1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
Commission File Number 0-2525
HUNTINGTON BANCSHARES INCORPORATED
MARYLAND 31-0724920
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
41 SOUTH HIGH STREET, COLUMBUS, OHIO 43287
Registrant's telephone number (614) 480-8300
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
There were 133,642,449 shares of Registrant's without par value common stock
outstanding on October 31, 1995.
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PART I. FINANCIAL INFORMATION
1. FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
(in thousands of dollars) September 30, December 31, September 30,
1995 1994 1994
------------- ------------ -------------
ASSETS
Cash and due from banks ................................ $ 852,399 $ 885,327 $ 832,696
Interest bearing deposits in banks ..................... 1,259 3,059 2,168
Trading account securities ............................. 19,135 9,427 22,319
Federal funds sold and securities
purchased under resale agreements ................. 276,747 5,329 281,800
Mortgages held for sale ................................ 156,051 138,997 191,274
Securities available for sale - at fair value .......... 4,290,570 3,304,493 2,733,266
Investment securities - fair value $419,773; $474,147 ;
and $491,767, respectively ........................ 416,236 475,692 488,291
Total loans (1) ........................................ 13,457,831 12,264,436 11,871,412
Less allowance for loan losses .................... 198,573 200,492 205,964
----------- ----------- -----------
Net loans .............................................. 13,259,258 12,063,944 11,665,448
----------- ----------- -----------
Premises and equipment ................................. 296,708 288,793 287,897
Customers' acceptance liability ........................ 59,785 53,883 64,249
Accrued income and other assets ........................ 544,982 541,696 420,510
----------- ----------- -----------
TOTAL ASSETS ........................................... $20,173,130 $17,770,640 $16,989,918
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits (1) ..................................... $12,544,500 $11,965,067 $11,602,246
Short-term borrowings .................................. 4,047,206 2,898,201 2,661,627
Bank acceptances outstanding ........................... 59,785 53,883 64,249
Long-term debt ......................................... 1,622,411 1,214,052 1,088,134
Accrued expenses and other liabilities ................. 416,429 227,617 171,841
----------- ----------- -----------
Total Liabilities ................................. 18,690,331 16,358,820 15,588,097
----------- ----------- -----------
Shareholders' equity
Preferred stock - authorized 6,617,808 shares;
none outstanding
Common stock - without par value; authorized
200,000,000 shares; issued and outstanding
141,394,248; 131,119,504; and 130,540,584
shares, respectively ......................... 1,056,146 912,318 902,427
Less 6,877,908; 904,739; and 1,130,054
treasury shares, respectively ................ (144,262) (16,577) (22,952)
Capital surplus ................................... 235,661 215,084 217,056
Net unrealized gains (losses) on securities
available for sale ........................... 7,162 (63,289) (33,577)
Retained earnings ................................. 328,092 364,284 338,867
----------- ----------- -----------
Total Shareholders' Equity ........................ 1,482,799 1,411,820 1,401,821
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............. $20,173,130 $17,770,640 $16,989,918
=========== =========== ===========
See notes to consolidated financial statements.
(1) See page 8 for detail of total loans and total deposits.
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CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------
(in thousands of dollars, except per share amounts) THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1995 1994 1995 1994
Interest and fee income -------------------------------- -------------------------------
Loans ................................... $296,472 $248,330 $ 857,639 $716,340
Investment securities..................... 7,284 8,528 22,690 23,318
Securities available for sale ............ 70,410 38,308 188,469 133,281
Mortgages held for sale .................. 3,351 4,149 7,628 23,610
Other .................................... 342 2,409 4,033 4,297
----------- ----------- ----------- -----------
TOTAL INTEREST INCOME .............. 377,859 301,724 1,080,459 900,846
----------- ----------- ----------- -----------
Interest Expense
Deposits ................................. 111,549 74,485 313,207 212,112
Short-term borrowings .................... 57,054 27,297 156,763 70,993
Long-term debt ........................... 22,678 16,391 67,812 38,941
----------- ----------- ----------- -----------
TOTAL INTEREST EXPENSE .............. 191,281 118,173 537,782 322,046
----------- ----------- ----------- -----------
NET INTEREST INCOME ................. 186,578 183,551 542,677 578,800
----------- ----------- ----------- -----------
Provision for loan losses .................. 7,187 1,113 16,582 12,796
----------- ----------- ----------- -----------
NET INTEREST INCOME
AFTER PROVISION FOR LOAN LOSSES .... 179,391 182,438 526,095 566,004
----------- ----------- ----------- -----------
Total non-interest income (1)............... 61,204 53,793 180,029 171,444
Total non-interest expense (1).............. 138,850 151,356 426,957 449,990
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES ........ 101,745 84,875 279,167 287,458
Provision for income taxes.................. 35,808 28,973 100,207 97,361
----------- ----------- ----------- -----------
NET INCOME .................. $ 65,937 $ 55,902 $ 178,960 $190,097
=========== =========== =========== ===========
PER COMMON SHARE (2)
Net income ............................ $0.48 $0.41 $1.29 $1.40
Cash dividends declared................ $0.20 $0.19 $0.58 $0.49
AVERAGE COMMON SHARES OUTSTANDING .......... 137,182,768 136,107,853 139,112,764 136,257,881
See notes to consolidated financial statements.
(1) See page 9 for detail of non-interest income and non-interest expense.
(2) Adjusted for the five percent stock dividend distributed July 31, 1995.
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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
NET
UNREALIZED
GAINS
COMMON COMMON TREASURY TREASURY CAPITAL (LOSSES) ON RETAINED
SHARES STOCK SHARES STOCK SURPLUS SECURITIES EARNINGS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30, 1994:
BALANCE, BEGINNING
OF PERIOD ............... 104,411 $ 902,107 (608) $ (15,290) $216,168 -- $ 221,652 $1,324,637
Change in
accounting method
for securities ....... $ 65,548 1,624 67,172
Net income ............. 190,097 190,097
Cash dividends declared
($.49 per share) .... (67,447) (67,447)
Five-for-four
stock split ......... 26,088 (160)
Stock options
exercised ........... 279 6,394 721 (5,470) 1,645
Treasury shares
purchased ........... (1,798) (42,127) (42,127)
Treasury shares sold:
Shareholder dividend
reinvestment plan .. 752 18,417 30 (1,298) 17,149
Employee stock purchase
and other plans ... 405 9,654 137 (291) 9,500
Conversion of convertible
notes ............. 41 320 320
Change in net unrealized
gains (losses) on
securities available
for sale ............ (99,125) (99,125)
-------- --------- ------- --------- --------- -------- --------- -----------
BALANCE, END OF PERIOD ... 130,540 $902,427 (1,130) $(22,952) $217,056 $(33,577) $338,867 $1,401,821
======== ========= ======= ========= ========= ======== ========= ===========
Nine Months Ended September 30, 1995:
BALANCE, BEGINNING
OF PERIOD .............. 131,120 $ 912,318 (905) $ (16,577) $215,084 $ (63,289) $ 364,284 $1,411,820
Stock issued for
acquisitions ....... 3,510 3,434 20,061 (985) 8,474 30,984
Net income ........... 178,960 178,960
Cash dividend declared
($.58 per share) ... (79,852) (79,852)
5% stock dividend .... 6,732 140,146 (45) (140,272) (126)
Stock options
exercised ........... 184 3,233 76 (2,342) 967
Treasury shares
purchased ........... (7,726) (159,368) (159,368)
Treasury shares sold:
Shareholder
dividend reinvestment
plan .............. 1,213 21,434 310 (1,114) 20,630
Employee stock purchase
and other plans ... 401 7,016 130 (46) 7,100
Conversion of convertible
notes ................ 32 248 248
Change in net unrealized
gains (losses) on securities
available for sale ... 71,436 71,436
-------- --------- ------- --------- --------- -------- --------- -----------
BALANCE, END OF PERIOD .... 141,394 $1,056,146 (6,878) $ (144,262) $235,661 $ 7,162 $328,092 $1,482,799
======== ========= ======= ========= ========= ======== ========= ===========
See notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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(in thousands of dollars) NINE MONTHS ENDED SEPTEMBER 30,
1995 1994
----------- -------------
OPERATING ACTIVITIES
Net Income....................................................... $ 178,960 $ 190,097
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses................................... 16,582 12,796
Provision for other real estate............................. (2,263) (2,889)
Provision for depreciation and amortization................. 47,182 66,378
Deferred income tax expense................................. 18,034 24,500
Increase in trading account securities...................... (9,708) (355)
(Increase) decrease in mortgages held for sale.............. (17,054) 841,064
Net gains on sales of securities available for sale......... (8,142) (2,545)
Net gains on calls of investment securities................. (612) (104)
(Increase) decrease in accrued income receivable............ (26,900) 13,060
Net (increase) decrease in other assets..................... (28,534) 52,387
Increase (decrease) in accrued expenses..................... 114,417 (29,411)
Net increase (decrease) in other liabilities................ 16,953 (67,736)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES........... 298,915 1,097,242
---------- ----------
INVESTING ACTIVITIES
Decrease in interest bearing deposits in banks.................. 1,800 10,442
Proceeds from:
Maturities of investment securities........................... 27,106 20,797
Maturities of securities available for sale................... 212,750 239,777
Calls of investment securities................................ 34,686 44,459
Sales and calls of securities available for sale.............. 2,388,018 2,195,640
Purchases of:
Investment securities......................................... (2,660) (222,352)
Securities available for sale................................. (3,377,820) (1,356,416)
Net loan originations............................................. (1,071,526) (952,145)
Proceeds from disposal of premises and equipment.................. 2,344 833
Purchases of premises and equipment............................... (23,255) (19,511)
Proceeds from sales of other real estate.......................... 26,446 26,968
Net cash received from purchase/sale of subsidiaries.............. 148,490 --
---------- ----------
NET CASH USED FOR INVESTING ACTIVITIES................ (1,633,621) (11,508)
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FINANCING ACTIVITIES
Increase (decrease) in total deposits........................... 231,223 (424,786)
Increase (decrease) in short-term borrowings.................... 1,144,187 (533,836)
Proceeds from issuance of long-term debt........................ 590,000 350,000
Payment of long-term debt....................................... (181,565) (26,415)
Dividends on common stock....................................... (59,348) (50,298)
Acquisition of treasury stock................................... (159,368) (42,127)
Sales of treasury stock......................................... 7,100 9,500
Proceeds from exercise of stock options......................... 967 1,645
---------- ----------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES.. 1,573,196 (716,317)
---------- ----------
CHANGE IN CASH AND CASH EQUIVALENTS................... 238,490 369,417
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD...... 890,656 745,079
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............ $1,129,146 $1,114,496
========== ==========
See notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A. The accompanying unaudited consolidated financial statements reflect
all adjustments (consisting of normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of the results for the
interim periods. The Notes to the Consolidated Financial Statements appearing in
Huntington's 1994 Annual Report to Shareholders should be read in conjunction
with these interim financial statements.
B. On January 1, 1995, Huntington adopted Financial Accounting Standards
Board Statement No. 114, "Accounting by Creditors for Impairment of a Loan" (FAS
114), as amended by FAS 118. Under the new rules, the 1995 allowance for loan
losses related to loans that are identified for evaluation in accordance with
FAS 114 is based on discounted cash flows using the loan's initial effective
interest rate or the fair value of the collateral for collateral-dependent
loans. Prior to 1995, the allowance for loan losses related to these loans was
based on undiscounted cash flows or the fair value of the collateral for
collateral-dependent loans. Huntington uses the cost recovery method in
accounting for cash received on non-accrual loans. Under this method, cash
receipts are generally applied entirely against principal until the loan has
been collected in full, after which time any additional cash receipts are
recognized as interest income.
Under FAS 114, $20.7 million of non-performing loans presented in the
table on page 23 of this report are considered impaired. Included in this
amount is $13.3 million of impaired loans for which the related allowance for
loan losses is $7.9 million and $7.4 million of impaired loans that as a result
of write-downs do not have an allowance for loan losses.
As more fully described in Management's Discussion and Analysis,
Huntington also adopted FAS 122, "Accounting for Mortgage Servicing Rights", in
the third quarter of 1995. The adoption of FAS 122 did not have a material
effect on Huntington's consolidated financial statements.
C. Huntington acquired Security National Corporation (Security), a $189
million one-bank holding company headquartered in Maitland, Florida on May 1,
1995, and Reliance Bank of Florida (Reliance), a $98 million bank headquartered
in Melbourne, Florida on May 16, 1995. Huntington issued approximately 3.5
million shares of common stock in exchange for all the common stock of Security
and Reliance. Prior year financial statements were not restated for these
immaterial pooling-of-interests transactions. On July 16, 1995, Huntington
consummated the acquisition of First Seminole Bank (First Seminole), a $51
million bank headquartered in Lake Mary, Florida. Huntington paid cash of $8.4
million for all of the stock of First Seminole in a transaction accounted for as
a purchase.
In August 1995, Huntington entered into a merger agreement with Peoples
Bank of Lakeland (Peoples), a $534 million commercial bank headquartered in
Lakeland, Florida. Huntington is to exchange a combination of its common stock
and cash for the outstanding common stock of Peoples in a purchase transaction.
The acquisition is expected to be completed in January 1996, subject to approval
by Peoples shareholders and applicable regulatory authorities.
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D. Per common share amounts have been calculated based on the weighted
average number of common shares outstanding in each period, adjusted for the
five percent stock dividend issued July 31, 1995. The dilutive effects of
unexercised stock options and convertible debentures were not significant for
any period presented.
E. Certain amounts in the prior year's financial statements have been
reclassified to conform with the 1995 presentation. These reclassifications had
no effect on net income.
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FINANCIAL REVIEW
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LOAN PORTFOLIO COMPOSITION
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(in thousands of dollars) SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1995 1994 1994
------------- ------------ -------------
Commercial .................................... $ 4,106,763 $ 3,610,892 $ 3,566,660
Tax-free ...................................... 53,539 58,006 60,403
Real Estate
Construction.............................. 364,721 304,769 286,999
Commercial................................ 1,540,534 1,378,398 1,373,936
Residential............................... 1,546,754 1,624,367 1,465,988
Consumer ...................................... 5,059,492 4,641,946 4,523,251
Lease financing................................ 786,028 646,058 594,175
----------- ----------- -----------
TOTAL LOANS............................... $13,457,831 $12,264,436 $11,871,412
=========== =========== ===========
- --------------------------------------------------------------------------------------------------
DEPOSIT COMPOSITION
- --------------------------------------------------------------------------------------------------
(in thousands of dollars) SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1995 1994 1994
------------- ------------ -------------
Demand deposits
Non-interest bearing ..................... $ 1,989,624 $ 2,169,095 $ 2,062,806
Interest bearing ......................... 2,686,800 2,646,785 2,632,437
Savings deposits .............................. 2,118,333 2,227,406 2,308,881
Certificates of deposit of $100,000 or more.... 916,157 605,763 582,991
Other domestic time deposits .................. 4,523,528 3,909,061 3,589,791
Foreign time deposits ................ 310,058 406,957 425,340
----------- ----------- -----------
TOTAL DEPOSITS .................. $12,544,500 $11,965,067 $11,602,246
=========== =========== ===========
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- --------------------------------------------------------------------------------
FINANCIAL REVIEW
- --------------------------------------------------------------------------------
ANALYSIS OF NON-INTEREST INCOME
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(in thousands of dollars) THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, PERCENT SEPTEMBER 30, PERCENT
1995 1994 CHANGE 1995 1994 CHANGE
- ---------------------------------------------------------------------------------------------------------
Service charges on deposit accounts.... $21,109 $19,628 7.55% $ 64,110 $ 57,419 11.65%
Mortgage banking ...................... 9,678 9,246 4.67 28,278 41,737 (32.25)
Trust services ........................ 7,312 6,732 8.62 22,953 21,762 5.47
Credit card fees ...................... 5,939 5,846 1.59 16,305 15,126 7.79
Securities gains ...................... 2,315 648 N.M. 8,754 2,649 N.M.
Investment product sales .............. 2,159 1,694 27.45 5,829 5,317 9.63
Other ................................. 12,692 9,999 26.93 33,800 27,434 23.20
------- ------- -------- --------
TOTAL NON-INTEREST INCOME ............. $61,204 $53,793 13.78% $180,029 $171,444 5.01%
======= ======= ======== ========
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ANALYSIS OF NON-INTEREST EXPENSE
- --------------------------------------------------------------------------------
(in thousands of dollars) THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, PERCENT SEPTEMBER 30, PERCENT
1995 1994 CHANGE 1995 1994 CHANGE
- ---------------------------------------------------------------------------------------------------------
Salaries .............................. $ 54,391 $ 57,740 (5.80)% $165,473 $172,354 (3.99)%
Commissions ........................... 3,074 3,547 (13.34) 6,694 9,252 (27.65)
Employee benefits ..................... 13,958 13,388 4.26 45,038 45,067 (0.06)
Net occupancy ......................... 10,039 10,593 (5.23) 30,804 30,329 1.57
Equipment ............................. 9,470 9,651 (1.88) 28,865 28,641 0.78
FDIC insurance ........................ 5,807 5,992 (3.09) 18,892 19,053 (0.85)
Printing and supplies ................. 3,508 3,734 (6.05) 10,442 10,910 (4.29)
Credit card ........................... 3,398 3,777 (10.03) 9,712 10,067 (3.53)
Advertising ........................... 3,149 2,684 17.32 9,092 11,168 (18.59)
Legal and loan collection.............. 1,857 1,719 8.03 5,885 4,928 19.42
Other ................................. 30,199 38,531 (21.62) 96,060 108,221 (11.24)
-------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE............. $138,850 $151,356 (8.26)% $426,957 $449,990 (5.12)%
======== ======== ======== ========
N.M. - Not meaningful
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2. Management's Discussion and Analysis
OVERVIEW
Huntington reported net income of $65.9 million, or $.48 per share, for
the third quarter of 1995 compared with $55.9 million, or $.41 per share, for
the same period last year. For the first nine months of the year, net income was
$179.0 million, or $1.29 per share, versus $190.1 million, or $1.40 per share,
in the first nine months of 1994.
Huntington achieved returns on average assets (ROA) of 1.34% and 1.27%
in the third quarter and first nine months, respectively, of 1995 and returns on
average equity (ROE) of 17.03% and 15.75% in these same periods. ROA was 1.35%
and 1.53% and ROE was 15.77% and 18.14% for the comparable periods in 1994.
The increase in earnings for the recent quarter compared with the same
three months of last year is principally the result of Huntington's strong loan
growth and effective management of non-interest expenses. This improvement
follows the downturn in earnings experienced by Huntington during the second
half of 1994 and represents the third consecutive quarter of increased net
income. Huntington also continues to benefit from its exceptional asset quality
and solid capital position.
Total assets were $20.2 billion at September 30, 1995, up 13.5% from
December 31, 1994, and 18.7% from one year ago. Average total loans grew to
$13.2 billion for the third quarter of the year, compared with $11.7 billion for
the same period last year. Securities available for sale were $4.3 billion at
the most recent quarter end versus $2.7 billion at September 30, 1994. This
increase was the result of programs directed by Huntington's Asset/Liability
Management Committee (ALCO) to neutralize the interest rate risk exposure
arising from customer-driven business sectors.
Total deposits at September 30, 1995, of $12.5 billion were higher than
both December 31 and September 30, 1994, principally because of bank
acquisitions consummated during 1995 and an increase in time deposits of
$100,000 or more. The mix of deposits has also changed, as retail customers have
shifted their investment preferences, opting for the higher yields available
through certificates of deposit. Huntington's short-term and long-term
borrowings are up from a year ago, largely as a result of increased purchases of
term federal funds and additional notes issued by its lead subsidiary, The
Huntington National Bank.
Shareholders' equity was $1.5 billion at the recent quarter end.
Huntington's regulatory capital ratios, including those of its bank
subsidiaries, show continued strength and exceed the levels established for
well-capitalized institutions.
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NET INTEREST INCOME
For the quarter ended September 30, 1995, Huntington reported net
interest income of $186.6 million, compared with $183.6 million for the same
period last year. Net interest income was $542.7 million in the first nine
months of the year versus $578.8 million in the corresponding period of 1994.
The net interest margin, on a fully tax equivalent basis, was 4.18% and 4.21%,
respectively, for the three and nine months ended September 30, 1995. For the
same periods one year ago, the margin was 4.89% and 5.11%, respectively. Though
spreads available in the marketplace remained narrow, net interest income was up
quarter-to-quarter as loan growth and purchases of investment securities fueled
a 19.0% increase in average earning assets. Huntington anticipates that the
margin will continue to decline in the fourth quarter, primarily due to the
larger securities portfolio, competitive pressure on loan pricing, and changes
in deposit mix.
INTEREST RATE RISK MANAGEMENT
Huntington seeks to achieve consistent growth in net interest income and
net income while managing volatility arising from shifts in interest rates. This
is accomplished with the oversight of ALCO, which is comprised of key members of
executive management. ALCO establishes policies and operating limits that govern
the management of interest rate and market risk as well as ensure maintenance of
adequate liquidity. Both on- and off-balance sheet strategies and programs are
regularly reviewed and monitored to confirm their consistency with balance sheet
objectives and their appropriateness in light of changing market and business
conditions.
Active and effective management of interest rate risk requires the use
of a variety of financial instruments and funding sources. On-balance sheet
investment and funding vehicles, along with off-balance sheet financial
instruments such as interest rate swaps, interest rate caps/floors, and
financial futures represent the primary means by which Huntington responds to
the balance sheet mismatches created by customer loan and deposit preferences
and to changing market conditions.
Huntington monitors its interest rate risk exposure by measuring the
amount that net interest income will change over a twelve to twenty-four month
period given a directional shift in interest rates. Estimated net interest
income-at-risk is determined using multiple interest rate and balance sheet
scenarios to provide management a range of possible outcomes for evaluating its
risk tolerance.
At September 30, 1995, the results of Huntington's internal interest
sensitivity analysis indicated that net interest income would be relatively
unchanged by a 100 basis points increase or decrease in the federal funds rate
(assuming the change occurs evenly over the next year and that corresponding
changes in other market rates occur as forecasted). A decrease of 200 basis
points could reduce net interest income by approximately .9%. Underlying these
estimates is the assumption that certain core deposits, which have not repriced
upward during the last 300 basis
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point increase in short-term rates, will not reprice downward in a falling rate
environment. A 200 basis points increase in rates could result in a decrease in
net interest income of .2% to 1.6%. Huntington uses a range in measuring its
"at-risk" position in a rising rate scenario because of varying assumptions
regarding the volume and rate behaviors of certain loans and core deposits.
Interest rate swaps are the principal off-balance sheet vehicles used by
Huntington for interest rate risk management. The overall swap strategy has
enabled Huntington to lower the costs of raising wholesale liabilities and has
allowed management to synthetically alter, or customize, the repricing
characteristics of selected on-balance sheet financial instruments. "Asset
conversion swaps" are used by Huntington to convert variable rate loans and
other floating rate assets to fixed rate assets. Similarly, "liability
conversion swaps" have been used to change the repricing characteristics of
various on-balance sheet liabilities, primarily in connection with ALCO programs
to lower the cost of raising wholesale liabilities. "Basis swaps" represent
contracts in which both parties receive floating rates of interest according to
different indices and are used to protect against changes in spreads. Financial
futures and interest rate caps/floors, as well as forward delivery contracts
purchased in connection with mortgage banking activities, are also integral to
risk management. These off-balance sheet financial instruments are often
preferable to securities or other on-balance sheet alternatives because, though
they provide similar protection against interest rate movements, they require
less capital and preserve liquidity.
In the third quarter of 1995, interest rate swaps and other off-balance
sheet financial instruments used for risk management purposes reduced interest
income by $9.5 million and increased interest expense by $3.8 million. On a
year-to-date basis, the decrease in interest income was $22.2 million and
interest expense increased $16.8 million. For the same periods last year, these
products increased interest income by $5.3 million and $27.5 million and
increased (decreased) interest expense by $.8 million and ($12.9) million.
Included in the preceding amounts is amortization of deferred gains and losses
from terminated contracts, that decreased net interest income by $8.9 million
for the most recent quarter and $18.6 million for the first nine months of 1995,
and increased net interest income by $5.9 million and $19.2 million,
respectively, in the three and nine months ended September 30, 1994. Expressed
in terms of the net interest margin, the effect of the off-balance sheet
portfolio was a reduction of 29 basis points and 30 basis points, respectively,
for the third quarter and first nine months of 1995 versus an addition of 12
basis points and 35 basis points in the corresponding periods one year ago.
The following table illustrates the approximate market values, estimated
maturities and weighted average rates of the interest rate swaps used by
Huntington in its interest rate risk management program. The valuation of
interest rate swap contracts is largely a function of the financial market's
expectations regarding the future direction of interest rates. Since year end,
expectations regarding the future direction of interest rates have shifted, with
the marketplace now anticipating flat to slightly lower short-term rates over
the next several months versus the expectations which prevailed at the end of
1994 for significantly higher rates. Consequently, the net unrealized loss of
$29.6 million at the end of September 1995 was down considerably from $268.9
million at December 31, 1994. The market values at the most recent quarter end
are not necessarily indicative of the future impact of the swaps on net interest
income. This will depend,
12
13
in large part, on the shape of the yield curve as well as interest rate levels.
Management has made no assumptions with respect to future changes in interest
rates for purposes of the variable rate information and the indexed amortizing
swap maturities presented below.
Average Average Rate
Notional Maturity Market ------------
(dollars in millions) Value (years) Value Receive Pay
- --------------------- -------- -------- ------ ------- ---
September 30, 1995:
ASSET CONVERSION SWAPS
Receive fixed $ 809 2.44 ($ 6.8) 5.59% 5.89%
Receive fixed-amortizing 395 2.49 ( 6.2) 5.58 5.88
------ ------
TOTAL ASSET CONVERSION SWAPS $1,204 2.46 ($13.0) 5.59% 5.89%
====== ======
LIABILITY CONVERSION SWAPS
Receive fixed $1,016 3.53 $ 15.1 6.28% 5.84%
Receive fixed-amortizing 283 2.73 ( 6.9) 5.39 5.83
Pay fixed 2,258 .83 ( 21.2) 5.91 7.01
------ ------
TOTAL LIABILITY CONVERSION SWAPS $3,557 1.75 ($13.0) 5.98% 6.58%
====== ======
BASIS PROTECTION SWAPS $ 700 1.33 ($ 3.6) 6.14% 6.02%
====== ======
The pay rates on Huntington's receive fixed swaps vary based on
movements in the applicable London inter-bank offered rate (LIBOR). Receive
fixed liability conversion swaps with a notional value of $150 million have
embedded written LIBOR-based caps. Also, receive fixed liability conversion
swaps with a notional value of $415 million and receive fixed asset conversion
swaps with a notional value of $200 million have embedded written LIBOR-based
call options. The portfolio of amortizing swaps consists of contracts with
notional values that are indexed to the prepayment experience of a specified
pool of mortgage loans, LIBOR or Constant Maturity U.S. Treasury yields (CMT).
As market interest rates change, the amortization of the notional values will
also change, generally slowing as rates increase and accelerating when rates
fall. Basis swaps are contracts which provide for both parties to receive
floating rates of interest according to different indices. All receive and pay
amounts applicable to Huntington's basis swaps are determined by LIBOR, the
prime rate, or other indices common to the banking industry. The basis swaps
have embedded written periodic caps and, in some cases, purchased periodic
floors.
The notional values of the swap portfolio represent contractually
determined amounts on which calculations of interest payments to be exchanged
are based. These notional values do not represent direct credit exposures. At
September 30, 1995, Huntington's credit risk from interest rate swaps used for
asset/liability management purposes was $44.4 million, which is significantly
less than the notional value of the contracts, and represents the sum of the
aggregate fair value of positions that have become favorable to Huntington,
including any accrued interest receivable due from counterparties. In order to
minimize the risk that a swap counterparty will not satisfy its interest payment
obligation under the terms of the contract, Huntington performs credit
13
14
reviews on all counterparties, restricts the number of counterparties used to a
select group of high quality institutions, obtains collateral, and enters into
formal netting arrangements. Huntington has never experienced any past due
amounts from a swap counterparty and does not anticipate non-performance in the
future by any such counterparties.
The following table summarizes activity in the interest rate swap
portfolio used for asset/liability management purposes during the quarter and
nine months ended September 30, 1995 and 1994:
Asset Liability Basis
Conversion Conversion Protection
----------------------------------------
(in millions)
Balance at June 30, 1995 $ 1,307 $3,357 $ 700
Additions --- 465 ---
Maturities/Amortization (78) (265) ---
Terminations (25) --- ---
------- ------ ------
Balance at September 30, 1995 $ 1,204 $3,557 $ 700
======= ====== ======
Balance at June 30, 1994 $ 1,863 $1,851 $2,900
Additions 250 780 ---
Maturities/Amortization (5) (40) (100)
Terminations (200) --- (250)
------- ------ ------
Balance at September 30, 1994 $ 1,908 $2,591 $2,550
======= ====== ======
Balance at December 31, 1994 $ 2,508 $3,332 $1,000
Additions --- 1,040 ---
Maturities/Amortization (109) (481) (300)
Terminations (1,195) (334) ---
------- ------ ------
Balance at September 30, 1995 $ 1,204 $3,557 $ 700
======= ====== ======
Balance at December 31, 1993 $ 2,281 $1,821 $2,800
Additions 463 995 350
Maturities/Amortization (236) (225) (100)
Terminations (600) --- (500)
------- ------ ------
Balance at September 30, 1994 $ 1,908 $2,591 $2,550
======= ====== ======
Terminations reflect the decisions made by ALCO to modify, refine, or
change balance sheet management strategies, as a result of either a change in
overall interest rate risk tolerances or changes in balance sheet composition.
The terminations that occurred in the first three quarters of 1995 were
associated with ALCO directed programs to realign Huntington's interest rate
sensitivity posture in light of prevailing economic and market conditions and
trends in the customer-driven balance sheet. At September 30, 1995, Huntington
had deferred approximately
14
15
$45.3 million of net realized losses from terminated interest rate swaps, which
are to be amortized as yield adjustments over the remaining term of the original
contracts, as presented below.
Amortizing In
-------------------------------------------------------------
1995 1996 1997 1998 1999 Total
---- ---- ---- ---- ---- -----
(in millions)
SEPTEMBER 30, 1995:
Deferred gains $ 4.5 $ 15.0 $ 8.3 $ 7.0 $5.7 $ 40.5
Deferred losses (13.3) (51.4) (19.4) (1.3) (.4) (85.8)
------ ------ ------ ----- ---- ------
Net (losses) gains $ (8.8) $(36.4) $(11.1) $ 5.7 $5.3 $(45.3)
====== ====== ====== ===== ==== ======
The total notional amount of off-balance sheet instruments used by
Huntington on behalf of customers (for which the related interest rate risk is
offset by third party contracts) was $454 million at September 30, 1995. Total
credit exposure from such contracts, represented by those instruments with a
positive fair value, was $1.7 million at the most recent quarter end. These
separate activities, which are accounted for at fair value, are not a
significant part of Huntington's operations. Accordingly, they have been
excluded from the above discussion of off-balance sheet financial instruments
and the related tables.
NON-INTEREST INCOME
Non-interest income, exclusive of securities transactions, for the third
quarter and first nine months of 1995 was $58.9 million and $171.3 million,
compared with $53.1 million and $168.8 million for the corresponding periods one
year ago. The quarter-to-quarter increase was driven by improvements in all
major categories. Huntington's non-interest income also showed broad-based
growth on a year-to-date basis, as increased service charges on deposits, credit
card fees, trust revenues, and other income more than offset a 32.3% decline in
mortgage banking income (see following table for an analysis of mortgage banking
income). Other non-interest income was up during the respective periods
principally as a result of increased trading account profits and higher income
from certain fee based initiatives.
During the first nine months of 1995, Huntington realized net gains from
securities transactions of $8.8 million. The majority of these gains resulted
from the sale of callable agency securities, the proceeds from which were
reinvested into securities of moderately longer duration.
15
16
The major components of mortgage banking income were as follows:
Third Quarter Nine Months
------------------- --------------------
1995 1994 1995 1994
------ ------- ------- -------
(in thousands)
Net servicing fees $3,334 $ 5,576 $11,720 $16,913
Fee income 1,363 2,393 3,611 11,849
Gain on sale of
servicing rights --- 2,981 5,295 10,745
Other income (expense) 4,981 (1,704) 7,652 2,230
------ ------- ------- -------
$9,678 $ 9,246 $28,278 $41,737
====== ======= ======= =======
Net servicing fees in the third quarter and first nine months of 1995
were considerably less than the amounts reported in the corresponding periods of
last year, principally because of sales of servicing rights. A summary of the
servicing portfolio follows:
As of September 30,
1995 1994
---- ----
(in thousands of dollars)
Loan principal $5,169,294 $6,627,351
Weighted average:
Coupon rate 8.11% 8.15%
Contractual maturity 20 yrs. 21 yrs.
The decrease in fee income reflected in the above table is the result of
a significant drop in mortgage loan production, as the decline in origination
volumes that began in 1994 (and was much more pronounced in the second half of
the year) continued into 1995.
During the most recent quarter, Huntington sold no servicing rights,
compared with sales in the same period of 1994 of $700 million. For the nine
months ended September 30, 1995, $421 million of servicing rights were sold,
versus $1.9 billion in the first three quarters of last year.
Other mortgage banking income is up largely because of the adoption of
Financial Accounting Standards Board Statement No. 122, "Accounting for Mortgage
Servicing Rights" (FAS 122) in the third quarter of 1995. FAS 122, an amendment
of Statement 65, requires the recognition of rights to service loans for others
as separate assets, however those servicing rights are acquired. FAS 122 also
requires that a mortgage banking enterprise assess its capitalized servicing
rights for impairment based on the fair value of those rights, using a
disaggregated approach for mortgage servicing rights that are capitalized after
adoption of the new standard. The increased income from FAS 122 implementation
relates primarily to 1995 sales of retail loan production for which the retained
servicing rights were capitalized. Other mortgage banking
16
17
income in the third quarter of 1994 was adversely affected by the lower of cost
or market value adjustment with respect to mortgages held for sale.
NON-INTEREST EXPENSE
Non-interest expense in the third quarter of 1995 was $138.9 million,
down 8.3% from the same three months in 1994. This represents the fourth
consecutive quarter that non-interest expense has been reduced. A decline in
non-interest expense of 5.1% occurred from the first nine months of 1994 to the
corresponding period this year. These decreases were a direct result of
initiatives begun in 1994 to reduce operating costs by restructuring certain
business activities, including the retail delivery system and the mortgage
company. Moreover, these cost reductions were achieved despite the completion of
three bank acquisitions during 1995 and were primarily attributable to reduced
personnel costs.
PROVISION FOR INCOME TAXES
The provision for income taxes was $35.8 million in the most recent
quarter, an increase of 23.6% from the same period one year ago. For the first
nine months of the year, the provision for income taxes was $100.2 million
versus $97.4 million in the corresponding period of 1994. The higher provision
in 1995, when comparing the respective quarters, is largely the result of
increased pre-tax earnings. The year-to-date provision for income taxes was
significantly affected by a one-time charge of $2.1 million related to the May
1995 conversion of an existing thrift to a bank charter as well as various
non-deductible expenses incurred in connection with bank acquisitions
consummated over the past twelve months.
ASSET QUALITY
Huntington's exposure to credit risk is actively managed through the use
of underwriting standards which emphasize "in-market" lending to established
borrowers. Highly leveraged transactions and industry or other concentrations
are avoided. Huntington's management also employs extensive monitoring
procedures to ensure the adequacy of the allowance for loan losses (ALL),
including timely reviews of specific credits, monthly analysis of delinquencies,
assessment of current economic conditions, and other relevant factors.
Huntington's asset quality remains among the best of the largest banking
companies in the country. Non-performing loans, which represent only .34% of
total loans at the most recent quarter end, were as follows:
17
18
September 30, December 31, September 30,
1995 1994 1994
----- ----- -----
(in millions)
Commercial $21.8 $21.0 $26.0
Construction 3.1 4.6 6.2
Commercial real estate 10.5 10.1 18.5
Residential mortgage 10.6 8.7 3.0
Consumer .3 .1 .1
----- ----- -----
Total $46.3 $44.5 $53.8
===== ===== =====
Net charge-offs (annualized) as a percentage of average total loans were
.31% and .24%, respectively, in the third quarter and first nine months of 1995,
indicative of Huntington's continued high credit quality. For the same periods
one year ago, these ratios were .26% and .22%. The ALL as a percentage of total
loans was 1.48% as of September 30, 1995, compared with ratios of 1.63% at
year-end 1994 and 1.73% one year ago. Huntington believes this decrease is
appropriate, as the ratio of the ALL to non-performing loans remains strong at
429%.
In addition to the improvements in credit quality referred to above, net
other real estate (ORE) declined significantly during the past twelve months
from $51.6 million to $23.7 million at September 30, 1995. Huntington's
management continues to aggressively pursue the sale of its ORE to further
reduce non-performing assets.
CAPITAL
Huntington's capital position remains strong. Shareholders' equity at
the most recent quarter end was approximately $1.5 billion, an increase of 5.9%
from one year ago. Average equity to average assets was 7.87% in the third
quarter of 1995 and 8.10% for the first nine months of the year, versus 8.54%
and 8.42% in the same periods in 1994. At September 30, 1995, the Tier 1 and
total risk-based capital ratios were 8.46% and 12.17%, respectively, and
exceeded the corresponding minimum levels to be considered "well capitalized" of
6% and 10%, respectively. Huntington's Tier 1 leverage ratio of 6.96% also
exceeded the minimum regulatory requirement of 5%.
On April 27, 1995, the Board of Directors authorized Huntington to
repurchase up to 10.5 million additional shares of its common stock (as adjusted
for the 5% stock dividend issued in July 1995). The authorization represents a
continuation of the August 1987 Common Stock Repurchase Program and provides
that the shares will be reserved for reissue in connection with Huntington's
benefit plans as well as for other corporate purposes. Approximately 7.7
million shares were acquired in the first three quarters of 1995 at an aggregate
cost of $159.4 million. Certain of these shares are to be used in the pending
purchase business combination with Peoples Bank of Lakeland, Florida. As of
September 30, 1995, approximately 5.8 million shares were available for
repurchase. Huntington's management believes that the majority of the
remaining authorized shares will be repurchased by the end of the first quarter
1996.
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- --------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(in thousands of dollars, except per share amounts)
----------- ----------- --------
THREE MONTHS ENDED SEPTEMBER 30, 1995 1994 % CHANGE
----------- ----------- --------
NET INCOME................................ $65,937 $55,902 18.0%
PER COMMON SHARE AMOUNTS (1).............
Net income........................... $ 0.48 $ 0.41 17.1
Cash dividends declared.............. $ 0.20 $ 0.19 5.3
AVERAGE SHARES OUTSTANDING (1)........... 137,182,768 136,107,853 0.8
KEY RATIOS
Return on:
Average total assets................. 1.34% 1.35% (0.7)
Average shareholders' equity......... 17.03% 15.77% 8.0
Efficiency ratio.......................... 56.74% 63.44% (10.6)
Average equity/average assets............. 7.87% 8.54% (7.8)
NET INTEREST MARGIN....................... 4.18% 4.89% (14.5)
- ------------------------------------------ ----------- ----------- --------
NINE MONTHS ENDED SEPTEMBER 30, 1995 1994 % CHANGE
----------- ----------- --------
NET INCOME................................ $178,960 $190,097 (5.9)%
PER COMMON SHARE AMOUNTS (1).............
Net income........................... $ 1.29 $ 1.40 (7.9)
Cash dividends declared.............. $ 0.58 $ 0.49 18.4
AVERAGE SHARES OUTSTANDING (1)........... 139,112,764 136,257,881 2.1
KEY RATIOS
Return on:
Average total assets................. 1.27% 1.53% (17.0)
Average shareholders' equity......... 15.75% 18.14% (13.2)
Efficiency ratio.......................... 59.63% 60.18% (0.9)
Average equity/average assets............. 8.10% 8.42% (3.8)
NET INTEREST MARGIN....................... 4.21% 5.11% (17.6)
- ------------------------------------------ ----------- ----------- --------
AT SEPTEMBER 30, 1995 1994 % CHANGE
----------- ----------- --------
Total Loans............................... $13,457,831 $11,871,412 13.4%
Total Deposits............................ $12,544,500 $11,602,246 8.1
Total Assets.............................. $20,173,130 $16,989,918 18.7
Shareholders' Equity...................... $ 1,482,799 $ 1,401,821 5.8
Period-End Shares Outstanding (1)......... 134,516,340 135,881,057 (1.0)
Shareholders' Equity Per Common Share (1). $ 11.02 $ 10.32 6.8
Total Risk-Adjusted Assets................ $16,116,690 $13,682,649 17.8
Tier 1 Risk-Based Capital Ratio........... 8.46% 9.90% (14.5)
Total Risk-Based Capital Ratio............ 12.17% 14.06% (13.4)
Tier 1 Leverage Ratio..................... 6.96% 8.15% (14.6)
(1) Adjusted for the five percent stock dividend distributed July 31, 1995.
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- --------------------------------------------------------------------------------
FINANCIAL REVIEW
- --------------------------------------------------------------------------------
Investment Securities - amortized cost & fair values by maturity at
September 30, 1995 and December 31, 1994
- --------------------------------------------------------------------------------
(in thousands of dollars) SEPTEMBER 30, 1995 December 31, 1994
- ----------------------------------------------------------------------------------------------------------------
AMORTIZED COST FAIR VALUE Amortized Cost Fair Value
- ----------------------------------------------------------------------------------------------------------------
U.S. Treasury
1-5 years.............................. $ 156 $ 156 $ 150 $ 150
-------- -------- -------- --------
Total............................... 156 156 150 150
-------- -------- -------- --------
Federal agencies
Mortgage-backed securities
1-5 years.............................. - - 371 344
6-10 years............................. 3,882 3,985 4,812 4,806
Over 10 years.......................... 2,652 2,737 3,130 3,133
-------- -------- -------- --------
Total............................... 6,534 6,722 8,313 8,283
-------- -------- -------- --------
Other agencies
1-5 years.............................. 243,376 242,902 101,774 99,446
6-10 years............................. 49,859 49,857 207,043 205,358
Over 10 years.......................... - - 433 350
-------- -------- -------- --------
Total............................... 293,235 292,759 309,250 305,154
-------- -------- -------- --------
Total U.S. Treasury and Federal agencies.... 299,925 299,637 317,713 313,587
-------- -------- -------- --------
States and political subdivisions
Under 1 year........................... 42,173 42,679 56,361 57,080
1-5 years.............................. 48,786 51,166 72,812 74,975
6-10 years............................. 15,624 16,175 18,433 18,059
Over 10 years.......................... 5,561 6,009 6,043 6,196
-------- -------- -------- --------
Total............................... 112,144 116,029 153,649 156,310
-------- -------- -------- --------
Other
Under 1 year........................... 1,500 1,500 1,508 1,508
1-5 years.............................. 505 505 5 5
6-10 years............................. 879 819 1,504 1,424
Over 10 years.......................... 1,283 1,283 1,313 1,313
-------- -------- -------- --------
Total............................... 4,167 4,107 4,330 4,250
-------- -------- -------- --------
Total Investment Securities................. $416,236 $419,773 $475,692 $474,147
======== ======== ======== ========
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- --------------------------------------------------------------------------------
FINANCIAL REVIEW
- --------------------------------------------------------------------------------
Securities Available for Sale - amortized cost & fair values by maturity at
September 30, 1995 and December 31, 1994
- --------------------------------------------------------------------------------
(in thousands of dollars) SEPTEMBER 30, 1995 December 31, 1994
- -------------------------------------------------------------------------------------------------------------
AMORTIZED COST FAIR VALUE Amortized Cost Fair Value
- -------------------------------------------------------------------------------------------------------------
U.S. Treasury
Under 1 year.......................... $ 118,049 $ 118,921 $ 25,399 $ 25,320
1-5 years............................. 368,259 366,915 662,106 643,100
6-10 years............................ 162,441 155,144 166,909 147,671
---------- ---------- ---------- ----------
Total.............................. 648,749 640,980 854,414 816,091
---------- ---------- ---------- ----------
Federal agencies
Mortgage-backed securities
Under 1 year.......................... 726 737 - -
1-5 years............................. 135,589 138,926 17,727 16,922
6-10 years............................ 698,421 702,315 369,061 362,716
Over 10 years......................... 90,925 92,537 114,742 110,119
---------- ---------- ---------- ----------
Total.............................. 925,661 934,515 501,530 489,757
---------- ---------- ---------- ----------
Other agencies
Under 1 year.......................... 38,727 39,095 531,082 526,617
1-5 years............................. 1,640,855 1,653,243 506,740 499,748
6-10 years............................ 180,519 177,835 382,849 369,404
Over 10 years......................... 482,661 477,425 323,451 304,660
---------- ---------- ---------- ----------
Total.............................. 2,342,762 2,347,598 1,744,122 1,700,429
---------- ---------- ---------- ----------
Total U.S. Treasury and Federal agencies... 3,917,172 3,923,093 3,100,066 3,006,277
---------- ---------- ---------- ----------
Other
Under 1 year.......................... 1,711 1,717 - -
1-5 years............................. 685 688 95,410 94,887
6-10 years............................ 249,719 255,822 165,422 164,087
Over 10 years......................... 101,962 102,193 32,854 32,818
Marketable equity securities.......... 8,359 7,057 8,359 6,424
---------- ---------- ---------- ----------
Total.............................. 362,436 367,477 302,045 298,216
---------- ---------- ---------- ----------
Total Securities Available for Sale........ $4,279,608 $4,290,570 $3,402,111 $3,304,493
========== ========== ========== ==========
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- --------------------------------------------------------------------------------
FINANCIAL REVIEW
- --------------------------------------------------------------------------------
LOAN LOSS EXPERIENCE
- --------------------------------------------------------------------------------
(in thousands of dollars) THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1995 1994 1995 1994
-------------------------------- -------------------------------
ALLOWANCE FOR LOAN LOSSES, BEGINNING OF PERIOD ...... $198,264 $212,479 $200,492 $211,835
Loan losses ......................................... (13,557) (12,613) (34,068) (31,520)
Recoveries of loans previously charged off .......... 3,222 4,985 10,490 12,853
Provision for loan losses ........................... 7,187 1,113 16,582 12,796
Allowance of assets acquired ........................ 3,457 - 5,077 -
-------- -------- -------- --------
Allowance for loan losses, end of period ............ $198,573 $205,964 $198,573 $205,964
======== ======== ======== ========
AS A % OF AVERAGE TOTAL LOANS
Net loan losses -- annualized ..................... 0.31% 0.26% 0.24% 0.22%
Provision for loan losses -- annualized ........... 0.22% 0.04% 0.17% 0.15%
Allowance for loan losses as a % of total loans ..... 1.48% 1.73% 1.48% 1.73%
Net loan loss coverage (1) .......................... 10.54x 11.27x 12.54x 16.08x
(1) Income before taxes and the provision for loan losses to net loan losses.
- --------------------------------------------------------------------------------
NON-PERFORMING ASSETS AND PAST DUE LOANS
(Quarter-End) 1995 1994
---------------------------------- ----------------------
(in thousands of dollars) III Q II Q I Q IV Q III Q
--------------------------------------------------------------
Non-accrual loans ................................... $ 41,997 $ 41,554 $ 41,576 $ 41,929 $ 40,313
Renegotiated loans .................................. 4,313 13,424 11,568 2,550 13,547
-------- -------- -------- -------- --------
TOTAL NON-PERFORMING LOANS .......................... 46,310 54,978 53,144 44,479 53,860
-------- -------- -------- -------- --------
Other real estate, net .............................. 23,668 24,029 26,558 51,909 51,558
-------- -------- -------- -------- --------
TOTAL NON-PERFORMING ASSETS ......................... $ 69,978 $ 79,007 $ 79,702 $ 96,388 $105,418
======== ======== ======== ======== ========
NON-PERFORMING LOANS AS A
% OF TOTAL LOANS .................................. 0.34% 0.42% 0.41% 0.36% 0.45%
NON-PERFORMING ASSETS AS A
% OF TOTAL LOANS AND OTHER REAL ESTATE ............ 0.52% 0.60% 0.62% 0.78% 0.88%
ALLOWANCE FOR LOAN LOSSES AS A % OF
NON-PERFORMING LOANS .............................. 428.79% 360.62% 378.38% 450.76% 382.41%
ALLOWANCE FOR LOAN LOSSES AND OTHER REAL
ESTATE AS A % OF NON-PERFORMING ASSETS ............ 263.26% 234.30% 235.10% 193.13% 181.70%
ACCRUING LOANS PAST DUE 90 DAYS OR MORE ............. $ 24,001 $ 20,685 $ 19,771 $ 20,877 $ 24,182
======== ======== ======== ======== ========
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- --------------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
- --------------------------------------------------------------------------------
Fully Tax Equivalent Basis (1) 3RD QUARTER 1995 2ND QUARTER 1995
--------------------- --------------------
(in millions of dollars) AVERAGE YIELD/ AVERAGE YIELD/
BALANCE RATE BALANCE RATE
--------------------- --------------------
ASSETS
Interest bearing deposits in banks..................................... $ 2 5.73% $ 3 5.03%
Trading account securities............................................. 24 7.54 23 8.07
Federal funds sold and securities purchased under resale agreements.... 22 7.49 70 6.70
Mortgages held for sale................................................ 174 7.73 109 7.52
Securities available for sale.......................................... 4,170 6.77 3,601 6.76
Investment securities.................................................. 421 7.92 439 7.74
Loans
Commercial........................................................ 4,045 8.09 4,027 8.55
Tax-free.......................................................... 54 10.53 55 10.75
Real Estate
Construction................................................. 349 8.68 324 8.38
Mortgage..................................................... 3,058 8.59 3,100 8.20
Consumer.......................................................... 4,979 9.05 4,805 8.90
Lease Financing.................................................. 747 7.53 690 7.43
------- -------
Total Loans.................................................. 13,232 8.56 13,001 8.54
Allowance for loan losses.................................... 198 201
------- -------
Net loans.................................................... 13,034 9.04 12,800 9.00
------- -------
Total earning assets......................................... 18,045 8.37% 17,246 8.38%
------- -------
Cash and due from banks................................................ 783 796
All other assets....................................................... 876 838
------- -------
TOTAL ASSETS........................................................... $19,506 $18,679
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits
Non-interest bearing.............................................. $ 2,194 $ 2,159
Interest bearing.................................................. 2,488 2.45% 2,533 2.45%
Savings deposits....................................................... 2,020 2.76 2,013 2.68
Certificates of deposit of $100,000 or more............................ 878 5.78 770 5.84
Other domestic time deposits........................................... 4,467 5.69 4,447 5.54
Foreign time deposits.................................................. 318 6.32 264 6.57
------- -------
Total deposits.................................................... 12,365 3.57 12,186 3.49
------- -------
Short-term borrowings.................................................. 3,786 5.96 3,348 6.13
Long-term debt......................................................... 1,403 6.36 1,208 7.23
------- -------
Interest bearing liabilities...................................... 15,360 4.92% 14,583 4.93%
------- -------
All other liabilities.................................................. 416 390
Shareholders' equity................................................... 1,536 1,547
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $19,506 $18,679
======= =======
Net interest rate spread............................................... 3.45% 3.45%
Impact of non-interest bearing funds on margin......................... 0.73% 0.76%
NET INTEREST MARGIN.................................................... 4.18% 4.21%
(1) Fully tax equivalent yields are calculated assuming a 35% tax rate.
23
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- --------------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
- --------------------------------------------------------------------------------
Fully Tax Equivalent Basis (1) 1ST QUARTER 1995 4TH QUARTER 1994 3RD QUARTER 1994
---------------- ---------------- ----------------
(in millions of dollars) AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE RATE BALANCE RATE BALANCE RATE
---------------- ---------------- ----------------
ASSETS
Interest bearing deposits in banks..................................... $ 3 4.50% $ 2 8.80% $ 3 7.46%
Trading account securities............................................. 27 6.68 15 6.21 17 6.61
Federal funds sold and securities purchased under resale agreements.... 45 6.56 115 4.91 188 4.48
Mortgages held for sale................................................ 106 8.42 135 6.75 214 7.74
Securities available for sale.......................................... 3,501 6.58 2,977 6.33 2,553 5.98
Investment securities.................................................. 458 8.09 475 8.09 498 8.09
Loans
Commercial........................................................ 3,776 8.65 3,562 8.75 3,511 8.47
Tax-free.......................................................... 56 10.77 59 10.28 62 9.87
Real Estate
Construction................................................. 315 8.57 302 7.82 275 8.02
Mortgage..................................................... 3,111 8.09 2,905 8.06 2,822 8.04
Consumer.......................................................... 4,678 8.58 4,578 8.24 4,440 8.12
Lease Financing.................................................. 660 7.24 620 7.24 574 7.26
------- ------- -------
Total Loans.................................................. 12,596 8.42 12,026 8.29 11,684 8.17
Allowance for loan losses.................................... 203 205 212
------- ------- -------
Net loans.................................................... 12,393 8.87 11,821 8.60 11,472 8.48
------- ------- -------
Total earning assets......................................... 16,736 8.26% 15,745 8.11% 15,158 7.98%
------- ------- -------
Cash and due from banks................................................ 774 770 737
All other assets....................................................... 798 759 781
------- ------- -------
TOTAL ASSETS........................................................... $18,105 $17,069 $16,465
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits
Non-interest bearing.............................................. $ 2,119 $ 2,127 $ 2,061
Interest bearing.................................................. 2,622 2.42% 2,652 2.30% 2,695 2.21%
Savings deposits....................................................... 2,097 2.62 2,171 2.43 2,264 2.23
Certificates of deposit of $100,000 or more............................ 671 5.59 581 4.88 589 4.38
Other domestic time deposits........................................... 4,156 5.14 3,678 4.62 3,553 4.23
Foreign time deposits.................................................. 274 6.31 296 5.41 199 4.66
------- ------- -------
Total deposits.................................................... 11,939 3.24 11,505 3.50 11,359 3.18
------- ------- -------
Short-term borrowings.................................................. 3,137 5.99 2,797 5.06 2,519 4.30
Long-term debt......................................................... 1,246 7.44 1,138 8.19 938 6.99
------- ------- -------
Interest bearing liabilities...................................... 14,203 4.71% 13,313 4.23% 12,756 3.68%
------- ------- -------
All other liabilities.................................................. 308 220 242
Shareholders' equity................................................... 1,475 1,409 1,406
------- ------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $18,105 $17,069 $16,465
======= ======= =======
Net interest rate spread............................................... 3.55% 3.88% 4.30%
Impact of non-interest bearing funds on margin......................... 0.71% 0.66% 0.59%
NET INTEREST MARGIN.................................................... 4.26% 4.54% 4.89%
(1) Fully tax equivalent yields are calculated assuming a 35% tax rate.
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- --------------------------------------------------------------------------------
SELECTED QUARTERLY INCOME STATEMENT DATA
1995 1994
---------------------------------- ---------------------
(in thousands of dollars, except per share amounts) IIIQ IIQ IQ IVQ IIIQ
- ------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME........................ $377,859 $360,203 $342,397 $318,875 $301,724
TOTAL INTEREST EXPENSE....................... 191,281 180,313 166,188 141,625 118,173
-------- -------- -------- -------- --------
Net Interest Income.......................... 186,578 179,890 176,209 177,250 183,551
Provision for loan losses.................... 7,187 4,787 4,608 2,488 1,113
-------- -------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES.................. 179,391 175,103 171,601 174,762 182,438
-------- -------- -------- -------- --------
Service charges on deposit accounts ......... 21,109 20,487 22,514 19,417 19,628
Mortgage banking ............................ 9,678 7,959 10,641 8,630 9,246
Trust services .............................. 7,312 7,586 8,055 6,686 6,732
Credit card fees ............................ 5,939 5,467 4,899 5,873 5,846
Securities gains (losses).................... 2,315 6,379 60 (55) 648
Investment product sales .................... 2,159 1,971 1,699 1,307 1,694
Other ....................................... 12,692 10,021 11,087 9,012 9,999
-------- -------- -------- -------- --------
TOTAL NON-INTEREST INCOME ................... 61,204 59,870 58,955 50,870 53,793
-------- -------- -------- -------- --------
Salaries .................................... 54,391 54,974 56,108 54,314 57,740
Commissions ................................. 3,074 1,932 1,688 1,523 3,547
Employee benefits ........................... 13,958 15,419 15,661 13,091 13,388
Net occupancy ............................... 10,039 10,079 10,686 9,962 10,593
Equipment ................................... 9,470 9,593 9,802 10,151 9,651
FDIC insurance .............................. 5,807 6,549 6,536 6,218 5,992
Printing and supplies ....................... 3,508 3,362 3,572 3,911 3,734
Credit card ................................. 3,398 3,196 3,118 3,426 3,777
Advertising ................................. 3,149 2,912 3,031 4,152 2,684
Legal and loan collection ................... 1,857 1,905 2,123 3,370 1,719
Other ....................................... 30,199 32,477 33,384 36,498 38,531
-------- -------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE .................. 138,850 142,398 145,709 146,616 151,356
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES .................. 101,745 92,575 84,847 79,016 84,875
Provision for income taxes .................. 35,808 34,414 29,985 26,520 28,973
-------- -------- -------- -------- --------
NET INCOME .................................. $ 65,937 $ 58,161 $ 54,862 $ 52,496 $ 55,902
======== ======== ======== ======== ========
PER COMMON SHARE (1)
Net income ................................ $ 0.48 $ 0.42 $ 0.39 $ 0.39 $ 0.41
Cash dividends declared ................... $ 0.20 $ 0.19 $ 0.19 $ 0.19 $ 0.19
FULLY TAX EQUIVALENT MARGIN:
Net Interest Income ......................... $186,578 $179,890 $176,209 $177,250 $183,551
Tax Equivalent Adjustment (2) ............... 1,635 1,723 1,885 2,042 2,211
-------- -------- -------- -------- --------
Tax Equivalent Net Interest Income .......... $188,213 $181,613 $178,094 $179,292 $185,762
======== ======== ======== ======== ========
(1) Adjusted for the five percent stock dividend distributed July 31, 1995.
(2) Calculated assuming a 35% tax rate.
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PART II. OTHER INFORMATION
In accordance with the instructions to Part II, the other specified items in
this part have been omitted because they are not applicable or the information
has been previously reported.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3. ( i ) 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.
( ii ) By Laws -- previously filed as Exhibit 3(b)
to Annual Report on Form 10-K for the year ended
December 31, 1987, and incorporated herein by
reference.
4. Instruments defining the Rights of Security
Holders:
Reference is made to Articles Fifth, Eighth and
Tenth of Articles of Restatement of Charter,
previously filed as Exhibit 3(i) to Form 10-K for
the year ended December 31, 1993, and incorporated
herein by reference. Also, reference is made to
Rights Plan, dated February 22, 1990, previously
filed as Exhibit 1 to Registration Statement on
Form 8-A, and incorporated herein by reference and
to Amendment No. 1 to the Rights Agreement, dated
as of August 16, 1995, previously filed as Exhibit
4(b) to Form 8-K filed with the Securities and
Exchange Commission on August 28, 1995, and
incorporated herein by reference. Instruments
defining the rights of holders of long-term debt
will be furnished to the Securities and Exchange
Commission upon request.
11. Computation of Earnings Per Share
27. Financial Data Schedule
(b) Reports on Form 8-K
1. A report on Form 8-K, dated July 12, 1995, was
filed under report item numbers 5 and 7,
concerning Huntington's results of operations for
the quarter ended June 30, 1995. A second report
on Form 8-K , dated August 16, 1995, was filed
under report item numbers 5 and 7, concerning
Amendment No. 1 to the Rights Agreement between
Huntington and the Huntington Trust Company, N.A.,
as Rights Agent.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Huntington Bancshares Incorporated
----------------------------------
(Registrant)
Date: November 14, 1995 /s/ Ralph K. Frasier
-----------------------------------
Ralph K. Frasier
General Counsel and Secretary
Date: November 14, 1995 /s/ John D. Van Fleet
-----------------------------------
John D. Van Fleet
Senior Vice President, Corporate
Controller, and Principal Accounting
Officer (Chief Accounting Officer)
27