 232,015 234,845 (1.2)
KEY RATIOS
Return on:
Average total assets ................................ 1.47% 1.42% 3.5...................... 1.45% 1.28% 13.3
Average shareholders' equity ........................ 19.48% 17.70% 10.1.............. 19.07% 16.43% 16.1
Efficiency ratio ...................................... 50.93% 58.78% (13.4)............................... 51.02% 56.46% (9.6)
Average equity/average assets ......................... 7.52% 8.02% (6.2).................. 7.63% 7.79% (2.1)
Net interest margin ................................... 4.14% 4.23% (2.1)............................ 4.22% 4.18% 1.0
TANGIBLE OR "CASH BASIS" RATIOS (2)
Net Income Per Common Share -- Diluted (1) ................. $ 0.480.49 $ 0.41 17.119.5
Return on:
Average total assets ................................ 1.61% 1.49% 8.1...................... 1.59% 1.43% 11.2
Average shareholders' equity ........................ 30.61% 21.17% 44.6.............. 29.54% 26.59% 11.1
- ------------------------------------------------ -------- -------- --------
FOR THE SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 1999 1998 % Change
- ------------------------------------------------------------------------------------------------------- -------- -------- --------
NET INCOME ............................................ $201,547 $181,795 10.9%..................................... $307,134 $270,550 13.5%
PER COMMON SHARE AMOUNTS (1)
Net income
Basic ....................................................................... $ 0.871.33 $ 0.78 11.51.16 14.7
Diluted ................................................................... $ 0.861.32 $ 0.77 11.71.15 14.8
Cash dividends declared ............................................. $ 0.360.56 $ 0.32 12.50.50 12.0
AVERAGE COMMON SHARES OUTSTANDING-DILUTED (1) ......... 233,278 235,661 (1.0).. 232,853 235,060 (0.9)
KEY RATIOS
Return on:
Average total assets ................................ 1.42% 1.40% 1.4...................... 1.43% 1.36% 5.1
Average shareholders' equity ........................ 18.98% 17.72% 7.1.............. 19.01% 17.27% 10.1
Efficiency ratio ...................................... 51.54% 56.97% (9.5)............................... 51.36% 56.80% (9.6)
Average equity/average assets ......................... 7.49% 7.90% (5.1).................. 7.54% 7.86% (4.1)
Net interest margin ................................... 4.16% 4.27% (2.6)............................ 4.18% 4.24% (1.4)
TANGIBLE OR "CASH BASIS" RATIOS (2)
Net Income Per Common Share -- Diluted (1) ................. $ 0.931.41 $ 0.80 16.31.21 16.5
Return on:
Average total assets ...................................................... 1.57% 1.47% 6.81.45% 8.3
Average shareholders' equity ........................ 30.12% 21.13% 42.5.............. 29.90% 22.71% 31.7
(1) Adjusted for the ten percent stock dividend distributed July 1999.dividends and stock splits, as applicable.
(2) Tangible or "Cash Basis" net income excludes amortization of goodwill and
other intangibles. Related asset amounts excluded from total assets and
shareholders' equity.
24
25
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL REVIEW
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE-SALE - AMORTIZED COST & FAIR VALUES BY MATURITY AT
JUNESEPTEMBER 30, 1999 AND DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) JUNESEPTEMBER 30, 1999 December 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
AMORTIZED COST FAIR VALUE Amortized Cost Fair Value
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury
Under 1 year ........................................... $ 803802 $ 807805 $ 1,000 $ 1,007
1-5 years ......................... 77,126 76,025........................ 51,787 50,469 63,537 65,364
6-10 years ........................ 431,252 414,748....................... 502,719 483,101 169,959 176,945
---------- ---------- ---------- ----------
Total .......................... 509,181 491,580......................... 555,308 534,375 234,496 243,316
---------- ---------- ---------- ----------
Federal agencies
Mortgage-backed securities
1-5 years ......................... 8 8........................ 6 6 11 11
6-10 years ........................ 41,151 41,282....................... 38,559 38,556 87,342 89,162
Over 10 years ..................... 1,187,768 1,151,168.................... 1,762,589 1,718,496 1,356,722 1,363,015
---------- ---------- ---------- ----------
Total .......................... 1,228,927 1,192,458......................... 1,801,154 1,757,058 1,444,075 1,452,188
---------- ---------- ---------- ----------
Other agencies
1-5 years ......................... 812,028 791,741........................ 763,946 741,179 968,753 975,253
6-10 years ........................ 503,376 485,791....................... 510,421 487,862 678,245 684,230
Over 10 years ..................... 903,074 884,689.................... 885,195 861,710 740,139 741,147
---------- ---------- ---------- ----------
Total .......................... 2,218,478 2,162,221......................... 2,159,562 2,090,751 2,387,137 2,400,630
---------- ---------- ---------- ----------
Other
Under 1 year ...................... 20,641 20,714..................... 21,472 21,478 7,492 7,478
1-5 years ......................... 247,960 248,553........................ 258,975 258,917 188,551 190,871
6-10 years ........................ 146,882 144,674....................... 131,007 128,390 204,788 210,698
Over 10 years ..................... 276,593 268,225.................... 262,733 253,089 268,319 268,930
Marketable equity securities ........... 10,645 44,73542,538 8,359 7,304
---------- ---------- ---------- ----------
Total .......................... 702,721 726,901......................... 684,832 704,412 677,509 685,281
---------- ---------- ---------- ----------
Total Securities Available for Sale .... $4,659,307 $4,573,160... $5,200,856 $5,086,596 $4,743,217 $4,781,415
========== ========== ========== ==========
25
26
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL REVIEW
- ----------------------------------------------------------------------------------------------------------------
LOAN LOSS EXPERIENCE
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIXNINE MONTHS ENDED
JUNESEPTEMBER 30, JUNESEPTEMBER 30,
----------------------- ----------------------------------------------- ------------------------
1999 1998 1999 1998
-------- -------- -------- --------
ALLOWANCE FOR LOAN LOSSES, BEGINNING OF PERIOD ....... $291,066 $258,262.... $293,274 $286,864 $290,948 $258,171
Allowance acquired/other ....................................................... -- 22,042-- -- 22,042
Loan losses .......................................... (27,123) (28,855) (59,654) (56,421)....................................... (27,782) (33,095) (87,436) (89,516)
Recoveries of loans previously charged off ........... 8,305 10,820 15,649 16,296........ 8,044 8,193 23,693 24,489
Provision for loan losses ............................ 21,026 24,595 46,331 46,776......................... 22,076 24,160 68,407 70,936
-------- -------- -------- --------
ALLOWANCE FOR LOAN LOSSES END OF PERIOD .............. $293,274 $286,864 $293,274 $286,864........... $295,612 $286,122 $295,612 $286,122
======== ======== ======== ========
AS A % OF AVERAGE TOTAL LOANS
Net loan losses--annualized ........................ 0.38% 0.41% 0.45% 0.46%..................... 0.39% 0.52% 0.43% 0.48%
Provision for loan losses--annualized .............. 0.42% 0.55% 0.47% 0.53%........... 0.43% 0.51% 0.46% 0.52%
Allowance for loan losses as a % of total loans ...... 1.46%... 1.48% 1.50% 1.46%1.48% 1.50%
Net loan loss coverage (1) ........................... 9.37X 8.89x 7.81X 7.83x........................ 9.01X 6.20x 8.18X 7.20x
(1) Income before taxes and the provision for loan losses to net loan losses.
- -----------------------------------------------------------------------------------------------------------------
NON-PERFORMING ASSETS AND PAST DUE LOANS
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1999 1998
--------------------------------- --------------------
----------------------------------III Q II Q I Q IV Q III Q
II Q
------- ------- ------- ------- ---------------
Non-accrual loans:
Commercial ................................................................ $41,374 $37,840 $37,594 $34,586 $38,020
$ 39,940
Real Estate
Construction ...................................................... 6,154 7,877 7,540 10,181 6,948
8,929
Commercial .......................................................... 15,751 13,028 14,133 13,243 10,427
10,953
Residential ........................................................ 13,094 15,192 14,849 14,419 14,815
15,545
------- ------- ------- ------- ---------------
Total Nonaccrual Loans ............................ 76,373 73,937 74,116 72,429 70,210
75,367
Renegotiated loans ...................................................... 1,877 2,827 2,764 4,706 4,798
4,770
------- ------- ------- ------- ---------------
TOTAL NON-PERFORMING LOANS ...................................... 78,250 76,764 76,880 77,135 75,008
80,137
Other real estate, net .............................................. 15,072 16,839 17,853 18,964 20,812
21,516
------- ------- ------- ------- ---------------
TOTAL NON-PERFORMING ASSETS .................................... $93,322 $93,603 $94,733 $96,099 $95,820
$101,653
======= ======= ======= ======= ===============
NON-PERFORMING LOANS AS A
% OF TOTAL LOANS ...................................................... 0.39% 0.38% 0.39% 0.40% 0.39% 0.42%
NON-PERFORMING ASSETS AS A
% OF TOTAL LOANS AND OTHER REAL ESTATE .......... 0.47% 0.46% 0.48% 0.49% 0.50% 0.53%
ALLOWANCE FOR LOAN LOSES AS A % OF
NON-PERFORMING LOANS .............................................. 377.78% 382.05% 378.60% 377.19% 381.46% 357.97%
ALLOWANCE FOR LOAN LOSSES AND OTHER REAL
ESTATE AS A % OF NON-PERFORMING ASSETS .......... 315.82% 311.32% 305.33% 301.00% 296.69% 280.64%
ACCRUING LOANS PAST DUE 90 DAYS OR MORE ............ $64,788 $54,305 $51,039 $51,037 $63,998
$ 50,614
======= ======= ======= ======= ===============
26
27
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
Fully Tax Equivalent Basis (1) 3RD QUARTER 1999 2ND QUARTER 1999
1ST QUARTER 1999
--------------------- ----------------------------------------- --------------------
(in millions of dollars) AVERAGE YIELD/ AVERAGE YIELD/
- ------------------------------------------------------------------------------------------------------------------------------------------------- BALANCE RATE BALANCE RATE
------- ------------- ------- ------
ASSETS
Interest bearing deposits in banks ........................................................................... $ 8 3.64% $ 8 3.75%
$ 8 4.93%
Trading account securities ........................................................................................... 7 5.64 15 5.41 18 5.20
Federal funds sold and securities purchased under resale agreements ......... 20 5.39 19 4.86
18 5.64
MortgagesLoans held for sale ..................................................................................................... 169 7.27 269 6.96
359 6.75
Securities:
Taxable ..................................................................................................................... 4,846 6.14 4,914 5.99
4,926 6.05
Tax exempt ............................................................................................................... 295 7.76 303 7.90 304 8.17
------- -------
Total Securities ......................................................................................... 5,141 6.24 5,217 6.10 5,230 6.17
------- -------
Loans:
Commercial ................................................................................................................. 6,066 7.90 6,182 7.73 6,067 7.90
Real Estate
Construction ................................................................................................... 1,103 8.13 1,012 7.92
957 8.14
Mortgage ........................................................................................................... 3,636 7.87 3,726 7.92
3,651 7.97
Consumer
Loans ............................................................................................................... 7,093 8.29 6,907 8.25
6,873 8.38
Leases ............................................................................................................. 2,365 6.75 2,175 6.72 2,015 6.94
------- -------
Total Consumer ............................................................................................. 9,458 7.90 9,082 7.88 8,888 8.05
------- -------
Total Loans ......................................................................................................................... 20,263 7.91 20,002 7.84 19,563 7.99
------- -------
Allowance for loan losses ............................................................................................. 301 297 299
------- -------
Net loans (3) ............................................................(2) ......................................................... 19,962 8.54 19,705 8.35 19,264 8.49
------- -------
Total earning assets ....................................................................................................... 25,608 8.07% 25,530 7.87% 25,196 7.98%
------- -------
Cash and due from banks ................................................................................................. 1,026 1,044 1,064
All other assets ............................................................................................................... 2,468 2,454 2,461
------- -------
TOTAL ASSETS ....................................................................................................................... $28,801 $28,731 $28,422
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Core deposits
Non-interest bearing deposits ........................................................................... $ 3,5113,509 $ 3,5053,511
Interest bearing demand deposits ..................................................................... 4,139 2.66% 4,109 2.50%
4,061 2.46%
Savings deposits ..................................................................................................... 3,792 3.43 3,769 3.25 3,627 3.17
Other domestic time deposits ............................................................................. 5,631 5.04 5,715 5.07 6,047 5.27
------- -------
Total core deposits ..................................................................................... 17,071 3.86 17,104 3.79 17,240 3.88
------- -------
Certificates of deposit of $100,000 or more ......................................................... 1,663 5.12 1,662 5.08 1,730 5.35
Foreign time deposits ..................................................................................................... 465 5.17 307 4.82 161 4.80
------- -------
Total deposits ......................................................................................................... 19,199 4.03 19,073 3.95 19,131 4.06
------- -------
Short-term borrowings ..................................................................................................... 2,331 4.54 2,793 4.38
2,853 4.33
Medium-term notes ............................................................................................................. 3,415 5.44 3,047 5.19 2,666 5.29
Subordinated notes and other long-term debt,
including preferred capital securities ............................................................. 1,001 6.03 1,004 5.70
1,007 5.81
------- -------
InterestTotal interest bearing liabilities ....................................................................... 22,437 4.39% 22,406 4.25% 22,152 4.32%
------- -------
All other liabilities ..................................................................................................... 658 653 644
Shareholders' equity ....................................................................................................... 2,197 2,161 2,121
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............................ $28,801 $28,731 $28,422
======= =======
Net interest rate spread ............................................................................................... 3.68% 3.62% 3.66%
Impact of non-interest bearing funds on margin ........................... 0.52%........................ 0.54% 0.52%
NET INTEREST MARGIN ......................................................................................................... 4.22% 4.14% 4.18%
- --------------------------------------------------------------------------
- ---------------------------------------------------------
(1) Fully tax equivalent yields are calculated assuming a 35% tax rate.
(2) Excludes nonrecurring swap adjustment of $9.2 million.
(3) Net loan rate includes loan fees, whereas individual loan components above
are shown exclusive of fees.
(3) Excludes nonrecurring interest rate swap adjustment of $9.2 million.
27
28
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
1ST QUARTER 1999 4th Quarter 1998 3rd Quarter 1998
2nd Quarter 1998
--------------------- --------------------- -------------------------------------- ----------------- -----------------
AVERAGE YIELD/ Average Yield/ Average Yield/
Average Yield/
Balance RateBALANCE RATE Balance Rate Balance Rate
------- ------ ------- ------ ------- ------
$ 8 4.93% $ 4 5.00% $ 31 5.20%
$ 8 5.26%18 5.20 12 5.62 11 5.87
12 5.8118 5.64 34 5.48 689 5.62
168 5.63359 6.75 377 6.73 275 7.10
282 7.084,926 6.05 4,518 6.16 4,077 6.34
5,107 6.34304 8.17 292 8.16 234 8.86
225 9.27
------- ------- -------
5,230 6.17 4,810 6.28 4,311 6.47
5,332 6.47
------- ------- -------
6,067 7.90 5,954 7.99 5,763 8.36
5,482 8.46957 8.14 864 8.24 811 8.83
816 8.733,651 7.97 3,689 8.21 3,760 8.43
3,444 8.626,873 8.38 6,912 8.62 6,896 8.77
6,474 8.822,015 6.94 1,850 7.00 1,728 7.11
1,627 7.15
------- ------- -------
8,888 8.05 8,762 8.28 8,624 8.44
8,101 8.48
------- ------- -------
19,563 7.99 19,269 8.17 18,958 8.43
17,843 8.51
------- ------- -------
299 296 293 266
------- ------- -------
19,264 8.49 18,973 8.68 18,665 8.87
17,577 8.99
------- ------- -------
25,196 7.98% 24,506 8.17% 24,275 8.33%
23,645 8.37%
------- ------- -------
1,064 1,056 1,017
9072,461 2,448 2,516 1,786
------- ------- -------
$28,422 $27,714 $27,515 $26,072
======= ======= =======
$ 3,505 $ 3,577 $ 3,466
$ 3,1134,061 2.46% 3,967 2.60% 3,898 2.77%
3,216 2.72%3,627 3.17 3,546 3.38 3,428 3.56
3,099 3.516,047 5.27 6,459 5.43 6,619 5.53
5,985 5.62
------- ------- -------
17,240 3.88 17,549 4.10 17,411 4.27
15,413 4.33
------- ------- -------
1,730 5.35 1,755 5.65 1,884 5.71
1,909 5.74161 4.80 56 4.86 30 5.39
132 5.80
------- ------- -------
19,131 4.06 19,360 4.27 19,325 4.45
17,454 4.53
------- ------- -------
2,853 4.33 2,123 4.36 1,515 4.75
2,044 4.972,666 5.29 2,526 5.48 2,952 5.70
3,222 5.711,007 5.81 1,020 5.88(2)5.88(3) 1,041 6.37
757 6.13
------- ------- -------
22,152 4.32% 21,452 4.49% 21,367 4.72%
20,364 4.80%
------- ------- -------
644 653 539
5032,121 2,032 2,143 2,092
------- ------- -------
$28,422 $27,714 $27,515 $26,072
======= ======= =======
3.66% 3.68% 3.61%
3.57%0.52% 0.56% 0.57%
0.66%4.18% 4.24%(2)(3) 4.18% 4.23%
28
29
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
SELECTED QUARTERLY INCOME STATEMENT DATA
1999 1998
---------------------------------- --------------------- ----------------------------------
(in thousands of dollars, except per share amounts) III Q II Q I Q IV Q III Q
II Q
- ---------------------------------------------------------------------------------------------------------- -------- -------- -------- -------- --------
TOTAL INTEREST INCOME .............................................................. $516,294 $498,500 $495,692 $500,395 $505,221
$491,268
TOTAL INTEREST EXPENSE ............................................................ 247,863 237,352 236,171 233,094 253,706 243,839
-------- -------- -------- -------- --------
NET INTEREST INCOME .................................................................. 268,431 261,148 259,521 267,301 251,515
247,429
Provision for loan losses ...................................................... 22,076 21,026 25,305 34,306 24,160 24,595
-------- -------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES .................................................. 246,355 240,122 234,216 232,995 227,355 222,834
-------- -------- -------- -------- --------
Service charges on deposit accounts .................................. 41,700 36,065 35,776 33,992 32,493
30,428Brokerage and insurance income ..................... 14,620 12,540 11,543 9,848 10,057
Mortgage banking ........................................................................ 14,282 17,224 15,958 15,388 15,270
15,191
Trust services ............................................................................ 12,625 13,143 13,434 12,924 12,502
12,745
Brokerage and insurance income ....................... 12,540 11,543 9,848 10,057 8,520
Electronic banking fees .......................................................... 9,771 9,410 8,038 8,037 7,897 7,520
Bank Owned Life Insurance income ........................................ 9,390 9,390 9,390 8,098 8,098
7,168
Credit card fees ........................................................................ 6,626 6,255 5,342 6,367 5,197
5,450
Other .............................................................................................. 6,103 11,029 8,081 12,057 12,512 18,318
-------- -------- -------- -------- --------
TOTAL NON-INTEREST INCOME BEFORE SECURITIES GAINS ...... 115,117 115,056 107,562 106,711 104,026 105,340
-------- -------- -------- -------- --------
Securities gains ........................................................................ 537 2,220 2,310 1,773 10,615 14,316
-------- -------- -------- -------- --------
TOTAL NON-INTEREST INCOME ...................................................... 115,654 117,276 109,872 108,484 114,641 119,656
-------- -------- -------- -------- --------
Personnel and related costs .................................................. 104,730 107,263 107,254 103,600 111,744
108,483Net occupancy ...................................... 16,799 13,563 13,917 11,602 15,019
Equipment .......................................... 16,059 15,573 16,873 16,202 15,001
Outside data processing and other services .................... 15,929 15,923 15,392 20,915 17,550
16,988
Equipment ............................................ 15,573 16,873 16,202 15,001 15,688
Net occupancy ........................................ 13,563 13,917 11,602 15,019 14,063
Amortization of intangible assets ...................................... 9,326 9,336 9,328 9,436 9,467
3,393Marketing .......................................... 8,722 6,902 6,298 8,251 8,762
Telecommunications .................................................................... 7,412 6,935 7,064 8,173 7,793
7,450
Marketing ............................................ 6,902 6,298 8,251 8,762 8,315Printing and supplies .............................. 5,254 4,734 4,756 6,450 5,851
Legal and other professional services .............................. 4,754 5,803 4,744 7,847 5,291
6,234
Printing and supplies ................................ 4,734 4,756 6,450 5,851 5,611
Franchise and other taxes ...................................................... 3,598 3,981 4,387 5,554 5,523
5,526
Special charges .......................................................................... -- -- -- 90,000 --
--
Other .............................................................................................. 13,606 12,125 12,093 10,902 9,876 14,927
-------- -------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE .................................................... 206,189 202,138 202,106 298,932 211,877 206,678
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES .................................................... 155,820 155,260 141,982 42,547 130,119
135,812
Provision for income taxes .................................................... 50,233 50,285 45,410 11,329 41,364 43,503
-------- -------- -------- -------- --------
NET INCOME .................................................................................... $105,587 $104,975 $ 96,572 $ 31,218 $ 88,755 $ 92,309
======== ======== ======== ======== ========
PER COMMON SHARE (1)
Net income
Diluted ................................................................................ $ 0.46 $ 0.45 $ 0.41 $ 0.140.13 $ 0.38 $ 0.39
Diluted - Cash Basis ...................................................... $ 0.49 $ 0.48 $ 0.45 $ 0.16 $ 0.410.17 $ 0.41
Cash Dividends Declared ........................................................ $ 0.20 $ 0.18 $ 0.18 $ 0.18 $ 0.18
$ 0.16
FULLY TAX EQUIVALENT MARGIN:
Net Interest Income .................................................................. $268,431 $261,148 $259,521 $267,301 $251,515
$247,429
Tax Equivalent Adjustment (2) .............................................. 2,280 2,390 2,504 2,504 2,567 2,581
-------- -------- -------- -------- --------
Tax Equivalent Net Interest Income .................................... $270,711 $263,538 $262,025 $269,805 $254,082 $250,010
======== ======== ======== ======== ========
(1) Adjusted for the ten percent stock dividend distributed July 1999.dividends and stock splits, as applicable.
(2) Calculated assuming a 35% tax rate.
29
30
STOCK SUMMARY, KEY RATIOS AND STATISTICS
- --------------------------------------------------------------------------------
STOCK SUMMARY, KEY RATIOS AND STATISTICS
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
QUARTERLY COMMON STOCK SUMMARY (1)
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1999 1998
------------------------ ------------------------------------------------------------------------- ----------------------
III Q II Q I Q IV Q III Q
II Q
------- ------- ------- ------- ---------------- --------- -------- -------- ---------
High ............................................................ $33 7/8 $34 $30 7/16 $28 5/8 $30 13/16
$31 7/16
Low .............................................................. 24 11/16 27 11/16 27 3/16 21 1/2 20
Close .................... 26 7/8
Close ......................................9/16 31 13/16 28 1/8 27 5/16 22 13/16
27 13/16
Cash dividends declared ...................... $0.20 $0.18 $0.18 $0.18 $0.18 $0.16
Note: Stock price quotations were obtained from NASDAQ.
- --------------------------------------------------------------------------------------------------------------------
KEY RATIOS AND STATISTICS
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1999 1998
MARGIN ANALYSIS - AS A % ---------------------- ----------------------------------------------------------------- -----------------
OF AVERAGE EARNING ASSETS (2) III Q II Q I Q IV Q III Q
II Q
- -------------------------------------------- ------- ------- ------- ------- ------------- ------ ------ ------ ------
Interest Income ............................ 8.07% 7.87% 7.98% 8.17% 8.33%
8.37%
Interest Expense ........................... 3.85% 3.73% 3.80% 3.93% 4.15%
4.14%
------- ------- ------- ------- ------------ ----- ----- ----- -----
Net Interest Margin ................... 4.22% 4.14% 4.18% 4.24% 4.18%
4.23%
======= ======= ======= ======= ============ ===== ===== ===== =====
RETURN ON
- --------------------------------------------
Average total assets ....................... 1.45% 1.47% 1.38% 1.31% 1.28% 1.42%
Average total assets - cash basis .......... 1.59% 1.61% 1.52% 1.45% 1.43%
1.49%
Average shareholders' equity ............... 19.07% 19.48% 18.47% 17.87% 16.43% 17.70%
Average shareholders' equity - cash basis...basis .. 29.54% 30.61% 29.58% 29.44% 26.59%
21.17%
Efficiency Ratio ........................... 50.93% 52.16% 52.98% 56.46% 58.78%
- --------------------------------------------------------------------------------------------------------------------51.02% 50.93% 52.16% 52.98% 56.46%
REGULATORY CAPITAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1999 1998
---------------------- ---------------------------------------------------------------------------- ---------------------
(in millions of dollars) III Q II Q I Q IV Q III Q
II Q
- ------------------------------------------------------------------------------ ------- ------- ------- ------- ------------- ------
Total Risk-Adjusted Assets ................. 24,829 24,345 24,239 23,695 23,728....... $25,309 $24,829 $24,345 $24,239 $23,695
Tier I Risk-Based Capital Ratio .............. 7.32% 7.29% 7.20% 7.10% 7.35% 7.18%
Total Risk Based Capital Ratio ................ 10.62% 10.65% 10.70% 10.73% 11.18%
11.01%
Tier I Leverage Ratio .................................. 6.58% 6.45% 6.32% 6.37% 6.51% 6.72%
- ----------------------------------------------------------------------------------
(1) Adjusted for the ten percent stock dividend distributed July 1999.dividends and stock splits, as applicable.
(2) Presented on a fully tax equivalent basis assuming a 35% tax rate.
30
31
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 4. Submission of Matters to a Vote of Security Holders
Huntington Bancshares Incorporated held its annual meeting of
shareholders on April 22, 1999. At that meeting, shareholders approved
the following management proposals:
ABSTAIN/ BROKER
FOR AGAINST WITHHELD NON VOTES
--- ------- -------- ---------
1. Election of directors
to serve as Class III
Directors until the year
2002 Annual Meeting of
Shareholders as follows:
Don M. Casto III 174,931,961 1,651,364
Patricia T. Hayot 174,772,811 1,810,514
William J. Lhota 174,899,359 1,683,966
Timothy P. Smucker 174,988,700 1,594,625
31
32
2. Election of director to
serve until the year 2000
Annual Meeting of
Shareholders is as follows:
John B. Gerlach, Jr. 174,960,230 1,623,095
3. Proposal to approve
the Corporation's amended
and restated Incentive
Compensation Plan 157,189,951 14,378,785 3,044,642 1,969,947
4. Proposal to approve
the Corporation's amended
and restated Long-term
Incentive Compensation Plan 156,619,757 14,818,904 3,149,940 1,969,950
5. Ratification of Ernst &
Young LLP to serve as
independent auditors for
the Corporation for the
year 1999 174,469,372 1,193,027 896,454
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3. (i)(a)( 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)( 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)( i )( c ) Articles of Amendment to Articles of
Restatement of Charter --previously filed as
Exhibit 3(i)(c) to Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998, and
incorporated herein by reference.
(ii)( ii ) Amended and Restated Bylaws -- previously
filed as Exhibit 3(ii) to Annual Report on Form
10-K for the year ended December 31, 1998, and
incorporated herein by reference.
32
33Bylaws.
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 Annual Report
on Form 10-K for the year ended December 31, 1993,
and incorporated herein by reference, as amended
and supplemented by Articles of Amendment to
Articles of Restatement of Charter, previously
filed as Exhibit 3(i)(c) to Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998,
and incorporated herein by reference. Also,
reference is made to Rights Plan, dated February
22, 1990, previously filed as Exhibit 1 to
Registration Statement on Form 8-A, and
incorporated herein by reference and to Amendment
No. 1 to the Rights Agreement, dated as of August
16, 1995, previously filed as Exhibit 4(b) to Form
8-K filed with the Securities and Exchange
Commission on August 28, 1995, and incorporated
herein by reference. Instruments defining the
rights of holders of long-term debt will be
furnished to the Securities and Exchange
Commission upon request.
32
27. Financial Data Schedule
99. Earnings to Fixed Charges
(b) Reports on Form 8-K
1. A report on Form 8-K, dated AprilJuly 14, 1999, was
filed under report item numbers 5 and 7,
concerning Huntington's results of operations for
the firstsecond quarter 1999.
33
3433
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Huntington
Bancshares Incorporated has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Huntington Bancshares Incorporated
----------------------------------
(Registrant)
Date: August 16,November 15, 1999 /s/ Judith D. Fisher
---------------------------------
Judith D. Fisher
Executive Vice PresidentRichard A. Cheap
--------------------------------------
Richard A. Cheap
General Counsel and Chief Financial OfficerSecretary
Date: August 16,November 15, 1999 /s/ Anne W. Creek
-----------------------------------------------------------------------
Anne W. Creek
Executive Vice President and Principal
Accounting Officer
34